H R Khan: Challenges and concerns of the central bank - opportunities
and role for the commercial banks
Address by Mr H R Khan, Deputy Governor of the Reserve Bank of India, at the Bankers'
Club, Thiruvananthapuram, 10 June 2013.
* * *
The speaker acknowledges the contributions of colleagues in Reserve Bank of India.
Accompanying slides can be found at the end of the speech. Original presentation is on the
Bank of India website.
1. It is a pleasure to be in the midst of so many bankers & colleagues in this serene
temple city of Thiruvananthapuram in God's own country of Kerala. Bankers' Club, as we all
know, provides an informal platform for exchange of views and information on the banking
system and about the economic environment in which banks operate. This has assumed
added importance in these challenging times for the economy and the financial system.
Today, I intend to cover ten major challenges confronting the Reserve Bank and focus on the
opportunities available to the commercial banks in relation to some of those challenges and
role that the bankers can play to meet the challenges. The 10 challenges & concerns I would
focus today are: (i) propelling revival of domestic growth; (ii) controlling persistent inflation;
(iii) mitigating external sector vulnerabilities; (iv) deepening the financial markets; (v)
maintaining a robust banking system; (vi) ensuring integrity of the financial system; (vii)
building efficient government banking business models; (viii) moving towards a less-cash
society; (ix) better customer service orientation of banks and (x) enhancing the quality of
financial inclusion.
I. Propelling revival of domestic growth
2. Several structural and transient factors, both global and local, have stymied the growth
drivers in India in recent times. Given the persistence of inflation, challenge for Reserve Bank
of India has been how to address growth risks without losing control over inflation. As you
are aware, the global economic activity still remains moderated amidst signs of diverging
growth paths across major economies. In India, recovery was rather sharp and swift in 2009-
10 (8.6 per cent) and sustained in 2010-11 (9.3 per cent). Thereafter, overall GDP growth
witnessed sharp decline to 6.2 per cent in 2011-12 and further to 5 per cent in 2012-13
(provisional). The potential growth, which was around nine (9) per cent in the pre-crisis
period, has come down to about seven (7) per cent now. Reserve Bank has been arguing
that growth cannot be revived without increasing the level of investment or gross domestic
capital formation. In India, the level of investment has been mostly financed by domestic
savings. As inflation rate in India remained above the comfort level for a long period, the
gross domestic savings as a percentage to GDP has fallen from 33.7 per cent in 2009-10 to
30.8 per cent in 2011-12. As inflation erodes the value of financial savings, there has been a
compositional shift in household savings, i.e., from financial savings to physical savings. In
fact, the financial savings of the households as proportion to GDP which was about 12 per
cent in 2009-10, has come down to around 8 per cent in 2011-12. Per contra, physical
savings of households as percentage of GDP have increased from 13.2 per cent to 14.3 per
cent during the same period. This trend is not conducive to growth as physical savings are
not available for further investment.
3. During 2004-05 to 2008-09, investments in India were supplemented by external
savings only to a limited extent as evident by the current account deficit (CAD) which
averaged around 1.2 per cent of the GDP. Thereafter, the CAD widened further and has now
reached a very high level of about five (5) per cent. This has implication for composition of
external debt, debt servicing ratio and risks associated with flight to safety in case of any
adverse international developments. In view of the above, India has to finance higher level of
investment through domestic savings. This could be possible only through containing
inflation so that households can get a positive rate of return on their deposits and do not fall
prey to unscrupulous offers made by unauthorized entities collecting public deposits under
varied nomenclatures.
4. Given the uncertainties, both in the domestic and external fronts, one cannot be sure
whether growth slowdown has bottomed out. Gradual recovery will be aided by the concerted
efforts made by the Government for fiscal consolidation and boosting private investments.
There are number of nascent signs of revival of growth which are likely to be supported by
expected normal monsoon. Even in these trying economic conditions, there is a plethora of
opportunities for the banks to provide the much needed fillip to the economy. Structural shift
from services to manufacturing, greater focus on financial deepening leading to a wider base
of consumers, particularly in the rural and small towns and more efficient credit markets are
expected to be the factors in improving the country's credit-GDP ratio, which is one of the
lowest amongst the BRICS nations (Chart 1).
