The National Bank of Agriculture and Rural Development (Nabard), the apex bank for agriculture sector refinance, plans to enter into retail banking.
This follows the entry of big-time corporates such as the Tatas and Hindustan Lever into contract farming, which has opened up new vistas for rural credit financing.
"Retail banking is an area from which we cannot keep away for long," Yogesh C Nanda, chairman of Nabard, said.
"There could be a stage when the refinance function of Nabard reaches a saturation point. Therefore, it is necessary to get into new areas," he said.
Nabard will move in this direction through collaboration with corporates which have entered or are getting into contract farming.
It is yet to identify the means of venturing into retail banking, though. At present, Nabard has three options, according to Nanda. These include picking up stake in existing banks, setting up new infrastructure altogether or establish a strong relationship through MoUs with banks in rural areas.
Ever since the Nabard Act, 1981, was amended in February this year, it has been formulating plans to move away from solely refinancing the rural activities of regional rural banks, cooperative banks and commercial banks.
"The amendments made in the Act signal the government's stance on the need for change," Nanda said.
Nabard has already made known its plans to foray into the life insurance sector. Here too, Nabard is looking at establishing agency tie-ups with select cooperative, regional rural and commercial banks.
In the beginning of the year, Nabard started refinancing rural housing and Nanda said the organisation is also looking at entering into housing finance.
The bank's plans to foray into insurance and banking are yet to receive approval of the board and the Central government.
On insurance, Nanda said Nabard has not finalised any joint venture yet. "We are in talks with a number of foreign players, including a Canadian insurer whose major strength lies in the rural areas, and is close to our type of thinking," said Nanda.
Nabard is also keen on a tie-up with the Life Insurance Corporation of India (LIC), should the latter feel the need to set up a separate structure to focus on the rural sector.
"Our objective is to see that insurance products get to the rural areas. Which better organisation can one think of for a tie-up than LIC," Nanda said.
