KERALA COOPERATIVE AUDIT MANUEL VOLUME I APPENDIX II

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Appendix II (1)

IMPORTANT PROVISIONS OF KERALA CHITTIES ACT OF 1975

3. Prohibition of chitty not sanctioned ore registered under this Act :- (1) No chitty shall, after the commencement of this Act be started and conducted unless the previous sanction of the Government or of such officer as may be empowered by the Government in this behalf is obtained therefor and unless the chitty is registered in accordance with the provisions of this Act.

Provided that the previous sanction under this subsection shall lapse unless the chitty is registered before the expirty of six months from the date of such sanction:

Provided further that such previous sanction shall not be necessary for starting and conducting any chitty by.-

(i) a company owned by the Government of Kerala; or

(ii) a co-operative society registered or deemed to be registered under the co-operative societies Act for the time being in force; or

(iii) a scheduled bank as defined in the Reserve Bank of India Act 1934; or

(iv) a corresponding new bank constituted under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (Central Act 5 of 1970)

(2) The previous sanction referred to in subsection (i) shall not be granted if.-

(i) the foreman has been convicted of any offence under this Act, or under any of the Acts repealed by this Act; or

(ii) the foreman has defaulted in the payment of fees or the filing of statements or records, required to be paid or filed under this Act, or has violated any of the provisions of this Act or the rules made thereunder; or

(iii) the foreman has been convicted of any offence involving misappropriation, foregery, counterfeiting, falsification of accounts or any other offence involving breach of trust and sentenced to imprisonment for any term, unless a period of five years has elapsed since his release;

Provided that before refusing previous sanction, the foreman shall be given an opportunity of being heard.

(6) Variola :- In every chitty there shall be a variola in duplicate signed by each of the subscribers or by a person authorised in writing by the sub-scriber in that behalf and such signature shall be attested by at least one witness.

(7) Particulars of variola :- (1) The variola ‘shall contain the following particulars and shall not contain any other particulars inconsistent with the provisions of this Act.

(i) the full name and residence of every subscriber;

(ii) the number of tickets or the fraction thereof held by each sub-scriber;

(iii) the number of instalments and the amount payable for each ticket at every instalment;

(iv) the date on which the chitty is to begin and the date on which it is to terminate;

(v) the mode of ascertaining the prize winner at the successive instalments;

(vi) has amount of discount which a prize winner at any instalment has to forego;

(vii) the mode and proportion in which the discount is distributable by way of veethapalisa, foreman’s  commission and other expenses if any;

(viii) the time and place at which the chitty is to be conducted;

(ix) the instalment at which the foreman is to get the prize;

(x) the approved bank or banks in which chitty moneys shall be invested by the foreman under the provisions of this Act;

(xi) the consequences to which a non -prized or prized subscriber or the foreman will be liable if he violates any of the provisions of the variola;

(xii) the conditions under which a subscriber will be treated as a defaulting subscriber;

(xiii) the nature and particulars of the security offered by the foreman under section 15;

(xiv) the name of the nominees of the subscriber to whom benefit accruing to the subscriber under the chitty may be paid in case of death of the subscriber; and

(xv) any other particulars that may, from time to time be prescribed by the Government.

(2) Provision shal also be made in the variola that Veethapalisa shall be distributed among both the prized and non-prized subscribers, other than prized defaulter subscribers in respect of defaulted instalments of subscription.

Explanation :- For the avoidance of doubts, it is hereby declared that no provision shall be made in the variola for forfeiture by a non-prized defaulter subscriber of his right to obtain veethapalisa.

(3) Where the prize winner is to be determined by auction and more than one person bids for the same amount, the prize winner shall be determined by lots among them.

(4) The amount of discount in a chitty shall not exced thrity percent of the chitty amount.

8. Registration :- (1) Every variola with its duplicate shall be filed by the foreman with the Registrar along with the order sanctioning the starting of the chitty (where such sanction is necessary under section 3) and the Registrar shall register and return the variola with an endorsement that the chitty is registered:

Provided that the Registrar may refuse to register the chitty on any of the following grounds, namely:-

(i) that the security offered by the foreman under section 15 is insufficient: or

(ii) that the foreman has been convicted of any offence under this Act or under any of the Acts repealed by this Act; or

(iii) that the foreman has defaulted in the payment of fees or the filing of statements or records, required to be paid or filed under this Act or has violated any of the provisions of this Act or the rules made thereunder; or

(iv) that the foreman has been convicted of any offence involving misappropriation, foregery, counterfeiting, falsification of accounts or any other offence involving breach of trust and sentended to imprisonment for any term, unless a period of five years has elapaed since his release :

Provided further that before refusing to register a chitty, the foreman shall be given an opportunity of being heard.

10. Copies of variola to be given to subscribers and acknowledgements to be filed :- (1) After the variola is signed by a subscriber or by a person authorised in writing by the subscriber in this behalf, the foreman shall supply a true copy of the variola certified as such by him to such subscriber or person authorised by the subscriber, who shall acknowledge receipt of the same, and the foreman shall file the acknowledgements with the Registrar within fourteen days of the first drawing of the chitty.

12. Time and place of conducting chitty :- (1) Every drawing of prizes in a chitty shall be conducted sat the time and place mentioned in the variola and in accordance with the provisions contained therein.

13. Minutes f proceedings of drawing of chitty :- (1) The minutes of the proceedings of every drawing shall be kept in a book and shall be signed.-

(a) by the foreman and by at least two subscribers; and

(b) in cases where the prize amount is determined by auction, by the prize winner or his agent.

(2) The minutes mentioned in subsection (1) shall state clearly.-

(a) the date and hour when, and the place where, the proceedings began and ended  ;

(b) the number of the particular instalment of the chitty of which the proceedings are recorded ;

(c) the names of the subscribers present ;

(d) the person or persons who obtained the prize :

(e) the amount of discount ; and

(f) full particulars regarding the disposal of the prize amount in respect of the preceedings instalment and disposal of unpaid prize amount, if any, in respect of any previous instalment.

14. Copy of minutes to be filed with Registrar :- (1) A true copy of the minutes of the proceedings of every drawing certified as such by the foreman shall be filed by him with the Registrar within fourteen days from the date of the instalment to which it relates or before the date of the next succeeding instalment, whichever is earlier.

(2) If the foreman makes default in complying with the requirements of subsection (1) of section 13, he shall be punishable with fine which may extend to one hundred rupees for every day during which he continues so to make default.

15. Security to be given by foreman :- (1) Every foreman shall, before the first drawing of the chitty.

(a) Execute a bond in favour of or in trust for the other subscribers for the proper conduct of the chitty, charging immovable property sufficient to the satisfaction of the Registrar for the realisation of twice the chitty an ount; or

(b) Deposit in an approved bank an amount equal to the chitty amount or invest in Government securities of the face value or not less than one and a half times the chitty amount and transfer the amount so deposited of the Government securities in favour of the Registrar to be held in trust by him as security for the due counduct of the chitty.

(2) If any foreman makes default in complying with the requirements of sub section (1), be shall be punishable with fine which may extend to five hundred rupees.

(3) The security given by the foreman under subsection (1) or any security substituted under subsection (6) shall not be liable to be attached in execution of a decree or otherwise until the chitty is terminated and the claims of all the subscribers are fully satisfied.

(4) The Registrar shall, after the termination of a chitty and after satisfying himself that the claims of all the subscribers have been fully satisfied, order the release of the security furnished by the foreman under subsection (1) or the security substituted under sub-section (6), as the case may be, and in so doing he shall follow such procedure as may be prescribed in that behalf.

(5) The security furnished under sub section (1) shall, subject to the provisions of sub section (6), be kept intact during the currency of the chitty and thr foreman shall not commit any such act with respect thereto as are calculated to impair materially the nature of the security or the value thereof.

16. Rights of foreman :- (1) The foreman shall be entitled.

(a) to obtain his prize at the instalment specified in the variola without deduction for discount:

Provided that a foreman shall not be eligible to get move than one prize in a chitty without deduction for discount ;

(b) to such commission or remuneration not exceeding five per cent of the chitty amount as may be fixed in the variola for the conduct of the chitty :

(c) to receive and realise all subscriptions from the subscribers and to distribute the veethapalisa among them.

(d) to demand reasonable security from any prized subscriber for the amount of further subscriptions payable by him.

Explanation : A security is reasonable within the meaning of this clause if

its value exceeds twice the amount due from the prized subscriber ;

(e) to substitute subscribers in the place of defaulters subject to the provisions hereinafter contained ; and

(f) to do all other acts that may be necessary for the due and proper conduct of the chitty.

2. Where there is any dispute between the foreman and a prized subscriber regarding the value of the property offered as security for the amount of future subscriptions payable by him, a valuation certificate in respect of the property issued by the Tahsildar of the taluk in which the property is situate shall be accepted by the foreman.

3. Any foreman who does not accept a valuation certificate as required by sub section (2) shall be punishable with fine which may extent to five hundred rupees.

17. Duties of foreman :- (1) The foreman shall, on a prized subscriber furnishing security as provided for in caluse (d) of sub section (1) of section 16 for the payment of the future subscriptions, be bound to pay him the prize amount and shall be entitled to get from him an acknowledgement in writing evidencing such payment:

Provided that the foreman shall, on demand by a prized subscriber; pay im on the due date the amount which represents the difference between the prize amount and the amount of the future subscriptions without any security whatsoever, and in such case the foreman shall, before the date of the next succeeding instalment, deposit in an approved bank mentioned in the variola the amount of future subscription and he shall not withdraw the amount so deposited except for payment of future subscriptions.

(2) If owing to default of a prized subscriber, the prize amount due in respect of any drawing remains unpaid before the date of the next succeeding instalment, the foreman shall deposit the same forthwith in any approved bank mentioned in the variola and intimate in writing the fact of such investment together with the following particulars of the investment to the prized subscriber, namely:-

(a) the number, year and office of registration of the chitty ;

(b) the particular instalment of the chitty :

(c) the amount due to the subscriber ;

(d) the approved bank in which the amount is deposited ;

(e) the date of deposit ;

(f) the reason for the deposit and

(g) the conditions of disbursement.

