SOFIA TIMES January 2022 Edition by SOFIA TIMES

SOFIA TIMES January 2022 Edition

Cover Story - Cafe Coffee Day The Anatomy of a Bubble! Professor Neetant Sinoi Shirodkar

eSports: An opportunity unexplored Amitava Chatterjee

Metaverse, NFTs & crypto Akshay Yadav

Startup Ecosystem in India Ashutosh Kumar

Crypto: Fad/Future? Pratyasha Pansari

Reverse Mortgage: The new product on the block Karan Sutaria

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CoverStory

Overview India's answer to Starbucks was meant to be Café Coffee Day. It rapidly caught the hearts of India's rising middle class when it opened business in 1996 with the tagline "A lot can happen over coffee." CCDs provided the ideal venue for everyone who wanted to be a part of the chic coffee culture. You may go out on dates, attend job interviews, or simply hang around with your buddies. India had almost 1,700 CCD outlets at one point, strewn across the country's many cities and highways. However, the last 7–8 years haven't exactly gone as planned for the company. Several coffee chains began to spring up across India, and even Starbucks jumped on board. The founder of the coffee empire, V.G. Siddhartha, committed suicide in July 2019. Then there were claims that CDEL had funneled over 3,500 crores into V.G. Siddhartha's company, Mysore Amalgamated Coffee Estates Limited (MACEL). CDEL had also accumulated up a mountain of debt and had waited almost a year to file its yearly financial statements. Finally, India's stock market regulator, SEBI, had to halt trade in the shares for more than a year, and things were looking dismal. The Finance Club of GIM

Since the pandemic hit, revenues have remained stagnant for a while, and the company has been losing money. In the past 2 weeks, shares of the coffee chain have soared over 90% from ₹43 to ₹83. When inquired about this the management told BSE, "We hereby inform/confirm you that to the best of our knowledge that we do not have any events, information, etc., that have a bearing on the operation/performance of the company or any other price sensitive information. Therefore, the movement in price of shares of the Company is purely due to market conditions and absolutely market driven and the Management of the Company is in no way connected with any such movement in price of share,"

Malavika Krishna, the late founder's wife, has successfully brought the company around. It details how, despite the pandemic, she has been paying off CCD's debts, which have decreased from over 7,000 crores in 2017 to only 2,000 crores currently. According to Punekar News, CDEL paid its lenders Rs 1,644 crore, bringing the company's debt down to Rs 3,200 crore from Rs 4,900 crore previously. It also took a specific amount from Blackstone, a US private equity firm, and sold a stake in Mindtree to help reduce its deficit. Furthermore, the new CEO of the company engaged into a share purchase arrangement with reputable organisations, reducing the company's debt to Rs 2,693 crore.

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TABLE OF CONTENTS

Editor's Desk

The Anatomy of a Bubble!

eSports: A business opportunity unexplored

Metaverse, NFTs & crypto

14 Startup Ecosystem in India

Crypto: Fad or Future?

21 Reverse Mortgage

BONUS

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From Editor's desk Aayushi Sharma & Daisy Jagga

Hello Fellow readers, We hope you are enjoying the online classes and brief study from home setup because of the Omicron variant. To tackle the boredom, we at SOFIA have compiled a list of ongoing trending topics worldwide to keep you guys updated with what’s happening around and wish all our authors and readers a wonderful and prosperous year ahead. An insightful article about Reverse Mortgages and how it is going to benefit the senior population of India and what will be its future in terms of the Indian Market is written by Karan Sutaria. A short story of how Cafe Coffee Day was made as an Indian substitute of Star Bucks and gained its popularity among the middle-class population of the country and how things got twisted as a result of financial setbacks due to a large amount of debt is covered under Cover story section. The stock markets worldwide have been booming recently, and NIFTY reached new heights last year. Despite the slowing economy and record unemployment a lot of critics are calling it a bubble that is about to burst as in the case of 2008 because of all-time high PE ratio Mr. XYZ has written an in-depth article named “anatomy of a bubble” which talks about PE ratio and how the market is valued. Video games have always been a part of our life, be it Snake Xenzia that we played in our childhood or the sleepless nights we spent playing Pubg. The gaming industry is turning towards competitive games known as Esports. As these video games continue to integrate into popular culture, global investors, brands, and media outlets are all paying attention. Consumers are as well. There will be 29.6 million monthly esports viewers in 2022, up 11.5% from 2021 to get a depth of knowledge read our article “eSports – A Business opportunity unexplored”. Back to Table of Contents

