Artha Vijnana: Journal of The Gokhale Institute of Politics and Economics

M. K. Datar ¹

Affiliations
1 Research and Planning Department, Industrial Development Bank of India, IDBI Tower, WTC Complex, Cuffe Parade, Mumbai-400005, IN

Abstract

Liquidity risk is a crucial factor in the business of commercial banking. At the ischolar_main of the 1997 Asian crisis was the failure of banks to meet liquidity risk arising from differences in currency composition of their assets and liabilities. Diamond and Dybvig (1983), Diamond (1997), Diamond and Rajan (1999) have considered liquidity issues centrally important in theory and functioning of commercial banks.

Looked from this perspective, maturity transformation is an important aspect of financial intermediation. Providing deposit insurance is a well accepted measure that enables banks to provide liquidity by maintaining public confidence in the banking system. Similar would be the effect on public confidence where banks are owned by government. With moves towards competition and deregulation, operating in market-oriented business environment becomes crucial which make risk management an important task. The process of financial deregulation leads to increased incidence of market risks such as currency risk and interest rate risk.. Moreover, as clients of commercial banks face competitive business environment, their exposure to credit risk too will increase. In such a situation, maintaining liquidity risk within manageable limits becomes extremely important. Liquidity risk would in fact represent aggregate incidence of market and non-market risks.

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M. K. Datar

Abstract

The focus of the World Development Report 1989 (WDR) is on the role of financial systems in the process of economic growth and development. The relationship between the real sectors and the financial super structure built around them has remained an arresting topic for economists although it has not received their constant attention.

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M. K. Datar

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The recent controversy regarding the quantum of India's external debt has highlighted the accelerating pace at which it is growing during 1980s. Even with officially accepted definition, India's external debt/GNP ratio has increased from 12.3% in 1980-81 to 18.9% in 1987-88. The order of increase in external debt and the present level of Debt Service Ratio (24% of current receipts) would indicate that India's external debt is rising rapidly and the risks associated with high and increasing external debt could increase further.

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M. K. Datar

Abstract

The open economy framework is increasingly used for theoretical analysis of macro economic problems as also for discussions regarding policy analysis and policy reforms. The policy literature has grown largely in the context of developing countries; their problems and experiences. While the policy literature has been influenced by developments in theoretical literature, the latter largely remains at an abstract level.

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