Friday, November 13, 2015

RELIEF MEASURES BY BANKS IN AREAS AFFECTED BY NATURAL CALAMITIES

In terms of National Disaster Management Framework, there are two funds constituted viz. National Disaster Response Fund and State Disaster Response Fund for providing relief. This framework currently recognizes 12 types of natural calamities viz. cyclone, drought, earthquake, fire, flood, tsunami, hailstorm, landslide, avalanche, cloud burst, pest attack and cold wave/frost. Ministry of Agriculture is the nodal ministry for 4 of these calamities i.e. drought, hailstorms, pest attack and cold wave/frost, while for remaining 8 calamities Ministry of Home Affairs is required to make appropriate arrangements.

The banks’ contribution in providing relief relates to rescheduling of existing loans and sanctioning of fresh loans. The precise details regarding such assistance will depend on the situation, their operational capabilities and the actual needs of the borrowers.

INSTITUTIONAL FRAMEWORK

Establishing Policy/Procedures for dealing with Natural Calamities
Banks should have a blueprint of action for such eventualities so that relief and assistance is provided immediately with utmost speed. Required instructions should also be available with the State Government authorities and all the District Collectors so that everyone is clear about the action that would be taken by the banks in the affected areas.

Discretionary Powers to Divisional / Zonal Manager of banks
Zonal Managers of banks should be vested with certain discretionary powers so that they do not have to seek fresh approvals to the line of action agreed to by the DCC/SLBC.

Meetings of State Level Bankers’ Committee/District Consultative Committee
In the event of the calamity covering entire State/ larger part of a State, the convener of the SLBC will convene a meeting immediately to evolve a coordinated action plan for implementation of the relief programme in collaboration with the State Government authorities. However, in case the calamity has affected only a small part of the State, the conveners of the DCC should convene the meeting immediately.

Wherever the calamity is very severe, the relief measures may be reviewed periodically in the weekly/fortnightly meetings of specially constituted Task Forces or sub Committees of the SLBC till the conditions are normalized.

Declaration of Natural Calamity
Declaration of natural calamities is in the domain of the Central/State Governments. There are no uniform procedures for declaration of natural calamity. Nevertheless, the common thread to extend relief measures is that the crop loss assessed should be 33%  or more.


Distinction between Drought and Other Calamities
So far as Drought is concerned, a couple of States are following the advanced methodology based on the data of rainfall, crop area sown, vegetation index, moisture adequacy index along with other parameters as suggested in the ‘Manual for Drought Management’ released by the Ministry of Agriculture. In the circumstances, it is considered appropriate to make distinction between (i) Drought (which is generally a slowly evolving calamity and can aggravate or reverse as per the rainfall during the period; and (ii) Other Calamities which are physiologically different from Drought and are of a sudden nature;

Drought : As the ‘Manual for Drought Management’ commends certain guidelines for the State Governments to assess the situation, the State Governments may either:
i)                   adopt the procedures indicated in the Manual and based on the various parameters, decide on the declaration of drought. Such declarations should elaborately indicate the data/procedures relied upon and the extent of crop loss.
ii)                Conduct Crop Cutting Experiments as prescribed in the National Agriculture Insurance Programme, and declare the ‘Annewari’ (by whatever name called) indicating the crop-wise percentage loss in the certificates issued. State Governments need to submit detailed taluka/block/district wise crop loss data to Central Government if they seek any funds for relief work

Other Calamities : The loss should be assessed through crop cutting experiments indicating that the crop loss in the particular area has been 33% or more to trigger reschedulement of loans.
In case of extreme situations when it is largely clear that most of the standing crops, land and other assets have suffered  wide-spread damage, the State Government/District Authorities in the SLBC/DCC meeting may explain the reasons for taking the decision to provide relief  on the basis of eye estimate alone.

In both the cases, however, DCCs/SLBC have to satisfy themselves that the crop loss has been 33% or more before acting on these pronouncements.

Restructuring/Rescheduling of Existing Loans
Agriculture Loans

Short-term Production Credit (Crop Loans)
All short-term loans, except the overdue ones, will be eligible for restructuring. The principal and interest due in the year of occurrence of the calamity may be converted into term loan.

The repayment period will depend on the severity of calamity and its recurrence, the extent of loss of economic assets and distress caused.
·        Max of  2 yrs (including moratorium of 1 yr) if the loss is between 33% and 50%.
·        Max of  5 yrs (including moratorium of 1 yr) if the loss is more than 50%.
Moratorium of at least 1 year should be considered and the banks should not insist for additional collateral for such loans.

Agriculture Loans - Long term (Investment) Credit
The existing installments will have to be rescheduled keeping in view the repaying capacity of the borrowers and the nature of natural calamity :
a)  Where only crop for that year is damaged and not the productive assets.
b)   Where the productive assets are partially or totally damaged and borrowers are in need of a new loan.

Under category (a), banks may reschdeule the repayment during the year of natural calamity and extend the loan period by one year. Installments defaulted wilfully will not be eligible for rescheduling. The banks may also have to postpone payment of interest.

Under category (b), rescheduling may be determined on the basis of the overall repaying capacity less the subsidies, compensation, etc. While the total repayment period will differ on case-to-case basis, generally it should not exceed 5 years.

