banks have not proved effective in detecting fraud cases due to factors like inadequacy of time allotted for audit, inefficient sampling of transactions to be checked during audit, lack of trained personnel with the required aptitude for audit work, etc. providing individuals a means to report suspicious activity is a critical part of an anti - fraud program. towards this end, a system of protected disclosure scheme has been evolved which is regulated by cvc in case of public sector banks and rbi in case of private and foreign banks. reserve bank has also advised private and foreign banks operating in india to upgrade their internal vigilance mechanism to the same level as is applicable in case of public sector banks in terms of cvc guidelines in the matter. 27. information sharing is a vital fraud prevention and alert mechanism. on its part, reserve bank promptly shares information with all banks detailing the modus operandi of fraud cases reported by any bank together with details of the entities involved in the perpetration of such frauds in the form of confidential caution advices. this also serves to encourage periodic review of existing guidelines, identify loopholes on the basis of caution advice, if any, and initiate corrective steps. reserve bank has also issued instructions requiring banks to report negligence or involvement of entities like chartered accountants, valuers and advocates resulting in perpetration of frauds, to their professional oversight bodies for appropriate deterrent action. 28. today, most banks have put in place a system of checking the credit history of the borrower through credit information companies like the cibil. considering that fraudulent bis central bankers ’ speeches borrowers could still seek credit from the banking system even after defrauding one bank, it may be worthwhile to consider setting up a fraud registry on the lines of credit information bureau. this, coupled with stringent deterrents such as prohibition of banking facilities to fraudulent borrowers, may serve as a strong antidote to the malaise. conclusion 29. the impact of frauds on entities like banks, which are engaged in financial activities, is more significant as their operations involve intermediation of funds. the economic cost of frauds can be huge in terms of likely disruption in the working of the markets, financial institutions, and the payment system. besides, frauds can have a potentially debilitating effect on confidence in the banking system and may damage the integrity and stability of the economy. it can bring down banks, undermine the central bank ’ s supervisory role and even

should focus on issues which are exclusively under our control. pleasant words, “ stunts ” from the past or delaying price increases cannot do the trick, not in the medium run, and even less in the long run. though we in the nbs are satisfied with the core inflation result achieved in the course of the current year despite the untimely elections and the related fiscal expansion, doubling of the price of oil, and the drought, on the eve of 2008 we are more than concerned and put a question to ourselves : should the prevailing tendencies persist, can the nbs reach its objectives with the instruments at its disposal or must there be new ones added? one thing is for sure, to achieve our objectives, we shall use all the instruments at our disposal, both old and new, but that shall not make us popular. that much i can tell in advance. • high exposure to foreign currency risk creates additional risks to the financial sector as confirmed by the developments during last two weeks. if arguments extended by the nbs on the need to borrow in dinars do not seem plausible enough, i sincerely hope that recent developments in the market shall force many to reconsider which currency they should borrow in, namely, how to minimize their exposure to the foreign currency risk. the role of banks is of the highest importance in terms of warning against foreign currency risk exposure, if not for the sake of their clients than for the sake of their own balance sheet results! • in the absence of adequate market competition, price signals are transferred slowly and inaccurately. this is most evident in the case of prolonged and high appreciation of the dinar which is transferred to retail prices with a significant delay. world practice points to the rigidity of prices, but it seems that they are practically “ cemented ” in serbia today. i sincerely hope that something shall be done in that respect, and done exclusively for economic reasons. all in all, from the macroeconomic point of view, both internal and external challenges require that banks, unless they have already done so, reassess which way and how to proceed. in his biography, alan greenspan says that market produces constant stress as in order for someone to gain, someone else has to lose. i fear that many are not yet aware that the market is not a guarantee, but a chance to make money! and finally, allow me to go back to where i started from. strong and stable banking sector, primarily in terms of high quality and reliable ownership structure,