would encourage banks to compile comprehensive operational loss data – over a period – to enable them to establish beyond doubt the actual level of their operational risk losses. conclusion as i mentioned earlier, “ flexibility ” has been the hallmark of our reform process, which was evident in our basel i implementation. taking into account the concerns that may arise during the course of basel ii implementation, it may be necessary for us regulators, especially in the emerging economies, to adopt a flexible approach while implementing basel ii. as i mentioned at the outset, i had set out to demystify something which i thought was not a mystery in the first place. i have tried to share some of my thoughts on certain elements of the basel ii framework – as we have approached them in our implementation efforts. i am sure this exchange of thoughts and views would have added greater clarity to our implementation efforts and placed some of the important elements of basel ii in the right perspective. while, i have focused to a large extent on the challenges that we, as a system, face in the implementation of basel ii, i would like to balance this with the thought that basel ii does not pose just challenges, it also offers considerable opportunities to banks to upgrade their risk management systems and thus become more efficient and competitive. thank you.

both macro issues and sectoral problems be addressed in a specific manner. the monetary policy response it is well known that monetary policy operates cumulatively and with lags that can range between 12 to 18 months, depending on the specifics of the economy. it is in this context that beginning in mid 2003, the reserve bank started a graduated withdrawal of accommodation. since september, 2004 repo / reverse repo rates have been increased by 125 / 150 basis points, the crr has been raised by 100 basis points, risk weights have been raised in the case of housing loans ( from 50 per cent to 75 per cent ), commercial real estate ( from 100 per cent to 150 per cent ) and consumer credit ( from 100 per cent to 125 per cent ) and general provisioning requirement for standard advances in specific sectors has been raised to 1. 0 per cent of standard advances. at the time of the third quarter review, the combination of macroeconomic developments embodied in high growth and firming inflation, escalating asset prices and the enduring strength of capital flows, a three - pronged approach was envisaged. a measured increase in policy interest rates to assuage demand pressures was considered necessary in conjunction with some modulation of capital flows and the need to fortify banks ’ balance sheets by precautionary provisioning and a greater sensitivity to underlying risks. accordingly, in the third quarter review, it was decided to increase the fixed repo rate under the liquidity adjustment facility ( laf ) of the reserve bank by 25 basis points to 7. 50 per cent. the laf reverse repo rate, the bank rate and the cash reserve ratio were kept unchanged. furthermore, the provisioning requirement in respect of standard assets in the real estate sector, outstanding credit card receivables, loans and advances qualifying as capital market exposure, personal loans and systemically important non - deposit taking non - banking financial companies ( nbfcs ) was raised to 2 per cent. risk weights for banks ’ exposure to such nbfcs was increased from 100 per cent to 125 per cent. interest rates on non - resident deposit schemes, which have been recording sizeable inflows, were reduced by 50 basis points for rupee deposits and by 25 basis points for foreign currency deposits. banks were also restrained from granting fresh loans in excess of rs. 20 lakhs against non - resident deposits. the reserve bank has indicated that over the remaining part of the year, liquidity management would receive the