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Sydenham Management Review The International Research Journal ISSN : 2249-9490 VOLUME 3, ISSUE 1, OCTOBER 2013

1. Risk Management in Banks 2. Changing Business environment and challenges before the Human resource manager 3. Organisational excellence through leadership 4. Talent Acquisition –Recruiting Process Outsourcing 5. Islamic Finance In India 6. Gold: A Celebration, an Occasion and now a Nemesis



Chief Editor

Dr. M.A. Khan

Aashish Pawaskar

Assistant Editors Jayshree Wasnik Farooque T. Peerzada Ravindra P. Nannaware

Advisory Panel Smt. Swati Phadke Dr. Sandhya Dhabe S. S. Dhure Ansari Mohammed Nasir

Technical Support Viral Dhruv Gaurav Chattopadhay Rishabh Jain

Editorial Board Mr Ajit Alexander

Dr. R K Srivastava

Dr. P. S. Rao




Australasia Region


Dr. M.G. Shrihatti

Dr. Beverlee Anderson

Prin. P. L. Welingkar Institute of Management Development and Research



Oriental Institute of Management California State University

Prof. B N Lad Professor SIMSREE

Prof. P. L. Arya Director

D. I. Cabral

N L Dalmia Institute of Management Studies and Research

Professor, SIMSREE

Dr. Peter Cunnigham Professor Mandela State University

Dr. Chandrahauns Chavan

Dr. Masood Ahmed


President, AIMS,

Alkesh Dinesh Mody Institute


South Africa Dr. Srini R. Srinivasan Head, PhD Center VESIMSR



Management Education has metamorphosed from being just an Educational tool to an interactive medium where not only the bright young students partake knowledge from their faculty but are also continuously engaged in finding innovative ways to make their learning experience more practical, contemporary and relevant. Gone are the days when pedagogy was a one-way traffic, today the inputs from the students are as important as the knowledge that their Professors impart. Considering this distinct change, it‗s imperative that a broad forum be created where the academic acumen of industry experts, academia, intelligentsia and students can be accessed by those who are so interested. Consequently, we at the Sydenham Institute of Management Studies, Research & Entrepreneurship Education, [SIMSREE], which has been one of the leading Business Schools of the country for the past 3 decades decided to start our own Management Journal which shall be at the fore-front of initiating cerebrally relevant debates. I, on behalf of the Director, Faculty, Staff, Alumni, SMR Editorial Team and Students of SIMSREE am delighted to present you this, the inaugural issue of the Sydenham Management Journal. While, care has been taken by our assiduous Editorial team which consists of celebrated Faculty from both SIMSREE and other Management Institutes, Corporate experts, Business Analysts and our students to come out with a useful issue but there are bound to be teething impediments for which we seek your time, patronage and feedback so as to make this exercise more meaningful for all of us. We would keenly be awaiting your suggestions, feedback and views on this issue. Also, please send your valued articles, papers, theses to us so that the same can be published in our forthcoming editions. Thanks and till we meet again, have an informed festive season.

Mr. Aashish Pawaskar Editor-in-Chief








Risk Management in Banks

Ms. Sangeeta Pandit



Changing Business environment and challenges before the Human resource manager



Organisational excellence through leadership

Ms Jharna Kalra


Talent Acquisition –Recruiting Process Outsourcing

Professor Syed Mubashar Hasan



Islamic Finance In India

Vernon Fernandes


Gold: A Celebration, an Occasion and now a Nemesis

Chetan Dhawan & Leena Kalani






Risk Management in Banks Ms. Sangeeta Pandit

Introduction Risk Management is prevention of risk, management of activities within safety limits to mitigate risks and to take steps to protect from risk exposure. Future events are uncertain. Some of these uncertain events could result in adverse performance and impact the profits negatively. Attaining the overall objective of the bank becomes difficult. To manage this risk, one needs to gauge the organization‘s risk appetite. Risk taking ability has to be understood. Risk management is a process where risks that are significant from all sources are identified, assessed, measured, monitored and controlled. This is done with the chief aim to increasing value to stakeholders. The target of good quarterly results and maintaining stock market prices must not propel banks to take short term decisions that will impact long term valuation. Basic work of a bank is lending funds it has accepted or borrowed. The major risk is if entity to whom it has lent does not repay the loan. Other events not connected to the core banking business can occur in future that can have a big negative impact on bank‘s performance. Probability of Default of particular loan or kind of loans is assessed. This risk is comparatively easy to manage. Nature of this risk is uniform across all banks. Where risks do not depend on a sole asset or same type of assets but on multiple resources, then assessing such risk is very complex. Risks arising due to various other reasons too have to be estimated. 2. Types of Risks: a. Credit Risk: The core business of a bank is twofold. To accept deposits and give loans. Credit Risk is risk of loss arising if borrower fails to pay back the amount borrowed and fails to meet commitments given. b. Market Risk: Banks have investments in securities which they may keep till maturity or trade in. They may have bonds as liabilities which they have issued. Market value of these securities fluctuates due to a variety of reasons. The reasons could be macro economic factors, change in interest rate, political situation and so on. Market Risk is the risk of fall in the value of these securities. c. Liquidity Risk: Banks park their funds in assets which need to be liquidated when need for cash arises. For instance, if a depositor who has a fixed deposit wants to encash it earlier. Liquidity risk is the risk that assets cannot be liquidated fast enough to meet the cash requirement.


d. Interest Rate Risk: A fall in interest rate can have a negative impact on banks financial position as their liabilities are mostly short term and assets long term. The long term loans given are locked at interest rate higher than market rate. Deposits received from customers are short term and to refinance them they have to pay a higher interest rate. On the other hand, a rise in interest rate can attract depositors but discourage borrowings. Business volume is impacted. Also, movements in interest rates impact the valuation of portfolios held by banks. Duration formula is applied to understand sensitivity of valuations to change in interest rate. e. Business and Strategic Risk: Banks like any other business have to take decisions that can impact profits in short term or long term. If such business decisions are wrong, profits could be impacted negatively. Similarly, banks adopt strategies to achieve their goal of increase in Net Worth. If these strategies are not apt, then business and valuation could be impacted negatively. f. Legal & Regulatory Risk: Change in law which sometimes is with retrospective effect is a risk. Regulatory environment changes with change in government or Central Bank leadership. Change in statutes of other countries where banks have transactions is also a risk. g. Reputation Risk: Market grape wine is very strong. Feeling of lack of confidence spreads rapidly. Market standing can be impacted by negative press reports, consumer complaints, court cases etc h. Operational Risk: Banks are very process driven. There is extensive use of computerized systems and softwares. Failure of any of them or wrong ones in use can harm the efficiency of the bank. Operation risks are risks due to the operations, meaning the risk of wrong processes and systems or misuse of them. E records have generated transparency but also opened a new stream of cyber errors and frauds. i. Compliance Risk: Banks have to comply with internal processes and requirements of various laws and circulars. Internal processes are to ensure smooth functioning and to prevent errors and frauds. There is risk of non compliance of Internal Rules. Banking sector is highly regulated and governed by Companies Act, Banking Regulation Act, RBI instructions etc. Non compliance of them could result in huge penalties and even curtailing of activities. Risk of cancellation of License is also there. There is risk of non compliance of regulations, inadvertently, due to ignorance and sometimes a fraud by employees or management. j. Earnings Risk: There is a risk of earnings volatility as it depends on various factors. Earnings risk is the risk that earnings may go very low that will hamper the future sustainability of the bank. k. Contagion Risk: Banking operations are getting more and more inter linked. For example with a Bank of Baroda Debit card, money can be withdrawn from a Yes-bank ATM. Any adverse event in one bank can have spillover effect and other banks can get impacted. 3. Management of Risks: a. Price the Risk: Accept the risk and put a premium to the risk accepted. Follow the policy of Risk Based Pricing or of charging Credit Risk Premium.


b. Transfer the Risk: Banks have tie ups with ECGC (Export Credit Guarantee Corporation Ltd.) Banks market the credit insurance products of ECGC. ECGC basically has insurance products that cover risks of Indian exporters. Banks loans become safer in the process. Government of India and SIDBI has set up the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE). Banks pay a premium to this Institute and their loans to Micro and Small Enterprises are insured. Easier for Entrepreneurs to get loans though they cannot offer collaterals and third party guarantees like seasoned businessmen. Banks too are secured as these loans are insured. The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFESI) Act, 2002 has helped banks to recover bad debts by selling collaterals in a speedy and efficient manner. c. Manage the Risk by: i. Hedging: Banks can enter in to off balance sheet transactions or on balance sheet transactions to hedge their risk. For example if a bank has issued fixed rate bonds and has given loan at floating rate, the bank can issue further bonds with floating rate that can be used to pay off the fixed rate liability of the bank. In this way, interest rate sensitivity of liabilities and assets is better matched. A bank may opt to enter in to an interest rate swap with another financial institution having opposing exposures, namely floating rate liability and fixed rate asset. Assets and Liabilities are held in foreign currencies, to protect currency fluctuations banks may resort to forward transactions. ii. Adequate Collateral: Loan to value ratio is a norm which every bank lays down. For housing loan, only a certain percentage of the value of the house is given by way of loan. For working capital loan on hypothecation of inventory, frequent valuations are done to ensure adequacy of collateral. iii. Setting exposure limits- borrower wise, industry wise, asset-class wise and the like. Concentration risk is avoided. Cap is kept on the amount of loan that can be extended to an individual or a company. By macro economic analysis, sectors in the wrong side of the trade cycle are given loans with extra caution. iv. Maintaining adequate Capital: Basel Accords lays down the Capital requirements considering the quality of assets. RBI guidelines have to be followed. Banks must have sufficient capital to absorb loss if any arising due to the various risks it is exposed to. Capital is divided in two categories-Tier I (share capital and disclosed reserves) and Tier II (other reserves and subordinated debt).Loss absorption capacity of Tier I is more than that of Tier II. v. Creating Provisions: RBI has laid down provision coverage ratios. Accordingly banks are required to make provisions. Banks have to make specific provisions for NPAs. d. Avoid the Risk: Not to enter in to transactions that is estimated to be risky. If all strategies are not possible, it is better to avoid it. A bank after assessing its risk taking ability may refuse to enter in to some transactions. 4. Team Work: Risk cannot be tackled without team work. The various risks are interlinked. Operations risk is not only from the process but also from the persons manning the process. Reputation risk is linked to Liquidity Risk. Various Departments and functions in a bank have to work in tandem to tackle the uncertainties


