area of concern has been the possible exclusion of a large section of population from the provision of services and the statement pleads for financial inclusion. it states : “ there has been expansion, greater competition and diversification of ownership of banks leading to both enhanced efficiency and systemic resilience in the banking sector. however, there are legitimate concerns in regard to the banking practices that tend to exclude rather than attract vast sections of population, in particular pensioners, self - employed and those employed in unorganised sector. while commercial considerations are no doubt important, the banks have been bestowed with several privileges, especially of seeking public deposits on a highly leveraged basis, and consequently they should be obliged to provide banking services to all segments of the population, on equitable basis. ” operationally, it has been made clear that rbi will implement policies to encourage banks which provide extensive services while disincentivising those which are not responsive to the banking needs of the community, including the underprivileged. the quality of services rendered has also invited attention in the current policy. i quote further, “ liberalisation and enhanced competition accord immense benefits, but experience has shown that consumers ’ interests are not necessarily accorded full protection and their grievances are not properly attended to. several representations are being received in regard to recent trends of levying unreasonably high service / user charges and enhancement of user charges without proper and prior intimation. taking account of all these considerations, it has been decided by rbi to set up an independent banking codes and standards board of india on the model of the mechanism in the uk in order to ensure that comprehensive code of conduct for fair treatment of customers are evolved and adhered to ”. it is essential to recognise that, while these constitute contextual nuanced responses to changing circumstances within the country, the overwhelming compulsion to be in harmony with global developments must be respected and that essentially relates to basel ii. basel ii and india rbi ’ s association with the basel committee on banking supervision dates back to 1997 as india was among the 16 non - member countries that were consulted in the drafting of the basel core principles. reserve bank of india became a member of the core principles liaison group in 1998 and subsequently became a member of the core principles working group on capital. within the working group, rbi has been actively participating in the deliberations on the new accord and had the privilege to lead a group of six major non - g - 10 supervisors which presented a proposal

ahead. what has been the impact? these reform measures have had major impact on the overall efficiency and stability of the banking system in india. the present capital adequacy of indian banks is comparable to those at international level. there has been a marked improvement in the asset quality with the percentage of gross nonperforming assets ( npas ) to gross advances for the banking system reduced from 14. 4 per cent in 1998 to 7. 2 per cent in 2004. the reform measures have also resulted in an improvement in the profitability of banks. the return on assets ( roa ) of the banks rose from 0. 4 per cent in the year 1991 - 92 to 1. 2 per cent in 2003 - 04. considering that, globally, the roa has been in the range 0. 9 to 1. 5 per cent for 2004, indian banks are well placed. the banking sector reforms also emphasized the need to review the manpower resources and rationalize the requirements by drawing a realistic plan so as to reduce the operating cost and improve the profitability. during the last five years, the business per employee for public sector banks more than doubled to around rs. 25 million in 2004. continuity, change and context we lay considerable emphasis on appropriate mix between the elements of continuity and change in the process of reform, but the dynamic elements in the mix are determined by the context. while there is usually a consensus on the broad direction, relative emphasis on various elements of the process of reform keeps changing, depending on the evolving circumstances. perhaps it will be useful to illustrate this approach to contextualising the mix of continuity and change. the mid - term review in november 2003, reviewed the progress of implementation of various developmental as well as regulatory measures in the banking sector but emphasised facilitating the ease of transactions by the common person and strengthening the credit delivery systems, as a response to the pressing needs of the society and economy. the annual policy statement of may 2004 carried forward this focus but flagged major areas requiring urgent attention especially in the areas of ownership, governance, conflicts of interest and customer - protection. some extracts of the policy statement may be in order : " first, it is necessary to articulate in a comprehensive and transparent manner the policy in regard to ownership and governance of both public and private sector banks keeping in view the special nature of banks. this will also facilitate the ongoing shift from external regulation to internal systems of controls and risk assessments. second, from a systemic point of view, inter