National Bank for Agriculture and Rural Development


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Frequently Asked Questions (FAQs)

Part - 1 - Reform & Revival Package Related Questions

Part - 2 - Special Audit Related Questions

Part - 3 - Schedule & Manual Related Questions

Part - 4 - Policy & Accounting Related Questions

Part - 1 - Reform & Revival Package Related Questions

1.1.	How the farming community would get the benefit from the revival package and funding exercise?

1.2.	Whether the funding exercise for which special audit is being taken envisage writing off of the loans which have been defaulted by borrowers?

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Part - 2 - Special Audit Related Questions


2.1.	What is the objective of Special audit?

2.2.	Under what provision of Cooperative Societies Act, special audit of PACS is being taken up?

2.3.	Whether special audit tantamounts to re audit?

2.4.	Whether special audit of a society can be conducted if the society was not audited with reference to its financial position as on 31 March, 2004?

2.5.	If the earlier audit notes, differences have been reported in bank balances of Saving, Current and Loan accounts, whether provision is required to be made for such differences?

2.6.	Whether the societies established after 31 March, 2004 have to be covered under special audit?

2.7.	Whether the auditor taking up special audit is required to verify the cash held by the society while certifying the provisioning requirement for the cash held by the society?

2.8.	Whether the auditor taking up special audit has to carry out verification of the securities while suggesting provision?

2.9.	Where no documents are made available for audit of 31.03.2004 e.g. details of investments etc., should the Special auditor give his remarks on the basis of up to date information collected by him in this regard?

2.10.	Whether the auditor carrying out special audit of society which are also engaged in non credit business like fertilizer distribution, consumer stores, PDS business etc.. have to verify the stocks and certify the position?

2.11.	If in the opinion of the auditor, the value of fixed asset (land and building) held by the society has appreciated in value whether such appreciated value has to be reckoned?

2.12.	How to assess the provisioning requirement for cash asset?

2.13.	How to assess the provisioning requirement for balances with DCCB?

2.14.	Whether all the investments in banks/post office can be considered realizable?

2.15.	Where the Society has created Investment fluctuation fund, whether the provision for NPAs on investment are to be made net of balance?

2.16.	Where the Society has created Bad and Doubtful Debt Fund, whether the provision for NPAs are to be made net of balance?

2.17.	How to verify the correctness of due date?

2.18.	If the details of life of the society's building are not available then how the provisioning for depreciation can be calculated ? In similar conditions what norms can be followed in case of vehicle, furniture etc.?

2.19.	How to assess the value of security and classify as secured and unsecured?

2.20.	How to assess the provisioning requirement in respect of fictitious loans?

2.21.	Loans Outstanding at Society level includes irregular loans by Society Secretary amounting to frauds. Whether 100% provisioning is required on such loans?

2.22.	In case the audit note of 31.03.04 bear remarks like specific amounts are recoverable from office bearer of the society, whether such amounts are to be shown against society or GoI / State Govt.?

2.23.	In case value of the property as per auditor is more than the Book Value, whether higher value is to be considered?

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2.24.	While calculating DCB position, if difference persisits in loan outstanding as per Balance Sheet and loan outstanding as per loan ledger, what is the basis for working out DCB?

2.25.	In case of borrowings by PACS, the socieities are not providing interest in its books against borrowings outstanding from DCCBs ( including overdues) thereby not making full provisions resulting inflated profit/less accumulated losses.

2.26.	Banks/Socieities are making investments in the shares of other cooperative socieities at the behest of the State Government and hence, the lossess arising out of such investments have to be borne by the State Government/Govt of India and not PACS

2.27.	The salary of staff of PACS not debitteed in P&L account.

2.28.	If the interest receivable (which includes overdue interest as well as interest accured but not due) from the members in Balance Sheet is shown less than overdue interest receivable as per schedule 3, whether same could be considered for additional provisions under schedule 7.

2.29.	As crop loans as on 31 March 2004 were rescheduled in a large number of cases, whether recovery percentage should be taken based on March 2004 or June 2004 data.

2.30.	While assessing the realizable value of land, whether present market price of the secured asset should be taken or the market price prevailing as on 31.3.2004 should be taken for making classification of assets under prudential norms? Further, who is the authority to give certificate for assessing the realizable value based on the market price?

2.31.	PACS in many states have arrears towards PF and Gratuity contributions in regard to PACS Secretaries. In some cases, the instructions for making such contributions with a back date have been issued after the cut off date of the Revival Package, i.e., 31 March 2004.

