take excessive risks in the knowledge that the burden of any losses will fall disproportionately on creditors. in india, while the banks make the provision for diminution in fair value of advances as a result of restructuring and sometimes take a burden of low - yielding preference shares, borrowers fulfil their obligation by bringing only 15 % of the bank ’ s sacrifice and that too in two phases. promoters ’ sacrifice it was felt that any sacrifice on the part of the lenders due to restructuring should be accompanied with increased stake of the borrower in the business. this becomes important for instilling financial discipline in the borrower as he will be more concerned about preserving the value of his stake in the business. it was observed that the regulatory prescription of promoters ’ sacrifice at 15 % of the lenders ’ sacrifice was not sufficient enough and in some cases even this 15 % was not properly accounted for. therefore, the working group recommended that this 15 % was the bare minimum and banks may prescribe a higher sacrifice by the promoters. further, it was also felt that the sacrifice by the promoters should also be linked with the quantum of the restructured loan. therefore, the recommendation in this regard is that promoters ’ contribution should be prescribed at a minimum of 15 % of the diminution in fair value or 2 % of the restructured debt, whichever is higher. banks and also other stakeholders have welcomed this recommendation in their comments. some have even suggested that if there is a case of diversion of the funds, then such borrowers should be compelled to bring back the funds along with the amount of their sacrifice. i will like to state that our instructions in this regard are not new and instructions bis central bankers ’ speeches regarding promoters ’ contribution were first issued in november 1985 guidelines on rehabilitation of sick industrial units. another related recommendation in this regard is making it mandatory for the promoters to extend their personal guarantee in all cases of restructuring. at present, personal guarantee by the promoter is one of the conditions for getting the asset classification benefit except when the unit is affected by external factors pertaining to the economy and industry. however, the working group observed that some promoters do not agree to extend personal guarantee under any circumstances. it was also observed that the criteria, “ external factors pertaining to the economy and industry ” was subjective and it made it difficult for the banks to press for promoters ’ personal guarantee. considering that the restructuring of debt by lenders benefits the company and promoters and also leads to sacrifice by

in cannes in november of this year. 3. what remains to be done? notwithstanding the progress already made, there is still a long way to go in making the international financial system watertight. in my following remarks, i would like to point out three aspects of regulatory reform that will accompany us in the coming months. firstly, it is indispensable to finalise, and then implement without delay, the fsb framework for dealing with sifis. secondly, we have to introduce internationally compatible restructuring and resolution regimes for financial institutions to allow them to exit the market in an orderly bis central bankers ’ speeches fashion without causing a breakdown of the system. and finally, we must identify the so - called shadow banking system and expose it to supervision. let me now briefly discuss these three areas in more detail. 3. 1 dealing with sifis as already mentioned, the fsb is currently finalising its recommendations for dealing with sifis. one difficulty here lies in accurately identifying sifis based on criteria such as size, interconnectedness, substitutability and complexity. i would like to promote a rather pragmatic approach towards solving this problem : we should start with only those institutions that are indisputably of global systemic relevance. i expect this to be a group of some 25 to 30 banks – not more and not less. the composition of this group will surely change over time. as experience is gained, we might later extend the framework in an appropriate manner to other sifis, including financial institutions of domestic relevance, financial market infrastructures, insurance companies and other non - bank financial institutions. central to the fsb concept are systemic capital surcharges for sifis that go well beyond the requirements mandatory under basel iii. such capital add - ons do more than merely improve the resilience of a sifi, in other words reduce its probability of failure. they surely are also a suitable instrument with which to put a price tag on the implicit guarantee that sifis are deemed to enjoy. formal decisions have yet to be taken as to the exact application modalities of the sifi surcharge, especially its size. nevertheless, i expect that at the end of the day the amount of additional capital required from a sifi will be related to its systemic importance and will in all likelihood lie somewhere between two and three percent. what is also still being discussed is the choice of capital instruments acceptable for the surcharge. common