Politics & the Nation
  • A peek into TAS
    • While most of our blog readers are IAS aspirants, there is an equally -- well, if not more -- elitist grouping of officers in the India Inc.  That is TAS -- Tata Administrative Services.  
    • Take a peek into the TAS world through this lead story in ET today.
  • AFSPA dilution postponed
    • The Cabinet Committee on Security (CCS) put off plans to partially revoke the Armed Forced Special Powers Act (AFSPA), following fresh violence in the Kashmir Valley over alleged desecration of Koran in the US.
    • It was of the view that larger consensus was required on the ‘way forward’ and the government announced convening of an all-party meeting in the Capital on Wednesday.
    • The proposal for a makeover for AFSPA still looks a tough task as the Army continues to maintain that “special laws are needed to tackle a special situation.” With paramilitary forces and the police failing to contain the situation that seems to be going worse, a section of the CCS was of the view that the government should not do anything that would sap the morale of the Army. “The Army is needed to maintain some semblance of order in the chaos-ridden Valley,” said a leader during the meeting.
Finance & Economy
  • It is celebration time on the stock market
    • After nearly three years (32 months to be precise) the stock market has again touched the 19K levels.
    • Take a look at this graphic which captures the euphoria.
  • Tax-GDP ratios
    • Tax-GDP ratio in the US is about 28% and for European nations it is in the range of 30-40%.
  • RBI appoints a working group to explore revamping of monetary policy operations
    • Amid volatile capital flows, the Reserve Bank of India (RBI) is taking a close look at the way it manages the money market and gives interest rate signals.
    • At present, the two short-term policy rates — repo and reverse-repo rates — are the basic tools that RBI uses to conduct monetary policy. The rate which becomes operative depends on whether the system is starved of liquidity or in surplus.
    • There is a feeling that this may be a less efficient way to handle monetary policy in a system that faces huge liquidity swings caused by capital inflows or outflows, RBI’s intervention in the foreign exchange market and government spending or the lack of it.
    • In recent years, the operating procedure of monetary policy has witnessed significant changes with the development of the money market and changes in liquidity conditions. LAF, introduced in June 2000, has emerged as the principal operating instrument for modulating short-term liquidity. The repo and reverse-repo rates, along with the cash reserve ratio (CRR), open-market operations (OMO) and market stabilisation scheme (MSS), have been used to conduct monetary policy.
    • But, India’s increasing integration with the global economy, large volatility in capital flows and sharp fluctuations in government cash balances have posed several challenges to liquidity management by RBI, particularly in effectively signalling the monetary policy stance.
    • The Working Group will be chaired by RBI executive director Deepak Mohanty and will be represented by the concerned departments of the central bank, Indian Banks’ Association (IBA) and Fixed Income Money Market and Derivatives Association of India (FIMMDA). The Group will also include external experts.
  • An excellent Q&A session from today’s ET on Basel III norms, excerpted for you:
    • What are the Basel-III norms?
      • These are rules written by the Bank of International Settlement’s Committee on Banking Supervision (BCBS) whose mandate is to define the reform agenda for the global banking community as a whole. The new rule prescribes how to assess risks, and how much capital to set aside for banks in keeping with their risk profile.
    • What are the changes which have been made to the way in which capital is defined?
      • Going by the new rules, the predominant component of capital is common equity and retained earnings. The new rules restrict inclusion of items such as deferred tax assets, mortgage-servicing rights and investments in financial institutions to no more than 15% of the common equity component. These rules aim to improve the quantity and quality of the capital.
    • What do these new rules say?
      • While the key capital ratio has been raised to 7% of risky assets, according to the new norms, Tier-I capital that includes common equity and perpetual preferred stock will be raised from 2-4.5% starting in phases from January 2013 to be completed by January 2015. In addition, banks will have to set aside another 2.5% as a contingency for future stress. Banks that fail to meet the buffer would be unable to pay dividends, though they will not be forced to raise cash.
    • How different is the approach now?
      • The new norms are based on renewed focus of central bankers on macro-prudential stability. The global financial crisis following the crisis in the US sub-prime market has prompted this change in approach. The previous set of guidelines, popularly known as Basel II focused on macro-prudential regulation. In other words, global regulators are now focusing on financial stability of the system as a whole rather than micro regulation of any individual bank.
    • How will these norms impact Indian banks?
      • According to RBI governor D Subbarao, Indian banks are not likely to be impacted by the new capital rules. At the end of June 30, 2010, the aggregate capital to risk-weighted assets ratio of the Indian banking system stood at 13.4%, of which Tier-I capital constituted 9.3%. As such, RBI does not expect our banking system to be significantly stretched in meeting the proposed new capital rules, both in terms of the overall capital requirement and the quality of capital. There may be some negative impact arising from shifting some deductions from Tier-I and Tier-II capital to common equity.
Language lessons
  • anodyne: Adjective
    • Capable of relieving pain
  • troglodyte: Noun
    • One who lives in solitude
    • synonyms: hermit, recluse, solitudinarian