Study and Analysis Bank Finance in Agriculture Sector (Contract Farming) Page 1 STUDY AND ANALYSIS BANK FINANCES IN AGRICULTURE SECTOR
(CONTRACT FARMING)
Summer Project Report Submitted
In the partial fulfillment of the Degree of Master of Business Administration (Agribusiness)
Semester-II By
Baxi Vishvak P. (02)
Under the Guidance of: IDBI Bank Ltd. Mehsana
Submitted To: Dr.Maurvi Pandya Centre for Management Studies
Ganpat University, Kherva.
Study and Analysis Bank Finance in Agriculture Sector (Contract Farming) Page 2
CERTIFICATE BY THE GUIDE
This is to certify that the contents of this report entitled “STUDY AND ANALYSIS BANK FINANCES IN AGRICULTURE SECTOR (CONTRACT FARMING)” about Agriculture finances at Mehsana by BAXI VISHVAK PARINDRA the student of CMS, Ganpat University submitted to IDBI Bank Ltd, Mehsana. As a part of summer internship (MBA-AGRIBUSINESS Sem-II) is original Research work carried out by him under my supervision.
This report has not been submitted either partly or fully to any other University or Institute for award of any degree or diploma courses.
Dr. MAURVI PANDYA
Centre for Management Studies, Ganpat University, Kherva Date:
Place: Ahmadabad
Study and Analysis Bank Finance in Agriculture Sector (Contract Farming) Page 3 CERTIFICATE BY THE MENTOR
This is to certify that the contents of this report entitled “STUDY AND ANALYSIS BANK FINANCE IN AGRICULTURE SECTOR (CONTRACT FARMING)” by BAXI VISHVAK P. Roll No.02 submitted to Centre for Management Studies (Agribusiness Management) for the Award of Master of Business Administration (MBA Sem-II) is original research work carried out by him under my mentoring. I, hereby certify the authenticity of the data and facts mentioned in the report.
This report has not been submitted either partly or fully to any other University or Institute for award of any degree or diploma.
Mr. Abhishek Sawant, IDBI Bank Ltd. Mehsana. II
Study and Analysis Bank Finance in Agriculture Sector (Contract Farming) Page 4
CANDIDATE’S STATEMENT
I hereby declare that the work incorporated in this report entitled “STUDY AND ANALYSIS BANK FINANCE IN AGRICULTURE SECTOR (CONTRACT FARMING).” in partial fulfillment of the requirements for the award of Master of Business Administration (Sem. - II) is the outcome of original study undertaken by me and it has not been submitted earlier to any other University or Institution for the award of any Degree or Diploma.
Baxi Vishvak P.
(Name & Sign of Student)
Date: Place:
Study and Analysis Bank Finance in Agriculture Sector (Contract Farming) Page 5 PREFACE
The MBA (Agribusiness) programme is well structured and integrated course of business studies. The main objective of practical training at MBA level is to develop skill in student by supplement to the theoretical study of business management in general. Industrial training helps to gain real life knowledge about the industrial environment and business practices. The MBA (Agribusiness) programmed provides student with a fundamental knowledge of business and organizational functions and activities, as well as an exposure to strategic thinking of management.
In every professional course, training is an important factor. Professors give us theoretical knowledge of various subjects in the college but we are practically exposed of such subjects when we get the training in the organization. It is only the training through which I come to know that what an industry is and how it works. I can learn about various departmental operations being performed in the industry, which would, in return, help me in the future when I will enter the practical field.
Training is an integral part of MBA and each and every student has to undergo the training for Two months in a company and then prepare a project report on the same after the completion of training.
During this whole training I got a lot of experience and came to know about the management practices in real that how it differs from those of theoretical knowledge and the practically in the real life.
In Today‟s globalize world, where aggressive competition is prevailing in the market, theoretical knowledge is not sufficient. Beside this one need to have practical knowledge, which would help an individual in his/her carrier activities and it is true that
“Experience is best teacher”
Study and Analysis Bank Finance in Agriculture Sector (Contract Farming) Page 6 ACKNOWLEDGEMENT
With immense pleasure, I would like to present this project report for IDBI Bank Ltd, Mehsana It has been an enriching experience for me to undergo my summer training at IDBI BANK, which would not have possible without the goodwill and support of the people around. As a student of CENTER FOR MANAGEMENT STUDIES I would like to express my sincere thanks to all those who helped me during my practical training programme.
Words are insufficient to express my gratitude toward Mr. ABHISHEK SAWANT, the ASSISTANT MANAGER (AGRI DIVISION) of IDBI Bank Ltd, Mehsana. I would like to give my heartily thanks to Mr. Vikas Nigam, Branch Manager, who permitted me to get training at IIDBI Bank Ltd, Mehsana. I am very thankful to Mr. P .R. Patel, who helped me at every step whenever I needed.
At last but not least my grateful thanks is also extended to Dr. Maurvi Pandya (Programme Coordinator) and my thanks to all my faculty members for the proper guidance and assistance extended by them. I am also grateful to my Father Mr. P .H. Baxi without him I can‟t image myself & Mrs. N .P. Baxi who give me moral support really papa and mom without your support this project will be not completed. And my friends who give me all required support to completed my project.
Study and Analysis Bank Finance in Agriculture Sector (Contract Farming) Page 7
INDEX
Certificate By the Guide……….I Certificate by Mentor……….…...II
Candidate’s Statement …….………..III Preface……….…IV Acknowledgments………V List of Tables………VI List of Figures & Graphs………..XII
SR.NO CHAPTER PAGE.NO
CH 1. History of Banking Industries 1
1.1 NABARD Role in Banking Industries 11
1.2 Priority sector in India 16
CH 2. Company profile 32
2.1 IDBI Bank Product & Services 41 2.2 Agricultural Finance Through IDBI Bank 43
2.3 Contract Farming 50
CH 3. Study Research 58
3.1 Map of Location Visited 58
3.2 Bank list of Contract Farming 59
CH 4. Research Design 61
CH 5. Data Interpretation and analysis 66
Hypothesis testing 76
CH 6. Limitation to the study 82
CH 7. Recommendations and Finding 83
7.1 Conclusion & Suggestions 86
CH 8. Appendices 88
8.1 Questionnaire 88
8.2 Recent Case & Studies 91
8.3 Contract Farming Farmer‟s List 93 8.4 Company List of Contract Farming 95
Study and Analysis Bank Finance in Agriculture Sector (Contract Farming) Page 8 List of Tables
Particular Page no.
State bank of India Associated bank list 04
Old Private Sector Bank 06
New Private Sector Bank 07
Foreign Bank 08
Target and Sub Target Priority sector 18 Insurance against fire & other risk 30
Relative valuation 39
IDBI Bank Rating 44
Agriculture Finance ( Shorts terms Loans) 45 Agriculture Finance (Terms Loans) 46
Allied Activates 48
Indirect Finance to Agricultures 49
Sampling details 65
Contract Farming Farmers list 93 Company list of contract farming 95
Study and Analysis Bank Finance in Agriculture Sector (Contract Farming) Page 9 List of Figures & Graphs
Particular Page no.
