Union Cabinet approved short term market borrowing by NABARD

The Union Cabinet on 24 January 2017 gave its post-facto approval to a series of decisions related to the National Bank for Agriculture and Rural Development (NABARD).

The approval was given at a Cabinet meeting chaired by Prime Minister Narendra Modi in New Delhi.

The decisions for which approval was given are –

• National Bank for Agriculture and Rural Development (NABARD) is allowed to make short term borrowings at the prevailing market rate of interest for about Rs 20,000 crore.

• The money raised will be utilized to lend to cooperative banks at 4.5 per cent rate of interest.

• Additional capital of Rs 2,000 crore will be provided to NABARD for this purpose through the Union Budget.

• To start with, additional capital of Rs 500 crore may be released to NABARD during the 2016-17 financial year itself.

• Interest subvention of about 1.8 per cent and NABARD's administrative cost of 0.2 per cent to be provided as per the scheme of Department of Agriculture, Cooperation and Farmers Welfare (DAC&FW). The extent of interest subvention may vary depending on the rate at which NABARD raises funds.

• The NABARD will coordinate the conversion of operative Kisan Credit Cards (KCCs) into RuPay or ATM-enabled KCCs by cooperative banks and Regional Rural Banks (RRBs) in a mission mode.

Why the Union Cabinet approved these decisions?

• In the light of a good monsoon and expectation of increased credit demand, the farmers need to be supported through cooperative banks.

• The approval will ensure increased availability of short term crop loans to farmers through cooperative banks at a reduced rate of interest.

• The conversion of operative KCCs into RuPay or ATM-enabled KCCs will enable easy and hassle free availability of credit.

• The decision of the Cabinet is also in tune with the spirit of Digital India campaign that seeks to facilitate digital and cashless transactions by farmers.