and foreign counterparts. psbs, probably to fulfil the additional social objective of their mandate, had taken higher exposure in some of the critical sectors of the economy such as mining, iron and steel, and infrastructure. npa levels in these sectors shot up as all these sectors suffered external shocks leading to the respective stress – mining and energy was hit by the cancellation of allocation of coal blocks ; iron and steel sector faced cost pressures due to dumping of cheaper steel from china ; telecommunications sector underwent a disruption in the form of cancellation of 2g spectrum allotment ; and the construction sector was marred by delays in obtaining necessary government approvals, in particular environmental clearances. 6. to add to these issues, shocks in the form of debt waivers / moratoriums and payment issues of discoms also meant significant costs to the fisc and also affected the health of the banking sector as well as the credit culture. interestingly, data put together by the indian banks association shows that of the 10 states that announced debt waiver schemes since 2017, only three states have reimbursed almost completely as promised. thus, it is imperative that write - off amounts are reimbursed to the banks and discom payments are made in a time bound manner, so as to improve the health of banks and their capacity to lend in subsequent years. corporate governance – the elephant in the room 7. this brings me to some of the internal challenges faced by the psbs, and their governance could easily be identified as a central concern. in fact, many of the problems that currently seem to affect the psbs such as the elevated levels of npa, capital shortfalls, frauds and inadequate risk management can mostly be attributed to the manifestation of underlying corporate governance issues. the role of independent boards in fostering a compliance culture by establishing the proper systems of control, audit and distinct reporting of business and risk management has been found wanting in some psbs leading to build - up of npas. also, the understanding of risks from a business perspective by the boards in some banks has been inadequate due to skill gap and, competency issues. the fact remains that a strong corporate governance culture, with a focus on transparency and accountability, has to percolate from a strong board which sets the example by leading. 8. let me also touch upon governance issues in private sector banks ( pvbs ) which originate from altogether different set of concerns. the issues here mainly relate to incentive structure of their managements,

risks. while the recent trend in imports may continue to persist in the face of high and volatile crude prices and the large increase in domestic demand, an intrinsic link between merchandise imports and exports has emerged and become entrenched. the large expansion in imports is also spurring vigorous export growth. given the recent experience, especially the fact that workers remittances seem to have acquired a semi - permanent, if not 6 / 9 permanent, character, the current level of the trade deficit appears to be manageable at this stage and appears to be consistent with india ’ s growth aspirations. given the adverse international experience with unfettered capital account liberalisation, we have been risk averse and have adopted a policy of active management of the capital account. the compositional shifts in the capital account have been consistent with the policy framework, imparting stability to the balance of payments. the sustainability of the current account is increasingly viewed as consistent with the volume of normal capital flows. the substitution of debt by non - debt flows also gives us room for manoeuvre since debt levels, particularly, external commercial borrowings, have been moderate and can be raised in the event of a sustained pick up in the demand for external resources. there is also the cushion available from the foreign exchange reserves. india has made significant progress in financial liberalisation since the institution of financial sector reforms in 1992 and this has been recognised internationally. india has chosen to proceed cautiously and in a gradual manner, calibrating the pace of capital account liberalisation with underlying macroeconomic developments, the state of readiness of the domestic financial system and the dynamics of international financial markets. unlike in the case of trade integration, where benefits to all countries are demonstrable, in case of financial integration, a'threshold'in terms of preparedness and resilience of the economy is important for a country to get full benefits. a judgmental view needs to be taken whether and when a country has reached the " threshold " and the financial integration should be approached cautiously, preferably within the framework of a plausible roadmap that is drawn up by embodying the country - specific context and institutional features. the experience so far has shown that the indian approach to financial integration has stood the test of time. the optimism generated by the recent gains in macroeconomic performance warrants a balanced consideration of further financial liberalisation. at this stage, the optimism generated by impressive macroeconomic performance accompanied with stability has given rise to pressures for significantly accelerating the