AEC 302 Lecture 5,6,7,8,9 & 10 Notes

_ Lecture 5: Sources of Agricultural Finance: Institution and Non Institutions Sources- their Roles The two major sources of finance in agriculture are institutional and non- institutional sources. Institutional Source: Institutional sources consist of the government and co-operative societies, commercial bank including the Regional bank, Lead bank. 1) Co-operative Societies Indian planners consider co-operation as an instrument for economical development of the deprived farmers, particularly in the rural areas. They see in a village panchayat, a village cooperatives and village school, as the trinity of institution on which a self-reliant and just economic and social order is to be built. The co-operative movement was started in India largely with a view to providing agriculturists funds for agricultural operations at low rates of interest and projects them from the clutches of money lenders. a) Primary Agricultural Credit Society: Primary agricultural credit societies are grass root level arms of the short term co-operative credit structure. PACs deal directly with farmer borrowers, grant short term and medium term loans and also undertake distribution and making functions. The usefulness of PACs has been rising steadily. In 1950-51, it advanced loan worth Rs. 23 crores and Rs. 34,520 crore in 2000-01. The PACs have stepped up their advances to the weaker sections particularly the small and marginal farmers. The progress has been quite spectacular but not sufficient considering the demand of finance by farmers. b) Central Co-operative Banks: There are now 369 (2001-2002) District Central Co-operative Banks. The loan amount of 56,650crore is distributed to the farmers so far. Their main task is to lead Primary Agricultural Credit Societies in village. Central Co-operative Banks functions as intermediaries between the State Co-operative Bank and Primary Agricultural credit society. c) State Co-operative Banks: There are now 30 State Co-operative banks in the country. These Banks are the apex banks of the Co-operative credit structure. It serves as a link between _ NABARD from which it borrows and lends to the co-operative central bank and primary societies village. B. Non – Institutional Source 1) Money Lenders: There are two types of money lenders in rural areas. There are rich farmers or landlords who combine farming with money-lending. There are also professional money lenders whose only occupation or profession is to lend money. The cultivators depend upon the money-lenders for their requirements of cash. However, there are many reasons for the preponderance of the village money-lenders in rural area even now. I. The money lender freely supplies credit for productive and non-productive propose, and also for short-term and long-term requirements the farmers. II. He is easily accessible and maintains a close and personal contact with the borrowers often having relations with family extending over generations. III. Their methods of business are simple and elastic. 2) Landlord and others Traders and commission agent supply funds to farmers for productive purpose much before the crops mature. They force the framers to sell their produce at low price and they charge a heavy commission for themselves. Thus source of finance is particularly important in the case of cash crop like cotton, groundnut, tobacco, and in the case of fruit of chard like mangoes. Traders and commission agent may be bracketed with money lenders, as their lending to farmers is also at exorbitant rates and has other undesirable effects too. _ Lecture No.6: Institutional Lending Agencies – Commercial banks: Nationalization, Agricultural Development Branches – Area Approach – Priority Sector Lending - Regional Rural Banks. The industrial sector is relatively more organized and less dependent on natural factors than agricultural sector. Hence, the commercial banks tended to concentrate more on industrial sector than agricultural sector. The Indian Central Banking Committee (1931), the Agricultural Finance Sub-committee (1945), the Rural Banking Enquiry Committee (1950), the All India Rural Credit survey committee (1951), the All India Rural Debt and Investment Survey (1961-62) and the Informal Group on Institutional Arrangements for Agricultural Credit (1964)-all these expert committees were of the opinion that co-operatives and not the commercial banks were the suitable credit agencies for agriculture. Financing agriculture by commercial banks was not significant till 1950. However, the Rural Banking Enquiry Committee (1950) recommended that banking facilities should be extended to rural areas. The commercial banks were reluctant to enter the field of agricultural finance as they felt that it would be risky and costly. The Imperial Bank of India was established in 1921 by the amalgamation of these residency Banks, (Bank of Bengal, Bank of Bombay and Bank of Madras). Until the establishment of the Reserve Bank of India (RBI) in 1935, the Imperial Bank of India was the sole banker to the government. There was no branch for RBI; the Imperial Bank of India acted as an agent of the RBI for the purpose of transacting businesses of government. In 1955, the state Bank of India Act was passed and Imperial Bank India was named as the State Bank of India. In 1959, State Bank of India (subsidiary Banks) Act was passed and seven Associate Banks or subsidiary banks of SBI were started functioning. They are: 1. State Bank of Mysore 2. State Bank of Travancore 3. State Bank of Sowrashtra _ 4. State Bank of Hyderabad. 5. State Bank of Bikanir and Jaipur. 6. State Bank of Patiala. 7. State Bank of Indore. The role of commercial banks in rural credit was negligible till the sixties as is evident from the All India Debt and Investment survey Report, 1961-62 and 1971-72. They had shown little interest in direct financing of agriculture and had confined their financing activities to the movement of agricultural produces only. To serve better the credit needs of rural society, fourteen commercial banks with deposits worth Rs.50 crores or more were nationalized on July 19, 1969. In her broadcast address of July 19, 1969 on bank nationalization, Prime Minister Mrs. Indira Gandhi stated that nationalization was meant for an early realization of the objectives of social control which were spelt out as: (i) Removal of control of money market by a few, ii) Provision of adequate credit for agriculture, small industry and export, iii) Encouragement of a new class of entrepreneurs and iv) Strengthening the professional banking management system. The nationalized banks were: 1. Central Bank of India 2. Bank of India. 3. Punjab National Bank 4. Bank of Baroda. 5. United Commercial bank. 6. Canara Bank. 7. United Bank of India 8. Dena Bank 9. Syndicate Bank. 10. Union Bank of India 11. Allahabad Bank _ 12. Indian Bank 13. Bank of Maharashtra 14. Indian Overseas Bank This was followed by nationalization of six more commercial banks in April 1980. They were: 1. New Bank of India. 2. Vijaya Bank. 3. Corporation Bank. 4. Andhra Bank. 5. Punjab and Sind Bank. 6. Oriental Bank of Commerce. This institutional change was effected to pursue the goals of growth and social justice. Functions of Commercial Bank The objectives of the changes in the banking structure and the king policy since the nationalization of commercial banks are: i) wider territorial and regional spread of branch net work; ii) faster mobilization of savings through bank deposits; and iii) Deployment of bank credit in favour of neglected sectors the economy. In order to achieve these objectives, the commercial banks involved in the following activities: i) Commercial banks provide both direct and indirect finance to farmers. Banks provide direct finance to farmers for the purchase pump-sets, tractors and other agricultural machineries, for sinking and (deepening wells, for land development, for raising crops, and for setting up of dairy, sheep/goat, poultry, fishery, piggery and sericulture units. Commercial. banks also provide indirect finance which includes loan for distribution of fertilizers and other inputs, loan to electricity boards, loan to primary Agricultural credit societies and subscribing to debentures of land development banks. ii) They extend financial assistance to small/marginal farmers identified by District Rural Development Agency (DRDA). iii) They established specialized branches exclusively for rural lending. _ iv) They finance Primary Agricultural Credit Societies ceded to them and organize Farmer’s service societies since 1973-74. v) They have set-up Regional Rural Banks, F.S.S and LAMPS in selected areas to cater to the credit needs of the weaker sections. Policies and Performance of Commercial Banks 1) Branch Expansion The branch expansion policy for 1982-83 aimed at achieving a coverage of one bank office, on an average, for a population of 17000 in the rural and semi-urban areas (as per 1981 census) in each block and also to eliminate spatial gaps in the availability of banking facilities so that a rural branch was available within a distance of 10km and would serve an area of about 200 square kilometres. The population norm has been relaxed from March 31st, 1990 to 10,000 with regard to tribal / hilly areas and sparsely populated regions. Table 1. Branch Expansion of Commercial Banks Sl.No. 1. 2. 3. 4. Area Rural Semi-urban Urban Metropolitan Total Number of bank offices 1969 1989 1832 33640 (22.1) (57.6) 3322 11201 (40.2) (19.2) 3108 13576 (37.7) (23.2) - - 8262 58417 (100.0) 100.0) 2009 2013 2019 82897 (55.7) 109811 (54.9) 31598 (21.3) 39439 (19.7) 21022 (14.1) 28691 (14.4) 11839 (7.9) 19961 (10.0) 149365 (100) 199915 (100.0) Source: Statistical Tables relating to Banks in India 2012-2013, Reserve Bank of India bulletin, March 2013 (Figures in Parentheses indicate percentages to total) _ The number of rural branches rapidly increased from 22 percent of the total number of branch offices in 1969 to 58 percent in 1989 and at the end of March 2013 share of bank branches in rural area was 55 per cent. The Population per branch office came down from 65,000 in 1969 to 12,000 in 2013. 2) Sectoral allocation – Priority Sector Allocation The priority sector includes agriculture and allied activities and small scale and cottage industries. A target of 33% lending to the priority sector was set in 1975 (to be achieved by March 1979). In 1979, the target was raised to 40% (to be achieved by 1985). In 1980, sub-targets were set: 16% of lending was to go to agriculture and 10% had to be targeted to "weaker sections". The priority sector advances should be atleast 40 percent of the net bank credit. In 1969, the share of priority sector was only 15 percent of the net bank credit and it increased to 42 per cent in 1990. In 2013, the share was 29 per cent. The priority sector advances by private sector banks at the end of March 1989- constituted 36.7 per cent of their net bank credit. Foreign banks operating in India were advised in August 1988 that their advances to priority sector should reach a level of 10 per cent of their total outstanding advances by the end of March 1989, and 12 per cent and 15 per cent by the end of March 1990 and March 1992 respectively. 