Deepa Vasudevan on Fri, Apr 13th, 2012 10:35:52 am
We are moving towards a precarious debt situation in two ways. First, external liabilities at 22% of the total are not too high, but much of it is short term and needs to be repaid/rolled over this year. That puts pressure on the exchange rate to depreciate. Second, of the fresh borrowings each year, about 70-75% go towards funding current expenses, rather than creating new productive assets. Yes, govt and institutions need to seriously introspect on improving fiscal management along the lines of spending less on expenses, and borrowing to fund investment.
Deepa Vasudevan on Fri, Apr 13th, 2012 10:34:24 am
On first comment. This is a good point, and not much discussed in forums. Corporate debt restructuring has been very high this fiscal- press reports indicate that it is about 3 times last year. Gross NPAs of banks are expected to be 3% of assets this year, up from 2.3% last year. So restructuring loans- or rather giving companies more time to pay their dues while retaining the loan as a normal asset on bank books- is happening a lot. That is typical of periods when interest rates are high and demand and profits slowdown. But that alone is not responsible for the huge LAF. An important reason is RBI activity in forex markets - selling dollars and purchasing rupees to control depreciation. Also, the government is borrowing huge amounts from banks and other institutions on a weekly basis. This sucks out much of their liquidity. So there is a structural deficit here- and non-recovery of loans by banks is one factor, and potentially a dangerous one. If banks fail, it has serious repercussions for the economy.
sanat on Thu, Apr 12th, 2012 4:37:52 pm
Are we not creating a situation of falling into Debt Trap. If you analyse outstanding approx 30 lac Crore of G Sec , 90% of this has been the borrowed in last 10 year alone. And if We continue our Fiscal management in this way , our stated Debt to GDP ratio of 65% approx should be competing alone with Greece or Italy . Don`t you think we need serious introspection at the resource available and fiscal management of resourced utilized ???????
Sanat on Thu, Apr 12th, 2012 4:28:51 pm
A Serious thought is needed to analyse , Why Banks need huge LAF to meet liquidity . Why LAF has become a routine than exception. Is it Bank are not able to collect its due , recoverable, receivable from the earlier advances , and in order best not to be declared as NPA , this unrecovered accurals getting recycled as fresh Loans . If this is true , all macroeconomics of inflation , money supply and fractional banking system is for Toss . Pl comment ?????