RURAL BANKING DEPARTMENT. Sub: New Products to meet the credit requirements of farmers

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1 MAIN : ADV-85/ DT a SUB : Rural Lending-16 RURAL BANKING DEPARTMENT FILE M-2 S-201 Sub: New Products to meet the credit requirements of farmers GOI/MoF/DFS constituted a Working Group to suggest New Products to meet the credit needs of the farmers. The Working Group consisting of members from Punjab National Bank, State Bank of India, Canara Bank, Bank of Baroda, Life Insurance Corporation of India and Oriental Insurance Company Ltd suggested six new products for meeting the credit requirements of the farmers. GOI/MoF/DFS have communicated these new products to banks for consideration and adoption with suitable modification/changes. The new products suggested are: 1. Scheme for financing farmers for purchase of land for Agricultural purpose 2. Estate purchase loans 3. Loans for Agricultural purposes against Gold/Silver 4. Kisan all purpose Term loans 5. Kisan Tatkal Scheme and 6. Loans to farmers for purchase of Renewable Energy Equipments (Solar Pump sets/solar Water Heater/Solar lighting) Of the above six products, the following two products are existing in our bank and the features of these products are akin to those suggested by the above Working Group 1. Scheme for financing farmers for purchase of land for Agricultural Purpose. 2. Loans for Agricultural Purposes against Gold. With regard to Kisan All purpose Term loan and Kisan Tatkal Scheme, the features suggested by the above Working Group have already been factored in the revised KCC scheme. The remaining two schemes viz., Estate Purchase Loan and Loan to farmers for purchase of Renewable Energy Equipments for Agriculture & Allied Activities will benefit the farmers at large in improving the production of traditional plantation crops and harnessing the solar energy for meeting the power requirements for agricultural activities, respectively. These two products have been approved by our Board for implementation. The product details are annexed. Branch Managers / RDOs are advised to market these products to improve the agricultural credit portfolio. Zonal Offices are requested to closely monitor the performance of the branches in implementing these new products to improve the investment credit portfolio under agriculture. (M.Balakrishnan) DEPUTY GENERAL MANAGER (RBD)

2 Annexure A. Estate Purchase Loans 1. Purpose: To purchase estate growing traditional plantation crops viz. coffee, tea, rubber and cardamom, cashew, pepper, coconut and other perennial orchard crops. 2. Eligibility: The purchaser should have yielding estates and should be in a position to rejuvenate the Estate proposed to be purchased. The intending borrowers should have satisfactory past dealings with the Bank. The purchaser should be experienced in the line, financially sound and should be in a position to bring in margin and service the debt. The intending buyer should qualify the respective State Government norms of being an agriculturist/satisfy the income criteria stipulated by the State Government. The estate should preferably be a neglected one. The estate should have potential for realizing higher yields. The Estate should have the potential to absorb substantial credit for developmental activities. The total land holding including the land to be acquired should be within the land ceiling norms of respective State. 3. Quantum of Loan: Shall be based on the lowest of (i) Market value (ii) Guideline value / Circle rate fixed by the State or (iii) purchase consideration, after retaining the necessary margin. The stamp duty and registration charges may also be considered. For the purpose of the valuation of land to be purchased, price indicated may be cross checked with the last five years average registration value available with the registrar / sub registrar of the area and a view is to taken by the Bank for fixing the quantum of finance. 4. Margin: The margin shall be normally 50% on purchase consideration or value of estate, whichever is lower. However, in deserving cases, the same may be relaxed up to 25%. The cost of registration / stamp duty may be considered in project cost as suggested, in view of steep cost in such charges and in such cases the margin need to be kept at 50% only without further relaxation. The Bank may have discretion to relax in this case also. 2

3 5. Security: Mortgage of property to be purchased. Also, collateral security of mortgage of existing landed properties / preferably residential property is to be obtained. In any case, the value of the security should not be less than 200% of the loan amount. Hypothecation of Plantation crops raised on the land / estate. 6. Rate of Interest: Linked to base rate. 7. Penal Interest: No penal interest shall be charged for loans up to Rs.25000/-. In case of loans above Rs.25000/- at the discretion of the Banks. 8. Repayment period: The loan should normally be repayable within 7 to 9 years. In case of specific cases, depending on the status of the Estate and rejuvenation period required, it may be extended up to 20 years. 9. Sanctioning Authority : Zonal Managers irrespective of scale may sanction the loans. 10. Documents to be produced by the applicant: Copies of land records regarding land owned and to be purchased, certified by the concerned Revenue authorities. No due certificate from the Co-operative Credit Society / Commodity Boards / Financial Institutions. This can be waived provided sanctioning authority is satisfied that the applicant does not have liability with society / financial institutions for loans up to Rs.1 lakh. Documents of title and other relevant documents to establish the right over presently held landed property as well as lands to be purchased is to be produced. Copy of sale agreement if entered into or offer letter by the vendor. Crop history of the Estate to be purchased as well as existing estates. Valuation report of the Estate to be purchased from the Panel valuer. 11. Applications / Documentation: Applications as applicable to Plantation may be obtained. Bank may evolve simplified applications for loans up to Rs.10 lakhs. 3

