VARIOUS DOCUMENTS UNDER LETTER OF CREDIT

VARIOUS DOCUMENTS UNDER LETTER OF CREDIT
Liability of an opening bank in a letter of credit arises, when the beneficiary delivers the documents strictly drawn as per terms of
the letter of credit. There documents include the following:
Bill of exchange This is the basic document which requires to be discharged by making the payment. It is defined u/s
5 of NI Act. The right to draw this document is available to beneficiary and the amount, tenor etc.
has to be in terms of the credit.
Invoice This document provides relevant details of the sale transaction, which is made in the name of the
applicant, by the beneficiary. The details regarding, quantity, price, specification etc. should be
same as mentioned in the letter of credit.
Transport Documents This is a document which evidences the despatch of the goods by the beneficiary, by handing over
the goods to the agent of the applicant, which may be a ship, railways or a transport operator, who
issues documents such as such as bill of lading, railway receipt, transport receipt. Other documents
could be Airway Bill or Postal or courier receipt.
Insurance documents The despatched goods are required to be insured for transit period. Insurance policy or insurance
certificate should be signed by the company or underwriter or their agent. Amount, kinds of risk etc.
should be same as mentioned in the letter of credit.

Other documents The letter of credit may also specify other documents to be presented along with the above
documents which may include certificate of origin, certificate from health authorities etc.
DIFFERENT TYPES KINDS OF BILL OF LADING
 Received for shipment Bill of lading: It is an acknowledgment that the goods have been received by the ship owners for
shipment. It is not considered safe document for negotiation.
 On-board Bill of lading : It acknowledges that the goods have been put on board of the shipment. This is considered safe for
negotiation purpose.
 Short form bill of lading : Where the terms and conditions of carriage are not printed on the bill of lading and a reference to
another document containing terms and conditions is made on the bill.
 Long form bill of lading : Where all terms and conditions of carriage are given on the document itself.
 Clean bill of lading : Which bears no superimposed clause or notation that expressly declares the defective condition of goods
or packaging. This is considered safe for negotiation purpose.
 Claused bill of lading : Which bears superimposed clause or notation that expressly declares the defective condition of goods
or packaging. Ship owner can disclaim his liability on loss to goods in case of such BL. Hence it is not considered safe.
 Through Bill of lading : That covers the entire voyage covering several modes of transport. There is no guarantee of the carriers
for safe carriage of goods.
 Straight bill of lading BL that is issued directly in the name of the consignee, where the goods will be delivered to the
consignee.
Chartered party bill of lading : Issued to a Chartered party who has hired the space in the vessel. Liability of Issuing Bank
As per UCPDC, an irrevocable Credit constitutes an definite undertaking of the Issuing Bank. Hence:
i. if the Credit provides for sight payment—to pay at sight,
ii. if the Credit provides for deferred payment — to pay on the maturity date(s) determinable in accordance with the
stipulations of the Credit,
iii. if the Credit provides for acceptance to accept Draft(s) drawn by the Beneficiary on the Issuing Bank and pay at maturity, or
iv. if the Credit provides for negotiation — to pay without recourse to drawers and/or bona fide holders, Draft(s) drawn by the
Beneficiary and/or document(s) presented under the Credit. A Credit should not be issued available by Draft(s) on the Applicant.
The Credit nevertheless calls for Draft(s) on the Applicant, banks will consider such Draft(s) as an additional document(s).
Advising Bank's Liability
As per UCPDC, a credit may be advised to a Beneficiary through another bank (the 'Advising Bank') without engagement on the
part of the Advising Bank. If that bank, elects to advise the Credit, shall take reasonable care to check the apparent authenticity of
the Credit which it advises. If the bank elects not to advise the Credit, it must so inform the Issuing Bank without delay. If the
Advising Bank cannot 'establish such apparent authenticity it must inform, without delay, the bank from which the instructions
appear to have been received that it has been unable to establish the authenticity of the Credit and if it elects nonetheless to
advise the Credit it must inform the Beneficiary that it has not been able to establish the authenticity of the Credit.
Liability of the Confirming Bank
A confirmation of an Irrevocable Credit by another hank (the 'Confirming Bank') upon the authorisation or request of the Issuing
Bank, constitutes a definite undertaking of the Confirming Bank, in addition to that of the Issuing Bank. Hence:
i. if the Credit provides for sight payment—to pay at sight,
ii. if the Credit provides for deferred payment — to pay on the maturity date(s) determinable in accordance with stipulations of
the Credit.
iii. if the Credit provides for acceptance to accept Draft(s) drawn by the Beneficiary on the Confirming Bank and pay them at
maturity,
iv. if the Credit provides for negotiation — to negotiate without recourse to drawers and/or bona fide holders, Draft(s) drawn by
the Beneficiary and/or document(s) presented under the Credit. A Credit should not be issued available by Draft(s) on the
Applicant. If the Credit nevertheless calls for Draft(s on the Applicant, banks will Consider such Draft(s) as an additional
document(s).
Examination of Documents
As per UCPDC, a Banks must examine all documents stipulated in the Credit with reasonable care to ascertain whether or not they
appear, on their face, to be in compliance with the terms and conditions of the Credit. Documents, which appear on their face to
be inconsistent with one another, will be considered as not appearing on their face to be in compliance with the terms and
conditions of the Credit. Documents not stipulated in the Credit will not be examined by banks. If they receive such documents,
they shall return them to the presenter or pass them on without responsibility.
Time for scrutiny of documents: The Issuing Bank, the Confirming Bank, if any, or a Nominated Bank acting on their behalf, shall
each have a reasonable time, not to exceed 5 banking days following the day of receipt of the documents, to examine the
documents and determine whether to take up or refuse the documents and to inform the party from which it received the

Insurance Documents
As per UCPDC, the:
A Insurance documents must appear on their face to be issued and signed by insurance companies or underwriters or their
agents.
B If the insurance document indicates that it has been issued in more than one original, all the originals must be presented unless
otherwise authorised in the Credit.
C Cover notes issued by brokers will not be accepted, unless specifically authorised in the Credit.
D Unless otherwise stipulated in the Credit, banks will accept an insurance certificate or a declaration under an open cover presigned
by insurance companies or underwriters or their agents. If a Credit specifically calls for an insurance certificate or a
declaration under an open cover, banks will accept, in
lieu of thereof, an insurance policy.
E Unless otherwise stipulated in the Credit, or unless it appears from the insurance document that the cover is effective at the
latest from the date of loading on board or dispatch or taking in charge of the goods, banks will not accept an insurance
document which bears a date of issuance later than the date of loading on board or dispatch or taking in charge as indicated in
such transport document.
F: i. Unless otherwise stipulated in the Credit, the insurance document must be expressed in the same currency as the Credit.
ii. Unless otherwise stipulated in the Credit, the minimum amount for which the insurance document must indicate the insurance
cover to have been effected is the CIF (cost insurance and freight (...'named port of destination')) or CIP
(carriage and insurance paid to (...'named place of destination')) value of the goods, as the case may be, plus 10%, but only when
the CIF or CIP value can be determined from the documents on their face. Otherwise, banks will accept as such minimum amount
110% of the amount for which payment, acceptance or negotiation is requested under the Credit, or 110% of the gross amount
of the invoice, whichever is the greater.
Commercial Invoices
As per UCPDC:
A Unless otherwise stipulated in the Credit, commercial invoices
i. must appear on their face to be issued by the Beneficiary named in the Credit, and
ii. must be made out in the name of the Applicant, and
iii. need not be signed.
B Unless otherwise stipulated in the Credit, banks may refuse commercial invoices issued or amounts in excess of the amount
permitted by the Credit. Nevertheless, if a bank authorised to pay, incur a deferred payment undertaking, accept Draft(s), or
negotiate under a Credit accepts such invoices, its decision will be binding upon all parties, provided that such bank has not
paid, incurred a deferred payment undertaking, accepted Draft(s) or negotiated for an amount in excess of that permitted by
the Credit.
C The description of the goods in the commercial invoice must correspond with the description in the Credit. In all other
documents, the goods may be described in general terms not inconsistent with the description of the goods in the Credit.
Bank-to-Bank Reimbursement Arrangements as per UCPDC
As per UCPDC: A If an Issuing Bank intends that the reimbursement to which a paying, accepting or negotiating bank is entitled, shall
be obtained by such bank (the 'Claiming Bank'), claiming on another party (the `Reimbursing Bank'), it shall provide such
Reimbursing Bank in good time with the proper instructions or authorisation to honour such reimbursement claims.
B Issuing Banks shall not require a Claiming Bank to supply a certificate of compliance with the terms and conditions of the Credit
to the Reimbursing Bank.
C An Issuing Bank shall not be relieved from any of its obligations to provide reimbursement if and when reimbursement is not
received by the Claiming Bank from the Reimbursing Bank.
D The Issuing Bank shall be responsible to the Claiming Bank for any loss of interest if reimbursement is not provided by the
Reimbursement Bank on first demand, or as otherwise specified in the Credit, or mutually agreed, as the case may be.
E The Reimbursing Bank's charges should be for the account of the Issuing Bank. However, in cases where the charges are for
the account of another party, it is the responsibility of the Issuing Bank to so indicate in the Original Credit and in the
reimbursement authorisation. In cases where the Reimbursing Bank's charges are for the account of another party they shall
be collected from the Claiming Bank when the Credit is drawn under. In cases where the Credit is not drawn under, the
Reimbursing Bank's charges remain the obligation of the Issuing Bank.
UNIFORMCUSTOMS AND PRACTICES FOR DOCUMENTARY CREDITS UCPDC-600
Uniform Customs and Practices for Documentary Credits - 600 (referred to as UCP-600), prepared by
ICC, Paris by revising the UCPDC-500, is being implemented wef July 01, 2007. It is 6th revision of
the Rules since first promulgation in 1933. The new document has 39 Articles (against 49 of UCPDC500) with supplement for
Electronic Presentation covering 12 eArticles. UCPDC-600, shall be applicable to LCs that expressly indicate that these are subject
to UCPDC-600.

TYPES OF LETTERS OF CREDITS

TYPES OF LETTERS OF CREDITS

Documents against
Payment LC or Si ght
LC
DP LCs or Sight LCs are those where the payment is made against documents on presentation.
(DA = Documents against payment, DP=Documents against acceptance)
Documents against
acceptance or
us ance

DA LCs or Acceptance LCs are those, where the payment is to be made on the maturity date in terms
of the credit. The documents of title to goods are delivered to applicant merely on acceptance of
documents for payment. (DA = Documents against payment, DP=Documents against acceptance)
Deferred Payment LC It is similar to Usance LC but there is no bill of exchange or draft. It is payable on a future date if
documents as per LC are submitted.

Irrevocable and
revocable credits
The issuing bank can amend or cancel the undertaking if the beneficiary consents.
A revocable credit is one that can be cancelled or amended at any time without the prior knowledge
of the seller. If the negotiating bank makes a payment to the seller prior to receiving notice of
cancellation or amendment, the issuing bank must honour the liability.
With or without recourse
Where the beneficiary holds himself liable to the holder of the bill if dishonoured, is
considered to be with-recourse. Where he does not hold Himself liable, the credit is said to be
without-recourse. As per RBI directive dated Jan 23, 2003, banks should not open LCs and purchase /
discount / negotiate bills bearing the 'without recourse' clause.
Restricted LCs A restricted LC is one wherein a specified bank is designated to pay, accept or negotiate.
Confirmed Credits A credit to which the advising or other hank at the request of the issuing bank adds confirmation that
payment will be made. By such additions, the confirming bank steps into the shoes of the issuing
bank and thus the confirming bank negotiates documents if tendered by the beneficiary.
Transferable Credits The beneficiary is entitled to request the paying, accepting or negotiating bank to make available in
whole or part, the credit Cu one or more other parties (Article 48 of UCPDC). For partial transfer to
one or more second beneficiary/ies the credit must provide for partial shipment.

