When private banks get into trouble, unsophisticated households lose their bank deposits. To protect them, a resolution corporation needs to be set up.
The fall in GDP growth needs to be reversed before it becomes a sustained downward spiral. Sharp tax cuts can help, as can a move away from the tax raids policy.
The transfer of surplus and excess capital is the right step, but the problem should not be left ambiguous in law. Parliament must debate and amend RBI Act.
The 1991 liberalisation left the financial sector unreformed. The uncompetitive finance system whose growth depends on taxpayer bailouts needs to be replaced.
The govt should restore Department of Economic Affairs’ role of pushing for reform & productivity growth by looking beyond short-term & sectoral issues.
The risk of foreign currency borrowing can be minimised if govt and RBI stick to FRBM Act and inflation-targeting frameworks. A Public Debt Management Agency also needs to be set up.
MoSPI proposes to remove closed factories from IIP sample, aiming for truer picture of India’s industrial health in upcoming 2022–23 base series. Plan open to public feedback until 25 November.
Bihar is blessed with a land more fertile for revolutions than any in India. Why has it fallen so far behind then? Constant obsession with politics is at the root of its destruction.
The Print and the author may want to update this article in view of the RBI response on 8 Mar 2020 dismissing deposit/mcap ratio as a valid metric to assess the health of banks. Dr Patnaik does make the point in the article that weak RBI supervision and lack of data means that analysts will need to rely some metrics and the mcap ratio is one such. But in light of the RBI’s strong rebuttal, it would be good to have the author’s response.
Who propounded this ratio?
Any book in which this ratio is explained
Since neither The Print nor the author have responded to the RBI’s criticism of the analysis in the article, we should treat the article as alarmist and disregard it.
The RBI tweet of 8 Mar 20 said: “Concern has been raised in certain sections of the media about safety of deposits in certain banks. This concern is based on analysis which is flawed. Solvency of banks is internationally based on Capital to Risk Weighted Assets (CRAR) and not on market cap.”
Also, I couldn’t find any credible source or book that says bank deposits/mcap is an accepted metric to assess the health of a bank. Finally, I contacted some bankers for their view and all of them dismissed the ratio described in the article.
This proposed measure of safety in this article while merits a reading, assumes much.
It assumes that the market price is reflective of the true value of the stock. This may not be true and can go either ways. A stock may be overvalued- individually by operators or by virtue of market sentiment – skewing the ratio.
It assumes the market to have perfect knowledge – which is a tall order even in the most mature market as bankruptcies and regulatory action in recent times have proved.
I would like to go with Roshni’s view above and rely on the bank’s regulatory capital ratio which would be a true indicator devoid of fickle market sentiment.
Ms Patnaik, Your erudition notwithstanding you seem to have ignored that compliance in Indian banks include the statutory liquidity ratio. Second , a capital buffer of Rs one per per Rs 10 of means a CAR of 10 per cent which is what Narasimham Committee 1 criterion. Ideally the ratio applicable is leveraging ratio to common stock, Ma’am Patnaik !
All banks in India have to follow Basel III norms for computation and reporting of capital adequacy ratio. Federal bank has reported car of 14.14% as at mar-19. Incidentally the bank also reported its highest ever quarterly Net profit in excess of 400 crores for the second quarter ended sept 2019. The only weak and loss making Pvt sector banks in India currently are catholic Syrian bank and laxmi vilas bank
For providing comfort to the common customers, especially SB,FD,RD Account holders whose number runs into millions,it would be preferable to match liabilities under various groups and ensure the above three groups are secured by matching or exceeding assets, especially Deposit with RBI, Government of India Bonds etc
My suggestion is that banks should not be allowed to hide behind veil of secrecy. As any Mutual Fund Scheme is required to display its portfolio detailing investment in various companies, banks should also periodically publish the details of their top borrowers ( enjoying credit facilities of more than 1% of the total loan book of the bank) with their respective credit ratings. I recall that the Supreme Court has repeatedly asked the RBI to publish details of loan defaulters and yet RBI has not complied with it. The depositors must know the financial strength of a bank with whom they have entrusted their hard earned money. Sadly, many of the depositors of the failed PMC Bank had no inkling of a special relationship of this bank management with HDIL. This is sad. Secrecy must go and depositor should know where and to whom their hard money has been lent.
inancialexpress.com/industry/banking-finance/deposit-mcap-ratio-wrong-way-to-gauge-banks-health-they-are-well-capitalised-as-per-this-ratio-cea/1892578/
The Print and the author may want to update this article in view of the RBI response on 8 Mar 2020 dismissing deposit/mcap ratio as a valid metric to assess the health of banks. Dr Patnaik does make the point in the article that weak RBI supervision and lack of data means that analysts will need to rely some metrics and the mcap ratio is one such. But in light of the RBI’s strong rebuttal, it would be good to have the author’s response.
Who propounded this ratio?
Any book in which this ratio is explained
Since neither The Print nor the author have responded to the RBI’s criticism of the analysis in the article, we should treat the article as alarmist and disregard it.
The RBI tweet of 8 Mar 20 said: “Concern has been raised in certain sections of the media about safety of deposits in certain banks. This concern is based on analysis which is flawed. Solvency of banks is internationally based on Capital to Risk Weighted Assets (CRAR) and not on market cap.”
Also, I couldn’t find any credible source or book that says bank deposits/mcap is an accepted metric to assess the health of a bank. Finally, I contacted some bankers for their view and all of them dismissed the ratio described in the article.
This proposed measure of safety in this article while merits a reading, assumes much.
It assumes that the market price is reflective of the true value of the stock. This may not be true and can go either ways. A stock may be overvalued- individually by operators or by virtue of market sentiment – skewing the ratio.
It assumes the market to have perfect knowledge – which is a tall order even in the most mature market as bankruptcies and regulatory action in recent times have proved.
I would like to go with Roshni’s view above and rely on the bank’s regulatory capital ratio which would be a true indicator devoid of fickle market sentiment.
Ms Patnaik, Your erudition notwithstanding you seem to have ignored that compliance in Indian banks include the statutory liquidity ratio. Second , a capital buffer of Rs one per per Rs 10 of means a CAR of 10 per cent which is what Narasimham Committee 1 criterion. Ideally the ratio applicable is leveraging ratio to common stock, Ma’am Patnaik !
All banks in India have to follow Basel III norms for computation and reporting of capital adequacy ratio. Federal bank has reported car of 14.14% as at mar-19. Incidentally the bank also reported its highest ever quarterly Net profit in excess of 400 crores for the second quarter ended sept 2019. The only weak and loss making Pvt sector banks in India currently are catholic Syrian bank and laxmi vilas bank
For providing comfort to the common customers, especially SB,FD,RD Account holders whose number runs into millions,it would be preferable to match liabilities under various groups and ensure the above three groups are secured by matching or exceeding assets, especially Deposit with RBI, Government of India Bonds etc
My suggestion is that banks should not be allowed to hide behind veil of secrecy. As any Mutual Fund Scheme is required to display its portfolio detailing investment in various companies, banks should also periodically publish the details of their top borrowers ( enjoying credit facilities of more than 1% of the total loan book of the bank) with their respective credit ratings. I recall that the Supreme Court has repeatedly asked the RBI to publish details of loan defaulters and yet RBI has not complied with it. The depositors must know the financial strength of a bank with whom they have entrusted their hard earned money. Sadly, many of the depositors of the failed PMC Bank had no inkling of a special relationship of this bank management with HDIL. This is sad. Secrecy must go and depositor should know where and to whom their hard money has been lent.
Do not worry about us. We The South Indian bank on the “right” track.. Our top management is capable to avert any disaster.