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2. BANKING DIVISION

2.1 Organisation and Role

Banking Division is concerned with Government policies which have a bearing on the working of commercial banks andthe term lending institutions excluding Life Insurance Corporation of India, General Insurance Corporation of India and Unit Trust ofIndia. The Division is headed by Secretary and operates through three sub-divisions, each headed by Joint Secretary dealingwith (i) Banking Operations (ii) Industrial Finance and (iii) Priority Sector.

2.2 Implementation of Official Language Policy in the Banking Division, Banks and Financial Institutions

2.2.1 Banking Division ensures implementation of Official Language Act, 1963 and Official Language Rules 1976, as well asinstructions received from the Department of Official Language, Ministry of Home Affairs, from time to time, in its own Division asalso in 27 Public Sector Banks and Seven All India Financial Institutions (i.e. IDBI, IFCI, NABARD, EXIM BANK, SIDBI, IRBI,and NHB), besides the Reserve Bank of India (RBI).

2.2.2 An Official Language Implementation Committee is functioning in the Banking Division. This Committee periodicallyreviews the progress made in the use of Hindi in RBI, Public Sector Banks and Financial Institutions. These banks and financialinstitutions send their quarterly progress reports regarding use of Hindi in their Head Offices to the Banking Division which are alsoreviewed in the meetings of Banking Division's Official Language Implementation Committee. During 1995-96, four such meetingswere held. RBI, Public Sector Banks and Financial Institutions also have their own Official Language Implementation Committeeswhich also meet regularly to review the progress made in the use of Hindi. In addition, 22 Town Official Language ImplementationCommittees also monitor the progress of implementation of Official Language Policy in banks in different Towns.

2.2.3 As a result of the reviews made at different levels, the use of Hindi for official purposes in Public Sector Banks andFinancial Institutions has got accelerated. Letters received in Hindi are being replied to in Hindi and Section 3(3) of the OfficialLanguages Act 1963 is being fully implemented. Forms and other procedural literature are also printed bilingually. Theadvertisements, press communiques and public notices of all India coverage are issued bilingually by Public Sector Banks andFinancial Institutions. Annual Reports and House Journals are also being publised by the bank and financial institutions bilingually.In addition, Hindi magazines are brought out by almost all the Banks.

2.2.4 According to a decision taken by the Banking Division Official Language Implementation Committee, the Banks whosebranches in a particular District are doing more than 80 per cent of their work in Hindi, such Districts are to be declared as 'HindiDistricts'. At present 414 districts have been declared as Hindi Districts by different banks. Some Banks have even declared some ofthe States as 'Hindi States' in Region 'A' on the above pattern.

2.2.5 According to Rule 10(4) of the Official Language Rules, 1976, all offices and branches of banks and financial institutionswhere more than 80 per cent of the staff has acquired working knowledge of Hindi as per the definition given in rule 10(1) of theOfficial Language Rules, 1976, are required to be notified in the Gazette of India. During the year, 972 branches/offices of variousbanks and financial institutions have been notified under this rule, raising thereby the total number of notified branches/offices to19684. The banks and financial institutions have also specified some of their departments or some sections in branches for doing theirentire work in Hindi as required under Rule 8(4) of the Offical Language Rules, 1976.

2.2.6 Consequent to the follow up action taken on the recommendations made by the Committee of Parliament on OfficialLanguage, training centres of banks and financial institutions situated mostly in Region 'A' and 'B' barring a few technical courses, areconducting their training courses either exclusively through Hindi medium or in mixed language of Hindi and English. Handouts andtraining material are also available both in Hindi and in English.

2.2.7 Banks and Financial Institutions in addition to publishing small glossaries and booklets containing provisions of OfficialLanguage Act, 1963 and rules made there-under, annual programme, specimen of Hindi letters, standard notes and drafts, alsoorganise Hindi workshops to impart training for working in Hindi to their staff.

2.2.8 Central Recruitment Board, State Bank of India group and Banking Service Recruitment Boards have already given optionof Hindi medium for all subjects, except English paper which is required to test the proficiency in English of the candidates.

2.2.9 All papers which are required to be placed before Parliament, Parliamentary Committees, Monthly Summaries for theCabinet and all Cabinet notes are prepared bilingually in the Banking Division. During the year, summaries required for 'EstimatesCommittee', Parliamentary Consultative Committee attached to Ministry of Finance etc. were also prepared bilingually.

2.2.10 Parliamentary Committee on Official Language inspected about 25 branches/offices of banks/financial institutions duringthe year. A representative of the Banking Division was present during these inspections and follow up action was got taken on theassurances given to the Committee.

2.2.11 "Reserve Bank Governor Rajbhasha Shield" was awarded to banks during the year in region 'A', 'B' & 'C' for doingexcellent work in the field of Hindi. Besides this, Ministry of Home Affairs have also awarded 'Indira Gandhi Rajbhasha Shields' forthe year 1993-94 and 1994-95 to banks in Region 'A', 'B' and 'C' for doing excellent work in the implementation of Official LanguagePolicy of the Government of India. 'Indira Gandhi Rajbhasha Shield' was also awarded to Town Official Language Implementation

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Committees (TOLIC) this year. These awards were presented by Hon'ble President of India at an impressive ceremony atRashtrapati Bhawan.

2.3 Workmen Employees Directors

During the year 1995-96, Government appointed Workmen Employee Directors on the Boards of State Bank of Patiala, Bank ofIndia, Canara Bank, Corporation Bank, Indian Bank, UCO Bank, Bank of Baroda and Dena Bank. Action for appointment ofWorkmen Employee Director on the Boards of two other banks is in process. Workmen Employee Directors on the Board of 24banks are in position. As on March 31, 1996 there are three vacancies viz. in State Bank of India, Andhra Bank and State Bank ofSaurashtra.

2.4 Pension Settlement

In pursuance of the agreement signed by Indian Banks Association with the Workmen Unions, the banks have formulated thePension Regulations and the Regulations have been got notified in the Gazette Extraordinary on September 29, 1995.

2.5 Pay revision

The pay revision with effect from November 1, 1992 has been done during the year, in respect of Officers and award staff ofPublic Sector Banks.

2.6 Representation of Scheduled Castes/Scheduled Tribes in Public Sector Banks/Financial Institutions

The representation of SCs/STs in 19 nationalised banks, State Bank of India and its associate banks, Reserve Bank of India,Industrial Development Bank of India, Industrial Reconstruction Bank of India, National Bank for Agriculture and RuralDevelopment, Export Import Bank of India, and SIDBI as on December 31, 1994 was as under :

Category Total No. of Employees Number of employees belonging to

SC ST

Officers 250806 26861 8818

Clerks 473429 68787 21990

Sub-Staff 178590 39949 10430

Sweepers 38919 21063 2009

2.7 Representation of Ex-servicemen in Public Sector Banks/Financial Institutions

The representation of Ex-servicemen in 19 nationalised banks, State Bank of India and its associate banks, Reserve Bank ofIndia, National Bank for Agriculture and Rural Development, Export-Import Bank of India, and SIDBI as on December 31, 1994 wasas under :

Category/Post Total No. of Ex-servicemen employed

Officers 2006

Clerks 13576

Sub-Staff 40748

Sweepers 4

2.8 Representation of Physically Handicapped Persons in Public Sector Banks/Financial Institutions

The number of physically handicapped persons in various categories, viz., Blind, deaf and dumb and orthopaedically handicappedpersons, working in Officers, Clerical and Sub-Staff cadres in 19 nationalised banks, State Bank of India, and its Associate Banks,Reserve Bank of India, National Bank for Agriculture & Rural Development and Export-Import Bank of India, SIDBI as on December31, 1994 was as under :

Cadre/Post Blind Deaf & Dumb Orthopaedically Handicapped

Officers 12 17 791

Clerks 480 649 4269

Sub-Staff 112 220 1735

2.9 Reservations for Other Backward Classes

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The instructions of the Government with regard to reservations for OBCs at the rate of 27% vacancies in direct recruitmentw.e.f. September 8, 1993 have been made applicable to the banking industry. Accordingly the instructions/clarifications issued by theDepartment of Personnel & Training/Ministry of Welfare in this regard have been circulated to the banks. The banks are advised tofollow the instructions of the Government scrupulously. As reported by banks/financial institutions the number of OBCs appointed ineach of the following categories as on December 31, 1994 was as mentioned below:

Officers Cadre … 40

Clerical Cadre … 93

Sub-Staff … 216

2.10 Profitability

2.10.1 Public Sector BanksAnalysis of the financial results of the public sector banks indicates a turnaround in their performance during 1994-95. As a

result of the implementation of prudential norms on income recognition, asset classification and provisioning, public sector banks as agroup, went into red during 1992-93 and 1993-94 showing a net loss of Rs.3291 crore and Rs.4349 crore respectively. However, forthe year ended 31 March, 1995, the public sector banks as a whole achieved a net profit of Rs.1116 crore. This was mainly due to thesubstantial increase in interest income on loans and advances and investments and also lower provisioning requirements. SBI and itsassociate banks has made a net profit of Rs.846 crore for the year ended 31 march 1995 as against Rs.356 crore in the previous year.The nationalised banks as a group had made a net profit of Rs.269 crore for the year ended 31st March 1995 as against a net loss ofRs.4705 crore in the previous year.

2.10.2 Private Sector BanksThe aggregate net profits of the private sector banks which stood at Rs.62.17 crore in 1992-93 increased by 51.5% to Rs.94.20

crore in 1993-94 and shot up to Rs.329.00 crore during 1994-95 recording a hefty increase of 249.3% over the preceding year. Of theabove, the aggregate net profit of six new private sector banks stood at Rs.42.28 crore.

2.11 Working of Indian Banks' Branches abroad

2.11.1 The overseas operations of Indian public sector banks witnessed a period of consolidation and rationalisation during1985-1995. As against 12 public sector banks having 141 branches in 24 countries in 1984, there are at present 8 public sector bankshaving 100 branches in 24 countries. Besides the branch network, there are 13 representative offices, 7 joint ventures and 10subsidiaries. Some of the banks have been rendering management services under contracts to bank affiliates and Exchange Housesabroad.

2.11.2 Aggregate balance sheet size of the overseas branches for the year ended 31 March 1991, 1992, 1993, 1994 and 1995 is as

under:

(US $ Million)

1991 1992 1993 1994 1995

20668 15667 13682 11221 12385

2.11.3 It would be observed that after a continuous decline in the size of the assets/liabilities of the overseas branches from 1991onwards, an improvement was noticed in 1995.

2.11.4 After several years of incurring losses in the overseas sector, there had been a turnaround for the banks during 1994and 1995 by way of operating and net profit in the aggregate. The bankwise profitability position is as under:

Net Profit / (-) loss

(Rs. in crores)

Name of the bank 31.3.93 31.3.94 31.3.95

State bank of India (+) 23.30 (+)130.81 (+) 64.70

Bank of India (-) 111.50 (-) 51.67 (+) 60.00

Bank of Baroda (-) 73.83 (-) 12.74 (-) 20.40

Indian Bank (+) 2.76 (+) 1.95 (+) 1.40

Indian Overseas Bank (-) 18.90 (-) 4.38 (-) 0.50

UCO Bank (-) 60.36 (-) 38.19 (+) 25.60

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Syndicate Bank (-) 48.23 (-) 3.09 (+) 1.10

Canara bank (+) 0.09 (-) 7.56 (-) 4.90

Grand Total (-) 286.67 (+) 15.13 (+) 127.00

2.12 Branches of Foreign Banks In India

2.12.1 During 1994-95, the foreign banks had recorded net profit of Rs.605.23 crore (1.60 per cent on working funds) as againstnet profit of Rs.503.97 crore( 1.51 per cent on working funds) during 1993-94. Thus there was a marginal increase in profitability offoreign banks during the year under review. Foreign banks defaulting in achieving the target/sub-targets in priority sector lending as atthe end of March 1995 were required to deposit with SIDBI an amount equivalent to the shortfall in achieving the target of 32% of thecombined shortfall in achieving the sub-targets, whichever, was higher. Accordingly, six foreign banks had

deposited an aggregate amount of Rs.73.17 crore with SIDBI in respect of their shortfall in achieving the target/sub-targets as at theend of March 1995. In respect of banks which have not complied so far with the above requirement, the matter is being pursued.

2.12.2 Only 3 foreign banks viz. Citibank N.A. Deutsche Bank and Hongkong & Shanghai Banking Corporation had achievedthe target fixed for finance for housing purpose. The banks which have not achieved the housing finance target are being suitablyadvised to fulfil the targets.

2.13 Strengthening of banks

2.13.1Capital adequacy norms

The overall performance of the public sector banks during the year 1994-95 in attaining the minimum CRAR of 8% progressivelyby March 1996 has been encouraging. As on 31 March 1995, 13 public sector banks had attained the CRAR of 8 per cent, 11 banksbetween 4 per cent to 8 per cent and remaining 3 banks (viz. United Bank of India, State Bank of Travancore and State Bank ofMysore) less than 4 per cent. The stipulated capital adequacy norm had been achieved by 31 private sector banks as on March 31,1995. While CRAR of 31 banks (as reported by them) was more than 4% (being the minimum capital adequacy requirementapplicable to them as on 31 March 1993), CRAR of Bharat Overseas Bank Ltd., having a branch abroad, was reported at 10.7% as on31 March 1995. The matter is being pursued with the remaining three banks, viz. Kashi Nath Seth Bank Ltd. (since amalgamated withSBI), Pubjab Co-operative Bank Ltd. and Nedungadi Bank Ltd.

