09.10.2008

• Interest rate cuts across the globe have failed to enthuse the markets; choppy times ahead
• This is one report that you must read; to get a glimpse of the current state of the global financial markets.
• As the financial markets are haunted by the spectre of global recession, the central banks of many major countries have mounted a rescue operation. But it has not been able to make dent. As at the time of writing (today) markets across the globe remained nervous.
• Just days after the US approved a $700 billion package to rescue its crisis-hit financial system, Britain said it would buy new preference shares or similar instruments, guarantee up to £250 billion to help banks refinance debt, and make at least £200 billion of liquidity available to the market.
  
• The freeze in the global credit markets is reportedly making its way into the Indian financial system also. But government and the RBI have been on an overdrive to calm the markets. RBI's announcement that the CRR is reduced by 50 basis points i.e., from 9% to 8.5% would kick in from 11th of this month. This measure will release about Rs. 20,000 crores into the system.
• Even as the above is still being digested by the markets; India's financial system seems to be waking up to the financial threat from unsecured borrowings.
• An ETIG study threw some surprising light on the tremendous rise in unsecured borrowing from the top borrowers.
• Unsecured borrowing refers to the practice of borrowing without any asset provided by the borrower to back it. Banks do allow this to their top clientele based on the strength of their balance sheet and after taking comfort that the end use of funds is proper.
• The share of unsecured borrowings, which was just 31.1% of the total borrowings of corporate India in FY03, has shot up to 43.9% during FY08. And the top 20 borrowers accounted for 56% of the total volume of unsecured loans.
• Some fundamentals on how a fall in asset prices fuels credit squeeze
• This is from an article from TK Arun in today's ET. A very good read.
• When asset prices fall, those who have invested in these assets sell. Those who have borrowed in order to invest in these assets sell even faster. The result is a self-reinforcing downward spiral for asset prices. Credit freezes up in two ways. All financial intermediaries that have borrowed heavily want to get rid of these borrowings — deleverage, in the jargon — rather than lend. And all of them find one another unworthy borrowers, given the pile of bad debt on everyone’s books. So they are reluctant to lend amongst themselves. The London inter-bank offered rate (Libor) has shot up, in consequence, even as the yield on government bonds has fallen.
• Maharashtra's and perhaps the country's first ever 'referendum' on an SEZ project gives it a thumbs down?
• We have noted in our blog earlier that Maharashtra is experimenting with finding people's disposition towards allowing their land to be used for an SEZ project.
• It held a referendum across 22 villages in Pen tehsil on September 21 on the Maha Mumbai SEZ promoted by RIL chairman Mukesh Ambani and Anand Jain. It appears that over 91% of those who voted seem to have rejected the idea of adding 22 villages in the SEZ project.
• With this the Maharashtra government appears to be treading cautiously on the issue; lest it snowball into a Singur type of situation.
• The official result of the referendum is, however, yet to be declared by the District Collector.
• Will the situation in Orissa turn for the better now?
• In a rare act of diplomacy, the top leaders of the Christian community from Orissa and Delhi -- Archbishops of Delhi and Orissa -- have met the BJP leader Advani and both of them have come out with a joint statement condemning the killing of Swami Lakshmananda Saraswati, rape of the nun and conversions and re-conversions in Orissa.
• Read this piece to gauze the mood of compromise on both sides. Will peace come at last to Orissa's troubled Kandhamal?
  
• Zardari does an Advani.
• This is a very good article that is worth a read, as much for the pen that it came from as for the subject it has chosen.
• I have always been fascinated by the statements coming from Zardari. He comes out as very well educated and articulate Pakistani leader. For that matter even our Lion of Kashmir Sheikh Abdullah and Dr. Karan Singh are remarkable leaders who had time and again looked pragmatic, displayed extraordinary brilliance in diplomacy and in assessing ground realities. But being what they are, they are at times prisoners of situations in which they had to live. Zardari faces no less a task than the one these leaders faced. As did Advani during his (in)famous 2005 visit to Pakistan when he praised Md. Ali Jinnah.
• Once you read today's piece the picture becomes more clear -- about the current situation in Pakistan -- and the daredevilry that Zardari has displayed.
  
• I hope it will make one thing clear to us: leaders have to set trends; not follow them. I think all the leaders that I mentioned in this note, had displayed that characteristic. That's why they will remain leaders forever.