Chapter 7

Existing Financial Measures for Disaster Management

For a very long period, disaster management in India was considered only as an issue of
providing relief and rehabilitation to the people affected by natural calamities. There was hardly
any attempt to look into the impact of disasters on the economy and development. In recent
years, the Government of India has brought about a change in the approach to disaster
management from a relief-centric to a holistic and integrated approach covering the entire scope
of disaster management encompassing preparedness, prevention, response, mitigation, relief,
reconstruction and rehabilitation in order to achieve sustainable development.
7.1 Measures of Government of India, Ministry of Home Affairs

The Ministry of Home Affairs (MHA) in the Central Government has the overall
responsibility for disaster management in the country. The basic responsibility for undertaking
rescue, relief and rehabilitation measures in the event of a disaster has been given to the State
Governments. The Central Government supplements the efforts of the State Governments by
providing logistic and financial support in case of severe natural calamities. The logistic
support includes deployment of aircrafts and boats, specialist team of Armed Forces, Central
Armed Police Forces and personnel of National Disaster Response Force (NDRF),
arrangements for relief materials and essential commodities including medical stores,
restoration of critical infrastructure facilities including communication network and such other
assistance as may be required by the affected States to meet the situation effectively.
For a few specific types of disasters the concerned Ministries have the nodal responsibility for
management of the disasters. The nodal ministries, as identified for different disaster types,
function under the overall guidance of the Ministry of Home Affairs (nodal ministry for disaster
management). The concerned nodal ministries are as under:

Ministries with nodal responsibilities for management of the disasters

 Disaster Nodal Ministry

Earthquake Ministry of Earth Sciences

Flood Ministry of Water Resources

Deptt. Of Agriculture and

Drought, Hailstorm Cooperation, Ministry of
and Pest Attacks Agriculture
Landslide Ministry of Mines
Avalanche Ministry of Defence

Ministry of Environment and

Forest Fire Forests

Nuclear Disaster Deptt. of Atomic Energy

Industrial & Chemical Ministry of Environments and

Disaster Forests
Ministry of Health & Family
Biological Disaster Welfare
Rail Accidents Ministry of Railways

Ministry of Road Transport and

Road Accidents Highways and Shipping

Aviation Accidents Ministry of Civil Aviation

Cyclone/ Tornado/ India Metrological Deptt. Under

Hurricane Ministry of Earth Science

Tsunami Ministry of Earth Sciences

(Source: Disaster Management in India, Ministry of Home Affairs, Government of India, 2011)

Table 7.1

National Disaster Management Authority (NDMA) is the apex Body for Disaster
Management in India. NDMA is headed by the Prime Minister of India. Its vision is “To build a
safer and disaster resilient India by developing a holistic, pro-active multi-disaster and
technology-driven strategy for disaster management through collective efforts of all
Government Agencies and Non-Governmental Organizations.”The broad level structure for
disaster management in India is as follows:

(Source: National Disaster Management Guidelines: National Disaster Management Information

and Communication System)
Figure 7.1

At National level, the NDMA has the responsibility, inter alia, of laying down policies on
disaster management and guidelines to be followed by different Ministries/Departments of the
Government of India for the purpose of integrating the measures for prevention of disaster or
mitigation of its effects in their development plans and projects. It also lays down guidelines to
be followed by the State authorities in drawing up State Plans and take such measures for the
prevention of disasters or mitigation or preparedness and capacity building for dealing with the
threatening disaster situation as it may consider necessary.
7.2 Salient Financial Measures Contained in Some NDMA Guidelines in Respect of
Natural Disasters:

1) NDMA Guidelines - Management of floods, January 2008:

The guidelines state that the central government and the state governments will provide
necessary resources, both financial and managerial for creating adequate structures at all levels
to take measures required to minimise risk and vulnerability to floods. The Central Water
Commission (CWC) is an apex agency in the field of water resources including flood
management in India. The River Management Wing headed by the Member (RM) and ex-officio
Additional Secretary to the Government of India looks after Flood Management in the country
excepting the Ganga and the Brahmaputra river basins for which the GOI has created separate
organisations. The Ganga Flood Control Commission (GFCC) was set up by GOI in 1972 for
the preparation of comprehensive plan of flood control for Ganga basin and to draw out a
phased coordinated programme for the implementation of works. The Brahmaputra Board was
set up by the GOI as a statutory body, under the Brahmaputra Board Act, 1980.
The Indian Meteorological Department (IMD) established in 1875, is responsible for the
National Meteorological Service and the principal government agency in all matters relating to
meteorology, seismology and allied subjects. For the convenience of administrative and
technical control, there are six Regional Meteorological Centres (RMCs) located at Mumbai,
Chennai, New Delhi, Kolkata, Nagpur and Guwahati. Under each RMC, there are different
types of operational units such as meteorological centres at state capitals, forecasting offices,
agro-meteorological advisory service centres, flood meteorological offices (FMOs) and area
cyclone warning centres. Flood being a state subject, Flood Management (FM) schemes are
planned and executed by the State governments. The role of the central government is advisory,
catalytic and promotional in nature. The states have to investigate, plan, construct, maintain and
operate all flood works. Flood Control Boards were set up in some of the states. The various
measures for Flood Management (FM) recommended in the guidelines will be funded
respectively by the central ministries and departments and state governments concerned by
making provisions in their annual and Five Year plans. Funding will also be available through
special mitigation projects to be formulated and implemented by the state governments/State
Disaster Management Authority (SDMAs) under the overall guidance and supervision of the
NDMA. In addition 10 per cent of Calamity Relief Fund (CRF) can also be utilised for purchase
of equipment for flood preparedness, mitigation, rescue and relief. Flood control is a state
subject and thus flood control schemes are planned, funded, executed and maintained by state
governments themselves as per their own priorities. Central plan assistance is in the form of
block loans and grants and is not tied to any sector or project. Allocations for the flood sector
within the overall plan outlay are made by the state governments themselves. The role of the
central government is advisory, promotional and catalytic in nature. The CWC and the GFCC,
besides being responsible for techno-economic appraisal of flood control schemes above a
certain cost, also inspect critical reaches and suggest remedial measures as and when required.
The Ministry of Water Resources (MOWR) is operating a few centrally sponsored/central sector
schemes for assisting the states in taking up critical anti river erosion works in the Ganga basin
and north-eastern states, improvement of drainage in critical areas, flood proofing etc. The
overall allocation for these schemes is far too small to make an impact on flood management in
the country. The funding pattern of the centrally sponsored schemes is not uniform. It varies
from 75:25 (Centre: State) for the Ganga basin states to 90:10 for the northeastern states. Certain
percentage of funds available to District Planning and Development Council in the flood prone
areas will be allocated for implementation of FM schemes in the districts. The CRF provides for
gratuitous relief for survival of people affected by floods. It does not compensate them for the
losses suffered by them during floods. The salient activities envisaged in the guidelines include
‘Developing appropriate scheme for insurance of lives, crops and private and public properties
in flood prone areas by collaborating with insurance companies and financial institutions.’ as
one of the action points.
2) NDMA Guidelines—Management of Landslides and Snow Avalanches- June 2009:
Our country experiences landslides year after year especially during the monsoons and
periods of intense rain. This hazard affects about 15 per cent of our country covering over 0.49
million square kilometers. Landslides of different types occur frequently in the geo-dynamically
active domains of the Himalayan and Arakan-Yoma regions, as well as in the relatively stable
domains in the Meghalaya Plateau, the Western Ghats and the Nilgiri Hills. Extensive
anthropogenic interference is a significant factor that increases this hazard manifold. The
NDMA issued ‘National Disaster Management Guidelines—Management of Landslides and
Snow Avalanches’. Its mission was ‘To minimize the impact of landslides and snow avalanches
on life, property and economic activity’. The scheme of financial allocations for landslide
hazard management was delineated. As per these guidelines, in the Five-Year and Annual Plans,
the central and state ministries/departments will make specific allocations for landslide disaster
management related activities. In addition 10 per cent of the Calamity Relief Fund will also be
made available for the purchase of equipment for landslide preparedness and mitigation, and for
rescue and relief operations.
3) NDMA Guidelines - Ensuring Disaster Resilient Construction of Buildings and
Infrastructure financed through Banks and Other Lending Institutions-Sept, 2010:
Every year, several lakhs of houses get destroyed and damaged in India by natural
disasters like earthquakes, floods, landslides and cyclones. This causes severe economic loss. It
is therefore important to ensure that the bank-financed construction is able to withstand the
adverse impact of various natural hazards. Damage to or destruction of such assets not only
result in adverse economic consequences, but may also compromise the bank’s financial security
due to these assets becoming Non Performing Assets (NPA) because of the weak coping
capacities of most of the people who turn to banks and lending institutions for housing loans. In
the context of disaster resilience, the guidelines take a note of three critical gaps in the practice of
the provision of housing finance by banks and other lending institutions:
(a) When an application is made to a bank seeking a housing loan to construct the building or
structure, it is not necessary that it is designed in full. The architect and/or structural engineer
provides a certificate that they will undertake the design (at a later stage);
(b) Before the commencement of construction of the building or structure, the design of the
whole structure is not furnished either to the local authority due to the lack of any definitive
provisions in the prevailing local building bye-laws or to the banks financing the proposed
construction. Assumptions are made regarding items appearing on the upper levels, and designs
are prepared for parts of the building on the lower levels. Here, there is a possibility of not
necessarily adhering to the assumptions made regarding the items in the upper levels, when those
items are eventually designed much later.
(c) The technical professionals (structural engineers and/or architects) advising the banks
recommend that loan may be given to a project, without necessarily seeing the design of the
complete structure, and sometimes simply based on his/her perception of the credentials of the
architect and structural engineer of the proposed project.
 All these are lacunae of the construction practice. They hinder the process of ensuring
multi-hazard safety of the construction of buildings and structures in the country. In general,
independent assessment of the disaster resilience of such housing proposals is often missed by
the banks themselves as indicated by the structural damage and economic losses in the past on
bank financed buildings after devastating disasters. As per the existing practice, the banks give
installments of financial assistance linked to the issue of specific certificates, namely
(a) Initial loan amount based on the Stability Certificate by structural design consultants before
the structural design of the asset is performed stating that they shall comply with the
requirements of disaster-resistance during the process of design (to be undertaken at a later
stage),
(b) Partial loan amount based on the Stage-wise Completion Certificates by architects after the
construction is underway, stating that a said list of works have been completed as per the
approved construction drawings, and
(c) Final loan amount based on the Final Completion Certificate by Architects, after the
construction is complete, stating that all the works have been completed as per the approved
construction drawings.

