Archive for the ‘Indian Economy/Financial Markets’ Category

WMA borrowing increases to Rr 87735 cr..

January 25, 2020

In Yesterday’s WSS, The central government’s borrowing under WMA increased from Rs 60605 cr (10 Dec 2020) to Rs 87735 cr (17 Dec 2020).

This makes it three weeks in a row in the month of January where Central Government has resorted to using WMA window. The WMA limit for the period Oct 2019 to Mar 2020 was set at Rs 35,000 cr. On 3 Jan 2020, WMA borrowing was Rs 130171 cr and then declined to 60605 cr before rising again to Rs 877735 cr.

All this confirms further that there is high distress in government finances…


RBI releases Board Minutes

January 21, 2020

After a long wait and requests, RBI has begun to release its Board Minutes:

The Reserve Bank of India (RBI) has been, over the years, taking steps to enhance transparency with regard to its functioning. The minutes of the meetings of the RBI’s Central Board of Directors (Central Board) have evinced considerable public interest and some of these have been shared with persons who sought them under the Right to Information Act 2005 (RTI Act). As a measure of further enhancing public awareness about the functioning of the RBI, it has been decided to place the minutes of the meetings of the Central Board on the RBI’s website in terms of provisions of Section 4 of the RTI Act, after appropriately severing information that is permitted to be severed as per the Act. Accordingly, the minutes of the meeting of Central Board held in Chandigarh on October 11, 2019 have been released today. In future, the minutes will be placed on the RBI website within two weeks from the date of its confirmation in the next meeting of the Central Board and on being signed by the chairman in the same meeting.

Scanning the Board Minutes does not give much details though. But it is a good start as you know what points were covered.

Despite its limited success, RBI needs to persevere with Operation Twist

January 20, 2020

Aparna Iyer of Mint reviews RBI’s Operation Twist:


Vijai Super — the scooter that became popular way before Hamara Bajaj

January 20, 2020

Bajaj Auto finally bit the scooter bullet and relaunched Chetak Scooter in a new avatar last week.

Unnati Sharma in thus interesting piece writes on history of Vijai Super, the scooter that was popular before Chetak:


More on Govt’s usage of WMA..

January 18, 2020

Following my earlier posts on WMA: one, two, three.

The above analysis basically used weekly data. We now have some daily data on WMA as well drawn from the quarterly Public Debt Management Report released by Finance Ministry and RBI’s Annual Report

Earlier the PDM reports basically said whether WMA was used in the quarter or not. Since 2018 (or so), the reports also tells us how many days in the quarter WMA was used. This is how it looks:


History of RBI’s Ways and Means Advances to Central Government: Old Wine in New Bottle?

January 17, 2020

Good friend Niranjan pointed to me how WMA was started as a way to bridge the “short-term gap” between Government’s receipts and expenses. This piece tracks the short history of WMA


RBI update: WMA declines from 130171 cr to 60605 cr..

January 17, 2020

Following from my last article, WMA for the week ended 10-Jan-2020 declined to Rs 60605 cr. It was at a record 130171 cr on the week ended 3-Jan-2020.

WMA on asset side is usually linked with reverse repo (included in Deposits – Others) on liabilities side. This is because as WMA increases, liquidity in the system increases leading to rise in reverse repo. And the opposite happens in case of reversal.

Thus, as WMA has declined on the Assets side, Reverse Repo on the Liabilities side has declined by 93197 cr.  For tracking all the changes exactly, we need a detailed balance sheet which we do not get in WSS.

The puzzle of inflation going up despite low demand in India

January 17, 2020

Prof Himanshu of JNU in this Mint piece:

Why is inflation rising? Most commentators have highlighted the rise in onion prices, which did contribute to vegetable inflation. However, data also shows a sharp rise in inflation in almost all vegetables along with cereals (mainly wheat and coarse cereals), pulses and personal care items. Clearly, the inflation story is not just an onion story, and is far more widespread and serious. However, attributing this to seasonal factors would be missing the forest for the trees. Untimely rains, drought in some regions and crop losses due to local factors did contribute to supply shocks, but this is not enough to explain the sharp rise in overall inflation, or even food inflation, given the small weight of these crops in the consumption basket. Onions, for example, have a weight of only 0.64% in the CPI and 0.16% in the WPI.

Further, the worry is not restricted to vegetable prices—which may stabilize in due course if driven by seasonal factors—but also cereals and pulses, whose inflation rates have seen a consistent rise in the past six months. They together have a weight larger than vegetables, and the rise in their prices is unlikely to be a result of seasonal factors. Some of it may be due to the transmission of global food prices, which have shown a rising trend in the last half year. But a bulk of the blame lies with government policy. In pulses, untimely imports flooded the markets and contributed to lower price realization last year, further leading to lower production this year. Within cereals, wholesale wheat prices have risen 8% this year while retail prices gained 6.3%, the highest in five years.

