CHAPTER VII

PROGRESS OF PRIORITY SECTOR LENDING

7.1 Introduction

Banks are not merely purveyors of money; they are also catalytic agents in

accelerating the tempo of development of different sectors of the economy. In a

developing economy which is starved of capital, certain sectors and sections of the

society, need special and priority attention in the matter of funds availability. Banks in

India have been called upon to perform this function and they have evolved specla1

schemes and regulations for the deployment of credit to sectors that deserve primary care

and attention. This explains the need for PSL by Commercial banks. This chapter

provides a N l account of the schemes of PSL in general and Pondicheny in particular.

7.2 Historical Background of Priority Sector Lending

As far back as in 1967-68, the RBI in its credit policy has introduced the

concept of PSL to tide over the severe imbalances, existed then both in agricultural and

industrial fronts. In order to channelise the flow of credit to the priority sectors RBI had

enunciated a credit policy. The major imped~ment before the introduction of the concept

of PSL was that for various historical reasons, the bulk of bank advances was directed

towards medium and large scale industries and big business houses, whereas, sectors like

@@culture, small scale industries and export were languishing for want of funds. The

concept of PSL was evolved to ensure the flow of adequate credit from banks to certain

~rioritised segments of the economy, as enunciated in the national planning priorities

To give incentive to banks for lending to small borrowers under priority sector. the RBI

in January 1971, has set up the Credit Guarantee Corporation of India Limited . now

known as the Deposit Insurance and Credit Guarantee Corporation . The idea was to

adm~nister a comprehensive credit guarantee scheme for loans by banks to the individual

small borrowers under the priority sector.

During the period of social control of banks, major banks did make an

attempt to assist the agricultural sector by providing credit for marketing of agricultural

products. Despite commercial banks' lending to agriculture under a) direct financing

and b) indirect financing, the lending towards agriculture did not exceed two per cent of

the total credit. It was in the post-bank nationalisation period only the PSL and mass

banking concepts were crystalized for the purpose of credit deployment.

After the bank nationalisation in July, 1969, RBI has adopted lending to

the following broad segments under priority sector: (a) agriculture, (b) small scale

industries and (c) exports. The composition of the priority sector remained somewhat

vague even after the bank nationalisation. There was wicle variation as far as compiling

PSL data are concerned among various banks. Later a more comprehensive classification

of categories under PSL was evolved and adopted on the basis of a report submitted by

Informal Study Group on statistics relating to priority sectors constituted by RBI'.

Agriculture - direct and indirect finance

Small scale industries.

'R. Srinivasan, Priority Sector Lending - A study of Indian Experience, Himalaya 'ublisbing Rouse, 1 995, Bombay, p .46,

r Industrial estates.

Road and water transport operation.

0 Retail traders.

Small business,

Professionals and self-employed persons.

r Education

The composition of PSL was reviewed in the early eighties when the 20-

Point Programme and IRDP were introduced. These programmes were dovetailed with

bank assistance in the form of loan under weaker section beneficiaries within priority

sector and a separate sub-target for lending to them was introduced. In the meeting that

the then Union Finance Minister had with the Chief Executives of public sector banks on

15" February, 1982, it was decided that all Commercial banks should actively partic~pate

in the implementation of 20-Point Programme In November, 1974, banks were advised

to raise the share of PSL to 33.3 per cent by March, 1979'. Private sector banks were

also advised to achieve the same target. RBI has directed all the Commercial banks to

ensure the flow of 40 per cent of the net bank credit to pnority sector by March 1985

from the then stipulated level of 33.3 per cent. The increase in the percentage flow was

emphasised mainly to ensure that adequate flow goes to the weaker section beneficiaries

particularly under IRDP. The system of giving separate sub-targets for agriculture and

weaker section was started during the early eighties,

7.3 Advances to Weaker Sections

The weaker section loan is given to the followng categories of

beneficiaries:

2~eserve Bank of Mia, &ual Report, 1976-77, Bombay.

a) small and marginal farmers with land holding of less than 5 acres or landless

labourers, tenants and share croppers.

b) artisans (irrespective of location) or small industrial activities in villages and

small towns with a population not exceeding 50.000 involving utilisation of

locally available natural resources and or human skills with individual credit

requirements not exceeding Rs.25,000.

c) beneficiaries of IRDP.

d) Scheduled Castes and Scheduled Tribes.

e) beneficiaries under DRI scheme.

7.4 Agricultural financing

According to the ~ a n u a l ~ of Instructions of Indian Bank that the credit

needs of a farmer are met through broad categories of direct and indirect finance. In

terms of RBI directives, the banks should achieve a target of 18 per cent of the net bank

credit under agricultural advances (direct and indirect put together) with a stipulation that

the agricultural lendings under the indirect category shall not exceed one-fourth of 18

per cent, that is, 4.5 per cent of net bank credit.

7.4.1 Direct Finance

Under this category, loans can be classified as (a) short term loan and (b)

medium and Long term loan. Short term loan consist of short term production loan or

crop loan. medium and long term loan includes activities like minor irrigation, fm land

3 Indian Bank (Head Office), M a d of Instructions - 1. Prioritv Sector Advances - Adculture. l994,O and M Division, Madras, 1 994, pp. 1.1.1-1.1.4.

development, farm machanisation, plantation and horticulture, all activities allied to

agriculture.

7.4.2 indirect Finance to Agriculture

Distribution of fertilisers, pesticides and seeds, loans to Electricity Boards,

loans to fanners through Primary Agricultural Credit Societies, Farmers Service

Socieities and Large sized Multi Purpose Societies are done under indirect finance.

7.5 Financing of Small Scale Industries (SSI)

The SSI sector4 covered wide range of enterprises with diverse

characteristics. There are tiny or micro enterprises on the one hand and sophisticated,

modem small scale units on the other hand. SSI undertakings are those which are

engaged in the manufacture, processing or preservation of goods in which investment in

plant and machinery (original cost ) does not exceed Rupees Three crores. Ancillary

industrial undertakings are also classified as SSI not exceeding Rupees Three crores.

7.5.1 Indirect Finance to the Small Scale Industrial Sector

a) agencies involved in assisting the decentralised sector in the supply of inputs and

marketing of output of artisans, village and cottage industries.

b) Government sponsored corporations/organisations providing funds to the weaker

sections in the priority sector.

c) Term financeiloans in the form of lines of credit made available to State Industrial

Development Corporations /State Financial Corporations for financing SSIs.

%serve Bank of India, Small Scale Industries - Policy and Guidelines, 1997 Bombay, p.4.

d) Credit provided to Khadi and Village Industries Commission by consortium of banks for lending to viable khadi and village industrial units.

e) Subscription to bonds floated by SIDBI. State Financial Corporations. Small Industrial Development Corporations and National Small Industries Corporation.

f) Subscription to bonds issued by NABARD with the objective of financing exclusively for non-farm sector.

g) Loans for setting up of Industrial Estates.

