What changed
This master circular consolidates and updates all prior instructions on advance management for UCBs issued up to June 30, 2011, replacing the July 1, 2010 version. It includes revised guidelines on working capital assessment, credit administration, restructuring of advances, and specific lending activities. The circular also incorporates annexes on property valuation, relief measures, and wilful defaulter reporting.
What it means for you
UCBs must now strictly follow the consolidated framework for credit dispensation, including turnover-based working capital assessment for borrowers with limits up to ₹1 crore (other than SSI) and ₹5 crore (SSI). Banks need to ensure board-approved credit policies, regular stock verification, and adherence to prudential restructuring norms. Non-compliance could lead to regulatory scrutiny.
What you must do
- Review and update your board-approved credit policy to align with this master circular's guidelines.
- Implement turnover-based working capital assessment for eligible borrowers (25% of projected turnover, with 5% borrower contribution and 20% bank finance).
- Ensure regular submission and verification of monthly stock and receivable statements from borrowers.
- Adopt prudential restructuring guidelines as per Annex 4 for any advance restructuring.
- Report wilful defaulters and suit-filed accounts (₹1 crore and above) in the prescribed format (Annex 3).
Who it affects
All Primary (Urban) Co-operative Banks (UCBs), Borrowers seeking fund-based working capital limits from UCBs, Credit officers and risk management teams at UCBs
What is the turnover method for working capital assessment?
For borrowers with fund-based limits up to ₹1 crore (other than SSI) or ₹5 crore (SSI), working capital is assessed at 25% of projected annual turnover. The borrower contributes 5% as net working capital, and the bank provides finance at a minimum of 20% of turnover.
Are UCBs allowed to use traditional methods instead of turnover method?
Yes, UCBs can choose either the turnover method or traditional method. If the traditional method gives a higher requirement, the bank may sanction the higher amount, but must ensure the borrower is financed up to the extent of minimum 20% of projected annual turnover.
What are the reporting requirements for wilful defaulters?
UCBs must report borrowal accounts classified as doubtful or loss, with suit filed and outstanding of ₹1 crore and above, in the format given in Annex 3. Wilful defaulters must also be reported in the same annex.