CHAPTER VII PROGRESS OF PRIORITY SECTOR LENDING 7.1 Introduction Banks are not merely purveyors of money; they are also catalytic agents in accelerating the tempo of development of different sectors of the economy. In a developing economy which is starved of capital, certain sectors and sections of the society, need special and priority attention in the matter of funds availability. Banks in India have been called upon to perform this function and they have evolved specla1 schemes and regulations for the deployment of credit to sectors that deserve primary care and attention. This explains the need for PSL by Commercial banks. This chapter provides a N l account of the schemes of PSL in general and Pondicheny in particular. 7.2 Historical Background of Priority Sector Lending As far back as in 1967-68, the RBI in its credit policy has introduced the concept of PSL to tide over the severe imbalances, existed then both in agricultural and industrial fronts. In order to channelise the flow of credit to the priority sectors RBI had enunciated a credit policy. The major imped~ment before the introduction of the concept of PSL was that for various historical reasons, the bulk of bank advances was directed towards medium and large scale industries and big business houses, whereas, sectors like @@culture,small scale industries and export were languishing for want of funds. The
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CHAPTER VII
PROGRESS OF PRIORITY SECTOR LENDING
7.1 Introduction
Banks are not merely purveyors of money; they are also catalytic agents in
accelerating the tempo of development of different sectors of the economy. In a
developing economy which is starved of capital, certain sectors and sections of the
society, need special and priority attention in the matter of funds availability. Banks in
India have been called upon to perform this function and they have evolved specla1
schemes and regulations for the deployment of credit to sectors that deserve primary care
and attention. This explains the need for PSL by Commercial banks. This chapter
provides a N l account of the schemes of PSL in general and Pondicheny in particular.
7.2 Historical Background of Priority Sector Lending
As far back as in 1967-68, the RBI in its credit policy has introduced the
concept of PSL to tide over the severe imbalances, existed then both in agricultural and
industrial fronts. In order to channelise the flow of credit to the priority sectors RBI had
enunciated a credit policy. The major imped~ment before the introduction of the concept
of PSL was that for various historical reasons, the bulk of bank advances was directed
towards medium and large scale industries and big business houses, whereas, sectors like
@@culture, small scale industries and export were languishing for want of funds. The
concept of PSL was evolved to ensure the flow of adequate credit from banks to certain
~rioritised segments of the economy, as enunciated in the national planning priorities
To give incentive to banks for lending to small borrowers under priority sector. the RBI
in January 1971, has set up the Credit Guarantee Corporation of India Limited . now
known as the Deposit Insurance and Credit Guarantee Corporation . The idea was to
adm~nister a comprehensive credit guarantee scheme for loans by banks to the individual
small borrowers under the priority sector.
During the period of social control of banks, major banks did make an
attempt to assist the agricultural sector by providing credit for marketing of agricultural
products. Despite commercial banks' lending to agriculture under a) direct financing
and b) indirect financing, the lending towards agriculture did not exceed two per cent of
the total credit. It was in the post-bank nationalisation period only the PSL and mass
banking concepts were crystalized for the purpose of credit deployment.
After the bank nationalisation in July, 1969, RBI has adopted lending to
the following broad segments under priority sector: (a) agriculture, (b) small scale
industries and (c) exports. The composition of the priority sector remained somewhat
vague even after the bank nationalisation. There was wicle variation as far as compiling
PSL data are concerned among various banks. Later a more comprehensive classification
of categories under PSL was evolved and adopted on the basis of a report submitted by
Informal Study Group on statistics relating to priority sectors constituted by RBI'.
Agriculture - direct and indirect finance
Small scale industries.
'R. Srinivasan, Priority Sector Lending - A study of Indian Experience, Himalaya 'ublisbing Rouse, 1 995, Bombay, p .46,
r Industrial estates.
Road and water transport operation.
0 Retail traders.
Small business,
Professionals and self-employed persons.
r Education
The composition of PSL was reviewed in the early eighties when the 20-
Point Programme and IRDP were introduced. These programmes were dovetailed with
bank assistance in the form of loan under weaker section beneficiaries within priority
sector and a separate sub-target for lending to them was introduced. In the meeting that
the then Union Finance Minister had with the Chief Executives of public sector banks on
15" February, 1982, it was decided that all Commercial banks should actively partic~pate
in the implementation of 20-Point Programme In November, 1974, banks were advised
to raise the share of PSL to 33.3 per cent by March, 1979'. Private sector banks were
also advised to achieve the same target. RBI has directed all the Commercial banks to
ensure the flow of 40 per cent of the net bank credit to pnority sector by March 1985
from the then stipulated level of 33.3 per cent. The increase in the percentage flow was
emphasised mainly to ensure that adequate flow goes to the weaker section beneficiaries
particularly under IRDP. The system of giving separate sub-targets for agriculture and
weaker section was started during the early eighties,
7.3 Advances to Weaker Sections
The weaker section loan is given to the followng categories of
beneficiaries:
2~eserve Bank of Mia, &ual Report, 1976-77, Bombay.
a) small and marginal farmers with land holding of less than 5 acres or landless
labourers, tenants and share croppers.
b) artisans (irrespective of location) or small industrial activities in villages and
small towns with a population not exceeding 50.000 involving utilisation of
locally available natural resources and or human skills with individual credit
requirements not exceeding Rs.25,000.
c) beneficiaries of IRDP.
d) Scheduled Castes and Scheduled Tribes.
e) beneficiaries under DRI scheme.
7.4 Agricultural financing
According to the ~ a n u a l ~ of Instructions of Indian Bank that the credit
needs of a farmer are met through broad categories of direct and indirect finance. In
terms of RBI directives, the banks should achieve a target of 18 per cent of the net bank
credit under agricultural advances (direct and indirect put together) with a stipulation that
the agricultural lendings under the indirect category shall not exceed one-fourth of 18
per cent, that is, 4.5 per cent of net bank credit.
