Professional Documents
Culture Documents
Project On Nabard BHAVANI222
Project On Nabard BHAVANI222
CONCEPT OF NABARD
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 programmes 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."
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.
1
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.
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 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 Banks.
2
The bank is now coordinating agency in relation to the Central Government,
Planning Commission, State Governments and institutions at all-India level and
State-level engaged in the development of small-scale industries, rural crafts, etc.
for giving effect to the various policies and programmes related to rural credit.
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.
CRAFICARD also found it prudent to integrate short term, medium term and long-
term credit structure for the agriculture sector by establishing a new bank.
3
NABARD is the result of this recommendation. It was set up with an initial capital
of Rs 100 crore, which was enhanced to Rs 2,000 crore, fully subscribed by the
Government of India and the RBI.
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 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 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.
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.
5
CHAPTER 2
What is NABARD?
2 INTRODUCTION
The National Bank for Agriculture & Rural Development (NABARD) : was
setup by an act of 1981. The objective of the Bank was to provide credit for
promotion of Agriculture, small-scale Industry, cottage and village industries,
handicrafts and other rural crafts and other allied economic activities in rural area
with a view to promote integrated rural development and to secure prosperity of
rural area and for matters connected therewith or incidental thereto.
6
has the mandate to support all other allied economic activities in rural areas,
promote 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
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
7
Refinancing banks for extending loans for investment and production purpose in
rural areas.
On-site inspection of cooperative banks and Regional Rural Banks (RRBs) and iff-
site surveillance over health of cooperatives andRRBs
8
2.2 REGIONAL OFFICES OF NABARD ALL OVER 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. 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.
9
2.3 Organization Structure
10
2.4 NABARD and its Role in Training
National Bank Staff College, Lucknow
National Bank Training Centre, Lucknow
Zonal Training Centre, Hyderabad
Regional Training Centre, Bolpur
Bankers Institute of Rural Development (BIRD), Lucknow
The provisions of the Act as stated below very clearly indicate the nature and
scope of the developmental mandate of the Bank and its role in training and
capacity building with the underlying belief that the process of development cannot
be accomplished by credit/refinance alone.
maintain expert staff to study all problems relating to agriculture and rural
development and be available for consultation to the Central Government, the
Reserve Bank, the State Governments and the other institutions engaged in the
field of rural development.
may provide consultancy services in the field of agriculture and rural development
and other related matters in or outside India, on such terms and against such
remuneration, as may be agreed upon;
in this context, the role of training in NABARD and the role played by it for
capacity building in client institutions, partner agencies and other developmental
agencies is important.
11
For maintaining 'Expert Staff', the bank needs to provide continuous exposure to its
officers and staff for upscaling their knowledge and skills in core areas. However,
in the initial years the Bank had recruited expert staff from various technical
disciplines and created a separate cadre of officers. These officers were involved in
formulating, appraising, monitoring and evaluating different agricultural projects
implemented by different credit agencies.These officers, irrespective of their
academic background, were imparted similar type of training as all other officers.
Their placements and the regular job rotations helped in grooming them to take up
assorted assignments, get involved in a variety of roles and functions including
credit, developmental, promotional, supervisory and necessary support and
information for decision making. The Bank also had access to their specialised
skills which were utilised whenever needed.
In pursuance of the Bank's mandate as stated in the Act, the Bank provides training
facilities for the RFIs and agencies involved in rural development through BIRD
and the two RTCs. With a view to broadbase the training and capacity building
efforts, the Bank encourages the RFIs to set up their own training systems and
provides these training institutes the necessary support to conduct meaningful and
quality training. Options and avenues for strengthening the training interventions at
the client level are continuously examined so that the human resources in these
institutions are developed to take on the challenges, reckon with the competition,
improve customer service, expand outreach, develop suitable products and thereby
contribute to rural development.
12
CHAPTER 3
Introduction
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.
13
CREDIT OPERATIONS PERFORMED BY THE BANK:
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.
14
Moreover, the new bank can contribute to the share capital or invest in the
securities of any institutions concerned with agriculture or rural development.
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.
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.
15
National Level Planning -
NABARD facilitates policy decisions by GoI and RBI in the areas of credit flow to
agriculture and rural development
For its short-term operations, the National Bank will borrow funds from the
Reserve Bank in the form of Line of Credit under Section 17 (4E) of the Reserve
Bank of India Act which permitted the Reserve Bank to grant short-term loans to
the Agricultural Refinance and Development Corporation earlier and which has
now been amended suitably by the National Bank for Agriculture and Rural
Development Act .