(3) Payment of the prize amount or the investment of the amount of future subscriptions under sub section (1) or the investment of the prize amount under sub section (2) shall be intimated to the subscribers at the next succeeding instalment and such payment or investment entered in the minutes of proceecdings of that instalment.

(4) The foreman shall not admit any person as  a subscriber to a chitty if, by such admission, the total number of tickets mentioned in the variola is increased.

24. Removal of defaulting subscribers :- (1) If a non-prized subscriber defaults to pay his subscription in accordance with the terms of the variola for a period of one month, the foreman may, after intimating him by written notice, remove his name from the list of subscribes and substitute any other person in his place.

Provided that if the defaulter pays up the defaulted instalment with interest at the rate of nine per cent per annum within one week of receipt of such notice, his name shall not be liable to be removed.

25. Amount due to defaulting subscriber how deal with :- (1) When a substituted subscriber draws the prize amount, the defaulting subscriber shall be entitled to recover from the foreman his subscriptions subject to such deductions as may be provided for in the variola.

Appendix II (2)

No. ADL (2)-43976/69                                                                                     4th January 1970    CIRCULAR MEMORANDUM

Sub:-  Audit-Confirmation certificates - Instructions - Regarding.

Ref:- Government Circular Memorandum No. 413 / C3 / 69 - 8 / AD                                     dated 8-12-1969.

It has been brought to the notice of this office that the auditors very often complain that they do not get confirmation certificates from the various Departments and others from whom they are due, despite repeated requests. As a result the find it difficult to finalise the audit of accounts of a number of Co-operative Societies. Confirmation certificates are esentail for the purpose of audit.

Government were pleased to issue necessary instructions in this regard to the concerned Departments and Institutions in their Circular Memorandum referred to above. It is expected that other Departments and Institutions will extend theri co-operation and that the difficulties now experienced by the auditors will be minimised to a great extent in the light of the directions form Government.

Nevertheless, the following instructions to the auditors are issued so as to enable them to get over the dificulties, if any, they may have to face in this regard in future.

(1) The auditors will make requests for confirmation certificates, in form No. 1 attached herewith, under certificate of posting, to the concerned Departments and Institutions including those in the administrative wing of this Department at the District level, fixing a time limit, say, a fortnight.

(2) If the auditor does not receive the confirmation certificate even after the expiry of the above time limit, he will immediately send a reminder in Form No. II, again under certificate of posting, fixing a time limit of again fortnight.

(3) If the auditor does not get the information on or before the expiry of the time limit fixed in his letter in Form No. II, he will accept the balances disclosed by the books of the society as correct and proceed to finalise the audit accordingly. But however he should specifically indicate in the Auditor Report of the fact the confirmation could not be obtained on such items in the Balance Sheet.

(4) Requests for confirmations in respect of a particular society should go before the auditor starts his work in that society, so that he can be in a position to take a decision in the matter in the light of the correspondence with those concerned, before he completes the audit of the Society.

The Deputy Registrars (Audit) will instruct the Auditors accordingly. The Deputy Registrars are also requested to stencil and supply sufficient copies of the forms to the Auditors before the 15th July every year.

The Deputy Registrars are also requested to refer to item (5) in page 3 of the circular cited above and bring to the notice of the Registrar such specific cases.

[Immediate]

UNDER CERTIFICATE OF POSTING

No.      Office of the Circle Officer of Co-operative Societies (Audit),

                                                            Station :

                                                            Date :

From

                  ...............

To

                  ................ 

Sir,

Sub:- Confirmation Certificates - Request for.

Ref:- Circular Memorandum No. 413 / C3 / 69 - 8 / AD dated 8-12-1969                 of Government.

I write to inform you that .............................................................................. Co-operative Society Ltd., No.............................. is indebted to Governments / S.P.W.R. Fund / Khadi & Village Industries /  .............. .......................................................... District Co-operative Bank Ltd.......................................................... on account of the items noted at foot, I require a confirmation certificate regarding the balance pending realisation from the society as on 30th June ...............  so as to finalise the audit of the society. I, therefore, request you kindly to oblige me with the certificate within a fortnight’s time.

Yours faithfully,

Auditor of Co-operative Societies.

Items.                                                              Pl.                                Int.

(1)        Loans,

            Share Capital.

            Working Capital

            Godown

            others (Specify)

(2)        ....................

            .....................

            .....................

FORM No. II

[Immediate]

UNDER CERTIFICATE OF POSTING

No.                              Office of the Circle Officer (Audit)

                                                                                                            Station...................

                                                                                                            Date.........................

From

                  ...............................

To

                  ................................

Sir,

Sub:-Confirmation certificate-request for.

Ref:-My letter of even No. dated...............................

I may bring to your kind attention that the information requested for in my letter under reference has not been received as yet.

I may therefor, inform you that the balances as revealed in the books of accounts of the society will be treated as correct for purposes of audit, in case I do not receive your confirmation within a fortnight of the date of this letter, and that I shall not be held responsible for incorrectness, if any, of the concerned balances appearing in the audit certificate to be issued to the society shortly.

Yours faithfully,

Auditor of Co-operative Societies.

Appendix II (3)

RULES FOR THE ESTABLISHMENT AND USE OF AGRICULTURAL CREDIT (STABILISATION) FUNDS AT VARIOUS LEVELS

(Vide G. O. Ms. 269/67 Ad / 22-7-1967)

1. Aims and objects:-

“The object of constituting agriculture credit (Stablisation) Funds at different levels of the structure for agricultural credit is to facilitate (1) the conversion of short-term loans for agricultural purposes into medium-term loans, and (2) the grant of relieft in the repayment of instalment of of Medium term loans issued for agricultural purposes in circumstances in which total or partial failure of crops resulting from wide-spread natural calamities renders the repayment of such loans impossible without dislocation of the structure and without hardship to individual agriculturists. The principles and procedure set out below shall govern the establishment and utilisation of the stabilization Funds”.

2. Establishment of funds”:

Agricultural Credit Stablisation Funds are to be established and maintained as follows:-

(1) By a Central Financing ageny for its area of operation. The Central Co-operative Bank Agricultural Credit (Stabilization) Fund.

(2) By the State Co-operative Bank for the State as a whole. The State Co-operative Bank Agricultural Credit (Stabilization) Fund.

(3) By the Reserve Bank of India at the national level - The National Agricultural Credit (Stabilization) Fund.

3. Resources for establishing and Maintaining funds:-

The funds at various levels shall be established and maintained by crediting contributions from different sources as indicated below:

(i) The Central Co-operative Bank Agricultural Credit (Stabilization) Fund shall be constituted as follows:

(a) Annual appropriation at a rate not lower than 15% of the net profit of the Central Bank; so that this together with the contribution to the statutory reserve fund will work out to a total of 40% of the net profits of the Co-operative Banks.

(b) transfer of the amount of divident payable on the share holding of the Government in the Central Bank over and above 30%

(c) Credit of interest at 3 percent per annum on the balance to the Credit of the Fund as at the commencement of the year; and

(d) transfrer of any other sums which the Central Bank may contribute or receive for the purpose.

(ii) The State Co-operative Bank Agricultural Credit (Stabilisation) Fund shall be constituted as follows:-

(a) Outright grants received for the purpose from State Government;

(b) loans received for the purpose from State Government.

(c) Annual appropriation at a rate not lower than 15% of net profits of the bank, so that this together with the contribution to the statutory reserve fund will work out to a total of 40% of the net profits of the bank.

(d) transfer of dividend over and above 3 percent payable to State Government on its share holding in the apex Bank.

(e) Credit of interest at 3 per cent per annum of the balance to the Credit of the Fund as at the commencement of the year; and

(f) transfer of any other sums which the State Co-operative Bank may contribute or receive for the purpose.

(iii) The National Agricultural Credit (Zabilisation) Fund shall be constituted by contributions from the profits of the Reserve Bank of India as provided for in the Reserve Bank of India Act.

4. Investments of Fund:-

(a) The stabilization Funds at the level of the Central Co-operative Banks, to th extent that they have not been used for converting short-term loans and for granting relief in the repayment of medium term loans, shall be either wholly or partially invested in Government or Trustee securities.That portion of the Fund which is not invested in Government or Trustee securities shall be placed in fixed deposit with the State Co-operative Bank.

(b) The entire Stabilization Fund of the State Co-operative Bank shall be invested in Government or Trustee Securities.

(c) The income from the investment of the Fund in loans, in Government or Trustee securities or in fixed deposits, shall be appropriated by the Central Banks and the Apex Bank to their respective profit and loss accounts.

(d) The Central Banks and the Apex Bank shall pay to the Fund interest at 3 per cent per annum on the amount to the Credit of the Funds at the commencement of the year and the apex Bank shall pay interest on the loan part of the assistance provided by the Government from out of the general income by debit to its profit and loss account.

(e) Any depreciation in the investments of the Funds shall be made good by the Bank concerned out of its general income.

A. Repayment of Government loan:- The instalment of principal in respect of the loans due to Government shall be paid by debit to the funds.

5 Procedure for determining the circumstances for the use of funds and terms and conditions of operations:

A. Primary Sociey level:- (1) On the occurence of a natural calamity such as drought, floods, eyelong atack of pests or locusts, resulting in failure of crops and before the harvesting of such crops standing in the field; every individual members of a Primary agricultural credit society (1) who is not in a position to repay the short-term loan taken by him from the society and who desires that the shortterm loan due from him be converted into a medium term loan or (2) who is not in a position to repay the instalment under a medium term loan taken by him from the society for agricultural purposes and who desires that the instalments be converted into a medium term loan shall apply in writing to that effect to the societies providing such particulars regarding estimated value of his crop, the amount which he may be able to repay etc, as may be prescribed.

(2) As soon as possible thereafter, a meeting of the General Body of the society or of its Managing Committee shall be convened to consider the requests for conversions or extensions and to determine the extent and period for which conversions may be granted and to pass necessary resolutions in that behalf.

