4 per cent and hence some way off the 2 per cent target that has been set by the authorities. the bank of japan increased its quantitative and qualitative easing programme to approximately ¥80 trillion per annum in october 2014. earlier this year, the imf lowered its global growth forecast for 2015 and 2016 to 3, 5 per cent and 3, 7 per cent, respectively. this was mainly due to a more bearish growth outlook for certain emerging market and oil - exporting economies, as well as the euro area and japan. china ’ s real output decelerated from 8, 3 per cent in the third quarter to 7, 2 per cent in the final quarter of 2014 while its growth for 2014 registered 7, 4 per cent, its slowest expansion in more than two decades. the impact of unconventional monetary policy on emerging market economies the global increase in liquidity, following the launch of widespread quantitative and qualitative easing programmes, or the unconventional monetary policy, by several advanced economies played an important role in preventing the great recession from degenerating into a great depression, and more recently, has been used to counter the possible unanchoring of inflation expectations in the face of deflationary conditions. the transmission of global financial conditions and shocks across borders seems to have intensified following the implementation of the unconventional monetary policy in advanced economies. this is as a result of increasing global trade and integrated financial markets. the channels by which these shocks are transmitted to emerging market economies are the interest - rate channel, the exchange - rate channel, and changes in asset prices. the interest - rate channel, and especially the yield curve, has been a key transmission channel of extraordinary monetary accommodation in advanced economies. with the decline in global interest rates to near - zero and the consequent easing of financial conditions, the term premium was compressed, which prompted investors to rebalance their portfolios towards higher - yielding assets in emerging market economies. higher interest rates and relatively stronger growth in emerging market economies acted as a pull factor on capital flows. international financial and monetary conditions were therefore the trigger for flows into the bond markets of emerging market economies, or what hyun song shin terms as the second phase of global liquidity, bringing economic benefits, but also making these economies more vulnerable to external shocks. investors drew scant little distinction between the riskiest high - yield corporate bonds and the emerging market sovereigns while excessively accommodative monetary policy in advanced economies prevailed. however, with increased expectations of

of interest that arise when a bank performs multiple functions. • customised application of supervisory resources according to the banking type could result in optimisation of scarce resources. argument against differentiated licensing • given the extent of financial exclusion in india, is it advisable to create a regime where some banks are freed of the obligation of financial inclusion? • a universal bank will be able to cross subsidise across sectors to optimize utilization of resources and ensure better profitability of banks. • will specialized banks be prone to concentration risk because of narrower business models? the critical issue on the way forward • differentiated licensing for various banking activities ( retail, wholesale, trading in securities, mortgage lending, infrastructure financing, micro lending, etc. ) with differentiated regulatory requirements depending upon the risks involved? • if we accept differentiated licensing in principle, a special category of banks that will come up for consideration, is investment banks. let me now discuss licensing of pure investment banks. issue no. 5 : investment banking • post sub - prime crisis, the us investment banking sector collapsed due to high leverage and severe maturity mismatches. • soon after, leading investment banks such as morgan stanley and goldman sachs converted themselves into bank holding companies. investment banking in india : current regulatory framework • the term investment bank is not legally defined in india, and no entities are registered as such with sebi. • “ investment banking ” is commonly used to define entities that are into asset management, capital raising, trading in securities, portfolio management, merchant banking, underwriting, broking and those offering business and financial advisory services. • pure investment entities which do not have presence in the lending or banking business are regulated primarily by the capital market regulator ( sebi ). • banks are subject to regulatory restrictions on their investments. why and how of investment banks • pure investment banks have a comparative advantage in corporate structuring and raising capital from the market. as indian corporate go global, do we need pure investment banks in india to serve their sophisticated financial needs and advisory services? • will exclusive investment banks militate against development goals – priority sector lending, financial inclusion? bis central bankers ’ speeches • is investment banking under the proposed non - operative financial holding company ( nofhc ) a possible option? • need for more extensive debate on the pros and cons of exclusive investment banks in india. issue no. 6 : financial sector legislative reforms commission ( fslrc ) • fslrc was constituted by the government “ with