necessary predicate to promoting innovation. before we craft a useful public policy around innovation in banking, we need to understand the various dynamics involved with particular innovations. we must consider how innovation can impact different financial sectors, from small banks to wholesale financial markets, and how those impacts will ultimately effect end users. for 1 / 6 bis - central bankers'speeches example, will " tokenized " products and platforms duplicate existing bank deposits and payment rails, potentially creating parallel systems? if so, will the products and platforms that duplicate these functions provide the same legal protections for customers and the overall financial system? the wide variety of technology and use cases can be a significant obstacle to getting to a place where regulators understand any one innovation. innovation in the financial system can take many forms including new technology, new business models, and improvements to existing infrastructures. as one form of innovation, distributed ledger technology ( dlt ), including blockchain, has inspired new ways of thinking about the exchange of assets and data, in addition to the role of intermediaries and trusted third parties. dlt combines a number of different design elements - like distributed data storage, cryptography, and consensus mechanisms - that support the transfer process, information visibility, and transaction recordkeeping. 2 dlt is an interesting example because it highlights the challenges presented to regulators in understanding innovation. there are many variations in the application of dlt - and ongoing research and development creating more variability over time - which ultimately may complicate understanding how the technology can be used, and how different functionality can be incorporated into dlt solutions for different use cases. in short, innovation can take many forms. it often involves new uses for existing technology that enhance core business lines, but it can also include the introduction of transformational new technology or capabilities. customer demands for cheaper products or for new and innovative products often motivate banks to explore how technology and innovation can meet these demands and provide products and services for the future. while understanding technology is an important first step, it is not the only one. regulators also need to understand the players who operate in the fintech space. banks of all sizes have a long history of innovation, from the introduction of checks ; to the advent of atms that allow easy access to cash and basic banking information ; to online banking platforms and electronic payments that have simplified and streamlined the way many consumers and businesses manage and access their funds, receive credit, and conduct financial transactions. innovation helps banks upgrade their existing business lines to

policies ; pragmatism rather than ideology ; relevance to the context ; consultative processes ; dynamism and good sequencing so as to be able to meet the emerging domestic and international trends. in order to facilitate an understanding of the approach, a few illustrations would be in order. convertibility on current account was announced in 1994 by the government and the exchange control restrictions were removed over a period of time, emphasising the need for underlying real transactions and reasonableness of amounts. however, the repatriation and surrender requirements still dominate the system, though some people aver that it is inconsistent with the concept of current account convertibility. the intention to move over to capital account convertibility was announced in 1997 and its achievement is still an ongoing process - which differentiates the roles of individuals, corporates and financial intermediaries. likewise, in regard to primary dealers ( pds ), initially in 1996 only the pds promoted by local banks or financial institutions were licensed. foreign bank - sponsored pds were licensed after about three years. in the banking system, diversified ownership of public sector banks has been promoted over the years and the performance of their listed stocks in the face of intense competition indicates improvements in the system. they do co - exist with several old and new private sector banks, and some of the new private sector banks have proved to be of global standards. recently, some of private sector banks promoted by domestic financial institutions have been permitted to conduct central and state government business supplementing the public sector banks. in february 2004, transparent guidelines were issued by rbi in regard to the prior acknowledgement from rbi for any acquisition / transfer of shares of a private sector bank which would take the aggregate shareholding of an individual or a group to equivalent of five percent or more of the paid up capital of the bank. while this requirement already existed, transparency was imparted by the guidelines. on july 2, 2004, a comprehensive policy framework for ownership and governance in private sector banks has been placed in the public domain, by the rbi in the form draft guidelines, for wider public debate. based on the feedback received, a second draft of the guidelines would be prepared and put in public domain for further discussions. foreign banks have been operating in india for decades with a few of them having operations in india for over a century. quite a few foreign banks from diverse countries set up operations in india during the mid - 1990s following the liberalisation of the indian economy. the number of foreign bank branches in india