Finly April 2022

FINLY

APRIL 2022 | Issue No. 110

SWIFT - It's Ban, Implications and Alternatives Intriguing Indeed

Sector Analysis

Eco Section

War Bonds

BFSI

The weaponization of sanctions against Russia

CONTENTS 01

02

EDITO R IAL

TEAM F INL Y

04

09

C O VER ST O R Y

EC O SEC TIO N

SWIFT - It's Ban, Implications and Alternatives

The weaponization of sanctions against Russia

13

17

SEC TO R ANAL YSIS

C O MPAN Y AN ALYSIS

BFSI Industry

Bajaj Holdings and Investment Ltd.

21

25

INTR IG UIN G IND EED

ENTR EPR EN EU R SHIP INN O VATIO N

War Bonds

InCred

28

31

PER SO N IN F O C U S

C ALL F O R AR TIC LE: WINNER

Rajesh Gopinathan

Izabel Thomas

34 ALUMNI INSIGHTS Liquidity Pool: What are those?

Sitharthan K

ISSUE NO. 110, APRIL 2022

Dear Readers,

Editor's Note

“Historically, pandemics have forced humans to break with the past and imagine their world anew. This one is no different. It is a portal, a gateway between one world and the next. We can choose to walk through it, dragging the carcasses of our prejudice and hatred, our avarice, our data banks and dead ideas, our dead rivers and smoky skies behind us. Or we can walk through lightly, with little luggage, ready to imagine another world. And ready to fight for it.” - Arundhati Roy This pandemic is an opportunity to expand our knowledge by finding new ways to circumvent the circumstances, invest in the most intuitive ideas that come to our mind and surpass this havoc. As Ben Franklin rightly said, “An investment in knowledge always pays the best interest,” we at Finstreet are back with the next edition of our monthly magazine “Finly” for the academic year 2021-22.

Team FINLY has always been a dedicated group of people who put in a lot of time and effort to put this magazine together, and we can't thank them enough for their unwavering support and initiative.

The April 2022 edition's cover story revolves around SWIFT - It's Ban, Implications and Alternatives. The eco section describes the current situation of weaponization of sanctions against Russia. Further, the Intriguing Indeed section delves into the concept of war bonds.

We are thankful to Prof. (Dr.) Pankaj Trivedi (Course Coordinator, MBA Core and Faculty Coordinator, Finstreet) for providing the much-required mentoring, support and backing to the Finly team.

As we have come to the last publication for the academic year 2021-22, we thank all our readers and faculty members for their valuable reviews and feedback.

HAPPY READING!!!

SIGNING OFF, Anusha Nair

Riya Agarwal

|Editor-in-Chief|

|Editor-Finly|

MBA FS

MBA FS

01

ISSUE NO. 110, APRIL 2022

TEAM FINLY Faculty in-charge

Dr. (Prof) Pankaj Trivedi

Editing Team Editor-in-Chief

Editor - FINLY

Anusha Nair

Riya Agarwal

Team Coordinator

Kamlesh Jain

Conceptualization & Design

Vinay Kumar

Rishika Jain

Kamlesh Jain

02

Content Team

Arohi Pandey

Paras Lodaya

Sudeshna Sur

Natania Mahipal

Aman Pathak

Aditya Shukla

Anubhav Sood

Uday Sardana

Gaurav Bavkar

Yash Duggal

03

| COVER STORY

SWIFT - IT'S BAN, IMPLICATIONS AND ALTERNATIVES

WHAT IS SWIFT? The SWIFT system, which stands for Society for Worldwide Interbank Financial Telecommunication, is a secure platform for financial institutions to transmit information regarding international monetary operations including money transfers.

While SWIFT does not directly move money, it serves as a middleman for more than 11,000 institutions in over 200 countries by providing secure financial communications services. It is governed by the central banks of eleven industrial countries, including Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, the United Kingdom, and the United States, in addition to Belgium.

SWIFT's founders originally intended for the network to solely be used for treasury and correspondent transaction communication.

Banks, brokerage firms and trading houses, depositories, corporates, clearinghouses,

Gaurav Bavkar | MBA- B | 2021-23 Aman Pathak | MBA- IB | 2021-23

asset management firms, foreign exchange, and exchanges are now included.

(Indian Express) The SWIFT claims to be neutral. Its shareholders, consisting of 3,500 companies worldwide, elect a board of directors of 25 members responsible for overseeing and managing the co-operative organization. It is regulated alongside the European Central Bank by the G10 countries Central Banks. Its main supervisory body is the National Bank of Belgium.

(The Hindu) BRIEF HISTORY OF SWIFT Banks used a mechanism named TELEX to send wire transfers before the SWIFT network was developed. TELEX lacked the security and sophistication for a time when technology was advancing at an exponential rate.

04

| COVER STORY There was no unified set of codes (like SWIFT) to name banks and transaction kinds in the free message format. This caused a great deal of confusion and resulted in numerous human blunders. TELEX senders described every transaction in complete sentences, which were then interpreted and implemented by a dedicated receiver; therefore, the SWIFT was born as a necessity.

A customer of State Bank of India (SBI) wants to send money to a buddy in the United States who has a Bank of America account (BofA). The SBI customer can do this by logging onto net banking and entering the BofA customer's account number, branch name, and SWIFT code. SBI will send a SWIFT message to BofA after the transaction is initiated, reviewed and cleared by BofA. The beneficiary will receive the credit in their BofA account.

SWIFT TRANSACTION SWIFT assigns each participating financial entity an eight- or eleven-character unique code for money transactions. The bank identifying code (BIC), SWIFT code, SWIFT ID, and ISO 9362 code are interchangeable terms for the same code.

(Mint) SWIFT is not a peer-to-peer money transfer mechanism like other modern payment alternatives. Instead, it sends information through its bank network. SWIFT first produces a payment order for a money transfer and sends it across its network of banks. The target bank is identified by an 8– 11-character SWIFT code (also known as a Bank Identifier Code or BIC).

After a sender's funds are linked to their destination account, a transfer is launched, and money is sent across financial institutions until it reaches its destination account. However, entering inaccurate transfer information (such as the incorrect SWIFT code) might cause delays or even payment failure. (Finextra)

Source: Business Insider WHY IS SWIFT IMPORTANT? SWIFT's global reach — it serves over 11,000 institutions in more than 200 countries – makes it a nearly universally accepted system. As a result, access to the system is almost required for doing business internationally, and the seven Russian banks barred from SWIFT will be unable to access worldwide markets. Firms and individuals who use those institutions will find it more difficult to borrow or invest money across national borders and receive cash for exports and pay for imports. (TIME.com)

05

| COVER STORY RUSSIA BAN AND ITS IMPLICATIONS On February 26, the United States, the European Commission, the United Kingdom, and Canada announced a commitment to ensure that selected Russian banks were removed from the SWIFT messaging system or restricted access to authorized transactions. On March 2, the European Union said seven Russian banks would be banned from the SWIFT messaging system in coordinated action with international partners. It would come into effect on March 12. In addition, the Commission is ready to add more Russian banks in the short term in response to Russian actions. This has raised the uncertainty about future access to SWIFT of all other Russian banks.

