India - Maharashtra Agricultural Credit Project : Credit 0293 - Project Agreement - Conformed

CONFORMED COPY CREDIT NUMBER 293 IN Project Agreement (Maharashtra Agricultural Credit Project) BETWEEN INTERNATIONAL DEVELOPMENT ASSOCIATION AND AGRICULTURAL REFINANCE CORPORATION AND MAHARASHTRA STATE COOPERATIVE LAND DEVELOPMENT BANK, LIMITED DATED MARCH 29, 1972 CONFORMED COPY CREDIT NUMBER 293 IN Project Agreement (Maharashtra Agricultural Credit Project) BETWEEN INTERNATIONAL DEVELOPMENT ASSOCIATION AND AGRICULTURAL REFINANCE CORPORATION AND MAHARASHTRA STATE COOPERATIVE LAND DEVELOPMENT BANK, LIMITED DATED MARCH 29, 1972 PROJECT AGREEMENT AGREEMENT, dated March 29, 1972, between INTERNATIONAL DEVELOPMENT ASSOCIATION (hereinafter called the Association), AGRICULTURAL REFINANCE CORPORATION (hereinafter called ARC) and MAHARASHTRA STATE COOPERATIVE LAND DEVELOPMENT BANK, LIMITED (hereinafter called LDB). WHEREAS by a development credit agreement of even date herewith between India, acting by its President (hereinafter called the Borrower) and the Association (hereinafter referred to as the Development Credit Agreement), the Association has agreed to make available to the Borrower an amount in various currencies equivalent to thirty million dollars ($30,000,000), on the terms and conditions set forth in the Development Credit Agreement, but only on condition inter alia that ARC and LDB agree to undertake such obligations toward the Association as are hereinafter set forth; WHEREAS by an agreement of even date herewith between the Association and The State of Maharashtra, the said State has agreed to undertake certain obligations in respect of the carrying out of the Project; WHEREAS by a subsidiary loan agreement to be entered into between the Borrower and ARC, part of 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 and LDB, in consideration of the Association's entering into the Development Credit Agreement with the Borrower, have 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 and the term "Rs" shall mean rupees in the currency of the Borrower. 4 ARTICLE II Execution of the Project Section 2.01. ARC and LDB shall carry out the Project described in Schedule 2 to the Development Credit Agreement with due diligence and efficiency and in conformity with sound administrative, financial and agricultural 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 5 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, in sufficient time before the Effective Date, invite to participate in the Project the banks listed in the Second Schedule to the Reserve Bank of India Act, 1934, on terms and conditions (including inter alia those set forth in paragraph 1 of Schedule 2 to this Agreement) satisfactory to the Association. (c) ARC shall enter into agreements with LDB and each bank responding to ARC's invitation under paragraph (b) of this Section on terms and conditions (including inter alia those set forth in paragraph I of Schedule 2 to this Agreement) satisfactory to the Association. (d) ARC shall: (i) require Participating Banks to maintain separate accounts for Project lending and (ii) ensure that such accounts are audited by independent auditors acceptable to the Association. Section 2.03. LDB shall enter into an agreement with each Primary Bank on terms and conditions (including inter alia those set forth in paragraph 2 of Schedule 2 to this Agreement) satisfactory to ARC. Section 2.04. (a) The operating policies and procedures for carrying out the Project shall be as set forth in Schedule 1 hereto, as the same may be amended from time to time by agreement between the Association, ARC and LDB. 5 (b) ARC shall take all necessary measures to ensure that LDB, the Participating Banks and Primary Banks in their operations adhere to the appraisal criteria and procedures relating to minor irrigation set forth in said Schedule 1. Section 2.05. ARC shall take such measures as shall be necessary to ensure that appraisals of Agricultural Loans are in conformity with agreed lending criteria and to ensure that not more than one Agricultural Loan is granted for the same investment. Section 2.06. Except as the Association may otherwise agree, ARC shall ensure that all goods and services financed out of the proceeds of the Credit under Categories I and II of the allocation of the proceeds of the Credit set forth in Schedule I to the Development Credit Agreement are used exclusively for the Project. Section 2.07. ARC and LDB: (i) shall maintain records adequate to record the progress of the Project (including the cost thereof) and to identify the goods and services financed out of the proceeds of the Credit relent to them by the Borrower and by ARC, respectively, and to disclose the use thereof in the Project; (ii) shall enable the Association's representatives to inspect 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 to them and the goods and services financed out of such proceeds. Section 2.08. ARC and LDB shall at all times charge interest on all of their loans at rates sufficient to enable ARC and LDB, 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 gen-ral reserves in accordance with sound commercial practice. Section 2.09. ARC in consultation with the Association shall continue to assist in the maintenance by LDB and the Primary Banks in Maharashtra of sound business and financial practices. Section 2.10. ARC shall as soon as possible after the date of this Agreement establish a system, satisfactory to the Association, of evaluating on a continuing basis the financial and economic benefits of agricultural credit projects financed by the Association. 