In this essay you will learn about NABARD. After reading this essay you will learn about:- 1. Introduction to NABARD 2. Functions of NABARD 3. Working 4. Other Plans.

Essay # 1. Introduction to NABARD:

One of the most important landmark in respect of rural credit in recent years is setting up of the National Bank for Agricultural and Rural Development on 12th July, 1982. From the very beginning, Reserve Bank of India (RBI) was extending agricultural credit through state level Co-operative Banks and Land Development Banks.

Lateron, the Agricultural Refinance Development Corporation (ARDC) was set up by RBI in 1963 for meeting the long-term credit requirements of rural areas. But after the formation of NABARD, it took over all agricultural credit functions of RBI and the refinance functions of ARDC after its merger with NABARD.

NABARD has an authorised share capital of Rs. 500 crore and paid-up capital of Rs. 100 crore which is contributed equally by the RBI and the Government. RBI nominates three of its Central Board Directors as member of the board of NABARD and a Deputy Governor of RBI is appointed as a chairman of NABARD.

Essay # 2. Functions of NABARD:

The following are some of the important functions performed by NABARD:

1. The National Bank is working as an apex body for meeting the credit requirements of the rural sector in the form of production and investment credit to agricultural, small scale and village industries, rural crafts, artisans and other allied economic activities.

2. The Bank provides short-term, medium-term and long-term credit to state co-operative banks, RRBs, land development banks and commercial banks for investment in agricultural and other allied sectors.

3. The Bank gives long-term assistance to State Governments (up to 20 years) for subscribing to the share capital of co-operative credit institutions.

4. The Bank has the responsibility of inspecting State Co-operative Banks and RRBs.

5. It provides long-term loans to the institutions which are approved by the Central Government or may contribute to the share capital or invest in securities of any type of institution connected with agriculture and rural development.

6. The Bank is also coordinating the activities of central and state governments, the Planning Commission and all other All-India and State level institutions which are entrusted with the development of small scale, village and cottage industries, rural crafts and other industries in the tiny and unorganised sector.

7. The Bank also maintains a Research and Development Fund in order to promote research in agriculture and rural development, and also to formulate and design projects and programmes to suit the requirements of different areas.

Essay # 3. Working of NABARD:

NABARD is playing an important role in augmenting the flow of credit for the promotion of agriculture, small scale, village and cottage industries, handicrafts, other rural crafts and various other allied activities in rural areas of the country.

NABARD does not help the farmers and other rural people directly, rather it flows the credit to these people through co-operative banks, commercial banks, RRBs, etc. It is thus working as an apex body dealing with policy, planning and other operational aspects of rural credit for the around development of rural economy.

During the last ten years, NABARD played an important role in developing the rural economy and performed all its functions smoothly and efficiently. Accordingly, the Bank sanctioned short-term credit limits to the extent of Rs. 3,020 crore in 1990-91 for financing seasonal agricultural operations (at 3 percent below the bank rate) as against Rs. 2,807 crore in 1989-90. NABARD also sanctioned medium-term credit limits to the extent of Rs. 46 crore in 1989. During 1990-91, the bank advanced medium-term and long-term credit to the extent of Rs. 210 crore.

NABARD also pursued its policy for promotion of investment in agricultural sector in the less-developed and under banked states. In 1989-90 Rs. 737 crore was disbursed in these states. The Bank also provided refinance assistance for different purposes.

During 1990-91, NABARD sanctioned a total of 10,650 schemes which involved its commitment of Rs. 2,120 crore. Moreover, upto the end of March 1991, NABARD along with erstwhile ARDC, sanctioned 89,510 projects for which it made a total commitment of Rs. 18,300 crore.

Purpose wise, NABARD sanctioned largest number of schemes on minor irrigation works which has more than 60 per cent (6,750 schemes) of the total schemes sanctioned in 1990-91. Again on cumulative basis as in March 1991, about 36,320 schemes, out of a total of 89,510 schemes, were sanctioned for minor irrigation works.

Moreover, NABARD has introduced a rehabilitation programme for the weak Central Co-operative Banks (CCBs) and State Co-operative Banks (SCBs) of the country. As on June 30,1988, about 175 CCBs and 7 SCBs were covered under this rehabilitation programme.

