Finly September by FINLY

From the Editor’s Desk

FINLY| September 2017 | Finstreet | SIMSR

Dear Readers, Team finly is back with yet another exciting edition of your beloved magazine Finly. We hope the placement season is going well in your institute. To help you in your endeavours to enhance your knowledge, we bring to you the latest edition of our monthly magazine Finly. In this month's edition we have covered the inclusion of HDFC bank in “the too big to fail” category along with the methodology to identify systemically important banks and the extra precautions regulators need to take care to make sure that these banks do not fail. The Eco Section this month covers the economics behind the festival of most celebrated sport of India that is IPL. In the Sector Analysis, writers have explored microfinance and tried to find out the challenges and opportunities in the sector. Fintech section for this month will introduce readers with Initial Coin Offering which is basically the IPO of cryptocurrencies. We are adding a new section Company Analysis this month to help students learn more about various businesses. Last but not the least, there is news buzz and trivia to update you with the latest happenings in the world. I would like to extend my gratitude to Dr.Pankaj Trivedi for providing constant guidance and support to the entire finstreet Team. Also I would like to thank the finance department of our institute for the constant encouragement provided. I extend my gratitude to our sponsors Finacue Research & Education for their enriching collaboration. I would like to thank Mr.Pranav Turakhia for sharing his experience regarding making a successful career in banking in the Alumni section. Also, I would like to thank Mr.Chirantan Sinha for sharing his experience with Barclays in the internship diaries section. I would also like to acknowledge the members of Finly team who strive every month to make the magazine a success. It gives me immense pleasure to announce that Anurag Ajay Gupta from IMI, New Delhi has been declared as winner and Amman Kumar Sharma from KJ SIMSR has been declared as the runner up for the Call for article competition. We wish you a great luck in all your future endeavours. Madhur Saxena Editor-in-Chief PGDM 2016-18 KJ SIMSR

Team FINLY

FINLY| September 2017 | Finstreet | SIMSR

Table of Contents

FINLY| September 2017 | Finstreet | SIMSR

Cover Story

Satakshi Gupta PGDM IB Aadi Gala PDGM IB HDFC bank was in the news recently for being branded as a 'Systematically Important bank' or 'Too Big To Fail' by the Reserve Bank of India(RBI) in its annual meeting held in August for determination of such banking institutions, joining State Bank of India(SBI) and ICICI bank. But the question is what is this 'Too Big To Fail' all about and how is it determined and what is the rationale behind such a categorisation. Few banks, because of their size, cross-jurisdictional activities, complexity, lack of substitutability and interconnectedness, become systemically important. The failure of these banks can cause significant disruption to the essential services they provide to the banking system, and in turn, to the overall economic activity. As a result, for uninterrupted availability of essential banking services to the real economy the continued functioning of Systemically Important Banks (SIBs) is critical.

Lessons from global financial crisis During the US Housing crisis, it was observed that bankruptcy of certain large and highly interconnected financial institutions hampered the orderly functioning of the financial system, which in turn, negatively impacted the real economy. To ensure financial stability in many countries, government intervention was considered necessary. This intervention cost resulted in moral hazard of pumping the taxpayers' money into institutions facing bankruptcy to avert their failure, which otherwise would have resulted in failure of banking system ultimately leading tyrosine of public confidence in the financial system. This prompted the policymakers to make future regulatory policies targeting to reduce the probability of failure of SIBs and also reducing the impact of failure of any systemically important bank.

Cover Story

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To improve the resiliency of banks and banking systems, a series of reforms were unveiled as a response to the crisis, broadly known as Basel III norms which were voluntary for countries to adopt. Increase in the quality and quantity of regulatory capital of the banks, improving risk coverage, introduction of a leverage ratio to serve as a backstop to the risk-based capital regime, capital conservation buffer and counter cyclical capital buffer as well as a global standard for liquidity risk management are part of the Basel III reform measures. All the banks, including SIBs are covered in these measures. However, to counter the systemic risks posed by SIBs, additional policy measures are required. Additional risks posed by SIBs SIBs are banks that are perceived as 'Too Big To Fail (TBTF)'. This creates an expectation of government support for these banks at the time of distress. Hence, these banks enjoy certain advantages in the funding markets. This leads to amplified risk- taking, reduced market discipline, added competitive advantage, and increased probability of distress in the future due to the perceived government support. The above considerations require that SIBs should be subjected to additional policy measures to deal with the systemic risks posed by them. The Financial Stability Board (FSB), in October 2010, recommended that all member countries needed to have in place a framework to reduce risks attributable to Systemically Important Financial Institutions (SIFIs) in their

jurisdictions. The FSB asked the Basel Committee on Banking Supervision (BCBS) to develop an assessment methodology comprising both quantitative and qualitative indicators to assess the systemic importance of Global SIFIs (G-SIFIs), coupled with an evaluation of the extent of goingconcern loss absorbency capital which could be provided through various proposed instruments. In response, BCBS came out with a framework in November 2011 (up-dated in July 2013) for identifying the Global Systemically Important Banks (G-SIBs) and the magnitude of additional loss absorbency capital requirements applicable to these G-SIBs Identification of G-SIBs A methodology for assessing the systemic importance of G-SIBs has been developed by BCBS. The methodology is based on an indicator-based measurement approach. These indicators capture different aspects that generate negative externalities, and make a bank systemically important and its survival critical for the stability of the financial system. Selected indicators are categorised on the basis of size, global (cross-jurisdictional) activity interconnectedness, lack of substitutability or financial institution infrastructure, and complexity of the GSIBs. The advantages of a multiple indicator-based measurement approach are that it encompasses many dimensions of systemic importance, it is relatively simple and more robust than currently available model-based approaches for measurements

Cover Story

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and methodologies that rely on a small set of market variables or indicators. An equal weight of 20% has been given to each of the five categories of systemic i m p o r t a n c e i n d i c a t o rs i n t h i s methodology. Barring the size category, the BCBS has identified multiple indicators in each of the other four categories, with each indicator equally weighted within its category. That is, where there are two indicators in a category, each indicator is given a weight of 10%; where there are three, the indicators are each weighted 6.67% (i.e. 20/3). The score for a particular indicator for each bank is calculated by dividing the individual bank amount (expressed in EUR) by the aggregate amount for the indicator summed across all banks in the sample.

This indicator-based measurement approach is based on a large sample of banks, which works as a proxy for the global banking sector. Thefulfilment of any of the following three criteria by the bankswill lead to their inclusion in the sample: 1.75 largest global banks (based on the Basel III leverage ratio exposure measure at the end of the financial year); 2.Banks that have been designated as G-SIBs in the previous year (unless supervisors agree that there is a compelling reason to exclude them); 3.Banks that have been added to the sample by national supervisors using their supervisory judgement.

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The below table shows the disclosure made by State Bank of India as on end March 2017 as per the mandated format for identification of G-SIBs.

importance scores in ascending order, G-SIBs would then be plotted in four different buckets, and they would be required to maintain additional

Source: www.sbi.co.in

capital in the range of 1% to 2.5% of their risk weighted assets depending upon the order of the buckets. This additional capital (higher loss absorbency requirement) is to be met with Common Equity Tier 1 (CET1) capital. There is an empty bucket at the top (fifth bucket) with a CET1 capital requirement of 3.5% which has been provided to take care of banks, in case their systemic importance scores increase in future beyond the boundary

Those banks whose score (produced by the indicator-based measurement approach) exceeds a cut-off level set by the BCBS are classified as G-SIBs. There can also be a supervisory judgement to add banks with scores below the cutoff to the list of G-SIBs. This will be exercised according to the principles set out by BCBS. On the basis of their systemic

Cover Story

of the fourth bucket. In case this bucket gets populated in the future, a new bucket will be added. This acts as disincentive for possessing higher systemic importance scores and as an incentive for banks to avoid becoming systemically more important. Capital conservation buffer and countercyclical capital buffer would be required in parallel to the higher loss absorbency (HLA) capital requirement. The probability and impact of failure of a SIB on the real economy along with creating a level playing field between the SIBs and non-SIBs by reducing competitive advantages of SIBs in funding markets is the main motive of these measures. All these policies will thus endeavour to curb amplification of risk taking and reduce competitive distortions.

RBI for D-SIB Considering the Indian banking system where banks are not very much active in the derivative markets; it seems that conforming to Basel III norms for following the path of G-SIB for domestic market is not so important. But, being one of the important and fastest growing economies in the world, it is important for India to align its banking system with that of the world and start taking the initial steps towards it. That is where, Domestic Systemically Important Banks (D-SIB) comes into picture. Extrapolating the concept of GSIB, D-SIB framework focuses on the impact that the distress or failure of banks will have on the domestic economy.

