Sei sulla pagina 1di 51

Speech Gallery

(Excerpts from various speeches of RBI Governor / Dy. Governors)

Canara Bank RSTC Gurgaon

SPEECH GALLERY

Regional Staff Training College Gurgaon

Speech Gallery
(Excerpts from various speeches of RBI Governor / Dy. Governors)

Canara Bank RSTC Gurgaon


No. 1. Topic Should Banking Be Made Boring? An Indian Perspective: (25-11-2009 : Dr. Duvvuri Subbarao, Governor : At the International Finance and Banking Conference organized by the Indian Merchants' Chamber on 'Banking Crisis and Beyond' : Mumbai ) Financial Inclusion: Challenges and Opportunities (09-12-2009 / Dr. Duvvuri Subbarao, Governor / At the Bankers' Club / Kolkata) Furthering Financial Inclusion through Financial Literacy and Credit Counseling (30-11-2009 : Dr. K. C. Chakrabarty, Deputy Governor / / At the launch of Federal Ashwas Trust on November 30, 2009 in Kochi / Kerala) Pushing Financial Inclusion: Issues, Challenges and Way Forward (17-07-2009 : Dr. K. C. Chakrabarty, Deputy Governor / / At 20th SKOCH Summit 2009 / Mumbai) Banking: Key Driver for Inclusive Growth (10-08-2009 : Dr. K. C. Chakrabarty, Deputy Governor / / At the Mint's 'Clarity Through Debate' series / Chennai) Sustaining Growth Potential : Focus on Key Sectors (11-09-2009 : Smt. Usha Thorat, Deputy Governor / / At the Inaugural Session of the "Conclave of CEOs and CFOs" organised by Institute of Public Enterprise & NMDC Ltd., CII (AP) & CEO Clubs India / Hyderabad) Emerging Market Concerns: An Indian Perspective (05-10-2009 : Dr. Duvvuri Subbarao, Governor / / At G-30 International Banking Seminar / Istanbul) Technology, Financial Inclusion and Role of Urban Cooperative Banks (09-08-2009 : Dr. K. C. Chakrabarty, Deputy Governor / / At Foundation Day and Inauguration of the 'Core Banking Solution Project' of the A. P. Mahesh Co-op Urban Bank Ltd. / Hyderabad) Global Financial Crisis and Monetary Policy Response in India (12-11-2009 : Mr. Deepak Mohanty, Executive Director / / At the 3rd ICRIER-InWEnt Annual Conference / New Delhi) Financial Crisis and Beyond (10-11-2009 : Smt. Shyamala Gopinath, Deputy Governor : At the 3rd India-China Finance Conference : Mumbai) Learning from Crises (16-10-2009 : Mrs. Usha Thorat, Deputy Governor / 'Institute of Banking and Finance (IBF) Distinguished Speaker Series' lecture / Singapore) Global Crisis: Genesis, Challenges and Opportunities Unleashed (25-09-2009 : Dr. K. C. Chakrabarty, Deputy Governor / / At the 21st Anniversary Convention of the Association of Professional Bankers / Colombo, Sri Lanka) Global Financial Crisis: Questioning the Questions (31-07-2009 : Dr. D. Subbarao, Governor / / At the Meeting of The Associated Chambers of Commerce and Industry of India / New Delhi) Challenges for the Central Banks {14-08-2009 : Dr. D. Subbarao, Governor (Shri M. Narasimham, Dr. C. Rangarajan, Dr. Y. V. Reddy - Former Governors) / / At Taj Krishna Hotel / Hyderabad} Impact of global financial crisis on RBI as a National Regulator (29-06-2009 : Smt. Usha Thorat, Deputy Governor / / At the 56th EXCOM Meeting and FinPower CEO Forum organised by APRACA / Seoul, Korea) Risk Management in the Midst of the Global Financial Crisis (22-05-2009 : Dr. D. Subbarao / / At the Financial Management Summit 2009 organized by the Economic Times / Mumbai) Page 5

2. 3.

9 10

4.

11

5.

11

6.

12

7.

12

8.

13

9.

14

10.

15

11.

15

12.

16

13.

17

14.

18

15.

18

16.

19

Speech Gallery
(Excerpts from various speeches of RBI Governor / Dy. Governors)

Canara Bank RSTC Gurgaon


17. Global Financial Crisis: Causes, Impact, Policy Responses and Lessons 23-04-2009 : Dr. Rakesh Mohan, Deputy Governor / / At 7th Annual India Business Forum Conference / London Business School, London India - Managing the Impact of the Global Financial Crisis 26-03-2009 : Dr. Duvvuri Subbarao / / At the Confederation of Indian Industry's National Conference and Annual Session 2009 / New Delhi Impact of the Global Financial Crisis on India Collateral Damage and Response 18-02-2009 : Dr. Duvvuri Subbarao / / At Symposium on "The Global Economic Crisis and Challenges for the Asian Economy in a Changing World" / Institute for International Monetary Affairs, Tokyo Some Reflections on the recent Global Financial Turmoil: An Indian Perspective (10-01-2009 : Ms. Shyamala Gopinath, Deputy Governor / / At the Annual Conference of FEDAI, Kolkata) Emerging Blueprint for Prudential Regulation: Assessment and Challenges (27-11-2009 : Smt. Shyamala Gopinath, Deputy Governor / Confluence, 2009, IIM / Ahmedabad) Philosophy and Practice of Financial Sector Regulation: Space for Unorthodoxy (02-11-2009: Smt. Shyamala Gopinath, Deputy Governor / / FSA Turner Review Conference / London) Global Agenda for Regulatory and Supervisory Reforms: The Stock Taking and Way Forward (08-09-2009 : Smt. Usha Thorat, Deputy Governor / : At the Panel Session on "Strengthening Financial Regulation and Supervision" of the FICCI-IBA Conference on "Global Banking : Paradigm Shift" / Hotel Grand Hyatt, Mumbai) India's Economic Transformation: A Snapshot (07-09-2009 : Dr. K. C. Chakrabarty, Deputy Governor / / At the Antique India Markets Conference 2009 / Mumbai) Emerging Contours of Financial Regulation: Challenges and Dynamics (10-06-2009 : Dr. Rakesh Mohan) Banking and Finance in India: Developments, Issues and Prospects (31-08-2009 : Dr. K. C. Chakrabarty, Deputy Governor / / At the 62nd International Banking Summer School (IBSS) / New Delhi) Financial Stability : Issues and Challenges (10-09-2009 : Dr. Duvvuri Subbarao, Governor / At the FICCI-IBA Annual Conference on 'Global Banking : Paradigm Shift' organised jointly by FICCI and IBA / Mumbai) Changing Dynamics of Legal Risks in Financial Sector: (30-10-2009 : Smt. Shyamala Gopinath, Deputy Governor / Symposium on Changing Dynamics of Legal Risks in Financial Sector / Kerala ) Sub-national Fiscal Reforms and Debt Management: Indian Experience 29-04-2009 : Shyamala Gopinath / / At the Workshop on 'Sub-national Fiscal Reform and Debt Management' / Washington Mobile Commerce, Mobile Banking: The Emerging Paradigm (04-12-2009 : Dr. K. C. Chakrabarty, Deputy Governor / At the India Telecom 2009 Conference organized by Department of Telecom / New Delhi ) GenNext Banking: Issues and Perspectives (25-11-2009 : Dr. K. C. Chakrabarty, Deputy Governor / / At the Panel Discussion on GenNext Banking at the 4th International Finance and Banking Conference organized by the Indian Merchant's Chamber, Mumbai ) 20

18.

21

19.

22

20.

24

21.

26

22.

28

23.

29

24.

32

25. 26.

36 37

27.

38

28.

39

29.

40

30.

41

31.

42

Speech Gallery
(Excerpts from various speeches of RBI Governor / Dy. Governors)

Canara Bank RSTC Gurgaon


32. Information Technology and Banking: A Continuing Agenda (18-05-2009 : Dr. D. Subbarao / / At the Banking Technology Awards 2008 / Institute for Development & Research in Banking Technology, Hyderabad) Technology in Banks: Responding to the Emerging Challenges 23-03-2009 : Ms. Shyamala Gopinath, Deputy Governor / / At the CII's Banking TECH Summit 2009 / Mumbai Retail Payments: Perspectives and Way Forward 19-03-2009 : Dr. Duvvuri Subbarao / At the Regional Seminar / Chennai Retail Payment Systems: Select Issues 17-03-2009 : Smt. Shyamala Gopinath, Deputy Governor / / At the Regional Seminar on Payment Systems, jointly organised by the Reserve Bank of India and Bank for International Settlements / Mamallapuram, Chennai Lessons for Financial Policymaking: Interpreting the Dilemmas 03-03-2009 : Ms. Shyamala Gopinath, Deputy Governor / At 10th FIMMDA-PDAI Annual Conference / Mumbai Ethics and the World of Finance (28-08-2009: Dr. Duvvuri Subbarao : / Sri Sathya Sai University, Prasanthi Nilayam / Andhra Pradesh) International Monetary and Financial Committee Meeting 25-04-2009 : Dr. Duvvuri Subbarao / / International Monetary and Financial Committee Meeting / Washington D.C Dr. D. Subbarao's Interview With Central Banking Publications, London (02-07-2009 : Dr. D. Subbarao, Governor / Published on July 2, 2009 / At the Central Banking Publications / London) Dr. D. Subbarao, Governor's Inaugural Address (02-07-2009 / At the Third Annual Statistics Day Conference of the Reserve Bank / Mumbai) Addressing the Regulatory Perimeter Issues: Indian Experience (15-06-2009 : Smt. Shyamala Gopinath, Deputy Governor / At the Ninth Annual International Seminar on Policy Challenges for the Financial Sector, co-hosted by The Board of Governors of the Federal Reserve System, The IMF, and The World Bank on "Emerging from the Crisis - Building a Stronger International Financial System", June 3-5, 2009 / Washington, D.C.) Dr. Duvvuri Subbaraos Speech 01-04-2009 @ RBIs Platinum Jubilee Celebrations 43

33.

44

34. 35.

45 46

36.

47

37.

48

38.

49

39.

50

40.

50

41.

51

42.

