CHAPTER 1

NATIONAL AGRICULTURE AND RURAL DEVELOPMENT BANK

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."

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.

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 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.

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 programs related to rural credit.

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:

o 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.

o The Bank will also provide direct lending to any institution as may approved

by the Central Government.

o The Bank will have organic links with the Reserve Bank and maintain a

close link with in.

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

o 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

o Development functions, concerning reinforcement of the credit functions and

making credit more productive

o Supervisory functions, ensuring the proper functioning of cooperative banks

and regional rural banks

Current Position of NABARD

o In a journey spanning 30 years, 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.

o 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.

o 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.

o 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.

o Farmers now enjoy financial access and security through 925.17 lakh Kisan

Credit Cards that have been issued through a vast rural banking network.

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.

Credit Operations Performed by the Bank

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 upto 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 alongwith 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.

Credit Planning by NABARD

o District Level Planning -

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.

o 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.

o National Level Planning -

NABARD facilitates policy decisions by GoI and RBI in the areas of credit

flow to agriculture and rural development.

2.3 TYPES OF REFINANCE FACILITIES

Agency Credit Facilities

Commercial Banks Long-term credit for investment purposes

Financing the working capital

requirements of Weavers' Co-operative

Societies (WCS) & State Handloom

Development Corporations

Short-term Co-operative

Structure (State Co-operative

Banks, District Central Co-

operative Banks, Primary

Agricultural Credit Societies)

Short-term (crop and other loans)………

Medium-term (conversion)

loans…………

Term loans for investment purposes……..

Financing WCS for production and

marketing purposes

Financing State Handloom Development

Corporations for working capital by State

Co-operative Banks

Long-term Co-operative

Structure (State Co-operative

Agriculture and Rural

Development Banks, Primary

Co-operative Agriculture and

Rural Development Banks)

Term loans for investment purposes

Regional Rural Banks (RRBs) Short-term (crop and other loans)………..

Term loans for investment purposes

State Governments Long-term loans for equity participation

in co-operatives

Rural Infrastructure Development Fund

(RIDF) loans for infrastructure projects

Non-Governmental

Organisations (NGOs) -

Informal Credit Delivery

System

Revolving Fund Assistance for various

micro-credit delivery innovations and

promotional projects under 'Credit and

Financial Services Fund' (CFSF) and

'Rural Promotion Corpus Fund' (RPCF)

respectively

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

Promote sustainable and equitable agriculture and rural prosperity through

effective credit support, related services, institution development and other

innovative initiatives

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.

A

chievements of Nabard

I am delighted to be a part of NABARD’s celebrations of its completion of thirty years. This

is a special occasion for NABARD, of course; but also a special occasion for the Reserve

Bank, for NABARD was incubated in the Reserve Bank before it rolled out as an

independent development financial institution in 1982. The bondage between our two

institutions has not only remained strong but is getting stronger. We share a common goal -

of furthering inclusive growth. We also share significant professional domain because of

our joint responsibility for the flow of agricultural credit.

I.NABARD

2. Over the last three decades, NABARD has grown and evolved from a uni-dimensional

apex financing agency into a multi-dimensional institution for shaping and implementing

the country’s overall rural credit policy. NABARD has been a leader in promoting

microfinance through the SHG-Bank linkage programme. By investing huge energies and

manpower into this programme and drawing upon its myriad roles, NABARD has reached

nearly 97 million households, making India’s microfinance programme the fastest, if not

also the largest, in the world. All of you - management and staff of NABARD - including

those who have retired can be proud of this very credible record of achievement of

NABARD. My congratulations to all of you for serving this great institution so

competently.

3. Completing three decades is an occasion for celebration; it is also an occasion for

introspection - to look back on what you have accomplished and to look ahead to the

challenges on the way forward. I thought the best way I can add value to NABARD’s

celebrations is to do precisely that - to look back and look ahead on the challenges of

agricultural credit - the quintessence of NABARD’s mandate.

II. Importance of Agricultural Credit

4. Starting from Pandit Nehru’s exhortation soon after independence that ‘everything else

can wait, but not agriculture’, agricultural growth has all along been central to India’s

efforts at poverty reduction. We have come a long way from the chronic food shortages and

occasional famines of the immediate post-independence years; even as the population has

increased, we have been able to maintain food self-sufficiency through both extensive

agriculture and productivity improvement. But in recent years, there has been growing

concern about the erosion at the margins of food self-sufficiency. A big challenge for

sustaining food self-sufficiency is raising production which, given that available land is

fixed if not diminishing, has to come from improved productivity. A host of cash and non-

cash inputs is necessary to improve productivity, and an important one is agricultural credit.

