the financial bulletin,june 2013 edition

FROM THE EDITOR The Financial Bulletin Money Matters Club IBS,Hyderabad

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Dear Readers, We congratulate the winner of the “Article of the month” award, Siddhartha Banerjee from IFMR, Chennai for his article “The economic crisis in Cy-prus-what is in store for it in future?” . As we are moving to the second year of our esteemed newsletter "The Financial Bulletin" we move onto the second issue of the newsletter. In edition we have included two new sections in which the Internship experience and quiz section. We received a lot of diverse articles this month. Rupee have recently depreciated a lot and touched 60.05. The highest it can compared to the US dollar. Though Bernanke mentioned that they are going to easy the QE by September but still the downfall of rupee continues. There is also a lot of information related to Merger and Acquisition- A boon or curse, Derivatives, impact of the new banking licenses which was to be applied by the latest 1st July.

Happy Reading!!! Newsletter Editor

Vikas Singh

This newsletter is only for internal use at IBS Hyderabad and not for sale

CONTENTS

04 Scenario of rupee deprecia-tion as a whole in an economy -by Banisha Chopra, IBS Hyderabad

07 Derivatives – A synonym for Gambling? -by Ashwini Iyer, IBS Hyderabad

10 Mergers and Acquistions- Boon or Curse -by Ekta Singh, IBS, Hyderabad

13 The economic crisis in Cyprus-what is in store for it in future? -by Siddhartha Banerjee, IFMR Chennai

16 Euro crisis myths –by Ishita Bhuyan, IIT Roorkee

19"Capital Market" Ultimate Place to make Money -by Jewel Kumar Roy, University Of Pune

21Hedge Funds: The future of Indian capital markets -by Kali Prasad Bhogaraju, BITS Pilani

24 Impact of the new banking licenses on the banking sector in India. -by Niraj Dadhaniya, JBIMS

27 Trade Deficit and its implications on macro economy -by Nitin Singh, SIMS Pune

32 Ponzi Schemes and its Effect on the Developed World

- by Saumya Rastogi, NMIMS Hyderabad

35 BC MODEL – a revolution in banking service is the pathway to promote financial inclusion in India - by Priyanka & Souvik, NIT Silchar

40 DE SHAW SIP Experience - Ekta Singh, IBS, Hyderabad

41 QUIZ TIME

ISSUE 2 ,VOLUME 1

With the Indian rupee is shedding over 11.5%

in value since the beginning of the fiscal year

in April 2013 and reached an all-time low of

60.73 against the US dollar on 26th June 2013

, the current depreciation in Indian rupee has

put a catastrophic impact in an Indian

economy. Such a persistent decline in an

Indian currency will have a cascading effect

of making imports costlier as structurally

India is an Import intensive country which is

a cause of concern. With the fixed exchange

rate having been long done away , the export

sector is standing to gain from the current

trend and can have a reverse trend of

devaluation.

Basically, currency depreciation is “the loss

of value of country’s currency with respect to

the other foreign currencies”.

The rupee has declined almost 6.34% from

march,2012 to the beginning of the fiscal year

2013. As the rupee is showing a persistent

downturn impacting the Indian economy , this

is putting an adverse effect in India’s imports

of some key commodities viz., imports on

Crude-oil, Thermal coal, Fertilizers and

imports on Vegetables oil. The depreciating

rupee is an outcome of deeply routed illness

that is affecting our economy.

This decline in rupee could also worsen the

inflation – putting an inflationary pressure

and is the matter of concern of fiscal deficit as

it is reflecting the Current Account Deficit

(CAD) of India which represents the Balance

sheet of India’s commercial transactions with

rest of the world. A continuous surge in

imports leads to trade imbalance which causes

current account to become negative where A

deficit indicates the excess gap between the

imports and exports where imports exceeds

exports and thus leads to CAD. Which is

again bridged by the Foreign investment i.e.

raising money from foreign markets which

leads to a problem of increase in Cost of

Borrowings which has impacted on the debt

sector of the economy and also the exchange

SCENARIO OF RUPEE DEPRECIATION AS A WHOLE IN AN ECONOMY


BANISHA CHOPRA IBS HYDERABAD

ISSUE 2 ,VOLUME 1

rate drives away the foreign investors which in

turn depreciates the local currency. With the

government asleep, growth has slumped and

investors sentiments is at its lowest.

