2. 2.

BANKING DIVISION Organisation and Role

Banking Division is concerned with Government policies which have a bearing on the working of commercial banks and the term lending institutions excluding Life Insurance Corporation of India, General Insurance Corporation of India and Unit Trust of India. The Division is headed by Secretary and operates through three sub-divisions, each headed by Joint Secretary dealing with (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 as instructions received from the Department of Official Language, Ministry of Home Affairs, from time to time, in its own Division as also 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 periodically reviews the progress made in the use of Hindi in RBI, Public Sector Banks and Financial Institutions. These banks and financial institutions send their quarterly progress reports regarding use of Hindi in their Head Offices to the Banking Division which are also reviewed in the meetings of Banking Division's Official Language Implementation Committee. During 1995-96, four such meetings were held. RBI, Public Sector Banks and Financial Institutions also have their own Official Language Implementation Committees which also meet regularly to review the progress made in the use of Hindi. In addition, 22 Town Official Language Implementation Committees 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 and Financial Institutions has got accelerated. Letters received in Hindi are being replied to in Hindi and Section 3(3) of the Official Languages Act 1963 is being fully implemented. Forms and other procedural literature are also printed bilingually. The advertisements, press communiques and public notices of all India coverage are issued bilingually by Public Sector Banks and Financial 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 whose branches in a particular District are doing more than 80 per cent of their work in Hindi, such Districts are to be declared as 'Hindi Districts'. At present 414 districts have been declared as Hindi Districts by different banks. Some Banks have even declared some of the 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 institutions where more than 80 per cent of the staff has acquired working knowledge of Hindi as per the definition given in rule 10(1) of the Official Language Rules, 1976, are required to be notified in the Gazette of India. During the year, 972 branches/offices of various banks and financial institutions have been notified under this rule, raising thereby the total number of notified branches/offices to 19684. The banks and financial institutions have also specified some of their departments or some sections in branches for doing their entire 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 Official Language, training centres of banks and financial institutions situated mostly in Region 'A' and 'B' barring a few technical courses, are conducting their training courses either exclusively through Hindi medium or in mixed language of Hindi and English. Handouts and training 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 Official Language Act, 1963 and rules made there-under, annual programme, specimen of Hindi letters, standard notes and drafts, also organise 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 option of 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 the Cabinet and all Cabinet notes are prepared bilingually in the Banking Division. During the year, summaries required for 'Estimates Committee', 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 during the year. A representative of the Banking Division was present during these inspections and follow up action was got taken on the assurances 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 doing excellent work in the field of Hindi. Besides this, Ministry of Home Affairs have also awarded 'Indira Gandhi Rajbhasha Shields' for the year 1993-94 and 1994-95 to banks in Region 'A', 'B' and 'C' for doing excellent work in the implementation of Official Language Policy of the Government of India. 'Indira Gandhi Rajbhasha Shield' was also awarded to Town Official Language Implementation 1

Committees (TOLIC) this year. Rashtrapati Bhawan. 2.3

These awards were presented by Hon'ble President of India at an impressive ceremony at

Workmen Employees Directors

During the year 1995-96, Government appointed Workmen Employee Directors on the Boards of State Bank of Patiala, Bank of India, Canara Bank, Corporation Bank, Indian Bank, UCO Bank, Bank of Baroda and Dena Bank. Action for appointment of Workmen Employee Director on the Boards of two other banks is in process. Workmen Employee Directors on the Board of 24 banks are in position. As on March 31, 1996 there are three vacancies viz. in State Bank of India, Andhra Bank and State Bank of Saurashtra. 2.4 Pension Settlement

In pursuance of the agreement signed by Indian Banks Association with the Workmen Unions, the banks have formulated the Pension 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 of Public 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 Rural Development, Export Import Bank of India, and SIDBI as on December 31, 1994 was as under : Category Officers Clerks Sub-Staff Sweepers 2.7 Total No. of Employees 250806 473429 178590 38919 Number of employees belonging to SC 26861 68787 39949 21063 ST 8818 21990 10430 2009

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 of India, National Bank for Agriculture and Rural Development, Export-Import Bank of India, and SIDBI as on December 31, 1994 was as under : Category/Post Officers Clerks Sub-Staff Sweepers 2.8 Total No. of Ex-servicemen employed 2006 13576 40748 4

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 handicapped persons, 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 December 31, 1994 was as under : Cadre/Post Officers Clerks Sub-Staff 2.9 Blind 12 480 112 Deaf & Dumb 17 649 220 Orthopaedically Handicapped 791 4269 1735

Reservations for Other Backward Classes 2

The instructions of the Government with regard to reservations for OBCs at the rate of 27% vacancies in direct recruitment w.e.f. September 8, 1993 have been made applicable to the banking industry. Accordingly the instructions/clarifications issued by the Department of Personnel & Training/Ministry of Welfare in this regard have been circulated to the banks. The banks are advised to follow the instructions of the Government scrupulously. As reported by banks/financial institutions the number of OBCs appointed in each of the following categories as on December 31, 1994 was as mentioned below: Officers Cadre Clerical Cadre Sub-Staff 2.10 Profitability 2.10.1 Public Sector Banks Analysis 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 a group, went into red during 1992-93 and 1993-94 showing a net loss of Rs.3291 crore and Rs.4349 crore respectively. However, for the 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 the substantial increase in interest income on loans and advances and investments and also lower provisioning requirements. SBI and its associate 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 of Rs.4705 crore in the previous year. 2.10.2 Private Sector Banks The 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 the above, 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 during 1985-1995. As against 12 public sector banks having 141 branches in 24 countries in 1984, there are at present 8 public sector banks having 100 branches in 24 countries. Besides the branch network, there are 13 representative offices, 7 joint ventures and 10 subsidiaries. Some of the banks have been rendering management services under contracts to bank affiliates and Exchange Houses abroad. 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 20668 1992 15667 1993 13682 1994 11221 1995 12385 40 93 216

2.11.3 It would be observed that after a continuous decline in the size of the assets/liabilities of the overseas branches from 1991 onwards, 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 1994 and 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 State bank of India Bank of India Bank of Baroda Indian Bank Indian Overseas Bank UCO Bank 31.3.93 (+) 23.30 (-) 111.50 (-) 73.83 (+) 2.76 (-) 18.90 (-) 60.36 3 31.3.94 (+)130.81 (-) 51.67 (-) 12.74 (+) 1.95 (-) 4.38 31.3.95 (+) 64.70 (+) 60.00 (-) 20.40 (+) 1.40 (-) 0.50 (+) 25.60

(-) 38.19

Syndicate Bank Canara bank Grand Total 2.12 Branches of Foreign Banks In India

(-) 48.23 (+) 0.09 (-) 286.67

(-) (-)

