ANDHRA PRAGATHI GRAMEENA BANK HEAD OFFICE :: KADAPA Circular No. 317 2011 - BC - CD Date: 31.12.2011 SHG - BANK LINKAGE PROGRAMME SANCTION OF CASH CREDIT LIMIT REVISED GUIDELINES Ref. Cir. No. 1) 145-2006-BC-CST, dt. 14.12.2006 2) 34-2007-BC-CST, dt. 28.02.2007 3) 117-2006-BC-CST, dt. 03.11.2006 4) 95-2008-BC-CST, dt. 30.04.2008 Attention of Branches and Regional Offices is invited to the captioned subject. Government of India, Reserve Bank of India and NABARD, have been emphasizing on SHG Bank Linkage as it is a means to facilitate Financial Inclusion and access of banking credit to economically and socially weaker section of the society. Based on various studies conducted by RBI/NABARD, linking of Self Help Groups with banks is found to be a cost effective, transparent and flexible approach to cover larger number of rural poor in lesser number of transactions. Experience has shown that the group dynamics and peer pressure have brought in excellent recovery from members of SHGs. Government sponsored schemes like SGSY and PMRY included SHGs for assisting the weaker section and unemployed. Banks were advised to meet the entire credit requirements of SHG members namely, (a) income generation activities, (b) social needs like housing, education, marriage, etc., and (c) debt swapping in consonance with the policy announcement in Union Budget for the year 2008-09. Keeping in view the guidelines issued by RBI and NABARD and to give a major thrust to formation and linkage of SHGs, GOI has now decided to do away with the practice of sanctioning term loans to SHGs to further reduce the transaction cost to the Banks, save the time of Bank staff as well as to reduce the cost, time and inconvenience to SHG members. In tune with the decision, GoI has directed the Banks that: 1. Henceforth, all SHGs will be sanctioned only Cash Credit Limit to enable them to deposit their surplus money in the Bank as and when they have.
2. In so far as existing SHG term loans are concerned, the loans shall be converted into cash credit limit by 31 st December 2011. 3. The guidelines laid down by the RBI permits sanction of credit in the ratio of 1:4. To simplify procedures, the Banks will sanction cash credit limit for the amount which a Group will be entitled to have in the ratio of 1:4 after savings of 5 years. However, disbursement limit would be sanctioned after six months and thereafter reviewed each year in the ratio of savings as prescribed by RBI. This will help to avoid repeated documentation which involves lot of activity for the Group as well as for the branch of the Bank. 4. Wherever internal guidelines of the Bank permits to go beyond the ratio of 1:4, the same will be applied in all cases existing and new. In view of the above directive and guidelines received from NABARD vide their Cir. No. NBAPRO.MCID/11934/SHG-(Policy)/2011-12 dt. 20.12.2011, revised operational guidelines on SHG Bank Linkage Programme which have been approved by the Board in the meeting held on 26.12.2011 are furnished below for implementation by Branches / Regional Offices. As of now, the SHGs are being sanctioned term loans by banks depending on the quantum of savings made by the group. Normally, the tenure of such loans ;used to be upto a period of three years, while the groups tend to prepay such loans. This often led to a situation where the groups were not sanctioned fresh loans / repeat loans. Therefore, even for their emergent needs these SHGs used to depend on various alternate options like MFIs, etc. The introduction of cash credit system intends to address this issue, as the group will have the flexibility to deposit their available surpluses with the bank and draw on the withdrawable limit sanctioned to them. This will provide considerable flexibility to the SHGs for meeting their emergency needs as well as helping them in reducing their cost of borrowing. At the same time, as the loan limit will be sanctioned over a period of three to five years based on their projected savings, the banker will be freed from the hassles of frequent documentation and high number of transactions involved in the process. Also, the SHGs will be encouraged to save regularly as their drawable limit will be enhanced every year based on their actual saving. Further, with introduction of cash credit is thus aimed at smoothening the consumption & working capital needs of the SHGs during the initial years as well as to a certain extent in subsequent years. 01. LENDING NORMS:
