The success of micro-finance institutions in different parts of India and other developing countries is a testimony to the fact that the farmer needs genuine access to credit and not just cheap credit, say Saji Gopinath and Abhilash Nair FINANCIAL inclusion forms the corner stone of inclusive growth in any economy. However, despite having strong government regulations to direct the channel of credit to rural agricultural sectors, the financial inclusion of the same, by formal means of credit, remains abysmally low as brought out by several studies including the recent one by the Radhakrishna committee. Lack of awareness, high risk perception, strong presence of informal means of finance coupled with complex socio-political issues and knee-jerk reactions by governments from time to time in the event of crises have come in the way of efficient allocation of agriculture credit. With serious questions being posed regarding the food security of the country, there is a strong need to understand the issues that plague rural agriculture credit and to address them constructively. Presently, in the case of domestic scheduled commercial banks, except regional rural banks (RRBs), 18% of the total loans and advances as well as non-SLR investments have to be directed towards the agriculture sector. Advances to the agriculture sector can be in the form of direct finance or indirect finance. Indirect finance is limited to a maximum of 25% of the specified 18% (that is, a total of 4.5% of loans and advances). Any shortfall from this 18% requirement needs to be deposited in the Rural Infrastructure Development Fund (RIDF) of National Bank for Agriculture and Rural Development (NABARD). Hence, on the face of it, there seems to be no way that a bank could avoid fulfilling the 18% target assigned to it. However, data reveals otherwise. While public sector banks advance a little above 15% of their funds, private sector banks allocate only about 11% towards this sector. At the outset, this seems to defy logic, since any shortfall has to be deposited in RIDF. However, as the adage goes