The financial bulletin, may 2013 by mmc club

VOLUME 25 ISSUE I

31st MAY 2013

The Financial Bulletin M

N E Y C L U

M B

A T T O F

E R S I B S ,

L U B - T H Y D E R

H A

E B

O F D

F P

I C I A L U B L I C

F A

I T

N I

A O

Learn about Financial Inclusion Career: Crisis in Investment Banking

What opportunities does Bitcoin bring? Do women really need a bank of their own?

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FROMTHE THEEDITOR’S EDITOR’S DESK DESK FROM The Financial Bulletin Issue:: I Volume: XXV May 2013

Advisor Dr V Narendra Faculty Co-ordinator Dr. S Vijaylakshmi Student Coordinator Kanchan Roy Editor Komal Jain

Dear Readers We are happy to announce that since Twenty Five uninterrupted months, The Financial Bulletin, has been reaching the lives of its amazing readers and providing them with financial education. We hope to continue our journey for many more months and become one of the best Inter Bschool Magazine. As usual, in order to celebrate the 25th Issue of the newsletter, we bring to you articles from a plethora of genres. This month’s article of the month’s written by Mr. Soumyajit Datta. It talks about the Impact of Eurozone Crisis on the Emerging Markets like India, China and Brazil and is worth a read. We also have a brief coverage on the newly traded form of currency called Bitcoin. The author shares insights on the currency. Our coauthors also talk about the careers in Investment banking and its current scenario. There are many more interesting discussions in the newsletter, READ ON to know more!

Happy Reading.

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CONTENTS ARTICLE OF THE MONTH:

26 Did Gold lose its Shine?

04 Impact of Euro Zone Crisis

-by Elma Davies

on the Emerging Markets. - by Soumyajit Datta

08 The Yellow, the Black and

30 Gold Rush -by Sachit Reddy

the Red. -by Nikhil Mehrotra

12 Globalization in Toto: The changing gesticulation of the world economy. -by Chandra Sekhar

33 Product of Financial Crisis: Boutique Investment Banks -by Ankur Baj & Harshita Preetam

COVER STORY

20 Bitcoin: A new currency to the world -by Vipul Agrawal

16 Is licensing of new banks essential for Financial Inclusion? -by Elma Davies

24 FDI in Retail in India. -by Richa Goel

36 Why Financial Inclusion? -by Pravesh Gupta & Kunal Sanghvi

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A R T I C L E

O F

T H E

M O N T H

IMPACT OF THE EUROZONE CRISIS The financial crisis of 2008 marked a new

the table shown above is that the net FIIs in

phase in global economics. The institutions

India increased from -9,837 million dollars

that were once considered to be fortified

to 30,253 million dollars within a year after

from any shocks have had to bear the brunt

the financial meltdown occur. Even though

of excessive risk exposure. The situation

the equity market has not rallied back to

was further aggravated by the Eurozone

pre-2008 level, a healthy inflow of funds

crisis that threatened to fragment the

suggests that the investors abroad perceive

European Union. The downturns in the US and the European Union have supposedly diverted the attention of investors towards emerging markets. In such a scenario it is expected that the investors would have taken out their money from Europe and parked it in safer

India as a safe destination. The

“India, Brazil and China were considered to be a safer investment avenue”

countries namely India, Brazil and China. INDIA With a robust service sector in place India

return that is above 8% which is very high when compared to global standards. While India has had a topsy-turvy ride of late, the relaxation of FDI norms in various sectors has

investments. The analysis will be based on the inflow of foreign funds in emerging

long term bonds deliver a

Financial

Net Inflows from FIIs

Year

(in US$ Millions)

2005-06

9,362

2006-07

6,821

2007-08

16,442

2008-09

-9,837

2009-10

30,253

2010-11

32,226

relied gained heavily on the financial health of the US and Europe. The relaxation of norms for foreign inflows has been a major propeller for FIIs to pump their money in the Indian market since the late 1990s. The most significant rise in FII inflows came after the financial meltdown across the US and Eurozone. A remarkable observation in

Source: SEBI, 2012

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also played a crucial role in lifting investor sentiment. It has been estimated that the recent policy changes has helped in bringing foreign funds worth 1.67 billion dollars in the Indian market (The Financial Express, 2012). BRAZIL Like India, Brazil is an economy that is heavily dependent on the service sector. The financial crisis has moderated the growth of Brazil to an estimated 3% of GDP (Global Finance, 2012). The country is highly dependent on the US and European nations for exports and the moderation in growth can be attributed to the fall in demand in these region. The investors on the other hand have treated Brazil as a very fruitful proposition after the removal of stringent capital gains norms by the government.

Source: World Bank

The inflows have been so overwhelming after 2008 for Brazil that the Real has appreciated to an extent that has made the import of Brazilian goods costlier for other countries. As a result the government has had to intervene to maintain the exports at a healthy level. This year the foreign investors have not shown keen interest in the Brazilian market. â&#x20AC;&#x153;Investments from overseas plummeted from US$12.4 billion to US$7.5 billion in the first half of 2012, in comparison with the same period in 2011â&#x20AC;? (The Rio Times, 2012).

ÂŠ Money Matters Club, IBS Hyderabad.

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While the era immediately after 2008 was good for Brazil (refer Figure 2), the

deteriorat-

ing economic indicators drained the foreign funds. So in spite of providing good yields on sovereign bonds, Brazil has not been able to perform on as well as India. CHINA Unlike its other two counterparts, China is heavily dependent on the manufacturing sector to sustain a high level of growth that is above India and Brazil. While FDI in China has been a hot topic, the capital

market has been far from being a good host to foreign institutions. This

is primarily due to the quota allocation for investors abroad and the lack of proper corporate governance (CNBC, 2012). The Chinese government has to some extent liberated the bond market of late for foreign players by introducing the Qualified Foreign Institutional Investors Scheme. Since there were restrictions on the debt market, it would be difficult to trace the perception of investors after the Eurozone crisis. However Table 2 clearly indicates that the level of foreign investment did not reach levels that were significantly different in percentage terms. In billions of US dollars

% of total bonds outstanding

Local currency bonds as % of total bonds outstanding

2005

2009

2005

2009

2005

2009

15.7

26.6

1.7

1.0

98.2

99.0

Source: IMF

While there was a hike in absolute terms (from 15.7 billion dollars to 26.6 billion dollars) the contribution of foreign investors declined significantly from 1.7% to 1.0%. This clearly indicates that the debt market in China did not attract foreign investors owing to strict regulation. The equity market has also undergone drastic changes over the years with the government allowing institutional investors to participate in â&#x20AC;&#x153;Aâ&#x20AC;? shares. China never had a robust system to win the trust of the foreign investors. The stock markets were marred with weak corporate

ÂŠ Money Matters Club, IBS Hyderabad.

