Nabard's rural infra fund needs a relook, says RBI official

A senior Reserve Bank official today expressed displeasure at the working of Nabard's rural infrastructure development fund (RFID) and termed it a "committed line of credit" to the states which is not getting used for creation of credit absorption capacities.
As an alternative to the RIDF, which gets funded through the priority sector lending (PSL) shortfalls by banks, Deepali Pant Joshi, RBI Executive Director, suggested a migration to newer instruments like tradable PSL certificates.
"The RIDF is meant to fund quick completion of all ongoing projects. But over the years, the 'quick' disappeared first and then the 'ongoing projects' as well, and it became a kind of grant. It is a committed line of credit to the States which is actually not getting utilised for creation of credit absorption capacities," she said.

The RIDF is managed by RBI's subsidiary Nabard (National Bank for Agriculture and Rural Development).
Joshi said pouring money into the RIDF, which fetches banks returns that are a notch lower than the yield from loans, is not a penalty in the strict sense.
Therefore, there is a need to look at creation of newer models and alternatives, she said, emphasising that PSL is indispensable in a society like ours.

"There is a thinking (that) now we should move away from the RIDF, from the plethora of funds which we have created."
"Already we have interbank participation certificates. PSL certificates will be a way in which you can trade like you have a carbon credit. They'll have to work out the modalities," she added.

Stating that PSL is important, Joshi said, "It is essential because there is a moral argument for it. But it has to be underpinned with an efficiency argument because we simply cannot have asymmetries in development."
In its vision document in the recently released annual report, the RBI had promised to relook at the PSL guidelines.
Currently, banks are mandated to lend 40 per cent of their funds to the PSL sectors which cover agriculture, micro & and small enterprises, education and housing, among others.