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CHAPTER 1

1.1 Introduction

“Rural India which comprises 5.5 lakh villages and encompasses three fourths of the Country's
population is characterized by low income levels, inadequate to ensure a quality of life compatible
with physical well being. The Ministry of Rural Development, spearheading the frontal attack on
rural poverty, through its various programmed endeavored to reach out to the last and most
disadvantaged sections of society, provide them with avenues of employment, be it self-
employment or wage-employment, and to improve infrastructure relating to their life support
systems.”1

India has been a welfare state ever since her Independence and the primary objective of all
governmental endeavors has been the welfare of its millions. Planning has been one of the pillars of
the Indian policy since independence and the country's strength is derived from the achievement of
planning. The policies and programmes have been designed with the aim of alleviation of rural
poverty which has been one of the primary objectives of planned development in India. It was
realized that a sustainable strategy of poverty alleviation has to be based on increasing the
productive employment opportunities in the process of growth itself. Elimination of poverty,
ignorance, diseases and inequality of opportunities and providing a better and higher quality of life
were the basic premises upon which all the plans and blue-prints of development were built.
NABARD implies both the economic betterment of people as well as greater social transformation.
In order to provide the rural people with better prospects for economic development, increased
participation of people in the rural development programmes, decentralization of planning, better
enforcement of land reforms and greater access to credit are envisaged.2

1.2 Establishment of the Bank

The Bill for setting up the Bank was passed by the Parliament in December, 1981 and National
Bank came into existence on 12th July, 1982.The review committee envisaged that the new apex

1
Rural Health Care: Towards a Healthy Rural India, http://www.gramvaani.org/?p=1629
2
Dr. Swapan Kumar Roy, Rural Development in India: What roles do NABARD & RRBs play?,
http://www.borjournals.com/a/index.php/jbmssr/article/viewFile/1813/1123

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bank would be an organizational device for providing undivided attention, forceful direction and
pointed focus to the credit problems arising out of the integrated approach to rural development.

The Committee recommended that the new bank take over from the Reserve Bank the overseeing
the entire rural credit system, including credit for rural artisans and village industries, and the
statutory inspection of co-operative banks and Regional Rural Banks on an agency basis, the Bank
continuing to retain its essential control. The new bank was to have organic links with the Reserve
Bank by virtue of the latter contributing half of its share capital (the other half being contributed by
the Central Government), and three members of the Central Board of Directors of the Reserve Bank
being appointed on its board, besides Deputy Governor of Reserve Bank being appointed as its
Chairman. On the establishment, the National Bank has taken over the entire undertaking of the
Agriculture Refinance and Development Corporation, and has taken over from the Reserve Bank its
refinancing functions in relation to the State Co-operative Banks and the Regional Rural Banks3.

1.3 Objectives

NABARD was established in terms of the, “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 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 Lok Sabha were categorized as under:

 The National Bank will be an apex organisation 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.
 The Bank will also provide direct lending to any institution as may approved by the Central
Government.

3
Origin History of National Bank for Agriculture and Rural Development (NABARD), http://accountlearning.com/nabard-
origin-objectives-function-achievements/

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 The Bank will have organic links with the Reserve Bank and maintain a close link with in.4

1.4 Mission
Promoting sustainable and equitable agriculture and rural development through effective credit
support, related services, institution building and other innovative initiatives. In pursuing this
mission, NABARD focuses its activities on

 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
 Development functions, concerning reinforcement of the credit functions and making credit more
productive
 Supervisory functions, ensuring the proper functioning of cooperative banks and regional rural
banks.5

1.5 Current Position of NABARD

 NABARD has paved the way for all-round rural progress and development with 28 regional offices,
sub-office at Port Blair and 376 district offices.
 The Micro Finance programme is the largest of its kind in the world. The programme has helped
over 329.90 lakh households through 22.38 lakh SHGs comprising mostly of women members.
Women empowerment in rural areas. Rs 872 lakh have been sanctioned by way of assistance to
women entrepreneurs.
 Through the infrastructure development fund Rs 51,283 crore have been sanctioned for 2,44,651
projects covering irrigation, rural roads and bridges, health and education, soil conversation,
drinking water schemes etc.
 Watershed development fund, with cumulative sanctions of Rs578.95 crore for 427 projects in 124
districts of 14 states, has created a ‘Peoples Movement’ in rural India.