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governance and insider trading. It does not come as a surprise that though the financial plight of the US and Europe was in a mess, China failed to harness the opportunities presented.

Year

2007

2008

2009

2010

Foreign Portfolio

18,509

8,721

28,160

31,357

equity (in Millions $) Source: World Bank, 2011

CONCLUSION India, Brazil and China present three unique scenarios for investors showing an interest in emerging markets. Though the capital markets have not opened up (especially China and Brazil) a constant growth in the inflow of foreign funds since 2008 certainly validate the claim that emerging markets have been a hot spot for foreign investors. What needs to be acknowledged is the fact that the level of inflow is not as significant via the FDI route and once the trepidation of these countries towards foreign investors is removed we could see an accelerated growth in the capital markets of these countries and the emerging markets as a whole.

Contributed by: SOUMYAJIT DATTA NMIMS, Mumbai

ÂŠ Money Matters Club, IBS Hyderabad.

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The yellow, the black and the red

Though yellow, black and red are the colors

source of energy but unfortunately India

that can be truly associated with the German

doesn’t have much proven oil reserves(900

republic since the days of revolution of

crore barrels as of now) and thus it is forced

1848; they certainly have a lot to say when

to import around 80% of its oil needs. Also,

it comes to deciding the economic affairs of

there is a huge subsidy on petroleum

a country that lay half a world away from

products provided by the government of

Germany, called India- our motherland,

India which further adds pressure to the

home to 1/6th of the world’s population,

Indian economy. Gold, on the other hand,

seventh largest country in the world and the

holds a special position in the Indian

world’s biggest democracy.

diaspora. It

The colors yellow and black signify gold

prosperity and social stature in the society

and oil in the Indian context and they are

since time immemorial. Last fiscal year

such an important factors when it comes to

alone, India has imported around 800 tonnes

drafting economic policies in the country

of gold which rightly justifies its stature as

that even a slightest fluctuation in their

the biggest importer of gold in the world.

international price can cause shivers and

Jewellery has always remained as the largest

sweats to the policy makers. These two

growth driver for the yellow metal followed

commodities form the major chunk of our

by medallions and coins. However, with

annual import bill which currently stood

increasing awareness, gold electronic traded

around $500.3 billion. India is a growing

fund (ETF) is also gaining healthy ground

economy and its growth is propelled by oil

throughout the country prompting further

as it is the only viable and greatly acceptable

increase in the import of gold. Even though

signifies culture, religion,

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government has almost doubled the import duty on gold, there is no much significant effect on the gold import. In such a scenario, both oil and gold are becoming menace for the current account of the Indian economy thus causing it to bleed “RED”. From here comes the color red which signifies the current account deficit (CAD) of the Indian economy. THE CURRENT ACCOUNT The current account balance is one of two major measures used for understanding the nature of a country's foreign trade (the other being the net capital outflow). The current account is calculated as follows-: CA = (EX-IM) + NI + NCT Here, CA – Current account, EX- Net export, IM- Net import, NI- Net income from abroad and NCT- Net current transfer. THE CAD A continuous surge in import leads to trade imbalance which causes the current account to become negative thus leading to CAD. Also, fake currency circulating within the country can further strengthen CAD leading to depletion of the economy. Therefore, RBI has the responsibility to come up with such stringent measures that can tackle with the proprietors of fake currency and keep their activities at bay. In 2012 alone, fake currency of worth Rs 25.5 crore has been seized and recovered by the government agencies. As of Q3, 2012-2013, CAD stood around a record high 6.7 % of GDP .

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FLUCTUATION IN THE PRICE OF

question arises –“Are we seeing the

GOLD

complete picture while reaching out to a conclusion on the faith of CAD?” The

The Speculation

answer is- “NO”. We haven’t considered all

These days, there are a lot of speculations

the factors that can contribute in the deter-

going on about the faith of CAD due to a

mination of CAD. India is the biggest

sudden decrease in the international price of

importer of gold but also a prominent

gold and oil due to certain macro-economic

exporter of gold jewelries, gold medallions

factors. Gold has fallen sharply because of

and coins to the world. As of fiscal year

many crucial events such as disappointing

2012-2013, the revenue from gold exports

Chinese economic data, selling of gold

stood

reserves worth $ 525 million by Cyprus to

industry has grown by 8.94% in terms of US

reduce its debt and wider expectation from

$ over the past

Italy and Spain to reciprocate the same. Oil,

international gold prices plunges, the yield

on the other hand, is suffering as a result of

from the Indian gold export will also suffer.

the global slowdown. Amidst all this, News

Thus the estimated recovery of $8 billion on

channels, economists, consulting firms are

gold bill can’t be fully realized in reality.

all predicting the CAD in the Indian

Similarly, India is also exporting large

economy to go down. Japanese brokerage

variety of petroleum products through its

firm Nomura recently announced that the

ports such as Jamnagar. Not only public but

recent fall in gold and oil prices can help in

private sector is also deeply involved in

improving the India’s CAD to reach to 4.3%

petro-chemical exports. Analyzing all these

in fiscal year 2013.

indicators thoroughly, we can conclude that

widely

macroeconomic

estimated changes

that

will

these

help

decreasing the WPI inflation, CPI inflation

around

$18285.86

million.

The

fiscal year. If the

there will be only a moderate effect of the current economic scenario on India’s CAD. CONCLUSION

along with the government’s fuel and fertilizer subsidy bill thus providing the

We should always remember that finding a

much needed breathing space to the policy

temporary solution to a severe problem at

makers. Gold bill is estimated to go down

hand is always a monstrous betrayal. It can

by $8 billion while oil bill will shrink by

lead us to situations which are even worse

around $10 billion. But at this very point the

than expected. Thus, policy makers should

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focus on finding out a permanent solution to the problem of CAD rather than rejuvenating from the short lived hope that cyclical events like the steep fall of gold and oil brings to the shores of our country.

Contributed by: NIKHIL MEHROTRA VGSOM, IIT Kharagpur

ÂŠ Money Matters Club, IBS Hyderabad.

