Liquidity crisis facing the country is acute and government has taken one after other measures in the last two months to dilute the adverse effects of this liquidity crisis on the overall economy. I no doubt praise the sincere steps taken by Mr. P Chidambram Finance Minister and governor RBI to counter the financial attack caused by foreign based financial terrorists like Lehman Brothers ( not much different from Bin Laden , the renowned terrorist).
However It is astonishing that even after relentless efforts the problem of liquidity is not fully resolved (though RBI has been saying at the same time that banks have surplus fund and it is a fact too that banks are depositing their daily surplus with RBI despite low interest return).
It is to be understood why banks are hesitant to disburse credit to real estate sector or other SME or MSE sector inspite of easing liquidity.
It is to be assessed why businessmen are asking for bailout package when there is not much fall in sale and overall demand.
Government has to understand why there is normal tendency of borrowers not to repay the loan and advances availed by them from banks.
Government has to understand whether only cut in interest rate will stimulate the economy.
Is it not possible that too much cut in interest rate may cause disincentive to those who save and add to the problem of those old men whose livelihood depend on interest income.
Government must distinguish the liquidity crisis faced by individuals, banks, businessman, and the government itself from different angle of consideration.
I like to submit my views in brief which is though not exhaustive but point out some of the facts which may eventually lead to expose the real nature of liquidity crisis and enlighten the pros and cons of the matter.
Liquidity of Bank depends mainly on following three points: -----
1. Increase on deposits: As earning of people increases or expenses decreases, people deposit the same surplus in Banks or invest in other assets like home, vehicle etc., liquidity of bank will increase as much as people will deposit their surplus of income/profits in bank.
2. Loans and Advances made by banks: As credit by banks increases, the scope of trade or manufacturing or extending of services which in turn increases scope of creation of capital in the form of income. Liquidity of bank increases or decreases as advances of bank decreases or increases.
3. Repayment received from existing borrowers: When banks give loan to any person or institution, they expect the same is repaid by borrower in periodical installment or in case of working capital at least sale is deposited in bank. As such when all borrowers repays the banks loan regularly as per EMI (equated monthly installment) fixed by banks, banks are able to manage their Asset and Liability (called as ALM) gainfully without disturbing the liquidity. But when repayments are less than what are expected, banks face the problem of liquidity.
4. External factors like global slowdown causing huge withdrawal by FII or faulty policies of the government or weakness of the regulating and administrative systems and procedures or dilution in public trust on a particular bank causing panic in depositors and hence unwarranted withdrawal or large scale fraudulent affairs going on in any bank and so on ……
If we look at above four points seriously and ponder over the same we understand that liquidity is adversely affected by mainly
a. When deposit does not increase i.e. when income of people goes down or people start spending more than what they earn. Liquidity of Individuals or businessman when dries or shrinks, they contribute the same crisis to banks and financial institutions.
b. When banks extend loan and advances more than what they are capacitated to.
It is worthwhile to mention here that out of deposits received by bank, 24% of the same is deposited with government of India as SLR and 5% as CRR and at least 1% is used for infrastructure and establishment cost of the bank. Obviously maximum Credit deposit ratio may be allowed to be 70% (in the olden days CD ratio used to be less than 60%).
If any bank lends under pressure of the government more than 70% of available deposits it mobilizes, problem of liquidity is supposed to arise.
Also when banks writes off loan or sacrifices their money to bad borrowers either willfully or under instruction from the government more than the level of their absorbing capacity, banks face the problem of liquidity.
c. When people who have taken loan and advances from the bank do not repay the installment in time or when working capital financed by banks is either consumed by borrower or do not create turnover in bank. In common terminology, such type of loan is categorized as Non Performing Asset (NPA). As such when real NPA (not only what bank declare but also what banks hide) increases, liquidity problem in banks increases.
d. When bank is victim of mischievous and fraudulent employees or wrongful policies of the government and undue political interference in the banking system or incapability of recovery mechanism to recover the money from bad borrowers.
Here I would like to say that main reasons of liquidity crisis in banks may be as follows:
1. People’s expenses have increased far more than their increases in income. As such rate of savings has gone down.
2. Bank’s lending has increased more than their capacity. To make it more clear banks CD ratio has gone above 70% in many cases which forces banks either to offer higher rates on interest on deposits they acquire from the market or to borrow fund from RBI. Also banks deposit is not growing in the desired ratio due to sharp fall in earning of people and sharp increase in their spending.
3. Borrowers are not repaying the loan wither willfully or due to sickness in their business or due to higher spending. In other words real NPA of banks have increased abnormally due to vote bank politics prevailing in the country, the problem of liquidity in banks has aggravated.
4. Banks are unable to recover the bad loans from defaulters due to inefficient system and forced to write off large amount of bad loans or sacrifice large amount in compromising with large defaulters.
5. Large withdrawal of fund from depositors due to erosion in trust on the bank. When bank’s image is tarnished or bank is likely to fail due to internal irregularities , depositors are tempted to withdraw money from the bank even if they do not need and in this way they cause the shrinking of liquidity in banks or one can say they add fuel to fire.
I am of strong view that the present problem of liquidity is more due to faults in policies adopted by our government during last two decades of unregulated reformation, privatization and globalization and weaknesses of the system which may be poitical, social, judicial or administrative. It means that or system and procedure were not strengthened and empowered adequately to deal with the situation likely to arise in free economy. Our environment, infrastructure and our people are not as advanced, cultured and disciplined as it is in other developed countries which whom Indian economy intends to compete.