4
Ibid
5
Supra Note-3

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 Farmers now enjoy financial access and security through 925.17 lakh Kisan Credit Cards that have
been issued through a vast rural banking network.6

CHAPTER 2

FUNCTIONS OF NABARD

CREDIT ROLE

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. 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.7

2.1 Credit Operations Performed by the Bank

6
Ms. Mini Amit Arrawatia, Role of NABARD in Development of Rural India,
http://www.indianmba.com/Faculty_Column/FC1219/fc1219.html
7
Nupur Singh, Objectives and Functions of NABARD, http://www.preservearticles.com/2012033129459/what-are-the-main-
functions-of-nabard.html

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The National Bank is empowered to provide short-term refinance assistance for periods not
exceeding 18 months to state Co-operative Banks, Regional Rural Banks and any financial
institution approved by Reserve Bank in this behalf; for a wide range of purposes, including
marketing and trading, relating to rural economy. These short term loans granted to State co-
operative Banks and Regional Rural Banks, in so far as they relate to the financing of agricultural
operations or marketing of crops, can be converted by the National Bank into medium-term loans
for periods not exceeding seven years under conditions of drought, famine or other natural
calamities, military operations or enemy action.

The National Bank can grant medium-term loans to the State co-operative Banks and Regional
Rural Banks for period extending from 18 months to seven years for agriculture and rural
development and such other purposes as may be determined by it from time to time subject to their
being fully guaranteed by the State Governments as to the repayment of principal and payment of
interest. Such guarantee can however be waived by the National Bank in such circumstances.

The National Bank is empowered to provide by way of refinance assistance long-term loans
extending up to a maximum period of 25 years including the period of re-scheduling such loans to
the State Land Development Banks, Regional Rural Banks, Commercial Banks, State Co-operative
Banks or any other financial institutions approved by the Reserve Bank for the purpose of making
investment loans. It may also give short-term loans along with long-terms loans where such
composite loans are considered necessary. Loans for periods not exceeding 20 years can be made to
the State Governments to enable them to subscribe directly or indirectly to the Share capital of Co-
operative Societies. Moreover, the new bank can contribute to the share capital or invest in the
securities of any institutions concerned with agriculture or rural development.8

2.2 Credit Planning by NABARD

 District Level Planning -

8
GC Sen, Role of RBI / NABARD and Co-operative Banks in Promoting Rural Credit,
http://www.yourarticlelibrary.com/banking/role-of-rbi-nabard-and-co-operative-banks-in-promoting-rural-credit/40819/

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NABARD prepares Potential Linked Credit Plans (PLPs) for all the districts of the country. It maps
the potentials available for development in agriculture and rural sectors in the district and projects
credit requirements, taking into account long-term physical potential, availability of infrastructure,
extension services and marketing support and the strengths and weaknesses of the RFIs in the
district.

 State Level Planning -

NABARD prepares a State Focus Paper for every State. This presents a comprehensive picture of
potentials available in the State for development of agriculture and allied sectors. It also provides a
road map of the opportunities available for further investments in these sectors. It can be used by
bankers and other agencies for preparing their action plans for making these investments.

State Credit Seminars are convened by NABARD annually where all agencies concerned viz., the
State Government, banks, NGOs, etc. participate and discuss policies and operational measures
required to be taken for tackling constraints in development of potentials available in agriculture
and allied sectors in the State.9

 National Level Planning -

NABARD facilitates policy decisions by GoI and RBI in the areas of credit flow to agriculture and
rural development.

INTEREST RATES

2.3 Margin money

The beneficiary's contribution to the project cost is necessary in order to ensure his stake in the
investment. Such margin money varies from 5% to 25% depending on the type of investments and
the category of the beneficiaries. The margin money can be by way of contribution in cash or own
or family labour. Large farmers, firms, corporate borrowers including state-owned corporations,
forest development corporations provide margin money up to 25% pf the investment cost.

9
Tapan Kumar Shandilya, Umesh Prasad, Agricultural Credit and NABARD,Pg-79

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2.4 Special focus

Removal of regional and sectoral imbalances is one of the thrust areas and hence preference is
given to the needs of the underdeveloped areas. For example, the development of the north-eastern
region has been a key programme and special efforts have been made through refinance offered on
liberal terms and other supportive measures so that the rural credit delivery system in the region is
strengthened.

