Finly April 2020

FINLY| April 2020 | Finstreet | SIMSR

From the Editor’s Desk

Dear Readers,

Greetings from the editorial team at Finstreet. For the past several years Finly has been informing, engaging, inspiring and entertaining a diverse readership ­­ including alumni, faculty, staff, and students at KJ SIMSR by presenting an intimate, timely and honest portrait of the key activities and events in the Indian and Global economy.

We are proud to unveil the April edition of our monthly magazine FINLY for the academic year 2019­ 20. Our Cover Story helps us in a critical evaluation of the performance of a telecommunication giant­ Vodafone­Idea where the authors have taken into consideration several financial and economic parameters. Next in line, is the Eco Section, which analyses in detail the economic impact caused the Covid ­19 and certain remedial measures which can be taken to boost the economy. In the Sector Analysis, the authors inspect the Logistics industry, with an in­depth analysis of the market structure, growth drivers and challenges faced by the sector. This month's Intriguing indeed covers the impact of the fintech revolution on the Banking industry, covering aspects of RPA and it's implementation in the Banking domain and risk involved.

We express our gratitude to Prof. (Dr.) Pankaj Trivedi (Course Coordinator, PGDM Core, and Faculty Coordinator, Finstreet) for providing the essential mentoring, support and backing to the Finly team.

This month's call for article competition received an overwhelming response with high­quality articles coming in from various top management colleges across the country. We thank each and every participant for their sincere efforts and participation. This month's winner's article is a recommended read.

We thank all our readers and faculty members for their constant love and support. Your reviews and feedback are much appreciated.

Each edition of FINLY is the outcome of the tireless efforts and dedication of a group of individuals who call themselves Team Finly. We can't thank them enough for their constant support and initiative.

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Mohak Shah, MMS ­ Finance, 2018­2020

Saurav Jain, PGDM Core, 2018­2020

Team Finly- April 2020 Faculty Incharge

Editor-in-Chief

Editor- FINLY

Mohak Shah Dr.(Prof) Pankaj Trivedi

Mohak Shah

Saurav Jain

-Conceptualization & DesignAkshitaa Bahl

Harish Nair

Sheenu Jain

Sheenu Jain

Manya Mohan

-Content Team Shristi Sarda

Harsh Dhoka

Prachi Agrawal

Renita Raphael

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INDEX

FINLY| JULY 2018 | Finstreet | SIMSR

Editorial Team Finly

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04 Cover Story 07

Eco Section

Sector & Company Analysis

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Fintech Funda

Call For Articles Winners

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Vodafone­Idea :Too Big to Fail?

Shristi Sarda | PGDM FS | 2019­21 Harish Nair | MMS B | 2019­21

Cover Story

Gross debt of Vodafone Idea as on September 30, 2019 was 1,17,300 crores including deferred spectrum payment obligations of 89,170 crores to the government. It had a debt of 1.08 lakh crores at the end of 2018­19 and a net loss of 14,600 crores. Technology in the industry is changing so fast that even before existing investments are recovered, the company will need to invest in newer technologies for survival.

Vodafone Group CEO Nick Read admitted that “The future of Vodafone’s India operations is critical as India had been a very challenging situation for a long time on the back of higher taxes and unsupportive regulatory environment”.

India's telecom industry has made massive strides in the last few years with the roll­out of nationwide 4G and increasing subscriber base. With hundreds of millions of subscribers, India should be a hotspot for companies. But alas, that hasn't been the case.

The industry barely has three players left, thanks to Jio's cannonade of 2016.

It is affordable for Jio to operate at discounted rates because of its cash­ rich parent company, Reliance. But the scenario is not the same for the existing companies.

With more than 330 million users, Jio is now India's largest telecom operator. It spread its user base within three­ years. While the majority of its users are from the rural regions, it also acquired a big chunk from the other operators. The current average rate for 1GB of 4G data is $ 0.26, while it costs $12.37 in the US, $6.66 in the UK, and a global average of $ 8.53. Adding to this, India’s airwaves (spectrum) are among the costliest in the world. The government plans to pay at least Rs 1 trillion over the coming years, which was raised in 2015.

R e a s o n s f o r t h e D o w n f a l l o f Vodafone­Idea: Sky­high operating costs: Vodafone­Idea's share was listed at

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Cover Story

FINLY| April 2020 | Finstreet | SIMSR FINLY| Sept 2019 | Finstreet | SIMSR

Rs 23.41 on October 1, 2018, it's at Rs 5.70 on March 14, 2020. Investors who bought shares in the company’s rights issue at a seemingly low price of Rs 12.50 have lost nearly 50 percent of their investment.

