RPCD.No.PS.BC.6/PS.126-84                    

August 2, 1984

The Chairman/Managing Director
All Banks (Public & Private Sector)

Dear Sir,

Revised Guidelines for Relief Measures by Banks in Areas Affected by Natural Calamities

Please refer to the Standing Guidelines regarding measures to be taken by banks to provide relief and rehabilitation assistance to people in areas affected by natural calamities evolved by the Government of India vide their letter F.No.24(20)/79-ESA dated 6 October 1979 addressed to banks in the Public Sector and a copy thereof forwarded to banks in the private sector under cover of our circular DBOD.No.BP.BC.180/C453(G)-79 dated 18 December 1979.

2.        We advise that with a view to suggesting improvement in the Standing Guidelines, two Study Groups-one for short term loans and another for term-loans were constituted by the Committee on Agricultural Lending by Commercial Banks (CALCOB) in 1980. The above guidelines have been revised after considering the views of CALCOB on the reports submitted by the two Study Groups which have been approved by the Ministry of Finance Banking Division, Government of India. A copy of the revised guidelines is attached herewith.

3.        Banks are advised to follow the revised guidelines in providing relief and rehabilitation assistance to the people affected by natural calamities such as floods, droughts, cyclones, etc. and issue suitable instructions to their offices/ branches to ensure effective implementation of the guidelines at field level.

4.         Kindly acknowledge receipt.

 

Yours faithfully,

Sd/-

(Kum.D.R. Hiranandani)
Joint Chief Officer

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Guidelines for relief measures by banks in areas affected by natural Calamities

Periodical but frequent occurrence of droughts, floods, cyclones, tidal waves and other natural calamities cause heavy toll of human life and wide spread damage to economic pursuits of human beings in one area or the other of our country. The devastation caused by such natural calamities call for massive rehabilitation efforts by all agencies. The State and local authorities draw programmes for economic rehabilitation of the affected people. The developmental role assigned to the commercial banks and co-operative banks, warrants their active support in revival of the economic activities.

2.        Since the area and time of occurrence and intensity of natural calamities cannot be anticipated, it is imperative that the banks have a blue-print of action in such eventualities so that the required relief and assistance is provided with the utmost speed and without any loss of lime. This presupposes that all the branches of commercial banks and their Regional and Zonal Offices will have a set of standing instruction, spelling out the action that the branches will have to initiate in the calamity affected areas immediately after the requisite declaration by the district/State authorities. It is necessary that these instructions should also be available with the State Government authorities and all the District Collectors so that all concerned are clear as to the action that would be taken by the banks' branches in the affected areas.

3.        The precise details in regard to the provision of credit assistance by the commercial banks will depend on the requirements of the situation, their own operational capabilities and the actual needs of the borrowers. This can be decided by them in consultation with the district authorities.

4.        Nevertheless, to enable banks to take uniform and concerted action expeditiously, particularly to provide the financial assistance to agriculturist, small scale industrial units, artisans, small business and trading establishments affected by natural calamities, the following guidelines are commended,

5.        To facilitate co-ordination and expeditious action by the financing institutions, the convenors of the concerned district consultative committees of the affected districts should convene a meeting immediately after the occurrence of natural calamities. In the event of the covering a larger part of the State, the convenors of the State Level Bankers' Committee will also convene a meeting immediately to evolve a coordinated programme of action for implementation of the programme in collaboration with the State/district authorities. While determining the quantum of assistance required by a person affected by the natural calamities the banks may take into consideration the assistance/subsidy received by him from the State Government and/or other agencies.

6.        Divisional/Zonal Managers of commercial banks should he vested with certain discretionary powers so that they do not have to seek fresh approvals from their Central Offices to the line of action agreed to by the District/State Level Bankers' Committees. For example such discretionary powers would be necessary in respect of adoption of scale of finance, extension of loan periods, sanction of new loans keeping in view the total liability of the borrower (i.e. arising out of the old loan where the assets financed are damaged or lost on account of natural calamity as well as the new loan for creation/repair of such assets, margin, security, etc.).