CHAPTER 3

PROMOTIONAL ROLE of NABARD

Promotion of RNFS has been recognized as an important and necessary adjunct to the refinancing
function. The objective of promotional programs is to establish replicable models for
generating/enhancing opportunities for employment and income generation in rural areas in a
sustainable, demonstrative and cost effective manner by providing grant/revolving fund assistance
etc., to NGOs, Voluntary Associations(VAs), Trusts and other Promotional Organizations. And
trained around 1,51,000 rural youth with grant assistance of Rs. 11.91 crore

Here are some of the promotional schemes of NABARD like :

 Swarojgar credit card schemes


 Farmer’s club programme
 Self help groups
 Kissan credit card schemes

3.1 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 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.

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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:-

 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
 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
 Provide financial assistance to cooperatives and Regional Rural Banks for establishment of
technical, monitoring and evaluations cells
 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 Farmer’s clubs

3.2 Swarozgar Credit Card (SCC) Scheme

The SCC Scheme formulated by NABARD in consultation with RBI and GoI envisages adequate
and timely credit, both working capital and block capital, to small artisans, handloom weavers,
service providers, fishermen, self-employed persons, rickshaw owners and other micro
entrepreneurs, in rural and urban areas in a flexible, hassle free and cost effective manner from the
banking system. The facility also includes a reasonable component for consumption needs. 28,925
cards were issued by CBs, Coop Banks and RRBs involving credit limit of Rs. 64.26 crore

3.3 Farmers' Club Programme

Farmers’ Clubs are grass root level informal forums. Such Clubs are organised by rural branches of
banks with the support and financial assistance of NABARD for the mutual benefit of the banks
concerned and rural people. National Bank for Agriculture and Rural Development (NABARD)

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encourages banks to promote Farmers' Clubs in rural areas under the Farmers’ Club Programme,
earlier known as “Vikas Volunteer Vahini (VVV) Programme”. The Programme was launched by
NABARD in November 1982 to propagate the five principles of “Development through Credit”.

3.4 Self help groups

Self help groups comprise homogenous groups of poor people who have voluntarily come together
mainly with the idea of overcoming their financial difficulties. SHGs can rightly be called a potent
tool for human development. SHGs enable the poor, especially the women form the poor households,
to collectively identify, prioritise and tackle the problems they face in their socio-economic
environment. By pooling their meager resources and using them for lending among themselves, they
develop the habit of thrift and the skill of credit appraisal, before getting linked to the banks. Staring
with small loans for consumption they soon graduate to bigger loans for a wide range of micro-
enterprise like vermin-composting, livestock rearing, handicrafts, vending of various commodities in
rural areas, running distribution materials, etc. with a modest beginning of just 500SHGs in 1992,
today the programme boats over 22 lakh SHGs and 3.3 crore households influencing the lives of
over 16 crore poor population, 6,20.109 groups were credit linked.

3.5 KISAN CREDIT CARD SCHEME

As a pioneering credit delivery innovation, Kisan Credit Card Scheme aims at provision of adequate
and timely support from the banking system to the farmers for their cultivation needs including
purchase of inputs in a flexible and cost effective manner. Since launching in August 1998, around
9.25 crore Kisan Credit Cards issued upto 31 March, since inception. An amount of Rs. 4,17,326
Crores has been sanctioned under KCCs till 31 March 2010, since the inception by Cooperative
Banks, Regional Rural Banks and Commercial Banks put together. Scheme implemented in all

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States and Union Territories (except Chandigarh, Daman & Diu and Dadra & Nagar Haveli) with all
Cooperative Banks, RRBs and Commercial Banks participating.10

CHAPTER 4

DEVELOPMENT ROLES OF NABARD

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

4.1 Watershed Development Fund (WDF)

Pursuant to the announcement by the Hon'ble Union Finance Minister in the Union Budget for the
year 1999-2000, a Watershed Development Fund (WDF) has been set up in NABARD with a
corpus of Rs.200 crores equally contributed by the Government of India and NABARD, with an
objective to promote participatory watershed development throughout the country.

The Fund envisaged coverage of 100 priority districts in 14 states over a period of 3 years. The
participating states can avail loans out of WDF for implementing watershed projects through the
village level communities, non-governmental organizations (NGOs) or project facilitating agencies
(PFAs) in the selected districts. The loans are repayable over a period of 9 years (including a grace
period of 3 years) and carry a rate of interest of 4.5% per annum at present.

