while the flows on account of equity, foreign direct investment ( fdi ) into green field issues may be considered to be of a more permanent nature, flows on account of buy - outs through channels that are only technically fdi may not constitute a stable element. overall, the portfolio investments could be expected to be less stable than fdi. the market participants ’ views on what constitutes excess volatility are also critical in this regard. second, large and lumpy quantities, even when expected, tend to disturb the markets and hence, there is a need to even - out the impact of such lumpy flows through policy interventions and statements, appropriately managing the expectations in the market. third, while interventions are with the objective of containing volatility in the forex market, intervention over a long period, especially when the exchange rate is moving in one direction, could make interventions less effective. however, a critical question is what would be the impact on expectations about future movements in forex markets if no intervention takes place. the challenges of intervention and management of expectations will be particularly daunting when financial contagion occurs, since such events are characterised by suddenness, high speed and large magnitudes of unexpected flows, in either direction. the quintessence for a relevant monetary policy is the speed of adjustment of the policy measures to rapidly changing situations. fourth, a related issue is whether there should be sterilised intervention and if so, the timing and quantum of such interventions. there is usually a cost attached to sterilisation operations. at the same time, it is also necessary to assess the indirect cost of not sterilising if there are signs of a “ dutch disease ” caused by flows in the capital account. most often, it is not a question of whether to sterilise or not, but how much to sterilise. that is an important issue of judgment that needs to be made in conjunction with domestic monetary and liquidity conditions. fifth issue, relates to the choice and an appropriate mix of instruments for sterilisation. each instrument, namely, market stabilization scheme ( mss ), liquidity adjustment facility ( laf ) and cash reserve ratio ( crr ), has different features and interactions. utilisation of each of these will also depend on what is the permanency of the components of the flows and how they should be sterilised in the aggregate. further, each instrument can be used in different ways. the laf is able to

technology and skills and bring about other efficiencies. this period also saw consolidation of banking system in terms of branches. although priority sector lending norms continued, the definitions became progressively wider with several sectors and activities getting included. in a sense, this period demonstrated the recognition that inclusive banking cannot be at the cost of weakening financial institutions and that policies for inclusive banking have to go hand in hand with encouraging strong and efficient financial institutions. the thrust of inclusive financing for the poor in this phase was mainly through government sponsored credit - cum - subsidy programmes. the recovery performance in these schemes was not encouraging and their success in achieving desired outcomes was also tepid. a notable development in the second phase of inclusive banking was the launching of the shg bank linkage programme by nabard in 1992. the programme gained momentum when reserve bank allowed banks to open savings accounts for shgs despite their not having any legal form. the group leaders operate the shg accounts. shgs facilitate collective decision – making and provide “ door step ” banking to the poor. the banks, as wholesalers of credit, provide the resources, while the ngos are the agencies that organise the poor, build their capacities and facilitate the process of empowering them. interest rates on loans granted by banks to shgs are deregulated. loans to shgs of individual farmers are treated as direct agricultural finance, provided the details of such loans are maintained by the bank / shg. as at march 31, 2007, over 2. 9 million shgs have been linked to banks involving a total credit flow of over rs. 180 billion. the other strategic move in this phase was the creation of rural infrastructure development fund ( ridf ) in nabard, into which public sector banks were required to make deposits towards part of the shortfall in their priority sector lending. the fund is utilised to make loans to state governments for creation of rural infrastructure. a similar fund was set up in small industries development bank of india ( sidbi ) out of shortfall in meeting priority sector lending targets by foreign banks. v. recent strategies for inclusive banking as the economy began to grow at higher rates, the regional and societal disparities called for new strategies to ensure that the banking system met the requirements of inclusive growth. such strategies needed to be fashioned in a manner that they did not undermine the stability and efficiency of the financial system. accordingly, over the last four years or so, several measures have been taken by the reserve bank and government of india to