bank too, many efforts have been made to guide the banks in the country to put in place an effective risk management system. the guidelines on asset - liability management and risk management systems in banks were first issued in 1999 while guidance notes on management of credit risk and market risk were issued in october 2002 and the guidance note on operational risk management in 2005. the accounting profession, both through its prescription of financial statements and through its audit in banks, has a critical role to play in ensuring that the banks are proactive in identifying the passage and path of risks and that the extant provision and capital buffers make them adequately resilient to risks and shocks as envisaged in the regulatory guidelines. ( ii ) banks and risks it is perhaps a tautology to state that banking is about risk management. banks are in the business of taking risks as risks are inherent in the process of maturity transformation. taking of risks is indeed central to the very existence of banking, in fact, of all enterprise cutting across all segments of the nation, the society and the financial system. as john maynard keynes once remarked “ if human nature felt no temptation to take a chance ….. there might not be much investment merely as a result of cold calculation ”. in recent years, however, risk management has emerged as a central issue especially for financial institutions. there is increased focus on the mechanisms for the quantification and communication of risks on multiple levels – individual risk takers within organizations, organizational units, the institution as a whole, and more recently, the entire financial system. having said this, it would be incorrect to assume that financial institutions, in general, and banks, in particular, had no risk management earlier. in fact, banks have always had a framework for risks within an overall asset liability management ( alm ) framework. a risk management framework extends this in the context of modern financial intermediation, attempting to include a greater “ risk orientation ” through measuring risks in all asset and liability classes, including off balance sheet positions ; to include all kinds of risks and not just interest rate based risks ; and to arrive at an overall risk adjusted return framework for the financial entity. so what has changed now? the recent increased focus on risk management can be traced to several developments in the financial sector over the last couple of decades. first, the deregulation of financial markets coupled with increased volatility. second, the diversification bis central bankers ’ speeches of activities of banks from the traditional function of lending and

##r and banks would need to leverage it to their advantage. the impact of disruptive technology is already evident in the form of competition from non - banks such as e - commerce companies, p2p lenders, crowd funding, which is likely to only intensify going forward. 15. let me conclude by saying that the indian banking system would continue to remain the prime mover for the indian economy in the foreseeable future. it is, therefore, important for us to ensure that the system remains healthy and vibrant. as regulators and supervisors, we would also need to be vigilant about the emerging risks that the banks could face and proactively suggest measures to enable banks to mitigate them. on the institutional side, enactment of a bankruptcy code to deal with firms in distress and setting up of a resolution authority for liquidation of failed financial institutions would be key enablers. similarly, capacity building would be important for both the banks as well as the regulators. hence, the banks would do well to : ( i ) deal with, rather than postponing the asset quality challenges, so as not to miss on the emerging opportunities. ( ii ) be opportunistic in raising capital ( iii ) be prepared to live with a more intrusive and globalized regulatory framework i conclude by once again thanking the mint team for inviting me to this conference and i look forward to an interesting panel discussion. thank you! bis central bankers ’ speeches