LOANS & ADVANCES

Profit is the pivot on which the entire business activity rotates. Banking essentially a business dealing with money and credit. Like every other business activity banks are profit oriented. A bank invests its funds in many ways to earn income. The bulk of its income is derived from loans and advances.

PRINCIPLES OF SOUND LENDING

• Safety • Liquidity • Profitability• Security• Purpose of the loan• Social Responsibility• Diversification of risks

SAFETY• The very existence of a bank depends on the safety of

its outstandings which should never be sacrificed to the profit-earning capacity of its advances.

• When a loan or investment is made, the banker will have to ensure that the money advanced is returned by the borrower along with interest within the stipulated period. This is possible only when the borrower does not face any risk & strictly adheres to the terms & conditions of the loan. For this purpose, the banker will have to chose such type of borrowers who are prompt in repayment of the principal and interest amount.

LIQUIDITY• The banker while making advances must see that the

money he is lending is not going to be locked up for a long time, which should make his loans & advances less liquid & more difficult to realize in cases of emergency.

• An asset is said to be liquid when it can be converted into cash within a short notice, without loss. As the bank is investing or lending the depositors’ money, it has to take more precaution while doing so. The depositor may demand his/her money at any time & the bank must be in a position to repay the same.

PROFITABILITY

• When a bank is undertaking lending or investment, it has to earn a good return. The bank has profit as its main business motive. So, while lending or investing the depositors’ money, the bank must earn higher interest or higher return. If the bank is able to achieve this, it will be deploying its funds in such ventures which give a higher return.

SECURITY

• The banker should ensure that the borrower has the ability & will to repay the advances as per agreement. Before granting a secured advance the banker should carefully consider the margin of safety offered by the security concerned & possibilities of fluctuations in its value. If it is an unsecured advance, its repayment depends on the creditworthiness of the borrower, & that of the guarantor, wherever applicable.

• The security & its adequacy alone should not form the sole consideration for judging the viability of a loan proposal.

• The security accepted must be adequate & readily marketable, easy to handle & free from encumbrances.

• It is the duty of the banker to check the nature of the security & assess whether it is adequate for the loan granted.

• Apart from the collateral, the banker has also to consider other factors such as capital of the borrower, his character & capacity etc.

PURPOSE OF THE LOAN

• The banker has to carefully examine the purpose for which the advance has been applied for. In case the advance is intended to be utilized for productive purposes, it could be reasonably anticipated that cash flows arising from productive activities will result in prompt repayment.

• The banker has to be careful to monitor the exact purpose for which the advance is actually utilized. There is always the possibility that the advance granted may be diverted for purposes other than that indicated by the borrower at the time of application. Thus, there should be proper provisions for effective post credit supervision.

SOCIAL RESPONSIBILITY• The bank should not forget the fact that it is not

enough that only people of means are given bank finance. Through productive effort bank finance should make people creditworthy, & turn them into people of means.

• Technical competence of the borrower, operational flexibility & economic viability of the project, rather than the security which the borrower can offer, should be considered in evaluating a loan proposal.

• The identification of priority sectors in India for the purpose of extending bank credit should be considered as a positive development in the banking system, aimed at effectively discharging its responsibility towards society.

• At the same time, this social responsibility should not deter the banks from paying adequate attention to the qualitative aspects of lending.

• The credit needs of the priority sectors should not be allowed to degenerate into irresponsible lending.

DIVERSIFICATION OF RISKS

• The banker should aim at spreading the advances as widely as possible over different industries & different localities. This would enable him to compensate any losses which might arise as a result of unanticipated factors adversely affecting particular industries and/or particular localities.

• It is also advisable for a banker to advance moderate sums to a large number of borrowers than advance large sums to a small number of borrowers.

EVALUATION OF BORROWER

• CHARACTER: The banker has to ensure that the person is of integrity. He should assess the personal characteristics which include honesty, attitude, willingness & commitment to repay debts.

• CAPACITY: This includes the evaluation whether the borrower has the potential to repay the loan from his resources. It includes the borrower’s success in running in business or managing his cash flows. Capacity of physical assets, plants & equipment, cash flows etc. are usually taken into account in this regard.

• CAPITAL: The financial strength of the borrower represents the amount of equity capital that a firm can liquidate for payment of debt in the eventuality of call other means failing. The amount of the borrower’s capital in relation to debt is relatively easy to compute.