Cover Story

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The methodology adopted by RBI to identify D-SIBs The process of assessment of systemic importance of banks is a two-step process. In the first step, sample of banks to be assessed for their systemic importance is decided. Consequently, in the second step, based on a range of indicators, a composite score of systemic importance for each bank in the sample is computed. The banks having systemic importance above a threshold will be designated as D-SIBs. The detailed process is described as followsSample of banks The banks are selected for computation of systemic importance based on the analysis of their size (based on Basel III Leverage Ratio Exposure Measure) as a percentage of GDP. Banks having a size beyond 2% of GDP are selected in the sample. Assessment methodology Assessment is done on four basic indicators where every indicator has different weightage according to their importance. A brief description of indicators, sub-indicators and their relative weights is as under:

A brief description of indicators are as follows: Size Size is a more important measure of systemic importance than any other indicators and therefore, size indicator will be assigned more weight than the other indicators. The size indicator takes into account both on- and off-balance sheet items. The score for each bank will be calculated as its amount of total exposure divided by the sum total of exposures of all banks in the sample. The banks with bigger size are given more importance. Interconnectedness Impairment or failure of one bank may have the potential to increase the probability of impairment or failure of other banks if there is a high degree of interconnectedness (contractual obligations) with other banks. So, the larger the number of linkages and size of individual exposures, the greater is the potential for the systemic risk getting magnified.

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Interconnectedness indicator is divided into three sub-indicators: intrafinancial system assets held by the bank, intra-financial system liabilities of the bank and total marketable securities issued by the bank. Intra-Financial System Assets a)Lending to financial institutions (including undrawn committed lines) b)Holding of securities issued by other financial institutions c)Gross Positive current exposure of Securities Financing Transactions (SFTs) d)OTC derivatives with financial institutions

critical services provided by the bank cannot be easily substituted by other banks. The greater the role of a bank as a service provider in underlying market infrastructure, e.g., payment systems, the larger the disruption it is likely to cause in terms of availability and range of services and infrastructure liquidity following its failure. The data for substitutability consists of a)Assets under Custody b)Payments made in INR using RTGS and NEFT systems c)Value of underwritten transactions in the debt and equity markets

Total marketable Securities issued by the bank (segregated for residual maturity less than one year and more)

2.Complexity The more complex a bank is, the greater are the costs and time needed to resolve its problems. The data for complexity consists of a)OTC Derivatives notional value segregated based on cleared through CCP and bilaterally cleared b)Value of securities held for trading, available for sale and designated as fair value c)Cross jurisdictional liabilities.

a)Debt Securities

Allocation of banks into buckets

b) Commercial Paper

Based on the data received from banks in the sample on the above indicators, systemic importance score will be calculated. For each bank, the score for a particular indicator will be calculated by dividing the individual bank amount by the aggregate amount for the indicator summed across all banks in the sample. The score for each category will be multiplied by 1000 in order to express the indicator scores in basis points.

Intra-Financial System Liabilities a)Deposits by financial institutions (including undrawn committed lines) b)Gross Negative current exposure of SFTs c)OTC derivatives with financial institutions

c)Certificate of Deposit d)Equity 1.Substitutability/financial institution infrastructure indicator The impairment or failure of a bank will inflict greater damage to the financial system and real economy if certain

Cover Story

Banks that have scores above a threshold score will be classified as DSIBs. However, the process of classification of a bank as D-SIB will also be guided by qualitative analysis and regulatory/supervisory insights about different banks. Banks will be allocated to different buckets based on their systemic importance score. Higher Capital Requirements for D-SIBs Based on a mix of quantitative analysis and country-specific factors as above, and as per the supervisory judgement of RBI, a bank with highest systemic importance score should be required to have 0.8% of its risk weighted assets as additional capital charge in the form of Common Equity Tier I (CET I) capital. Other buckets have been calibrated accordingly. The higher capital requirements applicable to D-SIBs will be applicable from April 1, 2016 in a phased manner and would become fully effective from April 1, 2019. The phasing-in of additional common equity requirement will be as follows

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The systemic importance score will be calibrated in such a manner that the bucket 5 does not have any banks initially. An empty bucket with higher CET1 requirement is to incentivize DSIBs with higher scores not to increase their systemic importance in future. In the event of the fifth bucket getting populated, an additional empty (sixth) bucket would be added with same range and same differential additional CET1. D-SIB banks for India The D-SIB Framework requires the Reserve Bank to disclose the names of banks designated as D-SIBs every year in August started from August 2015. The Framework also requires that D-SIBs may be placed in four buckets depending upon their Systemic Importance Scores (SISs). Based on the bucket in which a D-SIB is placed, an additional common equity requirement has to be applied to it, as mentioned above. Out of the four systemic importance buckets, SBI falls in bucket three (D-SIB in 2016), while ICICI Bank (D-SIB in 2016) and HDFC Bank (D-SIB in 2017) are in bucket one

Source: www.rbi.org.in

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Comparison of G-SIB and D-SIB norms

Conclusion HDFC bank being a new entrant in the â&#x20AC;&#x153;Too big to failâ&#x20AC;? category will be subjected to D-SIB surcharge from April1,2018. It has been put into Bucket I with ICICI Bank. Identification of HDFC bank to this stature is purely justified due to its good book. Comparing it with its rival in private sector bank, over the last couple of years, HDFC Bank has overtaken ICICI Bank in terms of balance sheet size and market capitalisation. As on June 30, HDFC Bank's total advances were at

around Rupees 5.8 lakh crore, as compared with ICICI Bank's Rupees 4.64 lakh crore. HDFC Bank's market capitalisation at the end of financial year 2016-17 stood at Rupees 3.7 lakh crore, as compared with Rupees1.6 lakh crore of ICICI Bank. Now, after coming into this league, HDFC bank will have to put aside 0.15% as CET1 requirement in addition to the capital conservation buffer. Apart from this, TBTF status will also open new avenues in terms of funding and will give an edge over its competitors.

Article of the Month - Winner

BRICS refers to the association of five nations; Brazil, Russia, India, China and South Africa. Formed in 2006, initially it was called BRIC. However, after the addition of South Africa in 2010, it came to be known as BRICS. All the members are developing or newly industrialized countries. Beginning with 2009, these countries have met annually at formally organized summits. All the members of BRICS are also members of G-20, another association comprising of 20 countries. As of 2015, the members of BRICS have a combined population of over 3.6 billion, which is more than 40% of the entire world population. Four of the five nations are among the ten most populous countries in the world. Moreover, the five BRICS countries have a combined GDP of US$ 16.6 trillion, which is equal to nearly 22% of the total world GDP. The combined GDP of the five BRICS countries is more than that of

the 28 nations of the European Union. Hence, it is quite clear that BRICS represents one of the most comprehensive independent association of nations in the world. The BRICS 2017 summit was held in Xiamen, China from 3rd September to 5th September. It was the ninth edition of the annual summit and the second one in China, the first one being in 2011 on the island of Hainan. 'Stronger partnership for a brighter future' was the theme of the Xiamen summit. All the respective heads of the member nations attended the summit, that is Narendra Modi from India, Xi Jinping from the host nation, Michel Temer from Brazil and Vladimir Putin and Jacob Zuma from Russia and South Africa respectively. The summit was chaired by the Chinese President Jinping. Coming directly in the aftermath of the 73-day Doklam standoff between India and China

Article of the Month - Winner

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that ended on 28th August , this was perhaps the most important of all the nine summits so far. However, as expected, both camps tried to stay away from the controversy as far as possible during the three-day summit. Issues such as terrorism, cooperation and trade were discussed in detail by the leaders. In a first, terror outfits such as Lashkar-e-Taiba and Jaish-eMohammed were consensually named the prime suspects for causing violence in the region. Moreover, the summit also witnessed China acknowledging Pakistan-based terror, inspite of its firm stance on MaulanaMasoodAzhar.Prime Minister Narendra Modi,as always, didn't fail to make his mark. He suggested a list of 10 commitments to be made by the members. These include: ŸCreation of a safer world via efforts on

three issues; counter-terrorism, cyber security and disaster management. ŸCreation of a greener world by taking relevant action to counter climatechange. ŸCreation of an enabled world by sharing of technologies among the members. ŸCreation of an inclusive world by economic integration of people. Creation of a digital world by bridging the digital gap within and between them. ŸCreation of a skilled world by giving future-acquainted skills to the youth. ŸCreation of healthier world, by using technology to eradicate diseases and

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provision of affordable healthcare services. ŸCreation of a connected world, via free flow of people, goods and services. ŸCreation of a harmonious world, by promoting ideas and practices that primarily focus on peaceful coexistence and harmony with nature. ŸCreation of an equitable world, by providing equal opportunity to all. He also reaffirmed India's stance and pledged India's complete support in enhancing cooperation and peace. Within the summit, PM Modi also had a bilateral meeting with his Russian counterpart Putin. The meeting came nearly three months after the duo had met in the annual India-Russia summit, and later at the Shanghai Cooperation Organisation meeting in Astana in the same month. The duo discussed a wide range of issues including cooperation in national gas and oil sector. They also discussed the ways to promote trade and investment. PM Modi urged the early formation of the BRICS rating agency in order to cater to the financial needs of the sovereign and corporate entities of the members. He also said that their central banks should strengthen their capabilities and promote cooperation between the Contingent Reserve Arrangement and the International Monetary Fund (IMF). The major takeaway from the three-day event was the signing of four crucial documents between the member nations. They are:

Article of the Month - Winner

1)Action agenda on economic and trade cooperation. 2)Action plan for innovation cooperation (2017-2020). 3)Strategic framework of BRICS customs cooperation. 4)Memorandum of Understanding (MOU) between the BRICS business council and the New Development Bank on strategic cooperation.

among others. While it may seem a victory for India that China publicly recognized Jaish-eMohammed and Lashkar-e-Taiba as terrorist outfits for the very first time, it is not a guarantee in any way that China will treat Pakistan as a perpetrator of terrorism and not merely a victim, as it has always done.

