1
EDITOR'S NOTE Dear readers, The month of August witnessed jitters across the economies from China to Greece to India. In China , the devaluation of Yuan has created the sense of instability in the minds of the investors which leads to outflow of funds across emerging frontiers back to the safe heavens of developed economies. The weak demand in China also affected the commodities prices to plunge to all time lows which had repercussions in the stock markets as well. In India, the government has continued its trend of bringing structural reforms wherever necessary.In the banking sector the GOI has brought a set of reforms "Indradhanush" with the aim to revive the plight of PSU banks which are reeling under the poor governance framework. Also RBI has given a push to the present government’s dream of financial inclusion by permitting 11 out of 41 financial institutions to operate as payment banks. It will be very interesting to see how these reforms eventually turn out. Our Cover story for this edition talks about upto what extend is the RBI stand on inflation justified, what implications does it have on the economy and does it actually make any difference as far as economic revival is concerned. Under the Economic section we have tried to visualize monetary policy through ISLM framework and tried to figure out the practical implications. The faculty section gives the insight of the change in investor's perspective in order to diversify his portfolio and what triggered him to move towards pre-emerging economies from Emerging frontiers. It gives me immense pleasure to declare Arpit Nikhra from IMT Ghaziabad as the winner of CALL FOR ARTICLES. This was the first time that we have expanded our reach across other B schools of the country and the response we have got is overwhelming. I would also like to thank all our readers, Faculties and seniors for their constant support and encouragement.
Abhimanyu Singh Chauhan
2
CONTENTS 02
24
EDITORS DESK
FACULTY SECTION
04
26
COVER STORY
ALUMNI SECTION
12
28
ARTICLE OF THE MONTH
NEWS BUZZ
19
32
ECO
TRIVIA
SECTION
FACULTY INCHARGE: DR PANKAJ TRIVEDI TEAM: Abhimanyu Singh Chauhan, Shreya Gupta, Tamoghna Das, Abhijit Khadilkar, Prateek Singh , Partha Banerjee,, Rishi Teckchandani, Gunjan Pathak
DESIGN: Rohit Prabhakar, Prateek Singh, Geetanjali Rai
3
COVER STORY Is Inflation Targeting Plan of RBI justified or not?
BY—SHREYA GUPTA &
ABHIJIT KHADILKAR What is Inflation targeting? Inflation targeting is a monetary policy in which a central bank has an explicit target inflation rate for the medium term and announces this inflation target to the public. Raising interest rates usually cools the economy to rein in inflation and lowering interest rates usually accelerates the economy, thereby boosting inflation. The Reserve Bank of India (RBI) is adopting inflation targeting as a guide to its monetary policy to maintain price stability and control over the exchange rate in the economy by lowering the inflation rate. The RBI on agreement with the Ministry of Finance is aiming to bring down the inflation rate to 4% (plus or minus 2%) in the Indian economy in the following years. The inflation rate in India was recorded at 3.78 percent in July of 2015.
Why Inflation Targeting is necessary? For a vibrant economy it is good to have moderate inflation since it maintains the liquidity in the economy by keeping money moving through the system and avoids stagnation. Moderate inflation can boost growth and can indirectly result in more productivity. It also enables adjustment of relative prices. However, inflation in India is one of the burning problems since there is a vast disparity between the rich and the poor. Until Recently, India was the EME (Emerging Market Economy) with double digit inflation so it was necessary to bring the number 4
down to single digit because inflation hurts fixed income groups like salaried people, pensioners and poor people as their purchasing power gets reduced due to fall in value of money. Positive Implications of Inflation Targeting in India: Inflation targeting is forward looking as this would encourage a focus on future, rather than past price trends. It would lessen volatility in international capital flows into India and support institutional strengthening via accountability. Inflation rate influences price setting of the enterprises as it is the future cost which would be added in the operational cost of the enterprises. So if inflation targets set by RBI are perceived to be credible, they form the basis for future price and wage setting. Target once set, remains consistent which helps in improving co-ordination between different economic policies.