5. Unlike in China, much of India's growth performance in the recent years has been
contributed by the services sector with share of manufacturing sector stagnating at around
15 to 16 per cent of the GDP. A competitive manufacturing is not only necessary for taking
advantage of the demographic surge that the country is now experiencing but also for
sustaining growth. With the New Manufacturing Policy, India is refocusing on positioning
manufacturing sector as drivers of growth. The policy aims at increasing the manufacturing
sector growth to 12 - 14 per cent over the medium term, thereby enabling manufacturing to
contribute at least 25 per cent of GDP over the next one decade and create additional 100
million jobs.
6. Banks should actively consider lending to the MSME sector as credit growth to this
sector has decelerated. 14th Standing Advisory Committee on MSMEs was constituted a
Committee (Chairman: Shri K. R. Kamath) to look into the entire gamut of credit flow related
issues pertaining to the sector. It is heartening to note that a recent survey of the
Confederation of Indian Industry (CII)1 revealed that bankers expect 20 per cent increase in
credit for the sector in the financial year 2013-14. Banks should also consider stepping up
credit delivery to the agriculture sector, particularly for small & marginal farmers under
different aggregation models and investments, credit for value addition in the sector besides
now forgotten project based lending to the allied sectors. With expected normal monsoon
and good level of harvests, increasing purchasing power and huge labour shortage for farm
activities demand for consumer goods and capital goods like farm equipments is likely to
register growth. This opens up new opportunities for bank lending.
7. Recently, over half of economists surveyed by CNN Money have identified recovery in
the housing sector as the primary driver of economic growth this year. In 2011-12, the
housing sector contributed 5.9 per cent in the GDP of the country, five per cent of GDP in
2010-11 and 9.3 per cent of the GDP in the year 2009-10. In a report of 2012, ICRA has
observed that during the period 2007-12, the level of mortgage penetration remained
stagnant at around 7 per cent of the GDP and this is significantly lower than developed
countries. Such low level of mortgage penetration, however, offers immense growth potential
of the sector. The criticality of the sector further increases due to the fact that housing is the
second largest generator of employment, next only to agriculture, with both forward and
backward linkages in nearly 300 sub-sectors, such as, manufacturing (e.g., steel, cement,
and builders' hardware), transport, electricity, financial services, etc. Banks could grasp the
opportunity of being part of the development of the affordable housing sector and, in turn,
contribute more actively in the overall inclusive growth of the Indian economy.
8. Another important sector which offers tremendous business opportunity for the bankers
is the infrastructure sector. It is well-proven that infrastructure development facilitates
economic growth and economic growth increases demand for more infrastructure.
Successful implementation of infrastructure projects is dependent, among others, on efficient
financial intermediation. Banking services are required for the entire life cycle of the project
and spread across a wide spectrum of products including advisory, lending, transaction
banking, debt and equity raising. The banks could seize the new opportunities like take-out
finance, transfer of liabilities to the Infrastructure Debt Funds (IDFs), etc. to manage their
Asset Liability Management concerns while financing the infrastructure.
II. Controlling persistent inflation
9. Inflation-growth dynamics in India is more complex than in most other countries.
Demand and supply side factors like high fiscal deficit aiding demand pressures, rising food
prices due to structural factors like higher income levels of people, change in their dietary
habits with focus on proteins, inefficient supply chain management, acceleration of wages,
particularly rural wages and high commodity prices have contributed to the persistence of
inflation. Recent trends are, however, comforting and show that inflation, at the wholesale
level, is moderating.
10. Particularly, the dilemma is to decide about the overriding objective of monetary policy
when growth is much below the potential and inflation persists. The challenge is to strike a
balance between the two primary objectives of monetary policy. The Reserve Bank could not
be more aggressive on monetary policy front as the battle against inflation is not yet over.
The upside risks to inflation persists and is in fact more pronounced at the retail level. In this
context, it is crucial to ascertain the threshold level of inflation which provides fillip to growth.
Recent research studies indicate that the threshold level of inflation in India is about five (5)
per cent beyond which inflation harms growth by putting sands on the wheels of commerce.
For example, given the level of disposable income, consumption of the same level of goods
and services by households requires more spending and, therefore, less amount of
disposable income is left for savings. It is not only the household savings but also
government savings which could be augmented by inflation control. According to the recent
Report on Currency & Finance published by Reserve Bank, the elasticity of government
expenditure with respect to one percentage change in WPI inflation is as high as 2.7, while
such elasticity with respect to collection of revenues in 0.9. Higher inflation thus entails
higher net government expenditure, leading to higher gross fiscal deficit, other things
remaining constant. As the Union Government is currently under the fiscal consolidation
program, unless inflation is controlled, it may be difficult to check revenue expenditures.
