The IBS Times; 209th Issue, November 2018

Team IBS Times Ishaan Sengupta (Editor in Chief) Aarushi Jandrotia (Managing Editor) Nishika Tatiya (Associate Editor) Sambhav Jain (Associate Editor) Aishwarya Siram Amit Shovan Mandal Ayush Thalia Kartik Grover Noel Mathew Tanay Sood Achintya Saraswat Akanshi Bhargava Anisha Jose Bidisha De Chandrayee Mukherjee Samudrala Jagadish Kartik Bhardwaj Krishma Mohanan Narayan Tripathi Rahul Kumar GS Revathi Menon Samriddhi Bhatnagar Simran Abhichandani Supriya Panse Designed By : Nishika Tatiya Ishaan Sengupta 2

The World Is Looking To Embrace India‌.

What seems to be in the news a lot is the Government’s foreign policy.

None of these policies are independent of the internal mix of the country.

There is a direct correlation of wealth, education, business and trade to that which connects India to the world. This is the aspect we intend to cover in the 209th edition, So join us in this journey of discovering both the internal and external dynamics of the county in cohorts with that of the world.

As an editor, it gives us immense pleasure when we hear from our readers.

We intend to improve ourselves every step of the day. We would like to that your support for the same. Keep following us on our website www.finstreetibshyd.wordpress.com as well.

Please write to us and become of part of these discussions.

Email id : editor.ibstimes@gmail.com Ishaan Sengupta POC - Editor-In-Chief Team IBS Times, Finstreet

3

Contents 05

Effect of Crude Oil on Various Economies and Industries

08

25 Years of Mutual Fund Industry: Then and Now

11

Derivative Market: A Cocktail of Volatility and Leverage

15

ASEAN Nation’s Banking Revolution

18

10 Safest Banks in India: Next Emerging Market Players

21

Fintech and Its Applications: Offering Solutions at Every Step

24

RBI Versus Fintech Organizations: An Uphill Battle

27

Catastrophe Bonds: The Reckoning of Disaster

30

FDI, FII and FPI: In The Realms of Global Finance

36

LIBOR & Depository Receipts (ADR/GDR/IDR)- Things We Need To Know

39 General Impetus - ‘Good Politics Is Often Bad Economics’

Effect Of Crude Oil In Various Economies And Industries: - Narayan Tripathi - Rahul Kumar GS Crude oil or unrefined petroleum, is a natural product made of several organic substances that occur naturally on the planet. The important elements of crude oil are hydrogen, nitrogen, sulphur and pure hydrocarbon. There can be 1000 types of oil that are processed in the refineries. The major types are Brent and WTI (West Texas intermediate) and other important types are Saharan Blend (Algeria), Arab light (Saudi Arabia), OPEC and Urals (Russia). The unit used to classify oil is API (American Petroleum Institute) gravity.

Formula to calculate API gravity: API= (141.5/SG) - 131.5, SG – specific gravity of petroleum liquid being measured (density oil/water).

Unit used to measure crude oil is barrels and each barrel contain 42 gallons of oil. The by- products of Crude oil are gasoline (petrol), diesel, lubricants, wax and other petroleum products.

Crude Oil Effect On Industry: Crude oil prices have been one of the most fluctuating prices in the whole world affecting the whole strata of people. Prices of crude oil have been on a high than ever.

Brent crude oil is currently touching $80/ barrel reaching record high price in several years.

The rise in crude oil price is a red signal for a developing country like India who relays more than 80% on imports making India world’s third-largest crude oil importer.

The main reasons for the rise in crude oil could have been sparked with the USA walking off from the Iran nuclear deal and applying sanctions on Iran and also forcing other allies to follow the suite.

According to the International Monetary Fund 80% of the rise in oil has caused due to the deterioration in supply conditions especially the supply hampering happened in Venezuela Rising crude oil price is mainly going to hit hard oil and gas, automobile, airline, manufacturing (especially paint and lubricants) and FMCG industries.

The main question would be how many industries would be able to pass on the burden of increasing crude prices to their respective customers in such a price sensitive economy like India. If they choose not to burden their customers how long can they prevail in the market in 5

such an environment where there seems a slim chance for the fall of crude oil prices.

All industries would not be affected in the same manner as the deciding factor would be the ability to rise power that is who has the pricing power. Earlier due to the introduction of GST there was a reduction in the price of FMCG products so they would not face many difficulties amid rising crude prices .The main game charger would be the way they control their packaging and transferring costs.

FMCG will be able to pass on the burden of an increase in crude prices to its customers successfully compared to other industries.

The airline industry is one of worst affected by the rise in crude oil prices as most part of their revenue is spend on fuel. The domestic market leader in the Indian aviation industry Indigo is also facing heavy losses were as companies like Jet Airways is finding it difficult to cope up the hefty rise in fuel prices and carry out their day to day operations smoothly. Company stocks are also seeing a nosedive Indigo which started off with a share price of Rs 1064 in 6th August 2018 is at Rs 960 on 8th November 2018.

Paint industry will also be finding it difficult to swim in the strong currents of higher crude oil prices as their total raw material cost comprises of 30 to 35% of money spent on acquiring monomers and crude oil derivatives for manufacturing of paint.

One of the most affected industries due to the rise in crude oil prices is the automobile industry. Now petrol and diesel prices are not far apart from each

other they are just away from each other due by a fine line. Earlier when there was a price difference in petrol and diesel by Rs25/liter it led to a path of heavy purchase of diesel vehicles. But the current scenario has pulled down the sales of cars in a similar way for both diesel and petrol powered vehicles. Not only the domestic car segment the higher crude prices will also affect the business to business segment as the freight charges would increase which would eventually trigger to a raise in product price. The automobile industry is also facing issues because tire manufacturing is also affected due to rise in crude oil prices as some of the important raw materials for tire manufacturing are carbon black and synthetic fibre which are crude oil based.

Oil Prices And Impact On Economy: The fluctuating oil prices can drive a recession and regimes collapsing and this is the reason why the investors, policy makers and economists keep the close eye on the fluctuating oil prices in the market. The two well-known incidents are, one when Egypt and Syria waged war on Israel and divided many countries into supporting either of them and the impact lasted for the year. This all happened in the year 1973. The other possible scenario is during the time of the Iranian revolution and Iran Iraq war when the price of oil skyrocketed. The US economy had a substantial impact on the GDP. There can be many more instances for example Soviet Union Collapse.

The main influencer of oil price fluctuation is OPEC (organization of petroleum exporting countries). OPEC is a consortium made up of Algeria, Angola, 6

Ecuador, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela. It controls forty percent of the supply of the oil in the world. Consortium played a very prominent role in setting the price in the international market. It also look after the increasing and decreasing demands of the oil in the world and decide on the production. with time, there will be a trade deficit.

Indian Economy And Oil Prices:

There can be many impacts of oil prices in any economy but in this context we will restrict to the Indian economy are as follows.

Fiscal deficit increases with the increase in oil prices Impact on the rupee value Impact on the current account deficit Impact on Sensex and midcap.

Impact on the stocks Impact on the inflation Crude Oil Related Predictions: According to Short- term Energy Outlook by the U.S. Energy Information Administration, in 2019 average price will be $75 a barrel. Investors have believe that U.S. sanctions against Iran and outages in Venezuela would lead to the supply shortage. The debacle’s might not give market the positive look in coming future because there are many oil supplying countries are involved in the debacle. Few are U.S./Iran debacle, U.S./China, Libya debacle, PDVSA debacle, Iraq and the Kurds and many more.

7

25 Years Of Mutual Fund Industry in India: Then & Now - Supriya Panse

"Diversification is a protection against ignorance. It makes very little sense for those who know what they're doing.”Warrant Buffet The above mentioned quote actually represents what a Mutual Fund is. Mutual Fund is an investment vehicle, where group of individuals invests their money collectively & shares risks & return. Thus it is investing the funds into diversified investment avenues.

If we are breaking up these two terms i.e.