But why are wheat prices rising if wheat production has been at record levels? Government policy has created an artificial scarcity in the market. In the run-up to the general elections, the government procured 34 million tonnes of wheat in 2019, on top of the 36 million tonnes procured in 2018. These are the highest procurement levels since 2012-13. But it failed to distribute the wheat through the public distribution system, so there just wasn’t enough to go around. As of January, total stocks with Food Corporation of India (FCI) stand at 75 million tonnes, 33 million tonnes of it wheat, and the rest, rice. This implies that almost all the wheat that the FCI procured before the polls is still with it. This is almost a third of the country’s total wheat production. For the record, the buffer norms for FCI prescribe 21.4 million tonnes of stock at the start of each year. The resultant artificial scarcity has not only pushed up wheat prices, but also led to higher demand for coarse grains and fodder, almost all of which have seen double-digit inflation. Fodder prices have risen 14% in the last six months, driving up input costs for non-vegetarian items, which are now seeing high inflation.

Given high government stockpiles, it is unlikely that food inflation will fall soon. This poses problems in reviving the economy. The poor have to bear the brunt of government apathy. With food accounting for two-thirds of their household budgets, higher prices will worsen demand for non-food goods, in addition to proving a serious setback for nutrition security. At a time when consumption expenditure data shows rising poverty along with declining wages, climbing inflation will only lead to increased vulnerability, while making an economic recovery harder.

Problems of plenty and keep compounding..

Efficacy of Credit Ratings in Assessing Asset Quality: An Analysis of Large Borrowers

January 16, 2020

RBI Bulletin Jan-2020 has an article by Sukhbir Singh and Pallavi Chavan:

Using data on credit ratings from the Central Repository of Information on Large Credits (CRILC) mapped with Prowess, this article examines the efficacy of ratings in facilitating a sound and timely assessment of the asset quality of large borrowers. About one-fourth of the sampled Non-Performing Asset (NPA) exposure from CRILC was found to be in investment grade a quarter before slipping into the NPA category. The percentage of NPA exposure with an investment grade rating just before turning nonperforming varied across Credit Rating Agencies (CRAs) with three out of the six CRAs covered in the study showing a relatively high concentration of such exposure.

CRAs have a tough clean up job at hand!

Government under fiscal pressure: WMA trends suggest so

January 15, 2020

My new piece in moneycontrol:

The frequency with which RBI is advancing loans to the Centre is a reminder that public finances need to be set right at the earliest

JNU violence: Indian university’s radical history has long scared country’s rulers

January 14, 2020

Shalini Sharma of Keele University in this piece tracks JNU’s history. She points how JNU’s policy has been to give admissions to those with deprived background:


Found and busted: Rs 2000 fake note printing gang

January 13, 2020

This blog is super interested in all kinds of money news including the counterfeiting ones.

This news caught my eye:


Murugappa group family dispute: missing representation of women heirs on the Board

January 10, 2020

Top business groups need to set examples for others to follow. This case of Murugappa group is telling:


Ahmedabad based Kandoi Sweets: 175 years of history

January 8, 2020

I was intrigued to see today’s edition of Ahmedabad Times. It had an ad of Kandoi Sweets which apparently is 175 years old and is celebrating the same. Really rare to see a sweet shop survive 175 years.

The website of Kandoi Sweets says (has one!):

In 1845, two brothers had one vision – to be the chosen ones for adding sweetness during the celebrations and festivals of their customers. They started with one small shop and a factory, in Manekchowk, one of the oldest parts of Ahmedabad city. They knew only one thing that they would serve sweets of the best quality and enhance the joy of festivities.

That one small step by Mr. Bhogilal and Mr. Mulchand led to what is today a name to reckon with, when it comes to sweets. Kandoi Bhogilal Mulchand sweets are today a must during any festival or celebration in Ahmedabad. Be it Rakshabandhan, Diwali, Dussehra or a birthday or wedding; any event in Ahmedabad is incomplete without the sweet presence of Kandoi sweets.

With 6 stores and 2 manufacturing units, Kandoi Sweets is now marking its presence across Ahmedabad city. This is not all. With our online portal and advanced logistical facilities, we are now ready to serve customers across the seven seas, especially our Gujarati brothers and sisters settled abroad, who just love our taste.


The word Kandoi literally means confectioner. For the last five generations, Kandoi Bhogilal Mulchand has been synonymous in Ahmedabad with quality sweets. Now, we have spread our wings internationally too. We have expanded our business especially to serve Gujaratis and Marwaris settled abroad who long to have their favourite traditional sweets. We ensure that the packaging is non-breakable and leakage-proof. You can order from our online portal and we will have it delivered to you via courier.

Nice to note this!

Small Finance Banks: the new buzzword or the problem of future?

January 7, 2020

In 2018, RBI announced voluntary transition of UCBs into SFBs.

