Relive 2021

Presents

FINANCIAL BULLETIN A Way Forward

(Edition - January, 2022) Promotional Partner

FROM THE EDITORS

The Financial Bulletin

Money Matters Club IBS, Hyderabad Est.. - 2005

For Editorial Queries Contact : Newsletter Coordinators: Isha Agarwal: 91-77173 93848 Rashmi Kumari: 91-83358 77318 Shravan Kumar: 91-88868 80912 Mehul Patwari: 91-98747 16133 Faculty Coordinators: Dr. M.V. Narasimha Chary

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Dear Readers, It gives us a sense of euphoric pleasure as

we

successfully

unleash

the

Financial Bulletin "RELIVE 2021", in which

we

have

rekindled

crucial

events of 2021 in the realm of finance.

2021 resulted in a distressful year, with

multiple

waves

of

different

variants of Covid, hitting the economy.

The vital part of India's financial

Can We Help?

industry experienced huge volatility.

For further inquiries, subscription and advertisement:

acquisitions and mergers to create

The business world experienced many synergy in these tough times.

E-mail us @mmcnewsletter1@gmail.com You can log in to: www.mmcibs.com All rights reserved.

Money Matters Club, The official Finance Club of IBS Hyderabad.

Through this issue, we aim to give you a brief description of the significant happenings of 2021 in the domain of Banking,

Accounting,

Finance,

and

Taxation. We hope that our readers will gain fruitful insights through the Bulletin. May this issue on ' Relive 2021' be insightful to all our readers!

Happy Reading!

Isha Agarwal Rashmi Kumari Shravan Kumar Mehul Patwari Newsletter Coordinators

PAGE 1

MENTOR SPEAKS India’s measures towards financial development during 2021 and future outlook We had a traumatizing experience with two waves of

an

existence-defining

Covid-19

pandemic

posing challenge through many of its variants. The response of the government to the pandemic has been

swift

and

comprehensive.

A

national

lockdown followed by a comprehensive policy package was aimed to mitigate the impact on the poorest

households

(through

various

social

protection measures) as well as on micro, small and

medium

enterprises

(through

enhanced

liquidity and financial support).

It is essential for India to stay focused on reducing inequality, even as it implements growth-oriented reforms to get the economy back on track. The World Bank is partnering with the government in this effort by helping strengthen policies, institutions, and investments to create a better future for the country and the people through green, resilient, and inclusive development.

In several sectors of the economy, pre-pandemic levels of output have been crossed.

Inflation is broadly aligned with the target of 4 percent, barring short-lived spikes.

External financing requirements are very modest and strong buffers should withstand any global spillovers. Public finances have been strengthened by buoyant tax revenues. The Central and State Governments and the Reserve Bank of India (RBI) mobilized policy actions on an unprecedented scale and scope to bring about this outcome. Equally, the selfless and tireless efforts of our unsung warriors among municipal and local bodies; healthcare, police and administrative personnel; philanthropic entities; and civil society are praiseworthy.

Based on an assessment of the macroeconomic situation and outlook, the Monetary Policy Committee (MPC) in its deliberations on 6th, 7th, and 8th December 2021 voted unanimously to maintain the status quo with regard to the policy repo rate and by a majority of 5 to 1 to retain the accommodative policy stance.

PA PA GG E E1 1

MENTOR SPEAKS Consequently, the policy repo rate remains unchanged at 4 percent, and the stance remains accommodative as long as necessary to revive and sustain growth on a durable basis and continue to mitigate the impact of COVID-19 on the economy while ensuring that inflation remains within the target going forward. The marginal standing facility (MSF) rate and the bank rate remain unchanged at 4.25 percent. The reverse repo rate also remains unchanged at 3.35 percent.

The consumption demand has been improving. Government consumption is also picking up from August, providing support to aggregate demand. Other indicators like railway

freight

traffic,

port

cargo,

GST

receipts,

toll

collections,

petroleum

consumption, and air passenger traffic have also picked up in October/November. The recent reductions in excise duty and state VAT on petrol and diesel should support consumption demand by increasing purchasing power. It shall also bring about a durable reduction in inflation by way of direct effects as well as indirect effects operating through fuel and transportation costs.

The global context is evolving rapidly. The appearance of the Omicron variant has added to the complexity of the situation even as several economies are still battling the virus while others continue to deal with the lingering scars of COVID-19. As economies reopened, the spurt in catch-up demand has met with choked supply chains, shortage of key inputs, and tightening labor markets. Combined with high energy and commodity prices, this has ignited long-dormant inflation in a number of countries, even before output has returned to pre-pandemic levels. Several central banks in both advanced and emerging market economies have begun unwinding from crisis-time policies as warranted by their own growth-inflation dynamics. Now, with fears of further restrictions on travel and activity, there is considerable uncertainty at this moment on how the growth-inflation dynamics will pan out in the immediate months. The financial conditions are turning increasingly volatile as a consequence.

India’s financial sector is predominantly a banking sector with commercial banks accounting for more than 64% of the total assets held by the financial system. RBI has maintained ample surplus liquidity in the banking system to nurture the nascent growth impulses and support a durable economic recovery. RBI will continue to rebalance liquidity conditions in a non-disruptive manner while maintaining adequate liquidity to meet the needs of the productive sectors of the economy. RBI stands committed to undertaking Operation Twists (OT) and regular open market operations

PAGE 2

MENTOR SPEAKS (OMOs) as may be required for effective monetary transmission and anchoring of interest rate expectations in line with the evolving macroeconomic and financial conditions. On the retail banking front, the concerted efforts by all stakeholders have led to a significant increase in digital payments in recent years. There have, however, been some concerns on the reasonableness of various charges incurred by customers for digital payments through credit cards, debit cards, prepaid payment instruments (cards and wallets), Unified Payments Interface (UPI), and the like. India's mobile wallet industry is estimated to grow at a Compound Annual Growth Rate (CAGR) of 150% to reach US$ 4.4 billion by 2022, while mobile wallet transactions will touch Rs. 32 trillion (USD$ 492.6 billion) during the same period.

Another crucial component of India’s financial industry is the insurance industry. The insurance industry has been expanding at a fast pace. The relaxation of foreign investment rules has received a positive response from the insurance sector, with many companies announcing plans to increase their stakes in joint ventures with Indian companies. Over the coming quarters, there could be a series of joint venture deals between global insurance giants and local players.