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From Editor's desk Recently, digital art was sold for $ 69 million via ether which made headlines, and since then, a lot of high valued artwork has been sold online in the form of NFT. Recently, Facebook changed its name to meta, and Apple has planned to invest in the metaverse, which is said to be the next big thing to read more about it read “metaverse, NFT& the crypto gaming world.” You all must have heard about “Shark tank” or must have seen it where entrepreneur pitch their ideas in front of the Sharks for funding. With the popularity of this television show, we can see where the youth is more focused and the future of our country as the start-up hub. To read more on this, read our “start-up ecosystem in India.” Bitcoin surpassed a new all-time high price in 2021, which turned into a boon or bane for a lot of us and a lot of buzz has been going around it, recently El Salvador has adopted bitcoin as a legal tender, companies have even started accepting payment in bitcoin including tesla for a brief amount of time but the energy consumption issue made them change their decision, so are cryptocurrencies the future of banking? The article “Crypto Currency- Fad or Future?” will surely help you go to the depth of it. Now, this is the fun part of the magazine, which contains a crossword puzzle and will test your financial acumen. You will have to guess the correct term corresponding to the puzzle and fill in the order mentioned. We hope this edition of Sofia times will help you get a deeper glance at what’s trending around us. Enjoy Reading!

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The Anatomy of a Bubble February 8th, 2021 marked a new chapter in the history of Bombay Stock Exchange, on this day the BSE Sensex crossed 51,000 basis points in terms of its index. On December 18, 2020, the price to earnings (PE) ratio of the Nifty 50 stock market index reached an all-time high of 37.84. This was around 87% higher than the average PE ratio of 20.26 since 1 January 1999. This ratio is essentially the number of rupees that investors are ready to pay for every rupee of earnings over the last 12 months of the stocks that make up any index. The average yearly PE ratio of the Nifty 50 has been largely rising since 2013. This basically means that share prices have risen much faster than company earnings. Interestingly, the overall net profit of listed companies in India has not grown in many years. Their overall net profit in 2020-21 was lower than in 2007-08. Of course, 202021 profits would have been adversely impacted by the COVID-19 pandemic, but even the overall net profit for 2019-20 was lower than that in 2010-11. The stock market is supposed to discount expectations of future earnings to arrive at current prices, but when share prices have been rising much faster than earnings for more than eight years, it does make one wonder what exactly the market has been discounting. Despite this evidence, many stock market participants refuse to believe that the Indian stock market is now in bubble territory. The term ‘bubble’ is a generic term used to refer the increase in prices of shares that cannot be explained by the changes in economic fundamentals. To best explain this theory of a bubble, let us compare a stock market bubble to a fire. The three things required to start a fire are oxygen, fuel, and heat. Similarly, the three things required for a bubble are marketability, money and credit, and increased speculation. Let us see how this bubble triangle applies to the Indian stock market.

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The oxygen for the bubble is marketability. There was a time when one had to go to a stockbroker’s office or call one up to buy or sell stocks. Subsequently the advent of Bombay Online Trading (BOLT) in the early 90’s saw the introduction of technology in the capital markets for trading/investing in shares. This was a welcome change as it enabled investors to buy and sell shares with increased transparency which was absent earlier. In the last few years, the rise of trading apps and cheap internet access has led to the increased marketability of stocks. They can be bought and sold anywhere. The rise of zero-cost/low-cost brokerages has added to this. As a result, the number of transactions in the stock market have increased exponentially along with increased volume. The fuel for a bubble comes from low interest rates and loose credit conditions. Real interest rates on bank deposits in India are currently in negative territory. This is primarily because of high inflation and due to the collapse in lending across the country’s economy. Further, the Reserve Bank of India has flooded the financial system with money. The total liquidity support announced between 6 February and 30 September 2020 was ₹11.1 trillion. Interest rates are negative or close to zero across large parts of the world. This has pushed both large and retail investors to invest in stocks, in search of higher returns. Foreign institutional investors have invested $28.66 billion in Indian stocks since April, the highest they ever have during a single financial year. Further, 6.3 million new demat accounts were added during April to September this year, as compared to 2.74 million accounts during the corresponding period last year.

