continued mergers and acquisitions, while seeking to restructure the outstanding public financial institutions. to promote consolidation, sbp will maintain its moratorium on new licenses but will on exceptional basis issue license with capital requirements of $ 300 million – both existing conventional and islamic banks will need to comply with these requirements over an agreed timetable. licenses for microfinance banks will continue but confined at national and provincial levels only. ( v ) strengthening competition and efficiency. among others, sbp will be seeking for removal of structural distortions facing the banking sector that has resulted in suboptimal pricing regime for the depositor and borrowers. a major competitive force for banks would however involve a financial sector wide campaign to stimulate the equity and debt markets so that banks compete effectively with their competitor institutions. ( vi ) strengthen prudential regulation and supervision – while reputable experts have confirmed the adequacy of the regulatory regime, there is in my view need for debate and reflection of an adequate balance to be struck between rules versus principle based regulatory regime – but ultimately it ’ s the right enforcement which will ensure this regime is respected. in line with the global trend, sbp has launched basel ii implementation which requires banks to align their capital with the risks taken. requirement of capital would be lower only if banks work with corporate sector to seek appropriate external rating or credit scoring mechanisms. on its part the central bank is launching a project to use e - cib to develop an industry wide scoring system based on credit history as captured by e - cib. ( vii ) commercial banks now have de facto moved into conglomerate structure with or without holding companies framework. by and large banks have acquired stakes in nbf institutions including insurance, brokerage, financial advisory services etc. financial conglomerate present a major regulatory and supervisory challenge as such structures are prone to contagion risk. ( viii ) to address these concerns, there is need to reconsider the regulatory architecture. our current regulatory architecture is not well suited for consolidated supervision and no agency has powers to oversee financial / nonfinancial conglomerate. sbp proposes to transfer all deposit and lending institutions for oversight to sbp and to entrust it with the responsibility of lead supervisor for consolidated supervision. this has been a major omission in financial sector laws and regulations. ( ix ) develop financial safety net frameworks which range from the introduction of small depositor protection scheme, empowering the central bank with the lender of last resort functions and developing an appropriate bank exit

the primary responsibility to ( a ) provide security – internal and external to its citizens ( b ) maintain law and order ( c ) dispense quick and fair justice and enforce contracts ( d ) build physical infrastructure ( e ) provide basic social services such as education, health and water supply ( f ) implement good governance ( g ) maintain macro economic stability, ( h ) regulate the markets where there are monopolies, externalities, economies of scale ( i ) build social safety nets for the poorest and vulnerable segments of the population. markets need government and government needs markets. the state is not a substitute for the market but a critical complement and that government action is essential to ensure that development process is inclusive and the benefits of growth are not pre - empted by a small class of elite in the country. private sector, on the other hand, has the capacity and ability to produce, distribute and trade goods and services in the economy efficiently and at least cost. there is hardly any justification for the government or the bureaucrats to be running businesses. the record of public sector enterprises and nationalized commercial banks in pakistan for the last 30 years speaks volume of the damage that has been inflicted on our economy. to just give you one example, if 50 percent of the allocation of rs. 100 billion which was made last year to bear the losses of the public sector corporations and enterprises was diverted to education, health and other social services, imagine how much it would have helped the common man in this country. profit making is not dirty provided it is made through competition, hard work, entrepreneurship, in an environment where there is a level playing field for all economic sectors, where the rules of game are applicable to every one, where implementation of policies and regulations take place across board, where taxes and other government dues are paid on time and loans are repaid without any write off. under such circumstances private enterprises generate production, employment, opportunities and create income in the economy. this will only happen when they make profits and invest those profits in expansion of their existing businesses or creating new businesses. economic growth takes place through this investment, incomes rise and the countries get prosperous. those of you who still believe in old socialistic ways of thinking in which profits were condemned as socially exploitative should shed this thinking as this is flawed and empirically incorrect. privatization, deregulation and liberalization are the key instruments through which private sector can flourish and thrive. those of you who believe that governments should create jobs