7.5 Other borrowers

Other borrowers in the priority sector%ar :

small road and water transport operators

retail traders

small business operators

professional and self-employed persons

State sponsored organisations for Scheduled Castes / Scheduled Tribes

students for educational purposes

housing

borrowers belonging to weaker sections taking pure consumption loans.

7.6.1 Small Road and Water Transport Operators

Advances to small road and water transport operators owning a fleet of

vehicles not exceeding six, including the one proposed to be financed.

7.6.2 Retail Traders

Advances granted to (i) private retail traders dealing in essential

commodities (FPS) and consumer co-operative stares and (ii) other private retail traders

with credit limits not exceeding Rupees two lakhs (Advances to retail in fertilizers form

'~eserve Bank of India Guidelines For Advances t o Prioritv Sector, Mumbai, 1997 pp.128-130

part of indirect finance for agriculture and those to retail traders and mineral oils under

small business).

7.6.3 Small Business Operators

Small business would include individuals and firms managing a business

enterpr~se established mainly for the purpose of providing any service other than

professional services whose original cost price of the equipment used for the purpose of

business does not exceed Rs.10 lakhs with working capital limits of Rupees Five lakhs

or less. Further, the aggregate of Term loan and working capital limits sanctioned to a

small business unit should not exceed Rs.10 lakhs. Advances for acquisition,

construction, renovation of house-boats and other tourist accommodation are also

included, Distribution of mineral oils shall be included under "srnall business".

7.6.4 Professional and Self-Employed Persons

Loans to professional and self-employed persons include loans for the

purpose of purchasing equipment, repairing or renovating existing equipment andtor

acquiring and repairing business premises or for purchasing tools andlor for working

capital requirements to medical practitioners including dentists, chartered accountants,

cost accountants, lawyers or solicitors, engineers, architects, surveyors, construction

Contractors or management consultants or to a person trained in any other art or craft who

holds either a degree or diploma from any institution established, aided or recognised by

Government or to a person who is considered by the banks as technically qualified or

skilled in the field in which he is employed. Advances to accredited journalists,

cameramen , practising Company Secretaries, running health centre and also for setting

up of beauty parlours are also considered under this category. Only such professional

and self-employed persons whose borrowings (limits) do not exceed Rupees Five lakhs

(of which not more than Rupees one lakh should be for working capital requirements) are

covered under this category. However in the case of professionally qualified medical

practitioners setting up practice In semi-urban and rural areas, the borrowing limits

should not exceed Rupees 10 lakhs of wh~ch not more than Rupees two lakhs should be

for working capital purposes.

7.6.5 State Sponsored Organisations For Scheduled Castes / Scheduled Tribes

Advances sanctioned to state sponsored organisations for Scheduled

Castes / Scheduled Tribes for the specific purpose of purchase and supply of inputs to

and/or the marketing of the output of the beneficiaries of these organisations.

7.6.6 Educational Loans

Educational loans to students include only loans and advances granted to

mdividuals for educational purposes and not those granted to Institutions and will include

all advances granted by banks under special schemes, if any, introduced for the purpose

7.6.7 Housing Activities

(a) Direct finance

i. loans upto Rupees Three lakhs for construction of houses granted to all categories

of borrowers except to the employees of the banks.

ii. loans upto Rs 50,0001- for repairs to damaged houses granted to all categories of

borrowers except to the employees of the banks.

(b) Indirect finance

i. assistance given to any Governmental agency or to a non-governmental agency.

approved by the National Housing Bank (NHB) for provision of refinance for the

purpose of constructing houses where the loan component does not exceed

Rupees Three lakhs per housing unit.

ii. assistance given to any governmental agency or to a non-governmental agency.

approved by NHB for provision of refinance for slum clearance and

rehabilitation of slum dwellers where loan component does not exceed Rupees

Three lakhs per housing unit.

iii. subscription to bonds issued by NHB and Housing and Urban Development

Corporation exclusively for financing of housing as defined under the priority

sector. (for construction of houses where the loan component does not exceed

Rupees Three lakhs per dwelling unit).

7.6.8 Borrowers Belonging to Weaker Sections Taking Pure Consumption Loans

Pure consumption loans granted under the consumption credit scheme is

included ,

7.6.9 Funds by Sponsor Banks to Regional Rural Bank

The amount of funds provided by sponsor banks to RRB is treated as PSL

o f the sponsor banks. 50 per cent of the amount of refinance granted to RRB is treated

as indirect finance to agriculture while 40 per cent is treated as advance to weaker

sections,

7.6.10 Loans to Self Help Groups I Non-Governmental Organisations

Loans provided by banks to Self Help Groups (SHG) and Non-

Governmental Organisations or small groups which are in the process of forming into

SHGs.

7.7 Interest Rate Structure on PSL

The interest rates are administered by RBI and not subjected to market

forces of supply and demand. The rates are different for different schemes. These

interest rates also undergo periodic changes. The interest rate applicable to the PSL is

concessional and related to the credit limits upto Rs.250001- . The rates range from 10 to

12 per cent in the case of short term agricultural loans. About 75 per cent of farm

advances are in the credit limit upto Rs.25000. The rates charged on advances for units

engaged in seed and other input distribution range between 1 1 ,S per cent and 14 per cent,

rates on small scale industries range between 10 per cent and 16 per cent (over Rs.25

lakhs limits) and for other priority sector categories from 12.5 per cent to 15 per cent.

The rate of interest is 10 per cent for the advances under Government sponsored credrt

linked programmes such as IRDP, PMRY in specified backward areas and 12 per cent

in other areas. New structure of lending rates for scheduled commercial banks linking

interest rates to the size of the loans for all sectors has been introduced with effect from

22" September 1990 thereby reducing the multiplicity and complexity of varying

interest rate as shown below:

Table 7,l: SCHEDULE OF LENDING RATES UNDER PRIORITY SECTOR LENDING, 1990

S1. No. Size of Loan Rate of Interest per Annum

(1) (2) (3) 1. Upto and inclusive of Rs.7500 10.0

2. Over Rs.7500 and upto Rs. 15000 11.5

3. Over Rs.15000 and upto Rs.25000 12.0

4. Over Rs.25000 and upto Rs.50000 14.0

5. Over Rs.50000 and upto Rs.Two lakhs 15.0

6. Over Rs.Two lakhs I 6.0 (minimum)

7 . For DRI Advances 4.0

8. For Term loans to agriculture, small scale industry and transport operators upto two vehicles

a) Over Rs.25000 and upto Rs.50000 13.0 b\ Over Rs.50000 14.0

Source: R. Srinivasan, Priority Sector Lending - A study of Indian experience, Himalaya Publishing House, 1995, Bombay, pp.64-65.

