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National Bank for Agriculture & Rural Development A PROJECT REPORT Under the guidance Of ______________________________ Submitted by ______________________________

in partial fulfillment o f the requirement for the award of the degree Of MBA IN [Finance/Marketing/Human Resource Management/Information Systems/Banking/Retail Operations/ Operations Management/ Project Management/Total Quality Management]

National Bank for Agriculture & Rural Development Acknowledgement: Acknowledgment is the regards given to the people andorganization who have helped you in completing the project undertaken. Mainly itmust consist of Acknowledgement towards the organization you study and to thecompany where you have done your project followed by the people who havehelped you in the process


7.6 DEWTA7.7 ADIVASI DEVELOPMENTPROGRAMME IN GUJRAT7.8ADIVASI DEVELOPMENTPROGRAMME IN MAHARASHTRA8SUPERVISORY ROLE OF NABARD8 INTRODUCTION 7 NABARD AN OVERVIEW Twenty four years ago, to be precise on July12,1982, by an Act of the parliament ,NABARDcame into being with the avowed objective of providing focused and undivided attention tothe development of rural India which was, and even now is, crucial to the countryseconomic progress. Naiads mandate touches practically every aspect of rural life. As itsmission statement underscores, NABARD is to promote sustainable and equitableagriculture and rural prosperity through effective credit support, related services, institutiondevelopment and other innovative initiatives. As its core business is the credit support that suits every activity in rural India. Todayit has a tremendous reach through 28 regional offices at the state capitals, a sub-office. Itrefinances commercial, co-operative and regional rural banks for lending to on farm andnon-farm activities like minor irrigation, animal husbandry, farm mechanization ,forestry,fisheries, land development, horticulture, plantation and medicinal corps and non-farm likerural industries, artisans, handicrafts, handlooms, rural housing, rural tourism and so on.Refinance is provided by NABARD for both long term investment credit as well as shortterm production credit for crop rearing and working capital for nonfarm activities. Clearly NABARD has been silently working for supporting diversified activities andits stakes are quite awesome. The figures speak for themselves. It has channelised whopping Rs 8622crore disbursed during 2005-2006. under production credit the bank sanctionedlimits of Rs 11,889 crore during 2005-2006. NABARD has effectively brought in a number of innovations in the rural creditdomain. 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


CHAPTER 1 CONCEPT OF NABARD1 . INTRODUCTION "Rural India which comprises 5.5 lakh villages and encompasses three fourths of theCountry's population is Characterized by low income levels, inadequate to ensure a qualityof life compatible with physical well being. The Ministry of Rural Development,spearheading the frontal attack on rural poverty, through its various programmes endeavoredto reach out to the last and most disadvantaged sections of society, provide them withavenues of employment, be it self-employment or wageemployment, and to improveinfrastructure relating to their life support systems . "India has been a welfare state ever since her Independence and the primary objectiveof 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 fromthe achievement of planning. The policies and programmes have been designed with the aimof alleviation of rural poverty which has been one of the primary objectives of planneddevelopment 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 growthitself. 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 plansand blue-prints of development were built . NABARD implies both the economic betterment of people as well as greater socialtransformation. In order to provide the rural people with better prospects for economicdevelopment, increased participation of people in the rural development programmes,decentralization of planning, better enforcement of land reforms and greater access to creditare envisaged. 1.1 Establishment of the Bank: The Bill for setting up the Bank was passed by the Parliament in December, 1981 and National Bank came into existence on 12th July, 1982.The review committee envisaged thatthe new apex bank would be an organizational device for providing undivided attention,forceful direction and pointed focus to the credit problems arising out of the integratedapproach to rural development. The Committee recommended that the new bank take over from the Reserve Bank theoverseeing the entire rural credit system, including credit for rural artisans and villageindustries, and the statutory inspection of co-operative banks and Regional Rural Banks onan agency basis, the Bank continuing to retain its essential control. The new

