RBI Governor Says NBFCs Must Reduce Dependence On Banks
India's central bank Governor Shaktikanta Das warned banks to undertake stress tests and said all forms of "exuberance" should be avoided, days after imposing curbs on some lending
Our Top Reports For Today
- [00:00] Stories Of The Day
- [03:07] RBI Governor brings up systemic risk again, says non bank finance companies must reduce dependence on banks.
- [10:38] Oil prices are weak but could sustained supply cuts push them up again ?
- [19:32] Sam Altman returns to OpenAI in a 5-day drama script out of Netflix.
- [21:28] Binance CEO pleads guilty, second biggest crypto star charged with fraud.
- [22:57] Healthcare advertisements ranked highest in misrepresenting claims, study shows.
- [24:11] At 725,000, Indians are 3rd largest illegal immigrants in the US
NOTE: This transcript contains only the host's monologue and does not include any interviews or discussions that might be within the podcast. Please refer to the episode audio if you wish to quote the people interviewed. Email [email protected] for any queries.
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Markets
Indian markets are holding somewhat steady in recent days but that could be another way of saying they are back to their somewhat directionless status quo.
The BSE Sensex was up 92 points at 66,023 and the NSE Nifty50 reclaimed the 19,800 level, ending 28 points up.
While the secondary markets are on a bit of a pause, the primary markets are buzzing with activity and money.
As market veterans have always told me, if there is a good IPO, then people will invest, regardless of how strong or weak the secondary market is.
And there seem to be, going by responses, better pedigreed IPOs this week.
IPOs worth around Rs 7,000 crore are lined up in the local market this week, including that of engineering firm Tata Technologies which opened for subscription on Wednesday.
India's Tata Technologies' Rs 3,000 crore IPO initial public offering was oversubscribed on Wednesday, more than the other four IPOs this week. This was the Tata Group's first public float in nearly two decades.
The other IPOs launched this week were from Fedbank Financial Services, Flair Writing Industries, Indian Renewable Energy Development Agency and Gandhar Oil Refinery and have all been oversubscribed and will close for bids on Friday.
Meanwhile, the IPO rush also helped the rupee rise on Wednesday in addition to strength in the Chinese yuan.
The rupee was at 83.31 against the U.S. dollars compared with 83.35 close in the previous session, its lowest closing level on record.
Meanwhile, some $6 billion has flown into the bond market from overseas investors, including in corporate debt as investors top up before India’s entry into global indices.
The month of November itself has seen some $2 billion flow in, according to data compiled by Bloomberg.
NBFCs Must Delink From Banks
India’s central bank Governor Shaktikanta Das warned banks to undertake stress tests and said all forms of “exuberance” should be avoided, days after imposing curbs on some lending.
The word exuberance obviously suggests an inference if not conclusion that the financial system is lending too freely and there are clear signs of stress among borrowers.
The Reserve Bank of India last week clamped down on unsecured lending by financial institutions and shadow banks to curb financial stability risks. The move also triggered a selloff in financial stocks in anticipation of an increase in borrowing costs for lenders and a dent on profitability.
The recent macroprudential measures were aimed at ensuring sustainable credit growth, Das said Wednesday. The RBI excluded home and car loans from the restrictions, since those sectors are contributing to economic growth, he said.
The governor then fired a fresh salvo by flagging the increasing linkages between banks and non bank finance companies, saying that banks must constantly evaluate their exposure to NBFCs and exposure of individual NBFCs to multiple banks.
"Given the increasing importance of NBFCs (Non-Banking Financial Company), the increasing interconnectivity between banks and non-banks merits close attention. NBFCs are large net borrowers of funds with exposure from banks being the highest," said Das at the inaugural address at FIBAC 2023. He said such concentrated linkages may create "contagion risks."
NBFCs should focus on broad basing funding sources and reducing overdependence on banks for funding, Das said.
All this clearly is worrying not for what is being said but what could be unsaid. To understand what the unsaid part could be, I reached out to Tamal Bandyopadhyay, consulting editor to Business Standard, veteran banking journalist and author of several banking related books and I began by asking him why the RBI governor was shining the light on NBFCs.
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Oil Prices See Sawing
Oil prices are see-sawing ahead of an OPEC meeting set for this weekend. Global benchmark Brent fell as much as 3% and is currently quoting around $80 a barrel..
Oil has been weak largely on speculation that the Organization of Petroleum Exporting Countries and its allies will extend output cuts or, possibly, deepen them.