The members also laid down a list of 9 proposals that were to be explored f u r t h e r. T h e s e i n c l u d e o c e a n cooperation, tourism cooperation,establishment of BRICS Cultural Council, establishment of BRICS Council of Regions and BRICS Remote Sensing Satellite Constellation

Article of the Month - Runner Up

Contingent workforce has always existed, with some of the major industries taking advantage of it, some for back office works, others for accessing specialist skills and then some industries used it for meeting short-term or project based labour shortages. However, the traditional fulltime workforce model has held its ground as the primary go-to for almost all the industries. But recently this has begun to shift. Gig economy as the word 'Gig' suggests is an environment in which temporary positions are common and organisations contract with independent workers for short-term arrangements. Once the organizations are able to determine their strategic intent, and align that with the understanding of what makes 'giggers' tick, they need to put the right management and governance structures, workforce engagement models , risk management frameworks and compliance procedures in place to support both the business objectives

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and the workers who will help to execute it. This primarily involves stepping off a traditional employer plus model and rethinking the total approach to work and different types of workers coming together, possessing their different capabilities and tagging along with their counterparts to make the 'gig' work. The gig economy is supported and catalysed by the rise in technology and consumers who expect goods and services to arrive faster and look for more flexibly than ever before. In order to meet these demands, business houses and governments need access to highly skilled professionals for short and medium term projects to drive innovation and rapid change. At the same time, taking the worker's point of view into consideration we come across the fact that they are looking for work opportunities that offer greater flexibility and variety, preferably in the same domain or sometimes others.

Article of the Month - Runner Up

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In the EY Contingent Workforce Study survey, 50 % of organizations have seen an increase in their use of contingent workers over the last five years. A growth of 66 % and 28% was seen in contingent workforce in the US and the UK in the past 10 years. This when compared with just 6% growth in the overall US employment, over the same time period it becomes quite eminent that the Gig model of self employment or Freelancing as they choose to call it is not only gaining Importance but also consisting of a large portion of the economy as a whole. During the same study, US employers reported that their organizations were, on average, made up of 17% of contingent workers. At the same time, 20% of organizations reported that their workforce comprised at least 30% contingent workers by the end of 2016. Similar were the findings In the UK, the number of self-employed has touched record highs at 4.8 million, growing 28% over the 10 years to 2016, against only 6% growth in UK employees in the same time period. And the findings were corroborated by rapid growth in the self-employed workforce in the Netherlands, Belgium, France and Australia. And this brings us to the question “WHY??” and while answering that why both the angles have to be taken into consideration, the Company or the industries who are shifting their focus from permanent employees and placing their trust and resources on the non-permanent workforce and the

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'giggers' who give up their permanent, comfortable, less risky and stable jobs and becoming a part of this change. The EY report findings suggested that If part-time workers are included, a wider definition of contingent work used that captures a range of “alternative work arrangements”, as much as 40% to 50% of the workforce could be in nonpermanent employment by 2020. If we look at the company's reasons for involving themselves in such a change, Organizations are using contingent workers to flex and improve their capabilities. Contingent workers helps in controlling labour costs, and respond to the sudden changes in the demand that come with seasonal trends. Meanwhile, access to virtual portals and other technological advancements have made it possible for contingent workers to gain access to job opportunities in ways that weren't previously possible and hence easy availability of Labour when and where needed. Organizations are also considering the use of contingent workers to overcome resistance to change within legacy workforce, they can help drive and catalyze change. It can also support rapid scale-ups in different business models where dramatic growth requires to be focused on due to the need of the hour. Given the extraordinary pace of technology change, contingent workers provide a critical bridge to integrating new products, services, technology and much more into operations, without having to expand full-time headcount.

Article of the Month - Runner Up

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With the increase in the prices of real estate deals the 'work from home' trend is catching up and the contingent workforce is just the right mix to help curb that . Well the above mentioned advantages show that the gig economy works for employers, but what about the workers? Do they want to be 'giggers'? Or is it an unavoidable consequence of globalization and the downward pressure on costs across the board, particularly in high-cost established markets which is forcing them to be a part of such a change? About 56% of 'giggers' agree that contingent working is how they want to progress in their career. 52 % would prefer not to be employed full-time. And a staggering 66 % believe the benefits of contingent working outweigh the downsides always or most of the time. â&#x20AC;&#x153;WHY?â&#x20AC;? being the question that comes to our mind.

The idea of being an owner of their own time , creating their own future and being an entrepreneur forms a major reason behind such shift too. The rise of the contingent workforce holds a wealth of opportunities for both, organizations and workers. Organizations aim at cutting costs and improving their agility to meet constantly changing consumer needs. Contingent workers crave for flexibility and control. By getting along, staying on the same page and collaborating on ways to o ve rco m e t h e p o te nt i a l r i s ks , organizations and 'giggers' can be like the sky and the land which when meets at that horizon results into economic performance and prosperity.

Well, the contingent workers see flexibility and the ability to be in control as the top benefits of doing gig work. They also like the flexibility for holidays, taking time off and the ability to work from home which helps in improving work-life balance for a 'gigger'. Ability to be a part of multiple projects at a time is another important reason which adds up to their preference of being a part of the contingent work force over a permanent employee.

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ECO Section

K.Sitharthan- PGDM Anika Prakash PGDM Varun Momaya MMS Initialized by the then BCCI vicepresident LalitModi, the IPL was launched in 2008 following the same format as that of EPL and the NBA.The IPL works on a franchise-system based on the system of hiring and transferring players. The franchises were put for auction, where the highest bidder won the rights to own the team post which they buy players on a contractual basis. Presently IPL has come a long way since its inception to becoming a cash cow in the sports industry. So let us explore the economics of IPL with respect to the recent Star Sports bidding which created a huge buzz among Indians.

Income. There are two guaranteed source of income that all the franchises make annually. 1)Major source comes from the official sponsors of the IPL. V i vo re ta i n s t h e o ff i c i a l t i t l e sponsorship for IPL 2018 â&#x20AC;&#x201C; 22 by bidding 199 crores, which is a 554% increase over the previous contract. 2)Another huge stake of income comes from the broadcasting and digital rights. Star Sports has struck a media broadcast and digital rights deal with the BCCI for Rs. 16,347 crores (USD 2.55 Billion) for IPL 2018 - 22.

HOW DO IPL TEAMS MAKE MONEY? The income source of the IPL Teams can be divided into two sections â&#x20AC;&#x201C; Guaranteed Income and Variable

Certain percentage of the income is distributed equally amongst all the franchises.

ECO Section

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The variable income source can be divided into different avenues as follows, 1)Also, every IPL team has its own set of dedicated sponsors. When you see a player's jersey, you see less of the jersey and more of the sponsors through which the sponsors generate publicity. 2)A lot of inflow is garnered from the tickets and from the merchandised products like t-shirts and souvenirs are sold in the stadium. 3)Needless to say, the teams make big money if they win the IPL as the championship prize money is pretty humongous. Just to give you an idea, the winners of IPL-10 (2017 edition) Mumbai Indians received a prize money worth Rs 15 crores and the runner-up Rising Pune Supergiant got Rs 10 crores. HOW DO IPL TEAMS SPEND MONEY? Every team owner has to annually dish out 10% of their final bid amount that they had placed when they went on to become owners of a particular franchise.

Player remunerations are fixed at a certain amount every year and also, the salaries for the team support staff including the coaches are decided. There are expenditures like booking the flight tickets and hotels for the players and support staff, running the administrative offices for meeting logistics of the team. The teams have to pay a certain amount to the cricket associations in order to host their home games. Every franchise spends a certain amount on marketing before every season begins. Marketing may include hosting promotional events like jersey launch, fashion shows, supporting new initiatives etc. to engage with their fans. STAR INDIA BAGS THE IPL RIGHTS The winning bid for the IPL Media Rights for the five year period commencing 2018 has surprised everybody. Star India agreed to pay the BCCI Rs16, 347.5 crore for five years for the global media rightsâ&#x20AC;&#x201D;both digital and television.

ECO Section

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Initially, 24 companies picked up rights papers to contest for the several rights up for grabs in the auction organised by the BCCI. Several big companies like Facebook, Amazon, Twitter, Yahoo, Reliance Jio, STAR India, Sony Pictures, Discovery, Sky, British Telecom and ESPN Digital Media purchased the bid. The bids were divided into television and digital rights

hitherto uncharted territories worldwide with tie-ups, and increase its earnings from distribution and digital networks. It will surely face a lot of resistance but it is confident that in view of the soaring popularity of cricket in the country and its near monopoly, they will fall in line.

SOURCE: HT SPORTS (HINDUSTAN TIMES)

As per the experts, profit can be made over the period of five years. The task is challenging but can be done.

The entire bidding amount of Star can be divided as follows,

Star India, which was the only participant to submit a global bid, will have to pay around Rs 54 crore per match, making IPL the costliest cricket property in the world. An optimistic estimate is that Star India may earn Rs 18,000-20,000 crore in the next five years from IPL but it may have to incur losses during the first two years. This aggressive estimate is based on the assumption that Star will go the whole hog in pushing advertisers to pay a hefty television ad rates, enhance its revenue from global operations by entering

STRATEGIC ADVANTAGES FROM WINNING THE GLOBAL BID IPL has the most premier rights that any media player would like to have as part of its content roaster. Hence, it made strategic sense for Star to have global all-media IPL rights. IPL, meanwhile, is both impactful and recession-free. It continues to remain the most soughtafter sporting league, attracting both audiences and advertisers. In a cricket crazy country, IPL has proved to be a very strong property. The industry experts agree that it completely makes sense for Star to buy all rights, both broadcast and digital as the gap between broadcast content and digital content is likely to narrow over the next 5 years.

