monetary policy practice. therefore, it is highly desirable to discuss the implied risks at different levels : ( i ) first, the risks should be discussed by the staff. ( ii ) second, an evaluation of the risks should be performed interactively by the decision - making body members and the staff ( alternative scenarios can be produced on the basis of these discussions ). ( iii ) third, the risk and the alternative scenarios should be discussed by the decision - making body members during the policy meeting. it is clear that all the above - mentioned properties can be satisfied when either a bank board or a policy committee are making the decisions. over the years it has been proven that both systems can work well. on the one hand, a policy committee automatically encompasses the property of separateness and the full devotion of its members towards monetary policy. on the other hand, bank board members are probably identified more closely with the institution and offer a more diversified view of policy conduct. indeed, it is really difficult to distinguish which system is superior ; the prevailing solutions are determined by tradition and other local conditions. nevertheless, what is, in fact, of critical importance is the legal framework that is used as the background for the decision making. the decision - making body ’ s mandate should arise directly from the central bank law, or even the constitution, and should be sufficiently ‘ clear ’. any internal agreement shifting policy responsibility towards somebody who is not explicitly referred to in the central bank law, and thus assumed to be policy responsible, could be highly vulnerable and unstable. this could become apparent as soon as a period of tough decisions arrives. the implications of all this can be split in two groups. the first group covers a rather general implication that can be summarized as : the policy decision - making role should be performed by a body that is well defined in the central bank law. in addition, regardless of whether the decision - making body is a bank board or a policy committee, it should fulfil the properties of diversity of opinions, regularity, separateness, staff independence, openness, and dealing with uncertainty. the second group of implications then offers more a practical view which can be summarized as follows : a ) the ‘ policy decision - making ’ body should have a strong background in law, b ) the meeting devoted to monetary policy should not deal with any other issue, c ) the forecast and economic analysis should be submitted by the staff so as to constrain ‘ information filtering ’, d ) the decision makers should

and criticised. i would like to assure you that we give as much importance to our critics as our admirers. while some of the criticism has been fair and value adding, some of it stems from an inadequate appreciation of the rbi perspective. i thought it may be useful to give our perspective so as to inform public debate on important monetary policy issues. everyone is now agreed that the way forward on this crisis at the present time is too uncertain. even today, it is not possible to clearly see the path of the crisis and its resolution over the coming months. it is just not possible to have a precise road map all laid out to be unleashed in one go. this crisis does not allow us that luxury. and, mind you, india is not unique in this respect. almost every country, whether or not directly affected, is having to manage under uncertainty. there are simply too many unknown unknowns. in the circumstances, the stance of the rbi has been to respond to the evolving situation swiftly and effectively, and to the extent possible, in anticipation of immediate developments. we do have a road map that is comprehensive and practical. it would be our endeavour to adapt this road map to the evolving global developments and implement it flexibly and pragmatically. our approach, as indeed of every prudent central banker around the world, has been to " cross the river by feeling the stones ". the rbi will continue to be on vigil and do everything possible within its mandate to mitigate the impact of the crisis on the indian economy. the challenges ahead let me now turn to the major challenges facing the banking system in the country, particularly in the wake of the global financial crisis. the first challenge : maintaining the credit flow the outlook, both for the world and for india, continues to remain uncertain. the future trajectory of the global crisis is not yet clear. as i mentioned earlier, the year 2009 - 10 will be more challenging than the current one. there was a noticeable decline in the credit demand in the month of november 2008 but it is not yet clear if it was a one off episode or it reflects a trend. if it is indicative of slowing economic activity, it would be a major challenge for the banks to ensure healthy flow of credit to the productive sectors of the economy. as you know, economic growth, even in normal times, requires efficient financial intermediation. an economic downturn, therefore, requires even more efficient financial intermediation – and this is a major