National bank for agriculture and rural development (nabard)

CHAPTER 1
INTRODUCTION ON NABARD

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National bank for agriculture and rural development (nabard)

INTRODUCTION
National Bank for Agriculture and Rural Development (NABARD) is an apex
development bank in India based in Mumbai, Maharashtra. It was established on
12 July 1982 and it completed its 25 years on 12 July 2007. It was established by a
special act by the parliament and its main focus was to uplift rural INDIA by
increasing the credit flow for elevation of agriculture and rural non farm sector. It
has been accredited with "matters concerning policy, planning and operations in
the field of credit for agriculture and other economic activities in rural areas in
India".
NABARD was established on the recommendations of Shivaraman Committee, by
an act of Parliament on 12 July 1982 to implement the National Bank for
Agriculture and Rural Development Act 1981. It replaced the Agricultural Credit
Department (ACD) and Rural Planning and Credit Cell (RPCC) of Reserve Bank
of India, and Agricultural Refinance and Development Corporation (ARDC). It is
one of the premiere agencies to provide credit in rural areas.
International associates of NABARD ranges from World Bank-affiliated
organizations to global developmental agencies working in the field of agriculture
and rural development. These organizations help NABARD by advising and giving
monetary aid for the upliftment of the people in the rural areas and optimizing the
agricultural process.

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NABARD is a Development Bank with a mandate for providing and regulating

credit and other facilities for the promotion and development of agriculture, smallscale industries, cottage and village industries, handicrafts and other rural crafts
and other allied economic activities in rural areas with a view to promoting
integrated rural development and securing prosperity of rural areas, and for matters
connected therewith or incidental thereto.

In discharging its role as a facilitator for rural prosperity, NABARD is entrusted

with:

Providing refinance to lending institutions in rural areas

Bringing about or promoting institutional development and
Evaluating, monitoring and inspecting the client banks
Besides this pivotal role, NABARD also:

Acts as a coordinator in the operations of rural credit institutions

Extends assistance to the government, the Reserve Bank of India and other
organizations in matters relating to rural development
Offers training and research facilities for banks, cooperatives and organizations
working in the field of rural development
Helps the state governments in reaching their targets of providing assistance to
eligible institutions in agriculture and rural development
Acts as regulator for cooperative banks and RRBs

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ROLE OF NABARD:
1. serves as an apex financing agency for the institutions providing investment
and production credit for promoting the various developmental activities in
rural areas
2. It takes measures towards institution building for improving absorptive
capacity of the credit delivery system, including monitoring, formulation of
rehabilitation schemes, restructuring of credit institutions, training of
personnel, etc.
3. co-ordinates the rural financing activities of all institutions engaged in
developmental work at the field level and maintains liaison with
Government of India, State Governments, Reserve Bank of India (RBI)
and other national level institutions concerned with policy formulation
4. undertakes monitoring and evaluation of projects refinanced by it.
NABARD's refinance is available to State Co-operative Agriculture and Rural
Development Banks (SCARDBs), State Co-operative Banks (SCBs), Regional
Rural Banks (RRBs), Commercial Banks (CBs) and other financial institutions
approved by RBI. While the ultimate beneficiaries of investment credit can be
individuals, partnership concerns, companies, State-owned corporations or cooperative societies, production credit is generally given to individuals.
NABARD has its head office at Mumbai, India
NABARD operates throughout the country through its 28 Regional Offices and
one Sub-office, located in the capitals of all the states/union territories. Each
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Regional Office[RO] has a Chief General Manager [CGMs] as its head, and the
Head office has several Top executives like the Executive Directors[ED],

Managing Directors[MD], and the Chairperson.It has 336 District Offices across
the country, one Sub-office at Port Blair and one special cell at Srinagar. It also
has 6 training establishments.
NABARD is also
known for its 'SHG Bank Linkage Programme' which encourages India's banks to
lend to self-help groups (SHGs). Because SHGs are composed mainly of poor
women, this has evolved into an important Indian tool for microfinance. As of
March 2006 2.2 million SHGs representing 33 million members had to been linked
to credit through this programme.[6]
NABARD also has a portfolio of Natural Resource Management Programmes
involving diverse fields like Watershed Development, Tribal Development and
Farm Innovation through dedicated funds set up for the purpose.

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CHAPTER 2
RURAL INNOVATION

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RURAL INNOVATION
NABARD's role in rural development in India is phenomenal. National Bank For
Agriculture & Rural Development (NABARD) is set up as an apex Development
Bank by the Government of India with a mandate for facilitating credit flow for
promotion and development of agriculture, cottage and village industries. The
credit flow to agriculture activities sanctioned by NABARD reached Rs 1,574,800
million in 2005-2006. The overall GDP is estimated to grow at 8.4 per cent. The
Indian economy as a whole is poised for higher growth in the coming years. Role
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of NABARD in overall development of India in general and rural & agricultural in

specific is highly pivotal.
Through assistance of Swiss Agency for Development and Cooperation, NABARD
set up the Rural Infrastructure Development Fund. Under the RIDF scheme Rs.
512830 million have been sanctioned for 2,44,651 projects covering irrigation,
rural roads and bridges, health and education, soil conservation, water schemes etc.
Rural Innovation Fund is a fund designed to support innovative, risk friendly,
unconventional experiments in these sectors that would have the potential to
promote livelihood opportunities and employment in rural areas. [8] The assistance
is extended to Individuals, NGOs, Cooperatives, Self Help Group, and Panchayati
Raj Institutions who have the expertise and willingness to implement innovative
ideas for improving the quality of life in rural areas. Through member base of 250
million, 600000 cooperatives are working in India at grass root level in almost
every sector of economy. There are linkages between SHG and other type institutes
with that of cooperatives.
The purpose of RIDF is to promote innovation in rural & agricultural sector
through viable means. Effectiveness of the program depends upon many factors,
but the type of organization to which the assistance is extended is crucial one in
generating, executing ideas in optimum commercial way. Cooperative is member
driven formal organization for socio-economic purpose, while SHG is informal
one. NGO have more of social color while that of PRI is political one. Does the
legal status of an institute influences effectiveness of the program? How & to what
an extent? Cooperative type of organization is better (Financial efficiency &
effectiveness) in functioning (agriculture & rural sector) compared to NGO, SHG
& PRIs.[9]
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Recently in 2007-08, NABARD has started a new direct lending facility under
'Umbrella Programme for Natural Resource Management' (UPNRM). Under this
facility financial support for natural resource management activities can be
provided as a loan at reasonable rate of interest. Already 35 projects have been
sanctioned involving loan amount of about Rs 1000 million. The sanctioned
projects include honey collection by tribals in Maharashtra, tussar value chain by a
women producer company ('MASUTA'), eco-tourism in Karnataka[10] etc.[11]