Negative Implications of Inflation Targeting in India: If the RBI increases interest rates with a view to controlling inflation, it can do so only by slowing down demand, which means growth will be inevitably affected. Conflicts would arise between the RBI and the government if the government follows inflationary policies and later leaves it to the RBI to tackle the problem of inflation. RBI will be considered to have failed if inflation exceeds 6% for 3 consecutive quarters from 2015-16 and if it falls below 2% for 3 consecutive quarters from 2016-17. Developing economies like India dramatically get affected by external shocks. Periods of high inflation in future could lead to re-evaluation of targets and forecasts which may have disastrous effects on the credibility of the RBI.
Strategies adopted for Inflation targeting by RBI: By raising Repo rate: Repo rate is the rate at which banks borrow funds from the RBI. The repo rate is linked to the interest rate borrowers pay when they take loans from banks because the latter always charges higher interests than the existing repo rate. When the repo rate is raised, banks are compelled to pay higher interest to the RBI which in turn prompts them to raise the interest rates on loans they offer to 5
customers. The customers then are discouraged in taking credit from banks, leading to a shortage of money in the economy and maintaining the liquidity.
By increasing CRR(Cash Reserve Ratio) Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with RBI. By increasing the CRR, The RBI drains out the excessive money from the banks and decreases the purchasing power of the consumers thereby decreasing the liquidity in the economy.
Raise MSF(Marginal Standing Facility) rate/ Narrowing Repo Window: Marginal standing facility is a daily window through which banks access funds in urgency but at a higher rate than the repo rate. This facility has been of use to banks since the RBI narrows the repo window in order to tighten the liquidity. Even the largest lender, the State Bank of India, which is usually flush with liquidity can be forced to borrow MSF money after squeezing of the repo window by RBI. The increase in MSF rate pushes up the short-term rates in the economy and which leads to low liquidity.
Strengthening the Rupee: The RBI also buys dollars from banks and exporters, partly to prevent the dollars from flooding the market and depressing the dollar — indirectly raising the rupee. In other words, RBI sells sterilization bonds instead of rupees to pay out for dollars. 6
Increasing the reverse repo rate: Reverse Repo rate is the rate at which Reserve Bank of India (RBI) borrows money from banks. An increase in Reverse repo rate can cause the banks to transfer more funds to RBI due to this attractive interest rates. It can cause the money to be drawn out of the banking system therefore decreasing the liquidity in the economy. Implementation and adoption of Inflation Targeting in other countries: In 1990 New Zealand was the first country to implement Inflation Targeting which
subsequently influenced several other economies in emerging markets like Australia, Brazil, Canada, Chile, Mexico, Sweden and UK to adopt this strategic framework. We will study Inflation Targeting adopted by some of the developing economies of BRICS countries and its implications.
Inflation Targeting in South Africa: Inflation Targeting has been a positive experience in South Africa since its inception from February 2000. One way of looking at it is to compare the outcomes of the preand post-inflation targeting periods. Before inflation targeting was adopted, inflation averaged 9.7 per cent, and this declined to 6.3 per cent in the full inflation targeting period. The average GDP growth improved from 1.6 per cent to 3.3 per cent as well. The data shows that inflation targeting has been consistent with an average inflation rate lower than in the previous decade which is accompanied by lower volatility and lower nominal and real interest rates.
7
Learnings: Compared to other emerging markets, South African rand is relatively stable as South Africa has relatively low dollar denominated debt therefore making it less susceptible to exchange rate volatility. South Africa has a proven track record for both the prudency of its fiscal policy and the stability of its financial institutions which is a prerequisite for the success of Inflation Targeting. The small size and lack of diversity in the South African economy leaves it more susceptible to external shocks and low investor confidence but South African bank has maintained the credibility by practicing conservative and prudent monetary policy. Many reforms were made by publishing detailed conditional forecasts and expected paths of policy instruments which in turn increased the transparency of the monetary policy making Inflation Targeting a huge success.
8
Inflation Targeting in Brazil: Brazil adopted Inflation Targeting in the year 1999. Inflation targeting has definitely helped Brazil to be back on the track since the crisis and hyperinflation of the 1980s and 1990s. However, the inflation has consistently remained above the upper limit of the tolerance range of 6.5% because the Brazilian Central bank has not been successful in achieving its target of 4.5% set since the year 2005.
