data. this data could be potentially utilised to chart customer needs, behaviour and repayment capacity and help in digital inclusion. one specific area where digital lending has the potential to be a catalyst for economic growth is cash - flow based lending to msmes. msmes are an important engine of growth for the indian economy as they contribute around 45 % of exports and provide employment opportunities to more than 11. 1 crore people. the provision of appropriate credit for msmes through seamless and digital cash - flow based lending will provide them with the much - needed impetus. it would enable lenders to leverage real time cashflow data to reimagine end - to - end lending process and “ sachetisation ” of products. on the other hand, additional measures recommended by the working group on digital lending, viz., establishment of digital india trust agency ( digita ), a self - regulatory organisation ( sro ) and the recommended / proposed legislative interventions like restricting balance sheet lending through digital mode to authorized entities only by framing a legislation styled as banning of unregulated lending activities ( bula ) act on the lines of banning of unregulated deposit schemes ( buds ) act, 2019 would go a long way in creating a digital lending ecosystem which is safe and sound. conclusion the challenge for the regulator in a fast - developing economy like ours is to keep pace with the market innovations and strive to strike a balance between ensuring safety without stifling innovation which is never an easy task. responsible financial innovation requires balancing innovative products with necessary safeguards for ensuring financial system stability and customer protection. therefore, while appreciating and recognising the benefits emanating from digital credit, we need to take cognizance of the attendant risks such as data privacy, disruptive business models, aggressive recovery methods, and exorbitant interest rates. as a regulator, we have been following a nuanced approach for industry / market development and this is reflected in bringing out an appropriate regulatory framework for digital lending. by empowering individuals and firms to cultivate economic opportunities, digital credit can be a powerful agent for a sustainable and inclusive growth. we must remember that financial inclusion is not just a goal but also a means to an end as an enabler for sustainable economic growth, reduction of inequality and eliminating poverty. financial inclusion has been identified by the united nations as an enabler for 7 of the 17 sustainable development goals. at its best, digital credit need to be responsible

other segments of the financial system. the need to constantly monitor international developments and take appropriate and often, preemptive action add an entirely new dimension to the progress of our banking system towards its longer - term vision. we have made considerable progress in implementing banking and financial sector reforms. there is also some improvement in the financial performance of the banking system in terms of various indicators of operating efficiency. nevertheless, there are several areas regarding the efficiency of our banking system – rather than its stability – that raise concerns, especially during a period of generalised uncertainty. the level of non - performing assets ( npas ) continues be high by international standards, preempting funds for provisioning and eating into the performance and profitability of financial intermediaries. the response to the debt recovery and asset restructuring initiatives undertaken as part of financial sector reforms has also been slow. in the period ahead, our financial system will also have to prepare for a tightening of the prudential norms as the new basel accord becomes effective and a fuller response to the current financial environment emerges. our financial institutions continue to be susceptible to financial market turbulence, especially in the equity market. upgrading technical skills, technology, research and human capital, developing effective ‘ front - office ’ strategies and fortifying internal rules of governance and responsibility assumes a renewed priority in the fast changing scenario. the face of banking, as we have known it, is also changing rapidly. india is approaching an era of financial conglomorisation and ‘ bundling ’ in the provision of financial services. besides infusing heightened competition, there are implications for the regulatory and supervisory regime. banks and financial institutions have to prepare for changes in the regulatory framework towards a more focussed, comprehensive and efficient environment that eschews regulatory forbearance. legal reforms accordingly will have to ascend the hierarchy of priorities in the reform process. against this background, in this talk, i propose to focus on the main challenges facing indian banking, such as, the role of financial intermediation in different phases of the business cycle, the emerging compulsions of the new prudential norms, and benchmarking the indian financial system against international standards and best practices. i will also say a few words about the changing context of regulation and supervision of the financial system in india, the need for introducing new technology in the banking and financial system, and the importance of strengthening skills and intellectual capital formation in the banking industry. recent macroeconomic developments and the banking system for a greater