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FINANCE AND INVESTMENT CLUB

Article of the Month

Opportunities & Challenges in Central Asia India’s Jobless Growth Enigma

Chatbot – New kid in FinTech

Hedging and types of financial risks

The Curious Case of Banking Frauds

MAY 2018

VOL-2 ISSUE NO. 5


Editor’s Note We are pleased to publish the sixteenth issue of ‘Arbitrage’ – Finance and Investment Club’s monthly magazine. Arbitrage aims to cover a diverse range of topics under the wide domain of Finance and Economics. Our goal is to ensure that we provide significant value to the readers through informative articles and articles on current affairs. We would like to thank all the authors for contributing their articles for Arbitrage. In the Article of the Month – ‘Opportunities & Challenges in Central Asia’, the author Mr. Khushaal Chaudhary from DIT University, has done a good analysis on the opportunities and challenges in the central asian region. We hope for the continuous support of our authors and readers to make this magazine a success. -Finance and Investment Club, IIM Rohtak

FINANCE AND INVESTMENT CLUB IIM Rohtak 2018-19 Parag Nawani

Siddhesh S Salkar

Vineeth Harikumar

Sankalp Jain

Pavankumar S

Bibekjyoti Roy Nandi

Naveen Kumar Aditi Patil


CONTENTS

1. Opportunities & Challenges in Central Asia

01

2. Hedging and types of financial risk

04

3. India’s jobless growth

08

4. Projection of Financial Statements

11

5. Chatbot – The new kid in FinTech

17

6. The Curious Case of Banking Frauds

21

7. Emerging Economies in blockchain era

23

8. Fiat digital currency or Bitcoin- Which is India’s Future?

28

9. Offence of Cheating and Fraud against Nirav Modi

30


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Opportunities & Challenges in Central Asia

ARTICLE OF THE MONTH

Khushaal Chaudhary DIT University Let’s start with a fact which points to the reality, the average trade between India & Central Asian Republics during the period 2000-2012 has been just 0.1 percent of India’s overall trade which attests to the fact that efforts for economic cooperation between the two regions have not been to the full potential. India’s actual trade figure with Central Asia during 2015-16 is around US$ 819 million, which in comparison to China’s over US$ 50 billion trade with Central Asian Republics(CARs), further highlights that the overall Indian trade with Central Asia has remained meagre. Therefore, it’s not surprising then that India’s ongoing engagement with Central Asia remains a vital part of New Delhi’s policy towards its extended neighborhood. Although centuries-old historical & cultural ties are the foundation of India’s relation with Central Asia, energy security is a key driver today in their overall relationship. This relationship, however, is not driven merely by an exclusive objective of India’s access to resources but consists of a broad-based strategy of engaging with Central Asia, based on political, strategic, economic, cultural & multilateral elements. Such a strategy is in line with India’s “Connect Central Asia” policy. The new “Connect Central Asia” policy was very much required given the fact that in the last two & half decades or so, the close

relations have not been translated into strong trade & investment relations. An all-round economic engagement with Central Asia can be an answer to New Delhi’s multiple objectives: a) To maintain India’s positive political influence in the region b) To meet India’s energy requirements c) To enhance & bring better efficiency in Indian manufacturing through strategic material sourcing d) To develop new markets for Indian products & services e) Mutual propensity, promoting & strengthening people to people contact


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India seriously lags behind other regional actors in Central Asia & it won’t be a smooth sailing toward acquiring a good strategic position in Central Asia. China, in particular, is the key regional actor that for a long time now has been posing serious challenges to India’s outreach in Central Asia. It has already developed exceptionally good political & economic relations with virtually all of India’s neighbors, thereby strategically encircling India. In Central Asia too, China has made deep inroads in terms of investments. This is because China has a geoeconomic advantage in Central Asia due to sharing a long border with CARs & China’s primary thrust has been to make use of Central Asia’s huge mineral resources for its own economic development. Although I’m merely a student but it seems quite clearly that China has created a heavy “Debt Leverage” over CARs. This inference arises from the observation that after the postSoviet era when these Central Asian Republics came into existence, they needed heavy investments to sustain & being a landlocked region their options were very limited for economic linkages. China took advantage of this situation, & CARs being a group of developing countries in early stage, can’t really pay off China’s huge investments anytime soon. So China uses this debt leverage to get agreement on its agendas & make its hold in Central Asia even stronger. India’s presence as an additional factor in the Central Asian economic space has a more nuanced meaning for all the Central Asian Republics as it is in tune with their national development strategies from varied perspectives. PM Modi’s six-day tour, followed by a visit to Ufa in Russia to attend the SCOBRICS summit, which confirmed India & Pakistan as full members of the SCO, was a fresh unveiling of India as a regional & global

power. Its key outcome was upgrading the India-Central Asia relations to a new level by expanding economic & trade links with emphasis on energy & transport connectivity & making India visible as a neutral third vector, poised to deploy its soft power in a regional geopolitical & economic landscape dominated respectively by Russia & China. Two key processes coinciding with Modi’s visit shore up the prospects for a comprehensive Indian engagement: Firstly, it was lifting of international economic sanctions on Iran which is a major channel in India-initiated project of building connectivity with the CARs via sea route from Chabahar Port & by rail route from Chabahar through Afghanistan to landlocked parts of Central Asia. Secondly, the SCOBRICS summit announced the accession of India & Pakistan as full members of the SCO from 2016 which Modi attended along with an informal summit of the Eurasian Economic Union(EAEU) that establishes India as a firm player in Eurasia. Modi’s visit, thus, provided a new strategic direction for India’s “Connect Central Asia” policy being pursued discreetly. Since India is seen as neutral power in Central Asia, this is useful for the CARs from the viewpoint that allows this landlocked region to have access to a diversified market for their product in the Indian subcontinent. On the other side, the Indian presence as a neutral power in Central Asia does not pose any threat, both economic as well as strategic, to the CARs while engaging a large number of regional & global competitors in their market space. These competitors need to be dexterously balanced by the CARs in which India could play the role of an additional factor. At the same time, India’s historical & cultural linkages coupled with its stable, demographic & secular credentials with a dynamic economy close to the Central Asian


