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

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Bank-like Regulations for Non-banking Financial Companies

The purpose of this article is to address some of the lacunae in the scale-based framework proposed by the Reserve Bank of India in a discussion paper on non-banking financial companies that have turned a blind eye to the growth aspect and recognising only the stability by minimising the possibility of systemic risk. In this context, the introduction of pyramid-based structure of NBFCs is found to be lacking a common parameter for classification of companies in different layers. Further, the revision of threshold asset size limit for identifying systemically important non-deposit taking NBFCs from `500 crore to `1,000 crore is found be undervalued, which will result into making the smaller asset sized NBFCs subject to stricter prudential norms.

Reviving the Lending Appetite of Banks

The flow of bank credit is crucial to revive the economy. The fear of potential asset quality woes has reduced the risk appetite of banks. Going beyond the restructuring support, banks need policy support by relaxations in prudential norms in the near term to be normalised in the next four–fi ve years. Coping with the adversities of the pandemic needs a collaborative policy support of all stakeholders to step up the lending appetite.

Is There a Bubble in the Indian Stock Market?

The recent surge in stock prices in India sparked off a debate on a possible bubble in the Indian stock market. The attempt here is to detect and date stamp bubbles present, if any, in the Indian stock market using a recursive econometric technique. This technique can help identify bubbles as they emerge, not just after they have exploded. This study does not indicate any explosive price behaviour in the Indian stock market. Thereby, the presence of any bubbles during the study period is not detected. The sharp decline and the subsequent recovery of the stock prices during the past 15 months was most probably an overreaction to the pandemic.

RBI’s Efforts towards ‘Pandexit’ Go beyond Policy Measures

In a proactive move, the Reserve Bank of India rescued the economy with its innovative—blended conventional and unconventional—monetary policy measures. Low-interest rates, aligning targeted liquidity, and granting moratorium coupled with forbearance to enable banks to restructure loans, mandated the Kamath panel to work out modalities to restructure corporate sector loans. After affirming stability and orderliness of the financial sector throughout the crisis period, it rightly signalled descent towards normalisation paving for pandexit manoeuvring the tool of variable reverse repo rate.

Utilisation of Government Borrowings in Major Indian States

Fiscal sustainability is a key element for subnational governments in India as fiscal policy is the only instrument that can be used to correct economic malady. As far as state government finances are concerned, subnational financial stability can be understood as the capacity to generate adequate resources to afford their expenses on a sustained basis. An analysis of subnational fiscal sustainability, through a study of utilisation patterns of total debt receipts of state governments, is undertaken for 17 major Indian states during 1980–81 to 2014–15. The results indicate wide fluctuations among the states. While Kerala, Punjab, and West Bengal have shown poor and unproductive utilisation of debt receipts, Punjab has witnessed maximum instability.

Banking Sector Resilient in the Face of Pandemic

Contrary to several gloomy forecasts, the Indian banking sector has been surprisingly resilient in the face of the pandemic. This is because corporates, which account more than half the loans, are in better shape and banks are well-capitalised. This bodes well for loan growth and bank performance post the pandemic.

Worrisome Trends in Inflation and Unemployment

Both the problems will further hurt the disadvantaged groups and push more people into poverty.

RBI’s Subservience to the Government Is Systemic, Not Ideological

The autonomous functioning of the Reserve Bank of India has been, if anything, an exception rather than the rule.

On Monetary Economics

Monetary Policy in India: A Modern Macroeconomic Perspective edited by Chetan Ghate and Kenneth M Kletzer, Springer, 2016; pp xiii+652, price not indicated.

How Did Central Bank Independence Become the Norm?

Priests of Prosperity: How Central Bankers Transformed the Postcommunist World by Juliet Johnson, New Delhi: Speaking Tiger, 2016; pp xv+292, ₹995.

Appetite for Official Reserves

There is a strong nexus between the level of reserves, frequency of intervention, and exchange rate variability. Given the current exchange rate arrangements, there is a mandate to accumulate reserves in line with other developments such as import growth, growth in short-term external debt, and so on. The Reserve Bank of India seems to have no option, especially in times of capital flight, than to allow the exchange rate to absorb market pressure if the volume of reserves held is not adequate. This indicates a limited scope for using other instruments. The objective of accumulating additional reserves seems to override the ambition of exchange rate stability when there is a limit on the capacity to intervene imposed by the reserve shortfall. Therefore, reserves matter in times of crisis.

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