Idbi Bank Project

STUDY AND ANALYSIS BANK FINANCES IN AGRICULTURE SECTOR (CONTRACT FARMING) Summer Project Report Submitted In the partial
fulfillment of the Degree of Master of Business Administration (Agribusiness) Semester-II By Baxi Vishvak P. (02)
Under the Guidance of: IDBI Bank Ltd. Mehsana
Submitted To: Dr.Maurvi Pandya Centre for Management Studies Ganpat University, Kherva.
July, 2011
Study and Analysis Bank Finance in Agriculture Sector (Contract Farming) Page 1
CERTIFICATE BY THE GUIDE

This is to certify that the contents of this report entitled STUDY AND ANALYSIS BANK FINANCES IN AGRICULTURE SECTOR (CONTRACT FARMING) about Agriculture finances at Mehsana by BAXI VISHVAK PARINDRA the student of CMS, Ganpat University submitted to IDBI Bank Ltd, Mehsana. As a part of summer internship (MBAAGRIBUSINESS Sem-II) is original Research work carried out by him under my supervision.
This report has not been submitted either partly or fully to any other University or Institute for award of any degree or diploma courses.
Dr. MAURVI PANDYA
Centre for Management Studies, Ganpat University, Kherva Date: Place: Ahmadabad I
Study and Analysis Bank Finance in Agriculture Sector (Contract Farming)
Page 2
CERTIFICATE BY THE MENTOR
This is to certify that the contents of this report entitled STUDY AND ANALYSIS BANK FINANCE IN AGRICULTURE SECTOR (CONTRACT FARMING) by BAXI VISHVAK P. Roll No.02 submitted to Centre for Management Studies (Agribusiness Management) for the Award of Master of Business Administration (MBA Sem-II) is original research work carried out by him under my mentoring. I, hereby certify the authenticity of the data and facts mentioned in the report. This report has not been submitted either partly or fully to any other University or Institute for award of any degree or diploma.
Mr. Abhishek Sawant,
IDBI Bank Ltd. Mehsana.
II
Page 3
CANDIDATES STATEMENT
I hereby declare that the work incorporated in this report entitled STUDY AND ANALYSIS BANK FINANCE IN AGRICULTURE SECTOR (CONTRACT FARMING). in partial fulfillment of the requirements for the award of Master of Business Administration (Sem. - II) is the outcome of original study undertaken by me and it has not been submitted earlier to any other University or Institution for the award of any Degree or Diploma.
Baxi Vishvak P.
(Name & Sign of Student)
Date: Place: III
Page 4
PREFACE
The MBA (Agribusiness) programme is well structured and integrated course of business studies. The main objective of practical training at MBA level is to develop skill in student by supplement to the theoretical study of business management in general. Industrial training helps to gain real life knowledge about the industrial environment and business practices. The MBA (Agribusiness) programmed provides student with a fundamental knowledge of business and organizational functions and activities, as well as an exposure to strategic thinking of management. In every professional course, training is an important factor. Professors give us theoretical knowledge of various subjects in the college but we are practically exposed of such subjects when we get the training in the organization. It is only the training through which I come to know that what an industry is and how it works. I can learn about various departmental operations being performed in the industry, which would, in return, help me in the future when I will enter the practical field. Training is an integral part of MBA and each and every student has to undergo the training for Two months in a company and then prepare a project report on the same after the completion of training. During this whole training I got a lot of experience and came to know about the management practices in real that how it differs from those of theoretical knowledge and the practically in the real life. In Todays globalize world, where aggressive competition is prevailing in the market, theoretical knowledge is not sufficient. Beside this one need to have practical knowledge, which would help an individual in his/her carrier activities and it is true that Experience is best teacher
IV
Page 5
ACKNOWLEDGEMENT
With immense pleasure, I would like to present this project report for IDBI Bank Ltd, Mehsana It has been an enriching experience for me to undergo my summer training at IDBI BANK, which would not have possible without the goodwill and support of the people around. As a student of CENTER FOR MANAGEMENT STUDIES I would like to express my sincere thanks to all those who helped me during my practical training programme.
Words are insufficient to express my gratitude toward Mr. ABHISHEK SAWANT, the ASSISTANT MANAGER (AGRI DIVISION) of IDBI Bank Ltd, Mehsana. I would like to give my heartily thanks to Mr. Vikas Nigam, Branch Manager, who permitted me to get training at IIDBI Bank Ltd, Mehsana. I am very thankful to Mr. P .R. Patel, who helped me at every step whenever I needed.
At last but not least my grateful thanks is also extended to Dr. Maurvi Pandya (Programme Coordinator) and my thanks to all my faculty members for the proper guidance and assistance extended by them. I am also grateful to my Father Mr. P .H. Baxi without him I cant image myself & Mrs. N .P. Baxi who give me moral support really papa and mom without your support this project will be not completed. And my friends who give me all required support to completed my project.
V
INDEX
Certificate By the Guide.I Certificate by Mentor....II Candidates Statement ...III Preface.IV AcknowledgmentsV List of TablesVI List of Figures & Graphs..XII
SR.NO CH 1.
CHAPTER History of Banking Industries 1.1 NABARD Role in Banking Industries 1.2 Priority sector in India Company profile 2.1 IDBI Bank Product & Services 2.2 Agricultural Finance Through IDBI Bank 2.3 Contract Farming
PAGE.NO 1 11 16 32 41 43 50 58 58 59 61 66 76 82 83 86 88 88 91 93 95 100
Page 7
CH 2.
CH 3.
Study Research 3.1 Map of Location Visited 3.2 Bank list of Contract Farming Research Design Data Interpretation and analysis Hypothesis testing
CH 4. CH 5.
CH 6. CH 7.
Limitation to the study Recommendations and Finding 7.1 Conclusion & Suggestions
CH 8.
Appendices 8.1 Questionnaire 8.2 Recent Case & Studies 8.3 Contract Farming Farmers List 8.4 Company List of Contract Farming Bibliography
List of Tables
Particular State bank of India Associated bank list Old Private Sector Bank
New Private Sector Bank
Page no. 04 06 07 08 18 30 39 44 45 46 48 49 65 93 95
Foreign Bank Target and Sub Target Priority sector Insurance against fire & other risk Relative valuation IDBI Bank Rating Agriculture Finance ( Shorts terms Loans) Agriculture Finance (Terms Loans) Allied Activates Indirect Finance to Agricultures Sampling details Contract Farming Farmers list Company list of contract farming
VI
Page 8
List of Figures & Graphs
Particular North Gujarat visited Map Farmers age analysis Farmers Education analysis Farmers Farm size analysis Contract farming crop produces How to know about contract farming Factor which invites famers for contract farming Awareness of IDBI Bank Agri finance Farmers Bank ranking Satisfaction towards IDBI Bank Advertisement analysis of IDBI Bank Improving Model of Contract Farming 72 73 74 75 85 58 66 67 68 69 70 71
Page no.
XII Study and Analysis Bank Finance in Agriculture Sector (Contract Farming) Page 9
History of Banking Industries
Introduction
In the earlier societies functions of a bank were done by the corresponding institutions dealing with loans and advances. Britishers brought into India the modern concept of banking by the start of Bank of England in 1694. In 1708, the bank of England was given the monopoly for the issue of currency notes by an Act. In nineteenth century various banks started operations, which primarily were receiving money on deposits, lending money, transferring money from one place to another and bill discounting.
History of Banking in India
Banking in India has a very old origin. It started in the Vedic period where literature shows the giving of loans to others on interest. The interest rates ranged from two to five percent per month. The payment of debt was made pious obligation on the heir of the dead person. Modern banking in India began with the rise of power of the British. To raise the resources for the attaining the power the East India Company on 2nd June 1806 promoted the Bank of Calcutta. In the mean while two other banks Bank of Bombay and Bank of Madras were started on 15 th April 1840 and 1st July, 1843 respectively. In 1862 the right to issue the notes was taken away from the presidency banks. The government also withdrew the nominee directors from these banks. The bank of Bombay collapsed in 1867 and was put under the voluntary liquidation in 1868 and was finally wound up in 1872. The bank was however able to meet the liability of public in full. A new bank called new Bank of Bombay was started in 1867.
On 27th January 1921 all the three presidency banks were merged together to form the Imperial Bank by passing the Imperial Bank of India Act, 1920. The bank did not have the right to issue the notes but had the permission to manage the clearing house and hold Government balances. In 1934, Reserve Bank of India came into being which was made the Central Bank and had power to issue the notes and was also the banker to the Government. The Imperial Bank was given right to act as the agent of the Reserve Bank of India and represent the bank where it had no braches. In 1955 by passing the State Bank of India 1955, the Imperial Bank was taken over and assets were vested in a new bank, the State Bank of
Page 10
Bank Nationalization After the independence the major historical event in banking sector was the nationalization of 14 major banks on 19th July 1969. The nationalization was deemed as a major step in achieving the socialistic pattern of society. In 1980 six more banks were nationalized taking the total nationalized banks to twenty. Various Types of banking services: The flow chart below shows the various types of banking services:
CENTRAL BANK
Commercial Banks
Specialized banks
Institutional banks
Non Banking Financial Institutions
Land Mortgage Rural Credit

