----- Original Message -----
From: Feed My Inbox
To: [email protected]
Sent: Saturday, April 30, 2011 4:46 PM
Subject: 4/30 NOTIFICATIONS FROM RBI
NOTIFICATIONS FROM RBI
Compounding of interest on Agriculture Loans
April 12, 2011 at 2:52 AM
RBI/2010-11/474
RPCD.CO.RRB.BC No. 59/03.05.72/2010-11
April 11, 2011
The Chairman
All Regional Rural Banks
The Chairman & Managing Director
All Sponsor Banks
Dear Sir,
Compounding of interest on Agriculture Loans
Please refer to the instructions contained at
para. 5. in RBI Master circular RPCD. CO. Plan. BC. No. 10/04.09.01/2010-11
dated July 1, 2010 on Lending to Priority Sector, addressed to Scheduled
Commercial Banks, together with the instructions contained in para. 2 of RPCD
circular RRB. BC. No. 96/ 03.05.34/ 2001-02 dated May 27, 2002, read with
para. 2 of the circular RRB. BC. No. 105/ 03.05.34/ 2001-02 dated June 11, 2002
addressed to the RRBs, on the captioned subject.
2. A recent study undertaken by Regional Offices
of NABARD and RBI in select States has revealed that compounding of interest on
quarterly/ half-yearly basis, and not as per cropping/ harvesting cycle/s on
agricultural loans, was prevalent in some RRBs. In certain cases, NABARD has
also observed that RRBs have been using the software package developed by their
sponsor banks, which has no provision for segregating interest from principal
before applying the interest for the next period. Wherever manual accounting
was involved, the compounding was observed in a few cases attributed to human
error.
3. It is, therefore, imperative that sponsor
banks/ RRBs develop/ modify the software package to ensure that the process of
compounding of interest on agricultural loans falls in line with the extant
instructions on the subject issued to them. Also, RRBs should re-examine the
relevant cases and arrange to re-credit the excess interest wrongly charged in
the accounts, under advice to our respective Regional Offices and to NABARD.
Yours faithfully,
(C.D.Srinivasan)
Chief General Manager
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