In view of above, RBI has issued several proactive advisories to banks for verifying
disaster safety while granting loans for any building construction. While the proactive steps of
RBI for ensuring safe construction are recognized as a boost to promote disaster risk reduction in
the built-up environment of the country, much remains to be done for creating a user-friendly,
enabling environment for banks to facilitate compliance of the directives. The National Disaster
Management Authority (NDMA) has prepared Guidelines for integrating the techno-legal
compliance into the housing loan application process. These Guidelines provide guidance by
prescribing client specific simplified check-memos for ensuring compliance of the techno-legal
regime by loan financed assets.

These Guidelines propose the following reforms in ensuring disaster resilience by the
Techno-Financial Regime of Banks and other Lending Institutions by prescribing the following
provisions:
(a) The individual/business enterprise seeking financial support from the bank to undertake any
new construction or to make any addition, alteration, modification or retrofitting of existing
construction will submit to the bank or lending institution the complete architectural and
structural designs of the said construction demonstrating that the proposed structure/alteration is
capable of withstanding all the natural hazards posing risk and vulnerability to the region, where
the construction of the building is proposed, and
(b) The bank or lending institution will undertake independent technical review of the complete
architectural and structural designs of the proposed construction, with the assistance of its own
internal peer reviewers, and take a decision on the loan application based on the outcome of such
review and other relevant factors related to the proposed construction.
A comprehensive legal and institutional framework for disaster management has been set
up through the Disaster Management Act passed by the Indian Parliament in 2005 and
the National Policy on Disaster Management that was approved in 2009.

4) NDMA Guidelines- Management of Drought- September 2010:

These guidelines give immediate and long term measures for draught management. As
per these guidelines, provision of consumption loan will be encouraged in drought prone areas
and efforts will be made to bring agricultural labourers into the net of social security. To improve
access to financial services, provision of support to local micro-finance institutions will be
encouraged by centre/ state.
5) NDMA Guidelines-Management of earthquakes- April 2007:
The severe economic losses caused by the Gujarat earthquake were not only restricted to
the local economy but also influenced the savings and investment patterns and stock market
behaviour. Thus, the economic impact of an earthquake in a metropolitan city like Delhi or
Mumbai etc. will have primary, secondary and tertiary impacts. The guidelines state that the
Central ministries and departments and state governments will mainstream DM efforts in their
development plans. In the annual plans, specific allocations will be made for carrying out
disaster preparedness efforts, as well as disaster mitigation measures including retrofitting of
selected lifeline structures. Wherever necessary and feasible, the central ministries and
departments and ULBs in the states may initiate discussions with corporate sector undertakings
to support the retrofitting measures of selected lifeline structures. State Governments/ SDMAs
will, in consultation with their SEMCs and HSCs, establish the necessary techno-legal and
techno-financial mechanisms. The approval and disbursement of funds from banks and other
financial institutions to industrial units will also be linked to the compliance with earthquake
safety norms by these units.
6) NDMA Guidelines-Management of Tsunamis- August, 2010:
The guidelines state that the financial institutions will consider the compliance of safety
against tsunami before offering housing loans including those for construction of industrial,
commercial and multi-storied complexes. The sources of funding for all Tsunami Management
Plan related activities will be as follows:
a) Annual Plan/Budget: for mainstreaming Tsunami Management Plans into developmental plans
of respective ministries/ departments at the centre and state governments/UTs.
b) Centrally Sponsored/Central Sector Schemes.
c) National Mitigation Projects by NDMA and other specific projects either by the central
government or state governments; funded internally/ externally.
d) Public-Private Partner.

