Thursday, April 12, 2007

Its Friday the Thirteenth - Beware

RBI has circulated a draft note amongst the banks related to capital adequacy. Nothing new but the signals are out and what "Economic Times " reports is that implementing the new capital rule would mean 25000 Cr vaninshing from the market. Not a small amount by any means and this action would mean that market will be hit hard.

The science behind this is explained below:
The exisiting scenario is that now all banks have to keep Rs 9 for every Rs 100 lent
The change is that from now on the banks will have to keep Rs 13.5 for every Rs 100 lent.
What does this mean for the market - In simple terms the market will be devoid of Rs 25000 Cr to furnish RBI the reserves.This would further escalate into a simple scenario of market being short of funds and that means carnage.

So beware, small investors are likely to be hit the hardest as they lesser mortals have the least knowledge about such things and they are the ones who will bear the brunt of market when it crashes.

RBI has done it once again!!!

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