CHAPTER 20
MINISTRY OF SOCIAL JUSTICE AND EMPOWERMENT

National Minorities Development and Finance Corporation

National Minorities Development and Finance Corporation (Company) is the apex institution for financing and promoting the economic and developmental activities of ‘backward sections’ amongst minorities through the designated State Channelising Agencies (SCAs). In pursuance of its objective, the Company provides financial assistance to minorities under various schemes by extending soft term loans to SCAs at nominal rate of interest ranging from 1 to 4.5 per cent per annum, with a rebate of 0.5 per cent for timely repayment of dues. In case the funds released by the Company were not utilised within a period of three months, the Company was to charge interest at a higher rate of 12 per cent per annum on the unutilised funds. The Company, however, made a revised lending policy effective from 1 April 1999 according to which the funds were given to SCAs as advance on enhanced rate of interest by 2 per cent and the same were brought down to normal rate of interest if funds were utilised within prescribed period of 3 months.

During the period from 1994-95 to 1999-2000, the Company released the term/margin money loans amounting to Rs. 96.39 crore to five SCAs as given below:

(Rs. in crore)

1    Uttar Pradesh Minorities Finance and Development Corporation Limited
2    Madhya Pradesh Backward Classes Finabce and Development Corporation Limited
3    Tamil Nadu Backward Classes Economic Development Corporation
4    Karnataka Minorities Development Corporation Limited
5    Kerala State Women Development Corporation Limited

Scrutiny of disbursement of loans by the Company and utilisation of the same by the SCAs revealed that there was a significant delay in disbursement of funds by the SCAs thereby depriving the needy target groups of an early assistance as brought out below:

1. The Company released loans to the SCAs without ensuring the utilisation of funds released earlier.
2. Further, the loans were released without obtaining the list of identified beneficiaries. This led to a situation where the SCAs took action to identify the beneficiaries after the receipt of the funds. Consequently it resulted in delay in disbursement of loans to the beneficiaries, which was upto 67 months from the date of drawl.
3. Out of Rs. 96.39 crore released upto 31 March 2000, the funds amounting to Rs.5.34 crore were lying undisbursed with the SCAs as of 31 March 2000. In fact, some of the SCAs kept the undisbursed funds as fixed deposits in banks to earn higher rate of interest. However, despite specific provision in the General Loan Agreement for recovery of interest at a higher rate in the event of delay in utilisation of funds by the SCAs, the Company did not enforce this provision for levying penal interest amounting to Rs.6.43 crore on five SCAs.
4. (iv)    In March 1995, margin money loan of Rs.2.53 crore was given to KMDC without ensuring acceptance of bankers for recovery of its share along with the main loan. KMDC, in turn, could disburse the loan to the beneficiaries over a period of 39 months against the prescribed period of 3 months.
5. A loan of Rs. 4.64 crore was released to TNBCEDC in March 1995. However, it could disburse the funds to the ultimate beneficiaries over a period of 67 months. The funds, which should have been disbursed by June 1995, were actually invested by the SCA in fixed deposits of the Banks, fetching more interest than they could get from the beneficiaries.

The Management stated (December 2000) that the SCAs were not well equipped in terms of the infrastructure and as such in the initial years they were taking an average time of 24 months for utilisation of the funds which reduced to 6 to 9 months in December 2000. They further stated that the punitive clause contained in General Loan Agreement for payment of penal interest and liquidated damages was meant for quicker utilisation of the funds and timely repayment of dues. Such severe action of levying penal interest would cripple the financially weak SCAs. The Management further stated (September 2001) that the revised lending policy effective from 1 April 1999 had significantly improved the utilisation of funds by SCAs and the problem of delay in utilisation of funds had been considerably minimised.

The reply is not tenable, as the Company did not enforce the clause to levy penal interest on delayed disbursements to ensure the quicker disbursement of funds by the SCAs to the ultimate beneficiaries. Thus, the very purpose of giving loans to the SCAs was defeated. Moreover, the SCAs availed the benefit of easy finance for periods ranging upto 67 months and kept the unutilised funds in fixed deposits to earn higher rate of interest. This had not only resulted in undue benefit to the SCAs, but also the ultimate beneficiaries were deprived of early benefit of the schemes. Besides, the Company had forgone penal interest of Rs. 6.43 crore.

The matter was referred to the Ministry in July 2001; their reply was awaited (October 2001).