OVERVIEW
NABARD is set up by the Government of India as a development bank with the
mandate of facilitating credit flow for promotion and development of agriculture
and integrated rural development. The mandate also covers supporting all other
allied economic activities in rural areas, promoting sustainable rural development
and ushering in prosperity in the rural areas.
With a capital base of Rs 2,000 crore provided by the Government of India and
Reserve Bank of India , it operates through its head office at Mumbai, 28 regional
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offices situated in state capitals and 391 district offices at districts.

It is an apex institution handling matters concerning policy, planning and

operations in the field of credit for agriculture and for other economic and
developmental activities in rural areas. Essentially, it is a refinancing agency for
financial institutions offering production credit and investment credit for
promoting agriculture and developmental activities in rural areas.

CHAPTER 3
NABARD TODAY
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NABARD TODAY
Initiates measures toward institution-building for improving absorptive capacity
of the credit delivery system, including monitoring, formulation of rehabilitation
schemes, restructuring of credit institutions, training of personnel, etc.
Coordinates the rural financing activities of all the institutions engaged in
developmental work at the field level and maintains liaison with the government of

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India , State governments, the Reserve Bank of India and other national level
institutions concerned with policy formulation
Prepares, on annual basis, rural credit plans for all the districts in the country.
These plans form the base for annual credit plans of all rural financial institutions
Undertakes monitoring and evaluation of projects refinanced by it
Promotes research in the fields of rural banking, agriculture and rural
development
Functions as a regulatory authority, supervising, monitoring and guiding
cooperative banks and regional rural banks

1. ABOUT NABARD
NABARD is set up as an apex Development Bank with a mandate for facilitating
credit flow for promotion and development of agriculture, small-scale industries,
cottage and village industries, handicrafts and other rural crafts. It also has the
mandate to support all other allied economic activities in rural areas, promote
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integrated and sustainable rural development and secure prosperity of rural areas.
In discharging its role as a facilitator for rural prosperity NABARD is entrusted
with
Providing refinance to lending institutions in rural areas
Bringing about or promoting institutional development and
Evaluating, monitoring and inspecting the client banks

Besides this pivotal role, NABARD also:

Acts as a coordinator in the operations of rural credit institutions
Extends assistance to the government, the Reserve Bank of India and other
organizations in matters relating to rural development
Offers training and research facilities for banks, cooperatives and
organizations working in the field of rural development
Helps the state governments in reaching their targets of providing assistance
to eligible institutions in agriculture and rural development
Acts as regulator for cooperative banks and RRBs

2. GENESIS AND HISTORICAL BACKGROUND

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The Committee to Review Arrangements for Institutional Credit for Agriculture

and Rural Development (CRAFICARD) set up by the RBI under the Chairmanship
of Shri B Sivaraman in its report submitted to Governor, Reserve Bank of India on
November 28, 1979 recommended the establishment of NABARD. The Parliament
through the Act 61 of 81 approved its setting up.
The Committee after reviewing the arrangements came to the conclusion that a
new arrangement would be necessary at the national level for achieving the desired
focus and thrust towards integration of credit activities in the context of the
strategy for Integrated Rural Development. Against the backdrop of the massive
credit needs of rural development and the need to uplift the weaker sections in the
rural areas within a given time horizon the arrangement called for a separate
institutional set-up. Similarly. The Reserve Bank had onerous responsibilities to
discharge in respect of its many basic functions of central banking in monetary and
credit regulations and was not therefore in a position to devote undivided attention
to the operational details of the emerging complex credit problems. This paved the
way for the establishment of NABARD.
3. MISSION
Promoting sustainable and equitable agriculture and rural development through
effective credit support, related services, institution building and other innovative
initiatives.

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CHAPTER 4
NABARD'S ROLES AND
FUNCTIONS

NABARD'S ROLES AND FUNCTIONS:

Credit Functions
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Developmental and Promotional Functions

Supervisory Functions
Institutional and Capacity building
Role in Training

Credit is a critical factor in development of agriculture and rural sector as it

enables investment in capital formation and technological up gradation. Hence
strengthening of rural financial institutions, which deliver credit to the sector, has
been identified by NABARD as a thrust area. Various initiatives have been taken to
strengthen the cooperative credit structure and the regional rural banks, so that
adequate and timely credit is made available to the needy. In order to reinforce the
credit functions and to make credit more productive, NABARD has been
undertaking a number of developmental and promotional activities such as:-
Help cooperative banks and Regional Rural Banks to prepare development actions
plans for themselves
Enter into MoU with state governments and cooperative banks specifying their
respective obligations to improve the affairs of the banks in a stipulated timeframe
Help Regional Rural Banks and the sponsor banks to enter into MoUs
specifying their respective obligations to improve the affairs of the Regional Rural
Banks in a stipulated timeframe
Monitor implementation of development action plans of banks and fulfillment
of obligations under MoUs