7.4.1 Direct Finance
Under this category, loans can be classified as (a) short term loan and (b)
medium and Long term loan. Short term loan consist of short term production loan or
crop loan. medium and long term loan includes activities like minor irrigation, fm land
3 Indian Bank (Head Office), M a d of Instructions - 1. Prioritv Sector Advances - Adculture. l994,O and M Division, Madras, 1 994, pp. 1.1.1-1.1.4.
development, farm machanisation, plantation and horticulture, all activities allied to
agriculture.
7.4.2 indirect Finance to Agriculture
Distribution of fertilisers, pesticides and seeds, loans to Electricity Boards,
loans to fanners through Primary Agricultural Credit Societies, Farmers Service
Socieities and Large sized Multi Purpose Societies are done under indirect finance.
7.5 Financing of Small Scale Industries (SSI)
The SSI sector4 covered wide range of enterprises with diverse
characteristics. There are tiny or micro enterprises on the one hand and sophisticated,
modem small scale units on the other hand. SSI undertakings are those which are
engaged in the manufacture, processing or preservation of goods in which investment in
plant and machinery (original cost ) does not exceed Rupees Three crores. Ancillary
industrial undertakings are also classified as SSI not exceeding Rupees Three crores.
7.5.1 Indirect Finance to the Small Scale Industrial Sector
a) agencies involved in assisting the decentralised sector in the supply of inputs and
marketing of output of artisans, village and cottage industries.
b) Government sponsored corporations/organisations providing funds to the weaker
sections in the priority sector.
c) Term financeiloans in the form of lines of credit made available to State Industrial
Development Corporations /State Financial Corporations for financing SSIs.
%serve Bank of India, Small Scale Industries - Policy and Guidelines, 1997 Bombay, p.4.
d) Credit provided to Khadi and Village Industries Commission by consortium of banks for lending to viable khadi and village industrial units.
e) Subscription to bonds floated by SIDBI. State Financial Corporations. Small Industrial Development Corporations and National Small Industries Corporation.
f) Subscription to bonds issued by NABARD with the objective of financing exclusively for non-farm sector.
g) Loans for setting up of Industrial Estates.
7.5 Other borrowers
Other borrowers in the priority sector%ar :
small road and water transport operators
retail traders
small business operators
professional and self-employed persons
State sponsored organisations for Scheduled Castes / Scheduled Tribes
students for educational purposes
housing
borrowers belonging to weaker sections taking pure consumption loans.
7.6.1 Small Road and Water Transport Operators
Advances to small road and water transport operators owning a fleet of
vehicles not exceeding six, including the one proposed to be financed.
7.6.2 Retail Traders
Advances granted to (i) private retail traders dealing in essential
commodities (FPS) and consumer co-operative stares and (ii) other private retail traders
with credit limits not exceeding Rupees two lakhs (Advances to retail in fertilizers form
'~eserve Bank of India Guidelines For Advances t o Prioritv Sector, Mumbai, 1997 pp.128-130
part of indirect finance for agriculture and those to retail traders and mineral oils under
small business).
7.6.3 Small Business Operators
Small business would include individuals and firms managing a business
enterpr~se established mainly for the purpose of providing any service other than
professional services whose original cost price of the equipment used for the purpose of
business does not exceed Rs.10 lakhs with working capital limits of Rupees Five lakhs
or less. Further, the aggregate of Term loan and working capital limits sanctioned to a
small business unit should not exceed Rs.10 lakhs. Advances for acquisition,
construction, renovation of house-boats and other tourist accommodation are also
included, Distribution of mineral oils shall be included under "srnall business".
7.6.4 Professional and Self-Employed Persons
Loans to professional and self-employed persons include loans for the
purpose of purchasing equipment, repairing or renovating existing equipment andtor
acquiring and repairing business premises or for purchasing tools andlor for working
capital requirements to medical practitioners including dentists, chartered accountants,
cost accountants, lawyers or solicitors, engineers, architects, surveyors, construction
Contractors or management consultants or to a person trained in any other art or craft who
holds either a degree or diploma from any institution established, aided or recognised by
Government or to a person who is considered by the banks as technically qualified or
skilled in the field in which he is employed. Advances to accredited journalists,
cameramen , practising Company Secretaries, running health centre and also for setting
up of beauty parlours are also considered under this category. Only such professional
and self-employed persons whose borrowings (limits) do not exceed Rupees Five lakhs
(of which not more than Rupees one lakh should be for working capital requirements) are
covered under this category. However in the case of professionally qualified medical
practitioners setting up practice In semi-urban and rural areas, the borrowing limits
should not exceed Rupees 10 lakhs of wh~ch not more than Rupees two lakhs should be
for working capital purposes.
7.6.5 State Sponsored Organisations For Scheduled Castes / Scheduled Tribes
Advances sanctioned to state sponsored organisations for Scheduled
Castes / Scheduled Tribes for the specific purpose of purchase and supply of inputs to
and/or the marketing of the output of the beneficiaries of these organisations.
7.6.6 Educational Loans
Educational loans to students include only loans and advances granted to
mdividuals for educational purposes and not those granted to Institutions and will include
all advances granted by banks under special schemes, if any, introduced for the purpose
7.6.7 Housing Activities
(a) Direct finance
i. loans upto Rupees Three lakhs for construction of houses granted to all categories
of borrowers except to the employees of the banks.
ii. loans upto Rs 50,0001- for repairs to damaged houses granted to all categories of
borrowers except to the employees of the banks.
