Investments in infrastructure in the eleventh five year plan are estimated at Rs 2.056,150 crores ($ 514 billion) and the avenues to raise them are limited.
According to the Planning Commission Report on projections of Investment in Infrastructure (August 2008) it is estimated that only 30 percent of the infrastructure needs can be met directly from the budget.
While 40 percent of the requirements are expected to be met from internal generation and market borrowings, the remaining 30 percent have to come from private investment and this depends upon the creation of a supportive investor friendly environment and the ability to roll out bankable projects.
Finding these resources is the challenge faced by the economy to achieve 9 to 10 percent growth in GDP by 2012.
This calls for an innovative approach to policies. Efforts are on to mobilize funds by offering tax incentives. The Government has allowed some institutions like Life Insurance Corporation of India, Industrial Finance Corporation of India, Infrastructure Development Finance Corporation and some non banking finance companies authorized by the Reserve Bank as infrastructure Companies to issue tax free Infrastructure Bonds to raise funds. Can these institutions raise the required funds ?
Time has come for banks to restructure their balance sheets and find ways and means to support infrastructure development in a big way. Although banks have been in infrastructure financing, the tendency to avoid long term funding of infrastructure projects citing short term nature of resources and consequent asset- liability mismatch has been there since late 1990s with the introduction of asset liability and risk management concepts. Minimization of cost and maximization of profit without locking up of funds in long term ventures has been the philosophy pursued and the reforms in regulation and supervisory areas also are well suited to follow this line of approach. No doubt it has paid huge dividends and our banking system has proved to be sound and safe. But can this approach go on?
The Financial Institutions catering to long term needs of industries also found the circumstances conducive to convert themselves as banks and we have ICICI and IDBI banks in the place of ICICI and IDBI which were prominently and successfully engaged in financing huge long term projects for decades. Only institution which remained and continues to function as an All India Financial Institution is only the Industrial Finance Corporation of India Ltd. Some institutions like Infrastructure Development Finance Corporation, Infrastructure Leasing and Finance Ltd , etc, have since been developed but they are not adequate enough to meet the ever growing demands of infrastructural developments in tune with the international standards and requirements of the economy slated to register double digit growth.
Reliable Source
Banking System is the best and reliable source for infrastructure funds. With branches spread all over the country and abroad and with knowledge of the people and markets banks can easily mobilize the resources.
However, there is need for policy, regulatory support and incentives without in any way compromising on banks’ safety and soundness.
The banks should be allowed to mobilize funds for a minimum period of five years and a maximum period of ten years and these funds have to be shown under the nomenclature “Deposit for infrastructure development”.
The funds should be exempt from CRR / SLR and their investments should be allowed comparatively to carry a lower risk weight for capital adequacy.
Though the exemption from CRR will have an adverse impact to contain particularly the defying inflation but the benefits that can accrue to the economy in terms of GDP growth and economy’s international reputation and image with improved physical infrastructure. The interest earned on these deposits up to Rs 20,000 can be considered for tax exemption . The rate of interest can be more or less equal to that of post office savings interest for Fixed Deposits with tax benefits.
To Counter Asset- Liability mismatch, the approach has to be something different as far as these funds are concerned. Since the maturity pattern is definite i.e. only after five years and more, the deployment of funds will also be beyond five years and above. Mismatch may even then arise but with enough head room for adjustment.
Banks will have adequate time and opportunities to bridge the mismatch. The periodical cash flows from investments have to be recycled in such a way that they minimize the mismatch.
The take out finance which did not take off as envisaged needs to be revived to encourage infrastructure financing by banks and specialized institutions.
Securitization of infrastructural advances and development of secondary market for these papers will also go a long way in finding the liquidity for banks and minimizing the adverse impact of mismatch. It is for authorities to come out with the right environment.
Dr.T.V.Gopalakrishnan
Former Chief General Manager,
Reserve Bank of India
( views are Personal)
( This appeared in Business Line dt 26/07/10).
