). the banks also have to activate the procedures of compromise settlements and their recovery machinery towards faster recovery. another factor which contributed to the build - up of npas in the past was the lack of focussed attention on the end use of funds by the borrowers. the borrowers in many instances went for projects and purposes other than those included or prioritised in the original schemes sanctioned by the banks. to avoid such a situation, the banks have already started paying a lot of attention to the end use of credit. the rbi expects the banks to set up an efficient and appropriate loan review mechanism for this purpose. as you would have observed from the foregoing, we have covered a lot of ground in strengthening our prudential regulation and supervision system for the financial system over the last few years. i can proudly claim that the efforts of the central bank in this direction have helped in sustaining the health of the indian banking system, enabling it to withstand the contagion effect of the east asian syndrome. there is a lot of pressure to reduce the asset classification norm to one quarter in respect of past due loans and a lot of discussions have taken place in this regard at various international fora. however, we have taken a view that the international practices should not be merely mimicked but should be carefully evaluated and applied to a country ’ s specific situation, keeping in view the support systems. in countries like india and even in some well developed countries, the trade and commerce cycle combined with payment and settlement systems extends beyond a quarter. unless the underlying commercial and payment systems move towards faster settlement of trade transactions, we do not see any immediate compulsion to shift to a norm for asset classification of one quarter in respect of past dues. i should stress at this point that it is easy to introduce stricter norms but it requires lot of discipline to resist leeways sought by banks at the implementation stage. we are not in favour of such leniencies. we strongly believe that once the norms are laid by the central bank, they should be complied with in letter and spirit by the constituent institutions. though it has taken some time for us to introduce the prudential norms, i am sure that the banks in india follow these norms as a gospel. – 8 – i would like to conclude with a request to the participating financial supervisors to focus their deliberations and try to arrive at possible ways of addressing emerging areas of supervisory concern which are not just regional but universal, owing to the interdepen

foreign exchange, liquidity, operational and reputational risks. these risks are highly interdependent and events ( whether expected or unanticipated ) that affect one area of risk can have ramifications on other risk categories. in the context of deregulation of interest rates in india, market risk has now emerged as an area requiring immediate attention on the asset side of the balance sheet. in recognition of this, the rbi has issued to the banks draft guidelines ( with the final guidelines becoming operational from 1 april 1999 ) for a broad framework for asset - liability management, taking into account the variance in the business profile of banks in the public sector and private sector as well as the data / information base available to banks in india. transparency and disclosure standards another area where the rbi has moved ahead is to impart greater transparency to the balance sheets of banks. this was a logical step after the adoption of prudential norms, with the banks in india coming under greater international scrutiny. during the last couple of years, the range and extent of disclosures has been gradually increasing so as to provide a clearer picture to informed readers of balance sheets. the banks are now required to disclose the break - up of the provisions made towards npas, depreciation of investments and other purposes besides, the capital adequacy ratio and the level of net non - performing assets. with effect from 1997 - 98, banks are required to disclose accounting ratios relating to income heads like operating profit, return on assets, business per employee and profit per employee. from the year ending 31 march 2000, the following information, among others, should also be disclosed by the banks operating in india in the published accounts : • maturity pattern of loans and advances, investment securities, deposits & borrowings, • foreign currency assets and liabilities, • movements in npas & provisions, • lending to sensitive sectors as defined by the rbi from time to time. – 5 – the primary objective of any supervisory regime has to be prudential, viz., to protect the safety and soundness of domestic banking systems. its application can at the same time provide an incentive for other countries to improve the quality of their prudential supervision. if banks want to operate in other markets where these core principles are strictly applied, they will have to convince the authorities in the host countries that the quality of supervision in their home country is adequate. this can create powerful new incentives for improvements in supervision. recently, i had the privilege