NABARD, SIDBI and EXIM Bank: Development Finance Notes

The correct answer is C, 1982. The National Bank for Agriculture and Rural Development was set up on 12 July 1982 under the NABARD Act, 1981, as the apex institution for credit to agriculture and rural development, taking over the work of the Reserve Bank's Agricultural Credit Department and Rural Planning and Credit Cell and of the Agricultural Refinance and Development Corporation. Option A is wrong because 1975 is the year the regional rural banks were set up, under an ordinance later replaced by the RRB Act of 1976. Option B is wrong because 1979 is the year the Reserve Bank appointed the CRAFICARD committee under B. Sivaraman, whose recommendation led to NABARD; the committee is not the bank. Option D is wrong because 1990 is the year SIDBI began operations, under its Act of 1989.

The correct answer is B, the Sivaraman Committee. The Reserve Bank appointed the Committee to Review the Arrangements for Institutional Credit for Agriculture and Rural Development, known as CRAFICARD, in 1979 under the chairmanship of B. Sivaraman, and its recommendation led to the NABARD Act, 1981 and the creation of NABARD in 1982. Option A is wrong because the Narasimham Committee reported on banking sector reforms in 1991 and 1998 and is associated with prudential norms, capital adequacy and the reduction of the statutory liquidity ratio. Option C is wrong because the Nachiket Mor Committee of 2013 and 2014 proposed comprehensive financial services for small businesses and low-income households and led to payments banks and small finance banks. Option D is wrong because the Rangarajan Committee is remembered for its work on financial inclusion and on poverty estimation.

The correct answer is D, Lucknow. SIDBI has its head office at Lucknow in Uttar Pradesh, which makes it the one major apex financial institution of the country not headquartered in a metropolitan financial centre, and that is exactly why the question is asked. Option A is wrong because Mumbai is the head office of the Reserve Bank, of NABARD, of the EXIM Bank, of IDBI and of NaBFID. Option B is wrong because New Delhi is the head office of IFCI and of the National Housing Bank. Option C is wrong because Hyderabad has no apex development bank, although it hosts other national institutions. Keep the three together while revising: NABARD and the EXIM Bank in Mumbai, the National Housing Bank in New Delhi and SIDBI in Lucknow. SIDBI also runs the Udyami Mitra portal and acts as the manager of the government's fund of funds for start-ups.

The correct answer is A, IFCI. The Industrial Finance Corporation of India was set up in 1948 under the Industrial Finance Corporation Act of that year to provide medium and long-term finance to industry, which makes it the first development finance institution in the country; it was converted into a company in 1993. Option B is wrong because IDBI came much later, in 1964, as a wholly owned subsidiary of the Reserve Bank, and was delinked from it in 1976. Option C is wrong because ICICI was set up in 1955 as a private sector institution with the support of the World Bank, and it merged into ICICI Bank in 2002 in what is called a reverse merger. Option D is wrong because SIDBI began only in 1990 and is confined to micro, small and medium enterprises.

The correct answer is B, 1982. The EXIM Bank was established on 1 January 1982 under the Export-Import Bank of India Act, 1981, is wholly owned by the Government of India, has its head office in Mumbai, and finances and promotes India's foreign trade, including the lines of credit the government extends to other countries. Option A is wrong because 1957 is the year the Export Risk Insurance Corporation was set up, the body renamed ECGC in 1983, which insures export credit rather than providing it. Option C is wrong because 1990 is the year SIDBI began work. Option D is wrong because 2006 saw the creation of the India Infrastructure Finance Company Limited and of the National Export Insurance Account trust, which the EXIM Bank administers. Note that NABARD and the EXIM Bank share the year 1982.

The correct answer is C, SIDBI. MUDRA was created in 2015 as a subsidiary of SIDBI to refinance the small loans given by banks, microfinance institutions and non-banking finance companies under the Pradhan Mantri Mudra Yojana, the loans being classified as Shishu up to fifty thousand rupees, Kishore from fifty thousand to five lakh and Tarun from five lakh to ten lakh. Option A is wrong because NABARD's own lending subsidiaries are NABKISAN Finance, NABSAMRUDDHI Finance and NABFINS, and its mandate is agriculture and rural development. Option B is wrong because the Reserve Bank is the regulator and does not run such schemes, although NHB and IDBI were once its subsidiaries. Option D is wrong because the State Bank of India is a commercial bank that lends under the scheme rather than refinancing it.

