India - Agricultural Refinance Corporation Credit Project : Credit 0540 - Project Agreement - Conformed

CONFORMED COPY CREDIT NUMBER 540 IN Project Agreement (Agricultural Refinance Corporation Credit Project) BETWEEN INTERNATIONAL DEVELOPMENT ASSOCIATION AND AGRICULTURAL REFINANCE CORPORATION DATED APRIL 28, 1975 PROJECT AGREEMENT AGREEMENT, dated April 28, 1975, between INTERNATIONAL DEVELOPMENT ASSOCIATION (hereinafter called the Association) and AGRICULTURAL REFINANCE CORPORATION (hereinafter called ARC). WHEREAS by the Development Credit Agreement of even date herewith between India, acting by its President (hereinafter called the Borrower) and the Association, the Association has agreed to make available to the Borrower an amount in various currencies equivalent to seventy-five million dollars ($75,000,000), on the terms and conditions set forth in the Development Credit Agreement, but only on condition that ARC agree to undertake such obligations toward the Association as hereinafter set forth: WHEREAS by a subsidiary loan agreement to be entered into between the Borrower and ARC, the proceeds of the credit provided for under the Development Credit Agreement will be made available to ARC on the terms and conditions therein set forth; and WHEREAS ARC, in consideration of the Association's entering into the Development Credit Agreement with the Borrower, has agreed to undertake the obligations hereinafter set forth; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I Definitions Section 1.01. Wherever used in this Agreement, unless the context shall otherwise require, the several terms defined in the Development Credit Agreement and in the General Conditions (as so defined) have the respective meanings therein set forth. ARTICLE II Execution of the Project Section 2.01. ARC shall carry out the Project described in Schedule 2 to the Development Credit Agreement with due diligence and efficiency and in conformity with appropriate administrative, financial, agricultural and engineering 4 practices, and shall provide, or cause to be provided, promptly as needed, the funds, facilities, services and other resources required for the purpose. Section 2.02. (a) ARC shall enter into a Subsidiary Loan Agreement with the Borrower on terms and conditions (including inter alia those set forth in Schedule 3 to the Development Credit Agreement) satisfactory to the Association. ARC shall duly perform all its obligations under the Subsidiary Loan Agreement. Except as the Association shall otherwise agree, ARC shall not take or concur in any action which would have the effect of amending, abrogating, assigning or waiving the Subsidiary Loan Agreement or any provision thereof. (b) ARC shall, for the purpose of on-lending the funds lent to ARC by the Borrower to the Participating Banks, enter into agreements with such Participating Banks upon terms and conditions which shall include those set forth in Paragraph I of Schedule 1 to this Agreement. Section 2.03. (a) With regard to all lending under Part A of the Project, ARC shall ensure that Participating Banks apply the lending terms and conditions set forth in paragraph 2 of Schedule 1 to this Agreement, including, without limitation, the special conditions for Small Farmers. (b) With regard to lending for minor irrigation under the said Part A, ARC shall, in addition to the foregoing: (i) ensure that the well spacing and density criteria set forth in Schedule 2 to this Agreement, as such Schedule may be amended by agreement between the Association and ARC, are applied; (ii) ensure that before ARC approves a Scheme in an area, a detailed study of the availability of water is carried out, taking into account prior and downstream users, as well as the net depletion resulting from actual and proposed groundwater exploitation and the effect of such exploitation on the base flow of the streams involved; and (iii) ensure that in the specified areas referred to in the list to be furnished by the Central Groundwater Board in accordance with the provisions of Section 4.03 of the Development Credit Agreement, a special study be carried out by the groundwater authority of the State involved, justifying the investment. Section 2.04. (a) Without any limitation or restriction upon the provisions of Section 2.03 hereof and in consultation and agreement with the Association, 5 starting October 1, 1977, or such other date as the Association shall agree, ARC shall not make any refinancing available to an LDB for lending through a branch of such LDB or to a Primary Bank member of such LDB, if: (i) such LDB fails to collect 65% of demand on loans made through such branch, or such Primary Bank fails to collect 65% of demand, as the case may be; and (ii) in the event that such LDB through such branch, or such Primary Bank, has collected 65% or