Nabard to refinance loans for warehouses

NEW DELHI: The finance ministry has eased lending norms for the warehousing sector in a preemptive move to meet the massive requirement of storage capacity for the effective implementation of the Food Security Bill.

Under the new norms, the National Bank for Agriculture and Rural Development (Nabard) can fully refinance bank loans given out for construction of warehouses at a low 8% interest rate.

"The move will help the banks to lend more freely as they are assured of getting an 8% interest on such loans," said a finance ministry official.

The rate of interest to be charged to the borrowers will be decided by the respective banks as per their existing policy, he added.

As of now there are 115 warehouses registered in the country. A government study had indicated that additional capacity of about 152.97 lakh tones is required to be created in 19 states. It is expected that private players will create a storage capacity of 52.32 lakh tonnes.

"The storage capacity will need to increase at least two folds if we have to store essential foodgrains for distribution as proposed under the Food Security Act," the finance ministry official said.

The government is debating a food security law under which about 64% of population will be eligible for foodgrains at heavily subsidised rates.

Meeting this legal entitlement would require massive procurement and storage.

The refinance availed by the banks under this scheme will be repayable in annual instalments over a period of seven years, including a moratorium period of a maximum period of two years.

"We will also provide an interest rate rebate of 1.5% to those borrowers, who repay their loans along with interest," said KR Nair, chief general manager, Nabard. The rebate would be released by Nabard on receipt of a certificate issued by the financing bank, stating the full repayment of principal along with interest, he added.

The refinancing in this fiscal will be available for 2,000 crore as proposed under the budgetary announcement.

But Nabard has indicated that by the year 2013-14, the required amount will be in the range of 10,000 crore.

"With Food Corporation of India (FCI) taking godowns on lease for 10 years, we expect more private players to participate," said an executive director with a state run bank. FCI has a total storage capacity of 333.63 lakh tonnes, 90% of which have been utilised, as on June 2011.

Nabard will also undertake on-site and off-site monitoring of the implementation of the scheme throughout the loan period in association with the banks.