National Bank for Agriculture and Rural Development

Also called: NABARD · Topic: Rural Credit, Microfinance and Financial Inclusion · NCERT: Beyond NCERT

Meaning

The National Bank for Agriculture and Rural Development (NABARD) is India's apex development bank for farming and the rural economy. It was set up on 12 July 1982 under the NABARD Act 1981. An apex body is the top body that guides and coordinates all the others below it. NABARD does not mainly lend to farmers directly. Instead, it refinances the banks and cooperatives that lend to them, supervises RRBs and cooperative banks, funds rural infrastructure, and promotes self-help groups (SHGs) and producer organisations.

It matters because rural credit in India comes through many agencies, and NABARD connects and steadies all of them. Without such a body, cheap formal credit would reach even fewer small farmers, and more of them would stay with moneylenders.

Explanation

Why NABARD was created

The problem: In 1951, moneylenders gave about 70% of rural borrowing (All India Rural Credit Survey). The Gorwala Committee (1954) said rural credit "fails in quantity, fails in quality, fails… to reach the right people".
The response came in steps:
SBI (1955);
bank nationalisation (14 banks in 1969, 6 more in 1980);
RRBs (1975);
the multi-agency approach to rural credit (commercial banks, RRBs, cooperatives and land development banks all lending in villages).
The gap: Many agencies were lending, but nobody coordinated them. The CRAFICARD (Committee to Review Arrangements for Institutional Credit for Agriculture and Rural Development), headed by B. Sivaraman, recommended one apex body. That body became NABARD in 1982.
Class 11 describes NABARD as the apex body that coordinates all rural financing institutions.

What NABARD does: its four roles

1. Refinance (its main financial role). Refinance means lending to a bank so that the bank can lend more to its own borrowers.
A bank lends to farmers, village industries or rural infrastructure such as roads and irrigation.
NABARD then gives that bank fresh funds against those loans (Class 7).
The bank gets back its lending power and can make more rural loans.
2. Supervision. NABARD supervises RRBs and cooperative banks (StCBs and DCCBs). Supervision means it inspects how sound and well-run they are. It does not supervise or regulate commercial banks. The RBI does that.
3. Rural infrastructure finance. NABARD runs the Rural Infrastructure Development Fund (RIDF, 1995-96), which funds projects such as rural roads and irrigation.
4. Development and promotion. NABARD designs models that banks can copy:
SHG-Bank Linkage Programme (1992 pilot with 500 groups). It links savings groups of poor women to bank loans.
Kisan Credit Card (KCC) (1998-99), launched with NABARD's model scheme. A KCC is a revolving credit limit: the farmer withdraws, repays and withdraws again.
Joint Liability Group (JLG) scheme (2006). A JLG is a group of 4-10 borrowers who take individual loans and guarantee each other's repayment.
Producer organisations. For example, NABARD is a key stakeholder in the Soreng (Sikkim) Organic Fisheries Cluster under PMMSY. There it gives financial and technical support, works with fishers' cooperatives and forms Fisheries-based Farmer Producer Organisations (FFPOs).
Research and data, such as the NAFIS surveys (NABARD All India Rural Financial Inclusion Survey) and the Status of Microfinance report.

How priority-sector shortfalls reach NABARD: a worked illustration

Under priority sector lending (PSL), the RBI requires domestic commercial banks to lend set shares of their credit to certain sectors. 18% of ANBC (Adjusted Net Bank Credit) must go to agriculture (verify current).
If a bank misses the target, it must deposit the shortfall in RIDF and similar funds run by NABARD, SIDBI and NHB. These deposits earn low returns.
Illustration (made-up figures):
The bank's ANBC is ₹1,000 crore, so its agriculture target is 18% × 1,000 = ₹180 crore.
It actually lends ₹150 crore to agriculture.
The shortfall is ₹180 − ₹150 = ₹30 crore. This goes into RIDF at a low return.
NABARD uses such funds for rural infrastructure. Money that the bank did not lend to farmers still reaches the rural economy.
The effect: The low return is a penalty, so banks have a reason to meet PSL targets. Banks can also buy PSLCs (Priority Sector Lending Certificates) to cover a shortfall.

