MICROCAPITAL BRIEF: National Bank for Agriculture and Rural Development (NABARD): Non-Performing Assets (NPAs) Owed by Self-Help Groups (SHGs) in India Rise 50% to $400m

The National Bank for Agriculture and Rural Development (NABARD), an institution of the Indian government, released a report entitled “Status of Microfinance in India, 2011-12” that indicates that non-performing assets (NPAs) owed by self-help groups (SHGs) in the country were increasing and that lenders were cutting back their exposure to SHGs as a result. SHGs are village based financial intermediaries that facilitate microcredit and saving. They are most common in India and are generally comprised of up to two dozen women.

According to the report, the gross NPA against SHG loans went up from INR 1,474 crore (USD 270 million) to INR 2,213 crore (USD 406 million) from March 2011 to March 2012. The report further noted, “This is a matter of concern for the microfinance sector, and the causes for declining recovery rate needs to be analyzed and remedial action initiated urgently.”

Commercial banks in India are reportedly losing interest in lending to microfinance institutions (MFIs) in general, with a decrease of 38 percent in fresh lending to MFIs occurring in the past year.

NABARD formulates the credit and banking policy for the rural sector, supervises and conducts on-site inspections of cooperatives and regional rural banks (RRBs), and promotes the development of microfinance activities in the rural sector. Through its microenterprise development programme and Microfinance Development and Equity Fund, an INR 2 billion (USD 44.6 million) fund designed to support the growth of microfinance, NABARD provides loans to nonprofit microfinance institutions (MFIs) and other NGOs and agricultural lending outfits. As of March 2011, NABARD oversees 31 state cooperative banks, 370 district central cooperative banks, 86 RRBs and 18 state cooperative agricultural and rural development banks.

By Lena Phillips, Research Associate

About NABARD
The National Bank for Agriculture and Rural Development (NABARD) is a development bank in India that formulates the credit and banking policy for the rural sector, supervises and conducts on-site inspections of cooperatives and regional rural banks (RRBs) and promotes the development of microfinance activities in the rural sector. NABARD is charged with the oversight of the Microenterprise Development Programme, which focuses exclusively on the development of microenterprises. Through this program and the Microfinance Development and Equity Fund, an INR 2 billion (USD 44.6 million) fund designed to support the growth of microfinance, NABARD provides loans to nongovernmental organizations, nonprofit microfinance institutions (MFIs) and agricultural lending outfits. NABARD was formed by an act of the Indian Parliament in 1979 based on the recommendation of the Reserve Bank of India (RBI), which originally owned a controlling interest in NABARD but as of 2010 owns a 1-percent stake in the bank. While MFIs and non-banking financial companies still operate under RBI regulations, the responsibility for inspecting nonprofit MFIs, agricultural lenders, RRBs, state cooperative banks, district central cooperative banks and state cooperative agricultural and rural development banks was transferred to NABARD upon its formation in 1979. As of March 2011, NABARD oversees 31 state cooperative banks, 370 district central cooperative banks, 86 RRBs and 18 state cooperative agricultural and rural development banks. In 2010, NABARD set a fiscal year target of INR 3.75 trillion (USD 68.5 billion) for credit disbursement via commercial and government retail financial institutions. As of March 2011, they disbursed INR 4.5 trillion (USD 82.2 billion) achieving 119 percent of their target.

Between March 2011 and March 2012 NABARD’s aggregate assets increased by INR 235 billion (USD 4.3 billion) to INR 1.8 trillion (USD 33.3 billion). During the 2011-12 year NABARD promoted and linked 730,000 SHGs with the formal banking system via savings accounts compared to 600,000 in the previous year.

Sources and Additional Resources:

Business Standard: “Nabard raises concern over rising NPAs in SHG lending” by Namrata Acharya, November 27 2012, http://www.business-standard.com/india/news/nabard-raises-concern-over-rising-npas-in-shg-lending/493781/

“Status of Microfinace in India 2011-12” by NABARD: 2012, http://www.nabard.org/departments/pdf/Status%20of%20Microfinance%202011-12%20full%20book2.pdf

MicroCapital.org article, 6 December 2011: “MICROCAPITAL BRIEF: Government of Andhra Pradesh, India, Introduces Interest-Free Loans for Women in Self-Help Groups (SHGs)”, https://www.microcapital.org/microcapital-brief-government-of-andhra-pradesh-india-introduces-interest-free-loans-for-women-in-self-help-groups-shgs/

MicroCapital.org article, 11 June 2011: “MICROCAPITAL BRIEF: New Draft Bill From Ministry of Finance Would Expand Role of Reserve Bank of India (RBI) to Regulate Entire Indian Microfinance Sector, Cutting Roles of NABARD, State Governments”, https://www.microcapital.org/microcapital-brief-new-draft-bill-from-ministry-of-finance-would-expand-role-of-reserve-bank-of-india-rbi-to-regulate-entire-indian-microfinance-sector-cutting-roles-of-nabard-state-governments/#more-13007

MicroCapital Universe Profile: https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=National+Bank+for+Agriculture+and+Rural+Development+%28NABARD%29

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