How can a company operate with sky­ high operating costs and non­existing profits? Vodafone­Idea has a lot of problems to solve.

In an attempt to take on Jio, Vodafone India merged with Idea Cellular to form India's largest operator with more than 400 million subscribers.

The merger took a year to complete and was expected to provide more resources in the fight against the other two players.

However, subscribers left Vodafone­ Idea in large numbers. The company l o s t 3 6 m i l l i o n s u b s c r i b e r s i n November. The month of December ended with Vodafone­Idea having just 332 million users.

4G transition: The merger of Vodafone and Idea did not solve the companies’ problems.

Total debt of the merged company stands at more than Rs 1 lakh crore and their ARPU (Average Revenue Per User) is the lowest in the world at Rs 108, compared to Jio’s Rs 124 and Airtel’s Rs 129.

Both the companies, Vodafone and Idea have been in the industry for decades and have experience in deploying new technology. But with the 4G transition, both were stormed

by Jio's instantly available 4G infrastructure. The carrier relies on conventional technology for voice calls while Jio had deployed VoLTE (voice over LTE) since the beginning.

This gave Jio a huge advantage in terms of call quality and reduction of operating expenses. Additionally, Jio was the first operator in India to bundle

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the phone calls and 4G data packs.

Vodafone­India couldn't offer this immediately without taking a hit on its operating expenses.

Vodafone India and Idea's network integration has been a bumpy journey.

There have been multiple brownouts and customer complaints about frequent call drops, slow data transfers and poor coverage. A decade back, Vodafone India was known for its solid reach and superior offering, but the present scenario shows a different story.

In comparison, Airtel has shifted focus towards improving its ARPU instead of increasing its user base. According to OpenSignal, Airtel tops the charts with an average download speed of 8.7 Mbps, followed by Jio at 6.3 Mbps.

Vodafone and Idea (as separate entities) were at 5.9 and 5.4 Mbps, respectively.

Vodafone Idea’s consolidated revenue from operations improved marginally from Rs.10,844 crore in the September quarter to Rs.11,089 crore in the December quarter, as a result of an addition of 8.3 million 4G users.

H o w e v e r, t h e r e v e n u e s t o o d a t Rs.11,764.8 crore in the corresponding quarter last year.

On an analyst call, the company hinted at being conservative with the expenses since their shares have been on a free­ fall for months. A slight increase in expenditure will inch the company close to a crisis.

All these indicate the merger to be short­ sighted and without a direction. Both the c o m p a n i e s ’ p r o b l e m s o n l y g o t consolidated after the merger. The company is still trying to work on improving network integration. Running two huge brands under one name is adding to operating costs and efficiency cannot be achieved.

FINLY| April 2020 | Finstreet | SIMSR FINLY| Sept 2019 | Finstreet | SIMSR

Cover Story

Impact of the Company’s shutdown on the Indian Economy:

If Vodafone Idea decides to file for b a n k r u p t c y a n d s h u t s d o w n operations, it will have multiple repercussions on the Indian economy.

The scale of debt default, job losses and customer grievances will have huge consequences on the banking and telecom sectors.

What can be done to fix the crisis?

Vodafone­Idea expects the sale of its 11.15 percent stake in Indus Tower worth Rs 6,000 crore to complete in the next three­four months. The board of directors has cleared the planned Rs 25,000 crore rights issue at a price of Rs 12.50 per equity share.

But, these sources shall only last for a few quarters. In the longer game, Vodafone­Idea will require more capital to go up against the might of Jio and Airtel.

Vodafone UK has a 45.1 percent stake in the combined company after transferring a 4.9 percent stake at Rs 110 per share to Aditya Birla Group for Rs 3,900 crore. Aditya Birla Group now owns 26 percent of the combined company and the remaining 28.9 percent is owned by Idea shareholders. No party is interested in investing further in the above­ mentioned structure.

There could be some relief if the government decides to save the company by extending the moratorium on spectrum­related payments, since a majority of the company’s debt is owed to the government for spectrum.

