FINANCE AND INVESTMENT CLUB
Article of the Month
Technological Disruptions in Finance in 21 Century Mutual Fund Industry In India
Big Data & Capital Markets
Victims of PNBs conzenage
Green Finance
APRIL 2018
VOL-2 ISSUE NO. 4
Editor’s Note We are pleased to publish the fifteenth issue of ‘Arbitrage’ – Finance and Investment Club’s monthly magazine. Arbitrage aims to cover a diverse range of topics under the wide domain of Finance and Economics. Our goal is to ensure that we provide significant value to the readers through informative articles and articles on current affairs. We would like to thank all the authors for contributing their articles for Arbitrage. In the Article of the Month – ‘Technological Disruptions in Finance in 21 Century’, the author Ms. Pragya Singhal from SPJIMR, has done a good analysis on the technological aspect of finance industry and also given suggestions on how professionals can keep themselves relevant in the industry. We hope for the continuous support of our authors and readers to make this magazine a success. -Finance and Investment Club, IIM Rohtak
FINANCE AND INVESTMENT CLUB IIM Rohtak 2018-19 Parag Nawani
Siddhesh S Salkar
Vineeth Harikumar
Sankalp Jain
Pavankumar S
Bibekjyoti Roy Nandi
Naveen Kumar Aditi Patil
CONTENTS
1. Technological Disruptions in Finance In 21 Century
01
2. Mutual Fund Industry In India
05
3. Unearthing The Volatile Rise And Fall Of Cryptocurrency
09
4. Cash Advance - An alternative solution to small business loan
13
5. Big data & Capital Markets
16
6. Victims of PNBs conzenage
21
7. FINTECH: The Next Digital Frontier
24
8. Financial markets in an era of IoT, Blockchain and AI
28
9. Green Finance
32
1|Page
Technological Disruptions In Finance In 21 Century
ARTICLE OF THE MONTH
Pragya Singhal SPJIMR (2017-19) WHERE ARE WE HEADING What could we get as an answer if we ever ask a millennial of our generation of what he thinks about the Robots and suddenly we picture a distant reality of a human looking machine in some distant technological laboratory or a thing of the Sci fi movies. Little did we know that this so called “slave” would one day be in a position to overthrow its masters out of their comfort zones, to set them re-thinking about the relevance of Darwin’s theory “Survival of the fittest”. Now the question arises who is deemed in the fittest in modern day world of Artificial Intelligence and who decides the rule of the game.
With many business houses investing in AI and Robotics based strategic business units, it is absolutely necessary to understand how these technologies reshape the boundaries of the industries. The learning of the newer generations would be significantly different from the earlier ones in terms of learning about business practises, business ethics and business laws in conjunction with technological capabilities. The first step to gain from technology would be to understand its capabilities, its current and potential application areas, and what can be the use cases of such technologies in our specific business, then find ways to be economically indispensable even with these sophisticated and intelligent
TECHNOLOGY RESHAPING ENTERPRISES
machines as your colleagues and the last step being creating an ecosystem where these
While the concerns regarding the change in
changed are absorbed into the system to
economic and social order are numerous the
improve efficiency of the system and reduce
most promising way to stay economically
friction. We explore these areas step by step to
relevant is to learn the art of being anti-fragile.
make this journey smooth and rewarding.
2|Page
UNDERSTANDING SCOPE,
understand according to the industry size should
INTERCONNECTION AND PHYSICAL
we make use of a certain technology for
SIGNIFICANCE OF VARIOUS MODES OF
example Deep Learning Algorithms which have
AUTOMATION
sequentially layered algorithms, works exactly
In a world where everyone is attempting to bring in AI and robots in the realm of their enterprise boundaries it is important to understand if the marginal benefits of using the technology outweighs its marginal cost. The Adoption curve of AI is at an inflection point today primarily because of four factors that is firstly the high compute capacity, secondly the rise in capturing of more behavioural data than transactional data, better algorithms and lastly open source platforms (e.g. IBM Bluemix) to share the use cases of technology. Any enterprise needs a healthy intersection of all four of these to be successful in reaching their desired goal. An employee needs to understand the trade-offs between these variables and how much is the expected accuracy of the technology outputs with different configuration of access to these four variables. Also, we need to understand which technology what phenomenon
like a human brain saving the cost of Feature Engineering to a large extent but is useful only in data intensive environments with close to five million data points to access. All these things point towards the fact that technological literacy would have to become the norm rather than exception in every vertical of the organisation because when access to technology becomes the norm in the coming days the enterprises with the most timely and innovative use case would start leading in the business world. DESIGN THINKING APPROACH With the rise of consumers demanding advanced technology products the relatively more tech savvy entrepreneur’s or firms may project their own wishful technological fantasies as consumer needs, Design thinking is the bridge which one needs to construct between innovation and customer satisfaction.
at its core and the use cases for has the same for
The most important factor for the success of any
example Clustering algorithm, has pattern
enterprise is to be exactly clear about what are
recognition on its core with applications in
the kind of problems facing people that presents
market research, Anomaly detection algorithm
a business opportunity and then the technology
points out non-pattern elements and application
becomes an enabler, to provide both effective
being fraud detection in banks. We also need to
and efficient solutions. In very rare cases it would be the other way around that a value
3|Page
proposition is the technology but not a human need. Since the ushering of AI customer centricity now even more has taken a centre stage in all the contemporary organisations and the consumer insights which explains their
DECIPHERING THE BEHAVIOURAL PATTERNS AND BOUNDED RATIOANLITY
behaviour is according to many world leaders
A report by Deloitte [4] mentions how today’s
the most valuable data nowadays. So, while it is
AI is artificial narrow intelligence capable of
important to have knowhow about the
performing a specific task. The report mentions
technology, it is equally important to actively
that if this intelligence has to become Artificial
“listen” to the society, empathise with them and
General Intelligence matching the level of
have the right set of data points pertaining to
human intelligence computational requirement
them to feed to your system. The standard
equal to “10 quadrillion calculations per second
design thinking procedures of “INSIGHT,
on just 20 watts of power” does not seem to be
FRAME, IDEATE, PROTOTYPE, REPEAT”
big issue in the future but the ability of the
has been the hallmark of innovative
machine to code changes into itself to
organisations like Ideo where they have
progressively become smarter is a big software
successfully delivered many human centric
challenge according to Computer scientists.
designs pertaining to health, financial stability
Thus, it becomes extremely crucial to realise
etc targeted at the people who needed it the
that a robot would work extremely efficiently
most by combining empathy with creativity and
when the market reactions are in accordance
their products are manufactured taking into
with the Rationality theory of economics but it
consideration the needs of all the stakeholders
won’t make out the difference for example as to
involved.[2] An example of this could be a
why a consumer probably pays two different
furniture company Herman Miller which visited
amounts for a the same can of coke at a
19 hospitals, asked all caregivers as well as
rundown shop vs a resort on a beach. The
patients as to what type of a chair would give
technology would always work on the logic fed
the feeling of physical and psychological well-
to them by the humans so for the future
being to the patients post operation and then
generations it becomes necessary to not only
designed a chair named Harmonic Tilt Chair
understand the logic behind the current theories
truly made around patient comfort.[3]
in practice but also look for anomalies and perform an extensive qualitative research to
4|Page
surface out the judgemental heuristics pertaining
the fulcrum of organisation the leaders would
to decision making in various environments.
