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India Grapples with Credit Issues

While the framework utilised by the rating agencies that has led to a delay in ratings relaying the correct credit information to market participants

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India, Credit, Issues
Recent news whereby credit downgrades have just preceded defaults by Non-Banking Financial Companies (NBFCs) is a case in point. Pixabay

As India grapples with credit issues, one of the primary factors that needs analysis is the broken transmission mechanism that relays credit quality to market participants. In common parlance, the transmission mechanism that provides information regarding the credit quality of the borrower to the lenders is unable to do so efficiently. Recent news whereby credit downgrades have just preceded defaults by Non-Banking Financial Companies (NBFCs) is a case in point.

While the framework utilised by the rating agencies that has led to a delay in ratings relaying the correct credit information to market participants is partially to blame for the inefficacious credit transmission mechanism, issues around rating agencies are only part of the problem. For sure, rating agency regulations must be improved, but we must also realise that “credit market frameworks” are much more than ratings.

We must realise that credit ratings have limitations in terms of predicting credit cycle ups and downs. This phenomenon isn’t limited to just India but is a global feature. The inability of the credit rating mechanism to adequately price in and predict the credit cycle implies that a multi-pronged approach is needed to ensure that the credit quality transmission mechanism works effectively. Essentially, India needs to develop other features of the credit market that will assist market participants in gauging credit quality, thereby reducing the risk of a “jump-to-default” scenario we have witnessed repeatedly over the last 12 months.

Indian policymakers need to start working on a framework that will allow a liquid and deep secondary market to develop in credit products. Credit products here refers to the entire universe of lending, including bonds, loans and other instruments. Market pricing of products and risk and therefore increased participation by investors will help in “price discovery” of the credit quality. Constant pricing of credit risk and the concomitant information and structure that entails will imply that lenders will have a better information set with which to make informed credit decisions.

India, Credit, Issues
As India grapples with credit issues, one of the primary factors that needs analysis is the broken transmission mechanism that relays credit quality to market participants. In common parlance, the transmission mechanism that provides information regarding the credit quality of the borrower. Pixabay

A market that allows for secondary liquidity, albeit even small amounts to start with, will also incentivise borrowers to manage their credit profile better. More importantly, a secondary market for credit instruments will go a long way towards avoiding the bunching of credit as it happens in today’s market. A credit market has a cycle, and without the existence of a robust secondary market, in expansionary credit cycles, poor quality credit gets excessive access to capital. On the contrary, once the credit cycle contracts credit access for all businesses is diminished to a great extent.

We must work towards breaking the above trend that has plagued the Indian economy significantly. A secondary market for credit instruments will incentivise both lenders and borrowers to behave in a way such that the entire available pool of credit goes towards the most optimal usage.

Policymakers also need to start utilising vehicles similar to Real Estate Investment Trusts (REITs) or Infrastructure Investment Trusts (InvITs) to allow for the pooling of credit instruments. While debt mutual funds exist in the market, the aim of the new “credit pooling vehicles” will be to enable institutional investors to access credit instruments across the spectrum, and not just limited to certain corporate bonds. Access to vehicles that allow for greater liquidity and transparency will go a long way in increasing the capital availability and investor participation in Indian credit markets.

As India looks to boost economic growth, it is essential to realise the credit interlinkages in the economy. To boost exports, a primary aim in India, credit access will be a vital component, if not the most important. If credit is constrained by inefficiencies in the credit information transmission mechanism and therefore leads to inefficient lending in the real estate sector, then it is essential to realise that not only is the real estate sector severely affected but so are other areas such as exports. Primarily, an improved credit framework will lead to both higher availability of capital and credit availability at more affordable rates.

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Credit markets, like all businesses, will move in cycles. Indian policymakers must aim to start building on the blocks that will allow credit downturns to be less severe and shorter. The ability to provide the market access to better information and investment structures will go a long way in improving credit pricing, and thereby credit access. (IANS)

Next Story

Hair Care Tips to Prevent Hair Damage During Holi

Don't let pre-Holi splashes ruin your hair

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Holi hair care
Whether you play Holi on the big day itself, or don't mind several splashes of colour in its run-up, your hair should not suffer in the festivities. Pixabay

Holi is around the corner, which means we are all prepping up to enjoy one of the most cheerful and fun occasions in our calendar, the festival of colours. Whether you play Holi on the big day itself, or don’t mind several splashes of colour in its run-up, your hair should not suffer in the festivities.

“The enjoyment and celebration is amazing but can turn out to be a bad dream for the skin and hair. Leaving its impact as breakouts for skin inflammation, rashes, dryness and for hair, it leads to hair fall, frizziness and that’s not all,” Agnes Chen, National Technical Head at Streax Professional.

Before you jump into the pond of colours, here are Chen’s pre-Holi hair care tips everyone should follow to avoid the after-effects of the harmful colours.

Holi hair care
The enjoyment and celebration is amazing but can turn out to be a bad dream for the skin and hair. Pixabay

Pre-Holi hair care regime

There are several ways to protect your hair from the onslaught of harsh Holi colours. Shampoo your hair with nourishing shampoo to hydrate and moisturise the hair, apply a nourishing and hydrating conditioner and leave the conditioner in the hair. Now, tie it up to your hair in a bun and go out to enjoy Holi. The conditioner acts as a barrier and protects the hair.

Holi colours that are chemical-free and organic washes off easily and does not need to be removed forcefully and therefore, should be preferred.

Removing Holi colours

It is strongly recommended to thoroughly rinse your hair with plain water to get rid of dirt, dry colours and chemicals in the colours, but it is essential to remove colours without going harsh with your scalp and hair. Apply a mild shampoo, gently massage your hair and scalp, leave it for about 10 minutes and then rinse out the shampoo completely. Now, apply a rich conditioner that will help replenish the oil and moisture that are taken away by the chemicals. For further effect, you can oil your hair and leave it overnight after Holi.

You can also opt for hair mask for next 2-3 days to get rid of the damage done by the chemicals.

Holi hair care
Holi is the festival of fun and frolic with friends and family. Pixabay

Care for chemically treated hair

If the hair is very dry and chemically treated, you need to be even more careful during and after Holi. You must use a hair spa mask and leave it in the hair while you celebrate with colours. Traditionally a good hair oil like coconut oil or olive can be massaged on the scalp and hair from roots to ends. Tie your hair up in a tight braid before stepping out to play colours. The oil hydrates and keeps the hair nourished while acting as a wall against Holi colours.

“Celebrating the festival with dry and organic colours is always advisable as dry colour can be

easily dusted off. If the colour is not organic or chemical-free, then it can make the hair more delicate and cause the texture of the hair to go dry and rough. This is because when the original hair is being chemically treated, they are sensitive and when the cuticles are damaged due to chemicals, the hair bonds are broken,” Chen said.

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If the unwanted colour persists on your coloured hair, you can also opt for hair colour techniques so that other vibrant colours can be camouflaged by using an ammonia-free base shade on a level 3 or 4. In any other extreme cases, you can go in for a layered and textured haircut to remove the coloured bits.

Holi is the festival of fun and frolic with friends and family. So, don’t let the fear of hair damage keep you away from the festive revelry. Just follow these little tips and enjoy carefree festival. (IANS)