CHAPTER1

INTRODUCTION OF NABARD

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 another 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 providing refinance to lending institutions in rural areas

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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 a

regulator in Co-operative banks and RRBs.

NABARD OVERVIEW

Twenty four years ago, to be precise on July12,1982, by an Act of the

parliament ,NABARD came into being with the avowed objective of providing

focused and undivided attention to the development of rural India which was, and

even now is, crucial to the country’s economic progress. Naiad’s mandate touches

practically every aspect of rural life. As its mission statement underscores,

NABARD is to promote sustainable and equitable agriculture and rural prosperity

through effective credit support, related services, institution development and other

innovative initiatives. As its core business is the credit support that suits every

activity in rural India. Today it has a tremendous reach through 28 regional offices

at the state capitals, a sub-office. It refinances commercial, co-operative and

regional rural banks for lending to on farm and non-farm activities like minor

irrigation, animal husbandry, farm mechanization, forestry, fisheries, land

development, horticulture, plantation and medicinal corps and non-farm like rural

industries, artisans, handicrafts, handlooms, rural housing, and rural tourism and so

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on. Refinance is provided by NABARD for both long term investment credit as

well as short term production credit for crop rearing and working capital for non-

farm activities.

Clearly NABARD has been silently working for supporting diversified activities

and its stakes are quite awesome. The figures speak for themselves. It has

channelized whopping 8622crore disbursed during 2005-2006. under production

credit the bank sanctioned limits of Rs 11,889 crore during 2005-2006.

NABARD has effectively brought in a number of innovations in the rural credit

domain. To quote a few:

* SELF HELP GROUPS,

* FARMER CLUBS,

* RURAL INFRASTRUCTURE DEVELOPMENT FUND,

* WATERSHED DEVELOPMENT,

* KISSAN CREDIT CARD, DISTRICT RURAL

INDUSTRIES PROJECT CLUSTER

* DEVELOPMENT PROGRAMME AND

* RURAL INNOVATION FUND..

CONCEPT OF NABARD

"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

programmers endeavored to reach out to the last and most disadvantaged sections

3

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

economic development, increased participation of people in the rural development

programs, decentralization of planning, better enforcement of land reforms and

greater access to credit are envisaged.

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 LokSabha were

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categorized as under: The National Bank will be an apex organization 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.

Mission

Promoting sustainable and equitable agriculture and rural development through

effective credit support related services, institution building and other innovative

initiatives.

In pursuing this mission, NABARD focuses its activities on Credit functions,

involving preparation of potential-linked credit plans annually for all districts of

the country for identification of credit potential, monitoring the flow of ground

level rural credit, issuing policy and operational guidelines to rural financing

institutions and providing credit facilities to eligible institutions under various

programs Development functions, concerning reinforcement of the credit

functions and making creditmore productive Supervisory functions, ensuring the

proper functioning of cooperative banks and regionalrural banks

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Chapter Role & Functions of NABARD

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

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a. Institution Building Objectives

The rural financial system in the country calls for a strong and efficient credit

delivery system, capable of taking care of the expanding and diverse credit needs

of agriculture and rural development. More than 50% of the rural credit is

disbursed by the Co-operative Banks and Regional Rural Banks. NABARD is

responsible for regulating and supervising the functions of Co-operative banks and

RRBs. In this direction NABARD has been taking various initiatives in association

with Government of India and RBI to improve the health of Co-operative banks

and Regional Rural Banks.

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:

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(a) 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.

(b) Purposes eligible for assistance:

Provision of infrastructural facilities to PACS for deposit mobilization. 

Staff training and faculty support.

Computerization support for building of MIS in cooperative banks. 

Conduct of special studies.

Creation of a conducive recovery climate through meeting the cost of

publicity, media, etc.

Providing mobility to the field staff for improving recovery.

Reimbursement of training expenditure to ACSTIs and JLTCs

Best Performance Awards to Cooperative Banks

Establishment of Business Development Department (BDD) in Cooperative

Banks Publicity of Kisan Credit Cards (KCC)

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CURRENT POSITION OF NABARD

In a journey spanning 25 years, NABARD has paved the way for all-round

ruralprogress and development with 28 regional offices, sub-office at Port

Blair and 376district offices.

The Micro Finance programme is the largest of its kind in the world. The

programme has helped over 329.90 lakh households through 22.38 lakh

SHGs comprising mostlyof women members. Women empowerment in

rural areas Rs 872 lakh have been sanctioned by way of assistance to women

entrepreneurs.

Through the infrastructure development fund Rs 51,283 crore have been

sanctioned for 244,651 projects covering irrigation, rural roads and bridges,

health and education, soil conversation, drinking water schemes etc.

Watershed development fund, with cumulative sanctions of Rs578.95 crore

for 427projects in 124 districts of 14 states, has created a ‘Peoples

Movement’ in rural India.

Farmers now enjoy financial access and security through 582.50 lakh

Kansan Credit Cards that have been issued through a vast rural

bankingnetwork.

District Rural Industries Projects (DRIP) has generated employment for

23.34 lakh units in 105 districts

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Chapter 2.

FUNCTIONS OF NABARD

CREDIT ROLE

CREDIT OPERATIONS PERFORMED BY THE

BANK:

The National Bank is empowered to provide short-term refinance assistance

forperiods not exceeding 18 months to state Co-operative Banks, Regional Rural

Banks and anyfinancial 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 grantedto State co-operative Banks and Regional Rural

Banks, in so far as they relate to thefinancing of agricultural operations or

marketing of crops, can be converted by the NationalBank 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

andRegional 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 timesubject to their being fully guaranteed by the State

Governments as to the repayment ofprincipal and payment of interest. Such

guarantee can however be waived by the NationalBank 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-schedulingsuch loans to the State Land Development Banks, Regional Rural

Banks, CommercialBanks, State Co-operative Banks or any other financial

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institutions approved by the ReserveBank for the purpose of making investment

loans. It may also give short-term loansalongwith long-terms loans where such

composite loans are considered necessary. Loans forperiods not exceeding 20 years

can be made to the State Governments to enable them tosubscribe 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

securitiesof any institutions concerned with agriculture or rural development.

Credit Planning by NABARD :

*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 districtand projects credit

requirements, taking into account long-term physical potential,availability of

infrastructure, extension services and marketing support and the strengths

andweaknesses of the RFIs in the district.

