work only if the government respects the autonomy of the central bank, and the central bank itself stays within its mandate, delivers on that mandate and renders accountability for the outcomes of its policies and actions. 5. putting the three elements of today ’ s lecture context together – shri palkhivala ’ s exemplary commitment to preserve and promote values and institutions of democracy in india ; the reserve bank ’ s role in the democratic edifice of india ; and the completion of my term as the governor of the reserve bank – i determined that the best way i can pay tribute to shri palkhivala is to focus on a topic that threads together these three elements. that explains my topic for today : “ five years of leading the reserve bank : looking ahead by looking back ”. “ may you live in interesting times? ” 6. the chinese have an adage : “ may you live in interesting times. ” i can hardly complain on that count. i had come into the reserve bank five years ago as the “ great bis central bankers ’ speeches recession ” was setting in, and i am finishing now as the “ great exit ” is taking shape, with not a week of respite from the crisis over the five years. 7. from a central banking perspective, history will mark the last five years for two distinct developments. the first is the extraordinary show of policy force with which central banks responded to the global financial crisis. this has generated a vigorous debate on the short - term and long term implications of unconventional monetary policies as also on the responsibility of central banks for the cross border spillover impact of their policies. the second historical marker will be the manner in which, reflecting the lessons of the crisis, the mandate, autonomy and accountability of central banks are being redefined in several countries around the world. notwithstanding all the tensions and anxieties of policy management during an admittedly challenging period, i consider myself privileged to have led one of the finest central banks in the world during such an intellectually vigorous period. 8. against that context, i want to divide my lecture today on “ five years of leading the reserve bank : looking ahead by looking back ” into two segments. in the first segment, i want to look back over the last five years and give my assessment of the macroeconomic developments during this period and the reserve bank ’ s response. in the second segment, i will address the major challenges for the reserve bank on the way forward. i. macroeconomic developments over the last

experience in india demonstrates that the pricing of the products and services – both on the liability as well as on the asset side are heavily weighed against the retail customers as a group. in fact, we have evidences of retail customers being paid different interest rates on their deposits for the same tenor within the same bank. similarly, i have seen one particular bank ’ s lending rate for automobile loan vary quite widely. i do not know why a standardized loan product like an automobile loan should be priced differently for different customers when it is a secured loan. banks should in such cases upfront decide on whether the customer can be given a loan or not and once the lending decision has been made i don ’ t see any reason for discrimination in the pricing of the loan. i do not understand why the banks should be looking to benefit from information arbitrage they hold rather than pricing their products transparently. in contrast to the situation in developed economies, such problems are more endemic in the developing world as here not only the level of financial education and literacy is low, but the financial consumer activism is also pretty much dismal. 16. insofar as the lending decisions in retail banking business goes, i believe the banks would need to start using scoring models for assessing the credit worthiness of borrowers to bring in greater transparency and efficiency. credit scoring model is a statistical technique that combines several financial characteristics to predict the behavior of new applicants based on the performance of previous applicants. at least among the indian banks, except for a couple of foreign banks and new generation private none of the other banks seem to employ them. in fact, in my interactions with the bankers i feel that there is lot of misgivings about the scoring models and generally people mistake it for rating model. my firm belief is that for bringing in uniformity, transparency and fairness in the retail lending process, the banks would need to start employing credit scoring. 17. as i briefly alluded to above, for the retail banking business to thrive in the developing markets, it is essential that an effective consumer protection environment is created quickly. as most of you are aware, across the globe, the regulators and supervisors are turning increasingly intolerant of unfair market practices adopted by the market bis central bankers ’ speeches participants. we have seen large amounts of penalties levied on banks by the regulators mainly for failing to protect consumers ’ interests and for unfair practices. in fact, there is a growing feeling that the banking regulators / supervisors have proved ineffective in checking