i know that you all will be keen to debate issues of emerging new banking structure with its building blocks in the form of new bank licenses, more liberal entry of foreign banks, mergers and acquisitions, required capital infusion to meet basel iii requirements, etc. yes, these are important issues. but i intend to start my keynote address on the theme of “ new landscape for indian banking ” with a little broader sweep. there is a need to bring about significant changes in the banking processes in this country so that the banks of today can remain relevant in the days ahead. in my talk today, i intend to focus on the key challenges in the business environment facing the indian banking industry and five important process changes that would be needed to meet these impending challenges. 3. first, with bringing down of the barriers to entry in the banking industry, are we geared for a more competitive banking industry that is likely to emerge? second, a paradigm shift is taking place in global banking activity and its regulation with greater emphasis on managing financial risks. are we adapting to it in right measure, without getting carried away by being overzealous in copying the regulatory changes, importing them in a ckd form or are we going to the other extreme of being obstinate and refusing to accept global norms and standards? a corollary to this is the penchant for financial innovations and financial engineering. are we captive to it or are we using this for the benefit of the real sector that produces goods and services, consumes them, saves some and invests the surplus. third, fear is the worst substitute for courage, though some dose of it may be necessary to stimulate defences. a question i would like to ask is, in view of the current asset quality concerns, are we making efforts to improve our credit appraisal systems? an important bis central bankers ’ speeches consideration in this regard would be to appreciate the need for sustainable development and hence, incorporating assessment of impact that the projects financed by the banks may have on the environment and the society. fourth, technological change is affecting banks as well as other industries. in fact, technology has entered all facets of our lives. it can pose threat as well as throws opportunities for banks. the key point is whether we doing enough to leverage technology to our advantage. fifth, with increasing competitiveness and information, the customer is becoming more demanding than before. so how are banks gearing up to improve customer service, commoditize products amidst more diversified

steps to make monetary policy more accommodative? first, because the trend of inflation changed. it is not clear to us at this point if it is noise in the data — loud noise, to be sure, but noise — or a fundamental decline in inflation. however, it is clear to us that we have to continue to strive and raise the inflation rate toward the midpoint of the target range. second, the risks have intensified. should the risks be realized, we will want to act in a timely manner, in order to prevent to the extent possible a slowdown in economic activity. how will we do that? we have a range of tools, and they are all on the table. there are the standard tools, and we are refreshing the toolbox regarding tools that have not been tried here, or have not been used for a very long time. and one more comment on monetary tools — in recent weeks the issue of the foreign exchange market has been in the headlines. therefore, maybe this is the time to clarify — i did declare that in principle i would prefer that the exchange rate would be set by market equilibrium, and that was the also the bank ’ s approach before i took office. practically, there is a window of exchange rates that we view as consistent with price stability and economic activity, when we take into account all the factors and variables in the economy. the window is dynamic, and depends on parameters that change all the time, which naturally should not be disclosed. from this perspective, the bank of israel policy on this issue could be called “ constructive ambiguity ", which is the appropriate policy for a small economy such as israel ; and therefore, if and when the bank of israel will assess that the exchange rate has materially deviated from the window that we defined, we may very well intervene in the market — and no one will receive a warning letter from us beforehand. thank you! 4 / 4 bis central bankers'speeches