3.09 7.56

(+) 1.10 (-) 4.90 (+) 127.00

(+) 15.13

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 against net profit of Rs.503.97 crore( 1.51 per cent on working funds) during 1993-94. Thus there was a marginal increase in profitability of foreign banks during the year under review. Foreign banks defaulting in achieving the target/sub-targets in priority sector lending as at the end of March 1995 were required to deposit with SIDBI an amount equivalent to the shortfall in achieving the target of 32% of the combined 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 the end 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 achieved the target fixed for finance for housing purpose. The banks which have not achieved the housing finance target are being suitably advised 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% progressively by March 1996 has been encouraging. As on 31 March 1995, 13 public sector banks had attained the CRAR of 8 per cent, 11 banks between 4 per cent to 8 per cent and remaining 3 banks (viz. United Bank of India, State Bank of Travancore and State Bank of Mysore) 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 requirement applicable to them as on 31 March 1993), CRAR of Bharat Overseas Bank Ltd., having a branch abroad, was reported at 10.7% as on 31 March 1995. The matter is being pursued with the remaining three banks, viz. Kashi Nath Seth Bank Ltd. (since amalgamated with SBI), 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.5287.12 crore 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 Development loan of US $ 700 million comprising (i) Capital restructuring loan of US $ 350 million, (ii) modernisation and institutional development 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 problems of four weak nationalised banks, viz., Central Bank of India, Bank of Maharashtra, UCO Bank and United Bank of India and assist their respective managements in formulating packages for their revival and to suggest strategies of turning the banks around. The reports 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 nationalised banks are enabled to strengthen their capital base by offering equity to the public to the extent of 49 per cent. Oriental Bank of Commerce was the first nationalised bank which successfully accessed the capital market and raised a sum of Rs.387.24 crore in October, 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 that their existing equity base is oversized in comparison with the projected stream of earnings. It may become necessary in such cases to reduce 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 4

The performance of 19 nationalised banks was reviewed in relation to the target agreed upon with reference to the position as on 31 March 1995 and the projections for 1995-96 under different parameters given by the banks were discussed by RBI in detail in series of meetings held with the Chief Executives of the banks in August and September, 1995. The thrust areas in the discussions include mobilisation of low-cost deposits, reduction in Non-performance Assets, improving profitability, adherence to time frame prescribed 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 defaulting borrowers 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 Doubtful Loss Suit filed B. FI's Doubtful Loss Suit filed 1102 246 195 5424.61 770.67 691.22 No. of Accounts 1471 250 795 Amount 6217.42 801.99 3352.05

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 financial institutions and the matters connected therewith or incidental thereto. Under the provisions of the Act 5 Debts Recovery Tribunals and one 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 March 1995, banks should make provisions to the extent of 7.5 per cent of the aggregate amount outstanding in respect of advances with balances of less than Rs.25,000/- instead of 5 per cent as per the existing instructions. It was also advised that provisioning requirement in respect of such advances would be 10 per cent for the year ending 31 March 1996. However, banks which are in a position to make provisions according to the asset classification norms as set out in the circular dated 27 April 1992, would be free to do 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 licences and they have started operations, the details of which are given below: Name of the Bank i) ii) iii) iv) v) vi) 2.22. Shipping Finance 2.22.1 In pursuance of the Shipping Development Fund Committee (Abolition) Act, 1986, the functions of the Shipping Development Fund Committee(SDFC) were taken over by the Ministry of Finance (Banking Division) with effect from 3rd April, 5 UTI Bank Ltd. Indus Ind Bank Ltd. ICICI Bank Ltd. Global Trust Bank HDFC Bank Ltd. Centurion Bank Ltd. Registered Office of the Bank Ahmedabad Pune Baroda Secunderbad Bombay Panaji (Goa) Date of issue Feb. 28, 1994 April 2, 1994 May 17, 1994 Sept. 6, 1994 Jan. 5, 1995 Jan. 13, 1995

1987. Sanction release of loans to shipping companies in the private sector against past commitments of SDFC, and recovery of dues from 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 (till November, 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 rehabilitated companies, 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 companies are 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. Since the fishing companies, except three companies, were not repaying their loans, MFPI constituted a Technical Committee on the Deep Sea Fishing Industry in India, to suggest corrective measures for the rehabilitation of the sick units. The recommendations of the Committee 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 financial institutions and nationalised banks. This company has been notified as a 'designated person' under Section 16, Chapter III of the SDFC (Abolition) Act for taking action in terms of this Chapter on behalf of Government of India. Besides functioning as an Agent of the Government for the rehabilitation of sick companies in the shipping and fishing sectors, SCICI has been entrusted with the responsibility 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 is held by public financial institutions, nationalised banks, mutual funds, insurance companies and foreign institutional investors. SCICI has 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 loans equivalent 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 by SCICI 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 a growth of 77% from Rs.8491 crore in 1993-94 to Rs.15065 crore in 1994-95, disbursals also rose significantly by 56%- from Rs.4413 crore 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 in 1994-95. 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 the assistance of Rs.12491.3 crore sanctioned in 1993-94. Disbursements at Rs.10621.3 crore recorded an increase of 31.60% over those in the previous year of Rs.8071 crore. Total assistance outstanding at the end of March, 1995 stood at Rs.33244.5 crore, higher by 12.4% 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 which bulk 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 public sector 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 to Nov. 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 Government of 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 overall sanctions of IFCI under its various schemes of assistance aggregated Rs.10,300 crores for 540 projects, recording 80% growth as compared to Rs.5719.45 crores during 1994-95 (April-March). Total disbursements during the year aggregated Rs.4563 crores as against Rs.2838.73 crores disbursed during 1994-95 (April-March) registering 61% growth. 6

2.26.2 Cumulatively, sanctions accorded by IFCI under its various schemes upto the end of March, 1996 amounted to Rs.33695 crores 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 241 projects, which constituted 56% of the total assistance sanctioned. Cumulatively, upto the March 31, 1996, IFCI had sanctioned financial assistance aggregating Rs.16511 crores to 2164 projects located in notified less developed districts/areas which constituted 49% 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 and disbursements by SIDBI aggregated to Rs.4699.3 crores and Rs.3385.3 crores respectively. The sanctions and disbursements recorded growth 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 and indirectly through the vast network of primary lending organisations mainly in the form of refinance. Availment of refinance by the credit institutions has been on the decline since 1991-92. On the other hand, SIDBI's operations under its schemes of direct assistance have 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 schemes designing 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 which would take care of the fund-based requirements inclusive of equity, project loans, equipment finance, short term loans and assistance in foreign currency. The new schemes of assistance introduced during 1994-95 include a scheme for Pre-shipment Credit in Foreign Currency to the exporting SSIs, a scheme for direct equity investment in the SSI units by SIDBI, a scheme for direct financial assistance to well run export-oriented SSIs to acquire ISO 9000 series certification and a savings-cum-credit scheme to provide revolving type fund support to accredited Voluntary Organisations working with special target groups in the rural areas to extend support 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 net profit a sum of Rs.113.3 crores has been transferred to Reserves; Rs.5 crore to National Equity Fund, Rs.10 crores to Venture Capital Fund, Rs.3 Crore to Mahila Vikas Nidhi, Rs.5 crore to Mahila Udyam Nidhi, Rs.1 crore to the Staff Welfare Fund and the balance amount 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 March 1996 Exim Bank sanctioned loans of Rs.2466 crores under various lending programmes. Disbursements during the year amounted to Rs.2130 crores. Loan outstanding increased by 11% moving upwards to Rs.2888 crores on March 31, 1996 from 2596 crores as on March 31, 1995. 2.28.2 The Bank extended guarantee commitments and accorded sanctions for guarantees of Rs.981 crores and Rs.203 crores respectively for overseas projects; guarantees amounting to Rs.173 crores were issued during the year. Guarantee outstandings as on March 31, 1996 amounted to Rs.908 crores. Exim bank registered for the year ended March 31, 1996, a net profit of Rs.110 crores as against a profit of Rs.78.8 crores for the year ended March 31,1995 after adjusting for depreciation, providing as per RBI norms for non-performing assets and other normal provisions. Net profit has increased by 40% as compared to the previous year. 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 is transferred to general reserves. In addition, Bank has transferred funds aggregating Rs.775 crores to Reserve for Guarantee-cumrefinance programme and Export Promotion Reserve. Net profit of the Export Development Fund was Rs.4 crores. Cumulative sanctions and disbursements of loans for the period March 1982 to March 1996 (fourteen years) stood at Rs.14,343 crores and Rs.11,800 crores respectively. Cumulative guarantees sanctioned and guarantees issued during the above period amounted to Rs.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 a result of the reconstitution of the erstwhile Industiral Reconstruction Corporation of India Ltd. as the principal credit and reconstruction agency in the country for the revival of sick and closed industrial unit. In 1991, Government of India withdrew the restriction regarding principally financing of sick units by IRBI and it was expected to function as a regular financial institution. IRBI now extends loans and advances to industrial concerns including short-term loans and bridge loans, underwrites shares, bonds and debentures and guarantees loans and deferred payments. Its range of activities also includes services like the provision of infrastructure facilities, consultancy, corporate counselling merchant banking and making available machinery and other equipment on lease 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 was Rs.199.30 crores. 7