Cheap tariffs Vodafone­Idea has been seeking a two­year moratorium on its annual

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spectrum payment citing debt and stress on the balance sheet. According to a report in The Economic Times, Vodafone Group Chairman Gerard Kleisterlee and chief executive officer Nick Read met with the telecom secretary Anshu Prakash and asked for a refund of Rs 32,000 crore of the input tax credit.

Telecom minister Ravi Shankar Prasad has refused to intervene in raising tariffs that have been dirt cheap since 2016.

India is already facing a credit crisis and major financial institutions such as DHFL, IndiaBulls and Yes Bank have been affected. 2019 also witnessed the shutdown of the country’s first private airline, Jet Airways.

Sinking of a two­decade­old telecom operator because of a tariff war and e x p e n s i v e s p e c t r u m w o n ' t b e encouraging for foreign investors. The best possible scenario would be Vodafone­Idea operating as a regional carrier.

On the contrary, public­sector units like BSNL and MTNL will get a Rs 74,000 crore bailout. BSNL is one of the country's biggest loss­making PSUs, while MTNL is the third­highest loss­ making PSU. Divestment in these units will not have any takers and shutting them down may cost up to Rs 1.2 lakh crore.

Improve Network Coverage When we look at the telecom sector, the main reason why a customer chooses one company over the other are •Call quality •Network coverage •Price If we compare Vodafone and airtel, they were known to provide decent network coverage. But what they were not known for, was their prices. The data and calling packs were expensive if you compare it to Government owned

FINLY| April 2020 | Finstreet | SIMSR

Cover Story

BSNL. But with the entry of Jio, the entire telecom market changed. Due to Reliances’ deep pockets, they were able to provide customers with offers at an fairly low prices. Because of this, Vodafone, Idea and Airtel had to lower their prices considerably to keep themselves competitive.

Not only this, Jio managed to increase their connectivity on a regular basis, providing network connections previously no carrier operator was able to provide. This put an additional strain on the existing telecom players.

The prices of Vodafone Idea and Jio are more or less the same, when we compare their respective plans and offerings. But Jio has a superior network reception and call quality.

Vodafone Idea must try to invest in increasing their network reach into areas which they were not providing earlier. This move may prevent people from getting an additional SIM card for the areas where Vodafone Idea is not able to provide network.

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FINLY| Sept 2019 | Finstreet | SIMSR

Economic impact of COVID ­ 19 Harsh Dhoka | PGDM Core B | 2019­21

Eco Section

Overview We are currently living through the hardest time for human civilization in decades. The coronavirus pandemic continues to spread throughout the globe and the global economic impact is going to be quite significant for at least a year. The pandemic has already spooked the stock market amid fears of a coronavirus induced global recession. Trillions of dollars in stock market value has been wiped out and there are fears that the virus will bankrupt millions.

When stocks decline in value and investors feel less wealthy they cut back on their expenditure and demand declines. The larger the markets are, in relation to the economy, the larger this negative “wealth effect”. And thanks to quantitative easing which resulted in seemingly endless easy money, markets are the largest they have ever been. Breaking the previous record high of 2008, the global financial markets have quadrupled to

four times the size of the global economy.

No one can predict the trajectory of the pandemic but the grave threat its spread poses to the world economy boils down to one idea that is very apparent. One person’s spending is another person’s income. That, in a nutshell, is what the $87 trillion global economy is.

At the base of how our modern economy works is the relationship between income and expenditure, consumption and production. The economy is akin to a perpetual motion machine. The threat that the virus poses to the global economy is that containing it requires this perpetual motion machine to come to a near­ complete stop across large chunks of the economy, for an indeterminate period of time. There are no other parallels to this situation and we simply don’t know how the economy will respond to the damage and how long will it take to repair that damage.

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FINLY| April 2020 | Finstreet | SIMSR

Eco Section

Impact In key ways, globally the debt burden is more or equal to the period of the last financial crisis. But large pools of debt have shifted to corporations globally from households and banks.

As businesses come to terms with the prospect of an abrupt halt in their cash flows, the most vulnerable are t h e a l r e a d y f i n a n c i a l l y w e a k companies who are having trouble repaying their existing debt. Due to the shutdowns caused by the virus, many businesses will see a drastic reduction in their customers resulting in a huge decline in their cash flows but they will have to pay their regular fixed costs. This will result in many of the businesses either going bankrupt or at least shutting down temporarily.

Many people will get laid off in the process and this will have a devastating impact on the finances o f m a n y h o u s e h o l d s f u r t h e r dampening the demand.