cohesively. People and Systems must work towards the common goal of minimizing risk exposure and handling the risk exposure prudently. The various departments that must work in synchronization can be summarized as below:         

Front Office Mid office Back Office Compliance Credit Operations Systems Human Resources Internal Audit

To conclude, the broad parameters of Risk Management Function as laid down by RBI are: i. Organizational Structure ii. Comprehensive Risk Measurement Approach iii. Risk Management Policies approved by the Board, consistent with the broader business strategies, capital strength, management expertise and willingness to assume risk. iv. Guidelines and other parameters used to govern risk including detailed risk reporting framework v. Strong MIS for reporting, monitoring and controlling risks. vi. Well laid out procedures, effective control and comprehensive risk reporting framework. vii. Separate risk management framework independent of operational Department and with clear delineation of levels of responsibility for management of risk, and viii.Periodical review and evaluation. DIAGRAMS 1. RISK MANAGEMENT



References: 1. 2. 3. 4. 5. Financial Markets and Institutions by Anthony Saunders & Marcia Corsett McGraw Hill (2009)

Author Ms. Sangeeta Pandit, HOD of Finance at SIMSREE


Changing Business environment and challenges before the Human resource manager R.Krishnamoorthy

Abstract Since 1991, several changes have taken place in business environment due to technological advancements, economic influences, political factors and legislations. The organizations have to respond in an innovative and timely manner to succeed in the long run. Human resource (HR) manager has to play an active role in integrating HR strategies with the business strategies of the organization in the changing business environment. The article looks at the recent changes in the business environment and the challenges faced by the HR manager in meeting the needs of the organization and the employees. Key words: Changing business environment, Human resource manager, Human resource policies, Introduction Changes in the business environment such as globalization, computer revolution, and internet, and mechanization, automation of office operations, outsourcing and satellite communication have considerably affected the manpower requirements in terms of knowledge and attitude. The work force consists of people with diverse background and it is essential that the diverse group work together for effective functioning of the organization. Human resource (HR) manager faces several challenges. He has to understand the difference in the work force such as individual differences, work style and beliefs and follow a fair HR policy. Further HR manager has to keep himself updated with changing business and HR practices, reporting relationship, leadership style of managers, personnel laws, cultural issues, and work ethics and so on. He has to meet the changing needs of the management and employees. Factors influencing human resource management (HRM) The factors influencing HRM could be broadly classified into three categories i.e. 1.Environmental 2.Organisational and 3.Individual 1. Environmental factors influencing HRM include liberalization, globalization, and legislation, modernization of technology, competition and employee diversity. Example: A revolution in the IT field is on and many Indian companies have extended their activities to countries like USA, UK and UAE. They require qualified and experienced people who can work in a multicultural environment. There are plenty of job opportunities in this field and tackling employee turnover is becoming a major challenge. 2. Organizational factors such as competitive nature of business, need for flexibility, downsizing, voluntary separation of employees, organization culture, labour union, self-managed work teams, advancement in technology will have implications on HRM practices. Examples. a) Now a days, there is intense competition in the market place, leading to tremendous pressure on margins. Organizations are trying to find out ways and means of controlling personnel cost. Many companies are going for ‗Flat Organization Structure‖ with less number of layers in the organization structure. Inefficient


and surplus employees are being laid off. Employees are feeling less secure in their job. Employees who take voluntary separation are coming back to work, accepting lower remuneration. b) The concept of open space office (open cabin) has been implemented in many progressive organizations leading to less privacy and less status differentiation. c) With the use of computers, people can work at home. HR will have to determine the out put of such work and pay accordingly. An appropriate appraisal system has to be devised for such employees since close supervision is not possible 3. Individual factors consist of individual productivity, empowerment of employees, preventing brain drain, ethical and socially responsible behaviour, career growth, quality of work life etc. Examples: a) Employees are becoming self-centered. Loyalty to the profession rather loyalty to the company is the approach adopted by younger generation of employees. Employees are open to change if the work place is not conducive or fails to meet their goals and aspirations. Young and educated employees change jobs to meet career aspirations b) Due to increase in work load and extended working hours the employees are facing stress related health problems. c) The numbers of dual career couples are increasing in cities and towns. The employees mobility decrease and they do not want to shift to a new geographic location Challenges before the Human resource manager 1. Aligning HR role with business strategy. HR manager has to play a very active role in integrating HRM strategies with Business strategies of the organization and to ensure employee competencies, motivation and organizational climate in a planned and systematic way. HR activities should be matched or aligned to the Corporate or Strategic business unit (SBU) strategies such as merger and acquisition, joint ventures, diversification and voluntary retirement plans. Example: The announcement of merger of two companies leads to uncertainties among employees, as they are worried about the future of their jobs. . At the same time persons with specialized qualifications and experience are able to find placements in reputed organizations with attractive remuneration package 2.Integrating the needs and the interests of employees and management: Employee‘s interest includes adequate wages and acceptable hours of work, safety and healthy working conditions, opportunity for expression of views, economic security and career growth whereas management is concerned with loyalty, cooperation and commitment of employees, low personnel cost and maximum productivity of employees. HR has the responsibility for ensuring a satisfactory achievement of the objectives of the organization and that of the employees. Example: Very often lower level employees, besides lower wages, are subject to poor working conditions, unfavorable terms and conditions of service and exploitation by the management. Executive level employees have to face extended working hours, deadlines, demanding superiors, interpersonal conflicts, role conflicts etc. Occupational stress is determined by working conditions, hours of work, nature of work, night shift work, rest period, abilities of the person to match the job requirements etc. Stress adversely affects employees‘ productivity. The work norms have been changing depending on the business environment. The employees are concerned with the quality of work life. Quality of work life (QWL) means having policies and procedures that make the work rewarding to the employees. If the quality of work life is encouraging, the productivity of the employee would improve. HR manager has to consider all the factors that contribute to increase in QWL, discuss with senior managers and come out HR policies and practices that will lead to improved performance of employees. 3. Top Management: One of the most formidable challenges of HRM is to change the values, beliefs and norms established by the top management and HR efforts to be concentrated on top management. It is said that the biggest challenge in a change process is the top management


Examples (a) the profile of employees i.e. literacy, knowledge, skills, aspirations etc. are changing. Employees are concerned with ethical practices and quality of working life. Learners and Stars are expecting faster growth opportunities in the organization. We also find that traditional industries are not able to offer better remuneration package to their employees and at the same time they want to retain good performers in the organization. (b)Learning Organization: Organizations also learn and acquire knowledge as the individual employees. Organizational learning is the outcome of the cumulative learning of all employees the organization. A learning organization refers to an organization which facilitates the learning of all its participants and constantly changes itself. Such an organization is also skilled at creating, acquiring and transferring knowledge and adapting to the changing situation. (c) The management has to protect the interest of weaker sections of the society and this group includes minorities, backward classes, and physically handicapped people. HR has to convince the management to modify the policies so that they are not denied job opportunities or discriminated in the work place. 4. Change Agent: The organization has to find ways and means to compete more effectively in the fast changing business environment. HR function has to become an integral part of top management i.e. as a partner to the strategic process of growth. A few examples are given below. (a) Virtual organization is network in which all the horizontal and vertical boundaries are removed. It consists of individuals working out of physically disperse workspaces or not tied to any particular workspace. It involves co-ordination activities through information technology. Some of the characteristics of virtual organizations are flexibility with regard to work, time and work place, dependency on IT, multiskills, part time work, less of organizational boundaries and high concern for customer and customer service. HR manager in such an organization has to focus on hiring of knowledgeable people for short period, accept working from home as a reality, team work and empowerment of employees. (b) Creating Employer Brand: One of the problems faced by organizations is acquiring and motivating good performers to work productively. This is generally due to high demand and short supply of qualified and experienced people like IT and financial sector. In view of the shortage of talented people, organizations have been devising strategies to attract and retain talent. One of the strategies is creating and establishing ‗Employer Brand‘ in the minds of present and prospective employees and placement agencies. The key objective of Employer brand is to create and build a favourable image of the company among employees and job seekers. Through product positioning the company tries to create and build a distinct image of the brand in the mind of the customer compared to that of the competitive brand in the market place. In the same way, employer brand helps the company in attracting and retaining good performers despite better offers received from rival companies. HR plays an important role towards ensuring that the employer is viewed as an attractive work destination. This can be achieved through the usage of job sites, company websites, and placement partner and college campuses. HR can be helpful in terms of hiring the right kind of talent for the job, provide best HR practices to the employees. Employer brand includes all aspects of HR policies and practices and these should meet the needs of employees. 5. Personnel Compensation: The most common elements of compensation are basic salary, house rent allowance/reimbursement, conveyance allowance, special allowance, reimbursements, annual benefits and retiral benefits. While employees are aspiring for higher and higher wages, management wants to control personnel costs. During the last few years the concept of ‗Pay for Performance‘ i.e. Performance related pay; Cafeteria means of compensating employees, Profit sharing and Stock option are becoming popular in industries. Therefore HR has to keep updated with the trends in employee compensation and suggest most appropriate remuneration package that is within the financial reach of the organization and at the same time motivate the employ-