more of demand, but less than 75%, the State Government fails to pay in equity of such LDB or Primary Bank in an amount such that the recovery rate is brought to 75% of demand or more, provided, however, that the amount of such paid-in equity shall not exceed 10% of demand. (b) ARC shall, as an interim measure, ensure that all refinancing made available in any fiscal year to an LDB established in any State, for lending through a branch of such LDB or to a Primary Bank member of such LDB, as the case may be, be proportionate to the percentage of recovery of principal and interest on loans fallen due at the end of the preceding fiscal year of such LDB or Primary Bank. The amount of refinancing so to be made available to any LDB for lending through a branch, or to a Primary Bank, shall be determined by applying to the aggregate of all debentures issued in the previous fiscal year of such LDB for refinancing lending made through such branch, or issued by such Primary Bank, as the case may be, the percentage set forth in column (2) of the table below corresponding to the percentage of overdues of principal and interest on loans fallen due at the end of such fiscal year for such branch or Primary Bank set forth in column (1) below: (1) (2) Maximum debentures Overdues to be issued (% of demand) (% of previous year issue) 0 - 25 unrestricted 26 - 35 80 36 - 45 70 46 - 55 60 56 - 60 50 61 - 100 NIL Provided that ARC shall not make any refinancing available to any LDB branch or Primary Bank in the event that: (i) such LDB branch or Primary Bank has achieved a recovery rate of less than 75% of demand in the previous fiscal year 6 and (ii) such recovery rate is less than the recovery rate achieved by such LDB branch or Primary Bank in the fiscal year immediately preceding such fiscal year. In calculating the overdues for the purpose of this sut paragraph, ARC may take into account redeemable equity paid in to reduce such overdues up to an amount of such equity not exceeding 10% of demand. (c) For the pwrpose of this Section, the following terms have the following meanings: (i) "demand" means the aggregate of principal and interest on loans fallen due; (ii) "overdues" means that part of demand which has not been collected; and (iii) "recovery rate" means the percentage of demand which has been collected. Section 2.05. Without any limitation or restriction upon the provisions of Sections 2.03 and 2.04 of this Agreement, ARC shall not make any refinancing available to any State LDB unless such LDB and its Primary Banks, if any, apply the lending terms and conditions set forth or referred to in Section 2.03 of this Agreement for all similar types of projects. Section 2.06. Amounts allocated to Categories (1) and (2) of the table in paragraph I of Schedule 1 to the Development Credit Agreement shall be used to finance loans from ARC to State cooperative banks providing medium- and long-term loans for Schemes under the Project, provided: (i) ARC applies to such banks, their branches and primary societies provisions of this Agreement relating to LDB including, without limitation, the conditions of refinancing set forth in Sections 2.03, 2.04 and 2.05 of this Agreement provided, however, that the provisions of paragraph (a) of the said section 2.04 shall apply to the said cooperative banks, branches and primary societies from the date of this Agreement and that the provisions of paragraph (b) of the said Section shall not apply to them; and (ii) the aggregate of such amounts so used does not exceed the equivalent of $500,000. 7 Section 2.07. ARC shall, in consultation with the Association, take all such steps as shall be necessary to ensure that not less than $37,000,000 equivalent of the proceeds of the Credit under Categories (1) and (2) shall be used to refinance loans to Small Farmers. Section 2.08. ARC shall ensure that valuation of land offered for security of loans to be financed under the Project shall be based on the estimated value of the land after development resulting from the proposed loan. Section 2.09. In carrying out Part B(ii) of the Project, ARC shall: (i) complete the study of the training needs of junior-level LDB staff not later than October 3 1, 1975, or such other date as the Association shall agree; (ii) thereafter prepare and furnish to the Association a draft training program for its approval; and (iii) implement such program as agreed between the Association and ARC. Section 2.10. ARC shall establish a system, satisfactory to the Association, of evaluating on a continuous basis the financial and economic benefits of agricultural credit financed under the Project, which shall also be suitable to monitor similar projects financed by the Association through ARC. Section 2.11. Except as the Association may otherwise agree, ARC shall cause all goods and