The bitter truth of near­empty planes, trains and sparsely occupied restaurants is already negatively impacting economic activity. The longer the pandemic lasts, the greater the risk that the sharp downturn morphs into a financial crisis with companies starting a chain of defaults just like subprime mortgages did in 2008. To highlight the depth of the crisis an entire sector might go bankrupt in just 2 months as projected by CAPA. Centre for Asia Pacific Aviation (CAPA) has said that the Covid­19 pandemic will push most airlines across the globe to the brink of bankruptcy by the end of May.

The easy money policies pursued by the Federal Reserve, and matched by central banks around the world, were designed to keep economies growing and to stimulate recovery from the crisis. Instead, much of that money went into the financial economy, including stocks, bonds and cheap credit to unprofitable companies. As the economic expansion continued, y e a r a f t e r y e a r, l e n d e r s g r e w increasingly lax, extending cheap loans to companies with questionable finances. Today the global debt burden is again at an all­time high. China and some emerging market countries such as India are already suffering from a corporate debt default crisis.

Signs of financial pressure are growing i n i n d u s t r i e s i m p a c t e d b y t h e pandemic, including hospitality, travel, automobile and, perhaps worst of all, oil. Smashed on one side by distress that the pandemic will collapse demand for oil, and on the other by f e a r s o f a s u p p l y g l u t , d u e t o disagreement about production cuts between Russia and OPEC, oil prices have fallen below $25 a barrel – very low for companies to make their debt payments.

The pandemic will also ­have a drastic effect on the global GDP growth. The coronavirus outbreak is likely to cost at least $1 trillion to the global economy as per the UN's trade and development agency. Bloomberg predicts that in the worst­case scenario worldwide, lost output hits $2.7 trillion.

The outbreak will also dampen India’s recovery from the slowdown. Initial estimates by the government suggest that India’s economic growth could take a hit of up to 50 bps in FY21 because of the troubles caused by the

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FINLY| April 2020 | Finstreet | SIMSR

Eco Section

coronavirus outbreak. But economist predict a hit of 100 bps. The forecasted growth rate for the economy in the current fiscal is 5%, the slowest in 11 years. The economic survey had projected a g r o w t h r a t e o f 6 ­ 6 . 5 % , b u t coronavirus will likely impact the projected figure negatively.

Remedial Measures Globally governments and central banks have started taking measures and will have to take many more measures to combat the impact of the pandemic on the economy.

Governments are planning to give out cash doles directly in the hands of the people, Central banks are lowering interest rates and injecting huge amounts of money in the economy to shore up liquidity.

Wage subsidies are being given by Japan, South Korea and France to lower the financial impact of c o r o n a v i r u s o n v u l n e r a b l e households. China is easing the tax b u r d e n o n s m a l l f i r m s a n d a c c e l e r a t i n g p a y m e n t s o f unemployment benefits. In response to the crisis, the German government has introduced a short time work allowance and granted generous credit assistance, guarantees or tax deferrals for distressed companies.

The US government is introducing a $2 trillion economic rescue plan, key elements of the plan are $250 billion set aside for direct payments to individuals and families, $350 billion in small business loans, $250 billion in unemployment insurance benefits a n d $ 5 0 0 b i l l i o n i n l o a n s f o r d i s t r e s s e d c o m p a n i e s . S i n g l e Americans would receive $1,200, married couples would get $2,400 and parents would see $500 for each child under age 17.

The United States Federal Reserve lowered its interest rates to near zero and will be buying hundreds of billions of dollars in bonds, as part of a sweeping emergency effort to stimulate an economy bracing for the impact of coronavirus. The Federal Reserve and the ECB will buy corporate debt to infuse money more quickly into the economy.

T h e I n d i a n g o v e r n m e n t h a s announced a 1.7 trillion rupee ($22.6 billion) spending plan which will include cash transfers, insurance for healthcare workers and steps on food security with more steps to follow.

Following the government measures, the RBI also announced a slew of measures primarily reducing the repo rate by 75 bps to 4.4% and other measures which will make available a total Rs 3,74,000 crore to the country's financial system. In a big relief to EMI payers, the RBI also announced a 3­month moratorium on EMI payments for outstanding loans.

Conclusion In th e i n i ti a l w e e k s w h e n th e coronavirus spread primarily in China, a general conclusion among economists was that it would result in a “supply shock,” hampering the availability of certain manufactured

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FINLY| April 2020 | Finstreet | SIMSR

Eco Section

the markets — and increasing the risk of wider financial contagion.