ees to perform better. 6. Policies and procedures: The HR manager has to arrive at a balance between employee expectations and management interest while formulating the policies and procedures. a) There are a growing number of retired employees who are choosing active professional life even after retirement. Their expectations are different from younger generation of employees. Example: Flexible working hours, working independently without being closely supervised, respect for age and experience etc. (b) Human resource accounting: Human resources refer to the aggregate of employee skills, knowledge, experience and health which are currently and potentially available to the organization for achievement of its goals. It comprises the value of the productive capacity of a company‘s human organization. HR accounting involves measurement and valuation of human resources and communicating relevant information to the management. It deals with investments in people and economic results of those investments. In the case of management consultancy/ legal firms, trading firms, designers, architects, human assets constitute the major earning base. The earnings mainly depend upon the knowledge, skills and experience of the personnel. In India companies like Infosys have attached lot of importance to valuation of human resources. (c) Flexible working hours i.e. Flexitime allows flexible starting and leaving times for the employees. However all the employees have to be present in the office during core time and should work for the stipulated total number of hours per day in the office. Example: Flexible starting time: 8 AM to 10 AM ,Core time when all the employees must be present: 10 AM to 1 PM, Flexible Lunch time: 1 PM to 2 PM ( lunch break is 30 for minutes ) , Core time: 2 PM to 4 PM, Flexible time for leaving the office: 4 PM to 6 PM .Those who start the work at 8 AM, can leave office at 4 PM (Total number of hours in office 8 hours with 30 minutes lunch break i.e. 7 ½ hours of working) (c)Rehiring former employees (also known as Alumni employees) offer several advantages to the organization. These employees are familiar with the company policies, procedures and culture and can become productive within a short period. For example IBM provides part time employment to alumni employees in areas such as technical design specification, component software code, test plans etc. Infosys Global Alumni Net Work is open to former employees and share information with these employees about latest happenings in the company. Further the alumni employee can reconnect with Infosys as clients, consultants and even take up a job. When rehiring alumni, his grade and salary package are decided based on his level while leaving the job and his current role, responsibilities and salary in the present job. 7. Manpower management: The HR manager has to take decisions on appointments, promotions, transfers, separation, industrial disputes, wage settlement, employee grievances etc. and this work is very challenging. Examples a) To-days‘ workforce consists of people with differences in age, education, experience, knowledge, skills and aspirations. The veterans who have several years of experience and have strong work ethics, the middle aged who are loyal to the employer and are comfortable working in a stable environment and the younger generation who are ambitious, well informed and need freedom and flexibility. Experienced people can provide advice arising out of years of work experience and the new generation is hasty and brings in a new ideas and smart way of working. Different generations have different opinions and expectations and it is a challenge to handle the diverse group at the same time. b) Plateaued (stagnant) employees are a serious concern for the organization. Such employees feel that they have been working in the organization for several years and they have nothing more to learn, achieve or contribute in his professional career. This situation may arise due to various factors-boredom of doing routine work for several years, comfort zone, complacency or the employee is highly proficient in his job and the managers do not want to shift him to another job. However the reason for plateauing may vary from employee to employee. HR manager has to discuss with the employee and reporting manager and prepare a time bound development programme and monitor the progress shown by the employee.


(c) High performers may like the job as well as the organization and even recommend their organization as a good place to work based on learning opportunities and pay package. They seek challenging assignment. However if they find career growth is not as per expectations, they leave the organizing. Providing attractive pay, increment and fancy designations may not meet the aspirations of high performers. Hence HR has to find out innovative ways such as career growth plans, working in new projects, intra company succession plans, and accelerated development programmes etc. to retain such high performers. (d)Competency Mapping: Competencies can be defined as skills, knowledge, attitudes, motives, traits, selfconcept and abilities that distinguish high performers in an organization. Knowledge and skills competencies are relatively easy to develop compared to motives and traits. A competency model describes the combination of knowledge, skills and characteristics needed to effectively perform a role in an organization. Identifying and mapping these competencies are carried out through a series of tests such as written, analytical, interactive and group exercises. Competency mapping is used an HR tool for selection, training, development, potential appraisal and succession planning. 8. Women employees Out of a total population of about 120 crore, about 50 crore comprises of working class. However women constitute only about 12.5 crore of the workforce. Service sector consisting of IT, BPO, travel, tourism, aviation, event management, financial services offers a variety of jobs to women. The numbers are high at entry level and low at middle and senior positions. Working women do experience stress and stress related health problems as they have to balance between office work and family obligations. . There are individual situations such as post natal period, late working hours, working on holidays etc. where HR has to create a favourable work environment for women. 9. e-Human Resource Management Computers are extensively used in human resource management. Information technology and internet find applications in the different areas of HR i.e. e-Human resource planning, e-recruitment, e-selection, eperformance management, e-training and development, e-compensation management and e- human resource information system. Example: In many organisations, personnel records, processing of pay roll, salary remittance, pay slip, expense statements, leave applications, attendance recording, sales force reports etc. are computerized. Through the use of IT and Internet, companies are moving towards paper less offices. 10. Green HR involves environmentally friendly HR initiatives that lead to greater efficiencies, lower cost and better employee involvement. Examples: Less hard copies of correspondence, memos and documents, substituting air travel by video-conferencing, teleconference, e-mail, car pooling, working from home, recycling of waste etc. The HR should come out with environmentally friendly policy highlighting the need for saving energy and resources for the benefit of the company and the society Conclusion During the last few years, lot of changes has taken place in the business environment. These include innovations in business strategies, changing consumer behaviour and technological processes. The organization has to develop its human resources if it wants to remain in business, face the competition and march towards prosperity and growth. The very survival and growth of the organization depend on human resource development. Organizations have now realized that employees are human beings and they are treated well and their talent is used for organizational growth. Therefore organization has to anticipate the changes and respond in an innovative and timely manner to succeed in the long run. The job of HR manager become very challenging and he has to keep in touch with the changes and come out with appropriate policies, procedures and practices to meet the changing needs of the organization and the employees.


REFERENCES: 1.Aswathappa (2008) Human Resource Management, Tata McGraw Hill Publishing Company Limited, New Delhi 2.Edwin Flippo (2009), Principles of Personnel Management, McGraw Hill Publications, New Delhi 3. Luis R Gomez-Mejia, David B Balkin and Robert L Cardy (2012) Managing Human Resources, PHI Learning Private Ltd, New Delhi 4. Thomas G Cummings and Christopher G Worley (2011), Theory of Organization Development and Changes, Cenage Learning India (P) Ltd. New Delhi Author R.Krishnamoorthy, former General Manager, Syngenta India Limited and visiting faculty in Management Institutes in Mumbai.


Organisational excellence through leadership Ms Jharna Kalra Introduction: The key to organizational excellence is excellent leadership and at the heart of excellent leadership lie four foundational values joy, hope, peace and love. organizational excellence is difficult to define and even more difficult to achieve. Whether excellence is defined as profitability, market share, customer/employee satisfaction, or product innovation, it is commonly sought by leaders, but rarely found. Yet, twenty-first-century leaders continue to search for excellence like knights of yore searching for the Holy Grail, experimenting with change processes in an oft never-ending sequence of flavor-of-the-month interventions. During the course of the past two decades Quality Circles, Self-Directed Work-Teams, Total Quality Management, Process Improvement, and Reengineering have been frequently used by leaders in their attempts to create excellence. Though each of these interventions has value, none of them have proven to be a direct path to excellence. All of them focus on changing the organization its people, processes, or products. None of them focus on changing the leaders basic way of being his or her worldview. Leadership can be measured by how well it, leadership, uses opportunities, how sound its strategies are, and how well it can inspire followers. Leaders are made, not born and leadership can be developed through teaching and coaching, meeting challenges and getting feedback from efforts. Outstanding organizations are led by unusually capable people and the best organizations have clear strategies for leadership succession, continuous efforts to develop leadership and opportunities for leadership for every member of the organization. Contemporary leadership theories and practices are essentially by-products of cultural modernism. Most twenty-first century leaders are unfamiliar with postmodern philosophy and its corresponding leadership implications. Society in general, and business schools in particular, still espouse objectivity and rationality, the basic tenets of cultural modernism. However, from the postmodern perspective, it is impossible to determine the existence of an objective reality; hence, rationality is viewed as a function of cultural tradition Concept of Organisational Excellence: “Organisation Excellence is delivering sustained superior performance that meets and where possible exceeds the expectations of stakeholders”. The key to organizational excellence is excellent leadership and at the heart of excellent leadership lie four foundational values – joy, hope, peace and love.. However, positive values, though necessary, are not sufficient. In order to achieve remarkable results, these values must be translated into congruent behaviors. To do so require new leadership strategies and skills – strategies and skills that will enable leaders to rise above the status quo and create high performance organizations. Four transformational leadership strategies and seven quantum skills are introduced. These values, strategies and skills can enable twenty-first century leaders to create new levels of organizational excellence by harnessing the most powerful energy in the universe – the energy of the Mind.


