PARAGRAPH, WORD AND MEANING
PAFAGRAPH OF THE DAY –
Face the inevitable: the spike in bond yields
The sharp rise in bond yields has hit banks with losses on treasury operations dominated by sovereign bond holdings. Rating agency ICRA believes the fall in bond prices on expectation of the Central government breaching its fiscal deficit target has led to banks suffering a loss on paper of over ₹15,500 crore in the quarter that ended in December. The yield on Indian 10-year benchmark government bonds has risen steeply, from about 6.5% at the end of August to 7.56% on January 16. Even the yield on newly issued 10-year bonds that would mature in 2028 has inched up 27 basis points since January 5. Bankers have pleaded that the Reserve Bank of India allow them to stagger the reporting of these losses over several quarters. In seeking leeway, they have pointed to the huge burden imposed on their balance sheets by non-performing assets clogging the banking system. After all, India’s banks, flush with cash since demonetisation, are the largest (and captive) holders of government bonds, thanks to a regime that requires them to maintain a high proportion of assets in them. That deposits have grown while credit offtake has not, makes matters worse. But seeking regulatory forbearance is not the solution. This argument may not find much traction with the banking regulator, going by Deputy Governor Viral Acharya’s remarks on Monday. Any kind of accounting chicanery that makes the books look rosy will come at the cost of the accuracy with which banks reflect their financial health. Banks, which are supposed to be good at assessing not just creditors’ credibility but also the broader trends in the economy and the financial markets, cannot feign surprise at a rise and fall in bond yields. As Mr. Acharya has pointed out, banks understand the impact of interest rate movements and the risks of bond investments, and they perhaps choose to ignore this thanks to a “heads I win, tails the regulator dispenses” mindset. Just as banks need to be held accountable for their lending decisions and their advances, treasury operations and bond investments also need accountability and risk management systems. After all, there are trained professionals handling their large bond market operations who know of the principles of asset allocation and the hedging of risks. Banks should simply step up their game and address the reasons for their investment losses instead of resorting to measures aimed at hiding their problems. Any temporary measure, such as the request to stagger the recognition of bond losses, will only worsen it. Moreover, irrespective of the accounting standards banks are asked to follow, the markets can easily call this bluff and bid down their share prices.
WORDS AND MEANING –
Steeply
Meaning: At a steep angle; sharply.
Example: “The walls of the gorge rise steeply on both sides”
Pleaded
Meaning: Make an emotional appeal.
Example: “She pleaded with them not to gag the boy”
Synonyms: Beg, Entreat
Stagger
Meaning: Astonish or deeply shock.
Example: “I was staggered to find it was six o’clock”
Synonyms: Astonish, Amaze
Clogging
Meaning: Block or become blocked with an accumulation of thick, wet matter.
Example: “The gutters were clogged up with leaves”
Synonyms: Block, Obstruct
Antonyms: Unblock
Regime
Meaning: A system or ordered way of doing things.
Example: “Detention centres with a very tough physical regime”
Synonyms: System, Arrangement
Offtake
Meaning: The removal of oil from a reservoir or supply.
Forbearance
Meaning: Patient self-control; restraint and tolerance.
Example: “His unfailing courtesy and forbearance under great provocation”
Synonyms: Tolerance, Toleration
Traction
Meaning: The grip of a tyre on a road or a wheel on a rail.
Example: “His car hit a patch of ice and lost traction”
Synonyms: Grip, Friction
Chicanery
Meaning: The use of deception or subterfuge to achieve one’s purpose.
Example: “Storylines packed with political chicanery”
Synonyms: Trickery, Deception
Rosy
Meaning: Promising or suggesting good fortune or happiness; hopeful.
Example: “The strategy has produced results beyond the most rosy forecasts”
Synonyms: Promising, Optimistic
Antonyms: Bleak, Dismal, Depressing
Feign
Meaning: Pretend to be affected by (a feeling, state, or injury).
Example: “She feigned nervousness”
Synonyms: Simulate, Fake
Antonyms: Sincere
Perhaps
Meaning: Used to express uncertainty or possibility.
Example: “Perhaps I should have been frank with him”
Dispenses
Meaning: Distribute or provide (a service or information) to a number of people.
Example: “Orderlies went round dispensing drinks”
Synonyms: Distribute, Pass round
Antonyms: Collect
Hedging
Meaning: Limit or qualify (something) by conditions or exceptions.
Example: “They hedged their story about with provisos”
Synonyms: Confine, Restrict
Resorting
Meaning: Turn to and adopt (a course of action, especially an extreme or undesirable one) so as to resolve a difficult situation.
Example: “The duke was prepared to resort to force if negotiation failed”
Synonyms: Use, Utilize
Hiding
Meaning: Prevent (an emotion or fact) from being apparent or known; keep secret.
Example: “Herbert could hardly hide his dislike”
Synonyms: Keep secret, Conceal
Antonyms: Disclose
Bluff
Meaning: An attempt to deceive someone into believing that one can or is going to do something.
Example: “The offer was denounced as a bluff”
Synonyms: Deception, Subterfuge
Bid down
Meaning: To decrease the value of something, usually a security, by offering to pay lower and lower prices for it.
Example: Only buy that stock if you are able to bid it down first.