*State Level Planning -

NABARD prepares a State Focus Paper for every State. This presents a

comprehensivepicture 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 thesesectors. It can be used by bankers and

other agencies for preparing their action plans formaking these investments.

State Credit Seminars are convened by NABARD annually where all agencies

concernedviz., the State Government, banks, NGOs, etc. participate and discuss

policies andoperational measures required to be taken for tackling constraints in

development ofpotentials available in agriculture and allied sectors in the State.

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*National Level Planning -

NABARD facilitates policy decisions by GOI and RBI in the areas of credit flow

toagriculture and rural development.

Chapter 3

NABARD’s RESOURCE FOR THE OPERATIONS :

For its short-term operations, the National Bank will borrow funds from the

Reserve Bank inthe form of Line of Credit under Section 17 (4E) of the Reserve

Bank of India Act whichpermitted the Reserve Bank to grant short-term loans to

the Agricultural Refinance andDevelopment Corporation earlier and which has

now been amended suitably by the NationalBank for Agriculture and Rural

Development Act.

For its term-loan operations, the National Bank will draw funds, as the Corporation

wasdoing earlier, from the Central Government, World Bank/IDA, and other

multilateral andbilateral aid agencies, the market and National Rural Credits (long-

term operations).Fundthat it has established. To this Fund has been transferred the

balance in the NationalAgricultural Credit (Long term operations).Funds

maintained by the Reserve Bank. Furthercontributions would be made annually to

the new Fund by the Reserve Bank in addition tothe contributions by the National

Bank itself. Provision has been made also for the CentralGovernment and the State

Governments to contribute to this Fund from time to time.

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Interest Rates

* Margin money

The beneficiary's contribution to the project cost is necessary in order to ensure his

stake inthe investment. Such margin money varies from 5% to 25% depending on

the type ofinvestments and the category of the beneficiaries. The margin money

can be by way ofcontribution in cash or own or family labour. Large farmers,

firms, corporate borrowersincluding state-owned corporations, forest development

corporations provide margin money up to 25% puff the investment cost.

* Special focus

Removal of regional and sectoral imbalances is one of the thrust areas and hence

preferenceis given to the needs of the underdeveloped areas. For example, the

development of thenorth-eastern region has been a key programme and special

efforts have been made throughrefinance offered on liberal terms and other

supportive measures so that the rural creditdelivery system in the region is

strengthened.

* Monitoring

Special attention is paid to monitoring the projects that are offered assistance so

that thetargets are met and the implementation is properly done. An evaluation of

the project istaken up and in the light of the findings the quality of the projects and

their implementationmethods can be improved. District-oriented monitoring

studies are conducted to evaluate theperformance of the ongoing agricultural

development schemes sanctioned. Specific sectorstudies are also undertaken like

floriculture, mushroom, aqua culture, agro-processing, etc.to get an insight into the

problems and prospects of these sectors.Guidelines are often issued for formulation

of high-tech and export-oriented projects in farmand non-farm sectors. Besides,

14

even consultancy is also offered for projects, includingappraisal of projects even in

cases where refinance is not secured from the bank.

Direct Credit

Direct credit from NABARD constitutes loans to State Governments.

*Supporting Cooperatives

In order to strengthen the owned funds position of cooperative credit institutions

and therebyincreasing their capacity to leverage larger resources, NABARD

provides loans to StateGovernments to contribute to the share capital of these

institutions.

Rural Infrastructure Development

With the objective of assisting State Governments in the completion of ongoing

ruralinfrastructure projects and to take up new infrastructure projects, the Rural

InfrastructureDevelopment Fund (RIDF) was set up with NABARD in 1995-96

with contributions fromCommercial 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 thedisbursements were Rs. 25384.02 cr.

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NABARD also offers various credit facilities like:

• Short-term/ Medium term/ Long-term refinance for various types of

production/marketing/ procurement activities at attractive interest rates to various

organizations, societies, Government etc.

• Investment Credit (Medium and Long Term) Refinance with a mission of

Accelerating Private Capital Formation to Promote Sustainable and Equitable

Agriculture and Rural Prosperity with Refinance as Lever.

• Rural Infrastructure Development Fund (RIDF) is a fund to promote the

investment in infrastructure for agriculture. State Governments as well as

Panchayat Raj Institutions (PRIs), Non-Governmental Organizations, Self-Help

Groups, etc. are eligible to borrow out of RIDF for their schemes like ongoing

Irrigation, Flood Protection, Watershed Management projects, rural Road & Bridge

projects, Primary and Secondary Schools, Primary Health Centers, Village Haats,

Joint Forest Management, Terminal and Rural Market/Godowns,

Rain Water Harvesting, Watershed development, flood protection, drainage, Cold

Storage, Riverine Fisheries, Fishing Harbour& Jetties, Mini/Small Hydel Projects

in Power Sector, Rural Drinking Water Supply Schemes, Citizen Information

Centres, Modern abottoir, Seed/Agri./Hori.Farms etc.

• Rural Farm and Non Farm Sector Schemes

• Refinance for Rural Housing Facilities scheme provides Credit to the

Individuals, Co-operative Housing Societies, Public Bodies, Housing Boards/

Housing Development Authorities/ Improvement, Trusts, Local Bodies,

Voluntary agencies and NGOs, Housing Finance Companies registered, with NHB

for finance extended by them to housing projects in the 'rural' areas only. The

finance is provides for Construction of New Houses as well as Repairs/Renovation

16

of existing houses in rural areas/ Rainwater Harvesting Structures/ Sanitary

Latrines, etc.

• Under the Micro Credit Innovation scheme, NABARD facilitates sustained

access to financial services for the unreached poor in rural areas through various

microFinance innovations in a cost effective and sustainable manner

• NABARD has been designated the Implementing Agency for implementing the

Revival Package in all the states. TheDepartment for Cooperative Revival and

Reforms (DCRR) has been constituted in NABARD for this purpose. NABARD

is providing dedicated manpower at the national, state and district levels for

implementing the Package.

• Loans to State Governments for funding equity of Co-operative Credit

Institutions.