Organizational Excellence = Leadership Values+ Transformational Strategies+ Quantum Skills

Perspectives on Leadership and Organizational Excellence: At a time when organizations are looking for new ways to build high-performance teams, perhaps they should be considering a family approach to business that emphasizes trust and values. A team work environment where camaraderie means having each other‘s back and not judging one another. A workplace culture that celebrates opportunities, transparency, and the opinions of all to enrich conversations and diversity of thought. According to a McKinsey report, one-third of all companies in the S&P 500 index are family-controlled, and many are outperforming their competitors. A study at Texas A&M further reveals that family-owned businesses beat other firms in revenue and employment growth and have a longer-term view of investment; they‘re more stable, and inspire more trust and commitment in their employees. In fact, the top 10 family-owned businesses – including MARS, Ford, Walmart, Cargill and Koch Industries – collectively generate annual revenues of one trillion dollars. The success of family-owned businesses runs much deeper during turbulent times. Because family-owned companies tend to take a much more conservative approach to debt, leverage becomes an advantage. As noted in the McKinsey report, average family businesses in the U.S. and Western Europe had a debt-to-equity ratio of only 25 percent going into the financial crisis of 2008, compared with 40 percent for non-family firms. There is clearly something to say about running a business with a family approach. Not all of them are perfect, but that is not the point. Taking a family approach means establishing a foundation of trust and a cultural promise to unite as one; to perform with purpose and the healthier whole in mind. In the end, it‘s about leadership and the ability to manage the moving parts and sustain momentum. Here are five ways a leader can build a family environment to achieve excellence in the workplace:


1. Give Your a Sense of Ownership Too many times, leaders demand that their employees just ―do‖ what they say – and thus don‘t give them a sense of belonging to a team. At a time when employees want to be a part of something meaningful, leaders need to spread the wealth of ownership and with it the responsibility – i.e., apply more accountability to performance. To build a family environment, make everyone on the team feel as if they are a ―board member‖ in your department. Establish boundaries, but elevate their sense of purpose. 2. Everyone Must Protect One Another Lead with kindness and intention. Leadership by fear limits the growth of your employees and the opportunities for achievement. Treat your employees like family. Have each other‘s back and always help one another improve; talent discovered and used in the right situations can seize opportunities rightly. 3. Instill Values to Enable a Trusted Culture When you can define the standards of performance based on an understanding of what you, the department and / or the company stands for – it is much easier to establish expectations. These expectations should be based on a set of core values that everyone can embrace in order to build a trusted culture that is fair with no surprises. Your team will operate most efficiently with a clean state of mind knowing that their momentum will not be disrupted with ―political road-blocks.‖ An uninterrupted game plan means they can focus on results.

EFQM Excellence Model 2013 The EFQM Excellence Model is based on a set of European values, first expressed in the European Convention on human Rights (1953) and the European Social Charter (revised in 1996). This treaty is ratified by the 47 member states of the Council of Europe and the principles are incorporated into national legislation. The Fundamental Concepts of Excellence build on the \ foundation of these basic human rights, assuming they are universally applied. Recognising the role business can play in supporting the broader goals of the United Nations, the global Compact (2000) was established. This initiative encourages organisations to actively apply these values, set out as 10 principles for sustainable and socially responsible business, across their global operations. Whilst a number of these principles are explicitly covered in the EFQM Excellence Model, a number are implicit, including those relating to human rights, corruption, bribery and forced labour, as these are already a legal requirement within Europe. The EFQM Excellence Model assumes that an excellent organisation will respect and comply with the 10 principles of the global Compact, regardless of whether legally obliged to do so or not.


The need for a Model: Regardless of sector, size, structure or maturity, organisations need to establish an appropriate management framework to be successful. The EFQM Excellence Model is a practical, non-prescriptive framework that enables organisations to: assess where they are on the path to excellence; helping them to understand their key strengths and potential gaps in relation to their stated Vision and Mission.  provide a common vocabulary and way of thinking about the organisation that facilitates the effective communication of ideas, both within and outside the organisation.  Integrate existing and planned initiatives, removing duplication and identifying gaps.  provide a basic structure for the organisation‘s management system. 

Whilst there are numerous management tools and techniques commonly used, the EFQM Excellence Model provides an holistic view of the organisation and it can be used to determine how these different methods fit together and complement each other. The Model can therefore be used in conjunction with any number of these tools, based on the needs and function of the organisation, as an overarching framework for developing sustainable excellence. Excellent Organisations achieve and sustain outstanding levels of performance that meet or exceed the expectations of all their stakeholders. All organisations strive to be successful, some fail, some achieve periods of success but ultimately fade from view, and a few achieve sustainable success, gaining deserved respect and admiration. The EFQM Foundation was formed to recognise and promote sustainable success and to provide guidance to those seeking to achieve it. This is realised through a set of three integrated components which comprise. The underlying principles which are the essential foundation of achieving sustainable excellence for any organisation. Conclusion: From a practical perspective, it is difficult to identify an adequate population of leaders who have done the intensive inner work of self-reinvention. On the theoretical front, such research would be contaminated by the theory foundational proposition that researchers find only what their language gives them the capacity to observe. Wheatley writes: ‖ Every act of measurement loses more information than it obtains, closing the box irretrievably and forever on other possibilitie.Therefore, postmodern philosophy mandates not only the development of new leadership models, but new research methodologies that can assess the robustness of those models while recognizing the postmodern limitations of data collection and analysis. To paraphrase the oftquoted words of Einstein, it is impossible to assess new theories with the same tools that created the old ones. Leadership and organizational excellence are inextricably linked. The latter begins with leaders who embrace change and new ideas, anticipate opportunities, remain transparent, and take well calculated risks in a way that efficiently achieves the mission while evolving towards challenges and opportunities. Organizational excellence will result from clear business practices that allow efficient and consistent operations within an organisation and that allow focus on the highest priority goals and objectives.


REFERENCES: 1. 2. 3. 4. article creating organisational excellence

Author Ms Jharna Kalra , Lecturer at Sydenham College of Commerce & Economics


Talent Acquisition –Recruiting Process Outsourcing Professor Syed Mubashar Hasan

Abstract: Talent Management is the management of the talent within an organization. There cannot be another simpler definition otherwise we run the risk of abstraction. Talent encompasses employees’ skills, knowledge, cognitive abilities, potentials, values and work habits amongst others. This list is exhaustive. It is difficult to contemplate that there is a possibility that any activity, in the context of the organization, relating to the employee is not in form or the other related to Talent Management. In reality, even in the most rudimentary form, every organization practices some form of Talent Management.Today a vast talent pool is avaliable but placing them in the right place has become a challenge for large & small organisations.This paper focus on one of the aspect of talent acquisition as RPO (Recruitment Processing Outsourcing)to be adopted by all organisations.

INTRODUCTION In most large organisations, the HR function has a robust capability and programme in place for identifying and developing a pipeline of top talent. This process usually seeks to ―push‖ promising talent towards senior management positions by providing the leadership tools and skills these individuals will need. There is no doubt that every organisation needs to identify and develop the outstanding talent that one day will fill its senior leadership roles. This is why large organisations invest millions every year in leadership development programmes, often drawing on complex talent development models and incorporating courses at prominent business schools. This tried-and tested approach is clearly good for attracting and honing talented individuals. However, organisations are increasingly questioning how effective traditional leadership development programmes are when used in isolation to develop a robust talent pipeline. Many organizations believe that effective talent management practices can be a critical source of differentiation in today‘s highly competitive, globally integrated economy. At the same time, industries face their own set of unique challenges ��� a situation that has led enterprises to focus on different pieces of the talent management ―puzzle.‖ This is all about increasing the organization‘s return on its human resource investment. More so, understanding what Talent Management means or trying to give a clear definition for it will always be a challenge. This becomes more significant when we consider the fact that any initiative, no matter how sound, could over time assume the status of a cliché. In as much as an organization is involved in recruiting, selecting, placement, promotion, rewarding as well as training and development activities, regardless of how informal, talent management is being practiced. When Talent Management is, however, being referred to, it is in the formal sense of having method and structure relating to organizational practices.


