financial service providers is that they display high levels of transparency in product design, pricing and financial disclosures. in addition, a credible, cost effective and expedient grievance redressal mechanism has to be made available to all customers. banks must make use of technology to deliver banking products and services in a cost - effective manner. customer education is also critical so that the user can have the ability to choose appropriate and need based products and services. unless the banking system becomes customer centric in all its dimensions, it would fail to attain sufficient momentum to gain access to the next orbit. know your customer, his business and business risks 20. across the world, greater emphasis is being laid by the financial service providers on knowing their customers. it has important regulatory and business dimensions. from a regulatory perspective, banks and other financial service providers are expected to understand the business activities of their customers so that they do not, inadvertently, end up being conduits for illegal activities such as terrorism, mlm, frauds, hawala transactions, etc. from a business perspective, know your customer ( kyc ), know your customers ’ business ( kycb ) and know your customers ’ business risks ( kycbr ) are important for understanding the nature of the customer ’ s business, which would help in offering suitable products, managing credit exposure and generating early warning signals for potential delinquency risks. 21. it is important that the emphasis on kyc compliance is effectively conveyed across the organization by the top management, not just for meeting regulatory requirements, but as an opportunity to understand the customer better and maximize the gains from the customer relationship. human resource management 22. we must realize that the traditional factors of production named in economics textbooks are no longer relevant in the banking industry. land, labour, physical capital and enterprise have given way to skills, technology and human capital as the prime factors of production in the banking sector. employees are no longer “ labour ”, they are “ people ” who ought to be nurtured and cared for. when i say “ people ”, i mean the bank management and all employees – officers, clerical staff and the sub staff. an organization ’ s “ people ” are the force that can, potentially, make the difference between success and failure. when the marketplace has number of players with broadly similar product offerings, the ability and motivation levels of employees could be the clinching factor when it comes to gaining an edge over rivals. the challenge before management is to

use the vast unused potential in people and produce “ leaders ” out of “ managers ” who can not only work hard but also motivate their co - workers for producing extraordinary results. the sector needs to recognize the transformation in the factors of production in the banking industry early and aim to effectively harness these new factors for its own betterment and, more importantly, in the bis central bankers ’ speeches interest of the society. by effectively utilizing these new factors of production, the sector could quickly bring in more and more financially excluded people under the ambit of the formal banking system and help it to be seen as a relevant and purpose - oriented sector. promoting financial literacy 23. in today ’ s digitized world, stating that information is power, is perhaps to state a truism. our economy is traversing towards being a knowledge economy. this is amply demonstrated by the contribution of services sector in our economy. however, much as we would hate admitting it, we are a financially illiterate society. and here, i am not talking about the common man alone. the financial illiteracy is all pervasive – the banks, the regulators, the policy makers – all suffer from some degree of financial illiteracy. let me quote a few examples to drive home my point. take the recent instances where banks had sold forex derivatives to their customers without proper understanding of their suitability and appropriateness. neither the customers nor the banks had an iota of understanding of the quagmire that they were getting into while entering into these contracts. the subsequent legal wrangling and losses suffered by some of the banks aptly demonstrate their financial illiteracy. take the case of the benchmark prime lending rate ( bplr ), which was, till recently, used by the banks for lending to their borrowers. my understanding of the bplr is that it is the rate at which the bank lends to its best borrowers i. e. those borrowers who are least likely to default on their loans. however, for years together, the banks continued to lend to their borrowers well below their bplr until the regulator introduced the base rate regime. another conundrum that needs to be solved is one surrounding the gold import. though many of us have realized its implications for the current account deficit, there have not been very sincere efforts to check its imports. we need to examine why public money should be utilized for importing gold by banks. i firmly believe that