One-third portion of the Fund is earmarked for promotional efforts, capacity building, replication of
Indo German Watershed Development Programme (Maharashtra) or any other successful model
and Self Help Group (SHG) related activities particularly targeted at women in the project areas. As

10
Mr. Subodh Kumar, ROLE OF NABARD IN RURAL DEVELOPMENT, http://www.enablersindia.com/banker/ibfsa03a.pdf

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on 31 March 2004, the Rs. 154.61 crore has been added to the corpus by way of interest on
unutilized portion and excess margin on RIDF loans.

4.2 COOPERATIVE DEVELOPMENT FUND (CDF)

In pursuance with the recommendations of the Parliamentary Committee on Agriculture, NABARD


had created Co-operative Development Fund for providing assistance to Co-operative Credit
Institutions for improving their infrastructural facilities for growth. The Fund, which started with an
initial corpus of Rs.10.00 crore from the surplus contributed by NABARD, has a balance of
Rs.115.68 crore as on 31 March, 2003. The assistance sanctioned to various cooperative institutions
from the Fund till 31 March, 2004 aggregated to Rs.62.18 crore against which an amount of
Rs.50.87 crore has been disbursed.

4.3 Rural infrastructural development fund

If there is one development programme that has dramatically helped rural India, it is projects
undertaken through RIDF. Economist have explicitly emphasized on the direct correlation between
the index of infrastructure development and rural development. Indeed it is far too crucial to have
infrastructure for agriculture, industrial and overall economic development. Infrastructure also
provides basic amenities that improve the quality of life. Therefore, for supporting State
Governments and other development institutions, NABARD opened the window of RIDF in 1995-
1996 NABARD so far have sanctioned Rs 51,283 crore for 2,44651 projects under the Fund.

A cumulative position of sector-wise sanctions as on 31st March 2006 : Irrigation : Rs 15105,50


crore(107.92 lakh hectares) Rural Connectivity :Rs 20,290,40 crore of rural road network (2.20 lakh
km) and bridges (3.69 lakh mtrs) power Rs 1,327.7 crore social sector : Rs 4,128.1 crore Other :Rs
3,539 crore. A separate window has been created for rural connectivity with villages of population
less than 500, with a corpus of Rs 4000 crore to support the Bharat Nariman project.

4.4 DISTRICT RURAL INDUSTRIES PROJECT (DRIP)

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NABARD, launched DRIP, an integrated area based credit intensification program, in collaboration
with government, banks and other development agencies with focus on district. It was introduced in
1993-94 with the objective of creating sustainable employment opportunities in rural areas. Today it
is being implemented in 106 districts all over the country.

4.5 Rural Marketing

A number of marketing interventions have been made for marketing of rural non-farm products
since marketing is a key factor in the sustainability of any such endeavour. With the financial
support of NABARD under its promotional program like Rural Haats, Rural Marts, participation in
fairs, exhibitions and marketing melas, rural artisans and entrepreneurs can get a larger market for
their produce and showcase their talent to urban and upcountry markets.

4.6 Rural Innovation Fund

In association with Swiss Agency for Development and Cooperation (SDC), NABARD has
constituted the “NABARD SDC Rural Innovation Fund (RIF)” to support innovative projects in
Farm, Non-Farm and Micro-Finance Sectors leading to creation of livelihood opportunities for the
poor. Government and Non-Government Institutions, corporate bodies, financial institutions and
individuals can avail funding support for activities involved in development of new products,
processes, prototypes, technology etc. which have the poor in their focus.

4.7 Co-Financing

It has been the experience that Banks are wary of taking credit risk of financing high tech/large
scale/ export oriented agricultural projects or those involving sunrise technologies. To instill
confidence in banks and ensure credit flow to such projects, NABARD has entered into agreements
for co-financing with 14 commercial banks. During 2006-07, seven projects were sanctioned with
bank loan of Rs. 145.03 crore and NABARD's share of Rs. 72.42 crore. Floriculture, organic
farming, milk processing, ethanol production and agro processing are among the projects
sanctioned so far.

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CHAPTER 5

SUPERVISORY ROLE OF NABARD

Apart from the role of a development bank, NABARD undertakes certain supervisory functions in
respect of Coop Banks and RRBs under the Banking Regulation Act. The objective of NABARD’s
supervision is to assess financial and operational soundness and managerial efficiency of these
banks and their compliance with banking regulations. NABARD has constituted a Board of
Supervision as an Advisory Committee to the Board of Directors of NABARD, which gives
directions and guidance in respect of policies and on matters relating to supervision and inspection.