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geopolitical space is seem as a viable direction to relate to in the long term. India’s stronger presence in the region is quite possible since most of the regional states have made it a priority to diversify their diplomatic activities. In this context, India is seen as a better alternative to costly Western products as well as to cheap but low-quality Chinese products. India also represents a technologically advanced country in many areas such as the ICT & space technologies that are relevant in the context of modern communications systems. The need for energy security for India’s fast growing economy & to diversify its energy procurement sources have been the main geoeconomic reasons for India’s constant efforts to reconnect with Central Asia. The conclusion of TAPI(Turkmenistan-Afghanistan-PakistanIndia) project in future, will certainly result in the strengthening of the value & priority of southern direction pipeline routes which forms an important basis for India’s direct relationship with the Central Asian countries. On the transport front, as Central Asia is envisioned to be connected with the wider world via different sets of transport projects driven by major regional powers, in the long run, the Central Asian market would be accessed through any of these means. Because of the need to bypass the political & geographical barriers on trade routes linking India with Central Asia, New Delhi has pinned its hopes on the completion of the International North-South Transport Corridor(INSTC) project which will be a meticulous achievement of India’s strategic planning to overcome its indirect access to the Central Asian market. The single biggest obstacle to a larger trade figure is clearly the lack of direct surface connectivity routes (as already pointed out), though one can also see an information deficit,

which aggravates the connectivity deficit. Insufficient information on trade & investment opportunities has also constrained economic relations that require linking both the connectivity & information deficit. Currently & in immediate future the Central Asian Region does not seem to be a strategic market for the US & the EU firms due to a geographic remoteness, their relatively smaller population, lower level of household incomes making manufactured products expensive in comparison to China, obscured trade regime as well as high transactions costs of doing business in the region in comparison to the advantage that Russia & China enjoys. India & Central Asia Republics will have to take a leap of faith, if they wish to pursue a meaningful pursuit for strengthening & developing their trade relationships. Both India & Central Asia republics need a quantum leap in their bond, association, their desire to find alternative & innovative solutions. Some alternatives to consider are, shifting from Import orientation (of hydrocarbons & minerals) to exports or establishing offshore manufacturing base in CARs; swing concentration from goods to services trade; make it easy for private investments to lead the way; making public investment for strategic collaboration & joint ventures. Emergence of an interesting Central Asian regional dynamics demands India to ensure that “Connect Central Asia” policy should not just remain on paper but it should be realized in practice in the best possible manner. If New Delhi manages to do that, this policy can prove to be a game changer in times to come as India’s stature will surely rise in the international system.


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Hedging and types of financial risk Mayank Banka IIM Rohtak, 2017-19 There is always a buzz in Dalal Street when foreign exchange rates and interest rates are volatile. The stock price of many IT and pharmaceuticals companies might move around 4% to 7% easily in a day due to changes in foreign exchange rate changes. This is a huge movement in stock in a day. Generally, companies affected due to forex rates deal in export and import. Also, changes in the interest rates impact every industry. So, companies face various kinds of risk which affect their going concern assumption. These risks are market risk, credit risk, and liquidity risk. Theoretically, a stock price is the present value of all future cash flows of a company. The forex changes and interest rate changes have huge impacts on the expected cash flow of these companies. Therefore, it is important to reduce the impact of these changes. You would be wondering how these companies reduce the impact of these risk. How they manage it. The answer is hedging. This article will explain about hedging and why it is important for them to hedge their cashflows. What is hedging.? Hedging is an investment which is focused on reducing the risk of adverse price movement or a value in an asset. A hedge primarily consists of taking an offsetting position in similar or related security, e.g., Forward contract or future or forward contract is used to reduce the risk of adverse price movement or a value in the asset. It is like an insurance policy against the undesirable price movement of an asset. Hedging is done

through derivative contracts like options, futures, forwards, swaps. The value of derivatives is derived from the underlying securities. The underlying assets can be currency, bonds, commodities, stocks or interest rates. For example, ABC ltd provides a service today and will receive 1 million US dollar after two months. The current exchange rate is 65 INR /US Dollar and two months forward contract rate is 66 INR/US dollar. The exchange rate can move in any direction from the current price. To reduce the risk of foreign exchange currency risk, ABC can buy a forward contract at 66 INR/US dollar. On expiry, ABC can sell 1 million US dollar at rate 66 INR/US dollar. If the price move below 65 INR/US dollar, ABC will gain on a forward contract. If it moves above 66 INR/US dollar, ABC will be at a loss and will realize dollars at 66 INR. The motive of ABC was to realize it forex for at least 65 INR/US dollar, at which it has provided service. Hedging is not implemented to earn profit but to reduce the impact on margins due to changes in foreign exchange rate. The company was able to fix it cashflow at 66 INR/ US dollar. This will help ABC to predict it future cash flows and assess its liquidity position. Need for Hedging The economic environment that an organization is operating has become more complex and competitive. The capital market is changing rapidly. This has exposed organizations to various kinds of risk. Organisation competitiveness and their


5|Page profitability are adversely impacted due to rapid changes in the environment. The change in foreign exchange impacts the profitability of the company. Every industry is highly competitive and works on thin margins. Fluctuation in currency rate and interest rate will affect the profits. Cost of providing services also increases due to variation in currency rate. Hedging will help in reducing the risk and help in maintaining profits. Hedging can be used to reduce financing cost. Hedging is essential for following reasons:   

Ability to predict the value of future revenues and expenditure Reduce loss due to change in forex rates and interest rate Reduce financing cost

Hedging should not be done for earning profits. It should be considered as a service center than a profit center. The motive of hedging should be to reduce the risk due to changes in forex rates, interest rates.

How to manage risk? Managing risk is most important for companies. Risk and reward go hand in hand, higher the risk higher the reward. But the flip side of this is by taking too much risk can lead to huge business losses. There should be a right balance to create value for the firm. Therefore, organizations should develop risk management framework to manage risk. Risk management framework seeks to protect the organization from high risk. This helps organization to borrow money at lower cost and helps in improving long-term performance. There are five components for creating a risk management framework: Risk Management Framework: Steps 1. Identity the Risk The first step for any company is to identify the risk which organization is facing. We need to define which risk effects the company. This stage is most important stage since any risk which is not identified may cause huge loss to organizations. 2. Risk Measurement The effects of risk need to be measured. How much Value at Risk (VaR) company faces if any risk materializes. While evaluating risk, the effects of exposure from that risk should be considered at the overall risk profile of the company. Some risk may also provide diversification benefits, so risk measurement should be done by considering all types of risk. 3. Risk Mitigation By having identified and measured the risk, a company can decide which risk should be eliminated, or minimized and how much should be retained. The cost and benefits should be considered which selecting the method for risk


6|Page mitigation. Risk mitigation can be achieved through buying insurance, using hedging with derivatives, the sale of asset and liability. 4. Risk Reporting and monitoring

It is important to monitor risk. It is also important to report risk to responsible stakeholders so that right action can be initiated at the right time. 5. Risk Governance

Types of Risk faced by the organization? A company faces various kinds of risk. From interest fluctuation to change in forex rates. These risk can be classified into following heads: 1. Market Risk: Risk arising due to changes in market prices. Market risk is the possibility of making losses due to factors which affect the financial markets. It is also called as “Systematic Risk.� It cannot be eliminated but can be hedged. Market risk is equity risk, interest rate risk, currency risk, commodity risk. a.

