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  3. 3. IntroductionNABARD is set up as an apex Development Bank with a mandate for facilitatingcredit flow for promotion and development of agriculture, small-scale industries,cottage and village industries, handicrafts and other rural crafts. It also has themandate to support all other allied economic activities in rural areas, promoteintegrated and sustainable rural development and secure prosperity of ruralareas. In discharging its role as a facilitator for rural prosperity NABARD isentrusted with1. Providing refinance to lending institutions in rural areas2. Bringing about or promoting institutional development and3. Evaluating, monitoring and inspecting the client banksBesides this pivotal role, NABARD also:1. Acts as a coordinator in the operations of rural credit institutions2. Extends assistance to the government, the Reserve Bank of India and other organizations in matters relating to rural development3. Offers training and research facilities for banks, cooperatives and organizations working in the field of rural development4. Helps the state governments in reaching their targets of providing assistance to eligible institutions in agriculture and rural development5. Acts as regulator for cooperative banks and RRBs6. Extends assistance to the government, the Reserve Bank of India and other organizations in matters relating to rural development7. Offers training and research facilities for banks, cooperatives and organizations working in the field of rural development8. Helps the state governments in reaching their targets of providing assistance to eligible institutions in agriculture and rural development9. Acts as regulator for cooperative banks and RRBsSome of the milestones in NABARDs activities are:1. Total production credit disbursed at end March 2011 was 34196crore.
  4. 4. 2. Refinance disbursement under Investment Credit to commercial banks, state cooperative banks, state cooperative agriculture and rural development banks, RRBs and other eligible financial institutions during 2010-11 aggregated 13485.87crore.Through the Rural Infrastructure Development Fund (RIDF) 12060.04croreswere disbursed during 2010-11. A cumulative amount of 121488.40crore hasbeen sanctioned for 444162 projects as on 31 March 2011 covering irrigation,rural roads and bridges, health and education, soil conservation, drinking waterschemes, flood protection, forest management etc. Under WatershedDevelopment Fund which has a balance of 1847.69crore as on 31 March 2011,579 projects in districts of 14 states have benefited. Farmers now enjoy hasslefree access to credit and security through 1009.30 lakh Kisan Credit Cards thathave been issued through a vast rural banking network. During 2010-11, 72.6lakh KCC were issued by banks with a sanctioned limit of 43370crore. Under theFarmers Club Programme, during the year 21903 clubs were launched, takingthe total to 76708 clubs as on 31 March 2011 helping farmers get access tocredit, technology and extension services. Village Development Programme(VDP) is being implemented in 801 villages across 25 states. Under TribalDevelopment Fund, cumulative sanction amounted to 917.60crore for 317projects covering 2.5 lakh families. During 2010-11 financial assistance of373.97crore was sanctioned for 126 projects benefiting 94,163 tribal families.Under Farm Innovation and Promotion Fund (FIPF), cumulatively 123 projectsin various states, involving financial support of 11.65crore were sanctioned ason 31 March 2011. Farmers Technology Transfer Fund (FTTF) – 512 innovativeprojects in 27 states with grant assistance of 44.97crore were sanctioned during2010-11. There were more than 69.53 lakh savings linked SHGs and more than48.51 lakh credit linked SHGs covering 9.7 crore poor households as on 31 March2011, under the microfinance programme.OverviewNABARD is set up by the Government of India as a development bank with themandate of facilitating credit flow for promotion and development of agricultureand integrated rural development. The mandate also covers supporting all otherallied economic activities in rural areas, promoting sustainable ruraldevelopment and ushering in prosperity in the rural areas.With a capital base of Rs 2,000 crore provided by the Government of India andReserve Bank of India , it operates through its head office at Mumbai, 28 regionaloffices situated in state capitals and 391 district offices at districts.Contact NABARDIt is an apex institution handling matters concerning policy, planning andoperations in the field of credit for agriculture and for other economic anddevelopmental activities in rural areas. Essentially, it is a refinancing agency forfinancial institutions offering production credit and investment credit for
