"The interconnectedness of financial organisations and their external dependencies makes it essential for every bank and financial institution to understand the likely impact of Year 2000 readiness of their customers, correspondents, counterparties and other third parties," the RBI circular said and added that the complexities of the issues involved even with the remediated systems makes the task of ensuring Y2K readiness daunting.

"While banks and FIs are encouraged to voluntarily disclose sufficient information to the public so as to build confidence and enable other market participants to take informed decisions asregards their risk exposures, the Reserve Bank has felt it necessary to lay down minimum disclosure framework for all commercial banks," the RBI circular said.

While acknowledging banks' efforts to mitigate the risks associated with Year 2000, RBI has said that inadequate information and lack of disclosure may impede efficiency of compliance efforts and may negatively distort risk perceptions in the market.

The RBI has therefore advised banks to disclose information on the extent of exposure to Y2K problem, what needs to be done to address this problem, progress in bank's compliance efforts, financial costs incurred in implementing Y2K programme and the bank's internal and external testing programmes and its contingency planning efforts.

"Banks may place the information before their board of directors and thereafter the same may be published in leading national dailies. Banks that are yet to publish their annual reports for the year ended March 31, 1999 are also encouraged to make voluntary disclosureson these lines as part of the Director's Report," the RBI circular said adding that this information should be disclosed after due-diligence, under the authority of the bank's Chief Executive Officer.

In a seperate circular issued to the heads of all commercial banks, FIs and other financial intermediaries, the central bank has drawn their attention to the `guidance note' issued by the Institute of Chartered Accountants of India (ICAI).

"The guidance note recommends that the auditors may add certain disclaimers relating to the risks arising out of the Y2K problem in their `Engagement Letter' and obtain a `Management Representation Letter' on how the organisation has addressed the Y2K problem," the circular said and asked the bank chiefs to forward the management representation letter alongwith the management's assessment of the Y2K issue.