Aim is to consolidate role as banking regulator

C. Shivkumar

Bangalore, July 9 The Reserve Bank of India is likely to transfer its stake in National Bank for Agriculture and Rural Development (Nabard) to the Government, after completing the State Bank of India equity transfer.

Highly placed Nabard officials said that the discussions were still underway on the methodology for transfer.

The RBI holds 72.5 per cent stake in Nabard or Rs 1,450 crore of the paid-up equity of Rs 2,000 crore. The remaining 27.5 per cent or Rs 550 crore is held by the Centre. Nabard has an authorised capital of Rs 5,000 crore. The stake transfer proposal comes as Nabard enters its 25th year of operations.

The officials said that the RBI preferred to consolidate its role as the banking supervisor/regulator. Consequently the move is to limit commercial/financial interests in any banking/financial institution, including Nabard. This is also one of the major reasons that prompted the transfer of SBI equity to the Government.

However, there are a few statutory impediments, requiring amendments to the NABARD Act. This is because, under Section 4(2) of the Nabard Act, the Government and the RBI’s holdings are expected to be 51 per cent at any point of time.

Nabard is the refinancing agency for agriculture and rural development in the country extending refinancing and co-financing support to commercial, cooperative and regional rural banks (RRBs).

In addition, it also oversees the functioning of the RRBs, cooperative banks and state agriculture cooperative rural development banks. This oversight includes inspecting the books of all the institutions supervised by it.

However, the main obstacle for the transfer of RBI’s stake is from some state governments.

State governments, the officials, said were one of the biggest beneficiaries, through refinance support extended to state cooperatives and RRBs.

Nabard also provides alerts of any impending problems in cooperative banks, for corrective action.

Its refinance rates to cooperative and commercial banks currently range between 6.5 and 8 per cent depending on the category. In addition, the agency also provides loans at 11 per cent to cooperative sugar factories against sugar stocks.

Currently Nabard’s resources are largely generated internally and through borrowings from the markets. This is because the RBI has reduced its refinance support to contain expansion of high powered money.

Market borrowings were 16.1 per cent of the gross working funds in 2002. In 2006, market borrowings comprised 35 per cent of gross working funds.

Most of Nabard’s recent resource raising from the financial markets recently were at rates of over 9.5 per cent. The spread deficit (difference between lending and borrowing rates), however, is met by subventions from the Government.

Nabard currently has a credit to risk weighted asset ratio of close to 25 per cent. This is largely because most of its advances are in the form of refinancing. Refinancing also allows it to have an almost zero net NPA status.

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