7) NDMA Guidelines-Management of Chemical (Terrorism) Disasters-June 2009:

The guidelines mention that an adequate financial mechanism to deal with the social and
economic impact of chemicals on human health, society, and the environment, including liability
and compensation, needs to be evolved. It further seek to develop appropriate financial strategies
to be adopted to scuttle the flow of funds through illegal means from unauthorised sources to
various terrorist and other undesirable organisations. They provide that financial intermediaries
and banks that provide funds to front companies moving or transporting hazardous chemicals,
dual-use chemicals, and chemical weapons to terrorist organisations can suffer substantial loss of
reputation and face liability for the same. The guidelines state that it is essential to develop
adequate provision for relief to affected victims of Chemical (Terrorism) Disaster (CTD), both in
terms of financial help and other support to help cope with and compensate for the loss of life
and damage to property. Central and state governments will facilitate the development and
design of appropriate risk-avoidance, risk-sharing, and risk-transfer mechanisms in consultation
with financial institutions, insurance companies, and reinsurance agencies.
8) NDMA Guidelines- Scaling, type of equipment and training of Fire Services-April 2012:
 The National Disaster Management Authority (NDMA) has drawn the Commission’s
attention to the dismal state of fire services in the country. NDMA has estimated the deficiency
of the services in the country as under”
a. Fire stations - 97.54%
b. Fire fighting and rescue vehicles - 80.04%
c. Fire personnel - 96.28%
(Source: Compendium of recommendations of SFAC and 13th Finance Commission Report)
The NDMA took up the alarming and unacceptable inadequacies in fire equipment, manpower,
training and financial crunch in the fire services in the country at various levels. It was then
decided that the Planning Commission would advise the state Governments during the process of
drawing up their annual plans to prioritize and attend to the up-gradation of the fire services and
removal of existing deficiencies. A portion of the grants provided to the urban local bodies be
spent on revamping of the Fire services within their respective jurisdictions. These bodies could
provide financial support to the State Fire services Department towards this objective. The
NDMA has focused especially on the current state of fire services in the country and has argued
for the up-gradation of fire-preparedness and provision of a grant of Rs. 7000 crore to the State
Governments for this purpose.
9) NDMA Guidelines-July 2010-Incident Response System:
These Guidelines will provide directions and guidance to central ministries, state
government departments and state and district administrations for effective and well coordinated
response. The Incident Response Teams (IRTs) is a team comprising of all positions of Incident
Response System (IRS) organization. The IRT framework is as shown below:
Incidence Response Team Framework
 (Source: NDMA Guidelines, Incident Response System)
Figure 7.2

The Logistics Section (LS) deals with matters relating to procurement of resources and
establishment of facilities for the incident response. It also deals with all financial matters,
concerning an incident. This section is headed by the Logistic Section Chief (LSC) and is an
important component of the IRS organisation for providing back end services and other
important logistic support like communications, food, medical supplies, shelter and other
facilities to the affected communities and responders as well. There is a Finance Branch (FB)
attached to this Section in order to ensure that the procurements, if any, may be done quickly and
in accordance with the financial rules. The FB is responsible for managing all financial aspects
of response management. The FB has been kept under the LS for quick and effective
procurement. Due diligence is very important in all financial transactions and proper procedure
needs to be followed.
7.3 Disaster Management Act, 2005
 The Government of India has enacted the Disaster Management Act, 2005 to provide for
the effective management of disasters and for matters connected therewith or incidental thereto.
On 23 December 2005, the Government of India enacted the Disaster Management Act, which
along with the creation of the NDMA, envisaged State Disaster Management Authorities
(SDMAs) headed by respective Chief Ministers of the States as well as District Disaster
Management Authorities (DDMAs) under the Chairmanship of Collectors/District
Magistrates/Deputy Commissioners. The Act further provides for the constitution of National
Executive Committee (NEC), headed by Union Home Secretary, National Institute of Disaster
Management (NIDM) and National Disaster Response Force (NDRF). It also provides for the
concerned Ministries and Departments to draw up their own plans in accordance with the
National plan to promote and implement a coordinated and integrated approach to Disaster
Management in India. It lays down the institutional mechanism for drawing up and monitoring
the implementation of the disaster management plans, ensuring measures by various wings of the
Government for prevention and mitigation of the effects of disasters and prompt response to any
disaster situation. In addition, the Act contains provisions for constitution of National Disaster
Response Fund and National Mitigation Fund and similar Funds at the State and District levels.
The Act also provides for specific role for local bodies in disaster management. The Disaster
Management Act, 2005 has created new institutions at the national, state, district and local levels.
The new institutional framework for disaster management in the country is as under:

The new institutional framework for disaster management in India

(Source: Disaster Management in India, Ministry of Home Affairs, Government of India, 2011)

Figure 7.3

7.4 Financial Measures as Laid Down by the Disaster Management Act 2005 and Their
Current Status( as Described in the Annual Report for 2011-12, of Government of India,
Ministry of Home Affairs):

The National Institute of Disaster Management (NIDM) has the mandate for human resource
development and capacity building for disaster management within the broad policies and
guidelines laid down by the NDMA. NIDM is required to design, develop and implement
training programs, undertake research, formulate and implement a comprehensive human
resource development plan, provide assistance in national policy formulation, assist other
research and training institutes, state governments and other organizations for successfully
discharging their responsibilities, develop educational materials for dissemination and promote
awareness among stakeholders in addition to undertake any other function as assigned to it by
the Central Government.

National Executive Committee (NEC)

The NEC is the executive committee of the NDMA and is mandated to assist the NDMA in the
discharge of its functions and also ensure compliance of the directions issued by the Central
Government. The NEC is to coordinate the response in the event of any threatening disaster
situation or disaster. The NEC will monitor the implementation of Guidelines issued by NDMA.

State Disaster Response Fund

Section 48 (1) of Disaster Management Act, 2005 provides for constitution of State
Disaster Response Fund (SDRF) by the State Governments. The Ministry of Home Affairs has
issued the guidelines to the States for operation of SDRF. Allocations to the State Response
Funds have been made based on the recommendations of the successive Finance Commissions.
While allocating the funds to various States for a period of five years, the factors considered
include the expenditure incurred by the State Government on relief operations during the last
about 10 years, vulnerability to natural disasters and economic status of the State. Currently, as
per the recommendations of the 13th Finance Commission, the Government has approved an
allocation of Rs.33, 580.93 crore in the State Disaster Response Fund to all the States,
comprising of Rs.25, 847.93 crore as Central share and Rs.7, 733.00 crore as State share. The
scheme of SDRF provides for release of the Central share in two equal installments in the
months of June and December. A statement showing the State-wise and year-wise allocation to
the SDRF for the period 2010-15 is given in Table 7.2:

National Disaster Response Fund (NDRF)

Section 46(1) of Disaster Management Act, 2005 provides for constitution of NDRF for
meeting any threatening disaster management situation or disaster. Accordingly, MHA issued
notification for the constitution of National Disaster Response Fund (NDRF) on 28.09.2010.
The Finance Ministry has also issued guidelines to the States for operation of NDRF.

Disaster Mitigation Reserves

Experience in major disasters in India in the last decade has clearly established the need
for pre-positioning some essential relief and response reserves at crucial locations, including
some for the high altitude areas. These reserves are intended to augment the resources at the
State level. Mitigation reserves will be placed at the disposal of NDRF for enhancing their
emergency response capabilities for assisting the State Governments during a disaster or disaster-
like situation.

Additional Financial Assistance

Over and above the provisions of the SDRF, funding is provided from the NDRF in the
wake of calamities of severe nature. On receipt of the Memorandum from the affected States,
an Inter Ministerial Central Team comprising of representatives of the Central Ministries/
Departments is constituted and its report, after examination by the Inter Ministerial Group
(IMG) headed by Union Home Secretary, is placed before the High Level Committee (HLC)
for consideration and approval of funds from NDRF.

Monitoring of Expenditure
The Ministry of Home Affairs oversees the operations of SDRF and monitors its
compliance with these guidelines. A format for monitoring the expenditure in accordance with
the extant items and norms of assistance has been prescribed. The Accountant General of the
State maintains the accounts of the SDRF. The Comptroller and Auditor General of India audits
SDRF every year.

