| Deputy Governor Thorat noted that the balance of payments crisis in mid-1991 was triggered by increase in oil prices and the Gulf war, which were the underlying factors behind the macro imbalance in the form of unmanageable current account and fiscal deficits in India. The crisis triggered a long term response, which included major reforms in Indian trade industry foreign investment and the development of equity, foreign exchange and government securities markets. There were fundamental changes in monetary management consequent upon stoppage of automatic monetisation of the government deficit and the switching over to an auction-based market borrowing for meeting the fiscal deficits.
Many valuable lessons were learnt, noted Mrs Thorat, including the understanding that exchange rates should not be overvalued for long periods and excessively high remuneration on reserve requirements erode monetary control.
The Securities Irregularities in 1992
The speculative trading in the stock market funded by bank liquidity through repurchase transactions in government securities and bonds, facilitated by a nexus between brokers and banks led to the crisis of securities irregularities in 1992.
“In part this reflected a way of earning higher yields in an otherwise administered interest rate structure. Such transactions were done against bank receipts where there were no underlying government securities,” said Mrs Thorat.
Mrs Thorat shared that the events that led to these irregularities could be attributed to weaknesses and lack of transparency in the market infrastructure for government securities, excess liquidity with public sector undertakings, nexus between banks and brokers and inadequate internal controls that led to bank funds flowing to the stock markets fuelling abnormal stock price increase
Non-Banking Financial Companies in 1997
Non-Banking Financial Companies (NBFCs) in India have been historically subjected to a relatively lower degree of regulation vis-à-vis the banks, but the higher rates of return on deposits they could offer enabled them to attract a large base of small savers, thus posing a potential threat to the stability of the financial system.
Added to these was the fact that operations of NBFCs were characterised by several distinctive features such as no entry barriers, no requirement for large investment in fixed assets and inventories and freedom to open branch offices, all of which led to their proliferation.
Mrs Thorat pointed out several learning points from the NBFCs issue, namely the need to recognise the possibility of regulatory arbitrage between the entities regulated by banks and NBFCs, and between the securities regulator and the bank regulator. Adding to that was the need for legal powers to regulate the activities of NBFCs, including framing of guidelines for compulsory registration, stringency in conditions for deposit-taking companies akin to banks, and applicability of prudential norms.
The Asian Crisis of 1997
The Asian financial crisis started with stock market and currency crashes and spilt over to the real sector. This crisis irrevocably changed the way Asian countries looked at issues of financial stability. The Indian market was not immune. Even though there was a general belief that some correction in the rupee was required, the pressure on the rupee in later part of the year required RBI to intervene to maintain orderly conditions.
Mrs Thorat shared several key takeaways from the Asian crisis, such as the need for complementarity between macroeconomic stability and financial stability, the management of exchange rates for preserving competitiveness and confidence in the economy, and the need for closer supervision and regulation of banks and other financial institutions.
The Current Financial Crisis
This crisis highlighted that globalization has meant that no country is immune from developments in the global financial markets. At one level, the presence of complex and interconnected financial entities across several jurisdictions with regulators at the national level has posed huge challenges in addressing systemic risk and ensuring better coordination amongst regulators and no regulatory arbitrage. Even within a jurisdiction, it is recognized that all regulators have to deal with systemic risk and there is need for inter-regulatory dialogue and vigilance.
Mrs Thorat felt that at the macro level, Asian countries and Latin American countries have learnt lessons from their own past currency and financial crises. Apart from consciously developing their financial markets, they have built up reserves and strengthened their financial systems. “They have been careful to ensure that their banks are not involved excessively in toxic assets or overly innovative transactions,” said Mrs Thorat.
Even so, countries have still had to face the consequences of falling global trade, and diminished GDP, increasing unemployment and slowing credit growth. Nevertheless, while macro-economic imbalances persist, they have been somewhat reduced as reflected by the increasing savings rate in the western world and increased consumption in the East.
Deputy Governor Thorat concluded her presentation by stating that “Ultimately, we all have to be concerned about the real sector and recognize that financial sector development is not a goal by itself but is intended to enable inclusive growth across all segments of the society and regions. As regulators and central banks, it is our duty to ensure this.”
Distinguished FICP 2009 Award Ceremony
In conjunction with IBF’s Distinguished Speaker Series, a group of distinguished industry veterans was conferred the Distinguished Financial Industry Certified Professionals (FICP) title by IBF. The FICP title is the highest certification mark for a financial practitioner in Singapore under the FICS framework. Each of the distinguished individuals embodies professional competence and commitment to excellence, and serves as a beacon of excellence for our financial services industry.
The 16 distinguished senior practitioners conferred the FICP title were:
• Ms Gwee Siew Ping - Regional Head of Compliance & Risk, Asia Pacific, Schroder Investment Management (Singapore) Ltd
• Mr Tham Ming Soong - Executive Vice President and Group Head, Risk Management, United Oveseas Bank
• Mr Ravi Raju – Managing Director and Regional Head of Private Wealth Management, Asia Pacific, Deutsche Bank AG
• Mr Remy Klammers - Managing Director and Global Head of Fixed Income Trading, Standard Chartered Bank
• Mr Colin Pakshong - Chief Executive Officer, TM Asia Life Singapore
• Mr Lam Kun Kin – Executive Vice President and Head of Global Treasury, Oversea-Chinese Banking Corporation Limited
• Mr Peter Douglas – Principal, GFIA Pte Ltd
• Mr Shaji Chandrasenan – Director, Financial Risk, Specialist Risk Supervision Division, Monetary Authority of Singapore
• Mr Pierre F. Baer - Chief Executive Officer, Singapore & South Asia, SG Private Banking, Societe Generale Bank & Trust
• Mr Anand Kumar - Managing Director, Origination Client & Coverage, Standard Chartered Bank
• Mr Gopalan Vedartham - Managing Director, Head of Market Risk, Asia Pacific, Barclays Capital
• Mr Piyush Gupta - Chief Executive Officer (Designate), DBS Bank Ltd
• Mr Marcel Kreis - Managing Director and Head of Private Banking Asia Pacific, Credit Suisse
• Mr Jonathan Larsen – Head of Consumer Banking & Global Cards, Asia Pacific, Citi
• Mr Daniel Chan Choon Seng - Chief Executive Officer & Chief Investment Officer, Lion Global Investors Ltd
• Ms Stella Tan Yian Hua - Chief Executive Officer, Tenet Insurance Company Ltd |