meet the capital needs of the psbs under basel iii norms particularly since the projections are based on minimum requirements. we also have to remember that pillar ii assessment has not taken off effectively / fully as of now. the psbs will have to chart out a clear capital raising plan over the next five years. the psbs should actively consider several options including, non - voting rights share capital, differential voting rights share capital, golden voting rights share capital, etc. bis central bankers ’ speeches b. secondly, there is a need to reflect on the holding company structure in respect of the psbs. the nayak committee recommendations in the matter look at the bank investment company structure from the limited perspective / single angle of separating the goi investments from the psbs. there are deeper ramifications on this aspect and the whole issue must be looked at from multiple dimensions including that of the financial stability perspective. the suggestions made in the shyamala gopinath report on the bank holding company structure need to be given a serious consideration. the objective must be threefold – i ) help reduce capital requirement impact on the goi ii ) financial stability perspective, and iii ) strengthening corporate governance by reducing government influence and interference ; c. thirdly, the performance appraisal system ( pas ) needs a complete revamp. currently the pas makes no meaningful distinction between individuals for identifying or deploying talent, skills and / or specialisation ; nor does it guide determining compensation. the system needs reshaping so as to serve as the mainstay for evaluating employees ’ performance, assessing compensation and developing leadership. d. fourthly, the public sector banks ( psbs ) have hardly any meaningful participation in the financial markets, i. e in the bcd instruments. this restricts / curtails the financial market development. a selected set of foreign banks and the new private sector banks dominate the financial markets in india. psbs need to engage proactively, especially, in the derivative instruments for hedging their risks. treasury function is relatively weak in psbs. well established and robust treasury is a must for the purpose ; they must build up specialisation and should have sufficient number of specialists. the vigilance aspect on treasury losses / losses from transactions will need to be rationalised just as in other areas of psb operations. e. fifthly, the psbs should have a relook on their portfolios. currently, their portfolio share in advances to agriculture, industries, services

“ systemic risk ” specifically is the danger that a failure of one financial business may infect other, otherwise healthy, businesses. this could happen in either of two ways : first through the direct financial exposures which tie firms together like mountaineers, so that if one falls off the rock face others are pulled off too ; and second, by contagious panic which sweeps everyone off the mountain side like an avalanche. ” another facet of systemic risks arises in the context of the build up of widespread imbalances in the system and could, inter alia, take the form of credit booms, build up of similar third party exposures, and of maturity and leverage mismatches. when these imbalances unravel, as they must at some stage, they adversely affect a large section of the financial system. the more similar the imbalances across institutions, the greater will be the systemic impact of the “ correction ”. evolution of systemic risks while the recent global financial crisis has brought the concept of systemic risks to the centre stage, one only has to look back into the history of financial crises to appreciate the fact that each of these crises were triggered by systemic disturbances in one form or the other. but while the concept of systemic risks is not new, the concept has evolved over the decades, growing in complexity and becoming more pervasive over time. till the mid - 1980s, systemic risks essentially related to systemic disturbances that arose from bank lending and affected the banking sector. over the years, different dimensions of systemic risk were revealed as markets grew and became more integrated ; banks ’ reliance “ defining systemic risks ”, darryll hendricks, pew financial reform project. “ the new lady of threadneedle street ”, vital topic lecture at the manchester business school, e. a. j. george, governor, bank of england, 1998. bis central bankers ’ speeches on funding markets grew ; financial intermediation spread from banks to non - banking financial companies ; financial and technological innovation fostered the growth of markets for derivatives and structured products ; and market infrastructure developed with the introduction of multilateral netting, central counterparty arrangements, etc. the concept of systemic risk concomitantly broadened along several dimensions to include non - banks along with banks ; to include different kinds of financial activities and exposures in addition to traditional lending and to focus on interdependencies between market participants as well as their exposures to common risk factors, including institutions ’ reliance on core parts