Functions of NABARD – National Bank for Agriculture and Rural Development

 Q. Discuss in detail the functions of NABARD. 

Ans. National Bank for Agriculture and Rural Development (NABARD) is an apex bank for agriculture and rural development established on 12th July, 1982. With the formation of NABARD, the functions of Agriculture Credit Department of RBI, Rural Planning and Credit Cell of RBI and refinance functions of Agricultural Refinance and Development Corporation (ARDC) were handed over to NABARD. 

NABARD is the apex institution regarding all matters related to policy formulation, planning, training and flow of credit for the promotion of agriculture, cottage and village industries, handy crafts send rural crafts and other allied economic activities in rural areas NABARD is playing by pivotal role in strengthening cooperative credit structure in the country and in channelising bank credit to the rural areas. It provides liberal refinance to cooperitive credit institutions working in rural areas. It also works to strengthen the rural infrastructure which is the backbone of the rural and agricultural development. 

Functions/Role/Achievements of NABARD:

(1) Refinance Assistance to Cooperative Institutions and Regional Rural Banks: NABARD provides refinance facility to State Cooperative Banks, Regional Rural Banks (RRBs), Commercial Banks, etc. for providing short-term, medium-term and long-term loans or concessional rate of interest to agriculture sector, cottage and village industries, handicrafts and rural crafts. Credit facilities provided for a period up to 3 years are called short-term loans. Credit provided for a period between 3 to 5 years is termed as medium-term loan. Credit provided for a period between 5 to 10 years is termed as long-term loans. Refinance facility of NABARD is available for loans provided for purposes covered under Section 21(1) of NABARD Act, 1981. These mainly include crop loans, loans given for purchasing farm equipments, minor irrigation projects, storing produce, working capital requirements of village and cottage industries, setting up micro and small enterprises, handlooms, handicrafts, marketing activities, etc. NABARD provides refinance assistance to RRBs, Cooperative Banks and Commercial Banks to disburse crop loans to farmers. 

(2) Development of Farm Sector: One of the main functions of NABARD is to provide agricultural credit at concessional rate of interest. In rural areas, still , farming is one of the main economic activities. Farm sector mainly includes: agriculture and allied activities such as minor irrigation, farm mechanisation, land development, soil conservation, dairy, sheep/goat rearing, poultry, piggery, plantation/horticulture, forestry, fishery, storage and market yards, bio-gas and other alternate sources of energy, sericulture, apiculture, animals and animals driven carts, agro-processing, agro-service centres, etc. NABARD provides refinancing facilities to institutions engaged in providing farm credit. Cooperative institutions like Primary Agricultural Credit Societies (PACS), District Cooperative Banks, Regional Rural Banks, etc. work at the gross root level in rural areas. Farmers can become primary members of cooperative institutions by showing agriculture land records. They become eligible for concessional loans. Farmers can get loan for buying agriculture inputs, farm equipments, setting up minor irrigation projects, etc. 

(3) Development of Non-farm Sector: NABARD also takes measures for development of non-farm sector which mainly includes: small and micro enterprises, handicrafts, handlioms, power-looms, etc. NABARD provides refinancing facilities to cooperative institutions, RRBs, commercial banks for providing liberal credit to non-farm sector in rural areas. In non-farm sector, NABARD runs Composite Loan Scheme and Soft Loan Assistance for margin money scheme. Under composite loan scheme, refinance facility is provided to meet the fixed and/or working capital requirements of small/ micro enterprises set up in rural areas. Under soft loan assistance for margin money, NABARD provides refinance facility to provide financial assistance to prospective entrepreneurs who have requisite skill and talent but lack necessary monetary resources to meet margin requirement of loan. NABARD also provides refinance to rural credit institutions for providing credit facilities for acquisition of transport vehicles which are used for transportation of rural industrial products to market centres. 

