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MARCH 08, 2015 | A FINNICHE INITIATIVE
In Focus
Do write to us at: finniche.imt@gmail.com
RBI getting its wing clipped? | 2
Opinion Monetary Policy Framework Agreement | 4
Term of Week Sinking Funds | 6
Personality Rahul Bajaj |11
Tech World Robo Bee |12
March 08, 2015 | Volume 37
IMT celebrated Holi with great vigor and full of colors. Preparations for the Convocation 2015 has already been started. Rahul Bajaj is expected to be the Chief Guest for the Event,
which will be held on 18th March with the theme of ’Unleashing Enterprise’. Club FinNiche releases its weekly magazine FinXpress, with the In Focus talking about RBI getting its wing
the ‘RBI getting its wing dipped?’. The Opinion gives an overview of ‘Monetary Policy
clipped?
Framework Agreement’. The term of the week describes ‘Sinking Funds’, which is a means of repaying funds that
Monetary Policy Framework Agreement
are borrowed through bond issue. Do have a look at the market section, Tech world which brings to you about ‘Robo Bee’ and Personality of the week, Rahul Bajaj.
Club FinNiche welcomes any comments, suggestions or criticism regarding the Sinking Funds
magazine. Please do write to us and share your ideas.
Happy Reading! Regards The Editorial Team Rahul Bajaj
Club FinNiche
Robo Bee
Disclaimer: FinXpress takes no responsibility for the opinions expressed in the magazine.
- By Shubhra Sasmit
28th February,2015 Finance Minister of India
committed to a monetary policy to be built
makes his way to the parliament holding an
around inflation and the easing of inflation as
innocuous looking briefcase in his hand for the budget speech, the budget as we all know was a mixed bag. As is often said by the investors and the pundits alike ‘The devil lies in the details’. With broad policy contours defined in the budget speech, there seems to be growing a major rift between the Government of the day and the RBI on the actual implementation of that policy. The budget clearly defines and
adopt inflation targeting as the prime criteria
the general trend that seems to be followed in
for the monetary policy, but the central bank
other major central banks throughout the
and the Government are at odds over the
world in both the developed countries and the
decision making and the implementation part
developing countries, especially the emerging
of it.
market economies. For this announcement the tradeoff seems to be the sudden cut in the
One
of
the
major
development is the
policy rate by the RBI for the second time in a
formation of the Monetary Policy Committee,
year following the presentation of the budget
which was initially proposed by the previous
for boosting growth as the inflations dips.
Government in 2014. Now both the RBI and the Government agree that the committee
India has long had a tradition of having broad
should be formed, but that’s the only thing
autonomy for its central bank, which has
they seem to agree on. There is a growing
sometimes
chasm between RBI and the Government on
wrongly
the size of the committee, its composition and
institution. The governor of the institution Mr.
whether the governor of the RBI should have
Raghuram Rajan is an advocate of the
the power of veto.
continuing independence of the central bank
been as
labelled
traditional
correctly
and
and
hierarchical
of India, but that’s increasingly coming under There seems to be a tradeoff that happened
strain from the Government that wants to
before the budget between the RBI and the
appoint its own appointees to have a major
Government, the RBI led by Rajan was
role in deciding rates. The only way forward
successful
is to find the middle ground.
in
getting
the
Government
India is in a place of relative calm on the
formed, one that’s is being recommended by
financial front with oil prices considerably
the RBI and the other by a Government
low, reserves at an all-time high, significantly
appointed commission.
less current account deficit, falling inflation and a stable rupee. There is also a general
There is also one other area in which the
momentum towards growth, although the
government of India is planning to curb or
economy remain weak in certain sectors. So at
reduce the RBI power or ambit is in the field of
the
market trading of government securities and
moment
maintaining
and
exercising
control over RBI is far easier for Rajan.
to move it to SEBI (Securities and Exchange
The formation of the MPC is the general trend
Board Of India). This also comes with an
among other major central bank, but the jury
added caveat for the RBI as its role will also
is still out on how it will perform in India.