2.13.2 All the foreign banks operating in India had achieved the norm of 8% prescribed as at the end of March 1993 as stipulated.

2.14 Additional Capital Contribution to nationalised banks by the Government of India

2.14.1 During the year 1994-95, out of the budgetary provision of Rs.5600 crore, Government released an amount of Rs.5287.12crore in three stages towards additional capital to 13 nationalised banks.

2.14.2 During 1995-96, Government released an amount of Rs.850 crore towards additional capital to six nationalised banks.

2.15 Financial Sector Development Project

International Bank for Reconstruction and Development (IBRD) has approved in March 1995 a Financial Sector Developmentloan of US $ 700 million comprising (i) Capital restructuring loan of US $ 350 million, (ii) modernisation and institutionaldevelopment loan of US $ 150 million and (iii) back-stop facility loan of US $ 200 million.

2.16 Packages for revival of weak public sector banks

RBI, in consultation with the Government of India has appointed Study Groups consisting of outside experts to go into problemsof four weak nationalised banks, viz., Central Bank of India, Bank of Maharashtra, UCO Bank and United Bank of India and assisttheir respective managements in formulating packages for their revival and to suggest strategies of turning the banks around. Thereports submitted by the Study Groups have been forwarded to the respective banks for their comments thereon.

2.17 Tapping the capital market directly by the Public Sector Banks

2.17.1 With the amendment to the banking companies (Acquisition and Transfer of undertakings) Acts, 1970/80 nationalisedbanks are enabled to strengthen their capital base by offering equity to the public to the extent of 49 per cent. Oriental Bank ofCommerce was the first nationalised bank which successfully accessed the capital market and raised a sum of Rs.387.24 crore inOctober, 1994, thereby reducing the Government shareholding in the bank to 66.5 per cent.

2.17.2 While positioning themselves to tap the capital market through public offerings of equity and debt, some banks find thattheir existing equity base is oversized in comparison with the projected stream of earnings. It may become necessary in such cases toreduce the Government equity stake. Government promulgated an Ordinance in January 1995 to amend the Banking Companies(Acquisition and Transfer of Undertakings) Acts, 1970 & 1980 which has subsequently become an Act of Parliament in March 1995,for enabling the banks to reduce the paid-up capital.

2.18 Performance obligations and commitments required by Nationalised Banks for 1995-96

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The performance of 19 nationalised banks was reviewed in relation to the target agreed upon with reference to the position as on31 March 1995 and the projections for 1995-96 under different parameters given by the banks were discussed by RBI in detail inseries of meetings held with the Chief Executives of the banks in August and September, 1995. The thrust areas in the discussionsinclude mobilisation of low-cost deposits, reduction in Non-performance Assets, improving profitability, adherence to time frameprescribed for adjustment of entries outstanding in inter-branch adjustment account etc.

2.19 Scheme for collection of information on defaultors and suit filed accounts

2.19.1 Based on the information collected, RBI has circulated to banks and financial institutions, information on the defaultingborrowers as on 30 September, 1994. A list of suit filed accounts as on 31 March 1994 has also been published by RBI.

2.19.2 The position regarding defaulting borrowers of Banks and Financial Institutions as on September 1994 is as under :

(Rs. in crores)

A. Banks No. of Accounts Amount

Doubtful 1471 6217.42

Loss 250 801.99

Suit filed 795 3352.05

B. FI's

Doubtful 1102 5424.61

Loss 246 770.67

Suit filed 195 691.22

2.19.3 The recovery of debts due to Banks and Financial Institutions Act 1993 was passed by the Parliament on August 27, 1993.This Act provides for the establishment of Tribunals for expeditious adjudication and recovery of debts due to banks and financialinstitutions and the matters connected therewith or incidental thereto. Under the provisions of the Act 5 Debts Recovery Tribunals andone Debts Recovery Appellate Tribunal have been established.

2.20 Prudential Guidelines

2.20.1 Provisioning for advances with balances less than Rs.25,000/-

As per the credit policy announced by Governor, RBI on October 17, 1994, it was decided that for the year ending 31 March1995, banks should make provisions to the extent of 7.5 per cent of the aggregate amount outstanding in respect of advances withbalances of less than Rs.25,000/- instead of 5 per cent as per the existing instructions. It was also advised that provisioningrequirement in respect of such advances would be 10 per cent for the year ending 31 March 1996. However, banks which are in aposition to make provisions according to the asset classification norms as set out in the circular dated 27 April 1992, would be free todo so.

2.21 Entry of new banks in the private sector

Subsequent to the issue of guidelines in January 1993 for the entry of new private sector banks, six banks were granted licencesand they have started operations, the details of which are given below:

Name of the Bank Registered Officeof the Bank

Date of issue

i) UTI Bank Ltd. Ahmedabad Feb. 28, 1994

ii) Indus Ind Bank Ltd. Pune April 2, 1994

iii) ICICI Bank Ltd. Baroda May 17, 1994

iv) Global Trust Bank Secunderbad Sept. 6, 1994

v) HDFC Bank Ltd. Bombay Jan. 5, 1995

vi) Centurion Bank Ltd. Panaji (Goa) Jan. 13, 1995

2.22. Shipping Finance

2.22.1 In pursuance of the Shipping Development Fund Committee (Abolition) Act, 1986, the functions of the ShippingDevelopment Fund Committee(SDFC) were taken over by the Ministry of Finance (Banking Division) with effect from 3rd April,

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1987. Sanction release of loans to shipping companies in the private sector against past commitments of SDFC, and recovery of duesfrom Shipping and Fishing Companies is accordingly being conducted in the Banking Division.

2.22.2 Government disbursed an amount aggregating Rs.89.10 crores till March, 1995 and Rs.40 lakhs during 1995-96 (tillNovember, 95) for meeting the commitments of the erstwhile SDFC relating to shipping companies in the private sector.Rehabilitation packages were sanctioned for five shipping companies in the private sector. However, out of the five rehabilitatedcompanies, one company, viz. M/s. Tolani Shipping Co. Ltd. has since opted out of rehabilitation and another company, M/s.Ratnakar Shipping Company Ltd., has since merged with M/s. India Steamship Co. Ltd. Hence, at present only 3 shipping companiesare under rehabilitation.

2.22.3 The funds in respect of erstwhile SDFC assisted fishing companies are provided by Ministry of Food Processing Industries(MFPI) from their budget provisions. Erstwhile SDFC had sanctioned loan to eighty five fishing companies to acquire trawlers. Sincethe fishing companies, except three companies, were not repaying their loans, MFPI constituted a Technical Committee on the DeepSea Fishing Industry in India, to suggest corrective measures for the rehabilitation of the sick units. The recommendations of theCommittee are under consideration.

2.22 SCICI Limited

2.23.1 SCICI Limited was incorporated as non-Government company under the Companies Act, 1956, with effect from Dec. 8,1986. It was promoted by the Industrial Credit & Investment Corporation of India Limited, alongwith some other financialinstitutions and nationalised banks. This company has been notified as a 'designated person' under Section 16, Chapter III of theSDFC (Abolition) Act for taking action in terms of this Chapter on behalf of Government of India. Besides functioning as an Agentof the Government for the rehabilitation of sick companies in the shipping and fishing sectors, SCICI has been entrusted with theresponsibility of extending fresh finance for the acquisition of ships and fishing trawlers.

2.23.2 SCICI's issued/paid up capital is Rs.114 crores against an authorised capital of Rs.200 crores. 77% of paid up capital isheld by public financial institutions, nationalised banks, mutual funds, insurance companies and foreign institutional investors. SCICIhas been notified as a Public Financial Institution under the Companies Act.

2.23.3 During 1994-95, SCICI sanctioned assistance aggregating to Rs.3719.80 crores comprising of foreign currency loansequivalent to Rs.1044.87 crores and rupee loan of Rs.1819.66 crores, underwriting/investment assistance of Rs.526.72 crores,guarantees of Rs.167.25 crores and leasing assistance of Rs.161.30 crores to various sectors including shipping industry.Disbursements during the year 1994-95 amounted to Rs.1440.65 crores. On a cumulative basis, upto march 31, 1995 sanctions bySCICI amounted to Rs.7696.54 crores and disbursements Rs.3695.59 crores.

2.24 Industrial Credit and Investment Copn. of India Ltd. (ICICI)

The Corporation recorded an impressive growth in its operations in 1994-95, while approvals for financial assistance registered agrowth of 77% from Rs.8491 crore in 1993-94 to Rs.15065 crore in 1994-95, disbursals also rose significantly by 56%- from Rs.4413crore in 1993-94 to Rs.6879 crore in 1994-95. As a result, total assets grew from Rs.15098 crore in 1993-94 to Rs.18339 crore in1994-95.

2.25 Industrial Development Bank of India (IDBI)

2.25.1 Aggregate assistance sanctioned during 1994-95 amounted to Rs.19833 crore recording a growth of 58.8% over theassistance of Rs.12491.3 crore sanctioned in 1993-94. Disbursements at Rs.10621.3 crore recorded an increase of 31.60% over thosein the previous year of Rs.8071 crore. Total assistance outstanding at the end of March, 1995 stood at Rs.33244.5 crore, higher by12.4% as compared to the outstanding at the end of the previous year (Rs.29585.7 crore).

2.25.2 The Textile Industry accounted for 19.7% of the total assistance sanctioned during the year. Electricity generation(14.4%), chemicals and chemical products, a broad group including petrochemicals, pharmaceuticals, explosives, plastics, etc.(13.8%), electrical and electronic equipment (7.4%), iron and steel (7%) and cement (5.3%) were other important industries to whichbulk of assistance was sanctioned during the year.

2.25.3 During the year, assistance sanctioned to private sector constituted 85.2% of the total assistance. Assistance to publicsector formed 9.2%, joint sector 5.3%, cooperative sector 0.3% of the total sanctions respectively.

2.25.4 During the year 1994-95 IDBI earned a pre-tax profit of Rs.1031 crore as against Rs.795.4 crore during the previous year.A sum of Rs.131.7 crore was transferred to Government of India as a return of 20% on capital of Rs.753 crores from April 1, 1994 toNov. 15, 1994 and on Rs.500 crores from Nov. 16, 1994 to March 31, 1995. A sum of Rs.15.08 crores was transferred to Governmentof India as a dividend @16% on preference capital of Rs.253 crores on pro-rata basis for the year 1994-95.

2.23 Industrial Finance Corporation of India Ltd. (IFCI)

2.26.1 IFCI was restructured from a statutory corporation to a company from 1st July, 1993. During the year 1995-96 overallsanctions of IFCI under its various schemes of assistance aggregated Rs.10,300 crores for 540 projects, recording 80% growth ascompared to Rs.5719.45 crores during 1994-95 (April-March). Total disbursements during the year aggregated Rs.4563 crores asagainst Rs.2838.73 crores disbursed during 1994-95 (April-March) registering 61% growth.

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2.26.2 Cumulatively, sanctions accorded by IFCI under its various schemes upto the end of March, 1996 amounted to Rs.33695crores to 4813 projects. The overall disbursements upto the 31st March, 1996 were of the order of Rs.19950 crores.

2.26.3 During the year, IFCI assistance to projects in less developed districts/areas amounted to Rs.5722 crores in respect of 241projects, which constituted 56% of the total assistance sanctioned. Cumulatively, upto the March 31, 1996, IFCI had sanctionedfinancial assistance aggregating Rs.16511 crores to 2164 projects located in notified less developed districts/areas which constituted49% of IFCI's overall net cumulative sanctions.

2.24 Small Industries Development Bank of India

2.27.1 SIDBI completed 5 years of operations on March 31, 1995. During the year ending March 31, 1995 total sanctions anddisbursements by SIDBI aggregated to Rs.4699.3 crores and Rs.3385.3 crores respectively. The sanctions and disbursements recordedgrowth of 40.1% and 26.7% respectively over the previous year. These growth rates were the highest since the inception of the Bank.

2.27.2 SIDBI caters to the credit requirements of Small scale units directly through tailor-made schemes of assistance andindirectly through the vast network of primary lending organisations mainly in the form of refinance. Availment of refinance by thecredit institutions has been on the decline since 1991-92. On the other hand, SIDBI's operations under its schemes of direct assistancehave been recording significant growth.

2.27.3 During 1994-95 the thrust of the policy initiatives by SIDBI was on expanding the scope and coverage of major schemesdesigning and introducing new schemes of assistance and strengthening the collaborative relationship with other financial institutions,agencies of Government of India and international agencies. As a result SIDBI is now able to offer a package of assistance whichwould take care of the fund-based requirements inclusive of equity, project loans, equipment finance, short term loans and assistancein foreign currency. The new schemes of assistance introduced during 1994-95 include a scheme for Pre-shipment Credit in ForeignCurrency to the exporting SSIs, a scheme for direct equity investment in the SSI units by SIDBI, a scheme for direct financialassistance to well run export-oriented SSIs to acquire ISO 9000 series certification and a savings-cum-credit scheme to providerevolving type fund support to accredited Voluntary Organisations working with special target groups in the rural areas to extendsupport to creation and strengthening of self-help groups.

