CHAPTER 1

CONCEPT OF NABARD

1. 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
programmes 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

1
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.

1.1 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

2
State-level engaged in the development of small-scale industries, rural crafts, etc.
for giving effect to the various policies and programmes related to rural credit.

1.2. 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

3
crore, which was enhanced to Rs 2,000 crore, fully subscribed by the Government
of India and the RBI.

1.3 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:

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.

The Bank will also provide direct lending to any institution as may approved by the
Central Government.

The Bank will have organic links with the Reserve Bank and maintain a close link
with in.

1.4 Mission
Promoting sustainable and equitable agriculture and rural development through
effective credit support, related services, institution building and other innovative
initiatives.

4
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

CHAPTER 2

What is NABARD?

5
 National Bank for Agriculture & Rural Development

2 INTRODUCTION

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.

NABARD is established as a development Bank, in terms of the Preamble of

the Act, "for providing and regulating Credit and other facilities for the promotion
and development 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 integrated rural development and securing prosperity of
rural areas and for matters connected therewith or incidental thereto

The National Bank for Agriculture & Rural Development (NABARD) : was
setup by an act of 1981. The objective of the Bank was to provide credit for
promotion of Agriculture, small-scale Industry, cottage and village industries,
handicrafts and other rural crafts and other allied economic activities in rural area
with a view to promote integrated rural development and to secure prosperity of rural
area and for matters connected therewith or incidental thereto.

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

6
Providing refinance to lending institutions in rural areas

Bringing about or promoting institutional development and

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.

2.1 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.

7
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

2.2 REGIONAL OFFICES OF NABARD ALL OVER INDIA

8
NABARD operates throughout the country through its 28 Regional Offices and one
Sub-office, located in the capitals of all the states/union territories. It has 336 District
Offices across the country, one Sub-office at Port Blair and one special Cell at
Srinagar. It also has 6 training establishments.

9
2.3 Organization Structure

10
2.4 NABARD and its Role in Training
National Bank Staff College, Lucknow
National Bank Training Centre, Lucknow
Zonal Training Centre, Hyderabad
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 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.

11
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.

12
 CHAPTER 3

FUNCTIONS OF NABARD

CREDIT ROLE

 3 Introduction

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.

13
  3.1 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.

14
 Moreover, the new bank can contribute to the share capital or invest in the
securities of any institutions concerned with agriculture or rural development.

 3.2 Credit Planning by NABARD :

3.2.1 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.

3.2.2 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.

15
3.2.3National Level Planning -

NABARD facilitates policy decisions by GoI and RBI in the areas of credit flow to
agriculture and rural development.

 3.3 RESOURCE FOR THE OPERATIONS :

For its short-term operations, the National Bank will borrow funds from the Reserve
Bank in the form of Line of Credit under Section 17 (4E) of the Reserve Bank of
India Act which permitted the Reserve Bank to grant short-term loans to the
Agricultural Refinance and Development Corporation earlier and which has now
been amended suitably by the National Bank for Agriculture and Rural Development
Act .

For its term-loan operations, the National Bank will draw funds, as the Corporation
was doing earlier, from the Central Government, World Bank/IDA, and other
multilateral and bilateral aid agencies, the market and National Rural Credits (long-
term operations). Fund that it has established. To this Fund has been transferred the
balance in the National Agricultural Credit (Long term operations). Funds
maintained by the Reserve Bank. Further contributions would be made annually to
the new Fund by the Reserve Bank in addition to the contributions by the National
Bank itself. Provision has been made also for the Central Government and the State
Governments to contribute to this Fund from time to time.

16
3.4 CREDIT STRUCTURE OF NABARD

Fig 3.4. 1

17
3.5 Interest Rates

3.5.1 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.

3.5.2 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.

3.5.3 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,

18
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.

3.6Direct Credit

3.6.1 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.

3.6.2 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.

19
Rural Infrastructure

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.

CHAPTER 4

20
 PROMOTIONAL ROLE of NABARD

 4 INTRODUCTION

Promotion of RNFS has been recognized as an important and necessary adjunct to

the refinancing function. The objective of promotional programmes 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 :

 Swarojgar credit card schemes

 Farmer’s club programme
 Self help groups
 Kissan credit card schemes
 Many more

4.1 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.

21
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:-

Help 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

Help 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

22
Provide financial assistance to cooperative banks for building improved
management information system, computerisation of operations and development of
human resources

4.2 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. As on 31
March 2004, 28,925 cards were issued by CBs, Coop Banks and RRBs involving
credit limit of Rs. 64.26 crore

4.3 Farmers' Club Programme

What are Farmers' Clubs?

