Genesis - Launch of RIDF

In the Union Budget Speech 1995-96, Hon'ble Finance Minister announced that-

"Inadequacy of public investment in agriculture is today a matter of general concern. This is an area which is the responsibility of States. But many States have neglected investment in infrastructure for agriculture. There are many rural infrastructure projects which have been started but are lying incomplete for want of resources. They represent a major loss of potential income and employment to rural population."

RIDF-I was launched in 1995-96 with an initial corpus of Rs.2000 crore through contributions by way of deposits from domestic commercial banks both from public and private sector having shortfall in the agricultural lending subject to a maximum of 1.5% of the shortfall of the net bank credit to agriculture. Since 1996-97 i.e. RIDF-II, sources of deposits from commercial banks has been broad-based by including shortfall either in direct finance to agriculture and/or shortfall in priority sector lending.

RDIF-II(Yer 1996-97) contribution amounted to Rs.2500/-.Contributions have since increased progresively. RDIF IX (2003-04) contribution amounted to Rs.5500/- bringing the cumulate corpus fund of RDIF to Rs.34000/-.

Disbursements & Outstandings:
Total sanctions as on 31 March 2003 aggregated Rs.29475 crore as on 30 March 2003. The total disbursements as on 31 March 2003 were Rs.17,145 crore and RIDF outstandings as on 31 March 2003 were Rs.13,062 crore. The tranch-wise sanctions have been higher than the corpus.

Sanction of Projects:
Appraisal reports submitted by the ROs are scrutinised by State Projects Department at HO before placing the same to Projects Sanctioning Committee (PSC) for consideration of sanction. Projects are sanctioned by PSC - which is a committee of the Board of Directors with following Members:

1. Chairman of NABARD;

2. Managing Director of NABARD;

3. Secretary (Banking), MoF, GoI, on the Board of NABARD;

4. Secretary, Ministry of Rural Development, GoI, on the Board of NABARD;

5. Deputy Governor, RBI, on the Board of NABARD;

6. Nominee of RBI.

Normally seven or eight meetings of PSC are held in a year to sanction loans from the RIDF corpus. Sanctioning process under RIDF IX (2003-04) has been operationalised.

Borrowing Institutions:
State Governments are eligible to borrow out of RIDF on project basis. It has been decided to extend loans to Panchayat Raj Institutions (PRIs), Non-Governmental Organisations, Self-Help Groups, etc. w.e.f. 1 April 1999.

Activities/Sectors financed under RIDF:
Only ongoing Irrigation, Flood Protection, Watershed Management projects were financed under RIDF-I as a 'last mile approach' to facilitate completion of the projects delayed on account of financial constraints.

The financing of rural Road & Bridge projects was started during RIDF-II. Subsequently, coverage of RIDF was broad-based in each tranche and at present, a wide range of activities such as Primary Schools, Primary Health Centres, Village Haats, Joint Forest Management, Terminal and Rural Market, Rain Water Harvesting, Fish Jetties, Mini Hydel and System Improvement Projects in Power Sector, Rural Drinking Water Supply Scheme, Citizen Information Centres, Anganwadi Centres and Shishu Shiksha Kendras are also being financed.

All new "project concepts" received from various State Governments are placed before the PSC for approval before accepting detailed projects from State Governments for financing.

Rate of Interest on RIDF Loan:
The loan under RIDF-I were advanced to State Governments with interest rate at 13%. The rate of interest on loans under RIDF-II to RIDF-V was 12%. The rate of interest was further reduced to 11.5% under RIDF-VI and to 10.5% under RIDF-VII and is at 8.5% per annum under RIDF-VIII. The rate of interest has been linked to Bank Rate i.e. 2% above the bank rate with effect from 01 April 2002. The rate of interest under each tranche remains constant during entire disbursement period of the tranche. NABARD retain

Differential Rate of Interest to Banks:
The rates of interest on deposits received from the banks under tranches I to VI were less by 0.5% than the rates of interest charged by NABARD on RIDF loans to the State Govts. With a view to encouraging commercial banks to enhance flow of direct credit to agriculture, it was decided by RBI to link interest on bank contribution to RIDF, from Tranche-VII, to the extent of the shortfall of their agriculture lending vis-a-vis the targets. The inversely proportional rate of interest paid to commercial banks are as under:

As per the guidelines of RBI/GOI, NABARD retains a margin of 0.5% for administering RIDF. The differential interest, however, is credited to the Watershed Development Fund maintained by NABARD.