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Provide financial assistance to cooperatives and Regional Rural Banks for

establishment of technical, monitoring and evaluations cells
Provide organization development intervention (ODI) through reputed training
institutes like Bankers Institute of Rural Development (BIRD), Lucknow
www.birdindia.org.in, National Bank Staff College, Lucknow www.nbsc.in and
College of Agriculture Banking, Pune, etc.
Provide financial support for the training institutes of cooperative banks
Provide training for senior and middle level executives of commercial banks,
Regional Rural Banks and cooperative banks
Create awareness among the borrowers on ethics of repayment through Vikas
Volunteer Vahini and Farmers clubs
Provide financial assistance to cooperative banks for building improved
management information system, computerization of operations and development
of human resources
In pursuing this mission, NABARD focuses its activities on:
Credit Functions
Developmental and Promotional Functions
Supervisory Functions
Institutional and Capacity building
Role in Training

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CREDIT FUNCTIONS
Credit functions, involving preparation of potential-linked credit plans annually for
all districts of the country for identification of credit potential, monitoring the flow
of ground level rural credit, issuing policy and operational guidelines to rural
financing institutions and providing credit facilities to eligible institutions under
various programmes
NABARD's credit functions cover planning, dispensation and monitoring of credit.
This activity involves:
Framing policy and guidelines for rural financial institutions
Providing credit facilities to issuing organizations
Preparation of potential-linked credit plans annually for all districts for
identification of credit potential
Monitoring the flow of ground level rural credit

DEVELOPMENT AND PROMOTIONAL FUNCTIONS

Credit is a critical factor in development of agriculture and rural sector as it
enables investment in capital formation and technological upgradation. Hence
strengthening of rural financial institutions, which deliver credit to the sector, has
been identified by NABARD as a thrust area. Various initiatives have been taken to

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strengthen the cooperative credit structure and the regional rural banks, so that
adequate and timely credit is made available to the needy.

DEVELOPMENTAL FUNCTIONS
Overview
Developmental Initiatives
Credit Planning
Watershed Development Fund
Special Projects

North Eastern Region

Environmental Protection
Gender Development
Wadi Based Livelihood Development

PROMOTIONAL FUNCTIONS

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Micro Credit Innovations

Kisan Credit Card
R & D Fund
Swarojgar Credit Card
Farmer's Club Programme
Government Sponsored Schemes
SUPERVISORY FUNCTIONS
Supervisory functions, ensuring the proper functioning of cooperative banks and
regional rural banks

FUNCTIONS
As an apex bank involved in refinancing credit needs of major financial
institutions in the country engaged in offering financial assistance to agriculture
and rural development operations and programmes, NABARD has been sharing
with the Reserve Bank of India certain supervisory functions in respect of
cooperative banks and Regional Rural Banks (RRBs).
Undertakes inspection of Regional Rural Banks (RRBs) and cooperative banks
(other than urban/primary cooperative banks) under the provisions of Banking
Regulation Act, 1949.

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Undertakes inspection of State Cooperative Agriculture and Rural Development

Banks (SCARDBs) and apex non-credit cooperative societies on a voluntary basis
Undertakes portfolio inspections, systems study, besides off-site surveillance of
cooperative banks and Regional Rural Banks (RRBs)
Provides recommendations to Reserve Bank of India on opening of new branches
by State Cooperative Banks and Regional Rural Banks (RRBs)
Administering the Credit Monitoring Arrangements in SCBs and CCBs.

INSTITUTIONAL BUILDING
Help cooperative banks and RRBs to prepare development actions plans for
themselves
Enter into Moue with state governments and cooperative banks specifying
their respective obligations to improve the affairs of the banks in a stipulated
timeframe
Help RRBs and the sponsor banks to enter into Moue specifying their
respective obligations to improve the affairs of the RRBs in a stipulated
timeframe
Monitor implementation of development action plans of banks and
fulfillment of obligations under Moue.
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Provide financial assistance to cooperatives and RRBs for establishment of

technical, monitoring and evaluations cells.
Provide organization development intervention (ODI) through reputed
training institutes like Bankers Institute of Rural Development (BIRD),
Lucknow, National Bank Staff College, Lucknow, College of Agriculture
Banking, Pune, etc.
Provide financial support for the training institutes of cooperative banks
Provide training for senior and middle level executives of commercial banks,
RRBs and cooperative banks
Create awareness among the borrowers on ethics of repayment through
Vikas Volunteer Vahini/farmer's clubs
Provide financial assistance to cooperative banks for building improved
management

information

system,

computerisation

of

operations,

development of human resources, etc.

NABARD AND ITS ROLE IN TRAINING
National Bank Staff College, Lucknow
National Bank Training Centre, Lucknow
Zonal Training Centre, Hyderabad
Regional Training Centre, Mangalore
Regional Training Centre, Bolpur
Bankers Institute of Rural Development (BIRD), Lucknow

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4. OBJECTIVES
NABARD was established in terms of the Preamble to the Act, "for providing
credit for the promotion of agriculture, small scale industries, cottage and village
industries, handicrafts and other rural crafts and other allied economic activities in
rural areas with a view to promoting IRDP and securing prosperity of rural areas
and for matters connected therewith in incidental thereto".
The main objectives of the NABARD as stated in the statement of objectives while
placing the bill before the LokSabha were categorized as under:
1. The National Bank will be an apex organization in respect of all matters relating
to policy, planning operational aspects in the field of credit for promotion of
Agriculture, Small Scale Industries, Cottage and Village Industries, Handicrafts
and other rural crafts and other allied economic activities in rural areas.
2. The Bank will serve as a refinancing institution for institutional credit such as
long-term, short-term for the promotion of activities in the rural areas.
3. The Bank will also provide direct lending to any institution as may approved by
the Central Government.
4. The Bank will have organic links with the Reserve Bank and maintain a close
link with in.
5. MAJOR ACTIVITIES
1. Preparing of Potential Linked Credit Plans for identification of exploitable
potentials under agriculture and other activities available for development
through bank credit.