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Thirdly the heat for a bubble comes from increased speculation, particularly in the form of novice retail investors, many of whom trade only on momentum. The “Duesenberry effect” has added to it. This effect can be best defined as a situation where individuals who get used to a certain level of income find it difficult to reduce their spending when their income level declines. The spread of the COVID-19 pandemic has led to job losses and a decline in incomes, leading many retail investors towards the stock market in the hope of making a quick buck to maintain their income levels. If all these factors do not make for a stock market bubble, one does not know what does.

The Capital Markets have always played a significant role in generating funds or providing capital to the companies in the financial system. However, the investors approach to the stock markets has gradually shifted from an investment avenue to a trading and speculating avenue which is primarily the reason behind the rot. To sum up, the stock market index be it BSE Sensex or the NSE Nifty is currently trading in uncharted territory, what is alarming is not the speed at which it is scaling new heights, but an absolute absence of fundamentals be it in terms of the fall in corporate earnings along with an even greater decline in GDP reflecting the dreadful macroeconomic state of the economy. Its time we wake up to the reality before this bubble bursts. Else in this testing time we will risk losing everything that we have worked for in our lifetime!

Penned by:

Professor Neetant Sinoi Shirodkar

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eSports – A Business opportunity unexplored Gaming has been an integral part of the generation that has grown up with technological headways taking place all over the world. From the original Mario played on bootleg Chinese game consoles that flooded the Indian market during the early 2000s to the highly sophisticated gaming desktops, consoles that are used today, India is not foreign to the concept of gaming. But it has never been considered as something other than a hobby, as something to waste idle time on and is not even considered a hobby by the parents of the children whose wishes they gave in to while buying the gaming equipment. Hence, India has been largely blind to the concept of eSports or competitive gaming and hence the business opportunities it can generate. With changing times sports in general as a business has witnessed an unprecedented growth with the sportspersons being paid in millions every week. eSports, similarly, has seen a somewhat similar growth in developed countries where disposable income is higher and people invest in their hobbies. Most of the money in the esports industry is invested in terms of Advertising and Sponsorships.

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Based on the last years’ figures of Newzoo’s annual report, the eSports industry generated $696 million in 2017, with a year-on-year growth of 43.1% compared to 2016. $517 million have been realized by brand spending from various companies (advertising, sponsorship, and media rights). Advertisements create revenue streams by displaying content to the eSports viewer. This entails ad formats such as live streams on online platforms (e.g., Twitch or YouTube gaming), in-between game ads, or ads shown on broadcasting media around eSports content (e.g., ProSieben in Germany). But why are companies investing in esports? What return do they expect from this? The ad views, as competitive video games continue to integrate into popular culture, global investors, brands, and media outlets are all paying attention. Consumers are as well. According to Insider Intelligence estimates, there will be 29.6 million monthly esports viewers in 2022, up 11.5% from 2021.

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As a result, the industry has seen a huge uptick in investment from venture capitalists, and more recently from private equity firms. The number of investments in esports doubled in 2018, going from 34 million in 2017 to 68 million in 2018, per Deloitte. That’s reflected in the total amount invested. Investments are up to $4.5 billion in 2018 from $490 million the year before, a staggering year on year growth rate of 837%, per Deloitte. This capital is distributed to players across the ecosystem from esports organizations, to tournament operators, to digital broadcasters allowing it to function and grow.