Since India is the major importer of oil which

consumes the largest part of FOREX reserves, a

fall in rupee has bound to offset the decrease in

the international prices of imported commodities

like oil which is adding the overall pressure on

domestic inflation leads to an ultimate effect of

increase in prices of final consumer goods which

will decrease the purchasing power of consumer

and hence might pushed up the inflation. With

this there is an increase in the imports bill of

petroleum crude and products have declined in

international currency as compare to the year

2011.

Also, the rupee depreciation has burden on the

central government in the form of FISCAL

SLIPPAGE due to the hike in the prices of

imported goods and items which might warrant

for a higher subsidy provision to be made for all

the imported consumer commodities.

With respect to rupee depreciation we have some

more factors that have pushed INR into the well.

Continued global uncertainty is one of them

which have adversely impacted the domestic

factors (Current and capital account etc) and have

become the major cause of rupee depreciation due

to which investors and international market

prefer to stay away from risky investment

which has significantly affected the portfolio

investment in India.

As any outward flow of currency or decrease

in investment will put a downward pressure on

Exchange rate

It is a known factor that deficit countries need

capital flow whereas surplus countries generate

capital outflow. Here India capital account

comes into the picture which is directly

impacted by the global market investors. In

2008 India had a net outflow of 14 Bn $ of

foreign institutional investors where INR

depreciated from 49 levels to 60 against dollar,

such a volatility of currency is a cause of

concern for foreign investors as its increases

the transaction risk. There is an increasing

pressure on RBI to decrease the policy rate as

there is slowdown in growth due to which

foreign investors tends to stay away from

investing as they generally get attracted by

higher real interest rates which further affects

the Capital account flow of India and puts a

depreciation pressure on Indian currency.

Not only the interest rate differences but there

are also some key policy reforms lack of which

DTC (Direct Tax Code), GST (Goods and

Service Tax) have been in the pipeline for the


ISSUE 2 ,VOLUME 1

years. GAAR, a retrospective tax law has already

earned lot of flake from the business community

lack of which the investor’s sentiment are

further being negative over the Indian Economy.

A Gloomy part of Rupee Depreciation:

EXPORTERS with respect to the rupee

depreciation is that when a currency depreciates,

exporters make profits as they get more of the

local currency for every unit of foreign currency

though the quantum of trade remains unchanged.

NRIs are also taking the leverage of the falling of

rupee by resorting to borrowing funds in India at

cheaper interest rates to make investments in the

country and take advantage of the interest rate

arbitrage.

With all this negative aspects of rupee

depreciation there can be a rope that can

pull the INR from the “well” of Depreciation.

1. Since rupee is Semi-convertible currency RBI

intervention can reduce this speculation volatility

for which measures takes central bank can

stabilize the currency value. In case of

depreciation RBI can sell forex reserves leading

to demand for rupee and putting a curve on

trading in rupee forward which is once cancelled

could not be bought again by the exporters and

not able to rebooked the forward again at the

better rates which was one of crucial

contribution in the fall of rupee. With this

supportive act of RBI depreciation of rupee

can be controlled up to some extent.

Recent data shown RBI has indeed intervene

by selling the foreign currency reserve in

support of rupee.

In such situation, FDI can become a important

factor as a favour of the long term capital flow

with respect to CAD as these FDIs invest-

ment in a project will generate cash in econ-

omy. In concern of which government should

take some measures to take FDI and create a

healthy environment for healthy growth. More-

over RBI can also increase the FII limit in in-

vestment or Corporate debt instrument and

can also invite long term FDI debt funds in in-

frastructure sector the ceiling the external

commercial borrowing can be enhanced will

allow more ECB in dollar at least cost which

would help in sustaining in external funds.