Obviously it will not be absolutely correct if we say that “Withdrawal by FII (Foreign Institutional Investors)” or “Global Financial Crisis caused by subprime mortgages” is the main reason behind liquidity crisis faced by the Indian banks.
Of course global crisis has added new dimension to crisis forcing government to reduce repo rate (6.5%), reverse repo rate (5%), CRR (5%) and SLR (24%) to historic low level and also to announce many other bailout packages for industries in line with the trend set by other developed countries of the world.
As such the global crisis has undoubtedly added fuel to already existing fire in the banks, but definitely is not the main and absolute reason of the crisis as claimed by our political leaders and as endorsed by sycophant economists.
If we do not assess the internal weakness of the banking and continue to claim that our banks are strong and harp on our achievements based on the fabricated and concocted figures, our banks will very soon lend in more severe trouble zone when most of the banks will be on the verge of bankruptcy as is presently happening in USA and other countries.
We must at least try to learn lessons from the failure of unimaginable big banks like Citi group and Lehman Brothers, in other countries to ensure real safety of our Indian banks and we must bring about desired improvement in the Indian banking system.
We must look deep into the balance sheet of different Indian Banks to understand the liquidity problem of individual banks and then try to diagnose. It will be prove to be harmful if government or RBI provides the same relaxation to all banks. This happens in the same way as liquidity problem happens in case of individual and which differs from person to person. Similarly liquidity problem of India differs from that of USA, Japan and other courties.
In our country if tax collection is less compared to government’s normal spending, our country will face liquidity problem. If our government uses the inflow of revenue in distributing charity and payment of interest on borrowings in greater numbers, government has to face liquidity problem.
As such need of the hour is true introspection of the system and rejuvenate the ailing system in time and not to blame entirely external factors for the prevailing liquidity crisis. Same medicine cannot be prescribed to all when the sickness of different individuals is different.
But as of now government appears to have injected same medicine in the blood of all ailing banks. Similarly government is trying to solve the problem of industrialists and traders by forcing banks to bring about reduction in lending rates.
Perhaps government is playing with fire only in view of forthcoming election and inclined to postpone taking harsh steps for the next government .Lest it should become too late to control the fire.
Danendra Jain,
8th December 2008
Monday, December 8, 2008
Reality of liquidity Crisis
Liquidity crisis facing the country is acute and government has taken one after other measures in the last two months to dilute the adverse effects of this liquidity crisis on the overall economy. I no doubt praise the sincere steps taken by Mr. P Chidambram Finance Minister and governor RBI to counter the financial attack caused by foreign based financial terrorists like Lehman Brothers ( not much different from Bin Laden , the renowned terrorist).
However It is astonishing that even after relentless efforts the problem of liquidity is not fully resolved (though RBI has been saying at the same time that banks have surplus fund and it is a fact too that banks are depositing their daily surplus with RBI despite low interest return).
It is to be understood why banks are hesitant to disburse credit to real estate sector or other SME or MSE sector inspite of easing liquidity.
It is to be assessed why businessmen are asking for bailout package when there is not much fall in sale and overall demand.
Government has to understand why there is normal tendency of borrowers not to repay the loan and advances availed by them from banks.
Government has to understand whether only cut in interest rate will stimulate the economy.
Is it not possible that too much cut in interest rate may cause disincentive to those who save and add to the problem of those old men whose livelihood depend on interest income.
Government must distinguish the liquidity crisis faced by individuals, banks, businessman, and the government itself from different angle of consideration.
I like to submit my views in brief which is though not exhaustive but point out some of the facts which may eventually lead to expose the real nature of liquidity crisis and enlighten the pros and cons of the matter.
Liquidity of Bank depends mainly on following three points: -----
1. Increase on deposits: As earning of people increases or expenses decreases, people deposit the same surplus in Banks or invest in other assets like home, vehicle etc., liquidity of bank will increase as much as people will deposit their surplus of income/profits in bank.
2. Loans and Advances made by banks: As credit by banks increases, the scope of trade or manufacturing or extending of services which in turn increases scope of creation of capital in the form of income. Liquidity of bank increases or decreases as advances of bank decreases or increases.
3. Repayment received from existing borrowers: When banks give loan to any person or institution, they expect the same is repaid by borrower in periodical installment or in case of working capital at least sale is deposited in bank. As such when all borrowers repays the banks loan regularly as per EMI (equated monthly installment) fixed by banks, banks are able to manage their Asset and Liability (called as ALM) gainfully without disturbing the liquidity. But when repayments are less than what are expected, banks face the problem of liquidity.
4. External factors like global slowdown causing huge withdrawal by FII or faulty policies of the government or weakness of the regulating and administrative systems and procedures or dilution in public trust on a particular bank causing panic in depositors and hence unwarranted withdrawal or large scale fraudulent affairs going on in any bank and so on ……
If we look at above four points seriously and ponder over the same we understand that liquidity is adversely affected by mainly
a. When deposit does not increase i.e. when income of people goes down or people start spending more than what they earn. Liquidity of Individuals or businessman when dries or shrinks, they contribute the same crisis to banks and financial institutions.
b. When banks extend loan and advances more than what they are capacitated to.
It is worthwhile to mention here that out of deposits received by bank, 24% of the same is deposited with government of India as SLR and 5% as CRR and at least 1% is used for infrastructure and establishment cost of the bank. Obviously maximum Credit deposit ratio may be allowed to be 70% (in the olden days CD ratio used to be less than 60%).