(b) Indirect finance
i. assistance given to any Governmental agency or to a non-governmental agency.
approved by the National Housing Bank (NHB) for provision of refinance for the
purpose of constructing houses where the loan component does not exceed
Rupees Three lakhs per housing unit.
ii. assistance given to any governmental agency or to a non-governmental agency.
approved by NHB for provision of refinance for slum clearance and
rehabilitation of slum dwellers where loan component does not exceed Rupees
Three lakhs per housing unit.
iii. subscription to bonds issued by NHB and Housing and Urban Development
Corporation exclusively for financing of housing as defined under the priority
sector. (for construction of houses where the loan component does not exceed
Rupees Three lakhs per dwelling unit).
7.6.8 Borrowers Belonging to Weaker Sections Taking Pure Consumption Loans
Pure consumption loans granted under the consumption credit scheme is
included ,
7.6.9 Funds by Sponsor Banks to Regional Rural Bank
The amount of funds provided by sponsor banks to RRB is treated as PSL
o f the sponsor banks. 50 per cent of the amount of refinance granted to RRB is treated
as indirect finance to agriculture while 40 per cent is treated as advance to weaker
sections,
7.6.10 Loans to Self Help Groups I Non-Governmental Organisations
Loans provided by banks to Self Help Groups (SHG) and Non-
Governmental Organisations or small groups which are in the process of forming into
SHGs.
7.7 Interest Rate Structure on PSL
The interest rates are administered by RBI and not subjected to market
forces of supply and demand. The rates are different for different schemes. These
interest rates also undergo periodic changes. The interest rate applicable to the PSL is
concessional and related to the credit limits upto Rs.250001- . The rates range from 10 to
12 per cent in the case of short term agricultural loans. About 75 per cent of farm
advances are in the credit limit upto Rs.25000. The rates charged on advances for units
engaged in seed and other input distribution range between 1 1 ,S per cent and 14 per cent,
rates on small scale industries range between 10 per cent and 16 per cent (over Rs.25
lakhs limits) and for other priority sector categories from 12.5 per cent to 15 per cent.
The rate of interest is 10 per cent for the advances under Government sponsored credrt
linked programmes such as IRDP, PMRY in specified backward areas and 12 per cent
in other areas. New structure of lending rates for scheduled commercial banks linking
interest rates to the size of the loans for all sectors has been introduced with effect from
22" September 1990 thereby reducing the multiplicity and complexity of varying
interest rate as shown below:
Table 7,l: SCHEDULE OF LENDING RATES UNDER PRIORITY SECTOR LENDING, 1990
S1. No. Size of Loan Rate of Interest per Annum
(1) (2) (3) 1. Upto and inclusive of Rs.7500 10.0
2. Over Rs.7500 and upto Rs. 15000 11.5
3. Over Rs.15000 and upto Rs.25000 12.0
4. Over Rs.25000 and upto Rs.50000 14.0
5. Over Rs.50000 and upto Rs.Two lakhs 15.0
6. Over Rs.Two lakhs I 6.0 (minimum)
7 . For DRI Advances 4.0
8. For Term loans to agriculture, small scale industry and transport operators upto two vehicles
a) Over Rs.25000 and upto Rs.50000 13.0 b\ Over Rs.50000 14.0
Source: R. Srinivasan, Priority Sector Lending - A study of Indian experience, Himalaya Publishing House, 1995, Bombay, pp.64-65.
The present lending rates for advances under priority sector are given
below:
Table 7.2: REVISED SCHEDULE OF LENDING RATES UNDER PRIORITY SECTOR LENDING, 1999
- - - --
S1. Size of Loan Rate of Interest No. per Annum (1) (2) (3)
1. Upto and inclusive of Rs.25,000 12 per cent 2. Over Rs.25,000 and upto Rs. 2 lakhs 13.5 per cent 3. Over Rs.2 lakhs Free 4. DRI 4 per cent
Bource: Reswve Bank of India, Guidelines For Advances To Priority Sector, Mumbai, 1997, pp. 131-132.
7.8 Weaker Section Programme
7.8.1 Integrated Rural Development Programme
IRDP was introduced during 1978-79 in 2300 blocks in India. Thls
programme was extended to all the 501 1 blocks of the country on 2nd October, 1980.
The purpose of the introduction of the IRDP was to alleviate poverty by attacking the
poorest of the poor and the other target group of beneficiaries in a systematic way. Ilhe
weaker section beneficiaries are provided with loan by Commercial banks, Cooperative
banks and RRBs and subsidy by DRDA. The purpose is to assist them in gainful self-
employment activities to earn adequate income to cross the poverty Iine.
Person eligible under this programme are small and marginal farmers,
agricultural and non-agricultural labourers, artisans, share croppers, tenants residing in
rural areas. The annual income limit originally was Rs. 6,400 and subsequently
enhanced to Rs. 1 1,000. As per the recent guidelines of the Ministry of Rural Areas and
Employment, Government of Indla, the norm for BPL family is the one with an
annual Income of less than Rs.20,000,
It was the intention of Government of India to give utmost importance to
IRDP as it serves the interest of targeted individuals and families. Cluster approach and
group activities are expected to be integrated, Under IRDP, 50 per cent of the families
are to be assisted from Scheduled Castes 1 Scheduled Tribes and women beneficiaries
should be 40 per cent of the total beneficiaries. Besides, bonded labourers, surplus land
assignees, green card holders of family welfare p r o g r m e are given preference. The
target under IRDP is to be achieved in a phased manner, that is, 15 per cent during the
first quarter, 25 per cent during the second quarter, 35 per cent during the third quarter
and 25 per cent in the last quarter. Expenditure under this programme is equally shared
between Central and State Government. In the case of Union Tenitory of Pondicherry.
100 per cent of expenditure is borne by Central Government. No margin money should
be insisted upon by banks and the subsidy should be treated as margin down payment.