Foreign currency exchange risk

Risk governance is the process that will ensure organization employees to adhere to risk management framework. It involves defining the roles of all the employees, assigning authority to individuals, and segregating duties. Establishing a risk committee which will ensure implementation, setting risk limits. The committee should ensure all financial risks are fully recognized and treated in a manner consistent with the board’s management philosophy and requirements of financiers

Foreign exchange risk that exists when a financial transaction is denominated in a currency other than that of the home currency, i.e., the reporting currency of the company. This risk arises due to change in foreign exchange rates. b. Interest Rate Risk Interest rate risk affects the financing cost for the company. If interest increases than the cost of financing increases which affects the profits. The objective of interest rate risk management is to reduce the impact


7|Page on finance cost due to changes in interest rate. c. Equity risk and commodity risk Equity risk is a risk caused due to changes in stock price in the market. The standard deviation is used to measure equity riska and commodity risk. Standard deviation is a measure of dispersion of movement in security price. Commodity risk is like stock risk. It is caused due to changes in commodities prices. 2. Credit Risk Credit risk is the risk of financial loss arising from counterparty failure to repay or service debt. Credit risk encompasses both, the direct risk of default and the risk of deterioration of creditworthiness as well as the concentration of risks. The risk can be controlled by continuous monitoring creditworthiness of our customer and by analyzing credit limits and payment schedule.

adequate funds are available to meet a financial obligation. It is also caused when a financial asset, securities or commodities are not being liquidated quickly. Conclusion

It is the responsibility of CFO and the treasury department to manage financial risk. They are responsible for various stakeholders, and it’s their responsibility to create value for shareholders. The creditworthiness of company lot depends on the financial stability of a company. An investor trust organization having financial risk management policy. It is important for companies to hedged risk to maintain their profitability and competitiveness in their industry. It becomes difficult for the company to survive in this very competitive global environment, where they are working

3. Liquidity Risk Liquidity risk is a risk that company is unable to meet short-term financial demands. The objective of liquidity management is to maintain sufficient liquidity and to ensure

on a thin margin. Every step needs to be taken to maintain liquidity and reduce the impact of financial risk.


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India’s Jobless Growth Enigma Pratish Jindal and Komal Agrawal, IIM Kozhikode Recently, my younger sister asked me about the current unemployment rate of India. I started finding it where all of us do (Google!) but wait, I can’t view the current unemployment data because there is no metric available currently to measure that!! The government has discontinued taking surveys since 2016.

‘Jobless Growth’ - It’s a word that has been synonymous to India’s recent economic progress. We see the opposition leaders criticizing the ruling government (Whosoever may be in power!) for their inability to provide employment to a million youths who are entering the workforce every year. Since ancient history, India has focused on labor intensive industries. This is quite evident with the type of items that India has exported traditionally and which it exports presently. All of the items require high labor participation.

But with the arrival of Information Age and adoption of the latest technologies on the production processes, the scenario has been witnessing a complete turnaround. The laborintensive industries like Textile, Education, Manufacturing are witnessing the inclusion of Automation in their operations which has reduced the requirement of labor, thus increasing the unemployment percentage in the country. According to World Bank and IMF estimates, India should strive to keep the employment generation to a minimum of 8.1 million jobs in order to maintain the predicted GDP growth of 7.3% per year. Around 30.8% of India’s population aged between 15 and 29 years are NEETs (not in education, employment or training) as per a World Bank report. Only 10% of India’s total working population is equipped with vocational and technical education and training. The consequences of high unemployment rate are numerous which includes increase in crime rate, increase in debt per person, reduction in GDP growth among others. The major one of these is the increasing crime rate. We have witnessed a case in point in India of the Bangladesh migrants of 1971 war. Many studies have proven the role that unemployment played in the increasing crime rate amongst the Bangladeshi youth. Many of them have been implicated for theft, rape, murder etc. We have several states which are provided with an acronym BIMARU as they


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are responsible for the lag in India’s economic progress. One of the main reasons for their present economic condition is the large number of unemployed youth. These youths then migrate to different states like Gujarat, Maharashtra etc. where they are able to find large opportunities of employment. The local populace resists this which results in acrimony between communities thereby disrupting peace and leading to further crime. The migrant people also receive unfair compensation for their services which further augments the discontent amongst these people. At their home state, they are understood and their culture and rituals accepted. Thus, it is very essential that ample opportunities should be generated in their home state which would result in better productivity and living environment. On the other hand, if these resources are made an asset rather than a liability, then they would add their knowledge and apply their valuable skill sets for the nation’s progress. Acting on the same insight, the central government has launched several ambitious schemes like Skill India, MSME No Frill Loans, Stand Up India, ASPIRE, UDAAN (for improving regional connectivity to mitigate the issue mentioned above!) etc. to skill the youth so that they can be a part of nation’s success story. However, there are several challenges in ensuring the effectiveness of the scheme. The major bottleneck is the trickle-down effect i.e. Non-implementation of plans from top to bottom of the government’s structure. The schemes are reliably conceptualized considering all the possibilities however, the implementation on the ground is an issue. Also, the lack of support shown by several

state governments also vitiate the scheme’s output. The result is that in spite of INR 1700 crores in budget 2016 to open about 1500 additional skill centers all across the country to train around 10 million youth by 2020, Data shows that the NSDC, through its partners, only managed to skill around 600,000 youth till September 1, 2017, and could place only 72,858 trained youth, exhibiting a placement rate of around 12 per cent. One of the major drawback of the scheme is the focus on only short-term courses and very low placement record. The previous phase placement record stood at around 18%. Thus, the decline in the placement record is quite visible from the above data. However, the Modi government is positive about the outlook of the scheme and despite the setbacks has allocated more than INR 3400 crores in the FY - 2018-19 budget. Now, the government has to take significant steps in order to ensure successful implementation of the skilling schemes. Some of the steps could be: 1. Improving synergy between different government schemes like MGNREGA and Skill India. At present both the schemes are executed at an isolated level. 2. A Public Private Partnership model which is incentivized by government to skill rural as well as Tier II and III cities and create job opportunities at their home state. 3. Investing in labor intensive industries like Textile, Leather etc. The prebudget economic survey, 2018 has emphasized on that. The implementation of the same is dubious.


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4. A strong labor law which protects the interests of the working class. 5. Vocational trainings for people on the domain of various computing skills like MS office applications (Excel, word etc.) so that the workforce remains in conformance with the modern technology. 6. Preparing the future employees to coexist with artificial intelligence and the digital transformation. Building synergies between the two is the only way by which interests of all stakeholders can be protected.

Also, we need a metric by which we could measure the unemployment rate. The present government has not taken any fresh surveys since 2016. According to the independent

CMIE data, the unemployment rate in India has doubled between July 2017 and April 2018, whereas the number of jobs in the country in the last financial year 2017-18 also fell to 406 million from 406.7 million in the previous year, data from the Centre for Monitoring Indian Economy show. The unemployment rate in the country rose from 3.39% in July 2017 to 6.23% in March 2018, and is projected to reach 6.75% in April 2018. Thus, in order to achieve the glory of past days and most importantly to bridge the economic inequity gap between the haves and the haves not, it is very essential that the government takes some concrete steps to skill the workforce and provide pertinent and ample employment opportunities to them. The opportunities should match with the skills possessed by the people otherwise there would be no enhancement in the productivity metric of the country’s workforce (“We would then hear of incidences of Engineers and post graduates applying for the job of a peon”). To conclude, nothing could be more apt than the below slogan of a government sponsored scheme: “Padhega India, Skilled banega India Tabhi Badhega India”


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Projection of Financial Statements Parag Nawani, IIM Rohtak, 2017-19

Introduction When companies want to assess the financial performance of a company in future years, they project its financial statements. Companies may also want to prepare the projected financial statements of any company which they are planning to acquire. Projection of the financial statements means preparing the financial statements (Income statement, Cash flow statement, Balance Sheet) on the basis of information and relevant assumptions. The assumptions can be based on the past performance of the company, the standard industry procedures, the expectations of the analyst, or any other logical and relevant factor(s). This article provides insights into the projection of financial statements of a target (which is to be acquired) FMCG company.