Monday, July 26, 2010
Sunday, July 11, 2010
Is base rate sustainable?
Is Base Rate sustainable?
The Prime Lending Rate introduced early in 1990s and refined as Bench Mark Prime Lending rate (BPLR) in 2003 as a reference rate by the banking system has been given a go bye and in its place the Base Rate has been brought in effective from July 1, 2010.
What difference the Base rate makes to borrower customers and the banking system and how this rate will help the Reserve bank to transmit its monetary policy signals can be assessed or understood only after the rate stabilizes over a period of time?
Basically, the BPLR and the Base rate should reflect the cost of funds ,the risk margin, and the rate of return to the bank but the difference lies exactly in arriving at the cost of funds and the transparency in its computation and application. The computation of base rate is expected to be on a uniform basis and apparently leaves no scope for manipulation. It takes into account the cost of deposits, the operating costs, the negative carry on cost in the maintenance of statutory requirements i.e. Cash Reserve Ratio and Statutory Liquidity Requirements, risk and profit margin.
BPLR and Base Rate
Compared to BPLR, which was basically computed on historical basis, the base rate has to be assessed more on a futuristic basis. The base rate will vary from bank to bank and in a way it should reflect on bank’s efficiency in bringing down the cost of funds and dynamism in the overall management of funds. Unlike in the case of BPLR, the banks cannot lend funds below the base rate except in certain permitted categories of lending under Differential rate of interest schemes, advances against fixed deposits and agricultural advances having subvention from the Government and export credit. This is a major change and will be a challenge for banks to retain major corporate clients as borrowers as hitherto. This should also bring in some changes in the money market operations as some of the borrowers may switch over to short term instruments like commercial paper to raise funds at lower rates than the base rate.
Various banks have announced their base rates and they range between 7.5 percent and 8.5 percent. How they have arrived at the base rates, however, have not been made transparent . The rates are also much higher than the one year FD rates, call money rates, Bank Rate, repo rate, and the yield on Government bonds. They are also reflective of the generally high cost of the funds. The compulsion to maintain the NET Interest Margin at around 3 to 3.5 percent also seems to have influenced banks in fixing the Base rate comparatively at a higher level.
Struggle to maintain customers
Will the banks be able to realistically assess the Base rate reflecting both the past and future trends and will the rate be able to transmit the Reserve Bank’s monetary policy signals effectively are the major doubts lingering in the minds of knowledgeable public?
Although the base rate may come down in the long run, immediately the large borrowers particularly good borrowers who had enjoyed banking funds at less than the BPLR will have to shell out more towards interest as they cannot borrow at less than the base rate. This may naturally lead them to resort to some other means to raise funds or banks will be compelled to compensate them to retain as their customers which is not desirable.
They may go in for Commercial papers or external commercial borrowings or raise deposits from public directly at less than the base rate. In any case this will have an adverse impact on banks’ funds management and profitability. In such a situation, banks will be forced to entertain comparatively risky borrowers adding to their non performing loans and consequent problems.
Good Timing
Although, the concept of Base rate is good to establish healthy credit market and improve banks’ asset liability management down the years , it may in the immediate future upset the corporates’ borrowing programmes and bring some visible changes in the money market operations. In case the base rate stabilizes, it may also pave way to develop corporate Bond market in a big way. Present surplus liquidity situation in the economy and continued persistence of higher level of inflation, however, supports a higher base rate and from that angle the timing of introduction of base rate seems well intended and justifiable.
Dr.T.V.Gopalakrishnan
(This appeared in Business Line Dt July 12,2010).
The Prime Lending Rate introduced early in 1990s and refined as Bench Mark Prime Lending rate (BPLR) in 2003 as a reference rate by the banking system has been given a go bye and in its place the Base Rate has been brought in effective from July 1, 2010.
What difference the Base rate makes to borrower customers and the banking system and how this rate will help the Reserve bank to transmit its monetary policy signals can be assessed or understood only after the rate stabilizes over a period of time?