3) Credit-Deposit Ratio. With the objective of reducing the rural urban disparities in the deployment of resources mobilised in the region and for achieving a balanced economic development especially of backward rural and semi urban areas, the Government of India had advised the public sector banks that they should achieve, by the end of March 1984, a credit-deposit ratio of atleast 60 percent in both rural and semi-urban areas. As on March 2013 the credit deposit ratio of commercial banks was 79 per cent. Credit-Deposit Ratio (C-D Ratio) gives an idea as to how much of credit is being sanctioned per unit of deposit mobilised in a particular state or region. _ Table 2. Commercial Banks at a Glance Sl.No Indicators 2005 2006 2007 2008 2009 2010 2011 2012 2013 1. Number of Commercial Banks 288 222 182 173 170 167 167 173 155 1.a a. Scheduled Commercial Banks 284 218 178 169 166 163 163 169 151 1.b b.Of which RRBs 196 133 96 90 86 82 82 82 64 1.c c.Non Scheduled Commercial 4 4 4 4 4 4 4 4 4 (in 16 16 15 15 15 14 13 13 12 Scheduled 17001.98 21090.49 26119.34 31969.40 38341.10 44928.26 52079.69 59090.82 67504.54 11004.28 15070.77 19311.90 23619.13 27755.49 32447.88 39420.83 46118.52 52604.59 Banks 2. Population per Office Thousands) 3. Deposits of Commercial Banks (Rs.Billion) 4. Bank Credit of Scheduled Commercial Banks (Rs.Billion) 5. Deposits as percentage to Gross 62.3 64.3 68.8 72.8 3706.03 5127.90 6553.17 7814.76 77.1 78.2 78.2 78.0 79.4 National Product at factor cost (at current prices) 6. Advances of Scheduled 9089.29 10915.10 13158.59 14710.50 16411.00 _ Commercial Banks to Priority Sectors (Rs.Billion) 7. Share of Priority Sector 32.2 33.8 33.1 31.6 30.3 31.2 30.6 29.5 28.8 Advances to Total Advances of Scheduled Commercial Banks (per cent) 8. Credit – Deposit Ratio (per cent) 62.6 70.1 73.5 74.6 73.8 73.7 76.5 78.6 79.1 9. Investment Deposit Ratio (per 47.3 40.0 35.3 35.5 35.7 36.4 34.3 34.6 35.2 6.4 6.7 7.2 9.7 7.3 7.7 8.2 5.8 5.1 cent) 10. Cash – Deposit Ratio (per cent) Source: Statistical Tables Relating to Banks in India 2012-2013, RBI Report. Notes: 1. Number of bank offices includes Administrative Offices 2. Classification of bank offices according to population for years are based on 2001 census. 3. Scheduled Commercial Banks’ advances to priority sectors and the related ratios are exclusive of Regional Rural Banks 4. For working out cash deposit ratio, cash is taken as the total of cash in hand and balances with the Reserve Bank of India. _ 4) Specialized Branches for Agricultural Lending The nationalized banks have set up specialized branched to deal with rural credit. These branches were established to overcome the practical difficulties relating to man power, high cost of operation and follow up of loans given to the farmers. A few examples of specialised branches are: a) Agricultural Development Branches (ADB-State Bank of India). b) Gram Vikas Kendra (GVK)- Bank of Baroda. c) Gramodaya Kendra (GK)- Indian Bank. d) Rural Service Centres (RSC)- Dena Bank. e) Farm Clinic Centre- Syndicate Bank. f) Rural Credit and Development Division-Indian overseas Bank. 5) Schematic Lending Under schematic Lending credit is extended directly under Government schemes such as Integrated Rural Development Programme (IRW), Special Rice production Programme (SRPP), Biogas Scheme, Massive Agricultural Production Programme (MAPP). The subsidy portions under these loans were reimbursed to the banks by the government. Loans under schematic lending may either be a short or a term loan. 6) Multi-Agency Approach The Multi-Agency Approach was adopted as an overall national policy since 1970 as no single agency had the necessary organizational structure or financial strength to meet the total credit requirements of farmers. Multi-agency approach to finance agriculture was accepted based on the recommendation of All India Rural Credit Review Committee (1969). The committee observed that the co-operatives alone, though they had increased their coverage since 1950 both in terms of membership and finance provided, would not be in a position to meet the increasing requirements of credit. The committee also _ pointed out that a large number of PACS are not viable and therefore these could be regarded as inadequate and unsatisfactory agencies for the distribution of production credit. It was of the view that both commercial banks and co-operative credit societies can play a complementary role without getting, into conflict with each other. At present, many agencies, viz., commercial banks, co-operative credit societies and Regional Rural Banks, are significantly operating in the field of agricultural finance. Problems RBI constituted a working group in 1976 under the chairmanship of C.E,Kamath to go into the problems of inefficiency in disbursal of credit under multiagency approach in agricultural financing. The main findings were: a. The existence of a number of financing agencies in a common area of operation and disbursement of credit in an uncoordinated manner have led to multiple financing, overfinancing, tinder financing and diversion of loan amount to unproductive purposes. b. Credit agencies could not formulate a meaningful agricultural development plan on an area basis c. Recovery of loans becomes difficult as more than one credit agency claim, on the same income/security. d. Problems arise due to different systems, procedures and policies in lending by different agencies. Differences exist in the spheres of timeliness in sanctioning credit, sanctioning powers, security norms, service and supervisory charges, recovery performance and procedures etc. 7) Area Approach Lead bank scheme was launched based on the recommendations of the Gadgil study Groin of National credit council constituted in 1968 for suggesting an organizational frame work for the implementation of social objectives aimed at identifying territorial and functional credit gap and of making recommendation for the extension of institutional credit. _ The scheme was introduced in 1969. Under this scheme, each district has been allotted, to a prominent commercial bank in the district and it will play a lead role in promoting the development schemes in co-ordination with other banks and the central and state Government agencies, the twin objectives of the Lead Bank Scheme are: i. to launch a programme of rapid branch expansion particularly in unbanked and under banked areas; and ii. to ensure adequate flow of institutional credit to the neglected and weaker sections of the community to fill up spatial and sectoral credit gaps. After the introduction of this scheme, the population per bank office has come down from 65,000 in 1969 to 12,000 in 2013. _ Lecture 7: Micro Financing including KCC, Micro finance –SHG Models, Lead Bank Schemes. Kisan Credit Card (KCC) Provision of timely and adequate credit has been one of the major challenges for banks in India in dispensation of agricultural and rural credit to the farmers. Constant innovation is required in order to achieve the aim. Agricultural credit cards are not a new concept in the field of agricultural banking in India. The scheme had already been introduced in a number of public sector banks in a few states much earlier. These schemes were niche-marketed and were exclusively preserved for the privileged class of farmers and the small and marginal farmers did not have much access to them. Similarly cash credit facilities were being extended by several public sector banks and cooperative banks to farmers with the view to improving their access to credit. Again this scheme was used only selectively. The KCC scheme was started by the Government of India (GOI) in consultation with the RBI (Reserve Bank of India) and NABARD (National Bank for Agricultural and Rural Development) 1998-99 to join the features of both these schemes and to overcome their shortcomings. The features of the scheme at a glance are: • Type of revolving cash credit facility with unlimited withdrawals and repayments. • Meet the production credit need, cultivation expenses, and contingency expenses of the farmers. • Limits based on the basis of operational land holding, cropping pattern and scale of finance. This limit is inclusive of 20% of production credit. • Each withdrawal to be paid within 12 months. • Card valid for 3 years subject to annual renewals. • Credit limits can be enhanced depending on performance and needs. • Rescheduling is also possible depending upon the situation. If for example the crops fail due to a natural calamity and the farmer is not able to repay his loan, then he could get an extension of upto four years. • Cash withdrawals through slips accompanied by card and passbook. • A credit cum passbook would be issued. • All branches engaged in agricultural lending could issue Kisan Credit Cards. _ Eligibility Borrowers with good track record over the past 2 years would be the prime customers. New borrowers could also be included if they could get proof of operational land holding from the Patwari (Village Administrative Officer). Target group Short-term crop loans required by existing/new borrowers Selection methodology The farmer would be evaluated by the bank, on financial grounds by looking at his past record with the bank, and on personal grounds by looking at his reputation in the village. Fixation of credit limit The credit limit under the card may be fixed on the basis of the operational land holding, cropping pattern and the scale of finance by the District Level Technical Committee (DLTC) and SLTC. If the limit has not been fixed by the DLTC / SLTC or the limit in the opinion of the bank is low, appropriate scale of finance for the crop may be fixed by the bank. Validity and repayment schedule A card once issued would be valid for a period of 3 years. The facility may be extended, the amount enhanced or cancelled, depending on the performance of the farmer. Repayments are to be made within 12 months of taking the credit. Margin • For loan amount upto Rs. 10,000: NIL • For amount over Rs. 25,000: 15% to 25% Collateral • • • • Loan Amount security to be furnished Upto Rs. 10,000 DPN (demand promissory note) / loan agreement is needed only Rs. 10000 and upto Rs. 25,000 Hypothecation of crops is required. Above Rs. 25,000 Hypothecation of crops and mortgage of land (or) third party guarantee is needed _ Interest This is subject to change. Amount of Interest for Repayment period: Upto one year Exceeding one year • • • • Upto Rs. 25,000 11 % 11 % Above Rs. 25,000-Rs. 2,00,000 12 % 12 % Above Rs. 2,00,000-Rs. 25,00,000 13.5% 13.5% Rs. 25,00,000 and above - (Depending on Credit Risk Rating) 13.25% to 15.5% Table 10. Number of Kisan Credit Cards issued Agency Wise (Number in Lakhs) Year Co-operative Banks Number Regional Banks Commercial Banks Total Percen Number