The implementation of IRDP in the Union Territory of Pondicherry
during 1985-86 -1 997-98 is sketched in Table 7.3,
Table 7.3: FINANCIAL ASSISTANCE PROVIDED BY BANKS FOR THE IMPLEMENTATION OF INTEGRATED RURAL DEVELOPMENT PROGRAMME
Average Si. Year P ~ ~ ~ ~ ~ ~ , ( N ~ ~ . ) (Rs. lak,,s) Total loan Assistance Percentage No. Awistrnce (Rs, in per Beneficiary of
Targer Achievement Bank Loan Subsidy (5) (6) (71 (8) (9)
(in Rs.) Co1.6 to ('01.7 (1) (2) (3) (4
1 1985-86 2202 3142 78 64 26 93 105 57 3360 25 51
Source: [a] Indian Bank, Annual Credit Plan of the Lead Bank, various years Union Territory of Pondicherry .
[b] Indian Bank, Agenda Notes of State Level BankersTolnmittee Meetings, various years Union Territory of Pondicherry.)
The above Table 7.3, provides the details of physical and financial
assistance under IRDP in the Union Territory of Pondicherry. This Table amply shows
that the targets were invariably achievedexceeded in all the years (except during 1997-
98). However, the flow of loan assistance (both bank loan and subsidy) was very low
ghce 1987-88. In 1985-86, the total assistance was Rs.105.57 l&s which increased
to Rs. 166.83 1akhs in 1986-87. Loan assistance was not adequate after 1987-88. 'I he
loan assistance per beneficiary ranges as low as Rs.2940 in 1986-87 to a maximum of
Rs.10359 in 1997-98. During 1985-86 - 1993-94, the average loan assistance has
steadily increased (except the years 1989-90 and 1993-94). This has picked up to a
significant increase of Rs.9693 in 1994-95 from Rs.4743 in 1993-94. The loan
assistance has come down to Rs.6821 in 1995-96 and picked up in 1996-97. The average
assistance per beneficiary was at its maximum of Rs.10359 in 1997-98.
Another notable feature in financing IRDP is that during 1985-86, the
subsidy component of DRDA to the overall loan assistance worked out to 25.51 per
cent. This has increased to 37.97 per cent in 1990-91, 39.32 in 1991 -92 and 40.15 per
cent in 1992-93. It can be observed that the proportion of subsidy to total assistance was
higher till 1993-94 which means that the proportion of bank credit to total loan assistance
was low. From 1994-95 - 1995-96, the proportion of bank credit was high, During
1996-97 and 1997-98, the bank loan component to total loan assistance has come down.
7.8.2 Development of Women and Children in Rural Areas (DWCRA)
DWCRA is a sub-scheme of IRDP. This was started in 1982-83 wit11 the
main objective of focussing attention towards women members of the BPL rural
families. This scheme was started to provide self-employment opportunities to women
without depending upon their menfolk . This scheme is a group activity with 10 to 15
women each for taking up economic activities suited to their skill and aptitude. A group
strategy is adopted to motivate the rural women to come together and break social bonds,
which have denied them income generating opportunities. The details of financial
~ssistance provided under this scheme in the Union Territory of Pondicheny are given in
Table 7.4: FINANCIAL ASSISTANCE FOR THE IMPLEMENTATION OF DWCRA
S1, No.
- DWCRA Persons Financial Achievements Average
Year Groups Assisted (Rs. in lakhs) Assistance Pormed (Nos.) k i n k Subsidy Total loan per group
(2) (Nos.) loan assistance (In &.)
(3) (4) (5) (6) (7) (8)
6. 1990-91 This scheme was not under implementation
7. 1991-92 from 1989-90 to 1992-93
Source: [a] Indian Bank (Lead Bank), Union Territory of Pondicherry, Annual Credit Plan, various years, Pondicherry,
[b] Indian Bank,(Lead Bank), Union Territory of Pondicherry Agenda Notes of State Level Bankers Committee Meetings, various years, Pondicherry.
It may be seen from the Table 7.4 that the average assistance per group
was Rs.15,200 in 1985-86 and this has increased to Rs.30,393 in 1993-94, and Rs.45,250
in 1995-96. In 1996-97, the average assistance per group works out to Rs.1.90,875
whereas in 1997-98, it was only Rs.88,875.
7.8.3 Family credit plan (FCP)
The concept of FCP a sub-item under I D P was introduced to facilitate the
BPL families t~ cross the poverty line by availing more than one assistance in the same
family. FCP is under implementation from 1994-95 in the Union Territory. The targets
and achievements are given in Table 7,5
Table 7.5: BANK ASSISTANCES FOR THE IMPLEMENTATION OF FAMILY CREDIT PLAN
S1. Year Physical (No. of Families) Financial Average No. {Rs. in Lakhs) ~ssistance
Target Achieve- No. of Bank Loan Subsidy Total loan per family Ment persons assistance (in Rs.)
Source: [st] Indian Bank (Lead Bank), Union Territory of Pondicherry, Annual Credit Plan, Various Years, Pondicherry, -
[b] Indian Bank (Lead Bank), Union Territory of Pondicherry Agenda Notes of State Level Bankers' Committee Meetings, various years, Pondicl~erry.
From Table 7.5, it can be seen that the achievement fell short of the
targets fixed during 1994-95 - 1997-98. The loan assistance per family should be
Rs.25,000 as per the guidelines of Government of India. But the average loan assistance
per family in 1994-95 was Rs. 19635 and this has further come down to Rs.13908 in
1995-96. This has picked up to Rs. 16808 during 1996-97 and down to Rs. 13032 during
7.8.4 Differential Rate of Interest (DM) Scheme
DRI scheme was inoduced in 1972 pursuant to a policy decision taken
by Government of India on 25" March 1972. Beneficiaries under DRI scheme are
persons whose family income from all sources does not exceed Rs.7200 per mum in
urban I semi-urban areas or Rs.6400 per annun in rural areas. Subsequently the family
income criteria has been increased to Rs. 1 1,000 per annum in rural areas and Rs. 1 1,800
per annum in urban and semi-urban areas. Under this Scheme. banks grant advances at a
concessional interest rate of four per cent . The scheme is meant for people whose
economic level is so low that they cannot offer any security or margin or guarantee for
their financial requirements and cannot bear the normal interest rates charged by banks.