2.27.4 Total income from operations during the year was Rs.1000.00 crores with a net profit of Rs.191.3 crores. Out of the netprofit a sum of Rs.113.3 crores has been transferred to Reserves; Rs.5 crore to National Equity Fund, Rs.10 crores to Venture CapitalFund, Rs.3 Crore to Mahila Vikas Nidhi, Rs.5 crore to Mahila Udyam Nidhi, Rs.1 crore to the Staff Welfare Fund and the balanceamount of Rs.54 crores would be transferred to IDBI in terms of Section 29 (2) of the SIDBI Act, 1989 as return on capital.

2.28 Export-Import Bank of India

2.28.1 Exim Bank has a menu of 32 major programmes covering all the stages of export cycle. During the year ended March1996 Exim Bank sanctioned loans of Rs.2466 crores under various lending programmes. Disbursements during the year amounted toRs.2130 crores. Loan outstanding increased by 11% moving upwards to Rs.2888 crores on March 31, 1996 from 2596 crores as onMarch 31, 1995.

2.28.2 The Bank extended guarantee commitments and accorded sanctions for guarantees of Rs.981 crores and Rs.203crores respectively for overseas projects; guarantees amounting to Rs.173 crores were issued during the year. Guaranteeoutstandings as on March 31, 1996 amounted to Rs.908 crores. Exim bank registered for the year ended March 31, 1996, a net profitof Rs.110 crores as against a profit of Rs.78.8 crores for the year ended March 31,1995 after adjusting for depreciation, providing asper RBI norms for non-performing assets and other normal provisions. Net profit has increased by 40% as compared to the previousyear. Out of the net profit, Rs. 20 crores will be paid to the government of India as dividend; an amount of Rs.82.30 crores istransferred to general reserves. In addition, Bank has transferred funds aggregating Rs.775 crores to Reserve for Guarantee-cum-refinance programme and Export Promotion Reserve. Net profit of the Export Development Fund was Rs.4 crores. Cumulativesanctions and disbursements of loans for the period March 1982 to March 1996 (fourteen years) stood at Rs.14,343 crores andRs.11,800 crores respectively. Cumulative guarantees sanctioned and guarantees issued during the above period amounted toRs.1230 crores and Rs.1049 crores respectively.

2.29 Industrial Reconstruction Bank of India (IRBI)

2.29.1 Industrial Reconstruction Bank of India (IRBI) came into existence on March 20, 1985 under the IRBI Act, 1984, as aresult of the reconstitution of the erstwhile Industiral Reconstruction Corporation of India Ltd. as the principal credit andreconstruction agency in the country for the revival of sick and closed industrial unit. In 1991, Government of India withdrew therestriction regarding principally financing of sick units by IRBI and it was expected to function as a regular financial institution. IRBInow extends loans and advances to industrial concerns including short-term loans and bridge loans, underwrites shares, bonds anddebentures and guarantees loans and deferred payments. Its range of activities also includes services like the provision ofinfrastructure facilities, consultancy, corporate counselling merchant banking and making available machinery and other equipment onlease or hire purchase basis.

2.29.2 The authorised share capital of IRBI is Rs.200 crores and its paid up share capital as on 31st December, 1995 wasRs.199.30 crores.

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2.29.3 The total assistance sanctioned and disbursed by IRBI during the year 1995-96 was Rs.897.03 crores and Rs.522.08 croresrespectively as compared to Rs.777.9 crores and Rs.397.6 crores respectively during 1994-95 thereby showing a rise of 15.3% forsanctions and 31.5% for disbursement. The cumulative sanctions and disbursements of IRBI as at the end of 1995-96 were Rs.3658crores and Rs.2397 crores respectively.

2.29.4 IRBI ensures stringent adherence to environmental aspects. Pollution clearance certificate from appropriate authorities isinvariably made a pre-condition for disbursement of assistance to relevant industries.

2.30 Board for Industrial and Financial Reconstruction (BIFR)

2.30.1The Board for Industrial and Financial Reconstruction (BIFR), set up under the Sick Industrial Companies (SpecialProvisions) Act, 1985 (1 of 1986) (SICA) became operational w.e.f. May 15, 1987. The Board looks into cases of sick industrialcompanies in the large and medium sector with a view to achieving, inter-alia, the objectives of timely detection of sickness anddetermination of preventive, ameliorative, remedial and other measures in respect of such companies and expeditious enforcement ofthe measures so determined.

2.30.2The progress of work of the BIFR as on 31.03.1996 is as follows:

1. References received 2546

2. Registration declined 758

3. Under Scrutiny 1

4. References registered 1787

5. Dismissed as non-maintainable 398

6. Rehabilitation Schemes approved/sanctioned 531*

7. Winding up recommended to the concerned High Courts 423

8. Draft Scheme circulated 51**

9. Winding up Notice issued 69@

10. Under inquiry 187

11. Schemes failed & reopened 47

12. Pending Cases Remanded by A.A.I.F.R. 20

13. Stay ordered by Courts 34+

14. Scheme by A.A.I.F.R./SC 27

* (79 merger cases (78 Private Sector + 1 State Public Sector) Including 93 cases Declared No Longer Sick (91 Pvt. Sectorplus 1 Central PSU and 1 State PSU)

** includes 12 cases of private sector for which schemes had been formulated earlier but had failed and were reopened.

@ includes 24 cases of private sector for which schemes had been formulated earlier but had failed and were reopened.

+ includes 7 cases of private sector for which schemes had been formulated earlier but had failed and were reopened.

2.30.3So far as Government companies are concerned, 185 (70 Central and 115 State) references were received as on March 31,1996. 140 of these references were registered (59 Central and 81 State). 27 cases were dismissed as non-maintainable (3 Central and24 State) under SICA. Revival Schemes were sanctioned for 32 (13 Central and 19 State) and closure recommended for 17 cases (6Central and 11 State).

2.31 Appellate Authority for Industrial and Financial Reconstruction (AAIFR)

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2.31.1The Appellate Authority for Industrial and Financial Reconstruction has been set up under the provisions of Sick IndustrialCompanies (Special Provisions) Act, 1985 to provide for a mechanism to hear appeals of sick industrial companies against the ordersof the Board for Industrial and Financial Reconstruction (BIFR). The AAIFR started functioning w.e.f. 15th April, 1987.

2.31.2During the year 1995 (upto December), the AAIFR disposed of as many as 87 cases. The other relevant statistics in thisregard are shown below:

1994 1995

No. of appeals pending at the beginning of the year 131 170

No. of appeals received during the year 236 170

No. of appeals disposed of during the year 202 87

2.32 State Financial Corporations (SFCs)

2.32.1 State Financial Corporations (SFCs) operating at the State level form an integral part of the development financing systemin the country. They function with the objective of financing and promoting small and medium enterprises for achieving balancedregional socio-economic growth, catalysing higher investment, generating greater employment opportunities and widening theownership base of industry.

2.32.2 At present, there are 18 SFCs in the country, 17 of which were set up under SFCs Act, 1951. Tamilnadu IndustrialInvestment Corporation Ltd., set up in 1949 under the Companies Act also functions as a full-fledged SFC. SFCs extend financialassistance to industrial units by way of term loans, direct subscription to equity/debentures, guarantees and discounting of bills ofexchange. SFCs operate a number of schemes of refinance and equity type of assistance formulated by IDBI/SIDBI which includeschemes for artisans, special target groups such as scheduled caste/scheduled tribes, women, ex-servicemen, physically handicappedetc. and for transport operators, setting up hotels, tourism related activities, hospitals and nursing homes, etc

2.32.3 The Government of India convened a meeting of State Government officials, Chief Executives of SFCs and SIDCs andsenior executives of IDBI and SIDBI to exchange views on financing of small and medium enterprises through SFCs/SIDCs. Thedecisions taken at the meeting include (i) the issue of revised guidelines regarding accounting and provisioning norms prescribed forSFCs (ii) financial restructuring of SFCs after indepth study of operations of each SFC, and (iii) review the SFCs Act by aCommittee headed by Chairman, IDBI. Based on the recommendations of the Committee of senior officials of RBI, IDBI and SIDBI,revised guidelines have been issued to SFCs by IDBI regarding income recognition, asset classification, provisioning and otherprudential norms in March 1994. The Committee to review the SFCs Act has submitted its report to Government in May, 1994.Actions on some recommendations which need not await amendment to the SFCs Act have been taken/are being taken by IDBI andGovernment. Amendment to the SFCs Act on the basis of the recommendations of the Committee are under consideration of theGovernment.

2.33 Finance Minister's Meeting with the Chief Executives of Public Sector Banks held on August 28, 1995

Finance Minister had a meeting with the Chief Executives of public sector banks and financial institutions on 28th August, 1995which was also attended by the Governor and Dy. Governors of RBI and reviewed the functioning of these organisations. FinanceMinister expressed satisfaction over the achievements in the banking sector since 1991 when reforms were introduced. He took noteof the positive developments in regard to reduction in the non-performing assets as a proportion to total advances as also improvedprofitability. He elaborated on the social concerns and called upon the bankers to change their general bias in favour of the ruralmasses so as to reduce income disparities to improve the performance in meeting the targets for priority sector lending and otherdevelopment programmes of the Government such as the Prime Minister's Rozgar Yogana (PMRY) and lending to the Khadi andVillage Industries. While emphasising that our youth is the country's greatest asset, he called upon the banks to play a pro-active rolein exploring and expanding the range of viable schemes and projects suitable for these young enterpreneurs and assist DistrictIndustries Centres in coming up with creditworthy proposals for the socially and economically disadvantaged sections of the society.The Minister noted the improvements in the regulatory and supervisory regime and stressed that self-regulation was the best guaranteeagainst the type of lapses that had taken place. Finance Minister said that despite best efforts made by the banks with regard to thecomplaints received regarding unsatisfactory customer service, the General public perception was that the quality of service offered bybanks to their customers both depositers and borrowers was not of acceptable standard and called upon the banks to ensure thatcomputerisation should increase productivity, reduce costs and results in the provision of better services to customers. The Ministercalled upon the banks to see as to how the needs of genuine women enterpreneurs in the agriculture, small scale and export sectorcould be adequately met. The Finance Minister stressed that economic reform was not a licence to benefit a few but an opportunityfor nation building and a challenge for meeting the social concerns. The banks have to accept the challenge of development bankingwhile remaining sound commercial institutions.

2.34 Regional Consultative Committee Meeting

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2.34.1The 8th meeting of the Regional Consultative Committee of the Nationalised Banks for North Eastern Region comprisingof the states Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland & Tripura was held on 4th Janauary, 1996 atShillong under the Chairmanship of the then Minister of State (Banking & Insurance). The meeting was also attended by ChiefMinister of Mehgalaya, Deputy Chief Minister of Manipur, Finance Ministers of Assam & Mizoram, Minister of Industries,Commerce and R.D. Department Tripura and Deputy Minister of Finance, Arunachal Pradesh. Deputy Governor RBI, Chairman IBA,Chairman & Managing Directors of Lead Banks in the Region and Chairman/MD's of IDBI, IRBI, NABARD, SIDBI & North EasternDevelopment Financial Corporation and Sr. Officials of Ministry of Finance, RBI, government officials of Arunachal Pradesh, Assam,Manipur,Meghalaya, Mizoram, Nagaland and Tripura were also present.

2.34.2The Regional Consultative Committees were constituted after the nationalisation of banks to review the bankingdevelopments in the various regions of the country to make recommendations for the consideration of the Central Government, RBIand State Governments. The RCC meeting, such as these served as useful forum for exchange of views at the highest level for forgingpolicy initiatives for the developments of the region.

2.35 Debts Recovery Tribunals

2.35.1 Under the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 which provides forestablishment of Recovery Tribunals and Appellate Tribunals for expeditious adjudication and recovery of debts due to Banks andFinancial Institutions and matters connected therewith or incidental thereto, the Central Govt. have established the followingTribunals.

Location Date of establishment Jurisdiction

1. Debts Recovery Over all the Debts

Appellate Tribunal July 12, 1994 Recovery Tribunals

Bombay

2. Debts Recovery Tribunals

i) Calcutta April 27, 1994 West Bengal, Andaman & Nicobar Island.

ii) Delhi July 5, 1994 Delhi.

iii) Jaipur August 30, 1994 Himachal Pradesh, Punjab, Haryana,Rajasthan & Chandigarh.

iv) Bangalore November 30, 1994 Karnataka and Andhra Pradesh

v) Ahmedabad December 21, 1994 Gujarat, UT of Dadra and Nagar Haveli,Daman & Diu.

2.35.2 Each Debt Recovery Tribunal is headed by a Presiding officer. A person who is or has been or is qualified to be DistrictJudge can be appointed as Presiding Officer by the Central Government. For appointment to the post of Presiding Officer of theAppellate Tribunal the candidate should possess the following qualifications:

(a) is, or has been, or is qualified to be, a judge of a High Court; or

(b) has been a member of the Indian Legal Service and has held a post in Grade I of that service for at least three years; or

(c) has held office as the Presiding Officer of a Tribunal for at least three years.