have to adapt to a new leadership style of
Behavioural research in itself would have to
leadership that is a leadership from below,
work in tandem with technologies like emotion
because anyone with innovative thinking of
detection technologies, an example of this could
putting technology to use would assume the
be that a company detects through its chatbot
position of a undeclared leader helping the team
that consumers who visited their website after
navigate the challenges of this VUCA world and
visiting a competitor’s website displayed angry
it would be important to adapt as an
facial expressions despite both companies
organisation to a behaviour where technology
offering the product at a similar price. Now this
teams would no longer be just a supporting team
case becomes a matter of behavioural
but a strategic business unit working in tandem
economics to find out the reasons of what makes
with all the other business verticals. As the
the consumer reacts that way they do.
changes would be faster than ever before it is necessary to reinforce the idea that the idea of silos and hierarchy would have to pave way for
MANAGING CHANGED EXPECTATIONS
task-oriented teams and networks respectively.
The organisations of the past were primarily
This would also mean a loss of legitimate power
centred around business processes and the
for many and a rise of expert power in general
design of the processes at a firm played a
in the organisation and these changes have to be
pivotal role in structuring work teams and
understood and communicated gradually with
deciding the KRA of the job. A leader would
complete empathy for people who may be at a
always be someone who has the highest depth
loss because of these changes and people who
and breadth of knowledge about the various
gain have to help the others find their unique
verticals by virtue of being the only one
position in the new setup and augmenting
occupying the height when you can assess the
other’s skill sets.
synergies between various processes. The leader commanded a great authority for these reasons but in the organisations of the future when the customer centricity becomes the central pivot and the data and the knowledge of technology
5|Page
Mutual Funds Industry in India Utsav Agarwal, Disha Choudhury SJMSOM (IIT Bombay) Gone are the days, when people could depend on Employee’s Pension fund(EPF) or Provident Pension Fund(PPF) to safeguard their future post retirement. These kinds of investments might have been prudent about a decade ago. But with the declining return rate of EPF and PPF over the years (shown in figure below), one would have to look at other alternatives to avoid the risk of falling short of capital, after retirement. In India, the investors mostly use fixed income product for their long-term goals like retirement. But as these products have started offering lower returns, what should investors do?
Mutual Funds, which have existed for a very long time now is a perfect alternative. By providing investors with numerous options to choose, depending on their risk appetite and investment horizon, it provides a great opportunity to bag returns much more than what a typical pension scheme can provide. Mutual funds have been an important financial instrument for a long time and have played an active role in financial markets all over the world. In India, the first mutual fund was established in 1963 by the government sponsored Unit Trust of India and it was the only available mutual fund available to investors. The asset under management of mutual fund was very less until 1980s when the public-sector banks could offer mutual funds. But it was in 1990s, when the industry started seeing growth in the asset after the private sector were allowed in the industry. The figure below shows the annualized return of mutual funds which have existed over 17 years from 2001 to 2017.
6|Page
Equity Mutual Funds Return Large Cap Mid & Small Cap Annualized Return No. of funds
17.10% 21
Despite this growth, mutual funds have been a small player in the Indian financial markets with capturing only about 6% of the equity market capitalization. The total assets that Indian mutual fund industry manages in around $0.189 trillion which is only about 0.22% of the global asset under management. According to Government estimates, even after significant concessions by the Government to invest in capital market, the investment in security related investments have been around 4-5% of the total
22.67% 4
ELSS 17.62% 9
household savings for more than a decade. Even though the taxation and regulatory framework in India is very conducive to the growth of mutual fund industry, where there is no entry load and the tax on mutual funds is very liberal. Also, the household saving is high, and people are not financially literate to invest in equity market by themselves, the figures are completely opposite to what one would expect in a growing economy like India.
7|Page
It is quite easy to understand the reason for this. First, it has been seen that, Indians have a strong attraction towards physical assets like gold and real estate. The real estate prices have increased considerably over the last few years and gold prices if not increased have remained stable. Also, unlike equity market, in both the assets especially real estate, profit and loss are not tracked daily. So, even if you have made a wrong decision, you won’t have to see the consequence every day. The perception that the real estate prices will never fall and the concept of holding onto something valuable makes the people reluctant towards investing in equity, let alone mutual funds. Second, even though the general population are not financially literate, they tend to trade in equity on their own. This is evident from the fact that mutual fund captures only 6-7% of the total equity market capitalization. Also, compared to most of the other places, the future market of India is one of the best. A lot of trade in retail segment happens in derivatives in India which can be seen from the growth of derivative trade on the
exchanges over the years. So, the equity as an asset class which is supposed to be long-term is seen as a short-term investment and hence, people undermine the capital gain opportunities that the equity market offer in longer term and go for PPF or EPF for longer horizon investments. The equity market is treated for short duration trades and mutual funds that are longer duration asset class are neglected. Third is the performance metrics that retail investors use to measure the performance of a mutual funds. By regulation, mutual funds are not allowed to forecast the expected return to lure investors. Usually the data that is available is the past return of a fund. But the past return is based on various factors like the market condition and portfolio of stock in past and these conditions might not be the same in future. Investor buy a stock by comparing the historical return of various funds and buying the one which has given highest return. This is clearly because of the lack of knowledge. It is possible that a fund which has given good return in good economic condition might give a negative
8|Page
return when the conditions are not favorable. In short there is no way for an investor to know the fixed return that they might get in future. Indian being more risk averse typically prefer to know what they might get after the maturity and hence, they opt for PPF, EPF or bank fixed deposit because of this.
large cap stock fund only. They should also check how many time have the mutual fund beaten its benchmark. There is also a need for increasing the financial knowledge of the investor so as to make them realize the benefit of investment in equity for longer duration and what kind of portfolio is suitable for them.
All these call for a more focused research on mutual funds. The research on mutual funds should consider judging a mutual fund performance not in isolation but in comparison with others. To judge the performance of mutual fund, the investors should see how the market has performed. They should check has the fund beaten its benchmark. They should compare the fund with similar fund. For example, large cap stock fund should be compared with another
Going forward, with more and more Government initiatives to spur mutual fund industry, I believe that the investment in mutual fund is going to increase significantly in next 10 years. The industry is exposed to good regulatory measures and growth trajectory, but it will require a lot of academic research on fund performance, fund flow and size and consistency in mutual fund performance.
