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Respected Dr Subbarao and distinguished guests, A big and a hearty welcome to you, Sir, and to the colleagues in the financial sector, our well-wishers and all those who have gathered here to celebrate 30 years of NABARD taking Rural India forward. Today is also an occasion to express our gratitude and to say a big "thank you" to our parent organization, the Reserve Bank. Sir, 34 years ago, when I was selected by the RBI Services Board and posted to ARDC, a learned person had told me, "what distinguishes the RBI from any other Central Bank around the world is its ability to spawn and nurture development institutions that encompass financing, research and training." Today, as team leader of NABARD that was spawned by RBI 30 years ago, I am proud and fortunate to be part of this inherited legacy – functionally and intellectually ! It is also for the first time in the 30 year history of NABARD that the head of our family, Governor, RBI, is amongst us. Sir, this is indeed a very proud moment for all of us in NABARD, and on behalf of every member of Team NABARD, I thank you for this kind gesture. I am also extremely happy that four of the past Chairmen of NABARD who have guided the destiny of this institution have specially gathered here. To speak on this occasion in front of all of you is an extremely emotional moment for me, and it will remain with me, forever! Thirty years in the lifeline of an institution is a short period. NABARD, however, during this period, has grown in stature - from being just a refinancing institution to an institution which 'thinks' about development; researches, designs and creates new products and programs; grooms varied partners; and through all this, 2 sometimes silently and sometimes noisily, influences the thought process and actions of all those engaged in rural development. The activities of NABARD today range from formation of financial capital to building social capital, from infrastructure finance to micro-finance! It also combines the role of a supervisor, a credit planner and a policy maker. As I look back, I also see that our efforts have always been 'inclusive' in nature. Whether it is promoting and nurturing SHGs and watershed committees and linking them to banks, or creating livelihood avenues through skills development and employment generation in the rural non farm sector, or more recently, promoting joint liability groups of marginal and tenant farmers - all are effective inclusion interventions. Last year, we launched a very successful pilot with Pallavan Gramin Bank, sponsored by Indian Bank, that leveraged the deep penetration of mobile telephony in villages, linking mobile numbers of the farmers to their Kisan Credit Cards, enabling them to order and pay for their seeds, fertilisers and other inputs from the comfort of their homes and save substantially on time, transportation costs and the risk of handling cash. Even for banks and input dealers, handling cash was removed, thus reducing even their transaction costs. A study by IIBF showed that farmers not only saved costs but even got price discounts. Moving towards greener climate, I am happy to announce that NABARD has been accredited as the National Implementing Entity by the Adaptation Fund Board of the United Nations Framework Convention on Climate Change (UNFCCC) for taking up Climate Change initiatives in the country. NABARD is the only agency from India and 12th in the world to be so accredited, which will allow NABARD to directly access funds from the Adaptation Fund Board for its own programs as also for its channel partners. Moving nearer, this very building already has a four-star rating from the Bureau of Energy Efficiency and by December, almost 10% of our electricity requirements for this building would be met through solar power. I could perhaps go on recounting such initiatives, but more important is to introspect how the experience has enriched us and how it would help us face the 3 emerging challenges. Today, after some time, we would have occasion to see two such fruitful changes being brought about by NABARD. The journey has been intellectually stimulating, enhancing the developmental role of NABARD and, at the same time, making NABARD a stronger financial institution. The year that just concluded was extraordinary in terms of financial indicators - our balance sheet is now closer to the Rs. 2 lakh crore mark and the post tax operating surplus at Rs. 1,635 crore showed an increase of 28% over the previous year. And in this journey of expanding the financial outreach, NABARD would need even higher levels of resources, and, Sir, I am extremely grateful to you for enabling NABARD to tap larger resources through a special dispensation that you have very kindly allowed us. This growth also entailed diverse responsibilities, and the demand for human resources competencies has kept changing. The pragmatic manner in which our human resources responded to these changes gives us the confidence that that we will be even more productive, creative and innovative in future. Sir, today, on our 30th anniversary, we have the privilege of having your blessings for two of the most recent initiatives of NABARD that will change the face of rural banking. Normally, projects await months for launching, because the date of a VIP is not available. These two projects are such, where the date had been fixed, and a lot of people had to lose their sleep to ensure that today they are ready for the launch. The first initiative is bringing rural cooperative banks onto the core banking platform. There are about 400 central and district cooperative banks in the country catering to almost 3 crore farmers. While