INTEREST RATE ON SCHEMATIC REFINANCE

Interest rates on refinance for term loans to banks have been revised downwards by 50 basis points.

With this reduction, refinance will be extended (w.e.f 23 January 2008) at 8.5% per annum towards agriculture and non farm sector lendings of SCBs, RRBs and at 9% per annum to CBs, PUCBs, ADFCs and North East Development Financial Institutions (NEDFI).

The rate of interest applicable on refinance towards term loans issued in North Eastern Region, Sikkim and Andaman & Nicobar Island has been revised at 8.5% per annum for all the agencies and purposes.

BHAVISHYA NIRMAN BOND

Bhavishya Nirman Bond, a zero coupon bond has the features the market has seen never before. Govt. of India has allowed tax relief on the returns of these bonds as the returns are treated as capital gains for the purpose of taxation. Normally, if we invest money in fixed deposits of banks, the interest income attracts income tax at a very high rate of about 34% and is deducted by banks at source. Due to altogether different treatment of returns on Bhavishya Nirman Bonds, the rate of taxation comes down to 10%. Also NABARD has got exemption for TDS on the returns of the bonds. Therefore, the investor gets full maturity value in his hands.

The sale after 12 months will make the investors eligible for long term capital gains and also a substantial tax relief. Apart from tax relief many other features make this instrument very attractive.

High Security

NABARD is fully owned by Govt. of India and Reserve Bank of India. It is also one of the biggest financial institutions of India. NABARD’s negligible NPA levels, high capital adequacy ratio, high interest coverage and a good ALM provide strength to its financial stature. The bonds are rated ‘AAA’ by CRISIL and CARE certifying financial strength of the institution.

High Returns

The price of the bond at present is Rs.8500 and maturity value Rs.20000 after 10 years. The gross return is Rs.11500/- which after paying capital gains tax @ 10% works out to Rs.10350. The simple annualised post tax returns are 12.18%. If we calculate rate of returns compounded annually, the post tax returns on this bond are 8.29% p.a. The investor should compare this return with post tax returns on fixed deposits of other commercial banks. The rate of interest offered by major commercial banks like SBI and ICICI Bank on FD for 10 years is 8.50% p.a. at present. If we take the rate of income tax payable by the individual investors on the interest income @30%, the post tax returns hit a low of 5.95% p.a. In both the calculations, surcharge and education cess have been omitted as they are not likely to continue for a long period of 10 years. This shows that the post tax returns on Bhavishya Nirman Bonds of NABARD are higher by 2.34% p.a.

The investors, particularly institutions who invest more than Rs. 3 crore are eligible to buy these bonds at a lower rate of Rs.8450 per bond. This increases the returns to them further.

The individual investors who have already invested Rs. 1 lakh and reached maximum admissible exemption under section 80C of Income tax Act would seek better investment options. It is advisable to invest in these bonds as the rates of taxation are minimal on returns from these bonds.

The bond is a better investment for employees than contribution to additional provident fund. An investment in these bonds at 8.29% p.a. (post tax) for only 10 years is definitely better than contributing to PF for a longer term at just 8% p.a.

Further, individuals who plan for education or marriage of their children or their own retirement can invest in this long term instrument. Individuals who earn reasonably well in private sector companies but do not have social security of post retirement benefits, may also consider investing in the bond.

High Liquidity

These bonds are transferable and can be mortgaged as security with other banks. Therefore, in case, the investors require liquidity for a temporary period, the bonds may be pledged with the Banks for raising loans. The bonds are listed at Bombay Stock Exchange. In case of need, the bonds can be sold at stock exchange at any point of time before ten years also.

Another advantage over investing in FDs is that banks reduce the applicable rate of interest on their FDs by about 2% in case of premature withdrawals but in the case of Bhavishya Nirman Bonds, the investor gets full market value for the bonds.

Protection from interest rate fluctuations

The rates of interest on deposits in the market keep fluctuating. Therefore, there is a risk of adverse movement of rate of interest. With 10 year bond tenure, we ensure that our investments are insulated from these fluctuations. NABARD is committed to pay the face value after 10 years whereas the investor has an exit option through stock exchange or transfer of bonds.

Limits on purchase of bonds

By investing minimum Rs. 42500 in five bonds, we get Rs.100000 after 10 years. There is no upper limit for purchase of these bonds. This makes the instrument very attractive for institutional investors who may invest and trade the bonds like any other AAA rated bonds in the market.