Furthermore, India’s leading bourse, Bombay Stock Exchange (BSE), will set up a joint venture with Ebix Inc to build a robust insurance distribution network in the country through a new distribution exchange platform. National Stock Exchange of India (NSE) on December 21, 2021, launched 'NSE Prime', a new framework that prescribes higher standards of corporate governance for listed companies than those required by regulations. This new initiative will require companies to meet additional disclosure requirements

to

provide

for

higher

quality

public

information

and

greater

transparency. Listed companies that voluntarily choose to be part of NSE Prime will need to comply with pre-defined norms on an ongoing basis, which will be monitored

by NSE. The norms are aimed towards "strengthening the independence of boards, independent

directors,

and

auditors;

removing/mitigating

conflict

of

interest

situations, strengthening and standardizing financial disclosure and improving the quality of public information. According to Goldman Sachs, investors have been pouring money into India’s stock market, which is likely to reach above US$ 5 trillion, surpassing the UK, and become the fifth-largest stock market worldwide by 2024.

Association of Mutual Funds in India (AMFI) is targeting nearly five-fold growth in AUM to Rs. 95 lakh crore (US$ 1.47 trillion) and more than three times growth in investor accounts to 130 million by 2025

PAGE 3

MENTOR SPEAKS Globally, economies are opening up and activity levels are reaching pre-pandemic levels. At the same time, the recurrence of COVID-19 waves in many parts of the world including the appearance of the Omicron variant, stubborn inflation, and headwinds from continuing supply bottlenecks cast a shadow on the outlook. The Indian economy is relatively well-positioned on the path of recovery, but it cannot be immune to global spillovers or to possible surges of infections from new mutations including the Omicron variant. Hence, fortifying our macroeconomic fundamentals, making our financial markets and institutions resilient and sound, and putting in place credible and consistent policies will assume the highest priority in these uncertain times. India is expected to be the fourth largest private wealth market globally by 2028.

PAGE 4 3

INTRODUCTION As COVID-19 tightened its grip on the Indian economy during the first quarter of 2021, the Indian government announced the Union budget for the financial year 202122 focusing the majority of the resources on the development of healthcare and other affiliated sectors. Although importance was given to the health sector, a total of 1.97 cr. were provided to manufacture on a global scale through the construction of 3 textile parks within the next 3 years. The decision to proceed with the disinvestment of loss-making public sector enterprises, establishment of the financial institution, and asset reconstruction company were some of the other awaited changes.

Through the second quarter of 2021, the vaccination drive that started in early January of 2021, reached a milestone of administering around 32.26 cr. COVID vaccines thus overtake major countries such as the UK, USA, Germany in the total number of vaccines doses administered. Successful vaccination drive coupled with industries opening up a business in maximum capacity resulted in India recording impressive GDP growth of 20.1% during this period after negative growth in the first quarter of 2021. Thus, increasing the potential of the Indian economy to show a full recovery despite the rising COVID cases.

The third quarter of 2021 saw a number of landmark decisions, beginning with scrapping the retro tax that helped to improve the foreign investor's confidence in the government policies, the introduction of prompt corrective actions in order to evaluate bank health in a timely manner, the setting up of bad banks so that the NPA of all the public sector banks are managed more systematically and the sale of lossmaking air carrier Air India, to the TATA group, has helped ease the loss burden on the government. Such milestones have helped strengthen the financial ecosystem further.

By the end of 2021, India achieved yet another milestone by becoming the 4th largest foreign reserves holder because of the increase in software exports and the 3rd country in the world to have the highest unicorn companies, signaling the growth of the Indian startup ecosystem. RBI also announced in December the monetary policy to strengthen the digital payment system in the country but expand its operations to the rural areas and improve the security of the digital portals.

Thus, India has been bringing in policies and decisions that would help accommodate the ever-changing financial landscape, against the backdrop of the COVID-19 pandemic.

By - Harshini Ramesh and Amisha PAGE 5

RETROSPECTIVE TAXATION AND THE TAXATION LAWS (AMENDMENT) BILL, 2021 Introduction The Taxation Laws (Amendment) Bill, 2021, was recently introduced in Parliament by the Government of India. The bill seeks to repeal the contentious retrospective tax law by amending the Income Tax (IT) Act of 1961 and the Finance Act of 2012.

The government granted itself the authority to tax entities retrospectively by amending the law in 2012. Since then, the government has issued 17 tax demands.

This includes tax claims against Vodafone, a British telecommunications company, and Cairn Energy, an energy company. The government has collected Rs 8,100 cr. in four cases, including Rs 7,800 cr. from Cairn alone. As a result, the companies filed appeals against the decision in international arbitration. The Indian government lost a number of retrospective taxation cases both within India and abroad.

What is Retrospective taxation?

Retrospective taxation allows a country to impose an additional tax charge on certain products, items, or services by amending the law from a specific date in the past.

Countries typically use retrospective taxation to correct anomalies in their taxation policies that previously allowed companies to exploit such loopholes. However, this retrospective tax penalizes businesses that knowingly or unknowingly interpreted the tax rules incorrectly. Many other countries, including the United States, the United Kingdom, the Netherlands, Canada, Belgium, Australia, and Italy, have previously taxed corporations retrospectively.

PAGE 6 4

THE TAXATION LAWS (AMENDMENT) BILL, 2021

The Dispute The government received two negative rulings in cases involving Vodafone and Cairn Plc.

Key Points (Vodafone Group PLC): As a result of a Supreme Court decision in favor of Vodafone, the retrospective tax law was enacted in 2012. The 2012 amendment to the Income Tax Act aimed to address complex transactions involving a capital gains tax liability in India that manage to avoid taxation in India.

In 2007, the Dutch arm of Vodafone Group paid $11 bn. for a Cayman Islandsbased company that held an indirect majority stake in Hutchison Essar Ltd, later renamed Vodafone India.

It was enacted following a change to the Finance Act that allowed the tax department to impose retrospective capital gains tax on transactions involving the transfer of shares in foreign entities based in India that occurred after 1962.

Key Points (Cairn Energy PLC): Cairn Energy Plc made an offer to consolidate its Indian assets under Cairn India Limited in 2006. Cairn UK transferred shares of Cairn India Holdings to Cairn India Limited, effectively transferring non-Indian company shares to an Indian holding company.

Cairn UK must pay capital gains tax of over Rs 6,000 cr. for transactions in 2006, according to Indian tax officials, despite the fact that the transactions had previously been cleared by them.

PAGE 7 5

THE TAXATION LAWS (AMENDMENT) BILL, 2021

Key Points (Cairn Energy PLC): However, due to differing interpretations of capital gains, the company refused to pay the tax, prompting cases to be filed with the Income Tax Appellate Tribunal (ITAT) and the Delhi High Court.

Cairn contended that the retrospective taxation violated the UK-India Bilateral Investment Treaty, which included a standard clause requiring India to treat UK investment in a "fair and equitable manner."

While the amendment was intended to penalize Vodafone, many other companies were caught in the crossfire and have caused India a slew of problems over the years.

Highlights of the Bill, 2021 Tax claims made on offshore transactions executed prior to May 28, 2012, when the amendment to the Income Tax Act was introduced, will be null and void.

The government has also proposed that companies be refunded the amount paid in litigation without interest. The total amount at stake in all cases is approximately Rs 8,100 cr.

