US markets have closed with losses as the investors were nervous with the revised bail out package approved by US Senate, which will have to be cleared by House Representatives now. The current form of package ensures safety of depositors, small and medium families and businesses, rather than capitalising ailing banks directly. The deposit insurance is raised from $100,000 to $250,000 is good for the above category, but increases the cost of insurance of banks and financial institutions, which are already down with losses on account of heavy provisions. The proposal to clean the balancesheets by purchasing troubled loan assets, which are illiquid, directly by Government, would have helped the financial system, to get fresh lease of life to move on. The administrators though wished this method, in the first instance, the senators are shrewd to protect the depositors and investors rather than the share holders and management. The bad management need not be protected and they have brought this situation troubling the US economy due to reckless practices of misuse of securitisation concept, building castles without any base and adequate capital adequacy norms, and risk management systems in place. Thus, though in the short to medium term there is no perfect remedy or solution to the crisis that is being faced, the measures initiated and approved by Senate are good in the long term for US financial system and economy.
As an ex banker, I just wonder, how banks all over the world, including in India, lend at higher rate to a weaker enterprenuer (with lower credit rating), and give concessions even below 'prime lending' rate to a strong and sound businesses. Actually, it should be otherway round. The small and medium sized businesses which have to compete with large players in the market economy, where 'concept of Global village' concept is in vogue, should be encouraged with cheaper credit, thus, every one survives. This shall be in tune to charge or collect the revenue, taxes, interest etc., proportionate to the incomes or returns.
Our markets will open weak initially and shall be volatile, as Singpore Nifty futures currently are quoting at a discount of 78 points, and the inflation data to be released in the after noon, if comes below 12% might bring some stability at the end of the session. However, it will be intersting to see whether Nifty closes above 3985.25(previous weekly closing) and able to conquer the 4000 mark today.
Range for the Day: Nifty might move in the range of 3840 to 4040.
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