T h e r e c a n a l s o b e a h u g e fundamental disruption in how we work from the shutdown caused by the coronavirus. The pandemic has forced many corporates to let their employees work from home. This will be a great opportunity to understand the impact of working remotely on productivity. This might be the watershed movement for large brick and mortar offices to make way for remote working arrangements.

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Sector & Company Analysis Logistics Sector

Sheenu Jain I PGDM FSI 2019­21 Prachi Agrawal I MMS A I 2019­21

Sector Analysis

The Indian logistics sector is currently riding a growth wave.

Logistics is often regarded as one of t h e m a i n c o m p o n e n t s o f a n y economy, contributing both directly and indirectly by supporting other industries. The logistics sector in India has witnessed dramatic changes over the past few years but has gained traction only in the past couple of years. It is one of the most rapidly evolving industries. An optimal mix of infrastructure, technology, and customer service are required to determine if the sector is serving other industries well.

According to the reports of Global Ranking of the World Bank’s 2018 Logistics Performance Index, India jumped to 35th rank in 2018 from 54th rank in 2016. The logistics sector is estimated to be valued at about $215 billion by the end of the year 2020. According to estimates, the industry is expected to grow at an annual rate of 10­15%.

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Growth drivers of the logistic sector: ­ 1. Consumer expectation and demand is one of the primary growth d r i v e r s f o r a n y o r g a n i z a t i o n irrespective of the sector they work in.

The level of customer satisfaction decides the success of a company.

Ti m e l y c u s t o m e r s u p p o r t a n d availability are very important and there must be an adequate global presence of the same.

2. Online markets/ E­Commerce: ­ In the present day, online markets and e­commerce­based trading has transformed the entire perception of business operations. Businesses are no longer dependent on physical presence in multiple areas, instead, orders throughout the country or multiple countries are managed through either one or a few outlets.

Logistics has increased as supply is now being provided directly to the customers’ place of requirement instead of supply being provided to the retail stores. More accurate and e x te n s i v e l o g i s ti c s y s te m s a r e

FINLY| April 2020 | Finstreet | SIMSR

Sector Analysis

becoming popular every day.

Contribution to GDP The contribution of the logistics sector is about 14% to the national GDP in India. Although this may seem like a good thing at first glance, it is not the case. High contribution to GDP means that other sectors in India incur high costs on logistics.

This number is much lower in developed countries where the contribution is only around 8%. The Indian government is trying to bring this number down by using various measures to reduce logistical costs.

Porter’s Five Forces Model

Competitive Rivalry – High The internal competition in the i n d u s t r y i s e x t r e m e l y h i g h .

Competition is mainly based on price and the quality of service provided.

Also, the presence of dominant players such as Gati, DHL, FedEx, etc. provides stiff competition to smaller players in the market.

The Threat of Substitutes – Low The threat of substitutes is low in this i n d u s t r y. L o g i s t i c s i n c l u d e s warehousing, transport, etc. Any substitute comes with attached high prices. Therefore, the threat of substitutes is not a big concern in this industry.

Supplier Power – Low Suppliers have low bargaining power over the industry. The suppliers for this particular industry is usually the automobile industry that provides various types of vehicles like forklifts, cranes, etc.

Since these players are not limited in the market, the bargaining power of suppliers is low.

Bargaining Power of Customers – High There are many players in the market since the Indian logistics industry is a fragmented one. Low switching costs and higher flexibility of other providers give a lot of bargaining power to the consumers. Consumers have the power to switch to a new provider due to lower costs provided by players in the market.

The Threat of New Entrants – High The entry barriers in the industry are low. This is an industry that does not always require a high investment making it easy for new players to enter the market. Also, the availability of new technology has a role to play in reduced investment.

Challenges Transportation is one of the biggest issues that plagues this industry. India is a vast country and is covered by various types of terrain. So even when e v e r y t h i n g i s o n s c h e d u l e , transportation can be unreliable. The internal roads in all regions are not always good and are prone to accidents. Traffic in a country like India is a big factor. Even rail transportation is relatively more expensive due to high tariffs and these high tariffs don’t always mean quality service since the Indian railway system is also a congested one. Monsoons also adversely affect transportation in India due to constant flooding. Ever­ increasing fuel costs only add to the problems faced by this industry. These are some of the challenges that are faced by the Indian logistics industry today.

