Rangarajan was in Bangalore to accept The Financial Express Award for Economics '98 on Sunday at the ongoing Indian Economic Association's annual conference. Among various measures that he said were needed to be taken to strengthen the banking system as well as improve the macro-economic scene, he ranked risk management high on the priority list.

He said risks -- whether they pertained to credit, liquidity, interest rate, currency or contingency -- were the result of some kind of mismatch. In the event of assets and liabilities being matched in terms of maturity and if they were in the samecurrency, Rangarajan said, there would be no foreign exchange risk. However, he added, such a situation was not possible and even if it were, it would be sub-optimal with respect to profitability. He pointed out that risk was inherent to all business activities and what was required was to manage it.

Rangarajan predicted that the future course of the banking sector would be dominated by greater specialisation by banks in niche markets such as retail, agriculture, exports, etc, and there would be greater reliance on non-fund businesses such as advisory, consultancy, guarantee and custody services. He said there would be a greater overlap in product coverage between commercial banks and non-bank intermediaries as also greater `financial disintermediation' with large corporates going for securitiesed debt in domestic and overseas financial markets.

On monetary policy, he said there was a need for greater clarity on whether the main objective should be price stability or the acceleration of economic growth.