"I am delighted to be here with you at the centenary celebrations of Canara Bank. I pay tribute to the memory of your founder Sri Subba Rao Pai. He was a visionary and a philanthropist. Your Bank has, over the years, won the trust and confidence of your clients. No wonder it has become the largest PSU Bank in India. Karnataka has been home to many good banks and the Canara Bank is certainly one of the pioneers. The Founding Principles of Canara Bank are very interesting and inspiring. Your founders set out seven principles to guide your Bank:

(i) to remove superstition and ignorance;

(ii) to spread education among all to sub-serve the first principle;

(iii) to inculcate the habit of thrift and savings;

(iv) to transform the financial institution not only as the financial heart of the community but the social heart as well;

(v) to assist the needy;

(vi) to work with sense of service and dedication;

(vii) to develop a concern for fellow human beings and sensitivity to the surroundings with a view to making changes and remove hardships and sufferings.

These are lofty ideals for a bank or, indeed, for any institution. Our nation was blessed in the last century with several generations of great institution builders. Men and women who looked far into the future. Who thought of great possibilities for India. Who allowed their imagination and their dreams for our country to soar high. Who did not let the prevailing circumstances of the day limit their ambition, or curb their enthusiasm for realising the full potential of India.

When we look around us today and see the great institutions that we are proud of, we realise that each one of them was visualised by that great generation of nation builders. When we celebrate the centenary of an institution, we must re-dedicate ourselves to building more such great institutions.

I am deeply concerned that we are not doing enough to rejuvenate the great institutions we have built. I am concerned that we are not building new institutions of excellence at the pace at which a large country like ours must. I am concerned that we are not doing enough to preserve the autonomy of these institutions, to reaffirm our commitment to excellence and hard work.

I urge our countrymen, our intellectuals and our political leaders - let us work together to preserve the great institutions that our forefathers created. Let us walk forward and build new institutions that make India proud. I hope Canara Bank will enter its centennial year with this resolve in mind.

The past decade and a half has been a challenging time for the banking sector in India. You have coped well with these challenges and have emerged stronger from difficult times. While the banking sector has responded well so far, there are several challenges that lie ahead. Our banking system needs to equip itself to deal with emerging challenges.

Our banking system must be prepared to deal with the opportunities of higher growth, and the challenges of ensuring more equitable growth. In dealing with the needs of rural enterprises and of small and medium enterprises in urban areas, banks have to look for new delivery mechanisms. These must economise on transaction costs and provide better access to the currently under-served. To serve new rural credit needs, innovative channels for credit delivery will have to be found.

An important challenge facing the banking sector is to extend financial services to all sections of society. Like others, the poor need a range of financial services that are convenient, flexible, and affordable and not just loans. The focus on "financial inclusion" comes from the recognition that this can serve the interests of both society and the banking system.

In this regard, micro-finance can emerge as a powerful tool to fight poverty. Micro-finance has to be a part of the country's mainstream financial system if it has to be effective. I recognise the fact that micro credit is not always the answer or the best tool for everyone or in every situation. Destitute and hungry people with no income or means of repayment need other kind of support before they can make good use of loans. The role of the Government is to enable the poor to avail financial services.

I believe the linkage between "self help groups" and banks has been highly successful in furthering financial inclusion. The cooperation between the formal banking system and micro-finance organisations has also been encouraging. As a proactive measure, the Reserve Bank has urged banks to review their existing practices to align them with the objective of financial inclusion. I suggest that the Finance Minister constitute a group with representatives from the Reserve Bank, NABARD and major commercial banks to formulate policies that will promote 'financial inclusion' by stimulating financial services for the poor, particularly emphasising micro-finance, micro-insurance and new delivery channels.

A key requirement of greater "financial inclusion" would be a reduction of transaction costs. The Reserve Bank has taken various steps in this direction. It has issued guidelines to banks enabling the use of agencies such as post offices for achieving better banking outreach. I would advise banks to give the highest priority to customer service, to lower transaction costs, and to elimination of procedural inconveniences.

An issue which has been cause for considerable concern to our government has been agricultural credit. In spite of a doubling of agricultural credit in 3 years which we will achieve by the end of the year, there are vast uncovered gaps. Many regions and many classes of farmers are completely outside the institutional credit delivery systems. High interest rates and a serious debt overhang still affect millions of farmers. This cannot be allowed to persist.

The banking system has to seriously reflect on this problem and come up with innovative solutions. They must reach out to every nook and corner of the country and provide credit solutions to farmers' needs. They must see opportunity in this underserved sector. Despite the liberalisation process, the structure of the Indian banking system has continued without much change though some development finance institutions have merged with or converted into banks. The consolidation process within the banking system in recent years has been primarily confined to a few mergers in the private sector induced by the financial position of these banks. The Reserve Bank has created an enabling environment by laying down guidelines on mergers and acquisitions.

The roadmap on the extent of foreign investment in banks in India provides guidelines until 2009. The presence of foreign banks in the country has been useful in bringing greater competition in certain segments of the market. The increased presence of foreign banks over time will pose further competitive challenges to domestic banks and also to the regulator. Domestic banks are smaller in size relative to their international competitors, which are now very large indeed. If these large banks have emerged as a result of real economies of scale and scope, our own banking system will have to respond in kind both domestically and abroad. They need to seriously examine possibilities for consolidation of PSU banks to give them both depth and reach. They must also devise effective global strategies for improving their international presence.

Public sector banks continue to have about 75% share in the banking system. Despite the rapid growth of the new private sector banks, the share of public sector banks will continue to remain high. Hence the continued health of Indian banking system will depend on the performance of public sector banks. Private sector banks, especially the new ones, have the independence and flexibility to meet challenges quickly. In order to make public sector banks more flexible, we need to focus on some specific issues that constrain their response.

While public sector banks have the potential, with their spread and reach, to enable financial inclusion, they also have to face difficult challenges in human resource development. Public sector banks need to invest significantly in skill enhancement at all levels, for delivering new service modes in the face of greater competition. They will also face new recruitment challenges in the face of adverse compensation structures in comparison with the private sector banks.

Greater competition will also bring into focus the issue of corporate governance in the banking sector. The quality of corporate governance in banks assumes critical importance as competition intensifies and banks strive to retain their client base. In an environment of intense competition, a vigilant and alert supervisory structure is of paramount importance. It should be able to pick up warning signals and take quick, strong and deterrent action in cases of inadequacies or deviations from norms.

Financial sector reforms have been successful in improving the performance of the banking system. This has been made possible despite stipulations on priority sector lending and high reserve requirements.

While government and the central bank must step in and provide a supportive policy environment, banks need to also do their bit to equip themselves for the brave new era of greater competition. Banks must strengthen their risk assessment systems, along with better risk management. Public sector banks would have to be granted greater operational flexibility to meet emerging challenges. Private sector banks will have to innovate and accelerate their reach into emerging low income and rural market segments.

I am aware that these tasks are daunting. However, given our track record, I am sure, we would be able to deal with them successfully. Banks like the Canara Bank must set an example for others. Your proud history should inspire you to seek greater heights of professional glory. I convey my best wishes to every employee of your bank, to your customers and well-wishers, and wish you a great future of growth and development. You have had a glorious hundred years. May the next hundred be better."