No conversion facilities shall ordinarily be considered in respect of medium term loans issued for the purchase of electric motors and pumpsets or oil engines and for sinking of new wells or for repair to the old wells. However relief may be provided if it is proved to the satisfaction of the general body or the Managing Committee as the case may be that the well of the borrower remained dry for the major part of the year or that the crops were washed awy by floods. The loans issued for purchase of milch cattle or agricultural machinery like tractors shall not be eligible for any relief.

(3) Every primary Agricultural Credit society which seeks conversion of short-term loans for Agricultural purposes into medium term loan and/or conversion of medium term instalments into medium term loans shall make an application to that effect to the Central Co-operative Rank supported by a resolution of the General Body or the Managing Committee as the case may be.

(4) Only on the receipt of Advice in writting from the Central Bank that the conversion has been granted shall the Primary agricultural credit society proceed to take necessary action as follows:-

(5) Short-term loans upto Rs. 1,000 may be converted into medium term loans against personal surety, losans between rs. 1,001 to rs. 1,500 against charge on land and all loans above Rs. 1,500 shall be secured by mortgage of land.

(6) “The ultimate borrowers shall be required to furnish fresh time promissory notes in favour of the societies which shall correspond to the plan of repayment of medium term loans or of the converted medium term loans as the case may be and such undertaking in regard to the sale of produce through marketing Co-operative society as may be prescribed by the credit societies.

(7) Where a borrower is unable to offer a charge on land, or mortgage his property as the case may be, owing to encumbrances on land or property for other prior borrowing from Co-operative agencies the condition in (5) above may be dispensed with, and conversion allowed as a special case against the personal sureties.

(8) The short term loan account of the borrower shall be credited with the amount of principal due by a corresponding debit to a medium term loan account to be opened.

“In the case of relief in the repayment of medium-term loans, the medium-term account othe borrower shall be credited with the amount of instalment due by a corresponding debit to a madium-term conversion loan account to be opened”.

(9) All recoveries in respect of medium term loans this advanced for conversion or in respect of repayment of medium-term conversion loans granted by the Central Bank shall be credited straight way to the respective loan accounts.

(10) All sums received in repayment of converted medium-term loans or of medium-term conversion loans (in the case of relief in the repayment of instalment under medium-term loans) granted by the Central Bank shall be remitted to the Bank without any delay”.

(11) Separate accounts shall be maintained in respect of such convered medium-term loans received or advanced by the society so as to distinguish them from other loans received or granted by it.

B. Central Bank Level :-

(1) The Central Co-operative Bank shall be competent to decide whether crop failure of the area of operations of any applicant society is such as to justify (1) the conversion of short-term loans into medium term loans and (2) the conversion of the instalments due under medium-term loans into medium-term loans. No coversion facilities shall ordinarily be considered in respect of medium term loans issued for the purchase of electric motors and pumpsets or oil engines and for sinking of new wells or for repairs of old wells. Relief however may be provided if the Central Bank is satisfied that the wells of the borrower were washed away by floods. The loans issued for purchase of milck cattle or agricultural machinery like tractors shall not be eligible for any relies.

(2) On receipt of applications from the affiliated societies or suo-moto to the Central Co-operative bBank may request the Collector of District concerned for a Certificate to the effect that crop out-turn in the affected area is less than 37 paise or 50% of the normal out-turn. The District Collector shall issue such a certificate of evidence of natural calamity after satisfying itself, about the position within a fortnight of receipt of requisition from the Central Co-operative Bank.

(3) The Central Banks shall proceed to sanction conversion facility only after obtaining the Certificate from the Collector of District [referred to in the Sub-clause (2) above] to the effect that the crop out-turn in the affected area is less than 37 paise or 50% of the normal out-turn.

(4) The Central Co-operative Banks shall be deemed to be in a position (1) to meet 15% of the amount of short term dues intended to be converted into medium-term loans and (2) to meet the amount of medium-term in stalments intended to be converted into medium-term loans from out of the drawable resources of stabilisation fund maintained by  it and/or out of its other resources.

(5) For the balance of amount required, the Board shall pass a resolution and apply for assistance from the apex Bank in the form prescribed by the Reserve Bank of India.

(6) On receipt of advice from the apex bank the conversion of short-term loan into medium-term loans or the conversion of medium-term instalments into medium-term loans has been grated, the central co-operative banks shall proceed to grant similar conversion facilities to the affiliated primaries against their promissory notes which shall be furnished by them to correspend to instalments for repayment fixed by it in each case.

(7) The Central Banks seall give effect to the conversion by crediting the short-term loan account of the concerned society with the amount of principal due by a corresponding debit to the fresh medium term loan account of the borrowing society.

“In the case of convrsion of medium term instalments the Central Bank shall credit the medium-term loan account of the concerned society with the amount of instalment due by corresponding debit to a fresh medium-terms conversion loan account of the society”.

(8) “All recoveries in respect of medium-term loans or medium-term conversion loans as the case may be, shall be remitted to the apex bank without any delay and corresponding credit provided to the account of borrowers or borrowing societies concerned”.

(9) The Central Bank shall maintain separate account in respect of converned medium-term loans received or advanced by it so as to distinguish them from all other loans received or granted by it.

(10) The Central Bank shall be free to pledge securities or fixed deposits representing the investments its slabilisation fund to the extent necessary, for raising the funds required for granting conversions

C. 1.  Apex Bank level :-

(1) The State Co-operative Bank shall determine after scrutiny of the application of the Central Co-operative Banks and such investigation as it may undertake (i) the amount of short-term loans (ii) the amount of Medium Term instalments which, in its opinion, may be justifiably converted into medium term loans.

(2) (i) “The Apex Bank shall sanction the conversion of medium term instalments into medium term loans to the extent possible from out of the resources available from its stabilisation fund. No loans shall be available to the Apex Bank from the Reserve Bank of India for the elief provided by them in respect of medium term loans”.

(ii) “In the case of conversion of short-term loans, if the apex bank cannot sanction such conversion in full from the resources available from its stabilisation fund. It shall forward the applications of the concerned Central Co-operative Banks to the Reserve Bank of India and at the same time shall itself apply in the prescribed form, to the Reserve Bank along with a resolution of its Board of Directors seeking from the Reserve Bank conversion facilities for the amount of short-term loans due to the Reserve Bank which it cannot convert from its stabilisation fund. Theapplication to the Reserve Bank of India shall be routed through the Registrar of Co-operative Societies who should secure and forward to the Reserve Bank the willingness of the State Government to guarantee the Reserve Bank in respect of repayment of principal and payment of interest, the loans recommended by him to the Reserve Bank for sanction out of the National Agricultural Creidt (Stabilization) Fund. He shall also arrange to furnish the Reserve Bank the State Government’s Guarantee Deed in the prescribed form.”

(3) On the Reserve Bank sanctioning the conversion of loans the Apex Bank may approach the Manager, Reserve Bank of India at the office of the Reserve Bank where its principal account is maintained, and furnish the necessary time promissory notes of Central Bank duly countersigned.

(4) On the Manager, Reserve Bank of India carrying out the adjustments for conversion of short-term loans into medium-term loans corresponding  action will be taken by the apex bank to conver the short-term loans of Central Banks into medium-term loans by crediting their short-term loan/accounts by the amount of conversion sanctioned by it by debiting a fresh medium-term loan account.

(5) Separate accounts shall be maintained by the Apex Bank in respect of loan received or given by it for purposes of coversion so as to  distinguish them from all other loans received of given by it.

(6) All repayments in respect of converted loans shall be remited without delay to the Reserve Bank of India and corresponding credit furnished in the converted medium term loan accounts.

(7) The Apex Bank shall be free to pledge the securities representing the investment of its Stabilization Fund to the extent necessary, for the purpose for the purpose of raising resources required for granting conversion facilities.

(8) The State Co-operative Bank (stabilization) Fund shall be deemed as fully utilised as soon as the overdraft facility enjoyed by the State Co-operative Bank against the Government and trustee securities of the fund is fully utilised.

9. National Level :-

(1) The application of an Apex Bank fo conversion of short-term loan into medium-term loan shall be made to the Agricultural Credit Department of the Reserve Bank of India in the form prescribed for the purpose and shall be forwarded through the Registrar with the required accompaniments.

(2) The Reserve Bank will consider the application subject to such investigation as it may undertake in regard to the need for conversion, amount of conversion required, the financial position of the institutions and such other matters.

(3) All loans granted from the National Agricultural Credit (stabilization) Fund shall be fully guaranteed as to the repayment of principal and payment of interest by the State Government.

(4) The loan shall carry interest at 11/2 per cent below the bank rate.

(5) The loans will ordinarily be granted for periods not less than 15 months and not exceeding 3 years, though, in exceptional cases, Bank might sanction such loans upto 5 years.

(6) Short-term loans will be converted into medium term loans on the due date of repayment

(7) The Reserve Bank of India shall have the right to refuse a loan and to prescribed returns or undertake inspections as it may consider necessary and to vary the terms and conditions for granting conversion facilities.

Appendix II (4)

ADL. (2). 10271/75                                                                                 21st March 1975

CIRCULAR 21/75

It has been brought to my notice that the auditors are not submitting the draft audit reports of Co-operative Societies within a reasonable period after the completion of audit. In spite of repeated instructions, the number of audit reports pending with the auditors remains alarmingly high. It is pointed out that the reports pending with the auditors as on 31-1-1975 was 2320, whereas the number of audits completed during January 1975 was only 835. The Deputy Registrars (Audit) and Assistant Registrars (Audit) are therefore informed that the time limit prescribed below for the receipt, scrutiny, approval etc. of the audit reports should be strictly abhered to in future.

