Current Affairs - May, 2019

Latest Current Affairs May, 2019 with Current Affairs, news summary on current events of National and International importance of May, 2019 for Banking, SSC, CLAT, UPSC, State PCS, IBPS, Railways and other Competitive Examinations.

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Harsh Vardhan Committee: on Housing Finance Securitisation Market Development

The Reserve Bank of India (RBI) constituted a committee under Harsh Vardhan, to review existing state of mortgage securitisation in India and suggest measures to develop market further.

About Committee on Development of Housing Finance Securitisation Market

  • Composition: The committee constitutes a six-member panel that is headed by Harsh Vardhan, Senior Advisor in Bain & Company (a Management consulting company).
  • It shall submit its report to RBI by the end of August 2019.
  • Objective:
    1. To review existing state of mortgage backed securitisation in India and also suggests measure to deepen housing finance securitisation market.
    2. To assess role of various counterparties in securitisation process which includes servicers, rating agencies, trustees, and also suggest steps to address key risks.
  • Need: Currently the mortgage securitisation market in India is mainly dominated by direct assignments among a limited set of market participants on account of various structural factors which impacts both demand and supply side and also several prudential, legal, tax and accounting issues. Therefore, , a careful design of a robust and transparent securitisation framework assumes paramount significance for Indian economy.
  • Significance: India must also learn from international experience which shows that it is critical to address issues of misaligned incentives and agency problems which results from information asymmetry problems between originators and investors in market, which can worsen systemic risk.

India removed from US’s Currency Watchlist

In a recent announcement by United States, it has removed India and Switzerland from the currency monitoring lists. The US has retained other countries like China, Japan and Germany in the list.

Key Highlights

  • Background: It was in May 2018 when for the first time India was placed by US in its currency monitoring list of countries with potentially questionable foreign exchange policies, and because India had a bilateral trade surplus with US, which crossed country’s maximum limit of $20 billion. Other five other countries along with India included Japan, China, Switzerland, Germany and South Korea.
  • Objective: The list basically consists of major trading partners of US who are to be closely monitored for potentially questionable foreign exchange policies. The move is taken amid escalating trade tensions between the two countries.
  • About: In the latest semi-annual report on macroeconomic and foreign exchange (Forex) policies of major trading partners of the US, the country has removed India and Switzerland from the monitoring list. The list now includes other countries like Italy, Japan, Singapore, China, Malaysia, Ireland, Vietnam, Germany and Korea.
  • Reasons: US President Donald Trump’s administration cited reason for removal that India has taken certain steps and developments which address some of its major concerns over its currency practices and macroeconomic policies. According to analysis, in year 2018 both India and Switzerland saw a notable decline in the scale and frequency of foreign exchange purchases.
  • Criteria: The US includes major trading partners in its monitoring Currency List if they meet at least two of three criteria-
  1. If partner country has either a significant bilateral trade surplus with the US.
  2. If partner country has a material current account surplus.
  3. If partner country is engaged in “persistent one-sided intervention” in foreign exchange (Forex) market.

India-US Recent Trade Relation

  • Over the past two years, US has been putting pressure on India by increasing tariffs on products like steel and aluminum, and also removed India from US’s Generalized System of Preferences (GSP), that allowed Indian businesses certain trade benefits.
  • India attempts to reduce its trade surplus of over $20 billion with US. In May 2019 India stated that purchasing or imports of larger products like aircraft from US companies (like Boeing) could help offset it going forward. Thus showing a positive effort that at least on one front, India can be reassured that it will not be targeted with unilateral measures over currency issues.

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