As the borrower under this scheme is economically very poor and lives below poverty
line the repayment programme should be fixed on easy and liberal terms and at fairly
long intervals. The scheme is operated throughout the country. Minimum of one per
cent of the aggregate advances as at the end of previous year should be financed by banks
under this scheme. In order to ensure that the weaker sections in the rural areas derive
maximum benefits and bulk of the advances are not pre-empted by urbanfrnetropolitan
areas, the banks operating the scheme should ensure that not less than two-third of their
advances, are routed, through their rural and semi-urban branches. Correspondingly not
more than one-third of the banks' total advances under the scheme should come from
urban and metropolitan branches. It was stipulated that not less than 40 per cent out of the
one percent of aggregate bank advances should flow to eligible Scheduled Caste and
Scheduled Tribe borrowers, The scheme aims at helping the poorest of the poor in order
to improve their economic conditions through small productive endeavors. The benefits
of this scheme would be available only to those borrowers, who were not assisted under
any of the subsidy linked schemes of Central, State Government and State owned
corporations.
From Table 7.6, it can be seen that as against one per cent of total credit
flow towards DRI scheme, Commercial banks have done exceedingly well till 1992-93 in
the Union Territory of Pondicheny. From 1993-94 onwards, downward trend has taken
place and this has continued till 1997-98. As the total credit flow from Commercial
banks by the end of March 1998 for all programmes stood at Rs.34,733 lakhs, the one
per cent flow towards DRI Scheme should have been Rs.347.33 lakhs whereas the
actual flow was only Rs. 192 lakhs which worked out to 0.55 per cent only.
Table 7.6 FINANCIAL ASSITANCE UNDER DRI SCHEME
(Rs. in Lakhs)
Sl.No. Year DRI Advances Total advances Percentage of (2) Col3 to Col4
(1) (3) (4) (5) 1. 1982 71.62 4699 P .52
Source: Indian Bank, (Lead Bank), Union Territory of Pondicherry Agenda Notes of State Level Bankers' Committee Meetings, Various Years, Pondicherry.
7.8.5 Scheme for Urban Micro Enterprises (SUME)
In order to give a major thrust to urban employment programmes, due to
high incidence of unemployment, Government of India have launched the scheme
'Nehru Rozgar Yojana' (NRY). The scheme is targeted towards persons living below the
poverty line in urban areas, with an annual income of below Rs.7,200.
The NRY consists of the following three components:
a) provision of urban wage employment.
b) provision of employment through housing shelter upgradation for urban
settlements between Rupees one lakh and Rs.20.00 lakhs.
c) scheme of Urban Micro Enterprises (SUME)
SUME covers all the urban settlements of the country which are not
covered under IRDP. The scheme was ~mplernented by Local Administration
Department through Pondicherry and Karaikal Municipalities and through selected
branches of PSBs. The subsidy amount is to be shared between Central and the State
Governments on a 5050 basis. Allocation of the Central subsidy will be made among
the States by the Ministry of Urban Development, Government of India on the basis of
norms linked to proportion of urban population and the incidence of urban poverty.
Urban local bodies will ensure that applications are sponsored to bank branches
commensurate with the amount of subsidy available under the scheme. After
identification of the beneficiaries the financing bank branch will provide to each
applicant a composite loan not exceeding Rs.7,500. Subsidy at the rate of 25 per cent of
the cost of the project will be given to each beneficiary subject to the ceiling of
Rs 5000 for scheduled caste / scheduled tribe and women beneficiaries and Rs.4000
for others.
The financial and physical achevements under this scheme from 1990-
9 1 are given in Table 7.7.
Table 7.7: BANK FINANCE FOR SUME SCHEME
PONDICHERRY MUNICIPALITY (Rs. in lakhs)
S1. Yeas Physical Loan No Achievements Subsidy Bank Total Loan assistance
(Nos.) Loan component Per beneficiary
(in Rs.) (1) (2) (3) (4) (5) (6) (7)
8 1997-98 146 1.96 7.83 9.79 6705 (UP to
Nov' 97)
KARAIKAL MUNICPPALITY
Source:[a] Indian Bank (Lead Bank), Union Territory of Pondicherry, Annual Credit Plan , various years, Pondicherry.
[b] Indian Bank (Lead Bank), Union Tenitow o f Pondichery Agenda Notes of State Level Bankers' Committee Meetings, Various Years, Pondicheny.
~e ta i l s in Table 7.7 show that the average loan assistance per beneficiary ranges from
Rs.223 1 in 1992-93 to a maximum of Rs.7895 in 1994-95 in Pondicherry Municipality.
In Karaikal Municipality the average loan assistance was at a minimum of Rs. 2,3 19 in
1991-92 and increased to Rs. 4.000 in 1997-98. SUME was wound up and a new scheme
Swarna Jayanthi Shahari Rozgar Yojana (SJSRY) has been launched by Government of
India as a rationalised poverty alleviation scheme operative from first December 1997 in
Pondicherry, Oulgaret and Karaikal Municipalities.
7.8.6 Self Employment Scheme for Educated Unemployed Youth (SEEUY)
SEEUY was launched by the then Prime Minister on 15'~ . ~ u ~ u s t , 1983
to provide self employment opportunities to the educated unemployed youth who are
matriculates for starting industry, service and business avocations by providing subsidy
through Government and loan by Commercial banks.
The eligibility criteria was:
i) the applicant should be in the age group of 18-35 years.
ii) the family income should not exceed Rs. 10,000 per annum.
iii) The rate of interest is 12.5 per cent up to Rs.25,000, 13.5 per cent up to Rs,35,000.
The loan amount is Rs.35,000 for Industries, Rs.25,000 for services and
Rs.l5,000 for business activities.