Nationalised banks (20) SBI and Associate Banks
IFCI SFCs IRBI NABARD HDFC SIDBI
Mutual Funds
Industrial Dev. Housing Finance EXIM Bank
Private Sector NBFC
Private Sectors Banks
Foreign Banks
Old private sector banks
New private sector banks
Page 11
Structure of schedule commercial banks The composition of the board of directors of a scheduled commercial bank shall consist of whole time chairman. Section 10A of the Banking Regulation Act, 1949 provides that not less than fifty-one per cent, of the total number of members of the Board of directors of a banking company shall consist of persons, who shall have special knowledge or practical experience in respect of one or more of the matters including accountancy, agriculture and rural economy, banking, co-operation, economics, finance, law, small-scale industry, or any other matter the special knowledge of, and practical experience in, which would, in the opinion of the Reserve Bank, be useful to the banking company. Out of the aforesaid number of directors, not less than two shall be persons having special knowledge or practical experience in respect of agriculture and rural economy, co-operation or small-scale industry.
Besides the above the board of the scheduled bank shall consist of the directors representing workmen and officer employees. The Reserve Bank of India and the Central Government also has right to appoint their nominees into the board of the banks.
Present scenario of the banks in India: Banks are extremely useful and indispensable in the modern community. The banks create the purchasing power in the form of bank notes, cheques bills, drafts etc, transfers funds bring borrows and lenders together, encourage the habit of saving among people. The banks have played substantial role in the growth of Indian economy. From the meager start in 1860 the banks have come to long way. At present in India there are 20 nationalized banks, State bank of India and its seven Associate banks, 21 old private sector banks and 8 new private sector banks. Besides them there are more than 30 foreign banks either operating themselves or having their branches in India. The statistical table hereunder shows the financial position of the banks as on 31.03.2005.
Page 12
Statistical table for banks in India (Year 2004-05) (Rs. In Crores) State bank of India and its associates Name of bank Year of incorporation No. of Offices Networth Deposits Advances Interest income Net NPA ratio 1.61
State Bank of Bikaner & Jaipur State Bank of Hyderabad State Bank of India
1966
833
1298
19038
12009
1741
1941
943
1765
28930
15600
2325
0.61
1955*
9161
24072
367048
202374
32428
2.65
State Bank of Indore
1960
456
904
13807
9041
1110
1.00
State Bank of Mysore
1913
639
756
13585
8781
168
0.92
State Bank of Patiala
1917
754
2045
26496
15359
2133
1.23
State Bank of Saurashtra State Bank of Travancore
1902
429
794
12613
6714
1132
1.40
1945
681
1130
24133
14848
2008
1.81
* From 27th January 1921 to 30th June 1955 it was Imperial Bank of India, which came about by merger of Bank of Bengal (2nd June 1806), Bank of Bombay (15th April 1840) and Bank of Madras (1st July, 1843).
Name of Nationalized Bank Allahabad Bank Andhra Bank Bank of Baroda Bank of India Bank of Maharashtra Canara Bank Central Bank of India Corporation Bank Dena Bank Indian Bank Indian Overseas Bank Oriental Bank of Commerce Punjab & Sind Bank
Year of incorporation 1865 1923 1908 1906 1935 1906 1911 1906 1938 1907 1937 1943 1908
No. of Offices 2027 1159 2772 2668 1330 2627 3239 799 1072 1417 1583 1166 787 4117 1905 1801 2140 1343 966
Networth
Deposits
Advances
Interest income 3186 2273 6431 6032 2368 7572 5205 2250 1725 2871 3951 3572 1249 8460 3758 3547 4970 2133 2094
Net NPA ratio 1.28 0.28 1.45 2.77 2.15 1.88 2.98 1.12 5.23 1.35 1.27 1.29 8.11 0.20 1.59 2.93 2.64 2.43 0.59
2328 1837 5628 4465 1543 6109 3265 3054 1104 5936 2575 3327 440 8161 2199 2049 3614 1957 1590
40762 27551 81333 78821 28844 96908 60752 27233 20096 34809 44241 47850 14171 103167 46295 49470 61831 25348 25618
21151 17517 43400 56013 13062 60421 27277 18546 11309 18360 25205 25299 6322 60413 26729 27656 40105 11390 14336
Punjab National 1895 Bank Syndicate Bank UCO Bank Union Bank of India United Bank of India Vijaya Bank 1925 1943 1919 1950 1931
Page 14
Old private Sector Banks Name of bank Bank of Rajasthan Bharat Overseas Bank Catholic Syrian Bank City Union Bank Development Credit Bank Dhanalakshmi Bank Federal Bank Ganesh Bank of Kurundwad ING Vysya Bank Jammu & Kashmir Bank Karnataka Bank Karur Vysya Bank Lakshmi Vilas Bank Lord Krishna Bank Nainital Bank Ratnakar Bank Sangli Bank SBI Comm. & Intl. Bank South Indian Bank Tamilnad Mercantile Bank United Western Bank Year of incorporation 1943 1973 1920 1904 1995** 1927 1931 -1930 1938 1924 1926 1926 1940 1922 1943 1948 1993 1929 1921 1936 No. of Offices 388 91 314 137 88 180 471 31 381 439 398 249 239 118 69 75 192 3 438 183 237 Networth 351 199 210 241 200 114 724 11 710 1665 978 761 230 181 76 45 85 88 456 559 244 Deposits 8120 2749 4021 3095 3895 2339 15193 217 12569 21645 10837 6672 3496 2176 933 784 1985 331 8492 4827 6453 Advances 2896 1651 2289 2013 2001 1410 8823 95 9081 11517 6287 4620 2318 1387 363 424 812 231 5365 2626 3976 Interest income 522 219 368 291 303 192 1191 18 991 1549 840 591 298 195 74 66 137 26 709 513 487 Net NPA ratio 2.50 1.56 3.80 3.37 6.83 3.92 2.21 8.32 2.13 1.41 2.29 1.66 4.98 4.22 0.00 5.54 4.30 7.65 3.81 2.95 5.97
Page 15
** Converted to a private sector commercial bank on 31st May, 1995. Started as a Credit Society set up by the followers of His Highness the Aga Khan in the 1930s and later converted into Cooperative Bank.
New Private Sector banks Name of bank Year of incorporation 1995 1994 1994 1994 1994 1995 1985 No. of Offices 120 77 446 519 157 127 54 Networth Deposits Advances Interest income 329 346 3093 9410 2656 1134 420 Net NPA ratio
Bank of Punjab* Centurion Bank HDFC Bank ICICI Bank IDBI Bank Ltd. IndusInd Bank Kotak Mahindra Bank UTI Bank Yes Bank
241 590 4520 12900 5929 830 757
4307 3530 36354 99819 15103 13114 4300
2417 2194 25566 91405 45414 9000 4017
4.64 2.51 0.24 1.65 1.74 2.71 1.56
1994 2003
249 3
2422 217
31712 663
15603 761
1924 30
1.39 0.00
* now merged with Centurion Bank
Page 16
Foreign Banks Name of bank No. of Offices 19 2 Networth Deposits Advances Interest income Net NPA ratio
ABM Amro Bank Abu Dhabi Commercial Bank American Express Bank Antwerp Diamond Bank Arab Bangladesh Bank Bank International Indonesia Bank of America Bank of Bahrain & Kuwait Bank of Ceylon Bank of Nova Scotia Bank of Tokyo Mitsubishi Barclays Bank BNP Paribas Calyon Bank Chinatrust Commercial Bank Cho Hung Bank
1347 71
7077 1663
9831 90
907 150
0.35 12.73
301
2264
1483
270
0.99
128
50
434
26
0.00
45
23
22
0.28
74
11
20
1.81
10.49
5 2
1437 67
1993 394
3219 264
257 34
0.00 5.53
1 5
54 257
104 1602
59 2053
8 159
13.76 3.08
369
532
559
57
0.01
1 9 4 1
698 333 328 45
75 1674 1306 48
2 1719 674 59
31 176 117 9
0.00 0.00 0.30 6.02
72
97
69
0.99
0.00
Page 17
Citibank DBS Bank Deutsche Bank Hongkong & Shanghai Banking Corpn. JP Morgan Chase Bank Krung Thai Bank Mashreq Bank Mizuho Corporate Bank Oman International Bank Societe Generale Sonali Bank Standard Chartered Bank State Bank of Mauritius UFJ Bank
35 1 5 39
3310 556 1232 3578
21484 611 3625 17013
18111 560 2541 12621
2203 30 390 1627
1.00 0.00 0.00 0.50
266
930
150
40
0.00
1 2 1
40 58 164
34 269 110
16 19 267
4 29 17
0.00 0.00 0.00
161
225
13
18
55.05
2 1 85
321 6 3234
527 22 22522
159 6 19970
37 1 2493
0.00 1.90 1.12
126
148
222
36
4.08
228
71
102
16
0.00
(Source: A profile on banks 2004-05, RBI))
The banks in India are operating through 55530 branches. All the banks together had the net worth of Rs. 149385 crores as on 31st March, 2005. The banks also had the deposit base of Rs. 1836985 crores and the advances of Rs. 1151113 crores taking the total business to Rs. 2988098 crores. During the year 2004-05 the banks had earned the interest income of Rs. 154761 crores. The average net NPA ratio of the banks was also less 3.84% in year 2005.
Future is bright:
The Information Technology (IT) is becoming an important component of the banking sector. The customers have become more demanding and they need value added services from the banks. The foreign banks have raised the expectations of the customers causing the bank to invest strongly on IT. The Indian banks have started to meet the expectations of the people by opening both onsite and offsite ATMs. Banks have also started telebanking, anytime/anywhere banking, mobile banking and Internet banking to give the facilities to the customers. Banks have also following the RBI sponsored technology programmes like mail messaging, Electronic fund transfers (EFT), Structured Financial Messaging System (SFMS), (Real Time Gross Settlement (RTGS), Centralized Fund Management System (CFMS) and Negotiated Dealing System / Public Debt Office (NDS/PDO). Banks have been given more teeth to tackle the Non performing assets by passing the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. Under this Act, the banks can take over the assets of the defaulters either by themselves or with the help of Court. The power is in addition to the power to recover through the Debt Recovery Tribunal. The Asset Reconstruction Companies have been formed which also take over the distress assets from the banks.
Page 19
NABAD Role in Banking Industries NABARD is set up as an apex Development Bank with a mandate for facilitating credit flow for promotion and development of agriculture, small-scale industries, cottage and village industries, handicrafts and other rural crafts. It also has the mandate to support all other allied economic activities in rural areas, promote integrated and sustainable rural development and secure prosperity of rural areas. In discharging its role as a facilitator for rural prosperity NABARD is entrusted with 1. Providing refinance to lending institutions in rural areas
2. Bringing about or promoting institutional development and
3. Evaluating, monitoring and inspecting the client banks
Besides this pivotal role, NABARD also:
Acts as a coordinator in the operations of rural credit institutions
Extends assistance to the government, the Reserve Bank of India and other organizations in matters relating to rural development
Offers training and research facilities for banks, cooperatives and organizations working in the field of rural development
Helps the state governments in reaching their targets of providing assistance to eligible institutions in agriculture and rural development
Acts as regulator for cooperative banks and RRBs
Extends assistance to the government, the Reserve Bank of India and other organizations in matters relating to rural development
Offers training and research facilities for banks, cooperatives and organizations working in the field of rural development
Helps the state governments in reaching their targets of providing assistance to eligible institutions in agriculture and rural development
Acts as regulator for cooperative banks and RRBs
Some of the milestones in NABARD's activities are: Refinance disbursement under ST-Agri & Others and MT-Conversion/ Liquidity support aggregated Rs.19452 crore during 2009-10. Refinance disbursement under Investment Credit to commercial banks, state cooperative banks, state cooperative agriculture and rural development banks, RRBs and other eligible financial institutions during 2009-10 aggregated Rs.12009.08 crore.
Through the Rural Infrastructure Development Fund (RIDF) Rs.12387.54 crores were disbursed during 2009-10. With this, a cumulative amount of Rs.86939.74 crore has been disbursed as on 31 March 2010 covering irrigation, rural roads and bridges, health and education, soil conservation, drinking water schemes, flood protection, forest management and the Bharat Nirman Project (BNP).
Under Watershed Development Fund with a corpus of Rs.1102 crore as on 31 March 2008, 513 projects in 14 states have benefited. Farmers now enjoy hassle free access to credit and security through 906.40 lakh Kisan Credit Cards that have been issued through a vast rural banking network. Under the Farmers' Club Programme, a total of 54805 clubs covering 104648 villages in 587 districts have been formed, helping farmers get access to credit, technology and extension services.
Page 21
NABARD MISSINON Promoting sustainable and equitable agriculture and rural development through effective credit support, related services, institution building and other innovative initiatives.
In pursuing this mission, NABARD focuses its activities on:
Credit functions, involving preparation of potential-linked credit plans annually for all districts of the country for identification of credit potential, monitoring the flow of ground level rural credit, issuing policy and operational guidelines to rural financing institutions and providing credit facilities to eligible institutions under various programmes
Development functions, concerning reinforcement of the credit functions and making credit more productive
Supervisory functions, ensuring the proper functioning of cooperative banks and regional rural banks
NABARD OBJECTIVES NABARD was established in terms of the Preamble to the Act, "for providing credit for the promotion of agriculture, small scale industries, cottage and village industries, handicrafts and other rural crafts and other allied economic activities in rural areas with a view to promoting IRDP and securing prosperity of rural areas and for matters connected therewith in incidental thereto".
The main objectives of the NABARD as stated in the statement of objectives while placing the bill before the Lok Sabha were categorized as under :
1. The National Bank will be an apex organisation in respect of all matters relating to policy, planning operational aspects in the field of credit for promotion of Agriculture, Small Scale Industries, Cottage and Village Industries, Handicrafts and other rural crafts and other allied
economic activities in rural areas.
2. The Bank will serve as a refinancing institution for institutional credit such as long-term, short-term for the promotion of activities in the rural areas.
3. The Bank will also provide direct lending to any institution as may approved by the Central Government.
4. The Bank will have organic links with the Reserve Bank and maintain a close link with in.
Major Activities Preparing of Potential Linked Credit Plans for identification of exploitable potentials under agriculture and other activities available for development through bank credit.
Refinancing banks for extending loans for investment and production purpose in rural areas.
Providing loans to State Government/Non Government Organizations (NGOs)/Panchayati Raj Institutions (PRIs) for developing rural infrastructure.
Supporting credit innovations of Non Government Organizations (NGOs) and other nonformal agencies.
Extending formal banking services to the unreached rural poor by evolving a supplementary credit delivery strategy in a cost effective manner by promoting Self Help Groups (SHGs)
Promoting participatory watershed development for enhancing productivity and profitability of rainfed agriculture in a sustainable manner.
On-site inspection of cooperative banks and Regional Rural Banks (RRBs) and iff-site surveillance over health of cooperatives andRRBs.
Role and Functions NABARD is an apex institution accredited with all matters concerning policy, planning and operations in the field of credit for agriculture and other economic activities in rural areas.
It is an apex refinancing agency for the institutions providing investment and production credit for promoting the various developmental activities in rural areas
It takes measures towards institution building for improving absorptive capacity of the credit delivery system, including monitoring, formulation of rehabilitation schemes, restructuring of credit institutions, training of personnel, etc.
It co-ordinates the rural financing activities of all the institutions engaged in developmental work at the field level and maintains liaison with Government of India, State Governments, Reserve Bank of India and other national level institutions concerned with policy formulation.
It prepares, on annual basis, rural credit plans for all districts in the country; these plans form the base for annual credit plans of all rural financial institutions
It undertakes monitoring and evaluation of projects refinanced by it.
It promotes research in the fields of rural banking, agriculture and rural development
Page 24
LENDING TO PRIORITY SECTOR
At a meeting of the National Credit Council held in July 1968, it was emphasized that commercial banks should increase their involvement in the financing of priority sectors, viz., agriculture and small scale industries. The description of the priority sectors was later formalized in 1972 on the basis of the report submitted by the Informal Study Group on Statistics relating to advances to the Priority Sectors constituted by the Reserve Bank in May 1971. On the basis of this report, the Reserve Bank prescribed a modified return for reporting priority sector advances and certain guidelines were issued in this connection indicating the scope of the items to be included under the various categories of priority sector. Although initially there was no specific target fixed in respect of priority sector lending, in November 1974 the banks were advised to raise the share of these sectors in their aggregate advances to the level of 33 1/3 per cent by March 1979.
At a meeting of the Union Finance Minister with the Chief Executive Officers of public sector banks held in March 1980, it was agreed that banks should aim at raising the proportion of their advances to priority sectors to 40 per cent by March 1985. Subsequently, on the basis of the recommendations of the Working Group on the Modalities of Implementation of Priority Sector Lending and the Twenty Point Economic Programmed by Banks, all commercial banks were advised to achieve the target of priority sector lending at 40 per cent of aggregate bank advances by 1985. Sub-targets were also specified for lending to agriculture and the weaker sections within the priority sector. Since then, there have been several changes in the scope of priority sector lending and the targets and sub-targets applicable to various bank groups.
On the basis of the recommendations of the Internal Working Group, set up in Reserve Bank to examine, review and recommend changes, if any, in the existing policy on priority sector lending including the segments constituting the priority sector, targets and sub-targets, etc. and the comments/suggestions received thereon from banks, financial institutions, public and the Indian Banks Association (IBA), it has been decided to include only those sectors that impact large segments of population & the weaker sections, and which are employment-intensive, as part of the priority sector.
Page 25
I. CATEGORIES OF PRIORITY SECTOR The broad categories of priority sector for all scheduled commercial banks are as under: (i) Agriculture (Direct and Indirect finance): Direct finance to agriculture shall include short, medium and long term loans given for agriculture and allied activities directly to individual farmers, Self-Help Groups (SHGs) or Joint Liability Groups (JLGs) of individual farmers without limit and to others (such as corporates, partnership firms and institutions) up to Rs. 20 lakh, for taking up agriculture/allied activities. Small Scale Industries (Direct and Indirect Finance): Direct finance to small scale industries (SSI) shall include all loans given to SSI units which are engaged in manufacture, processing or preservation of goods and whose investment in plant and machinery (original cost) excluding land and building does not exceed the amounts specified in Section I, appended. Indirect finance to SSI shall include finance to any person providing inputs to or marketing the output of artisans, village and cottage industries, handlooms and to cooperatives of producers in this sector. Small Business / Service Enterprises shall include small business, retail trade, professional & self employed persons, small road & water transport operators and other service enterprises as per the definition given in Section I and other enterprises that are engaged in providing or rendering of services, and whose investment in equipment does not exceed the amount specified in Section I, appended.
(ii)
(iii)
(iv)
Micro Credit: Provision of credit and other financial services and products of very small amounts not exceeding Rs. 50,000 per borrower to the poor in rural, semi-urban and urban areas, either directly or through a group mechanism, for enabling them to improve their living standards, will constitute micro credit. Education loans: Education loans include loans and advances granted to only individuals for educational purposes up to Rs. 10 lakh for studies in India and Rs. 20 lakh for studies abroad, and do not include those granted to institutions;
(v)
(vi)
Housing loans: Loans up to Rs. 15 lakh for construction of houses by individuals, (excluding loans granted by banks to their own employees) and loans given for repairs to the damaged houses of individuals up to Rs.1 lakh in rural and semi-urban areas and up to Rs.2 lakh in urban areas.
Page 26
(2) Investments by banks in securitised assets, representing loans to agriculture (direct or indirect), small scale industries (direct or indirect) and housing, shall be eligible for classification under respective categories of priority sector (direct or indirect) depending on the underlying assets, provided the securitised assets are originated by banks and financial institutions and fulfil the Reserve Bank of India guidelines on securitisation. (3) The targets and sub-targets under priority sector lending would be linked to Adjusted Net Bank Credit (Net Bank Credit plus investments made by banks in non-SLR bonds held in HTM category) or Credit Equivalent of Off-Balance Sheet Exposures, whichever is higher, as on March 31 of the previous year. (4) In order to encourage banks to increasingly lend directly to the priority sector borrowers, the banks' deposits placed with NABARD/SIDBI on account of non-achievement of priority sector lending targets would not be eligible for classification as indirect finance to agriculture/SSI, as the case may be. II. TARGETS/SUB-TARGETS The targets and sub-targets set under priority sector lending for domestic and foreign banks operating In India are furnished below:
Total Priority Sector advances
Total agricultural advances
Domestic commercial banks 40 per cent of Adjusted Net Bank Credit (ANBC) or credit equivalent amount of OffBalance Sheet Exposure, whichever is higher. 18 per cent of ANBC or credit equivalent amount of Off Balance Sheet Exposure, whichever is higher Of this, indirect lending in excess of 4.5% of ANBC or credit equivalent amount of OffBalance Sheet Exposure, whichever is higher, will not be reckoned for computing performance under 18 per cent target. However, all agricultural advances under the categories 'direct' and 'indirect' will be reckoned in computing performance under
Foreign banks 32 per cent of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher No target.
Page 27
SSI advances
Micro enterprises within SSI
Export credit
the overall priority sector target of 40 per cent of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher Advances to SSI sector will be reckoned in computing performance under the overall priority sector target of 40 per cent of ANBC or credit equivalent amount of OffBalance Sheet Exposure, whichever is Higher. (i) 40 per cent of total SSI advances should go to units having investment in plant and machinery up to Rs 5 lakh, (ii) 20 per cent of total SSI advances should go to units with investment in plant & machinery between Rs 5 lakh and Rs. 25 lakh (Thus, 60 per cent of SSI advances should go to the micro enterprises). Export credit is not a part of priority sector for domestic commercial banks.
10 per cent of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher
Same as for domestic banks
Advances to weaker sections Differential Rate of Interest Scheme
10 per cent of ANBC or credit equivalent amount of OffBalance Sheet Exposure, whichever is higher. 1% of total advances No target outstanding as at the end of the previous year. It should be ensured that not less than 40 per cent of the total advances granted under DRI scheme go to scheduled caste/scheduled tribes. At least two third of DRI advances should be granted through rural and semi-urban branches.
12 per cent of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher No target
Page 28
Agricultural Direct Finance and Indirect Finance
DIRECT FINANCE Finance to individual Farmers [including Self Help Groups (SHGs) or Joint Liability Group (JLGs), i.e. groups of individual farmers] for Agriculture and Allied Activities