(1)	Submission of the Auditor report by the auditors to the Assistant Registrars (Audit) or Deputy Registrars (Audit) as the case may be, after completion of audit:- (a) Apex/Central/District Societies and societies having single concurrent auditors.	15 days from the date of completion of audit.
	(b) Other societies.	5 days from the date of completion of audit.
(2)	Submission of the audit report by the Assistant Registrars (Audit) to the Deputy Registrars (Audit) after checking [In case where the reports have to be approved by the Deputy Registrars (Audit)]	5 days from the date of receipt from the auditors.
(3)	Submission of the audit report by the Deputy Registrars (Audit) to the Registrar of Co-operative Societies after checking [In case where the reports have to be approved by Joint Registrar (Audit).].	10 days from the date of receipt from the auditors.
(4)	Resubmission of the audit report by 5 days from the date of the auditor’s after rectification of receipt of check memo defects.	5 days from the date of receipt of check memo.
(5)	Approval of or checking the Audit reports by the Deputy Registrar (Audit) / Assistant Registrars (Audit) :- (a) Apex, Central, District Societies and societies having single concurrent auditors.	10 days from the date of 1st receipt or 5 days from the date of receipt of rectification report.
	(b) Other societies.	5 days from the date of receipt.
(6)	Issue of audit certificates after approval of the audit report.	2 days from the date of approval.

The Deputy Registrar (Audit) and Assistant Registrars (Audit) should watch whether the time Limit prescribed above is adhered to in each and every case, personally examine the cases where the instructions have been violated and take appropriate action against the deliquents.

The officers inspecting the officers of the Deputy Registrars (Audit) and Assistant Registrars (Audit) will verify whether the above instructions have been strictly followed by the Auditors, Assistant Registrars (Audit) and Deputy Registrars (Audit) as the case may be.

Appendix II (5)

ADL (1) 39823/78                                                                                          7th July 1979

CIRCULAR No. 36/79

Sub:- Audit-Audit classification of Central Co-operative Banks -                   revised standards-adoption of.

Ref:- Letter No. ACD.ID(A)617/J 34-78/9 dated 8-8-1978.

The audit classification of Central Banks is now being made on the basis of the standard fixed by the Reserve Bank of India in the year 1952. The need for revision of the existing standards is now felt by the Reserve Bank of India in the context of significant charges which have since taken place in the field of rural credit and other allied activities. Further, with the sizeable increase in advances by the Banks, their overdues have also been mounting. Hence Reserve Bank of India considered it necessary to replace the existing generalised approach adopted hither to for making an assessment of the working of a bank by a ‘marks’ system so as to have a better qualitative assessment of the Bank’s overall performance. With these objects inview Reserve Bank of India has set out revised standards for audit classification of Central Banks and communicated the same in the the reference cited for adoption from the year 1978-1979 onwards.

In the circumstances mentioned above, following instructions are issued to al concurent Auditors of the Central Bsnks for strict compliance.

1. Revised standards viz.”Mark System” for the audit classification will be applied from the audit for 1978-1979 onwards.

2. Assessment of th working of the Central Bank is to be made under the eleven broad heads mentioned in the revised standards which are detailed in the annexure, and marks given on the basis of specific norms indicated under each head.

3. While awarding marks to the items, the basis/authority (with working sheets where necessary) are also to be detailed under the items for further verification in this office.

4. The audit classification of the Bank shall, thereafter, be arrived at on the basis of the aggregate marks secured by it, as indicated in the annexure.

Annexure

REVISED STANDARDS FOR AUDIT CLASSIFICATION OF

CENTRAL COOPERATIVE BANKS

Allotment of marks

An assessment of the working of a central cooperative bank may be made under the eleven broad heads mentioned below and marks given on the basis of specific norms indicated under each head. The audit classification of the bank may, thereafter, be arrived at on the basis of the aggregate marks secured by it, as indicated in this note.

(i) Overdues                                                                            22 Marks

Under this head, marks may be given on the basis of the following norms :

Percentage of overdues at the end of the year to Marks to be given the demand for that year (in respect of principal amount only)

Upto 20                                                                                               22

Above 20 and upto 40                                                            11

Above 40 and upto 60                                                            5

Above 60                                                                                            Nil

If the bank had hidden the position of its overdues by resorting to facile extensions or book adjustment 2 marks may be deducted from the eligible number of marks under this head.

Overdues under interest need not be taken into consideration as the banks are expected to make necessary provision there for.

(ii) Number of defaulting Societies                                          3 Marks

Marks may be given to the bank on the basis of percentage of defaulting societies to the total indebted societies as at the end of the concerned cooperative year on the basis of the following norms :

Percentage of defaulting societies to total indebted societ’s   Marks to be given

Upto 30 per cent                                                                                 3 Marks

31 to 40 per cent                                                                                 2 Marks

41 to 50 per cent                                                                                 1 Marks

Above 50 per cent                                                                               Nil

(iii) Observance of seasonality discipline                                5 Marks

The Reserve Bank has stipulated that central cooperative banks should recover a specified portion of its demand in respect of short-term agricultural loans before the close of each agricultural season viz. Kharif and rabi and pass on the entire recoveries to the apex bank. Failure to comply with this discipline results in the bank not being able to make further drawals on the short-term credit limit for seasonal agricultural operations till the time the prescribed conditions are fulfilled.

The bank may be given full 5 marks it it had complied with the prescribed seasonality discipline at the end of March and June, while only 2 marks may be given if it had complied with the prescribed discipline in respect of only one reason. A bank not complying with the prescribed seasonality cnditions may not be given any marks under this head.

(iv) Reserves / Provisions to cover erosion                              15 Marks

            in the value of assets.    

The banks are expected to make full provision in respect of the estimated erosion in the value of its assets which includes bad an doubtful debts as well as other assets considered doubtful of realisation. Depending upon the extent to which the erosion in the value of assets is covered by corresponding reserves and provisions, marks may be given on the basis of the following norms :

Extent to which erosion is covered                        Marks to be allotted

by reserves/Provisions

100 per cent                                                                                        15

75 per cent and above but less than 100 per cent                   12

50 per cent and above but less than 75 per cent                     8

25 per cent and above but less than 50 per cent                      5

Below 25 per cent                                                                               Nil

(v) & (vi) Maintenance of cash reserve and liquid assets

 under section 12 and 24 of the Banking Regulation Act, 5+5=10 marks

 1948 (As Application to Cooperative Societies)

Five marks each are allotted for the maintenance of required cash reserve and liquid assets. Full marks may be given to the bank if it had maintained the required cash. Reserve/liquid assets throughout the year. No marks are to be given if there is defaulten any day during the course of the year. However, if the default/s could have been avoided, had the cash-in-transit, if any, been reckoned towards cash reserve and liquid assets, such default/s should be ignored.

(vii) Efforts towards mobilization of deposits                          10 Marks

The marks under this head may be given taking into account the extent of increase in deposits achieved by the bank over its previous year’s level, on the basis of the following norms:-

Extent of increase                                                                    Marks to be given

If the increase in total deposits is over 15 per cent                 10 Marks

If the increase in total deposits is between                               5 Marks

10 per cent and 15 per cent

If the increase is less than 10 per cent                                                            Nil

If, however, any targets for deposit mobilization for the bank have been fixed by the Department/Apex Bank, marks may be given on the basis of the following norms.

Extent of achievement in relation to target fixed         Marks to be given

100 per cent                                                                                        10

75 per cent and above but less than 100 per cent                     8

50 per cent and above but less than 75 per cent                       5

Less than 50 per cent                                                                          Nil

(viii) Operational efficiency                                                                 20 Marks

The operational efficiency of the bank may be examined under the following five broad heads and marks given on the basis indicated against each head :

(a) Observance of necessary                           No.of Marks to be given

financial discipline       

(i) If there were no defaults in repayments due to               1

financing agencies/institutions/Government

(ii) If there were no deficits in non-overdue cover.             1

(iii) Reasonable correlation between

(a)Borrowings and lendings                                                           2

(b) Recoveries and payments

(iv) Compliance with the terms and conditions                              

stipulated by apex bank/Reserve Bank, such

as reduction in borrowing to the stipulated level,               

minimum involvement, advancing loans to small

and economically weak farmers upto the

prescribed minimum level, no unwarranted

drawals from the apex bank, observance of                         6

prescribed limit for retention of deposits with

commercial banks, etc. (One mark may be

deduted forthe breach of each stipulated condition)

(b) Rationalization of loan policy and procedures

including implementation of the crop loan system                 2

of the Reserve Bank of India.

                                                                                                   No.of Marks to be given

(c) Proper maintenance of the prescribed books

of account and registers                                                                            2

(d) Timely submission of compliance report in respect of.           2

(e) Timely submission of compliance report in respect of.            4

(i) Inspection Report issued by the

Reserve Bank of India.

(ii) Audit report

(iii) Directives (applicable, if any) issued by

(a) Reserve Bank of India.

(b) Co-operative Department

                                                                                                              __________

20

==========

(ix) Profit earned                                                                                 5 Marks

The bank may be given marks under this head on the following basis.

Extent of profit                                                                         Marks to be given

(a) If the profit is adequated to provide for overdue

interest, contribute to various reserves as per bylaws             5

and declare dividend of not less than 3 percent.

(b) If the profit is adequate to provide for overdue

interest contribute to various reserves as per by-laws             3

and declare dividend of less than 3 per cent.

(c) If the profit is adequate to provide for only the

overdue interest and contribute to various reserves                            2

as per bylaws but does not enable the bank to

declare any dividend.

(d) If the profit is not adequate to make various                                Nil

provisions and reserves.

(x) Efficency of Management                                                   5 Marks

Marks as indicated against each of the items below may be given taking into account the interest evinced by its Board of Management/Executive Committee in the affairs of the banks :

Aspects                                                                                                Marks to be given

(a) If meetings were held regularly as per                                           ½

bylaws provisions of the bank.

(b) If appropriate steps were taken to farmulate policy

for mobilization and judicious deployment of resources                  1½

and periodic review of progress in respect thereof.

(c) If appropriate steps had been taken for recuritment         1½

 of requisite, qualified staff and their fraiming particularly

at the executive level.

(d) Overall efficiancy of the staff in the discharge                1½

of day-to-day functions.