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2. Refinancing banks for extending loans for investment and production

purpose in rural areas.
3. Providing loans to State Government/Non Government Organizations
(NGOs)/Panchayati

Raj

Institutions

(PRIs)

for

developing

rural

infrastructure.
4. Supporting credit innovations of Non Government Organizations (NGOs)
and other non-formal agencies.
5. Extending formal banking services to the unreached rural poor by evolving a
supplementary credit delivery strategy in a cost effective manner by
promoting Self Help Groups (SHGs)
6. Promoting participatory watershed development for enhancing productivity
and profitability of rainfed agriculture in a sustainable manner.
7. On-site inspection of cooperative banks and Regional Rural Banks (RRBs)
and if-site surveillance over health of cooperatives and RRBs.

6. ROLE AND FUNCTIONS

NABARD is an apex institution accredited with all matters concerning policy,
planning and operations in the field of credit for agriculture and other economic
activities in rural areas.

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It is an apex refinancing agency for the institutions providing investment and

production credit for promoting the various developmental activities in rural
areas
It takes measures towards institution building for improving absorptive
capacity of the credit delivery system, including monitoring, formulation of
rehabilitation schemes, restructuring of credit institutions, training of
personnel, etc.
It co-ordinates the rural financing activities of all the institutions engaged in
developmental work at the field level and maintains liaison with
Government of India, State Governments, Reserve Bank of India and other
national level institutions concerned with policy formulation.
It prepares, on annual basis, rural credit plans for all districts in the country;
these plans form the base for annual credit plans of all rural financial
institutions
It undertakes monitoring and evaluation of projects refinanced by it.
It promotes research in the fields of rural banking, agriculture and rural
development

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CHAPTER 5
SCHEMES & SUBSIDIARY

FARM SECTOR SCHEMES

Village Adoption/Village development Plan
Backward Blocks
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Bamboo Farming
MACs
Bio Fuels
Crop Insurance
Agriculture Commodities
SGSY
Farm Mechanization
Land Purchase
Scheme for AgriClinic/ Agri-Business Centres (ACABCs)
SEMFEX
Capacity Building for Adoption of Technology (CAT)
Agri Export Zone (AEZ)
Contract Farming
Farmer's Club

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RURAL NON-FARM SECTOR SCHEMES

REFINANCE SCHEMES
Rural Non Farm Sector (RNFS) holds the key to faster economic development of
the country. It has potential and promise for generating employment and increased
income in the rural areas. Hence, NABARD has identified financing, development
and promotion of RNFS as one of its thrust areas.
NABARD has evolved several refinance and promotional schemes over the years
and has been making constant efforts to liberalize, broad base and refine/
rationalize the schemes in response to the field level needs. The focus has been on
greater credit flow and provision of linkages for small, cottage and village
industries, handicrafts and other rural crafts and service sector in the decentralized
sector in the rural areas. The refinance facilities available from NABARD for
RNFS are as under :

INVESTMENT CREDIT
NABARD provides refinance under Investment Credit to eligible banks for a wide
spectrum of manufacturing, processing and service sector activities under Rural
Non-Farm Sector. The various refinance schemes of NABARD, inter-alia, cover
the entire manufacturing, processing and approved service activities in the SSI
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sector with emphasis on Cottage, Village, Tiny Industries, Rural Artisans and Rural
Crafts.

REFINANCE SCHEMES FOR BANKS UNDER NON-FARM

SECTOR
Refinance to banks will be provided under:
Automatic Refinance Facility (ARF), i.e. without submission of schemes/ projects
for prior sanction by NABARD up to a prescribed level, and
Pre-sanction procedure i.e., the banks will have to submit scheme/project proposals
to NABARD and get them sanctioned before disbursement of loans to their
borrower clients.
(i) Refinance under Automatic Refinance Facility (ARF)
The following three schemes are available under ARF:
Enterprise Loan Scheme (ELS).
Small Road and Water Transport Operators (SRWTO) Scheme.
Scheme for Soft Loan Assistance for Margin Money (SLAMM).

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ELIGIBLE INSTITUTIONS
COMMERCIAL BANKS (CBS)
Regional Rural Banks (RRBs)
State Co-operative Banks (SCBs) / District Central Cooperative Banks (DCCBs)
State Co-operative Agriculture and Rural Development Banks (SCARDBs)/
Primary

Co-operative Agriculture

and

Rural

Development

Banks

(PCARDBs)
Scheduled Primary (Urban) Co-operative Banks (PUCBs)

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SUBSIDIARY
NABCONS
NABARD Consultancy Services (Nabcons) is a wholly owned subsidiary
promoted by National Bank for Agriculture and Rural Development
(NABARD) and is engaged in providing consultancy in all spheres of agriculture,
rural development and allied areas. Nabcons leverages on the core competence of
the NABARD in the areas of agricultural and rural development, especially
multidisciplinary projects, banking, institutional development, infrastructure,
training, etc., internalized for more than two decades.
The Company is registered under the Company's Act, 1956, with an authorized
capital of Rs 250 million (US $5.75 million) and paid up capital of Rs 50 million
(US $1.15 million).
In tune with NABARD's mission to bring about rural prosperity, Nabcons has more
than just commercial interest in the assignments it undertakes.

