HIGHER FINANCING INSTITUTIONS
RESERVE BANK OF INDIA
The Reserve Bank of India (RBI) war established in April 1, 1935, in accordance with the
provisions of the RBI Act, 1934. The Agricultural Credit Department (ACD) was organized 1935
to co-ordinate the Bank's operations with State Co-operative Banks and other banks and
organization dealing with agricultural credit., Financing agriculture by commercial banks is
looked after by the Department of Banking Operations and Development (DBOD) while ACD
continued to take care of co-operative credit may be viewed from three aspects:
a) Provision of finance.
b) Promotional Activities, and
c) Regulatory functions.
a) Provision of Finance
RBI extends short, medium and long-term credits to agriculture through co-operative
channels. The bulk of the credit granted by the RBI related to short-term to meet Seasonal
Agricultural Operations (SAO). The RBI Act was amended in 1955 to provide for the
establishment of two funds, viz., National Agricultural credit (Long Term Operations) Fund and
National Agricultural Credit (Stabilization) Fund. The three components of medium-term credit
are: a) loans for purchasing shares in co-operative processing societies, b) loans for agricultural
and other allied purposes, including animal husbandry and pisciculture and c) conversion of
short-term agricultural loans into medium term loans when repayment becomes difficult due to
natural calamities. While ' the first two ((a) and (b)) are financed out of the NAC (LTO) fund and
the (c) (Last one) is out of NAC (stabilization) fund.
The RBI provides long-term credit as loans to the state governments for contribution to
the share capital of the co-operative credit institutions and to NABARD. The RRBs get refinance
facility from the RBI up to 50 per cent of their out standing advances.
b) Promotional Activities
Under rehabilitation programme, most of the cooperative banks have attained viable
status. The Study Teams appointed by the RBI have given constructive suggestions to
reorganize the co-operative structure on sound lines. The following need special mention: the
Committee on Co-operative Land Development Banks (1974), the Committee on Integration of
Co-Operative Credit Institutions (1976) committee to study the Interest Rates Spreads in
Agricultural Lending Sector etc.
,RBI introduced production-oriented credit by means of crop loan system. It has evolved norms
to extend medium term finance. It has been issuing appropriate guidelines to Land Development
Banks for purposeful and productive utilization of resources. The benefit of deposit insurance
cover has been extended to the co-operative banks operative banks so as to facilitate
mobilization of deposits.
The RBI evolved a scheme to finance the weak PACS by commercial banks. It initiated
the Lead Bank Scheme in 1969 and its impact is seen in branch expansion and other activities
of the commercial banks. It advised the banks to participate effectively in the Integrated Rural
Development Programme and extend loans to the weaker sections.
c) Regulatory Functions
As a lender, the RBI not only concerned itself with the quantity of credit but also
attempted to improve the quality of credit extended and also the efficiency of the channels
through which it is provided to the rural sector. The cooperative banks were brought under
certain provisions of the Banking Regulation Act and of the RBI Act in 1966. This enabled the
RBI to effectively supervise the co-operative banks as it does over the commercial banks. Under
the Credit Authorization Scheme (1976), the co-operative banks should get prior authorization
from RBI for providing finance beyond a limit. The RBI frames the overall credit policy on the
basis of the credit needs of agriculture. Limits to credit institutions are fixed by taking into
account the demand for credit and not just arbitrarily.
The cash / liquidity ratios applicable to co-operatives are lower than those fixed for
commercial banks. The co-operatives are enabled to borrow from the RBI at an interest rate
which is three per cent below the bank rate in respect of crop loans. They are also permitted to
pay slightly higher rates of interest on their deposits. The refinancing functions of RBI relation to
rural credit were function of RBI relation to rural credit was taken over by NABARD after its
formation in 1982.
NATIONAL BANK FOR AGRICULTURE AND RURAL DEVELOPMENT (NABARD)
On the basis of the views expressed by the All India Rural credit Review Committee
(1969), the Administrative Reforms Commission (1970) , the banking Commission (1972), and
the National Commission on agriculture (1976), the Committee to Review the Arrangements for
Institutional credit for Agriculture and Rural Development (CRAFICARD) appointed by the RBI
under the chairmanship of B. Sivaraman in 1979 considered the desirability and the feasibility of
establishing a national bank for rural development in the context of integrated rural
development. While examining the activities of the ARDC and the RBI in the delivery of rural
credit against massive credit needs for rural development over the coming years, the
,CRAFICARD felt that the present national level institutions had certain deficiencies affecting
their capacity to meet the stupendous task of integrated rural development aimed at the uplift of
the weaker sections in the rural areas within a given time horizon.