9|Page
Unearthing The Volatile Rise And Fall Of Cryptocurrency Vishvas Jaiswal, Department of Commerce, Delhi School of Economics
Cryptocurrencies like Bitcoin, Ripple, Ethereum etc. have grabbed headlines in the course of the most recent year. Bitcoin, the most prevalent cryptocurrency, hopped from $1,000 on 1 January 2017 to over $19,000 in mid-December 2017. These decentralized cryptographic forms of money enable individuals to exchange straightforwardly with each other, removing the requirement for a broker, which on account of customary business, is generally a bank. The market capitalization of the consolidated cryptographic money markets had surpassed that of the second biggest global organization, Google. There are in excess of 100 digital currencies and among them, numerous will survive and a considerable measure may very well vanish.
Constrained supply, positive impression of its incentive by the general population, soaring price patterns and gigantic enthusiasm for the media and financial specialists have been the most basic driving components behind the blast of digital currencies. Above all, the posting of cryptographic forms of money on numerous new exchanges in the US, China, UK, Denmark and South Korea injected confidence among investors. As interest for cryptocurrency expanded, it snatched media consideration and investors started pouring cash in them, which shot up the costs. Investors, especially in China, South Korea and Japan, started to trade as an approach to make quick bucks.
10 | P a g e As of now, the sell order surpasses the quantity of purchase orders for most cryptographic forms of money bringing about a devaluation of the digital coins. Bitcoin has likewise been a reason for worry as it can be abused for a scope of serious crimes as a result of the anonymity it offers. Some terrorist associations are utilizing cryptographic forms of money to fund their exercises by operating with anonymous wallet IDs. Recently, the discussion around regulating cryptocurrency and utilizing Bitcoins for hacking has made a negative impression of the currency, which has driven numerous stakeholders to get serious about it. Numerous banks have restricted digital money buys on their Visas and have prevented taking deposits from cryptocurrency wallets. A few nations have now suspended cryptocurrency activities as they can be utilized to move illicit cash out of the nation. As of late, China denied all cryptographic money exchanging and blocked access to sites based abroad utilizing its 'Great Firewall'. South Korea said it will manage the regulations of cryptographic forms of money in the nation.
What it means for Indian Investors? Indian cryptocurrency trade sites have likewise begun to confirm and verify their client base by making Aadhaar data compulsory while signing up for the services. Even Finance Minister Arun Jaitley, while introducing the Union Budget 2018, said that while the Indian government favors blockchain, it doesn't think about digital forms of money as a legal tender. A month after the Union Budget, Indian crypto token marketplaces like BTCXIndia and ETHEXIndia declared that they were suspending cryptocurrency trade from 5 March 2018. In addition, the Government of India will introduce a framework to regulate cryptocurrencies. Fake news and inaccurate data
started to spread after the Finance Minister created an impression in Union Budget regarding cryptocurrencies. This made negative sentiments among numerous Indian investors, which made them haul out their money. Since Twitter is where news starts to break in, a sentiment analysis of information and hashtags from the microblogging platform demonstrate that there is a connection between negative sentiments and the downfall of cryptocurrencies. The RBI has gone one step ahead making it clear that cryptocurrencies cannot be treated as an asset. The rise in digital currency trading volumes in December 2017 was common since dealers neglectfully invested due to influence. As it was a thundering new market, numerous beginners entered to make quick profit. A blend of these factors prompted a spike in volume. At the point when prices fell, most beginners were stuck with their positions since they didn’t use a stop loss. Many new investors would have additionally purchased cryptocurrencies in a falling market, thus debilitating their purchasing power. Their lone choice was to hold until the point when the market recouped. Then again, skeptic traders don't venture in a falling market since it is constantly better to trade in a market that demonstrates a reasonable up-trend. Every one of these reasons combined have prompted falling volumes. According to a current development, Google will boycott online ads promoting digital forms of money and initial coin offerings beginning in June 2018. This is a piece of a more extensive crackdown on showcasing another type of highrisk financial products.
Explanation Through Top Cryptocurrencies Right now, Bitcoin has the highest market cap amongst all the digital forms of money. As the Bitcoin market rises up, Ethereum is attempting
11 | P a g e to keep up in piece of the pie, which has a market cap of $63 billion and a price tag of $630. Coming in third, lost quite a bit of its value with a market cap of $35 billion and price tag of $0.89.
Bitcoin: The highest price of bitcoin was recorded on 16 December 2017, which crossed $19,000 and then afterward dropped to under $7,000 on 5 February 2018, denoting a 65% downfall. It again transcended above $11,000 on 2 March 2018 and dropped to $6,700 on 6 April 2018.
Ethereum: The highest price of Ethereum was recorded on 14 January 2018, when it crossed $1,300 which at that point dropped to under $900, marking a 35% fall. From that point forward, its price has been less than $900. Ripple: The price of ripple was around $0.25 in early December 2017 and then it suddenly bounced above $1 in the late December 2017, a 300% increase. Later it rose further to above $3 as on 3 January 2017, marking a 1,100% increase rate within a month. As of now, it is again below
Volatile Bitcoin Prices. Source: https://www.coindesk.com/price/
Volatile Ethereum Prices. Source: https://www.coindesk.com/ethereum -price/
12 | P a g e $1, reflecting high unpredictability. The demand for Ripple is diminishing, which has made its value fall.
Volatile Ripple Prices. Source: https://www.coindesk.com/market-center/xrp/
Future for Cryptocurrencies Cryptographic forms of money can turn into a true rival to the traditional monetary system, but it has many hindrances to overcome. Cash as digital forms of money can't be traced and can be effortlessly utilized for illicit activities. As hypothesized for long, the cryptocurrency bubble has burst for the time being and regardless of whether they rise once more, it would be on more strong foundation and less on buildup or expectation around them. The eventual fate of cryptocurrencies keeps on staying uncertain
13 | P a g e
CASH ADVANCE An alternative solution to small business loan Shruthi Nair, Symbiosis Institute of Telecom Management
You have the idea, planned your strategies and goals for your business. That’s great! But the greatest concern for any business is from where it will generate capital to make that happen. Without the right business funding, there is no firm platform for the ideas and strategies for your business. But what if you found out that there is a better alternative to a business loan? Banks lay down many obstacles in front of you when it comes to sanctioning a loan. They will scrutinize everything from your business plan to your credit report. Today’s millennials and budding
entrepreneurs are skipping these obstacles of the bank and are seeking alternative solutions to fund their business. According to a recent article in Forbes.com, there has been a void in funding for many small businesses since the economic downturn of 2008. Banks eliminated several loan options, tightened their credit requirements and began to focus only on small businesses which would eventually give them fast returns. But now, there are many ways to get an alternative to a traditional bank loan.
14 | P a g e
For all the budding entrepreneurs reading this, are you familiar with any of these situations?
Your credit is good but not stellar. Your business has had ups and downs and because of this, you have concerns that you will go through the entire tedious loan process at a bank and possibly be turned down.
