The National Bank for Agriculture and Rural Development Act, 1981
The National Bank for Agriculture and Rural Development Act, 1981
Background:
The National Bank for Agriculture and Rural Development (NABARD) Act, 1981 was enacted to establish NABARD as an apex development bank in India, dedicated to promoting agriculture and rural development. NABARD plays a critical role in refinancing and supporting rural credit institutions and coordinating the development of the rural financial sector.
Before NABARD, rural credit was disorganized and fragmented, with multiple agencies lacking coordination. NABARD was set up to unify, supervise, and improve the rural credit structure.
Objectives:
To provide and regulate credit and other facilities for agriculture and rural development.
To promote integrated rural development by supporting cooperatives, banks, and financial institutions.
To serve as an apex refinancing agency for institutions providing credit for agriculture, small-scale industries, cottage industries, and rural crafts.
To support government policies aimed at rural upliftment and poverty alleviation.
To coordinate the functioning of institutions involved in rural credit.
Applicability:
NABARD’s functions extend throughout India.
It supports banks and financial institutions involved in rural credit.
Works with state cooperative banks, regional rural banks (RRBs), commercial banks, and other entities engaged in rural finance.
Key Provisions:
| Provision | Description |
|---|---|
| Section 3: Establishment of NABARD | NABARD is constituted as a corporation with perpetual succession and a common seal. |
| Section 4: Capital | Specifies authorized and paid-up capital, contributed by the Central and State Governments. |
| Section 5: Functions of NABARD | Includes refinancing, providing direct loans, undertaking research, and promoting institutions. |
| Section 6: Management | Governing Board with Chairperson, Deputy Chairperson, official and non-official members. |
| Section 7: Borrowing Powers | NABARD may borrow money from the government, banks, or others as needed. |
| Section 8: Financial Assistance | Provides loans/refinance to banks and institutions for agriculture and rural development. |
| Section 9: Promotion of Institutions | NABARD promotes rural financial institutions and supports their growth and stability. |
| Section 10: Consultancy & Training | NABARD conducts research, training, and consultancy related to rural development and finance. |
| Section 11: Reporting and Audit | Annual reports to be submitted to the Central Government; accounts audited by the Comptroller & Auditor General. |
Important Features:
NABARD acts as the apex refinancing agency for rural credit institutions.
Facilitates flow of credit for agriculture, rural industries, and allied activities.
Promotes self-sustaining rural financial institutions and cooperatives.
Supports technology, research, and training to strengthen rural credit delivery.
Coordinates rural credit policy with the Reserve Bank of India and the Government.
NABARD has financial autonomy but works in close coordination with government policies.
Relevant Case Law:
1. National Bank for Agriculture and Rural Development v. A.V. Fernandez (1992)
Issue: Whether NABARD’s role as a refinancing institution amounts to a banking activity.
Held: The court held that NABARD is a development financial institution and not a bank in the traditional sense; its functions are developmental, aimed at promoting rural credit.
Principle: Differentiation between commercial banking and development financing; NABARD’s unique role emphasized.
2. NABARD v. Union of India (2004)
Issue: Challenge regarding NABARD’s autonomy and role vis-à-vis the Government of India.
Held: The court held that NABARD enjoys statutory autonomy but is subject to policy direction by the government; its functions must align with national objectives.
Principle: Balances autonomy with accountability to government policies.
3. State Bank of India v. NABARD (2010)
Issue: Refinance obligations and recovery of loans by NABARD from RRBs and cooperative banks.
Held: Courts upheld NABARD’s power to recover dues under the Act, emphasizing contractual obligations between NABARD and borrowing institutions.
Principle: Reinforces NABARD’s authority in managing rural credit funds.
Importance and Impact:
NABARD has been instrumental in strengthening rural credit systems in India.
It supports and supervises regional rural banks, cooperative banks, and other institutions critical for rural financing.
Plays a key role in agricultural modernization, rural infrastructure, and poverty alleviation.
Provides refinancing support, which improves liquidity and reach of rural lenders.
Facilitates innovative rural finance schemes and capacity building.
NABARD’s existence has boosted coordinated efforts in rural development and financial inclusion.
Summary Table
| Aspect | Details |
|---|---|
| Act Enacted | 1981 |
| Purpose | Establish NABARD to promote and regulate rural credit and development |
| Key Functions | Refinance, direct lending, promotion of institutions, training, research |
| Governance | Board with Chairperson, Deputy Chairperson, government nominees, and experts |
| Capital | Contributions from Central and State Governments |
| Legal Status | Statutory corporation with perpetual succession |
| Scope | Nationwide, covering agriculture and allied rural sectors |
| Role | Apex development financial institution for rural India |
| Judicial Recognition | Recognized as a developmental institution with autonomy, subject to government policy |
| Impact | Strengthened rural credit, promoted rural financial institutions, supported rural development |
Conclusion:
The National Bank for Agriculture and Rural Development Act, 1981 established NABARD as the central institution for rural credit and development in India. It plays a vital role in refinancing, coordinating, and promoting rural financial institutions, thereby fostering agricultural growth and rural upliftment. The courts have recognized its unique role and statutory autonomy while upholding its accountability to government policy.
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