For its term-loan operations, the National Bank will draw funds, as the Corporation
was doing earlier, from the Central Government, World Bank/IDA, and other
multilateral and bilateral aid agencies, the market and National Rural Credits
(long-term operations). Fund that it has established. To this Fund has been
transferred the balance in the National Agricultural Credit (Long term operations).
Funds maintained by the Reserve Bank. Further contributions would be made
annually to the new Fund by the Reserve Bank in addition to the contributions by
the National Bank itself. Provision has been made also for the Central Government
and the State Governments to contribute to this Fund from time to time.
16
CREDIT STRUCTURE OF NABARD
Fig 3.4. 1
17
Interest Rates
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.
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.
Monitoring
Special attention is paid to monitoring the projects that are offered assistance so
that the targets are met and the implementation is properly done. An evaluation of
the project is taken up and in the light of the findings the quality of the projects and
their implementation methods can be improved. District-oriented monitoring
studies are conducted to evaluate the performance of the ongoing agricultural
development schemes sanctioned. Specific sector studies are also undertaken like
18
floriculture, mushroom, aqua culture, agro-processing, etc. to get an insight into
the problems and prospects of these sectors.
Direct Credit
Supporting Cooperatives
19
31 March 2005 were Rs.42948.51 crore against which the disbursements were Rs.
25384.02 cr.
Rural Infrastructure
20
PROMOTIONAL ROLE of NABARD
21
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:-
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
Provide training for senior and middle level executives of commercial banks,
Regional Rural Banks and cooperative banks
22
Provide financial assistance to cooperative banks for building improved
management information system, computerisation of operations and development
of human resources
23
Farmers' Club Programme
Farmers’ Clubs are grassroot 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.
Mission
24
Membership
All villagers except willful defaulters can become members of the club. The club
must make endeavour to raise their own resources by way of contribution from
members, undertaking certain business services such as bulk procurement of inputs
and collective marketing of agricultural produce, etc.
Sl. No. Name of the Programme Maximum Eligible North East Region
Grant other than
(including Sikkim and
NER
Andaman & Nicobar
Islands)
1 Maintenance of a Rs. 3,000 per Club Rs. 3,000 per Club year
Farmers' Club per year for 3 for 5 years
years.
2 Grant if applicable in the Rs. 2,000/- per Rs. 2,000/- per Club per
case of KVKs, NGOs, Club per year for 3 year for 3 years.
Agriculture Universities years.
etc.
3 Inauguration Rs. 5000/- Rs. 5000/-
4 Basic Level Orientation
Training Program
(BLOTP)
5 "Meet with Experts" Rs. 1,250 per meet Rs. 1,250 per meet for 4
Program for 4 meets for 3 meets for 3 years.
years.
25
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. During the year 2005-06 alone, as many as 6,20.109 groups were credit
linked.
26
KISAN CREDIT CARD SCHEME
Since launching in August 1998, around 2.38 crore Kisan Credit Cards
issued upto 31 March 2002 by Cooperative Banks, Regional Rural Banks and
Commercial Banks put together. Scheme implemented in all States and Union
Territories (except Chandigarh, Daman & Diu and Dadra & Nagar Haveli) with all
Cooperative Banks, RRBs and Commercial Banks participating. Agency-
wise/State-wise progress in issue of cards by all banks during 2001-02 and since
inception of Scheme.
Agency-wise KC Cards issued upto 31 March 2003 ( since inception) (No. of cards)
27
CHAPTER - 4
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:-
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
28
Monitor implementation of development action plans of banks and fulfillment of
obligations under MoUs
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.
29
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 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.
Building of better MIS and Conduct of special studies for improving functional
efficiency and on subjects referred to above.
30
Rural infrastructural development fund :
31
DISTRICT RURAL INDUSTRIES PROJECT (DRIP)
The project was under implementation since January 1994 and covers 1483
villages in twelve districts of Maharashtra. The primary objective is poverty
alleviation through increased access to bank credit for the rural poor. It envisages
formation and promotion of Self Help Groups through NGOs. The project has been
completed. As against a target of promoting 2600 SHGs, 9000 groups have been
32
promoted, of which 7027 groups have been credit linked with banks. MRCP has
provided a window of opportunities, particularly to the poor rural women to
enhance their skill and secure credit for income generating activities. The project
has helped in empowerment of rural women in addition to providing access to bank
credit.