(4) Strengthening Rural Infrastructure: NABARD runs two schemes (i) Rural Infrastructure Development Fund (RIDF). (ii) NABARD Infrastructure Development Assistance (NIDA) to provide liberal credit to state governments, state owned institutions/ corporations for developing rural infrastructure. NABARD provides  liberal funds for infrastructure products like irrigation, rural roads, bridges, river embankments, flood protection, market yards, warehouses, cold storages, soil conservation, etc. 

(i) Rural Infrastructure Development Fund (RIDF): Rural Infrastructure Development Fund was started by NABARD in year 1995-96. The main obJective of RIDF is to provide financial support at low cost to state governments to complete the existing rural infrastructure projects which are held up due to lack of funds. Apart from state government, now some other institutions like Self Help Groups (SHGs), Non Government Organisations (NGOs), village panchayats are also elitible for taking funds for infrastructure development under RIDF. Now, social infrastructure projects like construction of schools, primary health centers in rural areas are also eligible for obtaining funds under RIDF.

• Broad classification of Rural Infrastructure Activities Eligible under RIDF.

(a) All irrigation projects: community, medium and major irrigation projects.

(b) Rural roads and bridges

(c) Soil conservation, flood protection and land reclamation

(d) Marketing infrastructure and infrastructure for rural industries

(e) Drinking water, public health and rural education

(f) E-connectivity and Information Communication Technology (ICT) based infrastructure.

(ii) NABARD Infrastructure Development Assistance (NIDA): NIDA is a credit scheme run by NABARD for funding , rural infrastructure projects which are not covered by RIDF. Under this scheme, funds are provided to state governments and state owned organizations/state corporations. The repayment period of loans under this scheme is 15 years.

(5) Strengthening Primary Agricultural Credit Societies: NABARD has taken an initiative to develop Primary Agricultural Credit Societies (PACS) as multi-service centres. Traditionally, PACS were meeting only credit requirements of farmers but now besides meeting basic credit requirements, PACS provide training about modern agriculture methods, using modern technology, scientific storage, etc. For this purpose, NABARD is providing assistance to PACS under ‘Producers Organisation Development Fund’.

(6) Credit Facilities to Marketing Federations: NABARD provide credit facilities to marketing federations so as to promote marketing of agriculture produce and other agriculture activities. In the absence of marketing federations, farmers go in for distress sale of the agriculture produce , as they are in the need of immediate credit.  NABARD provides credit facilities to marketing federations for effective supply chain management,  scientific storage and other related market infrastructure. These federations purchase crops of farmers at remunerative prices and also provide storage space to farmers at concessional rates. 

(7) NABARD Warehousing Scheme: NABARD launched ‘NABARD Warehousing Scheme’ for providing concessional loans to public and private sector to construct cold storages and warehouses. The main aim of this scheme is to increase storage capacity for agriculture commodities. Under this scheme, priority in funds allocation is given to storage projects in Eastern and North-Eastern states and in food foodgrain deficit areas.

(8) Strengthening Central Cooperative Banks: NABARD provides direct lending facilities to central cooperative banks over and above through state cooperative banks. NABARD provides lending facilities to only such central cooperative banks which have minimum loan recovery of 50 per cent or whose non-performing assets do not exceed 20 per cent of outstanding loans. These loans are provided to Central Cooperative Banks for lending to farmers, traders, artisans, craftsmen, weavers, etc. for various purposes, like working capital requirements, minor irrigation, purchasing farm equipments, storage, grading, packaging, marketing, crop loans, etc.

(9) Financing and Supporting Producers’ Organisations: NABARD has set up ‘Producers Organisation Development Fund’ (PODF) for providing credit support to producers organisations in the form of grants, loans or combination thereof for meeting their credit needs related to capacity building and marketing activities. Any registered producers organization viz. producers company as defined under Companies Act, producers’ cooperatives, registered farmer federations, industrial cooperative societies, primary agricultural credit societies, etc., set up by producers are eligible for assistance from this fund. It will promote setting up micro enterprise and self employment and rural areas which in turn will promote rural development.