Identification of the beneficiaries:

7.        The bank branches should obtain from the concerned Govt. authorities list of affected villages within their areas of operation. From among the identified persons, assessment of loss sustained by the existing constituents of the banks would be easier. In the case of fresh borrowers, however discreet enquiries should be made in this regard and assistance of the Govt. authorities should be sought wherever available for ascertaining genuineness of their requirements. For providing conversion facilities in respect of crop loans, procedure for identification of areas where such facilities have to be provided has been indicated under crop loans in paragraph 12 below.

Coverage:

8.        Each branch will provide credit assistance not only to its existing borrowers but also to other eligible persons within its command area provided they are not covered by any other financial agency.

9.        Credit requirements of the borrowing members of the co-operatives will be met by the Primary Agricultural Co-operative Societies (PACs)/LAMPS/FSS etc. Branches of commercial banks may, however, finance the non-borrowing members of the cooperative societies for which the latter will issue the usual 'No objection' certificates speedily.

Priorities:

10.        Immediate assistance including finances would be needed for protecting and rejuvenating standing crops/orchards/plantations etc. Equally important will be repair and protection of livestock sheds, grains and fodder storage/structures, drainage, pumping, and other measures and operations to repair pumpsets, motors, engines and other necessary implements. Subject to seasonal requirements next crop financing would be taken up.

Agricultural loans:

11.        The bank, assistance in relation to agriculture would be needed in the form of short-term loans for the purpose of raising crops and term loans for purchase of milch/draught animals, repairs of existing tubewells and pumpsets, digging of new tubewells and installation of new pumpsets, land reclamation, silt/sand removal, protection and rejuvenation of standing crops/ orchard/plantations, etc. repairs and protection of livestock sheds, grain and fodder storage structures, etc.

Crop Loans:

12.        In the case of natural calamities, such as droughts, floods etc., Government authorities would have declared annewari to indicate the extent to which the crops are damaged. However, where such declaration has not been made banks should not delay in providing conversion facilities and the District Collector's certificate that crop yield is below 50%. The normal yield supported by the views of the DCC in the matter for which a special meeting may have to be convened, should be sufficient for invoking quick relief arrangements. The certificate of the Collector should be Issued crop-wise covering all crops, including food-grains. Issuing of such certificates in respect of cash crops, may however, be left to the discretion of the Collector.

13.        Guidelines for providing conversion facilities The following guidelines are suggested for providing conversion facilities,

a)    Short-term production loans may be converted into term loans on the due date of repayment.

b)    The repayment period of the converted term loans may be fixed having regard to the overall repaying capacity of the borrower taking into account his various commitment on account of rephasement/rescheduling of earlier term loan, repayment schedule for new term loan, if any, repayment date/s of fresh crop loan for the current ensuing season and the indemnity if any, available to borrowers from the GICI. Depending upon the intensity of crop loss/calamity and the repaying capacity of the borrower the converted short term loan may be fixed for a period upto 3 years and in exceptional cases, particularly for small and marginal farmers the period may be extended upto 5 years. If there are two successive natural calamities eroding the repaying capacity of the borrower, banks can grant extensions of the converted loans upto a maximum period of 5 years and in exceptional cases for small and marginal farmers or in cases of 3 successive crop failures, for other farmers also upto a maximum period of 7 years taking into account the viability of their operations. In case however, the debt burden is still beyond the repaying capacity of the borrower, conversion for longer periods upto 10 years may also be considered especially in cases when Govt. assistance for the purpose, as in the case of co-operatives, is not available.

As far as possible, it would be preferable to prescribe common due dates for payment of instalments of the converted loan and extended term loans.

c)    All short-term loans, except those which are overdue at the time of occurrence of natural calamity, should be eligible for conversion facilities.

d)    Only principal amount of the short term loan should be converted into term loan. In the case of small and marginal farmers, interest on short term loan which has been converted may be postponed and recovered in full at the time of the next harvesting/season. There should be no compounding of the interest outstanding on the short term loan in such cases.

For oilier farmers who have an established capacity to pay the interest due on short term loans, recovery of such interest may be made a pre-condition for the grant of conversion facilities.

e)    The rates of interest on the converted loans should be the same as that charged on short-term loans.

f)    Pending finalisation of conversion/rescheduling operations which might take time, the eligible cultivators will be disbursed crop loans for the current as also ensuing seasonal operations.

