CENTRAL OFFICE
PRIORITY SECTOR, RURAL DEVELOPMENT DEPARTMENT
Master Circular No. : 2017 - 28 Date : 01.01.2017
IRAC NORMS FOR AGRICULTURE ADVANCES
Reserve Bank of India, vide their Master Circular No.RBI/204-15/74
DBOD.No.BP.BC.9/21.04.048/2014-15 dated July 1, 2014 and further RBI, vide letter
No. RBI/2015-16/423 dated 13.06.2016 have issued comprehensive guidelines on
prudential Norms on Income Recognition, Assets Classification and Provisioning
pertaining to advances. The extant prudential norms for agricultural advances based
on the said RBI circular are reproduced for ready reference of the branches.
NPA Norms for Agricultural advances
A loan granted for Short Duration Crops will be treated as NPA, if the
instalment of principal or interest thereon remains overdue for Two Crop
Seasons.
A loan granted for Long Duration Crops will be treated as NPA, if the
instalment of principal or interest thereon remains overdue for One Crop
Season.
For the purpose of these guidelines, “long duration” crops would be crops with
crop season longer than one year and crops which are not “long duration”
crops, would be treated as “short duration” crops.
The crop season for each crop, which means the period up to harvesting of the
crops raised, would be as determined by the State Level Bankers‟ Committee in
each State.
Depending upon the duration of crops raised by an agriculturist, the above
NPA norms would also be applicable to agricultural term loans availed of by
him.
However, the loan in which repayment of loan is not from the sale proceeds
production, in all such loans comes under the purview of 90 days delinquency
norm.
As per RBI circular No RBI/2015-16/53 dated 1st July 2015, the Priority Sector
has been redefined and now Agriculture Advances includes Farm Credit, Agri
Infrastructure, & Ancillary Activities, which further includes activities such as
Dairy, Fishery, Animal husbandry, poultry, Bee-keeping etc. in farm credit
category and Agri-clinics, Agribusiness centres under Ancillary Activities.
Therefore, clear cut guidelines to be given towards application of delinquency
norms. We may modify the para as “ In respect of Agri Advances, the
repayment of which are not linked to harvesting of any crop, on the part of the
borrower identification of NPAs would be done on the same basis as non-
agricultural advances, which, at present, is the 90 days delinquency norm
Where natural calamities impair the repaying capacity of agricultural
borrowers, branches may, as a relief measure, convert the short term production
loan into a term loan or re-schedule the repayment period; and sanction fresh
short-term loan, subject to guidelines contained in our master circular No.2017-
29 dated 01.01.2017 on Restructuring of Agriculture Accounts.
In such cases of conversion or re-schedulement, the term loan as well as fresh
short-term loan may be treated as current dues and need not be classified as
NPA. The asset classification of these loans would thereafter be governed by
the revised terms & conditions and would be treated as NPA if interest and/or
instalment of principal remain overdue for two crop seasons for short duration
crops and for one crop season for long duration crops. For the purpose of these
guidelines, “long duration” crops would be crops with crop season longer than
one year and crops, which are not “long duration”, would be treated as “short
duration” crops.
While fixing the repayment schedule in case of rural housing advances granted
to agriculturists under Indira Awas Yojana and Golden Jubilee Rural Housing
Finance Scheme, branches should ensure that the interest/ instalment payable
on such advances are linked to crop cycles.
Advances to PACS/FSS ceded to Commercial Banks
In respect of agricultural advances as well as advances for other purposes
granted to PACS/ FSS under the on-lending system, only that particular credit
facility granted to PACS/ FSS which is in default for a period of two crop
seasons in case of short duration crops and one crop season in case of long
duration crops, as the case may be, after it has become due will be classified as
NPA and not all the credit facilities sanctioned to a PACS/ FSS.
The other direct loans & advances, if any, granted by the branches to the
member borrower of a PACS/ FSS outside the on lending arrangement will
become NPA even if one of the credit facilities granted to the same borrower
becomes NPA.