23
 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.

What is Farmers' Club Programme ?

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”.

Mission

Development in rural areas through credit, technology transfer, awareness and

capacity building.

Membership

All villagers except willful defaulters can become members of the club. The club
must make endeavour to raise their own resources by way of contribution from
members, undertaking certain business services such as bulk procurement of inputs
and collective marketing of agricultural produce, etc.
24
Financial Support from NABARD

Sl. No. Name of the Programme Maximum Eligible North East Region
Grant other than
(including Sikkim and
NER
Andaman & Nicobar
Islands)
1 Maintenance of a Rs. 3,000 per Club Rs. 3,000 per Club year for
Farmers' Club per year for 3 years. 5 years
2 Grant if applicable in the Rs. 2,000/- per Rs. 2,000/- per Club per
case of KVKs, NGOs, Club per year for 3 year for 3 years.
Agriculture Universities years.
etc.
3 Inauguration Rs. 5000/- Rs. 5000/-
4 Basic Level Orientation
Training Program
(BLOTP)
5 "Meet with Experts" Rs. 1,250 per meet Rs. 1,250 per meet for 4
Program for 4 meets for 3 meets for 3 years.
years.

25
4.4 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. During the year 2005-06 alone, as many as
6,20.109 groups were credit linked.

4.5 KISAN CREDIT CARD SCHEME

26
 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 2.38 crore Kisan Credit Cards issued
upto 31 March 2002 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. Agency-wise/State-wise progress in
issue of cards by all banks during 2001-02 and since inception of Scheme.

Agency-wise KC Cards issued upto 31 March 2003 ( since inception) (No. of cards)

YEAR Cooperative RRBs Commercial Total

banks banks

1998-99 155353 6421 445451 607225

27
 CHAPTER 5

DEVELOPMENT ROLES OF NABARD

5 INTRODUCTION

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. I

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:-

Help 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

Help 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

28
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

create awareness among the borrowers on ethics of repayment through Vikas

Volunteer Vahini and Farmer’s clubrovide financial assistance to cooperative
banks for building improved management information system, computerisation of
operations and development of human resources.

5.1 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.

29
 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.

5.2 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. The Objectives and Purposes of the fund are
given below:

Objective of the Fund:

 Supporting the efforts of grass root level institutions (PACS) to mobilize

resources etc.
 Human Resource Development aimed at achieving better working results
and improvements in viability and also for improvement in systems in
cooperative credit institutions.

Building of better MIS and Conduct of special studies for improving functional
efficiency and on subjects referred to above.
30
 5.3 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.

31
 5.4 DISTRICT RURAL INDUSTRIES PROJECT (DRIP)

NABARD,launched DRIP, an integrated area based credit intensification

programme, 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.

5.5 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

32
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.

5.6 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 programme under 7792 REDPs

5.7. 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 programmes 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.

CHAPTER 6

LATEST SCHEMES OF NABARD

6.1. MILLION SHALLOW TUBEWELLS PROGRAMME (MSTP)

33
 The Million Shallow Tubewells Programme (MSTP) submitted by GoB
which was approved by the Planning Commission, Govt. of India in March 2001 for
the State of Bihar. The objective of the programme is to install one million shallow
tubewells with pumpsets to bring an additional two million hactres of land under
irrigation during the next five years and increase the agricultural production and
productivity of the State. The Scheme is being implemented by NABARD / GoB
through Commercial Banks and Regional Rural Banks that have branches in rural
areas in the State.

The funding pattern of the scheme is as follows :

 Margin money contributed - 20% by the farmers

 Subsidy - 30%
 Bank Loan - 50%

All non-defaulting individual farmers of all categories will be eligible for

assistance under the scheme.

The total subsidy for the programme is Rs. 45.50 crores which has been
released by GoI to GoB. For the year 2001-02, the targets were 33798 and for the
year 2002-03, 23313. Thus the overall targets for combined two years is 57111. The
Scheme envisages a lock-in period of five years with the subsidy being back ended
i.e the borrowers will not be eligible for subsidy if loan is liquidated completely
within five years from the date of initial disbursement.

6.2 ON FARM WATER MANAGEMENT FOR

INCREASING CROP PRODUCTION IN EASTERN
INDIA (OFWAMS)

34
 The Centrally sponsored programme has been appeared by the Ministry of
Agriculture (MOA) GoI for the duration of the 9th Plan Period (2001-02) and 10th
Plan Period. The scheme will cover all the districts of 8 Eastern India States viz.
Arunachal Pradesh, Assam, Bihar, Chattisgarh, Jharkhand, Manipur, Mizoram and
Orissa and 35 districts of Eastern UP and 9 districts of West Bengal.

