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'DNA' investigation: Nabard’s lies on restructuring process

MPs allege reforms recommended by Boston Consulting Group violate role mandated for bank by Parliament.

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The National Bank for Agriculture and Rural Development (Nabard) set up to finance agriculture and rural development, has been giving evasive replies to specific questions raised by the Union finance ministry and by Parliament on the nature of recommendations made by the Boston Consulting Group (BCG) to restructure the bank.

Some MPs believe that the restructuring violates the role mandated for Nabard by Parliament.

DNA earlier reported that the restructuring/repositioning of Nabard could cause interest rates to rise even as farmer suicides continue unabated. A letter signed by 35 MPs across party lines and sent to the finance minister said that the restructuring exercise, based on the BCG’s recommendations, was contrary to the purpose for which Nabard was set up by an act of Parliament in 1981.

Among others, the letter was signed by Mulayam Singh Yadav of the Samajwadi Party, Sharad Yadav of the Janata Dal (U), former prime minister HD Deve Gowda and Basudeb Acharya of the CPI(M).

The matter concerning Nabard’s restructuring along recommendations made by the BCG report was brought to the attention of Parliament by PT Thomas, Congress MP from Idukki, in December 2011.

Thomas warned that if the restructuring exercise was carried out, Nabard would “cease to exist as a development finance institution and become a direct financing institution competing with other financial entities like commercial banks, corporative banks and regional rural banks”. He urged the government not to allow any such restructuring.

Following this, the finance ministry asked Nabard to reply to the MP’s apprehensions. Nabard replied on February 2, 2012, but without referring to BCG or its recommendations.

Dissatisfied with the reply, Anil Kumar, section officer (AC) in the department of financial services of the finance ministry, sent an urgent message to Nabard on March 13 this year. Kumar pointed out that Nabard’s reply was silent on whether its restructuring was based on recommendations of the BCG and sought a specific, urgent reply in this regard.

On March 14, Nabard sent the same reply, adding that the BCG was appointed as a consultant after Nabard’s board of directors had approved of it and that both organisations held several meetings with various agencies and came out with initiatives and products. However, the reply did not dwell on the exact recommendations made by the BCG or those that had been used in the restructuring process.

“It is obvious that the consultant was appointed by the board and that they would have held meetings. So this is again a vague reply,” said an official of the All-India Nabard Employees Association (AINBEA).

Dr KG Karmakar, former MD of Nabard, said the chairman and other top management officials are afraid of being exposed. “It has restructured the organisation violating Parliament’s mandate and paid close to Rs21 crore (Rs13 crore at the time of contract and Rs8 crore later) to BCG. They desperately want to hide this fact,” he said.

Karmakar, who retired recently, told DNA that he was opposed to involving BCG and had recommended Nabard to hire the services of the Indian Institute of Management, Ahmedabad, instead. “IIM-A was responsible for creating Nabard and their model has evolved in 28 years and worked brilliantly for the country, so they should have been approached,” he said (see box).

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