To reduce casualties due to food decay and to increase food production, the Government of India prioritizes the growth of food processing industries. As an initiative for fulfilling the above purposes, the government has been providing subsidies to establish food parks in India. One major loan for the food processing industry in India is the National Bank for Agriculture and Rural Development (NABARD) loan that evolved in the year 2014.

As a percentage of Gross Value Added (GVA) in manufacturing and agriculture, food processing contributes significantly. Exports and investments in this sector also account for 13% of India’s GDP and 6%, respectively.

Additionally, NABARD provides financial assistance for rural infrastructure development through the Rural Infrastructure Development Fund (RIDF), National Infrastructure Development Fund (NIDA), and Warehouse Infrastructure Fund (WIF). These initiatives of both NABARD and the government of India will have a profound impact on the food processing sector.

The loan budget is 2000 Cr INR according to the guidelines announced by NABARD. This new loan has subsidies for a food processing unit in India with nominal interest rates to set up food processing units. Here we will explore NABARD’s operational guidelines and procedures for food processing loans.

What Are the Objectives of The NABARD Loan?

The National Bank for Agriculture and Rural Development (NABARD) loan aims to:

1. Primarily develop the food processing sector in India
2. Create job opportunities for people living in the rural area
3. And finally, to reduce the agricultural waste produced

NABARD Loan applies to all post-harvest activities like cleaning, waxing, grading, labelling, ripening, packing, packaging, storing, canning, tinning, freezing, etc. These may add value to the food product and increase its lifetime while storing the food product prepared from the produce.

Some units that undertake the processing include:

1. Horticulture crops like fruits, vegetables, mint, herbs, mushrooms, and other plantation crops
2. Meat and poultry
3. Milk and milk products
4. Seafood products like fish, lobsters, prawns, etc.
5. Cereals and pulses
6. Oilseeds and oil products
7. Forest produce
8. End consumer food products like bakery items, confectionery, snacks, etc.
9. Tinned/ canned/ frozen ready to eat food 
10. Beverages, soft and hard drinks, carbonated drinks, alcoholic drinks, non-alcoholic drinks, bottled juices, and water
11. Health foods and health drinks
12. Spices, flavorings, food colors, preservatives, and other ingredients may be required in food processing
13. Other Activities

Who is Eligible for NABARD Loan?

Under the NABARD scheme, food processing units that are in food parks will only fall under the eligible entities. Food processing units under the food parks that are eligible for NABARD Loan are:

1. Ministry of Food Processing Industries (MOFPI), Government of India promoted food parks
2. Ministry of Food Processing Industries (MOFPI), Government of India promoted Mega food parks
3. Designated food processing/ agro-processing/ multi-products and de-notified areas of SEZs (Special Economic zones)
4. Food Parks/ food processing industrial estates promoted by State Governments
5. Any other area that has developed potential infrastructure and designated as a Food Park by the Ministry of Food Processing Industries (MOFPI), Government of India

Types of entities in the above-designated food parks that are eligible for NABARD loan includes:

1. State government entities
2. The government of India promoted entities
3. Joint ventures, cooperatives, and federations of cooperatives
4. Limited companies and private limited companies
5. Individual businesses (proprietorship)

Activities That Can Get NABARD Loan

Under the NABARD scheme, a loan will be provided by the lender either directly or in-consortium with the other lenders. NABARD term loan will be provided with concessions in the rate of interest for:

1. Developing/ Establishing the infrastructure required for the Food Parks
2. Augmenting/ modernizing/ creating additional infrastructure in the designated Food Parks
3. Modernizing the existing processing units in the designated Food Parks to achieve in-process technology up-gradation, automation, increased efficiency, product quality improvement, cost reduction, etc.
4. Setting up individual food processing units or any other unit that is established for supporting the operations of the food processing units within the designated Food Parks

About NABARD Term Loan

NABARD provides term loans up to 75% of total project costs for corporates, companies, joint ventures, and individual entrepreneurs. The tenure of the term loan can be extended up to 7 years, and the current prime lending rate (PLR) is 9%. It also offers a risk premium rate of 1% based on the borrower’s credit profile. Also, NABARD shall request for collateral security to sanction the term loan based on the borrower’s profile.