ECO Section

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EXPANSION OF INTERNATIONAL OPERATIONS The global opportunity is evident from the level of competition in markets such as North America, South Africa and the Middle East. Media experts believe Star may syndicate rights in some, or all, of these markets to earn handsome returns. Star can put deals in place with fellow Murdoch-owned Sky for the UK and Fox for Australia. Therefore, there may be a little risk in its international operations. Star's successful bid for the rights changes the geographies in which the tournament will be watched, both on television and on mobile devices. Example, despite the presence of innumerable Australians in the IPL, it was not broadcasted in that country. It may now be. A very big opportunity, both for TV and digital, exists in the rest of the world. There is a big Indian diaspora across markets like the US, UK, Middle East, Africa, Canada, Australia and New Zealand. Cricket connects these Indians to their homeland. It is believed that Rs 500 crore per year can be garnered from these markets with a little effort. IPL will drive customer acquisition, not just in India but globally. Star India could have multiple combinations such as providing a delayed feed as a freemium, ad supported model and a live feed under pay model. In developed markets, it may go for pay-per-view, where an IPL package may cost $50-100 per subscriber.

STAR SPORTS - MONOPOLY After winning the IPL global media rights from 2018 to 2022, Star India has placed itself in a best possible situation for now. Star can now showcase IPL in seven categories â&#x20AC;&#x201C; Indian Television and Digital platforms, US, Europe, Africa, Middle East and the Rest of World. Star Sports currently holds the rights for following: 1.ICC Matches (includes major events like Champions Trophy 2021 and World Cup 2019) 2.BCCI - Domestic and International Series 3. International Bilateral cricket series in Australia, England and Bangladesh. 4 .Ta m i l N a d u P re m i e r L e a g u e , Karnataka Premier League 5.Other Non-cricket events like Olympics, French Open, US Open, Wimbledon and Formula One, ProKabaddi League Star India will have ultimate monopoly if it bags to regain the rights for BCCI matches which are up for grabs in 2018.

REVENUE STREAMS There are three avenues in which Star Sports can generate the revenue. Television Advertising The advertising revenue has seen a year-on-year growth, except in 2013, even though the total number of matches were reduced.

ECO Section

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The incumbent television rights holder, Sony Pictures Networks India (SPN), clocked advertising revenue of Rs 1,300 crore from IPL10 (2017), compared to Rs 400 crore in the first year (2008). A typical IPL match has advertisement inventory of 2,300 seconds. In IPL10, SPN raised spot rates by 15% to Rs 6.25 lakh per 10 seconds, which did not deter advertisers. It is estimated that Star will have to increase ad rates by over 200% — or Rs 15-17 lakh per 10 seconds — to recover costs. The estimated Revenue for Star will get around 10,000 crore from advertising alone (over five years) The opinions of the industry experts are mixed. A few are sceptical about the projected generation of revenue in view of the current market conditions and the GDP. The opposite view is that advertisers have been paying a premium for IPL and they will continue to pay. Star India believes advertisers are ready to pay a premium for IPL. When asked if advertisers will be willing to pay Rs 15 lakh per 10 seconds, the CEO of Star told, “If they want to advertise, they will... The market has clearly stepped up.”

Distribution Revenue Due to its monopoly, Star is placed in a unique position to extract more from ground distribution. An addition of Rs 1,000 crore-a-year which will bring in an additional Rs 5,000 crore over the five year period is likely. It is opined that Sony will have to take a haircut on distribution revenue to the tune of Rs 800-1000 crore, which could directly go to Star Sports Star India may have to be aggressive with distribution platforms like cable and direct-to-home companies. Experts believe that - Star India, with its much stronger bouquet and other cricketing rights, will be in a position to exploit these rights. Star also stands to gain from a TRAI tariff order on the rights of subscribers to pick channels, once it's implemented. In that case, subscribers will be able to select channels and most people would want cricket more than music, movies and kids channels. With ICC, BCCI and now IPL with Star, most of the viewers would subscribe for Star Sports. Star will definitely gain in those two months of IPL.

ECO Section

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Digital There is a big demand for IPL and it has grown continuously, year-on-year. In the digital space, revenues have more than doubled every year in the past three years, with Hotstar clocking Rs 150 crore from digital advertising in IPL10. Media industry experts are expecting Star to leverage the global digital streaming rights to its m a x i m u m a d v a n t a g e . Star has expressed its willingness to partner with telcos to monetize digital rights. It may offer a live feed at premium rates and delayed feed for adsupported telecast. It will also gain by syndicating rights in multiple countries and driving subscriber numbers in developed markets like US, UK. The estimated target for international markets is Rs 500 crore per year. The digital streaming rights to IPL which Star bagged will further boost the broadcaster's revenues both through subscription and advertising. The broadcaster is also set to make money from the international digital streaming rights. It will use Hotstar to show the matches in the overseas markets some of which are subscription driven. Star is open to commercial arrangements with telecom operators on the digital front for monetizing the IPL. We have to take cognizance of the fact that Facebook, Airtel and Reliance Jio bid over Rs 3,000 crore each for digital rights and that they might be willing to partner with Star as well.

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IMPLICATIONS Bidding of such a huge amount clearly indicates that Star is trying to strengthen its monopolistic position in the field of media distribution rights which would have far reaching ramifications and shall have adverse impact on every stakeholder in the broadcasting industry, starting from the distributors of the TV channels like the DTH operators and ultimately the end consumers by increasing the Subscription rate. Dish TV CMD, JawaharGoel raised his concerns that, â&#x20AC;&#x153;The history of the media industry is witness to the fact that all the actions initiated by Star till date have always been to economically concentrate the power through acquisition of Cricket Broadcast Rights and thereby create a monopoly in the market to gain huge commercial advantage at the expense of the Consumers and the Distribution Industryâ&#x20AC;?. As this is a very critical issue, it requires immediate attention of BCCI.

Fintech Section

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Every successful venture requires some equity infusion. Right from the inception to different stages of its journey, businesses need equity infusion for various reasons. There are different ways through which a business can raise money- 'loan from banks' or 'investment by relatives or Venture Capital fund'. Apart from these traditional ways, crowdfundinghas also become one of the most popular ways of raising capital. Crowdfunding is to raise small amounts of capital from a large number of individuals to finance a new business venture. Initial Public Offerings (IPO) is the most widely used method of crowdfunding. An IPO is the first time that the stock of a private company is offered to the public on an exchange.IPOs are often used by smaller, younger companies seeking capital to expand but it can also be used by large private companies looking to

be traded publically.Similar to IPO, a new way of crowdfunding has emerged since 2013 and is slowly gaining popularity among masses. This new way is known as 'Initial Coins Offerings (ICO)'. What is ICO? In 2008, a new concept of cryptocurrency was conceived with the introduction of Bitcoin. Along with that, there was a start of new technological revolution named 'Blockchain' which helps in getting the things done in a decentralized, transparent and resilient manner. Applications made using Blockchain are termed as DApps (Decentralized Applications).Bitcoin is considered to be the first DApp. With the increasing popularity of Bitcoin, Blockchain community decided to expand its DApp family by introducing a

Fintech Section

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new concept named 'ICO or Initial Coins Offering'.

infamous examples of this kind of ICO is the DAO.

ICO is a fundraising event by a firm wherein it will release a new cryptocurrency token to the public. ICO can also be termed as a way to introduce more applications in DApp family.The two main differences between IPO and ICO are unlike IPO, ICO is unregulated and IPO deals in stocks while ICO deals in crypto tokens.

The DAO aka the decentralized autonomous organization was a decentralized venture capital fund which was going to be used to fund future projects made in the Ethereum eco-system. People invest money in the DAO by giving ether and they get “DAO Tokens” in return.

Types: Currency ICO A currency ICO is when developers bring in a new currency system. The developers give out tokens which become new cryptocurrencies in exchange of the older more established coins such as Bitcoin and Ethereum. Example: The Ethereum ICO lasted for 42 days and went on from July-August 2014 and raised more than $18 million. B a c k t h e n i t wa s t h e b i g ge st crowdfunding event in human history . The early birds got a humongous ROI. In the beginning, if you invested just 1 BTC you would get 2000 ether in return. The current valuation of those 2000 ether is approximately $420,000. Not bad for a $2500 investment!