In order to promote integrated rural development and also to attain prosperity of rural areas, NABARD also advanced financial assistance to 76 RRBs for setting up or strengthening their Technical Monitoring and Evaluation (TME) cells. Besides, about 13 SLDBs and 2 SCBs got financial assistance from this fund.

The Government has established a Rural Infrastructural Development Fund within NABARD from April 1995. The Fund will provide loans to State Governments and State owned corporations for completing ongoing projects, relating to medium and minor irrigation, soil conservation, watershed management and other forms of rural infrastructure.

This Rural Infrastructural Development Fund (RIDF) has been set up with a corpus of Rs. 2,000 crore. With the establishment of RIDF, 2,249 projects with a loan of about Rs. 1,827 crore could be sanctioned by NABARD to eighteen states.

These projects are expected to create an additional irrigation potential of 15.5 lakh hectares. RIDFs commulative sanctions and disbursements under various tranches of RIDF stood at Rs. 99,654 crores and Rs. 62,824 crores upto Dec., 2009.

Thus, NABARD provides refinance facility to the state land development banks, state co-operative banks, scheduled commercial banks and regional rural banks. Although the ultimate beneficiaries of investment credit include individuals, partnership concerns, companies, state owned corporations etc.

During 1996-97, NABARD sanctioned short-term credit limits aggregating Rs. 789.9 crore (as on September 1996), which consist an amount of Rs. 552.2 crore for seasonal agricultural operations (SAO) and an amount of Rs. 146.68 crore for other seasonal agricultural operation (SAO) in respect of 103 RRBs.

The outstanding refinance under SAO and other short-term limits for RRBs stood at Rs. 833.11 crore as on end-September, 1996. During 2008-09 NABARD sanctioned Rs. 24,962 crores for seasonal agricultural operation (SAO).

Again the aggregate sanctions by NABARD touched an all-time high of Rs. 14,000 crore in 1997-98, registering a growth of 17 per cent compared to 1996-97. The disbursements by NABARD during the year, including short, medium and long-term, to various agencies, was Rs. 11,110 crore.

The term credit sanctioned by NABARD to commercial banks, co­operatives and to the newly set up agricultural development finance companies was Rs. 4,160 crore in 1997-98 compared to Rs. 3,801 crore in the previous year. The sectors which contributed to agricultural production such as minor irrigation, plantation and horticulture activities absorbed as much as Rs. 1,790 crore during the year.

In January 2006, the Government announced a package for the revival of Short-Term Rural Co-operative Credit Structure involving financial assistance of Rs. 13,596 crore. NABARD has been designated as the implementing agency for the purpose.

States are required to sign MOU with NABARD committing to implement the legal, institutional and other reforms as envisaged in the revival package. So far 21 states have signed MOU with the Government and NABARD. During 2008-09, NABARD sanctioned total credit limits aggregating Rs. 24,962 crores as against Rs. 18,689 crores during 2007-08 for various short-term and medium purposes to SCBs and RCBs and long-term loans to the State Governments.

Revamping of Co-Operative Credit Structure:

In order to revamp the co-operative credit structure, the Government announced a package in January 2006 for the revival of Short-term Rural Co­operative Credit Structure involving financial assistance of Rs. 13,596 crores.

NABARD has been designated as the implementing agency for the purpose. A Department for Co-operative Revival and Reforms has been set up in NABARD for facilitating the implementation process. States are required to sign a MOU with NABARD committing to implement the legal, institutional and other reforms as envisaged in the revival package.

So far 21 states and 3 UTs have agreed to implement the package, out of which 17 states have signed MOU with the Government of India and NABARD. A total sum of Rs. 1,073 crore has been released by NABARD as Government of India’s share under the package to Andhra Pradesh, Madhya Pradesh and Haryana. The Task Force has also submitted its report for revival of long term Co-operatives Credit Structure. Steps have been initiated for implementing the suggestions given in this report.