(10) Supervision of RRBs and Cooperative Banks/Regulatory Functions: Banking Regulation Act, 1949 empowers NABARD to conduct inspection of State Cooperative Banks, Central Cooperative Banks and RRBs. NABARD also conducts periodic inspection of state level cooperative institutions. Such inspection is done to protect the interest of depositors, to ensure compliance of guidelines issued by NABARD/Government/RBI to improve the performance of these institutions, to ensure that the business conducted by these institutions is in confirmity with the provisions of relevant bylaws, regulations, Acts and to suggest ways for strengthening these institutions to enable them to work more efficiently in the area of agriculture and rural development. RRBs and cooperative banks seeking permission to open a branch will have to forward its application to RBI through NABARD. NABARD can call any information or statement from the cooperative banks and RRBs. These institutions are required to submit a set of statutory and non-statutory returns to NABARD. Supervisory functions of NABARD help to detect risky areas which need immediate rectification. On this basis, early warning signals are issued and an action plan is made to improve the functioning of RRBs and Cooperative Banks.

(11) Rural Housing Refinancing Scheme: NABARD provides refinance facility to eligible banks engaged in providing credit facilities for rural housing. Housing in rural areas for both farmers and non-farmers leads to overall rural development.

(12) Development Functions: NABARD undertakes various development functions also. For example, it formulates credit plans, builds institutions, promotes research and technology, brings in innovation in credit delivery mechanism, skill upgradation of beneficiaries and client banks. NABARD coordinates the operations of rural credit agencies, develops expertise to deal with agricultural and rural problems, assists government, Reserve Bank and other institutions in their rural development efforts. It provides facilities for training and research, assists the state governments to develop infrastructure and to enable them to contribute to the share capital of eligible institutions. In order to upgrade the technical skill and competence of the personnel engaged in the task of agricultural and rural development, NABARD undertakes comprehensive training programme. 

(13) Promoting Self-employment: NABARD runs various schemes which promote self-employment in farm sector and non-farm sector in rural areas viz., (i) Composite Loan Scheme: It provides refinance facility to rural credit institutions for meeting wide range of fixed and working capital requirements of small/micro enterprises. (ii) Self-employment Scheme for Ex-servicemen: This scheme is specially designed to provide comprehensive package of credit for encouraging ex-servicemen to undertake agricultural and allied activities or to set up non-farm units in rural areas. (iii) Soft Loan Assistance for Margin Money: This scheme provides refinance facility to provide financial assistance to the prospective entrepreneurs who have the requisite talent and skill of entrepreneurship but lack monetary resources to meet margin requirements. (iv) Scheme for Small Road and Water Transport Operators: This scheme provides refinance facility to provide financial assistance for purchasing transport vehicles which are to be used for transportation of farm produce and rural industrial products to market centres.

(14) Coordinating the Activities of Central and State Governments: NABARD coordinates the activities of central government, state governments, planning commission and other central/state level institutions working for the development of agriculture, village and cottage industries, rural crafts, handlooms sector in rural areas. Coordination helps in achieving integrated rural development and optimum utilisation of resources. Duplication of certain activities or neglect of certain other activities can also be avoided through coordination.

(15) Other Functions:

(i) Management of Natural Resources: NABARD runs umbrella programme for management of natural resources. It is a comprehensive programme that covers awareness, generation, capacity building, technology upgradation, subsidy, training, watershed development, tribal area development, etc. This scheme aims to utilise natural resources for sustainable development of rural areas.

(ii) Promoting Solar Power Energy Devices: NABARD is the nodal agency for conducting feasibility study and to promote refinance for eligible projects for promoting solar power energy devices in rural areas. Ministry of New and Renewable Energy provides subsidy to install solar power energy devices for lighting, heating, etc. NABARD provides refinance to this ministry so as to provide subsidy for promoting solar power energy devices. 

