To compensate for the withdrawal of funding avenues for Nabard due to ongoing fiscal management policies and financial reforms, the centre, in consultation with the Reserve bank of India, will provide subvention support to the National Bank for Agriculture and Rural Development raise funds to extend concessional farm sector credits.

The centre currently provides subvention to different categories of banks and Nabard to enable them to lend to farmers at 7 per cent interest.

While it has been able to increase its borrowings, Nabard has also had to pay higher interest — last year it raised Rs10,899 crore at 8.69 per cent against Rs8,194 crore at 5.6 per cent in 2005-06.

Speaking at Nabard''s silver jubilee function finance minister P Chidambaram admitted that Nabard had to increasingly depend on market borrowings to raise finances to lend to farmers at concessional rates at the cost of its own spread.

This year, Nabard expects to nearly double its borrowings to Rs 23,000 crore to provide farm and non-farm credit.

Chidambaram said that the Microfinance Bill, recently introduced in Parliament to regulate micro finance organisations had accorded Nabard a central role. He felt this would enable Nabard to spread micro financing to the farm and non-farm sectors in the rural sector.

He suggested that Nabard could provide consultancy to state governments for district- and state-specific plans.

On the same occasion, agriculture minister Sharad Pawar said that the Nabard Act required to be changed. He noted that the farm loan accounts had declined from 413.36 lakh in 2004-05 to 397.39 lakh in 2006-07.

He said this indicated that a large number of farmers who were defaulting on their repayments were becoming ineligible to institutional credit.