Current Allocations under SDRF

For the year 2011-12, the allocation in SDRF is Rs 6,381.18 crore, out of which
Rs.4.911.70 crore is Central share and Rs.1,469.48 crore is share of States. During the year
2011-12, an amount of Rs.1, 944.38 crore (Rs.399.33 crore arrears of previous year + Rs.1,
545.05 crore 1st installment) has been released as Central share of SDRF to 18 States. In
addition, the 2 nd installment of Central share of SDRF for the year 2011-12, amounting to
Rs.357.47 crore has been released, in advance, to the 5 States due to earthquake and flood
situation. Besides, financial assistance of Rs.1636.64 crore has also been released from NDRF
to the States of Andhra Pradesh, Odisha, Tamil Nadu and Sikkim. A statement showing State-
wise allocation and releases of funds from SDRF/NDRF during 2011-12 is as Table 7.3:
Capacity Building Grant
On the recommendation of the 13th Finance Commission, Rs. 525 crore has been
allocated to the States for taking up activities for building capacity. The State-wise allocation
for the period 2010-15 is as per Table 7.4.
The Ministry of Finance has issued the guidelines for the utilization of the fund. The
guidelines provide for preparation of an action plan for the entire period of 2010-15 as well as
action plans for each financial year. These plans would inter alia include items for training and
capacity building of stakeholders and functionaries in States, preparation of disaster
management plans based on hazard, risk and vulnerability analysis and setting up and
strengthening of Emergency Operation Centres in States. The items and norms of assistance
from relief funds are comprehensively reviewed after the receipt of the award of the successive
Finance Commissions. These norms are revised based on report of the expert group constituted
by MHA which consults all the State Governments and concerned Central Ministries/
Departments. The Govt. of India has issued the revised items and norms on 16.01.2012.

Financial Action Task Force (FATF)

It is an Inter Governmental Organization to develop policies to combat money
laundering and terrorist financing that has made certain recommendations. These
recommendations set out the principle for action and implementation of these principles
according to the particular circumstances and constitutional framework of different countries.
These recommendations are intended to be implemented at the national level through
legislation and other legally binding measures. The legislative framework dealing with terrorist
activities and money laundering for all countries is being continuously reviewed by the FATF.

7.5 Provisions Under Five Year Plans:

 The Tenth Five-Year Plan 2002-2007 prepared in the backdrop of Orissa super cyclone
and Gujarat earthquake for the first time had a detailed chapter entitled ‘Disaster Management:
The Development Perspective’. At the macro level, the Plan emphasized that “while hazards,
both natural or otherwise, are inevitable, the disasters that follow need not be so and the society
can be prepared to cope with them effectively whenever they occur” and called for a “multi-
pronged strategy for total risk management, comprising prevention, preparedness, response and
recovery, on the one hand, and for initiating development efforts aimed towards risk reduction
and mitigation, on the other”. The plan emphasized the fact that development cannot be
sustainable without mitigation being built into the development process. Disaster mitigation and
prevention were adopted as essential component of the development strategy.
The increasing frequency and ferocity, the rising extent and sweep as well as the
mounting human and economic toll due to disasters necessitated a reappraisal of institutional and
policy frameworks and development of new frameworks for holistic disaster management of
disasters. Recognising this paradigm shift in public policy, the Eleventh Five-Year Plan (2007-
12) stated that:
‘The traditional perception relating to the management and mitigation of natural disasters
has been limited to the idea of “calamity relief,” which is seen essentially as a non-plan item of
expenditure. However, the impact of major disasters cannot be mitigated by the provision of
immediate relief alone, which is the primary focus of calamity relief efforts. Disasters can have
devastating effects on the economy; they cause huge human and economic losses, and can
significantly set back development efforts of a region or a State. With the kind of economic
losses and developmental setbacks that the country has been suffering year after year, the
development process needs to be sensitive towards disaster prevention and mitigation aspects.
There is thus a need to look at disasters from a development perspective as well.’
The Eleventh Five Year Plan aims at giving impetus to projects and programs that
develop and nurture the culture of safety and the integration of disaster prevention and mitigation
into the development process. Communities at large are required to be mobilized to achieve this
common objective as they are the first responders.

7.6 Recommendations of Finance Commissions

 The Finance Commissions are appointed under Article 280 of the Constitution of India
every five years. They are mandated, amongst others things, to assess the funding needs (non
developmental) of the States, and to recommend grants to the States. The Finance Commissions
make recommendations on the mechanisms by which the Central Government will assist States
in funding expenditure on relief. Earlier, the Commission was restricted to suggestions on the
pattern of financial assistance by the Centre. Now, the recommendations also cover the “scheme
of financing relief expenditure”. The Scheme of financing the relief expenditure is based on the
recommendations of the successive Finance Commissions. Similarly, the Twelfth Finance
Commission of India was also mandated to review the financial arrangements for Disaster
Management.
The present scheme, which is in operation from 2010-11 to 2014-15, is based on the
recommendations of the Thirteenth Finance Commission (TFC). The TFC has recommended that
avalanches, cyclone, cloud burst, drought, earthquake, tsunami, fire, flood, hailstorm, landslides
and pest attacks are to be considered as natural calamities for providing assistance from SDRF
and NDRF. On the recommendation of the 13th Finance Commission, the Government of India
has allocated funds for strengthening disaster management institutions, capacity building and
response mechanisms. The Thirteenth Finance Commission, recently, in its report submitted to
the GOI has recommended that a grant of Rs 525 crores may be allotted to the States during the
fiscal cycle of 2010-15 for taking up “activities for building capacity in the administrative
machinery for better handling of disaster risk response and for preparation of District and State
level Disaster Management Plans (DMPs) as envisaged in the Disaster Management Act (2005).”
The GOI has accepted the recommendation.

7.7 Mainstreaming Disaster Management in Developmental Planning

The Department of Expenditure, Ministry of Finance, Government of India, in
consultation with NDMA and the Planning Commission, issued O.M. No. 37 (4)/ PF-II/2003
dated 19th June 2009 revising the Expenditure Finance Committee (EFC) and Detailed Project
Report (DPR) formats to include DM concerns while submitting proposals for financial sanctions
for various plan schemes or non-plan proposals. These revised formats also include a provision
for self certification by the officials submitting the proposals stating that the disaster risk and
vulnerability of the area where the new infrastructure or facility is being established has been
assessed and appropriate measures have been incorporated to ensure the disaster resilience of the
proposed project from multiple hazards to which the area is vulnerable. The Ministry or
Department of the GOI or the State Government which submits the proposal for plan schemes
have to ensure that the physical and regulatory measures that must necessarily be taken based on
design and engineering or technology to prevent or mitigate the effect of such disasters have
been incorporated within the proposed financial allocation being sought.