Basically, the BPLR and the Base rate should reflect the cost of funds ,the risk margin, and the rate of return to the bank but the difference lies exactly in arriving at the cost of funds and the transparency in its computation and application. The computation of base rate is expected to be on a uniform basis and apparently leaves no scope for manipulation. It takes into account the cost of deposits, the operating costs, the negative carry on cost in the maintenance of statutory requirements i.e. Cash Reserve Ratio and Statutory Liquidity Requirements, risk and profit margin.
BPLR and Base Rate
Compared to BPLR, which was basically computed on historical basis, the base rate has to be assessed more on a futuristic basis. The base rate will vary from bank to bank and in a way it should reflect on bank’s efficiency in bringing down the cost of funds and dynamism in the overall management of funds. Unlike in the case of BPLR, the banks cannot lend funds below the base rate except in certain permitted categories of lending under Differential rate of interest schemes, advances against fixed deposits and agricultural advances having subvention from the Government and export credit. This is a major change and will be a challenge for banks to retain major corporate clients as borrowers as hitherto. This should also bring in some changes in the money market operations as some of the borrowers may switch over to short term instruments like commercial paper to raise funds at lower rates than the base rate.
Various banks have announced their base rates and they range between 7.5 percent and 8.5 percent. How they have arrived at the base rates, however, have not been made transparent . The rates are also much higher than the one year FD rates, call money rates, Bank Rate, repo rate, and the yield on Government bonds. They are also reflective of the generally high cost of the funds. The compulsion to maintain the NET Interest Margin at around 3 to 3.5 percent also seems to have influenced banks in fixing the Base rate comparatively at a higher level.
Struggle to maintain customers
Will the banks be able to realistically assess the Base rate reflecting both the past and future trends and will the rate be able to transmit the Reserve Bank’s monetary policy signals effectively are the major doubts lingering in the minds of knowledgeable public?
Although the base rate may come down in the long run, immediately the large borrowers particularly good borrowers who had enjoyed banking funds at less than the BPLR will have to shell out more towards interest as they cannot borrow at less than the base rate. This may naturally lead them to resort to some other means to raise funds or banks will be compelled to compensate them to retain as their customers which is not desirable.
They may go in for Commercial papers or external commercial borrowings or raise deposits from public directly at less than the base rate. In any case this will have an adverse impact on banks’ funds management and profitability. In such a situation, banks will be forced to entertain comparatively risky borrowers adding to their non performing loans and consequent problems.
Good Timing
Although, the concept of Base rate is good to establish healthy credit market and improve banks’ asset liability management down the years , it may in the immediate future upset the corporates’ borrowing programmes and bring some visible changes in the money market operations. In case the base rate stabilizes, it may also pave way to develop corporate Bond market in a big way. Present surplus liquidity situation in the economy and continued persistence of higher level of inflation, however, supports a higher base rate and from that angle the timing of introduction of base rate seems well intended and justifiable.
Dr.T.V.Gopalakrishnan
(This appeared in Business Line Dt July 12,2010).
Monday, June 28, 2010
NABARD can change face of rural India
Need for a new approach to make agriculture and rural economy strong
The need to support the rural sector which is the real support of our promising economy has been well recognized and the efforts that have gone in this direction have been enormous and institutions set up to aid this sector have been aplenty. The allocation of resources exclusively to develop the agriculture and other rural segment of the economy by the Central and State Governments, financial institutions and other agencies is huge by any reckoning and the results achieved also albeit are commendable, but fall short of expectations. Definitely, the contributions from the rural sector particularly from agriculture do not commensurate with the resources spent or allocated.
The agricultural sector hitherto considered to be the backbone of the economy cannot and should not remain weak for long. The sector unfortunately is still a gambling on monsoon and dependent on informal credit .The problems encountered by the farmers (particularly small farmers and people from rural areas engaged in different vocations again belonging to lower segment) broadly relate to understanding and taking advantage of various facilities available from multi agencies such as Commercial banks, Regional Rural banks, Cooperative Banks, Local area banks, Government agencies, Self Help Groups, Micro Finance institutions absence of a steady income, high fluctuations in the prices of their products, high level of inflation affecting their limited and uncertain income, increased input costs, lack of dependable infrastructure like electricity, transport, marketing and storage facilities.
