Annual Policy Statement for the Year 2009-10- 21st April 2009
Part II. Annual Statement on Developmental and Regulatory Policies for the Year 2009-10
IV. Credit Delivery Mechanism and Other Banking Services
a) Credit Flow to the MSE Sector
113. As indicated in the Mid-Term Review of October 2008, the Reserve Bank appointed a Working Group on Rehabilitation of Sick SMEs (Chairman: Dr. K.C. Chakrabarty). The Working Group made several significant recommendations pertaining not only to the issue of rehabilitation of sick SMEs but also to the larger issues of credit flow to the SME sector and other developmental issues. While the recommendations on which action is to be initiated by the Government of India, State Governments and SIDBI are being forwarded to them, it is proposed:
• to issue guidelines to banks based on the recommendations of the Group, by April 30, 2009.
114. Having regard to the need to accelerate the credit flow to the micro and small enterprises (MSEs) sector so critical for employment, output and exports, it is proposed:
• to ask the Standing Advisory Committee on MSEs to review the Credit Guarantee Scheme so as to make it more effective.
(b) Rural Co-operative Banks
(i) Licensing of Co-operatives
115. The Committee on Financial Sector Assessment (Chairman: Dr. Rakesh Mohan and Co-Chairman: Shri Ashok Chawla) has observed that there is a need to draw up a roadmap for ensuring that only licensed banks operate in the co-operative space. The Committee further suggested the need for a roadmap to ensure that banks which fail to obtain a licence by 2012 should not be allowed to operate. This will expedite the process of consolidation and weeding out of non-viable entities from the co-operative space. Accordingly, it is proposed:
• to work out a roadmap for achieving this objective in a non-disruptive manner in consultation with NABARD.
(ii) Revival of Rural Co-operative Credit Structure: Status
116. As indicated in the Annual Policy Statement of April 2008, the Government of India approved a package for revival of the short term rural co-operative credit structure based on the recommendations of the Task Force on Revival of Rural Co-operative Credit Institutions (Chairman: Prof. A. Vaidyanathan). So far, 25 States have executed Memoranda of Understanding (MoUs) with the Government of India and the NABARD, as envisaged in the package. Eight States have made necessary amendments in their Co-operative Societies Acts. An aggregate amount of Rs. 4,740 crore has been released by the NABARD as the Government of India’s share for recapitalisation of primary agricultural credit societies (PACS) in eight States as on February 28, 2009. Eight State Governments have released their shares of Rs.459 crore for recapitalisation of PACS. The National Implementing and Monitoring Committee (NIMC), set up by the Government of India, is guiding and monitoring the implementation of the revival package on an all-India basis.
(c) Regional Rural Banks
(i) Capital to Risk-weighted Assets Ratio for RRBs
117. The Committee on Financial Sector Assessment (Chairman: Dr. Rakesh Mohan and Co-Chairman: Shri Ashok Chawla) has suggested a phased introduction of capital to risk-weighted assets ratio (CRAR) in the case of RRBs, along with the recapitalisation of RRBs after consolidation of these entities. It is, therefore, proposed:
• to introduce CRAR for RRBs in a phased manner, taking into account the status of recapitalisation and amalgamation. A time-table for this purpose would be announced in consultation with NABARD.
(ii) Assistance to RRBs for Adoption of ICT Solutions for Financial Inclusion: Status
118. The Report of the Working Group on Defraying Costs of ICT Solutions for Regional Rural Banks (Chairman: Shri G. Padmanabhan) was placed on the Reserve Bank’s website in August 2008 for comments from public. The Group has, inter alia, noted that apart from the North-Eastern region and Jammu and Kashmir, there are 204 districts in several States which have been identified by the Committee on Financial Inclusion (Chairman: Dr. C. Rangarajan) as areas where there is a high level of financial exclusion. It is, therefore, suggested that these areas could also be considered for special treatment. With a view to enabling RRBs to adopt IT based solutions for financial inclusion, it is proposed:
• to work out, in consultation with NABARD, the manner of providing assistance to RRBs adopting ICT solutions for financial inclusion in districts identified as having high level of exclusion by the Committee on Financial Inclusion.
(iii) Amalgamation of RRBs
119. Consequent upon the amalgamation of 156 RRBs into 45 new RRBs sponsored by 20 banks in 17 States, the total number of RRBs declined from 196 to 86 as at end-March 2009 (which includes a new RRB set up in the Union Territory of Puducherry). The amalgamation process is almost complete.