“Mutual” & “Fund”, it makes more sense.“ Here, Mutual stands for collective exposure of more than one investor & Fund stands for collection of money to be invested in diversified avenues.

By tracing back the history the first ever Mutual Fund Company called “Massachusetts Investors Trust, “was established in the year 1924 in USA. If we talk about India, then in the year 1963, the first ever Mutual Fund Company called “Unit Trust of India” (UTI) was established by Government of India.

Later in the year 1987 many such public enterprises came into the picture. But the real growth of this industry began from the year 1993 with the introduction

of “Mutual Fund Regulations” & also allowing private entities into this business.

The First private entity to enter the market was “Kothari Pioneer”. With private players coming in, this industry became very competitive and thus today we are standing successfully completing those 25 years.

Companies managing these mutual funds are popularly known as Asset Management Companies (AMC).

Monetary value of Funds which they are managing is called Asset Under Management (AUM).

These AMCs are called Buy- side firms as they are taking the investments from the public at large & are further investing it.

They charge commission from these investors for managing their funds & this is how they earn money.

AMCs can be further divided into two types, i.e. Brokerage houses & Fiduciary firms. A brokerage house accepts deposits from any customer and is not at all liable if customers are facing looses.

On the other hand Fiduciary firms are held on higher legal standards, & generally charge service fees instead of commission. These AMCs invest in various kinds of stocks, bonds, debentures, commodities, etc.

8

Under this type of mutual funds, the funds are invested in various kinds stocks in share market. How to invest?

Where to invest? When to invest? All such things are decided by the Portfolio Manager who is managing this all. These types of funds have high risk & high return associated to it.

As shown in the above table there are 43 AMCs working efficiently in India.

As shown in above table the total Asset Under Management (AUM) in 2017-18 was Rs. 21.36 lakh crore Major Asset Management Companies (AMC) in India are Birla Sun Life Asset Management Company, Franklin Templeton Asset Management Company, Goldman Sachs Asset Management Company, HSBC Global Asset Management Company, IDBI Asset Management Company, J.P. Morgan Asset Management Company, etc.

Mutual Funds in India can be divided into four major parts:1) Based on asset classes 2) Based on Structure 3) Based on investment objectives 4) Based on investment goals 5) Types of Mutual Funds based on their 6) Asset classes 7) Equity Funds

Debt Funds These types of funds diversify their investments in various secured investment avenues like government bonds, debentures, etc. They give fixed returns & are comparatively safe.

Money market funds Money market funds are liquid investment avenue. Thus under this kind of investments the funds are invested in instruments like treasury bills, commercial papers, etc.

Hybrid or Balanced funds These types of mutual funds are combination of debt & equity. Some funds are invested in equity instruments & some are debt instruments. The ratios could vary from one portfolio manager to another.

Sector funds There are various sectors in an economy like Real estate sector, Commodity sector, Banking sector, etc. Thus the funds are invested in a respective sector for which the mutual fund is designed to.

The risk & return depends on the functioning of that particular sector.

Index funds Under this type, the returns on the Mutual funds depend on the fluctuation 9

of a particular index. The index could be Nifty 50, Sensex, etc.

Exchange Traded funds(ETF) These are same as index funds & so track an index, commodity or basket of assets. The only difference is they are traded in stock exchange Types of Mutual funds based on Structure Open ended funds These types of Mutual funds can be purchased & redeemed throughout the year. They are flexible in nature.

Closed ended funds These types of funds on the other hand are not flexible in nature. Thus they would be coming with an expiry date.

Interval funds It is a combination of both open ended & closed ended.

Types of Mutual funds based on Investment goals

instruments. The returns associated with this can be availed as a pension or as a whole lump sum amount.

Other than this there many new emerging funds like Multi cap funds (Funds are in small, medium & large cap companies), Aggressive hybrid funds (It is mandatory to invest at least 20% in debt instruments & at least 40% in equities), Corporate bond funds (Investment in corporate bonds), etc. One of the most famous modes of Mutual fund is Systematic Investment Plan (SIP). It is kind of recurring investment, where the investor invests the amount in a lump sum amount.

Thus even after 25 years of Private Mutual fund industry, this is still growing.

With regulations given by SEBI, it is a better place for investors to invest.

Nowadays these AMCs are also coming out with their equity shares & thus are also traded in stock exchange. According to Analysts even after 25 years from now this industry would be still glooming with different flavors.

Growth funds These types of funds give capital appreciation to investors. The funds are generally invested in stocks.

Income funds Here the money is invested in fixed income instruments. Tax Saving funds or ELSS (Equity linked saving scheme) This type of funds helps the investors to take tax benefits, through tax exemption.

Pension Funds These funds are invested for a long duration in both equities & debt 10

Derivatives Market: A Cocktail of Volatility and Leverage - Revathi Menon The globalization and the diversification of the financial market have led to the innovation and growth in the financial transactions. With the increase in the need for international money, the stock prices and their interest rate fluctuations have been massive hence, there is an immediate need for speculating the risk associated.

An economy must ensure that their resources are allocated in the most effective manner and here the financial system plays an important role. The capital market of an economy must be in way such that there are proper channelization and movement of funds. The productivity of the investment and the growth of the capital market depends on the efficiency of the market which will lead to greater market liquidity and higher volumes of trade.

The financial derivatives play an important role and it is one of the basic tool used for trading in the capital market. Hedging and speculating the risk is one of the primary function of derivatives. The financial derivatives are one of the major element in the financial market of the world’s leading economies which often led to the enhanced efficiency in trading.

A financial security with a value that is

derived from an underlying asset or group of assets is a derivative. It is a contract between two or more parties and the price is derived from the fluctuations in the underlying assets like stocks, bonds commodities, currencies, interest rates, and market indexes.

Over the counter and exchange are the platforms where such instruments are traded. Over the counter being unregulated holds trading of a larger number of derivatives but has greater risk.

Derivatives-a cocktail of leverage and volatility.

Derivatives hold a variety of functions and applications depending on the type of instrument. Risk management is one of the main function of derivatives and this focuses on protecting existing profits than creating a new one.The second function of a derivative is price discovery which focuses on providing information of price to the investors, consumers, and producers without which they cannot make decisions.

It assists everyone in the marketplace to determine the value. The more the use of derivatives larger will be the price discovery and the price information dissemination. Transactional efficiency is another function of derivatives which is a product of liquidity.

11

Derivatives can be used for hedging, or taking insurance against risk and speculating. Future contracts, Forward contracts, swaps, and options are the main types of derivatives. Future is a contract wherein the two parties sell an asset at an agreed price on the exchange at a specified time in the future.

The risk s regulated and the counterparty acts as a clearinghouse to both parties. A person cannot buy a contract for a share in the derivatives. Hedgers and speculators are the main participants of future contracts. Forwards refer to those contract in which the parties buy or sell an asset at a particular price at a future date and these are traded as over the counter instruments.

These contracts are of high risk as they are not regulated hence these are not easily available to investors. Since the details of the forward contract are not known to buyers and sellers it difficult to estimate the market. In the case of forward contract the buyer has to pay and receive the delivery and the seller has to provide the delivery and receive the payment. If the market price is higher than the agreed price the buyer earns profit and seller gains loss.

The options contract gives the right but not the obligation to buy or sell an underlying asset at an agreed price at a particular date. Options gives us the option to buy or sell. A call option gives the right to buy stock and put option gives the right to sell the stock. A writer is a person who sells the option. If the strike price on the call is less than the market price the holder of option can use the call option to buy the instrument the call expires and becomes useless when the market price is less than the strike price.

The opposite of call option is put option and this gives the holder the right to sell the instrument at given strike price and period. Most of the investors combine both call and put option to hedge and manage the risk.

A derivative contract wherein there is an exchange of financial instruments between two parties is termed as swaps.

These are traded through over the counter and can be used to manage risks like interest rate. risks and currency risks.

The most common forms of swaps are currency swaps and interest rate swaps.