As of 2020, the top five most valuable esports teams according to Forbes are: TSM – VALUE: $410 MILLION ESTIMATED REVENUE: $45 MILLION REVENUE FROM ESPORTS: 50% OWNER: ANDY DINH CLOUD9 – VALUE: $350 MILLION ESTIMATED REVENUE: $30 REVENUE FROM ESPORTS: 70% OWNERS: JACK AND PAULLIE ETIENNE TEAM LIQUID – VALUE: $310 MILLION ESTIMATED REVENUE: $28 MILLION REVENUE FROM ESPORTS: 89% OWNERS: AXIOMATIC GAMING, VICTOR GOOSSENS, STEVE ARHANCET FAZE CLAN – VALUE: $305 MILLION ESTIMATED REVENUE: $40 MILLION REVENUE FROM ESPORTS: 20% OWNERS: LEE TRINK, RICHARD BENGSTON (FAZE BANKS), THOMAS OLIVEIRA (FAZE TEMPERRR), YOUSEF ABDELFATTAH (FAZE APEX), NORDAN SHAT (FAZE RAIN) 100 THIEVES – VALUE: $190 MILLION ESTIMATED REVENUE: $16 MILLION REVENUE FROM ESPORTS: 35% OWNERS: MATTHEW HAAG, DRAKE, SCOOTER BRAUN, DAN GILBERT

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Esports is now bigger than the NHL and MLB combined. And who is the star of the show? The players in the teams that play these tournaments, established players have a massive fan following that draws sponsorship deals the salary that they get from their respective franchise, with average salaries being around 5k -7k USD per month and tournament earnings. Coming back to India, the eSports scene is booming, albeit slowly, but it is growing at a steady pace. Pocket-friendly smartphones and the internet has made mobile gaming very accessible to everyone in India and have also created an environment conducive to watching people play. Mobile gaming is the major form of gaming that is prevalent in India but the market potential is huge. Currently a $3 billion industry with 17 million viewers (EY) and expected to grow at a CAGR of 43%(EY). India is a sleeping giant in the business of eSports. Founder of S8UL Esports and 8bit Creatives, Animesh ‘8bit Thug’ Agarwal recently spoke about the people earning 40k to 2.5 Lac per month as registered players under organizations like Sentinels, Fnatic, Team Soul, GodLike and have a celebrity like stature within the community which enables them to get lacs of viewers on their live streams within turn attracts sponsorships from different brands as this is the fastest way to connect with young audiences.

Here is a rough estimate of their earnings from digital content

source: https://afkgaming.com/esports/originals/8bit-thug-reveals-indian-esports-players-and-streamers-earnings In the end, it wouldn’t be wrong to say that eSports and gaming can be a potential career option in today’s world, albeit a bit risky, but not impossible.

Penned by:

Amitava Chatterjee (PGDM 2021 - 23)

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Metaverse, NFTs & the crypto & gaming world? Everyone is aware of the recent name change of Facebook to Meta. But why was there a need for this change after so many years of its inception? We see how the rebranding transformed the company's role into a framework that assists in including more people into the crypto ecosystem. In the virtual world, Metaverse and DeFi (decentralized finance) and NFT (non-fungible tokens) have a real-world application. For decades, the vast potential of virtual worlds was only imagined in science fiction movies & books. Today, "metaverse" is one of the most popular buzzwords in technology, and it's being avidly adopted by software and game creators across industries as diverse as crypto & gaming — to social media. The metaverse has grown into a real phenomenon, with a slew of functioning platforms that rapidly integrate crypto. Crypto metaverses are virtual environments with enormous social and economic possibilities. Their use of decentralized blockchain allows them to access into the broader crypto market, allowing virtual products to be exchanged for real-world money beyond the metaverse's borders. Metaverses are poised to become a key component of the next generation of cryptocurrency games on the web by combining the immersive settings of augmented reality (VR), the immersive playability of online games, the interconnected engagement of digital networking, and the value transfer of crypto.

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What are NFTs? Non-Fungible Tokens, or NFTs, are more than just a way to trade and buy digital art. As fashion brands and corporations begin to promote themselves through the distribution of NFTs, they have a wide range of real-world applications. NFTs are the method to exchange everything from social media posts to celebrity assets while keeping the product's unique authorship. As users have begun to "play to earn," NFTs have given gaming platforms a new lease on life. Today, games can assist users in earning NFTs, which can then be traded for higher prices on marketplaces. The application cases for NFTs and Metaverse are similar. Metaverse coins are used to transfer gaming assets like NFTs.

