Project Report on NABARD: Objectives, Functions and Achievements

In this project report we will discuss about:- 1. Objectives of NABARD 2. Functions of NABARD 3. Achievements.

Objectives of NABARD:

The NABARD is an apex development bank which provides help for agricultural and rural development.

It has been established with the following objectives:

1. To give undivided attention and purposeful direction to integrated rural development.

2. To act as a centre piece for the entire rural credit system at the national level.

3. To act as a provider of supplemental funding to rural credit institutions.

4. To arrange for investment credit to small industries, village and cottage industries, handicrafts and other rural crafts, artisans, and farmers.

5. To improve the credit distribution system by institution building, rehabilitation of credit institutions and training of bank personnel.

6. To provide refinance facilities to SLDBs, SCBs, RRBs and commercial banks for development purposes in rural areas.

7. To coordinate the working of different agencies engaged in development work in rural areas at the regional level, and to have liaison with Government of India, RBI, State Governments and other policy making institutions at the national level.

8. To inspect, monitor and evaluate projects getting refinance from the NABARD.

Functions of NABARD:

The functions of NABARD have been divided into three categories:

(a) Credit Distribution;

(b) Development, and

(c) Regulatory.

These are discussed as under:

(a) Credit Distribution

The NABARD provides refinance of various types to the following institutions:

(1) Short Term Credit:

It provides short term credit to State Cooperative Banks (SCBs), Regional Rural Banks (RRBs), and other financial institutions approved by the RBI for the following purposes:

(i) Seasonal agricultural operations;

(ii) Marketing of agricultural produce;

(iii) Marketing and distribution of such inputs as pesticides, fertilisers, etc.;

(iv) Other activities related to rural/agriculture sector;

(v) Real commercial trade activities;

(vi) Production and marketing of the following activities: handicrafts, small industries, village and cottage industries, artisans, silk industry, etc. The duration of short term loans for the above purposes is up to 15 months.

(2) Medium Term Credit:

The NABARD provides medium term credit to SCBs, LDBs, RRBs, and other approved institutions for a period ranging from 18 months to 7 years. The medium term loans are given for investment schemes relating to agriculture and rural sector.

(3) Long Term Credit:

The NABARD provides long term credit to State Land Development Banks, RRBs, commercial banks, SCBs, and to any approved financial institution. It provides refinance for investment in the following activities: minor irrigation, land development, soil conservation; dairy development, sheep rearing, poultry farming, pig rearing, farm mechanisation, afforestation, fish farming, storage and market yard, agricultural operations through aero plane, biogas and other alternative sources of energy, silk production, beekeeping, cattle and cattle driven carts, compost equipment, pump set, and other agricultural and related activities. The duration of the loan is for a period of 25 years.

(4) Facilities for Changes and Rearrangement:

The NABARD provides refinance facilities to SCBs and RRBs in the event of changes and rearrangement of credits when there is drought, famine or other natural calamities, army operations, enemy operations, etc. Such facilities are also provided to loans given to artisans, small industries, etc. The duration of such refinance facilities is not more than 7 years.

(5) Refinancing of Industries in Rural Areas:

The NABARD provides refinancing facilities to all small, village and cottage industries in rural areas.

(b) Developmental Functions:

The NABARD performs the following developmental functions:

(i) Coordinates the rural credit institutions;

(ii) Takes measures towards institution building to improve the capacity of credit delivery system;

(iii) Develops specialisation to solve problems relating to agriculture and villages;

(iv) Helps the Government, RBI, and other institutions in their rural development efforts;

(v) Acts as an agent of the Government and RBI for monitoring work in agricultural related areas;

(vi) Provides facilities for research and training to the staff of RRBs, SCBs, LDBs, .etc. and promotes research in agricultural and rural development activities out of its R & D (Research & Development) Fund. To provide training facilities in the fields of rural banking, and agriculture and rural development, the NABARD has the Banker Rural Development Institute -and National Bank Staff Colleges at Lucknow, Bolpur and Mangalore, and College of Agriculture Banking (CAB) at Pune;

(vii) Spreads information regarding rural banking and development;

(viii) Helps the State Governments so that they may subscribe to the share capital of State Cooperative Banks;

(ix) Provides direct credit in cases approved by the Central Government connected with agriculture and rural development; and

(x) Maintains an Easy Credit Aid Fund out of its profits so that entrepreneurs getting refinance facilities for village, cottage and very small industries may be provided margin money. This help is given interest-free and is recovered in yearly instalments after the loan is repaid.

(c) Regulatory Functions:

The NABARD also performs the following regulatory functions:

(i) It inspects the working of RRBs and cooperative banks of all types except the primary cooperative banks,

(ii) It also inspects apex cooperative marketing federations, state handloom weaving societies, etc. which are financed on voluntary basis,

(iii) All applications for opening of a branch by the RRB or a cooperative bank, other than a primary cooperative society, are required to be submitted to the RBI through the NABARD.

