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


sense, every banking indicator has shown a deterioration since the reform began in 1991-92. Premature enforcement of the capital adequacy norms prescribed by the Bank for International Settlements (BIS), which are essentially relevant for banks with an international presence, has pushed banks and DFIs into the market for equity and debt capital, in competition with the real sectors of the economy. The SBI has raised over Rs 3,200 crore through public issue of equity and bonds, the Oriental Bank of Commerce Rs 360 crore and the IDBI over Rs 2,500 crore and a large number of other banks and financial institutions too are in the fray. Partly for this reason and partly because financial saving has been sluggish, the money market has been astir and interest rates have skyrocketed, jeopardising production and investment in general and by small industries and businesses in particular Banks are now reportedly charging 21-24 per cent per annum on cash credit and the DFIs have hiked up their rates to 16.5 to 20.5 percent. These rates have been necessitated by the exceptionally high interest being offered on deposits (13 to 14 per cent on above two-year fixed deposits and 18.5 per cent and more on non-repatriable nonresident deposits) and CDs and being committed on long maturity (10 to 25 years) bonds. The liquidity shortage brought on by the insufficiency of domestic saving and the erosion of foreign exchange assets to the tune of Rs 15,000 crore since the beginning of 1995-96 have also stimulated speculative arbitragtng between the money and foreign exchange markets. The persistence of high forward premia for the dollar of 7.5 paise (cash/spot) and Rs 4.50 (six months)-20 and 25 per cent annualised, respectively - reflects the fragile nature of the foreign exchange market and the vulnerability of the external sector. With call money rates ruling over 25 per cent for prolonged periods and the 25 percent six-month forward premia in the exchange market, the real cost in terms of investment projects being rendered unviable is being borne by the economy. The SEBI notwithstanding, aclutch of Bombay brokers and a few business groups have successfully prevented the modernisation of the capital markets. The rampant speculation in the secondary market has not spared even the NSE where too uncovered positions in individual scrips have soared.

Subscribers please login to access full text of the article.

New 3 Month Subscription
to Digital Archives at

826for India

$50for overseas users

Get instant access to the complete EPW archives

Subscribe now


(-) Hide

EPW looks forward to your comments. Please note that comments are moderated as per our comments policy. They may take some time to appear. A comment, if suitable, may be selected for publication in the Letters pages of EPW.

Back to Top