14.        To be effective, the assistance to farmers will have to be disbursed with utmost speed. For this purpose the lead bank and the district authorities concerned should evolve a procedure whereby identification of borrowers, issuance of certificates regarding Government/co-operative bank dues, title of the applicant to land etc. is secured simultaneously.

Possibilities of organising credit camps where Block Development and Revenue officials. Co-operative Inspectors, Panchayat Pradhans etc. could help finalise the applications on the spot could be explored in consultation with the district authorities where such credit camps are being organised. The State Government will also arrange with the Collectors to issue an executive order for the following officers or their authorised representatives to assume respective duties and responsibilities as envisaged under implementation of credit camps programme:

1.    Block Development Officer
2.    Co-operative Inspector
3.    Revenue Authority/Village Revenue Assistant
4.    Bank official operating in the area
5.    PACS/LAMPS/FSS
6.    Gram Panchayat Pradhan

In order to avoid delay, the forms in which the State Government Officers have to give certificates at the Credit Camps may be got printed in sufficient numbers by the respective District Magistrates.

15.        In considering loan applications for the ensuing crop season the current dues of the applicants to the State Government may be ignored, provided the State Government declare a moratorium for a sufficiently long period on all amounts due to the government as on the date of occurrence of the natural calamity.

Scale of Finance:

16.        Scale of finance in respect of different crops will be uniform in a district. The scale, will be fixed taking into account the prevailing conditions and norms presently adopted by different lending agencies. In fixing the scales, minimum consumption needs of borrowers, will be taken into account. The concerned District Magistrate and Managers of branches of banks operating in the district would be advised to adopt the scales so laid down.

Development Loans - Investment Costs:

17.        The existing term loan instalments will have to be rescheduled/postponed keeping in view the repaying capacity of the borrowers and the nature of natural calamity viz..

i)    Droughts, floods or cyclones etc. where only crop for that year is damaged and productive assets are not damaged.

ii)    Flood or cyclones where the productive assets are partially or totally damaged and borrowers are in need of a new loan.

In regard to natural calamity under category (i) the banks may postpone the payment of instalment during the year of natural calamity and extend the loan period by one year except those (subject to the following exceptions).

a)    Those cultivators who had not effected the development or investment for which the loan was obtained or had disposed of the equipments or machinery purchased out of the loan.

b)    Those who are income tax payers.

c)    In the case of drought those who are having perennial sources of irrigation except where water supply was not released from canals or irrigation facility was not available from other perennial sources.

d)    Tractor owners except in genuine cases where there is loss of income and consequential impairment of their repaying capacity.

Under this arrangement the instalments defaulted willfully in earlier years will not be eligible for rescheduling. The banks may have to postpone payment of interest by borrowers. While fixing extension of period the commitment towards interest may also be taken into account.

In regard to category (ii) i.e. where the borrower's assets are totally damaged, the rescheduling by way of extension of loan period may be determined on the basis of overall repaying capacity of the borrower including his repayment commitment on the old term loans and towards the conversion loan (medium term loan) on account of postponing of repayment of short-term loans and the fresh crop loan. In such cases, the repayment period of total loan (including interest liability) less the subsidies received from the Government agencies, compensation available under the insurance schemes, etc. may be fixed having regard to the repaying capacity of the borrower subject to a maximum of 15 years, depending upon the type of investment as well as the economic (useful) life of the new asset financed, except in cases where loan relate to land shaping, sill removal, soil conservation etc. Thus in the case of loans for agricultural machineries. viz. pumpsets and tractors, it should be ensured that the total loan period does not generally exceed 9 years from the date of advance.