So, what is CASH ADVANCE? A Merchant Cash Advance is an unsecured funding option that is based upon the volume of sales and your business health. You aren’t judged by your business plan, years of beingin business or even your credit plan. A Merchant Cash Advance grants you the money you need, which is paid back based upon a small, set percentage of your
You are ready to move forward now.
business’s daily credit card processing
Cash was needed yesterday, or at least
receipts. The payments are not a fixed
in the next week or two. Time is of
amount but are based upon the sales volume
the essence for your plans to be put
of your business as it ebbs and flows. Unlike
into action.
the requirements of time and collateral that the bank seeks, this type of funding provides
Your business is doing well, but it is
the financial infusion that allows your
fairly new so you don’t have an
business quick growth and answers to
extensive history to show the bank.
immediate needs. The decision for your cash
You need someone to look at the
advance is typically made within two
overall health of what you created and
business days and your credit score is not
trust in your ability to take it even
part of the approval process.
further. Some other alternatives are mentioned below: If you’ve agreed with even one point above, you are ready to try out an alternative
1.
solution. According to Business News Daily,
Lines of Credit means a lender lets you
alternative funding is a good fit even if you
borrow money up to a certain set amount.
want a small business loan. Since many small
This means you only borrow exactly what
businesses follow a typical mindset, if they
you need and your interest is based upon
see a growth opportunity, they seize it. But to
what you borrowed, not the full amount
capture this, they need the funding. Cash
available. Like credit cards, lines of credit are
advance used to take sometime before, but
typically unsecured so you don’t have to have
now can be done online in a day or two.
any collateral and extended repayment timeframes.
Similar to using credit cards, Business
15 | P a g e
2.
Offered through the Small Business
copy machines, to machinery or tools can be
Association (SBA) the Micro-Loan Program
funded through this method. Essentially it
provides loans to fledgling small businesses
allows a business to spread out payments on
or those demonstrating new growth. The
all the equipment they require, rather than
loans, typically less than the $50,000 cap, are
coming up with it in one lump sum. These
made through non-profit organizations or
loans are often easier to obtain because the
intermediary lenders. Business owners can
equipment itself serves as the collateral
use the funds for working capital or to
needed for the loan. If you default on the
purchase equipment or machinery, furniture,
loan, the lender can seize your equipment.
inventory or supplies. But there is a stipulation that the loan cannot be used to pay
5.
This is where you invest everything
pre-existing debts or for acquiring real estate.
you have personally saved, assets and cash
The loan repayment terms are based upon the
into the business or you fund your small
amount borrowed, the purpose of the funds,
business through using a credit card. This
stipulations from the intermediary lender and
option is very common but is the least
the needs of the small business borrower. The
desirable funding option because it puts your
SBA micro-loan has to be repaid within six
personal finances at risk if the business fails.
years.
If you cannot keep up with the credit card payments, it will negatively affect your
3.
Working capital loans are best for the
personal credit rating.
short-term needs of businesses in need of funds to support their operation. Essentially,
6.
Finding an angel investor is an
they are utilized to make payroll, purchase
alternative funding method typically used by
inventory, or pay daily bills. These types of
young companies that are demonstrating
funds are not designed for purchases that
substantial growth possibilities. Be prepared
require long-term payback time, like buying
that finding an investor can prove
large equipment. Working capital loans often
challenging and you will be giving up a large
come with higher interest rates and can be
chunk of future revenue with this avenue of
found at banks and alternative lenders.
funding. Investors typically look to get a 20 to 25 percent return on their investment.
4.
An equipment loan or lease is strictly
to provide cash for purchasing or leasing equipment. Everything from computers to
So all you reading this article, I think you now know there are other means of funding your business!
16 | P a g e
Big data & Capital Markets Rudra Bannerjee KJ SIMSR
Despite all these hurdles, Capital Markets
Introduction: Since the 2008 Global Financial Crisis, the financial business landscape has been going through constant changes and also different regulatory reforms are continuously throwing different challenges for the Capital Markets industry.
Furthermore,
problems
like
increased cost pressures and dwindling revenues are snowballing continuously.
industry has been forced to continuously come up with solutions to improve revenues and reduce costs. One of the solutions for many of these issues lies in leveraging the available data. Capture of data in each and every operation by Capital Markets industry lead to the rise of huge volumes of data. The process of these massive data troves by big data can act a game changer in these industries
17 | P a g e
reference data, and market data. It also includes lots of unstructured data like news
What is Big Data?
feeds,
corporate
filings,
and
indicators
“Data is the new science. Big Data holds the
(macroeconomic and microeconomic).
answers.”
Traditional tools available are not so much
–
Pat
Gelsinger
(CEO
of
VMware).
efficient to handle such enormous datasets
Big Data is a data which can be categorised
but big data tools can sift through these
by four Vs as follows:
massive data warehouses. Big Data can help
Volume: Quantity of data generated
Velocity: Speed of data generation and its processing
Variety: Different types of data like text, audio, and video
Veracity: Integrity and quality of data
Data in Capital Markets
to analyse both structured and unstructured data and create logic patterns between those data and thereby helps business taking efficient and correct decisions. Big data provides an exponentially fast speed of processing of these enormous datasets and also the real-time information provides actionable intelligence that can be leveraged by different stakeholders in their respective
The Capital Markets consists of several varied data which includes structured data like traditional banking transactional data,
business domains.
18 | P a g e
Drivers for Usage of Big Data
Big Data Benefits:
19 | P a g e
Big Data in Investment Bank
data tools can merge various data silos and can present single exact
The investment bank, like their retail
view of the current transaction. Big
counterpart, still haven’t used big data to
data also provides excellent data
resolve most of their business problems. By
management capabilities for huge
efficiently using Big Data mechanism, these
datasets and thereby can be an enabler
investment banks can easily ameliorate their
for regulatory reporting.
operational efficiency due to access to huge data trove and also can explore new ways for revenue generation. Big Data tools can help any Investment Bank to achieve optimum result in following four areas:
of
the
Trade
Surveillance
and
various
compliances require filtering through loads of data, e-mails, chat histories,
1. Trading Strategy: Most
3. Compliance
and verification of voice information
capital
markets
to identify any potential financial
executives agree that in today’s world
misconduct. So, big data can easily
it is important to use technology to
analyse these large data sets and
gain competitive advantage. Big Data
expedite
system can perform a sentimental
strategies.
banks
in
compliance
analysis using unstructured data like the news feeds or social media streams which will eventually help traders
to
decide
their
trading
strategies.
4. Operational Simplification Big Data simplifies mergers of data in different warehouses and also at the same time helps in managing different
2. Automated Reporting
feeds that come from various internal and external sources which thereby
According to latest regulations, banks
helps business in audit requirements
are
cross-reference
by versioning the transactional data.
various sources of data for trade
These operational improvements act
reconstruction. So, it is necessary to
as cost benefits to stakeholders.
required
to
perform quick ad-hoc reporting. Big
20 | P a g e
Challenges
in
Big
Data
rather than any other “IT� project because of its impact in the whole organisational system.
implementation
The
Big data implementation need to be seen as a
key
challenges
in
Big
Data
implementation are:
transformational exercise for an organisation
3. Scarcity of Talent With the relativeness newness of Big
1. Architectural Issues Most of the Investment Banks are using
legacy
and
custom-built
software for decades. So, it is a major challenge to shift from existing legacy platform and to integrate them in Big
Data applications, it is hard to find people with deep understanding of technology
as
understanding
well of
as
critical
organisational
business processes.