Future in gaming & crypto world: While yet in their infancy, metaverses provide a plethora of social and financial prospects through the usage of NFTs, as well as innovative methods for people to play, engage, congregate, earn, and transact. The metaverses and NFT blockchain technology will become a vital aspect of Web 3.0, an age in which real-world enterprises extend into the digital domain and users discover the adaptability of such settings by incorporating VR, online games, social media, and parts of crypto. We feel that owning NFTs is critical and will open up the potential in the coming metaverses.

Penned by:

Akshay Yadav(PGDM BIFS 2021-23)

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Start-up ecosystem in India Indian start-up ecosystem is still in nascent stage but yet it has become third largest start-up ecosystem globally (by number of start-ups) with more than 50,000 start-ups. This growth is not only fuelled by number of start-ups but also because of problems they are trying to solve and we are seeing all these start-ups backed by all kinds of global investors, still, there is lots of space for further growth of start-up ecosystem in India.

Classification of start-ups based on valuations: Start-ups are classified in 5 categories based on their valuations: Minicorn- start-ups are companies with valuations of more than $ 1 million and they are still on the rise to become a unicorn business. Startups who are at the start of their journey are called minicorn. Soonicorn- Start-ups have growth potential and the possibility of joining a unicorn club called Soonicorn. Soonicorn company is primarily funded and financed by an Angel Investor or a venture capitalist. Based on future forecasts about the industry market and firm valuations so they come up with a valuation for the business. And of course, it always exceeds the real value of the start-ups. In similar cases, larger organizations acquire startups, and this leads to valuing them above their actual net worth. This is a favourable condition to help start-ups join these Soonicorn clubs earlier and get closer to a $ 1 billion asset valuation. Unicorn- are public start-ups that are valued by venture capital one billion dollars or more. This term was created by Aileen Lee, the founder of Cowboy Ventures, and it appeared in 2013.

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Decacorn is a start-up company with a current valuation of over $ 10 billion. According to CBInsights, there are currently a total of 18 decacorns in the world, with 10 from the United States, fighting more than 50% of the total. But Toutiao (Bytedance), a Chinese digital/artificial intelligence media company is being valued at the top of the list with currently valued at $ 75 billion. Hectocorn- A tech, financial, or fintech companies worth more than $ 100 billion is called Hectocorn. Or there is another name for the company, this corporation is "Super Unicorn". It is not uncommon that one of our familiar names such as Apple, Google, Microsoft, Facebook, Oracle and Cisco are examples of Heactacorn. History of Indian start-ups India's start-up ecosystem is not a recent phenomenon. ... The story of Indian start-ups is not just limited to the current century; in fact, it began over four decades ago. Through the 80s, a handful of pioneering IT service companies such as TCS, Infosys and Wipro placed India firmly on the global economic map. Initially it was very challenging because in 80s India had closed economy and for even buying computers and making smallest of changes to configuration of computers one had to take governments permission. But when economic liberation happened in early 90s things got relatively easier for these start- ups. Below graphs shows major events which built start-up ecosystem in India during 80s and 90s.

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Growth of Indian start-ups We have seen tremendous growth in number of Indian start-ups becoming unicorn over the years and 2021 was the particularly one of the best years for theses start-ups with 44 start-ups becoming unicorn this year only. India now has 81 unicorns. Several of the unicorns and many other fast-growing start-ups have raised multiple rounds this year and increased their valuations multiple times over.

Indian start-ups are receiving record investments on the back of their potential to scale the business and serve 1.3 billion customers. Digitization has played a big role as now common people have access to stock market which has given investor exit strategy by doing IPO, this has made investments in Indian start-ups more lucrative. We have seen number of unique investors increase rapidly in India, below graph shows this trend.

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Future outlook Indian start-ups have already shown their capabilities in solving problems and on the back of huge talent pool and adoption to digital technologies, it is evident that in the coming years they will be solving global problems and some of the biggest companies will be formed in India by leveraging newer technologies and their expertise in scaling their business.