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Sector Analysis

FINLY| April 2020 | Finstreet | SIMSR

COMPANY ANALYSIS SAFEXPRESS

Safexpress was established in 1997 with 9 offices and 12 vehicles, with a focus on ensuring the safety of cargo, achieving the fastest transit time by surface across India and building the largest network. Today it has expanded its reach nationwide with over 3600 vehicles, over 567 destinations and over 6 million square feet of warehousing space.

The company has 48 Hubs and Mega Hubs, over 1000 routes and vehicles covering over 600,000 kilometres every day, it also delivers over 80 million packages every year.

Today, Safexpress is widely acknowledged as the 'Knowledge Leader' and 'Market Leader' in the Indian Supply Chain & Logistics industry and offers customized and competitive logistics solutions.

Safexpress Private Limited's operating revenues range is Over INR 500 crore for the financial year ending on 31st March, 2019. It's EBITDA has increased by 51.46 % over the previous year. At the same ti m e , i ts b o o k n e t w o r th h a s increased by 12.08 %. Some of the major competitors of Safexpress are Gati, DHL, Bluedart.

The company offers a wide variety of products and services like express distribution, third party logistics, consulting, air cargo, mall supply chain services, and door­delivery

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services. The company has a fully integrated surface, air, and multimodal infrastructure. Here are some of the services offered by Safexpress.

•SafeAir is the Air Cargo service of Safexpress.

•Campus2Home is a campus logistics service that exclusively on the distribution requirements of college students.

•SafeReturns is targeted at companies participating in exhibitions, conferences and, seminars.

•Easy2Move is a service customized for SMEs having fewer volume loads as well as for delivery of personal goods, promotional items, samples, boutique goods, etc.

•Sainik Express is a service exclusively for defence personnel and their families which offers a special delivery service for their baggage.

•Stock2Shelf enables multi­brand retail stores and shopping malls with comprehensive supply chain services which include movement of retail and lifestyle goods, inspection, estimation, packaging, storage, delivery, etc to name a few.

SWOT Analysis Strength: The Company has a very good brand presence in India along with a credit and retail basis price strategy. The company has great Creative Service Ideas which sets it apart from its competitors. It has more than 3600 GPS­equipped all­weather proof, containerized vehicles. It also has a reach to all 627 districts in 35 states and union territories in India.

Weakness: The Company is not active on the advertising front when compared to global brands. The company has a lower adoption of advanced technology.

FINLY| April 2020 | Finstreet | SIMSR

Sector Analysis

Opportunity: The company has a scope of diversifying into more innovative services. The company could also think about increasing firms in the manufacturing industry. It also has 3600 weatherproof ISO­ 9002 vehicles which can be used for increasing range of services.

Threat: The company faces many competitors in this industry who are equipped with advanced technology.

One other threat could be the fact the transportation sector is mostly unorganized. Another threat is the entry and penetration of domestic and international players in the market.

Future Outlook: The company aims to keep its focus o n d r i v i n g t h e w a r e h o u s i n g revolution in India. It also plans to invest in reducing the skill gap in the industry. The company also focuses o n p r o v i d i n g t r a i n i n g t o i t s employees to upgrade their skills. It also plans on making investments to develop innovative technologies, strengthen its product development capacity, enhance the quality of its customer service and increase its brand value as a leader.

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Fintech Funda RPA in BFIS

Renita Raphael | PGDM Core B | 2019­21

Fintech Funda

RPA (Robotic Process Automation) Robotic Process Automation is the automation technology that makes it possible to configure computer software, or a “robot” to imitate the human actions within digital systems to complete a business process.

RPA robots make use of the user interface(UI) to capture data and manipulate applications just like humans do. RPA interprets, generates responses and communicates with other systems to perform a vast variety of repetitive tasks. An RPA software robot never takes breaks and makes zero mistakes. RPA robots are capable of mimicking most of the human user actions. They log in to applications, copy and paste data, move files and folders, extract structured and semi­ structured data from documents, fill in forms and a lot of other manual tasks. In short, any high­volume, business­rules­driven, repeatable

process qualifies for RPA. Concerning other traditional IT solutions, RPA allows organizations to automate at a fraction of the cost and time previously encountered. The traditional systems can easily be replaced with RPA without causing any d i s r u p t i o n t o t h e e x i s t i n g a n d underlying systems, which otherwise would be costly and difficult to replace.