Short-term loans for raising crops, i.e. for crop loans. This will include traditional/nontraditional plantations and horticulture. Advances up to Rs. 10 lakh against pledge/hypothecation of agricultural produce (including warehouse receipts) for a period not exceeding 12 months, irrespective of whether the farmers were given crop loans for raising the produce or not.
Working capital and term loans for financing production and investment requirements for agriculture and allied activities. Loans to small and marginal farmers for purchase of land for agricultural purposes.
Loans to distressed farmers indebted to non-institutional lenders, against appropriate collateral or group security. Loans granted for pre-harvest and post-harvest activities such as spraying, weeding, harvesting, grading, sorting, processing and transporting undertaken by rural and semi urban households or groups/cooperatives of rural and semi-urban households.
Finance to others up to an aggregate amount of Rs. 20 lakh per borrower for the purposes listed at 1.1.1 to 1.1.3 above.
Page 29
INDIRECT FINANCE Finance for Agriculture and Allied Activities Loans to entities covered less than 1.2 above in excess of Rs. 20 lakh in aggregate per borrower for agriculture and allied activities. In such cases, the entire amount outstanding shall be treated as indirect finance for agriculture. Loans to food and agro-based processing units with investments in plant and machinery up to Rs. 10 crore, undertaken by other than rural and semi-urban households.
Loans to Non-Banking Financial Companies (NBFCs) for on lending to individual farmers. (i) Credit for purchase and distribution of fertilisers, pesticides, seeds, etc. (ii) Loans up to Rs. 40 lakh granted for purchase and distribution of inputs for the allied activities such as cattle feed, poultry feed, etc.
Finance for setting up of Agriclinics and Agribusiness Centres. Finance for hire-purchase schemes for distribution of agricultural machinery and implements. Loans to farmers through Primary Agricultural Credit Societies (PACS), Farmers Service Societies (FSS) and Large-sized Adivasi Multi Purpose Societies (LAMPS). Loans to cooperative societies of farmers for disposing of the produce of members.
Financing the farmers indirectly through the co-operative system (otherwise than by subscription to bonds and debenture issues) provided a certificate from the State Cooperative Bank/State Cooperative Agriculture and Rural Development Bank (SCARDB), as the case may be, is produced, certifying the end use of such loans. Investments by banks in special bonds issued by NABARD with the objective of financing exclusively agriculture/allied activities (not eligible for classification under priority sector lending with effect from April 1, 2007)
Page 30
Loans for construction and running of storage facilities (warehouse, market yards, god owns, and silos), including cold storage units designed to store agriculture produce/products, irrespective of their location. If the storage unit is registered as SSI unit, the loans granted to such units may be classified under advances to SSI, provided the investment in plant and machinery is within the stipulated ceiling. Advances to Customs Service Units managed by individuals, institutions or organizations who maintain a fleet of tractors, bulldozers, well-boring equipment, threshers, combines, etc., and undertake work for farmers on contract basis.
Finance extended to dealers in drip irrigation/sprinkler irrigation system/agricultural machinery, irrespective of their location, subject to the following conditions:(a) The dealer should be dealing exclusively in such items or if dealing in other products, should be maintaining separate and distinct records in respect of such items. (b) A ceiling of up to Rs. 30 lakh per dealer should be observed. Loans to Arthias (commission agents in rural/semi-urban areas functioning in markets/mandies) for extending credit to farmers, for supply of inputs as also for buying the output from the individual farmers/ SHGs/ JLGs.
Fifty per cent of the credit outstanding under loans for general purposes under General Credit Cards (GCC).
Page 31
SMALL SCALE INDUSTRIES
DIRECT FINANCE
Direct Finance in the small scale industry sector will include credit to: Small Scale Industries: Units engaged in the manufacture, processing or preservation of goods and whose investment in plant and machinery (original cost) excluding land and building does not exceed Rs. 5 crore. Micro Enterprises: Small scale units whose investment in plant and machinery (original cost) excluding land and building is up to Rs. 25 lakh, irrespective of the location of the unit, are treated as Micro Enterprises. KVI Sector: All advances granted to units in the KVI sector, irrespective of their size of operations, location and amount of original investment in plant and machinery. Such advances will be eligible for consideration under the sub-target (60 per cent) of the SSI segment within the priority sector.
INDIRECT FINANCE Indirect finance in the small-scale industrial sector will include credit to:
Persons involved in assisting the decentralised sector in the supply of inputs to and marketing of outputs of artisans, village and cottage industries. Advances to cooperatives of producers in the decentralised sector viz. artisans village and cottage industries.
Subscription to bonds issued by NABARD with the objective of financing exclusively nonfarm sector (not eligible for classification under priority sector lending with effect from April 1, 2007). Loans granted by banks to NBFCs for on lending to SSI sector.
Page 32
SMALL BUSINESS / SERVICE ENTERPRISES Loans granted to small business and service enterprises such as, Small Road and Water Transport Operators, Small Business, Professional & Self Employed Persons, etc. engaged in providing/rendering of services (which are industry or non-industry related), and whose investment in equipment (original cost and excluding land and building) does not exceed Rs. 2 crore. Advances granted to retail traders dealing in essential commodities (fair price shops), consumer co-operative stores, and; (ii) Advances granted to private retail traders with credit limits not exceeding Rs. 20 lakh.
Loans to NBFCs for the purpose of on-lending to various categories of small business and service enterprises.
MICRO CREDIT Loans of very small amount not exceeding Rs. 50,000 per borrower, provided by banks to the poor in rural, semi-urban and urban areas, either directly or through a group mechanism, for enabling them to improve their living standards. Loans to urban poor indebted to informal sector Loans to distressed urban poor to prepay their debt to lenders in the informal sector would be eligible for classification under priority sector. Urban poor for this purpose may include those families in the urban areas who are below the poverty line. Such loans to urban poor may be classified under weaker sections within the priority sector.
STATE SPONSORED ORGANIZATIONS FOR SCHEDULED CASTES/SCHEDULED TRIBES Advances sanctioned to State Sponsored Organizations for Scheduled Castes/ Scheduled Tribes for the specific purpose of purchase and supply of inputs to and/or the marketing of the outputs of the beneficiaries of these organizations.
EDUCATION Educational loans should include only loans and advances granted to individuals for educational purposes up to Rs. 10 lakh for studies in India and Rs. 20 lakh for studies abroad, and not those granted to institutions.
Page 33
HOUSING Loans up to Rs. 15 lakh, irrespective of location, for construction of houses by individuals, excluding loans granted by banks to their own employees. Loans given for repairs to the damaged houses of individuals up to Rs. 1 lakh in rural and Semi-urban areas and up to Rs. 2 lakh . Assistance up to Rs. 1.25 lakh per housing unit given to any governmental agency/ nongovernmental agency (approved by the NHB for the purpose of refinance) for construction/reconstruction of houses or for slum clearance and rehabilitation of slum dwellers.
Weaker Sections The weaker sections under priority sector shall include the following: a) Small and marginal farmers with land holding of 5 acres and less, and landless labourers, tenant farmers and share croppers. b) Artisans, village and cottage industries where individual credit limits do not exceed Rs. 50,000. c) Beneficiaries of Swarnjayanti Gram Swarozgar Yojana (SGSY). d) Scheduled Castes and Scheduled Tribes. e) Beneficiaries of Differential Rate of Interest (DRI) scheme. f) Beneficiaries under Swarna Jayanti Shahari Rozgar Yojana (SJSRY). g) Beneficiaries under the Scheme for Liberation and Rehabilitation of Scavangers (SLRS). h) Advances to Self Help Groups. i) Loans to distressed urban/rural poor to prepay their debt to non-institutional lenders, against appropriate collateral or group security.
Export Credit This category will form part of priority sector for foreign banks only.
Page 34
PENALTIES FOR NON-ACHIEVEMENT OF PRIORITY SECTOR LENDING TARGET / SUBTARGETS Domestic scheduled commercial banks Contribution by banks to Rural Infrastructure Development Fund (RIDF): Domestic scheduled commercial banks having shortfall in lending to priority sector target (40 per cent of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher) and / or agriculture target (18 per cent of ANBC or credit equivalent amount of Off Balance Sheet Exposure, whichever is higher) shall be allocated amounts for contribution to the Rural Infrastructure Development Fund (RIDF) established with NABARD. The concerned banks will be called upon by NABARD, on receiving demands from various State Governments, to contribute to RIDF. The corpus of a particular tranche of RIDF is decided by Government of India every year. Fifty per cent of the corpus shall be allocated among the domestic commercial banks having shortfall in lending to priority sector target of 40 per cent of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher, on a pro-rata basis, and fifty per cent of the corpus shall be allocated among the banks having shortfall in lending to agriculture target of 18 per cent of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher, on a pro-rata basis. The amount of contribution by banks to a particular tranche of RIDF will be decided in the beginning of the financial year.
The interest rates on banks contribution to RIDF shall be fixed by Reserve Bank of India from time to time. Details regarding operationalisation of the RIDF such as the amounts to be deposited by banks, interest rates on deposits, period of deposits etc., will be communicated to the concerned banks separately by August of each year to enable them to plan their deployment of funds.
Page 35
Foreign Banks Deposit by Foreign Banks with SIDBI
The foreign banks having shortfall in lending to stipulated priority sector target/subtargets will be required to contribute to Small Enterprises Development Fund (SEDF) to be set up by Small Industries Development Bank of India (SIDBI). The corpus of SEDF shall be decided by Reserve Bank of India on a year to year basis. The tenor of the deposits shall be for a period of three years or as decided by Reserve Bank from time to time. Fifty per cent of the corpus shall be contributed by foreign banks having shortfall in lending to priority sector target of 32 per cent of ANBC or credit equivalent amount of Off Balance Sheet Exposure, whichever is higher, on a pro-rata basis, and fifty per cent of the corpus shall be contributed by foreign banks having aggregate shortfall in lending to SSI sector and export sector of 10 per cent and 12 per cent respectively, of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher, on a pro-rata basis.
The concerned foreign banks will be called upon by SIDBI, as and when required by them, to contribute to SEDF, after giving one months notice. The interest rates on foreign banks contribution to SEDF shall be fixed by the Reserve Bank of India from time to time.
COMMON GUIDELINES FOR PRIORITY SECTOR ADVANCES Banks should follow the following common guidelines prescribed by the Reserve Bank for all Categories of advances under the priority sector. PROCESSING OF APPLICATIONS Completion of Application Forms: In case of Government sponsored schemes such as SGSY, the concerned project authorities like DRDAs, DICs, etc. should arrange for completion of application forms received from borrowers. In other areas, the bank staff should help the borrowers for this purpose. Issue of Acknowledgement of Loan Applications: Banks should give acknowledgement for loan applications received from weaker sections. Towards this purpose, it may be ensured that all loan application forms have perforated portion for acknowledgement to be completed and issued by the receiving branch. Each branch may affix on the main application form as well as the corresponding portion for acknowledgement, a running
Page 36
serial number. While using the existing stock of application forms which do not have a perforated portion for acknowledgement is separately given, care should be taken to ensure that the serial number given on the acknowledgement is also recorded on the main application. The loan applications should have a check list of documents required for guidance of the prospective borrowers.
Disposal of Applications: (I) All loan applications up to a credit limit of Rs. 25,000/should be disposed of within a fortnight and those for over Rs. 25,000/-, within 4 weeks. (ii) All loan applications for SSI up to a credit limit of Rs. 25,000/- should be disposed of within 2 weeks and those up to Rs. 5 lakh within 4 weeks, provided the loan applications are complete in all respects and are accompanied by a 'check list'. Rejection of Proposals: Branch Managers may reject applications (except in respect of SC/ST) provided the cases of rejection are verified subsequently by the Divisional/Regional Managers. In the case of proposals from SC/ST, rejection should be at a level higher than that of Branch Manager. Register of Rejected Applications: A register should be maintained at the branch, wherein the date of receipt, sanction/rejection/disbursement with reasons therefore, etc., should be recorded. The register should be made available to all inspecting agencies.
MODE OF DISBURSEMENT OF LOAN With a view to providing farmers wider choice as also eliminating undesirable practices, banks may disburse all loans for agricultural purposes in cash which will facilitate dealer choice to borrowers and foster an environment of trust. However, banks may continue the practice of obtaining receipts from borrowers. REPAYMENT SCHEDULE Repayment programme should be fixed taking into account the sustenance requirements, surplus generating capacity, the break-even point, the life of the asset, etc.,and not in an "ad hoc" manner. In respect of composite loans, repayment schedule may be fixed for term loan component only. As the repaying capacity of the people affected by natural calamities gets severely impaired due to the damage to the economic pursuits and loss of economic assets, the benefits such as restructuring of existing loans, etc. as envisaged under our circular RPCD.CO.PLFS.NO. BC 16/05.04.02/2006-07 dated August 9, 2006 may be extended to the affected borrowers.
Page 37
RATES OF INTEREST
The rates of interest on various categories of priority sector advances will be as per RBI directives issued from time to time. In respect of direct agricultural advances, banks should not compound the interest in the case of current dues, i.e. crop loans and instalments not fallen due in respect of term loans, as the agriculturists do not have any regular source of income other than sale proceeds of their crops
When crop loans or instalments under term loans become overdue, banks can add interest to the principal. Where the default is due to genuine reasons banks should extend the period of loan or reschedule the installments under term loan. Once such a relief has been extended, the over dues become current dues and banks should not compound interest.
Banks should charge interest on agricultural advances in respect of long duration crops, at annual rests instead of quarterly or longer rests, and could compound the interest, if the loan/installment becomes overdue.
PENAL INTEREST
The issue of charging penal interests that should be levied for reasons such as default in repayment, non-submission of financial statements, etc. has been left to the Board of each bank. Banks have been advised to formulate policy for charging such penal interest with the approval of their Boards, to be governed by well accepted principles of transparency, fairness, incentive to service the debt and due regard to difficulties of customers. No penal interest should be charged by banks for loans under priority sector up to Rs 25,000 as hitherto. However, banks will be free to levy penal interest for loans exceeding Rs 25,000, in terms of the above guidelines.
Page 38
SERVICE CHARGES / INSPECTION CHARGES No service charges/inspection charges should be levied on priority sector loans up to Rs.25,000/-. For loans above Rs. 25,000/- banks will be free to prescribe service charges with the prior approval of their Boards, in terms of circular No. DBOD.Dir.BC.86/03.01.00/99-2000 dated September 7, 1999.
INSURANCE AGAINST FIRE AND OTHER RISKS Banks may waive insurance of assets financed by bank credit in the following cases: No. (a) (b) Category All categories of priority sector advances up to and inclusive of Rs. 10,000/Advances to SSI sector up to and inclusive of Rs. 25,000/- by way of Composite loans to artisans, village and cottage industries All term loans Working capital where these are against non-hazardous goods Type of Risk Fire & other risks Fire Type of Assets Equipment and current assets Equipment and current Assets, Equipment, Current Assets
Where, however, insurance of vehicle or machinery or other equipment/assets is compulsory under the provisions of any law or where such a requirement is stipulated in the refinance scheme of any refinancing agency or as part of a Government-sponsored programmes such as SGSY, insurance should not be waived even if the relative credit facility does not exceed Rs. 10,000/- or Rs. 25,000/-, as the case may be
PHOTOGRAPHS OF BORROWERS While there is no objection to taking photographs of the borrowers for purposes of identification, banks themselves should make arrangements for the photographs and also bear the cost of photographs of borrowers falling in the category of Weaker Sections. It should also be ensured that the procedure does not involve any delay in loan disbursement. DISCRETIONARY POWERS All Branch Managers of banks should be vested with discretionary powers to sanction proposals from weaker sections without reference to any higher authority. If there are difficulties in extending such discretionary powers to all the Branch Managers, such powers should exist at
least at the district level and arrangements be ensured that credit proposals on weaker sections are cleared promptly
MACHINERY TO LOOK INTO COMPLAINTS There should be machinery at the regional offices to entertain complaints from the borrowers if the branches do not follow these guidelines, and to verify periodically that these guidelines are scrupulously implemented by the branches.
AMENDMENTS These guidelines are subject to any instructions that may be issued by the RBI from time to time
Page 40
Company profile
Government of India (GoI) Undertaking & Historical Events IDBI Bank Ltd. (IDBI) is one of India's larger commercial Banks and for over 40 years it has essayed a key nation-building role, first as the apex Development Financial Institution (DFI) (July 1, 1964 to September 30, 2004) in the realm of industry and thereafter as a full-service commercial Bank (October 1, 2004 onwards). Post merger of erstwhile IDBI Bank with its parent company (IDBI Ltd.) and The United Western Bank Ltd. undertook the entire gamut of banking activities while continuing to play its secular DFI role. New Initiative IDBI is poised to become one of the 'TOP 5' banks in terms of asset size with reorganization of business model by FY12. Moving towards this goal, IDBI has taken several steps like focusing on retail segment and leveraging government and industrial relationships for future business growth. IDBI has reorganized its businesses around nine verticals consisting of six customer verticals and three business verticals, each focusing on distinct customer segments. To increase its global presence IDBI has set up an overseas branch at Dubai and also plans to open representative offices across the globe. IDBI formed subsidiaries & joint ventures across diverse areas of Banking & Financial System. IDBI Capital Market Services A wholly owned subsidiary, offers a full suite of financial products. Its business includes stock broking, distribution of financial products, Portfolio management of Pension / PF funds & Research services, etc. IDBI Gilts Ltd. A wholly owned subsidiary presently focuses on Bond trading, underwriting in auctions of G-sec and T-bills. IDBI Intech Ltd. A wholly owned subsidiary, deals in the Information Technology Services, Information Security Practice, Knowledge Management Services.
Page 41
IDBI Home Finance A wholly owned subsidiary, deals in the Home finance arena.
IDBI Asset Management Asset Management Company of IDBI Mutual Fund is a whollyowned subsidiary of IDBI Bank Ltd. Its mission is to promote financial inclusion, by assisting in investment choices, through mutual funds.
IDBI Federal Life Insurance Company Ltd. A joint venture with Federal Bank and Fortis Insurance International. It primarily deals in Life insurance space.
Management Brief MR. R.M Malla who has track record of turning around IFCI from serious liquidity crisis to comfortable liquidity position and helping SIDBI's business to increase three fold during his tenure, has been appointed as a new CMD of IDBI Bank Ltd. Mr. Malla is supported by Mr. B. P. Singh who is the Deputy Managing Director and Mr. P. Sitaram the CFO of IDBI Bank Ltd.
Industry Outlook Sector at Glance Over the last few years Indian banks in comparison to its global peers have performed well on growth, asset quality and profitability. To strengthen the banking sector, policy makers have made some notable changes in policy and regulation, which has helped it to overcome the global financial crisis. Following the financial crisis, new deposits have gravitated towards public sector banks which account 50.5% of the aggregate deposits. With respect to gross bank credit also, nationalized banks hold the highest share of 50.5% in the total bank credit. Other scheduled commercial banks at 17.8%, foreign banks and regional rural banks had a share of 5.5% and 2.5% respectively in the total bank credit.
Page 42
Favourable economic conditions for Indian banking industry The macro picture for India has been constructive with GDP (8.8% in Q1FY11) and industrial production (13.8% in July 2010) registering a stronger growth. Indian economy is expected to register ~8.5% in FY11 (IMF forecast of 9.7%) and double digit growth in next 5-10 years which will support the banking industry. In future the increase in domestic consumption demand will strengthen the growth of banking industry.
Infrastructure sector to boost growth According to BCG report, Infrastructure debt will surpass INR 45 tn (2020) half of which will be on bank's books. It will touch the Asset Liability Management (ALM) limits of banks and will require a significant upgrade of banks' risk management systems. Also banks to discover the importance of the Small and Medium Enterprises (SME) segment for profitability and growth and new models to serve SME segment will be found
Evolving Indian income demographics According to BCG report evolving income demographics will spur new demand for banking industry and rapid accumulating of wealth will drive weal the management business to 10X size.
Channel penetration to drive business growth In comparison to the other countries channel (interms of branches & ATMs) penetration in India is low. This will accentuate the demand for low cost banking solutions, branches and ATMs need to grow 2x and 5x (Source BCG).This provide huge opportunity for banking industry to expand its business.
Low Channel Penentration in India The strong credit growth of ~20% in the industry is expected to continue in future on the back of strong demand for capex, infrastructure and agriculture. Banks are on expansion spree as the RBI has sanctioned licenses to banks which will be focusing more on rural and unbanked areas. By expanding branch network banks are expected to improve their margins by increasing their
CASA base. Moreover recapitalization measures (infusing INR 165 Bn) initiated by the government will improve balance sheet strength of the weaker banks, which will help them to expand their business and provide stability to the banking system. Also the introduction of Basel III norms (FY13-16) is unlikely to impact the Indian banking industry, given the current high capital adequacy norms.