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GLOBALISATION IN TOTO: THE CHANGING GESTICULATION OF WORLD ECONOMY

The global economy stands on the threshold of the next phase – Sustainable and globalization in Toto. Right now and for sometime the world will find itself in the midst of a mega – metamorphosis and the outcomes that this will have would be multidimensional. The report titled "Realizing the Asian century by the Asian development bank" cites that by 2050 the GDP of the seven economies of China, India, Indonesia, Japan, constitutional government of Korea, Malaysia, and Thailand will account for 45 per cent (%) of all-inclusive GDP. “Metamorphosis taking place in the world economy are likely to catapult the Asia – Pacific region as the centre of gravity of the world economy with China, India and Indonesia become apparent as the growth poles for not only the region, but also the entire world,” as stated by Dr. Noeleen Heyzer UN Under – Secretary – General and Executive Secretary of the Economic and Social Commission for Asia and the Pacific (ESCAP) at the Indonesia International conference (2011) in Jakarta. Globalization in Toto, a term that has been frequently used entails much more than what has happened so far. In essence it requires a process of decision making about global concerns including international finance that is not controlled by the priorities, considerations and markets of few but by the interests of all nations and individuals. It was obvious particularly after the occurrence of the Asian economic crisis that the global financial system required a certain process of reform that did not happen. While there are signs of trade liberalization slowing down as a result of the prevalent recession in most advanced nations the increasing role of the developing world in spearheading liberalization is evident. The expansion of South – South Trade is becoming an increasingly significant constituent of trade liberalization and in subsequent years plausibly it would be one of the main drivers of the process. The year 2015 is the deadline for the Millennium Development Goals (MDG) that were drawn out in 2000. There would be hardly any countries in the developing world that will be able to meet any of the MDGs by 2015. As far as reaching ramification of the crisis that began in 2008 continues to play out in the Eurozone and United States, it becomes increasingly evident that the path that lies ahead for these regions is nothing short of an economic overhaul. The impact of the meltdown reverberated

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Goal: 1 Goal: 2 Goal: 3 Goal: 4 Goal: 5 Goal: 6

Eradicate Extreme poverty and hunger Achieve universal primary education Promote gender equality and empower women Reduce child mortality Improve maternal health Combat HIV/AIDS, Malaria and other disease

Goal: 7 Goal: 8

Ensure environmental sustainability Develop a global partnership for development

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Table: Millennium Development Goals globally and its outcome did dampen market

sentiment. The ensuing slowdown in economic

liberalization has had on the small and subsis-

activity led to a discernible contraction of

tence farmer.

output and economic growth which occurred

3. The possible role that speculation will be

in almost every country. According to the U.S

having on the pricing in food grain (Cereals,

Congressional Budget Office, (CBO), if the

Pulses) markets.

nation continues on the same track deficit will

Imminently the question arises how one

remain high throughout the rest of this

defines agricultural trade liberalization? The

decennium and beyond the bounds, and debt

most convenient way to do will be referring

will spiral ever higher, reaching 90 percent

to the Doha Development agenda (It is the

(%) of GDP in 2020. “It is evident that

negotiations

approximately a billion people remain hungry

Organization) that is generally indicative of

threatens

the

the trade barriers that exist and those do not).

Millennium Development Goals (MDG) of

On the basis of the new methodology the

hunger reduction. It is also evident that

Tendulkar

economic boost, while imperative, will not be

poverty for states and all India for 2004-05

sufficient in itself to eliminate hunger within

wherein it cites All India poverty estimates

an acceptable period of time” (Food and

(head count ratio) of 41.8 per cent (rural) and

Agricultural Report on Food Security

37.2 per cent (combined rural-urban). This is

2010). In this context three critical aspects

higher than the existing official’s poverty

need to be examined:

estimates for the country which is 28.3 (rural)

1. The role of agriculture in economic

and 27.5 per cent (combined).

development.

An article by Jayant Sinha and Professor

the

ability

achieve

The

impact

that

WTO

committee

agricultural

(World

has

trade

Trade

re-estimated

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Ashutosh Varshney titled “It is time for

intellectual oppression in China was the 11 year

India to rein in its robber Barrons” says

prison sentence that Noble Prize recipient Liu

both in its rot and inebriating dynamism,

Xiaobo was given for co-authoring a proposal

India is dawning to resemble America’s

for political and legal reform in China. Thus

Gilded Age (1865 – 1900). This article

china’s process of liberalization was not merely

makes an interesting comparison of the

about reducing trade barriers and opening up its

present phase that the Indian economy is

markets it was rooted in a wider process of

passing through with that of America’s

reform that gathered pace during eighties. The

gilded age which was the era of industrial

eighties was a decade that can be described as

capitalism in 19th century America. If the

an era of metamorphosis for China. This was a

dynamism of India’s vibrant economy is to

phase during which China’s metamorphosis to

result in sustained progress it is essential

higher level of economic progress had begun, it

that it raises above the political economy of

was consistent but not smooth sailing. By the

underdevelopment. The question that arises

end of this phase China and Deng Xiaoping

were confronted with yet another challenge,

weather

the

political

economy of

underdevelopment in India will weaken.

perhaps

the

most

daunting

This has already begun to happen, but much

encountered after the seventies.

more needs to be done and it needs to be in

China’s transformation was driven by the

the direction of consolidating and strengthen

progress that it had made in the direction of

the political economy of development.

poverty reduction and education.

China recently released its five year

embarked on large scale poverty reduction

program (2011-2015) and notably the word

program since the early fifties China managed

used instead of plan is program. According

to reduce the number of poor from 200 million

to a recent report by the IMF about China

in 1981 to 34 million in 1999. According to the

(July 2011), “China is now the World’s

Human

most “central” trader, with the largest and

2009/10 China has a low level of capacities,

most important connections to other major

skills and institutions overall. It lacks strong

trading nations; it has become a dominant

macro-management capacities, i.e., “the highest

importer of commodities and exporter of

level of China’s Government has endorsed

capital goods and transitional products.” A

moving towards a low carbon path that can

sophisticated known and recent instances of

simultaneously advance human development.

Development

that

Report

had

Having

China

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CONCLUSION Last but certainly not the least I would like to conclude that this is the time of sustainable and all around globalization and to achieve Unattainable Millennium development goals and to make economic progress by reducing poverty and by increasing Literacy rate which can simultaneously advance Human Development. Contributed by:

CHANDRA SEKHAR MBA Batch of 2014 ABV-IIITM, Gwalior, M.P.

ÂŠ Money Matters Club, IBS Hyderabad.

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Is licensing of new banks essential for financial inclusion? RBI has declared that licenses are going to be

banking. Yet, the Parliamentary Standing

given to few private sector banks for which

Committee on Finance have questioned the

they have invited entries till July 1, 2013.

‘subjective nature’ of the RBI set guidelines

According to the circular, ‘Guidelines for

and thus opposed the move.

licensing of new Banks in the Private sector’

guidelines setup for providing licenses to

issued on February 22, 2013, RBI is planning

banks is transparent, one question that arises is

to provide licenses as per the guidelines set up

who will gain from these new banks? Will the

by RBI including a minimum 10 year

entry of new private players in banking

experience, a minimum paid-up capital of

encourage financial inclusion?

Rs. 500 crore and a maximum level of foreign

licensing of more private sector banks an

investment (including FDI/FII and NRI) up to

effective solution to reach 6, 50,000 villages

49 percent.

and provide them financial services?

