Why in news recently?
(A Bill to increase the authorised share capital of NABARD was passed by the Parliament.)
Author: Krishnadas Rajagopal
The National Bank for Agriculture and Rural Development (NABARD) Act, 1981 has been amended to boost the rural and agricultural sector. The amendments recognise the vital role of micro, small and medium enterprises (MSMEs), as defined under the MSME Development Act of 2006, in rural entrepreneurship and are intended to make financing easier for them.
The 1981 Act was enacted to establish a development bank to provide and regulate credit and other facilities in order to promote and develop agriculture, small-scale industries, cottage and village industries, handicrafts, and allied economic activities in rural areas.
Factors which necessitated amendments to the 1981 Act:
With its expanding activities, NABARD needed to be provided with additional equity from time to time to enable it to meet its objectives. For example, certain existing commitments of NABARD relating to the long-term irrigation fund and enhanced refinance support to cooperative banks required urgent infusion of equity.
As the current authorised capital of NABARD is fully paid-up, there was a need to increase it to enable the Central government to infuse additional equity as and when required.
The Reserve Bank of India (RBI) holds 0.4% of the paid-up capital of NABARD. The remaining is held by the Central government. This causes conflict in the RBI’s role as banking regulator and shareholder in NABARD.
The government said its focus was on the employment potential in rural areas, medium enterprises, and handlooms. It proposed to include these enterprises in the ambit of refinance activities of NABARD.
The NABARD (Amendment) Bill, 2017 provides for empowering the Central government to increase the authorised capital of NABARD from Rs. 5,000 crore to Rs. 30,000 crore in consultation with the RBI. The amendments primarily seek to transfer the RBI’s balance equity of Rs. 20,000 crore in NABARD to the Central government.