The present lending rates for advances under priority sector are given

below:

Table 7.2: REVISED SCHEDULE OF LENDING RATES UNDER PRIORITY SECTOR LENDING, 1999

- - - --

S1. Size of Loan Rate of Interest No. per Annum (1) (2) (3)

1. Upto and inclusive of Rs.25,000 12 per cent 2. Over Rs.25,000 and upto Rs. 2 lakhs 13.5 per cent 3. Over Rs.2 lakhs Free 4. DRI 4 per cent

Bource: Reswve Bank of India, Guidelines For Advances To Priority Sector, Mumbai, 1997, pp. 131-132.

7.8 Weaker Section Programme

7.8.1 Integrated Rural Development Programme

IRDP was introduced during 1978-79 in 2300 blocks in India. Thls

programme was extended to all the 501 1 blocks of the country on 2nd October, 1980.

The purpose of the introduction of the IRDP was to alleviate poverty by attacking the

poorest of the poor and the other target group of beneficiaries in a systematic way. Ilhe

weaker section beneficiaries are provided with loan by Commercial banks, Cooperative

banks and RRBs and subsidy by DRDA. The purpose is to assist them in gainful self-

employment activities to earn adequate income to cross the poverty Iine.

Person eligible under this programme are small and marginal farmers,

agricultural and non-agricultural labourers, artisans, share croppers, tenants residing in

rural areas. The annual income limit originally was Rs. 6,400 and subsequently

enhanced to Rs. 1 1,000. As per the recent guidelines of the Ministry of Rural Areas and

Employment, Government of Indla, the norm for BPL family is the one with an

annual Income of less than Rs.20,000,

It was the intention of Government of India to give utmost importance to

IRDP as it serves the interest of targeted individuals and families. Cluster approach and

group activities are expected to be integrated, Under IRDP, 50 per cent of the families

are to be assisted from Scheduled Castes 1 Scheduled Tribes and women beneficiaries

should be 40 per cent of the total beneficiaries. Besides, bonded labourers, surplus land

assignees, green card holders of family welfare p r o g r m e are given preference. The

target under IRDP is to be achieved in a phased manner, that is, 15 per cent during the

first quarter, 25 per cent during the second quarter, 35 per cent during the third quarter

and 25 per cent in the last quarter. Expenditure under this programme is equally shared

between Central and State Government. In the case of Union Tenitory of Pondicherry.

100 per cent of expenditure is borne by Central Government. No margin money should

be insisted upon by banks and the subsidy should be treated as margin down payment.

The implementation of IRDP in the Union Territory of Pondicherry

during 1985-86 -1 997-98 is sketched in Table 7.3,

Table 7.3: FINANCIAL ASSISTANCE PROVIDED BY BANKS FOR THE IMPLEMENTATION OF INTEGRATED RURAL DEVELOPMENT PROGRAMME

Average Si. Year P ~ ~ ~ ~ ~ ~ , ( N ~ ~ . ) (Rs. lak,,s) Total loan Assistance Percentage No. Awistrnce (Rs, in per Beneficiary of

Targer Achievement Bank Loan Subsidy (5) (6) (71 (8) (9)

(in Rs.) Co1.6 to ('01.7 (1) (2) (3) (4

1 1985-86 2202 3142 78 64 26 93 105 57 3360 25 51

Source: [a] Indian Bank, Annual Credit Plan of the Lead Bank, various years Union Territory of Pondicherry .

[b] Indian Bank, Agenda Notes of State Level BankersTolnmittee Meetings, various years Union Territory of Pondicherry.)

The above Table 7.3, provides the details of physical and financial

assistance under IRDP in the Union Territory of Pondicherry. This Table amply shows

that the targets were invariably achievedexceeded in all the years (except during 1997-

98). However, the flow of loan assistance (both bank loan and subsidy) was very low

ghce 1987-88. In 1985-86, the total assistance was Rs.105.57 l&s which increased

to Rs. 166.83 1akhs in 1986-87. Loan assistance was not adequate after 1987-88. 'I he

loan assistance per beneficiary ranges as low as Rs.2940 in 1986-87 to a maximum of

Rs.10359 in 1997-98. During 1985-86 - 1993-94, the average loan assistance has

steadily increased (except the years 1989-90 and 1993-94). This has picked up to a

significant increase of Rs.9693 in 1994-95 from Rs.4743 in 1993-94. The loan

assistance has come down to Rs.6821 in 1995-96 and picked up in 1996-97. The average

assistance per beneficiary was at its maximum of Rs.10359 in 1997-98.

Another notable feature in financing IRDP is that during 1985-86, the

subsidy component of DRDA to the overall loan assistance worked out to 25.51 per

cent. This has increased to 37.97 per cent in 1990-91, 39.32 in 1991 -92 and 40.15 per

cent in 1992-93. It can be observed that the proportion of subsidy to total assistance was

higher till 1993-94 which means that the proportion of bank credit to total loan assistance

was low. From 1994-95 - 1995-96, the proportion of bank credit was high, During

1996-97 and 1997-98, the bank loan component to total loan assistance has come down.

7.8.2 Development of Women and Children in Rural Areas (DWCRA)

DWCRA is a sub-scheme of IRDP. This was started in 1982-83 wit11 the

main objective of focussing attention towards women members of the BPL rural

families. This scheme was started to provide self-employment opportunities to women

without depending upon their menfolk . This scheme is a group activity with 10 to 15

women each for taking up economic activities suited to their skill and aptitude. A group

strategy is adopted to motivate the rural women to come together and break social bonds,

which have denied them income generating opportunities. The details of financial

~ssistance provided under this scheme in the Union Territory of Pondicheny are given in

Table 7.4: FINANCIAL ASSISTANCE FOR THE IMPLEMENTATION OF DWCRA

S1, No.

- DWCRA Persons Financial Achievements Average

Year Groups Assisted (Rs. in lakhs) Assistance Pormed (Nos.) k i n k Subsidy Total loan per group

(2) (Nos.) loan assistance (In &.)

(3) (4) (5) (6) (7) (8)

6. 1990-91 This scheme was not under implementation

7. 1991-92 from 1989-90 to 1992-93

Source: [a] Indian Bank (Lead Bank), Union Territory of Pondicherry, Annual Credit Plan, various years, Pondicherry,

[b] Indian Bank,(Lead Bank), Union Territory of Pondicherry Agenda Notes of State Level Bankers Committee Meetings, various years, Pondicherry.

It may be seen from the Table 7.4 that the average assistance per group

was Rs.15,200 in 1985-86 and this has increased to Rs.30,393 in 1993-94, and Rs.45,250

in 1995-96. In 1996-97, the average assistance per group works out to Rs.1.90,875

whereas in 1997-98, it was only Rs.88,875.

