to say “ small is beautiful ”. i have mentioned earlier that co - operative banks essentially engage in basic banking and they remain in that space. however, co - operative banks, particularly the bigger ones, like commercial banks, often get allured to high value loans and bulk deposits to achieve “ economies of scale ”. in a country like india, where there is a large chunk of unbanked population, the co - operative banks need to also keep serving the marginal participants as one of their primary objectives and should not be carried away in the race to grow big. governance and regulation of co - operative banks i find from the programme schedule that the conference started with deliberations on “ policy, laws, governance & enabling environment ”. reserve bank, as a regulator of banking sector is involved with the regulation and supervision of co - operative banks. i would, therefore, prefer to deal with governance and regulatory issues in a greater detail. corporate governance and principles of co - operation corporate governance relates to a system in which the interests of the whole gamut of stakeholders are recognized and conflicts among them are sought to be reconciled. the concept of corporate governance is not much different than the internationally accepted principles of co - operation. one of the cardinal principles of co - operation as accepted by international co - operative alliance ( iac ) is “ member economic participation ” indicating contributing equitably to, and controlling democratically, the capital of co - operative by the members. equitable appropriation of surplus is one such fine balancing act of reconciling conflicting interest of various stakeholders. unlike commercial entities, profit making is not the goal or end in itself for co - operatives, but it is just a means to achieve the noble objectives of equitable economic development of the society. if a shareholder of a co - operative bank is looking for higher and higher return on equity ( roe ) it may imply that although he is a shareholder of a co - operative institution, his behaviour is more of a shareholder of a commercial entity. on the other hand, if a shareholder of commercial entity has belief in corporate governance and corporate social responsibility ( csr ) he may technically be a shareholder of a commercial entity ; his behaviour would be more akin to a co - operator. what i intend to say is that the word “ co - operation ” is, perhaps, more of a state of mind than something structural and material. professionalism in governance structure there can hardly be a debate on the desirability of a

the importance of dissemination of credit information, the rbi requires banks / dfis to obtain the consent of all their borrowers - not only defaulters - for dissemination of credit information to enable credit information bureau of india ltd., to compile and disseminate comprehensive credit information. preserving the integrity of the banking system prevention of frauds and implementation of anti money laundering ( aml ) measures are two important aspects of the efforts being made to prevent criminal misuse of the financial system which threaten the stability of financial transactions worldwide. supervisory initiatives keeping in view the emerging scenario under the basel ii accord and the need to use supervisory resources more productively, a beginning towards risk - based supervision ( rbs ) of banks has been made. on the basis of experience gained this will be extended to the entire banking system and will become an essential aspect of pillar 2 compliance. risk management systems i would now like to flag a few issues - some of which are purely exploratory and are raised for debate rather than as a statement of the official stance. as you are all aware, we are positioned at a crucial juncture because the current phase will be the time when risk management skills of financial entities will be put to test. the liquidity overhang in the system coupled with the past downward movement of interest rates seems to have spurred a sense of complacency oblivious of the downside risks of an adverse interest rate movement. it is also apprehended that this attitude has led some banks to dilute their approach to credit risk. the building of the risk elements into the pricing of the credit facilities is reportedly taking a backseat in the pursuit of asset expansion. this may leave banks in a situation where some of the players are not only less prepared to face the reversal of interest rate movement, but are also left with a badly priced portfolio in relation to the credit quality. i would like this aspect to be appreciated not so much as a note of alarm but as a voice of prudence. credit growth should be carefully calibrated with risk measurement and should not be merely seen as deployment of funds at marginal costs in the background of sluggish growth. banks should look ahead at the expansion of credit portfolio in a healthy way, particularly in the background of higher industrial growth, new plans of corporate expansion and higher levels of infrastructure financing. coupled with this are the regulatory requirements of management of market risks, which are becoming increasingly relevant. as we are all well aware, the adverse effects of risk