Mumbai, January 28:
To ensure hassle free credit to all borrowers, the Reserve Bank of India has asked banks to dispense with obtaining ‘no due certificate’ from the individual borrowers in rural and semi-urban areas for all types of loans.
Instead, the central bank said banks should use an alternative framework of due diligence as part of their credit appraisal exercise.
The alternative framework could, among others, consist of: credit history check through credit information companies; self declaration or an affidavit from the borrower; CERSAI (Central Registry of Securitisation Asset Reconstruction and Security Interest of India) registration; and peer monitoring.
The ‘no due certificate’ can be dispensed with in view of technological developments and the different ways available with banks to avoid multiple financing, the RBI said in a notification,
The central bank issued this directive as it has received complaints from borrowers that banks are refusing to grant loans without ‘no due certificate’, especially in rural and semi-urban areas.
Specifically, banks have been asked to dispense with obtaining ‘no due certificate’ from the individual borrowers (including self help groups & joint liability groups) in rural and semi-urban areas for all types of loans.
The loans will include loans under Government sponsored schemes, irrespective of the amount involved unless the scheme itself provides for obtaining ‘no dues certificate’.
In 2007, banks were advised to dispense with the requirement of ‘no due certificate’ for small loans up to ₹50,000 to small and marginal farmers, share-croppers and the like and, instead, obtain self-declaration from the borrower.
Cap on collateral-free education loans may be raised
Mumbai, January 28:
With rising cost of higher education causing anxiety to both parents and their wards, the Finance Ministry and banks are jointly weighing the possibility of raising the limit of collateral-free education loans.
A proposal to hike the limit of collateral- (or security) free education loan from ₹4 lakh to around ₹ 7 lakh under the Indian Banks’ Association’s model education loan scheme for pursuing higher education is under consideration.
Guarantee fund
Bankers clued in to the deliberations on revamping the model education loan scheme say they will agree to the proposal only if the Government operationalises the Credit Guarantee Fund Scheme for Education Loans to cover possible defaults.
The Fund was announced in the Budget for 2012-13 to encourage banks to lend to deserving students. However, it has not yet seen the light of day.
A senior public sector bank official said the Credit Guarantee Fund cover is necessary as within the education loans segment banks have experienced maximum defaults in the collateral-free education loan segment.
According to an Asian Development Bank report ‘Counting the cost: Financing Asian Higher Education for Inclusive Growth’, “…more than 50 per cent of the higher education in India is probably imparted through private institutions, mostly unaided.”
“…Many private higher education institutions charge high fees, which in effect exclude the poor, however bright or able.”
The report observed that in India, the so-called self-financing courses have mushroomed in public universities and colleges, where fees for high-demand courses (undergraduate engineering, medicine, teacher education, graduate management, and computing) at times match those of private higher education institutions.
The banker quoted above said as part of the exercise to overhaul the model education loan scheme, banks are seeking tighter norms for accreditation of education institutions and better monitoring of teducation loans.
In the first six months of the current financial year, public sector banks collectively disbursed education loans aggregating ₹3,707 crore. As at September-end 2014, these banks, numbering 27, collectively had an outstanding education loan portfolio of ₹61,963 crore.
Model loan scheme
The model education loan scheme was developed by IBA in 2001 to help meritorious students pursue higher education in technical and professional courses. The main emphasis of the scheme is that no deserving student is denied an opportunity to pursue higher education for want of financial support.
As the focus is on development of human capital, repayment of the loan is expected to come from future earnings of the student after completion of education.
Hence, assessment of the loan is based on employability and earning potential of the student upon completion of the course and not the parental income/family wealth.
When the scheme was last revised in 2012, the Association underscored that the cost of education has been going up in recent times and since the student has to bear most of the cost, there is a clear case for institutional funding in this area.