7.8.3 Family credit plan (FCP)

The concept of FCP a sub-item under I D P was introduced to facilitate the

BPL families t~ cross the poverty line by availing more than one assistance in the same

family. FCP is under implementation from 1994-95 in the Union Territory. The targets

and achievements are given in Table 7,5

Table 7.5: BANK ASSISTANCES FOR THE IMPLEMENTATION OF FAMILY CREDIT PLAN

S1. Year Physical (No. of Families) Financial Average No. {Rs. in Lakhs) ~ssistance

Target Achieve- No. of Bank Loan Subsidy Total loan per family Ment persons assistance (in Rs.)

Source: [st] Indian Bank (Lead Bank), Union Territory of Pondicherry, Annual Credit Plan, Various Years, Pondicherry, -

[b] Indian Bank (Lead Bank), Union Territory of Pondicherry Agenda Notes of State Level Bankers' Committee Meetings, various years, Pondicl~erry.

From Table 7.5, it can be seen that the achievement fell short of the

targets fixed during 1994-95 - 1997-98. The loan assistance per family should be

Rs.25,000 as per the guidelines of Government of India. But the average loan assistance

per family in 1994-95 was Rs. 19635 and this has further come down to Rs.13908 in

1995-96. This has picked up to Rs. 16808 during 1996-97 and down to Rs. 13032 during

7.8.4 Differential Rate of Interest (DM) Scheme

DRI scheme was inoduced in 1972 pursuant to a policy decision taken

by Government of India on 25" March 1972. Beneficiaries under DRI scheme are

persons whose family income from all sources does not exceed Rs.7200 per mum in

urban I semi-urban areas or Rs.6400 per annun in rural areas. Subsequently the family

income criteria has been increased to Rs. 1 1,000 per annum in rural areas and Rs. 1 1,800

per annum in urban and semi-urban areas. Under this Scheme. banks grant advances at a

concessional interest rate of four per cent . The scheme is meant for people whose

economic level is so low that they cannot offer any security or margin or guarantee for

their financial requirements and cannot bear the normal interest rates charged by banks.

As the borrower under this scheme is economically very poor and lives below poverty

line the repayment programme should be fixed on easy and liberal terms and at fairly

long intervals. The scheme is operated throughout the country. Minimum of one per

cent of the aggregate advances as at the end of previous year should be financed by banks

under this scheme. In order to ensure that the weaker sections in the rural areas derive

maximum benefits and bulk of the advances are not pre-empted by urbanfrnetropolitan

areas, the banks operating the scheme should ensure that not less than two-third of their

advances, are routed, through their rural and semi-urban branches. Correspondingly not

more than one-third of the banks' total advances under the scheme should come from

urban and metropolitan branches. It was stipulated that not less than 40 per cent out of the

one percent of aggregate bank advances should flow to eligible Scheduled Caste and

Scheduled Tribe borrowers, The scheme aims at helping the poorest of the poor in order

to improve their economic conditions through small productive endeavors. The benefits

of this scheme would be available only to those borrowers, who were not assisted under

any of the subsidy linked schemes of Central, State Government and State owned

corporations.

From Table 7.6, it can be seen that as against one per cent of total credit

flow towards DRI scheme, Commercial banks have done exceedingly well till 1992-93 in

the Union Territory of Pondicheny. From 1993-94 onwards, downward trend has taken

place and this has continued till 1997-98. As the total credit flow from Commercial

banks by the end of March 1998 for all programmes stood at Rs.34,733 lakhs, the one

per cent flow towards DRI Scheme should have been Rs.347.33 lakhs whereas the

actual flow was only Rs. 192 lakhs which worked out to 0.55 per cent only.

Table 7.6 FINANCIAL ASSITANCE UNDER DRI SCHEME

(Rs. in Lakhs)

Sl.No. Year DRI Advances Total advances Percentage of (2) Col3 to Col4

(1) (3) (4) (5) 1. 1982 71.62 4699 P .52

Source: Indian Bank, (Lead Bank), Union Territory of Pondicherry Agenda Notes of State Level Bankers' Committee Meetings, Various Years, Pondicherry.

7.8.5 Scheme for Urban Micro Enterprises (SUME)

In order to give a major thrust to urban employment programmes, due to

high incidence of unemployment, Government of India have launched the scheme

'Nehru Rozgar Yojana' (NRY). The scheme is targeted towards persons living below the

poverty line in urban areas, with an annual income of below Rs.7,200.

The NRY consists of the following three components:

a) provision of urban wage employment.

b) provision of employment through housing shelter upgradation for urban

settlements between Rupees one lakh and Rs.20.00 lakhs.

c) scheme of Urban Micro Enterprises (SUME)

SUME covers all the urban settlements of the country which are not

covered under IRDP. The scheme was ~mplernented by Local Administration

Department through Pondicherry and Karaikal Municipalities and through selected

branches of PSBs. The subsidy amount is to be shared between Central and the State

Governments on a 5050 basis. Allocation of the Central subsidy will be made among

the States by the Ministry of Urban Development, Government of India on the basis of

norms linked to proportion of urban population and the incidence of urban poverty.

Urban local bodies will ensure that applications are sponsored to bank branches

commensurate with the amount of subsidy available under the scheme. After

identification of the beneficiaries the financing bank branch will provide to each

applicant a composite loan not exceeding Rs.7,500. Subsidy at the rate of 25 per cent of

the cost of the project will be given to each beneficiary subject to the ceiling of

Rs 5000 for scheduled caste / scheduled tribe and women beneficiaries and Rs.4000

for others.

The financial and physical achevements under this scheme from 1990-

9 1 are given in Table 7.7.

Table 7.7: BANK FINANCE FOR SUME SCHEME

PONDICHERRY MUNICIPALITY (Rs. in lakhs)

S1. Yeas Physical Loan No Achievements Subsidy Bank Total Loan assistance

(Nos.) Loan component Per beneficiary

(in Rs.) (1) (2) (3) (4) (5) (6) (7)

8 1997-98 146 1.96 7.83 9.79 6705 (UP to

Nov' 97)

KARAIKAL MUNICPPALITY

Source:[a] Indian Bank (Lead Bank), Union Territory of Pondicherry, Annual Credit Plan , various years, Pondicherry.

[b] Indian Bank (Lead Bank), Union Tenitow o f Pondichery Agenda Notes of State Level Bankers' Committee Meetings, Various Years, Pondicheny.

~e ta i l s in Table 7.7 show that the average loan assistance per beneficiary ranges from

Rs.223 1 in 1992-93 to a maximum of Rs.7895 in 1994-95 in Pondicherry Municipality.