• CONDITIONS: The banker has to assess the conditions in which the borrower is operating his business. STEP analysis stands for Social, Technological, economic & Political conditions.

• COLLATERAL: Banker has to ensure safety of funds lent. He ensures this by retaining collateral other than the primary security. The possibility that the borrower may lose the collateral may in fact act as an incentive for him to repay his debt.

• COMPLIANCE: The loan advanced should be in accordance with the rules & regulations as stipulated by the government & regulatory authorities in order to safeguard the interest of the banker

TYPES OF SECURITIES

• The securities may be immovable or movable security, debts etc. The land and buildings, machineries embedded to earth etc. come under the category of immovable, whereas goods, vehicles, furniture, machineries, gold ornaments etc. come under the category of movable security. Accounts receivables also known as book debts are classified as intangible security.

• Classification of security may also be as personal and tangible as well as primary and collateral. Personal security refers to personal liability. The bank has a right of action against the borrower, e.g. guarantee. Tangible security is something that can be realised by a sale or transfer, e.g. land, goods, stock etc.

• Primary security is one that is registered as the main cover for an advance; generally, assets against which advance is made. For example, stock for cash credit, machinery for term loans. Collateral security is security other than the primary security lodged by the borrower or by a third party.

BASIC PRINCIPLES

• Adequacy of margin: In banking terminology, ‘margin’ refers to the difference between the market value of the security and the amount of advance granted against it. Banker needs to keep adequate margin because of the following reasons:

i) The market value of the securities is liable to fluctuations in the future with the result that the banker’s secured loans may turn into partly secured ones.

ii) The liability of the borrower towards the banker increases gradually as interest accrues and other charges become payable by him.

• Marketability of security: If the borrower defaults in making payment, the banker has to liquidate the security to make good his funds. For this, the security has to be marketable.

• Documentation: Documents that are prepared and signed by the borrower at the time of securing the loan is of much significance as these documents contain all the terms and conditions on which a loan is sanctioned by the banker. Hence, any misunderstanding or dispute later on may easily be avoided or resolved.

METHODS OF GRANTING ADVANCES

1. CASH CREDITS2. OVERDRAFTS3. BILLS DISCOUNTING4. ISSUE OF LETTERS OF CREDIT5. LOANS

CASH CREDIT

• A Cash Credit is an arrangement by which a banker allows his customer to borrow money up to a certain limit against the values of his stocks & book debts from day to day. This is the most favourite mode of borrowing by large commercial & industrial concerns in India, on account of the advantage that a customer need not borrow at once, the whole amount he is likely to require, but can draw such amounts as & when required. He can put back any surplus amount which he may find with him for the time being.

OVERDRAFTS

• When a customer requires temporary accommodation, he may be allowed to overdraw his current account, usually against collateral securities. This arrangement like the cash credit is advantageous as he is required to pay interest on the amount actually used by him.

• The main difference between cash credit & overdraft is the latter is supposed to be a form of bank credit to be made use of occasionally & the former is used for long terms by commercial & industrial concerns doing regular business.

• Indian Overseas Bank, Madras v. Naranprasad Govindlal Patel, (1980)21 Cr LJ 132, The customer was enjoying overdraft facility for about 4 years. Merely because the client was not required to execute any document or to furnish any security would not make such an arrangement an act of grace on behalf of the bank. Such an arrangement even though temporary is not one which can be terminated unilaterally & at the sweet will of the bank without giving notice to its constituent. The bank had wrongfully dishonoured a cheque though it could be honoured within the limits of overdraft facility.

• The Gujarat High Court held that the overdraft arrangement between bank & its customer is a contract & it cannot be terminated by the bank unilaterally even if it is a temporary one. The court held the bank liable for damages.

• OVERDRAFT IS A LOAN, REPAYABLE WITH INTEREST

No express, oral or written agreement is necessary for overdraft. The agreement for grant of overdraft facility can be implied from conduct of the parties. Where a customer having a current account in a bank, even without any express grant of an overdraft facility, overdraws on his account & the cheques issued by him are honoured, without there being sufficient balance in the account, the transaction amounts to a loan & the customer is bound to make good the loan to the bank with reasonable interest.

-Paget’s Law of Banking, 1972 edn., p.132.

