channels of data communication with existing and potential customers and business partners through the internet. in this world, particularly in retail commerce, payments by paper have been the exception, not the rule. despite ongoing discussions about privacy and security in electronic commerce, credit cards have rapidly become the payment instrument of choice for consumers. interestingly, there have been experiments with new payment systems analogous to private currency. to date, these products have not been widely successful, despite the fact that some have offered significant degrees of privacy and security. instead, familiarity with and confidence in the credit card built up over more than half a century of use seem for now to have shaped behavior. some suppliers have sought to deepen confidence by voluntarily expanding consumer protections. in a twist of history, even gold coins can now be purchased on line with a credit card. experiments are also taking place to facilitate the use of debit cards in on - line transactions. the use of such instruments would clearly expand electronic payment capabilities over the internet to those with bank accounts who do not hold credit cards. experiments with technologies such as electronic money that do not even require bank accounts may yet find a role to play. new arrangements are also being tried that would mimic the flexibility of the check in making payments in diverse on - line transactions ranging from ad hoc person - to - person payments to routine business - to - business purchases. regarding the older electronic payment systems such as the automated clearinghouse ( ach ), both suppliers of payment services and the end users are continuing to look for new ways to build on the interbank processing efficiencies that these systems offer. one of the great ironies is that studies in the 1960s and 1970s led to recommendations that it would be more economical for society to build whole new electronic payment systems such as the ach than to adopt check - truncation technologies. although the ach has been extremely effective for automating some types of transactions, it has not been as widely used as originally anticipated. one of the problems has apparently been the relative lack of flexible and low - cost interfaces with consumers and with business systems similar to those that have been built up around the check. now, however, a range of experiments and businesses are building on the ach, and potentially on other electronic payment networks. in a revival of the idea of check truncation, projects have gone forward to truncate checks at the point of sale, as well as at lockbox locations, and to substitute ach payments. these

the announcement in the annual policy statement of april 2008, the rbi over a period and after consultations with market participants has announced the following measures : o strengthening of the capital adequacy norms for off balance sheet transactions covering foreign exchange and interest rate exposures. it for instance, in the context of cds, the superintendent of the new york state insurance department mr. eric dinallo recently mentioned in his deposition before the hearing of a us senate committee on “ the role of financial derivatives in current financial crisis ” that “ the insurance department has determined that covered credit default swaps are insurance and therefore potentially subject to state regulation... our goal is to ensure the terms of credit default swaps are written as a mechanism for protecting buyers against actual losses and not for betting on the credit quality of a third party. ” mandated use of current exposure method for measuring the credit equivalent amount i. e. the exposures had to be marked to market, and prescribed provisioning requirement for the exposure amount as applicable to standard assets of the concerned counterparty. credit conversion factors were also increased across maturities. ( viii ) o in regard to asset classification it was clarified that the amount due on a derivative contract will be treated as npa if not received within 90 days. in that case all other funded facilities granted to the client will also be classified as non - performing asset following the principle of borrower - wise classification as per the existing asset classification norms. however, in the case of complex derivative contracts that were entered into between april 2007 and june 2008, the rbi suggested that the unpaid amounts may be parked in a separate account and borrower wise classification will not apply. o in cases where a derivative contract is restructured, the mtm value of the contract on the date of the restructuring should be cash settled. while the factors responsible for the crisis are many, one that is being debated widely is the contribution of fair value accounting framework for complex and conventional financial instruments in amplifying the crisis. the problem lies in the procyclical nature of the standard and the difficulty in valuing financial instruments when markets are illiquid or in distressed conditions. although fair value may increase transparency of the company accounts, it may not always reflect the true intrinsic value in both upswings and under excessively stressed market conditions. there is a need to distinguish the basic financial and prudential analysis from a purely “ financial ” accounting framework. there is also need to clearly appreciate that the accounting reporting has a