Non-performing assets in the balance sheet of Indian banks pose a great threat to the stability of the banking system. Analysts maintain that the actual bad loans in banks’ balance sheets are much higher than what is shown. An estimate showed that bad loans of Indian public sector banks stood at a staggering figure of $41 billion as on 31 March 2015[1]. The Ministry of Finance and Reserve Bank of India (RBI) are seized of the matter. RBI has even released guidelines for early detection of financial stress and timely measures to recover the dues. The present regulatory infrastructure for debt recovery is found to be inadequate in this regard.

Default of borrowers is broadly of two types- circumstantial and willful. Default arising of change in external environment (e.g., lack of fuel supply for a power plant) is favorably considered by the lenders and if requested, is offered restructuring package. The regulator needs to be very strict with the willful defaulters. CIBIL, the credit information bureau, maintains database of willful defaulters (suit-filed accounts) with exposure of Rs. 2.5 million ($38,500) or above. A report states that more than 7000 willful defaulters owe about $10 billion to state-owned banks [2]. RBI has come up with a guideline in 2014 to identify willful defaulters with a view to ‘put in place a system to disseminate credit information pertaining to willful defaulters for cautioning banks and financial institutions so as to ensure that further bank finance is not made available to them’[3]. A willful defaulter is said to be one who has defaulted in meeting its payment/repayment obligations even when the borrower has the capacity to pay. Instances of doubtful practice also include fund diversion, siphoning off the funds, and disposal of mortgaged assets. RBI cautions every bank to keep a watch on the payment behavior and fund utilization pattern of its borrowers to identify potential willful defaulters… to read full article courtesy by ( http://financelab.iimcal.ac.in/artha/index2.php ) click here

On 28th September 2015, Forward Markets Commission (FMC), regulator of the commodity market merged with Securities and Exchange board of India (SEBI), the regulator of equity and corporate bond market in India. This is a first case of merging of two regulators in India. In this article we discuss the need and implications of this merger.

Commodity trading has a long history. Organized commodity trading started by the Chicago Board of trade (CBOT) in 1848. In India, it was started by Bombay Cotton Trade Association in the year 1875. To regulate the commodity market, FMC was established in 1953 under the Forward Contracts (Regulation) Act 1952 (FCRA). FMC was designed to keep a close watch on the risk management, for surveillance in the forward and futures market, to provide guidelines about the dissemination of information and for allowance or withdrawal of the commodity futures in the Indian market.

SEBI was set up in 1988 as a non-statutory body for regulating the securities markets and became an autonomous body in 1992, with full independent powers. However, FMC remained a recommendatory body and the Government of India had all the regulatory powers and exercised them based on the recommendations of the FMC.

The Regulators’ role is to protect investors from any misconduct in the market. In both equity or commodity markets, failure of the firms (in terms of not getting the desirable capital from the market at appropriate borrowing rate or not being able to provide returns according to the risk borne by the investors) and commodity futures (failure in terms of efficient price discovery or delivery of the underlying) are not only disruptive for the investors, but also for the overall economy.  FMC and SEBI both have provided basic infrastructure, proper guidelines for the development of the commodity and equity market. Sound regulations ensure the well-functioning of markets and reduce the chance of failure of firms and instruments. However, full protection from failure is not possible. Both equity market and commodity markets have suffered due to certain misconduct of the market participants… to read full article courtesy by ( http://financelab.iimcal.ac.in/artha/index2.php ) click here

The Reserve Bank of India (RBI) came out with its Financial Stability Report in June 2015. The half yearly report can be seen as a detailed summarisation of the domestic financial sector, its status of health and future prospects. The report critically analyses the events, global or domestic that can create stress in the banking sector, the engine room of the economy. With the global economy in the throes of financial turmoil and the tail events of the financial crisis still causing repercussions at developed and emerging economies around the world on a regular basis, the significance of the report cannot be emphasised enough. This analysis makes an effort to elaborate and magnify the red flags held up by the report. At the time of publishing of the report, globally, the Greek debt crisis (or rather the return of it) and fears surrounding the Fed interest rate hike presented the biggest volatility trigger mechanism. Recently, however, with Greece accepting the third bailout worth up to 86 billion Euros, the fears have receded but unrest amongst the investors remain; as the IMF remains doubtful on the long term sustainability of the bailout program. Reaction in the Indian markets with respect to the Greek crisis, or the contagion effect, however, had been rather muted.

The risks of the taper tantrum that hammered the Indian rupee and stocks in mid-2013 also appear muted, with the RBI more than prepared to deal with such volatility, should it resurface. To be precise, the worrying factor for the RBI is less of a global factor than the local ones. A strong El Nino has impacted the Indian monsoon season significantly with deficient rainfall across the continent the norm rather than the exception. The impact it would have on the agricultural output and prices can only be estimated with the publication of more data; till now, however, the inflation numbers tell a different story. The domestic economy is still in the throes of a recovery taking shape, which is anything but concrete. The biggest worrying factors for the Central Bank, however, are the stressed balance sheets for the Corporate Sector that are leveraged much higher than comfort levels and that of the Public Sector Banks (PSB), which face the risk of assets turning sour in the face of a hardening of rates… to read full article courtesy by ( http://financelab.iimcal.ac.in/artha/index2.php ) click here

Introduction

Lot of countries including the prominent emerging nations such as China and India has aspirations of ‘internationalizing’ their currency. While in general there is a broad consensus on what an ‘internationalized’ currency may look like still no precisely defined framework exists. Of course, all internationalized currency has aspirations of entering into that ‘Hall of Fame” which is IMF’s Special Drawing Rights (SDR) basket. Currently there are four currencies in the SDR basket (USD, Euro, Pound and Yen) and going by IMF’s latest press release Chinese Renminbi may become the fifth currency in the SDR basket.

However, during the process of currency internationalization the country may benefit from the journey itself. In order to internationalize its currency a country needs to take several measures and show palpable results of the same. The global market participants starts acknowledging those developments by showing lesser resistance to accept its currency as payments or subscribing to securities denominated in that currency. As transaction volumes increase the cost of transacting in the currency reduces and over decades the currency assumes international stature.

The benefits of the process of internationalization often tend to outweigh the constraints of owning an internationalized currency. Thus countries having highly internationalized currencies tend to have more stable domestic economies to the extent the foreign currency (FX) risk is mostly mitigated. For India, whose economy has a high exposure to foreign currency risk, it may be beneficial to have a more internationalized Rupee. Of course more systematic and well-coordinated planning and efforts are required so that hopefully over next two decades Indian rupee becomes more internationalized comparable to at least countries such as Mexico and China… to read full article courtesy by ( http://financelab.iimcal.ac.in/artha/index2.php ) click here