__________

5 Marks

=========

(xi) Developmental role played by the bank.                     5 Marks

The bank may be given marks for the developmental role played by it as indicated below:-

Aspects                                                                                                Marks to be given

(a) If adequate steps had been taken to develop

backward areas so as to cover economically weak                             1         

farmers and to provide finance to them.

(b) If adequate steps had been taken to promote and

 finance small-scale industries, poultry farming, dairying                  1

etc., wherever there is scope for such activity.

(c) If appropriate steps had been taken to draw up

branch expansion programme and for its implementation.                 1

(d) If adequate progress had been achieved in

implementation of the scheme of  linking                                           1

of credit with marketing.

(e) Adequacy of progress achieved in the

recorganisation of primary agricultural credit societies

and rehabiliation of the banks, if applicable. Otherwise                     1

the mark may be apportioned among other points equally.

__________

5 Marks

=========

Audit classification.

Depending upon the aggregate of marks secured by the bank, audit classification may be made on the basis of the following norms:

Marks secured                                                                         Audit Classification

60 and above                                                                                A

45 and above but below 60                                                          B

30 and above but below 45                                                          C

Below 30                                                                                                  D

A bank not satisfying the provisions of section 11 of the Banking Regulation Act, 1949 (As Applicable to Co-operative Societies) may be classified as ‘D’ irrespective of the aggregate of marks secured by it.

Appendix II (6)

No. ADL (2) 26588/76                                                                                          16th June 1976

From

The Registrar of Co-operative Societies,

Thivandrum, P.B.No. 185.

To

All the Deputy Registrars (Audit)

All Assistant Registrars (Audit) [Through the Deputy Registrar (Audit) concerned]

General Manager / Secretary, All District Cooperative Banks.

Secretary, Kerala State Co-operative Bank, Trivandrum.

Assistant Registrar/Concurrent Auditor of Kerala State Co-operative Bank and All District Co-operative Banks.

All Assistant Registrars (Audit Squad)

All other single/group concurrent auditors [Through Deputy Registrars (Audit) concerned].

Sub:- Assessment of bad doubtful debts and other assets of Primary                        Agricultural Credit Societies and Central Banks - Revised                         standards - Regarding-

Ref:-Letter No. ACD, ID. 10585/J-17-75/6 dated 12-4-1976 from the                                 Chief Officer, Reserve Bank of India, Bombay.

The Reserve Bank of India has observed that the guidelines for estimating bad and doubtful debts and other assets of Central Banks and primary agricultural credit societies are not being followed uniformly by the Departmental Auditors and Central Banks and that wide disparity is noticed between the estimates of the bad and doubtful assets at the society level and the Central Bank level and also between the estimates made by the Reserve Bank of India and those made by the Auditor at the Central Bank level. Therefore it is considered necessary to review the standards for the asessment of bad and doubtful debts and other assets at the levels of the Central Banks at the Societies indebted to them.

Althoug, the guidelines now in force are by and large adequate to guide the Auditors, the Reserve Bank of India has felt that some of the aspects covered in the guideline needed revision with a view to making them simple and easy for application and at the same time realistic. Accordingly the Reserve Bank of India has revised the guidelines for the assessment of the bad and doubtful debts and other assets both at the level of primary agricultural credit societies and Central Co-operative Banks, which are given in the enlosed note.

All the Deputy Registrars (Audit), Assistant Registrars (Audit) and General Manager/Secretary of Kerala State Co-operative Bank and District Co-operative Banks are requested to bring to the notice of all the subordinate officers, the revised guideline and take immediate necessary steps to implement the suggestions contained in the guidelines for estimation of bad and doubtful debts and other assets of Primary Agricultural Credit Societies and Central Banks systemaically. 

GUIDELINES FOR ESTIMATING BAD AND DOUBTFUL DEBTS AND OTHER ASSETS OF PRIMARY AGRICULTURAL CREDIT SOCIETIES AND CENTRAL CO-OPERATIVE BANKS

The Co-operative Societies Acts in force in different States provide that the annual audit of a co-operative soiety shall include the examination of overdue debts, if any, and valuation of the assets and liabilities of the society. The valuation of assets implies an estimation of the realisability of the loans an advances and other assets of the institution. In some States, the departmental instructions require central co-operative banks themselves to make an estimate of the bad and doubtful debts and other assets at the end of each co-operative year. In its Circular letters Nos. ACD. Plan 202/PR 264-64/65 dated 28 July 1964 and No. ACD. Insp. 5085/F. 15-70/71 dated 12 June 1971, the Reserve Bank gave certain broad guidelines for the valuation of the assets of the primary agricultural credit societies and the central co-operative banks respectively for use by auditors and banks. The guidelines have now been revised to some extent in the light of the comments received from and the discussions the Reserve Bank had with some of the Registrars of Co-operative Societies on 18th November 1975. The revised guidelines are given in the following paragraphs divided into two sections section ‘A’ relating to the primary agriultural credit societies and  section ‘B’ relating to central banks. These guide are not exhaustive but indicative of the line of approach to the task of estimation of bad and doubtful debts and other assets of primary agricultural credit societies as well as central co-operative banks.

A.  AT THE LEVEL OF PRIMARY AGRICULTURAL CREDIT SOCIETIES

2. The scope of audit of a primary agricultural credit society generally includes the following:-

(a) Verification of cash, bank balances and securities ;

(b) Verification of the balances at the credit of the depositors and creditors and of the amounts dues from the debtors of the society ;

(c) Examination of overdue debts, if any ;

(d) Valuation of assets and liabilities ;

(e) Determination of the extent of reserves and provisions required to be built up against erosion of the value of assets; and

(f) Examination of the statement of accounts and balance sheet prepared by the managing committee of the society.

It must be emphasied that the audit report to serve a useful purpose, shoould disclose accurately the financial results of the dealings of the institution. It is the auditor’s duty in preparing the balance sheet to see that all the assets which are shown in the books appear at their proper value, that they exist in fact and that no assets have been disposed of or charged in any way without the transactions being recorded in the books of the society. In this context, an examination of all loans due and their classification into good, doubtful or bad constitutes a very important aspect of audit. It is also necessary to verify and evaluate the other assets including the amounts shown under sundry debtors and see form the records available with the society whether any f the assets have become irrecoverable or enroded in value either wholly or in part and determine the extent of such erosion on a rational basis with reference to all the available information. The profit or loss of a co-operative society has to be arrived at after taking into account the erosion in assets and provision made therefore. An attempt is, therefore, made in the following paragraphs to refer to certain possible situations when the value of the assets of a society have to be considered as having diminished and to indicate a rational practical approach to determine the extent of erosion of such assets.

(a) Cash in hand :

3. If the cash balance produced for verification includes currency notes/coin which have ceased to be legal tender for reasons such  as being defective, torn, mutilated, defaced, etc., such amount would have to be treated as bad. Any shortage between the cash balance as shown by the books of the society and the actual cash balance should be investigated in detail immediately. If the difference is due to misappropriation/fraud/defalcation by an officer bearer or an employee of the society the amount that is likely to be recovered from the person concerned will have to be ascertained in the light of his financial standing and the security, if any, furnished to the society. Amounts misappropriated and not covered by any insurance or security deposit or fidelity guarantee of the employee involved in misappropriation should be considered as bad. If, however, the misappropriated amounts are covered by insurance claims, security deposits or fidelity guarantee or attachment of property on obtaining awards, they may be treated as god or doubtful  depending upon the circumstances of each individual case. The amount that is not likely to be recovered will have to be treated as a bad asset.

(b) Balances with banks :

4. Ordinarily, agricultural credit societies are required to keep their funds only with the control bank to which they are affiliated, but in some cases they are permitted by the Registrar to keep their balances with commercial banks and other co-operative banks. In cases where the banks with which the funds have been kept have gone into liquidation, the auditor may treat the entire amount with such banks as doubtful in the first instance and after getting confirmation from the liquidator regarding the amount that the society may realize, he may clasify the unrealisable part as bad assets.

(c) Investments :

(i) Shares :

5. Agricultural credit societies are required to invest a part of their owned funds in the shares of the central co-operative bank. They are also required to by shares of co-operative marketing societies. In some states, the agricultural credit societies have also invested in the shares of other co-operative institutions like co-operative sugar factories, co-operative spinning mills, co-operative printing presses, etc. The auditor will have to verify these investments and see whether any of the institutions in which the society holds shares of co-operative institutions have already gone into liquidation or were functioning in a very bad way, incurring heavy losses. The break-up value of the investments in such cases will have to be worked out on the basis of a proper assessment of the bad and doubtful assets of the marketing and processing societies and other types of societies in which the investments are made. At present, in many of the States, no proper assessment of the bad and doubtful assets of such societies is made by the auditors. The Registrar of Co-operative Societies of each State has been requested to issue instructions to the audit staff to properly estimate the bad and doubtful assets of the marketing/processing societies and to clearly indicate the estimates in the audit report as also the break-up value of the shares of these societies as on the date of audit. To determine the break up value of shares, the rel and exchangeable value of the paid up capital of the marketing/processing society may have to be arrived at. It is ordinarily taken as equal to the realizable value of is assets minus outside liabilities. The real and exchangeable value of shares may be apportioned to arriver at the intrinsic worth of each share which would be its break-up  value. However the short-fall in the break-up value of shares in relation to the paid up value may be ignored during the first three years following commencement of business or production of a new co-operative venture. The difference between the paid up value and the break up value of shares held by an agricultural credit societies in other marketing/processing societies will represent the depreciation in the value of its investment in the shares of such societies.

(ii) Government and other trustee secutiries:

6. Societies may have also invested a part of their funds in government and other turstee securities. During the physical verification of the securities, it should be examined whether the are held by the society in its own name, that the endorsements on the securities are in order and that interest is collected on them periodically. The investments in government and other trustee securities should be valued on the basis of their market price on the date with reference to which the audit is conducted and the market value or the book value whichever is lower should be taken as the realizable value. 