• NABARD has formulated a Model scheme for issue of Kisan Credit Cards to

farmers, on the basis of their land holdings, for uniform adoption by banks, so that

the farmers may use them to readily purchase agricultural inputs such as seeds,

fertilisers, pesticides, etc. and also draw cash for their production needs. Farmers

have to get in touch with Authorised banks to use this facility

• A Research and Development Fund has been established by the bank with the

objective of acquiring new insights into the problems of agricultural and rural

development through in-depth studies and applied research and trying out

innovative approaches backed up by technical and economic studies. It includes

facilities for training, dissemination of information and promotion of research by

undertaking studies techno-economic and other surveys in the fields of agriculture,

rural banking and rural development. The eligible Institutes for the fund are

Approved research institutions, organizations and other agencies which are

engaged in action-oriented, applied research, Individuals or groups of individuals

would also be extended assistance provided they are sponsored by suitable

17

organizations which would certify the proper use and accounting of funds, Private

and commercial organizations are not normally eligible for assistance under the

this fund.

• SWAROJGAR CREDIT CARD SCHEME aims at providing adequate and

timely credit ie. Working capital or block capital or both to small artisans,

handloom weavers, service sector, fishermen, self employed persons, rickshaw

owners, other micro-entrepreneurs, SHGs, etc from the banking system in a

flexible, hassle free and cost effective manner. Borrowers in urban areas can be

covered under SCC Scheme. Small business covered under priority sector is also

eligible under SCC Scheme. Any scheme/project that is income generating/

employment generating may be covered under the scheme. The facility may also

include a reasonable component for consumption needs. Farm sector activities like

fisheries, dairy, etc. can also be covered under the scheme. Generally such of the

self-employment activities which have regular turn over/income stream on short-

interval basis can be covered under SCC scheme. SCC is a credit delivery mode

and not a purpose. Coverage of SCC will not make a unit ineligible for subsidy.

Banks can issue SCCs to target borrowers of SCC scheme for disbursing credit

under any schemes whether they are covered under subsidy or not.

• Farmers' Club Programme is a grass root level informal forum. 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. The

broad functions being to coordinate with banks to ensure credit flow among its

members and forge better bank borrower relationship, interface with subject matter

specialists in the various fields of agriculture and allied activities etc., extension

18

personnel of Agriculture Universities, Development Departments and other related

agencies for technical know how

up gradation. Liaison with Corporate input suppliers to purchase bulk inputs on

behalf of members, organize/facilitate joint activities like value addition,

processing, collective farm produce marketing, etc.; for the benefit of members.

They can also sponsor / organise SHGs, undertake socio-economic

developmental activities like community works, education, health, environment

and natural resource management etc.

• NABARD Consultancy Services (Nabcons) is engaged in providing

consultancy in all spheres of agriculture, rural development and allied areas.

Nabcons leverages on the core competence of the NABARD in the areas of

agricultural and rural development, especially multidisciplinary projects, banking,

institutional development, infrastructure, training, etc., internalized for more than

two decades.

• Crafts Mart scheme was initiated with the objective of providing the rural

artisans and entrepreneurs access to urban and upcountry markets, products of few

artisans supported by NABARD under its various promotional programmes are

displayed along with the contact addresses

• Rural Innovation Fund (RIF) is a fund designed to support innovative, risk

friendly, unconventional experiments in Farm, Non-Farm and micro-Finance

sectors that would have the potential to promote livelihood opportunities and

employment in rural areas. The following areas/sectors are as thrust areas for

support from the Fund. Dry land / Rain fed farming, Rainwater harvesting, Energy

from biomass, Crop residues and non-crop bio mass, Distribution and use of water

19

and energy, Storage devices for agricultural and rural products, Managing common

property resources, Roads, Sanitation and Waste disposal, micro-Finance,

Entrepreneurship/Skill development, micro-Enterprises, Marketing, Housing,

Service sector, Health care and Hygiene.

• Water Harvesting Scheme is for the SC / ST Farmers with main objective of the

scheme is to cover SC/ST farmers in providing irrigation facilities to their

homesteads / farmlands. In order to augment the income generating capacity of

these SC/ST farmers suitable local water-harvesting structures are proposed along

with provision for small lifting devices on a nationwide scale. Freshwater

aquaculture wherever feasible can also be taken up as per the choice of farmers.

CHAPTER 4

DEVELOPMENT ROLES OF NABARD

Credit is a critical factor in development of agriculture and rural sector as it

enables investment in capital formation and technological up-gradation. 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. 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 actions

plans for themselves

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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

the irrespective 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

Create awareness among the borrowers on ethics of repayment through Vikas

Volunteer Vaahini and Farmer’s club, provide financial assistance to cooperative

banks for building

Improved management information system, computerization of operations and

development of human resources

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

21

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.

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.

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, 2004aggregated 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:

22

*Objective of the Fund:

• Supporting the efforts of grass root level institutions

(PACS) to mobilize resourcesetc.

•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.

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

51,283crore for 2,44651 projects under the Fund.

A cumulative position of sector-wise sanctions as on 31st March 2006 : Irrigation :

Rs15105,50 crore(107.92 lakh hectares) Rural Connectivity :Rs 20,290,40 crore of

rural road

23

network (2.20 lakh km) and bridges (3.69 lakh mtrs) power Rs 1,327.7 crore social

sector :Rs 4,128.1 croreOther :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.

Chapter 5

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 creating sustainable employment opportunities in rural

areas. Today itis being implemented in 106 districts all over thecountry.

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 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.

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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

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

suchendeavour. With the financial support of NABARD under its

promotionalprogrammes like Rural Haats, Rural Marts, participation in fairs,

exhibitions andmarketing melas, rural artisans and entrepreneurs can get a larger

market for theirproduce and showcase their talent to urban and upcountry markets.

Revival of Short-Term Rural Co-operativeStructure(STCCS)

NABARD is the implementing agency for the Revival package for the STCCS

which mean the State Coop. Banks, District Coop. Banks and the Primary

Agricultural Coop. Societies. (PACS). The revival package has been approved by

the Govt. ofIndia based on the recommendations of the Vaidyanathan Committee.

NABARD hashad dialogues with State Govts. and so far 10 states have executed

MOU with GoI and NABARD. Apart from being on the national, state and district

level implementing committees, NABARD has designed guidelines and training

manuals for the special audit of PACS under the Package.

25

Rural Innovation Fund:

In association with Swiss Agency for Development and Cooperation

(SDC),NABARD has constituted the “NABARD SDC Rural Innovation Fund

(RIF)” to support innovative projects in Farm, Non-Farm and Micro-Finance

Sectors leading to creation of livelihood opportunities for the poor. Government

and Non-Government Institutions, corporate bodies, financial institutions and

individuals can avail funding support for activities involved in development of new

products, processes, prototypes, technology etc. which have the poor in their focus.

