private capital they also require. in addition, the troubled asset purchase program should help by counteracting the effect of forced sales and impaired market liquidity on asset prices. although capital is the bedrock of confidence, it probably will take some time for enough to be raised to completely reassure those who extend funds to many intermediaries. in the meantime, the inability of lenders to fund themselves beyond the very near term creates vulnerability in the financial system and impedes their capacity to make loans to households and businesses to finance the purchases of cars, houses, and business capital. to bridge the gap to stronger capital, the federal deposit insurance corporation ( fdic ) is offering banks and their holding companies an opportunity to issue guaranteed obligations for the next nine months. this guarantee covers the obligations most likely to be withdrawn when confidence erodes, but it is also structured to encourage banks to lengthen the maturity of their borrowing to provide stability, rebuild confidence, and stimulate lending. the fdic program will operate alongside the earlier treasury guarantee of money market fund balances designed to stabilize investments in those accounts and hence reduce the need for these funds to liquidate assets. for its part, the federal reserve has greatly expanded its provision of liquidity to banks here and abroad and to other borrowers. we could do so in part because the eesa accelerated the authority for the federal reserve to pay interest on reserves. with that power, we can expand our lending and still maintain the federal funds rate target established by the federal open market committee ( fomc ). under normal circumstances, we face no tension between supplying liquidity and achieving our interest rate objective, because we supply a relatively small amount of funds to the private sector through our open market operations with primary dealers and discount window lending to banks. over the past 15 months, however, as lenders have become increasingly reluctant to lend to each other, the federal reserve has had to take on a much greater role in the financial system to carry out its public policy responsibilities to provide a backstop source of liquidity. at first, we did this by expanding the amount and lengthening the maturity of our lending to banks at the discount window and through our traditional open market operations with dealers. then, we found that we needed to supply credit against a greater variety of collateral to primary dealers so we opened the discount window to them and expanded our securities lending facilities. and just within the past few weeks we determined that, with normal intermediation increasingly disrupted, economic and financial stability

. for paucity of time and my hope that this audience would be well acquainted with these steps, i would not detail them here. but let me reiterate that the reserve bank is very serious that all public and private sector banks implement a board bis central bankers ’ speeches approved three - year financial inclusion plan ( fip ). these plans and targets would be monitored closely. in doing so banks should note that financial inclusion does not only means mere opening of banking outlets. it is equally important to provide the financially excluded people with products that are relevant. but, more importantly, it is the banks which have to serious in delivering affordable products and services in a profitable and viable manner. recently the world population has crossed the seven billion mark and india accounts for 18 % of this share. with such huge population, we need to place financial inclusion highest on our priority list. we cannot become big players in the global banking space if we leave out a large segment of our own population out of their reach. we need to be worried about competition and externalities, but not at the expense of prime motive of providing our products to all those who need it. ii. 2 catalyzing economic growth by unlocking financial savings over the last two decades, there has been an increasing recognition that finance is important for growth. countries with better functioning banks and financial markets grow faster. the degree to which a country ’ s financial system is bank - based or market - based does not matter much, but better - functioning financial systems promote growth by diminishing external financing constraints that a firm faces. finance also matters for income distribution, and poverty alleviation as it reduces information and transactions costs. that finance matters for growth should be intuitively obvious as economic growth depends on what one invests and so is found to have a long - run relationship with savings. bilateral causality exists between the domestic savings growth and the economic growth. higher growth raises savings, but higher savings also raises growth. india has been a bank dominated financial system, even as financial markets have developed a great deal since the 1990s. bank account for about 29 % of the total financial flows in the economy, but are now faced with increased competition from non - bank financial intermediaries whose share increased rapidly to a significant 16 % in 2007 – 08. even though 51 % of the household ’ s financial surplus gets intermediated through banks, other financial institutions account for a significant 41 % share. india ’ s high savings rate has been a crucial driver