  5. 5. promoting agriculture and developmental activities in rural areas.NABARD today Initiates measures toward institution-building for improving absorptivecapacity of the credit delivery system, including monitoring, formulation ofrehabilitation schemes, restructuring of credit institutions, training of personnel,etc. Coordinates the rural financing activities of all the institutions engaged indevelopmental work at the field level and maintains liaison with the governmentof India , State governments, the Reserve Bank of India and other national levelinstitutions concerned with policy formulationPrepares, on annual basis, rural credit plans for all the districts in the country.These plans form the base for annual credit plans of all rural financialinstitutions Undertakes monitoring and evaluation of projects refinanced by it promotesresearch in the fields of rural banking, agriculture and rural developmentFunctions as a regulatory authority, supervising, monitoring and guidingcooperative banks and regional rural banks.NABARDs Roles and Functions are summarized below:1. Credit Functions2. Developmental and Promotional Functions3. Supervisory Functions4. Institutional and Capacity building5. Role in TrainingSubsidariesNabconsNABARD Consultancy Services (Nabcons) is a wholly owned subsidiarypromoted by National Bank for Agriculture and Rural Development (NABARD)and is engaged in providing consultancy in all spheres of agriculture, ruraldevelopment and allied areas. Nabcons leverages on the core competence of theNABARD in the areas of agricultural and rural development, especially
  6. 6. multidisciplinary projects, banking, institutional development, infrastructure,training, etc., internalized for more than two decades.The Company is registered under the Companys Act, 1956, with an authorizedcapital of Rs 250 million (US $5.75 million) and paid up capital of Rs 50 million(US $1.15 million).In tune with NABARDs mission to bring about rural prosperity, Nabcons hasmore than just commercial interest in the assignments it undertakes.For more information on what NABCONS can offer you, please visitwww.nabcons.comInformation under RTI Act.NAFBINSNABARD Financial Services Limited, [NABFINS] is a subsidiary of National Bankfor Agriculture and Rural Development (NABARD) with equity participationfrom NABARD, Government of Karnataka, Canara Bank, Union Bank of India,Dhanalakshmi Bank and Federal Bank. It is a non-deposit taking NBFC registeredwith the Reserve Bank of India and shall operate throughout India. The mainobjectives of the Company are to provide financial services in two broad areas ofagriculture and microfinance. NABFINS provides credit and other facilities forpromotion, expansion, commercialization and modernization of agriculture andallied activities. NABFINS shall engage in the business of providing micro financeservices (with or without thrift) and other facilities to needy anddisadvantageous sections of the society for securing their prosperity in bothrural and urban areas.NABARD, which is the world renowned apex development bank of our countryand pioneered the world’s largest microfinance movement, while promotingNABFINS has envisaged that NABFINS shall evolve into a Model MicrofinanceInstitution to set standards of governance among the MFIs, operate withexemplary levels of transparency and operate at reasonable / moderate rates ofinterest.AssociatesNABARDs international associates range from World Bank-affiliatedorganisations to global developmental agencies working in the field ofagriculture and rural development. These agencies offer material and advisoryhelp in implementing schemes that are aimed at uplifting the rural poor and inmaking agricultural processes effective and yielding.
  7. 7. Model Bankable ProjectsIntroductionNABARDs strategies, inter alia, cover formulation and circulation of ModelBankable Schemes and Location Specific Bankable Schemes to the financingbanks. NABARD also proposes to identify highly potential zones for undertakinginvestment activities in various states and organise interactive workshops inthese potential zones.The Technical Services Department of NABARD is preparing and bringing modelbankable agricultural projects in the areas of Minor Irrigation, LandDevelopment, Plantation & Horticulture, Agricultural Engineering, Forestry andWasteland, Fisheries , Animal Husbandry and Biotechnology. Besides thesetraditional areas, State specific area development projects and profiles in theemerging thrust areas of Medicinal & Aromatic Plants, Processing of Fruits &Vegetables have also been prepared for dissemination among financing banks.Of late, organic farming is gaining prominence as a sustainable alternative inreviving Indian Agriculture. To promote this through institutional credit, ModelBankable Schemes on Organic Farming have been formulated.1. Minor Irrigation2. Land Development3. Plantation / Horticulture4. Agricultural Engineering5. Forestry / Waste Land6. Fisheries7. Animal Husbandry8. Medicinal & Aromatic Plants9. Biotechnology10. State Specific Projects11. Organic Farming