Capital Infusion to drive business growth Tier I capital of IDBI Bank as on 31st March 2010 stands at 6.2% is far below the RBI's stipulated level of 8%. To raise the Tier I capital within RBI limit, the government of India infused INR 31 Bn in IDBI through preferential placement of equity at the prevailing market price of INR 120. This infusion will increase the Tier I capital to 8% and Government of India's (GoI) holding to ~65%. Moreover, the increase in government holding would provide headroom for the bank to raise further capital through FPO, there by maintaining the required minimum government holding at the previous levels of 52%. However, management has stated that FPO would depend on internal capital requirement of the bank and market conditions. This also provides an opportunity for bank to raise capital through Tier II and innovative perpetual debt instruments. Capital infusion might dilute the EPS, but it will help in improving the margins and achieve its lending targets and to strengthen IDBI's balance sheet.
Capital Adequacy Ratio With the capital infusion, IDBI would be in position to grow its business above the industry average. We believe that the total business of IDBI will grow at CAGR of 29% from FY09 to FY12E. We expect strong growth prospects in the infrastructure sector supported by the government spending of INR 1 Turnover FY17E. IDBI loan book substantially consists of corporate lending and we expect IDBI to continue to focus on corporate segment with infrastructure lending as major growth driver. IDBI is also focusing more on Agriculture, Micro Small and Medium Enterprises (MSME) and Retail segment to exploit potential of these high yielding segments. Also IDBI will continue to invest in retail business which would begin to gain traction over the medium to long term and further diversify the fee based revenue streams. IDBI's business model of tapping wholesale banking potential to generate revenues while continuing to invest in long gestation retail liability franchisee is remarkable. This has enabled IDBI to scale up its balance sheet and infrastructure and at the same time deliver impressive return ratios, giving comfort on both near term profitability as well as long term growth potential.
Page 44
IDBI to roll out more branches In FY11, bank is expected to open ~260 branches and 80% of these banks will be opened in the CASA rich northern and southern region of the country. These branches are expected to focus more on Agriculture and MSME segment in a bid to accelerate revenue growth in future. Branch expansion will enable to improve its CASA ratio and will help IDBI to achieve financial inclusion as well and increase its CASA per branch ratio. In order to increase its geographical presence, IDBI has opened a branch at Dubai, which will provide a full range of corporate banking services including financial advisory and syndication of credit. The branch will meet the corporate financing needs of not only its vast Indian clientele but also clients in the Middle-East. This will provide a strong foothold for IDBI to increase its global presence going forward. It has initiated the process of setting up branch offices at Singapore and representative office at Shanghai.
Focus on Current Account and Saving Account (CASA) growth - near inflexion point IDBI's CASA ratio remains one of the lowest in the industry at 14.6% during FY10. Historically, IDBI has been depending on borrowings to support its lending business. With change in its strategy IDBI is emphasizing on deposits to support its lending business. We expect deposits of IDBI to grow at CAGR of 29% over FY09-12E and this will result in lower costs as CASA deposits would be the target. The CASA ratio we estimate to increase from 14.78% in FY09 to 22% by FY12E.
CASA growth drivers We believe that 100% Core banking solution (CBS) provided by the bank will help it to bring more current account deposits. Moreover, waiving of all charges on a host of services will increase low cost of deposits. These efforts will not only retain customers but also increase its customer base which in turn will improve CASA deposits. Also management is trying to build stronger product portfolio and increase its service quality. Near doubling of branch network will act as a major contributor in the growth of low cost deposits over medium to long term.
Solving legacy Issues IDBI has brought forward many non performing assets from its erstwhile domestic financial institution business to its current business model, which was weighing a little heavy on its
balance sheet. Periodically, legacy NPA accounts have showed on the profitability of the bank, but with sustain efforts bank has been able to reduce these NPAs considerably. Going forward, we believe IDBI will be taking care of these accounts inorder to clean up its balance sheet and improve asset quality. We expect Gross NPAs & Net NPAs to decline to 1.46% and 0.77% in FY12E from 1.54% and 1.02% in FY10 respectively.
New Management to act as a catalyst to growth We believe that one of the key strength of IDBI bank has been experienced management team which has the ability to scale IDBI's business model. Also, recent change in the management to bring fresh approach to IDBI's business model; will get reflected positively over long term.
Improved Productivity IDBI has consistently improved its performance through optimum utilization of staff and branches. Also IDBI has highest Business per employee ratio which we expect it to continue in future. To further improve staff productivity, various steps have been taken by the bank: like specialized training, recruitment of specialized officers & new talent, incentive schemes, customer centric grooming etc.
Business per Employee IDBI's total business per employee improved to INR 250 Mn in FY10 from 211 in FY09 and profit per employee maintained at 0.84 Mn in FY10. Going forward, we expect business per employee to increase to INR 333 Mn in FY12E and profit per employee toimprove to 1.61 Mn in FY12E.
Per Employee Profitability They expect IDBI bank to post a 38% CAGR (FY09-12E) growth in bottom line driven by a 25% CAGR (FY09-12E) in total assets, healthy NIMs, superior fee income. We have forecasted improvement in CASA which we believe has the potential to surprise positively. We expect Net Interest Income to grow by 73%, while operating profit to grow 62% CAGR (FY09-12E) respectively
Page 46
NIMs Bank's thrust to garner more shares of CASA deposits in its total deposits which will enhance its NIMs. This will largely be helped by reducing cost of deposits which is currently at 6.5%, we expect a further reduction by 40 bps in cost of deposits and lead to an expansion in NIMs to 1.8% in FY11E and 2.31% in FY12E from 1.23% in FY10.
ROE & ROAA Due to better yields, growth in advances and improving profitability and better NIM see expect, return on equity (RoE) to improve to 11.78% in FY11E and 14.57% in FY12E respectively from 10.53% in FY10. Also return on average assets (RoAA) to improve to 0.57% & 0.74% in FY11E & FY12E respectively from 0.51% in FY10.
Operating Costs as percentage of assets Operating costs as a percentage of total assets are likely to trend higher on back of investments made in expanding branch network and staff. Further higher focus no retail assets would also increase bank's overhead costs. However, in future these investments will result in higher profits for IDBI.
GNPA & NNPA Asset quality has been a concern for IDBI due to legacy issues. Going forward, we expect IDBI to take appropriate measures to reduce its NPA levels. We expect Gross NPAs to reduce to 1.46% in FY12E from 1.54% in FY10 and Net NPAs to reduce considerably to 0.77% in FY12E from 1.02% in FY10
Investments IDBI has been maintaining a steady growth in its investment book, in FY10 74% of the total book has been held in HTM category, 21% in AFS and 4% in HFT category. We expect the investment book to grow at a CAGR of 24% between FY09 to FY12E. In terms of amount, this growth translates to increase in the book size from INR 500 bn in FY09 to INR 943 bn in FY12E.
Economic downturn to increase NPAs Any further downturn in the economy and of hardening interest rates may lead to an increase in NPAs and thereby require more provisioning to be made, which will impact IDBI's future profitability.
Concentrated asset book IDBI's advances tilted towards few segments mostly infrastructure sector which largely depend on the performance of the Indian economic growth. Also there are still inherent risks of higher asset quality risk in having a less diverse portfolio. However, given the strong banking norms in the country, emphasis on infra funding with favourable policy support and strong resilience of Indian banking industry during the economic crisis is likely to offset this risk.
Inability to deliver on growth We assign premium multiples to IDBI Bank primarily on expectation that it would perform on all growth parameters. Inability of the bank to deliver growth along expected levels on a sustained basis could impact stock performance. Relative Valuation
Company IDBI Bank Ltd ICICI Bank Ltd Union Bank of India Oriental Bank of Commerce Central Bank of India Corporation Bank
Price (INR) 171 1131 417 502 238 788
Market Cap (INR mn) 15,745 129,685 20,336 12,290 9,046 10,540
RoA* 0.67 1.41 1.15 0.98 0.73 1.1
ROE* 14.57 11.26 23.14 18.58 22.53 21.51
P/E* 7.4 20 6.9 6.6 5 6.2
P/BV* 1 2.2 1.5 1.2 1.2 1.2
Page 48
Valuation and Outlook We believe that with thrust on improving NIMs, CASA ratio, better core operating income and return ratios, IDBI would be one of the fastest growing Indian banks over next few years. At the CMP of INR 171 the stock trades at 1.1x FY12E adjusted book value (ABV) and 7.4 of its FY12E EPS. Currently at INR 171, the stock is available at price to book value (P/BV) of 1x of FY12E. We expect margins to improve from here on for the bank i.e. ROE to reach to 14.57% in FY12E from 10.5% in FY10. Thus, we value the bank's business at 1.3x FY12E P/BV, thereby evaluating it at INR 228. We initiate coverage on IDBI Bank India Ltd with a price recommendation of INR 228, an upside of 34% from the current market price.
Page 49
IDBI Bank Product & Services 1. Preferred Banking PowerPlus Account Preferred Banking Royale Account 2. Deposits Regular Savings Account Corporate Payroll Account Core Current Account Premium Current Account Premium Special Current Account Suvidha Fixed Deposit Suvidha tax saving fixed deposit
3. Loans Home Loan Loan Against Property Education Loan Personal Loan Auto Loan Loan Against Securities Reverse Mortgage Loan Corporate Banking
4. CARDS Cash at POS facility on Debit Cards Online payment through Debit Cards International Debit Cum ATM Cards Gold Debit cum ATM Cards IDBI Bank Cash Card IDBI Bank Gift Card Kids Debit Card Platinum Card World Currency Card Womens Debit Card Debit Card offers
Page 50
5. 24 Hours Banking Phone Banking Mobile Banking Account Alert Internet Banking Mobile Payment Services (PayMate)
6. Corporate Banking Project Appraisal Debt Syndication Advisory Services Environmental services Secu and Structured product services Film Financing Scheme Carbon Credit Cash Management services Trade Finance TAX Payments TUFS for Textiles Industry Foreign Currency Product
7. Investment Advisory Mutual Fund Life Insurance New Pension Scheme 8. SME Finance 9. NRI Services 10. Lockers 11. Foreign Currency Products 12. Treasury 13. Services Dynamic Currency Conversion Services At ATMs
Agri Finance through IDBI Bank Agri Business Group IDBI Bank's total agriculture advance was Rs.1387 Cr for year ended March 2007. It has gone up by Rs.6924 Cr (around 500%) to Rs.8311 Cr as on March 31, 2009. India is a nation of villages. Agriculture and allied activities have been the main source of livelihood of our rural populace since times immemorial. The sector provides source of employment and livelihood to over 60% of the population. Its linkages with industry are growing with increasing stress on food and agri processing industry on account of changing demand patterns for processed food by consumers. With this background Corporate India has started finding new opportunities in Agriculture. Priority Sector constitutes Agriculture and allied activities. The emergence of modern economic system has institutionalized agriculture sector on business models. Agribusiness is a broad term that encompasses a number of businesses in agriculture including food production, farming, agrochemicals, farm machinery, warehousing, wholesale and distribution, and processing, marketing and sale of food products. IDBI Bank constantly emphasizes on lending to Agricultural sector. Bank has several Agri products viz. Loan against crop receivables, Warehouse receipt, Contract farming etc. to uplift the socioeconomic status of rural population. IDBI BANK VISION
Page 52
IDBI BANK RATING
Ratings for Rupee Borrowings (As on September 30 , 2010) CRISIL Fixed Deposit Short Term Borrowings (Certificate of Deposits) Long Term Rupee Bonds (Senior & Lower Tier II bonds) Hybrid - Upper Tier II Hybrid - Innovative Perpetual Debt Instrument (IPDI) FAAA/Stable P1+ AA+/Stable AA/Stable AA/Stable ICRA MAA+ A1+ LAA+/Stable LAA/Stable LAA/Stable Fitch tAAA(ind) F1+(Ind) AA+(Ind) AA(Ind) ----
Ratings for Foreign Currency Borrowings (As on September 30 , 2010) Rating Agency Moody's Investor Services (Moody's) Standard & Poor's (S&P) Long term rating Baa3 BBB - /Stable
Page 53
PRODUCT CATEGORY 1. Agricultural Finance ( Short Terms Loans) Type Crop Loans / KCC Eligibility All Farmers/ Owner cultivators, tenant cultivators and Share croppers / Individual farmer having agreement with institution. farmers against pledge of gold for meeting the temporary cultivation needs social obligations and medical emergencies and Small business / Traders/ Distributors and Self employed professionals for provision of finance for Business needs. Individual farmers, Partnerships, Limited Companies. Eligibility Commodity Extent of Exposure As per scale of finance specific to the crop and KCC norms. Tenor The card would be valid for 5 years
Gold Loan Scheme
Minimum Rs.10,000 and Maximum Rs.5 lacs.
Minimum tenor is 1 month and maximum 24 months
Warehouse Receipt Finance Scheme
Soya bean, Cotton (including bales), Mustard, Maize, Wheat, Sugar, Paddy, Cashew, Castor, Chilli and Turmeric only
Loans Against Crop Receivables
Individual farmers, Group of farmers, Cooperative Societies, Agents acting on behalf of a group of individual farmers
Indicative list of crops covered under the scheme are Cereals, cash crops, fruits, flowers, medicinal/ aromatic plants, vegetables and oilseeds
Farmer :Min Rs. 25,000 and Max Rs. 10 lacs, Traders: Min Rs. 25,000 and Max Rs. 5 Crores, Processor:Min Rs. 10 lacs, and Max Rs. 100 Crores. Corporate: Min. Rs.1 crore; Max. Rs.100 cror, Farmer: Min. Rs.10,000 Max. 100% of cumulative limit for co-operative societies
Maximum of 12 months from the date lodging commodities or shelf life of the product
Page 54
2. Agricultural Finance (Terms Loans)
Type Farm Mechanization
Eligibility For pump set/ Irrigation equipments Farmer should own a minimum of 2 acres of irrigable land. For Farm machinery, following is the Minimum irrigated land All categories of farmers including small, marginal and other farmers are eligible for finance
Extent of Exposure Minimum:30,000 and maximum: Rs. 30 lakh
Tenor
Dug Wells
Unit cost recommended by NABARD will form the basis, for deciding loan amount
Minor Irrigation (Lift Irrigation)
All types of farmers (small / marginal / other farmer) either individually or alongwith coowner of the land. Individual Small Farmers/Marginal Farmers/Share cropper/ Tenant farmers for purchase of land. Term loan is available to the tune of Rs. 50000/to Rs. 10 lakhs Maximum period of 9 years including 2 years moratorium.
Purchase of land for Agricultural Purposes
Land Development
Individual farmer with good repayment record is the eligibility criteria Individuals and group of farmers Min. Rs. 20,000. Max. Rs. 50 lacs. Fixed based on the gestation period of different crops
Horticultural & Forestry Development
Page 55
Purchase of bullock & bullock Cart
Farmer Small, Marginal and Other Farmers /Agricultural and landless labourers for purchases of Bullock pair with Bullock cart. Grants term loan upto Rs. 50000/- for purchase of twowheeler to the farmers. Many agencies, such as Z.P. / State Govt./ Central Govt. are providing subsidy, which is treated as margin for the loan.
Loan amount is sanctioned on the basis of NABARD Unit cost.
4 to 5 year including 3 months gestation period
Two Wheeler loans to farmers
Biogas Plant
Page 56
3. Allied Activities Type Dairy Farming Eligibility Individuals and group of farmers experienced in Dairy farming and are actively engaged in such activity The entrepreneur should have thorough knowledge of poultry farming substantiated by training certificate/ experience certificate etc Individual / Group/ Shepard co-op society / Federation / Limited companies that are experienced and actively engaged in such activity. Individual, fishermans, co-op societies, companies can avail loan Experienced Small Farmers / Marginal Farmers / Other Farmers and trained individuals are eligible Individuals farmers / non-farmers, group of farmers, SHGs, NGO, Partnership / proprietary firm, co-op. Societies. Extent of Exposure Min. Rs. 20,000 Max. Rs. 10 lakh Tenor 5 6 yr
Poultry Farming
Loan amount will be decided by unit cost recommended by NABARD.
Sheep and Goat Rearing
Grants term loans of Rs. 50,000/- to Rs. 50 lakhs
Fisheries
Sericulture
Bee Keeping Madhu Makshika Palan (Apiculture)
5 to 7 years by quarterly / half yearly installment inclusive of 11 months gestation period
Page 57
4. Indirect Finance to Agriculture Type Eligibility Extent of Exposure Minimum Rs.1 lac; Maximum Rs.20 Crore Tenor Not to exceed 9 years including max. Moratoriu m of two years
Loan for construction & running storage Individual farmers, finance Group of farmers, NGO's, Association of Growers, Partnership/ Proprietary Firms, Private & Public Limited Companies, Corporations, Cooperative,APMCs , Marketing Boards/ Committees. Agri Clinic & Agri Business Centers Graduates in (ACABCs) Agriculture and allied activities trained by MANAGE recognized Training Institutes (MRTIs) intending to set up Agri Clinics and Agri Business Clinics. Dealer Finance Program Dealers in agri inputs, Dealers of inputs of Agri & allied activity, Dealers in agri machinery,Dealers in irrigation systems,Arthias/ Commission Agents,Dealers in essential commodities, Dealers in mineral oils.
Individuals: Minimum Rs.2 lakh and Maximum Rs.10 lac , Group of Individuals: Minimum Rs.2 lac and Maximum Rs.10 lac Rs.10 lacs to Rs.500 lacs
5 to 10 years
Tenor of loan for OD/CC is one year and for term loan is upto 3 years.
Page 58
Contract Farming Contract Farming can be traced back to colonial period when commodities like Collin Indigo were produced by the Indian farmers for English factories. Seed production has been carried out through contract farming by the seed companies quite successfully for more than four decades in the country. The new agricultural policy of 2000 sought to promote growth of private sector participation in agribusiness through contract farming and land bearing arrangements to accelerate technology transfers, capital inflows and assured market for crops .The colonial period saw the introduction of cash crops such as tea, coffee, and rubber, poppy and indigo in various parts of the country, mostly through a central expatriate-owned estate surrounded by small out growers model. ITC introduced cultivation of rainier tobacco in Coastal Andhra Pradesh in the 1920s incorporating most elements of a fair contract farming system and met with good farmer response. This was replaced by auctions in 1984. Organized public and private seed companies which emerged in the 1960s. The Pepsi-co introduced tomato cultivation in Punjab in the 1990s under farming to obtain inputs for its paste-manufacturing facility established as apre-condition to its entry in to India. This was sold to Hindustan Lever in2000, which had earlier acquired the Kissan Karnataka. Contract Farming was the strategy of choice for almost all food processing projects contemplated in the 1980s and 1990s.ContractFarming is again vogue, and even tried for bulk production of subsistence crops, such as paddy rice, maize and wheat. Commodity co-operatives, which emerged in the1950s, provided most services envisaged under ideal contract farming to their members and bought back the supplies offered at contracted prices, although these were not strictly contract arrangements. The succeeded enormously, leading to their replication and compelling private companies also to adopt similar approaches. Contract Farming is now considered to be a corrective to market imperfections and serving a useful purpose in India in its own limited sphere. Contract Farming has been promoted in the recent three decades as an institutional innovation to improve agricultural performance in less developed countries. This system was accepted and used as one of the promising institutional frameworks for the delivery of price incentives, technology and other agricultural inputs. Local Governments, private local firms, Multinational companies, some international aid and lending agencies etc have been involved in these contract farming schemes Contract farming generally involves: a pre-agreed price between the company and the farmer, along with measures of quality, quantity, acreage to be farmed, and/or duration of the contract. In this system, the contractor supplies all the inputs required for cultivation, and the farmer irresponsible for land and labor. However, the terms and nature of the contract vary according to the crops grown, the agencies involved, the farmers themselves, and the technologies and context in which contract farming is taken up. The farmers' participation is generally limited to production.
Page 59
At a very fundamental level, contract farming is essentially a means of allocating the distribution of risk, between processor & grower. The latter assumes risks associated with production while the former assume the risks of marketing the final produce. As has been observed however impractical terms, there exists, considerable interdependence between the two parties. The development of contract farming will succeed if both parties share the risk & rewards. THE BROAD OBJECTIVES OF PROMOTING CONTRACT FARMING WOULD BE: To reduce the load on the central & state level procurement system. To increase private sector investment in agriculture. To bring about a market focus in terms of crop selection by Indian farmers. To generate a steady source of income at the individual farmer level. To promote processing & value addition, thereby generating gainful rural employment. To reduce migration from rural to urban areas. Managed correctly, contract farming can facilitate a response and adjustment mechanism to changing economic forces. Identifying the nature of the crop, its marketability and then evolving the technology to be used for production and processing are critical determinants of contract farming. In general, crops easily incorporated in the contract farming are those that have high revenue per hectare and where the technological model gives significant improvements in yields. Recognizing that Indian agriculture holds the key to its own development, it will be required to Create our own region & crop specific contract farming models.
THE MAIN AGRICULTURAL PRODUCTS OF INDIA UNDER THE PROCESS OF CONTRACT FARMING ARE AS FOLLOWS Food Grains - Rice, Wheat, Pulses, Cereals, Corn, Maize, Rice Bran Extractions, Sorghum, Soymeal, Suji, Parmal, Lentils, Jowar, Bajra, Chick pea, Fruits & Nuts - Cashew Kernels, Cashew Nut, Cashews, Almonds, Roasted Dry Fruits, Peanuts,Groundnut, Walnut Kernels, Walnuts, Indian Peanuts, HPS Groundnuts Fruits - Bananas, Beans, Cherry, Cucumbers, Dried Fruits, Dried Truffles, Carrots, Lemon, Mandarins, Mango, Meslin, Shallots, Apples, Asparagus, Grapes, Oranges, Gherkins, Turnips, Oranges, Papaya, Pineapple,
Vegetables Potatoes, Bitter gourd, Stripe Gourd, Pumpkin, cauliflower, Cabbage, Tomato, Onion, Green Pepper, Drum Sticks, Lady's finger, Banana, Papaya, Spinach, Cucumber, Mushroom, Mushroom Spawn, Radiata, Seeds, Buds, Plantation & Related Products - Basil Seed, Cumin seeds, Dill Seed, Buds, Celery Seed, Hybrid Seeds, Sesame Seeds, Sesbania Seed, Sunflower Seeds, Mustard Seeds, Oil Seeds, PlantProducts, Plantation, Plants, Psyllium Seed, Fennel Seed, Fenugreek Seed, Herb Seeds, TamarindSeed, Vegetable Seeds Spices - Black Pepper, Chilly, Cinnamon, Cloves, Coriander Powder, Cumin, Dry Ginger, Dry Red Chilly, Cardamom, Anise, Salt, Pepper, Fenugreek, Clove, Ginger, Turmeric, Turmeric Powder, Tea & Coffee - Black Tea, Coffee, Coffee Beans, Darjeeling Teas, Assam Teas, Instant Coffee, Leaf Coffee, Leaf Tea, Packaged Tea, Green Tea, CTC Teas, Tobacco & Tobacco Products - Betel nut Leaves, Betel nut, Bidi Leaves, Chewing Tobacco, Arecanut, Snuff, Opium, Pan, Jute, Tobacco, Rubber etc Farmers perspective ADVANTAGES FOR FARMERS The prime advantage of a contractual agreement for farmers is that the sponsor will normally undertake to purchase all produce grown, within specified quality and quantity parameters. Contracts can also provide farmers with access to a wide range of managerial, technical and extension services that otherwise may be unobtainable. Farmers can use the contract agreement as collateral to arrange credit with a commercial bank in order to fund inputs. Thus, the main Potential advantages for farmers are: 1. Provision of inputs and production services 2. Access to credit 3. Introduction of appropriate technology 4. Skill transfer 5. Guaranteed and fixed pricing structures; and 6. Access to reliable markets.