bank was tohave organic links with the Reserve Bank by virtue of the latter contributing half of its sharecapital ( the other half being contributed by the Central Government), and three members of the Central Board of Directors of the Reserve Bank being appointed on its board, besides Deputy Governor of Reserve Bank being appointed as its Chairman. On the establishment,the National Bank has taken over the entire undertaking of the Agriculture Refinance andDevelopment Corporation, and has taken over from the Reserve Bank its refinancingfunctions in relation to the State Co-operative Banks and the Regional Rural Banks. The bank is now coordinating agency in relation to the Central Government, PlanningCommission, State Governments and institutions at all-India level and Statelevel engaged inthe development of small-scale industries, rural crafts, etc. for giving effect to the various policies and programmes related to rural credit. Chapter 1 1.2. Genesis and Historical Background The Committee to Review Arrangements for Institutional Credit for Agriculture and RuralDevelopment (CRAFICARD) set up by the RBI under the Chairmanship of Shri B Sivaraman in its report submitted to Governor, Reserve Bank of India on November 28, 1979 recommended the establishment of NABARD. The Parliament through the Act 61of 81, approved its setting up. The Committee after reviewing the arrangements came to the conclusion that a newarrangement would be necessary at the national level for achieving the desired focus andthrust towards integration of credit activities in the context of the strategy for IntegratedRural Development. Against the backdrop of the massive credit needs of rural developmentand the need to uplift the weaker sections in the rural areas within a given time horizon thearrangement called for a separate institutional set-up. Similarly. The Reserve Bank hadonerous responsibilities to discharge in respect of its many basic functions of central bankingin monetary and credit regulations and was not therefore in a position to devote undivided attention to the operational details of the emerging complex credit problems. This paved theway for the establishment of NABARD. CRAFICARD also found it prudent to integrate short term, medium term and longtermcredit structure for the agriculture sector by establishing a new bank. NABARD is the resultof this recommendation. It was set up with an initial capital of Rs 100 crore, which wasenhanced to Rs 2,000 crore, fully subscribed by the Government of India and the RBI. Chapter 2 1.3 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 ruralcrafts and other allied economic activities in rural areas with a view to promoting IRDP andsecuring 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 placingthe bill before the Lok Sabha were categorized as under: The National Bank will be an apex organisation in respect of all matters relating to policy, planning operational aspects in the field of credit for promotion of Agriculture, Small ScaleIndustries, Cottage and Village Industries, Handicrafts and other rural crafts and other alliedeconomic activities in rural areas. The Bank will also provide direct lending to any institution as may approved by the CentralGovernment. The Bank will have organic links with the Reserve Bank and maintain a close link with in. Chapter 3 1.4 Mission Promoting sustainable and equitable agriculture and rural development through effectivecredit 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 alldistricts of the country for identification of credit potential, monitoring the flow of groundlevel rural credit, issuing policy and operational guidelines to rural financing institutions and providing credit facilities to eligible institutions under various programmes Development functions, concerning reinforcement of the credit functions and making creditmore productive Supervisory functions , ensuring the proper functioning of cooperative banks and regionalrural banks 1.5 CURRENT POSITION OF NABARD In a journey spanning 25 years, NABARD has paved the way for all-round rural progress 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 programmehas helped over 329.90 lakh households through 22.38 lakh SHGs comprising mostlyof women members.Women empowerment in rural areas. Rs 872 lakh have beensanctioned by way of assistance to women entrepreneurs Through the infrastructure development fund Rs 51,283 crore have been sanctionedfor 2,44,651 projects covering irrigation, rural roads and bridges, health andeducation, soil conversation, drinking water schemes etc.