  8. 8. Credit functionsIntroductionNABARDs credit functions cover planning, dispensation and monitoring ofcredit.This activity involves:1.2. Framing policy and guidelines for rural financial institutions3. Providing credit facilities to issuing organizations4. Preparation of potential-linked credit plans annually for all districts for identification of credit potential5. Monitoring the flow of ground level rural creditTypes of Refinance Facilities1. Agency2. Credit Facilities3. Commercial Banks4. Long-term credit for investment purposes5. Financing the working capital requirements of Weavers Co-operative Societies (WCS) & State Handloom Development CorporationsShort-term Co-operative1. Structure (State Co-operative Banks,2. District Central Co-3. operative Banks, Primary4. Agricultural Credit Societies)5. Short-term (crop and other loans
  9. 9. Medium-term (conversion) loans1. Term loans for investment purposes2. Financing WCS for production and marketing purposes3. Financing State Handloom Development Corporations for working capital by State4. Co-operative BanksLong-term Co-operative Structure1. State Co-operative2. Agriculture and Rural3. Development Banks,4. Primary Co-operative5. Agriculture and Rural6. Development BanksTerm loans for investment purposesPilot scheme for financing short-term loans in three statesRegional Rural Banks (RRBs)Short-term (crop and other loans)Term loans for investment purposesState GovernmentsLong-term loans for equity participation inco-operativesRural Infrastructure Development Fund (RIDF) loans for infrastructure projectsNon-Governmental Organisations (NGOs) - Informal Credit Delivery SystemRevolving Fund Assistance for various micro-credit delivery innovations andpromotional projects under Credit and Financial Services Fund (CFSF) andRural Promotion Corpus Fund (RPCF) respectivelyCriteria for refinance1. Technical feasibility of the project and adequate response from prospective beneficiaries2. Financial viability and adequate incremental income to ultimate borrower to repay the loan within a reasonable period
  10. 10. 3. Organisational capability to ensure close supervisionThe refinance is provided to SCARDBs, SCBs, CBs and RRBs. However, thebeneficiaries of the programme are partnership concerns, companies, state-owned corporations or cooperative societies. But, finally the assistance reachesthe individuals, who are members of the primary credit institutions.The refinance is usually 50% to 95% of the project cost. The balance will be metby the banks and the concerned state governments or the Government of India inthe case of SCARDBs. With a view to ensure credit flow to certain thrust areas,the quantum of refinance is enhanced to 100% as in the case of special categorybeneficiaries like SC/ST members and self help groups.Interest RatesMargin moneyThe beneficiarys contribution to the project cost is necessary in order to ensurehis stake in the investment. Such margin money varies from 5% to 25%depending on the type of investments and the category of the beneficiaries. Themargin money can be by way of contribution in cash or own or family labour.Large farmers, firms, corporate borrowers including state-owned corporations,forest development corporations provide margin money up to 25% pf theinvestment cost.Special focusRemoval of regional and sectoral imbalances is one of the thrust areas and hencepreference is given to the needs of the underdeveloped areas. For example, thedevelopment of the north-eastern region has been a key programme and specialefforts have been made through refinance offered on liberal terms and othersupportive measures so that the rural credit delivery system in the region isstrengthened.MonitoringSpecial attention is paid to monitoring the projects that are offered assistance sothat the targets are met and the implementation is properly done. An evaluationof the project is taken up and in the light of the findings the quality of theprojects and their implementation methods can be improved. District-orientedmonitoring studies are conducted to evaluate the performance of the ongoing