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CHAPTER 6
MICRO CREDIT PROGRAMME

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MICRO CREDIT
Micro Credit has been defined as the provision of thrift, credit and other financial
services and products of very small amount to the poor in rural, semi-urban and
urban areas for enabling them to raise their income levels and improve their living
standards. Micro Credit Institutions are those, which provide these facilities.
2. The Self Help Group (SHG)- Bank Linkage Programme
Despite the vast expansion of the formal credit system in the country, the
dependence of the rural poor on moneylenders continues in many areas, especially
for meeting emergent requirements. Such dependence is pronounced in the case of
marginal farmers, landless labourers, petty traders and rural artisans belonging to
socially and economically backward classes and tribes whose propensity to save is
limited or too small to be mopped up by the banks. For various reasons, credit to
these sections of the population has not been institutionalized. The studies
conducted by NABARD, APRACA and ILO on the informal groups promoted by
nongovernmental organizations (NGOs) brought out that Self-Help Savings and
Credit Groups have the potential to bring together the formal banking structure and
the rural poor for mutual benefit and that their working has been encouraging.
The NABARD accordingly launched a pilot project for the purpose and supported
it by way of refinance. It also provided technical support and guidance to the
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agencies participating in the programme. The following criteria would broadly be

adopted by NABARD for selecting SHGs:
a) The Group should be in existence for at least six months.
b) The Group should have actively promoted the savings habit.
c) Groups could be formal (registered) or informal (unregistered).
d) Membership of the group could be between 10 to 25 persons.
The advances given by the banks to the groups were treated as advances to
"weaker sections" under the priority sector. While the norms relating to margin,
security as also scales of finance and unit cost would broadly guide the banks for
lending to the SHGs, deviations therefore could be made by banks, where deemed
necessary. These relaxations in margin, security norms, etc. were only in respect of
SHGs to be financed under the pilot project.
NABARD, vide its circular letter No.NB.DPD.FS.4631/92-A/91-92, dated 26
February, 1992, issued detailed operational guidelines to banks for implementation
of the project. Quick studies conducted by NABARD in a few states to assess the
impact of the linkage project brought out encouraging and positive features like
increase in loan volume of the SHGS, definite shift in the loaning pattern of the
members from non-income generating activities to production activities, nearly
100% recovery performance, significant reduction in the transaction costs for both
the banks and the borrowers, etc., besides leading to gradual increase in the income
level of the SHG members. Another significant feature observed in the linkage
project was that about 85% of the groups linked with the banks are formed
exclusively by women.

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With a view to studying the functioning of SHGs and NGOs for expanding their
activities and deepening their role in the rural sector, in November 1994, RBI
constituted

Working

Group

comprising

eminent

NGO

functionaries,

academicians, consultants and bankers under the Chairmanship of Shri S.K. Kalia,
the then Managing Director, NABARD. As a follow up of the recommendations of
the Working Group, banks were advised in April 1996 as under:
a) SHG Lending as Normal Lending Activity
The SHGs linkage programme would be treated as a normal business activity of
banks. Accordingly, the banks were advised that they may consider lending to
SHGs as part of their mainstream credit operations both at policy and
implementation level. They may include SHG linkage in their corporate
strategy/plan, training curriculum of their officers and staff and implement it as a
regular business activity and monitor and review it periodically.
b) Separate Segment under priority sector
In order to enable the banks to report their SHG lending without difficulty, it was
decided that the banks should report their lending to SHGs and/or to NGOs for onlending to SHGs/members of SHGs/discrete individuals or small groups which are
in the process of forming into SHGs under the new segment, viz. 'Advances to
SHGs' irrespective of the purposes for which the members of SHGs have been
disbursed loans. Lending to SHGs should be included by the banks as part of their
lending to the weaker sections.
c) Inclusion in Service Area Approach

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Banks may identify branches having potential for linkage and provide necessary
support services to such branches and include SHG lending within their Service
Area Plan. Keeping in view the potential reliability, the Service Area Branches may
fix their own programme for lending to SHGs as in the case of other activities
under the priority sector.
With a view to enabling the bank branches to get the benefit of catalytic services of
NGOS, the names of NGOs dealing with the SHGs would be indicated on a blockwise basis in the "Background Paper for Service Area Credit Plans". The Service
Area branch managers may have constant dialogue and rapport with the NGOs and
SHGs of the area for effecting linkage. If a NGO/SHG feels more confident and
assured to deal with a particular branch other than Service Area branch and the
particular branch is willing to finance, such a NGO/SHG may, at its discretion,
deal with a branch other than the Service Area branch. The lending to SHGs by
banks should be included in the LBR reporting system and reviewed, to start with
at SLBC Level. However, it has to be borne in mind that the SHG linkage is a
credit innovation and not a targeted credit programme.
d) Opening of Savings Bank A/c.
The SHGs registered or unregistered which are engaged in promoting savings
habits among their members would be eligible to open savings bank accounts with
banks. These SHGs need not necessarily have already availed of credit facilities
from banks before opening savings bank accounts.
e) Margin and Security Norms
As per operational guidelines of NABARD, SHGs are sanctioned savings linked
loans by banks (varying from a saving to loan ratio of 1:1 to 1:4). Experience
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showed that group dynamics and peer pressure brought in excellent recovery from
members of the SHGS. Banks were advised that the flexibility allowed to the
banks in respect of margin, security norms, etc. under the pilot project would
continue to be operational under the linkage programme even beyond the pilot
phase.

f) Documentation
Keeping in view the nature of lending and status of borrowers, the banks may
prescribe simple documentation for lending to SHGs.
g) Presence of defaulters in SHGs
The defaults by a few members of SHGs and/or their family members to the
financing bank should not ordinarily come in the way of financing SHGs per se by
banks provided the SHG is not in default to it. However, the bank loan may not be
utilized by the SHG for financing a defaulter member to the bank.
h) Training
An important step in the Linkage Programme would be the training of the field
level officials and sensitization of the controlling and other senior officials of the
bank. Considering the need and magnitude of training requirements of bank
officers/staff both at field level and controlling office level, the banks may initiate
suitable steps to internalize the SHGs linkage project and organize exclusive short
duration programmes for the field level functionaries. In addition, suitable
awareness/sensitization programmes may be conducted for their middle level
controlling officers as well as senior officers.
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i) Monitoring and Review of SHG Lending