5. Development experience shows that credit is an important determinant of value added in

agriculture. A quick assessment by the Reserve Bank of the relationship between

institutional credit to agriculture (from commercial banks, cooperatives and RRBs)

evidences positive and statistically significant elasticity - every 1 per cent increase in real

agricultural credit results in an increase in real agricultural GDP by 0.22 per cent with a

one-year lag.2 Further, the Granger causality test (based on lag length of 1) also indicates

that the causality was unidirectional from agricultural credit to agricultural GDP.

CHAPTER 2

ROLE of NABARD IN RURAL DEVELOPMENT

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 :

o NABARD Warehousing Scheme (NWS)

o Rupay KCC

o Swarojgar credit card schemes

o Farmer’s club programme

o Self help groups

o Kissan credit card schemes

Development and Promotional Functions

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

enables investment in capital formation and technological upgradation. Hence

strengthening of rural financial institutions, which deliver credit to the sector, has

been identified by NABARD as a thrust area. Various initiatives have been taken to

strengthen the cooperative credit structure and the regional rural banks, so that

adequate and timely credit is made available to the needy.

In order to reinforce the credit functions and to make credit more productive,

NABARD has been undertaking a number of developmental and promotional

activities such as:-

Cooperative banks and Regional Rural Banks to prepare development actionsplans

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

RUPAY KCC:

The Kisan Credit Card (KCC) has emerged as an innovative credit delivery mechanism to

meet the production credit requirements of the farmers in a timely and hassle-free

manner. As per the revised guidelines for KCC, the KCC should be a smart card cum

debit card which could be used in the ATMs/Hand held Swipe Machines etc.

RuPay is a new card payment scheme launched by the National Payments Corporation of

India (NPCI), has been conceived to fulfill RBI’s vision to offer a domestic, open-loop,

multilateral system which will allow all Indian banks and financial institutions in India to

participate in electronic payments.

RuPay has come out with its RuPay KCC offering which leverages the benefits of both

KCC and RuPay.

Advantages of RuPay KCC:

1. Unlike Visa and MasterCard networks, RuPay does not charge an entry fee.

2. RuPay is well equipped to handle both the single message and dual messaging

systems.

3. RuPay is a PIN based product so it provides enhanced security.

4. It offers complete web based architecture, so member banks will not have to

develop a separate file based interface.

5. RuPay provides advanced features such as processing of adjustment file to enable

Tip and Surcharge processing on the SMS platform too.

6. Administration costs & quarterly charges are very low when compared to current

international schemes.

7. Unlike normal KCC which serves only as an identity card and facilitate recording

of transactions on an ongoing basis, RuPay KCC is actually a smart card that can

be used at the nearest ATM/PoS for withdrawing cash. It removes the necessity of

going to PACS or a bank branch to operate the account.

NABARD Warehousing Scheme (NWS

Consequent upon the announcement of an allocation of Rs. 5000 crore to NABARD in the

budget for 2013- 14, for supporting creation of infrastructure for storage of agricultural

commodities, Reserve Bank of India (RBI) issued guidelines for creation of Warehouse

Infrastructure Fund (WIF) in NABARD. With a view to operationalising WIF, NABARD

has formulated a scheme viz., NABARD Warehousing Scheme 2013- 14 (NWS), which

envisages extension of loans to Public and Private Sectors for construction of warehouses,

silos, cold storages and other cold chain infrastructure. The Scheme has been approved by

Government of India (Copy enclosed as Appendix).

Funds under this scheme would be utilized for meeting the growing demand for storage

capacity for agricultural commodities in the entire country and also in the wake of

enactment of National Food Security Act 2013. Priority will be given for the projects

proposed in Eastern & North Eastern and food grain deficit states.

The salient features of the Scheme are indicated below:

1 Eligible Institutions/ Entities

State Governments Agencies Owned/ Sponsored by State Govt. Panchayati Raj Institutions (through respective State

Governments)

Agencies owned/ sponsored by Government of India, Special Purpose Vehicles (SPVs) set up under the projects in Public- Private Partnership (PPP) mode, Cooperatives (and their Federations), Farmers’ Producers’ Organizations (FPOs), Federations of Farmers’ Collectives, APMCs, Apex Marketing Boards, Private Companies, Individual Entrepreneurs, etc.

