Financial Markets and the Economy - Intersections

(The following article appeared on CNBC TV18 online on 30th October 2018, URL below: https://www.cnbctv18.com/ views/everyone-was- willfully - blind -to-the-nbfc-mess-the- financial-ecosystem-is-now- paying-the-price-1227331.htm  ) Financial ecosystem – paying the price for willful blindness Relief, or else For the past few days, some members of India’s financial services ecosystem have been demanding relief from the powers-that-be, while pointing a gun to their own head. Ensure funding for the system, they say, or we could spiral down and drag the broader economy along with us. The immediate trigger is a trust deficit around the true nature of non-banking financial institutions (NBFI) balance sheet asset-liability mismatches, and more importantly, around the true quality of NBFI assets. In the post-MPC press conference earlier this month, RBI itself indicated that all is not well with all NBFI. In this context, the focus is on INR 2.5 tr ...

(The following appeared on Bloomberg Quint on November 2, 2018 https://www.bloombergquint.com/opinion/understanding-rbis-balance-sheet-is-it-sitting-on-excess-capital ) RBI Balance Sheet – Capital & Reserves For the geeks out there, willing to get into the weeds of an esoteric topic, here are a couple of hot, topical questions. Does the RBI hold excessive capital on its balance sheet? Should it pay a part of its capital out to the government, to help the fiscal balance? I believe there are strong arguments to suggest that on the face of it, there is indeed an excess of gross capital and reserves on the RBI balance sheet .   But that doesn’t mean the RBI should pay an extra dividend to the government now. For one, the RBI also lends funds to the government, in the form of government bonds held the RBI. As the RBI conducts more open market operations (OMOs) and further buys government bonds to infuse Rupee liquidity, this lending to the g...