Page 61
PROBLEMS FACED BY FARMERS
For farmers, the potential problems associated with contract farming include: 1. Increased risk; 2. Unsuitable technology and crop incompatibility; 3. Manipulation of quotas and quality specifications;
Corporate perspective For a corporate, the objective of contract farming is to integrate the supply chain and ensure timely availability of materials, both in quality and quantity. It also reduces the procurement cost by eliminating the middlemen. Not only do the corporate get produce as per their specifications, The cost is much lower. The main disadvantages faced by contract farming are:
1. Land availability constraints; 2. Social and cultural constraints; 3. Farmer discontent; 4. Extra-contractual marketing,and 5. Input diversion.
Changes in the rural scene because of contract farming The process of Contract Farming in India Rural Economy is a new concept. The process of contract farming involves cultivating and harvesting for and on behalf of big business establishments or Government agencies and forwarding the produce at a pre-determined price. In return, the contracted farmers are offered high price against their farm produce. The role of contract farming in India rural economy is becoming more and more important, since organized farming practice has become the need of the hour in the world of rapid industrialization. The
rapid industrialization process in India has created shortage of farmland, which in turn has necessitated organized farming practice in India. One of the most critical issues associated with contract farming is that there will be a shift from staple crops such as rice and wheat to crops required by the food-processing industry and those catering to the overseas market. The switch to contract farming leads to a rise in exports as well. But this may affect the countrys food security, and increase dependence on imports. With agriculture increasingly seen as a risky proposition, the promise of economic security within the contract farming system is rather very attractive. The process of contract farming in India involves scientific and optimum use of land and farm resources for maximum output of agriculture produce. Small time farmers practicing primitive agricultural methods for cultivation and harvesting of crops dominate the Indian agriculture sector. But, with the liberalization of India economy, there has been a sudden spurt in contract farming in India. Moreover, today more and more established business houses are taking interest in the business of contract farming in India. This has happened as a result of rapid growth of retail industry in India. The growth of retail industry in India has propelled the growth of farm retail in India, which caters fresh vegetables and fruits from the farms to the Indian mass. The process of contract farming in India involves, engaging rural Indian farmers for the cultivation of agricultural produce under strict government policies. The role of Contract Farming in India Rural Economy involves government and private participation along with the rural workers. Further, it engages a good number of farmers and other rural workers to discharge other agriculture related activities Governments involvement The Indian institutes engaged for marketing agricultural products under contract marketing are as Follows: Karnataka State Agricultural Marketing Board Krishi Maratavahini Madhya Pradesh State Agricultural Marketing Board Maharashtra State Agricultural Marketing Board, Pune Meghalaya State Agricultural Marketing Board Orissa State Agricultural Marketing Board, Bhubaneswar Punjab State Marketing Board Rajasthan State Marketing Board
AP Agricultural Marketing Board Domestic & Export Market Intelligence Cell Tamil Nadu Agricultural University and Agri Marketing Board HP State Agricultural Marketing Board The acts and rules that governs the process of Contract Farming in India Rural Economy are as follows Agricultural Produce (Grading and Marking) Act, 1937 as amended in 1986. Agricultural Produce Grading and Marking Act, 1937 Schedule Appended to AP (G&M) Act 1937 General Grading and Marking Rules, 1988 Commodity Grading and Marking Rules List of commodities whos Agmark Grade Standards have been covered under AP Act 1937 Manual on Standards of Paddy Manual on Standards of Wheat Manual on Standards of Maize Manual on Standards of Mustard an
Better price for farmers Farmers will get a better price and can avoid the market with all its fluctuations, they say. According to a company source, as of now, the local aggregator and the farmer determine the price. Forthe farmer, it works out well as he has a ready market and gets cash on the spot. We are studying how thisworks." Pepsi is keen on harnessing the agriculture/horticulture potential in these areas.
Of late, the belt of Chitradurga, Davangere, Haveri, Bellary and Belgaum has seen a sudden increase in maize cultivation. According to the statistics provided by the Agriculture Department, Advancer had an yield of 7.9 lactones, followed by Belgaum with 3.37 lakh tonnes, Haveri 2.21 lakh tonnes, Chitradurga 1.88 lactones, and Bellary 1.41 lakh tonnes.
Page 64
Future The Dark Side The green revolution is part of Indias history. Grey revolution is the future. At least thats what the blue print for agricultural reforms. Agricultural reforms being introduced in the name of increasing food production and minimizing the price risks for farmers will actually destroy the production capacity of the farm lands and lead to further marginalization of the farming communities. Encouraging contract farming, future trading in agriculture commodities, land leasing, was forming land-sharing companies, allotment of homestead-cum-garden plots. Direct procurement of farm commodities and setting up of special purchase centers will drive out a majority of the 600 million farmers out of subsistence agriculture. Already contract farming has done irreparable damage to agriculture in countries like the Philippines, Zimbabwe, Argentina and Mexico. Allowing direct procurement of farm commodities, setting up special markets for the private companies tomop up the produce, and to set up land share companies, are all directed at the uncontrolled entry of the multinational corporations in the farm sector. Coupled with the introduction of the genetically modified crops, and the unlimited credit support for the agribusiness companies, the focus is to strengthen the ability of the companies to take over the food chain. Significantly, the state governments have opposed the agriculture reforms, terming it as a recipe for the entry of multinational corporations in agriculture. Two year earlier, the state governments had opposed the governments plan to decentralize the food procurement system terming it as an effort to dismantle the procurement structure Future Growth Pepsico India Holding Ltd: Frito laid division started off with a pilot project in 100 acres in Jharkhand in 2005-06 to grow potatoes for their chips, which spread to 500 acres next year and today, it covers 800acres. They introduced seeds of Atlantic variety, Chipsona and Fritolay-1553, but Atlan- tic proved to yield the best potato in this region. Properly taken care of under the supervision of the technical hands of the organization, the yield could be 14 times of what is sown.
Page 65
Organic farming Consumers are becoming conscious and critical about the quality of food and by-products that affect their health though the toxicity depends, to some extent, on the type of food consumed. The organic agriculture includes growing of crops by a set of guidelines that prohibit the use of synthetic products/chemicals such as fertilizers, pesticides, plant growth promoters and livestock additives. There is an increasing demand throughout world for organic food and fiber. In India, efforts are being made for organic crop production through contract farming. Experiences showed that farmers are benefited from technical guidance, supply of quality farm inputs and assured purchasing at remunerative price. This venture, executed by a tripartite agreement, would bring about favorable changes in the present conventional agriculture to make it sustainable and commercial. Likewise, consumers would get certified organic products at reasonable price. Since the average growth for organic farming is about 2025% and higher prices (1550%) are possible in the international trade, export of organic food produced by contract farming will certainly increase in near future, as India is recognized as an international agricultural hub.
Page 66
Map of Location Visited
Page 67
Bank list of Contract Farming
Existing Role of Financial Institutions
Currently, the financial institutions are playing an important role in contracting and agricultural financing in India. On the contracting front, financial institutions provide production credit to the farmers due to the RBIs Priority Lending Sector norms. These institutions also act as payment channels for companies and provide crop insurance products to the farmers.
On the agricultural financing front, banks offer various banking products such as warehouse receipt financing and commodity based financing for their clients (farmers). They also assess and evaluate the project viability. However, even though the financial institutions in India have started providing these facilities, there are a number of lacunas in the system which needs to be identified and dealt with.
The first setback, which is perhaps the biggest one, is the conservative approach of financial institutions towards agriculture. The primary reason behind lending to farmers is in order to meet the PSL targets. Agricultural financing is not treated as equivalent to other financing avenues like the manufacturing industries or the services sector. Due to this approach, the financial institutions tend not to provide their services to farmers at the same level of commitment and zeal as they do to their other customers. This has inadvertently led to farmers not really benefiting from their products like crop insurance etc. Thus there is need to realize the increasing importance of agriculture and in particular contract farming which provides a channel to link up the financial sector with the farmers.
Indian Experience
In India there have been quite a few initiatives that have taken off on contract farming lines. There have been different models of contract farming that have been adopted across regions, agencies and crops. In some cases the government has played a direct role (for example through Safal, NDDB etc) whereas there are other instances where the government has not been so directly involved. A number of private companies like Reliance, Pepsi Co and Pantaloon among others have already started contract farming projects in the various parts of the country.
Here the list of bank which provides the facility of contract farming to farmers development:
Allahabad Bank Andhra Bank Bank Of Baroda Bank of India Dena Bank Indian Bank Oriental Bank of Commerce Punjab National Bank State Bank of Hyderabad State Bank of India Syndicate Bank Vijaya Bank National Bank for Agriculture and Rural Development (NABARD) Bank of Rajasthan Canara Bank Central bank of India Corporation Bank Indian Bank Indian Overseas Bank Industrial Development bank of India Jammu & Kashmir Bank Ltd State Bank of Mysore Union Bank of India United Bank of India Axis Bank
Page 69
Research Design Advertising is a paid form of non-personal presentation and promotion of ideas, goods or services by an identified sponsor. 1. RESEARCH PROBLEM Analysis the awareness level of Contract Farming in Farmers. Seek the general perception of IDBI BANK Agriculture Finance towards Farmers and Company. To find the performance of Contract Faming in IDBI BANK to other BANK.
2. RESEARCH OBJECTIVES & RELATED SUB OBJECTS To know the Interrelation between Company, Farmer and Bank. To know in which segment Contract farming is are mostly like/preferred. To know the preference of IDBI Bank with comparison to other competitive Banks. To know the factor affecting preference for seeking the Agri loan from IDBI.
3. INFORMATON REQUIREMENT First, I had to know about all the competitors present in the Banking industries who providing Contract farming. Before going for the survey I had to know the comparative Company which existing in the market with engaged with farmer and doing contract farming. Since RBI Act of financing in direct and indirect sector and which are the priority sector of financing I had Learn. 4. CHOICE OF RESEARCH DESIGN ALTERNATIVE AND CHIOCE Despite the difficulty of establishing an entirely satisfactory classification system, it is helpful to classify marketing research on the basis of the fundamental objectives of the research. Consideration of the different types, their applicability, their strengths, and their weakness will help the student to select the type best suited to a specific problem.
Page 70
The two general types of research are
EXPLORATORY RESEARCH CONCLUSIVE RESEARCH
5. RESEARCH INSTRUMENT USED - DETAILS & WHY? If one wants to know what type of dentifrice people use, what they think of, television commercials, or why they buy particular brands of cars, the natural procedure is to ask them. Thus, the questionnaire method has come to be the more widely used of the two data collection method. Many consumers are now familiar with the telephone caller who greets them with We are making a survey, and then proceeds to ask a series of questions. Some interviews are conducted in person, others by telephone, and others by mail. Each of these has its special advantages and disadvantages and limitations. The questionnaire method in general, however, has a number of pervasive advantages and disadvantages. Discussion of particular variations will be more meaningful if these characteristics of the general methods are brought out first. A questionnaire consists of list of questions to be asked from the respondents and the space provided to record the answer /responses. Questionnaire can be used for the personal interviews, focus groups, mails and telephonic interviews. The choice among these alternatives is largely determined by the type of information to be obtained and by the type of respondents from whom it is to be obtained.
The common factor in all varieties of the questionnaire method is this reliance on verbal responses to question, written or oral Questionnaire in the project consists of: Multiple choice questions Dicthomus
MULTIPLE CHOICE QUESTIONS: Questions of this type offer the respondents an alternative to choose the right answer among others. It is faster, time saving and less biased. It also simplifies the tabulating process.
Page 71
OPEN END QUESTIONS: In this type respondents are free to answer in their own words and express the ideas they think are relevant, such questions are good as first questions or opening questions. They introduce the subject and obtain general reaction. DICTHOMUS: These are the questions which are Boolean in nature. These answers are straight forward and respondents have to answer them in as straight way. That means the answer can only be either Yes or No. 6. SAMPLING TECHNIQUE USED & SAMPLE SIZE - WHY? Sample design is a definite plan of obtaining some items from the whole population. The sample design used in this project is three states sampling i.e. Cluster, Convenience and Simple random sampling scale. In the probability sampling methods, each items in the sample is chosen one at a time from a complete list of universe elements. In marketing research practice, it will sometimes be more expedient to select clusters or groups of universe elements, rather than to choose sample items individually.
NONDISGUISED, STRUCTURED TECHNIQUES The non structured techniques for attitude measurement are primarily of value in exploratory studies, where the researcher is looking for the salient attributes of given products and the important factors surrounding purchase decisions as seen by the farmers. Structured techniques can provide a more objective measurement system, one which is more comparable to a scale or a yardstick. The term scaling has been applied to the efforts to measure attitudes objectively, and a number of useful scales have been developed.
SAMPLING METHODS Sample design is a definite plan of obtaining some items from the whole population. The sample design used in this project is two state sampling i.e. cluster sampling and convenience sampling. And the whole zone was divided into some geographical areas and I have chosen
Page 72
Vijapur Viramgam Sanand Daskoi Kadi Bechraji Gondliya Kalol Chiloda Mandal
TOTAL SAMPLE SIZE WAS 100.
CLUSTER SAMPLING Here the whole area is divided into some geographical area and definite number of Farmer which can divide in to pure farming and contract farming was to be surveyed. CONVINIENCE SAMPLING This type of sampling is chosen purely on the basis of convenience and according to convenience. I visited according to bank advice and contract farming company which takes me on field to meet farmers.
Page 73
SAMPLING Hypothesis To identify signification level of beneficial use of contract farming by farmers. To study IDBI bank awareness of Agricultural finance product in farmers.
Sampling Technique Sample Unit available
Non probability sampling Farmers who doing contract farming with company and IDBI bank which finance farmers for contract Farming
Sample size Method Data analysis method Area of survey Timing Of Survey
100 respondents Direct Interview through Questionnaires And Telephone Interview Graphical method North District As per Availability and Convinced of farmers
FIELD WORK- METHOD USED FOR DATA COLLECTION Questionnaire was prepared keeping the objective of research in mind. Questions were asked to respondents as regards to their Willingness to give answer of Private and confidential questions. The help of questionnaires conducted direct interviews, in order to get accurate information. And Telephone Interviews which can taken for those farmers who are not available or far located. I visited as many respondents as I can and asked them their real beneficial and preference of bank and company about contract farming,
Page 74
Data Interpretation and analysis Q.1 How old are you?
Particular 0-30 30-40 40-50 50 or above Total
% Respondents 11 20 22 47 100
% Respondents
0-30 11% 50 or above 47% 40-50 22%
30-40 20%
Conclusion: Here chart show that generally more than 50 age farmers are doing contract farming and young farmers are ignore farming and chose other field.
Page 75
Q. 2 what is your highest level of formal education? Particular No education Primary Education Graduation Master Degree Total % Respondents 42 29 18 11 100
% Respondents
Master Degree 11% Graduation 18% No educaton 42% Primary Education 29%
Conclusion: Here mostly farmers have no education. So they are no understand they right way to farming and not adopt the new technology. But in this which are very near to city villages have educated farmers and they are grow highly production in farm by using new agriculture technology.
Page 76
Q.3 what is your farm size? (In Acres) Particular 1 to 3 4 to 6 7 to 10 10 or above Total % Respondents 8 34 17 41 100
% Respondents 1 to 3
8%
10 or above 41%
4 to 6 34%
7 to 10 17%
Conclusion: Here we can understand that which farmer have large size of land they are interested in contract farming but which framers have low size of land they cant agree for contract farming.
Page 77
Q. 4 which crop is produces for contract farming in your farm? Particular potato tomato cotton mugfudi Total % Respondents 37 11 31 21 100
% Respondents
mugfudi 21% potato 37%
cotton 31%
tomato 11%
Conclusion: In north Gujarat mostly farmers are produce potato, cotton and mugfudi for contract farming. It is also give good amount of sell in market. So farmers are in interested in these main three crops only. Q.5 how do you know about contract farming? Particular Company employee Other farmer suggestion Bank guidance Other Total % Respondents 39 33 21 7 100
Page 78
Other 7% Bank gidence 21%
% Respondents
Company employee 39% Other farmer suggetion 33%
Conclusion: The main reason to get awareness of contract farming is know from by the company employee. Company employee and other mediator are main factor to engage company and farmers for contract farming. An d other factor is give information from other farmers. Q.6 what are the factor who invites you for contract farming? Highly Effecting Natural effecting Particular 1 Minimum Investment High Return Timely Payment By company Crop Facility provided by company Transportations cost taken by company Stander Deviation 18 21 27 18 16 0.0872 2 9 34 24 19 14 0.1116 Highly Lest Mean lest effecting effecting 3 4 5 2.18 14 20 12 2.79 18 14 16 3.88 31 24 25 4.12 11 32 39 2.02 26 10 8 0.1164 0.1648 0.101
Page 79
40 30 20 10 0 Highly Effecting effecting Natural Highly Lest lest effecting effecting Minimum Investment High Return Timely Payment By company Crop Facility provided by company Transportations cost taken by company
Conclusion: Here we can understand that there is significant relationship to do contact farming by adopting minimum investment, get accurate and high return by company and farmers age is more than 50 so they are preferred contract farming.
Q.7 Do you know about IDBI Bank Agri finance Product? Particular yes no Total %Respondents 66 34 100
Page 80
% Respondents
yes 29%
no 71%
Conclusion: Here IDBI Bank have no branch in villages so there is no awareness of IDBI Bank Agri Finance. Mostly Farmers have more transaction with SBI and BOB Bank. Q.8 Give Agriculture financing providing bank in comes first in your mind? (Rank order)
Particular SBI BOB Dena Bank IDBI Other Total
% respondents 36 27 15 14 8 100
Page 81
% respondents
% respondents 36 27 15 14 8
SBI
BOB
Dena Bank
IDBI
Other
Conclusion: here we can say that there is relationship between awareness of bank because of having their located village bank. Farmers get knowledge about bank by other farmers, company employee, krushi mela and trade fair. Q.9 which particular option of IDBI bank is most preferable and satisfied by you?
Particular
Highly satisfied 31 22 27 12 8 0.1236
satisfied
Natural
Trusted Nationalized Bank ROI Agri Product Range Customization by bank staff Processing time of disbursement Stander Deavation
28 32 22 14 4 0.1908
37 26 24 10 3 0.1312
Highly Lest Mean lest satisfied satisfied 14 11 3.09 32 37 4.77 18 16 3.25 9 5 1.31 27 31 2.88 0.0524 0.1152
Page 82
40 35 30 25 20 15 10 5 0 Highly satisfied satisfied Natural Highly lest Lest satisfied satisfied Trusted Nationalized Bank ROI Agri Product Range Customization by bank staff Processing time of disbursement
Conclusion: Here we can say that this bank is well prefer by their agricultural product range, trusted nationalized bank and ROI. But this bank is not prefers because of highly processing time and less customization.
Q.10 Do you have seen any agriculture advertisement from IDBI Bank?
Particular yes no Total
% Respondents 29 71 100
Page 83
% Respondents
yes 29%
no 71%
Conclusion: Here we can find out that farmers seen any advertisement on TV or in newspaper and the analysis show that in villages farmers have seen not more advertisement because of lack of literacy less people are read newspaper. And farmers are more watch regional channel.
Page 84
Hypothesis testing
T test for independent sample
Hypothesis 1
H0 = There is no significant difference in Farmers Education level for contract farming in Gondliya and Vijapur. H1 = There is significant difference in Farmers Education level for contract farming in Gondliya and Vijapur.
Gondliya n mean S 61 1.65 0.5549
Vijapur 39 1.92 0.3627
Calculation for SP2 ( )( ) ( )( )
)(
)(
Page 85
Calculation for standard Error
SE = 0.093
Calculation of t value
( )
Degree of freedom = n1+n2-2 = 61+39-2 = 98
Page 86
Calculated t value is lying in acceptance region so, we accept null hypothesis. So, there is no significant difference in farmers education level for contract farming in Vijapur and Gondliya.
Because, Farmers have no more education to understand befits or limits of contract farming. They are scare of adopting any new farming activity.
Page 87
Hypothesis 2
H0 = There is no significant difference in farmers Age level for banking Awareness in Gondliya and Vijapur. H1 = There is significant difference in farmers Age level for banking Awareness in Gondliya and Vijapur.
Gondiya n mean S 51 1.76 0.3807
Vijapur 49 1.98 0.4077
Calculation for SP2