The CRAFICARD considered that the ARDCIL was unable to ensure the necessary
supporting short-term credit and also the ARDC could not support non-land based activities
which are also to be promoted in the context of implementation of IRDP. The committee
considered whether the top management of the RBI in the midst of its multifarious functions
could devote sufficient attention to the complex credit problems involved in the integrated rural
development. The committee also felt that the Agricultural Credit Board (ACB) which was
established in 1970 in the place of the then Standing Advisory Committee on Rural Co-operative
Credit could not solve the complex issues of rural credit by holding a few meetings in a year. For
all these reasons, the committee recommended for the establishment of NABARD and hence it
was started, functioning since 12th July 1982.
As such it has replaced by merging in itself, the ARDC and the two credit related
constituents of the RBI, namely, Agricultural Credit Department and the Rural Planning and
Credit Cell (RPCC) (The RRBs which were initially, dealt with by DBOD, was placed under the
charge of the RPCC in 1979). Thus, NABARD is conceived as an exercise of decentralization of
the RBIs functions relating rural credit and that it would take over the ARDC and the refinancing
functions of RBI in relation to State Co-operative Banks and RRBs.
Resources
The share capital of NABARD is Rs. 100 crores and is held by the RBI and GOI in equal
proportion. The NABARD draws funds from the RBI for its short-term operations, and for long-
term operations, it draws funds from the Government of India, floats bonds in the open market
and also draws from its National Agricultural Credit (Long Term operations) Fund and National
Agricultural Credit (Stabilization) Fund. The NABARD is also authorized to accept deposits with
maturity period of not less than twelve months from the central and state Governments, local
authorities, scheduled banks etc. and also to borrow foreign currency with the approval of
central government.
Management
The management of NABARD is vested with a 15 member Board of Management which
consists of a Chairman, a Managing Director and 13 Executive Directors. The chairman is the
ex-officio Deputy Governor of RBI. The Managing Director is the Chief Executive of the Bank
with operational responsibility for the performance of various tasks. The Executive Director will
be in charge of each of the major functional divisions i.e., two Directors from central
, government, three sitting Directors from co-operatives and commercial Banks and two experts
on rural economy and rural development. The Board of Directors can constitute an Advisory
Council.
The two Directors from state Governments will be appointed by rotation to give
representation to five Zones, viz., Northern, Southern, Eastern, Western and North-Eastern.
NABARD will be, thus, broadly divided into five zones with its head quarters at Bombay Mumbai
and 16 regional offices located in i) Jammu, ii) Chandigarh, iii) Lucknow, iv) Patna, v) Gauhati,
vi) KoCalkacutta, vii) Bhubaneshwar, viii) Hydrabad, ix) Bangalore, x) Madras (Chennai), xi)
Trivandram, xii) Mumbai (Bombay), xiii) Iindore, xiv) Ahamadabad, xv) New Delhi and xvi)
Jaipur.
"National Bank for Agriculture and Rural Development is established as a Development
Bank for providing and regulating credit and other facilities for the promotion and development
of agriculture, small industries, cottage and village industries, handicrafts and other rural crafts
and other allied economic activities in rural areas with a view to promoting integrated rural
development and securing prosperity of rural areas and for matters connected therewith or
incidental thereto".
1. Mission
Promoting sustainable and equitable agriculture and rural prosperity through effective
credit support, related services, institution development and other
innovative initiatives.
2. Types of Services
In order to achieve this mission, NABARD undertakes a number of inter-related activities
/ services which fall under three broad categories viz., credit dispensation, developmental and
promotional and supervisory.
A. Credit Dispensation
• Prepares for each district annually a potential linked credit plan which forms the
basis for district credit plans
• Participates in finalization of Annual Action Plan at block, district and state levels
• Monitors implementation of credit plans at above levels.