The funding pattern of the schme is as under :

 Borrowers contribution - 20%

 Subsidy - 30%
 Bank Loan - 50%

All non-defaulting individuals farmers or groups of farmers will be eligible for

assistance under the scheme. Proforma will be given to small and marginal farmers
and SC/ST borrowers. The assistance will be available for Shallow Tubewell with
pumpsets, Dugwells, Low Lift Irrigation Points and Pumpsets in isolation. The
combined targets for 2001-02 and 2002-03 are 48699 Shallow Tubewells with
pumpsets, 4571 LLIP, 924 Dugwells and 6252 Pumpsets.

The subsidy will be back-ended with a lock in period of 2 years i.e the borrowers
will not be eligible for subsidy if the loan is completely liquidated within two years
from the date of initial disbursement.

6.3 NABARD SDC Rural Innovation Fund (R I F)

. A new fund named as "NABARD SDC Rural Innovation Fund" has been created
by merging the erstwhile Rural Promotion Corpus Fund (RPCF), Credit and
Financial Services Fund (CFSF) and Interest on RPCF and the new fund came into

35
being on 01 October 2005. It is envisaged that the entire fund will be utilised in a
period of 5 years.

National Bank for Agriculture and Rural Development (NABARD) in association

with Swiss Agency for Development and Cooperation (SDC) has constituted the
"NABARD-SDC Rural Innovation Fund (RIF)" to, inter alia, support innovative
projects in Farm, Non-Farm and Micro-Finance Sectors leading to creation of
livelihood opportunities for the poor.

NABARD invites proposals for funding support to innovative projects having the
above objective.

An illustrative list of areas is given below :

 Biological and Engineering measures/techniques which improve productivity

of water.
 Design of economic and efficient water harvesting structures.
 Efficient water use systems : low cost micro-irrigation technology/ micro tube
irrigation technology, etc.
 Diversification of farm activities - agro-forestry, silvipasture, agro-
horticulture and animal husbandry etc.
 Organic farming - bio-fertilisers and pesticides.
 Development of location specific crops and agronomic practices.
 Extension of technology - Agri-clinics, Agro Service Centres & e-Service
Centres. The e-Service Centres may include the feasibility of commodity
trading/ Village Knowledge Centres.
 Community farming.
 Contract farming.

36
  Insurance products for rainfed agriculture.
 Banking through SHGs, VWCs and user teams, Joint Liability Groups, etc.
 Innovative rain water harvesting for rural dwellings.
 Rural energy from biomas, agri waste.
 Techniques for increasing value of crop residues and non-crop bio mass.
 Community regulation of distribution and use of waste and energy.
 Storage devices for agricultural and rural products.
 Innovative methods of managing Common Property Resources.
 Materials and designs for rural roads.
 Rural sanitation and waste disposal.

The list is illustrative and new ideas/innovations in tune with the objective of the
Rural Innovation Fund would be supported.

6.4 Nabard to provide funds for Swarojgar awareness scheme

On NABARD has launched a pilot scheme to provide funds to select banks to

create awareness about the Swarojgar credit card scheme. Under the promotional
scheme, financial grants will be provided to select regional rural banks and
cooperative banks to support publicity programmes on the Swarojgar credit card
scheme.

The idea is to create greater awareness about the swarojgar credit card scheme,
which has been developed by Nabard to provide adequate and timely bank credit to
small artisans, handloom weavers, rickshaw owners and other micro-entrepreneurs.
The promotional campaign on the Swarojgar credit card scheme is also intended to
educate card holders on how to use the cash credit facility optimally and to help the
scheme reach out to the maximum number of people, the release adds.
37
 In Kerala, one time grant assistance will be provided to three banking entities
to create awareness about the Swarojgar credit card scheme. The assistance will be
given to North Malabar Gramin Bank, South Malabar Gramin Bank and Kerala State
Cooperative Agriculture and Rural Development Bank, according to the press
release. The three banks will receive one-time grant assistance up to 60 per cent of
their expenditure on publicity, subject to a maximum of Rs 1 lakh per bank, the
release adds. Funds from the grant assistance can be used to prepare publicity
material on the Swarojgar credit card scheme and also to arrange banker-borrower
meets and other promotional activities.

6.5 LPG connection finance scheme from United Bank

ON 1ST June, 2006 UNITED Bank of India has introduced a special scheme under
Nabard's refinance facility for financing LPG connections in rural areas.

The scheme covers the cost of supplying a regulator, a cylinder and accessories
and a burner stove.

