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Introduction

NABARD is set up as an apex Development Bank with a mandate for facilitating credit flow for
promotion and development of agriculture, small-scale industries, cottage and village
industries, handicrafts and other rural crafts. It also has the mandate to support all other allied
economic activities in rural areas, promote integrated and sustainable rural development and
secure prosperity of rural areas. In discharging its role as a facilitator for rural prosperity
NABARD is entrusted with

1. Providing refinance to lending institutions in rural areas

2. Bringing about or promoting institutional development and

3. Evaluating, monitoring and inspecting the client banks

Besides this pivotal role, NABARD also:

• Acts as a coordinator in the operations of rural credit institutions

• Extends assistance to the government, the Reserve Bank of India and other organizations
in matters relating to rural development

• Offers training and research facilities for banks, cooperatives and organizations working in
the field of rural development

• Helps the state governments in reaching their targets of providing assistance to eligible
institutions in agriculture and rural development

Acts as regulator for cooperative banks and RRBs

Some of the milestones in NABARD's activities are:

• Refinance disbursement under ST-Agri & Others and MT-Conversion/ Liquidity support
aggregated Rs.16952.83 crore during 2007-08.

• Refinance disbursement under Investment Credit to commercial banks, state cooperative


banks, state cooperative agriculture and rural development banks, RRBs and other eligible
financial institutions during 2007-08 aggregated Rs.9046.27 crore.

• Through the Rural Infrastructure Development Fund (RIDF) Rs.8034.93 crores were
disbursed during 2007-08. With this, a cumulative amount of Rs.74073.41 crore has been
sanctioned for 280227 projects as on 31 March 2008 covering irrigation, rural roads and
bridges, health and education, soil conservation, drinking water schemes, flood protection,
forest management etc.

• Under Watershed Development Fund with a corpus of Rs.613.71 crore as on 31 March 2008,
416 projects in 94 districts of 14 states have benefited.

• Farmers now enjoy hassle free access to credit and security through 714.68 lakh Kisan
Credit Cards that have been issued through a vast rural banking network.

• Under the Farmers' Club Programme, a total of 28226 clubs covering 61789 villages in 555
districts have been formed, helping farmers get access to credit, technology and extension
services.

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Genesis and Historical Background

The Committee to Review Arrangements for Institutional Credit for Agriculture and Rural
Development (CRAFICARD) set up by the RBI under the Chairmanship of
Shri B Sivaraman in its report submitted to Governor, Reserve Bank of India on November 28,
1979 recommended the establishment of NABARD. The Parliament through the Act 61 of 81,
approved its setting up. The Committee after reviewing the arrangements came to the
conclusion that a new arrangement would be necessary at the national level for achieving the
desired focus and thrust towards integration of credit activities in the context of the strategy
for Integrated Rural Development. Against the backdrop of the massive credit needs of rural
development and the need to uplift the weaker sections in the rural areas within a given time
horizon the arrangement called for a separate institutional set-up. Similarly. The Reserve Bank
had onerous responsibilities to discharge in respect of its many basic functions of central
banking in monetary and credit regulations and was not therefore in a position to devote
undivided attention to the operational details of the emerging complex credit problems. This
paved the way for the establishment of NABARD. CRAFICARD also found it prudent to
integrate short term, medium term and long-term credit structure for the agriculture sector by
establishing a new bank. NABARD is the result of this recommendation. It was set up with an
initial capital of Rs 100 crore, which was enhanced to Rs 2,000 crore, fully subscribed by the
Government of India and the RBI.

Mission

Promoting sustainable and equitable agriculture and rural development through effective
credit support, related services, institution building and other innovative initiatives. In
pursuing this mission, NABARD focuses its activities on: Credit functions, involving
preparation of potential-linked credit plans annually for all districts of the country for
identification of credit potential, monitoring the flow of ground level rural credit, issuing policy
and operational guidelines to rural financing institutions and providing credit facilities to
eligible institutions under various programmes Development functions, concerning
reinforcement of the credit functions and making credit more productive Supervisory
functions, ensuring the proper functioning of cooperative banks and regional rural banks

Objectives

NABARD was established in terms of the Preamble to the Act, "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 : 1. 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.
2. The Bank will serve as a refinancing institution for institutional credit such as long-term,
short-term for the promotion of activities in the rural areas. 3. The Bank will also provide
direct lending to any institution as may approved by the Central Government. 4. The Bank will
have organic links with the Reserve Bank and maintain a close link with in.

Major Activities
• Preparing of Potential Linked Credit Plans for identification of exploitable potentials under
agriculture and other activities available for development through bank credit.