Cost of Project and Means of Finance The first step is to find out the cost of project and the method of funding to pay for the acquisition of the target company. After knowing the total value to be paid by the acquiring company, the next step is to think upon the means of finance. These can be Internal Equity or External debt.

Interest and Instalment The debt taken by the company, which is used to pay the x% of the amount for the target company needs to be repaid by the acquiring company. The acquiring company needs to pay the principal amount and interest amount to the bank. Generally, the amount is paid in quarterly instalments. Principal payment The analyst can assume the total loan repayment period to be y quarterly payments. The analyst can then find out the quarterly principal payment to be paid by company, so that no/ negligible amount of loan amount is left after the repayment period. Quarterly payment can be calculated as Total loan amount/ Total no. of payments. Interest payment The quarterly interest rate can be assumed as 1/4th the annual interest rate. The interest


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payment is calculated on the loan amount left at the time of the payment.

Projected Income Statement The projection of the Income statement is an important step in analysing the future performance of the company. It gives an insight into the expected profitability of the company in future years. Revenue from Operations The expected revenue is forecasted based on the past performance, or on the basis of the acquiring company’s management expectations for the target company. Cost of Goods sold

Contribution margin It is the difference between the revenue (Revenue from Operations) and the Cost of Goods sold in a particular year. from

Employee benefits expense Employee benefits expenses can be calculated in a similar way as the Cost of Goods sold. These mainly include Salary, Wages & Bonus, Contribution to Provident & Other funds, Gratuity and Employee Stock option scheme. Operating expenses

These mainly include Power & Fuel expenses, fixed manufacturing expenses, Consumables expenses and Spare parts expenses. Selling and distribution expenses S&D expenses can be calculated in a similar way as the Employee benefits expenses. These mainly include Freight & Forwarding expenses, Export expenses and Advertisement & Sales promotion expenses. Establishment and other expenses

Cost of Goods sold can be assumed as a percentage of Revenue from Operations with the same percentage as that in past years.

Contribution margin= Revenue Operations - Cost of Goods sold

Operating expenses can be calculated in a similar way as the Employee benefits expenses.

Establishment and other expenses can be calculated in a similar way as the Employee benefits expenses. These mainly include Travelling & conveyance expenses, Bank commission & charges and other expenses. EBITDA This is known as the Operating profit of the company. This is calculated as: EBITDA= Contribution margin- Employee benefit expenses- Operating expenses- S&D expenses- Establishment & other expenses Non-operating expenses Non-operating expenses can be calculated in a similar way as the Employee benefits expenses. EBITDA after Non-operating items


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This is calculated as the difference between the EBITDA and the non-operating expenses & provision for doubtful debts. EBITDA after non-operating EBITDA- Non-operating expenses

items=

This is known as the Net Profit of the company. This is calculated as the difference between the PBT and the taxes payable by the company. PAT= PBT- Provision for tax

Finance costs

This completes Statement.

These are the interest payments on the debt taken from the bank. The principal payments will not be included in these costs.

Reserves and Surplus

The interest payments on four quarters will be added to find out the total Finance costs for a year. Finance costs= Interest cost (Q1) + Interest cost (Q2) + Interest cost (Q3) + Interest cost (Q4)

Depreciation These are the wear-and-tear costs of the fixed assets of the company.

your

projected

Income

R&S represents the cumulative value of net profits earned by the company. This is a part of Shareholders’ equity, and is calculated as the sum of Net profit in a particular year to the corresponding previous value. Reserves & Surplus = Net profits + Sum of Net profits from all previous years

Inventories and Receivables Inventories represent the sum of the value of raw materials and the value of finished goods. Receivables represent the amount of sales for which the cash amount is not realized yet. Raw materials

PBT (Profit before Tax) This is calculated as the difference between EBITDA after non-operating items and Finance costs and Depreciation costs PBT= EBITDA after non-operating itemsFinance costs- Depreciation costs Provision for tax

The analyst can assume to maintain inventory for a duration of one month during the course of operations. It can be calculated as 1/12th of the value of Cost of Goods sold during a financial year. Finished Goods This is the value of end products produced by the company, which are not sold yet, and are a part of inventories at the end of a year.

This is the corporate tax payable by the company.

The analyst can assume it to be 5% of the cost of production for the company in a year.

PAT

Cost of production can be calculated as follows:


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Cost of production= Cost of Goods sold+ Employee benefit expenses+ Operating expenses+ Selling & distribution expenses+ Establishment & other expenses

Bank Loan This value will be equal to the closing balance of the bank loan at the end of any year (at the end of 4th quarter).

Receivables Total liabilities The analyst can assume the value of Receivables to be 5% of the Revenue from operations.

Cash Credit limit and Creditors Cash Credit limit This is a short-term loan from a bank to be utilized when the amount of cash for running operations of the company is not enough. An analyst can assume to calculate it as follows: Cash Credit limit= 0.75* Inventories+ 0.6* Receivables Creditors This is the amount which is payable by the company to its raw materials’ suppliers.

This is calculated as the sum of internal accruals, Reserves & Surplus, Bank loan, Cash credit limit and Creditors for a particular year. Total liabilities= Internal accruals+ Reserves & Surplus+ Bank loan+ Cash Credit limit+ Creditors Fixed Assets This is the monetary value of the assets present with the company. It is calculated as the difference between the initial value of the assets and the accumulated depreciation over the years. For instance, Fixed assets (at the end of 3rd year) = Initial value- (Deprecation in 1st year+ Deprecation in 2nd year+ Deprecation in 3rd year)

The analyst can assume to take it as 5% of Cost of Goods sold.

Cash and Bank balance

Projected Balance Sheet

This represents the actual cash present with the company at the end of a year.

This is an important financial statement to analyse the financial strength of a company at a point of time. This statement follows the Accounting equation, which is:

This would be equal to the Closing balance at any year, which is calculated in the Cash Flow Statement.

Assets= Shareholders’ equity + Liabilities

Total Assets

Internal Accruals

This represents the total value of the assets present with the company at the end of a year. This can be calculated as the sum of fixed assets, Inventories, Receivables and Cash & bank balance.

This amount signifies the value of equity that the company has. It is equal to the initial amount of internal accruals used up for the funding of project.


