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Before understanding the Norms for Agriculture Advance first should know about the Which type of Loans cover under Agriculture Advances:

Types of Agricultural Loans in India

One can avail a loan for the following activities related to agriculture:

  • Running day to day operations
  • Buying farm machinery such as tractors, harvesters, et cetera
  • Purchasing land
  • Storage purposes
  • Product marketing loans
  • Expansion

Kisan Credit Card Scheme

The Kisan Credit Card is a scheme launched by the Indian banks back in 1998, as a way to fulfill the financial necessities of the agricultural sector. This is done by giving monetary support to farmers, which in turn comes with various features and benefits. The quantum of the loan depends on several factors like cost of cultivation, farm maintenance cost, etc.

This has been particularly beneficial for those farmers who are not aware of the banking practices. Moreover, it is meant to protect farmers from harsh and informal creditors, which may land them in a massive debt.

The farmers can use the KCC card to withdraw funds for the purpose of crop production and domestic requirements.

NPA Norms for Crop Loan (KCC)

In terms of paragraph No. 4.2.12 of the Master Circular DBOD.No.BP.BC.15/ 21.04.048/ 2002-03 dated August 22, 2003 relating to income recognition, asset classification and provisioning, all direct agricultural advances as listed in the Annexure II to the circular would become NPA, when interest and / or installment of principal remains unpaid after it has become due for two harvest seasons, not exceeding two half years.

As mentioned therein, in the case of long duration crops, the current prescription of 'not exceeding two half-years' is inadequate. In order to align the repayment dates with harvesting of crops, it has been decided that with effect from September 30, 2004 the following revised norms will be applicable to all direct agricultural advances as listed in the Annex:

  1. A loan granted for short duration crops will be treated as NPA, if the installment of principal or interest thereon remains overdue for two crop seasons.
  2. A loan granted for long duration crops will be treated as NPA, if the installment 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 made applicable to agricultural term loans availed of by him. In respect of agricultural loans, other than those specified in the Annex and term loans given to non-agriculturists, identification of NPAs would be done on the same basis as non agricultural advances which, at present, is the 90 days delinquency norm.

Loans as per Annex 1 under RBI Circular

Finance to Individual Farmers for Agriculture and Allied Activities (Dairy, Fishery, Piggery, Poultry, Bee-keeping, etc.)

Loans to individual farmers [including Self Help Groups (SHGs) or Joint Liability Groups (JLGs), i.e. groups of individual farmers, provided banks maintain disaggregated data on such loans] engaged in Agriculture and Allied Activities, viz., dairy, fishery, animal husbandry, poultry, bee-keeping and sericulture (up to cocoon stage).

Duration of Short Term and Long Term Period:

Agricultural credit has been classified into three categories viz.short-term credit (crop loan), medium-term credit and long-term credit. This classification is based on the periods for which the loan is given. This is to meet the varying needs of the farming community.

The short term loan which is also known as the crop loan, is provided for 15 month period and is meant for meeting the needs like seed, fertilizer, labour, cattle feed, etc. The farmer can repay the loan after harvest of the crop.

The period for medium term loan is from 15 months to five years. These loans are provided for meeting the expenses on land improvements, digging of wells, purchase of implements and machinery, farm animals, etc. These items require relatively more investment and as such the period for repayment is kept upto 5 years.

The long term credit as the name indicates is for longer period than 5 years. This type of credit is given for activities requiring heavy investment. The Land Development Banks provide only the long term finance; while the Regional Rural Banks give loans only to the weaker sections like small and marginal farmers, agricultural labourers, village artisans, etc.