Charging of interest on overdraft account• The bank can charge compound interest at monthly rate

on overdraft amounts, even without an agreement.• In Balakrishna v. Bhawanipur Banking Corporation,

AIR 1932 Cal 521, where the agreement between the bank & the customer did not stipulate anything, the bank charged compound interest at monthly rate & the same was debited to the account for a long time, later on, when the customer objected to charging interest, the court held that the conduct of the customer by not raising objecting charging of interest, show that had agreed & adopted or ratified the rate of interest that was being charged.

• In Konakalla v. SBI, AIR 1975 AP 113, where in an overdraft account, the bank was sending periodical statement of account showing that interest is being charged & debited at the compound rate, the customer did not raise any objection, it was held that agreement provided for charging compound rate of interest & bank is justified in charging interest at the compound rate.

BILLS DISCOUNTING

• The banker advances money on the security of bills of exchange after deducting a certain percentage, technically known as ‘discount’, from the face value of the bill.

• This method of providing financial accommodation is heavily favoured by conservative bankers according to whom the earning assets of a commercial bank should consist mainly of short term self-liquidating productive loans.

ISSUE OF LETTERS OF CREDIT

• Trade between countries is financed mainly through letters of credit.

• The International Chamber of Commerce defines a letter of credit as: “any arrangement however named or described whereby a bank (the issuing bank) acting at the request & in accordance with the instructions of a customer (the applicant of the credit) is to make payment to or to the order of a third party (the beneficiary) or is to pay accept or negotiate bills of exchange (drafts) drawn by the beneficiary, or authorize such payments to be made or such drafts to be paid, accepted or negotiated, by another bank, against stipulated documents & compliance with stipulated terms & conditions.”

LOANS

• In case of loan, the banker advances a lump sum for a certain period at an agreed rate of interest. The entire amount is paid on an occasion either in cash or by credit in his current account which he can draw at any time. The interest is charged for the full amount sanctioned whether he withdraws the money from his account or not. The loan may be repaid in instalments or at the expiry of a certain period. The loan may be made with or without security. A loan once repaid in full or in part cannot be withdrawn again by the customer. In case a borrower wants further loan, he has to arrange for a fresh loan.

TERM LOAN

• Where a loan is granted for a period exceeding one year & is repayable according to a schedule of repayment, as against on demand & at a time is known as ‘term loan’.

• Where the period exceeds one year but not, 5 to 7 years, it is known as ‘medium term loan’.

• A loan with longer repayment schedule is known as ‘long term loan’.

PARTICIPATION LOAN or CONSORTIUM ADVANCE

• Where single loan is granted by more than one financing agency, it is termed as a participation or consortium loan. Such participation becomes necessary where either the risk involved is too large for one or more of the participating institutions to take individually or there are administrative or other difficulties in servicing & follow up of the loan.

PERSONAL LOANS

• Personal loans, unlike industrial & commercial loans, are extended to customer for meeting their personal requirements mostly connected with their standard of living & amenities for life such as decorations & repairs to houses, purchase of radio sets, motor cars, refrigerators, items of furniture & even professional equipment.

• These are unsecured loans repayable in easy instalments extending up to a period of specified years.

SELECTIVE CREDIT CONTROL IN INDIA

• Selective credit control is exercised by the RBI under the authority vested in it by virtue of the provisions of Sections 21 & 35-A of the Banking Regulation Act.

• Under S. 21, the RBI has been empowered to determine the policy in relation to advances to be followed by all banks or by any particular bank, when it considers it necessary to do so in the public interest or in the interests of the depositors or banking policy.

• RBI may give directions to banks on different aspects of granting accommodation viz.,

a. The purposes for which advances may or may not be made

b. The margins to be maintained in respect of secured advances

c. The maximum amount of advances or other financial accommodation which may be made by a bank to or the maximum amount of guarantees which may be given by a bank on behalf of, any one company, firm, association of persons or individual, having regard to that bank’s financial position such as paid-up capital, reserves & deposits & other relevant considerations.

d. The rate of interest & other terms & conditions subject to which advances or other financial accommodation may be granted or guarantees may be given.• Subsection (1) of section 35-A of BR Act also gives

power to RBI to issue directions to banks in the public interest, in the interest of banking policy, to prevent the affairs of any bank being conducted in a manner detrimental to the interests of the depositors or in a manner prejudicial to the interests of the bank, or to secure the proper management of any bank generally.