Advances against Term Deposits, NSCs, KVPs/IVPs, etc.
Advances against term deposits, NSCs eligible for surrender, IVPs, KVPs and
life policies need not be treated as NPAs, provided adequate margin is
available in the accounts. Advances against gold ornaments, government
securities and all other securities are not covered by this exemption.
INCOME RECOGNITION
Income Recognition Policy
Interest should not be charged and taken to income in any NPA account
Reversal of income
If any advance, including bills purchased and discounted, becomes NPA, the
entire interest accrued and credited to income account in the past periods,
should be reversed if the same is not realized. This will apply to Government
guaranteed accounts also. In respect of NPAs, fees, commission and similar
income that have accrued should cease to accrue in the current period and
should be reversed with respect to past periods, if uncollected.
Appropriation of recovery in NPAs
Interest realized on NPAs may be taken to income account provided the credits
in the account towards interest are not out of fresh/additional credit facilities
sanctioned to the borrower concerned.
ASSET CLASSIFICATION
Broadly Assets are classified under Performing Assets (PA) and Non- Performing
Assets (NPA) categories. All the standards accounts are classified under Performing
Assets. Whereas all the NPA assets are classified further in 3 categories as under:
Categories of NPAs
I Substandard Assets
A substandard asset would be one, which has remained NPA for a period less
than or equal to 12 months.
II Doubtful Assets
An asset would be classified as doubtful if it has remained in the substandard
category for a period of 12 months.
III Loss Assets
A loss asset is one where loss has been identified by the bank or internal or
external auditors or the RBI inspectors but the amount has not been written off
wholly.
Asset Classification to be borrower-wise and not facility-wise
It is difficult to envisage a situation when only one facility to a borrower/one
investment in any of the securities issued by the borrower becomes a problem
credit/investment and not others. Therefore, all the facilities granted to a borrower
will have to be treated as NPA and not the particular facility or part thereof
which has become irregular.
Upgradation of loan accounts classified as NPAs
If arrears of interest and principal are paid by the borrower in the case of loan
accounts classified as NPAs, the account should no longer be treated as non-
performing and may be classified as „standard‟ accounts.
Loans with moratorium for payment of interest
In the case of bank finance given for industrial projects or for agricultural plantations
etc. where moratorium is available for payment of interest, payment of interest
becomes 'due' only after the moratorium or gestation period is over. Therefore, such
amounts of interest do not become overdue and hence do not become NPA, with
reference to the date of debit of interest. They become overdue after due date for
payment of interest, if uncollected.
PROVISIONING NORMS
Standard assets
A general provision on standard assets at the following rates for the funded
outstanding is required to be made
Farm credit : 0.25 %
All other advances not included in Farm credit : 0.40%
In conformity with the prudential norms, provisions should be made on the Non-
performing assets on the basis of classification of assets into prescribed categories as
under:
Sub-Standard assets
A general provision of 15 % on total outstanding should be made without
making any allowance for ECGC guarantee cover and securities available.
The „unsecured exposures‟ which are identified as „substandard‟ would attract
additional provision of 10 %, i.e., a total of 25 % on the outstanding balance.
Doubtful assets
i. 100 % of the extent to which the advance is not covered by the realisable value
of the security to which the bank has a valid recourse and the realisable value is
estimated on a realistic basis.
ii. In regard to the secured portion, provision may be made on the following basis,
at the rates ranging from 25 % to 100 % of the secured portion depending
upon the period for which the asset has remained doubtful:
Period for which the advance has Provision requirement (%)
remained in ‘doubtful’ category
Up to one year 25
One to three years 40
More than three years 100
Loss assets
If loss assets are permitted to remain in the books for any reason, 100 % of the
outstanding should be provided for.
The Branches are advised to follow the above IRAC Norms scrupulously while
classifying agricultural advances.
P. K. Gupta
General Manager-PS