Having regard to the emerging potential of the SHGs and the relative nonfamiliarity of the bank branches with lending to SHGS, banks may have to closely
monitor the progress regularly at various levels. Further the progress of the
programme may be reviewed by the banks at regular intervals. A progress report
may be sent to NABARD (Micro Credit Innovations Department), Mumbai, in the
format as per Annexure, on a half-yearly basis, as on 30 September and 31 March
each year so as to reach within 30 days of the half-year to which the report relates.
In order to give a boost to the on going SHG bank linkage programme for credit
flow to the unorganized sector, banks were advised in January 2004 that
monitoring of SHG bank linkage programme may be made a regular item on the
agenda for discussion at the SLBC and DCC meetings.
3. NBFCs engaged in micro-financing activities
The Task Force on Supportive Policy and Regulatory Framework for Microfinance
set up by NABARD in 1999 recommended that the policy and regulatory
framework should give a fillip to the Self Help Groups (SHGs) or NonGovernmental Organizations (NGOs) engaged in micro-financing activities.
Accordingly, it was decided to exempt such NBFCs which are engaged in (i)
micro financing activities, (ii) licensed under Section 25 of the Companies Act,
1956 and (iii) which are not accepting public deposits from the purview of Sections
45-IA (registration), 45-IB (maintenance of liquid assets) and 45-IC (transfer of
profits to Reserve Fund) of the RBI Act, 1934.
Based on the recommendations of the Advisory Committee on Flow of Credit to
Agriculture and Related Activities from the Banking System (Vyas Committee), in
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the Annual Policy Statement for the year 2004-05, it has been announced that, in
view of the need to protect the interests of depositors, microfinance institutions
(MFIs) would not be permitted to accept public deposits unless they comply with
the extant regulatory framework of the Reserve Bank.

4. Interest rates
The interest rate applicable to loans given by banks to micro-credit organizations
or by the micro-credit organizations to Self Help Groups/member beneficiaries
would be left to their discretion.
5. Mainstreaming and enhancing outreach
A Micro Credit Special Cell was set up in RBI to suggest measures for augmenting
flow of micro credit as announced in Governors Monetary and Credit Policy for
the year 1999-2000. In the meantime, a Task Force on Supportive Policy and
Regulatory Framework for Micro Credit was also set up by NABARD. On the
basis of their recommendations, banks were advised to follow the under noted
guidelines for mainstreaming micro credit and enhancing the outreach of micro
credit providers:
I.

The banks may formulate their own model(s) or choose any conduit/
intermediary for extending micro credit. They may choose suitable
branches/pockets/areas where micro credit programmes can be implemented.
It will be useful to start with a selected small area and concentrate fully on
the poor in that area and thereafter with the experience gained replicate the
arrangement in other selected areas. Micro Credit extended by banks to
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individual borrowers directly or through any intermediary would be

reckoned as part of their priority sector lending.
II.

The criteria for selection of micro credit organizations are not prescribed. It
may, however, be desirable for banks to deal with micro credit organizations
having proper credentials, track record, system of maintaining accounts and
records with regular audits in place and manpower for closer supervision and
follow-up.

III.

Banks may prescribe their own lending norms keeping in view the ground
realities. They may devise appropriate loan and savings products and the
related terms and conditions including the size of the loan, unit cost, unit
size, maturity period, grace period, margins, etc. The intention is to provide
maximum flexibility in regard to micro lending, keeping in view the
prevalent local conditions and the need for provision of finance to the poor.
Such credit should, therefore, cover not only consumption and production
loans for various farm and non-farm activities of the poor but also include
their other credit needs such as housing and shelter improvements.

IV.

Micro credit should be included in branch credit plan, block credit plan and
state credit plan of each bank. While no target is being prescribed for micro
credit, utmost priority is to be accorded to the micro credit sector in
preparation of these plans. Micro credit should also form an integral part of
the bank's corporate credit plan and should be reviewed at the highest level
on a quarterly basis.

V.

A simple system requiring minimum procedures and documentation is a precondition for augmenting flow of micro credit. Hence, banks should strive to
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remove all operational irritants and make arrangements to expeditiously

sanction and disburse micro credit by delegating adequate sanctioning
simple which would help in providing prompt and hassle-free micro credit.

6. Delivery Issues
The Reserve Bank constituted four informal groups in October 2002 to examine
various issues concerning micro-finance delivery. On the basis of the
recommendations of the groups and as announced in Paragraph 55 of the
Governors Statement on mid-term Review of the Monetary and Credit Policy for
the year 2003-04, banks have been advised as under:
i.

Banks should provide adequate incentives to their branches in financing the

Self Help Groups (SHGs) and establish linkages with them, making the
procedures absolutely simple and easy while providing for total flexibility in
such procedures to suit local conditions.

ii.

The group dynamics of working of the SHGs may be left to themselves and
need neither be regulated nor formal structures imposed or insisted upon.

iii.

The approach to micro-financing of SHGs should be totally hassle-free and

may include consumption expenditures.

7. Financing of MFIs by banks

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A joint fact-finding study on microfinance conducted by Reserve Bank and a few

major banks made the following observations:
i.

Some of the microfinance institutions (MFIs) financed by banks or acting as

their intermediaries/partners appear to be focusing on relatively better
banked areas, including areas covered by the SHG-Bank linkage
programme. Competing MFIs were operating in the same area, and trying to
reach out to the same set of poor, resulting in multiple lending and
overburdening of rural households.

ii.

Many MFIs supported by banks were not engaging themselves in capacity

building and empowerment of the groups to the desired extent. The MFIs
were disbursing loans to the newly formed groups within 10-15 days of their
formation, in contrast to the practice obtaining in the SHG - Bank linkage
programme which takes about 6-7 months for group formation / nurturing /
handholding. As a result, cohesiveness and a sense of purpose were not
being built up in the groups formed by these MFIs.

iii.

Banks, as principal financiers of MFIs, do not appear to be engaging them

with regard to their systems, practices and lending policies with a view to
ensuring better transparency and adherence to best practices. In many cases,
no review of MFI operations was undertaken after sanctioning the credit
facility.