(d) Other investments:

7. The auditor will have also to examine other investments of a society such as those made in buildings, furniture, land, etc., and see whether adequate depreciation has been allowed on such investments. If no depreciation had been allowed on buildings, furniture, etc. earlier, depreciation should be worked out at the rates indicated in para 34 to arrive at the realizable value of the assets. In the case of buildings as also land acquired in satisfaction of claims the title of the property will have to be carefully examined to see that it is clear and free from any encumbrances. With regard to lands acquired in satisfaction of claims, it should be ascertained if they are in the clear possession of the society or still in the possession of the debtor, whether they were offered for sale and if so, why they could not be sold and whether the current land laws operate against the sale. Where the lands so acquired are not in the possession of the society or there is difficulty in selling the same, then the debt in satisfaction of which the land was acquired together with costs has to be treated as doubtful of recovery.

(e) Loans and advances :

8. The major activity of an agricultural credit society relates to loans and advances. Classification of these as good, doubtful or bad is an important duty of the auditor. Bad and doubtful debts may be generally defined as follows.

The bad debt is one which is considered as clearly irrecoverable on the basis of available information. Such a debt may have to be written off eventually since it is ascertained and reckoned as bad debt after all possible methods of recovery have been tried and proved futile. A doubtful debt is one, the recovery of which, in whole or in part, is uncertain. A prudent institution should make provision even against a doubtful debt.

9. Although there does not appear to be uniformity in the instructions in force in the different states in regard to the classification of a debt as bad or doubtful, two main considerations, viz. security behind the debt and the period of default in the repayment of the debt have been uniformly emphasized in estimating the bad and doubtful debts. Wherever, it is possible to analyse realisability of debts in individual cases with reference to the security offered, financial conditions of the principal borrower, his surety and the past performance of repayment and the stage of legal action taken to recover the overdues, is should be attempted and the realizability and other-wise of each case has to be determined. But, in actual practice, it is found that the number of cases of overdues is qute large and there is no complete information about the financial conditions of individual borrowers except what is available on the records of the society by way of promote executed land or other assets offered as security by mortgage or by creation of charge under the Co-operative Societies Act with the result that it is very difficult to have complete and correct assessment of the realizability  of dues in all cases. In the course of the discussions at the meeting convened by the Reserve Bank on 18 November 1975 on this subject to which some of the Registrars, were invited, it was agreed to adopt the following procedures in respect of the cases for which full details are not available. This procedure will facilitate, to a reasonable extent, the classification of dues into good, bad and doubtful with reference to the period for which amount remained overdue (ie. reckoned from the due date) and nature of security offered.

(a) The auditor will have to first satisfy himself that the overdue position of loans has been correctly worked out and that no attempt has been made to conceal the real position of overdues by resort to book adjustments or unathorised extensions. The auditor should thus arrive at the correct age of an overdue loan.

(b) Further, each primary agricultural credit society should be asked to maintain a separate register showing the overdues from members and the nature of security against each such loan. This register should be written as at the end of each co-operative year. On the basis of this register, a statement should be prepared by the society as at the end of each year showing overdues for 1 to 3 years, 3 to 6 years and above 6 years which should be checked by the auditor. The financing bank should ensure through its supervisory staff that the register referred to above is maintained by all societies and the statement of overdues prepared every year before the audit is undertaken. In the absence of a full time or part time paid Secretary, however, it may be difficult for a society to maintain the register and prepare the list of overdues for the purpose of audit. In such circumstances, it will be necessary for the auditor himself, to write the register and prepare the statements in question. The statements of overdues showing the names of borrowers and the nature of security would be useful not only for audit purposes but slso to the Co-operation Department and the financing bank in their recovery campaigns, particularly where large amounts are invovled and the overdues are old. The Registrar of Co-operative Societies may include the register in the list of the prescribed registers and devise a suitable proforma for the register and also for the statement of overdues to be attached to the audit report broadly on the lines of Proforma-1 enclosed to this note.

10. The criteria for classification of overdue loan as doubtful or bad on the basis of security and the age of overdue may be as under.

(a) Ordinarily loans which are overdue for less than one year need not cause undue alarm. The crops during the previous year might have failed or the member might have utilized the sale proceeds of this crop to meet certain unforeseen expenditure. But the member may be honest and may be expected to repay out of the next harvest. It may not, therefore, be ordinarly necessary for the aduitor to treat any part of overdue debts for less than one year as doubtful of recovery to bad unless there are other compelling reasons to do so.

(b) Where the overdues are for 1 to 3 years and if these are secured against mortgage or declarations of land or in the case of surety loans the borrower or the surety possesses land and the same is clearly recorded in the property register, they can be classified as good. Where, however, the overdue loans are against personal security and neither the borrower nor the surety has any land as per the property register of the society, they will have to be treated as doubtful.

(c) In the case of overdue loans exceeding 3 years but not 6 years, if the borrower has provided tangible security they will have to be treated as doubtful. If, howevere, no tangible security is available for the overdue loans under this category, they should be treated as bad.

(d) All overdue loans for more, than 6 years from the due date, whether they are secured or unsecured, should be treated as bad.

(e) Apart from the treatment of overdues as doubtful or bad on the basis of age and nature of security, those overdue loans in which cases bonds decrees or execution petitions have become time barred or documents are lost and the borrowers refuse to execute fresh documents admitting their liability or where the debts has not been recovered even after award has been obtained and the execution proceedings have proved futile, they have to be treated as bad. Similarly, where the member and his sureties are declared insolvent or have died leaving no tangible assets to proceed against them or where the member has left the area of operation of the society leaving no property and his sureties have also no means to pay the dues, the debts may have to be considered as bad.

To sum up, the auditor may generally classify a debt as doubtful or bad under the following circumstances:

Doubtful Debts :

11. Where the loan is overdue for a period exceeding one year but  not three years, and it is against personal security, neither the borrower nor the surety having any land as per the property register of the society it will have to be treated as doubtful. Also, loans overdue for more than 3 years but not 6 years may have to be treated as doubtful notwithstanding provision of tangible security by he borrower.

Bad Debts:

12. In circumstance such as the following the debts may be treated as bad: (i) where the member and his sureties are declared insolvent or have died leaving no tangible assets; (ii) where the member has left the area of operatin of the society, has no property and the sureties have also no properties or income to pay the dues; (iii) where no tangible security is available for loans overdue from 3 to 6 years; (iv) all loans overdue for more than 6 years from the due date whether the vare secured or unsecured; (v) where a debt thought not overdue fo more than 6 years, has not been  recovered even after an award has been obtained and an execution proceeding instituted has proved futile; (vi) when the pronote and other documents have become time-barred or the documents are lost and the borrower has refused to execute fresh documents admitting his liability.

13. While actually estimating the bad and doubtful debts due from a member, such amounts as the share money or deposit of the member with the society may be deducted and the balance alone considered as bad or doubtful as the case may be provided the Co-operative Societies Act of the State concerned permits the societies setting off the share money and deposits of the members against their dues. In order to have a degree of uniformity in the presentation of data regarding bad and doubtful debts, the auditors may tabulate the data as shown in Annexure-II to issue note.

Interest receivable:

14. In respect of the loan accounts in which the amounts under principal are considered bad or doubtful of recovery, the outstanding amounts due under interest may also generally become unrealizable. Such unrealizable interest should, therefore, be included in the estimate of erosion in the value of the assets of the society.

Sundry debtors:

15. In most societies the asset side of the balance sheet includes a certain sum under the head ‘sundry debtors’ or ‘adjusting heads’. This item may include amounts advanced to office bearers for attending meetings etc., accounts for which might not have been rendered for a long time, amount recoverable from members in respect of goods suplied to them on credit and items of expenditure which have not the sanction of the requisite authority etc. In some cases the item may even conceal fictitious assets. The auditor will have to carefully examine all the items under this head and particularly those that have been outstanding for long. Where it is found on the basis of such scrutiny that there are items which are not realisable; then to that extent the amount shown under the head will have to be treated as bad.

16. In the evaluation of the various assets listed above, the auditor may in certain cases fund that the realisability of the amount is doubt. At the same time, he may not be reasonably certain that they will turn out bad. For instance, an office-bearer or an employee of a society may have misappropriated some funds of the society. He may be a person of some means and if legal proceedings are instituted the amount may be expected to be realised. But the society may not have all the necessary evidence to formally establish the case and there may be a chance of the office bearer’s or the employee’s acquittal. Similarly, an agricultural credit society may have invested its funds in shares of co-operative sugar factories or other processing societies. The factory may not have declared dividend year after year. But there may be chances of reviving it under proper management for which necessary steps are being taken. In such cases, the difference between the paid up value and the break-up value of the shares held by the agricultural credit society may be considered as doubtful asset.

Reserves and provisions :

17. Since the full amount of bad debts and other assets and ten per cent of the doubtful debts and other assets would contitute the amount of erosion in the value of assets of an agricultural credit society, it is necessary that corresponding provision should be made there against. It should however, be noted that where a society has not bad debt reserve etc. such reserve shoud not be adjusted at the state of working out reaizability of the assets. It will, however, be reckoned while working out realizability of the assets. It will, however, be reckoned while working out the real or exchangeable value of the society’s owned funds and determining the provision necessary to cover the estimated erosion in assets.

Maintenance of books of account :

18. To facilitate the assessment of bad and doubtful debts by the auditors, it is essential that primary agricultural credit societies should maintain all their books duly posed up-to-date. In particular, the property register of members, surety registers record of pronotes, arbitrations, etc., should be kept upto-date. The societies should also maintain systamatic records to indicate the progress in the execution of awards. They should obtain pass books or statement of accounts from banks with which deposits are kept. Certificates in respect of their investments in the shares of central banks, marketing societies, etc., should also be obtained and made available for scrutiny by the auditor at the time of audit.

B.  AT THE LEVEL OF CENTRAL CO-OPERATIVE BANKS

In the case of Central Banks also, the auditors will have to evaluate each item of the assets to determine its realizable value. The following broad guidelines are given to facilitate the work of officers auditing Central Banks.

