What changed
This master circular updates and consolidates all prior instructions on advance management issued up to June 30, 2010, replacing the July 1, 2009 version. It retains the turnover-based working capital assessment method for small borrowers and clarifies prudential guidelines on restructuring and specific lending activities.
What it means for you
UCBs must ensure their board-approved credit policies align with the consolidated norms, especially for working capital assessment and credit administration. The circular reinforces the need for transparent lending practices, regular stock verification, and adherence to exposure limits, impacting how banks structure and monitor advances.
What you must do
- Review and update your board-approved credit policy to align with the consolidated master circular.
- Ensure working capital assessment for borrowers with limits up to ₹1 crore (non-SSI) and ₹5 crore (SSI) uses the turnover method with 20% minimum bank finance.
- Implement regular monitoring of stock and receivable statements, with periodic physical verification by officials.
- Adhere to prudential guidelines on restructuring and ensure proper documentation for all advances.
Who it affects
All Primary (Urban) Co-operative Banks, Credit officers and risk management teams at UCBs, Borrowers seeking working capital limits from UCBs
What is the turnover method for working capital assessment?
For borrowers with fund-based limits up to ₹1 crore (non-SSI) or ₹5 crore (SSI), working capital is assessed at 25% of projected annual turnover. The borrower contributes 5% of turnover as net working capital, and the bank provides a minimum of 20% of turnover as finance.