If any bank lends under pressure of the government more than 70% of available deposits it mobilizes, problem of liquidity is supposed to arise.
Also when banks writes off loan or sacrifices their money to bad borrowers either willfully or under instruction from the government more than the level of their absorbing capacity, banks face the problem of liquidity.
c. When people who have taken loan and advances from the bank do not repay the installment in time or when working capital financed by banks is either consumed by borrower or do not create turnover in bank. In common terminology, such type of loan is categorized as Non Performing Asset (NPA). As such when real NPA (not only what bank declare but also what banks hide) increases, liquidity problem in banks increases.
d. When bank is victim of mischievous and fraudulent employees or wrongful policies of the government and undue political interference in the banking system or incapability of recovery mechanism to recover the money from bad borrowers.
Here I would like to say that main reasons of liquidity crisis in banks may be as follows:
1. People’s expenses have increased far more than their increases in income. As such rate of savings has gone down.
2. Bank’s lending has increased more than their capacity. To make it more clear banks CD ratio has gone above 70% in many cases which forces banks either to offer higher rates on interest on deposits they acquire from the market or to borrow fund from RBI. Also banks deposit is not growing in the desired ratio due to sharp fall in earning of people and sharp increase in their spending.
3. Borrowers are not repaying the loan wither willfully or due to sickness in their business or due to higher spending. In other words real NPA of banks have increased abnormally due to vote bank politics prevailing in the country, the problem of liquidity in banks has aggravated.
4. Banks are unable to recover the bad loans from defaulters due to inefficient system and forced to write off large amount of bad loans or sacrifice large amount in compromising with large defaulters.
5. Large withdrawal of fund from depositors due to erosion in trust on the bank. When bank’s image is tarnished or bank is likely to fail due to internal irregularities , depositors are tempted to withdraw money from the bank even if they do not need and in this way they cause the shrinking of liquidity in banks or one can say they add fuel to fire.
I am of strong view that the present problem of liquidity is more due to faults in policies adopted by our government during last two decades of unregulated reformation, privatization and globalization and weaknesses of the system which may be poitical, social, judicial or administrative. It means that or system and procedure were not strengthened and empowered adequately to deal with the situation likely to arise in free economy. Our environment, infrastructure and our people are not as advanced, cultured and disciplined as it is in other developed countries which whom Indian economy intends to compete.
Obviously it will not be absolutely correct if we say that “Withdrawal by FII (Foreign Institutional Investors)” or “Global Financial Crisis caused by subprime mortgages” is the main reason behind liquidity crisis faced by the Indian banks.
Of course global crisis has added new dimension to crisis forcing government to reduce repo rate (6.5%), reverse repo rate (5%), CRR (5%) and SLR (24%) to historic low level and also to announce many other bailout packages for industries in line with the trend set by other developed countries of the world.
As such the global crisis has undoubtedly added fuel to already existing fire in the banks, but definitely is not the main and absolute reason of the crisis as claimed by our political leaders and as endorsed by sycophant economists.
If we do not assess the internal weakness of the banking and continue to claim that our banks are strong and harp on our achievements based on the fabricated and concocted figures, our banks will very soon lend in more severe trouble zone when most of the banks will be on the verge of bankruptcy as is presently happening in USA and other countries.
We must at least try to learn lessons from the failure of unimaginable big banks like Citi group and Lehman Brothers, in other countries to ensure real safety of our Indian banks and we must bring about desired improvement in the Indian banking system.
We must look deep into the balance sheet of different Indian Banks to understand the liquidity problem of individual banks and then try to diagnose. It will be prove to be harmful if government or RBI provides the same relaxation to all banks. This happens in the same way as liquidity problem happens in case of individual and which differs from person to person. Similarly liquidity problem of India differs from that of USA, Japan and other courties.
In our country if tax collection is less compared to government’s normal spending, our country will face liquidity problem. If our government uses the inflow of revenue in distributing charity and payment of interest on borrowings in greater numbers, government has to face liquidity problem.
As such need of the hour is true introspection of the system and rejuvenate the ailing system in time and not to blame entirely external factors for the prevailing liquidity crisis. Same medicine cannot be prescribed to all when the sickness of different individuals is different.
But as of now government appears to have injected same medicine in the blood of all ailing banks. Similarly government is trying to solve the problem of industrialists and traders by forcing banks to bring about reduction in lending rates.
Perhaps government is playing with fire only in view of forthcoming election and inclined to postpone taking harsh steps for the next government .Lest it should become too late to control the fire.
Danendra Jain,
However It is astonishing that even after relentless efforts the problem of liquidity is not fully resolved (though RBI has been saying at the same time that banks have surplus fund and it is a fact too that banks are depositing their daily surplus with RBI despite low interest return).
It is to be understood why banks are hesitant to disburse credit to real estate sector or other SME or MSE sector inspite of easing liquidity.
It is to be assessed why businessmen are asking for bailout package when there is not much fall in sale and overall demand.
Government has to understand why there is normal tendency of borrowers not to repay the loan and advances availed by them from banks.
Government has to understand whether only cut in interest rate will stimulate the economy.
Is it not possible that too much cut in interest rate may cause disincentive to those who save and add to the problem of those old men whose livelihood depend on interest income.
Government must distinguish the liquidity crisis faced by individuals, banks, businessman, and the government itself from different angle of consideration.
I like to submit my views in brief which is though not exhaustive but point out some of the facts which may eventually lead to expose the real nature of liquidity crisis and enlighten the pros and cons of the matter.