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 crores respectively as compared to Rs.777.9 crores and Rs.397.6 crores respectively during 1994-95 thereby showing a rise of 15.3% for sanctions and 31.5% for disbursement. The cumulative sanctions and disbursements of IRBI as at the end of 1995-96 were Rs.3658 crores and Rs.2397 crores respectively. 2.29.4 IRBI ensures stringent adherence to environmental aspects. Pollution clearance certificate from appropriate authorities is invariably 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 (Special Provisions) Act, 1985 (1 of 1986) (SICA) became operational w.e.f. May 15, 1987. The Board looks into cases of sick industrial companies in the large and medium sector with a view to achieving, inter-alia, the objectives of timely detection of sickness and determination of preventive, ameliorative, remedial and other measures in respect of such companies and expeditious enforcement of the measures so determined.

2.30.2The progress of work of the BIFR as on 31.03.1996 is as follows: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. References received Registration declined Under Scrutiny References registered Dismissed as non-maintainable Rehabilitation Schemes approved/sanctioned Winding up recommended to the concerned High Courts Draft Scheme circulated Winding up Notice issued Under inquiry Schemes failed & reopened Pending Cases Remanded by A.A.I.F.R. Stay ordered by Courts Scheme by A.A.I.F.R./SC 2546 758 1 1787 398 531* 423 51** 69@ 187 47 20 34+ 27

* ** @ +

(79 merger cases (78 Private Sector + 1 State Public Sector) Including 93 cases Declared No Longer Sick (91 Pvt. Sector plus 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 and 24 State) under SICA. Revival Schemes were sanctioned for 32 (13 Central and 19 State) and closure recommended for 17 cases (6 Central and 11 State). 2.31 Appellate Authority for Industrial and Financial Reconstruction (AAIFR) 8

2.31.1The Appellate Authority for Industrial and Financial Reconstruction has been set up under the provisions of Sick Industrial Companies (Special Provisions) Act, 1985 to provide for a mechanism to hear appeals of sick industrial companies against the orders of 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 this regard are shown below: 1994 No. of appeals pending at the beginning of the year No. of appeals received during the year No. of appeals disposed of during the year 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 system in the country. They function with the objective of financing and promoting small and medium enterprises for achieving balanced regional socio-economic growth, catalysing higher investment, generating greater employment opportunities and widening the ownership 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 Industrial Investment Corporation Ltd., set up in 1949 under the Companies Act also functions as a full-fledged SFC. SFCs extend financial assistance to industrial units by way of term loans, direct subscription to equity/debentures, guarantees and discounting of bills of exchange. SFCs operate a number of schemes of refinance and equity type of assistance formulated by IDBI/SIDBI which include schemes for artisans, special target groups such as scheduled caste/scheduled tribes, women, ex-servicemen, physically handicapped etc. 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 and senior executives of IDBI and SIDBI to exchange views on financing of small and medium enterprises through SFCs/SIDCs. The decisions taken at the meeting include (i) the issue of revised guidelines regarding accounting and provisioning norms prescribed for SFCs (ii) financial restructuring of SFCs after indepth study of operations of each SFC, and (iii) review the SFCs Act by a Committee 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 other prudential 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 and Government. Amendment to the SFCs Act on the basis of the recommendations of the Committee are under consideration of the Government. 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, 1995 which was also attended by the Governor and Dy. Governors of RBI and reviewed the functioning of these organisations. Finance Minister expressed satisfaction over the achievements in the banking sector since 1991 when reforms were introduced. He took note of the positive developments in regard to reduction in the non-performing assets as a proportion to total advances as also improved profitability. He elaborated on the social concerns and called upon the bankers to change their general bias in favour of the rural masses so as to reduce income disparities to improve the performance in meeting the targets for priority sector lending and other development programmes of the Government such as the Prime Minister's Rozgar Yogana (PMRY) and lending to the Khadi and Village Industries. While emphasising that our youth is the country's greatest asset, he called upon the banks to play a pro-active role in exploring and expanding the range of viable schemes and projects suitable for these young enterpreneurs and assist District Industries 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 guarantee against the type of lapses that had taken place. Finance Minister said that despite best efforts made by the banks with regard to the complaints received regarding unsatisfactory customer service, the General public perception was that the quality of service offered by banks to their customers both depositers and borrowers was not of acceptable standard and called upon the banks to ensure that computerisation should increase productivity, reduce costs and results in the provision of better services to customers. The Minister called upon the banks to see as to how the needs of genuine women enterpreneurs in the agriculture, small scale and export sector could be adequately met. The Finance Minister stressed that economic reform was not a licence to benefit a few but an opportunity for nation building and a challenge for meeting the social concerns. The banks have to accept the challenge of development banking while remaining sound commercial institutions. 2.34 Regional Consultative Committee Meeting 131 236 202 1995 170 170 87

2.34.1The 8th meeting of the Regional Consultative Committee of the Nationalised Banks for North Eastern Region comprising of the states Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland & Tripura was held on 4th Janauary, 1996 at Shillong under the Chairmanship of the then Minister of State (Banking & Insurance). The meeting was also attended by Chief Minister 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 Eastern Development 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 banking developments in the various regions of the country to make recommendations for the consideration of the Central Government, RBI and State Governments. The RCC meeting, such as these served as useful forum for exchange of views at the highest level for forging policy 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 for establishment of Recovery Tribunals and Appellate Tribunals for expeditious adjudication and recovery of debts due to Banks and Financial Institutions and matters connected therewith or incidental thereto, the Central Govt. have established the following Tribunals. Location 1. Debts Recovery Appellate Tribunal Bombay 2. Debts Recovery i) ii) iii) iv) v) Calcutta Delhi Jaipur Bangalore Ahmedabad April 27, 1994 July 5, 1994 August 30, 1994 November 30, 1994 December 21, 1994 Tribunals West Bengal, Andaman & Nicobar Island. Delhi. Himachal Pradesh, Punjab, Haryana, Rajasthan & Chandigarh. Karnataka and Andhra Pradesh Gujarat, UT of Dadra and Nagar Haveli, Daman & Diu. July 12, 1994 Date of establishment Jurisdiction Over all the Debts Recovery Tribunals

