to organize their compliance functions and set priorities to manage their compliance risks. 13. the guidelines stipulate that the compliance function has to necessarily be an integral part of governance framework along with the internal control and risk management process. further, for the function to be effective, it is necessary that compliance is not merely viewed as a responsibility of an individual or a department, but is supported by a healthy compliance culture within the organization. the guidelines clarify that the compliance function should have the right of direct access to the board of directors or to the audit committee / other committee of the board. further, the board or the audit committee or the special committee of the board could meet with the head of compliance at suitable intervals to assess the extent to which the bank is managing its compliance risk effectively. thus, there is equal emphasis on ensuring independence of the compliance function and ensuring that it pervades all activities of the enterprise. 14. the guidelines provide for having in place a board approved compliance policy, a clear structure for the compliance department / unit, quality, tenure and location of compliance staff and the responsibility of the board and senior management in ensuring an effective compliance culture in the bank. banks need to nominate chief compliance officers to function as the nodal point of contact between the bank and the regulator. 15. it is heartening to note that all banks in india now have in place dedicated compliance personnel, a compliance unit or a full - fledged compliance department depending bis central bankers ’ speeches upon their size and business. in many banks, the compliance unit / department is a separate unit with interaction / cooperation mechanisms for interaction with the risk management department and direct reporting lines to the board / committee. i only urge proactive action from the compliance department personnel and support from bank managements in nurturing a thriving compliance culture within their respective organizations. rbi assessment of efficacy of compliance process in banks 16. as i mentioned earlier, compliance assessment is an integral part of supervisory oversight. over the last few years, increasing attention is being paid by rbi on the extent, nature and quality of compliance by banks to various applicable rules and regulations ; both under the annual financial inspection ( afi ) process as well as the recently introduced riskbased supervision ( rbs ) process. in both approaches, compliance assessment plays an important role in the final rating assigned to a bank. i ) compliance review under afi under the afi process, a detailed review of the compliance function, its working and the status of bank ’ s compliance with extant statutory, legal

, which holds back growth and new lending, even while dampening bank incentives to cut base rates. the short term macroeconomic priorities of the reserve bank are therefore clear : • help growth by bringing down inflation in line with the proposed glide path, thus creating room for monetary easing ; and • work with the government and banks on speeding up the resolution of distressed projects and cleaning up bank balance sheets. let me start first with inflation : i am sure many of you are interested in what we will do next on policy. for that, i think the best summary is still our last policy statement, from which i quote, “ significant uncertainty will be resolved in the coming months, including the likely persistence of recent inflationary pressures, the full monsoon outturn, as well as possible federal reserve actions. as the reserve bank awaits greater transmission of its frontloaded past actions, it will monitor developments for emerging room for more accommodation. ” having said all i want to say on future policy, let me explain what we have been doing so far, and why we have been doing it. bis central bankers ’ speeches inflation and growth despite india ’ s known antipathy towards inflation, we have experienced an average of more than 9 percent inflation between 2006 and 2013. the longer we had high inflation, the more the public ’ s expectations of inflation became entrenched at high numbers. because the public ’ s inflation expectations are adaptive – meaning they change only after they see a sustained change in realized inflation – we required a long period of low inflation before expectations came down. unfortunately, our past focus on wpi inflation, which puts weight on internationally traded goods like commodities rather than domestic non - traded goods like education and healthcare, meant that whenever international inflation came down, the clamour for rate cuts increased. so we often did not take the fight to domestic sources of inflation. put in technical terms, the real policy rate was below the neutral real rate for years, and coincided with a pick - up in cpi inflation. the strong disinflation, even deflation, in the world in the last few years gives us a golden opportunity to change. what better time than the current for an inflation prone country like india to bring its inflation finally in line with the world ’ s? with commodity prices declining and astute food management by the government, part of our work is done for us, without india having to undergo the kind of extreme demand compression that was seen in the volcker disinflation. indeed