k c chakrabarty : strengthening co - operative credit institutions in india keynote address by dr k c chakrabarty, deputy governor of the reserve bank of india, at the review meet on implementation of revival package for short term rural cooperative credit structure, organised by the national federation of state co - operative banks ( nafscob ), new delhi, 29 april 2010. * * * assistance provided by shri r c sarangi and shri k bhattacharya in preparation of this address is gratefully acknowledged. dr. chandrapal singh yadav, president, ncui & chairman, kribhco, dr bijender singh, chairman, nafscob, shri b. subrahmanyam, md, nafscob, smt roshan r. warjri, vicechairperson, nafscob, shri p. k. basu, union agriculture and cooperation secretary, distinguished speakers and panelists, distinguished guests, ladies and gentlemen. introduction 1. at the outset, i congratulate the national federation of state co - operative banks for organizing this review meet on implementation of revival package for short term co - operative credit institutions under the vaidyanathan task force and i deem it a privilege to be present amidst this august gathering. i am sure, in these two days, you must have taken stock of the progress made in this regard and deliberated on the benefits accruing to the co - operative institutions from the package. i am also sure that the few states which are yet to enter the mou with the government of india and nabard and avail the benefits of the package are convinced about the advantages of joining the mainstream in the interest of the co - operative institutions in their states. 2. the co - operative movement started in our country more than 100 years ago. the co - operatives are the oldest rural credit institutions in india with widest network covering every state and union territory of the country and the first institutional arrangement for financial inclusion. these were virtually the only institution for rural credit in most of the areas until the nationalization of 14 banks in 1969. although regional rural banks came into existence in 1976, and commercial banks and rrbs have opened large number of branches in rural areas, their reach in the countryside, both in terms of the number of clients and accessibility to the small and marginal farmers and the poorer sections, is far less than that of co - operatives. co - operatives continue to be

for productive purposes, it means credit for healthcare emergencies or to pay lumpy school or college fees. it means a safe means of remunerated savings, and an easy way to make payments and remittances. it means insurance and pensions. it means financial literacy and consumer protection. we have made great strides in inclusion, but we are still some distance from our goal. we have adopted a branch based strategy for inclusion, but it is not enough. too many poor people in so - called “ over - banked ” urban areas still do not have access to banking services. we have many experiments under way to use technology, mobile phones, new products such as mobile wallets, and new entities as business correspondents to link people up to the formal financial system. much as with cell phones where we created a frugal indian model, we need a frugal, trustworthy, and effective indian model for financial inclusion. the dr. nachiket mor committee is helping us think through possible models, and i am hopeful that when we outline measures based on its recommendations, our fine banks, nbfcs, it companies and mobile players will rise to the occasion. at a more detailed level, we have set up committees like the sambamurthy committee to advise us on how to expand mobile banking in india through encrypted sms based funds transfer in any type of handset. i should emphasise the need for banks like the ones represented in this room to move beyond simply opening bank accounts to ensuring that poor customers are confident and comfortable enough to use them. innovation in reaching out to the underserved customer, bis central bankers ’ speeches rather than simply posting higher numbers in branches or bank accounts opened, has to be part of our efforts. and last but not least, with have to deal better with distress ; the natural, and worst, way for a bank management with limited tenure to deal with distress is to “ extend and pretend ” to evergreen the loan, hope it recovers by miracle, or that one ’ s successor has to deal with it. the natural incentive for a promoter to deal with distress is to hold on to equity and control despite having no real equity left, and to stand in the way of all efforts to resolve the underlying project while hoping for an ‘ act of god ’ to bail him out. not all bankers and promoters succumb to these natural incentives but too many do. we have to ensure that the system recognises financial distress early