Percen Number Percenta Number tage tage ge Percenta ge 1998-99 1.55 19.80 0.06 0.77 6.22 79.44 7.83 100.00 1999-00 35.95 70.02 1.73 3.37 13.66 26.61 51.34 100.00 2000-01 56.14 64.89 6.48 7.49 23.90 27.62 86.52 100.00 2001-02 54.36 58.20 8.34 8.93 30.71 32.88 93.41 100.00 2002-03 45.79 55.55 9.64 11.69 27.00 32.76 82.43 100.00 2003-04 48.78 52.76 12.74 13.78 30.94 33.46 92.46 100.00 2004-05 35.56 36.73 17.29 17.86 43.96 45.41 96.81 100.00 2005-06 25.98 32.43 12.49 15.59 41.65 51.98 80.12 100.00 2006-07 22.98 27.00 14.06 16.52 48.08 56.48 85.12 100.00 2007-08 20.91 24.69 17.72 20.92 46.06 54.39 84.69 100.00 _ 2008-09 13.44 15.64 14.14 16.46 58.34 67.90 85.92 100.00 2009-10 17.43 19.36 19.49 21.64 53.13 59.00 90.05 100.00 2010-11 28.12 27.66 17.74 17.45 55.82 54.90 101.68 100.00 2011-12 26.61 23.22 19.95 17.41 68.04 59.37 114.60 100.00 2012-13 26.91 20.73 20.48 15.78 82.43 63.50 129.82 100.00 Total 460.51 35.90 192.35 14.99 629.94 49.11 1282.80 100.00 EGR 1.57% 26.37% 14.27% 9.39% Source: Report on Trend and Progress of Banking in India, RBI, Mumbai, various issues Table 11. Amount Sanctioned through Kisan Credit Cards Agency Wise (Rs. In Crores) Year Co-operative Banks Number Regional Banks Commercial Banks Total Percen Number Percen Number Percen Number Percentag tage tage tage e 1998-99 826 35.76 11 0.48 1473 63.77 2310 100.00 1999-00 3606 47.77 405 5.37 3537 46.86 7548 100.00 2000-01 9412 57.30 1400 8.52 5615 34.18 16427 100.00 2001-02 15952 61.93 2382 9.25 7424 28.82 25758 100.00 2002-03 15841 60.28 2955 11.25 7481 28.47 26277 100.00 2003-04 9855 45.24 2599 11.93 9331 42.83 21785 100.00 2004-05 15597 45.62 3833 11.21 14756 43.16 34186 100.00 2005-06 20339 42.73 8483 17.82 18779 39.45 47601 100.00 2006-07 13141 28.12 7373 15.78 26215 56.10 46729 100.00 _ 2007-08 19991 22.65 8743 9.91 59530 67.45 88264 100.00 2008-09 8428 15.88 5648 10.64 39009 73.48 53085 100.00 2009-10 7606 13.19 10132 17.57 39940 69.25 57678 100.00 2010-11 10719 14.76 11468 15.79 50438 69.45 72625 100.00 2011-12 10640 11.61 11520 12.57 69510 75.83 91670 100.00 2012-13 11922 9.44 13263 10.50 101095 80.06 126280 100.00 Total 173875 24.21 90215 12.56 454133 63.23 718223 100.00 Mean 11592 6014 30276 47882 EGR 8.26% 38.44% 30.44% 23.39% Source: Report on Trend and Progress of Banking in India, RBI, Mumbai, various issues The scheme was revised in 2012 to make room for ATM enabled debit card, operation through wider delivery channels including mobile handsets, in-built cost escalation for assessing limits, wider coverage under crop loans, etc., During 2013-14 upto August 2013, 10.78 lakh cards were issued by Cooperative banks and the amount outstanding was 3,124.51 crore. During the same period RRBs had issued 7.83 lakh cards with outstanding amount of 6,184.50 crore (NABARD, Annual Report 201314). Microfinance describes the provision of banking services by poverty-focused financial institutions (Micro Finance Institutions – MFIs) to poor and weaker sections of the population that are not being served by mainstream financial services providers. Microfinance is based on recognizing that the working poor can act in an entrepreneurial manner and are, in principle, creditworthy. The term ‘micro finance’ covers the provision of financial services like micro credit, micro insurance and savings as a whole to the poor. For these micro-borrowers, micro credit is often the only alternative to paying excessive interest rates charged by private moneylenders or pawnshops in developing countries. _ The terms ‘Micro credit’ and ‘Micro finance’ are often used interchangeably. Micro credit refers specifically to small loans whereas micro finance is a broader term which embraces efforts to collect savings from low income households and to provide credit and insurance. Micro-credit (World Bank, 1997) is defined as “programmes that provide credit for self employment and other financial and business services (including savings and technical assistance) to very poor persons in rural, semi-urban and urban areas for enabling them to raise their income level and improve living standards”. Self Help Groups is an approach through which efforts are being made by the government with the intension to pool both human and material resources and empower women in rural areas. The microfinance through SHGs, would empower women to achieve financial stability and self-reliance through various income generating activities to boost household income. It also contributes in the area of social service like helping widows to lead honourable lives, laying of roads, village cleaning etc. Advantages of SHGs for women include developing the habit of thrift and skills relating to efficient management of funds, initiating learning and serving by the groups as forums for sharing of ideas and skills, avoiding the exploitation by non - institutional credit sources, better repayment through peer-group pressure, women becoming articulate and self expressive through interaction, attitude change towards progressive outlook and increased mobility for women due to participation in training and study tours. The micro financing to women through SHGs has helped the groups to achieve a measure of economic and social empowerment. It has developed a sense of leadership, organizational skill, ability to manage various activities of a business, right from acquiring finance, identifying raw material, market, diversification and modernization. In contrast to commercial banks, micro-lending institutions usually refrain from taking collateral. Instead, in order to influence borrower behaviour, many MFIs apply the principle of group lending. This entails that an MFI lends a small loan to an individual, who belongs to a group of 5 to 20 people. As soon as the individual borrower proves reliable, credit is extended to additional people _ within the group. This procedure creates an incentive for the group to monitor each other’s behaviour and to ensure borrower discipline, as the group is jointly liable for the failure of any single member to repay her micro credit. MFIs operations emphasize lending very small, short term loans to very poor microentrepreneurs. Loan repayment is guaranteed by group members collectively and access to future credit depends on successful repayment. These institutions are successful in terms of i) outreach and performance in delivering credit services to the poorest of poor women and rural artisans in rural and urban areas, ii) ii) reduction in adverse selection of borrowers and iii) empowerment of women. Micro finance institutions (MFI) in India fall under two categories: iii) Financial: Commercial banks, Regional Rural Banks and Co-operative banks and iv) ii) Non-financial: a) Not for Profit MFIs: NGOs, Trusts, etc., b) Mutual Benefit MFIs: State / national credit co-operatives, and c) Profit Centered MFIs: Nonbanking financial companies. Women make up the vast majority of borrowers from MFI, especially in Asia. The predominance of women reflects the fact that women are more reliable debtors because, due to stronger social and family ties, they often follow a more conservative investment strategy which in turn results in lower default rates for MFIs. This lower credit risk is further supported by a relatively low degree of labour mobility of female clients (due to strong family ties women tend to work from home) which decreases the cost of monitoring debtors for an MFI. Organization and Functions of Self-Help Groups The SHGs are small, informal and homogeneous group of not more than 20 members each. The groups have been recommended to keep them away from bureaucracy and corruption, unnecessary administrative expenditure and profit constraints. The size of 20 has been made mandatory because any group larger than this would need to be registered under the Indian legal system. _ These groups are expected to foster true (direct) democratic culture where all the members actively participate in the debate and decision – making process which is possible only in small groups. When the groups become larger, direct democracy tends towards indirect democracy which would result in the formation of vested interests within the group. Groups are to be homogeneous so that members do not have conflicting interests and all members can participate freely without any fear and adverse consequence. The repayment rate tends to be lower in large groups and the propensity to default is high among heterogeneous groups. These are the features which distinguish small, homogeneous and informal SHGs from large, heterogeneous and formal co-operatives although both are found on the same principle of co-operation. The SHGs after being formed (generally by an external agency) start collecting fixed amount (rarely variable amount) of thrift from each member regularly (mostly monthly). For about six months it only collects thrift; no loan is given to any member for the following reasons. Firstly, the working fund generated out of small thrift is negligible in the initial period; and secondly, it tests the patience and tries to instill mutual trust among the members. During this period the groups are expected to open a savings account with a financial institution which would like to extend credit. After accumulating a reasonable amount of resource, the group starts lending to its members for petty consumption needs. Claimants may be large, but resource is small. This forces them to take appropriate decision to identify the neediest person with regard to endowment level and the purpose of loan. A free and fair discussion removes the element of subjectivity from the decision-making process, makes the borrower understand the value of credit and the importance of repayment and accountability to the group. The repayment of the loan along with interest and regular thrift enlarge the working fund and increase the scope of lending. Notwithstanding this, the working fund generated by the group may not be adequate to meet all types of credit needs of all the members. The group then approaches the financial institution where it had opened the savings account. If the bank is satisfied with the group in terms of: i) genuineness of demand for credit, ii) credit handling capacity of the members, iii) repayment behaviour within the group and iv) the accounting system and _ maintenance of the records, it extends a term loan of smaller amount to the group. The group in turn continues to take decision as in the past, the only difference being it has now a higher amount of resource. In addition, the group is jointly liable to the bank for repayment. The group’s responsibility in monitoring the members therefore increases. This joint liability, however, provides incentives or compels the group to undertake the burden of selection, monitoring and enforcement that would otherwise fall on the lender. This joint liability, decision – making process and pressure at the group level are the most important aspects for the banks to do business with the poor, illiterate and informal groups. Concept of Self Help Group A SMALL