What changed
Previously, only Primary Agricultural Credit Societies (PACS) got the benefit where only the irregular facility under on-lending was classified as NPA. Now, this concession is extended to all other credit societies under the on-lending system. Direct loans and advances to a borrower remain unchanged: if one account becomes NPA, all loans to that borrower become NPA.
What it means for you
StCBs and CCBs can now apply the selective NPA tagging to all credit societies they lend to for on-lending, reducing the risk of cascading NPAs. This eases provisioning pressure for banks when only one facility turns irregular. However, for direct loans, the existing rule of tagging all accounts as NPA if one defaults continues, so banks must maintain strict monitoring.
What you must do
- Update internal NPA classification policies to apply the selective tagging rule to all credit societies under on-lending, not just PACS.
- Ensure clear segregation of on-lending advances from direct loans in your systems to avoid misclassification.
- Train credit officers on the distinction: only the irregular facility under on-lending gets NPA tag; direct loans still follow the one-default-all-NPA rule.
- Review existing loan portfolios to identify any on-lending accounts that may benefit from this revised treatment.
Who it affects
State Co-operative Banks (StCBs), Central Co-operative Banks (CCBs), All credit societies receiving on-lending funds
Does this circular change NPA rules for direct loans?
No. For direct loans and advances, the existing rule remains: if one loan account becomes NPA, all loans to that borrower are classified as NPA.
Which entities are now covered under the on-lending concession?
All credit societies under the on-lending system, in addition to Primary Agricultural Credit Societies (PACS) which were already covered.