Urbanisation is taking place in India at a faster rate, but one cannot forget the fact that India still has 69 per cent of its population living in rural areas. Development and management of this rural population, from maintaining and increasing farm-income levels, to creating infrastructure, is definitely a humongous task. Taking rural India forward is the mandate given to NABARD. K Venkateswara Rao, CGM, Farm Sector Policy Department, chats with Pankaj Joshi and R N Bhaskar, to describe the role of NABARD in rural development.
Which are the key functions of NABARD in supporting agriculture sector growth?
In agriculture promotion, we have three roles. First is the refinance support for crop loans or production loans, which we provide to Co-operative Banks and Regional Rural Banks (RRBs). These are crop-cycle based and short-term by nature.
The second is refinance of long-term loans provided to rural borrowers. Here we look at not just Co-operative Banks and RRBs, but also commercial banks, Non-Banking Financial Companies (NBFCs) and even small finance banks who would want their funding capacity augmented through refinance.
All activities cannot be handled by one type of entity and hence we also look at different entities for refinancing. Anything related to rural India—agriculture, rural development, allied activities—is eligible.
We disbursed around Rs 93,000 crore last year for this purpose. Our refinance delinquency rate is 0.002 per cent. Non-Performing Assets (NPAs) are primarily the bank's responsibility who we have refinanced.
We also are into direct lending through our business initiatives department. We give direct loans to state government bodies, institutions and so on—to entities rather than individuals.
Amounts tend to be huge. This mechanism, called NABARD Infrastructure Development Assistance (NIDA), has overseen project appraisals and disbursements in at least 20 states and union territories. Last year's disbursements stood at Rs 27,000 crore.
Is all your work based on type of loans?
Not really, we also work on activity-based approach. Our Rural Infrastructure Development Fund (RIDF) is an exclusive vehicle for funding state governments in enhancement of rural area infrastructure.
Besides dairy and fisheries, we look at roads, schools, drinking water—the scope is quite broad. Governments draw up the schemes but we have sectoral caps, within which the states prioritise their plans and demands.
The funding comes from banking sector players who have a shortfall in meeting their priority sector lending commitments which are fixed by the RBI. Last year banks funded us to the tune of Rs 20,000 crore.
Besides this, there is the Long Term Irrigation Fund (LTIF), created just last year. The purpose is to lend to irrigation projects which are held up for a variety of reasons, and now must be prioritised.
We are working on 99 projects to be completed by 2021, and funding estimate here is around Rs 77,000 crore. The funding mechanism is extra budgetary—we raise money through bonds and repayment is the responsibility of the government. NABARD gets a process management fee.
We also have a separate fund dedicated to food processing. Under this fund, we have sanctioned Rs1,600 crore for 15 food parks. Our participation is in long-term funding.
How do waivers impact your work?
We do not approve (loan) waivers in principle, hardly any banker would. But if you see agricultural loans, the NPA levels in crop loans are less than 10 percent.
It tells you that 90 percent of farmers intent to repay the money. Again, when a farmer repays and avoids delinquency, he gets the benefit of interest subvention, which is essentially 4 per cent reduction in the rate of interest on his loan. Regular borrowers get finance at 3 per cent instead of 7 per cent, which is a great saving.
Despite government’s thrust, still there is a huge gap in case of financial inclusion. Savings, credit availability, remittances, insurance—these are the basic expectations from a financial system and India is currently under-served.
Other than funding, what other activities does NABARD get involved in?
Our other core responsibility is development. We have a watershed development fund, with a current corpus of Rs 1,100 crore which gets augmented annually.
Generally a 1,000-1,500 hectare area is selected for a project which would cover two-three villages. We find the water flow and work out the activity plan, in collaboration with village-level associations who are responsible for implementation of the plan.
The purpose of this project is to avoid water from flowing into water bodies such as sea (and from evaporation), but to store and let it seep into the ground. So that groundwater is recharged. When the first crop becomes better, and second crop becomes possible, that is when our project is a success.
Another focus area is tribal development. We collaborate with tribals to build orchards and encourage horticulture, with two crops each year from the same place.
Cash generation is the primary aim, which also helps prevent migration to urban areas. A typical cluster of 5-10 villages is identified for each project. The key activities are aggregation of output and access to market, which is followed by allied activities like cleaning and grading, maybe getting a food processor to set up a unit.
The purpose is to augment incomes. We also consider ancillary activities like bio-gas plants, based on scale of the community, which we think are bankable projects.
Beyond development, we have a supervision function which is generally away from the public eye. Here the main role is to create implementation models for development, and create a trained manpower pool for the execution of these.
Supervision also includes monitoring of the working of RRBs and State Co-operative Banks (SCBs), including plans for revitalisation and turnaround wherever necessary.
Today, four out of 56 RRBs are running losses and among 33 SCBs, two are running losses. This says something about our supervision record.
Can you share more details on development models?
Let us look at two examples. We are running a produce fund since five years, with a Rs 200 crore corpus, whose mandate is to promote Farmer Producer Organizations (FPOs).
From a target of 2,000 FPOs, we have reached 2,100 today. Given an optimum size of 500 members per organisation, we have seen 10 lakh farmers join hands and work in a collective manner.
FPOs mostly operate in a Section 8 structure, and their mandate is to create producer clusters, aggregate input and output activities for cost-effective operations and to get better value for outputs. Such organisations are needed to improve farm prosperity.
Seeing this, NABARD has started Producer Organization Development Fund as well, where we aim to create more 3,000 FPOs over the next two years and then support these 5,000 bodies.
Our support consists of financial assistance of Rs 16.50 lakh to each FPO over three years and if it functions well, we would contribute Rs 5 lakh to the corpus.
One more model is the Self Help Groups (SHGs), which we have been promoting since 1992. We have promoted around 10 lakh in our own capacity and the model has been taken up by others too. There are around 85 lakh SHGs that are active throughout the country today.
With 12 women per SHG, this model has touched the lives of 10 crore women, giving them a road to savings and then linked credit. We are moving our SHGs onto a digitised model called e-Shakti.
This is about enabling them to maintain paperless records. Both these models will go a long way towards raising standards of rural livelihoods and rural lives.
For water-shed projects, the current corpus is Rs 1,100 crore.
The budget for water-shed projects get augmented annually.
A 1,000-1,500 hectare area is selected for water-shed project which would cover two-three villages.
NABARD works with the tribal community to encourage them to build orchards.
From a target of 2,000 FPOs, now they have reached 2,100 today.
Over the next two years, around 3,000 more FPOs will be created.
Around 85 lakh SHGs are active
throughout the country.
SHGs to adopt E-Shakti model.
Around 99 irrigation projects is expected
to be completed by 2021.
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