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Catching up on markets – the last three years

 ( Speaking notes   for an address at the  Forex Association of India (FAI) Education Seminar – Mumbai, November 15, 2025) Good morning, friends. It is wonderful to be back with the Forex Association of India (FAI), at your education seminar. I must begin with an honest confession. After three years at SEBI, I am thoroughly out of touch with currency and macro markets. Regulation, enforcement, adjudication, board notes, and circulars tend to relegate currency markets far into the background. So, you can imagine how daunting it is for me to speak to a room full of macro market experts. Nevertheless, when FAI invited me, I accepted immediately. It certainly was not because I had discovered any new macroeconomic wisdom hidden inside a SEBI file. I accepted because this is the perfect opportunity for me to catch up on the world I have missed for three years. Once a dealer, always a dealer. Let me briefly outline what I will speak about this morning. First, I will recapitulate...
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Sustainable Capital Formation

( The following was the gist of the addresses made at an Almus Conference & at a CRISIL event in December 2022)   Sustainable Capital Formation   SEBI’s mandate revolves around three key pillars – investor protection, market development, and market regulation. Put together, SEBI’s role is to facilitate sustainable capital formation, a crucial ingredient for achieving our country’s immense economic potential.   The ongoing trend of formalization has given a strong fillip to domestic capital formation. How sustainably we capitalize on this welcome trend depends on all of us scrupulously preserving and strengthening the trust in the ecosystem.   Formalization & Financialization of Savings   The ongoing formalization of our economy is on the back of better network access, increased financial inclusion, and rising digitization of payments and settlements.   On network access, Telecom Regulatory Authority of India (TRAI) data indicates that India had...
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Are there large open positions in India’s currency markets?

(The enclosed article appeared on moneycontrol.com per link below: https://www.moneycontrol.com/news/opinion/are-there-large-open-positions-in-indias-currency-markets-9071791.html ) Are there large open positions in India’s currency markets?   In recent times, there has been some debate around the extent of External Commercial Borrowings (ECBs) raised by Indian borrowers that are ‘unhedged’, i.e., where the borrower has left the currency risk open.    Beyond just ECBs, the larger question is whether there is any pent-up complacency or vulnerability in the overall market positioning that could give rise to one-sided currency flows depending on the unfolding news and sentiment.   One way to gauge the direction and possible extent of such positioning would be to compare RBI’s net intervention in the currency markets with the net durable flows into the market.  We find that a significant accretion to RBI’s currency buffers over the last three years was funded b...
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Should the banking system “raise more deposits”?

(The following article appeared in Moneycontrol.com, link appended below:  https://www.moneycontrol.com/news/opinion/should-banks-raise-more-deposits-8990121.html ) Should the banking system “raise more deposits”? Indian banking loans are now growing more than banking deposits. As of July 15, 2022, banking credit grew by over   INR 15 lakh crores over the past year, while banking deposits grew by less than INR 13 lakh crores.    The same time a year ago, in contrast, banking credit had grown by just INR 7 lakh crores, much less than the INR 16 lakh crore growth in banking deposits.    Does this portend a funding issue that banks should look to address now? To understand this better, let us consider how the overall banking system funds itself.    Deposit creation – linkage to loans   A key route to banking deposit (and money) creation is the very act of giving fresh banking loans.   When a bank gives out a loan by crediting the borrower’s...
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The 2013 RBI FCNR(B) Swap Window - Review & Takeaways

(The following article appeared in Moneycontrol.com, per link below: https://www.moneycontrol.com/news/opinion/a-re-look-at-rbis-extraordinary-steps-in-2013-to-stabilise-the-rupee-8887771.html ) The 2013 RBI FCNR(B) Swap Window – Review & Takeaways   In the wake of recent volatility in our currency markets, some commentators have – somewhat prematurely - recalled the extraordinary steps taken by RBI in 2013.    To recap, post the taper tantrum of mid-2013, besides other steps, the RBI announced two special swap windows in September 2013.    First, it offered to swap US$ raised by banks from foreign currency non-resident (FCNR) deposits of maturity 3-year and above into INR, at a concessional rate of 3.5% p.a., about 3.0% cheaper than the market at that time.  Second, it allowed banks to raise foreign currency funding and swap them into INR at a concessional rate of 1% below market.    Collectively, the two swap windows brought in US$ 34B ...
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Retail participation in fixed income markets

(The following article appeared in Moneycontrol.com, per link below:  https://www.moneycontrol.com/news/opinion/why-india-needs-retail-participation-in-fixed-income-markets-and-how-8779601.html) Why India needs retail participation in fixed income markets …and what can be done about it   Today, retail participation in domestic debt markets is more than just a ‘nice-to-have’. Amidst persistent inflation, uneven growth, rising inequity and other economic stresses, retail participation in debt markets can provide policymakers with added degrees of freedom. We explore how and consider what holds back retail debt investments. When banks give out loans, they credit beneficiary accounts and create fresh money. Similarly, when banks make loans to the government and the government then spends, fresh money is created. During times of persistently high inflation such as now, creation of fresh money is worrisome for policymakers.   In contrast, when savers directly lend money to borr...
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RBI’s Exchange Rate Choices

(The following article appeared in moneycontrol.com on 21Jun2022: https://www.moneycontrol.com/news/opinion/rbi-can-afford-to-let-rupee-depreciate-a-bit-8714721.html ) RBI’s Exchange Rate Choices For long now, RBI has used a banal statement to describe its foreign exchange management policy – ‘we do not target any specific level for the Rupee; we only intervene to control excessive volatility’.   Reality, however, is complicated. RBI often finds that it must make involved choices, and sometimes intervene in exchange markets to an extent that it practically sets market prices.    As an example, take the pandemic impacted fiscal year 2020-21 (FY21). India saw a flood of foreign currency inflows in that year. With domestic consumption and imports contracting sharply, India’s current account balance (the sum of India’s net goods and services trade and remittances) swung from a deficit of USD 25 bn in FY20 to a surplus of USD 24 bn in FY21. Add USD 44 bn of net Foreign Direct ...
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