ISSUE 2 ,VOLUME 1

"Derivatives are financial weapons of

mass destruction." - Warren Buffett

We are all aware of the chemicals which were

used by the Germans to kill the French and

Algerian troops, thereby initiating the modern

warfare using chemicals for mass destruction,

but Warren Buffett has stumped us, when he

talks about ‘Derivatives’ being the most

modern financial weapon of destruction. He

refers to derivatives as ‘time bombs’ waiting

to explode, for both the people dealing with

them and the economic system.

Let’s first delve into the lesser known

intricacies of Derivatives. We know that

Derivatives are financial instruments whose

returns are ‘derived’ from the performance of

other financial instruments.

Derivatives also serve a very

imp o r t a n t p u r po s e , o f

mitigating financial risk. By

using derivatives, individuals or

companies can transfer their

risk to other parties who have opposite risks

or have risks that offset or want to assume

risk.

The Spot Market is where when the contract

is exercised, the money or the asset or both

exchange hands immediately while in

derivative markets ,there is no trading of the

asset, thus only money exchanges hands

either immediately or on an agreed date in the

future.

There are many types of derivative

instruments; Options, Forward Contracts,

Future Contracts, Swaps and not to forget the

Hybrid Contracts, which entails a

combination of forwards or swaps with

options called “swaptions”.

An option is a contract between two parties

that gives the buyer the right but not

obligation to buy or sell something at a later

date at a price agreed upon. The buyer buys

an option and pays the seller a premium-

which is the price of the option. The seller is

willing to sell or buy according to

Derivatives – A synonym for Gambling?

“Returns of derivatives are

derived from the performance of other financial instruments

”

ASHWINI IYER, IBS HYDERABAD


ISSUE 2 ,VOLUME 1

the terms of the contract when the buyer so

desires.

A forward contract is a contract between two

parties to buy or sell something at a later date at a

price agreed upon on the day the contract is

made. The difference between Option and

Forward Contract is that both the parties incur

obligation to honor the contract. There is no

corporate body which facilitates trading of

Forward Contracts, unlike options markets. Thus,

forward contracts are traded over the counter

(OTC).

A futures contract is also a contract between two

parties to buy or sell something at a later date at a

price agreed upon on the day the contract is

made. Unlike Forward Markets, trading of

Futures is on a Futures Exchange and is subject to

a settlement procedure. Thus we can safely say

that Forward Contract trading is much riskier than

Future Contract trading. This gives us the logical

answer behind the price discovery of the

underlying asset on spot markets. Thus trading on

forward market assumes the price of the asset as

the same from the futures market.

Swap is a contract between two parties who swap

the cash flows. The most commonly used swap is

currency swap. In this case the two countries

enter the contract and exchange the principal and

interest of loan at its present value. This swap is

used to mitigate foreign exchange risks. An

example of currency swap is as follows:

Company X is doing business in India and it

has issued bond of Rs 20 Million to

bondholders . Other company Y is doing busi-

ness in Europe. It has issued bond of $ 15

Million Euros. Now, both the companies

agreed for exchanging the principle and interest

of both bonds. Company A will get $ 15 million

Euros Bonds with its interest payment and

Company B will get Rs 20 million bond for

exchanging his principle and interest.

Now that we have covered the bare-minimum

basics of what Derivatives are, let’s analyze

why Warren Buffett calls it a ‘time bomb’.

According to Berkshire Hathaway’s annual

report, Buffett is of the opinion that the prices

of the assets are tied to many variables and thus

poses great risks. Over and above that

performance of derivatives are tied to the

performance of these assets! More than

anything, it sounds highly confusing and very

risky. Derivative contracts run for many years,

so much as 20 or more, thus the value of the

variables to which the value of the contract is

attached to is under duress.

Among other problems, derivatives exacerbate

trouble that a company has run into for no

related reasons. This pile-on effect occurs


ISSUE 2 ,VOLUME 1

because most of the derivatives contract requires

that a company going through a credit downgrade

immediately supply collateral to the

counter-parties. This is more like the insult to

injury effect! This would more likely push the

company to spiral down into the liquidation of the

company.