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Total assets= Fixed assets+ Inventories+ Receivables+ Cash & bank balance This completes your projected Balance Sheet.

Increase in Inventories in 2nd year= Inventories in 2nd year- Inventories in 1st year

Projected Cash Flow Statement

Cash Accruals before Interest and Tax

This is another important financial statement to analyse the performance of a company. This gives an insight into the cash position of a company at the end of a year.

This is calculated as follows:

Interest on Term loan

Cash Accruals before Interest and Tax= PBT+ Interest on term loan+ Creditors+ Depreciation- (Increase in receivables+ Increase in inventories)

This amount is calculated before in the Income Statement as Finance costs. Only the interest payment will be included in this line, and not the principal payment paid during the year.

Term loan

Depreciation

Equity Share capital

Since depreciation is a non-cash expense, it needs to be added back.

This is the money being used up from the internal accruals of the company to buy the assets of the target company, which is equal to (100-x) % of the initial net value of the assets.

Increase in Receivables Since Receivables is an asset to the company, an increase in these will be considered as a reduction in cash of the company.

This is the loan taken for buying the assets of the company, which is x% of the initial net value of the assets of the company.

Purchase of fixed assets

So, it is required to subtract this from the PBT.

This is the total amount which is being used up to purchase the assets of the target company.

Increase in Receivables in 2nd year= Receivables in 2nd year- Receivables in 1st year

Repayment of term loan

Increase in Inventories Since Inventories is an asset to the company, an increase in these will be considered as a reduction in cash of the company. So, it is required to subtract this from the PBT.

This is the total (principal+ interest) loan amount paid by the company in a particular year. Taxes paid These values can be taken from the Income Statement. Opening balance


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This is the opening cash balance at the start of any year.

Closing balance This is the closing cash balance at the start of any year

Net cash flow This is calculated as the difference of Total (A) and Total (B) Net cash flow= Total (A) – Total (B) Total (A)= Cash accruals before Interest and Tax+ Cash credit limit+ Term loan+ Equity share capital Total (B) = Purchase of fixed assets+ Repayment of term loan+ Taxes paid

This is calculated as following: Closing balance= Opening balance+ Net cash flow This would complete your Projected Cash Flow Statement. After completing the three financial statements, the analyst can calculate the NPV, IRR and Payback period. This is a very important exercise in Financial modelling, and will also be helpful in assessing the expected financial health of a company.


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Chatbot – The new kid in FinTech Karthik Venkateshwaren K J Somaiya Institute of Management Studies and Research

The constant evolution of technology especially mobile technology has enabled seamless access to information, making it literally available at fingertips. In spite of the sophistication in technology, human interaction has had a lead as far as personal touch in relationship-based interactions are concerned. However, this gap too is diminishing, with major tech-companies leveraging combination of new technologies that facilitate human-like conversation experiences. The result, enters Chatbot, an instant messaging and voice recognition system that allows a user to have conversation with a computer program. This system leverages

combination of Machine Learning algorithms (Branch of Artificial Intelligence that gives computers self-learning ability), Big Data and Analytics which is used to improve by finding patterns in existing interactions to improve without explicit intervention. With the increasing augmentation of computing power, the chatbot is expected to have following capabilities:    

Automation of repetitive and routine tasks Understand text and spoken language Digital recognition of images and objects Detection of feelings and emotions


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Make predictions recommendations

and

Fintech adopts Chatbot

Given the abundance of available data and the process-driven nature of most tasks, Financial Services firms see a huge opportunity in chatbots to create differentiation in an increasingly crowded landscape. Especially, in the consumerfacing Banking industry where most of the tasks are transactional in nature. Coupled with the wide-spread usage of mobile and messaging applications like Facebook’s Messenger or WhatsApp which is a natural fit for chatbot technology, it removes a significant entry barrier as consumers don’t have to change the existing mobile behaviour patterns. As a result, chatbots are attracting lot of interest from the FinTech world with many companies having developed their own chatbots using proprietary technology. The chatbots are implemented through Application Programming Interfaces (APIs)

which are integrated with data management systems. These systems powered by advanced computing are enabled to analyse extracted data and provide required insights to end consumer.

Integration of chatbots as part of a wellconsidered, omnichannel strategy will provide consumers with quick and personalized interactions at all steps of their journey.

Changing Industry

face

of

the

Banking

According to report provided by Juniper Research, chatbots will save over $8 billion annual cost by 2022. As per Gartner, by 2020, no less than 85% of all customer service interactions will be handled by chatbots. The benefits derived from chatbots is driving its adoption in the Banking Industry. 

Personalized Banking Services Banking Industry provides a wide range of products and services. While


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chatbots can help in fulfilling the required transactions or answer queries through a simple interface, it can also deliver personalized offers at the right time based on their activities, thus improving the conversion rates. 

24x7 Customer Support Since chatbots are available roundthe-clock for conversation with the customers, they increase customer satisfaction. They not only just solve the customer’s queries but also ensure that it is resolved in shortest possible time, thus minimising TAT and costs along the way. Engage and Measure The individual usage rate and general feedback is obtained from the customers through conversations with chatbots, which is further analysed and based on the insights the management is provided the opportunity to refine existing schemes or introduce new plans. Humanizing Financial Services Be it Financial jargons or basic Terms and Conditions, all of them pose challenge to even the savviest customers in some or the other way. This can deter the customer from completing the process or worse complete the process without the required understanding of the service. Chatbots can help the customers through interactive discussions on their queries. In fact, chatbots can raise the comfort-level of customers, since interaction with an AI-enabled program does not involve any aspect of embarrassment, it further saves from the hassle of personal visit to the branch.

Enhance Financial Capabilities Customers with capable financial knowledge drive the economy, but this requires an effective financial education able to educate adult learners. This challenge can be overcome through chatbots that will provide personalized and engaging content. Based on their subscription to topics, chatbots can provide latest information on related topics through conversations.

Chatbots are enabling unprecedented banking engagement and transforming relationship banking.

Biggest Banks leverage the power of Chatbots Bank of America, one of the largest banks in United States has introduced ‘Erica’, a voiceand-text powered chatbot for clients that acts as an advanced virtual assistant. U.S. bank JP Morgan in order to streamline its back-office operations has launched ‘COIN’, a bot to automate repetitive tasks. The bank intends to use these bots to save on expenses and reduce risks. Capital One apart from introducing its own text-enabled chatbot ‘Eno’, has also tied up with Amazon to use ‘Alexa’ as a virtual assistant that accepts voice commands. Not to be left behind, even in India a few developed chatbots are well-positioned to compete. SBI has launched ‘SIA’, aimed to handle customer queries and guide them through the products and services. HDFC Bank’s ‘EVA’ provides information on products and services through conversational experiences.


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Limitations of Chatbots Currently, chatbots are developed for specific tasks and are not equipped to deal with specialised queries outside their functional domain. Privacy is another area of concern, with the need to ensure privacy and security of interactions. As per 2017 study by KPMG and Google, English Internet users are expected to grow by only 3 percent till 2021, while nonEnglish users are expected to grow by 18 percent in this period. Thus, it is even more important to work with linguists and develop capabilities to cater to vernacular conversations.