Back to back
credits
A back to back credit is one where an exporter received a documentary credit opened by a buyer in
his favour. He tenders the same to the bank in his country as a cover for opening another LC in
favour of his local suppliers. The terms of such credit would be identical except that the price may
be lower and validity earlier.
Red Clause
Credits
A red clause credit also referred to a packing or anticipatory credit has a clause permitting the
correspondent bank in the exporter's country to grant advance to beneficiary at issuing bank's
responsibility. These advances are adjusted from proceeds of the bills negotiated.

Green Clause
Credits
A green clause LC permits the advances for storage of goods in a warehouse in addition to preshipment
advance
.
Stand-by
Credits
Standby credits is similar to performance bond or guarantee, but issued in the form of LC. The
beneficiary can submit his claim by means of a draft accompanied by the requisite documentary
evidence of performance, as stipulated in the credit.

Documentary or clean
credits
When LC specifies that the bills drawn under LC must accompany documents of title to goods such as
RRs or MTRs or Bills of lading etc. it is termed as Documentary Credit. If any such documents are not
called, the credit is said to be Clean Credit.

Revolving Credits These provide that the amount of drawings made thereunder would be reinstated and made
available to the beneficiary again and again for further drawings during the currency of credit.
Instahnent credit It is a letter of credit for the full value of goods but requires shipments of specific quantities of
goods within nominated period and allows for part-shipment. In case any instalment of shipment is
missed, credit will not be available for that and subsequent instalment unless of LC permits the

Documentary Letters of Credit

Documentary Letters of Credit
A Letter of Credit/Documentary Credit is a very common and familiar instrument, used for trade settlements across the globe. It is a
link between buyers and sellers, reinforcing the buyer's integrity by adding to it, his banker's undertaking to pay, while sellers need
to make shipments of goods specified and present shipping documents to banks, before getting the payment. Thus, for international
trade, where buyers and sellers are far apart in two different countries, or even continents, the letter of credit acts as a most
convenient instrument, giving assurance to the sellers of goods for payment and to the buyers for shipping documents, as called for
under the credit.
In order to bring uniformity in matters pertaining to letters of credit documents and transactions, International Chambers of
Commerce (ICC), established in 1919 and headquartered in Paris, has framed uniform rules and procedures for issuance and handling
of transactions under letters of credit, so that parties to letters of credit transactions uniformly interpret various terms and are
bound by a common rule. These rules and procedures are called Uniform Customs and Practices for Documentary Credits (UCPDC).
The UCPDC was first brought out in 1933, and has been revised from time to time in 1951, 1962, 1974, 1983, 1993 with the last
revision in 2007. The current update of UCPDC is the publication No. 600 of ICC, which has been implemented with effect from
1.7.2007.
DEFINITION OF LETTER OF CREDIT
A documentary credit or/and letter of credit, ( DC or LC) can be defined as a signed or an authenticated instrument issued by the
buyer's banker, embodying an undertaking to pay to the seller a certain amount of money, upon presentation of documents,
evidencing shipment of goods, as specified, and compliance of other terms and conditions.
An LC can also be defined as an undertaking issued by the bank, on behalf of the importer or the buyer, in favour of the exporter or
the seller, that, if the specified documents, showing that a shipment has taken place, or a service has been supplied, are presented
to the issuing bank or its nominated bank, within the stipulated time, the exporter/seller will be paid the amount specified.
Thus, in an LC transaction, following parties are involved:
(i) The buyers/importers or the applicant—on whose behalf LC is opened,
(ii) The sellers/exporters or the beneficiary of the LC,
(iii) The opening bank (buyers bank), who establishes the LC
(iv) The advising bank (bank in sellers country), who acts as an agent of the issuing bank and authenticates the LC.
(v) The confirming bank— who undertakes to pay on behalf of the issuing bank,
(vi) The negotiating bank (sellers bank or bank nominated by the opening bank),
(vii) Reimbursing bank— who reimburses the negotiating or confirming bank.
The advising bank, confirming bank and the negotiating bank could be the same
Operation of letter of credit
1. Buyer and seller enters into a contract for sale of goods or providing of services. The transaction is covered by LC.
2. On request of the buyer i.e. applicant, LC is issued by Opening Bank in favour of Beneficiary and sent to advising bank instead
of sending directly to beneficiary.
3. After authentication of LC, the advising bank sends the LC to beneficiary.
4. After receiving LC, the beneficiary manufacturers the goods and makes shipment and prepares documents, as mentioned in
LC.
5. Documents are presented by beneficiary to nominated bank for negotiation. Negotiating bank
makes payment against these documents and claims payment on due date from opening bank.
6. Opening bank makes payment to negotiating bank and recovers the payment from applicant.

ELECTRONICMODES OF TRANSMISSION / PAYMENT

ELECTRONICMODES OF TRANSMISSION / PAYMENT
SWIFT: SWIFT stands for Society for Worldwide Inter-bank Financial Telecommunication. It provides secured
telecommunication of financial messages amongst banks and financial institutions, throughout the world. Authentication
of messages is done through bilateral key exchange. The cost of sending message is only 1/4th of the conventional talex
system.
CHIPS: CHIPS stands for "Clearing House Inter-bank payment system'. It is a major payment system in USA, being used by major
banks. It is operative in New York only.
Fedwire: This is a payment system operated by Federal Reserve Bank of US operated all over USA.
ABA number: It is the no. allotted by Federal Reserve of USA to banks participating in Fedwire, to identify the senders and
receivers of payment.
CHAPS: CHAPS, the Clearing House Automated Payments System is British equivalent to CHIPS, handling receipts and payments in
London. It is used by a large no. of banks in UK.
Target: It stands for Trans-European Automated Real-time Gross Settlement Express Transfer system in EURO payment system
comprising 15 national RTGS systems working in Europe.
RTGS-plus: RTGS plus is German hybrid clearing systems and operating as an European oriented RTGS and payment system.
EBA-EURO-1: It is a netting system with focus on cross border Euro payments.
RTGS in India: RBI implemented RTGS in India. It functions on line. Banks maintain a pool account with RBI for inflow and
outflow of funds through RTGS. Minimum amount is Rs.2 lac for RTGS.
NEFT in India: It is an electronic funds transfer system which functions on a batch basis. There are no amount ceilings.
Types of Persons :Non-Resident: As per FEMA, a person who is not a resident, is called a non-resident.
Person resident in India
(i) a person residing in India for more than one hundredand eighty-two days during the course of the
preceding financial year but does not include
(A) a person who has gone out of India or who stays outside India, in either case
(a) for or on taking up employment outside India, or
(b) for carrying on outside India a business or vocation outside India, or
(c) for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period;
(B) a person who has come to or stay in India, in either case, otherwise than
(a) for or on taking up employment in India, or
(b) for carrying on in India a business or vocation in India, or
(c) for any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period;
(ii) any person or body corporate registered or incorporated in India,
(iii) an office, branch or agency in India owned or controlled by a person resident outside India,
(iv) an. office, branch or agency outside India owned or controlled by a person resident in India;
Non-Resident Indian (NRI) : He is a person resident outside India who is a citizen of India. Indian students abroad, also treated NRIs.
Person of Indian Origin (PIO) : A person resident outside India who is a citizen of any country other than Bangladesh or Pakistan and
:
a) Who was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955; or
b) Who belonged to a territory that became part of India after the 15th day of August, 1947; or
c) Who is a child or a grandchild or a great grandchild of a citizen of India or of a person referred to in clause (a) or (b); or
d) Who is a spouse of foreign origin of a citizen of India or spouse of foreign origin of a person referred to in
clause (a) or (b) or (c)
Non Residents and their
Accounts