Project ICO Along with the currency ICO, there are project ICOs which issue “work tokens”. When you buy these tokens in the crowd sale you gain certain rights and votes inside the environment of the decentralized application itself. One of the most famous, and consequently,

These DAO tokens made the holders part of the DAO community. So, suppose Miss. X wanted a project to be funded by the DAO, she would introduce the project to the DAO community. The token holders will then hold a vote and if she gets the majority vote then she would gain the required funding from the DAO itself. This was a revolutionary idea and was getting mainstream press exposure as well. The ICO went down in history as one of the biggest ever. The ICO raised $150 million in ether, that was the 14% of the total ether issued at that time and e ve r y t h i n g wa s l o o k i n g g o o d . Unfortunately, that is when the infamous DAO Attack took place bringing huge repercussions and a total of $50 million worth of ether was taken away. How ICO works? Total crypto tokens a firm wants to issue or to be issued 1.A startup firm with an idea but lack of

Fintech Section

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an adequate fund will initiate an ICO campaign. 2.In this campaign, a firm will mention the total quantity of new crypto tokens it is going to launch and the price for each token. The price of the token can be in the form of firm's national currency or any old cryptocurrency 3.Along with that a firm will also present a white paper about the underlying project with appropriate details

required funds, then it can launch multiple rounds of ICO 7.Even after multiple rounds , if the firm is not able to raise the required money, project is closed and the people who have invested in it will get back the same amount 8.If the firm meets its fund requirements, it will release the new crypto tokens to the accounts registered which can be further traded on the listed exchange 9.Future price of the crypto tokens depends on the performance of underlying project

4.This white paper is circulated among block chain holders and their responses are necessary as to create credibility to the project.

List of successful ICO projects:

5.If the project feels promising to the people they will invest in it by creating an account and purchasing the tokens

Ethereum: It is the first successful DApp which was launched in 2014.It has expanded the scope of Blockchain

6.If the project does not receive the

Fintech Section

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by enabling developers to form smart contracts using the Turing-complete Ethereum Virtual Machine (EVM). With these tools available, developers made DApps that have real-life use cases, ranging from asset management to resource planning. Ethereum is the second most popular crypto token after Bitcoin.

Firstblood:It aims at building a decentralized eSports reward platform that every gamer loves.Players earn coins by competing in computer games, tracked on smart contracts over the Blockchain. People get rewarded by being a jury. It will allow skill based competition to take place independent of middlemen, such as financial institutions or casinos. Unlike existing platforms, all FirstBlood's transactions are publicly verifiable, viewable, resistant to counterfeit, and not subject to the risk of institutional processing.

Augur: It aims to combine the concept of prediction markets with the power of decentralized network to create a forecasting tool, for potential trading gain.Its current market capitalization is above 200 million USD. It is made using Ethereum smart contract and is currently under beta test.

Advantages of ICO

Melonport: It can be viewed as a toolbox for anyone who has access to digital assets that require management. Participants can set up or invest in digital asset management strategies in an open and competitive manner. Using Blockchain technology, time and costs are drastically reduced. By building an auditable and visible track record, Melonport enables a never-seenbefore competitive environment in asset management.

With ICO, it is quite easy to raise the money for firms. ICOs have given an opportunity to various people to showcase their idea which was otherwise impossible. It is paving a way for decentralized applications which has the power to solve many critical problems in supply chain, insurance, banking etc. ICO is the much-needed catalyst in opening a plethora of possibilities and extending the value that Blockchain offers.

Lisk: Apple's App store and Google's Play store are solutions for centralized applications. Believing in decentralized future, Lisk strives to make Blockchain technology accessible for everyone by building a Blockchain application platform for users and developers. It will release software development kit towards Q4 of 2017 which will help developers to create their own Blockchain network.

Disadvantages of ICO As there are no proper regulations, many fraudulent activities related to ICO have been reported. About 10% of the ICOs launched are Phishing, Ponzi schemes and other scams. Citing it as disruptive to financial and economic stability, People's Bank of China officially banned ICOs on September 4, 2017. The central bank said that tokens

Fintech Section

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cannot be used as currency on the market and banks were denied to offer services related to ICO.

viewed as a financial instrument beneficial to both businesses and investors.

Conclusion ICO has a great potential to change the current landscape of crowd funding if there are proper regulations in place. In US, Securities Exchange Board has decided to impose federal securities law on case by case basis.The SEC action may encourage more mainstream investors to invest in ICOs .Even though ICO has been banned in China, but Chinese financial officials have stated it temporary for preparing regulations. ICO has potential to disrupt many sectors which can only be identified as and when time progresses. It can be A number of millionaires that ICOs have made in the last year or so is staggering. Check out above graph:

Internship Diaries

FINLY| September 2017 | Finstreet | SIMSR

Ronak Shah (MMS 2016-18) Company - JPMC Department - CIB (Corporate and Investment Banking) Role â&#x20AC;&#x201C; Operations Analyst

Key skills required Communication skills, team player, basic grasp of banking and financial products, strong presentation and pitching skills

What did you actually do?

Exposure/Experience gained Interaction with Top management, developed understanding of Corporate Investment Banking, industry insights of IT, Networking opportunities with top management of JPMC, First hand industry experience.

Understand multiple processes in CIB. Create report on automation and uses of various upcoming tech buzzwords in banking. Create BRDs and enhance data quality in CIB A typical day would start with meeting various VP and EDs in the business line, get an appointment with them and their team. Understand the nature of the processes, present our research and develop feasibility report for the usage of new technology in their business line.

Work culture Innovation based culture, supportive management, amazing perks, extensive training and skill development

Internship Diaries

FINLY| July 2017 | Finstreet | SIMSR

FINLY| September 2017 | Finstreet | SIMSR

Aritra Guha (PGDM 2016-18) Company - Capgemini Department – Operations department Role – Consultant – Automation in Demand Forecast

Ankita Lavande (PGDM 2016-18) Company- Henkel Department- Marketing, Beauty care Role- Marketing intern, Beauty care (Schwarzkopf)

What did you actually do? The role was to automate the forecast model to predict the resource demand in the near future. The resource forecasted here was skilled man power requirement on a project to project basis and how to reduce operational expenses by ensuring optimum use of available resources. Major part of the day was focused on extracting data from the data dump, refining the macros and updating the automated report to be sent to management at the end of the day.

What did you actually do? My internship with Henkel basically had two aspects to it. First being the project allotted to me which revolved around market research to gain key consumer insights about Schwarzkopf, a premium salon hair product. The deliverables were survey of the target group, detailed analysis of the market competitor scenario, clear brand perception among the consumers and action plan for the brand in the coming months.The second aspect of my internship dealt mainly with the routine marketing activities. It involved interaction with clients, salon visits, competitor activity tracking and branding activities for Schwarzkopf.

Key skills required Communication skills, team player, good knowledge of excel and good presentation skills Exposure/Experience gained Daily meeting with VP and Director of Project division for forecast updates. Good understanding of how an employee heavy IT company functions and how resources are managed. Work culture Healthy work culture, Moderate work p re s s u re , g o o d a m b i e n c e a n d supportive team members

Key skills required Communication, presentation and analytical skills, ability to work in teams, time management, knowledge of marketing concepts Exposure/Experience gained Understanding of the salon industry in India, applying theoretical marketing concepts to real life scenarios, interaction with Top management, peer learning from teammates from top management institutes

Internship Diaries

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Chirantan Sinha (PGDM 2016-18) Company – Barclays Shared Services Department – CRIS, Market Risk, Mumbai Role – Business Analyst (Risk) What did you actually do? The Risk Analyst role included the Calculation, Validation and Analysis of VaR (Value – at –Risk), Quantifying the impact of VaR Adjustments on the Trading books. The moment when you hear about Yields, Models, V Lookups, upstreams, rollovers, flash, you realize that you are at your desk at CRIS. It is a delectable view from the 13th floor glass windows when the huge screens inside show you the Market numbers and candlesticks. First thing you do is check the previous day's VaR and the projected VaR for the current day. You then plan your next course of action for analysis of the numbers to be published. Accuracy, Completeness and Timeliness are the three most important parameters on which the CRIS team evaluates themselves. To make the process streamlined, smooth communication with the IT channels is of utmost importance. For proper analysis, communication with the Market Risk Managers is a must. CRIS is an ocean where professional waters and friendly waters overlap creating waves of perfection. You ride on these waves and add to the magnitude of efficiency.

Everything is structured in Barclays, be it the whole 8 weeks program, be it meetings with Market Risk's COO, CEO, and Director or be it mandatory trainings scheduled every week . The people are knowledgeable yet humble. Everybody is approachable and interdepartmental trust and bonding is stressed upon.Frequent Knowledge sharing sessions help improve the financial skills and sharpen the Market Risk understanding across the different asset classes. It's almost the British Dinner time when the last bit of pattern matching happens through the Bloomberg terminals.Signing off of the Value – At – Risk has to happen before 04.30 pm London time. You take necessary actions for the above and are ready with your basket of the corrected/correct Risk numbers for publishment. Dinner starts with the closing of the different reports updated with the day's calculations and analysis of the same. You cool off and discuss the next, bright day's strategies. Key Skills Required Understanding of the working of the Markets (Trading, trading strategies), Knowledge of derivative trading, Market Risk measurement and quantification, Communication skills, Presentation Skills, working knowledge of SQL, VBA, MS Excel .

FINLY| September 2017 | Finstreet | SIMSR

Internship Diaries

Exposure Interaction with the top brains of the Risk fraternity would change your ways of thinking and mould you to become a work-ready Finance professional. Be it Market Risk, Credit Risk and Operations Risk, Barclays provides a tremendous platform for you. One could only grow from this point. Several modules, training sessions, Informal sessions, help expedite the growth. Have an open mind and an unquenchable thirst for learning and you will be transformed before you know it!!

â&#x20AC;&#x153;The cure for boredom is curiosity. There is no cure for curiosityâ&#x20AC;? All The Best!!

