The National Bank for Agriculture and Rural Development (NABARD) is the country's premier financial institution for agricultural finance and rural development. It was formed in July 1982 by combining the Reserve Bank of India's Agriculture Credit Department, Rural Planning and Credit Cell, and the entire Agriculture Refinance and Development Corporation.

What is NABARD?

• The National Bank for Agriculture and Rural Development was established to meet the credit needs of agriculture and rural development.
• NABARD was envisioned as the national apex institution for the entire rural credit system, providing supplemental funding to all rural credit institutions and coordinating their operations.
• NABARD began operations with a share capital of Rs. 100 crores and further Rs. 1400 crores were transferred to it from the RBI's Agricultural Credit Funds.

Historical Background

• The importance of institutional credit in boosting the rural economy was obvious to the Government of India from the beginning of its planning process.
• As a result, at the request of the Government of India, the Reserve Bank of India (RBI) formed a Committee to Review the Arrangements for Institutional Credit for Agriculture and Rural Development (CRAFICARD) to investigate these critical issues.
• The Committee was established on March 30, 1979, under the chairmanship of B. Sivaraman, a former member of the Government of India's Planning Commission.
• The interim report of the Committee, submitted on November 28, 1979, outlined the need for a new organizational device to provide undivided attention, forceful direction, and pointed focus to credit-related issues related to rural development.
• Its recommendation was to establish a one-of-a-kind development financial institution to address these aspirations, and the formation ofNational Bank for Agriculture and Rural Development (NABARD) was approved by Parliament throughAct 61 of 1981.
• On July 12, 1982, NABARD was established by transferring the agricultural credit functions of the RBI and the refinance functions of the then Agricultural Refinance and Development Corporation (ARDC).
• On November 5, 1982, late Prime Minister Smt. Indira Gandhi dedicated it to the service of the nation.
• It was founded with an initial capital of Rs.100 crore and had a paid-up capital of Rs.14,080 crore as of March 31, 2020.
• NABARD today is fully owned by the Government of Indiaas a result of a change in the composition of share capital between the Government of India and the Reserve Bank of India.

NABARD – Functions

Financial Functions

• NABARD provides financial assistance to the farm sector through refinancing for a variety of agriculture and allied activities such as minor irrigation, plantation and horticulture, land development, farm mechanization, and animal husbandry.
• Commercial banks, state cooperative banks, regional rural banks, and state land development banks are eligible for refinancing.
• NABARD is also empowered to extend loans and advances against the security of stocks and promissory notes.
• Aside from refinancing, NABARD also makes short-term loans to State Co-operative Banks and Regional Rural Banks to fund seasonal agricultural operations, crop marketing, and agricultural input purchases.

Developmental Functions

• NABARD engages in a variety of developmental activities, including the development of credit plans, the establishment of institutions, and the promotion of research and technology.
• It also coordinates rural credit agencies and develops expertise to address agricultural and rural issues.
• NABARD has a Research and Development Fund (RDF) to assist and promote agricultural and rural development research, including the provision of research and training facilities.
• NABARD's Central Board is also empowered to establish a "Reserve Fund" or any other fund it deems appropriate.

Supervisory Functions

• The Banking Regulation Act of 1949 gave NABARD the authority to inspect the operations of Regional Rural Banks and Co-operative Banks.
• Before the RBI will grant permission to open a new branch, it must receive its recommendation from NABARD.

NABARD - Governance

• A Board of Directors governs NABARD's operations. In accordance with the NABARD Act, the Board of Directors is appointed by the Government of India.
• The Chairperson and other directors (except those elected by shareholders and Central Government officials) will be appointed by the Central Government in consultation with the RBI.
• The Board of Directors may appoint an Executive Committee comprised of the prescribed number of directors (referred to as Executive Directors).
• The Executive Committee shall perform such functions as the Board may prescribe or delegate to it.
• The NABARD (Amendment Bill) 2017 which was passed in 2018 allowed the Union Government to increase NABARD's authorized capital from Rs. 5,000 crore to Rs. 30,000 crore.

