November 29, 2012

MA0036 [Financial Systems and Commercial Banking] Set1 Q4

Q4. What are the functions performed by NABARD.

Ans:

NABARD is set up by the Government of India as a development bank with the mandate of facilitating credit flow for promotion and development of agriculture and integrated rural development. The mandate also covers supporting all other allied economic activities in rural areas, promoting sustainable rural development and ushering in prosperity in the rural areas.

With a capital base of Rs 2,000 crore provided by the Government of India and Reserve Bank of India, it operates through its head office at Mumbai, 28 regional offices situated in state capitals and 391 district offices at districts. 

It is an apex institution handling matters concerning policy, planning and operations in the field of credit for agriculture and for other economic and developmental activities in rural areas. Essentially, it is a refinancing agency for financial institutions offering production credit and investment credit for promoting agriculture and developmental activities in rural areas.

NABARD's Roles and Functions are summarized below:

1. Credit functions
2. Development and promotional functions
3. Supervisory functions
4. Institutional and capacity building
5. Role in training

Credit functions

NABARD's credit functions cover planning, dispensation and monitoring of credit. 
This activity involves: 
Framing policy and guidelines for rural financial institutions
Providing credit facilities to issuing organizations
Preparation of potential-linked credit plans annually for all districts for identification of credit potential
Monitoring the flow of ground level rural credit

Development and promotional functions
Credit is a critical factor in development of agriculture and rural sector as it enables investment in capital formation and technological up gradation. Hence strengthening of rural financial institutions, which deliver credit to the sector, has been identified by NABARD as a thrust area. Various initiatives have been taken to strengthen the cooperative credit structure and the regional rural banks, so that adequate and timely credit is made available to the needy. 

In order to reinforce the credit functions and to make credit more productive, NABARD has been undertaking a number of developmental and promotional activities such as:
Help cooperative banks and Regional Rural Banks to prepare development actions plans for themselves
Enter into MoU with state governments and cooperative banks specifying their respective obligations to improve the affairs of the banks in a stipulated timeframe
Help Regional Rural Banks and the sponsor banks to enter into MoUs specifying their respective obligations to improve the affairs of the Regional Rural Banks in a stipulated timeframe
Monitor implementation of development action plans of banks and fulfillment of obligations under MoUs
Provide financial assistance to cooperatives and Regional Rural Banks for establishment of technical, monitoring and evaluations cells
Provide organisation development intervention (ODI) through reputed training institutes like Bankers Institute of Rural Development (BIRD), Lucknow www.birdindia.org.in, National Bank Staff College, Lucknow www.nbsc.in and College of Agriculture Banking, Pune, etc.
Provide financial support for the training institutes of cooperative banks
Provide training for senior and middle level executives of commercial banks, Regional Rural Banks and cooperative banks
Create awareness among the borrowers on ethics of repayment through Vikas Volunteer Vahini and Farmer’s clubs
Provide financial assistance to cooperative banks for building improved management information system, computerizations of operations and development of human resources

Supervisory functions

As an apex bank involved in refinancing credit needs of major financial institutions in the country engaged in offering financial assistance to agriculture and rural development operations and programmers, NABARD has been sharing with the Reserve Bank of India certain supervisory functions in respect of cooperative banks and Regional Rural Banks (RRBs).

As part of these functions, it
Undertakes inspection of Regional Rural Banks (RRBs) and Cooperative Banks (other than urban/primary cooperative banks) under the provisions of Banking Regulation Act, 1949
Undertakes inspection of State Cooperative Agriculture and Rural Development Banks (SCARDBs) and apex non-credit cooperative societies on a voluntary basis
Undertakes portfolio inspections, systems study, besides off-site surveillance of Cooperative Banks and Regional Rural Banks (RRBs)
Provides recommendations to Reserve Bank of India on opening of new branches by State Cooperative Banks and Regional Rural Banks (RRBs)
Administering the Credit Monitoring Arrangements in SCBs and CCBs.

Core Functions
NABARD has been entrusted with the statutory responsibility of conducting inspections of State Cooperative Banks (SCBs), District Central Cooperative Banks (DCCBs) and Regional Rural Banks (RRBs) under the provision of the Banking Regulation Act, 1949. In addition, NABARD has also been conducting periodic inspections of state level cooperative institutions such as State Cooperative Agriculture and Rural Development Banks (SCARDBs), Apex Weavers Societies, Marketing Federations, etc. on a voluntary basis.

