##makers in south africa should be to soften the blows for the economy. at the one extreme there is the international monetary fund that believes that much more restrictive monetary and fiscal policies should have been applied in south africa in recent months to fend off the attacks of international speculators and short - term profiteers. at the other extreme we find economists in south africa with major private sector interests who believe that the reserve bank should have kept interest rates artificially low with a complete disregard of the consequences this would have had for the exchange rate of the rand and subsequent inflation. there are those who believe that the reserve bank should have done more to keep the exchange rate stable, even if it should have required the reintroduction or tightening of exchange controls. there are many naive critics in south africa who believe that the reserve bank is fully responsible for the high interest rates and that the reserve bank indeed used its mythical powers to force interest rates to these destructively high levels. in their ignorance they believe that the reserve bank can even at this stage pull the rabbit from the hat and instantaneously bring interest rates down again. unfortunately, in the real world such miracles are just not possible. 2. what caused interest rates to go up to avoid confusion in this debate, the real causes for the recent sharp rise in interest rates should be revisited. it will be recalled that in the first quarter of this year there was wide - spread optimism that interest rates in south africa could decline further during the course of 1998. the reserve bank had already reduced its bank rate from 17 to 16 per cent in october 1997, and to 15 per cent on 9 march 1998. inflation was declining, foreign portfolio investments flowed into the country, the foreign reserves were rising and the exchange rate of the rand was under pressure to appreciate. however, the situation changed dramatically in may 1998 when non - residents reviewed their investment strategy and started to withdraw some of the funds they had previously invested in south african bonds. during the four months january to april 1998, non - resident investors increased their holdings of south african bonds by approximately r16 billion. over the next four months, that is from may to august 1998, they reduced their holdings of south african bonds by about r19 billion. this dramatic change of strategy had an almost immediate negative effect on the overall demand and supply conditions in the south african financial markets. the yield on long - term government bonds rose from just below 13 per cent at the beginning of may to a peak of over 21 per cent

case of noncompliance with the prescribed disclosure requirements. conclusion so far, we have covered the various issues in the implementation of the simplified approaches of basel ii. the implementation of advanced approaches, such as irb approach for credit risk and advanced measurement approach for operational risk, require much more preparation and pose several challenges for both the banks as well as the supervisors. the banks would require to meet the minimum requirements relating to internal ratings at the outset and on an ongoing basis, such as those relating to the design of the rating system, operations, controls, corporate governance and estimation and validation of credit risk components : probability of default ( pd ) for both foundation and advanced irb, and loss given default ( lgd ) and exposure at default ( ead ) for advanced irb. the banks should have at a minimum pd data for five years and lgd and ead data for seven years. the manpower skills, the it infrastructure and mis at the banks would have to be upgraded substantially. the supervisors would require developing skills in validation and back testing of models. with the focus on regulation and risk management in the basel ii framework gaining prominence, the post basel ii era will belong to the banks who manage their risks effectively. the banks with proper risk management systems would not only gain competitive advantage by way of lower regulatory capital charge but also add value to the shareholders and other stakeholders by properly pricing their services, adequate provisioning and maintaining a robust financial health. as we stand at this juncture, i trust innovative and illuminating ideas, fresh insights and alternative ways of thinking about the competitive yet cooperative combat that the world of banking and finance is readying itself for will mark the south indian bank ’ s business strategies and institutional development plans and will give you the emotive content to carry forward the legacy and vision of your founding fathers and take your institution to new heights. with these words i wish you every success in all your future endeavours. thank you.