Resident: As per section 2(v) of the FEMA 1999, a person is called resident in India if he stays in India for more than 182 days during
the preceding financial year except those who have gone out of India for taking up employment outside India or for carrying on a
business or vocation outside India or for any other purpose indicating his intention to stay abroad for indefinite period.
NON Resident: Person resident outside India means a person who is not resident in India.
 Person of Indian Origin: A. Person of Indian Origin is one who is presently not a national of Pakistan or Bangladesh and: (a) who
at anytime held an Indian passport; or (b) he himself, either of his parents or any of his grandparents was a citizen of India by
virtue of Constitution of India or the Citizenship Act,1955 ; or (c) the person is a spouse of Person of Indian Nationality / Origin.
 Overseas Corporate Bodies are those in which at least 60% shareholding is of NRI. OCBs are not allowed to open NRI accounts.
 Students who go abroad for studies have also been given the facility of opening NRI accounts.
Non-resident accounts are of 3 types (a) Non Resident ordinary (b) Non Resident (External) (c) Foreign Currency Non Resident (Bank)
account. Salient features of these accounts are as under:
FEATURES OF NRI DEPOSITS Foreign Currency Non-Resident (Bank) Account (FCNR(B) A/c) —(w.e.f. 15.5.1993)
Account holder: NRI of Indian nationality or origin (RBI approval for Bangladesh entities/Pakistan entities and citizens).
 Joint account: Can be of two or more NRIS. With close resident relatives, joint account (Former, or Survivor) can be opened.
Relatives can operate a/c as power of attorney holder for local withdrawals or remittance abroad in name of account holder.
 Currencies: Any freely convertible currency.
 Type of account: FDR only (a) 1 year and above, less than 2 years (b) 2 years and above less than 3 years (c) 3 years and above
less than 4 years (d) 4 years and above less than 5 years (e) 5 years only. RD, SB or CA is not allowed.  Repatriation: Principal and interest permitted.
 Source of funds: Foreign Inward remittance (FIR) or transfer from NRE-RA account (at TT selling rate)
 Interest rate and interest payment: Ceiling rate fixed by RBI (presently LIBOR + 2% (1 year to less than 3 years) and LIBOR + 3%
(for 3 years to 5 years w.e.f. 01.03.14). No interest payment if cancellation before one year. For one year deposit,. no
compounding of interest. For above one year, compounding on 180 days basis. Interest payment on 360 days in year basis. On
floating ROI, half yearly reset is allowed.
 Fund or non-fund Rupee loan: Up to value of FDR with proper margin to the depositor or 3rd party. Margin / interest rate bank
discretion. Loans proceeds to be credited to NRO account. Loans can be repaid from FCNR, NRE or NRO account balances. Banks
should not mark any type of lien, direct or indirect,
against these deposits. Premature payment not allowed if loan is granted. FC loan can be given in India or abroad.
 Nomination facility is available.
 Income Tax: Interest is not taxable. TDS not applicable.
 Additional ROI not allowed to Staff (Jul 18, 2012)
 At the request of the depositor, banks can permit remittance of the maturity proceeds to third parties outside India, provided
bank is satisfied about the bonafides of the transaction.
Non-Resident External (Rupee Account)
 Account holder: NRIs of Indian nationality or origin (RBI approval for Bangladesh entities/Pakistan citizens and entities).
 Joint account: Can be in the names of two or more NRIs. With close resident relatives, joint account (Former or Survivor) can be
opened. Relatives can operate a/c as power of attorney holder for local withdrawals or remittance abroad in name of account
holder.
 Currencies: Indian rupee by converting foreign currency.
 Type of account: Current, saving or FDR. FDR period at discretion of banks.
 Repatriation: Principal and interest permitted.
 Source of funds: Foreign Inward remittance (FIR) or transfer from FCNR-B account (at 'TT buying rate) or transfer of repatriable
funds from NRO account
 Interest rate and interest payment : Bank discretion but not more than domestic deposit (deregulated w.e.f. Dec 16, 2011).  Rupee loan: Same as in case of FCNR-B account.
 Nomination facility is available.
 Income Tax: Interest is not taxable. TDS not applicable.
 Additional ROI not available to Staff w.e.f. Jul 18, 2012.
 Important Notes (a) PoA holders cannot credit foreign currency notes and foreign traveller’schequesin NRE accounts. (b) Banks
may credit the proceeds of account payee cheques/ demand drafts / bankers' cheques, issued against encashment of foreign
currency to the NRE account of the NRI account holder where the instruments issued to the NRE account holder are supported
by encashment certificate issued by AD Category-I / Category-IL
Non-Resident Ordinary Account (NRO)
 Account holder: NRIs or Person of Indian Origin (individuals & not entities from Bangladesh, can be allowed without RBI
permission w.e.f. 11.2.13 Pakistan citizen not to be allowed). Foreign students can also open NRO accounts (RBI 20.09.13).
 Joint a/c : Allowed with resident individuals.
 Currencies Indian rupee.
 Account: Current, saving, RD or FDR. FDR 7 days to10 years.  Repatriation: Interest and current income is permitted. Remittance, including of sale proceeds of immovable property also
allowed @USD 1 million per financial year for bonafide purposes.
Source of funds: New account can be opened with Foreign Inward remittance. Existing account of an NRI opened when he was
resident, will be designated as NRO by the bank.  Interest rate: Bank discretion. Not more than domestic deposit interest rates.
 Nomination facility is available.
 Income Tax: Interest is taxable. TDS provisions applicable for all interest payments (FD/SB account).
 Transfer of repatriable amount from NRO to NRE permitted (May 8, 2012) within USD 1 million /FY subject to payment of tax,
as applicable.  Additional ROI not allowed to Staff (Jul 18, 2012)
 Rupee loan Up to value of FDR with proper margin to depositor or 3rd party. FC loan or loan abroad not permitted.
 Power of attorney: The facility of operation of accounts by PA holder is permitted for local withdrawals or remittance abroad in
name of account holder.
Accounts of Foreign Students in India
 NRO account can be opened on the basis of passport, photo and admission letter, for KYC purpose. Local address proof to be
provided within 30 days, when monthly withdrawal will be up to Rs.50000 and foreign inward remittance up to USD 1000. On
receiving local address proof, normal operations can be allowed.
NRO Accounts Of Foreign Nationals of Non- Indian Origin on a visit to India
 NRO (current/savings) a/c max 6 months. Source and use of funds: Funds remitted from outside India through banking channel
or by sale of forex brought into India. All payments' to residents exceeding INR 50,000 by means of cheques / pay orders /
demand drafts.
 Remittance : The balance may be converted by AD bank into foreign currency for payment to the account holder at the time of
his departure from India provided the account has been maintained for a period not exceeding 6 months and the account has
not been credited with any local funds, other than interest accrued thereon. If account maintained for more than 6 months,
account holder to seek permission on plain paper from Regional Office of RBI.
 Accounts of Foreign nationals resident in India Foreign nationals resident in India can open and maintain a resident Rupee
account in India in terms of Notification No.5/2000-RB dated May 3, 2000 viz., Foreign Exchange Management (Deposit)
Regulations, 2000, as amended from time to time.
Accounts of residents Resident Foreign Currency Account (RFC)
 Account holder: A resident in India who was earlier an NRI (at least one year stay abroad) and became resident again on or after
18.04.92
 Source of funds: (a) Forex received as pension/ superannuation /other benefits from employer abroad (b) Realization of assets
held abroad (c) Forex acquired as gift or inheritance from person who was NRI (d) Existing FCNR account or NRE-FD to be
converted to RFC FD at discretion of account holder before or after maturity.
 Joint account: It can be single account. With close resident relatives, joint account can be opened as FORMER or SURVIVOR
account.
 Type of account : Savings, Current, Fixed Deposit (min 7 days and max 10 years)
 Repatriation is permitted.
 Interest rates: The banks are free to determine ROI.
 Use of funds: No restrictions
Resident Foreign Currency (Domestic) Account - RFC(D)
 Account holder: Resident Individuals
 Source of funds: Foreign exchange acquired, (a) while on a visit abroad (b) from any person on visit to India or honorarium or
gift or for services or settlement of any lawful obligation (c) by way of honorarium or gift while on a visit abroad (d) representing
unspent foreign exchange acquired during travel abroad. Amount to be converted in rupees, latest by last day of next month.
 Type of account : Only current account
 Interest : No interest payable on this deposit
 Use of funds: For all permitted transactions.
Exchange Earner's Foreign Currency Account (EEFC Account)
 Account holder : Exporters of goods and services, resident in India
 Source of funds: Up to 100% of forex earnings can be kept in the account. But amount to be converted in rupees, latest by last
day of next month.
 Use of funds: Balance can be transferred to NRE/FCNR account on change of status from resident to non-resident. Funds can be
used for adjustment of pre-shipment loans.
 Loan: No loan can be allowed against the balances in such account.
 Type of account: Current account, single or joint (FORMER or SURVIVOR) with close resident relatives.  Interest : No Interest is payable
LIBERALISED REMITTANCE SCHEME (LRS) FOR RESIDENT INDIVIDUALS
 RBI introduced LRS on Feb 04, 2004. Major changes were made by RBI in LRS w.e.f. 01.06.2015 (based on Govt. notification
15.05.15).
 Eligibility: All resident individuals including minors and non-individuals are eligible. Remittances under the facility can be
consolidated in respect of family members subject to individual family members complying with the terms and conditions.

 It is mandatory to have PAN number to make remittances beyond USD 25000.00 for current account transaction and for all
capital account transactions.
 Forex can be purchased from authorised person which indude AD Category-1 Banks, AD Category-2 and Full Fledged Money
Changers.
 Capital Accounts transactions Remittances up to USD 250,000 per financial year can be allowed for permissible capital account
transactions as under: I) opening of foreign currency account abroad; ii) purchase of property abroad; iii) making investments
abroad; iv) setting up Wholly owned subsidiaries and Joint Ventures abroad; v) loans including in Indian Rupees to Non-resident
Indians relatives as defined in Companies Act, 2013.
 Current account transactions: All facilities (Including private/business visits) for remittances have been subsumed under overall
limit of USD 250,000/FY.
 Facilities for Individuals: Individuals can avail of forex facility for the following purposes within the limit of USD 250000.
Additional remittance shall require prior approval of RBI. Private visits to a country (except Nepal & Bhutan),Gift or donation.
Going abroad for employment or immigration. Maintenance of close relatives abroad ,Travel for business, or attending a conference
or specialized training or for meeting medical expenses, or check-up abroad, or for accompanying as attendant to a patient going
abroad for medical treatment/ check-up. Expenses for medical treatment abroad , Studies abroad ,
 Any other current account transaction
 Exception: For immigration, medical treatment and studies abroad, the individual may avail of exchange facility in excess of LRS
limit if required by a country of emigration, medical institute offering treatment or the university, respectively.
 Facilities for persons other than individual: Donations up to 1% of forex earnings in previous 3 FY or USD 5,000,000, whichever is
less, for: creation of Chairs in reputed educational institutes, contribution to funds (not being an investment fund) promoted by
educational institutes; and technical institution/body/ association in the field of activity of the donor Company.
 Commission, per transaction, to agents abroad for sale of residential flats or commercial plots in India exceeding USD 25,000 or
5% of inward remittance whichever is more.
 Remittances exceeding USD 10,000,000 per project for any consultancy services for infrastructure projects and USD 1,000,000
per project, for other consultancy services procured from outside India.
 Remittances exceeding 5% of investment brought into India or USD 100,000 whichever is higher, by an entity in India by way of
reimbursement of pre-incorporation expenses.
 Loan facility: Banks should not extend any kind of credit facilities to resident individuals to facilitate remittances under the
Scheme.  Remittances not available under the scheme:
 Remittance for any purpose specifically prohibited under Schedule-I (like purchase of lottery/sweep stakes, tickets, prescribed
magazines etc.) or item restricted under Schedule II of FEMA (Current A/c Transactions) Rules, 2000.
 Remittances made to Bhutan, Nepal, Mauritius or Pakistan.
 Remittances made to countries identified by the Financial Action Task Force (FATF) as "non cooperative countries and
territories" as available on FATF website (viz Cook Islands, Egypt, Guatemala, Indonesia, Myanmar, Nauru, Nigeria, Philippines
and Ukraine) or as notified by RBI.
 Remittances to individuals and entities identified as posing significant risk of committing acts of terrorism as advised separately
by RBI to the banks.
 Reporting of the transactions: The remittances made will be reported in the R-Return in the normal course.
Rules related to release / remittance of foreign exchange to residents
 AD banks can release forex to residents in India as per Rules framed u/s Sec 5 of FEMA. Forex cannot be released for Schedule I
transactions. For Schedule II transactions, Govt. permission is required. For Schedule III transactions, forex can be released up to
specified limit by AD banks. Beyond that limit, approval of RBI is required.
 Nepal & Bhutan - Forex for any kind of travel to or for any transaction with persons resident in Nepal and Bhutan cannot be
released. Any amount of Indian currency can be used. Highest denomination of currency note can be Rs.100.
 Up to Rs.25000, any denomination is allowed.
 Form of foreign currency: 1. Coins, currency notes and traveller's cheques. Currency notes/coins can be up to US$ 3000. The
balance can be traveller's cheque or banker's draft.
 For Iraq and Libya currency notes and coins can be obtained up to US$ 5000 or its equivalent.
 For Iran, Russian Federation, and other Republics of Commonwealth of Independent Countries, no ceiling.
 Mode of purchase: In cash up to Rs.50, 000/-. Above this, payment by way of a crossed cheque/banker's cheque/pay
order/demand draft / debit card / credit card only.
 Surrender of unused forex: Currency notes and travellers' cheques within 180 days of return.
 Retention of unused forex : US$2,000 or its equivalent. There is no restriction on residents for holding foreign currency coins.  Use of International Credit Card (ICC): Use of the ICCs / ATMs/ Debit Cards can be made for personal payments and for travel
abroad for various purposes, only up to specified limits.
 Export / Import of Indian currency by Residents or non-residents: Up to Rs. 25000 each to or from any country other than
Nepal or Bhutan (Pakistan & Bangladesh Rs.10000).
 Import of Foreign exchange from abroad: Any amount subject to declaration on CDF.

Mandatory CDF: Where total amount exceeds US$ 10,000 (or its equivalent) and/or value of foreign currency notes exceeds
US$ 5,000, declaration should be made to the Customs Authorities through Currency Declaration Form (CDF), on arrival in India.
 Application for purchase of FC: Form A2. It is not required up to $ 25000. A2 to be preserved by banks for one year for
verification by Auditors. endorsement on Passport : It is not mandatory for Authorised
 Dealers to endorse the amount of foreign exchange sold for travel abroad on the passport of the traveller. However, if
requested by the traveller, AD may record under its stamp, date and signature, details of foreign exchange sold for travel.

