for risk management at the systemic level – viz. ensuring financial stability by financial regulators and policy makers. 5. i will now turn to the key areas where banks need to focus while planning their businesses for higher growth, keeping in view the on - going international regulatory initiatives. the basel committee has brought out on december 17, 2009, two consultative documents containing key proposals that will be taken up for an impact study before adoption. these proposals cover raising quality and coverage of capital to ensure loss absorbency on a going and gone concern basis, greater stress on tier - i and common equity component, introduction of leverage ratio, measures to deal with pro cyclicality such as capital buffers and forward looking provisioning, introduction of minimum liquidity ratios and enhanced capital for trading book securitisations and counterparty credit exposures. 6. while our assessment is that indian banks will be generally able to meet these enhanced requirements, it is useful to see on a rough and ready basis what the present position is in this regard. our assessment shows that : • the common equity component as percent of total assets stood at 7 per cent in march 2009 for indian banking sector as against a range of 3 per cent to 4 per cent for large international banks. total crar is 13. 75 percent with tier i at 9. 4 per cent. thus indian banks are in a position to meet the growth requirements currently and have reasonable period to plan and raise required capital for future growth. • the leverage ratio for indian banks ( including credit equivalents of off - balance sheet ) was about 17 per cent in march 2009 and can be considered reasonable. • while the slr has stood us in good stead, banks would do well to assess their liquidity risk against the more calibrated liquidity ratios put out in the consultative document such as the proposed short term liquidity coverage ratio and long term net stable funding ratio. this should be a regular exercise for banks that have significant share of bulk deposits and cds. • the basel proposals for forward looking provisioning are based on advanced approaches using through the cycle pds etc. in india, banks are yet to adopt advanced approaches. the gross npas for the banking sector have increased from 2. 4 per cent as on march 31, 2008 to 2. 6 per cent as on september 30, 2009. in the context of the rising npas and the likely slippages in the restructured accounts, we had introduced the 70 per cent provisioning coverage ratio for npas as

, risk management cannot be of the highest order and banks will not be able to meet the challenge of an increasingly sophisticated financial system. • in the area of housing loans, teaser rates are increasingly being offered which is a cause for concern. i hope banks are ensuring that borrowers are well aware of the implications of such rates and the appraisal takes into account repaying capacity of the borrowers when the rates become normal. • current experience worldwide has called for robust stress testing practices in the banks. stress testing alerts bank management to adverse unexpected outcomes related to a variety of risks and provides an indication of how much capital might be needed to absorb losses should large shocks occur. in india, banks should not take stress testing exercise a mere compliance requirement but accord due importance to it to facilitate the development of risk mitigation or contingency plans across a range of stressed conditions. 8. to conclude, indian banking system which has shown resilience in withstanding the global crisis is well placed to meet the requirements of the rapid inclusive growth. even in the new paradigm under basel, the system is well placed in terms of capital and liquidity. strong hr and sound risk management practices will stand the banks in good stead while they strive to meet the challenges of the next decade. thank you.