North Gujarat visited Map 58
Farmers age analysis 66
Farmers Education analysis 67 Farmers Farm size analysis 68 Contract farming crop produces 69 How to know about contract farming 70 Factor which invites famers for contract
farming
71
Awareness of IDBI Bank Agri finance 72
Farmers Bank ranking 73
Satisfaction towards IDBI Bank 74 Advertisement analysis of IDBI Bank 75 Improving Model of Contract Farming 85
Study and Analysis Bank Finance in Agriculture Sector (Contract Farming) Page 10 History of Banking Industries
Introduction
In the earlier societies functions of a bank were done by the corresponding institutions dealing with loans and advances. Britishers brought into India the modern concept of banking by the start of Bank of England in 1694. In 1708, the bank of England was given the monopoly for the issue of currency notes by an Act. In nineteenth century various banks started operations, which primarily were receiving money on deposits, lending money, transferring money from one place to another and bill discounting.
History of Banking in India
Banking in India has a very old origin. It started in the Vedic period where literature shows the giving of loans to others on interest. The interest rates ranged from two to five percent per month. The payment of debt was made pious obligation on the heir of the dead person.
Modern banking in India began with the rise of power of the British. To raise the resources for the attaining the power the East India Company on 2nd June 1806 promoted the Bank of Calcutta. In the mean while two other banks Bank of Bombay and Bank of Madras were started on 15th April 1840 and 1st July, 1843 respectively. In 1862 the right to issue the notes was taken away from the presidency banks. The government also withdrew the nominee directors from these banks. The bank of Bombay collapsed in 1867 and was put under the voluntary liquidation in 1868 and was finally wound up in 1872. The bank was however able to meet the liability of public in full. A new bank called new Bank of Bombay was started in 1867.
On 27th January 1921 all the three presidency banks were merged together to form the Imperial Bank by passing the Imperial Bank of India Act, 1920. The bank did not have the right to issue the notes but had the permission to manage the clearing house and hold Government balances. In 1934, Reserve Bank of India came into being which was made the Central Bank and had power to issue the notes and was also the banker to the Government. The Imperial Bank was given right to act as the agent of the Reserve Bank of India and represent the bank where it had no braches. In 1955 by passing the State Bank of India 1955, the Imperial Bank was taken over and assets were vested in a new bank, the State Bank of
Study and Analysis Bank Finance in Agriculture Sector (Contract Farming) Page 11 Bank Nationalization
After the independence the major historical event in banking sector was the nationalization of 14 major banks on 19th July 1969. The nationalization was deemed as a major step in achieving the socialistic pattern of society. In 1980 six more banks were nationalized taking the total nationalized banks to twenty.
Various Types of banking services:
The flow chart below shows the various types of banking services:
Land Mortgage IFCI Mutual Funds Rural Credit SFCs
Industrial Dev. IRBI Private Sector Housing Finance NABARD NBFC
EXIM Bank HDFC SIDBI
Commercial Banks Specialized banks Institutional banks Non Banking Financial Institutions Nationalised banks (20) SBI and Associate Banks Private Sectors Banks Foreign Banks Old private sector banks New private sector banks CENTRAL BANK
Study and Analysis Bank Finance in Agriculture Sector (Contract Farming) Page 12 Structure of schedule commercial banks
The composition of the board of directors of a scheduled commercial bank shall consist of whole time chairman. Section 10A of the Banking Regulation Act, 1949 provides that not less than fifty-one per cent, of the total number of members of the Board of directors of a banking company shall consist of persons, who shall have special knowledge or practical experience in respect of one or more of the matters including accountancy, agriculture and rural economy, banking, co-operation, economics, finance, law, small-scale industry, or any other matter the special knowledge of, and practical experience in, which would, in the opinion of the Reserve Bank, be useful to the banking company. Out of the aforesaid number of directors, not less than two shall be persons having special knowledge or practical experience in respect of agriculture and rural economy, co-operation or small-scale industry.
Besides the above the board of the scheduled bank shall consist of the directors representing workmen and officer employees. The Reserve Bank of India and the Central Government also has right to appoint their nominees into the board of the banks.
Present scenario of the banks in India:
Banks are extremely useful and indispensable in the modern community. The banks create the purchasing power in the form of bank notes, cheques bills, drafts etc, transfers funds bring borrows and lenders together, encourage the habit of saving among people.
The banks have played substantial role in the growth of Indian economy. From the meager start in 1860 the banks have come to long way. At present in India there are 20 nationalized banks, State bank of India and its seven Associate banks, 21 old private sector banks and 8 new private sector banks. Besides them there are more than 30 foreign banks either operating themselves or having their branches in India. The statistical table hereunder shows the financial position of the banks as on 31.03.2005.
Study and Analysis Bank Finance in Agriculture Sector (Contract Farming) Page 13 Statistical table for banks in India (Year 2004-05)
(Rs. In Crores) State bank of India and its associates
Name of bank Year of incorporation
No. of Offices
Networth Deposits Advances Interest income
Net NPA
ratio
State Bank of Bikaner & Jaipur
1966 833 1298 19038 12009 1741 1.61
State Bank of Hyderabad
1941 943 1765 28930 15600 2325 0.61
State Bank of India 1955* 9161 24072 367048 202374 32428 2.65
State Bank of Indore 1960 456 904 13807 9041 1110 1.00
State Bank of Mysore 1913 639 756 13585 8781 168 0.92
State Bank of Patiala 1917 754 2045 26496 15359 2133 1.23
State Bank of Saurashtra 1902 429 794 12613 6714 1132 1.40 State Bank of Travancore 1945 681 1130 24133 14848 2008 1.81
* From 27th January 1921 to 30th June 1955 it was Imperial Bank of India, which came about by merger of Bank of Bengal (2nd June 1806), Bank of Bombay (15th April 1840) and Bank of Madras (1st July, 1843).
