09.04.2008

• Restrictions on taking stocks as security for Banks
• Ever wondered what is capital adequacy ratio for banks and how it operates? Read this excerpt and you will know the basics.
• A volatile stock market has forced the RBI to tweak the rules of banking. The regulator has told banks that they can no longer consider stocks as collateral against loans for calculating the capital adequacy ratio — the minimum capital that banks have to set aside to give loans. Bankers said that this will not only affect corporates planning to raise long-term loans but also investors and brokers who borrow money against shares.
• With capital adequacy ratio (CAR) being at 9% now, a bank has to set aside Rs 9 capital for a Rs 100-loan which carries a risk weighatge of 100%. A lower risk weightage — which varies from 20% to as high as 150% — means lower capital. Till now, if shares worth Rs 60 are pledged for a loan of Rs 100, banks had to provide capital for the balance Rs 40, depending on the rating of the borrower. Now, even if shares are given as collateral, banks have to set aside capital for the entire loan of Rs 100.
• Is there a thing called Naxal economy?
• The Naxalites-sponsored Terror Inc’s rogue chest is loaded with a whopping Rs 1,000 crore. The discovery of the Naxalites’ Rs 60-crore budget for weapons procurement during 2005-07, made during the interrogation of arrested Maoist leader Misir Besra in Jharkhand, was only the tip of the iceberg. Intelligence agencies’ estimates put the overall annual budget of CPI(Maoist) well over Rs 1,000 crore, with Bihar alone contributing Rs 200 crore, Chhattisgarh Rs 150 crore and the mineral-rich Jharkhand an even bigger sum.
• India’s turn to woo Africa
• Making up for time lost to China in building successful partnerships in Africa, India announced a slew of measures that would help pave the way for a fruitful relationship with Africa.
• Chief among the measures was that of providing duty free preferential market access to exports from the world’s 50 least developed countries (LDC). This includes 34 mineral and oil-rich African nations where New Delhi seeks to expand the level of its engagement.
• IOC mulls abandoning global torch relay
• A senior Olympic official raised the prospect for the first time of abandoning the international legs of the Beijing games torch relay, amid a wave of protests targeting the flame overseas.
• The torch relay for Beijing and future games will be reviewed at a meeting of International Olympic Committee chiefs in the Chinese capital.
• The official acknowledging the torch relay had become an opportunity for activists around the world to air grievances about China.
• Beijing games organisers are trying to stage the longest and most dramatic Olympic torch relay of all time, visiting 19 countries plus China during a 137,000-kilometre journey.
• However, campaigners trying to raise publicity about China’s controversial rule of Tibet and a wide range of other human rights issues surrounding China have shadowed the flame from the moment it was lit in Greece on March 24. On Monday, the torch relay had to be dramatically cut short in Paris due to disruptions by hundreds of protesters.
• See how RBI Guv suddenly becomes the darling of financial analysts!!
• Now, at least in some Indian intellectual circles, the face of the villain has changed. It is a more developed financial system — one that has a full range of markets for hedging of risks along with free mobility of capital across national borders and regulatory forbearance for financial innovation — that has to be resisted.
• It’s now fashionable to be pessimistic and to argue that the Indian central bank’s ‘let’s-ban-whatever-we-can’t-manage’ approach is the right one, and that market participants and the Finance Ministry are wrong to push for change. That’s the new dogma.
• This while Alan Greenspan, the much venerated former Federal Reserve Chief laments that he is being unfairly blamed for the present financial crisis in the US. Critics say Greenspan, under who US rates went from 6.5% in late 2000 to 1% in mid 2003, eased policy too much and then took too long to tighten again. That they say, spurred excessive mortgage borrowing and stoked the housing bubble that is now the root cause of the credit crisis.
• Who will be the hardest hit in the war on prices?
• It is a very good article that analyses the tools that are available to the RBI to tame inflation. Though may sound a repeat for some, it is worth reading. Do so here.
• Broadly, the RBI has three choices: The most direct measure would be to raise cash reserve ratio (CRR), which would curb supply of money and, therefore, dampen demand. It could also raise interest rates, which would again reduce demand and increase the cost of holding inventory. Finally, it can also allow the rupee to appreciate against the dollar as a strong rupee translates into cheaper imports and indirectly helps contain imported inflation and also contain food prices that would have to be imported.
• But any of these measures is fraught with challenges as it could hurt a particular constituency. Given the central bank’s track record in managing inflation expectations over the last three years, policy initiatives by the central bank will also hold the key.
• If you are asked to state the monetary tools that are available with the RBI to tame inflation; the above will be the best answer.
• There is one more article that is a must read today. It is about financial inclusion.
• Read the article here.
• This article lists out the four key measures that the Dr. Raghuram Rajan committee has recommended on financial inclusion.
• The most innovative of the suggestions is about PSLC – Priority Sector Lending Certificates.
• Because the whole article is good; I am not doing any précis. Read it fully.