  11. 11. agricultural development schemes sanctioned. Specific sector studies are alsoundertaken like floriculture, mushroom, aqua culture, agro-processing, etc. to getan insight into the problems and prospects of these sectors.Guidelines are often issued for formulation of high-tech and export-orientedprojects in farm and non-farm sectors. Besides, even consultancy is also offeredfor projects, including appraisal of projects even in cases where refinance is notsecured from the bank.Direct CreditDirect credit from NABARD constitutes loans to State Governments.Supporting CooperativesIn order to strengthen the owned funds position of cooperative creditinstitutions and thereby increasing their capacity to leverage larger resources,NABARD provides loans to State Governments to contribute to the share capitalof these institutions.Rural Infrastructure DevelopmentWith the objective of assisting State Governments in the completion of ongoingrural infrastructure projects and to take up new infrastructure projects, theRural Infrastructure Development Fund (RIDF) was set up with NABARD in1995-96 with contributions from Commercial banks by way of deposits. Theshortfall in agri/priority sector lending was deposited by the commercial bankswith NABARD as part of their contribution to the RIDF. The total corpus coveringRIDF I (1995-96) to X (2004-05) isRs. 42,000 crore. Sanctions under all trenchesof RIDF as on 31 March 2005 were Rs.42948.51 crore against which thedisbursements were Rs. 25384.02 cr.Anticipated Benefits1.2. It is anticipated that the projects sanctioned upto 31 March 2005 under RIDF would result in:3. Creation of additional irrigation potential in 92.47 lakh ha.4. Addition of 178000 km of rural road network & 331000 meter bridge length5. Contribution to the GDP to the tune of Rs. 11058 crore6. Generation of recurring employment of 48.01 lakh jobs and non-recurring employment of 13681 lakh man days due to increased irrigation
  12. 12. 7. Generation of non-recurring employment expected from non-irrigation projects: 23238 lakh person daysCo-financingTo ensure substantial credit flow to agriculture and rural sector and to instillconfidence in banks for financing hi-tech/export oriented agriculture projectsinvolving large financial outlays/sunrise technologies, etc., NABARD has enteredinto agreements for co-financing with 12 Commercial Banks thereby sharing thecredit risks with partner banks.Under this arrangement, projects have been sanctioned in areas like floriculture,organic farming, milk processing, ethanol production, infrastructuredevelopment and forestry.Bulk-lending/ Revolving Fund AssistanceNABARD provides bulk-lending facilities to NGOs. As on 31.3.2005, 30 agencieshave been sanctioned assistance of Rs 27.07 crore against which Rs.15.18 crorehas been disbursed.Production CreditThis is a short-term refinance facility, aimed at supporting1. Agricultural production operations and marketing of crops by farmers and farmers cooperatives2. Marketing and distribution of inputs like fertilizers, seeds and pesticides3. Production and marketing activities of village cottage industries, handicrafts, handlooms, powerlooms, artisans, small scale and tiny industries and other rural non-farm enterprises4. Eligible institutions for this facility are State Cooperative Banks (SCBs) and Regional Rural Banks (RRBs). The period of credit is 12 months.Short Term Credit1. Seasonal Agricultural Operations (SAO)
  13. 13. In order to ensure availability of timely credit to farmers, banks followproduction-oriented system of lending. The system has features like assessmentof credit, needs based on area brought under cultivation, crop wise scales offinance, provision of credit for purchase of inputs like fertilizers and pesticides.Refinance is provided for production purposes at concessional rate of interest tostate cooperative banks (SCBs) and regional rural banks (RRBs) by way ofsanction of credit limits. Each withdrawal against the sanctioned credit limit isrepayable within 12 months.New line of credit for financing short-term agricultural /allied and marketingactivitiesTo provide liquidity to the cooperative banks and to boost credit flow to theagriculture sector, a new line of credit was introduced in 2003-04 encompassingloans for agricultural purposes against security of gold and security other thancharge on crops, working capital credit for allied agriculture activities, workingcapital credit for procurement and distribution of agriculture inputs, marketingof agriculture/allied products, collection and marketing of minor forest produceetc and short-term credit support provided to cultivators for higher scales offinance for commercialisation of agriculture, exports and value addition.2. Marketing of CropsWith a view to improve the flow of marketing credit to cultivators foraugmenting their holding capacity and checking incidence of distress sale,NABARD encourages cooperative banks and RRBs to finance marketing of crops,through its refinance facility for this purpose. Each drawal against the sanctionedcredit limit is repayable within a maximum period of 12 months.3. Distribution of agri inputsWith a view to ensuring timely supply of agri inputs like fertilizers, pesticidesetc. a line of credit is made available to cooperative banks for financingApex/Primary Societies for stocking and distribution of agri inputs by way ofsanction of yearly limits. Each drawal is repayable within a period of 120 days.4. Pisciculture ActivitiesRefinance facilities is extended to cooperative banks and RRBs for meeting theworking capital requirements of farmers in pisciculture activities by way ofsanction of ST credit limits. Each drawal is repayable within 12 months.5. Other than SAO (OSAO)Refinance is available to cooperative banks for financing the working capital
