a seasonal unemployment situation. there is no reason why banks should not provide such credit to creditworthy agricultural labour if it can be done to credit card holders. with agricultural prosperity, many villages are growing into semi - urban centres. many studies have shown that the semi - urban areas are full of commercial potential. one has to recognise the increasing rural - urban continuum rather than persist with the old rural - urban divide and accordingly reorient the whole banking strategy. regulation and supervision on the next theme of regulation and supervision, my colleague, mr muniappan had apparently very frank discussions. i would like to comment briefly on the issue of size and diversification. the worldwide trends are clearly towards large size but overall, it is extremely contextual, especially in our country. it really depends on how a bank is able to transform the advantage or disadvantage of size. in an economy which is aiming a 7 % growth rate in gdp, there is enough room and enough maneuverability for all institutions including banking institutions to reposition themselves. so again, it goes back to the issue of the type of flexibility and autonomy that is accorded to the various players in the financial system including the banks, not only in operation but also in structural or organisational transformation. corporate governance in the session on corporate governance, dr y r k reddy, an invited expert covered a number of very important issues in the backdrop of both international and indian experiences. there is only one basic issue i would refer to : is there a separate pattern of corporate governance for banks compared to nonbanks in the financial sector? one is not sure whether there should be a separate corporate governance approach according to types of financial institutions or merely adaptation of general principles to specific types would suffice. no doubt, the bank for international settlements has recently come out with a paper on corporate governance in banks. in my view, however, there is a more serious issue, and that is, whether the existing legal institutional framework in respect of our public sector banks is consistent with the accepted principles of good corporate governance. mr narasimham wanted that public sector banks be genuinely board - runcompanies so that the corporate governance related to the constitution and conduct of the board. the alignment of the existing institutional and legal structures and practices with good corporate governance, especially in the public sector, should really be an area of attention. this may warrant radical legislative changes. restructuring this morning we had a very interesting session with mr leo puri, who gave us a

borrower and overseas investors. the regime also extends differential hedging options to bis central bankers ’ speeches different classes of exposures. without going into the rationale for the regime, let us try to see what should be the optimal role of banks in a volatile situation. 18. the banks are market makers in foreign exchange not only in the interbank market but also in relation to their clients. obviously therefore they have to carry a position. by “ position ”, i mean trading position involving rupee as one of the currency. the need for this position arises from the fact that without this – inventory, as it were – banks would not be in a position to serve their clients efficiently. what should be the magnitude of this position? naturally, this would depend upon the nature of their clientele, size of their need and the volume of business. it is natural that like all traders, a forex dealer will also be tempted to profit from shortage by building up a hoard. therefore, to align incentives of the forex dealers with the larger public purpose, we are constrained to impose restrictions on positions, knowing well that such restrictions may impair liquidity in the market. let me mention another aspect in passing. because a trading position is a risky market exposure, obviously it has to be limited by availability of commensurate capital for the purpose. but that does not mean that if you have capital, you can take as large a position as you want, irrespective of your needs as mentioned earlier. not in the present regime, not at times of volatility. 19. we have often spoken about appropriateness and “ fit and proper test ” of the products as well as the parties in conducting derivative transactions. we have also underscored the responsibility of banks in ensuring that hedging products used by clients are in consonance with the economics of their exposure as well as their risk management strategy duly incorporated into broader corporate governance framework. let me again emphasize that the banks ’ responsibility to ensure appropriateness of the product for the client is not merely to satisfy a regulatory mandate nor is it motivated by altruism. foreign exchange business in india is a part of relationship banking and it is in the banks ’ interest that clients do not end up taking unwarranted risk through ill - understood and inappropriate hedging products. in this context, let me flag an important issue of what i call, ensuring inclusion in forex transactions. today, the large number