51

Speech Gallery
(Excerpts from various speeches of RBI Governor / Dy. Governors)

Canara Bank RSTC Gurgaon

Should Banking Be Made Boring? An Indian Perspective:


(25-11-2009 : Dr. Duvvuri Subbarao, Governor : At the International Finance and Banking Conference organized by the Indian Merchants' Chamber on 'Banking - Crisis and Beyond' : Mumbai ) One of the more influential ideas has been the thesis put forward by the noted economist and Nobel Laureate Paul Krugman that 'the way to reform banking is to once again make it boring'. Krugman argues that there is a negative correlation between the 'business model' of banking and economic stability. Whenever banking got exciting and interesting, paid well and attracted intellectual talent, it got way out of hand and jeopardized the stability of the real sector. Conversely, periods when banking was dull and boring were also periods of economic progress. Krugman's thesis of 'boring banking' is interesting, but also debatable. It raises several important questions. What were the ills of the banking system that caused the crisis? Is making banking 'boring' a necessary and sufficient cure to those ills? And, how relevant is the 'boring banking' perspective in India? The ills of banking system causing the crisis were (1) the repeal in the United States in 1999 of the Glass - Steagall Act; (2) the progressive globalization of financial institutions and services leading to a complex web of interconnected markets, institutions, services and products; (3) development of new structured products to distribute the credit risk, they also found new special purpose entities and vehicles to handle them. The large financial institutions knew that their failure would result in a systemic collapse, and that they would therefore be rescued at public cost. (4) Finally, the asymmetric compensation structures in many financial institutions encouraged risky behaviour. Many believe that the genesis of the crisis can be traced to the repeal in the United States in 1999 of the Glass - Steagall Act which mandated the separation of commercial and investment banking to protect depositors from the hazards of risky investment and speculation. The repeal opened up opportunities for commercial banks, investment banks, securities companies and insurance companies to consolidate, setting off a wave of innovation. Complex financial products were created by slicing and dicing, structuring and hedging, originating and distributing, all under the belief that real value could be created by sheer financial engineering. The system was characterized by opacity and dissipation of information with no one having a full picture of the extent of risk, how it was getting transmitted across the system and where it resided. Indian banking.: It is to be noted that even as other countries and other regions went through banking upheavals, Indian banking remained safe. This is part of our cautious and prudent regulation, and in part of the relatively lower globalization of our banking sector. But it does not mean that the lessons of the crisis are irrelevant for India. Our banking sector too will acquire an increasingly international character / presence abroad while foreign banks will have larger presence in India. The task for the Indian 5

Speech Gallery
(Excerpts from various speeches of RBI Governor / Dy. Governors)

Canara Bank RSTC Gurgaon banks is to learn to compete abroad and to set the terms of competition at home. It is imperative therefore for Indian banks to learn from the successes and failures around the world, study international best practices and adapt them to the Indian conditions. Boring banking is an oxymoron in the Indian case. There are four big challenges that Indian banks will need to address. Meeting these challenges is going to demand lateral thinking, entrepreneurship and management calibre - all a far cry from anything like boring. First Challenge : Financial Inclusion Rough estimates indicate that of the 600,000 habitation centres in the country, only about 30,000 centres are covered by commercial banks. The RBI has taken several steps to further financial inclusion - encouraging 'no frills' accounts, Business Correspondent (BC) model and the use of mobile phones for extending banking outreach. It is not possible to cover a country of a billion plus people, spread over 600,000 habitations, covering vast distances, with poor infrastructure and sometimes inhospitable terrain by traditional brick and mortar branches. Financial inclusion is especially valuable as it will at once promote both growth and equity. Working to meet this challenge can hardly be a boring proposition. Second Challenge : Financing Infrastructure The biggest supply constraint is of infrastructure - physical, social and urban. It is widely recognized that poor and inadequate infrastructure is adding to production costs, denting productivity of capital and eroding the competitiveness of our productive sectors. A big issue in bank financing of infrastructure is the asset-liability mismatch. While infrastructure typically requires long term funding, the deposits of banks, their main source of funds, are relatively short-term. The problem of asset-liability mismatch in long term financing is not unique to India; banks elsewhere too face the same problem. But in advanced economies, the long term finance space is filled by insurance companies and pension and provident funds. The burden of infrastructure financing will have to be met largely by the banks. In order to partly offset this problem, the Reserve Bank has, since 2000, allowed banks to enter into take-out financing arrangements with other financial institutions. To facilitate financing for infrastructure, the RBI has also relaxed the exposure norms. (to avoid concentration risk. For financing infrastructure these norms are relaxed by up to 5 per cent in the case of a single borrower and 10 per cent in the case of a borrower group. A number of recent measures and several in the pipeline should facilitate greater flow of credit to the infrastructure sector. A few important ones are: 1. First, interest rate futures have been reintroduced recently and these should aid banks in managing their interest risk more efficiently. 2. Second, repos in corporate bonds are slated to start soon; we expect to issue final guidelines by end-November 2009. 3. Third, in the second quarter policy review last month, we announced the introduction of plain vanilla OTC single-name credit default swaps (CDS) for corporate bonds for resident entities.

Speech Gallery
(Excerpts from various speeches of RBI Governor / Dy. Governors)

Canara Bank RSTC Gurgaon 4. Fourth, a separate category of NBFCs - infrastructure NBFCs - is being introduced. Fifth, banks will be permitted to build up capital for 'take-out' exposures in a phased manner. 5. Finally, refinancing through the special purpose vehicle, India Infrastructure Finance Company Ltd. (IIFCL), is expected to leverage bank financing for Public Private Partnership (PPP) projects. These measures, along with existing ones, can be expected to enhance banks' ability to fund infrastructure projects. Financing infrastructure is going to be a big challenge for the banking sector. This huge and growing demand of infrastructure finance + finding the resources, will have to be met by banks. Then, banks will also need to hone their skills in appraisal and management of risks inherent in infrastructure financing. Hence it is going to be more challenging & not boring. Third Challenge : Risk Management Two big forces will define the environment in which Indian banks will be called upon to operate: (1) a rapidly globalizing India and (2) a fiercely competitive banking industry. Hence, Indian banks will have to upgrade their risk management architectures. In addition to managing more effectively the traditional risks such as credit risk, operational risk and market risk, banks also need to manage some new risks that have proven to be significant such as reputation risk, counterparty credit risk, liquidity risk, interest rate risk in the banking book and incremental risks in the trading book. Risk management needs to be complemented by stress testing techniques. This calls for sharpening the skill endowment at the institutional level. As of March 2009, all Indian banks have migrated to the simpler approaches of the Basel II standard. The task on the way forward is to graduate to more advanced approaches. Towards this end, in consultation with banks, the Reserve Bank has now finalized a fouryear time frame starting in April 2010 and ending with March 2014. Moving to advanced approaches is both skill and technology intensive. In the first instance, it will therefore necessarily have to be confined to the larger banks. Risk management is going to involve pushing the frontiers of knowledge and transforming that knowledge to practical policy. That can hardly fit the description of boring. Fourth Challenge : Further Improvements in Efficiency The growth acceleration of the Indian economy during 2003-08 is attributable to a host of factors. Some of these are tangible such as the deregulation of the industrial sector, liberalization of external trade and external finance, reform of direct and indirect taxation and elimination of controls on doing business. Some of the factors that contributed to growth are intangible such as improved productivity, higher efficiency and growing entrepreneurism. The contribution made by the financial sector by way of larger and better quality financial intermediation that raised the level of aggregate savings and channelled them to investment. The rapid expansion of credit has been accompanied by a significant improvement in asset quality which is now close to international norms.

Speech Gallery
(Excerpts from various speeches of RBI Governor / Dy. Governors)

Canara Bank RSTC Gurgaon The analysis in the Reserve Bank's Report on Currency and Finance 2006-08 shows that the Indian banking sector has recorded an impressive improvement in productivity over the last 15 years; many of the productivity / efficiency indicators have moved closer to the global levels. The Report also shows that the performance of public sector banks has converged with that of new private sector and foreign banks. More interestingly, contrary to popular perception, there is also no significant relationship between ownership and efficiency - the most efficient banks straddle all three segments - public sector banks, private sector banks and foreign banks. The intermediation cost in India is still high, largely due to high operating costs. Non-interest sources of income constitute a very small share in total income of banks in India. Although overall efficiency and productivity have improved, resources are not being utilised in the most efficient manner. There is a degree of stickiness and non-transparency in bank lending rates. The challenge for Indian banks, therefore, is to reduce costs and pass on the benefits to both depositors and lenders. This will involve constantly reinventing business models and designing products and services demanded by a rapidly growing and diversifying economy. this means that Indian banks will need to improve efficiency even as their costs of doing business go up. This is a challenge that will test ingenuity, perseverance, ability to learn and adapt and management skills. And this is going to be anything but boring. Conclusion The four challenges that the banking sector has to meet head on are deepening financial inclusion, financing infrastructure, strengthening risk management and improving efficiency. These are formidable challenges, and meeting them is going to be an exciting, rewarding and fulfilling opportunity.

***

Speech Gallery
(Excerpts from various speeches of RBI Governor / Dy. Governors)

Canara Bank RSTC Gurgaon

Financial Inclusion: Challenges and Opportunities


(09-12-2009 / Dr. Duvvuri Subbarao, Governor / At the Bankers' Club / Kolkata) Financial Inclusion is important simply because it is a necessary condition for sustaining equitable growth. However, only 40 per cent of the population across the country has bank accounts. Banks must look at the opportunity at the bottom of the pyramid and move into financial inclusion in a big way. Financial inclusion will make it possible for governments to make payment such as social security transfers, National Rural Employment Guarantee Programme (NREGA) wages into the bank accounts of beneficiaries through the 'Electric Benefit Transfer' (EBT) method. From the demand side, the big barriers are the lack of awareness about financial services and products, limited literacy, especially financial literacy of the populace, and social exclusion. From the supply side, the main barrier is the transaction costs that the bankers perceive. Furthermore, lack of communication, lack of infrastructure, language barriers and low literacy levels all raise the cost of providing services and inhibit bankers from taking initiative from the supply side. On way forward, the lead bank in each district has been asked for ensuring that all villages will have access to financial services through a banking outlet, not necessarily a bank branch, by March 2011. All commercial banks will be asked to come up with plans for financial inclusion by March 2010. RBI is going to ask all banks to include criteria on financial inclusion in the performance evaluation of their field staff. It is for the banks to convert what they see as a dead-weight obligation into an exciting opportunity and move on aggressively on financial inclusion. ***

Speech Gallery
(Excerpts from various speeches of RBI Governor / Dy. Governors)

Canara Bank RSTC Gurgaon

Furthering Financial Inclusion through Financial Literacy and Credit Counseling


(30-11-2009 : Dr. K. C. Chakrabarty, Deputy Governor / / At the launch of Federal Ashwas Trust on November 30, 2009 in Kochi / Kerala) Lack of literacy in general and financial literacy in particular, are the main hurdles in expanding the coverage of financial services to the poorer segments of society. The process of financial education through literacy centers could benefit the Banks as the centers while interacting with customers would be in a much better position to understand their specific requirements. Counseling can also help solve current financial problems, create awareness about the costs of misusing a credit, can improve financial management and help develop realistic spending plans. Debt counseling / credit counseling can be both preventive and curative. In case of preventive counseling, the centers could provide awareness regarding cost of credit, availability of backward and forward linkages, where warranted, etc. The objectives of Financial Literacy and Credit Counseling Centers (FLCC) are to provide financial counseling services, to educate about various financial products & services available from the formal financial sector, to formulate debt-restructuring plans for borrowers. The FLCCs should give due emphasis to customers' rights under fair practices code and act as watchdogs. The Bank, based on the experience gained, may like to consider opening more such centers in other districts of the State in due course as the benefits of such initiatives flow back to the banks. ***

10

Speech Gallery
(Excerpts from various speeches of RBI Governor / Dy. Governors)

Canara Bank RSTC Gurgaon

Pushing Financial Inclusion: Issues, Challenges and Way Forward


(17-07-2009 : Dr. K. C. Chakrabarty, Deputy Governor / / At 20th SKOCH Summit 2009 / Mumbai) People having Annual Income less than Rs.50,000 bracket are still heavily dependent on money lenders and very few of them have bank accounts, though they are bankable. The reasons for this financial exclusions are absence of technology, delivery mechanism, business model and reach and coverage. To give push to Financial Inclusion, it is essential to focus on: 1. Inclusive growth, 2. Domestic consumption and investment, 3. Increased social sector spending, 4. Giving benefits to poor clients and reduction of cost, 5. Implementing the Report of the Financial Inclusion in India, 2008 and adopting appropriate technology and efficient delivery model. ***

Banking: Key Driver for Inclusive Growth


(10-08-2009 : Dr. K. C. Chakrabarty, Deputy Governor / / At the Mint's 'Clarity Through Debate' series / Chennai) There are still large segments of the society that remain outside the financial system. There are over 3 million SHGs in India. Only 22 per cent of the SHGs were provided with bank finance for undertaking income generating activities including micro enterprises. This has been attributed to failure of public intervention to enhance the credit absorption capacity of SHGs as well as to the failures of credit delivery systems to reach the poor. To address the problem of high transaction cost and outreach, the banks can increasingly use Information Technology based solutions. The Financial Inclusion Fund (FIF) and Financial Inclusion Technology Fund (FITF) can be used to render promotional support for SHGs and other grass root level institutions. Thus, financial inclusion along with the Governmental developmental programmes will lead to an overall financial and economic development in our country and as in the case for most developing countries, extending the banking services to everyone in the country will be the key driver towards an inclusive growth.