Rural Marketing:
33
LATEST SCHEMES OF NABARD. MILLION
SHALLOW TUBEWELLS PROGRAMME (MSTP)
The total subsidy for the programme is Rs. 45.50 crores which has been
released by GoI to GoB. For the year 2001-02, the targets were 33798 and for the
year 2002-03, 23313. Thus the overall targets for combined two years is 57111.
The Scheme envisages a lock-in period of five years with the subsidy being back
ended i.e the borrowers will not be eligible for subsidy if loan is liquidated
completely within five years from the date of initial disbursement.
34
ON FARM WATER MANAGEMENT FOR
INCREASING CROP PRODUCTION IN EASTERN
INDIA (OFWAMS)
The subsidy will be back-ended with a lock in period of 2 years i.e the borrowers
will not be eligible for subsidy if the loan is completely liquidated within two years
from the date of initial disbursement.
35
NABARD SDC Rural Innovation Fund (R I F)
. A new fund named as "NABARD SDC Rural Innovation Fund" has been created
by merging the erstwhile Rural Promotion Corpus Fund (RPCF), Credit and
Financial Services Fund (CFSF) and Interest on RPCF and the new fund came into
being on 01 October 2005. It is envisaged that the entire fund will be utilised in a
period of 5 years.
NABARD invites proposals for funding support to innovative projects having the
above objective.
36
Extension of technology - Agri-clinics, Agro Service Centres & e-Service
Centres. The e-Service Centres may include the feasibility of commodity
trading/ Village Knowledge Centres.
Community farming.
Contract farming.
Insurance products for rainfed agriculture.
Banking through SHGs, VWCs and user teams, Joint Liability Groups, etc.
Innovative rain water harvesting for rural dwellings.
Rural energy from biomas, agri waste.
Techniques for increasing value of crop residues and non-crop bio mass.
Community regulation of distribution and use of waste and energy.
Storage devices for agricultural and rural products.
Innovative methods of managing Common Property Resources.
Materials and designs for rural roads.
Rural sanitation and waste disposal.
The list is illustrative and new ideas/innovations in tune with the objective of the
Rural Innovation Fund would be supported.
37
The idea is to create greater awareness about the swarojgar credit card
scheme, which has been developed by Nabard to provide adequate and timely bank
credit to small artisans, handloom weavers, rickshaw owners and other micro-
entrepreneurs. The promotional campaign on the Swarojgar credit card scheme is
also intended to educate card holders on how to use the cash credit facility
optimally and to help the scheme reach out to the maximum number of people, the
release adds.
ON 1ST June, 2006 UNITED Bank of India has introduced a special scheme
under Nabard's refinance facility for financing LPG connections in rural areas.
The scheme covers the cost of supplying a regulator, a cylinder and accessories
and a burner stove.
The centre has launched a new scheme "On-Farm Water Management for
increasing crop production in Eastern India" in 10 states of Eastern India. The
scheme will be implemented in all districts of Arunachal Pradesh, Assam, Bihar,
Chattisgarh, Jharkhand, Manipur, Mizoram and Orissa besides 35 districts of
Eastern Uttar Pradesh and nine districts of West Bengal. An amount of Rs.15 crore
has been released during 2001-02 to NABARD as the share of the Government of
India’s assistance under the scheme. An allocation of Rs.115 crore has been
proposed during 2002-03.
The scheme aims at developing irrigation facility at the command of the farmers
by tapping ground water resources of the region in a plananed manner with proper
spacing. Thus, there will be a substantial increase in agricultural production and
productivity and per capita income.
39
GENDER DEVELOPMENT
Women Development:
Women constitute almost half the population and make up one third of the
labour force in India. Various schemes for financing farm and non-farm sector
activities through banking system are available both to men and women. In order
to give focus to women in various developmental activities and to increase their
access to institutional credit, NABARD has formulated various programmes –
41
Development of Women through Area Programme (DEWTA)
As per NABARD’s refinance policy for production credit, the banks are
required to earmark a certain percentage of their lending to small and marginal
farmers.
42
SUPERVISORY ROLE OF NABARD
43
Core Functions
Objectives of Inspection.