Penned by:

Ashutosh Kumar(PGDM 2021-23)

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Crypto Currency- Fad or Future? In the last few years, cryptocurrency has been the buzzword in the financial world. It has gained a lot of attention, especially in India as it is a country full of enthusiastic millennials. Another reason for the hype is the contemplation of the government introducing a bill to ban cryptocurrency. This has raised a concern about whether cryptocurrency is a fad or future. What is Cryptocurrency? Cryptocurrency is an attempt to build, in a decentralised way, a digital replacement for money using blockchain technology. It is a currency that allows people to bypass the central bank or any authority while making digital payments. With the help of a global ledger, blockchain technology is used for transactions and storing transaction data in the database. These transactions are secured as they are verified against global ledgers using an advanced encryption technique called cryptography. This is how the name cryptocurrency evolved. Rise of Cryptocurrency With the advent of digitization, more and more people’s interests are shifting towards digital products and platforms. This has led to a situation where people are investing their surplus funds in crypto, considering it a good store of value that acts as a good hedge against inflation. It acts like gold (a store of value) in the digital economy. Various companies, like Tesla and PayPal, have started keeping their cash reserves in Bitcoin (a type of cryptocurrency) so that Bitcoin appreciates and their cash does not deplete over time. Investing in cryptocurrencies is considered good for portfolio diversification. The use of bitcoin as a currency has diminished, and it has been classified more as an asset class now. Many investors, like Elon Musk, consider it an investment that has led to an increase in the valuation of bitcoin in recent times. Back to Table of Contents

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Ethical Concerns With the governments creating a fuss around crypto regulation all the time, a question pops up instantly in people's minds. Is crypto unethical? Well, it is debatable but there are some areas of concern.

1. Cryptocurrency harbors illegal activities. It was designed to operate in a manner in which it could skip regulations of various authorities. This allows the launderers to hide the proceeds of the crimes. It is likely to be a magnet for criminals due to its untraceable nature. It can be used in spreading terrorism, buying and selling of drugs, illegal weapons and even human trafficking.

2. Cryptocurrency is thriving on ignorance and greed. In an interview with CNBC, Berkshire Hathaway CEO, Warren Buffet states that cryptocurrency is a non-productive asset. In his opinion, cryptocurrency as an asset creates no value. Its trading solely depends on the excitement of the next buyer. This mechanism creates a façade, enticing people to believe that they can get rich in a short period. Cryptocurrency Mining and its Impact Cryptocurrency Mining is the process of creating new crypto coins by solving complex mathematical equations. A transaction involving cryptocurrency is complete only when a “miner” verifies it. This verification involves solving complex equations. This process of mining is very costly as it involves high functioning computers, consuming lots of time and electric energy. Mining requires a substantial amount of electricity and power. The system of mining is built in a manner where about £200,000 worth of electricity is used every 10 minutes. Bitcoin miners try to reduce the cost. They do this by working from an area where the electricity is cheap and the weather is Back to Table of Contents

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cold, to avoid the cost of cooling the computers that get very hot due to mining. According to Cambridge researchers, Bitcoin’s energy needs is around 0.5% of total global electricity. This indicates very high energy usage. A recent study from Cambridge University suggested that about 39% of the electricity used by the bitcoin network is renewable. But this does not change the fact that 61% of the electricity comes from non-renewable resources i.e., fossil fuels. Therefore, in my opinion, cryptocurrency is not sustainable because it is environmentally toxic and exploitative. It is ethically questionable as well since it lacks regulation and transparency. Moreover, statements about crypto being a non-productive asset by Warren Buffet creates a doubt in the minds of young investors making his words ring in ears: “Be fearful when others are greedy, and greedy when others are fearful.”

Penned by:

Pratyasha Pansari(PGDM BIFS 2021-23)

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Reverse Mortgage: The new product on the block What is Reverse Mortgage? A reverse mortgage, like a traditional mortgage scheme, allows the borrower to borrow against the residential property. The title to your house remains in your name. However, the reverse mortgage scheme differs when the borrowers don’t make monthly payments. The loan is repaid when the borrower no longer lives in the house. A homeowner who is 62 years or older and has a house can borrow against the property and receive a monthly, lumpsum or fixed payment. Reverse Mortgage: Borrowed Money+ Interest + Fees each month= Rising Loan Balance

The loan is repaid by selling the house and the balance is given back to house owners. This scheme provides the elderly with much-needed liquidity. One must examine a reverse mortgage scheme on a case-by-case basis as it is not suitable for all.