Study and Analysis Bank Finance in Agriculture Sector (Contract Farming) Page 14 Name of Nationalized Bank Year of incorporation No. of Offices
Networth Deposits Advances Interest income Net NPA ratio Allahabad Bank 1865 2027 2328 40762 21151 3186 1.28 Andhra Bank 1923 1159 1837 27551 17517 2273 0.28 Bank of Baroda 1908 2772 5628 81333 43400 6431 1.45 Bank of India 1906 2668 4465 78821 56013 6032 2.77 Bank of Maharashtra 1935 1330 1543 28844 13062 2368 2.15 Canara Bank 1906 2627 6109 96908 60421 7572 1.88 Central Bank of India 1911 3239 3265 60752 27277 5205 2.98 Corporation Bank 1906 799 3054 27233 18546 2250 1.12 Dena Bank 1938 1072 1104 20096 11309 1725 5.23 Indian Bank 1907 1417 5936 34809 18360 2871 1.35 Indian Overseas Bank 1937 1583 2575 44241 25205 3951 1.27 Oriental Bank of Commerce 1943 1166 3327 47850 25299 3572 1.29
Punjab & Sind Bank 1908 787 440 14171 6322 1249 8.11 Punjab National Bank 1895 4117 8161 103167 60413 8460 0.20 Syndicate Bank 1925 1905 2199 46295 26729 3758 1.59 UCO Bank 1943 1801 2049 49470 27656 3547 2.93 Union Bank of India 1919 2140 3614 61831 40105 4970 2.64 United Bank of India 1950 1343 1957 25348 11390 2133 2.43 Vijaya Bank 1931 966 1590 25618 14336 2094 0.59
Study and Analysis Bank Finance in Agriculture Sector (Contract Farming) Page 15 Old private Sector Banks
Name of bank Year of incorporation
No. of Offices
Networth Deposits Advances Interest income
Net NPA ratio
Bank of Rajasthan 1943 388 351 8120 2896 522 2.50
Bharat Overseas Bank 1973 91 199 2749 1651 219 1.56
Catholic Syrian Bank 1920 314 210 4021 2289 368 3.80
City Union Bank 1904 137 241 3095 2013 291 3.37
Development Credit Bank 1995** 88 200 3895 2001 303 6.83 Dhanalakshmi Bank 1927 180 114 2339 1410 192 3.92 Federal Bank 1931 471 724 15193 8823 1191 2.21 Ganesh Bank of Kurundwad -- 31 11 217 95 18 8.32
ING Vysya Bank 1930 381 710 12569 9081 991 2.13
Jammu & Kashmir Bank 1938 439 1665 21645 11517 1549 1.41
Karnataka Bank 1924 398 978 10837 6287 840 2.29
Karur Vysya Bank 1926 249 761 6672 4620 591 1.66
Lakshmi Vilas Bank 1926 239 230 3496 2318 298 4.98
Lord Krishna Bank 1940 118 181 2176 1387 195 4.22
Nainital Bank 1922 69 76 933 363 74 0.00
Ratnakar Bank 1943 75 45 784 424 66 5.54
Sangli Bank 1948 192 85 1985 812 137 4.30
SBI Comm. & Intl. Bank 1993 3 88 331 231 26 7.65
South Indian Bank 1929 438 456 8492 5365 709 3.81
Tamilnad Mercantile Bank
1921 183 559 4827 2626 513 2.95
Study and Analysis Bank Finance in Agriculture Sector (Contract Farming) Page 16 ** Converted to a private sector commercial bank on 31st May, 1995. Started as a Credit Society set up by the followers of His Highness the Aga Khan in the 1930s and later converted into Co-operative Bank.
New Private Sector banks
Name of bank Year of incorporation
No. of Offices
Networth Deposits Advances Interest income
Net NPA ratio
Bank of Punjab* 1995 120 241 4307 2417 329 4.64 Centurion Bank 1994 77 590 3530 2194 346 2.51 HDFC Bank 1994 446 4520 36354 25566 3093 0.24 ICICI Bank 1994 519 12900 99819 91405 9410 1.65 IDBI Bank Ltd. 1994 157 5929 15103 45414 2656 1.74 IndusInd Bank 1995 127 830 13114 9000 1134 2.71 Kotak Mahindra Bank 1985 54 757 4300 4017 420 1.56 UTI Bank 1994 249 2422 31712 15603 1924 1.39 Yes Bank 2003 3 217 663 761 30 0.00
Study and Analysis Bank Finance in Agriculture Sector (Contract Farming) Page 17 Foreign Banks
Name of bank No. of Offices
Networth Deposits Advances Interest income Net NPA ratio
ABM Amro Bank 19 1347 7077 9831 907 0.35
Abu Dhabi Commercial Bank 2 71 1663 90 150 12.73 American Express Bank 8 301 2264 1483 270 0.99 Antwerp Diamond Bank 1 128 50 434 26 0.00 Arab Bangladesh Bank 1 45 23 22 3 0.28 Bank International Indonesia 1 74 11 20 1.81 10.49 Bank of America 5 1437 1993 3219 257 0.00
Bank of Bahrain & Kuwait 2 67 394 264 34 5.53 Bank of Ceylon 1 54 104 59 8 13.76 Bank of Nova Scotia 5 257 1602 2053 159 3.08 Bank of Tokyo Mitsubishi 3 369 532 559 57 0.01 Barclays Bank 1 698 75 2 31 0.00 BNP Paribas 9 333 1674 1719 176 0.00 Calyon Bank 4 328 1306 674 117 0.30 Chinatrust Commercial Bank 1 45 48 59 9 6.02
Study and Analysis Bank Finance in Agriculture Sector (Contract Farming) Page 18 Citibank 35 3310 21484 18111 2203 1.00 DBS Bank 1 556 611 560 30 0.00 Deutsche Bank 5 1232 3625 2541 390 0.00 Hongkong & Shanghai Banking Corpn. 39 3578 17013 12621 1627 0.50 JP Morgan Chase Bank 1 266 930 150 40 0.00
Krung Thai Bank 1 40 34 16 4 0.00
Mashreq Bank 2 58 269 19 29 0.00 Mizuho Corporate Bank 1 164 110 267 17 0.00 Oman International Bank 2 161 225 13 18 55.05 Societe Generale 2 321 527 159 37 0.00 Sonali Bank 1 6 22 6 1 1.90 Standard Chartered Bank 85 3234 22522 19970 2493 1.12 State Bank of Mauritius 3 126 148 222 36 4.08 UFJ Bank 1 228 71 102 16 0.00
(Source: A profile on banks 2004-05, RBI))
The banks in India are operating through 55530 branches. All the banks together had the net worth of Rs. 149385 crores as on 31st March, 2005. The banks also had the deposit base of Rs. 1836985 crores and the advances of Rs. 1151113 crores taking the total business to Rs. 2988098 crores. During the year 2004-05 the banks had earned the interest income of Rs. 154761 crores. The average net NPA ratio of the banks was also less 3.84% in year 2005.
Study and Analysis Bank Finance in Agriculture Sector (Contract Farming) Page 19 Future is bright:
The Information Technology (IT) is becoming an important component of the banking sector. The customers have become more demanding and they need value added services from the banks. The foreign banks have raised the expectations of the customers causing the bank to invest strongly on IT. The Indian banks have started to meet the expectations of the people by opening both onsite and offsite ATMs. Banks have also started telebanking, anytime/anywhere banking, mobile banking and Internet banking to give the facilities to the customers. Banks have also following the RBI sponsored technology programmes like mail messaging, Electronic fund transfers (EFT), Structured Financial Messaging System (SFMS), (Real Time Gross Settlement (RTGS), Centralized Fund Management System (CFMS) and Negotiated Dealing System / Public Debt Office (NDS/PDO).
Banks have been given more teeth to tackle the Non performing assets by passing the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. Under this Act, the banks can take over the assets of the defaulters either by themselves or with the help of Court. The power is in addition to the power to recover through the Debt Recovery Tribunal. The Asset Reconstruction Companies have been formed which also take over the distress assets from the banks.