However, the Indian government's demand will be nullified based on specific conditions such as withdrawal of pending litigation or companies providing that no claim for cost, damages, interest, and so on will be made.

PAGE 8 5

THE TAXATION LAWS (AMENDMENT) BILL, 2021

Implications of Retrospective taxation laws: Retrospective amendments undermine the principle of tax certainty and have a negative impact on India's image as a desirable destination for investment.

Businesses, for example, sought international arbitration as a result of the 2012 amendment.

Several humiliations have recently been inflicted on India in international arbitration when tax demands made under the retrospective clause were challenged.

Way Forward: The government must now be generous in its settlements with the companies that have been harmed by an action that it admits has been detrimental to India's development. Also, India must develop meaningful and clear dispute resolution mechanisms in cross-border transactions to avoid having to resort to international courts and save expenditure and time. Improving the arbitration ecosystem will benefit the ease of doing business.

With the implementation of this Act, India will be able to maintain its standing in the international business community. India may be able to improve its ease of doing business by repealing tax legislation. More investments in India will be economically beneficial to the country as well.

By - Amit Mishra PAGE 9 5

WHAT IS A GLOBAL CORPORATE MINIMUM TAX ?

A Global Corporate Minimum Tax is a tax regime established by an international agreement in which countries that sign the agreement impose a certain minimum tax rate on the income of corporations that are subject to the tax rules of the jurisdictions in which they operate. Each country would be entitled to a portion of the tax's proceeds. A definition of income as well as other technical and administrative rules would be included in the agreement.

136 countries and jurisdictions agreed to the Organization for Economic Co-operation and Development's (OECD) proposal, which involves implementing a 15% global minimum tax beginning in 2023.

The concept was intended to deter multinational firms from transferring profits to avoid paying taxes and eroding their tax bases.

Understanding a Global Corporate Minimum Tax A global corporate minimum tax is a uniform minimum rate of corporate income tax imposed by individual jurisdictions in accordance with an international treaty.

Proponents of a global corporate minimum tax argue that it should be implemented to deter multinational corporations (MNCs) from making international investment decisions based on low tax rates and moving earnings from high-tax to low-tax countries regardless of where profits are made. (These businesses are referred to as multinational enterprises [MNEs] by the Organization for Economic Co-operation and Development [OECD], a term that is roughly equivalent to the more known moniker multinational corporation.)

PPAAGGEE 140

The 'race to the bottom' is fuelled by tax rivalry

CORPORATE MINIMUM TAX

A race to the bottom has resulted in tax rivalry among nations in order to attract international investment. They are concerned that this rivalry is resulting in significant tax revenue losses and jeopardizing government funding in higher-tax countries.

Lower-tax jurisdictions have touted their low rates in order to entice foreign investment from higher-tax jurisdictions.

MNCs having intangible property income, such as royalties from trademark, patent, and software licenses, have located and/or relocated such rights in corporate subsidiaries in lower-tax jurisdictions to avoid paying higher taxes in their home countries and the countries where their income is earned. Amazon, Meta (previously Facebook), and Google, among other American multinational corporations, have built profitable businesses in Ireland, where the highest corporate tax rate of 12.5% is significantly lower than in the United States, the United Kingdom, and the European Union. US Treasury Secretary Janet Yellen mentioned that global rules that prevent profit shifting to lower-tax countries and that allow countries, where MNCs earn profits to tax those profits and benefit from the tax revenues, would reduce tax competition and create a more equitable distribution of tax revenues.

PPAAGGEE 151

Prospects for a Global Corporate Minimum Tax

CORPORATE MINIMUM TAX

The new restrictions will be implemented in 2023, according to the OECD agreement.

This timeline may be excessively optimistic because the idea requires several nations to modify their tax legislation. Furthermore, US involvement, which is critical to the plan's success, is contingent on Congressional action, which is expected to elicit opposition from Republican lawmakers and business doubters. It has been already hinted that the deal might result in tax rises for Americans.

As part of President Biden's $2 tn Build Back Better social infrastructure plan.

Companies with a profit of at least $1 bn in their financial statements would be subject to a corporate minimum tax in the United States, according to the proposal.

Tax credits, such as those for R&D, would still be available to these businesses. This idea is not the same as a worldwide corporate minimum tax, which would force qualifying big firms to pay taxes in nations where they produce money.

PPAAGGEE 152

Global minimum tax “A gain or loss for India”

CORPORATE MINIMUM TAX

Given that India is the second most impacted country in Asia by MNC tax evasion, a unified worldwide framework is a crucial step toward successfully preventing tax avoidance by multinational businesses. A fair mechanism for allocating earnings would aid countries in better taxing their gains from multinational firms.

India is Asia's second-largest loser due to multinational corporation (MNC) tax evasion, losing US$ 10.32 bn. yearly, equivalent to the annual income of 4.23 mn. nurses.

The 2% equalization charge imposed by India, as well as the SEP (Significant Economic presence) and TIEAs( Tax information exchange agreements), are all rigorous measures aimed at forcing non-resident corporations to pay their dues.

Given that India's corporate tax rate is above 15%, the impact of the global minimum tax is significant.

Global tax evasion costs India $10.32 bn. per year, which is equal to the yearly wage of 4.23 mn. nurses and 44.7% of total health spending. According to research, debt shifting, registering intangible assets, and smart transfer pricing are some of the ways multinational corporations evade taxes in the countries where they operate.

However, once the deal's global threshold is implemented, governments are anticipated to benefit at the expense of tax havens. The benefits for India are projected to be at least US$ 4 bn. The additional tax income generated by a minimum tax rate of at least 15% is estimated to be more than US$ 100 bn. per year globally.

Finally, a unified global framework is required.

By - Shivam Satya PPAAGGEE 153

SCALE BASED REGULATORY FRAMEWORK FOR NBFC'S Introduction Non-banking financial companies (NBFCs) have played a very important role in the growth trajectory of the Indian financial services landscape. Over the past decades, the entire NBFC sector witnessed tremendous growth. However, in this journey, stress has been observed in the NBFC sector which led to systemic risk through the NBFC interlinkages within the formal financial system.

To develop an effective financial system in January 2021, the RBI came up with a new regulatory approach for NBFCs through its paper “Revised Regulatory Framework for NBFCs – A scaled based approach”. Later on, considering inputs from various stakeholders, RBI issued the notification on 22nd October 2021. It mentioned that this new regulation will be applicable from 1st October 2022.

This article tries to provide an overview of different layers in this new regulation, the NBFCs that come in each of these layers, and the certain revisions in the structural and regulatory framework applicable to those NBFCs.

Regulatory approach The Scaled Based Regulatory (SBR) Approach enacts the regulation and supervision of the NBFC concerning its size, activity, and perceived riskiness. Thereby, it enacts a higher degree of regulations to the NBFCs that have greater size and pose a higher risk for the financial system and a lower degree of regulation for NBFC that pose a lower risk. This scaled-based framework can be visualized as a pyramid with regulatory interventions increasing from bottom to top.