Liquidity of Bank depends mainly on following three points: -----
1. Increase on deposits: As earning of people increases or expenses decreases, people deposit the same surplus in Banks or invest in other assets like home, vehicle etc., liquidity of bank will increase as much as people will deposit their surplus of income/profits in bank.
2. Loans and Advances made by banks: As credit by banks increases, the scope of trade or manufacturing or extending of services which in turn increases scope of creation of capital in the form of income. Liquidity of bank increases or decreases as advances of bank decreases or increases.
3. Repayment received from existing borrowers: When banks give loan to any person or institution, they expect the same is repaid by borrower in periodical installment or in case of working capital at least sale is deposited in bank. As such when all borrowers repays the banks loan regularly as per EMI (equated monthly installment) fixed by banks, banks are able to manage their Asset and Liability (called as ALM) gainfully without disturbing the liquidity. But when repayments are less than what are expected, banks face the problem of liquidity.
4. External factors like global slowdown causing huge withdrawal by FII or faulty policies of the government or weakness of the regulating and administrative systems and procedures or dilution in public trust on a particular bank causing panic in depositors and hence unwarranted withdrawal or large scale fraudulent affairs going on in any bank and so on ……
If we look at above four points seriously and ponder over the same we understand that liquidity is adversely affected by mainly
a. When deposit does not increase i.e. when income of people goes down or people start spending more than what they earn. Liquidity of Individuals or businessman when dries or shrinks, they contribute the same crisis to banks and financial institutions.
b. When banks extend loan and advances more than what they are capacitated to.
It is worthwhile to mention here that out of deposits received by bank, 24% of the same is deposited with government of India as SLR and 5% as CRR and at least 1% is used for infrastructure and establishment cost of the bank. Obviously maximum Credit deposit ratio may be allowed to be 70% (in the olden days CD ratio used to be less than 60%).
If any bank lends under pressure of the government more than 70% of available deposits it mobilizes, problem of liquidity is supposed to arise.
Also when banks writes off loan or sacrifices their money to bad borrowers either willfully or under instruction from the government more than the level of their absorbing capacity, banks face the problem of liquidity.
c. When people who have taken loan and advances from the bank do not repay the installment in time or when working capital financed by banks is either consumed by borrower or do not create turnover in bank. In common terminology, such type of loan is categorized as Non Performing Asset (NPA). As such when real NPA (not only what bank declare but also what banks hide) increases, liquidity problem in banks increases.
d. When bank is victim of mischievous and fraudulent employees or wrongful policies of the government and undue political interference in the banking system or incapability of recovery mechanism to recover the money from bad borrowers.
Here I would like to say that main reasons of liquidity crisis in banks may be as follows:
1. People’s expenses have increased far more than their increases in income. As such rate of savings has gone down.
2. Bank’s lending has increased more than their capacity. To make it more clear banks CD ratio has gone above 70% in many cases which forces banks either to offer higher rates on interest on deposits they acquire from the market or to borrow fund from RBI. Also banks deposit is not growing in the desired ratio due to sharp fall in earning of people and sharp increase in their spending.
3. Borrowers are not repaying the loan wither willfully or due to sickness in their business or due to higher spending. In other words real NPA of banks have increased abnormally due to vote bank politics prevailing in the country, the problem of liquidity in banks has aggravated.
4. Banks are unable to recover the bad loans from defaulters due to inefficient system and forced to write off large amount of bad loans or sacrifice large amount in compromising with large defaulters.
5. Large withdrawal of fund from depositors due to erosion in trust on the bank. When bank’s image is tarnished or bank is likely to fail due to internal irregularities , depositors are tempted to withdraw money from the bank even if they do not need and in this way they cause the shrinking of liquidity in banks or one can say they add fuel to fire.
I am of strong view that the present problem of liquidity is more due to faults in policies adopted by our government during last two decades of unregulated reformation, privatization and globalization and weaknesses of the system which may be poitical, social, judicial or administrative. It means that or system and procedure were not strengthened and empowered adequately to deal with the situation likely to arise in free economy. Our environment, infrastructure and our people are not as advanced, cultured and disciplined as it is in other developed countries which whom Indian economy intends to compete.
Obviously it will not be absolutely correct if we say that “Withdrawal by FII (Foreign Institutional Investors)” or “Global Financial Crisis caused by subprime mortgages” is the main reason behind liquidity crisis faced by the Indian banks.
Of course global crisis has added new dimension to crisis forcing government to reduce repo rate (6.5%), reverse repo rate (5%), CRR (5%) and SLR (24%) to historic low level and also to announce many other bailout packages for industries in line with the trend set by other developed countries of the world.
As such the global crisis has undoubtedly added fuel to already existing fire in the banks, but definitely is not the main and absolute reason of the crisis as claimed by our political leaders and as endorsed by sycophant economists.
If we do not assess the internal weakness of the banking and continue to claim that our banks are strong and harp on our achievements based on the fabricated and concocted figures, our banks will very soon lend in more severe trouble zone when most of the banks will be on the verge of bankruptcy as is presently happening in USA and other countries.
We must at least try to learn lessons from the failure of unimaginable big banks like Citi group and Lehman Brothers, in other countries to ensure real safety of our Indian banks and we must bring about desired improvement in the Indian banking system.
