RBI announced a draft ‘Scheme of Reconstruction’ that entails the State Bank of India (SBI) investing capital to acquire a 49% stake in the restructured private lender.
The alacrity with which the bailout has been proposed is commendable.
Yes Bank’s troubles are not exactly new or unique.
The continued inability of several corporates to repay their loans resulting in many landing up in insolvency proceedings has meant that lenders have been the hardest hit.
With the economy in the throes of a persistent slowdown, the prospects of banks’ burden of bad loans easing soon are limited.
This could then be a good opportunity for the RBI to review its PCA guideposts and revise them to ensure that such a slipping under the radar does not recur.
The choice of SBI as the investor to effect the bailout reflects the paucity of options the government has. While Yes Bank’s depositors are sure to heave a huge sigh of relief, India’s banking sector is still far from out of the woods.
Bank Quality, Judicial Efficiency, and Loan Repayment Delays in Italy, Fabio Schiantarelli, Massimiliano Stacchini and Philip Strahan: a direct link between a bank’s health and its borrowers’ repayment discipline.
The carefully crafted study finds that borrowers significantly delay payments to banks that have weak balance sheets.
Philip Bond and Ashok Rai in their 2009 Journal of International Economics paper, theoretically show the possibility of a “borrower run” happening on a bank.
A borrower run is a situation where a borrower delays repayment in anticipation of default by other borrowers of the bank, and the eventual collapse of the bank.
The underlying assumption is that weak banks are less able to enforce contracts.
The likely take-over of Yes Bank by SBI or any other strong bank is likely to significantly curb the possibility of a borrower run.
Making the environment conducive for justice
Some of the areas affected by the recent riots in Delhi that I visited resemble a battlefield.
It’s terrible, but property can eventually be restored. Can life be restored?
Whatever little assistance could be given to victims by way of rehabilitation was being provided by NGOs and well-meaning individuals, little by a welfare state.
Justice (retd.) Madan B. Lokur is a former Supreme Court judge
The blame game for the riots has already begun.
One conclusion is inevitable – if someone in the executive had an idea of good governance and if the establishment had taken prompt action, many lives could have been saved and damage to property could have been avoided.
It seems that the establishment consisting of the police and the Executive suffered a mild attack of ‘Kumbhkaranitis’, and at what cost.
As a lifelong student of law, I was appalled at the virtual absence of any coherent response from the justice system.
The Delhi High Court acted immediately when approached for relief.
The environment not conducive to registration of a First Information Report (FIR) and adjourned the case hearing by six weeks.
The registration of an FIR results in investigations into the commission of an alleged offence.
The role of the judiciary in riot situations is extremely important, in that it could prevent a slide into chaos.
What the judiciary says or does has tremendous influence and it should never forget that, regardless of who wields the sword or controls the purse strings.
The colonial belief that courts should be reactive should be forgotten and substituted by the public interest belief that courts should be proactive.
Recent events have clearly suggested that the police all over has completely mixed up and mangled freedom of speech and hate speech.
So the question, blame games apart, is: will those guilty for the Delhi riots ever be identified and booked and, if they are, will they ever be punished?
It took our justice delivery system 35 years to find Sajjan Kumar guilty of offences in the 1984 riots in Delhi.
When will the system find and punish the guilty for the recent riots but who cares, by the way?
That the Supreme Court struck down as “disproportionate” a 2018 circular by the Reserve Bank of India (RBI) that directed entities not to provide services to those trading in “virtual currencies” (cryptocurrencies) is understandable.
After all, despite ministerial committee recommendations, and warnings by institutions such as the RBI about the problematic nature of their payment and exchange methods, the use of virtual currencies over the Internet continues to remain legal in India.
But the immediate effect of the RBI circular was to choke the agencies that sought to provide a platform to facilitate trading in cryptocurrencies by cutting them off from banks.
This, the petitioners claimed, had a chilling effect on the fledgling cryptocurrency exchanges industry in India and went against their entrepreneurial right to operate a business enshrined in Article 19(1)(g).
The Court conceded this limited point saying that the “RBI has not come out with a stand that any of the entities regulated by it... have suffered any loss... on account of [cryptocurrency] exchanges” and this provides relief to the firms providing the virtual exchanges.
After a decade or so of deployment and use, the pros and cons of cryptocurrencies are now well known. Moreover, reports suggest that bitcoins, with their assured anonymity, remain popular with currency speculators, and in use in illicit transactions over the “dark web”.
But their utility due to the robust nature of the blockchain algorithm is also not to be sneezed on.
It is now imperative on authorities to find the right “regulatory balance” on cryptocurrencies.
This does not mean that the Supreme Court has put its stamp of approval on bitcoins and their assorted clones.
This meant that while cryptocurrencies were themselves not banned, dealing in them was.
Instead of banning cryptocurrencies, the government should empower RBI to regulate them, not as stand-ins for fiat currency but as commodities that can perform some of the functions of money — make payments, store value, serve as a unit of account.
Bitcoins have swung wildly in value and only those who are financially most secure and have the stomach for extreme risk would be advised to treat them as investment assets.
The world desperately needs to free itself from American ability to weaponise the dollar, bar those who violate US sanctions from dollar networks.
One way out is a blockchain-based currency, whose value is calibrated against a basket of major world currencies, to settle international payments that do not involve a US counterparty.
Monetary policy can’t combat the COVID-19 impact
The huge 50 basis points cut in rates by the U.S. Federal Reserve.
The United Nations Conference on Trade and Development has estimated that global merchandise exports could shrink by $50 billion due to the impact of the virus.
Compared to the total world merchandise exports of $19.48 trillion (2018) the shrinkage appears small but it could just be the beginning.
Monetary policy is excellent to address demand shocks but is a blunt tool when it comes to addressing supply-side issues.
The bigger problem could be from a fall in exports, which accounts for 20% of the GDP.
‘Police should also go after leaders spewing hate’