Reforms of land, labour laws, education system, elimination of middlemen, integrity of data relating to employment and creation of assets, migration of labour, proper identification of beneficiaries, corruption at all levels, lack of coordinated approach of agencies involved, unsympathetic and absence of commitment in the approach of credit providers , exploitation of the situation by powerful money lenders, dominance of large and influential farmers, lack of political understanding at states ruled by different political parties are the areas challenging effective and meaningful financing of agricultural and rural sector.
There is an urgent need to find a change in approach with a new focus to turn the rural sector attractive and regain its dwindling share in GDP growth. Basically development of agriculture and rural sector is a state subject and the initiative and leadership have to come from the states. The introduction of Rural Development Index based on which allocation of resources and grant of incentives by the Central Government can perhaps be a good beginning. The index should reflect improved rural infrastructure, enhanced productivity in agriculture, augmentation in productive rural assets including agricultural land and stoppage of migration of labourers to urban areas, reduction in poverty level, and change in the confidence of the people to continue to show interest in agriculture and rural activities.
National Bank for Rural and Agricultural Development (NABARD) has to play a constructive role in ensuring that the coordination between the States and the institutions involved in rural development is smooth and result oriented. NABARD needs to have a very focused and different approach for each state in identifying the gaps, deficiencies and problems in the development of agriculture and rural industries and providing the needed coordination, support, guidance and encouragement to the agencies involved therein.The multitude of agencies presently visible adds confusion and conflict of interest giving room for unhealthy practices, corruption and abuse of facilities. The approach should be preferably to have a single window concept and the institution should coordinate the support system including insurance for the borrowers with the aid of NABARD. The institution having a strong presence in terms of business, infrastructure and having proven commitment in serving the people should take up the role. The commercial banks should gradually give way to Regional Rural Banks (wherever feasible), Strong Cooperative banks or Local area banks and Micro finance institutions. NABARD can play an active rural in identifying the institution fit to serve a particular block or area and provide the leadership. The State Government and NABARD have to jointly change the rural face by introducing incentives and awards for retention of interest in the agricultural and rural activities both among providers of credit and borrowers. The Information Technology and the proposed Unique Identity Card can be of great help to optimize the distribution of credit and making the Financial Inclusion a reality.
Ultimately the human resources associated have to be mentally attuned to help the needy. The involvement of top Management Institutes and social workers can be thought of to activate the rural economy and realize enduring real benefits to the whole economy and its people.
T.V. Gopalakrishnan
Former Chief General Manager,
Reserve Bank of India.
(An edited version appeared in The Hindu Business Line 28/06/10)
Monday, June 21, 2010
Freeing of interest Rates
Freeing of interest rates.
This refers to your edit Set it free-Let go off Savings bank Interest rate ( ET ,June 19). The Reserve Bank's recognition of the need to deregulate the interest rate on savings bank deposits is appreciable and needs to be viewed as a very progressive step and part of next instalment of banking sector sector reforms. This will help to bring in constructive competition among public sector banks and between public sector and private sector banks. More than anything else, this step alone will bring in improved customer service in public sector banks as retention of deposits is based not only on interest payment but also on the efficiency of service. Customer stands to benefit a lot from this deregulation as and when made effective. Small depositors and pensioners can expect to have a better return from this change.
