NABARD: An Overview

Mahatma Gandhi saw the importance of villages for the growth and development of India. He believed that without its villages, India will perish. He stated that the real India lies in the 7,00,000 villages. If the Indian civilization is to make its full contribution to the building up of stable world order, it is this vast mass of humanity that has to be made to live again.[1] Gandhi rightfully saw villages as the backbone of our country as it is these villages that feed the fast-growing Indian population and also provide raw materials to major industries via the practice of farming and other agricultural activities.                          This article aims to discuss the origin of NABARD, its objectives, functions, and the role played by it in the Indian economy.


Agriculture has always been significant to the Indian population as well as the economy. It supports about 70 per cent of rural households in terms of food security and employment. On a larger scale, agriculture’s contribution to the nation’s food security, economic growth, and development is noteworthy. The contribution of agriculture to the Indian GDP has been fluctuating from about 40 percent in the 1960s to about 15 percent in 2019 but its importance as a critical sector remains the same. It is the primary source of livelihood for about two-thirds of the Indian population. It provides raw material to industries and is also a great market for many industrial goods. About a fifth of the total exports are agricultural exports.

It is well known that no sector can develop and grow without the proper availability of credit. Keeping in mind the economic status of the majority of the cultivating class in India, there is no doubt that credit is an important factor in the agriculture sector. Without it, the sustenance of farmers and their farming activities would not be possible. Agricultural credit is, thus, a weapon that can be used to stimulate the tempo of agricultural production.[2] 

Initially, the Reserve Bank of India (RBI) was responsible for dealing with agricultural credit along with a separate department for refinancing. But, it could not do so effectively as this was a field that needed an unbiased focus. After a lot of speculations, a need was felt to create an apex body like the RBI for dealing with the gamut agricultural and rural finance. Thus, NABARD was established in 1982 as an answer to the growing demands of a separate institution.

What is NABARD ?

NABARD stands for the National Bank of Agriculture and Rural Development. It is a statutory body established on 12th July, 1982 by an Act of the Parliament[3], namely, the National Bank for Agriculture and Rural Development Act, 1981.[4] It was established as a development bank to provide and regulate credit and other facilities for the promotion and development of agriculture, small scale industries, cottage and village industries, handicrafts and other rural crafts, and other allied economic activities in rural areas to promote integrated rural development and securing prosperity of rural areas, and for matters connected therewith or incidental thereto.[5]

Financial inclusion is a stepping stone for inclusive growth.[6] Thus, the government of India has established NABARD with the mission to promote rural development and prosperity by taking banking facilities to rural households. This institution plays a crucial role in strengthening the rural economy which then has a direct impact on the national economy.


Moneylenders were the sole source of credit until the banking system was introduced by the Britishers in 1770 with the establishment of the Bank of Hindustan in Calcutta. The aftermath of this step saw the establishment of even more banks. But, most of these banks failed thereby leaving the common citizens at the mercy of money lenders. The Indian banking sector continued to witness growth in the number of banks even after independence and suffered from almost the same ailments as before. These banks were not much different from money lenders and failed to serve farmers and other people from the lower strata of society.

As the country geared up to move towards growth and development, the then government knew that the rural economy can only be boosted by providing credit to rural households through proper means. Thus, they made it a part of the early stages of economic planning. RBI was already established as the central bank of the country and it also dealt with the branch of agricultural credit, even though committees were formed from time to time to check up on the need for a separate institution.

The All India Rural Credit Survey Committee was set up in 1951 to assess the position of rural credit in India and recommend policy changes. The Committee in its report labeled cooperatives as the solution to all the issues related to rural finance.

In 1960, the Committee on Co-operative Credit was set up to look into cooperative management and credit. Based on its recommendations, the RBI and the government began to think to create a specialized agency to finance agricultural investment.[7] It was thought that the demand for agricultural credit might require the establishment of some specialized institutions[8] ultimately relieving the Reserve Bank of its functions related to rural finance. Consequently, the Agricultural Refinance Corporation was formed in 1963.

The All India Rural Credit Review Committee (Venkatappiah Committee) was formed in 1966 to review the progress made in the supply of credit for intensive agricultural production from all the institutional sources including commercial banks.[9] This Committee recommended that the multi-agency approach was the most feasible and appropriate response to the credit requirements of agriculture and allied activities.[10]

The nationalization of major banks changed the face of the Indian banking sector. Meanwhile, a strong need was felt for a separate institution to deal with rural credit and agricultural finance. This was because RBI had diverse responsibilities and was not able to fully focus on rural finance as needed. Thus, the Committee to Review the Arrangements For Institutional Credit for Agriculture and Rural Development was formed in 1979 under the chairmanship of Mr. B. Sivaraman. This Committee submitted its report the very same year and recommended the formation of a separate entity to deal with rural credit and finance with undivided attention. Consequently, the National Bank for Agriculture and Rural Development (NABARD) was established under an Act of the Parliament.

