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