• U/S 36(1)(a) RBI may also caution or prohibit banks from entering into any particular transaction or class of transactions, & generally give advice to any bank.

TOOLS OF SELECTIVE CREDIT CONTROL

• The main instruments of selective credit control in India are:

a. Minimum margins for lending against selected commodities

b. Ceilings on the levels of credit and

c. Charging of minimum rate of interest on advances against specified commodities.

• These tools of control are operated & modified by RBI from time to time in such manner as is considered appropriate to meet particular situations or to achieve the desired directional flow of credit

PRIORITY SECTOR ADVANCES

• Priority means to give preference & privilege.• The concept of Priority Sector Lending (PSL) is

mainly intended to ensure that assistance from the banking system flows in an increasing manner to those persons & sectors of the economy which, through accounting for a significant proportion of the national product, have not received adequate support of the institutional finance in the past. Under the new banking policy, stress is laid on the weaker & under privilege groups & vital sector as priority sectors.

• Priority sector lending scheme is a policy of providing a specified portion of bank lending to the important sectors of the economy.

• It includes agriculture, small-scale industries, cottage sector, tiny sector, export sector, and other small business (service) firms.

• The Reserve Bank of India was first to initiate priority sector lending scheme in India.

• The main purpose of this scheme was to see that timely and sufficient credits (loans) are given (provided) to the priority sector.

• Previously, only public sector banks were asked to give loans to this sector. However, now even private and foreign banks have to give loans to this sector.

PSL & ECONOMIC DEVELOPMENT

1. It can reduce the chronic debt owing to non- institutional sources and the financial hardships caused by manmade and natural calamities.

2. It will enable the persons engaged in priority sector to produce a marketable surplus and thereby contribute to the development process.

3. Credit is viewed as productive input and policy makers think that it is possible to promote specific agricultural activities by delivering pre-determined amounts of loans to farmers.

4. In the agricultural segment, the credit enables the farmers to expand areas under irrigation for remunerative crops, increase the use of modern inputs and thereby increase per acre and total yield of crops.

5. Credit for allied activities also helps the borrowers to increase their income. The borrowers can witness remarkable increase in his business turn over and income in the post loan period. The increase in income can bring an improvement in the quality of life of the borrowers.

6. Besides making available finance for development, banks can play a catalytic role in developing infrastructure, transferring technology and know-how, offering guidance and above all educating the rural people of varied target groups.

7.The PSL can also help to bring high rates of adoption of new technology.

8. PSL may encourage entrepreneur ability which contributes to economic growth in two ways:

i. By providing timely and adequate amount of credit to those with technical skills and entrepreneur talents who are not coming forward on a higher economic terrain for want of sufficient capital, and

ii. By attenuating uncertainty and absorbing risk in arranging capital needed for their plans to be implemented.

WEAKER SECTIONS UNDER PSL

• Small & marginal farmers with land holding of 5 acres & less.

• Landless labourers.• Tenant farmers & share croppers.• Artisans, village & small industries.• Beneficiaries of the integrated rural development

program (IRDP).• SCs & STs• Beneficiaries under differential rates of interest

scheme (DRI)

DIRECTIVES ISSUED BY RBI

• Priority sector lending should constitute 40% aggregate bank credit

• Out of the priority sector advances, at least 40% should be provided to agriculture.

• Direct advances to the weaker sections in agriculture & allied activities in rural sector should form at least 50% of the total direct lending to agriculture.

• The advances to rural artisans, village craftsmen & cottage industries should be at least 12.5% of the total advances to the small scale industries.

VITAL SECTORS OF THE ECONOMY GETTING PRIORITY UNDER THE SCHEME OF PSL

1. Agriculture sector

2. Micro & Small scale industries

3. Small road & water transport operators

4. Professional & self-employed persons

5. Retail Trade loan

6. Educational loan

7. State-sponsored corporations for SC/ST

8. Housing loans

9. Consumption loans

10. Other recommended priority sectors

AGRICULTURE SECTOR

• In India, nearly one-third of its national income comes from the agriculture sector. Its economic and social development directly depends on the expansion of the agriculture sector. Therefore, it is treated as primary priority sector lending in India.

• Agricultural loans are given to the farmers on their need-based credit.