Learnings: Brazil is one of the countries in the world where Central Bank is still subject to political interference and does not enjoy its full independence. (A similar situation could arise in India in future) From 2011 through 2014, in order to boost growth, government of Brazil reduced taxes, encouraged public spending by flooding Brazil with consumer credit. However, this effort was in vain as it could not boost growth and instead fueled inflation because of increasing debt and widening budget deficits. 9
Over the past 2 years, Brazil’s central bank has raised interest rates multiple times in an effort to bring inflation down (Benchmark Selic is at 14.25%). But the problem is Brazil’s economy is on the brink of recession. Between 2002 and 2008, Brazil’s economy expanded at 4% a year. Since then it has averaged less than 2%. The combination of slow growth, rising prices and high interest rates is hurting the country in a big way. Brazil is an open economy and is susceptible to exchange rate volatility since its liabilities are dollarized and it employs floating exchange rate regimes. Inflation Targeting has not been a success in Brazil as volatile exchange rates generate frequent changes to inflation rates. Inflation targeting has been unsuccessful in Brazil because demand shocks dominate over supply shocks and there is a large mismatches between foreign currency assets and liabilities. Our Analysis about the implementation of Inflation Targeting in India: It is a proven fact that the adoption of Inflation targeting has helped most developed
countries reduce their inflation rates successfully. Also, it fosters the transparency and effectiveness of the central bank (RBI), thus allowing it to carry out its monetary policy with greater ease. After implementation of inflation targeting in March 2015 by RBI, Inflation in the month of July 2015 has touched an all-time low of just 3.78%. However, this decline in inflation rate was also due to various reasons like major slump in food prices, falling crude prices and moderate monsoon boosting the agricultural enthusiasm. However, it is mainly designed for countries where the inflation is due to demand factors, whereas in India, it is the supply side factors which are causing inflation. The major reasons for inflation in India have been agricultural issues due to irregular monsoons and the huge imports of oil in the country. Also, food and beverages constitute 54.18% of the CPI .Food inflation in India is typically caused by disruptions in supply (majorly due to the weather). Take the recent case of rains hitting North India. This has had a dramatic impact on vegetable supply in New Delhi, and led to higher prices. The RBI cannot tackle inflation in a situation like this. Another important argument to support the possible failures of inflation targeting plan is that RBI cannot affect the fiscal policy of the country. For example – if government levies high excise duty on petrol and crude oil prices then the RBI cannot control this kind of inflation. And in situations like these, monetary policy is more or less useless since raising interest rates will reduce growth without impacting the source of inflation. Another issue with adopting the Inflation targeting plan would be that the transmission mechanism in the country is not very strong and there are a lot of problems involved in that as well. India is a developing country and the policy makers cannot be 10
very sure of whether their efforts would yield the desired results. All these factors again suggest that right now India is not ready for inflation targeting. India’s monetary policy needs to be improved on a number of levels, such as: A) release of economy’s outlook B) people’s expectations and preferences at a regional level C) detailed information on NPAs D) details of exchange rate management by RBI E) estimates of the real interest rate and liquidity in the market.
Government’s fiscal policy has close and immediate relationship with aggregate demand. Fiscal dominance is very often a key inflation driver in emerging market economies (EMEs) including India. It can negate monetary policy effort and potentially undermine the credibility of central banks. Therefore, Inflation targeting will work only if the government implements sound fiscal policy on the lines of RBI’s monetary policy. Both fiscal policy by government and monetary policy by RBI must go hand in hand in order to maintain the targeted inflation as well as ensure long term growth.
11
ARTICLE OF THE MONTH
The Rise of Microcredit in India-Banking the Unbanked ARPIT NIKHRA IMT GHAZIABD
“ If you can run a bank, lend money, and get it back and cover all costs, and make a profit, and people get out of poverty, what else do you want? “ Mohammad Yunus, Micro-credit pioneer, Nobel Laureate
Introduction The above lines accurately state the Indian Banking dream: Alleviating poverty through Financial Inclusion, making banking system efficient and taking banking facility to each Indian. Indian banks and financial institutions have evolved in the way banking services are delivered. From their inception the primary focus has been to take the banking services to each Indian. But the creativity in the ways of implementation has been less effective when it comes to ease of credit access to ordinary Indian citizens. According to a new IMF survey released this year, India is still the most unbanked country as compared to other emerging nations. Still the access to credit in India is difficult as compared to other emerging nations. The chart below shows that out of every 1000 Indians only 147 have loan accounts. This is an indicative of how less the availability and utilization of credit facility has been by the Indians.
