duvvuri subbarao : banking structure in india – looking ahead by looking back speaking notes by dr duvvuri subbarao, governor of the reserve bank of india, at the ficci – iba ( federation of indian chambers of commerce & industry – indian banks ’ association ) annual banking conference, mumbai, 13 august 2013. * * * 1. for the fifth year on a trot, you have given me the privilege of inaugurating this prestigious and influential ficci – iba annual banking conference. in my fifth year as governor of rbi, i have the governor ’ s annual schedule firmly ingrained in my mind. i have come to expect, even look forward to, this event in september every year. i am aware that the organizers have advanced the schedule by a month to extend to me the honour of inaugurating this conference before i demit office next month. i am deeply touched. banking structure 2. what should be the focus of my remarks today? at earlier conferences, i focussed on narrow themes within the banking domain. should i pick another narrow theme for this year ’ s conference as well? i deliberated on it quite a bit. since i will be laying down office as governor of the reserve bank in about 4 weeks ’ time, i determined that it may be most appropriate if i loosened the constraint and addressed a broader topic. and the topic i have chosen is to look ahead to the appropriate banking structure for india. 3. when we issued the guidelines for licencing of new banks in the private sector in february this year, the reserve bank said that it will come out with a discussion paper on the banking structure in india. that paper is in the final stages and will be released shortly. the issues that i will address today will inevitably overlap with some of the issues that will be covered in the discussion paper but there need be no presumption that the coverage and nuancing of the issues will be similar. indian financial sector – the big picture 4. in order to look ahead to issues on the way forward, it may be instructive to look at a snap shot of the indian financial system as it is today and review the evolution of the banking system over the last 20 years of economic reforms. let me do that quickly and briefly so as to set the context for the issues that i will address. bis central bankers ’ speeches • banks dominate the indian financial system. • the banking system is dominated by

y v reddy : capital account liberalisation and capital controls remarks by dr y v reddy, governor of the reserve bank of india, at the central bank governors ’ symposium convened by the bank of england in london, 25 june 2004. * * * i am thankful to bank of england for the excellent arrangements and well thought out agenda for the 2004 central bank governors ’ symposium. as desired by governor mervyn king, i will give a brief introduction in this session on capital account liberalisation and capital controls. professor kenneth rogoff ’ s well - researched messages on effects of financial globalisation on developing countries are appropriate as governing thoughts for this session. there is evidence of a threshold effect in the relationship between financial globalisation and economic growth, and the heightened risks of volatility in capital flows to developing countries gets reduced only after a particular level of integration. in contrast, empirical evidence shows that trade liberalisation has had beneficial impact. a review of evidence provides no road map for the optimal pace and sequencing of financial integration. many questions in this regard are best addressed only in the context of country - specific circumstances and institutional features. in this background, based on the indian experience, i will present some issues relating to managing capital account. first, capital account liberalisation is a process and it has to be managed keeping in view elasticities in the economy, and vulnerabilities or potential for shocks. these include fiscal, financial, external, and even real sector - say, oil prices and monsoon conditions for india. professor rogoff ’ s presentation places special emphasis on government borrowings as a vulnerability. second, caution is needed in moving forward with each step in capital account liberalisation, recognising that reversal of any step in liberalisation is very difficult since markets tend to react very negatively to reversals, unless there is already a crisis situation. third, the capital account itself needs to be managed during the process of capital account liberalisation. there is a hierarchy in the nature of different types of capital flows in real life. for example, foreign direct investment is preferred for stability, and quantum of short - term external debt, by residual maturity, should not be excessive. furthermore, adequate reserves, keeping in view the national balance sheet considerations, which include public and private sectors, provide comfort. public policy can achieve these desirable conditions only through some sort of management of capital account. fourth, the management of capital account will be effective under enabling conditions, such as, reasonable confidence in macro policies