2.35.3On a Writ Petition filed by Delhi High Court Bar Association challenging the validity of the Recovery of Debts Due toBanks and Financial Institutions Act, 1993 the Delhi High Court quashed the Notification regarding establishment of Debts RecoveryTribunal for Delhi Region and declared the Act as unconstitutional and void on March 10, 1995. The Union of India filed a SpecialLeave Petition and the Hon'ble Supreme Court stayed the Judgement of Delhi High Court in April, 1995. The constitutionality of theRecovery of Debts Due to Banks and Financial Institutions Act, 1993 has also been challenged before the various High Courts of thecountry i.e. Madras, Calcutta, Andhra Pradesh, Himachal Pradesh, Karnataka etc.. U.O.I. has also filed a Transfer Petition underArticle 139-A of the Constitution of India to transfer cases from different High Courts of the country to the Supreme Court. Furtherproceedings in the various High Courts in the cases mentioned in Transfer Petition have been stayed by the Supreme Court onNovember 27, 1995. Section 6 and Section 11 of the Debts Recovery Tribunal Act has been amended thereby raising the age ofretirement of Presiding Officer of Debts Recovery Tribunal from 60 to 62 years and Presiding Officer of Debts Recovery AppellateTribunal from 62 to 65 years.

2.36 Priority Sector Lending

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2.36.1The Government have been giving considerable importance to the priority sector lending particularly in view of the needfor quicker upliftment of the weaker and the down-trodden sections of the society. With a view to achieve this objective, the presentcredit policy aims at channelising increasing flow of credit to priority sector and in particular to the weaker sections of the society.Banks have been urged to step up priority sector lending so that they may respond effectively to the challenges before the nation formeeting the social concerns.

2.36.2The percentage of priority sector advances to net bank credit of public sector banks has improved from, 36.56 per cent inMarch end 1995 to 37.75 per cent in March end 1996 against the target of 40%. The percentage of advances to agriculture has alsoshown an increase from 13.9 per cent in March end 1995 to 14.29 per cent in March end 1996 against the stipulated target of 18 percent. The SSI sector has absorbed 16 per cent of net bank credit whereas the percentage lent to weaker sections is 8.45 per cent,against the target of 10 per cent.

2.37 Branch Expansion/Branch Licensing Policy

Banks have been given greater freedom to rationalise their branch network by relocating branches, opening of specialised/servicebranches, spinning off of business, setting up of controlling offices/administrative units, opening of extension counter etc.. As regardsopening new branches other than specialised or service branches and upgradation of existing extension counters into fullfledgedbranches, banks are to decide on the policy and strategy for setting up new branches taking into account the need to meet the overallnational policy objectives, the need to cater to the special requirement of modern globalised business which call for a quick andefficient response and the need to keep the establishment costs and the overheads under control. According to the present policybanks meeting the following criteria have the freedom to open new branches and to convert extension counters into full fledgedbranches:

(a) Compliance with capital adequacy of 8 per cent,

(b) Minimum owned funds of Rs.100 crores,

(c) Bank showing net profit continuously for three years and

(d) Non-performing assets not exceeding 15 per cent of its aggregate portfolio.

The number of bank offices of commercial banks as at the end of March, 1995 was 62,264 of which 35,008 (56.2%) were in ruralareas.

2.38 Regional Dispersal of Credit

2.38.1 The credit-Deposit (CD) Ratio is often considered to be an important indicator, among others, of the extent of contributionmade by the banks to developmental activities in the concerned state. The CD ratio depends not only on the efforts made by the banksbut also on various other factors such as credit-absorptive capacity of the region, infrastructural support, and the overall policyframework in the region. Banks are expected to have a CD ratio of 60 per cent.

2.38.2With a view to ascertaining the reasons for low CD ratio in certain states, Task Forces had been constituted. The TaskForces of some of the States have already submitted their reports.

2.38.3In order to improve the credit absorption capacity, the Task Forces, inter alia, stressed the need for improvinginfrastructural facilities, consolidation of land holdings, development of markets, early detection and rehabilitation of sick industrialunits, land development, promotion of small scale industries, financing of minor irrigation schemes and allied activities likehorticulture and pisciculture.

2.39 Deposits & Advances

2.39.1Aggregate Deposits of all Scheduled Commercial Banks rose by Rs.45486 crores during 1995-96 representing a growthrate of 11.8 per cent as against a growth rate of 22.8 per cent during the corresponding period in 1994-95. As on March 29, 1996aggregate deposits of Scheduled Commercial Banks stood at Rs.432345 crores. The demand deposits during the year 1995-96recorded an increase of Rs. 2346 crores as against Rs.20330 crores during the corresponding period in 1994-95. Total time depositsshowed an increase of Rs.43140 crores during the same period as against Rs.51396 crores in the corresponding period in 1994-95.

2.39.2As on March 29, 1994 total advances of all Scheduled commercial banks stood at Rs.2,52,100 crores. Credit Deposit Ratioof the same date was 58.3 per cent. Total bank credit of scheduled commercial banks during the year 1995-96 recorded an increase ofRs.40,540 crores representing a growth rate of 19.2 per cent. During the same period i.e. 1995-96, there has been a decrease ofRs.2483 crores (-20.2%) in the area of food credit while increase in the Non-food credit was Rs.43023 crores (21.6%).

2.40 Lead Bank Scheme and Service Area Approach

Under the lead bank scheme, each commercial bank functions as a lead bank in the allocated district for coordinating deploymentof credit. As at the end of March, 1996 RBI has allotted lead bank responsibility to banks covering a total of 511 districts in thecountry. The Service Area Approach (SAA) which entails allocation of specific areas to rural/semi-urban bank branches is intended toimprove the quality of rural lending. Under SAA annual credit plans are prepared by the banks. The target for deployment of bankcredit for the year 1994-95 was Rs.11218.49 crores and the achievement during the year was Rs.12453.90 crores.

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2.41 National Bank for Agriculture and Rural Development (NABARD)

2.41.1NABARD as an apex development bank has been charged with the responsibility to promote integrated rural developmentin the rural areas. Towards facilitating this, NABARD has been providing refinance support to commercial and cooperative banks forincreasing the production, productivity and employment generation in the rural areas through both on-farm and off-farm activities.Besides, support is also extended by NABARD for meeting the production credit requirements of farmers through the cooperatives.Irrigation plays a key role in increasing agricultural production. NABARD has been directing larger amount of credit flow tofinancing minor irrigation investments.

2.41.2During the year 1994-95 (April-March), NABARD sanctioned short term credit limits aggregating Rs.4092 crores to StateCooperative Banks for financing seasonal agricultural operations as compared to Rs.3451 crores sanctioned during the year 1993-94.It has sanctioned a sum of Rs.53.35 crores for purchase and distribution of fertilizers, a sum of Rs.23.07 crores for financing ofvarious rural industrial activities of societies and individual rural artisans and a sum of Rs.23.64 crores to SCBs for purchase and saleof yarn. NABARD sanctioned credit limit to State Cooperative Bank to the tune of Rs.157.15 crores for conversion of short-termloans into medium-term loans in scarcity affected areas including rephasement/re-schedulement. NABARD also provided assistanceof the order of Rs.73.03 crores as loans to State Governments for contribution to the share capital of Co-operative Credit institutions.

2.41.3NABARD also disbursed Rs.480.18 crores as refinance assistance to Regional Rural Banks for enabling them to financetheir various activities like providing loans under minor irrigation, Integrated Rural Development Programme, Dairy Development,farm mechanisation, etc..

2.41.4In so far as commercial banks are concerned, NABARD provides only refinance against the term loans issued by themunder Schematic lending for agriculture and for certain specific non-agricultural purposes as commercial banks are expected to meettheir short-term requirement out of their own resources. The total disbursements of NABARD during 1994-95 to the commercialbanks for various purposes was of the order of Rs.1092.39 crores. A table indicating the purpose-wise disburse-ments offinancial assistance given by NABARD in 1994-95 to commercial banks and other agencies is given below:

(Rs. crores)

Purpose Disbursement

Minor irrigation 598

Land Development 17

Farm mechanisation 685

Plantation/Horticulture 129

Poultry 97

Sheep/Goat/Piggery 43

Fisheries 101

Dairy Development 171

Forestry 13

Storage/Market Yards 18

I R DP 620

Non Farm Sector 411

Others 108

Total 3011

2.42 Rural Infrastructure Development Fund (RIDF)

RIDF was constituted by NABARD and it is to be funded by commercial banks to the extent of their shortfall in AgriculaturalSub sector target in the priority sector advances, subject to a maximum of 1.5%. The amount available under RIDF is estimated atRs.2000 crores. It is to be used for providing loans to State Governments and State owned corporations for completion of ongoingprojects relating to medium and minor irrigation, soil conservation, watershed management and other forms of rural infrastructure.All scheduled commercial banks (other than Foreign Banks) which have not achieved the sub target of agricultural lending at 18 percent of net bank credit will be required to make contributions equivalent to a maximum of 1.5 per cent of net bank credit to the RIDF.NABARD has sanctioned upto December 31,1995 to various State Governments 2247 infrastructure projects with a total assistance ofRs.1827 crores. The irrigation schemes sanctioned under RIDF would facilitate creation of additional irrigation potential of about 1.8

13

million with a expected annual contribution of Rs.2400 crores to GDP. The recurring employment generation is expected to be of theorder of 1650 lakh man-days in the rural areas.

2.43 Special Scheme for financing SC/ST beneficiaries

NABARD has allocated a sum of Rs.150 crores under the banking plan for the States and Union Territories in consultation withthe respective State/Union Territory Government for meeting the investment credit proposals in Farm and Non-Farm Sectors. TillDecember 31, 1995 NABARD had disbursed Rs.27.55 crores under the programme.

2.44 Exclusive line of credit for CCBs/RRBs for financing tribals

Separate line of credit aggregating of Rs.406 crores was allocated to Cooperative Banks and Regional Rural Banks for financingtribals under Seasonal Agricultural Operations during 1995-96 in 114 predominantly tribals districts in 18 states. As against theallocation, seperate limits have been sanctioned to 61 CCBs and 31 RRBs in the country for a aggregate amount of Rs.173 crores andRs.26 crores respectively till December 31, 1995. The utilisation was around 50%.

2.45 Financing of Primary Handloom Cooperative Societies by Commercial Banks

NABARD has announced the policy of sanctioning seperate credit lilmits for financing Handloom Cooperative Societies bycommercial banks. The scheme is expected to pick up towards the end of the year.

2.46 Integrated Rural Development Programme (IRDP)

The total term credit disbursed during the year 1994-95 by the banks was Rs.1426.07 crores as against Rs.1408.44 croresdisbursed by banks in 1993-94. The total number of beneficiaries assisted during 1994-95 was Rs.21.89 lakhs as against 25.38 lakhsin 1993-94. Both in terms of credit disbursal and the number of beneficiaries who were financed, the targets were exceeded during

the year 1994-95. During the year 1995-96 (upto October 31, 1995) a sum of Rs.441.98 crores has been disbursed by the banks to5.87lakhs beneficiaries.

2.47 Commercial Papers (CP)

2.47.1 During the financial year 1995-96 (upto November 30, 1995) there was a little activity in commercial paper (CP) market.In secondary market, there was no activity in CP. Total amount of CP issued and outstanding as on November 30, 1995, declined toRs.287.20 crore as compared to that of Rs.603.50 crore as on March 31, 1995 and Rs.2,072.15 crore, a year ago (i.e. as on November30, 1994).

2.47.2The rates of discount on CP issues during the period April-November 1995 remained firm. The typical rates of discount onCP issues increased from 11.50 - 12.50 per cent per annum during the fortnight November 16 - 30, 1994 to 14.00 - 15.00 per centduring the second fortnight of March 1995 and further to 16.80 to 17.85 per cent per annum during the fortnight ended November 30,1995.

2.47.3 Scheduled commercial banks' investments in CP which stood at Rs.469.01 crore on March 17, 1995 declined to Rs.180.56crore as on November 10, 1995. Foreign banks investment in CP accounted for bulk of the investments in CP (about 82 per cent)during the fortnight ended November 10, 1995.

2.47.4During April 1995 it was decided to introduce a "Loan System for Delivery of Bank Credit" and it was further decided thatCP would be carved out of the cash credit component of the Maximum Permissible Bank Finance (MPBF). It was decided to restrictthe extent of commercial paper that can be issued to 75 per cent of the cash credit component of the working capital limit, instead of75 per cent of the working capital (fund based) limit hitherto. Accordingly, banks were advised in May 1995 that they should effect apro tanto reduction in the cash credit component of the working capital limit to the extent of CP issued.

2.48 Housing Finance

2.48.1 No change was made in the policy for minimum allocation of housing finance by scheduled commercial banks and theywere advised to complete their respective share of housing finance allocation at 1.5 per cent of their incremental deposits as on the lastreporting Friday of March, 1995. The overall allocation for housing finance by banks for the year 1995-96, thus worked out toRs.1,010.51 crores. However, banks are permited to exceed the target (1.5 per cent of their incremental deposits), if their resourcesposition so permit.