(As per Department of Agriculture)

TIME DURATION IN MADHYA PRADESH FOR RABI AND KHARIF CROPS


CROP SEASON OF VARIOUS CROPS IN MADHYA PRADESH

CROP

SEASON

SHOWING

HARVESTING

CROP SEASON IN MONTHS

PADDY

KHARIF

JUNE-JULY

OCT-NOV

BAJRA

KHARIF

JUNE-JULY

SEP-DEC

7

WHEAT

RABI

OCT-DEC

FEB-APR

7

ARHAR/TUR

KHARIF

JUNE-JULY

NOV-JAN

8

MUNG BEAN/URD BEAN

KHARIF

JUNE-JULY

SEP-OCT

6

SOYABEAN

KHARIF

JUNE-JULY

OCT-NOV

6

GRAM

RABI

OCT-DEC

FEB-APR

7

MASUR

RABI

SEP-NOV

FEB-APR

8

PULSES

RABI

OCT-NOV

MAR-APR

7

PEA

RABI

OCT-NOV

MAR-APR

7

GROUND NUT

KHARIF

JUNE-JULY

SEP-OCT

6

LINSEED

RABI

OCT-NOV

MAR-APR

7

SESAME

KHARIF

JUNE-JULY

OCT-NOV

6

SUN FLOWER

KHARIF

JUNE-AUG

SEP-NOV

6

SUN FLOWER

RABI

OCT

JAN

6

SUN FLOWER

SUMMER/SPRING

FEB

APR-MAY

6

CASTOR

KHARIF

JUL-AUG

JAN-FEB

8

MUSTARD

RABI

OCT

FEB-MAR

6

TORIA

RABI

SEP

DEC-JAN

6

MAIZE

KHARIF

JUN-JUL

AUG-DEC

7

SUGARCANE

LONG DURATION

OCT-APR

OCT-MAR

18

COTTON

KHARIF

MAY-JUNE

OCT-DEC

8

BANANA

12

VEGETABLES

8

OTHER HORTICULTURAL CROPS: 6-12 MONTHS DEPENDS ON TYPE OF CROP AND AREA OF CULTIVATION

PLANTATION CROPS: AFTER FRUITING): 12-18 MONTHS DEPENDS ON TYPE OF CROP AND AREA OF CULTIVATION


HOW TO CALCULATE AGRICULTURE ADVANCE AS NPA ON ABOVE BASIS


PARTICULARS

KHARIF SEASON

RABI SEASON

Year of sanction of Loan

2015-16

2015-16

Month of sanction

APRIL TO JUNE

JULY TO SEPTEMBER

Season start

JUNE TO JULY

OCTOBER TO DECEMBER

Harvest Time

OCTOBER TO NOVEMBER

FEBRURERY TO APRIL

Due date for Repayment

31.03.2016

30.06.2016

1st crop season

JUNE 15 TO DECEMBER 15

OCTOBER 15 TO MARCH 16

2nd crop season

JUNE 16 TO DECEMBER 16

OCTOBER 16 TO MARCH 17


While identifying NPAs following points may be noted:

A. Term loan/s availed with crop loan/s: Where an agriculturist has availed loans both for short duration as well as long duration crops along with Term loan/s, such term loan/s will be classified as NPA if either of the loans for short duration or long duration crops is classified as NPA.

Example 1: An agriculturist avails following loans

Crop loan for kharif crop (a short duration crop) is availed on 1.6.2015 for which repayment due date prescribed is 31.03.2016.

Crop loan for Adsali sugarcane (a long duration crop) is availed on 1.7.2015 for which repayment due date prescribed is 30.06.2018.

A term loan for deepening of well is availed on 01.05.2015 for which first repayment instalment is due on 30.06.2018.

If crop loan for Kharif crop remains overdue up to 31.12.2017 (i.e. overdue for 21 months after repayment due date of 31.03.2016) this crop loan along with the crop loan for sugarcane and term loan for deepening of well, will be classified as NPA with effect from 31.12.2017.

B. Term loan/s availed without crop loan: where an agriculturist has availed only Agricultural Term Loan without availing any crop loan, details of crops grown (i.e. whether kharif / Rabi, horticulture, sugarcane or banana) are required to be obtained, verified and recorded. Based on the duration of these crops, overdue period for each crop as stated in (A) or (B) above will be identified and recorded. If the term loan remains overdue for the period identified as above, the same will be classified as NPA.

