the national payment systems act ; the prohibition and prevention of money laundering act ; the bank of zambia anti - money laundering directives ; and the bank of zambia corporate governance guidelines. the speed at which changes to these regulatory frameworks can be made is a crucial element of the reform process in regulatory and supervisory arrangements as it improves policy responsiveness. a number of challenges exist in this area including the need to update some of the statutory instruments ( sis ) in order to reflect the dynamics presently characterizing the financial markets. in some cases, new guidelines are altogether needed for regulating new products and innovations such as mobile banking, internet banking and islamic banking. the need for quick and appropriate responses to market developments and innovations while important also need to be balanced by a well designed regulatory framework that ensures the maintenance of a stable and sound financial system. chairperson, the stability and soundness of the financial system is in turn, heavily dependent on the adequacy of capital. it is essential for the right balance to be struck between the need for banks to hold adequate capital to absorb losses and the need to ensure that capital requirements do not unduly constrain from lending to the real economy. it is also important that banks are not so highly leveraged relative to common equity as to create incentives for excessive risk taking. the required capital ratios should therefore be viewed in the context of the high quality capital – core tier 1 and tier ii definitions and should exclude subordinated debt as providing relevant support. distinguished delegates, basel ii provides a pragmatic approach to determining overall capital levels. it introduced a new approach to the definition of relative capital requirements to be held against specific asset categories. the challenge in this approach is in deciding what an optimal level of capital is especially in light of massive scale of economic losses now being suffered as a result of the banking system collapse. however, any theory of optimal capital level will have to strike a balance between the increased cost of financial intermediation which result from higher capital requirements and the benefits of the decreased probability of bank failure and economic harm which will be achieved. recent developments have established a prima facie case for higher minimum capital requirements. the challenge will be for supervisors to manage the transition to higher capital requirements in a phased approach and take into account the need to avoid procyclical pressure on bank capital adequacy under conditions of economic downturn. zambia has adopted basel ii for implementation although work is still on - going in this area. the enhanced approaches to capital that

convert a large part of these into financial assets. so while banks may be focusing on corporate banking to boost its asset side, it should not miss the opportunities that the liabilities side of business provide and should aggressively protect its turf by gearing up for competition from non - bank financial institutions. ii. 3 competition, consolidation and globalisation to re - shape indian banking competition in not a choice before the indian banking. it would come naturally aided by regulatory impulses and increased openness of the indian economy. not only will there be increased number of players but the number and type of products and services will undergo a change. with likelihood of an increasing competition over the next decade, there could be a process of consolidation among banks as has been the case elsewhere in the world. it is expected to be a market - driven process. cost improvements in output efficiency are likely to emerge from this process as banks seek to reap economies of scale and scope. mergers could be fruitful for smaller banks so they can increase their scale and expand into new product lines. the recent financial crisis has reopened debate on the scale and scope economies in the context of big banks being too big to fail. for instance, nobel laureate, john vickers clearly advocated splitting large uk banks to combat the problem of too - big - to - fail. in us too, some regulatory features have been added through the dodd - frank act to increase the social utility of the largest, most complex financial firms. in india, most banks that operate are as yet not of a global size. they are not big enough to be competitive. so our problems are different. we need to develop a vision of banking over next decade that incorporates not only m & a but changes in structure and in operational framework. banks will need to consider “ end - to - end ” operational changes that places customer on the top of the pyramid and then redesign the processes. our first priority is to bring about universal financial inclusion. however, once financial inclusion is achieved, banks can focus on consolidation. competition and consolidation, in turn, may prompt globalization of indian banks. india is viewed as one of the biggest growth stories among emerging markets. trade in goods, services and finance has exploded. foreign banks are increasingly seeking to be present in india. they could find easier entry through the wholly - owned subsidiary route. indian banks also have aspiration to turn global. indian businesses are making overseas acquisitions even as large inward fdi is taking place. this would impel banks to globalize