Indian banking system: Development banks: National Bank of Agriculture and Rural Development (NABARD)

National Bank of Agriculture and Rural Development (NABARD) was set up on July 12, 1982 under Act of parliament as a central or apex institutions for financing agricultural and rural sectors.

National Bank for Agriculture and Rural Development (NABARD) is an apex development bank in India. It has been accredited with “matters concerning policy, planning and operations in the field of credit for agriculture and other economic activities in rural areas in India”.

NABARD was established by an act of Parliament on 12 July 1982 to implement the National Bank for Agriculture and Rural Development Act 1981. It replaced the Agricultural Credit Department (ACD) and Rural Planning and Credit Cell (RPCC) of Reserve Bank of India and Agricultural Refinance and Development Corporation (ARDC). It is one of the premiere agencies to provide credit in rural areas.

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. It provides short term finance assistance for period of 18 months to state co-operative banks, commercial banks, RRBs, and so on for wide range of activities in the areas of production, trading, marketing and storage. It also gives loans up to 20 years of maturity to the state government to enable them to subscribe to the share capital of co-operative credit societies. NABARD serves as an apex financing agency for the institutions providing investment and production credit for promoting the various developmental activities in rural areas. NABARD 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.

NABARD co-ordinates the rural financing activities of all institutions engaged in developmental work at the field level and maintains liaison with Government of India, State Governments, Reserve Bank of India (RBI) and other national level institutions concerned with policy formulation and  alsoundertakes monitoring and evaluation of projects refinanced by it.

NABARD’s refinance is available to State Co-operative Agriculture and Rural Development Banks (SCARDBs), State Co-operative Banks (SCBs), Regional Rural Banks (RRBs), Commercial Banks (CBs) and other financial institutions approved by RBI. While the ultimate beneficiaries of investment credit can be individuals, partnership concerns, companies, State-owned corporations or co-operative societies, production credit is generally given to individuals.

NABARD provides:

  • Long term finance for minor irrigation facilities, plantations, horticulture, land development, farm mechanizations, animal husbandry, fisheries etc.
  • Short term loan assistance fir financing of seasonal agricultural operations, marketing of crops, purchase/procurement/distribution of agricultural inputs etc.
  • Medium loan facilities for approved agricultural purposes;
  • Working capital  refinance for handloom weavers
  • Refinance for financing government- sponsored programmes such as IRDP, Rozgar Yogna etc.

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

General aspects of NABARD:

  • NABARD should be a managing agency of Government of India for public investments in rural India.
  • It should be the chief overseer, grand planner for public investment and ensure that each rupee spent in rural India generates a net positive return for rural India.
  • NABARD should not resort to passive funding. NABARD has to make things happen by organizing people and providing knowledge.
  • The strength of NABARD is its good networking capabilities. It can act as a coordinating agency for all the developmental works taking place at the grass roots level.
  • The greatest comparative advantage of NABARD is its ability to decontaminate the effects of subsidy and making public spending more efficient.
  • It is a folly for NABARD to become a Commercial Bank. It is the only institution which can handle public finance better than the government.

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