Benefits of RPA 1.Fast monetary realization 2.Minimal upfront investment 3.No disruption to underlying systems 4.Highly scalable and adaptable to dynamic business environment 5.Increased speed and productivity in the business processes 6.Better accuracy in the business processes.

RPA in Banking and Financial Services.

RPA is growing exponentially. Recent forecasts report shows that by 2021,

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FINLY| April2020 | Finstreet | SIMSR

Fintech Funda

RPA will be a $2.9 billion industry.

With the widespread adoption of virtual banking , banking firms had to find a way to deliver the best user experience to their customers.

Internally, the challenge to maximize efficiency and keep costs as low as possible, while also maintaining maximum security levels, has also i n c r e a s e d . To a n s w e r t h e s e d e m a n d s , R o b o t i c P r o c e s s Automation (RPA) has become a powerful and effective tool.

Robotic process automation has also dramatically streamlined a wide variety of back­office processes. By transferring much of these tedious, m a n u a l t a s k s f r o m h u m a n t o machine, banks have been able to significantly reduce the need for human involvement, which has had a direct impact on everything right from performance and efficiency levels to staffing issues and expenses.

Several processes in the banks can be automated to use the manpower to work on more critical tasks. Some of these processes include:

Customer Service Banks deal with various queries every day ranging from account information to balance information.

RPA can automate such rule­based processes to respond to queries in real­time and reduce turnaround time to milliseconds, freeing up the human resource for more critical tasks.

Compliance Banking being the center of the economy, therefore, banks are closely governed and need to adhere to a lot of compliances. RPA increases productivity with 24/7 availability and highest accuracy, improving the quality of the

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compliance process.

Accounts Payable Accounts payable is a simple but monotonous process in the banking system. It requires extracting vendor information, validating it and then processing the payment. RPA with the help of optical character recognition (OCR) solution can solve this problem.

OCR can read the vendor information from the digital copy or the physical copy and provide information to the RPA system. RPA will validate the information with the information in the system and process the payment. If any error occurs, RPA can notify the executive for resolution.

Credit Card Processing Traditional credit card application processing used to take weeks to validate the customer information and approve credit card. With RPA, banks now can process the application within hours. RPA can talk to multiple systems parallelly to validate the information like required documents, background checks, credit checks and take the decision on the basis of rules to approve or disapprove the application.

KYC Process Know Your Customer (KYC) is a process for banks that needs to be performed for every customer. This process requires to perform necessary checks on the customers. Considering the cost of the manual process, banks have started using RPA to validate customer data. With increased accuracy, banks no longer have to w o r r y a n d t h e p r o c e s s c a n b e completed with minimal errors and minimal human resources.

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Major banks implementing RPA 1.Deutsche Bank 2. BNY Mellon 3. Danske Bank 4. Axis Bank

would the fallout from the 2009 financial crisis have been if, say, bad­ actor banks had been able to process 100 times more mortgages and sub­ prime loans per day?

Risk in implementing RPA Operational risk: Any RPA initiative is met with some degree of pushback from internal staff. They may be intimidated by the prospect of a “robot coming for their job.” In addition to this, there’s the risk of robot downtime and operations disruption. A robot could stop working due to operating­system u p d a t e s , h e n c e t h e n e e d f o r operational readiness to update and repair robots is needed.

Fintech Funda

D a t a ­ q u a l i t y r i s k : “ B i g d a t a ” standardization processes should not be overlooked during RPA scoping and implementation at banks. Yet with every terabyte that’s loaded into a banking system, the odds of poor­data seepage increases. A robot can reduce back­office employee’s errors when transferring data from a spreadsheet to a system. But what if the data received from the front office is already in bad order or a bad format? What if that bad data gets loaded into the system? That adds up to a lot of poor­quality data that will eventually need to be transformed and cleaned in the downstream systems.

Ethical risk: Today’s enterprises should balance their investments between people and technology.

Simply attempting to outsource or replace staff can take its toll on the company’s morale.

Outside of the organization, the ethical considerations of robotics in banking, spill over into society at large: What

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Image Source. Everest Group – Seizing the RPA Market Opportunity

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History

Banking on Bailouts

Tanvi Sawant | IIM Bangalore PGP | 2019­21

The history of bailing of banks goes back to the great depression in 1929.

We are aware of the amount of taxpayers' money which has gone in bailing out banks all over the world.

