What changed
RBI issued a master circular consolidating all instructions on advance management for UCBs up to June 30, 2013, replacing the previous circular of July 2, 2012. The circular includes updated guidelines on working capital assessment, credit administration, restructuring of advances, and specific lending activities. It also incorporates annexes on valuation of properties, relief measures, and reporting formats for doubtful accounts and wilful defaulters.
What it means for you
UCBs must now follow a single, updated reference document for all advance-related instructions, ensuring uniformity and compliance. The working capital norms for small borrowers (turnover up to ₹1 crore for non-SSI and ₹5 crore for SSI) remain unchanged, requiring banks to assess at 25% of projected turnover with a minimum 20% bank finance. Banks must also adhere to prudential restructuring guidelines and report wilful defaulters and large doubtful accounts as specified.
What you must do
- Adopt board-approved transparent credit policies covering all economic activities as per RBI guidelines.
- Assess working capital for small borrowers using the turnover method (25% of projected turnover, 20% bank finance) or traditional method, whichever is higher.
- Ensure regular monitoring of stock and receivable statements, with periodic physical verification.
- Comply with prudential restructuring guidelines and report doubtful/loss accounts of ₹1 crore and above, along with wilful defaulters, in the prescribed format.
- Update internal systems to reflect the consolidated master circular and withdraw any outdated instructions.
Who it affects
Primary (Urban) Co-operative Banks (UCBs), Borrowers of UCBs, especially small and SSI units, Credit officers and risk management teams at UCBs
What is the working capital assessment method for small borrowers under this circular?
For borrowers other than SSI units requiring fund-based limits up to ₹1 crore, and SSI units up to ₹5 crore, working capital is assessed at 25% of projected annual turnover. The borrower contributes 5% as net working capital, and the bank provides at least 20% of turnover as finance.
Are UCBs required to report wilful defaulters?
Yes, the circular includes a format for reporting wilful defaulters and borrowal accounts classified as doubtful or loss with outstanding of ₹1 crore and above. These reports must be submitted as per the annex.
Does this circular change the prudential restructuring guidelines for UCBs?
The circular consolidates existing prudential guidelines on restructuring of advances in Annex 4. UCBs must follow these guidelines, which were updated as of June 30, 2013, but no new substantive changes were introduced beyond consolidation.