9 Salient Features of Differential Rate of Interest Scheme (DRI)

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9 Salient Features of Differential Rate of Interest Scheme (DRI)

The scheme was introduced in 1972 and is being implemented by all-Indian Scheduled Commercial Banks.

1. Objective:

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To provide bank finance at a concessional rate of interest of 4 per cent p.a. to the weaker sections of the community for engaging in productive and gainful activities so that they could improve their economic conditions.

2. Area of Operations:

The scheme is being implemented throughout the country.

3. Target Group/Eligibility Criteria:

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The income ceiling for eligibility is annual income of Rs. 7200 per family in urban or semi-urban areas and Rs. 6400 per family in rural areas. Size of landholding must not exceed one acre of irrigated land and 2.5 acres of unirrigated land. The landholding criteria are not applicable to SCs/STs.

The important categories of borrowers under the scheme are SCs/STs and others engaged on a very modest scale, in agriculture and/or allied agricultural activities, people who themselves collect or do elementary process­ing of forest products, people physically engaged on modest scale in the fields of cottage and rural industries and vocation, indigent students of merit, etc.

The banks are required to lend under the Scheme, at least one per cent of their aggregate advances as at the end of the previous year. 2/3rd of the total DRI advances must be routed through the banks’ rural and semi-urban branches.

4. Loan Amount:

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The maximum assistance per beneficiary has been fixed at Rs. 6500 for productive purposes. In addition to this, physically handicapped persons can avail of assistance to the extent of Rs. 5000 (maximum) per beneficiary for acquiring aids, appliances, equipment, provided they are eligible for assistance under the scheme.

Similarly, members of SC/STs satisfying the income criteria of the scheme can also avail of housing loan up to Rs. 5000 per beneficiary over and above the loan of Rs. 6500 available under the scheme.

5. Margin Money:

No margin money has been prescribed under the scheme.

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6. Capital Subsidy/Interest:

No capital subsidy is available. Rate of interest to be charged on loans is 4 per cent p.a.

7. Security:

No collateral security/third party guarantee is required. Assets created out of the loan amount would only be hypothecated to the banks.

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8. Repayment:

Not exceeding five years including grace period of two years.

9. Reservation/Preference:

The banks are required to ensure that at least 40 per cent of their DRI advances flow to SC/STs.

Lead Bank Scheme

In accordance with the socio-economic policies of the nation, major commercial banks were nationalised in 1969. The concept of social banking, introduced along with the nationalisation of banks brought about increased lending to hitherto neglected sectors like agriculture, small-scale industries and services, with special emphasis on borrowers of small means.

These borrowers had traditionally not been assisted through institutional credit and in order to achieve the objective of nationalisation, these vulnerable groups were clas­sified as priority sector.

Consequent upon the recommendation of both, the Gadgil Study Group and the Bankers Committee (Nariman Committee), Reserve Bank of India intro­duced ‘Lead Bank Scheme’ towards the end of 1969.

The Study Group observed that commercial banks had no adequate presence in rural areas and also lacked the requisite rural orientation.

As a result, banking needs of the rural areas in general and the backward regions in particular could not be adequately taken care of by commercial banks and the credit needs of the rural segment of the economy, such as agriculture, small-scale industries and services, remained virtually neglected.

The Lead Bank Scheme was therefore evolved as an important organisational framework to fulfill the primary objective of enhancing financial assistance to priority sectors.

The Scheme

To enable banks to play their lead role in an effective and systemic manner, all districts in the country, except the metropolitan cities, were allotted among public sector banks and one private sector bank. Such a bank in a district is known as the Lead Bank for that district.

The Lead Bank is required to act as a consortium leader for co-coordinating the efforts of all credit institutions in the allotted district, in the context of expansion of branch network, banking facilities and for meeting the needs of the district. As on 31st March 2002, a total of 580 districts all over India have been covered under the Lead Bank Scheme.

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