The maximum amount of loan to be available under the scheme is Rs 3,500 at

7.5 per cent rate of interest with quarterly rest, payable between three and five years,
according to a bank release

6.6 NEW SCHEME TO INCREASE PRODUCTION OF

CROPS

The centre has launched a new scheme "On-Farm Water Management for
increasing crop production in Eastern India" in 10 states of Eastern India. The
scheme will be implemented in all districts of Arunachal Pradesh, Assam, Bihar,
Chattisgarh, Jharkhand, Manipur, Mizoram and Orissa besides 35 districts of Eastern
38
Uttar Pradesh and nine districts of West Bengal. An amount of Rs.15 crore has been
released during 2001-02 to NABARD as the share of the Government of India’s
assistance under the scheme. An allocation of Rs.115 crore has been proposed during
2002-03.

The scheme aims at developing irrigation facility at the command of the farmers
by tapping ground water resources of the region in a plananed manner with proper
spacing. Thus, there will be a substantial increase in agricultural production and
productivity and per capita income.

CHAPTER 7.

GENDER DEVELOPMENT

39
7.1 Women Development:

Women constitute almost half the population and make up one third of the
labour force in India. Various schemes for financing farm and non-farm sector
activities through banking system are available both to men and women. In order
to give focus to women in various developmental activities and to increase their
access to institutional credit, NABARD has formulated various programmes –

7.2 Gender Sensitization Programmes –

With the objective of facilitating internalization of gender concerns in credit

as also to improve the outreach of the banks in respect of women clients,
NABARD has been conducting gender sensitization meets/ workshops for various
levels of bankers at the district and state level. 330 such programmes covering over
6000 bank personnel have been conducted till 31 March 2004.

7.3 Women Development Cells (WDC) –With a view to strengthening

institutional capabilities for addressing gender issues in credit and support services
and accelerating credit flow to women through ‘relationship banking’, NABARD
has extended grant support for setting up of Women Development Cells in RRBs
and Coop Banks. NABARD has so far supported 100 such cells in Coop Banks and
RRBs. The credit flow to women through these banks is Rs.3595.79 crore covering

40
27.94 lakh women since inception of WDCs. Based on a review of their performance
a modified incentive based scheme was formulated under which 8 banks have been
sanctioned assistance.

7.4 Assistance to Rural Women in Rural Non Farm Development (ARWIND)

ARWIND, a single window scheme comprising credit as well as promotional
components, has been formulated with the objective of entrepreneurial development
among rural women. Under the scheme, assistance is available for activities like
Escort Services (help in actual setting up of units), Common Facility Centres/Service
Centres, setting up of Mother Units, Product Design, Quality Control, Organising
Women etc. NABARD provides 100% refinance to banks under the Scheme. As on
31 March 2004, Rs. 3 crore has been sanctioned for 128 projects covering 9813 rural
women in 22 states.

7.5 Assistance for Marketing of Non Farm Products of Rural Women

(MAHIMA) -

Recognizing the importance of marketing as a crucial link for women

entrepreneurs the scheme ‘MAHIMA’ was introduced. It aims at supporting various
initiatives for promoting marketing of items produced by rural women such as
market survey, capacity building, technology upgradation, branding, labeling,
packaging, publicity, setting up of showrooms/sale outlets, etc. NABARD provides
100% refinance to banks under the scheme. As on 31 March 2004, 26 projects in 11
states were supported with assistance of Rs.59 lakh.

7.6 Development of Women through Area Programme (DEWTA)

41
 Responding to the need for an integrated and holistic approach to development
of women entrepreneurs, this scheme is being implemented in three RRBs on a pilot
basis. Under the programme the WDCs of select banks will identify the skill
upgradation, capacity building, and credit needs of women and fulfill the same over
a period of three years. A grant of Rs.32 lakh has been sanctioned to the WDCs.

 Support to Weaker Sections:

NABARD, has designed special programmes for upliftment of weaker

sections of society, viz. the Small and Marginal farmers, Scheduled Castes and
Scheduled Tribes (SCs/STs) and people living below the poverty line (BPL).

 Support to Small and Marginal Farmers (SF & MF) -

As per NABARD’s refinance policy for production credit, the banks are
required to earmark a certain percentage of their lending to small and marginal
farmers.

 Special Lines of Credit for Tribals -

In consonance with the policy to step up credit to tribal population, a separate

line of credit on liberal terms known as Development of Tribal Population is being
extended in predominantly tribal areas. Short Term credit limits are also sanctioned
to cooperatives for financing collection and marketing of various types of minor
forest produce.