6 Section 2.11. Notwithstanding the provisions of Section 2.15 hereof, ARC shall, after consultation with and agreement by the Association, withhold refinancing under the Project from any Primary Bank which: (a) fails to achieve a recovery rate of 75% in respect of all demands liable to become overdue during the fiscal year ending June 30 of each year other than those which had already become due as on June 30, 1971; or (b) in respect of repayments due on June 30, 1971, fails to take measures satisfactory to ARC to ensure the recovery of such repayments less any sums which in the judgment of ARC shall have been reasonably written off. Section 2.12. ARC shall require and assist the Participating Banks and Primary Banks to arrange a series of courses which shall be aimed at familiarizing staff of said Banks with the operating policies and procedures and agreed lending criteria applicable to the Project. Section 2.13. ARC shall take due measures to ensure that all banks listed in the Second Schedule to the Reserve Bank of India Act, 1934 lend for minor irrigation investments only where: (a) a certificate of non-objection has been received from GSDA; and (b) such lending conforms to the criteria set out in Schedule 1 hereto: (i) in the case of lending within the Project area, as from the date of this Agreement, and (ii) in the case of lending outside the Project area, twelve months after the Effective Date. Section 2.14. LDB in consultation with ARC shall by the Effective Date have completed a financial and managerial reorganization acceptable to the Association of the Primary Banks listed in Schedule 3 hereto. Section 2.15. ARC shall not refinance any loans under this Project approved by a Primary Bank before the reorganization referred to in Section 2.14 hereof has been completed in respect of that Primary Bank. Section 2.16. Any Primary Bank which has suffered disqualification from refinance facilities by virtue of Section 2.11 or 2.15 hereof may be allowed by 7 ARC to participate in Project lending on the default leading to the disqualification being subsequently rectified. ARTICLE III Management and Operations of ARC and LDB Section 3.01. ARC and LDB shall: (a) at all times manage their affairs, maintain their financial position, plan their future expansion and carry on their 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 (b) take all steps necessary to acquire, maintain and renew all rights, powers, privileges and franchises which are necessary or useful in the conduct of their business or in the carrying out of the Project. Section 3.02. Except as the Association shall otherwise agree, LDB, the Primary Banks and the Participating Banks shall apply the same criteria to all similar types of lending that they apply to Project lending and, with respect to such similar types of lending, shall not offer more favorable terms than are offered under Project lending except for schemes submitted under the aegis of the Small Farmers and Marginal Farmers Development Agencies in Maharashtra. ARTICLE IV Financial Covenants Section 4.01. ARC and LDB shall maintain records adequate to reflect in accordance with consistently maintained sound accounting practices their operations and financial condition. Section 4.02. ARC and LDB shall: (i) establish and maintain separate accounts in respect of all funds disbursed and received on account of the Project; (ii) have their 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; (iii) 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 said separate accounts and their 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 (iv) furnish to the Association such other information concerning 8 their accounts and financial statements and the audit thereof as the Association shall from time to time reasonably request. ARTICLE V Consultation, Information and Inspection Section 5.01. The Association, ARC and LDB shall cooperate fully to assure that the purposes of the Credit will be accomplished. To that end, the Association, ARC and LDB shall from time to time, at the request of any party, exchange views through their representatives with regard to the performance of their respective obligations under this Agreement, the administration, operations and financial condition of ARC and LDB and other matters relating to the purpose of the Credit. Section 5.02. The Association, ARC and LDB shall promptly inform each other of any condition which interferes with, or threatens to