2Activities Covered

Loans will be provided for projects involving creation of storage infrastructure, with a minimum capacity of 5000 metric tons (MT), for agricultural and allied produce including construction of:

a. Warehousesb. Silosc. Cold storage, Controlled Atmosphere (CA) stores, other

cold chain activities like reefer vans, bulk coolers, Individually Quick Frozen units (IQF), chilling/ freezing infrastructure, etc.

Modernization/ improvement of the existing storage infrastructure projects will be considered on merit of each proposal provided it leads to scientific/ additional storage capacity.

3Registration by WDRA

Loans will be provided in respect of only those storage projects, which not only conform to the norms laid down by Warehousing Development and Regulatory Authority (WDRA), but also give an undertaking for obtaining accreditation/ registration from WDRA on completion of the infrastructure.

4 Priority Segments

Funds under this Scheme would be utilized for meeting the growing demand for storage capacity for agricultural commodities and also in the wake of enactment of National Food Security Act 2013 from the following segments:

Food grain procurement agencies, like FCI (including under PEG Scheme), Central Warehousing Corporation (CWC), State Warehousing Corporations (SWCs), State Government Departments/ Agencies, etc.

Panchayats, PACS and other Co-operative Societies (including modernization/ renovation/ repairs of the existing warehouses) for enabling farmers to store their produce and avail concessional post harvest loans

State Civil Supplies Departments/ Corporations for Public Distribution System (PDS) and supply of essential commodities

Private Sector entities for storing food grains as well as other agricultural commodities like pulses, oilseeds, cotton, spices & condiments and perishables, like fruits & vegetables, dairy/ poultry/ meat/ fish products.

Priority will be given for the projects proposed in Eastern & North Eastern Regions and in food grain deficit states.

5Loans to Public Sector

Loans to State Government, Agencies Owned/ sponsored by State Govt. and Panchayats (through State Governments) will be governed by the extant Rural Infrastructure Development Fund (RIDF) guidelines.

6Loans to Private Sector

Direct loans to private sector and to the entities owned/ sponsored by the State Govt., which are not covered by mandate/ guarantee, would be governed by the terms of lending indicated in Annexure– I.

7Implementation Period

The Scheme will be operational during the year 2013- 14.

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

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.

National Bank for Agriculture and Rural Development (NABARD) 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”.

Financial Support from NABARD

Sl.

No.

Name of the

Programme

Maximum

Eligible Grant

other than

NER

North East Region

(including Sikkim

and Andaman &

Nicobar Islands)

1 Maintenance of a

Farmers' Club

Rs. 3,000 per

Club per year

for 3 years.

Rs. 3,000 per Club

year for 5 years

2 Grant if applicable in

the case of KVKs,

NGOs, Agriculture

Universities etc.

Rs. 2,000/- per

Club per year

for 3 years.

Rs. 2,000/- per Club

per year for 3 years.

3 Inauguration Rs. 5000/- Rs. 5000/-

4 Basic Level

Orientation Training

Program (BLOTP)

   

5 "Meet with Experts"

Program

Rs. 1,250 per

meet for 4

meets for 3

years.

Rs. 1,250 per meet

for 4 meets for 3

years.

NABARD would provide financial support for the first three years and for

the next two years the bank sponsoring the club may provide the support, if

necessary. The club is expected to attain self sustainability in a period of 3-5 years.

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.

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 States and Union Territories (except Chandigarh, Daman & Diu

and Dadra & Nagar Haveli) with all Cooperative Banks, RRBs and Commercial

Banks participating.

CHAPTER3

CONCLUSTION

A Refinancing institution in strengthening the rural credit system of India.

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.

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 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.

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.

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.

DISTRICT RURAL INDUSTRIES PROJECT (DRIP)

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.

Maharashtra Rural Credit Project

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

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 Entrepreneurship Development Programme (REDP):

In order to generate employment in rural areas, it was felt necessary to

develop the entrepreneurial skills of the rural youth. REDP is a promotional

programme supported by NABARD to motivate and train educated unemployed

rural youth, to set up their own enterprises. So far, 2.32 lakh persons have been

trained under the program under 7792 REDPs

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.

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.

4.9 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.

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.

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.

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

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 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.