RBI believes that the licensing of new banks

FINANCIAL INCLUSION

Even if the

Or is the

will promote financial inclusion and infuse competition into the banking sector. RBI

Financial Inclusion is defined as ‘the process

Governor, D Subbarao at a function on

of ensuring access to appropriate financial

financial inclusion, organized by the World

products and services needed by vulnerable

Bank and Organization of Economic Co-

groups such as the weaker sections and

Operation and Development (OECD) asserted

low-income groups, at an affordable cost in a

that an important criterion for processing the

fair and transparent manner by mainstream

application for entering the banking field and

institutional players’.

obtaining a license is the amount of financial

PROBLEMS

inclusion attained or planning to attain by the

INCLUSION

FINANCIAL

players. Many have applauded the RBIs move to provide an entry to more private players into

While implementing financial inclusion, a viability gap arises for the banks due to the

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high cost of operation coupled with low

cannot assure significant returns unless they

probability of growth and expansion and the

innovate themselves with better models.

issue of recovery of assets in the rural areas.

Moreover, India has 96 scheduled commercial-

Besides, the biggest issue faced by banks in

27 public sector banks, 31 private banks and 38

financial inclusion is the issue of dormant

foreign banks which have been able to serve

accounts. Rural population may have a savings

53,000 branches around the country. The entry

account, yet financial activity, which are

of 7 or 8 more of new banks may bring in 8000

detrimental for the smooth operation of bank

more branches. Yet the reach is not sufficient to

are absent. Such operations have always

cover the 6, 50,000 villages in the country. Thus

turned out to reduce the returns of banks and

arguing that the licensing of more private sector

thus discouraged them from moving towards

banks is the ultimate solution to financial

large scale financial inclusion.

inclusion cannot be accepted.

The other nuances include the issues of resolving technological problems, accessing inaccessible regions, security concerns and

HOW TO ACHIEVE FINANCIAL INCLUSION? Initiatives taken by banks in India towards

lack of infrastructural facilities. WILL MORE NUMBER OF BANKS HELP?

financial

inclusion

have

not

been

very

successful due to the lack of financial literacy among the rural population. Quoting Mr. SL

Initiatives taken by banks in India towards

Bansal, the CMD of Oriental Bank of

financial inclusion have not

been very

Commerce, ‘Banking can finance economic

successful due to the lack of financial literacy

activity, provided it exits there. Banks cannot

among the rural population. Quoting Mr. SL

create an economic activity’. Thus the efforts of

Bansal, the CMD of Oriental Bank of

banks towards financial inclusion are futile

Commerce, ‘Banking can finance economic

unless there is sufficient financial literacy in

activity, provided it exits there. Banks cannot

these villages. Thus even when the existing

create an economic activity’. Thus the efforts

banks

of banks towards financial inclusion are futile

inclusion benchmarks, entry of new players

unless there is sufficient financial literacy in

cannot assure significant returns unless they

these villages. Thus even when the existing

innovate themselves with better models.

could

banks could not achieve their financial inclusion benchmarks, entry of new players

not

achieve

their

financial

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Moreover, India has 96 scheduled commercial- 27 public sector banks, 31 private banks and 38 foreign banks which have been able to serve 53,000 branches around the country. The entry of 7 or 8 more of new banks may bring in 8000 more branches. Yet the reach is not sufficient to cover the 6, 50,000 villages in the country. Thus arguing that the licensing of more private sector banks is the ultimate solution to financial inclusion cannot be accepted. HOW TO ACHIEVE FINANCIAL INCLUSION? Financial inclusion cannot be achieved unless the people feel the need for financial institutions. Thus economic activity and an environment for economic transactions should first be in place. This can be achieved only through financial education. Financial literacy will empower the rural population to take control of their lives and prevent themselves from being exploited. When the people feel the need for saving their money or availing credit facilities, the need for financial institutions arises and thus financial inclusion For financial inclusion, microfinance must go back to its roots and focus on clients. Rural needs may be different from the urban ones. Thus the product portfolio must be customized according to the changing needs which requires in depth understanding of the customers. Many a times, large banks with a wider portfolio may not have the expertise to tap into the rural needs. Local players like NBFCs or microfinance institutions may be more equipped for the same. The microfinance sector and MFIs in India is estimated to have outstanding total

ÂŠ Money Matters Club, IBS Hyderabad.

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loans of Rs. 160 to Rs. 175 billion, and Rs. 110 to Rs. 120 billion, respectively as on March 31, 2009. CRISIL estimates that as of March 31, 2009, MFIâ&#x20AC;&#x2122;s outstanding loans to have increased to Rs. 114 billion from Rs. 60 billion a year ago. CRISIL estimates that the overall disbursements during 2008-09 to be around Rs.287 billion, of which disbursement of Rs. 185 billion was made by MFIs. This is reflective of the increased acceptance of MFIs as commercially viable and their ability to attract capital. Presently, lack of regulatory frameworks for microfinance institutions and other providers is one reason for the lack of effective financial inclusion. Thus if RBI and Government turn their focus towards strengthening such microfinance institutions, effective financial inclusion can be achieved. CONCLUSION To get a banking license, the banks will have to open 25 percent of the branches in rural area. Opening a branch in rural area does not ensure financial inclusion as majority of the accounts opened in such villages are dormant. Thus to achieve financial inclusion, government should direct its efforts towards providing financial literacy and empowering and regulating the microfinance segment of the country.

Contributed by: ELMA DAVIES PGDM (Batch of 2014) SIMSR, Mumbai

ÂŠ Money Matters Club, IBS Hyderabad.

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C ov e r

Bitcoin:

s t o r y

a new currency to the world

The best way to describe Bitcoin is, it is an invisible, virtual form of currency. Bitcoin is a new decentralized electronic currency, also known as crypto-currency. Bitcoin is digital currency and can be sent through the internet. Bitcoin is a concept which was first described by Wei Dai in 1998 on the cypherpunks mailing list. This scheme was first suggested by

be mined not by actually digging but by

Satoshi Nakamoto in 2008, and became

generating it on the internet and it is done

fully operational in January 2009. Bitcoin

by programmers.

are digital coins which are not issued by any government, bank, or organization,

WHO GENERATES IT?

and are purely peer to peer online pay-

Bitcoin can be generated all over the

ments sent directly from one party to

internet by anybody, running a free

another without any interruption of any

application called a Bitcoin miner.

financial institution.

Mining requires a certain amount of work

Building upon the notion that money is

for each block of coins. This amount is

any object, accepted as payment for

adjusted by the network such that the

goods and services or repayment of debts

Bitcoin are generated at a predictable and

in any given country, Bitcoin is designed

around the idea of using cryptography to

programmed such that the money supply

control the creation and transfer of

will increase in a slowly increasing

money.

geometric series until the total number of

Unlike other commodities like gold,

bitcoin reaches an upper limit of about 21

silver we mine them by digging and

million BTC's. Each bitcoin is subdivided

extracting it, similarly Bitcoin can also

into 100 million smaller units called

limited

ÂŠ Money Matters Club, IBS Hyderabad.

rate.

