NABARD (National Bank for Agriculture and Rural Development)

NABARD (National Bank for Agriculture and Rural Development)

NABARD is a development bank that primarily serves the country's rural sector. It is the premier banking organization for agricultural and rural development financing.

NABARD (National Bank for Agriculture and Rural Development)


  • NABARD is a development bank that primarily serves the country's rural sector. It is the premier banking organization for agricultural and rural development financing.
  • Its headquarters are in Mumbai, India's financial hub.
  • It is responsible for developing small enterprises, cottage industries, and other village or rural initiatives.
  • It is a statutory entity founded in 1982 under the National Bank for Agriculture and Rural Development Act of 1981.

What are the purposes of NABARD?

NABARD's activities aim to empower and financially include rural India through particular goal-oriented departments that may be classified into three categories: financial, developmental, and supervision.

  • It offers refinancing assistance for the construction of rural infrastructure.
  • It develops district-level credit strategies to guide and motivate the banking industry to meet these goals.

It supervises cooperative and regional rural banks (RRBs) and assists them in developing good banking practices and integrating them into the CBS (Core Banking Solution) platform.

  • Core Banking Solution (CBS) is a branch network that allows customers to manage their accounts and obtain banking services from any branch on the CBS network, regardless of where they keep their accounts.
  • The customer is no longer a Branch customer. He becomes a customer of the bank.
  • It is involved in creating and executing the Union government's development initiatives.
  • It trains handcraft artists and assists them in building a marketing platform for selling their products.
  • NABARD has several international relationships with top global organizations and World Bank-affiliated institutions that are breaking new ground in rural development and agriculture.
  • These overseas partners serve as consultants, giving advising services as well as financial aid to enable the upliftment of rural peoples and the optimization of various agricultural processes.

Background - How did NABARD come to be?

  • The relevance of institutional lending in promoting the rural economy was evident to the government from the start.
  • At the request of the Government of India, the Reserve Bank of India (RBI) established a Committee to Review the Arrangements for Institutional Credit for Agriculture and Rural Development (CRAFICARD) in 1979, chaired by Shri B. Sivaraman, a former member of the Planning Commission.
  • The Committee's report (1979) underlined the need for a new organizational mechanism to provide undivided attention, firm direction, and a laser-like concentration on credit-related challenges associated with rural development.
  • It led to the establishment of NABARD (National Bank for Agriculture and Rural Development) as a statutory organization in 1982 under the National Bank for Agriculture and Rural Development Act of 1981.
  • Before the foundation of NABARD, the RBI was the apex organization providing loans to the Indian rural economy.
  • It resulted in NABARD being India's premier development financing organization.
  • The NABARD's function in agriculture and rural development is essentially a continuation of the RBI's mission.

The duties of three RBI institutes were moved to NABARD: 

(1) the Agricultural Credit Department (ACD),

(2) the Rural Planning and Credit Cell (RPCC), and

(3) the Agricultural Refinance and Development Corporation (ARDC).

  • ACD: 

The RBI supplied cooperatives with short-term refinancing through its ACD program.

  • RPCC: 

It has been working with Regional Rural Banks (RRBs) since 1979.

  • ARDC:

In 1963, the RBI established the Agricultural Refinance Corporation (ARC) to serve as a refinancing agency for medium and long-term agricultural loans to satisfy investment credit needs for agricultural growth.

  • ARC was renamed Agriculture Refinance and Development Corporation (ARDC) in 1975 to focus on loan off-take, agricultural development, and promotion.

How Has NABARD Transformed?

The NABARD (Amendment) Bill, 2017, was enacted in 2018: The amendment to the Act allowed the Union Government to enhance NABARD's authorized capital from Rs. 5,000 crores to Rs. 30,000 crores.

  • NABARD's capital may be increased: Under the 1981 Act, NABARD may have a capital of Rs 100 crore. In collaboration with the Reserve Bank of India, the national government can augment this capital to Rs 5,000 crore (RBI).
  • The Bill allows the national government to expand this capital to Rs 30,000 crore.