Commercial banks and RRBs moved ahead by leveraging technology to enhance their operations, most of these cooperative banks did not or could not use ICT solutions which greatly diminished their capacity to offer a wider range of products to customers. Due to this reason, the cooperative banks got bypassed in the financial inclusion drive and are not able to provide even NREGA and Pension payments to the rural population despite their far higher physical outreach. Their inability to be part of the payment system was putting a serious challenge even to their existence. The typical issues faced by the cooperative banks in adopting CBS were high costs of initial investment, inability to appraise the right software and vendors due to limited internal technical skills, limited internal skills in managing computerised systems as well as limited project management skills. These limitations also prevented them from adopting or negotiating an appropriate ASP. Therefore, NABARD decided to play the role of a project manager and guide. Given the number of cooperative banks, the smaller challenge before NABARD was to select the right ASP, and the bigger challenge was to design an implementation mechanism which would ensure that the selected ASP installs the hardware and software, trains the staff, and oversees the data migration in a few thousand branches that belong to a few hundred different cooperative banks in different states. NABARD's involvement helped in bringing 163 cooperative banks with 5,543 branches on board in the first phase. The work profile required that the IT vendor is not only able to offer robust and proven software but also has the experience and wherewithal to ensure its rollout at such a large scale. Through a rigorous process of technical and financial evaluation, two extremely competent vendors, TCS and Wipro were identified. As everyone knows the two most commonly used Core Banking Software, viz., Finacle and B@ncs are offered by them. TCS is rolling out CBS in MP, Chattisgarh, Tamil Nadu, Gujarat and Karnataka covering 87 Banks with 2,796 Branches and Wipro is rolling out in Punjab, Haryana, UP, Bihar, Maharashtra and Chandigarh covering 76 Banks with 2,747 branches. As per the approved plan of implementation, both these vendors would complete the rollout in all 5,543 branches by December 2012. 31 More Banks with 1,050 branches in Gujarat, Karnataka, Maharashtra, Kerala, Puducherry, Uttarakhand, Sikkim, Arunachal Pradesh, Himachal Pradesh and Andaman and Nicobar Islands will be covered in Phase II of the project and would be CBS compliant by March 2013. Sir, May I request you to kindly launch the CBS for cooperative banks by pressing a button on the panel. This will make the CBS live in 26 branches across six states. Thank you Sir. The second initiative that we are launching today has even wider ramifications. As you are kindly aware, the guidelines for the Kisan Credit Card were prepared by NABARD in 1995-96. These guidelines were themselves a huge departure from the way agricultural banking was done until then. I earlier mentioned that last year we initiated a pilot linking the KCC to the farmer's mobile phone which significantly reduces transaction costs. Sir, every farmer doesn't have a mobile phone, but every farmer has hands and fingers, and therefore the next logical step was to link the KCC account to the biometric authentication of Aadhaar or NPR so that the KCC account holder is able to transact business almost anywhere. Today, thumb impression is not a symbol of illiteracy, it is the most secure password for any transaction that could have been created. Sir, to enable this to happen, NABARD entered into a formal alliance with UIDAI and NPCI, exactly one month ago on 12 June 2012, creating a platform that would push the Aadhar Enabled Payments System in rural financial institutions. Sir, in the days to come, this will change the face of rural banking. The agricultural financing and IT teams of NABARD, UIDAI, NPCI, Bank of India, and three RRBs sponsored by Bank of India - Narmada Malwa, Jharkhand, and Wainganga Krishna Gramin banks, have worked tirelessly for the past three weeks to ensure that we are able to launch the Aadhaar enabled KCC today. Sir, may I now request you to kindly symbolically launch the Aadhaar enabled Kisan credit cards by issuing them to nine farmers from the three RRBs. Thank you sir. To mark this auspicious day, our 30th anniversary, we have come out with a coffee table book, and I request you to kindly release the same. Once again, thank you very much Sir. …. Chairman's prelude to Governor's speech Agricultural Credit : Accomplishments & challenges Sir, before I request you to deliver your lecture, let me just briefly give a little background of the lecture series that we had planned to commemorate 30 years of NABARD taking Rural India Forward. The idea was to bring focus on some of the important issues and concerns relating to agriculture and rural India through the lectures of eminent scholars. Dr Peter Kenmore, FAO Representative in India, first spoke on 'Global agricultural scenario over the next decade and the challenges, opportunities, and implications for India'. The second lecture was by delivered by Shri Montek Singh Ahluwalia on 'Rural infrastructure : issues, concerns and prospects'. 