of crises on institutions. in 2000, the bank of spain introduced a dynamic, rules - based loan - loss provisioning system in which provisions increase in periods of higher credit growth and economic expansion, and decrease in times of low or negative growth, thereby contributing to smooth income and capital over time. rbi also did something similar when we increased the risk weight as also the general provisioning requirement on exposures to sectors which showed high credit growth. this was reduced recently when growth moderated. ( vi ) the increasing focus on holistic approach towards regulation of financial entities is a welcome change from the view that allowed a growing proportion of products and participants to go unregulated on the grounds that they had no systematic impact. this approach resulted in the shadow banking system made up of unregulated sivs and conduits distributing opaque structured products containing risky assets with the active marketing of rating agencies. in india also, one view used to be that only deposit taking nbfcs need regulation to protect the interest of depositors and that the non - deposit taking nbfcs do not pose any such risk and therefore need not be regulated. it was, however, realised that the inter - linkages of these nbfcs with the other components of the financial system have grown over the years and their growing presence in various financial markets could, in the absence of regulatory steps lead to risk transfers which could have systemic implications. you are well aware how in the recent past, through a gradual non - disruptive process, an attempt has been made to bring systemically important non - deposit taking nbfcs under a more harmonised regulatory framework, including the capital adequacy norms and exposure norms. these measures have reduced the unlimited leverage possibilities available to nbfcs. ( vii ) another important aspect has been the treatment of off balance sheet exposures and consolidation of off balance sheet vehicles and conduits. while applying prudential norms, there is need to treat off - balance sheet transactions similar to on balance sheet transactions for the purpose of capital adequacy norms and risk management. in the case of off balance sheet vehicles a broader view needs to be taken from a prudential point of view on consolidation. the critical issue should be not merely the ownership but where the risk resides. in this context, a review of the current conversion factors and risk weights for off balance sheet items is necessary. similarly it is recognized that the potential liquidity risks also need to be captured. pursuant to

goals : ( a ) maintaining buffer stocks to deal with food shortages and thereby ensuring food security ; and ( b ) providing food at subsidized prices to the poor through the pds. the food stocks at any point of time, thus, reflect the end result of additions through procurement and depletions through release for pds. 36. management of food stocks is riven by a debate between two opposing points of view. one view is that food stocks should play a market stabilization role such that whenever market prices rise significantly, reflecting particularly supply chain manipulation, stocks should be released into the market to soften prices. the opposing view is that use of food stocks to intervene in the market dilutes the role of competitive market forces, and that the government should instead focus on easing supply chain rigidities. 37. given the enormous administrative costs of the pds and its perceived leakages, several alternatives have been suggested, although none of them is without its specific problems. by far the most straightforward is direct cash transfers, but its implementation is conditional on universal financial inclusion. besides, since cash is fungible, the objective of distributing food at subsidized prices can potentially be compromised. distribution of food grains with utilization linked to uid is another option, but that again is conditional on universal uid coverage. in the event of a switch over to cash transfers, the supply chain could become even more important in rural areas, since by manipulating supply and prices, food dealers could extract a share of the cash transferred to the beneficiaries. 38. there are also several proposals on the table for improving supply chain management. given that protein food inflation stems especially from perishable items such as milk, eggs, meat, fish, vegetables and fruits, the case for a better supply chain management becomes stronger. the most actively discussed option is allowing fdi into multi - brand retail. the government ’ s discussion paper on the subject argues that super market - chains could lower costs and increase efficiency because of scale economics. they will also lead to better safety and quality standards. 39. evidence from cross - country experience on the benefits of multi - brand fdi on inflation is ambiguous. several questions persist. will the supermarket chains, focusing as they do on urban consumption centres for scale of economy reasons, leave the rural population behind? also, if there are such clear scale economies and cost advantages, why aren ’ t domestic investors jumping in to exploit the potential? 40. another issue in supply