RBI raises cap on loans under village scheme

In a bid to help increase the credit off-take in the country, the Reserve Bank of India (RBI) has decided to raise the exemption limit of secondary collateral security under Swarnjayanti Gram Swarozgar Yojana (SGSY) to Rs 1 lakh from the existing Rs 50,000 in respect of individual loans and to Rs10 lakh from the existing Rs 5 lakh in respect of group loans.

Accordingly, for individual loans up to Rs 1 lakh and group loans up to Rs 10 lakh, the assets created out of bank loan would be hypothecated to the bank as primary collateral, the RBI said. In case where movable assets are not created as in land-based activities such as dug well, minor irrigation, mortgage of land may be obtained.

"Where mortgage of land is not possible, third-party guarantee may be obtained at the discretion of the bank," the central bank noted.

It also added that for all individual loans exceeding Rs 1 lakh and group loans exceeding Rs 10 lakh, in addition to primary security such as hypothecation, mortgage of land or third-party guarantee as the case may be, suitable margin money or other collateral security in the form of insurance policy, marketable security or deeds of other property may be obtained at the discretion of the bank.

The upper ceiling of Rs 10 lakh in respect of group loans is irrespective of the size of the group or pro-rata per capita loan to the group.

"We advise that we are receiving complaints both from the government of India and certain state governments that banks are not complying with even the existing norms of exempting individual loans up to Rs 50, 000 and for group loans up to Rs 5 lakh from taking any secondary collateral. You may kindly consider issuing necessary instructions to your controlling offices to ensure strict compliance with the guidelines," the RBI said.