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 District Judge can be appointed as Presiding Officer by the Central Government. For appointment to the post of Presiding Officer of the Appellate Tribunal the candidate should possess the following qualifications: (a) (b) (c) is, or has been, or is qualified to be, a judge of a High Court; or 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 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 to Banks and Financial Institutions Act, 1993 the Delhi High Court quashed the Notification regarding establishment of Debts Recovery Tribunal for Delhi Region and declared the Act as unconstitutional and void on March 10, 1995. The Union of India filed a Special Leave Petition and the Hon'ble Supreme Court stayed the Judgement of Delhi High Court in April, 1995. The constitutionality of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 has also been challenged before the various High Courts of the country i.e. Madras, Calcutta, Andhra Pradesh, Himachal Pradesh, Karnataka etc.. U.O.I. has also filed a Transfer Petition under Article 139-A of the Constitution of India to transfer cases from different High Courts of the country to the Supreme Court. Further proceedings in the various High Courts in the cases mentioned in Transfer Petition have been stayed by the Supreme Court on November 27, 1995. Section 6 and Section 11 of the Debts Recovery Tribunal Act has been amended thereby raising the age of retirement of Presiding Officer of Debts Recovery Tribunal from 60 to 62 years and Presiding Officer of Debts Recovery Appellate Tribunal from 62 to 65 years. 2.36 Priority Sector Lending 10

2.36.1The Government have been giving considerable importance to the priority sector lending particularly in view of the need for quicker upliftment of the weaker and the down-trodden sections of the society. With a view to achieve this objective, the present credit 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 for meeting 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 in March end 1995 to 37.75 per cent in March end 1996 against the target of 40%. The percentage of advances to agriculture has also shown 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 per cent. 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/service branches, spinning off of business, setting up of controlling offices/administrative units, opening of extension counter etc.. As regards opening new branches other than specialised or service branches and upgradation of existing extension counters into fullfledged branches, banks are to decide on the policy and strategy for setting up new branches taking into account the need to meet the overall national policy objectives, the need to cater to the special requirement of modern globalised business which call for a quick and efficient response and the need to keep the establishment costs and the overheads under control. According to the present policy banks meeting the following criteria have the freedom to open new branches and to convert extension counters into full fledged branches: (a) (b) (c) (d) Compliance with capital adequacy of 8 per cent, Minimum owned funds of Rs.100 crores, Bank showing net profit continuously for three years and 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 rural areas. 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 contribution made by the banks to developmental activities in the concerned state. The CD ratio depends not only on the efforts made by the banks but also on various other factors such as credit-absorptive capacity of the region, infrastructural support, and the overall policy framework 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 Task Forces 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 improving infrastructural facilities, consolidation of land holdings, development of markets, early detection and rehabilitation of sick industrial units, land development, promotion of small scale industries, financing of minor irrigation schemes and allied activities like horticulture 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 growth rate 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, 1996 aggregate deposits of Scheduled Commercial Banks stood at Rs.432345 crores. The demand deposits during the year 1995-96 recorded an increase of Rs. 2346 crores as against Rs.20330 crores during the corresponding period in 1994-95. Total time deposits showed 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 Ratio of the same date was 58.3 per cent. Total bank credit of scheduled commercial banks during the year 1995-96 recorded an increase of Rs.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 of Rs.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 deployment of credit. As at the end of March, 1996 RBI has allotted lead bank responsibility to banks covering a total of 511 districts in the country. The Service Area Approach (SAA) which entails allocation of specific areas to rural/semi-urban bank branches is intended to improve the quality of rural lending. Under SAA annual credit plans are prepared by the banks. The target for deployment of bank credit for the year 1994-95 was Rs.11218.49 crores and the achievement during the year was Rs.12453.90 crores. 11

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 development in the rural areas. Towards facilitating this, NABARD has been providing refinance support to commercial and cooperative banks for increasing 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 to financing minor irrigation investments. 2.41.2During the year 1994-95 (April-March), NABARD sanctioned short term credit limits aggregating Rs.4092 crores to State Cooperative 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 of various rural industrial activities of societies and individual rural artisans and a sum of Rs.23.64 crores to SCBs for purchase and sale of yarn. NABARD sanctioned credit limit to State Cooperative Bank to the tune of Rs.157.15 crores for conversion of short-term loans into medium-term loans in scarcity affected areas including rephasement/re-schedulement. NABARD also provided assistance of 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 finance their 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 them under Schematic lending for agriculture and for certain specific non-agricultural purposes as commercial banks are expected to meet their short-term requirement out of their own resources. The total disbursements of NABARD during 1994-95 to the commercial banks for various purposes was of the order of Rs.1092.39 crores. A table indicating the purpose-wise disburse-ments of financial assistance given by NABARD in 1994-95 to commercial banks and other agencies is given below: (Rs. crores) Purpose Minor irrigation Land Development Farm mechanisation Plantation/Horticulture Poultry Sheep/Goat/Piggery Fisheries Dairy Development Forestry Storage/Market Yards I R DP Non Farm Sector Others Total 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 Agriculatural Sub sector target in the priority sector advances, subject to a maximum of 1.5%. The amount available under RIDF is estimated at Rs.2000 crores. It is to be used for providing loans to State Governments and State owned corporations for completion of ongoing projects 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 per cent 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 of Rs.1827 crores. The irrigation schemes sanctioned under RIDF would facilitate creation of additional irrigation potential of about 1.8 12 Disbursement 598 17 685 129 97 43 101 171 13 18 620 411 108 3011

million with a expected annual contribution of Rs.2400 crores to GDP. The recurring employment generation is expected to be of the order 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 with the respective State/Union Territory Government for meeting the investment credit proposals in Farm and Non-Farm Sectors. Till December 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 financing tribals under Seasonal Agricultural Operations during 1995-96 in 114 predominantly tribals districts in 18 states. As against the allocation, seperate limits have been sanctioned to 61 CCBs and 31 RRBs in the country for a aggregate amount of Rs.173 crores and Rs.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 by commercial 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 crores disbursed by banks in 1993-94. The total number of beneficiaries assisted during 1994-95 was Rs.21.89 lakhs as against 25.38 lakhs in 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 to5.87 lakhs 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 to Rs.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 November 30, 1994). 2.47.2The rates of discount on CP issues during the period April-November 1995 remained firm. The typical rates of discount on CP issues increased from 11.50 - 12.50 per cent per annum during the fortnight November 16 - 30, 1994 to 14.00 - 15.00 per cent during 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.180.56 crore 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 that CP would be carved out of the cash credit component of the Maximum Permissible Bank Finance (MPBF). It was decided to restrict the extent of commercial paper that can be issued to 75 per cent of the cash credit component of the working capital limit, instead of 75 per cent of the working capital (fund based) limit hitherto. Accordingly, banks were advised in May 1995 that they should effect a pro 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 they were advised to complete their respective share of housing finance allocation at 1.5 per cent of their incremental deposits as on the last reporting Friday of March, 1995. The overall allocation for housing finance by banks for the year 1995-96, thus worked out to Rs.1,010.51 crores. However, banks are permited to exceed the target (1.5 per cent of their incremental deposits), if their resources position so permit. 2.48.2 Authorised dealers in foreign exchange were granted permission in May, 1995, to sanction loans to non-resident Indians holding Indian Passports for acquisition of a house/flat for residential purposes subject to certain temrs and conditions. However, such loans and the indirect finance sanctioned by way of term loans to finance institution for disbursement as loans to a non-resident Indian are not to be treated for the purpose of annual housing finance allocation.