The

network

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“Satoshis”, defined by eight decimal

one can have more than one Bitcoin

places.

addresses. Bitcoin addresses are used for

Unlike Fiat currency (Dollar, Euro,

receiving bitcoin, in the same way we use

Pound etc.) which are issued by a

our e-mail address for receiving e-mails.

government, despite the fact that it has no

Payments

intrinsic value and is not backed by any

experimental

reserves, Bitcoin has no centralized

deployed on a large scale (the current

issuing

value of all the coins issued so far ex-

programmed such that the money supply

ceeds 100,000,000 USD) and attracts a

will increase in a slowly increasing

lot of media attention.

geometric series until the total number of

A user addresses are characterized by

bitcoin reaches an upper limit of about 21

their public/private key pairs owned by

million BTC's.

him and the string length can differ in a

Bitcoin miners are awarded with bitcoin

range

for cracking or solving an extremely and

1NvQuPB4L2hkJtY6iNw9fLT1HQMYLfC

increasingly

4b.

authority.

The

difficult

network

proof-of-work

through phase,

from

Bitcoin it

27-34

already

e.g

problems which confirm transactions and

A bitcoin transaction is a general form of

prevent it from double-spending.

a regular bank transaction, likewise that it

To receive an award, the network

allows multiple sending addresses and

currently requires approximately over

receiving

one million times of more work for

transaction.

confirming a block. Currently 50 BTC's

discloses anybody’s identity about who

are awarded than whenever the first

gave how much to whom and specifies

blocks gets confirmed.

how many bitcoin were taken from each

addresses The

the

transaction

same doesn’t

sending address and how many bitcoin were credited to each receiving address.

HOW IS IT TRADED? To start with a bitcoin transaction participants begin it

with by first

WHERE IS IT TRADED?

acquiring a program called a Bitcoin

There are various bitcoin exchanges,

wallet. Bitcoin are store in this digital

where bitcoin are bought and sold at a

wallet. This wallet has an address and

variable price against the value of other

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currency. Bitcoin has appreciated rapidly

someone who can able to allocate these

in relation to existing fiat currencies

many IP’s. This technology is known as

including the US dollar, euro and British

proof-of-work and was originally sug-

pound. In April 2013, 1 BTC were traded

gested by Adam Back's Hashcash as a

from $100–$260.

measure to prevent email spam.

CAN THIS MONEY BE ROBBED?

WHATS

As none is involved between peer to peer

INDIAN MARKET FOR BITCOIN?

transactions, Bitcoin unique feature lies

popularity in India.

denied just by agreeing on a single Due

many

connectivity

and

everyone

aware

about

the

transaction at all times, and can be abused by double-spending the same money.

Due

such

flaws

and



twice before the first transaction gets

This is due to

India

has

programmers/

computer people than the rest of the world combined. 

People in India love tangible assets (gold/silver)



The Rupee is crashing and the gold price has just hit an all-time high in

incapability of the network someone could actually spend the same money

following reasons:

propagation issues it makes difficult to make

SCENARIO

Bitcoin has so far gotten very less

in this, that transactions are accepted or history of transaction on the network.

THE

Rupees. 

Millions of Indians live outside India and send money to/from relatives in

completed.

India. 

Solution: To avoid such fraudulent transactions

Unlike China, India has no “great firewall”

Bitcoin were introduced. On Bitcoin

2013 is expected to be a big year with

exchange network people are identified

small

by the software applications they are

Bitcoin in India. Remittances is a

running and their respective IP addresses.

growing market and there is a huge

Exchanges

The validity of transaction keeps a track of many IP’s and this could be hacked by

emerging

out

for

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opportunity for Bitcoin in India. Initiatives are being planned for the same to roll out this or coming next year. Remittances market is currently dominated by banks or Hawala operators. Bitcoin can be the one stop shop and better solution for this which can instantly bring a tremendous positive change in this remittance market. This change can even be driven and adopted by the remittance companies and banks currently operating in India.

Contributed by:

VIPUL AGRAWAL WELINGKAR INSTITUTE, Mumbai

ÂŠ Money Matters Club, IBS Hyderabad.

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FOREIGN DIRECT I NV ES T ME NT S IN R ETAI L I N INDIA

FDI Foreign direct investment (FDI) or foreign investment refers to the net inflows of investment to acquire a

required. If granted permission, Adidas could sell products under the Reebok brand in separate outlets.

lasting management interest (10% or

MULTI BRAND FDI in Multi Brand

more) in an enterprise operating in an

retail implies that a retail store with a

economy other than that of the investor.

foreign investment can sell multiple

Foreign direct investment is the sum of

brands under one roof. Opening up FDI

equity capital, reinvestment of earnings

in multi-brand retail will mean that

and other long or short term capital as

global retailers including Wal-Mart,

shown in the balance of payments. It

Carrefour and Tesco can open stores

usually

offering a range of household items and

management, joint venture, transfer of

grocery directly to consumers in the

technology and expertise.

same way as the ubiquitous ’kirana’

involves

participation

SINGLE BRAND Single brand implies that

foreign

PRESENT SHAPE OF FDI The retail

allowed to sell goods sold internation-

industry in India is the second largest

ally under a ‘single brand’, viz.,

employer with an estimated 35 million

Reebok, Nokia and Adidas. FDI in

people engaged by the industry. There

‘Single brand’ retail implies that a retail

has been opening of Indian economy to

store with foreign investment can only

foreign organization for foreign direct

sell one brand. For example, if Adidas

investment through organized retail.

were to obtain permission to retail its

The union government has sanctioned

flagship brand in India, those retail out-

51% foreign direct investment in multi-

lets could only sell products under the

brand like Wal-Mart, Carrefour, Tesco

Adidas brand and not the Reebok brand,

and upto 100% in single brand retail

for

like Gucci, Nokia and Reebok. This will

which

companies

separate

would

store.

permission

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make foreign goods and items of daily consumption available locally, at a lower price, to Indian consumers. The new policy will allow multi-brand foreign retailers to set up shop only in cities with a population of more than 10 lakhs as per the 2011 census. There are 53 such cities. This means that big retailers can move beyond the metropolises to smaller cities. The final decision will however lies with

FAVORABLE: Indian

farmers:

The

biggest

beneficiary of FDI in retail would be farmers who will be able to improve their productivity. The farmers will not only be able to increase their output but will also get better rewards in terms of supplying to organized retailers by tying up long term contracts with them.

the state governments. Foreign retailers

Indian consumers: India is now the

will be required to put up 50% of total

home of the largest number of moneyed

FDI in back-end infra-structure excluding

consumers. Indian consumers will get

that

access to quality goods at a low cost, that

front-end

expenditures.

