While the Indian economy is still suffering from the high inflation rate (of around 9.6% in October 2012), Indian State Bank is also going through the issues of liquidation crisis to solve which, the government recently announced a bailout package of Rs 4,000 crore to help the bank in maintaining its capital adequacy levels. It should be noted that currently, SBI is required keeping 6 per cent of their deposits in cash with the Reserve Bank of India as CRR (Cash Reserve Ratio). In addition, the State Bank is also required to keep 24% of its total deposits as SLR on which, the government pays the interest as this SLR (Statuary Liquidity Reserves which are used to provide debt funds to the government). The remaining 70% can be used by the banks to offer it to the borrowers who desire money for their personal usage and business investments. What does it means? The State Bank of India owns nothing, it is a service provider to which we deposit our money for safekeeping and protection and in return, we get a right to use our deposits at any time. That is, we give our money for the bank not to use …Read the Rest
Tag: Reserve Bank of India
Issue of Hoarding Money in Swiss Banks
The political sting against corruption and black money1 that was raised by Team Anna and Baba Ramdev hasn’t evaded yet and the Indian media is ready to blow winds against hoarding in general. Recently, various Indian newspapers, including The Indian Express published a report about rich Indians hoarding banknotes, art works and gold in Swiss Banks2 . General belief is that by hoarding money, people selfishly cause a slug in the flow of money circulation and hence, they hamper trade. Politicians, mob leaders and Keynesian economists suggest that hoarding of money causes depression, poverty and other economic problems. Politicians also make a huge issue of hoarding money and Indian President Pranab Mukherjee also expressed his worries over flow of savings for investment in gold3 when he was the finance minister of India. He said that there is a need to dissuade people from investing in gold. However, hoarding is certainly not a menace and all this hue and cry against hoarding money is Swiss banks is just because of irrational Keynesian economic approach. What is Money Hoarding? Hoarding money is saving money (in any form) to use it in future, when the need arises. It is a person’s increased desire …Read the Rest
Explaining Indian Economic Crisis
In September 2008, the collapse of Lehman Brother helped trigger an economic and financial crisis that swept across the globe. Since then, the whole global economy is suffering a continuous economic meltdown. On the other hand, the Fabian socialist democratic governments1 around the world are trying to delay the collapse and obviously, they are failing. Wrong Steps of Indian Government Exacerbated Economy of India In 2008, Indian government boasted about its strictly regulated banking system and claimed that Indian economy is strong enough to resist any economic meltdown. However, the UPA government and the Reserve Bank of India knew more than what Indian ignorant citizens believed. Reserve Bank knew that India is much more in danger than any developed country and to counter the effects of global recession, Indian UPA government and Reserve Bank of India blindly followed Keynesian idea and the same path of economic stimulus and bailouts2 as was followed by the US government. Huge economic stimulus for the failing economic sectors of Indian market was offered. This was done in a hope that by increasing supply, they will somehow increase the demand. Same was done in the United States, in United Kingdom and other Eurozone countries and …Read the Rest
Bailouts and Government Bonds
Why United Kingdom Should Not Bailout Defaulting Eurozone Countries? Since 2008, the globe is facing serious issues of recession and right since then almost every government is trying to provide as much stimulus package and bailouts for the failing companies as it could. And now, in order to support the European countries against the Eurozone crisis, many governments are again pushing the idea of bailouts for countries suffering Eurozone crisis. Our world is facing a global debt crisis; almost every other nation is suffering the burden of huge national debt which is increasing regularly. The current national debt of the United States is $15.03 trillion1 , while the current national debt of United Kingdom is around £1.1 trillion. However, government often doesn’t care about the national debt because basically, it is not the government which is meant to pay any of this debt; rather the citizens of a nation are responsible to pay back all this debt. During the recession of 2008, the governments of the United States and the United Kingdom offered bailout packages free handedly that resulted in huge increment in national debt. United Kingdom is again expected to pay £5 billion to bail out Spain2 as the …Read the Rest
