As regards the cross sectional dimension of the systemic risk which deals with the interconnectedness issues, various measures have been undertaken such as, prudential limits on aggregate interbank liabilities; restricting the access of uncollateralized funding markets only to banks and PDs and stipulating caps on lending and borrowing; restricting the banks’ investments in the capital instruments of other banks; stipulation on banks’ exposure to NBFCs and MFs and close monitoring of systemically important NBFCs and financial conglomerates; restrictions on unbridled innovation in financial products; enhancing transparency and addressing risks in OTC transactions by operationalizing reporting platforms and CCP arrangements.
Current approach to banking regulation and reforms and the challenges involved 29. Given these realities, the needs for the financial sector reforms and regulatory development in India do not necessarily converge with those felt in the developed nations. Risks emanating from the EME financial sector are also diametrically different from those emerging from those in the advanced economies.