Alumni Section

Pranav Turakhia PGDM 2015-17 The function of education is to teach one to think intensively and to think critically. Intelligence plus character that is the goal of true education. -Martin Luther King, Jr. I completed my MBA from SIMSR in 2017 and have been working with ICICI Bank in the SMEAG (small and medium enterprises and agriculture group) division since the past few months. I would like to use this opportunity given to me by finstreet through finly to provide insights on how my experiences has been so far and how pre-defined goal setting helps in defining a direction to your career.I used to follow the stock markets and was always interested to know about banking since I took commerce.Fortunately I did my bachelors in banking and Insurance from Jai Hind college post which I

worked at Kotak Securities in Equity Markets. Two years from there I pursued PGDM from SIMSR. First day at SIMSR was like a new adventure in an MBA class knowing different people from different walks of life. But the next 2 years brought the most wonderful memories and an enriching experience. Not only with my classmates, but the rapport with the professors was also very cordial. Today I am writing this article because I am still in touch with my professors and friends at SIMSR. MBA Days Getting into MBA is highly satisfying after appearing for multiple exams and facing tough competition. But soon the sense of relief was replaced by pressure to get placed as the placement season approached.

Alumni Section

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From my experience I can share that though the placement is extremely important students must not consider it as an end, its only means to the end. The ultimate objective should be acquiring knowledge to build a successful career. My objective was always to be industry ready and explore the opportunities available in the banking domain. Financial management and Portfolio Management were my favourite subjects and I tried my best to apply the knowledge gained to trade in the stock markets. Also I decided to pursue a live project with Kotak international after my MBA lectures to understand international Finance which helped me in understanding the subject to a great extent. Work As the placements begin, I got placed in the sector which I desired the most and that too in one of the best institutes in that sector , ICICI Bank where I got placed in the SMEAG department as a solution manager to help find clients the perfect solution to their problems on the debt side. I have written a brief description of my role, those who are aspiring to be a part of banking industry may find it useful.

clients how funding can help them. I have to do a complete check on the business model of the companies; compare it with the leaders from the sector, check the ratios and various key finance parameters, alongwith making notes and presenting to the senior level management on why the company should be funded. This role has helped me understand various business models and how companies work in different sector and also the best practise in the industry. My takeaway I have always preferred working in a Front Office oriented roles; it provides an excellent exposure in terms of client interaction, relationship building and networking. This job has helped me to broaden my financial knowledge from personal finance to corporate finance, from understanding equities to moving to debt. If a person believes that he/ she is suited for such Client Facing roles, he/ she must strive towards getting this profile as it involves lots of finance in the form of financial management. Contrary to the negative perception associated with a Solutions Manager/ Relationship Manager profile, this profile is actually promising in terms of growth and development.

Role As a Solutions Manager, I interact with Small and Medium Enterprises (SMEs), and look into the Client On-Boarding process, Detailed Financial Checks, Compliance Requirements, Project Financing, working capital financing etc, understanding why there is a requirement for funding or suggesting

Sector Analysis

Karthik Vijayalakshmi -MMS, Rishab Shah-MMS, Vivek Shah- MMS Microfinance in Asia and especially in India has seen its fair share of ups and downs. The industry as we see today is increasingly gaining its legitimate recognition as a provider of credit to populations who normally may not be able to access credit through formal systems of lending. One of the measures of financial inclusion of a country is the state of the microfinance industry and its related policies. These have contributed to the improvement of financial inclusion in most of the Asian countries i.e. India, Philippines, Vietnam, Sri Lanka, Nepal, Bangladesh and Thailand. Even though micro-finance is a source of funds for income generation of the lower income population, it still does not contribute significantly to overall lending in some countries. An indicator of tremendous growth in the sector is the comparison of the ratio of microfinance loans to the GDP (Gross Domestic Product). As shown in Fig.1, this ratio is low even in countrieslike

India, which basically points out to the tremendous growth potential that lies untapped in this sector. Before we go into the microfinance sector, let's have a brief look into its history in India. Till the 90's large section of the rural population was unbanked and austerelyoverlooked by the mainstream banking institutions. Most of them had to take recourse to informal sources for credit because as compared to formal sources, the informal sources had highly flexible terms and it is easy to obtain loans for consumption needs and also for marriage and other purposes.

With least documentation and accessibility as well as availability at any time, the village money lenders were the last resort tomost of the rural populace whose needs wereurgent and they didn't hesitate to agree to pay exorbitant interest during the hour

Sector Analysis

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of crisis without realising the consequences that will follow at a later date like coercive recovery and taking over of the productive assets thereby throwing them into abyss of poverty

ago in 1992. The Self Help Group - Bank Linkage Programme (SHG-BLP) was an innovation combining the flexibility of informal system with the strength and affordability of formal system.

Despite the relentless efforts of Government of India and RBI in creating and supporting enabling environment for increasing the outreach of formal f i n a n c i a l s e r v i c e sto cove r t h e marginalised population, informal sector continued to rule the roost till quite some time.The major cause was the information asymmetry that plagued the formalbanking system visĂ -vis the village money lender. What was needed was,to break the monopoly of door-step availability of credit by the informalsources, at the time of crisis. That's where the Self Help Group conceptscored. It combined the flexibility and availability of informal sources withthe transparency of institutional credit.

As per RBI/NABARD guidelines on SHGBLP: 1)The informal groups would be accepted as clients of banks â&#x20AC;&#x201C; both depositand credit linkage 2)Introduction of collateral free lending, and 3)The groups weren't required to specify the purpose of the loan NABARD's experiment in SHG-BLP established the credibility of groups as a bankable proposition and rural people as capable of maintaining financial discipline. It created a new set of clienteleswith untapped appetite leading to several NGOs acting as financial intermediariesfor lending to groups buoyed by the success of SHGBLP.

After extensive trial and research, the pilot programme was launched 25 years

Sector Analysis

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A new breed of micro lenders was born, the for-profit NGOs were clubbed as Micro Finance Institutions (MFI). As per MFIN, as on 31.03.2017, the total loan amount outstanding of microfinance sector (excluding SHGs) is at Rs. 106,916crores as can be seen in Fig.2

resource intensive process aimed at making the poor financially disciplined and self-reliant. This savings led model is mainly formed by women members. The group formation is mainly facilitated by a NGO. Group formation is followed by members making regular saving contributions. The savings are held with the group's elected leader till a bank account is opened. In the meanwhile, the money saved by members is used for inter-loaning i.e. borrowing among members in the group. The members borrow at an interest rate decided by members jointly.

The major players in Microfinance sector are as follows: 1)SHG-BLP â&#x20AC;&#x201C; The Self Help Group-Bank Linkage Program (SHG-BLP) works on the Self Help Group (SHG) model of microfinance. This school of microfinance owes its origin to the ' p o ve r t y a l l e v i at i o n s c h o o l o f microfinance'. This concept is unique to India. The SHG-BLP programme was launched in 1992 and is promoted and regulated by National Bank for Agriculture and Rural Development (NABARD). The SHG-based model is a community based solution withanemphasis on collective action. It is a time and human

Generally, after six months of interloaning the group becomes eligible for obtaining a bank account. Bank gives loan in the name of the group after checking latter's record of inter-loaning and book of accounts. Thus, the thrust is upon developing the capacities of the poor so that they can manage their own finances. 2) Banks â&#x20AC;&#x201C; Traditionally, Banks would lend money to NBFC-MFIs or SHG groups as part of the Priority Sector Lending mandate of RBI. Thus, the banks would only interact with the Microfinance Institutions for the loan repayment. But with the approval of RBI in Jun, 2014 enabling the NBFC-MFIs to act as Business Correspondents (BC), the banks could also use NBFC-MFIs as distribution channels for all their banking services.

Sector Analysis

FINLY| September 2017 | Finstreet | SIMSR

This would help in taking the banking services to the poor. As per MFIN, at the end of FY 2016-17, banks' lending to microfinance space stood at Rs. 40,993 Crores.

3)NBFC-MFI companiesâ&#x20AC;&#x201C;The NBFCMFIs are for-profit MFIs which operate on the Joint Liability Group (JLG) model, a crude inspirationofGrameen model of Bangladesh established by Muhammad Yunus. Like SHG, this model too works without any physical collateral. It is a credit-led model through which five members come together and form a group to avail credit from MFIs. This means that if any member fails to repay on time others pool together the default amount and make the repayment on a scheduled date. Usually, MFIs place a penalty on the whole group by delaying or cancelling their next loan should any member fail to repay on time. JLG is considered a crude inspiration because, while Grameen model is a proponent of poverty alleviation school, its Indian translation JLG has become a symbol of commercialisation.Prior to the Andhra Pradesh microfinance crisis in 2010, the MFIs were not operating within any regulatory framework. In the quest to meet their growth targets, the loan officers of the MFIs often sold the loans to clients already indebted with other organizations. This resulted in 9.2 million borrowers in Andhra Pradesh(AP) in defaulting on MFI loans, the largest number of defaulters in any single location in the world. In order to curb the crisis, the AP state government

issued an ordinance to regulate the functioning of MFIs in the state. RBI intervened by appointing a committee under Y.H. Malegaon to study the practices of MFIs and came out with a regulatory framework to strengthen the functioning of MFIs and abate the risk of political intervention. In Dec 2011, RBI introduced the new category of NBFC-MFI and the corresponding regulatory framework. As per RBI website, 80 BFC-MFIs are operating in India. In addition to ensure adherence to regulations of the MFIs, Industry associations Microfinance Institutions Network(MFIN) and SaDhan have been given status of SelfRegulator y Organisations(SRO). Membership of NBFC-MFIs in the SROs will be seen by all the stakeholders as a mark of confidence and removal from membership will be having an adverse impact on the reputation of such removed NBFC-MFIs. As per MFIN, the loan outstanding for MFIs stood at Rs. 30,349 crores as on 31 March, 2017. 4) SFB â&#x20AC;&#x201C; In Sep, 2015 the RBI granted inprinciple approval to 10 financial institutions to set up Small Finance Banks(SFB). Of the 10 entities, eight of them are NBFC-MFIs. These 8 entities are:i)DishaMicrofin Private Ltd., Ahmedabad ii)Equitas Holdings P Limited, Chennai P Limited, Chennai iii)ESAF Microfinance and Investments Private Ltd., Chennai