For banks, this is an opportunity to achieve better operational efficiency and improved customer service. Their cost of deposit on savings bank deposits will however, increase a bit which has already gone up effective from April1, on introduction of payment of interest on daily balance basis. The SB interest deregulation coupled with the implementation of base rate for their advances from 1st July, the banks will have to fine tune their balance sheet and bring in more dynamism and perfection in their Asset Liability Management to reduce the cost of funds and maintain net interest rate margin,
Dr.T.V.Gopalakrishnan
(an edited version of this appeared in Economic Times Dt 21/06/10)
This refers to your edit Set it free-Let go off Savings bank Interest rate ( ET ,June 19). The Reserve Bank's recognition of the need to deregulate the interest rate on savings bank deposits is appreciable and needs to be viewed as a very progressive step and part of next instalment of banking sector sector reforms. This will help to bring in constructive competition among public sector banks and between public sector and private sector banks. More than anything else, this step alone will bring in improved customer service in public sector banks as retention of deposits is based not only on interest payment but also on the efficiency of service. Customer stands to benefit a lot from this deregulation as and when made effective. Small depositors and pensioners can expect to have a better return from this change.
For banks, this is an opportunity to achieve better operational efficiency and improved customer service. Their cost of deposit on savings bank deposits will however, increase a bit which has already gone up effective from April1, on introduction of payment of interest on daily balance basis. The SB interest deregulation coupled with the implementation of base rate for their advances from 1st July, the banks will have to fine tune their balance sheet and bring in more dynamism and perfection in their Asset Liability Management to reduce the cost of funds and maintain net interest rate margin,
Dr.T.V.Gopalakrishnan
(an edited version of this appeared in Economic Times Dt 21/06/10)
Wednesday, June 16, 2010
Time to introduce Customer Service Ratio
Another Panel to improve Customer Service In banks
The Reserve Bank has appointed a Panel under the chairmanship of Mr. Damodaran, Former, SEBI, Chairman to improve the Customer Service in banks. In its Annual Policy for 2010-11, the Reserve Bank expressed its concern that ” The issue of ‘treating customers fairly’ is assuming critical importance as the experience shows that consumer’s interests are often not accorded full protection and properly attended to. Customer service in the banking industry is increasingly becoming important as banks are privileged institutions and banking is a special public utility service. The Reserve Bank and the Banking Ombudsman’s offices have been receiving several complaints regarding levying of excessive interest rates and charges on certain loans and advances.”
The present Committee will look into among other things the issue of services offered by banks to retail and small borrowers including pensioners, interest rates, bank fees and charges, the system of grievance redressal mechanism prevalent in banks , its structure and efficiency and suggest a mechanism for expeditious resolution of complaints..
The regulator has so much concern for customers, but unfortunately the service providers who earn their money and depend on customers have mastered the art of serving the customers who matter and ignore others conveniently although at a cost. The ingenuinity with which banks ignore the customers has to be experienced to believe. Unfortunately many who experience seldom takes the pains to escalate the complaints to appropriate forum as the efforts and time required are often unaffordable although results are generally favorable. Leave it and silently suffer have been followed faithfully as a fait accompli.
Competition will improve the service has all along been the expectation, but this has been belied as service is no way better in private Sector banks particularly the so called new generation banks compared to that of Public Sector Banks. The problems encountered by customers from new private sector banks are something different. They trap customers with variety of products other than banking products in bank branch premises and customers are forced to retain the products as otherwise they have to incur a heavy loss. Charges are never transparent and one comes to know only after the receipt of the formal document.
Service provided by the ATMS and internet banking are no doubt better as there is no personal inter action and machines do what they are programmed for. Again by chance MACHINES FAIL and an Inter-Action with HUMAN BEINGS become necessary to get a solution, and then one had it. All the joy enjoyed with the aid of machine vanishes the moment the machine fails. Then only contacts and influence will get one the solution early.
The approach of the committee should be to gather the nature of complaints reported and not reported. While information on reported complaints can be gathered from Consumer Forum,( District and National Forums), The Reserve bank, Banking Codes and Services Board Of India, Banking Ombudsman ,banks own head offices, Zonal/Regional Offices/ branches representing metropolitan, Semi-urban ,urban and Rural areas and Indian Banks Association, information on unreported complaints which are many fold than reported has to be obtained through surveys, incognito visits and personal interviews of all types of customers.