ECONOMICALLY HOMOGONEOUS AND AFFINITY GROUP OF RURAL POOR VOLUNTARILY COMING TOGETHER TO SAVE SMALL AMOUNTS REGULARLY TO MUTUALLY AGREE TO CONTRIBUTE TO A COMMON FUND TO MEET THEIR EMERGENCY NEEDS SELF HELP GROUP HAVE SIMPLE AND RESPONSIVE RULES (Source : NABARD, 2004) CONFLICT SOLVING THROUGH COLLECTIVE LEADERSHIP AND MUTUAL DISCUSSION COLLATERAL FREE LOANS WITH TERMS DECIDED BY THE GROUP COLLECTIVE DECISION MAKING MARKET DRIVEN RATES OF INTEREST _ There is a huge demand for credit in small amounts for consumption, health, education, marriage, petty production, petty trade, etc., for very short to long durations which do not match the priority supply of banks. Banks have large loan amount meant for production purpose but not for other purposes that too for very short periods. It is not the rigidity of the banking procedures, but their constraints due to high transaction costs and risk because of asymmetric information that they cannot extend such credit to individual borrowers. Individual borrowers, on the other hand, face the problems of absorbing large amounts of credit for some unwanted purpose. Instead when the financial institution (FI) extends credit to SHG, i) the transaction cost for FI is minimized because the group takes the decision to borrow on behalf of the all members and also the responsibility to repay; ii) the transaction cost of the individual member is reduced because the member transacts at the group level only; iii) the mismatch between demand and supply is reduced because the bank extends credit in lump-sum amount and the group uses the amount according to its own needs; also repayment pattern of the members to the group and of the group to the bank need not be the same. _ A TYPICAL SHG MODEL Promoters (NGOs, Banks) • Access to credit • Training to Members • Technical Guidance Loan to Members Investment: Onfarm, Off-farm and Education Household Resources i) Physical Capital ii) Human Capital Self-Help Group (10 to 20 Members) Community Action Consumption: Nutrition and Health Clearing of Old Debts Social Obligations Increased Employment, Income, Saving and Empowerment Common Investments _ When both the lender (FI) and the borrower (SHG) grow in mutual trust and the borrower honours the previous contracts, the lender expresses its willingness to extend higher amount of credit and even provide cash credit facility implying more flexibility and lesser interest burden for the borrower; the SHG in turn increases its capacity to manage higher volume of finance, develop entrepreneurial skills, co-operative sense and finally income and employment generating capacity. This is not confined to a single group of about 20 people. Either because of efforts of the SHGI or demonstration effect, more groups start forming and functioning. A linkage among groups also evolves. In some cases, a number of nearby groups are federated. This federation is nothing but a coordinating mechanism and is not expected to assume any hierarchical role. Crucial decision-making process for sanctioning loan to individual members remains with the SHG. The federation is basically supposed to: i) channelize funds from surplus to deficit SHGs, ii) promote more SHGs and act as facilitator for weak SHGs, and iii) perform entrepreneurial jobs like helping the grass root SHGs for backward and forward linkages and liaisoning with external agencies for the benefit of the groups. Banks may sometimes find it more convenient and economical to deal with the federation rather than individual SHGs. However, the peer pressure which is inversely proportional to the distance is much less at the federation level than at the village or group level. Microfinance has been widely credited for empowering women by increasing their contribution to household income, the value of their assets, and control over decisions that affect their lives. This activity is the result of NABARD's work in the microfinance sector, which started in 1992 through a pilot project for promoting 500 Self- Help Groups (SHGs). As the idea gained acceptance from the banking system and the results were promising, the Reserve Bank of India (RBI) encouraged this positive initiative by issuing instructions to banks in 1996 to cover SHG financing as a mainstream activity under their priority sector-lending portfolio. The Government of India (GoI) made linking SHGs with banks a national priority from 1999 onwards through its periodic policy and budget announcements. NABARD continues to nurture the expansion of the outreach of the programme by providing umbrella support to the stakeholders. Today, _ the programme is growing at a pace of about 2.5 million households annually. It is easily the largest and fastest growing microfinance programme in the world in terms of its outreach and sustainability. Interest Rate The SHPI along with others who promote the SHGs get refinance from different national financial institutions like NABARD, SIDBI (Small Industrial Development Bank of India), FWWB (Friends of Women World Banking), HUDCO (Housing and Urban Development Corporation), RMK (Rashtriya Mahila Kosh), HDFC (Housing Development and Finance Corporation) and a host of other international institutions. Most of the above institutions except RMK and commercial banks do not fix a ceiling on interest rates on the loan amount for lending to the members of the group. The groups are the best judges to determine the rate of interest. It should be as close to the market rate as possible. The following are the rates of interest charged: Institutions / SHGs Annual Rates of Interest • • • • Banks to SHGs : 12.0% Banks to NGOs : 10.5% NGOs to SHGs : 12.0% SHG to members : As decided by SHG. Most of the SHGs charge 2 -3 % of interest per month. • NABARD to bank (Refinance): 6.5% (For SHG lending, 100% refinance is available) Design Features What is Unique about the SHGs and Linkage Programme? Decision making Members make decisions collectively. SHG concept offers opportunity for participative decision making on conduct of meetings, thrift and credit decisions. The participative process makes the group a responsible borrower. Financial services SHGs provide the needed financial services to the members at their doorstep. The rural poor needs different types of financial _ services, viz. Savings, consumption credit, production credit, insurance, remittance facilities etc. The platform of SHG provides the possibility to converge these services. Supplementary to SHG linkage does not supplant the existing banking system, but formal banking it supplements it thus taking full advantage of the resources and other advantages of the banking system. Cutting costs SHG linkage cuts costs for both banks and borrowers. In a study sponsored by FDC, Australia, it was observed that the reduction in costs for the bankers is around 40 per cent as compared to IRDP loans. The poor have a net advantage of 85 per cent as compared to individual borrowing. Similar finding was also observed in a NABARD study. NPA Savvy The Linkage mechanism has proved that the repayments are as high as 95 per cent - 100 per cent Peer pressure as The SHG linkage emphasizes peer pressure within the group as collateral collateral substitute. Quality clients The SHGs are turning out to be quality clients in view of better credit management, mobilization of thrift, low transaction costs and near full repayments. Client preparation The members of the SHGs could over a period of time, very selectively graduate to the stage of micro entrepreneurship and have been prepared with requisite credit discipline. Social agenda Available statistics indicate dependency of 35 per cent-40 per cent of rural households on non-institutional sources for credit needs. SHG Linkage offers a better way of dealing with the _ magnitude of social agenda. Many NGOs/ Governments have recognized the SHG as a vehicle for carrying and deepening of their developmental agenda/ delivery of services. Exclusive poor SHGs have exclusive focus on absolute have-nots, who have focus been bypassed by the banking system. Social banking does not have any meaning if the lowest strata and the unreached are not focused. No-subsidy- The programme does not envisage any subsidy support from the dependence government in the matter of credit. The issue is to build syndrome capabilities and enterprise of the individual members, blending with group cohesion and solidarity through training provided by a SHPI to set the ball rolling for the SHG. Design Features of the Product The product design features combine the collective wisdom of the poor, the organizational capabilities of the social intermediary and the financial strength of the Banks. Its features are: 1. Small and Fixed Savings at Frequent Intervals Small and fixed savings made at regular intervals coupled with conditions like compulsory attendance, penal provisions to ensure timely attendance, saving, repayment etc. forms a deterrent for the rich to join the SHG system - thereby enables exclusion of the rich. 2. Self-Selection The members select their own members to form groups. The members residing in the same neighborhood ensure better character screening and tend to exclude deviant behaved ones. 3. Focus on Women As regular meetings and savings are compulsory ingredients in the product design, it becomes more suitable for the women clients - as group formation and participatory meetings is a natural ally for the women to follow. _ 4. Savings First and Credit Later The saving first concept enables the poor to gradually understand the importance of saving, appreciate the nuances of credit concept using their own money before seeking external support (credit) for fulfilling future needs. The poor tend to understand and respect the terms of credit better. 5. Intra Group Appraisal Systems and Prioritization Essentials of good credit management like (peer) appraisal for credit needs (checking the antecedents and needs before sanction), (peer) monitoring- end use of credit; (peer sympathy) re-schedulement in case of crisis and (peer pressure) collateral in case of willful nonpayment etc. all seems to coexist in the system – making its one of the best approaches for providing financial services to the poor. 6. Credit Rationing The approach of prioritization i.e., meeting critical needs first serves as a useful tool for intra –group lending. This ensures the potential credit takers / users to meticulously follow up credit already dispensed, as future credit disbursals rely on repayments by the existing credit users. 7. Shorter Repayment Terms Smaller and shorter repayment schedule ensures faster recycling of funds, greater fiscal prudence in the poor and drives away the slackness and complacency that tends to set-in, in long duration credit cycles. 8. Market Rates of Interest Self-determined interest rates are normally market related. Sub- market interest rates could spell doom; distort the use and direction of credit. 9. Progressive Lending The practice of repeat loans and often-higher doses - is followed by SHGs in their intra-group loaning, thereby enticing prompt repayments. 