To ensure quality of lending to SHGs, the grading/rating system (CRI) and processing of the SHG loan proposal as prescribed shall be adhered to from 1 st dose onwards. SHGs which have satisfactorily functioned for six months or more and secured A or B rating, as per the grading/rating system, basing on the Critical Rating Index (CRI) chart shall be given a limit up to 4 times the savings or Rs.50000/, whichever is higher to begin with. Repeat finance i.e., second and subsequent dose of assistance to the same group, relaxation in savings to credit ratio is permitted up to 1:10 for A or B grade SHGs having a good track record and working satisfactorily. Branches shall exercise due care to make a thorough study and satisfy the quality of the group and its sincerity in implementing Micro Credit Plan (MCP) in the past. The guidelines laid down by the RBI permits sanction of credit in the ratio of 1:4. To simplify procedures, branches will sanction the cash credit limit for the amount which a Group will be entitled to have in the ratio of 1:4 after savings for 5 years. However, disbursement limit would be sanctioned after six months and thereafter reviewed each year in the ratio of savings as prescribed by RBI. Since the document is valid for three years only, branches have to take fresh documents at the end of third year. Fixation of Credit limit / Borrowing power The following example illustrates as to how the Cash Credit limit for a SHG can be estimated based on their anticipated amount of savings of 5 years and as to how the Maximum Borrowing Power is to be fixed at the time of Sanction and on review after one year. Example a. Self Help Group which has completed 6 months after formation with regular savings b. Total members : 12 c. Rating : A d. Monthly savings by each member : Rs.100/- e. Total monthly savings of the group : Rs.1200/- f. Anticipated amount of savings of the group by the end of 5 th year, assuming that the group saves regularly : 1200/- x 12 x 5 = Rs.72000/- g. Maximum amount of Credit limit that can be sanctioned : Rs.72000/- x 4 times = Rs.2,88,000/- h. Maximum Borrowing Power to be fixed within the above Credit limit sanctioned : Rs.7200/- (Savings for 6 months) x 4 times = Rs.28,800/- or Rs.50,000/- whichever is higher. In this
at case, MBP can be fixed Rs.50,000/- The withdrawal limit (Maximum borrowing power) shall be revised during annual review based on the savings / corpus of the SHG. Only need based credit limit shall be extended within the prescribed ceiling as above. Purpose of loan to be availed should be decided by the SHG through democratic manner/consensus of its members in the group meeting. However, the SHGs should be encouraged to use the bank loan for productive purposes and to use the internal savings for issuing loans to the needy members for meeting their emergent needs. The credit needs of its members have to be assessed by the SHG in the group meeting and the purpose, loan amount member wise is recorded down as Micro Credit Plan (MCP) in the minutes of the meeting. The copy of MCP so prepared and resolution passed to avail bank loan shall be obtained along with the loan application. The suggested practice of Cash Credit limit is introduced to be sanctioned to SHG by the Bank. However, the loaning among the group members by the SHG will be as per existing practices. The loan applications from SHGs promoted by intermediary agency like NGO/VA/SHPI shall be obtained with the sponsoring letter as prescribed vide Annexure. The antecedents/credentials of intermediary agencies shall be properly verified and accepted for collaboration, if they satisfy the following: a) Good track record. b) A proper system of book keeping and audited balance sheets for last three years. c) Basic financial management capability. d) Approach of promoting and working with groups of people belonging to weaker sections. All SHGs promoted by Bank/DRDA/DWMA etc., are eligible to be considered for financial assistance under the SHG Bank linkage programme. However it shall be ensured that there is no multiple membership of the same SHG member in different groups. 02. MARGIN: i) Upto Rs.3.00 lakh Nil, ii) Above Rs.3.00 lakh Rs.5 lakh 10% project cost. Project Cost is the total credit requirement of the group as per resolution/micro Credit Plan. 03. SECURITY:
