The Hindu Business Line : Nabard: Cultivating the farm sector with credit

From a modest beginning, Nabard has grown into an apex hybrid organisation. It is the pioneer in the self-help group-bank linkage programme that has brought banking to the doorsteps of the poor. Into its 25th year, Nabard is at the crossroads, and granting it autonomy will help it shoulder bigger problems.

A PIONEER in the self-help group-bank linkage programme, Nabard has brought banking to the doorsteps of the poor. — R. Ashok

On July 12, National Bank for Agriculture and Rural Development (Nabard) stepped intothe 25th year of its existence. From a modest beginning, Nabard has grown into a unique apex organisation combining the best of central and development bank practices — planning, dispensation, regulation of credit and supervision of rural financial institutions such as agriculture cooperative banks and Regional Rural Banks. It was instrumental in turning around many a loss-making RRB and cooperative bank.

Birth of Nabard

Agriculture is dominated by landless, sub-marginal, marginal and small farmers, who are at the bottom of the pyramid with nearly 80 per cent of them cultivating fragmented land-holdings averaging 1.41 hectares. It is precisely for this group of farmers that Nabard was formed in 1982. By 2005-06, Nabard's balance-sheet had grown to Rs 67,645 crore. That year, its disbursement of production credit (for seasonal agricultural operations) was Rs 9,617 crore; investment credit (medium- and long-term) Rs 8,622.37 crore; and assistance under the Rural Infrastructure Development Fund (RIDF) Rs 5,953 crore. The surplus before tax was Rs 1,151 crore.

A pioneer in the self-help group (SHG)-bank linkage concept, Nabard has brought banking to the doorsteps of the poor people, especially the women. Beginning with a modest 500 groups in 1992, this programme today covers two million groups, touching 150 million people. Till December 31, 2005, the cumulative finance disbursed by banks to SHGs amounted to Rs 8,319 crore; Nabard's refinance was more than Rs 4,000 crore on a cumulative basis.

Nabard's support to the RIDF has translated into developing the irrigation potential of 108 lakh hectares, laying two lakh km of roads, building 370 lakh meters of bridges, schools and rural health centres benefiting 28 lakh students and 2.47 lakh people respectively, and drinking water supply benefiting 5.82 lakh people. The declining credit-deposit ratio in the backward north-eastern, eastern and central regions what with the concentration of banking business in the developed urban, semi-urban centres in the post-liberalisation phase, improves when one factors in the RIDF investments.

As the principal nodal agency, Nabard has been the driving force behind doubling agri-credit — from Rs 86,981 crore in 2003-04 to Rs 1,46,688 crore till February-end 2006. In its silver jubilee year, Nabard is at the crossroads. It is witness to the unprecedented crisis on the farm front with hundreds of farmers committing suicides in at least 31 districts spanning five States. According to a study by the Indira Gandhi Institute of Development Research (IGIDR), the small and marginal farmers (with holdings of up to five acres) were more vulnerable to suicides. Another set of Nabard clientele — the landless labourers who leased land — constituted 19 per cent of the suicide cases.

A crisis time

Nabard is facing a crisis in mobilising resources from the market with the cost of resource mobilisation shooting up to 8.17 per cent so far in 2006-07, against 5.76 per cent in 2005-06. The government's abolition of Long-Term Capital Gains Tax has deprived Nabard of a comparatively cheap source of funds — the Capital Gains Bond, whose average interest rate in 2005-06 was 5.45 per cent.

In addition, the near-total discontinuation of the RBI's contribution to Nabard by way of the National Rural Credit-Long Term Operations Fund, the National Rural Credit-Stabilisation Fund (in spite of the statutory obligations of the RBI under Sections 42 and 43 of the NABARD Act, 1981) to support long- and medium-term farm credit needs, and the General Line of Credit for short-term agri-credit operations, have aggravated the problem of cheap resources. This, in turn, has accentuated the problem of cheap credit for farmers, even during distress.

As the principal agriculture development bank, Nabard must come out with a five-point action programme, as suggested by the National Commission on Farmers (NCF):

A programme of soil enhancement, promoting water harvesting, conservation and equitable use by empowering gram sabhas to function as `Pani Panchayats';

Initiating immediate credit reforms, coupled with credit and insurance literacy with intensive coverage of crops for insurance;

Bridging the growing gap between scientific knowhow and field-level do-how for both production and post-harvest phases of farming;

Integrating crop-livestock-fish production systems for small farmers as it can also facilitate organic farming; and, finally,

Narrowing the gap between what the rural producer gets and what the urban consumer pays.

To enable Nabard shoulder bigger responsibilities, a conscious effort should be made by the Centre, Parliament and civil society organisations, including trade unions, to grant it autonomy status, as indicated in the Economic Survey, 2005-06. This can go a long way in designing a framework of agriculture and agri-credit best suited to save the farmer.

(The author is Vice-President, All-India Nabard Employees Association. The views are personal.)

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