10. A Multiple-Eyed Operation _ The operations of the SHG are transacted in group meetings thus enabling high trust levels and openness in the SHG system. SHG members facilitating openness and freedom from unfair practices also generally conduct the banking transactions. Types of SHGs Three broad models of bank-SHG linkage which have emerged are: Model - I in which the bank itself acts as SHPI and forms and nurtures the SHG, Model - II in which the NGOs act as SHPIs and banks lend to the SHGs directly, and Model - III in which the NGOs act as both SHPI and micro finance intermediaries. The sources of income The sources of income to the SHGs are i) ii) iii) iv) Penalty fee collected from the members on account of default of repayment in time. Fine on account of non-attendance of members in the meetings convened by SHGs Interest earned on the surplus funds lent to other SHGs and Grants received from the external sources such as government and nongovernmental organizations. (Source: Kropp, E.W and Suran, B.S. 2002: Linking Banks and Self Help Groups in IndiaAn Assessment; Paper presented at the National Seminar on SHG-Bank Linkage, New Delhi). The Rashtriya Mahila Kosh The corpus of ‘The Rashtriya Mahila Kosh’ is proposed to be raised to Rs.500 crore over the next few years in recognition of its importance in facilitating credit support or micro finance to poor women. Lead Bank Scheme The study group appointed by National Credit Council (NCC) in 1969 under the chairmanship of Prof. D.R.Gadgil recommended “Service Area Approach” for the development of financial structure. _ In the same year i.e., 1969, RBI appointed Sri. F.K.F Nariman committee to examine recommendations of Prof. Gadgil’s study group. The Nariman committee also endorsed the views of the Gadgil committee on “Service Area Approach” and recommended the formulation of “Lead Bank Scheme”. The RBI accepted the Nariman’s committee recommendations and lead bank scheme came into force from 1969. Under the lead bank scheme, specific districts are allotted to each bank, which would take the lead role in identifying the potential areas for banking and expanding credit facilities. Lead bank is the leading bank among the commercial banks in a district i.e. having maximum number of bank branches in the district. Lead bank acts as a consortium leader for coordinating the efforts of all credit institutions in the each allotted district for the development of banking and expansion of credit facilities. The activities of lead bank can be dealt under two important phases Phase I: Survey of the lead district The RBI has mentioned the following functions of lead bank under phase-I ➢ Surveying the potential areas for banking in the district. ➢ Identifying the business establishments which are so far dependent on non – institutional agencies for credit and financing them so as to raise their income ➢ Examining the available marketing facilities for agricultural and industrial products and linking credit with marketing. ➢ Invoking cooperation among different banks in opening new bank branches. ➢ Estimating the credit gaps in various sectors of district economy. ➢ Developing contacts and maintaining liaison with the Government and other agencies. Phase II-Preparation of credit Plans: ➢ RBI emphasized that the lead bank should ➢ Formulate the bankable loaning schemes involving intensive use of labour, so as to generate additional employment. _ ➢ Disburse loans to increase the productivity of land in Agriculture and allied activities, so as to increase the income level. ➢ Give maximum credit to weaker sections of the society mainly for productive purposes. Therefore lead bank scheme expects the banker to become an important participant in the developmental process in the area of its operation in rural areas, and the service area approach put the banker in the position of implementing the development plans Function of the Lead Bank a. it acts as a consortium leader among the bank branches functioning in the district b. It undertakes surveying, of credit needs, development of branch banking and expansion of credit to weaker and neglected sections of the society. For this purpose, the District credit plan (DCP) is prepared by the lead bank. DCP is prepared in line with the development strategy worked out for the district by the government and national plan objectives. After the preparation of credit plan, credit plan targets are allotted among different financial institutions in the districts. A credit plan is development plan consisting of technically feasible and economically viable schemes which can be taken up for financing by financial institutions. These schemes are drawn based on the natural resources, principal economic activities, aspirations and skill of the people etc. in the district. c. The scheme can correct the regional imbalances in the credit deployment. d. This scheme can estimate the credit gaps in the various sectors of the economy of each district. e. It maintains liaison with other banks, government and quasi-government agencies to implement various development programmes in the district. Lead Bank of Different Districts in Tamil Nadu SL. No. LEAD-DISTRICT LEAD-BANK 1 Chennai Indian Overseas Bank 2 Kanniyakumari Indian Overseas Bank _ 3 Karur Indian Overseas Bank 4 Nagapattinam Indian Overseas Bank 5 Pudukkottai Indian Overseas Bank 6 Ramanathapuram Indian Overseas Bank 7 Sivaganga Indian Overseas Bank 8 Thiruvarur Indian Overseas Bank 9 Tiruchirappalli Indian Overseas Bank 10 Tirunelveli Indian Overseas Bank 11 Thanjavur Indian Overseas Bank 12 Virudhunagar Indian Overseas Bank 13 Perambalur Indian Overseas Bank 14 Cuddalore Indian Bank 15 Dharmapuri Indian Bank 16 Kancheepuram Indian Bank 17 Krishnagiri Indian Bank 18 Namakkal Indian Bank 19 Salem Indian Bank 20 Thiruvallur Indian Bank 21 Tiruvannamalai Indian Bank 22 Vellore Indian Bank 23 Viluppuram Indian Bank 24 Coimbatore Canara Bank 25 Dindigul Canara Bank 26 Erode Canara Bank 27 Madurai Canara Bank _ 28 The Nilgiris Canara Bank 29 Theni Canara Bank 30 Tiruppur Canara Bank 31 Ariyalur State Bank Of India 32 Thoothukkudi State Bank Of India _ Lecture 8: RRBs,Scale of Finance and Unit Cost. Cost of Credit Regional Rural Banks The need for evolving a hybrid type of credit agency which combines the resource orientation of the commercial banks and the rural orientation of the co-operatives has been expressed in the reports of a few of the committees which have looked into rural credit problems. To review the flow of institutional credit especially to the weaker sections of the rural community, the Government of India appointed a working Group in 1975 under the chairmanship of Narasimhan. The Group identified Certain deficiencies in the functioning of Co-operatives and commercial banks and recommended the setting up of state-sponsored, regionally based and rural oriented banks called Regional Rural Banks (RRBs) which would encompass local feel and familiarity with several problems which the co-operatives possess and the degree of business organisation, ability to mobilise the deposits, access to central money markets and a modernised outlook which the commercial banks have. The Government of India accepted this recommendation and RRBs were established in 1976. The main objective of RRB is to provide finance to small and marginal farmers, agricultural labourers, artisans and small entrepreneurs whose annual income is less than Rs.10,000. Features The idea behind the establishment of RRBS is to develop a comparatively backward area where the commercial bank and co-operative is relatively poor. The main difference from the commercial bank is that the area of operation of RRB is confined to a region comprising one or two contiguous districts. One of the tasks envisaged for the RRBs is to maintain their cost of operations at a lower level than that of the commercial banks. So the salary structures of the staff were comparable to that of the state Government employees. RRBs are sponsored by schedule commercial banks. A few non-public sector commercial banks and state co-operative Banks are also allowed to sponsor RRBs. The sponsoring bank provides _ managerial assistance to RRBs for the first five years. The management of RRB is through a nine member Board of Directors headed by a chairman who is an officer of the sponsor bank. The Board consists of three nominees of Government of India, two nominees of the concerned State government, four including the chairman by the sponsor commercial bank. The authorized share capital of a RRB has been fixed at Rs.5 crore and issued capital is Rs. One Crore. Of this, 50 per cent is subscribed by the central government, 15 per cent by the concerned state government and 35 per cent by the sponsor bank. Performance As scheduled banks, they mobilize deposits and they have been allowed to offer slightly higher rate of interest, i.e., 0.5 per cent per annum, on their deposits up to five years. RRBs have been advised to render other banking services like collection of cheques and bills, issue of drafts, collection of insurance premia, safe custody etc. Table 3.Progress of RRBs in India Sl.No. Particulars 1976 1980 1988 1990 2013 2018 64 56 1. Number of RRBs 40 85 196 2. Number of branches 489 3279 13350 14315 105813 21805 3. Deposits (Rs.in crores) 7.72 199.83 2305.82 3988.04 196422 371900 4. Advances (Rs.in crores) 7.02 243.38 2232.26 3525.08 129936 223900 5. Number of loss making 23 60 149 NA. NA NA banks Source: Statistical Tables relating to Banks in India 2012-2013, Reserve Bank of India bulletin, March 2018 Table 4.Purpose-wise Break up of RRB advances (Percent) _ Sl.No. Purpose 1987 2013 1. Agriculture 57.7 52.8 2. Rural artisans, village and cottage industries 6.2 2.4 3. Retail trade and self employment 27.2 24.0 4. Consumption loans/other purposes 8.9 20.8 100.0 100.0 Total Source: Statistical Tables relating to Banks in India 2012-2013, Reserve Bank of India bulletin, March 2013 Table 5. Indicators of Performance of RRBs (@As on 31 March of given year) Sl.No. Particulars 1. No. of RRBs 2. Branch Network(No) 3. Share Capital 4. Share Capital Deposit 5. 2013 2014 2018 64 57* 56 17,861 19,082 21747 197 197 197 6,001 6,170 6436 Reserves 13,247 15,736 25185 6. Deposits 2,11,488 2,39,504 400459 7. Borrowings 38,073 51,736 57647 8. Investments 1,08,548 1,10,514 222266 9. Loans & Advances Outstanding 1,37,078 1,59,660 253978 10. RRBs earning Profit (No) 63 57 45 11. Amount of Profit (A) 2,275 2,833 2506 12. RRBs incurring Losses (No) 1 0 11 13. Amount of Losses (B) 2.07 0 1005 _ 14. Net Profit of RRBs(A-B) 2,273 2,833 1501 15. Accumulated Losses 1,091 903 1866 16. RRBs with accumulated Losses (No) 11 8 11 17. Recovery (%) (As on 30 June) 81.2 81.9 18. NPA to loans outstanding (%) 6.1 4.4 19. Net worth 18,355 21,199 Source: NABARD Annual Report 2017-2018 * Some of the RRBs were amalgamated Problems: 1) There is a lack of managerial efficiency due to larger area of operation. Some RRB cover 10-15 lakh population 2) Lack of uniform guidelines for recruitment and promotion. 