13

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 allowed to 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 not exceed Rs. 2 lakhs per housing unit. (b) Assistance given to any governmental agency for slum clearance and rehabilitation of slum clearance and rehabilitation of 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 of refinance, for construction of houses or for slum clearance and rehabilitation of slum dwellers subject to the ceiling for loan 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 No. of A/cs. i) ii) All public sector Banks All ScheduledComm. Banks 141979 146381 Amount (Rs. in lacs) 54563.47 56143.87 Indirect Finance No. of A/cs. 47822 48314 .Amount (Rs. in lacs) 30911.58 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 the weakest 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 to SC/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 equipments to 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 to SC/ST to total DRI advances Amoun O/s 51.0 51.6 60.0 62.31

. March, 1993 March, 1994 March, 1995 March, 1996 29.58 26.14 22.99 20.41

No. of A/cs 704.60 694.09 701.84 681.91

Amoun O/s 13.82 12.38 11.56 10.39

.No. of A/cs 359.23 378.93 420.79 424.92

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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 the findings of the study, banks have been advised to take remedial steps wherever necessary and to improve their performance in lending under 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 urban poor living below the poverty line (family income less than Rs.11,850.00 p. a.) in areas, which are not covered by IRDP and implemented by selected branches of public sector banks. Subsidy at the rate of 25 percent of the project cost is given to each beneficiary subject to following ceiling:Subsidy SC/ST & Women beneficiaries Others Rs.5000 Rs.4000 Project Cost Rs. 20,000 Rs. 16,000

2.51.2The Urban Local Bodies act as 'Nodal' agency under the scheme and disburse the subsidy through the bank branch which sanctions/disburses the loan. Repayments are to be made in 3 to 5 years with suitable monthly/quarterly instalments depending upon surplus 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 out of the assistance granted under the scheme and no collateral security/third party guarantee is necessary. The loans are treated as advances 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 their population 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) Target (No. of beneficiaries) No. of applications (sanctioned) Amount of loan sanctioned (Rs. in lakhs) Amount of loans disbursed (Rs. in lakhs) * 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. The objective of the scheme is to provide sustained employment to about 10 lakhs educated unemployed urban youth in micro enterprises during the VIII Five Year Plan. These enterprises cover manufacturing, service and business ventures. The scheme was implemented in urban areas during 1993-94 and from April 1, 1994, it is being implemented throughout the country. Self-Employment Scheme for Educated Unemployed Youth (SEEUY) has been subsumed with PMRY from April 1, 1994. The salient features of the scheme are:i) ii) iii) iv) v) vi) vii) viii) 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. The beneficiaries under the scheme would be given a subsidy of 15% subject to a ceiling of Rs.7,500 each for starting the micro-enterprises. They would be required to bring in 5% of the project cost as margin money. Each entrepreneur will be eligible for a bank loan for projects upto a ceiling of Rs.1 lakh and this loan would not require a collateral guarantee. The entrepreneurs selected under the scheme would be provided training, before the loan is granted. Not more than 30% of the micro-enterprises would be from the business sector. Besides matric passed or failed students and ITI passed youth, all the persons who have undergone Government sponsored technical courses for a minimum duration of 6 months will be eligible for assistance under the scheme. Reputed NGOs would also be associated in the implementation of the scheme especially in the selection, training of entrepreneurs and preparation of the project under the scheme. 15 1993-94 123000 182878 12892.45 10375.32 1994-95 120070 143619 11009.83 8497.02 1995-96 (Upto Sep.1995) 117223 64457* 5021.67* 3261.50*

ix) x) xi)

A reservation of 22.5% for SC/ST and 27% for other backward castes (OBCs) has been provided. Women should be given preference. 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 1993-94 1994-95 1995-96 Target No. 42040 239215 304150 29625 180093 266742 18350.34 100677.95 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) ii) iii) iv) v) Sikhs Muslims Christians Zoroastrians Buddhists

2.53.2 Under the present arrangements, banks have to ensure that credit is made available to the members of minority communities in an adequate measure not only in the 41 districts identified by the Government of India as having concentration of minority communities, but also in the country as a whole. (However, no sub-target has been earmarked in the priority sector credit for the minority communities). Although there is no special earmarking of target for minority communities, available data indicates (as shown 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 March 1992 March 1993 March 1994 March 1995 No of A/cs. (in lakhs) 55.98 56.96 59.11 61.21 Balance outstanding (Rs. in crores) 5129.80 5674.67 6351.60 6946.79

b. Priority sector credit to minorities in forty one identified districts Period Year-ended March 1992 March 1993 March 1994 March 1995 No of A/cs. (in lakhs) 12.83 13.60 12.76 12.61 Balance outstanding (Rs. in crores) 850.04 952.43 1070.32 1129.86

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

16

2.53.4 With a view to ensure that the minority communities get a fair portion of the bank credit. Reserve Bank has issued necessary guidelines to banks and has also evolved a monitoring system which ensures that banks do not lack in their efforts to extend credit to these communities. A study on bank credit to minorities was recently undertaken by the Reserve Bank of India. It was observed during the study that the borrowers belonging to these communities by and large had no difficulty in availing of loans from banks. Shortcomings in the performance of the banks in lendings to the minority communities as revealed during the study, have already been brought to the notice of the banks and they have been advised to improve their performance in making credit available to the 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 of natural calamities. The power to make these guidelines applicable in the case of riots and disturbances has been delegated to the District 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 riot affected borrowers' which was issued by RBI in September 1993, the total amount of claims received from banks amounts to Rs.28.99 crores as on March 31, 1995 i.e. last date for submission of interest subsidy claims by banks. So far, the Government has released a sum 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 whose aggregate of loans from all banksdoes not exceed Rs. 25,000/-. This scheme is administered by the Government of India. Under the Scheme 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 achieved substantial growth over the years and have been able to take banking to the doorsteps of the rural poor and providing them access to institutional credit support. As on 31.03.1995, 196 RRBs have been functioning in 23 States covering 425 districts with a network of 14536 branches. The branches of RRBs constituted over 23% of all scheduled commercial bank branches and 41.5% of the rural branches of the scheduled commercial banks which indicates significant effort on the part of RRBs to serve the weaker sections of the society. 2.56.2 The credit support provided by these banks amounted to Rs.6290.22 crore covering 125.92 lakhs borrowal accounts as of 31.03.1995. Moreover they had disbursed Rs.2298.01 crores during the year ended March 1995 to 29.55 lakh beneficiaries of the weaker sections of the society. As on 31st March 1995, as much as Rs. 11158.88 crore were mobilised as deposits by RRBs in 374.38 lakh accounts. The average amount of deposits and loan outstanding per account in a RRB as on 31.03.1995 worked out to Rs.2980 and Rs.4995 respectively which is indicative of the fact that the clientele of the RRBs are from the weaker sections of the society. 2.56.3 In order to supplement the limited resources of the RRBs both NABARD and Sponsor Banks extend financial assistance to these institutions by way of refinance. Refinance is extended to RRBs by NABARD for the following purposes:i) ii) iii) iv) v) Short term credit limits for Seasonal Agricultural Operations (SAO). Short-term credit limits for non-SAO purposes. Medium-term credit limits for meeting their requirements of sporadic investment lending. Refinance against schematic lending of the RRBs for investment purposes under both farm and non-farm sectors. 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 and Rs.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 been increasing 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 196 RRBs, only 23 RRBs were in a position to earn profits amounting to Rs.21.91 crores during the year ending March, 1994. During 1994-95, 32 banks had earned profits and the remaining 164 banks had incurred losses. The aggregate accumulated losses of all RRBs as on March 31, 1995 were Rs. 1660.92 crores. This figure does not includes the burden of National Industrial Tribunal award arrears. The main reasons for the RRBs, incurring losses year after year are inadequate financial margin, restrictions on choice of clientele, limited area of operation and high transaction costs.