services financed out of the proceeds of the Credit relent or made available to it by the Borrower to be used exclusively for the Project. Section 2.12. (a) ARC shall furnish to the Association promptly upon their preparation, reports, contract documents and work schedules for the Project, and any material modifications thereof or additions thereto, in such detail as the Association shall reasonably request. (b) ARC: (i) shall maintain records adequate to record the progress of the Project (including the cost thereof and including separate records for lending to Small Farmers) and to identify the goods and services financed out of the proceeds of the Credit relent or made available to it by the Borrower, and to disclose the use thereof in the Project; (ii) shall enable the Association's representatives to visit the facilities and construction sites included in the Project, and to examine the goods financed out of such proceeds and any relevant records and documents; and (iii) shall furnish to the Association all such information as the Association shall reasonably request concerning the Project, the expenditure of the proceeds of the Credit so relent or made available to it and the goods and services financed out of such proceeds. 8 Section 2.13. (a) ARC shall, at the request of the Association, exchange views with the Association with regard to the progress of the Project, the performance of its obligations under this Agreement and under the Subsidiary Loan Agreement, and other matters relating to the purposes of the Credit. (b) ARC shall promptly inform the Association of any condition which interferes or threatens to interfere with, the progress of the Project, the accomplishment of the purposes of the Credit, or the performance by ARC of its obligations under this Agreement and under the Subsidiary Loan Agreement. ARTICLE III Management and Operations of ARC Section 3.01. ARC shall: (i) at all times manage its affairs, maintain its financial position, plan its future expansion and carry on its operations, all in accordance with sound business and financial practices and under the supervision of experienced and competent management assisted by experienced and competent staff in adequate number; and (ii) take all steps necessary to acquire, maintain and renew all rights, powers, privileges and franchises which are necessary or useful in the conduct of its business or in the carrying out of the Project. Section 3.02. Except as the Association shall otherwise agree, ARC shall take all steps necessary on its part to ensure that the participating commercial banks shall apply in areas of Project lending the same criteria to all similar types of lending that they apply to Project lending and, with respect to such similar types of lendings, shall not offer more favorable terms in such areas than are offered under Project lending except for schemes submitted under the aegis of the Small Farmers Development Agencies. Section 3.03. ARC shall charge, and shall ensure that Participating Banks charge, at all times interest rates on all their loans at rates sufficient to enable ARC and the Participating Banks respectively to: (a) cover all operating expenditures and charges including taxes (if any) and interest payments on borrowings; and (b) maintain adequate provisions for bad debts and maintain adequate general reserves in accordance with sound commercial practice. ARTICLE IV Financial Covenants Section 4.01. ARC shall maintain records adequate to reflect in accordance with consistently maintained appropriate accounting practices its operations and financial condition. 9 Section 4.02. ARC shall: (i) have its accounts and financial statements (balance sheets, statements of income and expenses and related statements) for each fiscal year audited, in accordance with sound auditing principles consistently applied, by independent auditors acceptable to the Association; (ii) furnish to the Association as soon as available, but in any case not later than four months after the end of each such year, (A) certified copies of its financial statements for such year as so audited and (B) the report of such audit by said auditors, of such scope and in such detail as the Association shall have reasonably requested; and (iii) furnish to the Association such other information concerning the accounts and financial statements of ARC and the audit thereof as the Association shall from time to time reasonably request. Section 4.03. ARC shall: (i) require Participating Banks to maintain separate accounts for Project lending; and (ii) ensure that the annual audited accounts of such Banks are submitted to the Association within four months of the end of their fiscal year together with a statement of Project lending for such Banks certified by ARC. ARTICLE V Effective Date; Termination; Cancellation