The shortage of funds is threatening key sectors of the economy. What the government needs to do to fix it.
A decade after the Lehman Brothers crash, which triggered off a global financial contagion, central bankers and governments around the world are well aware of how quickly panic and tight liquidity can spread – and threaten the entire economy.
The government and the Reserve Bank of India (RBI) are working overtime to ensure that a similar panic and liquidity crisis does not get out of hand – and roil the economy that is already facing too many other pressures. After 10 months of liquidity deficit for banks, the RBI liquidity tap is back to surplus in the last two months, but will it stay there for long?
The events leading up to the current liquidity crisis in the Indian financial system started, ironically enough, with an attempt by the Indian banking regulator to clean up the system four years ago. In 2015, the RBI initiated the asset quality review (AQR) of banks to unearth the number of bad loans that were hidden in their balance sheets. As skeletons in the loan cupboards of many public sector banks – and a few private sector banks – came tumbling out, the RBI realised that close to a dozen banks did not have the wherewithal to continue lending without cooking books. It put them under what it called the prompt corrective action (PCA) watch – and forbade them from lending afresh unless their capital adequacy was shored up. The government, also determined to clean up the financial Augean Stables, passed the Insolvency and Bankruptcy Code (IBC) to force lenders to take recalcitrant borrowers to bankruptcy court instead of giving them even bigger loans with which they paid back their earlier loans.
This story is from the August 11, 2019 edition of Business Today.
Start your 7-day Magzter GOLD free trial to access thousands of curated premium stories, and 9,000+ magazines and newspapers.
Already a subscriber ? Sign In
This story is from the August 11, 2019 edition of Business Today.
Start your 7-day Magzter GOLD free trial to access thousands of curated premium stories, and 9,000+ magazines and newspapers.
Already a subscriber? Sign In
Reasons To Be Bullish
The building blocks are in place for 7-8% growth for a prolonged period; India’s focus should be on sustaining this momentum to become a developed nation
India's Stock Market Revolution
India is on the way to a 45-trillion stock market, fuelled by rising investor participation, technological advancements, and economic growth
"Giving up is easy... fight harder"
As a working mother, the challenges are many but for me the toughest was emotional pain or ‘mom guilt’.
A PRESCRIPTION FOR CAPITALISM
PART ECONOMIC HISTORY AND PART COMMENTARY ON RECENT ECONOMIC EVENTS, SHARMA’S BOOK IS ALMOST A FLY-ON-THE-WALL ACCOUNT, AT TIMES
PASSION PLAY
If you're serious about photography or crazy about gaming, here are two devices that will help you indulge in your passion
The Other Emirate
Just an hour away from Dubai, Ras Al Khaimah offers a more laid-back alternative to its glamorous neighbour
A $500-billion Opportunity
With the right mix of vision, policy support, and investment, the affordable housing sector could unlock a growth story that addresses a critical human need
Boosting Start-ups, Shaping India
Start-ups are turbo-charging India’s growth story. But a lot needs to be done to empower them further
Coding Cash
The digital rupee has been around for nearly two years now, despite facing several challenges. With cash still remaining the king in India, the future of CBDC hinges on its programming and versatility
Banking On MFs For Wealth Creation
Retail investors, on a journey of wealth creation, have taken to investing in mutual funds of all hues—equity, debt, and hybrid