• Provides guidance in evolving the credit discipline to be followed by the credit
institutions in financing production, marketing and investment activities of rural
farm and non farm sectors
• Provides refinance facilities to the institution as under
RESERVE BANK OF INDIA
The Reserve Bank of India (RBI) war established in April 1, 1935, in accordance with the
provisions of the RBI Act, 1934. The Agricultural Credit Department (ACD) was organized 1935
to co-ordinate the Bank's operations with State Co-operative Banks and other banks and
organization dealing with agricultural credit., Financing agriculture by commercial banks is
looked after by the Department of Banking Operations and Development (DBOD) while ACD
continued to take care of co-operative credit may be viewed from three aspects:
a) Provision of finance.
b) Promotional Activities, and
c) Regulatory functions.
a) Provision of Finance
RBI extends short, medium and long-term credits to agriculture through co-operative
channels. The bulk of the credit granted by the RBI related to short-term to meet Seasonal
Agricultural Operations (SAO). The RBI Act was amended in 1955 to provide for the
establishment of two funds, viz., National Agricultural credit (Long Term Operations) Fund and
National Agricultural Credit (Stabilization) Fund. The three components of medium-term credit
are: a) loans for purchasing shares in co-operative processing societies, b) loans for agricultural
and other allied purposes, including animal husbandry and pisciculture and c) conversion of
short-term agricultural loans into medium term loans when repayment becomes difficult due to
natural calamities. While ' the first two ((a) and (b)) are financed out of the NAC (LTO) fund and
the (c) (Last one) is out of NAC (stabilization) fund.
The RBI provides long-term credit as loans to the state governments for contribution to
the share capital of the co-operative credit institutions and to NABARD. The RRBs get refinance
facility from the RBI up to 50 per cent of their out standing advances.
b) Promotional Activities
Under rehabilitation programme, most of the cooperative banks have attained viable
status. The Study Teams appointed by the RBI have given constructive suggestions to
reorganize the co-operative structure on sound lines. The following need special mention: the
Committee on Co-operative Land Development Banks (1974), the Committee on Integration of
Co-Operative Credit Institutions (1976) committee to study the Interest Rates Spreads in
Agricultural Lending Sector etc.
,RBI introduced production-oriented credit by means of crop loan system. It has evolved norms
to extend medium term finance. It has been issuing appropriate guidelines to Land Development
Banks for purposeful and productive utilization of resources. The benefit of deposit insurance
cover has been extended to the co-operative banks operative banks so as to facilitate
mobilization of deposits.
The RBI evolved a scheme to finance the weak PACS by commercial banks. It initiated
the Lead Bank Scheme in 1969 and its impact is seen in branch expansion and other activities
of the commercial banks. It advised the banks to participate effectively in the Integrated Rural
Development Programme and extend loans to the weaker sections.
c) Regulatory Functions
As a lender, the RBI not only concerned itself with the quantity of credit but also
attempted to improve the quality of credit extended and also the efficiency of the channels
through which it is provided to the rural sector. The cooperative banks were brought under
certain provisions of the Banking Regulation Act and of the RBI Act in 1966. This enabled the
RBI to effectively supervise the co-operative banks as it does over the commercial banks. Under
the Credit Authorization Scheme (1976), the co-operative banks should get prior authorization
from RBI for providing finance beyond a limit. The RBI frames the overall credit policy on the
basis of the credit needs of agriculture. Limits to credit institutions are fixed by taking into
account the demand for credit and not just arbitrarily.
The cash / liquidity ratios applicable to co-operatives are lower than those fixed for
commercial banks. The co-operatives are enabled to borrow from the RBI at an interest rate
which is three per cent below the bank rate in respect of crop loans. They are also permitted to
pay slightly higher rates of interest on their deposits. The refinancing functions of RBI relation to
rural credit were function of RBI relation to rural credit was taken over by NABARD after its
formation in 1982.
NATIONAL BANK FOR AGRICULTURE AND RURAL DEVELOPMENT (NABARD)
On the basis of the views expressed by the All India Rural credit Review Committee
(1969), the Administrative Reforms Commission (1970) , the banking Commission (1972), and
the National Commission on agriculture (1976), the Committee to Review the Arrangements for
Institutional credit for Agriculture and Rural Development (CRAFICARD) appointed by the RBI
under the chairmanship of B. Sivaraman in 1979 considered the desirability and the feasibility of
establishing a national bank for rural development in the context of integrated rural
development. While examining the activities of the ARDC and the RBI in the delivery of rural
credit against massive credit needs for rural development over the coming years, the
,CRAFICARD felt that the present national level institutions had certain deficiencies affecting
their capacity to meet the stupendous task of integrated rural development aimed at the uplift of
the weaker sections in the rural areas within a given time horizon.