(iv) Recapitalisation of RRBs
120. The Union Budget 2007-08 announced that RRBs, which have a negative net worth, would be recapitalised in a phased manner. As on March 31, 2009, 26 RRBs have been fully recapitalised with an amount of Rs. 1,783 crore and one RRB has been partially recapitalised with an amount of Rs.13 crore. The process of recapitalisation has been completed except in respect of one RRB in the State of Uttar Pradesh.
(v) Scheduling of Amalgamated RRBs
121. Out of 45 amalgamated RRBs, 25 RRBs have been included in the Second Schedule to the RBI Act, 1934 while 76 erstwhile RRBs have been excluded from the Second Schedule in terms of the notification dated September 22, 2008 published in the Gazette of India dated November 15, 2008.
(vi) Branch Licensing: Further Liberalisation
122. The Mid-Term Review of October 2008 proposed to allow RRBs greater flexibility in opening new branches as long as they made profits and their financials improved. The RRBs have obtained 345 licenses for opening branches in the financial year 2008-09 and have opened 316 branches in the same period.
(vii) Technology Upgradation of RRBs
123. As indicated in the Mid-Term Review of October 2008, the recommendation of the Working Group (Chairman: Shri G. Srinivasan) to prepare a roadmap for migration to core banking solutions (CBS) by RRBs, was forwarded to all sponsor banks in October 2008 for implementation. The Report has, among others, set September 2011 as the target date for all RRBs to move towards CBS. Also, all RRB branches opened after September 2009 are required to be CBS compliant from day one. In March 2009, sponsor banks were advised to give their feedback/status on implementation of the recommendations of the report in respect of RRBs sponsored by them.
(d) Delivery of Credit to Agriculture and other Segments of the Priority Sector
(i) Kisan Credit Card Scheme
124. The Kisan Credit Card (KCC) scheme, introduced in 1998-99 to enable farmers to purchase agricultural inputs and draw cash for their production needs, was revised to provide adequate and timely finance for meeting the comprehensive credit requirements of farmers under a single window, with flexible and simplified procedure, adopting a whole farm approach. During 2008-09 (up to December 2008), public sector banks (PSBs) issued 3.9 million KCCs with sanctioned limits aggregating Rs.23,366 crore. Since the inception of the scheme, PSBs have issued 35.08 million KCCs with sanctioned limits aggregating Rs.1,77,607 crore.
(ii) Rural Infrastructure Development Fund
125. The Interim Budget 2009-10 announced the continuation of financing of rural infrastructure projects for 2009-10 by way of RIDF XV which would be set up with NABARD with a corpus of Rs.14,000 crore, and a separate window under RIDF XV for rural roads component of Bharat Nirman Programme with a corpus of Rs.4,000 crore.
126. Consequent upon the announcement made in the Union Budget 2008-09, several funds were set up such as: (i) Short-Term Co-operative Rural Credit (STCRC) (Refinance) Fund with the NABARD with a corpus of Rs.5,000 crore; (ii) MSME (Refinance) Fund and MSME (Risk Capital) Fund with the Small Industries Development Bank of India (SIDBI) with corpus of Rs.1,600 crore and Rs.1,000 crore; and (iii) Rural Housing Fund with the National Housing Bank (NHB) with corpus of Rs.1,000 crore. The Annual Policy Statement of April 2008 announced that the shortfall in achievement of 10 per cent sub-target for lending to weaker sections by domestic scheduled commercial banks will also be taken into account for the purpose of allocating amounts for contribution to the Rural Infrastructure Development Fund (RIDF) maintained with the NABARD or funds with other financial institutions, as specified by the Reserve Bank, with effect from April 2009.
127. Consequent upon the announcement of measures by the Reserve Bank on November 15, 2008 to sustain the growth momentum in the employment-intensive sectors of micro and small enterprises and housing, the corpus of MSME (Refinance) Fund and Rural Housing Fund was enhanced by Rs.2,000 crore (to Rs.3,600 crore) and by Rs.1,000 crore (to Rs.2,000 crore) respectively. As on March 31, 2009 various scheduled commercial banks have placed deposits of Rs.4,622 crore in STCRC (Refinance) Fund, Rs.3,326 crore in MSME (Refinance) Fund, Rs.250 crore in MSME (Risk Capital) Fund and Rs.1,760 crore in Rural Housing Fund.
(e) Interest Subvention Relief to Farmers
128. The Union Budget 2008-09 announced continuation of the interest subvention scheme for short-term crop loans, introduced in 2006-07. The rate of subvention was increased from 2 per cent to 3 per cent for 2008-09. The Interim Budget 2009-10 announced that the Government of India would also continue to provide interest subvention in 2009-10 to ensure that farmers get short-term crop loans up to Rs.3 lakh at 7.0 per cent per annum.