Correspondent Banking and NRI Accounts

Correspondent Banking and NRI Accounts
FOREIGN EXCHANGEMANAGEMENT ACT (FEMA)
The Foreign Exchange Management Act 1999 (FEMA) was enacted on December 02, 1999 to replace Foreign Exchange Regulation
Act (FERA) 1973. The Act came into on June 01, 2000 and extends to the entire country, all branches, offices, agencies outside India -
those owned or controlled by a person residing in India.
Objective of FEMA : (i) Facilitating external trade and payments and (ii) for promoting the orderly development and maintenance of
foreign exchange market in India.
Authorised persons (APs)
All transactions can be carried by residents and non-residents through APs. An AP may be a dealer (Authorised Dealer of Category I,
II or Category III) or a money-changer. It may be an off-shore banking unit or any other person appointed under the Act. RBI issues
licences to authorised person. It can revoke the authorisation if the person fails to comply with the conditions.
Classification of Persons Authorised to deal in Foreign Exchange
1. AD Category-I (comprising Commercial, State & Urban Coop Banks) : All current and capital account transactions according
to RBI directions issued from time-to-time.
2. Authorised Dealers Category-lI (Upgraded FFMCs, Coop Banks, RRBs and others):
Specified non-trade related current account transactions as at paragraph 3 below as also all the activities permitted to Full
Fledged Money Changers. Any other activity as decided by RBI.
3. Authorised Dealers Category-III (Select Financial and other Institutions): Transactions incidental to the foreign exchange
activities undertaken by these institutions.
4. Full Fledged Money Changers (FFMCs): (comprising Dept. of Posts , Urban Co-op. Banks and other FFMCs)
RBI powers under FEMA
RBI can prohibit, restrict and regulate various transactions such as transfer or issue of any foreign security by a resident of India and
by a person residing outside India., borrowing or lending in foreign exchange, borrowing or lending in rupees between a resident in
India and a person outside India, deposits between residents in India and residents outside India, export, import or holding of
currency or currency notes, transfer of immovable property outside India other than a lease not exceeding five years, by a person
resident in India, giving guarantee or surety in respect of any debt obligation or other liability incurred by person resident in Indian to
a person outside India and vice-versa, etc.
CORRESPONDENT BANKING
Correspondent banking: It is relationship between two banks having mutual accounts with each other or one of them is having
account with other. OR a relationship and servicing of banking needs, as agent without having account relationship.
Benefit of correspondent banking: Through correspondent banking, a bank is able to handle business in another city or country
through local banks acting as agent. The system eliminates the need to have global network branches that involves high costs.
Hence bank can take advantage of the business opportunities in other countries.
Functions handled by correspondent banks:

(a) account services such as (a) clearing house functions, (b) collections, payments, (c) overdrafts, (d) loan facility and (e)
investment services
(b) other services such as (a) LC advising, (b) LC confirmation, (c) Bankers acceptances, (d) issue of guarantees, (e) forex
services, (f) custodial services etc.
Types of accounts opened under correspondent banking: These accounts include NOSTRO, VOSTRO, LORO accounts.
NOSTRO account: This is an account of a bank in another country (say SBI's account in New York with Citibank). This is called "our
account with you".
VOSTRO account: This is an account of a foreign bank in India. (say Citibank's account in New Delhi with SRI). This is called "your
account with us".
LORO account: This is an account of a bank in another country which is used by a 3.3 bank (say for BoB, SBI's account in New York
with Citibank). This is called "Their account with them".
Mirror account: Mirror account is shadow (like a copy) of the NOSTRO account. The entries in this account are used for
reconciliation purpose.

DERIVATIVES

DERIVATIVES
In India, different derivatives instruments are permitted and regulated by various regulators, like Reserve Bank of India (RBI),
Securities and Exchange Board of India (SEBI) and Forward Markets Commission (FMC). Broadly, RBI is empowered to regulate
the interest rate derivatives, foreign currency derivatives and credit derivatives.
Definition : A derivative is a financial instrument:
(a) whose value changes in response to the change in a specified interest rate, security price, commodity price, foreign
exchange rate, index of prices or rates, a credit rating or credit index, or similar variable (sometimes called the 'underlying');
(b) that requires no initial net investment or little initial net investment relative to other types of contracts that have a
similar response to changes in market conditions; and
(c) that is settled at a future date.
For regulatory purposes, derivatives have been defined in the Reserve Bank of India Act, as "an instrument, to be settled at a
future date, whose value is derived from change in interest rate, foreign exchange rate, credit rating or credit index, price of
securities (also called "underlying"), or a combination of more than one of them and includes interest rate swaps, forward
rate agreements, foreign currency swaps, foreign currency-rupee swaps, foreign currency options, foreign currency-rupee
options or such other instruments as may be specified by the Bank from time to time.
Derivatives Markets
There are two distinct groups of derivative contracts:
Over-the-counter (OTC) derivatives: Contracts that are traded directly between two eligible parties, with or without the use
of an intermediary and without going through an exchange.
Exchange-traded derivatives: Derivative products that are traded on an exchange.
Participants : Participants of this market can broadly be classified into two functional categories, namely, (a) users (who
participates in the derivatives market to manage an underlying risk) and (b) the market-maker who provides continuous bid
and offer prices to users and other market-makers. A market-maker need not have an underlying risk.
Purpose : Derivatives serve a useful risk-management purpose for both financial and nonfinancial firms. It enables transfer of
various financial risks to entities who are more willing or better suited to take or manage them.
Users can undertake derivative transactions to hedge - specifically reduce or extinguish an existing identified risk on an
ongoing

RISKMANAGEMENT

RISKMANAGEMENT
For management of risk, the bank concerned has to frame a details policy, fix specific limit structure for various risks and
operations, a sound management information system and specified control, monitoring and reporting process.
The process of risk management begins from the Board of Directors, which approves a policy for management of various types
of risk which a bank may be exposed to.
The risk management policy of a bank should cover the goals and objectives, delegation of powers and responsibilities,
activities to be undertaken, level of acceptable risk, authority to undertake such functions and system of review.
In India, RBI issued ICG i.e. Internal Control Guidelines for foreign exchange business covering dealing room operations, code
of conduct for dealers, brokers, set up of the dealing room, back office and risk management structure.
According to these guidelines, the banks are required to fix limits on exposures as under:
 Overnight limit : The maximum amount a bank can keep overnight when the markets in its time zone are closed.
 Daylight limit : It is the maximum amount the bank can expose itself at any time during the day, for meeting the needs of
the customers and also its own trading operations.
 Gap limit : It is the maximum inter-period exposure that a bank can take.
 Counter party limit : The maximum amount that a bank can expose itself to a particular party (called counterparty)
 Country limit : It covers max exposure on a single country.
 Dealer limit : This is the maximum amount that a dealer can keep exposed during the operating hours.
 Stop loss limit : This is the maximum loss limit for adverse movement of rates.
 Deal size limit : This is the maximum amount of size of a deal that can be made to restrict operational risk on large size deals.
 Settlement risk :Maximum amount of exposure to any entity, maturing on a single day.

DIFFERENT KINDS OF RISKS RELATED TO FOREX TRANSACTIONS

DIFFERENT KINDS OF RISKS RELATED TO FOREX TRANSACTIONS
Foreign exchange operations face large no. of different type of risk due to a variety of reasons such as location of forex
markets without any single location, markets existing in different time zones, frequent fluctuations in the foreign currency
rates, effect of policies of the government and central banks of the related country etc.
Foreign exchange exposure: The exposure can be classified into 3 categories:
1. Transaction exposure : This arises on account of normal business operation. A transaction in foreign exchange can
exposure a firm to currency risk, when compared to the value in home currency.
2. Translation exposure : It arises on valuation of assts and liabilities created through foreign exchange and receivables or
payable in home currency, at the end of accounting period. These are notional and not actual.
3. Operating exposure : These are the factor external to a firm such as change in competition, reduction in import duty,
reduction in prices by other country exporters etc.
Exchange rate risk : Even the major currencies may experience substantial exchange rate movements over relatively short
periods of time. These can alter the balance sheet of a bank if the bank has assets or liabilities domiciled in those currencies.
An adverse movement of the rate can alter the value of the foreign exchange holdings, if not covered properly. The dealers
have to cover the position immediately.
Positions in a foreign currency : When the assets and the outstanding contracts to purchase that currency are more than the
liabilities plus and the outstanding contracts to sell that currency.
 Long or overbought position : When the purchases (and outstanding contracts to purchase) are more than the sale (the
outstanding contracts to sell).
 Short position or oversold position : When the purchases (and outstanding contracts to
purchase) are less than the sale (the outstanding contracts to sell).
Overbought or oversold position : It is called open position
Covering of position risk : The position is covered by fixing suitable limits (such as daylight position limit, overnight position limit,
single deal limit, gap-for-ward mismatch limits).
Prudent limit prescribed by RBI for open position : RBI has given discretion to bank Boards to fix their own open position limits
according to their own requirement, expertise and other related considerations.
Pre-settlement risk : It is the risk of failure of the counter party, due to bankruptcy or closure or other risk, before maturity of the
contract. This may force the bank to cover the contract at the ongoing market rates resulting into loss due to difference prevailing
between the contracted rate and rate at which the contract covered.
Settlement risk: Payment/delivery of one currency and received of other currency by both the parties. Settlement risk is the
risk of failure of the counter party during the course of settlement due to time zone differences between the two currencies
which are to be exchanged. For example, if a bank in the earlier time zone (say in Australia) performs its obligation and
delivers the currency and a bank in a later time zone (say USA) fails to deliver or delivers with delay, the loss may be caused to
the bank in the earlier time zone.
Foreign exchange settlement risk is also called temporal risk or Herstatt risk (named after failure of Bankhaus Herstatt in Germany)
The settlement risk can be taken care of by operating the system on a single time basis and also on real time gross settlement
(RTGS) basis.
Liquidity risk: The liquidity risk is where a market does not have the capacity to handle, at least without significant adverse
impact on the price, the volume of whatever the borrower buys or sells at the time he want to deal. Inability to meet debt
when they fall due could be another form of such risk.
For example, if there is deal of UK Pound purchase against the rupee and the party selling the UK Pound is short of pound in its
NOSTRO account, it may default in payment or it may meet its commitment by borrowing at a very high cost.
Country risk: It is the risk that arises when a counter party abroad, is unable to fulfill its obligation due to reasons other than the

normal risk related to lending or investment.
For example, a counter party is willing and capable to meet its obligation but due to restrictions imposed by the govt. of the
country or change in the polices of the govt., say on remittances etc. is unable to meet its repayment / remittance capacity.
Country risk can be very high in case of those countries that are having foreign exchange reserve problem.
Banks control country risk by putting restrictions on overall exposure, country exposure.
Country risk is in addition to normal credit risk. While the normal credit risk is due to failure on meeting obligation on the part of
counterparty on its own, the country risk arises due to actions initiated by the Govt. of that country due to which counterparty is not
able to perform its part.
Sovereign risk : It is larger than country risk. It arises when the counterparty is a foreign govt. or its agency and enjoys sovereign
immunity under law of that country. Due to this reason, legal action cannot be taken against that counterparty. This risk can be
reduced through disclaimers and by imposing 3,d country jurisdictions.
Interest rate risk: The potential cost of adverse movement of interest rates that the bank faces on its deposits and other
liabilities or currency swaps, forward contracts etc. is called interest rate risk. This risk arises on account of adverse
movement of interest rates or due to interest rate differentials. The bank may face adverse cost on its deposit or adverse
earning impact on its lending and investments due to such change in interest rates.
Interest rate can be managed by determining the interest rate scenario, undertaking appropriate sensitivity exercise to estimate the
potential profit or losses based on interest rate projections.
Gap risk : Banks on certain occasions are not able to match their forward purchase and sales, borrowing and lending which
creates a mismatch position, which is called gap risk. The gaps are required to be filled by paying or receiving the forward
differential. These differentials are the function of interest rates.
The gap risk can be managed by using derivative products such as interest rate swaps, currency
swaps, forward rate agreements.
Fledging risk: This occurs when one fails to achieve a satisfactory hedge for one's exposure, either because it could not be
arranged or as the result of an error. One may also be exposed to basic risk where the available hedging instrument closely
matches but does not exactly mirror or track the risk being hedged.
Operational risk : It is a potential catch that includes human errors or defalcations, loss of documents and records, ineffective
systems or controls and security breaches, how often do one consider the disaster scenario.
Legal, jurisdiction, litigation and documentation risks including netting agreements and cross border insolvency. Which country's
laws regulate individual contracts and the arbitration of disputes ? Could a plaintiff take action against a borrower in an
overseas court where they have better prospects of success or of higher awards ? There is a growing and widespread belief
that, whatever goes wrong, someone else must pay. The compensation culture whatever its justification or cause, is becoming
a big problem for many businesses.

