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Showing posts from April, 2019

Lessons for the fund management ecosystem

(A version of this article appeared on April 12, 2019 on Bloomberg Quint, link below https://www.bloombergquint.com/opinion/a-bankers-lessons-for-the-fund-management-ecosystem ) Lessons for the fund management ecosystem Investors in a few debt fixed maturity plans have recently realized that their mutual fund investments are indeed subject to market risk.  As usual, we will likely go through some all-round hand-wringing, and then move on.  That would be a pity, because there are constructive lessons for every stakeholder to take away – for investors, commentators, the government, regulators, and most importantly, for asset managers. Starting with the man in the mirror As investors, we have to recognize that the statutory warning that accompanies mutual fund investments is for real. Likewise, as commentators in this twitter age, we have to take a deep breath and put things in perspective. There are issues that need to be urgently addressed. But the

In search of a rupee liquidity framework – Part II

( This article appeared on CNBCTV18 online on April 2, 2019, per link below: https://www.cnbctv18.com/economy/why-india-badly-needs-a-rupee-liquidity-framework-part-ii-2809951.htm ) In search of a rupee liquidity framework – Part II In Part I yesterday, we tried to bridge different viewpoints on rupee liquidity.  Let’s now consider the tools to manage banking liquidity, from three angles – the tenor of impact, the quantum of impact, and the side effects. Cash Reserve Ratio (CRR) A 1% cut in CRR would today infuse INR 1.25 tn as permanent banking liquidity.  As a side-effect, CRR changes have a cascading, enduring impact on future liquidity. A CRR cut reduces the amount to be set aside from future deposits, allowing banks to lend more and generate more liquidity through a higher “money multiplier”. Given the already low level of CRR (4%), and the enduring impact of CRR changes, RBI has used this tool sparingly.  Repos, reverse repo & sta

In search of a rupee liquidity framework – Part I

( The following appeared on CNBCTV18 online on April 1, 2019 - link below: https://www.cnbctv18.com/views/why-india-badly-needs-a-rupee-liquidity-framework-part-i-2793251.htm ) In search of a rupee liquidity framework – Part I For years now, different financial market participants and regulators have all talked past each other on the subject of “rupee liquidity”. Rupee liquidity is a lubricant for the economy that also impacts foreign exchange markets, monetary policy transmission, and lending incentives of financial institutions. Given the critical role it plays in financial stability, we need a comprehensive rupee liquidity framework that ties in with monetary, currency and macroprudential policies. To help build such a framework, in this piece, we examine what “rupee liquidity” means to different stakeholders. In the sequel to this piece, we will draw an inventory of tools available to manage rupee liquidity and suggest a framework to determine