***

11

Speech Gallery
(Excerpts from various speeches of RBI Governor / Dy. Governors)

Canara Bank RSTC Gurgaon

Sustaining Growth Potential : Focus on Key Sectors


(11-09-2009 : Smt. Usha Thorat, Deputy Governor / / At the Inaugural Session of the "Conclave of CEOs and CFOs" organised by Institute of Public Enterprise & NMDC Ltd., CII (AP) & CEO Clubs India / Hyderabad) The growth rate of 8.8 per cent average in the Indian economy during 2003-08 is the highest ever recorded. The policy of financial inclusion is critical for greater capital formation to ensure higher and sustained growth. There is also a need to address the non credit issues in agricultural credit, credit and credit plus issues in Micro and Small Enterprise (MSE) financing and a variety of innovative risk mitigants in infrastructure financing to make sure that the Indian banking system can play its due role in capital formation in these three vital sectors of the economy so critical for sustainable inclusive growth.

*** Emerging Market Concerns: An Indian Perspective


(05-10-2009 : Dr. Duvvuri Subbarao, Governor / / At G-30 International Banking Seminar / Istanbul) From the perspective of Emerging Market Economies (EMEs) and particularly for that of India, concerns arise for Timing of exit from the accommodative monetary policy in the context of rising food price-led inflation but still weak growth; The possibility of another surge in capital flows, especially if we turn out to be an outlier in withdrawal of monetary stimulus; Monetary transmission mechanism as it is evolving from the crisis period; Return to fiscal consolidation and quality of fiscal adjustment; and The implications of the efforts towards financial stability on financial inclusion and growth.

***

12

Speech Gallery
(Excerpts from various speeches of RBI Governor / Dy. Governors)

Canara Bank RSTC Gurgaon

Technology, Financial Inclusion and Role of Urban Cooperative Banks


(09-08-2009 : Dr. K. C. Chakrabarty, Deputy Governor / / At Foundation Day and Inauguration of the 'Core Banking Solution Project' of the A. P. Mahesh Co-op Urban Bank Ltd. / Hyderabad ) It is highly desirable that underbanked people should be brought into the banking fold. The UCBs have to take a lead and play a more pro-active role. The challenge lies in taking greater advantage of new technologies and information-based systems. IDRBT is being asked to facilitate UCBs availing of Core Banking Platform on an Application Service Provider (ASP) model. With this, the UCBs will be able to put in place cost-effective, modern technology. They need to redesign their business strategies to incorporate specific plans to promote financial inclusion of low income group. Mobile phones, POS terminals, 'simple to use' cash dispensing and collecting machines akin to ATMs, etc. with operating instructions and commands in vernacular language would greatly facilitate the financial inclusion of the semi-urban populace at an affordable cost, and cooperative banks with a local touch and feel can address these issues in a big way. Reserve Bank's focus is also geared towards facilitating the process of computerization in UCBs. Financial Inclusion as a holistic benchmark of a country's advancement and its commitment to meet the aspirations of its disadvantaged franchisee is a 'Goal' to pursue by all the concerned players.

***

13

Speech Gallery
(Excerpts from various speeches of RBI Governor / Dy. Governors)

Canara Bank RSTC Gurgaon

Global Financial Crisis and Monetary Policy Response in India


(12-11-2009 : Mr. Deepak Mohanty, Executive Director / / At the 3rd ICRIER-InWEnt Annual Conference / New Delhi) An important lesson learnt, post-September 2008, is that irrespective of the degree of globalization of a country and the soundness of its domestic policies, a financial crisis could spread to every economy. The impact of the global financial crisis unfolded in the Indian financial markets, through reversal of capital inflows and significant correction in the domestic stock markets on the back of sell-off in the equity market by the foreign institutional investors (FIIs). The banking sector was not affected as it had hardly any direct exposure to sub-prime assets. The deceleration in growth in industrial output in Q4 of 2008-09 was noticeable in negative growth of -0.5% (y-o-y). The transmission of external demand shocks was swift and severe on export growth and the growth in government final consumption expenditure registered a sharp increase. By synchronizing the liquidity management operations with those of exchange rate management and non-disruptive internal debt management operations, the RBI ensured that appropriate liquidity was maintained in the system. The balance of judgment at the current juncture is that it may be appropriate to sequence the 'exit' in a calibrated way so that while the recovery process is not hampered, inflation expectations remain anchored. The 'exit' process can begin with the closure of some special liquidity support measures." To sum up, despite sound fundamentals and no direct exposure to the sub-prime assets, India was affected by global financial crisis reflecting increasing globalization of the Indian economy. ***

14

Speech Gallery
(Excerpts from various speeches of RBI Governor / Dy. Governors)

Canara Bank RSTC Gurgaon

Financial Crisis and Beyond


(10-11-2009 : Smt. Shyamala Gopinath, Deputy Governor : At the 3rd India-China Finance Conference : Mumbai) In terms of the two crucial soundness indicators, viz., capital and asset quality, the Indian banking sector has exhibited resilience amidst testing times. In line with the discernible improvement in the economic outlook globally as also in India, attention has shifted from managing the crisis to managing the recovery. RBI withdrew certain special liquidity support measures like : (a) The SLR and the limit for export credit refinance facility were restored the pre-crisis level. (b) The two nonstandard refinance facilities: (i) special refinance facility for scheduled commercial banks and (ii) special term repo facility for scheduled commercial banks have been discontinued with immediate effect. India is actively confronted with an upturn in inflation due to its unique features like India has been a supply constrained economy and has the challenge of reviving domestic consumption and investment demand. India is also an emerging economy with twin deficits - fiscal and current account deficits. Capital flows in India have resumed and problems associated with a synchronous tightening of monetary policy, viz., exit from the expansionary policy earlier than others, can be especially relevant for emerging market economies like India. Stability in the financial sector and a sound systemic oversight framework is the best way to provide a necessary buffer to undertake the task of financial empowerment in the true sense.

*** Learning from Crises


(16-10-2009 : Mrs. Usha Thorat, Deputy Governor / 'Institute of Banking and Finance (IBF) Distinguished Speaker Series' lecture / Singapore) The major learning from the global crisis is that globalization has meant that no country is immune from the happenings in global financial markets. The shock has impacted both the financial and real sectors although it was financial sector led. The Regulators have to be concerned about the real sector and recognize that financial sector development is not a goal by itself but is intended to enable the growth, not just of the rich, but more importantly inclusive growth cutting across all segments of the society and regions.

***

15

Speech Gallery
(Excerpts from various speeches of RBI Governor / Dy. Governors)

Canara Bank RSTC Gurgaon

Global Crisis: Genesis, Challenges and Opportunities Unleashed


(25-09-2009 : Dr. K. C. Chakrabarty, Deputy Governor / / At the 21st Anniversary Convention of the Association of Professional Bankers / Colombo, Sri Lanka ) Global crisis has tested the competence and conventional wisdom of policy makers, bankers and market participants all around the world. In view of the strong interactions between the financial system and the real economy, a financial crisis often gives rise to an "adverse feedback loop" in the view of which policies in the advanced economy have aimed at addressing both financial stress and the economic recession. Lower interest rates, ample liquidity and fiscal stimulus have been used to contain the adverse real effects; while for restoring stability to the financial system, measures like raising the capital of banks and financial institutions and addressing the impaired assets have been adopted. For countries like India and Sri Lanka, the growth opportunities are almost limitless, given our current levels of development from where we have to catch up with the welfare and income levels of the advanced economies. Large sections of the population contribute much below their potential because of lack of opportunities, and if the policy environment could recognize the gaps and provide the right opportunities with appropriate incentives, the growth prospects could improve significantly. However, global crisis of this magnitude does not help in creating and expanding opportunities for around more than 2 billion population in the world, who live under abject poverty. That is why countries like India and Sri Lanka must demand a better global governance system to manage the challenges of globalization. Much of the prosperity in market economies has been possible because of the animal spirit, and regulations should not suppress animal spirit, just because of the potential risks of instability and crisis. ***

16

Speech Gallery
(Excerpts from various speeches of RBI Governor / Dy. Governors)

Canara Bank RSTC Gurgaon

Global Financial Crisis: Questioning the Questions


(31-07-2009 : Dr. D. Subbarao, Governor / / At the Meeting of The Associated Chambers of Commerce and Industry of India / New Delhi) At the heart of the crisis were two root causes - the buildup of global imbalances and developments in the financial markets over the last two decades. Global imbalances have been, are, and will continue to be inevitable. Given that global imbalances are inevitable, how do we ensure that they do not build up to destabilizing levels? Monetary policy will have to be conducted in a regime of large and continuing structural fiscal deficits. The Reserve Bank needs to roll back the special monetary accommodation. For this to happen, the government will have to flesh out the road map for fiscal consolidation. The crisis has shown that both are critical for macroeconomic stabilization. The right question is : how can we coordinate fiscal and monetary policies to achieve the planned outcomes? In a more global context, given the fall out from the crisis, to ask how central banks should revert to their sole inflation targeting mandate is the wrong question. The right question is this : what are the specific roles and responsibilities of governments and central banks in ensuring price stability, financial stability and macroeconomic stability? The financial sector has no standing of its own; it derives its strength and resilience from the real economy. To the extent that the financial sector helps deliver stronger and more secure long-term growth, its development is important. And our regulatory framework should be premised on this underlying argument. The question we need to answer is whether an existing practice or a change in rule delivers higher and more secure real economy growth ?

17

Speech Gallery
(Excerpts from various speeches of RBI Governor / Dy. Governors)

Canara Bank RSTC Gurgaon

Challenges for the Central Banks


{14-08-2009 : Dr. D. Subbarao, Governor (Shri M. Narasimham, Dr. C. Rangarajan, Dr. Y. V. Reddy - Former Governors) / / At Taj Krishna Hotel / Hyderabad } Shri M. Narasimham - The challenge for the central banks in future would be to carry along the market participants through transparent and clear communication policies rather than taking them by surprise. Dr. C. Rangarajan - Price stability is important as it reduces uncertainty about the future, promotes savings and investments and helps to reduce poverty. Dr. Y. V. Reddy - Countercyclical approaches to prevent asset price bubbles needed to recognise the issue of trade and financial cycles, on which the domestic policy might not really have control. Dr. D. Subbarao - The first challenge for central banks around the world and in India was to conduct monetary policy in coordination with fiscal policy, but without becoming hostage to fiscal compulsions. There is also a need to define the mandate of central banks and reforming the regulatory structures to get an optimum balance of liberalisation and regulation and to conduct monetary policy in a globalised environment. ***

Impact of global financial crisis on RBI as a National Regulator


(29-06-2009 : Smt. Usha Thorat, Deputy Governor / / At the 56th EXCOM Meeting and FinPower CEO Forum organised by APRACA / Seoul, Korea) The crisis had knock on effects on the country in three ways, viz. reduction in foreign equity flows, tightening access to overseas lines of credit and fall in global trade and output. The cumulative impact of this was a slowing down of output and employment. While the RBI responded to the situation by selling dollars consistent with its policy objective of maintaining orderly conditions in the foreign exchange market, it started addressing the liquidity pressures through a variety of measures. Recognizing that the unexpected and swift turn of events could lead to problems of a spiraling downturn, the RBI also took a series of regulatory measures. The RBI took sector-specific measures to alleviate the stress faced by employment intensive sectors such as SME, export and housing. The inherent synergies in its multiple roles enabled the RBI to ensure orderly functioning of money, forex and government securities markets. Both, macro prudential and micro prudential policies adopted by the RBI have ensured financial stability and resilience of the banking system Finally, the close coordination and interaction between the Government and the RBI ensured that appropriate package of measures were put in place promptly to deal with the crisis and restore the growth momentum.