3) The number of loss making banks in 1976 was 23 and it is 149 in 1988. The accumulated loss of RRB was Rs.550 crores (1991) which was more than their entire paid up capital and reserves. 4) Lack of both the expertise of commercial banks and local feel of the co-operatives. 5) RRBs could not meet the credit needs of non-farm sector effectively. The Committee set up by the RBI in 1977 under the chairman ship of M.L.Dantwala to review the working of the RRBs recommended that RRBs should be extended to such areas where DCCBs are not able to adequately serve the PACS under their jurisdiction. The CRAFICARD (1981) recommended that the RBI may transfer the business of commercial banks rural branches to RRBS when such proposals are presented. _ The Kalyanasundaram committee (1986) was appointed to study the wage structure and service conditions of the RRB staff. The Agricultural credit Review committee (ACRC) headed by Prof. Khusro in 1989 recommended that the RRBs and their branches can be merged with their sponsor banks due to the following reasons: a) The performance of commercial banks in rural lending in terms of branch expansion and recruiting technically qualified staff for rural branches is better than RRBs. b) The accumulated loss and over dues of RRB were very heavy. However, the Government of India has decided not to merge the RRBs with sponsor banks. Instead the government has decided to implement the recommendations of the Kelkar committee (1986) in a bid to revive these banks. Subsequent to review of the financial status of RRBs by the Union Finance Minister in August, 2009, it was felt that a large number of RRBs had a low Capital to Risk weighted Assets Ratio (CRAR). A committee was therefore constituted in September, 2009 under the Chairmanship of K C Chakrabarty, Deputy Governor, RBI to analyse the financials of the RRBs and to suggest measures including re-capitalisation to bring the CRAR of RRBs to at least 9% in a sustainable manner by 2012. The Committee submitted its report in May, 2010. The following points were recommended by the committee: ✓ RRBs to have CRAR of at least 9% as on 31 March 2011 and at least 9% from 31 March 2019 onwards. recapitalisation requirement of Rs. 2,200.00 crore for 40 of the 82 RRBs. This amount is to be released in’ two installments in 2017-18 and 2018-19. ✓ The remaining 42 RRBs will not require any capital and will be able to maintain CRAR of at least 9% ifs on 31st March 2012 and thereafter on their own. ✓ A fund of Rs. 100 crore to be set up for training and capacity building of the RRB staff. ✓ The Government of India recently approved the recapitalization of Regional Rural Banks (RRBs) to improve their Capital to Risk Weighted Assets Ratio CRAR) in the following manner: _ ✓ Share of Central Government i.e. Rs.1, 100 crore will be released as per provisions made by the Department of Expenditure in 2010-11 and 2011-12. However, release of Government of India share will be contingent on proportionate release of State Government and Sponsor Bank share. ✓ A capacity building fund with a corpus of Rs.100 crore to be set up by Central Government with NABARD for training and capacity building of the RRB staff in the institution of NABARD and other reputed institutions. The functioning of the Fund will be periodically reviewed by the Central Government. An Action Plan will be prepared by NABARD in this regard and sent to Government for approval. ✓ Additional amount of Rs. 700 crore as contingency fund to meet the requirement of the weak RRBs, particularly those in the North Eastern. and Eastern Region, the necessary provision will be made in the Budget as and when the need arises. Currently, RRB's are going through a process of amalgamation and consolidation. 25 RRBs have been amalgamated in January 2013 into 10 RRBs. As on March 2022, 43 RRBs are functioning in India. _ List of RRBs Functioning in the Country Sr. Name of Regional Rural Bank No. 1 Andhra Pradesh Grameena Vikas Bank 2 Andhra Pragathi Grameena Bank 3 Arunachal Pradesh Rural Bank 4 Aryavart Bank 5 Assam Gramin Vikash Bank 6 Bangiya Gramin Vikash Bank 7 Baroda Gujarat Gramin Bank 8 Baroda Rajasthan Kshetriya Gramin Bank 9 Baroda UP Bank 10 Chaitanya Godavari Grameena Bank 11 Chhattisgarh Rajya Gramin Bank 12 Dakshin Bihar Gramin Bank 13 Ellaquai Dehati Bank 14 Himachal Pradesh Gramin Bank 15 J&K Grameen Bank 16 Jharkhand Rajya Gramin Bank 17 Karnataka Gramin Bank 18 Karnataka Vikas Grameena Bank 19 Kerala Gramin Bank 20 Madhya Pradesh Gramin Bank 21 Madhyanchal Gramin Bank 22 Maharashtra Gramin Bank 23 Manipur Rural Bank 24 Meghalaya Rural Bank 25 Mizoram Rural Bank 26 Nagaland Rural Bank 27 Odisha Gramya Bank 28 Paschim Banga Gramin Bank 29 Prathama UP Gramin Bank 30 Puduvai Bharthiar Grama Bank 31 Punjab Gramin Bank 32 Rajasthan Marudhara Gramin Bank 33 Saptagiri Grameena Bank Sponsor Bank State State Bank of India Canara Bank State Bank of India Bank of India Punjab National Bank Punjab National Bank Bank of Baroda Bank of Baroda Bank of Baroda Union Bank of India State Bank of India Punjab National Bank State Bank of India Punjab National Bank J&K Bank Ltd. State Bank of India Canara Bank Canara Bank Canara Bank Bank of India State Bank of India Bank of Maharashtra Punjab National Bank State Bank of India State Bank of India State Bank of India Indian Overseas Bank UCO Bank Punjab National Bank Indian Bank Punjab National Bank State Bank of India Indian Bank Telangana Andhra Pradesh Arunachal Pradesh Uttar Pradesh Assam West Bengal Gujarat Rajasthan Uttar Pradesh Andhra Pradesh Chhattisgarh Bihar Jammu & Kashmir Himachal Pradesh Jammu & Kashmir Jharkhand Karnataka Karnataka Kerala Madhya Pradesh Madhya Pradesh Maharashtra Manipur Meghalaya Mizoram Nagaland Odisha West Bengal Uttar Pradesh Puducherry Punjab Rajasthan Andhra Pradesh _ 34 35 36 37 38 39 40 41 42 43 Sarva Haryana Gramin Bank Saurashtra Gramin Bank Tamil Nadu Grama Bank Telangana Grameena Bank Tripura Gramin Bank Utkal Grameen Bank Uttar Banga Kshetriya Gramin Bank Uttar Bihar Gramin Bank Uttarakhand Gramin Bank Vidharbha Konkan Gramin Bank Punjab National Bank State Bank of India Indian Bank State Bank of India Punjab National Bank State Bank of India Central Bank of India Central Bank of India State Bank of India Bank of India Haryana Gujarat Tamil Nadu Telangana Tripura Odisha West Bengal Bihar Uttarakhand Maharashtra Scale of Finance Definition: It is an indicative cost taken as base cost depending on which the amount to be financed to a farmer is fixed. Normally scale of finance is given in a range, as the cost of cultivation for a farmer practicing traditional methods of farming and that of a progressive farmer practicing modern methods of cultivation differs. The lower value of the range corresponds to the requirement of the former while the upper value corresponds to the latter. Scale of finance is fixed for annual, perennial crops and livestock also. Livestock will have fixed costs of finance and they are termed as unit costs. The unit varies with the type of livestock. Ex: for milch cattle the unit refers to two animals, for sheep and goat a minimum of 10 animals and for poultry a minimum of 500 birds. Factors influencing the scale of finance: 1. Type of the crop: It varies from crop to crop. 2. Nature of the crop: With in the same crop between the improved varieties and high yielding varieties (HYVs) the scale of finance differs. 3. Season: Scale of finance differs with season for the same crop. 4. Type of land: Based on the type of the land i.e. irrigated or dry the scale of finance differs with the same crop. _ 5. District/Area: For the same crop the scale of finance varies from district to district. How Scale of Finance is fixed: Scale of finance is fixed for each district by a committee known as District Level Technical Committee (DLTC).The members of DLTC constitute representatives of lead bank of that district, NABARD, local co-operative banks and commercial banks, officials of department of agriculture& animal husbandry etc. The meetings of DLTC are chaired by district magistrate/ district collector and convened by respective lead bank district manager. DLTC compiles technical survey report with the information obtained from NABARD. NABARD in turn obtains information from the state agricultural department every year, which will have the necessary details like what are crops grown, their extent etc. By using the above details a potential map is prepared. By using this one can list out the priority activities to be financed in each part of the district and extent to which these are to be financed. Finally cost of cultivation is estimated based on the market trends and needs. This scale of finance is not fixed and keeps on changing every year. A scale of finance per acre for different crops is determined on the basis of cost of cultivation. Scale of finance is the credit limit fixed for each crop based on its cost of cultivation. If includes both cash and kind. It is revised once in a year. Since the cost of cultivation varies with the region and time uniform scale of finance could not be adopted. The disbursement of loan is made in cash and kind. A major part of the loan is disbursed in the form of inputs such as improved seeds, fertilizers and pesticides which ensures its proper utilization. The repayment of loan is so fixed as to enable the farmer to repay the loan after marketing the produce. Wherever facilities are available the credit is linked with marketing to enable the farmer to get better price for his produce. The banker could also easily recover the loan. The crop loan is issued either by hypothecating the crop to the lending institution or based on the personal security of the farmer. _ Lecture 9: An Introduction to Higher Financing Institutions – RBI, NABARD, ADB, IMF and World Bank. Reserve Bank of India The Reserve Bank of India (RBI) was established in April 1, 1935 in accordance with the provisions of the RBI Act, 1934. The Agricultural credit Department (ACD) was organized in 1935 to co-ordinate the Bank's operations with State Co-operative Banks and other banks and organization dealing with agricultural credit. Financing agriculture by commercial banks is looked after by the Department of Banking Operations and Development (DBOD) while ACD continued to take care of co-operative credit may be viewed from three aspects: a) Provision of finance b) Promotional Activities c) Regulatory functions a) Provision of Finance: RBI extends short, medium and long-term credits to agriculture through co-operative channels. The bulk of the credit granted by the RBI is related to short-term to meet seasonal agricultural operations. The RBI Act was amended in 1955 to provide for the establishment of two funds, viz., the National Agricultural credit (Long Term Operation) fund and National Agricultural Credit (Stabilization) fund. The three components of medium-term credit are: a) loans for purchasing shares in