The CRAFICARD considered that the ARDCIL was unable to ensure the necessary
supporting short-term credit and also the ARDC could not support non-land based activities
which are also to be promoted in the context of implementation of IRDP. The committee
considered whether the top management of the RBI in the midst of its multifarious functions
could devote sufficient attention to the complex credit problems involved in the integrated rural
development. The committee also felt that the Agricultural Credit Board (ACB) which was
established in 1970 in the place of the then Standing Advisory Committee on Rural Co-operative
Credit could not solve the complex issues of rural credit by holding a few meetings in a year. For
all these reasons, the committee recommended for the establishment of NABARD and hence it
was started, functioning since 12th July 1982.
As such it has replaced by merging in itself, the ARDC and the two credit related
constituents of the RBI, namely, Agricultural Credit Department and the Rural Planning and
Credit Cell (RPCC) (The RRBs which were initially, dealt with by DBOD, was placed under the
charge of the RPCC in 1979). Thus, NABARD is conceived as an exercise of decentralization of
the RBIs functions relating rural credit and that it would take over the ARDC and the refinancing
functions of RBI in relation to State Co-operative Banks and RRBs.
Resources
The share capital of NABARD is Rs. 100 crores and is held by the RBI and GOI in equal
proportion. The NABARD draws funds from the RBI for its short-term operations, and for long-
term operations, it draws funds from the Government of India, floats bonds in the open market
and also draws from its National Agricultural Credit (Long Term operations) Fund and National
Agricultural Credit (Stabilization) Fund. The NABARD is also authorized to accept deposits with
maturity period of not less than twelve months from the central and state Governments, local
authorities, scheduled banks etc. and also to borrow foreign currency with the approval of
central government.
Management
The management of NABARD is vested with a 15 member Board of Management which
consists of a Chairman, a Managing Director and 13 Executive Directors. The chairman is the
ex-officio Deputy Governor of RBI. The Managing Director is the Chief Executive of the Bank
with operational responsibility for the performance of various tasks. The Executive Director will
be in charge of each of the major functional divisions i.e., two Directors from central
, government, three sitting Directors from co-operatives and commercial Banks and two experts
on rural economy and rural development. The Board of Directors can constitute an Advisory
Council.
The two Directors from state Governments will be appointed by rotation to give
representation to five Zones, viz., Northern, Southern, Eastern, Western and North-Eastern.
NABARD will be, thus, broadly divided into five zones with its head quarters at Bombay Mumbai
and 16 regional offices located in i) Jammu, ii) Chandigarh, iii) Lucknow, iv) Patna, v) Gauhati,
vi) KoCalkacutta, vii) Bhubaneshwar, viii) Hydrabad, ix) Bangalore, x) Madras (Chennai), xi)
Trivandram, xii) Mumbai (Bombay), xiii) Iindore, xiv) Ahamadabad, xv) New Delhi and xvi)
Jaipur.
"National Bank for Agriculture and Rural Development is established as a Development
Bank for providing and regulating credit and other facilities for the promotion and development
of agriculture, small industries, cottage and village industries, handicrafts and other rural crafts
and other allied economic activities in rural areas with a view to promoting integrated rural
development and securing prosperity of rural areas and for matters connected therewith or
incidental thereto".
1. Mission
Promoting sustainable and equitable agriculture and rural prosperity through effective
credit support, related services, institution development and other
innovative initiatives.
2. Types of Services
In order to achieve this mission, NABARD undertakes a number of inter-related activities
/ services which fall under three broad categories viz., credit dispensation, developmental and
promotional and supervisory.
A. Credit Dispensation
• Prepares for each district annually a potential linked credit plan which forms the
basis for district credit plans
• Participates in finalization of Annual Action Plan at block, district and state levels
• Monitors implementation of credit plans at above levels.
• Provides guidance in evolving the credit discipline to be followed by the credit
institutions in financing production, marketing and investment activities of rural
farm and non farm sectors
• Provides refinance facilities to the institution as under
