Financial Markets and the Economy - Intersections

(The following article appeared on cnbctv18.com on August 13, 2018. https://www.cnbctv18.com/views/evaluating-indias-currency-contingency-plan-502021.htm ) While INR has weakened this year, the RBI has since kept up a quietly determined defense. Friday’s data release confirms that the RBI sold US$ 25B during April-June 2018. Yet, nervousness in our currency markets persists, and with reason. First, while Turkey’s is an extreme situation that bears little resemblance to our own context, the events there underscore the brittle nature of global markets, geopolitics, and sentiment. Second, our own vulnerabilities persist. India’s external balance is unhealthy. Last year, we borrowed fickle, carry-seeking funds to both pay for our higher oil, electronics and gold imports, and to increase RBI’s currency reserves. The balance looks worse this year, and existing large carry positions may reverse. Add the weaknesses in our banking system, a tricky fiscal bala...

( The following article appeared on cnbctv18.com on 31st July 2018.  https://www.cnbctv18.com/views/rbi-monetary-policy-the-case-for-and-against-raising-rates-409951.htm ) August India MPC Preview Analyst polls and market prices indicate expectations of a 25bps repo rate hike tomorrow, when the monetary policy committee (MPC) releases its third bi-monthly statement.  Is a rate hike likely? What does the MPC’s current “neutral” stance really mean? What is the outlook for system liquidity and markets? The overt case for a rate hike There are core arguments for a rate hike tomorrow.  First, since the previous MPC meeting, the government has delivered on its promise of sharp increases in minimum support prices (MSPs) for crops. So far, the MPC had politely chosen to wait-and-watch on MSP, even as the broader market saw this as inevitable. Now, notwithstanding soft food inflation prints and monsoon progress since its last meeting, the MPC must finally...

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 ...