msmes needs to be evolved. the industry associations have often been often representing on the delayed payments from large corporate. while banks have been advised to allocate a sub - limit in respect of large borrower accounts, for making payments to the mse units against purchases from them but it is not possible for banks to force the large buyers to utilize the limit for making payments. this problem could be institutionally tackled by factoring. the prime minister ’ s task force on msmes also has recommended that a suitable framework for promotion of factoring services without recourse in the country for msmes. reserve bank has also constituted a working group on securitization of trade credit receivables to examine various options for liquidating the receivables before maturity. there is 96 % exclusion of the small entrepreneurs, it is, therefore, imperative that they are financially included and brought in the formal banking system, the goi, based on the recommendations of the pm ’ s task force on msmes has decided that there should be an annual growth in the number of micro enterprise accounts be for the present fixed at 10 % for banks to achieve and also strict adherence by banks to the allocation of 60 % to micro enterprises of the total mse lending which should be done in stages viz. 50 % in the year 2010 – 11, 55 % in 2011 – 12 and 60 % in the year 2012 – 13. necessary instructions are being issued shortly to the banks in this regard and reserve bank will monitor the performance of banks. 20. the various fora set up by reserve bank, such as the empowered committees, and the standing advisory committee, state level banker ’ s committee meetings etc. meet at periodic intervals to monitor the credit flow to this sector. it is necessary that the efficacy of such fora / meeting are monitored to assess the impact at the ground level. 21. with increasing competition, introduction of new products and stringent regulatory environment, the role of banks needs to change from mere lenders to partners in business. there is a need for greater participation of banks in the affairs of their constituents by convergence of credit services and non credit services. the banks should not only provide differentiated products for msmes, but also provide counselling & guidance to new and established businesses, extending marketing support etc. similarly, the government and other institutions entrusted with development of the msme sector need to focus providing an enabling environment, infrastructure and forward & backward linkages so that the credit function being discharged

in order to avoid term mismatches in portfolios. a proper cushion needs to be kept by way of capital reserves against market exposure and capital size should set a limit for the risk exposure of an individual financial institution. apart from capital adequacy standards, the new international norms of banking regulation and supervision require a more proactive role for the regulator in enforcing an effective mechanism for evaluating, monitoring and managing risks in the financial system. this in turn would need stricter accounting, valuation and reporting norms on the part of banks. the basle core principles have also identified a number of challenging areas for regulators and supervisors, which must be satisfied to ensure orderly conduct of financial system and to promote its soundness and stability. transparency in banking operation is also something which has to receive top priority given the current nature of capital markets. transparency and accountability demand realistic valuation of assets, public disclosure norms and prudential reporting by banks to help depositors and investors form an informed opinion about the state of the financial system, thereby enabling them to react in an orderly fashion to asset price changes. moreover, public intervention policies in the form of explicit or implicit guarantees may have to be such that they do not lead to “ moral hazard ” in the form of undue risk - taking by banks and laxity in observing market disciplines. india must remain in the forefront of the movement for ensuring soundness of the banking system by adopting best practices and best international standards of performance and prudence. actions have already been initiated in this direction. the challenge now is to accelerate this process so that the banking and the financial system in our country can contribute to the sustained growth of the real economy with price stability. role of bank economists before i conclude, let me say a word about the role of bank economists in facilitating the reform process. this annual conference is a testimony to the economic talent that our banking system has developed over the years. almost all our banks have economic research departments or economic cells which are staffed by highly qualified economists with long experience in banking and the financial sector. the issue that i would like to pose before this conference is : are we making the best and most effective use of economists working in the banking sector to improve the functioning of banks, and for that matter, the operational efficiency of the financial sector as a whole? in commercial organisations like banks, economics departments have the advantage of not being excessively burdened with day - to - day problems of running the banks or ensuring the safety and profitability of individual