The global stock markets take a cue from US markets as they normally signify the strength of their economy and with it their ability to intervene in international markets through short term and long term instruments of money in the form FII investments through PNs and direct or indirect investments.
It might be interest to note that a primitive money market like India has controls whereby an institution which has raised money in markets is answerable and a set of norms are adhered to which would show the health of the institution in unambiguous terms.
It is rather pathetic that US has no such guidelines for non-banking institutions which have been the bane of the network at least in so far as their current market woes are concerned. The system as is prevalent there allows a bank to lend to merchant banker/NBFC in Indian parlance based on securities to the satisfaction of the lending bank. Now this clearly throws a blanket on the end use of funds siphoned out of the deposit bankers’ system. With the Investment banking companies under no regulatory mechanism the end use of the funds are camouflaged. Because of this nobody really knows the extent of NPA’s in
The indirect acknowledgement of the Asian banking system’s entrenched and time honored values is reflected by the US govt’s insistence to the Investment banking companies to turn themselves into banking companies ( (Merrill Lynch and Lehman Brothers) in as much as their public accountability increases.
Even the current bail out plan does not ensure transparency and one silver lining in the horizon in this bail out package with the given the impatience of the American system very soon the assets collaterally to mortgaged to US government under the bail out package will come to market which in turn will create a potential and regulated market for substandard assets which will be more transparent than the sub prime lending. Given the Asian wisdom this is an area where we have not been successful.
So something good can come out any catastrophe
2 comments:
Wow, thats an awesome analysis.
What a way to start writing.
Please continue to do so.
:)
Welcome to the blogging world!!
Hi Kumar,
Good to see you blogging.
The US has never been seen as intelligent even by Europe, let alone Asia, for good reason. I think Bush Jr is a very appropriate representative of the average American intelligence.
Every crisis provokes a knee-jerk reaction. And their knees have been jerking pretty frequently these days. One Enron and they finish off Arthur Andersen (who, without prejudice to their lapse in Enron, have done admirable consulting work elsewhere). One WTC bombing and they go after Iraq in paranoia(with a weak but old personal enemy. Neither WMD or OBL has been caught. The biggest WMD is probably Bush himself while Osama Bin Laden keeps sending videos and tapes at will). Having conquered the political and military knees, they have now moved on to the economic knees. Free market does not mean Govt abdicating its responsibility to govern, and the US is learning that lesson with great difficulty. While I agree with you about the Asian wisdom being far superior, I am not so sure about their economies. The far East countries had a meltdown some years back in some manner related to the US, while the Chinese economy throws a far bigger State-sponsored blanket over itself. I would tend to think that the Indian banking/financial regulators are reasonably prudent, notwithstanding the occasional Harshad-ic events.
Having said that, I do not know whether a true test of Indian banking has been either done or is possible. Some positives clearly are:
a) Relatively speaking, for the amount of money it handles, the Indian banking system is far less corrupt, despite the current all-pervasive kick-back scenario. I shudder to think of what would have happened if our bank Chairmen had to be MPs or party-appointed functionaries.
b) Bankers have been weighed down by several State-driven considerations like priority sector lending, special schemes etc. where they have not had the freedom to do local regulation or monitoring at the delivery end of the system. Often two-bit political goondas have gleefully partaken of these schemes. Maybe somebody should do a study on the trickling down of these loans to their intended beneficiaries.
Some negatives have been:
a) While the State can be blamed for `social' lending, many banks have not exactly covered themselves in glory where it comes to lending to big business houses.
The comfort of a Reliance or Munjal is as much a factor in India as it would be in a typical American case
b) Out of the several private sector banks, other than HDFC Bank, I do not know whether the others are going great guns; this could of course be a backhanded compliment to the banking regulators in ensuring that they don't get out of hand
c) Our banking system has been a little slow in accepting technology, while the customers have been craving for it like ATMs, NetBanking, etc
d) While some Indian banks are distinctly different, I don't know whether their training of officers in appraising proposals could not have been better. It is mostly the intelligent officers with a moderate training infrastructure that distinguish themselves, and not so much the training methodology itself.
e) If one looks at the current frenzied fascination that banks have shown to retail credit - whether credit cards, or vehicle loans, or even personal loans - with probably insufficient rigour on appraising the borrower's financial strength or ability to repay, one is not sure whether India is also on a gullible front.
Much of this could well be attributed to our mixed (mixed-up?) economy policies which showed remarkable prowess in combining the worst of the capitalist and communist paradigms - with big business and trade unions going scot free - for several decades.
Had it not been for Manmohan Singh as FM (with Rao as PM backing him to the hilt), we could have ended up like Russia.
Hopefully, with Manmohan Singh as PM (with Sonia backing him to the hilt), we may not end up like America.
Of course, I could be entirely wrong on all the above as I have never been a banker.
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