Data technologies.
2. Lack of Data Privacy
Conclusion
Big Data applications connect to data
Big Data has already shown its values in
warehouse across all the business
some of the industries. So, seeing its
units of the organisations. There
performance in other sectors it is necessary to
might be regulatory restrictions on
implement Big Data technologies in Capital
sharing the data across the different
Markets arena which will help them to
units.
resolves their real-life business problems and stay ahead of the curve.
21 | P a g e
Victims of PNBs conzenage Harsh Deep Sharma, NMIMS, Mumbai (2017-19) Introduction India’s biggest banking fraud by India’s second largest public lender (Punjab National Bank) has jolted many sectors not only in the country but also at international level such as the foreign trade, sales, employment and NPA (NonPerforming Assets). 1The two companies alone accounted for 30% of the Rs. 69,000 crores in bank loans to the jewellery and gems sector. Their fraud galvanized other banks also to provide loan to jewellers. And this could make a concavity on the trade of India which accounted for around 13% of India’s export. 2The two companies alone accounted for around one-sixth of India’s total jewellery and gems market which comes around Rs.1.17 lakh crore. Impact on Employment: -
caught up into the scam they decided to fire around 3000 if its employees which includes sales staff and craftmen, not only this they also informed another 8000 temporary workers about their inability to clear their dues. The two companies constitute of around 12-13% of total jewellery and gems industry workforce which excludes craftsmen and other temporary workers. Impact on Foreign Trade: The direct impact of -banks not lending money to the jewellers and their firing of large number of employees would also affect India’s foreign jewellery and gems trade. The two companies accounted for around 13% of export and 8% of import in the year 2016-17. But after this scam, imports and export of India would definitely be affected in terms of value. The
There were around 11,000 temporary and
impact of shutdown of both these companies
employees at franchisee workers were working in
would be around 5 to 6% on foreign trade of
India’s one of the biggest jewellery retailers of
diamond and jewelery in terms of value in the
the Country i.e. Gitanjali Gems. After they
forthcoming year i.e. 2018-19.
1
According to the CARE Report released on 27th February, 2018(www.carerating.com – visited on 9 March,2018) 2 According to the CARE Report released on 27th February, 2018(www.carerating.com – visited on 9 March,2018)
22 | P a g e 3
Table-1
Export and Import of
Impact on Other Banks: 2015-16
2016-17
(in
(in
billions)
billions)
0.7
1.13
Firestar and Gitanjali Gems Imports (Value GGL)
This scam jolted other banks also on the basis of LoU (Letter of undertaking) issued fraudulently by Punjab National Bank to Nirav Modi’s and Mehul Choksi’s Group, which had an exposure of around Rs. 11,000 crores. A dozen of banks provided loan on the basis of LoU fraudulently
0.9
Exports (Value -
1.13
issued by Punjab National Bank, 5out of which the major players were Allahabad Bank, Axis
GGL)
Bank and Union Bank of India who lended the Trade Value (FDL)
1.8
NA
major chunk loan of around 7000 crore out of
Total ($ billions)
3.4
NA
11,000 crore. And not only the Indian Braches are suffering from it but also the foreign branches
Impact on foreign
5.8%
NA
trade (imports plus exports)
and on the other side Punjab National Bank is sidelining from its liability and claimed that the LoUs which were issued, were issued fraudulently.
Impact on Sales: The revenue earned by Firestar Diamonds was around Rs.1580 crore for the year 2014-15 and Rs.1945 crore for the year 2015-16. And on the other side Gitanjali Gems reported Rs.7157 crores for the year 2014-15 and Rs.10750 crores for the year 2015-16. 4Shutdown of both these companies would impact around 16% sales of
Impact on NPA and Stressed Assets: -
Jewellery and Gems Industry.
This swindle by Punjab National Bank and because of its impact on various sectors the 6NPA 5
3
From Financial Statement of Gitanjali Gems (www.gitanjalijewels.com – visited on 8 March, 2018) and Firestar (from other sources) 4 According to the CARE Report released on 27th February,2018(www.carerating.com – visited on 9 March,2018)
According to Times of India Article of 16 th Feb,2018 (https://timesofindia.indiatimes.com/business/indiabusiness/rs-11000-crore-pnb-fraud-will-have-adomino-effect-on-banks/articleshow/62924199.cms) – Visited on 9 March,2018 6 According to CARE Report of 27th February,2018 – (www.carerating.com – visited on 8 March,2018)
23 | P a g e (Non-Performing Assets) Ratio could propel to at
sector has to endure and on the other side because
least 30% from 11.7% for the Gems and
of one the other banks has to endure.
Jewellery Sector, as of September,2017. As of September,2017 the stressed asset ratio of the banking system was around 12.2%, with this the stressed advances ratio of Gems and Jewellery sector was around 11.7% which was lower than the sample average. 7The two companies reported their borrowings of 16,000 to 17,000 crore, the gross NPA ratio of Gems and Jewellery sector as per December,2017 report and stressed asset as per RBI statistics of September,2017 would elevate up to around 30%. According to RBI’s last financial stability report, around 11% of the
According to me, customers, depositors, investors would definitely be raising question over banks that how safe their money is because whoever it is, from Businessmen to a Vegetable and fruits vendor, nobody wants to be robbed by someone who is for their protection of money and nobody wants to suffer for the act of others. Already there are many holes in different sectors (Employment, Foreign Trade, Sales, Investment and so on) and this fraud by Punjab National Bank added one more to the count.
advances which were given are now turned into
Customers would lose their trust if these kind of
NPA’s and this is not about just Rs. 11,000
activities are not ceased by the superior authority
crores, it is about Rs 11 trillion crore which is
or by the Indian Government, even I have an
about hundred times bigger than Punjab National
account in Punjab National Bank and they lost
Bank scam and in terms of gross domestic
my trust.
product, that is about 7.5% to 8%. My opinion: This 11,000 crore swindle or what I think may be way more as it is shown in the media and other reports would bang not only above written sectors but also punch many other sectors and its repercussions would be appalling for each and every Indian whether rich or poor. This hole would be bigger and bigger in future if there is no check from the side of the government and because of this, other players in jewellery 7
From Financial Statement of Gitanjali Gems and other sources (www.gitanjalijewels.com – visited on 8 March,2018)
24 | P a g e
FINTECH: The Next Digital Frontier Samiksha Jain IMI, Delhi (2017-19)
“FinTech is changing the finance sector just like the Internet changed the written press and the music industries. In what is a stagnant sector monopolized by banks, finance is ripe for innovation and FinTech is unquestionably the catalyst needed for change.” - Philippe Gelis. Over the past decade, the term FinTech has evolved from just being a buzzword among digital-savvy people to an organized sector signalized by hyper-growth. This new avatar of digital technology is completely revolutionizing the way business has been done. In the race for becoming the next superpower, India has been proactive in redefining the way ahead – particularly in the financial services sector. Its discussion in union budget symbolizes its importance. Initially, innovations in the FinTech space have been held back by regulatory uncertainties and a conservative approach on the part of the government on such matters. Financial institutions also showed a slow approach towards adapting themselves according to the new changes. However, over the past few years, we have seen a paradigm shift in these perspectives. Now FinTech is seen as a tool to bring more transparency and efficiency in the system. Today, India is listed as a nation with highest expected ROI of 29% on FinTechs.