and Suspension Section 5.01. This Agreement shall come into force and effect on the date upon which the Development Credit Agreement becomes effective. Section 5.02. (a) This Agreement and all obligations of the Association and of ARC thereunder shall terminate on the earlier of the following two dates: (i) the date on which the Development Credit Agreement shall terminate in accordance with its terms; or (ii) a date fifteen years after the date of this Agreement. (b) If the Development Credit Agreement terminates in accordance with its terms before the date specified in paragraph (a)(ii) of this Section, the Association shall promptly notify ARC of this event. Section 5.03. All the provisions of this Agreement shall continue in full force and effect notwithstanding any cancellation or suspension under the Development Credit Agreement. 10 ARTICLE VI Miscellaneous Provisions Section 6.01. Any notice or request required or permitted to be given or made under this Agreement and any agreement between the parties contemplated by this Agreement shall be in writing. Such notice or request shall be deemed to have been duly given or made when it shall be delivered by hand or by mail, telegram, cable, telex or radiogram to the party to which it is required or permitted to be given or made at such party's address hereinafter specified or at such other address as such party shall have designated by notice to the party giving such notice or making such request. The addresses so specified are: For the Association: International Development Association 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: INDEVAS Washington, D.C. For ARC: Managing Director Agricultural Refinance Corporation Shri Niketan F Block Shiv Sagar Estate Dr. Annie Besant Road Worli, Bombay, 400018 India Cable address: AGREFINANS Bombay Section 6.02. Any action required or permitted to be taken, and any documents required or permitted to be executed, under this Agreement on behalf 11 of ARC may be taken or executed by its Managing Director or such other person or persons as ARC shall designate in writing. Section 6.03. ARC shall furnish to the Association sufficient evidence of the authority and the authenticated specimen signature of the person or persons who will, on behalf of ARC, take any action or execute any documents required or permitted to be taken or executed by ARC pursuant to any of the provisions of this Agreement. Section 6.04. This Agreement may be executed in several counterparts, each of which shall be an original, and all collectively but one instrument. IN WITNESS WHEREOF, the parties hereto, acting through their representatives thereunto duly authorized, have caused this Agreement to be signed in their respective names in the District of Columbia, United States of America, as of the day and year first above written. INTERNATIONAL DEVELOPMENT ASSOCIATION By /s / M. L. Weiner Regional Vice President South Asia AGRICULTURAL REFINANCE CORPORATION By /s / T. N. Kaul Authorized Representative 12 SCHEDULE 1 Project Lending Terms and Conditions The following lending terms and conditions shall be used in implementing the Project: 1. ARC to Participating Banks (a) Interest rate to be not less than 7.5% per annum; (b) Installment repayments to coincide approximately with collections from ultimate borrowers; and (c) Refinancing to be by purchase of debentures or by loans up to 90% of individual loans. 2. Participating Banks to Ultimate Borrowers (A) Loans for Minor Irrigation: (a) Interest rate to be not less than 10.5% per annum; (b) A once and for all evaluation fee of 0.5% of the cost of project investments may be charged; (c) Farmers' contribution (including obligatory purchase of LDB shares, own labor, and other contributions in cash or kind): (i) for lending to Small Farmers, a minimum 5% of investment cost; (ii) for farmers cultivating land providing a pre-development net return to family resources to such farmer and his family ranging from Rs2,001 to Rs3,500 based on 1972 prices, a minimum of 10% of the investment cost. For the purposes of determining said net returns, the criteria set forth in Schedule 3 to this Agreement shall apply; and (iii) for other farmers, a minimum of 10% of the cost of pumpsets and 15% for other minor irrigation investments. 