Watershed development fund, with cumulative sanctions of Rs578.95 crore for 427 projects 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 Kisan CreditCards that have been issued through a vast rural banking network. District Rural Industries Projects (DRIP) has generated employment for 23.34 lakhunits in 105 districts CHAPTER 2 What is NABARD? National Bank for Agriculture & RuralDevelopment 2 INTRODUCTION

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 inrural 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 developmentof 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 promotingintegrated rural development and securing prosperity of rural areas and for mattersconnected therewith or incidental thereto The National Bank for Agriculture & Rural Development (NABARD) : was setup byan 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 andother allied economic activities in rural area with a view to promote integrated ruraldevelopment 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 facilitatingcredit flow for promotion and development of agriculture, small-scale industries, cottage andvillage industries, handicrafts and other rural crafts. It also has the mandate to support allother allied economic activities in rural areas, promote integrated and sustainable ruraldevelopment 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 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 inmatters relating to rural development Offers training and research facilities for banks, cooperatives and organizations working inthe field of rural development Helps the state governments in reaching their targets of providing assistance to eligibleinstitutions in agriculture and rural developmentActs as regulator for cooperative banks and RRBs. Chapter 4 2.1 Major Activities Preparing of Potential Linked Credit Plans for identification of exploitable potentials under agriculture and other activities available for development through bank credit. Refinancing banks for extending loans for investment and production purpose in rural areas. Providing loans to State Government/Non Government Organizations (NGOs)/PanchayatiRaj Institutions (PRIs) for developing rural infrastructure. Supporting credit innovations of Non Government Organizations (NGOs) and other nonformal agencies. Extending formal banking services to the unreached rural poor by evolving a supplementarycredit delivery strategy in a cost effective manner by promoting Self Help Groups (SHGs) Promoting participatory watershed development for enhancing productivity and profitabilityof rainfed agriculture in a sustainable manner. On-site inspection of cooperative banks and Regional Rural Banks (RRBs) and iffsitesurveillance over health of cooperatives andRRBs


NABARD operates throughout the country through its 28 Regional Offices and one Suboffice, located inthe capitals of all the states/union territories. It has 336 District Offices across the country, one Sub-office atPort Blair and one special Cell at Srinagar. It also has 6 training establishments.

Chapter 5 2.3 Organization Structure

2.4 Some of the milestones in NABARD's activitiesare: Refinance disbursement under ST-Agri & Others and MT-Conversion/ Liquidity supportaggregated Rs.16952.83 crore during 2007-08. Refinance disbursement under Investment Credit to commercial banks, state cooperative banks, state cooperative agriculture and rural development banks, RRBs and other eligiblefinancial institutions during 2007-08 aggregated Rs.9046.27 crore. Through the Rural Infrastructure Development Fund (RIDF) Rs.8034.93 crores weredisbursed during 2007-08. With this, a cumulative amount of Rs.74073.41 crore has beensanctioned for 280227 projects as on 31 March 2008 covering irrigation, rural roads and bridges, health and education, soil conservation, drinking water schemes, flood protection,forest management etc. Under Watershed Development Fund with a corpus of Rs.613.71 crore as on 31 March 2008,416 projects in 94 districts of 14 states have benefited. Farmers now enjoy hassle free access to credit and security through 714.68 lakh KisanCredit Cards that have been issued through a vast rural banking network. Under the Farmers' Club Programme, a total of 28226 clubs covering 61789 villages in 555districts have been formed, helping farmers get access to credit, technology and extension services. Chapter 6 2.5 NABARD and its Role in Training National Bank Staff College, Lucknow National Bank Training Centre, Lucknow Zonal Training Centre, Hyderabad Regional Training Centre, Bolpur Bankers Institute of Rural Development (BIRD), Lucknow The provisions of the Act as stated below very clearly indicate the nature and scope of thedevelopmental mandate of the Bank and its role in training and capacity building with theunderlying belief that the process of development cannot be accomplished bycredit/refinance alone.