  14. 14. requirement of PWCS/Apex Weavers Society, working capital requirements ofindustrial societies, financing individual rural artisans, etc. Each drawal againstthe sanctioned credit limit is repayable within 12 months. OSAO refinance isavailable to RRBs for financing production and marketing activities of artisans,village industries and also for financing persons belonging to weaker sectionsengaged in trade/business/services. Refinance support is also available tocommercial banks for financing the working capital requirements of PWCS.Refinance support is available to SCBs and CBs for meeting working capitalrequirements of State Handloom Development Corporations (SHnDCs).Special Initiatives1. Special line of credit for oilseeds and pulses production2. Special line of credit for development of tribals in predominantly tribal areas3. Liquidity support to cooperative banks and RRBs for providing relief to farmers in distress and farmers in arrears4. Revision in methodology for fixing scale of financeRefinance against Investment Credit1.2. This is a long-term refinance facility. It is intended to create income generating assets in the following:3. Agriculture and allied activities4. Artisans, small scale industries, Non-Farm Sector ( Small and Micro Enterprises), handicrafts, handlooms, powerlooms, etc.5. Activities of voluntary agencies and self help groups working among the rural poor6. The credit is normally provided for a period of 3 to 15 years.7. Investment credit leads to capital formation through asset creation. It induces technological upgradation resulting in increased production, productivity and incremental income to farmers and entrepreneurs.
  15. 15. Eligible InstitutionsState Cooperative Agriculture and Rural Development Banks (SCARDBs), StateCooperative Banks (SCBs), Regional Rural Banks (RRBs), Scheduled CommercialBanks, Scheduled Primary Urban Cooperative Banks, North East DevelopmentFinance Corporation Ltd. (NEDFI), ADFCs (ADFT, ABFL & NABFINS) and NBFCsare eligible for refinance from NABARD for investment credit in the rural sector.Eligible PurposesSome of the major purposes covered under Investment credit are MinorIrrigation, farm mechanisation, plantation/ horticulture, animal husbandry,storage/market yards, fisheries, post-harvest management, food/agroprocessing, non-farm sector including rural industries, microfinance, purchase ofland (for small/marginal Farmers, share croppers etc.), rural housing anddisbursements under poverty alleviation programmes like PMRY, SGSY andSC/ST Action Plan etc. Hi-tech projects and agri-export zones are identified asthrust areas and NABARD helps in techno-financial appraisal of such projectsbesides providing refinance.CriteriaThe technical feasibility of the project, financial viability and generation ofincremental income to ultimate borrowers thereby enabling them to have areasonable surplus after repayment of the loan installments are the necessaryconditions to be satisfied for sanctioning investment credit.The beneficiaries of the programme are individuals / group of individuals, SHGs,proprietory / partnership concerns, companies, state-owned corporations orcooperative societies.The extent of refinance will be as under (except SCARDBs):i. States in Eastern Region, North Eastern Region including Sikkim, Hilly States,Chhattisgarh and Lakshwadeep: 100% of eligible bank loans for all purposes.ii. For Other Regions: 100% for all thrust areas as explained in Policy Circulars.iii. 95% for all other diversified purposes and 80% for KrishakSathiYojana.iv. 70% to NBFCs for all eligible purposes.For SCARDBs: The extent of refinance would be 90% across the country