Example 2: In the example 1 referred to above, if only term loan is availed without availing crop loan for kharif crop & sugarcane, which are actually grown by the borrower, overdue period will be identified as 21 months for kharif crop and 18 months for sugarcane crop as mentioned above paras. The term loan will become NPA if its instalment of principal or interest remains overdue for 18 months from repayment due date i.e., from 30.06.2016 (overdue period applicable will be the lower of 18 or 21 months as applicable for crops grown by the borrower). Thus the loan for deepening of well will become NPA on 31.12.2017.

Some of the Key Points while Auditing Agriculture Advances

The audit approach for agriculture advances has to be on the similar lines as that of other advances. The following is a summary of few Key aspects in the audit of Agricultural Advances:

  1. Sanctioned amount of Agriculture Loans should be as per scale of finance applicable to the land under cultivation and the crop being cultivated. Further, necessary securities should be obtained as per the guidelines framed by the bank.
  1. Auditors should verify that the agricultural credit is extended only after obtaining ‘No dues/ No objection certificates’ from the existing credit agencies in the area of finance.
  1. Disbursement of agricultural finance is required to be carried out in various ‘stages’ based on the requirements of farming activity. This needs to be ensured strictly. In some cases, the expenditure is incurred by farmer from his/her own sources or from non-institutional lenders and subsequently banks are requested to reimburse the same. In such cases, auditors have to carefully verify the facts from the documents/evidences available on record. Under all situations, auditors should verify that the bank holds documents evidencing the utilisation of loans for agricultural activities.
  1. For crop loans, primary security is normally the standing crops under cultivation, as such pre and post sanction visits by the officers of bank, who are experts in Agriculture finance and adequate documentation of visit report is a key control.
  1. While verifying the security offered for agricultural loans, it is to be confirmed that the security is legally enforceable. Standing crops and agricultural machinery and implements are secured by a hypothecation charge, while the agricultural land is secured by a mortgage charge. Auditors have to ensure that amongst others, the following has been duly taken on record by the banks:
  • Copy of the land revenue extracts.
  • Land Tax Assessment and payment receipt.
  • Copy of record with sub registrar. (wherever applicable)
  • Original copies of the title deeds
  • Search of title deeds and Legal opinion from the advocate on the Bank’s approved panel.
  • Valuation of land from a valuer on the Bank’s approved panel.
  1. Loans granted to farmers against the security of NSC, KVP or Fixed Deposits of Banks, which has been utilised for agricultural purposes, is allowed to be classified under the category of finance to agriculture. However, auditors should carefully verify the loan documents and other supporting documents to ensure that non-agricultural loans are not classified as Agricultural Finance.
  1. Agricultural Advances are required to be serviced through realization of sale proceeds to crop. Auditors should be skeptical about the nature and timing credits coming in to service the agricultural loans and ensure that they are from genuine sources.
  1. Ask about the nature of produce in the area ( Rabi and Kharif or Ek Fasli or Do Fasli or Teen Fasli Land)
  1. Ask about the work sheet of Branch for calculation of Loan.
  1. Find Bank has disburse loan in single installment or as per FASAL calculation.
  1. As Audit guidance point no C above it is clear that disbursement of loan should be as per requirement but generally found Bank disburse whole amount in first installment Not as per FASAL Production, this point should be reported.

Agricultural Debt Relief / Waiver Schemes

There are various state and central government debt waiver / relief schemes which are implemented for providing relief to the affected agriculture borrowers. An auditor is advised to go through the schemes so declared and implemented by state / central government for providing agricultural debt relief / waiver as the case may be and consider the same in terms of eligible loans under the scheme, amount of relief / waiver provided, asset classification norms and accounting.

Audit Procedure

  • Obtain the copy of relevant schemes and bank’s circular in this regard.
  • Obtain list of eligible borrowers with outstanding balance.
  • Check the claim amount statement submitted to RO/ZO for claiming the same.
  • Check the accounting entries passed for the credit of eligible amount in the account of the borrower.
  • Verify the accounting of interest and other charges to be borne by the landing institution as per the scheme
  • Ensure reporting requirement as per closing instructions of the bank.
  • Obtain written representation from the management about the scheme and its applicability including cutoff amount and period of loan disbursed.

Reference: Guidance Note of Bank Audit
Website: Department of Agriculture

The author can also be reached at capiyushkapoor@yahoo.com

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