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Unit 14: Rural Credit and Marketing

of the projects financed by them. The most important source of NABARD’s funds are now RIDF Notes
deposits, closely followed by market borrowings.
In recent years, there has been considerable improvement in the resource position of NABARD mainly
due to :
(a) Significant rise in the deposits under the Rural Infrastructure Development Fund (RIDF) by
commercial banks;
(b) use of tax-free bonds through the issue of capital gains bonds and priority sector bonds.
(c) acceptance of priority sector deposits from private banks.
NABARD cannot accept short-term public deposits and, therefore, it has depended on the general
line of credit (GLC) from RBI from its inception in 1982. NABARD’s dependence on GLC from RBI is
quite large and NABARD uses this source to meet short-term credit and working capital requirements.

Functions of NABARD
NABARD has a dual role to play :
(a) as an apex institution and
(b) as a refinance institution. NABARD has inherited its apex role from RBI i.e. it is performing all
the functions formerly performed by RBI with regard to agricultural credit. At the same time,
NABARD has taken over the functions of ARDC and thus provides refinance facilities to all
banks and financial institutions lending to agriculture and rural development.
(i) NABARD services as a refinancing institution for all kinds of production and investment
credit to agriculture, small-scale industries, cottage and village industries, handicrafts
and rural crafts and real artisans and other allied economic activities with a view to
promoting integrated rural development;
(ii) it provides short-term, medium-term and long-term credits to State Co-operative Banks
(SCBs), RRBs, LDBs and other financial institutions approved by RBI;
(iii) NABARD gives long-term loans (up to 20 years) to State Governments to enable them to
subscribe to the share capital of co-operative credit societies;
(iv) NABARD gives long-term loans to any institution approved by the Central Government
or contribute to the share capital or invests in securities of any institution concerned with
agriculture and rural development;
(v) NABARD has the responsibility of co-ordinating the activities of Central and State
Governments, the Planning Commission and other all-India and State level institutions
entrusted with the development of small scale industries, village and cottage industries,
rural crafts, industries in the tiny and decentralised sectors, etc;
(vi) it has the responsibility to inspect RRBs and co-operative banks, other than primary co-
operative societies; and
(vii) it maintains a Research and Development Fund to promote research in agriculture and
rural development, to formulate and design projects and programmes to suit the
requirements of different areas and to cover special activities.
Working of NABARD

NABARD is the apex organisation with respect to all matters relating to policy, planning and operational
aspects in the flow of credit for the promotion of agriculture, small-scale industries, cottage and village
industries, handicrafts and other rural crafts and other allied economic activities in rural areas.
NABARD is performing the various functions assumed by it smoothly and efficiently. For instance, it
sanctioned short-term credit limits worth ` 8,820 crores during 2003-04 and ` 16,100 crores during
2006-07 for financing seasonal agricultural operations at the concessional rate of 3 per cent below the
Bank Rate. NABARD has attempted to ensure the flow of credit to weaker sections of society under
the new 20-point programme by making it obligatory for banks to disburse a specified percentage of
short-term loans to small and marginal farmers and other economically weaker sections.

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