  16. 16. Disbursements for 2011-12, Disbursement Agency WiseDisbursement State Wise & Read more about Investment CreditRural Infrastructure DevelopmentWith the objective of assisting State Governments in the completion of ongoingrural infrastructure projects and to take up new infrastructure projects, theRural Infrastructure Development Fund (RIDF) was set up with NABARD in1995-96 with contributions from commercial banks by way of deposits. Theshortfall in agri/priority sector lending was deposited by the commercial bankswith NABARD as part of their contribution to the RIDF. The total corpus coveringRIDF I (1995-96) to XVI (2010-11) was Rs.1,16,000crore for State Governmentsand Rs.18500 crore for National Rural Roads Development Agency (NRRDA).Sanctions under all tranches of RIDF as on 31 March 2011 wereRs.140,388.40crore against which the disbursements were Rs.98,999.75 crore.This includes sanction and disbursement of Rs.18,500crore for NRRDA.Anticipated BenefitsIt is anticipated that the projects sanctioned upto 31 March 2011 under RIDFwould result in:1. Creation of additional irrigation potential in 164.78 lakh ha.2. Addition of 3,30,855 km of rural road network & 6,67,306 meter bridge length3. Contribution to the GDP to the tune of Rs. 23811.00 crore4. Generation of recurring employment of 8540.45 lakh jobs and non-recurring employment of 26396.78 lakh man days due to increased irrigation5. Generation of non-recurring employment expected from non-irrigation projects: 55247.39 lakh person daysFarm Sector Schemes1. Village Adoption/Village development Plan2. Backward Blocks3. Bamboo Farming4. MACs5. Bio Fuels6. Crop Insurance7. Agriculture Commodities8. SGSY9. Farm Mechanisation
  17. 17. 10. Land Purchase 11. Scheme for AgriClinic/ Agri-Business Centres (ACABCs) 12. SEMFEX 13. Capacity Building for Adoption of Technology (CAT) 14. Agri Export Zone (AEZ) 15. Contract Farming 16. Farmers Club Rural Housing With a view to supplementing the efforts of Government of India, State Governments, National Housing Bank and Banking Sector in augmenting the resources for the Rural Housing segment, NABARD has included Rural Housing as an eligible activity for extension of refinance (investment credit) to the eligible banks w.e.f. 01 April 2001. The broad terms and conditions for the refinance scheme are as under: I. Area of Operation Refinance will be provided to all eligible Banks for finance extended by them to housing projects in the rural areas only. As per NABARD Act, Rural area means the area comprised in any village and includes the area comprised in any town, the population of which does not exceed 50000 or such other figure as the RBI may specify from time to time. II. Eligible Borrowers 1. Individuals 2. Co-operative Housing Societies 3. Public Bodies 4. Housing Boards/ Housing Development Authorities/ Improvement Trusts 5. Local Bodies 6. Voluntary agencies and NGOs 7. Housing Finance Companies registered, with NHB Financing made under Golden Jubilee Rural Housing Scheme and Schemes of the Govt. of India, Ministry of Rural Development shall also be eligible for NABARD refinance.III. Eligible Purposes Construction of New Houses as well as Repairs/Renovation of existing houses in rural areas/ Rainwater Harvesting Structures/ Sanitary Latrines, etc.IV. Security/ Margin
  18. 18. As per RBI / NHB guidelines issued from time to time.V. Ceiling on the cost The cost of the dwelling unit may not exceed Rs 20 lakh. In case land is being acquired, the land cost may be reckoned as Margin Money. Otherwise the cost of land should not be included in the project cost. Quantum of bank loan for individual (maximum) For new houses Rs. 15 lakh For repairs/renovation Rs. 5 lakhVI. Refinance Disbursements Rate of interest on NABARD Refinance, Repayment period 1. For new houses - not more than 15 years 2. For Repairs/ Renovation - not more than 7 years Quantum of NABARD Refinance Sr no. Purpose/Region. Quantum of refinance (% to bank loan)- Automatic Refinance North Eastern Region and Sikkim 100% to all Agencies Other Regions 1. Commercial Banks and Scheduled Primary (Urban) Cooperative Banks 90% 2. State Cooperative Banks 90% 3. Regional Rural Banks 90% 4. State Cooperative Agriculture and Rural Development Banks 100% All the Districts covered by District Rural Industries Project (DRIP) 100%
  19. 19. Others1. Loans to State Governments for funding equity of Co-operative Credit Institutions2. NABARD provides long-term loans to state governments for contribution to the share capital of co-operative credit institutions subject to certain condition3. This is to facilitate strengthening of equity base of these credit institutions and improve their viability4. The maturity period of such loans is 12 years with a moratorium period of initial 2 years and repayment in 10 annual instalmentsDevelopment and Promotional FunctionsDevelopmental FunctionsPromotional FunctionsMicro Finance in India 2009-10Best Farmers ClubDirectory of Farmers ClubCredit is a critical factor in development of agriculture and rural sector as itenables investment in capital formation and technological upgradation. Hencestrengthening of rural financial institutions, which deliver credit to thesector,has been identified by NABARD as a thrust area. Various initiatives havebeen taken to strengthen the cooperative credit structure and the regional ruralbanks, 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 promotionalactivities such as:-Help cooperative banks and Regional Rural Banks to prepare developmentactionsplans for themselves1. Enter into MoU with state governments and cooperative banks specifying their respective obligations to improve the affairs of the banks in a stipulated timeframe