• These loans are classified into following two categories: 1. Direct Agricultural Loans

2. Indirect Agricultural Loans

Direct Agricultural Loans

• Under this category, loans are directly given to the farmers in form of tractor loan, dairy loan, crop loan, etc. These loans are given either for a short-term period (which is not more than 12 months) or for a medium and long-term period (which is not more than 36 months).

• Short-term loans are given to meet agricultural expenses and maintenance of assets such as a tractor, pumping machine, bore well, etc.

• Medium and long-term loans are given for agricultural activities like land reclamation, farm building, farm mechanization, and so on.

Indirect Agricultural Loans

• Here, farmers are provided loans at concessional rates of interest. Indirect agricultural loans benefit the farmers in the long run. These loans are given for cattle feed, warehouse, seeds, pesticides, rural electrification, subscription of bonds issued by NABARD, boring equipment, etc.

SMALL-SCALE INDUSTRIAL LOANS

• Loans given to small-scale and ancillary industries  are treated as priority sector lending.

SMALL ROAD AND WATER TRANSPORT OPERATORS

• This category of borrowers includes owners of taxis, trucks, buses, auto-rickshaws, cars, bullock-carts, camel, etc. Under priority sector lending, small road and transport operators get loans based on the conditions mentioned in the notification issued by the Government of India.

• The repayment period of loan is communicated to the borrower at the time of disbursement of loan.

• Borrowing is done for the purchase of vehicles and their parts. Bank mainly provides loans for the following purposes:

a. Purchase of vehicles.

b. Purchase of spare parts.

c. Carrying out major repairs.

d. Working capital requirements.

Professional and self-employed

• Bank also provided loans to self-employed persons like:a. Freelance journalists,b. Owners of health care centres,c. Beauty parlours,d. Photographers,e. Fashion designers, and so on.

• The borrowing limit will be an aggregate of fixed capital and working capital requirements of a professional and self-employed person.

• Doctors and other self-employed professionals who start practicing in rural or semi-urban areas are also eligible to borrow loans.

RETAIL TRADE LOAN

EDUCATIONAL LOAN

HOUSING LOAN

CONSUMPTION LOAN

STATE-SPONSORED CORPORATIONS FOR SC/ST

Other recommended priority sectors

VARIOUS CREDIT SCHEMES UNDER PRIORITY SECTOR

• Differential Rates of Interest Scheme (DRI)• Swarnjayanti Gram Swarozgar Yojana (SGSY)• Prime Minister’s Rozgar Yojana (PMRY)• Swarnajayanthi Shahari Rozgar Yojana (SJSRY)• Programme for Adi-Dravidars (PAD)• Programme for Backward Class People and

Minorities (BC Welfare)• Rural Employment Generation Programme

(REGP)

Differential Rates Of Interest Scheme (DRI)

• This scheme was launched in India in 1972 for public sector banks to extend bank credit to the weaker section at concessional rate of interest at 4% p.a.

• According to new guidelines issued by RBI, banks have to deploy 1% of their total advances to the weaker section of society and further to set aside 40% of their advances meant under DRI scheme for beneficiaries belonging to the scheduled castes and scheduled tribes.

• The eligibility for assistance under this scheme is now Rs.6400 annual family income in rural areas and Rs.7200 per annum per family in urban areas.

• The private sector banks can also participate in this scheme on a voluntary basis.

• Under the DRI scheme, the banks are directed by the Reserve bank to finance:

a. Scheduled castes and scheduled tribes and other engaged on the modest scale in agriculture and allied activities.

b. The physically-handicapped people on the modest scale by offering loans for cottage and rural industries and vocations like sewing garments, making reasonably cheap edibles, running way side tea stalls, basket-making etc.

c. People engaged in elementary processing of forest products.

d. Village artisans in the decentralized sector.

Swarnjayanti Gram Swarozgar Yojana (SGSY)• This is a modified scheme, replacing IRDP and other sub-

schemes viz.,

1. Integrated Rural Development Programme (IRDP)

2. Training of Rural Youth for Self Employment (TRYSEM)

3. Development of Women and Children in Rural Areas (DWCRA)

4. Supply of Improved Toolkits to Rural Artisans (SITRA)

5. Ganga Kalyan Yojana (GKY)

6. Million Wells Scheme (MWS)• It came into existence during the Golden Jubilee year of Indian

Independence, and the scheme derives its name to mark the occasion.