Inflation control will help achieve fiscal consolidation without cutting capital expenditure. In
fact, it is the quality of fiscal consolidation which matters much as this helps to improve
investment climate in the country.
11. The challenges emanating from production and productivity constraints, particularly in
the manufacturing sector and infrastructural deficits can to a large extent be met by
sustainable bank financing. Another challenge emanating on the inflation front is the food
inflation. The price increase in cereals and pulses have been significant during the current
year. The increases have been persistent despite existence of large buffer stocks. The
upward pressure has been reinforced with significant increase in the minimum support prices
of most cereals and pulses. Apart from cereals, volatility in prices of vegetables and fruits
added to domestic price pressures. Also, inflation in protein rich food items continued to
remain elevated due to significant price increase in eggs, fish and meat. The persistence of
food inflation calls for a relook at the agriculture price policy of the country. Further, there is a
need to revisit the buffer stock policy as recent evidence reflects the absence of dampening
of price rise even with availability of large buffer stocks. Another factor that is proving to be a
major constraint in curbing food inflation is the rise in cost of agriculture largely driven by the
rise in wage costs. It is a matter of concern that supply elasticity has not been sufficiently
matching for the rise in demand for protein-rich food like milk, egg and meat.
12. Banks can play an important role in inflation fighting strategy of the country. In respect
of food inflation the issues that could be addressed with the support of the banks would
include banks focussing on supply and value chain financing, monitoring productivity of
increasing bank credit disbursed to the agriculture sector, and helping in risk-proofing of the
agriculture sector by adopting a credit plus approach. Timely, adequate and sustainable
credit flows to various segments of the economy will also remove supply bottlenecks. Wide
variance in the prices of vegetables and fruits the consumer level and mandi level is a
common feature across the country. One plausible reason for the huge variance is the
dependence of vendors on informal sources of finance for buying vegetables from the
wholesale market in the cities/towns. Such sources of funds, though easily accessible, are
usually available at exorbitant rates. Banks can explore creating extremely short-term small
denomination credit products for such vendors to provide them easy access to funds at
relatively cheaper rates under a mobile banking model. Such a move will enable lowering the
prices of food items and help in curbing the inflation to a large extent.
III. Mitigating external sector vulnerabilities
13. Till recently, external sector has been a source of strength for our economy; however,
in the last few years, the vulnerabilities in the external sector (Table 1) have increased mainly
due to unusually high CAD which increased from 4.2 per cent to 6.7 per cent in the third
quarter of 2012-13 and likely to be around five (5) per cent for the year. The sustained
capital flows to finance large CAD cannot be taken for granted as quantitative easing by the
advanced economies may not continue indefinitely. A major source of concern is that a
significant proportion of capital flows has been in the form of FII & other debt creating flows
which are more volatile than FDI flows.
14. The positive trend in merchandise export growth since December 2012 has been
encouraging. The global growth conditions are, however, projected to remain subdued (as
projected by the IMF, output growth of world economy in 2013 will only be marginally higher
than that in 2012). Unless the conditions, particularly in the advanced economies, improve
significantly, a durable pick up in India's export cannot be taken for granted. On import side,
oil and gold accounting for 45 per cent of total merchandise imports are also subject to global
financial conditions. Although recent drop in their prices and restrictions imposed on gold
imports and efforts made for passing on the actual price of fuel to the users could act as
favourable triggers for India's CAD, there is still uncertainty regarding persistence of
softening bias in international commodity prices and consumer behaviour regarding gold
demand. Similarly, deceleration in private transfers, mainly the workers' remittances, from
abroad also to a large extent depend on source countries economic conditions. The World
Bank, in its April 2013 Report on remittances, made a forecast that remittances received by
South Asian countries including India, may grow at a lower rate of 6.9 per cent in 2013 as
compared to 12.3 per cent in 2012. Fortunately, capital flows so far have been adequate to
finance the current account gap and going forward pressures on CAD in terms of quantum,
quality and safe financing are expected to moderate, particularly as various measures are
being taken to improve pace of investment in the country.
