’ and sound governance. the same criteria as applicable for higher level of ownership as articulated in the february 3, 2004 would form the basis for dealing with the cases under transition as well. the discussion paper is an illustration to the consultative process that has been increasingly adopted in the policy making by the reserve bank. as far as banking business is concerned, we appreciate the role of promoters in general and strategic investors in particular ; although the distinction between them is often blurred in practice. the comments on the first draft of this discussion paper will definitely enable us to fine tune the policy for the better.

rakesh mohan : ownership and governance in private sector banks in india address by dr rakesh mohan, deputy governor of the reserve bank of india, at the conference on ownership and governance in private sector banking organised by the confederation of indian industries, mumbai, 9 september 2004. * * * i am grateful to the confederation of indian industries to arrange a seminar on a subject of great importance today. this gives me an opportunity to discuss the issues with various stakeholders. on july 2, 2004, rbi issued draft guidelines on ownership and governance in private sector banks in india. these guidelines were placed in the public domain for wider debate and feedback. the rbi is to put out a second draft and then finalise the policy taking into account the feedback received. the intention is to continue strengthening the indian banking system and keep moving towards international best practice through a consultative process. if the importance of the issue of ownership and governance in banks is to be gauged by the number of responses received to any public document issued by rbi then i would say that it is overwhelmingly important! we had said in the guidelines that banks are special. several responses have been received asking us what we mean by ‘ special ’. banks are financial intermediaries critical for mobilising public savings and for deploying them to provide safety and return to the savers. they thus have fiduciary responsibility. the deployment of funds mobilized through deposits involves banks in financing economic activity and providing the lifeline for the payments system. the banking system is something that is central to a nation ’ s economy ; and that applies whether the banks are locally - or foreign - owned. the owners or shareholders of the banks have only a minor stake and considering the leveraging capacity of banks ( more than ten to one ) it puts them in control of very large volume of public funds of which their own stake is miniscule. in a sense, therefore, they act as trustees and as such must be fit and proper for the deployment of funds entrusted to them. the sustained stable and continuing operations depend on the public confidence in individual banks and the banking system. the speed with which a bank under a run can collapse is incomparable with any other organisation. for a developing economy like ours there is also much less tolerance for downside risk among depositors many of whom place their life savings in the banks. hence from a moral, social, political and human angle, there is a more onerous responsibility on the regulator. millions of depositors of the banks