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

H T Parekh Finance Column

Facebook's recent colossal acquisition of WhatsApp is yet another sign that we are now in the middle of a new internet bubble. This bubble is different from that of the late 1990s in that it is being driven by excess liquidity in the system and the search for the "next big thing" like Google and Facebook.

On 2 May 1997, the British Labour Party won a landslide election victory, sweeping away 18 years of Conservative rule. Rather like today’s Congress-led government in New Delhi, the air of “l’ancien....

An ongoing debate in India is whether or not Indian non-banking fi nancial companies (NBFCs) are “shadow banks”. This question appears important because we have learned from the ongoing global fi....

Following the crisis of 2007, there is renewed focus the world over on banking structure. This encompasses a number of related matters: the size, scope and number of banks, consolidation and....

The Reserve Bank of India and the government are taking contradictory approaches on liquidity and interest rates. The one eases liquidity but keeps interest rates high, the other promotes debt-financed consumption and pushes for cheaper consumer credit. This seems to be a new growth strategy based on a combination of liquidity infusion and interest rate reduction for consumer loans. But is this prudent? What of the fragility of the financial sector?

Most companies would think twice before operating at a debt to equity ratio (or leverage) of 2:1. Some capital-intensive businesses, such as shipping, opt for a ratio that is considered outlandish say....

In August 2010, the then Union Finance Minister Pranab Mukherjee sought to cut the government’s stake in the State Bank of India (SBI) from 55% to 51% and push the bank to raise more capital from the....

The Financial Sector Legislative Reforms Commission has exploited its ambiguous terms of reference to suggest a complete revamp of financial regulation. The recommendations, if accepted, would shift power from Parliament to "independent" bodies run by nominated experts and subject to scrutiny by a legal framework that might be capable of judging fairness of regulatory reach but not its appropriateness from the point of view of development. This is no legislative reforms commission but a commission that is serving as a vehicle to legalise a regulatory structure suited to a liberalised financial sector.

Where to invest? Those with cash or charged with investing other peoples’ savings have had a serious headache over the past two years. The world is a deeply uncertain place right now. This normally....

The financial crisis that erupted in 2007 and is still unfolding prompted a search for reforms that would make the global financial system safer. Several initiatives have emerged. They represent an....

Over the years, the ratings system and, therefore, the ratings fi rms have become a part of the regulatory framework in many countries which has given them enormous infl uence in the fi nancial system. But there is a basic confl ict of interest when a ratings fi rm is paid by an issuer to rate its offering. With an Australian court delivering a landmark judgment ruling that a ratings fi rm was guilty of "negligent representations", the stage is set for a number of court processes that will investigate the working of these powerful agencies.

The Vickers Commission in the United Kingdom has advocated ring-fencing of core banking activities; the Volcker Rule in the United States prohibits banks from engaging in certain kinds of investment activities. Neither will be easy to implement and neither is likely to be very effective. To deal with the risks posed by systemically important financial institutions what is needed is a multi-pronged approach that addresses size, concentration and ownership structure and far more intrusive regulation than we have seen in the recent past. An important element in this approach must be the presence of a few large banks in the public sector.

The government and the Reserve Bank of India have taken a series of measures in recent weeks to attract a larger volume of foreign debt capital. These measures only increase the economy's dependence on capital infl ows and make it vulnerable to outfl ows, even as they do little to deal with the basic problems underlying the fall of the rupee.

agree to a fiscal pact in December 2011 India Dimmed and to support a Greek restructuring plan gave the European Central Bank (ECB) cover to ignore the intentions of its Avinash Persaud founding fathers and act as a lender of When you are in a country suffering a decline of confi dence, a drying up of international capital flows and a weakening currency, its citizens tend to place all blame on the government. This is not entirely unfair. Even if the government is not directly to blame and even though confidence is a fickle thing, who else should take responsibility? The reality, though, is that external factors often play a role too and a change in the flows could also trigger a change in domestic confi dence. Few commentators like to dwell on that. They far prefer the delicious exercise of pointing fingers at local politicians and gossiping about the fate of Rahul and Priyanka Gandhi.

The public report of the investigation by the United Kingdom's Financial Services Authority into the failure and subsequent bailout of the Royal Bank of Scotland in 2008 highlights deficiencies in regulation and supervision as also failures in bank governance. The fsa report is essential reading for regulators as well as those at the helm of banking.