Investments by PF & Charitable Trusts

PF Trusts can invest in these AAA rated bonds for a long tenure and fetch good returns. They can trade them also depending on their need and market conditions.

Similarly, Charitable or Religious Trusts will also find the instrument very secure and high yielding.

Investment by Banks

Many Commercial Banks and Cooperative Banks have already invested in these bonds as they find the returns on this instrument very profitable. The rates of taxation on their profits which are as high as 40% can be reduced by investing in these bonds. The returns on Bhavishya Nirman Bonds are treated as capital gains and taxed at 10% only as against 40% on returns from other investments.

Investment by NRIs

NABARD has not allowed NRIs to invest in these bonds so far. However, NRIs find this instrument very attractive. The low rates of taxation and long tenure of investment make the instrument attractive.

TDS

NABARD has been exempted from deducting tax at source on returns on the bonds issued by them for Indian residents. Accordingly, NABARD does not deduct TDS on Bhavishya Nirman Bonds. However, NABARD will be deducting TDS in case it permits NRIs to invest in these Bonds under section 195 of Income Tax Act 1961.

Demat Accounts

The bonds are issued in physical as well as demat form. Other investors who are having dematted accounts can opt for electronic form. The investors who do not wish to trade the bond at stock exchange may opt for physical form. However, NABARD provides facilities for Demat and Remat at later dates also.

Market lot

The marketable lot has recently been reduced by SEBI to Rs. 1 lakh for all corporate bonds. Accordingly, 5 Bhavishya Nirman Bonds having face value of Rs. 1 lakh qualify for trading at Stock Exchanges.

Interest on application Money

Although the returns on investment in bonds are very high at 8.29% p.a., NABARD provides interest on application money at 5% p.a. The rate of interest appears to be very low but for a broken period of less than a month, these are not bad returns.

Looking forward

As the bonds are very new in Indian market they have not yet caught the imagination of investors. It is expected that with the deepening of corporate debt market, this instrument will have excitement of stock exchange on its returns very soon.

DEPARTMENTAL REORGANISATION

Finance and Accounts Department and Resources Mobilisation Department are reorganised into Finance Department and Accounts Department with effect from 01 February 2008. The functions of these departments will be as follows:

Finance Department:

Funds Management, including Treasury and Dealing Room, Refinance and Subsidy disbursement, Loaning Operations, Operations of RBI Current A/c and reconciliation thereof, Investment Back-Office, Capital Gain Bonds, BN Bonds and Bonds & Borrowings, RIDF deposits, Front Office of Capital Gain Bonds and BN Bonds, Back Office of Capital Gain Bonds and BN Bonds which includes house keeping, coordination with bankers, arrangers, interest payments on bonds, Back office of Bonds and servicing of all bonds, redemption, maintaining portfolio of bonds, Back Office of Bonds and Borrowings which includes servicing of RIDF deposits, all Bonds (other than CGB), external borrowings and other deposit accounts.

Accounts Department:

Accounts of the entire Bank, Central Accounts, Instaccount, finalisation of Balance Sheet and Annual Accounts, Budget of the Bank, Taxation and Statutory Audit.

The Mid-Office which oversees the Asset Liability Management of the Institution as also the Market Risk Management, will also be a part of the Accounts Department.

DEPARTMENT FOR COOPERATIVE REVIVAL AND REFORMS

Introduction : The Task Force on Revival of Short Term and Long Term Cooperative Credit Structure submitted two reports viz. Vaidynathan Committee-I (STCCS) in February 2005 and the report on Vaidynathan Committee-II (LTCCS) in August 2006. Accordingly, the revival package for short term was announced by GOI in January 2006. The financial assistance under the package is (i) to cover accumulated losses in the cooperatives (ii) to bring all cooperative including PACS to reach a minimum level of Risk Weighted Asset Ratio (CRAR) of 7%. (iii) support and design guidelines for Common Accounting System (CAS), Management Information System (MIS) and Computerisation of Cooperatives at all levels and the cost involved in the same. The sharing of losses between Government of India and State Governments and the Cooperative Credit System is based on the origin of the losses. CRAR shortfall would be fully contributed by GoI.

As recommended by the committee a package of assistance will be made available to the Short Term Structure only after certain steps are taken by the State Governments and cooperatives. This includes signing of tripartite MoU among Central Government, State Government and NABARD, undertaking special audit of SCBs, DCCBs and PACS, reforms in legislation, adhering to common accounting system, computerisation etc.