CHAPTER 8

42
 SUPERVISORY ROLE OF NABARD

8 INTRODUCTION

Apart from the role of a development bank, NABARD undertakes certain

supervisory functions in respect of Co-operative 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.

43
8.1 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.

8.2 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

44
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.

8.3 Current Focus

Under the revised strategy, a sharper focus of the NABARD’s inspection was given
on the core areas of the functioning of banks pertaining to Capital Adequacy, Asset
Quality, Management Earnings, Liquidity and Systems Compliance (CAMELSC).
Thus, NABARD’s focus in its statutory ‘on-site’ inspections is on core assessments
leaving the collateral appraisals to supplementary inspections. The micro level
aspects are to be taken care of by the banks themselves by way of internal inspections
or by other agencies such as auditors. In this direction, through a series of workshops
and meetings held with the Chief Executives and the Chief Auditors of cooperative
banks, NABARD attempted to ensure that the other areas, particularly relating to the
internal checks and controls, revenue and income realization by way of interest on
loans and deposits and other routine features of carrying out general banking
transactions were suitably taken care of by the respective banks and their
concurrent/statutory audit systems.

8.4 Off-site Surveillance

45
As a part of the new strategy of supervision, a system of `Off-site Surveillance' has
been introduced as a supplementary tool to the on-site inspection. Its objectives are
to obtain and analyse critical data on a continuous basis, to identify areas of
supervisory concern and to identify early warning signals and risky areas requiring
further probe. The system basically envisages desk scrutiny of operations of
cooperative banks and RRBs through a set of statutory and non-statutory returns.
While the periodical statutory on-site inspections attempt an overall evaluation of
the performance of the banks with a stipulated period, off-site surveillance envisages
continuous supervision supplementing the on-site inspections with additional
instruments of supervision.

8.5 Board of Supervision (for SCBs, DCCBs and RRBs)

Board of Supervision (for SCBs, DCCBs and RRBs) has been constituted by
NABARD under Section 13(3) of NABARD Act, 1981 as an Internal Committee to
the Board of Directors of NABARD.

The broad powers and functions of the Board of Supervision are :

Giving directions and guidance in respect of policies and on matters relating to

supervision and inspection, reviewing the inspection findings, suggesting
appropriate measures

Reviewing the follow-up action taken by Department of Supervision (DoS) on

matters of frauds and internal checks and control

dentifying the emerging supervisory issues in the functioning of cooperative

banks/RRBs such as NPAs recovery, investment portfolio, credit monitoring system,
management practices, frauds, etc.

46
Suggesting necessary follow-up measures

Recommending appropriate training for Inspecting Officers of NABARD for

imparting necessary skills and knowledge

Recommend issue of directions by RBI

Oversee the quality of inspections carried out and the reports issued

Review the information generated through off-site surveillance and other

supplementary vehicles, action taken thereon

Undertake any other functions entrusted from time to time by the Board of Directors
of NABARD

The Board of Supervision, since its formation on 20 November 1999 , has held 45
meetings till 21 September 2010 and reviewed the financial position of Cooperative
Banks and RRBs. Based on the observations of BoS, authorities concerned have
been apprised of the weaknesses.

CHAPTER 9

NABARD AND MICRO FINANCE IN INDIA-

47
9 Background

The post nationalization period in the banking sector witnessed substantial amount
of resources being earmarked towards meeting the credit needs of the poor. The
banking network underwent an expansion phase without comparables in the world.
The branch expansion1 was synergised with massive manpower recruitment drive
for manning such branches. Credit came to be recognized as a remedy for many of
the ills of the poverty. Credit packages and programmes were designed based on the
perceived needs of the poor. Programmes also underwent qualitative changes based
on the experiences gained. Besides the programmes initiated by the Central
Government, a large number of credit-based programmes were introduced by the
state governments with large resource allocations.

While the underlying objectives were laudable and substantial progress was
achieved, credit flow to the poor, and especially to poor women, remained low. This
led to initiatives that were institution led, that attempted to converge of the existing
strengths of rural banking infrastructure and leverage this to better serve the
unbanked poor. The pioneering efforts at this were made by National Bank for
Agriculture and Rural Development (NABARD), which was vested with an enviable
task of framing appropriate policy for rural credit, provision of technical assistance
backed liquidity support to banks, supervision of rural credit institutions and other
development initiatives.