We must look deep into the balance sheet of different Indian Banks to understand the liquidity problem of individual banks and then try to diagnose. It will be prove to be harmful if government or RBI provides the same relaxation to all banks. This happens in the same way as liquidity problem happens in case of individual and which differs from person to person. Similarly liquidity problem of India differs from that of USA, Japan and other courties.
In our country if tax collection is less compared to government’s normal spending, our country will face liquidity problem. If our government uses the inflow of revenue in distributing charity and payment of interest on borrowings in greater numbers, government has to face liquidity problem.
As such need of the hour is true introspection of the system and rejuvenate the ailing system in time and not to blame entirely external factors for the prevailing liquidity crisis. Same medicine cannot be prescribed to all when the sickness of different individuals is different.
But as of now government appears to have injected same medicine in the blood of all ailing banks. Similarly government is trying to solve the problem of industrialists and traders by forcing banks to bring about reduction in lending rates.
Perhaps government is playing with fire only in view of forthcoming election and inclined to postpone taking harsh steps for the next government .Lest it should become too late to control the fire.
Danendra Jain,
Friday, November 21, 2008
Respected Prime Minister
Dear Prime MinisterAre your all efforts aimed to provide relief to richest person of the nation or to increase vote bank of your party to save the sinking boat of UPA?
When crude oil price in international market went up you raised prices of petrol, diesel and ATS fuel. Now when oil prices has come down sharply you did not reduce prices of petrol and diesel but reduced prices to ATS fuel to give relief to Kingfisher and other airlines. But it is painful that airlines in the first stage 9when crude oil price was rising) increased airfare but did not reduce airfare in the later stage. You are silent spectator when general mass suffer but become active when big businessmen suffer.
You thought it wise to remain silent when real estate developers and land owners were relentlessly increasing prices of house and land till the price went up by at least three times in five years. Builders cement & iron dealers earned huge profits. Hundreds of new projects for construction of flats, commercial houses, mall, hotels etc started in all towns by builders even going beyond their capacity. Even banks blindly extended credit to such builders. You raised risk weightage on the advances made by banks to real estate sector only in the recent past to safeguard banks.
But now when global crisis has adversely effected the sentiment of the market you did not hesitate to give relief to real estate builders, press banks for extending credit to builders and even reduced risk weightage from 150% to 100%.. You are least bothered when buyers of flats have to pay exorbitant high prices. Again you are helping to big giants at the cost of petty workers and small businessman who somehow or other manage to buy a house by his savings and banks loan.
When crude oil price was going higher and higher you justified two digit inflation rate. You increased CRR to check inflation and absorbed liquidity (to such a big extent) that banks started facing problem in lending. But now oil price are 24 months low, CRR ,Repo rate and SLR has been reduced to historic low , still prices of essential goods has not comes down. Inflation figure has come down due to fall in metal and oil sector but people at large are weeping and unable to afford high price goods and services of common use. Traders are not ready to satisfy with reasonable profit margin because they are habituated to extort higher and higher profit from poor consumers..
Prices of all essential goods and services (. like vegetables, pulses , eatable oil, house rent) used by general mass has been increasing and you claim that inflation has come down. Survival of general mass do not depend on the prices of car, high price flats in Metros, big hotels, big bazaars, mobiles and computers but on common eatable and common low price houses or rented houses. You never bothered for that.
You removed restriction on PN notes for FII but they are still withdrawing money from stock market and share value is falling without brake.
Inspite of your all efforts to provide liquidity in the system , banks are not ready to help manufacturers , farmers, and other service providers .But you advise banks to help MF, real estate sector, builders , NBFC, all sinking boat. Are you bent upon hidden exposing bankcrupcy of the bank?
You advise banks to reduce interest rate they are not ready. You advise builders to reduce rates of houses and flats but builders are not ready to reduce their profit margin which they are accustomed to. You advise hotel owners to cut room rent to increase demand but you do not have time to think for common service men who are paying exorbitant rent for their normal living. Your free market policy appears to have gone punctured in the hands of profit maker businessmen. You are unable to control yourself and trying to control prices by order and not leaving the market to decide the price as per market dynamics of demand and supply.
Bad assets are increasing in banks and redemption pressure in MF is alarmingly increasing. Investors are going away from stock market. IPO’s are not coming from new companies because people are no more interested to invest in IPO. Scope of savings and investment is slowing down.
Banks are not in a position to provide relief to corporates because they are slowly losing trust and health of existing advance portfolio is critically sick, Banks are facing liquidity crisis, caused less by FII withdrawal but more by non-repayment of existing loan by borrowers. Banks are scarcity of fund because they have already lent more than they are supposed to as per traditional norms. It is to be noted here that banks traditional CD ratio used to be 60% keeping in view all environmental hurdles in mind. Now a days CD ratio of most of the banks has gone up to 75%..To add fuel to fire FM is ready to provide more liquidity by cutting CRR and even reducing SLR and reducing Repo rate and putting pressure on banks to lend more .If bitter health of banks is truly checked up I think banks have already lost major part of their capital, not to speak of Capital Adequacy Ratio norms of Basle II .
To add fuel to fire, situation is worsening day by day in banks and stock market.
After all what has happened in the stock market that all your efforts to cure the sickness failed and on the contrary sickness is growing day by day. You have to come forward daily on TV to console public that Stock market is well monitored and timely action taken to stop unwarranted speculative actions. You have been always saying banks are safe and well regulated but banks are telling that they need bailout package.
