globalisation and importance of central banks'commitment to stability and conducive environment for business. similarly, in regard to financial stability also, we note that most of the active participants in financial markets are non - poor. to the extent there are externalities in terms of financial sector – both positive and, on occasions, negative – the weight for stability in our policies has been higher in view of limited capacity of the poor to bear risks that may occur in the real sector by virtue of developments in the financial sector. the lack of social security mechanisms and public safety nets in india are also relevant. the design and pace of liberalisation of financial sector in india thus takes into account the due weight for stability. regulation and development of financial markets, institutions, technology etc. to enhance efficiency and stability of the financial system and thus contribute to growth and employment, several steps have been undertaken for widening, deepening and integrating financial markets although it is “ work in progress ”. simultaneously, new processes and institutional arrangements have been put in place in regard to the banking sector, deposittaking non - banking financial companies and systemically important non - deposit - taking nonbanking financial companies. by and large, these initiatives, in particular supervisory systems, are in alignment with the global best practices, but there are dynamic trade offs between public ownership of financial institutions, regulation, financial innovation, etc. similarly, several steps have been taken to enhance use of technology and market microstructures in the financial sector. the financial sector policies are continuously evolving, essentially in a proactive manner. medium term frameworks or vision documents have been formulated in each of these areas since 2004 and are being implemented through a continuous process of consultations with market participants and industry associations ( some of which were established with encouragement from rbi ). the thinking as well as the progress in actions in this regard are articulated through rbi ’ s annual policies and mid term reviews. cost of credit in the past, as part of the pervasive regime of administered interest rates, banking and financial institutions were providing loans on concessional terms to certain sectors and also certain categories of borrowers, leading to significant cross - subsidisation. the credit allocation by banks was also directed to many such sectors / borrowers through various prescriptions. the rbi had also been contributing regularly to long - term operations ( lto ) funds to refinance industrial or agricultural development, generally on concessional terms. combined with automatic monetisation of budget deficits

of priority sector, namely agriculture and small industries. in order to address these concerns, a consultative and comprehensive exercise of review was undertaken and new guidelines on priority sector were issued in april 2007. consequently, priority sector is now restricted to advances to highly employment intensive sectors such as agriculture, small industry, educational loans for students and low cost housing. the shortfalls in lending to the priority sectors will have to be, as in the past, deposited with refinance institutions dealing with agriculture and small industries. thus, sectoral focus in credit flow, with emphasis on employment, is ensured through stipulations relating to priority sector without necessarily undermining commercial considerations in banking activities. sub - targets under priority sector, along with other guidelines including those relating to government sponsored programmes, are used to encourage flow of credit to the identified vulnerable sections of population such as scheduled castes, religious minorities and scheduled tribes. the accelerated growth in the indian economy has benefited several states, but there are a few where credit deposit ratios of the banking system are observed to be low. it has become necessary to identify unique problems for each state for expanding banking facilities to such lagging states and formulate area specific action plans for accelerated financial deepening. these plans are drawn up with full participation of state governments, banks and other local developmental agencies. such plans have already been drawn up for uttaranchal, north eastern states, himachal, jharkhand, andaman & nicobar and bihar. there is enthusiasm among banks in view of expanding business opportunities and significant support from state governments which see a synergy. rbi plays a catalyst, as well as a coordinating role, in these initiatives of growing co - operation between the states and the banking system. in fact, the rbi has played active role in states ’ debt management, treasury management, management of consolidated sinking fund, transparency in budget, computerisation of government accounts and enactment of legislation on fiscal responsibility. the relationship between the rbi and the states is based on mutual trust and is in recognition of the credibility of the rbi. an important component of these state - specific action plans, in some cases, have been the scope for expanded role of non - governmental organisations and other microfinance agencies. banks, under the overall guidance of nabard, play an active role in promoting micro - finance, especially in view of the recently approved innovative approaches, such as business correspondence models. an area of concern has been the concentration of bank branches in metropolitan areas to the detriment of