these initiatives for the takaful industry to achieve sustainable success and unleash the potential gains of the islamic finance in malaysia and abroad. allow me to share some significant developments that may shape the future direction of the takaful industry moving forward. firstly, as the prudential framework evolves towards a predominantly principle - based and riskbased regulatory approach, there will be a greater emphasis on risk management, corporate governance and transparency so as to maintain investor confidence and public trust. commensurate with the diversity and complexity of takaful operational framework, products and services, the continuous upgrading of risk management practices, with improvements in governance standards and enhancements of information management systems will be critical. under this environment, it is envisaged that takaful operators, individually or collectively, will play a bigger role in enhancing risk management practices, developing market conduct standards, fostering fair market practices and improving financial literacy among consumers. this will be even more important with the implementation of the risk - based regulatory regime, whereby the responsibility for the implementation of sound risk management and market conduct governance, as well as assessment of risks and management of the financial condition of a takaful operator, will rest increasingly with the board of directors and senior management of the takaful operators. moving forward, a differentiated regulatory approach will increasingly be adopted, where companies that exhibit strong corporate governance and risk management practices will be given greater regulatory flexibility and may enjoy greater capital savings. secondly, it is vital to have in place an efficient and cost - effective delivery channel for the takaful business, strategically aligned to fulfil the participants'reasonable expectation. bancatakaful strikes as an attractive value proposition that enables takaful operators to tap into banking institutions'large customer base and attract the existing clientele of the latter to have access to integrated financial service offerings in the most cost effective manner. strategic alliance in the bancatakaful arrangement has indeed shown a significant improvement in the takaful contributions over the past few years. this is evident with the significant three - fold increase in contributions of the product marketed through bancatakaful in 2005 which accounted for 20. 4 % of total contributions. bancatakaful has contributed considerably to the increased penetration in the family takaful business, especially for single contribution takaful plans. we envisage significant inroads in the penetration rate of bancatakaful in future years in line with the positive trend shown by the conventional counterparts, where

a few manufacturing corporates from india are now rated globally best, rbi intends to be similarly the best. needless to say we expect indian accounting profession to be among the world's best, if it is not already so in any specific aspect. many of you would be aware that rbi has been making pro - active efforts to facilitate positioning of international financial standards and codes in relevant areas of the financial system in india. as part of this process and to guide the overall process of implementation of appropriate changes in respect to various segments of the financial system, the rbi had, in consultation with government of india, constituted a standing committee on international financial standards and codes in december 1999. the standing committee, in turn, constituted advisory groups in ten core subject areas pertaining to the financial system, broadly encompassing the key areas prescribed by financial stability forum. out of these, the advisory group on accounting and auditing ( chairman : shri y. h. malegam ) compared the indian standards and relevant statutes with international standards and made recommendations for reducing the gap. in this regard, it is heartening to observe that the accounting and auditing standards in india are being increasingly benchmarked against international standards. i am also happy to note that the icai is making sustained efforts to align the indian accounting standards with the international ones. a review of the recommendations of the advisory group by the reserve bank in december 2004 shows that the gap between international accounting standards and indian accounting standards has been gradually narrowing, reflecting the foresight of the profession in recognising the importance of international comparability. as my remarks would testify, the relationship between the rbi and the icai has been mutually reinforcing, where both can draw on each other ’ s strengths and contribute to an efficient and stable financial system. i am happy to state that we have decided to constitute a small group comprising the representatives of the rbi and the icai who can meet at regular intervals and sort out pending issues relating to standardisation of audit formats, concurrent audit of banks and empanelment of auditors as well as implementation issue on certain accounting standards. before concluding, let me say a few words on the role of auditors in economic reforms. while the reform process had largely emphasised the need for improving the balance sheets, it is very critical that these measures really get reflected in the financial statements and present a true and fair view of the financial position of all entities. the reform process would be evidently incomplete if the balance sheet integrity is not