Buying and selling of a currency for shifting the debt from lenders currency to debtors currency is the currency swaps.

When the interest payments are exchanged between the parties it is interest rate swap. The rapid expansion of the derivative market in the recent years had helped in mitigation and transfer of risk from one person to the other.

When measured in the terms of underlying assets, the derivative market is much larger than the stock market.

Despite holding the largest share in the capital market the derivative market still faces criticism due to the credit crisis and the fraud cases that are happening in the market.

The three major elements of a market must be fulfilled that is safety, efficiency and continuous innovation for healthy functioning. According to international swaps and derivatives association. The average daily interest rate derivative notional trading during the first half of 2017 is $787.6 billion.

Derivatives-a cocktail of leverage and 12

volatility. The globalization and the diversification of the financial markets has led to the innovation and growth in the financial transactions. With the increase in the need for international money, the stock prices and their interest rate fluctuations have been massive hence, there is an immediate need for speculating the risk associated. An economy must ensure that their resources are allocated in the most effective manner and here the financial system plays an important role. The capital market of an economy must be in a way such that there is proper channelization and movement of funds. The productivity of the investment and the growth of the capital market depends on the efficiency of the market which will lead to greater market liquidity and higher A financial security with a value that is derived from an underlying asset or group of assets is a derivative. It is a contract between two or more parties and the price is derived from the fluctuations in the underlying assets like stocks, bonds, commodities, currencies, interest rates, and market indexes. Over the counter and exchange are the platforms where such instruments are volumes of trade. commodities, currencies, interest rates, and market indexes being unregulated holds trading of a larger number of derivatives but has greater risk.

Derivatives holds a variety of functions and applications depending on the type of instrument. Risk management is one of the main function of derivatives and this focuses on protecting existing profits than creating a new one. The second function of a derivative is price discovery which focuses on providing information of price to the investors, consumers, and producers without which they cannot make decisions.

It assists everyone in the marketplace to determine the value. The more the use of derivatives larger will be the price discovery and the price information dissemination. Transactional efficiency is another function of derivatives which is a product of liquidity.

Derivatives can be used for hedging, or taking insurance against risk and speculating. Future contracts, Forward contracts, swaps, and options are the main types of derivatives. Future is a contract wherein the two parties sell an asset at an agreed price on the exchange at a specified time in the future. The risk associated with the future contract is less as it is regulated and the counterparty acts as a clearinghouse to both parties. A person cannot buy a contract for a share in the derivatives market as the lot size is predefined.

Future contracts are traded in the secondary market and here the participants have the right to sell or buy to any party who is willing to buy it. The buyer of a future contract has to buy the underlying asset when the contract expires whereas the seller has to sell the underlying asset on expiry.

Hedgers and speculators are the main participants of future contracts Forwards refer to those contract in which the parties buy or sell an asset at a particular price at a future date and these are traded as over the counter instruments. These contracts are of high risk as they are not regulated hence these are not easily available to investors.

Since the details of forward contract are not known to buyers and sellers it difficult to estimate the market.

13 In the case of 13

forward contract, the buyer has to pay and receive the delivery and the seller has to provide the delivery and receive the payment. If the market price is higher than the agreed price the buyer earns profit and seller gains loss.

Options contract gives the right but not the obligation to buy or sell an underlying asset at an agreed price at a particular date.

Options gives us the option to buy or sell. A call option gives the right to buy stock and put option gives the right to sell the stock.

A writer is a person who sells the option. If the strike price on the call is less than the market price the holder of the option can use the call option to buy the instrument .the call expires and becomes useless when the market price is less than the strike price. The opposite of call option is put option and this gives the holder the right to sell the instrument at given strike price and period. Most of the investors combine both call and put option to hedge and manage the risk. A derivative contract wherein there is an exchange of financial

person to the other. When measured in the terms of underlying assets, the derivative market is much larger than the stock market. Despite holding the largest share in the capital market the derivative market still faces criticism due to the credit crisis and the fraud cases that are happening in the market. The three major elements of a market must be fulfilled that is safety, efficiency and continuous innovation for healthy functioning.

According to international swaps and derivatives association. The average daily interest rate derivative notional trading during the first half of 2017 is $787.6 billion. Thus, with a reasonable and perfect mix of derivative products investors will find a better way in sustaining in the market.

A derivative contract wherein there is an exchange of financial instruments between two parties is termed as swaps. These are traded through over the counter and can be used to manage risks like interest rate risks and currency risks. The most common forms of swaps are currency swaps and interest rate swaps. Buying and selling of a currency for shifting the debt from lenders currency to debtors currency is the currency swaps. When the interest payments are exchanged between the parties it is interest rate swap.

The rapid expansion of the derivative market in the recent years had helped in mitigation and transfer of risk from one 14

ASEAN Nation’s Banking Revolution - Krishma Mohanan

INTRODUCTION

ASEAN BANKING

The main projects of organisation are economic cooperative trade promotion among ASEAN nations and global economic join research and technical cooperation among members. The organisation also promotes political stability in individual countries and encourages collaboration on matters of mutual concern. It focuses on better utilisation of agricultural and industrial processes for the well-being of its citizens.

Finally, the organisation maintains and promotes corporation with nations having similar aims and purposes.

If ASEAN were an individual country, it would create the 7th largest economy in the world and 3rd largest in Asia.

The banking system continues to be the most developed financial sector in many ASEAN member states.

The ASEAN Economic community consists of four main characteristics; • A single market and production base • A highly competitive economic region • A region of equitable economic development • A region fully integrated into global economy The primary objective is to create free flow of goods, services, investment, capital and skilled labour.

In 2014 ASEAN Central bank governor endorsed the ASEAN banking integration framework (ABIF).Banking integration contributes to economic growth and financial inclusion. ABIF was initiated with the spirit to accelerate ASEAN banking integration process while preserving financial stability.

ABIF main objective is to prepare market access and the freedom to operate in ASEAN member countries for Qualifies ASEAN banks (QAB), which has adequate capital, resilient, well managed, and which would meet the prudential banking requirements, with more access to regional markets, and freedom to operate in ASEAN member countries.

The local banking environment which has spent considerable amount of time and investment in solidifying its grasp over the domestic market would face competitor’s who are much bigger in terms of assets and general liquidity.

Banks requirement to become a 15

It is expected that upon full implementation of the ASEAN banking Integration framework 58.25% of the local market would diversify their saving resources between local banks and qualified ASEAN banks, 77.50% would prioritize Qualified ASEAN banks for financing and loan requirements.

What are banks)?

QAB

(Qualified

ASEAN

Existing banks operating as domestic banks from the original member states of AEC (ASEAN Economic Community) when endowed with a QAB status would be treated as local bank of any member country, they will enter into the market with unrestricted market access and no discriminatory treatments by local central banks.

QAB is AFIF’s (ASEAN Financial Integration Framework) approach towards developing “PAN ASEAN BANKS” big enough to compete with local banks for different continents.

According to the study conducted by the Asian Developmental bank (ADB), there are three dimensions that will guide the integration. First, equal access, ASEAN banks that comply with the QAB’s requirements would have access to other ASEAN banking market aside from their

home countries.

Second, equal treatment Regulators in the home country should give equal treatment to QAB’s and gives permission for accessing the domestic market. Third, equal environment Regulators in ASEAN member states should harmonize their regulations in order to ensure that there will be no conflicting rules with the banking industry in the ASEAN region.

IN 2003, ASEAN Finance Ministers also agreed on the roadmap for monetary and financial integration of ASEAN (RIA-fin) .

This encompasses four areas; a) Capital market development b) Liberalisation of financial services c) Capital Account liberalisation d) ASEAN currency cooperation.

The financial liberalisation was made in order to support the creation of ASEAN as a single market and production base through free movement of services.

COUNTRIES WITH MAJOR BANKS TOTAL ASSETS

candidate of QAB include the ASEAN owned banks with strong capital base, resilient and well run, and meet the prudential requirements, in accordance with the applicable international standards. These banks are expected to be the driver of trade and investment in ASEAN.