2.48.2 Authorised dealers in foreign exchange were granted permission in May, 1995, to sanction loans to non-resident Indiansholding Indian Passports for acquisition of a house/flat for residential purposes subject to certain temrs and conditions. However, suchloans and the indirect finance sanctioned by way of term loans to finance institution for disbursement as loans to a non-resident Indianare not to be treated for the purpose of annual housing finance allocation.

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2.48.3During the year, 1995-96 one more public sector bank was granted permission to set up a "Housing Finance Subsidiary".Out of eight such subsidiaries (Seven by public sector banks) permitted so far to be set up, five public sector banks have been allowedto participate in the equity of the Housing Finance companies.

2.49 Housing Finance within priority sector

2.49.1 Housing Finance within priority sector is defined as under:

i) Direct Finance:

(a) Loans upto Rs.2 lakhs for construction of houses granted to all categories of borrowers,

(b) Loans upto Rs.25,000/- for repairs to damaged houses granted to all categories of borrowers.

ii) Indirect Finance:

(a) Assistance given to any Governmental agency for the purpose of constructing houses where the loan component does notexceed Rs. 2 lakhs per housing unit.

(b) Assistance given to any governmental agency for slum clearance and rehabilitation of slum clearance and rehabilitationof slum dwellers where loan component does not exceed Rs. 2 lakhs per housing unit.

(c) Assistance given to a non-governmental agency, approved by the National Housing Bank (NHB) for the purpose ofrefinance, for construction of houses or for slum clearance and rehabilitation of slum dwellers subject to the ceiling forloan component of Rs. 2 lakhs per housing unit.

2.49.2As per latest data available, financing for housing under priority sector is as under:

As on last Friday of March, 1994

Direct Finance Indirect Finance

No. ofA/cs.

Amount (Rs.in lacs)

No. of A/cs. .Amount (Rs.in lacs)

i) All public sector Banks 141979 54563.47 47822 30911.58

ii) All ScheduledComm. Banks 146381 56143.87 48314 40822.90

2.50 DRI Scheme (Differential Rate of Interest Scheme)

2.50.1The DRI scheme introduced in June 1972 by the Government of India is meant to cater to the credit requirements of theweakest among the weak by assisting them in their efforts to improve their economic conditions through small productive endeavours.Banks have to lend 1% of their aggregate advances as at the end of the previous year under the scheme and 40% of which should go toSC/ST. Under the scheme, credit upto Rs.6,500/- is to be made available to eligible borrowers at an interest rate of 4%. In addition,eligible borrowers belonging to SC/ST can get housing loan to the extent of Rs.5,000/- in each individual case under the scheme.Further, under DRI Scheme, physically handicapped persons are eligible to avail of loan for acquiring aids, appliances and equipmentsto the extent of their actual cost but not exceeding Rs.5,000/-. This assistance is independent of production loan of Rs.6,500/-available under DRI Scheme.

2.50.2 Data on implementation of DRI Scheme by public sector banks for the last 4 years is as under :-

(Accounts in lakhs)

(Rs. in crores)

Year ended Total DRI Advances Of which to SC/ST % of advances toSC/ST to total DRI

advances

. No. of A/cs Amoun O/s .No. of A/cs Amoun O/s

March, 1993 29.58 704.60 13.82 359.23 51.0

March, 1994 26.14 694.09 12.38 378.93 51.6

March, 1995 22.99 701.84 11.56 420.79 60.0

March, 1996 20.41 681.91 10.39 424.92 62.31

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2.50.3 A comprehensive study on implementation of DRI Scheme by Banks was carried out by RBI in 1993-94. Based on thefindings of the study, banks have been advised to take remedial steps wherever necessary and to improve their performance in lendingunder the scheme.

2.51 Scheme of Urban Micro Enterprises (SUME) under Nehru Rojgar Yojna (NRY)

2.51.1 Scheme of Urban Micro Enterprises (SUME) is being implemented from 1990. The Scheme covers unemployed urbanpoor living below the poverty line (family income less than Rs.11,850.00 p. a.) in areas, which are not covered by IRDP andimplemented by selected branches of public sector banks. Subsidy at the rate of 25 percent of the project cost is given to eachbeneficiary subject to following ceiling:-

Subsidy Project Cost

SC/ST & Women beneficiaries Rs.5000 Rs. 20,000

Others Rs.4000 Rs. 16,000

2.51.2The Urban Local Bodies act as 'Nodal' agency under the scheme and disburse the subsidy through the bank branch whichsanctions/disburses the loan. Repayments are to be made in 3 to 5 years with suitable monthly/quarterly instalments depending uponsurplus cash generation.

2.51.3The loans will carry interest as per RBI directives on Interest Rates. The security for the loan will be the asset created outof the assistance granted under the scheme and no collateral security/third party guarantee is necessary. The loans are treated asadvances to weaker sections within priority sector and are eligible for DICGC cover and the guarantee fee will be borne by banks.30% of the funds meant for SUME to the utilised for women beneficiaries. SC/STs to be given weightage in proportion to theirpopulation share in the total urban poor of the Urban Local Body Concerned.

2.51.4The performance under the scheme is as under:-

(All Public Sector Banks) 1993-94 1994-95 1995-96 (UptoSep.1995)

Target (No. of beneficiaries) 123000 120070 117223

No. of applications (sanctioned) 182878 143619 64457*

Amount of loan sanctioned (Rs. in lakhs) 12892.45 11009.83 5021.67*

Amount of loans disbursed (Rs. in lakhs) 10375.32 8497.02 3261.50*

* Data upto September 1995 (latest available)-Figures Provisional.

2.52 Prime Minister's Rojgar Yojana for Educated Unemployed Youth (PMRY)

2.52.1 Prime Minister's Rozgar Yojana (PMRY) for educated unemployed youth had been launched on October 2, 1993. Theobjective of the scheme is to provide sustained employment to about 10 lakhs educated unemployed urban youth in micro enterprisesduring the VIII Five Year Plan. These enterprises cover manufacturing, service and business ventures. The scheme was implementedin urban areas during 1993-94 and from April 1, 1994, it is being implemented throughout the country. Self-Employment Scheme forEducated Unemployed Youth (SEEUY) has been subsumed with PMRY from April 1, 1994. The salient features of the scheme are:-

i) Youth between the age of 18 and 35 years, whose annual family income does not exceed Rs. 24,000/- and upto Rs.24,000 per annum of parents of beneficiary are eligible for assistance under the scheme.

ii) The beneficiaries under the scheme would be given a subsidy of 15% subject to a ceiling of Rs.7,500 each for startingthe micro-enterprises.

iii) They would be required to bring in 5% of the project cost as margin money.

iv) Each entrepreneur will be eligible for a bank loan for projects upto a ceiling of Rs.1 lakh and this loan would not requirea collateral guarantee.

v) The entrepreneurs selected under the scheme would be provided training, before the loan is granted.

vi) Not more than 30% of the micro-enterprises would be from the business sector.

vii) Besides matric passed or failed students and ITI passed youth, all the persons who have undergone Governmentsponsored technical courses for a minimum duration of 6 months will be eligible for assistance under the scheme.

viii) Reputed NGOs would also be associated in the implementation of the scheme especially in the selection, training ofentrepreneurs and preparation of the project under the scheme.

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ix) A reservation of 22.5% for SC/ST and 27% for other backward castes (OBCs) has been provided.

x) Women should be given preference.

xi) The beneficiary should have been a permanent resident of the urban area for 3 years.

2.52.2 The progress under the scheme is as under:

Applications No. Sanctioned*

Amount (Rs. Lakhs)

Year Target No.

1993-94 42040 29625 18350.34

1994-95 239215 180093 100677.95

1995-96 304150 266742 151101.82

2.53 Credit flow to Minority Communities

2.53.1At present, the following five communities have been categorised as minority communities by the Government of India.

i) Sikhsii) Muslimsiii) Christiansiv) Zoroastriansv) Buddhists

2.53.2 Under the present arrangements, banks have to ensure that credit is made available to the members of minoritycommunities in an adequate measure not only in the 41 districts identified by the Government of India as having concentration ofminority communities, but also in the country as a whole. (However, no sub-target has been earmarked in the priority sector credit forthe minority communities). Although there is no special earmarking of target for minority communities, available data indicates (asshown below) that the flow of credit to these communities is steadily increasing.

a. Priority sector credit to minorities in all the districts in the country

Period Year-ended No of A/cs.

(in lakhs)

Balance outstanding

(Rs. in crores)

March 1992 55.98 5129.80

March 1993 56.96 5674.67

March 1994 59.11 6351.60

March 1995 61.21 6946.79

b. Priority sector credit to minorities in forty one identified districts

Period No of A/cs. Balance outstanding

Year-ended (in lakhs) (Rs. in crores)

March 1992 12.83 850.04

March 1993 13.60 952.43

March 1994 12.76 1070.32

March 1995 12.61 1129.86

2.53.3 On a request made by the Minorities Commission, with effect from the quarter ended December 1993, the RBI has revisedthe format for collection of data regarding flow of credit to minority communities and made it more elaborate so as to give state-wise/bank-wise and community-wise information on the subject.

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2.53.4 With a view to ensure that the minority communities get a fair portion of the bank credit. Reserve Bank has issuednecessary guidelines to banks and has also evolved a monitoring system which ensures that banks do not lack in their efforts to extendcredit to these communities. A study on bank credit to minorities was recently undertaken by the Reserve Bank of India. It wasobserved during the study that the borrowers belonging to these communities by and large had no difficulty in availing of loans frombanks. Shortcomings in the performance of the banks in lendings to the minority communities as revealed during the study, havealready been brought to the notice of the banks and they have been advised to improve their performance in making credit available tothe minority communities.

2.54 Financial assistance to persons affected by natural calamities and riots and disturbances.

Reserve Bank of India has issued standing guidelines on August 2, 1984 to be followed by commercial banks in the event ofnatural calamities. The power to make these guidelines applicable in the case of riots and disturbances has been delegated to theDistrict Consultative Committees formed under the Lead Bank Scheme.

2.55 Central Interest Subsidy Scheme (Revised) and Debt Relief Scheme for November 1984 riot affected borrowers

2.55.1 Central Interest Subsidy Scheme (Revised): Under the Central Interest Subsidy Scheme (Revised) for November 1984 riotaffected borrowers' which was issued by RBI in September 1993, the total amount of claims received from banks amounts to Rs.28.99crores as on March 31, 1995 i.e. last date for submission of interest subsidy claims by banks. So far, the Government has released asum of Rs.15.00 crore for settlement of interest subsidy claims received from banks. Out of this amount claims amounting to Rs.14.76 crore were settled by RBI.

2.55.2 Debt Relief Scheme for November 1984 riot affected borrowers: Debt Relief Scheme is applicable to borrowers whoseaggregate of loans from all banksdoes not exceed Rs. 25,000/-. This scheme is administered by the Government of India. Under theScheme the amount of loan is to be written off by the banks and the same is to be reimbursed by the Government of India.Government of India has so far released an amount of Rs. 15.30 crore under the scheme.

2.56 Regional Rural Banks (RRBs)

2.56.1 The Regional Rural Banks(RRBs) which made a modest beginning in 1975 on an experimental basis have achievedsubstantial growth over the years and have been able to take banking to the doorsteps of the rural poor and providing them access toinstitutional credit support. As on 31.03.1995, 196 RRBs have been functioning in 23 States covering 425 districts with a network of14536 branches. The branches of RRBs constituted over 23% of all scheduled commercial bank branches and 41.5% of the ruralbranches of the scheduled commercial banks which indicates significant effort on the part of RRBs to serve the weaker sections of thesociety.

2.56.2 The credit support provided by these banks amounted to Rs.6290.22 crore covering 125.92 lakhs borrowal accounts as of31.03.1995. Moreover they had disbursed Rs.2298.01 crores during the year ended March 1995 to 29.55 lakh beneficiaries of theweaker sections of the society. As on 31st March 1995, as much as Rs. 11158.88 crore were mobilised as deposits by RRBs in374.38 lakh accounts. The average amount of deposits and loan outstanding per account in a RRB as on 31.03.1995 worked out toRs.2980 and Rs.4995 respectively which is indicative of the fact that the clientele of the RRBs are from the weaker sections of thesociety.

2.56.3 In order to supplement the limited resources of the RRBs both NABARD and Sponsor Banks extend financial assistance tothese institutions by way of refinance. Refinance is extended to RRBs by NABARD for the following purposes:-

i) Short term credit limits for Seasonal Agricultural Operations (SAO).

ii) Short-term credit limits for non-SAO purposes.

iii) Medium-term credit limits for meeting their requirements of sporadic investment lending.

iv) Refinance against schematic lending of the RRBs for investment purposes under both farm and non-farm sectors.

v) Medium term (conversion) loans.

The amount of refinance provided by NABARD and sponsor banks as at the end of March, 1995 stood at Rs.1905.05 crores andRs.362.17 crores respectively.

2.56.4 The financial position of the RRBs has been a source of continuous anxiety. The losses incurred by these banks have beenincreasing year after year. The net loss incurred by all RRBs for the year 1993-94 reached the level of Rs.366.95 crores. Out of 196RRBs, only 23 RRBs were in a position to earn profits amounting to Rs.21.91 crores during the year ending March, 1994. During1994-95, 32 banks had earned profits and the remaining 164 banks had incurred losses. The aggregate accumulated losses of allRRBs as on March 31, 1995 were Rs. 1660.92 crores. This figure does not includes the burden of National Industrial Tribunal awardarrears. The main reasons for the RRBs, incurring losses year after year are inadequate financial margin, restrictions on choice ofclientele, limited area of operation and high transaction costs.