Very Important PRIORITY SECTOR ADVANCES

PRIORITY SECTOR ADVANCES
Evolution : In July 1968 banks were advised to increase lending to priority sectors. Description of priority sector was formalized in
1972. Banks were advised in Nov 1974, to achieve a lending target of 33-1(3 % by March 1979 which was increased to 40% in 1980
(to be achieved by 1985). Sub-targets for lending to agriculture and weaker sections were specified in 1980. The guidelines were
revised on recommendations Of M V Nair Committee on 20.07.12 .RBI revisedthe priority sector lending guidelineswith effect fromApril
23rd 2015 onthe basisof recommendations of an InternalWorkingGroup(IWG) headedbyMs Lily Vadera. Thesalient features of the guidelines
are asunder:-
Categories / Activities under priority sector
1. Agriculture
2. Micro, Small and Medium Enterprises
3. Export Credit
4. Education
5. Housing
6. Social Infrastructure
7. Renewable Energy
8. Others
Targets /Sub-targets for Priority sector
Domestic scheduled commercial banks and Foreign banks with 20 branches and above
Total Priority Sector:
40% of Adjusted Net Bank Credit (ANBC) or Credit Equivalent Amount of Off-Balance Sheet Exposure (CEOBE), whichever is higher.
Sub-Targets:
1. Agriculture : 18% of ANBC or CEOBE, whichever is higher. A sub-target of 8% is prescribed for Small and Marginal Farmers,
to be achieved in a phased manner i.e., 7% by March 2016 and 8% by March 2017. (Banks should reach the level of 13.5%
direct lending to beneficiaries who earlier constituted the direct agriculture sector).
2. Micro Enterprises: 7.5% of ANBC or CEOBE, whichever is higher (7% by March 2016 and 7.5% by March 2017).
3. Weaker Sections : 10% of ANBC or CEOBE, whichever is higher.
Important : Foreign banks with 20 branches and above ' are to achieve the total priority sector target of 40%, agriculture advances
target of 18% and Weaker Sections Target within a maximum period of 5 years starting from April 1, 2013 and ending on March 31,
2018. The sub-target for Small and Marginal farmers and for Micro Enterprises would be made applicable post 2018 after a review in
2017.
Foreign banks with less than 20 branches Total priority sector target : 40% of ANBC or CEOBE, whichever is higher to be achieved in
a phased manner between 2016-2020. (Additional 2% each year to be achieved by lending to sectors other than exports. The sub
targets would be decided in due course).
Computation of priority sector targets
The computation targets/sub-targets is based on ANBC or CEOBE, whichever is higher, as on the corresponding date of the preceding
year.
Description of the eligible categories
1. Agriculture: There is no distinction between direct & indirect agriculture loans. The lending shall include (i) Farm Credit (shortterm
crop loans and- medium/long-term credit to farmers) (ii) Agriculture Infrastructure and (iii) Ancillary Activities.
(1) Farm credit
A) 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 of such loans], directly engaged in Agriculture and Allied Activities, viz., dairy, fishery,
animal husbandry, poultry, bee-keeping and sericulture. This will include:
(1) Crop loans to farmers, including traditional/non-traditional plantations & and horticulture and loans for allied activities.
(ii) Medium and long-term loans to farmers for agriculture and allied activities (e.g. purchase of agricultural implements and
machinery, loans for irrigation and other developmental activities undertaken in the farm, and developmental loans for allied
activities)
(iii) Loans to farmers for pre and post-harvest activities, viz., spraying, weeding, harvesting, sorting, grading and transporting of
their produce.
(iv) Loans up to Rs.50 lakh against pledge/hypothecation of agricultural produce (including warehouse receipts) for a period not
exceeding 12 months.
(v) Loans to distressed farmers indebted to non-institutional lenders.

(vi) Loans under Kisan Credit Card Scheme.
(vii) Loans to small and marginal fanners for purchase of land for agricultural purposes.
B) Loans to corporate farmers, farmers' producer organizations/companies of individual farmers, partnership firms and co-operatives
of farmers directly engaged in Agriculture and Allied Activities, up to an aggregate limit of Rs. 2 crore per borrower. This will include
the loans as per categories A (i, ii, iii, iv) above:
(ii) Agriculture infrastructure:
i) Construction of storage facilities (warehouses, market yards, godowns and silos) including cold storage units/ chains to
store agriculture produce/products, irrespective of location.
ii) Soil conservation and watershed development. iii). Plant tissue culture and agri-biotechnology, seed production, production
of bio-pesticides, bio-fertilizer, and vermi composting.
An aggregate sanctioned limit of Rs.100 crore per borrower from the banking system, will apply. (iii) Ancillary activities
(i) Loans up to Rs. 5 crore to co-operative societies of farmers for disposing of produce.
(ii) Loans for Agriclinics & Agribusiness Centres.
(iii) Loans for Food and Agro-processing up to an aggregate sanctioned limit of Rs.100 crore per borrower from the banking
system.
(iv) Custom Service Units by individuals, institutions or organizations who maintain a fleet of tractors, bulldozers, well-boring
equipment, threshers, combines, etc., and undertake farm work for farmers on contract basis.
(v) Loans to Primary Agricultural Credit Societies (PACS), Farmers' Service Societies (FSS) and Large-sized Adivasi Multi-Purpose
Societies (LAMPS) for on-lending to agriculture.
(vi) Loans to MFIs for on-lending to agriculture sector fulfilling the specified conditions.
(vii) Outstanding deposits under RIDF and other
eligible funds with NABARD on account of priority sector shortfall.
To compute 8% target, the Small and Marginal Farmers will include the following:-
• Farmers with landholding of up to 1 hectare considered as Marginal Farmers and farmers with a landholding of more than 1
hectare and upto 2 hectares considered as Small Farmers.
• Landless agricultural labourers, tenant farmers, oral lessees and share-croppers.
• Loans to SHGs or 31.Gs, i.e. groups of individual Small and Marginal farmers directly engaged in Agriculture and Allied
Activities, provided banks maintain disaggregated data of such loans.
Loans to farmers' producer companies of individual farmers, and co-operatives of farmers directly engaged in agriculture and allied
activities, where the membership of small and marginal farmers is not less than 75% by number and whose land-holding share is also
not less than 75% of the total land-holding.
2. Micro, Small & Medium Enterprises
I. Bank loans to MSMEs in manufacturing and production.
2. Loans up to Rs. 5 crore to Micro & Small Enterprises and Rs.10 crore to Medium Enterprises providing or rendering of
services.
3. Loans to units in the Khadi and Village Industries (KVI) sector which will be eligible for classification under the sub-target of
7.5% prescribed for Micro Enterprises.
Other Finance to MSMEs
(i) Loans to entities involved in assisting the decentralized sector in the supply of inputs to and marketing of outputs of
artisans, village and cottage industries.
(ii) Loans to co-operatives of producers in the decentralized sector viz. artisans, village and cottage industries.
(iii) Loans to MFIs for on-lending to MSME sector fulfilling the specified conditions.
(iv) Loans outstanding under General Credit Cards (including Artisan Credit Card, Laghu Udyami Card, Swarojgar Credit Card,
and Weaver's Card etc. meeting non-farm entrepreneurial credit needs)
(v) overdraft up to Rs.5000 under PM Jan Dhan accounts (where borrowers household annual income does not exceed
Rs.100,000 for rural areas and Rs.1,60,000 for non-rural areas).
(vi) Factoring transactions on 'without recourse' basis with MSMEs.
(vii) Outstanding deposits with SIDBI or MUDRA on account of priority sector shortfall.
Important : MSME units will continue to enjoy the priority sector lending status up to 3 years after they grow out of the MSME
category concerned.
3. Export Credit.
Incremental export credit over corresponding date of the preceding year, up to 2% of ANBC or CEOBE, whichever is higher, effective
from April 1, 2015 for domestic banks, subject to a sanctioned limit of Rs.25 crore per borrower to units having turnover of up to
Rs.100 crore. For foreign banks with 20 branches and above this to become effective from April 1, 2017.
4. Education:
Loans to individuals for educational purposes including vocational courses up to Rs. 10 Iakh irrespective of the sanctioned amount
will be considered as eligible for priority sector.
5. Housing

(i) Loans for purchase/construction of a dwelling unit per family : Up to Rs. 28 Iakh (overall cost of house maximum Rs.35 lac)
in metropolitan centres (with population of 10 latch and above) and loans up to Rs. 20 lakh (overall cost of house maximum
Rs.25 lac) in other centres.
Note (1) The housing loans to banks' own employees will be excluded. (ii) The housing loans backed by long term bonds (which are
exempted from ANBC), should either be included under loans to individuals or banks may take benefit of exemption from ANBC, but
not both.
(ii) Loans for repairs to damaged dwelling units of families up to Rs. 5 lakh in metropolitan centres and up to Rs.2 lakh in other
centres.
(iii) Bank loans to any governmental agency for construction of dwelling units or for slum clearance and rehabilitation of slum
dwellers. (Ceiling - Rs.10 lakh per dwelling unit).
(iv) The loans for housing projects exclusively for construction of houses for economically weaker sections and low income
groups, the total cost of which does not exceed Rs. 10 lakh per dwelling unit. For identifying the economically weaker
sections and low income groups, the family income limit of Rs. 2 lakh per annum, irrespective of the location, is prescribed.
(v) Bank loans to Housing Finance Companies (HFCs), approved by NHB for their refinance, for on-lending for the purpose of
purchase/ construction/reconstruction of individual dwelling units or for slum clearance and rehabilitation of slum dwellers,
subject to an aggregate loan limit of Rs. 10 lakh per borrower. These loans are restricted to 5% of the individual bank's total
priority sector lending. The maturity of bank loans should be co-terminus with average maturity of loans by HFCs.
(vi) Outstanding deposits with NI1B on account of priority sector shortfall.
6. Social infrastructure
Loans up to a limit of Rs. 5 crore per borrower for building social infrastructure namely schools, health care facilities, drinking water
facilities and sanitation facilities in Tier H to Tier VI centres.
7. Renewable Energy
Bank loans up to a limit of Rs. 15 crore to borrowers for solar and biomass based power generators, wind mills, micro-hydel plants
and for non-conventional energy based public utilities viz. street lighting systems, and remote village electrification. For individual
households, the loan limit will be Rs. 10 lakh per borrower.
8. Others
I. Loans not exceeding Rs. 50,000/- per borrower to individuals and their SHG/ILG (household annual income in rural areas
does not exceed Rs. 100,000 and for non-rural areas Rs.1,60,000).
2. Loans to distressed persons (other than farmers) not exceeding Rs.100,000 per borrower to prepay their debt to noninstitutional
lenders.
3. Loans to State Sponsored Organisations for Scheduled Castes/ Scheduled Tribes for specific purpose of purchase and supply
of inputs and/or the marketing of the outputs of the beneficiaries of these organisations.
Investments eligible for classification as Priority Sector lending
In all the following cases, the assets in which the investment is made, should be originated by banks as eligible priority sector
advances except `other priority sector' loans.
1. Investments in securitised assets originated by banks and financial institutions. The all inclusive interest charged to the
ultimate borrower by the originating entity should not exceed the Base Rate of the investing bank plus 8% per annum.
Investments in securitised assets originated by NBFCs, where the underlying assets are loans against gold jewellery, are not
eligible for priority sector status.
2. Transfer of Assets through Direct Assignment /Outright purchases
(i) Assignments/Outright purchases of pool of assets by banks originated by banks & FIs.
(ii) Eligible Loan assets purchased, should not be disposed of other than by way of repayment.
(iii) All inclusive interest charged to the ultimate borrower by the originating entity should not exceed Base Rate of purchasing
bank plus 8%%.
(iv) When banks undertake outright purchase, they must report the nominal amount actually disbursed to end priority sector
borrowers and not premium embedded amount paid to the sellers. Purchase/ assignment/investment transactions
undertaken by banks with NBFCs, where the underlying assets are loans against gold jewellery, are not eligible for priority
sector status.
3. Inter Bank Participation Certificates: IBPCs bought by banks, on a risk sharing basis.
4. Priority Sector Lending Certificates: The outstanding priority sector lending certificates bought by the banks.
Priority Sector Lending Certificates Through PSLC, the seller sells the fulfillment of priority sector obligation and the buyer
buys the same. There will be no transfer of risks or loan assets. Sellers/Buyers: Commercial Banks, RRBs, Local Area Banks,
Small Finance Banks & Urban Co-op Banks. The PSLCs are traded and settled through the CBS portal (e-Kuber) of RBI.
Types of PSLCs: There would be 4 kinds of PSLCs :
1. PSLC - Agriculture : Eligible Agriculture loans except SF/MF, for achievement of agriculture target and overall PSL target.
2. PSLC - SF/MF : Eligible loans to small/marginal 'farmers for achievement of SF/MF sub-target, agriculture target and overall
PSL target.
3. PSLC - Micro Enterprises : All PSL Loans to Micro Enterprises for achievement of micro-enterprise sub-target and overall PSL