Sector Analysis

FINLY| September 2017 | Finstreet | SIMSR

iv)Janalakshmi Financial Services Private Limited, Bengaluru v)RGVN (North East) Microfinance Limited, Guwahati vi)Suryoday Micro Finance Private Ltd., Navi Mumbai vii)Ujjivan Financial Services Private Ltd., Bengaluru viii)Utkarsh Micro Finance Private Ltd., Varanasi As Small Finance Banks, the above institutions will be allowed to accept deposits which they were not eligible for as NBFC-MFIs. Apart from that, these entities would be providing other basic banking services, thus helping in improving financial inclusion. As per RBI, 75% of their total credit would be for borrowers who qualify as priority sector defined by RBI. As on 31 March,2017 their loan outstanding is Rs. 29,030 crores. Like any sector, microfinance sector has its own growth factors and challenges. a)Growth Factors: 1)8 NBFC-MFIs obtaining Small Finance Bank licenses have proved to the investors the growth momentum in the microfinance industry, which is also evident from Fig.3.

Fig. 3, Average Gross Loan Portfolio, Source: MFIN Increased participation of investors would provide more liquidity in this industry especially to the MFIs who are dependent on Banks for loans. Many financial institutions are picking up stakes or are in talks with MFIs and SFBs. For eg., i)Private sector lenders IndusInd Bank Ltd. and RBL Ltd. are in separate talks to acquire Bharat Financial Inclusion Ltd., formerly called SKS Microfinance. ii)Small Finance Banks such as Ujjivan Financial and Equitas Holdings have tapped into domestic equity markets to comply with the regulatory norm of minimum 51% domestic shareholding and to raise primary capital to launch operations. iii)Janalakshmi Financial Services (JFS), has raised Rs. 1,030 crores of equity from existing shareholder TPG and Treeline Investment Management to fund its transition into a small finance bank

Sector Analysis

FINLY| September 2017 | Finstreet | SIMSR

i)TPG lead the current round and invested a significant amount that includes a structured portion at the holding company level. Other current investors that participated in the round are Morgan Stanley Asia managed PE f u n d ( N H P E A ) , Tr e e l i n e , Q R G Enterprises Limited and VallabhBhansali, Bajaj Allianz Life Insurance Company Limited and Bajaj Allianz General Insurance Company Limited. ii)Bandhan Bank which got license to operate as a universal bank in 2014 started off as a NBFC-MFI in 2001. 1)In Jun 2014, RBI permitted NBFC-MFIs to act as Business Correspondents(BC) to banks. Commercial banks would hire BCs to offer basic banking services in areas where they do not have branches. For poor and vulnerable people, who could not think of going to the bank, banking would come to them. The MFI network could be used to provide Micro Insurance and other such financial products and as such the MFIs can also earn additional revenue through commission model. 2)Government regulations could also play a key role in the growth of this s e c t o r. F o r e g . U n d e r t h e PradhanMantri Mudra Yojana (PMMY), the Micro Units Development & Refinance Agency Ltd (MUDRA) was set up by the Government of India (GoI) in 2015. MUDRA would provide refinance support to Banks / MFIs for lending to micro units having loan requirement up to 10 lakh. Till 31 Mar 2017, amount Rs.

180,528.54 crores have been sanctioned and Rs. 175,312.13 crores have been disbursed. The development and growth of micro enterprises would get a boost with this initiative. a)Challenges: 1)Government policies and interferences are a major challenge. For eg. i)Post the AP crisis in 2010, the government of AP came up with an ordinance to regulate the MFIs, but it actually raised operational difficulties and virtually brought MFIs in AP to a halt, the situation did not get better till RBI brought MFIs under its regulatory framework. ii)Demonetisation led to cash crunch and adversely affected the loan repayment in a sector where most of the transactions happen through cash. As per Bharat Microfinance Report 2017, released by Sa-Dhan, it has estimated the loss for MFIs to be at around Rs. 450-500 crores. It can be seen from Fig.4 that there has been an abnormal increase in Portfolio at risk (PAR)>30 has to 14% from under 1% in previous quarters. 1)With the 8 major NBFC-MFIs obtaining Small Finance Bank licenses, the competition is going to be tough for remaining NBFC-MFIs. Banks are also entering the microfinance space through acquisitions of MFIs. Bandhan bank which was primarily a NBFC-MFI b efo re o bta in in g b a n k licen s e compounds the problem further.

Sector Analysis

FINLY| September 2017 | Finstreet | SIMSR

these people to move away from informal lenders. Similarly, SFBs will find it difficult to sell their banking services.

Conclusion:

With the financial leverage that these banks have it can provide loans at lesser interest rates than MFIs. Unlike SFBs and banks, NBFC-MFIs cannot accept deposits and are totally dependent on Bank Loans for any new funding. For now, the banks have been providing loans to MFIs under Priority Sector Lending obligation. Thus, it is imperative for MFIs to re-invent their business to survive in the industry . 2) Advent of Fintechis disrupting the microfinance space. New breed of Fintech companies are re-writing the rules of engagement of financial services in India, complemented by Digital India push. Companies like Capital Float, Neo Growth Capital Ltd., Indifi Technologies Pvt.Ltd. are addressing the segments adjacent to MFI sector and could soon overlap. Embracing technology or partnering with Fintech firms could help them be prepared for the future.

Thus, as the sector grows the dynamics with in the sector changes which is evident in case of Microfinance sector. After 2010, many critics had written off the MFIs but they were proved wrong and the sector came back strongly. While the government gives priority to promotion of SHGs, the growth and proliferation of NBFC-MFIs are equally essential. While demonetisation may have disrupted the growth of MFIs sustained in past years, they are keenly watched by the market for how they adapt to change, whether by reinvention or consolidation. For now, growth of SFBs is what investors and critics will focus on.

3)As a significant portion of rural population is still illiterate, it poses a challenge for the MFIs to convince

News Buzz

FINLY| September 2017 | Finstreet | SIMSR

India's Mutual Fund industry is growing enormously, due to the structural shift in Indian Investors savings in MF's. India's mutual fund industry has swollen quite a bit in the rush to launch asset management businesses. This often leaves investors confused with a pool of over 2,000 schemes to choose from. Buying mutual fund in India is almost like picking a stock from companies listed on the National Stock Exchange (NSE).

“Merging of scheme would be a better option,” says Lakshmi Iyer, Chief Investment Officer (Debt) and Head Products, Kotak Mutual Fund. It is a welcome move and will not impact investor interest. Homogeneity in the requirement of the time in this sector s h e s a i d . . It is unlikely that any of the existing schemes will be closed, but the industry may see plenty of mergers in order to reduce the number of offerings and meet Sebi norm. Some of the schemes will become bigger in the process.

U.S. – North Korea Tension escalates Market regulator Securities and Exchange Board of India (Sebi) is trying to address this issue by cutting down the number of schemes by half. It will make things easier for new fund buyers, but old investors are jittery, trying to figure out what will happen to their existing investments. Sebi's mutual fund advisory panel has recommended strict definitions on how mutual funds are categorised, a move that might halve the number of schemes offered by asset managers currently

Tensions escalated between U.S.A. and North Korea after the heads of both the co u nt r i e s c h o s e r h eto r i c ove r diplomacy to address their stand over the North Korea's Missile programme. While Donald Trump warned “to completely destroy North Korea”, Kim Jon Un described Trump as “mentally deranged”. This resulted in increased geopolitical risk and uncertainty which made the markets nervous, SENSEX Fell 2.5% to 31599 while NIFTY touched 9876 a 2.72 % fall during 19 September to 27 September. The development prompted other world leaders to pacify the hot heads and make efforts to avoid any war like situation which would be devastating for global economy.

News Buzz

FINLY| September 2017 | Finstreet | SIMSR

The entire world will be curiously monitoring Pyongyang and Washington for the next few weeks because of this.

Trivia

FINLY| September 2017 | Finstreet | SIMSR

Ambush Marketing Refers to a situation in which a company or product seeks to ride on the publicity value of a major event without having contributed to the financing of the event through sponsorship. It is typically targeted at major sporting events. For example, if a star like Michael Johnson would pose for a photograph with a Nike merchandise round his neck, revealing the logo that would be an ambush marketing strategy in favour of Nike. And, is a strategy adopted by rivals of the official sponsors. For example,Apple pays for a bill board, displaying its product the iPod. Another company places its banner under the bill board in a way that seems both adverts are the same. This is a form of ambush marketing as the second company did not pay for that space.

