The National Bank For Agriculture And Rural Development Act, 1981

The National Bank For Agriculture And Rural Development Act, 1981 enacted by the Parliament on 30.12.1981 by Act No. 61 of 1981 and made various amendments to the Act in different years vide Act No.81 of 1985, Act No.66 of 1988, Act No. 55 of 2000 and Act No. 48 of 2003.  The purpose behind the enactment of the said Act is to provide and regulate the credit and other services vide a development bank established  by name National Bank and Agriculture and Rural Development (NABARD) to develop the agricultural sector as well as to assist financially to small-scale industries, cottage and village industries, handicrafts and other rural crafts and other allied economic activities related to agricultural sector particularly in rural areas and to and regulate the credit and other facilities . The said Act extends to whole of India .

Chapter I of the said Act provides the definitions for various important words used in the Act in different contexts.  Under the Act, the word “agriculture” includes horticulture, animal husbandry, forestry, dairy and poultry farming, pisciculture, and other allied activities, whether or not undertaken jointly with agriculture and the word “agricultural operations” be interpreted accordingly . Also we noted definitions for few main words such as “Agricultural Refinance and Development Corporation”, “marketing of crops” , “central co-operative bank”, “primary rural credit society”  and few other words as such. The meaning given for Marketing of Crops is that the process of crops made before marketing by any agricultural producers or any organisation of such producers.  Chapter II of the Act explained the establishment of National Bank for Agriculture and Rural Development by the Central Government for the purposes mentioned in the said Act.  As per the Act, capital for National Bank for Agriculture and Rural Development is to be above One Hundred Crores and up to the maximum limit of rupees Five Thousand Crores.  Also it is stated that shareholding of the Central Government and Reserve Bank shall not be less than 55% of the total subscription. Upon enactment of the said Act, all the business affairs, properties, assets , liabilities, rights, interests, privileges and obligations of Agricultural Refinance and Development Corporation be transferred and vested in the National Bank, consequently Agricultural Refinance and Development Corporation stood dissolved and the Agricultural Refinance and Development Corporation Act, 1963 repealed thereof.

Under Section 19 of Chapter V, the National Bank has been given power to issue or sell security bonds/financial instruments of the Central Government, to borrow money from Reserve Bank or Central Government, or could receive any gifts, grants, donations or benefits from Central Government, to enable the Bank to carryout its functions listed therin.  Act exempted all these transactions from the purview of Foreign Exchange Management Act, 1999.

The main purpose of the Act is explained in Chapter VI, which would be the credit functions of the National Bank.  Under Section 21, the National Bank has been given authority to refinance the State Cooperative banks, Central Cooperative banks, regional rural banks and to any financial institutions in the form of loans and advances whether on demand or on expiry of stipulated period of not more than 18 months.  The financing under Section 21 limited to the activities related to agricultural operations or marketing of crops, for rural development, for bona fide commercial or trade transactions, for production or marketing activities of artisans engaged with handicrafts and rural crafts, and also for providing loans against securities other than immovable property to any State Co-Operative Banks .  The Act provided powers under Sections 22 and 23, to the National Bank to provide financial assistance to the State and Central Cooperative Banks and other financial institutions approved by Reserve Bank to enable such banks to refinance any loans and advances offered to artisans, small-scale industries, industries in the tiny and decentralised sector, village and cottage industries at the time of natural calamities and those engaged in the field of handicrafts and other rural crafts.  However, there is a precondition given under provision of the said Sections that such assistance could be provided only towards repayments due to National Bank and also could be made only if the State Government offers any guarantee for repayment of principal and interest to the National Bank to ensure that these financial assistance could come under the purview of State Government, so that State Government would check the norms for approving such loans and advances to the right parties.

The National Bank may also arrange financial facilities or may refinance under Section 25 to a State land development bank or a State cooperative bank or a scheduled bank or any other financial institution approved by RBI by the way of issuing loans or advances, or by purchasing or selling security bonds of the banks to promote agriculture and rural development.

            National Bank has been given power to provide loans and advance to State Governments from the National Rural Credit (Long Term Operations) Fund created under section 42 to subscribe directly or indirectly to the share capital of a co-operative credit society

It is also noticeable that Act has given National Bank, a discretionary power under Section 34, to issue notice in writing to the borrower even though contrary to the agreement or arrangement whatsoever, if it is found that borrower obtained loan from the bank in fraudulent manner, or if it is found that the borrower has no means to pay the debts or if the borrower failed to comply the terms of such agreement or arrangement in order to protect the interests of the National Bank.

National Banks under Act not only function in providing financial assistance, but also involve in other functions as specified in Chapter VII.  It is noticed that National Bank is obliged to maintain the expert staff to study the problems pertinent to agriculture and rural development and do arrangements to promote research activities in the said fields, also provide assistance and consultancy services to the persons involved in such activities.

The National Bank in consultation with RBI authorized to promote, form or manage or associate itself in promotion, formation or management of companies, subsidiaries, affiliates, societies, trusts or such other association of persons in order to carryout functions under the said Act.

Section 38C could be a added advantage for National Bank to perform its activities with ease as the Act exempted the National Banks from the provisions related to compulsory registration of documents under Section 16 of Registration Act, of the Certificate of beneficial interest or any other instruments issued to secure the loans granted or the transfer of instruments.

Chapter VIII of the Act gives the information about different Funds created to perform its functions laid down under this Act.  Section 42 mandates The National Bank to establish National Rural Credit (Long Term Operations) Fund to be utilized only to provide financial assistance loans and advances granted under section 23, section 24, 25 (1)  or section 27 or for the purposes of section 26.  Under Section 43, National Bank has been instructed to maintain  National Rural Credit (Stabilisation) Fund to provide loans and advances under section 22. Establishment and maintenance of Fund under Section 44  known as the Research and Development Fund, to employ for  agriculture, agricultural operations and rural development, training and research facilities and to make loans or advances or under section 38 (iii).  Section 45 obliged the National Bank to maintain Reserve Fund .  The Act also mandated the National Bank to submit Account statements pertinent to the above funds within the stipulated period specified in the Act to the Central Government.

Act also has certain provisions providing the legal proceedings under Section 57 of the Act that are to be taken against the company or its officer in charge of the company at the time when offence committed to protect the interests of the National Bank .

The National Bank also empowered to make regulations under the Act with prior approval of Central Government after consulting with the Reserve Bank of India for the matters listed therein under Section 60 of the Act.

To conclude, The National Bank for Agriculture And Rural Development Act, 1981 is found to be very effective for the Central and State Governments to provide financial assistance, advisory and consulting services to the small scale industrialists especially in the field of agriculture, agricultural operations and other activities related to the agriculture and rural development.  The Act has given adequate powers to the National Bank established specially under the Act to promote agriculture and rural development in the aspects of economy. At the same time, the Act also given appropriate measures to ensure that the funds maintained and to be utilized only for the said activities specified in the Act. It also made provisions for recruiting the experts in the given areas to provide assistance to the agriculturists and other beneficiaries under Act in the form advices and consultation services. Also Act given powers to the National Bank to take action against the borrowers who obtained loans from the National Bank in fraudulent manner, to protect the interests of the National Bank. The legislation is overall a complete statute which has covered all areas; in particular, development aspects in the field of agriculture especially, who are the back bone of our country, special assistance during the time of unprecedented circumstances like natural calamities, and also provision of loans even to the Central/State Governments to enable them to provide assistance to the cooperative banks who in turn provide assistance to the ultimate producers.

by Priyadarshini Chandrasekar