risks have surfaced. this will render the traditional risk - management techniques obsolete as new derivative products and off - balance sheet operations become more common. the hitherto neglected area of operational risk management has also come to assume greater importance and the pervasive use of technology has multiplied the importance of managing this risk in tomorrow ’ s more volatile banking environment. the financial institutions now have to have enough paraphernalia to tackle these risks in line with the international best practices. in this respect, risk - management tools built upon the latest technology would provide the financial institutions to manage the host of new risks in a more efficient manner. this will enable them to deploy resources more effectively. the importance of sophisticated risk - management practices will become even more pronounced as the banks strive to implement the basel ii accord. the smooth switch over to basel ii will be a challenging task before the banks, and this has far - reaching implications for the future structure of the banking system. basel ii would require a heavy investment in technology and development of mis tools to incorporate the internal risk - based approach. the risk - based approach to capital allocation will be the inherent theme, as each asset will be allocated a rating both externally and internally. this will ultimately influence the capital charge for each asset and would thus help minimize the reckless risktaking by banks on account of the heavy capital charge. as financial innovation becomes ubiquitous and new technology and standards evolve to make financial transactions more complex and volatile, the role of the regulators is going to become tougher in the days ahead. this brings me to the concluding, but not the least important section, i. e. the changing role of and expectations and demands for regulators. changing role of regulator the central bank has been transformed substantially. it is today a very user friendly institution, based on feedback of the industry. it is candid in putting forth its views, and over the years has withstood a number of political challenges. over the next few years, we plan to : first, with the support of the government, launch adequate initiatives to strengthen the governance of the central bank. in this context, sbp is in the process of benchmarking itself with the other central banks that have attained good governance standards. the evaluation of central banks ’ governance practices is judged on the basis of the roles and responsibilities of the management and the board of directors, and the appropriate interaction and interface between the central bank and the government. in deciding an appropriate balance in these roles and responsibilities, it is critical

second phase of reforms in the g - sec market was directed towards institutional development to enhance market activity, settlement and safety. these reforms included ( i ) establishment of a delivery versus payment system, to reduce settlement risk ; ( ii ) institution of the system of primary dealers ( pds ), and ( iii ) formation of market bodies such as fixed income money market and derivatives association of india ( fimmda ) and primary dealers association of india ( pdai ). instrument persification was also seriously attempted during this phase of reforms. prior to the 1990s, most of the government bond issuances were in the form of plain vanilla, fixed coupon securities. in order to meet the perse funding and hedging needs of participants, various types of instruments such as zero coupon bonds, capital rbi has already announced enhancement of this limit to usd 3. 2 billion. sebi is in the process of notifying the same. indexed bonds, floating rate bonds and bonds with call and put options, were introduced. floating rate bonds ( frbs ) introduced during this phase did not evoke much response. capital indexed bonds ( cib ) were first issued in 1997 but there were no further issuances mainly due to the lack of an enthusiastic response from the market participants, both in primary and secondary markets. hence, plain vanilla bonds continue to be predominant in the issuances of government securities. the third phase of reforms in the g - sec market is aimed at enhancing liquidity and efficiency. some of the important initiatives that were taken during this phase are : ( a ) introduction of repo / reverse repo operations in government securities to facilitate participants to manage short - term liquidity mismatches ; ( b ) operationalisation of the negotiated dealing system ( nds ), an automated electronic trading platform ; ( c ) establishment of the clearing corporation of india limited ( ccil ) for providing an efficient and guaranteed settlement platform ; ( d ) introduction of trading of g - secs in stock exchanges ; ( e ) introduction of otc and exchange - traded derivatives to facilitate hedging of interest rate risk ; ( f ) introduction of real time gross settlement system ( rtgs ) which addresses settlement risk and facilitates liquidity management ; ( g ) adoption of a modified delivery - versus - payment mode of settlement which provides for net settlement of both funds and securities legs ; and ( h ) announcement of an indicative auction calendar for treasury bills and dated securities. recent initiatives several initiatives have been