be fully convergent with ifrss with effect from april 1, 2011. reserve bank of india is actively working with the government, accounting standard bodies and banks for ensuring preparedness for smooth convergence by the banking system. way forward the agenda that is being developed for strengthening of financial sector regulation and supervision is ambitious. contentious issues will arise both at national and at the international levels on regulatory cooperation. whereas the principles underlying this regulatory overhaul are being increasingly accepted, many challenges will arise on their practicality and modes of implementation : • firstly, there is a need to ensure that regulators and supervisors remain firm in their resolve to ensure that there is no build - up of risk in the system and that the principles and framework articulated are adhered to in letter and spirit. • second, the interconnectedness of the institutions and markets requires central banks, banking and securities regulators to work in close coordination with full exchange of information and frequent interaction to assess the systemic risks at any point of time. • third, several of the countercyclical proposals are dependent on the assessment of economic and banking conditions in national jurisdictions which will determine the capital buffer requirements – these will obviously vary from one jurisdiction to another as cycles would also vary. with banks operating across the globe, this will imply that capital requirement could vary across jurisdiction – parking the transaction in a more favourable jurisdiction cannot be ruled out. coupled with complex structures and differential tax regimes, minimising regulatory and tax arbitrage will continue to be a huge challenge. • fourth, cross border resolution issues will continue to be daunting especially as national regulators will seek to protect domestic depositors and stake holders. • fifth, convergence toward international accounting standards will be a huge challenge in terms of not only bringing in the changes in standards that are appropriate for the country but also for putting in place systems and capabilities to facilitate convergence. issues such as putting in place prudential filters for not distributing unrealised gains would also arise. • sixth, while there are discernible signs of recovery in the global financial markets, the real test of the resilience of the financial system will be its performance through the exit process. for the emerging market economies such as ours, the challenge will be to manage the impact of this process of global stabilisation. • seventh, in emerging markets such as india, without sufficient historical data of credit and default cycles, there are difficulties in putting in place many of the advanced methodologies under the regulatory framework such as expected loss provision

backslash in two ways. first, it may dampen investment in a period in which we need it so badly to restore supply chains and redesign globalization. second, it may imply a backtrack in policy direction if at end we did not need such a strong action to cope with medium term inflation expectations, that i do not see de - anchored, as we speak. my first principle for good economic policy of any sort is to act at the margin. the second principle would be to be predictable and signal the way to go, so that economic agents can adapt. and that is what monetary policy is all about : send price signals so that firms and households can adapt their medium term expectations. there is a lag involved. i would say " mind the lag ". in any case, as monetary policy normalises, higher interest rates are going to put pressure on debt service costs, diminishing the fiscal policy room to adapt its macroeconomic stabilisation stance. indeed, maintaining sustainable public finances is of utmost importance. the ongoing normalisation of monetary policy cannot – will not – be constrained by fiscal space considerations. fiscal policies must act primarily as countercyclical policies ; buffers must be accumulated in good times to ensure enough fiscal space in downturns. the eu institutional framework favours countercyclical fiscal policies, not without challenges, one must recognize. however, the notion of fiscal space has changed under the current inflationary context. on one hand, tax revenues are increasing fast in the short term, but the underlying elasticities may no longer hold. on the other hand, the impact of inflation on the expenditure will be lagged, including that stemming from the rise in interest rates. thus, there is a serious risk – or should i say, temptation – of overestimating fiscal space! one that should not be neglected. an effective interaction between fiscal and monetary policies also requires that fiscal policy does not feed the inflationary process. thus, any form of fiscal support should be timely, temporary and targeted towards the most affected and vulnerable. and it requires monetary policy not to impede the efforts of reconstruction of supply side bottlenecks that resulted from the covid and now this unwarranted war that develops so close to you, which is to say in europe. only in this way could we avoid the blame game of not long ago. each side of the policy spectrum claiming that the other side was eroding its room of manoeuvre.