NABARD Consultancy Services

(NABCONS)

NABCONS is a wholly owned subsidiary of NABARD, which has established

itself as a dependable and professional consultancy services provider in agriculture

and allied activities. As on 31 March 2007 , it has cumulatively contracted 487

national and international assignments involving consultancy fee of Rs.25.49

crores.

Co-Financing

It has been the experience that Banks are wary of taking credit risk of financing

hightech/large scale/ export oriented agricultural projects or those involving

sunrise technologies.

To instill confidence in banks and ensure credit flow to such projects, NABARD

has entered into agreements for co-financing with 14 commercial banks. During

2006-07, seven projects

were sanctioned with bank loan of Rs. 145.03 crore and NABARD's share of Rs.

72.42crore. Floriculture, organic farming, milk processing, ethanol production.

26

CHAPTER6

LATEST SCHEMES NABARD

MILLION SHALLOW TUBEWELLSPROGRAMME

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 tube

wells with pump sets to bring an additional two million hectares 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

27

i.e the borrowers will not be eligible for subsidy if loan is liquidated completely

within five years from the date of initial disbursement.

ON FARM WATER MANAGEMENT FOR

INCREASING CROP PRODUCTION IN EASTERNINDIA (OFWAMS)

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, Chhattisgarh, Jharkhand, Manipur, Mizoram

and Orissa and 35 districts of Eastern UP

and 9 districts of West Bengal.

The funding pattern of the scheme 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/STborrowers. 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 and2002-03 are 48699 Shallow Tubewells with

pumpsets, 4571 LLIP, 924 Dugwells and 6252Pumpsets.

28

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

NABARD SDC Rural Innovation Fund

[RI 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 being on 01

October 2005.It is envisaged that the entire fund will be utilized 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.

29

• 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-fertilizers 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.

• Insurance products for rain fed agriculture.

• Banking through SHGs, VWCs and user teams, Joint Liability

Groups, etc.

• Innovative rain water harvesting for rural dwellings.

30

• 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.

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

31

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.

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.

32

CHAPTER 7

Nabard's refinance scheme for Kerala co-op bank

The Regional Office of Nabard has released schematic refinance to the tune of Rs

15.29crore to the Kerala State Cooperative Agricultural and Rural Credit Bank

(KSCARDB). An official spokesman said here that, of this, Rs 9.47 crore was

directed to the rural housing sector while the rest would go into various non-farm

sector activities, including road transport operators. The applicable rates of interest

ranged from 5.5 per cent to 6.5 per cent per annum.

So far during this financial year, Nabard has released schematic refinance

aggregating toRs 102.78 crore to various agencies in the State. This includes Rs

57.33 crore advanced to

the apex Kerala State Cooperative Bank (KSCB), Rs 29.51 crore to the two

Regional Rural Banks (RRBs) in the State and Rs 0.64 crore to commercial banks

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

percent rate of interest with quarterly rest, payable between three and five years,

according to a bank release

33

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, Chhattisgarh, Jharkhand,

Manipur, Mizoram and Orissa besides 35 districts of Eastern 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.115crore 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 planned manner with proper

spacing. Thus, there will be a substantial increase in agricultural production and

productivity and per capita income.

GENDER DEVELOPMENT

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 -

34

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.

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 crorecovering 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.

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 ofMother Units, Product Design, Quality

Control, Organising Women etc. NABARD provides100% 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.

35

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.

Development of Women through Area

Programme (DEWTA)

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).

36

•Support to Small and Marginal Farmers

(SF & MF) -

As per NABARD’s refinance policy for production credit, the banks are required

to earn, mark 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. SUCH AS

Adivasi Development programme in Gujarat

The programme has been under implementation with grant support from

KfW,Germany, since 1994-95 in DharampurTaluka of Valsad district through

BAIF Development Research Foundation, Pune. The focus is on development of

wadi (small

orchard) while other supportive interventions viz, water resource development,

agriculture development, women development, health and sanitation are also

addressed. Small and marginal farmers, including women, are selected under the

programme.

The landless are supported by providing them micro-enterprises in farm and non-

farm sectors and employment opportunities in processing units. The establishment

of village level people’s organisations (POs) called Village AyojanSamitis (VAS)

have been the strongest tool and nuclei for planning and implementation of the

programme. The programme hasbeen a great success in converting 5,140 ha

37

wastelands into orchards of cashew, mango and forestry plants by 13,663 adivasi

families from 162 villages.

Adivasi Development Programme in Tribal Areas of Maharashtra

The successful implementation of Wadi model in Gujarat is being replicated in

Maharashtra (Nasik and Thane districts) with grant support from KfW, Germany

through Maharashtra Institute of Technology Transfer for Rural Areas (MITTRA),

Nasik, an NGO promoted by BAIF, Pune.

The programme with a project period of ten years (2000-2010), aims to

support15,000 tribal families by developing wadis on their marginally productive

lands. The project

which was launched in September, 2000 has covered an area of 2076 ha under

wadis belonging to 5676 families from the 160 villages and has been instrumental

in bringing about an overall improvement in the quality of li8fe of the families in

the project area.

38

CHAPTER 8

Supervisory role of Nabard

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

supervisory functions in respect of Coop 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.

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.

39

*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.

*Instruments of Supervision

Periodic on-site inspection of 31 SCBs , 371 DCCBs, 20 SCARDBs and 82 RRBs

and other Apex level Cooperative institutions Supplementary AppraisalOff-site

Surveillance System ( OSS )Portfolio inspection/System study CMA returns

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

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.

40

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.

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.

Off-site Surveillance

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 analyze 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

41

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.

Board of Supervision (for SCBs, DCCBs andRRBs)

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 identifying the emerging

supervisory issues in the functioning of cooperative banks/RRBs such as NPAs

recovery, investment portfolio, credit monitoring system, management

practices, frauds, etc. 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

42

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.

Other Initiatives

The day-to-day functioning of the supervised banks is being monitored through

various statutory returns prescribed by the RBI/NABARD including OSS returns

Periodic coordination Meets are conducted with RPCD, RBI to discuss the policy

and operational matters relating to supervision State level groups comprising RCS,

Apex bank, Cooperation and Finance Department, State Government, Director of

Audit and non-compliant banks have been constituted/convened for

preparing/discussing suitable strategy for Section 11 non-compliant banks and

monitoring the progress of Action Plan prepared by them to facilitate them

recompliance with the

provision. Periodic discussions are held with the MD, Apex Banks, RCS, State

Government etc. to discuss the supervisory concerns.