Unfortunately, many organizations in the developing countries and in some more developed parts of the world still do not have any formal structure and processes. In reality, in a formal, structures sense, those organizations do not actually practice Talent Management. Recruitment Process Outsourcing (RPO) Recruitment Process Outsourcing (RPO) is a form of Business Process Outsourcing also called as BPO whereby a Company/Employer/Recruiter outsources or transfers all or part of its recruitment activities to an external service provider. According to Recruitment Process Outsourcing Association (RPOA),definition of RPO is "when a provider acts as a company's internal recruitment function for a portion or all of its jobs. RPO providers manage the entire recruiting/hiring process from job profiling through the on boarding of the new hire, including staff, technology, strategies and reporting. A properly managed RPO will improve a company's time to hire, increase the quality of the candidate pool, provide verifiable metrics, reduce cost and improve governmental compliance.

Need RPO RPO has been started before some years when the need of the manpower was not so high. No such a competition between the companies for talent. Now the growth of the companies engaged with the IT /Non It products have been very fast and for that RPO are a very much beneficial service in several ways. It decentralizes the work and task to be distributed further among different expertise helping the employer company to concentrate on its core competences. RPO offers an expertise service of choosing the right personnel at the right place. RPO professionals helps the employer for not only sourcing the talented candidates they place the right candidate to the right place. RPO is an effective option for many organizations because it can have such an immediate and profound impact on their growth and profitability. By enhancing the capabilities of in-house recruitment teams, RPO can accelerate an organization‘s ability to attract and retain top-performing employees at every level, dramatically increasing the human capital necessary for marketplace success.


An organization that launches a new product or acquires a new division may have to add hundreds of employees on a seemingly impossible schedule, perhaps at a distance of thousands of miles. Ramping up and deploying an in-house HR team may be impossible in the time available. RPO provides a turnkey, cost-effective solution - which then ramps down smoothly when the project is complete. Benefits to choose RPO: Reducing Recruitment cost: The costs on recruiting can be significantly reduced as an RPO services provider essentially uses ―economies of scale‖. It reduces the hiring cost of recruiters while employees needed on the large scale. They work very flexible while there is need of high volume of the employees at very large scale by increasing number of recruiters at their place and reduced by the time of low volume.  Maintained Quality and brand: RPO providerdo the recruitments by keeping the quality and brand reputation. Recruitment is after all labor-intensive process and it is further compounded by the fact that it is recurring. 

From example, suppose your company could have a very high number of open positions during a certain time of the year each requiring varied skill-sets and experience. hire a team that is capable of sourcing and recruiting these candidates is itself a challenge Recruitment Process Outsourcing (RPO) providers have the enough processes to place, expertise, an not having only rich internet database of resumes and but enough networking source to fulfill the requirements of all types of candidates by the company. RPO brings in the right sense of marketing to any company by offering the right recruitment advantage to it.  Effective Service: A Recruitment Process Outsourcing (RPO) provider will help to streamline a company‘s recruitment function and make it seamless and effective. RPO providers are equipped to provide you with the best people when you need them and also take care of your ongoing and future needs through greater employee retention and process control. Recruitment Process Outsourcing is an end to end process of making the strategy from designing a job profile using the proper resources with marketing strategies to get the candidates with keeping the special requirements by the clients. It is not just to line up or hiring a specific person for a specific profile at any time. But it is about building a talent pool of resources that can be made accessible for your company.RPO providers also go the extra mile to provide your company with valuable advice and suggestions on employee retention. ―RPO can succeed only when having the well-defined corporate and staffing strategy.‖ The outlook towards talent acquisition.What was oncew called ―workforce‖ evolved into ‗human capital‘ and is now known as ‗talent‘-a morew comprehensive description of individuals with sttributes they possess.These attributes include skills, experience and aptitude, competence and organisational cultural fit. The journey of talent acquisition from traditional hiring at the gates of a factory to today‘s sophisticated recruitment has been slow yet steady.Today‘s recruitment has become a snazzy, strategic and competence-driven business function. For most small to medium businesses, day-to-day activities and chores may be easy but recruitment may prove to be a tedious task proving to be a bottle-neck at times. Recruiting the right candidate with the right package and at the right time is quintessential for any company. In order to do this, a company needs a lot of time which in most cases, they don't have.


The HR departments of these companies are loaded with handling internal affairs and managing internal employee relations. Recruitment involves many time-consuming activities such as going through the loads of resume, calling shortlisted candidates, taking interviews and the required follow through. It is a process that may take days, weeks or even several months at times. This is the reason why professional HR services are hired or outsourced to render recruitment services to the companies at a certain price. These HR consultants are known as Recruitment Process Outsourcing Service providers or RPO provider. There are a number of challenges and opportunities that may come across while dealing with recruitment outsourcing services. Some of them are enlisted below: Challenges of Recruitment Process Outsourcing: Communication: Defining areas of responsibilities and stating expectations is a must before engaging with an RPO provider..Communicating all the expectations and keeping the RPO team informed of any changes over the duration of the project will help achieve success. Think of the RPO team as an extension of your recruitment team and build towards a successful partnership. Finding the right Partner: Finding the right RPO provider with similar corporate values and culture helps cross the major hurdles while opting for staffing services. This helps in not only building a relationship based on mutual trust and understanding but also helps the RPO provider find candidates that are a good fit for your company. With the right RPO provider on-board, you can be assured that they would not cheat for short-term gains but would work together to build lasting relationships. Opportunities of Recruitment Process Outsourcing: Cost Factor: If there are large numbers of vacant positions to fill in, recruitment outsourcing can be the best and the fastest bet to get one‘s office going. While considering the money spent for in-house recruiters, job boards as a cost save on, and will reduce the time spend by the department heads behind interviewing the wrong candidates and hence lowering their productivity. Time Factor: Since hiring companies are involved in their day-to-day routine and do not have time and patience to interview and hire new employees, the role of an RPO services provider comes as the best solution. They are trained to shortlist and interview candidates for the required job role. This helps save time and gives your team the flexibility to interview only the top candidates. Finding the right candidate is like looking for a needle in a haystack these days. With the help of recruitment process outsourcing companies, small to medium businesses can focus on their core business. The RPO service providers have ample of resources to tap into their resume database, access different job boards or go through their widespread network, to find a candidate with not only the right skill-set you require but the right fit for your company. The Role of Human Resources Practitioners in Talent Acquisition The most critical requirement for an effective Talent Management process in the organization is a Human Resource team that is professionally resourced. Experience bears out the fact that most organizations have now realized that they cannot cut corners when it comes to establishing a professional HR team. The results are obvious: High attrition – the organization becomes more or less a revolving door, poor image as an employer of choice in the labour market and ultimately mediocre performance by the organization.


The link between organizational performance and poor HR practices has been a continued focus on Human Capital Management. Employees are now seen as the real assets of the organization. Other assets cannot be properly deployed unless the right people are in place to manage them. The existence of a HR department or function in any guise does not suggest that the issue of Talent Management is of prime importance to the organization. One has to look at the quality of the team that has been put in place to drive the initiatives. HR professional must design, plan, implement and develop successful Talent Management programmes. This is where structure and process come into play. What many organizations do is to abandon the process of talent management to the HR function. The HR team then erroneously believes that it is able to execute this without inputs from the senior management and line management, and it is for this reason that most talent management initiatives do not get off the ground. Significantly, Senior and Line management must champion the process of talent management in organizations bearing in mind that in the fast paced world of today, changing demographics, globalization and high mobility of labour, with the rapidly emerging technologies and constant change, any organization without an aggressive Talent management process would soon face liquidation and become irrelevant in the business environment. In order to remain competitive in the talent war, companies must continuously strive to improve their talent acquisition and talent management processes. Working with the right RPO provider can help an organization acquire quality talent quickly while managing recruiting costs. A successful RPO program requires a comprehensive plan, executive level support, commitment from the HR staff and hiring managers, a worthy partner, and the flexibility to change with changes in the talent market. The Furture Of Talent acquisition; Developing a talent community strategy can answer many of the organization‘s resource needs. Depth of knowledge around the existing workforce and external talent market work in synergy to frame an effective strategy. Insight into the composition of the existing workforce – succession planning, skill gaps, competencies, employee interests and potential inform external recruitment needs when aligned and recalibrated with the strategic business plan. Identifying needs around skills, experience, level, geography and cultural fit offer a starting point. Developing a talent plan that identifies the type of talent – employee, contractor, contingent, or temporary, is what will further support the organization‘s agility needs and allows the talent acquisition function to operate as a Talent Broker and business service provider. Today‘s approach to managing this talent mix is often fragmented and doesn‘t serve the organization, business leaders or Talent effectively. Designing a strategy that supports building a holistic community that allows Talent to identify the type of work relationship that interests them advances talent acquisition‘s contribution in servicing the organization and delivers a more robust view into available talent. Desire to have greater flexibility, mobility and choice in how and when people work and what they work on is increasing.


REFERENCES: 1. 2. 3. 4. Talent is store-article human capital Feburary edition 2011 5.

