deepali pant joshi : indian rural banking sector – big challenges and the road ahead speech by dr deepali pant joshi, executive director of the reserve bank of india, at the mangalore institute of technology and engineering ( mite ), mangalore, 4 may 2013. * * * assistance rendered by shri a. k. misra, general manager, shri t. v. rao, deputy general, smt. sushma vij, deputy general manager, shri p. manoj, assistant general manager, shri bipin nair, assistant general manager and smt. mruga paranjape, manager is gratefully acknowledged. respected dr. thingalaya, former cmd syndicate bank, dr. g. l. easwara prasad, principal, mangalore institute of technology and engineering, senior bankers and dear students. i am extremely delighted to be amongst you in this prestigious institute which has several achievements in engineering studies to its credit in a very short span of time. i am honoured, privileged and happy to inaugurate this topical seminar aptly titled indian banking sector big challenges and the road ahead and speak in a hallowed place which is considered the cradle of indian banking. i felicitate the organizers and especially respected dr thingalaya and thank you for having me here. the global financial crisis and the current euro zone crisis have affected the banks in the advanced economies ; the spillover is ricocheting on banks in emerging economies including india. issues of financial stability, economic growth and managing inflation are the major challenges confronting regulators in advanced economies and are equally important for emerging economies like ours. global economic growth has slowed from 3. 9 % in 2011 to 3. 2 % in 2012 we are not unaffected by what happens in the rest of the world our economy too has slowed after 2010 – 11. in the current year cso has projected a growth estimation of 5 % while the rbi has put it at 5. 5 %. as shri chidambaram our finance minister has rightly put it “ whatever be the final estimate it will be below india ’ s potential growth rate of 8 %, getting back to that growth rate will be the challenge that faces the country ”. this is clearly not feasible if large sections of society remain marginalized and people who lack access to financial services from institutional service providers are not mainstreamed. the challenge of financial inclusion presents an inflexion point for indian banking. the biggest challenge for next decade or more

to banks in the country is to capture the banking business of over 50 % population of this country of over 120 billion people. today, i will use the opportunity to discuss contemporary challenges facing indian rural banking, i. e, priority sector lending, regional rural banks, financial inclusion, financial literacy and education. aptly dr. subbarao, rbi governor terms financial inclusion as the supply side of the equation and financial literacy the demand side. ( i ) priority sector lending the definition of priority sectors has evolved over a period of time and at present, priority sectors are broadly taken as those sectors of the economy which in the absence of inclusion in the priority sector categories would not get timely and adequate finance. typically, these are small loans to small and marginal farmers for agriculture and allied activities, loans to micro and small enterprises, loans for small housing projects, education loans and other small loans to people with low income levels. presently, the target for aggregate advances to the priority sector is 40 per cent of the adjusted net bank credit anbc or the credit equivalent of off balance sheet exposure ( obe ), whichever is higher for domestic banks. foreign banks with 20 or more branches in the country are being brought on par with domestic banks for priority sector targets in a phased manner over a five year period starting bis central bankers ’ speeches from april 1, 2013. for foreign banks with less than 20 branches the overall target is fixed at 32 per cent. the domestic banks, i. e, public and private sector, could not achieve the target of 40 percent for the year 2012 as can be evidenced from the table below. as per 59th nss survey, households with 2 hectare or less land accounted for 84 % of all farmer households. the percentages of such small and marginal famers who have access to credit is only 46. 3 %. a large section of farmers is still dependent on moneylenders for their financial needs. the major challenge is to bring all farmers into the institutional credit framework. to boost the credit to agriculture sector, apart from a host of initiatives, the kisan credit card ( kcc ) scheme was introduced in the year 1998 – 99 to enable farmers to purchase agricultural inputs and draw cash for their production needs. in 2004, nabard revised the model kcc scheme to provide adequate and timely finance for meeting the comprehensive credit requirements of farmers under single window, with flexible and simplified procedure, adopting whole farm approach. the scheme now covers term credit as also working capital for agriculture and allied