Regulatory Structure Base Layer (NBFC-BL) – This will be similar to those existing non-deposit taking non-systemically important NBFCs with asset size less than Rs 1000 Cr. In such entities, a higher level of prudential regulations will not be applicable and also increase transparency.

Middle Layer (NBFC-ML) – This will be similar to those existing deposits taking NBFCs and systemically important non-deposit taking NBFCs. This will be subject to higher regulatory supervision which aims to remove the regulatory arbitrages between banks and NBFCs.

PPAAGGEE 144

REGULATORY FRAMEWORK FOR NBFCS Upper Layer (NBFC-UL) – It is considered as a new category of NBFCs, where RBI selects systemically significant NBFCs through parametric analysis of quantitative and qualitative criteria. And also, entities that meet the specified criteria will move from the middle layer to the upper layer of the scaled-based framework.

Revisions in regulatory guidelines This revised framework brought certain revisions in the structural and regulatory framework applicable to the NBFCs. They are as follows Rise in minimum net owned funds (NOF) – The NBFCs which are categorized as investment and credit companies, microfinance, and factor companies will have to raise their NOF to Rs 10 Cr. By 31st March 2027. However, there is one transition period with a gliding path to meet this requirement. It is to be noted that, NBFCs with no public funds and customer interface are exempted from this requirement.

PPAAGGEE 155

REGULATORY FRAMEWORK FOR NBFCS Classification of NPA’s – All the NBFCs will be required to categorize those debts which are overdue for more than 90 days as NPA. It is considered to be a major shift from the present frame of more than 6 months. It is to be noted that, NBFCs can avail of the transition period for this criterion as well.

Cap on IPO funding – NBFCs are not allowed to lend more than Rs 1 Cr. to the single borrower for using such funds for subscribing to IPO. This will impact leveraging by investors in the IPOs. Experience of key personnel – NBFCs need to appoint at least one director with relevant experience in a bank or another NBFC. It is to be noted that, any NBFCs in the middle and upper layer will have to ensure that any independent director on their respective boards is not on the board of more than three middle layer or upper layer NBFCs. Core banking solution (CBS) – Currently NBFCs are not required to adopt CBS. But in this framework, NBFCs in the middle and upper layer, with ten or more branches, have to adopt CBS.

Conclusion The SBR Framework makes significant changes to the current regulatory framework for NBFCs, and these reforms appear to be motivated by RBI's recent experience dealing with mismanaged NBFCs. The RBI has tightened the screws on several regulatory and compliance issues to ensure that NBFCs are well-funded, properly managed, and protected against various risks as a financial sector regulator. Overall, the SBR Framework appears to be a positive step toward increasing transparency and accountability in the shadow banking sector.

By - Ramchander Nallbothula

PPAAGGEE 156

SONY-ZEE MERGER Background Zee Entertainment and Sony Picture Networks (SPN) have signed a deal that will make them the country's second-largest entertainment company. Sony will own the bulk of the combined company, while the ZEE promoter family will possess 3.99%, with the opportunity to grow their investment to 20% from the market. The merger would be completed through a rights issue, which would include the transfer of shares. The company will make an offer to existing shareholders to buy more shares in the company at a discounted price as part of the rights issue. For every 100 shares of ZEE held, shareholders would receive 85 shares of the amalgamated business.

Reason India is one of the world's largest domestic markets. Over 21 cr. Indian households own a television, and Zee and Sony want to capture as many of those viewers as possible.

The combined company will have a cash balance of $1.5 bn. , which will enable the combined company to drive sharper content creation across platforms, strengthen its evolving digital ecosystem and obtain media rights for sports telecasting, and expand operations to grab any further opportunity that may arise in the ever-growing television

industry.

The

united

Sony-Zee

giant

would

broadcast

75

news,

entertainment, sports, and movie channels, bringing in $1.8 bn. in annual income. The combined entity's vast inventory will put it ahead of the existing market leader, Disney-owned Star India.

PPAAGGEE 147

SONY -ZEE

Features SPN will pay a non-compete fee to ZEE's existing promoters as part of the transactions contemplated by a non-compete agreement, which will be used by the promoters to infuse primary equity capital into SPN, entitling them to acquire shares of SPN, which would eventually equal approximately 2.11% of the merged company's shares on a post-closing basis. Current shareholders will own 45.15% of the combined company's stock. Sony will possess 50.86% of the company, Essel will own 3.99 %, and the general public would own 45.15%. Punit Goenka will become the merged company's managing director and CEO. Sony will, however, nominate a majority of the board of directors.

What will Zee gain from this merger?

While ZEE has a higher network viewing share than Sony, it is mostly supported by regional general entertainment channels (GEC) and movies, whereas Sony has a better presence in Hindi GEC and sports. In fact, Zee Entertainment sold its sports portfolio to Sony Pictures Networks India in 2018, along with a non-compete agreement that barred Zee from entering the sports market. Furthermore, analysts believe that a merger like this might assist ZEEL to address some of the recent concerns made by significant shareholders about corporate governance difficulties with an international business like Sony on board.

What will Sony gain from this merger?

Sony Pictures Networks had been looking for a local partner in India to compete with the Disney-Star partnership, which had been dominating the content industry. The corporation had also been in talks with Viacom, which is controlled by Reliance Industries, about a possible merger, but the talks were called off last year after the two companies couldn't agree on the value and other merger criteria. With the ZEE agreement, Sony may be able to cover some of the gaps in its entertainment channel lineup, which has relied heavily on seasonal programs like Kaun Banega Crorepati for its popularity. ZEE is present in the broadcasting, movies, music, digital, live entertainment, and theatre businesses in India and abroad, with more than 260,000 hours of television content and the world's largest Hindi film library with rights to more than 4,800 movie titles in various languages, while Sony Pictures Networks India reaches out to an average of 700 million viewers in India and is available in 167 countries, while Sony Pictures Networks India reaches out to an average of 700 million viewers in India and is available in 167 countries.

By - Darshana Manglani PPAAGGEE 158

DHFL - PIRAMAL Piramal Capital and DHFL With effect from September 30, 2021, PCHFL and DHFL have merged. Piramal's resolution plan was approved by 94% of DHFL creditors. The RBI, CCI, and NCLT all gave their approvals for the deal to go through. Piramal Capital and Housing Finance Ltd. (PCHFL) will merge with DHFL as part of the process. The newly formed entity Piramal Enterprises Limited will hold 100% of the company.

About the Transaction The DHFL creditors (including FD holders) will collect a total of Rs.38,000 cr. as a result of the settlement procedure. This sum is made up of Rs. 34,250 cr. to be paid by PCHFL in a combination of cash and Non-Convertible Debentures, and Rs. 3,800 cr. which is the creditor’s entitlement (as per the resolution plan) from the cash balance held by DHFL has 70,000 creditors, and the majority of them are collecting roughly 46% of their outstanding debts thanks to the effective settlement procedure.

