It had been pointed out to the banking regulator that one-day default was difficult to monitor in large companies, especially where cash flows are dependent on government payments.
The PNB fiasco falls into a family line that involves non-fund limits - read contingent liabilities which are off-books. Harshad Mehta did it with bankers' receipts in 1992. Ketan Parekh exploited the ignorance of bankers who did not know the difference between a cheque and a pay-order. And the RBI blinked when it failed to insist the SWIFT platform be linked to the core banking solution. Raghu Mohan & Abhijit Lele trace the banking mess that was just waiting to happen.
Given the pressure from India Inc and the banking fraternity, it is surmised that the portfolio rejig will take place before April.
If the new governor can think out of the box even as he signals that he can bat for the RBI cadre and respect its institutional memory, that will go a long way in getting out of the current impasse.
Use of blockchain technology will ensure that banks will not be blindsided like in the case of the Nirav Modi-Mehul Choksi blowout at PNB, says Raghu Mohan.
Today, they can't meet even the piffling capital norm set by Mint Road - Rs 5 crore for partnerships and Rs 10 crore for public and private firms in this line of business. Bulk of the trades are put through e-platform offerings of Reuters, Bloomberg, JPMorgan, Barclays or Deutsche Bank. And they have the web-based FXall, FXconnect, Atriax, Hotspotfx and LavaFX for company.
According to the RBI's April 6 circular, cash loading companies, which take cash around the country, are supposed to increase their net worth to Rs 1 billion within 90 days.
The specifics will also cover what's fit and proper to be a chest manager; the insurance and re-insurance aspects; and the new capital threshold, which is Rs 100 crore now.
The heartburn is over six sensitive issues
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