has been monitoring the capex and investment plans of selected central public sector enterprises ( cpses ) since fy 12 – 13 with a view to enhance investment in the economy and use cpses to drive economic growth. developments in the banking sector 38. coming specifically to the banking sector, i would like to emphasize that this sector plays a very important role in the economic growth of the country, by providing finance to the different sectors of the economy. though our banking system continues to remain vibrant in terms of capital and profitability, despite the economic downturn, we cannot afford to relax. while the asset quality of the banking system is under stress, the situation is still manageable. let me, however, highlight that as per our analysis, the higher npas in the banking system are, in a large measure, also attributable to some laxity in lending standards in the benign environment that preceded the global financial crisis. we are witnessing another disconcerting trend in our economy and that is the corporate sector and government have become highly leveraged. the banks have to be more discreet in lending to the highly leveraged corporates. the bank credit is primarily meant to be utilized for productive purposes and hence, people cannot be allowed to eat credit. 39. specifically, there is lot of scope for improvement in our public sector banks in terms of governance, risk management capabilities and human capital. one of the primary reasons for the financial crisis was the greed and unethical practices of the market participants. history bears testimony to the fact that an inefficient system breeds indiscipline, which in turn leads to wastage of resources, complacency, frauds, low growth, etc. our banking system has to ensure that it remains efficient and supports the activities of the real sector. message for students 40. i am wary of giving advice to the students as people of your generation are not too receptive to advices. so, i would just give you some suggestions. i would like to give three messages, which i always do whenever i get an opportunity to interact with the students. my first message is that you must strive to achieve “ third generation literacy ”. while the first generation of literacy pertains to acquiring knowledge by reading books ; the second generation literacy pertains to knowledge about computers and information technology. i am bis central bankers ’ speeches sure all of you have attained the first and second generation of literacy. however, the third generation of literacy

lenders, it was important to ensure promoters ’ “ skin in the game ” or commitment by stipulating personal guarantee. the working group discussed that in case personal guarantee is made mandatory, promoters will be ensuring that only viable packages are submitted for restructuring. in view of the foregoing, the working group recommended that rbi may prescribe that the promoters ’ personal guarantee as a mandatory requirement for all cases of restructuring, i. e., even if the restructuring is necessitated on account of external factors pertaining to economy and industry. the working group also recommended that rbi may prescribe that corporate guarantee cannot be a substitute for the promoters ’ personal guarantee. provision for diminution in the fair value of restructured advances reduction in the rate of interest and / or reschedulement of the repayment of principal amount, as part of the restructuring, results in diminution in the fair value of the advance. such diminution in value is an economic loss for the bank and will have impact on the bank ’ s market value of equity. banks are, therefore, required to measure such diminution in the fair value of the advance and make provisions for it by debit to profit & loss account. such provision should be held in addition to the provisions as per existing provisioning norms for advances. our extant instructions are very clear in this regard. the working group examined the present method of calculating erosion in the fair value of the advance as the difference between the fair value of the loan before and after restructuring, and found the same to be appropriate. however, it was felt that there are certain ambiguities and inconsistencies across the banks and the same were required to be removed. accordingly, the working group recommended that rbi may provide some illustrative examples on calculation of the fair value of accounts on restructuring. the working group also recommended continuance of the existing instruction that if a bank finds it difficult to compute diminution in fair value of advances extended at small / rural branches, it will have the option of notionally computing the diminution amount at 5 % of the total exposure, in respect of restructured accounts where the total dues to the bank are less than rs. 1 crore. conversion of debt into shares / preference shares the next major highlight of the report is regarding arresting the trend of the banks being burdened with shares / preference shares of non - viable companies as a result of restructuring of their debt. the working group observed that banks were adverse