interfere with, the accomplishment of the purposes of the Credit, or the performance by any of them of its obligations under this Agreement or the performance by the Borrower and ARC of their respective obligations under the Subsidiary Loan Agreement. Section 5.03. ARC and LDB, respectively, shall enable the Association's representatives to inspect all their records and documents relevant to the Project. S ARTICLE VI Effective Date; Termination; Cancellation and Suspension Section 6.01. This Agreement shall come into force and effect on the date upon which the Development Credit Agreement becomes effective. Section 6.02. (a) This Agreement and all obligations of the Association, ARC and LDB 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 when all principal amounts withdrawn by ARC under the Subsidiary Loan Agreement and interest thereon shall have been repaid by ARC to the Borrower. 40 9 (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 and LDB of this event and, upon the giving of such notice, this Agreement and all obligations of the parties thereunder shall forthwith terminate. Section 6.03. All the provisions of this Agreement shall continue in full force and effect notwithstanding any partial cancellation or suspension under the Development Credit Agreement. ARTICLE VII Miscellaneous Provisions Section 7.01. Any notice or request required or permitted to be given or made tinder 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, 18 W.B. India 10 Cable address: Agrofinans Bombay For LDB: Managing Director The Maharashtra State Cooperative Land Development Bank, Limited J.K. Building Dougall Road Ballard Estate Fort Bombay 1 Cable address: Mortgage Bombay Section 7.02. Any action required or permitted to be taken, and any documents required or permitted to be executed, under this Agreement on behalf of (i) ARC may be taken or executed by its Managing Director or such other person or persons as ARC shall designate in writing; and (ii) LDB may be taken or executed by its Managing Director or such other person or persons as LDB shall designate in writing. Section 7.03. ARC and LDB 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 and LDB take any action or execute any documents required or permitted to be taken or executed by ARC and LDB, respectively, pursuant to any of the provisions of this Agreement. Section 7.04. 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 11 in their respective names and delivered in the District of Columbia, United States of America, as of the day and year first above written. INTERNATIONAL DEVELOPMENT ASSOCIATION By /s / J. Burke Knapp Vice Presiden t AGRICULTURAL REFINANCE CORPORATION By /s / L. K. Jha Authorized Representative MAHARASHTRA STATE COOPERATIVE LAND DEVELOPMENT BANK, LIMITED By /s / L. K. Jha Authorized Representative 12 SCHEDULE 1 Operating Policies and Procedures 1. Investment Requirements (1) Tubewells Area: Tapi/Purna basin (sedi- mentary areas) falling within the districts of Dhulia-Jalgaon-Buldhana- Akola-Amravati Investment: 300 tubewells Pump: 10 hp submersible or turbine (guideline) Minimum peak discharge: 15 1/sec Minimum irrigated area: 20 ha Minimum spacing (any other energized well): 1,000 m Maximum density: 0.4 tubewell/km) (2) Dugwells and Dugwell Improvements Construction of new dugwells and the improvement of existing dugwells would involve an investment of Rs 200 million in the following regions: (a) Area: Tapi/Purna basin falling within the districts of Nasik-Dhulia-Jalgaon- Buldhana-Akola-Amravati (b) Area: Penganga basin falling within the districts of Yeotmal-Nanded-Akola- Parbhani 13 (c) Area: Godavari/Manjra basin falling within the dis- tricts of Aurangabad- Ahmednagar-Bhir-Osmanabad- Parbhani-Nanded (d) Area: Bhima basin falling within the districts of Sholapur- Satara-Poona-Osmanabad- Ahmednagar (e) Area: Wardha/Wainganga basin falling within the dis- trict of Nagpur Pump: 5 hp centrifugal (guideline) Minimum instant discharge: 10 1/sec Minimum discharge (December): Dugwell: 150 m3/day Dugwell improvement: 120 m3/day Minimum irrigated area: Dugwell: 5 ha Dugwell improvement: 4 ha Maximum density of wells: r x 100 d = RxAx c 100 Where: d = density (wells/km2) r = recharge in basin (mm) R = water requirement for the aver- age cropping pattern (mm) c = cropping intensity (%) A = average area irrigated by a well (ha) 14 0 Minimum spacing of wells: c s RxAx 100 r,x 100 Where: s = spacing (m) Overall minimum spacing = 300 rn (3) Lift Irrigation (a) Any scheme estimated to cost Rs 2,000,000 or more shall be submitted to the Association for approval. (b) A detailed appraisal must be prepared for each individual scheme whether or not it has to be so submitted, particular attention being given in such appraisal to water availability, appropriate design and installation of adequate pumping capacity. 