17.09.2008

• The mayhem in the world financial markets spreads to India and RBI steps in promptly
• So read news reports. But why should RBI intervene, is a question that needs to be explained.
• The rupee has taken a beating and has slipped to 47 a dollar. This signifies a shortage of dollars in the market. The overnight interest rate has shot up to 16%.
• So to increase the dollar supply, attracting more deposits is one step that the RBI could take. Hence the announcement that banks can pay a higher interest rate (by 50 basis points) on NRI deposits. This is expected to attract more dollar inflows from overseas.
• To temper the effects of overnight call money rates shooting through the roof, RBI has temporarily allowed banks to borrow from it even if they don’t have idle government securities lying as reserves with RBI. This can be up to 1% of their net deposits. Under normal circumstances, a bank can borrow only if it has securities in excess of 25% of net deposits with RBI. Now, it can use 1% of this to borrow, and even if actual reserves slip to 24%, no penal interest will be charged. This amounts to an indirect cut in the statutory liquidity reserves, and could enable banks to raise up to Rs 10,000 crore. Over and above this, banks can now borrow twice a day from RBI’s repo window at 9%. This will help many banks which are forced to borrow at 12-16% in the inter-bank market.
• Look at the way the banking majors' shares have collapsed on the NYSE here.
• This apart, there is one ET in the calssroom column that you can't afford to miss to understand the credit crisis. It is here. I strongly recommend a read.

• What can be the ripple effect of AIG's falling ratings?
• Any downgrade of the parent would have a ripple effect on its arm. If the reinsuring arm’s rating falls below the BBB prescribed by IRDA, local insurers will have to look for a new reinsurer.
• AIG provides significant reinsurance capacity for the Indian market. It is a lead reinsurer for Air India and also provides large coverage to big energy reinsurance programmes. Besides, it is a large aviation reinsurer and market leader in providing cover for directors & officers’ covers.
• An excellent editorial comment on the ongoing attacks on Christians in various places like Karnataka, MP & Orissa
• PR Ramesh at his best in criticising Shivraj Patil, the country's Home minister.
• A worthy read. Will help you well if you want to criticise something or somebody. Very powerful language. Highly educative.
• What are the areas where adoption of IFRS will have an impact on Indian banks and FIs?
• This piece gives an excellent overview for the question. But be warned. You have to be a finance / economics guy to brave reading it.
• FIPB looks liberal
• THE Foreign Investment Promotion Board (FIPB) has overruled the department of revenue’s (DoR) concerns over round tripping of funds and treaty shopping, insisting that FDI proposals should not be held up unless there is concrete evidence to prove revenue loss. The board cleared two such proposals at its last meeting despite DoR objections. The move is important since the revenue department had cited treaty shopping and round tripping to hold up a number of proposals in recent weeks.
• Look at this graphic to have a recap on treaty shopping and round tripping, two of the phrases that we learned a while ago.
• Is it a good time to invest in stock markets?
• Look at what research says:
• Since 1994, the trend has been that if one invested in the stock markets on the day it falls more than 3%, he ends up making money. There were 95 instances since 1994 when the market fell by such levels. In all these events, those who stayed invested for 10 years have never lost money.
• Out of 95 observations, the investor has made money in 62 cases if he has held the amount for one year. This translates into a 65% success rate. Those who held money for longer — say 10 years — land positive returns in all cases, thanks to the long-term nature of the investment.
• If one were to consider crash investing for one year and compare the returns with those of the calendar year, the crashes provide good opportunities to the investors.
• There are 91 observations where such data is available. Of the total observations, only 28 times has the investment underperformed, which translates to outperforming the markets in nearly 70% of the cases.