In a statement issued by the EU, seven Russian banks, namely VTB, Bank Otkritie, Novikombank, Promsvyazbank, Bank Rossiya, Sovcombank and VEB, were banned from SWIFT for their connection to the Russian state and the link to the war effort. However, most of these banks were prepared for this ban as they faced sanctions after the war in Crimea in 2014. Some have shifted to SFPS (System for Transfer of Financial Messages), the Russian equivalent of the SWIFT system.

Interestingly, Russia's largest lenders, Sberbank and Gazprombank, are omitted because they are the main payment channels for Russia's oil and gas, which EU countries still buy despite the conflict in Ukraine.

Banning banks from the SWIFT freezes the ability to do business with other parts of the world temporarily. This technically prevents

excluded banks from making financial transactions with foreigners, fulfilling their obligations, receiving export payments, or providing short-term credit for imports.

SWIFT ban can paralyze all sectors of the economy involved in international trade and finance. Even a selective ban on Russian banks will have a significant immediate economic impact on the Russian economy and its businesses as it comes into force. In fact, the reaction to the SWIFT announcement related to the actual freeze of foreign assets by the Central Bank of Russia on February 28 was immediate, demonstrating the severity of the penalties imposed. The ruble plummeted by about 30%, and the central bank doubled interest rates to 20%, restricting overseas payments.

Russia's domestic payment system can also be disrupted, as all transactions with all cards issued by major credit card networks (VISA, Mastercard, Amex, etc.) are processed via SWIFT. Sanctions pose a risk to the countries that impose sanctions and to the global economy as a whole. The turmoil in Russia's financial system can disrupt energy supplies to Europe and commodity exports to international markets. SWIFT sanctions and other measures could contribute to the default of Russian debt abroad, affecting foreign creditors as Russian companies owe more than $100 billion next year. According to market and IMF estimates, it could cause a liquidity shock in the European interbank market.

As announced by oil giants BP, Shell and Exxon, large US and European companies

06

| COVER STORY that quickly liquidate their stakes in Russian businesses will incur additional losses, and the assets will eventually have to be written off.

The success and efficiency of payment networks depend on the widespread acceptance and use of their services.

Excluding Russian banks from SWIFT, the socalled "nuclear option" runs the risk of permanent damage to international financial integration and U.S. dollar hegemony.

ALTERNATIVES TO SWIFT Russian Developed SFPS When Russia was subject to mild SWIFT sanctions in 2014, Russia rapidly expanded its messaging network to support a domestic payment system known as the System for Transfer of Financial Messages (SPFS). As of March 2018, more than 400 Russian institutions (mainly banks) are participating in the network. By 2020, 23 foreign banks in Armenia, Belarus, Germany, Kazakhstan, Kyrgyzstan and Switzerland were connected to SPFS. However, the Institute of International Finance (IIF) estimates that only 20-25% of Russia's domestic messaging and card transactions occur outside of SWIFT. Various other options Russia has also changed the composition of its foreign exchange reserves from the U.S. dollar and strengthened its ties with China's cross-border interbank payment system, CIPS, which can resolve international claims in

Yuan. Apart from this, China has recently developed its own parallel international messaging system as a precautionary measure against the growing prospects of U.S. economic sanctions. Even the European Union has begun developing its own financial messaging system, the Instrument in Support of Trade Exchanges (INSTEX), in the event of Iran's nuclear transaction failure in 2018 to avoid being caught up in the net of U.S. sanctions.

Banning SWIFT may also encourage more use of cryptocurrencies to circumvent economic sanctions.

Can UPI be the solution?

The Parliamentary Commission has noted that SWIFT's privacy was at stake. Before the crisis occurred, the government was advised to improve the existing SFMS (Structured Financial Messaging Solution) for sending messages or develop a new one. The agreement reported between the RBI and Singapore that links their respective Unified Payment Interfaces (UPIs) and PayNow payment systems to facilitate cross-border payments and remittance flows is commendable.

The average transfer cost in the world is about 5%, which is exorbitant. An efficient real-time payment system offers the opportunity to reduce transfer costs by 2% per transaction. Early systems were built on the slow communication systems available at the time. UPI, a new generation payment system, features open architecture and a flexible user interface.

07

| COVER STORY If the link between UPI and PayNow is successful, it can be duplicated in other countries, leading to network effects, more trade and investment. (Source- Economic times, Tribune India)

08

| ECO SECTION

THE WEAPONIZATION OF SANCTIONS AGAINST RUSSIA INTRODUCTION Ever since Russian President Vladimir Putin recognized Donetsk People's Republic and the Luhansk People's Republic, two independent regions in Ukraine, as separate sovereign states, Russia has faced a series of economic sanctions. These sanctions have only been aggravated since the Russian invasion of Ukraine on 24th February 2022.

Sanctions against the Russian regime are not new and have been in place since the invasion of Crimea in 2014, but the ferocity of the current sanctions has now reached new zeniths.

Fearing that a direct military standoff with Kremlin would lead to increased escalations and thereby a third world war, the trio of the US, EU, and the NATO allies have refused to enter into a direct conflict with Russia.

Instead, they have been supporting Ukraine by arming it with advanced weapons and, more importantly, through a series of harsh economic sanctions against Russia, its political elite, and its Oligarch with the hope that they would act as a severe deterrence

Paras Lodaya | MBA - A | 2021-23 Yash Duggal | MBA - FS | 2021-23 for the Kremlin in its invasion of its neighbour, cripple the economy of Russia and thereby, causing an immediate ceasefire to the conflict. Belarus, which is also aiding Russia in the war, has been sanctioned simultaneously. In short, the western allies have weaponized the sanctions, and some of the measures undertaken are -

Source: Statista

09

| ECO SECTION OIL & GAS The US has banned all Russian oil exports, and the UK has proposed that it will phase out all Russian oil by the end of 2022. The actions taken against Russia, which is also the second-largest oil producer, have caused jitters across the world oil market, with crude prices soaring to multi-year highs. The European Union, which imports about a quarter of its oil and 40% of its gas from Russia, has said that it will switch to alternative energy sources to reduce its dependence on Russia well before its stated deadline of 2030. The various sanctions on Russian oil have come as a double whammy for all the oil-importing nations such as China and India, as their economy have not yet recovered from the pandemic.

The US has been looking for alternatives to Russian oil and is working on removing sanctions from Iran to fill the deficit created due to the sanctions on Russia. Also, strategic oil reserves of major countries have been released in order to provide immediate shortterm relief from high oil prices and even OPEC nations have been requested to produce more oil.

FINANCIAL MEASURES The western nations have frozen the assets of the Russian central bank, which has devoid Russia from using its $630 billion of foreign reserves. Further, the suspension of Russia from the Bank of International Settlements has choked the dollar payments to Russia for its exports.

The US, UK, and EU have banned people and businesses from dealing with Russia. A number of Russian banks are being removed from the international financing messaging system SWIFT, which is used by banks to make cross-border payments which in turn will delay payments for Russian export. The other sanctions include major Russian banks being excluded from the UK financial system, assets of the banks frozen, and the developed nations restricting the financing of the state and significant companies.