Author Syed Mubashar Hasan, Lecturer at Sydenham College of Commerce & Economics


Islamic Finance In India Vernon Fernandes

What is Islamic finance: A financial system based on Islamic law or Shariah, which bans charging and paying of interest. Growth of Islamic capital markets is a direct result of the growth of Islamic banking industry. The need for liquidity management by banks resulted in a number of countries like Malaysia, Kuwait and Bahrain introducing Sukuk to facilitate the management of assets by Islamic finance institutions. The first Islamic bank in the world was founded in Egypt in 1963, and since then, the phenomenon has grown slowly but steadily. Islamic finance covers several types of financial contracts that vary in equity and profit-loss sharing and over the last few years, many countries have shown inclination to invest in invest in Shariah-compliant financial products. For example, the year 2012 has witnessed a significant 64.5% yoy increase in global Sukuk issuance, one of the many Islamic finance offerings. Islamic banking provides services to everyone irrespective of religious beliefs, wealth, ethnicity, caste or creed.

Key Principles and Features of Islamic Finance       

Payment and receipt of interest (known as Riba) is strictly prohibited (haram). The business is based on profit and loss sharing. Certain industries, such as adult entertainment, alcohol, and gambling are “haram” (disallowed by Shariah) and prohibited for investment. Banks may not lease or lend any product that they do not wholly own. Trading in debt is also not allowed, which is why Banks do not deal in traditional bonds; rather they have their own version of such instruments called Sukuk (Islamic Bond). Interest free loans (Qard Hasan) are encouraged to spread financial inclusion It is generally asset-backed and considers money only as a medium of exchange

Ethics is the foundation of Shariah-compliant finance. It is generally aimed at fair trading, market stability, accountability and the public good [1]. There is good potential for an Islamic financial services industry in India. This is largely due to a trickle-down effect in India‘s case starting with HNI customers and moving towards attracting a population of 177mn Muslims. However, it is the proactiveness of the Indian Government in developing the market for Islamic banking products that would be key to the success of this banking model. Regulators such as RBI, SEBI and IRDA have until now, worked in tandem to bring discipline and transparency in the Indian financial institutions and products. However, among them, only SEBI has shown commitment and resilience to allow Shariah compliant products in the country. Hence, India is seen as the largest untapped market for Islamic banking and finance. To understand some of the mechanisms by which Shariah compliant financial products have been marketed in India, let us take the example of Alternative Investments and Credits Ltd (AICL). The Kochi-based finance company adheres to the Koran's ban on interest and instead takes a share in the profit or loss of a venture it has funded. AICL has been offering Shariah-compliant products for nearly a decade. But it came into the


limelight only after Janata Party President Subramanian Swamy in 2009 moved the Kerala High Court against Kerala State Industrial Development Corporation's investment in Al Barakah Financial Services Ltd, an NBFC floated to offer Islamic finance products. Swamy argued that a state-run company's involvement in a firm set up on religious lines was against India's constitution. The court threw out the plea in 2011. The development is significant given that India has the world's third-largest Muslim population - after Indonesia and Pakistan - but does not allow Islamic banking. The trend is most visible in Kerala, where Muslims comprise a fourth of the population, but is also catching up in some other states such as Andhra Pradesh and Karnataka. The Planning Commission expects India to face a funding gap of $300 bn in meeting its infrastructure funding requirement until 2017. Following the example of countries such as Malaysia, Indonesia, UK, France and Germany, India could use Islamic financial products such as Sukuk to fund infrastructure and other sectors. Specifically, India could attract the Middle East‘s high investible surplus through Islamic banking and finance. In 2005, the Reserve Bank of India formed a panel to look into the issue. Three years later, a high level Committee on Financial Sector Reform (CFSR) of the Planning Commission of India led by Raghuram Rajan – the current Governor of the RBI - recommended allowing interest-free finance and banking as part of mainstream banking in the interest of inclusive, innovative growth. The RBI move has generated hope among those pushing for interest-free banking to tap the huge potential of capital flow into the country. But there has been hardly any progress until recently. In May 2012, the RBI revoked AICL's licence as a non-banking finance company (NBFC) citing noncompliance with its rules on interest rates. Thus, it started plans to launch a Shariah-compliant venture capital (VC) fund. This fund, says COO Thanveer Mohiyudheen, does not violate any law as capital markets regulator SEBI permits pooling of capital from investors. A VC fund is Shariah-compliant as it makes equity investments and shares the profit or loss in a venture. AICL is not the only one which is setting up a so-called Alternative Investment Fund registered with SEBI. Cheraman Financial Services Ltd, the new avatar of Al Barakah, has received SEBI approval for a fund to raise up to Rs 300 cr. It also recently received RBI approval to operate as an NBFC which offers leasing and equity-finance products under Islamic principles. This decision could possibly open the door to more NBFCs offering Islamic non-interest products in future, even though full-fledged Islamic banks are expected to remain banned. However, according to Shariq Nisar, Director of research and operations at Mumbai-based Taqwaa Advisory and Shariah Investment Solutions (TASIS), one should not expect any big bang changes to accommodate Islamic banking products. "I don't think there is going to be a rush for NBFC applications. RBI's attitude towards the sharia-compliance concept is yet to be tested.‖ Various stake-holders like the finance ministry and RBI are apprehensive of the idea of Islamic banking because of its religious overtones. However, the recent appointment of Raghuram Rajan as RBI governor might increase the probability of Islamic banking being gradually introduced. According to an official source, the RBI has written to the ministry suggesting that the Banking Regulation Act should be amended as it does not conform to Islamic banking (interest free banking). This change will enable banks in India to introduce the system.


Global Trends Although Shariah compliant mutual funds are growing in number, most of them consist of short-term money market funds in Middle East. Islamic banking assets in the Gulf Corporation Council (GCC) totalled $445 bn as of December 2012. The GCC continues to remain a hub for Islamic banking, while there is limited scope for its development in the western world. The DIFC, QFC and MIFC continue to remain some of the dominant players in cross-border transactions in Islamic banking and Finance. The economists that have been a part of this process for decades tend to argue that the recent trends in the industry are more in line with the conventionalization of Islamic banking and finance and less on the Islamisation of conventional banking and finance. In order to survive and flourish, it is important for Islamic banking to commit to social responsibility. It can redefine its objectives from a pure shareholder centric approach to a wider stakeholder oriented model.


Major multinational banks including HSBC Amanah, Standard Chartered Saadiq, Lloyds TSB Bank and Citigroup offer products in accordance with Islamic Banking principles. Of HSBC‘s client base in UK, 6070% are non-Muslims. In fact, it was the first Western global bank to sell $500 mn sukuk.


Key differences between Conventional & Islamic banking

Islamic Bank

Conventional Bank

The principles of Islamic banking are totally based on Islamic Shariah.

The principles and functions of conventional banks are based on economic and state-specific regulations.

Risk is shared by both investors and the banks.

Investors are assured of a predetermined rate of interest.

Participation in partnership business is the fundamental function of the Islamic banks. Hence, they need to understand their customer‘s business very well.

Lending money to their customer and getting back with compounded interest is the fundamental function of conventional banks.

Greater emphasis laid on the viability of the projects which their customers invest in

Greater emphasis laid on the creditworthiness of their customers

Relationship between bank and its clients is that of partner/investor

Relationship between the bank and its clients is that of creditor and debtor

Islamic Banking in Kerala M.A. Majeed Zubair, Dean at Hyderabad's Institute of Islamic Banking and Finance, says India is an emerging market for capital from West Asia. India has an advantage over China, where language and cultural constraints as well as political reasons discourage investors from West Asia, he adds. In Kerala, which has a large diaspora in West Asia, such funds are targeting investors from overseas as well. Cheraman Financial Services Ltd (CFSL), India‘s first interest-free financial services company backed by the Government, is funded by NRIs including P. Mohamed Ali, Vice Chairman of Oman's Galfar Engineering and Contracting Company. It aims to channel Gulf NRIs’ savings as well as a small chunk of West Asia’s petro dollars into the country’s infrastructure development. Cheraman recently got the Reserve Bank‘s permission to function as a non-banking finance company and was formally launched in August 2013 with an authorised capital of Rs 1,000 crore. CFSL has already received clearances from the RBI, the Securities and Exchanges Board of India (SEBI) and the Wakf board. It will target sectors like infrastructure, services and manufacturing sectors and keep off taboo areas including liquor, tobacco and gambling or speculation. A.P.M. Mohammed Hanish, MD at Cheraman, says the company plans to hold road shows to attract Kerala's diaspora and sovereign funds from the Gulf countries that want to invest in Shariah-compliant products. The firm will float an alternative investment fund under the banner of Cheraman Fund, with a corpus of Rs 250 crore. Besides CFSL, Kozhikode-based Secura Investment has a real estate VC fund that complies with the Shariah. Thus, Shariah-compliant VC funds are gaining importance all throughout India. M. Thomas Isaac, former finance minister of Kerala, says many financial firms in the state work even without the RBI's permission.


