The Chairman/ Managing Director/ Chief Executive
All Commercial Banks

Dear Sir:

As you are aware, the Year 2000 problem poses a major challenge to banks and financial institutions as they make the transition to the new millennium. The complexity of the issues involved and the uncertainty associated with the behaviour of even remediated systems makes the task of ensuring Y2K readiness daunting.

The interconnectedness of financial organisations and their various external dependencies makes it essential for every bank and financial institution to understand the likely impact of Year 2000 readiness of their customers, correspondents, counter parties and other third parties. In this context, every bank and financial institution would be responsible for conducting its own due diligence review in respect of all its external dependencies.

Although a great deal of productive work is currently underway to mitigate the risks associated with Year 2000, lack of adequate information sharing and disclosure may impede efficiency of compliance efforts and negatively distort risk perceptions in the market. It needs to be recognised that due to information asymmetry, even incidents affecting individual institutions could provoke disruptions in the market adversely affecting even the most prepared organisations.

While banks and financial institutions are encouraged to voluntarily disclose sufficient information to the public so as to build confidence and enable other market participants to take informed decisions as regards their risk exposures, the Reserve Bank has felt it necessary in public interest to lay down minimum disclosure framework for all commercial banks. We therefore advise that banks may disclose information on the following aspects:

1. The extent of exposure to the Year 2000 problem.
2. What has been done or is being done to address the problem.
3. Progress in compliance efforts relative to plan drawn by the bank.
4. Financial costs incurred in implementing the bank's Year 2000 programme.
5. Internal and external testing programmes and contingency planning efforts.

Banks may place the information in the form of a Board Note before their Board of Directors in the meetings to be held in June, September and December 1999 and thereafter the same may be published in leading national dailies in the same months. Banks that are yet to publish their Annual Reports for the Year ended March 1999 are also encouraged to make voluntary disclosures on the lines suggested above as part of the Director's Report.

The information being disclosed should be made under the authority of the Chief Executive Officer of the bank after due diligence verification. A copy of the disclosure statements may be forwarded to us with a copy to our respective Regional Offices for information and record.

Yours faithfully
sd/-
(M.R. Srinivasan)
Chief General Manager