Objective of the Scheme

• The Scheme aims at establishing a large number of micro enterprises in the rural areas. The list of Below Poverty Line (BPL) households identified through BPL census duly approved by Gram Sabha will form the basis for identification of families for assistance under SGSY.

• The objective of SGSY is to bring the assisted poor families (Swarozgaris) above the poverty line by ensuring appreciable sustained income over period of time.

• This objective is to be achieved by inter alia organising the rural poor into Self Help Groups (SHGs) through the process of social mobilisation, their training and capacity building and provision of income generating assets. The rural poor such as those with land, landless labour, educated unemployed, rural artisans and disabled are covered under the Scheme.

Salient features of this scheme• It is a redesigned antipoverty programme, for generation of

employment• There would be shift from individual beneficiary approach to a

cluster/group approach. To facilitate this process, Self-Help Groups (SHG) are formed.

• SHGs, which have demonstrated the potential of viable group, will be considered for revolving fund assistance initially after first grading and assistance for economic activities will be considered once the identified groups sustain its viability and pass through the second grading.

• The Group approach will focus on identification of a few specified viable key activities based on available local endowments and occupational skills of the members of the group.

• The credit flows and average level of investment per family will be enhanced.

• The programme will have greater participation of Gram Panchayats.

• For group of Swarozgaris (SHGs) the subsidy would be at 50 % of the cost the scheme subject a ceiling of Rs.1.25 lakhs. There will be no monitory limit on subsidy for irrigation Projects.

• Group Life Insurance for Swarozgaris is also ensured under the scheme.

• Scheme provides for creation of risk fund for the consumption credit requirement of the Swarozgaris.

Prime Minister’s Rozgar Yojana (PMRY)

• The Prime Minister's Rozgar Yojana (PMRY) has been designed to provide employment to educated unemployed youth by setting up of micro enterprises by the educated unemployed poor. It relates to the setting up of the self-employment ventures for industries, services and business in Rural and urban areas.

• The scheme covers all educated youth with the minimum qualification of VIII Standard (passed). Preference will be given to those who have been trained for any trade in Govt. recognized/ approved institutions for a duration of at least 6 months.

• All educated unemployed youth between the age of 18 and 35 years on the date of receipt of application by the concerned DIC will be eligible for loan under the scheme in general with a 10 years relaxation for SC/ST/ Ex servicemen /physically handicapped and women i.e. up to the age of 45.

• The Income of the beneficiary along with the spouse or the income of parents of the beneficiaries shall not exceed Rs.100,000/- per annum

• All projects up to an outlay of Rs.2.00 lakh for business/service sector and Rs.5.00 lakhs for industry sector, loan to be of composite nature. Partnerships are also considered for projects up to Rs.10.00 lakhs subject to the maximum allowed up to the individual ceiling limits.

• Self Help Groups can be considered for assistance under the scheme provided 1)Educated Unemployed Youth satisfy the eligibility criteria laid down under the scheme to volunteer to form SHG to set up self- employed ventures(Common Economic Activity)

1. No upper ceiling on project cost

2. The subsidy ceiling for Self Help Group is Rs.15000/- per beneficiary subject to a maximum of Rs.1.25 lakh per SHG

3. The exemption from collateral is limited to Rs.5.00 lakh per member of SHG to projects. Under Industry sector and Rs.2.00 lakh per member of SHG under service and business Sectors.

4. Required margin money contribution (ie. Subsidy and margin to be equal to 20% of the project cost) should be brought in by the SHG collectively.

• 5% to 16.25% of the project cost to be brought as own contribution by the beneficiary.

• 15% subsidy on the project cost with a ceiling of Rs.12500/- per beneficiary.

• All projects under Industries, Services, Business and Agriculture are eligible excepting direct agricultural activities like raising crop, purchase of manure etc.

• Beneficiaries are to undergo compulsory training organized by DIC.

• Reservation for SC/ST and OBC at 22.50% and 27% respectively.

• No collateral security is required under Industry Sector with project cost up to Rs.5.00 lakh or partnership projects under Industries sector the exemption limit for abstention of collateral security will be Rs.5.00 lakhs per borrower account. For units in Service and business sector no collateral for projects up to Rs.2.00 lakh. Exemption from collateral in case of partnership projects will also be limited to an amount of Rs.2.00 lakh per person participating in project.

• The exemption from collateral in respect of partnership projects in Industry sector will be Rs.10 lakh per Borrowable account in Tiny sector.

