The Reserve Bank of India (RBI) has issued guidelines and instructions to banks from time to time on credit facilities to Scheduled Castes (SCs) & Scheduled Tribes (STs). In this regard, the RBI has issued a Master Circular that consolidates all the circulars issued by the Reserve Bank on the subject till date.
This circular provides a comprehensive guide for all Scheduled Commercial Banks, including Small Finance Banks, to step up their advances to SCs/STs. This article will delve into the circular’s details and elaborate on the measures banks can take to increase credit flow to SCs/STs.
RBI Master Circular dated 01/04/2023: Credit facilities to Scheduled Castes (SCs) & Scheduled Tribes (STs)
1. Planning Process for Credit Facilities
The Master Circular stipulates that the District Level Consultative Committees formed under the Lead Bank Scheme should be the principal mechanism of coordination between banks and development agencies. The credit plans formulated by the Lead Banks should clearly indicate the linkage of credit with employment and development schemes. Banks should establish closer liaison with the District Industries Centres, which have been set up in different districts for promoting self-employment.
The credit planning process should be weighted in favour of SCs/STs at the block level, and special bankable schemes suited to them should be drawn up to ensure their participation and larger flow of credit to them for self-employment. Banks should consider their loan proposals with utmost sympathy and understanding. Banks should periodically review their lending procedures and policies to ensure that loans are sanctioned in time, are adequate and production-oriented, and generate incremental income to make them self-liquidating.
2. Role of Banks in Credit Facilities
To encourage SC/ST borrowers to take advantage of credit facilities, greater awareness among them about various schemes formulated by banks needs to be created through various means such as brochures, visits by field staff, etc. Banks should advise their branches to organize meetings more frequently exclusively for SC/ST beneficiaries to understand their credit needs and incorporate them into the credit plan. Circulars issued by RBI/NABARD should be circulated among the staff for compliance.
Banks should not insist on deposits while considering loan applications under Government sponsored poverty alleviation schemes/self-employment programmes from borrowers belonging to SCs/STs. It should also be ensured that applicable subsidy is not held back while releasing the loan component until the full repayment of bank dues. Non-release of subsidy upfront amounts to under-financing and hampers asset creation/income generation.
Loans sanctioned to State Sponsored Organisations for Scheduled Castes/ Scheduled Tribes for the specific purpose of purchase and supply of inputs and/or the marketing of the outputs of the beneficiaries of these organisations are eligible for priority sector classification. Rejection of SC/STs’ loan applications under government programmes should be done at the next higher level instead of at the branch level, and reasons for rejection should be clearly indicated.
3. Role of SC/ST Development Corporations
The Scheduled Caste/Scheduled Tribes Development Corporations can consider bankable schemes/proposals for bank finance. The Government of India has advised all State Governments in this regard.
4. Reservations for SC/ST beneficiaries under major Centrally Sponsored Schemes
There are several major centrally sponsored schemes under which credit is provided by banks, and subsidy is received through Government Agencies. Credit flow under these schemes is monitored by RBI. Under each of these, there is a significant reservation/relaxation for the members of the SC/ST communities.
5. Differential Rate of Interest (DRI) Scheme
Under the DRI Scheme, banks provide finance up to Rs 15,000/- at a concessional rate of interest of 4 per cent per annum to the weaker sections of the community for engaging in productive and gainful activities. Banks have been advised to grant eligible borrowers belonging to SCs/STs such advances to the extent of not less than 2/5th (40 percent) of total DRI advances. Moreover, the eligibility criteria under DRI, viz. size of land holding should not exceed 1 acre of irrigated land and 2.5 acres of unirrigated land, are not applicable to SCs/STs. Members of SCs/STs satisfying the income criteria of the scheme can also avail of housing loans up to Rs 20,000/- per beneficiary over and above the individual loan of Rs 15,000/- available under the scheme.
6. Credit Enhancement Guarantee Scheme for Scheduled Castes (CEGSSC)
The CEGSSC was launched by the Ministry of Social Justice & Empowerment on May 6, 2015, to promote entrepreneurship amongst the Scheduled Castes (SCs), by providing credit enhancement guarantee to Member Lending Institutions (MLIs) that extend financial assistance to these entrepreneurs. IFCI Ltd. has been designated as the Nodal Agency under the scheme to issue the guarantee cover in favour of MLIs for financing SC entrepreneurs.
Individual SC entrepreneurs/Registered Companies and Societies/Registered Partnership Firms/Sole Proprietorship firms having more than 51% shareholding and management control for the previous 6 months by SC entrepreneurs/promoters/members are eligible for guarantee from IFCI Ltd. against the loans extended by MLIs. The amount of guarantee cover under CEGSSC ranges from a minimum of Rs 15 lac to a maximum of Rs 5 Crore. The tenure of guarantee is up to a maximum of 7 years or repayment period, whichever is earlier.
7. Monitoring and Reporting Requirements
A special cell should be set up at the Head Office of banks for monitoring the flow of credit to SC/ST beneficiaries. The cell would be responsible for ensuring the implementation of the RBI guidelines, collection of relevant information/data from the branches, consolidation thereof, and submission of the requisite returns to RBI and Government.
The Head Office of banks should periodically review the credit extended to SCs/STs on the basis of returns and other data received from the branches. Any major gap or variation in credit flow to SCs/STs on a year-to-year basis should be reported to the Board as part of the review on the theme of “Financial Inclusion” in terms of circular dated May 14, 2015. Banks should review the measures taken to enhance the flow of credit to SC/ST borrowers on a quarterly basis. The SLBC Convenor bank should invite the representative of National Commission for SCs/STs to attend SLBC meetings. The Convenor bank may also invite representatives from the National Scheduled Castes and Scheduled Tribes Finance and Development Corporation (NSFDC) and State Scheduled Castes and Scheduled Tribes Finance and Development Corporation (SCDC) to attend SLBC meetings.
The Master Circular issued by the RBI aims to provide equal opportunities to SCs/STs and promote their inclusive growth by enabling them to access credit facilities. It is the responsibility of all Scheduled Commercial Banks, including Small Finance Banks, to ensure the proper implementation of the guidelines and instructions issued by the RBI for the credit facilities extended to SCs/STs. Banks should take the measures indicated in the Master Circular and establish closer liaison with the District Industries Centres and other development agencies to ensure the flow of credit to SCs/STs for their self-employment and development schemes. The circular highlights the various schemes and initiatives launched by the Government for the benefit of SCs/STs and provides guidelines to the banks on their implementation. Banks should also ensure that they do not discriminate against SCs/STs and take necessary measures to create greater awareness among them about the various schemes formulated by the banks.
In conclusion, the RBI Master Circular on Credit facilities to Scheduled Castes (SCs) & Scheduled Tribes (STs) plays an important role in promoting financial inclusion and empowering SCs/STs in India. It provides a framework for banks to extend credit facilities to SCs/STs and ensure their participation in the mainstream economy. Banks must follow the guidelines provided in the Master Circular and work towards the development of SCs/STs through the provision of credit facilities. Through the proper implementation of the Master Circular, banks can play a crucial role in the development of the country by ensuring the inclusive growth of all its citizens, including those from marginalized communities.