The correct answer is A, NABARD. The Rural Infrastructure Development Fund was created in 1995 to 1996 and is maintained with NABARD; it is funded by the amounts commercial banks fall short of in their priority sector lending targets, and NABARD lends from it to state governments for rural roads, bridges, irrigation works, warehouses and similar assets. Option B is wrong because SIDBI's funds, such as the cluster development fund and the risk capital schemes, serve micro, small and medium enterprises. Option C is wrong because the Ministry of Rural Development runs budget-funded schemes such as the employment guarantee and rural housing programmes, while RIDF is a refinance fund inside a bank. Option D is wrong because the National Housing Bank refinances housing finance. Remember that NABARD also operates the watershed, tribal and irrigation funds.

The correct answer is B, NABARD. Besides refinancing them, NABARD carries out the inspection and supervision of the regional rural banks, the state cooperative banks and the district central cooperative banks on behalf of the Reserve Bank, and it also prepares the potential linked credit plans from which district credit plans are drawn. Option A is wrong because SIDBI finances and promotes micro, small and medium enterprises and supervises none of these banks. Option C is wrong because the Securities and Exchange Board of India regulates the securities market, the stock exchanges, mutual funds and intermediaries, not rural banks. Option D is wrong because the Indian Banks' Association is an industry body of banks that frames model practices and has no statutory supervisory power at all. NABARD's inspection power over these banks flows from section 35(6) of the Banking Regulation Act, 1949.

The correct answer is C, 1988. The National Housing Bank was established on 9 July 1988 under the National Housing Bank Act, 1987, with its head office in New Delhi, to refinance and regulate housing finance; it was set up as a wholly owned subsidiary of the Reserve Bank, whose shareholding was transferred to the Government of India in 2019. Option A is wrong because 1982 belongs to NABARD and the EXIM Bank. Option B is wrong because 1985 is not the year of any apex institution, although the Sukhamoy Chakravarty committee on the monetary system reported then. Option D is wrong because 1991 is the year of the new economic policy and of the first Narasimham Committee on banking reform. A useful chain for revision runs 1948, 1955, 1964, 1982, 1988, 1990 and 2021.

The correct answer is D, SIDBI. CGTMSE was established in 2000 by the Government of India together with SIDBI to guarantee loans given without collateral or third-party guarantee to micro and small enterprises, so that a lender's fear of security does not keep a small unit out of formal credit. Option A is wrong because NABARD's guarantee and refinance work is in agriculture and rural development, not in the small industry guarantee scheme. Option B is wrong because the Reserve Bank regulates banks and does not operate such a trust. Option C is wrong because the EXIM Bank works in foreign trade, where the comparable risk cover comes from ECGC and the National Export Insurance Account. SIDBI also runs the cluster development fund and venture capital through SIDBI Venture Capital Limited. The guarantee cover applies to term loans as well as to working capital given to eligible small units.

The correct answer is B, 2021. NaBFID was created by the National Bank for Financing Infrastructure and Development Act, 2021 as a development finance institution for long-term infrastructure finance, with its head office in Mumbai, and it is the newest of the country's apex development institutions. Option A is wrong because 2016 is the year of the Insolvency and Bankruptcy Code and of the amendment that gave the Reserve Bank its monetary policy committee. Option C is wrong because 2019 is the year the Reserve Bank's shareholding in the National Housing Bank was transferred to the Government of India. Option D is wrong because 2014 saw the Pradhan Mantri Jan Dhan Yojana and the setting up of the Mudra scheme's parent framework in the following year. For infrastructure, remember IIFCL in 2006 and NaBFID in 2021.

The correct answer is A. A development finance institution is not a deposit-taking bank for the public; it raises resources from bonds and debentures, from the government, from the Reserve Bank and from multilateral agencies, and uses them for long-term lending. Option B is wrong as a choice because refinance is the core business of these institutions: NABARD refinances rural and cooperative banks and SIDBI refinances the lenders to small units. Option C is wrong as a choice because guarantees are part of the same work, as in the credit guarantee trust for micro and small enterprises. Option D is wrong as a choice because promotion, training, consultancy and the drafting of credit plans are written into their mandates; NABARD prepares potential linked credit plans and runs the self-help group linkage programme.