43

CHAPTER 9

NABARD Consultancy Services Pvt. Ltd. (NABCONS):

NABCONS was set up on 17 November 2003 with an authorized capital of Rs.

25crore of which Rs. 5 crore has been fully subscribed by NABARD. It provides

consultancy services in agriculture, agro processing and infrastructure projects,

institutional development, microfinance, watershed development, non-farm

enterprises, training, potential identification and related areas. In 2003-04,

NABCONS had contracted business to the tune of Rs.10.26 crore. The clients of

NABCONS include GoI, State Governments, Banks, International Bodies,

Corporate entities and individuals.

NABARD AND MICROFINANCE IN INDIA-AN OVERVIEW

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

branchexpansion1 was synergized 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

44

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

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 subsidized 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.

45

The launching of its Pilot phase of the SHG (SelfHelpGroup) 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 recognized as bank clients under the Pilot phase. The strategy involved forming

small, cohesive and participative groups of the poor, encouraging them to pool

their thrift regularly and using the pooled thrift to make small interest bearing loans

to members, and in the process learning the nuances of financial

discipline. Subsequently, bank credit also becomes available to the Group, to

augment its resources for lending to its members. It needs to be emphasized that

NABARD sees the promotion and bank linking of SHGs not as a credit programme

but as part of an overall arrangement for providing financial services to the poor in

a sustainable manner and also an empowerment process for the members of these

SHGs. NABARD, however, also took aconscious decision to experiment with

other successful strategies such as replicating Grameen, wholesaling funds through

NGO-MFIS. The NABARD led Pilot Project commenced with the support of the

Central Bank of the country, i.e., Reserve Bank of India, from 1992 onwards aimed

at promoting and financing500 SHGs across the entire country, the SHG- bank

linkage strategy has come a long way. The strategy includes financing of SHGs

promoted by external facilitators like NGOs, bankers, socially spirited individuals

and government agencies, as also promotion of SHGs by banks themselves and

financing SHGs directly by banks or indirectly where NGOs and similar

organizations act as financial intermediaries as well.

46

CHAPTER 10

NABARD and Natural Resource Management

NABARD being apex institution directly and indirectly has been facilitating

processes to address the above challenges. NABARD‘s policy on NRM envisages

“enhancing livelihoods and quality of life of the rural community through

improved resource conditions”. The policy indicates that NABARD would direct

its NRM interventions towards achieving structural impact on the NRM sector for

livelihood enhancement, poverty reduction and ecological sustainability.

NABARD has done pioneering and innovative work in NRM sector through its

various programs like Watershed development, WADI program under Tribal

Development Fund, Rural Habitat Programs,

Environment Promotional Assistance, Rural Innovation Fund and Farm Innovation

and Promotion Fund(FIPF) etc. NABARD has also experimented with Farmers

Club (FCs), Joint Liability Groups(JLGs), SelfHelp Groups (SHGs) as means of

peoples’ participation in development. Through these interventions,

NABARD has been able to prove the success of the experiment and successful

models have emerged. The larger replication on a wider scale requires more

partners and public and private investments. While NABARD would take up the

policy advocacy and capacity building needs, it looks towards the financial

institutions to come forth for financing the NRM based livelihood interventions

and towards the technical institutions for appropriate technology. To give focused

attention and facilitate NRM activities on a larger scale, NABARD has set up a

Natural Resource Management Center (NRMC) at Kolkata. NRMC is visioned as a

brand institution of NABARD and an institution of excellence, which will facilitate

the thematic leadership role of NABARD in NRM sector.

47

Objectives and Functions

The overall objective of NRMC is to facilitate improvement in livelihoods of rural

poor through sustainable management of natural resources. For achieving this, the

center would undertake following initiatives,

•identify appropriate technologies available and ready for transfer

•Awareness creation among and capacity building of communities and other

stakeholders about the need and utility of appropriate technologies. Identification

and documentation of successful models.

Focus Areas of NRMC

The centre’s core functional areas would relate to land, water and biotic resources

including forestry. The agricultural production subsystems and renewable energy

will also be the focus along with national priorities / global concerns / eastern &

northeastern regional concerns like,

Food Security concerns

Sustainable agricultural growth @ 4% p.a.

Climate change (proofing, adaptation, mitigation)

Disaster Management (Special focus on flood control in Eastern Region).

Energy Security – Need for renewable energy (Bio-fuel, solar, wind)

Evolution / dissemination of NRM based livelihood approaches

Financial Products development suited to NRM Sector

Other related areas (e.g. delivery models, gender issues).

•Facilitate replication of successful models in NRM and transfer of technologies

48

•Facilitate NRM based livelihoods integrating technology and credit

•Promote CDM technologies and facilitate C- credit earning

•Take up/ facilitate special studies, meets, workshops, Action research/ research in

NRM

•Networking with academic institutions, research organizations, policy making

institutions, technical institutions, financial institutions, livelihood promoting

institutions.

•Adopt a multi sectoral and multi disciplinary approach.

•Policy feedback and advocacy.

•Publish relevant literature for various stakeholders

•Maintain comprehensive database on resources, technologies and approaches in

NRM

•Establish and maintain information and knowledge systems(IKM) for various

stakeholders

•Serve as NRM development technology clearing house

INTERNATIONAL ASSOCIATIONS OF NABARD

NABARD's international associates range from World Bank-affiliated

organizations to global developmental agencies working in the field of agriculture

and rural development.

These agencies offer material and advisory help in implementing schemes that are

aimed at uplifting the rural poor and in making agricultural processes effective and

yielding.

CHAPTER 11

49

The World Bank Group – The

International Development Association

The World Bank works in close partnership with India’s Central and State

Governments, aligning its strategies with the country’s own development agenda.

It lays emphasis on investing in people through better health and education,

empowering communities to participate in their own development, improving the

effectiveness of government, and promoting private sector-led growth to achieve

the country’s development goals

IDA – Rubber Project

The Project was under implementation since January 1994 and closed on

30September 2000. The achievements as at closure were commendable as more

than 85,500ha. were replanted and newly planted with high yielding clones. More

than 96% of the beneficiaries under replanting and 99% in new planting were small

holders owning up to 2ha. Owing to productivity enhancement measures adopted

under the project, the yield increased by 379 kg per ha. from the base yield. In

general, economic status of the rubber cultivators improved in the project areas.

