Monday, April 13

Kudos to RBI

Economist article raises questions on RBI/Govt's stance on the need for foreign banks, at the same time one has to credit RBI for NOT being asleep at the switch. It had raised provisioning for real estate loans way back in Apr 2006. To quote then RBI governor YV Reddy:

"It’s based on the feedback that there was a tendency of multiple acquisition of houses by the consumers which was increasing the risk profile of both the banks and the consumers... If the real estate market improves by way of scrapping of Urban Land Ceiling Act, rent control laws and low transaction cost... then we may look at reducing the risk-weight of real estate sector loans.”

In contrast to Greenspan's reluctance to recognize asset bubbles, RBI had been very vocal about asset bubbles and the risks they posed to banking system. Yet even they thought "developed" countries would be less immune.

According to Reserve Bank of India (RBI) Deputy Governor Rakesh Mohan,

"The elevated realty prices along with non-transparency in the real estate sector may lead to an “asset bubble” and pose risks to the banking system. Moreover, real estate markets are characterised by opacity and other imperfections in developing countries. Such developments can easily generate bubbles in the real estate market because of problems in the elasticity of supply and information asymmetries.”

Even at the risk of giving into "consipiracy theories", it is difficult to ignore Simon Johnson's assertion that financial oligarchy in US led to the regulatory lapses and will block essential reform.

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