co-operative processing societies, b) loans for agricultural and other allied purposes, including animal husbandry and pisiculture and c) conversion of short-term agricultural loans into medium term loans when repayment becomes difficult due to natural calamities. While the first two a) and b) are financed out of the NAC (LTO) fund and the c) (Last one) is out of NAC (stabilization) fund. The RBI provides long-term credit as loans to the state governments for contribution to the share capital of the cooperative credit institutions and to NABARD. The RRBs get refinance facility from the RBI up to 5o per cent of their outstanding advances. _ b) Promotional Activities: Under rehabilitation programme, most of the cooperative banks have attained viable status. The study Teams appointed by the RBI have given constructive suggestions to reorganise the co-operative structure on sound lines. The RBI evolved a scheme to finance the weak PACS by commercial banks. It initiated the lead Bank Scheme in 1969 and its impact is seen branch expansion and other activities of the commercial banks. It advised the banks to participate effectively in the Integrated Rural Development Programme and extend loans to the weaker sections. C. Regulatory Functions: As a lender, the RBI not only concerns itself with the quantity of credit but also attempts to improve the quality of credit extended and also the efficiency of the channels through which it is provided to the rural sector. The RBI frames the overall credit policy on the basis of the credit needs of agriculture. Limits to credit institutions are fixed by taking into account the demand for credit and not just arbitrarily. The cash / liquidity ratios applicable to co-operatives are lower than those fixed for commercial banks. The co-operatives are enabled to borrow from the RBI at an interest rate which is three per cent below the bank rate in respect of crop loans. They are also permitted to pay slightly higher rates of interest on their deposits. The refinancing functions of RBI relation to rural credit were taken over by NABARD after its formation in 1982. Agricultural Refinance and Development Corporation (ARDC) The inadequacy of institution finance with regard to long-term credit was brought to light by the committee on co-operatives credit (1960). So it was recognized that the country needed a refinance body with adequate resources of money and to co-ordinate, guide and assist the long term credit lending institutions. Thus, the Agricultural Refinance Corporation (ARC) was established on 1 July, 1963 under the Agricultural refinance Corporation Act of 1963 for granting medium and long-term credit by way of refinance. In order to emphasize the development and promotional role of the corporation, it was renamed as Agricultural Refinance and Development Corporation (ARDC) in 1975. It was largely meant to refinance, assist and guide State Land Development Banks. In due course, it _ extended assistance to commercial banks and the state co-operative banks. This corporation was taken over by NABARD in 1982. National bank for Agriculture and Rural Development (NABARD) On the basis of the views expressed by the All India Rural credit Review Committee (1969), the Administrative Reforms Commission (1970) , the banking Commission (1972), and the National Commission on agriculture (1976), the Committee to Review the Arrangements for Institutional credit for Agriculture and Rural Development (CRAFICARD) appointed by the RBI under the chairmanship of B. Sivaraman in 1979 considered the desirability and the feasibility of establishing a national bank for rural development in the context of integrated rural development. While examining the activities of the ARDC and the RBI in the delivery of rural credit against massive credit needs for rural development over the coming years, the CRAFICARD felt that the present national level institutions had certain deficiencies affecting their capacity to meet the stupendous task of integrates' rural development aimed at the uplift of the weaker sections in the rural areas within a given time horizon. The committee recommended for the establishment of NABARD and hence it was started, functioning since 12th July 1982. As such it has replaced by merging in itself, the ARDC and the two credits related constituents of the RBI, namely Agricultural Credit Department and the Rural Planning, dealt with by DBOD, was placed under the charge of the RPCC in 1979). Thus, NABARD is conceived as an exercise of decentralization of the RBI’s functions relating rural credit and that it would take over the ARDC and the refinancing functions of RBI in relation to state co-operative banks and RRBs. Resources The share capital of NABARD is Rs. 100 crores and is held by the RBI and GOI in equal proportion. The NABARD draws funds from the RBI for its short-term operations and for long-term operations, it draws from the Government of India, floats bonds in the open market and also draws from its National Agricultural credit (Long Term operations) Fund and National Agricultural Credit (stabilization) Fund . The NABARD is also authorized to accept deposits with maturity period of not _ less than twelve months from the central and state Governments, local authorities, scheduled banks etc. and also to borrow foreign currency with the approval of central government. Management: The management of NABARD is vested with a 15 member Board of management which consists of a chairman, a managing Director and 13 Executive Directors. The chairman is the exofficio Deputy Governor of RBI. The managing Director is the Chief Executive of the Bank with operational responsibility for the performance of various tasks. The Executive Director will be in charge of each of the major functional divisions i.e., two Directors from central Government, three sitting Directors from co-operative and commercial Banks and two experts on rural economy and rural development. The Board of Directors can constitute an Advisory Council. The two Directors from state Governments will be appointed by rotation to give representation to five Zones, Viz., Northern, Southern, Eastern, Western and North-Eastern. NABARD will be, thus, broadly divided into five zones with its head quarters at Bombay and 16 regional offices located in i) Jammu ii) Chandigarh iii) Lucknow, iv) Patna, v) Gauhati, vi) Kolkata, vii) Bhubaneshwar viii) Hyderabad, ix) Bangalore, x) Chennai Xi. Trivandram, xii) Bombay xiii) Indore, xiv) Ahmadabad xv) New Delhi and xvi) Jaipur. Functions of NABARD 1. Provision of Finance NABARD provides different types of refinance to the eligible institutions. a. Short term credit: The eligible institutions are State co-operative Banks, Regional Rural Banks and other financial institutions approved by RBI. The purposes are seasonal agricultural operations and marketing of crops, marketing and distribution of inputs like fertilizers, pesticides, etc., production and marketing activities of artisans small scale industries, village and cottage industries, any other activity connected with agricultural / rural sector. The period is up to 18 months b. Medium term credit: The eligible institutions are state cooperative banks, State Land Development Banks, Regional Rural Banks and other financial institutions approved by RBI. _ The purposes are any investment connected with agriculture and rural sector requiring MT credit assistance. The period is between 18 months and 7 years. C. Long term credit: The eligible Institutions are State Cooperative Banks (SCB), State Land Development Banks, Regional Rural Banks, Commercial Banks and other financial institutions approved by RBI. The period available is upto to a maximum of 25 years. The purposes of long term credit are: i. Refinance for investment in agriculture and allied activities such as minor irrigation, land development, soil conservation, dairy, sheep, poultry, piggery, farm mechanization, plantation/horticulture, forestry, fishery, storage and market yards etc. ii. Refinances loans meant for artisans, small-scale industries, village and cottage industries and others (non-farm sector) iii. Loans to state government for contributing share capital to co-operative institutions. 2. Development Functions ❖ Co-ordinates operations of rural credit institutions. ❖ Assists governments, RBI and other institutions in rural development efforts. ❖ Contributes to the share capital and securities of eligible institutions concerned with agriculture and rural development. ❖ Assists state government to enable them to contribute to the share capital of eligible institutions. ❖ Frames overall rural credit policies ❖ Provides facilities for training, research and dissemination of information in the fields of rural banking, agriculture and rural development. ❖ Undertakes the inspection of RRBs and co-operative credit institutions. 3. Supervisory Functions ➢ To protect the interest of the present and future depositors _ ➢ To ensure that the business conducted by these banks is in conformity with the provisions of the relevant Acts/Rules, regulations/Bye-Laws ➢ To ensure observance of rules, guidelines, etc., formulated and issued by NABARD / RBI/ Government ➢ To examine the financial soundness of the banks and ➢ To suggest ways and means for strengthening the institutions so as to enable them to play more efficient role in purveying rural credit Asian Development Bank The Asian Development Bank, a multilateral development finance institution, was founded in 1966 by 31 member governments to promote the social and economic progress of the Asian and Pacific region. Over the past 31 years, the Bank's membership has grown to 57, of which 41 are from within the region and 16 from outside the region. It is a non-governmental organization providing funding and technical assistance throughout the Asian region. Sources of Finance ADB raises fund through bond issues on the worlds’ capital markets, also rely on members’ contributions, retained earnings from its lending operations and the repayment of loans. Principal Functions (i) to extend loans and equity investments for the economic and social development of its developing member countries (DMCs); (ii) to provide technical assistance for the preparation and execution of development projects and programs, and for advisory services; (iii) to promote and facilitate investment of public and private capital for development purposes; and (iv) to respond to requests for assistance in coordinating development policies and plans of its DMCs. Functions (i) Promote investment in the region of public and private capital for development purposes. (ii) Provide loans for the economic and social development of the member countries of the region. _ (iii) Help member countries in coordinating their development policies and plans. (iv) Provide technical assistance for the preparation, financing and execution of development projects and programmes. (v) Undertake such other activities and provide such other services as may advance its