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2.56.5 A major weakness afflicting the RRBs has been the continued poor recovery performance of most of the banks in theprocess turning a large number of their loan accounts into non-performing assets. As on 30th June 1994, their percentage of recoveryto demand was only 46.3%.

2.56.6 In pursuance of the recommendations of the Working Group on RRBs (Kelkar Committee) the issued capital of all RRBsis being raised in a phased manner from Rs.25 lakhs to Rs.100 lakhs. So far the issued capital of 51 RRBs was raised to Rs. 100 lakhseach and for 122 RRBs to Rs. 75 lakhs each and for the remaining 23 RRBs it is raised to Rs. 50 lakhs each.

2.57 National Industrial Tribunal award

Parity in the pay structures with sponsor banks had been one of the demands and main reasons for industrial strife in RRBs. TheRRBs Act, 1976 provided that the salary structure of the RRB employees shall be determined having due regard to the salary structureof the employees of the State Governments in comparable posts. The RRB employees associations demanding parity in respect ofsalary structure with the employees of sponsor banks filed a Writ Petition in the Supreme Court in 1984. The Supreme Court passedorders in September, 1987 wherein it suggested that the Government may constitute a National Industrial Tribunal (NIT) and refer thedispute to it. The Government accordingly appointed NIT with Mr.Justice Obul Reddy (rtd.). The NIT pronounced its award on April30, 1990. The Tribunal in its award inter-alia held that officers and other employees of RRBs will be entitled to claim parity with theofficers and other employees of the Sponsor Banks in the matter of pay scales, allowances and other benefits with effect from 1stSeptember, 1987. The NIT, however, did not make any specific equation of the various posts in RRBs with those existing in Sponsorbanks and did not provide any specific fitment formula but left such equation and fitment to the descretion of Central Government.The Government of India therefore constituted an Equation Committee on Oct 5, 1990 for examination of issues relating to theequation of posts in RRBs vis-a-vis Sponsor banks and fixation of pay, allowances and other benefits. The Equation Committeesubmitted its report on Jan 8, 1991 and on acceptance, the Government of India issued operational instructions to all implementingagencies on Feb. 22, 1991. Consequent upon the implementation of the NIT award, read with Equation Committee, certainoperational problems had cropped up and also changes were to be brought about in service regulations, recruitment and promotionpolicy for the RRB staff. NABARD at the instance of GOI accordingly constituted a Working Group. The Working Group submittedits report in Feb. 1992 which has been accepted with some modifications and alterations.

While RRB employees are being paid revised salary etc. with effect from 1st January, 1991 as per the Equation with the sponsorbanks, the arrears upto and including 31st December 1990 which works out to about Rs.220 crores are yet to be paid to the RRBemployees. The issue of payments of arrears is now pending for the decision of the Supreme Court.

2.58 Steps taken to improve viability of RRBs

With a view to improving their viability in the short term, a package of measures have also been announced by Reserve Bank ofIndia in December, 1993. The measures include raising non-target group financing from 40 percent to 60 per cent, improving scopefor non-fund based business, freeing 70 RRBs whose disbursals during 1992-93 were less than Rs.2 crores from service areaobligations, and permitting them to relocate loss making branches at places like Mandis, Taluk/District Headquarters, agricultureproduce centres, etc. and to open extension counters at premises of institutions for which the RRBs is the principal banker. The RRBshave also been permitted to install safe deposit lockers. Further, RBI has allowed the RRBs in January 1995 to invest their Non-SLRsurplus funds in specified profitable avenues after meeting their target group and service area obligations. With a view to increase theavenues for expansion of credit, RRBs have been permitted to deploy a part of their surplus non-SLR funds in the credit portfolio oftheir sponsor banks through non-risk sharing participation certificates to be issued by the latter.

2.59 Restructuring of RRBs

The Government of India initiated a process of consultation for restructuring of RRBs. After considering different alternativemodels including National Rural Bank of India (NRBI) for restructuring of RRBs, a decision was taken as announced by the FinanceMinister in his Budget Speech on 28th February, 1994 to take up 50 of the 196 RRBs on a 'Stand alone' basis all over the countryduring the year 1994-95 for comprehensive restructuring including cleansing of their balance sheets through infusion of fresh capital.The experience in respect of these RRBs selected for restructuring will guide the approach in later years towards revamping the otherRRBs. The objective is to transform presently weak and ailing RRBs into financially viable and effective instruments of decentralisedrural banking. Consequent upon the Finance Minister's Budget announcement, a Committee was set up by the RBI consisting ofrepresentatives from NABARD, Government of India and the RBI to identify RRBs to be taken up for restructuring on the basis ofdefinite financial norms/parameters. On the recommendations of Committee, 49 RRBs have been selected for restrucring during 1994-95.

2.60 Reconstitution of the Board of Directors of Nationalised Banks.

The Board of Directors of 19 nationalised banks have been reconstituted by appointing part time non official directors on thebank's boards.

2.61 Amendments to Banking Companies (Acquisition and transfer of undertakings) Acts 1970 & 1980.

2.61.1 Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 & 1980 have been further amended to enablethe nationalised banks to restructure their balance sheets.

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2.61.2Nationalised Banks (Management and Miscellaneous Provisions) Scheme, 1970 & 1980 have been further amended tosuitably incorporate the amendments made to the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 & 1980.

2.62 Credit Policy

2.62.1 The objectives of monetary and credit policy of the Reserve Bank in 1995-96 continued to be to moderate the growth ofmoney supply with a view to containing inflationary pressures and at the same time ensuring the provision of adequate credit tosupport the growth of the real sector. Inflation control had necessarily to be an integral part of monetary policy as inflation andinflationary expectations do considerable damage to the system and hit particularly hard the weaker sections which have no hedgesagainst inflation. While it was felt necessary to ensure that the growth of money supply remained within the targetted rate of 15.5 percent, measures were also taken towards enabling banks to mobilise more resources and also to significantly improving the liquidity oftheir investment portfolio. Besides, measures were also taken to stabiliise the situation in the forex and money markets and to ease theliquidity situation as and when circumstances demanded.

2.62.2 Credit policy measures implemented in 1995-96:

April 1995: In the credit policy for the first half of 1995-96, the following measures were undertaken:

2.62.3Interest Rates on Term Deposits: With a view to ensuring that banks' term deposits remain attractive in the context of theprevailing inflation rate and also to ensure that banks are able to mobilise more term deposits to finance their lending operations out oftheir own resources, effective April 18, 1995, the maximum term deposit rate, excluding non-resident deposits, was increased by onepercentage point. The rates were raised to 'not exceeding' 12.0 per cent per annum from 'not exceeding' 11.0 per cent per annum. Therevised term deposit rates were applicable only to fresh deposits and on renewals of maturing deposits.

2.62.4Export Credit:

(i) Rupee Refinance: In a single tier refinance formula, as against the earlier two-tier formula, banks were provided export credit(rupee) refinance to the extent of 100 per cent of the increase in export credit over the monthly average level of 1992-93, with effectfrom the fortnight beginning April 29, 1995. As a result of this change, the rupee export credit refinance limits of banks were reducedby Rs. 1,200 crore. These refinance limits, however, once again rose rapidly as banks increased their export credit.

(ii) Dollar Denominated Credit: Considering the increase in the US Dollar LIBOR rate, the interest rate on Post-Shipment ExportCredit in Foreign Currency (PSCFC) was increased by one percentage point from 6.5 per cent per annum to 7.5 per cent per annumwith effect from April 18, 1995. The interest rate on refinance under the PSCFC scheme was also increased by one percentage pointfrom 5.5 per cent per annum to 6.5 per cent per annum. Even with this enhancement, the rate of interest on PSCFC was significantlylower than interest rates on other schemes of foreign currency export credit.

With effect from the fortnight beginning April 29, 1995 banks were made eligible for export credit refinance limits equivalent to70 per cent of outstanding export credit provided by banks under the PSCFC scheme as against the earlier 80 per cent. The dollardenominated credit refinance limits were reduced by about Rs. 825 crore.

2.62.5Loan System for Delivery of Bank Credit: With a view to bringing about discipline in the utilisation of bank credit andgain better control over credit flow, a "Loan System" for delivery of bank credit was introduced.

For borrowers with assessed Maximum Permissible Bank Finance (MPBF) of Rs. 20 crore or above, it was made mandatory forbanks/consortia/syndicates to restrict the cash credit component to 75 per cent of the MPBF. Commercial Paper and the sub limit forbills would be carved out of the cash credit component of the MPBF.

The balance of 25 per cent of the MPBF, or any part thereof might be sanctioned by way of a short-term loan for working capitalpurposes. Such short-term loans are to be sanctioned for a minimum period of one year, though in case of seasonal industries, theminimum period could be six months.

Banks would have the freedom to charge interest rates on the cash credit component and the loan component subject to theobservance of the prime lending rate fixed by banks.

Banks/consortia/syndicates were asked to complete the bifurcation within a period of three months or the next quarterly review ofthe borrowal account whichever was earlier.

2.62.6Bank finance to Finance Companies: Bank finance to finance companies was curtailed. Equipment leasing/hire purchasecompanies would now get bank finance up to three times of their net owned funds as against the earlier four times; other equipmentleasing/hire purchase companies would get up to two times of their net owned funds as against the earlier three times; and loan andinvestment companies and residuary non-banking companies would get bank finance equal to their net owned funds as against theearlier two times.

2.62.7Bridge Loans/Interim Finance: Bridge loans by banks/financial institutions against public issues and/or borrowings fromthe market to all companies including finance companies were banned.

2.62.8Widening Access to Call/Notice Money Market: With a view to facilitating a level playing field, it was decided, inprinciple, to provide access to mutual funds set up in the private sector and approved by the securities and Exchange Board of India

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(SEBI) to participate only as lenders in the call/notice money/bill rediscounting market. Each mutual fund would, however, need toobtain specific permission from the Reserve Bank.

2.62.9Rural Infrastructural Development Fund: All scheduled commercial banks (other than foreign banks operating in India)were required to make contributions equivalent to the shortfall in achieving the sub-target of 18 per cent for credit to agriculturesubject to a maximum of 1.5 per cent of net bank credit to a Rural Infrastructural Development Fund (RIDF) of Rs. 2,000 crore beingset up in NABARD.

Maturity period of the deposits would be upto to 5 years from the date of each deposit. NABARD would pay a floating rate ofinterest equivalent to 0.5 percentage point above the maximum permissible rate on these term deposits. The contribution to the Fundmade by the banks would be reckoned as their indirect agricultural lending under the priority sector. The loans to be given byNABARD to the State Governments/bodies from the Fund will be for a period of 5 years and project specific. On the outstandingborrowings from the Fund under the above arrangement, State Government/bodies would pay a floating rate of interest at a rateequivalent to 0.5 percentage point above the rate paid by NABARD to banks on deposits placed by banks in the Fund. The stateGovernment concerned would be required to provide a Government Guarantee in respect of repayment of principal and interest. StateGovernment would also be required to execute an irrevocable letter of authority in favour of the Reserve Bank authorising it to debitthe State Governments' account with it in case any payments due under the scheme are not made on the due dates.

2.62.10 Consortium for Khadi and Village Industries Commission (KVIC): A Consortium of select public sector banks wasformed, with the State Bank of India as the leader, to provide Rs. 1000 crore to Khadi & Village Industries Commission (KVIC) fordirect or indirect on lending to viable khadi and village industrial units. These loans would have to be provided at 1.5 per cent belowthe average prime lending rates of five major banks in the consortium. These loans would also carry Government guarantee.

2.62.11 Financing Primary Weavers Cooperative Societies: NABARD would make available a line of credit to commercialbanks at 9.5 per cent per annum. Banks would use these funds to make available credit to the handloom co-operatives at the same rateprovided a subsidy of 2.5 per cent was received from the State Government.

2.62.12 General Line of Credit to NABARD: State Cooperative Banks and Regional Rural Banks were required to recover atleast 40 per cent of the demand for the previous years to be eligible for refinance from NABARD. In order not to deny credit to newand non-defaulting members of cooperatives and RRBs and maintain credit flow, this stipulation was relaxed in December 1993. Witha view to ensuring a minimum level of production credit to areas of retarded credit flow, it was decided to continue the relaxation for afurther period of one year, i.e., upto June 30, 1996.

2.63 September 1995:

In the credit policy for the second half of 1995-96, the following measures were undertaken:

2.63.1Interest Rate on Term Deposits: Keeping in view the need to increase the resources of banks to enable them to meet theirlending and investment commitments, the prevailing structure of interest rates on deposits has been made more flexible. Accordingly,with effect from October 1, 1995, scheduled commercial banks were given the freedom to fix their own interest rates on domestic termdeposits with a maturity of over 2 years. While the interest rate on domestic term deposits of 46 days and upto 2 years continued to beprescribed at the existing rate of 'not exceeding 12.0 per cent per annum', the earlier prescription of having at least three maturitieswithin the prescribed ceiling rate on deposits with a minimum differential of 0.25 percentage point was withdrawn.

