that the mfis have flourished more in the states with well developed banking infrastructure and outreach. thus, the mfis in our country would seem to be a supplement rather than a substitute for a developed banking infrastructure. sixth, what should be the role of the foreign capital and venture capital in regard to the mfis? it may be necessary to recognise here the orientation of the micro - finance activity given the limitation of size and skills in the mfis and then consistency with the risk - reward bias of such sources of commercial capital. as regards the external commercial borrowings, the imperatives of exchange rate risk and the capacity of the mfis to effectively assess and manage this risk would also need to be duly reckoned. seventh, what could be the scope and effectiveness of a self regulatory organisation for the mfis and how it dove - tails with the possible formalised regulatory framework under contemplation? eight, the credit rating is usually assigned for specific instruments issued or for a defined purpose and often, on a continuing basis. there is merit in devising rating system for the mfis, recognising that such exercises are seldom for localised views amongst decentralised entities. it will be instructive to review our experience so far in regard to utility and quality of rating exercises of mfis. how to ensure that the rating exercise adds value to the localised operations of the mfis? ninth, what are the prospects for expanding the permission accorded by the rbi to the non - banking financial companies for offering credit and other financial services to not - for - profit companies? what are the prospects for creating a separate category of nbfc - mfis to be regulated by rbi? finally, should all the mfis or only a select category out of them be permitted to accept public deposits? while there is a view that only banks should be permitted to accept public deposits, currently non - banking financial companies are also permitted to accept public deposits but subject to the regulatory prescriptions of the rbi. needless to say, it is the issue of accepting public deposits that poses major challenges, both legislative and more importantly, of moral hazard. as the experience with cooperative banking shows, a soft regulatory regime relative to scheduled commercial banks, be it in terms of governance or prudential aspects, trends to attract less than truly ‘ fit and proper ’ persons to capture such institutions. indeed it is possible to argue that our experience with bringing cooperative

dr. reddy assesses the new directions being embarked upon in india with respect to the national budget and the reserve bank of india address by the deputy governor of the reserve bank of india, dr. y. v. reddy, at the administrative staff college in hyderabad on 8 / 3 / 97. 1. it is a pleasure for me to be with you in the administrative staff college today. i have my gurus here, and i also have many friends. i spent a year on a full - time basis about a decade ago as visiting faculty here. i am thankful to the principal for giving me an opportunity to speak on an important subject of contemporary relevance. 2. mr. chidambaram ’ s budget of 1997 has been widely acclaimed as a trailblazing breaking budget. from the point of view of reserve bank of india, it has very significant implications. the budget has acknowledged that interest tax is a bad tax and has commenced its phasing out. it has removed tax deduction at source on government securities which was an irritant in developing an active secondary market for government securities. the government has accepted rbi ’ s proposal to launch a capital indexed bond. in the external sector, the policy of capital outflows has been liberalised, acknowledging that globalisation is not a one - way street. replacing the foreign exchange regulation act and designing a process of capital account convertibility are two of the announcements in the budget which are very dear subjects to me, but i will not comment on them. a working group and a committee in the rbi are working on them and i cannot pre - empt their conclusions. there is, however, one subject which has generated debate, sometimes based on misinformation if not misunderstanding. that is the elimination of ad hoc treasury bills treasury bills and the introduction of a new system of ways and means advances ( wma ). my predecessor, dr. s. s. tarapore, who played a significant part in pursuing this idea, has described this change - over as a watershed in indian monetary history. the origin of ad hoc treasury bills 3. the intellectual origins of ad hoc treasury bills in their present form can be traced to the first five year plan. it said, “ judicious credit creation somewhat in anticipation of the increase in production and availability of genuine savings has also a part to play ”. thus, deficit financing, which in our context meant rbi credit to the government, was assigned a place in the financing of the