and hands - on regulator / supervisor gives the confidence that markets will operate as per sound principles and would be free from unfair and unethical practices. this trust forms the basis of functioning of the entire financial system and any dent in this trust can have a significant destabilizing influence. as governor reddy expressed and i quote, “ banking is a trust - based relationship and the banking licence from the regulator provides an assurance of trust to the public at large. to the banks, the banking licence provides the privilege of accepting uncollateralised deposits from the public. however, the acts of stealth banking, negative option marketing, misleading advertisements, information gathering from customers for cross selling of products and services, and tie - up arrangements are inconsistent with the concept of a trust - based relationship. the lack of transparency, coupled with the difficulty of consumers in identifying key information from the large volume of material and communication in fine print, leads to an information asymmetry, which renders the banker - customer relationship one of unequals. ” bis central bankers ’ speeches 3. retention of customers : all banks offer similar products ( i ) accept deposits ( ii ) provide credit ( iii ) provide payments and remittance services ( iv ) foreign exchange facilities ( v ) provide financial instruments. in the process, banks extend services to their customers. sadly, the friendly neighbourhood banker is disappearing as is the feet on street, ear to the ground salesman, the distance between banks and customers is increasing. this is not a good thing. branch manager who was a friend, may not be aware of the number of customers of the branch, frontline staff may be ignorant of features of the varied products on offer. technology emerged as the backbone of banking operations, revolutionizing service delivery through new platforms and channels. these developments created greater challenges for the customer in terms of service quality, non - human interface, unsolicited marketing of products, ever - increasing fine - prints etc. all of these disagreeable compounded due to lack of awareness of the average customer. hence, knowing their customers and understanding their own product offerings must be the starting point of the banks ’ customer protection framework. as all banks broadly have the same products, it is only better customer service which sets one bank apart from another. the cost of customer acquisition is 8 – 10 times greater than of retention of current customer. broadly, customer expectations while dealing with banks are a ) professionalism, quick and efficient service b ) transparent, fair and

for credit default swaps ( cds ), right from their introduction in december 2011. a reserve bank working group on enhancing liquidity in the government securities and interest rate derivatives markets recommended standardization of irs contracts in order to improve their tradability and facilitate centralised clearing and settlement. to begin with, the inter - bank rupee overnight index swap ( ois ) bis central bankers ’ speeches contracts have been standardised. the inter - bank otc forex derivative contracts are largely standardised. infrastructure for the central clearing and guaranteed settlement of us dollar - indian rupee ( inr ) inter - bank forex forward transactions has been in place since december 2009, which currently caters to around 30 per cent of the transactions. the reserve bank is working towards making the guaranteed settlement of the us dollar - inr mandatory. the fra and irs trades in the inr are currently being centrally cleared in a non - guaranteed mode. the proposal to bring irs and fra transactions in the inr within the ambit of guaranteed settlement is engaging our attention. 5th issue : safeguarding financial stability what have we learnt? some of the most forceful lessons of the crisis are in the area of financial stability. we learnt that financial stability is important, much more so than we thought, because the costs of financial instability can be very heavy. we learnt that financial stability is an international public good – a disruption in the financial system anywhere can cause disruption in the financial systems everywhere. we learnt that price stability and macroeconomic stability do not guarantee financial stability ; financial stability has to be guarded as an explicit variable. we learnt that signs of financial instability are difficult to detect in real time and that pressure can build up in the system for much longer than we think possible before an eventual implosion takes place. what has been the global response? the post crisis reforms effort has accordingly focussed on three questions : ( i ) how do we define financial instability? ( ii ) what are the policy instruments for safeguarding financial stability? ( iii ) what should be the institutional arguments for safeguarding financial stability? there are no definitive answers to any of these questions ; they are still being debated. nevertheless, let me give you a flavour of the general approach to answers. there seems to be general agreement that financial stability is difficult to define in concrete and quantifiable terms to suit all contexts. the consensus is that financial stability is a condition in which the financial system can withstand shocks thereby reducing the probability of disruption or breakdown of