NABARD came into existence on 12th July, 1982. All major rural credit-related works that were earlier performed by RBI and the Agricultural Refinance and Development Corporation were shifted to the NABARD.


NABARD is the apex institution for rural finance and agricultural credit. It was established as the central entity that would deal with all matters pertaining to the policy, planning, and operations in the field of credit for agriculture and other economic activities in rural areas.[11] Its main objectives can be outlined as under:

  • Serve as an apex agency for institutions engaged in rural credit and finance to promote rural development and prosperity.
  • Take measures to build an efficient rural credit delivery system to uplift the rural and agricultural sector. 
  • Supervise and coordinate the functions of cooperative banks, Regional Rural Banks, and other institutions engaged in rural credit.
  • Provide refinance to institutions engaged in rural credit to support agriculture, small industries, cottage industries, and any other activities promoting rural development.
  • Frame rural development initiatives in coordination with state governments and monitor such initiatives and projects including the projects supported by its refinancing activities.

Organizational Setup And Management

NABARD is wholly owned by the government. With its head office at Mumbai, NABARD has 31 Regional Offices located in States and Union Territories, a cell at Srinagar, 03 Training Establishments in the Northern, Eastern & Southern parts of India, and 418 District Development Managers functioning at district level.[12]

The general superintendence, direction, and management of the affairs and business of NABARD vests in a Board of Directors[13] who are appointed by the Government of India according to the provisions of the NABARD Act. The Board of Directors consists of[14]:

  1. A chairman,
  2. Three directors selected from amongst field experts as per the provisions of the Act,
  3. Three directors from out of the directors of the RBI,
  4. Three directors from amongst the officials of the Central Government,
  5. Four directors from amongst the officials of the State Government,
  6. Such number of directors elected in the prescribed manner by shareholders other than the RBI, Central Government, and institutions owned/governed by Central Government, and
  7. A Managing Director.

Functions of NABARD

NABARD was set up as a development bank in 1982 to provide finance and follows

refinance for rural growth and development with a special focus on agricultural growth. The major functions of NABARD include promotion and development, refinancing, financing, planning, monitoring, and supervision.[15]

The various functions performed by NABARD can be listed as follows:

1 Credit Functions

  • It provides, by way of refinancing, loans and advances to financial institutions to promote agricultural operations, artisans, village and cottage industries, handicrafts, or any other activity for the promotion of rural development.[16]
  • It provides financial assistance by way of loans and advances to institutions engaged in rural finance and credit when such assistance is needed owing to drought, famine, or other natural calamities, military operations, or enemy action for periods not exceeding 7 years.[17]
  • It provides all such financial assistance as it deems fit and necessary for promoting agriculture and rural development.[18]
  • It grants loans and advances to State Governments for:
  1. enabling them to subscribe directly or indirectly to the share capital of a co-operative credit society[19],
  2. the purpose of the development of infrastructure facilities for the promotion of agriculture and rural development.[20]

2.Other Functions[21]

  • NABARD coordinates the operations of various institutions engaged in rural credit.
  • It maintains an expert staff to study the problems associated with agricultural and rural development.
  • It acts as a consultant to the Central Government, State Governments, and the RBI along with other institutions engaged with rural finance and development.
  • It provides facilities for training, dissemination of information, and the promotion of research in the field of rural banking, agriculture, and rural development. 
  • It provides technical, legal, financial, marketing, and administrative assistance to any person engaged in agriculture and rural development activities.
  • It provides consultancy services in the field of agriculture and rural development and other related matters in or outside India.

Apart from the aforementioned functions, NABARD also has many other non-financial, developmental, and supervisory functions.

Role of NABARD in Rural Economy

NABARD is the apex institution dealing with all matters related to rural finance and development including policy, planning, operations, and promotions. Simply put, NABARD is a body corporate that acts as a facilitator for rural prosperity and development. It is entrusted with the following three major roles[22]:

  • Providing refinance to lending institutions in rural areas,
  • Bringing about or promoting institutional development, and
  • Evaluating, monitoring, and inspecting the client banks.

Apart from these, NABARD has also been the following roles:

  • Coordinates between all financial institutions engaged with rural finance and credit.
  • Assists the Central Government, State Governments, and any other organization on matters related to rural finance and development.
  • Provides training and research facilities in the field of rural development.
  • Regulates the functioning of cooperatives, RRBs, and any other institution engaged with rural credit.
  • Provides credit through refinancing for rural development.
  • Improves the functioning of the rural credit delivery system.
  • Prepares and promotes rural credit plans.