400 300 200 100 0

S…

ABIF is believed to give several benefits to the ASEAN countries. One of the main benefits that may occur is cheap financing of the funds due to lower interest rates.

Among ASEAN nations Singapore has the lowest interest rate of 1.85% (2018).This figure is followed by Malaysia 16

4.75%, Philippines 5.50%, Vietnam 6.49%, Brunei 7.50%, Laos 9%, Indonesia 10.25%, while Thailand has the highest lending rate of 12 %.

dominate for specific reasons some of them being Mitsui Banking Corporation and Standard Chartered Malaysian.

Singaporean banks remain strong lenders. The top three banks being DCB, Overseas Chinese Banking Corporation. and United overseas bank. Singapore’s Bank also posted highest volume of total assets of $872.05billion. In terms of assets, Brunei registered the highest year-on-year growth of 22.94%, despite the total no of Brunei falling from two to one, Bank Islam Darussalam.

Cambodian Banks showed a rise in the pre-tax profits of 20.57%, while Vietnam’s pre-tax profit growth of 18.91%.

EFFECTS

However, the implementation of the ABIF is expected to drive down the lending rates due to increase in the competition in the banking industry.

CURRENT SCENARIO In terms of total assets Singapore has the major banks like DBS, OCBC, United Overseas having a total asset of around $322.8 billion, $275.1 billion, $222.8 billion.

But Indonesian banks have performed strongly as per the bankers 2018 top 100 Association of ASEAN ranking. The total no of Indonesian banks has grown from two to three. Bank Mandiri, Bank Rakyat and Bank Central Asia has shown a upward trend in terms of performance.

Relative to the Indonesian peers, Malaysian lenders perform poorly in the top 10 the overall ranking. However Foreign based banks in Malaysia perform

Through the advent of ABIF possibly there would be many negative impacts as well, especially the BCLMV countries.

Funds that are expected to flow into the region through the banking integration may not work well because the funds would move to a country where there is better political stability, low level of corruption, and better regulations. The countries that need the flow of funds (BCLMV) do not meet these requirements and therefore mostly the flow of funds would be directed to the ASEAN-5.

CONCLUSION The ASEAN banking integration would face many challenges before implementing the ABIF. Some recommendations include: Establishing a financial supervisory authority to improve financial sector monitoring and surveillance, providing technical assistance for the less developed ASEAN nations, strengthening the financial safety net to increase the system resilience.

17

10 Safest Banks in India: Next Emerging Market Players - Samudrala Jagadish

Anything a person purchases/possesses, he has an inclination to keep it with him.

He expects that it has to be with him as he feels that particular thing is owned or acquired by him. It may be anything from house, car, bike and so on… But that is not in the case of money.

So Why do people generally think of putting money in the bank?? Maybe because that would be the safest place to to store money. Since, it is protected by the bank rather than putting it in home which might cause burglary, other reason would be it reaps interest and it would get some return rather than investing in shares (or) bonds as the value may increase or decrease which is associated with the risk factor.

And if the money is in the form of legal tender, it would be in Indian banks and if it is illegal that money may float to foreign countries too and the other reasons would be if the money is in higher value they feel that the money is insecure in Indian banks and they may also deposit in foreign banks. .

Is putting money in the bank really safe? Who would give you the guarantee??

How would customer judge which bank is safe or not for there deposit??

Yes, money in the bank is very much safe and people usually prefer to save their income and the savings accounts are also safe as deposits are guaranteed by the federal deposit insurance corporation known as FDIC . And people don’t get worried if a bank has become insolvent.

Different people have different perceptions before opening there bank account few judge based on the reputation in the market , few judge based on experience and service received by other people such as friends and relatives etc. Few judge by rating and also is the bank public or private based and may be the asset value in the market.

Previously we heard of bank robbery in newspapers and televisions but now-adays as technology has been improved we are facing issues with online frauds and errors during the transaction and money is getting deducted unknowingly without the awareness of the account holder. So here are the safest banks in the emerging market. They are: • •

State Bank of India HDFC Bank 18

• • • • • • • •

ICICI Bank Bank of Baroda Axis Bank Canara Bank Punjab National Bank Union bank of India IDBI Bank Bank of India

State Bank of India: There should be a reason if one is at the top most position in terms of safest and largest bank in the country. With the recent merger of State bank of Hyderabad (SBH), State bank of Bikaner & Jaipur (SBBJ), State bank of Mysore (STM), State bank of Travancore (SBT) and BMB , State bank of India is the largest bank in the country. It offers variety of banking products and services.

As it is owned by the government this is one of the main reason that people trust a step higher and deposit the money. It has a very good reputation in the market but in terms of service it is not par with other banks.

HDFC Bank: It is a private sector company and stood second in terms of safest bank in India. Apart from India it also has its operations in Hong Kong, Bahrain and Dubai. It has got numerous awards in terms of safety few of them are which include Best cash management bank in India (The asset triple A awards), Best trade finance provider in India for 2010 (Global Finance Award). Ranked 27th globally among 250 banks and 6th in Asia pacific region.

ICICI Bank: It ranks second in asset size and its market capitalization is third and stands next to State bank of India after HDFC bank. It is also a private sector bank and the products are credit cards,

investment banking, loans, insurance etc. It has presence in 19 countries including India. It has almost 4,450 branches in India.

Bank of Baroda : With the recent merger of Dena bank and Vijaya bank with bank of Baroda there would be an impact on customers it may be procedural changes or anything. And coming to the lending rates it would decided after all the three entity’s are merged.

Axis Bank: In terms of safety axis bank is also one the best option to deposit and as mentioned above it all depends on customer service and experience by the customers. Take the example of a person taking a loan if the process is easy, fast and reliable then the customer gets satisfied and the bank would get an opportunity to increase the customer base by trust. And few customers also see the asset value of the bank before planning to deposit in the bank.

Canara Bank: It is a public sector bank and a government bank. It is safe as if anything goes wrong it is the government which rescues the depositors and people trust more the government run banks than the private 19

banks.

Punjab National Bank: After the major scam by few employees from Punjab national bank many people who owned or deposited money in feared that their money would be in trouble but that is not the case as banks does not have any right to take money from savings account and in case if there is any fraud it is government which guarantees the account holders but in other form indirectly it is from people and tax payers and this kind of frauds would affect the economy very badly. And the bank and has each and every right to probe the incident and recover the money if not it is government that has to spend money.

Bank of India: It is public limited bank and nationalized bank. And BOI is one among the top 5 nationalized banks.

These are the 10 safest banks in the emerging market and out of these SBI and ICICI are domestic systematically important banks of India and the largest banks in the Indian economy and if these two doesn’t do well there is a chance of Indian economy would be in serious trouble which was told

by RBI.

Union Bank of India: Banks are also the entities which make profits and losses both. Profits if the bank does well with less expenditures and can earn interest on loans, but if these loans are not paid it would be a huge bounce back to the banks due to bad debts by its customers who have failed to pay back the loan amount. But Union bank of India is also one among government owned banks and customers need not worry much when few people could not pay back the loan. Union bank of India operates in United Kingdom, Sydney, Hong Kong and Dubai.

IDBI Bank: It is one among the public sector bank and almost par with SBI and other nationalized banks. But in terms of bad loans IDBI is the worst performing public sector bank ,as it restructured the loans by extending time to repay the loan and hence failed to recover the money and only one-fourth have defaulted the borrowers given by the bank.

20

Fintech And Its Application: Offering Solutions At Every Step - Achintya Saraswat Fintech brings about a new example in which IT is driving innovation in the financial industry. Fintech is flaunted as a game changing, disruptive innovation capable of shaking up old-fashioned financial markets. This article introduces a historical view of fintech and discusses the various applications that fintech brings to the table, as well as the technical and managerial challenges for both fintech startups and traditional financial institutions..

