NABARD (National Bank for Agriculture and Rural Development) is a specialized bank of India having been set up with the recommendations of CRAFICARD (Committee to Review Arrangements for Institutional Credit for Agricultural and Rural Department) which was arranged by RBI. Earlier existing agencies like ARDC (Agricultural Refinance and Development Corporation), ACD (Agricultural Credit Department), and RBI’s RPCC (Rural Planning and Credit Cell) were replaced by NABARD on July 12th, 1982. The apex development bank of India, NABARD, was set up to aid integrated rural development by the way of providing finance and undivided attention for the same.
There are mainly 3 categories of refinancing from NABARD
- Long term loans
- Short and medium-term loans
- Refinance: non-farm sector
- Short- and Medium-Term loans
In this modern era of increased consumption and decreased production of agricultural products, to increase the efficiency of production a huge recurring expense needs to be done which includes short-term investment in insecticides, expensive agricultural equipment/ machinery, seeds, fertilizers, etc. Now, to do all these farmers require more farm credit to meet these needs. To analyze the need for funds based on real cost and productivity, production-based lending (crop loan) was devised.
The Production Credit Department (PCD) provides a short-term facility or refinance to farmers for procurement, production, and marketing-related activities. These are discussed in detail below:
- Short term refinance for seasonal agricultural operations
Regional Rural Banks (RRBs) and State Cooperative Banks SCBs) are provided refinance for production purposes by NABARD. Credit limits at concessional rates are provided to these banks. The repayment period of the credit limit thus sanctioned is 12 months.
- Short term refinance to CCB, PSBs, and RRBs for financing PACS
For circumstances when cooperative banks cannot fund PACs (Primary Agricultural Cooperative Societies), a new product was introduced in 2011-12 for refinance. With this product, PACS can be refinanced via PSBs and RRBs.
- Short term refinance for others
Following are the purposes for which short term financing can be granted by NABARD:
- Agriculture and allied activities.
- Marketing of crops
- Rural artisans- PACS, LAMPS, FSS
- Stocking, purchase, and chemical fertilizer distribution
- Industrial cooperative societies except for weavers
- Collection of minor forest produce
- Forest labour cooperative societies and labour of contract
- Short term refinance to weavers
Various bank types provide short term finance to weavers’ societies and associations as follows:
- The working capital of Apex or Primary or Regional weavers’ cooperative society is financed by District/ Central Cooperative Banks and State Cooperative Banks.
- The working capital of the primary weavers’ cooperative society is financed by SCBs (Scheduled Commercial Banks).
- The working capital of State Handloom Development Corporation is financed by SCBs and State Cooperative Banks.
- Working capital and marketing expenses of mutually aided cooperative societies, handloom weavers’ groups, individual weavers, producer group companies, and master weavers are financed by SCBs and RRBs.
- Medium-term conversion
NABARD also supports farmers whose crops get damaged due to any natural calamity like flood, landslide, earthquake, drought, etc. This is done by converting existing short-term agricultural loans to medium-term loans. There is an option of converting existing medium-term loans too. The total loan limit is sanctioned to RRBs and SCBs.
- Long term loans
NABARD provides long-term loans as investment credit which results in the generation of capital through the improvement of cultivating techniques and upgrading technology. There is a substantial increase in production, productivity, and individual income of farmers/entrepreneurs due to asset creation. Such loans are called long-term loans since they are provided for a longer period ranging from 3 years to 15 years.
These loans are provided for the below-listed reasons:
- Non-farm sector- small-scale industries like handloom, artisans, micro and small enterprises, power looms, etc.
- Agricultural and allied activities.
- Activities of SHGs (Self Help Groups) working in rural sections and voluntary agencies.
Institutions eligible for medium-term finance
The institutions which are eligible for medium-term finance are listed below:
- Commercial banks
- NEDFC- North East Development Finance Companies
- State Cooperative banks
- NBFCs- Non-Banking Financial Companies
- Scheduled Primary Urban Cooperative banks
- SCARDBs- State Co-operative Agricultural and Rural Development Banks
- State ADFCs- State Agricultural Development Finance
Eligibility criteria for refinance
- Project feasibility on a technical level
- Bankability and financial viability
- Organizational planning for credit supervision
Automatic Refinance Scheme (ARS)
There are various schemes under this main scheme which can be classified broadly into the following 5 categories:
- Composite Loans Scheme (CLS): This scheme is aimed at providing loans to meet the working capital requirements of micro and small enterprises. A loan of up to Rs. 10 lakhs can be sanctioned.
- Integrated Loan Scheme (ILS): This scheme is aimed at providing loans for refinancing support to working capital and block capital for an operating cycle. With this scheme, a borrower can be refinanced up to Rs. 15 lakh.
- Self Employed Scheme for Ex-servicemen (SEMFEX): The scheme is objected to the promotion of ex-servicemen towards agricultural and allied activities.
- Small Road and Water Transport Operators (SRWTO): This scheme aims at providing loans to acquire water transport and public transport vehicles. These vehicles need to be used for the transportation of farm produce and industrial items to marketing centres.
- Soft Loan Assistance for Margin Money (SLAMM): This scheme takes care of financial support of entrepreneurs to meet margin requirements needed to be eligible for refinancing schemes of NABARD.
A capital cum interest subsidy scheme has been introduced by MNRE (Ministry of New and Renewable Energy) for the creation of renewable sources of energy at the domestic and small commercial levels. NABARD is the agency that offers refinance and feasibility to eligible projects.
NABARD offers investment credit to banks that are found eligible for this scheme. Eligibility is counted on home and business loans given to agriculturists as well as non-agriculturists of rural areas.