17

2.56.5 A major weakness afflicting the RRBs has been the continued poor recovery performance of most of the banks in the process turning a large number of their loan accounts into non-performing assets. As on 30th June 1994, their percentage of recovery to 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 RRBs is 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 lakhs each 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. The RRBs Act, 1976 provided that the salary structure of the RRB employees shall be determined having due regard to the salary structure of the employees of the State Governments in comparable posts. The RRB employees associations demanding parity in respect of salary structure with the employees of sponsor banks filed a Writ Petition in the Supreme Court in 1984. The Supreme Court passed orders in September, 1987 wherein it suggested that the Government may constitute a National Industrial Tribunal (NIT) and refer the dispute to it. The Government accordingly appointed NIT with Mr.Justice Obul Reddy (rtd.). The NIT pronounced its award on April 30, 1990. The Tribunal in its award inter-alia held that officers and other employees of RRBs will be entitled to claim parity with the officers and other employees of the Sponsor Banks in the matter of pay scales, allowances and other benefits with effect from 1st September, 1987. The NIT, however, did not make any specific equation of the various posts in RRBs with those existing in Sponsor banks 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 the equation of posts in RRBs vis-a-vis Sponsor banks and fixation of pay, allowances and other benefits. The Equation Committee submitted its report on Jan 8, 1991 and on acceptance, the Government of India issued operational instructions to all implementing agencies on Feb. 22, 1991. Consequent upon the implementation of the NIT award, read with Equation Committee, certain operational problems had cropped up and also changes were to be brought about in service regulations, recruitment and promotion policy for the RRB staff. NABARD at the instance of GOI accordingly constituted a Working Group. The Working Group submitted its 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 sponsor banks, the arrears upto and including 31st December 1990 which works out to about Rs.220 crores are yet to be paid to the RRB employees. 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 of India in December, 1993. The measures include raising non-target group financing from 40 percent to 60 per cent, improving scope for non-fund based business, freeing 70 RRBs whose disbursals during 1992-93 were less than Rs.2 crores from service area obligations, and permitting them to relocate loss making branches at places like Mandis, Taluk/District Headquarters, agriculture produce centres, etc. and to open extension counters at premises of institutions for which the RRBs is the principal banker. The RRBs have also been permitted to install safe deposit lockers. Further, RBI has allowed the RRBs in January 1995 to invest their Non-SLR surplus funds in specified profitable avenues after meeting their target group and service area obligations. With a view to increase the avenues for expansion of credit, RRBs have been permitted to deploy a part of their surplus non-SLR funds in the credit portfolio of their 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 alternative models including National Rural Bank of India (NRBI) for restructuring of RRBs, a decision was taken as announced by the Finance Minister in his Budget Speech on 28th February, 1994 to take up 50 of the 196 RRBs on a 'Stand alone' basis all over the country during 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 other RRBs. The objective is to transform presently weak and ailing RRBs into financially viable and effective instruments of decentralised rural banking. Consequent upon the Finance Minister's Budget announcement, a Committee was set up by the RBI consisting of representatives from NABARD, Government of India and the RBI to identify RRBs to be taken up for restructuring on the basis of definite financial norms/parameters. On the recommendations of Committee, 49 RRBs have been selected for restrucring during 199495. 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 the bank'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 enable the nationalised banks to restructure their balance sheets. 18

2.61.2Nationalised Banks (Management and Miscellaneous Provisions) Scheme, 1970 & 1980 have been further amended to suitably 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 of money supply with a view to containing inflationary pressures and at the same time ensuring the provision of adequate credit to support the growth of the real sector. Inflation control had necessarily to be an integral part of monetary policy as inflation and inflationary expectations do considerable damage to the system and hit particularly hard the weaker sections which have no hedges against inflation. While it was felt necessary to ensure that the growth of money supply remained within the targetted rate of 15.5 per cent, measures were also taken towards enabling banks to mobilise more resources and also to significantly improving the liquidity of their investment portfolio. Besides, measures were also taken to stabiliise the situation in the forex and money markets and to ease the liquidity situation as and when circumstances demanded. 2.62.2Credit 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 the prevailing inflation rate and also to ensure that banks are able to mobilise more term deposits to finance their lending operations out of their own resources, effective April 18, 1995, the maximum term deposit rate, excluding non-resident deposits, was increased by one percentage point. The rates were raised to 'not exceeding' 12.0 per cent per annum from 'not exceeding' 11.0 per cent per annum. The revised 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 effect from the fortnight beginning April 29, 1995. As a result of this change, the rupee export credit refinance limits of banks were reduced by 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 Export Credit in Foreign Currency (PSCFC) was increased by one percentage point from 6.5 per cent per annum to 7.5 per cent per annum with effect from April 18, 1995. The interest rate on refinance under the PSCFC scheme was also increased by one percentage point from 5.5 per cent per annum to 6.5 per cent per annum. Even with this enhancement, the rate of interest on PSCFC was significantly lower 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 to 70 per cent of outstanding export credit provided by banks under the PSCFC scheme as against the earlier 80 per cent. The dollar denominated 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 and gain 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 for banks/consortia/syndicates to restrict the cash credit component to 75 per cent of the MPBF. Commercial Paper and the sub limit for bills 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 capital purposes. Such short-term loans are to be sanctioned for a minimum period of one year, though in case of seasonal industries, the minimum 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 the observance 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 of the borrowal account whichever was earlier. 2.62.6Bank finance to Finance Companies: Bank finance to finance companies was curtailed. Equipment leasing/hire purchase companies would now get bank finance up to three times of their net owned funds as against the earlier four times; other equipment leasing/hire purchase companies would get up to two times of their net owned funds as against the earlier three times; and loan and investment companies and residuary non-banking companies would get bank finance equal to their net owned funds as against the earlier two times. 2.62.7Bridge Loans/Interim Finance: Bridge loans by banks/financial institutions against public issues and/or borrowings from the 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, in principle, to provide access to mutual funds set up in the private sector and approved by the securities and Exchange Board of India 19

(SEBI) to participate only as lenders in the call/notice money/bill rediscounting market. Each mutual fund would, however, need to obtain 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 agriculture subject to a maximum of 1.5 per cent of net bank credit to a Rural Infrastructural Development Fund (RIDF) of Rs. 2,000 crore being set 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 of interest equivalent to 0.5 percentage point above the maximum permissible rate on these term deposits. The contribution to the Fund made by the banks would be reckoned as their indirect agricultural lending under the priority sector. The loans to be given by NABARD to the State Governments/bodies from the Fund will be for a period of 5 years and project specific. On the outstanding borrowings from the Fund under the above arrangement, State Government/bodies would pay a floating rate of interest at a rate equivalent to 0.5 percentage point above the rate paid by NABARD to banks on deposits placed by banks in the Fund. The state Government concerned would be required to provide a Government Guarantee in respect of repayment of principal and interest. State Government would also be required to execute an irrevocable letter of authority in favour of the Reserve Bank authorising it to debit the 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 was formed, with the State Bank of India as the leader, to provide Rs. 1000 crore to Khadi & Village Industries Commission (KVIC) for direct or indirect on lending to viable khadi and village industrial units. These loans would have to be provided at 1.5 per cent below the 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 commercial banks at 9.5 per cent per annum. Banks would use these funds to make available credit to the handloom co-operatives at the same rate provided 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 at least 40 per cent of the demand for the previous years to be eligible for refinance from NABARD. In order not to deny credit to new and non-defaulting members of cooperatives and RRBs and maintain credit flow, this stipulation was relaxed in December 1993. With a view to ensuring a minimum level of production credit to areas of retarded credit flow, it was decided to continue the relaxation for a further 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 their lending 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 term deposits with a maturity of over 2 years. While the interest rate on domestic term deposits of 46 days and upto 2 years continued to be prescribed at the existing rate of 'not exceeding 12.0 per cent per annum', the earlier prescription of having at least three maturities within 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 been asked to ensure that they did not get locked into excessively long deposit maturities. Banks have been advised in this context to undertake 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 46 days to 3 years and over Rates prior to October 1, 1995 'Not exceeding 12.0' Duration 46 days and upto 2 years Over 2 years 2.63.2 Free Rates Effective Oct. 1, 1995 'Not exceeding 12.0'