In the Union Territory of Pondicherry, SEEUY was implemented by DIC
from 1983-84 to the earlier part of 1993-94. The performance under SEEUY are given
h Table 7 3 .
Table 7.8: BANK ASSISTANCE FOR THE lMPLEMENTATIQN OF SELF EMl'LOYEMENT SCHEME FOR EDUCATED UNEMPLOYED YOUTH
Average Phqstcal ? mancial Average Phjsical Flnanc~al Average Phqsrca Financial Loan aehleve- Achieve- I oan ach~ekc- Achrebc- Loan l achleve- Ach~eve- ass~stance Ments ment assistance Ments m n t asststance
SI Year Ments Ment Per ( ~ n Nos) (Rs In Per ( ~ n Nos! (Rs rn Per No (inNws) (Rs Beneficrq (Serv~ces) lahh~) beneficrarj (huilnessl lakhsl Wmeficiarq
(Industries) ~n lakhs) (tn Rs ) (in Rs I (in Ks )
Source: [a] Indian Bank (Lead Bank), Union Territory of Pondicherry, Annual Credit m, Various Years, Pondicherry .
[b] Indian Bank (Lead Bank), Union Territory of Pandicherry Agenda Notes of State Level Bankers Committee Meetin~s, Various Years.
It may be seen from Table 7.8 that the average loan assistance under
industrial activity was Rs.8,972 in 1983-84, which has increased to Rs.21,590 in 1986-
87. There was slump from 1987-88 onwards till 1989-90. The average loan assistance
has picked up to Rs.2 1,85 8 in 1992-93. But as per the guidelines, the loan could be given
Under services activity the loan amount could be Rs.25,000. But the
performance indicates that a maximum of Rs.20,210 was reached in 1987-88 from
Rs.8,950 in 1983-84. From 1988-89 onwards, it has came down. During 1993-94, the
average loan assistance was Rs. 13,142.
Under business activities, the maxirnun loan that could be extended was
Rs.15,000 whereas the performance was Rs.12,943 at the maximum in 1985-86.
7.8.7 Prime Minister's Rozgar Yojana (PMRY)
The PMRY was introduced from Second October 1993 with the objective of
~roviding sustained self-employment in micro-enterprises to about 10 lakh educated
unemployed youth in the age group of 18 and 35 years having family income of less
than Rs.24,000 per annum. The salient features of the scheme are : i ) the beneficiarj
would bring in five per cent of the project cost as margin money and be entitled to a
composite bank loan up to Rupees one lakh without a collateral guarantee and a
government subsidy of 15 per cent subject to a ceiling of Rs.7,500; ii) the rate of interest
on loans granted under the scheme, to be treated as priority sector advances, will be
guided by the RBI's directives on interest rates issued from time to time; iii) the subsidy
sent to the disbursing bank in advance is treated as fixed deposit in the name of the
beneficiary; iv) the beneficiary would hypothecate/mortgage/pledge assets created out of
the loan to the bank; and v) banks would need to exercise special care in scrutinising
those cases where no fixed assets are proposed to be created from loans above Rs50,OOO.
The progress on the implementation of PMRY Scheme in the Union Territory of
Pondicherry is given in Table 7.9.
7.9 FINANCIAL ASSISTANCE UNBER PRIME MINISTER'S ROZGAR YOJANA
S1. Year Target Physical Total Average laan assistance No. (in Nos.) Achievements Financial per beneficiary
(in nos) (Rs, in lakhs) (in, Rs.) (1) (2) (3) (4) (5) (6)
Source: Indian Bank (Lead Bank), Union Taritow of Pondicherq Agenda Notes and Backmound Materials of State Level Bankers' Committee Meetin@, Various Years, Pandi&e@+y.
It may be seen from Table 7.10 that the credit extended under 20-point
Programme was Rs.1442 lakhs in 1987 which increased to Rs.2555 lakhs in 1996 and
declined to Rs. 19 16 lakhs in 1997. The flow of credit towards 20-PP to total credit has
shown a decline from 14.19 per cent in 1987 to 5.91 per cent in 1997.
7.8.11 Pondicherry Adidravidar Development Corporation (PADCO)
PADCO was set up in 1986 by Government of Pondicherry under the
companies Act, 1956 to take care of the Adidravidars (Scheduled castes). The main
objective is to assist them in economic activities of importance so as to fill the critical
gaps in the existing programmes and generate employment and raise their economic
level. To upgrade the skills of Scheduled Caste people various training (both
institutional and on the job) are provided. The Scheduled Caste families below the
poverty line are assisted with the following criteria:
i) 50 per cent o f the unit cost or Rs.60001- whichever is less will be released as
subsidy from the Special Central Assistance (SCA) not refbndable by beneficiary.
ii) Remaining portion of the unit cost or the entire balance of the unit cost will be
released by banks as loan at nominal rate of interest as prescribed by RBI from
time to tirne.
iii) 25 per cent of the unit cost or Rs. 10,000/- whichever is less will be deposited in
the concerned banks as margin money for a period of three years or till the
complete repayment of the loan whichever is earlier and the interest earned during
the period will be divided into two halves, that is, 50 per cent goes to beneficiary
and the balance 50 per cent will be credited in the PADCO account.
45 schemes under the self-employment are taken up by PADCO from
1998-99 as against 37 schemes till 1997-98.
7.8.1 1.1 Loan-cum-Subsidy Scheme to Scheduled Castes
The Loan-cum-subsidy scheme implemented by PADCO from the year
1987-88 to 1996-97 can be seen from the Table 7.1 1.