At the completion of the transaction, the Piramal Group paid a total payment of Rs. 34,250 cr, which included an upfront cash component of Rs. 14,700 cr and the issue of loan instruments of Rs. 19,550 cr. (10-year NCDs at 6.75% p.a. on a half-yearly basis).

Transaction Synergies Piramal Enterprises has improved its balance sheet in the previous two years to take advantage of such significant chances by raising Rs. 18,000 cr. in equity. It reduced net debt-to-equity and shifted towards long-term borrowings, thereby creating headroom for significant growth in the merged entity. The purchase is a significant step forward in our strategic plan to modernize our financial services sector.

This deal will not only increase the retail loan book by 5 times, but it will also diversify the entire loan book significantly. This sets the path for a near-future retail wholesale mix of roughly 50:50. The company will leverage the physical lending platform driven by Machine Learning and Artificial Intelligence, including the new mobile app. The transaction will reduce the weighted average borrowing cost by nearly 130 basis points and should further improve the Asset Liability Management (ALM) profile of our Financial Services business.

PPAAGGEE 149

DHFL - PIRAMAL

The transaction moreover will improve the utilization of equity in our financial services business, with net debt-to-equity of the Financial Services business getting efficient from 1.6x as of Jun-2021 to 3.5x in the near term. The firm will use Machine Learning (ML) and Artificial Intelligence (AI) to power their "phygital" lending platform, which will include a new mobile app.

In addition, the acquisition will result in a nearly 130% decrease in weighted average borrowing costs. Our Financial Institution's Asset Liability Management (ALM) profile should improve by a few basis points. It’s a service industry. The deal will also considerably increase our equity usage.

With the Financial Services industry's net debt-to-equity ratio improving, the industry's net debt-to-equity ratio is becoming more efficient, from 1.6x in June 2021 to 3.5x in the not-too-distant future.

P R IPYAAGNES H U 20

DHFL - PIRAMAL

Future Roadmap India's household credit to GDP ratio of 12% is the lowest among large nations, indicating a largely untapped opportunity for the home finance industry in India. With the government of India's emphasis on affordable housing, the number of credit-active customers in Tier 2 and Tier 3 cities/towns has risen dramatically in recent years.

The purchase will now give India-wide infrastructure with a big branch network and a huge customer base that will be able to make adequate use of the technology-driven multi-product retail lending digital platform. It allows the corporation to dramatically expand and diversify its retail loan book via product innovation, tailored offerings, and outstanding customer service. Retail financing's share of the market is expected to rise to 50% in the near term and 67% in the mid-to-long term. The expansion of the retail loan book will help the financial services industry improve its capital efficiency.

Used automobiles and two-wheeler loans will be available, as well as education loans for vocational and online courses, small builder finance to satisfy construction finance needs, unsecured business loans, personal loans, and loans against securities.

Piramal's exclusive 'Digital at the Core' digital platform, which includes the new mobile app, will heavily rely on Artificial Intelligence and Machine Learning to provide a smooth consumer experience.

Piramal has also invested in 10,000 sq. ft. Centre of Excellence for Technology, Engineering, and Data Analytics in Bangalore to ensure continual innovation and enhancement of its platform.

By - Shivam Satya

PPAAGGEE 241

AAKASH-BYJU'S About the Acquire Company Aakash Educational Services Limited (AESL), which is backed by the Blackstone Group, is a thirty–three–year–old coaching institute that provides test prep services for medical and engineering entrance exams, school board exams, KVPY (Kishore Vaigyanik Protsahan Yojna), NTSE (National Talent Search Examination), Olympiads, and other foundation level exams to students in classes 8–10 for college boards and junior competitive exams. The offline major's programs are divided into three categories: Aakash Medical, Aakash IIT-JEE, and Aakash Foundations. It has more than 200 coaching facilities spread around the country.

Aakash institute began its journey at a time when people did not consider coaching institutions to be a growing business; however, Aakash institute built its name and reputation in the market by working diligently, and the company has remained dependable to its students in the education market since its inception, even as the market changed with the time and needs of the students.

About the Acquirer Company Bangalore-based Byju Raveendran and Divya Gokulnath started BYJU'S in 2011 as an educational startup that provides online video-based learning programs for K-12 students as well as competitive tests. In August 2015, the firm introduced Byju, the Learning App, after four years of consistent growth in the education sector.

BYJU'S is a firm believer in the Freemium business model, in which it provides both free and paid (premium) services to its clients. BYJU'S strategy of giving information through highly creative visual content, one-on-one learning, and other facilities has led to BYJU'S success in a very short period of time in a competitive environment.

Byju has successfully blended technology and expertise to meet the needs of today's generation.

Mary Meeker, Yuri Milner, Chan-Zuckerberg Initiative, Tencent, Sequoia Capital, Tiger Global, and others have invested in BYJU'S. So far, it is projected that it has raised about USD 2 bn in fundraising. BYJU'S has also acquired various start-ups and businesses through its subsidiaries to broaden its products and increase its market share and ed-tech penetration.

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AAKASH - BYJU'S

Collaborations to Acquisition Byju's has completed its largest takeover, acquiring tutorial network Aakash Educational Services Ltd (AESL) for $950 mn in cash and equity. Last year, BYJU and Aakash's teams began negotiating in the month of June 2020. They discussed the potential of collaborating and collaborating at the moment. The debate about the acquisition began in October, and they were able to reach a deal in December. BYJU'S eventually bought Aakash through a strategic merger in April 2021. Aakash Chaudhry, Managing Director and Co-Promoter, and his family are giving up their entire ownership in the company in exchange for a 70:30 cash-equity arrangement in which they will acquire an unknown stake in BYJU'S in exchange for around 30% of the payout.

Benefits Test preparation as a lucrative industry for Ed-tech companies K-12, test prep, skill development, and online certification are the four key areas of ed-tech. Because children are preoccupied with grades, the correct coaching and advice can get them into top engineering and medical schools. People who want to secure gilt-edged government employment can also benefit from test practice. As a result of these factors, online test prep start-ups are exploding. BYJU'S makes its position in the test prep segment the ideal choice for students by acquiring the Aakash, which delivers a blend of BYJU'S technology and Aakash knowledge, allowing students to learn from home while still receiving expert supervision.

Create a foundation for brick-and-mortar coaching education No matter how much technology advances, the traditional method of teaching, which includes the actual presence of both students and teachers, remains indispensable, as BYJU'S recognizes. Despite the fact that BYJU'S has purchased a number of educational startups in the past, the acquisition of Aakash is the company's first offline acquisition. Aakash has a little footprint in the educational technology market.