• Refinancing banks for extending loans for investment and production purpose in rural areas.

• Providing loans to State Government/Non Government Organizations (NGOs)/Panchayati Raj


Institutions (PRIs) for developing rural infrastructure.

• Supporting credit innovations of Non Government Organizations (NGOs) and other non-formal
agencies.

• Extending formal banking services to the unreached rural poor by evolving a supplementary
credit delivery strategy in a cost effective manner by promoting Self Help Groups (SHGs)

• Promoting participatory watershed development for enhancing productivity and profitability


of rainfed agriculture in a sustainable manner.

• On-site inspection of cooperative banks and Regional Rural Banks (RRBs) and iff-site
surveillance over health of cooperatives andRRBs.

Organization Structure

Role and Functions

• 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

NABARD and its Role in Training


• National Bank Staff College, Lucknow
• National Bank Training Centre, Lucknow
• Zonal Training Centre, Hyderabad
• Regional Training Centre, Mangalore
• Regional Training Centre, Bolpur
• Bankers Institute of Rural Development (BIRD), Lucknow

The provisions of the Act as stated below very clearly indicate the nature and scope of the
developmental mandate of the Bank and its role in training and capacity building with the
underlying belief that the process of development cannot be accomplished by credit/refinance
alone.

Section 38 of the NABARD Act provides that the Bank shall:

• maintain expert staff to study all problems relating to agriculture and rural development and
be available for consultation to the Central Government, the Reserve Bank, the State
Governments and the other institutions engaged in the field of rural development.

• provide facilities for training, for dissemination of information and the promotion of research
including the undertaking of studies, researches, techno-economic and other surveys in the
field of rural banking, agriculture and rural development.

• provide technical, legal, financial, marketing and administrative assistance to any person
engaged in agriculture and rural development activities;

• may provide consultancy services in the field of agriculture and rural development and other
related matters in or outside India, on such terms and against such remuneration, as may be
agreed upon;

In this context, the role of training in NABARD and the role played by it for capacity building in
client institutions, partner agencies and other developmental agencies is important.

For maintaining 'Expert Staff', the bank needs to provide continuous exposure to its officers
and staff for upscaling their knowledge and skills in core areas. However, in the initial years
the Bank had recruited expert staff from various technical disciplines and created a separate
cadre of officers. These officers were involved in formulating, appraising, monitoring and
evaluating different agricultural projects implemented by different credit agencies.These
officers, irrespective of their academic background, were imparted similar type of training as
all other officers. Their placements and the regular job rotations helped in grooming them to
take up assorted assignments, get involved in a variety of roles and functions including credit,
developmental, promotional, supervisory and necessary support and information for decision
making. The Bank also had access to their specialised skills which were utilised whenever
needed.

In pursuance of the Bank's mandate as stated in the Act, the Bank provides training facilities
for the RFIs and agencies involved in rural development through BIRD and the two RTCs. With a
view to broadbase the training and capacity building efforts, the Bank encourages the RFIs to
set up their own training systems and provides these training institutes the necessary support
to conduct meaningful and quality training. Options and avenues for strengthening the training
interventions at the client level are continuously examined so that the human resources in
these institutions are developed to take on the challenges, reckon with the competition,
improve customer service, expand outreach, develop suitable products and thereby contribute
to rural development.

As NABARD primarily functions through other agencies, the needs of the client
institutions largely determine the knowledge and skill requirements of NABARD
officers.

NABARD endeavours to blend the experiences of client bank training with the training for
NABARD officers so as to make training meaningful and relevant to their roles. Efforts are also
made to blend the study findings with the outcome from training to periodically measure the
overall impact of the investments made in the training efforts.

Credit functions

Introduction

NABARD's credit functions cover planning, dispensation and monitoring of credit.

This activity involves:

• Framing policy and guidelines for rural financial institutions

• Providing credit facilities to issuing organizations

• Preparation of potential-linked credit plans annually for all districts for identification of
credit potential

• Monitoring the flow of ground level rural credit

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 Short-term (crop and other loans)
Structure (State Co-operative
Banks, Medium-term (conversion) loans
District Central Co-
operative Banks, Primary
Agricultural Credit Societies) 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 Term loans for investment purposes
Structure
(State Co-operative Pilot scheme for financing short term loans in three states
Agriculture and Rural
Development Banks,
Primary Co-operative
Agriculture and Rural
Development Banks)
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 Revolving Fund Assistance for various micro-credit delivery
Organisations (NGOs) - innovations and promotional projects under 'Credit and Financial
Informal Credit Delivery Services Fund' (CFSF) and 'Rural Promotion Corpus Fund' (RPCF)
System respectively

