, when viewed from that perspective. in my view, the existing, soon - to - be - completed set of rules will be with us for some time yet. supervisors concede that the one - off costs of adjusting to the new rules are steep, but i am in no doubt that the non - recurring transitional outlay is appropriate, given that financial stability is such a valuable public asset. and as for the ongoing costs of compliance, this is another area where we will reach a viable long - term situation once the dust has settled over the reforms. i firmly believe that germany ’ s credit institutions will be able to live comfortably with this situation following a period of transition. we will, of course, review the rules and their impact after some time, listening very attentively to take constructive criticism on board wherever possible. ladies and gentlemen, let ’ s sum up the issue of complexity. the rules have become much more detailed and multifaceted ; the alternative to this would have been much tighter capital requirements, say, which would have been imposed regardless of the underlying risk. a multi - layered regulatory approach, then, is a “ next - best solution ” ; and i am in no doubt that the banking community will be able to live comfortably with this situation after a period of transition. the often - cited negative implications of regulation – that it tightens the credit supply and drives up administrative costs at credit institutions – should be analysed objectively. viewed from a distance, it ’ s possible to identify the myths and drill down to a kernel of constructive criticism. this kernel is what we need to give serious thought to – but blanket criticism would be unwarranted here. one point of departure for simplifying matters might be a move towards greater proportionality in banking regulation, and by that, i mean the debate over whether it would make sense to introduce a more graduated set of rules for smaller, less risky institutions. but why should we graduate regulation? some claim that proportionality isn ’ t necessary. after all, isn ’ t complying with complex rules a costly and time - consuming exercise for institutions, whatever their size? but i would say that the costs of compliance weigh more heavily on smaller institutions, with their smaller workforces. they essentially face two challenges simultaneously. first, the complex rules place strict demands on their operating business ; second, smaller institutions have limited organisational capacities to cope with the legal, technical and operational requirements. intricate sets of rules can cause particular du

one year. banks have been asked to monitor unhedged foreign currency exposures of their clients. draft guidelines for asset - liability management have been prepared and after discussion with banks will be put in place. we are monitoring the liquidity position in the economy very closely. fiscal adjustment has been undertaken and a very significant measure is that the system of automatic monetisation of the fiscal deficit was replaced by a system of ways and means advances. in brief, reform in the external sector was meshed with reform in other related sectors and, within the external sector reform, capital flows were managed, keeping in view the needs of efficiency and stability. there was a fairly smooth movement from an administered exchange rate system to a market - determined exchange rate, and the reserve bank always ensures that volatility and speculative elements are curbed through both direct and indirect measures. operational framework based on the policy frame and the projected financing requirement for each year, management of the capital account is operationalised through procedures for foreign direct investment, portfolio investment, external commercial borrowings, nri deposits and outflows. the broad approach to targeting of foreign direct investment has been through a dual route, i. e. automatic and non - automatic. where the approval is automatic, activities and extent of ownership are listed, while in regard to the rest, a case - by - case approval by a high - powered board is adopted. portfolio investments are restricted to select players, viz. fiis. they could, subject to some restrictions, operate in equity and debt markets. fiis are permitted to invest in equity subject to a ceiling of 10 per cent for individual fiis in a single company and 30 per cent collective investment ceiling in a single company. indian corporates are permitted, again through a process of approval of individual cases satisfying general guidelines, to access funds through global depository receipts and euroconvertibles. the approach to external commercial borrowings has been one of prudence, with self - imposed ceilings on commitments and a careful monitoring of the cost of raising funds as well as their end use. external commercial borrowings are subject to a ‘ dual route ’, viz. a small component of automatic and a major part through case by case approval, based on the size and sector. short - term debt, including trade - related payments beyond 180 days, is subject to strict case - by - case approval of purpose, amount and terms. an overall annual ceiling is kept for all debt flows - both for short -