As a consequence of unrestricted inclination for globalization, ill conceived policies and mal administration, health of entire financial sector and also that of corporate sector is critical. Retrenchment of labour force and closure of industries,cutting down production,all are inevitable. Sgns of slowdown in the economy and that of recession are visible .Unemployment is increasing dangerously. When youths are without job, crime will also increase which will cause social unrest and turmoil.
Economical, Social, financial and moral health all are at stake..Even politically speaking, neither you nor your party is safe.What will happen to common people in near future? Only God knows.You are so much greedy of post of Prime Minister that you completely forgot the promises made for general mass through your party manifesto but you are ready to rejoin with left parties who left no stone unturned to humiliate you on the issue of nuclear deal.
You advise Sri Lankan Government to ensure safety of Tamils in SriLanka but you are unable to safeguard North Indians in Maharashtra despite the fact that in both the places, state as also at center, government is headed by Congress Party.
You are afraid of threats of resignation given by Mr. Karunanidhi but not so much perturbed by the similar threat of Lalu and Paswan on the issue of North Indians. Is it a fact that Lalu and Paswan are playing foul game to remove Nithis from Bihar?
Investigation in hundreds of terror attacks is going unnoticed and going without any outcome but the ongoing proceeding in Malegaon Blast is being broadcasted by the media without any restriction.
Are you really happy with your performance when the general mass is suffering of steep price rise in all daily-use commodities, frequent terror attacks, falling stock markets, ailing banks, increase in corruption, increase in crime and so on....
Danendra JainGanaraj choumuhaniagartala22nd November 2008
.
When crude oil price in international market went up you raised prices of petrol, diesel and ATS fuel. Now when oil prices has come down sharply you did not reduce prices of petrol and diesel but reduced prices to ATS fuel to give relief to Kingfisher and other airlines. But it is painful that airlines in the first stage 9when crude oil price was rising) increased airfare but did not reduce airfare in the later stage. You are silent spectator when general mass suffer but become active when big businessmen suffer.
You thought it wise to remain silent when real estate developers and land owners were relentlessly increasing prices of house and land till the price went up by at least three times in five years. Builders cement & iron dealers earned huge profits. Hundreds of new projects for construction of flats, commercial houses, mall, hotels etc started in all towns by builders even going beyond their capacity. Even banks blindly extended credit to such builders. You raised risk weightage on the advances made by banks to real estate sector only in the recent past to safeguard banks.
But now when global crisis has adversely effected the sentiment of the market you did not hesitate to give relief to real estate builders, press banks for extending credit to builders and even reduced risk weightage from 150% to 100%.. You are least bothered when buyers of flats have to pay exorbitant high prices. Again you are helping to big giants at the cost of petty workers and small businessman who somehow or other manage to buy a house by his savings and banks loan.
When crude oil price was going higher and higher you justified two digit inflation rate. You increased CRR to check inflation and absorbed liquidity (to such a big extent) that banks started facing problem in lending. But now oil price are 24 months low, CRR ,Repo rate and SLR has been reduced to historic low , still prices of essential goods has not comes down. Inflation figure has come down due to fall in metal and oil sector but people at large are weeping and unable to afford high price goods and services of common use. Traders are not ready to satisfy with reasonable profit margin because they are habituated to extort higher and higher profit from poor consumers..
Prices of all essential goods and services (. like vegetables, pulses , eatable oil, house rent) used by general mass has been increasing and you claim that inflation has come down. Survival of general mass do not depend on the prices of car, high price flats in Metros, big hotels, big bazaars, mobiles and computers but on common eatable and common low price houses or rented houses. You never bothered for that.
You removed restriction on PN notes for FII but they are still withdrawing money from stock market and share value is falling without brake.
Inspite of your all efforts to provide liquidity in the system , banks are not ready to help manufacturers , farmers, and other service providers .But you advise banks to help MF, real estate sector, builders , NBFC, all sinking boat. Are you bent upon hidden exposing bankcrupcy of the bank?
You advise banks to reduce interest rate they are not ready. You advise builders to reduce rates of houses and flats but builders are not ready to reduce their profit margin which they are accustomed to. You advise hotel owners to cut room rent to increase demand but you do not have time to think for common service men who are paying exorbitant rent for their normal living. Your free market policy appears to have gone punctured in the hands of profit maker businessmen. You are unable to control yourself and trying to control prices by order and not leaving the market to decide the price as per market dynamics of demand and supply.
Bad assets are increasing in banks and redemption pressure in MF is alarmingly increasing. Investors are going away from stock market. IPO’s are not coming from new companies because people are no more interested to invest in IPO. Scope of savings and investment is slowing down.
Banks are not in a position to provide relief to corporates because they are slowly losing trust and health of existing advance portfolio is critically sick, Banks are facing liquidity crisis, caused less by FII withdrawal but more by non-repayment of existing loan by borrowers. Banks are scarcity of fund because they have already lent more than they are supposed to as per traditional norms. It is to be noted here that banks traditional CD ratio used to be 60% keeping in view all environmental hurdles in mind. Now a days CD ratio of most of the banks has gone up to 75%..To add fuel to fire FM is ready to provide more liquidity by cutting CRR and even reducing SLR and reducing Repo rate and putting pressure on banks to lend more .If bitter health of banks is truly checked up I think banks have already lost major part of their capital, not to speak of Capital Adequacy Ratio norms of Basle II .
To add fuel to fire, situation is worsening day by day in banks and stock market.
After all what has happened in the stock market that all your efforts to cure the sickness failed and on the contrary sickness is growing day by day. You have to come forward daily on TV to console public that Stock market is well monitored and timely action taken to stop unwarranted speculative actions. You have been always saying banks are safe and well regulated but banks are telling that they need bailout package.
