Posts Tagged ‘global financial crisis’

RBI And Its Policies – Part 1

Hello Friends, last month we witnessed loads of action with the RBI’s monetary policy being laid down.

However here we bring more on the RBI policies and projections.

RBI policies and projections

RBI policies and projections


The Reserve Bank of India (RBI) laid the groundwork on Tuesday i.e. on 27th Oct in its monetary policy for a rise in interest rates by tightening credit to the commercial property sector, lifting its inflation forecast and warning of the threat of asset price bubbles.


The RBI had injected in massive liquidity in the banking system in the past one year or so to help revive the domestic economy in the aftermath of the global financial crisis.

For now, the Reserve Bank has decided to keep the policy repo rate unchanged at 4.75 per cent, the reverse repo rate unchanged at 3.25 per cent and the (Cash Reserve Ratio) CRR of banks unchanged at 5 per cent of their (NDTL).

The following measures constitute the first phase of ‘exit’:

– The Statutory Liquidity Ratio (SLR), which has earlier been reduced from 25 per cent of NDTL to 24 per cent, is being restored to 25 per cent.

-The limit for export credit refinance facility, which was raised to 50 per cent of eligible outstanding export credit, is being returned to the pre-crisis level of 15 per cent.

The two unconventional refinance facilities:

(i) special refinance facility for scheduled commercial banks; and

(ii) special term repo facility for scheduled commercial banks [for funding to Mutual Funds (MFs), Non-banking Financial Companies (NBFCs), and Housing Finance Companies (HFCs)] are being discontinued with immediate effect.


Further, the liabilities of scheduled banks arising from transactions in Collateralized Borrowing and Lending Obligations (CBLO) with Clearing Corporation of India Ltd. (CCIL) would now be subject to the maintenance of the CRR.


Stay Tuned for more on this in our coming blogs.

We would cover Monetary Projections of RBI and Economy scenario and indicators at the moment.

Corporate Bonds to be Routed through Clearing Houses: SEBI

Trade in corporate bonds would have to be routed through clearing houses from very soon

Trade in corporate bonds would have to be routed through clearing houses from very soon

Market regulator SEBI has said that trade in corporate bonds would have to be routed through clearing corporations from December 1, a move that experts say would check factors that aggravated financial crisis.


Directives of the Sebi will be applicable to corporate bond trading that are not currently settled through clearing corporations or clearing houses of stock exchanges.

“It has now been decided that, all trades in corporate bonds between specified entities shall necessarily be cleared and settled through the National Securities Clearing Corp (NSCCL) or Indian Clearing Corp (ICCL),” it said.

The specified entities are mutual funds, foreign institutional investors/ sub-accounts, venture capital funds, foreign venture capital investors, portfolio managers, and RBI regulated entities, the Sebi said.

“The provisions of this circular shall be applicable to all corporate bonds traded Over The Counter (OTC) or on debt segment of stock exchanges on or after Dec 01, 2009,” it said.

SMC Capitals Equity Head Jagannadham Thunuguntla said, “It is a learning from the global financial crisis.  One of the major reasons for the crisis to be so severe was that many fancy financial instruments were traded OTC with no records.”


India’s FDI Inflows Surge in July :)


The government has revealed that despite a global financial crisis, the flow of foreign direct investment (FDI) to India during the month of July 2009 has been registered at $3.52 billion, impressive 56.5% higher than the $2.25 billion registered last year.


However, the inflows in July have been against $2.58 billion during the month of June 2009 and $2.10 billion received during the month of May 2009.


Moreover, it is said that this raise is an optimistic one if the present fiscal situation of India and world is taken into consideration.


In addition, it is said that a non-profit company will be encouraging FDI into India and this will act in association with the central and state governments as well as the Federation of Indian Chambers of Commerce and Industry.


On the other hand, the distinctive feature is the partnership between a private sector organization, the Government of India and state governments is unlike anywhere else in the world.


However, in order to attract more foreign investments, Indian government on Thursday announced formation of a not-for-profit company ‘Invest India’.


Why India will not become a superpower?

Why India will not become a superpower?

1. Population:

India’s increasing population is a big hindrance in India’s becoming a Super power. Rising population has affected the quality of life of the people for sure as imparting access of basic amenities and education to bigger population becomes more difficult. In the last several decades, fertility control policies in India have failed to promote a sustainable solution to the problem of overpopulation. India needs to take strict measures to counter the prevailing birth rate in the country.

2. Corruption:

India is one of the most corrupt countries on the world map. Corruption in India has assumed such large proportions that public have come to believe that it is impossible to get rid of this malaise.

We need variety of strategies to fight corruption, ranging from the simplification of rules and procedures and the application of information technology to specific steps such as trapping corrupt public servants. Open and transparent political systems are must at all levels.

3. Decline of public institutions:

key institutions like —politics, universities, judiciary, bureaucracy, police etc. are witnessing deterioration on the matter of accountability and productivity. In India, average incomes have risen fourfold and yet public institutions have not improved. Indian policy makers need to come up with number of public institutional reforms steps to counter this malaise.

4. Naxal and Maoist menace :

Extremism in the form of the Naxalite movement has to be checked. Stern and sincere steps should be taken to rein in the menace.

Rehabilitation programme has to be launched to bring the Naxalites into the mainstream and at the same time police force should be given modern training and equipments to counter ultras.