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 suggest ways and means for strengthening the institutions so as to enable them
to play more efficient role in rural credit.
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
44
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.
Current Focus
Under the revised strategy, a sharper focus of the NABARD’s inspection was
given on the core areas of the functioning of banks pertaining to Capital Adequacy,
Asset Quality, Management Earnings, Liquidity and Systems Compliance
(CAMELSC). Thus, NABARD’s focus in its statutory ‘on-site’ inspections is on
core assessments leaving the collateral appraisals to supplementary inspections.
The micro level aspects are to be taken care of by the banks themselves by way of
internal inspections or by other agencies such as auditors. In this direction, through
a series of workshops and meetings held with the Chief Executives and the Chief
Auditors of cooperative banks, NABARD attempted to ensure that the other areas,
particularly relating to the internal checks and controls, revenue and income
realization by way of interest on loans and deposits and other routine features of
carrying out general banking transactions were suitably taken care of by the
respective banks and their concurrent/statutory audit systems.
45
Off-site Surveillance
Board of Supervision (for SCBs, DCCBs and RRBs) has been constituted by
NABARD under Section 13(3) of NABARD Act, 1981 as an Internal Committee
to the Board of Directors of NABARD.
46
dentifying the emerging supervisory issues in the functioning of cooperative
banks/RRBs such as NPAs recovery, investment portfolio, credit monitoring
system, management practices, frauds, etc.
Oversee the quality of inspections carried out and the reports issued
Undertake any other functions entrusted from time to time by the Board of
Directors of NABARD
The Board of Supervision, since its formation on 20 November 1999 , has held 45
meetings till 21 September 2010 and reviewed the financial position of
Cooperative Banks and RRBs. Based on the observations of BoS, authorities
concerned have been apprised of the weaknesses.
47
NABARD AND MICRO FINANCE IN INDIA-
Background
The post nationalization period in the banking sector witnessed substantial amount
of resources being earmarked towards meeting the credit needs of the poor. The
banking network underwent an expansion phase without comparables in the world.
The branch expansion1 was synergised with massive manpower recruitment drive
for manning such branches. Credit came to be recognized as a remedy for many of
the ills of the poverty. Credit packages and programmes were designed based on
the perceived needs of the poor. Programmes also underwent qualitative changes
based on the experiences gained. Besides the programmes initiated by the Central
Government, a large number of credit-based programmes were introduced by the
state governments with large resource allocations.
While the underlying objectives were laudable and substantial progress was
achieved, credit flow to the poor, and especially to poor women, remained low.
This led to initiatives that were institution led, that attempted to converge of the
existing strengths of rural banking infrastructure and leverage this to better serve
the unbanked poor. The pioneering efforts at this were made by National Bank for
Agriculture and Rural Development (NABARD), which was vested with an
enviable task of framing appropriate policy for rural credit, provision of technical
assistance backed liquidity support to banks, supervision of rural credit institutions
and other development initiatives.
48
NABARD during the early eighties conducted a series of research studies in
association with MYRADA (a leading NGO from South India) and also
independently which showed that despite having a wide network of rural bank
branches that implemented specific poverty alleviation programmes and self-
employment opportunities through bank credit for almost two decades, a very large
number of the poorest of the poor continued to remain outside the fold of the
formal banking system. These studies also showed that the existing banking
policies, systems and procedures, and deposit and loan products were perhaps not
well suited to meet the most immediate needs of the poor. It also appeared that
what the poor really needed was a better access to these services and products,
rather than cheap subsidised credit. Against this background, a need was felt for
alternative policies, systems and procedures, savings and loan products, other
complementary services, and new delivery mechanisms, which would fulfill the
requirements of the poorest, especially of the women members of such households.
The emphasis therefore was on improving the access of the poor to microFinance
(mF) rather than just micro-credit.
The launching of its Pilot phase of the SHG (Self Help Group) Bank Linkage
programme in February 1992 could be considered as a landmark development in
banking with the poor. The SHG-informal thrift and credit groups of poor came to
be recognised as bank clients under the Pilot phase.
Overall Strategy
Region-specific Initiatives
NABARD has intensified its efforts for roping in new partners for promotion
and linkage of groups in regions where the growth of groups has not been
commensurate with potential
Priority has been assigned to awareness- building and for identification of
NGOs and other partners in 13 priority states, which account for 70% of
rural poor in the country.