12
Source: IMF data
The current state of unutilized credit facility can be primarily attributed to the remoteness of major section Indian population residing in villages. Besides, the absence of identity establishing documents and lack of collateral to secure the loan holds back majority of loan borrowers. This primarily leads to private borrowing at high interest rates.
Small Borrowings and Micro-Credit Lack of options for credit facility has given a way for Non-banking Financial Corporation (NBFCs) and NGOs to act as a facilitator for credit in rural. The concept of Micro-credit came into existence with small loans being offered to the poor without any collateral, steady employment and verifiable credit history. Ease of credit and easiness of securing a loan defines the very essence of micro-credit. The emergence of micro-credit as source of credit is helping rural India continue with their entrepreneurial spirit and fulfill monetary needs. 13
Major potential of micro-credit is towards rural development and poverty elimination. This form of credit instrument is particularly important for emerging countries like India where small loans are needed frequently by rural and impoverished urban population. Hence, Micro-credit brings in the advantage of catering to large volumes of small loan seekers. This results in an efficiency of credit delivery facility and overall banking system.
Types of Organizations and Composition of the Sector Micro-credit providers in India are mainly under the following three broad categories: Formal, Semiformal and Informal. India’s Leading MicroFinance Institutions
Crisil Report 25 leading MFIs
14
Micro-credit Sector Analysis The Micro-credit revolution began in India in 2010, and after the Andhra crisis has steadily risen into growth phase. From the year 2012, the loan assets of Micro-credit firms have grown at an annual CAGR of 40%. The leading research firms such as Crisil believe that the trend will continue but the growth however will moderate in the long term to around 30%. The asset base in microfinance market is constantly growing primarily due to the initiatives of the government towards achieving greater financial inclusion. MFIs have reached to the grassroots to fulfill the economic needs of the poor. The success of the Micro-credit institutions have pushed the traditional banks enter into the Micro-credit market. This additionally helps banks meet their target of providing credit to the people allocated in sector division of mandatory credit target as per government policy statements.
Source: Crisil Estimates The above figures 1) excludes the loan assets of MFIs opting for restructuring debt 2) FY Mar-11 witnessed a major dropdown due to major upheaval caused by Andhra Government Ordinance 3) The figure includes managed Assets
15
Funding of Indian Microfinance For providing credit the Micro Finance Institutions (MFIs) have to raise capital. The Indian Micro-credit sector obtains funds from debt as well as equity capital with the former dominating, about three fourths of the capital is raised from debt financing. Securitisation of the microfinance portfolio is the ideal source of funding for MFIs since it is very much difficult for them to access the mainstream capital market due to small scale of operations.
16
Recent trends have shown a growing investor confidence as well as increased capital strengthening of MFIs. This is an indication of increasing interest and rising confidence among investors in microfinance to deliver. Adopting the securitization routes has also helped in greater trust of individual investor organizations by providing transparency to the operations of Micro-credit firm Recently, the Net worth of the MFIs has increased at approximately constant pace. Increase in Net worth indicates that the MFIs have been raising capital to bridge the gap between demand for credit and supply of credit. Current situation indicates the adequate availability of capital, however the strengthening the quality of the assets has to be paid more attention to maintain the long term sustainability of the Micro-credit model in India.
Quality of Assets The Asset quality of Micro-credit firms has structurally strengthened, but these still remain susceptible to the sensitive social factors. The ordinance passed by Andhra Government in 2010 and subsequent fall in the micro-credit loan assets have made the sector cautious of the changing social as well as political scenario. However, the increasing support from the central bank and government to the sector has helped build in the confidence. Also, the reforms implemented to regulate the sector have given more transparency and a formal architecture to the initial informal private lending by Micro-credit firms. 17
Last Word The Indian banking sector is seeing a tipping point wherein the boundaries of banking are being redefined. Getting new and innovative methods of providing credit facility is a right move towards increasing the domestic consumption to achieve higher GDP growth. India has major proportion of small business and domestic households who have to approach the “loan sharks�. Micro-credit firms have come to the rescue of these small loan borrowers by helping secure loans at competitive rates. This has further restricted the informal private lending where very high irrational interest burden is put on the small loan borrowers. Including Microfinance as a part of mainstream banking is certainly the right move towards enhancing the vicinity of banking premises. The rise of Micro-credit firms presents an overall good outlook for the banking sector but the assets quality and sourcing of funds for loans have to be maintained. Regulatory frameworks and agencies have to ensure that the outcomes of this source of credit are on the positive and small loan borrowers do not get into a habit of regular default .Higher defaults can imperil the growth story of Micro-credit firms since they have no collaterals to recover losses. The Bangladesh story of Micro-Finance suggests what the rise of Micro-credit firms can bring about in a nation striving to achieve prosperity for its citizen. Recent rise in the number of Micro-credit firms will bring in competition in the sector in which the small loan borrower would turn out to be the winner. However, this growth story has to be regulated so that ordinary loan borrowers do not fall prey to the Micro-Credit firms.
