Thought for the day
"The worst form of inequality is to try to make
unequal things equal."
-
Aristotle (Greek, 384-322BC)
Word for the day
Obviate (v, trn)
To prevent by
interception; to anticipate and dispose of or make unnecessary.
(Source: Dictionary.com)
Teaser for the day
Stakes put on Delhi election:
AAP - 100%, its "double or quit" for them.
Cong - 0%. Even a win here does not help them nationally.
BJP - 5%. Does not matter much in national picture. However
if they lose, the PM gets a monkey on his back for 5yrs.
PSBs
- trade - ok, investment "no-go"
From the periodic monetary policy statement of RBI governor and
views expressed by him in customary press conference post policy statement four
things stand out, in my view:
(a) The policy making at
RBI has definitely moved to global standards. It is purely data driven and no
longer rely on the subjective assessment of RBI and political expediency. The
governor made it amply clear that if the GDP data to be announced on 9th
February and the budget provisions warrant a change in rates he is willing to
do it outside periodic policy reviews.
(b) Doubling the remittance
limit under LSR (Liberalized Remittance Scheme) from USD1,25,000 to USD2,50,000
marks the end of emergency measures taken to protect BoP in summer of 2013. The
limit was reduced from USD2,00,000 to USD75,000 and later enhanced to
USD1,25,000.
This comes after lifting most restriction on gold imports
applied in 2013.
In my view this has three implications:
(i) Many had
interpreted the move back then as return of capital controls. The governor has
addressed all those concerns in definite terms.
(ii) This
demonstrate the confidence of RBI in BoP situation.
(iii) It clearly
highlights the intention of RBI to maintain INR/USD at current or slightly
higher level. It is therefore clear that RBI has reconsidered its earlier bias
towards importing deflation. This measure when read along with inflation
outlook (6% in Jan' 2016) makes it amply clear.
(c) By allowing
banks to offer differential interest rates on term deposits based on the
callability feature (meaning locked in fixed deposits can be offered higher
rate of interest), the pitch has been further queered from FMP business of
mutual funds. If, as expected, the finance minister also removes the tax
arbitrage between FMP and bank deposits, the banks may gain substantial cost
advantage over mutual funds insofar as the cost of funds is concerned.
The idea seems to make market efficient by removing apparent
inefficiencies.
(d) RBI wants banks to
play a more active role in restructuring of bad assets - through change of management
or otherwise.
The governor admitted that a fair bit of stress still remain in
asset quality and banks are not willing to cut lending rates as yet.
The market reaction to the policy statement in my view was more
of a correction of huge build up in the preceding sessions, rather than any
reflection on the policy stance itself.
I guess, we are reaching that point faster where PSU banks will
become a "good trade". However, as a matter of policy I would
maintain "no go" policy for investment in any PSU stocks.
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