Other Loans

A view needs to be taken by SLBC/DCC whether a general reschedulement of all other loans is required. If such a decision is taken, banks will have to assess the requirement of the individual borrowers on case to case basis.


Asset Classification

a)    The restructured portion may be treated as current dues and need not be classified as NPA. Nevertheless, banks are required to make higher provisions for such restructured standard advances.

b)    The classification of the remaining amount, will be governed by the original terms and conditions.

c)   Additional finance, if any, may be treated as “standard asset” and its future asset classification will be governed by the terms and conditions of its sanction.

The benefit of asset classification of the restructured accounts will be available only if the restructuring is completed within 3 months from the date of natural calamity. In the event of extreme calamity, banks should immediately approach RBI giving the reasons for seeking extension.

The accounts that are restructured for the second time or more on account of natural calamities would retain the same asset classification category on restructuring. All other restructuring norms, however, will apply.

Utilisation of Insurance Proceeds

While restructuring the loans in the affected areas, banks should also take into account the insurance proceeds, if any, receivable from the Insurance Company. They should adjust these proceeds to ‘restructured accounts’. It should be done in cases where they have granted fresh loans to the borrowers. However in view of the difficulties faced by the farmers, banks are advised to consider restructuring and granting fresh loans without waiting for the claim, where there is reasonable certainty of receipt.(Updated as on 30/06/16)

Sanctioning of Fresh Loans

Once the decisions on the rescheduling is taken, pending such conversion of short-term loans, banks may grant fresh crop loans based on the scale of finance for the particular crop and the cultivation area.

Bank assistance in relation to agriculture and allied activities would also be needed for long term loans. Similarly, affected rural artisans, self-employed persons, micro and small industrial units, etc. may require credit to sustain their livelihood. Banks may assess and decide on the quantum of fresh loans to be granted on their own.

Banks may also grant consumption loans up to Rs. 10,000/- to existing borrowers without any collateral. The limit may be enhanced at the discretion of the bank.

Terms and Conditions

Guarantee, Security and Margin
Credit should not be denied for want of personal guarantees. Where the bank’s existing security has been eroded because of the calamity, assistance will not be denied merely for want of additional fresh security.

Where the crop loan (which has been converted into term loan) was earlier given against personal security/ hypothecation of crop, he should not be denied conversion facility merely on the ground of his inability to furnish land as security. If the borrower has already mortgaged his land, the bank should be content with a second charge. Banks should not insist on third party guarantees for providing conversion facilities.

Where land is taken as security, in the absence of original title records, a certificate issued by the Revenue Department officials may be accepted for financing farmers who have lost proof of their titles.

Margin requirements may be waived or the grants given by the concerned State Government may be considered as margin.

Rate of Interest

The rates of interest will be as per the directives of  RBI. In respect of current dues in default, no penal interest will be charged. The banks should also suitably defer the compounding of interest charges. Banks may consider waiving penal interest, already charged in regard to the loans converted/rescheduled.

Depending on the nature and severity of natural calamity, the SLBC/ DCC shall take a view on the interest rate concession so that there is uniformity in approach among banks in providing relief.

Other Ancillary Relief Measures

Know Your Customer Norms - Relaxations
Where the affected persons are not able to provide standard identification documents, banks may resort to non-documentary verification methods. They can open a small account based on the photograph and signature or thumb impression in front of the bank official. The balance in such account should not exceed Rs. 50,000/- or the amount of relief granted (whichever is higher) and the total credit in the account does not exceed Rs. 1,00,000/- or the amount of relief granted, (whichever is higher) in a year.

Providing access to Bank Accounts
Where the bank branches are affected, banks may operate from temporary premises, (including satellite offices, extension counters or mobile banking facilities) under advice to RBI. For continuing the temporary premises beyond 30 days, specific approval may be obtained from RBI.

To satisfy customer’s immediate cash requirements, banks may consider putting in place arrangements for allowing their customers to access other ATM networks, Mobile ATMs, etc.

banks may at their discretion allow waiving ATM fees, increasing ATM withdrawal limits; waiving overdraft fees; waiving early withdrawal penalties on time deposits; waiving late fee for credit card/other loan installment payments and giving option to credit card holders to convert their outstanding balance to EMIs repayable in 1 or 2 years. Besides, all charges debited to the farm loan account other than the normal interest may also be waived.

Applicability of the guidelines in the case of riots and disturbances

Whenever RBI advises the banks to extend rehabilitation assistance to the riot affected persons, the aforesaid guidelines may broadly be followed by banks. However, only persons, duly identified by the State Administration  are to be provided such assistance.

The District Collector, on occurrence of the riots/ disturbances, may ask the Lead Bank Officer to convene a meeting of the DCC, if necessary and submit a report to the DCC on the extent of damage caused to life and property. If the DCC is satisfied with the extent of loss, the relief may be extended to the affected people.

Where there are no DCCs, the District Collector may request the convener of the SLBC to convene a meeting of the bankers to consider extension of relief to the affected persons. A copy of the proceedings of the meeting may be forwarded to the concerned Regional Office of the Reserve Bank of India.


Based on RBI Circular dt 01/07/15. Updated upto 30/06/16. Please visit www.rbi.org.in for any further clarification if required…..       Poppy