Agri-Clinic and Agri-Business Schemes of NABARD:

In the meantime, NABARD has already decided to launch its agri-clinic and agri-business centre scheme with an aim to strengthen the transfer of technology for generating employment in agri and allied sectors. The concept of agri-clinic is envisaged to provide export services and counselling to farmers on cropping practices, technology dissemination, crop protection from pests and prices of crops in the market.

The objectives of both agri-clinic and agri-business centres are to supplement the efforts of the government’s extension services to make available supplementary sources of input supply and services to needy farmers.

The scheme has been aimed at providing gainful employment to agriculture graduates (those youths acquiring knowledge in agriculture and on the lookout for scope) in new emerging areas in agriculture and allied sectors. The scheme is open to all agricultural graduates in subjects like horticulture, animal husbandry, fishery, dairy, veterinary, poultry farming, pisciculture and other allied activities.

According to NABARD, the salient features of the agri-clinic and agri­business centres include 100 per cent refinance support to banks and automatic refinance facility upto Rs. 15 lakh.

If in case, the prospective borrowers are not able to provide the required money, the same can be supported out of the soft loan “margin money assistance fund” of the NABARD, subject to maximum cap of 50 per cent of the margin prescribed by banks.

Such loans to banks will be interest free, but banks may charge service charge at three per cent per annum. The project can be taken up by the agriculture graduates either individually or on group basis and the ceiling for the cost of the project by individual is Rs. 10 lakh and by group is Rs. 50 lakh, as fixed by NABARD.

Essay # 4. Other Plans of NABARD:

In order to reduce the farmers’ distress, NABARD has designed a Rs. 2,000 crore plan aimed at helping them earn supplementary income. As part of the strategy, a National Milk Plan, has been launched in 325 districts across the country with help from National Dairy Development Board to ensure that every farmer gets a regular daily subsidiary income to overcome distress during crop failure.

NABARD has also launched an innovative village adoption scheme in July, 2007 for integrated and holistic development of villages. Initially, NABARD proposes to adopt 400 villages which would become a model for development and also rope in the lead banks to expand this initiative. It is expected that every year 1,200 villages are expected to be developed by NABARD and lead banks once this scheme works successfully.

In order to give support to the development of micro finance, NABARD would be setting up an institution with a corpus of Rs. 500 crore in 3 years. These measures are aimed at alleviating the suffering of debt ridden farmers, some of whom even resort to suicide and ensure a regular income during adverse situation besides attaining overall development of villages.

Current Assistance:

In recent years, the amount of assistance sanctioned by NABARD has been increasing. The amount of loan sanctioned by NABARD increased from Rs. 16,867 crore in 2004-05 to Rs. 29,596 crore in 2005-06 and then to Rs. 35,243 crore in 2006-07. Against which the amount of loan disbursed by NABARD was Rs. 12,894 crore in 2004-05, Rs. 25,345 crore in 2005-06 and Rs. 28,139 crore in 2006-07, Rs.18,689 crore in 2007-08 and Rs.24,962 crore in 2008-09.

Five Year Plans and Rural Credit:

Five year plans have made elaborate arrangements for supplying rural credit.

The following table shows the details of rural credit advanced under different plans in India.

Institutional Rural Credit During Plans

Table 1 reveals that total amount of institutional rural credit has increased from Rs. 130 crore during the First Plan to Rs. 1,280 crore during the Third Plan and to Rs. 12,915 crore during the Sixth Plan and then to Rs. 30,425 crore during the Seventh Plan and then finally to Rs. 1,06,753 crore during the Eighth Plan. The total rural credit disbursed by the banking system during the year 2009-10 was to the tune of Rs.3, 84,514 crores.

Working of Recent Schemes Related to Rural Credit:

In recent times, the Government of India has introduced few new schemes related to the supply of rural credit so as to benefit the rural economy of the country- Though rural financial institutions have played a leading role in the provision of rural credit, the rural sector, especially the agricultural sector, is still in need of more credit.

The National Bank for Agricultural and Rural Development (NABARD), which is an apex organisation in the field of rural credit, has taken several initiatives in this regard. Notable developments that have taken place in recent years are the introduction of Kisan Credit Card (KCC) and the linkage of the Self Help Groups (SHGs) with banks.

