NABARD or the National Bank for Agricultural and Rural Development, is a development bank that focuses on the country’s rural sector. It is the apex banking institution for agriculture and allied rural development financing. NABARD was established in 1982 after CRAFICARD, the Committee to Review Arrangements for Institutional Credit for Agriculture and Rural Development, suggested the establishment of a developmental bank. It is a statutory agency founded by Parliament in 1982 under the National Bank for Agriculture and Rural Development Act, 1981. Its headquarters are in Mumbai, the financial hub of the country. It is responsible for the growth of small businesses, cottage industries, and other village or rural projects of this nature. 

Functions of NABARD

NABARD’s functions are detailed below. 

1) NABARD has designated departments that work toward the goal of empowering and economically inclusive rural India. These departments can be classified into three broad groups:

  • Financial
  • Developmental
  • Supervision 

2) NABARD provides financial assistance for rural infrastructure development. 

3) Additionally, NABARD supervises Regional Rural Banks (RRBs) and Cooperative Banks, strengthening their banking processes and connecting them with the CBS platform i.e., Core Banking Solution platform.

  • CBS platform: Core Banking Solution (CBS) is a branch network that enables Customers to manage their accounts and obtain banking services from any bank branch that is a member of the CBS network, irrespective of where they retain their account. The client is no longer a Branch customer. He then becomes a Bank Customer.

4) NABARD’s district-level credit programmes serve as a guide and motivator for the banking industry to meet specified benchmarks. 

5) NABARD is linked with a number of international organisations, including leading global organisations and World Bank-affiliated institutions, that are pioneering new frontiers in rural development and agriculture. These overseas partners serve as critical consultants, giving advising services and financial help to ensure rural peoples’ empowerment and the improvement of agriculture related processes.

6) It is responsible for developing and implementing the Union government’s development initiatives.

7) It trains craftsmen in handicrafts and assists them in building a sales channel for their wares. 

NABARD and RBI

The Reserve Bank of India is the country’s central bank, with sole authority to govern the banking industry and oversee the various institutions/banks, including NABARD, as stated under the 1949 Banking Regulation Act. RBI and NABARD collaborate on numerous developmental and regulatory projects. RBI appoints three directors to the board of directors of NABARD. NABARD makes recommendations to the Reserve Bank of India regarding the issuance of cooperative bank licenses, as well as the formation of new offices by State Cooperative Banks and Regional Rural Banks (RRBs). 

Significant NABARD schemes

  • RuPay Kisan Cards include the provision of RuPay cards to all farmer clients in an attempt to bring about a technological revolution in the rural financial sector
  • The Kisan Credit Card Scheme was launched in 1998 in collaboration with the Reserve Bank of India to facilitate crop loans. Sector of Microfinance: In 1992, NABARD started the Self Help Group-Bank Linkage Programme (SHG-BLP). During the 2017-18 fiscal year, over 23 lakh SHGs were credit-linked
  • EShakti: On 15 March 2015, project EShakti was established with the goal of digitising SHGs
  • NABARD has historically also sponsored rural craftsmen’ and producers’ participation in shows across the country in order to provide marketing opportunities

Challenges 

  1. The north-eastern states have received a disproportionate amount of NABARD’s lending funding. The northeast receives 1% of loans, trapping farmers in the web of money lenders .The severed link (the transfer of the RBI’s 0.4 percent share in NABARD to the Union Government pursuant to the NABARD Act 2017) has resulted in a significant setback for both the RBI and NABARD. This has reduced the RBI’s ability to exercise control over its activities. A solid cooperation between the central bank and the developmental institution would have benefitted agricultural and rural development at a key time in the country’s history, as the country faces a severe agrarian crisis.
  2. Bank penetration in insurgency-affected states is low and should be increased. # The cost of financing has increased as NABARD’s market borrowings account for almost 80% of its resources. Cooperative structures that are member-driven and de-bureaucratized must fill in the institutional credit gaps created by commercial banks. 

Conclusion

Over 75% of India’s population is reliant on agriculture. Rural infrastructure improvements contribute to rural residents’ socioeconomic standing by increasing their income and quality of life. As the apex agency for providing financing and capacity building to the Indian rural economy, NABARD represents a great opportunity for reducing poverty and rural India’s socio economic empowerment.