2. General Lending Requirements (a) The construction of irrigation and drainage channels shall be made a condition for lending under the Project for any farm which is without said tacilities. Such construction may be financed under the Project. (b) All investments in minor irrigation must (i) include energization of wells, as far as practicable by electricity; and (ii) before being financed under the Project must have had issued in relation thereto a certificate of non-objection authorized by GSDA. (c) All investments in land development must be preceded by loan approvals in respect of individual Beneficiaries. 3. Guidelines for Organization and Appraisal (a) To the extent compatible with ARC's responsibilities as a refinancing agency under the Project, GSDA shall be responsible for advising on development of minor irrigation under the Project. (b) GSDA will through its field offices (i) demarcate elementary watersheds and establish base maps of the watersheds so demarcated covering the areas in 15 which Primary Banks and Participating Banks operate. These base maps (1:7,920 or other convenient scale) shall show locations of all existing wells, reservoirs, tanks, weirs, canals, lifts, electricity lines and transformers; bench marks showing heights above mean sea level datum; boundaries of major geological formations; (ii) issue to Participating Banks and Primary Banks copies of such base maps covering the areas in which such Banks carry out their lending operations; and (iii) guide and coordinate the activities of appraisal teams from said Banks working in the area in which the field offices operate. 4. Appraisal Procedures (a) The Participating and Primary Banks must by public notice invite applications for loans. The notice must clearly set out lending terms and an explanation of appraisal methods. Such invitations may be staggered according to taluka or block. (b) A Primary Bank appraisal team should normally consist of a supervisor of the Primary Bank, a valuation officer and a technical officer who may be an engineer or geologist. (In the case of Participating Banks, ARC should specify appropriate corresponding arrangements.) Appraisal teams would visit the farms of loan applicants on a group basis and would incorporate on the base maps: (i) the well sites proposed for installation, improvement or electrification; (ii) farms and area (in hectares) proposed for irrigation by each such well; (iii) proposed irrigation channels, or pipes to be installed or improved for distribution from proposed wells. (c) Additionally, appraisal of dugwells will be assessed against the estimated groundwater resources of elementary watersheds and these watersheds will be the basic unit of group appraisal. Calculations of groundwater recharge would be based on estimated rainfall, runoff, evapotranspiration and soil moisture parameters supported by a qualitative analysis of factors such as gradients, soil structure, vegetation and surface water storage. (d) In assessing groundwater resources, the appraisal team would consider: (i) the probability of obtaining an adequate December discharge from the proposed development (150 m3/day in the case of new dugwells and 120 m3/day in the case of improved dugwells); 16 (ii) the probable existence of two or more basalt layers under the groundwater level; (iii) whether irrigation purposes would be better achieved by the installation of a new well, which should not exceed an investment cost of Rs 18,000, or by the improvement of an existing well, at a cost generally not exceeding Rs 6,000, or by extending the use of water discharged from existing wells under the control of a Beneficiary or Beneficiaries. (e) Proposed tubewell and lift irrigation investments should be subject to individual financial appraisal and proposed dugwell investments to standardized pro forma financial appraisal. All appraisals should specifically include proposals on whether: (i) there would be a group loan to farmers who would receive water from the proposed development; (ii) the owners would enter into an agreement to sell water to farmers other than Beneficiaries; (iii) there would be other cooperative arrangements. (f) Primary and Participating Banks will submit to the office of GSDA a copy of the base map with relevant information and recommendations. Such information will be entered by said office on its base map. (g) GSDA will physically check doubtful cases and at least 10% of all recommended applications. (h) On receipt of GSDA's certificate of non-objection to an investment, the Primary Banks and Participating Banks would complete loan formalities in the usual way and, where appropriate, prepare an agreement for the sale of water. (i) All investments under the Project shall be evaluated in terms of incremental returns from the additional investment, in accordance with the evaluation method pres:ribed by ARC. (j) Outside the Project areas LDB or commercial banks and all departments and agencies of Maharashtra lending for similar investments shall conform to the appraisal criteria and procedures for minor irrigation as set out in this Schedule and as further specified by GSDA one year after the Effective Date. 17 SCHEDULE 2 Principal Terms of Relending Agreements The following sets forth the principal terms and conditions under which part of the proceeds of the Credit or the equivalent thereof shall be relent to LDB, Participating Banks and the Primary Banks: 1. Lending Terms to LDB and Participating Banks from ARC: (a) Interest rate to be not less than 6-1/2% per annum (b) Repayments to be in installments set to coincide, more or less, with the maturity period of the special debentures purchased by ARC or as the case may be, with expected collections of Agricultural Loans refinanced. (c) Refinancing to be by way of purchase of debentures or by loans at the rate of 90% of individual loans for minor irrigation and 75% of individual loans for land development. 