( )( ) ( )( )
)(
)(
Page 88
Calculation for standard Error
SE =0.08112
Calculation for t value

( )
Degree of freedom
= n1+n2-2 = 51+49-2 = 98
Page 89
Calculated t value is lying in acceptance region so, we accept null hypothesis.
So, there is no significant difference in Farmers Age level for banking Awareness in Gondliya and Vijapur.
Bank provides equal facility to each village. They motivated farmers for better production by giving various agri finance product and they give guideline for better handling there transaction with bank and other.
Page 90
Limitation to the study
I had questionnaires as the primary mean to collect data and sometime it was a hard task to handle with rude type of farmers because they were not ready to disclose some of the questions ask in questioners. It was too hard to find out contract farming farmers and get information from then. There were also so many illiterate farmers and it was also tough to fill up questionnaire from them. Survey done among the references by the farmers. As per our task we hav to find out contract farming farmers on located in north zone. We also have to find out the companies which are engage in contract farming and they are associated from which bank.
Page 91
Recommendations and Finding Miles to Go There is the need for a new thinking to boost Indian agriculture with special focus on building capabilities and promoting investment. Technology enhancement with the focus on adoption of hi-tech production practices is needed. Further, the government R&D system needs to link up with private sector initiatives for better dissemination of new technologies to farmers. Therefore, the public private partnership approach between private sector contract farming initiatives & Govt. Research infrastructure is becoming very crucial. Further, efforts should be made to link up the extension services provided by the private sector to public sector efforts.
Building Blocks for Sustainable Contract Farming R&D activities, technology transfer and commercialization of agriculture are the three important building blocks for sustainable contract farming. The main activities under these are Listed below. R & D Activities Evaluation of promising varieties and hybrids Multi-locational trials and short-listing - selection Blueprint for agricultural practices after adapting to local conditions, to suit intellectual & financial means of the farmer Evaluation of farmer economics model Demonstration farming Technology Transfer The extension services team - selection and training Farmer education program Field trials at farmer fields- multi-locational & crop timing Commercialization Land preparation & planting, Crop monitoring during growing period
Page 92
Harvesting & procurement, transportation logistics Prompt farmer payment system
Today, the objective of farming has changed towards market demand and with the changing movement towards a Value Delivery system, the involvement of the private player has changed more towards defining the value, providing the value and then communicating the value to the final customers. Therefore, the involvement of the private player has increased across the entire food value chain as depicted below due to which various models of contract farming have evolved and are being practiced in the country Changing Roles With the fast changing roles of different stakeholders, the role of banks has also changed in the context of agriculture. Now, banking is beyond the traditional definition of lending and borrowing. The role of banks has changed to that of knowledge providers through the evolution of the concept of knowledge banking beyond the normal production financing and insurance products offered by the banks. Thus, banks are evolving knowledge based products for their customers across all sectors and agriculture has been one of the important sectors given the importance of RBI compliance of priority sector lending. As the agriculture sector is subject to infrastructure and knowledge deficit, the emerging banks have the backing of knowledge experts from various sectors who are well equipped to provide the expert advice to the client and thereby helping them in choosing the viable investment option. In addition, the knowledge banking approach has provided the banks to assist farmers and agrientrepreneurs by developing suitable bankable agribusiness projects through adequate private sector participation. Further, the knowledge banks also assist in assessing and evaluating project viability, risk assessment and necessary guidelines for adequate land use planning for the farming community. This is as a result of the changed financing approach of bankers towards the sector whereby agricultural financing is being treated as an equivalent to other financing avenues the role of Government is also very crucial in the overall process of contract farming. Development of a proper Institutional Mechanism/framework is very important to safeguard the interests of both farmers as well as corporate. There is the need for suitable laws of contract/and an efficient legal system to execute a transparent, participatory, comprehensive and flexible contract. There is also the need to create awareness of unintended consequences of regulation and avoid the tendency to over-regulate. An institutional arrangement to record/register all contractual arrangements to promote confidence between the parties and also help in solving any dispute, arising out of the violation of the contract needs to be put in place. Further, dispute settlement machinery - a single tier regulatory authority for contract farming at the district level should be in place for resolving any dispute and for contract enforcement. Mechanism for Developing Bankable Projects Developing a viable and bankable project is the key to the successful implementation. This requires technical and financial expertise which is not in the skill set of micro-stakeholders.
Developing an SPV also involves a special activity set. Specialized knowledge banks have an in-depth understanding of the Indian agri sector as well as demand side linkages to national and international corporate level and should be actively involved in this process.
Improved Model for Contract Farming Given below is an improved model of the contract farming system where the banks play a very crucial role of being the knowledge and debt providers and thereby knitting various stakeholders together for attaining the commercial objective.
Improved Model of Contract Farming
In the above mentioned model, the hi-tech agribusiness farm will assist in providing the quality planting material, R&D support and technology transfer to the farmers along with the requisite technical assistance. The farm will be established and facilitated by the private players. The private players will also contract with the farmers for the production as well as the marketing of the desired product. Thus this model provides the use of innovative high technology in production, technical assistance along with well structured and customized financial products to the farme
Page 94
Conclusion & Suggestions
Provide the knowledge to farmers about the each financial product. Give more customization and visit farmers farm and give all kind of information related to agri finance. It wills increase of farmers satisfaction level and it will help farmer to grow itself. Keep fastest processing time and try to keep lease depend of paper work. Mostly Farmers are illiterate so it is uncomfortable to fill up all paper from them. Give proper training to staff to understand what the actual problem is? And what farmers want from bank. Proper training give proper guidance to farmers for increase the production and understanding easily financial terms and condition. With the analysis of survey which is most leading bank in rural market is because of contract farming company affiliation. Company which provide more facility to farmers are prefer by farmers and bank which is provide both highly facility like less processing time, more customization, less paper work are prefers by company and farmers. As per the survey Farmers having awareness about IDBI Bank because of Large range of Agri Product. Farmers which are existing customer of IDBI Bank and Non customers of IDBI bank are believe that bank take high processing time and less customization. For positive view of bank is bank are highly respected nationalize bank and less ROI more influation farmers to prefers finance. For more effacing work Bank should improve their processing time. Which farmers has large size of land they are most favorable client and company provide maximum service to them farmers are more satisfied with the crop facility and timely payment by company. Factor which had to be improvement is transportation cost and give more knowledge about investment scheme. Less of farmer education cannot understand the whole concept of contract farming and they believe that because of less land they cant grow more crop and they cant get high return on contract farming.
There is a need to develop a vision and implementation framework for the public private partnership framework in Indian agriculture across the food value chain especially in the production front. Therefore, the following steps become crucial for the overall development of the Indian Agriculture.
Page 95
Developing proper PPP institutional mechanisms for contract farming. Defining the commodities and area under contracting to avoid any sustainability issues. Assisting in creating an appropriate legal framework. Database development (Farmers, Crops, Pricing, Land Mapping W.R.T Contracts) Therefore, the future vision strategy is very crucial to set up for developing the proper mechanism for integrating the production potential and capacities with the marketing system.
Questionnaire
Q.1 How old are you?
Q. 2 what is your highest level of formal education? education
Q.3 what is your farm size? (In Acres)
Q. 4 which crop is produces for contract farming in your farm?
Q.5 how do you know about contract farming?
Page 97
Q.6 what are the factor who invites you for contract farming? Particular Highly effecting 1 1 1 Least effecting 2 2 2 Natural Highly lest effecting 4 4 4 Lest effecting 5 5 5
Minimum Investment High Return Timely Payment By company
3 3 3
Crop Facility 1 provided by company Transportations 1 cost taken by company
Q.7 Do you know about IDBI Bank Agri finance Product?
Q.8 Give Agriculture financing providing bank in comes first in your mind? (Rank order) SBI.. BOB Dena bank... IDBI.... Other
Q.9 which particular option of IDBI bank is most preferable and satisfied by you?
Particular Trusted Nationalized Bank ROI Agri Product Range Customization by bank staff Processing time of disbursement
Highly satisfied 1
Least satisfied 2
Natural 3
Highly lest satisfied 4
Lest satisfied 5
1 1 1 1
2 2 2 2
3 3 3 3
4 4 4 4
5 5 5 5
Q .10 Is you existing customer of any financial product? __________________________________________________________________________
Q.11 which bank you take financing facility? Why? __________________________________________________________________________
Q.12 Do you have seen any agriculture advertisement from IDBI Bank?
PERSONAL DETAILS Name: __________________________________________ Contact No: ______________________________________ Village name: _____________________________________
Page 99
Recent cases and studies May 12 , 2008 : Fruits and Vegetables (DFV) contract farming model has seen more farmers from Narmada, Vadodara, Surat and other districts of the state queuing up to come under the contract system. Indrasinh Gohil, a banana contract farmer, said his decision to join DFVs contract farming has benefited him immensely. He said he got minimum guarantee price, plus market linked incentive, including the production cost, salary and the profit. Gohil said he received a price of Rs 90 per kg for the production of banana in his field as against a price of Rs 60 per kg from the individual traders. There is a waiting list of 5,000 farmers willing to come under DFVs brand of contract farming, said Ajit Desai, DFV chairman and managing director on Sunday. This enabled DFV to bring 2,500 acres of land from Narmada, Bharuch and Navsari districts under contract farming out of which 800 acres are under banana cultivation.
Gujarat has some good success story and prospective agreements of Contract farming in Gujarat At present among successful contract farming practices undertaken in Gujarat, Agrocell Corporation Ltd. is doing contract farming of organic cotton and seasame seeds covering about 5000 acres in Kutch and Surendranagar district of Gujarat since last 8 years. The farmers get 7-8 % more price than ordinary cotton in current market and concession in certain services from the company. Atreyas Agro Organic Pvt. Ltd. Plans to grow Jetrophs Curcas by contract farming. They have target of covering more than 50,000 acres of irrigated & nonirrigated land of Gujarat. Godrej Agrovat Ltd. Is also planning to grow high quality oil palm under contract farming in south Gujarat region by providing imported tissue culture plants and farming technology to the contract farmers. Pepsi India, Arvind mills, Jojoba Oil Industries Ltd., are some companies who have approached the govt. and shown keen interest in doing research and contract farming in Agro-products in Gujarat under their backward integration projects.
Page 100
Bangalore: PepsiCo India Holdings is looking at the State for large-scale contract farming in maize, chillies and tomatoes, for which it has commenced trials in Haveri district. Although these trials are on a small scale, the company is said to be looking at nearly20,000 hectares of contract farming in maize to fall in place by next year inhalers and neighboring districts It is now running on a trial basis "pre-agreed price" system of farming through local aggregators (local people who deal with the farmers on behalf of the company) and the results should be known by early next year. "It has to be a win-win situation for both Pepsi and the farmers for the contract farming plan dematerialize," says Abhiram Seth, Executive Director, PepsiCo India Holdings. Mr. Seth told The Hindu that trial runs normally would be for a year before Pepsi can embark upon contract farming here. The company, which is enthused by the success in Punjab where it has contract farming in chillies, potatoes and basmati, finds the situation in Karnataka conducive for contract farming. "We need to study a whole lot of parameters such as agro-climatic conditions, marketing, and policies and soon before we set off on a project," he says. The State Government has been helpful and there are no impediments from any quarter, Mr. Seth adds. Although the company has not firmed up any plans, Mr. Seth says that Pepsi will be concentrating on maize and later think of exporting. Pepsi is looking at Haveri district as the maize yield in a hectare of land there is 3.5 tones, higher than the national average of two metric tons. It is said that maize ingrown on about 80,000 hectares of land in the district with two crops a year. Sources say that the annual production last year stood at 2.21 lakh metric tons.
With contract farming, there could be improvement in the yield levels as the company will be doing "hand-holding" and providing technology, good cropping practices and marketing inputs
Conclusion Contract Farming is not a solution to all the problems of agricultural production, and marketing systems. But contract farming could be evaluated as a way of providing earlier access to credit, input, information and technology and product markets for the small scale farming structure. Contract farming might also be seen as a way or as a part of rural development and promoted to improve agricultural performance especially in India where productivity is lesser than many other developed countries. More over the corporate, farmers and government must realize that the practice will not be sustainable if all the parties are not benefitted. The model is good but can be made better with more favorable government policies
Page 101
Contract Farming Farmers List Farmer Name Daya K. Patel Sankarbhai Chdhari Madhu K. Patel Rasik R. Patel Bhikha D. Patel Vadi Patel Ayubhai Momin Gangarambhai Ambarambhai Kamal Patel Ramaesh Jani Narendra Patel Bharat Patel Samir Patel Ganad Patel Harshed Patel Kanu Patel Namiesh Patel Vishnu Patel Ashokbhai Patel Bhairam Patel Kamlesh Vagela Natubhai Zala A k Sonanki Laxman Patel Manojbhai Patel Ghansyambhai Gala dhulia devendra gol falgibhai natubhai gole R. k., prajapati R.R. Nai dhulabhai kanjibhai Mevada Iswar s. panchal Bharat patel bhikhji Nai Dipak D. patel dipji K. patel haresh Rajput Bhavansinh K. dhulia D.V. gol D.K. Location Daskoi Visnagar Daskoi Daskoi Sanamd Sanamd Chiloda Chiloda Sanamd Sanamd Mandal Sanamd Daskoi Daskoi Daskoi Kadi Vijapur Vijapur Vijapur Viramgam Kalol Kadi Bechraji Bechraji Ghodiyal Ghodiyal Ghodiyal Ghodiyal Ghodiyal Ghodiyal Ghodiyal Vijapur Vijapur Vijapur Vijapur Vijapur Vijapur Vijapur District Ahmedabad Mahsana Ahmedabad Ahmedabad Kheda Ahmedabad Ahmedabad Gandhinagar Gandhinagar Ahmedabad Ahmedabad Ahmedabad Ahmedabad Kheda Ahmedabad Ahmedabad Ahmedabad Mahsana Ahmedabad Ahmedabad Ahmedabad Ahmedabad Mahsana Mahsana Mahsana Mahsana Palanpur Palanpur Palanpur Palanpur Palanpur Palanpur Palanpur Ahmedabad Ahmedabad Ahmedabad Ahmedabad Ahmedabad Ahmedabad Ahmedabad
Page 102
patel Kesh J. gol rajesh D. mevada B.k. patel bhikhaji gol G.D. gol ganesh M. Vajljiobhai M. (agro) Bikhabhai Patel Utkarshbhai Patel Ranchodbhai Vaghela
Vijapur Vijapur Vijapur Vijapur Vijapur Vijapur Vijapur Vijapur Vijapur Vijapur
Ahmedabad Ahmedabad Ahmedabad Ahmedabad Ahmedabad Ahmedabad Ahmedabad Ahmedabad Ahmedabad Ahmedabad
I visited Viramgam, Sanad, Kadi, Lalwadi, Daskoi, Vijapur, and Kheda for find out contract farming farmers. I find out about how they are doing contract farming and which facility and benefits they get from company. As per the find out of this is base on which companies are doing contract farming and with which bank they are Associate. Which bank gives them finance at what percentage? By whom they get bank finance or company provide them to getting finance by bank. It was find out all detail by meet personally to farmers.
Page 103
Company List of Contract Farming Sr No. 1 Name of the Campany Appachi Cotton Company Zamin Uthukuli, Pollachi Coimbatore AVT Natural Products Ltd 72-E, Chesney Estate Ethiraj Salai Chennai 600008 Cargill India Pvt Ltd DLF Gateway Tower 11 & 12th Floor, DLF City, Phase III Gurgaon 122 002 Email Id/ Phone Number Ph: 04259 234666, 309666, E-mail: appachi@vsnl.com Mob: 093452 33000 Ph: 044-28584147 Fax: 044-28584147 E-mail: msa_kumar@avtspice.com latha_rajesh@avtspice.com Mob: 098460 35959 Ph: 95124-5090402 Fax: 95124-2358972 Mobile: 9810095054 E-mail: hardeep_singh@cargill.com Lata_sachdeva@cargill.com Ph: 95129-2250222 Fax: 95129-2284802 States TN, Karnataka Commodity Cotton
Karnataka
Marigold Caprica Chilly
Madhya Pradesh
Wheat, Maize and Soybean
Escorts Ltd Agri Machinery Group 18/4 Mathura Road Faridabad 121007 The Global Green Ph: 080-26632831/2796/4059 Company Pvt Ltd (Naan) 220, Alembic Glass Complex Whitefield Hoskote Road Whitefield Bangalore Fax: 080-26637372 E-mail: rajeev_trehan@hotmail.com
Punjab
Basmati
Karnataka, AP
Gherkin, Babycorn, Paprika
Hindustan Lever Ltd 165/166, Backbay Reclamation Mumbai -40002
Ph: 022-22282737 Fax: 022-22855825 E-mail: dalipsehgal@unilever.com
Madhya Pradesh
Wheat
Page 104
Ion Exchange EnviroFarms Ltd Neeta Towers Pune-Mumbai Highway Dapodi Pune - 411012 ITC - IBD ITC Green Centre Ist Floor, Sector 32 10, Industrial Area Gurgaon 122001 Ken Agritech Pvt Ltd Factory & Field Operations #131/1A, Anchatageri Karwar Road Hubli (Karnataka) 580024 Marico Ltd Rang Sharda, 5th Floor, K C Marg, Bandra Reclamation Bandra (W) Mumbai- 400050 Mahindra Shubhlabh Services Ltd Mahindra Towers, 3rd Floor Worli Mumbai Natural Remedies Pvt Ltd 364, II Floor,Ashwathlakshmi Mansion 16th Main, 4th T Block Jayanagar Bangalore - 560 041
Ph: 020-7145118/7146108 Fax: 020-7146109 E-mail: schellappa@ionexchange.co.in sreeram_c@hotmail.com Phone: +91-124 - 4173172 Fax: +91-124 - 4173175 Email: jai.oberoi@itc.in Web: www.itc.in Ph: 0836-2205770 Fax: 0836-2202805 E-mail: kenagri@sanchar.net.in
TN, MP, Gujarat, Haryana, Maharashtra
Organic Products of Banana, Pineapple, Papaya, Wheat, Basmati, Cotton
Madhya Pradesh, Gujarat
Soybean, Tobacco
Karnataka
Gherkin
10
Ph: 022-66480480/66480365 Fax: 022-26510701 E-mail: vaibhavk@maricoindia.net nitink@maricoindia.net Ph: 022-24905877 Fax: 022-24922726 E-mail: puri.vikram@mahindra.com rajiv.vidhya@mahindra.com Ph: 080-26535891 Fax: 080-26535889
Maharashtra, MP, Gujrat, Karnataka, Chattisgarh, Rajasthan
Safflower
11
Maharashtra, Punjab
Many crops
12
Karnataka
Coleus
E-mail: rkagarwal@naturalremedy.com Web: www.naturalremedy.com

