Showing posts with label Good Newspaper Articles and topics. Show all posts
Showing posts with label Good Newspaper Articles and topics. Show all posts
Wednesday, 25 July 2012
Saturday, 14 July 2012
Thursday, 5 July 2012
Wednesday, 4 July 2012
Recent Financial Stability Report throws up some worrisome features- ET
There are three distressing features of the Reserve Bank of India's latest Financial Stability Report. The first is a sharp drop in growth of deposits.
At less than 14%, the deposit growth rate as on March 31, 2012, is the lowest recorded in the last 10 years. True, some such decline is inevitable during an economic slowdown, especially when high inflation leads to negative or low real rates of interest.
But the extent of the decline is a cause of concern. Not only because bank deposits are the mainstay of bank credit but also because the disproportionate slowdown in deposit growth vis-a-vis credit growth has increased the reliance of banks on borrowed funds, raising the spectre of liquidity mismatch.
The second feature relates to asset quality. The report points to a rise in the quantum of restructured assets and non-performing assets (NPAs), with gross NPAs rising to 2.9% on March 31, 2012, against 2.4% on March 31, 2011.
The third relates to the growing interconnectedness between the 'most-connected' banks. The maximum potential loss to the banking system due to the failure of the most-connected bank has risen from 12% of the capital of the banking system to over 16% over the four quarters of 2011.
The average loss caused by the failure of the three most-connected banks has also increased. Fortunately, the contagion risk appears confined to a few banks. Interconnectedness is not confined to banks but extends to insurance and the mutual funds segments of the financial system.
As on March 31, 2012, nearly 54% of the entire intra-financial system borrowing by banks was from insurance companies and mutual funds, with the reliance being particularly high in the case of private sector banks.
This means the random failure of a bank that has large borrowings from insurance and mutual funds could have significant implications for the entire system.
The good thing is that for now, tests suggest the banking system is in reasonably good shape. But that does not mean we should relax our guard. Stress tests have their limitations. After all, it is not so long ago that EU stress tests showed Spanish banks in fine fettle.
At less than 14%, the deposit growth rate as on March 31, 2012, is the lowest recorded in the last 10 years. True, some such decline is inevitable during an economic slowdown, especially when high inflation leads to negative or low real rates of interest.
But the extent of the decline is a cause of concern. Not only because bank deposits are the mainstay of bank credit but also because the disproportionate slowdown in deposit growth vis-a-vis credit growth has increased the reliance of banks on borrowed funds, raising the spectre of liquidity mismatch.
The second feature relates to asset quality. The report points to a rise in the quantum of restructured assets and non-performing assets (NPAs), with gross NPAs rising to 2.9% on March 31, 2012, against 2.4% on March 31, 2011.
The third relates to the growing interconnectedness between the 'most-connected' banks. The maximum potential loss to the banking system due to the failure of the most-connected bank has risen from 12% of the capital of the banking system to over 16% over the four quarters of 2011.
The average loss caused by the failure of the three most-connected banks has also increased. Fortunately, the contagion risk appears confined to a few banks. Interconnectedness is not confined to banks but extends to insurance and the mutual funds segments of the financial system.
As on March 31, 2012, nearly 54% of the entire intra-financial system borrowing by banks was from insurance companies and mutual funds, with the reliance being particularly high in the case of private sector banks.
This means the random failure of a bank that has large borrowings from insurance and mutual funds could have significant implications for the entire system.
The good thing is that for now, tests suggest the banking system is in reasonably good shape. But that does not mean we should relax our guard. Stress tests have their limitations. After all, it is not so long ago that EU stress tests showed Spanish banks in fine fettle.
ET in the classroom: Why current account deficit will improve
India reported an all-time high current account deficitof 4.2% of GDP in 2011-12 and trade deficit of about 10% of GDP.
However, economists say these deficits will be under control as the J curve effect comes into play. ET looks at the concept of the J curve.
What is 'J' curve?
The J curve is used to illustrate a movement in a variable's, which falls initially but rises up to higher levels than before in the shape of the letter 'J'.
When applied to a country's external account, it says that whenever there is depreciation in the currency's value, the trade deficit initially worsens as imports become more costly and exports take more time to react.