Feasibility of Islamic Banking within the existing Indian framework The non-availability of interest-free banking products (where the return to the investor is tied to the bearing of risk, in accordance with the principles of that faith) results in some Indians, including those in the economically disadvantaged strata of society, not being able to access banking products and services due to reasons of faith. This non-availability also denies India access to substantial sources of savings from other countries in the region [3] . Some of the major obstacles in the successful implementation of Islamic banking in India are the regulatory hurdles within the existing banking laws in India. Many market experts including former RBI Governor Mr. D. Subbarao believe that it's the government which will have to determine whether they want to permit Islamic Banking and if so they have to enact a law that is consistent with Islamic Banking in India. Muslims in India are unable to use Islamic banks because laws covering the sector require banking to be based on interest, which is forbidden in Islam. In addition, Indian Muslims are mostly financially marginalized and excluded not just due to the unavailability of non-interest banking, but because a majority of them are poor, and hence, lack the requisite credit worthiness to engage in the modern financial and economic activities. If an institution or bank were to be operational in accordance with Shariah principles, it would come under the purview of the Shariah Court, which might seem contradictory to the existing Banking Laws which authorise RBI as the sole regulator for all banks and NBFCs within India. India's present banking laws directly obstruct the establishment of Islamic banking - the Banking Regulation Act (1949) prohibits the operation of banks on a profit-loss basis (5b), forbids murabaha, or, the buying, selling, or barter of goods (8), impedes ijara, or, bars the holding of immovable property for a period greater than seven years (9), and requires the payment of interest (21) [6]. Undoubtedly, beyond the infrastructural issues, Islamic banking faces many difficulties - given the partnership dimension of business, Islamic banks may have to maintain a closer watch on their investors than a typical bank would. Thus we see that there are statutory and regulatory problems for anyone wishing to set up an Islamic bank in India, but perhaps more problematic is the highly emotional response of those opposing any changes to allow Islamic banking. The emotional issues, which are embedded in India's political history, will be much more difficult to address. Therefore, it is unlikely that many political parties would endorse the introduction of such a banking system in India in the near future. The Road Ahead In spite of having the third largest Muslim population in the world, India continues to remain an unexplored market for the Islamic banking system. Apart from a lack of awareness among Indians of the salient features of Islamic finance, it is the quality of service which can act as a key differentiator for such institutions to develop once the necessary approvals are obtained. Some Islamic banks may pay little attention to the quality of services they offer to their clients especially if such banks enjoy a position where it can exercise some monopolistic power in the market. Many Islamic banks were once in this situation when they were acting alone in their Islamic financial services‘ markets. Today, with many conventional banks looking to enter into the Islamic finance markets, the quality and ease of banking is likely to see a dramatic improvement. Raising the quality of banking services will largely depend on improving three elements: Correct banking professionalism, knowledge of clients and establishing a personal rapport with them. In order to create a sustainable Islamic finance system in India, following factors will remain crucial.


Spreading awareness: Most non-Muslims are completely unaware of Islamic methods of finance and consider it as something meant only for Muslims as part of their Islamic upbringing. Additionally, a large proportion of Indian Muslims live below the poverty line which limits their access and knowledge about such services.  Personalised banking: By this is meant customising the products offered to every client so that it suits his preferences, goals and risk appetite and also create a personal link between the client and the bank.  Improving employee efficiency: Raising the professional level of employees who deal directly with clients such that they can offer services quickly and more efficiently.  Social service: Providing social services that are noticeable by that segment of society from which the bank derives its clientele and staff. 

\The extent to which such services are effective can be measured by the change in the volume of transactions done by the bank over a period of time. The lack of Shariah-compliant investment opportunities has discouraged Indian Muslims from investing funds, not only through the banks, but also through the stock market. Moreover, SEBI is still uneasy about the conduct of such funds, for example the screening process used to determine whether stocks are Shariah compliant and the method of weeding out ‗impurities' as charity. Conclusion: Following the Raghuram Rajan committee recommendation, the ball is now in the government's court whether it wishes to come up with appropriate measures to introduce these products in the Indian banking sector. In parallel, however, I feel a rebranding of the various Islamic finance products and increased awareness is essential to help it achieve widespread acceptance in the Indian market and serve its foremost purpose of financial inclusion.

Key words: Islamic Banking, Shariah, Sukuk, Riba References 1. Ethics and Finance – Mohammad Hashim Kamali 2. World Islamic Banking Competitiveness Report 2012-2013 – Ernst & Young 3. A Hundred Small Steps - Report of the Committee on Financial Sector Reforms 4. Islamic Banking: Is It Really Kosher? – Aaron Maclean 5. 6. Author Vernon Fernandes, Second year MMS student at SIMSREE


Gold: A Celebration, an Occasion and now a Nemesis Chetan Dhawan & Leena Kalani

Gold always glitters in India Traditionally, gold in India has served a double purpose of consumption (it's often the single biggest expense at a wedding) and investment, because it is seen as a more reliable hedge against inflation than savings in financial instruments. Urban and rural Indians differ in their habits in many other spheres, but they are united in their trust in gold. Gold is synonymous with savings and security for many of India‘s 1.21 billion people, for a variety of reasons. The key reasons for investing in gold include the ability of gold to insure against instability and protect against risk, universal acceptance, liquidity and deep cultural affinity with gold purchase. According to Hindu mythology, the Creator of the world deposited a seed in the waters he had made from this body. The seed became a golden egg from which was born the incarnation of the Creator itself Brahma. Brahma is known as Hiranyagarbha - the one born of gold. A number of goddesses are shown adorned in gold, regarded to be the pinnacle of beauty. In addition to beauty, gold represents a symbol of purity, the rationale being that it has passed through fire in its evolution. Thus, it is a sacred item in the Hindu way of life, symbolic of purity, prosperity and good fortune. Gold has been a prime means of saving in rural India and it continues to enjoy safe haven status even today. Gold jewellery is worn by all women irrespective of their religious beliefs. It is believed that most of the gold is held by people in rural areas and in many cases this is the only asset they have in their possession though in small quantity. All the while, rural Indians know that if his crop fails or his family is sick, he can raise cash in a moment from the goldsmith or may be pawnbrokers and moneylenders, because the rural India lags in availing banking facilities. Therefore, even the pattern of saving in India differs for various income groups. While richer sections diversify their portfolio according to risk-return equation, the poor rely more on commodities like gold as well as silver. It is a common practice in India that gold is pawned, bought back and re-pawned to manage day-to-day needs of the poor and middle class. The demand for gold has a regional bias with southern Indian states accounting for around 40 per cent of the annual demand, followed by the west (25 per cent), north (20-25 per cent) and east (10-15 per cent). Some independent estimates indicate that rural India accounts for about 65 per cent of total gold stock in the country. At times of emergency, gold ensures a loan almost instantaneously for the poor and without any documentation process. Most of the loans are for meeting unforeseen contingencies and may be categorized as personal. Revolution of Gold in Indian Economy The gold policy until economic reforms in the early 1990s centred around the major objectives of discouraging people from purchasing gold, reducing domestic demand, regulating supply of gold, curbing smuggling and black income and conserving foreign exchange. During the early nineties a period when the Indian economy faced a severe Balance of payment crisis there has been a shift in the approach of the gold policy. The restrictive policies made way for a more a liberalised gold market. The role of a liberalized and developed


gold market was in the interest of consumers had been realised and efforts were made to integrate the gold market with financial markets. Since 1990, with the repeal of Gold Control Act, Indians have been allowed to hold gold bars. In the year 1993, the provisions of Foreign Exchange Regulation Act (FERA) relating to gold were repealed and imports were allowed by NRIs and since 1997 gold imports were brought under Open General License. All these gave fillip for the development of not only the gold market but also the gold loans market. With a view to bring the gold holdings to the core financial market, several gold based financial products have been made available to retail consumers in the Indian market from time to time. Recently, Exchange Traded Gold Funds (ETF) has also been allowed in the Indian markets, which have received a positive response from investors. Indian Gold consumption indicates that Gold jewellery accounted for around 75 per cent of total Indian gold demand in 2009, the remainder being investment (23 per cent) and decorative and industrial use (2 per cent). However looking at the larger picture we all are well aware about the extent of poverty, illiteracy and the lack of social infrastructure that exists in India. Even, the Planning Commission in its Approach to the 12th Five Year Plan has laid emphasis on an inclusive model of growth. Ideally, inclusive growth should result in lower incidence of poverty, broad based and significant improvement in health outcomes, universal access for children to school, increased access to higher education and improved standards of education, including skill development. It should also be reflected in improvement in provision of basic amenities like water, electricity, roads, sanitation and housing. Budget estimates of key developmental and non-development expenditures indicate that barring Education, none of the other expenditures exceeded the value of gold imports in 2010-11.

Investments in real estate and precious metals accounted for two-thirds (64.2 per cent) of the personal savings in 2011-12, the highest since 1975, when physical assets accounted for nearly three-fourths of all household savings. The financial instruments now attract just a third of household savings as against 52 per cent in 2007-08. A rise in the share of physical assets in the total investment pie depresses the investment yield for the entire economy. Unlike buying stocks or bonds, parking money in gold slows, rather than stimulates, economic growth by sucking cash out of the system. In contrast, even oil imports, while bad for the trade deficit, literally fuel industry. Less income and output for every rupee of incremental investment and lower surplus


for second round of investment, reducing the multiplier effect. All of these result in lower GDP growth. After the 2008 global financial crisis, a combination of high retail inflation and poor income growth in urban India moved the terms of trade in rural households and away from the urban salaried class. The former has a higher propensity to accumulate physical assets than invest in financial instruments. This, in turn, dried up the capital flow to the private corporate sector and the public sector, which rely in financial instruments like equity, bonds and bank deposits to raise capital for funding of their investment plans. The end result was a sharp deceleration in the rate of capital formation — the proportion of GDP invested in fixed assets — which declined to 33.1 per cent of GDP in 2012-13 from a high of 41.5 per cent in 2007-08, according to CSO figures. The increase in physical savings, especially gold, had a role to play in pulling down the capex cycle and ultimately the economic growth.

