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

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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.

Non-performing Power Sector Assets

Desperate attempts to prevent liquidation of power sector assets in companies that are defaulters point to a deeper crisis afflicting neo-liberal growth. A sector that was plagued by shortages was opened up to private participation, leading to rapid expansion in the expectation of large profits from liberalised prices. Public sector banks were called upon to finance that expansion with the government being complicit. Now, however, firms find themselves trapped between inadequate demand at prevailing prices and rising costs that precipitate default.

Did This Straw Break the Finance Sector’s Back?

The world’s financial markets are hurtling towards a new phase of crises ranging from currency, to balance of payments, to sovereign debt, to banking crises. The monetary tightening policies of the United States Federal Reserve and the European Central Bank will only precipitate crises in emerging markets as well as peripheral eurozone economies, which will have global repercussions.

Lucrative Defaults by Hungry Corporates

The implementation of the Insolvency and Bankruptcy Code, 2016 has led to aggressive competition to acquire firms that have been subjected to the resolution process. This suggests that the default that required the creditors to bring these firms to the National Company Law Tribunal was not due to poor fundamentals. Moreover, the decision of the original promoters to try and enter the fray as bidders for defaulting firms indicates that they too do not see the firms and the activities they are engaged in as unviable. Yet, there is much pressure on the government to favour those who seek to game the system.

That Sinking Feeling

The United States (US) is sinking. It is what happens to a country when it blames everyone else for its ailments. The problem is that when the biggest boat in the water sinks, it pulls others down with it. This is not, therefore, time for the rest of the world to indulge in Schadenfreude over the...

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