Criteria for refinance


1. Technical feasibility of the project and adequate response from prospective beneficiaries
2. Financial viability and adequate incremental income to ultimate borrower to repay the loan
within a reasonable period 3. Organisational capability to ensure close supervision The
refinance is provided to SCARDBs, SCBs, CBs and RRBs. However, the beneficiaries of the
programme are partnership concerns, companies, state-owned corporations or cooperative
societies. But, finally the assistance reaches the individuals, who are members of the primary
credit institutions. The refinance is usually 50% to 95% of the project cost. The balance will
be met by the banks and the concerned state governments or the Government of India in the
case of SCARDBs. With a view to ensure credit flow to certain thrust areas, the quantum of
refinance is enhanced to 100% as in the case of special category beneficiaries like SC/ST
members and self help groups.

Interest Rates

Margin mon

Special focus

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

Monitoring

• Special attention is paid to monitoring the projects that are offered assistance so that the
targets are met and the implementation is properly done. An evaluation of the project is taken
up and in the light of the findings the quality of the projects and their implementation methods
can be improved. District-oriented monitoring studies are conducted to evaluate the
performance of the ongoing agricultural development schemes sanctioned. Specific sector
studies are also undertaken like floriculture, mushroom, aqua culture, agro-processing, etc. to
get an insight into the problems and prospects of these sectors.

• Guidelines are often issued for formulation of high-tech and export-oriented projects in farm
and non-farm sectors. Besides, even consultancy is also offered for projects, including
appraisal of projects even in cases where refinance is not secured from the bank.
Direct Credit

Direct credit from NABARD constitutes loans to State Governments.

Supporting Cooperatives

In order to strengthen the owned funds position of cooperative credit institutions and thereby
increasing their capacity to leverage larger resources, NABARD provides loans to State
Governments to contribute to the share capital of these institutions.

Rural Infrastructure Development

With the objective of assisting State Governments in the completion of ongoing rural
infrastructure projects and to take up new infrastructure projects, the Rural Infrastructure
Development Fund (RIDF) was set up with NABARD in 1995-96 with contributions from
Commercial banks by way of deposits. The shortfall in agri/priority sector lending was
deposited by the commercial banks with NABARD as part of their contribution to the RIDF. The
total corpus covering RIDF I (1995-96) to X (2004-05) is Rs. 42,000 crore. Sanctions under all
trenches of RIDF as on 31 March 2005 were Rs.42948.51 crore against which the
disbursements were Rs. 25384.02 cr.

Anticipated Benefits

It is anticipated that the projects sanctioned upto 31 March 2005 under RIDF would result in:

Creation of additional irrigation potential in 92.47 lakh ha.

Addition of 178000 km of rural road network & 331000 meter bridge length

Contribution to the GDP to the tune of Rs. 11058 crore

Generation of recurring employment of 48.01 lakh jobs and non-recurring employment of
13681 lakh man days due to increased irrigation

Generation of non-recurring employment expected from non-irrigation projects: 23238 lakh
person days

Co-financing

To ensure substantial credit flow to agriculture and rural sector and to instill confidence in
banks for financing hi-tech/export oriented agriculture projects involving large financial
outlays/sunrise technologies, etc., NABARD has entered into agreements for co-financing with
12 Commercial Banks thereby sharing the credit risks with partner banks.

Under this arrangement, projects have been sanctioned in areas like floriculture, organic
farming, milk processing, ethanol production, infrastructure development and forestry.

Bulk-lending/ Revolving Fund Assistance

NABARD provides bulk-lending facilities to NGOs. As on 31.3.2005, 30 agencies have been


sanctioned assistance of Rs 27.07 crore against which Rs.15.18 crore has been disbursed.

Production Credit

This is a short-term refinance facility, aimed at supporting


Agricultural production operations and marketing of crops by farmers and farmers cooperatives

Marketing and distribution of inputs like fertilizers, seeds and pesticides

Production and marketing activities of village cottage industries, handicrafts, handlooms,
powerlooms, artisans, small scale and tiny industries and other rural non-farm enterprises

Eligible institutions for this facility are State Cooperative Banks (SCBs) and Regional Rural
Banks (RRBs). The period of credit is 12 months.

Short Term Credit

1. Seasonal Agricultural Operations (SAO)

New line of credit for financing short-term agricultural /allied and


marketing activities

To provide liquidity to the cooperative banks and to boost credit flow to the agriculture sector,
a new line of credit was introduced in 2003-04 encompassing loans for agricultural purposes
against security of gold and security other than charge on crops, working capital credit for
allied agriculture activities, working capital credit for procurement and distribution of
agriculture inputs, marketing of agriculture/allied products, collection and marketing of minor
forest produce etc and short-term credit support provided to cultivators for higher scales of
finance for commercialisation of agriculture, exports and value addition.

