deepak mohanty : economic and financial developments in andaman and nicobar islands speech by mr deepak mohanty, executive director of the reserve bank of india, at andaman chamber of commerce and industry, port blair, 22 december 2011. * * * the assistance provided by dr p k nayak and shri suraj s is acknowledged. i thank the andaman chamber of commerce and industry for inviting me to address this distinguished gathering. this picturesque union territory ( ut ) of andaman & nicobar islands ( ani ) in the bay of bengal covers 0. 25 per cent of the national geographical area but accounts for only a fractional share of 0. 03 per cent of national population. this explains why ani has the lowest population density of 46 per square kilometre as against 382 at the all - india level. the high literacy rate and per capita income make ani as one of the leading uts in india in terms of socio - economic developments. further, the lushness of its landscape with bio - diversity and attractive spots for eco - tourism make it a prime tourist attraction. notwithstanding these social and geographical advantages, ani faces several developmental challenges, especially in the aftermath of tsunami that wreaked large - scale damage in december 2004. apart from natural and rich human resources, it is important to have a well - functioning financial system for sustainable economic development. in recognition of this, the reserve bank has stepped up its efforts in recent years to enhance the penetration of the formal financial sector and promote financial inclusion with a view to improving the well - being of our society. in this regards, the reserve bank has been undertaking special initiatives for extending the outreach of banking facilities in states and union territories. against this backdrop, i propose to briefly outline the economic and financial structure of the ut of ani as well as highlight various financial inclusion initiatives taken by the reserve bank. in conclusion, i shall flag some issues that need policy attention. background andaman & nicobar islands, a union territory of india since 1956, is an archipelago of 572 islands ( 306 islands and 266 rocks ) and has a geographic area of 8, 249 square kilometre. of these islands, only 38 have human habitation. the ut is bestowed with abundant green vegetation and marine wealth besides huge potential for culture fisheries. it covers the indian subcontinent ’ s richest rain - forest and houses indigenous tribes of negroid and mongoloid origins. the diversified mangroves have been included in the world wildlife fund ( wwf ) global

losses more transparently and is also less procyclical than the current “ incurred loss ” approach. the expected loss approach for provisioning will make financial reporting more useful for all stakeholders, including regulators and supervisors. disclosure requirements 21. the disclosures made by banks are important for market participants to make informed decisions. one of the lessons of the crisis is that the disclosures made by banks on their risky exposures and on regulatory capital were neither appropriate nor sufficiently transparent to afford any comparative analysis. to remedy this, basel iii requires banks to disclose all relevant details, including any regulatory adjustments, as regards the composition of the regulatory capital of the bank. 3rd question : what is the additional capital that indian banks have to mobilize to conform to basel iii? what are the options for, and challenges in, raising this size of capital? 22. admittedly, indian banks already meet the minimum capital requirements of basel iii at an aggregate level, even though some individual banks may have to top up. but capital adequacy today does not mean capital adequacy going forward. currently, the bank credit – gdp ratio in india is around 55 per cent. if we want growth to accelerate, this ratio will have to go up as a necessary pre - condition. besides, as our economy goes through a structural transformation, as it should, the share of the industry sector will increase and the credit - gdp ratio will rise even further. what this means is that indian banks would have been required to bis central bankers ’ speeches raise additional capital even in the absence of basel iii. in estimating the net additional burden on account of basel iii, we have to take this factor into account. 23. what is the size of the additional capital required to be raised by indian banks? it depends on the assumption made, and there are various estimates floating around. the reserve bank has made some quick estimates based on the following two conservative assumptions covering the period to march 31, 2018 : ( i ) risk weighted assets of individual banks will increase by 20 per cent per annum ; and ( ii ) internal accruals will be of the order of 1 per cent of risk weighted assets. 24. reserve bank ’ s estimates project an additional capital requirement of 5 trillion, of which non - equity capital will be of the order of 3. 25 trillion while equity capital will be of the order of 1. 75 trillion ( table 3 ). 25. the additional equity capital requirement of the order of 1. 75