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Showing posts with the label non banking financial institutions

Decision Making as Output and Bounded Rationality

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  The classical economics theories proceed on the assumption of rational agents. Rationality implies the economic agents undertake actions or exercise choices based on the cost-benefit analysis they undertake. The assumption further posits that there exists no information asymmetry and thus the agent is aware of all the costs and benefits associated with the choice he or she has exercised. The behavioral school contested the decision stating the decisions in practice are often irrational. Implied there is a continuous departure from rationality. Rationality in the views of the behavioral school is more an exception to the norm rather a rule. The past posts have discussed the limitations of this view by the behavioral school. Economics has often posited rationality in the context in which the choices are exercised rather than theoretical abstract view of rational action. Rational action in theory seems to be grounded in zero restraint situation yet in practice, there are numerous restra
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Recapitalization, Economy and Moral Hazard

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The budget of FY 2020-21 is on the anvil. Incontestably, the Indian economy is performing below par. Without doubt, the Modi government has its task cut out in energising the animal spirits. Despite some contraction, there continues to exist a current account deficit. By almost all accounts, fiscal deficit is likely to breach the target. The high level of NPAs coupled with prospective NPAs are making banks reluctant to lend. Firms are saddled with high debt and thus unable to generate fresh investment. The reluctance of the banks to lend until existing balance sheets are cleaned is aggravating the problem. To add to the woes, is low capacity utilization thanks to lower aggregate demand. The NBFC collapse compounds the misery on the consumer lending front.   Partially, the decline in automobile sales is on account of contraction in lending by non-banking institutions. In the backdrop, economists and industry experts have argued for the recapitalization plan for the banks, housing
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