target.
4. PSLC - General : The residual priority sector loans i.e. other than loans to agriculture and micro enterprises for for
achievement of overall PSL target
Amount for issue: Normally PSLCs will be Issued against the underlying assets. A bank can issue PSLCs upto 5G% of previous year's
PSL achievement without having the underlying in its books.
Expiry date : All PSLCs will expire by March 31st irrespective of the date it was first sold.
Value and Fee: The nominal value of PSLC would represent the equivalent of the PSL that would get deducted from the PSL portfolio
of the seller and added to the PSL portfolio of the buyer. The buyer would pay a fee to the seller which will be market determined.
Lot Size: The PSLCs would have a standard lot size of Rs.25 lakh and multiples thereof.
COMPUTATION OF PRIORITY SECTOR ADVANCES FOR TARGET PURPOSE
Targets : The targets to be computed based on ANBC / CEOBE, whichever higher, of precedingMarch 31/.
ComputationofAdjustedNetBank Credit (ANBC )
Bank Credit inIndia [ItemNo.VIof Form‘A’ under Section42 (2) of the RBIAct, 1934]. I
BillsRediscountedwithRBI andother approvedFinancial Institutions II
Net Bank Credit (NBC) - For thepurposeof priority sector computationonly III (I-II)
Bonds/debentures inNon-SLR categories underHTMcategory+ other investments eligibletobe treatedas
priority sector +OutstandingDepositsunderRIDF and other eligible fundswithNABARD,NHB and SIDBIon
accountof priority sector shortfall +outstandingPSLCs
IV
Eligibleamount for exemptions onissuanceof long-termbonds for infrastructure andaffordable housing V
Eligibleadvances extended inIndia against theincremental FCNR(B)/NRE deposits, qualifying for exemptionfrom
CRR/SLR requirements. VI
ANBC III+IV-V-VI
For calculation of Credit Equivalent Amount of Off-Balance Sheet Exposures, banks to follow Master Circular on Exposure Norms* For priority
sector computation. Banks should not deduct / net any amount like provisions, accrued Interest, etc. from NBC.
Where banks subtract prudential write off at
Corporate/Head Of level while reporting Bank Credit,
the bank are to ensure to credit to priority sector and all other sub-sectors so written off should also be subtracted category wise
from priority sector and sub-target achievement. All types of loans, investments or any other items which are treated as eligible for
classification under priority sector target/sub-target achievement should also form part of Adjusted Net Bank Credit.
Data / Report on PS Lending to RBI
Banks are to report priority sector lending, to RBI on quarterly (within 15 days) and annual basis (within 1 month) on prescribed
format.
Non-achievement of priority sector targets and sub-targets
A simple average of all quarters will be arrived at and considered for computation of shortfall / excess at end of the year for overall
and sub-targets.
DOMESTIC BANKS and FOREIGN BANKS with 20 or more brandies
The amount of shortfall in lending to priority sector or agriculture or weaker section, to be deposited in RIDF, Warehouse
Infrastructure Fund, Short Term Co-operative Rural Credit Refinance Fund and Short Term RRB Fund with NABARD or other funds
with NITB/SIDBI. This amount is shown in Schedule 11 (other assets) of bank balance sheet.
FOREIGN BANKS with less than 20 branches Amount of shortfall in PS target, will be placed with SIDBI or other financial institution.
This amount is shown in Schedule 11 (other assets) of bank balance sheet.
Rate of interest on amount deposited
1- For shortfall less than 5%age points : Bank Rate minus 2%age points
2- For shortfall 5 and above, but less than 10%age points : Bank Rate minus 3 percentage points
3- Shortfall 10 percentage points and above : Bank Rate minus 4 percentage points
ROI on loans disbursed from RIDF /SEDF = Bank Rate minus 1.5%.
Misclassification : The misclassifications reported by RBI's Department of Banking Supervision would be adjusted/ reduced from the
achievement of that year, to which the amount of declassification/ misclassification pertains, for allocation to various funds in
subsequent years.
WEAKER SECTION IN PRIORITY SECTOR
1. Small and Marginal Farmers
2. Artisans, village and cottage industries where individual credit limits do not exceed Rs.1 lakh
3. Beneficiaries under National Rural Livelihoods Mission (NRLM), National Urban Livelihood Mission (NULM), Differential Rate
of Interest (DRI) and Self Employment Scheme for Rehabilitation of Manual Scavengers (SRMS)
4. Scheduled Castes and Scheduled Tribes
5. Beneficiaries of Differential Rate of Interest (DRI) scheme

6. Self Help Groups
7. Distressed farmers indebted to non-institutional lenders _
8. Distressed persons other than-farmers, with loan amount not exceeding Rs.1 lakh per borrower to prepay their debt to noninstitutional
lenders
9. Individual women beneficiaries up to Rs. 1 lakh per borrower
10. Persons with disabilities
11. Overdrafts upto Rs.5,000/- under PM Jan-Dhan Yojana a/c (provided household annual income does not exceed Rs, 100,000
for rural areas and Rs. 1,60,000 for non-rural areas)
12. Minority communities notified by Govt. of India.
Common guidelines for priority sector loans
1. Time limit for disposal of loan applications At discretion of the bank concerned (instead of the earlier time limit prescribed
by R131).
2. Rejection of Loan Proposals
Reasons to be given for rejection, in writing. Branch Managers can reject applications and cases of rejection are to be verified
subsequently by Divisional/Regional Managers. For SC/ST, rejection should be at a level higher than that of Branch Manager.
Rates of Interest
Banks have full discretion to fix interest rates which must not be less than the MCLR.
In case of agriculture advances, interest to be compounded annually as per Supreme Court judgement dated June 20, 1994.
No dues certificate
Banks have been advised by RBI (Jan 28, 2015) 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 obtaining 'No Dues Certificate'.
SUMMARY OF COLLATERAL SECURITY NORMS
Common guidelines for priority sector loans
1. Loans up to Rs 25,000 in PS there is no margin, no collateral security, no penal interest on advance, no processing fees
and no inspection charge.
2. Loan more than Rs 25,000, the margin will be from 15% to 25%. For Loans beyond Rs 25,000, bank can ask for
TPG/collateral security or both.
3. Loanapplicationdisposalnorms :AsdecidedbyBank'sBoardofDirectors
4. COLLATERAL SECURITY :
For agriculture: NIL In case of: Up to Rs.100000.
Up to Rs.3 lac in case of recovery tie-up
Other priority sector Up to Rs.25000 nil
Micro & Small Enterprises:
-normal accounts -good track record a/c -accounts guaranteed
under CGF guarantee
Not to be insisted upon: Up to Rs.10 lac
Up to Rs.25 lac
up to Rs.100 lac Up to Rs.5 lac —nil
Agro clinics & business centres
SGSY:
-Individual up to Rs.100000
-Group up to Rs. 10 lac
Not to be obtained up to this amount
SISRY Not to be obtained
Education loan up to Rs.7.50 lac Not to be obtained up to this amount.
1. Rate of interest: As per directives issued by RBI.
2. Service charges: No loan related and adhoc service charges/inspection charges on priority sector loans up to Rs 25,000.
3. Receipt, Sanction/Rejection/Disbursement Register: A register/ electronic record should be maintained by the bank, wherein
the date of receipt,
sanction/rejection/disbursement with reasons thereof, etc., should be recorded.
4. Issue of Acknowledgement of Loan Applications: Banks should provide acknowledgement for loan applications received under
priority sector loans. Bank Boards should prescribe a time limit within which the bank communicates its decision in writing to the
applicants.
PROCESSING/INSPECTION FEE, SERVICE CHARGE, PENAL INTT IN PRIORITY SECTOR ADVANCES
For loans up to Rs.25000 No charges
For loans above Rs.25000 Bank discretion
Priority Sector Lending Targets for RRBs
RBI fixed the following targets for Regional Rural Banks w.e.f. 1.1.2016 :