2.32.	Some states have represented that 100% provisions may be made where crops are already sold / damaged and land is not mortgaged to PACS.

2.33.	In respect of Long Term borrowings by the PACS and DCCB from DCCB/SCB, these institutions are following equated installment method which presupposes that all installments are paid on due date and interest amount is accordingly worked out. However, in the case of defaults, PACS/DCCBs have to pay interest on Overdue Installments and Penal Interest to DCCB/SCB for which no amount has been provided in P&L account (as done in the case of interest payable on deposits) as the higher financing agencies takes into account only at the time of actual realization. These higher financing agencies are not making any demand as a result, no expenditure is booked in the P&L account by PACS/DCCBs while finalizing the accounts as at the end of the year.

2.34.	Whether the amount received by the Cooperative Societies from their members after 31.3.2004 in respect of loans and advances and Sundry Debtors should be adjusted first and thereafter claim financial assistance under Revival Package?

	Similarly, if a state govt. has cleared some of its liabilities to a cooperative (e.g., invoked guarantee of a defaulted loan) as on March 2004 at a later date, should it be reckoned?

2.35.	Loans disbursed in respect of crop loans during February/March, the due dates are fixed by societies/banks on 30.6.2006 though RBI guidelines on KCC stipulate that due dates will be fixed from 12 months from the date of disbursement. In such cases, how to calculate NPA date?

2.36.	Whether societies other than PACS, e.g., dairy or fisheries societies which have also given agricultural loans can be covered

2.37.	In some socieities, the records were lost about 20-25 years back and such socieities are preparing only P&L account. Whether such socieities to be considered for taking up Special Audit under Revival Package.

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Part - 3 - Schedule & Manual Related Questions

3.1.

Balance of Cash on hand as per cashbook and balance sheet tallies and there is a remark in audit report stating that the "Amount tallies". However, there is no remark in the cash book about actual cash verification by auditor. In the circumstances whether remark in audit report shall be accepted?

3.2.

As per the Chapter II of the Manual, the income of Rs. 6000 has been indicated (given in example). With this, the balance will increase. Whether it is to be accounted for as income and shown in Schedule 7, Col. 4.

3.3.

In some of the Societies there is a long list of Investments in Cooperative institutions and banks. However, the space allotted in the format is inadequate. In case all the investments in different institutions are required to be reported in the same schedule, each investment will have to be reported separately or otherwise separate sheet will have to enclosed to schedule 2.

3.4.

Loan outstanding / overdues in respect of all types of accounts are required to be listed borrower-wise. Whether Overdue interest receivable is also to be charged?

3.5.

Whether current interest receivable is to be charged in all accounts?

3.6.

In some of the PACS, there are about 1000/2000 accounts. Whether all loan accounts or overdue accounts to be checked or checking to be done on percentage basis?

3.7.

All loan cases in the society are falling in the category of suit filed/ no security and attracting 100% provisioning required, whether reasons for provisioning are required to be mentioned in all cases?

3.8.

The percentage of credit business to working fund is worked out in schedule 6 If the PACS do not have any credit business, even then is it necessary to workout the percentage?

3.9.

During the course of discussions in the workshop, it was mentioned that if interest income is not taken to P & L account there is no need to calculate the same separately. In case interest receivable is not to be calculated how amount of Principal + Interest receivable can be indicated in Schedule 6, Sr.No.5, Col.3.

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3.10.

Whether to re-workout the interest receivable or the estimated interest receivable amount taken to P & L account can be accepted.

3.11.

The balance of accumulated Losses net of Free Reserves is to be indicated in Schedule 6 Sr.No.7. Whether Free Reserves are to be added to Profit in case of PACS having undistributed profit in their balance sheet?

3.12.

Whether in Schedule 3, provisioning requirement have to be calculated for the overdue portion of the loan or the entire outstanding?

3.13.

Whether column 8 relating to "overdue interest" in Schedule 3 need to be filled in where the societies follow cash system?

3.14.

Some of the societies are preparing working results for the credit and non credit business separately. Whether the profit /loss position under each business should be considered separately for working out the ratios in Schedule 6?

3.15.

Whether member-wise Demand Collection and Balance (DCB) are required to be prepared or consolidated figures will serve purpose?

3.16.

