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NABARD – A critique.

NABARD – A critique.

NABARD was established on 12th July 1982 replacing two departments, the Agricultural Credit Department and the Rural Planning and Credit Cell of the Reserve Bank of India to implement the National Bank for Agriculture and Rural Development Act 1981. With initial paid up capital of Rs. 100 crores the bank has grown over the years through a constant revision in the composition of share capital between Government of India and Reserve Bank of India taking its paid capital up to Rs. 5000 crore. NABARD also have international associates including the big fish World Bank and its affiliated organisations. These associates help NABARD by advising and providing monetary aid for the upliftment of people in the rural areas and optimising the agricultural process. NABARD fulfil its duties by serving as an apex financing agency not only providing financial assistance for agricultural activities but also for other economic activities in rural areas of the country. It takes measure for improving the capacity of credit delivery system also refinancing the financial institutions providing financial aid to the rural sector. IT also manages cooperative banks and act as employment opportunity by managing talent acquisition for its working through Institute of Banking Personnel (IBPS).

With such lofty anticipations as mentioned above expected out of NABARD, it is no surprise that the organisation would come in for substantial criticism. It is quite evident from the type of responsibilities of NABARD that work done by them will be a crucial factor in the performance of country’s agricultural sector. As a credit providing department to the people of the agricultural sector and other works in rural areas, the aim should be to provide initial monetary aid to people so that they are able to set up their work without hindrance and recapitalizing the money from them and try to make these people self-reliant. However, a recent study by Indian Cooperative has shown that for past 30 years NABARD has allowed cooperatives to incur losses and then recapitalize those same cooperatives from the money received from Government of India, resulting in continued heavy reliance of people seeking credit from NABARD. Being in this domain NABARD should not only be looking to provide credit to the needy but also, and more importantly, look to make them self-reliant for their better future while reducing the fiscal burden on the Government of India.

Also, it was evident that during the past three decades that while the bond between the Reserve Bank of India and NABARD has grown but the same bond is not at all evident between the rural cooperative banks and NABARD, adversely affecting the functioning of rural cooperative credit delivery system. Namely, the credit facilities are not directly passed on to the cooperative banks which are the nearest source of credit for rural people thereby preventing the equal distribution of credit among the needy. Thus to ensure smooth flow of agricultural credit a strong bond is required between NABARD and these cooperative banks.

The most recent development to affect the agrarian sector was, of course, demonetization. On the eve of new year, the major announcements for the agricultural sector in Prime Minister NarendraModi’s speech were regarding a partial waiver of interest on farm loans, higher allocations for farm credit to cooperatives & conversion of Kisan credit cards into RuPay cards for 30 million farmers. But an impression was created, by those with vested interests, that the agricultural sector has been destroyed due to demonetization. However, the Prime Minister pointed out in his speech that the sowing of Rabi crops is up by 6% compared to last year and fertiliser offtake is up by 9%.Prime MinisterModi further added that the government has taken adequate care to ensure that farmers do not suffer while accessing inputs for the winter sowing. As an additional relief, Modi said that the farmers will not have to pay 60 days of interest for crop loans taken from cooperative banks for their winter crop. This effectively translates into a waiver of 4% interest (for two months) that farmers pay for short term crop loans with a one-year term for repayment.

It was further said that the government will provide Rs 20000 crore to NABARD, which will be advanced as farm loans. Modi said that, “The loss that NABARD suffers by giving loans to cooperative banks and various institutions at low interest rates shall be borne by the government”, adding that the conversion of Kisan credit cards to RuPay debit cards will allow farmers to use them anywhere and they will not have to visit banks to withdraw money. But due to droughts, the Prime Minister’s relief measures for farmers was disturbed and therefore it did not go as planned by the government. In addition, rural incomes have been dented as the cash crunch following demonetization led to a price crash for perishable crops like vegetables.

In a disturbing and, frankly, seemingly contrary statement recently, NABARD described farm loan waivers as a “moral hazard” and said such facilities should be targeted only to the needy. “debt waivers create a moral hazard from a credit repayment perspective and we cannot have omnibus waivers”, as said by the chairman Harsh Kumar Bhanwala, a week after UP government announced an INR 36000 crore  farm loan waiver package. With demands, Bhanwala said that there is a need to look at the hazards in other states also. He said every time a debt waiver is announced, it is taxpayers money which is used to help bail out the farmers. RBI GOVERNER Urjit Patel also expressed his strong displeasure over such measures. NABARD recently reported a 4.24% increase in its post-tax net for 2016-2017 at Rs 2631 crore and a 16.27%expansion in its outstanding loans at Rs 3.08 trillion.

Because of the moral hazard concept brought up by NABARD, some are criticising its functioning. But amidst all the hullabaloo, NABARD was able to recover fewer of its bad loans in the just concluded financial year and consecutively the non-performing assets ratio has come down to 0.07% on demonetization, Bhanwala said that there was a jump in repayments in the initial days but ‘credit demanded’ was impacted later. However, he said despite this, the Rs 9 trillion target has been met. NABARD has also started operating a financial illusion fund and sanctioned installation for different banks since February he said adding they will be deployed soon!

Given its repeated failure to actuate the purpose for which it had been set up, the department needs to take steps to avoid such instances of bad loans and the best way to do so is to make people self-dependent and educate them so that they are able to work in a more efficient manner. Although one must keep in mind that NABARD, just like most other Government institutions, is not immune to the shifting political realities of our times.

-by Vanija Kasturi and Prateek Gupta

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