Study and Analysis Bank Finance in Agriculture Sector (Contract Farming) Page 20 NABAD Role in Banking Industries
NABARD is set up as an apex Development Bank with a mandate for facilitating credit flow for promotion and development of agriculture, small-scale industries, cottage and village industries, handicrafts and other rural crafts. It also has the mandate to support all other allied economic activities in rural areas, promote integrated and sustainable rural development and secure prosperity of rural areas. In discharging its role as a facilitator for rural prosperity NABARD is entrusted with
1. Providing refinance to lending institutions in rural areas
2. Bringing about or promoting institutional development and
3. Evaluating, monitoring and inspecting the client banks
Besides this pivotal role, NABARD also:
• Acts as a coordinator in the operations of rural credit institutions
• Extends assistance to the government, the Reserve Bank of India and other organizations in matters relating to rural development
• Offers training and research facilities for banks, cooperatives and organizations working in the field of rural development
• Helps the state governments in reaching their targets of providing assistance to eligible institutions in agriculture and rural development
• Acts as regulator for cooperative banks and RRBs
• Extends assistance to the government, the Reserve Bank of India and other organizations in matters relating to rural development
Study and Analysis Bank Finance in Agriculture Sector (Contract Farming) Page 21
• Offers training and research facilities for banks, cooperatives and organizations working in the field of rural development
• Helps the state governments in reaching their targets of providing assistance to eligible institutions in agriculture and rural development
• Acts as regulator for cooperative banks and RRBs
Some of the milestones in NABARD's activities are:
• Refinance disbursement under ST-Agri & Others and MT-Conversion/ Liquidity support aggregated Rs.19452 crore during 2009-10.
• Refinance disbursement under Investment Credit to commercial banks, state cooperative banks, state cooperative agriculture and rural development banks, RRBs and other eligible financial institutions during 2009-10 aggregated Rs.12009.08 crore.
•
Through the Rural Infrastructure Development Fund (RIDF) Rs.12387.54 crores were disbursed during 2009-10. With this, a cumulative amount of Rs.86939.74 crore has been disbursed as on 31 March 2010 covering irrigation, rural roads and bridges, health and education, soil conservation, drinking water schemes, flood protection, forest management and the Bharat Nirman Project (BNP).
• Under Watershed Development Fund with a corpus of Rs.1102 crore as on 31 March 2008, 513 projects in 14 states have benefited.
• Farmers now enjoy hassle free access to credit and security through 906.40 lakh Kisan Credit Cards that have been issued through a vast rural banking network.
•
Under the Farmers' Club Programme, a total of 54805 clubs covering 104648 villages in 587 districts have been formed, helping farmers get access to credit, technology and extension services.
Study and Analysis Bank Finance in Agriculture Sector (Contract Farming) Page 22 NABARD MISSINON
Promoting sustainable and equitable agriculture and rural development through effective credit support, related services, institution building and other innovative initiatives.
In pursuing this mission, NABARD focuses its activities on:
Credit functions, involving preparation of potential-linked credit plans annually for all districts of the country for identification of credit potential, monitoring the flow of ground level rural credit, issuing policy and operational guidelines to rural financing institutions and providing credit facilities to eligible institutions under various programmes
Development functions, concerning reinforcement of the credit functions and making credit more productive
Supervisory functions, ensuring the proper functioning of cooperative banks and regional rural banks
NABARD OBJECTIVES
NABARD was established in terms of the Preamble to the Act, "for providing credit for the promotion of agriculture, small scale industries, cottage and village industries, handicrafts and other rural crafts and other allied economic activities in rural areas with a view to promoting IRDP and securing prosperity of rural areas and for matters connected therewith in incidental thereto".
The main objectives of the NABARD as stated in the statement of objectives while placing the bill before the Lok Sabha were categorized as under :
1. The National Bank will be an apex organisation in respect of all matters relating to policy, planning operational aspects in the field of credit for promotion of Agriculture, Small Scale Industries, Cottage and Village Industries, Handicrafts and other rural crafts and other allied
Study and Analysis Bank Finance in Agriculture Sector (Contract Farming) Page 23 economic activities in rural areas.
2. The Bank will serve as a refinancing institution for institutional credit such as long-term, short-term for the promotion of activities in the rural areas.
3. The Bank will also provide direct lending to any institution as may approved by the Central Government.
4. The Bank will have organic links with the Reserve Bank and maintain a close link with in.
Major Activities
• Preparing of Potential Linked Credit Plans for identification of exploitable potentials under agriculture and other activities available for development through bank credit.
• Refinancing banks for extending loans for investment and production purpose in rural areas.
• Providing loans to State Government/Non Government Organizations (NGOs)/Panchayati Raj Institutions (PRIs) for developing rural infrastructure.
• Supporting credit innovations of Non Government Organizations (NGOs) and other non-formal agencies.
• Extending formal banking services to the unreached rural poor by evolving a supplementary credit delivery strategy in a cost effective manner by promoting Self Help Groups (SHGs)
• Promoting participatory watershed development for enhancing productivity and profitability of rainfed agriculture in a sustainable manner.
Study and Analysis Bank Finance in Agriculture Sector (Contract Farming) Page 24
• On-site inspection of cooperative banks and Regional Rural Banks (RRBs) and iff-site surveillance over health of cooperatives andRRBs.
Role and Functions
• NABARD is an apex institution accredited with all matters concerning policy, planning and operations in the field of credit for agriculture and other economic activities in rural areas.
• It is an apex refinancing agency for the institutions providing investment and production credit for promoting the various developmental activities in rural areas
• It takes measures towards institution building for improving absorptive capacity of the credit delivery system, including monitoring, formulation of rehabilitation schemes, restructuring of credit institutions, training of personnel, etc.
• It co-ordinates the rural financing activities of all the institutions engaged in developmental work at the field level and maintains liaison with Government of India, State Governments, Reserve Bank of India and other national level institutions concerned with policy formulation.
• It prepares, on annual basis, rural credit plans for all districts in the country; these plans form the base for annual credit plans of all rural financial institutions
• It undertakes monitoring and evaluation of projects refinanced by it.
Study and Analysis Bank Finance in Agriculture Sector (Contract Farming) Page 25 LENDING TO PRIORITY SECTOR
At a meeting of the National Credit Council held in July 1968, it was emphasized that commercial banks should increase their involvement in the financing of priority sectors, viz., agriculture and small scale industries. The description of the priority sectors was later formalized in 1972 on the basis of the report submitted by the Informal Study Group on Statistics relating to advances to the Priority Sectors constituted by the Reserve Bank in May 1971. On the basis of this report, the Reserve Bank prescribed a modified return for reporting priority sector advances and certain guidelines were issued in this connection indicating the scope of the items to be included under the various categories of priority sector. Although initially there was no specific target fixed in respect of priority sector lending, in November 1974 the banks were advised to raise the share of these sectors in their aggregate advances to the level of 33 1/3 per cent by March 1979.