TARGETING INDIVIDUALS The assets and yachts of many oligarchs close to Kremlin political circles are being frozen and seized by foreign countries around the world, and they are being barred from traveling and doing most business with the United States and Europe.

The UK has sanctioned several Russian billionaires, including the owner of the renowned football club Chelsea FC. The developed nations have also put sanctions on the 386 members of the Russian parliament. The assets of the Russian president and his foreign minister have also been frozen by the western allies. There have been consultations among nations regarding selling of oligarch’s assets in order to fund humanitarian assistance as well as war repatriations.

TRADE WITH RUSSIA & TRAVEL The US, UK, EU, and others have given a list of products that cannot be

10

| ECO SECTION sent to Russia, including chemicals, lasers, and military equipment. The EU has banned aircraft sales to Russia and the maintenance equipment for its oil refineries, making it difficult for Russia to upgrade its oil refineries.

The US, UK, and EU have restricted their citizens from visiting Russia and have asked all the citizens living in Russia to leave immediately. They have also banned Russian flights from using their airspace. Australia, a major commodity exporter has also imposed ban on the exports of various commodities to Russia such as alumina and aluminum ores, including bauxite. Japan, a major Asian nonNATO ally has also joined in sanctioning trade and travel ties with Russia. There have been repeated requests from Ukrainian President Volodymyr Zelenskyy to impose a trade embargo upon Russia.

INDIVIDUAL COMPANIES' ACTIONS Due to investor and customer pressure, many Western firms have begun to unravel their investments, close outlets, and suspend sales in Russia. Among the prominent ones, Google suspended advertising, including its search, and YouTube blocked all channels associated with Russian state-funded media. Energy firms such as Shell, BP, and Exxon Mobil have exited their joint ventures and projects on which Russia is heavily dependent. Consumer goods and retail organizations such as Unilever, Coca-Cola, Uniqlo, Ikea, H&M, Nike, Adidas, etc., have either suspended sales, imports & exports or even resorted to

discontinuing their operations.

Financial firms such as Citi, VISA, Mastercard, Goldman Sachs, etc., are all in the process of winding down their Russian operations. All big four accounting firms Deloitte, EY, KPMG, and PwC — are also pulling out of the country, further eroding investor trust.

RUSSIAN REACTION TO SANCTIONS The Central Bank of Russia more than doubled its key interest rate to 20% to stop the ruble's free fall against the dollar.

Foreign investors who hold billions of dollars’ worth of Russian stocks and bonds can't sell their securities, and interest payments have been blocked too.

Furthermore, exports of more than 200 essential products have been banned until the end of the year. Kremlin is also initiating consultations internally regarding the nationalization of the business organizations who have left Russia to seize their assets.

Source: Statista

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| ECO SECTION WAY AHEAD/CONCLUSION Russia has become the most sanctioned country globally, and these economic sanctions have led it to become increasingly closer and dependent upon its Asian allies, especially China. Political, economic and defense cooperation among Russia and its Asian allies is naturally bound to increase.

President Putin had been preparing for such an event ever since the invasion of Crimea in 2014.

History has exhibited that the economic sanctions usually don't work for their original intended cause in the long run. The treaty of Versailles forced similar economic repatriations upon Germany after First World War, and this ultimately led to the uprising of the Second World War with the rise of Hitler and Nazism. Will the current weaponization of economic sanctions against Russia lead to a similar change in the world order? Only time would tell.

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| SECTOR ANALYSIS

BFSI SECTOR INTRODUCTION BFSI sector in India comprises of Banking, Financial Services, and Insurance sector.

The BFSI sector has come a long way in the last year in terms of how it operates.

Following the pandemic, the digital banking ecosystem shifted into high gear, resulting in the growth of non-physical modes of transactions. With the integration of AI, ML, and IoT into the financial services industry in India, the Big Data Revolution has exploded.

Rishika Jain | MBA - D| 2021-23 Vinay Kumar | MBA - IB| 2021 - 23 The public banking and the private banking sectors had total assets of US$ 1,602.65 billion and US$ 878.56 billion, respectively, in FY21.

BANKING SECTOR

As of September 24, 2021, bank credit totaled Rs. 110.46 trillion (US$ 1.47 trillion), with credit to non-food industries totaling Rs. 109.82 trillion (US$ 1.46 trillion). It would not be wrong to call it an industry in and of itself, comprising of the following structure:

The Indian banking system consists of 12 public sector banks, 22 private sector banks, 46 foreign banks, 56 regional rural banks, 1,485 urban cooperative banks, and 96,000 rural cooperative banks & a total of 213,145 ATMs as of September 2021. Bank assets increased across all sectors from FY18 to FY21. In FY21, total banking assets (including both public and private sector banks) increased to US$ 2.48 trillion.

1. Central Bank 2. Scheduled Commercial Banks 3. Regional Rural Banks (RRB) 4. Cooperative Banks 5. Specialized Bank 6. Development Banks 7. Small Finance Bank (SFB) 8. Payments Bank 9. Non-Banking Financial Institutions (NBFCs)

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| SECTOR ANALYSIS insurance companies insurance companies.

Source: ibef.org

FINANCIAL SERVICES SECTOR India has a diverse financial sector that is rapidly expanding, both in terms of existing financial services firms' strong growth and new entrants into the market. Commercial banks, insurance companies, non-banking financial companies, co-operatives, pension funds, mutual funds, and other smaller financial institutions make up the sector. New entities, such as payment banks, have recently been allowed to be established by the banking regulator, expanding the types of entities that operate in the sector.

The mutual fund industry managed Rs. 37.33 trillion (US$ 500.67 billion) in Assets Under Management (AUM) as of October 2021.

The total number of accounts was 114.4 million as of October 2021.

INSURANCE SECTOR There are 57 insurance companies in India's insurance industry. There are 24 life

and

34

non-life

Life Insurance Corporation (LIC) is the only public company among life insurers. In the non-life insurance segment, there are six public sector insurers. Aside from these, the General Insurance Corporation of India (GIC Re) is the only national re-insurer.

Agents (individual and corporate), brokers, surveyors, and third-party administrators handling health insurance claims are among the other stakeholders in the Indian insurance market.

In FY21, India's insurance penetration was 4.2 percent, with life insurance accounting for 3.2 percent and non-life insurance accounting for 1.0 percent. In terms of insurance density, India ranked 78th in FY21.

The life insurance industry grew at a 5.8 percent annual rate in the first half of FY22, compared to 0.8 percent in the same period last year. New premiums from life insurers increased by 22.2 percent in September 2021, compared to 2.9 percent in September 2020.

Non-life insurers wrote off Rs. 108,705.3 crores (US$ 14.47 billion) in gross premiums between April and September 2021, up 12.8 percent from the same period in FY21. The non-life insurance segment earned a total premium of Rs. 17,679.98 crore (US$ 2.38 billion) in October 2021, compared to Rs. 15,906.71 crore (US$ 2.14 billion) in October 2020.