18
ECO SECTION MONETARY POLICIES: AN OVERVIEW USING THE IS LM Model Prateek Singh PGDM-FS Batch 2015-17 Partha Sarathi Banerjee PGDM (Finance) Batch 2014-16
Monetary policy is the macroeconomic policy laid down by the Central Bank. It involves management of money supply and interest rate and is the demand side economic policy used by the government of a country to achieve macroeconomic objectives like inflation, consumption, growth and liquidity. In India, monetary policy of the Reserve Bank of India is aimed at managing the quantity of money in order to meet the requirements of different sectors of the economy and to increase the pace of economic growth. In this paper, we will explain Monetary Policy in the IS-LM Framework. The IS-LM Model assumes the economy consisting of only two markets; Goods Market; the one in which all the purchases of goods and services occur and the Money Market; the one in which the purchases of all the financial assets take place. In this model the National Income is determined depending on the behaviour of the people in the Goods Market and the Money Market. In its graphical form the model the simultaneous equilibrium, the point at which the goods and the money market are in the equilibrium or the IS and LM Curve intersect leads us to the Aggregate Demand or the National Income which is the locus of all such points showing the different level of output for different levels of Prices. The IS (Investment and Savings) Curve represents the different combinations of the Income and the Interest rate where the goods market is in the equilibrium. Goods market requires that the Output is equal to the Aggregate Spending; Y=AD. The IS Curve equation is written as:
Y=C + I-ib + G + (X-M). While the IS curve is plotted for Output denoted as Y and Interest rate.
19
The curve is downward sloping because the Interest rate varies inversely with the Investments as the cost of borrowing funds increases so the overall Output Y comes down as factor I come down.
The LM (Liquidity or the Money Supply), the LM curve represents the different combination of the Income and the interest rate at which money market is in the equilibrium. Equilibrium in the money market requires the Demand for the Money = Supply for the Money. Demand for the money is the liquidity preference and the equation for the LM curve is written as
L = kY –Hi, where K & H are positive constants and they measure sensitivity of de-
mand for money due change in the Income and Interest rate especially. The LM curve is positively sloped and like the IS curve it also plots the Output or Income to the Interest rate.
The LM curve has a positive sloped; As income increases, people tend to hold more as their demand increases; but as the money supply is constant so to absorb excess money in the market the rate of interest increases. So the Income and the rate of interest move simultaneously together.
20
EQUILIBRIUM and Aggregate Demand
Equilibrium Point (A)– At this interest rate there is simultaneous equilibrium in the goods and the money market. The process of adjustment in the case of the disequilibrium involves the change in the rate of interest and Income
LM Curve Equilibrium 1
The Aggregate Demand Curve from the IS LM Equilibrium.
The Simultaneous Equilibrium points of the IS-LM help in determining the Aggregate Demand of the Economy, which is the locus of all the simultaneous equilibrium points
Now how this equilibrium will get impacted due to the monetary policy. The monetary policy gets affected due to the following variables:
CRR
SLR 21
Repo Rate
Reverse Repo Rate
Open Market operations RBI
Interest Rates
Now generally the monetary policy is altered to tackle the prices and the output. THE MONETARY POLICY DURING RECESSION
During the period of recession the investments are low, the demand is less, the profits go in the declining phase, and the unemployment level rises. So the RBI tries to pump in the money into the economy so the impact is analyzed below in the IS and LM curve. Since the Money market is altered there will be no change in the goods market so IS Curve will remain at the initial level. The diagram below shows:
The RBI could use any of the
variables mentioned above. To pump the money into the economy the RBI can lower the Cash Reserve Ratio, the banks will have more money to lend thus there will be more funds to borrow for the investments which will increase an employment. Thus the Aggregate Demand will increase increasing the other economic variables like Prices, Profits. Eventually the economy will come out of the recession. This can be illustrated from the graph below.