At a meeting of the Union Finance Minister with the Chief Executive Officers of public sector banks held in March 1980, it was agreed that banks should aim at raising the proportion of their advances to priority sectors to 40 per cent by March 1985. Subsequently, on the basis of the recommendations of the Working Group on the Modalities of Implementation of Priority Sector Lending and the Twenty Point Economic Programmed by Banks, all commercial banks were advised to achieve the target of priority sector lending at 40 per cent of aggregate bank advances by 1985. Sub-targets were also specified for lending to agriculture and the weaker sections within the priority sector. Since then, there have been several changes in the scope of priority sector lending and the targets and sub-targets applicable to various bank groups.
On the basis of the recommendations of the Internal Working Group, set up in Reserve Bank to examine, review and recommend changes, if any, in the existing policy on priority sector lending including the segments constituting the priority sector, targets and sub-targets, etc. and the comments/suggestions received thereon from banks, financial institutions, public and the Indian Banks Association (IBA), it has been decided to include only those sectors that impact large segments of population & the weaker sections, and which are employment-intensive, as part of the priority sector.
Study and Analysis Bank Finance in Agriculture Sector (Contract Farming) Page 26 I. CATEGORIES OF PRIORITY SECTOR
The broad categories of priority sector for all scheduled commercial banks are as under:
(i) Agriculture (Direct and Indirect finance): Direct finance to agriculture shall include short, medium and long term loans given for agriculture and allied activities directly to individual farmers, Self-Help Groups (SHGs) or Joint Liability Groups (JLGs) of individual farmers without limit and to others (such as corporates, partnership firms and institutions) up to Rs. 20 lakh, for taking up agriculture/allied activities.
(ii) Small Scale Industries (Direct and Indirect Finance): Direct finance to small scale industries (SSI) shall include all loans given to SSI units which are engaged in manufacture, processing or preservation of goods and whose investment in plant and machinery (original cost) excluding land and building does not exceed the amounts specified in Section I, appended. Indirect finance to SSI shall include finance to any person providing inputs to or marketing the output of artisans, village and cottage industries, handlooms and to cooperatives of producers in this sector.
(iii) Small Business / Service Enterprises shall include small business, retail trade, professional & self employed persons, small road & water transport operators and other service enterprises as per the definition given in Section I and other enterprises that are engaged in providing or rendering of services, and whose investment in equipment does not exceed the amount specified in Section I, appended.
(iv) Micro Credit: Provision of credit and other financial services and products of very small amounts not exceeding Rs. 50,000 per borrower to the poor in rural, semi-urban and urban areas, either directly or through a group mechanism, for enabling them to improve their living standards, will constitute micro credit.
(v) Education loans: Education loans include loans and advances granted to only individuals for educational purposes up to Rs. 10 lakh for studies in India and Rs. 20 lakh for studies abroad, and do not include those granted to institutions;
(vi) Housing loans: Loans up to Rs. 15 lakh for construction of houses by individuals, (excluding loans granted by banks to their own employees) and loans given for repairs to the damaged houses of individuals up to Rs.1 lakh in rural and semi-urban areas and up to Rs.2 lakh in urban areas.
Study and Analysis Bank Finance in Agriculture Sector (Contract Farming) Page 27 (2) Investments by banks in securitised assets, representing loans to agriculture (direct or indirect), small scale industries (direct or indirect) and housing, shall be eligible for classification under respective categories of priority sector (direct or indirect) depending on the underlying assets, provided the securitised assets are originated by banks and financial institutions and fulfil the Reserve Bank of India guidelines on securitisation.
(3) The targets and sub-targets under priority sector lending would be linked to Adjusted Net Bank Credit (Net Bank Credit plus investments made by banks in non-SLR bonds held in HTM category) or Credit Equivalent of Off-Balance Sheet Exposures, whichever is higher, as on March 31 of the previous year.
(4) In order to encourage banks to increasingly lend directly to the priority sector borrowers, the banks' deposits placed with NABARD/SIDBI on account of non-achievement of priority sector lending targets would not be eligible for classification as indirect finance to agriculture/SSI, as the case may be.
II. TARGETS/SUB-TARGETS
The targets and sub-targets set under priority sector lending for domestic and foreign banks operating In India are furnished below:
Domestic commercial banks Foreign banks Total Priority
Sector advances
40 per cent of Adjusted Net Bank Credit (ANBC) or credit equivalent amount of Off-Balance Sheet Exposure,
whichever is higher.
32 per cent of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher Total agricultural advances
18 per cent of ANBC or credit equivalent amount of Off Balance Sheet Exposure, whichever is higher Of this, indirect lending in excess of 4.5% of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher, will not be reckoned for computing performance under 18 per cent target. However, all agricultural advances under the categories 'direct' and
'indirect' will be reckoned in computing performance under
Study and Analysis Bank Finance in Agriculture Sector (Contract Farming) Page 28 the overall priority sector target
of 40 per cent of ANBC or credit equivalent
amount of Off-Balance Sheet Exposure, whichever is higher SSI advances Advances to SSI sector will be
reckoned in computing
performance under the overall priority sector target of 40 per cent of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is Higher.
10 per cent of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher Micro enterprises within SSI
(i) 40 per cent of total SSI advances should go to units having investment in plant and machinery up to Rs 5 lakh, (ii) 20 per cent of total SSI advances should go to units with investment in plant &
machinery between Rs 5 lakh and Rs. 25 lakh (Thus, 60 per cent of SSI advances should go to the micro enterprises).
Same as for domestic banks
Export credit Export credit is not a part of priority sector for domestic commercial banks.
12 per cent of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher Advances to weaker sections
10 per cent of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher. No target Differential Rate of Interest Scheme 1% of total advances
outstanding as at the end of the previous year. It should be ensured that not less than 40 per cent of the total advances
granted under DRI scheme go to scheduled caste/scheduled tribes. At least two third of DRI advances should be granted through rural and semi-urban branches.
Study and Analysis Bank Finance in Agriculture Sector (Contract Farming) Page 29 Agricultural Direct Finance and Indirect Finance
DIRECT FINANCE
Finance to individual Farmers [including Self Help Groups (SHGs) or Joint Liability Group (JLGs), i.e. groups of individual farmers] for Agriculture and Allied Activities
Short-term loans for raising crops, i.e. for crop loans. This will include traditional/nontraditional plantations and horticulture.
Advances up to Rs. 10 lakh against pledge/hypothecation of agricultural produce (including warehouse receipts) for a period not exceeding 12 months, irrespective of whether the farmers were given crop loans for raising the produce or not.
Working capital and term loans for financing production and investment requirements for agriculture and allied activities.
Loans to small and marginal farmers for purchase of land for agricultural purposes.
Loans to distressed farmers indebted to non-institutional lenders, against appropriate collateral or group security.
Loans granted for pre-harvest and post-harvest activities such as spraying, weeding, harvesting, grading, sorting, processing and transporting undertaken by rural and semi urban households or groups/cooperatives of rural and semi-urban households.
Finance to others up to an aggregate amount of Rs. 20 lakh per borrower for the purposes listed at 1.1.1 to 1.1.3 above.