15. It has been seen that India's exports were more severely impacted in recent period
than many of the peer group economies (e.g., China, Korea, Malaysia and Thailand)
suggesting the need for building up of productivity based competitiveness and robust
infrastructure to support our exports. The onus of boosting the export sector, however, does
not necessarily fall only on the exporters and the government, bankers have an equally
crucial role to play. Exporters, to maintain their cost effectiveness, need adequate, timely and
cost effective lines of funding for both working capital and capacity creating expenditures.
Reserve Bank had introduced a US Dollar - Indian Rupee swap facility for US$ 6.5 billion for
extending export credit in foreign currency to exporters. The export credit refinance was
earlier expanded to 50 per cent of the outstanding export credit of the banks from 15 per cent
and the interest rates on export credit in foreign currency were also deregulated. Still
exporters face a lot of difficulties many of which relate to availability of financial services,
including timely and adequate export finance and other facilities extended by banks and
financial institutions. Non-implementation of exporter friendly guidelines (e.g. export credit
should constitute 12 per cent of the net bank credit of the banks, extension of hassle-free
credit availability under the Gold Card Scheme, transparency regarding bank charges for
various services provided by Authorized Dealer banks, exercise of powers delegated to the
AD banks in regard to availment of export advance, write-off of outstanding of export dues,
extension of period for realization of export proceeds, set-off of export receivables against
import payables, etc. under the FEMA regulations) has been a cause of concern. Keeping
these issues in view, a Technical Committee (Chairman: Shri. G Padmanabhan) was
constituted by the Reserve Bank. The Committee has looked into the entire gamut of
facilities/services provided by banks/financial institutions {including the Exim Bank, Export
Credit and Guarantee Corporation (ECGC) & Small Industries Development Bank of India
(SIDBI)}, such as, export credit, in Indian Rupee as well as foreign currency, hedging
instruments, factoring services, insurance coverage, etc. and suggested several important
recommendations for implementation by the banks.
16. As on March 31, 2013, there were 285 overseas offices of Indian banks abroad spread
across 55 countries. Such widespread network of branches can be tapped for providing
useful inputs to the Indian exporters for exploring new markets and creating a niche in the
untapped economies. Attracting investment into the country, especially in the form of foreign
direct investments, is crucial for enhancing the technology-led production capacity and
managerial expertise. Another area which the banks need to explore is tapping the Indian
diaspora. As you are aware, India is one of the largest recipients of inward remittances,
receiving approximately US$ 69 billion in 2012,2 and this would not have been possible but
for the connect of the Indian migrants with the country and efforts of Indian banks. I would,
however, expect banks to be more proactive and innovative in developing new products for
the non-resident Indians and ease the processes in timely transfer and credit of remitted
funds. This is more critical from the point of view of banks in Kerala as the state is one of the
largest recipients of remittances.
17. In the present context of high CAD, I intend to highlight the concerns of rising import of
gold. The three sources of demand for gold are consumption, investment and speculative.
Reserve Bank has observed that while the growth in consumption demand, primarily driven
by households, remained moderate, the demand for gold driven by investment and
speculative motive has grown rapidly. The rising demand for gold is a cause of concern
because of the management of CAD & financial stability and the larger issue of consumer
protection. Reserve Bank has also been concerned with the aggressive selling of gold and
extending loans against gold. Banks should refrain from aggressive selling of gold coins as
such an activity should not be construed as the core business activity. In order to moderate
the demand for gold for domestic use, Reserve Bank has issued instructions for restricting
import of gold on consignment basis. These restrictions are, however, not applicable on the
genuine needs of exporters of gold jewellery. Further, all nominated banks/agencies have
been instructed to open letters of credit for import of gold only on 100 per cent cash margin
and release documents against payment basis only. Banks also have to ensure that the
weight of the specially minted coin(s) do not exceed 50 grams per customer and the amount
of loan to any customer against gold ornaments, gold jewellery and gold coins (weighing up
to 50 grams) should be within the Board approved limit. Realizing the need to provide
financial instruments to investors for protecting against inflation, Reserve Bank in
consultation with the Government of India has recently launched Inflation Index Bonds (IIBs)
to provide an inflation protecting savings instrument. The first tranche of IIBs with a face
value of ₹ 10 billion was recently auctioned and met with huge success. In the near future,
IIBs would be made available to retail investors also. Banks should tap their wide network
and huge customer base to educate and encourage retail participation.