***
18

Speech Gallery
(Excerpts from various speeches of RBI Governor / Dy. Governors)

Canara Bank RSTC Gurgaon

Risk Management in the Midst of the Global Financial Crisis


(22-05-2009 : Dr. D. Subbarao / / At the Financial Management Summit 2009 organized by the Economic Times / Mumbai) The global economy is passing through its deepest financial and economic crisis of our time. The challenge is how we manage the recovery. While the Reserve Bank will continue to support liquidity in the economy, it will have to ensure that as economic growth gathers momentum, the excess liquidity is rolled back in an orderly manner. The challenge for fiscal policy is to balance immediate support for the economy with the need to get back on track on the medium term fiscal consolidation process. Beyond monetary and fiscal policies, preserving financial stability is the key to navigating these uncertain times. The CFSA* found that our financial system is essentially sound and resilient, and that systemic stability is by and large robust. { * Committee on Financial Sector Assessment (CFSA)} CFSA also carried out single-factor stress-tests for credit and market risks and liquidity ratio and scenario analyses. These tests show that there are no significant vulnerabilities in the banking system. The Reserve Bank intends to formalize this process. With the right mix of macroeconomic policy and corporate strategy, we will emerge from this global recession stronger than before.

19

Speech Gallery
(Excerpts from various speeches of RBI Governor / Dy. Governors)

Canara Bank RSTC Gurgaon

Global Financial Crisis: Causes, Impact, Policy Responses and Lessons


23-04-2009 : Dr. Rakesh Mohan, Deputy Governor / / At 7th Annual India Business Forum Conference / London Business School, London The current ongoing global financial crisis has had its roots in the excessively accommodative monetary policy and lax lending standards in US. Following the Lehman failure, there were large capital outflows by portfolio investors with concomitant pressures in the foreign exchange market. Indian banking system is, however, not displaying any distress. The financial sector, especially banks, is subject to prudential regulation. The CRAR of all scheduled commercial banks taken together was 13.0 per cent at endMarch 2008, well-above the regulatory requirement of 9 per cent. A more rigorous assessment of the health of commercial banks, recently undertaken by the Committee on Financial Sector Assessment shows that the commercial banks are robust and resilient and can withstand significant shocks arising from large potential changes in credit quality. Various policy actions by the Reserve Bank since mid-September 2008 have been aimed at offsetting the contraction caused to its balance sheet due to fall in its foreign assets. For a variety of factors, bank lending rates are expected to exhibit only a gradual softening. It is important that banks and other financial sector players are well-regulated. A host of other issues such as accounting, auditing and compensation have also received attention in the aftermath of the global financial crisis. However, in view of the fast pace of technological and financial innovations, regulatory authorities would have to follow an approach that would have to be dynamic and adjust in response to changing economic environment.

20

Speech Gallery
(Excerpts from various speeches of RBI Governor / Dy. Governors)

Canara Bank RSTC Gurgaon

India - Managing the Impact of the Global Financial Crisis


26-03-2009 : Dr. Duvvuri Subbarao / / At the Confederation of Indian Industry's National Conference and Annual Session 2009 / New Delhi India has been impacted by the crisis due to rapid and growing integration into the global economy. The contagion of the crisis has spread to India through all the channels - the financial channel, the real channel, and the confidence channel. The Reserve Bank's policy response was aimed at containing the contagion from the outside. This marked a reversal of Reserve Bank's policy stance from monetary tightening to monetary easing and moderation in growth in the current cycle. The Central Government invoked the emergency provisions of the FRBM Act to seek relaxation from the fiscal targets and launched two fiscal stimulus packages. It is the Reserve Bank's expectation that commercial banks will take the signal from the policy rates reduction to adjust their deposit and lending rates in order to keep credit flowing to productive sectors. The government's fiscal stimulus should be able to supplement these efforts from both supply and demand sides. Once the global economy begins to recover, India's turn around will be sharper and swifter, backed by our strong fundamentals and the untapped growth potential. Meanwhile, the challenge for the government and the RBI is to manage the adjustment with as little pain as possible.

21

Speech Gallery
(Excerpts from various speeches of RBI Governor / Dy. Governors)

Canara Bank RSTC Gurgaon

Impact of the Global Financial Crisis on India Collateral Damage and Response
18-02-2009 : Dr. Duvvuri Subbarao / / At Symposium on "The Global Economic Crisis and Challenges for the Asian Economy in a Changing World" / Institute for International Monetary Affairs, Tokyo The global economic outlook deteriorated sharply over the last quarter. IMF made a marked downward revision of its estimate for global growth to 0.5 per cent in January 2009. Great Recession of 2008/09 is going to be deeper and the recovery longer. India has been hit by the crisis, despite mitigating factors, due to its rapid and growing integration into the global economy. How Has India Been Hit By the Crisis? The contagion of the crisis has spread to India through all the channels - the financial channel, the real channel, and the confidence channel. Let us first look at the financial channel. India's financial markets - equity markets, money markets, forex markets and credit markets - had all come under pressure from a number of directions. (1) First, as a consequence of the global liquidity squeeze, Indian banks and corporates found their overseas financing drying up, forcing corporates to shift their credit demand to the domestic banking sector. Also, in their frantic search for substitute financing, corporates withdrew their investments from domestic money market mutual funds putting redemption pressure on the mutual funds and down the line on non-banking financial companies (NBFCs) where the MFs had invested a significant portion of their funds. This substitution of overseas financing by domestic financing brought both money markets and credit markets under pressure. (2) Second, the forex market came under pressure because of reversal of capital flows as part of the global deleveraging process. Simultaneously, corporates were converting the funds raised locally into foreign currency to meet their external obligations. Both these factors put downward pressure on the rupee. (3) Third, the Reserve Bank's intervention in the forex market to manage the volatility in the rupee further added to liquidity tightening. Now let me turn to the real channel. Here, the transmission of the global cues to the domestic economy has been quite straight forward - through the slump in demand for exports. The United States, European Union and the Middle East, which account for three quarters of India's goods and services trade are in a synchronized down turn. Service export growth is also likely to slow in the near term as the recession deepens and financial services firms - traditionally large users of outsourcing services - are restructured. Remittances from migrant workers too are likely to slow as the Middle East adjusts to lower crude prices and advanced economies go into a recession. The crisis also spread through the confidence channel. In sharp contrast to global financial markets, which went into a seizure on account of a crisis of confidence, Indian financial markets continued to function in an orderly manner. Nevertheless, the tightened global liquidity situation in the period immediately following the Lehman failure in midSeptember 2008, coming as it did on top of a turn in the credit cycle, increased the risk aversion of the financial system and made banks cautious about lending.

22

Speech Gallery
(Excerpts from various speeches of RBI Governor / Dy. Governors)

Canara Bank RSTC Gurgaon Despite not being part of the financial sector problem, India has been affected by the crisis through the pernicious feedback loops between external shocks and domestic vulnerabilities by way of the financial, real and confidence channels. Both the Government and the Reserve Bank of India responded to the challenge in close coordination and consultation. The main plank of the Government response was fiscal stimulus while the Reserve Bank's action comprised monetary accommodation and counter cyclical regulatory forbearance. These measures have ensured that the Indian financial markets continue to function in an orderly manner. Our response has been predominantly driven by the need to arrest moderation in economic growth. Notwithstanding the severity and multiplicity of the adverse shocks, India's financial markets have shown admirable resilience. (Resilience meaning: The physical property of a material that can return to its original shape or position after deformation that does not exceed its elastic limit) Once the global economy begins to recover, India's turn around will be sharper and swifter.

23

Speech Gallery
(Excerpts from various speeches of RBI Governor / Dy. Governors)

Canara Bank RSTC Gurgaon

Some Reflections on the recent Global Financial Turmoil: An Indian Perspective


(10-01-2009 : Ms. Shyamala Gopinath, Deputy Governor / / At the Annual Conference of FEDAI, Kolkata) RBI has taken a series of measures to augment forex and domestic liquidity. Some of the measures taken to augment forex liquidity are: USD dollar swap lines of up to USD10 billion for Indian banks with overseas branches and subsidiaries. The actual utilisation, as of January 9, 2009 is only USD 247 million. Increasing interest rate ceilings for FCNR(B) and NRE deposits to LIBOR / SWAP rates plus 100 basis points and LIBOR / SWAP rates plus 175 basis points respectively. ECB policy, which is an instrument of capital account management, has been liberalised to revert to the pre-May 2007 period. It may be recalled that due to large capital flows, the end use of ECB proceeds was limited to foreign currency expenditures. Further liberalisation in terms of expanding eligible borrowers and end use has also been undertaken viz : o Housing Finance Companies, registered with National Housing Bank (NHB) have been permitted to raise short-term foreign currency borrowings o NBFCs, which are exclusively involved in financing of the infrastructure sector, may avail of ECBs from multilateral / regional financial institutions and Government owned development financial institutions for on-lending to the borrowers in the infrastructure sector under the Approval route. o Payment for obtaining license / permit for 3G Spectrum will be considered an eligible end-use for the purpose of ECB. o The corporates in the Hotels, Hospitals and Software sectors to avail of ECB up to USD 100 million per financial year, under the Automatic Route, for foreign currency and / or Rupee capital expenditure for permissible end-use. o Spreads on ECBs and trade credits were increased and the all-in-cost ceilings on ECBs were dispensed with under the Approval route. Limit on overseas borrowings by banks was enhanced from 25 percent to 50 percent of unimpaired Tier I capital. Overseas borrowings for on-lending to exporters continue to remain outside the ceiling. In order to enable EXIM bank to continue to offer buyers credit against lines of credit as well as preshipment and post shipment finance, RBI has extended a line of credit of Rs.5000 crore. EXIM is also eligible to avail of swap facility up to USD 1 billion under the facility permitted for banks. The FII limit for investment in corporate bonds has been hiked to USD 15 billion from USD 6 billion. Deputy Governor touched upon the big picture and underlined some lessons that can be drawn from the crisis. Any future financial market reform measure and introduction of new innovations / products must be preceded by an assessment of the resultant leverage for the system in quantifiable terms. Financial sector entities need to be seen and regulated as risk repositories in the system. 24

Speech Gallery
(Excerpts from various speeches of RBI Governor / Dy. Governors)

Canara Bank RSTC Gurgaon The increasing focus on holistic approach towards regulation of financial entities resulted in the shadow banking system made up of unregulated SIVs and conduits leading to risk transfers which could have systemic implications. Well regulated counterparties reduce potential for disruption in financial markets. FEDAI has been urged to suggest a framework for complex products. All authorised dealers are also urged up on to become members of the FEDAI and execute an undertaking to the effect that they would abide by the terms and conditions stipulated by the FEDAI for transacting foreign exchange business.