Financial technology (fintech) is already recognized as one of the most prime innovations in the financial industry and it is evolving at a very fast pace, driven in part by the sharing economy, encouraging regulation, and IT. Fintech promises to redesign the financial industry by reducing costs, improving the quality of financial services, and creating more diverse and stable financial landscape.

The technological developments in infrastructure provided by technology, big data, artificial intelligence, data analytics, machine learning and mobile devices allow fintech startups to disintermediate conventional financial firms with unique, niche, and tailored services. According to PwC-2016, 83% of financial organizations believe that many aspects of their business are at risk to fintech startups. Due to fintech

organizations already having a significant impact on the financial industry, every financial firm is required to build capabilities to leverage or/and invest in fintech, just in order to stay competitive.

The growth of investment in fintech has been extraordinary. According to a report

by Accenture of 2016, global investment in fintech ventures in the first quarter of 2016 had reach $5.30 billion, which is a 68% increase over the same period of the previous year, and the percentage of investments going to fintech companies in Europe and Asia-Pacific region almost doubled to 62%. Most of the increment in investment has come from conventional financial organizations.

Traditional financial organizations invest in external fintech startups in form of collaborative fintech ventures, as well as their internal fintech projects in hopes to advance fintech innovation and gain a competitive edge.

According to the yearly fintech report published by KPMG, China and U.S. are leading countries in fintech regarding startups and other companies. The fintech 100 companies in the year 2015 included 25 payments & transactions firms, 22 lending firms, 14 wealth management firms, and 7 insurance firms. Holland Fintech forecasted that approximately $660 billion in revenue may drift from 21

conventional financial services to fintech services in the areas of payments, wealth management, crowd-funding and lending.

It is clear from the evidence that fintech is now beyond stage of hype and has already become a major player in financial world. Some of the applications of Fintech are listed below.

Payment process including transaction gateways and platforms, online/mobile wallet, ATM and POS services, remittance, and cash cards- accounted for 34.0 percent of the Indian fintech landscape, followed by 32.0 percent by banking (accounting and treasury management, core banking software, risk management, mobile banking), and another 12.0 percent by the trading, public, and private markets. Some of the payment service examples are Paytm, PhonePay. Paytm is a payment app built specifically for India’s mobile users.

Another fintech company Pine Labs is a providers of retail POS solutions that make payments easier for acceptance, while creating business opportunities for the issuers, brands, and merchants to connect with consumers.

In an interview with a company called ZDNet on the findings of the report mentioned earlier, head of research at Nasscom, Mr. Achyuta Ghosh, said that India is right now one of the fastestgrowing markets for fintech products.

India's fintech software products and services landscape is diverse and exciting, with over 400 firms, which include startups, large and medium sized technology providers, and few banks.

"While the core banking, risk management, insurance, and point of sales (POS) solutions were first-

generation products and services, the industry has undergone a rapid evolution in terms of product and service offered, with added focus on customer experience, driven by the dawn of mobile and analytics technology," he said. In spite of these innovations, banks were facing challenges with complying certain regulations such as the Foreign Account Tax Compliance Act and Anti-Money Laundering, as well as the lack of automation & integration across systems, hence these institutions have to find remedy and develop technology to deal with the complexities and complications in compliances and procedures. Regulatory info required is outdated and lack of automation and integration across systems causes another challenge for banks in India. Thus they have to reconsider their technology spend on Data Warehousing Reporting Systems (DWRS) and on effectively integrating systems and processes.

GREX Alternative Investments co-founder Mr. Abhijeet Bhandari felt that global financial services industry was witnessing a paradigm shift due to the rise of such firms, which were offering faster, better, and cheaper financial services to the customers. They were also increasingly challenging banks and other prevailing players due to these benefits. The industry is yet to see such large fintech companies but with the Reserve Bank of India coming up with regulations for P2P lending and payment banking licenses, soon India will witness a fintech revolution..

Therefore we can deduce from the above mentioned reasons that boom in IT is also giving the platform to fintech companies to grow, nevertheless there are certain challenges as well, a few of them are 22

technical, managerial and financial challenges such as investment management, customer management, regulation, technology integration, security and privacy, and risk management. Nevertheless in past few years different measures have been taken to cope up them by the companies.

From cashless payments, crowd funding platform, robotic assistance in financial institutes to virtual currencies fintech is becoming the next big thing. Investments in fintech startups is an indicator of its bright future as well, and traditional financial firms are trying to keep up too.

As consumers are adapting fintech really fast, one out of three people amongst twenty major economies in the world uses at least two fintech services in last six months. Moreover China and India have highest number of fintech users. Hence we can easily say that with time fintech services will became better and much safer.

23

RBI Versus Fintech Organizations: An Uphill Battle - Simran Abhichandani

Recently, India came across the 2nd death anniversary of the rupees 500 and 1000 old notes AKA demonitisation. (R.I.P).

The biggest buzz that is in the country right now is the question that, ‘What lies between 100% of Indians and digital cash?’ Well, the answer to this isPhysical cash. This, on one side is a barrier or obstacle in the dream of digital India. However, on the other, this led to Fintech fortunes shooting through the roof back in 2016. Cut to 2018, and Indians are shifting back to cash. According to The Times Of India, “Currency with the public has reached a record high of rupees 18.5 lakh crores approximately, more than double the low of rupees 7.8 lakh crores it had hit after demonetisation in late 2016, as per the RBI data.” However, as a percentage of GDP, it is much lower when compared to the previous years.

So, what we see, is the momentum that DIGITALIZATION is gathering. The Fintech companies however are not so happy about the working or guiding strategies of the regulator, the RBI. And why is that? Because of the simple reason that Fintech companies are those companies that make optimum utilization of technology in providing the

various financial services and they believe that RBI, being the main regulator, already has a lot of responsibilities and is thus slow and opaque in its approach. They require an agile and more prompt regulator for all their digitalized dealings. The government says that it is ready and already working in the direction of providing a more agile and a separate payments regulator from RBI. Whilst all of this, just as the Fintech companies were coming into terms with the KYC norms that take days and days for a process to be completed and BAM! came the new directives by the RBI to store all the financial data in India. This, has made the companies all the more resentful of the regulatory system in India.

The central bank wants the companies to provide “unfettered supervisory access” to their data on payments, customers and all transactions, according to its notification dated April 6, 2018, which asks them to store all data related to transactions in India alone. While most banks in India store all this data on Indian servers in their core banking systems, the current directive addresses new-age payment and fintech companies operating in the market. Some of the system providers do 24

not store their payments data in India, the central bank observed. Post these directives, the companies have been facing a lot of problems with respect to their costs involved, the increase in time and work involved etc. Most of the companies are a result or a part of the transforming process calledglobalisation. They function from different locations and moving the entire operational data that relates to finance (basically entire data) is a very cumbersome task.

When we see the story from RBI’s point of view, it believes that Fintech companies are still a baby in the world of banking and finance. They think that the companies treat themselves as the smarter ones and claim to use technologies that culture’ has taken over.

They had to keep the ground open and unregulated for the model to grow but for an industry where money is involved, experimentation wouldn’t have been the right choice. One gripe that the traditional banks were already having was that fintech firms were getting away unregulated, which gave them a lot of flexibility in terms of deciding how to carry on business. So, the RBI started coming up with regulations that were applicable to these smart techie companies. The RBI came out with a press release of the Report on the Inter regulatory working group on FinTech and Digital banking in India. Below, is one such regulation relating to the same: “FinTech companies that require to connect to banking systems to serve their

customers tend to face restrictive practices. This anti-competitive setting may not be conducive for innovation and consumer interest. Moreover, India may not then reap the full benefits from global innovation as international technology based PSPs would not find it attractive to grow in India. That said, the approach of RBI has been to regulate non-bank payments service providers lightly. This has enabled them to emerge as significant players in a relatively short time frame. This growth now needs to be nurtured in a balanced way, so that banks have competitive pressure to innovate and non-banks have adequate opportunity to compete, without losing sight of systemic stability.”

