3.   NABARD and its role in rural credit

3.23   Against the background of growing competitiveness in banking, it has become a necessity for NABARD to strengthen the institutions associated with rural credit delivery and also supervise and monitor RRBs, and Co-operative Agriculture and Rural Development Banks  (primary and state level) through various prudential norms to ensure their smooth functioning with sound infrastructure.  It has been the endeavour of NABARD to move in this direction by providing necessary financial support to the co-operative system.  In order to enable NABARD to leverage its capital for raising more resources, the paid-up capital of NABARD was increased from Rs.100 crore in 1991-92 to Rs.1,500 crore in 1997-98. The main sources of funds for NABARD are:  a) capital, b) deposits from: i) Tea companies; ii) Special loan account deposits; iii) Rural Infrastructure Development Fund (RIDF) deposits; and iv) priority sector deposits, and c) Borrowings : i) Bonds (SLR Bonds, Tax-freeBonds); ii)Borrowings from Government of India; and iii) Borrowings in foreign currency. NABARD has been able to strengthen their resources because of injection of additional capital by the Reserve Bank of India and Government of India, net accretion of reserves and surpluses, increase in the General Line of Credit from the Reserve Bank, and accretion to RIDF from commercial banks.

Resources of NABARD

3.24   The flow of resources to NABARD including RIDF deposits declined to Rs.2,636 crore during 1997-98 as compared with Rs.2,963 crore in 1996-97 (Table III.6). During 1997-98, RIDF deposits have declined to Rs.1,007 crore from Rs.1,042 crore in 1996-97, a decline of Rs.35 crore.  However, the capital of NABARD was strengthened with an infusion of Rs. 500 crore to Rs.1,500 crore in 1997-98. Of the increase of Rs.500 crore to capital, the contributions from the Reserve Bank and Government of India were Rs.400 crore and Rs.100 crore, respectively.  The accretion in reserves and surplus amounted to Rs.451 crore in 1997-98, which showed a decline of 16.8 per cent over the previous year.  Besides, market borrowings through the issue of bonds and debentures were Rs.125 crore in 1997-98 as compared with Rs.200 crore in the previous year.  Deposits with NABARD, consisting of mostly of deposits from private sector commercial banks on account of their priority sector shortfall, declined by Rs.204 crore to Rs.257 crore, as compared with an increase of Rs. 359 crore in the previous year, mainly due to refund of deposits having one-year maturity.  The outstanding borrowings from the Government has declined by Rs.111 crore to Rs.1,059 crore in March 1998 from Rs.1,170 crore a year ago.  This was on account of repayment of Rs.137.56 crore to Government against the loans taken for various externally aided projects in the past.

Refinance from NABARD

3.25   During 1997-98, the aggregate credit limits sanctioned by NABARD to State Governments substantially increased by 49.1 per cent to Rs.150.0 crore as against Rs.100.6 crore in the preceding year. However, for the StCBs, it showed a decline of 1.4 per cent (Table III.7).  The short-term credit limits sanctioned to StCBs increased by 0.3 per cent, while the medium-term credit limit declined steeply by 39.2 per cent. The limits sanctioned (both  short and medium terms) to RRBs showed an increase of 8.9 per cent during 1997-98.

3.26   The interest rates structure of NABARD for refinance and to the ultimate beneficiaries of term loans are given in Table III.8

Rural Infrastructure Development Fund

3.27   RIDF was initially set up with a corpus of Rs.2,000 crore in 1995-96 with a major objective of providing funds to State Governments to enable them to complete various types of infrastructure projects pertaining to irrigation, flood protection, rural roads, bridges, etc. This development scheme continued in the subsequent years as RIDF II in 1996-97 (Rs.2,500 crore), and RIDF III in 1997-98 (Rs.2,500 crore). In the fourth tranche of RIDF, an amount of Rs.3,000

Table III.8 : NABARD's Structure of Interest Rates for Term Loans

Notes :  1. In respect of externally aided projects, the rate as per provisions contained in the relative agreement/ sanction will apply. 2. The rate of interest (irrespective of the size of limit) under the pilot scheme of financing Self Help Groups (SHGs) will remain unchanged, i.e., NABARD to Bank - 6.5 per cent, Bank to SHGs - 12 per cent.  SHGs to members as decided by the group.

crore has been budgeted. The corpus of these funds was contributed by scheduled commercial banks against their shortfall in the priority sector target.

3.28   Till end-March 1998, the cumulative disbursements amounted to Rs. 2,483.79crore, as against cumulative deposits of Rs.2,399.34 crore. The shortfall of Rs.84.45 crore has been made good by NABARD subject to flow of deposits from banks (Table III.9).

3.29   Table III.10 presents State-wise amount of financial assistance provided under RIDF-I, RIDF-II and RIDF-III as at end-March 1998.  Of the total sanctions of Rs.1,748.5 crore under RIDF I, disbursements amounted to Rs.1,433.3 crore.  The highest disbursement was in Uttar Pradesh (Rs.252.1 crore), followed by Andhra Pradesh (Rs.172.9 crore), Maharashtra (Rs.147.9 crore), Madhya Pradesh (Rs.147.7 crore) and Orissa (Rs.132.4 crore).  Under RIDF II, total sanctions amounted to Rs.2,617.5 crore, while disbursements were lower at Rs.833.9 crore.  In disbursements, Maharashtra topped the list with Rs.139.0 crore, followed by Uttar Pradesh at Rs.115.3 crore.  Under RIDF III, disbursements amounted to Rs.216.7 crore with Gujarat having received the largest share (Rs.35.5 crore), followed by Orissa (Rs.27.7 crore), and Maharashtra (Rs. 26.1 crore).