Cash on hand :

19. If the cash balance produced for verification includes currency notes/coins which have ceased to be legal tender for reasons such as being defective, torn, mutilated, defaced, etc, such amount would have to be treated as bad. After verification of the cash balance, if any shortage in cash balance from that shown in the banks of the bank at the head office or its branches is detected, the matter should be closely investigated in detail  immediately. Inquiry should be made from the officals or office bearers responsible for the custody of cash for the reasons for short-fall. An extract of the cashier’s scroll (cash receipts/payments scrolls/register) and also of the cash balance book showing denomination-wise cas balance particulars for that date, duly authenticated by the concerned officials may be taken for records. if the short-fall is found to be due to misappropriation fraud/defalcation by an office-bearer or an offical of the bank or due to negligence on the part of an employee, the likelihood of the amount being recovered from the persons concerned and from the insurance company should be ascertained in the light of the relevant factors such as security furnished by the concerned person and his other assets etc. That part of the short-fall which is not likely to be recovered should be treated as a bad asset. If the bank itself has earlier detected any shortage, it might figure either under cash balance or under sundry assets in the balance sheet. In such cases also, the possibility of recovering the amount from the concerned persons and from the insurance company should be examined and that part of the amount which is not likely to be recovered should be treated as a bad asset. In certain cases, shortage in cash found over a period of time might be shown under ‘sundries’ or ‘miscellaneous’ and the bank might not have taken any action to view of the smallness of the amounts involved. Full particulars of such cases should be collected and the amount likely to prove bad either because of the bank not taking action in time or because of the unrealisability of the amount inspite of action, estimated as such.

Balances / deposits with other banks:

20. The balances held in deposit accounts with other banks should be verified with reference to the pass book, statement of accounts or certificate of balance received from the banks and the periodical reconciliation statements. All items outstanding for long should be examined in detail as under :

(i) the extent of the amount involved ;

(ii) the period for which the item was outstanding ;

(iii) whether the bank had taken up the matter with the bank concerned and if so with what result ;

(iv) if the bank had not taken up thj ematter with the concerned bank, the resons for the same.

In case of doubt, the auditor will have to satisfy himself about the genuineness of the transaction by examining the relevant paying-in-slips, counter foils of cheques, drafts, transfer advice etc. If necessary, he may himself get the balances confirmed by the concerned banks with which balances are shown to have been held.

Debit entries passed by the bank/other banks and remaining unresponded to in the othe banks/the bank’s should be thoroughly investigated. If, after examination of the long outstanding items, it is found that any transaction is fictitious, the amount that cannot be recovered from the persons responsible for the transaction should be treated as a bad asset.

If the banks with which the amounts had been deposited had either suspended payment or gone into liquidation, the extent of realizability of such deposits should be estimated and the unrealisable part of the dposits treated as a bad asset. A perusal of the correspondence with the liquidator of the concerned bank may indicate the instalments/last instalment payable which would help estimating the realisability of the amount involved.

Investments in Government and trustee securities, shares and debentures :

21. After a physical verification of the securities and shares with reference to the cetails in the investment register, it should be examined whether they are held by the bank in its own name and also in its custody or have been lodged with other banks against ovedraft or other arrangement. The investments in government and othe trustee securities should be valued on the basis of their market price on the date with reference to which the audit is conducted and the market value or the book value whichever is lower should be taken as the realisable value. Securities like debentures of land development banks which are not quoted in the market would have to be evaluated at the market price of comparable securities of the same maturity and guarnteed by the same government which are quoted in the market and this evaluation taken if it is lower than the book value. In evaluating debentures, it may not be prudent to be merely guided by the interest rate on the basis on comparable. State Government Securities as debentures for the same period carry a slightly higher rate of interest. The estimated value of the particular series of debentures carrying a similar rate of interest or as near thereto related to the maturity of government securities of the same state which had guaranteed the debentures, ought not to exceed the value of government securities.If such an evaluation is not possible, the debentures may be taken at their book value.

22. Shares and debentures of joint stock companies which are quoted regularly on the stock exchange should be taken at their market price or book value whichever is lower. If they are not quoted on a recognised stock exchange, they should be valued on the basis of the financial position of the company and the dividend paid during the past few years.

In the case of shares of co-operative sugar factories, spinning, mills, printing presses, etc. which are not quoted on the stock exchange, break up value of the investments should be worked out having regard to the financial position of the institutions and their working results. For this purpose, from the realisable value of the assets of such societies in which shares are held, their outside liabilities should be deducted to arrive at the value of their paid up capital. The real value of shares may be apportioned to arrive at the worth f each share which would be its break up val. If the book value is more than the break up value of the shares, the difference will represent the depreciation in their value. The shortfall in the break up value of shares may be ignored durine the first three years of commencement of business (production, not registration) of a new co-operative venture, treating it as the inveitable gestation period for a new institution and shares of such institutions may be taken as good for the paid up value. But after the expiry of the first three years, the shortfall should be treated as a bad assets. In case, it is not possible to work out the break up value of investment, the entire amount invested in such shares may be considered as bad particularly if the institutions have been put under liquidation or have stopped functioning or have continuously incurred heacvy losses over  number of years and no steps taken to revive them.

As indicated in Section A of this note, the Registrar of Co-operative Societies has been requested to issue circular instructions to the audit staff of marketing societies, co-operative sugar factories and other such types of societies to work out the break-up value of the shares and indicate the same  in the audit reports of such societies. The banks may  be guided by such break up value already worked out and given in the latest available audit reports and need not attempt an independent  valuation.

23. The investments in post office certificates, treasury saving deposit certificates and other similar securities should be taken at their surrender/encashable value, if the bank had not taken to profit and loss account the difference betweeen th eencashable value and the paidup value by debiting the amount to interest receivable account. Where they do not have encashable value or if the iterest received thereon was trasnferred to the interest receivable account (which would be the desirable accounting procedure) these may be evaluated at their book value or paid up value whichever is less.

If the bank has got an investment depreciation reserve, such reserve should not be adjusted against erosion/depreciation in the value of assets in government/trustee securities and shares etc. while estimating the realisability of the asset.

Loans and advances :

24. For assessing the bad and doubtful debts of primary agricultural credit societies, the auditor of the central bak will make use of the overdue list of the indebted societies attached to the respective audit reports referred to in para 9 of Section A of this note. If the bank’s loans against any society are covered by good loans outstanding from members to the society or if the owned funds of the society have not been eroded, the bad and doubtful debts of the society will not affect the dues to the central bank. The central banks auditor need not ordinarily examine each individual entry in the society’s overdue list, but may take the total position of good, doubtful or bad assets as arrived at by the society’s auditor. The realisable value of assets of the society has to be arrived at after deducting the entire amount of bad assets and 10 per cent of the doubtful amount. If the amount so arrived at is more than the outside liabilities of the society, the central bank’s due from the society would be unaffected. If, on the other hand, the realisable value of the assets of the society falls short of outside liabilities, the central bank’s dues are affected. The extent of the erosion of the dues to the central bank will be determined after taking into account thd dues to the government, any specific charge created on any of the  stock or other assets by way of hypothecation, mortgage or otherwise and appropriating the balance of the realisable assets on a proprata basis among all the creditors having like claim.

As far as possible, the auditor of the central bank should week out the erosion in the assets of the indebted primary agricultural credit societies on the basis of the audit report for the year in respect of which the central bank also is audited. It, however, the audit of the society has not been completed, the audit report of the previous year may be takne for the purpose of working out the erosion after making due allowance for the subsequent transactions in the account or accounts, if any. Subsequent inspection reports of bank’s supervisor/inspector will be useful in this regard. With a view to making a realistic estimate, the necessary particulars may be collected from the balance shet/trial balance, audit report, etc. in respect of the concerned societies and tabulated in a statement (proforma in Annexure III).

If a central bank has been brought under a schem of rehabilitation, the progress made in the recovery of its dues and in the assessment of its bad and doubtful debts may be taken into consideration while making an estimate of the bad debts of the bank. It would also be desirable to take into consideration the programme, if any, for the revitalization of primary agricultural credit societies in the bank’s area of operation and the progress in the implementation of the programme. It should be ascertained whether any of the concerned societies is covered by the programme. If so, the outstanding amount due from such societies may not normally be considered as bad or doubtful of recovery unless there are other compelling reasons for holding a different view.

25. The dues considered bad and doubtful of recovery during the previous year should continue to be treated as such during the subsequent audit also if there is no significant improvement in such accounts like sizeable recoveries, improvement inn the financial position of the society and of its working etc.

26. Co-operative societies engaged in trading activities such as marketing societies and consumers stores and those engaged in production such as processing societies (rice mills, oil mills etc), weavers and other industrial societies generally obtain funds from the central bank for working capital purposes. An estimate of the realisability of the advances outstanding against these types of societies should be made with reference to the repayment performance from the day the advances were made, periodcial stock and other financial statements submitted by the society, audit report, inspection notes, etc. It is possible that such an indebted society might have ceased working or might be in a moribund condition or might be owherwise in a bad way and its accumulated loss and fictitious assets exceed its owned funds. In the case of these societies, an important item of their assets will be the stock-in-hand. The audit reports and the reports of the bank’s inspectors should make a thorough examination of the stocks to find out if the actual stocks tally what is shown in the books/stock statements or the stocks have deteriorated in quality due to passage of time or due to other reasons and have thus become unsaleable or could be sold only at much reduced price. It should be noted that the auditor of the central bank should not classify the dues of such societies as bad or doubtful merely because the borrowings from the central bank are not supported by adequate cover. He will have to examine the realisability of all the assets of the society in question to ascertain whether it has the capacity to repay the central bank’s dues.

27. Another important item which has a bearing on the estimate of realisability of the dues to the bank from some of the non-credit societies will be their fixed assets such as land and buildings, machinery, etc. This item assumes all the more importance if the bank has made advances to a processing/industrial society for purchasing and erecting plant and  machinery etc. In such a case, it has to be ascertained whether the machinery purchased was new or old, whether there is demand for such machinery and the approximate price it would fetch if sold. In some cases, the society might have stopped production and the machinery kept idle for a long time making it unusable or salesable at a nominal price. After examination of all items of tangible assets of the indebeted society, the claims of preferential creditors will have to be sorted out. (Generally, Government will have first chare on the assets of the society for loans granted by it, if any. After providing for any preferential creditors, having the first charge, the remaining realisable assets may be considered for distribution on a pro-rata basis among other creditors, if it is found that such assets are insufficient to pay off fully the balance of the outside liabilities. That portion of the bank’s loan which is thus not covered by the pro-ra a distribution of realisable assets may be treated as bad.