Over time, depreciated currency makes exports competitive while imports slowdown as cheaper domestic output replaces imports. This shift causes trade balance to improve.
What's its significance?
The curve shows that depreciation of a currency due to deterioration in a country's external balances is actually a part of the solution.
If the depreciation is managed properly through intervention to reduce volatility, then it will help correct the imbalances.
Why is it relevant in the Indian context?
The rupee has depreciated from around `49 a dollar to `57 since the start of the year, but has recently bounced back to around Rs 55. This has worsened current account as a large portion of imports, including crude oil, is price inelastic in the short run.
But economists expect imports to come down in future as costlier inputs dampen demand, as evident in the case of gold.
Simultaneously, exports will pick up as they have become more competitive/cheaper in the global market. This will lead to an improvement in trade balance & consequently in Current account deficit.
What could hamper 'J' shaped recovery in external account?
While India's exports have become more competitive due to the massive devaluation of the rupee, global growth has also stumbled which will limit the demand for India's exports.
Also if the country does not pass on higher fuel costs to consumer, the demand for imported crude will not come down.
However, economists say these deficits will be under control as the J curve effect comes into play. ET looks at the concept of the J curve.
What is 'J' curve?
The J curve is used to illustrate a movement in a variable's, which falls initially but rises up to higher levels than before in the shape of the letter 'J'.
When applied to a country's external account, it says that whenever there is depreciation in the currency's value, the trade deficit initially worsens as imports become more costly and exports take more time to react.
Over time, depreciated currency makes exports competitive while imports slowdown as cheaper domestic output replaces imports. This shift causes trade balance to improve.
What's its significance?
The curve shows that depreciation of a currency due to deterioration in a country's external balances is actually a part of the solution.
If the depreciation is managed properly through intervention to reduce volatility, then it will help correct the imbalances.
Why is it relevant in the Indian context?
The rupee has depreciated from around `49 a dollar to `57 since the start of the year, but has recently bounced back to around Rs 55. This has worsened current account as a large portion of imports, including crude oil, is price inelastic in the short run.
But economists expect imports to come down in future as costlier inputs dampen demand, as evident in the case of gold.
Simultaneously, exports will pick up as they have become more competitive/cheaper in the global market. This will lead to an improvement in trade balance & consequently in Current account deficit.
What could hamper 'J' shaped recovery in external account?
While India's exports have become more competitive due to the massive devaluation of the rupee, global growth has also stumbled which will limit the demand for India's exports.
Also if the country does not pass on higher fuel costs to consumer, the demand for imported crude will not come down.
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Tuesday, 3 July 2012
Despite ONGC debacle, FinMin to push OFS for fresh stake sales - Indian Express
Despite ONGC debacle, FinMin to push OFS for fresh stake sales - Indian Express
what is OFFER FOR SALE?
There are two main ways for a company to list new shares 1) By an offer for sale, which is a public invitation by a sponsoring intermediary such as an investment bank. 2) By an offer for subscription, or direct offer, which is a public invitation by the issuing company itself. The offer can be made at a price that is fixed in advance or it can be by tender where investors state the price they are prepared to pay. After all bids are received, a strike price is set which all investors must pay.
Monday, 2 July 2012
Todays ET
http://timesofindia.indiatimes.com/business/india-business/Finance-ministry-Sebi-likely-to-recast-regulations-to-allow-companies-to-use-call-put-options-in-MA/articleshow/14582320.cms
http://economictimes.indiatimes.com/opinion/editorial/new-delhi-must-continue-diplomatic-nudging-rather-than-hostility/articleshow/14577831.cms
http://articles.economictimes.indiatimes.com/2012-06-28/news/32457631_1_wi-fi-hotspots-spectrum-2g
http://economictimes.indiatimes.com/opinion/editorial/new-delhi-must-continue-diplomatic-nudging-rather-than-hostility/articleshow/14577831.cms
http://articles.economictimes.indiatimes.com/2012-06-28/news/32457631_1_wi-fi-hotspots-spectrum-2g
ET in the classroom: How monsoon affects Indian economy
India
faces the prospects of a second drought in 4 years, though it is too
early in the season to worry. ET takes a look at the role monsoon plays in the Indian economy.
Is Farm Sector Crucial For Economy?