In India

Law: NABARD Act 1981. The bank started on 12 July 1982.
Ownership: It is now wholly owned by the Government (verify current).
Place in the system:

Level	Institutions NABARD works with
State	State Cooperative Banks (StCB), SCARDBs
District	District Central Cooperative Banks (DCCB), RRBs, commercial bank branches
Village	PACS (primary agricultural credit societies), SHGs, JLGs, FPOs

RRBs: RRBs are owned Centre 50% : sponsor bank 35% : state 15%, and NABARD supervises them. They have been merged from 196 to 43, and then to 28 under "One State, One RRB" (May 2025, verify current).
Scale of the SHG movement NABARD started: The SHG-BLP led to SGSY (1999), NRLM "Aajeevika" (2011) and DAY-NRLM (2016). DAY-NRLM now covers about 10 crore women in about 90 lakh SHGs (verify current).
Related schemes it helps deliver: KCC (extended to animal husbandry and fisheries in 2018-19), and lending to fishers' and farmers' producer organisations under PMMSY clusters.

Don't confuse with

RBI: The RBI regulates all banks, including commercial banks. NABARD only supervises RRBs and cooperative banks. The statement "NABARD regulates commercial banks" is FALSE.
SIDBI and NHB: These are sister development banks. SIDBI serves small industries (MSMEs) and NHB serves housing. All three receive PSL shortfall deposits, but only NABARD focuses on agriculture and rural development.
Regional Rural Banks: RRBs lend directly to rural borrowers. NABARD supervises and refinances them but does not own them (50:35:15 is Centre : sponsor bank : state).
Lead Bank Scheme (1969): This makes one bank coordinate credit in each district. NABARD coordinates rural credit at the national level as the apex body.

Prelims Hooks

NABARD was set up on 12 July 1982 under the NABARD Act 1981, on the recommendation of CRAFICARD (B. Sivaraman Committee). It was not set up on the AIRCS (Gorwala, 1954) report.
NABARD supervises RRBs, StCBs and DCCBs. It does not regulate commercial banks.
NABARD runs RIDF (1995-96). Banks that fall short of PSL targets deposit the shortfall there at low returns.
NABARD-linked "firsts": SHG-Bank Linkage pilot 1992 (500 groups), KCC model scheme 1998-99, JLG scheme 2006 (4-10 members).
NABARD's main money channel is refinance: it lends to lending institutions, not mainly to farmers directly.
NABARD publishes the NAFIS surveys and the Status of Microfinance report. Do not confuse NAFIS with NSO's AIDIS rounds.

Mains Points

Coordination vs reach: NABARD has built a strong network: refinance, KCC, SHG-BLP and RIDF. Yet informal credit persists.
AIDIS 2019 shows institutions hold only about 66% of rural cash debt.
Tenants without land records, and weak cooperatives (PACS and DCCBs), still keep poor farmers out of formal credit.
NABARD's supervision of cooperatives, together with PACS computerisation and RRB mergers, is therefore central to restructuring rural finance.
Short-term vs long-term credit: Cheap short-term crop loans (KCC, interest subvention) have grown, but term credit for irrigation, storage and machinery lags. NABARD's RIDF and its long-term refinance are the main tools to shift credit toward building rural assets. This links to GS-III themes on agricultural investment and infrastructure.
From credit to livelihoods: NABARD's promotion of SHGs, JLGs and FPOs/FFPOs shows that the problem is not only credit supply.
Group liability (members answering together for repayment) replaces collateral.
Collective selling gives small producers bargaining power.
The risks are over-indebtedness and loans used for consumption, so promotion has to go with financial literacy and market linkage.

Rural Credit, Microfinance and Financial Inclusion