among the steps that have been taken by the reserve bank over the years towards this end. financial innovation is an essential feature in the history of development of financial markets. innovations that are motivated by the need to match the needs of the investor and the issuer or made possible by advancement in technology or knowledge are essential for evolution of financial markets. incentives play a significant role in shaping the development, stability and functioning of the financial markets. reserve bank has been trying to align incentives by regulation and supervision though regulation itself may have created unintended incentives / disincentives as in the case of requirement regarding held to maturity ( htm ) dispensation. in the process of development of new instruments, reserve bank ’ s endeavour has been to ensure calibrated and orderly development of the markets with emphasis on prudent risk management and promotion of financial stability. within the limited scope of its engagement with the corporate debt segment as the securities and exchange board of india ( sebi ) being the main regulator of this segment, reserve bank has taken steps, such as, introducing credit default swaps ( cds ) to manage credit risk, repo in corporate bonds to enable funding of positions, limited market making role for the primary dealers, providing a pooling account facilities to the clearing corporations of the exchanges to settle the trades in the books of the reserve bank of india, etc. there has been a demand for increased direct or indirect support from the banking sector for expanding the corporate debt market. reserve bank views such proposals with caution because of the prudential concern for the health of the banking sector as well as the fact that the intention is to generate incremental resources and not redistribute the existing ones. as we know banks are already substantially exposed to the infrastructure sector. hence, demand for credit bis central bankers ’ speeches enhancement by banks has to be seen in the context of the fact that it would only increase their exposure. further, credit enhancement by banks will not lead to development of a real “ corporate ” bond market. credit enhancements by way of partial guarantees by multilateral institutions, such as, the asian development bank is likely to attract investments from insurance and pension funds in the infrastructure sector and lower the cost of funds for companies. such credit enhancement measures outside the banking system could be the way out. foreign exchange market current account deficit & capital flows in the context of foreign exchange market, one of the most talked about issue is the rising current account deficit ( cad ).

trillion at end - march 1998 to 83 trillion at end - march 2012. the non - food credit has expanded by more than 14 times from 3. 1 trillion 1998 to 45. 30 trillion during the same period. the credit to gdp ratio which stood at about five per cent in 1950 – 51 improved to about 25 per cent in 2000 – 01 and further to about 52 per cent at the end of 2011 – 12 ( chart 1 ). the pre - emption by way of statutory liquidity ratio ( slr ) has declined considerably from 38. 5 per cent in 1991 to 23. 0 per cent of the net demand & time liabilities ( ndtl ) in 2013 ( chart 2 ). all the while, the banking sector has been robust, meeting all prudential standards as per best international practice. during the recent global financial crisis and slowdown in the global and domestic economy, the indian banking sector has proved to be resilient. there are, however, issues relating to liquidity, asset quality, capital adequacy in the context of basel iii and earnings which have surfaced in the recent past mainly due to economic hicks, john, a theory of economic history ( 1969 ). bis central bankers ’ speeches slowdown and have to be tackled expeditiously for continued resilience of the indian banking system. the indian financial markets the indian financial markets have also grown considerably. the market capitalization of the equity market ( national stock exchange ) has grown from approximately 6. 5 trillion in 2000 – 01 to approximately 60 trillion in 2009 – 10 and further to approximately 61 trillion in 2011 – 12. the total corporate debt outstanding which stood at 7. 9 trillion in june 2010, has grown to 12. 9 trillion in march 2013. the outstanding cp has grown from 575 million in 2003 to 11 billion in 2013. similarly, outstanding cd has grown from 91 million in march 2003 to 39 billion as on march 22, 2013. notwithstanding the impressive growth of the debt markets, there is a great deal still to be done. i shall shortly return to this. debt markets government bond market with a large section of population underprivileged, the welfare commitments of the indian state have to be supported by a large government borrowing program. the outstanding marketable government debt has grown from 4. 3 trillion in 2000 – 01 to 29. 9 trillion in 2012 – 13. the size of the annual borrowing of the central government through dated securities has grown from 1. 0