Capital for banks

The BofA chief’s call for a major regulatory overhaul, advocating relaxation in capital requirements for banks, is surprising. This suggestion comes amidst the backdrop of several bank failures in the US, highlighting the inadequacies in regulatory oversight. The notion of “too big to fail” has led to a lackadaisical approach by US regulators, which contributed to the 2008 credit crisis and subsequent bank collapses, including the Silicon Valley Bank failure caused by an asset-liability mismatch.

Such incidents underscore the pressing need for stringent regulatory controls. At a time when banks globally are focusing on tightening credit norms, the proposed relaxation could undermine the spirit of robust credit monitoring. For instance, the RBI is working to enhance credit oversight by mandating banks to maintain capital against LGD (loss given default) and ECL (expected credit loss), addressing inherent credit risks from unforeseen circumstances. In this context, the BofA chief’s argument for relaxed capital requirements appears short-sighted. Any future bank failures in the US could trigger cascading effects on global banking systems, as evidenced by past crises.

Srinivasan Velamur

Chennai

Fiscal deficit target

This refers to ‘Finmin likely to peg fiscal deficit below 4.5 per cent for FY26’ (December 23) even as it cautions about risks to growth. Notably, the Finance Ministry has emphasised adopting a ‘fair degree of flexibility in conducting its fiscal policy,’ keeping in mind the gloomier global situation. But pegging the fiscal deficit below 4.5 per cent for FY26 could be wishful thinking, even as the fiscal deficit for FY25 is currently pegged at 4.9 per cent.

Reasonably speaking, the rationale behind the government being too ‘optimistic’ on this count is perplexing ? Mind you, the RBI had earlier scaled down the GDP growth rate to around 6.5 per cent for FY25, amid the harsh ground realities as obtaining in the Indian economy. So the need of the hour is for the powers that be to get ‘real’ .

SK Gupta

New Delhi

Falling rupee

The rupee has breached the psychological 85-to-the-dollar mark and slid to 85.2 last week, which is more about strengthening of the US dollar than a weakening of the Indian rupee. With the US president-elect Donald Trump’s threat to effect across-the-board import tariffs, especially on goods from China, and mass deportations of illegal immigrants, the dollar is strengthening against global currencies. In this context, the RBI should refrain from using interest rates as a tool to defend the rupee while keeping the repo rate low or left unchanged based on the trajectory of consumer price index inflation. It should be noted that India’s trade competitiveness depends on the rupee’s exchange rate with not only the dollar but also other global currencies.

M Jeyaram

Sholavandan, TN

ID on tobacco products

That the GST Council has approved a unique identification mark on a cigarette or gutkha pouch to check indirect tax evasion ( December 23) is welcome. Huge tax is levied on tobacco-based products to discourage people from spending money on them. Another reason, of course, is that the demand for these products is inelastic yielding more revenue to the government kitty. Illicit trade has necessitated the need for a unique identification mark to check “sin tax” evasion.

S Ramakrishnasayee

Chennai