In Karaikal Municipality the average loan assistance was at a minimum of Rs. 2,3 19 in

1991-92 and increased to Rs. 4.000 in 1997-98. SUME was wound up and a new scheme

Swarna Jayanthi Shahari Rozgar Yojana (SJSRY) has been launched by Government of

India as a rationalised poverty alleviation scheme operative from first December 1997 in

Pondicherry, Oulgaret and Karaikal Municipalities.

7.8.6 Self Employment Scheme for Educated Unemployed Youth (SEEUY)

SEEUY was launched by the then Prime Minister on 15'~ . ~ u ~ u s t , 1983

to provide self employment opportunities to the educated unemployed youth who are

matriculates for starting industry, service and business avocations by providing subsidy

through Government and loan by Commercial banks.

The eligibility criteria was:

i) the applicant should be in the age group of 18-35 years.

ii) the family income should not exceed Rs. 10,000 per annum.

iii) The rate of interest is 12.5 per cent up to Rs.25,000, 13.5 per cent up to Rs,35,000.

The loan amount is Rs.35,000 for Industries, Rs.25,000 for services and

Rs.l5,000 for business activities.

In the Union Territory of Pondicherry, SEEUY was implemented by DIC

from 1983-84 to the earlier part of 1993-94. The performance under SEEUY are given

h Table 7 3 .

Table 7.8: BANK ASSISTANCE FOR THE lMPLEMENTATIQN OF SELF EMl'LOYEMENT SCHEME FOR EDUCATED UNEMPLOYED YOUTH

Average Phqstcal ? mancial Average Phjsical Flnanc~al Average Phqsrca Financial Loan aehleve- Achieve- I oan ach~ekc- Achrebc- Loan l achleve- Ach~eve- ass~stance Ments ment assistance Ments m n t asststance

SI Year Ments Ment Per ( ~ n Nos) (Rs In Per ( ~ n Nos! (Rs rn Per No (inNws) (Rs Beneficrq (Serv~ces) lahh~) beneficrarj (huilnessl lakhsl Wmeficiarq

(Industries) ~n lakhs) (tn Rs ) (in Rs I (in Ks )

Source: [a] Indian Bank (Lead Bank), Union Territory of Pondicherry, Annual Credit m, Various Years, Pondicherry .

[b] Indian Bank (Lead Bank), Union Territory of Pandicherry Agenda Notes of State Level Bankers Committee Meetin~s, Various Years.

It may be seen from Table 7.8 that the average loan assistance under

industrial activity was Rs.8,972 in 1983-84, which has increased to Rs.21,590 in 1986-

87. There was slump from 1987-88 onwards till 1989-90. The average loan assistance

has picked up to Rs.2 1,85 8 in 1992-93. But as per the guidelines, the loan could be given

Under services activity the loan amount could be Rs.25,000. But the

performance indicates that a maximum of Rs.20,210 was reached in 1987-88 from

Rs.8,950 in 1983-84. From 1988-89 onwards, it has came down. During 1993-94, the

average loan assistance was Rs. 13,142.

Under business activities, the maxirnun loan that could be extended was

Rs.15,000 whereas the performance was Rs.12,943 at the maximum in 1985-86.

7.8.7 Prime Minister's Rozgar Yojana (PMRY)

The PMRY was introduced from Second October 1993 with the objective of

~roviding sustained self-employment in micro-enterprises to about 10 lakh educated

unemployed youth in the age group of 18 and 35 years having family income of less

than Rs.24,000 per annum. The salient features of the scheme are : i ) the beneficiarj

would bring in five per cent of the project cost as margin money and be entitled to a

composite bank loan up to Rupees one lakh without a collateral guarantee and a

government subsidy of 15 per cent subject to a ceiling of Rs.7,500; ii) the rate of interest

on loans granted under the scheme, to be treated as priority sector advances, will be

guided by the RBI's directives on interest rates issued from time to time; iii) the subsidy

sent to the disbursing bank in advance is treated as fixed deposit in the name of the

beneficiary; iv) the beneficiary would hypothecate/mortgage/pledge assets created out of

the loan to the bank; and v) banks would need to exercise special care in scrutinising

those cases where no fixed assets are proposed to be created from loans above Rs50,OOO.

The progress on the implementation of PMRY Scheme in the Union Territory of

Pondicherry is given in Table 7.9.

7.9 FINANCIAL ASSISTANCE UNBER PRIME MINISTER'S ROZGAR YOJANA

S1. Year Target Physical Total Average laan assistance No. (in Nos.) Achievements Financial per beneficiary

(in nos) (Rs, in lakhs) (in, Rs.) (1) (2) (3) (4) (5) (6)

1. 1993-94 200 162 75#39 46537 2. 1994-95 470 476 21 1.20 44369 3. 1995-96 500 513 222.1 3 43300 4. 1996-97 500 502 214.11 4265 1 5. 1997-98 500 505 220.61 43685

Source: [a] Jndian Bank (Lead Bank), Union Territory of Pondicherry Annual Credit Plan, Various Years, Pondicheny. --

[b] Indian B&(Lead Bank), Union Territorv of Pondicherry Agenda Notes of State Level Bmkezs Committee Meetings, Various Years.

The PMRY is under implementation since the later part of 1993-94.11 can

be seen from the Table 7 9 that the average loan assistance per beneficiary has bcen

coming down as compared to 1993-94

7.8.8 Scheme for Liberation and Rehabilitation of Scavengers (SLRS)

Cbvemment of India launched the SLRS to liberate and rehabilitate the

scavengers and their dependents from their existing hereditary and obnoxious occupation

of manually removing night soil and filth and to provide them with alternative and

dignified occupation. The scheme provides for training of scavengers and their

dependents in suitably identified trades keeping in view of their attitude and local

requirement and environment besides providing for subsidy and margin money loan

from bank so that the scavengers ancI their dependants can take an alternative and

dignified occupations. Primarily all scavengers and their dependants in rural, semi-urban

and urban areas belonging to scheduled caste communities are covered under the scheme.

However scavengers belonging to other communities also could be covered,

In the Union Territory of Pondicherry this scheme is implemented by

Pondihcerry Adi Dravidar Development Corporation (PADCO). A survey on

identification of scavengers in the Union Territory of Pondicherry was conducted in

June, 1992 and it was found that 118 Scavenger families consisting 476 members,

including children are living. Out of 476 members, 147 members only are eligible for

rehabilitation and training. 87 scavengers have so far been assisted by providing loan

cum subsidy and margin money assistance under various trades with a loan assistance of

b 2 . 9 4 lakhs.