It is pretty evident from the regulations that RBI framed for the new Fintech companies, that it wanted to protect the existing pillars like banks, but also encourage innovation and technology so as to have a healthy competitive environment.

How RBI has decided to handle the situation and all of the problems that the new and updated companies are facing is by updating itself. So, it’s working on a regulatory sandbox for financial technology and setting up data science labs to keep up the pace with the ongoing innovation everyday.

A regulatory sandbox, to separate running computer programs to mitigate system failures and software vulnerabilities from spreading, will help in product innovation as more products are coming in frequently. The data science labs will be opened up with a mixed team of economists, engineers 25

and statisticians. The main job of these labs would be to go through the internal data of each vertical of RBI and to then analyse it accordingly. All of this is being done to improve the working of the RBI. All said and done, this cold war between the old regulator since time immemorial and the newbies in the market doesn’t seem to end soon and why not, as it is rightly said that, a newer technology is bound to displace an old one. The catch is to know, when and HOW?

26

Catastrophe Bonds: The Reckoning of Disasters - Samriddhi Bhatnagar Natural disasters cause destruction, chaos, disorder and confusion in occurring nations. But moreover, they create an impactful economic costs for the countries, which are mostly nonrecoverable. Hurricane “Andrew” that hit Florida in 1992 initiated the idea that risk from disasters should be mitigated by spreading it across investors. The recent floods in Kerala have set off a debate about the need for timely aid required to kickstart the relief process.

One way to bridge this financial or protection gap is through the issuance of Catastrophe bonds or CAT bonds, a debt instrument that allows governments to tap the capital market and raise money from investors willing to bet against the likelihood of a disaster occurring in a particular place during a particular time period. Today, the total size of the Catastrophe bond market is more than $30 billion, spread all over the world.

How it works?

Conventional Bonds are debt obligations generally issued by corporations or governments. However, Catastrophe bonds are debt obligations which are issued by an insurance company that transfers risk to the bond investors. Cat bond investors, will allow the issuing

company to hold their principal in return for interest paid by the issuing company.

In the event of a catastrophe, the issuing company may stop interest payments, or they may not be responsible for paying back the principal at all. CAT bonds are typically held until the maturity, and hence have a shorter maturity time say, 3 to 5 years. There is “ no loss” of the principal if the bond is held until the maturity and there is no catastrophe.

Cat bonds were originally designed to help insurance and re-insurance companies manage their risks. It has since been used by governments seeking to reduce their financial burden in the event of a catastrophe. Governments create Special Purpose Vehicles or SPV to facilitate such transactions. An SPV helps in management and funding of a company, creating joint ventures, securitizing of assets, etc. for an company. Similarly it also helps the government to acquire such unconventional bonds and reduce financial burdens of catastrophic events.

Risks of Investing.

The most obvious risk in investing in Cat bonds is that a catastrophe would occur and the investor may not receive the interest or the principal. However, like 27

(Source:www.bloomberg.com) other securities, the investor is rewarded with higher yields and profits in exchange for taking the risk.

The shorter maturity period also mitigate the risks associated with occurring natural disasters. But most of natural calamities are difficult to forecast than the capital markets. The bond investor cannot invest in the “if” of the disaster happening, only on “ when”.

Mostly, Cat bond investors consist of hedge funds, pension funds, mutual funds, rather than individual. investors due to lack of proper knowledge and also the risk involved with them, limiting their market reach. Cat bonds have high transaction costs, long structuring period that can take months, and strict terms and conditions compared with traditional risk financing, such as insurance. In addition, cat bonds do not always meet countries’ needs, as governments may prefer longer term protection, while investors tend to prefer shorter term bonds.

The Cat bond market and index; The issuance of cat bonds has climbed to more than $11 billion in 2017 and continues to do so as more and more institutional investors continue their bets on occurring of disasters, which have

become more frequent in the last few years due to climate change. Although it means a simple loss to investors if a disaster happens, the catastrophe bonds index, the Swiss Re Cat Bond Total Return Index, has been showing a rise steadily, gaining 4.3% this year itself.

This is due to the fact that investors are willing to take on these risks as the bonds insure for very specific events. For example a bond may only cover wind damage in Kerala, but not flooding. This specificity helps the bond buyers in reducing the likelihood that their money will be diverted to other disaster reliefs.

(Source: Bloomberg/ Swiss Re Cat Bond Total Return Index as on September 2017) The Indian scenario!

Catastrophe bonds can remove risks from the government balance sheets and reinforce macro-economic stability while providing access to rapid recovery funding, but more understanding of this asset class needs to take place in the India where natural disaster are constantly evolving and appear to be increasing in both frequency and severity due to the changing climate. Disaster relief gains significance as the country faces increasing frequency and severity of natural disasters such as floods, landslides, cyclones or droughts.

28

Such unconventional bonds are yet to be utilised in the country as the 15th Finance Commission will be deliberating on financing disaster risk management and discuss central and state-level financing of disaster relief, disaster financing preparedness of the country and international best practices to implement and use effectively by the year 2020 – 2025. The recent devastating floods in Kerala has served as an eye opener for the Indian government as they scrambled to acquire capital to fund the calamity reliefs of the state government.

This step will cause a huge paradigm shift in the countries disaster management practices, scheduled reliefs and finding new sources of finances for any such forecasted calamity. It is high time that such instruments are introduced in India so that relief and reconstruction work in areas affected by natural disasters are not stalled for only want of capital.

29

FDI, FII And FPI – In The Realms Of Global Finance - Chandrayee Mukherjee

The global financial system is the worldwide framework of legal agreements, institutions, and both formal and economic factors that together facilitate both formal and informal international flow of capital for financing and investing decisions. Since evolution in 19th century, it had paved the way for economic globalisation, and also led to the development of new banks, intergovernmental organisations that ultimately improved the transparency, regulation and effectiveness of international markets. In the recent context, the topic of Foreign Direct Investments, Foreign Institutional Investors, and Foreign Portfolio Investment came into being which had helped to maintain a perfect balance of payments in the international markets.

The main objective behind the three is to maximize the benefit by minimizing costs.

For a layman, the normal question which comes to their mind is “ What is Foreign Direct Investment, Foreign Portfolio investment and Who are Foreign Institutional Investors?� According to the survey done by OECD(organisation of Economic Co-operation and Development) Foreign Direct Investment is an integral part of open and effective international Economic System and a

major catalyst to development and the benefits are distributed evenly across the countries. The challenges which primarily address the host countries to develop effective policy environment for investment and build human institutional capacities to implement them. With most FDI originating from the OECD countries, they facilitate the developing countries access to international markets and technology, ensuring policy coherence for development more generally and also to promote international framework of investment.

What the countries do to attract the foreign direct investment and how did they do it?? A recent research says that to attract the foreign Direct investment some countries boast a wealth of natural assets, cheap land and rich mineral deposits or white sandy beaches. Some are stronger in human assets, rich consumer markets or tech -savvy talent pools. Some tempt investors with policy enhancements- generous tax laws or loose transparency requirements. Thus every countries has a mixture of three policies but some of them have winning spirit and hence they are ranked accordingly.

The top countries boast of having the 30

presence of some foreign countries incentivising FDI, some are business friendly, while some having an extremely good workforce along with their fluency in business, low cost labour workforce, increase in capital inflows from Asia, and lastly easier tax reforms in the countries are the keys of bringing FDI in the countries.

The list of top 20 countries in ranking by score of Global Index are as follows:1.United Kingdom.

2.Singapore.

3.Netherlands.

4. Ireland.

5.Australia.

6.Luxembourg.

7.Portugal.

8.Cyprus.

9.Azerbaijan.

10.Ghana 11.China, Hong Kong 12.Sweden 13.United States.

14.Malaysia.

15.Panama.

16.Mozambique 17.Belgium 18.Albania.

19.Vietnam.

20.Italy.

