For a country in which a large share of the population still depends on farming and allied activities, the flow of credit to villages is a matter of national importance. NABARD, the National Bank for Agriculture and Rural Development, is the institution that sits at the centre of that flow. It does not usually lend directly to a farmer at a village counter. Instead, it works through banks, cooperatives and other institutions, supplying them with funds, supervising several of them and shaping the policies under which rural credit reaches the field.
Established in 1982, NABARD took over functions that had earlier been scattered between the Reserve Bank of India and other bodies, and gave rural finance a single apex institution with a developmental mandate. Over the decades it has financed irrigation, roads and storage through the Rural Infrastructure Development Fund, nurtured the world’s largest self-help group movement through bank linkage, and supported the Kisan Credit Card and the cooperative credit structure. This explainer describes how NABARD came about, what it does, and why it matters for rural India.
Quick Facts
| Full name | National Bank for Agriculture and Rural Development |
|---|---|
| Established | 12 July 1982, under the NABARD Act, 1981 |
| Recommended by | The Committee to Review Arrangements for Institutional Credit for Agriculture and Rural Development, headed by B. Sivaraman, in 1979 |
| Headquarters | Mumbai, with regional offices in state capitals |
| Predecessors absorbed | The agricultural credit functions of the Reserve Bank of India and the Agricultural Refinance and Development Corporation |
| Nature | Apex development and refinance institution for agriculture and rural India |
| Ownership | Held by the Government of India, following the transfer of the Reserve Bank’s earlier stake |
| Key funds and programmes | Rural Infrastructure Development Fund, SHG-Bank Linkage Programme, Kisan Credit Card support, Watershed and Tribal Development Funds |
| Supervisory role | State cooperative banks, district central cooperative banks and Regional Rural Banks |
Why India Needed an Apex Rural Bank
At independence, Indian farmers depended heavily on moneylenders, whose interest rates were high and whose terms often trapped borrowers in debt. The All India Rural Credit Survey of the early 1950s documented how little formal credit reached villages and recommended a strong cooperative structure supported by the state. Over the following years the government nationalised the Imperial Bank of India to create the State Bank of India in 1955, with a mandate to extend banking to rural areas, and in 1969 it nationalised the major commercial banks to widen the reach of banking.
The Green Revolution of the 1960s increased the demand for credit as farmers began buying seeds, fertilisers, pumps and machinery. The Reserve Bank had set up an Agricultural Credit Department in the 1930s and later the Agricultural Refinance Corporation, which became the Agricultural Refinance and Development Corporation in 1975. But responsibilities were divided, expertise was fragmented and there was no single body to coordinate the entire effort. The need for a dedicated apex institution became clear.
The problems it was meant to solve
- Weak cooperative credit societies with poor recoveries and thin capital.
- Limited refinance available to commercial banks for rural lending.
- Poor coordination between short-term crop loans and long-term investment credit.
- Little attention to non-farm rural activities such as crafts, cottage industries and village enterprises.
The Sivaraman Committee and the Birth of NABARD
In 1979 the Reserve Bank appointed a committee under B. Sivaraman to review the arrangements for institutional credit for agriculture and rural development, popularly called CRAFICARD. The committee found that the existing machinery lacked the focus, the integration of credit with development, and the field-level orientation that rural India needed. It recommended the creation of a new apex body that would combine the credit functions of the Reserve Bank with the work of the refinance corporation, and that would also look after rural development in a broader sense.
Parliament accepted the recommendation and passed the National Bank for Agriculture and Rural Development Act in 1981. The bank began operations on 12 July 1982 and was formally dedicated to the nation in November that year. It took over the agricultural credit functions of the Reserve Bank, including its Agricultural Credit Department and the Rural Planning and Credit Cell, and the Agricultural Refinance and Development Corporation merged into it.
Ownership and governance
NABARD began with capital contributed by the Government of India and the Reserve Bank, and over time the shareholding has shifted entirely to the government. A chairperson appointed by the Centre heads the organisation, supported by a board that includes representatives of the government, the Reserve Bank, state governments, cooperative banks and experts in agriculture and rural development. The Mumbai headquarters coordinates regional offices across the states and Union Territories, and district development managers work at the district level to link banks and local needs.
Mandate and Core Functions
NABARD describes its mission as the promotion of sustainable and equitable agriculture and rural development through participative financial and non-financial interventions, innovations, technology and institutional development. In practice its functions fall into three broad categories.
Credit functions
NABARD provides refinance to commercial banks, cooperative banks and Regional Rural Banks against the loans they make for agriculture, allied activities and rural industries. It also lends to state governments for infrastructure and provides long-term finance for projects that improve productivity.
Development functions
The bank prepares district-level potential linked credit plans, finances capacity-building, promotes producer organisations and farmers’ clubs, supports watershed development and conducts research and surveys on rural finance.
Supervisory functions
NABARD inspects and supervises state cooperative banks, district central cooperative banks and Regional Rural Banks, and provides guidance to the cooperative credit structure on governance and financial health. Its role complements that of the Reserve Bank, which retains the regulatory power over the banking system as a whole.
