The National Bank for Agriculture and Rural Development Act, 1981

Summary of the National Bank for Agriculture and Rural Development Act, 1981
The National Bank for Agriculture and Rural Development (NABARD) Act, 1981 was enacted by the Parliament of India to establish the National Bank for Agriculture and Rural Development (NABARD) as the apex development financial institution for agriculture, rural development, and allied sectors. The Act came into force on 12 July 1982, and NABARD commenced operations on 15 July 1982, taking over the agricultural credit functions of the Reserve Bank of India and the Agricultural Refinance and Development Corporation (ARDC).
Objectives
The main objectives of the Act are to:
• Promote sustainable agriculture and rural development.
• Provide and regulate credit for agriculture, cottage and village industries, handicrafts, small-scale industries, and other rural economic activities.
• Strengthen rural financial institutions.
• Support integrated rural development through refinance, planning, and policy initiatives.
• Improve rural infrastructure and enhance financial inclusion.
Key Provisions
1. Establishment of NABARD
The Act establishes NABARD as a statutory body corporate with perpetual succession. It has the power to:
• Acquire, hold, and dispose of property.
• Enter into contracts.
• Sue and be sued in its own name.
2. Management of the Bank
The affairs of NABARD are managed by a Board of Directors, comprising:
• A Chairperson.
• A Managing Director (or Managing Directors, as provided by later amendments).
• Directors nominated by the Central Government.
• Directors representing the Reserve Bank of India (RBI), State Governments, cooperative institutions, commercial banks, and experts in agriculture, economics, rural development, and finance.
The Central Government appoints the Chairperson and Managing Director(s) in consultation with the RBI.
3. Functions of NABARD
The Act assigns NABARD several important functions, including:
• Providing refinance to cooperative banks, regional rural banks (RRBs), commercial banks, and other eligible financial institutions for agricultural and rural lending.
• Promoting institutional development and strengthening rural credit systems.
• Preparing rural credit plans and coordinating rural financing.
• Supporting agriculture, allied activities, rural industries, self-help groups (SHGs), microfinance, and farmer-producer organisations (FPOs).
• Financing rural infrastructure projects through dedicated funds.
• Undertaking research, training, consultancy, and capacity-building in agriculture and rural development.
• Monitoring and evaluating rural development programmes.
4. Financial Resources
The Act provides for NABARD's financial resources through:
• Initial capital subscribed by the Central Government and the RBI (with subsequent amendments enabling changes in shareholding).
• Borrowings from the Central Government, RBI, financial institutions, and international agencies.
• Issue of bonds and debentures.
• Deposits and other approved sources of funds.
5. Powers of NABARD
NABARD is empowered to:
• Grant loans and advances.
• Provide refinance facilities.
• Inspect and supervise eligible financial institutions receiving its assistance.
• Advise the Central and State Governments on rural credit and development policies.
• Promote innovation and institutional reforms in rural finance.

Legislative History:

The National Bank for Agriculture and Rural Development Act, 1981

● Act Title - The National Bank for Agriculture and Rural Development Act, 1981

● Act Number / Year - 61 of 1981

● Act ID (India Code) - 198161

● Presidential Assent Date - December 30, 1981

● Enforcement Date -May 1, 1982

● Nodal Ministry - Ministry of Finance

Precedent & Historical Rationale

● CRAFICARD Recommendations (1979) - Enacted on the recommendation of the Committee to Review Arrangements for Institutional Credit for Agriculture and Rural Development (CRAFICARD), chaired by former RBI Deputy Governor B. Sivaraman. The committee highlighted the need for a single, focused apex entity to streamline rural credit flow.

● Consolidation of Rural Credit Architecture - Formulated to establish the National Bank for Agriculture and Rural Development (NABARD) as an autonomous apex development bank. The Act merged the functions of the Agricultural Refinance and Development Corporation (ARDC) and the specialized agricultural credit departments of the Reserve Bank of India (RBI), centralizing credit delivery, policy planning, and institutional refinance for agriculture, small-scale industries, cottage and village industries, crafts, and allied economic activities in rural areas.

Parliamentary Trajectory & Enactment

● Formulation - Introduced by the Union Ministry of Finance in consultation with the Reserve Bank of India to provide a dedicated statutory basis and developmental mandate for rural financial infrastructure.

● Parliamentary Passage - Debated and passed by both Houses of Parliament (Seventh Lok Sabha and Rajya Sabha) during the winter session in November–December 1981.

● Presidential Assent - Received Presidential Assent on December 30, 1981.

● Enforcement - Enforced on May 1, 1982.

Source - Official Record of Parliament, India Code,and Ministry of Finance .