7.8 Measures Taken by The Reserve Bank of India

1) With respect to the above NDMA Guidelines on ‘Ensuring Disaster Resilient Construction
of Buildings and Infrastructure financed through Banks and Other Lending Institutions-Sept,
2010’ the RBI circular (reference RBI/2010-11/525-DBOD.Dir.BC.No.93 /08.12.14/
2010-11) dated May 12, 2011 to all Scheduled Commercial Banks states that ’As it is in the
interest of lenders to ensure that physical assets created through their financing remain safe
and disaster resilient, the guidelines prepared by NDMA can be adopted by banks and made
applicable to new constructions as well as additions, modifications, extensions or alteration
of houses financed by them. Further, depending on the nature of the asset and the
vulnerability of the location to any of the disasters, banks could insist on ensuring that the
disaster resistant features of NDMA guidelines are incorporated in the actual construction
before the loan is sanctioned or disbursed so that the disaster management features are built
in at the design stage itself.’
2) The Master Circular of RBI dt 1st July 2011 states the ‘Guidelines for Relief Measures By
Banks In Areas Affected By Natural Calamities’. These guidelines are in respect of the
economic rehabilitation of the people affected in various disasters. They mainly depict the
role of commercial and cooperative banks in the developmental and economic activities post
disaster. They give details regarding the credit assistance and facilitate coordination and
expeditious action by banks and financial institutions. They demonstrate a proactive
approach by insisting on suitable policy framework by the banks in order to avoid delays in
 relief measures and to bring out flexibility in measures for which Discretionary Powers have
been given to Divisional / Zonal Manager of banks. The procedural aspects of agricultural
loans and developmental loans in the aftermath of disasters have been given in details which
cover aspects such as loss assessment and issuance of fresh loans and restructuring of
existing loans. They also provide guidance on asset classification and provision of
conversion facilities. The guidelines aim to provide support not only to the farmers but also
to the Artisans and self-employed persons as well as persons affected in the case of riots and
disturbances among others. They envisage rehabilitation of units under village and cottage
industry sector, small-scale industrial units and overall trade and industry sector. The detailed
guidelines are as follows:
7.9 Guidelines for Relief Measures by Banks in Areas Affected By Natural Calamities
(Ref-RBI/2011-12/81 RPCD. No. PLFS. BC. 8 / 05.04.02/ 2011-12 dt 1st July 2011)

1. Periodical but frequent occurrence of droughts, floods, cyclones, tidal waves and other natural
calamities takes a heavy toll of human life and causes wide spread damage to economic pursuits
of human beings in one area or the other of our country. The devastation caused by such natural
calamities call for massive rehabilitation efforts by all agencies. The State and local authorities
draw programmes for economic rehabilitation of the affected people. The developmental role
assigned to the commercial banks and co-operative banks, warrants their active support in revival
of the economic activities.

2. Since the area and time of occurrence and intensity of natural calamities cannot be anticipated,
it is imperative that the banks have a blueprint of action in such eventualities so that the required
relief and assistance is provided with utmost speed and without any loss of time. This pre-
supposes that all the branches of commercial banks and their Regional and Zonal Offices will
have a set of standing instructions spelling out the action that the branches will have to initiate in
the calamity affected areas immediately after the requisite declaration by the district/ state
authorities. It is necessary that these instructions should also be available with the State
Government authorities and all the District Collectors so that all concerned are clear as to the
action that would be taken by the banks’ branches in the affected areas.
3. The precise details in regard to the provision of credit assistance by the commercial banks will
depend on the requirements of the situation, their own operational capabilities and the actual
needs of the borrowers. This can be decided by them in consultation with the district authorities.

4. Nevertheless, to enable banks to take uniform and concerted action expeditiously, particularly
to provide financial assistance to agriculturists, small scale industrial units, artisans, small
business and trading establishments affected by natural calamities, the following guidelines are
recommended.

I. Institutional arrangements:

a. Meeting of District Consultative Committee

5. To facilitate coordination and expeditious action by the financing institutions, the conveners of
the District Consultative Committees of the affected districts should convene a meeting
immediately after the occurrence of natural calamities. In the event of the calamity covering a
larger part of a State, the convener of the State Level Bankers’ Committee will also convene a
meeting immediately to evolve a coordinated action plan for implementation of the relief
programme in collaboration with the State/ district authorities. While determining the quantum
of assistance required by a person affected by the natural calamity, the banks may take into
consideration the assistance/subsidy received by him from the state Government and/or other
agencies.

b. Special State Level Bankers’ Committee (SLBC) Meeting

6. Immediately upon occurrence of a natural calamity, special SLBC meeting may be convened
to review the position in the affected areas and ensure speedy formulation and implementation of
suitable relief measures by banks.

7. The banks may also give adequate publicity to their disaster management arrangements,
including the helpline numbers. The relief measures initiated and undertaken may be reviewed
periodically in the weekly/fortnightly meetings of specially constituted Task Forces or sub
Committees of the SLBC till such time as conditions are normalized.

c. Proactive approach

8. In order to avoid delay in taking relief measures on the occurrence of natural calamity, banks
may evolve a suitable policy framework in this regard with the approval of the Board of
Directors and forward a copy of the policy note for our record. It is advisable to provide an
element of flexibility in the measures so as to synchronise the same with the measures which
could be appropriate in a given situation in a particular State or District and parameters in this
regard may be decided in consultation with SLBC/ DCC, as the case may be.

d. Discretionary Powers to Divisional / Zonal Manager of banks

9. Divisional/ Zonal Managers of commercial banks should be vested with certain discretionary
powers so that they do not have to seek fresh approvals from their Central Offices to the line of
action agreed to by the District/ State Level Bankers’ Committees. For example, such
discretionary powers would be necessary in regard to adoption of scales of finance, extension of
loan periods, sanction of new loans keeping in view the total liability of the borrower (i.e. arising
out of the old loan where the assets financed are damaged or lost on account of natural calamity
as well as the new loan for creation/repair of such assets), margin, security, etc.

e. Identification of the beneficiaries

10. The bank branches should obtain from the Government authorities concerned lists of affected
villages within their area of operation. From among the identified persons, assessment of loss
sustained by the existing constituents of the banks would be easier. In the case of fresh
borrowers, however, discreet enquiries should be made in this regard and assistance of the
Government authorities should be sought wherever available for ascertaining genuineness of
their requirements. For providing conversion facilities in respect of crop loans, procedure for
identification of areas where such facilities have to be provided has been indicated under crop
loans in paragraph (g) below.
f. Coverage

11. Each branch will provide credit assistance not only to its existing borrowers but also to other
eligible persons within its command area provided they are not covered by any other financial
agency.

12. Credit requirements of the borrowing members of the cooperatives will be met by the
Primary Agricultural Co-operative Societies (PACS)/ LAMPS/ FSS, etc. Branches of
commercial banks may, however, finance the non-borrowing members of the co-operative
societies, for which the latter will issue the usual `No objection’ certificates speedily.

g. Priorities

13. Immediate assistance including finances would be needed for protecting and rejuvenating
standing crops/ orchards/ plantation, etc. Equally important will be repairs to and protection of
live stock sheds, grains and fodder storage structures, drainage, pumping, and other measures
and operations to repair pump sets, motors, engines and other necessary implements. Subject to
seasonal requirements, next crop financing should be taken up.

II. Agricultural loans:

14. The bank assistance in relation to agriculture would be needed in the form of short term loans
for the purpose of raising crops (crop loans) and term loans for purchase of milch / draught
animals, repairs to existing tube wells and pump sets, digging of new tube wells and installation
of new pump sets, land reclamation, silt/sand removal, protection and rejuvenation of standing
crops/ orchards/ plantation, etc., repairs and protection of livestock sheds, grain and fodder
storage structures, etc. Banks may, of their own, decide the quantum of fresh loans to be granted
to the affected borrowers taking into consideration, amongst others, the extent of the crop loss/
scale of finance and their repaying capacity.