(iii) Promoting Research and Development: NABARD maintains ‘Rural Innovation Fund’ whose main objective is to promote research in various areas related to agriculture and rural development. Considering the requirement and features of different areas, it designs various programmes and projects to promote rural development. This fund is utilised for formulating policies for rural development, for providide facilities for training, dissemination of information, promotion of research by undertaking techno-economic studies in the field of agricultural and rural development.

(iv) Providing Consultancy Services: NABARD consultancy services (NABCONS), a subsidiary of NABARD, provides consultancy services to a wide range of clients. It helps in preparing detailed project reports, techno-economic feasibility reports and appraisal studies.  It promotes commercial agricultural projects and other projects related to rural development.

(v) Providing SHG Bank Linkage: NABARD provides liquidity support to banks for Self Help Group Bank Linkage. NABARD provides 100 per cent refinance assistance to banks for financing SHGs. 

[Self-Help Groups - SHGs: Sometimes some persons of an area organise themselves in a group. The members of the group regularly save a small amount, pool it and indulge in some economic activity. SHGs also become elligible to borrow from banks. SHGs provide redit to the members at low interest rate and provide self employment.]

(vi) Facilitates Core Banking Solutions (CBS) for Cooperatives: NABARD plays the role of facilitator and advisor in implementing core banking solutions in cooperative banks. The CBS enable the customers of banks to undertake their transactions from any branch of a bank instead of being attached to a particular branch, i.e. customers can operate their account from any branch of the bank. It will ensure better customer services by the bank. 

(vii) Facilitates Implementation of Subsidy Schemes and Revival Packages: On behalf of central government, NABARD implements revival, reform and restructuring packages and other subsidiary schemes for various sectors related to rural development, like animal husbandry, poultry development, cold storages, rural godowns, handloom sector, etc. NABARD is a nodal agency for Capital Investment Subsidy Scheme of Government of India for following activities:

(a) Construction of cold storages and rural godowns. 

(b) Strengthening agricultural marketing infrastructure.

(c) Establishing agri-clinics and agri-business-centres.

(d) Promoting production of organic inputs like bio-fertilisers, vermiculture, composting units of agriculture waste, etc.

(e) Recharge of ground water.

NABARD also acts as nodal agency for implementing ‘Interest Subvention Subsidy Scheme’ of Government of India to provide concessional crop loan upto ₹3,00,000 to the farmers. Under this scheme, concessional interest is charged on loans. Farmers can get these concessional loans from RRBs, commercial banks and cooperative banks.

(viii) Promotes Financial Inclusion and Financial Literacy: Financial inclusion means delivery of banking services at very low cost to vast sections of disadvantaged and low income groups and linking them with banking sector. NABARD has set up financial inclusion fund and financial inclusion technology fund for promoting financial inclusion and financial literacy. NABARD provide assistance to RRBs and State Cooperative Banks for setting up Financial Literacy and Credit Counselling Centres.

(ix) Kisan Credit Card Scheme: At the initiative of NABARD, Kisan Credit Scheme was launched. KCC is a credit card which is issued by banks to farmers for availing credit facility as per their requirements. The Reserve Bank at the initiative of NABARD has advised all banks to issue Kisan Credit Card to the farmers. KCCs provide flexibility to farmers to avail production credit and also avoid procedural delays in getting the loan sanctioned.

(x) Women Empowerment: NABARD has started special programmes for women empowerment like ‘Women Development Cell’, ‘Marketing of Non-farm Products made by Rural Women’, ‘SHG Bank Linkage Programme’, etc. All these programmes facilitate increased credit flow to women and create awareness about self-employment avenues among women.

(xi) Co-financing: NABARD has executed ‘Memorandum of Understanding’ (MoU) with some banks for co-financing agriculture projects. It has given further impetus to agricultural development.