##egulation of interest rates constituted an integral part of financial sector reforms. the interest rate regime has been largely deregulated with a view to achieving better price discovery and efficient resource allocation. banks now have flexibility to decide their deposit and lending rate structures and manage their assets and liabilities accordingly. at present, apart from interest rates on savings deposits and nri deposits on the deposit side, and export credit and small loans up to rs. 2 lakh on the lending side, all other interest rates have been deregulated. indian banking system operated for a long time with high reserve requirements both in the form of cash reserve ratio ( crr ) and statutory liquidity ratio ( slr ). this was mainly to accommodate the high fiscal deficit and its monetisation. the efforts in the recent period have been to lower both the crr and slr. the slr has been gradually reduced from a peak of 38. 5 per cent to 25 per cent. the crr was reduced from its peak level of 15. 0 per cent maintained during 1989 to 1992 to 4. 5 per cent of ndtl in june 2003. although the reserve bank continues to pursue its medium - term objective of reducing the crr, in recent years, on a review of macroeconomic and monetary conditions, the crr has been revised upwards to 6. 0 per cent ( to be effective from march 3, 2007 ). it has been the endeavour of the reserve bank to establish an enabling regulatory framework with prompt and effective supervision, and development of legal, technological and institutional infrastructure. persistent efforts, therefore, have been made towards adoption of international benchmarks, as appropriate to indian conditions. in 1994, a board for financial supervision ( bfs ) was constituted comprising select members of the reserve bank board with a variety of professional expertise to exercise'undivided attention to supervision'and ensure an integrated approach to supervision of commercial banks and financial institutions. the reserve bank had instituted a state ofthe - art off - site monitoring and surveillance ( osmos ) system for banks in 1995 as part of crisis management framework for early warning system ( ews ) and as a trigger for on - site inspections of vulnerable institutions. the scope and coverage of off - site surveillance has since been widened to capture various facets of efficiency and risk management of banks. as a part of the financial sector reforms, the regulatory norms with respect to capital adequacy, income recognition, asset classification and provisioning have progressively moved towards convergence

with the international best practices. these measures have enhanced transparency of the balance sheet of the banks and infused accountability in their functioning. besides sub - standard assets, provisioning has also been introduced for the standard assets. measures to reduce the levels of npas concentrated on improved risk management practices and greater recovery efforts facilitated by the enactment of securitisation and reconstruction of financial assets and enforcement of security interest ( sarfaesi ) act, 2002. several other channels of npa management have also been instituted, including debt recovery tribunals, lok adalats ( people ’ s court ) and corporate debt restructuring mechanism with separate schemes for small and medium industries. the minimum capital to risk assets ratio ( crar ), which was earlier stipulated at eight per cent was revised to 9 per cent in 1999, which is one percentage point above the international norm. as some banks in the public sector were not able to comply with the crar stipulations, there was a need to recapitalise them to augment their capital base. banks were allowed to raise capital from the market. in line with the amendment to incorporate market risk in basel i, separate capital charge for market risk was also introduced in 2004. accounting standards and disclosure norms were strengthened with a view to improving governance and bringing them in alignment with the international norms. the disclosure requirements broadly covered capital adequacy, asset quality, maturity distribution of select items of assets and liabilities, profitability, country risk exposure, risk exposures in derivatives, segment reporting, and related party disclosures. in april 2005, commercial banks were advised to put in place business continuity measures, including a robust information risk management system within a fixed time frame. in view of the increasing degree of deregulation and exposure of banks to various types of risks, the reserve bank initiated measures for further strengthening and fine - tuning risk management systems in banks. the guidelines on asset - liability management and risk management systems in banks were issued in 1999 and guidance notes on credit risk management and market risk management in october 2002 and the guidance note on operational risk management in 2005. in the reserve bank, the risk - based approach to supervision has been adopted since 2003 and about 23 banks have been brought under the fold of risk - based supervision ( rbs ) on a pilot basis. on the basis of the feedback received from the pilot project, the rbs framework is being reviewed. as part of the reform programme, due consideration has been given to diversification of ownership