The main reason for the agreement is that BYJU'S hasn't had traditional classroom coaching in a long time, whereas Aakash has a big presence there. BYJU'S has a stranglehold in the school education sector, whilst Aakash is the market leader in competitive exams. To take advantage of this cross-segment diversification, the companies merged.

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AAKASH - BYJU'S

Conclusion In the education business, BYJU'S is presently eliminating all of its competitors and expanding its dominance. The two companies' acquisitions will have a positive impact on India's education market. Byju's currently has 80 mn.-plus students learning from the app, an 86% annual renewal rate, and 5.5 mn. annual paid memberships. Byju's added 45 mn additional students to its platform between April and September 2020.

Other areas of test preparation, such as civil services, government, and banking exams, as well as admission tests in law and management, could be the next set of segments of interest for BYJU'S, and possibly acquisitions. It is exploring a public offering in the next 18 to 24 months.

By - Mansi Patel

PPAAGGEE 254

BILLDESK - PROSUS Background Prosus is a Dutch-based multinational firm that is the international Internet assets division of the South African conglomerate Naspers. The global investment firm is Europe's largest consumer Internet firm and one of the world's largest technology investors. PayU is one of the subsidiaries of Prosus and it is a global fintech and payment service provider company.

BillDesk, founded in 2000, is a company based in Mumbai. BillDesk is one of the most successful digital payment companies in India, with one of the most popular payment platforms. It was announced that Prosus would acquire BillDesk. In addition, Prosus intends to merge BillDesk with PayU, an existing fintech firm with a substantial foothold in India.

Features Prosus acquired 100% of the equity in BillDesk for the purchase consideration of US$4.7 bn. in an all-cash transaction. The deal is a cash-free, debt-free basis and normalized level of working capital at closing.

This acquisition will make PayU one of the biggest online payment providers globally with $147 bn. total payments volume. PayU will now have access to BillDesk's large customer base of Indian small merchants.

After this acquisition, Prosus’s cumulative investment in India will be valued at more than $10 bn.

PayU – BillDesk deal is the largest acquisition in the Fintech Sector in India. And the deal is the second-largest acquisition in Tech Space after the Flipkart-Walmart deal.

BillDesk founders will exit and will own no equity in the firm. However, BillDesk founders will continue the firm.

From 24 bn. in 2018-19 to 44 bn. in 2020-21, the number of digital retail payment transactions has increased by more than 80%. Over the next three years, more than 200 mn. more users are likely to adopt digital payments.

The value of the Net Assets of BillDesk as of March 2021 was $256.9 mn. and profit after tax for the year ended March 2021 was $36.8 mn.

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BILLDESK - PROSUS

What Prosus & PayU Gains?

The acquisition will help Prosus in creating the ecosystem Prosus is building to serve various communities by positioning it as the leading payments provider in India. The Large database base of small merchants that BillDesk will provide to Prosus will help to cross-sell products including business lending. Prosus can also gain by expanding BillDesk’s business by taking it globally through Prosus’s networks.

Road Ahead With the increase in innovations and technology, India represents a huge market for financial services. India’s digital consumer base is expanding rapidly. With the technology of PayU which largely powers online payments for e-commerce companies, BillDesk’s strength lies in the bill payments and small merchant ecosystem. Combining both businesses and technologies will handle four billion transactions annually, which will be four times more than what PayU processes in India. This can also create a financial ecosystem for Prosus in India.

By - Nikhil Amrutiya

PPAAGGEE 256

CRYTOCURRENCIES IN INDIA Introduction Cryptocurrencies are digital assets and distributed systems that allow secure online payments. Bitcoin was introduced on 3rd Jan 2009 and it is considered as the first cryptocurrency followed by Ethereum. These assets are created using methods similar to cryptography (the science of encryption).

Digital signatures can be used to keep transactions secure and allow other people to check the authenticity of the transaction.

India's crypto market grew by 64.1% from July 2020 to June 2021, helping to turn the region of central Asia and Oceania into one of

the

fastest-growing

cryptocurrency

markets.

India and Cryptocurrency in 2021 On March 4, 2021, the Supreme Court had set aside the RBI circular dated April 6, 2018, which barred banks and their affiliates from providing services in relation to cryptocurrencies. As a result of this cryptocurrency players represented by the Internet industry association and the Mobile Association of India (IAMAI) urged the government not to block cryptocurrency, instead proposing to improve ecosystem control mechanisms. The body assumes that cryptocurrency has been producing jobs in various fields such as law, compliance, technology, marketing, business development, finance, both in India and abroad.

In November, the Reserve Bank of India met with crypto players for the first time to discuss grey areas. The meeting convened by the RBI was attended by senior central bank officials, three transactions, a crypto trader, and the industry association Indiatech.org, which had prepared a white paper on secret currencies.

In November, the government again appeared to be likely to introduce a bill ( Cryptocurrency

and

Regulation

of

Official

Digital

Currency

Bill)

on

cryptocurrencies during the winter of Parliament from November 29, amid concerns over those funds allegedly being used to attract investors with misleading claims and financing terrorist activities.

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CRYPTOCURRENCIES

But the bill was also delayed as the government reportedly considered changes to the proposed framework. Issues under discussion include the need for further consultation and public comment, as well as whether the central bank digital currency (CBDC) to be introduced by the RBI should be part of the bill or dealt with under the RBI Act.

Growth of Cryptocurrency in India In May 2021, the crypto token Polygon, developed by Sandeep Nailwal, Anurag Arjun, and Jayanti Kanani, broke $10 bn in market capitalization. With a market capitalization of more than $ 19 bn, it was among the top 20 crypto tokens worldwide.

India acquired its first crypto unicorn after CoinDCX raised $ 90 mn in the Series C round, led by Facebook founder Eduardo Saverin B Capital. In October, CoinSwitch Kuber, a cryptocurrency platform for retailers, became a unicorn after raising $ 260 mn, the largest round of funding for any crypto company in India. Indian cryptocurrency trading has combined to spend more than Rs 50 Cr. during the ICC T20 World Cup in October and November. The data showed that the cryptocurrency exchange- CoinDCX advertised seven times per game per channel during the tournament, spending a total of Rs 40 Cr in sponsorship of Star Sports. Rival CoinSwitch Kuber focuses on Star Disney + Hotstar video streaming service during the World Cup.

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CRYPTOCURRENCIES

What is CBDC? CBDC (Central Bank Digital Currency ) is a form of cash or cryptocurrency issued by a major bank or nation's monetary authority as an alternative to its currency. These are stable currencies supported by private banks & unlike cryptocurrency assets like Bitcoin or Ethereum, the value of these digital currencies is not subject to fluctuating market volatility. It is an electronic currency that can be denominated and can be seen as a liability (cash) in a central bank balance sheet.