Study and Analysis Bank Finance in Agriculture Sector (Contract Farming) Page 30 INDIRECT FINANCE
Finance for Agriculture and Allied Activities
Loans to entities covered less than 1.2 above in excess of Rs. 20 lakh in aggregate per borrower for agriculture and allied activities. In such cases, the entire amount outstanding shall be treated as indirect finance for agriculture.
Loans to food and agro-based processing units with investments in plant and machinery up to Rs. 10 crore, undertaken by other than rural and semi-urban households.
Loans to Non-Banking Financial Companies (NBFCs) for on lending to individual farmers.
(i) Credit for purchase and distribution of fertilisers, pesticides, seeds, etc. (ii) Loans up to Rs. 40 lakh granted for purchase and distribution of inputs for the allied activities such as cattle feed, poultry feed, etc.
Finance for setting up of Agriclinics and Agribusiness Centres.
Finance for hire-purchase schemes for distribution of agricultural machinery and implements.
Loans to farmers through Primary Agricultural Credit Societies (PACS), Farmers‟ Service Societies (FSS) and Large-sized Adivasi Multi Purpose Societies (LAMPS).
Loans to cooperative societies of farmers for disposing of the produce of members.
Financing the farmers indirectly through the co-operative system (otherwise than by subscription to bonds and debenture issues) provided a certificate from the State Cooperative Bank/State Cooperative Agriculture and Rural Development Bank (SCARDB), as the case may be, is produced, certifying the end use of such loans.
Investments by banks in special bonds issued by NABARD with the objective of financing exclusively agriculture/allied activities (not eligible for classification under priority sector lending with effect from April 1, 2007)
Study and Analysis Bank Finance in Agriculture Sector (Contract Farming) Page 31
Loans for construction and running of storage facilities (warehouse, market yards, god owns, and silos), including cold storage units designed to store agriculture produce/products, irrespective of their location. If the storage unit is registered as SSI unit, the loans granted to such units may be classified under advances to SSI, provided the investment in plant and machinery is within the stipulated ceiling.
Advances to Customs Service Units managed by individuals, institutions or organizations who maintain a fleet of tractors, bulldozers, well-boring equipment, threshers, combines, etc., and undertake work for farmers on contract basis.
Finance extended to dealers in drip irrigation/sprinkler irrigation system/agricultural machinery, irrespective of their location, subject to the following conditions:(a) The dealer should be dealing exclusively in such items or if dealing in other products, should be maintaining separate and distinct records in respect of such items. (b) A ceiling of up to Rs. 30 lakh per dealer should be observed.
Loans to Arthias (commission agents in rural/semi-urban areas functioning in markets/mandies) for extending credit to farmers, for supply of inputs as also for buying the output from the individual farmers/ SHGs/ JLGs.
Fifty per cent of the credit outstanding under loans for general purposes under General Credit Cards (GCC).
Study and Analysis Bank Finance in Agriculture Sector (Contract Farming) Page 32 SMALL SCALE INDUSTRIES
DIRECT FINANCE
Direct Finance in the small scale industry sector will include credit to:
Small Scale Industries: Units engaged in the manufacture, processing or preservation of goods and whose investment in plant and machinery (original cost) excluding land and building does not exceed Rs. 5 crore.
Micro Enterprises: Small scale units whose investment in plant and machinery (original cost) excluding land and building is up to Rs. 25 lakh, irrespective of the location of the unit, are treated as Micro Enterprises.
KVI Sector: All advances granted to units in the KVI sector, irrespective of their size of operations, location and amount of original investment in plant and machinery. Such advances will be eligible for consideration under the sub-target (60 per cent) of the SSI segment within the priority sector.
INDIRECT FINANCE
Indirect finance in the small-scale industrial sector will include credit to:
Persons involved in assisting the decentralised sector in the supply of inputs to and marketing of outputs of artisans, village and cottage industries.
Advances to cooperatives of producers in the decentralised sector viz. artisans village and cottage industries.
Subscription to bonds issued by NABARD with the objective of financing exclusively nonfarm sector (not eligible for classification under priority sector lending with effect from April 1, 2007).
Study and Analysis Bank Finance in Agriculture Sector (Contract Farming) Page 33 SMALL BUSINESS / SERVICE ENTERPRISES
Loans granted to small business and service enterprises such as, Small Road and Water Transport Operators, Small Business, Professional & Self Employed Persons, etc. engaged in providing/rendering of services (which are industry or non-industry related), and whose investment in equipment (original cost and excluding land and building) does not exceed Rs. 2 crore.
Advances granted to retail traders dealing in essential commodities (fair price shops), consumer co-operative stores, and; (ii) Advances granted to private retail traders with credit limits not exceeding Rs. 20 lakh.
Loans to NBFCs for the purpose of on-lending to various categories of small business and service enterprises.
MICRO CREDIT
Loans of very small amount not exceeding Rs. 50,000 per borrower, provided by banks to the poor in rural, semi-urban and urban areas, either directly or through a group mechanism, for enabling them to improve their living standards.
Loans to urban poor indebted to informal sector Loans to distressed urban poor to prepay their debt to lenders in the informal sector would be eligible for classification under priority sector. Urban poor for this purpose may include those families in the urban areas who are below the poverty line. Such loans to urban poor may be classified under weaker sections within the priority sector.
STATE SPONSORED ORGANIZATIONS FOR SCHEDULED CASTES/SCHEDULED TRIBES
Advances sanctioned to State Sponsored Organizations‟ for Scheduled Castes/ Scheduled Tribes for the specific purpose of purchase and supply of inputs to and/or the marketing of the outputs of the beneficiaries of these organizations.
EDUCATION
Educational loans should include only loans and advances granted to individuals for educational purposes up to Rs. 10 lakh for studies in India and Rs. 20 lakh for studies abroad, and not those granted to institutions.
Study and Analysis Bank Finance in Agriculture Sector (Contract Farming) Page 34 HOUSING
Loans up to Rs. 15 lakh, irrespective of location, for construction of houses by individuals, excluding loans granted by banks to their own employees.
Loans given for repairs to the damaged houses of individuals up to Rs. 1 lakh in rural and Semi-urban areas and up to Rs. 2 lakh .
Assistance up to Rs. 1.25 lakh per housing unit given to any governmental agency/ nongovernmental agency (approved by the NHB for the purpose of refinance) for construction/reconstruction of houses or for slum clearance and rehabilitation of slum dwellers.
Weaker Sections
The weaker sections under priority sector shall include the following:
a) Small and marginal farmers with land holding of 5 acres and less, and landless labourers, tenant farmers and share croppers.
b) Artisans, village and cottage industries where individual credit limits do not exceed Rs. 50,000.
c) Beneficiaries of Swarnjayanti Gram Swarozgar Yojana (SGSY). d) Scheduled Castes and Scheduled Tribes.
e) Beneficiaries of Differential Rate of Interest (DRI) scheme.
f) Beneficiaries under Swarna Jayanti Shahari Rozgar Yojana (SJSRY).
g) Beneficiaries under the Scheme for Liberation and Rehabilitation of Scavangers (SLRS). h) Advances to Self Help Groups.
i) Loans to distressed urban/rural poor to prepay their debt to non-institutional lenders, against appropriate collateral or group security.
