As capital always comes at a cost, banks need to have in place a fair and differentiated risk pricing of products and services. This involves costing, quantitative assessment of revenue streams from each product and service and an efficient Transfer Pricing Mechanism, which would determine capital allocation.
Each business unit in the enterprise would have to aim at being a profit centre within the overall risk–return framework. In essence, it would mean accountability for profit, tempered by the discipline of risk–return within a deeply embedded culture of good governance. Our past experience has been of poor savers subsidising the rich borrowers. Also, there are incidences of rampant mis-pricing of risks.