by facilitating specialization thereby enhancing optimal use of resources. each of the niches has the potential to be individually large to sustain significant balance sheets and specialized entities can play a major role in all of them. currently, while the banking sector is evolving depending on the needs of the economy, it is felt that given a choice, some banks and non - bank financial companies may choose to operate as a specialized niche bank to derive the obvious advantages of lower absolute capital requirements, lower cost of funds and specialization. as a regulator, the reserve bank felt that an enabling environment should be provided for niche banks also to operate and leverage upon them to contribute to the objective of financial inclusion. the advantages of differentiated banks 19. there are several advantages of having differentiated banks. they are as follows : • there are diverse opportunities in the banking and financial landscape reflecting significant macro - economic growth potential in india and differentiated licensing could enable unlocking potential of these opportunities as it encourages niche banking by facilitating specialisation thereby reducing potential non - optimal use of resources. • very large ticket, long term infrastructure lending requires risk management expertise that goes beyond traditional credit appraisals at banks. there is significant space for specialized entities in risk assessment and structuring of infrastructure finance. • very low ticket unsecured credit requires risk management methodology and cost control that is not easy in the business model of conventional banks. • increase in competition among banks could lower costs of transactions. • gaps in sme finance can be filled with asset and cash flow based lending, operating leases, and factoring. • issues of conflict of interest when a bank performs multiple functions would not arise, where differentiated licenses are issued. • risk management systems and structure for regulatory compliance could be customized according to the banking type. • customized application of supervisory resources according to the banking type could result in greater optimization of such scarce resources. • core competency could be better harnessed leading to enhanced productivity in terms of reduced intermediation cost, better price discovery and improved allocative efficiency. bis central bankers ’ speeches the policy on differentiated banks 20. after a careful analysis of the advantages of and the challenges from licensing differentiated banks, we came to the conclusion that in balance, the advantages outweigh the challenges, and the challenges can be effectively met with appropriate arrangements. as mentioned by the hlcfsr, the environment is conducive for experimentation with small banks. the reserve bank has, accordingly, decided to licence differentiated banks and guidelines on licensing of small banks

y v reddy : credit counselling - an indian perspective address by dr y v reddy, governor of the reserve bank of india, at the foundation day function of the bank of india, mumbai, 7 september 2006. * * * mr. chairman, distinguished guests and friends, i am thankful to mr. balachandran for providing this opportunity to be with this eminent gathering assembled for a noble cause. bank of india has been among the banks known to be a pioneer in several areas of commercial banking. in this context, the initiative by the bank to establish credit counselling centers on a pilot basis highlights the pro - active role being played by our banks. in fact, a major reason for my agreeing to participate in this ceremony is to demonstrate the reserve bank of india's commitment to the cause of credit counselling - a recent initiative in our country. in my remarks on this occasion, some introduction on the importance of this topic would be in order. an overview of the global practice in this area could then be followed by a discussion of the indian context with regard to credit counselling. any mechanism of credit counselling has to reckon with the processes, costs and benefits. the concluding thoughts are in the nature of illustrative issues towards initiating and popularising credit counselling in india. introduction with the changing growth dynamics of the economy, it is not difficult to envisage situations where certain segments of the population become susceptible to excessive borrower optimism or even to vicissitudes in the economic environment. such susceptibility could also arise from unforeseen shocks or emergencies that make repayment difficult. by providing sound advice to arrest the deterioration of incomes and restructure their debt, credit counselling offers a meaningful solution for borrowers to gradually overcome their debt burden and improve their money management skills. in this regard, the question is whether there is a role for public policy in matters relating to credit counselling? we must recognise that financial intermediaries, the corporates and high net worth individuals generally possess in - house knowledge of matters relating to financial management and can afford to employ outside expertise as appropriate in regard to their investment decision and management of distressed loans. public policy has enabled an operational mechanism in the form of corporate debt restructuring ( cdr ) in regard to loans by banks and development financial institutions to large corporates. somewhat similar framework has also been provided to small and medium enterprise. in regard to agricultural loans and most of the small borrowers, however, only broad