Black Swan Theory The Black Swan Theory refers to those events which are difficult to predict in the normal course of business. They are random, unexpected, but high-impact events. These events are considered outliers, because there is no past data which can point towards its occurrence in the foreseeable future. These events occur not just in business, politics, and nature but in stock markets as well. Another important characteristic of black swan events is that they do not repeat themselves, hence it is difficult to model them. A positive black swan event would be the one which has a positive outcome For example, the Internet helped us to get connected to

almost anybody across the world. Nobody thought about it, but the benefits are massive and increasing by the day. A negative black swan event would be the one which has a negative outcome or large magnitude. Such as the September 11 attack on the World Tra d e C e nt re , o r t h e L e h m a n bankruptcy. Crowding Out Effect A situation when increased interest rates lead to a reduction in private investment spending such that it dampens the initial increase of total investment spending is called crowding out effect.Also, increased interest rates affect private investment decisions. Sometimes, government adopts an expansionary fiscal policy stance and increases its spending to boost the economic activity. This leads to an increase in interest rates. With higher interest rates, the cost for funds to be invested increases and affects their accessibility to debt financing mechanisms. This leads to lesser investment ultimately and crowds out the impact of the initial rise in the total investment spending. A high magnitude of the crowding out effect may even lead to lesser income in the economy.

Company Analysis

Company Overview Reliance Capital Ltd. is a non-banking financial services company promoted by Reliance Industries Ltd. Anil Ambani, promoter of Reliance Group is the Chairman of Reliance Capital, Amitabh Jhunjhunwala is the Vice-Chairman and Anmol Ambani is the Executive Director. Reliance Capital was incorporated in the year 1986 as Reliance Capital & Finance Trust Limited. But it changed its name to Reliance Capital in the year 1995. It was initially incorporated at Ahmedabad in Gujarat but in the year 2002 its registered office was shifted to Jamnagar in Gujarat and then again in 2006 it shifted to Mumbai in Maharashtra.

mutual fund, life insurance and general insurance, commercial finance and home finance, etc. The following pie chart shows the contribution of different segments to the revenue of Reliance Capital:

Business of Reliance Capital Limited Reliance Capital deals in many segments namely, asset management,

Company Analysis

FINLY| September 2017 | Finstreet | SIMSR

Reliance Nippon Life Asset Management Company Reliance Capital Asset Management Company is an unlisted public limited company which was founded in the year 1995 to manage Reliance Mutual Fund, which is the third largest mutual fund in India. It manages equity and fixed income mutual funds. It is the third largest AMC in the country as on March 31, 2017 in terms of the quantum of funds it manages. It has a market share of 11.42%. It is owned jointly by Reliance Capital (51%) and Nippon Life (49%), which is Japanese life insurance Company.RNLAM manages funds worth 3,58,059 crores across mutual funds, pension funds, hedge funds, real estate funds and managed accounts.

manage client's portfolio. Besides, it is the only AMC in India, who is authorized to manage funds of Employee Provident Fund Organization (EPFO), Pension Fund Regulatory and Development Authority (PFRDA) and Coal Mines Provident Fund Organization (CMPFO). It has reported 23% increase in its revenue and 27% increase in its profits in the first quarter of financial year 2017-18. It has recently filed its prospectus with Securities and Exchange Board of India (SEBI) for Initial Public Offerings (IPO). With that, it will become the first AMC to get listed on a stock exchange.

It has also been registered as the portfolio manager and is permitted to

Company Analysis

FINLY| September 2017 | Finstreet | SIMSR

Reliance Nippon Life Insurance Company Reliance life insurance was incorporated in the year 2006 after Reliance Capital acquired 100% stake in AMP Sanmar Life Insurance Company Limited. Since then, it has been one of the leading private life insurance companies in India. Earlier, its shareholders were Reliance Capital with 76% stake and Nippon Life Insurance with 24% stake. But, after Government allowed 49% FDI in insurance sector, Nippon acquired another 23% stake in RLI and became a holder of 49% stake. Thus, the name of RLI changed to Reliance Nippon Life Insurance Company. RNLIC offers various insurance plans depending on the need of the clients. It offers: 1)Term Insurance Plans 2)Endowment Plans 3)Money Back Plans 4)Child Insurance Plans 5)Unit Linked Insurance Plans (ULIP) 6)Pension Plans 7)Health Plans As on March 31, 2017 it has 75000 policy advisors operating in 700 branches handling queries of 10 million policy holders across the country. It has one of the highest Claim Settlement Ratios of 95.21% in the industry. It was ranked among the top 4 most trusted life insurance companies in a survey conducted in 2016 by Brand Equity. Reliance General Insurance Reliance General Insurance received the license from Insurance Regulatory

Development Authority of India (IRDAI) to provide general insurance services in the year 2000. It is a wholly owned subsidiary of Reliance Capital. It offers insurance to individuals, corporates and small and medium enterprises. To individuals, it provides the following insurance services: 1)Motor Insurance for cars, twowheelers and commercial vehicles 2)Travel Insurance for overseas, senior citizens and annual multi trip 3)House and property insurance 4)Health and wellness insurance 5)Personal accident insurance To corporates, it provides the following insurance services: 1)Fire insurance products 2)Marine insurance 3)Liability insurance 4)Engineering insurance 5)Package insurance To SMEs, they provide the following insurance services: 1 ) B u rg l a r y a n d h o u s e b re a k i n g insurance 2)Fire insurance 3)Package insurance 4)Marine insurance 5)Group mediclaim insurance They operate with 12000 intermediaries in 139 offices across India.The maximum revenue earned by Reliance General Insurance is from Motor insurance i.e. 60%, the second most revenue generating sector is Health insurance i.e. 18% .

Company Analysis

FINLY| September 2017 | Finstreet | SIMSR

the third most revenue generating sector is Weather and Crop insurance i.e. 15%. All other sectors contribute a very small portion to the revenue of the company. Even Reliance General Insurance is planning to launch its IPO and it has taken the required permission from IRDAI.

processing unit or for poultry farming or fish farming Microfinance to people with small income living in remote areas by p a r t n e r i n g w i t h M i c ro f i n a n c e Institutions. The AUM of RCFL has increased by 8% to 16200 crore and its profit has increased by 2% to 80 crore in the financial year 2016-17. In the last 8 years they have financed 1, 30,000 SMEs and disbursed loans worth 50,000 crores.

Reliance Commercial Finance Limited Reliance Commercial Finance Ltd. earlier known as Reliance Gilts Limited was incorporated in the year 2000 as a company. But later on in 2009, it was registered as a non-banking financial company. The company provides various types of financing services to its customers which includes: 1)Business expansion loans specially for small and medium enterprises 2)Loan against property 3)Commercial property loan for setting up office or business location 3)Commercial vehicle loan for people who want to start their transport business 4)Used car loan 5)Construction equipment loan 6)Infrastructure loan for contractors 7)Agriculture loan to farmers to install an irrigation drip system or a food

Reliance Home Finance Limited Reliance Home Finance Limited was incorporated in 2008 and was registered with National Housing Bank as a housing finance company.It recently got demerged from the parent company Reliance capital and got listed on the share market on September 22nd. It operates in 99 locations serving 33,000 customers across the country.They provide finance for purchasing a home or property to individuals and corporates. Their services include: 1)Home loans for purchasing a property or for constructing a home or for payment of existing loan taken for property amount being less than or equal to 28 lakhs 2)Loan against property to construct or purchase another property 3)Real Estate Finance for developers and builders of residential house

Company Analysis

FINLY| September 2017 | Finstreet | SIMSR

4) Reliance property services where customers can get services for buying , selling or leasing a property from the database of different properties 5) Property valuation advisory services where the true value of a property will be ascertained In the financial year, 2016-17, its total amount of loans disbursed has increased by 87% and profits have increased by 99%. Reliance Securities Limited Reliance Securities Ltd. was founded in the year 2005 as the retail broking house of Reliance Capital. It helps its customers to invest in different securities of companies listed in major Stock Exchanges. They provide both online and offline trading options to their customers. It operates at 1700 locations with a customer base of 7 lakh customers. It provides investment opportunities in the following securities: 1) Equities of different listed companies

8) Corporate FDs for people who want risk free returns There has been an increase of 42% in the average daily turnover of equity broking and an increase of 30% in the daily turnover of commodity broking of Reliance Securities for the quarter ended June 30, 2017. Reliance Asset Reconstruction Company Limited Reliance asset reconstruction is a public limited company incorporated in the year 2008 to perform the function of asset reconstruction and securitization. The shareholders of RARCL are as follows:

2) Non-Convertible Debenture and bonds for people desiring fixed return 3) Sovereign Gold Bonds issued by RBI on behalf of Govt. in BSE 4) IPOs 5) Mutual funds 6) Derivatives 7) Currency

They buy, hold and manage the NonPerforming Assets (NPA) of banking and financial institutions. They sell these NPAs to corporate bodies and other entities and recover the money blocked in those assets. By doing so, they relieve the banks and other financial institutions from the burden of bad loans so that their core business does not get affected

Company Analysis

FINLY| September 2017 | Finstreet | SIMSR

Peer Comparison Though Reliance Capital is a very strong player in the market but there are other companies as well who are giving a tough competition. HDFC has the largest market capitalization as well as the highest profit after tax. Some other companies have larger market capitalization than reliance capital. But it is strong in terms of its revenue and profit after tax.

Finly | September 2017 | Finstreet | SIMSR

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