As a consequence of unrestricted inclination for globalization, ill conceived policies and mal administration, health of entire financial sector and also that of corporate sector is critical. Retrenchment of labour force and closure of industries,cutting down production,all are inevitable. Sgns of slowdown in the economy and that of recession are visible .Unemployment is increasing dangerously. When youths are without job, crime will also increase which will cause social unrest and turmoil.
Economical, Social, financial and moral health all are at stake..Even politically speaking, neither you nor your party is safe.What will happen to common people in near future? Only God knows.You are so much greedy of post of Prime Minister that you completely forgot the promises made for general mass through your party manifesto but you are ready to rejoin with left parties who left no stone unturned to humiliate you on the issue of nuclear deal.
You advise Sri Lankan Government to ensure safety of Tamils in SriLanka but you are unable to safeguard North Indians in Maharashtra despite the fact that in both the places, state as also at center, government is headed by Congress Party.
You are afraid of threats of resignation given by Mr. Karunanidhi but not so much perturbed by the similar threat of Lalu and Paswan on the issue of North Indians. Is it a fact that Lalu and Paswan are playing foul game to remove Nithis from Bihar?
Investigation in hundreds of terror attacks is going unnoticed and going without any outcome but the ongoing proceeding in Malegaon Blast is being broadcasted by the media without any restriction.
Are you really happy with your performance when the general mass is suffering of steep price rise in all daily-use commodities, frequent terror attacks, falling stock markets, ailing banks, increase in corruption, increase in crime and so on....
Danendra JainGanaraj choumuhaniagartala22nd November 2008
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Friday, November 7, 2008
Obama and Financial crisis
Obama will prove to be Lal Bahdur for USA. But are Americans really happy to see a non-white person sitting at the top post of the country?If yes why stock market has gone sharply down after the victory of Obama?If the fall is due to critical financial position he inherited from Mr. Bush, will the situation not further deteriorate because now neither Mr. Bush nor Mr. Obama will take serious action to cure the financial cancer killing US and the entire world fastly?If financial position of USA goes beyond control, can our country remain decoupled from US for long?Don’t you feel that our FM and PM have also failed to stop liquidity crisis in banks?If yes what will be the fate of public money, particularly small investors who have kept money in the banks?In the age of reformation, FM is advising banks• for rate cut,• for more and more lending at lower and lower rate specially when banks are offering higher and higher rates on deposits to cope with liquidity crisis they are facing,• for writing off bad loans,• for transfer of bad loans to Asset Reconstruction Companies ( what will be the fate of such ARC’s -only God knows), • for financing to Mutual funds to save them from liquidity crisis • and which in turn jeopardize the health of bank itself and so on …………….. • How far such advises are consistent with the policy of freedom granted to banks under the framework of reformation?Last but not the least, will it be possible for Mr. Manmohan Singh of India as also for Mr. Obama of USA to make Nuclear deal so much fruitful that the present financial crisis will be resolved without giving much agony to their citizens?If Obama or Chidambram really take care of their citizens they will have to move away from capitalism and move towards socialism.
Friday, June 6, 2008
Inflation problem
The root cause of so-called global inflationary trend is economic liberalization and globalization. The complete freedom to private sector without strict regulation and continuous monitoring of price of each essential or non essential commodity in oil, energy or food sector gives liberty to manufacturers and traders to recover exorbitant profit on the product they produce and sell.
Depending upon the demand and supply available in the market businessmen hoards the commodity and realize maximum profit from their products. When we discard the principles of socialism in toto, capitalism comes into play and those who are rich grow richer and richer whereas poor and downtrodden are subjected to shoulder the pressure of price rise and the said inflationary pressure. Those who are rich do not at all feel the pinch of inflation of continuous price rise. Rather rich person gets mental satisfaction when they pay more for any commodity and especially when they observe that other than them (rich person who constitute hardly 5% of the population of any country particularly in India) general mass cannot afford buying the commodity. Ego of rich is satisfied and Non- rich persons suffer from frustration, depression and deprivation of normal needs for survival. Such situation causes widening of gap between rich and the poor and also social conflict and rise in crime.
In realty sector prices of flats in the apartment has been going up and up. Owner and builder of the apartment are realizing at least 10 times of what they spend in construction of flats and purchase of land. Poor in general cannot afford a flat of value 25 lacs and more. 95 % of the Indians are not in a position to have a livable house.
In education field, owner of schools, colleges and other higher education institutions are charging at least 10 times from students as tuition fee compared to what they spend on each student (capital and revenue expenditure together). Now a days tuition fee per student for MBA, PGDBA and engineering is on an average rupees six lacs whereas for of medical courses it is more than twenty five lakhs. Even in private high-fi good primary schools, normal expenses per year crosses one lac rupees. We can very comfortably assume that normal expenses for higher study comes to Rs.25000/- per month whereas per student expenses normally done by most of the colleges in my estimate is note more than Rs.2000/-.. Government is silent spectator of exploitation of students only because it is politicians, MP’s , Ministers and big businessmen who own the colleges .There is no control on tution fee colleges recover from students.
In health sector too the position is very much pitiable. There is no arrangement for adequate check up , there are no quality doctor and they is no sincere will to serve,dignose and take care of patients who are admitted there in government run hospitals in most of the towns . As a result patients are constrained to take the help of scarce private nursing homes and pay high charges for treatment.