SC upholds changes in Sarfaesi Act; banks free to decide NPAs-Financial Express-29.01.2015
Dismissing appeals filed by around 60 companies, the Supreme Court on Wednesday upheld the amendment to the Securitisation Act that gave power to every financial institution to decide a period after which a bad loan can be declared as a non-performing asset (NPA).Before the 2004 amendment to the Securitisation Act and Reconstruction of Financial Assets & Enforcement of Security Interest Act, 2002 (Sarfaesi Act), RBI was the regulator for the banking, non-banking and securitisation institutions for deciding the period after which loans could be treated as NPA. Till 2004, RBI had set the NPA period for banks at 90 days and at 180 days for NBFCs.
Power Finance Corporation has a six-month period to classify an asset as an NPA. Besides, there are a few other institutions like Exim Bank, National Housing Bank under NHB Act, Nabard, Rural Electrification Corporation and Indian Railway Finance Corporation who are governed by their own regulations.
The promoters of around 60 companies had moved the Supreme Court questioning every financial institutions power to decide its own NPA period, saying it is a violation of right to equality. They had also challenged the RBI’s competence to regulate all banking and NBFCs in this regard. A bench headed by Justice J Chelameswar, while dismissing the appeals, asked the distressed companies to pay 1% of their loan outstanding amount to the lenders as costs.
The ruling came on two batches of petitions against the high courts of Gujarat and Madras as both the courts have differed on the issue. The Gujarat High Court while striking down the powers of different regulators in defining NPAs (under Section 2(1)(o)(a) of the Securitisation Act, 2002) had restored the power of the RBI to decide the period after which the bad loan can be called as an NPA.
However, the Madras High Court while rejecting petitions of various companies and individuals, including Deccan Chronicle Holdings and Marg, had upheld the constitutionality of Section 2(1)(o) of the Act and the guidelines issued by the RBI on the classification of assets as NPAs. Interestingly, Delhi High Court had upheld this 2004 amendment in the securitisation law.
Challenging the Gujarat HC’s April order that termed the decision of Parliament to take away the power from RBI as wrong, the promoters and companies had alleged that its prudential norms defy the right to equality under Article 14 of the Constitution of India.
Questioning the reason for the difference of NPA periods among financial firms, they argued that the 2002 Act should be applied uniformly across all borrowers and challenged the RBI guidelines on income recognition, provisioning and asset classification under prudential norms as being unconstitutional.
“The RBI guidelines are discriminatory, arbitrary, unreasonable and ultra vires the Securitisation Act and that the definition of the NPA as per RBI is contrary, distinct and contradictory to the definition of the NPA under the Central Act, and hence, the same is unconstitutional,” senior counsel Soli Sorabjee had argued.
Debtors of various banks who have appealed against the Madras HC’s order said that issuing guidelines relating to asset classification is essential legislative function and, therefore, it cannot be delegated. They argued that the guidelines issued by the RBI cannot be used for defining NPAs and there should be a separate legislation in this regard.
Sarfaesi Act gives powers to seize and desist to the banks under which the banks need to send a notice in writing to the defaulting borrower requiring it to discharge its liabilities within 60 days. In case the borrower fails to comply with the notice, the bank can take either take possession of the security for the loan, sell or lease or assign the right over the security or appoint any person to manage the same.
RBI guidelines on obtention of "No Dues Certificate":
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RBI/2014-15/430
FIDD.CO.LBS.BC.No.49/02.01.001/2014-15
...
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RBI/2014-15/430
FIDD.CO.LBS.BC.No.49/02.01.001/2014-15
...
January 28, 2015
The Chairmen & Managing Directors
All Scheduled Commercial Banks (including RRBs)
Dear Sir/Madam,
Dispensing with ‘No Due Certificate’ for lending by banks
Please refer to our circular RPCD.LBS (SAA).BC.No.62/08.01.00/2004-05 dated December 8, 2004 on Relaxation in Service Area norms. Further, in terms of circular RPCD.PLFS.BC.No.85/05.04.02/2006-07 dated April 30, 2007 on ‘Simplification of the Procedures and Processes for Obtaining Agricultural Loans’, banks were advised to dispense with the requirement of ‘No Due Certificate’ for small loans up to Rs.50,000 to small and marginal farmers, share-croppers and the like and, instead, obtain self-declaration from the borrower.