***

25

Speech Gallery
(Excerpts from various speeches of RBI Governor / Dy. Governors)

Canara Bank RSTC Gurgaon

Emerging Blueprint for Prudential Regulation: Assessment and Challenges


(27-11-2009 : Smt. Shyamala Gopinath, Deputy Governor / Confluence, 2009, IIM / Ahmedabad) In the post-crisis period, the emerging global consensus is increasingly supporting regulatory actions that will strengthen prudential regulation both at the macro and at micro level that will need to be integrated appropriately into the national regulatory regimes over time. Macro-Prudential Regulation The objective of the overlay of the macro prudential framework is to contain the risk of systemic contagion. On interconnectedness, an institution is clearly systemic if it is a dominant player in the inter-bank market or other funding and derivatives markets. There is therefore a proposal to levy a "systemic capital charge" on banks and institutions that pose potential systemic risks. There is no international insolvency framework for financial firms and a limited prospect of one being created in the near future. To prevent weakness in one institution affecting the entire financial system, a pre-planned resolution mechanism should ensure winding down of the problem in an orderly manner, only affecting the shareholders or at best the creditors, but not taxpayers in general. Recognizing the risks in over leverage and in view of the fact that risk models cannot capture risks with absolute precision, the risk based capital adequacy is proposed to be underpinned by an internationally harmonized leverage ratio. Both prudential regulations and accounting standards have increased pro-cyclical behavior among banks. There is a consensus on the establishment of a capital buffer above the minimum that is met or exceeded in good times. Dynamic provisioning* is that it makes the balance sheets less vulnerable to cyclical fluctuations however, the accounting fraternity critics such provisioning as it is misused for profit smoothing. * (The fundamental principle underpinning dynamic provisioning is that provisions are made against all outstanding loans based on an estimate of forward looking expected loss instead of incurred losses. The benefit is that such provisioning would make the balance sheets less vulnerable to cyclical fluctuations. The foremost critique of the above approach has come from the accounting fraternity which interprets this as an instrument which can be potentially misused for profit smoothing. However, post crisis there is greater appreciation of the prudential benefits of dynamic provisioning even from accounting standard setters. It should be possible to have inbuilt checks and balances to ensure that the potential misuse is minimized.)

26

Speech Gallery
(Excerpts from various speeches of RBI Governor / Dy. Governors)

Canara Bank RSTC Gurgaon Micro Prudential Regulation In addition to increasing the minimum level of capital, the regulatory capital requirement would now also emphasizes: (b) Extending the coverage to include securitization activities and complex financial instruments, all off-balance sheet activities and trading book exposures - thereby making the coverage as comprehensive as possible, (c) Enhancing the quality of capital buffer by including only common equity and reserves under Tier 1 capital. Adequate capital without adequate liquidity cannot save a bank from illiquidity spirals in the markets. The IASB and FASB have issued a joint statement reaffirming their commitment to work towards convergence to a single set of high quality global standards. {International Accounting Standards Board (IASB).} {US Financial Accounting Standards Board (FASB)} Indian Experience Our overall regulatory framework and the specific regulatory measures played an important role in preventing instability in the Indian banking system during the global financial crisis in particular, and in avoiding any banking crisis in general in the past. Conclusion The origins of next crisis may come from yet unidentified exogenous sources or the macroeconomic framework or macro-imbalances but the emerging blueprint for prudential regulation is aimed at preparing the system to adjust itself in a non-disruptive manner. ***

27

Speech Gallery
(Excerpts from various speeches of RBI Governor / Dy. Governors)

Canara Bank RSTC Gurgaon

Philosophy and Practice of Financial Sector Regulation: Space for Unorthodoxy


(02-11-2009: Smt. Shyamala Gopinath, Deputy Governor / Conference / London) / FSA Turner Review

The clarity, conviction and clinical sharpness of arguments one encounters while reading the Turner review ask of us a very fundamental question - how could the world not have expected this crisis? How could the policy regimes world over, barring a few exceptions, failed to even recognize what now seems to be obvious? Historically, the Indian financial system has been a bank dominated one. The bank-based financial system had come in for sharp criticism in the wake of the Asian crisis, but the recent crisis has again brought the centrality of banks in a financial system into focus, irrespective of the form of the financial market model. Broadly speaking, the evolution of regulatory framework for financial sector entities has been intrinsically derived from the objective of financial stability. In respect of the prudential framework for banks, while there was a commitment to move towards the international prudential standards for banks, in many areas a more contextual approach was adopted in India keeping in view the idiosyncratic and systemic concerns Counter cyclical measures were first taken when risk weights and provisioning on certain segments were increased on account of rapid credit growth in these segments leading to concerns about potential impact of asset price bubbles and impact on credit quality. Banks are required to hold a minimum of 25 percent of their liabilities in the form of liquid domestic sovereign securities. The credit conversion factors (CCF) used for calculating the potential future credit exposure for off-balance sheet interest rate as well as exchange rate contracts were doubled across all maturities in 2008. Banks were encouraged to build floating provisions as a buffer for the possible stress on asset quality later. In regard to wholesale funding markets, prudential limits were placed on aggregate inter-bank liabilities for banks as a proportion of their net worth. To reduce systemic risk, investments by banks in subordinated debt of other banks are assigned 100% risk weight for capital adequacy purpose. There are limits on the proportion of wholesale foreign currency liabilities intermediated through the banking system. The incremental credit-deposit ratio of banks is monitored as part of the macro prudential framework While the repair of the banking system, through a strengthened prudential framework, has seen progress, the much needed reform of the financial markets must be the next focus area for global oversight bodies, particularly the G20 and the FSB. However, what our experience till now has shown is that a more common-sensical approach, less driven by a doctrinaire mindset; clear prioritization of objectives and studied caution while replicating models successful elsewhere will be reliable guideposts.

28

Speech Gallery
(Excerpts from various speeches of RBI Governor / Dy. Governors)

Canara Bank RSTC Gurgaon

Global Agenda for Regulatory and Supervisory Reforms: The Stock Taking and Way Forward
(08-09-2009 : Smt. Usha Thorat, Deputy Governor / : At the Panel Session on "Strengthening Financial Regulation and Supervision" of the FICCI-IBA Conference on "Global Banking : Paradigm Shift" / Hotel Grand Hyatt, Mumbai) Cross-border bank funding has been disrupted as the banking crisis in Western Europe intensified. In order to overcome the crisis the Basel Committee has introduced new trading book capital rules that substantially raises trading book capital requirements. It prescribes higher capital requirements for resecuritisations and exposures to off-balance sheet vehicles. It has evolved principles for stress testing and valuation of complex products, as also for supervision and management of funding liquidity risk. It has incorporated the FSB compensation standards into the Pillar 2 supervisory review process and has enhanced Pillar 3 disclosures focusing on trading activities, securitisations and exposures to off-balance sheet vehicles. The G 20 Finance Ministers and Central Bank Governors issued a statement reaffirming their commitment to strengthen the financial system to prevent the build-up of excessive risk and future crises and support sustainable growth. The Group took note of the actions taken so far by FSB including introduction of CCPs to clear most credit default swaps, stronger oversight regimes for credit rating agencies, internationally agreed principles for the oversight of hedge funds, good practices for due diligence by asset managers when investing in structured finance products, and issuance of internationally agreed principles for regulation of short selling. A number of measures based on the principles that are now accepted internationally, were already brought into practice even before the crisis in India. These included: o Restrictions on leverage for banking and non banking institutions, o stringent liquidity requirements, counter cyclical prudential measures, o not recognising in Tier I capital many items that are now sought to be deducted internationally, o recognising profits from sale of securitised assets to SPVs over the life of the securities issued, o not reckoning unrealised gains in earnings or in Tier I capital. The challenge for us is to facilitate the growth of the real sector through financial products and innovations subject to adequate safeguards and adoption of sound risk management policies. For further strengthening financial regulation and supervision, the following measures are under the consideration of RBI : Based on July 2009 final documents from BCBS on enhancements to Basel II framework, further guidelines relevant to standardized method are being issued. A draft circular detailing the modalities for adopting the integrated liquidity risk management system as also the guidance note on 'Liquidity Risk Management' based on Basel Committee's 'Principles for sound liquidity risk management and supervision' brought out in September 2008 as well as other international best practices will be put up on the Reserve Bank website by October 31, 2009.

29

Speech Gallery
(Excerpts from various speeches of RBI Governor / Dy. Governors)

Canara Bank RSTC Gurgaon As part of developing financial market infrastructure, recently, capital adequacy norms for CCPs have been laid down. CCIL's role is being gradually extended to the OTC interest rate and forex derivatives segment, initially as a reporting platform and thereafter, covering the settlement aspect. Additional guidance on securitisation focusing on a minimum lock-in-period and minimum retention criteria for securitising the loans originated and purchased by banks is proposed to be issued shortly. Recently, regulatory and supervisory framework for financial conglomerates has been reviewed for enhancing the regime. The enhancements would be put in operation shortly. RBI would shortly be issuing a draft Discussion Paper on prudential issues in banks' floating and managing private pools of capital in order to sensitize banks about risks inherent in such activities and limit such exposures commensurate with their risk management and available capital. As indicated in the Annual Policy Statement announced in April 2009, the Reserve Bank would recommend the implementation of the sound procedures / principles being developed by the FSB for financial institutions regarding the compensation packages. There has been significant progress in the area of convergence of accounting standards. The Indian accounting standards are expected to be fully convergent with IFRSs with effect from April 1, 2011. Reserve Bank of India is actively working with the Government, accounting standard bodies and banks for ensuring preparedness for smooth convergence by the banking system. The agenda that is being developed for strengthening of financial sector regulation and supervision is ambitious. Contentious issues will arise both at national and at the international levels on regulatory cooperation. Whereas the principles underlying this regulatory overhaul are being increasingly accepted, many challenges will arise on their practicality and modes of implementation : (a) Firstly, there is a need to ensure that regulators and supervisors remain firm in their resolve to ensure that there is no build-up of risk in the system and that the principles and framework articulated are adhered to in letter and spirit. (b) Second, the interconnectedness of the institutions and markets requires central banks, banking and securities regulators to work in close coordination with full exchange of information and frequent interaction to assess the systemic risks at any point of time. (c) Third, several of the countercyclical proposals are dependent on the assessment of economic and banking conditions in national jurisdictions which will determine the capital buffer requirements - these will obviously vary from one jurisdiction to another as cycles would also vary. With banks operating across the globe, this will imply that capital requirement could vary across jurisdiction - parking the transaction in a more favourable jurisdiction cannot be ruled out. Coupled with complex structures and differential tax regimes, minimising regulatory and tax arbitrage will continue to be a huge challenge (d) Fourth, cross border resolution issues will continue to be daunting especially as national regulators will seek to protect domestic depositors and stake holders. (e) Fifth, convergence toward international accounting standards will be a huge challenge in terms of not only bringing in the changes in standards that are appropriate for the country but also for putting in place systems and capabilities to facilitate convergence.

30

Speech Gallery
(Excerpts from various speeches of RBI Governor / Dy. Governors)

Canara Bank RSTC Gurgaon Issues such as putting in place prudential filters for not distributing unrealised gains would also arise. Sixth, while there are discernible signs of recovery in the global financial markets, the real test of the resilience of the financial system will be its performance through the exit process. For the emerging market economies such as ours, the challenge will be to manage the impact of this process of global stabilisation. Seventh, in emerging markets such as India, without sufficient historical data of credit and default cycles, there are difficulties in putting in place many of the advanced methodologies under the regulatory framework such as expected loss provisioning, additional capital buffers linked to PDs. Eighth, an additional challenge for the EMEs is that they are exposed to the volatile international capital flows necessitating suitable regulatory policies depending on the macro economic conditions for ensuring financial stability. Finally, for countries like India, the advantages of coming in late is that while introducing new products and instruments one can have the benefit of the global experience so that the pitfalls can be avoided while reaping the gains of innovation.