Under the scheme UCBs with a good track record shall be eligible to voluntarily transit into a SFB. Eligible UCB shall identify promoters in the manner as set out subsequently in the scheme for making an application to RBI for transition to SFB under the scheme. After due diligence exercise, RBI will issue an in-principle approval for transitioning of the UCB into SFB, subject to, compliance with the requirements mentioned in the scheme and will allow a maximum period of 18 months for commencement of business as SFB. The promoters shall incorporate a public limited company under the Companies Act, 2013 having the word ‘bank’ in its name after receiving the in-principle approval from RBI. The board of directors of the company shall have required experience and shall meet RBI’s ‘fit and proper’ criteria. The above company shall enter into an agreement with UCB for transfer of assets and liabilities, to be executed at a future date (after issuance of SFB licence).

The promoters shall then approach RBI for issuance of SFB licence, with evidence of funds available for infusion as equity in any acceptable form, so as to ensure that the SFB commences operations with a minimum net worth of Rs.1 billion and minimum promoters’ contribution of 26% of the paid-up equity capital. The licence application will be processed in accordance with the guidelines dated November 27, 2014 for licensing of SFBs in the private sector, subject to, what is stated in this Scheme. RBI will issue SFB licence at this stage followed by execution of the slump sale agreement to transfer the assets and liabilities of the UCB to the new company. The licence will be effective only after transfer of assets and liabilities of the UCB to the SFB and meeting, inter alia, the minimum net worth requirement prescribed for SFBs. The promoters will ensure that there is no business disruption during the process of transfer of assets and liabilities. On transition into a SFB, it will be subjected to all the norms as applicable to SFBs including maintenance of CRAR of 15% on a continuous basis. The UCB will surrender its banking licence to RBI. The resultant Co-operative Society will be wound up in due course.

Based on this guideline, RBI has given “in-principal route” to Shivalik UCB to become a SFB:


Time for RBI to simplify its reports and research

January 2, 2020

New piece in Moneycontrol:

From use of more visuals to videos and blogs, India’s central bank can better explain seemingly complex ideas to a wider audience. Its peers have shown the way.


How US term premiums drive term premiums in India..

January 2, 2020

Term premium means the extra interest rates investors demand for holding long-term bonds.

Archana Dilip of RBI in this RBI WP estimates drives of term premiums in India. Apart from domestic factors, term premium in India is driven by US term premium as well:

The paper estimates and analyses term premium in India and makes an assessment of interconnectedness and transmission of shocks from the US term structure of sovereign bond yields to that of India. The term premium is estimated by decomposing the yield into two components – risk-neutral rate which reflects expectations of future short-term rates; and term premium which captures the investors’ expectations of future central bank policy, inflation and growth shocks.

The paper identifies inflation volatility and monetary policy uncertainty as the two important factors influencing term premium in India.

Further, empirical findings indicate that the spillovers between the US treasury yields and government security yields in India have increased during the sample period from April, 2009 to April, 2019. The paper finds stronger spillover with increased financial integration and volatile bond markets.

The paper concludes that for the long-term yields, the term premium channel is a stronger transmission channel as compared with the risk-neutral rates channel.


Can RBI afford to play a ‘T20 match’ in 2020?

December 30, 2019

My piece in


How Bellary went from boom to bust?

December 27, 2019

Sugata Srinivasaraju in this Mint piece:

  • Between 2006 and 2011, Bellary saw a massive boom, until the Supreme Court banned mining in the district in 2011, when the illegalities and environmental degradation came to light
  • The dusty city in Karnataka is a symbol of how the collapse of a crony capitalist enterprise can destroy progress.

What a saga of rise and decline..

Indian macro review: There are none so blind as they who will not see

December 23, 2019

Prof Pronab Sen in this IdeasforIndia piece:

Based on Government of India’s data, the government and the community of economists in India have come up with different narratives about the position of the Indian economy. In this post, Pronab Sen highlights the differences between the two narratives. He also expresses concern over the kind of response government is taking to combat the current economic slowdown, which is fully consistent with its own narrative and completely ignores the other. 

On booming stock markets?

What about the booming stock markets? Surely this is a reflection of the fundamental strength of our industry!  Sadly, not so.  First of all it needs to be realised that the stock markets represent only about 4,000 listed companies out of 1.3 million active companies registered with Ministry of Corporate Affairs and more than 60 million unregistered non-farm enterprises. It is, therefore, quite possible that the large corporates are doing fine even as the rest are in deep doldrums. Second, FII investments in the Indian stock markets are not determined so much by the absolute performance of the concerned companies, but by the relative performance of Indian corporates compared to their global peers. Finally, in the last one year or so the RBI has pumped in an enormous amount of liquidity into the economy through aggressive open-market operations (OMOs). Most of this money has not found its way into the banks and non-bank financial companies (NBFCs) to finance investment, but into speculative activities in the stock market. What we may be seeing, therefore, is a potentially unsustainable bubble, and not an affirmation of the strength of corporate India.

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