Navigating the Future Adoption of Mobile and consumption of Mobile Applications served as the driver for

innovation in finance. Today, it is moving from a ‘Graphical User Interface’ to the next level as a ‘Conversational User Interface’, providing opportunities to enhance customer engagement. Along the way, limitations such as privacy concerns and integration challenges will be faced, as the technology base grows. Firms will also have to create strategic partnerships in order to adjust to a new, cognitive paradigm. But without consumer trust, the scope of this technology will be limited. We’re still in the early days of discovering chatbots’ potential, as with all new technologies the challenges must be considered along with promise, but still it is an exciting future to look forward to.


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The Curious Case of Banking Frauds Sengodan M and Navin Chandran IIM Lucknow (2017-19)

Introduction According to a report, India has lost more than 61,000 crores in 8670 fraud cases between 2012 and 2017. And, the name of Nirav Modi in the long list of SK Jain, Vijay Mallya, Bipin Vohra, etc., is a no shocker. Some of these frauds could have been stopped if data transparency and proper regulatory frameworks were in place. Negative impact on banking system The major impact of willful defaults will be the stern actions that can be expected from banks and also the drop in ease of doing business factor, which in a larger picture, and will affect India’s growth. The most worrisome situation is scam has more effect

in India than Non-performing assets. The frauds that are happening are either internal or external frauds. The frauds started from accounting fraud, continued with internet frauds like identity fraud, phishing, skimming, card fraud, etc., Prevent or Lament Solutions for thwarting fraud must be differentiated too! If the banks are really curious and serious enough to thwarting fraud or keeping it away from spreading, then the regulations must be reviewed and updated periodically. The solutions must try to prevent further frauds rather than to lament the willful defaults that have a detrimental effect on the economy.


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Methods to prevent frauds The primary responsibility lies with individual banks, however, the central bank (RBI) has a major role to play in curbing the frauds. Not all the banking frauds are quick enough like digital or card frauds, which practically is difficult to control, some frauds which happened like in PNB, are like inflation affecting banks slowly. This cannot be stopped unless there are proper systems in place. There are two things, one at the customer level and another at the central level, which Reserve Bank of India needs to implement uniformly across all the financial institutions. Firstly, the data sharing between departments, banks, and the central bank is one of the cures for these type of problems that is persistent for a long time. The data sharing will help in developing a fraud preventing mechanism. If data is not shared and not utilized wisely, banks lose the sight and can’t see a clear picture. By not working closely, not only the bank loses opportunity but also the entire banking system loses its sight of fraudsters. Secondly, the technology comes into play where safety is assured. The best way is, to begin with, the implementation of multifactor authentication structure among all the financial institutions which is not in place. But the problem with multifactor authentication is that it consumes the user time in the world where people want everything in seconds. The blockchain is the solution for both these problems where data transferred will be

stored in a decentralized register and also it is safe and secure. Also, this technology can help banks by providing transparency and avoiding simple human malfeasance. Blockchain varies from the traditional banking system in a lot of ways. It is a decentralized system where the encrypted transactions are shared by multiple parties. It also can help to train machine learning algorithms where the fraudulent patterns can be found out. The algorithms must be built right in place to avoid the future frauds happening. Tracking patterns will help our country in avoiding escape of Mallya or another Nirav Modi. Several banks have already started to This is the way forward and early adoption of the technology will save Indian banks from the scams and increase the transparency in the system. The frauds even happen during the lending itself. Though the data is available in CIBIL, it is prone to human errors. Blockchain has the decentralized registry which helps in improving the accuracy and most importantly avoiding frauds. Conclusion The world is ruled by big data and the blockchain is going to be the game changer. It is high time to change from traditional system to modern system, which is safe and secure than never before. What we need is an improved banking system where it gives us an insight and it solves the shortcomings of our banking system.


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Emerging Economies in blockchain era Rudra Banerjee KJ SIMSR (2017-19) change data without being detected by all

What is Blockchain? A Blockchain is

a

distributed

and

decentralized digital ledger which is used to record transactions across several computers in such a manner that none of the records can be manipulated retroactively without the alteration of all consecutive subsequent blocks and the collusion of the entire

other users in that network. In today’s world, all the transactions are verified by a central authority like government or any regulatory body but Blockchain applications can replace these centralised systems with a decentralised system for which verification will come from the consensus of multiple users.

network.

How does it work?

The Blockchain technology was primarily

Blockchain does mainly two things. Firstly, it

developed as a part of the digital currency

collects and order multiple data in blocks and

mainly Bitcoin but both of them are not the

then chains them together in proper order

same. Blockchain can support a wide range

securely using cryptography. The information

of applications. It can be used for peer-to-

of the transaction is recorded and shared with

peer payment’s service and supply chain

other computers in the blockchain network.

tracking. The Blockchain is a record of any transactions like a traditional ledger and also keep records of any movement of money, goods or secure data- a purchase at any supermarket.

On the network, the record is combined with other transactions into a block (like a traditional database), where each transaction is time-stamped. When a block is complete it will get a time-stamp which helps to keep all

Design of Blockchain is done in such a

the information in a sequential manner and

manner that it can store information and

thereby helps to avoid duplicate entries.

make virtually impossible to add, remove or


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This completed block is sent out across the

Thus, if there's any attempt to alter a

network, where it’s appended to the chain.

previously created block, the hash that's

Other participants on the network may send

encoded in the next block won't match up

out their own blocks at the same time but the

anymore and the mismatch will continue

time-stamps involved in blockchain ensure

through all the subsequent blocks and create

that data is added in the right order, and all

an alteration in the chain.

participants must have the latest version.

Since all the participants have a copy of the

The Blockchain is secured by hash-function,

entire blockchain, they can easily detect any

which takes the information in each block

kind of unauthorised alteration in it. When

and uses it to create a hash, a unique string of

these hashes match up across the chain, all

characters. The hash from one block adds

parties know that they can trust their records.

data to its corresponding next block. So, when next block goes through the hash function, a trace of it get fabricated into the

Blockchain Technology Applications in Emerging Economy

new hash and the process continues like this

The term Emerging Market Economy was

throughout the chain.

coined in 1981 by Antoine W. Van Agtmael of the International Finance Corporation of the World Bank. Some features of Emerging


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Economy are low to average per capita

easily perform cross-border assets transfer

income as of World Bank standard, rapid

and

growth,

simultaneously. This technology can be

high

diversification,

volatility, a

high

less

export

contribution

of

verify

each

transaction

made

useful in mitigating the risk that all the banks

agriculture sector to GDP, large proportion of

of

unskilled labour, low to average HDI,

Recently, Infosys has created a blockchain

growing industrialization and lower degree of

based document-tracking system for trade

integration into the global financial system.