Section 38 of the NABARD Act provides that the Bank shall:maintain expert staff to study all problems relating to agriculture and rural development and be available for consultation to the Central Government, the Reserve Bank, the StateGovernments and the other institutions engaged in the field of rural development. provide technical, legal, financial, marketing and administrative assistance to any person engaged in agriculture and rural development activities; may provide consultancy services in the field of agriculture and rural development and other related matters in or outside India, on such terms and against such remuneration, as may beagreed upon; in this context, the role of training in NABARD and the role played by it for capacity building in client institutions, partner agencies and other developmental agencies is important For maintaining 'Expert Staff', the bank needs to provide continuous exposure to its officersand staff for upscaling their knowledge and skills in core areas. However, in the initial yearsthe Bank had recruited expert staff from various technical disciplines and created a separatecadre of officers. These officers were involved in formulating, appraising, monitoring andevaluating different agricultural projects implemented by different credit agencies.Theseofficers, irrespective of their academic background, were imparted similar type of training asall other officers. Their placements and the regular job rotations helped in grooming them totake up assorted assignments, get involved in a variety of roles and functions includingcredit, developmental, promotional, supervisory and necessary support and information for decision making. The Bank also had access to their specialised skills which were utilisedwhenever needed. In pursuance of the Bank's mandate as stated in the Act, the Bank provides training facilitiesfor the RFIs and agencies involved in rural development through BIRD and the two RTCs.With a view to broadbase the training and capacity building efforts, the Bank encourages theRFIs to set up their own training systems and provides these training institutes the necessarysupport to conduct meaningful and quality training. Options and avenues for strengtheningthe training interventions at the client level are continuously examined so that the humanresources in these institutions are developed to take on the challenges, reckon with thecompetition, improve customer service, expand outreach, develop suitable products andthereby contribute to rural development. As NABARD primarily functions through other agencies, the needs of the client institutions largely determine the knowledge and skill requirements of NABARDofficers. NABARD endeavours to blend the experiences of client bank training with the training for NABARD officers so as to make training meaningful and relevant to their roles.

Efforts are also made to blend the study findings with the outcome from training to periodicallymeasure the overall impact of the investments made in the training efforts. CHAPTER 3 FUNCTIONS OF NABARD CREDIT ROLE 3 Introduction NABARD is an apex institution accredited with all matters concerning policy, planning andoperations in the field of credit for agriculture and other economic activities in rural areas.Itis an apex refinancing agency for the institutions providing investment and production creditfor promoting the various developmental activities in rural areas It takes measures towards institution building for improving absorptive capacity of the creditdelivery system, including monitoring, formulation of rehabilitation schemes, restructuringof credit institutions, training of personnel, etc. It co-ordinates the rural financing activitiesof all the institutions engaged in developmental work at the field level and maintains liaisonwith Government of India, State Governments,Reserve Bank of India and other nationallevel institutions concerned with policy formulation. It prepares, on annual basis, rural credit plans for all districts in the country; these plans formthe 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. 3.1 CREDIT OPERATIONS PERFORMED BY THEBANK: The National Bank is empowered to provide short-term refinance assistance for periods not exceeding 18 months to state Co-operative Banks, Regional Rural Banks and any financial 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 granted to State co-operative Banks and Regional Rural Banks, in so far as they relate to the financing of agricultural operations or marketing of crops, can be converted by the National Bank 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 and Regional 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 time subject to their being fully guaranteed by the State Governments as to the repayment of principal and payment of interest. Such guarantee can however be waived by the National Bank in such circumstances.

The National Bank is empowered to provide by way of refinance assistance long-term loans extending up to a maximum period of 25 years including the period of rescheduling such loans to the State Land Development Banks, Regional Rural Banks, Commercial Banks, State Co-operative Banks or any other financial institutions approved by the Reserve Bank for the purpose of making investment loans. It may also give shortterm loans along with long-terms loans where such composite loans are considered necessary. Loans for periods not exceeding 20 years can be made to the State Governments to enable them to subscribe directly or indirectly to the Share capital of Cooperative Societies. Moreover, the new bank can contribute to the share capital or invest in the securities of any institutions concerned with agriculture or rural development.

3.2 Credit Planning by NABARD :

3.2.1 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 district and projects credit requirements, taking into account long-term physical potential,availability of infrastructure, extension services and marketing support and the strengths and weaknesses of the RFIs in the district. 3.2.2 State Level Planning NABARD prepares a State Focus Paper for every State. This presents a comprehensive picture 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 these sectors. It can be used by bankers and other agencies for preparing their action plans for making these investments. State Credit Seminars are convened by NABARD annually where all agencies concerned viz., the State Government, banks, NGOs, etc. participate and discuss policies and operational measures required to be taken for tackling constraints in development of potentials available in agriculture and allied sectors in the State.

