to g - secs beyond an internally agreed total proportion of assets ; or the excess slr should be commensurate in risk terms with the bank ’ s capital allocation for investments. 6. in order to further address treasury - level incentive issues, banks may consider imposing dynamic stop loss limits. in order to avoid further losses once they exceed a particular percentage of assigned risk capital, any risk addition must slow down, potentially even stop ( depending on the extent of realized capital loss ), and not be gerrymandered through security rotation or by senior management turning a blind eye. instead, the realised losses and residual risks should escalate through cro to the bank board and the risk in the investment portfolio gradually scaled down in a time - bound manner depending on its size. 7. in addition, there should be ex - post settling up as a career incentive for the treasury head and all significant risk - takers : those who swing bank investment portfolio for the fences and put bank capital at excessive limits relative to the approved levels should be held accountable when their bets go bad due to poor or no risk management. not all volatility is due to “ black swan ” events that deserve risk - takers being carried through. 8. finally, there is usually an uninspiring chatter every time g - sec yields show a sustained rise that the market is irrational in its movements. not only is it not difficult to separate rational market movements from irrational ones at high frequency, such proclamations are a sign that those betting on government bonds while chatting such are clueless about the drivers of market movements. isn ’ t that a good time for the bank senior management to rein in their treasury portfolio risks? none of this is rocket science but does require at the highest level of bank governance mechanisms a recognition of interest rate risk, an incentive to manage it, and a top - down organizational strategy to implement it. measures that address the duration risk of banks how may banks better manage their duration risk? the efficiency with which this risk is currently managed leaves a lot to be desired. while duration risk management is constrained by the g - secs issuer ’ s choice of maturity structure and liquidity in the secondary bond market, the risk can be managed more nimbly by also availing of hedging markets. psbs account for about 70. 6 % of the banking sector assets. however, their participation in such hedging markets is limited or negligible. while their share in

which consists of market participants, experts and regulators. we have also had the benefit of an array of expert views, including those of the ministry of finance which were indeed valuable in giving final contours to the framework. the operational aspects were commendably dealt with by the rbi - sebi standing technical committee and i must highlight the exemplary inter - regulatory coordinative approach that has been the hallmark of the entire process. a similar approach is now being adopted in respect of interest rate futures as well and we may see a fruition of efforts in this regard in a short time. in this regard, i express deep appreciation of the contribution made by sebi, and in particularly the chairman, in bringing this to fruition. i congratulate nse for putting in place the platform in a short time and ensuring a sizeable number of members at the initial start itself. i believe the currency futures market will seamlessly complement the existing otc market. as you may be aware, in all countries, including developed markets, otc segment dominates foreign exchange transactions. the introduction of currency futures, i am sure, will provide further depth and breadth to the market and fulfill their intended objective as an effective risk management instrument. i would also like to take this opportunity to urge all the market participants to leverage this significant milestone for skill development within as well as at a broader industry level. on behalf of rbi, i would like to assure our continued commitment to orderly and well thought out development of financial markets, while maintaining financial stability and integrity.