In Rajasthan, there is no charge on land as security for availing agriculture loans. In the case of Crop Loans, the standing crop which is hypothecated is harvested and sold out before 31 March every year. How to classify it as secured?

3.17.

Where the PACS taken up for special audit had been doing non-credit business from inception but ceased to carry out such business for more than 4 to 5 years prior to 31.03.04 and had accumulated losses (may perhaps attributable to non-credit business), whether Schedule- 6 is to be prepared and ratio of credit and non-credit business needs to be work out.

3.18.

In Schedule-5 under Sundry Debtors, there are items which are receivable from State Government/ Other Government agencies by the PACS (other than arising out of PDS business) which may have to be borne by State Govt and shown in the relevant column in Schedule 5. During the preparation of Tables I & II, whether the provisions to be borne by State Govt. be classified as credit and non credit business and whether the share of State Govt. as shown in Schedule 5 is to be again shared on 50:50 basis (GoI and State Govt) and shown in Table I.

3.19.

In Madhya Pradesh, it has been reported that unsaleable stock/shortage of stock such as PDS items, fertilisers, pesticides, note books have not been reported in audit report. Large scale of unsold stock remain with PACS and just becuase it has been not reported in auditors reoprt, the PACS should not be denied of making provisions of unsaleable stock in schedule 4.

3.20.

In the case of PACS having accumulated profit and no accumulated losses as on 31.3.2004 before conduct of Special Audit, whether such profit should be netted from the eligible assistance towards additional provision. In Table No. I at Sr.No 1, only accumulated losses have been indicated.

3.21.

Under table I item No.2.1(e) of other receivables, nil has been indicated. The additional provisions for receivable committed by the State Govt on account of Damduppat, Interest Remission, etc are receivable pertaining to credit business to be borne by the State Govt and falls under this column.

3.22.

Audit Reports of the PACS are silent on the age or realizable value of the stocks in most of the cases. Provisions for stocks may be approved if PACS can provide evidence for the age of the stock and suitable remarks are made by the Special Auditors in Schedule 4 and 5.

3.23.

PACS/DCCB Branch staff was unable to prepare Reconciliation Statements between PACS and DCCB branch. Items for which provision will have to borne by the PACS may have to be clearly indicated to the Special Auditors.

3.24.

While working out CRAR in schedule 8, Reserve Fund, Statutory Reserve Fund, Grants etc are required to be added to the Reserves. There are many more funds appearing in the Balance Sheet of PACS like Building Fund, Agriculture Stabilization Fund etc which are not outside liabilities.

3.25.

If the Society Balance Sheet has accumulated losses, the total indicated at Sr. No. 5 of Schedule 8, Part B should be (1 + 2 -4) and not (1+2+4) as indicated in the format and manual. If the Society has accumulated profit, then the total should be (1 + 2 - 4)

3.26.

The Amount may be rounded off to nearest Rupee at total stage in each Schedule

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3.27.

Sharing of additional provisions on account of cadre fund and audit fees in the proportion of credit and non-credit business worked out in Schedule 6 may be indicated.

Fraud Related queries:

3.28.

How to make provisions in respect of frauds (both loan related and non-loan related)?

3.29.

Treatment for loans which have been reported as benami loans by Auditors

3.30.

Fraudulent transactions by the Staff in loan accounts (repayments made by the borrower, but not accounted by PACS):

3.31.

Whether loan accounts which are identified as fraud should be reckoned for the purpose of compilation of DCB:

Investment Related queries:

3.32.

In some States, each PACS is having considerable investment in institutions other than DCCBs. Hence, is it essential that provisions to be made in Schedule 2 on account of investments by PACS in other cooperative societies as per the Special Audit Manual will have to be shared by GoI and State Govt equally?

Depreciation Related queries:

3.33.

Whether the total applicable provision from the date of completion of the godowns till 31.3.2004 should be calculated and provided for after deducting provision already made, if any?

3.34.

In case the godown is not usable, whether 100 % provision should be allowed?

3.35.

In case where value of godowns is not recorded in the books of PACS but they are having godowns, whether entire applicable provisions should be made?

3.36.

Whether the provision for depreciation should be allocated in the ratio of Credit and Non-Credit business of PACS as calculated in Schedule 6?

3.37.

In many PACS, the amount of overdues worked out in Schedule 3 as per individual borrower-wise accounts exceed the figure shown in the P&L account /Balance Sheet

3.38.