NABARD – Contribution/Achievements

Financial Functions

• Refinance - NABARD disbursed ₹1,30,964 crore and ₹92,786 crores for supporting ST and LT financing by banks, respectively, during the year 2020-21.
• Short Term Loans - Crop loans are extended to farmers for crop production by financial institutions, which support in ensuring food security in the country.
  • During the year 2020-21, NABARD has disbursed ₹95,731 crores for Seasonal Agricultural Operations and ₹11,733 crores for other than seasonal agriculture operations to Cooperative Banks and RRBs.
  • NABARD also introduced a new window of assistance to SFBs and under this facility, Short Term Refinance of ₹49 crores was extended to North East SFB.
• Long Term Loans - NABARD's long-term refinance provides credit to financial institutions for a wide gamut of activities encompassing farm and non-farm activities with a tenor of 18 months to more than 5 years.
  • To address the issue of rural migration and give a boost to agriculture & rural sector post Covid period, NABARD introduced 4 special refinance schemes viz.
  • Scheme for PACS as MSC, Scheme for beneficiaries of the watershed as well as Wadi project areas, Scheme for Water, Sanitation and Hygiene (WASH), and Scheme for Micro Food Processing activities.
• Special Liquidity Facility - NABARD, has disbursed ₹16800 crore to Cooperative Banks, ₹6700 crore to RRBs, and ₹2000 crore to NBFC-MFIs to ensure unhindered flow of credit to farmers to carry out harvesting and production activities during lockdown due to which India outperformed in Agriculture production even during the lockdown.
• Rural Infrastructure Development Fund - RIDF was set up with NABARD in 1995-96 by the Reserve Bank of India out of the shortfall in lending to priority sector by scheduled commercial banks for supporting rural infrastructure projects.
• Long-Term Irrigation Fund - The Long-Term Irrigation Fund (LTIF) was announced in the Union Budget 2016–17 for fast-tracking 99 identified medium and major irrigation projects, spread across 18 states in mission mode by December 2019.
• Subsequently, the Government of India approved funding for four more projects under LTIF viz;
• Polavaram project in Andhra Pradesh, North Koel project in Bihar and Jharkhand, Relining of Sirhind and Rajasthan Feeder Canal project of Punjab, and Shahpur Kandi Dam in Punjab.
• Pradhan Mantri Awaas Yojana - Grameen (PMAY-G) - NABARD sanctioned an amount of ₹20,000 crores and released ₹19999.80 crores during 2020-21 to the National Rural Infrastructure Development Agency (NRIDA) under PMAY-G.
  • The financial assistance was channelized towards PMAY-G, which plans to provide a pucca house, with basic amenities, to all houseless households including those living in kutcha and dilapidated houses, by 2022.
• Micro Irrigation Fund (MIF) - The objective of the fund is to facilitate State Govts. in mobilizing additional resources for expanding coverage under micro irrigation and incentivizing its adoption beyond provisions of PMKSY-PDMC.
• NABARD Infrastructure Development Assistance (NIDA) - NABARD Infrastructure Development Assistance (NIDA) offers flexible long-term loans to well-managed public sector entities for financing rural infrastructure.
  • Projects for agriculture infrastructure, rural connectivity, renewable energy, power transmission, drinking water and sanitation, and other social and commercial infrastructure are financed under NIDA.
• Credit Facility to Federations (CFF) - CFF provides short-term credit support to state government entities like agricultural marketing federations, civil supply corporations, dairy cooperatives, /milk unions or federations, etc., for procurement, processing, and marketing of agricultural commodities, input supply, and value and supply chain management.
• Dairy Processing and Infrastructure Development Fund (DIDF) - The objectives of the scheme are modernization and infrastructure augmentation for milk processing and value addition, and to ensure optimum price realization by the primary producers.
• Fisheries and Aquaculture Infrastructure Development Fund (FIDF) - NABARD will fund the public infrastructure components for various facilities like fishing harbors, fish landing centres, modernized State fish seed farms, modern fish markets, disease diagnostic laboratories, aquatic quarantine facilities, and training infrastructure.
• Rural Infrastructure Assistance to State Governments (RIAS) - NABARD has launched a new product “Rural Infrastructure Assistance to State Governments (RIAS)” with an initial corpus of ₹15000 crores.
  • Under RIAS, NABARD will provide financial assistance to State Governments in Eastern Region, for creating infrastructure that supports rural livelihoods, hinging on 5-J approach – Jan (human being), Jal (Water), Jameen (land), Janwar (livestock) & Jungle (forest).
• Warehouse Infrastructure Fund (WIF) - Government of India created Warehouse Infrastructure Fund (WIF) in the year 2013- 14 with NABARD with a corpus of ₹5,000 crores for providing loans to meet the requirements for scientific warehousing infrastructure for agricultural commodities in the country.
• Food Processing Fund - With a view to promoting food processing industries in the organized sector on a cluster basis, the Government of India instituted the Food Processing Fund (FPF) in NABARD in 2014–15, with a corpus of ₹2,000 crores.
• Geo Tagging of Warehouses - NABARD took on the onus of creating a web-based Agri-Storage Information System, which not only captures the details of the infrastructure but also captures the Geo-spatial coordinates.
• The Farmers APP (KisanBhandar) has been developed for both Android and IOS supporting devices which will be used by Farmers/Traders/Producers to locate the geotagged assets in the vicinity.