Although derivatives is useful to hedge against

any type of risk, and mitigate interest-rate risks,

Buffett still feels that there is a lynchpin, when

pulled would send the world for a spin. Thus the

question arises, does trading in derivatives

tantamount to Gambling ?


ISSUE 2 ,VOLUME 1

In the corporate world, bigger is often better.

When it comes to legendary, industry-

changing companies (think Microsoft), the

more grandiose plans win out. We tend to

think the same way with mergers and

acquisitions. Some mergers are successful, so

successful, in fact, that we can’t remember a

time when the two companies were distinct.

Where would Disney be without Pixar, or J.P.

Morgan without Chase?

However, many mergers fall flat on their

faces and fail. The newly created

company goes bankrupt, executives are fired,

and in some cases, the merged companies

disband in a sort of corporate divorce. For

whatever the reason, there doesn’t seem to be

a magic trick to corporate mergers. Mergers

are inherently risky, and

without the proper strategy,

intuition, and knowledge,

mergers, can get, well, ugly.

For years, academic studies maintained merg-

ers and acquisition (M&A) deals destroyed

shareholder value. In 2006, however,

businesses around the globe bought (and

therefore sold) more companies for more

money than ever. It was not just a year of

record merger volume -more than $3,800

billions - but also a merger market with

unprecedented breadth, across geographies

and industries. M&A transactions in the

current merger cycle differ in significant ways

from those of the 1990s, and this probably

explains why so much value has recently been

created. Specifically, this current merger

boom is characterized by Horizontal

consolidation with significant potential for

cost synergies. The use by acquirers of

existing cash and borrowed money (after-tax

cost) to purchase the (relatively higher cost)

equity of acquired companies. Much lower

acquisition premiums being initially paid.

Mergers and acquisitions can result in new

organizations whose financial and strategic

Mergers and Acquisitions- Boon or Curse

“Mergers are risky and with proper

strategy, intuition and knowledge”

EKTA SINGH

IBS, HYDERABAD


ISSUE 2 ,VOLUME 1

options are much improved. They are driven by

globalization, a long-term market, various

barriers to growth, which make M&As a valuable

tool by which companies can quickly attempt to

increase revenue.

Depending on the intent of the combination, there

are three common ways in which businesses get

together so as to obtain advantages in their

markets. They are:

Vertical merger:-This occurs when a

company combines with a supplier or

customer. An example is when a wholesaler

combines with retailers.

Horizontal merger:- This occurs when two

companies in a similar business combine.

An example is the combining of two

airlines.

Conglomerate merger:- This occurs

when two companies in unrelated

industries combine, such as where an

electronics company joins with an

insurance company.

Some successful mergers are highlighted below:

Disney-Pixar -The merger was a success after

the movies that Disney and Pixar have put out

since: “WALL-E,” “Up,” and “Bolt.” Pixar has

plans for twice-yearly films, unthinkable before

the merger, and has certainly gained the expert

advice from Disney when it comes to

adver t is ing, market ing p lugs, and

merchandising. When it comes to marketing to

children, no one does it better than Disney.

Even pre-merger cartoon “Cars” got the Disney

treatment and remains a top seller in

merchandising amongst 4 year old boys (just

ask my nephew).

Exxon-Mobil- ExxonMobil remains the

strongest leader in the oil market, with a huge

hold on the international market and dramatic

earnings. In 2008, ExxonMobil occupied all ten

spots in the “Top Ten Corporate Quarterly

Earnings” (earning more than $11 billion in one

quarter) and it remains one of the world’s

largest publicly held company (second only to

Walmart).


ISSUE 2 ,VOLUME 1

A major failures in mergers was Sprint/Nextel

when in 2005, another major communication

merger occurred, this time between Sprint and

Nextel Communications. These two companies

believed that merging opposite ends of a market’s

spectrum – personal cell phones and

ho me s e r v i c e f r o m S p r i n t , a nd

business/infrastructure/transportation market

from Nextel – would create one big happy

communication family (for only $35 billion).