Right from bailing out the Fannie Mae and Freddie Mac during the sub­prime crisis which cost $498 to most recent Yes Bank waiting for execution of revival scheme. The doctrine of “too big to fail” always comes to rescue of the failing banks.

The government fears natural recession which is followed by allowing the banks to fail. The banks were also nationalized in 1969 to build trust in the banking sector.

However, the same did not serve the purpose after the Nirav Modi scam in PNB leading to infusion of fresh capital. Similarly, the IDBI Bank was put on track by LIC, by pumping 35000 crores. But whether bailing out banks is the only solution? This

question remains unanswered.

The current scenario in India

There is an increasing trend of NPAs during the last few years. This leads to very squeezed profit margins of banks This might be a leading or lagging indicator of bank management's corporate governance negligence and lack of integrity of the employees.

The recovery rates of bad loans in India remained extremely poor and t i m e t a k e n f o r l o a n r e s o l u t i o n remained much higher vis­à­vis the global peers.

All the examples of bank failure are on account of the greed to convert short term gains through giving substandard loans and non­recovery of the same.

The situation of banks in India is not very attractive. However, now with the advent of Insolvency and Bankruptcy Code, there is hope for faster resolution, robust framework and lower haircut for banks.

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There is an increasing trend of NPAs during the last few years. This leads to very squeezed profit margins of banks This might be a leading or lagging indicator of bank management’s corporate governance negligence and lack of integrity of the employees.

The recovery rates of bad loans in India remained extremely poor and time taken for loan resolution remained much higher vis­à­vis the global peers.

All the examples of bank failure are on account of the greed to convert short term gains through giving substandard loans and non­ recovery of the same.

there are insufficient reserves and inability of the banks to pay for deposits due to asset size reduction i.e. asset­liability mismatch. Several other reasons are also responsible for failure as given below:

What led to the Yes Bank crisis?

Why do banks fail?

Research shows that two primary reasons for failure of banks are either withdrawing of deposits when

All this led to the crash of Yes Bank share plummeting to the lowest of Rs.16 per share from Rs. 280. SBI and

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LIC have shown their willingness to invest as per the revival scheme.

However, this seems like a strategic decision for SBI since Yes Bank was a large sector private bank ranking in the top 10 at any given time even though it had an undiversified portfolio of steel, power etc. borrowers.

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If we bail out the banks •The cost of bailouts is always more than the benefits that we derive from them.

An example of this is the regret letter of JP Morgan and Chase bank seven years later after bailing out a troubled investment bank, Bear Sterns. Bailouts are always risky and can threaten the essence of acquiring the institution.

•Taxpayers' money is used. Indirectly they become the investors in a managed fund to buy toxic or potentially toxic assets •Governments usually overpay and there is very less probability that banks would be able to give the benefit in the same proportion to the banks •The bankers often exploit the doctrine ‘too big to fail’ and may lead to a possibility of moral hazard where banks are likely to accept greater risks in the future without the appetite Whether the banks should or •Also, since recapitalization is internal, it shouldn’t be bailed? results in bondholders to accept a greater level of risk which is transferred If we didn’t bail out the banks to other stakeholders as well.

•The major companies would have no source of corporate credit and can go Hence, we can conclude that it is high bankrupt. A major example of this is the time governments stop bailing out banks General Electric company which is and find out alternative solutions to this dependent on commercial paper and common problem. short­term financing daily.

•Most small companies rely on banks If not bailout then? for payment of payroll due to short term financing Following are the alternation options •Unemployment would have been at available with the government, if the an all­time high of around 20­25% banks are not bailed out: •Chances of civil unrest and depositors of banks would lose complete trust and their life savings.

•Natural recession can follow as it did after the failure of Lehman brothers.

•A complete crash of stock markets would wipe off wealth of common people.

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Conclusion

Sustainable solutions

These alternate options can be short term.

The Indian government needs to come up with some long term and sustainable solutions as follows:

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We need to find a real sustainable solution so that we don’t have to every time bail out a bank by using hard­ earned taxpayers’ money. A long­term sustainable solution refers to an effective risk evaluation and credit worthiness framework, multi­ dimensional audit system, stricter laws and regulations, and moral managers to ensure that there’s no exploitation of corporate legal identity.

Since the banking system is the backbone of the economy, we need to upgrade our banking standards to achieve a achieve higher growth rate and become a $5 trillion economy.