7.8.9 Assistance to minority communities

Banks were advised in July. 1986 to take steps to ensure adequate credit

flow to certain identified minority communities like Muslims, Christians, Sikhs, Neo-

buddhists, Zoroastrians. This scheme is implemented from 1997-98 in the Union

Territory of Pondicherry by PWDC. It may be noted that 16 minorities were assisted

wlth a total loan assistance of Rs 2.12 lakhs. The average loan assistance per beneficiary

works out to Rs.13250.

7.8.10 20 Point Programme (20-PP)

The 20-PP which was first introduced in 1975 was revised in 1982. Again

the same was modified in 1986 and continued till date. The 20-PP is the cutting edge of

the ma1 poor and the downtrodden. The programme is mainly intended to assist the

vulnerable sections of the population in rural and urban areas. The objectives of the

programme are to eradicate poverty, improve productivity, reduce income inequalities

and remove social and economic disparities so as to improve the quality of the life of the

people. The points under the 20-PP are given below:

Attack on Rural Poverty

Strategy for Rainfed Agriculture.

Better use of Irrigation Water.

Bigger Harvests.

Enforcement of Land Reforms.

Special Programmes for Rural Labour.

Clean Drinking Water.

Health for all.

Two Child norm.

Expansion of Ed mation.

JusGce Q S&eduled Castes and Scheduled Tribes.

Equality for Women,

New opportunities for youth.

Housing for the people.

Improvement of Slums.

New Strategy for Forestry.

Protection of Environment.

Concern for the Consumer.

Energy for the villages.

A Responsive Administration.

Prioritised assistance is given by banks under various sub-schemes of'the

following programmes under 20 -PP :

1) Attack on Rural Poverty.

2) Strategy for Rainfed Agriculture.

3) Enforcement of Land Reforms.

4) Special Programme for Rural Labour.

5) Justice to Scheduled Castes and Scheduled Tribes.

6) Housing for the people.

The financial assistance provided under this scheme is given in Table

Table 7.10 : CREDIT FLOW TOWARDS THE IMPLEMENTATION OF 20 POINT PROGRAMME

(Rs. in lakhs) S1. Credit flow Percentage No. Year Total Credit flow towards 20 Point Of Col.(4)

Programme To Co1.(3) 1 2 3 4 5 1, 1987-88 10164 I442 14.19 2. 1988-89 12786 1535 12.01 3. 1989-90 15300 1649 10.77 4. 1990-91 15600 1614 10.35 5 . 1995-96 30574 2555 8.36 6. 1996-97 3242 1 1916 5.91

Source: Indian Bank (Lead Bank), Union Taritow of Pondicherq Agenda Notes and Backmound Materials of State Level Bankers' Committee Meetin@, Various Years, Pandi&e@+y.

It may be seen from Table 7.10 that the credit extended under 20-point

Programme was Rs.1442 lakhs in 1987 which increased to Rs.2555 lakhs in 1996 and

declined to Rs. 19 16 lakhs in 1997. The flow of credit towards 20-PP to total credit has

shown a decline from 14.19 per cent in 1987 to 5.91 per cent in 1997.

7.8.11 Pondicherry Adidravidar Development Corporation (PADCO)

PADCO was set up in 1986 by Government of Pondicherry under the

companies Act, 1956 to take care of the Adidravidars (Scheduled castes). The main

objective is to assist them in economic activities of importance so as to fill the critical

gaps in the existing programmes and generate employment and raise their economic

level. To upgrade the skills of Scheduled Caste people various training (both

institutional and on the job) are provided. The Scheduled Caste families below the

poverty line are assisted with the following criteria:

i) 50 per cent o f the unit cost or Rs.60001- whichever is less will be released as

subsidy from the Special Central Assistance (SCA) not refbndable by beneficiary.

ii) Remaining portion of the unit cost or the entire balance of the unit cost will be

released by banks as loan at nominal rate of interest as prescribed by RBI from

time to tirne.

iii) 25 per cent of the unit cost or Rs. 10,000/- whichever is less will be deposited in

the concerned banks as margin money for a period of three years or till the

complete repayment of the loan whichever is earlier and the interest earned during

the period will be divided into two halves, that is, 50 per cent goes to beneficiary

and the balance 50 per cent will be credited in the PADCO account.

45 schemes under the self-employment are taken up by PADCO from

1998-99 as against 37 schemes till 1997-98.

7.8.1 1.1 Loan-cum-Subsidy Scheme to Scheduled Castes

The Loan-cum-subsidy scheme implemented by PADCO from the year

1987-88 to 1996-97 can be seen from the Table 7.1 1.

Table 7.11: FINANCIAL ASSISTANCE PROVIDED UNDER IMPLEMENTATION OF LOAN-CUM-SUBSIDY SCHEMES OF PADCQ

(Rs. In lakhs)

Average S I No of Total loan asststance No Year Persons Subs~dy Bank Loan per beneficrary

Assisted Loan Assistance ( ~ n Rs ) 1 2 3 4 5 6 7

Source: [a] Pondicherry Adldravidar Developmeilt Corporation , Government of Pondicherry, A Report of physical and Financial Achievements under various schemes implemented from 1986-87 to 1997-98, Pondicherry

[b] Lead Bank (Indian Bank), Union Territory of Pondicherry. Annual Credit Plan 1999-2000. -

The year-wise financial flow to the beneficiaries may be seen from Table

7.1 1. The average loan assistance per beneficiary works out to Rs.5865 in 1987-88 and

this increased to Rs. 121 3 0 in 1996-97. Considering the socio-economic backwardness

of the Scheduled Caste people, the average financial assistance provided to them is

inadequate as many of the Scheduled Caste beneficiaries are entering into the self-

employment venture, for the first time.

7.8.11.2 Loan-cum-Subsidy scheme to Backward Class

PADCO is also the Nodal Agency for implementing the backward class

scheme in the Union Territory of Pondicherry. The backward class scheme was under

implementation from 1 995-96.

Table 7.12: FINANCIAL ASSISTANCE TOWARDS LOAN CUM SUBSIDY SCHEMES FOR BACKWARD CLASSES

(Rs. in lakhs)

Average SI. Year No. of Subsidy Bank Total loan loan assistance per No. Beneficaries loan assistance beneficiary

fin Rupees) (1) (2) (3) (4) (5) (4) (7)

Source: [a] Pondicherry Adidravidar Development Corporation , Government of Pondicherry, A Report of physical and Financial Achievements under various schemes implemented from 1986-87 to 1997-98, Pondicherry.

[b] Lead Bank (Indian Bank), Union Territory of Pondicherry. Annual Cred~t Plan 1999-2000,

The average loan assistance provided to Backward Class beneficiary is

inadequate to take up any viable economic activity. Assistance to the level of atleast

Rs 15000 should be made available to make the economic activity viable instead of low

assistance provided.