NABARD undertakes on-site inspection of RRBs, SCBs and DCCBs on a two-year cycle basis.
Inspection of SCARDBs and apex non-credit cooperatives are undertaken on a voluntary basis. Off-
site surveillance of Coop Banks and RRBs are also undertaken on an on-going basis.

5.1 Core Functions

NABARD has been entrusted with the statutory responsibility of conducting inspections of State
Cooperative Banks (SCBs), District Central Cooperative Banks (DCCBs) and Regional Rural
Banks (RRBs) under the provision of the Banking Regulation Act, 1949. In addition, NABARD has
also been conducting periodic inspections of state level cooperative institutions such as State
Cooperative Agriculture and Rural Development Banks (SCARDBs), Apex Weavers Societies,
Marketing Federations, etc. on a voluntary basis.

5.1.1 Objectives of Inspection.

 To protect the interest of the present and future depositors


 To ensure that the business conducted by these banks is in conformity with the provisions of the
relevant Acts/Rules, regulations/Bye-Laws, etc
 To ensure observance of rules, guidelines, etc. formulated and issued by
NABARD/RBI/Government
 To examine the financial soundness of the banks

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 To suggest ways and means for strengthening the institutions so as to enable them to play more
efficient role in rural credit.

5.2 Supervisory Strategy

In the wake of the banking sector reforms, new set of international norms/practices were made
applicable to Commercial Banks (CBs) to make them more competitive and sustainable in the
changing scenario. The co-operative banks and RRBs were also to function in the general banking
environment, emerging out of the financial sector reforms, introduced by the GOI/RBI.
Accordingly, the prudential norms were extended to them in phases. While the capital adequacy
norm has not yet been made applicable to these banks, the other prudential norms viz. income
recognition, asset classification and provisioning, which were made applicable by RBI to the
commercial banking sector had been extended to cover RRBs in 1995-96, SCBs and DCCBs in
1996-97 and to SCARDBs in 1997-98. NABARD, through a concrete and time-bound supervision
strategy, facilities these banks to adjust to the new financial discipline so as to internalize prudential
norms stipulated.11

11
Objectives Of Supervision, https://www.nabard.org/content.aspx?id=522

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CHAPTER 6

SET BACKS OF NABARD

6.1 FARMERS COMITTING SUICIDE

The principal agriculture development bank has to witness unprecedented crisis in the agricultural
front with hundreds of farmers committing suicides in at least 31 districts spanning over five states.
A study conducted by the Indira Gandhi Institute of Development Research (IGIDR)says the small
and marginal farmers(holding lands up to 5 acres)were more vulnerable to suicide. Another
category of NABARD clientele, landless laborers who leased in land constituted 19 percent of the
suicide cases .In spite of NABARD and public sector banks glorious existence for the more than
two and three decades respectably, 51 percent of cultivator household is outside the ambit of any
form of credit at all and out of 49 percent of the indebted cultivator households, only 27 percent are
indebted to the formal sources. National Sample Survey Organization (NSSO)data show that in
regard to very small land holdings of 25 percents; the formal credit delivery’s outreach is only 23
percent, while in regard to farm holdings of between 5 and 10 acres, it is around 65 percent.

6.2 CRISIS IN MOBILIZING RESOURCES

In the third decade of its existence, NABARD is facing a crisis of sort in mobilizing resources from
the market with its cost of resource mobilization shooting up to around 8.17 percent so far, as
against 5.76 percent in 2005-06.The government’s abolition of long term capital gains tax has, in
turn, deprived NABARD of a comparatively cheap source of fund by way of capital gains bond, the
average interest burden of which in 2005-06 being 5.45 percent .In addition, the near total
discontinuation of RBI contribution to NABARD behind national rural credit—long term
operations fund, national rural credit—stabilization fund(in spite of statutory obligations of RBI
under sections 42 and 43 of NABARD Act,1981)to support long and medium—term agri-credit
needs and behind general line of credit for short term agri-credit operations have aggravated the
problem of cheap resources .This, in turn, has accentuated the problem of cheap credit for farmers,
even during distress,(as NRC-STAB fund is utilized to res7chedule loans during calamities like

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flood, drought, and farmers’ suicide).The RBI’s surplus, instead, is diverted to balance the
government of India’s fiscal deficit especially after operationalisation of Fiscal Responsibility And
Budget Management (FRBM) Act.

6.3 NABARD UNABLE TO BE RURAL CREDIT BANK

It is a quiet admission of poor credit flows to the needy in the rural and urban centers despite many
government-subsidised programmes. The poor and the needy in the unorganized sector cannot put
up any collaterals against bank loans and bankers should get rid of the habit of demanding security
from the poorest who have nothing but themselves to offer.