NABARD during the early eighties conducted a series of research studies in

association with MYRADA (a leading NGO from South India) and also

48
independently which showed that despite having a wide network of rural bank
branches that implemented specific poverty alleviation programmes and self-
employment opportunities through bank credit for almost two decades, a very large
number of the poorest of the poor continued to remain outside the fold of the formal
banking system. These studies also showed that the existing banking policies,
systems and procedures, and deposit and loan products were perhaps not well suited
to meet the most immediate needs of the poor. It also appeared that what the poor
really needed was a better access to these services and products, rather than cheap
subsidised credit. Against this background, a need was felt for alternative policies,
systems and procedures, savings and loan products, other complementary services,
and new delivery mechanisms, which would fulfill the requirements of the poorest,
especially of the women members of such households. The emphasis therefore was
on improving the access of the poor to microFinance (mF) rather than just micro-
credit.

The launching of its Pilot phase of the SHG (Self Help Group) Bank Linkage
programme in February 1992 could be considered as a landmark development in
banking with the poor. The SHG-informal thrift and credit groups of poor came to
be recognised as bank clients under the Pilot phase.

9.1 Overall Strategy

 Forming and nurturing small, homogeneous and participatory self-help

groups (SHGs) of the poor has today emerged as a potent tool for human
development. This process enables the poor, especially the women from the
poor households, to collectively identify and analyse the problems they face
in the perspective of their social and economic environment. It helps them to

49
 pool their meagre resources, human and financial, and prioritise their use for
solving their own problems.
 The emphasis on regular thrift collection and its use to solve immediate
problems of consumption and production not only helps to meet their most
urgent needs, but also trains them to handle larger financial resources more
skillfully, prudently and with a more lasting impact

Encourage SHGs to become a forum for many social sector interventions.

SHG-Bank Linkage Programme

 Facilitating SHGs to access credit from formal banking channels. SHG-Bank

Linkage Programme has proved to be the major supplementary credit
delivery system with wide acceptance by banks, NGOs and various
government departments

Region-specific Initiatives

 NABARD has intensified its efforts for roping in new partners for promotion
and linkage of groups in regions where the growth of groups has not been
commensurate with potential
 Priority has been assigned to awareness- building and for identification of
NGOs and other partners in 13 priority states, which account for 70% of
rural poor in the country.

50
Capacity Building

 NABARD sponsors capacity building programmes for various partners in

the field of microFinance to sensitise and equip them with concept &
nuances of SHG bank linkage programme.
 NABARD provides training inputs on SHG financing to training
establishments of participating banks, to help them to internalise the training
requirements at their level.
 NABARD gives technical support to banks to evolve suitable intermediate
structures like Farmers' Clubs to increase the outreach of their branches in
promotion and linking SHGs
 NABARD supports and helps banking institutions (especially RRBs &
cooperative banks) to take on the role of Self Help Promoting Institutions
(SHPIs)

9.2 Support to Governments

 Necessary assistance is provided to the governments by NABARD for

dovetailing mF practices with the poverty alleviation programmes
 NABARD also encourages the association of Panchayati Raj Institutions
(PRIs ) in adopting group processes for maximization of empowerment.
 NABARD, in association with Lal Bahadur Shastry National Academy of
Administration, Mussoorie conducts tailor made exposure programme on
self help group and microFinance for senior and middle level officers of
Indian Administrative Services (IAS) who are posted as district collectors/
Chief Executive Offices of local administrative set ups (Zilla Parishad)

51
9.3 Support to NGO Partners

 Several steps have been taken by NABARD for capacity building of NGOs
which partner in promotion and nurturing of SHGs. The emphasis is on
involving a large number of NGOs. Special focus is on those NGOs
participating in watershed development, health, literacy and women
development, to encourage them to take up promotion, nurturing and linkage
of SHGs as an 'add-on' activity.
 NABARD has a scheme of part-financing the cost of promotion of groups
by NGOs.
 NABARD has developed specialized programmes for use by CEOs of
NGOs for appropriately envisioning this as an add-on concept. Separate
programmes have also been designed for NGO field staff to appreciate the
nuances of SHG functioning.

Monitoring and Review

Block/district/state level review meetings are organised and/or organised by

NABARD. The relative documentation and database is also carried out by
NABARD. In addition, periodical Monitoring studies are conducted through
NABARD/Bank Officers. Internal Impact Studies and are conducted by NABARD
periodically.

Other Initiatives:

MicroEnterprise Development Programme (MEDP) for Matured SHGs

The progression of SHG members to take up micro enterprise involves intensive

training and hand holding on various aspects including understanding market,

52
potential mapping and ultimately fine tuning skills and entrepreneurship to manage
the enterprise. Hence, a separate, specific and focussed skill-building programme
‘Micro Enterprise Development Programme (MEDP)’ has been formulated. This
involves organizing short duration, location specific programmes on skill
upgradation / development for setting up sustainable micro-enterprises by matured
SHG members. The duration of training programme can vary between 3 to 13
days, depending upon the objective and nature of training. The training may be
conducted by agencies that have background and professional competency in the
field of microEnterprise Development with an expertise in skill development.