Product portfolio: PaymentsOne of the most well performing areas of FinTech industry is digital payment. In 2017, the value of total transactions was around $43,831mn. WhatsApp, the most widely used messaging app, has recently started a Unified Payments Interface (UPI). With a base of 20 crore customers, it is expected to drive large base on peer-to-peer and merchant payments. Other major players are also gearing up. Google has already launched its payments app Google Tez, while Samsung has launched Samsung Pay and Amazon has introduced Amazon Pay. Apple, too, is looking to introduce Apple Pay in the country in the near future. Jio also entered the league by launching Jio money. Alibaba also announced to invest over half a billion dollars in Paytm. Other homegrown digital payment firms are PhonePe, MobiKwik, and FreeCharge.
25 | P a g e
LendingTechnology is changing every aspect of the financial industry, and lending is no exception. While lending used to be the exclusive notion of banks and various credit unions, numerous FinTech companies are now extending loans to consumers and small business owners, changing the face of lending. Companies such as LendingClub and Prosper have adopted a strategy where people can earn interest by lending their money and they take a small fee as a brokerage for providing a platform to them. Instead of application, borrowers get a loan by presenting compelling stories, depicting why they need a loan. Companies like SoFi and Earnest entered the market with services like student loan financing, personal loans, and mortgages. The main advantage of
securing loans from these FinTech companies is that they offer faster application, approval, and funding. Funds can be granted even in less than 24 hours. This efficiency is giving tough competition to the traditional players. Personal financeFinTech companies offer personal financial services such as assisting consumers in filing taxes, wealth management, insurance etc. Apps like cleartax and moneyview are few examples of it. The major part of this is insurance sector. It is growing more conservatively as we compare it to other digital services. But by providing insurers with improvement in sales, reduced cost, better risk management, and efficiencies, the scope for growth is quite positive. Online insurance platform like policybazaar is
26 | P a g e
growing at a tremendous rate and has risen $70M as funding. Banking technologyThis segment includes risk management models, regulatory compliance and other software solutions for banks and other financial institutes. This segment forms the base of solutions that can be offered by financial technology. Almost 74 companies are working in this area. Backed by technologies like artificial intelligence and machine learning, technology has completely changed the customer experience. Services now are more customized and efficient. In past years, we can see an adoption of these technologies like bot enabled conversational banking services, automation of underwriting using microeconomic indicators and device fingerprinting.
According to a report by Google and Boston Consulting Group, the digital payments in India will reach level of $500 billion by
The Indian FinTech Landscape: As the government is heading towards financial inclusion, digitalization and technology up-gradation has led to the introduction of various new policies which provides a strong support to the FinTech sector in India. Initiatives such as Jan Dhan Yojana, Aadhaar and the emergence of UPI provide a foundation for FinTech companies to reach a large segment of the customers and to cater to their needs. In 2016, technology sector saw a decrease in funding due to increased global uncertainty. The USA and Europe saw a negative trend in FinTech funding. On the other hand, investments related to financial technology in Asian region increased by around 12.5%, mainly focusing on India and China.
2020. There are various factors which are accelerating the growth of FinTech in India. These include inefficiencies in the country’s
27 | P a g e
present banking system, a large segment of the unbanked population, increase in accessibility towards internet and increase in awareness among people. FinTech can reshape the financial landscape in India in three ways- by providing better quality in reduced cost, by developing unique and innovative models of assessing risks and by creating a more diverse financial landscape. The FinTech sector found special mention in the 2017 annual budget speech, depicting that government is expected to roll out new regulations in the near future.
Majority of them are the unbanked segment which can be seen as a potential customer base for FinTech companies. Providing them with the internet is a problem. Third is the lack of infrastructure in India. Proper infrastructure is not available in India, especially in rural sector, where more than half of the country’s population lives. And last, lack of a regulatory framework. The FinTech sector is still regulated by banking regulations. Although RBI has allowed payment banks in the recent past, a lot of restrictions still remain in the path of FinTech players. RBI and SEBI should form separate guidelines for FinTech sector.
Challenges faced by FinTech industry: Despite of such a huge potential in digital technology, there are certain challenges faced by the FinTech industries in India. First, India has predominantly been cash-based economy. Almost 80% transactions in India are still been done by cash. Despite of events like demonetization, use of cashless ways are still being unable to penetrate in maximum areas. Second, there is a large segment of people who are still unable to access internet.
Despite a few concerns about regulatory clarity and reduced deal values in last year, both nationally and globally, the scope for FinTech in India remains very encouraging. Regulatory support, financial inclusion and the digitalization of services in the industry, with technologies like artificial intelligence and machine learning are likely to boost investment in the area going forward and it has a potential to completely change the future of finance in India.
28 | P a g e
Financial markets in an era of IoT, Blockchain and AI Aditya Battalwar VGSoM, IIT Kharagpur Introduction It is said that change is the only constant and I will add that change is not an option it’s a necessity, not to win the world but to survive in the world and that’s why Fortune 500 CEOs say their single biggest challenge is “the rapid pace of technology change”. We’re not victims if we are changing as per the time but certainly we are if we don’t change and later on are forced to change either by the industry or by the customers. IT trends like artificial intelligence, internet of things and big data analytics are impacting everyday work and lives of many. So how can financial market remain unaffected by disruption? AI, IoT and blockchain can play a big role in financial markets but the question is how financial companies can leverage the disruptive power of AI, IoT and blockchain and why? I will try to answer the questions throughout the article. What is a financial market? Any marketplace where buyers and sellers of securities can meet and trade. A financial market includes stock market, bond markets, money market, forex market and derivative market and the list goes on so. All market-making firms now a days uses machines that are inherently bigdata intensive and employ artificial intelligence techniques like advanced pattern recognition. IoT, blockchain and AI have the potential to reshape the financial market be it
stock market, capital market or derivative market As the CEO of 11FS and an experienced Gartner consultant at UK digital banking practise David Brear has rightly quoted, “Technological innovation will be the heart and blood of the banking industry and financial markets for many years to come and if big banks do not make the most of it, the new players from FinTech and large company surely will.” With technological disruptions occurring at a very fast pace we can safely deduce that Industry 5.0 is already on the horizon. The financial service industry has seen drastic technological changes in recent past whereas the other hand inception of FinTech start-ups has forced the organisations to focus more aggressively on improving efficiency and providing best consumer experiences. One of the concerns of the well-established financial organisations is the portfolio diversification by FinTech start-ups, earlier they focused only on payments, remittance, peer-to-peer lending and equity crowd funding sectors but now they are also venturing into capital markets. FinTech start-ups are using new technologies like blockchain, artificial intelligence, machine learning and IoT have a great potential to transform the way we perform business and align the digital business in coming years. Impact of Blockchain on financial markets
29 | P a g e
Blockchain is the combination of shared, unalterable ledger and smart contracts that fine-tune business processes and provide new opportunities for innovation. Using this technology, participants can transfer assets and capital across the internet without the help of the third party. Use of cryptography facilitates the authenticity of the individual transactions and provide a high level of security. The importance of blockchain can be understood in two aspects. Firstly, the use of blockchain could make the financial industry’s infrastructure much less expensive. Secondly, there are a lot of other uses like from financial transactions to automated contractual agreements and more. Last year, a bunch of blockchain companies obtained over $400 million in funding. According to a report published by PwC, by the start of 2016, blockchain companies had raised well over a billion dollars to fund their development and operations. However much
of the background work has to be completed with respect to resilience, scalability, security and integration. Regulations will also need to be reconsidered in the light of such a new paradigm. Industry-wide adoption and investment will follow only when the technology has been proven and the risks have been quantified. In the next 3-5 years, transaction volumes and the associated profit pools will be shifting from intermediaries towards the owners of highly efficient blockchain platforms. These transaction includes transferring digital or physical assets, protecting intellectual property and verifying the chain of ownership. In today’s dynamic business environment where stringent regulation is mandatory and there is a high risk of cyber-crime, a highly secure system for protecting and authenticating all the transactions is must and thereby blockchain will create a revolutionary impact on the financial service industry.