Banks have also been advised to use utmost caution in offering interest rates on various maturities of term deposits and have beenasked to ensure that they did not get locked into excessively long deposit maturities. Banks have been advised in this context toundertake a careful review to ensure against overall asset-liability maturity mismatches.

The revised domestic term deposit rates were applicable only to fresh deposits and on renewals of maturing deposits.

Scheduled Commercial Bank's

Interest Rates on Term Deposits

(Excluding Non-Resident Deposits)

(Per cent per annum)

Duration Rates prior toOctober 1, 1995

Duration Rates Effective Oct. 1, 1995

46 days to 'Not 46 days 'Not exceeding

3 years exceeding and upto 12.0'

and over 12.0' 2 years

Over 2 years Free

2.63.2 Reserve Bank Refinance Facility Against Government and Other Approved Securities

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With a view to providing larger liquidity to scheduled commercial banks for their excess holdings of Government and otherapproved securities, the base year for determining the refinance limits under this facility was brought forward. Effective from thefortnight commencing September 30, 1995, the base year was brought forward from 1991-92 (April-March) to 1994-95 (April-March). It was also decided to raise the proportion of refinance from 0.5 percentage point to 1.0 percentage point.

The refinance is provided under two separate limits each equivalent to 0.5 percentage point of the fortnightly average outstandingaggregate deposits in 1994-95 (April-March). The first refinance limit is provided against the collateral of Treasury Bills at an interestrate of 12.5 per cent per annum, while the second refinance limit is provided against dated Government and other approved securitiesat an interest rate of 14.0 per cent per annum. The limits under this refinance facility thus increased from Rs.1,025 crore to Rs.3,385crore.

2.63.3Interest Rates on Term Deposits under NRE Accounts

With a view to maintaining the differential between the interest rates on domesitic term deposits and Non-Resident(External)Rupee(NRE) term deposits, the interest rate on NRE term deposits for maturity of 6 months to 3 years and over was raised by twopercentage points to 'not exceeding 10.0 per cent per annum'. The change, applicable to only fresh deposits and on renewal ofmaturing deposits was effective from October 1, 1995.

2.63.4Rate of interest on advances against term deposits

The interest chargeable on loan or advance granted against a term deposit was stipulated at 2 percentage points above the ratepayable on the deposit. Banks were given freedom to determine the interest rate chargeable on such loans/advances of over Rs.2 lakh.Loans/advances of upto Rs.2 lakh continue to be subject to the earlier stipulation.

2.63.5 Loan System for Delivery of Bank Credit

With a view to strengthening the discipline in utilisation of bank credit, the "cash credit component" in maximum permissiblebank finance of Rs.20 crore or above was reduced from 75 per cent to 60 per cent and the "loan component" was increased from 25per cent to 40 per cent. Banks have been asked to complete the process of bifurcation in terms of the revised guidelines on or beforeDecember 31, 1995 or the next quarterly review of the borrowal account, whichever is earlier.

2.63.6 Foreign Exchange Open Position Limit for Banks

Earlier, the overnight foreign exchange open position limit was a uniform amount of Rs.15 crore for each bank, irrespective of thevolume and nature of business and the structure of the bank's owned funds. This stipulation also did not capture cross currencyexposures.

In accordance with the recommendations made by the Expert Group on Foreign Exchange Markets (Chairman : Shri O.P.Sodhani), the uniform limit of Rs.15 crore for each bank on its open exchange position was altered. Each bank would be allowed tofix its own overnight open position limit. Such limit, however, would have to be specifically approved by the Reserve Bank of India.From the prudential angle, banks would have to maintain Tier-I capital funds to the extent of 5 cent of the open position limit inaddition to the existing capital adequacy requirements already specified by the RBI. In the case of Indian banks, the open exposurelimit would also include the limits allowed to their overseas branches.

2.63.7 Working Group on NRI Investments

The following recommendations of the Working Group on NRI Investment (Chairman : Shri O.P. Sodhani) are initially beingimplemented:

(i) Grant of general permission for sale of shares acquired under the Portfolio Investment Scheme has been extended toOverseas Corporate Bodies.

(ii) General permission would be granted for sale of shares by NRIs/OCBs acquired on repatriation basis under the DirectInvestment Schemes.

(iii) The procedure for giving final permission for issue/export of shares to NRIs by Indian companies is being simplified.

(iv) The general permission to NRIs for subscribing to the Memorandum and Articles of Association of Indian companies,which at present covers only companies engaged in industrial activities, is being extended to cover other permissibleactivities.

2.63.8 Other Measures

Banks have already been advised to prepare annual plans to increase the flow of credit to the agricultural sector and to ensure that100 specialised branches are set up in 85 identified districts to meet the requirements of small scale industry. Banks were urged thatthey bestow their special attention to these tasks.

With a view to strengthening the working of Regional Rural Banks and also to provide greater flexibility to banks in theiragricultural lending operations, the following measures were undertaken :

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(i) Prudential norms introduced for RRBs in a phased manner.

(ii) RRBs allowed to provide housing loans, subject to a maximum ceiling of Rs.1 lakh per borrower provided such loans donot exceed 5 per cent of the RRBs incremental deposits during the year.

(iii) Limits for produce marketing loans provided by commercial banks to farmers enhanced from Rs.25,000 to Rs.1 lakh.

2.64 October 1995

2.64.1The following measures were announced to increase the supply of foreign exchange in the market and to moderate demand:

2.64.2 Interest Rates on NRE Term Deposits

With a view to bringing about a better alignment of interest rates on domestic term deposits and non-resident (external) rupeeaccount (NRE) term deposits, effective October 31, 1995, the interest rate on NRE term deposits for maturity of 6 months to 3 yearsand over was raised from 'not exceeding 10.0 per cent per annum' to not exceeding 12.0 per cent per annum'. The revised term depositrates were made applicable to only fresh deposits and on renewal of maturing deposits.

2.64.3 Cash Reserve Ratio on NRE Deposits

Earlier, scheduled commercial banks were required to maintain an average cash reserve ratio (CRR) of 15.0 per cent on NREdeposits. With effect from the fortnight beginning October 28, 1995, any increase in NRE deposits over the level outstanding as onOctober 27, 1995 was exempted from maintenance of the average cash reserve ratio. Banks were, however, required to continuemaintenance of the average CRR of 15.0 per cent on NRE deposits upto the level as on October 27, 1995. This measure enabledbanks to balance the increase in their cost of NRE deposits by increasing the return on the deployment of their funds.

2.64.4 Cash Reserve Ratio(CRR) on NRNR Deposits

Earlier, scheduled commercial banks were required to maintain an average cash reserve ratio (CRR) of 7.5 per cent on nonresident (non repatriable) rupee (NRNR) deposits. With effect from the fortnight beginning October 28, 1995, any increase in NRNRdeposits over the level outstanding as on October 27, 1995 were exempted from maintenance of the cash reserve ratio. The averageCRR of 7.5 per cent on NRNR deposits upto the level as on October 27, 1995, however, continues. This measure enabled banks tomarket NRNR deposits more competitively.

2.64.5Post-Shipment Export Credit Denominated in US Dollars (PSCFC)

With a view to rationalising the interest rates on Post-Shipment Export Credit Denominated in US Dollars(PSCFC) andencouraging a quicker turn around of credit, effective October 31, 1995, the following changes were made.

Post-Shipment Export Credit Denominated

in US Dollars (PSCFC)(Per cent per annum)

Rates prior toOctober31, 1995

New Rates EffectivOctober 31, 1995

(i) Demand bills for transit period (as specified by (FEDAI) 7.5 7.5

(ii) Usance Bills (For total period comprising usance period ofexport bills, transit period as specified by FEDAI and graceperiod wherever applicable)

(a) Upto 90 days 7.5 7.5

(b) Beyond 90 days and upto six months from thedate of shipment.

7.5 9.5

(iii) Export credit not otherwise specified for PSCFC 9.5 Free

2.64.6 Interest Rate Surcharge on Import Finance

With a view to discouraging the excessive use of bank credit, finance for imports was required to be earmarked under a separatesub-limit of the cash credit limit. Effective October 31, 1995, outst andings under the import credit sub-limit were made subject to a15 per cent interest rate surcharge. Illustratively, if a party is charged 16 per cent on its cash credit limit, the surcharge will be 2.4 percent and the effective interest rate on the import finance would be 18.4 per cent. Repayments to the import sub-limit would bepermitted from sale proceeds, subject to the proviso, that there would be a minimum period of one month during which a payment forimports from the import sub-limit cannot be liquidated by sale proceeds. Bank finance provided to meet the cost of imported inputscovered by export packing credit would be exempted from the surcharge.

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2.65 November, 1995

2.65.1 Reduction in Cash Reserve Ratio

In view of the escalation of call money rates to very high levels, the Reserve Bank had to provide large support via injection offunds through the money market. This support had been of the order of a peak of Rs.5,550 crore and an average of about Rs.2,600crore during the fortnight ended November 10,1995. Such money market support can be provided only for very short periods.Simultaneous with the moderation of money market support from the RBI and taking into account the overall monetary and creditsituation, the following measure was undertaken. Effective from the fortnight beginning November, 11, 1995, the CRR to bemaintained by scheduled commercial banks (excluding Regional Rural Banks) was reduced by one half of one percentage, point from15.0 per cent to 14.5 per cent. The reduction in CRR augmented the resources of banks by Rs.2,000 crore.

2.65.2Cash Reserve Ratio on FCNR(B) - Exemption for Incremental Deposits

With effect from the fortnight beginning November 25, 1995, any increase in FCNR(B) deposits over the level outstanding as onNovember 24, 1995 was exempted from maintenance of the cash reserve ratio. Banks were, however, still required to maintain theaverage CRR of 14.5 per cent on FCNR(B) deposits upto the level as on Novembr 24, 1995.

2.66 December, 1995

2.66.1 Average Cash Reserve Ratio On Foreign Currency Non-Resident Accounts (Banks) (FCNR(B)] Scheme Reduced

With a view to enabling banks to better balance the cost of FCNR(B) deposits and the return on the deployment of their funds,with effect from the fortnight beginning December 9, 1995, the average cash reserve ratio(CRR) on liabilities under the FCNR(B)scheme upto the level outstanding as on November 24, 1995 was reduced from 14.5 per cent to 7.5. This measure augmented theresources of banks by Rs.1,050 crore. The increase in liabilities under FCNR(B) scheme over the level outstanding as on November24, 1995 continued to be exempted from the maintenance of CRR.

2.66.2 Reduction in CRR

Taking into account the monetary and credit developments, effective December 9, 1995, the cash reserve ratio(CRR) of scheduledcommercial banks was reduced from 14.5 per cent to 14.0 per cent. The measure augmented the resources of banks by Rs.2,000 crore.

2.67 November 1995

2.67.1Scheme of Money Market Mutual Funds (MMMFs)

With a view to providing additional short-term avenues to individual investors and to bring money market instruments withintheir reach, a scheme of Money Market Mutual Funds(MMMFs) was introduced by the Reserve Bank of India in April 1992. In orderto make the scheme more flexible and thereby attractive to banks and financial institutions and also with a view to providing greaterliquidity and depth to the money market, the following changes were made in the scheme of MMMFs.

2.67.2 Eligibility to set up MMMFs

Earlier, while scheduled commercial banks and 'public finacial institutions were allowed to set up both Mutual Funds andMMMFs, private sector institutions were allowed to set up only Mutual Funds. It was decided to also allow the private sector to set upMMMFs.

2.67.3 Size of MMMFs

Earlier, there was a ceiling on the size of MMMFs equivalent to 2 per cent of deposits of banks and in the case of financialinstitutions, a ceiling of 2 per cent of the long-term domestic borrowings. It was decided that henceforth the size of MMMFs wouldnot be subject to any ceiling; also the minimum size of Rs.50 crore for a MMMF is being removed. Subscriptions to MMMFs would,however, continue to be open only to individual investors.

2.67.4 Investments by MMMFs

The instruments in which money market mutual funds can invest their funds will remain unchanged (viz. Treasury Bills and datedgovernment securities having an unexpired maturity upto one year, call and notice money, commercial paper, commercial billsaccepted/co-accepted by banks and certificates of deposit). The prescription of limits on investments in individual instruments byMMMFs - minimum or maximum - was however, withdrawn and MMMFs are free to determine the extent of their investments ineach instrument. On prudential grounds, however, the guideline that the exposure to commercial paper issued by an individualcompany should not be more than 3 per cent of the resources mobilised by the MMMF would ontinue.

2.67.5Other terms and conditions regarding the setting up of MMMFs remained unchanged.

2.68 Certificate of Deposit

During the financial year 1995-96 upto Octrober 27, 1995, there was hectic activity in certificates of deposit (CDs) market. Theoutstanding amount of CDs issued by scheduled commercial banks recorded a phenomenal increase from Rs.8,017 crore as on March31, 1995 to Rs.14,389 crore as on October 27, 1995. CDs formed 3.8 per cent of aggregate deposits of 56 banks which issued CDs as

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on October 27, 1995 as compared to 2.3 per cent of aggregate deposits of 51 banks as on March 31, 1995. The typical rates of intereston CDs for a maturity of 3 months were in the range of 12.50- 13.50 per cent during the fortnight ended March 31, 1995 andmarginally rose to a range of 13.00 - 14.00 per cent during the fortnight ended October 27, 1995. However, the typical rates ofinterest on CDs for a maturity of one year remained firm around the level of 13.00-14.00 per cent during the period March 31 toOctober 27, 1995. The secondary market for CDs has not developed effectively. This could be due to the investors prefernce to holdon CDs till maturity on account of higher yields.

