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Clarifications

Clarification to news article in Business Standard
  
 
National Bank for Agriculture and Rural Development
In response to Business Standard Article:  Rural Castles Built at Farmers’ Cost
 
1. Business Standard on 19 March, 2014, carried a news item captioned “Rural Castles built at Farmers’ Cost” by Shri C.L. Dadhich. In this connection, we would like to present the factual position on NABARD's Rural Infrastructure Development Fund.

2. The author’s argument that mandatory credit is diverted from farmers to State Governments on account of banks’ preference to RIDF deposits is both flawed and incorrect in view of the following:
 
  • RIDF deposits are drawn from banks who have already defaulted in priority sector lending and not vice versa. Further, only investments in RIDF deposit do not count for priority sector lending.
  • As per RBI guidelines on RIDF deposits, the interest paid on bank deposits varies from bank rate minus 2% to bank rate minus 5% depending upon the shortfall in priority sector lending which currently ranges from 7% to 4% (gross), the author’s contention of RIDF deposit rates at 6.5% is thus erroneous.
  • The author has illogically compared the gross interest rates on RIDF deposits (6.5%) with net return on priority sector lending (4.5%). If we consider the weighted average cost of deposits, the return from RIDF deposits would even be negative, thus making it a disincentive to invest in RIDF deposits for the banks.

3. RIDF corpus at 20,000 crore for the year 2013-14 constitutes only a minor portion (12.7 %) as compared to the priority sector shortfall by public and private sector banks at 1.35 lakh crore and 0.22 lakh crore based on the data on priority sector lendings by banks as published in RBI Annual Report 2012-13.

4. RIDF loans have been utilised by State Governments for creating much needed capital formation in agriculture and critical rural infrastructure. The purposes ranged from irrigation and watershed development to rural connectivity and warehouses, apart from social infrastructure such as drinking water, schools and primary health. Since inception, an amount of 1,40,948 crore has been disbursed under RIDF creating 216 lakh ha of irrigation potential, 3.74 lakh km of rural roads and over 109 lakh regular rural employment. Impact evaluation studies by IIM, Bangalore, IIM, Lucknow, IIT – Roorkee, MITCON have reported significant improvement in cropping intensity, yield, income and improvement in living standards apart from significant improvement in credit flow by Commercial Banks/RRBs/Cooperative Banks in RIDF project areas.

5. RIDF has actually enhanced the enabling environment for priority sector credit rather than depriving farmers of their share as argued by the author. It has led to capital formation in the agriculture sector and lead to verifiable, significant improvement in the rural economy of the project areas.