4 12. Pre-sanction visits: Branch Manager / Field Officer of the Bank should visit the farm to assess the technical feasibility and economic viability of the proposal. The crop history of the Estates may be recorded-at least for 4-5 years and analyzed and confirm the potential or rejuvenation. 13. Disbursement: The loans are to be disbursed in stages. Initially, a DPN / Demand Loan will be sanctioned on the security of the other collateral (if any) to purchase the Estate. The loan is to be disbursed by way of Demand draft directly to the vendor after collecting the margin money or after ascertaining the advance paid with documentary proof. Later, on receipt of the original sale deed / certified true copy, term loan is to be disbursed on putting through EMT / Mortgage. The liability under DPN to be cleared by granting term loan. Before disbursing DPN, Legal Scrutiny Report (LSR) from the Bank s panel advocate on the landed properties to be mortgaged is to be obtained and the lands should have clear and marketable title. The LSR among other things should be specific Whether the borrower qualifies for purchase of land as per the provision of the Land Reforms Act, prevailing in the State. The draft sale deed shall be got approved by the panel advocate before disbursing DPN. Receipt from the vendor for having received the consideration / sale proceeds in full shall be kept along with the loan papers. 14. Post sanction monitoring: Follow up visit to be undertaken to find out status of the activity of the borrower and to give technical guidance to farmers and to remind the borrower of repayment in case of default. Half yearly visits may be undertaken by the Branch respect of regular accounts. 15. Processing / Inspection charges: Up to Rs.25000/- Nil In other cases it may be as per norms of the individual Banks. 16. Product code: Other aspects: The Banks should facilitate the borrower with credit requirements under revised KCCs / development / farm investments on the land proposed to be purchased. 4

5 B. Loans to farmers for purchase for Renewable Energy Equipments for Agriculture & Allied Activities: i) Financing Solar energy based pumpset Loans Purpose: Under this scheme loan will be granted for installation of solar water pumping system. The proposed scheme will help in harnessing the solar energy for pumping water by water pumps. Eligibility: The farmers land should have adequate source of water. In case any Public / Government source is being used, water right certificate from the concerned authority should be produced. In case of wells they should have sufficient recouping capacity to irrigate area proposed to be brought under irrigation. He should own an economic land holding with a minimum of 10 acres. However, loans can be considered even if the benefiting area is less than 1o acres provided the farmer is able to sell surplus water. It is also possible that due to Technical limitation of solar pumpset has been that it can work at low Heads only (shallow water sources) and low capacity (2.50 HP pumpsets) & hence capacity to irrigate small area only (1-2 Hectares) due to small discharge. In such cases it should be ensured that viability is ensured and projected DSCR is not less than Components: Solar PV panel One of the following motor-pump sets compatible with the photovoltaic array: Surface mounded centrifugal pump set, Submersible pump set, Floating pump set, Submersible pump set, Any other type of motor-pump set, after approval from MNRE Quantum of loan: 75% of the cost of the equipment. Margin: Minimum of 25%. If subsidy is available, the same can be considered as Margin. Security: Hypothecation of equipments and mortgage of land. Interest Rate: Linked to base rate Repayment period: Minimum of 5-7 years 5

6 ii) Solar Water Heaters: Purpose: To purchase branch new solar water heating systems with necessary accessories for usage in Agro-processing units. Eligibility: Small and marginal farmers Share croppers / tenant farmers, agri-entrepreneurs. Quantum of loan: accessories % of the project cost including the cost of Margin: 15-25% of the cost of equipments including the cost of the accessories. If subsidy is available, the same can be considered as Margin. Security: Hypothecation of equipments and accessories purchased out of the loan. Interest: Linked to base rate. Repayment: 3-5 years. iii) Classification: The loan to agriculturists for installation of solar water heaters for their farm households to be classified under Priority-Indirect agriculture. Solar Home lighting Scheme: Solar home lighting system aims at providing electricity for operating LED lights and small DC loads for specified hours of operation per day in rural farms. Solar Lighting Models: 1) Model-I One White LED luminaire 2) Model II Two White LED luminaire: 3) Model III Two White LED lumanaire and one DC fan or wattage up to 10 W 4) Model-IV Four White LED Eligibility: Small and marginal farmers Share croppers / tenant farmers, Agri- Entrepreneurs Quantum of loan: 75-85% of the project cost including the cost of accessories. Margin: 15-25% of the cost of equipments including the cost of the accessories. If subsidy is available, the same can be considered as Margin. Security: Hypothecation of equipments and accessories purchased out of the loan. Interest: Linked to base rate. Repayment: 3-5 Years. Classification: The loan to agriculturists for installation of solar lighting for their farm house / residence to be classified under Priority-Indirect agriculture. Product code: Sanctioning Authority: As applicable to Agricultural Term loans under Manager s Discretionary Limits as per credit discretionary power booklet. 6