Expenditure on land cost and rentals will

too at home.

not be counted for the purpose of back-end infra-structure. Big retailers

Proper tax system: Tax revenue will

will need to source atleast 30% of

increase like VAT and service tax. The

manufactured or processed products from

organized sales with computerized billing

small retailers. The government will go

system will also yield more revenue

for

found

through commodity taxes like VAT and

irregularities then the deed will be broken

service tax to the government. Thus tax

with a second of time. Home grown

buoyancy

retailers have not muscles and the reach

increase.

surprise

checks

and

to go for the big game like Subiksha and Vishal Retail. They have expanded their retail chain but did not have the resources to manage the backend across several

the

economy

would

High availability of jobs: There will be huge job opportunities in the country (in crores) as there will be opening of malls and store houses.

cities. If we look rationally at the FDI in retail sector then it will be a win-win situation for all.

Distribution system: The report shows that 30-35% of Indiaâ&#x20AC;&#x2122;s total production of fruits and vegetables is

ÂŠ Money Matters Club, IBS Hyderabad.

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wasted every year due to inadequate cold

and around 47% in urban areas depend

storage and transport facilities. Almost

on retail trade for their livelihood, which

half of this wastage can be prevented if

will be effected. Around 14 crore people

fruit and vegetable retailers have access

are directly or indirectly earning from the

to specialized cold storage facilities and

retail sector and if we associate their

refrigerated trucks.

family members then this number would

Knowledge enhancement: FDI in retail will make way for inflow of knowledge from international experts. There will be drastic retail growth through the development of the retail capability.

reach 40 crore. This may in turn render the people engaged there jobless and non business oriented. The medium and small retailers will surely be effected but not in a big way. CONCLUSION

Inflation control: Inflation will be curbed.

The future of foreign retail players is also uncertain like that of Indian retail players. Apprehensions were raised on many

UN-FAVOURABLE

such occasions in the past on virtually

The arguments against are that the new

every measures of liberalization of Indian

system will displace the traditional shops

economy but most of the apprehensions

and petty retail stops in markets. India

proved wrong while many others come

has two types of un-organized retailers:

true. It is better to act and watch than not

one the big un-organized retailers i.e. the

to act at all.

shop of wealthy consumers and the other small un-organized retailers i.e. the shop

Contributed by:

of poor consumers. The latter will remain untouched while the former may be marginally affected. The real India which

RICHA GOEL

is hardworking bread earners, comprising of 80 crore people will surely not be

MBA (Batch of 2014)

benefitted. In terms of employment in

GGSIPU,

retail sector around 38% in rural areas

ÂŠ Money Matters Club, IBS Hyderabad.

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DID GOLD LOSE ITS SHINE? Over the past one decade, gold prices have

Many circumstances have led to this

been showing an increasing trend. The

decline.

yellow metal has been considered as a safe

The US economy has been improving

asset having stable value that immune to

leading to the belief that gold need not be

inflation.

Gold prices were high even in

held as a hedge by the investors. The key

acute financial crisis like the one in 2008

factor responsible for the fall of gold prices

when investors lost faith in financial assets

was the expectation that the US Federal

and preferred a more tangible form of investment. People have been hoarding gold irrespective of the fact that it does not pay interest like any other form of financial asset. But lately, the scenario has changed completely. There has been a freefall in the prices of gold worldwide. The metal was supposed to be the ultimate hedge against any market driven inflation or shocks. But the prices has been falling in the last month, that too by 13 percent; which was nearly the steepest fall in gold prices in the past 33

Reserve will tighten monetary policy by

years. It was priced at $1321, around 25

stopping

percent below a record high of $1920.30 hit

program. If executed, this program would

in September 2011.

have controlled inflation giving no reason

its

quantitative

easing

(QE)

for investors to hold on to a safe haven such HOW DID IT START?

as gold. They could now safely shift to

The price of gold has been unstable since

riskier assets like stocks. Thus they started

November 2012. Thus a fall in the bullion

selling gold which increased the supply of

market was not unprecedented. But what

gold and fuelled the fall in prices.

came as a shock was the speed of the crash.

ÂŠ Money Matters Club, IBS Hyderabad.

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Another reason for fall in Gold prices was

have better growth prospects. They have

Cyprus’s announcement that to finance its

also found markets in developing countries

part of €10 billion euro EU/IMF bailout i.e.

filled with opportunities. This reduced the

€400 million, it was considering the option

demand for gold reducing the gold prices.

of selling its gold reserve. This news created

All these factors have made the investors

mayhem in the market which triggered a

think twice about the dependability and

huge fall in the gold prices by nearly 1.6

profitability from gold as an investment.

percent in the first week. Investors were

Warren Buffet, who has never been a big

confused and speculation with respect to

fan of investing in gold, has even said that,

how countries like Italy and Spain were

“Caves might be a better investment than

going to finance their bailout was mounting.

gold”.

This further affected investor confidence and triggered more investors to sell gold and

WHO ARE AFFECTED?

bring down the prices further.

The recent fall in gold prices has mainly

WHY WAS THE FALL?

affected two sections of retail consumers: Individuals buying gold for consumption

A deeper look into the economic scenario around the globe tells us that the market was not affected by panic alone. Economic and political decisions worldwide have affected the gold prices. India, the world’s biggest buyer of gold bullion introduced a 50% import tax to curb the investment in gold. This has triggered a 24% fall in the amount of gold brought to the country. Moreover, the environment as a whole was in support of alternate forms of investments. Interest rates from other forms of investment have increased considerably and investors are getting better profits. They have realized that the risk taken in financial instruments

and consumers buying gold for investment. Individuals buying gold for consumption purposes are delighted by the falling prices. India has always been known for its affinity for

the

yellow

metal and

with the

approaching wedding season, the fall in gold prices have made people rejoice with joy. The consumers who purchase gold for investment

purposes showed a

mixed

opinion towards the falling gold prices. There are few investors who find the decline in gold prices as an opportunity to buy gold cheaply and invest in ETFs. However, gold prices are driven by speculation and sentiment for the metal. Thus the crash in

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the prices has led many investors to doubt

Thus the long term implication of the

the true worth of the metal. Their belief that

present trends is not predictable.

gold prices will always keep increasing, has been affected. This has led many to go for

LESSONS LEARNT

huge scale redemption of ETFs post the

The recent crash in gold prices has

crash.

completely shattered the belief that gold is

The main people affected by the dipping

the ultimate hedge against inflation or

gold prices are the products/businesses that

economic turmoil. Gold, like any other form

have come up recently riding on the

of investment is subject to fluctuation in its

enormous gold rally: gold loan companies,

prices depending on the market forces and

mutual funds selling exchange-traded funds

speculations around the globe. Thus any

(ETFs), banks that have given huge amount

investment in gold should be preceded by

of credit taking gold as collateral etc. The

proper market analysis and study of global

risk associated is very high for them as it’s

happenings. After all, ‘All that glitters may

likely that the customers will not repay the

not be gold’.

debts if the value of their asset (i.e. gold) decreases. This will bring in huge losses for Contributed by:

the firm.