In India, the major source of economic development is coming from FDI, and the country receives major of it from Mauritius, Singapore, Netherlands, Japan and US. On 25th September 2014, some of the major sectors of FDI are relaxed from tax reforms which included Infrastructure, Automotive, Pharmaceuticals, Services and Railways.

Now a days the government is continuously making initiative for FDI. Apart from FDI, FPI and FII are also

paving larger paths of finance globally.

Foreign portfolio investment consists of securities and other financial assets held by the foreign investors passively. It does not provide the investor with direct relationship of financial assets, but is also relatively liquid depending on volatility of market. Foreign Institutional investors are those investors or the investment fund registered in the country outside where one invests. Institutional Investors mostly include hedge funds, insurance companies, pension funds and mutual funds. Thus according to Layman’s term we can say FDI is used for assets creation, FPI is used for wealth creation and FII creates none of them. In India the most fickle are the investors class.

In the countries like India, the foreign investors must register themselves under SEBI, and they are allowed to invest in India only through country’s portfolio investment scheme and the maximum amount of investment can be only 24% of paid-up capital of Indian company receiving investment. The more the number of FII , the developed the economy is. Hence FPI which is actually investing in foreign portfolios and FII are the same things where investment takes place passively and having shorter investment horizons. FDI on the other hand are active investors who are always involved in investing joint stocks of companies, having a longer term investment approach. The only drawback which may be noticed is that FDI investors cannot easily liquidate their assets but FPI/FII can by a certain mouse clicks.

Hence in the comparative study between FDI Vs FPI/FII we can say that FDI is much more a stable route of investing 31

since it approaches to longer horizon investment, and because of this it attracts the foreign investors more. Whereas FPI is said to be “hot money� and is highly volatile source. Although both are needed for economic growth in Global finance, the smart work lies when the investors have confidence where to invest by understanding the basics of foreign investment.

32

Evolution of The Banking Sector in India: A Test For Time - Akanshi Bhargava

The evolution of the Indian Banking sector is accredited to the increase in the reach of the public sector banks from the metropolitan cities to the villages. The regulatory body of the public sector banks that is the central bank of India has made it mandatory for public sector banks to open at least 25% branches in unbanked areas. This banking expansion has contributed to realize the dream of financial inclusion.

Commission in 1935. Since its very inception the bank has played a very pivotal role in the development of Agriculture. The Bank has played a vital in institutional development especially in the establishment of Deposit Insurance and Credit Guarantee Corporation of India, the Unit Trust of India, the Industrial Development Bank of India, the National Bank of Agriculture and Rural Development.

Before Independence the East India Company set up three presidency banks namely Bank of Bengal (1806) , Bank of Madras (1843) and Bank of Bombay (1840). These banks were amalgamated to form the Imperial Bank of India. The Imperial Bank of India was owned by the Europeans.

The government also introduced the Banking Regulations Act in 1949 to streamline the activities and functions of the banks .Banks were nationalised in two phases. The first phase began in 1955 and the second phase began in 1969.

The rationale behind nationalisation of banks is to focus on agriculture and rural sector areas of the country. The resources were used to help the farmers and free them from the clutches of moneylenders.

In 1865 , Allahabad Bank was the first bank established by the Indians followed

by Punjab Bank headquartered in Lahore.

Initially between 1918 to 1948 the country faced many bank failure due to the low confidence of the consumer in the banks.

The postal offices were considered a much safe way of depositing money.

The Reserve Bank of India is the central bank of the country. It was set up under the recommendation of Hilton Young

Post independence the Imperial Bank of India was nationalised as the State Bank of India. It was the principal agent of Reserve Bank of India and to handle banking transactions of the Union and the State governments all over the country.

Seven Banks forming a subsidiary of 33

Bank’s

State Bank of India were nationalised on 19th July 1959.

borrow funds from Reserve overnight repo window.

The second phase of nationalisation began in 1969 with the nationalising of 14 commercial banks. In 1980, 6 more commercial banks were nationalised which became public sector banks.

In 1998 , the second Narasimham Committee was tasked with the progress review of the implementation of the banking reforms since 1992 with the aim of further strengthening the financial institutions of India. It focused on issues like size of banks and capital adequacy ratio among other things. The report of the Committee on Banking Sector Reforms was submitted to the Finance Minister in April 1998.

The nationalisation of banks gave the public immense confidence in the reliability and sustainability of the banks so much so that the deposits as well as the advances increased by 11,000%.

In 1991 , the Narshimhan Committee made recommendations to reduce the bank rates and to redefine the priority sectors including the marginal farmers and tiny sector , small business and transport sector.

The Statutory Liquidity Ratio was brought down from 38.5% to28% . The Cash Reserve Ratio was brought down from 14% to 10% by 1997. This reduction in the bank rates led to the infusion of money in the economy which further led to the increase in the aggregate demand.

The redefining of priority sector also led to the recommendation of 10% of the aggregate credit fixed for the priority sector as well.

In 1996 , the Verma Committee pointed out a few weak banks like Indian Bank , UCO Bank and United Bank of India on a certain range of criteria and outlined a scheme to bail out through proper restructuring and government aid.

In 1997, the Khan Committee has proposed that banks should be allowed to pledge corporate bonds as collateral to

The Narasimham Committee recommended creation of Asset Reconstruction Funds or Asset Reconstruction Companies to take over the bad debts of banks, allowing them to start on a clean-slate. The option of recapitalization through budgetary provisions was ruled out. Overall the committee wanted a proper system to identify and classify NPAs, with NPAs to be brought down to 3% by 2002 and for an independent loan review mechanism for improved management of loan portfolios.

The committee's recommendations led to introduction of a new legislation which was subsequently implemented as the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI), 2002.

The 20th century came with the IT revolution , the banks were computerized and all the banking operations were done on a computer rather than manual record.

Over the years digital India became the most common word among the people especially the youth. The Modi 34

government tried to make the banking sector digitalized by introducing various applications like BHIM which was developed by National Payments Corporation of India , Bharat Bill Payment System , mobile money , e-wallets.

With digitization banks have experienced the reduction in number and size of branches and the end user is benefiting due to the number of services offered which were earlier impossible to. The operational efficiency of the banks has improved and now the banks can fulfil the expectations of the customers.

One of the challenges faced in digitization is to make the payments system more secure. According to Qualcomm the American chipset maker, no digital payment app used in India is completely secure. They are of the view that wallets and mobile banking applications in India are not using hardware level security that is mandatory for secure online transactions.

If we make our digital infrastructure more secure then we can surely achieve the target of including a large portion of population in the banking ambit.

35

LIBOR & Depository Receipts (ADR/GDR/IDR)Things We Need To Know - Bidisha De From a common person’s point of view, certain complicated terms and systems doesn’t really seem to hold much importance in our everyday life.

However, when we’re busy blaming the banks and financial institutions for their high interest rates, the root cause of the problem probably lies somewhere else, in some different country.

On the other hand, we need to be equally aware of the systems formed and carried out to attract foreign investors to pitch into Indian companies and help them grow.

What is LIBOR?

Once the responses are collected, the ICE Benchmark Administration(IBA) trims out the highest and the lowest four rates and uses the rest of the numbers to calculate the mean. By 11:45 a.m., everyday, Thomas Reuters publishes the LIBOR rates, as well as the rates provided by the banks.

Originally administered by the British Bankers’ Association(BBA), LIBOR is now administered by the IBA and is now called the ICE LIBOR. A combination of five currencies: the US Dollar(USD), Euro, British Pound, Japanese Yen and Swiss Franc; And seven different maturities: Overnight, One Week, and 1,2,3,6 & 12 months; leads to 35 different LIBOR rates every day.

LIBOR stands for London Interbank Offered Rate, and as the name suggests, it is basically the interest rate that some of the world’s leading banks would charge each other for providing loans.

Calculated by the Intercontinental Exchange (ICE) and published by Thomson Reuters, LIBOR is noted on a daily basis. Every morning, just before 11 a.m., Greenwich Mean Time, about eighteen international banks are contacted and asked that how much are they willing to pay as an interest if they’ve to borrow money from another bank before 11 a.m.

