22.46 ndian onom
felt that the value of assets should exceed the value
stAnDing Deposit fAcility scheme
of liabilities by a certain margin. This margin
which came to be known as ‘solvency margin’ The Standing Deposit Facility Scheme (SDFS) is
became a useful device to force shareholder of a a new monetary tool given to the RBI (announced
life insurance company either to keep in reserve by the Union Budget 2018-19). Such a facility
a certain portion of the profit or to bring in was proposed by the RBI in November 2015
additional capital if there is not sufficient profit itself. Such a tool was needed at the disposal of the
to meet unforeseen contigencies. The European RBI which it can use when the economy is flush
Union developed an empirical formula taking with excess fund. This will allow ‘uncollateralized
recourse to the past experience to determine the deposit’ of the liquidity in the economy if such a
quantum of margin required. The IRDA has need arises.
stipulated that the excess of assets (including Need of such a tool was felt last time when the
capital) over liabilities should not be less than 150 Government demonetised the high value currency
per cent of the solvency margin arrived at by the notes of Rs. 500 and Rs. 2000 denominations in
EU formula. November 2016. As people were depositing the
demonetised currencies in their bank accounts
the banking industry was flush with excessive
fund (temporarily). To handle the situation
The risk of a government defaulting on its debt or RBI increased banks CRR (Cash Reserve Ratio)
a loan guaranteed by it (all international loans by temporarily to syphon out the excess liquidity
the private companies are basically guaranteed by with the banks.
the government of an economy).
spot price A popular name given to an obscure tax increase as
The price quoted for anything in a transaction for example stamp duty, property tax etc. Which
get implemented months later by the time they
where the payment and delivery is to be done now.
usually fade out from the public memory.
A frequently used term of financial market which
It is a process that shows random behaviour. As
is the difference between two items, for example,
for example, Brownian motion which is often used
the spread (i.e., the difference) an underwriter to describe changes in share prices by the experts
pays for an issue of bonds from a company and in an efficient market (random walk), is such a
the price it charges from the public. Similarly, the process.
returns on two different bonds if they are different;
the difference is known as the spread. sub-prime crisis
stAnDArD DeviAtion The word ‘sub-prime’ refers to borrowers who
do not have sound track record of repayment of
It is a statistical technique to measure how far loans (it means such borrowers are not ‘prime’ thus
a variable moves over time away from its mean they could be called as ‘less than prime’ i.e. ‘sub-
(average) value. prime’). The ‘sub-prime crisis’ which has been