MODEL BANKABLE PROJECTS

Dairy Farming

Dairying is an important source of subsidiary income to small/marginal

farmers and agricultural labourers. The manure from animals provides a good

source of organic matter for improving soil fertility and crop yields. The gober gas

from the dung is used as fuel for domestic purposes as also for running engines for

drawing water from well. The surplus fodder and agricultural by-products are

gainfully utilised for feeding the animals. Almost all draught power for farm

operations and transportation is supplied by bullocks. Since agriculture is mostly

seasonal, there is a possibility of finding employment throughout the year for many

persons through dairy farming. Thus, dairy also provides employment throughout

the year. The main beneficiaries of dairy programmes are small/marginal farmers

and landless labourers. A farmer can earn a gross surplus of about Rs. 12,000 per

year from a unit consisting of 2 milking buffaloes. The capital investment required

for purchase of 2 buffaloes is Rs. 18,223/-. Even after paying a sum of Rs. 4294/-

per annum towards repayment of the loan and interest the farmer can earn a net

surplus of Rs. 6000 - 9000/- approximately per year. (For details see model scheme

enclosed). Even more profits can be earned depending upon the breed of animal,

managerial skills and marketing potential.

According to World Bank estimates about 75 per cent of India's 940 million

people are in 5.87 million villages, cultivating over 145 million hectares of

cropland. Average farm size is about 1.66 hectares. Among 70 million rural

households, 42 per cent operate upto 2 hectares and 37 per cent are landless

households. These landless and small farmers have in their possession 53 per cent

of the animals and produce 51 per cent of the milk. Thus, small/marginal farmers

and land less agricultural labourers play a very important role in milk production of

the country. Dairy farming can also be taken up as a main occupation around big

urban centres where the demand for milk is high.

Scope for Dairy Farming and its National Importance.

The total milk production in the country for the year 2001-02 was estimated

at 84.6 million metric tonnes. At this production, the per capita availability was to

be 226 grams per day against the minimum requirement of 250 grams per day as

recommended by ICMR. Thus, there is a tremendous scope/potential for increasing

the milk production. The population of breeding cows and buffaloes in milk over 3

years of age was 62.6 million and 42.4 million, respectively (1992 census)

Central and State Governments are giving considerable financial assistance

for creating infrastructure facilities for milk production. The nineth plan outlay on

Animal Husbandry and Dairying was Rs. 2345 crores.

Modern and well established scientific principles, practices and skills should

be used to obtain maximum economic benefits from dairy farming. Some of the

major norms and recommended practices are as follows :

State Specific Projects

The Uttarakhand State is strategically located and forms part of the Northern

boundary of the country sharing its borders with Nepal in the East and Tibet

(China) in the North, Himachal in the West and Northwest, Gangetic plains of UP

in the South. It extends between 77o 43’and 81o 02’E Longitude and 28o 43’ to

31o 27’ N Latitude. Starting from the foothills in the South it extends to the snow

clad mountains in the North. The elevation extends from approximately 300 to

7000 m above mean sea level. The highest peak is Nanda Devi (7817 m) in the

Chamoli district. The entire State of Uttarakhand forms a part of the Central

Himalayas. The State is interspersed with rivers, deep valleys, glaciers, Alpine

meadows and high peaks; the state presents a very pristine, pure and picturesque

environment.  

In view of Uttarakhand's advantage as a major horticulture crops producing

state, the state Govt. has taken various steps to tap the resources for integrated

development of horticulture sector ensuring nutritional security, utilization of

wastelands and capture of foreign market. With a holistic approach to improve the

quality and productivity of horticultural crops by integrated implementation of

viable, eco-friendly, refined technologies, and the centrally sponsored scheme on

Technology Mission for Integrated Development of Horticulture in Uttarakhand

was launched on 16th December 2003 in the state. The technology mission was

focused to bring significant increase in production and productivity of horticultural

crops through area expansion under various horticultural crops incorporated with

creation of water sources to ensure availability of water for irrigation and launch

modern and scientific systems of irrigation like Drip/Micro irrigation as water

scarcity in hills and Bhabar areas of Uttarakhand is the major constraint which

influence the crop yield badly.

As a policy to encourage use of such systems, the Govt. of India under

centrally sponsored scheme for small and marginal farmers to increase the

irrigation efficiency, provides subsidy to the extent of 50% of the cost of the

equipment, the balance would be provided by banks as a bank loan. 

Keeping in view the declaration of Litchi Export Zone in Uttarakhand the

use of micro irrigation systems like drip has become all the more essential to

improve the yield and quality of Litchi to compete with the world market. In this

context, an attempt has been made to prepare a Model Drip Irrigation Scheme for

cultivation of one hectare of Litchi in Uttarakhand State. 