(iv) All RRBs and cooperative banks submitting returns to the RBI are required to furnish a copy of returns to the NABARD.

(v) It is empowered to obtain any information or statement from the RRBs and cooperative banks.

(d) Recent Additions to Its Functions:

For the last few years a number of additions have been made the functions of NABARD relating to farm and non-farm sectors in order to make it more broad-based. They are:

(i) Farm Sector:

The National Bank has been engaged in reorienting its policies relating to the farm sector in tune with emerging needs. Accordingly, it has taken some major initiatives for promoting agriculture and rural development.

These include:

(1) Refinement and updating of Potential Linked Credit Plans (PLCPs) and their synthesis with Service Area Plans (S APs);

(2) Introduction of full refinance scheme in those districts where such synthesis has taken place;

(3) Rationalization and liberalisation of eligibility criteria for refinance of term credit;

(4) Introduction of Self Help Groups Scheme for providing institutional credit to weaker sections;

(5) Rationalisation of interest rate structure for ultimate borrowers;

(6) Issuance of guidelines to banks on new/ innovative schemes for diversification of lending under agriculture; and

(7) Creation of a Cooperative Development Fund to promote institutional strengthening activities.

(ii) Non-Farm Sector:

For accelerating the development of non-farm sector, NABARD has taken the following initiatives:

(1) Introduction of Small Road Transport Scheme for automatic refinance to all banks for financing transport vehicles to carry farm produce and products of village industries for marketing;

(2) Project finance for commercial banks for financing non-agro small industry units;

(3) Assisting Khadi and Village Industries Centres in modifying their schemes so as to conform them to banking norms and bringing them under automatic refinance facility;

(4) Formation of an Advisory Committee for the non-farm sector in its office to guide in the formulation of policies to promote non-farm sector and to introduce innovative schemes;

(5) Appointment of technical experts in non-farm sector at its offices in order to identify, formulate and appraise schemes and conduct surveys for estimating industrial potential;

(6) Formulation of District Rural Industries Project; and

(7) Setting up of Agriculture and Rural Enterprises Incubation Fund.

Its Resources:

The authorised capital of NABARD has been raised from Rs.500 crores to Rs.5,000 crores effective 1 February, 2001 with equal contributions by the RBI and Government of India. Besides share capital contribution, the RBI has been providing the NABARD a General Line of Credit (GLC) I & II to meet the short-term credit requirements of cooperatives and RRBs.

Its other resources consist of National Rural Credit Funds, reserves and surplus, deposits and borrowings. In addition, the Union Government provides funds received from the World Bank Group. IF AD, EU and other countries. The aggregate resources mobilised by NABARD through various sources amounted to Rs.5,786 crores during 2002-03.

Its Organisation:

The NABARD is managed by a 15-member Board of Directors consisting of Chairman, Managing Director, two experts of rural economies, three experts from cooperative and commercial banks, three directors from the current directors of the RBI, three directors from the Government of India, and two directors representing the State Governments.

Achievements of NABARD:

The NABARD is an apex institution in the organised rural credit structure. It plays an important role in reducing regional disparities and helps small farmers, marginal farmers and the weaker sections of the society. It channelizes its refinance facilities for agricultural and rural development in the country through major financial intermediaries like SCBs, SLDBs, RRBs, commercial banks, etc.

1. Short Term Credit:

During 2002-03, it sanctioned Rs.8,764 crores as short term credit to SCBs and RRBs for financing seasonal agricultural operations, marketing of crops, purchase and distribution of fertilisers, and working capital requirements of cooperative sugar factories.

2. Medium Term Credit:

The NABARD sanctioned Rs.496 crores in 2002-03 as medium term credit to SCBs and RRBs for approved agricultural purposes.

3. Long Term Credit:

The NABARD provides long term loans not exceeding 20 years to State Governments to enable them to contribute to the share capital of the cooperative credit institutions. In 2002-03 it sanctioned Rs.62 crores to State Governments for this purposes.

4. Schematic Lending:

The NABARD provides refinance facilities relating to minor irrigation, land development, farm mechanisation, plantation, horticulture, poultry, sheep breeding, piggery, fisheries, dairy development, storage, market yards, IRDP, etc.

5. Assistance to Non-Farm Sector:

The NABARD provides financial assistance to the non-farm sector. The ceiling on individual loans under Composite Loan Scheme is Rs.50,000 and under Integrated Loan Scheme Rs.7.5 lakhs to enable the financing banks to meet the credit requirements of entrepreneurs for setting up cottage, tiny, village and small scale industries.

Further, State Cooperative Banks have been permitted to get refinance on an automatic basis from the NABARD through CCBs for financing industrial cooperative societies up to Rs. 7.5 lakhs. The Integrated Loan Scheme has also been extended to Land Development Banks for financing non-farm activities up to Rs. 7.5 lakhs.

