The Reserve Bank of India has asked the National Bank for Agricultural and Rural Development (Nabard) to come clean on its controversial warehousing refinance scheme. In a communication last week, the RBI has talked tough, asking Nabard to comply with regulatory directions in this regard.
In September, it had taken ‘serious’ note of violations in financing of warehousing infrastructure under the Rural Infrastructure Development Fund (RIDF) scheme. And it is now sticking to its stand against Nabard’s act of extending refinance to banks during 2011-12 for setting up warehouses in the private sector.
Nabard was censured for (i) charging higher interest rate than prescribed; and (ii) converting RIDF-XVII into a refinancing scheme for warehousing infrastructure lending. Nabard had charged an interest rate of 8 per cent, against the prescribed 6.5 per cent for 2011-12.
It was told to refund the amount refinanced with interest at applicable rates to contributing banks in proportion to their contribution to the warehousing fund.
In the latest communication, Nabard has been given the option of treating the deposits used for refinancing as its own ‘commercial borrowings’ from depositing banks. These ‘borrowings’ would carry an interest rate on par with which it raises money from open market for an equivalent tenor of RIDF deposits. Business Line learns that Nabard has, in turn, proposed that the refinance scheme 2011-12 be withdrawn with retrospective effect.
Banks getting refinance during 2011-12 would be advised to refund the entire amount drawn by them at the contracted rate (8 per cent).
SCHEME WITHDRAWAL
Another option would be for them to carry the entire amount according to the repayment schedule prescribed at the prevailing rate of general refinance. These rates range from 10 per cent for regional rural banks, State cooperative banks and urban banks to 10.25 per cent for commercial banks.
Nabard would also refund the entire amount of Rs 759.09 crore drawn under the RIDF-XVII to the contributing banks with interest as applicable. Sources say this would also mean Nabard taking a hit of slightly above Rs 100 crore on its balance-sheet.