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The RBI is reported to have sought banks’ views on introducing credit default swaps.

It is a good move to gauge the mood before launching such complex proposals. The damage done by CDS is fresh in everybody’s mind. The CDS market inevitably gives a false sense of security.

In India, the bond market is yet to develop adequately. Once a new scheme gets going, the operating executives will tend to be too eager to experiment with new financial instruments without realising and gauging the full impact of their action.

More significantly, in the current Indian context, the insurance framework, work-ethos and value system do not appear mature enough to absorb the intricacies and the likely shocks that could arise. Having witnessed quite a few scams and the ingenuous methods employed since the 1990s, it is better caution prevails over exuberance and experimentation at this stage.

Just because developed countries have introduced certain instruments, there is no need to rush and ape them. Possibly, an expert group could undertake an exercise as to how far our system is well-suited for the purpose.

K. U. Mada Mumbai

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