But the family did not stay together long; soon

after the merger, Nextel executives and managers

left the new company in droves, claiming that the

two cultures could not get along. And at the same

time, the economy started to take a turn for the

worse, and customers (private and business alike)

expected more and more from their providers.

Competition from AT&T, Verizon, and the

iPhone drove down sales, and Sprint/Nextel

began lay-offs. Its stocks plummeted, and for all

those involved, the merger clearly failed.


ISSUE 2 ,VOLUME 1

Introduction

Cyprus is a tiny nation of only about a

million people. Its gross domestic product per

capita which averages around $30,000 puts it

among the richest nations in the world. The

economy of Cyprus was declared as a high

income economy by World Bank and it was

included in the list of advanced

economies by the International Monetary

Fund in 2001. But this tiny island nation has

taken the center stage of all economic

discussions at present. This is because it is

another Euro zone economy which is

grappling with financial problems and could

be the starting point of yet another financial

crisis.

How the crisis took shape?

Like many other European

countries Cyprus has a huge

debt problem. But Cyprus has

put all its eggs in the banking

industry. It has a very large

banking system compared to its economy

with total assets of 896% of GDP as in 2010.

Even if one excludes the overseas operations

of the domestically owned banks the size of

the banking system still exceeds seven times

the GDP of the country. The core problem in

Cyprus seems to be its lax banking

regulations and its unreasonable appetite for

risk. The Cypriot banking system is infamous

for being an offshore money laundering arm

of many rich Russian oligarchs. These

Russians used to pour money into the

country’s banking system to evade taxes and

the banks attracted by higher interest rate

invested money on Greek government bonds

to a large extent. When Greek sovereign

bonds collapsed in value the Cypriot banks

suddenly found a hole in their balance sheets.

Because of the large scale of the problem,

Cypriot government was unable to rescue the

banks and turned to its European partners for

a bailout.

The economic crisis in Cyprus-what is in store for it in future?

“Because of the large scale of the problem, Cypriot government was unable to rescue

the banks”

SIDDHARTHA BANERJEE IFMR, CHENNAI


ISSUE 2 ,VOLUME 1

Cyprus’s plea for bailout

The “troika” ultimately agreed to a bailout

proposal but with a condition that roughly 6

billion euros of the total 16 billion euros would be

paid by the depositors. This seemed to be a

terrible precedent and faced resistance from

everyone including officials of European Central

Bank like its President Mario Draghi. He

condemned this proposal to make “insured

depositors” pay for the bailout as unreasonable,

since it was obvious that investors would pull

their money from any risky Eurozone bank

leading to a bigger economic debacle. Hence the

plan was promptly revised.

According to the changed bailout agreements

Laiki bank, one of the largest banks of Cyprus

has been terminated and the senior bondholders

have to bear the losses. In approving a Euro10

billion package, European Union has called on

Cyprus to arrange an additional Euro 6 billion to

cover the gap what now appears to be

insufficient. So, Cyprus now needs to generate a

total of approximately 13 billion Euros. This is a

huge amount for a country like Cyprus, even if it

goes after uninsured deposits in local banks. In

addition to this Cyprus has imposed strict capital

controls to prevent a possible bank run.

Consequently, a Euro in a Cypriot bank is worth

less than a euro in a bank of any other Eurozone

country because of its lesser mobility.

Implications of the crisis

Since banking sector plays a vital role in

Cyprus’s economy contributing about 9% to

the GDP and accounting for 5.1% of jobs the

fallout of this sector will give a heavy blow to

the country’s economy. Deficit targets as

negotiated between the Eurozone and Cyprus in

a MOU imply that the country’s economy will

contract by nearly 8% in 2013-14.Apart from

this direct impact on GDP from the

restructuring of the existing banking model, the

economy is likely to suffer from a ripple effect

across various sectors including tourism. But

this crisis has implications beyond its borders.

The crisis of Cyprus is about more than just

Cyprus; it’s is about the Europe as a whole and

through Europe the rest of the world. The

crisis may spill over to other European

countries like Malta and Luxemburg which like

Cyprus have banking sectors several times

bigger than the economies. Big investors may

become more anxious of losing money and

might withdraw money from the second tier

European banks. These countries might also

find it harder to get access to international bond

markets. This can only lead to further troubles

for the Eurozone economies.


