to be fair to the sector, some of the events were external & hence, not in control of the bank management. but the important lesson is unambiguous : “ in absence of strong structural and governance reforms, consistency of the performance would always remain susceptible to such events ” such reforms in private incentives / compensations sector banks have to be focussed on misaligned agenda for psbs is much larger, however, the immediate and overriding priority is to complete the clean - up of the banks ’ balance sheets which is underway resultant provisioning needs coupled with meeting basel iii norms / migration to ifrs & to capture due market share in growth funding would entail recapitalisation of most of these banks. seeking this capital externally at this stage may be difficult as also value eroding for the majority owner. simultaneously process has to continue to bestow greater “ governance autonomy ” to these banks. my sense is that the government ownership of these banks has resulted in crucial stability and resilience in trying times. immediate roadmap should, therefore, be towards complete “ managerial autonomy ”. if government remains the largest shareholder, not necessarily majority shareholder, it still serves the intended purpose. at the same time, it releases these banks from multi - institutional oversights and overlapping controls. bis central bankers ’ speeches hr autonomy would naturally flow from the above. banks would be able to move towards competitive compensation, flexible hiring and move away from the “ collective bargaining ” - just to quote a few from many possible outcomes. there could be a reasonable apprehension that such measures can adversely impact the objectives of inclusive growth being attempted through several national missions and schemes. i would argue that advent of several new institutions ( as recently licensed by rbi ), new processes, digital advancements & competition would ensure that these objectives are well supported. similarly, some of the reforms are driven by a global reform structure. these pertain to capital, liquidity and disclosure standards under the basel iii package. some such other measures are tlac, sibs, misconduct rules, etc. few other measures are currently under discussion, such as, imposing risk weight on sovereign exposure and new standardised approach for credit and operational risk. having dealt with the framework of macro reforms, let me now briefly touch upon nuts and bolts of the reform process. governance in banks • some action already taken - setting up of bbb, post of cmd split into a non - executive chairman and a ceo, selection process made more objective

bis central bankers'speeches in many other advanced economies, core inflation was soft throughout 2016, even as excess supply was being absorbed. and unlike in the united states, this softness has come mainly from goods prices. bank staff have identified exchange rate movements and low export prices in emerging - market trading partners as factors acting as a drag on core inflation in these economies. here in canada, total inflation slowed over the first half of this year and has stayed in the lower half of the target range, even as our output gap has been closing rapidly. both total and core inflation have firmed in the past couple of months. still, since the middle of last year, an average shortfall in inflation of 0. 7 percentage points has been unexplained by fundamental drivers. the factors behind this weakness include below - average food inflation, caused by a combination of abundant crop supplies and increased competition in the retail sector. another special factor is the impact of the ontario government ’ s reduction in electricity prices. like the united states, these one - off factors account for roughly two - thirds of this year ’ s shortfall in total inflation in canada. the bottom line is that the fundamental drivers of inflation, along with some special factors we can identify, can explain the recent behaviour of inflation reasonably well. certainly, the remaining shortfall is well within a reasonable margin of error, given that we are working with statistical relationships. furthermore, the underlying trend in inflation is well within the target range we have committed to. in short, we understand inflation well enough for policy purposes. nevertheless, like all central banks, we would prefer to understand inflation perfectly and are not content to leave even a few tenths of a percentage point unexplained. we are working hard on this, and this research agenda is what i turn to now. searching for other inflation drivers bank staff have examined 20 years ’ worth of inflation data from 10 advanced economies and the euro area. they used statistical techniques to look for inflation factors that these countries might have in common. the first factor they found in common is fluctuations in food and energy prices across countries — as it turns out, these can explain almost half of the movements in total inflation. this makes sense, as food and energy prices are driven by global commodity prices. but we generally look through movements in food and energy prices when we are assessing the underlying trend of inflation. so, this common factor does not add much to our understanding. looking beyond commodity prices, bank staff found