28. In the case of non-agricultural credit societies such as urban banks and employees’ credt societies, it should be seen whether the repayment of the overdue loans to the central bank are satisfactory and whether the societies would be able to meet their obligations to the central bank within a reasonable period . If this is not so, it may be seen whether the outstanding to the central bank are covered by corresponding outstandings against members and whether the latter are supported by bond which are not timebarred, that necessary action is being taken by the societies for recovery of dues from the defaulting members, that no indebted member has left the place or is untraceable or (in the case of a salary earners’ society) has left the service of the concerned institution and is without any tangible asset and, in such an instance, whether the does could be recovered from his surities. In the case of urban banks particularly, the tangible security, if any, for the loans to its members has to be considered. In short, after examining the net financial position of the indebted society with reference to the latest balance sheet, audit report, supervisor’s inspection report, etc,. the deficit in its realisable assets to meet the liabilities to the bank may be considered as a bas asset.

29. The dues from societies under liquidation will have to b examined with reference to the liquidator’s reports, if any. Generally before the registration of a society is cancelled, a statutory enquiry is held. The enquiry report estimates the bad and doubtful assets of the society  and indicates how much of the outside liabilities could be discharged. Such an assessment s contained in the cancellation order of the department which may be taken as the base and checked with the subsequent realisation performance under the liquidator. The latest position in regard to the realisability of the bank’s dues should be ascertained from the liquidator whose assessment may normally be accepted. In the absence of any iformation in this regard other sources such as audit reports, supervisors’ reports, etc. may be seen. In some State like Tamil Nadu and Andhra Pradesh societies under liquidation are audited and a copy of the report sent to the liquidator from which necessary particulars may be obtained. Where no information is available and no progress is reported although a period of two years has elapsed after placing the society under liquidation, the outstanding dues from such societies may be treated as bad In making the evaluation of the dues from these societies, their investments in the shares of the central bank may be set off against their dues to the bank.

Interest receivable :

30. In respect of the loan accounts of a bank in which the amounts under principal are considered bad or doubtful of recovery, the outstanding amounts due under interest may also generally become unrealisable. Such unreasonable interest should, therefore, be included in the estimate of erosion in the value of the assets of the bank.

Bills purchased and discounted :

31. The bank may have discounted sight as well as usance bills. The parties may have defaulted in the payment of bills discounted as maturity with the default continuing for long periods. The financial position of the defaulting parties should be ascertained. Some parties not being in a position to retire bills at their maturity might have gotfresh bills discounted to enable them to pay the bills on due dates. The bank might have agreed to accommodate them to avoid showing them as defaulters and getting the amount blocked. Such cases of clean/accommodation bills should be thoroughly examined. The financial position of the parties and thier reported liabilities to parties other than the bank, the value of security, if any,  held by the bank etc., should be examined to estimate the realisability of of the bank’s dues.

Building, furniture, vehicle etc.

32. The other investments of the bank such as building, furniture and fixtures, vehicles etc., should be examined to see whether adequate annual depreciation has been allowed on those items. The extent to which depreciation had not been allowed should be treated as bad. In the case of buildings, there might have been damage to it due to fire, floods, etc., and the property may not have been adequately insured against such risks. Valuation of the property (based on its market/relisable value) may  have to be made in such cases and the shortfall if any, in relation to the book value treated as a bad asset. If a bank had revalued its building and shown it at the appreciated value in its books on the ground that its market value had gone up considerably, the asset may be valued at book value or cost price less depreciation.

33.In respect of land and buildings, acquired from borrowers in satisfaction of the bank’s claims, if the title to the property is not clear or the property is not free from encumbrance or th eproperty is not in actual possession of the bank or there were no bidders when the property was put to auction, the investments may be treated as doubtful of realisation. Otherwise, the value of such properties may ordinarily be taken at their market value or Book value, whichever is lower.

34. Furniture and fixtures, vehicles and other similar items which are tangible in nature may be taken at their book value provided normal depreciation has been allowed on such items. Here also, if the bank had not allowed adequate depreciation or any depreciation at all, the book value of these assets may, in ordinary circumstances, be reduced to the extent of the depreciation that the bank should have normally allowed on them for the respective years.          

35. The value of missing/viceable articles of dead stock may also be treated as bad.

36. The rates at which annual depreciation is normally charged are indicated below:-

Buildings                                                                                              21/2%

Furnitured and  fixtures                                                           5%

Vehicles                                                                                   20%

and in the case of heavy duty vehicles like trucks which are

 put  to  constant  use  and whose life may not be more than

 5  years,  depreciation  at  40%  for the first year of  usage.

37. In some cases the book value of assets, viz., building, furniture, vehicles etc., is not reduced every year on account of depreciation, but instead separate depreciation reserves are built up. For the evaluation of these assets, their book value should be reduced after providing for depreciation at notmal rates.

Other assets:

38. These include such items as ‘sundry debtors’, ‘suspense’, miscellaneous items, ‘adjusting head’s etc. The long-outstanding items under these heads should be scrutinised with reference to all the relevant particulars. If no particulars regarding any item are available or if no documents have been executed for any amount due from an outside party or if no steps have been taken by the bank to realise the amount and the  bank itself is different about the recovery of the dues, then to that extent the amount shown under the head may be treated as bad asset.

39. ‘Branch adjustment’ shown on the assets aside of the balance sheet of a bank could be taken at the book value as th amount normally relates to assets in transit. However, it should be examined from the reconciliation statement that it does not contain items of a doubtful nature or outstanding for unduly long periods and reasons therefore. If the account includes any item of a doubtful/fictitious nature, the same should be included in the estimate of erosion in the value of assets of the bank.

Accumated losses:

40. The accumulated losses appearing in the balance sheet may be treated as unrealisable asset.

Reserves and provisions:

41. The primary agricultural credit societies will have to provide for 100 percent of bad debts and assets and 10 percent of doubtful debts and assets as indicated earlier. However, central banks have to provide fully for the entire erosion.

PROFORMA I

Register showing the overdues of more than one year to the society

Sl. No.

Name of the member

Type of loan

Date of loan

Amount advanced

Due  Date

Amount overdue as on 30 June

Classification of loans outstanding according to the nature of security

Only pronote of the member

Pronote of the member with one or more sureties

Charge on land which has been duly registered plus one or more sureties

Mortgage of land of the member having no encumbrance

Mortgage of land of the member having encumbrance

Collateral security, if any, in the form of marketable goods including gold and silver

Rs

Rs

Rs

Rs

Rs

Rs

Rs

Rs

1

2

3

4

5

6

7

8

9

10

11

12

13

Sl. No.	Particulars of the assets of the borrower
	Land holding			Land mortgaged to the society*		Other unencumbered properties				Shares held in the society	Deposits and other funds with the society
	Owned		Leased	Acreage	Estimated value	Immovable description	Value	Movable description	Value
	Acreage	Estimated value	Acreage
		Rs			Rs	Rs	Rs	Rs	Rs	Rs	Rs
	14	15	16	17	18	19A	19B	20A	20B	21	22

*Includes lands on which charge is created

PROFORMA I (Contd.)

Sl. No.

Action taken against the borrower

Standing of sureties

Amount conside-red bad/ doubt ful of reco very

Arbitration reference

Execution petition

Loans outstanding to the society

Of which overdue

Total Liability as surety

Land owned estimated value

Value of other unhypothecated tangible assets

Date of filing

Amount

Date of decree

Amount decreed

Date of sending  for execution

Amount since recovered

Acreage

Total

Of which mortgaged to the s society or others

Bad

Doubtful

Rs

Rs

Rs

Rs

Rs

Rs

Rs

Rs

Rs

Rs

Rs

23

24

25

26

27

28

29

30

31

32

33

34

35

36

37

ANNEXURE II

…………………………….. CO-OPERATIVE SOCIETY

Statement of bad and doubtful debts as at the end of the year 30 June 19

(Amount in Rs.)

Name of the member	Type of loan	Amount outstanding	Due date	Of which overdue	Period for which it is overdue	Nature of security *	Amount considered		Reasons @
							Doubtful	Bad
(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)	(9)	(10)

* Indicate here ______ ‘personal’, ‘land’, ‘building’, etc.

@ While giving reasons indicate the amount of share money, deposits etc. adjusted in arriving at the estimate

ANNEXURE III

Work sheet for estimating the bad and doubtful debts at central bank level

Sl. No.	Name of the society	Date of financial particulars*	Total loans		Book value of assets	Erosion in the value of assets			Realisable value of assets (Col. 6-9)	Outside liabilities
			Outstanding against members	Of which overdue for more than one year		Bad debts/assets (100%)	Doubtful debts/assets (10%)	Total (Col. 7+2)		Borrowings outstanding from the bank	Of which overdue for more than one year	Interest payable  to the Bank
1	2	3	4	5	6	7	8	9	10	11	12	13

Of which overdue	Borrowings from the Government	Other borrowings if any	Other outside liabilities	Total (Col.11+13+ 15+16+ 17)	Amount considered as bad +
14	15	16	17	18	19

N.B. Particulars in this statement may be filled in from the audit reports on the societies, supervisor’s inspection / visit notes etc.

* The financial particulars may relate to the last day of the co-operative year for which the latest audit report is available.

+ The bank’s dues from the society may be considered irrecoverable if the same are not covered by good loans outstanding from members of the society or the realizable value of assets of the society is not sufficient to meet its outside liabilities. The extent of erosion of the dues to the central bank will be determined after taking into account the dues to the Government, any specific charge created on any of the stock or other assets by way of hypothecation, mortgage or otherwise and appropriating the balance of the realizable assets on prorate basis among all the creditors having a like claim.