2. Reference is also invited to circular RPCD.GSSD.BC.No.1/09.01.01/2012-13 dated July 02, 2012 wherein for lending under Government Sponsored Scheme SGSY (now NRLM), if the Service Area branch does not issue ‘No Due Certificate’ within 15 days from the date of receipt of application from the borrower, the borrowers are free to approach any branch in the block for their credit requirements.
3. In this connection, we have been receiving complaints from borrowers as banks are refusing to grant loans without ‘No Due Certificate’, especially in rural and semi-urban areas. In order to ensure hassle free credit to all borrowers, especially in rural and semi-urban areas and keeping in view the technological developments and the different ways available with banks to avoid multiple financing, banks are advised to dispense with obtaining ‘No Due Certificate’ from the individual borrowers (including SHGs & JLGs) in rural and semi-urban areas for all types of loans including loans under Government Sponsored Schemes, irrespective of the amount involved unless the Government Sponsored Scheme itself provides for obtention of ‘No Dues Certificate’.
4. Banks may kindly note that while Service Area Approach continues to be applicable for Government Sponsored Schemes, the borrower is free to approach any bank branch in his service area for obtaining credit under Government Sponsored Schemes.
5. Banks are encouraged to use an alternative framework of due diligence as part of credit appraisal exercise other than the ‘No Due Certificate’ which could, among others, consist of one or more of the following:
Credit history check through credit information companies
Self declaration or an affidavit from the borrower
CERSAI registration
Peer monitoring
Information sharing among lenders
Information search (writing to other lenders with an auto deadline)
6. Banks are also advised to submit credit information/data to all Credit Information Companies (CICs), as required in terms of extant instructions issued by RBI.
Yours faithfully
(A. Udgata)
Principal Chief General Manager
The Chairmen & Managing Directors
All Scheduled Commercial Banks (including RRBs)
Dear Sir/Madam,
Dispensing with ‘No Due Certificate’ for lending by banks
Please refer to our circular RPCD.LBS (SAA).BC.No.62/08.01.00/2004-05 dated December 8, 2004 on Relaxation in Service Area norms. Further, in terms of circular RPCD.PLFS.BC.No.85/05.04.02/2006-07 dated April 30, 2007 on ‘Simplification of the Procedures and Processes for Obtaining Agricultural Loans’, banks were advised to dispense with the requirement of ‘No Due Certificate’ for small loans up to Rs.50,000 to small and marginal farmers, share-croppers and the like and, instead, obtain self-declaration from the borrower.
2. Reference is also invited to circular RPCD.GSSD.BC.No.1/09.01.01/2012-13 dated July 02, 2012 wherein for lending under Government Sponsored Scheme SGSY (now NRLM), if the Service Area branch does not issue ‘No Due Certificate’ within 15 days from the date of receipt of application from the borrower, the borrowers are free to approach any branch in the block for their credit requirements.
3. In this connection, we have been receiving complaints from borrowers as banks are refusing to grant loans without ‘No Due Certificate’, especially in rural and semi-urban areas. In order to ensure hassle free credit to all borrowers, especially in rural and semi-urban areas and keeping in view the technological developments and the different ways available with banks to avoid multiple financing, banks are advised to dispense with obtaining ‘No Due Certificate’ from the individual borrowers (including SHGs & JLGs) in rural and semi-urban areas for all types of loans including loans under Government Sponsored Schemes, irrespective of the amount involved unless the Government Sponsored Scheme itself provides for obtention of ‘No Dues Certificate’.
4. Banks may kindly note that while Service Area Approach continues to be applicable for Government Sponsored Schemes, the borrower is free to approach any bank branch in his service area for obtaining credit under Government Sponsored Schemes.
5. Banks are encouraged to use an alternative framework of due diligence as part of credit appraisal exercise other than the ‘No Due Certificate’ which could, among others, consist of one or more of the following:
Credit history check through credit information companies
Self declaration or an affidavit from the borrower
CERSAI registration
Peer monitoring
Information sharing among lenders
Information search (writing to other lenders with an auto deadline)
6. Banks are also advised to submit credit information/data to all Credit Information Companies (CICs), as required in terms of extant instructions issued by RBI.
Yours faithfully
(A. Udgata)
Principal Chief General Manager
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