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Indian Home Loan Market The real estate sector in India is expected to reach $1 trillion in market size by 2030, up from $200 billion in 2021, and contribute 13 percent to the country's GDP by 2025. At the end of FY-21, the outstanding loan portfolio of home loans in India stood at a whopping ₹22.4 lakh crore, growing 12.1% since its size in FY-20. Also, between FY-17 and FY-21, the Indian home loan market grew by 32% CAGR. Trends

Home buying is affordable mainly due to all-time low home loan interest rates. The interest rates on housing finance are the lowest in 4 decades. The Indian market has excessive liquidity especially because the RBI has taken an accommodative stance and is pumping in liquidity. Compared to the financial crisis in the past, real estate is not in bad shape. This market has evolved from the 2008 financial crisis. Earlier it was a sellers' market and now it is a buyer's market. The banks are also better positioned to serve the market with new innovative products. Back to Table of Contents

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The real estate sector's growth is set to positively impact jobs for both skilled and unskilled labour. The government identifies this opportunity and pays special attention to this sector by promoting transparency and credit availability. Target Audience and the problems this scheme is targeting Unlike traditional home loans, the reverse mortgage loan is a growing market. Lack of awareness is one of the major reasons for the lack of penetration of this scheme. But, with the growth of the ageing population, old age security has become a primary concern for the government. The society in India has changed in the last 4-5 decades. The urban nuclear family has replaced the traditional joint family system. The system of family supporting the older people has gone. Senior citizens face the following problems: Outliving the income Depending on children to pay expenses No money to pay for health expenses Not living behind anything for their spouses The reverse Mortgage scheme tries to solve these problems of senior citizens who are homeowners. Every Indian tries to build a corpus to buy a house during their working life. Reverse Mortgage helps to generate income from this house post-retirement. Since the ownership doesn't transfer, the house owner can transfer the house to his successor. He can pay back the loan or sell the house and repay it. Such schemes reduce the burden on the government to provide for the senior citizens. Many economies have been benefited from this arrangement and the market for such products has increased quite a lot in these markets.

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Inherent Risk:

1. Longevity Risk: As the life expectancy of individuals is increasing, late recovery of loans is a big risk for the lenders. 2. Interest Rate Risk: It is one of the major risks in the case of fixed interest rate reverse mortgage loans. 3. Property Value Risk: There is a risk of a fall in the price of the house. The lender will not be able to recover money by selling the house The above are some of the risks faced by the lenders. The lenders mitigate the risks faced by creating eligibility criteria, variable interest rates, databased scientific analysis of mortality trends, geographical diversification and other rules and regulations.

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Role of Insurance: Insurance plays an important role in such schemes. Insurance companies have a better understanding of longevity and mortality trends. Like insurance products, the reverse Mortgage is also a longterm product. Insurance players have a better understanding of variable rates which can be used in the case of reverse mortgage scheme rates. Life insurers hedge reverse mortgage product risk with their portfolio of life insurance benefits. Conclusion India is on a solid trajectory for economic growth. This has created a space for new innovative products to solve the problems and mitigate the financial risks faced by the general population. Reverse Mortgage is one such product. It creates liquidity in the market, acts as a security for senior citizens, and diversifies risks.

Penned by:

Karan Sutaria(PGDM BIFS 2021-23)

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CROSSWORD PUZZLE

5 6 7

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Clues 1. Startups with growth potential and a valuation higher than $1 million 2. A place where money instruments are traded. 3. A Medium of exchange 4. Ishq hain toh Risk Hain 5. Played between two players and was the first video game ever released. 6. A stream of revenue over a period of time considered to evaluate a company 7. loan used to purchase a home, capital good or maintain a household 8. A place which is named after a dangerous creature but helps you live your dreams

Test your finance acumen by finishing this crossword!

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Answers: 1.Minicorn 2.CAPITAL MARKET 3.Currency 4.Scam 1992 5.PONG 6.Time Revenue Method 7.Mortgage 8.Shark Tank

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The Finance Club of GIM

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