  20. 20. 2. Help Regional Rural Banks and the sponsor banks to enter into MoUs specifying their respective obligations to improve the affairs of the Regional Rural Banks in a stipulated timeframe3. Monitor implementation of development action plans of banks and fulfillment of obligations under MoUs4. Provide financial assistance to cooperatives and Regional Rural Banks for establishment of technical, monitoring and evaluations cells5. Provide organisation development intervention (ODI) through reputed training institutes like Bankers Institute of Rural Development (BIRD), Lucknow, National Bank Staff College, Lucknow and College of Agriculture Banking, Pune, etc.6. Provide financial support for the training institutes of cooperative banks7. Provide training for senior and middle level executives of commercial banks, Regional Rural Banks and cooperative banks8. Create awareness among the borrowers on ethics of repayment through Vikas Volunteer Vahini and Farmer’s clubs9. Provide financial assistance to cooperative banks for building improved management information system, computerisation of operations and development of human resourcesSupervisory FunctionsOverviewAs an apex bank involved in refinancing credit needs of major financialinstitutions in the country engaged in offering financial assistance to agricultureand rural development operations and programmes, NABARD has been sharingwith the Reserve Bank of India certain supervisory functions in respect ofcooperative banks and Regional Rural Banks (RRBs).As part of these functions, it1. Undertakes inspection of Regional Rural Banks (RRBs) and Cooperative Banks (other than urban/primary cooperative banks) under the provisions of Banking Regulation Act, 1949.2. Undertakes inspection of State Cooperative Agriculture and Rural Development Banks (SCARDBs) and apex non-credit cooperative societies on a voluntary basis
  21. 21. 3. Undertakes portfolio inspections, systems study, besides off-site surveillance of Cooperative Banks and Regional Rural Banks (RRBs)4. Provides recommendations to Reserve Bank of India on issue of licenses to Cooperative Banks, opening of new branches by State Cooperative Banks and Regional Rural Banks (RRBs)5. Administering Credit Monitoring Arrangements (CMA) in SCBs and CCBs.Core FunctionsNABARD has been entrusted with the statutory responsibility of conductinginspections of State Cooperative Banks (SCBs), District Central CooperativeBanks (DCCBs) and Regional Rural Banks (RRBs) under the provisions of Section35(6) of the Banking Regulation Act (BR Act), 1949. In addition, NABARD hasalso been conducting periodic inspections of state level cooperative institutionssuch as State Cooperative Agriculture and Rural Development Banks (SCARDBs),Apex Weavers Societies, Marketing Federations, etc., on a voluntary basis.Objectives of InspectionTo protect the interest of the present and future depositorsTo ensure that the business conducted by these banks is in conformity with theprovisions of the relevant Acts/Rules, regulations/Bye-Laws, etcTo ensure observance of rules, guidelines, etc., formulated and issued byNABARD/RBI/GovernmentTo examine the financial soundness of the banksTo suggest ways and means for strengthening the institutions so as to enablethem to play more efficient role in rural creditInstruments of Supervision1. Periodic on-site inspection of SCBs, DCCBs, SCARDBs and RRBs and other Apex level Cooperative institutions2. Supplementary Appraisal3. Off-site Surveillance System ( OSS )4. Portfolio inspection/System study5. Monitoring through returns including CMA and Frauds
  22. 22. 6. Attending to complaints in respect of Cooperative Banks (excluding Urban Cooperative Banks) and RRBsSupervisory Strategy In the wake of the banking sector reforms, new set of internationalnorms/practices were made applicable to Commercial Banks (CBs) to makethem more competitive and sustainable in the changing scenario. The co-operative banks and RRBs were also to function in the general bankingenvironment, emerging out of the financial sector reforms, introduced by theGOI/RBI. Accordingly, the prudential norms were extended to them in phases.While the capital adequacy norm has not yet been made applicable to thesebanks, the other prudential norms viz. income recognition, asset classificationand provisioning, which were made applicable by RBI to the commercial bankingsector had been extended to cover RRBs in 1995-96, SCBs and DCCBs in 1996-97and by NABARD to SCARDBs in 1997-98. NABARD, through a