Advantages of CBDC CBDCs are more economical than physical cash as they have lower transaction costs They can encourage investment, which means that those who are not bankers can have easy and secure access to money on their phones They can compete with private companies that require compensation to meet transparency standards and reduce illegal activities They can help monetary policy move faster and seamlessly.

What is IC15 India’s first cryptocurrency index, IC15 was launched on 5th Jan 2022 by Crytowire the global crypto application of the Ticker plant. The great advantage of IC15 is that it can provide simple solutions for a variety of portfolios that can help reduce risk on a large scale. However, it is the initial days of India’s cryptos and indicators so investors, and the market, need to mature more and more.

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CRYPTOCURRENCIES

Future of Cryptocurrency In the year 2022, more solutions are expected to come up that will make decentralized chains cheaper, faster, scalable, and sustainable. While Bitcoin dominance may reduce and Ethereum and Solana value might increase. Further India’s Prime Minister calls for crypto regulations and we expect a decisive positive action in 2022. In other words, after a spectacular year, we will expect crypto to retain its most vibrative lucrative, and innovative sector to be in India in 2022.

The crypto market is expected to double faster and reach up to 241mn by 2030.

Furthermore Indian crypto market has the potential to generate an economic value addition of $184 bn in investment and cost savings. It will create over 8 lakh jobs by 2030.

By - Pratik Panda

PPAAGGEE 340

ONE NATION ONE OMBUDSMAN SCHEME What is the one nation one ombudsman scheme?

The Banking Ombudsman Scheme is a whistle-stop and inexpensive forum for bank customers for resolving the complaints of customers relating to specific services rendered by banks. The Banking Ombudsman Scheme is introduced under Section 35 A of the Banking Regulation Act, 1949 by RBI. The scheme was announced by the Reserve Bank Of India – RBI on 5th February 2021, with a motive to help consumers who have complaints against a Reserve Bank of India regulated entity, can have a single point of reference to file complaints, submit documents, know the status of complaints and receive feedback.

Ombudsman schemes covered Banking, NBFCs, and Digital Transactions individually.

In inclusion to integrating the three existing schemes, the Scheme also incorporates under its ambit Non-Scheduled Primary Co-operative Banks with the deposit size of Rs. 50 Cr and above. The Scheme also brings in the ‘One Nation One Ombudsman’ approach by making the RBI Ombudsman mechanism jurisdiction neutral.

These mentioned ombudsman schemes evolved over different periods and contained different levels of complaints and different compensation structures systems, which led to uneven redress across customers of different financial entities, resulting in unequal treatment of aggrieved customers. It was a strong impulsion for integrating the existing ombudsman schemes into one and centralizing the receipt and initial processing of complaints to bring in the process efficiency.

Ombudsman schemes evolved over different periods and contained different grounds of complaints and different compensation structures systems, which led to uneven redress across customers of different financial entities, resulting in unequal treatment of aggrieved customers. It was a strong impulsion for integrating the existing ombudsman schemes into one and centralizing the receipt and initial processing of complaints to bring in the process efficiency.

Significance of one nation, one ombudsman scheme.

1. The scheme will promote easy lodging of customers’ grievances and redressal.

2. It will be a step in the correct direction for improvising the customer’s service in banks, NBFCs, and Non-Bank Prepaid Payments Issuers.

3. Through One nation One Ombudsman, RBI is targeting and aiming to integrate consumer grievances redressal under a single ombudsman as against three schemes.

4. It is a big move by the RBI to bring more effectiveness.

By - Nikhil Saini PPAAGGEE 361

RBI RETAIL DIRECT SCHEME This scheme aims to ease and promote investment in government securities by individual investors. Before the retail direct scheme was launched, retail investors could only buy Government securities through non-competitive bidding in primary auctions by the way of stock exchanges. The only other way to invest in Government securities was through debt mutual fund schemes that invested in these types of securities.

Since they are issued by the government, Government securities are extremely secure instruments, given the sovereign guarantee. The Retail Direct Scheme helps broad-base the Government securities market, which has become crucial given the growing size of government borrowing in the last few years.

The Retail Direct Scheme will bring in a lot of people including small businessmen and senior citizens with their small savings directly and securely in government securities providing strength to the economy.

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RBI RETAIL DIRECT SCHEME

How does this scheme work?

The Retail investors firstly have to open the retail direct gilt account with the RBI, the investor can place non-competitive bids in the primary issues of all central government securities, which involves treasury bills and sovereign gold bonds.

Investors will have the facility to access the secondary market through the RBI’s trading system.

Any interest that is paid on particular Government securities or the maturity proceeds will be directly credited to the bank account that the investor has linked.

Who can become an investor in this scheme?

Under this scheme, all retail that is individual investors can open a retail direct gilt account with the RBI. The investors must have a permanent account number issued by the Income Tax Department, a rupee savings bank account maintained in India, documents for KYC, and a registered email and mobile number.

Non-resident retail investors who are eligible to invest in Government securities under the Foreign Exchange Management Act are also eligible under this scheme.

By - Nikhil Saini

PPAAG GEE 93 3

EDITORIAL

GREEN FINANCE Introduction Green finance is among the terms used to describe a large sector of finance aimed at protecting or enhancing the environment. The scope of the terminology differs significantly: for example, ‘sustainable finance' covers not just environmental but also social, economic, and governance aspects. Advocates for a sustainable finance approach claim that the environment and society are strongly tied. Green finance is quickly expanding and offers financial services firm’s enormous commercial prospects.

Green financing is one of the key measures for the United Nations in achieving several of its Sustainable Development Goals. Its Environment team is already collaborating with public and private sector groups to connect international financial institutions with the objective of sustainable development.

Importance of Green Finance Green finance is significant because it encourages and supports the flow of financial instruments and related services toward the creation and implementation of sustainable business models, investments, trade, economic, environmental, and social projects and regulations. The intertwinement of these two sectors is critical because the financial sector plays a major role in driving sustainable economic development while channeling investment to the real economy through its intermediary functions and risk management.

Green Finance Initiatives have also been addressing the 2030 Sustainable Development Goals (SDGs) agenda by emphasizing the shift of focus from shareholders' value creation (economic) to the generation of stakeholders' value, based on lessons learned from the global financial crisis in 2006-2009, the effects of global warming, and the need for more sustainable business practices (economic, environmental and social).

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GREEN FINANCE

Green Finance symbolizes the financial sector's future by encouraging investments in projects with positive and sustainable externalities through novel financing structures.

Green Finance Instrument Green bond-It is a common green financing instrument. What constitutes a green bond is defined by a code of conduct. A bond must meet certain criteria on the use of proceeds, have a procedure for project appraisal and selection, assure proper management of any revenues, and provide full reporting in order to qualify.

The United States, China, and France are the top three green bond issuers. Even though it only began buying corporate bonds in 2016, the European Central Bank now controls about 20% of all euro-denominated green debt, indicating that the bank sees this as a method to further its own green agenda.

