financial sector that need to be addressed to improve our assessment. third, as we move along the path of stricter and more comprehensive regulation, it is important not to lose sight of the pricing mechanism, as determined by market forces. in india, we have, over time, moved away from an administered structure of interest rates, both on the lending and the deposit sides. these deregulations have given flexibility to banks to price their deposits and loans and have improved access to formal finance. notwithstanding these advancements, distortions in pricing still persist which need to be addressed. fourth, in an underdeveloped financial system, lenders and borrowers may be two distinct categories. however, as the economy has gathered momentum and competition among banks has intensified, newer areas of lending, such as those for housing, education, automobiles – broadly categorised under the rubric of retail loans – has emerged, blurring the watertight distinction between lenders and borrowers. hence, competitive and transparent pricing of both deposit and loan products has become important to enhance social welfare. fifth, the recent global crisis has highlighted the relevance of improving investor awareness, not only for ensuring orderly market conditions, but also for efficacy of regulation. however robust the regulatory framework might be, unless the small investor is adequately informed, it m. cihak, s. munoz, s. t. sharifuddin and k. tintchev ( 2012 ). financial stability reports : what are they good for? imf working paper 1. imf : washington dc. bis central bankers ’ speeches is possible for fly - by - night operators to exploit the regulatory arbitrage. in this context, the reserve bank is taking steps to improve awareness through the financial literacy campaign. to sum up, the global financial crisis has given a greater macroprudential orientation to financial regulation and emphasised on better quality capital so as to safeguard financial stability. while there are differences in views on matters of details, there is broad acceptance of the new direction in regulation. india being a participant in global initiatives, with presence in various international bodies, our effort has been to adopt international best practices with necessary modifications to suit our local conditions. however refined the financial regulation might be, it cannot compensate for weaknesses in the real economy. hence, macroeconomic stability characterised by fiscal prudence sustainable growth with low inflation is important to preserve the overall stability of the financial system. thank you. bis central bankers ’ speeches

discussion paper on banking structure was released, taking on board the observations made by earlier committees in this regard. two s. claessens, s. r. ghosh and r. mihet ( 2013 ). “ macroprudential policies to mitigate financial vulnerabilities. ” journal of international money and finance 39, 153 – 185. bis central bankers ’ speeches salient features of the discussion paper were advocating a multi - tiered banking structure to cater to various niches of the society supplemented by a process of continuous authorisation for new banks to enhance competition, enrich product diversity and promote newer ideas in the financial marketplace. i might also mention in this context that the recently released report of the rbi - appointed committee tasked with the mandate of broadening access to finance chaired by dr. nachiket mor has also advocated different categories of banks that can collectively meet the needs of the economy. going forward, as the financial sector grows in size and complexity, newer forms and dimensions of risk will emerge that will need to be carefully monitored. a beginning has already been made with issuance of guidelines on domestically systemically important banks ( d - sibs ) and the creation of a central repository on large common exposures. conclusion let me conclude by highlighting some issues of relevance to the financial sector. first, the quality of loan portfolio of financial institutions is directly dependent on the health of the non - financial enterprise sector. however, the current weaknesses in corporate balance sheets partly due to subdued economic environment have been feeding into banks'balance sheets. this trend, if left unchecked, could ultimately impinge on financial stability. in this context, the reserve bank has recently outlined a corrective action plan for tackling delinquent loans, including incentivising their early identification, timely revamp and prompt steps for their recovery or sale. second, there is a need to further beef up the levels of transparency and disclosures standards. several countries have begun publishing financial stability reports ( fsrs ) to provide an objective assessment of the risks and vulnerabilities confronting their financial systems. however, publishing a fsr is not by itself sufficient to ensure financial stability. 11 fsrs for many countries are less than comprehensive owing to serious data gaps, which impede a holistic assessment of their financial sector, particularly the non - banking sector. while we have expanded the depth and analytical content of our fsrs, we are also looking into the data gaps in the