pillars : financial stability assessment and stress testing ; legal, infrastructural and market development issues ; and an assessment of the status of implementation of international financial standards and codes. the first pillar is essentially concerned with stability assessment. taking into account the legal, regulatory and supervisory architecture in india, the cfsa felt the need for involving, and associating closely, all the major regulatory institutions in the financial sector – the rbi, sebi and irda, besides the relevant government departments. direct official involvement at different levels brought about enormous responsibility, ownership, and commitment to the process, ensuring constructive pragmatism when faced with contentious issues. since the assessment required comprehensive domain knowledge in the various technical areas examined, the cfsa initially constituted technical groups comprising officials with first - hand experience in handling the respective areas from the regulatory agencies concerned as well as the government to undertake the preliminary assessment and to prepare technical notes and background material in the concerned areas. this ensured that officials who are well - conversant with their own systems and are aware of the existing strengths and weaknesses could identify the best alternative solutions. to ensure an impartial assessment, the cfsa constituted four external independent advisory panels, comprising non - official experts drawn from within the country. these panels made their assessments after thorough debate and rigorous scrutiny of inputs provided by the technical groups. to further strengthen the credibility of this assessment, the advisory panels ’ assessments were peer reviewed by eminent international experts. the cfsa then drew up its own overview report at the final stage, drawing upon the assessments, findings and recommendations of the advisory panels and the comments of the peer reviewers. the assessments and recommendations comprise six volumes. all the six volumes are freely available on rbi ’ s website and i would strongly recommend that you read them. if six volumes are daunting, then read at least the first two volumes, viz., the executive summary and the overview report. overall, the cfsa found that our financial system is essentially sound and resilient, and that systemic stability is by and large robust. india is broadly compliant with most of the standards and codes though gaps were noted in the timely implementation of bankruptcy proceedings. of immediate interest, and related closely to the current macroeconomic conditions, the cfsa also carried out single - factor stress - tests for credit and market risks and liquidity ratio and scenario analyses. these tests show that there are no significant vulnerabilities in the banking system. this does not mean that npas

##ting factors, the crisis hit india underscoring the rising two - way trade in goods and services and financial integration with the rest of the world. there have been several comforting factors going into the slowdown. first, our financial markets, particularly our banks, have continued to function normally. second, india ’ s comfortable foreign exchange reserves provide confidence in our ability to manage our balance of payments notwithstanding lower export demand and dampened capital flows. third, headline inflation, as measured by the wholesale price index ( wpi ), has declined sharply. consumer price inflation too has begun to moderate. fourth, because of mandated agricultural lending and social safety - net programmes, rural demand continues to be robust. both the government and the reserve bank responded to the challenge strongly, and in close coordination and consultation. the reserve bank shifted its policy stance from monetary tightening in response to the elevated inflationary pressures in the first half of 2008 - 09 to monetary easing in response to easing inflationary pressures and moderation of growth engendered by the crisis. the reserve bank ’ s policy response was aimed at containing the contagion from the global financial crisis while maintaining comfortable domestic and foreign exchange liquidity. taking a cue from the reserve bank ’ s monetary easing, most banks have reduced their deposit and lending rates. the government launched three fiscal stimulus packages between december 2008 and february 2009. these stimulus packages came on top of an already announced expanded safety - net programme for the rural poor, the farm loan waiver package and payout following the sixth pay commission report, all of which too added to stimulating demand. as the monetary and fiscal stimuli work their way through, and if calm and confidence are restored in the global markets, we can see economic turn around later this year. after averaging nine per cent growth over the last four years, economic activity in india has slowed since the last quarter of 2008. the outcomes in recent months have been mixed. while overall industrial production fell again in march, cement and steel production have shown some preliminary signs of upturn. segments in the automobile sector, particularly two and three wheelers and passenger cars, are showing modest revival of demand. the industrial and business outlook is improving. these signs are not unambiguous — there is as yet no clear sign of export decline reversing the trend, and credit growth continues to be subdued. taking the evolving global situation and the domestic conditions into account, in our annual policy statement last month, we projected real gdp growth of 6. 0