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P. Devarajan

TWO top Government banks have virtually stopped utilising refinance facilities offered by the National Bank for Agriculture and Rural Development (Nabard) and others could be joining to form a crowd.

SBI has said no to Nabard refinancing for the SHG-Bank Linkage micro-financing strategy. With interest rates dipping, banks garnering deposits at 5 per cent to 6 per cent prefer to fund their farm exposures directly. In addition, excess liquidity is pushing banks to shy away from Nabard's refinance option. With demand lagging supplies of rupee funds, bankers' are privately debating the rational of Nabard continuing as an agriculture refinance agency. Nabard charges 6.75 per cent on refinance of bank loans up to Rs 25,000. It climbs to 7.75 per cent for loans between Rs 25,000 and Rs two lakh and stays put at 9.25 per cent for loans above Rs 2 lakh. Against this, commercial banks can access public deposits (including term deposits) at around 8 per cent, making refinance redundant. Presently, refinance is accessed by the co-operative banking structure for short-term crop loans (up to one year), but the rural co-operative banking structure is weak with NPAs limiting pay-backs. Nabard refinances up to 90 per cent and more of funds lent by the State Co-operative Agriculture & Rural Development Banks, as they have no deposit base.

Over the years, Nabard has been able to develop technical skills to evaluate farm and other support services but is short on know-how in direct farm lending or valuing collaterals. The Nabard Act has been amended to allow direct lending in cases approved by the board and today it is signing MoUs with commercial banks to be a co-sponsor. Nabard has MoUs on co-financing with Union Bank of India, Dena Bank, Central Bank of India and plans to tie up with others such as Corporation Bank and PNB. Reports are, Nabard has an MoU with Union Bank of India to co-fund some 40 farm-related projects, though none has yet got off the board. Under the scheme, Nabard funds up to 50 per cent of the bank finance at interest rates fixed by the bank.

The RBI provides funds to Nabard at 6 per cent and the institution raises funds from the public through bonds. At the ground level, the SHG-Bank Linkage programme has caught the imagination of the poor though Nabard is only a facilitator and takes no risks. An SHG (usually 20 women putting up Rs 50 per month) backed by an NGP places its funds with a nationalised bank. The bank in turn clears a loan equivalent to the deposits on a 1:1 ratio with a few brave bankers offering loans on a 1:4 ratio.

In Andhra Pradesh, the scheme has the backing of the Government, pushing the ratio to 1:14. The SHG deposits are termed "warm money'' in banking lingo with the contribution by banks styled as "cold money''. Going by various studies, the NPAs under the scheme are zero disproving the axiom the village poor are risky assets. No collateral is insisted upon to prove the point.

Nabard believes farm funding is profitable. If so, can it be converted into an agricultural bank (a variant on the universal bank) sans regulatory forbearance. Officials at Nabard may baulk at the idea as they have no experience in lending and pricing funds. Yet another hurdle is the fact of Nabard, owned 100 per cent by the RBI, being also a supervisor of the co-operative credit structure with regulations being laid down by RBI.

In many ways, SIDBI, the refinancing agency for the SSI sector is in a similar mess with its NPAs at an uncomfortable high. A top banker admitted: "It is time Nabard worked on acquiring a new body and soul. After all, Nabard is no different from IFCI, IDBI and ICICI (now a bank) and deals with agriculture, the critical sector for the Indian economy.''

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