Byapaar.com -The Indian Business Blog

In an unprecedented mood a world consortium of Central Banks from many leading countries led by the US Federal Reserve (Fed) have tried to infuse huge liquidity in the credit market which is starved of funds. This caused a positive response from the market which has been on a sustained bull runs for last few months. The DOW JONES immediately opened at 250 points higher than the previous closing.

The US Fed has declared on Tuesday that from now on financial firms can use home loan mortgages as collateral for the next 28 days. This released about $200 billion in the US liquidity market. On the other hand the European Central Bank, the Bank of Canada, Swiss national Bank and the Bank of England have also announced measures to infuse huge fund simultaneously to arrest the contraction of market trends every where. The burnt of these measures was felt by the bond market that has naturally crashed.

Martin Blum, head of emerging markets research at UniCredit in Vienna said

“In the near term, the Fed and global central banks have provided the thing everyone needed, and that’s cash”.

As part of latest policy updates, the Bank of Canada provided C$4 billion, Swiss National Bank $6 billion, and the European Central Bank said it would auction bonds for a term of 28 days thereby providing $15 billion to the credit market.

But some market analysts say that, these measures by the world consortium might revive the market immediately, however questions remains how far these soaps would go in reviving the world economy as a whole for a long duration that everyone longs for.

“The Fed action is good for a day or two”

according to Michael Cheah of AIG Sun America Market Management.

In the Indian context, the market which has been on a sustained bull run for nearly two months and lost almost 30% seems to be upbeat with the latest move which is evident from a jump of 1.25%  of share prices in the BSE Sensex .

“It will be certainly good for our markets. Some action was necessary from the Fed and they are going in the right direction. Our markets have been on a recovery path and additional support by the Fed will consolidate gains further in the domestic markets”

said Kunj Bansal, senior vice-president, portfolio management services at Kotak Securities. Evidently Indian market has recovered significantly since Tuesday.

Just imagine what happens if the “title” of this post comes true sooner than later in India. Heard of Credit Rating? Being an Indian, I have only read about it on newspapers occasionally and sometimes found irritating SPAM mails on my inbox by some companies who were enticing me to make my credit score higher even if I had bad debt.

But don’t be surprised if you are denied a bank loan in the near future because of your bad credit score caused by intentional default or irresponsible financial management by you. On the other hand your loyal driver has been paying his mobile bills, gas bills regularly and hence he gets a a very high credit score. He gets cheaper bank loans, but you are denied.

Yes you guessed it right. If everything goes according to the plan the biggest names in credit rating industry ( such as Equifax and Experian ) will be opening their shops very soon infront of your office desk and decide on your eligibility for loans Quite scary! But thats what Indian government has been contemplating based on an assessment by a consortium of banks and financial institutions. They have already filed an application with the Reserve Bank Of India (RBI). So far there has only been one credit rating agency operating in India known s Credit Information Bureau Of India Ltd. (CIBIL). But its work has been limited due to absence of proper regulations. The government passed The Credit Information companies Act. only in 2005 that enables banks and financial institutions to reduce risks of bad debt and fraudulent activity. They can now share sensitive personal information of consumers with a recognized agency without taking permission from the person concerned. These agencies are to analyze the data and collect further information to build profiles of individuals to judge their eligibility for loans. People who gets higher score are to receive bank loans quicker and cheaper. On the other hand those with low scores might even get denied.

However the concept is still new in India and it remains to be seen how willing are banks and other institutions to part with the database. Another factor in this regard is how serious will the bank take on the analysis provided by these credit rating agencies. The government on the other-hand is trying to formulate a more detailed regulation making it mandatory for all banks to subscribe to at least one such agency.

So its going to be bad times for loan defaulter pretty soon. Be careful!

The third quarter review of Indian Monetary policy released by the Reserve Bank of India recently revealed that RBI has decided to retain the key rates in a bid to maintain financial and price stability. Keeping in view of the domestic and international financial conditions, the RBI has decided to leave unchanged all key rates, including repo (7.75 percent), reverse repo (6 percent) and Cash Reserve Ration or CRR (7.5 percent). The stance of the policy is to contain inflation close to five percent while conditioning expectations I the range of 4 to 4.5 percent. The Gross Domestic Product (GDP) projection for the year 2007-08 also remains same at 8.5 percent. The flexibility to conduct overnight or longer term repo including the right to accept or reject tenders under the liquidity adjustment facility (LAF) wholly or partially is retained. The major highlights of the monetary policy include emphasis on credit for employment intensive sectors, reasonably positive prospects for industrial sector, favorable prospects for services etc