London Time.

Importance of LIBOR LIBOR rates are used as a benchmark by Banks, Financial Institutions and Credit Agencies worldwide to set their own interest rates.Now, these rates also affects the consumers 36

as many consumer loans are also based on LIBOR, for example, a business loan, home mortgage or an interest rate option.

Say, if an interest rate of LIBOR+3% is charged for the above mentioned loans, the fall or rise in LIBOR will affect the consumers as well.

Knowing it’s importance in the lives of common consumers, imagine the impact of the mega-banks of London manipulating the LIBOR by not providing accurate number. This is exactly what happened during the 2008 financial crisis, when Barclays and other major banks were charged for providing artificially low LIBOR rates just to showcase their strength and stable condition. This LIBOR Scandal showed it’s importance in the commoners lives and also the loophole in the LIBOR. Replacements for LIBOR

This scandal managed to create a doubt on LIBOR and whether it should be trusted enough to be set as a benchmark for interest rates.

Last year, the U.K. Financial Conduct Authority made an announcement that after 2021, mega-banks of London would not be required to submit quotes on interbank rates. Also, the President of the New York Fed, Billy Dudley, urged financial markets to switch to some other benchmarks.

suspectible to manipulation as it is based on actual transactions expecting the LIBOR to be substituted with superior benchmarks in a few years, the U.S. Federal Reserve has already came up with the Alternative Reference Rate Committee. The task of this committee is to help financial firms to resolve their operational problems in shifting to a new benchmark.

Depository Receipt (ADR, GDR) Publicly listed companies within India trades their shares through BSE or NSE. However, when these companies wants to trade their shares overseas, there is a sequence and intermediaries that are required to be followed.

First, the concerned company needs to put their shares on hold at Domestic Custodian. Domestic Custodian has it’s counterpart overseas, which is known as Overseas Depository Bank. The Domestic Custodian is required to update the Overseas Depository Bank regarding the shares transaction being taking place.This Overseas Depository Bank will in turn claim against these shares and these claims are known as Depository Receipts that are denominated in the convertible currency.

According to the New York Fed, one of the best U.S. alternatives to the LIBOR is SOFR (Secured Overnight Financing Rate).

Unlike LIBOR, SOFR is more robust, realistic and comparitively less.

37

ADR & GDR are the two existing types of depository receipts.

ADR stands for American Depository Receipt, issued by a US Bank, representing non-US company stock, trading in the US Stock Exchange.

Similarly, GDR stands for Global Depository Receipt, issued by International Depository Bank, representing a foreign company’s stock trading globally. This is traded in European Stock Exchange.

can manipulate the financial conditions; and systems like Depository Receipt that allows companies to attract foreign investors to pitch in.

The Two sides of Depository Receipts For an investor, Depository Receipts can be helpful to maintain a diversified portfolio. From the company’s point of view, Depository Receipts also helps to increase the shareholders base of the company.

However, on the downside, the dividends are paid in the domestic country’s currency which is subjected to volatility in the forex market. These Depository Receipts can be withdrawn any time and the process of the shares being sold takes up a lot of time.

The other Depository Receipt (IDR) IDR (Indian Depository Receipt) is the third kind of Depository Receipt that is used by a foreign company to fund themselves from Indian investors.

Till date, the only foreign company that has used IDR was Standard Chartered PLC Ltd. in May 2010.

Although it was not really a successful experiment, StanChart promises to support IDR. Thus we see how the entire World is bound together with rates like LIBOR, that 38

General Impetus - ‘Good Politics Is Often Bad Economics’ - Ishaan Sengupta Every single day of my undergraduate school life, I had been continuously pondering about the choices I made. I remember, specifically about my graduation days pondering about wanting to do something related to Public Policy but alas! Delhi University’s curriculum for Economics was too textual and hardly any practical experience was being provided to the students. Second Year drew upon us and grave choices for DC 2 (Minor) subjects kept on haunting me.

So I decided to have a talk with the Head of the Department, regarding this issue that kept on bothering me.

After a brief span of small talk, my Teacher told me that my choices lied on what I would want to do in future.

Suddenly he asked me, ” Son could you tell me why our economy is in such a crisis?” reminding me of my textual curriculum. I answered that generally laymen cannot understand the reasons for certain economic issues and the reasons for such issues have a deeper explanation than what they think. He replied,’ Every problem our economy faces, has in general two ways of solving it. It is the job of the Politicians to decide which road to

take and accordingly steer the country for the better.” He reminded me that Policy makers find out the two optimally achievable ways and that the politicians decide which one to take.

Good Politics is often bad Economics’ A topic like Fertilizer subsidies can get arguments from both sides, like one party could talk about how fertilizer subsidies increase the burden on GDP, which in turn increases fiscal deficit, which in turn increases poverty in the country, similarly the other party could argue that fertilizer subsidy’s increase the price of final products and hence ultimately cause more poverty. However solving this problem is innumerable but choosing the better solution is what politics tries to do.

However a good political decision sometimes causes heavy burden on the economy.

It is particularly important to understand this correlation and how our economy works. Interdisciplinary studies ensures us a better scope in future yet, if such a study is made practical, then it would be beneficial for every student in understanding the problem faced by the world and finding the right and optimal solution.

39

Here, I am pursuing an MBA and yet, my views haven’t changed. As a part of a course curriculum, we are being taught a course called Public Policy. With someone who wishes to enter into the consultancy space, especially in the Government Advisory Division at some point of time in my life, I intend to delve deeper into the subject.

Policies like Demonetisation and GST are rampantly criticized by individuals within and outside the government, While some intend to achieve an end, some policies do not fulfil the same intentions.

Therefore what is required in most cases is to keep re-evaluating.

Secondly, what really needs to be considered is the fact that while policies can be put forth, the Parliament might not table the same to pass a bill on it. This is where the role of the supreme court comes into the picture. The Supreme Court recently scrapped section 377 which discriminated against the LGBTQ community.

There are instances as well, when individuals criticize Pt. Jawaharlal Nehru when it comes to issues like article 370 as well as the path of “socialism” adopted by the same. These are certain policy decisions, taken at certain points of time to a certain end.

key aspects of the economy. If RBI failed in bank regulation when bad loans were being made, the government’s failure to allow or enable banks, especially public sector banks, to do their jobs well is also a cause of the problem Over the last few decades, an academic consensus evolved that controlling inflation is a central bank’s main responsibility, and that it needs to be given the autonomy to pursue that goal effectively. In particular, it needs to be insulated from the pressures of politicians who may want easier money for shortterm political gains, at a long-run cost that is beyond their political horizon or calculations. This is easy to understand.

One complication is that even central bankers may reasonably care about output losses from squeezing money and credit too hard. So setting goals is not always straightforward. Implementation is complicated by lack of information about the expectations that economic actors have about inflation and about how changes in policy variables such as central bank interest rates feed into economic activity. Mistakes can be made, and sometimes are, even in “advanced” economies.

While we have got two major institutions to bank on , they haven’t quite been the most successful at ensuring proper policy decision or implementation.

So finally we can conclude, that the impetus is on the general mass. Every institution is responsible at some point or the other and therefore it takes a long time as well as patience to understand that if the failure has happened, what is the source and therefore errors go unchecked.

If we take a look at our NPA policy, Neither RBI nor the central government has been doing an ideal job of managing

A more smooth and recurring evaluation of the policy implementation is absolutely necessary.

40

FINANCIAL TRIVIA The Indian prime minister, along with Singapore Deputy Prime Minister Tharman Shanmugaratnam, formally launched on online marketplace that will connect technology start-ups and financial institutions in Asia and beyond. The platform — known as APIX, or API Exchange — was first announced in September. One of its aims will be to drive financial inclusion across Asia Pacific, and to create a regulated space for financial institutions and fintech firms to collaborate and experiment on new technologies.

41