Outlining the agenda for the fiscal year 2004-05, Reserve Bank of India said on Tuesday that there were some areas in the financial system that would need special attention.

First, it is necessary to articulate in a comprehensive and transparent manner the policy in regard to ownership and governance of both public and private sector banks keeping in view the special nature of banks.

The Monetary and Credit Policy 2004-2005

This will also facilitate the ongoing shift from external regulation to internal systems of controls and risk assessments, RBI said in its bi-annual policy for 2004-05 in Mumbai.

Second, inter-relationships between activities of financial intermediaries and areas of conflict of interests need to be considered, it said.

Third, in order to protect the integrity of the financial system by reducing the likelihood of their becoming conduits for money laundering, terrorist financing and other unlawful activities and also to ensure audit trail, greater accent needs to be laid on the adoption of an effective consolidated 'know your customer' system, on both assets and liabilities, in all financial intermediaries regulated by RBI.

At the same time, it was essential that banks do not seek intrusive details from their customers and do not resort to sharing of information regarding the customer except with the written consent of the customer, it added.

Fourth, while the stability and efficiency imparted to the large commercial banking system is universally recognised, there are some segments, which warrant restructuring, RBI said.

The recent experience with the urban co-operative banks led to the enforcement of strict prudential parameters, but the issue of multiple control in this sector needs to be addressed and restructuring commenced.

Similarly, issues relating to co-operative banking structures, regional rural banks, non-banking financial companies and development finance institutions have to be considered.

In particular, the regulatory and supervisory arrangements should conform to best practices, in the interest of retail depositors and integrity of the payment system.

The strategies for further progress in the banking sector as a whole would thus involve restructuring in some segments, consolidation in the larger commercial banking system, enhancement of governance and of internal control systems and, above all, further deregulation accompanied by focused monitoring and effective supervision.