banking system towards good financial health. a sound corporate governance regime would seek to promote the highest standards of professional behaviour and integrity. policies should be implemented to prohibit any behaviour or relationship that diminishes its quality. this is very often evident in conflicts of interest, connected lending, which is not on an arms length, and preferential treatment to related parties. the independence of directors too is crucial where directors should have the ability to exercise objective judgement, regardless of board structures or ownership structures. well established corporate governance committees such as the board audit committee which oversees the bank ’ s internal auditors, with objectivity and independence, should 1 / 2 comprise of non - executive members of the board who have the requisite knowledge that is commensurate with the complex nature of the banking institution. independent, competent and qualified auditors is an essential pre - requisite of good corporate governance which would achieve a number of important objectives. it would ensure timely identification of risks and the publication of financial statements which accurately represent the financial position and performance of the bank. auditors should understand their duty to the bank and its stakeholders to exercise due professional care in the conduct of audits. in this connection, we have, in the recent past, strengthened the relationship of auditors with the regulator and the company to benefit from each others ’ capabilities, expertise and knowledge. basel ii has attempted to capture all these critical aspects into the new accord. a bank ’ s own assessment of its capital needs, coupled with the regulator ’ s assessment of the adequacy of capital, which would encompass all other aspects of its operations, apart from credit, would ensure adequate capital to insulate the bank against its risk exposure. after all, managing risk is fast becoming the single most important issue for the regulators as well as for the institutions that are regulated. therefore, basel ii is good news and we can only benefit mutually from its adoption. a roadmap is therefore already drawn up and we hope we can all commence our journey down this road to reach our goal of a safe and sound banking system resulting in financial stability which is what we all aspire. as you are all aware, our banking community is in the process of adopting the standardized approach within basel ii by 2007. however, the major challenge faced by the banks in the next few years, are the it, skills development and training that are required to implement the more advanced approach which relies heavily on quantitative techniques. it is imperative, therefore, that banks start

water supply, agriculture and irrigation infrastructure and the improvement of the manufacturing framework. the government also intends to implement a special poverty reduction program and establish the required social safety net, quickly. my dear friends, as we all know, the speedy resettlement of the internally displaced people has also been a top priority for the government. towards this goal, many extraordinary efforts have been taken. out of the over 300, 000 internally displaced persons who were rescued and had to be temporarily housed in welfare camps, over 217, 000 or 72 % have already been resettled. all those from vavuniya, mannar, jaffna, a part of mulativu and killinochchi have now returned to their homes. the others mainly from mulativu and killinochchi are also to be resettled systematically without any undue delay, depending on the speed at which the de - mining processes take place. this is an outstanding achievement against all odds, and i believe the successful resettlement is a tribute to the deep commitment of the government, the tremendous efforts of our public service and the dedicated contribution of several international organizations. i am also tempted to mention that this surprising outcome may have been a pleasant surprise to many who at certain times expressed the belief that the government may not have had the inclination nor the urgency to carry out this challenging task so expeditiously. my dear friends, the central bank has also contributed its mite to these normalization processes. we have, so far, over the past 8 months, granted approvals for the establishment of more than 90 banking outlets in the northern province. we have introduced a special loan scheme, also titled “ vadakkin vasantham ” to boost the livelihood development of the people in the north. under this scheme, an initial sum of rs. 3, 000 million has been appropriated to be disbursed at a concessionary interest rate of 9 % per annum to the eligible micro, small and medium scale enterprises, through several participating financial institutions. the repayment period could extend up to 5 years with a grace period of 6 months. i am happy to note that over 9, 000 loans amounting to rs. 1. 8 billion have already been registered with the pfis and disbursements of over rs 1 billion has taken place. my dear friends, the rich resources of the north, including its forests, agricultural land, wet lands, lagoons and bays provide a solid base for many enterprises.