come to an end the government’s merchant banker. For this purpose the government is
Then there is also an inherent risk of alienating
coming up with a Public Debt Management
the investor community, because the investor
Agency. All these steps are being taken on the
community does not want the Government
recommendation of the FSLRC. . Mr. Rajan on
interfering, especially given India’s high
the other hand dismissed the idea completely
spending, which if followed by a low interest
saying that RBI will play a major role in that
rate could lead to rise in inflation and further
whether inside that agency or from outside.
make it harder to finance the debt. The role of
The RBI governor was also categorical in
the Government in monetary policy would
saying that we will deal with these challenges
create strain and produce clashes with the
as and such when they arrive. So it looks like
central bank as it will curb the bank’s
there is a little acrimony between the RBI and
independence, which will further lead to
the government. Debates on major policy
policy problems in the long run. Similarly
decisions ae good as it leads to an informed
there are two views emerging as to how the
decision, but the acrimony should not develop
Monetary
into a grudge or a game of brinkmanship.
Policy
Committee
should
be
- By Shashwat Shekhar
Fiscal Policy should be able to complement Monetary Policy.
Historic
agreement
between
the government and RBI.
Inflation should be maintained within the range of 2-6 percent.
On 20th February this year, the Finance
price index (CPI). The CPI inflation can go
Ministry of Government of India and the
above 6% and also fall below 2% but it cannot
Reserve Bank Of India (RBI) signed a historic
go breach the range for three consecutive
framework agreement. which is also called
quarters. If it happens then Reserve Bank Of
monetary policy framework agreement, the
India would have to explain as to why it has
government will decide on the appropriate
happened. It would also mean that the RBI
inflation range for the economy and the
has failed in it’s task to maintain the price
central bank would have a free hand in
stability. RBI would also be required to give a
deciding the interest rates that would be
recovery plan if and when the situation arises.
required to achieve the target range set by the government.
The setting of a range for inflation can be seen as an extraordinary commitment from the side of the government to control the inflation
This agreement between the centre and the
which has plagued the economy of India in
central bank is historic because, it is for the
recent years. The agreement means that the
first time in modern history of Indian
government would have to complement the
Economy, centre has given full authority and
efforts of the Reserve Bank with sound and
autonomy to the Reserve Bank Of India to in
efficient fiscal policies in order to achieve the
formulating the monetary policy of India. Probably before this it was true in practise but
target of maintaining the inflation within the set range. If the government does not honour
it was not uncommon for the government and
it’s part of the commitment then the RBI
the central bank to clash on some policies
could easily raise the interest rates and
formulated by the central bank.
Now the
suffocate the credit markets. If this happens it
central bank has been given a clear mandate
is not only the private sector that would
and the autonomy set in writing. This move
suffer. The government would suffer too as
signals that for both the government and the
the government borrowing would become
central bank, the primary target is inflation.
extremely expensive. The Indian economy at
The aim of monetary policies are to maintain stability in prices. In other words, first
this stage needs a boost in public investment more than private investment. If the
inflation
within
government has asked the RBI to maintain an
acceptable limits, growth would follow next.
should
inflation target it automatically means that the
This
government has it’s own interest in making
kind
of
be
controlled
commitment
from
the
government’s side has never been before.
the monetary policy work.
The goal has been set for the Reserve Bank Of
On
India to maintain the inflation between the
accountability has been shifted on to the
range of 2%-6% as measured by consumer
Reserve Bank with no implied action on
paper
it
looks
that
the
entire
RBI governor would have the veto power.
RBI act would be amended to constitute MPC.
Government
has
shown
a
positive intent to fight inflation.
government’s part. But in reality the power
would be nominated by the government by
has been given to the central bank to raise
itself, without any consultation. The Monetary
rates even when the growth is poor and
Policy Commission is required to meet once
inflation within the acceptable range. For Ex:
every two months. Any decision by the MPC
The central bank can choose to maintain the
would be passed by voting system. In
interest rates when the Consumer price
“unusual”
inflation is 5.11% as the inflation is close to
governor would have the power to overrule
breaching the upper mark of 6%. Reserve
the majority vote. The governor would be
bank would think of cutting rates probably
required to justify his action in this case.
only when the Consumer Price Inflation goes
There is no reason to believe that the
below 4% and closer to 2%.