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| SECTOR ANALYSIS

GOVERNMENT INITIATIVES The RBI launched the 'RBI Retail Direct Scheme' for retail investors in November 2021, with the goal of increasing retail participation in government securities.

The Central Banks of India and Singapore announced in September 2021 that they would link their digital payment systems by July 2022 to allow for instant and low-cost fund transfers.

The Reserve Bank of India announced on September 30, 2021, that for the quarter beginning October 1, 2021, the applicable average base rate to be charged by non-banking financial companies - microfinance institutions (NBFC-MFIs) to their borrowers would be 7.95 percent.

The IFSC Authority formed an expert committee on September 30, 2021, to recommend a strategy for developing a sustainable finance hub and provide a road map.

additional exports worth Rs. 5.6 lakh crore (US$ 75.11 billion) over the next five years.

RISING TRENDS IN THE INDUSTRY The industry's current shape and size are due to emerging trends such as increasing customer-centricity from banks toward customers. This has resulted in increased competition and a wider range of options for consumers. Alternative Channels, such as Point of Sale (PoS) terminals, have transformed the industry to make services more mobile-friendly.

Government regulations are promoting industry innovation, as evidenced by the following trends: Digitization & Digitalization Internet-enabled banking, Real-Time Gross Settlement, National Electronic Funds Transfer, and Immediate Payment Service (IMPS) have all business cost. They help front-line workers make fewer human errors than before, increasing bank profit margins.

Online Mobile Banking

The Indian government signed a US$ 40 million agreement with the World Bank in November 2021 to improve the quality of health services in Meghalaya, including the state's health insurance programme.

The Union Cabinet approved a Rs. 6,000 crore (US$ 804.71 million) investment in entities in September 2021, to facilitate

Mobile banking apps have elevated banking to new heights and reduced reliance on physical banking locations.

Without visiting a branch, an individual with a smartphone and an internet connection can easily monitor account balances, make fund transfers, and make payments. We can easily see the Internet of Things (IoT) and voice-enabled functions

15

| SECTOR ANALYSIS making banking seamless in the not-toodistant future. Voice-activated television, cars, and other appliances have already made their way into our homes as real-life use cases.

Unified Payment Interface (UPI) Keeping with the theme of technology, a Unified Payment Interface app is a payment system that enables instant interbank fund transfers with just a few taps on your smartphone. It was designed by the National Payments Corporation of India, with the Reserve Bank of India as the governing body. It doesn't get any better than this in interbank payment systems.

The service, launched in 2016, is available 24 hours a day, 365 days a year.

Digital-Only Banks

reforms are expected to give the banking sector a boost.

These factors point to a strong future for India's banking sector, as rapidly expanding businesses will turn to banks for credit. In addition, the life insurance industry's future looks bright, thanks to a number of regulatory changes that will lead to even more changes in the way the industry does business and interacts with its customers.

Technological advancements have pushed mobile

and

forefront.

internet

The

banking

banking

to

industry

the is

emphasizing providing better services to customers and upgrading their technology infrastructure

to

improve

the

overall

customer experience and give banks a competitive advantage.

To put it more simply, payment banks. The Reserve Bank of India has introduced a new banking category. Payment banks have the legal authority to provide the majority of the services provided by traditional banks, with the exception of loan and credit card issuance.

ROAD AHEAD On the back of strong banking and insurance sectors, India is now one of the most vibrant global economies, and it is expected to be the world's fourth-largest private wealth market by 2028. Increased infrastructure spending, faster project implementation, and the continuation of

16

| COMPANY ANALYSIS

BAJAJ HOLDINGS & INVESTMENT LTD. COMPANY'S OVERVIEW Billionaire Rahul Bajaj founded the company in the year 2008. Bajaj Auto Limited (BAL) was bifurcated into Bajaj FinServ (BFS) and BHIL. BAL now focuses solely on manufacturing and marketing scooters, whereas BFS manages the wind farm and financial services businesses, and BHIL manages the finances as an investment firm. BHIL holds over 30% of BAL and BFS and roughly 25% of Maharashtra Scooters Limited. They also have a stake in ICICI Bank Limited, India’s second-largest bank. BHIL is part of the Bajaj Group, founded in 1926 by Jamnalal Bajaj and now includes 34 firms.

COMPANY HISTORY 1945: Incorporated as Bachraj Trading Corporation Pvt Ltd. 1948: Commenced sales by Importing Two and Three-wheelers 1960: Became a Public Listed Company

Aditya Shukla| MBA - FS | 2021-23 Natania Mahipal | MBA - IB | 2021-23 1999: Entered into Joint Venture agreements with Allianz AG Germany for setting up two companies, namely Bajaj Allianz General Insurance Co Ltd & Allianz Bajaj Life Insurance Co Ltd. 2007: Incorporated into two whollyowned subsidiaries, namely BHIL (Bajaj Holdings and Investment Ltd.) and Bajaj FinServ Ltd. 2012: Appointed Shri Sanjiv Bajaj as Managing Director of the company 2017: Delisted the company’s GDRs from the London Stock Exchange.

SHAREHOLDING PATTERN ANALYSIS Bajaj Holdings and Investment Ltd. is a publicly listed company with a market capitalization of Rs. 55,077 crores. As of March 31st, 2021, around 50.48% of the shares were held by the promoters of the company, and 20.82% of the shares were

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| COMPANY ANALYSIS

They all have the provision to get re-elected to the positions held by them every five years, with the current tenure being April 1st, 2021 to March 31st, 2026.

Source: Screener.in

held by the general public. After analyzing the shareholding pattern for the last couple of quarters, we can see that the percentage of shares held by promoters has been increasing by a small percentage, which means that the promoters have confidence in the future growth prospects of the company.

The holding by foreign institutional investors and the general public has decreased; meanwhile, the holding by domestic institutional investors has increased.

Source: Annual Report

BUSINESS SUBSIDIARIES AND ASSOCIATES Bajaj Holdings and Investments Limited (BHIL) is essentially an investment company and does not carry out any operations of its own. Following are the associates and subsidiaries of the company – Bajaj Auto Ltd. –

MANAGEMENT TEAM The Management team has been quite competent and stable throughout the years.

The key managerial people have remained the same and have held their positions since commencement. The company has an optimum combination of executive and non– executive directors with a woman independent director on the Board.

Bajaj Auto, the flagship company of the Bajaj Group, is a two- and three-wheeler manufacturer with operations in 79 countries across Latin America, Southeast Asia, and other regions. The company’s headquarters are in Pune, India.

It also owns 48 percent of the KTM AG Brand of Austria, which makes sports and super sports two-wheelers.

As of March 31st, 2021, the Company's Board consisted of ten directors, of whom one was executive (Managing Director), five were non-

Bajaj Auto Ltd. is an associate company of BHIL.

executive and independent, (including woman independent director), and four were non-

As of March 31st, 2021, BHIL owned a

executive and non-independent.

35.77% stake in Bajaj Auto Ltd.

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| COMPANY ANALYSIS Bajaj Finserv Ltd. – Bajaj Finserv Ltd is involved in lending, protection, and saving services. It also has digital and online platforms that provide various financial products and services.