The Graph below shows that Blockchain technology will have significant impact on financial service industry in coming 5 years.
Greatest impact on financial services industry, by timeline* 45% 40% 35% 30% 25% 20% 15% 10% 5% 0%
1 Year from Now
Source: Fintech Survey Report CFA Institute 2016
5 year from Now
30 | P a g e
Impact of Artificial Intelligence on financial markets Artificial Intelligence is the ability of machines to work, think and react like humans. Tools like machine learning, natural language processing, deep neural networks are part of Artificial Intelligence. Though the term AI has been around for over more than 50 years but, with the recent increase in vast computing power at lower prices, combined with the ability to gain insights from big data has opened up new opportunities for organisations. According to a survey by Gartner, banking and investment services are actively investing in machine learning and virtual customer assistants. Investment banks are investing heavily in order to develop inhouse capabilities to work in the areas of compliance and fraud, security, client servicing, investment research, technical support, trading support and operational
resilience. Other application of AI in financial markets includes algorithmic trading, qualitative analysis, automated trade execution and managing risks. One of the examples of AI in action is IPSoft’s virtual agent Amelia. Amelia is used as a language processing system to read and listen to more than 20 languages, address complex inquiries and improve its customer interactions with its built-in machine learning algorithms. Amelia also uses sentiment analysis to detect a customer’s behaviour. Robo-advisers are AI based digital platforms that provide automated, algorithm-driven financial planning services with minimal human supervision. Today more repetitive tasks such as account opening and asset transferring can be done with the help of robo-advisers. Robo-advisers have a potential to save $174 billion across insurance, financial services, sales and customer service.
A study was conducted by McKinsey & Company on US Office of Personnel Management with respect to salary saving created by robo-advisers. The results are represented graphically as:
Source: McKinsey & Company estimates
31 | P a g e
Impact of Internet of Things (IoT) on financial markets Internet of things refers to objects used to collect and exchange data over a network of the internet. The IoT greatly relies on sensors to monitor and detect physical events, and on the communication of this data for decision making. In financial services, IoT can be used in payments (via smart watches and fitness trackers), insurance and banking domains. According to PwC’s 18th Annual Global CEO survey, 63% of insurance CEO believe that the IoT will be strategically important to their organisation. It is also estimated that by 2025 the IoT will generate more than $10 trillion of business and hence IoT in financial services industry seems inevitable. The benefits of IoT in Financial services are: •
Increased Transparency
• Automation of trading and investment activities •
Improved Customer Services
One of the major reasons for the increased focus of financial market companies on IoT is the increased use of devices by customers: Though IoT offers a lot of benefits there is also some associated risk. Now it is the responsibility of banks to dig deep into data management, security, and need to safeguard customer information as well as privacy. For
Example, transactions initiated with the help of smart devices like smart watches exposes critical customer data like location, which may lead to a breach of privacy. Another major risk is data security risk since banks collect a lot of information through various channels. A data breach can lead to severe losses to a bank as well as customers. One of the major factors of concern is the reluctance of smart gadget manufacturers to encrypt the data and provide regular updates. Though IoT has lot of challenges and risk associated with it but the future seems to be quite promising. According to McKinsey & company the IoT market size will be US$ 3.7 billion. One of the example of IoT in financial services is groceries by MasterCard with Samsung Family hub refrigerators. It allows customers to do effortless purchasing standing in front of refrigerators and the e-commerce companies provides delivery. The MasterCard uses NFC technology for the payment. Conclusion: Challenges because of technological disruption are forcing financial service industry to adapt to new business models as the conventional methods will no longer work. It is sure that financial services and capital markets will go through fintech driven revolution and artificial intelligence will surely lead the revolution with IoT, blockchain and data models as the key technologies.
32 | P a g e
Green Finance Ashutosh Bansal IMI, New Delhi
Introduction
Effectiveness of Green Finance
India is benefited with its vast expanse of natural resources which can be converted into renewable energy resources. Ministry of New and Renewable energy (MNRE) formed in 1992 was step taken to fulfil the energy need of India, but green finance is still under a dire need to be known by corporate due to lack of information and cost involved in it. Green finances are those investments which will only be used for green projects which help to carve out renewable sources of energy.
• Green growth is currently limited to voluntary initiatives of investors, like corporate social responsibility – the advent of green finance shall further provide motivation, the rising pressure from proenvironment organizations notwithstanding, giving a comparative advantage to first movers. • With better use and conservation of resources, operations stand to be even more streamlined and costs will be reduced. In 2011, a research study was conducted by KPMG entitled “The Corporate Sustainability”, it stated, switching to green
33 | P a g e
mode will enhance brand reputation, legal compliance, service differentiation and profitability. Employee retention: as a survey estimated, 52% of employees feel their company should do more about the environment and various environmental issues should be genuinely tackled.
products. Investments which are actually helping in the conservation of nature would be taken into account.
Green Finance Indices
Retail finance:
Green Finance Indices are helpful in identifying and grouping together companies which have strong environmental performance and will set benchmarks for green performance quality and low carbon performance. These indices provide potential to diversify, control, shortlisting according to the green criteria, assimilation of small green investments in large ones. Products which are classified as proenvironment would only be a part of the green indices. Products, projects and socially responsible activities which can be shown in financial terms can be chosen as green indices. The index where all traded commodities are considered is called commodities index, green index would be based on similar method. The advantages of investing in green finance would be to create a safe investment by diversifying in the industry and it would also have a long-term view. It would be less risky in the future because then green sustainability would be a prime concern for the companies. A filter would be used in the index for consideration of the financial
Financial Products Products which support green finance are as follows:
Customers who buy energy efficient houses or are investing in renewable energy can be provided mortgages or home loans at very low interest rates.
