operation at the micro level, sometimes moving in different directions. for instance, when the general price level increases, there could be sectors where prices are coming down ; the same is the case with employment, consumption, production and investment. therefore, the micro foundations of macroeconomic analysis would not mean a one - to - one correspondence between the two. this relationship is somewhat nebulous but very important and should be viewed seriously with its significance as well as inherent limitations in mind. secondly, excessive leveraging in any conditions of financial markets is a source of potential instability. since leveraging is influenced by the cost of financing, the decisions affecting the cost and availability of credit do influence aggregate demand conditions. even if the source of financing is not bank funding, the interest rate conditions in the market definitely influence the opportunity cost of even internal resources of firms. the effectiveness of interest rate and exchange rate channels, no doubt, depends upon the depth and vibrancy of the debt and foreign exchange markets. in india, special efforts have, therefore, been made to develop these markets so that the efficacy of the transmission channel improves. in general, it may be held that in less developed financial markets, by using direct monetary instruments in conjunction with market - based instruments, the overall policy effectiveness can be improved. nominal rigidities arise in different segments of the market due to a variety of factors : the existence of organised and unorganised markets in parallel, tax regime, labour and income policies and trade union strength, level of competition or market imperfections, etc. for example, since nominal rigidities are high in less developed and relatively imperfect and underdeveloped markets, it should not lead to a conclusion that monetary policy is more effective under these conditions. of course, in india recent events in equity markets are not easily explicable and so we can appreciate the comment that equity markets have a mind of their own. as a group, the central bankers could take some credit for little explicit indexation in recent periods. however, the indian conditions on indexations are worth noting. the indexation is available only to workforce in the organised sector, which accounts for less than ten per cent of the total workforce, and within that, mainly to those in the public sector. having secured the principle of indexation, it is not given up by the organised work force, whatever be the level of inflation. no doubt, at the margin or incrementally, there could be less pressure for indexation, but

findings of an internal survey of cross - border banking in 1999 by the basel committee identified deficiencies in kyc policies for banks in a large number of countries. it constituted a working group on cross - border banking to examine the then kyc procedures and to draw up standards applicable to banks in all countries. it issued a consultative document, called the customer due diligence for banks ( cdd ) in january 2001. while the fatf ’ s focus is on money - laundering and terrorist financing, the basel committee ’ s approach to kyc is from a bis central bankers ’ speeches wider prudential, and risk - management perspective, not just anti - money laundering perspective. pmla – salient features un general assembly resolution ( 1990 ) calls upon the member states to adopt national money - laundering legislation and programme. accordingly, in india the prevention of money laundering act ( pmla ), 2002 was enacted in january 2003. the act along with the rules framed there under has come into force with effect from 1st july 2005. the objectives of the pmla are to : • prevent and control money laundering • confiscate and seize the property obtained from the laundered money • prescribe fines and penalties for offence the important feature of the act is that the burden of proof is on the accused. regulatory stance the reserve bank ’ s regulatory stance on kyc is with the aim to safeguard banks from being used by criminal elements for money laundering activities and to enable banks to understand the risk posed by customers, products and services, delivery channels and helping them assess and manage their risks prudently. at the same time, the reserve bank is fully conscious that the kyc framework will have to be relevant to the perceived risk and not intrusive in nature nor too strict resulting in denial of banking services to general public. as far as indian banking sector is concerned, some of the initial steps taken ( instructions issued ) in respect of kyc are as under. actually these instructions are there for the past 50 years or so, as far back as from 1965. • 1965 – banks were asked to ensure that full and correct addresses of the depositors are recorded ( benami accounts & avoidance of tax ). • 1976 – for opening of accounts, in order to establish the identity of account holders / avoid benami accounts, the concept of “ introduction ” was prescribed. • 1987 – there should be reasonable gap of say, 6 months between the time an introducer opens his account and introduces another