Banking regulation and unintended consequences

Banking regulation and unintended consequences

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Certain actions of the Regulator though not unintentional end up with a different result.  Here is an article which narrates it more.

  • Many well-intentioned steps taken by regulators in the past are creating headaches on multiple fronts due to the unintended consequences of specific measures.
  • Although welcome, the new Regulations Review Authority 2.0 (RRA) set up by the Reserve Bank of India (RBI) to streamline banking regulations has an unenvious task ahead of finding remedies for several such inadvertent outcomes.

Mandatory fund raising via bonds: 

  • With an intent to expand the bond market and reduce corporate reliance on bank finance, large listed entities rated AA and above were directed to source 25% of their incremental financing requirements via bonds.

Recent data from the central bank and Securities and Exchange Board of India (Sebi) corroborates the fact that the country’s overall bank lending pie has reduced for creamy well-rated companies.

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