22
The other ways by which the RBI can increase the Money supply in the Economy will be the Repo rate: The RBI can lower down the Repo rate and thus will facilitate easy or cheaper credit to the banks; they can also use a lower SLR or Statutory Liquidity Ratio so that the banks have more funds to loan out for investments. MONETARY POLICY IN CASE OF A BOOM or To Tackle INFLATION During the inflation the Price level in the economy is high. The amount of money circulating in the economy is high. So the buying power of the currency decreases. So in the case of the Economy facing a high inflation the RBI adopts the monetary policies to suck the money out of the economy. They can do it by using the various variables. CRR (Cash Reserve ratio), they can increase the Cash reserve ratio thus the banks will have lower amounts of funds to loan out to the economy; similarly they can increase the SLR. The interest rates; RBI can increase the interest rates this will make the borrowed funds costly thus people will be discouraged to borrow fund, and Increase in the Interest rate will make the Saving more enticing. Also government can indulge in the Open market operations; people buy bonds for money so the amount of money in the economy decreases this checks the Inflation. Graphically it is shown below:
23
FACULTY SECTION
First BRICS, now MINT: New International Portfolio Diversification Opportunities - Dr SHALINI TALWAR - ASSOCIATE PROF. FINANCE International Monetary Fund (IMF) classifies world economies as Advanced (AEs), Emerging (EEs) and Frontier or Pre-emerging Economies. For a long time, AEs have been the first choice of international investors as they offer both safety and stability. However, these mature markets with more efficient pricing, no longer satisfy the aspirations of international investors seeking higher returns and more diversified holdings. In the recent past, EEs with their fast-growing financial markets have become a key attraction for international investors seeking both diversification and higher returns. These economies have recorded substantially high growth rate as compared to the advanced economies. There is no doubt that these markets offer high returns but they come with a higher degree risk due to evolving political situation, exchange rate volatility, poor infrastructure, corporate governance issues and lack of liquidity & depth in both equity and debt markets. High risks notwithstanding, the emerging markets have become the focus of attention of global investors. In fact, Morgan Stanley Capital International (MSCI) has designed an index for equity market performance in emerging markets to serve as an indicator for international investors. This float-adjusted market capitalization index comprises 21 emerging economies including Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand and Turkey. As a sign of the growing importance of these economies, Terence James O’Neill, from investment bank, Goldman Sachs, in his paper titled “Building Better Global Economic BRICs, ideated the acronym BRICS (Originally, Brazil, Russia, India and China to which South Africa as added later) in 2001. Rest, as they say, is history. The unprecedented flow of international capital to these economies and their growing economic stature in the global economy is a testimony of a shift in power equations. Not to be satisfied with emerging markets alone, the global investors are now exhibiting keenness to explore even the frontier economies whose equity markets are small and less accessible, but are considered "investable" due to their fast-growing economies and huge potential returns. The countries classified as frontier countries are Bangladesh, Kenya, Nigeria, Mozambique, Vietnam, Bolivia, Ghana, Honduras, Mongolia, Senegal, Tanzania, and Zambia. 24
The pre-emerging markets have caught the fancy of international investors chasing high returns to such an extent that they are willing to accept the higher risks these frontier markets are exposed to. In addition to risks like political instability, exchange rate fluctuations and lack of depth in financial markets that are far more exacerbated in frontier economies, there are also risks associated with inadequate regulations, inconsistent financial reporting and lack of transparency and governance. However, as mentioned above, these risks are not deterring the venturesome international investors. Probably the low correlation that the frontier markets have with the developed markets is working to their advantage as they can provide true benefits of a well-diversified portfolio to international investors. A vote of confidence in these markets has been in the form of ideation of “MINT�, again by O'Neill. MINT represents a group of economies that includes three emerging markets, namely, Mexico, Indonesia and Turkey along with one pre-emerging market, namely, Nigeria. These sure are signs for analysts and portfolio managers that cannot be ignored.