government would nominate members that
circumstances
Reserve
Bank
would always keep the interest of government For this arrangement to work, the agreement
over the general good. This is because the
would
the
Monetary Policy Committee would be held
government changes the RBI act to constitute
have
to
be
revised
once
accountable in the same way as Reserve Bank
a Monetary Policy Committee (MPC). The role
Of India would be if the inflation rate breaches
of the committee would be to decide interest
it’s specified range.
rates and monetary actions. The committee would also include the governor of the
The monetary policy framework agreement
Reserve Bank and he would be a key player.
would be the bedrock on which the future
The report published in 2013 justice B.N
monetary policies would be designed. The
SriKrishna on Financial Sector
decisions on interest rates would be more
Commission
(FLSRC),
Reforms
recommended
the
authoritative and not individualistic now
formation of a Monetary Policy Commission.
since it would be taken by a committee rather
The balance of power in the commission when
than the RBI governor alone.
it came to votes would be slightly in favour of
The framework would reduce the uncertainty
the government but the governor of Reserve
around the decision making process which
Bank would have a veto power.
has often been the case in the past. If executed
The MPC structure as suggested by Justice
properly, this framework would leave little
B.N Srikirishna
in FSLRC included 7
room for speculation. The monetary policies
members. The committee would be headed
would be more transparent and predictable.
by RBI governor and would have one more
This is going to give the monetary policy a
member from the Reserve Bank. There would
credibility like never before. The finance
be two more members which the government
ministry has shown it’s positive intent and it’s
would nominate in consultation with the
will to fight inflation on all fronts by signing
Reserve Bank. The other three members
up for this.
- By J.Sindhuja
In the modern finance, sinking fund is also
lottery based system, as the issuer typically
used for replacing capital equipment as and
cannot recall the entire bond issuance at once.
when it becomes obsolete or when it requires
This kind of issuance will typically be done at
a major overhaul. The key benefit from it will
a discount price as the investor is selling his
be that the organizations would be able to
option (Call) of retaining the bond at his will.
Sinking fund is the process by
retire
which any bond / stock /
their
debt
early
which
would
de leverage their balance sheets. And for the
Purchase price based sinking fund is process
debenture issuers would set
investors, their credit risk will be reduced as
in which the issuer can repurchase the bonds
aside money for retiring these
the outstanding principal debt of the issuers
from the investors at a sinking fund price.
instruments before their actual
will be reduced.
This price is included in the indenture of the bond, and typically is less than the callable
maturity date.
In accounting perspective it is reported under
and market price of bond. In addition to it
the non-current assets head of the balance
few indentures do allow a ‘doubling option’
sheet and not included in the working capital
in which companies are allowed to retire
section, as it will be used to retire the long
double the pre-requisite amount of bonds
term bonds which are under the non-current
each year. Thereby it would allow these
liabilities head. There are four types of
organizations to quickly consolidate their
sinking funds which are described in detail as
debt
below
situation. However there would be cap on the
particularly
during
a
recessionary
number of times this option can be used by Quota based sinking fund are intended to
the corporate during the issue lifetime.
purchase specific amount of outstanding liabilities each financial year. Typically these
Balance
involve open market purchases as only those
seemingly a strange way to address the debt
accumulation
sinking
fund
is
investors who are willing will sell off those
concerns of any corporate in which, company
bonds, and typically issuers tend to miss out
makes regular cash payment to a trust
on their target as there is an voluntary
company which then would reinvest these
discretion involved in relinquishing of bonds
into securities and stocks and will multiply
by the investors.
this capital. Further on this capital will be used to retire the debt which will mature in
Callable bonds are also known as the
due course. Thereby we aren’t reducing the
embedded option based instrument, as these
debt of the firm and instead piling cash flows
allow the issuer to retain the right to redeem
which could in turn be used to pay off the
the bond for a special price before maturity.
mounting debt. The price of bond issuance
Thus as and when these bonds are called in,
will typically be at a discount as the credit
any future payments to bondholder will be
risk of the investors would be greatly reduced
stand cancelled immediately. However the
as
redemption of these bonds is done by a
earmarked for its repayment.