3.2.3National Level Planning

NABARD facilitates policy decisions by GoI and RBI in the areas of credit flow to agriculture and rural development. 3.3 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 which permitted 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 and bilateral aid agencies, the market and National Rural Credits (long-term operations). Fund that it has established. To this Fund has been transferred the balance in the National Agricultural Credit (Long term operations). Funds maintained by the Reserve Bank. Further contributions 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.


3.5 TYPES OF REFINANCE FACILITIES AgencyCredit FacilitiesCommercial BanksLong-term credit for investment purposesFinancing the working capital requirements of Weavers' Co-operative Societies (WCS) & StateHandloom Development CorporationsShort-term Co-operative Structure (StateCo-operative Banks, District Central Co-operative Banks, Primary AgriculturalCredit Societies)Short-term (crop and other loans)Medium-term (conversion) loansTerm loans for investment purposesFinancing WCS for production and marketing purposesFinancing State Handloom DevelopmentCorporations for working capital by State Co-operative BanksLong-term Co-operative Structure (StateCo-operative Agriculture and RuralDevelopment Banks, Primary Co-operative Agriculture and RuralDevelopment Banks)Term loans for investment purposesRegional Rural Banks (RRBs)Short-term (crop and other loans)Term loans for investment purposes State GovernmentsLong-term loans for equity participation in co-operativesRural Infrastructure Development Fund (RIDF)loans for infrastructure projects NonGovernmental Organisations (NGOs)- Informal Credit Delivery SystemRevolving Fund Assistance for various micro-credit delivery innovations and promotional projects under 'Credit and Financial Services Fund'(CFSF) and 'Rural Promotion Corpus Fund'(RPCF) respectively

Chapter 8 3.6 Interest Rates

3.6.1 Margin money The beneficiary's contribution to the project cost is necessary in order to ensure his stake in the investment. Such margin money varies from 5% to 25% depending on the type of investments and the category of the beneficiaries. The margin 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 the investment cost.

3.6.2 Special focus Removal of regional and sectoral imbalances is one of the thrust areas and hence preference is given to the needs of the underdeveloped areas. For example, the development of the north-eastern region has been a key programme and special efforts have been made through refinance offered on liberal terms and other supportive measures so that the rural credit delivery system in the region is strengthened. 3.6.3 Monitoring Special attention is paid to monitoring the projects that are offered assistance so that the targets are met and the implementation is properly done. An evaluation of the project is taken up and in the light of the findings the quality of the projects and their implementation methods can be improved. District-oriented monitoring studies are conducted to evaluate the performance of the ongoing agricultural development schemes sanctioned. Specific sector studies 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 farm and non-farm sectors. Besides, even consultancy is also offered for projects, including appraisal of projects even in cases where refinance is not secured from the bank.

Chapter 9 3.7 Direct Credit 3.7.1 Direct credit from NABARD constitutes loans to State Governments.
Supporting Cooperatives In order to strengthen the owned funds position of cooperative credit institutions and thereby increasing their capacity to leverage larger resources, NABARD provides loans to State Governments to contribute to the share capital of these institutions. 3.7.2 Rural Infrastructure Development With the objective of assisting State Governments in the completion of ongoing rural infrastructure projects and to take up new infrastructure projects, the Rural Infrastructure Development Fund (RIDF) was set up with NABARD in 1995-96 with contributions from Commercial 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 the disbursements were Rs. 25384.02 cr. Chapter 10 Rural Infrastructure With the objective of assisting State Governments in the completion of ongoing rural infrastructure projects and to take up new infrastructure projects, the Rural Infrastructure Development Fund (RIDF) was set up with NABARD in 1995-96 with contributions from Commercial banks by way of deposits. The shortfall in agri/priority sector lending

wasdeposited 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. Sanctionsunder all trenches of RIDF as on 31 March 2005 were Rs.42948.51 crore against which thedisbursements were Rs. 25384.02 cr.