Development Functions

• Kisan Credit Card Scheme - This scheme was launched in 1998 in collaboration with the RBI to provide crop loans.
• RuPay Kisan Cards - All farmer clients were given RuPay cards in an attempt to bring about a technological change in the rural financial sector.
• Watershed Development - Cumulatively, as on 31 March 2021, against 3401 watershed development projects sanctioned covering a total project area of 23.43 lakh ha, 1,914 projects have been completed successfully.
• Tribal Development - Tribal Development Fund (TDF) was set up by NABARD in the year 2003-04 with a corpus of ₹50 crores out of its profit.
  • As on 31 March 2021, a total of 835 projects benefitting 5.60 lakh families spread across 5.33 lakh acre area have been sanctioned.
• Climate Change Adaptation Projects - NABARD disbursed an amount of ₹0.97 crores during 2020-21 under the Climate change fund for promoting and supporting activities aimed at addressing climate change impacts, adaptation and mitigation measures, awareness generation, knowledge sharing, and for facilitating sustainable development.
• Umbrella Programme on Natural Resource Management - Cumulatively 334 UPNRM projects have been sanctioned across the country covering 10 major natural resource management sectors.
• Financial Inclusion - As on 31 March 2021, a cumulative amount of ₹4,592.81 crores was sanctioned, and an amount of ₹2,527.67 crores was disbursed towards various schemes implemented under FIF (Financial Inclusion Fund) by generating demand for banking services and building payment/acceptance infrastructure at the ground level.
• Microfinance Sector - NABARD had launched the Self Help Group-Bank Linkage Programme (SHG-BLP) in 1992. The programme has empowered 112.23 lakh Self Help Groups (SHGs) and 13.5 crore rural households in India as on 31 March 2021.
• EShakti - In a bid to digitize SHGs, project EShakti was launched on 15 March 2015 in 2 districts as a pilot.
  • The Project has enabled the Bankers in providing on line credit to SHGs based on an inbuilt grading system in the portal.
  • It has resulted in an increase in credit linkage with banks from 38% groups to 53% groups as on 31 March 2021.
• SHG based Livelihood Interventions - For stimulating the micro-entrepreneurship movement NABARD has launched two skill building and capacity building programmes viz., Micro-Enterprise Development Programme (MEDP) and Livelihood and Enterprise Development Programme (LEDP).
• Skill Development - In tune with GoI’s goal, NABARD has developed a structured approach for addressing the skill gap in rural India through demand and outcome-based programmes through multiple stakeholders in skill development ecosystem leading to wage/self-employment.
• Marketing Initiatives - To support rural producers in the farm and off-farm sector to market their produce effectively, NABARD has been extending support for setting up of Rural Haats, Rural Marts, and participation of artisans and craftsmen in National/Regional level Exhibitions and Melas.
• Agri-Business Incubation Centres (ABICs) - In order to develop a supportive ecosystem for Agri entrepreneurs, NABARD started supporting the setting up of Agri-Business Incubation centre in 2017-18.
  • The policy envisaged extending support to eligible institutions like Agriculture universities/similar institutions for setting up ABICs and meet the eligible operational expenditure for functioning for a period of five years.
  • It is a step towards promoting more agri-startups, Agri/Rural entrepreneurs, and enterprises.
• Catalytic Capital Fund - To support the Agri Start-ups, NABARD has set up a “Catalytic Capital Fund for supporting Rural and Agri Start-ups”.
• Credit Linked Capital Subsidy Scheme (CLCSS) - NABARD is one of the nodal agencies for implementing the Credit Linked Capital Subsidy Scheme (CLCSS) for Technology Upgradation of Micro & Small Enterprises of Government of India.

NABARD – Challenges

• NABARD, as an offspring of the RBI, shares its parent institution's work culture, ethos, and development orientation.
  • The breaking of this link (the transfer of the RBI's 0.4 percent equity in NABARD to the Union Government under the NABARD Act 2017) has resulted in a significant disadvantage for both the RBI and NABARD.
  • This has weakened the RBI's ability to play a role or participate in its operations.
  • A strong relationship between the central bank and the development institution will benefit agriculture and rural development at a critical juncture in the country's agrarian crisis.
• The cost of financing has risen because NABARD's market borrowings account for 80% of its resources.
  • Cooperative structures that are member-driven and de-bureaucratized must fill the institutional credit gaps left by commercial banks.
• The northeastern states have received a small portion of NABARD credit funds. The northeast receives 1% of credit, trapping farmers in the web of moneylenders.
• Bank penetration in insurgency-affected states is low and should be increased.

Conclusion

• Agriculture employs more than 75% of India's population. Rural infrastructure investments help to improve rural people's socio-economic status by increasing income levels and quality of life.
• As the apex institution for providing credit and capacity building to the Indian rural economy, NABARD has a significant opportunity for poverty reduction and socio-economic empowerment of rural India.