‘Nabard Needs Greater Operational Freedom’
The Financial Express
July 12, 2004
The National Bank for Agriculture and Rural Development (Nabard) has been assigned a key role in carrying out the various initiatives taken by the United Progressive Alliance (UPA) government in rural and agriculture sectors. Nabard, along with the Indian Banks’ Association (IBA), is in the process of finalising a plan to increase agri-lending. Nabard chairperson Ranjana Kumar spoke to Sanjay Jog of FE on her plans. Excerpts:
There has been no risk-management system for the agriculture sector, although it is prone to a number of risks. Is Nabard working out such a risk-management tool or suggesting to the Centre or RBI to introduce it?
It is not true that the banking system has not been sensitive to the risk-management needs of the agriculture sector. There are two types of risks faced by the farm sector. One is related to production risk and the other to price risk. The production risk relates to income loss and the crop insurance scheme has partly addressed this issue.
There are, however, complaints that the premium rates are very high for cash crops. The crop insurance scheme cannot be viable unless it has a very broad base totally ruling out any adverse selection of crops. The finance minister has announced that the Agriculture Insurance Company (AIC) will launch a weather insurance scheme on a pilot basis. With the view to addressing the price-risk element, as a beginning, a price stabilisation fund has been created for a few plantation crops and tobacco. The government of India and state governments declare minimum support prices for many crops based on the recommendations of the commission on agricultural costs and prices.
Still, the price risk is largely left unaddressed. A holistic scheme for post-harvest management, including storage, marketing and value addition through agro-processing could partly mitigate the risk.
As supervisor for the co-operative credit institution and regional rural banks (RRBs), Nabard has developed risk-management tools based on the inspection reports of the banks whereby banks are rated based on several parameters as per CAMEL norms.
Why there has been no change in bank products offered to farmers? For example, in the wake of some natural calamity or loss, they are entitled for cash credit or term loan but no other product. Is Nabard contemplating on new products?
Nabard is always alive to the needs of rural India and its products are designed to help the rural population, whether directly or indirectly. The bank loans are rescheduled or reset to assist farmers affected by natural calamities. Conversion of short-term loans to medium-term is also permitted to loans given by cooperative banks to help farmers hit by natural calamities.
Nabard has been introducing new products. The Kisan Credit Card (KCC) is one such product. We are trying to change the scope of KCC to cover even composite credit limits, including working capital and term-loan requirements of farmers for agriculture and allied sectors. Micro-finance is a new product for banking with the poor. The self help group (SHG)-bank linkage has covered nearly one million micro-finance groups.
A few years ago, the poor could not think of any access to financial services. We are now planning to extend the scheme of micro-finance to cover micro-enterprises and micro-insurance.
Homstead farming in Kerala is another example where we have introduced an element of flexible credit for composite farming undertaken by small farmers of Kerala. This can be suitably modified and extended to other parts of the country. “Credit plus” is something towards which we all have to move. For example, in financing the rural non-farm sector, Nabard has provided support for a lot of promotional initiatives for the entire supply chain starting from input supply to marketing.
Community participation and local community bank linkage is another major experiment, which has been very successful in projects like Maharashtra Rural Credit Project (MRCP) which was implemented by Nabard with International Fund for Agriculture Development (IFAD) funding.The ultimate requirement is timely, adequate and hassle-free credit to farmers.
What would you like to say on the Union government’s focus on rural and agricultural sectors with a resolve to step up lending? How will Nabard play its role as a nodal agency?
The Union government’s focus on rural and agriculture sector will definitely help to enhance lending for agriculture sector. A 30 per cent growth in loans to be disbursed during 2004-05 has already been accepted by all the banks, including co-operative banks, commercial banks and RRBs.
Guidelines for providing debt relief to farmers have also been issued by Nabard to cooperative banks and RRBs. Nabard will also play a very important role in monitoring the implementation of government’s policy.
On ailing co-operatives, the Kapoor Committee, the Vikhe-Patil committee, and the Vyas Committee have already made several recommendations though they are peripheral in nature. Recapitalisation is not an answer. What are your views on this aspect? Is Nabard working out a practical model to revive and strengthen co-operatives?
The Kapoor and Vikhe Patil Committees have made various suggestions for revitalising the co-operatives. The Vyas Committee (2004) recommendations are awaited from RBI as they have made many interim suggestions which are useful.
There is need for re-capitalisation as the losses of these banks need to be wiped out so that these under-capitalised institutions can operate with adequate funds. Nabard would like an effective framework within which the co-operatives can emerge as financially strong and vibrant co-operative credit institutions in a properly regulated system with RBI as the sole regulator.
We need to start with restructuring of Primary Agricultural Credit Societies (PACS), the grass-root level institutions, with the help of state governments and also strengthen district central co-operative banks (DCCBs) and state cooperative banks (SCBs). Training in banking and professionalism are very important for the revitalisation of co-operatives.
How do you see Nabard’s future? What are Nabard’s plans in refinancing, co-financing, insurance, housing and consultancy?
Nabard is a complex organisation. It has different roles — refinancing, promotional development, supervisory and consultancy. It has been able to perform these roles successfully as reflected in its healthy financial fundamentals and business diversification.
I see a larger role and space for Nabard in the days to come. Nabard’s future is vibrant and strong. But it needs operational freedom, more teeth for effectiveness and a more pro-active role in rural development. It has excellent technical and financial skills and has made an impact on rural development efforts.
More needs to be done in agro-processing especially at the farmer level as over 30 per cent of fruit and vegetable produce gets wasted. Ensuring that the farmer gets a good price in an efficient market are also our imperatives. Nabard has invested funds in agricultural insurance and in commodities futures.
Rural industry and rural housing are also our priorities. Consultancy services have made a good beginning as also co-financing. Refinancing of loans will be continuing for those institutions who would utilise it.