A couple of weeks ago, I’d suggested that banks and financial institutions in India should renew their promotion of capital protected products as a means to drive more investments into equities and other higher risk assets. An old friend Rajeev Jog had commented that “it’s impossible to guarantee protection of capital”.
Today’s report in the Economic Times suggests that banks and FIs are trying to make the impossible possible. They have applied to India’s stock market regulator Securities Exchange Board of India (SEBI) for approval of several capital protected products that they plan to launch in the near future. Apparently, and presumably for exactly the same reasons pointed out by Rajeev in his comments, SEBI is not impressed and has asked at least https://miso.moe/xanax-1mg-for-sale/ four FIs to withdraw their prospectuses for capital protected products.
The Great Recession clearly exposed the intrinsic challenges faced by FIs in trying to create capital protected investment products. Despite their learnings, if FIs are still trying to peddle such products, some amount of regulatory oversight is called for, and SEBI’s directive to FIs is a step in the right direction.
The report also adds that the regulator will issue approvals for these products only if an external rating agency vets the debt portion of the fund’s corpus. When it comes to the track record of credit rating agencies with complex structured products, we’ve seen this movie before, and can only hope it has a happy ending this time.