Multiple banks. Different interest rates. Call it a "conflict of interest".


    The National Bank for Agricultural and Rural Development (NABARD) is India’s specialised bank that was set up after the recommendation from the CRAFICARD (Committee to Review Arrangements for Institutional Credit for Agricultural and Rural Department), arranged by the Reserve Bank of India (RBI). On 12th July of 1982, NABARD came into existence and replaced the ACD (Agricultural Credit Department), ARDC (Agricultural Refinance and Development Corporation and RBI’s RPCC (Rural Planning and Credit Cell). The apex development bank was established with an intention to provide focus and undivided attention to the credit problems rooting out of integrated rural development.

    NABARD provides various refinance and direct finance options.

    NABARD Refinance

    There are three categories of refinancing options from NABARD:

    1. Short and Medium Term Loans
    2. Long Term Loans
    3. Refinance – Non-farm Sector

    Short and Medium Term Loans

    Agriculture in this modern age requires a huge recurring investment for seeds, insecticides, fertilisers and expensive agricultural machinery and equipment. For these needs, farmers require more than just credit arrangement should extend beyond such provision of credit. The crop loan or the production based lending was devised to analysing the requirements of funds based on the real cost and productivity.

    The PCD or the Production Credit Department provides short term refinance facilities to clients for production, procurement and marketing activities. The details are as follows:

    1. Short Term Refinance for Seasonal Agricultural Operations

      NABARD provides refinancing options to State Cooperative Banks and Regional Rural Banks for the purpose of production. Credit limits are sanctioned to these banks at concessional interest rates. The repayment tenure of the sanctioned credit limit is 12 months.

    2. Short Term Refinance to CCBs (directly), RRBs and PSBs for the finance of PACS

      For times in which Cooperative Banks do not have the capacity to sufficiently fund PACS, a new product for refinancing was introduced in 2011-12. The refinance product can be used to finance PACs via RRBs and PSBs.

    3. Short Term Refinance for Others

      1. Short term (ST) refinancing from NABARD can be granted for the following purposes:
      2. Agriculture and allied activities
      3. Fisheries
      4. Industrial Cooperative Societies (Except Weavers)
      5. Marketing of crops
      6. Labour of Contract and Forest Labour Cooperative Societies and Collection of Minor Forest produce.
      7. Rural artisan (PACS/FSS/LAMPS
      8. Purchases, Stocking and Chemical Fertiliser Distribution

      The loan limit is sanctioned to RRBs and SCBs.

    4. Short Term Refinance for Weavers

      Short Term refinance support is provided to weavers associations and societies through various banks:

      Entity & Requirement Bank
      Primary or Apex or Regional Weavers Coop Society – working capital State Cooperative Bank or DCCBs
      Primary Weavers Coop Society – working capital Scheduled Commercial Bank
      State Handloom Development Corporation – working capital Scheduled Commercial Banks & State Cooperative Banks
      Individual weavers, mutually aided cooperative societies, producer group companies, handloom weavers groups, master weavers – working capital and marketing RRBs and Scheduled Commercial Banks
    5. MT (Medium Term) Conversion

      Farmers whose crops get damaged owing to natural calamities can also look at getting financial support from NABARD. In this case, farmers can convert current short term agricultural loans into medium term loans. They can also reschedule or rephrase an existing MT loan. The total loan limit is sanctioned to SCBs and RRBs.

    Long Term Loans

    Long term loans are provided by NABARD as an investment credit that results in generating capital by the way of upgraded technology or improved techniques. The asset creation leads to an increase in productivity, production and income of entrepreneurs and farmers. This is referred to as long term loan as it is given for a duration of 3 to 15 years.

    Long term loans are provided to the following sectors:

    • Agricultural and allied activities
    • Small scale industries, non-farm sector such as small and micro enterprises, handloom, handicrafts, artisans, power looms, etc.
    • Activities of self-help groups working amidst the rural sections of the society and voluntary agencies.
    • Institutions Eligible for Medium Term Refinance:

      The institutions eligible for medium term refinance are:

      • Regional Rural Banks (RRBs)
      • Commercial Banks (CBs)
      • Scheduled Primary Urban Co-operative Banks (PUCBs)
      • North East Development Finance Companies (NEDFC)
      • State Co-operative Agricultural and Rural Development Banks (SCARDBs)
      • State Co-operative Banks (SCBs)
      • State Agricultural Development Finance Companies (ADFCs)
      • Non-Banking Financial Companies (NBFCs)
    • Eligibility Criteria for Refinance:
      • Financial viability and bankability
      • Project feasibility on a technical level
      • Organisational planning for the purpose of credit supervision
    • Refinance – Non-farm Sector