Implementation of the committee’s recommendations is at different stages in various States. Status is as follows -

Execution of the MoU

Seventeen States, viz. Andhra Pradesh, Arunachal Pradesh, Bihar, Chhattisgarh, Gujarat, Haryana, Tamil Nadu, Tripura, Nagaland, Madhya Pradesh, Maharashtra, Rajasthan, Orissa, Uttarakhand, Uttar Pradesh, West Bengal and Punjab have signed the MoUs with GoI and NABARD. This covers 84% of the PACS and 82% of the DCCBs in the country.

Further, three states viz., Karnataka, Goa and Sikkim and Union Territory of Dadra & Nagar Haveli have communicated their ‘in principle’ acceptance to GoI.

Special Audit :

(i) PACS

NABARD has created a pool of more than 1000 Master Trainers for training the Departmental Auditors in conduct of Special Audit of PACS. Training programmes for Master Trainers were also organised and based on the feedback received in these programmes, guidelines and format for Special Audit have been revised. The Departmental Auditors have also been trained in all the implementing States.

Special Audits of PACS have been fully completed in Andhra Pradesh, Orissa, Gujarat, Haryana and Rajasthan and are in progress in the remaining implementing states. PACS affiliated to 283 DCCBs in the implementing states have been covered so far. In the implementing States NABARD has created a pool of Master Trainers (over 1000) for training the Departmental Auditors in conduct of Special Audit of PACS

Guidelines and formats for Special Audit of DCCBs has been finalized and issued. Special Audit of DCCBs have been started in the implementing States like Haryana, Rajasthan etc.

(ii) DCCBs

Recapitalisation Assistance

NABARD has released an amount of Rs. 1045.30 crore as GoI share under the package to Andhra Pradesh, Madhya Pradesh and Haryana for recapitalisation of PACS having recovery percentage of 50 and above as on 30 June 2004. For PACS in Category II, claims from States are expected shortly once the recovery data has been firmed up by them and the State Government share has been arrived at and necessary budgetary provision made.

Legislation Reforms

The Cooperative Societies Acts have been amended by Andhra Pradesh, Haryana, Gujarat, Madhya Pradesh and Uttar Pradesh. Further, two States, namely, Gujarat and Maharashtra have promulgamated Ordinances incorporating the amendments.

Draft Amendments proposed by the states of Rajasthan, Bihar, Uttarakhand and Arunachal Pradesh have been vetted by the Bank. The respective States are pursuing the amendments with States Legislature/Government etc.

HRD- Training

- Two training modules, training materials and trainers’ guides for PACS Secretaries and Elected Members of the PACS Board for the first phase have been finalized and also translated into local languages wherever required. Training has been imparted to 206 State Level Master Trainers from Andhra Pradesh, Rajasthan, Orissa, Bihar, Uttarakhand, Maharashtra, Madhya Pradesh, Uttar Pradesh, Haryana, West Bengal and Gujarat. These Master Trainers, in turn, are training the district level trainers for conducting actual field level programmes.

- Training of Secretaries and elected members of PACS has started in Andhra Pradesh, Bihar, Madhya Pradesh, Haryana, Rajasthan, Orissa and West Bengal.

- State Level Nodal Agency has been identified in Andhra Pradesh, Bihar, Gujarat, Haryana, Madhya Pradesh, Maharashtra, Orissa, Rajasthan, Uttarakhand, and Uttar Pradesh.

Common Accounting System (CAS) and Management Information System (MIS) for PACS

NABARD has issued guidelines to the RCS of all implementing States on Common Accounting System for PACS for immediate implementation. Instructions have also been issued to RCS of other states (non participating states) to advise PACS under their jurisdiction to adopt the Common Accounting System.

· A Manual on Common Accounting System for PACS has been issued for guidance of the STCCS.

· A handbook and standardised set of MIS for PACS has been designed and circulated to help decision making at PACS and at all other levels including higher financing agencies, regulator and other agencies.

Computerization

A Technical Committee headed by MD, NABARD with CGM, DIT, RBI and Director, IDRBT, has finalized the guidelines on computerization of Common Accounting System and MIS of PACS. Guidelines on development, procurement & deployment of software alongwith the guidelines for procurement of hardware equipment for PACS have been issued to NABARD ROs for placing before SLICs.