Scheme for Capital/ Equity Support to Micro-Finance Institutions (MFIs) from

MFDEF

The scheme attempts to provide capital/equity support to Micro Finance

Institutions (MFIs) so as to enable them to leverage capital/equity for accessing
commercial and other funds from banks, for providing financial services at an
affordable cost to the poor, and to enable MFIs to achieve sustainability in their
credit operations over a period of 3-5 years.

Scheme for financial assistance to banks/ MFIs for rating of Micro Finance
Institutions (MFIs)

In order to identify MFIs, classify and rate such institutions and empower them to
intermediate between the lending banks and the clients, NABARD has decided to
extend financial assistance to Commercial Banks and Regional Rural Banks by
way of grant. The banks can avail the services of credit rating agencies, M-CRIL,
ICRA, CARE and Planet Finance in addition to CRISIL for rating of MFIs. The
financial assistance by way of grant for meeting the cost of rating of MFIs would

53
be met by NABARD to the extent of 100% of the total professional fees subject to
a maximum of Rs.3,00,000/-/-. The remaining cost would be borne by the
concerned MFI. The cost of local hospitality (including boarding and lodging)
towards field visit of the team from the credit rating Agency, as a part of the rating
exercise, would also be borne by the MFI. Those MFIs which have a minimum
loan outstanding of more than Rs. 50.00 lakh (Rupees fifty lakh only) and
maximum of Rs 10 crore (Rupees Ten crore only) would be considered for rating
and support under the scheme. Financial assistance by way of grant would be
available only for the first rating of the MFI.

MFIs availing Capital Support and/or Revolving Fund Assistance from NABARD
are also eligible for re-imbursement of 50% of the cost of professional fee charged
by Credit Rating Agency for second rating subject to a maximum of Rs.1.50 lakh
(i.e 50% of Rs.3 lakh). This will be in addition to the re-imbursement of
professional fee for first rating of the MFI.

Scheme for financing matured SHGs for Farm Production and Investment
activities

The objective of the scheme is to facilitate the members of matured SHGs to meet
their credit requirement for farm production and investment activities and to enable
them to diversify their income generating activities. Term Loan and Cash Credit
limit given by the banks for a period of five years to SHGs exclusively for farm
production and investment activities covering agriculture sector and allied
activities. Banks can also sanction composite loans by combining consumption
credit to the extent of 30% of the total limit. Matured SHGs which have
successfully utilised bank loans and whose members have moved from
consumption requirements to production requirements, may be considered for

54
financing for farm production and investment activities. Due freedom may be
given to SHGs to monitor and ensure end-use of credit as is usually practiced by
banks under SHG Bank Linkage Programme. Refinance - 100% of the bank loan
under Automatic Refinance facility (ARF). The refinance provided to the banks
under the scheme will be payable in 5 years at half yearly intervals.

9.4MICRO FINANCE INSTITUTIONS

A range of institutions in public sector as well as private sector offers the micro
finance services in India. They can be broadly categorized in to two categories
namely, formal institutions and informal institutions. The former category
comprises of Apex Development Financial Institutions, Commercial Banks,
Regional Rural Banks, and Cooperative Banks that provide micro finance services
in addition to their general banking activities and are referred to as micro finance
service providers. On the other hand, the informal institutions that undertake micro
finance services as their main activity are generally referred to as micro Finance
Institutions (mFIs). While both private and public ownership are found in the case
of formal financial institutions offering micro finance services, the mFIs are
mainly in the private sector.

micro Finance Service Providers

The micro finance service providers include apex institutions like National
Bank for Agriculture and Rural Development (NABARD), Small Industries
Development Bank of India (SIDBI), and, Rashtriya Mahila Kosh (RMK). At the
retail level, Commercial Banks, Regional Rural Banks, and, Cooperative banks
provide micro finance services. Today, there are about 60,000 retail credit outlets of
the formal banking sector in the rural areas comprising 12,000 branches of district

55
level cooperative banks, over 14,000 branches of the Regional Rural Banks (RRBs)
and over 30,000 rural and semi-urban branches of commercial banks besides almost
90,000 cooperatives credit societies at the village level. On an average, there is at
least one retail credit outlet for about 5,000 rural people. This physical reaching out
to the far-flung areas of the country to provide savings, credit and other banking
services to the rural society is an unparalleled achievement of the Indian banking
system. In the this paper an attempt is made to deal with various aspects relating to
emergence of private micro finance industry in the context of prevailing legal and
regulatory environment for private sector rural and micro finance operators.