3.30   The availment of RIDF funds has been low in comparison to sanctions largely due to difficulties in identifying relevant projects by some state governments and lack of budgetary support where only part funding is envisaged from RIDF. Moreover, there are delays in the completion of formalities for drawal of funds and in completing preliminary work in respect of irrigation projects where land acquisiton as well as tendering procedures are required. In order to speed up disbursal from RIDF funds, NABARD has advised state governments to review their respective position and initiate necessary steps to adhere to the time schedule.

Agricultural Development Finance Companies

3.31   With the prime objective of strengthening credit flow for hi-tech/high-value agriculture operations and associated infrastructure, NABARD has taken the lead in establishing state level  ADFCs  in Andhra Pradesh, Tamil Nadu, and Karnataka with equity participation between public and private sectors in the ratio of 45:55.  During 1997-98, NABARD contributed Rs.5.2 crore to the equity capital of each of ADFCs in Andhra Pradesh and Tamil Nadu and Rs.0.17 crore to Karnataka.  Although contributions from public sector towards equity capital have been fully met barring ADFC in Karnataka, there is not much of an encouraging response from private sector in terms of infusion of capital.  However, to overcome the difficulties faced by ADFCs, NABARD would be extending refinance assistance in the initial years.

3.32   During 1997-98, NABARD has sanctioned refinance assistance for 5 schemes equivalent to Rs.3.93 crore to ADFCs in Tamil Nadu and for 3 schemes amounting to  Rs.1.53 crore to the ADFCs in Andhra Pradesh.  The investments are concentrated in poultry development, mushroom production and processing, and agro/seed processing.

Development Action Plans and Memorandum of Understandings

3.33   For a planned and healthy development of co-operatives, NABARD has taken up series of initiatives.  All the co-operative banks in India have drawn up Development Action Plans (DAPs) and executed institution - specific Memorandum of Understandings (MoUs) for implementation, with the exception of two CCBs in Uttar Pradesh and three  PCARDBs in Punjab.  To help PCARDBs and StCBs in implementing DAPs, NABARD had suggested the formation of Institutional Development Cells (IDCs) for which it would extend financial assistance initially for five years so as to equip IDCs with professionals.  In this context, it may be mentioned that two StCBs and four SCARDBs have established IDCs and were sanctioned financial assistance under the scheme.

3.34   Prudential norms were introduced during the year 1997-98 in SCARDBs/PCARDBs with the objective of making full provisions. As Agriculture Rural Development Banks (ARDBs) (both Primary and State levels) have expressed difficulties in following the norms, they have been advised to make 100 per cent provision for loss assets and not less than 30 per cent in case of sub-standard and doubtful assets during 1997-98. They nevertheless will have to make full provisioning from 1998-99 onwards.

3.35   During 1997-98, to  achieve a growth target of 4.5 per cent in the output of agricultural sector in 1997-2002, NABARD concentrated on its short-term refinance policy of achieving 25 per cent annual growth of credit flows.  This policy, among other things, laid emphasis on increased access to institutional credit by small and marginal farmers, augmenting credit flows to tribals and for dry land farming and enhancing credit dispensation for centrally sponsored special schemes.

3.36   To strengthen the financial position of SCARDBs and also to reduce budgetary pressure on State Governments, NABARD subscription to the Special Development Debentures floated by them has been raised to 90 per cent wherever the existing level of refinance was at 75 per cent.

3.37   Based on a Study Group's recommendation, NABARD revised the deposit mobilisation schemes of ARDBs.  Accordingly, SCARDBs have been permitted to accept term deposits for maturity period of one year and above subject to the ceiling that the aggregate deposit outstanding at any point of time shall not exceed their net owned funds.  NABARD, while allocating funds among various agencies, would accord priority to SCARDBs, followed by RRBs and StCBs, and the remainder would go to commercial banks.

3.38   While giving refinance support to commercial banks, priority was however given to Non-Farm Sector (NFS), and SC/ST Action Plan in all the states.  In order to overcome the constraints in the disbursal of IRDP loans, NABARD has constituted a Task Force consisting of representatives from Government of India, Reserve Bank of India, State Governments and public sector banks which last met in July 1997 and deliberated inter alia on issues pertaining to preparation of the Below Poverty Line' list, appraisal of applications, and identification of viable activities.  The Task Force also discussed problems associated with implementation, post - sanction, follow-up and recovery performance under IRDP and made suggestions for improving the performance under the programme. The Task Force has been able to give proper counselling to banks and State Governments on the proper implementation of the programme, besides suggesting measures to avoid leakage in service, simplification of procedures and documentation and better follow-up of end-use of credit.

3.39   For streamlining and strengthening its supervisory role, NABARD constituted an Expert Committee to Review the Supervisory Role of NABARD ' in January 1998 (Chairman Shri U.K. Sarma). The recommendatipon of the committee submitted in April 1998 are under consideration of the NABARD (Box III.1).

        In the context of the implementation of financial sector reforms and gradual liberalisation of the economy, an effective and efficient supervision becomes a critical element in the development of a sound banking system.  With the setting up of NABARD in 1982, the responsibility for overseeing the functioning and supervision of the  RRBs  and the co-operative banking structure, other than urban co-operative banks, has been shifted from the Reserve Bank to NABARD.  At present, NABARD exercises its statutory supervisory role over 28 StCBs, 364 CCBs  and 196 RRBs.  Besides, NABARD also exercises supervision over 19 SCARDBs and 378 PCARDBs on a voluntary basis by virtue of its refinancing and developmental role.  For streamlining and strengthening its supervisory role, NABARD constituted an Expert Committee for the Review of Supervisory Role of NABARD', in January 1998 (Chairman : Shri U.K. Sarma).  The Committee submitted its report in April 1998.  The Report is under consideration of the NABARD. The major recommendations of the Committee are as follows: