Skip to main content

"Shadow banks believe the new norms will hurt their operations.”


As far as the synopsis and general takeaways are concerned, the system of shadow banking consists of lenders, brokers, and other credit intermediaries who fall outside the realm of traditional regulated banking. These being the intermediaries between the borrowers and lenders,providing credit and generating liquidity in the system. Unlike commercial banks ,these entities don’t accept traditional demand deposits but they do provide some services similar to that of commercial banks being one of the reasons for escaping regulation abroad.The shadow banking system had overtaken the regular banking system in offering loans in US before the financial crisis erupted in 2008.This system played a major role in the expansion of housing credit in the run up to the 2008 financial crisis, but has grown in size and largely escaped government oversight even since then.


The 2008 financial crisis has shown that shadow banking can be a source of systematic risk to the banking system. The interconnectedness of partially-regulated entities with the banking system can basically lead to directly transmitting risks associated with that of shadow banking. 



The Reserve Bank of India has been trying to tighten regulatory norms on the sector since Infrastructure Leasing & Financial Services, the largest nonbank financial company, went bankrupt in 2018, and Dewan Housing Finance Corp and Altico Capital defaulted on payments in 2019.The Reserve Bank is simply following the trend of global central banks increasing surveillance on shadow banking. Basel III norms require central banks to tighten supervision on shadow banks across the globe through steps such as defining minimum capital.


Deputy governor Anand Sinha has expressed the need to tighten shadow banking rules on various forums. RBI’s focus is on regulating the informal lending and borrowing business. Its concern stems from the interconnectedness of financial institutions.

 

Now, in response to the claims and need of the regulation required, Usha Thorat committee has come out with draft regulations on NBFCs, such as increasing tier I capital and risk weight on certain assets. After the recommendations, smaller NBFCs with asset size of less than 25 crore are likely to go out of business.

 

Moreover, RBI is taking advisory steps which include advising banks to maintain an SLR of atleast 18% and the CRR is going to be reversed after March 31 which was earlier switched from being 4% to 3%.


With the global impact being that the size of shadow banking has reached a record $67 trillion in 2011, according to a report by the Finance Stability Board, a regulatory task force for the world's group of 20 economies . America has the biggest shadow banking system, followed by the Eurozone and the United Kingdom.



Comments

Post a Comment

Popular posts from this blog

Past makes present: Elon Musk 's anti union tweet

Who would have thought that a tweet made in 2018 will cause hassle in someone’s life in 2021. We are talking about none other than Mr. Elon Musk, CEO of Tesla, Inc. He needs no introduction but more than him, his tweets are famous. Elon Musk has been seen tweeting sharp and blunt statements very often but this time he faced serious repercussions as well. Swami Vivekananda rightly said that the present is determined by past actions. It all started in 2018 when Elon musk is his tweet, wrote: “Nothing stopping Tesla team at our car plant from voting union. Could do so tmrw if they wanted. But why pay union dues & give up stock options for nothing? Our safety record is 2X better than when plant was UAW & everybody already gets healthcare.” This tweet came in the limelight in 2021 when National Labor Relations Board found it oppressive and threatening. As per NLRB the tweet by Mr. Elon Musk was unlawfully threatening the employees with the loss of stock options if they decided ...
Post a Comment
Read more

Russia’s Melting Snow May Cost the World Economy 2 Billion Dollars

The impact of climate change on a vast permafrost area of Russia has become a principal apprehension for the country. This is primarily due to thawing of once permanently frozen ground which covers more than half of Russia. The liquefication of snow is putting buildings, pipelines and other infrastructure in peril. This problem needs to be addressed imperatively because the scale of damage will escalate every year. Rising temperatures are the epicentre of anxiety for mining, oil and gas companies. The permafrost area accounts for 15% of Russia’s oil and 80% of its gas operations. It is also home to miners including MMC Norilsk Nickel PJSC, the biggest refined nickel and palladium producer. Multiple new craters have been found in the gas-rich Yamal region, which is a risk to pipelines. By 2050, global warming may jeopardise about a fifth of structures and infrastructure across the permafrost area, costing about $84 billion. Residential real estate, worth $53 billion, might be als...
Post a Comment
Read more

Changing Environment For Local Business In Sri Lanka; Government Initiates The Revolution

Local industries and businesses are the backbone of the economy of any country. Additionally, Sri Lankan Government defines a local company as one with a minimum ownership of 51% of a Sri Lankan. To help these companies grow, the Sri Lankan Finance Ministry has proclaimed a circular enlisting the priorities to the local companies. Moreover, this move from the government may bring some salient alterations in the condition of the local manufacturers. The government has also come with up steps that will augment the local industries across the different domains. These domains include IT sector, construction, etc. The circular, as issued by the government includes relevant documentation regarding sourcing of resources and products. Additionally, sources point towards the fact that the government is hoping to extend support to the domestic sector and help them grow. Besides, the major focus is on the three sectors- IT software and hardware, construction and furniture and allied products. Pos...
Post a Comment
Read more