Anyway bankers do okay big size corporate loans on a call from New Delhi. Reports are the
Government and the RBI could be looking afresh at flow of bank funds into agriculture and rural
development in general.

Priority sector funding has become a farce with software and information technology being
classified as priority.

The Lead Bank Approach and the Service Area Approach exist for the records, with bank chairmen
not overly worried over defaulting on the 18 per cent agriculture norm.

An excellent idea like the Rural Infrastructure Development Fund (RIDF) has gone cold, with State
Governments pleading absence of rural projects.

The Fund is presently being used by banks to earn a good return. Banks have to place any fund
shortfall in agriculture lending with RIDF. The scheme is structured in a manner which deters banks
from going into rural areas and a view being taken is to scrap interest payments. The rate of interest
on the entire deposit to be made in RIDF is prevailing Bank Rate plus 1.5 per cent when the
shortfall in lending to agriculture in terms of percentage to net bank credit (i.e., target minus
achievement) is less than two percentage points; it is Bank Rate plus 0.5 per cent if the drop varies
between two percentage and 4.99 percentage points; Bank Rate minus 0.5 per cent if the default
varies between 5 percentage and 8.99 percentage points; and Bank Rate minus 1.5 per cent if the
default is 9 percentage points and above.

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Only RBI and the Finance Ministry can evolve a scheme which pays a fixed return to banks
refusing to fund the priority sector. It may be best to knock off all incentives at one go and make it
mandatory on errant banks to cough up funds free. And the rule should cover foreign and new
private banks, which have only contempt for rural India. Parallely the government could be sending
the appointment papers to Ms Ranjana Kumar as Chairman of NABARD effective November 3,
going by talk on Mint Street. That should provide a head to the lead rural credit agency which today
is doing little, as there are no takers for its refinance facility.12

12
Christina Gonsalves, Comparative Case Study Analysis Microfinance Institute and Development Bank NABARD and FINCA
International, 2008

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CONCLUSION

Reserve Bank of India (RBI) entrusted NABARD (National Bank for Agriculture and Rural
Development) in 1981 to look after agriculture and rural development through all the Cooperative
and other Nationalized banks of India. NABARD will observe 30th eventful journey for
advancement of Indian agriculture, economy and social structure. Animal husbandry programmes
with Rs.2000 crores have been approved. Indian agriculture is dominated by a vast multitude of
landless, sub marginal, marginal and small farmers, who are at the bottom of pyramid; consisting 80%
of total cultivators having only little above one hector of land. For this NABARD has given stress
on animal resource’s productivity. From the beginning ,NABARD has grown into a unique kind of
apex hybrid organization combining best of central and development bank practices like planning,
regulation of credit and supervision of rural financial institution like agriculture cooperative
banks(both short and long term structures),Regional Rural Banks(RRB) etc. It also plays a unique
institution building role that was instrumental in safe guard of many a loss making RRBs and
Cooperative Banks in various parts of the country. The balance sheet of NABARD is above Rs.4
lakh crores

From the parameter of profitability ,it is one of the best run banks, not only in India, but in the
world, as its per employee profitability is Rs.22 lakh(its net per employee profitability is around
Rs.17 lakh assuming an income tax of Rs.300 crore).It may not be out of place to mention here that
NABARD is the pioneer in the Self Help Group(SHG)—Bank linkage programme in the country
that has brought the taste of banking to doorsteps of the poor clientele, especially the women.
Beginning with a modest number of 500 groups in 1992, today this flagship programme comprises
2 million groups touching the lives of 150 million people.

NABARD support to RIDF behind 2.4 lakh projects has translated into developing irrigation
potential of 108 lakh hectres,2 lakh km of roads,370 lakh meters of bridge length, schools
benefiting 28 lakh students, rural health centers benefiting 2.47 lakh people, drinking water supply
benefiting 5.82 lakh people. In this connection, it may not be out of place to mention here that the
declining credit-deposit ratio in backward regions of the country viz. northeastern, eastern and
central regions, in wake of concentration of banking business in developed urban, semi-urban
centers in the post liberization phase, got improved a bit when the RIDF investment are factored in.

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BIBLIOGRAPHY

Webliography:

 www.nabard.org
 http://timesofindia.indiatimes.com/topic/Nabard
 www.rbi.org.in
 http://nafcard.org

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