1. PS Lending Targets: 75% of total outstanding.
2. Agriculture: 18%% of total outstanding.
3. Small and Marginal Farmers: 8% of total outstanding*
4. Micro Enterprises: 7.5% of total outstanding**
5. Weaker Sectors: 15% of total outstanding. (* 7% by March 2016 and 8% by March 2017.) (**7% by March 2016 and `
7.5% by March 2017.)
AGRICULTURALADVANCES
1. NoMarginandNo Collateral security for agricultural advances uptoRs 100,000
2. No no dues certificatefor loans upto Rs 50,000.
3. Committeeonflowof credit toagriculturewasheadedby:ProfVyas
4. Crops divided into short duration and long duration. Short duration crop where crop season upto: 12 months. Long
Duration crop where crop season more than 12 months. 5_ The decision regarding duration of crop by SLBC_
6. ServiceArea approach discontinued except forGovernment sponsored schemes.
7. Rashtriya Krishi Birna Yojna (RKBY) is operated by : Agri Insurance company Limited.
8. Risks coveredby RKBY: damagetocrops by natural calamities likeflood,draught, pest attack etc
9. Risks not covered under RKBY :War andNuclear risk
10. Membersof Joint LiabilityGroupcanbe: 4to10
11. MaximumadvancetoJoint LiabilityGroup:Rs 50,000permember andRs5lac for thegroup.
12. The scale of finance per acre for crop loans is to be decided byDistrict Technical Committee.
13. If cropisdamaged, croploanhas tobeconvertedtomediumtermloanrepayablein3to5years.
14. Annewari refers todamagetocropduetonatural calamities likedraught, flood,hailstormetc.
There aremainly two types of crops Le. Rabi and Khalif. Rabi is generally sown inOct/Nov and harvestedinApril and Kharif is generally sown in July
and harvestedin Sept/Oct.Main Rabi crops arewheat and gramandmain Kharif crops are paddy, jwar, bajra.
Various types of cultures and revolutions :
1. Sericulture: Silk production. 2. Apiculture: Honey Bee keeping
3. Aquaculture: Shrimp farming, fishes 4. Pisciculture: Breeding of fishes in pond
5. Floriculture: Flower production 6. Apriculture: Mushroom production
7. Silviculture: Forestry 8. Horticulture: Fruits production
9.White revolution: milk production 10_ Green revolution: increase in foodgrain production
11. Blue revolution: fish production 12_ Yellow revolution: increase in oilseeds and pulses
13. Olericulture : Vegetable Cultivation 14. Tissue culture: Improvement of plant varieties
15. Vermiculture - Rearing of earth worm 16. Mulberry Associated with - Sericulture 17. Rainbow
revolution- connected with flowers
Interest Subvention for Agricultural Loans
1. Available for short term production loans in agriculture up to : Rs 3 lakh
2. Available only to public sector banks
3. Subvention provided by Central Govt
4. Rate of subvention: 2% p.a.
5. Interest charged by banks: 7% per annum.
6. Submission of claims: Half-yearly as at September 30, and March 31,
7. Additional subvention for prompt repayment: 3% if repayment within one year.
8. Effective rate to farmer: 4%
Kisan Credit Card
1. Scheme prepared by Nabard and changes also by Nabard.
2. Revised on recommendations of Committee headed by Shri T.M.Bhasin.
3. Kisan Credit Card Scheme can be used for (a) meeting the short term credit requirements for cultivation of crops (b) Post
harvest expenses (c) Produce Marketing loan (d) Consumption requirements of farmer household (e) Working capital for
maintenance of farm assets and activities allied to agriculture, like dairy animals, inland fishery etc. (f) Investment credit
requirement for agriculture and allied activities like pump sets, sprayers, dairy animals etc
4. Fixation of limits: The short credit limit for farmers other than marginal farmers for first year will be calculated as under -
Scale of finance for the crop (as decided by District Level Technical Committee) x Extent of area cultivated + 10% of limit
towards post-harvest / household / consumption requirements + 20% of limit towards repairs and maintenance expenses
of farm assets + crop insurance, PAIS & asset insurance_ For subsequent years, limit will be increased each year by 10%
towards cost escalation increase in scale of finance for every successive year and estimated Term loan component for the
tenure of Kisan Credit Card, i.e., five years
5. Validity Period of KCC: Banks may determine the validity period of KCC and its periodic review.
6. If there is a credit balance in the account it will earn interest at Saving Fund rate as per rules applicable in SF account.


7. Personal Accident Insurance for KCC holders: KCC holders are covered against death or permanent disability due to
accident for Rs 50,000. For partial disability due to accident the cover is available for Rs 25,000. The cover is available only
to KCC holders up to 70 years of age at the time of entry to the Scheme. The insurance premium is competitive but not
more than Rs 15 per annum to be shared by the bank and the borrower in the ratio of 2:1.
Farmers' Club Programme (FCP)
1. Features of the Club:
 Size of the Club:No restriction on the upper limit but theminimumsize should be 10members Membership: Both farmers as
well as non farmers can become themembers of the club.
 Office bearers: Each Club will have two office bearers, viz, Chief Co-ordinator and Associate Coordinator.
 Operational area: Preferably one village or a group of 2-3 villages on contiguous basis.
 Registration: Not required.
 Bank Linkage: All the Clubs should have savings bank accounts with the bank in the joint name of the office bearers.
2. NABARD assistance: Rs.10000/- per club per annum for a period of three years as per following details: Formation and
maintenance expenses:Rs.2000; Awareness / orientation meet at base level:Rs.5000; Meet with experts programme (2
programmes in a year) : Rs.3000
3. Assistance exceeding Rs.10,000/- may be met by the bank with maximum of Rs 50001- per annum during the first three
years and
Rs.10000/- per year during 4th & 5th year of formation of the club.
AGRI CLINIC & AGRI BUSINESS CENTRE
1. Eligibility: (i) The applicant should be Agricultural Graduates/Graduates in subjects allied to agriculture. (ii)Diploma in agriculture
and allied subjects from State Agricultural Universities. (iii)Science graduates with post graduation in agriculture and allied
subjects (iv) Individuals or in group of not exceeding 5 persons; of which one could be a Management Graduate with
qualification or experience in business development and management.
2.MaximumProject cost: (a) Project by individual:Rs 20lakh; (b) Projectby aGroup: Rs 100 lakh.
Margin: (a)UptoRs5Lakh:Nil;(b)AboveRs 5lakh:25%.
4. Security: (i)Upto Rs. 5 Lakh: No collateral security (ii) Above Rs.5 Lakh: Hypothecation of assets created out of bank loan
and Collateral security or Third Party Guarantee.
5. NABARDRefinance: 100per cent ofbank loan.
6. AutomaticRefinance Scheme ofNABARD:Maximumloan- Rs.30lakh, and the ceiling for refinancewouldbeRs.20 lakh. Projectswith
outlayover Rs 30 lakhrequireNABARDapproval.
7. Depending on the type of venture, the loan can be repaid within 5-10 years (with moratorium upto 2 years), in easy
installment.
8. Credit linked capital subsidybyGovt of India: (a) 36%of thecapital cost of the project. Itwouldbe 44%for SC, ST,Women and other
disadvantaged sections andthose fromNorth-EasternandHilly States. Lock inperiodfor subsidy is 3 years
IBAMODEL EDUCATION LOAN SCHEME It was prepared on Kamath Committee recommendations & approved by RBI in April 2001:

DEEN DAYAL UPADHYAYA – GRAMEEN KAUSHALYA YOJANA (DDU-GKY)

DEEN DAYAL UPADHYAYA – GRAMEEN KAUSHALYA YOJANA (DDU-GKY)
DDU-GKY is the flagship placement linked skill training programme under the Ministry.
Announced in 2014, DDUGKY is a critical component of the National Skill Development Policy.
The ultimate aim is to convert India’s demographic surplus into a demographic dividend by developing rural India into a globally
preferred source of skilled labour.
DDU-GKY is a pioneer in standards-led delivery of skilling in India, the first to notify standard operating procedures for training, and
the first to introduce IT solutions for skilling.
Key Features: DDU-GKY follows a 3 tier implementation architecture in PPP mode.
The focus of this programme is on the rural youth from poor families, in the age group of 15 to 35 years, belonging to:
MGNREGA worker household in which household members have together completed 15 days of work;
RSBY household;
Antyodaya Anna Yojana card household;
BPL PDS cardhouseholds;
NRLM-SHGhousehold; and
Household covered under auto inclusion parameters of SECC 2011.
 50 per cent allocation to SC/ST groups, 15 per cent to minorities and 33 per cent for women and 3 per cent for persons with
disabilities.
 A special sub-scheme
for the youth of Jammu Et Kashmir, called Himayat;
for the rural youth of poor families in 27 most-affected Left-Wing Extremist (LWE) districts across nine states, called Roshni and
10 per cent of DDU-GKY’s capital investment is reserved for projects from North-East region.
 Focus on quality is done through its framework of guidelines and Standard Operating Procedures (SOPs), curricula from NCVT or
QP-NOS developed by SSCs of NSDC, rating/grading systems for projects and states implementing the projects.
 Placement in wage employment is mandated for a minimum of 70 per cent of all successful candidates, with a minimum salary of
6,000 per month.
 Post-placement support is given to candidates.
 Support for job retention, career progression and foreign placements are also given to PIAs.
 In allocation of skills projects, primacy is given to training partners who can train and support overseas placement and captive
placements.
 The programme promotes Make in India, through proactive partnership with industry through multi-pronged engagement.
 Transparency and accountability through:
geotagged time stamped biometric attendance;
CCTV and audio recording of all classroom and lab sessions;
independent mechanism for project appraisal and project monitoring.



SAANSAD ADARSH GRAM YOJANA (SAGY)
 SAGY was launched in 2014, the birth anniversary of Loknayak Jayaprakash Narayan.
 Mahatma Gandhi’s concept of rural development revolves around creating model villages for transforming ‘swaraj’ into ‘su-raj’.
 The goal of SAGY is to translate this comprehensive and organic vision of Mahatma Gandhi into reality, keeping in view the present
context.
 SAGY aims at instilling certain values. These values include: ensuring the involvement of all sections of society in all aspects
related to the life of village, especially in decision-making related to governance.
 Salient Features of the Scheme:
aims to develop three Adarsh Grams chosen by MPs, by March 2019, of which one would be achieved by 2016. Thereafter, five such
Adarsh Grams (one per year) will be selected and developed by 2024;
focus on ‘Jan Bhagidar’ (community participation);
members of parliament will guide and lead the initiative;
not an infrastructure centered scheme; and
holistic development of the village.
 The programme is primarily about unleashing people’s power, converging and implementing existing government
schemes/programmes and adopting bottom-up approach in planning and execution.
 Village Development Plan would