2.69 Relaxation to trade and industry in Punjab and Chandigarh

2.69.1 The trade and industry in the State of Punjab have been enjoying various banking concessions announced by ReserveBank of India from time to time since 1984. As a sequel to the meeting held at New Delhi on 22 November, 1991, between the thenUnion Finance Minister and a delegation of industrialists and the State Government officials, RBI constituted a working Group forgoing into all aspects concerning the concessions/credit relaxations available to the borrowers/customers in Punjab. On the basis ofthe recommendations of the Working Group all scheduled commercial banks have been advised in April 1992 to make available thevarious packages of concessions to the borrowers/ customers in Punjab. In March 1993, the above concessions/relaxations have alsobeen extended to trade and industry in the Union Territory of Chandigah. These concessions/credit relaxations have been extendedfrom time to time and the latest extension was ganted upto 31 March 1996.

2.69.2At present the following package of concessions is made available to the borrowers/customers in Punjab and UnionTerritory of Chandigarh.

(i) Sanction increased working capital facilities by way of relaxation in prescribed/standardised norms for inventory andreceivables by a maximum of 50 per cent depending on the merits of each case.

(ii) Encourage financing against accepted hundies (usuancebills).

(iii) Make available liberal finance against book debts to corporate borrowers.

(iv) The existing ceiling of 15 per cent margin for calculation of drawing power against commodities not coveredunder the selective credit control directives and marging of 10 per cent for finance against bills should be continued uptoSeptember 30, 1995. Thereafter, the respectrive margins should be increased in the stages i.e. from October 1, 1995 andApril 1, 1996.

(v) The concession which were 50 per cent in service charges for remittances, collection of outstation bills/cheques shouldbe allowed at 25 per cent of normal/existing charges.

(vi) For term credit, the banks may adopt a flexible and pragmatic approach as regards debt-equity ratio, especially for smallprojects.

(vii) Period of realisation of bills purchased and advance bills for collection may be extended upto one month by BranchManager.

(viii) Liberal acceptance Credit/L.C. facilities may be extended to facilitate purchase on credit. The margin for bankguarantees and inland letters of credit which was not to exceed 15% depending on merit of each case would also becontinued upto September 30, 1996.

2.69.3 Banks were also advised to constitute a special cell for monitoring implementation of the packages in the State at ZonalOffice Level. At the State Level, a committee comprising represen-tatives of major banks. State Government, trade and Industry havebeen formed to sort out problems/grievances against banks.

2.70 Relaxations to trade and Industry in the State of Jammu & Kashmir

2.70.1The trade and industry in the State of Jammu & Kashmir have been enjoying various banking concessions announced byReserve Bannk of India since April 1990. A comprehensive package of concessions/relaxations has been granted to the trade &Industry in the State of Jammu & Kashmir vide circular dated June 18, 1992. The grant of concessions/credit relaxations have beenextended from time to time and latest extension was granted upto September 30, 1996.

2.71 Scheme for provision of Credit to Khadi and Village Industries Commission (KVIC) by a consortium of banks

In his budget speech on March 15, 1995 the Union Finance Minister announced a scheme under which the banking system willprovide Rs.1000/-crore on a consortium basis to KVIC which will lend to viable Khadi and Village Industrial units either directly orthrough state level khadi and village industries Boards(KVIBs). Accordingly, a consortium of select public Sector banks has beenformed with the State Bank of India as the Leader of the consortium to provide credit to KVIC . Those banks which have notachieved the priority sector lending target of 40 per cent even after allocation of their contribution to the Rural InfrastructuralDevelopment Fund (RIDF) have been included in the consortium and have been allotted shares in the consortium on a pro-rata basisdepending on each bank's priority sector shortfall. The credit provided by banks to KVIC under this scheme will be reckoned as theirindirect lending to small scale industries under the priority sector. These loans will be provided at 1.5 per cent below the average

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prime lending rates of five major banks in the consortium. The loans will carry Government guarantee. Rs.325 crores have beendrawn by KVIC till March 31, 1996

2.72 Financing of handloom Sector

In his budget speech on March 15, 1995 the Finance Minister referred to the proposal to extend concessional refinance fromNABARD to the Primary Weavers' Co-operative Societies(PWCs) through the commercial banks for financing the production cummarketing activities and RBI has spelt out modalities of the scheme for financing PWCs by commercial banks while announcing thecredit policy for the slack season. Based on the above, Reserve Bank has issued necessary instructions to all the commercial banksand NABARD which will make available a line of credit to commercial banks for providing credit to the PWCs for the production-cum-marketing activities at 9.5 per cent per annum and the credit will be made available to the handloom co-operatives at the samerate i.e. 9.5 per cent provided a subsidy of 2.5 per cent is received from the State Governemnt. Thus, the implementation of thescheme is dependent on the provision of interest subsidy by the State Governments. The Bank has also requested the Chief Secretaryof all State Governments to make necessary provision in the budget for providing interest subsidy for financing the PWCs and to passon the same to the concerned commercial banks. All the commercial banks have been advised vide circular dated June 17, 1995 totake suitable action to increase the flow of credit to the individual weavers and ensure that the programme finalised by the handloomsector gets dovetailed in the annual action plan in each district and the progress of implementation of the annual action plan isregularly monitored at the district level meetings where the representatives of handloom sector also participate.

2.73 Prime Minister's Urban Poverty Eradication Programme (PMIUPEP)

2.73.1The Prime Minister's Urban Poverty Eradication Programme (PMI UPEP) is to be implemented in class II Agglomerationshaving a population between 50,000 to 1,00,000. The scheme was approved by the Cabinet on Aughust 29, 1995 and was formallylaunched by the Prime Minister on Nov.18, 1995. The PMI UPEP will be implemented in the 345 Class II urban agglomerationswhich according to the 1991 census, have a population of 50,000 to 1,00,000 subject to elections of Urban Local Bodies (ULBs)having been held. The target goups under the PMI UPEP are the urban poor, defined as those living below the urban poverty line withan annual household income below Rs.11,850/- at 1991-92 prices.

2.73.2It is proposed to encourage under-employed and unemployed urban youth to set up small enterprises relating to servicing,petty business and manufacturing, for which there is a lot of potential in urban areas. To avoid dupliication with the ongoing PrimeMinister's Rozgar Yojana (PMRY), this component of PMI UPEP will be confined to below poverty line beneficiaries who have goteducation upto 9th standard with emphasis on those identified on the basis of non-economic criteria. The maximum unit cost will beRs.1,00,000 and the maximum allowable subsidy will be 15% of the project cost, subject to a limit of Rs.7500/-. The beneficiary willbe required to contribute 5% of the project cost a margin money.

2.73.3Shelter Upgradation - The PMI UPEP envisages financial support to the urban poor for shellter upgradation with a loancomponent of Rs.10,000/- to be arranged from HUDCO/any other financial institutions including commercial banks subject to thecondition that the beneficiary holds a title to the lands. A subsidy of 25% subject to a ceiling of Rs.2500 per unit will be given. TheCentral and State Government will provide funds on a 60:40 basis under this component. RBI issued instructions to the commercialbanks on Jan, 18, 1995.

2.74 National Housing Bank

2.74.1 Resources

National Housing Bank's (NHB's) paid up capital entirely subscribed by Reserve Bank of India(RBI) was raised to Rs.300 croreswith the fresh release of Rs.50 crores during the year. Under the market borrowing programme for the year 1995-96. NHB has raiseda sum of Rs.2250 crores through the issuance of Government Guaranteed Bonds.

Under the Home Loan Account Scheme (HLAS) of NHB, designated banks and recognised HFCs have collected an estimatedamount of Rs.373.17 crores from about 5 lakh depositors as at the end of March 31,1995. A sum of Rs.19.61 crores has been utilisedby some implementing banks as automatic refinance.

2.74.2 Disbursement

The cumulative disbursements on account of refinance to scheduled banks housing finance companies and State Level ApexCooperative Housing Finance Societies in respect of eligible loans disbursed by them together with subcscription to special ruralhousing debentures floatred by Agricultural Rural Development Banks in respect of their eligible housing loans amounted toRs.2530.67 crores as at the end of April 1996.

2.74.3 Refinance Schemes

The reliance scheme of the Bank were reviewed constantly and depending upon the emerging situation, the schemes weremodified with respect to the interest rates as well as other parameters.

2.74.4 Interest rates

In tune with the on-going changes in the financial sector. NHB revised the interest rates on its refinance for al eliiigible primarylenders by 25 basis points (0.25%) in the loan slabs upto Rs.1 lakh w.e.f. January 1, 1996. Similarly, the earlier requirement of "atleast 60% of refinace for sub-category of Rs.1 lakh" in the slab of Rs.1 lakh to Rs.5 lakhs has been dispensed with.

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NHB has formulatled a refinance scheme for Regional Rural Banks in consultation with RBI and NABARD. The scheme is inconsequence of Policy announcement by RBI allowing Regional Rural Banks to provide housing loans to individuals subject to amaximum ceiling of Rs.1 lakh per borrower.

2.74.5 Housing Finance CompaniesIn order to ensure sound growth and development of HFCs. NHB adopted a conscious policy of strengthening its regulatory

mechanism in current economic transition of liberalisation and deregulation. Under it a set of administrative controls have beendevised for streamlining the system of procedure for regulation, supervision and control of HFCs.

NHB issued a set of guidelines for capital adequacy norms, prudential norms for income recognition, tansparency of accounts andprovisioning for bad and doubtful debts, asset classification, credit concentration to single and group of borrowers and credit rating forHFCs with NOF of Rs.50 lakhs and above. The HFCs are equired to achieve a minimum capital adequacy norms of 8 percent by 31stMarch, 1996. The companies have been further advised to satisfy themselves that they have achieved a capital adequacy of 6 per centby 30th September, 1995 which facilitate them to achieve finally the minimum capital adequacy of 8 per cent by the stipulated period.

All HFCs have to obtain credit rating of its deposit instruments with effect from Ist September, 1995 from one of the three creditrating agencies viz. The Credit Rating Information Services of India Ltd. (CRISIL), Investment Information and Credit RatingAgency of India Ltd. (ICRA) and Credit Analysis and Research Ltd.(CARE). A minimum rating of either FA(-) or MA(-) or CAREBBB(FD), respectively would be necessary for HFCs to accept deposits from the public.

In terms of the existing guidelines HFCs are required to seek prior approval of the NHB before appointing, re-appointing orremoving their statutory auditors.

In the light of inspection finding NHB had issued prohibitory orders against three HFCs for contravention of the Directions andother major irregularities. The total number of HFCs against whom prohbitory orders have so far been issued by NHB is four.

During the year NHB recognised two new HFCs and de-recognised one HFC for the purpose of availing refinance. Thetotal number of HFCs recognised for refinance assistance stands at 20.

NHB has amended para 10 of the HFCs (NHB) Directions, 1989 relating to general provisions on repayment of deposits by HFCson lines of the amendments effected by RBI in respect of NBFCs. A Gazette Notification to this effect was issued on February 19,1996.

NHB revised the ceiling on interest rates on deposits offered by HFCs from 14% to 15% with effect from November 1,1995 onlines of the revision effected by RBI for NBFCs.

In its endeavour to promote new HFCs, NHB has subscribed upto 20% of the initial paid-up capiital of Rs.6 crores and Rs.10crores, of Vi Bank Housing Finance Ltd., a subsidiary of Vijaya Bank and All Bank Housing Finance Ltd., a subsdiary of AllahabadBank respectively NHB's investment in the equity of HFCs stands at Rs.10.36 crores ending May, 1996.

Till the end of December, 1995 NHB has cumulatively approved 218 project proposals with a total outlay of Rs.679.15 crores, theloan component being Rs.519.22 crores.

The aggregate participation of NHB under its building material equity subscription scheme has remained at Rs.93 lakhs

Recognising the importance of providing housing to women, and especially the ones, belonging to the vulnerable section, NHBhas announced a "Direct Financing Scheme for Housing for Women". Under the scheme, NHB will directly finance the project ofpublic agencies and local bodies for the benefit of women belonging to the EWS and LIG categories. The finance for the projectsunder the scheme will be provided out of the special fund created in NHB under Voluntary Deposit (Immunities and Exemption Act,1991) Scheme.

In its efforts to enhance the flow of funds particularly in rural areas and its easy accessibility to the needy rural population, theBank till the end of April 1996, has subscribed to the Special Rural Housing Debentures" (SRHDs) of State Level Co-operative LandDevelopment Banks (SLDBs) to the tune of Rs.180.91 crores. Out of the cumulative assistance of Rs.317.81 crores to the co-operative sector institutions, the share of SLDBs works out to 51.1%. So far SLDBs of Karnataka, Kerala, Maharashtra. UttarPradesh and West Bengal have availed of assistance from NHB under the scheme.