As against the target of introduction of 20 lakh KCCs indicated in the Union Budget for 1999-2000, the actual number of KCCs issued by the public sector banks in the country was 9.1 lakh during April-December 1999.

The amount sanctioned through these cards was Rs. 2,377 crore, which worked out to Rs. 26,161 per card. At the end of December, 2000, the cumulative achievement in respect of issue of KCCs and the amount of loan sanctioned were Rs. 108.42 lakh and Rs. 21,222 crore respectively.

In order to enable NABARD to leverage its Capital funds for raising more resources, its capital base has been progressively raised from Rs. 500 crore in 1996-97 (at the rate of Rs. 100 crore by GOI and Rs. 400 crore by RBI every year) to Rs. 2,000 crore as on March 31, 1999.

Besides share capital contribution, Reserve Bank has been providing to NABARD a General Line of Credit (GLC) under section 17 (4E) of the RBI Act to enable it to meet the short-term credit requirements of co-operatives and Regional Rural Banks (RRBs).

A line of credit of Rs. 5,700 crore (Rs. 4,850 crore under GLC-1 and Rs. 850 crore under GLC-II) has been sanctioned to NA 3ARD for the year 1999-2000 (July-June) An additional limit of Rs. 400 crore under GLC-I has also been sanctioned in December 1999.

Rural Infrastructure Development Fund (RIDF):

An important development in the area of rural infrastructure finance has been the creation of the Rural Infrastructure Development Fund (RIDF) in 1995-96 in NABARD with a corpus of Rs. 2,000 crore to provide funds to state governments and state owned corporations, so as to enable them to complete various types of rural infrastructure projects. Initially there have been five RIDFs (RIDF-I to RIDF-V) with a total corpus of Rs. 13,500 crore.

The funds for RIDF are mobilised from domestic commercial banks, on the basis of shortfall in their priority sector advances vis-a-vis the stipulated targets. The cumulative sanctions and disbursements out of RIDF amounted to Rs. 12109.33 crore and Rs. 4639.48 crore respectively at the end of November 1999. Analysis of trends in utilisation of RIDF at the state level has revealed considerable shortfall vis-a-vis sanctions.

There have, however, been inter­state variations in this regard. In some states, the utilisation has been poor mainly due to inadequacy of own funds to supplement the provisions under RIDF. In other cases, there have been a wide range of factors which contributed to the relatively poor utilisation of funds.

In order to enable the states to enhance utilisation, the Union Budget for 1999-2000 has widened the scope of RIDF so as to include lending towards Gram Panchayats, Self Help Groups and other eligible institutions for implementing rural infrastructure projects.

Thus, the successive Union Budgets have enhanced allocations to the RIDF corpus and extended the scope of the Fund. The Union Budget for 2001-02 announced the setting up of RIDF-VII with a corpus of Rs. 5,000 crore. At the end of November 2001, the total corpus of RIDF under tranches I to VII amounted to Rs. 23,000 crore. The contribution to RIDF is received by NABARD from Indian scheduled commercial banks against their shortfall in priority sector/agricultural lending during the preceding year.

Total sanctions and disbursements under various tranches of RIDF amounted to Rs. 20,344 crore and Rs. 10,409 crore respectively as on November 30, 2001. Again in February 2002, NABARD has sanctioned Rs. 713.94 crore in loans under RIDF- VII for creation of infrastructure in 12 states.

In the subsequent budgets, the allocation on RIDF was enhanced. In 2008-09 budget, the allocation on RIDF-XIV was enhanced by 14 per cent, i.e., to Rs. 14,000 crore with a separate window for the construction of rural roads with a corpus of Rs. 4,000 crores.

Special Agricultural Credit Plan (SACP):

In order to ensure that the flow of credit to agriculture increases substantially, RBI has evolved a scheme since 1994-95 in which they have advised the banks that they should prepare an annual action plan for disbursement of credit to agriculture under different heads.

Accordingly, each bank is preparing Special Agricultural Credit Plan (SACP), segregated into quarterly targets, which is being monitored by the RBI. As per guidelines, every year banks should plan for at least 25 per cent growth in disbursements over the previous year.