Green funds- These are mutual funds or other types of investment vehicles that support policies and corporate practices that are socially and ecologically responsible.

Companies involved in green transportation, alternative energy, and sustainable living may be targeted by green funds.

Green insurance- It is described as insurance that not only protects people in the event of an accident or damage but also helps to safeguard the environment.

For example, a portion of the insurance premium may be donated to environmental organizations to help plant trees in our rainforests.

Initiatives in 2021 Reliance Industries Ltd (RIL) committed to invest a staggering $6 tn. in Gujarat over the next 10 to 15 years for its clean energy companies.

The World Bank has issued a NOK 3.5 bn. Sustainable Green Development Bond, with a focus on climate action.

Green finance at the European Bank for Reconstruction and Development reached a new high of €5.4 bn., or 51%, of overall transaction volume of €10.4 bn. in 2021.

The Indian Railway Finance Corporation (IRFC) has issued unsecured green notes worth $500 mn under its $7 bn global medium-term note program.

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GREEN FINANCE The following are some examples of projects that fit within the green financing umbrella: Energy efficiency and renewable energy.

Pollution control and prevention.

Conservation of biodiversity.

Initiatives to promote the circular economy.

The following are the key areas of current work on green financing: Assisting the public sector in developing a conducive climate.

Promoting public-private collaborations on funding instruments like green bonds.

Microcredit-based capacity building for community enterprises.

Road Ahead Green finance is on the rise by 2023, the global green bond market might be valued at $2.36 tn. It is seen as a means to address the needs of both environmentalism and capitalism at the same time. Central banks are also making noises about prioritizing greener investment at the national level. Green bonds reached USD354.2 bn. at the end of the third quarter of 2021, surpassing the total of 2020, and are now on track to reach half a trillion by the end of the year.

By - Shivani Meena

SP HAI V GA E N3I7

By - Priyanshu Saxena P R IPYAAGNES H 3 8U

KEY HIGHLIGHTS OF RBI FINANCIAL STABILITY REPORTDECEMBER 2021 Introduction As the name implies, it examines the country's financial stability and is compiled with input from all financial sector regulators.

It includes information on the present state of various financial institutions, including all forms of banks and non-banking companies.

It depicts the state of credit growth as well as the rate at which borrowers fail to repay their loans.

This report gives us an insight into how vulnerable our financial system is, particularly our banking system to adverse changes in the economy.

The RBI also conducts a systematic risk survey, in which experts and market participants are asked to rate the financial system on five main types of risks: global, financial, macroeconomic, institutional, and general.

Background In 2008, the Raghuram Rajan committee proposed it for the first time.

Finally, in 2010, the then finance minister Pranab Mukherjee announced the formation of an independent organization to address macroprudential and financial issues.

Global Growth to Falter The revival of the global recovery in the first half of 2021 has started to lose steam after the July 2021 issue of the FSR. The latest financial stability report has been affected by a resurgence of infections in several parts of the world, supply disruption, and the persistent inflationary pressure that has manifested itself during this time.

The slowdown in activity is occurring even in the emerging countries with relatively high vaccination rates, the report stated.

The world trade organization's goods trade barometer report reveals that global trade volumes have slowed down in the second half of the year, after rising 22.4% year on year in quarter 2 (April to June) of 2021.

The Baltic dry index, which is a gauge of shipping expenses for dry bulk goods, is another important statistic. In October 2021, this indicator reached its greatest level in over a decade, but it then dropped sharply.

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KEY HIGHLIGHTS The development of the Omicron variety has further added to the confusion. All of this has a significant impact on emerging economies like India, where immunization rates are much lower than in established nations.

Real economy vs Equity market The Indian equities market gained on robust rallies with sporadic corrections, fueled by the global bull run in equity markets, according to the FSR. The price-earnings (P/E) ratios have risen dramatically as a result of strong investor interest.

According to the paper, this demonstrates a divergence between the real economy, which was slowed down as a result of the pandemic, and equity markets which were on the rise.

Banks credit growth When compared to the position in March 2021, the banking stability indicator, which indicates changes in underlying conditions and risk factors of India's commercial banks, showed an improvement in soundness, asset quality, liquidity, and profitability criteria.

Only the efficiency parameter shows a worsening scenario, as this era includes the interruption caused by Covid-19's severe second wave.

NPA may rise Typically, public sector banks are more prone to such slippages than private sector banks, and this is true this time as well.

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KEY HIGHLIGHTS These stress tests are simply simulations of adverse economic conditions, and they are carried out by progressively worsening values of variables such as GDP growth, combined fiscal deficit to GDP ratio, weighted average lending rate, CPI inflation exports to GDP ratio, and current account balance to GDP ratio.

According to the most recent FSR, the NPA of India's scheduled commercial banks was 6.9% at the end of September 2021.

According to FSR's stress tests, the gross NPS ratio of all SCBs could rise to 8.1%

by September 2022 under the baseline scenario and 9.5% under severe stress.

The health of banks' non-performing assets (NPAs) is a critical variable to keep an eye on in any FSR; each FSR runs "stress tests" to see what will happen to the NPA level if things go wrong.

Systematic risk There are generally 5 risk indicators in the economy when we are talking about systemic risk; those are very high, high, medium, low, and very low.

Overall, the systematic risk study found a medium degree of risk to the financial system across all key categories of risk like the global, macroeconomic, financial market, institutional, and general.

Global and financial market risks were ranked higher than the rest for India, with commodity prices, domestic inflation, equity price volatility, asset quality degradation, credit growth, and cyber disruption being the key sources of risk.

Banking prospects When asked about the prospects for banking in the coming year, respondents' attitudes have improved significantly, according to the research.

In the previous round of the financial stability report analysis, most believed prospects of banks would worsen. However, the bank's prospects have shown a significant improvement in the recent financial stability report.

Conclusion Financial stability report analysis stated that India's banking and financial system has significantly improved since the July 2021 report. However, with global growth slowing, developed-countries monetary tightening, and the rise of omicron, the risks are evenly balanced.

By - Gopi Laxman

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CONCLUSION Various initiatives that were taken by India to improve its economic health, improved India’s GDP forecast to grow at 6.5% in the fiscal year 2022, a contraction from the estimated growth of 8.4% in the fiscal year 2021. RBI’s positive analysis report on the financial stability of our country, landmark acquisition of Zee and Sony, acquisition of Air India by TATA group, amendment of taxation bill to bring in tax certainty, terminating retrospective tax laws, and other major financial decisions coupled with prompt actions to roll off vaccination for the 1.35 billion citizens are some of the contributing factors for the GDP of India to be estimated at 8.4% for 2022, despite the ongoing pandemic and the discovery of new variants. The radical improvements in the financial and banking sector that have occurred in 2021 paint a hopeful picture for India to be able to grab every opportunity to improve and strengthen the ecosystem further in 2022.

By - Harshini Ramesh and Amisha

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