objectives. (vi) Provide financial and technical assistance to member countries for environmental protection. (vii) Act as financial intermediary by transferring resources from global capital markets to developing countries. (viii) Support public resource mobilization and management to member countries International Monetary Fund (IMF): The International Monetary Fund (IMF) is an international organization. At present 185 countries are the members of IMF. Its headquarters is located at Washington, DC., USA. After the Second World War, many countries felt the need to have an organization to get help in monetary matters between countries. To begin with, 29 countries discussed the matter, and signed an agreement. The agreement was the Articles of Association of the International Monetary Fund. IMF came in to being in December 1945. Membership: Any country can apply to become a member of the IMF. When a country applies for membership, the IMF’s Executive Board examines the application. If found suitable, the Executive Board gives its report to IMF’s Board of Governors. After the Board of Governors clears the application, the country may join the IMF. However, before joining, the country should fulfill legal requirements, if any, of its own country. Every member has a different voting right. Likewise, every country has a different right to draw funds. This depends on many factors, including the member country’s first subscription to the IMF. Functions: The IMF does a number of supervisory works relating to financial dealings between different countries. Some of the works done by IMF are: ➢ Helping in international trade, that is, business between countries ➢ Looking after exchange rates ➢ Looking after balance of payments _ ➢ Helping member countries in economic development Management A Board of Directors manages the IMF. One tradition has governed the selection of two most senior posts of IMF. Firstly, IMF’s managing director is always European. IMF’s president is always from the United States of America. The major countries of Europe and America control the IMF. This is because they have given more money to IMF by way of first subscriptions, and so have larger share of voting rights. World Bank The World Bank group originated as a result of the Bretton woods conference of 1944, is one of the world’s largest sources of development assistance and it has extended assistance to more than 100 developing economies, bringing a mix of finance and ideas to improve living standards and eliminate the worst form of poverty. Mission • To fight poverty with passion and professionalism for lasting result. • To help people themselves and their environment by providing resources, sharing knowledge, building capacity and forging partnership in the public and private sectors • To be an excellent institution able to attract, excite and nurture diverse and committed staff with exceptional skills who know how to listen and learn. Purposes of World Bank The purposes of World Bank as laid down in the articles of agreement are • To assist in the reconstruction and development of the territories of the members, by facilitating the investment of capital for productive purposes, including the restoration of economies destroyed or disrupted by war. _ • To promote private foreign investment by means of guarantees or participation in loans and other investments made by private investors, and when private capital is not available on reasonable terms, to supplement private investment by providing on suitable conditions. • To promote the long range balanced growth of international trade and main tenancy of equilibrium in the balance of payment, by encouraging international investment of the productive resources of members, there by assisting in the raising productivity, the standards of living and conditions of labor in their territories. _ Lecture 10. Role of Insurance and Credit Guarantee Corporation (DICGC) Deposit Insurance and Credit Guarantee Corporation (DICGC) The concept of insuring deposits kept with banks received attention for the first time in the year 1948 after the banking crisis in Bengal. Subsequently, in the year 1950, the Rural Banking Enquiry Committee also supported the concept. Serious thought to the concept was, however, given by the Reserve Bank of India and the Central Government after the crash of the Palai Central Bank Ltd., and the Laxmi Bank Ltd. in 1960. The Deposit Insurance Act, 1961 came into force on January 1, 1962. The Deposit Insurance Scheme was initially extended to functioning commercial banks only. This included the State Bank of India and its subsidiaries, other commercial banks and the branches of the foreign banks operating in India. Since 1968, with the enactment of the Deposit Insurance Corporation (Amendment) Act, 1968, the Corporation was required to register the 'eligible co-operative banks' as insured banks. Further, the Government of India, in consultation with the Reserve Bank of India, introduced a Credit Guarantee Scheme in July 1960. The Reserve Bank of India was entrusted with the administration of the Scheme and was designated as the Credit Guarantee Organization (CGO) for guaranteeing the advances granted by banks and other Credit Institutions to small scale industries. The Reserve Bank of India operated the scheme up to March 31, 1981. The Reserve Bank of India also promoted it as public limited company on January 14, 1971, named the Credit Guarantee Corporation of India Ltd. (CGCI). The main thrust of the Credit Guarantee Schemes, introduced by the Credit Guarantee Corporation of India Ltd., was aimed at encouraging the commercial banks to cater to the credit needs of the hitherto neglected sectors, particularly the weaker sections of the society engaged in nonindustrial activities, by providing guarantee cover to the loans and advances granted by the credit institutions to small and needy borrowers covered under the priority sector. With a view to integrating the functions of deposit insurance and credit guarantee, the above two organizations (DIC & CGCI) were merged and the present Deposit Insurance and Credit Guarantee Corporation (DICGC) came into _ existence on July 15, 1978. Consequently, the title of Deposit Insurance Act, 1961 was changed to 'The Deposit Insurance and Credit Guarantee Corporation Act, 1981'. Effective from April 1, 1981, the Corporation extended its guarantee support to credit granted to small scale industries also, after the cancellation of the Government of India's credit guarantee scheme. With effect from April 1, 1989, guarantee cover was extended to the entire priority sector advances, as per the definition of the Reserve Bank of India. However, effective from April 1, 1995, all housing loans have been excluded from the purview of guarantee cover by the Corporation. Management The authorized capital of the Corporation is Rs.50 crore, which is fully issued and subscribed by the Reserve Bank of India (RBI). The management of the Corporation vests with its Board of Directors, of which a Deputy Governor of the RBI is the Chairman. As per the DICGC Act, the Board shall consist of, besides the Chairman, (i) one Officer (normally in the rank of Executive Director) of the RBI, (ii) one Officer from the Central Government, (iii) five Directors nominated by the Central Government in consultation with the RBI, three of whom are persons having special knowledge of commercial banking, insurance, commerce, industry or finance and two of whom shall be persons having special knowledge of, or experience in co-operative banking or co-operative movement and none of the directors should be an employee of the Central Government, or the RBI or the Corporation or a director or an employee of a banking company or a co-operative bank, or otherwise actively connected with a banking company or a co-operative bank, and (iv) four Directors, nominated by the Central Government in consultation with the RBI, having special knowledge or practical experience in respect of accountancy, agriculture and rural economy, banking, co-operation, economics, finance, law or small scale industry or any other matter which may be considered to be useful to the Corporation. The Head Office of the Corporation is at Mumbai. An Executive Director/Chief General Manager is in overall charge of its day-to-day operations. It has four Departments, viz. Accounts, Deposit Insurance, Credit Guarantee and Administration, under the supervision of other Senior Officers. _ Deposit Insurance Banks covered by Deposit Insurance Scheme are (i) All commercial banks including the branches of foreign banks functioning in India, Local Area Banks and Regional Rural Banks. (ii) Cooperative Banks - All eligible co-operative banks as defined in the DICGC Act are covered by the Deposit Insurance Scheme. Insurance coverage The Act also empowers the Corporation to raise this limit with the prior approval of the Central Government. Accordingly, the insurance limit was enhanced from time to time and it has been raised to Rs. 1,00,000/- with effect from 1st May 1993 onwards. Types of Deposits Covered DICGC insures all bank deposits, such as saving, fixed, current, recurring, etc. except the following types of deposits. • Deposits of foreign Governments; • Deposits of Central / State Governments; • Inter-bank deposits; • Deposits of the State Land Development Banks with the State co-operative banks; • Any amount due on account of and deposit received outside India; • Any amount which has been specifically exempted by the corporation with the previous approval of the RBI. .Insurance Premium The rate of insurance premium was fixed at 0.05 or 1/20th of 1 per cent per annum with effect from 1st July 1993. Since 2001, the Corporation has had to settle claims for large amounts due to the failure of banks, particularly in the Co-operative Sector causing a drain on the Deposit Insurance Fund (DIF). While there is sufficient corpus in Deposit Insurance Fund for the present, it is necessary to build up a sound DIF in the long term to protect the interests of the banking system. With this objective _ the Corporation decided to enhance the deposit insurance premium from 5 paise per Rs.100 of assessable deposits per annum to 10 paise per Rs.100 of assessable deposits per annum in a phased manner over a period of 2 years. Accounts The Corporation maintains the following Funds: Deposit Insurance Fund, Credit Guarantee Fund and General Fund. The first two are funded respectively by the insurance premia and guarantee fees received and are utilized for settlement of the respective claims. The General Fund is utilized for meeting the establishment and administrative expenses of the Corporation. The Mission of DICGC is to contribute to stability and public confidence in the banking system through provision of deposit insurance and credit guarantee to small depositors and borrowers. The Vision is to make it as one of the most efficient and effective deposit insurance and credit guarantee providers, responsive to the needs of its stakeholder.