Page 105
13
Nestle India Ltd Nestle House Jacaranda Marg M-Block, DLF City, Phase-II National Highway 8 Gurgaon - 122 002
Ph: 95124-2389348(D)/2389300 Punjab Fax: 95124-2389388 E-mail: parveshanand@innestle.com
Milk
14
Nijjer Agro Foods Pvt Ltd Maharbhan Pura P O Jandiala Guru Dist Amritsar 143115 Pepsi Foods Pvt Ltd 3B, DLF Corporate Park S Block, Qutub Enclave, Phase III Gurgaon 122 002
Ph: 0183-2431705/3091608 Fax: 0183-2431805, 2432599 E-mail: nijjers@glide.net.in
Punjab
Tomato and Chilly
15
Ph: 95124 - 2355880 Fax: 95124 -2356270
Punjab, TN
Chillies, Groundnut, seaweed, Tomato and Basmati Rice
16
Rallis India Ph: 022-56652700 Appejay House, 7th Fax: 022-56352996 Floor 3 Dinshaw Vaccha Road, E-mail: annahita@rallis.co.in Churchgate Mumbai 400020
Punjab, UP, MP, Maharashtra, Karnataka, TN
Basmati, Wheat, Fruits, Vegetables
17
18
Suguna Poultry Farm Ltd Corp Off: 5th Floor Jaya Enclave 1057, Avinashi Road Coimbatore -641018 Satnam Overseas Ltd Star Trading House 201, VIPPS Centre, 2 Community Centre G K II, Masjid Moth New Delhi 110048
Ph: 0422-5392503/5392504/05 Fax: 0422-5392507 E-mail: sugies@md3.vsnl.net.in
TN, AP
Broiler
Ph: 51635757 Fax: 51638586/87
Punjab
Basmati
Page 106
19
20
21
Super Spinning Mills Ltd "ELGI Towers" PB#7113, Green Fields 737-D, Puliakulam Road Coimbatore -641045 The Ugar Sugar Works Ltd Ugarkhurd Taathani Distt: Belgaum Ugarkhurd 591 316 Unicorn Agrotech Ltd (Zeraim) 1-7-139/3, Sarojini Devi Road
Ph: 0422-2311711/2314511 (D) E-mail: 0422-2311611 E-mail: super@sshsaraelgi.com
Tamil Nadu
Cotton
Ph: 08339-272230 Fax: 08339 -272232
Karnataka
Barley
Ph: 040-27847769/27811554 Fax: 02222061592/27842399/7845924 E-mail: uniagro@hd1.vsnl.net.in
Karnataka
Gherkin
22
23
Hyderabad 500003 United Breweries UB House 1/1, Vittal Mallaya Road Bangalore 560001 Venkateshwara Hatcheries Ltd 1-5, Upper Ground Floor World Trade Centre, Babar Road Cannuaght Place New Delhi 110001 CG Herbals S12-Greenparadise, Vishalnagar, Telibandha Raipur-492006
Ph: 080-2272806/7/8 Fax: 080-2274884/5/6 E-mail: cmoblr@ubmail.com Ph: 23413986/87/88 Fax: 2341398 E-mail: shyamkuldeepsingh@rediffmail.com
Punjab
Barley
TN
Broiler
24
25
Ph: 0771-3296649 Ph: 09329108116 E-mail: cgherbal@airtelbroadband.net aroma_india@yahoo.com Sanjeevani Orchards Pvt. Ph: 9893384684 Ltd. E-mail :pomefarms@gmail.com Balaji Wafers Pvt. Ltd. Vajdi (Vad), Rajkot. (India) Mc cam company Phone : +91-281-2783755/56 Email: contact@balajiwafers.com Phone : +91-9374950782
Chattisgarh Orissa
Patchouli, Veiver, Aromatic Crops for essential Oil Pomegranate
Madhya Pradesh
26 27
Gujarat, Maharastra Gujarat, Maharastra
Potato Potato
Page 107
Bibliography Agricultural book
Page 108
Agricultural Magazine www.idbi.com www.agri.gujarat.gov.in www.agriculturalinformation.com www.rbi.org.in www.indg.in/india www.nabard.org The Economics times The times of India
Page 109

