Financial Markets and the Economy - Intersections

(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...

(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...