Bloomberg reported that Citigroup Inc. has put the odds of a further reduction at one in five, while rival Goldman Sachs Group Inc. put the figure at about one in three.
An additional, collective cut by OPEC would raise prices by a few dollars, Goldman Sachs’ analysts told Bloomberg while Morgan Stanley said it thinks a deepening of supply curbs is unlikely at this stage.
I reached out to veteran oil analyst Vandana Hari, Founder of Vanda Insights, a Singapore-based provider of intelligence on global energy markets and began by asking her how she was seeing the oil price scenario particularly as things had stabilised, for now, following the tensions arising from the tensions in the middle east.
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Sam Altman Returns
Sam Altman will return to lead OpenAI less than five days after he was ejected from the company and playing the lead role in a drama that has had the entire technology world captivated.
Altman will come back as CEO and the new board will include Bret Taylor, a former co-CEO of Salesforce Inc. The other directors are Larry Summers, the former US Treasury Secretary, and existing member Adam D’Angelo, the co-founder and CEO of Quora Inc.
OpenAI is now working “to figure out the details,” the company said in a post on X, formerly Twitter.
The last five days also saw Altman join Microsoft, OpenAI’s largest investor, to lead its AI team.
A full on mutiny by the majority of OpenAi employees threatening to quit the company if Altman was not brought back by the board seemed to have tipped the scales and obviously caused Altman to come back.
Microsoft CEO Satya Nadella publicly supported Altman throughout the drama including the part where he seemed to have pulled off a coup by announcing he was joining Microsoft..
There will be some more turbulence in OpenAI given that former Twitch CEO Emmett Shear, who stepped in as the interim CEO of OpenAI will now step aside though he reacted to the news and said that he is "deeply pleased" by this move.
All this of course does almost nothing to address some of the key challenges or issues surrounding AI and the near lawlessness with which its technology including generative AI is being applied to cause harm or mischief. Think deep fakes in video and audio to start with.
There is of course good coming out of AI and has been for some time but the current phase is a trying one, for technologists and policy makers alike.
Binance Ceo Too In
Changpeng Zhao, the CEO of Binance, a crypto exchange, has pleaded guilty to criminal charges for anti-money laundering and US sanctions violations, including allowing transactions with Hamas and other terrorist groups, under a sweeping deal with the Justice department designed to keep the biggest crypto exchange operating.
Sam Bankman-Fried may have been the best known name in crypto but rival Zhao, worth almost $100 billion at his zenith in early 2022, was the wealthiest and most powerful.
Binance the company has pleaded guilty to criminal charges and paid over $4 billion in penalties. Zhao stepped down as CEO and will pay a $50 million fine, Bloomberg reported.
Sam Bankman is of course in jail already.
It is amazing that two key players in a space which few understand. Yes, I am one of them, are facing charges of fraud and will both likely spend quality time behind bars.
It is more amazing that this is the sector that has been putting pressure, via venture funded start-ups, on the banking and regulatory system in countries like India to give them more legitimacy.
While regulators can sometimes be lax or fail to see around the corner when it comes to technological change, thankfully this is one area both the ministry of finance and the Reserve Bank of India have held their ground.
On just one simple assumption as I see it. How can we legitimise something we can’t see or has no underlying asset?
ASCI Study
An Advertising Standards Council of India half yearly report shows that healthcare emerged as the most violative sector, constituting 21% of all ads processed.
The surge is attributed to a high volume of drug and medicine advertisements on digital platforms, which in itself represented some 80% of all violative advertisements.
ASCI observed a significant increase in ads directly violating the Drug and Magic Remedies Act of 1954, leading to the issuance of intimations to advertisers advising withdrawal or modification of the advertisement.
ASCI referred 565 advertisements to the Ministry of AYUSH or alternative medicine in just six months, compared to 464 ads referred in the last financial year.
Healthcare was followed by classical education and personal care at 18% each.
The fact that health and education constitute such a high number in terms of mis representation is worrying, remember these are areas where consumers are likely to be the most gullible as well.
Indian Illegals In US
There were about 725,000 Indian illegal immigrants in the US -- the third largest population of unauthorised immigrants after Mexico and El Salvador, according to new Pew Research Centre estimates.
The number is obviously quite surprising or maybe not since there have been increasing reports of Indians joining immigrants from South America trying to cross America’s southern borders through extreme hardship and pain.
As of 2021, the country's 10.5 million unauthorised immigrants represented about three per cent of the total US population and 22 percent of the foreign-born population, the Washington-based think tank said.