In respect of many KCC loans, the due date has been fixed as 31 March and not 12 months from the date of drawal

3.39.

While building exists, its value is not reflected in the Balance Sheet

3.40.

Based on the DCCBs Managing Committee resolution taken in 1998, members of PACS have been extended loans for Gas connection against DPN executed. Likewise, the DCCB branches have also extended loans against one surety. This scheme is reportedly in operation in atelast in 10 districts. The overdues under the scheme from members to PACS is quite high ( around 10 crore).

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Operational Issues

3.41.

Making provision for interest payable on borrowing outstandings : In the case of borrowings by PACS, HO has clarified that PACS have to provide for interest in its books against borrowings oustanding from DCCBs ( including overdues) and accordingly show the expenditure not reckoned, in Schedule 7 while making provisions. Whether the provision to be made will include penal interest also?

3.42.

Treatment of overdue interest receivable and creation of reserve therefor: PACS are booking the overdue interest receivable from borrowing members as an accured income and this is amount is shown seperately on the asset side of the Balance Sheet. However, the provisions therefor is created as "overdue Interest Reserve" by debitting the P&L account ( appropriation) and taken to the liability side of the Balance Sheet. Whether, this can be treated as contra item and excluded for working out percentage of credit and non-credit business under Schedule 6?

3.43.

As per State Govt instructions in force as on 31.3.2004, establishment expenses which includes salary, have to be either (partially or fully) restricted to a ceiling prescribed. But PACS have paid Salary Advance, debited the same to P&L account.When the excess is pointed out by the auditor is recoverable, the PACS have shown the excess portion as dues to account on the asset side and made equal provision on the liability side ( this provision has not been debited to P&L appopriation account ). In effect, the entire amount paid as salary would have impacted the losses. Also the provision made is netted against the amount recoverable in Schedule 5 and only the difference is booked to PACS. What treatment has to be given in the Schedules ? Whether, the excess amount has to be shown as unreconciled income under Schedule 7 ? { PACS are arriving at accumulated losses amount in Balance Sheet as balancing difference (i.e. Difference between liabilities and asset ) and not arrived at from P&L account.

3.44.

When the Overdue provision workedout in Schedule 3 exceeded the amount of overdue shown as accrued and provided for in Balance Sheet, can we show the difference as income not reckoned under Schedule 7 ? In case overdue interest provided for are not routed through P&L account, can we ignore col. 8 of Schedule 3.?

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3.45.

Whether interest on investment kept with DCCB and not paid for by DCCB be worked out and provided for in Schedule 7?

3.46.

Whether provisions could be made in respect of accumulated losses after 31.3.2004 as already three years have elapsed after 31.3.2004?

3.47.

Whether relaxations are contemplated in the Revival Package for STCCS in Scheduled areas and Tribal areas on the lines of relaxations being suggested for North Eastern Region?

3.48.

Adivasi Maha Mandal has disbursed loans to members of LAMPS through DCCB consumption loans (khauti) as per a State Government scheme. These loans as well as such borrowings related transactions are reflected in the books of accounts of the society as on 31 March 2004. Government has issued orders that all these loans have been waived as of 30 Sep 2003. The society has not passed any accounting entries and these are still outstanding in the books. What accounting treatment to be given and whether these loans are to be included in Schedule 3?

3.49.

The State Government has given loans to Adivasi societies for providing loans to members of Adivasi society for the purpose of subscribing to the share capital of the society. Most of these loans are remaining overdues for long periods of time. These transactions are reflected as "amount payable to Government" as a part of normal borrowings and "loans given to members" under loans and advances. What is the accounting treatment to be given for these loans as well as guidelines for inclusion in Schedule 3? By including this item in Schedule 3, other loans availed by the same member is likely to get classified under D3?

3.50.

In a society, which is following accrual system of accounting, whether interest exceeding the principal can be reckoned (or only upto the limit as per Dam Dupat scheme) to be followed?

3.51.

In Special Audit manual it has been mentioned in Schedule 3 guidelines that if the loan ledger balance ( as worked out in schedule 3) is more than balance as per Balance Sheet/General Ledger, in such cases addtional provision in respect of difference in Balance should be ignored. In such cases, how to make provisions as per asset classification worked out in the same schedule as provision has to be made in Schedule 3 summary as per the oustanding in various category of classification of advances done in column nos 10,13,14 to 18 which differs from the Balance Sheet amount.?

3.52.

