D E S I G N E D AN D D E V E L O P E D U N D E R T H E AE G I S O F

NAHEP Component-2 Project “Investments In ICAR Leadership In Agricultural Higher Education”

Division of Computer Applications
ICAR-Indian Agricultural Statistics Research Institute
 Course Details

Course Code AG12

Course Agricultural Finance & Cooperation

Name

Lesson 9 An Introduction To Higher Financing Institutions –

RBI And NABARD
Disclaimer : Presentations are intended for educational purposes only and do not replace independent professional judgement.
Statement of fact and opinions expressed are those of the presenter individually and are not the opinion or position of ICAR-
IASRI. ICAR-IASRI does not endorse or approve, and assumes no responsibility for the content, accuracy or completeness of the
information presented.

1
Created by

Name Role University

Acharya N.G. Ranga Agricultural

Saddikuti Hyma Jyothi Content Creator
University,Guntur

Sher-e-Kashmir University of Agricultural

Dr. Sudhakar Dwivedi Course Reviewer
Sciences and Technology of Jammu ,Jammu

2
Reserve Bank of India (RBI)

•4
Reserve Bank of India (RBI):
Origin, functions role of RBI in agricultural
development and finance:
The Reserve Bank of India (RBI) , the central bank of
India was established in 1935 under the Reserve Bank
of India Act, 1934. Its Head Quarters is located at
Mumbai
The RBI was set up to
regulate the issue of bank notes.
secure monetary stability in the country
 operate currency and credit system to its advantage

•5
***Role of RBI in agriculture:
 The role of RBI in agricultural credit was found in the
establishment of Agricultural Credit Department
(ACD).
The primary functions of ACD are
 To Coordinate the functions of RBI with other banks
and state cooperative Banks in respect of agricultural
credit
 To maintain expert staff to study all the questions of
agricultural credit and be available for consultation by
central government, state governments, scheduled
commercial banks and state cooperative Banks.
 To provide legislations to check private money lending
and checking other malpractices.
•6
All India Rural Credit Survey Committee (AIRCSC)
under the chairmanship of Sri. Gorwala in 1954
suggested several recommendations with regard to
the activities of RBI in the sphere of rural credit.
Based on this two funds were established after
amending RBI act, 1934.
 National Agricultural credit (Long-term
operations) fund-1955: Started with initial capital of
Rs.10 crores and annual contribution of Rs.5 crores and
later this was increased to Rs. 15 crores. This fund was
meant to provide long–term loans to various state
governments so as to enable them to contribute to the
share capital of different types of cooperative societies
including Land Mortgage Banks (LMB’s). Loans and
advances out of this fund are made to state governments
for period not exceeding 20 years.
•7
  National Agricultural credit (Stabilization fund)-
1956: Started with RBI’s initial contribution of Rs. 1 crore
and subsequent annual contribution of Rs. 1crore. This
fund is utilized for the purpose of granting medium-
term loans to State Co-operative Banks (SCB’s),
especially during the times of famines / drought and
other natural calamities when they are unable to repay
their loans to RBI.
 The state and central cooperative banks and PACS
in turn provide a similar facility to the farmer
borrowers regarding short-term production loans
taken for crops affected by the natural calamities.
This helps the farmers in getting additional
finance at the same time reducing their burden of
repaying the loans immediately.
•8
 ***The role/functions of RBI in the sphere of rural credit
can be dealt seen under three aspects:
 Provision of finance
 Promotional activities
 Regulatory functions
1. Provision of Finance:
 Reserve Bank of India provides necessary finances needed by
the farmers through the commercial bank, cooperative banks
and RRB’s on refinance basis.
 It advances long-term loans to state governments for their
contribution to the share capital of the cooperative credit
institutions like State Cooperative Banks (SCB’s) and District
Cooperative Central Banks (DCCB’s).
 It advances medium-term loans to State Cooperative Banks.
 It extends refinance facility to the RRB’s only to an extent of 50
per cent of outstanding advances. •9
Promotional activities:
The RBI felt that the cooperatives are the major force in
the field of agricultural credit and based on that following
policies/measures were framed for the strengthening of
cooperatives
 Reorganisation of the state and central cooperative banks
on the principle of one apex bank for each state and one
central bank for each district.
 Rehabilitation of those central cooperative banks, which
are financially weak due to mounting overdues,
insufficiency of internal finances, untrained staff, poor
management etc.
 Strengthening of PACS’s to ensure their financial and
operational viability.
 Arranging suitable training programmes for the
personnel of cooperative institutions. •10
3. Regulatory functions
 Reserve bank of India is concerned with efficiency of channels
through which credit is distributed.
 Banking Regulation Act, 1966 makes the RBI to exercise
effective supervision over cooperative banks and commercial
banks.
 As per the Credit Authorised Scheme (CAS) of 1976, the
cooperative banks should get prior authorisation/ acceptance
from RBI for providing finances beyond a certain limit.
 The cash liquidity ratio (CLR) and cash reserve ratio (CRR) are
fixed by RBI for cooperatives, farmers service societies (FSS),
regional rural banks (RRB’s) and agricultural development
banks (ADB’s) at lower level than those fixed for commercial
banks. For these cooperative banks the bank rate 3 per cent
less than that of commercial banks. They are permitted by RBI
to pay 0.5 per cent higher rate of interest on deposits.
•11
Credit Control/ Credit Squeeze:
 The regulation by monetary authority i.e. RBI, on the volume and
direction of credit advanced by the banking system, particularly
the commercial banks.
 ***At times of inflation, credit control operations aim at
contraction of credit while during deflation they aim at expansion
of credit. There are two methods of credit control
 Quantitative (or) General Credit control: Aims to regulate the
amount of bank advances i.e. to make banks to lend more or less.
 Qualitative (or) Selective credit control: Aims to divert the
bank advances in to certain channels or to discourage them from
lending for certain purposes. These controls, in recent times
assumed special significance, especially in under developed
economies.
 Credit Rationing: It is nothing but rationing of loans by non-
price means at times excess demand for credit. Ex: under variable
capital-asset ratio the RBI fixes a ratio of capital to the total assets
•12
of the commercial banks.
National Bank for Agricultural and Rural
Development (NABARD):