The committee has to identify innovative measures to forcefully change the attitude of human resources who provide the service. Introduction of incentives and disincentives in promotion, transfer, emoluments and bonuses linked to customer service will go a long way to change the mindset. The assessment of customer service has to be done independent of Reserve Bank annual inspection, but should reflect in Reserve Bank’s overall rating and should be made transparent for all customers of all banks to see. Perhaps a ratio akin to capital adequacy ratio reflective of Customer Service should be thought of to make bank and its human resources behave responsibly.
Change of mindset is the need of the hour. The message for employees should be “Do Not Ignore any Customer, Treat every Customer as the Bread Winner of the Bank and its employees and Know the Customer through Service”. The Committee’s task is not that easy.
Dr.T.V.Gopalakrishnan
(edited version of this appeared in Business Line Dt15/06/10).
The Reserve Bank has appointed a Panel under the chairmanship of Mr. Damodaran, Former, SEBI, Chairman to improve the Customer Service in banks. In its Annual Policy for 2010-11, the Reserve Bank expressed its concern that ” The issue of ‘treating customers fairly’ is assuming critical importance as the experience shows that consumer’s interests are often not accorded full protection and properly attended to. Customer service in the banking industry is increasingly becoming important as banks are privileged institutions and banking is a special public utility service. The Reserve Bank and the Banking Ombudsman’s offices have been receiving several complaints regarding levying of excessive interest rates and charges on certain loans and advances.”
The present Committee will look into among other things the issue of services offered by banks to retail and small borrowers including pensioners, interest rates, bank fees and charges, the system of grievance redressal mechanism prevalent in banks , its structure and efficiency and suggest a mechanism for expeditious resolution of complaints..
The regulator has so much concern for customers, but unfortunately the service providers who earn their money and depend on customers have mastered the art of serving the customers who matter and ignore others conveniently although at a cost. The ingenuinity with which banks ignore the customers has to be experienced to believe. Unfortunately many who experience seldom takes the pains to escalate the complaints to appropriate forum as the efforts and time required are often unaffordable although results are generally favorable. Leave it and silently suffer have been followed faithfully as a fait accompli.
Competition will improve the service has all along been the expectation, but this has been belied as service is no way better in private Sector banks particularly the so called new generation banks compared to that of Public Sector Banks. The problems encountered by customers from new private sector banks are something different. They trap customers with variety of products other than banking products in bank branch premises and customers are forced to retain the products as otherwise they have to incur a heavy loss. Charges are never transparent and one comes to know only after the receipt of the formal document.
Service provided by the ATMS and internet banking are no doubt better as there is no personal inter action and machines do what they are programmed for. Again by chance MACHINES FAIL and an Inter-Action with HUMAN BEINGS become necessary to get a solution, and then one had it. All the joy enjoyed with the aid of machine vanishes the moment the machine fails. Then only contacts and influence will get one the solution early.
The approach of the committee should be to gather the nature of complaints reported and not reported. While information on reported complaints can be gathered from Consumer Forum,( District and National Forums), The Reserve bank, Banking Codes and Services Board Of India, Banking Ombudsman ,banks own head offices, Zonal/Regional Offices/ branches representing metropolitan, Semi-urban ,urban and Rural areas and Indian Banks Association, information on unreported complaints which are many fold than reported has to be obtained through surveys, incognito visits and personal interviews of all types of customers.
The committee has to identify innovative measures to forcefully change the attitude of human resources who provide the service. Introduction of incentives and disincentives in promotion, transfer, emoluments and bonuses linked to customer service will go a long way to change the mindset. The assessment of customer service has to be done independent of Reserve Bank annual inspection, but should reflect in Reserve Bank’s overall rating and should be made transparent for all customers of all banks to see. Perhaps a ratio akin to capital adequacy ratio reflective of Customer Service should be thought of to make bank and its human resources behave responsibly.
