RBI, Sebi join hands to calm volatile mkts
UNDER SCRUTINY Regulators say closely monitoring the financial markets and will take appropriate steps if required
MUMBAI: India’s banking and markets regulators issued a rare joint statement late on Sunday stating that they are closely monitoring the financial markets and will take appropriate steps, if required, to ensure their smooth functioning.
“The Reserve Bank of India and the Securities and Exchange Board of India are closely monitoring recent developments in financial markets and are ready to take appropriate actions, if necessary,” the statement said.
The regulators’ move to calm investors comes after the BSE’S benchmark Sensex crashed nearly 1,500 points on Friday over a rumoured default by mortgage lender Dewan Housing Finance Ltd and the uncertainty surrounding the future of Infrastructure Leasing & Financial Services Ltd (IL&FS).
Shares of other home financiers also slumped following the rumours but later recouped some of their losses after Dewan Housing denied that it had defaulted on payments.
State Bank of India chairman Rajnish Kumar also stepped in to reassure investors on Sunday, saying that there was no concern related to liquidity at mortgage lenders. Friday’s slump in the stocks of home financiers was attributed to fears of liquidity tightness and potential systemic risk arising from exposure to IL&FS. The regulators seem to be Joint statement by RBI, Sebi concerned about linkages between various financial institutions i n the system and whether any defaults, real or rumoured, can lead to the possibility of a systemic contagion. The intricate inter-linkages in the financial system render all agents vulnerable in case of a default by a single player. This systemic risk can bring the entire financial system to a halt.
Separately, reported on Sunday that a deputy governor of Reserve Bank of India is likely to meet shareholders of IL&FS on September 28 to discuss recent defaults by the group. The agenda of the meeting will include a discussion on the capital infusion plan that the shareholders will take up on Sep- The regulators’ move comes after Sensex crashed nearly 1,500 points on Friday over a rumoured default by a housing finance company and uncertainty regarding IL&FS’S future RBI has initiated a special audit of IL&FS after it defaulted on its inter-corporate deposits raised from Sidbi
tember 29 at an annual general meeting of the company, the report said. However, no confirmation of this meeting was forthcoming when made independent enquiries with State Bank of India and Housing Development Finance Corp. Ltd, both shareholders of IL&FS.
The banking regulator has already initiated a special audit of IL&FS after it defaulted on its inter-corporate deposits raised from Small Industries Development Bank of India.
On Friday, Ramesh Bawa, MD of IL&FS Investment Managers, a unit of IL&FS, resigned. On the same day, the non-banking financial company told the stock exchanges that it has defaulted on a letter of credit to IDBI Bank.