In some places where villages were submerged, the State Govt has acquired the lands of the farmers which were pledged to banks and compensation was paid by the State Govt to farmers bypassing the money to some other banks. In such cases the loans have become unsecured and whether such agriculture loans should be treated as unsecured and 100 % provision should be made by PACS in Schedule 3?

3.53.

In Rajasthan, there are many PACS/LAMPS which are working regularly but for which the audited accounts ie. P&L account and Balance Sheet are not available on account of which Special Audit could not be undertaken. However, these PACS/ LAMPS are maintaining mirror accounts with the branches of DCCB and the records available at branch level DCCB could be taken as the base for audit of the socieities as on 31.3.2004?

3.54.

In case equal amounts of overdue interest and provided for appear in the Balance Sheet, whether routed through P & L account (equal amount on both sides) or not, can it be treated as cash system and preparation of col. 8 of Schedule 3 be ignored?

i.	If it has to be treated as accrual system, what treatment is to be given?

ii.	In case overdue interest provision worked out in Schedule 3 exceed the amount of overdue shown as accrued and provided for in Balance Sheet

In case overdue interest provision worked out in Schedule 3 is less than the amount of overdue shown as accrued and provided for in Balance Sheet.

3.55

In case equal amounts of overdue interest and provided for appear in the Balance sheet, whether routed through P&L account (equal amount on both sides) or not, can it be treated as cash system and preparation of col.8 of Schedule 3 be ignored?

3.56

If it has to be treated accrual system, what treatment is to be given

i.	In case overdue interest provision worked out in Schedule 3, col no 8 exceed the amount of overdue shown as accrued and provided for in Balance Sheet.

ii.	In case overdue interest provision worked out in Schedule 3, col no 8 is less than the amount of overdues shown as accrued and provided for in Balance Sheet

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Part - 4 - Policy & Accounting Related Questions

4.1.	Whether the shares held by PACS in a DCCB which is not complying with the minimum capital requirement {i.e. Section 11 (1) of the Banking Regulation Act, 1949 (AACS)} can be treated as fully realizable?

4.2.	Whether the deposit held by society in Electricity Board can be treated as fully realizable even if the relevant receipt is not available in record of the society?

4.3.	When a cooperative society is to be considered as defunct and the shares held in such society by PACS should be considered as unrealisable?

4.4.	Whether the investments held by the PACS in Cadre Society can be treated as fully realizable even if they had not declared dividend?

4.5.	In cases where the societies have been compulsorily required to make investments in NSCs and where such certificates are lodged with the Thesildar (as security deposit for undertaking non credit business etc..) the nature of treatment to be given be indicated.

4.6.	What is Standard Loan?

4.7.	When do the loan assets in the farm/non farm categories get included in the Sub standard category?

4.8.	Whether loans for allied agricultural activities like Farm House, Goat rearing etc. are to be included in Agriculture Loans and instructions for Cooperative Banks on Prudential Norms as per Master Circular to be followed?

4.9.	Since the agriculture loans given by PACS are against land security, these loans are to be treated as secured loans. Whether provisioning is required in those cases where the charge is not created under Section 48 of MCS Act.

4.10.	Whether there are guidelines for valuation of security?

4.11.	As per the instructions interest receivable on standard loans is to be taken to P & L Account. Overdue loans upto 1 year is also standard loan. Whether interest on such loans is to be taken to P & L Account ?

4.12.	As per the instructions in schedule 3 (h) if the value of the security is less than 50%, the loan is to be considered as doubtful. Since such instructions are not applicable to DCCBs, How it can be made applicable to PACS?

4.13.	Whether provision are required to be made for investments of PACS in shares of DCCBs not complying to the provisions of Sec 11(1) ? There is only mention about shares of Banks in liquidation.

4.14.	The valuation of investment in shares of other cooperative institutions is to be made taking into account only Reserve fund balance. As per Maharashtra Cooperative Societies act, other capital funds like Building, Charity Fund are created out of profit. Should these be taken into account while calculating Net Worth of the Institution?

4.15.	In Rajasthan, on 31 March, the credit business outstandings in Balance Sheet will be the lowest on account of repayments. Therefore, while calculating percentage of credit business to working funds, monthly averages should be considered instead of taking position as on 31 March while working out ratios?

4.16.	In Orissa State, some of the PACS are showing ARDR receivable in Balance Sheet. In such cases, what is the treatment for provisions to be made against ARDR receivables?

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