13 (d) Repayment periods to be based on the ultimate borrower's repayment capacity, but not to exceed: (i) for normal lending: (1) 7 years on loans for pumpsets, whether financed as separate loans or included in other minor irrigation loans; and (2) 9 years on loans for minor irrigation, other than pumpsets; and (ii) for lending to Small Farmers: (1) 7 years on loans for pumpsets, whether financed as separate loans or included in other minor irrigation loans; and (2) 15 years for all other minor irrigation loans; (e) Grace periods not exceeding 23 months from the date of the first installment of the loans, taking into account a full kharif and rabi crop, may be granted at the discretion of ARC, provided that the repayment period of .such loans is not exceeded; (f) Technical standards, in particular spacing criteria, as laid down by ARC to be observed; (g) If his own cultivated area is significantly smaller than that which can be adequately irrigated by the irrigation unit so financed, the borrower will undertake to sell water surplus to his needs, or to hire out his pumpset, or to participate with other farmers in the joint investment and operation of the irrigation unit. (B) Loans for Projects other than Minor Irrigation: (a) Annual interest rate to be not less than 1 1% per annum; (b) A once and for all evaluation fee of 0.5% of the cost of investment may be charged; 14 (c) Farmers' contribution (including obligatory purchase of LDB shares, own labor and other contributions in cash or kind): (i) for lending to Small Farmers, a minimum 5% of investment cost; (ii) for Farmers cultivating land providing a pre-development net return to family resources to such Farmer and his family ranging from Rs2,001 to Rs3,500 based on 1972 prices, a minimum of 10% of the investment cost. For the purposes of determining said net returns, the criteria set forth in Schedule 3 to this Agreement shall apply; and (iii) for other farmers, 15% of the investment cost. For the purpose of this paragraph, the terms "Small Farmer" and "Farmer" shall include all beneficiaries of Schemes other than minor irrigation; for the purpose of determining the equivalent of Small Farmers and Farmers among such beneficiaries, the definition of Small Farmer and the description of Farmers set forth in sub-paragraph (ii) hereof shall be adapted to mean "any person primarily engaged in an activity relevant to a Scheme other than minor irrigation which provides a pre-development net return to family resources to such person and his family not exceeding Rs2,000" and "ranging from Rs2,001 to Rs3,500", respectively; and "net return to family resources" shall mean gross family income from the said activity less costs actually incurred. (d) Repayment periods to be based on the ultimate borrower's repayment capacity, but not to exceed 15 years (including grace periods where necessary); (e) No loan shall be granted for marketing Schemes or storage facilities related thereto without prior approval of the Association. (C) General (a) Participating Banks to maintain separate accounts for lending to Small Farmers; (b) Security to be in accordance with arrangements between Participating Banks and ARC; (c) ARC shall refinance only sound Schemes which, on the basis of careful study are considered to be financially viable, have a minimum financial 15 rate of return of 15%, and are backed with satisfactory technical and administrative management; and (d) ARC shall forward all applications for refinance of Schemes having total investment costs of US$0.5 million equivalent or more for diversified lending, together with appraisal reports and all other relevant data to the Association for its approval before ARC approves the scheme. 16 SCHEDULE 2 Spacing and Density of Wells A. Spacing of Wells In order to avoid danger of excessive interference of wells, their spacing shall be determined for any area by the following formula: S = 100 RxA r B. Density of Wells Density of wells within an elementary watershed shall be determined by application of the following formula: d = 100 r RxA where S = distance between wells in meters d = density (wells/km2) R - total crop irrigation requirement (mm/ha) for all crops grown in normal pattern on the irrigated area A = size of the area to be irrigated (ha) r = estimated annual recharge (mm) 17 SCHEDULE 3 Definition of Small Farmer 1. "Small Farmer" shall mean any farmer cultivating land providing a pre-development net return to family resources to such farmer and his family not exceeding Rs2,000 based on 1972 prices. 2. For the purpose of determining said net return, the following criteria shall apply: (a) "land" shall include all land actually cultivated by the farmer notwithstanding the fact that ownership of such land may vest in one or more persons; (b) "net return to family resources" shall mean gross family income from the land, less costs actually incurred (including cash value of the farmer's own input, including seed, fertilizer, hired human labor, hired bullock labor, feed consumed by family bullocks, irrigation charges, land revenue, interest on crop loan, and rent on leased land); and (c) the amounts for the current year shall be arrived at by applying the current price index of the All India Agricultural Laborers Index for the State in which the land is located to the amount set forth in paragraph I hereto.