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Punjab & Sind Bank H.O.

Priority Sector (Advances) Department,


(A Govt. of India Undertaking) 7th Floor, Bank House, 21, Rajendra Place,
New Delhi-110 008
Phone Nos.-011-25784240, 25725351 Fax: 25737914
H.O. P.S.Circular No. 355 Dated: 24.09.2007

To All the Branches/Controlling Offices

Reg: Financing Commercial Dairy - Modified Scheme


The scheme for financing Commercial Dairy was circulated vides HO.PS. Circular No.219 dated
27.1.1996. Over a period of time, owing to technological advancement, a marked improvement in the
quality of breed of milch cattle and requirement of advanced infrastructure has taken place leading to
substantial increase in unit costs. There is an obvious need to reorient our existing scheme for
commercial milk production and distribution commensurate with the increased cost of cross breed
cattle, inputs and stable marketing network to make the scheme viable in the current competitive
scenario. Therefore, Bank has modified the provisions of our earlier scheme with an objective to
finance the hi-tech dairy farming in an organized, economically viable and a more profit earning
venture.

The salient features of the modified scheme superseding to HO.PS. Circular No.219 dated 27.1.1996
for financing commercial dairy are as follows:

Sr.No Parameter Guidelines


1. Eligibility Farmers interested to take up Hi-tech Dairy Farming as commercial activity by
adding more cross bred cows satisfying the following criteria are eligible:
(i) who are already engaged in the Dairy Farming since 2 to 3 years,
(ii) having at least 3 acres of owned or leased land for erecting shed and
producing sufficient green fodder and
(iii) trained from State Dairy Development Boards or Guru Angad Dev
Univeristy for Veterinary Sciences Ludhiana, NDRI Karnal or any
other University/ Institute of repute.
Preference will be given to farmers supplying the milk through Cooperative
systems/milk collection centres and/or are members of Dairy Farmers’
Association in the State.
2. Purpose and Credit facility will be given as under:
Type of loan i. Term loan to set up of Hi-tech Commercial Dairy Unit, new as well as for
expanding of existing dairy unit, which includes the cost of cattle,
infrastructure such as sheds, feeds, cooling system, etc.
ii. Working capital by way of Over Draft limit to meet the recurring
expenditure like feed, fodder, maintenance expenses and other inputs.
3. Quantum of The credit facility will be extended depending on the feasibility and the
Finance availability of existing infrastructure. To make a dairy unit commercially
viable, it should have at least 10 to 30 cross-bred milch cattle including the
existing ones. However, units with more than 30 cattle can be considered on
merits in exceptional cases. The loan will be in the form of :
(i) Term loan: 85% of the total project cost, computed as follows:
• Construction of cattle shed, store room, silos, labour quarter etc
• Equipments such as milking machines,
• Cooling unit etc.
• Cross Bred Cows (@ up to maximum Rs.30,000/- per cow)
(ii) Working Capital limit: Need based requirement as per size of the
unit.
[For illustration projected cost for a unit of 20 cattle is given as per
Annexure-I, for reference purpose]
4. Discretionary As per the discretionary powers vested for Agriculture Allied Activities
Powers Appendix-V, Sr. No.2 (iii) of HO.RMD(CRG) circular No.44 dated
22.12.2006
5. Margin Minimum margin of 15% on term loans
6. Rate of BPLR–2.50% (Presently 11%p.a.) with rests as per Agriculture Advances
Interest
7. Disbursement The loan disbursement should be made in phased manner taking into account
availability of quality cattle as per the term sheet given below:

Term Sheet for Disbursement:


After computing the project cost of the dairy unit being set up by a farmer, the
loan disbursement be made in a phased manner given below:
i. At 1st stage, the loan should be released for purchase materials to erect
dairy shed, stores, cooling unit etc in phases to create basic infrastructure.
The shed to be constructed as advised by the experts at the time of
training. The bills for labour charges etc for shed may be dispensed with,
however, Branch Manager has to ensure that the loan amount is utilized
for construction of shed and other infrastructure required for running the
proposed project.

ii. After creation of basic infrastructure, the loan amount for purchase of
milch cattle be disbursed in two phases as per availability of the quality
cattle and to ensure continuity of milk production through out the year as
under:
• half of the amount sanctioned for purchase of cows be disbursed in
1st installment.
• after a gap of six months, the remaining half of the amount
sanctioned be disbursed as 2nd installment.
iii. Working capital limit be released as per the requirement within the
sanctioned limit.
 The above term sheet is to be strictly followed while disbursing
the loan amount in order to avoid any deviation of funds and to
ensure that the project of hi-tech dairy is properly established.

 Any flexibility may be permitted by the Zonal Manager in


disbursements and repayment schedule on case-to-case basis after
recording the merits/facts relevant to the proposal.

8. Security Primary: Hypo. of assets of the dairy farm unit existing as well as acquired
with Bank loan.
Collateral: Registered mortgage of Agriculture land valued 100% of the total
loan amount, valuation as approved by Revenue Authorities.
Or
Equitable/Registered mortgage of 100% loan value of urban
property (valuation by approved valuer and Branch Manager,
whichever is minimum)
Or
Charge on FDRs/KVPs/NSCs/LIC etc. of 75% face value
/surrender value as applicable.
9. Repayment i. Term loan:
Term Loan sanctioned for setting up of hi-tech dairy farming will be
recovered in 7 years (84 monthly installments) including 6 month initial
moratorium period by working out the installment in such way that 20% of
loan amount and interest to be recovered in the first 18 months after
moratorium period of max.6 months and remaining loan amount of 80% and
interest in the next 5 years.