Refinance: The Engine of Rural Credit
The word refinance sits at the heart of NABARD’s work. When a commercial bank, cooperative bank or Regional Rural Bank makes a loan for a tractor, a dairy unit or a farm pond, NABARD can reimburse a portion of that lending, giving the bank fresh funds to lend again. Refinance reduces the burden on the lending bank and makes rural loans more attractive in a market where such loans are seen as risky and costly to administer.
What refinance supports
- Short-term credit: crop production loans, often extended through the Kisan Credit Card.
- Investment credit: minor irrigation, farm mechanisation, plantations, land development, dairy, poultry, fisheries and storage.
- Non-farm sector credit: handloom, handicrafts, village industries and small rural enterprises.
- Cooperative lending: loans made by cooperative banks to primary agricultural credit societies and from them to members.
The money NABARD lends comes from several sources, including borrowings from the Reserve Bank and the government, funds raised through bonds in the market, and deposits placed with it by banks that fall short of their priority sector lending targets. This last source ties NABARD closely to the policy of priority sector lending, under which banks must direct a part of their credit to agriculture and other designated sectors.
Rural Infrastructure Development Fund
One of NABARD’s most significant instruments is the Rural Infrastructure Development Fund, known as RIDF. It was set up in 1995-96 with a specific purpose: to help state governments complete rural infrastructure projects that had been left half-done for want of funds. Commercial banks that failed to meet their priority sector targets for agriculture were required to deposit the shortfall with NABARD, and these deposits formed the corpus of the fund.
What RIDF finances
- Irrigation projects, from minor irrigation schemes to flood protection works.
- Rural roads and bridges that connect villages with markets.
- Soil conservation, watershed management and drinking water.
- Social sector assets such as primary schools and health facilities in rural areas.
- Storage and market infrastructure, including cold chains and warehouses.
The fund has been replenished in tranches over many years and has become a major route through which state governments obtain long-term, low-cost finance for rural assets. Alongside it, NABARD has managed several dedicated funds, such as those for long-term irrigation, micro irrigation, warehousing and dairy processing infrastructure.
Self-Help Groups and Microfinance
NABARD has been a pioneer in linking informal groups of poor people, especially women, with formal banks. The idea was tested as a pilot in 1992 and mainstreamed within a few years as the SHG-Bank Linkage Programme. Under this model, a group of around ten to twenty members pools small savings, lends to its own members for emergencies and small ventures, and builds a track record. A bank can then lend to the group as a whole, relying on peer pressure and the group’s discipline rather than collateral.
Why the model mattered
- It brought millions of rural households into the formal financial system without requiring collateral.
- It strengthened the position of women, who form the majority of members in most groups.
- It reduced reliance on moneylenders and improved repayment performance for banks.
- It created a platform on which later schemes, including livelihood missions, could build.
The programme grew to become one of the largest microfinance initiatives in the world by the number of households reached. NABARD supports it through promotional grants, training, and refinance to the banks that lend to the groups, and it also supports joint liability groups for tenant farmers who lack land titles.
Kisan Credit Card and Short-Term Agricultural Finance
The Kisan Credit Card was introduced in 1998 on the basis of a model scheme prepared by NABARD. It gives farmers a flexible revolving line of credit to meet cultivation expenses, so that they do not have to apply for a new loan each season. The card is supported by a passbook, and the credit limit is based on the size of the landholding and the cropping pattern. Over time, the facility has been extended to those engaged in animal husbandry and fisheries.
The card illustrates the way NABARD operates. It designs a model, convinces banks to adopt it, offers refinance and monitors its progress, while the actual lending is done by the banks. Interest subvention schemes of the government, which reduce the effective rate for prompt repayers, work through the same channel. The card also allows farmers to obtain credit at lower rates than those charged by informal lenders, and it is a key instrument in the push for financial inclusion.
Cooperative Banks and Regional Rural Banks
The structure of rural credit in India has two strands: cooperatives and Regional Rural Banks. NABARD has a supervisory and developmental role in both.
The cooperative credit structure
Short-term cooperative credit follows a three-tier pattern: primary agricultural credit societies at the village level, district central cooperative banks at the district level and state cooperative banks at the state level. Long-term credit has traditionally been provided through agriculture and rural development banks. NABARD refinances the upper tiers and inspects them, and it has supported reform and recapitalisation programmes to strengthen the structure.
Regional Rural Banks
Regional Rural Banks were established in 1975 under a law passed in 1976, with a mix of ownership by the Union government, a sponsor bank and the state government. They were designed to combine the local feel of cooperatives with the professional character of commercial banks and to serve small and marginal farmers, artisans and labourers. NABARD supports them with refinance and supervises them, and it has been involved in efforts to merge and consolidate them into larger, stronger units.
| Institution | Level | NABARD’s role |
|---|---|---|
| Primary agricultural credit society | Village | Indirect support through the higher tiers; promotion of computerisation and governance |
| District central cooperative bank | District | Refinance and supervision |
| State cooperative bank | State | Refinance and supervision |
| Regional Rural Bank | Region within a state | Refinance, supervision and support for consolidation |
| Commercial bank | National | Refinance for rural lending; the Reserve Bank remains the regulator |
Development Work Beyond Banking
NABARD is more than a financier. It runs a series of developmental programmes that go beyond lending and are often funded from dedicated funds.
