03.02.2009

Politics & the Nation

• India inks the safeguards agreement with IAEA
• India completed one of the main formalities for entering into civilian nuclear trade with other countries.  It signed the safeguards agreement with the International Atomic Energy Agency (IAEA). The agreement with India is one that is offered to non-nuclear proliferation treaty states, and is item specific. But it has features that are unique to the Indian case as it allows India to retain the military reactors while entering into civilian nuclear trade with other countries.
  
• Now, India needs to ratify the agreement. That will be followed by the Atomic Energy Commission filing a declaration with IAEA on the reactors that India will place under IAEA safeguards. As per the negotiated agreement, India can decide when it wants to place the reactors on the safeguards list.  
  
• What's your take on the Navin Chawla issue?
• "The system ain’t broke, so don’t try to fix it."  So says today's ET editorial.  I leave the ground open for discussion in our shoutbox.
•  How are today's many regulators escaping Parliamentary scrutiny?
  
• In a very interesting article, KG Narendranath explains this point thus:
• The ministers speak in Parliament on behalf of the regulators, often using the pronoun “they” to refer to the regulator while, actually, the regulator is an appointee of the minister himself who ipso facto is in a position to influence the regulator. This allows the minister to somewhat escape Parliamentary censure for any suspect regulatory action. So parliament control on the executive is virtually whittled down even as regulatory doings are very much the government’s own and are merely outsourced to the regulator. 
  
• In addition to the above, the article also dwells on a couple of other issues that explain about regulatory capture.  Well worth a read.  Read it here.

Finance & Economics

• Bankers to reduce lending rates?
• Following hints from RBI during the course of its quarterly review of the monetary policy, and with nudging from the Centre, many banks are likely to reduce their lending rates by up to 2%.  This is of course subject to the cost of funds for them being what they are at present, if not lower.
• How did the Satyam case prompt SEBI to look at tinkering with the open offer pricing regulations?
• Under the current rule, an investor holding 15% (and intending to takeover the management control) has to make an open offer for an additional 20% at a price not less than the previous six months’ average. 
  
• Satyam's shares, which were quoting around Rs 330 in mid-December, before the announcement of the abortive investment in Maytas Infrastructure, fell to Rs 180 by the first week of January. They collapsed to Rs 11.50 a couple of days after Mr Raju confessed to the fraud. 
  
• The six-month average price in this case works out to be in excess of Rs 200, and is deterring potential buyers from making a bid for the company. 
  
• Finance & Economics buffs, many of us, surely are.
• How far will expertise (or should I say, a decent grasp?) in Finance & Economics take us?  Many of us would have heard anecdotes about how IIM MBAs or IIT B.Techs miserably failed to deliver but were very good with their analytical skills etc.
• Would have heard about Robert McNamara; didn't you?  Explaining the phrase analysis-paralysis and the conduct of Vietnam war, Jaspal Singh Sabharwal takes us through one such experience that many of us (those who had work experience) would have had at one time or the other in our working life.  I point this out for the benefit of those who didn't have any work experience.  Take a look.
• BTW don't think that this is too far away from competitive exam stuff.  It is quite likely that you may face a question like "explain what is meant by paralysis by analysis" or something like that in an interview.  It is when facing questions like that, that you will find in experience a good teacher.
• And before we leave this topic, I just couldn't help resist the temptation of giving you this beautiful extract from this article.  You will be able to understand this, more easily when you have read it once.
• Hard analysis is often limited in scope: The expression on a customer’s face, the mood in the factory, the tone of voice of a government official, all of this can be information for the manager but not for the formal system. 
  
• Much hard information is too aggregated resulting in the loss of real decision-making cues. 
  
• How much does the net profit tell you about the condition of the business; what do registered patents reveal about what is going on in a research laboratory. 
  
• Much of the hard information arrives too late. For example, the aftermath of the spiral effect of the current credit crisis — we still don’t know the real impact. 
  
• Finally, a surprising amount of hard information is unreliable: We all know how much distortion is possible in quantification of events and factors, intentional as well as unintentional. Of course, soft information can be problematic, too — speculative, distorted, and so forth. But that only highlights the key point here: that all information must be scrutinised carefully not just on the laptop screen but by being there on the ground — paddy fields of Vietnam and not the Washington HQ. 
  
• What was the reason behind SBI's bold interest rate cut announcement?
  
• Last week, SBI had announced that it would offer home loans at a flat rate of 8% to all borrowers and would freeze this rate for one year. Floating home loan rates vary from 9% to as high as 12% and above. 
  
• The answer to the question lies in a banking term called CASA deposit ratio. SBI reportedly has one of the best CASA deposit ratios.  It stands for Current Account and Savings Account deposit ratio.  CASA deposits are the cheapest source of funds for a bank and high CASA deposit ratios bring down the average cost of funds.  This in turn, helps a bank offer cheaper credit while maintaining its net interest margin.  
  
• SBI has a CASA deposit of 39.71% as a percentage of total deposits of the bank.