'Sustainable inclusive growth' is the core of our development policy and all interventions are being carved out under this overarching objective. With majority of the population living in rural areas and directly or indirectly depending on agriculture, the best way of achieving inclusive growth is to focus on this sector with credit and investments as the instruments. It is on this background that we had requested for your address, and I am grateful to you Sir, that you readily agreed. Agriculture growth faces several constraints, some of them long standing, while others, emerging. The important ones are, fragmentation of landholdings and increasing smallness of agricultural operations, plateauing of agricultural productivity, volatility and regional variations in growth, constraints in post production management, emerging demand - supply mismatches in food basket, strengthening institutions which make small farmers participants in the growth process, and developing location and product specific delivery models that are sustainable. The above constraints and the backdrop of continental diversity in the country imply that uniform and straight jacket solutions will not work. The accomplishments and the challenges of agriculture credit need to be viewed against this background. Sir, as a quick prelude, let me just raise a few issues for your consideration. 1. Credit growth was robust, but is it inclusive? Between 2001-02 and 2011-12, agriculture credit disbursement increased by almost 8 times from Rs. 62,045 crore to Rs. 5,09,040 crore, a whopping 720% increase over this 10 year period. The banking system has been able to increase the outreach in terms of number of accounts in the last five years. Policy interventions like doubling of credit, debt waiver, and interest subvention on loans obviously have helped. In 2007-09, around 4.39 crore accounts were financed which increased to 5.70 crore accounts by 2011-12, But, even with this robust growth, still, around 56% of the operational holdings are not covered by institutional credit. Roughly about seven crore farmers are still outside the institutional net. Added area of concern within this is that with respect to small and marginal farmers, only 31% of the operational holdings are covered by institutional finance. 2. What about productivity of agriculture credit ? Growth of credit is not an end in itself. In fact it should help the real sector grow. While we all recognize that credit is not a direct input into agriculture, its importance lies in the fact that timely and adequate access to it means command over other direct inputs, especially as more than 80% of farmers inputs are market purchased these days. However, credit being a fungible, it is extremely important that its linkage with the production process is strengthened. However, productivity increase does not seem to have been supported by such high growth in credit. This disconnect between production and credit has raised valid concerns on the issue of productivity and marginal productivity of agriculture credit. 3. Are financial sector initiatives supported by real sector ? For enhanced productivity of credit, financial sector initiatives must be harmonized with the real sector initiatives. When the real world is characterized 9 by constraints such as low seed replacement rates, uncertain input quality, yield fatigue, virtually non-existent extension services, problems relating to land laws & tenancy related issues, weak prices, need for better and more affordable productivity risk mitigation initiatives etc., merely enhancing the flow of credit will not yield the expected results. Support services including infrastructure, storage, processing, marketing etc., are also needed, regulatory mechanisms for ensuring quality of inputs and reorienting extension services to enhance the impact of credit need to be put in place. How does one ensure this ? 4. Addressing Inequalities in the distribution of agriculture credit Available data show that agriculture credit does not necessarily flow in areas or regions where the real sector indicators signal the need for a larger share. For example, Central region of the country accounts for 28% and 32% of the gross cropped area (GCA) and gross irrigated area (GIA), respectively, with a cropping intensity of 139%, but accounts for hardly 13% of the agriculture credit disbursed during the eleventh plan period. Among all the regions in the country, the eastern region has the highest cropping intensity (151%) and with 15% share in GCA and GIA, it accounts for hardly 7.27% of agriculture credit disbursed during the eleventh plan. 5. Meeting credit needs of dry land agriculture As 65% of agriculture in India is undertaken in dry lands and resource poor regions, a completely different orientation and approach is perhaps required. Most of our agricultural research has focused on finding solutions and responses to irrigated agriculture, and our understanding and framework to provide solutions for sustainable development of dry land areas still leaves much to be desired. With wider fluctuations in production and productivity in these regions, the need to develop specific credit interventions and products for these areas becomes critical. Technology enabled 'cyclical credit' is perhaps the way to go forward, and requires a shift in present credit policies. 6. Is cheap credit sustainable for the agriculture credit system? Providing subsidized credit for extended periods, as a policy measure, tends to create distortions in the agriculture credit system. There may be short term gains 10 and valid arguments for subsidy provision in the short term, however, both on grounds sound economic rationale and empirical evidence, any form of subsidised credit provided for long periods of time is unsustainable, creates distortions, and can act against the health of the very system at which it is directed. This is something that we all are concerned with and need to address. It is in this backdrop, that I invite you to kindly guide us. Governor Sir, the floor is yours. Thank you!

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