18.        Apart from rescheduling existing term loans, banks will provide to affected farmers diverse type of term loans for developmental purposes, such as:

a)    Minor irrigation: Term loans for repairs to wells, pumpsets, etc. which has to be quantified after assessing the extent of damage and estimated cost of repairs.

b)    Bullocks: Where the draught animals have been washed away. requests for fresh loans for a new pair of bullocks/he-buffaloes may be considered. Where loans are given for purchase of new cattle or where farmers have bought milch cattle reasonable credit may be given for purchase of fodder or feed.

c)    Milch Cattle: Term loan for milch cattle will be considered depending upon breed, milk yield, etc. the loan amount will include repairs to shelters, purchase of equipment and feed.

d)    Insurance : Considering the proneness of areas to cyclones and other natural calamities, the cattle should he insured instead of Risk-cum-Mortality Fund established for similar purpose in other safe area. Milch animals/draught cattle should be branded for identification as also to serve as safeguard against their re-sale by the beneficiaries.

e)    Poultry and Piggery: For poultry, piggery and goatery, loans will be considered as per norms of different banks .

f)    Fisheries: In the case of borrowers who have lost their boats, nets and other equipments, rephrasing of payment of existing dues may be allowed on merits. Fresh loans may be granted to them with loan maturity of 3/4 years. Loans for repairs to boats of the existing borrowers may also be considered. In cases where subsidy is available, the quantum of loan should be reduced to that extent. In States where substantial subsidy towards the cost of boats, nets, etc. is likely to be available, proper co-ordination with the concerned State Government Department in this regard must be ensured. Apart from complying with other norms and conditions for grant of advances, assistance may be sought from the Department of Fisheries, which may be expected to take measure which would enable banks to proceed with financing for this purpose. The boats should be comprehensively insured against all risks including natural calamities as far as possible.

Land Reclamation:

19.         It is likely that financial assistance will be required for reclamation of lands covered by sand casting. Normally, sand/silt deposits upto 3 inches will either be ploughed back into soil or removed by the farmers without any need for financial assistance. Loan applications will, however,  be considered in cases where immediate cultivation is possible and reclamation (removal of sand) is necessary. Wherever reclamation finance for saline lands is warranted , the cost of reclamation not exceeding 25% of the scale allowed for crop loan may be advanced along with the crop loan.

20.        For other activities like Sericulture, Horticulture, Floriculture, Betelvine growing etc., banks will advance loans for investment and working capital under their existing schemes and follow usual procedures laid down by them. The working capital finance may be provided until such period the income from the plantation is adequate to take care of such expenditure.

21.        However, additional need based crop loans, if necessary, would be given for revitalisation/ rejuvenation of standing crop/orchards based on individual assessment.

22.        The question relating to procurement and proper arrangement for supply of adequate quantity of seeds and various types of fertilisers will have to be discussed with the State Government and District Administration in each district. Similarly, for the purpose of ensuring adequate irrigation facilities, the State Government will undertake repair, to Government owned shallow and deep tubewells and River Lift Irrigation System damaged by floods and other natural calamities. As for fisheries, the fisheries department of the Stale Government will make arrangement to obtain fingerlings/and supply them to those who wish to revive tank fishing with bank finance,

23.        The State Government will have to consider preparation of schemes which would enable commercial banks to obtain refinance at NABARD rates for amounts advanced by banks for the said purpose.

Consumption Loans:

24.    In view of the damage to crops and property, existing borrowers need consumption loan for sustenance till the flow of Income is resumed. For this purpose, Rs. 75/- is admissible for 'general consumption'. In view of the special situation obtaining in the affected area and the need for consumption loan for general purposes, the banks may extend for 'general consumption' loan upto Rs. 250/- to be released in suitable instalments over the period upto the harvesting of the current or the next crop depending on the devastation caused by the natural calamity or proper assessment in individual cases.

Artisans and Self-employed:

25.        For all categories of rural artisans and self employed persons including handloom weavers, loans will be needed for repairs of sheds, replacement of implements and purchase of raw materials and stores. In sanctioning the loan, due allowance will be made for subsidy/assistance available from the concerned State Government.

26.        There may lie many artisans traders and self-employed who may not have any banking arrangement or facility with any bank, but will now need financial assistance for rehabilitation. Such categories will be eligible for assistance from banks' branches in whose command areas they reside or carry on their profession/business. Where such a person/party falls under the command area of more than one bank, the banks concerned will meet together and sort out his problem.

Small scale and Tiny Units:

27.        Rehabilitation of units under village and cottage industry sector, small scale industrial units as also smaller of the medium industrial sector damaged, will also need attention. Term loans for repairs to and renovation of factory buildings/sheds and machinery as also for replacement of damaged pans and working capital for purchase of raw materials and stores will need to be provided urgently.