time assistance in the case of death of the primary bread winner in a BPL family.
At present, NSAP comprises
Indira Gandhi National Old Age Pension Scheme (IGNOAPS),
Indira Gandhi National Widow Pension Scheme (IGNWPS),
Indira Gandhi National Disability Pension Scheme (IGNDPS),
National Family Benefit Scheme (NFBS) and Annapurna.
DEEN DAYAL UPADHYAYA – GRAMEEN KAUSHALYA YOJANA (DDU-GKY)
DDU-GKY is the flagship placement linked skill training programme under the Ministry.
Announced in 2014, DDUGKY is a critical component of the National Skill Development Policy.
The ultimate aim is to convert India’s demographic surplus into a demographic dividend by developing rural India into a globally
preferred source of skilled labour.
DDU-GKY is a pioneer in standards-led delivery of skilling in India, the first to notify standard operating procedures for training, and
the first to introduce IT solutions for skilling.
Key Features: DDU-GKY follows a 3 tier implementation architecture in PPP mode.
The focus of this programme is on the rural youth from poor families, in the age group of 15 to 35 years, belonging to:
MGNREGA worker household in which household members have together completed 15 days of work;
RSBY household;
Antyodaya Anna Yojana card household;
BPL PDS cardhouseholds;
NRLM-SHGhousehold; and
Household covered under auto inclusion parameters of SECC 2011.
 50 per cent allocation to SC/ST groups, 15 per cent to minorities and 33 per cent for women and 3 per cent for persons with
disabilities.
 A special sub-scheme
for the youth of Jammu Et Kashmir, called Himayat;
for the rural youth of poor families in 27 most-affected Left-Wing Extremist (LWE) districts across nine states, called Roshni and
10 per cent of DDU-GKY’s capital investment is reserved for projects from North-East region.
 Focus on quality is done through its framework of guidelines and Standard Operating Procedures (SOPs), curricula from NCVT or
QP-NOS developed by SSCs of NSDC, rating/grading systems for projects and states implementing the projects.
 Placement in wage employment is mandated for a minimum of 70 per cent of all successful candidates, with a minimum salary of
6,000 per month.
 Post-placement support is given to candidates.
 Support for job retention, career progression and foreign placements are also given to PIAs.
 In allocation of skills projects, primacy is given to training partners who can train and support overseas placement and captive
placements.
 The programme promotes Make in India, through proactive partnership with industry through multi-pronged engagement.
 Transparency and accountability through:
geotagged time stamped biometric attendance;
CCTV and audio recording of all classroom and lab sessions;
independent mechanism for project appraisal and project monitoring.
SAANSAD ADARSH GRAM YOJANA (SAGY)
 SAGY was launched in 2014, the birth anniversary of Loknayak Jayaprakash Narayan.
 Mahatma Gandhi’s concept of rural development revolves around creating model villages for transforming ‘swaraj’ into ‘su-raj’.
 The goal of SAGY is to translate this comprehensive and organic vision of Mahatma Gandhi into reality, keeping in view the present
context.
 SAGY aims at instilling certain values. These values include: ensuring the involvement of all sections of society in all aspects
related to the life of village, especially in decision-making related to governance.
 Salient Features of the Scheme:
aims to develop three Adarsh Grams chosen by MPs, by March 2019, of which one would be achieved by 2016. Thereafter, five such
Adarsh Grams (one per year) will be selected and developed by 2024;
focus on ‘Jan Bhagidar’ (community participation);
members of parliament will guide and lead the initiative;
not an infrastructure centered scheme; and
holistic development of the village.
 The programme is primarily about unleashing people’s power, converging and implementing existing government
schemes/programmes and adopting bottom-up approach in planning and execution.
 Village Development Plan would be prepared for every identified Gram Panchayat. THE NATURAL LAND REFORMS
MODERNIZATION PROGRAMME
Compiled by Sanjay Kumar Trivedy, Chief Manager, Canara Bank, Shrigonda,Ahmed Nagar, Maharashtra 21 | P a g e
The Scheme of National Land Reforms Modernization Programme (NLRMP) has been renamed as Digital India Land Records
Modernization Programme (DILRMP).
Ministry of Panchayati Raj (MoPR)
MoPR has the primary objective to ensure the compliance of the provisions of Part IX of the Constitution, provisions regarding the
District Planning Committees as per Article 243 ZD and PESA.
As per the Constitution, three tiers of Panchayats are to be constituted, through elections every five years, except in states with
population less than 20 lakh, where Panchayats at two tiers may be created.
The Constitution recognizes the Gram Sabha, i.e., all the electors in a Village Panchayat.
The Constitution provides that seats and offices of chairpersons be reserved for the Scheduled Castes (SC) and Scheduled Tribes
(ST) in proportion to their respective population, and not less than one third seats and offices of chairpersons be reserved for
women, including within SC and ST reservations.
Article 243 ZD of the Constitution mandates the setting up of District Planning Committees (DPCs) in every district, to consolidate
the plans prepared by the Panchayats and Municipalities in the district.
The Constitution provides that State Election Commissions (SECs) be set up and vested with the superintendence, direction and
control of the preparation of electoral rolls and the conduct of elections to the Panchayats.
The Constitution further provides that State Finance Commissions (SFCs) be constituted every five years.
SFCs are to make recommendations to the Governor regarding
distribution between the State and Panchayats of the net proceeds of taxes, duties, toll, fees, etc.,
determination of taxes, duties, tolls and fees which may be assigned to, or appropriated by, the Panchayats,
grants-in-aid to the Panchayats from the Consolidated Fund of the State,
measures needed to improve the financial position of Panchayats.
The state legislatures are to decide on the nature of devolution to the Panchayats, including the 29 matters in the Eleventh Schedule.
Powers to impose taxes by the provision of funds to the Panchayats are determined by state.
The powers of Gram Sabhas are also decided by states.
BASIC DETAILS OF PANCHAYATS
Today, there are more than 2.55 lakh Panchayats in the country, which include 2,48,263 Gram Panchayats, 6,618 Block Panchayats
and 595 District Panchayats.
There are more than 30 lakh Panchayat representatives which also include nearly 14.37 lakh Elected Women Representatives.
RAJIV GANDHI PANCHAYAT SASHAKTIKARAN ABHIYAN
To improve the functioning of PRIs the MoPR has been implementing the Rajiv Gandhi Panchayat Sashaktikaran Abhiyaan (RGPSA) in
the 12th Five Year Plan period.
The RGPSA addresses the major constraints of inadequate devolution of powers, lack of manpower, inadequate infrastructure and
limited capacity in the effective functioning of Panchayats.
RASHTRIYA GRAM SWARAJ ABHIYAN (RGSA)
RGSA to help Panchayati Raj Institutions to develop governance capabilities to deliver on the inable Development Goals (SDGs) was
announced in 2016.
RGSA will have the following sub-schemes:-  capacity building;
 mission mode project on e-panchayat;  ATM services in panchayat bhawans; and  incentivization of panchayats.
The thrust of the new scheme will be on the lines of the Gramoday se Bharat Uday programme which focus on social
empowerment, economic empowerment and enabled Gram Sabhas through convergence of resources at the Panchayat level.
MoPR has supported states to develop state specific guidelines for Gram Panchayat Development Plans (GPDP) which converge all
the resources over which the Panchayats have command including FFC funds, MGNREGS funds, Swachh Bharat funds, etc.
E-PANCHAYAT INITIATIVES
e-Panchayat is one of the Mission Mode Projects (MMPs) under the Digital India programme of Govt. of India.
The project seeks to completely transform the functioning of Panchayati Raj Institutions, making them more transparent,
accountable and effective.
The states are also being provided financial support through RGPSA scheme.
RECOMMENDATIONS OF FOURTEENTH FINANCE COMMISSION (FFC)
FFC award for the period 2015-20 grants to the tune of 2,00,292.20 crore are being devolved to Gram Panchayats in the country to
ensure stable flow of resources at regular intervals which will augment resources available with them to discharge their statutorily
assigned functions.
The FFC has not recommended grants to Non-Part IX areas under Schedule VI in Meghalaya, Mizoram, Tripura and Assam, the areas
in the hill districts of Manipur, rural areas of Nagaland and Mizoram.
The states are to distribute the grants to Gram Panchayats as per the approved formula recommended in the latest State Finance
Commission (SFC) report.
However, in the absence of SFC formula, grant should be distributed using population of 2011 Census with a weight of 90 per cent
and area with a weight of 10 per cent.
PRIASoft (web based Panchayat accounting software) and Plan Plus (web based participatory planning software) are the two
important Applications under e-Panchayat Mission Mode Project (MMP) that foster transparency and accountability in PRIs.

Some important schemes like INDIRA AWAAS YOJANA RURAL HOUSING

INDIRA AWAAS YOJANA RURAL HOUSING
 The rural housing scheme Indira Awaas Yojana (IAY) implemented by Ministry of Rural
Development, aimed at providing houses to families below the poverty line (BPL) in rural areas.
 In the context of Government’s priority for “Housing for All” by 2022, the rural housing scheme IAY has
been restructured to Pradhan Mantri Awaas Yojana-Gramin (PMAY-G), which came into effect from 2016-17.
 The main features of the scheme of PMAY-G include:
 providing assistance for construction of 1.00 crore houses in rural areas over the period of 3
years from 2016-17 to 2018-19;
 enhancement of unit assistance from 70,000 to 1.20 lakh in plain and from 75,000 to 1.30
lakh in hilly states, difficult areas and IAP districts;
 identification of beneficiaries based on the Socio-Economic and Caste Census (SECC 2011)
data covering households that are
 houseless or living in houses with kutcha walls and kutcha roof with two rooms or less after
excluding households falling under the automatic exclusion category; and
in addition, the beneficiary will get 12,000/- as assistance for construction of toilet.


MAHILA KISAN SASHAKTIKARAN PARIYOJANA (MKSP)
 MKSP is a subcomponent of NRLM to meet the specific needs of women farmers and achieve their
socio-economic and technical empowerment predominantly small and marginal.
 During 2015-16, a new scheme named Start-up Village Entrepreneurship Programme (SVEP) was
included in NRLM.
 The SVEP is to provide the supported enterprises with business skills, exposure, loan for starting and
business support.
PRADHAN MANTRI GRAM SADAK YOJANA (PMGSY)
 PMGSY was launched in 2000 as a centrally sponsored scheme to assist the states, though rural roads
are in the state list as per the Constitution.
 The primary objective of the Yojana is to provide connectivity by way of an all-weather road to the
reliable unconnected habitations as per core network with a population of 500 persons (as per 2001 census) and above in
plan areas.
 In respect of ‘Special Category States’ the objective is to connect eligible unconnected habitations as
per core-network with a population of 250 persons and above (Census 2001).
NATIONAL SOCIAL ASSISTANCE PROGRAMME
 The Directive Principles of State Policy in the Constitution of India enjoin upon the state to undertake
within its means a number of welfare measures.
In particular, Article 41 of the Constitution directs the State to provide public assistance to its citizens in case of unemployment, old
age, sickness and disablement within the limit of its economic capacity and development.
NSAP is a social assistance programme for poor BPL households for the aged, widows, disable and also include provision for one

time assistance in the case of death of the primary bread winner in a BPL family.
At present, NSAP comprises
Indira Gandhi National Old Age Pension Scheme (IGNOAPS),
Indira Gandhi National Widow Pension Scheme (IGNWPS),
Indira Gandhi National Disability Pension Scheme (IGNDPS),
National Family Benefit Scheme (NFBS) and Annapurna.

NATIONAL RURAL LIVELIHOODS MISSION (NRLM)

NATIONAL RURAL LIVELIHOODS MISSION (NRLM)
 The government launched National Rural Livelihoods Mission (NRLM), subsequently renamed as
Aajeevika in 2011.
 It aims at mobilizing all rural poor household into Self Help Groups (SHGs) in a phased manner.
 NRLM also aims at supporting all women SHGs of the poor, including those promoted by other state
agencies and Non-Governmental Organizations (NGOs).
 The key features of the restructured NRLM include:
 mobilization of at least one woman member from each rural poor household in the country
into SHG network in a phased manner;
 special focus on the mobilization of women from the Scheduled Castes (SCs) and the
Scheduled Tribes (STs), the Particularly Vulnerable Tribal Groups (PVTGs), the disabled and other vulnerable and
marginalized household;
 promotion of SHG federations at village and cluster levels—Village Level Self Help Group
Federations (VLF) at village level and Cluster Federation (CF) at cluster (groups of villages) level;
 provision of Revolving Fund (RF) support at the rate of 10,000-15,000 per eligible SHG to
supplement own funds;
 provision of Vulnerability Reduction Fund (VRF) to meet community level food security,
health and nutrition security;
 intensive support to link each SHG to bank credit;
 Women SHGs who will repay in time will get an additional subvention of 3 per cent.
 25 per cent of NRLM allocation is earmarked for skill development.
RURAL SELF EMPLOYMENT TRAINING INSTITUTE (RSETI)
 The government has decided to set up one RSETI in each district of the country.
 RSETIs are bank lead initiative with the active support of state government.
 The Government of India provides one time infrastructure support of rupees one crore.
 The core strength of the RSETI lies in its short term training and long term handholding to the rural
entrepreneurs for setting up micro enterprises.

MAHATMA GANDHI NATIONAL RURAL EMPLOYMENT GUARANTEE ACT (MGNREGA)

MAHATMA GANDHI NATIONAL RURAL EMPLOYMENT GUARANTEE ACT (MGNREGA)


 MGNREGA is a rights based wage employment programme implemented in rural areas of the country.
 This programme aims at enhancing livelihood security by providing upto one hundred days of
guaranteed wage employment in a financial year to every rural household whose adult members volunteer to do
unskilled manual work.
 Objectives of the Scheme are:
 creation of productive assets of prescribed quality and durability;
 strengthening the livelihood resource base of the poor;
 pro-actively ensuring social inclusion; and
 strengthening Panchayati Raj Institutions.