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Direct Refinance to Cooperative Banks

1. Need for Direct Refinance Assistance to Co-operative Banks
 
Implementation of the Government of India’s Revival Package of Short Term Co-operative Credit Structure (STCCS) as per Vaidyanathan Committee recommendations enabled District Central Co-operative Banks (DCCBs) to borrow funds directly from any financial institution regulated/approved by RBI. As a corollary to this enabling provision, NABARD developed a progressive product titled ‘Short Term Multipurpose Credit Product’ (STMPCP) to provide financial assistance to Co-operative Banks (StCBs/DCCBs). The primary objective here was to expand their lendable resources and enable their diversification into a variety of business operations.
 
2. Purposes covered under STMPCP 
 
I. Short Term Multipurpose Credit Product
 
Working capital requirements
Repair and maintenance of farm equipment and other productive assets
Storage/grading/packaging of produce
Marketing activities
Crop loan (if the requirement is more than Rs.3.0 lakh)
Redemption of old debts and other socio-economic needs
In addition to the above, all purposes which are covered under Section 21(1)(i) to (v) of NABARD Act, 1981 are also eligible for refinance under this product
 
II. Assistance to Co-operative Banks for on-lending to sugar factories
 
The refinance assistance would be provided to Co-operative Banks for on-lending to sugar factories (co-operative & private) for prompt payment to farmers towards procurement of sugarcane and also to meet out their internal expenditure. Terms and conditions of sanction, eligibility of the banks, interest rate and security are same as that of STMPCP.
 
3. Eligibility criteria under STMPCP
 
I.  The credit limit will be sanctioned to well-governed and financially strong ‘A’ and ‘B’ categories of StCBs/CCBs. They should also be licensed by RBI.
 
II.  The banks should fulfil the following criteria in order to become eligible for refinance assistance from NABARD in case of on-lending to sugar factories.
 
         a) Sugar factories should have positive net worth
         b) There should not be any accumulated losses
         c) Credit Monitoring Arrangements (CMA) norms must not be violated
         d) Sugar factories should not have defaulted in repayment of dues to borrowing institutions
         e) Annual accounts are audited regularly and are up to date
         f) The account should be a standard asset with the bank 
 
4. Important aspects of funding under STMPCP
 
I.  Operative period and nature of credit limit
 
  • The limit will be operative for a period of one year from the date of sanction
  • The limit will be in the nature of cash credit
  • Banks may draw and repay as many times as required
  • The limit can be considered for renewal after completion of one year on satisfactory operation of the account
II.  Quantum of credit limit
 
To the extent of 100% of bank’s lending under Short Term Multi-Purpose Credit Product and 75% for on-lending to sugar factories.
 
III.   Rate of interest 
 
As per rates decided from time to time depending upon the prevailing market conditions. Interest is payable at quarterly rests on the outstanding balance in the account. 
 
IV.   Security norms for refinance assistance
 
  • Banks will be rated using risk rating tool. Based on rating, security in the form of unencumbered fixed deposits receipts issued by the Scheduled Banks have to be provided by the borrowing banks.
  • Limit to State Co-operative Banks can be considered against Government Guarantee or promissory notes as applicable.