Rule 22: Average rural-branch advances
Rule 22 prescribes the aggregate average advances calculation for the section 31(1) Table Sl. No. 1 bad-and-doubtful-debt provision. It uses month-end outstanding advances, calculated branch by branch.
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Rule 22 - Computation of aggregate average advances for purposes of section 31(1) [Table: Sl. No.1] for deduction for provision of bad and doubtful debt
(1) For the purposes of section 31(1)[Table: Sl. No. 1], the aggregate average advances made by the rural branches of a scheduled bank shall be determined as follows:– (a) the amounts of advances made by each rural branch as outstanding at the end of the last day of each month comprised in the tax year shall be aggregated separately; (b) the sum so arrived at in the case of each such branch shall be divided by the number of months for which the outstanding advances have been taken into account for the purposes of clause (a); and (c) the aggregate of the sums so arrived at in respect of each of the rural branches shall be the aggregate average advances made by the rural branches of the scheduled bank.
(2) In this rule the expressions, "rural branch" and "scheduled bank" shall have the meanings respectively assigned to them in sections 66(26) and 2(98).
Introduction
The calculation supplies a statutory input. Eligibility and the deduction allowed remain governed by the relevant Act provision; the rule does not make the entire advances amount deductible.
Rule breakdown
Identify qualifying rural branches
Apply the rule to rural branches of a scheduled bank. Sub-rule (2) refers to section 66(26) for rural branch and section 2(98) for scheduled bank.
Verify these statutory classifications before including a branch. A branch described internally as rural is not a substitute for checking the Act’s definition.
Prepare each branch’s monthly data
For each rural branch, aggregate the advances outstanding at the end of the last day of every relevant month in the tax year.
Use outstanding advances, rather than total fresh disbursements during the year. Reconcile month-end figures to the branch records and retain the calculation trail.
Compute the separate branch average
Divide each branch’s aggregate by the number of months for which its outstanding advances were taken into account under clause (a).
Keep the denominator visible in the schedule. Do not divide by the number of branches or replace the monthly exercise with a single year-end balance.
Aggregate the branch averages
Add the amounts obtained for all qualifying rural branches. That sum is the aggregate average advances for the rule.
Hypothetical: two branches each have 12 relevant month-end balances. Branch A’s balances total ₹120 crore, producing ₹10 crore; Branch B’s total ₹60 crore, producing ₹5 crore. The aggregate average advances are ₹15 crore.
Transfer the result to the deduction working
Carry the calculated average into the separate section 31 deduction analysis. Keep the provision, applicable statutory limits and other qualifying conditions distinct from this averaging schedule.
A review file should make it possible to trace the final input back to the branch classification, monthly balances and denominator for each branch.
Key takeaways
Month-end balances
Use outstanding advances on the last day of each month.
Branch-first calculation
Average each branch separately, then add the branch averages.
An input, not the deduction
Apply section 31 separately to determine the actual allowable deduction.
Practical checklist
- Verify the statutory branch and bank definitions.
- Retain branch-wise month-end schedules.
- Reconcile the aggregate to the deduction computation.
Avoid
- Do not use annual disbursements in place of outstanding advances.
- Do not treat the whole computed average as deductible.
FAQs
Can the bank use only the year-end advances figure?
No. Rule 22 requires aggregation of month-end outstanding advances and the branch-wise averaging process.
What is the denominator?
For each branch it is the number of months for which outstanding advances were taken into account under clause (a).
Where are rural branch and scheduled bank defined?
Sub-rule (2) refers respectively to sections 66(26) and 2(98) of the Act.
Glossary
- Branch average
- The aggregate of the relevant month-end outstanding advances divided by the number of months counted.
- Aggregate average advances
- The sum of the separately computed rural-branch averages.