i) Upto Rs.5.00 lakh Group guarantee or assets created out of bank loan as primary security. ii) Above Rs.5.00 lakh In addition to the primary security as above, other collateral security of adequate value (100% of the net loan limit) in the form of Insurance Policy, other marketable security, mortgage of other property etc., shall be taken. Net loan limit after deducting margin and subsidy, if any from the project cost shall be reckoned for the purpose of deciding limit for obtaining security. 04. RATE OF INTEREST: As communicated from time to time. Presently the rate of interest is 14% p.a. Rate of interest to be charged by SHGs to its members is as decided by the SHGs. The interest on the credit limit shall be serviced by the SHG on monthly basis. 05. RELEASE: As when required within the drawing power fixed. 06. REPAYMENT OF LOAN: The bank loan extended to SHG as cash credit is valid for 3 years and subject to annual review. However, Branches shall take fresh documents at the end of the third year. On verifying and ensuring the satisfactory performance, branch shall decide to permit withdrawal up to the staggered limit determined for each year against actual savings held at the time of annual review. Interest shall be serviced by the SHGs as and when due on monthly basis. SHG would be free to prescribe appropriate repayment period as determined by the group for the loan availed from SHG by its members. 07. SANCTIONING POWERS: The Credit sanctioning powers to various functionaries of the Bank communicated from time to time. (Existing sanctioning powers as per Cir. No. 238-2010-BC-CD dt. 11.11.2010) 08. PROCESSING CHARGES: Processing Charges @ 0.50% + Service Tax on the SHG loans of above Rs.25000/- sanctioned. (Cir. No. 58-2010-BC-CD dt. 12.03.2010) 09. INSPECTION CHARGES: As applicable to Priority Sector Advances (Presently as per Cir. No. 207-2010-BC-Accts. Dt. 22.09.2010). 10. APPLICATION / DOCUMENTATION: ADN 17 (Set) comprising of Application Resolution Inter Se Agreement Articles of Agreement 11. PROCESS NOTES:
The process notes in the prescribed format shall be submitted to the next higher authority as under. Officer Scale I - Where the loan amount (Limit) is more than Rs.1.00 lakh Officer Scale II - Where the loan amount (Limit) is more than Rs.1.50 lakh Officer Scale III / IV - Where the loan amount (Limit) is more than Rs.2.50 lakh EXISTING TERM LOANS TO SHGS: As per Govt. of India directive, all existing term loans to SHGs have to be converted into cash credit limit before 31.12.2011. As a onetime measure, all existing term loans to SHGs excluding NPA accounts shall be converted by arranging fresh cash credit limits adhering to the above lending norms subject to the following: Purpose of loan shall be mentioned as For closure of existing term loans as a one time arrangement as per the direction of Govt. of India in application and documents wherever applicable. SHG shall be advised to pass a resolution requesting the Bank to convert their existing term loan into a cash credit limit and a copy of the resolution shall be obtained along with the application. The copy of the resolution shall be kept with loan documents. If the SHG is unable to pass a resolution due to the demise of members/entry of new members or any other reasons, the a/c shall not be converted into cash credit limit. In case of SGSY / SJSRY Group loans, cash credit shall be arranged and the subsidy in reserve fund account shall be adjusted to the cash credit account only after the prescribed repayment period for the term loan is over. Bridge loans sanctioned under Indiramma Housing programme shall continue as Term loans only. In case of NPA accounts, efforts shall be made to upgrade the account and fresh cash credit limit as above shall be provided only after the account is upgraded to PA status. Detailed procedure for conversion of existing term loans into Cash Credit limits will be communicated separately. Clarifications required, if any, on this circular may be sought from Credit Department Women Development Cell at Head Office, Kadapa. (S P KULKARNI)
GENERAL MANAGER