Sunday, July 18, 2010

Lending policies is there any safe way out? Liberalized or conservatism which view do you hold or is there any third way out?

The world seems to be astonished looking at India, a country which was popular for snake charmers and elephants in west is in news but for all the new reasons. From the terminology of “outsourced” synonymous to “Bangalored” in world, to financial shock observer India is leading the world for its policies and conservative approach.

Some day we blamed public sector banks for there hundreds of documentation procedures but today we look at them proudly and say” This is called banking”. When United States largest banks were in soup we had State Bank of India having its revenues exceeding its previous year. When People had serious doubts about banks like CITI Bank in India we even had private players like HDFC being not affected.

The Basel committee on banking supervision which consists of 27 countries seems to be following the same path of Indian Banking system with its new recommendations. The recommendations would be to thicken capital buffers, hold more liquid and cut down on leverage. This means improving on Cash Reserves (Like Indian CRR) and Capital adequacy ratio (CAR)will become mandatory for all the banks in the 27 nations at least.

The reason of the policy is simple, to avoid any other financial crisis in the future as was last time(mostly because of excessive liberal lending policies). Now when we are talking about capital account convertibility in India the world seems to be moving our way towards a more conservatism.

Liberalized policies or conservatism? One recession and we seem to neglect the growth created by the liberal lending policies, is the solution right or is there any other way around? Can we have a standard lending policies promoting growth?


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