Period of Loan:
The repayment period of 5 years including a 2 year grace period was provided under RIDF-I to RIDF-V. The repayment period has, however, been extended to 7 years including a grace period of 2 years since RIDF-VI and the same policy is continuing.

Normative Allocation:
Normative allocations are made to all States on the basis of norms prescribed by the PSC. Currently, the allocation norms provide weightage to rural population (50%), geographical area (25%) and infrastructural development index (25%).

Some of the State Governments are not able to fully utilise the allocation and the State-wise allocations are reviewed by PSC from time to time and accordingly reallocated.

Nodal Department for RIDF:
The Finance Department has been nominated by the State Governments to act as the Nodal Department for operationalising RIDF. The project proposals are routed through the Finance Department only and no proposals are accepted directly from any other Department of the State Government. Release of loan, repayment thereof, documentation, etc. are executed by Finance Department of the State Governments.

Appraisal of Projects:
Regional Offices receive the detailed project reports from State Governments based on the their priorities and within the priorities decided under RIDF. The detailed project reports are subject to field and desk appraisal by a team comprising of NABARD officers as well as consultants, who are normally senior retired officers of the concerned departments of State/Central Government.

Documentation:
Besides normal documents such as acceptance of Terms & Conditions of sanction, Time Promissory Note(TPN), the State Government has to execute mandate in favour of RBI.

The State Governments are required to furnish a certificate to the effect that the advances drawn are within the limits prescribed by the State Legislative Assembly under Article 293(1) as also a certificate indicating consent of the Government of India under Article 293(3) of the Constitution of India.

Phasing of the Projects:
The normal phasing under RIDF-I was 2 years whereas under subsequent tranches of RIDF, it is 3 years. However, due to operational constraints, phasing has to be normally extended for the Tranche as a whole or for specific projects to enable the State Governments to complete the projects.

Release of Funds:
The State Governments can avail advance against the loan sanctioned @ 20% on acceptance of the terms & conditions of sanction and 10% on commencement of work either for the annual phasing or the total sanction as per local conditions and needs of the project.

The State Governments, thereafter, are provided loans on reimbursement basis against the actual expenditure incurred in execution of sanctioned projects. The RIDF loans are released by Regional Offices of NABARD.

Cost Escalation:
Normally it is expected that RIDF projects could be completed on time within the approved cost. However, cost escalation is considered on account of change in design during execution and revision in Schedule of Rates (SOR).

Monitoring of RIDF Projects:
Although monitoring is basically the responsibility of the State Governments, yet an effective monitoring mechanism developed by NABARD is one of the strong features of RIDF. Currently, 10,000 projects which constitute about 12% of the ongoing projects are annually field monitored by our Districts Development Managers, staff of ROs and Consultants. Selective sector-wise monitoring is undertaken by the HO and through external agencies also.

Monitoring Committees:
In addition to the field monitoring, institutional mechanism has been developed for sectoral and project-wise review at the level of Superintending Engineers, Chief Engineers, Head of the Departments, Administrative Secretaries & Chief Secretaries to facilitate timely completion of RIDF projects. The mechanism has stabilised and is working satisfactorily. Recently, NABARD has started organizing capacity building workshops for the govt. staff working in various line departments connected with RIDF projects.

The Hon'ble Union Finance Minister, in his Budget Speech for the year 2002-03, had made the following announcement as regards RIDF:

"The funds for RIDF-VIII will be enhanced from Rs.5000 crores to Rs.5500 crore next year, while the rate of interest will be reduced from 10.5 per cent to 8.5 per cent. Henceforth, it will be fixed at the prevailing bank rate plus 2 per cent. Assistance to the States from RIDF will be linked to reforms in the agriculture and rural sector."

Accordingly following four sub-sectors were identified for linking RIDF sanctions to reforms process.

1. Agriculture Marketing

2. Power Supply for Agriculture & Rural Areas

3. Irrigation & Water Supply and

4. Tribal Development.

[Source: NABARD Website]