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

Articles by T T Ram MohanSubscribe to T T Ram Mohan

Foreign Banks: RBI Gets the Balance Right

The experience of the sub-prime crisis has underlined the virtues of caution in banking sector liberalisation. It has brought home the necessity of balancing efficiency and stability in banking. India's policy so far towards foreign banks has stood the country in good stead. In a review, a Reserve Bank of India discussion paper gets the balance right in future policy in every way.

Private Bank Licensing: Very Few Will Qualify

The Reserve Bank of India's discussion paper on entry of new banks in the private sector lists a number of issues in the next round of licensing of such banks. If the new private banks are to focus on inclusion, then a number of possible candidates - including industrial houses - would possibly be ruled out. Deep pockets, sound governance and an appetite for financial inclusion are not terribly common and these requirements cannot be relaxed merely in order to have more players.

World Economy Not Out of the Woods

The world banking system has been adjusting to the post-crisis deleveraging in the household and corporate sectors. At the same time, leverage in government has shot up as governments have intervened massively to rescue financial systems and to boost public spending in response to recessionary conditions. As the recent Greek crisis has vividly demonstrated, a new threat looms, namely, a rise in sovereign risks and the prospect of default on government debt. Where do we stand in relation to the crisis? Has the banking system recovered and to what extent? What new risks raise the prospect of another recession? What risks are emerging markets exposed to? A discussion based on the April 2010 edition of the Global Financial Stability Report of the International Monetary Fund.

Post-Crisis Regulation: A Contrarian Perspective

There have been a number of commissions and committees on the financial crisis over the past year, which have largely covered the same ground in their analysis and recommendations for reform of the financial sector. The Warwick Commission on International Financial Reform, constituted by the University of Warwick in the United Kingdom, however, strikes out on a different path. It raises a number of issues in a way that many other reports have not. And it also differs sharply in some of the recommendations it makes. This article highlights four themes that figure in the report: macro-prudential regulation, rightsizing the financial sector, regulatory capture and home country versus host country regulation.

Obama Ducks the Banking Challenge

The US has followed a cautious approach in tackling the current crisis in banking. It has refused to tackle the crisis head on, it has instead followed an "endure and wait" approach. What of preventing future crises through regulatory reform? The Obama administration's proposals to prevent another banking crisis are just as tepid and refuse to grasp the nettle in a number of areas - in preventing concentration, containing compensation levels and dealing with important human resources issues. The US Treasury proposals do not give the impression of going far enough in tackling the issues highlighted in the present crisis.

The Impact of the Crisis on the Indian Economy

The effects of the global financial crisis have been more severe than initially forecast. The turning point was the decision in September 2008 to let Lehman Brothers fail, an event that had a series of ruinous cascading effects. Given the depth of the crisis in the United States and Europe, it was only to be expected that India too would be affected. But India's well-regulated banking system and adequate policy responses should ensure that the fallout, at least on the banking sector, will be contained.

Ten Regulatory Lessons from the Sub-prime Crisis

The sub-prime crisis that erupted in the United States was the first manifestation of the larger financial crisis that has since swept across the world. What early lessons in regulation - on capital requirements, incentive structures, role of foreign banks, central bank regulation, governance and more - can we draw from the sub-prime collapse? A first listing of 10 lessons.

From the Subprime to the Ridiculous

It is somewhat misleading to label the present crisis a "subprime crisis". This suggests that when banks make subprime loans, that is, practise financial inclusion, they are apt to get into trouble. Some commentators have even gone so far as to warn against political pressure for financial inclusion in India. It is not exposure to subprime loans that is a problem; it is the loss on subprime related securities that explains the sheer magnitude of the present crisis. The evolution of the crisis shows that the world did not fully absorb all the lessons from the collapse of the hedge fund, Long-Term Capital Management in 1998. When do episodes of financial stress have a measurable impact on the real economy? Over the past 30 years, 60% of the financial stress episodes that led to downturns were banking-related events.

Reforming the Banking Sector

The committee on financial sector reforms highlights several concerns on the Indian banking sector - about financial deepening, inadequate competition, lack of scale, high spreads banking, the low usage of new technologies, the decline in market share of public sector banks, etc. These concerns are either valid only up to a point or are misplaced when viewed against the totality of the Indian banking situation. Concern is also expressed about social obligations, delinking the government from banks and greater freedom to private banks - these too are not valid concerns. Indian banking is in a reasonably healthy state and is evolving in the right direction. It needs incremental, not sweeping, changes.

Is It Time to Open Up to Foreign Banks?

What are the benefits and costs to India of an enlarged foreign bank presence? Going by the three important criteria of access to financial services, efficiency and provision of credit, it is unlikely that foreign banks can do more than what the Indian banking system can provide. Add to that the risks posed by larger operations by foreign banks and there is a case for revisiting the 2005 road map of the Reserve Bank of India which indicated that these banks may be able to expand their presence after 2009.

Sovereign Wealth Funds: Western Fears

Sovereign wealth funds control assets of somewhere between $ 1.9 and $ 2.9 trillion. What are swfs, how are they governed and why are developed countries anxious about such funds being set up by developing countries? And should India consider setting up a swf with a part of its large foreign exchange reserves?


Back to Top