•13
 Genesis / Origin of National Bank for
Agricultural and Rural Development (NABARD):
 Agriculture Refinance and Development Corporation
(ARDC) had not made an expected dent / impact in
the field of direct financing and delivery of rural
credit against the massive credit demand for rural
development. As a result many committees and
commissions were constituted like,
 * Banking commission in 1972
 *National Commission on Agriculture (NCA) in 1976

•14
 Committee to Review Arrangements for Institutional Credit in
Agricultural and Rural Development (CRAFICARD) in 1979.
This CRAFICARD, under the chairmanship of Sri. B.
Sivaraman, a former member of planning commission
recommended the setting up of a national level institution
called NABARD for providing all types of production and
investment credit for agriculture and rural development. As a
result of CRAFICARD’S recommendations NABARD come in
to existence on July 12th, 1982.
 The then existing national level institutions such as
Agricultural Refinance and Development corporation
(ARDC), Agricultural credit Dept (ACD) and Rural Planning
and Credit Cell (RPCC) of RBI were merged with NABARD
 NABARD operates through its Head Office at Mumbai and 17
regional offices-one each in major states, 10 sub-offices in
smaller states / U.T’S and 213 district offices.
•15
Board of Management:
 Central Government in consultation with RBI appoints all
the directors in the “Board of Management “along with the
Chairman and the Managing Director (MD). The M.D. is the
chief executive officer (C.E.O) of NABARD and he is
primarily responsible for the various operations of the bank.
 Apart from M.D & Chairman, the Board of Management
consists of 13 other directors and these directors will act as
“Advisory council” of NABARD. Of the 13 directors of
Advisory council
 2 are experts in Rural Economics & Rural Development.
 3 are representatives of co- operatives
 3 are representatives of commercial banks
 3 are the officials of Government of India
 2 officials belong to State Governments
•16
Sources of funds:
 ***Authorized share capital of NABARD is Rs. 500
crore equally contributed by Government of India
and RBI. Issued and paid up capital of Rs. 100
crore. Other sources are:
 Borrowings from Government of India (GOI) and
any institution approved by GOI
 Borrowings from RBI
 Deposits from state Govts & local authorities
 Gifts & grants received.

