y v reddy : regulators ’ eyes on financial institutions comments by dr y v reddy, governor of the reserve bank of india, published in january 2007 issue of the banker, london. it can also be accessed at www. thebanker. com. * * * as we move from a world based on relationships to one based on transactions, can our banks be far behind? indeed, banking has been transformed, perhaps unrecognisably, and regulators and customers are taking notice. in the 1970s, a visit to the bank meant face - to - face time, assistance with problems, financial advice, and often just a friendly chat with your banker who you knew and trusted. today, many customers and banks prefer point - and - click transactions, and face time can sometimes mean fees. and whether you are in chennai or chicago, the person answering your bank query is probably in bangalore. what does this mean for the banks, their customers and regulators? banks rely less on customer loyalty and more on efficiency. reputational concerns that were once paramount are less critical – witness the million - dollar penalties routinely imposed on some of the global banking giants ; yet, they continue to grow. efficiency rules fee - based income has overtaken net interest margin income. customers enjoy efficient transactions, but find themselves unequipped to make the best possible financial decisions with regard to their banking needs. it is perhaps significant that bank regulators, who were until recently content with bank licensing and applying prudential regulations while encouraging competition, are now focusing on preparing customers to deal with the banks. today, some banks levy a penalty or an interest charge for not maintaining a minimum balance, for not operating a bank account for a certain period, and for other negligent behaviour – although the interest charges paid by the bank for similar negligent behaviour are less than those paid by the depositor. these treatments are often sanctified by the terms and conditions imposed when an account holder opens an account. but in signing the contract, customers are not as empowered or as cautious as they should be. this could be due to several reasons, among them the prevalence of nonstandard contracts that make comparison of competing products difficult and tend to dampen competition. educating consumers in response to overcharging on credit cards and other issues, bank regulators are taking initiatives to prepare customers for the market by educating them ( through financial education initiatives ), counselling them ( through credit counselling ), and assuring them ( of "

the medium term target inflation rate of below but close - to 2 % is, and has always been, symmetric …. for me it ’ s asymmetric as the governing council has defined price stability as an inflation rate of below 2 % over the medium term, while our inflation aim is defined as close to but below 2 %. a change should not be done hastily but based on a holistic discussion about our monetary policy strategy. do i think that it needs to be changed? i ’ m not sure. larry summers recently argued that when it comes to central banks, “ what is needed are admissions of impotence in order to spur efforts by governments to promote demand through fiscal policies and other means. ” is it accurate to say the ecb is impotent? we are not without power. but it is very clear, too, that we operate in an environment that is also influenced by other actors and not solely by us. other stakeholders have to do their work too. were a decision taken by the governing council, perhaps against your better judgement, to restart app, how long might it run for, and what level of purchases might we be looking at? again, i do not see a need for a re - start. i was talking to someone the other day who said that a rate cut of 10 or 20bps is far less 2 / 3 bis central bankers'speeches important than the forward guidance... i could agree. 3 / 3 bis central bankers'speeches