Bajaj Finserv Ltd. conducts operations through 3 subsidiaries, i.e., Bajaj Finance Ltd., Bajaj Allianz General Insurance Company Ltd. (BAGIC), Bajaj Allianz Life Insurance Ltd. (BALIC), and Bajaj Finserv Direct Ltd. Bajaj Finance Ltd. is engaged in lending and investment activities.

Bajaj Finserv Direct Ltd. undertakes digital services to expand the business of other subsidiaries.

stake in Maharashtra Scooters Ltd. FINANCIAL ANALYSIS The revenue from operations of Bajaj Investments and Holdings Limited stood at Rs. 399.11 crores for the FY 2020-21, up from Rs. 393.38 crores in FY 2019-20.

The company’s operating profit stood at Rs. 357.56 crores for the FY 2020-21 as against Rs. 301.73 crores in FY 2019-20, registering a growth of 18.50%.

The associate companies registered a profit before tax of Rs. 3765.74 crores, up 13.64%.

The consolidated bottom line for FY 2020-21 was Rs. 3649.83 crores, up 657.83 crores from the previous financial year.

Bajaj Finserv Ltd. is an associate company of BHIL.

The basic and diluted EPS for the FY 2020-21 stood at Rs. 327.9 on a consolidated basis, as against Rs. 268.8 in FY 2019-20.

As of March 31st, 2021, BHIL owned a 41.63% stake in Bajaj Finserv Ltd.

RATIO ANALYSIS

Maharashtra Scooters Ltd. – Maharashtra Scooters Ltd. is a manufacturing company engaged in producing dies, Jigs, fixtures, and die casting components primarily for the automobiles industry. The company’s headquarters are in Pune, India.

It is a subsidiary company of BHIL. As of March 31st, 2021, BHIL owned a 51%

Source: Screener.in

Over the years, the company has maintained a solid net profit margin, with the net profit margin for FY 2020-21 at 52.25%.

Given that the company has a very small proportion of inventories, the quick and current ratios don’t vary that much.

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| COMPANY ANALYSIS The company has maintained a debt-free status over the years, resulting in a debtequity ratio of 0.

project, and funds worth 100 lakh were allocated.

Governance

ESG ANALYSIS Environmental During FY 2020-21, the company switched from conventional lighting to an LED lighting system in its Mumbai office.

Social The company launched Jnana Prabodhini (Arogya Sakhi) to improve the health of rural and tribal communities residing in 80 villages of Velhe and Bhor blocks of Pune district.

The company provided essential equipment and COVID-19 response material along with awareness initiatives on the pandemic through Jankidevi Bajaj Gram Vikas Sanstha (JBGVS). For this purpose, the company contributed Rs. 150.63 lakh.

As part of the ‘Bajaj I Create India’ initiative, the company established a new business incubation center in Pune.

Through this initiative, the company aims to conduct Entrepreneurship training programs for retired army veterans. The Lead-Akanksha-I Teach Movement aims to provide electronic devices and internet connectivity to students from low-income communities. In FY 2020-21, 1,000 students were supported under this

As per the SEBI Listing Regulations, 50% of the directors are independent, including one woman board member.

The compensation of board members is approved at the company’s annual meeting via an ordinary resolution.

Furthermore, the remuneration committee is headed by an independent woman director, Dr. Gita Piramal.

Instead of hiring outside talent, the company focuses on nourishing employees’ talent and preparing them for board membership.

The company’s whistleblower policy enables employees to report instances of misconduct, fraud, and violation of the code of conduct, without fear of victimization.

The audit committee is led by an independent director, Mr. Pradip P Shah.

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| INTRIGUING INDEED

WAR BONDS LITIGATION FINANCING WHAT ARE WAR BONDS? War Bonds are commitment instruments (bonds) given by state-run organizations to move military exercises and creation in wartime. War securities will generally connect with the sensation of patriotism in individuals who believe their purchase to be a local area commitment. Since war protections offered a speed of return underneath the market rate, the endeavor was achieved by making exciting solicitations to vigorous inhabitants to credit the public power cash. While there has been a broad scope of developments for war protections, they will frequently be given at a discount and with returns underneath current market levels. In present-day times, states use bonds to alleviate extension. By providing protection, the public authority reduces the Money Supply and development as need diminishes. Thus, to support military exercises, state-run organizations print more money and use protections to reduce the money supply in the economy.

During WW1, war bonds were available for purchase by the retail monetary sponsors and had strong, intentional exposure that went with their issuance.

Anubhav Sood | MBA-B | 2021-2023 Uday Sardana| MBA-C | 2021-2023 They uncovered a big piece of the general population to bonds that were not aware of them beforehand.

During WW1, the United States government gave Liberty Bonds, which were used to help the exorbitant costs of the conflict. The issuance of the Liberty Bonds was joined with a strong interest in exposure to address Americans' positive energy. In any case, most of the bond purchases were made by banks and other money-related establishments that believed them to be connecting with the hypothesis of possible entryways.

THE HISTORY Taking everything into account, nations have financed war assignments in various ways, from war appraisals to selling plunder and taking out devastating credits. By the Napoleonic time, the British had taken on a more introductory course of giving "consol" commitment to gain war saves, typically from more significant money-related foundations.

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| INTRIGUING INDEED During the U.S. Civil War, Secretary of the Treasury Salmon P. Seek did a fantastic job.

To spread the public power's contention commitment even more extensively, he enlisted a large local number of bond sales reps. Their point was to convince individual occupants to purchase bonds as a singular endeavor.

For the most part, it was a direct financial arrangement: The public authority would use the money to summon the contention. At the same time, the inhabitant would get multifaceted paper security given by the Treasury. When the bond was created, or so the

pitch

went,

the

public

authority

promised to reimburse the head with interest, with expected returns of 5% to 7%.

The Lincoln association raised more than $2 billion

with

these

new

arrangements

The contention bonds sold in the U.S. helped the public authority raise about $185 billion. A little more than 84 million Americans bought Bonds. There was a cross-country work to pitch the bonds, going from games to public transportation.

Securing the bonds was generally associated with patriotism and people's vibe of "doing their part" in the contention.

One of the instruments that states utilize these days to move developments in military spending is printing more money.

The counsel of printing more money is that this extension in the money supply prompts inflationary strain. To direct the effects of development, the public power issues protections, reducing the money supply and diminishing inflationary pressure. This further fosters the speed at which the public authority has capital expeditiously available for military spending.

approach or about $37 billion in the current dollars.

Shockingly, since the value of the bonds wavered,

drowsy

postbellum

monetary

advancement diminished a colossal piece of the genuine return for financial benefactors.

Other than the United States government, various countries similarly gave war bonds, including Canada, Germany, the United Kingdom, and Austria-Hungary.

During WWII, the United States gave war bonds named Defense Bonds. They have later relabeled war bonds after the attack on Pearl Harbor.

