with disarming simplicity and endearing humility. the reserve bank has decided to institute this oration to honour the memory of prof. tendulkar, his contribution to the economics profession and his association with the reserve bank. unlike other memorial lectures instituted by the reserve bank which are typically delivered in mumbai, the venue for the tendulkar memorial oration will be the reserve bank ’ s college of agricultural banking in pune which was the native place of prof. tendulkar and the oration will be devoted to a topic in development economics. professor abhijit banerjee we are fortunate that the inaugural tendulkar memorial oration is going to be delivered today by an internationally renowned economist like professor abhijit banerjee who shares with professor tendulkar a passion for understanding poverty based on hard core ground research. professor banerjee ’ s scholarship is deep and extensive, but most of us know him through his seminal book – poor economics – that he co - authored with esther duflo in 2011. poor economics provides refreshingly original insights into how the poor live and why they make such seemingly irrational choices. the unique feature of this book is that it eschews generalizations and uninformed guesses about the nature of poverty. banerjee and duflo have literally got their hands dirty by visiting dozens of countries and studying first hand how the poor live and how they make decisions about everyday issues. the message of the book is that there is no grand, universal formula for poverty reduction. the battle has to be fought on several fronts. what works somewhere does not necessarily work everywhere. the way forward lies in grass root field experiments to understand the causal relationships in poor people ’ s behavior and in learning by doing. professor banerjee is currently the ford foundation international professor of economics at the massachusetts institute of technology. in 2003 he founded the abdul latif jameel poverty action lab ( j - pal ) with the objective of promoting randomized trials – similar to the ones used in medical research – to study antipoverty programs. prof. banerjee and his colleagues have a simple, but radical goal. they want to overhaul development aid so that more of it is spent on programs that actually make a difference. in 2009, j - pal won the bbva foundation “ frontier of knowledge ” award in the development cooperation category. professor banerjee has had a distinguished academic career. he studied economics at the presidency college in calcutta and later at

committee, shareholders investors grievance committee, share transfer committee, remuneration committee and so on and so forth and yet the state of management and corporate governance in public sector banks remains a cause of grave concern. as deputy governor, dr. chakrabarty, recently pointed out ( bancon address ), if restructured assets show further deterioration surely the appraisal mechanisms were weak raroc risk adjusted return on capital was not correctly computed. the mechanisms of corporate governance surely merit much greater attention. regulator as supervisor banks constitute the largest financial intermediaries globally and possess stupendous powers of leverage. the rbi plays a direct role in bank governance through the regulation and supervision of banking institutions. this role assumes greater salience viewed in conjunction with the need to ensure systemic and financial stability. banks enjoy the benefit of high leverage with the downside protection of deposit insurance which weakens their incentives for strong management. they also remain “ too big to fail ” ( tbtf ). the current basel accord lays even greater stress on risk measurement and management. bank supervisors must make the boards of banks the main locus of accountability and assess board effectiveness. regulatory and supervisory systems that foster more accurate information disclosure and empower private investors, legal rights, substantially boost banking system and profitability. large investors may manipulate the firm contrary to the broad interests of banks and other shareholders. the task of the bank supervisor is indeed onerous. information asymmetries plague all sectors but this is even more tangential in finance ; in product or other service markets, purchasers part with money in exchange for something new. in finance, money is exchanged for a promise to pay in the future. in many product or service markets, if the product sold – a car or a haircut is defective, the buyers often find out relatively soon. however, loan quality is not readily observable for quite some time and can be hidden for extensive periods. banks can also alter the risk composition of their assets more quickly than most non - financial bis central bankers ’ speeches industries. banks can also sweep problems under the carpet by extending further loans to clients that cannot service previous debt obligations. in most sectors where there is an inventory pileup, be it cars or computers, it is generally a negative sign about the company ’ s performance but when inventories of money pile up in a bank, it becomes more liquid. it is much harder to sort out whether this is a negative signal or a prudent response by management