Hyderabad: The state government on Sunday set in motion a process to set up a dedicated facility, the NBFC, to extend credit facility to the Indira Kranthi Patham groups by requesting the Centre to contribute an equity of Rs 100 crore from the SHG Development Fund.
In a letter to Union Finance Minister Pranab Mukherjee, Chief Minister N Kiran Kumar Reddy requested the Centre to convey concurrence for equity contribution of Rs 100 crore from the SHG Development Fund, besides grant permissions to Andhra Bank, State Bank of Hyderabad and NABARD to be the main promoters of the NBFC.
He also urged Mr Mukherjee to request the Reserve Bank of India to provide fast-track clearance of the proposal for registration of the NBFC.
Mr Kiran Kumar Reddy’s letter is part of the state government’s measures to formulate a separate bank as assured by him recently in a meeting.
The Chief Minister, while thanking Mr Mukherjee for the announcement in the Union Budget 2011-12 to establish a SHG Development Fund, requested to operationalise the same in Andhra Pradesh which he said, could be rightly described as the ‘Home of SHG movement’ in the country.
In his letter, Mr Kiran Kumar Reddy reminded Mr Mukherjee that “Andhra Pradesh is the role model in organising the rural poor into Self Help Groups (SHGs), wherein more than one crore rural poor households have been organized into a 10 lakh SHGs, which are further federated at the village and mandal level.”
The Chief Minister pointed out that in over “a period of 10 years, this structure has acquired stable systems and sufficient strength to partner the financial inclusion mission of Government. All the 10 lakh SHGs are linked to the Banks for their financial needs, covering predictable, income generating activities. Despite this inclusion, SHGs are facing considerable credit gap due to the inability of the banks to address emergency credit needs and fixing of artificial limits for SHG bank lending.”
He said that as a result, “many unscrupulous MFIs have been lending at usurious rates; and using coercive methods for recovery. Lack of innovation in credit products, non-availability of credit during the currency of another loan (generally for 3 years) and the lack of timely availability of credit are issues driving the poor to still avail high cost borrowings from the MFIs and the informal sector.”
Saying that it was in this context, that the need for establishing a new financial entity which can operate at low costs through the SHG network to provide niche lending to the SHGs, has emerged. Mr Kiran Kumar Reddy further said that the Andhra Bank, while taking the leadership in this, has entrusted the matter for a detailed feasibility study to M/S Andhra Pradesh Mahila Abhivruddhi Samakhya (APMAS) along with Prof Sriram (IIT, Ahmedabad).
“The feasibility study submitted by M/S APMAS, which has established the viability of the proposed institution which operates exclusively through the 1,089 Mandal Samakhyas (MSs) by providing credit limits to each Mandal Samakhya,” he pointed out.
Mr Kiran Kumar Reddy listed the salient features of the proposed NBFC will only resort to gap funding; and not be an alternate to the SHG bank linkage system. The existing SHG Bank linkage will continue in the current manner.
He pointed out that the NBFC It will primarily address the credit needs emerging out of unforeseen emergencies and higher order funds that are needed for productive purposes.
The Chief Minister also said that the NBFC will operate by providing credit limits to each MS depending on their corpus and functional structure. In turn, each MS will give similar credit limits to the Village Organisation of SHGs (VOs) after due assessment of their performance.
“The limits of amounts that an SHG can get will be pre-decided based on a decision algorithm which will consider (a) rating of the SHG (b) the existing loan limits that the group has drawn/ outstanding and (c) the savings/group funds. In case of other loans, suitable arrangements will be worked out keeping in view of the capabilities that exist in intermediary level institutions,” he elaborated.
Mr Kiran Kumar Reddy further pointed out that within the given credit limits, the VOs can assess the requirements of SHG members and recommend the same to the Mandal Samakhyas for sanction of loans, using an automatic route.
He added that the NBFC will work closely with the banks to ramp up innovative products through alternative channels like (a) emergency loans through larger individual limits, (b) livelihood loans guaranteed by the SHG to be directly given by banks, (c) greater emphasis on innovation in savings products that give the banks greater comfort and (d) innovative use of data particularly demographic, education, marriage, health and social events.
The NBFC will operate on strict efficiency parameters to deliver credit to the SHG members at interest rates below 15 per cent. All operations of the Bank will be IT driven linking the Mandal Samakhyas through internet banking system. The NBFC will be a single branch company, with minimum staff strength.
He said that the Andhra Bank will lead the proposed NBFC along with such other Nationalised Banks which show interest in the venture while for lending operations, the NBFC will borrow from banks and through flotation of market related instruments.
The NBFC will also actively seek funds from multi-laterals interested in financial inclusion and vulnerability reduction. The NBFC will also look for grants for IT and innovation from NABARD and similar agencies.
The SERP will undertake capacity building of the Mandal Samakhyas by recognizing the problem areas, innovating and disseminating information, so that the systems of due diligence, utilisation and the repayment of the loans functions efficiently.
The Chief Minister said that the NBFC will have an authorised capital of Rs 500 crore and a paid-up capital of Rs 350 crore in the initial year. This would be made up from Rs 100 crore by the Centre, Rs 100 crore from the state, while the Andhra Bank, State Bank of Hyderabad and NABARD pool in Rs 50 crore each.
Apart from this, the Mandal Samakhyas would also be encouraged to become the shareholders in the Company.
In another letter to Union Minister for Rural Development Vilas Rao Deshmukh, the Chief Minister requested to convey concurrence for the proposed NBFC.
Besides this, Mr Kiran Kumar Reddy also wrote separate letters to Dr Prakash Bakshi, Chairman, NABARD, R Ramachandran, Chairman and Managing Director, Andhra Bank, and Ms Renu Challu, Managing Director, State Bank of Hyderabad.
In these letters, Mr Kiran Kumar Reddy requested them process the matter further with their Boards and convey concurrence for participating in formation of the NBFC.(INN)