Transfer of the RBI's stake to the central government: Under the 1981 Act, the central government and the RBI must own at least 51% of NABARD's share capital jointly.

  • The Bill transfers RBI's share capital of Rs 20 crore to the central government.
  • The central government will make an equivalent contribution to the RBI.
  • Micro, small, and medium-sized businesses (MSME): NABARD was responsible under the 1981 Act for providing loans and other facilities to enterprises with an investment of up to Rs 20 lakh in machinery and plant.
  • The Bill expands this to include firms with investments of up to Rs 10 crore in the manufacturing sector and Rs 5 crore in the services sector.
  • The 1981 Act includes specialists from small-scale enterprises on NABARD's Board of Directors and Advisory Council.
  • Furthermore, banks that make loans to small-scale, micro, and decentralized enterprises are eligible for financial support from NABARD.
  • The Bill expands these benefits to include micro, small, and medium-sized businesses.

What Is the Difference Between NABARD and RBI?

  • The Reserve Bank of India is the country's central bank, with sole authority to govern the banking industry and supervise the different institutions/banks, including NABARD, as established by the Banking Regulation Act of 1949.
  • NABARD recommends to the Reserve Bank of India the issuance of licenses to cooperative banks and the establishment of new branches by state cooperative banks and regional rural banks (RRBs).
  • The RBI and NABARD collaborate on several developmental and regulatory projects.
  • The RBI gives three directors to the NABARD Board of Directors.

What is NABARD's Governance Structure?

The Board of Directors

A Board of Directors governs NABARD's operations. In accordance with the NABARD Act, the Government of India appointed the Board of Directors. It is made up of the following components:

  • The Chairperson, 
  • three directors are chosen from among experts in rural economics,
  • rural development, 
  • village and cottage industries, 
  • small-scale industries, 
  • or persons with experience in the operation of cooperative banks, 
  • regional rural banks, commercial banks, 
  • or any other special knowledge or professional experience deemed helpful to the National Bank by the Central Government,
  • Three directors from the Reserve Bank's Board of directors, 
  • Three directors from the Central Government's officials

Four directors were chosen from among state government officials,

  • Such number of directors as shareholders other than the Reserve Bank, the Central Government, and other institutions owned or controlled by the Central Government elect in a specified way,
  • The Chief Executive Officer,
  • The Chairperson and all directors (excluding those chosen by shareholders and Central Government officials) would be nominated by the Central Government in collaboration with the RBI.

Committees of the Executive:

  • The Board of Directors may form an Executive Committee of the necessary number of directors (called Executive Directors).
  • The Executive Committee shall perform such tasks as the Board may prescribe or assign.

How Does NABARD Help Rural Economic Development?

In terms of financial, developmental, and supervision activities, the NABARD has impacted practically every element of the rural economy.

Contribution financially- Refinancing

Short-Term Loans: Crop loans are given to farmers by financial organizations for crop production, which helps to ensure food security in the country.

Loans for the Long Term: 

Long-term refinancing from NABARD offers loans to financial institutions for various operations, including agricultural and non-farm enterprises, with terms ranging from 18 months to more than five years.

RIDF (Rural Infrastructure Development Fund):

The RBI established it with NABARD in 1995-96 to address a deficit in lending to the priority sector by scheduling commercial banks for rural development projects.

LTIF (Long-Term Irrigation Fund):

Following the announcement in the Union Budget, NABARD established the LTIF with an initial budget of Rs 20,000 crore to fund 99 irrigation projects during 2016-17.

Pradhan Mantri Awaas Yojana (PMAY): 

Grameen (PMAY-G)(PMAY-G).

Infrastructure Development Assistance (NIDA) from NABARD: 

NIDA was created to supplement RIDF.