A. Crop loans

a. Identification of loss
15. In the case of natural calamities, such as droughts, floods, etc., the Government authorities
would have declared annewari to indicate the extent to which the crops are damaged. However,
where such declaration has not been made, banks should not delay in providing conversion
facilities, and the District Collector’s Certificate that crop yield is below 50% of the normal
yield, supported by the views of the DCC in the matter (for which a special meeting may have to
be convened), should be sufficient for invoking quick relief arrangements. The certificate of the
Collector should be issued crop-wise covering all crops, including food-grains. Issuing of such
certificates in respect of cash crops, may, however, be left to the discretion of the Collector.
Alternatively, the District Collector, on occurrence of the natural calamity such as drought,
floods etc., may ask the Lead Bank Officer to convene a meeting of the DCC, and submit a
report to the DCC on the extent of crop loss in the area affected by the natural calamity. If the
DCC is satisfied that there has been extensive crop loss on account of the natural calamity, the
relief including conversion/restructuring facilities of agricultural loans as per the standing
guidelines may be extended to the farmers affected by the natural calamity, without declaring
annewari.

b. Issuance of fresh loans and restructuring of existing loans

16. The financial assistance required by borrowers in the event of natural calamity would
include:

i. Consumption loans.
ii. Fresh loans for resumption of normal business.
iii. Restructuring of the existing loans.

(i) Consumption Loans

17. As per extant instructions, loans up to Rs. 250/- could be sanctioned to existing borrowers for
general consumption purposes and the limit could be enhanced to Rs. 1,000/- in the States where
the State Governments have constituted risk funds for such lending. The present limits may be
enhanced to Rs. 10,000/- without any collateral and such loans may be provided even if no risk
fund has been constituted. Further, the limit may be enhanced beyond Rs.10, 000/- at the
discretion of the bank.

(ii) Fresh Loans

18. Timely fresh financial assistance to resume productive activities may be provided not only to
the existing borrowers, but also to other eligible borrowers. Notwithstanding the status of the
existing account, fresh loans granted to the borrowers will be treated as current dues.

(iii) Restructuring of existing loans

19. As the repaying capacity of the people affected by natural calamities gets severely impaired
due to the damage to the economic pursuits and loss of economic assets, relief in repayment of
loans becomes necessary in areas affected by natural calamity and hence, restructuring of the
existing loans will be required. The principal amount of the short-term loan as well as interest
due for repayment in the year of occurrence of natural calamity may be converted into term loan.
In case of term loans the installment of principal and interest due in the year of occurrence of
natural calamity may also be converted into term loan.

20. The repayment period of restructured term loan may vary depending on the severity of
calamity and its recurrence, the extent of loss of economic assets and distress caused. Generally,
the restructured period for repayment may be 3 to 5 years. However, where the damage arising
out of the calamity is very severe, banks may, at their discretion, extend the period of repayment
ranging up to 7 years and in extreme cases of hardship, the repayment period may be prolonged
up to a maximum period of 10 years in consultation with the Task Force/ SLBC.

21. In all cases of restructuring, moratorium period of at least one year should be considered.
Further, the banks should not insist for additional collateral security for such restructured loans.
Asset classification for restructured loans will remain the same as prevalent at the time of
restructuring for a period of one year as per extant guidelines for restructured loans. The asset
classification status of these loans will be as under:
 a. The restructured portion of the short term loans and term loans which have been
converted into fresh loans may be treated as current dues and need not be classified as
NPA. The asset classification of these fresh term loans would thereafter be governed by
the revised terms and conditions and would be treated as NPA if interest and / or
installment of principal remain overdue for two crop seasons for short duration crops and
for one crop season for long duration crops.
b. The asset classification of the remaining amount due, which has not been restructured
will continue to be governed by the original terms and conditions. Consequently, the dues
from the borrower may be classified by the lending bank under different asset
classification categories viz. standard, sub-standard, doubtful, loss
c. Additional finance, if any, may be treated as “standard asset” and its future asset
classification will be governed by the terms and conditions of its sanction.

22. Lending and other norms may be relaxed by banks, at their discretion, for the Self Help
Groups affected in a natural calamity. Similarly, in retail or consumer loans segment, the banks
may restructure the loans in a manner suitable to the borrowers on a case-to-case basis.

23. i. Asset classification of the restructured accounts as on the date of natural calamity will
continue if the restructuring is completed within a period of three months from the date of natural
calamity. The restructured accounts will be governed by the guidelines applicable to such
accounts as contained in paragraphs 4.2.14 to 4.2.16 of the master circular DBOD. No. BP.BC.
15 / 21.04.048/ 2006-07 dated July 01, 2006, as modified from time to time. The guidelines
applicable to ‘sub-standard’ accounts will apply, mutatis mutandis, to doubtful accounts.

ii. The accounts that are restructured for the second time or more on account of natural calamities
would retain the same asset classification category on restructuring. Accordingly, for once
restructured standard asset, the subsequent restructuring necessitated on account of natural
calamity would not be treated as second restructuring, i.e., the standard asset classification will
be allowed to be maintained. All other restructuring norms, however, will apply.

c. Other guidelines for providing conversion facilities

24. i. As far as possible, it would be preferable to prescribe common due dates for payment of
installments of the converted loan and extended term loans.

ii. All short-term loans, except those, which are overdue at the time of occurrence of natural
calamity, should be eligible for conversion facilities.

iii. Pending conversion of short-term loans, banks may grant fresh crop loans to the affected
farmers.

iv. Conversion of short-term production loans may be taken up by banks at the time of sanction
of fresh crop loans to the affected farmers without waiting for the due dates, which are taken into
account in normal course of sanction of such loans.

v. Similarly, installments of principal/ interest in respect of term loans may be rescheduled for a
period of 3 years, which could be extended for longer period in the circumstances, mentioned at
para 15 above.

vi. The rates of interest on the converted loans should be the same as that charged on short-term
loans.

vii. Where relief in the form of conversion/ reschedulement of loans is extended to the farmers,
such converted/rescheduled dues should be treated as current dues and banks should not
compound interest in respect of the loans so converted/rescheduled.

d. Fast relief

25. To be effective, the assistance to farmers will have to be disbursed with utmost speed. For
this purpose the lead bank and the district authorities concerned should evolve a procedure
whereby identification of borrowers, issuance of certificates regarding Government/ co-
operative/ bank dues, title of the applicant to land etc. is secured simultaneously.

26. Possibilities of organising credit camps, where Block Development and Revenue officials,
Co-operative Inspectors, Panchayat Pradhans, etc. could help finalise the applications on the
spot, could be explored in consultation with the authorities of the district where such credit
camps are being organised. The State Government will also arrange with the Collectors to issue
an executive order enabling the following officers or their authorised representatives to assume
respective duties and responsibilities as envisaged under implementation of credit camps
programme:

a. Block Development Officer

b. Co-operative Inspector
c. Revenue Authority/ Village Revenue Assistant
d. Bank official operating in the area
e. PACS/ LAMPS/ FSS
f. Gram Panchayat Pradhan

In order to avoid delay, the forms in which the State Government Officers have to give
certificates at the Credit Camps may be got printed in sufficient numbers by the respective
District Magistrates.

27. In considering loan applications for the ensuing crop season, the current dues of the
applicants to the State Government may be ignored, provided the State Government declare a
moratorium for a sufficiently long period on all amounts due to the government as on the date of
occurrence of the natural calamity.

e. Scale of Finance

28. Scales of finance in respect of different crops will be uniform in a district. The scales will be
fixed taking into account the prevailing conditions and norms presently adopted by different
lending agencies. In fixing the scales, minimum consumption needs of borrowers will be taken
into account. The concerned District Magistrates and Managers of branches of banks operating in
the districts would be advised to adopt the scales so laid down.

B. Development Loans - Investment costs

29. The existing term loan installments will have to be rescheduled/ postponed keeping in view
the repaying capacity of the borrowers and the nature of natural calamity viz.,
i. Droughts, floods or cyclones, etc. where only crop for that year is damaged and productive
assets are not damaged.

ii. Floods or cyclones where the productive assets are partially or totally damaged and borrowers
are in need of a new loan.

