where non - banks undertake banking business, are also on the increase. the global experience can be segregated into broadly three models. there is the swedish or hong kong type model in which the banking corporate engages in in - house activities associated with banking. in germany and the uk, certain types of activities are required to be carried out by separate subsidiaries. in the us type model, there is a holding company structure and separately capitalised subsidiaries. in india, the first impulses for a more diversified financial intermediation were witnessed in the 1980s and 1990s when banks were allowed to undertake leasing, investment banking, mutual funds, factoring, hire - purchase activities through separate subsidiaries. by the mid - 1990s, all restrictions on project financing were removed and banks were allowed to undertake several activities in - house. in the recent period, the focus is on development financial institutions ( dfis ), which have been allowed to set up banking subsidiaries and to enter the insurance business along with banks. dfis were also allowed to undertake working capital financing and to raise short - term funds within limits. it was the narasimham committee ii report ( 1998 ) which suggested that the dfis should convert themselves into banks or non - bank financial companies, and this conversion was endorsed by the khan working group ( 1998 ). the reserve bank ’ s discussion paper ( 1999 ) and the feedback thereon indicated the desirability of universal banking from the point of view of efficiency of resource use, but it also emphasised the need to take into account factors such as the status of reforms, the state of preparedness of the institutions, and a viable transition path while moving in the desired direction. accordingly, the mid - term review of monetary and credit policy, october 1999 and the annual policy statements of april 2000 and april 2001 enunciated the broad approach to universal banking and the reserve bank ’ s circular of april 2001 set out the operational and regulatory aspects of conversion of dfis into universal banks. the need to proceed with planning and foresight is necessary for several reasons. the move towards universal banking would not provide a panacea for the endemic weaknesses of a dfi or its liquidity and solvency problems and / or operational difficulties arising from undercapitalisation, non - performing assets, and asset liability mismatches, etc. the overriding consideration should be the objectives and strategic interests of the financial institution concerned in the context of meeting the varied needs of customers, subject to normal pr

by 2016 – 17 from 12 per cent of gdp in 1990 – 91. along with stable form of capital flows such as fdi that come with relatively long - lasting interest in domestic entities, foreign portfolio ( both equity and debt ) capital flows have also increased making the economy ( like that of other open emerging markets ) susceptible to enhanced volatility and sudden stop or reversal risks. 9. therefore, as india – like other emerging markets – has undoubtedly benefited from globalisation, we are also more exposed than before to vulnerabilities that come in its wake. our increasing dependence on the external world is reflected in outstanding external liabilities ( both debt and non - debt ), which increased from about 30 per cent of gdp in march 2005 to 41 per cent of gdp in march 2017. india ’ s net international investment position ( i. e., outstanding assets minus liabilities ) has moved over the period from about – 7 per cent of gdp to – 17 per cent of gdp. this is consistent with a prolonged phase of running current account deficits which have been financed by increasing net liabilities to the rest of the world. with easing of limits over the years, there has been a rise in foreign portfolio capital flows. ( of course, this has to be appreciated in the context of the obvious economic benefits from international financial flows into 2 / 4 bis central bankers'speeches capital scarce countries ). 10. movement of capital in and out of the country is often linked to policy cycles in other countries which throw up the challenges of international policy spillovers. with every new tail event, the churn becomes larger, the volatility ever higher, threatening to overwhelm the modest defences that emerging markets are able to muster. how does one protect policy independence in such a world? do we need meaningful and deeper international policy coordination? or, universal financial safety nets rather than the asymmetric ones available at present only to a small number of countries, which is more reminiscent of apartheid rather than universality. meanwhile, emerging markets that are at the receiving end of global financial turbulence, are systematically denied access to such risk sharing. the time has come to end this sectarian approach and to make the access to swap lines equally available rather than only for the privileged. 2 while emerging markets have shown a degree of resilience to the turmoil of recent years, they remain vulnerable to liquidity and bridge financing gaps that are debilitating even if transitory. 3 against this background, building up