finance and is implementing the solution with

The Morgan Stanley Capital International

7 private sectors banks of India – Axis Bank,

Emerging Market Index lists 23 countries

ICICI Bank, IndusInd Bank, Kotak Mahindra

which

MINT

Bank, RBL Bank, South Indian Bank and

Countries, N-11 Nations, etc among which

Yes Bank. After $1.8 billion Nirav Modi-

India and China are the main emerging

Punjab National Bank scam, in which

market powerhouse and also home for 40%

fraudulent Letter of Undertaking was used,

world’s labor force population.

banks need to follow stringent policy

include

BRICS

Nations,

The Blockchain is a technology of credence that can bring consequential productivity gains

to

various

sectors

of

emerging

economy, starting from financial services to energy, intellectual property, the public

major

regarding

economies

trade

are

finance

and

undergoing.

associated

governance process and this blockchain solution named India Trade Connect allow banks to track all trade finance related document digitally.

sector, and much beyond. It has the potential

Blockchain can also be used to combat

to help emerging economies to leapfrog

poverty by limiting corruption. Digitization

developed economies. According to IBM

can lessen the avenues for corruption as most

estimates, current global blockchain market

of the systems would have records and

of 500 million USD is expected to grow

footprints of all the transactions. It operates

beyond 7 billion USD in coming 3-4 years.

on a distributed decentralised network which

Banks can use this technology to remove the entry barriers in emerging markets and can

means that distance to infrastructure like data centres doesn’t matter and thereby can plummet the additional costs.


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Indian top telecom companies Bharti Airtel,

India is one of the largest democracy in the

Vodafone India and Reliance Jio Infocomm

world and where the government is chosen

in collaborations with IBM are also assessing

by the people, of the people, and for the

for the deployment of blockchain technology

people. But, still there are lots of EVM scam

as they are looking to create a new revenue

is taking place and people are sceptical

stream and also need to lower their operating

whether this is really happening or the

cost to increase revenue and margins.

government in power are making a mockery

This technology also has the capability of

out

transforming the pharmaceutical industries

Blockchain can be used as a means of a

by

and

voting process where each vote is considered

counterfeit. According to studies by IBM, in

similar to a transaction and employ multiple

some countries, 70% of the life-saving drugs

blocks along with public key encryption

are counterfeit and such frauds cost the

which will protect the anonymity of the

global economy more than 600 billion USD a

voting process in a democracy. Recently, the

year. Cryptographic anchors and blockchain

country called Sierra Leone has conducted

technology will ensure credibility of the

their first blockchain based election.

tackling

the

issues

of

fraud

product from its point of production to the hand of consumers.

of

the

country

and

its

citizens.

Andhra Pradesh is becoming a pioneer of Blockchain technology in India and has


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recently implemented this technology in its 2

birth, marriage, and death, it may be used by

departments – Land Records and Transport.

the government for creating a unique digital

The state Information Technology Minister

id for their country’s population and can also

Mr. Nara Lokesh told that this technology

be used for government or non-government

was required to prevent manipulation of land

founded institution, etc.

records which are already been digitised and placed online in the government records. Similarly, transport department uses this technology to streamline

titles of the

vehicles. Andhra Pradesh government wants to verify and update land records before accrediting the input subsidy scheme, under which land-owning farmers will get ₹4,000 per acre (in both Rabi and Kharif seasons) to buy things like fertilizers, seeds, etc.

Conclusion Blockchain, though is at a very nascent stage in most of the emerging economies of the world but with rising of digitization and increase in importance of technologies in every sector, Blockchain can surely help in strengthening macroeconomics parameters and at the same time, it can also help in

The main problems of the music industry in

eradicating social and environmental

today’s

backwardness. The advent of Blockchain will

world

is

transparency,

royalty

distribution, and ownership rights. The smart

address the issue pertaining to globalization

contracts using the blockchain technology

and democracy by reshaping the functions of

can easily tackle this problem by creating a

governments, socio Economic parameters,

comprehensive and accurate decentralised

organizations, and corporations with

database of music rights.

commercial influence.

Blockchain can also be used for other purposes like making digital certificates of


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Fiat digital currency or Bitcoin- Which of them is India’s Future? Srishty Kapoor Fortune Institute of International Business Bitcoin struck the Indian market like influenza, however in a limited ability to focus time it saw the snapshots of spotlight and destruction as well. The fever for this cash was with the end goal that if an investor couldn't bear to have it, they didn't bashful far from exchanging in different forms of crypto currency. Worldwide banks and numerous other administrative experts are however indicating that Bitcoin has entered bubble stage, yet this isn't something new as it has just seen the cleanser bubble stage, and that couldn't prevent the coin from standing out as truly newsworthy. By the by, the coin isn't abhorred among all, as there are numerous nations who have

begun empowering exchanging Bitcoin, yet India isn't one of them. Both Indian government and its apex bank have ceased from giving Bitcoin a lawful status. One Bitcoin which a year ago esteemed almost Rs 12 lakh in India has now more than split to close Rs 4.45 lakh. While prohibiting trades managing virtual monetary forms, the Reserve Bank of India (RBI) on April 5 uncovered that they are investigating a ‘fiat digital currency’'. This can be a decent begin for India, however by what method will RBI intend to control 'fiat digital currency' would be acutely viewed. The business chamber, Assocham, supported RBI's turn, yet the advised that outrageous care be taken to guarantee security of the information trail that the digital money can


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leave as it changes hands through a scope of electronic gadgets and stages. A Fiat digital currency is something which government proclaims to be lawful delicate, yet it's not supported by physical product. Exchanging under this currency is conveyed from connection of demand and supply which isn't gotten from the estimation of cash is made of. Most monetary forms are physically based wares like gold and silver, however fiat currency is exclusively subject to the confidence and credit of the economy. It should be noticed that fiat computerized currency and virtual currency have comparable tasks. The main distinction is that they are unregulated and are generally controlled by their own developers and acknowledged among the individuals from particular virtual money. It's very clear why RBI is as yet not happy with Bitcoin and different cryptographic forms of money. The central bank of India is against the crypto currency so much that as of late it authorized three trades for propelling Block chain arrange - where no exchanging Bitcoin was conveyed. The truth of the matter is that the RBI has pronounced Bitcoin as unlawful in India, and it has not acknowledged it as a legal tender. Up until now, the apex bank has quite recently featured the hazard this virtual cash accompanied, and how financial specialists ought to be advised while exchanging them.

Bitcoin being in a non-regulated arrangement is the real concern. It has been escaping its worthiness as a lawful delicate currency from sovereign governments globally. In a general sense, Bitcoin exchanges are likened to a product, with fundamental incentive regarding USD or another fiat currency. The way that the Bitcoin cost in one nation money might exchange at a rebate to Bitcoin cost in different monetary standards, at any given purpose of time, demonstrates their likeness to a product value change in various topography. Bitcoin developing use, be that as it may, betoken well to put set up an administrative system, as opposed to the Indian government remaining a quiet onlooker. The path forward is to regard it as a commodity and permit its activities on existing exchanges. This will guarantee KYC compliances and bring Bitcoin exchanging under system of salary impose division. The exchanges will get followed and be liable to tax collection, on the lines of capital pick up charge. Reformatory provisions for non-compliances by brokers/financial specialists/product trades can be set up for guaranteeing administrative recognition. Bitcoin is a new player in the field of investments; it is only a matter of time to see the right results of the impact of Bitcoin and other crypto currencies.