In oil sector government is dependent largely on prices of crude oil imported from oil producing countries. Since crude oil prices are rising and rising continuously government is bound to raise the price of oil products. But to please the mass voter and to salvage vote banks our politicians are providing subsidies as charity to voters. Similarly in the case of fertilizers and food supplies to poor and downtrodden people government has to bear the burden of subsidy. This unbridled distribution of charity also eventually results in tax burden on consumers, traders and manufacturers and ultimately gives rise to price rise in all sphere of life. If government decides to avoid giving subsidy, then also prices are bound to rise because commodities are all interlinked to prices of food, fertilizer, oil and energy prices.
Inflation cannot be checked until government regulates the price of each product and services honestly without doing dirty politics and without indulging in corruption.
At last I am of the opinion that the government has to have strict regulation and control on businessmen in the era of privatization, globalization and liberalization. We cannot afford complete socialism of seventies or eighties and neither can general mass live comfortably without feeling the pinch of inflation under the shadow of complete trade liberalization and globalization.
We have to have Mixed economy, controlled and administered prices to keep happy general mass. Traders, manufacturers and service providers may be facilitated and given freedom to produce the products but cost of the product and the quantum of profits have to be regulated without any biased attitude and in a transparent manner, not giving scope to corrupt officers to act as per the whims and fancies. Unrestrained profit making is the root cause of inflationary pressure we are facing in the country and the entire blame for such pitiable position of the general mass is the dirty politicians and corrupt officers who are working as partners of the politicians in sharing unfair money.
It is therefore unacceptable that global inflation is the root cause of Indian inflation and continuous price rise in all sectors. I am not the economist, neither a good writer but I am of strong conviction that it is the government who can cure the cancer of inflation.
Danendra Jain
e-shares.info
Depending upon the demand and supply available in the market businessmen hoards the commodity and realize maximum profit from their products. When we discard the principles of socialism in toto, capitalism comes into play and those who are rich grow richer and richer whereas poor and downtrodden are subjected to shoulder the pressure of price rise and the said inflationary pressure. Those who are rich do not at all feel the pinch of inflation of continuous price rise. Rather rich person gets mental satisfaction when they pay more for any commodity and especially when they observe that other than them (rich person who constitute hardly 5% of the population of any country particularly in India) general mass cannot afford buying the commodity. Ego of rich is satisfied and Non- rich persons suffer from frustration, depression and deprivation of normal needs for survival. Such situation causes widening of gap between rich and the poor and also social conflict and rise in crime.
In realty sector prices of flats in the apartment has been going up and up. Owner and builder of the apartment are realizing at least 10 times of what they spend in construction of flats and purchase of land. Poor in general cannot afford a flat of value 25 lacs and more. 95 % of the Indians are not in a position to have a livable house.
In education field, owner of schools, colleges and other higher education institutions are charging at least 10 times from students as tuition fee compared to what they spend on each student (capital and revenue expenditure together). Now a days tuition fee per student for MBA, PGDBA and engineering is on an average rupees six lacs whereas for of medical courses it is more than twenty five lakhs. Even in private high-fi good primary schools, normal expenses per year crosses one lac rupees. We can very comfortably assume that normal expenses for higher study comes to Rs.25000/- per month whereas per student expenses normally done by most of the colleges in my estimate is note more than Rs.2000/-.. Government is silent spectator of exploitation of students only because it is politicians, MP’s , Ministers and big businessmen who own the colleges .There is no control on tution fee colleges recover from students.
In health sector too the position is very much pitiable. There is no arrangement for adequate check up , there are no quality doctor and they is no sincere will to serve,dignose and take care of patients who are admitted there in government run hospitals in most of the towns . As a result patients are constrained to take the help of scarce private nursing homes and pay high charges for treatment.
In oil sector government is dependent largely on prices of crude oil imported from oil producing countries. Since crude oil prices are rising and rising continuously government is bound to raise the price of oil products. But to please the mass voter and to salvage vote banks our politicians are providing subsidies as charity to voters. Similarly in the case of fertilizers and food supplies to poor and downtrodden people government has to bear the burden of subsidy. This unbridled distribution of charity also eventually results in tax burden on consumers, traders and manufacturers and ultimately gives rise to price rise in all sphere of life. If government decides to avoid giving subsidy, then also prices are bound to rise because commodities are all interlinked to prices of food, fertilizer, oil and energy prices.
Inflation cannot be checked until government regulates the price of each product and services honestly without doing dirty politics and without indulging in corruption.
At last I am of the opinion that the government has to have strict regulation and control on businessmen in the era of privatization, globalization and liberalization. We cannot afford complete socialism of seventies or eighties and neither can general mass live comfortably without feeling the pinch of inflation under the shadow of complete trade liberalization and globalization.
We have to have Mixed economy, controlled and administered prices to keep happy general mass. Traders, manufacturers and service providers may be facilitated and given freedom to produce the products but cost of the product and the quantum of profits have to be regulated without any biased attitude and in a transparent manner, not giving scope to corrupt officers to act as per the whims and fancies. Unrestrained profit making is the root cause of inflationary pressure we are facing in the country and the entire blame for such pitiable position of the general mass is the dirty politicians and corrupt officers who are working as partners of the politicians in sharing unfair money.
It is therefore unacceptable that global inflation is the root cause of Indian inflation and continuous price rise in all sectors. I am not the economist, neither a good writer but I am of strong conviction that it is the government who can cure the cancer of inflation.
Danendra Jain
e-shares.info
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