Source: corporatefinanceinstitute

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| INTRIGUING INDEED HOW WAR BONDS WORK War bonds are sold at not so much as expected to be worth, and buyers get the entire application accepted without considering interest upon advancement. The speed of return on war bonds has not been lower than those of common bonds. War bonds from World War II, or Series E bonds, ought to have the advanced ten years, yet they were permitted an interest expansion up to 30 or 40 years, depending upon the size.

PROS War Bonds could be purchased at a price below their face value.

The U.S. government guaranteed war Bonds.

Investors experienced a sense of patriotism by helping the country in times of war.

CONS

Series E protections were sold at 75% of expected worth and had a 2.9% credit charge, collected semiannually. There were five open segments to begin: $25, $50, $100, $500, $1,000.

Shortly later, the public authority would add $5,000 and $10,000 decisions for the wealthier monetary sponsors. If you wanted a $1,000 war bond, you could get it for $750, $500 for $375, or $100 for $75.

BONDS AS PROPAGANDA Before American consideration in World War I, the Treasury added a substantial new part to its bond financing undertakings. The conflict program faulted his predecessor for restricting his endeavor to finalize the negotiation to money-related points of view instead of political exploiting. The World War I program transformed into an unavoidable, hard, and quick, deliberate exposure movement for the U.S. war effort.

ADVANTAGES AND DISADVANTAGES OF WAR BONDS

Paid lower interest rates than other securities in the market.

War Bonds did not pay interest payments throughout the life of the bonds.

As with any security, War Bonds carried the risk of a loss if sold before maturity for a lower price than the purchase price.

THE CURRENT CASE OF UKRAINE WAR BONDS Today, Ukraine's contention bond movement is spreading out, be that as it may, it procures a great deal of this arrangement of encounters.

There are even a couple of propagandistic parts drawn in with the work since Ukraine's contention bond bargain was proclaimed on Twitter and has stimulated fiery solicitations.

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| INTRIGUING INDEED Regardless, the movement up until this point radiates an impression of being confined to more significant monetary benefactors, for instance, banks and exchanging organizations. It is significant for a broader crowdfunding work to acquire the local and overall assistance for Ukraine as it endeavors to rebuff Russian powers. The country's unsteady records have long relied upon help from the International Monetary Fund and encountered another blow the Covid pandemic. Its FICO evaluations were cut further into non-adventure grade, or trash, after Russia went after, meaning various enormous institutional monetary benefactors couldn't buy its commitment.

The essential struggle protections sold on March 1 yielded 11% and had a standard worth of 1,000 hryvnias, or about $33. That glances at a construed yield of 37.8% on legal Ukraine one-year protections traded in the discretionary market. Yuri Butsa, Ukraine's commitment chief, told Bloomberg Television that the public authority might give new cash protections. The public authority needed to sell more clash protections on March 8 to gather pledges for military stuff and a generous aide like clothing and covers.

Sources:

Corporatefinanceinstitute.com,

Investopedia.com,

theconversation.com,

Bloomberg.com, thebalance.com

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| ENTREPRENEURSHIP INNOVATION

INCRED INTRODUCTION

Sudeshna Sur | MBA C | 2021-2023

InCred is a new-age financial services platform that leverages technology and data science to make lending quick and easy. InCred stands for “credit for Incredible India”. They use technology and data science to make lending quick, simple, and hassle-free. They believe that traditional ways of lending can exclude consumer base most in need because of outdated, rigid, and often inefficient processes. At InCred, they have simplified the lending process with a sharp focus on serving their borrowers’ unique needs and circumstances – offering their customers a truly superior borrowing experience. InCred was founded in 2017 by Bhupinder Singh, head of the Corporate Finance division of Deutsche Bank, and he also co-headed the Fixed Income, Equities, and Investment Banking divisions for the Asia Pacific region. Currently, the headquarters of InCred is in Mumbai, Maharashtra.

highly integral financial institution that positively advances the socio-economic well-being of lower middle class to middle-class Indian households while protecting the interest of all stakeholders.

VISION To create a trustworthy, transparent, and

MISSION To be relentless in inculcating and nurturing a culture of continuous innovation and execution excellence by combining cutting edge technology, data science, and deep financial domain expertise and delivering the best suited profitable products in the most dignified experiences for every customer.

BRAND PHILOSOPHY “To build our brand through affirmative experiences where every moment of truth for our stakeholder conveys and endorses our core values of High Performance, Ownership, Continuous Improvement and Integrity”

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| ENTREPRENEURSHIP INNOVATION ADVANTAGES OF INCRED

well as fairly priced.

InCred’s main motto was to Reinvent Lending.

Education Loans

Product Benefits

Higher Loan Limits

InCred aims to support the growth story of India and aid the current and future generations of the country embarked on its journey of development - by removing the biggest hurdle of financing when students want to pursue higher education.

Flexible repayment options

SME Finance Loans

Products tailor-made for the needs of customers

Customer Focused A human approach to lending Respectful and caring World-class customer service Simple and Easy

India has the potential to emerge as the fastest-growing economy in the world. With over 50 million SMEs, India’s growth will be determined by these businesses. But their biggest hurdles are inadequate access to credit and financing. InCred aims to help such businesses overcome these obstacles by providing working capital, growth capital, and tailor-made financing solutions.

No branch visit required Digital MSME Loans Instant loan sanction Online loan account management BUSINESS MODEL OF INCRED InCred provides four types of loans: Personal Loans From medical emergencies to happy events like weddings, InCred’s consumer business focuses on providing unsecured personal loans that are both convenient to process as

A loan offer that is exclusively designed for businesses that are selling goods/services online, InCred provides quick and seamless business loans without collateral. They believe in enabling small businesses and start-ups to unlock their true potential and hence have partnered with industry leaders like Amazon and Zomato to provide credit with ease.

INCRED REVENUE MODEL The lending entity InCred Financial Services

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| ENTREPRENEURSHIP INNOVATION cities and Non- Residential Indian (NRI) clients in over 10 countries, which highlights the trust of people in the innovation of their product offerings.

AWARDS The Economic Award 2020

Times

Best

Brands

Source: Statista

Super StartUps Asia Award 2019

Limited has a Non-Banking Finance Company (NBFC) license granted by RBI.

The Economic Times Award 2019

NBFCs are in the business of lending and their activities are similar to the banks.

However, there are key differences between banks and NBFCs. NBFCs cannot accept demand deposits and do not form part of the payment and settlement system.

LinkedIn Top StartUps Award 2018

Best

Brands

They can also not issue cheques withdrawn on demand. InCred makes money from the interest it earns on the loans it provides to individuals and small businesses.

The difference between the interest it earns on the loans extended and the interest paid on the debt funding obtained by it for funding its operations represents its netinterest income.

GROWTH InCred Wealth has clocked over $1.2 billion of AUM (Assets Under Management) with over 1600 HNI clients over the last year. They have domestic clients in over 50 Indian

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| PERSON IN FOCUS

RAJESH GOPINATHAN Arohi Pandey| MBA – B | 2021-2023 Rajesh Gopinathan, born in 1971, is the CEO and Managing Director of Tata Consultancy Services, leading global IT solutions and consulting firm. He served as the Chief Finance Officer at TCS from 2013 and was elevated to the CEO position in 2017.