Export Credit
Study and Analysis Bank Finance in Agriculture Sector (Contract Farming) Page 35 PENALTIES FOR NON-ACHIEVEMENT OF PRIORITY SECTOR LENDING
TARGET / SUBTARGETS
Domestic scheduled commercial banks – Contribution by banks to Rural Infrastructure Development Fund (RIDF):
Domestic scheduled commercial banks having shortfall in lending to priority sector target (40 per cent of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher) and / or agriculture target (18 per cent of ANBC or credit equivalent amount of Off Balance Sheet Exposure, whichever is higher) shall be allocated amounts for contribution to the Rural Infrastructure Development Fund (RIDF) established with NABARD. The concerned banks will be called upon by NABARD, on receiving demands from various State Governments, to contribute to RIDF.
The corpus of a particular tranche of RIDF is decided by Government of India every year. Fifty per cent of the corpus shall be allocated among the domestic commercial banks having shortfall in lending to priority sector target of 40 per cent of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher, on a pro-rata basis, and fifty per cent of the corpus shall be allocated among the banks having shortfall in lending to agriculture target of 18 per cent of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher, on a pro-rata basis. The amount of contribution by banks to a particular tranche of RIDF will be decided in the beginning of the financial year.
The interest rates on banks‟ contribution to RIDF shall be fixed by Reserve Bank of India from time to time.
Details regarding operationalisation of the RIDF such as the amounts to be deposited by banks, interest rates on deposits, period of deposits etc., will be communicated to the concerned banks separately by August of each year to enable them to plan their deployment of funds.
Study and Analysis Bank Finance in Agriculture Sector (Contract Farming) Page 36 Foreign Banks – Deposit by Foreign Banks with SIDBI
The foreign banks having shortfall in lending to stipulated priority sector target/sub-targets will be required to contribute to Small Enterprises Development Fund (SEDF) to be set up by Small Industries Development Bank of India (SIDBI).
The corpus of SEDF shall be decided by Reserve Bank of India on a year to year basis. The tenor of the deposits shall be for a period of three years or as decided by Reserve Bank from time to time. Fifty per cent of the corpus shall be contributed by foreign banks having shortfall in lending to priority sector target of 32 per cent of ANBC or credit equivalent amount of Off Balance Sheet Exposure, whichever is higher, on a pro-rata basis, and fifty per cent of the corpus shall be contributed by foreign banks having aggregate shortfall in lending to SSI sector and export sector of 10 per cent and 12 per cent respectively, of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher, on a pro-rata basis.
The concerned foreign banks will be called upon by SIDBI, as and when required by them, to contribute to SEDF, after giving one month‟s notice.
The interest rates on foreign banks‟ contribution to SEDF shall be fixed by the Reserve Bank of India from time to time.
COMMON GUIDELINES FOR PRIORITY SECTOR ADVANCES
Banks should follow the following common guidelines prescribed by the Reserve Bank for all Categories of advances under the priority sector.
PROCESSING OF APPLICATIONS
Completion of Application Forms: In case of Government sponsored schemes such as SGSY, the concerned project authorities like DRDAs, DICs, etc. should arrange for completion of application forms received from borrowers. In other areas, the bank staff should help the borrowers for this purpose.
Issue of Acknowledgement of Loan Applications: Banks should give acknowledgement for loan applications received from weaker sections. Towards this purpose, it may be ensured that all loan application forms have perforated portion for acknowledgement to be completed and issued by the receiving branch. Each branch may affix on the main application form as well as the corresponding portion for acknowledgement, a running
Study and Analysis Bank Finance in Agriculture Sector (Contract Farming) Page 37 serial number. While using the existing stock of application forms which do not have a perforated portion for acknowledgement is separately given, care should be taken to ensure that the serial number given on the acknowledgement is also recorded on the main application. The loan applications should have a check list of documents required for guidance of the prospective borrowers.
Disposal of Applications: (I) All loan applications up to a credit limit of Rs. 25,000/- should be disposed of within a fortnight and those for over Rs. 25,000/-, within 4 weeks. (ii) All loan applications for SSI up to a credit limit of Rs. 25,000/- should be disposed of within 2 weeks and those up to Rs. 5 lakh within 4 weeks, provided the loan applications are complete in all respects and are accompanied by a 'check list'.
Rejection of Proposals: Branch Managers may reject applications (except in respect of SC/ST) provided the cases of rejection are verified subsequently by the Divisional/Regional Managers. In the case of proposals from SC/ST, rejection should be at a level higher than that of Branch Manager.
Register of Rejected Applications: A register should be maintained at the branch, wherein the date of receipt, sanction/rejection/disbursement with reasons therefore, etc., should be recorded. The register should be made available to all inspecting agencies.
MODE OF DISBURSEMENT OF LOAN
With a view to providing farmers wider choice as also eliminating undesirable practices, banks may disburse all loans for agricultural purposes in cash which will facilitate dealer choice to borrowers and foster an environment of trust. However, banks may continue the practice of obtaining receipts from borrowers.
REPAYMENT SCHEDULE
Repayment programme should be fixed taking into account the sustenance requirements, surplus generating capacity, the break-even point, the life of the asset, etc.,and not in an "ad hoc" manner. In respect of composite loans, repayment schedule may be fixed for term loan component only.
As the repaying capacity of the people affected by natural calamities gets severely impaired due to the damage to the economic pursuits and loss of economic assets, the benefits such as restructuring of existing loans, etc. as envisaged under our circular RPCD.CO.PLFS.NO. BC 16/05.04.02/2006-07 dated August 9, 2006 may be extended to the affected borrowers.
Study and Analysis Bank Finance in Agriculture Sector (Contract Farming) Page 38 RATES OF INTEREST
The rates of interest on various categories of priority sector advances will be as per RBI directives issued from time to time.
In respect of direct agricultural advances, banks should not compound the interest in the case of current dues, i.e. crop loans and instalments not fallen due in respect of term loans, as the agriculturists do not have any regular source of income other than sale proceeds of their crops
When crop loans or instalments under term loans become overdue, banks can add interest to the principal.
Where the default is due to genuine reasons banks should extend the period of loan or reschedule the installments under term loan. Once such a relief has been extended, the over dues become current dues and banks should not compound interest.
Banks should charge interest on agricultural advances in respect of long duration crops, at annual rests instead of quarterly or longer rests, and could compound the interest, if the loan/installment becomes overdue.
PENAL INTEREST
The issue of charging penal interests that should be levied for reasons such as default in repayment, non-submission of financial statements, etc. has been left to the Board of each bank. Banks have been advised to formulate policy for charging such penal interest with the approval of their Boards, to be governed by well accepted principles of transparency, fairness, incentive to service the debt and due regard to difficulties of customers.
No penal interest should be charged by banks for loans under priority sector up to Rs 25,000 as hitherto. However, banks will be free to levy penal interest for loans exceeding Rs 25,000, in terms of the above guidelines.