30. In regard to natural calamity under category (i) the banks may postpone the payment of
installment during the year of natural calamity and extend the loan period by one year, subject to
the following exceptions:

a. Those cultivators who had not effected the development or investment for which the loan was
obtained or had disposed of the equipments or machinery purchased out of the loan;

b. Those who are income tax payers;

c. In the case of drought, those who are having perennial sources of irrigation except where water
supply was not released from canals or irrigation facility was not available from other perennial
sources; and

d. Tractor owners, except in genuine cases where there is loss of income and consequential
impairment of their repaying capacity.

Under this arrangement the installments defaulted willfully in earlier years will not be eligible
for rescheduling. The banks may have to postpone payment of interest by borrowers. While
fixing extension of period the commitment towards interest may also be taken into account.

31. In regard to category (ii) i.e. where the borrower’s assets are totally damaged, the
rescheduling by way of extension of loan period maybe determined on the basis of overall
repaying capacity of the borrower including his repayment commitment on the old term loans
and towards the conversion loan (medium term loan) on account of postponing of repayment of
short term loans and the fresh crop loan. In such cases, the repayment period of total loan
(including interest liability) less the subsidies received from the Government agencies,
compensation available under the insurance schemes, etc. may be fixed having regard to the
repaying capacity of the borrower subject to a maximum of 15 years, depending upon the type of
investment as well as the economic (useful) life of the new asset financed, except in cases where
loan relates to land shaping, silt removal, soil conservation, etc. Thus in the case of loans for
agricultural machineries, viz., pump sets and tractors, it should be ensured that the total loan
period does not generally exceed 9 years from the date of advance.

32. Apart from rescheduling existing term loans, banks will provide to affected Farmers diverse
type of term loans for developmental purposes, such as:

a. Minor Irrigation: Term loans for repairs to wells, pump sets, etc. which are to be quantified
after assessing the extent of damage and estimated cost of repairs.

b. Bullocks: Where the draught animals have been washed away, requests for fresh loans for a
new pair of bullocks/he-buffaloes may be considered. Where loans are given for purchase of new
cattle or where farmers have bought milch cattle, reasonable credit may be given for purchase of
fodder or feed.

c. Milch Cattle: Term loan for milch cattle will be considered depending upon breed, milk yield,
etc; the loan amount will include repairs to shelters, purchase of equipment and feed.

d. Insurance: Considering the proneness of areas to cyclones and other natural calamities, the
cattle should be insured. Milch animals/ draught cattle should be branded for identification as
also to serve as safeguard against their re-sale by the beneficiaries.

e. Poultry and Piggery: For poultry, piggery and goatery, loans will be considered as per the
norms of different banks.

f. Fisheries: In the case of borrowers who have lost their boats, nets and other equipment, re-
phasing of payment of existing dues may be allowed on merits. Fresh loans may be granted to
them with loan maturity of 3 - 4 years. Loans for repairs to boats of the existing borrowers may
also be considered. In cases where subsidy is available the quantum of loan should be reduced to
that extent. In States where substantial subsidy towards the cost of boats, nets, etc. is likely to be
available, proper coordination with the concerned State Government Department in this regard
must be ensured. Apart from complying with other norms and conditions for grant of advances,
assistance may be sought from the Department of Fisheries, which may be expected to take
measures, which would enable banks to proceed with financing for this purpose. The boats
should be comprehensively insured against all risks including natural calamities as far as
possible.

33. It is likely that financial assistance will be required for reclamation of land covered by sand
casting. Normally, sand/ silt deposits up to 3 inches will either be ploughed back into the soil or
removed by the farmers without any need for financial assistance. Loan applications will,
however, be considered in cases where immediate cultivation is possible and reclamation
(removal of sand) is necessary. Wherever reclamation finance for saline lands is warranted, the
cost of reclamation not exceeding 25% of the scale allowed for crop loan may be advanced along
with the crop loan.

34. For other activities like agriculture, horticulture, floriculture, betel vine growing etc., banks
will advance loans for investment and working capital under their existing schemes and follow
usual procedures laid down by them. The working capital finance may be provided until such
period the income from the plantation is adequate to take care of such expenditure.

35. However, additional need based crop loans if necessary would be given for revitalisation/
rejuvenation of standing crops/ orchards based on individual assessment.

36. The question relating to procurement and proper arrangement for supply of adequate quantity
of seeds and various types of fertilizers will have to be discussed with the State Government and
District Administration in each district. Similarly, for the purpose of ensuring adequate irrigation
facilities, the State Government will undertake repairs to Government owned shallow and deep
tube wells and River Lift Irrigation System damaged by floods and other natural calamities. As
for fisheries, the fisheries department of the State Government will make arrangement to obtain
fingerlings and supply them to those who wish to revive tank fishing with bank finance.

37. The State Government will have to consider preparation of schemes, which would enable
commercial banks to obtain refinance at NABARD rates for amounts advanced by banks for the
said purpose.
C. Terms and Conditions

38. The terms and conditions governing relief loans will be flexible as to guarantee, security,
margin, etc.

a. Guarantee

In the case of small loans covered by guarantee of Deposit Insurance and Credit Guarantee
Corporation, personal guarantees will not be insisted upon. In any case, credit should not be
denied for want of personal guarantees.

b. Security

i. Where the bank’s existing security has been eroded because of damage or destruction by
floods, assistance will not be denied merely for want of additional fresh security. The fresh loan
may be granted even if the value of security (existing as well as the asset to be acquired from the
new loan) is less than the loan amount. For fresh loans, a sympathetic view will have to be taken.

ii. Where the crop loan (which has been converted into term loan) was earlier given against
personal security/ hypothecation of crop and the borrower is not able to offer charge/mortgage of
land as security for the converted loan, he should not be denied conversion facility merely on the
ground of his inability to furnish land as security. If the borrower has already taken a term loan
against mortgage/charge on land, the bank should be content with a second charge for the
converted term loan. Banks should not insist on third party guarantees for providing conversion
facilities.

iii. In the case of term loans for replacement of equipments, repairs, etc. and for working capital
finance to artisans and self-employed persons or for crop loans, usual security may be obtained.
Where land is taken as security, in the absence of original title records, a certificate issued by the
Revenue Department officials may be accepted for financing farmers who have lost proof of
their titles i.e. in the form of deeds, as also the registration certificates issued to registered share-
croppers.
iv. As per the recommendations of the R.B.I. report on customer service, banks will finance the
borrowers who require loans up to Rs.500 without insisting either on collateral security or
guarantee for any type of economic activity.

c. Margin

39. Margin requirements may be waived or the grants/ subsidy given by the concerned State
Government may be considered as margin.

d. Rate of Interest

40. The rates of interest will be in accordance with the directives of the Reserve Bank. Within
the areas of their discretion, however, banks are expected to take a sympathetic view of the
difficulties of the borrowers and extend a concessional treatment to calamity-affected people.

Those meeting the eligibility criteria under the Scheme of Differential Rate of Interest should be
provided credit in accordance with the provision of the Scheme.

In respect of current dues in default, no penal interest will be charged. The banks should also
suitably defer the compounding of interest charges.

Banks may not levy any penal interest and consider waiving penal interest, if any, already
charged in regard to the loans converted/rescheduled.

III. Artisans and self-employed persons

41. For all categories of rural artisans and self-employed persons including handloom weavers,
loans will be needed for repairs of sheds, replacement of implements, and purchase of raw
materials and stores. In sanctioning the loan, due allowance will be made for subsidy/ assistance
available from the State Government concerned.