50
Capacity Building
Support to Governments
51
Support to NGO Partners
Several steps have been taken by NABARD for capacity building of NGOs
which partner in promotion and nurturing of SHGs. The emphasis is on
involving a large number of NGOs. Special focus is on those NGOs
participating in watershed development, health, literacy and women
development, to encourage them to take up promotion, nurturing and linkage
of SHGs as an 'add-on' activity.
NABARD has a scheme of part-financing the cost of promotion of groups
by NGOs.
NABARD has developed specialized programmes for use by CEOs of
NGOs for appropriately envisioning this as an add-on concept. Separate
programmes have also been designed for NGO field staff to appreciate the
nuances of SHG functioning.
Other Initiatives:
52
potential mapping and ultimately fine tuning skills and entrepreneurship to manage
the enterprise. Hence, a separate, specific and focussed skill-building programme
‘Micro Enterprise Development Programme (MEDP)’ has been formulated. This
involves organizing short duration, location specific programmes on skill
upgradation / development for setting up sustainable micro-enterprises by matured
SHG members. The duration of training programme can vary between 3 to 13
days, depending upon the objective and nature of training. The training may be
conducted by agencies that have background and professional competency in the
field of microEnterprise Development with an expertise in skill development.
Scheme for financial assistance to banks/ MFIs for rating of Micro Finance
Institutions (MFIs)
In order to identify MFIs, classify and rate such institutions and empower them to
intermediate between the lending banks and the clients, NABARD has decided to
extend financial assistance to Commercial Banks and Regional Rural Banks by
way of grant. The banks can avail the services of credit rating agencies, M-CRIL,
ICRA, CARE and Planet Finance in addition to CRISIL for rating of MFIs. The
financial assistance by way of grant for meeting the cost of rating of MFIs would
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be met by NABARD to the extent of 100% of the total professional fees subject to
a maximum of Rs.3,00,000/-/-. The remaining cost would be borne by the
concerned MFI. The cost of local hospitality (including boarding and lodging)
towards field visit of the team from the credit rating Agency, as a part of the rating
exercise, would also be borne by the MFI. Those MFIs which have a minimum
loan outstanding of more than Rs. 50.00 lakh (Rupees fifty lakh only) and
maximum of Rs 10 crore (Rupees Ten crore only) would be considered for rating
and support under the scheme. Financial assistance by way of grant would be
available only for the first rating of the MFI.
MFIs availing Capital Support and/or Revolving Fund Assistance from NABARD
are also eligible for re-imbursement of 50% of the cost of professional fee charged
by Credit Rating Agency for second rating subject to a maximum of Rs.1.50 lakh
(i.e 50% of Rs.3 lakh). This will be in addition to the re-imbursement of
professional fee for first rating of the MFI.
Scheme for financing matured SHGs for Farm Production and Investment
activities
The objective of the scheme is to facilitate the members of matured SHGs to meet
their credit requirement for farm production and investment activities and to enable
them to diversify their income generating activities. Term Loan and Cash Credit
limit given by the banks for a period of five years to SHGs exclusively for farm
production and investment activities covering agriculture sector and allied
activities. Banks can also sanction composite loans by combining consumption
credit to the extent of 30% of the total limit. Matured SHGs which have
successfully utilised bank loans and whose members have moved from
consumption requirements to production requirements, may be considered for
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financing for farm production and investment activities. Due freedom may be
given to SHGs to monitor and ensure end-use of credit as is usually practiced by
banks under SHG Bank Linkage Programme. Refinance - 100% of the bank loan
under Automatic Refinance facility (ARF). The refinance provided to the banks
under the scheme will be payable in 5 years at half yearly intervals.
A range of institutions in public sector as well as private sector offers the micro
finance services in India. They can be broadly categorized in to two categories
namely, formal institutions and informal institutions. The former category
comprises of Apex Development Financial Institutions, Commercial Banks,
Regional Rural Banks, and Cooperative Banks that provide micro finance services
in addition to their general banking activities and are referred to as micro finance
service providers. On the other hand, the informal institutions that undertake micro
finance services as their main activity are generally referred to as micro Finance
Institutions (mFIs). While both private and public ownership are found in the case
of formal financial institutions offering micro finance services, the mFIs are
mainly in the private sector.
