Role and Function NABARD

NABARD is set up as an apex Development Bank with a mandate for facilitating credit flow for promotion and development of agriculture, small-scale industries, cottage and village industries, handicrafts and other rural crafts. It also has the mandate to support all other allied economic activities in rural areas, promote integrated and sustainable rural development and secure prosperity of rural areas.

NABARD was established on the recommendations of Shivaraman Committee, by an act of Parliament on 12 July 1982 to implement the National Bank for Agriculture and Rural Development Act 1981. It replaced the Agricultural Credit Department (ACD) and Rural Planning and Credit Cell (RPCC) of Reserve Bank of India, and Agricultural Refinance and Development Corporation (ARDC). It is one of the premier agencies to provide credit in rural areas.RBI sold its stake in NABARD to the Government of India, which now holds 99% stake.

Bank's Primary and Secondary Reserves

Primary Reserves

Primary reserves consist of cash on hand in the bank and deposits owed to it by other banks. These are also called the legal reserves. From this cash on hand tellers are able to meet customer demands for withdrawals, exchanges, and loans. Any excess reserves may be invested in larger banks in the form of the loans; in the United States these are called federal funds. Primary Reserve also called “First line of Defense”.

Total cash required to support the operations of a bank, legal or mandatory reserve requirements, and uncollected checks. Primary reserves cannot be loaned or invested, but may be used in a liquidity crisis caused by sudden and heavy cash withdrawals by bank's depositors.

Secondary Reserves

Assets invested in short-term marketable securities, usually Treasury bills and short-term government securities. Legal reserve kept in a Central Reserve Bank don't earn interest, but secondary reserves are a source of supplemental liquidity. These earn interest and can be used to adjust a bank's reserve position. If loan demand is slow, deposit funds often are invested in short-term securities that are easily converted to cash. Secondary reserves are not listed as a separate balance sheet item. Secondary Reserve also called “Second line of Defense”.