42. There may be many artisans, traders and self-employed persons who may not have any
banking arrangement or facility with any bank, but will now need financial assistance for
rehabilitation. Such categories will be eligible for assistance from banks’ branches in whose
command areas they reside or carry on their profession/ business. Where such a person/ party
falls under the command area of more than one bank, the banks concerned will meet together and
sort out his problem.

IV. Small Scale and Tiny Units

43. Rehabilitation of units under village and cottage industry sector, small-scale industrial units
as also smaller of the medium industrial sector damaged, will also need attention. Term loans for
repairs to and renovation of factory buildings/sheds and machinery as also for replacement of
damaged parts and working capital for purchase of raw materials and stores will need to be
provided urgently.

44. Where the raw materials or finished goods have been washed away or ruined or damaged,
banks’ security for working capital will naturally be eroded and the working capital account
(Cash Credit or Loan) will be out of order. In such cases, banks will convert drawings in excess
of the value of security into a term loan and also provide further working capital to the borrower.

45. Depending on the damage suffered and time needed for rehabilitation and restarting
production and sales, term loan installments will have to be suitably rescheduled, keeping in
view the income generating capacity of the unit. Shortfall in margins will have to be condoned or
even waived and borrower should be allowed time to build up margin gradually from his future
cash generation. Wherever State Government or any agency has formulated special scheme for
providing grants/ subsidy/ seed money, suitable margin may be stipulated to the extent of such
grants/ subsidy/ seed money.

46. The primary consideration before the banks in extending credit to a small/tiny unit for its
rehabilitation should be the viability of the venture after the rehabilitation programme is
implemented.

V. Other Issues

a. Business Continuity Planning

47. In the backdrop of increased leveraging of technology in banking system, Business
Continuity Planning (BCP) has become a key pre-requisite for minimizing business disruption
and system failures. As a Business Continuity Planning (BCP) strategy, banks may identify
alternate branches for branches located in areas prone to natural calamities. As per the extant
instructions, the Boards of banks are required to approve a policy on BCP, allocate sufficient
resources and provide clear guidance and direction in this regard to the Top Management. Banks
may formulate full-fledged comprehensive BCP rather than having only Disaster-Recovery (DR)
arrangements. The banks may also focus on keeping the DR site current, to test them
comprehensively and synchronize the data between the primary and secondary sites.

b. Access to customers to their bank accounts

48. In areas where the bank branches are affected by natural calamity and are unable to function
normally, banks may operate from temporary premises, under advice to RBI. For continuing the
temporary premises beyond 30 days, specific approval may be obtained from the concerned
regional office (RO) of RBI. Banks may also ensure rendering of banking services to the affected
areas by setting up satellite offices, extension counters or mobile banking facilities under
intimation to RO of RBI.

To satisfy customer’s immediate cash requirements, banks could consider waiving the penalties
related to accessing accounts such as fixed deposits.

Restoration of the functioning of ATMs at the earliest or making alternate arrangements for
providing such facilities may be given due importance. Banks may consider putting in place
arrangements for allowing their customers to access other ATM networks, Mobile ATMs, etc.

c. Currency Management

49. If the bank’s currency chest branch is affected, the bank may immediately contact the nearest
functioning currency chest branch of any bank which shall supply currency notes to the affected
currency chest, to enable them to supply cash to the bank branches linked to them under
intimation to the concerned RO of RBI. In case of need, banks whose currency chests are
affected may, under intimation to the concerned Regional Office of the Reserve Bank, open
repositories for a temporary period, with a view to meeting their day to day cash requirements.

d. KYC Norms

50. To facilitate opening of new accounts by persons affected by natural calamities especially for
availing various reliefs given by Government/other agencies, banks may open accounts with –

a. introduction from another account holder who has undergone full KYC procedure, or
b. documents of identity such as Voter’s Identity Card or a driving license, identity card
issued by an office, company, school, college, etc. along with a document indicating the
address such as Electricity Bill, Ration Card etc. or
c. introduction by two neighbours who have the documents as indicated in para 50(b) above
or
d. in the absence of the above, any other evidence to the satisfaction of the bank.

The above instructions will be applicable to cases where the balance in the account does not
exceed Rs. 50,000/- or the amount of relief granted (if higher) and the total credit in the account
does not exceed Rs. 1, 00,000/- or the amount of relief granted, (if higher) in a year.

e. Clearing and Settlement Systems

51. To ensure continuity in clearing service, RBI has advised the banks for ‘on-city back-up
centers’ in 20 large cities and effective low-cost settlement solution for the remaining cities. The
banks in a clearing area could meet with a view to providing flexible clearing services. However,
notwithstanding these arrangements, banks may also consider discounting cheques for higher
amounts to meet customer’s requirement of funds where clearing facilities have been disrupted.
Banks could also consider waiver fees for EFT, ECS or mail services so as to facilitate inward
transfer of funds to accounts of persons affected by a natural calamity.

VI. Applicability of the guidelines in the case of riots and disturbances

52. Whenever RBI advises the banks to extend rehabilitation assistance to the riot/ disturbance
affected persons, the aforesaid guidelines may broadly be followed by banks for the purpose. It
should, however, be ensured that only genuine persons, duly identified by the State
Administration as having been affected by the riots/ disturbances, are provided assistance as per
the guidelines.

The issuance of advice to the banks by Reserve Bank of India on receipt of request/ information
from State Government and thereafter issue of instructions by banks to their branches generally
results in delay in extending the assistance to riot-affected people. With a view to ensuring quick
relief to the affected persons, it has been decided that the District Collector, on occurrence of the
riots/ disturbances, may ask the Lead Bank Officer to convene a meeting of the DCC, if
necessary and submit a report to the DCC on the extent of damage caused to life and property in
the area affected by riots/disturbances. If the DCC is satisfied that there has been extensive loss
to life and property on account of the riots/ disturbances, the relief as per the above guidelines
may be extended to the people affected by the riots/ disturbances. In certain cases, where there
are no District Consultative Committees, the District Collector may request the convener of the
State Level Bankers’ Committee of the State to convene a meeting of the bankers to consider
extension of relief to the affected persons. The report submitted by the Collector and the decision
thereon of DCC/ SLBC may be recorded and should form a part of the minutes of the meeting. A
copy of the proceedings of the meeting may be forwarded to the concerned Regional Office of
the Reserve Bank of India.

VII. Applicability of the guidelines in the case of trade and industry

53. Instructions on moratorium, maximum repayment period, additional collateral for

restructured loans and asset classification in respect of fresh finance will be applicable to all
affected restructured borrowal accounts, including accounts of industries and trade, besides
agriculture.
(Source: Ministry of Home Affairs)

Table 7.2
# SDRF share released earlier, in advance, during 2010-11 for 2011-12.
* SDRF share released, in advance, during 2011-12 for 2012-13.
@ Released arrears of central share for the year 2010-11.
Note: - Balance and 1st installment of Centre’s share of SDRF for the years 2011-12 has not
been released for non-submission of requisite confirmations and supporting documents by the
State Government as mentioned in paragraph 11 of the guidelines [viz; submission of utilization
certificate, constitution of State Executive Committee (SEC), Annual report and creation of
SDRF duly certified by the AG (A&E) of State etc.].
(Source: Ministry of Home Affairs)

Table 7.3
# This amount has been released to all the State Governments during 2010-11 towards grant in-
aid for capacity building for disaster response ‘on account’ and provisional basis on 11th October
2010.