NABARD top 8 direct finances
- Loans for food processing parks and units
RBI has granted Rs. 2000 crores to NABARD for providing special credit to food parks, commonly known as agro-processing units. The fund is called Food Processing Fund- 2014-15. This fund is provided directly as well as through other financing agencies (in the form of consortium finance). The main purpose of this fund is to create job opportunities, support the development of the food processing sector of the economy, and reduce agricultural waste.
Features of food processing fund
- Eligibility: entities supported by the Government of India as well as State Governments, joint ventures, cooperatives, etc.
- Nature of loan: A term loan is provided under this scheme.
- Quantum of loan: The loan amount varies from 75% to 95% depending upon the feasibility of the project.
- Loan tenure: The repayment period of this loan is up to 7 years.
- Rate of interest: The rate of interest applicable in this scheme is PLR plus a risk premium. PLR refers to Prime Lending Rate which changes from time to time as per NABARD’s discretion.
- Loans for warehouses, cold chain infrastructure, and cold storage
An allocation of Rs. 5000 crores have been made by NABARD to aid the development of storage spaces for agricultural produce. The fund is called as Warehouse Infrastructure Fund 2014-15. The fund is given to the public as well as private sector construction of such storage.
Features of warehouse infrastructure fund
- Eligibility: following entities are eligible for such finance from NABARD-
- State governments.
- Entities owned or supported by the state as well central government, Farmers’ Producers’ Organizations- FPOs, similar organizations.
- Corporate, individual entrepreneurs, and companies.
- PACs or CAMS (Cooperative Marketing Societies).
- Priority: Projects which are proposed in food-deficit states, eastern and north-eastern states, are given priority.
- Credit facility to marketing federations
Cooperatives along with marketing federations are involved in the process of procuring agricultural products like milk. These federations perform specific activities which include value addition, marketing, aggregation, and storage of agricultural produce. These federations are given financial support by NABARD to meet the daily requirement of funds.
- Eligibility: Following institutions are eligible to procure this fund-
- Registered companies
- Agricultural cooperatives or marketing federations
- Dairy federations or cooperatives
- Central or State Government agricultural marketing federations and corporations
- Nature of loan: Short-term loans are advanced to eligible organizations as working capital which needs to be repaid within 12 months.
- Quantum of loans: Depending upon the nature of the loan and type of borrower, NABARD advances 75% to 100% of the project cost to the eligible borrowers.
- Interest Rate: The rate of interest under this scheme is determined by ALCO on daily basis. The rate of interest is also dependent on the credit rating of the federation, availability of guarantee, type of project, type of borrower, type of security provided, etc.
- Loan security: Security requirements vary as per the type of activity, rating of the federation, the stipulation of RBI, etc. Hypothecation of book debts, stock, and receivables are primary security, however, guarantees, FDRs, and unencumbered assets serve as collaterals.
- RIDF- Rural Infrastructure Development Fund
This fund was established by NABARD for providing low-cost credit support to state governments and their corporations. These loans can be availed for ongoing projects like medium to minor irrigation, soil conservation, watershed development, and other rural infrastructure projects.
- Direct refinance to cooperative banks
NABARD offers loans to cooperative banks (both, state and district levels). It is done through the Short-Term Multipurpose Credit Product. This scheme enables these banks in making more profit through the expansion of their business.
Purpose of STMPCP
- Marketing activities
- Redeeming old debts
- Crop loan
- Working capital requirements’
- All other purposes are listed in sections 21(1)(i) to (v) of the NABARD Act, 1981.
- Cooperative banks are robust financially, have good government, and RBI licenses and are under the A or B category.
- In the case of lending to sugar factories, the following criteria need to be met:
- Should have positive net income and not have accumulated losses.
- Should not have violated CMA norms.
- Should have well-maintained and audited accounts.
- Should not have any default in repayment.
- Interest rate: Prevailing market rate is charged under this scheme.
- Loan quantum: Banks can lend from 75% to 100% of the project cost.
- Financing producer organizations
A Producers Organization Development Fund (PODF) has been set up by NABARD to support producer organizations that offer grants as well as loans to eligible units.
- Eligibility: Following criteria need to be met-
- Producers’ organization- The organization needs to be set up and functioning for producers’ benefit, having experience of at least 1 year in this field. Analysis of audited balance sheet along with P&L account should be done.
- NGOs/ CBOs: Registered NGOs and CBOs with a good track record in this field. Audited balance sheet along with P&L account of last 3 years needs to be furnished.
- Loan quantum: NABARD offers credit up to 90% of total project costs which may vary on project size.
- Interest rate: The rate of interest for this loan is determined by ALCO. The actual rate of interest is derived through risk analysis of the project which can be done through risk collaterals and tools.
- Repayment period: A moratorium period of 1 year is included in the total repayment period of 7 to 10 years.
- NABARD Infrastructure Development Assistance- NIDA
NABARD has designed this unit to support state governments and their organizations. Credit support with a longer repayment period is provided by NIDA. Funding is done in the form of a term loan which can be repaid in 15 years. The rate of interest is market-linked and varies from project to project.
- Financing and development of PACS into multi-service centres
PACSs provide various facilities for farmers which include processing, transportation, storage, and marketing. NABARD supports PACSs identified by the PODF committee. A margin of around 10% is obtained by the units which may vary as per the scheme. Rate of interest if fixed by ALCO and the loan can be repaid in 9 years which can be increased to 11 years in special cases.
Umbrella Program for Natural Resource Management (UPNRM)
This scheme was launched to streamline NRM interventions by integrating existing and future Indo-German NRM efforts of NABARD.
- Eligible agencies: NGOs, corporate, state governments, banks, etc.
- Financial support: Under this scheme, program-based funding is provided with different tenures and interest rates. Eligible sectors are given additional grants and loans to build capacity, skills, and infrastructure.