Change of mindset is the need of the hour. The message for employees should be “Do Not Ignore any Customer, Treat every Customer as the Bread Winner of the Bank and its employees and Know the Customer through Service”. The Committee’s task is not that easy.
Dr.T.V.Gopalakrishnan
(edited version of this appeared in Business Line Dt15/06/10).
Saturday, June 12, 2010
Good Idea bad Timing
Good Idea ,bad timing,
The move to increase the share of public holding to 25 percent is long overdue and the capital market and retail investors should welcome it and encourage.
As pointed out, the timing may not be very appropriate, but that should not be taken as an excuse to implement it. Compliance to the requirement may take a little longer time than what is envisaged because of the present highly volatile market conditions and tight liquidity environment due to pressing demand for funds from different corners which include funding infrastructure,the idea should not be diluted or shelved even for the time being.
This is an opportunity for widening and deepening the capital market and the benefits are very many for the economy and retail investors. The craze for investments in gold and real estate will cool down and it is an excellent move for creation and distribution of wealth for a vast segment of people. The volatility seen in the market will also gradually get eliminated to a great extent when the share holding pattern changes. Retailers will derive the satisfaction of being contributors towards capital formation for nation building activities.
This approach of the Government carries wisdom and should be accepted and implemented although it may appear to be ill timed.
Dr. T.V. Gopalakrishnan
The move to increase the share of public holding to 25 percent is long overdue and the capital market and retail investors should welcome it and encourage.
As pointed out, the timing may not be very appropriate, but that should not be taken as an excuse to implement it. Compliance to the requirement may take a little longer time than what is envisaged because of the present highly volatile market conditions and tight liquidity environment due to pressing demand for funds from different corners which include funding infrastructure,the idea should not be diluted or shelved even for the time being.
This is an opportunity for widening and deepening the capital market and the benefits are very many for the economy and retail investors. The craze for investments in gold and real estate will cool down and it is an excellent move for creation and distribution of wealth for a vast segment of people. The volatility seen in the market will also gradually get eliminated to a great extent when the share holding pattern changes. Retailers will derive the satisfaction of being contributors towards capital formation for nation building activities.
This approach of the Government carries wisdom and should be accepted and implemented although it may appear to be ill timed.
Dr. T.V. Gopalakrishnan
Monday, June 7, 2010
A Healthy Move
Public Float
This refers to the news item Listed companies must have 25 percent public float(ET, 5th June,2010). This is an excellent move and retail investors should welcome,encourage,support and improve their own saving pattern by switching over to investment in capital market. Minimum 25 percent subscription by public will result in better and fair price discovery of the shares and bring in some order of stability in the volatility of the market.
Such a move as and when get fully implemented and complied with by all listed companies will ensure better distribution of wealth, improved liquidity in the availability of shares and also offer an opportunity for retailers to take part and contribute in the capital formation. This will also pave way to gradually move away from investment by households in gold and Jewelery. In the long run, this measure alone will prove to be a challenge for FIIS who dictate terms to our capital market. Over all this is going to improve the health of the capital markets in all respects.
Dr. T.V. Gopalakrishnan
(This appeared in ET Dt 7th June 2010)
This refers to the news item Listed companies must have 25 percent public float(ET, 5th June,2010). This is an excellent move and retail investors should welcome,encourage,support and improve their own saving pattern by switching over to investment in capital market. Minimum 25 percent subscription by public will result in better and fair price discovery of the shares and bring in some order of stability in the volatility of the market.
Such a move as and when get fully implemented and complied with by all listed companies will ensure better distribution of wealth, improved liquidity in the availability of shares and also offer an opportunity for retailers to take part and contribute in the capital formation. This will also pave way to gradually move away from investment by households in gold and Jewelery. In the long run, this measure alone will prove to be a challenge for FIIS who dictate terms to our capital market. Over all this is going to improve the health of the capital markets in all respects.
Dr. T.V. Gopalakrishnan
(This appeared in ET Dt 7th June 2010)
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