Green credit cards: Customers who purchase green products and services can be offered low borrowing rates and discounts by the banks. Products that are biodegradable, made from recycled material and conserve energy by promoting renewable and natural resources can be classified as green products.
Eco-Exchange Traded Fund (ETF): Under ETF, products which focuses mainly on conservation of energy and use of renewable resources are considered. The buyer only avails the benefits of the new project as the risks are not transferred to him/her.
Green bond: It is a debt instrument where the issuer raises money through investors, publicly
34 | P a g e
stating that the capital will use only in green projects. Properties of Green bonds 1. Are fixed income liquid financial instruments 2. used to raise funds dedicated to environment-friendly projects. 3. tax-exempt 4. issued by government for the development of brown field sites
Carbon finance: It gives the financial indication of living in carbon constraint world. There is price for emission of carbon dioxide and other greenhouse gases. Market instruments are used to trade the quantity of carbon that can be released by paying the price.
Shift Towards Green Model: For the growth of green business models (less carbon intensive economy): interlinking of financial products, environmental improvement and economic growth is required. new green financial products are required through which investment can be done in green industries and technologies. Green Finance can be divided into two parts 1. finance to support green growth (green loan and green funds in the capital market)
2. finance to support environmental costs
Green Projects 1. Energy Efficiency improvement and waste heat utilization projects. 2. Green Housing/ habitat- Rain water harvesting, waste management, renewable/ solar energized, sanitation, eco-friendly material. 3. Biomass energy- Bio gas, Rice husk, Sugarcane bagasse /Molasses waste. 4. Biofertilizer/ bio pesticide, Azotobactor, Trichoderma, Tricogramma 5. Rural and eco-tourism 6. Improved Jute retting technology 7. Bee keeping 8. Finance projects which address Conservation issues- Prawn hatchery, Fish seed preparation, Ornamental fisheries
Sentiment at Large in India DuPont conducted a green living survey recently in India in 12 major cities. In the survey, more than 63% of consumers were familiar with green products and among those, 85% had confidence that they are better for environment. A key point to observe was that when the same study was conducted in China and United states, their confidence level percentage was 70% and 60% respectively, lower than India. This study is evidence of feasibility of green financial products in India which will boost investments in this category.
Negatives: The first issue is that there is no structured definition of green worldwide. There is no
35 | P a g e
benchmark index to track performance of green bonds. Few points which make the industry unattractive include: Low yield (mostly under 3%), no secondary trading and difficulty in ascertaining how green a project is. In India, we often observe that the green bonds have a shorter tenor period of 10 years and a typical loan would be of minimum 13 years. This is far less than what is offered globally. Also, in our country people are risk averse and are not ready to take a risk in these bond due if ratings fall below AAA as rated by credit agencies. People have a doubtful mind-set over expected return on green finance products. Returns on green investments have to increase while the perceived risk has to decrease. If we expect a healthier return on green investments, we can hope that returns on dirty investments (like fossil fuels) decrease. Though the investors need not bear climatic risk, still in long term some investors do face risks in uncertain and unknown conditions leading to low productivity. Other risks which also play a role in deciding the investment include regulation risks, country risk, awareness risk, climate litigation risk etc. We also observe other barriers which exist are price distortion in green energies, institutional barriers, high transaction costs, high financing costs, operational issues and efficiency constraints.
Green Finance Viability in India India has a strong financial system, including banks, financial institutions, non-banking
financial institutions, venture capital companies etc. All these groups cater the needs of the society or economy through various schemes of any sector. For example, SIDBI has taken many initiatives to promote MSME sector. There has been growing concern on environmental degradation caused by industrialization and realization of corrective measures to protect the environment. Globally there is an actual motion in the green finance sector. In India, too it is an adopted agenda. We are also looking ways and means to grow our green finance market. Indian Prime minister has made aspiring pledges on renewables. Financial regulators are getting finalized its official green financial instruments as a valuable tool for meeting India ‘s pledges at CoP21. In 1992, Indian Renewable Energy Development Agency under Ministry of New and Renewable Energy, had taken several measures to enhance the potential of renewable energy resources with an aim to develop and deploy supplementing the energy requirements of India. For a long term, it was difficult for the domestic banks to lend to renewable sector due to various risks associated with it like credit risk, legal, technological, reputation risk etc. But now, due to government’s changing priorities and growing awareness and the inevitability of renewable to supplement India’s energy mix, the banks are funding these projects
So, What Will Green Finance Help Achieve in India? India has set an aim to an ambitious target of generating and building 175 GW of
36 | P a g e
renewable energy capacity by the year 2022. Innovative and low-cost financing is required to achieve this aim. Constraints like budget allocation have been hampering the growth. Indian commercial banks offer 10-year at interest rates of around 12% for loans to renewable energy plants. Such high costs are highly unfavorable for the sector and therefore is a big financial barrier to its
development. There are studies, which suggest that funding renewable projects with Indian government backed green bonds could lower the cost of clean power by as much as 25%. Our domestic banks like IDBI, ICICI, IFCI, SBI and PNB have started providing assistance to our green sector. An early bird that taps into these opportunities stands much to gain.
37 | P a g e
CALL FOR ARTICLES Finance and Investment Club of IIM Rohtak invites articles from all Business Schools across India. The article should be original and should be related to finance and economics. All the reference should be cited and sources of images should be mentioned clearly. The winner of the article of the month will get Rs.300/- with an ecertificate. All the other selected articles will be published in our magazine ARBITRAGE Instructions: 1. 2. 3. 4. 5. 6. 7. 8.
Please send your articles before 25thMay, 2018 on www.dare2compete.com Do mention your NAME, INSTITUTE and BATCH with your article Font: - Times New Roman, Size: - 12 in word .doc/.docx Please DO NOT send PDF files and kindly stick to the format Number of authors 2 at max Maximum Word Limit: 1500 words, Minimum Word Limit: 500 words Naming Convention: Name1_Name2_CollegeName.doc Any Image without the source or label will not be accepted
IMPORTANT: The article should be original and should not have been/should not be published elsewhere. You will be disqualified if you violate the same.
38 | P a g e
Finance and Investment Club Indian Institute of Management Rohtak
Disclaimer: The views and opinions expressed in this magazine are those of the authors and do not necessarily reflect the opinion of the stakeholders of IIM Rohtak.
39 | P a g e
All Rights Reserved Finance and Investment Club Indian Institute of Management Rohtak For any queries/feedback/comments mail to fi@iimrohtak.ac.in Website: https://fi9522.wixsite.com/home
http://www.iimrohtak.ac.in/ Follow us on Facebbok https://www.facebook.com/FIclub.IIMRohtak/