Q&A: Prakash Bakshi, Chairman, Nabard

'Repositioning aims at designing new products for the future'

Prakash Bakshi took over as the chairman of National Bank for Agriculture and Rural Development (Nabard) when the bank was in the midst of its restructuring exercise. In an interview with Sanjay Jog, the Nabard chief talks about the challenges and the opportunities for the bank in the future. Edited excerpts:

After the share transfer, there is a growing perception that Nabard has become an extended arm of the finance ministry. Is the bank in a position to work independently?
Nabard is an important player in rural development. Like any team player, it needs to have the freedom to think and contribute to strategy formulation and be committed to executing the strategy once it is decided. Both the Reserve bank of India (RBI) and the Union government have always given Nabard that freedom to contribute to policy and strategy formulation. We continue to have that freedom and the change in shareholding proportions have not made a difference. The fact that Nabard has been able to help design and mold national policies for major initiatives like self-help groups, cooperative reforms and watershed development is a demonstration of this autonomy.

Over the years, the cooperative banking sector, which relies on Nabard for refinance, is witnessing a deterioration in their finances. What checks and balances are put in place to curb this trend?
It is true that the share of cooperatives in rural credit has come down. It is also true that agricultural credit cooperatives faced severe problems of management and governance. To obviate these issues, the Union government had set up the Vaidyanathan Task Force and accepted its recommendations. Nabard, as the implementing agency of the government's package for rural credit cooperatives, has already ensured that applicable cooperative laws are suitably changed in more than 20 states to provide the required autonomy to cooperatives. Chief executives of cooperative banks who conform with RBI's prescribed criteria are being appointed. The result is the number of loss-making cooperative banks and those not complying with the minimum capital requirements has come down sharply.

The state government's decision to supersede Maharashtra State Cooperative Bank's board of directors shows despite repeated interventions by RBI and Nabard, the bank went on financing defaulting mills and compromised banking norms.
Maharashtra is one of the states participating in the government's package for rural cooperatives. Its cooperative law has already been amended. The board was superseded by the registrar of cooperative societies on the advice of RBI, not the state government. This action was based on Nabard's inspection of the bank's finances as on March 31, 2010. A fresh inspection of the bank would now be carried out and a suitable decision would be taken.

Nabard is banking on the repositioning exercise for its turnaround. What are the key features of the exercise?
Every institution has to reposition itself and its range of products. This is also true for Nabard. The repositioning exercise is analysing our product range and work processes and designing new products for the immediate future. For example, Rural Infrastructure Development Fund (RIDF) has given us experience in appraising and monitoring rural infrastructure projects. We are now leveraging this expertise to finance rural infrastructure projects outside the RIDF portfolio, using our own resources. As part of this exercise, we are also looking at supporting and financing producers’ organisations. Many such new initiatives have been planned.

Nabard has been a key player in the promotion of self-help groups. However, these groups face stiff competition from micro finance institutions (MFIs).
Nabard had initiated this programme and even today, it is the key player in the promotion and funding of self-help groups. I do not think the notion of it facing competition from MFIs is rational, simply because the purpose and logic of both are very different. The crisis we see in the MFI sector today emanates from the same mistake which we all committed under the integrated rural development programme. The business models of most MFIs presumed all loans could be repaid in 52 fixed weekly installments and were perhaps, responsible for the crisis.

What do you think about the micro finance Bill?
The draft micro finance Bill, which has already lapsed, focused on protecting the tiny thrifts of the poor. The crisis in the MFI sector is, however, borrower-centric. Protecting borrowers from the lack of transparency in loans and recovery practices has now gained importance. The new Bill, when drafted, would have to focus on an expeditious, simple, and inexpensive grievance redressal mechanism for borrowers. I think the state would have to play a role in this.