concrete and time-bound supervision strategy, facilitate these banks to adjust to the new financialdiscipline so as to internalize prudential norms stipulated.Current FocusUnder the revised strategy, a sharper focus of the NABARD’s inspection wasgiven on the core areas of the functioning of banks pertaining to CapitalAdequacy, Asset Quality, Management, Earnings, Liquidity, Systems andCompliance (CAMELSC). Thus, NABARD’s focus in its statutory ‘on-site’inspections is on core assessments leaving the collateral appraisals to banks. Themicro level aspects are to be taken care of by the banks themselves by way ofinternal inspections or by other agencies such as auditors. In this direction,through a series of workshops and meetings held with the Chief Executives andthe Chief Auditors of cooperative banks, NABARD has been attempting to ensurethat the other areas, particularly relating to the internal checks and controls,revenue and income realization by way of interest on loans and advances,investments and other routine features of carrying out general bankingtransactions were suitably taken care of by the banks and theirconcurrent/statutory audit systems.Off-site SurveillanceAs a part of the new strategy of supervision, a system of `Off-site Surveillancehas been introduced as a supplementary tool to the on-site inspection. Itsobjectives are to obtain and analyse critical data on a continuous basis, toidentify areas of supervisory concern and to identify early warning signals andrisky areas requiring further probe. The system basically envisages desk scrutinyof operations of cooperative banks and RRBs through a set of statutory and non-statutory returns. While the periodical statutory on-site inspections attempt an
  23. 23. overall evaluation of the performance of the banks with a stipulated period, off-site surveillance envisages continuous supervision supplementing the on-siteinspections with additional instruments of supervision.Board of Supervision (for SCBs, DCCBs and RRBs)Board of Supervision (for SCBs, DCCBs and RRBs) has been constituted byNABARD under Section 13(3) of NABARD Act, 1981 as an Internal Committee tothe 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 tosupervision and inspection, reviewing the inspection findings, suggestingappropriate measures• Reviewing the follow-up action taken by Department of Supervision (DoS) onmatters of frauds and internal checks and control • Identifying the emerging supervisory issues in the functioning of cooperativebanks/RRBs such as NPAs recovery, investment portfolio, credit monitoringsystem, management practices, frauds, etc.• Suggesting necessary follow-up measures • Recommending appropriate training for Inspecting Officers of NABARD forimparting necessary skills and knowledge• Suggest measures for strengthening of DoS• 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 othersupplementary vehicles, action taken thereon• Undertake any other functions entrusted from time to time by the Board ofDirectors of NABARDThe Board of Supervision reviews the financial position of Cooperative Banksand RRBs based on the inspections of these banks by NABARD. Based on theobservations of BoS, authorities concerned are apprised of the weaknesses of thebanks.Other InitiativesThe day-to-day functioning of the supervised banks is being monitored throughvarious statutory returns prescribed by the RBI/NABARD including OSS returns
  24. 24. State level groups comprising RCS, Apex bank, Cooperation and FinanceDepartment, State Government, Director of Audit and non-compliant banks havebeen constituted/convened for preparing/discussing suitable strategy for banksnot complying with the provisions of Section 11(1) of BR Act, 1949 [ asapplicable to Cooperative Societies (AACS)] and monitoring the progress ofAction Plan prepared by them to facilitate recompliance with the provisions.Periodic discussions are held with the MD, Apex Banks, RCS, State Government,etc., to discuss the supervisory concerns.CONCLUSIONNABARD has played a very vital role in thedevelopment of Indian commodity market. It has awide scope of services through which it has helpedvarious sectors for its development. Some of theimportant functions are crediting, housing,
  25. 25. supervision, etc. but one of its most importantfunction is micro-finance. MICRO-FINANCE includesfunctions such as giving loans for setting up businessrelating to agriculture and helping self-help groups{SHGs}. It also helps in savings functions.The main objective of micro-finance is to promotesustainable and equitable agriculture and ruralprosperity through effective credit supply, relatedservices, institutional development and otherinnovative initiatives.Micro-finance has developed from micro-savings tomicro-credit then to micro insurance, microremittance and micro pension.