These findings were brought to the notice of the banks to enable them to take
necessary corrective action where required.
8. Total Financial Inclusion and Credit Requirement of SHGs

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Attention is invited to Paragraph 93 of the Union Budget announcement made by

the Honourable Finance Minister for the year 2008-09 where in it has been stated
as under"Banks will be encouraged to embrace the concept of Total Financial
Inclusion. Government will request all scheduled commercial banks to follow the
example set by some public sector banks and meet the entire credit requirements of
SHG members, namely, (a) income generation activities, (b) social needs like
housing, education, marriage, etc. and (c) debt swapping".

CHAPTER 7
NABARD'S SUPPORT TO
MICROFINANCE INSTITUTIONS (MFIS)

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NABARD's Support to microfinance Institutions (MFIs)

Realizing the importance of MFIs in the delivery of financial services to the
poor and their potential for expansion of services in remote and lesserbanked areas, NABARD has been extending technical and fund support to
this sector. Some of the concerns that necessitated NABARD to commence
this support in 1993 were: 1) the need to provide timely credit to the poor in
under banked regions and ii) to further improve the outreach of rural credit
delivery system through alternate credit delivery mechanisms.
NABARD's support is being provided to various forms of microfinance
institutions covering MFIs, second tier mF lending institutions, Grameen
bank replicators, NGO-MFIs, SHG Federations etc. NABARD provides loan
funds in the form of Revolving Fund Assistance (RFA) to NGO-MFIs on a
very selective basis. The RFA is generally provided for a period of 5 to 6
years and is necessarily to be used for on lending to mF clients (SHGs or
individuals). In addition, the agencies are also sanctioned, on a case-to-case
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basis, grant assistance for partly meeting the salary of field level staff,
infrastructure development and operational deficits during the initial years.
Cumulatively, as at the end of June 2004, Rs 26.98 crore (Rs 269.80 million)
has been sanctioned as RFA to 31 NGO-MFIs and Rs. 0.58 crore (Rs 5.8
million) has been sanctioned as grant to various NGOs. The amount
excludes Rs 3.4 million sanctioned under SHG Post Office linkage
programme in Tamilnadu.

During the year 2003-04, loan support of Rs. 84 million was sanctioned to
two agencies viz. 1) Friends of World Women Banking, India (Rs. 74
million) for on-lending to small NGOs & 2) Kalanjiam Development
Financial Services-a section 25 company promoted by DHAN Foundation
(Rs 10 million) for on lending to SHGs.
NABARD also provides technical support in the form of capacity building of
staff of mFIs and also bankers in appraisal of MFIs for providing wholesale
resource support. Since 2002, training programmes on Appraisal of MFIs" are
being conducted through Bankers Institute of Rural Development (BIRD),
Lucknow. These training programmes are intended to equip the stakeholders to
appreciate the nuances in financing NGO-MFIs and also enhance the flow of
loanable funds from mainstream financial Institutions like banks. Specially
designed capacity building programmes are also being organized for Chief
Executives & other staff of NGOs on promotion as well as managing of self
help groups on a regular basis through our regional offices, in association with
reputed resource NGOs & training establishments.

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CHAPTER 8
GROWTH OF NABARD

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Growth of NABARD
The National Bank for Agriculture and Rural Development (Nabard) has recorded
a 40 per cent growth in agriculture credit and rural development in Karnataka
during 2012-13. It has extended farm credit of Rs 6,053 crore during the year.
While the production credit refinance extended to cooperative banks and regional
rural banks (RRBs) was Rs 3,775 crore, its finance to state government under the
Rural Infrastructure Development Fund (RIDF) was Rs 739 crore. This would
ensure rural connectivity, irrigation and rural social sector investments.

In order to augment capital formation in agriculture an all-time high investment

refinance of Rs 1,345 crore has been disbursed to various banks in the state,
recording a 37 per cent growth over the previous year, S N A Jinnah, chief general
manager, Nabard, Karnataka, said.

During the year, Nabard introduced Nabard Infras-tructure Development Assistance (NIDA) under which Rs 42 crore was sanctioned to the Karnataka State
Warehousing Corporation (KSWC) for construction of godowns and Rs 244 crore
to Krishna Bhagya Jala Nigam for lift irrigation schemes, he told reporters.

Explaining the achievements of Karnataka region, Jinnah said it assisted 118

villages under the Village Development Programme during the year.

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For the development of Rural Non-Farm Sector, apart from providing refinance
support to the banks, Nabard supported 249 entrepreneurship / skill development
programmes, most of them through RUDSETIs and RSETIs. Rural artisans and
SHG members were supported to participate in 21 marketing events, he said.

Institutional Development of Cooperative Banks and RRBs is another priority

sector for Nabard. Under the Revival Package for Short Term Cooperative Credit
Structure, recapitalisation assistance of Rs 643 crore has been provided to the
PACS. Over 22,000 field functionaries of cooperatives have been provided
training. Government of Karnataka, has implemented legal and institutional
reforms to enable the cooperatives to function as a member-driven, democratic and
viable institutions. Common Accounting System has been introduced in the PACS,
he added.

With the facilitation of Nabard, Kolar DCCB also qua-lified for licensing by March
2013. Nabard also facilitated installation of core bank-ing solutions in seven
DCCBs with the Apex Bank expected to join the project soon. All cooperative
banks are expected to be CBS-compliant by March, 2014.

Nabards regional office intends to move closer to Suvarna Karnataka through

focus on improving income levels of farmers, promoting dryland horticulture, full
coverage of farmers through KCC and conversion of KCC to smart cards,
improving per group credit for SHGs and new initiatives in NFS including
implementation of the handloom package.

