” and “ quality ” of equity brought in by the promoters is a major element which the banks would have to carefully examine in their credit appraisal going forward. 12. let me now come to another common lacuna in the banks ’ credit appraisal process. we know that banks and financial institutions are leveraged entities but the leverage witnessed in some of the corporate groups dramatically overshadow the leverage of the banks. evidence suggests that the banks were not taking adequate cognisance of the buildup of leverage while sanctioning or renewing limits. in fact, banks ’ credit appraisal processes failed to differentiate between promoter ’ s debt and equity and over time, promoters ’ equity contribution significantly declined and leverage increased. in particular, there has been a significant increase in the indebtedness of large business groups in recent years. a study of ten large corporate groups has revealed that the share of these groups in total banking sector credit more than doubled between 2007 and 2013 even while, the overall debt of these groups rose six times ( from under rs. one trillion to over rs. six trillion ). hence, this is an area where the banks need to focus more closely in future. 13. at the same time, banks cannot ignore their own capital requirement for supporting the projected growth of their balance sheet. they must closely look at the state of the economy, expected credit expansion, requirements of provision for loan losses and other present and future liabilities and model them into their capital requirement. 14. as i mentioned earlier, another area where the banks need to be sensitive about in their appraisal is the environment. banks as the financing agent of the economic and developmental activities have an important role in promoting overall sustainable development. it is in this respect that the concept of green banking has emerged and is recognized as an important strategy to address sustainable development concerns and creating awareness among people about environmental responsibility. promoting green banking has to be the way forward for banks across the globe. green banking entails banks bis central bankers ’ speeches to encourage environment friendly investments and give lending priority to those industries which have already turned green or are trying to go green and, thereby, help to restore the natural environment. 15. as a part of the corporate social responsibility, the companies are required to integrate social and environmental concerns in their business operations and in their interactions with their stakeholders on a voluntary basis. the banks / financial institutions would also need to keep themselves abreast of the latest developments in this area and

help build a sustainable environment through good banking practices. this is important for ensuring that the banks remain socially relevant. 16. the banks need to beef up their market intelligence and economic analysis, so that they can catch demand - supply gaps, such as those in minerals and mining space, better than they have. only then can the deterioration in asset quality be turned around. have the banks sufficiently moved in this direction? i would rather wait for your introspection rather than the answer. know your customer, his business and business risks 17. let me now turn to a related issue, which is kyc. this is to my mind one of the most misunderstood concepts in banking parlance. kyc to a certain extent can be considered as a necessary evil. but, kyc goes much more beyond a simple proof of identify and proof of address for the banks. kyc is a critical component of a bank ’ s risk management framework. a customer - centric business needs to know its customer, the nature of his business and the inflows / outflows into the accounts, if it is to provide customised business products and solutions. this, i call as kyc - b. the banks further need to understand the risks associated with customer ’ s business to manage risks arising from potential delinquency, fraud and consequent losses as also legal and reputational risks arising from exposure to customers having links to multi level marketing ( mlm ) business / terrorist activities / hawala transactions, etc., which is another manifestation of kyc and may be termed as kyc br. the know your customer ( kyc ), know your customers ’ business ( kyc - b ) and know your customers ’ business risks ( kyc - br ) should be ingrained in the dna of the bank ’ s business. it should be understood that it is not just procedural compliance, but that good kyc and kyc - br compliance are important for the bank ’ s business. leveraging technology and making technical progress 18. a wave of technology change has already occurred as banks adopted core baking technology to enhance customer relationships and expand the market for banking services. these technologies could enable banks to “ go - to - customers ” and enable door - step banking through virtual banking. for instance, cloud computing and big data technologies can reap both scale and scope economies. what is important is not the name of the technologies, but what they do eventually. banking technology is poised to make a big