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Offence of Cheating and Fraud against Nirav Modi Akash Gupta Department of Management Studies Rajiv Gandhi Institute of Petroleum Technology

I. INTRODUCTION Nirav Modi, India’s 85th richest person, a diamantaire, an elite jewelry designer, has 10 namesake boutiques across the world. Mr. Modi born in India to a family of diamond traders, was raised in Belgium and later dropped out of the prestigious Wharton School (U.S) for getting his roots soaked in the learning of the jewelry business. On getting established with “Firestar Diamond”, under the umbrella of his uncle Mr. Mehul Chokshi, the owner of the Gitanjali Gems, he opened up his brand and owns high-end jewelry stores across the globe. His jewelry is famous amongst the elite and various stars of Hollywood and Bollywood.

II. THE FRAUDULENT CASE Avneesh Nepalia, presently posted as the Deputy General Manager in the Punjab National Bank, Zonal Office Mumbai, lodged the complaint that under the Corporate Branch, Brady House, Mumbai Some fraudulent issuance of the Letter of Undertaking (LoU) for and on the behalf of the firms, i.e. M/s Diamond R. US, M/s Solar Exports and M/s Stellar Diamonds, having partners Sh. Nirav Modi, Sh. Nishal Modi, Smt. Ami Nirav Modi and Sh. Mehul Chinubhai Chokshi, have revealed that on the January, the mentioned firms approached the bank and for payment purpose to the overseas banks the firm presented the bank with the import documents having a request to allow them with the buyer’s credit. As there were no sanctioned limit on the firm’s name, the branch officials asked the firm to furnish % cash margin for availing the LoU, but firms told the bank that they were availing the same facility in the past also, which as a result revealed their scam (on 28th January 2018) as the bank didn’t had the details required for such agreement to be issued. III. CONNIVANCE HITS PNB HARD Shri Gokulnath Shetty, the Dy. Manager (retired 31/5/2017), was posted in the same branch since 31/02/2010, working as the Foreign Exchange Department looking after the import section and Shri. Manoj Hanument Kharet both had fraudulently issued the LoUs with put following the prescribed required procedure (without collateral and other), thus, avoiding the entries in the Bank system thereby avoiding the detection of the transactions and transmitting SWIFT (Society for worldwide Interbank Financial Transaction) instruction to the overseas branches of the Indian banks (Two branches of Allahabad Bank in Hong Kong and Three branches of Axis bank in Hong Kong) for raising and funding the Nostro account of PNB.


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It is now believed and suggested that this whole scam was plotted/ started around 2011, in which the initial sanction was low around Rs 800 crores. And interestingly besides PNB Allahabad Bank, Union Bank, SBI and Axis Bank have also issued the loans to Nirav Modi and his partners.

10.2.2 9.2.20 10.2.2 9.2.20 10.2.2 14.2.2 14.2.2 14.2.2 017 17 017 17 017 017 017 017

Steller Diamo Steller Diamond R Diamo nd R Solar Diamo US Solar Export nd US Export nd

Allahabad Bank,HK

Axis Bank,HK

Sum of Amount loaned (USD) by Name of oversee exporter 25.1.2018

5877064

25.1.2018

5862251.03

25.1.2018

5856885

25.1.2018

6093321.1

25.1.2018

4335319.38

25.1.2018

5843161.93

25.1.2018

4415791.96

25.1.2018

5942017.7 0

1000000

2000000

3000000

4000000

5000000

6000000

7000000

Graph: 01 Details of the Banks, Domestic Importers, Issue Date, Due Date and the Lending amount

Loan Amount (USD)

17596200.03, 40% 26629612.07, 60%

Allahabad Bank, HK

Graph: 02 Details of the Cumulative amount loaned by the Banks

Axis Bank,HK


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IV. TODAY’S STATUS Mr. Modi, his brother, his wife, with his uncle Sh. Chokshi are out of the country since the early January. Modi had lost nearly all of his assets, as the Indian government had coinvestigated all his possessions, U.S subsidiary of his jewelry company has filed for bankruptcy in New York City. Forbes had removed Modi’s name from its annual billionaires list. Although the complaint filed was for $43 million (Rs 280.7 crores) but various reports suggest that modi may have injected over $1.8 billion into his companies. Modi is reported to be staying at JW Marriot, Manhattan. India’s Ministry of External affairs announced the suspension of the passports of Modi and his Uncle. Forbes now estimates Modi's net worth to be less than $100 million and lists him along the 120 individuals who fell off the Forbes billionaires ranks in 2018. On revelation of the fraud, the PNB stocks took a major set-back and hit a record low in reference to the last 6 months.

V. CONCLUSION This case could be seen as another set-back for the Indian Economy. So now the government had planned to allot Rs 2.11 lakh crores for the revival of the banks. The banks will revive their SWIFT transactions on the regular basis and keen watch would be kept regarding such matter from now on.


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CALL FOR ARTICLES Finance and Investment Club of IIM Rohtak invites articles from all Business Schools across India. The article should be original and should be related to finance and economics. All the reference should be cited and sources of images should be mentioned clearly. The winner of the article of the month will get Rs.300/- with an ecertificate. All the other selected articles will be published in our magazine ARBITRAGE Instructions: 1. 2. 3. 4. 5. 6. 7. 8.

Please send your articles before 25th June, 2018 on www.dare2compete.com Do mention your NAME, INSTITUTE and BATCH with your article Font: - Times New Roman, Size: - 12 in word .doc/.docx Please DO NOT send PDF files and kindly stick to the format Number of authors 2 at max Maximum Word Limit: 1500 words, Minimum Word Limit: 500 words Naming Convention: Name1_Name2_CollegeName.doc Any Image without the source or label will not be accepted

IMPORTANT: The article should be original and should not have been/should not be published elsewhere. You will be disqualified if you violate the same.


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Finance and Investment Club Indian Institute of Management Rohtak Disclaimer: The views and opinions expressed in this magazine are those of the authors and do not necessarily reflect the opinion of the stakeholders of IIM Rohtak.


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All Rights Reserved Finance and Investment Club Indian Institute of Management Rohtak For any queries/feedback/comments mail to fi@iimrohtak.ac.in Website: https://fi9522.wixsite.com/home

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Arbitrage Magazine - May 2018  

We are pleased to publish the sixteenth issue of ‘Arbitrage’ – Finance and Investment Club’s monthly magazine. Arbitrage aims to cover a div...

Arbitrage Magazine - May 2018  

We are pleased to publish the sixteenth issue of ‘Arbitrage’ – Finance and Investment Club’s monthly magazine. Arbitrage aims to cover a div...

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