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RBI base rate guidelines will impact bank profits

The draft guidelines on computation of base rate released by the Reserve Bank of India (RBI) on 1 September 2015 will significantly impact profitability of banks. The RBI had stated in its First Bi-monthly Monetary Policy Statement 2015-16 that for monetary transmission to occur, lending rates have to be sensitive to the policy rate. The RBI has now brought out draft guidelines for banks adopting marginal cost of funds methodology for calculating base rates from 1 April 2016 to ensure faster monetary transmission. With the introduction of the base rate on 1 July 2010 banks could set their actual lending rates on loans and advances with reference to the base rate. At present, banks are following different methodologies in computing their base rate – on the basis of average cost of funds, marginal cost of funds or blended cost of funds (liabilities). Crisil Ltd. estimates that the change in methodology can lower banking system base rates by approximately 50 basis points (bps) from current levels. Crucially, it will reduce banking sector profitability because return on assets will fall by 20 bps in fiscal 2017. Further, for every subsequent 25 bps cut in the deposit rate, profits will be impacted by Rs 5,000 crore (US$ 755 million) in a year from the rate cut. Moody’s have commented that India’s draft rules for lending rates are credit negative for lenders.  Yields of banks that lend mostly on a floating rate basis will […]

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Interfere vs Intervene

Today, I received an email wherein the sender was requesting for prompt interference in some matter, which would be highly appreciated. I was wondering how could anyone appreciate interference by someone else. Maybe, intervention was intended in that email! These two words are similar and yet so different. Both start with ‘inter-‘, meaning ‘between’. The difference is in the connotations of the two words. Interfere has a negative connotation. When you interfere in something, you are poking your nose into other people’s business. You are meddling. The word carries with it the sense of obstruction or getting in the way of something. When I say to someone: “Stop interfering” — I mean that what I am doing is none of his/her business. Intervene has got more positive connotations; it has the connotation of wanting to improve a situation, change things for the better. This probably explains why the Americans talk about their intervention in Iraq, rather than interference. There’s a thin line between interference and intervention. Often, an act of intervention is seen as an act of interference as the connotation is blurred, the intent is not clear. And so, may we continue to navigate that narrow space between interference and intervention.

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Dust storm again today

A thick layer of dust blanketed Baghdad today. The sky turned an ominous orange as sand from the surrounding desert blew into the Iraqi capital. The dust cover that enveloped Baghdad is not unusual. Baghdad is shielded from the desert by a thin strip of arable land between the Tigris and Euphrates rivers. Baghdad lies in the center of Iraq along […]

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Caste-based reservation — affirmative action or discriminatory?

Affirmative action and discriminatory measures are complex and controversial issues. The purpose of affirmative action is to speed up the establishment of a representative and unprejudiced workforce in addition to assist those who were in the past deprived by unfair discrimination to fulfil their highest potential. Reservations has encouraged an ongoing debate regarding the legal, moral and economic questions arising from the preferential treatment of certain groups of people in society. Underlying this debate are various concerns about the notion of reverse discrimination or unfairly disadvantaging individuals who bear no responsibility for past or present discrimination practised by others. Caste has developed in India out of a system of many-layered social hierarchy that became a norm or way of life over several thousands of years. In the preamble to the Constitution of India, negative public discrimination on the basis of caste is forbidden. The problem with the caste-based reservation system is that the higher caste communities feel discriminated against by the government’s policy of reserving positions for the backward classes. A large number of members belonging to the higher castes contend for the small number of places reserved for them, while the members of the backward classes do not have to compete at all because of the large number of reserved places for them compared with the small number of candidates. This reservation system in favour of the backward classes seems to be leading to a situation of unfair reverse […]

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Peeche Dekho, Aage Barho

Around three decades ago, I was a fresh recruit — a probationary officer in a public sector bank in India. Many of my seniors spoke about the critical importance of adhering to the PDAB principle in bank. What I was explained was the principle of “Peeche Dekho, Aage Barho” (पीछे देखो,आगे बढ़ो), which in English means “Look Back and Move Forward”. It was an instruction, I discovered, that pervades all decision-making in bank. Whenever in doubt, just look back and then move forward accordingly. What is even worse is that I later found that PDAB did not pervade only in my bank, other banks were also following the PDAB principle. A precedent is the strongest support for any decision especially because it makes the decision-maker safe from any future questioning and vigilance inquiry. Well, there is no harm to take advantage of the wisdom of past experience. Many times it provides us useful lessons, too. I noticed that whenever there is a change of incumbent, the new incumbent blames his/her predecessor and generally expresses him/her as a duffer. I wondered, how pertinent is it to follow PDAB? This question was recently asked to me by one of my friends. He is going to head a branch soon. He also said that he asked many of his seniors who preached him the principle of PDAB, but he hasn’t got any response from them. I have never fully subscribed to this principle. […]

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A man who broke a mountain alone


Today I watched a Hindi movie: Manjhi — the Mountain Man. It’s a great movie on the life of Dashrath Manjhi, a landless farmer from Gehlaur village, in the Gaya district of Indian state of Bihar. Both Nawazuddin Siddiqui and Radhika Apte gave superb performance in this biopic. Manjhi made history after he spent over two decades chiseling away at a […]

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litti inside image

Today, there was a discussion on street foods with my schoolmates on WhatsApp. We were remembering our good old days and found that we are all still in love of the street foods. I am a street foodie. I love street foods. When the discussion was over, I was remembering another street food, which is very much popular in Bihar […]

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Fitch assigns Iraq’s first rating at B-

Fitch Ratings issued, on Friday, 7 August 2015, its first rating on Iraqi debt, assigning the fifth-worst junk grade in part due to the cost of civil conflict and a global slump in oil prices. Fitch Ratings, together with Moody’s and Standard & Poor’s, are commonly known as the “Big Three credit rating agencies”. They have assigned Iraq a Long-term foreign currency Issuer Default Rating (IDR) of ‘B-‘ with a Stable Outlook. The agency has also assigned a Country Ceiling of ‘B-‘ and a Short-term IDR of ‘B’. ‘B’ ratings — highly speculative — indicate that material default risk is present, but a limited margin of safety remains. Financial commitments are currently being met; however, capacity for continued payment is vulnerable to deterioration in the business and economic environment. Political risk and insecurity are among the highest faced by any sovereign rated by Fitch. Sectarian conflict has raged with varying intensity since 2003, ISIS militants currently effectively hold three of the 18 provinces, relations with the Kurdish regional government are volatile and governance indicators are exceptionally weak. Iraq holds the world’s fifth largest oil reserves and significant amounts of gas. Oil production has risen rapidly to 3.3 mbpd in May 2015, from an average of 2.4 mbpd in 2010, with Iraq becoming the world’s second largest exporter in 2014. Production costs are low. The bulk of oil production facilities and infrastructure are away from areas of domestic insecurity. Iraq is almost entirely dependent on […]

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