National Bank for Agriculture & Rural Development

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.

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 12^th July, 1982.

The review committee envisaged that the new apex bank would be an organisational device for providing undivided attention, forceful direction and pointed focus to the credit problems arising out of the integrated approach to rural development. The Committee recommended that the new bank take over from the Reserve Bank the overseeing the entire rural credit system, including credit for rural artisans and village industries, and the statutory inspection of co-operative banks and Regional Rural Banks on an agency basis, the Bank continuing to retain its essential control. The new bank was to have organic links with the Reserve Bank by virtue of the latter contributing half of its share capital ( the other half being contributed by the Central Government), and three members of the Central Board of Directors of the Reserve Bank being appointed on its board, besides Deputy Governor of Reserve Bank being appointed as its Chairman.

On the establishment, the National Bank has taken over the entire undertaking of the Agriculture Refinance and Development Corporation, and has taken over from the Reserve Bank its refinancing functions in relation to the State Co-operative Banks and the Regional Rural Banks. The bank is now coordinating agency in relation to the Central Government, Planning Commission, State Governments and institutions at all-India level and State-level engaged in the development of small-scale industries, rural crafts, etc. for giving effect to the various policies and programmes related to rural credit.

2. Capital and Management: The Central Government has made provision for increasing the capital of NABARD which was raised from Rs. 170 crore to Rs.500 crore and will be raised to further Rs. 2,000 crore in the next five years. In terms of the Act, the Board of Directors will consist of fifteen members to be appointed by the Central Government in consultation with the Reserve Bank and will comprise, besides the Chairman and the Managing
   Director, three Directors from the Central Board of the Reserve Bank, three officials of the Central Government, two officials of the State Governments and five Directors from among experts in rural economics, rural development, handicrafts and village and cottage industries ,etc. and persons with experience in the working of co-operative banks and commercial banks. The Act provides for constitution by the Board of an Advisory Council consisting of the directors of the National Bank and other persons having special knowledge of subjects which is considered useful to the bank.

3. Operations: 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 fianancial institution approved by Reserve Bank in this behalf; for a wide range of purposes, including marketing and trading, relating to rural economy. These short term loans granted to State co-operative Banks and Regional Rural Banks , in so far as they relate to the financing of agricultural operations or marketing of crops, can be converted by the National Bank into medium-term loans for periods not exceeding seven years under conditions of drought, famine or other natural calamities, military operations or enemy action. The National Bank can grant medium-term loans to the State co-operative Banks and Regional Rural Banks for period extending from 18 months to seven years for agriculture and rural development and such other purposes as may be determined by it from time to time subject to their being fully guaranteed by the State Governments as to the repayment of principal and payment of interest. Such guarantee can however be waived by the National Bank in such circumstances. The National Bank is empowered to provide by way of refinance assistance long-term loans extending upto a maximum period of 25 years including the period of re-scheduling such loans to the State Land Development Banks, Regional Rural Banks, Commercial Banks, State Co-operative Banks or any other financial institutions approved by the Reserve Bank for the purpose of making investment loans. It may also give short-term loans alongwith long-terms loans where such composite loans are considered necessary. Loans for periods not exceeding 20 years can be made to the State Governments to enable them to subscribe directly or indirectly to the Share capital of Co-operative Societies. Moreover, the new bank can contribute to the share capital or invest in the securities of any institutions concerned with agriculture or rural development.

4. Resources: 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.