ELMA DAVIES

SO, WHAT NEXT? The global outlook for gold appears to be bearish in the short term due to the strength-

PGDM (Batch of 2014) SIMSR, Mumbai

ening dollar and better promises for profit from other financial instruments. This present scenario is subject to changes. The assumption that the US economy might recover can turn out to be wrong in the long run. The European crisis may not turn out to be as severe as expected and countries like Italy and Spain may emerge out unscathed. The whole industry runs on speculation.

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Views: gold rush A few years ago, the idea of gold only

for quite some time for high levels, making

made me think of a costly metal that is

the Indian middle class to suffer in the

considered to be as a prerequisite for

form of cuts in their spending and

festivals and weddings. As the years passed

consumption. Gold undoubtedly has been

by, world has changed with the change in

the safe bet for the smart Indian masses to

technology and change in the way the

hedge against rising levels of inflation.

precious yellow metal is perceived.

Gold imports have grown from $21 billion

Now, the slightest and remotest notion of

in 2009 to $56 billion in 2011.

gold brings with it a litany of complex

Second, the average return on gold in the

terms

have

past couple of years is hovering around

comprehended without the help of Google

25%. Given the amount of return gold is

or a lexicon. Some of the terms which I

giving, why would the ‘aam aadmi’ invest

was referring to include Inflation, Current

his money in a savings account or in a term

account deficit, foreign reserves, Import

deposit with a bank for a paltry interest

duty and the likes. The Price of the gold

rate? Price of an ounce of gold in 2007 is

has been constantly appreciating as its

$700 and it surged to $1600 in 2011 which

reserves across the globe are depleting at a

corroborates the above hypothesis that the

faster rate. The demand for gold has

return on gold is significant.

increased the world over by 24% in

Third, Capital markets across the globe

2010-11, but the demand in India has

have

grown by 39% in the same fiscal year. This

investing in capital markets only brings in

shows the country’s obsession with the

uncertainty on the returns. Gold has been

yellow metal. There are quite a few reasons

the best alternative to stock markets as

to the people’s inclination towards gold

returns on gold are comparatively stable

and the Gold Rush that entered India.

and robust. Moreover, investing in gold

Firstly, gold is considered as a hedge

does not entail KYC norms and helps one

against inflation, for it has been in the news

which

could

not

been

avoiding

quite

tax,

volatile.

unlike

Therefore,

financial

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instruments.

of the measures which might discourage

Fourth, gold can be easily liquidated into

gold purchases:

cash in the times of need. No financial

Increase

instrument is as liquid as gold.

Government has already increased the im-

Lastly, gold is considered as a status

port duty from 2 to 4 per cent. But this

symbol

gold

measure did not seem to be fruitful as this

(jewellery) you flaunt, the more status you

did not deter people from buying gold.

have.

Rather, it compelled them to buy more in

since

ages.

The

All is well for the ‘aam janta’ of India, who

the

import

duty

gold.

anticipation of further hike in import duty.

have cleverly diverted their savings to an

Gold backed financial instruments. For

attractive investment option. But all is not

example, Gold ETFs which are units

well and there is some apprehension when

representing physical gold, which may be

viewed through the eyes of policy makers.

in paper or dematerialized form. These

Gold purchases might have been a good

units are traded on the exchange like a

option for Indian masses keeping in mind

single stock of any company. It does not

the long term benefits it provides. But

attract wealth tax and one will not have any

Government has been importing gold in

fear of theft as gold is not in physical form

order to meet the rising demand at the cost

but on paper.

of country’s foreign reserves. Gold by

Set up a Gold bank or Bullion corporation

itself does not lead to any productive

of India to reduce the imports of yellow

activity and does not help improve the

metal. This was proposed in 1992 by then

economy of the country. Hence, it is

finance minister Manmohan Singh. The

considered as an unproductive asset. Most

bank’s functions will include acting as a

important of all, gold imports has become

‘backstop facility’ to offer refinance of

the prime reason for ever burgeoning

gold to institutions lending against the

‘Current account deficit’

collateral of gold, issuance of gold bonds

Keeping in mind the above ill effects of

in lieu of collection of gold stocks, storage

gold imports, government of India is trying

and safekeeping facilities for bullions and

its best to restrict the imports of gold and

close coordination with other international

contain the current account deficit. Some

bodies such as World Gold Council. The idea was, however, never implemented.

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Other measures include introduction of Inflation indexed bonds, Increase the rate of interest on savings account to make people deposit their money with the banks and launch a massive awareness campaign to make people aware of attractive investment options other than gold. With all the above measures, will the government of India be able to successfully reduce gold imports and contain Current account deficit? We will have to wait and watch.

Contributed by: SACHIT REDDY

The views expressed in the article are purely personal.

ÂŠ Money Matters Club, IBS Hyderabad.

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PRODUCT OF FINANCIAL CRISIS: BOUTIQUE INVESTMENT BANKS Investment Banking is the most sought after

creased its exposure, majorly in the mortgage

career path in elite B-schools as majority are

-backed assets, which were central to

attracted by high salaries and bonuses, big

the subprime mortgage crisis. So in March

size deals, working for some of the biggest

2008, the Federal Reserve Bank of New

names from various sectors and most impor-

York provided an emergency loan in an at-

tantly, pride. However, a lot has changed

tempt to avert a sudden collapse of the com-

since the subprime crisis. Though Investment

pany. However, the company could not be

Bankers still get paid much more than other

saved and was sold to JP Morgan Chase for

professionals, including doctors and engi-

$10 per share (and not the $2 per share as

neers, however the gap is narrowing. Remu-

originally agreed by Bear Stearns and JP

neration experts believes that this develop-

Morgan Chase). This was a price far below

ments, marks only the beginning of poten-

its pre-crisis 52-week high of $133.20 per

tially the largest adjustment in decades. The

share. This event was prelude to the crisis as

average pay per head (in a sample of some of

many of the biggest banks were also heavily-

the European and US investment banks) has

exposed to these sorts of investments. Finan-

fallen from the peak in 2006 of 9.5 times the

cial portfolios heavy with toxic debt were

private sector average to around 5.8 times in

one of the major causes of the global finan-

2012, according to a research compiled by

cial crisis of 2008.

PwC (for Financial Times.)

The closure of the Big Investment Banks

The biggest names such as Lehman Brothers,

came as shock to the Bankers who built their

Merrill Lynch and Bear Stearns no longer

careers in an era when world of finance

exist. Letâ&#x20AC;&#x2122;s take the case of Bear Stearns.

seemed to keep inexorably growing, they

Bear

involved

were woven into the fabric of the modern

in securitization as well as it also issued large

economy, along with very high levels of

amounts of asset-backed securities. When the

banking pay.

