NON-FCRA PROJECT: INTEREST SUBVENTION SCHEME FOR THE SHGS

I. Interest subvention scheme for the SHG credit during the year 2013-14 to the Public Sector Banks, Regional Rural Banks and Co-operative banks in 150 districts The Honourable Finance Minister in his budget speech for 2013-14 proposed to provide interest subvention to women SHGs who avail loans upto Rs. 3 lakhs at 7% per annum. The women SHGs will get an additional subvention of 3% if they repay in time, reducing the effective rate of interest to 4%. The initiative, in its first phase will focus on 150 most backward districts, including the IAP districts. All the women SHGs promoted by NRLM or other Central or State Govt. line departments or NGOs or by NABARD under WSHG program, which are linked with the banks, will be eligible to avail the benefits of the scheme. In pursuance of the above announcement, the salient features and the operational guidelines in respect of the interest subvention claims for the year 2013-14 for the banks are as follows:

1. All women SHGs will be eligible for interest subvention to avail the credit upto Rs. 3 lakhs at 7% per annum. SHGs which have availed capital subsidy under S.G.S.Y in their existing loans, will not be eligible for benefit for their subsisting loan under this scheme.

2. Public Sector Banks (PSBs) and Regional Rural Banks (RRBs) will lend to all the women SHGs at the rate of 7% in the 150 districts. Annexure I provides the names of the 150 districts.

3. PSBs will be subvented to the extent of difference between the Weighted Average Interest charged (WAIC as specified by Ministry of Finance, Department of Financial Services,- Annexure II) and 7% subject to the maximum limit of 5.5%, for the FY-2013-14. This subvention will be available to all the Public Sector Banks on the condition that they make SHG credit available at 7% p.a. in the 150 districts. The limit of subvention for the next financial year will be communicated separately.

4. RRBs will be subvented to the extent of difference between the lending rates (as specified NABARD) and 7% for the FY-2013-14. RRBs will also get concessional refinance from NABARD. This subvention will be available to the RRBs on the condition that they make SHG credit available at 7% p.a. in the 150 districts. Detailed guidelines will be separately issued by NABARD.

5. Further, the SHGs will be provided with an additional 3% subvention on prompt repayment of loan. For the purpose of the Interest Subvention of additional 3% on prompt repayment, an SHG account will be considered as prompt payee if it satisfies the following criterion as specified by RBI:

a. For Cash Credit Limit:

i. Outstanding balance shall not have remained in excess of the limit/drawing power continuously for more than 30 days

ii. There should be regular credit and debits in the accounts. In any case there shall be at least one customer induced credit during a month

iii. Customer induced credit should be sufficient to cover the interest debited during the month.

b. For the Term loans: A term loan account where all of the interest payments and/or instalments of principal were paid within 30 days of the due date during the tenure of the loan, would be considered as an account having prompt payment

The prompt payment guidelines would continue to be guided by RBI guidelines on the subject in the future All prompt payee SHG accounts as on the end of the reporting quarter will be eligible for the additional interest subvention of 3%. The banks should credit the amount of 3% interest subvention to the eligible SHG loan accounts and thereafter seek the reimbursement.

6. The Interest Subvention scheme shall be implemented through a Nodal Bank selected by the Ministry of Rural Development. The Nodal Bank will operationalize the scheme in a manner similar to that of (Ministry of Human Resource Development) MHRD’s education loan interest subsidy scheme for all the Public Sector Banks.

7. For the RRBs the scheme will be operationalized by NABARD in a manner similar to the short term crop loan scheme.

8. All the PSBs and RRBs who are operating on the Core Banking Solutions (CBS) will avail the interest subvention under the scheme.

9. For all the loans upto Rs. 3 lakhs, sanctioned to women SHGs on or after December 1st, 2013, banks must charge an interest rate of 7%. This is applicable for the loans upto Rs. 3 Lakhs

10. For the loans extended between April 1, 2013 and November 30th , 2013, banks should convert the rate of interest to 7% for all the existing loan accounts of the SHGs with effect from April 1st, 2013

11. For the loan outstanding between April 1st, 2013 and November 30th, 2013, the Banks need to reimburse the excess interest already being charged, for the difference between 7% and the Weighted Average Interest charged (WAIC as specified by Ministry of Finance, Department of Financial Services- Annexure II), to the Loan accounts of the SHGs.