2. Lending Terms to Primary Banks from LDB: (a) Interest rate to be not less than 7-1/2% per annum. (b) Repayments in installments set to coincide, more or less, with expected collections of Agricultural Loans refinanced. (c) Loans to cover 100% of Agricultural Loans made by Primary Banks. 3. Re-use of Funds under the Credit: Except as the Association shall otherwise agree, repayments to ARC from LDB and the Participating Banks shall be deposited in a special account to be used only for refinancing ARC-approved agricultural development schemes, such schemes to be carried out in conformity with sound administrative, agricultural, and financial practices. 4. Financial Terms and Conditions of Agricultural Loans (a) Primary Banks and Participating Banks lending to Beneficiaries: (i) Interest rate to be not less than 9% per annum. 18 (ii) An evaluation fee of 1/2% of individual project costs is payable once and for all. (iii) Loan limit: 60% of the developed value of land offered as security. (iv) In respect of lending by Primary Banks, Beneficiaries' contributions to investments expressed as a percentage of investment costs of the Project shall be in respect of normal lending 10% of such costs except that in the case of minor irrigation investments costing less than Rs 10,000 each, no such contributions shall be made by Small Farmers; provided that this exemption shall also apply to a Small Farmer participating jointly with other farmers in any such investment where his share of the total cost of the investment does not exceed Rs 10,000. Beneficiaries will also be required to contribute an amount equal to 10% of their loans to LDB's capital. (v) In respect of lending by Participating Banks, Beneficiaries' contributions to investments expressed as a percentage of investment costs of the Project shall be in respect of: (A) normal lending 20% of such costs, (B) lending to Small Farmers, a minimum of 10% of the cost of minor irrigation investments costing less than Rs 10,000 each; provided that the said 10% minimum contribution shall also apply to a Small Farmer participating jointly with other farmers in any such investment where his share of the total cost of the investment does not exceed Rs 10,000. (vi) Loan Maturity: This shall be based on the Beneficiaries' capacity to repay but shall not exceed: (1) the life of the assets financed; or (2) with respect to normal lending (A) 9 years on loans for tubewells, lift irrigation schemes, dugwells and dugwell improvements, (B) 10 years for land development loans including a two-year grace period during which only interest will be payable, and (C) 7 years on loans for pumpsets, whether financed as individual loans or included in dugwell loans; 19 (3) with respect to lending to Small Farmers (A) 15 years for minor irrigation loans where the investment costs are less than Rs 10,000 each, or in the case of a Small Farmer participating jointly with other farmers in an investment, where the contribution of the Small Farmer to the total cost of the investment does not exceed Rs 10,000, except for pumpsets in which case the period of repayment shall not exceed 7 years whether financed as individual loans or included in dugwell loans; and (B) 15 years including a two-year grace period in the case of land development loans. Repayments shall in all cases commence at the beginning of the year next following the year in which the investment concerned is completed. For the purnoses of this paragraph the term "Sma!l Farmers" shall have the meaning from time to time assigned to it by the Association and ARC as same may be incorporated in any loan agreement between ARC, LDB and the Participating Banks concluded pursuant to Section 2.02 (c) of the Project Agreement. 5. Other LDB Lending Operations LDB and Primary Banks would apply the same down payment and maturity requirements to all their similar lending operations, and the same interest rates, evaluation fee and collateral requirements to all their lending operations (except in the case of schemes submitted under the aegis of the Small Farmers and Marginal Farmers Development Agencies in Maharashtra). 20 SCHEDULE 3 List of Primary Banks to be Reorganized Ahmednagar Akola Amravati Aurangabad Bhandara Bhir Buldhana Dhulia Jalgaon Kohlapur Nagpur Nanded Nasik Parbhani Poona Sangli Satara Sholapur Udgir Wardha Yeotmal