28.        Where the raw materials or finished goods have been washed away or ruined or damaged, banks' security for working capital will naturally be eroded and the working capital account (Cash Credit or loan) will be out of order. In such cases, banks will convert drawings in excess of the value of security into a term loan and also provide further working capital to the borrower.

29.        Depending on the damage suffered and time needed for rehabilitation and restarting production and sales, term loan instalments will have to be suitably rescheduled keeping in view the income generating capacity of the unit. Short-fall in margins will have to be condoned or even waived and borrower should be allowed time to build up margin gradually from his future cash generation. Wherever State Government or any agency has formulated special scheme for providing grants/subsidy/seed money, suitable margin may be stipulated to the extent of such grants/ subsidy/seed money.

The primary consideration before the banks in extending credit to a small/tiny unit for its rehabilitation should be the viability of the venture after the rehabilitation programme is implemented.

30.        Special Refinance Facility (SRF) 1979* introduced by IDBI for providing full refinance to banks on soft terms will be availed of during the period of its validity. In this connection reference may be made to their circular letter No-7479/RD.Pro(14)/78-79 of 24th May, 1979.

* This facility was discontinued vide RPCD.No.CPFS.BC.62/PS.126-84/85 dt 24.06..1985

Terms and Conditions:

31.        The terms and conditions governing relief loans will be flexible as to security, margin, etc. In the case of small loans covered by guarantee of Deposit Insurance and Credit Guarantee Corporation, personal guarantees will not be insisted upon. In any case, credit should not be denied for want of personal guarantees.

Security:

32.        Where the bank's existing security has been eroded because of damage or destruction by floods assistance will not be denied merely for want of additional fresh security. The fresh loan may be granted even if the value of security (existing as well as the asset to be acquired from the new loan) is less than the loan amount. For fresh loans sympathetic view will have to be taken.

a)    Where the crop loan (which has been converted into term loan) was earlier given against personal security/hypothecation of crop which would be the case for crop loans upto Rs.5.000/- and the borrower is not able to offer charge/mortgage of land as security for the converted loan, he should not be denied conversion facility merely on the ground of his inability to furnish land as security.

If the borrower has already taken a term loan against mortgage/charge on land, the bank should be content with a second charge for the converted term loan.

Banks should not insist on third party guarantees for providing conversion facilities.

b)    In the case of term loans for replacement of equipments, repairs, etc. and for working capital finance to artisans and self-employed persons or for crop loans, usual security may be obtained. 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 i.e. in the form of deeds, as also the registration certificates issued to registered share-croppers.

c)    As per the recommendations of the R.B.I. Report on customer service, banks will finance the borrowers who require loans upto Rs.500/- without insisting either on collateral security or guarantee for any type of economic activity.

Margin:

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

Interest:

34.        The rates of interest will be in accordance with the directives of the Reserve Bank. Within the areas of their discretion, however, banks are expected to take a sympathetic view of the difficulties of the borrowers and extend a concessional treatment to calamity affected people.

Those meeting the eligibility criteria under the Scheme of Differential Rate of Interest should he provided credit in accordance with the provision of the Scheme.

In respect of current dues in default, no penal interest will be charged. The banks should also suitably defer the compounding of interest charges.

Applicability of the guidelines in the case of riots and disturbances:

35.        Whenever  RBI advises the banks to extend rehabilitation assistance to the riot/disturbance affected persons, the aforesaid guidelines may broadly be followed by links for the purpose. It should, however, be ensured that only genuine persons, duly identified by the State Government agencies as having been affected, by the riots, etc., are extended rehabilitation assistance.

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Refer
RPCD.No.PLFS.BC./2/05.04.02 /2002-2003 dt 03-08-02
RPCD.No.PLFS.BC.128/05.04.02\97-98 dt 20-06-98
RPCD.No.PLFS.BC.59/05.04.02/92-93 dt 06-01-93
RPCD.No.PLFS.BC.38/PS.126-91/92 dt 21-09-91
RPCD.No.PLFS.BC.28/PS.126-86 dt 05-12-86
RPCD.No.CPFS.BC.62/PS.126/84/85 dt 24-06-85