The Hindu Business Line : Nabard staff fault RBI move on bonds

The All India Nabard Employees Association has said it is concerned that as per the Reserve Bank of India decision, from April 1, 2007, the bonds issued by Nabard (National Bank for Agriculture & Rural Development) will not be treated as priority-sector bonds for the purpose of qualifying as lending to agriculture and small industries, with the result that subscription to these bonds by banks will drop significantly.

The association, in a statement, said it was surprised to note that banks' subscriptions to the bonds issued by non-banking financecompanies (NBFCs) however, would continue to be recognised for the purpose of financing to agriculture and SSI units. The subscription to SIDBI bonds, mainly by foreign banks to make up the shortfall in their priority sector lending, too would continue.

`Palpable discrimination'

Describing it as "a palpable discrimination by the RBI against its own subsidiary Nabard vis-à-vis NBFCs and others," the association said future agriculture and rural development would suffer as a result.

Nabard, it said, is already facing a resource crunch, more so because the central bank has drastically cut down on its contributions to the National Rural Credit Long Term Operations Fund and the National Rural Credit Stabilisation Fund, both maintained and run by Nabard to support medium and long-term lending to agriculture.

Such a pruning, the association felt, is in violation of the relevant provisions of the NABARD Act 1981 and RBI Act 1934.

The RBI had also reduced its contribution to the General Line of Credit run by Nabard to support short-term finances for agricultural operations. This, in turn, had hit the agricultural cooperative societies, most of which, being in bad shape, turn to Nabard for help, it said.

Reversal sought

As a cumulative effect of all this, Nabard was being forced to raise resources from the market at a cost and lend at higher rates, thus hurting the ultimate borrowers, the farmers.

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Nabard staff fault RBI move on bonds