What changed
RBI issued a consolidated master circular replacing the July 1, 2015 version, incorporating all instructions up to April 7, 2022. It streamlines working capital assessment: for borrowers other than micro/small enterprises needing up to ₹1 crore, and micro/small enterprises needing up to ₹5 crore, banks can use projected turnover method at 25% of turnover (borrower contributes 5%, bank at least 20%). For larger limits, traditional assessment applies.
What it means for you
UCBs now have a single reference document for advance management, reducing compliance confusion. The turnover-based working capital method eases credit access for small borrowers but requires banks to verify turnover via sales tax returns or audited accounts. Banks must ensure drawals are backed by drawing power and monitor stock/receivables regularly.
What you must do
- Update internal credit policies to align with the consolidated master circular, especially working capital assessment norms.
- Train loan officers on the turnover-based method for eligible borrowers and ensure proper documentation of projected turnover.
- Strengthen monitoring of stock and receivables statements, with periodic physical verification.
- Review and update reporting formats for doubtful/loss accounts and wilful defaults as per Annex 3.
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 new working capital assessment method for small borrowers?
For borrowers other than micro/small enterprises needing up to ₹1 crore, and micro/small enterprises needing up to ₹5 crore, banks can assess working capital 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.
Does this circular change any prudential norms on restructuring?
The circular consolidates existing prudential guidelines on restructuring of advances as listed in the appendix, but does not introduce new restructuring rules. Banks must follow the instructions as updated up to April 7, 2022.
What are the reporting requirements for wilful defaulters?
UCBs must report cases of wilful default of ₹25 lakh and above, and borrowal accounts classified as doubtful/loss with outstanding of ₹1 crore and above, in the format specified in Annex 3 of the master circular.