The borrowers must be specifically informed that the system of


repayment i.e. 20% in the first 18 months after moratorium period and
the remaining 80% in the later period would put in an additional
burden on them later for which they should be prepared for.

ii. Working capital: On demand

10. Processing Fee As per extant HO. P & D Department guidelines to be levied.
11. Documentation Usual loan documents prescribed by the Bank to be taken.
12. Insurance The milch cattle will be insured under comprehensive Insurance Policy with
Bank’s clause at the cost of the borrower.
13. Renewal/ To be renewed /reviewed within 12 months as per Bank’s extant guidelines.
Reviewal
14. Classification To be classified as Direct Agricultural Advances under Priority Sector.
15. Monitoring Branch Manager should conduct periodical inspection of the dairy unit
financed. The Dairy Farmers should ensure proper health and hygiene of the
animals for which, they should arrange the periodical services of the qualified
Veterinary Doctor.
16. Other Terms i. Cross-bred milch animal should be of high yielding variety and able to
and Conditions support the economics of dairy unit, not older than 2 nd or 3rd lactation duly
medically examined by Veterinary Doctor.
ii. The farmer/borrower should not be a defaulter of any bank/Co-op
society(ies).
iii. The existing KCC holders having satisfactory dealing with the Bank are
also eligible under the scheme subject to fulfilling the above eligibility
criteria.
iv. Branches may also identify the prospective dairy farmers and refer them
for training programme conducted by Dairy Development Deptt. or other
training institutes.
v. The hi-tech dairy unit to be erected as per the specifications as
recommended by the dairy farm experts.
vi. The tenure of the land obtained on lease should be commensurate with the
repayment period of the Bank loan.

17. Precaution for  BM should adhere the disbursement schedule strictly as per term sheet.
BM  The loan for construction may be disbursed in 2 or 3 installments and the
amount for purchase of cattle may be allowed in stages as per schedule
given in the project.
 At every stage of disbursement the Branch Manager must verify
utilization of previous loan instalment.
 Prior obtention of health certificate and receipt of payment before release
of loan should not be insisted to give market freedom to the borrowers to
purchase quality milch cattle at competitive rates.

18. Indispensable All the indispensable requirements applicable to Dairy units in terms of ID.
requirements Circular No.1476 dated 27.1.1997 be complied with
(IRs)
-3-

Reg: Financing Commercial Dairy - Modified Scheme

The respective ZOs may take necessary steps to negotiate with milk purchase agencies like MILKFED,
NESTLE, Verka, Horlicks, etc. for a possible tie-up arrangement for assured marketing of the milk and to
evolve a mechanism for regular receipt of the sale proceeds towards loan repayment.

As the product is involving dispensation of credit of a little higher magnitude and adequate technical
know how is essential to run the unit, it is desired that the borrower should be properly identified and
the credit proposals thoroughly appraised before regular sanction. The implementation of the scheme
will give further impetus to Direct Agriculture Advances of the Bank.

(G.S. Bindra)
Deputy General Manager (Adv)

Encl: Annexure-I

ANNEXURE- I
PROJECT COST OF COMMERCIAL DAIRY FARM OF 20 CATTLES
(The project for the proposed dairy unit may be prepared by referring the
tentative cost structure given below)
Capital Expenditure:
Sr. No. Particulars Nos Cost per unit Total Cost
1 Site Development
i. Submersible Pumpset 1 40000
ii. Electrification 1 20000 60000
2. Building/shed
i. Cattle shed 1 250000
ii. Store Room 1 15000
iii. Office room 1 10000
iv. Labour room 1 10000
v. Generator room 1 10000 295000
3. Machineries & Others
i. Power generator 1 35000
ii. Fodder cutter etc. 1 15000
iii. Furnitures- chairs, table, almirah etc 1 each 10000 60000
4. Equipments
i. Milking machines Dairy equipment 100000 100000
@Rs.200 per cattle
5. Cattles & other Charges
Cross Bred cows Rs.30,000/- per cattle 20 600000
i. Insurance (20+ 15 calves) @4% 35 42000 642000
Rs.1200/- each
Total capital Expenditure 1157000
Eligible Term loan @ 85% ----- Rs. 9.85 lacs say Rs.10 lacs
Recurring Expenditure
Sr. No. Particulars No/ Kg Cost per unit Total Cost
1 Feed for 6 months – sillage 20 14400 288000
2 Water + Electricity –3 months 20 150 3000
3 Medicines&Vaccinations–3 months 20 150 3000
4 Labour charges -3 months 1 6000 6000
5 Veterinary doctor charges - 3 month 1 9000 9000
6 Misc. expenditure – 3 months 15000 15000
7 Animal replacement @5% 1 30000 30000
Total Recurring Expenditure 354000
Eligible working capital limit Rs. 3.50 lacs
Total Annual Expenditure:
Sr.No. 1------- 288000 x 2 ----- Rs.5,76,000-
Sr. No.2 to 6--- 36000 x 4 ----- Rs. 1,44,000-
Sr. No. 7 ------ ------ Rs. 30,000-
Rs.7,50,000-
Annual Income
Particulars Yield per cattle Production Cost per unit Total Income
Milk Sale (Av 300 days) 20 108000 11 1188000
Manure 8 58400 0.50 29200
Gunny bags 2 480 10 4800
Culled animal sale 2 15000 30000
Total Income 1252000

Annual Profitability

Total Income 1252000


Less- Expenses including interest charges 846000
Less– Interest on W.C. (Rs.38,500/-) & loan installment (16500/-p.m) 236500
Net Income 169500

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