    • ARS or Automatic Refinance Scheme

      There are various schemes under the ARS that can be broadly classified into five unique and compact schemes:

      • CLS or Composite Loan Scheme: This loan is provided to meet the working capital needs of micro or small enterprises. The loan scheme grants loans of up to Rs. 10 lakh for each unit.
      • ILS or Integrated Loan Scheme: The loan provides refinancing support to block capital and working capital for a single operating cycle. In this case, the borrower can avail refinance of up to Rs. 15 lakh.
      • SEMFEX or Self Employment Scheme for Ex-servicemen: This scheme promotes ex-servicemen to take up agricultural and allied activities or operate non-farm units.
      • SRWTO or Small Road and Water Transport Operators: Under this scheme, loan is given towards acquiring transport vehicles, water transport as well as passenger transport vehicles. The transport vehicle should be used for the purpose of transporting industrial items, farm produce to marketing centres.
      • SLAMM or Soft Loan Assistance for Margin Money: The SLAMM scheme allows prospective entrepreneurs to take financial support to meet the margin requirements to be eligible for refinance schemes of NABARD.
    • Renewable Energy

      The MNRE (Ministry of New and Renewable Energy) has introduced a capital cum interest subsidy scheme for creating renewable sources of energy at small and domestic commercial level. NABARD serves as the agency that offers feasibility and refinance to the projects that are eligible.

    • Rural Housing

      NABARD provides investment credit to the eligible banks offering housing as well as business loans to the agriculturist and non-agriculturists of the rural areas.

    NABARD Top 8 Direct Finances

    1. Loans for Food Processing Parks and Units

      NABARD had been granted Rs. 2000 crore as a special fund by RBI for providing credit to Food Parks, also known as agro-processing units. The fund is referred to as the Food Processing Fund – 2014-15. The fund is provided either directly or through other financing agencies via consortium arrangements.

      The purpose of this fund is to aid in the development of the food processing sector in the country, create job opportunities and reduce wastage of agricultural produce.

      Features of Food Processing Fund:

      1. Eligibility – State Governments, entities supported by the Indian Government, Cooperatives, Join ventures, etc. as well as entities supported by the State Governments.
      2. Nature of Loan – The mode of financial support from NABARD towards food processing entities is a term loan.
      3. Quantum of Loan – NABARD offers loan amount of 75% to 95% of the eligible project outlay.
      4. Loan Tenure – The loan tenure being offered in the loan is up to 7 years.
      5. Rate of Interest – NABARD offers loans for food processing entities at PLR (Prime Lending Rate) plus Risk Premium. The PLR is modified by NABARD from time to time.
    2. Loans for Warehouses, Cold Storage and Cold Chain Infrastructure

      NABARD was allocated Rs. 5000 crore in 2014-15 to aid in building an infrastructure for the storage of agricultural commodities. The fund was labelled as the Warehouse Infrastructure Fund of 2014-15. The fund gives loans to private and public sectors for construction of cold storages, silos, warehouses and other cold chain infrastructure.

      Features of Warehouse Infrastructure Fund:

      1. Eligibility – The following are eligible to avail the loan from NABARD:
        1. Individual entrepreneurs, corporates and companies
        2. State Governments
        3. Cooperative Marketing Societies (CMS) or Primary Agricultural Credit Societies (PACS)
        4. Central or State Government owned or supported entities, FPOs (Farmers’ Producers’ Organizations, similar organizations.
      2. Priority – Projects proposed in the North-eastern and Eastern states as well as some other food grain deficit states are given priority when approving the loan.
    3. Credit Facility to Marketing Federations

      Marketing federations and cooperatives are involved in procurement of agricultural products such as milk, etc. The federations carry out activities such as aggregation, value addition, storage and marketing of the agricultural commodity. NABARD provides timely short term financial support to meet the day to day requirements of these cooperatives and federations.

      1. Eligibility – Institutions that are eligible to avail CFF are:
        1. Dairy co-operatives or federations
        2. Registered companies
        3. State or Central Government Agricultural Marketing Corporations and Federations
        4. Agriculture Marketing Federations or Co-operatives
      2. Nature of Loan – Short term loan to meet the working capital requirement for under 12 month tenure. The outstanding due amount must be paid after completion of the 12th month.
      3. Quantum of Loan – NABARD grants loan amount based on the type of borrower and the nature of loan. The institution gives a minimum of 75% of the calculated working capital to a maximum of 100% for some schemes.
      4. Rate of Interest – The ALCO decides the interest rate on the CFF scheme on a daily basis. The rate of interest also depends on the type of project, credit rating of the federation, type of borrower, availability of guarantee, prevailing marketing conditions as well as the type of security provided.
      5. Loan Security – The security requirement varies based on the rating of the federation, type of activity and as per RBI’s stipulations and requirements, on a regular basis. Hypothecation of stocks, assets, book debts and receivables are accepted as primary security. Fixed deposits, guarantees and unencumbered assets serve as additional collaterals.
    4. Rural Infrastructure Development Fund (RIDF)

      RIDF or Rural Infrastructure Development Fund was established at NABARD with an intention to provide low cost credit support to State Governments and corporations owned buy them. The loans could be availed for the purpose of expediting ongoing projects including soil conservation, medium to minor irrigation, watershed management and other rural infrastructure related projects.