(f)

(g)

(h)

(i)

***

31

Speech Gallery
(Excerpts from various speeches of RBI Governor / Dy. Governors)

Canara Bank RSTC Gurgaon

India's Economic Transformation: A Snapshot


(07-09-2009 : Dr. K. C. Chakrabarty, Deputy Governor / / At the Antique India Markets Conference 2009 / Mumbai) This growing integration of Indian economy with rest of the world was essentially an outcome of reform measures triggered by BOP crisis in 1991. Reforms in Real Sector Deregulation of industry by way of eliminating licensing requirement, Overhauling of public enterprises, Enhanced role for private sector, abolition of MRTP Act, Automatic approval route for foreign investment, Elimination of quantitative import restrictions and reduction in tariff rates De-reservation of large number of items that were earlier meant to be produced exclusively in the small scale sector. Liberalization of foreign direct investment not only in terms of scope and proportion of foreign ownership but also with regard to procedural details. Reforms in Services sector. Entry of private sector and foreign direct investment that introduced competition and state of the art technology brought a sea change in the services sector. For instance, Mobile phones, boom in information technology (IT) and Information Technology and Enabled Services (ITES) sectors. Reforms in Agricultural sector. Measures relating to free movement of agricultural commodities, APMC Act permitting farmers to bypass the mandatory requirement of sale in regulated markets and relaxation of restrictions under Essential Commodity Act, 1955 along with introduction of future trading brought major change in the pricing mechanism. National commodity futures markets discover price rather manipulation by local traders. Banks in association with professionally managed godowns extend credit to farmers against warehouse receipts. Large consumer goods companies directly source agricultural produce from the farmers. Economic Transformation - Reforms in Financial Sector Money Market Reforms were essentially aimed at providing avenues for the market players to deploy or access to short-term funds and a platform to the monetary authority to modulate liquidity in the system. Deregulation of interest rates Introduction of new instruments. 32

Speech Gallery
(Excerpts from various speeches of RBI Governor / Dy. Governors)

Canara Bank RSTC Gurgaon Freeing of interest rates on call and other money market instruments, Introduction of Commercial Paper and Certificate of Deposit, Exemption of inter-bank lending from reserve requirement, Introduction of screen based trading and rupee derivatives such as Interest Rate Swaps (IRS) and Forward Rate Agreements (FRA), Enlarging the scope of Repo market by expanding the repo-able securities and eligible participants in the repo market and introduction of tripartite repo i.e. CBLO to create pure interbank call money market, Government Securities Market Till mid-eighties Government had been borrowing at sub-market rates, (captive market created by statutory reserve requirement). Concessionary financing was eliminated with introduction of market auction system and phasing out of automatic monetisation with Ways and Means Advances (WMA). As yields became market related and Government started competing with the private sector in the market for funds, it had the desired impact on G-Sec market as evident by rising secondary market activity and near emergence of market yield curve. With reforms, G-Sec is no longer a captive market. Development of the market was sustained by up-gradation of technology and market infrastructure with regard to settlement systems and trading systems and amendment of legislative provisions. Foreign Exchange Market Prior to reforms, foreign exchange market was virtually absent. Introduction of market based exchange rate regime, Adoption of current account convertibility and relaxation on capital account, inter alia, in terms of permission to run open positions, to hold investments abroad and to retain foreign exchange along with introduction of hedging tools (derivatives) led to emergence of active and vibrant foreign exchange market. Now exchange rate is flexible and market determined; and capital account is also effectively convertible for the non-residents. Computed from monthly NEER and REER indices, volatility in Indian market is one of the lowest in the world. Reform measures enhanced depth and liquidity in the market reflected in rising turnover and moderation in bid-ask spread over the years. Capital Market Far reaching changes made in both the primary and secondary market segments of capital market. Primary market witnessed a significant movement away from CCI regime imposing primary issuance at sub-market rates to free pricing and book-building system along with mandatory disclosures as prescribed by SEBI. In the secondary market, corporatisation of exchanges, screen based trading replacing open outcry system, introduction of options and futures replacing erstwhile Badla System, rolling settlement replacing 14-day settlement cycle, dematting of securities with depository system created state-of-the art infrastructure comparable to best international practice. 33

Speech Gallery
(Excerpts from various speeches of RBI Governor / Dy. Governors)

Canara Bank RSTC Gurgaon Credit Market: Prior to reforms, banking operations both on the assets and liabilities side were governed by the guidelines set out by the regulator. With guidelines that ensured banks' margin on cost plus basis, competition was virtually absent with no incentive to cut cost, raise efficiency or upgrade credit assessment skills. More competition along with higher flexibility and operational autonomy to the banks, Building up of risk management capabilities. Introduction of prudential regulation and supervision in line with best international practices. Widening of ownership due to stock market listing and associated disclosure requirements brought greater market discipline and transparency in the bank management. These measures transformed the banking sector which could be discerned in measures of efficiency and soundness. There has been steady decline in intermediation cost of banks from 6.24 per cent in 199192 to 3.43 in 2006-07. DEA based estimates of efficiency and productivity indicates sharp improvement in operations of public sector banks and are now comparable to their counter parts in the private sector (RBI, 2008). Growing soundness of the banking sector is also evident in falling NPAs from 7.7 per cent in 1995-96 to about 1 per cent in 2006-07. While banks' operations became more efficient, there has been considerable progress in terms of business volumes reflecting growing economy and reach of the banking sector. Over the past 11 years, on an average, deposits of scheduled commercial banks have risen at a compound growth rate of 17.7 per cent and advances grew by 21 per cent. Growth has been higher for urban and semi urban branches compared to rural branches. In terms of advances to various sectors of the economy banks' portfolio has been quite diversified. Since, 1998-99, while share of advances to agriculture sector remained around 12 per cent, there has been progressive diversification from industrial and wholesale credit to segments such as professionals, personal loans, etc. Payment Systems The enactment of the Payment and Settlement Systems Act, 2007 empowering the Reserve Bank to regulate and supervise payment and settlement systems. To make free the use of other bank ATMs with effect from April 1, 2009. The service charges for 'Electronic Payment Products' and outstation cheque collection have also been rationalised. 'Speed Clearing' has been introduced to reduce the time taken for realisation of outstation cheques to T+1 or T+2 basis. 'Cheque Truncation System (CTS)' has been introduced in cheque clearing since July 2008 in New Delhi. The coverage of Electronic Clearing System (ECS) has been increased to 75 centres and 89 banks with 55, 225 branches are participating in National Electronic Funds Transfer (NEFT) system. These data suggest that the payment systems in India are robust, sound and have been growing at a steady pace. 34

Speech Gallery
(Excerpts from various speeches of RBI Governor / Dy. Governors)

Canara Bank RSTC Gurgaon Economic Transformation: Structural reforms in Indian economy, during last two decades, have unambiguously altered the economic landscape of the country. The Indian economy has registered an impressive growth in recent times with GDP recording an average of 7.2 per cent growth rate in the current decade from an average growth of 5.7 per cent in the nineties. The share of service sector in the national income has steadily increased with corresponding fall in the contributions of agriculture and industrial sectors over the years. Consequent shift in relative contribution of various sectors to national income, however, brought to fore the concerns for sustainability of the transformation process and the need for an 'inclusive growth'. The reform process that began economic transformation since the early nineties has been based on a broad political and intellectual consensus in India that explains as to why there has never been any policy reversal since then. Besides, brewing up of twin economic imbalances i.e. fiscal crisis and external payment crisis, the timing of reforms may have been the outcome of international and domestic political events economic transformation is an ongoing process that needs to be pursued with perseverance and consensus while keeping in view their aptness to the domestic economy.

***

35

Speech Gallery
(Excerpts from various speeches of RBI Governor / Dy. Governors)

Canara Bank RSTC Gurgaon

Emerging Contours of Financial Regulation: Challenges and Dynamics


(10-06-2009 : Dr. Rakesh Mohan) The regulatory system was clearly behind the curve in taking account of the build up of excessive leverage in the system and the inadequate appreciation and assessment of the emerging risks. Hitherto unregulated institutions, markets and instruments will have to be brought under the regulatory framework. The regulatory framework will need to keep pace with the associated risks in a more rapid and effective manner. A more developed macro-prudential approach will be important in this context. The overarching mandate of reforms is to make regulatory regimes more effective over the cycle. Once conditions in the financial system have recovered, international standards for capital and liquidity buffers will have to be enhanced, and the build-up of capital buffers and provisions in good times should be encouraged so that capital can absorb losses and be drawn down in difficult times such as the current period. Banks are expected to have in place effective internal policies, systems and controls to identify, measure, monitor, manage, control and mitigate their risk concentrations in a timely manner, and under various conditions, including stressed market situations. The supervisory authorities would have to oversee compliance of best practices for capturing firm-wide risk concentrations arising from both on - and off-balance sheet exposures and securitization activities.

***

36

Speech Gallery
(Excerpts from various speeches of RBI Governor / Dy. Governors)

Canara Bank RSTC Gurgaon

Banking and Finance in India: Developments, Issues and Prospects


(31-08-2009 : Dr. K. C. Chakrabarty, Deputy Governor / / At the 62nd International Banking Summer School (IBSS) / New Delhi) The financial imbalances that had built up inexorably during the boom, on the back of aggressive risk-taking and leveraging, had finally started to unwind. In a cross-country perspective, when measured by the ratio of Bank assets to GDP, financial depth in India was among the lowest in the world. The reasons accountable for India's insulation can be listed as (1) The nascent stage of development of the credit derivatives market; (2) Regulatory guidelines on securitization do not permit immediate profit recognition; (3) Perseverance of prudential policies which prevent institutions from excessive risk taking and financial markets from becoming extremely volatile and turbulent; and (4) Close co-ordination between supervision of Banks and their regulation. Future regulatory reform process in the context of emerging markets as we move ahead can be : (1) Firstly, the issue related to 'Know Your Customer (KYC)' in Banks; (2) Secondly, whether the Banks are according 'Fair Treatment' to their Customers (FTC) (3) Thirdly, the issue of 'Risk Management' and its proper understanding and ; (4) Lastly, the Leveraging Technology for greater Financial Inclusion.

***

37

Speech Gallery
(Excerpts from various speeches of RBI Governor / Dy. Governors)

Canara Bank RSTC Gurgaon

Financial Stability : Issues and Challenges


(10-09-2009 : Dr. Duvvuri Subbarao, Governor / At the FICCI-IBA Annual Conference on 'Global Banking : Paradigm Shift' organised jointly by FICCI and IBA / Mumbai) The financial crisis has witnessed a massive break down of trust across the entire financial system. Restoration of trust in the financial system is central to the pace and shape of recovery. There was a great deal of uncertainty not only about the extent of losses and the ability of Banks to withstand those losses, but also about the extent of risk in the system, where it lay and how it might explode. If governments continue to incur large fiscal deficits, it will be that much more difficult for central banks to maintain price stability. The current crisis has shown that price stability is not sufficient to ensure financial stability; price stability is decidedly a necessary condition for financial stability. The crisis has underscored the importance of acknowledging financial stability as an explicit variable in the policy matrix of central Banks. There is a misplaced concern in some quarters that the crisis may have dented India's enthusiasm for financial sector reforms. Our three main objectives have been price stability, growth and financial stability, with the inter se priority among the objectives shifting from time to time depending on the macroeconomic circumstances. On financial globalization, our stance has been gradualist of making haste slowly. ***

38

Speech Gallery
(Excerpts from various speeches of RBI Governor / Dy. Governors)

Canara Bank RSTC Gurgaon

Changing Dynamics of Legal Risks in Financial Sector:


(30-10-2009 : Smt. Shyamala Gopinath, Deputy Governor / Symposium on Changing Dynamics of Legal Risks in Financial Sector / Kerala ) Some of the key legal risks faced by banking industry in the recent financial crisis related to bankruptcy risks, mis-selling of complex derivatives, untested risks in the securities market - custodial arrangements, tripartite agreements, securities lending etc. Problems like heterogeneity of resolution arrangement can be solved by developing a homogenized resolution framework for entities having cross-border operations but common resolution framework continues to be the difficulty. Sound legal agreements are also important aspects for particularly brokers and other intermediaries in forex and securities markets, which essentially act as agents. The crisis has also underlined the risks inherent in re-hypothecating assets which can be mitigated by the use of the tri-party collateral management model in which a third party sits between the prime broker and their hedge fund or other clients holding the collateral in segregated accounts. However, concentration of such repos with only few banks aggravates systemic risk. Tricky legal issues like Ready-forward (repo) transactions were solved by RBI by making amendment to the Reserve Bank of India Act in 2006. Legal risks arises for the banking industry due to unreasonably long time frame involved in legal proceedings of insolvency matters, etc. and also due to lack of priority given to security interests created prior to the crystallization of State dues. The uncertainty with respect to the validity of OTC derivatives was removed by amendment to the Reserve Bank of India Act carried out in 2006. The RBI has been initiating amendments in laws like the Payment and Settlement Systems Act, 2007, the Banking Regulation Act, 1949, Negotiable Instruments Act, 1881, The Information Technology Act, 2000 and so on to keep pace with the dynamic market place. Banks are also, increasingly exposed to legal risk is the rising consumer grievances about the services rendered by the banks. But there are still issues which are left to be addressed like cross border insolvency issues, jurisdictional issues in cross border transactions etc., which require a concerted effort from the international community. Perhaps the bottom line in the area of legal risk management remains on the choice of counterparty and the understanding of the legal documents.