2. Marketing of Crops

With a view to improve the flow of marketing credit to cultivators for augmenting their holding
capacity and checking incidence of distress sale, NABARD encourages cooperative banks and
RRBs to finance marketing of crops, through its refinance facility for this purpose. Each drawal
against the sanctioned credit limit is repayable within a maximum period of 12 months.

3. Distribution of agri inputs

With a view to ensuring timely supply of agri inputs like fertilizers, pesticides etc. a line of
credit is made available to cooperative banks for financing Apex/Primary Societies for stocking
and distribution of agri inputs by way of sanction of yearly limits. Each drawal is repayable
within a period of 120 days.

4. Pisciculture Activities

Refinance facilities is extended to cooperative banks and RRBs for meeting the working capital
requirements of farmers in pisciculture activities by way of sanction of ST credit limits. Each
drawal is repayable within 12 months.

5. Other than SAO (OSAO)

Refinance is available to cooperative banks for financing the working capital requirement of
PWCS/Apex Weavers' Society, working capital requirements of industrial societies, financing
individual rural artisans, etc. Each drawal against the sanctioned credit limit is repayable within
12 months. OSAO refinance is available to RRBs for financing production and marketing
activities of artisans, village industries and also for financing persons belonging to weaker
sections engaged in trade/business/services. Refinance support is also available to commercial
banks for financing the working capital requirements of PWCS.

Refinance support is available to SCBs and CBs for meeting working capital requirements of
State Handloom Development Corporations (SHnDCs).

Special Initiatives
Special line of credit for oilseeds and pulses production

Special line of credit for development of tribals in predominantly tribal areas

Liquidity support to cooperative banks and RRBs for providing relief to farmers in distress and
farmers in arrears

Revision in methodology for fixing scale of finance

Refinance against Investment Credit

This is a long-term refinance facility. It is intended to create income


generating assets in the following:

Agriculture and allied activities



Artisans, small scale industries, tiny sector, village and cottage industries, handicrafts,
handlooms, powerlooms, etc.

Activities of voluntary agencies and self help groups working among the rural poor

The credit is normally provided for a period of 3 to 15 years.

Investment credit leads to capital formation through asset creation. It induces technological
upgradation resulting in increased production, productivity and incremental income to farmers
and entrepreneurs.

Eligible Institutions

SCARDBs, SCBs, RRBs, CBs, Scheduled Primary Urban Cooperative Banks, North East
Development Finance Corporation Ltd. (NEDFI) and NBFCs are eligible from NABARD for their
investment credit in the rural sector.

Eligible Purposes

Some of the major purposes covered under Investment credit are Minor Irrigation, farm
mechanisation, plantation/ horticulture, animal husbandry, storage/market yards, fisheries,
post-harvest management, food/agro processing, non-farm sector including rural industries,
microfinance, purchase of land (for small/marginal Farmers, share croppers etc.), rural housing
and disbursements under poverty alleviation programmes like SGSY and SC/ST Action Plan etc.
Hi-tech projects and agri-export zones are identified as thrust areas and NABARD helps in
techno-financial appraisal of such projects besides providing refinance.

In recent years, refinance support has been extended to new activities like financing of diesel
generator sets in Madhya Pradesh and LPG kits to rural households all over the country.

Criteria

The technical feasibility of the project, financial viability and generation of incremental income
to ultimate borrowers thereby enabling them to have a reasonable surplus after repayment of
the loan installments are the necessary conditions to be satisfied for sanctioning investment
credit. The period of loan ranges between 3 and 15 years depending on the purpose for which
it is provided.
The beneficiaries of the programme are individuals / group of individuals, SHGs, proprietory /
partnership concerns, companies, state-owned corporations or cooperative societies.

The refinance is usually 90% to 100% of the loan amount. The balance, wherever applicable,
will be met by the banks or the concerned state governments or the Government of India in
the case of SCARDBs. With a view to ensure credit flow to certain thrust areas, such as special
category beneficiaries like SC/ST members, self help groups, etc., the quantum of refinance is
enhanced to 100%.

Interim Finance

SCARDBs are being extended interim finance in order to enable them to provide investment
credit to ultimate borrowers for eligible purposes and avail refinance within 3 months against
the same.

http://www.nabard.org/creditfunctions/investmentcredit.asp

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