Development Initiatives by NABARD

Some major development initiatives and schemes by NABARD are listed as follows:

  • Rural Infrastructure Development Fund (RIDF)

The Rural Infrastructure Fund was created by the Indian Government in 1995 with an initial capital of Rs. 2,000 crore.[23] Maintained by NABARD, its main aim is to provide finance to state governments and state-supported undertakings or organizations for the fulfillment of ongoing rural infrastructure projects. The activities supported by this Fund include irrigation projects, soil conservation, watershed development, drinking water, infrastructure for rural education institutions, rural roads, and bridges among others.[24]

  • NABARD Infrastructure Development Assistance (NIDA)

NABARD set up the NIDA in 2010, a new line of credit support for funding of rural infrastructure projects.[25] As many as 80 projects have been sanctioned by NIDA ever since then.

  • Long Term Irrigation Fund

The Long Term Irrigation Fund was set up in 2016 to track the developmental progress of 99 identified Medium and Major Irrigation Projects. Under this fund, NABARD provides loans towards Central Share as well as State Share. The Central Share is provided to the National Water Development Agency (NWDA) whereas the loan towards State Share is availed by the State Governments.[26]

  • Umbrella Programme for Natural Resource Management (UPNRM)

UPNRM aims to boost rural livelihoods by supporting community-managed sustainable natural resource management projects.[27] The main objective of this program is to achieve economic growth in rural areas, that is also environmentally friendly and sustainable.

  • Tribal Development Fund

NABARD has since long been associated with sustainable growth and development of rural areas. It has also focused specifically on tribal growth and development. Therefore, moving in the same direction, it set up the Tribal Development Fund with two main aims[28]:

  1. To create replicable models of integrated development of tribal families, on a participatory basis, through the adoption of sustainable income-generating activities,
  2. To build and strengthen tribal institutions which would enable the communities to be partners in policy formulation, execution of programs, and improve social and economic status.   
  • Watershed Development  Fund

The Watershed Development Programme came into being to unify all the other watershed development programs under one head. Its core objectives include conservation of soil, rainwater harvesting, judicious use of natural resources to improve agricultural productivity.

These are only some of the schemes and initiatives that are undertaken by NABARD but are enough to throw light on its crucial role in enhancing the rural economy. By providing both short and long term credit options, it has helped the village industries grow. From cold storage facilities to building roads and providing proper sanitation to its scientific contribution to agriculture, NABARD has changed the face of rural areas.


The genesis of NABARD was a result of years of speculation over the need for a separate institution to deal with matters of rural finance. It was after the recommendations of the Committee to Review the Arrangements For Institutional Credit for Agriculture and Rural Development that NABARD was established as the apex institution for rural and agricultural credit under the chairmanship of Mr. Gorewalla. Since its inception, NABARD has worked towards the upliftment of the rural economy by bringing the banking facilities along with awareness to the doorstep of rural households. It has undertaken many initiatives, sponsored a lot of other schemes, and supported multiple programs with the sole objective of boosting the prosperity of the rural areas. It has its share of shortcomings and struggles, but NABARD has proven to be a crucial institution when it comes to the development of the rural economy.


[1] Mahatma Gandhi’s writings, philosophy, audio, video, and photographs, available at: (last visited on October 24, 2020).

[2] Minu Singh, NABARD – An appraisal of its working (2017) (Unpublished Ph.D. thesis, Banaras Hindu University) available at: (last visited on October 24, 2020).

[3] Citizen’s Charter, National Bank for Agriculture and Rural Development Bank, available at: (last visited on October 24, 2020).

[4] The National Bank for Agriculture and Rural Development Bank, 1981 (Act 61 of 1981),s.1.

[5] Supra note 3.

[6] Dr. Ramakrishna, “NABARD: A Financial Inclusion through Regional Rural Banks in India” 2 International Journal of Trend in Scientific Research and Development 257 (2018).

[7] Rural Income: Some Evidence of Effect of Rural Credit During Last Three Decades, Reserve Bank of India, available at: (last visited on October 24, 2020). 

[8] Ibid.

[9] Ibid.

[10] Ibid.

[11] Supra note 2 at 17.

[12] Supra note 3.

[13] The National Bank for Agriculture and Rural Development Bank, 1981 (Act 61 of 1981), s. 5(1).

[14] Id, s. 6(1).

[15] Supra note 3.

[16] Supra note 13, s. 21(1).

[17] Id, s. 22.

[18] Id, s. 25.

[19] Id, s. 27.

[20] Id, s. 27A.

[21] Id, s. 38.

[22] Particulars of its organization, functions, and its duties, available at: (last visited on October 24, 2020).

[23] Rural Infrastructure Development Fund, National Bank for Agriculture and Rural Development Bank, available at: (last visited on October 29, 2020).

[24] RIDF- Eligible Categories of Projects available at: (last visited on October 29, 2020).

[25] Business Initiatives Department, (last visited on October 29, 2020).

[26] Long Term Irrigation Fund, National Bank for Agriculture and Rural Development Bank, available at:  (last visited on October 29, 2020)

[27] Supra note 22.

[28] Objective of TDF, available at: (last visited on October 29, 2020).


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