39

Speech Gallery
(Excerpts from various speeches of RBI Governor / Dy. Governors)

Canara Bank RSTC Gurgaon

Sub-national Fiscal Reforms and Debt Management: Indian Experience


29-04-2009 : Shyamala Gopinath / / At the Workshop on 'Sub-national Fiscal Reform and Debt Management' / Washington States recorded a revenue surplus of 0.6 per cent in 2006-07 for the first time since 198687. For the fiscal 2008-09, 25 States presented a revenue surplus budget. Seventeen States budgeted their gross fiscal deficit - GFD at less than 3 per cent of GSDP. The outstanding liabilities of States declined from the peak of 33.2 per cent in 2003-04 to 28.3 per cent in 2007-08 and were budgeted to decline further to 27.4 per cent in 2008-09. The States have thus achieved the targets of fiscal deficit and debt / GDP ratio at the aggregate ahead of the schedule recommended by the 12th Finance Commission. Thirteenth Finance Commission: The Thirteenth Finance Commission (ThFC) since constituted in November 2007 is expected to submit its report by October 2009. Its recommendations would be applicable for five years (2010-11 to 2014-15). The Commission would make recommendations on the distribution of the taxes between the Centre and the States and among the States, grants in aid to States, and suggest measures to strengthen the functioning of the third tier governments. The ThFC will also consider, inter alia, the impact of the proposed implementation of Goods and Services Tax (GST), the need to improve the quality of public expenditure and the need to manage ecology, environment and changed climate consistent with sustainable development. The Commission shall review the state of the finances of the Union and the States, and suggest measures for maintaining a stable and sustainable fiscal environment consistent with equitable growth. The Commission may also review the present arrangements as regards financing of Disaster Management with reference to the National Calamity Contingency Fund and the Calamity Relief Fund and make appropriate recommendations thereon. The ThFC may also suggest a roadmap for 2010 to 2015 with a view to maintaining the gains of fiscal consolidation after bringing the liabilities of the Central Government on the deficit targets. It is expected that the ThFC, like its predecessors, would do justice to the issues related to vertical and horizontal equity even as taking the process of fiscal consolidation further. Faced with the global financial crisis, the States were thus on a relatively firm ground having left with some fiscal space. Thus, States were allowed to raise the additional market borrowing to the extent of 0.5 per cent of GSDP. This additional fiscal space was to be utilized for making capital investment. In addition, some States have also introduced stimulus packages to boost investment particularly in infrastructure sectors. GFD as a percentage to GDP is budgeted to increase further during 2009-10. Once the global economy begins to recover, the sub-national governments would reaffirm their commitment to the fiscal responsibility and be back onto the path of fiscal consolidation. Meanwhile, the challenge for the governments and the RBI is to manage the transition with as little pain as possible. 40

Speech Gallery
(Excerpts from various speeches of RBI Governor / Dy. Governors)

Canara Bank RSTC Gurgaon

Mobile Commerce, Mobile Banking: The Emerging Paradigm


(04-12-2009 : Dr. K. C. Chakrabarty, Deputy Governor / At the India Telecom 2009 Conference organized by Department of Telecom / New Delhi ) The coverage of mobile phones and the use of such instruments by all section of the population can be exploited for extending financial services to the excluded populations. However, in M-commerce or E-commerce there is the need for collaboration between technology service provider and provider of goods and services. Delivery is a support function and a routine that used to be taken care by clerks or lower level staff but in e-commerce or m-commerce, 'delivery' becomes Critical Care Competence in which businesses will be evaluated and preferred. Banking is an activity of trust. Reserve Bank of India has been keeping in pace with the developments and introduced the Electronic Clearing Service (ECS) followed by the Electronic Fund Transfer System, later extended as the National Electronic Fund Transfer (NEFT) and the Real Time Gross Settlement (RTGS) that offer a secure and efficient platform for transfer of funds between bank accounts without the need for paper-based payment instruments. The implementation of a successful mobile banking product requires seamless flow of payment instructions across mobile operators. The charges mandated by RBI make all account-to-account fund transfer models as the cheapest mode of remittance in India. The Payment and Settlements System Act, 2007, entrusts upon RBI, the responsibility for regulation and supervision of all payment and settlement systems in the country. However, the extent and the manner in which M-commerce should be facilitated needs a cautious and well-considered approach keeping in view the concerns on money laundering and financial terrorism and the stability of the payment and settlement systems. ***

41

Speech Gallery
(Excerpts from various speeches of RBI Governor / Dy. Governors)

Canara Bank RSTC Gurgaon

GenNext Banking: Issues and Perspectives


(25-11-2009 : Dr. K. C. Chakrabarty, Deputy Governor / / At the Panel Discussion on GenNext Banking at the 4th International Finance and Banking Conference organized by the Indian Merchant's Chamber, Mumbai ) In 2020, the average Indian is estimated to be only 29 years old, compared with 37 in China and USA, 45 in West Europe and 48 in Japan. The implications of this to the country in general and the Indian Banking sector in particular are significant. Indias population, is projected to increase to 1,400 million by 2026. The opportunities presented by the increasing population and the transition to the young Gen-Next Banking are tremendous. Banks have to be proactive and be prepared to service the millions and millions of young customers ready to receive their products. As India is poised to be a global power in the 21st century, Gen-Next Banks will be the catalytic agent in making India a global power. The critical issue is whether the Indian Banking system will gear up and tune itself with this new generation. The growth will be driven not just by the potential customer base but by others drivers as follows as well: Availability of information and communication technology. The issue of adequate market penetration. Banking skills needed to deal with the Knowledge Economy / workers. The Gen-Next society will essentially be a knowledge Society and the challenge is to see how Banking can be facilitated in a knowledge economy The expansion of banking services for the millions of new customers would imply that there would be tremendous growth in the volume of such services. The age structure of a population affects a nation's key socioeconomic issues. Although significant financial deepening has been taking place in Indian economy over the years as seen from the deposit-GDP ratio, bank assets-GDP ratio and credit-GDP ratio, the low levels of penetration in India can provide a medium term structural growth driver for banks. A noteworthy feature discernible in the Indian context is that the rise in indicators of financial deepening takes place along with a noticeable rise in the domestic savings rate. The existing studies on India suggest a near one-for-one relationship between the dependency ratio and national savings. A statistical analysis of the data on GDP, housing loan and educational loan for the period March 2004 to March 2009 suggests that a 1 per cent increase in GDP growth is associated with 3 per cent increase in housing loan and 5 per cent increase in education loan. The GenNext banks would be offering products and services right from birth until death. Banks would now have to increasingly deal with knowledge workers i.e. one who works primarily with information and uses knowledge in the work place. The players, regulators and policy makers operating in the Banking sector will have to face new issues and challenges like appropriate systems and structure to generate information for GenNext banks, Delivery Structure for the entire financial system, delivery model, policy changes, regulatory framework, Business Model (in terms of pricing, marketing, product development), Risk Management Framework, Technology, Communication & Network Connectivity, Human Resource etc. 42

Speech Gallery
(Excerpts from various speeches of RBI Governor / Dy. Governors)

Canara Bank RSTC Gurgaon

Information Technology and Banking: A Continuing Agenda


(18-05-2009 : Dr. D. Subbarao / / At the Banking Technology Awards 2008 / Institute for Development & Research in Banking Technology, Hyderabad) Today, we settle close to 100,000 transactions a day in the RTGS mode and process close to about 30 crore transactions per year in the electronic mode. Given the growing importance of IT in the banking sector, the IDRBT should provide incentives to the IT-based operations of commercial banks. Current financial sector leaders still need to take greater advantage of new technologies and information-based systems. Banks have to share the responsibility of providing education to their customers and pass on the benefits of lower costs from technology-based products and services to their customers. Alignment of IT and business, and HR, and organizational structure should culminate in IT governance as an important component of corporate governance. Banks and other financial institutions should continue to find new and better ways to put technology to their and their customers' best use, and manage the technology and business risks associated with the investments in newer technologies.

43

Speech Gallery
(Excerpts from various speeches of RBI Governor / Dy. Governors)

Canara Bank RSTC Gurgaon

Technology in Banks: Responding to the Emerging Challenges


23-03-2009 : Ms. Shyamala Gopinath, Deputy Governor / / At the CII's Banking TECH Summit 2009 / Mumbai The use of technology in India has undergone rapid transformation. The Core Banking concept to a great extent emerged from this centralization process. Technological and payment systems developmental initiatives have been undertaken in the Indian banking and financial sector viz. Core Banking Solutions (CBS), Customer Relationship Management (CRM), Corporate Banking, Management Information System (MIS), Internet Banking, Mobile Banking, Indian Financial Network (INFINET) Structured Financial Messaging System (SFMS), VSAT connection, Real Time Gross Settlement, Centralized Fund Management System (CFMS), Electronic Clearing System (ECS), National Electronic Fund Transfer (NEFT), National Financial Switch (NFS), Clearing Corporation of India Limited (CCIL), Automated Teller Machine (ATM), Electronic Banking and High Value Clearing and so on. RBI has also set up an institution called the Institute for Development Research in Banking Technology (IDRBT). However, dependency on 'technology' factors must be limited to 50% as these technologies have opened a floodgate of concerns due to the risk factors involved in the implementation like 'Phishing', 'SQL Injection', 'Advance Fee frauds', Database and Server Hacking, Network attacks, 'Denial of Service' attack, Web Defacing , Cross Site scripting, IP Spoofing , Man-in-the Middle Attacks. Extensible Business Reporting Language (XBRL) reduces the cost of analyzing and reporting business information helps in effective MIS aiding swift decision making. Effective Governance and Regulatory Compliance can avoid Credit card frauds, Money Laundering risk through electronic channel and its counters. Challenges like 'Change Management' issue and the shortage of skilled IT personnel also emerge can be dealt with robust and time-tested Business Continuity' and 'Disaster Recovery' Management plans. To avoid Operational Risk and risks involved in 'outsourcing' of IT activities in bank, Information Security, Information System Audit and adoption of international standards can be pertinent. Adoption of ISO / IEC 38500 Standard may help organizations for establishing an efficient and effective framework. ISO / IEC 38500 Standard: It is the first international standard for IT governance may help organisations for establishing an efficient and effective framework for IT governance for a better alignment of IT and business goals. The standard provides a single integrated framework that enables the financial institutions to take the full advantages of other standards / frameworks. The technology providers may be looked up with expectations for affordability, availability, reliability, adaptability and convenience.