Under the project refinance assistance of Rs.

604.57 million was provided by NABARD to banks for financing rubber growers

and processors for increasing production and generating on and off-farm

development through activities such as rubber planting, replanting and processing

of rubber and rubber-wood activities in the traditional rubber growing states viz.,

Kerala, Tamil Nadu and selected non-traditional states viz., Tripura, Karnataka,

Assam, Meghalaya and Nagaland. The project has since come to a close.

Revitalization of Cooperatives

50

World Bank is presently actively appraising a loan to the Government of India for

revitalization of short term credit cooperative structure (STCCS) as proposed under

the

recommendations of Vaidyanathan Committee. World Bank is working closely

with NABARD, which is the designated project implementing agency for the

revitalization of STCCS.

Kreditanstalt fur Wiederaufbau (KfW)

NABARD has been implementing projects with assistance from Government of

Germany since 1990 in the sphere of Natural Resource Management, Micro

Finance, and Rural

Enterprise promotion and Development of Financial Sector.

Two phases of projects relating to Watershed Development have been completed

in Maharashtra during 1990-1999 and 1999-2005, propagating participatory

approach to watershed development involves the communities who also committed

to maintain the assets after the completion of the project. More than 1 lakh in 160

villages in 21 districts of Maharashtra have been treated under this programme.

Based on the success of the project, Government of India modified its Watershed

guidelines (Hariyali) to incorporate some of the elements of the Indo-German

Watershed project implemented by NABARD

The major benefits of the programme are –

Primary Impact

Augmentation of drinking water availability

Improvement in Ground Water recharge

Increase in agricultural production

51

Decline in Migration to urban areas

Secondary impact

Improvement in quality of life;

Housing

Health; and

Education (attendance in schools)

The other main initiative was promotion of sustainable livelihoods for Tribals

through tree based farming approach. The programme contributed to livelihood of

more than 13000

families through plantation of mango and cashew in 1 acre plantations. In the

initial years supplementary income was generated through inter-cropping with

pulses, growing

vegetables in corner patches and boundary plantation of fodder varieties. When the

tree started bearing fruits, additional employment was generated for processing the

fruits through

groups and cooperatives of villagers. The implementing NGO had a producer

cooperative where the products were further processed into various table varieties.

The produce from the

project is even being exported.

*Projects under implementation in association with - NABARD - Adivasi

Development Programme, Gujarat - (Grant assistance of Euro 13.29 million

equivalents to DM 26 m)

52

The project is under implementation since 1994 and will end by 30 December

2007. Itenvisages rehabilitation of about 8000 tribal families and 2000 landless

women living in the

Dunger region of Dharampur Taluka of Valsad district in Gujarat through

development of 1acre of marginal/ waste land per tribal family on an average by

adoption of soil and water

conservation measures, development of plantation with fruit, fuel and fodder

cultivation aswell as inter-cropping. The programme was subsequently extended to

nearby Dangs District

of Gujarat to cover 700 additional tribal families. BAIF Research and

Development Foundation, Pune, is the implementing agency. As on 30 September

2006, the cumulative

coverage under this programme stood at 12733 acres benefiting 13663 families

from 162villages for which grant assistance of Rs. 50.85 crore has been received

upto 31 December

2006 from KfW.

*KfW - NABARD - Adivasi Development Programme Maharashtra -

Grant Assistance of Euro 14.32 million)

The project is similar to the one in Gujarat and aimed at improving the socio-

economic condition of 14,000 tribal families and 1000 landless women through

various economic and social welfare activities in 3 hilly blocks of Thane and Nasik

districts of Maharashtra. The project is being implemented through Maharashtra

Institute for Technology Transfer for

Rural Areas (MITTRA), an associate of BAIF, Pune. It commenced in September

2000 and is operative up to 30 December 2010. As on 31 September 2006, 13848

53

families from 258villages had taken up wadi development in 12294 acres for

which grant support of Rs 33.10crore was received upto 31 December 2006 from

KfW.

*KfW - NABARD - Adivasi Development Programme Gujarat Phase II -

Grant Assistance of Euro 7.00 million

The second phase of the project envisages coverage of additional 4000 families

from about90 villages in Dangs district and 700 families in Dharampur taluka of

Valsad district. The

project is proposed to be implemented over a period of 10 years through

DHRUVA, anassociate of BAIF Development Research Foundation, Pune. The

Financing Agreement was signed on 28 March 2006 and the Guarantee Agreement

between KfW and GoI was signed on 16 May 2006. The implementation

agreement with DHRUVA has been executed during Jan 2007 and project

implementation has begun with baseline survey of the project area.

*KfW - NABARD - Indo German Watershed Development Programme

Rajasthan -Grant Assistance of Euro 11 million

The Programme is scheduled to be implemented in Banswara, Chittorgarh,

Dungarpur and Udaipur districts of Rajasthan with financial assistance of Euro 11

million over a period often years commencing from January 2007. The Objective

of the programme is to develop atleast 30 micro watersheds to stabilize agricultural

production and improve pasture lands. The agreements were executed with KfW

during December 2006. The programme is expected to be grounded shortly

54

CHAPTER11

Set backs of NABARD

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.

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

55

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 NABARDAct,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.

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.

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.

56

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 1.5per 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 0.5per 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 India. Parallely the government could be sending the

57

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 organization 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 mobilize 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

borrower

58

Chapter

Promotional intiatives by NABARD

KISAN CREDIT CARD SCHEME

Genesis

Hon'ble Union Finance Minister announced in his budget speech for 1998-

99 that NABARD would formulate a Model scheme for issue of Kisan

Credit Cards to farmers, on the basis of their land holdings, for uniform

adoption by banks, so that the farmers may use them to readily purchase

agricultural inputs such as seeds, fertilisers, pesticides, etc. and also draw

cash for their production needs'.

NABARD formulated a Model Kisan Credit Card Scheme in consultation

with major banks.

Model Scheme circulated by RBI to commercial banks and by NABARD to

Cooperative banks and RRBs in August 1998, with instructions to introduce

the same in their respective area of operation.

Objectives

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.

59

Contents of Credit Card

Beneficiaries covered under the Scheme are issued with a credit card and a

pass book or a credit card cum pass book incorporating the name, address,

particulars of land holding, borrowing limit, validity period, a passport size

photograph of holder etc., which may serve both as an identity card and

facilitate recording of transactions on an ongoing basis.

