for a second round of consultations. keeping in view the additional feedback received, the guidelines were finalised and issued on april 27, 2007. as regards the pillar 2, the banks have been asked to put in place the requisite internal capital adequacy assessment process ( icaap ) with the approval of their boards. i may mention here that even before the final guidelines were issued, the rbi had asked the banks in may 2006 to begin conducting parallel runs, as per the draft guidelines, so as to familiarise them with the requirements of the new framework. during the period of parallel run, the banks are required to compute, parallely, on an on going basis, their capital adequacy ratio – both under basel i norms, currently applicable, as well as the basel ii guidelines to be applicable in future. this analysis, along with several other prescribed assessments, is to be placed before the boards of the banks every quarter and is also transmitted to the rbi. these reports received in the rbi indicate that implementation of basel ii in the banks is in the process of getting stabilised. the minimum capital adequacy ratio prescribed under the basel ii norms continues to be at nine per cent, at solo as well as consolidated level. this, however, is subject to the stipulated prudential floors for the first three years of implementation to guard against any significant decline in the capital ratios of the banks arising from the capital relief that they might accrue to them under basel ii. the banks are, however, expected to operate at a level well above the minimum capital requirement. the banks are also required to achieve the tier i capital ratio of six per cent not later than march 31, 2010, both on solo as well as consolidated basis. a two - stage implementation of the guidelines is envisaged to provide adequate lead time to the banking system. accordingly, the foreign banks operating in india and the indian banks having operational presence outside india are required to migrate to the standardised approach for credit risk and the basic indicator approach for operational risk with effect from march 31, 2008. all other scheduled commercial banks are encouraged to migrate to these approaches under basel ii in alignment with them, but, in any case, not later than march 31, 2009. it has been a conscious decision to begin with the simpler approaches available under the framework. as regards the market risk, the banks will continue to follow the standardised - duration method, already adopted under the basel i framework, under

area of financial inclusion and poverty alleviation in the recent past. • is too much demand being placed on the banking system resources? the banks are presently almost alone expected to identify & enrol new customers, educate them, conduct aadhaar registration, carry out administration of linked life / non - insurance schemes & pension products and so on. the issue is whether it would encroach upon their other obligations of credit dispensation, maintaining asset quality, maintaining service standards etc. • loan waiver schemes or employment not resulting into creation of social infrastructure / productive assets raise risk to broader work culture / credit culture in the country • non - adherence to basic economic discipline by the states eg. in fixing the minimum support price can be counterproductive in the long run • weakened governance and multiplicity of regulations in the co - operative sector - are we doing enough to exploit potential of co - operative sector? • need we draw lessons from the history of rrbs while pursuing bc model? bis central bankers ’ speeches then there are two larger issues - one each in respect of rural and urban poverty alleviation • don ’ t we need a new model to enhance productivity & stop further fragmentation of already smaller land holding – are dbt / interest subvention long - term answers to these problems? • migration from rural india and rapid urbanization is a reality with social, infrastructural, employment and inclusion dimensions – are we adequately prepared to deal with them? 24. it must thus be appreciated that poverty alleviation is a long drawn process and needs support from all quarters – the government, other policy makers, the media and the society at large. each one needs to do his / her bit to ensure that the poverty is defeated so that prosperity thrives. an ecosystem needs to be created which can fight poverty in all its manifestations. i once again thank mr. kochhar and skoch for inviting me to this conference and wish the deliberations all success! thank you. bis central bankers ’ speeches