IV. Deepening financial markets
18. Deeper and broader financial markets are desirable for public policy objectives as they
play a critical role in improving the efficiency of capital allocation within the economy. The
traditional investor base in Indian G-sec market comprises banks, provident funds, and
insurance companies. With the entry of co-operative banks, regional rural banks, pension
funds, mutual funds and non-banking finance companies, the institutional investor base has
been reasonably diversified. Notwithstanding the predominantly institutional character of the
market, Reserve Bank has recognised merit in promoting retail participation. Small and
medium sized investors have been enabled to participate in the primary auction of G-sec
through a "Scheme of Non-competitive Bidding" and Primary Dealers (PDs) have been
mandated minimum retailing targets. Web-based NDS-OM has also been enabled by the
Reserve Bank to provide direct trading access to G-sec to non-NDS members like
retail/midsegment/corporate entities having gilt accounts with banks & PDs. Some major banks have
also initiated measures like on-line trading portal for facilitating the retail investors. Banks
need to focus on attracting more retail investors in the G-sec market by creating awareness
and also providing enabling easy-to-use platforms besides sensitizing the retail investors that
loans against G-sec is permitted.
19. While India has a very advanced G-sec market, the corporate bond market is relatively
under developed. Developing a more vibrant corporate bond market has, therefore, become
an important agenda among the concerned stakeholders. Some of the challenges which
need attention include taking measures to improve liquidity, such as, consolidation of
particularly the privately placed bonds, setting up a suitable framework for market making in
corporate bonds, providing tools to manage credit, market and liquidity risks {e.g. CDS,
Interest Rate Futures (IRF), Repo in corporate bonds, etc.}, developing a smooth yield curve
for the government securities market for efficient pricing of the corporate bonds, calibrated
opening of the corporate bond market to the foreign investors, developing safe and sound
market infrastructure and wider participation of retail investors in the market through stock
exchanges and mutual funds. Another challenge is the lack of appetite for new and
innovative products that are available in the financial markets. The market has not displayed
any appetite for instruments with varied structure. A similar response pattern has been
observed in respect of products, such as, interest rate futures (IRFs) and repo in corporate
bonds. The dilemma is that while participants do not want to trade till liquidity improves,
liquidity will not improve till the participants trade. The bottom-line is that the market
participants need to be more active in trading across the yield curve and across products.
Given very low levels of participation of the treasuries of the public sector banks it is
imperative that they look at the prevailing operating structure so that they participate actively
in the market with a supportive risk management framework.
V. Maintaining robust banking system
20. Compared to the pre-90's reforms era, Indian banking has undergone a paradigm shift
and evolved beyond the traditional role of financial intermediation. Over the last decade and
a half, the health and resilience of the banking system has improved though there has been
some deterioration in the recent past. Analysing the various components contributing to the
recent concerns of the banking sector, the Financial Stability Report of the Reserve Bank
(December 2012) found that tight liquidity, deteriorating asset quality and reduced soundness
of the banking sector are the major contributors to the decline in the stability of the banking
system. Indian banks currently meet the minimum capital requirements of Basel III at an
aggregate level, even though some individual banks may have to top up their capital. Going
forward, as growth accelerates, need for banking penetration becomes more pronounced
and the economy goes through a structural transformation, Indian banks will need to raise
additional capital both to support the growth process and to meet regulatory requirements.
21. The lure of cheaper foreign currency denominated funds has led to higher foreign
currency borrowings by Indian corporates. While the external debt could help the corporate
sector diversify the funding sources, excessive reliance on the same could pose balance
sheet risks. The risk is magnified when availability of funding liquidity is subject to sharp
volatility in the international markets. Reserve Bank has observed that banks generally do
not rigorously evaluate the unhedged forex exposure risks and fail to build it into pricing of
credit. It is important to appreciate that unhedged forex exposure of corporates is a source of
risk to the corporates as well as to the financing banks and the financial system. Reserve
Bank has, therefore, decided to increase the risk weight and provisioning requirement on
banks' exposures to corporates on account of their unhedged forex exposure positions.