Gold Imports in India and Government’s Initiative Gold represented 10 per cent of total household savings in India in 2011. According to World Gold Council, Indian households have piled up as much as 20,000 tonnes of gold, worth $1.16 trillion. Over the past three years, gold investments have exceeded equity savings by 11 times. The gold imports were estimated to be 72 per cent of India‘s current account deficit during the 2011-12. India held 20000 tonnes of gold in 2011, adding together the store of individuals, institutions and the RBI. 860 tonnes were imported in 2012. The ratio of gold to gross domestic capital formation is 2:1. Had Indians bought more goods and services instead of gold, capital formation would have been higher than Rs. 26.92 lakh crores for 2010-11. Higher demand would push companies to expand capacity or invest in Greenfield projects to build some items they currently import. The approximate ratio of the value of gold holdings to financial savings of households is 6.8:1. Investments in financial instruments such as fixed deposits, insurance and equities release funds for productive activities by both the government and corporate sector. Gold does nothing but idle in safes or bank deposit boxes. Even though gold prices soared, household purchases did not decline proportionately. Instead, financial savings took a hit, falling to Rs 7.68 lakh crores in 2010-11 from 8.35 lakh crores in 2009-10. Gold imports, the second highest after oil imports, is one of the key factors for the high current account deficit (CAD) in India. The high CAD expected for FY14, was one of the key reasons for the Rupee‘s drastic depreciation by nearly 20% during July-September 2013. High CAD, indicating deficit of exports over imports, translates to higher Balance of Payment, which results in depreciation of the currency. A growing trade deficit forces the country to devalue


its currency – for India, about 10 percent a year for the past two decades. Those plunging values scare people out of rupees, and foreign funds out of India. That, in turn, means less investment and slower growth, and thus a further weakening rupee. By buying up billions of dollars‘ worth of foreign gold, they are sending Indian cash overseas, disrupting the balance money entering and leaving the country, and thus driving down the value of the rupee. That in turn makes key imports more costly, and makes it harder for business to pay international loans. Finance Minister P. Chidambaram recently quoted, "If for one year there are no gold imports, it will change the current account deficit story of the country". Gold imports, as a percentage of GDP, have increased from 1.7 % in 2007-08 to 3.1 % in 2011-12. During 2002-2012, annual gold demand has remained relatively stable at around between 700 to 900 tonnes despite the rise in prices from Rs. 13,333 to Rs. 86,958 per troy ounce (as on May 25, 2012). In India, the demand for gold has not been adversely impacted, even by the rising gold pices.


The unnecessary piling of gold stocks with households is not only adversely impacting the current account position of the economy but also what it is doing is increasing the level of black money circulation in the economy. Exact figures ever-evading; no one can say what percentage of the gold being bought contributes to the black money pool. This is happening because the purchase and sale of gold is being done in cash thereby hurting the government on two fronts. Firstly, the purchasing gold against cash gives an individual an opportunity to convert his black money into white. Secondly, the cash received by the seller also remains undeclared and thereby no tax will be paid. On top of this the gold imports are being financed by the hard earned foreign exchange. The evasion of tax that goes unaccounted paves the way for another issue. Since the sales are not recorded, proper data collection regarding the sales is not feasible. This may even affect the macro-economic planning of the states and may render governmental policies useless, as gold is a strategically important commodity when it comes to the economic security of the nation. The central bank governor of India had recently pointed out the non-availability of exact data hampering macro-economic planning. The following table shows the top 13 gold consuming countries in 2012. An important distinction can be drawn between demand for gold for fabrication and for (final) consumption. Fabrication covers ―the first transformation of gold bullion into a semi-finished or finished product‖ whereas consumption refers to the end use of gold (whether in the form of jewellery or investment products such as bars and coins) by the final consumer


The government has taken a series of measures recently to reduce gold imports in order to reduce its record trade deficit. The Finance Minister, Mr P. Chidambaram has made pleas to the public to cut down their gold buying. The gold import duty was hiked by 2 per cent in January to 6 per cent and the duty on raw gold was more than doubled to 5 per cent. The Central Bank relaxed rules on gold deposit schemes offered by banks by allowing lenders to offer the products with shorter maturities. India's biggest jewellers' association asked its members to stop selling gold bars and coins, about 35 percent of their business in June. The gold import duty was hiked in June and then again in August to 10 per cent. The RBI has also put restrictions on banks and NBFCs for providing loans against gold coins as well as units of gold ETFs. The finance ministry is also


considering the proposal of banning the sale of the yellow metal by banks. The government has also increased the import duty on gold jewellery to 15 per cent from 8 per cent. The RBI also introduced a so called 80/20 rule to reduce gold imports. According to the rule, at least 20 per cent of the gold imported into India should be re-exported. The rule has addressed two key issues: it has helped to bring down imports as well as increased the exports by mandating at least 20 per cent of the gold to be re-exported. Gold imports were 58.37 tonnes between July 1 and Sept. 25 compared with 335.31 tonnes in the three months ended June 30 2013. Gold and silver imports fell by over 80 per cent to $0.8 billion in September on account of the slew of measures taken by the government to curb gold imports. Gold imports were 845 tonnes in the last fiscal year. The government expects that the declining trend would continue and the total imports of the year would go down to about 750 tonnes, owing to the measures taken. A reduction in gold imports by 100 tonnes would translate to a saving of approximately US$ 4 billion. We may say that the government has been successful to an extent, since the fears of CAD being higher than government estimates have now subsided. The CAD is expected to be around US$ 45 billion, much lower than the estimate of US$ 70 billion by the government, which was doubted by various agencies.

Future Prospects of Gold: From this year's low of Rs 25,018.50 per 10 gram on 28 June, gold rose sharply to Rs 31,280 on 21 August, an appreciation of more than 25% in less than two months. Several factors are responsible for this. The price of gold in India depends on two factors: the international price of gold in dollars, and the movement of the rupee vis-a-vis the dollar. First, the international price of gold has bounced back from $1,203.25 per ounce on 28 June to $1,360 on 21 August. This happened because a lot of demand came in at the $1,200 level. The average, all-inclusive cost of production of gold is about $1,200. When the market price approaches this level, the buyers feel reassured that prices won't fall further because the producers would start reducing the supply. The demand came from both central banks and traditional consumption centres, such as China and India. In India, for instance, the April-June consumption of 310 tonne was the highest in a quarter in the past 10 years. Second, the rupee has depreciated sharply. When the rupee falls, gold, most of which is imported, becomes costlier for Indian buyers. The Indian currency, as is well known, is depreciating due to the country's high current account deficit (CAD) and lack of investor confidence in the government's ability to deal with the issues facing the economy.


Three, there has been some dilution in the US Fed's stand on the tapering in quantitative easing (QE). After his first statement on 19 June caused outflows from the emerging market debt and currencies, Fed chairman Ben Bernanke tried to calm the markets through his testimony to the US Congress on 17 July. He said that it was too early to make a judgement whether bond purchases would be scaled back from September. His statement gave the markets a breather and the price of gold jumped, supported by physical demand.

Four, the Indian government, which is keen on reducing CAD by curbing gold consumption, raised the custom duty on the yellow metal from 8% to 10%. This, too, contributed to the price rise in India. Correction in international price The year-to-date (till 21 August) price of gold is up a marginal 1.62% in India. The international price of gold, however, has fallen sharply, by 19.12% during the same period. So far, Indian investors have been protected from this carnage by the rupee's depreciation, but why has gold taken such a beating in the international market? Conclusion One point of view is that the recent decline is a mere correction in gold's continuing bull run. Such a correction is part of every bull run. In 2008, when the gold's fundamentals were strong, but it had still corrected about 30% because investors had sold gold to meet their margin requirements in the equity markets. A similar correction had occurred during the 1970s bull run, when prices had risen considerably, then corrected by around 40%, only to rise again by 100%. A different point of view on gold's decline is that its demand comes from three sources: investment, consumption, and official or central bank demand. Of the three, two have weakened.


The consumption demand, which comes mainly from China and India, has remained steady in the past six to eight months. The demand from central banks has, however, fallen. Earlier, the emerging market central banks were aggressive buyers of gold as they wanted to diversify their reserves. Now that their currencies are under pressure, they are preserving their reserves and not using them to buy gold. The investment demand, a major contributor to total demand, has also declined. This demand is due to two reasons. First, investors regard gold as a safe-haven bet that protects their portfolios in adverse economic conditions. Second, it is seen as a hedge against inflation. With the US economy recovering, the dollar strengthening, and interest rates in that country moving up, gold has lost its sheen as a safe avenue. So far, inflation in the developed world has also remained low. That investment demand for gold has declined is evident since SPDR Gold Shares ETF, the world's largest gold ETF, has witnessed outflows every month this year except in the last month.

Authors Chetan Dhawan, Second year MMS student at SIMSREE Co-author Leena Kalani, Second year MMS student at SIMSREE


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SMR Journal Oct 2013