Study and Analysis Bank Finance in Agriculture Sector (Contract Farming) Page 39 SERVICE CHARGES / INSPECTION CHARGES
No service charges/inspection charges should be levied on priority sector loans up to Rs.25,000/-.
For loans above Rs. 25,000/- banks will be free to prescribe service charges with the prior approval of their Boards, in terms of circular No. DBOD.Dir.BC.86/03.01.00/99-2000 dated September 7, 1999.
INSURANCE AGAINST FIRE AND OTHER RISKS
Banks may waive insurance of assets financed by bank credit in the following cases:
No. Category Type of Risk Type of Assets
(a) All categories of priority sector advances up to and inclusive of Rs. 10,000/-
Fire & other risks
Equipment and current assets
(b) Advances to SSI sector up to and inclusive of Rs. 25,000/- by way of –
Composite loans to artisans, village and cottage industries
All term loans
Working capital where these are against non-hazardous goods
Fire Equipment and current Assets,
Equipment, Current Assets
Where, however, insurance of vehicle or machinery or other equipment/assets is compulsory under the provisions of any law or where such a requirement is stipulated in the refinance scheme of any refinancing agency or as part of a Government-sponsored programmes such as SGSY, insurance should not be waived even if the relative credit facility does not exceed Rs. 10,000/- or Rs. 25,000/-, as the case may be
PHOTOGRAPHS OF BORROWERS
While there is no objection to taking photographs of the borrowers for purposes of identification, banks themselves should make arrangements for the photographs and also bear the cost of photographs of borrowers falling in the category of Weaker Sections. It should also be ensured that the procedure does not involve any delay in loan disbursement.
DISCRETIONARY POWERS
All Branch Managers of banks should be vested with discretionary powers to sanction proposals from weaker sections without reference to any higher authority. If there are difficulties in extending such discretionary powers to all the Branch Managers, such powers should exist at
Study and Analysis Bank Finance in Agriculture Sector (Contract Farming) Page 40 least at the district level and arrangements be ensured that credit proposals on weaker sections are cleared promptly
MACHINERY TO LOOK INTO COMPLAINTS
There should be machinery at the regional offices to entertain complaints from the borrowers if the branches do not follow these guidelines, and to verify periodically that these guidelines are scrupulously implemented by the branches.
AMENDMENTS
Study and Analysis Bank Finance in Agriculture Sector (Contract Farming) Page 41 Company profile
Government of India (GoI) Undertaking & Historical Events
IDBI Bank Ltd. (IDBI) is one of India's larger commercial Banks and for over 40 years it has essayed a key nation-building role, first as the apex Development Financial Institution (DFI) (July 1, 1964 to September 30, 2004) in the realm of industry and thereafter as a full-service commercial Bank (October 1, 2004 onwards). Post merger of erstwhile IDBI Bank with its parent company (IDBI Ltd.) and The United Western Bank Ltd. undertook the entire gamut of banking activities while continuing to play its secular DFI role.
New Initiative
IDBI is poised to become one of the 'TOP 5' banks in terms of asset size with reorganization of business model by FY12. Moving towards this goal, IDBI has taken several steps like focusing on retail segment and leveraging government and industrial relationships for future business growth. IDBI has reorganized its businesses around nine verticals consisting of six customer verticals and three business verticals, each focusing on distinct customer segments. To increase its global presence IDBI has set up an overseas branch at Dubai and also plans to open representative offices across the globe.
IDBI formed subsidiaries & joint ventures across diverse areas of Banking & Financial System. IDBI Capital Market Services
A wholly owned subsidiary, offers a full suite of financial products. Its business includes stock broking, distribution of financial products, Portfolio management of Pension / PF funds & Research services, etc.
IDBI Gilts Ltd.
A wholly owned subsidiary presently focuses on Bond trading, underwriting in auctions of G-sec and T-bills.
IDBI Intech Ltd.
A wholly owned subsidiary, deals in the Information Technology Services, Information Security Practice, Knowledge Management Services.
Study and Analysis Bank Finance in Agriculture Sector (Contract Farming) Page 42 IDBI Home Finance
A wholly owned subsidiary, deals in the Home finance arena.
IDBI Asset Management
Asset Management Company of IDBI Mutual Fund is a whollyowned subsidiary of IDBI Bank Ltd. Its mission is to promote financial inclusion, by assisting in investment choices, through mutual funds.
IDBI Federal Life Insurance Company Ltd.
A joint venture with Federal Bank and Fortis Insurance International. It primarily deals in Life insurance space.
Management Brief
MR. R.M Malla who has track record of turning around IFCI from serious liquidity crisis to comfortable liquidity position and helping SIDBI's business to increase three fold during his tenure, has been appointed as a new CMD of IDBI Bank Ltd. Mr. Malla is supported by Mr. B. P. Singh who is the Deputy Managing Director and Mr. P. Sitaram the CFO of IDBI Bank Ltd.
Industry Outlook Sector at Glance
Over the last few years Indian banks in comparison to its global peers have performed well on growth, asset quality and profitability. To strengthen the banking sector, policy makers have made some notable changes in policy and regulation, which has helped it to overcome the global financial crisis. Following the financial crisis, new deposits have gravitated towards public sector banks which account 50.5% of the aggregate deposits. With respect to gross bank credit also, nationalized banks hold the highest share of 50.5% in the total bank credit. Other scheduled commercial banks at 17.8%, foreign banks and regional rural banks had a share of 5.5% and 2.5% respectively in the total bank credit.
Study and Analysis Bank Finance in Agriculture Sector (Contract Farming) Page 43 Favourable economic conditions for Indian banking industry
The macro picture for India has been constructive with GDP (8.8% in Q1FY11) and industrial production (13.8% in July 2010) registering a stronger growth. Indian economy is expected to register ~8.5% in FY11 (IMF forecast of 9.7%) and double digit growth in next 5-10 years which will support the banking industry. In future the increase in domestic consumption demand will strengthen the growth of banking industry.
Infrastructure sector to boost growth
According to BCG report, Infrastructure debt will surpass INR 45 tn (2020) half of which will be on bank's books. It will touch the Asset Liability Management (ALM) limits of banks and will require a significant upgrade of banks' risk management systems. Also banks to discover the importance of the Small and Medium Enterprises (SME) segment for profitability and growth and new models to serve SME segment will be found
Evolving Indian income demographics
According to BCG report evolving income demographics will spur new demand for banking industry and rapid accumulating of wealth will drive weal the management business to 10X size.
Channel penetration to drive business growth
In comparison to the other countries channel (interms of branches & ATMs) penetration in India is low. This will accentuate the demand for low cost banking solutions, branches and ATMs need to grow 2x and 5x (Source BCG).This provide huge opportunity for banking industry to expand its business.
Low Channel Penentration in India
The strong credit growth of ~20% in the industry is expected to continue in future on the back of strong demand for capex, infrastructure and agriculture. Banks are on expansion spree as the RBI has sanctioned licenses to banks which will be focusing more on rural and unbanked areas. By expanding branch network banks are expected to improve their margins by increasing their
