Page 206 - DMGT310_ENTREPRENEURSHIP_AND_SMALL_BUSINESS_MANAGEMENT

Unit 13: Institutions Supporting Small Business Enterprises

Notes

Case Study As Farmers Suffer, NABARD Offers Soft Loans to
Business Enterprises

he National Bank for Agriculture and Rural Development (NABARD), which is
dedicated to promoting rural development by providing soft loans to State
Tgovernments for social sector projects, has given hundreds of crores as loans to
corporates on concessional terms.
In the Union Budget of 2011-12, ` 18,000 crore was allocated by the Centre to NABARD’s
Rural Infrastructure Development Fund (RIDF), of which ` 2,000 crore was exclusively
earmarked for the creation of warehousing facilities. While the allocation of ` 16,000 crore
to the States was made by NABARD’s State Projects Department, the allocation of ` 2,000
crore towards warehousing was entrusted to a new team set up on the recommendation of
global consulting firm Boston Consulting Group (BCG), after being awarded the mandate
for a repositioning exercise.
In a circular of September 27, 2011, NABARD, making a significant deviation from its
earlier policies, included private entities as eligible institutions without consulting the
RBI. In another circular of December 23, 2011, NABARD further revised the scheme, again
without consulting the RBI, to provide private firms an interest rate rebate of 1.5%. In
violation of the regulated 8% rate levied by RIDF, an avenue was created for flow of funds
to corporates and release of the interest rate rebate to the borrowers directly by NABARD.
According to documents available with The Hindu, a total of ` 759 crore was disbursed,
including as refinance at 8% to various banks to fund 516 warehouses and cold storage
projects of private entities in March 16-31, 2012. Shubham Logistics Ltd, a subsidiary of the
over ` 6,000 crore Kalpataru Group, was handpicked for a rebate of 1.5%, allowing it to
access ` 115 crore under a government scheme at a concessional 6.5% rate of interest.
Shubham Logistics would have paid a 10.5% rate of interest had the funds been sourced
from the market. The company, which was disbursed a total of ` 180.87 crore, to set up 18
warehouses, became the beneficiary of a further 15% subsidy under another government
scheme, entitling the company to a refund of over ` 20 crore.
The two schemes that were used to favour Shubham Logistics are Grameen Bhandaran
Yojana which offers subsidy of 15% to 33.33% for construction of rural godowns. For
corporates the subsidy is 15% of total financial outlay up to a maximum of ` 28.12 lakh.
Under the other scheme, ‘Warehousing scheme under RIDF’, banks are offered refinance
at 8% which can be further reduced to 6.5% as an incentive for prompt repayment.
Documents reveal that the RBI has questioned NABARD’s interest rate manipulations in
financing warehousing projects without its permission and demanded a recall of the ` 759
crore allocated to private firms. Compliance with this directive means that NABARD will
have to return the money to the RBI and raise debt from the market to honour its
commitments. This is likely to hit NABARD’s balance sheet by roughly ` 150 crore. The
Ministry of Agriculture has further questioned irregularities in Shubham Logistics storage
projects in Deesa, Banaskantha, pointing out that the project is ineligible for sanction of
the subsidy.
Meanwhile, Aditya Bafna, Executive Director of Shubham Logistics Ltd (SSLL), a subsidiary
of Kalpataru Power Transmission Ltd was appointed Director on the board of NABARD
Consultancy Services Private Ltd (NABCONS) — a wholly owned subsidiary of NABARD —
Contd...

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