Swarnajayanthi Shahari Rozgar Yojana (SJSRY)

• It was launched on 01.12.1997.• Addressing urban poverty alleviation through

gainful employment to the urban unemployed or underemployed poor by encouraging them to set up self employment ventures (individual or group), with support for their sustainability; or undertake wage employment;

• Supporting skill development and training programmes to enable the urban poor have access to employment opportunities opened up by the market or undertake self-employment;

• Empowering the community to tackle the issues of urban poverty through suitable self- managed community structures like Neighborhood Groups (NHGs), Neighborhood Committees (NHC), Community Development Society (CDS), etc.

• The delivery of inputs under the Scheme shall be through the medium of urban local bodies and community structures.

• Thus, Swarna Jayanti Shahari Rozgar Yojana seeks to strengthen these local bodies and community organizations to enable them address the issues of employment and income generation facing the urban poor.

Five Major Components

(i) Urban Self Employment Programme (USEP)

(ii) Urban Women Self-help Programme (UWSP)

(iii) Skill Training for Employment Promotion amongst Urban Poor (STEP-UP)

(iv) Urban Wage Employment Programme (UWEP)

(v) Urban Community Development Network (UCDN)

Programme for Adi-Dravidars (PAD)

• Under this scheme, the Adi-dravidar Community people living below the poverty line are identified every year and are assisted with the loan-cum-subsidy and Margin money scheme for viable Trades/Business/Professions and other economical activities under Self-employment scheme, so as to raise their economical standard of living.

Criteria for the assistance under the scheme

• 25% of the unit cost or Rs 10,000 which ever is less will be deposited with the concerned banks as margin money for a period of 3 years or till the recovery of the loan whichever is earlier and is refundable by the banks after maturity to the Corporation. The interest earned on the deposit is to be shared by the Corporation and the beneficiary on 50:50 basis

• 50% of the unit cost or Rs.10,000 whichever is less will be released from the Special Central Assistance as subsidy which is not refundable by the beneficiaries

• The remaining portion 50% of the unit cost or the entire balance amount of the unit cost will be released by the banks as loan at nominal rate of interest as prescribed by RBI from time to time.

Programme for Backward Class People and Minorities (BC Welfare)

• The scheme envisages Margin Money Assistance/subsidy for the Backward Classes and minorities & training programme in various trades like Typewriting, Shorthand, Computer orientation, Two-Wheeler Mechanism, etc.

Rural Employment Generation Programme (REGP)

• REGP (Margin Money Scheme) is applicable for new village industries only and the total project cost should not exceed Rs 25 lakhs.

• 25% of the project cost for the projects up to Rs.10 lakhs will be provided as margin money.

• For projects above Rs 10.00 lakhs and upto Rs.25.00 lakhs rate of margin money will be 25% of Rs.10 lakhs plus 10% of the remaining cost of the project

• Margin money grant will be at the rate of 30 % of the project cost up to Rs 10.00 lakhs and above this amount up to Rs.25 Lakhs, it will be 10% of the remaining cost of the project

• Only one person from one family is eligible for obtaining finance under the REGP

• All viable village industry products i.e. an industry located in rural area which produces any goods or renders any service with or without the use of power involving per capita fixed capital investment not exceeding Rs.50000/-. Areas outside the municipal limits with population not exceeding 20000 are deemed to be rural areas.

• Maximum amount of Margin Money admissible would be Rs.2.50 lacs for General Category entrepreneurs and Rs. 3.00 lacs for weaker section entrepreneurs irrespective of the cost of the project.

• For General Category the borrower’s contribution has to be 10% and for SC/ST & other weaker sections the borrower’s contribution has to be 5% of the project cost. For general category borrowers the quantum of loan is 90% and for SC/ST & other weaker sections the quantum is 95% of the project cost.

Women Entrepreneurs• Banks in India is keen on supporting women from all

the sectors of the Society by way of schemes to give assistance to Rural Women in Non-farm Development (ARWIND) and Development of Women and Children in Rural Areas (DWCRA).

• These schemes include small scale industrial undertakings, artisans, village & cottage industries, small road transport operators, small businesses, professionals and self employed, retail traders, agriculture & allied activities Swarnajayanti Gram Swarojgar Yojana (SGSY) and Self Help Groups (SHGs)