Table 7.11: FINANCIAL ASSISTANCE PROVIDED UNDER IMPLEMENTATION OF LOAN-CUM-SUBSIDY SCHEMES OF PADCQ
(Rs. In lakhs)
Average S I No of Total loan asststance No Year Persons Subs~dy Bank Loan per beneficrary
Assisted Loan Assistance ( ~ n Rs ) 1 2 3 4 5 6 7
Source: [a] Pondicherry Adldravidar Developmeilt Corporation , Government of Pondicherry, A Report of physical and Financial Achievements under various schemes implemented from 1986-87 to 1997-98, Pondicherry
[b] Lead Bank (Indian Bank), Union Territory of Pondicherry. Annual Credit Plan 1999-2000. -
The year-wise financial flow to the beneficiaries may be seen from Table
7.1 1. The average loan assistance per beneficiary works out to Rs.5865 in 1987-88 and
this increased to Rs. 121 3 0 in 1996-97. Considering the socio-economic backwardness
of the Scheduled Caste people, the average financial assistance provided to them is
inadequate as many of the Scheduled Caste beneficiaries are entering into the self-
employment venture, for the first time.
7.8.11.2 Loan-cum-Subsidy scheme to Backward Class
PADCO is also the Nodal Agency for implementing the backward class
scheme in the Union Territory of Pondicherry. The backward class scheme was under
implementation from 1 995-96.
Table 7.12: FINANCIAL ASSISTANCE TOWARDS LOAN CUM SUBSIDY SCHEMES FOR BACKWARD CLASSES
(Rs. in lakhs)
Average SI. Year No. of Subsidy Bank Total loan loan assistance per No. Beneficaries loan assistance beneficiary
fin Rupees) (1) (2) (3) (4) (5) (4) (7)
Source: [a] Pondicherry Adidravidar Development Corporation , Government of Pondicherry, A Report of physical and Financial Achievements under various schemes implemented from 1986-87 to 1997-98, Pondicherry.
[b] Lead Bank (Indian Bank), Union Territory of Pondicherry. Annual Cred~t Plan 1999-2000,
The average loan assistance provided to Backward Class beneficiary is
inadequate to take up any viable economic activity. Assistance to the level of atleast
Rs 15000 should be made available to make the economic activity viable instead of low
assistance provided.
7.8.12 Pondicherry Women Development Corporation
The main objective of the women development programmes is to assist the
maker sections, destitutes and deserted women who have a family income of not more
than Rs. 1 10001- per annm with the resident status of the Union Territory of Pondicherry.
General women beneficiaries are eligible upto 33.3 per cent cost of the project as subsidy
or Rs.4000/- whichever is lesser. As regards Scheduled Caste women beneficiaries. 50
per cent of the cost of the project as subsidy is given subject to a maximum of Rs.5000.
Banks should not insist on any margin money. No guaranteeisecurity may be insisted
upon by the participating banks. This scheme is implemented in the Union Territory of
Pondicherry from 1996-97. The Physical and financial achievements are given in Table
Table 7.13. FINANCIAL ASSISTANCE TOWARDS PONDICHERRY WOMEN DEVELOPMENT PROGRAMME
(Rs. in lakhs)
S1, Year Physical Bank Financial Total Average No. Acheivement loan Subsidy Loan per Beneficiary
(Nos.) (in Rupees) (1) (2) (3) (4) (5) (6) (7)
Source: Indian Bank (Lead Bank), Union Territory of Pondicherry Agenda Notes of State Level Bankers' Committee Meetings, Various Years, Pondicherry.
As the scheme is only two years old, it may take some more time to pick
up As of now, the average loan assistance per beneficiary was around Rs.12000 which
needs to be increased atleast to Rs. 15000.
7.8.13 Margin Money Assistance Scheme
Margin money assistance programme to physically handicapped persons is
implemented by Social Welfare Department for setting up o f petty shops and various
trades with 25 per cent subsidy. The scheme has been under implementation C since 1988-
89. Subsidy to the extent of 33.33 per cent is admissible for general category physically
handicapped beneficiaries and 50 per cent for scheduled caste ph>sicalIy handicapped
beneficiaries under the above scheme as can be seen from Table 7.13..
Table 7.14: MARGIN MONEY SCHEME FOR PHYSICALLY HANDICAPPED PERSONS
(Rs. in Eakhs)
Average S1. Physical Bank Total loan loan assistance No. Year Achievement loan Subsidy Assistance per beneficiary
(in nos.) (in Rs.) (1) (2) (3) (4) (5) (6) (7)
Source: Indian Bank (Lead Bank), Union Territory of Pondicherry Agenda Notes of State Level Bankers' Committee Meetings, Various Years, Pondicherry.
Based on the actual data available for the last five years, It can be
observed that the achievements are moderate invariably in all the years. The loan
assistance per beneficiary has increased from Rs.7564 in 1993-94 to Rs.13660 in 1997-
98. It needs to be improved further, During the last five years, 324 beneficiaries were
assisted under this scheme by utilising the subsidy and by availing bank loan. Recently
Social Welfare Department, Pondicherry has conducted a survey on the assisted
beneficiaries for which 57 beneficiaries who were assisted during 1993-94 - 1997-98
were contacted. Out of those 57 beneficiaries, 41 beneficiaries have started business and
running the same. It is stated that 12 beneficiaries have not at all started any business and
four beneficiaries are in &e process of starting the business. The other type of
infomation collected was that out of these 57 beneficiaries, 17 beneficiaries have fully
repald the bank loan. 21 beneficiaries are repaying the Ioan and 19 heneficiar~es have
not even started the process of repaying the amount.
7.8.14 Fisheries schemes
The following two subsidy linked schemes are implemented by Fisheries
department In the union Territory o f Pondicherry.
a) Motorisation of Country boats (outboard motor enginea)
b) Construction of mechanised fishing boats
7.18.14.1 Motorisation of Country Boats
Under this scheme, 50 per cent of the unit cost subject to a maximum of
Rs. 10,000 is released as subsidy by Fisheries department . The performance under
the scheme is shown in Table 7.1 5.