•17
Objectives of NABARD:
1. As an apex refinancing institutions, NABARD survey &
estimate all types of credit needed for the farm sector
and rural development
2. Responsibility of promoting and integrating rural
development activities through refinance.
3. With the approval of Govt. of India, NABARD also
provide direct credit to any institution or organization
or an individual.
4. Maintaining close links with RBI for guidance and
assistance in financial matters.
5. To act as an effective catalytic agent for rural
development i.e. in formulating appropriate rural
development plans and policies.

•18
Functions/activities of NABARD:
 Credit activities
 Development activities
 Regulatory activities
1.Credit activities:
 NABARD prepares for each district a potential liked
credit plan annually and this forms the basis for
district credit plan.
 It participates in finalization of annual action plan at
block, district and state level.
 It monitors the implementation of credit plans.

•19
 It frames the terms and conditions to be followed by
credit institutions in financing rural farm and non-
farm sectors.
 It provides refinance facilities. Refinance is of two
types
 1. Short-term refinance is extended for Agricultural
production operations and marketing of crops by
farmers & farmers cooperatives, marketing and
distribution of inputs like fertilizers, seeds, pesticides
etc. and production and marketing activities of village
and cottage industries.
 The eligible institutions for S.T refinance are state
Cooperative Banks (SCB’s), Regional Rural Banks,
Commercial Banks and other banks approved by RBI.
The time period is 12 months.
•20
 Medium term & long term refinance is extended for
investments in agriculture and allied activities such as
minor irrigation, farm mechanization, dairy,
horticulture, for investment activities of rural artisans,
small scale industries(SSI) etc. The period is up to a
maximum of 15 years. The eligible institutions are
Land Development Banks( LDB’s).
 The extent of refinance under various schemes is
 Pilot rainfed farming projects (100%)
 Wasteland development scheme of individuals (100%)
 Non-farm sector schemes (out side the purview of
IRDP) 100%
 Agro-Processing units (75%)
 Bio-gas Scheme (75%)
•21
 All other schemes including IRDP(70%)
 Farm mechanization (50%)
 Rural Electrification Corporation (50%)
 Apart from refinance, NABARD also provides direct
finance to state Govts, state sponsored corporations.
 NABARD will monitor its assisted project in order to
ensure their proper implementation. It also
undertakes consultancy work for projects even though
they are not refinanced by NABARD.

•22
b) Development activities:
 For the productive use of credit the following
developmental activities are under taken by NABARD.
 Institutional Development: Providing financial
assistance for establishment and development of
institutional financial agencies.
 Research and Development Fund: Providing funds
for research and development efforts of institutional
financial agencies.
 Agricultural & Rural Enterprises Incubation Fund
(AREIF): For providing assistance while inception of
new enterprises.

•23
 Rural Promotion Corpus Fund (RPCF)
It is meant to provide financial assistance for training
cum production centers, rural entrepreneurship
development programmes, and technical monitoring
& evaluation centers.
 Credit & Financial Services Fund (CFSF)
It aims at providing the assistance for innovations in
rural banking and credit system, supports institutions
for research activities, surveys, meets etc.
 Linking SHG’S to Credit institutions: During the
year 1992, NABARD started the pilot project of linking
SHG’S to credit institutions. Under this it provides 100
percent refinance to banks for loans extended to
SHG’S.
•24
C. Regulatory activities
 As an apex development bank, NABARD shares with
RBI, some of the regulatory & supervisory functions in
respect of cooperative banks and regional rural banks
(RRB’s). They are
 Under Banking regulation act 1949, NABARD
undertakes the inspection of RRB’S & Cooperative
banks (other than PACS).
 Any RRB (or) cooperative bank seeking permission of
RBI, for opening branches needs recommendation of
NABARD.
 The state & district central cooperative banks also
need an authorization from NABARD for extending
assistance to units outside the cooperative sector &
non -credit cooperatives for certain purposes beyond
the cut-off limit. •25
THANK YOU