Financial Markets and the Economy - Intersections

Here's a quick reaction to yesterday's late evening FinMin announcements on the new stressed assets resolution plan. 1) For loans below INR 500cr, it largely seems a call to do more within the existing framework. What's new is the proposal that AIFs take over stressed loans beyond INR 500cr. 2) What's good about the AMC/ AIF proposal is that (i) it will take out large assets out of bank books - just as a bad bank would (ii) it will concentrate stressed asset ownership into one entity, and do away with the need to coordinate amongst multiple bankers - just as a bad bank would and (iii) if it works well, it could be the start of proper distressed debt trading in Indian markets 3) The issues to be addressed in the AMC/ AIF proposal are: (a) banks setting up an AMC that launches AIFs to buy banking assets - there is obvious potential for conflict of interest. (b) A related issue would be the transfer price of assets from banks to the AIF. If the AI...

The following article appeared on CNBCTV18.com and in Financial Chronicle on 02Jul18 https://www.cnbctv18.com/finance/the-five-rs-central-to-indian-bank-npas-230231.htm The Five R’s of Indian banking NPAs Let’s consider five aspects relating to bank non-performing assets (NPAs) – NPA recognition, bank recapitalization, NPA resolution, reforms going forward, and finally, the realpolitik surrounding this. Recognition of NPAs Since the RBI launched the Asset Quality Review (AQR) in 2015, Indian banks have had to progressively reveal the true extent of their NPAs. These went up from 4.6% of advances in fiscal year 2015 (FY15), to 7.8% in FY16, 9.6% in FY17, and 11.6% in FY18. The much-debated February 2018 RBI circular on resolution of stressed assets increased FY18 disclosures, and should help achieve full recognition in FY19. Some have sought dilution of the circular, arguing that the tight timelines in the new insolvency process could force ev...

This article appeared on CNBCTV18.com on 28th June 2018 https://www.cnbctv18.com/economy/where-is-the-indian-rupee-heading-the-rupee-story-quo-vadis-209641.htm The  rupee story  – quo  vadis ? So how will the  ongoing  INR story  likely  play out? L ike we always do, lets begin with a prayer.   Let’s pray t hat Trump’s Iran,  trade  and other  theatrics  don’t put us in a pickle. That  crude  oil prices  quickly  correct back below  US $60  a barrel .  That investors don’t  discover   still more  reasons to scramble out of emerging markets and India.  If our prayers are answered, we can pat ourselves on our backs,  scoff at the naysayers,  declare that everything is fine,  and  again   kick  our large  can  of  issues around exports , imports,  and  external and  internal   im balance s down ...

The following article appeared on CNBCTV18.com on 21st June 2018 https://www.cnbctv18.com/economy/why-the-monetary-policy-fixation-on-inflation-is-fundamentally-wrong-167031.htm The ostrich and the impossible trinity At the June 6 th post-MPC press conference, the RBI Governor was asked for his views on use of interest rates to defend currencies. His factual response was “(India’s) monetary policy is determined by the nominal anchor that has been given to us through a legislative process, which is the consumer price index”.  This echoes the mantra of Indian monetarists – focus monetary policy on inflation, and everything else will fall in place. While it might sound catchy, this simplistic chant downplays many nuances. Amongst them is the “impossible trinity”, which argues that an independent monetary policy will impact currency markets and capital flows – whether intended or not. We saw this play out the last few years, with a flood of reversible, carry-seeking i...

The following blog appeared on Bloomberg Quint on 9th June 2018  (https://www.bloombergquint.com/rbi-monetary-policy/2018/06/09/managing-indias-economy-those-who-cannot-remember-the-past) Over the past few decades, India has endured a few crises associated with external shocks. The 1991 crisis was triggered by the Iraq war. The currency crisis of 2013 came about after Ben Bernanke, then Chairman of the U.S. Federal Reserve, indicated that the U.S. quantitative easing program was set to taper. While external events did ignite the fires, India was especially vulnerable during those times by sitting on a proverbial powder keg of accumulated external and fiscal imbalances. Let’s first get a few of things out of the way. India is not facing any economic crisis at this stage. Comparisons with 2013 are unwarranted. As are comparisons between India and the likes of Argentina and Turkey in the current context. But there are signs of some external and fisc...