Biotechnology

The success of Horticulture development hinges on selection of desired types

of plants and their multiplications. Selection of desired types is based on evaluation

of the quantitative and qualitative performance of plants and also in some cases

their aesthetic appeal. Over the years, the horticulturists have developed various

techniques for selection of desired types of plants and their multiplication. Recently

interesting developments have taken place in the field of plant multiplication which

involves culture of cells or tissues in laboratory.

Traditionally, horticultural plants are multiplied by means of seeds (sexual

propagation) or organs other than seeds (asexual or vegetative propagation). These

organs are usually stems, leaves or roots. Though multiplication by seeds is the

cheapest method, it suffers form certain disadvantages. Plants raised from seeds

may not repeat good performance of mother plants. Many horticultural plants take

a long time to produce seeds/fruits and many of them do not produce viable seeds

or desired quality of seeds. Plants propagated vegetative do not suffer from these

disadvantages. However, vegetative propagation is rather a slow, time and space

consuming process. Besides, it is usually infected with latent diseases. Some plants

are also not amenable to vegetative method of propagation, for example, coconut,

papaya, oil palm, clove etc.

Therefore, scientists started a quest for an alternative method of plant

propagation which could overcome the disadvantages of both the methods

described above. After many trials and errors in the sixties, plant propagation by

tissue culture method, which could overcome disadvantages of propagation by

seeds or vegetative organs, was found commercially successful in the case of

orchids. Subsequently, the method has been perfected for many other plants

(Annexure A). The method (also known as micro-propagation) involves the culture

of whole organism from cells or tissues or plant parts in glass (in vitro) on a

defined medium under germ free conditions (sterile or aseptic), whereas

conventional method of vegetative propagation (macro-propagation) involves

culture of parts into whole organisms in natural conditions (in vitro).

SET BACKS OF NABARD

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.

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 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.

CONTRIBUTION OF NABARD IN RURAL BANIKING

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.

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.

CONTRIBUTION OF NABARD IN RURAL BANIKING

Agricultural credit is considered as one of the most basic input for conducting all

agricultural development programmes. In India there is an immense need for proper

agricultural credit as the economic condition of Indian farmers are very poor. From the

very beginning the prime source of agricultural credit in India was money lenders.

After independence the Govt. adopted the institutional credit approach through various

agencies like co-operatives, commercial banks, regional rural banks etc. to provide

adequate credit to farmers, at a cheaper rate of interest. Moreover with growing

modernization of agriculture during post-green revolution period the requirement of

agricultural credit has increased further in recent years.

Now a days the long term and short term credit needs of these

institutions are also being met by National Bank for Agricultural and Rural

Development (NABARD). It is the evolution of agricultural finance. It was established

in the year 1982, with head office at Mumbai and 16 regional offices throughout the

country. It has the objective of promoting the health and the strength of the credit

institutions which are in the forefront of the delivery system namely, cooperatives,

commercial banks and regional rural bank. It is, in brief, an institution for the purpose

of refinance; with the complementary work of directing, inspecting and supervising

the credit- flows for agricultural and rural development.

The scope of the operations of NABARD is large indeed. Besides

providing finance to credit institutions, it is providing innovations in regard to

formulation of schemes, monitoring of implementation, evaluation of results and

evolution of suitable supporting structures of all kinds of agricultural activities. It is

performing the various functions assumed by it smoothly and efficiently. A rural

infrastructural development fund (RIDF) was established under NABARD in 1995-

96. Every year the resources of RIDE have been augmented to finance rural

infrastructure development project by States. The outstanding refinance from NABARD

by State Co-operative Banks, RRBs and State Governments was Rs. 7,075 crore as at

end June 2002, which was a little higher than Rs. 6,857 crore as at end June 2001. Farm

mechanisation got the highest amount of assistance and the second place went to minor

irrigation. The rest of the amount was distributed for forestation/Plantations, Land

Development, sheep-rearing, poultry farming, dairy farming etc. The National Bank

has vigorously continued its efforts for promoting investments in the agricultural sector

in the less developed/under banked states. U.P., Bihar, M.P., Rajasthan and Orissa in

that order, have been the biggest beneficiaries.

Thus NABARD is taking the necessary steps to revitalise and

rejuvenate the rural economy of India by developing agriculture, small scale and

cottage industries and trading activities in all possible ways.

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 lac

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.

BIBLIOGRAPHY

Magazines

Business world

News papers

Economic Times

Internet

www.nabard.org http://timesofindia.indiatimes.com/topic/Nabardwww.rbi.org.inhttp://nafcard.org