Borrower is required to produce the card cum pass book whenever he/she

operates the account.

4. Salient features of the Kisan Credit Card (KCC) Scheme

Eligible farmers to be provided with a Kisan Credit Card and a pass book or

card-cum-pass book.

Revolving cash credit facility involving any number of drawals and

repayments within the limit.

Limit to be fixed on the basis of operational land holding, cropping pattern

and scale of finance. Entire production credit needs for full year plus

ancillary activities related to crop production to be considered while fixing

limit.

Sub-limits may be fixed at the discretion of banks.

Card valid for 3 years subject to annual review. As incentive for good

performance, credit limits could be enhanced to take care of increase in

costs, change in cropping pattern, etc.

Each drawal to be repaid within a maximum period of 12 months

60

Conversion of loans also permissible in case of damage to crops due to

natural calamities

Security, margin, rate of interest, etc. as per RBI norms

Operations may be through issuing branch (and also PACS in the case of

Cooperative Banks) through other designated branches at the discretion of

bank.

Withdrawals through slips/cheques accompanied by card and passbook

Advantages of the Kisan Credit Card Scheme

Advantages to farmers

Access to adequate and timely credit to farmers

Full year's credit requirement of the borrower taken care of

Minimum paper work and simplification of documentation for drawal of

funds from the bank.

Flexibility to draw cash and buy inputs

Assured availability of credit at any time enabling reduced interest burden

for the farmer

Sanction of the facility for 3 years subject to annual review and satisfactory

operations and provision for enhancement.

61

Flexibility of drawals from a branch other than the issuing branch at the

discretion of the bank

Benefits of the Scheme to the Banks

Reduction in work load for branch staff by avoidance of repeat appraisal and

processing of loan papers under Kisan Credit Card Scheme.

Minimum paper work and simplification of documentation for drawal of

funds from the bank.

Improvement in recycling of funds and better recovery of loans

Reduction in transaction cost to the banks.

Better Banker - Client relationships

Budget 2001-02 announcement - Follow up :

Hon'ble Union Finance Minister in his Budget Speech for the year 2001-

02 set the future agenda for the Scheme as under :

“The innovation of KCC is proved to be very successful. Since the year of its

introduction in 1998-99, almost 110 lakhs KC cards have been issued. I am

asking our banks to accelerate this programme and cover all eligible

agricultural farmers within the next 3 years. I am also asking the banks to

provide a personal insurance package to the KCC holders as is often done

with other credit cards to cover them against accidental death or permanent

disability, up to maximum amount of Rs.50,000/ and Rs.25,000/- respectively.

The premium burden will be shared by the card issuing institutions. "

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Coverage of farmers - Future strategy

Banks, vide our Circular letter No.NB.PCD(KCC)/29/ 2001-02 dated 10

April 2001, requested to draw up an action plan immediately in

consultation with our Regional Office concerned, based on their past

performance and experience in implementing the scheme, to ensure the

coverage of all the eligible agricultural farmers under the KCC Scheme

within the next three years i.e. by 31 March 2004.

Banks to ensure that targets fixed for 2001-02, 2002-03 and 2003-04

include new agricultural farmers likely to become eligible for their KC

cards after 31 March 2001 also.

Targets fixed for issue of KC Cards be disaggregated month-wise and

branch/PACS-wise to facilitate close monitoring of progress vis-a-vis

target and also advised to RO concerned.

In order to ensure achievement of the targets so fixed, banks requested to

follow strategies suggested by NABARD from time to time. Towards this

end, banks to launch a campaign approach to accelerate pace of

implementation of the Scheme. Following specific steps may be taken by

the banks :

Conduct of Sensitisation/training programmes for the officers of

controlling offices of banks, branch managers and field level

functionaries as also district level functions for distribution of cards.

Holding Banker-Farmers' Meets, as part of the Kharif 2001 campaign, in

each block to identify the ground level constraints in the smooth

63

implementation of the Scheme and to initiate remedial measures

therefore

Use of VVV Clubs fora for propagation of the scheme.

Placement of hoardings/banners etc. at prominent places, such as branch

premises, Panchayat buildings, Mandis, etc.

Use of audio-video media, bringing out KCC literature in local language

to create better awareness about KCC Scheme among farmers.

Issue of plastic/laminated cards to serve as Identity Cards.

Monitoring of progress in implementation of the Scheme in Board

meetings as also through various state/ district and block level fora with

the participation of Government functionaries, bankers, farmers etc.

Personal Accident Insurance Scheme -Salient features :

Designated insurance company will nominate one office at district level to

function as nodal office for coordinating implementation of personal

accident insurance scheme for KCC holders in the district.

Nominated office of insurance company to issue a Master Insurance Policy

to each DCCB/RRB covering all its KCC holders

Premium payable Rs.15/- for a one year policy while Rs.45/- for a 3-year

policy.

Insurance coverage available under Policy only from date of receipt of

premium at insurance company

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Banks to ensure to incorporate name of Nominee in Kisan Credit Card-cum-

Pass Book

Simplified claim settlement procedure evolved under Scheme whereby an

Enquiry-cum-Verification Committee comprising Branch Manager of

implementing bank, Lead Bank Officer and representative of insurance

company to certify nature of accident causing disability/death and

recommend settlement of insurance claims.

Scheme covers risk of KCC holders against death or permanent disability

resulting from accidents caused by external, violent and visible means, as

under:

Death due to accident (within 12 months of the accident)

Caused by outward, violent and visible means -- Rs.50, 000/-

Permanent total disability -- Rs.50, 000/-

Loss of two limbs or two eyes or one limb and one eye -- Rs.50, 000/-

Loss of one limb or one eye -- Rs.25, 000/-

(cover subject to certain exclusions as per Annexure-A to Master Policy

document)

Major Steps taken by NABARD:

A Brochure on KCC Scheme highlighting the salient features, advantages

and other relevant information about the Scheme was brought out by

Head Office and ROs were asked to circulate the brochure to State govt.

65

departments, Commercial Banks, Cooperative Banks, RRBs and other

concerned agencies/officers so as to generate wider awareness about the

Scheme.

Floor limit of Rs.5000/- for issue of KC Cards stands withdrawn.

Studies on KCC Scheme have been entrusted to BIRD and NABARD

Staff College to facilitate feedback on the ground level issues/problems

so that changes, where necessary, could be considered.

Studies on the implementation of the Scheme undertaken by NABARD

periodically.