MF in India - An Overview

Innovative Pilot Projects

The phenomenal growth rate of microFinance sector, especially the SHG bank
linkage programme has posed number of issues and challenges which need
immediate attention. In response to this NABARD has initiated a number of
innovations basically as an investment for posterity. At the core of these
innovations is a desire to improve the outreach and sustainability of the
programme. Some of the pilot projects designed and initiated recently
are summarized here.

Introduction of Processor/Memory Cards- Application of IT in SHG Bank

Linkage Programme

There are now many branches of Commercial Banks and Regional Rural Banks
that service more than 200 SHG accounts which were hitherto considered
impossible. Howsoever welcome the trend may be, the burgeoning numbers have
also brought to the fore a host of issues relating to tracking, monitoring and
adequately servicing SHG accounts. It was felt that the best way to deal with the
huge numbers would be to take recourse to new technologies available.

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Also in general, the branch manager in the rural areas is hard pressed for time and
as a result does little for developing the business of the branch or for scouting for
new business opportunities for the branch. It was felt that use of Information
Technology in the form of processor/memory cards for SHGs and other clients
coupled with automation in a branch would serve to solve these vexed issues and
leave adequate time for business development work.

NABARD has therefore decided to launch an experiment through five branches

each of two RRBs in Andhra Pradesh & Karnataka. Introduction
processor/memory Cards for active clients and SHGs & automation of book
keeping in SHGs is expected to reduce paper work, save time and thus improve the
efficiency of the field worker. This is also expected to reduce the scope of
manipulation, reduce unintended leakages and also maintain up to date books at
SHG level.

The first pilot project on smart cards has been launched with Sri Visakha
Grameena Bank in Andhra Pradesh (Reorganised as Andhra Pradesh Grameen
Vikas Bank).The users of processor/memory cards would include SHGs and other
good customers of the bank who are its regular customers. About 500 such
customers, who would perform all banking transactions on a fast track, would be
selected in each bank branch; time taken for banking by these regular good clients
is likely to be reduced considerably. Use of processor/memory cards by SHG
customers also adds another set of advantages like effective book keeping, tracking
and monitoring of SHGs, reducing the hassles of illiterate SHG members seeking
the assistance of the NGO / promoter/ local book writer to perform these functions.
In addition to prompt upkeep of books by SHGs, auditing of books of accounts,
computing interest, could also be ensured with this system. The transaction data of
each SHG collected from the field could be consolidated at branch office to
generate MIS reports, which the branch staff could effectively use to track the
functioning of SHGs, ensure prompt credit linkages and recovery. This coupled
with automation of back office operations of the branch would ease the branch
manager of a lot of time spent on routine matters and they could use the spare time
to build new customers and enhance business relations.

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 CHAPTER 10

Set backs of NABARD

 10.1 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.

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  10.2 CRISIS IN MOBILIZING RESOURCES

In the twenty-fifth year 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 in 2006-07,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.

 10.3 NABARD UNABLE TO BE RURAL CREDIT BANK

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.

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 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

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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.

Inside Nabard, officers have been discussing the agenda for the organisation over
the next five to 10 years. Most would back the idea of Nabard turning a universal
bank by picking up the branches of the Regional Rural Banks (RRBs) to mobilise
retail deposits. Perhaps, banks not keen on a rural presence could also sell their
branches to Nabard. There are doubts over the quality of staff manning RRBs and
the heavy losses run up by a few. With the co-operative credit structure sick, at this
point of time, there is only a single option for Nabard: To be India's first rural credit
bank and running up an asset portfolio of rural borrowers.

CONCLUSION

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 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 25th eventful journey on 12th July 2006 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. During 2005-06,the balance
sheet of NABARD grew by 11.3 percent –from around Rs.60,000+ crore in 2004-
05 to Rs.67,645 crore in 2005-06.

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

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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. As the principal nodal agency, NABARD has
been really instrumental in pushing the programme of doubling of the ground level
agric edit in the country—from Rs.86,981 crore in 2003-04 to Rs.1,46,688 till
February end 2006.

NABARD IS EMPOWERRING RURAL INDIA .

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 BIBLIOGRAPHY AND WEBLIOGRAPHY

Webliography:
 www.google.com
 www.wikipedia.com
 www.nabard.org
 www.nabard.org/microfinance

Bibliography:
Agriculture finance in india(role of nabard)

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