No direct lending role for Nabard: Government

NEW DELHI: The government has turned down a proposal to allow the country's largest rural bank to lend directly to customers, dealing a setback to its diversification plans.

National Bank for Agriculture and Rural Development ( NABARD), which is into re-financing, was looking to broaden its portfolio through direct lending to the infrastructure sector, especially creation of warehouses.

"There was this demand (for direct lending), but after careful consideration we have decided that NABARD should stick to its developmental role and continue to engage through re-financing," a finance ministry official said, adding that since both commercial and regional rural banks have a greater outreach, NABARD should support them rather than getting into competition.

A senior NABARD official termed the government's decision as regressive. "Today, we have schemes, such as NIDA, where we are lending directly to state-owned institutions. It has been a success story, but such clampdowns will stop any innovation within NABARD," he told ET.

Another bank official said there is no risk attached with such loans, as the Food Corporation of India takes warehouses on lease for a 10-year period, which ensures a fixed revenue stream.

The government plans to increase the paid-up capital of NABARD to 5,000 crore by infusing about 2,000 crore this fiscal, which will give the bank more headroom for expansion.

In the current fiscal, the government has allocated 5,000 crore for creation of warehousing facilities.