WIF (Warehouse Infrastructure Fund):

In 2013-14, the Union government established the WIF in collaboration with NABARD, with a capital of Rs 5,000 crore, to provide loans to address the country's needs for scientific storage infrastructure for agricultural commodities.

Direct Lending to Cooperative Banks from the Food Processing Fund

Credit Facility to Marketing Federations (CFF)

PODF (Producer Organizations' Development Fund) for POs and PACS:

  • NABARD established the Producer Organizations Development Fund (PODF) with a Rs 50 crore initial capital to help and fund Producer Organizations (POs) and Primary Agriculture Credit Societies (PACS) in their efforts to function as Multi Service Centres.
  • Producer Organization (PO): a legal body founded by primary producers such as farmers, milk producers, fishers, weavers, rural artisans, and craftspeople. A PO can be a producer corporation, cooperative organization, or legal entity allowing members to share profits/benefits.
  • The Primary Agricultural Credit Society (PACS) is India's fundamental unit and the smallest cooperative credit organization. It is effective at the grassroots level (gram panchayat and village level). It gives financing to farmers in the form of term loans and recovers the money from the cultivator when the crop is harvested.

Contribution to Development -

Kisan Credit Card Scheme for Farmers:

In August 1998, NABARD and the RBI collaborated to create the Kisan Credit Card (KCC) scheme to provide crop loans.

RKCs (RuPayKisan Cards):

By assisting rural banking institutions in distributing RuPayKisan Cards (RKCs) to all of its farmer clients, NABARD has been at the forefront of the technology revolution.

Tribal Development: 

Climate Resilient Agriculture is a Tribal Development Program.

Umbrella Natural Resource Management Programme (UPNRM):

The UPNRM, which began in 2007, aims to increase rural investment, provide commercial possibilities, and enable rural communities to use their natural resources sustainably.

Sector of Microfinance:

In 1992, NABARD introduced the Self Help Group-Bank Linkage Programme (SHG-BLP). During the 2017-18 fiscal year, over 23 lakh SHGs were credit-linked.


On March 15, 2015, project EShakti was launched to digitize SHGs.

Skill Development: 

For more than three decades, NABARD's objective has been to promote an entrepreneurial culture among rural youth and encourage them to create businesses in the rural off-farm sector.

Initiatives in Marketing: 

NABARD has always sponsored rural craftsmen' and producers' participation in exhibits around the nation in order to provide them with marketing possibilities.

Centres for Incubation -

To commercialize inventions and shape agricultural entrepreneurship in the country, NABARD made a Rs 23.99 crore financial commitment to Chaudhary Charan Singh Haryana Agricultural University, Hisar, and Tamil Nadu Agricultural University, Madurai for the establishment of Agri Incubation Centres.

What are the issues that NABARD is facing?

NABARD, being an offspring of the RBI, shares the RBI's work culture, ethics, and development focus.

  • The breaking of this relationship has resulted in a significant disadvantage for both the RBI and NABARD.This has hampered the RBI's ability to play a role or participate in its operations.
  • Good cooperation between the central bank and development institutions would benefit agriculture and rural development at a key moment in the country's agricultural crisis.
  • The cost of financing has risen since NABARD's market borrowings account for 80% of its resources.
  • Cooperative structures that are member-driven and de-bureaucratized must address the institutional credit gaps created by commercial banks.
  • The northeastern states have received a small portion of NABARD loan monies.
  • The northeast receives 1% of loans, trapping farmers in the web of moneylenders.
  • Bank penetration in insurgency-affected states is low and should be increased.

Come up with solutions -

  • Agriculture supports a significant portion of India's population. Rural infrastructure investments improve rural people's socioeconomic standing by increasing income levels and quality of life.
  • As the apex agency providing finance and capacity building to the Indian rural economy, NABARD has a significant opportunity for poverty reduction and socioeconomic empowerment in rural India.

Book A Free Counseling Session

What's Today