12. For the loan outstanding for the period April 1st 2013 to November 30th, 2013, the banks should pay the additional 3% subvention to the eligible SHGs and submit the claims to the Nodal Bank. Till such time the Nodal bank is appointed, all the PSBs may submit the claims to Ministry of Rural Development in the format specified in Annexure

13. For the loans closed between the period April 1st, 2013 to November 30th, 2013, the interest subvention amount, both for the difference between 7% and Lending rates and the additional 3% subvention to the eligible SHGs, should be reimbursed to the S/B Account of the eligible SHGs.

14. In order to avail the Interest Subvention on credit extended to the SHGs @ 7%, banks are required to submit their claims on a half-yearly basis as at September 30, 2013 and March 31, 2014, of which, the latter needs to be accompanied by a Statutory Auditor’s certificate certifying the claims for subvention for the entire year ended March 31, 2014 as true and correct.

15. In respect of the 3% additional subvention, banks may submit their one-time consolidated claims pertaining to the disbursements made during the entire year 2013-14 latest by April 30, 2014, duly audited by Statutory Auditors certifying the correctness.

16. Banks should furnish the consolidated claims duly certified by the Statutory Auditor’s certificate for subvention for the entire year ending March 31, 2014 as true and correct. Any remaining claim pertaining to the disbursements made during the year 2013-14 and not included in the claim for March 31, 2014, may be consolidated separately and marked as an 'Additional Claim' and submitted latest by June 30, 2014, duly audited by Statutory Auditors certifying the correctness. Adjustments shall be made from later claims based on the auditor’s certificate

17. RRBs will submit the claims to NABARD, as specified by NABARD.

18. For Co-operative Banks, detailed guidelines will be separately issued by NABARD

II. Interest Subvention Scheme for the Category II Districts (other than 150 districts) For the II category of districts, comprising of districts other than the above 150 districts, all women S.H.Gs under N.R.L.M will continue to be eligible for interest subvention to avail the loan facility at an interest rate of 7%. The funding for this subvention will be provided to the State Rural Livelihoods Missions (S.R.L.Ms). The State-wise distribution of the provision under this budget head would be determined each year. In the Category II districts, Banks will charge the SHGs as per their respective lending norms to the SHGs and the difference between the lending rates and 7% will be subvented in the loan accounts of the SHGs by the SRLM. In pursuance of the above, the salient features and the operational guidelines in respect of the interest subvention for the category II, for the year 2013-14, are as follows: (A) Role of the Banks: All the banks will furnish the details of the Credit disbursement and Credit outstanding of the SHGs in the desired format as given by the MoRD, directly from the CBS platform, to the Ministry of Rural Development (through FTP) and to the SRLMs. The information should be provided on a monthly basis to facilitate the calculation of the Interest Subvention. (B) Role of the State Governments:

1. All women SHGs, comprising of more than 70% BPL or rural poor members ( rural poor as per the Participatory Identification Process) are regarded as NRLM compliant SHGs. Such NRLM compliant SHGs will be eligible for interest subvention to avail the credit upto Rs. 3 lakhs at the rate of 7% per annum on prompt repayment.

2. This scheme will be implemented by the State Rural Livelihood Missions (SRLMs). SRLMs will provide interest subvention to the NRLM compliant SHGs who have accessed loan from PSBs, RRBs and Cooperative Banks. The funding for this subvention will be met out of the Central allocation under NRLM to the States and the State Contribution towards the Interest Subvention Scheme in the ratio as applicable to NRLM.

3. The SHGs will be subvented with the extent of difference between the Lending Rate of the banks and 7% by the SRLMs, directly on a monthly/quarterly basis. An e-transfer of the subvention amount will be made by the SRLM to the loan accounts of the SHGs who have repaid promptly.

4. For the purpose of the Interest Subvention, an account will be considered as prompt payee if it satisfies the following criterion as specified by RBI:

a. For Cash Credit Limit:

i. Outstanding balance shall not have remained in excess of the limit/drawing power continuously for more than 30 days

ii. There should be regular credit and debits in the accounts. In any case there shall be at least one customer induced credit during a month

iii. Customer induced credit should be sufficient to cover the interest debited during the month.

b. For the Term loans: A term loan account where all of the interest payments and/or instalments of principal were paid within 30 days of the due date during the tenure of the loan, would be considered as an account having prompt payment

The prompt payment guidelines would continue to be guided by RBI guidelines on the subject in future

5. Women SHGs who have availed capital subsidy under S.G.S.Y in their existing loans, will not be eligible for benefit of Interest Subvention for their subsisting loan under this scheme.

6. The SRLM should submit the Quarterly Utilization Certificate indicating monthly credit of interest subvention amounts transferred to the Loan accounts of the SHGs.

III. The States with state specific interest subvention schemes are advised to harmonize their guidelines with the Central scheme.