evolved as a mix of various independent functions. thus we have credit functions as a separate activity, deposit taking as another different function, a host of payment facilities - each as a distinct activity, other services and so on. it is now time to look at consolidation of all these inter - related functions. technology has already provided an answer in the form of total branch automation, which has now given way to the core banking systems, and the facility of single - window service at branches. while this traditional approach towards consolidation may be ensuring that the customers of today are retained by a bank, the growth of new clientele will, however, be related to other progressive measures to be taken by banks. an outward looking consolidation holds the key. consolidation of all types of financial services which a customer of a bank may require needs to be offered by banks. while some steps have been taken by banks in the form of universal banking and the offering of related financial services such as insurance, tax advice, securities market operations, depository functions and the like, the future may witness alliances with service providers who may in today ’ s context appear to have to relationship with traditional banking concepts. for example, a mobile phone user, who is a customer of particular telecommunication service provider, may switch preferences to another bank if the phone company does not link its services to that of a particular bank with whom the user is banking with. thus strategic alliances with varied service providers may become a necessity. the next major challenge arises out of the forces of competition. traditional concepts relating to competition from other players in the same line of business will indeed exist but these will pale into oblivion in the form of competition from hitherto unexplored and unanticipated areas. easy finance schemes by retailers of consumer durable articles will obviate the need for short term loams by customers of banks, thus resulting in a dwindling retail loan portfolio. banks can overcome this challenge by providing refinance to the retailer who would be in requirement of funds for improving his business turnover portfolio. the essence of this is that competition may have to be exploited as an opportunity. planning for the unanticipated and looking for opportunities hold the key to the successful bank of the future. in this connection, i draw your attention to the report of the rbi group on rural credit and microfinance and suggest that banks which are first movers would stand to gain substantially in terms of expanding their retail portfolio. technology implementation comes with its attendant requirements

issue. ultimately, it is the statutory auditors ’ certification that is taken as the “ true and fair ” statement of the accounts of a bank and is disclosed to all stakeholders. it is therefore of prime importance that there is no underestimation of provisioning requirements while finalising financial statements of banks. value systems 31. finally, let me turn to the sensitive and important issue of a value system. recent months have witnessed an agitation across the country about erosion of values in the public domain. the norms of a society are determined by the dominant sections of that society, and the accounting profession is certainly a dominant section of society. the value system you bis central bankers ’ speeches practise in your professional conduct influences the value system of the society. sadly, we see several transgressions. 32. take the case of worldcom. worldcom indulged in major accounting misstatements which hid the precarious financial position of the company. investigations revealed that more than three billion dollars worth of costs were wrongly classified as capital expenses over a five quarter period. this boosted the reported profits, which were in fact fictitious. 33. the case of satyam computer services here in india was similar. the company ’ s chairman confessed to more than a billion dollar fraud on its balance sheet which was hidden from the company ’ s board, its senior managers and of course the auditors for several years. the truth followed a now familiar pattern – overstating profits, understating liabilities, and overstating cash causing a big hole in the balance sheet. 34. with so much accounting misconduct in big corporations, stakeholders wonder why books are not being reviewed on the default assumption that there could be fraud afoot. accounting experts explain that the kind of forensic auditing that reconstructs fraud is so time - consuming and expensive that it could bring an honest business to its knees. however, i strongly believe that a robust system of audits, a corporate culture in which ethical conduct is encouraged and exemplified and an active and independent board of directors can make such frauds harder to perpetrate, easier to detect and help restore public confidence in published results. 35. what has been rbi ’ s contribution in this regard? recognising the importance of the internal audit and inspection function as an effective management tool, in april 1994, the reserve bank advised all banks to set up an audit committee of the board ( acb ) of directors. needless to say, we