Mumbai: Management consulting firm Boston Consulting Group (BCG) is set to get the mandate for repositioning the National Bank for Agriculture and Rural Development (Nabard), the rural development agency and regulator of cooperative banks, according to a person familiar with the development.
The Reserve Bank of India (RBI), which owns a majority stake in Nabard, is expected to formally appoint BCG for its repositioning soon, said the person, who didn’t want to be named.
Eleven firms were in the fray and three of them—Ernst and Young and McKinsey and Co., besides BCG—were shortlisted for the mandate.
Banking on change: Farmers at a bank in Bharatpur, Rajasthan. There is huge scope for improving Nabard’s supervision of cooperative banks, says a senior banker, as too many of them are in poor financial health. Harikrishna Katragadda / Mint
The Boston, US-based consulting firm will advise Nabard on many critical issues, including revamping its organizational structure to address newer challenges in agriculture and its declining contribution to India’s gross domestic product (GDP).
Janmejaya Sinha, chairman for the Asia region of BCG, declined comment for this story.
RBI had set up Nabard in 1982, carving it out of its agricultural credit department, rural planning and credit cell, and merging a government-owned development agency, the Agricultural Refinance and Development Corp.
Nabard was set up to provide refinance for agriculture credit, inspect cooperative and regional rural banks, and assist in rural development.
The share of agriculture in India’s GDP dropped to 17% in fiscal 2009 despite record production of farm commodities in the 2007-08 season. Five decades ago, agriculture’s share had been at least 46%.
While the economy has been growing rapidly, at a pace behind only China, and expanded at an average of 9.4% in the three years between fiscal 2006 and 2008, average agriculture growth has been 3.5%. But 65% of India’s 1.1 billion population still depends on the farm sector for its livelihood.
According to experts, the country has to shift from the present pattern of agriculture activities and Nabard, being the nodal agency, has to reposition itself to lead the effort.
The diversification of Nabard could be a necessity to cope with the changing trend in the agriculture pattern of the country, according to Ashok Gulati, agronomist and director (Asia) at the International Food Policy Research Institute.
According to Gulati, the agriculture lending pattern has been changing to diversified agricultural activities from just cereal production.
“Earlier the need for working capital was different, now because of diversification in the agricultural pattern, the borrowing pattern is also changing,” said Gulati.
The increase in non-crop activities such as animal husbandry has also forced banks to diversify lending.
According to Gulati, the rural infrastructure development fund—set up by Nabard and the government—used to take care of major infrastructure programmes such as irrigation in rural areas, but not any more.
“Farmers don’t readily get loans for their working capital from banks. Nabard has been and should continue to persuade banks to introduce newer forms of lending,” he added.
One of the main problems in agriculture is to increase investment by the farmers themselves. While public investment is increasing in building rural infrastructure, private investment has been declining steadily.
“Farmers are also losing interest in farming as farm productivity is coming down and they are not getting adequate yields on their investments,” said Gulati, adding that through its credit and tariff policies, Nabard could help improve the situation.
A senior banker, who does not want to be identified, said there was huge scope for improving Nabard’s supervision of cooperative banks. Not too many cooperative banks are in the pink of health and RBI has forced the closure of quite a few of them.
The cooperative credit structure in India consists of primary agriculture credit societies, district central cooperative banks and state cooperative banks.
Collectively, these banks account for at least 65% of rural credit outlets. They play a major role in advancing crop loans and term loans for agriculture and allied activities.
The repositioning of Nabard is key to the revival of cooperative banks, said the banker.