22. Recent trends in the asset quality of the banking system have been somewhat
disquieting. In 2012-13, the gross NPAs of banks increased by 31.8 per cent while
restructured standard advances increased by over 40 per cent. The recent trends in asset
quality can be largely attributed to the prevailing macroeconomic situation, domestic and
global, besides some underlying issues in credit assessment and NPA management of
banks. In the fourth quarter of 2012-13, the asset quality of banks has shown some
improvement across different bank groups and various industry segments though it is too
early to state with certainty that the trend of deteriorating asset quality has reversed. In view
of extraordinary increase in restructuring of advances, a Working Group (WG) (Chairman:
Shri. B Mahapatra) was constituted to review the existing prudential guidelines on
restructuring of advances by banks/financial institutions. In the background of many
inadequacies/shortcomings on various aspects of restructuring, the WG came out with
several recommendations, such as, withdrawal of regulatory forbearance on asset
classification on restructuring after two years, provision on standard restructured accounts
which get the asset classification benefit on restructuring be increased from the present two
(2) per cent to five (5) per cent in a phased manner in case of existing accounts (stock) and
immediately in case of newly restructured accounts (flow), increasing the promoters' stake in
the restructured accounts by way of higher sacrifice and personal guarantee, etc. The
implementation of these measures has already commenced and overtime will contribute to
increased resilience of the banking system and more transparent accounting of asset quality.
23. Banks will need to gear up to the challenge of improving the health and resilience of
the banking system even as domestic and global macro-financial conditions remain
depressed. As Basel III is implemented, banks will need to re-engineer their internal systems
and align the same to the forthcoming challenges of higher capital and liquidity. Appropriate
strategies for meeting the capital adequacy requirements will need to be designed and the
position of liquid assets bolstered. Banks will need to provide concerted attention to their
ALM policies and reduce reliance on short term and volatile liabilities. Going forward,
Reserve Bank expects that the growth in NPAs would be contained at the current levels due
to a) likely improvement in GDP growth in 2013-14 and beyond; b) improvement in project
implementation due to Government's efforts in clearing the bottlenecks; and c) improved
recovery efforts by banks. Nevertheless, asset quality needs to be closely monitored and the
credit appraisal and monitoring system needs to be substantially upgraded. Risk
management systems also need to be improved and early warning mechanisms
strengthened. Information sharing arrangements between banks needs to be made more
effective. It is, therefore, imperative that banks, at the levels of branches, controlling offices
and head offices, are proactive in facing up to these challenges.
VI. Ensuring integrity of the financial system
24. High level of trust and integrity in the financial system is an important requirement if the
financial sector has to serve the real sector in a sustainable manner. In the recent past, there
have been reports about non-adherence to KYC/AML norms and adoption of unethical
practices by officials of some banks. Reserve Bank, during the course of scrutiny, has
noticed certain irregularities/deviations/aberrations in conduct of banking transactions. The
scrutiny revealed that customers, including walk-in customers, were undertaking cash
transactions to buy third party products, such as, insurance, mutual funds, etc. and also
purchasing massive quantities of gold. No doubt some banks had failed to adhere to the laid
down guidelines pertaining to KYC/AML, viz., splitting/structuring of cash transactions, not
quoting the PAN number or quoting dummy PAN number, non- reporting of transactions to
FIU-IND for the latter to take appropriate action, if need be, etc. Though such irregularities
have been noticed across many banks, the volume is not very high. In effect Reserve Bank
expects the banks to follow certain drill in the form of implementing and monitoring KYC/AML
instructions.
25. There is a need to ensure better regulatory compliance by banks, both in letter and
spirit, of the national objectives underlying the AML regulation. Such compliance is not
possible in the absence of commitment of the banks. It is important to note that imposition of
penalty for regulatory violations cannot be the only solution. Further, there is a need to
address the incentive structure at the operating levels by segregating marketing function
from the approval process. Banks should ensure that its employees do not receive
cash/noncash incentives directly from third parties, such as, insurance companies and mutual funds.
Reserve Bank is contemplating tightening of wealth management guidelines to avoid
mis-selling of bank's own and third party products. Restructuring compensation models
should be part of an on-going process as this will help to improve the reputation of banks and
banking industry. Further, it will help ensure that incentive structures are aligned to desired
behaviours across the organization, helping to overcome potentially competing demands.
Banks also need to assess strength and robustness of their KYC policies and procedures by
analysing whether KYC due diligence requirements are understood unambiguously across
the bank. Whether the existing infrastructure supports a risk-based