India - Mysore Agricultural Credit Project : Credit 0278 - Project Agreement - Conformed

CONFORMED COPY CREDIT NUMBER 278 IN Project Agreement (Mysore Agricultural Credit Project) BETWEEN INTERNATIONAL DEVELOPMENT ASSOCIATION AND AGRICULTURAL REFINANCE CORPORATION AND MYSORE STATE COOPERATIVE LAND DEVELOPMENT BANK, LIMITED AND MYSORE STATE AGRO-INDUSTRIES CORPORATION, LIMITED DATED JANUARY 7, 1972 CONFORMED COPY CREDIT NUMBER 278 IN Project Agreement (Mysore Agricultural Credit Project) BETWEEN INTERNATIONAL DEVELOPMENT ASSOCIATION AND AGRICULTURAL REFINANCE CORPORATION AND MYSORE STATE COOPERATIVE LAND DEVELOPMENT BANK, LIMITED AND MYSORE STATE AGRO-INDUSTRIES CORPORATION, LIMITED DATED JANUARY 7, 1972 PROJECT AGREEMENT AGREEMENT, dated January 7, 1972, between INTERNATIONAL DEVELOPMENT ASSOCIATION (hereinafter called the Association), AGRICULTURAL REFINANCE CORPORATION (hereinafter called ARC), MYSORE STATE COOPERATIVE LAND DEVELOPMENT BANK, LIMITED (hereinafter called LDB), and MYSORE STATE AGRO-INDUSTRIES CORPORATION, LIMITED (hereinafter called MAIC). 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 forty million dollars ($40,000,000), on the terms and conditions set forth in the Development Credit Agreement, but only on condition inter alia that ARC, LDB and MAIC 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 Mysore, 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, LDB and MAIC in consideration of the Association 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 and the term "Rs" shall mean rupees in the currency of the Borrower. I 4 ARTICLE II Execution of the Project Section 2.01. ARC, LDB and MAIC 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 invite to participate in the Project the banks listed in the Second Schedule to the Reserve Bank of India Act, 1934, but shall only allow such banks or any Primary Bank, capable of effectively carrying out Project lending, to take part therein and only on terms and conditions (including inter alia those set forth in paragraph I of Schedule 2 to this Agreement) satisfactory to the Association. (c) ARC shall enter into agreements with LDB and each bank selected in accordance with paragraph (b) of this Section, other than Primary. Banks, 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. The operating policies and procedures for carrying out the Project shall be as set forth in Schedule 1 to this Agreement, as the same may be amended from time to time by agreement between the Association, ARC and LDB. 5 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. MAIC shall organize the procurement of goods to be financed out of the proceeds of the Credit in accordance with the procedures set forth or referred to in Schedule 3 to the Development Credit Agreement. Section 2.07. (a) MAIC shall cause all imported goods to be financed out of the proceeds of the Credit to be insured against hazards incident to the acquisition, transportation and delivery thereof to the place of use or installation, or that adequate provision be made for the insurance thereof, and for such insurance any indemnity shall be payable in a currency freely usable to replace or repair such goods. (b) Except as the Association may otherwise agree, ARC and (as the case may be) LDB and MAIC shall cause all goods and services financed out of the proceeds of the Credit under Categories I, II, III and IV of the allocation of the proceeds of the Credit set forth in Schedule 1 to the Development Credit Agreement to be used exclusively for the Project. Section 2.08. ARC, LDB and MAIC: (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 2.09. 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 general reserves in accordance with sound commercial practice. Section 2.10. LDB shall in consultation with ARC by the Effective Date employ two experienced and suitably qualified credit specialists to assist the Managing Director of LDB. 6 Section 2.11. ARC in consultation with the Association shall continue to assist in the maintenance by LDB and the Primary Banks in Mysore of sound business and financial practices. Section 2.12. 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. Section 2.13. LDB shall by the Effective Date revise its by-laws to enable the appointment of any suitably qualified and experienced persons to the posts of managing director and secretary of LDB. Section 2.14. LDB in consultation with ARC shall: (i) by the Effective Date complete a financial and managerial reorganization of 50 Primary Banks acceptable to the Association and (ii) by September 30, 1972 complete a similar reorganization of an additional 41 Primary Banks. Section 2.15. ARC shall after consultation with and agreement by the Association discontinue the refinancing of any Primary Bank which fails to maintain a recovery rate of 75% in respect of all loan repayments due. ARTICLE III Management and Operations of ARC, LDB and MAIC Section 3.01. ARC, LDB and MAIC 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 review 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 Development and the Marginal Farmers Development Agencies in Mysore. 7 ARTICLE IV Financial Covenants Section 4.01. ARC, LDB and MAIC shall maintain records adequate to reflect in accordance with consistently maintained sound accounting practices their operations and financial condition. Section 4.02. ARC, LDB and MAIC 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 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, LDB and MAIC shall cooperate fully to assure that the purposes of the Credit will be accomplished. To that end, the Association, ARC, LDB and MAIC shall from time to time, at the request of either 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, LDB or MAIC and other matters relating to the purpose of the Credit. Section 5.02. The Association, ARC, LDB and MAIC 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, LDB and MAIC, respectively, shall enable the Association's representatives to inspect all their records and documents relevant to the Project. 