7.8.12 Pondicherry Women Development Corporation

The main objective of the women development programmes is to assist the

maker sections, destitutes and deserted women who have a family income of not more

than Rs. 1 10001- per annm with the resident status of the Union Territory of Pondicherry.

General women beneficiaries are eligible upto 33.3 per cent cost of the project as subsidy

or Rs.4000/- whichever is lesser. As regards Scheduled Caste women beneficiaries. 50

per cent of the cost of the project as subsidy is given subject to a maximum of Rs.5000.

Banks should not insist on any margin money. No guaranteeisecurity may be insisted

upon by the participating banks. This scheme is implemented in the Union Territory of

Pondicherry from 1996-97. The Physical and financial achievements are given in Table

Table 7.13. FINANCIAL ASSISTANCE TOWARDS PONDICHERRY WOMEN DEVELOPMENT PROGRAMME

(Rs. in lakhs)

S1, Year Physical Bank Financial Total Average No. Acheivement loan Subsidy Loan per Beneficiary

(Nos.) (in Rupees) (1) (2) (3) (4) (5) (6) (7)

Source: Indian Bank (Lead Bank), Union Territory of Pondicherry Agenda Notes of State Level Bankers' Committee Meetings, Various Years, Pondicherry.

As the scheme is only two years old, it may take some more time to pick

up As of now, the average loan assistance per beneficiary was around Rs.12000 which

needs to be increased atleast to Rs. 15000.

7.8.13 Margin Money Assistance Scheme

Margin money assistance programme to physically handicapped persons is

implemented by Social Welfare Department for setting up o f petty shops and various

trades with 25 per cent subsidy. The scheme has been under implementation C since 1988-

89. Subsidy to the extent of 33.33 per cent is admissible for general category physically

handicapped beneficiaries and 50 per cent for scheduled caste ph>sicalIy handicapped

beneficiaries under the above scheme as can be seen from Table 7.13..

Table 7.14: MARGIN MONEY SCHEME FOR PHYSICALLY HANDICAPPED PERSONS

(Rs. in Eakhs)

Average S1. Physical Bank Total loan loan assistance No. Year Achievement loan Subsidy Assistance per beneficiary

(in nos.) (in Rs.) (1) (2) (3) (4) (5) (6) (7)

Source: Indian Bank (Lead Bank), Union Territory of Pondicherry Agenda Notes of State Level Bankers' Committee Meetings, Various Years, Pondicherry.

Based on the actual data available for the last five years, It can be

observed that the achievements are moderate invariably in all the years. The loan

assistance per beneficiary has increased from Rs.7564 in 1993-94 to Rs.13660 in 1997-

98. It needs to be improved further, During the last five years, 324 beneficiaries were

assisted under this scheme by utilising the subsidy and by availing bank loan. Recently

Social Welfare Department, Pondicherry has conducted a survey on the assisted

beneficiaries for which 57 beneficiaries who were assisted during 1993-94 - 1997-98

were contacted. Out of those 57 beneficiaries, 41 beneficiaries have started business and

running the same. It is stated that 12 beneficiaries have not at all started any business and

four beneficiaries are in &e process of starting the business. The other type of

infomation collected was that out of these 57 beneficiaries, 17 beneficiaries have fully

repald the bank loan. 21 beneficiaries are repaying the Ioan and 19 heneficiar~es have

not even started the process of repaying the amount.

7.8.14 Fisheries schemes

The following two subsidy linked schemes are implemented by Fisheries

department In the union Territory o f Pondicherry.

a) Motorisation of Country boats (outboard motor enginea)

b) Construction of mechanised fishing boats

7.18.14.1 Motorisation of Country Boats

Under this scheme, 50 per cent of the unit cost subject to a maximum of

Rs. 10,000 is released as subsidy by Fisheries department . The performance under

the scheme is shown in Table 7.1 5.

Table 7.15: BANK FINANCIAL ASSISTANCE TOWARDS MOTORISATION OF COUNTRY BOATS (Outboard motor engine)

(Rs. in lakhs)

Amount of Total Average loan S1. Year Benefieeries Subsidy Loan by Loan assistance per No. (Nos.) released Banks Assistance beneficiary

(in Rs.) (1) (2) (3) (4) (5) (6) (7)

3' 1992-93 Not ~rnplernented due to non-receipt of Grant from Govt. of India

4, 1993-94 5. 1994-95 55 5.50 8.69 14 19 25 800 6. 1995-96 60 6.00 9.50 15.50 25833 7. 1996-97 66 6.66 1 1.78 1 8.44 27939

Source: Fisheries Department, Government of Pondicheny and Report 1997-98.

The amount of subsidy released bq Fisheries department k\as Rs.2 18

l&s in 1990-91, which has increased to Rs.6.66 lakhs in 1996-97. The maimurn

subsidy admissible under this scheme has gone up to Rs.10,000 per beneficiary during

199 1-92 from Rs.7,500 till 1990-9 1. The loan assistance by banking was Rs.3.50 lakhs

in 1 990-9 1, which increased to Rs. 1 1.78 lakhs in 1996-97. The average loan assistance

per beneficiary works out to Rs.19,586 in 1990-91 and increased to Rs.27.939 in

1996-97.

7.8.14.2 Construction of Mechanised Fishing boats

Fisheries Department also implements a scheme construction of

mechanised fishing boats ranging fiom 36' to 4' wherein 20 per cent subsidy is given

to a maximum of Rs.1.20 lakh per beneficiary. The performance under the scheme is

shown in Table 7.16.

Table 7.16: FINANCIAL ASSISTANCE FOR THE SCHEME CONSTRUCTION OF MECHANISED FISHING BOATS

(Credit in Rs. Lakhs)

Persons 20 per cent Amount of Total Average Loan 81. Benefited Subsidy Loan by Loan Assistance per No. Year (Nos) Released Banks Assistance Beneficiary

(in Rs.) (1) (2) (3) (4) (5) (6) (7) 1. 1991-92 1 0.93 3.77 4.70 4.70 2. 1992-93 1 1 20 4.80 6.00 6 .OO

3 1993-94 5 5.17 20.6 25.77 5.15

4. 1994-95 3 3 60 14.40 18.00 6,OO

5. 1995-96 3 3.60 14.40 18.00 6.00

Source: Fisheries Department, Government of Pondicheny Annual Re~ort 1997-98.)

The number of beneficiaries assisted is very small. However, it may be

seen that the quantum of loan sanctioned per beneficiary is substantial.