they
are
having
a
dedicated
fund
INDIAN MARKETS The market had reached a new high this week on March 4, crossing 30,000 level after the Reserve Bank of India cut down its lending rate by 25 basis points. The truncated weekly trade ended on a flat note despite the initial euphoria of unexpected rate cut and post budget rally. In coming weeks markets are expected to react to the strong US
data as well as parliaments on going budget session expecting government’s ability to pass key bills. Gpvernment
coffers
has
swelled by INR 12,591 with the sale
of
3
coal
mines
Open
High
Low
Close
SENSEX
29,316.6
30,024.20
29,177.73
29,448.95
NIFTY
8,913.05
9,119.20
8,751.35
8,937.75
to
Hindalco, Jindal Power and Indrajit Power
BSE SENSEX RBI cuts REPO Rate by 25
basis points to 7.50%, twicw in the past three months.
Gold at 3 month low, tumbles Rs 520 on weak global cues.
CNX NIFTY
COMMODITIES Commodity
Unit
Rs / Unit
% Change
10 grams
26,012.00
-1.81
Silver
1 kg
35,972.00
-1.59
Crude Oil
1 bbl
3,138.00
-2.36
Gold
The Indian market is expected to react on sharp increase on the basis of strong US data.
EXCHANGE RATES Non Farm Payrolls rose to
INR/ 1 USD
62.78
INR /1 EURO
68.08
INR/ 100 JAPAN YEN
51.96
INR / 1 POUND STERLING
94.41
295,000 last month.
Unemployment
rate
fell
to
5.5% from 5.7% in January.
INTERNATIONAL MARKETS Open
High
Low
Close
NYSE Comp
11,053.66
11,103.34
10,826.45
10,842.17
NASDAQ
4,973.43
5,008.57
4,918.62
4,927.37
S&P 500
2,104.90
2,117.50
2,067.20
2,071.26
FTSE 100
6,946.66
6,974.26
6,862.87
6,911.80
CAC
4,937.43
4,986.88
4,856.14
4,964.34
DAX
11,408.28
11,600.37
11,193.30
11,550.97
NIKKEI 225
18,869.50
18,979.64
18,586.64
18,971.00
SSE 50
3,310.30
3,336.28
3,221.74
3,241.19
Hang Seng
24,969.00
24,978.00
24,090.00
24,164.00
Gold at 3-month low, tumbles Rs 520 on weak global cues Gold prices on March 7th plunged by Rs 520, its biggest fall this year, to trade at an over three-month low of Rs 26,540 per 10 gram at the bullion market, tracking a weak global trend amid subdued demand from jewellers and retailers. Silver also fell sharply by Rs 500 to Rs
36,300 per kg on reduced offtake by industrial users and coin makers. Bullion merchants said apart from slackened demand from jewellers and retailers, a weak global trend amid the US economy adding more jobs in February than forecast, has cut demand for the precious metal as a safe-haven, leading to fall in gold and silver prices. New
norms
on
permanent
establishment (PE) announced
Flipkart acquires global mobile ad network AdIQuity to boost new revenue channels
in the Budget will be applicable
Indian e-commerce major Flipkart has acquired Bangalore-based global mobile network
to all funds; regardless of
AdIQuity for an undisclosed amount. It’s a mobile ad network enabling app developers and
whether they have raised funds
mobile publishers earn revenue from their mobile inventory. AdIQuity also facilitates ad
in India or plan to deploy
agencies, ad networks, DSPs and other media buyers to acquire global quality mobile traffic
capital
and to leverage the opportunities presented in the rapidly growing mobile ads space.
in
the
country;
potentially boosting prospects
This is the first acquisition for Flipkart this year. Last year, it had acquired Myntra. “Flipkart
of cities such as Mumbai and
has acquired AdIQuity, a leading mobile ad network company. M&A is a key focus for us
Ahmedabad with ambitions to
this year. And given our concentration on mobile, companies that have made a mark in this
emerge
space will be on our radar. AdIQuity has a history of mobile innovations, extremely valuable
as
global
finance
centres.
experience in the ad space and a talented tech team – all of which are a great strategic fit for Flipkart,” said Flipkart in a statement.