Statistically, its significance has declined as now farm sector has a much lower share in GDP. However, with over 50% of population still finding its livelihood in the sector, any stress in the sector has a disproportionately large impact on people
Is Farm Sector Crucial For Economy?
Statistically, its significance has declined as now farm sector has a much lower share in GDP. However, with over 50% of population still finding its livelihood in the sector, any stress in the sector has a disproportionately large impact on people
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How Important Is Monsoon For Agriculture?
Since India gets most of its water from the 3 months of rains, the importance of monsoons cannot be understated. However, increase in irrigation facilities has helped reduce risks
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How Monsoon Affects Farm Output?
Only in extreme drought years does the output drop sharply. The rising importance of winter crop and better irrigation has improved India's ability to withstand monsoon shortfall
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Is Monsoon Linked To Inflation?
A poor monsoon can create shortage. But in recent years, food inflation has been high despite rains due to shift in demand patterns. A good buffer stock has also weakened the linkage
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Saturday, 30 June 2012
ET in classroom: Libor Lessons
What is Libor?
Devised in the 1980s, the London interbank offered rate(Libor) is supposed to be a trusty financial yardstick measuring the cost incurred when banks borrow from each other across 10 major currencies and 15 borrowing periods, ranging from overnight loans to 12-month loans. Set each day, it affects the cost of everything from business-account overdrafts to credit cards to mortgages.
SOUNDS GOOD, THEN WHY THE BARCLAYS BROUHAHA?
Well, banks set their own Libor, and each day tell a central entity how much interest they estimate they would have to pay on such loans.
That entity then eliminates some of the lowest and highest submissions and calculates an average from the remainder. Eighteen banks currently supply data for setting dollardenominated Libor.
According to regulators, Barclays traders sought to skew Libor to benefit their bets. While it might be hard for one bank among many to influence Libor, regulators felt Barclays was sometimes able to do so.
At least 12 banks are involved in the investigations around the world: the Barclays fines may herald similar penalties for other lenders.
SHOULD WE BE WORRIED IN INDIA?
Indian corporates who borrow based on Libor need not worry.
A benchmark will remain at all times since more than $350 trillion worth securities trade with Libor as benchmark. UK regulators working to fix the imbalances.
ARE THERE ANY ALTERNATIVES?
Alternative benchmarks could evolve overtime. Even if someone wants not to benchmark against Libor, they could choose 10 year US treasuries, or other such liquid securitied.
Devised in the 1980s, the London interbank offered rate(Libor) is supposed to be a trusty financial yardstick measuring the cost incurred when banks borrow from each other across 10 major currencies and 15 borrowing periods, ranging from overnight loans to 12-month loans. Set each day, it affects the cost of everything from business-account overdrafts to credit cards to mortgages.
SOUNDS GOOD, THEN WHY THE BARCLAYS BROUHAHA?
Well, banks set their own Libor, and each day tell a central entity how much interest they estimate they would have to pay on such loans.
That entity then eliminates some of the lowest and highest submissions and calculates an average from the remainder. Eighteen banks currently supply data for setting dollardenominated Libor.
According to regulators, Barclays traders sought to skew Libor to benefit their bets. While it might be hard for one bank among many to influence Libor, regulators felt Barclays was sometimes able to do so.
At least 12 banks are involved in the investigations around the world: the Barclays fines may herald similar penalties for other lenders.
SHOULD WE BE WORRIED IN INDIA?
Indian corporates who borrow based on Libor need not worry.
A benchmark will remain at all times since more than $350 trillion worth securities trade with Libor as benchmark. UK regulators working to fix the imbalances.
ARE THERE ANY ALTERNATIVES?
Alternative benchmarks could evolve overtime. Even if someone wants not to benchmark against Libor, they could choose 10 year US treasuries, or other such liquid securitied.
Thursday, 28 June 2012
Tuesday, 26 June 2012
ET in the classroom: Why rupee depreciation is not so bad
ET in the classroom: Why rupee depreciation is not so bad
However the depreciation of rupee is still continuing due to global factors and stabilisation is yet to take place
Jairam writes to Sonia and Rahul, suggests ways to fix economy - Indian Express
Jairam writes to Sonia and Rahul, suggests ways to fix economy - Indian Express
Trying to prove his candidature for being next FM...
Trying to prove his candidature for being next FM...
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