What Are the Documents Required?

The following are the documents that you shall require to secure a NABARD term loan:

1. Registration certificate
2. Certificate from the auditor
3. PAN card
4. State policy on Food and Agro-processing
5. Profiles of director(s) and shareholders
6. Registered Deed Details

MSME Loan for Food Processing Industry India

NABARD provides 25% for the Micro, Small, and Medium Enterprise (MSME) sector. This sector provides food processing businesses with MSME loans. MSME loan for food processing unit allows you to purchase a piece of new equipment or inventory, pay your staff, or expand your business. There are 9 related schemes, including:

1. Producer Organisations Development Fund (PODF)
2. Dairy Venture Capital Fund
3. Establishing Poultry Estates and Mother Units for Rural Backyard Poultry
4. Establishment/Modernisation of Rural Slaughter Houses
5. Commercial Production Units of Organic Inputs
6. Poultry Venture Capital Fund
7. Credit Linked Capital Subsidy (CLCS)
8. Swarozgar Credit Card
9. NABARD Warehousing scheme

This loan aims to encourage food processing units in India, as discussed above. MSME loans cover units like:

1. Fish and seafood industry
2. Poultry farming industry
3. Dairy industry
4. Food grain milling industry
5. Meat processing industry
6. Processed food like carbonated drinks and bottled drinks
7. Tinned or canned ready to eat foods
8. Confectionery, bakery items, and
9. food packaging industry

The Bottom Line

The above loan for the food processing industry in India can be used in the states of Tamil Nadu, Andhra Pradesh, Karnataka, Telangana, Uttar Pradesh, Odisha, Maharashtra, Madhya Pradesh, Punjab, and others to develop their food processing units. They may vary from micro to small to medium to mega, but the NABARD scheme provides loans to cover the various interests in developing the food processing unit in India.

FAQs

1. Does nabard give direct loans to food processing?

No, NABARD (National Bank for Agriculture and Rural Development) typically doesn’t provide direct loans to the food processing industry. Instead, NABARD primarily acts as a refinancing agency and channelizes funds through commercial banks, cooperative banks, and regional rural banks for agriculture and rural development purposes. Businesses in the food processing sector can approach these banks for loans with NABARD’s support wherever applicable.

2. How much funding is required to meet the financial needs of the food processing business effectively?

The funding required for a food processing business can vary significantly based on its scale and specific needs. NABARD (National Bank for Agriculture and Rural Development) offers loans tailored for the food processing industry, with amounts ranging from INR 10 lakhs to several crores. The exact funding requirement should be determined through a comprehensive business plan that outlines equipment, labor, marketing, and operational expenses.

3. Will a detailed business plan be required to secure the food processing loan?

Yes, securing a NABARD food processing loan typically requires a detailed business plan. NABARD, the National Bank for Agriculture and Rural Development, often requests a comprehensive business plan that outlines your project’s feasibility, financial projections, market analysis, and other essential details. This helps NABARD assess the viability of your food processing industry venture and make an informed lending decision. It’s crucial to prepare a well-documented business plan to enhance your loan application’s chances of approval.

4. Are there any specific regulatory requirements or permits that need to be in place for the food processing business to qualify for the loan?

Yes, there are specific regulatory requirements and permits necessary for a food processing business to qualify for a NABARD (National Bank for Agriculture and Rural Development) loan. These may include obtaining licenses like FSSAI (Food Safety and Standards Authority of India), adhering to local health and safety regulations, and meeting environmental compliance standards. Ensuring compliance with these regulations is crucial for eligibility for NABARD loans in the food processing industry.