Bank Audit | Audit of Agricultural Credit, Loans and Advances

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Agriculture has always been the backbone of the Indian economy despite sustained progress in the industrial and service(s) sector. Many industries like handloom weaving, rice de-husking, cotton, sugar, textiles, etc. depend indirectly on agriculture. To ensure the wider reach of agricultural credit, the Government adopted the institutional credit approach through various agencies. NABARD also meets these institutions’ long-term and short-term credit needs.

Lending to the agriculture sector includes agriculture infrastructure, ancillary services, small and marginal Farmers, Lending by banks to NBFCs and MFIs for on-lending in agriculture, Farm Credit – Individual farmers, Corporate farmers, and Farmer Producer Organisations.

The audit approach for agricultural advances has to be on similar lines as in the case of other advances. The following is a summary of key aspects in the audit of agricultural advances:

1. Verify that the agricultural credit has been extended only after obtaining ‘No dues/ No objection certificates (NOC)’ from the existing credit agencies in the area of finance.

2. Check whether the sanctioned amount of agriculture loans is as per the scale of finance applicable to the land under cultivation and the crop being cultivated.

3. Check that disbursement of agricultural finance is carried out in various ‘stages’ based on the requirements of farming activity.

4. Verify whether the bank holds documents evidencing the utilisation of loans for agricultural activities. Verify and ensure this strictly in all cases.

5. Carefully check that non-agricultural advances are not tagged as agricultural advances.

6. A loan for the purchase of tractors qualifies as an agricultural loan. Other loans given for the purchase of vehicles shall come under the commercial vehicle loan category

7. Verify the tagging of priority sector lending towards agricultural advances to ensure that the same is as per RBI guidelines

8. Loans to fishermen for the purchase of trawlers/boats etc. can be considered

This document further discusses the Priority sector Lending, Interest application, Interest subvention, State Level Bankers Committee, and important points to keep in mind while auditing agriculture advances and loans, for interest subvention, and waiver schemes.

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