i share my views on a topic of contextual relevance, that is, “ banking and finance in india : developments, issues and prospects ” in the backdrop of the global financial crisis. a recent bis report has stated that it is useful to think of the financial system as the economy ’ s plumbing. and like the plumbing in a house, the modern economic system depends on a reliable flow of financing through intermediaries. modern life requires the smooth operation of banks, insurance companies, securities firms, mutual funds, finance companies, pension funds and governments. these institutions channel resources from those who save to those who invest, and they are supposed to transfer risk from those who can ’ t afford it to those who are willing and able to bear it ( bis, 2009 ). in india too, we have a well - diversified financial system which is still dominated by bank intermediation, though the size of the capital market has expanded significantly with financial liberalization in the early 1990s. important components of the financial sector in india broadly fall into categories namely ; commercial banks, urban co - operative banks ( ucbs ), rural financial institutions, non - banking financial companies ( nbfcs ), housing finance companies ( hfcs ), financial institutions ( fis ), mutual funds and the insurance sector. commercial banks together with cooperative banks account for nearly 70 per cent of the total assets of indian financial institutions. global banking trends and the crisis before i dwell on the developments in the indian banking and financial arena let me first touch upon briefly the global banking trends in view of the present crisis. the current global crisis, as is well known by now, has its genesis in the imprudent practices of banks and nonbank institutions worldwide, especially in the us. the fact that more than 80 banks have failed in the us alone is a pointer to how deep and widespread the malaise was. looking at the past few years, it may be useful to divide the causes of the current crisis into two broad categories : macroeconomic and microeconomic. the macro - economic causes fall into two groups : problems associated with the build - up of imbalances in international claims and difficulties created by the long period of low real interest rates. the microeconomic causes fall into three areas : incentives, risk measurement and regulation ( bis, 2009 ). the crisis is best regarded as the steep downside of an extraordinary global financial cycle that was amplified by structural weaknesses. the financial imbalances that had built up slowly but inex

australia, singapore and hong kong. world development indicators : financial access, stability and efficiency – world bank report ( 2014 ). bis central bankers ’ speeches 9. with the broadening and deepening of financial sector, a need is felt that banks move from the situation where all banks provide all the services to a situation where banks find their specific realm and mainly provide services in their chosen areas. as the economy grows and becomes more integrated with the global economy, need would be felt for sophisticated financial services and products which will require the presence of different types of banks. accordingly, differentiated banks serving niche interests are also contemplated for india. 10. much of the indian population is still outside the purview of formal financial sector and there is need to spruce up the institutional mechanism in this regard. reserve bank had, accordingly, issued draft guidelines on small banks and payment banks in june 2014. both, payments banks and small banks are “ niche ” or “ differentiated ” banks ; with the common objective of furthering financial inclusion. while small banks will provide a whole suite of basic banking products, such as, deposits and supply of credit, but in limited size, payments banks will provide limited range of products, such as, acceptance of demand deposits and remittances of funds, but will have a widespread network of access points particularly in remote areas, either through their own branch network or through business correspondents or through networks provided by others. the final guidelines on small and payment banks will be released shortly. 11. the presence of foreign banks in india is seen to be one of the drivers to increase competition, promote efficiency of the local banking system and also for bringing in sophisticated financial services and risk management methodologies which can be adopted by the domestic banks. based on cross - country experience, some of the main drivers of foreign banks would be the desire of banks to follow their home customers abroad, opportunities in the host countries, the attractiveness of local profit, the absence or elimination of barriers to foreign bank entry etc. 12. the share of foreign banks in total assets of the banking sector in india is 6. 5 per cent. the operations of foreign banks are skewed and mainly concentrated in urban and metropolitan areas. out of the total of 318 foreign bank branches, 315 are in urban and metropolitan areas. foreign banks account for less than one per cent of total branches of commercial banks in india. 13. currently, foreign banks presence in india is in the form of branches or representative offices. for the