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'Nabards growth has few parallels among peers'

The 32 years in the history of National Bank for Agriculture and Rural
Development (Nabard) has demonstrated its eventful transformation from a
fledgling aspirant to a leviathan development financial institution.
The growth in balance sheet size from 8,000 crore to over 2.5 lakh crore over
this period has few parallels among peer institutions, according to Ramesh Tenkil,
Chief General Manager, Nabard, Kerala.
RBI SUPPORT
He said this while speaking at a one-day seminar on 32 years of Nabard Challenges and opportunities - Stakeholder perspective as part of its foundation
day here on Thursday.
The institution has received unstinted support from parent Reserve Bank of India
through participation in the share capital as well as managerial mentoring and
organisational guidance.
Nabard has since earned a distinction in being not just formulating policies but also
overseeing financing and development, promoting innovation, nurturing
institutions, and supervising banks all at one go.
Tenkil said that in doing this, Nabard has emerged as an inspirational model for
other development financial institutions within the country and even abroad.
WIDE ACCLAIM
The various schemes pioneered by it for delivering financial services to the poor
have received wide acclaim. The concepts of self-help groups and joint liability
groups have boosted women empowerment.

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Self-help groups and their bank linkage programme have been able to drive the
idea of financial inclusion into rural hinterlands even in States with poor literacy
record.
If imitation is the best form of flattery, and Nabard would be justifiably proud that
its small pilot on micro-credit should have gone to trigger numberless clones
countrywide, Tenkil said.
He also pointed to one other major transformation in the nature of its interventions
in the rural and agricultural sectors in the country from fight against poverty to
promoting entrepreneurship.

CHALLENGES AHEAD

Nabard was seized of the issues of providing long-term loans to boost investments
in the agricultural sector as also transformation of producer collectives to producer
organisations.
Nirmal Chand, Regional Director, Reserve Bank of India, Thiruvananthapuram,
credited Nabard with success in piloting the core banking solution in cooperatives
sector and driving financial inclusion.
But its capabilities would be tested while seeking to ensure raised level of capital
adequacy in the sector as mandated by the Reserve Bank.
According to Chand, Union Budget 2014-15 sets great store by the Nabards
proven credentials in executing major tasks in enabling the rural and agricultural
sectors.
KB Valsala Kumari, Executive Director, Kudumbashree Mission, and K
Balachandran, General Manager, Canara Bank, and Convenor, State-level Bankers
Committee, also spoke on the occasion.

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CHAPTER 9
NABARD MECHANISATION FOR
FARM CREDIT GROWTH

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NABARD MECHANISATION FOR FARM CREDIT GROWTH

The shortage of farm labour in Punjab and Haryana - also known as the food baskets of India has propelled the demand of farm equipments, which in turn could boost credit growth,
according to a paper prepared by the National Bank for Agriculture and Rural Development
(Naba rd).

The paper says there was a credit potential of Rs 3,400 crore for the financial year 2013-14 for
farm mechanisation, an estimated increase of about 20 per cent over the last financial year.

In the area of farm mechanisation, Haryana and Punjab fall among the top states. Initially, farm
mechanisation was a " tractorisation" process, however, the introduction and use of other farm
equipment viz. power tillers, bullock/tractor drawn implements, reapers, threshers, zero-till seed
cum fertiliser drill, raised bed planters, rotavators, etc have also increased significantly over the
year, pushing up credit.

According to the paper, the credit potential for the financial year 2013-14 has been estimated
under farm mechanisation at Rs 1,990.74 crore for Punjab. For Haryana, it is Rs 1,412 crore.

A Nabard official said that with limitation in available labour and increasing wages, medium and
large farmers are looking for labour saving devices to remain competitive. The policymakers and
social scientists are looking for mechanisation to remove drudgery from farm operations so that
the rural educated youth do not run to urban areas in pursuit of jobs, which are already in short
supply. The emerging scenario in the two states manifests the need of modern and efficient farm
equipments customised to the need of the farmers and need to conserve resources.

He further added that keeping in view of the use of the new farm machinery other than tractors,
the replacement demand and increasing off farm use, the scope exists for credit flow under this
important sector. The future policy is expected to focus more on specialized port harvest
equipment and machines which will replace in reducing the crop loss, value addition to
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agriculture produce. Considering the centre government focus on diversification of agriculture

from cereal based to horticulture and other high value commercial crops, demand for new farm
machinery is likely to emerge in these areas.

Also, Farm mechanization has been promoted vigorously by the central and state governments.
Various farm implements have been included in addition to existing implements for financing by
banks which includes Multi-crop thresher, Sadd drill, Rotavator Bed Planter, Tractor Mounted
Sprayer, Potato Digger(Manual and Automatic), caster thresher, Sugarcane cutter, Planter etc.
The state governments provides subsidy on the purchase of the machines by the farmers which
can go upto 50 per cent depending upon the machine.

In order to promote mechanization, Nabard has asked Banks may encourage the proposals for
custom hiring centres/farm machinery banks in their work plan.

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CONCLUSION

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National Bank for Agriculture and Rural Development (NABARD) is an apex

development bank in India based in Mumbai, Maharashtra. . It was established
by a special act by the parliament and its main focus was to uplift rural INDIA by
increasing the credit flow for elevation of agriculture and rural non farm sector
NABARD was established on the recommendations of Shivaraman Committee, by
an act of Parliament on 12 July 1982 to implement the National Bank for
Agriculture and Rural Development Act 1981. International associates of
NABARD

ranges

from

World

Bank-affiliated

organizations

to

global

developmental agencies working in the field of agriculture and rural development.

These organizations help NABARD by advising and giving monetary aid for the
upliftment of the people in the rural areas and optimizing the agricultural
process.NABARD is a Development Bank with a mandate for providing and
regulating credit and other facilities for the promotion and development of
agriculture, small-scale industries, cottage and village industries, handicrafts and
other rural crafts and other allied economic activities in rural areas with a view to
promoting integrated rural development and securing prosperity of rural areas, and
for matters connected therewith or incidental thereto

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BIBLOGRAPHY

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Bibliography
1.
2.
3.
4.
5.

www.nabard.org/nabardfunt/nabardrole&function.asp
www.nabard.org/introdunction.asp
www.nabard.org/nabardglance.asp
www.economictimes.org/nabard
www.timesofindia.com

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