Date: 20/04/2023

Relevance: GS-3: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

Key Phrases: Nabard, National Cooperative Policy, National Cooperative Bank, National Rural Credit Funds, AINBEA, Craficard, Financial Literacy, SHG Bank, CRR, SLR, RBI, Financial Inclusion.

Context:

• The National Cooperative Policy, proposed by a panel headed by former Union Minister Suresh Prabhu, attempts to emphasise the importance of cooperatives.
• However, the All-India Nabard Employees Association (AINBEA) has expressed concern about the reported proposals that ignore the significant contributions of the National Bank for Agricultural and Rural Development (Nabard).

Assigning a Crucial Role to Nabard

• According to the General Secretary of AINBEA, Nabard has played a pivotal role in strengthening cooperatives since its inception in 1982.
  • Despite this, the National Cooperative Policy seems to overlook Nabard's expertise and experience in overseeing the cooperative sector, including primary agricultural credit societies (PACS) and other types of co-ops.
  • He suggests that, similar to RBI's role of overseeing commercial banks, Nabard can supervise the entire cooperative sector.
• He further highlights Nabard's successful implementation of the SHG Bank linkage programme and turning around the short-term agri-finance cooperative sector based on the recommendations of the Vaidyanathan Committee.
• The Centre could transfer a portion of the CRR and SLR of commercial banks, RRBs and cooperative banks to Nabard's development fund, which can be channelled to strengthen its development banking at a low-cost.

Nabard's Dependence on Borrowed Resources

• Since the early 1990s, Nabard has been compelled to mobilise funds from the market, making it one of the largest borrowers from the money market.
  • Own funds account for only 10% of the total balance sheet size of ₹7,57,472 crore in end-March 2022, and the rest is borrowed resources, considerably affecting the cost of funds.
• The transfer of almost the entire yearly surplus by the RBI to the Centre has resulted in an increase in interest rates for farmers, the cooperative sector, and rural development.
  • If some of these funds had been channelled into Nabard's National Rural Credit Funds, it could have catered to the long-term low-cost investment needs through cooperatives and RRBs in compliance with relevant provisions of the Nabard and RBI Acts.

The Risk of Downgrading Nabard's Apex Status

• The National Cooperative Policy proposes the creation of another Development Financial Institution to fund the proposed National Cooperative Bank,
  • General Secretary of AINBEA points out that this is in violation of the spirit of the RBI-appointed Committee to Review the Arrangements for Institutional Credit for Agriculture and Rural Development (Craficard).
  • The Craficard had strongly opined that Nabard is nothing but an extended arm of the RBI.
• Development banking in India has a unique history of getting supported, sustained and strengthened out of the womb of the Central Bank, with few parallels in the world.
  • Therefore, Nabard's apex status as a DFI should be maintained, and all funds to the cooperative sector should be channelled through Nabard only.

Way Forward

• The National Cooperative Policy must recognise the premier role and contribution of Nabard in the cooperative sector.
  • Nabard's expertise and experience in overseeing the cooperative sector and making financial services more accessible to the farmers in India are unparalleled.
• Therefore, the proposed centralisation of a sector that essentially falls under the State list of the Constitution needs reconsideration.
  • The AINBEA urges the Centre to strengthen Nabard's basic mandate and DFI character with a low-cost fund flow from the Centre and the RBI.
• Any proposals to form a National Cooperative Bank bypassing Nabard should be reviewed, and Nabard should be given a more significant role to supervise the entire cooperative sector.
• Finally, the AINBEA requests that all funds allocated for the cooperative sector should be channeled through Nabard, which can play a vital role in serving the rural development in India.

Conclusion

• Nabard has been playing a crucial role in rural development in the country. It has done commendable work and has proven its expertise in the rural sector time and again.
• Therefore, the Centre must strengthen Nabard's position in the cooperative sector, and any attempts to downgrade its position would have dangerous consequences for the rural economy.
• Using Nabard's expertise will improve agricultural and rural development and ultimately contribute to making India self-reliant.

Source: The Hindu BL

Mains Question:

Q. Discuss the role played by the National Bank for Agricultural and Rural Development (Nabard) in promoting sustainable development and strengthening the cooperative sector in India. Suggest measures to enhance Nabard's role in supervising the cooperative sector and making financial services more accessible to farmers in India. (250 words).