7.9 REFINANCE SCHEMES OF NABARD AND SIDBI

Refinance facilities are provided by specialised institutions like NABARD

and SIDBI. These refinance facilities are aimed to facilitate the commercial banks to

ensure proper flow of credit to the priority and needy segments

7.9.1 Refinance Schemes of NABARD

NABARD provides refinance facility mostly to farm activities namely.

agriculture and partly to non-farm activities. The refinance facilities are avarlable from

50 per cent to 90 per cent in respect of various activities under farm sector. In the case of

Scheduled Caste and Scheduled Tribes, 100 per cent refinance fac~lity is provided by

NABARD. For non-farm activities (classified under industries and services ) 70 per cent

to 80 per cent refinance facilities are available. The year-wise refinance drawals by

Commercial banks and Cooperative institutions from NABARD during 1988-89 to

1997-98 can be seen from Table 7.17.

Table 7.17: ACTIVITY / PUIWOSE-WISE REFINANCE DRAWALS FROM NABARD

SI.No, Activity/Purpose 1988 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98

Mmor Imgat~on Farm mechan~sat~on Dalry Development Poultry ShepiGoatlPlggery F~shery IRDP Non-farm Sector Others Total

Source: Indian Bank (Lead Bank), Unlon Territory' of Pondicherw Agenda Notes of State Level Bankers'Committee Me~tjnas, Various Years, Pondicherry,

A close perusal of the pattern of refinance availed for various activities

show that for minor irrigation activities, the utilisation was at the maximum. that is. to

the extent of Rs.47 lakhs out of the total refinance of Rs.84 lakhs in 1988. During 1989-

90, the refinance drawals from NABARD was Rs. 173 Iakhs. The increasing trend for

availing the refinance facility was towards farm rnechanisation with ups and downs.

More refinance was availed for fisheries activities during 1993-94 to 1995-96.

Downward trend could be observed in respect of availing refinance for IRDP since

1993-94. The availment was very negligible during 1996-97 and 1997-98. Refinance

availed for minor irrigation and dairy activities forms a fairly good propoflion in the

recent years next only to Farm mechanisation and Non-farm activities. During 1996-97

and 1997-98 the overall refinance availed by commercial banks and co-operative

institutions are in the order of Rs. 150 lakhs and Rs. 196 lakhs only, This needs to be

improved further. Downward trend could be noticed for activities under IRDP and

fisheries.

The agency-wise refinance drawals in the Union Territory of

Pondicherry during 1988-89 - 1997-98 are given in TabIe 7.18

Table 7.18: RIEPINANCE DRAWALS BY COMMERCIAL BANKS /CO-OPERATIVE INSTITUTIONS

(Rs. in Lakhs)

SLNo Agency 1988 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 .(I) (2) (3) (4) (5) (6) (7) (8) (9) ( lo) ( 11) ( 12)

1 , Commercial Banks 50 78 55 43 57 106 124 210 39 63

2. PSCB -- -- 12 14 L3 10 26 33 17

3 . PCCLDB 34 95 61 51 54 6 3 47 84 78 116

4. Total 84 173 116 106 125 182 181 320 150 196

Source : Indian Bank (Lead Bank), Union Territory of Pondichenv Agenda Notes of State Level BankersTomitteie Meetings, Various Years, Pondicherry.

An analysis of the refinance facilities from NABARD utilised bq

~ommercial banks and Cooperative institutions indicates that the total refinance drawal

has moved from Rs.84 lakhs in 1988-89 to Rs.320 lakhs in 1995-96 and again slumped

down to Rs. 196 lakhs in 1997-98. The share of commercial banks was Rs, 50 lakhs out

of the total NABARD refinance of Rs. 88 lakhs in 1988-89. During 1996-97 and 1997-

98, low amount of refinance was utilised by Commercial banks. But during the same

period the refinance drawal made by Pondicherry Land Development Bank has increased

from a mere Rs.34 lakhs in 1988 -89 to Rs. 1 16 lakhs in 1997-98.

7.9.2 Schedule of Interest of Rate by NABARD

The interest rate chargeable with effect from 1" August 1995 on

NABARD refinance for various slabs are given in Table 7.1 9

Table 7.19: SCHEDULE OF NABARD INTEREST RATE FOR RIEFINANCE

Rate at which refinance is Rate at which refinance is S1. Loan limit (in Rs.) provided to Commercial provided to Cooperative No. banks (in percent) Institutions (in percent) (1) (2) (3) (4)

2. Over Rs.25,000 and upto Rs.2 lakhs

3 per cent below the 3 , Above Rupees Two lakhs rate charged 12

by the bank

Source: N a ~ ~ n a l Bank for Agriculture and Rural Development, A Report on Refinance Assistance for Non-farm activities, Chennai ,1995.

NABARD provides refinance facilities to Commercial banks / Co-

operative Institutions at different interest tariff and alloas them to charge a higher

interest of 3 to 3.5 per cent above the rate at which ref nance is provided.

7.9.3 Refinance Schemes of SIDBX

A branch of the SIDBI was started in the Union Territory of Pondicherry

m 1990-91 to assist banks and PIPDIC for availing refinance for small scale industrialists

and entrepreneurs. The rate at which the refinance is provided and the rate at which

Commercial banks and other institutions are charged, are given below:

Table 7.20: SCHEDULE OF SIDBI INTEREST RATE FOR REFINANCE

Rate at which Rate at which $1. Loan Limit (in Rs.) refinance is Commercial banks No. Provided charges

(in percent) (in percent) 1 2 3 4

2. Rs.2,5000 to Rs.2 Lakhs 10, 5 14.0

3, Above Rs.2 lakhs 13.0 Free

Source: Indian Bank (Lead Bank), Union Territory of Pondichem Agenda Notes of State Level Bankers' Committee Meetings, Various Years, Pondicheny.

SIDBI provides refinance facilities to Commercial banks at different

interest and allows Commercial banks to charge a higher interest of 3.5 per cent above at

which the refinance is provided For lows above Rupees Two lakhs Commercial banks

rue allowed to charge free interest rate.

Table 7.21: SANCTION AND DISBURSAI, BY SIDBI

(Rs. in l&hs)

S1. Percentage of No. Year Sanction Disbursal Col.4 to co1.3

1. 1990 - 91

2. 1991 - 92

3. 1992 - 93

4. 1993 - 94

5. 1994 - 95

6. 1995 - 96

7. 1996 - 97

8. 1997 - 98

otal 1990 - 98

Source: Indian Bank (Lead Bank), Union Territory of Pondichem Agenda Notes of State Level Bankers' Committee Meetings, Various Years, Pondicheny.

There was wide difference between sanction and disbursement made by

SIDBI. The disbursements made during each year had fallen short of the sanction. As

against the total sanction of Rs.42.83 crores (during 1990-91 to 1997-98) the

disbursement was only Rs.22.25 crores which works out to 51.95 per cent. This shows

that Commercial banks have not come forward to avail the refinance assistance provided

by SIDBI. The very object of setting up of SIDBI in the Union Territory of Pondicheny

has been defeated by not availing the sanctioned refinance facilities from SIDBI by

commercial banks.