129. The self-help group (SHG)-bank linkage programme has emerged as the major micro-finance programme in the country and is being implemented by commercial banks, RRBs and co-operative banks. As on March 31, 2008 3.6 million SHGs had outstanding bank loans of Rs.17,000 crore, an increase of 25 per cent over March 31, 2007 in respect of number of SHGs credit linked. During 2007-08, banks financed 1.2 million SHGs for Rs.8,849 crore. As at end-March 2008, SHGs had 5 million savings accounts with banks for Rs.3,785 crore.
(g) Financial Inclusion
(i) Pilot Project of State Level Bankers’ Committee (SLBCs) for 100 per cent Financial Inclusion
130. So far, 344 districts have been identified by SLBCs for 100 per cent financial inclusion. Of these, 175 districts in 21 States and 7 Union Territories have reported having achieved the target. All districts of Haryana, Himachal Pradesh, Karnataka, Kerala, Uttarakhand, Goa, Chandigarh, Puducherry, Daman & Diu, Dadra & Nagar Haveli and Lakshadweep have reported having achieved the target of 100 per cent financial inclusion.
131. As indicated in the Mid-Term Review of October 2008, the findings of the external agencies entrusted with conducting evaluation studies in achieving the target of 100 per cent financial inclusion in 26 districts were placed on the Reserve Bank’s website for wider dissemination. Based on the findings, banks were advised in January 2009, among other things, to (i) ensure provision of banking services nearer to the location of the no-frills account holders through a variety of channels; (ii) provide General Credit Card (GCC)/small overdrafts along with no-frills accounts to encourage the account holders to actively operate the accounts; (iii) conduct awareness drives so that the no-frills account holders were made aware of the facilities offered; (iv) review the extent of coverage in districts declared as 100 per cent financially included; and (v) efficiently leverage on the technology enabled financial inclusion solutions currently available.
(ii) Special Task Force in North-Eastern Region
132. As indicated in the Mid-Term Review of October 2008, a scheme of providing financial support to banks by the Reserve Bank for setting up banking facilities (currency chests, extension of foreign exchange and Government business facilities) at centres, in the North-Eastern region (NER), which are not found to be commercially viable by banks, was formulated, provided the State Governments made available necessary premises and other infrastructural support. The Government of Meghalaya has agreed to the proposal of providing premises and security, and bids have been received by PSBs and RRBs for setting up branches at centres identified by the State Government and are being processed. Action is being intitiated in respect of other States in NER where requests have been received.
(iii) Setting up of Credit Counselling Centres on a Pilot Basis
133. So far, banks have reported setting up or proposing to set up 123 credit counselling centres in various States of the country. The feedback received in this regard indicated that most of these centres were in effect set up as extensions of the bank branches and engaged in promotion of bank specific products. Accordingly, a model scheme on financial literacy and credit counselling centres (FLCCs) was formulated and communicated to all scheduled commercial banks and RRBs with the advice to set up the centres as distinct entities maintaining an arm’s length from the bank so that the FLCC’s services are available to even other banks’ customers in the district.
(iv) Setting up of Rural Self Employment Training Institutes
134. The Reserve Bank has issued guidelines, framed by the Government of India, to the SLBC convenor banks to set up at least one Rural Self Employment Training Institute (RSETI) in each district by 2010. These institutions will train at least one youth in a family below poverty line (BPL) in various fields and enhance capacity building. In all, 134 RSETIs have been set up as on December 31, 2008. A target for opening of 100 RSETIs by banks was set for the year 2008-09 and a grant of Rs. one crore per RSETI has been earmarked by the Planning Commission for setting up the institutes. The Regional Offices of the Reserve Bank have been advised to monitor the progress of setting up of RSETIs under their jurisdiction on a quarterly basis.
(h) High Level Committee on Lead Bank Scheme
135. As announced in the Mid-Term Review of the Annual Policy Statement for the year 2007-08, a High Level Committee (Chairperson: Smt. Usha Thorat) with members drawn from various financial institutions, banks and Chief Secretaries of select States was constituted to review the Lead Bank Scheme. The Committee had several rounds of discussions with different State Governments, banks and other stakeholders, including academicians, micro-finance institutions (MFIs) and non-governmental organisations (NGOs). The Committee’s draft report will be placed on the Reserve Bank’s website by May 15, 2009.
(i) Amendment to Banking Ombudsman Scheme 2006
136. The scope of the Banking Ombudsman Scheme, 2006 was widened to include, inter alia, deficiencies arising out of internet banking. Under the amended Scheme, customers can lodge complaints against banks for non-adherence to the provisions of the fair practices code for lenders or the code of bank’s commitment to customers issued by the Banking Codes and Standards Board of India (BCSBI).
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