5. Social inequality and Unequal distribution of income across society:

India needs to address growing unequal income distribution and need to narrow the gap between the poor and rich . This disparity has only increased over the years. Economic policy makers need to work on this. The present global financial crisis is bound to make matters worse unless long-term structural reforms are adopted.

6. Environmental degradation:

Economic development without environmental considerations can cause serious environmental damage in turn impairing the quality of life of present and future generations. The degradation is impacting people’s lives in very real ways, whether in the form of massive depletion of underground aquifers, chemical contamination of soil, death of rivers, loss of species etc.

7. Religious extremism :

Current trends shows Religious extremism has risen sharply in Indian society and if not taken care of, they have potential to completely destroy the secular and democratic fabric of the nation.

Religious riots, communal clashes and bombings in every nook and corner of the country are hindrance in the set up of secular fabric, scientific advancements, technological breakthroughs in the country. Matured democracy and vibrant, fast-growing economy like INDIA have to deal with this issue ASAP.

8. Media Apathy :

Indian media has failed to cover all relevant and real issues revolving around our society. Media needs to come up with the coverage of real and main issues like social inequality and environment degradations. Media has to play an active role in spreading awareness among masses towards major issues of the society.

9. Political chaos :

The political fragmentation across central and regional levels makes it very difficult to forge sustainable long term policies in the realm of health, education, infrastructure etc.

10. Border conflicts:

India’s unresolved border disputes, especially in Kashmir and the North East (Nagaland and Manipur) which indicates that there are parts of India that are not comfortable with being part of India. India needs to take proactive steps to resolve the conflict and fasten the development in these disturbed territories.

Lack of PSU divestment roadmap stalls IPO market

Jagannadham Thunuguntla, equity head of SMC Capitals.

In the absence of a roadmap for divestment of public sector units (PSUs), many private companies that were getting ready to raise funds through initial public offerings (IPOs) may now decide to wait. The market fall on Monday (the budget day) and Wednesday has made matters only worse.

However, investment bankers see light at the end of the tunnel in the finance minister Pranab Mukherjee’s announcement on the need for mandating a minimum 25 per cent public holding in all listed companies.

“Excitement is a bit down as there is no roadmap for PSU divestment. This initiative would have created an ecosystem for several public issues of private sector companies hitting the market,” said Jagannadham Thunuguntla, equity head of SMC Capitals.

“The divestment programme is unlikely to be as effective as was expected to be before the budget,” Thunuguntla added.

However, there is an air of expectation that companies would revive their plans to float initial public offerings (IPO) once the market revives.

The falling market, post-budget, has also put a question mark on the companies that were planning to raise funds through qualified institutional placements (QIPs), is a corporate fund raising instrument that enables completion of the process within a month against four months taken for a typical IPO.

According to a report published by Enam Securities While eleven companies have raised Rs 12,000 crore through QIPs before the budget, about 20 companies are planning to raise Rs 36,500 crore through this route, post- budget.

This list is liberally sprinkled with real estate companies, which have been facing a severe funds crunch since the outbreak of the global financial crisis in September 2008.

India,slum-free in five years???

Housing for India’s urban poor

Housing for India’s urban poor

New projects provide hope of housing for India’s urban poor

The UPA government may be overreaching with its stated intention to make India slum-free in five years, but it is a step in the right direction.

A 2001 United Nations estimate pegged the number of the world’s slum-dwellers at 924 million; 31.6 per cent of its urban population.

Doubtless, the number is far higher now. The majority of these, by far, are in Asia, in cities such as Mumbai and Kolkata, ratcheting up the pressure on our already creaking urban infrastructure to dangerous levels. The problem must be addressed now.

And although it is early days yet, it appears that a new wave of companies – including the likes of Tata Housing Development, Value and Budget Housing, Godrej Group and Ansal Properties – may be doing so with new projects aimed at low-income groups.

So far, the real estate and housing boom in Indian metros has been fuelled by the growth of a middle class that has been expanding with liberalisation and the growth of the Indian economy. It has fed upon itself, creating a housing bubble. It is not a mechanism that can be sustained, as we are already starting to see.

Price levels that have been rising for years have run headlong into the global financial crisis, and the simple rules of demand and supply have come into play.

But at the bottom of the pyramid, there is immense scope for expansion with economically weaker sections and low-income groups accounting for close to 99 per cent of the urban housing shortage of 25 million units. To exploit this opportunity effectively, however, a change in mindset and approach is needed.

Profit margins must be lowered from their current skyscraper levels. Projects must be completed and handed over within a short time frame to produce working capital and preclude price hikes because of market fluctuations. High volume sales would make up for the lower pricing of individual units while making housing accessible to a far larger section of the urban population.

It is this logic that the new entrants in the low-income housing sector seem to be employing. However, quality must not be compromised in an effort to contain prices. Neither is simply increasing the supply of lowcost housing enough; there must be provisions to supply financing to potential buyers as well.

And distorted land markets in our cities must be set right to increase the availability of land for development. But these are not insurmountable problems. Public-private partnerships might supply some of the answers, providing developers with the financial muscle and flexibility required to deliver on their projects without cutting corners.

The opportunities must be explored and solutions found. If this new market logic is harnessed, the government’s objective may be at least partially fulfilled.