Government raises Rs. 12,591 crore from auction of 3 coal mines A Wipro employee travelling to another city would by now
The Centre's exchequer has swelled by Rs 12,591 crore with the sale of three mines to
have got a first-hand experi-
Hindalco, Jindal Power and Indrajit Power on the third day of the second tranche of coal
ence of what a paperless busi-
block auctions. Amid stiff competition from bidders, Hindalco Industries won Dumri mine in
ness trip feels like. A new end
Jharkhand, Jindal Power grabbed Tara block in Chhattisgarh and Indrajit Power clinched
to end travel and expense management solution allows
Nerad Malegaon block in Maharashtra. "Indrajit Power bids the highest for Nerad Malegaon for Rs 660 (a tonne). Hindalco highest bidder at Rs 2,127 (a tonne) for Dumri and Jindal Power at Rs 126 (a tonne) for Tara coal block," Coal Secretary Anil Swarup tweeted. These three mines would contribute a cumulative Rs 12,591 crore to the state exchequer. With the three blocks, the government stands to garner over Rs 1.43 lakh core, including over Rs 1 lakh crore from the auction of 19 blocks in the first tranche. Three more coal blocks will be put up for auction when the bidding starts on Sunday. The amount of proceeds has been calculated based on extractable reserves and highest bid price.
RBI eases norms for home loans for up to Rs 10 lakh Giving a boost to affordable housing, the RBI on March 5th eased the norms for home loans for up to Rs 10 lakh by allowing banks to include stamp duty and registration charges to the cost of a unit. These charges form around 15% of the cost of the house and place a burden on
borrowers. "With a view to encourage availability of affordable housing to such borrowers, it has been decided that in cases where the cost of the house does not exceed Rs 10 lakh, banks may add stamp duty, registration and other documentation charges to the cost of the unit for The airline recently floated
calculating LTV (loan to value) ratio," RBI said in a notification. As per the current practice,
tenders, inviting technical and
banks do not include stamp duty, registration and other documentation charges in the cost of
commercial
housing property.
bids
from
interested PR firms. March 30 is the last date for submission
At 10.39%, Bank Credit Sees Muted Growth
of the bids.
Deposits outpaced bank credit demand in the fortnight to February, 20, according to latest
data released by the Reserve Bank. While bank credit growth was muted with a mere 10.39% rise at Rs 64,53,394 crore in the fortnight to February 20, up from Rs 58,45,833 crore a year ago, deposits, on the other hand continued to outpace credit, with 11.85% growth at Rs In a further indication that
84,74,824 crore as against Rs 75,76,609 crore in the same fortnight last year.
Walmart
up
It may be noted that in the previous fortnight, banks' credit had grown at 10.38%, while
expansion plans in India, the
deposits increased by 11.77%, while demand deposit rose by 11.81% to Rs 7,69,079 crore in
American retail chain on March
the period as against Rs 6,87,838 crore.
is
firming
7th elevated Ashwin Mittal as chief
financial
Javier
Rojo
officer
while
has
been
NPCI links 15 crore bank accounts with Aadhaar numbers
appointed to lead the real
National Payments Corporation (NPCI), the country's umbrella body for all retail payments
estate expansion and business
system, has reached a new milestone after successfully linking as many as 15 crore bank
development function for its
accounts with the Aadhaar numbers, moving closer to map the overall 17 crore DBT
local arm.
accounts. The Reserve Bank of India-promoted NPCI on March 6th said it expects that all
Walmart had opened its last
beneficiaries of all government subsidies/benefit transfers will be brought under the linkage
store in 2012, after which the
programme. "The current focus is on linking bank accounts of 17 crore DBT (direct benefit transfer) beneficiaries with Aadhaar before June 30," NPCI said in a statement. "This electronic benefit transfer programme will not only be unique but also be one of the largest in the world," said the agency's chief AP Hota. The government has been focusing on DBT to plug leakages and save cost. To push DBT and financial inclusion, the government in 2014 launched the 'Pradhan Mantri Jan Dhan Yojana' under which banks had opened more than 12.5 crore accounts by January 26. NPCI is the nodal agency for all retail payment systems under the Jan Dhan scheme.
years old making him one of the most youthful
CEOs
environment,
10th June, 1938
of
that
the
time.
