Nabard not averse to diversify into banking

The National Bank for Agriculture and Rural Development (Nabard), which has begun the process of restructuring its business operations, is not averse to the idea of setting up a bank, its Chairman today said.

Recently, Nabard had appointed global management consultancy firm, Boston Consulting Group (BCG) to prepare a report to restructure and diversify its operations to leverage its expertise in refinancing.

"Without compromising our primary mandate, which is refinancing and supporting the needs of agriculture sector in the country, we will not be averse to any new ideas," Nabard Chairman," U C Sarangi told reporters here.

Incepted in 1982 by transferring the functions of the then Agriculture Refinance and Development Corporation and the agriculture credit functions of the Reserve Bank, Nabard has the mandate of ensuring adequate credit to agri-sector and supervising co-operative banks and Regional Rural Banks.

BCG, which started its study last month to explore various areas where Nabard has the potential to operate, is expected to submit its report by Novermber-December, Sarangi said. "They will do the study...Let them come back. Then we will see (about the possible options)," Sarangi said when asked about Nabard's plan to enter banking.

Presently, Reserve Bank is the majority shareholder in Nabard. Out of the total Rs 2,000-crore paid-up capital of Nabard, Rs 1,450-crore is contributed by the apex bank, while Rs 550-crore is from the government.

If it happens, Nabard will not be the first state-owned entity to float a bank. In 2004, the Industrial Development Bank of India, which was initially set up as a development financing institution, had forayed into banking.

Nabard Chairman's comments come at a time when the government had recently announced its willingness to allow more banks in the country with a view to take the reach of banking operations into more under-banked areas.

The Reserve Bank is currently preparing the guidelines for new banking licenses, which is expected to come in the near future. A host of private players, including Tatas and Ambanis had expressed interest in applying for the bank license once the final guidelines are out.

Recently, Financial Services Secretary, R Gopalan, had said that entry of new banks should not be a disadvantage to the existing ones and these banks should not localise their operations but should operate in a pan-India basis.