The micro finance service providers include apex institutions like National
Bank for Agriculture and Rural Development (NABARD), Small Industries
Development Bank of India (SIDBI), and, Rashtriya Mahila Kosh (RMK). At the
retail level, Commercial Banks, Regional Rural Banks, and, Cooperative banks
provide micro finance services. Today, there are about 60,000 retail credit outlets
of the formal banking sector in the rural areas comprising 12,000 branches of
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district level cooperative banks, over 14,000 branches of the Regional Rural Banks
(RRBs) and over 30,000 rural and semi-urban branches of commercial banks
besides almost 90,000 cooperatives credit societies at the village level. On an
average, there is at least one retail credit outlet for about 5,000 rural people. This
physical reaching out to the far-flung areas of the country to provide savings, credit
and other banking services to the rural society is an unparalleled achievement of
the Indian banking system. In the this paper an attempt is made to deal with
various aspects relating to emergence of private micro finance industry in the
context of prevailing legal and regulatory environment for private sector rural and
micro finance operators.
MF in India - An Overview
The phenomenal growth rate of microFinance sector, especially the SHG bank
linkage programme has posed number of issues and challenges which need
immediate attention. In response to this NABARD has initiated a number of
innovations basically as an investment for posterity. At the core of these
innovations is a desire to improve the outreach and sustainability of the
programme. Some of the pilot projects designed and initiated recently
are summarized here.
There are now many branches of Commercial Banks and Regional Rural Banks
that service more than 200 SHG accounts which were hitherto considered
impossible. Howsoever welcome the trend may be, the burgeoning numbers have
also brought to the fore a host of issues relating to tracking, monitoring and
adequately servicing SHG accounts. It was felt that the best way to deal with the
huge numbers would be to take recourse to new technologies available.
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Also in general, the branch manager in the rural areas is hard pressed for time and
as a result does little for developing the business of the branch or for scouting for
new business opportunities for the branch. It was felt that use of Information
Technology in the form of processor/memory cards for SHGs and other clients
coupled with automation in a branch would serve to solve these vexed issues and
leave adequate time for business development work.
The first pilot project on smart cards has been launched with Sri Visakha
Grameena Bank in Andhra Pradesh (Reorganised as Andhra Pradesh Grameen
Vikas Bank).The users of processor/memory cards would include SHGs and other
good customers of the bank who are its regular customers. About 500 such
customers, who would perform all banking transactions on a fast track, would be
selected in each bank branch; time taken for banking by these regular good clients
is likely to be reduced considerably. Use of processor/memory cards by SHG
customers also adds another set of advantages like effective book keeping, tracking
and monitoring of SHGs, reducing the hassles of illiterate SHG members seeking
the assistance of the NGO / promoter/ local book writer to perform these functions.
In addition to prompt upkeep of books by SHGs, auditing of books of accounts,
computing interest, could also be ensured with this system. The transaction data of
each SHG collected from the field could be consolidated at branch office to
generate MIS reports, which the branch staff could effectively use to track the
functioning of SHGs, ensure prompt credit linkages and recovery. This coupled
with automation of back office operations of the branch would ease the branch
manager of a lot of time spent on routine matters and they could use the spare time
to build new customers and enhance business relations.
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CHAPTER 5
58
CRISIS IN MOBILIZING RESOURCES
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
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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.
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
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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.
Inside Nabard, officers have been discussing the agenda for the organisation over
the next five to 10 years. Most would back the idea of Nabard turning a universal
bank by picking up the branches of the Regional Rural Banks (RRBs) to mobilise
retail deposits. Perhaps, banks not keen on a rural presence could also sell their
branches to Nabard. There are doubts over the quality of staff manning RRBs and
the heavy losses run up by a few. With the co-operative credit structure sick, at this
point of time, there is only a single option for Nabard: To be India's first rural
credit bank and running up an asset portfolio of rural borrowers.
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CONCLUSION
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
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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. As the principal nodal agency, NABARD has
been really instrumental in pushing the programme of doubling of the ground level
agric edit in the country—from Rs.86,981 crore in 2003-04 to Rs.1,46,688 till
February end 2006.
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BIBLIOGRAPHY AND WEBLIOGRAPHY
Webliography:
www.google.com
www.wikipedia.com
www.nabard.org
www.nabard.org/microfinance
Bibliography:
Agriculture finance in india(role of nabard)
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