their assets to be in government securities only. managing public perception 31. another challenge is to build trust in the minds of depositors and public in general. considering that in india we have been only licensing universal banks which engage in all types of financial activities, it may be a challenge to manage the public perception and provide enough confidence to the public to enable them to place deposits in differentiated banks. there will be a need for creation of awareness through proper communication strategy and depositor education. we are conscious of this need. legal provisions for licensing of differentiated banks 32. section 22 of the banking regulation act, 1949 provides that a company intending to carry on banking business must obtain a licence from rbi except such of the banks ( public sector banks and rrbs ), which are established under specific enactments. every bank in india, i. e., domestic and foreign, apart from banking business, can carry out all the activities permitted under section 6 of the banking regulation act. however, the act also provides for reserve bank specifying the terms and conditions and other requirements, along with the licences. we have to employ these provisions for licensing of differentiated banks. viability of the models 33. concentration risk : the differentiated banks will be fraught with concentration risk and a downturn in a particular sector or region can jeopardize the operations of a bank. bis central bankers ’ speeches 34. asset liability mismatches : sector - specific banks run the risk of asset - liability mismatches. asset liability mismatches will be posing a challenge to liquidity management by differentiated banks. it is therefore, imperative to have specific asset - liability management ( alm ) tools for such banks. 35. absence of cross subsidization : universal banks function by engaging in crosssubsidizing loss making business in one segment with earnings from another which will not be possible for specialized banks thereby, impacting their revenues. the localized operations or restriction on the banks to engage in a particular activity could lead to non - availability of cross - subsidization impacting the viability of such models. 36. avenues for income generation : providing avenues for income generation for the differentiated banks is a challenge. to begin with, other fee - based business like distribution of insurance and mutual fund products, credit card business, remittances, payment and settlement business, etc. could be permitted to augment the revenue streams. 37. these model related issues we have addressed through prescribing single

s estimate of potential output of between 2, 0 and 2, 5 per cent. the weak outcome last year was partly due to the impact of protracted strikes in the mining and manufacturing sectors during the year. the bank estimates the negative impact of these strikes to be in the order of around 1, 2 percentage points of gdp. hopefully, prolonged work stoppages will not be a regular feature each year. the question we need to ask ourselves is why the growth prognosis is so weak. some of it has to do with the global economy, as i outlined earlier. secondly, there are binding constraints coming from the electricity supply uncertainties. our estimate of growth tries to incorporate some element of the impact of load shedding on output. there are two elements here : one is the impact of longer term constraints which hamper new investment, and which is reflected in the overall lower potential output ; the other is the impact of load - shedding on existing capacity and therefore on current output. we estimate this latter factor to be in the order of magnitude of around 0, 5 percentage points of gdp. load - shedding appears to have contributed to a general low level of business confidence, as evident in the various confidence indices, but also evident in the very low growth in private sector gross fixed capital formation. in 2014, gross fixed capital formation contracted by 0, 4 per cent, driven mainly by the 3, 4 per cent contraction in investment by the private sector, which accounts for just under two thirds of capital formation. on a more positive note, in the second half of the year growth was positive, a reversal of the strongly negative trends observed in the first half of the year. however, supply side constraints and low confidence are likely to constrain stronger growth. it is worth noting that the more favourable fixed investment outcomes observed in 2013 were mainly related to renewable energy projects. the main driver of growth in recent years has been the consumption expenditure by households. however, the contribution to growth in 2014 declined by one percentage point to 0, 8 percentage points. while we would prefer to have investment - driven growth, even consumption has been relatively subdued for some time, declining to 1, 4 per cent in 2014 compared with 2, 9 per cent in 2013. a further concern has been the recent sharp drop in consumer confidence, which, according to the fnb / ber survey reached a level of – 4 in the first quarter of the year, compared to an average of + 5. factors