8 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 and ARC, LDB and MAIC 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. (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, LDB and MAIC 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 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: w 9 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 Cable address: Agrofinans Bombay For LDB: Managing Director Mysore State Cooperative Land Development Bank Limited Albert Victor Road Bangalore 18 Cable address: Mylandbank B angalore 10 For MAIC: Managing Director Mysore State Agro-Industries Corporation Limited 10 Ali Askar Road Bangalore I.B. Cable address: Mysagroind Bangalore 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; (ii) LDB may be taken or executed by its Chairman or such other person or persons as LDB shall designate in writing; and (iii) MAIC may be taken or executed, by the person duly authorized by it. Section 7.03. ARC, LDB and MAIC 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, LDB and MAIC take any action or execute any documents required or permitted to be taken or executed by ARC, LDB and MAIC 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 oricinal, 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 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 President 11 AGRICULTURAL REFINANCE CORPORATION By /s / L. K. Jha Authorized Representative MYSORE STATE COOPERATIVE LAND DEVELOPMENT BANK, LIMITED By /s / L. K. Jha Authorized Representative MYSORE STATE AGRO-INDUSTRIES CORPORATION, LIMITED By /s / L. K. Jha Authorized Representative 12 SCHEDULE I Operating Policies and Procedures 1. Technical Feasibility of Minor Irrigation Investments (a) Loans for minor irrigation investments would include not more than Rs 3,000 for electricity connections. (b) Minor irrigation loans would be individually appraised and would require: (A) In the case of loans for wells that the proposed well: (i) is within the area certified in advance by the SGC as suitable for development; and (ii) conforms to recommended standards regarding spacing between wells and maximum intensity of irrigation from wells in the adjacent area calculated in accordance with the formula at Schedule 3 to this Agreement. (B) In the case of loans for lift irrigation schemes: (i) design and cost estimates approved by the PWD, (ii) the prior formation of a properly organized and capitalized cooperative society in which members' contributions shall not be less than 10% of the cost of the scheme to operate the scheme; and (iii) adequate provision for the enforcement of payment of water charges by members of the society. 2. Financial Feasibility of Farm Investments (a) All investments shall be evaluated in terms of incremental returns from the additional investment, in accordance with the evaluation method prescribed by ARC. (b) Loans for tractor purchases shall be granted only to Beneficiaries who shall offer assurances that they have or will have at the time they receive the 13 tractor, at least three implements, which may include a trailer, for use with the tractor. (c) Tractor borrowers shall be required to buy post-warranty service on their tractors for the life of the tractor loan. 3. Financial Terms and Conditions of Agricultural Loans (a) Contributions by Beneficiaries: minimum contributions by Beneficiaries expressed as a percentage of investment costs shall be in respect of: (i) land reclamation and minor irrigation, 20% except as provided in sub-paragraph (e) below with respect to small farmer Beneficiaries; (ii) land reclamation equipment, 10%; and (iii) tractors and implements, 25%. In all the above cases the said contributions shall include the cost of the Beneficiaries' obligatory share contribution to the Primary Banks. (b) Interest rate: 9% per annum on outstanding balance. (c) Loan maturity: shall be based on the Beneficiary's capacity to repay, but shall not exceed the life of the assets financed and shall not, in any case, exceed for: (i) land reclamation, 10 years, including a two-year grace period when interest only shall be payable (except as provided in sub-paragraph (e) below with respect to small farmer Beneficiaries); (ii) land reclamation equipment and minor irrigation, 9 years except as provided in subparagraph (e) below with respect to small farmer beneficiaries; and (iii) tractors and implements, 7 years. (d) Security for loans shall be taken in accordance with arrangement between the Participating Banks and ARC. 14 (e) Small farmer Beneficiaries (as designated in the agreements referred to in Section 2.02 (c) of this Agreement) will be required to contribute 10% of total costs for minor irrigation, costing less than Rs 10,000 each; and for investments in land reclamation and minor irrigation (excluding pump sets) the maturity period may be extended to 15 years. I 15 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) Amount: ARC shall refinance no more than 90% of Agricultural Loans for minor irrigation investments and 75% of Agricultural Loans for other investment purposes. (b) Repayment Terms: 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) Interest Rate: 6-1/2% per annum on outstanding balance. 2. Lending Terms to Primary Banks from LDB: (a) Amount: LDB shall refinance 100% of Agricultural Loans made by Primary Banks. (b) Repayment Terms: set to coincide, more or less, with expected collections of Agricultural Loans refinanced. (c) Interest Rate: 7-3/4% per annum on outstanding balance. 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. 16 SCHEDULE 3 Spacing of Dugwells and Tubewells in Areas of Crystalline Rocks In order to prevent groundwater mining and, at the same time, to minimize overcapitalization of wells in areas where wells yields may vary considerably due to local aquifer conditions, the minimum spacing of wells shall be determined by the following formula, applicable to elementary watersheds: Sm = 100 x C x Aha where: S m = distance between wells in meters Rnm = annual watering of irrigated land in mm rnin = annual recharge, in millimeters, to groundwater from rainfall, seepage from canals and tanks, return flow from irrigation occurring in the likely recharge area of the well, to be calculated from field observations on water level fluctuations, run-off gauging and soil retention obtained from small representative basins installed in the areas of the project under the responsibility of the State Groundwater Cell C = cropping intensity Aha = minimum economic area to be irrigated by one well IM