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

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Reining in Bankers’ Pay

The Reserve Bank of India’s guidelines on compensation for top management of banks are more generous in respect of variable pay than those of the European Union. However, they are a step forward in that they address an important lacuna in the existing guidelines: the non-inclusion of stock options in variable pay. The guidelines should serve to set a cap on the total compensation payable to bankers. As important are the disclosures in respect of top management compensation that the guidelines mandate.

A Rate Cut That Failed to Please

The decision of the United States Federal Reserve to cut short its cycle of interest rate increases and reduce rates, while announcing a halt to its quantitative tightening programme, is likely to restore an environment of excess and cheap liquidity. While justified as a means to strengthen the US recovery, this move would in all probability deliver increased financial speculation rather than higher growth. If that triggers another financial boom–bust cycle, slow growth could be followed by another deep recession.

A New Development Model for the New Economy

The new economy needs a development model that is people-centric, not production-driven. Emphasis, therefore, must be on the development of human capital. But, public education and health are not enough to break out of the middle-economy track. The world’s most pressing problems, from climate change to the future of work are all manifestations of inequality. The role of government is to not only be a more effective provider of learning and health, but also to be an agent for greater access to opportunity and changing patterns of ownership at all levels.

Thus, Spoke the Bond Market

Would market volatility amidst global trade tensions and uncertainty cause a global recession? Although the world’s major central banks had managed to avoid risks in the first week of June, despite some small variations at some maturities, the United States yield curve remained more or less as it was at the beginning. What will happen in the not-so-distant future?

Bad Debt Resolution Hits Judicial Roadblock

With the Supreme Court having declared ultra vires the Reserve Bank of India circular directing banks to pursue bad debt resolution at any cost, the process of making banks alone pay for all-round errors has come to an end. The Court has required the government to specifically authorise each resolution exercise and not delegate blanket authority to theRBI. This would matter in cases such as in the power sector where a misplaced privatisation policy explains the non-performing assets, which the government would now have to take into account. The Court’s order also makes it difficult for theRBI to pretend that it had no role in the generation of theNPAs.

Are We Heading towards a Synchronised Global Slowdown?

The global economy is heading towards a downturn. However, is the world prepared to deal with the consequences? Whether it is a slowdown or recession, it remains to be seen as to what the future would hold for the banking systems of Eurozone and China, and the global stocks in general.

Forbearance over Default

In a move ostensibly aimed at helping micro, small and medium enterprises hurt by demonetisation and the goods and services tax regime, and burdened with distressed debt, the Reserve Bank of India acceded to the demands that a lenient regime of debt restructuring should be put in place. However, the evidence suggests that this would not go very far in helping the units in this large sector. This gives rise to the suspicion that the real intent of the move is to open the door to a return to a regime wherein bad debt, resulting from default on debt service by large corporate borrowers, is restructured at the cost of the taxpayer.

IL&FS Was an Avoidable Crisis

The infrastructure Leasing and Financial Services Limited, a systemically important non-banking financial company, has defaulted on its debt repayments. This has created turmoil in the NBFC sector and in the financial markets. Many analysts allege serious malpractices and fraud at IL&FS. Whatever the truth of these allegations, the fundamental problem at IL&FS was that of illiquidity arising from the use of short-term funds to finance infrastructure. The failure to address illiquidity early enough has pushed the company towards bankruptcy.

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