- Watershed development: support for participatory projects that conserve soil and water in rain-fed areas.
- Tribal development: the Tribal Development Fund finances orchard-based livelihoods known as wadi projects, in which tribal families are helped to plant and maintain fruit trees.
- Farmer producer organisations: support for the formation and strengthening of producer companies and groups, which help small farmers bargain collectively and reach markets.
- Financial inclusion: a dedicated fund for promoting digital payments, banking correspondents and awareness programmes.
- Research and surveys: periodic nationwide surveys of rural finance and inclusion, which inform policy.
- Consultancy and subsidiaries: a consultancy arm and financial services subsidiaries that provide advisory support and lend to selected segments.
These activities reflect the original idea behind the Sivaraman Committee, which wanted credit to be linked to development rather than treated as an end in itself.
Role in the Rural Economy and Policy
NABARD’s influence on rural India can be understood through several channels. First, it is a bridge between national policy and village finance. When the government announces a new thrust, such as support for animal husbandry, cold storage or farm mechanisation, NABARD is often the institution that designs the financing mechanism and channels the funds.
Second, it plays a planning role. Through potential linked credit plans for each district, it estimates the scope for investment in agriculture and rural activities and helps banks align their lending. Third, it acts as a knowledge institution, bringing out reports on rural credit, climate and agriculture that are widely used by policymakers.
Complementing the Reserve Bank
The Reserve Bank of India remains the central bank and the banking regulator, while NABARD is a development finance institution with specific supervisory functions. The division of labour allows the Reserve Bank to focus on monetary policy and overall financial stability, while NABARD concentrates on the specialised needs of the rural economy.
Challenges and the Road Ahead
Despite decades of effort, rural credit in India faces persistent challenges, and NABARD is deeply involved in addressing them.
- Weak cooperatives: many cooperative banks and societies still struggle with governance, recoveries and capital.
- Small landholdings: the average farm is small, which makes loans costly to administer and limits scale.
- Climate risk: erratic monsoons, droughts and floods make agricultural lending risky, and NABARD has increasingly focused on climate finance and adaptation.
- Tenant farmers and landless workers: those without land titles find it difficult to get loans.
- Digital transition: the shift to digital payments and records offers a chance to reduce costs but requires investment in rural connectivity and skills.
The emphasis is gradually moving from supplying credit to building resilient value chains, from producing crops to processing and marketing them, and from loans to integrated support that includes insurance, technology and market access.
Conclusion
NABARD occupies a distinctive place in India’s financial architecture. Born from a committee report and an Act of Parliament, it brought coherence to a patchwork of rural credit arrangements and added a developmental purpose to the business of refinance. Its programmes, from the Rural Infrastructure Development Fund to the SHG-Bank Linkage Programme and the Kisan Credit Card, have shaped the way finance reaches villages. As agriculture adapts to climate pressures, changing markets and technology, NABARD’s role as the apex institution for rural development is likely to remain central.
Frequently Asked Questions
What does NABARD stand for and when was it set up?
NABARD stands for the National Bank for Agriculture and Rural Development. It was established on 12 July 1982 under the NABARD Act of 1981, following the recommendations of the Sivaraman Committee, and it is headquartered in Mumbai.
Does NABARD lend directly to farmers?
Mostly not. NABARD is an apex refinance and development institution that works through commercial banks, cooperative banks and Regional Rural Banks, which make loans to farmers and rural enterprises. NABARD reimburses a portion of that lending through refinance, and it lends directly to state governments and certain institutions.
What is the Rural Infrastructure Development Fund?
The Rural Infrastructure Development Fund, or RIDF, was created in 1995-96 to help state governments finish rural infrastructure projects such as irrigation, roads, bridges and storage. It was funded originally from deposits made by banks that fell short of their priority sector lending targets for agriculture.
What is the SHG-Bank Linkage Programme?
It is a programme that connects self-help groups of rural poor, mostly women, with banks so that the groups can borrow without collateral based on their savings and repayment record. NABARD began it as a pilot in 1992 and it grew into one of the world’s largest microfinance movements.
What role does NABARD play in supervising cooperative banks?
NABARD inspects and supervises state cooperative banks, district central cooperative banks and Regional Rural Banks, and guides them on governance and financial health. The Reserve Bank of India continues to be the overall regulator of the banking system.
How is NABARD different from the Reserve Bank of India?
The Reserve Bank of India is the central bank, responsible for monetary policy and banking regulation, while NABARD is a development finance institution focused on agriculture and rural development. NABARD took over the Reserve Bank’s agricultural credit functions in 1982.
