the micro level, we need to ensure that individual institutions are healthy, safe and sound. but an important lesson of the crisis has been a reiteration of the fallacy of composition – that a collection of safe and sound financial institutions does not necessarily deliver a safe and sound financial sector. we need to take care of systemic stability as a separate and distinct obligation. this calls for safeguarding financial stability at the macro level through what has now come to be called macroprudential regulation of the system as a whole. 12. today, rbi is an active participant in several important international institutions that seek to promote more effective regulatory structures, and financial and systemic stability. we have, for some time now, been shareholders of the bank for international settlements ( bis ) and member of the committee on global financial system the committee on payment and settlement systems and the markets committee. post - crisis, we have also become members of the financial stability board and the basel committee on banking supervision ( bcbs ). and of course, we have been an active participant in the g - 20 deliberations. dicgc – challenges for the future 13. let me now comment briefly on the challenges for dicgc on the way forward. one key challenge is reducing the time taken to settle claims. though the corporation has been able to settle all claims within the statutory time limit, its goal is to go beyond the statutory prescription, and ensure settlement of claims within a few days of liquidation of a bank as against a few months taken now. towards this end, effort is required in two directions. first, dicgc must have a computerised depositors ’ data base in respect of over 85, 000 branches spread across the country. second, the entire process of filing claims by the liquidator and their processing by the corporation should be computerized with appropriate connectivity. the corporation has already initiated steps to move in this direction by formulating an ambitious project of integrated claims management system ( icms ). 14. the second challenge pertains to broadening the mandate of dicgc. dicgc is presently working as a pay box system. going forward, we are examining the possibility of transforming it from a pay - box system to a system attending to all aspects of bank resolution. this may, however, require sweeping reforms including a thorough change in the dicgc act, 1961. however, certain features of the financial sector supervision and regulation as prevailing in india may have to be kept in view. for

to being an exclusive deposit insurance system. 5. over nearly 50 years, the dicgc has evolved and moved up the value chain – learning by doing as it were – and met many challenges along the way. by far the biggest challenge came in 2001 when a large co - operative bank in the state of gujarat was in trouble. since several banks, particularly many small co - operative banks, had exposure to this bank, its failure had the potential to precipitate a crisis in the banking industry. the government and the reserve bank put in place resolution of this bank through a restructuring programme. the key element of this programme was proactive action by the dicgc towards prompt payment of claims to the depositors of the bank. this action by dicgc ensured that panic did not spread. global crisis and deposit insurance 6. let me now turn to the recent financial crisis. though the crisis impacted the entire world, it affected different countries in different ways. after the collapse of lehman brothers in mid - september 2008, there was an abrupt breakdown of trust, which spread rapidly from the united states to other advanced economies, causing financial markets in all advanced economies go into seizure. suddenly, there was a great deal of uncertainty about the extent of losses, the ability of banks to withstand those losses, the extent of risk in the system, where it lay and how it might explode. this uncertainty triggered unprecedented panic and almost totally paralyzed the entire chain of financial intermediation. banks hoarded liquidity. credit, bond and equity markets nearly froze. several venerable financial institutions came to the brink of collapse. massive deleveraging drove down asset prices setting off a vicious cycle. in such a situation, governments and regulators had to take extraordinary measures in a big way. 7. not surprisingly, deposit insurance emerged as the most visible part of the financial safety - net in arresting a panic reaction. several deposit insurance systems increased their insurance coverage limits ; in some cases the governments extended blanket deposit guarantee. these measures went a long way in restoring public confidence in the banking system in economies where it came under serious threat. global crisis and india ’ s response 8. that india was hit by the crisis dismayed many people. in the years before the crisis, the decoupling theory gained intellectual ascendancy. this theory held that even if advanced economies went into a downturn, emerging market economies would not be affected because of their improved policy framework, robust foreign exchange reserves, and sound banking systems. the