SCBs have been permitted to draw refinance on automatic basis for loans to industrial cooperative Societies for modernisation of existing units up to Rs. 7.5 lakhs. With the introduction of Swarnajayanti Gram Swarozgar Yojna from April 1999 in rural areas, the NABARD provides refinance to commercial banks for loans extended by them under the scheme.

A wide spectrum of activities covering agricultural allied activities, industries, services and business that are bankable and viable are eligible for refinance.

6. Other Types of Assistance:

The NABARD has started the following types of assistance recently:

(a) It undertakes on a modest scale co-financing/direct financing of hi-tech and other special projects.

(b) Beginning 1995-96, it has started sanctioning a separate Short Term (Seasonal Agricultural Operations) Credit limit to each of the SCBs/RRBs operating in the 114 identified districts in the country.

(c) To step up credit flow to weaker sections including SCs/STs, the NABARD has earmarked a sum of Rs. 150 crores for refinance under the “SC/ST Action Plan” for allocation among commercial and cooperative banks. The level of refinance is 100 per cent.

7. Institutional Development:

One of its important function is institutional development. In addition to inspection of cooperative banks and RRBs, it helps in their rehabilitation, reorganisation and re-establishment.

8. Cooperative Development Fund (CDF):

NABARD set up CDF in 1993 for strengthening the cooperative credit institutions in the areas of organisational structure, human resource development, resource mobilisation, recovery position, etc. The assistance is provided to SCBs, CCBs, etc. by way of a grant or a soft loan or both. At the end of March 2003, cumulative loans sanctioned from CDF amounted to Rs. 65 crores.

9. Rural Infrastructure Development Fund (RIDF):

KIDF-I was set up in 1995-96 with a corpus of Rs. 2,000 crores for providing funds to State Governments and State owned corporations to enable them to complete various types of rural infrastructure projects. This scheme had been continued in subsequent years as RIDP-II with Rs.2,500 crores in 1996-97, RIDF-III with Rs. 2,500 crores in 1997-98, RIDF-IV with Rs. 3,000 crores in 1998- 99, RIDF-V with Rs. 3,500 crores in 1999-2000, RIDF-VI with Rs. 4,500 crores in 2000-01, RIDF-VIl with Rs. 5,000 crores in 2001-02, RIDF-VIII with Rs. 5,500 crores in 2002-03 and RIDF-IX with Rs. 5,500 crores in 2003-04.

The amount mobilised under various RIDF schemes amounted to Rs. 16,145 crores as at ending March 2002. The cumulative sanctions of loans under RIDF were Rs. 29,475 crores as at 31 March, 2003.

10. Memorandum of Understandings (MOUs):

The NABARD signs MOUs with the’ Cooperative banks and the concerned State Government for revamping and improving the cooperative credit structure. Similar MOUs exist between the RRBs and the sponsor banks.

11. Research and Development:

It has been providing financial assistance for research and training to the staff of rural banking structure out of its R & D Fund and for strengthening the technical, monitoring, and evaluation cells of RRBs. Its three staff colleges, CAB, and Banker Rural Development Institute have been providing research and training facilities in rural credit and development to the staff of banks. Despite its manifold achievements, NABARD has yet to become an apex regulator and development bank for farm lending.

Views of the Khusro Committee:

The ACRS or Khusro Committee in its Report published in January 1989 pointed out certain weaknesses and made suggestions to improve the working of NABARD.

Some of these are as under:

1. NABARD’s activities in institutional development are primarily reactive rather than proactive in nature. It should therefore undertake a more effective role in institutional development, particularly with regard to cooperative development. Its role should be one o( policy planning and review, besides extension of necessary financial assistance.

2. The inspection function of NABARD is not integrated with refinancing and institutional development function. It should redefine the purpose and objectives of inspections to facilitate such integration.

3. The training of NABARD’s staff should be separated from that of client banks.

4. R & D Fund should be used much more aggressively and imaginatively to identify, evaluate, develop and promote new and practical initiatives in rural development.

5. It has to find resources to meet its client banks’ demand for investment loans which it will have to provide in an increasing measure in the next 10-12 years. If NABARD has to expand its operations, either its equity base should be strengthened or low cost borrowings should be resorted to at a concessional rate of 5.5 percent from GOI/RBI.

6. There is lack of control over NABARD’s member institutions. It should be rectified with the help of and in coordination with RBI.

The Khusro Committee observed, “If NABARD has to emerge as a strong development bank of rural regeneration, it has to take certain fresh initiatives. It should concentrate more on building up of the cooperatives, improve its functional capabilities in project identification, preparation, appraisal, and monitoring, forge a better linkage between inspection and function, pay greater attention to-the non-farm sector and staff training and extend its network to the district level. NABARD will have to play its part in open market borrowing also, so that it could meet its refinance commitments.”