Idbi Bank Project

Încărcat de

Informații document

Drepturi de autor

Formate disponibile

Partajați acest document

Partajați sau inserați document

Opțiuni de partajare

Vi se pare util acest document?

Este necorespunzător acest conținut?

Drepturi de autor:

Formate disponibile

Idbi Bank Project

Încărcat de

Drepturi de autor:

Formate disponibile

STUDY AND ANALYSIS BANK FINANCES IN AGRICULTURE SECTOR (CONTRACT FARMING) Summer Project Report Submitted In the partial

Under the Guidance of: IDBI Bank Ltd. Mehsana

CERTIFICATE BY THE GUIDE

Dr. MAURVI PANDYA

Study and Analysis Bank Finance in Agriculture Sector (Contract Farming)

CERTIFICATE BY THE MENTOR

Mr. Abhishek Sawant,

IDBI Bank Ltd. Mehsana.

Study and Analysis Bank Finance in Agriculture Sector (Contract Farming)

(Name & Sign of Student)

Date: Place: III

Study and Analysis Bank Finance in Agriculture Sector (Contract Farming)

Study and Analysis Bank Finance in Agriculture Sector (Contract Farming)

Study and Analysis Bank Finance in Agriculture Sector (Contract Farming)

Study and Analysis Bank Finance in Agriculture Sector (Contract Farming)

List of Figures & Graphs

History of Banking Industries

History of Banking in India

Study and Analysis Bank Finance in Agriculture Sector (Contract Farming)

Non Banking Financial Institutions

Land Mortgage Rural Credit

IFCI SFCs IRBI NABARD HDFC SIDBI

Industrial Dev. Housing Finance EXIM Bank

Private Sector NBFC

Private Sectors Banks

Old private sector banks

New private sector banks

Study and Analysis Bank Finance in Agriculture Sector (Contract Farming)

Study and Analysis Bank Finance in Agriculture Sector (Contract Farming)

State Bank of Indore

State Bank of Mysore

State Bank of Patiala

State Bank of Saurashtra State Bank of Travancore

Study and Analysis Bank Finance in Agriculture Sector (Contract Farming)

Study and Analysis Bank Finance in Agriculture Sector (Contract Farming)

241 590 4520 12900 5929 830 757

4307 3530 36354 99819 15103 13114 4300

2417 2194 25566 91405 45414 9000 4017

4.64 2.51 0.24 1.65 1.74 2.71 1.56

* now merged with Centurion Bank

Study and Analysis Bank Finance in Agriculture Sector (Contract Farming)

698 333 328 45

0.00 0.00 0.30 6.02

Study and Analysis Bank Finance in Agriculture Sector (Contract Farming)

3310 556 1232 3578

21484 611 3625 17013

18111 560 2541 12621

2203 30 390 1627

1.00 0.00 0.00 0.50

0.00 0.00 0.00

0.00 1.90 1.12

(Source: A profile on banks 2004-05, RBI))

Study and Analysis Bank Finance in Agriculture Sector (Contract Farming)

2. Bringing about or promoting institutional development and

3. Evaluating, monitoring and inspecting the client banks

Besides this pivotal role, NABARD also:

Acts as a coordinator in the operations of rural credit institutions

Acts as regulator for cooperative banks and RRBs

Acts as regulator for cooperative banks and RRBs

Study and Analysis Bank Finance in Agriculture Sector (Contract Farming)

In pursuing this mission, NABARD focuses its activities on:

economic activities in rural areas.

It undertakes monitoring and evaluation of projects refinanced by it.

Study and Analysis Bank Finance in Agriculture Sector (Contract Farming)