Table 7.15: BANK FINANCIAL ASSISTANCE TOWARDS MOTORISATION OF COUNTRY BOATS (Outboard motor engine)
(Rs. in lakhs)
Amount of Total Average loan S1. Year Benefieeries Subsidy Loan by Loan assistance per No. (Nos.) released Banks Assistance beneficiary
(in Rs.) (1) (2) (3) (4) (5) (6) (7)
3' 1992-93 Not ~rnplernented due to non-receipt of Grant from Govt. of India
Source: Fisheries Department, Government of Pondicheny and Report 1997-98.
The amount of subsidy released bq Fisheries department k\as Rs.2 18
l&s in 1990-91, which has increased to Rs.6.66 lakhs in 1996-97. The maimurn
subsidy admissible under this scheme has gone up to Rs.10,000 per beneficiary during
199 1-92 from Rs.7,500 till 1990-9 1. The loan assistance by banking was Rs.3.50 lakhs
in 1 990-9 1, which increased to Rs. 1 1.78 lakhs in 1996-97. The average loan assistance
per beneficiary works out to Rs.19,586 in 1990-91 and increased to Rs.27.939 in
1996-97.
7.8.14.2 Construction of Mechanised Fishing boats
Fisheries Department also implements a scheme construction of
mechanised fishing boats ranging fiom 36' to 4' wherein 20 per cent subsidy is given
to a maximum of Rs.1.20 lakh per beneficiary. The performance under the scheme is
shown in Table 7.16.
Table 7.16: FINANCIAL ASSISTANCE FOR THE SCHEME CONSTRUCTION OF MECHANISED FISHING BOATS
(Credit in Rs. Lakhs)
Persons 20 per cent Amount of Total Average Loan 81. Benefited Subsidy Loan by Loan Assistance per No. Year (Nos) Released Banks Assistance Beneficiary
Source : Indian Bank (Lead Bank), Union Territory of Pondichenv Agenda Notes of State Level BankersTomitteie Meetings, Various Years, Pondicherry.
An analysis of the refinance facilities from NABARD utilised bq
~ommercial banks and Cooperative institutions indicates that the total refinance drawal
has moved from Rs.84 lakhs in 1988-89 to Rs.320 lakhs in 1995-96 and again slumped
down to Rs. 196 lakhs in 1997-98. The share of commercial banks was Rs, 50 lakhs out
of the total NABARD refinance of Rs. 88 lakhs in 1988-89. During 1996-97 and 1997-
98, low amount of refinance was utilised by Commercial banks. But during the same
period the refinance drawal made by Pondicherry Land Development Bank has increased
from a mere Rs.34 lakhs in 1988 -89 to Rs. 1 16 lakhs in 1997-98.
7.9.2 Schedule of Interest of Rate by NABARD
The interest rate chargeable with effect from 1" August 1995 on
NABARD refinance for various slabs are given in Table 7.1 9
Table 7.19: SCHEDULE OF NABARD INTEREST RATE FOR RIEFINANCE
Rate at which refinance is Rate at which refinance is S1. Loan limit (in Rs.) provided to Commercial provided to Cooperative No. banks (in percent) Institutions (in percent) (1) (2) (3) (4)
2. Over Rs.25,000 and upto Rs.2 lakhs
3 per cent below the 3 , Above Rupees Two lakhs rate charged 12
by the bank
Source: N a ~ ~ n a l Bank for Agriculture and Rural Development, A Report on Refinance Assistance for Non-farm activities, Chennai ,1995.
NABARD provides refinance facilities to Commercial banks / Co-
operative Institutions at different interest tariff and alloas them to charge a higher
interest of 3 to 3.5 per cent above the rate at which ref nance is provided.
7.9.3 Refinance Schemes of SIDBX
A branch of the SIDBI was started in the Union Territory of Pondicherry
m 1990-91 to assist banks and PIPDIC for availing refinance for small scale industrialists
and entrepreneurs. The rate at which the refinance is provided and the rate at which
Commercial banks and other institutions are charged, are given below:
Table 7.20: SCHEDULE OF SIDBI INTEREST RATE FOR REFINANCE
Rate at which Rate at which $1. Loan Limit (in Rs.) refinance is Commercial banks No. Provided charges
(in percent) (in percent) 1 2 3 4
2. Rs.2,5000 to Rs.2 Lakhs 10, 5 14.0
3, Above Rs.2 lakhs 13.0 Free
Source: Indian Bank (Lead Bank), Union Territory of Pondichem Agenda Notes of State Level Bankers' Committee Meetings, Various Years, Pondicheny.
SIDBI provides refinance facilities to Commercial banks at different
interest and allows Commercial banks to charge a higher interest of 3.5 per cent above at
which the refinance is provided For lows above Rupees Two lakhs Commercial banks
rue allowed to charge free interest rate.
Table 7.21: SANCTION AND DISBURSAI, BY SIDBI
(Rs. in l&hs)
S1. Percentage of No. Year Sanction Disbursal Col.4 to co1.3
1. 1990 - 91
2. 1991 - 92
3. 1992 - 93
4. 1993 - 94
5. 1994 - 95
6. 1995 - 96
7. 1996 - 97
8. 1997 - 98
otal 1990 - 98
Source: Indian Bank (Lead Bank), Union Territory of Pondichem Agenda Notes of State Level Bankers' Committee Meetings, Various Years, Pondicheny.
There was wide difference between sanction and disbursement made by
SIDBI. The disbursements made during each year had fallen short of the sanction. As
against the total sanction of Rs.42.83 crores (during 1990-91 to 1997-98) the
disbursement was only Rs.22.25 crores which works out to 51.95 per cent. This shows
that Commercial banks have not come forward to avail the refinance assistance provided
by SIDBI. The very object of setting up of SIDBI in the Union Territory of Pondicheny
has been defeated by not availing the sanctioned refinance facilities from SIDBI by