duvvuri subbarao : financial literacy and financial inclusion are integral to each other inaugural remarks by dr duvvuri subbarao, governor of the reserve bank of india, at the india - oecd - world bank regional conference on “ financial education ”, new delhi, 4 march 2013. * * * rbi partnership with oecd and world bank 1. rbi is delighted to have this opportunity to partner with two premiere international institutions – the oecd and the world bank – on this very important conference on financial education. 2. hearty welcome to all the delegates from around the world and across india. rbi and financial literacy 3. why is the reserve bank – a central bank, whose core concern is maintaining price stability and supporting growth – in the forefront on a quintessentially development issue like financial literacy? • because of 2 reasons • first reason • rbi has a wider mandate than a typical central bank. • historically rbi has played an important developmental role in the financial sector. • the lead bank scheme initiated in 1969 whereby a bank is designated in every district of the country as the lead bank to coordinate the flow of credit from all banks in the district consistent with a district credit plan. • priority sector lending – whereby banks are mandated to lend a minimum prescribed portion of their total lending to designated priority sectors. rbi has provided innovative leadership on financial inclusion initiatives. the reserve bank is in the forefront of financial inclusion and financial literacy campaigns because we believe that a banking regulator, particularly in a large developing economy like india, has a unique advantage and opportunity as also a distinct obligation to further these goals. goi and rbi work together. financial literacy and financial stability why is rbi in the forefront? ( second reason ) there is another important reason why central banks, not only in emdes, but even in advanced economies, are getting to play a role in financial literacy. this reason stems from the experience of the 2008 / 09 global financial crisis. • many root causes and many proximate causes for the crisis. • one of the root causes is the lack of understanding of financial matters that led sub - prime borrowers into contracting teaser rate loans. • it is indeed possible to argue that the sub - prime problem would not have grown to explosive proportions that it did if people had been more financial literate. bis central bankers ’ speeches • bernanke : “ helping people better understand how to borrow and save wisely and how to build personal wealth is one of

presently enjoying may not be sustained in the future when the interest rate cycle reverses, whenever that happens in future. external benchmark linked loans will be repriced much faster than deposits contracted during the peak of the interest rate cycle resulting in pressure on nims and eventually profitability. therefore, apart from interest rate risk in the trading book, banks must be mindful of the interest rate risk in the banking book as well. on the liabilities side, banks must endeavour to proactively manage the pricing and duration of their deposits while trying to diversify the sources and optimising the product mix of deposits. excessive reliance on bulk deposits should be avoided as these are more sensitive to interest rate movements and perpetuate concentration risk while also eroding earnings. business models 2 / 5 bis - central bankers'speeches as recent global events have demonstrated, sometimes, even business models once perceived as safe can fail. therefore, banks need to remain alert to the risks inherent in their business models and mitigate them in a timely manner. in good times like this, financial institutions must review their growth plans while putting in place adequate risk management systems to handle the emerging risks. it is imperative for boards of banks and nbfcs to fix suitable sectoral and sub sectoral exposure limits and monitor them closely to avoid any sectoral concentration, adverse selection or dilution of underwriting standards. the growing collaboration between banks, nbfcs, and fintechs is driving innovation in products, services, and business models. an important consideration is the cautious adoption of model - based lending through analytics. banks and nbfcs should exercise caution in relying solely on preset algorithms, ensuring that these models are robust, regularly tested, and recalibrated as needed to maintain robust underwriting standards. operational resilience in view of the ever - increasing adoption and usage of digital channels by members of public, it has become imperative for banks and payment system participants to ensure uninterrupted availability of various online and mobile banking channels at all times. recently, there have been a few incidents of unscheduled downtimes inconveniencing several customers. it is also observed that many banks have not been spending fully, the budget earmarked for procurement of it systems and it security systems. banks have to proactively commit adequate resources for augmenting their it infrastructure, commensurate with their business plans and also monitor them for their continued availability and stability. banks and