PERSONAL LIFE Rajesh Gopinathan was born in Thrissur, Kerala but lived in Lucknow and completed his schooling from the city. Rajesh likes to go for long walks. He loves reading books, travelling, and watching movies.

Rajesh completed graduation in 1994 with an Electrical and Electronics Engineering degree from the Regional Engineering College, Tiruchirappalli (now National Institute of Technology, Tiruchirappalli). In 1996, he obtained a post-graduate diploma in Management (PGDM, equivalent to an MBA) from Indian Institute of Management Ahmedabad.

He joined the Tata Strategic Management Group in 1996.

PROFESSIONAL LIFE Rajesh came to Tata Consultancy Services from Tata Industries, where he was in charge of the company's newly formed e-business segment in the United States. He was involved in the company's new organisational structure and operational model's design, structure, and execution. In 2013, Rajesh took over as the company's Chief Financial Officer. He was previously Vice President – Business Finance, where he was in charge of the company's different operating units' financial management. In February 2017, he was promoted to Chief Executive Officer after serving as the company's Chief Financial Officer for four years.

He was instrumental in transforming TCS into a USD 20.9 billion worldwide corporation. TCS is one of the largest private-sector employers in the world, with over 424,000 consultants, and was named a Global Top Employer for the third year in a row, with the highest

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| PERSON IN FOCUS retention rate in a competitive industry. TCS became India's most valuable firm in April 2018 as its market capitalization surpassed USD 100 billion under Rajesh's leadership.

For the second year in a row, TCS was named the fastest growing IT brand in the industry, and it cemented its position as one of the top three IT Services brands. This year, TCS's brand value climbed by 23%, propelling the company into the USD 12.8 billion club.

Under the able leadership of Rajesh Gopinathan in 2021, TCS' brand value grew by $1.4 billion over the prior year to USD 15 billion. It was ranked among the Top 3 most valuable brands in the IT Services sector globally according to the Brand Finance 2021 report.

AWARDS AND ACCOLADES 2021 - India's Best CEO in the category of Super large companies by Business Today (India) 2020 - Outstanding Business Leader of the Year - CNBC TV18 India Business Leader Award (IBLA) 2019 - Management Man of the Year 40th Bombay Management Association Corporate Leadership and Academic Awards 2019 - CEO Force for Good Award - Globe

by CECP

Source: Reuters

2018 - Best CEO (First Place) Institutional Investor's 2018 All Asia Executive Team Rankings 2014 - Young Alumni Achiever's Award Corporate Leader Category Indian Institute of Management Ahmedabad RECENT REVOLUTION In February 2022, Gopinathan completed five years as the CEO of TCS. Major part of his tenure was under the COVID impact, but, in February 2022, TCS grew by about 468% to Rs. 13.99 lakh crore from February 2017.

In the last couple of years, when attrition was extremely high throughout the industry, TCS claimed to have kept the levels well below the industry averages. Since the FY16, TCS has witnessed a 67% increase in women in top leadership positions.

In the past month, TCS announced Rs. 18,000 share buyback. The 14-day long buyback offer priced at Rs 4,500 per equity share for shares worth Rs 18,000 crore is TCS'S fourth and biggest buyback in the past 5 years.

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| PERSON IN FOCUS The Singapore Exchange has chosen Tata Consultancy Services Ltd's BaNCs solution to power the NSE IFSC-SGX Connect trading link at the Gujarat International Finance Tec-City special economic zone, allowing Singapore traders and other international investors to trade Nifty derivatives in real-time.

Tata Consultancy Services (TCS), India's largest and globally second-largest information technology (IT) services supplier, recently set an ambitious sales target of $50 billion by 2030. However, the amount of growth required to achieve this target is less than the company's standards.

The corporation has declared that its goal is to reach $50 billion in revenue by 2030, which suggests it may be able to achieve this goal sooner than that, particularly in light of the growing demand for digital transformation and cloud migration.

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| CALL FOR ARTICLE: WINNER

THE EMERGENCE OF INDIA AS A MANUFACTURING HUB FOR GREEN HYDROGEN Izabel Thomas |GLIM, Gurgaon| MBA Batch 2021-23 The demand for energy in the automotive and industrial sectors is skyrocketing around the world. The rapid population growth rate in India is creating a great strain on the country's energy supply to meet people's everyday demands.

Conventional energy sources will be insufficient to meet rising energy demand, and pollution is a major cause of worry. As a result, an alternative fuel is urgently needed in the current situation, both economically and environmentally. In this regard, governments around the world, including India, are focusing on renewable energy sources such as hydrogen, which is abundant in nature.

and buses powered by hydrogen fuel cells are examples of its use in the latter.

Hydrogen can be made in a variety of different methods. The most common form of Hydrogen produced industrially is what is known as Grey Hydrogen. It's made from natural gas in a very polluting process called steam reforming, which emits 10 kilogrammes of CO2 for every kilogramme of hydrogen generated (McKinsey & Company, 2021). Electrolysis is another way, which involves breaking water into oxygen and hydrogen using an electric current. It's called "green" or "renewable" hydrogen as the electricity utilised in the process originates from a renewable source like wind or solar.

THE HYPE AROUND HYDROGEN Hydrogen, termed a "versatile energy carrier" by the International Energy Agency, has a wide range of applications and can be used in industries and transportation. Trains, aeroplanes, cars,

GEOPOLITICAL SIGNIFICANCE OF ENERGY TRANSITIONS Green hydrogen has the potential to secure nearly 14% of the future global energy markets (Fridolin Pflugmann, 2020). If the

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CALL FOR ARTICLE: WINNER hydrogen economy is to take roots, it has the potential to alter the geopolitical chessboard, creating a new map of international trade, redrawing dependencies and rivalries between countries.

New forms of reliance and transformations in bilateral relations will be spawned by hydrogen trade and investment flows. Around 30 countries have devised strategies revolving around hydrogen import and exports implying that cross border trade will grow significantly (IRENA, 2022).Several leaders are rising, including EU, Japan,and China. India has a window of opportunity to acquire huge portions of this industry by leveraging its vast domestic market, green hydrogen's competitiveness, and low-cost labour.

hydrocarbon fuels, but it will also offer clean air to its population, reduce absolute greenhouse gas (GHG) emissions, mitigate carbon emissions, and fulfil the Atmanirbhar Bharat goal.

A report by TERI estimates that demand for hydrogen in India could increase by fivefold in 2050. The present demand for hydrogen is around 6 million metric tonnes per annum and is expected to increase to 28 Mt by 2050.

Hydrogen demand projection, 2020-2050 (Source: TERI)

Shifts in the value of trade in energy commodities, 2020 to 2050 (Source: IRENA 2022) INDIAN PERSPECTIVE Coal, oil, and solid biomass provide about 80% of India's energy needs. Adoption of green hydrogen to create electricity would be beneficial to India's energy shift to clean fuels.

The shift to a hydrogen economy will not only reduce

India's

reliance

on

imported

According to this report the cost of producing Hydrogen from renewable sources will fall by 50% in 2030 which might help green hydrogen to compete with grey hydrogen. This will be made possible by a significant reduction in the cost production technologies such as electrolysers and solar photovoltaics.