Objectives of Inspection
To protect the interest of the present and future depositors
To ensure that the business conducted by these banks is in conformity with the provisions of the relevant Acts/Rules, regulations/Bye-Laws, etc
To ensure observance of rules, guidelines, etc. formulated and issued by NABARD/RBI/Government
To examine the financial soundness of the banks
To suggest ways and means for strengthening the institutions so as to enable them to play more efficient role in rural credit

Instruments of Supervision
Periodic on-site inspection of 31 SCBs , 371 DCCBs, 20 SCARDBs and 82 RRBs and other Apex level Cooperative institutions
Supplementary Appraisal
Off-site Surveillance System ( OSS )
Portfolio inspection/System study
CMA returns

Supervisory Strategy
In the wake of the banking sector reforms, new set of international norms/practices were made applicable to Commercial Banks (CBs) to make them more competitive and sustainable in the changing scenario. The co-operative banks and RRBs were also to function in the general banking environment, emerging out of the financial sector reforms, introduced by the GOI/RBI. Accordingly, the prudential norms were extended to them in phases. While the capital adequacy norm has not yet been made applicable to these banks, the other prudential norms viz. income recognition, asset classification and provisioning, which were made applicable by RBI to the commercial banking sector had been extended to cover RRBs in 1995-96, SCBs and DCCBs in 1996-97 and to SCARDBs in 1997-98. NABARD, through a concrete and time-bound supervision strategy, facilities these banks to adjust to the new financial discipline so as to internalize prudential norms stipulated.

Institutional and capacity building

Help cooperative banks and RRBs to prepare development actions plans for themselves
Enter into MoU with state governments and cooperative banks specifying their respective obligations to improve the affairs of the banks in a stipulated timeframe
Help RRBs and the sponsor banks to enter into MoUs specifying their respective obligations to improve the affairs of the RRBs in a stipulated timeframe
Monitor implementation of development action plans of banks and fulfillment of obligations under MoUs.
Provide financial assistance to cooperatives and RRBs for establishment of technical, monitoring and evaluations cells.
Provide organisation development intervention (ODI) through reputed training institutes like Bankers Institute of Rural Development (BIRD), Lucknow, National Bank Staff College, Lucknow, College of Agriculture Banking, Pune, etc.
Provide financial support for the training institutes of cooperative banks
Provide training for senior and middle level executives of commercial banks, RRBs and cooperative banks
Create awareness among the borrowers on ethics of repayment through Vikas Volunteer Vahini/farmer's clubs
Provide financial assistance to cooperative banks for building improved management information system, computerisation of operations, development of human resources, etc.

Role in training

The provisions of the Act as stated below very clearly indicate the nature and scope of the developmental mandate of the Bank and its role in training and capacity building with the underlying belief that the process of development cannot be accomplished by credit/refinance alone.

Section 38 of the NABARD Act provides that the Bank shall:
maintain expert staff to study all problems relating to agriculture and rural development and be available for consultation to the Central Government, the Reserve Bank, the State Governments and the other institutions engaged in the field of rural development
provide facilities for training, for dissemination of information and the promotion of research including the undertaking of studies, researches, techno-economic and other surveys in the field of rural banking, agriculture and rural development.
provide technical, legal, financial, marketing and administrative assistance to any person engaged in agriculture and rural development activities;
may provide consultancy services in the field of agriculture and rural development and other related matters in or outside India, on such terms and against such remuneration, as may be agreed upon;

In this context, the role of training in NABARD and the role played by it for capacity building in client institutions, partner agencies and other developmental agencies is important. For maintaining 'Expert Staff', the bank needs to provide continuous exposure to its officers and staff for upscaling their knowledge and skills in core areas. However, in the initial years the Bank had recruited expert staff from various technical disciplines and created a separate cadre of officers. These officers were involved in formulating, appraising, monitoring and evaluating different agricultural projects implemented by different credit agencies.These officers, irrespective of their academic background, were imparted similar type of training as all other officers. Their placements and the regular job rotations helped in grooming them to take up assorted assignments, get involved in a variety of roles and functions including credit, developmental, promotional, supervisory and necessary support and information for decision making. The Bank also had access to their specialised skills which were utilised whenever needed.

In pursuance of the Bank's mandate as stated in the Act, the Bank provides training facilities for the RFIs and agencies involved in rural development through BIRD and the two RTCs. With a view to broadbase the training and capacity building efforts, the Bank encourages the RFIs to set up their own training systems and provides these training institutes the necessary support to conduct meaningful and quality training. Options and avenues for strengthening the training interventions at the client level are continuously examined so that the human resources in these institutions are developed to take on the challenges, reckon with the competition, improve customer service, expand outreach, develop suitable products and thereby contribute to rural development.

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