Archive for August 20th, 2008

Citibank India and Akerlof

August 20, 2008

I came across this interview of Indian Bank heads on the interest rate scenario, bank lending etc.

Citi India head Sanjay Nayar responds to this question:

Q: In this high interest rate environment, how will you plan to manage your profitability and balance sheet growth?

SN: As money gets dearer, we are becoming very selective to whom we give out loans.The basic driving principle to lend is that the individual has to be a Citi client either today or a client worthwhile for us tomorrow, where we get long-term sustainable revenues.
Read the words in emphasis (emphasis is mine). It is classic Akerlof’s theory of information asymmetry.   As interest rates rise, so does the problem of adverse selection (whom to give) and Banks are never sure whether the borrower will pay back the loan. In times of higher int rates, people with good projects will wait for rates to ease, but one with bad projects might be more willing as he/she has nothing to lose. If latter is selected,  the chances of moral hazard (knowing he has nothing to loose, he might take more risks) also increase.
Great to see your concepts being revised reading newspaper articles.

IFMR conference on food prices and poverty

August 20, 2008

IFMR, Chennai is organising a conference titled Rising food price and its implication on Poverty’ in their campus on 23 August 2008. The agenda and details of the conference are here.

The conference is divided into 3 sessions. First , at macro level -impact of WTO on food prices etc. Second at a micro level – impact of food prices on poor. Third one is on alleviating poverty in India. I am participating as a discussant in the conference and will be discussing the papers presented in the 3rd session.

I will keep you posted on the thoughts shared in the conference.

Assorted Links

August 20, 2008

1. WSJ Blog points Fedspeak- Richard Fisher (always a must read), It also points to Chinese Monetary Policy report

2. Frankel has a fantastic post on moral hazard.

3. ASB points optimism in Indian growth prospects

4. Someone’s forecasts are going right- Prof TTR

5. IDB on for-profit microfinance

6. ACB points to a superb finding- what happened to Citi furniture? :-). Also read the post on cash transfers

7. FCB on beer and research

8. DBB on Doha Round. It also says corruption indices don’t measure corruption.

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