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

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Financial Sector Reforms

Unified Financial Code: Is India Ready? A Critique on the Financial Sector Legislative Reforms Commission Report by S S Tarapore; Gurgaon: LexisNexis, 2015; pp xii+166, ₹295.

Delinking Housing Cycles, Banking Crises, and Recession

The nexus of housing boom-busts, banking crises, and economic cycles is not unique to the last crisis and has been increasingly present in each of the major banking crises since the break-up of Bretton Woods in the early 1970s. Housing is a politically charged issue. A safer housing market, via planned fiscal intervention to steady supply, would do more to make the financial system safer than all of the other recent initiatives put together. Cheaper finance without cheaper homes only deepens housing inequality.

The Changing Face of Indian Banking

Indian banking is passing through its most severe period of stress in over a decade. It is important, however, not to draw conclusions for banking policy from a snapshot of the most recent period--the totality of the post-reform experience must be taken into account. That larger experience shows that India's public sector-dominated banking system has served the economy well by improving its performance in respect of both efficiency and stability. Looking ahead, changes in governance and management are required, but it is possible to effect these within the framework of public ownership.

Financial Reforms in an Endogenous Money Economy

An examination of the Reserve Bank of India's monetary policy leaves little doubt that India can be suitably characterised as an endogenous money economy. In an endogenous money environment, financial reforms will prove ineffective in stimulating credit supply to large commercial borrowers. They may, however, prove counterproductive by sharpening the credit constraints faced by agricultural and other petty producers in the economy.

Fatal Flaw in Private Banking Systems

It is in the interest of banks to expand the supply of credit, and most banking regulations are designed to limit this tendency. It is in the interest of private bank managers to give in to this tendency (in self-interest) and provide credit indiscriminately, irrespective of macroeconomic considerations, as the 2007 crisis has shown. Perhaps we could all learn from India’s risk-averse public sector banks, which are stressed from time to time, but have never seen multiple bank failures.
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