      1. Direct Refinance to Co-operative Banks:

        NABARD offers loans or credit to Co-operative Banks (StCBs or DCCBs) through their product called the Short Term Multipurpose Credit Product or STMPCP. This lending scheme enables the above mentioned financial institutions to profit more by diversifying business operations by expanding their lendable resources.

        1. Purposes for Short Term Multipurpose Credit Product:
          1. STMPCP can be availed for the following purposes:
          2. Working capital requirements
          3. Marketing activities
          4. Crop loan
          5. Repair and maintenance of farm equipment and other assets
          6. Redeeming old debts
          7. All other purposes under Section 21(1)(i) to (v) of NABARD Act, 1981
        2. Eligibility – The following eligibility criteria must be fulfilled to avail STMPCP:
          1. The loan is sanctioned to StCBs or CCBs that are financially robust and well government and belong to the category ‘A’ and ‘B’. They should also have an RBI’s license.
          2. In case of banks on-lending to sugar factories, the following criteria should be met:
          3. Sugar factories should not have accumulated losses.
          4. The factories should have a positive net income.
          5. They should not violate any CMA norms.
          6. Accounts should be maintained and audited regularly.
          7. There should be no default in repayment dues towards lenders.
        3. Interest Rate – The rate of interest on STMPCP is charged based on the prevailing market rates
        4. Loan Quantum – Under Short Term Multi-Purpose Credit Product, banks can lend up to 75% to sugar factories and up to 100% as well.
    5. Financing Producer Organisations

      NABARD has set up the Producers Organisation Development Fund (PODF) in an attempt to support producer organisations. NABARD offers credit support in the form of loans, grants, or both.

      1. Eligibility Criteria – The following selection criteria must be fulfilled in order to avail a NABARD loan:
        1. Producers Organisation – The organisation should be registered and be functioning for the producers’ benefit. The producer organisation should be operating for over a year. A complete analysis of the profit and loss account and audited balance sheets should be done.
        2. CBOs/NGOs – The NGOs or CBOs should be registered and have a good track record in the respective field. They should also have profit and loss and audited balance sheets of minimum three years.
      2. Quantum of Loan – NABARD offers loans up to 90% of the total project cost. However, it may vary depending on the size of the project.
      3. Interest Rate – ALCO decides the rate of interest for the loan from NABARD. However, the actual interest rate is decided based on the risk analysis which is done using risk collaterals and tools.
      4. Repayment Period – Loan repayment period for the loan is from 7 to 10 years and a moratorium of 1-2 years.
    6. NIDA (NABARD Infrastructure Development Assistance)

      NIDA has been designed for financially supporting State Governments and organisations owned by the state government. NIDA provided credit support for longer repayment tenures and flexible terms. The NIDA funding is a term loan and provides up to a repayment tenure of 15 years.

      1. Interest Rate – The rate of interest of the NIDA loan is linked to the market borrowings of NABARD. It varies depending on the project and the borrower’s risk.
      2. Loan Repayment – The repayment schedule of the loan is decided as per the requirements of the borrower, risk profile and nature of the project.
    7. Financing and Developing PACS into Multi-service Centres

      PACS provides facilities such as agro-storage, processing, service, transportation and marketing to the farmers. NABARD supports some PACS who are identified by PODF’s committee.

      1. Loan Margin by PACS – A minimum of 10% of the cost of the project is provided by the loan. The margin would also change depending on the scheme.
      2. Rate of Interest – The interest rate is fixed by ALCO under PODF.
      3. Loan Repayment – The loan repayment is up to 9 years along with a two-year grace period.
    8. Umbrella Programme for Natural Resource Management (UPNRM)

      The UPNRM project was launched to streamline NRM related interventions by integrating existing as well as future Indo-German NRM efforts of the NABARD. The initiative enables NABARD’s possibility to specialise in the country’s NRM issues.

      1. Eligible Agencies – The agencies that will be implementing UPNRM are State Governments, NGOs, banks, corporates, etc.
      2. Financial Support – Under UPNRM, a policy or programme based funding is provided with different interest rates and tenures. The eligible sectors will be granted loans and given additional grants for capacity building, skill and infrastructure support.

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