Reserve Bank Refinance Facility Against Government and Other Approved Securities 20

With a view to providing larger liquidity to scheduled commercial banks for their excess holdings of Government and other approved securities, the base year for determining the refinance limits under this facility was brought forward. Effective from the fortnight commencing September 30, 1995, the base year was brought forward from 1991-92 (April-March) to 1994-95 (AprilMarch). 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 outstanding aggregate deposits in 1994-95 (April-March). The first refinance limit is provided against the collateral of Treasury Bills at an interest rate of 12.5 per cent per annum, while the second refinance limit is provided against dated Government and other approved securities at 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.3,385 crore. 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 two percentage points to 'not exceeding 10.0 per cent per annum'. The change, applicable to only fresh deposits and on renewal of maturing 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 rate payable 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 permissible bank finance of Rs.20 crore or above was reduced from 75 per cent to 60 per cent and the "loan component" was increased from 25 per cent to 40 per cent. Banks have been asked to complete the process of bifurcation in terms of the revised guidelines on or before December 31, 1995 or the next quarterly review of the borrowal account, whichever is earlier. 2.63.6Foreign 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 the volume and nature of business and the structure of the bank's owned funds. This stipulation also did not capture cross currency exposures. 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 to fix 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 in addition to the existing capital adequacy requirements already specified by the RBI. In the case of Indian banks, the open exposure limit would also include the limits allowed to their overseas branches. 2.63.7Working Group on NRI Investments The following recommendations of the Working Group on NRI Investment (Chairman : Shri O.P. Sodhani) are initially being implemented: (i) (ii) (iii) (iv) Grant of general permission for sale of shares acquired under the Portfolio Investment Scheme has been extended to Overseas Corporate Bodies. General permission would be granted for sale of shares by NRIs/OCBs acquired on repatriation basis under the Direct Investment Schemes. The procedure for giving final permission for issue/export of shares to NRIs by Indian companies is being simplified. 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 permissible activities.

2.63.8Other Measures Banks have already been advised to prepare annual plans to increase the flow of credit to the agricultural sector and to ensure that 100 specialised branches are set up in 85 identified districts to meet the requirements of small scale industry. Banks were urged that they 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 their agricultural lending operations, the following measures were undertaken : 21

(i) (ii) (iii)

Prudential norms introduced for RRBs in a phased manner. RRBs allowed to provide housing loans, subject to a maximum ceiling of Rs.1 lakh per borrower provided such loans do not exceed 5 per cent of the RRBs incremental deposits during the year. 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) rupee account (NRE) term deposits, effective October 31, 1995, the interest rate on NRE term deposits for maturity of 6 months to 3 years and over was raised from 'not exceeding 10.0 per cent per annum' to not exceeding 12.0 per cent per annum'. The revised term deposit rates were made applicable to only fresh deposits and on renewal of maturing deposits. 2.64.3Cash 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 NRE deposits. With effect from the fortnight beginning October 28, 1995, any increase in NRE deposits over the level outstanding as on October 27, 1995 was exempted from maintenance of the average cash reserve ratio. Banks were, however, required to continue maintenance of the average CRR of 15.0 per cent on NRE deposits upto the level as on October 27, 1995. This measure enabled banks to balance the increase in their cost of NRE deposits by increasing the return on the deployment of their funds. 2.64.4Cash 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 non resident (non repatriable) rupee (NRNR) deposits. With effect from the fortnight beginning October 28, 1995, any increase in NRNR deposits over the level outstanding as on October 27, 1995 were exempted from maintenance of the cash reserve ratio. The average CRR of 7.5 per cent on NRNR deposits upto the level as on October 27, 1995, however, continues. This measure enabled banks to market 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) and encouraging 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 to October31, 1995 (i) (ii) Demand bills for transit period (as specified by (FEDAI) Usance Bills (For total period comprising usance period of export bills, transit period as specified by FEDAI and grace period wherever applicable) (a) (b) (iii) Upto 90 days Beyond 90 days and upto six months from the date of shipment. 7.5 7.5 9.5 7.5 9.5 Free 7.5 New Rates Effectiv October 31, 1995 7.5

Export credit not otherwise specified for PSCFC

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 separate sub-limit of the cash credit limit. Effective October 31, 1995, outst andings under the import credit sub-limit were made subject to a 15 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 per cent and the effective interest rate on the import finance would be 18.4 per cent. Repayments to the import sub-limit would be permitted from sale proceeds, subject to the proviso, that there would be a minimum period of one month during which a payment for imports from the import sub-limit cannot be liquidated by sale proceeds. Bank finance provided to meet the cost of imported inputs covered by export packing credit would be exempted from the surcharge. 22

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 of funds 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.2,600 crore 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 credit situation, the following measure was undertaken. Effective from the fortnight beginning November, 11, 1995, the CRR to be maintained by scheduled commercial banks (excluding Regional Rural Banks) was reduced by one half of one percentage, point from 15.0 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 on November 24, 1995 was exempted from maintenance of the cash reserve ratio. Banks were, however, still required to maintain the average 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 the resources of banks by Rs.1,050 crore. The increase in liabilities under FCNR(B) scheme over the level outstanding as on November 24, 1995 continued to be exempted from the maintenance of CRR. 2.66.2Reduction in CRR Taking into account the monetary and credit developments, effective December 9, 1995, the cash reserve ratio(CRR) of scheduled commercial 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 within their reach, a scheme of Money Market Mutual Funds(MMMFs) was introduced by the Reserve Bank of India in April 1992. In order to make the scheme more flexible and thereby attractive to banks and financial institutions and also with a view to providing greater liquidity 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 and MMMFs, private sector institutions were allowed to set up only Mutual Funds. It was decided to also allow the private sector to set up MMMFs. 2.67.3Size 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 financial institutions, a ceiling of 2 per cent of the long-term domestic borrowings. It was decided that henceforth the size of MMMFs would not 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. 2.67.4Investments by MMMFs The instruments in which money market mutual funds can invest their funds will remain unchanged (viz. Treasury Bills and dated government securities having an unexpired maturity upto one year, call and notice money, commercial paper, commercial bills accepted/co-accepted by banks and certificates of deposit). The prescription of limits on investments in individual instruments by MMMFs - minimum or maximum - was however, withdrawn and MMMFs are free to determine the extent of their investments in each instrument. On prudential grounds, however, the guideline that the exposure to commercial paper issued by an individual company 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. The outstanding amount of CDs issued by scheduled commercial banks recorded a phenomenal increase from Rs.8,017 crore as on March 31, 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 23

