Money & Banking

RBI censures Nabard for violating RIDF norms

Vinson Kurian Thiruvananthapuram | Updated on October 12, 2012 Published on October 12, 2012

Implicated for charging higher interest, providing refinance to banks





The Reserve Bank has taken ‘serious’ note of violations in financing of warehousing infrastructure under the Rural Infrastructure Development Fund (RIDF) scheme.

The regulator made its displeasure known in a communication addressed to the chairman of National Bank for Agriculture and Rural Development (Nabard).

NODAL AGENCY

Being the nodal agency for RIDF, Nabard was implicated on two counts: i) charging higher interest rate than prescribed; and ii) converting RIDF-XVII into a refinancing scheme for warehousing infrastructure lending.

In a letter (No: RPCD.CO. Plan 3166/04.09.57/2012-13) dated September 27 to the Nabard Chairman, the RBIsaid: “It has come to our notice that a component of the Rs 2,000-crore earmarked for warehousing infrastructure … has also been utilised for refinancing banks for warehousing infrastructure lending.

“Further, we also note that Nabard has violated interest rate guidelines … for lending to State Governments and the terms of operationalisation of RIDF XVII and other funds conveyed to you ….by charging eight per cent ….as against the prescribed bank rate plus 0.5 per cent, i.e., 6.5 per cent for 2011-12.

“This has been viewed seriously … and accordingly you are advised to refund the amount refinanced in the year 2011-12 with interest at applicable rates under RIDF to contributing banks in proportion to their contribution to the warehousing fund.”

The letter goes on to give a primer to Nabard about the RIDF scheme and its objectives.

“It may please be noted that the purpose of RIDF is to help State governments to create backward and forward linkages/infrastructure in rural areas so that credit absorption capacity of the priority sector increases and banks are able to lend on their own.”

DEFEATS PURPOSE

The letter adds that “the refinancing to banks from RIDF defeats that purpose and does not add value to infrastructure creation as funds are deposited by banks and the same funds are lent back by Nabard … including to banks which deposited amounts to the corpus of such funds.

“This is a pure financial intermediation with adverse incentive for banks to lend at higher rates.

“You are further advised that for the year 2012-13, the warehousing component of RIDF XVIII should strictly be used for lending at the prescribed interest rate for financing operations of State governments and government agencies engaged in setting up warehousing facilities as per terms and conditions conveyed vide our letter dated July 24, 2012.”

> vinson.kurian@thehindu.co.in

Published on October 12, 2012
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