There is a tremendous opportunity for growth and many companies such RIL, GAIL have already announced investments plans to reap benefits from this sunrise sector.

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| CALL FOR ARTICLE: WINNER POLICY INTERVENTION "We have to make India a global centre for green hydrogen production and export," Narendra Modi's remarked during Independence Day Address. In her budget statement in February 2021, finance minister Nirmala Sitharaman unveiled the National Hydrogen Mission which aims to turn India into a green hydrogen hub that will assist the country reach its climate goals. India has set a target to produce five million metric tonnes per annum of green hydrogen by 2030, as well as develop renewable energy capacity in the process. The launch of Green Hydrogen Policy highlights India’s commitment to become carbon-neutral by 2070 undertaken during the COP-26 summit in Glasgow last year.

85 percent of India’s crude oil and 53 percent of natural gas demands are met by imports.

The ongoing Russia-Ukraine crisis has underscored the importance of energy security as the energy prices around the world have spiked. Hence the green hydrogen policy becomes very relevant for India. As envisaged in the policy, India will set up separate manufacturing zones, waive interstate power transmission charges for 25 years and provide priority connectivity to electric grids to green hydrogen and ammonia producers in a bid to incentivise production.

KEY CHALLENGES

expensive to compete with grey hydrogen.

The GOI’s hydrogen policy has laid down a roadmap to reduce hydrogen generation cost. But the fundamental difficulty is to make green hydrogen as economically feasible as grey hydrogen which is 4-6 times cheaper.

The policy mandates the elimination of central open access charges which will lower down production costs. The elimination of central open access charges will result in lower production costs; however, state-level open access charges may negate the intended incentives; consequently, collaborative efforts between the centre, states and the industries are needed to produce a positive impact of the scheme.

With the globe looking for methods to speed up the pace of energy transformation, India is in a unique position to not only become self-sufficient in green hydrogen, but also to manufacture green hydrogen for export markets, with the correct policy backing.

The focus on producing clean energy using green hydrogen aligns with the Narendra Modi government's goal of producing 450 GW of renewable energy by 2030 in order to meet the Paris Agreement's emission goals and reduce reliance on fossil fuel imports.

The cost of renewable electricity has plummeted which can make green hydrogen production more viable. But it is still

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| ALUMNI INSIGHTS

LIQUIDITY POOL: WHAT ARE THOSE? Sitharthan K | PGDM Financial Services | FINSTREET KT Session Head | Batch 2019 Liquidity Pools are pools filled with cryptoassets. Technically, they are Smart Contracts (a piece of computer code) that allow traders to trade cryptocurrencies.

To fully appreciate the concept of Liquidity pools, let's try to understand how the traditional stock or equity market works.

TRADITIONAL MARKETS AND INEFFICIENCIES Traditional markets (like the Stock market) use Order Book Model. Buyers and sellers electronically enter the order containing the quantity and price of the stock they want to buy and sell.

When the buy and sell order matches, then a trade is completed. The buyer gets the stock, and the seller receives the cash.

This system is highly inefficient due to the following reasons –

1) You need to set a price which others are willing to buy/sell at 2) You need to wait till your price and quantity matches to make the trade SOLUTION What's the solution to overcome this inefficiency? Liquidity Pools (LP).

It uses an algorithm (Constant Product Automated Market Maker (CPAMM)) to allow traders to buy/sell an asset irrespective of its price, time of the day, or availability of buyers/sellers.

The algorithm makes sure that the cryptos within the pool don't deplete so that traders can trade indefinitely.

There are mainly two stakeholders in the LP – 1) Liquidity lend their

Providers: People who cryptos for earning

34

| ALUMNI INSIGHTS

interest/commission fees 2) Buyers/Sellers: People who trade the cryptos in the LP and pay a small commission fee for the transaction EXAMPLE A typical LP contains a pair of cryptos (minimum). Let's take the example of an LP containing the Ethereum (ETH) and Basic Attention Token (BAT) pair.

Q: What is the role of a Liquidity Provider?

A: Initially, when Liquidity Providers lend to ETH-BAT LP, the pool maintains the total value in the ratio of 50:50. For instance, if you provide INR 200 to the pool, it has to be INR 100 of ETH and INR 100 of BAT to maintain the 50:50 ratio.

A: If you want to buy BAT from the LP, you need to sell ETH to the LP. If you are buying more BAT, then the BAT's price slowly rises (as demand increases) within the pool. On the other hand, as you will be selling more ETH to buy BAT, the ETH’s price slowly falls within the pool (as supply increases). Also, the prices are adjusted in a way to maintain the constant K (i.e., 10,000 in the above example).

Well-known LP includes Uniswap, Balancer, Pancake Swap. Uniswap consists of multiple pools containing two assets, whereas Balancer has pools with up to eight assets inside it. The algorithm to maintain an equal ratio among eight assets is pretty complicated.

PRICE IMPACT

Q: How is the ratio maintained?

A: By using the CPAMM algorithm mentioned earlier. The formula used by the algorithm to maintain the ratio is x * y = K.

You may ask whether someone can manipulate the crypto price within the pool. Yes, it is possible for LPs with a smaller fund.

In this example, x = total value of BAT in the LP; y = total value of ETH in the LP; K = Constant.

However, it's difficult to do in large LPs which holds assets worth billions of USD (PancakeSwap holds $12B). Hence, the more money in an LP, the stabler it is.

x*y=K 100 * 100 = 10,000

ADVANTAGES

Q: Why to maintain the ratio?

A: To make sure that the pool doesn’t deplete so that traders can trade indefinitely.

1) Liquidity Providers earn commission fees proportionate to the liquidity provided by them

Q: What is the role of the buyer/seller within the LP?

2) Arbitrage Traders: As the asset price changes within the pool, traders can earn

35

| ALUMNI INSIGHTS

profits by buying the crypto from LP and selling it to the crypto exchange (like Coinbase) by utilizing the arbitrage opportunity. Let's assume the price of ETH is INR 100. For example, if traders buy more BAT and sell more ETH from the ETH-BAT pool and let’s say the price of ETH drops to INR 99 to maintain the 50:50 ratio. You can use this opportunity to buy ETH from the pool (@INR 99) and sell it to exchanges (where the price of ETH is more than INR 99).

CONCLUSION CPAMM is definitely better than order book model.

But what if I say that the CPAMM algorithm is not fully efficient? The latest version of Uniswap (v3) uses a more sophisticated system called ‘Concentrated Liquidity’ to utilize liquidity in an efficient manner.

Well, it will be covered in upcoming posts.

Disclaimer: The value of the assets is indicative only.

This is for educational purposes only and is not investment advice.

.

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ISSUE NO. 110, APRIL 2022

About Finstreet Finstreet, the finance committee of K J Somaiya Institute of Management aims at bridging the gap between industry and academic curriculum through effective delivery of knowledge-oriented sessions and events through a network of highly motivated members and renowned industry experts. Through the FINLY magazine, we focus on covering crucial topics for each month and giving our members a platform to express their views.

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