25
ALUMNI SECTION
A Glimpse of My Role at Marsh India -
Paridhi Dixit I am of the opinion that three months in a job is a very small duration to share as a job experience, however here I am penning down the same because of two reasons: We undergo hundreds and thousands of experiences every minute while we are at work, right from our conduct, to meeting new people, understanding processes and systems etc. – from that point of view, three months is a long time. Finstreet and SIMSR are close to heart. When Abhimanyu asked me to write a piece, I thought even though miniscule but if my experiences could help even a handful of you, it would be an honour for me. I work with Marsh India Insurance Brokers Pvt. Ltd (Pune Office) as a Risk consultant. It is a wholly owned subsidiary of Marsh & McLennan Companies, a global professional services firm offering clients advice and solutions in the areas of risk, strategy, and human capital. With 55,000 employees worldwide and annual revenue exceeding $12 billion, Marsh & McLennan Companies is also the parent company of Guy Carpenter, a global leader in providing risk and reinsurance intermediary services; Mercer, a global leader in talent, health, retirement, and investment consulting; and Oliver Wyman, a global leader in management consulting. Marsh India visited the campus in the first week of October and there was a comprehensive selection process comprising of GDs and GIs (Group Interviews) to basically test the leadership skills of candidates and their attitude towards learning. The final round involved a PI with the CEO Mr. Sanjay Media which had a thrill of its own! Currently the scope of my job includes Multinational Client Servicing- as the name suggests, it is a client facing role so apart from the content of insurance advices we 26
provide, what matters is the ability to articulate the same. This is something I am learning. Every day I interact with new corporates with new set of problems and provide them the right set of solutions (Fire policies, Marine Policies, Public Liability Covers, and Group Medical Covers etc.).Part of the job also includes interacting with the Insurers and negotiating the terms of the policies. It is a highly competitive market and hence the work doesn’t stop at just providing a gapless cover. Once a client is booked with us, to keep the clients we have to make sure that we provide them with excellent servicing. Yes there are career goals, targets and excel sheets too but given good mentorship and a good team, one can manage well. It is not typical finance or a marketing role. General Insurance is a completely new industry for me (I don’t even recall having any insurance subject/electives during MBA) and I’m sure it will be for you when next year some of you would join in. All I can say is- If you have an open mind, you’ll learn Regarding placements- it may sound clichéd, but the best advice is don’t go by anyone’s advice. Not until you do something, can you say if you like it or not. Also, preferences may be different. For some the quality of work may be a priority, for some it maybe the monetary part of it. Each of us is unique and I’ll just urge you to have a mind of your own and not be driven by the crowd or the pressures of placement season. Ten years down the line it won’t matter if you got a job on day zero or the last day. What will matter is how you grew and what you made of yourself from where you started. It is an ongoing journey, which has just begun for me and since it is soon going to begin for you I am just sharing my experience so that it gives you a real picture! Having said all of this, I am so jealous of each of you sitting in college or hostels right now because that truly is the best of times. SIMSR is a treasure, enjoy it to the fullest and take away as much memories, knowledge and experiences as you can. All the very best guys, you can write to me at – paridhidixit13@gmail.co for any kind of queries or feedback Cheers!
27
NEWS BUZZ Yuan Devaluation by China China’s central bank devalued the country’s currency, the renminbi, by about 4.5% depreciating the values for 3 consecutive days starting 11th August; against the U.S. dollar. It was the biggest one-day move since the renminbi, or Yuan, officially de-pegged from the U.S. dollar in 2005. The yuan maintains a close relationship with the dollar and trades 2% in each direction from a midpoint selected by China. That midpoint went from 6.11 Yuan per U.S. dollar to 6.22. Did China do this to achieve export competitiveness or to gain a global currency competitive advantage with the strengthening of the USD???
Govt launches mission 'Indradhanush' to revamp PSU banks. Finance minister Arun Jaitley on 14th August launched a seven pronged plan-- Indradhanush--to revamp functioning of public sector banks. The seven elements include 1.
Appointments,
2.
Board of bureau,
3.
Capitalization
4.
De-stressing,
5.
Empowerment
6.
Framework of accountability
7.
Governance reforms.