Stearns

was

investor losses increased in those markets in 2006 and 2007, Bear Stearns actually in-

Hence, this has led to the rise in the Boutiques Investment Banks which offers same

ÂŠ Money Matters Club, IBS Hyderabad.

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services as any Investment Bank. Some of the key boutique investment banks were set up during market turmoil of 2008 Sub-Prime Crisis. This development has allowed for a realignment of capital. The main beneficiaries of this realignment were smaller companies who get financed at a point of time when large firms were worried more about cutting costs rather than looking at innovative deals or alternate deal structuring. This entire development can be seen as a process which has the following steps- First, due to Market turmoil, the best and brightest bankers are incentivized leave and come up with their own specialized boutique investment banks . Innovation and focus on niche areas help in the rise of Boutique Banks, generally speaking specialty Banks. This innovation then helps smaller companies procure innovative financing for their businesses which the larger banking groups may not be interested in until there is some value add. Finally, these Boutiques help in speed up of the velocity of the capital which allows for a sustainable recovery. In past few years, at least a dozen Boutique Investment Banks has mushroomed in India. And they provide most of the services similar to a full-blown investment bank will perform. This includes advising on mergers and acquisitions, managing IPOs, and raising all types of funds which include private equity (PE) and bank debt. They are happy to serve clients whose capital need may be less than Rs 100 crore and even sometimes less than Rs 50 crore. This is what the major investment Banks- like Goldman Sachs, Morgan Stanley, JM Financial- will not cater to. Some of the notable Boutique Investment Banks in the country are- Veda, Cogence Advisors, MAPE, Ripple Wave, Equirus Capital and Intequant Advisors to name a few.

ÂŠ Money Matters Club, IBS Hyderabad.

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As the number of deals and size of the deals have gone down significantly, the new scenario has made the Boutiques business model more feasible. The clients also find their services better. Not only the services costs less but also the fact that Boutiques are always there for the clients, guiding them and also the senior partners giving them unwavering attention from the beginning of the transaction till the execution. Boutiques also cajole the client to look at new areas, as well as offer to raise funds from them. These services and attention leads to invariably results in long-term relationships which are contrasting to the transaction based one. Hence, the Boutique investment bank model is the new face of financial services and is poised to become a major player in the investment market.

Contributed by:

ANKUR BAJ PGDM Great Lakes Institute of Management, Chennai

HARSHITA PREETAM PGDM Great Lakes Institute of Management, Chennai

ÂŠ Money Matters Club, IBS Hyderabad.

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Why Financial Inclusion? Financial inclusion is providing basic banking services to the financially illiterate and low income in group in India which account for majority of population in India Financial inclusion is the basic condition for sustaining equitable growth. There have been

rare

instances

economy

transforming from an agricultural based system to a post-industrial modern society without broad-based financial inclusion. Consumption in rural India is growing faster than in urban areas if we compare the past

between poor people and organized financial

3 years from 2009 to 2012.The additional

system.

spending was Rs. 3750 billion in rural areas to 2994 in urban areas.Banks can play a key

Branch Expansion:

role in converting the large pool of untapped

There is a limit to opening of a Brick & Mortar

small deposits into business oppurtunities

branch in different areas to cover the whole

and help facilitate the aspirations of the rural

population. Scheduled commercial banks (SCB)

people.

must be encouraged to open branches in all towns having population greater than 5000. In

WAYS

ACHIEVE

FINANCIAL

this

way

the

penetration

could

INCLUSION.

increased .Incentives should be provided to

Business correspondent agents have been

banks to opening their branches in Tier 5 and

selected by banks to provide banking

Tier 6 cities which donâ&#x20AC;&#x2122;t have any SCB branch

solutions at places other than banks and

for banking transactions for customers. Ultra

ATMs to ensure a close relationship

small branches (USB) need to be set up in the

ÂŠ Money Matters Club, IBS Hyderabad.

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villages where the setting up of Brick & Mortar branch is not viable; there a bank designated officer will be available at an already fixed day and time of the week. A USB branch needs to be set up in unbanked blocks. Bank Account Facilities: Awareness regarding “Small Account” created under Prevention of Money Laundering Rules, 2005 for those having no KYC documents needs to be spread. It requires a photograph and declaration of residential address and a statement of declaration before a branch officer that one doesn’t have any proof currently and promises to submit it within 12 months. Small accounts has no introductory balance, maximum balance allowed is Rs 50,000 , maximum credit of Rs 1,00,000 per year and maximum withdrawals of all types are Rs10,000 per month, with foreign inward remittances not allowed. This is the best type of account to rope in the crores of migrant workers within the country. Basic Savings Bank Deposit Account offering facilities like ATM card , no minimum requirement of balance and no charge for in-operative account. Simplification of Savings Bank Account Opening Form for migrant labourers, street hawkers etc. Mobile phone banking has potential for providing the unbanked with banking services. It is becoming a prevalent source of banking in developing countries.

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RBI has eased the KYC guidelines by

Direct cash transfer through Scheme Imple-

proving a list of 30 documents for Proof of

menting Department (SID), to the Bank account

Identity and 33 documents for Residence

of the beneficiary is being implemented. The

proof.

beneficiary can than withdraw the money from a branch or ATM and use it for his personal

Other Initiatives: 

consumption or for helping out his business. Credit

Such transfers into the account of the benefici-

Counselling Centre (FLCCC) : 14

ary are referred to as Electronic Benefit Trans-

FLCCCs in Tamilnadu for the benefit

fer (EBT).

of the tribal of Nilgiri district to create

Credit facilities provided to poor people :

Financial

Literacy

cum

awareness about various financial ser

vices product. 

Mobile banking vans by Bank of Baroda : Work as a medium of advertising and awareness in rural areas in proximity to a bank branch.



Rural

Training

Karaikudi

Centre Indian

Credit Card (GCC) with a view to helping the poor and the disadvantaged with access to easy credit. Banks are instructed to consider introducing general purpose GCC.The facility is up to `25,000 at their rural and semi-urban

(RTC),

branches .No condition is set up i.e. without

Overseas

persistence on security, final use of the credit

Bank : Established jointly by the IOB, Indian Bank and NABARD. 

Issue of Kisan Credit Card (KCC) , General

and purpose. 

RTGS and NEFT Systems for Electronic Payments: These are centralized payments systems. They are im-

Union Saubhagya (Micro Credit scheme

from Union Bank of India) 

Sri ram loans for truck owner

portant, vital and convenient payment channels. Department of Financial services have advised the Public sector Banks

(PSB)

provide

Contributed by: Pravesh Gupta & Kunal Sanghvi

sub-

membership of the centralized pay-

SIMSREE

ment systems to all the banks including the state co-operative banks.

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