Chapter-1 Introduction


Genesis and Historical Background-



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Genesis and Historical Background-


The ARDC has according to the CRAFICARD more or less failed to ensure that the ultimate borrowers secured the necessary supporting short-term credit for carrying out the production activity on the level envisaged. ARDC’s assistance to the RNFS was not significant as compared to the need for promotion of such activities in the context of Integrated Rural Development (IRD) nor did the statute empower the ARDC to support these types of activities. Further, the development role assigned to the ARDC was inadequate to take due care of institution building, training and research. The RBI, on the other hand, had onerous responsibilities to discharge in respect of its basic functions of central banking in monetary and credit regulations and was not therefore in a position to devote undivided attention to the operational details of emerging complex credit problems of IRD.1
The main question before CRAFICARD was to decide if it was opportune time to create an institution exclusively devoted to the diverse aspects of rural credit when AIRCSC 1969, had rejected the proposal to take away farm credit functions from RBI and instead, recommended the establishment of a statutory Agricultural Credit Board in 1970, within the RBI, to be entrusted with the task of formulation, review and modification of Bank’s policy in the sphere of rural credit.

But the system still required new dimensions so CRAFICARD felt that the time had come for decentralization of the functions of the RBI and for creation of a national level institution through merger of ARDC, ACD and Rural Planning and Credit Cell (RPCC) of RBI so as to give undivided attention and forceful direction to IRD. CRAFICARD found it prudent to integrate short term, medium term and long-term credit structure for the farm sector and thus recommended establishment of NABARD as a logical step in the organizational evolution of the RBI itself.

This paved the way for the establishing the ‘National Bank for Agriculture and Rural Development’ (NABARD). Finally on November 28, 1979 CRAFICARD submitted its report to Governor of RBI recommending the establishment of NABARD. The Parliament through the Act 61 of 81 approved its setting up. Thus NABARD was set up by an act of Parliament on 12th July 1982 to implement the NABARD Act 1981. RBI was assigned the role of spawning, fostering and nurturing the NABARD.
CRAFICARD has proposed establishment of NABARD on these nine foundations2 :


  1. RBI and Government of India will be share holders of NABARD and will hold 50% each of the share capital of the national bank.

  2. A Deputy Governor of RBI should head NABARD as Chairman, ex-officio.

  3. The Board of NABARD should, in addition to others, consist another Deputy Governor, RBI and some Directors of the RBI Board.

  4. RBI should continue to contribute sums annually out of its surplus to the NRC (LTO) and NRC (Stablisation) funds, maintained by NABARD.

  5. The RBI should extend a Ground Level Credit to NABARD for meeting the demands of short-term credit for Seasonal Agricultural Operations as the statutory duty laid down in the RBI Act and in fulfillment of the refinancing functions of the Central Bank of an agriculturally oriented country.

  6. NABARD will be authorized by the RBI to oversee and carry out periodical inspections of the Cooperative Credit Structure on its behalf and keep the RBI informed from time to time so as to ensure compliance with the disciplines of monetary policy.

  7. Everything should be done to present the NABARD as an integral part of the RBI so that the undoubted prestige and authority of the country’s Central Bank could be rubbed off on the operations of the NABARD.

  8. The RBI and ARDC shall transfer with adequate safeguards all of their staff and physical assets deployed hitherto in the business of farm credit.

  9. The last foundation of Vikas Volunteer Vahini concept was not envisaged by the CRAFICARD but was initiated by Shri Ramkrishnayya, the first chairman of NABARD, in 1982 to spread awareness among rural folk about the five principles1 of Development Through Credit especially the repayment ethic.

Although NABARD had been founded on these above foundations yet many of them have been eroded.

The government is planing to table the NABARD (Amendment) Bill, 2012 in budget session of 2012-13 to enhance its authorised capital and to create larger headroom for NABARD.


Objectives of NABARD-


NABARD is the apex Development Bank established with the directive to facilitate credit flow to promote and develop farm and non farm sector. It also has the mandate to support all allied activities in rural areas, promote integrated and sustainable rural development and secure rural prosperity.

Corporate Mission Statement of NABARD:




Promoting sustainable & equitable agriculture & rural development through effective credit support, related services, institution building & other innovative incentives

One of the problems of multi agency approach is over financing. It is therefore suggested that NABARD should introduce the concept of “one borrower, one financial agency”.1 NABARD ensures IRD by providing all types of credit through single window approach. NABARD initiated the rural approach of “banking with poor” through micro finance. In doing so it has “to innovate in regard to formulation of schemes, monitoring of implementation, evaluation of results and evolution of suitable supporting structures of all kinds of economic activities”.2

NABARD’s main objectives stated in the bill before the Lok Sabha empowers it as an apex organization for matters related to policy, planning and operational aspects of credit to promote agriculture, SSIs, cottage and village industries, handicrafts and other rural crafts and rural allied economic activities. It also provided NABARD as a refinance institute for formal credit (long term, medium term and short term credit) to SCB’s, RRB’s, LDB’s to promote rural activities; and as an institution having organic and close link with RBI and to provide direct lending to any institution as may approved by the Central Government.

For facilitating the rural prosperity, NABARD prepares PLPs to identify exploitable potentials of farming and other activities; refinances banks to extend loans for investment/production purpose in rural areas; provides loans to State Governments/RBI/NGOs/PRIs for rural development; supports credit innovations of NGOs/non-formal agencies; promotes participatory watershed development; extends access of rural poor to formal banking services; and regulates cooperative banks and RRBs through on-site inspection of work and off-site surveillance over health.

NABARD also offers training and research facilities to its client banks and other agencies working for rural development; coordinates the operations of rural credit institutions; and also helps the State Governments to reach their targets of providing assistance to eligible agencies in agriculture and rural development. NABARD also provides various promotional and development initiatives for farm, non-farm and micro-finance sectors and for financial inclusion.

NABARD was established in terms of the Preamble to the Act, “For providing credit for the promotion of 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 promoting IRDP and securing prosperity of rural areas and for matters connected therewith in incidental thereto".

The effectiveness of the objectives is very crucial for NABARD. Many other financial institutions are partnering NABARD for their priority sector lending obligations. These institutions are of two types: Credit related and Development oriented, which are as follows:



Many international agencies also offer material and advisory help to NABARD to implement the schemes to uplift the rural poor and to make farm process more effective and yielding. NABARD has main eight international associates, which range from World Bank-affiliated organizations to global development agencies working in the field of agriculture and rural development.

These associates are World Bank Group; German Development Bank Kreditanstalt Für Wiederaufbau (KfW), German Agency for Technical Cooperation Deutsche Gesellschaft fur Technische Zusammenarbeit (GTZ); Commission on European Community; Swiss Agency for Development and Cooperation; Asian Pacific Agricultural Credit Association; International Fund for Agricultural Development (IFAD); and Organization of Petroleum Exporting Countries (OPEC). These associates play key role in funding projects and assisting in project implementation through sustained partnership. Financial support and advisory role of World Bank Group and continuation of MoU (Memorandum of Understanding) between NABARD and its associates would be a critical factor for successful programme implementation and carrying out NABARD’s mission.

NABARD has been playing a crucial role to improve the livelihood of the second most populous nation in the world. NABARD’s determined application of proven technologies and novel approaches to development has enabled it to act as an innovative institution for rural growth and progress. Though NABARD is a development bank it has also assumed a role of a social entrepreneurial organization. Since its establishment, it has been continuously developing innovative projects to enhance its social outreach.




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