Monitoring

Progress in implementation is being reviewed by NIMC, SLICs and DLICs at All India Level, State Level and District Level. In addition, NABARD HO also reviewed the progress with the implementing ROs. Finance Minister has reviewed the progress with the implementing States. A status paper is sent to GoI every month detailing the progress.

Support from Multi-lateral Agencies

Asian Development Bank (US $1 billion), KfW (US $140 million) and World Bank (US $600 million) have offered assistance to GoI for the purpose of implementation of the recommendations.

ASSISTANCE FOR TRIBAL PROJECTS

Nine projects with assistance of Rs. 26.13 crore under Tribal Development Fund (TDF) have been sanctioned. These sanctions will benefit 7538 poor tribal families in the states of Rajasthan, Chattisgarh, Orissa, Assam and Andhra Pradesh. With this, the total sanction under the fund has crossed Rs.100 crore, benefiting 30293 families spread over 13 states and Union Territory of Dadra and Nagar Haveli.

The Tribal Development Fund (TDF) set up with a corpus of Rs.50 crore has been augmented during this year with an amount of Rs. 219 crore. The fund aims at integrated tribal development focussing on WADI (small fruit orchard) approach with peoples’ participation. With the objective of achieving sustainable development of the tribal poor, other components like livelihood support for landless, health, women development, capacity building are also supported in these projects. These projects are implemented through voluntary agencies with experience in natural resource management and working in tribal areas.

Special focus is given for formation of people's organisations in the project area. Formation of SHGs of wadi participants in the project area and federating them into apex bodies, as envisaged in these projects, are expected to empower the participants, bring in transparency in operations. In many of the project areas, people’s organisations are planning to take up common activities such as processing and marketing of wadi products and other non timber forest produces and production of artifacts with local resources.

KRISHAK SAATHI SCHEME

According to one of the estimates, 51% of the farmers still do not have access to institutional credit. Moneylenders, pawnbrokers, fertilizers and farm input dealers, middlemen etc. continue to play a dominant role in the lives of the farmers. Most of the time, the terms and conditions of the non-institutional source are exploitative in nature. Therefore, “Krishak Saathi Scheme” (KSS) has been designed to help indebted farmers to redeem their outstanding dues to moneylenders. This help is available to farmers only on the condition that they do not create fresh debts with moneylenders. Under the scheme refinance will be provided to the extent of 80% to all SCB/SCARDB, RRBs and CBs.

Under the scheme, credit will be provided to cover all farmers including tenant cultivators and oral lessees, who can satisfy the banks about indebtedness from the moneylenders and are not defaulters to any bank.

The refinance will be extended under Automatic Refinance Facility (ARF) to be repaid within a period of 5-7 years including a moratorium of 12 months. Similar pattern of repayment period is to be fixed by the banks for farmers.

Rate of interest on refinance charged will be 9% p.a. for SCB/SCARDBs/RRB and 9.5% p.a. for CBs. The rate of interest will be revised from time to time, depending on the market conditions.

MAHALAXMI SARAS

M ahalaxmi SARAS Fair was organized by the Govt. of Maharashtra during December 22, 2007 to January 2, 2008. It was inaugurated by Shri Sharad Pawar, Union Minister for Agriculture. Among the prominent guests for the inaugural function included Shri R R Patil, Dy CM and Home Minister, Vijay Singh Mohite Patil, Rural Development Minister, Secretary, Rural Development from Govt. of Maharashtra and Shri Umesh Chandra Sarangi, Chairman.

35 stalls were sponsored for 84 artisans from 23 states viz. AP, Assam, Bihar, Chhattisgarh, Gujarat, HP, Jharkhand, Kerala, Karnataka, MP, Maharashtra, Orissa, Punjab, Rajasthan, Sikkim, Tamil Nadu, Tripura, UP, Uttarakhand & West Bengal participated in the Mega annual event. A number of items like bamboo, natural fibre products, wood craft, textiles, ceramics, mats, silk, crochet, terra cota, puppets, lace knitting work, wall hangings, paintings, chikan embroidery etc were on display.

The stalls registered total sales of Rs.41.28 lakhs (Cash Sales), while several work orders from local boutiques and exporters were bagged by the artisans.

FINANCIAL RESULTS (REVIEWED) FOR THE QUARTER ENDED 31 DECEMBER, 2007

Notes :