28
Banks board of bureau will replace existing appointments board. Its members would be appointed in the next six months to be headed by the RBI governor. Under recapitalisation plans for Public Sector Banks , SBI will get the highest Rs 5,511 cr, followed by Bank of India at Rs 2,455 cr, IDBI at Rs 2,229 cr, PNB at Rs 1732 cr and IOB at Rs 2009 cr.
Reserve Bank of India suspends licences of Religare Finance, 6 Other NBFCs. The Reserve Bank of India (RBI) suspended licences of seven non-banking finance companies, including Religare Finance, which the company said is a dormant entity and would not affect its business. The seven companies include Religare Finance, Eden Trade & Commerce, Artisans Micro Finance, Nott Investments, RCS Parivar Finance, Swetasree Finance, Dewra Stocks & Securities. Religare Enterprises, the holding company of the group, said its lending operations continues under Religare Finvest. There are around 12,000 NBFCs in the system. RBI has the power to cancel licence if the companies do not fulfil various norms including minimum net owned funds.
Finance Minister Arun Jaitley launches mobile wallet app 'Buddy'. Union Finance Minister Arun Jaitley on Tuesday launched State Bank of India's mobile wallet app - SBI Buddy - in collaboration with Accenture
29
and MasterCard. The State Bank of India (SBI) app will be available in 13 languages. The app will be available to all customers irrespective of the bank the customer is banking with or the card the customer is using. It is available on Google Play Store, at present, and soon will be launched on Apple App Store. The mobile app has features like money transfer to registered and new users, reminders to settle dues, book movies, flights and hotels. It can also be used for transferring additional cash into an account of one's choice free of cost, recharge and pay bills instantly, among other features.
Greece and lenders agree new bailout deal, finance minister says. The Greek government announced it has struck an ambitious bailout deal with creditors aimed at securing around €86bn (£61bn) over three years in return for radical economic reforms to be pushed through parliament as early as this week. News of the agreement after a marathon 24-hour negotiating session at Athens’ Hilton hotel promptly triggered scepticism in Berlin, where the deputy finance minister said fundamental questions on Greece remained to be answered.
Payments banks: With India Post getting RBI nod, India’s biggest bank for poor is in the making. The Reserve Bank of India (RBI) has chosen just 11 out of 41 applicants to set up payments banks in the country. Payments banks are institutions that will offer most of the banking services except loans and credit card products to retail customers. Customers can deposit money up to Rs 1 lakh in these banks, transfer money, make payments and buy financial products such as insurance and mutual funds .This will act a major stimulus for financial inclusion plans of the government. 30
The Reserve Bank of India has decided to grant “in-principle” approval to the following 11 applicants to set up payment banks:
Aditya Birla Nuvo Limited
Airtel M Commerce Services Limited
Cholamandalam Distribution Services Limited
Department of Posts
FinoPayTech Limited
National Securities Depository Limited
Reliance Industries Limited
ShriDilip Shantilal Shanghvi (Sun Pharma)
Shri Vijay Shekhar Sharma (PayTm)
Tech Mahindra Limited
Vodafone m-pesa Limited
31
Bill Gates told his Harvard University professors that he would be a millionaire by age 30. He became a billionaire at age 31.
Until the US Federal Reserve was created in 1908,individual banks could create their own
The world’s first bank was Monte Dei Paschi di Siena, founded in 1472 and headquartered in Tuscany, Italy, It still operates today.
JP Morgan’s uncle James Pierpont wrote “Jingle Bells” in 1857.
32
Zimbabwe has experienced the worst inflation in the world-6.5 sextillion percent in November,2008
With only a 1 in 100 chance of having a nonfatal injury or illness, the financial sector is the safest job area out there!
.
Where does the term "check" or "cheque" come from? It's derived from the game of chess. Putting the king in check means his choices are limited, just like a modern day cheque that limits opportunities for forgery and alteration.
33
“Start with a dollar. Double it every day. In 48 days you'll own every financial asset that exists on the planet — about $200 trillion.”
Who made the first credit card? The first credit card came out in 1951, produced by American Express
There are only 5 currencies in the world that have unique symbol to represent them. These are US Dollar, Yen, Pound, Euro and Indian Rupe (latest addition). Of these only the pound sterling has its symbol printed on the notes.* (Question to be checked)
When Pakistan was in its infancy after India-Pak separation in 1947, they used Indian currency with "Pakistan" stamped on it for the first few months till there was enough circulation of Pakistani notes.
34
35