THE HINDU Editorial Vocabulary-December 31, 2016- Topic 1

Managing risk in banks

The Reserve Bank of India’s biannual Financial Stability Report has once again flagged the fact that risks to the banking sector remain worryingly “high”. That the risks have stayed “elevated due to continuous deterioration in asset quality, low profitability and liquidity,” in the central bank’s assessment, is cause for concern. Given the central role commercial lenders have in the financial system — serving to harness public savings and direct the flow of crucial credit to the most productive industrial and infrastructure sectors — any systemic risk to the banking industry has the potential to ripple across the entire economy. There has been no perceptible improvement in the health of domestic banks, even six months after the RBI’s previous report had highlighted the sector’s high vulnerability on account of the increase in capital requirement and worsening asset quality, spotlighting the need for urgent policy interventions. Some measures have been initiated and others are in the pipeline, including a draft Financial Resolution and Deposit Insurance Bill to address bankruptcy situations in banks and other financial entities. Still, there is every reason to prioritise the restoration of the sector’s health as some of the risks inherent in banks may already be getting transferred to other segments of the financial markets, according to the RBI’s report. A survey, of experts and market participants, conducted by the RBI in October-November reveals that among institutional risks, credit growth and cyber risk were seen as two key “high risk factors”.

The appointment of Viral Acharya as Deputy Governor overseeing monetary policy at the RBI, therefore, comes at a crucial juncture. A former member of the Advisory Committee of Financial Sector Legislative Reforms Commission, he brings substantial expertise in both identifying and dealing with systemic risks in the banking sector. Having authored a number of papers on the risks lenders could pose to the wider financial system and even the sovereign’s credit standing, he will have his task cut out. A proponent of sequestering and separately dealing with the stressed assets and bad loans on a lender’s books, Mr. Acharya had in an interview suggested that the “unhealthy parts of the troubled banks” could be separated from the healthier assets and put into a ‘bad bank’ to prevent systemic contagion. With the RBI pointing out that banks saddled with bad loans were likely to remain “risk-averse” and find themselves lacking the capital needed to lend more to meet credit demand in the economy, the regulator and the government will need to work in close concert to expeditiously resolve this vital legacy issue.

  Vocabulary

Stability: the state of being stable.

Example: There are fears for the political stability of the area

Synonyms: firmness, solidity, steadiness, strength, security

Flagged: mark an item for attention or treatment in a specified way.

Example: greatfully would be flagged as a misspelling of gratefully.

Synonyms: indicate, identify, point out, mark, label, tag, highlight

Elevated: situated or placed higher than the surrounding area.

Example: This hotel has an elevated position above the village

Synonyms: raised, upraised, high up, aloft, overhead

Deterioration: the process of becoming progressively worse.

Example: A deterioration in the condition of the patient

Synonyms: decline, collapse, failure, drop, downturn, slump, slip, retrogression

Harness: control and make use of natural resources, especially to produce energy.

Example: Attempts to harness solar energy

Synonyms: control, exploit, utilize, use, employ, make use of, put to use

Ripple: water form or flow with small waves on the surface.

Example: The Mediterranean rippled and sparkled

Synonyms: form ripples on, ruffle, wrinkle

Perceptible:  a slight movement or change of state able to be seen or noticed.

Example: A perceptible decline in public confidence

Synonyms: noticeable, perceivable, detectable, discernible, visible, observable

Vulnerability: the state of being exposed to contact with something.

Example: The dangers posed by exposure to asbestos

Synonyms: subjection, vulnerability, laying open

Worsening: make or become worse.

Example: Her condition worsened on the flight

Synonyms: aggravate, exacerbate, compound, add to, intensify, increase

Juncture: a particular point in events or time.

Example: It is difficult to say at this juncture whether this upturn can be sustained

Synonyms: point, point in time, time, moment, moment in time, period

Proponent: a person who advocates a theory, proposal, or project.

Example: A collection of essays by both critics and proponents of graphology

Synonyms: advocate, champion, supporter, backer, promoter, protagonist

Sequestering: isolate or hide away someone or something.

Example: Tiberius was sequestered on an island

Synonyms: isolate oneself, hide away, shut oneself away, seclude oneself

Expeditious: done with speed and efficiency.

Example: An expeditious investigation

Synonyms: speedy, swift, quick, rapid, fast, brisk, efficient, prompt, punctual