44

Speech Gallery
(Excerpts from various speeches of RBI Governor / Dy. Governors)

Canara Bank RSTC Gurgaon

Retail Payments: Perspectives and Way Forward


19-03-2009 : Dr. Duvvuri Subbarao / At the Regional Seminar / Chennai Ability to make and receive payments with confidence remains the cornerstone of any commercial activity. With financial inclusion becoming a major objective, the existence of efficient retail payment systems is being perceived as a significant public good. Legal reforms constituted the first step in this direction. Payment and Settlement Systems Act provides a legal basis and framework for most of the requirements of payment and settlement systems and also mandates the Reserve Bank to regulate payment and settlement systems. Board for Regulation of Payment and Settlement Systems was established. The Clearing Corporation of India Ltd functions as a Central Counter Party for select categories of transactions. This infrastructure has efficiently mitigated counter party risks in over-the-counter markets. The Reserve Bank is now facilitating the process of setting up the National Payments Corporation of India to provide and operate retail payment systems. Challenges for the Reserve Bank are regulation of electronic payment systems, managing service providers, ensuring efficient and low-cost payment system for transfer of funds, upgrading and ensuring the integrity of these systems. There is need for increased efforts to set up bench marks even for retail payment systems. The Reserve Bank will take proactive steps within a regulatory framework. Innovation, risk management, effort and increased international co-operation will be the key to success.

45

Speech Gallery
(Excerpts from various speeches of RBI Governor / Dy. Governors)

Canara Bank RSTC Gurgaon

Retail Payment Systems: Select Issues


17-03-2009 : Smt. Shyamala Gopinath, Deputy Governor / / At the Regional Seminar on Payment Systems, jointly organised by the Reserve Bank of India and Bank for International Settlements / Mamallapuram, Chennai We are witnessing is the favourable shift from the beneficiary-initiated transactions (from debit-pull in cheques) to the beneficiary-facilitated transactions. In countries like ours, developments in retail payments and their delivery channels can be effectively dove-tailed for bridging not only geographical gaps but also in terms of extension of financial activities and access to these activities to a wider section of society. The Reserve Bank will take proactive steps towards their operationalisation but within a regulatory framework that will mitigate the risks. My staff have advised me that they already have a cryptology for risk management RISK, which would take into account the following: R - Recognition - to identify any risk early on and take proactive steps before it gets out of hand; I - Improvisation - of new methods, techniques and tools to secure better monitoring, and providing for a feed-forward rather than a feed-back system; S - Segmentation - to address smaller systems and sub-systems individually so as to address their unique features while also being mindful of the systemic impact; and K - Knowledge - to enable knowledge-based decisions in a knowledge-powered economy, resulting in scientifically-engineered and output-oriented action.

46

Speech Gallery
(Excerpts from various speeches of RBI Governor / Dy. Governors)

Canara Bank RSTC Gurgaon

Lessons for Financial Policymaking: Interpreting the Dilemmas


03-03-2009 : Ms. Shyamala Gopinath, Deputy Governor / / At 10th FIMMDA-PDAI Annual Conference / Mumbai The current crisis has called into question the efficacy of internal risk management systems. A broad range of capital benchmarks is suggested to manage capital ratios. Tightening of capital requirements during good times and reduce them in downturns without actually specifying a range could be a simpler alternative. Dynamic Provisioning may be necessary to adopt counter cyclical provisioning measures. The case of Spain has been widely quoted, which introduced across the board increase in provisioning requirements, the dynamic provisioning approach. This is based on the premise that loans given at the top of the cycle tend to have higher losses as the cycle turns. In downturns defaults tend to emerge requiring more provisions. Also, banks should be required to set aside a general provision against likely future loss each time they write a loan. The monetary authorities should communicate their concerns on the sustainability of strong increase in asset prices and contribute to a more objective assessment of systemic risks. The crisis also provides us an impetus to review the extent to which hybrid / innovative forms of capital instruments should be allowed as a component of the banks' regulatory capital. Another important instrument to contain excessive leverage during an upswing is to introduce a "leverage ratio " covering both, the on-balance sheet assets and off balance sheet items. The overall framework should ensure availability of ample liquidity even in stressed conditions. A challenge for policymakers is to achieve the appropriate balance between the microprudential and macro-prudential approaches to financial sector oversight. The High Level Group on Financial Supervision in the EU has suggested application of appropriate regulation in a proportionate manner to all firms or entities conducting financial activities which may have a systemic impact. The dilemma for the accounting policymakers is to push for a harmonised set of guidelines for all economic entities vis-D-vis the differential approach demanded in certain cases by the prudential requirements. Uniform capital requirements just based on credit ratings will need to be replaced by a more granular and nuanced regulatory approach. Going forward, the test for further market development will be based on an assessment of not only implications for an individual institution - micro prudential but also implications for systemic risks.

***

47

Speech Gallery
(Excerpts from various speeches of RBI Governor / Dy. Governors)

Canara Bank RSTC Gurgaon

Ethics and the World of Finance


(28-08-2009: Dr. Duvvuri Subbarao : / Sri Sathya Sai University, Prasanthi Nilayam / Andhra Pradesh) All of us as individuals, families, social communities and faith communities confront ethical dilemmas everyday, and we resolve them in our own ways. Notwithstanding where we draw the line, we take the value of ethical behaviour to be axiomatic. (Axiomatic meaning: Evident without proof or argument). There is no evidence to show that people in the financial sector are inherently less ethical than people in other professions. However, given the larger temptation and more opportunities, the power of context to be short, there could be greater incidence of unethical behaviour in the financial sector. Drawing lessons from the crisis, I have argued that because of the very nature of the financial sector, leaders and top management in the financial sector have an extra obligation to be sensitive to larger societal obligations. Finally we are deeply sensitive to the Reserve Bank's role as the issuer of currency. A billion plus people place their implicit faith in the currency signed by the Governor promising to pay the bearer on demand the face value of the note. Maintaining the integrity of the currency note signed by the Governor is a responsibility that the Reserve Bank treats as sacrosanct - not just as a legal mandate but as an ethical responsibility. ***

48

Speech Gallery
(Excerpts from various speeches of RBI Governor / Dy. Governors)

Canara Bank RSTC Gurgaon

International Monetary and Financial Committee Meeting


25-04-2009 : Dr. Duvvuri Subbarao / / International Monetary and Financial Committee Meeting / Washington D.C Core to the very existence of the IMF is its surveillance role - to assess whether countries' policies are consistent not only with their own interest but also with the interest of the international community. A key aspect is the integration of macroeconomic and financial sector surveillance. The measures taken by the Fund to reform its lending instruments and policies could enable the Fund to re-emerge as the financier of choice also for insurance in uncertain times. The London Summit of G20 Leaders rightly focused on measures to enhance the resources available with the Fund. The ensuing quota review should ensure that the IMF is comprehensively reformed so that it reflects the changing economic weights in the world economy and is more responsive to future challenges. On development front, the GDP growth of India for 2008-09 is now projected to turn out to be in the range of 6.5 to 6.7 per cent. Sri Lankan economy has registered growth of 6.0 percent in 2008. Bangladesh's economy has stood up well in the face of the surge in international food and commodity prices in the first half of 2008 and the outbreak of the global crisis since September 2008. In Bhutan, GDP growth rate is expected to return to a trend level of 5.6 per cent in 200809. The crisis has afflicted the entire world. Much depends on a quick and internationally coordinated approach. The IMF is central to this endeavour.

49

Speech Gallery
(Excerpts from various speeches of RBI Governor / Dy. Governors)

Canara Bank RSTC Gurgaon

Dr. D. Subbarao's Interview


With Central Banking Publications, London (02-07-2009 : Dr. D. Subbarao, Governor / Published on July 2, 2009 / At the Central Banking Publications / London) The Governor emphasised that the challenge for the Reserve Bank was to create the stage for a 9% growth in an environment of price and financial stability. Higher growth in India cannot be meaningful unless the gains of growth are distributed more widely. We are a supply-constrained economy not demand constrained. Inflation is influenced by a number of factors besides excess demand in the context of easy liquidity. Because of this, inflation targeting is neither possible nor advisable for the Reserve Bank. The current temporary negative inflation is not structural in nature, but rather it's only statistical. The important thing for India is to increase investment, especially in infrastructure, and not so much consumption. I admit that private consumption has to go up as indicator of poverty reduction, but what is more important is that investment increase. Regarding the recent crisis, he said that the transmission of the crisis in India has been from the real sector to the financial sector and iterations thereon. Our policy action has been aimed at minimising the impact of the crisis through conventional and non-conventional policy action.

*** Dr. D. Subbarao, Governor's Inaugural Address


(02-07-2009 / At the Third Annual Statistics Day Conference of the Reserve Bank / Mumbai) Many of the decisions that we have to make and judgments that we have to form are based on analysis and interpretation of data. The relevance and effectiveness of our policy judgments, therefore, depend crucially on the quality of data and the efficacy of analysis and interpretation. The first challenge, therefore, is what steps do the official data agencies need to take to ensure that data are comprehensive, consistent and timely? Secondly, the various indices such as WPI or IIP, which attempt to capture the underlying developments in the economy, are refined and updated on a continuous basis to provide timely information to the policymakers. Thirdly, we can help manage expectations and perceptions better by focusing attention on data standards as well as improving the quality of our statistics education. Measuring the economy remains a complex task and data uncertainty is a fact of life. This uncertainty poses a challenge for all economic policy. The conduct of monetary policy will be better served by more firm data and less revisions. I do hope your expertise and insights will take us closer to solutions. *** 50

Speech Gallery
(Excerpts from various speeches of RBI Governor / Dy. Governors)

Canara Bank RSTC Gurgaon

Addressing the Regulatory Perimeter Issues: Indian Experience


(15-06-2009 : Smt. Shyamala Gopinath, Deputy Governor / / At the Ninth Annual International Seminar on Policy Challenges for the Financial Sector, co-hosted by The Board of Governors of the Federal Reserve System, The IMF, and The World Bank on "Emerging from the Crisis - Building a Stronger International Financial System", June 35, 2009 / Washington, D.C.) The impact of the crisis was exacerbated by dynamic interconnectedness between entities across regulated, unregulated and lightly regulated sectors. The two concerns relating to 'outside perimeter' entities that contributed to the current crisis were : (i) maturity transformation being undertaken by these entities, which traditionally used to be a function of banks; and (ii) the systemic leverage resulting out of the hugely leveraged positions of these entities, either through direct borrowing from banks or through the funding markets. The thrust of regulation may need to be borne by the regulated clusters - particularly deposit taking institutions. However, for the unregulated cluster, the key issues would be to contain their ability for systemic leverage - both directly through banks or indirectly through funding markets and to subject them to an effective reporting arrangement for their inter-linkages with the regulated clusters. From a systemic stability perspective, it would be equally, if not more, important to focus on the interconnectedness of the regulated and unregulated / lightly regulated entities.

*** Dr. Duvvuri Subbaraos Speech


01-04-2009 @ RBIs Platinum Jubilee Celebrations Reserve Bank of India enters its 75th year marking a historic journey. Today, it is acknowledged as one of the most professional and responsive public policy institutions in the country. RBI's 'tryst with nation building' ran parallel to the nation's 'tryst with destiny'. RBI has expanded encompassing both its regulatory and developmental responsibilities. RBI has had a decisive influence in shaping and implementing every major economic policy in the monetary and financial sectors. The programme of 'opening up' launched in 1991 catapulted India into a major emerging economy. Even in the midst of the deep recession that the world is going through today, India remains a growing economy. The Reserve Bank has played, and will continue to play, a leading role in managing the crisis and minimizing the pain of adjustment. This affords the RBI both a challenge and an opportunity. Reserve Bank's goal is to make a difference.

*** 51