On the lines of instructions of RBI to Commercial Banks, Cooperative

Banks and RRBs have been advised that they may, at their discretion, pay

interest at a rate based on their perception and other relevant factors on

the minimum credit balances in the cash credit accounts under the Kisan

Credit Cards of farmers during the period from 10th to the last day of

each calendar month.

NABARD has prepared a Model Scheme for providing financial

assistance for publicity campaign activities of Cooperative Banks under

KCC Scheme under CDF with a view to speed up the pace of

implementation of KCC Scheme.

Progress in implementation of the Scheme

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.

66

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.

Supervisory

67

CONCUSION

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

68

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 toRs.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,

69

today this 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 linearization phase, got improved 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 agri

credit in the country—from Rs.86,981 crore in 2003-04 to Rs.1,46,688 till

February end 2006.

Chapter

The Bank’s recent initiatives

NABARD to provide Rs 400 cr credit for Punjab dairy sector

70

NABARD to provide Rs 400 cr credit for Punjab dairy sector

Chandigarh, Dec 3 (PTI) National Bank for Agriculture and Rural Development

(NABARD) will provide a credit flow of Rs 400 crore to the Punjab's dairy sector

during the next three years to boost milk production and promote dairy farming in

the state, an official release said here today. NABARD has identified three districts

-- Ludhiana, Jalandhar and Ropar for modernisation and capacity building in the

dairy sector, it said. NABARD is in the process of redefining the concept of dairy

sector as commercial activity rather than calling it as allied agriculture activity, the

release said. It said that milking machines will be provided to dairy farmers, milk

coolers would also be given to both farmers and societies, under the project.

Punjab's dairy farming has 9 per cent share in the country's milk output with less

than 2 per cent livestock, it said. Per capita availability of milk in the state stood at

931 gm, which is highest in the country, it added. For cheaper and economic milk

production, resources of green fodder will be further developed in the state for

sustainable dairy farming. The government will provide about 30,000 quintals

fodder seeds to the farmers annually for enhancing green fodder production, it said.

PTI SUN DKR

As farmers suffer, NABARD offers soft loans to corporates

 

71

Private companies get loans at 6.5% with additional cash refunds; for farmers it is

7%

The National Bank for Agriculture and Rural Development (NABARD), which is

dedicated to promoting rural development by providing soft loans to State

governments for social sector projects, has given hundreds of crores as loans to

corporates on concessional terms.

In the Union Budget of 2011-12, Rs. 18,000 crore was allocated by the Centre to

NABARD’s Rural Infrastructure Development Fund (RIDF), of which Rs. 2,000

crore was exclusively earmarked for the creation of warehousing facilities. While

the allocation of Rs. 16,000 crore to the States was made by NABARD’s State

Projects Department, the allocation of Rs. 2,000 crore towards warehousing was

entrusted to a new team set up on the recommendation of global consulting firm

72

Boston Consulting Group (BCG), after being awarded the mandate for a

repositioning exercise.

In a circular of September 27, 2011, NABARD, making a significant deviation

from its earlier policies, included private entities as eligible institutions without

consulting the RBI. In another circular of December 23, 2011, NABARD further

revised the scheme, again without consulting the RBI, to provide private firms an

interest rate rebate of 1.5%. In violation of the regulated 8% rate levied by RIDF,

an avenue was created for flow of funds to corporates and release of the interest

rate rebate to the borrowers directly by NABARD.

According to documents available with The Hindu, a total of Rs. 759 crore was

disbursed, including as refinance at 8% to various banks to fund 516 warehouses

and cold storage projects of private entities in March 16-31, 2012. Shubham

Logistics Ltd, a subsidiary of the over Rs. 6,000 crore Kalpataru Group, was

handpicked for a rebate of 1.5%, allowing it to access Rs. 115 crore under a

government scheme at a concessional 6.5% rate of interest. Shubham Logistics

would have paid a 10.5% rate of interest had the funds been sourced from the

market. The company, which was disbursed a total of Rs 180.87 crore, to set up 18

warehouses, became the beneficiary of a further 15% subsidy under another

government scheme, entitling the company to a refund of over Rs. 20 crore.

The two schemes that were used to favour Shubham Logistics are Grameen

Bhandaran Yojana which offers subsidy of 15% to 33.33% for construction of rural

godowns. For corporates the subsidy is 15% of total financial outlay up to a

maximum of Rs 28.12 lakh. Under the other scheme, ‘Warehousing scheme under

RIDF’, banks are offered refinance at 8% which can be further reduced to 6.5% as

an incentive for prompt repayment.

73

Documents reveal that the RBI has questioned NABARD’s interest rate

manipulations in financing warehousing projects without its permission and

demanded a recall of the Rs. 759 crore allocated to private firms. Compliance with

this directive means that NABARD will have to return the money to the RBI and

raise debt from the market to honour its commitments. This is likely to hit

NABARD’s balance sheet by roughly Rs. 150 crore. The Ministry of Agriculture

has further questioned irregularities in Shubham Logistics storage projects in

Deesa, Banaskantha, pointing out that the project is ineligible for sanction of the

subsidy.

Meanwhile, Aditya Bafna, Executive Director of Shubham Logistics Ltd (SSLL), a

subsidiary of Kalpataru Power Transmission Ltd was appointed Director on the

board of NABARD Consultancy Services Private Ltd (NABCONS) — a wholly

owned subsidiary of NABARD — on January 15, 2010. He refused to comment on

either the allegations of special favours or the conflict of interest arising from his

appointment on the NABCONS Board.

NABARD’s response to a RTI query reveals that it released Rs 13.3 crore BCG for

a ‘repositioning’ report that it admits has never been submitted. Sources in

NABARD allege that an additional payment of Rs. 9 crore has also been released

to “rollout the recommendations”. NABARD Chairman Prakash Bakshi, under

whose leadership these transactions were sanctioned, did not respond to detailed

questions that were emailed to him on December 3, including on the fresh release

of Rs 9 crore to BCG or what hit NABARD’s balance sheet was likely to take after

the repayment to RBI of the unauthorised fund transfers to corporates.

BCG’s Chairman, Asia Pacific, Janmejaya Sinha did not respond to detailed

questions regarding whether the firm had any exposure to working with any

74

developmental financial institution prior to its consulting assignment with

NABARD, especially in the Asia Pacific region, the terms of reference and

payment for the assignment or whether it was true that BCG was scouting for fresh

business opportunities with the RBI.

75