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 interest on 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 and marginally rose to a range of 13.00 - 14.00 per cent during the fortnight ended October 27, 1995. However, the typical rates of interest 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 to October 27, 1995. The secondary market for CDs has not developed effectively. This could be due to the investors prefernce to hold on 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 Reserve Bank of India from time to time since 1984. As a sequel to the meeting held at New Delhi on 22 November, 1991, between the then Union Finance Minister and a delegation of industrialists and the State Government officials, RBI constituted a working Group for going into all aspects concerning the concessions/credit relaxations available to the borrowers/customers in Punjab. On the basis of the recommendations of the Working Group all scheduled commercial banks have been advised in April 1992 to make available the various packages of concessions to the borrowers/ customers in Punjab. In March 1993, the above concessions/relaxations have also been extended to trade and industry in the Union Territory of Chandigah. These concessions/credit relaxations have been extended from 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 Union Territory of Chandigarh. (i) (ii) (iii) (iv) Sanction increased working capital facilities by way of relaxation in prescribed/standardised norms for inventory and receivables by a maximum of 50 per cent depending on the merits of each case. Encourage financing against accepted hundies (usuancebills). Make available liberal finance against book debts to corporate borrowers. The existing ceiling of 15 per cent margin for calculation of drawing power against commodities not covered under the selective credit control directives and marging of 10 per cent for finance against bills should be continued upto September 30, 1995. Thereafter, the respectrive margins should be increased in the stages i.e. from October 1, 1995 and April 1, 1996. The concession which were 50 per cent in service charges for remittances, collection of outstation bills/cheques should be allowed at 25 per cent of normal/existing charges. For term credit, the banks may adopt a flexible and pragmatic approach as regards debt-equity ratio, especially for small projects. Period of realisation of bills purchased and advance bills for collection may be extended upto one month by Branch Manager. Liberal acceptance Credit/L.C. facilities may be extended to facilitate purchase on credit. The margin for bank guarantees and inland letters of credit which was not to exceed 15% depending on merit of each case would also be continued upto September 30, 1996.

(v) (vi) (vii) (viii)

2.69.3 Banks were also advised to constitute a special cell for monitoring implementation of the packages in the State at Zonal Office Level. At the State Level, a committee comprising represen-tatives of major banks. State Government, trade and Industry have been 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 by Reserve 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 been extended 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 will provide Rs.1000/-crore on a consortium basis to KVIC which will lend to viable Khadi and Village Industrial units either directly or through state level khadi and village industries Boards(KVIBs). Accordingly, a consortium of select public Sector banks has been formed with the State Bank of India as the Leader of the consortium to provide credit to KVIC . Those banks which have not achieved the priority sector lending target of 40 per cent even after allocation of their contribution to the Rural Infrastructural Development Fund (RIDF) have been included in the consortium and have been allotted shares in the consortium on a pro-rata basis depending on each bank's priority sector shortfall. The credit provided by banks to KVIC under this scheme will be reckoned as their indirect lending to small scale industries under the priority sector. These loans will be provided at 1.5 per cent below the average 24

prime lending rates of five major banks in the consortium. The loans will carry Government guarantee. Rs.325 crores have been drawn 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 from NABARD to the Primary Weavers' Co-operative Societies(PWCs) through the commercial banks for financing the production cum marketing activities and RBI has spelt out modalities of the scheme for financing PWCs by commercial banks while announcing the credit policy for the slack season. Based on the above, Reserve Bank has issued necessary instructions to all the commercial banks and NABARD which will make available a line of credit to commercial banks for providing credit to the PWCs for the productioncum-marketing activities at 9.5 per cent per annum and the credit will be made available to the handloom co-operatives at the same rate i.e. 9.5 per cent provided a subsidy of 2.5 per cent is received from the State Governemnt. Thus, the implementation of the scheme is dependent on the provision of interest subsidy by the State Governments. The Bank has also requested the Chief Secretary of all State Governments to make necessary provision in the budget for providing interest subsidy for financing the PWCs and to pass on the same to the concerned commercial banks. All the commercial banks have been advised vide circular dated June 17, 1995 to take suitable action to increase the flow of credit to the individual weavers and ensure that the programme finalised by the handloom sector gets dovetailed in the annual action plan in each district and the progress of implementation of the annual action plan is regularly 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 Agglomerations having a population between 50,000 to 1,00,000. The scheme was approved by the Cabinet on Aughust 29, 1995 and was formally launched by the Prime Minister on Nov.18, 1995. The PMI UPEP will be implemented in the 345 Class II urban agglomerations which 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 with an 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 Prime Minister's Rozgar Yojana (PMRY), this component of PMI UPEP will be confined to below poverty line beneficiaries who have got education upto 9th standard with emphasis on those identified on the basis of non-economic criteria. The maximum unit cost will be Rs.1,00,000 and the maximum allowable subsidy will be 15% of the project cost, subject to a limit of Rs.7500/-. The beneficiary will be 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 loan component of Rs.10,000/- to be arranged from HUDCO/any other financial institutions including commercial banks subject to the condition 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. The Central and State Government will provide funds on a 60:40 basis under this component. RBI issued instructions to the commercial banks 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 crores with the fresh release of Rs.50 crores during the year. Under the market borrowing programme for the year 1995-96. NHB has raised a 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 estimated amount 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 utilised by 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 Apex Cooperative Housing Finance Societies in respect of eligible loans disbursed by them together with subcscription to special rural housing debentures floatred by Agricultural Rural Development Banks in respect of their eligible housing loans amounted to Rs.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 were modified with respect to the interest rates as well as other parameters. 2.74.4Interest rates In tune with the on-going changes in the financial sector. NHB revised the interest rates on its refinance for al eliiigible primary lenders 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 "at least 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. 25

NHB has formulatled a refinance scheme for Regional Rural Banks in consultation with RBI and NABARD. The scheme is in consequence of Policy announcement by RBI allowing Regional Rural Banks to provide housing loans to individuals subject to a maximum ceiling of Rs.1 lakh per borrower. 2.74.5Housing Finance Companies In 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 been devised 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 and provisioning for bad and doubtful debts, asset classification, credit concentration to single and group of borrowers and credit rating for HFCs with NOF of Rs.50 lakhs and above. The HFCs are equired to achieve a minimum capital adequacy norms of 8 percent by 31st March, 1996. The companies have been further advised to satisfy themselves that they have achieved a capital adequacy of 6 per cent by 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 credit rating agencies viz. The Credit Rating Information Services of India Ltd. (CRISIL), Investment Information and Credit Rating Agency of India Ltd. (ICRA) and Credit Analysis and Research Ltd.(CARE). A minimum rating of either FA(-) or MA(-) or CARE BBB(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 or removing their statutory auditors. In the light of inspection finding NHB had issued prohibitory orders against three HFCs for contravention of the Directions and other 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. The total 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 HFCs on 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 on lines 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.10 crores, of Vi Bank Housing Finance Ltd., a subsidiary of Vijaya Bank and All Bank Housing Finance Ltd., a subsdiary of Allahabad Bank 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, the loan 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, NHB has announced a "Direct Financing Scheme for Housing for Women". Under the scheme, NHB will directly finance the project of public agencies and local bodies for the benefit of women belonging to the EWS and LIG categories. The finance for the projects under 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, the Bank till the end of April 1996, has subscribed to the Special Rural Housing Debentures" (SRHDs) of State Level Co-operative Land Development Banks (SLDBs) to the tune of Rs.180.91 crores. Out of the cumulative assistance of Rs.317.81 crores to the cooperative sector institutions, the share of SLDBs works out to 51.1%. So far SLDBs of Karnataka, Kerala, Maharashtra. Uttar Pradesh and West Bengal have availed of assistance from NHB under the scheme.

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