In
this
organization
was
constrained to create only 20,000 units a year. Supply
and
interest
didn't
coordinate.
Subsequently, in the wake of putting in their
MBA, Harvard University
request, clients needed to hold up for around ten years to get it. To lower expenses while enhancing the cost
Padma Bhushan in 2001
and nature of the items, he expanded creation
Main top official to have served
two
terms
to
profit
"Economies
of
Scale".
He
as
disregarded a legislature regulation and
president of the Confedera-
expanded volume by more than the allowed
tion of Indian Industry (CII)
Member
Rahul Bajaj (conceived 10 June 1938) is an
25 percent of his authorized limit. Likewise,
I nd ia n
a nd
the way that he was delivering a ware that
Advisory Committee and his
humanitarian. He is the administrator of
most Indians required provided for him the
expertise in these matters
Indian
quality
are tapped by the New York
member of parliament. Bajaj belongs to the
manufacturing plants at Akurdi and Waluj
Stock Exchange
business house started by a Rajasthani
and endeavoured to grow BAL- now the
Marwadi
Bajaj.
world's fourth-biggest creator of mechanized
Rahul Bajaj is a graduate of Harvard Business
bikes, three-wheel vehicles, and cruisers -
School in USA, St. Stephen's College, Delhi,
India's
Government Law College, Mumbai and
transportation.
of
International
20th richest man of India according
to
the
Forbes
India poll on top 40 richest persons in India .
s pe cia l i st , conglomerate
l a w ma ke r Bajaj
representative
Group
Jamnalal
and
to
take
most
the
basic
danger.
He
made
manifestations
of
Cathedral and John Connon School. He assumed control Bajaj Group in 1965.
Accomplishments:
Since
Rahul
Bajaj
assumed control over the charge of Bajaj Beginning: In the 1970s, India was a
Group in 1965, under his initiative Bajaj Auto
communist state banned by standards and
has developed to new statures a seemingly
regulations.
no
endless amount of time. The turnover of Bajaj
business enterprise and nothing might be
Auto has climbed from a simple Rs.72 million
possible without government approbation. At
to Rs.46.16 billion. He made one of India's
this troublesome time Bajaj turned into the
best organizations in the troublesome days of
CEO of Bajaj Auto Ltd. (BAL) in 1968 at 30
the permit grant raj.
Accordingly,
there
was
- By Priti Sureka
Smallest
man-made
device
having a length of 3 centimetre
Its goal is to help soldiers to rescue
and
spy
on
the
battlefield. It also helps in surveillance and detection of harmful chemicals
From flies to fish to lobsters, small insects and
be the creation of a suite of artificial smart
animals have long been ideal models for
sensors, akin to a bee’s eyes and antennae.
roboticists and computer scientists. Bees
They have to design dynamic hardware and
possess unmatched elegance in flight, zipping
software that serve as the device’s brain.
from flower to flower with ease and hovering
The invention envisions that the Nature-
stably with heavy payloads. Robo Bee is a tiny
inspired research could lead to a greater
robot developed by the research robotic team
understanding of how to artificially mimic the
at Harvard University. This is basically an
collective behaviour and intelligence of a bee
artificial bee in the form of a tiny robot having
colony, foster novel methods for designing
artificial muscle moving 120 times per second.
and building an electronic surrogate nervous
This robot uses two programming languages–
system able to deftly sense and adapt to
Karma and OptRAD. Karma used flowcharts
changing environments and advance work on
and OptRAD uses probabilistic algorithms to
the
manage multiple and independent machines
mechanical devices.
construction
of
small-scale
flying
and perform tasks of an electronic smart sensor. The other applications are-
More broadly, the scientists anticipate the
autonomously pollinating a field of crops search and rescue hazardous environment exploration military surveillance high resolution weather climate mapping traffic monitoring
devices will open up a wide range of
One of the most complicated areas of
interactive exhibit to teach and inspire future
exploration the scientists will undertake will
scientists and engineers.
discoveries
and
practical
innovations,
advancing fields ranging from entomology and developmental biology to amorphous computing
and
electrical
engineering.
Through a relationship with the Museum of Science, Boston, the team will also create an