ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

Partha RaySubscribe to Partha Ray

Basel II and Bank Lending Behaviour

The new Basel accord is slated to come into effect in India around 2007 raising the question of how the revised standards will influence bank behaviour. Using a simple theoretical model, it is shown that the revised accord will result in asymmetric differences in the efficacy of monetary policy in influencing bank lending. This will, however, depend on a number of factors, including whether banks are constrained by the risk-based capital standards, the credit quality of bank assets and the relative liquidity of banks' balance sheets. The basic model is empirically explored using data on Indian commercial banks for the period 1996-2004. The analysis indicates that the effect of a contractionary monetary policy will be significantly mitigated provided the proportion of unconstrained to constrained banks in the system is significantly high.

Bank Nominee Directors and Corporate Performance

Banks and financial institutions play a major role in governance of non-financial companies in India through the mechanism of nominee directors. This paper probes two allied issues: firstly, the isolation of the firm specific factors which determine the presence of bank nominee directors on boards and secondly, whether companies, with bank nominee directors exhibit better performance/governance than companies with no banker representation on their boards. A Probit model estimated over a cross-section of Indian manufacturing firms for 2003, indicates that bankers on boards seem to exert a healthy impact on the companies. In fact, large public limited companies are likely to exhibit banker representation, primarily in their role as expertise providers. The evidence from Tobit model reconfirms these results.

Financial Sector Reforms and the Balance Sheet of the RBI

The conduct of the Reserve Bank of India?s monetary policy in the 1990s has shaped and in turn, been shaped by the programme of financial sector reforms. The operating procedure of monetary policy had to be comprehensively recast to enable the shift from direct to indirect monetary policy instruments in consonance with the increasing market orientation of the economy. This paper examines the impact of financial sector reforms on the balance sheet of the RBI. In the wake of financial sector reforms, we find that a regime switching has taken place in the RBI?s asset size as well as in the size of its surplus. Moreover, the RBI Balance Sheet has become more transparent in line with international accounting standards.

Behaviour of Bank Capital

This paper looks at empirically assessing the determinants of risk-weighted bank capital ratios of state-owned banks in India during 1996-2002. Bank-specific characteristics, variables at the banking industry level and general macroeconomic factors have been taken into consideration for this purpose. The findings suggest that bank specific factors play an important role in influencing bank capital ratios in India.

Stock Market Integration and Dually Listed Stocks

In search of the micro-foundation of the commonly held view of a dominant Nasdaq and satellite Bombay Stock Exchange (BSE), the study looks into the price interdependence of 10 Indian companies, which have floated American Depository Receipts (ADRs). The strong correlation between the prices of the dually listed stocks is corroborated by the finding of a bidirectional causality in a vector auto regression model. The competing domestic stock exchange, viz, National Stock Exchange (NSE) too is found to share the same bidirectional relation scripwise with the Nasdaq/New York Stock Exchange. Furthermore, the impulse responses pattern indicates that a positive shock in the domestic (international) price of a scrip gets transmitted in terms of a strong positive movement in the international (domestic) price the very next day. Thus, the quotes of both the markets share not only a stockwise bidirectional causality, but markets also are efficient in processing and incorporating the pricing information.

Does Monetary Policy Have Differential State-Level Effects?

The paper examines whether monetary policy has similar effects across major states in the Indian polity. Impulse response functions from an estimated Structural Vector Auto Regression (SVAR) reveal two sets of states: a core of states that respond to monetary policy in a significant fashion vis-à-vis others whose response is less significant. The paper attempts to trace the reasons for the differential response of these two sets of states in terms of financial deepening and differential industry mix.

BSE and Nasdaq

The synchronised movement of BSE and Nasdaq has often been interpreted as an indication of integration catching up with the Indian financial markets. The authors have looked into the nature of relationship between the daily share price in BSE and NSE on the one hand and Nasdaq and New York Stock Exchange on the other, for 1999-2000 through 2000-2001 and have found a unidirectional causality from Nasdaq to BSE or NSE. The relationship as well as direction of causation also holds good for the technology segment of the New York Stock Exchange and BSE or NSE. However, domestic prices of technology stocks and overall domestic share prices were found to be independent of each other.

New Monetary Transmission Channels-Role of Interest Rates and Exchange Rate in Conduct of Indian Monetary Policy

Role of Interest Rates and Exchange Rate in Conduct of Indian Monetary Policy Partha Ray Himanshu Joshi Mridul Saggar This paper explores new dimensions in the monetary transmission mechanism in the environment of liberalisation initiated in the early 1990s and in the context of growing integration of financial markets. An examination of the Chakravarty Committee paradigm in this changed milieu motivated us to see the role of two key variables in the conduct of monetary policy, viz, interest rates and exchange rates. The long-run relationship between money, prices, output, and exchange rate is examined and the impact of money market disequilibrium on interest rate is traced by testing the joint significance of the lags of disequilibrium errors. We also conduct weak and block exogenity tests for exchange rates. Interest rates and exchange rates are seen to be endogenously determined in the liberalised regime beginning 1992-93, raising the possibility of the change in transmission mechanism following the advent of financial reforms. The recent shifts in the operating procedure of monetary policy are in consonance with our findings.

Durability and Time-Frame of Industrial Retrogression

A comment on some of the terms Sarkar has used. Even as she is critical of the use of the term 'anti-social', she inadvertently ends up using the same term while mentioning the bandhs in Calcutta. Also, talk of 'Left Calcutta', 'party mouthpiece', etc, remind one of the days of the cold war. Cannot we, at least, avoid this?

Pages

Back to Top