ISSUE 2 ,VOLUME 1

What are the options for Cyprus?

Generally when the banking system of a country

collapses its currency also weakens. The

country’s savers get badly affected and

imported goods become very expensive. But there

is a positive side of this too. The country’s

tourism becomes cheaper, the exports become

more competitive and foreign investors get labors

of that country at a cheaper cost. This is exactly

what happened to Iceland. Iceland experienced a

banking collapse in 2008 during which its

currency fell from 60 krona to the dollar to 120.

It was followed by a terrible chain of events, but the collapse in the krona also led to surge in

exports and tourism that kept unemployment

contained. In case of Iceland a free floating

currency acted as pressure valve for the troubled

economy. Apparently this option looks

promising; but Cyprus cannot just walk in the

same path. To experience the positive effects of

weakening of currency it first needs to drop the

Euro as its currency. But that is associated with a

bigger cost of transition away from a more widely

used currency.

The geopolitical risk associated with the

currency disintegration is also high. Being a

member of the Eurozone its citizens can travel

and work freely in any of the 27 countries in the

zone. Whether a country can drop the common

currency and still be in the Eurozone is still an

unsettled question. This is clearly a constraint

for Cyprus. On the other hand if Cyprus

chooses to drop out of the Eurozone, new

pressure will be created on other troubled

economies like Greece or Spain to make a

similar move. This could strain the continent’s

financial and political system to an

unprecedented level and in that case survival of

Euro as a common currency will be under

threat. Thus we can see that there are not many

options for Cyprus and its economy will have to

suffer the due consequences. For the rest of the

world the real lesson to be learnt from this crisis

is that: if you are a small country do not let your

banking system grow so large.


ISSUE 2 ,VOLUME 1

Of late, in the world of finance the

EUROZONE crisis has been creating quite

a stir. It is basically a continuing affair

where a certain number of economies are

unable to repay their government debts

without taking the help of third parties.

This drastic debt crisis was the

consequence of a series complicated

parameters. It was inclusive of the

financial globalization, the provision of

easy credit that stimulated the practices of

high risk lending and borrowing, the global

slowdown, imbalances of trade, real estate

crises, and import and export fiscal issues.

So, this financial turmoil of Europe has the

potential of having severe n drastic impact

on the global front. So at this critical

juncture there are a lot of

questions that are popping up.

Questions like whether Euro

will survive, if the failure will

result in a slowdown, if the

impact will be on the upcom-

ing United States presidential elections.

For a better understanding of the crisis and

to find answers to these questions it is

necessary to clarify certain misnomers that

have arose from it. It is also essential to

know the troubles so that it could provide

protection to the continent in the future.

Firstly, it is extremely insurmountable for

the euro zone to act like the United States

of Europe. In spite of this challenge, the

euro countries have responded with

phenomenal speed. As a protection against

the collapse of the weaker nations, there

have been establishment of rescue funds

ranging up to a trillion dollars. Like that of

Federal Bank, the European central bank

has been doing a lot to get over the crisis.

To control the deficits, the euro nations

have focused on stiff enforcements. They

even are heading towards a union

according to which the financially stable

nations will help and fund the

EURO CRISIS MYTHS

“it is extremely insurmountable for the euro zone to act

like the United States of Europe”

ISHITA BHUYAN IIT ROORKEE


ISSUE 2 ,VOLUME 1

economically weaker economies. Also, there

are plans of providing deposit insurance that

will be really beneficial in the long run. They

are also provisions of executing cut backs and

effective reforms to enhance productivity. So

as per market standards, the Eurozone seems

to be on track to the completion of aspects

whose absence heralded the present

adversities.

Source: article.wn.com

Secondly, if at all, Greece is compelled to

leave the monetary scenario, gradually the

currency could be strengthened. The

consequences would be so dramatic that

remaining economies would compulsorily

attempt to do anything and everything

required to avoid a similar state by quickly

cutting deficits and enhancing reforms. To

add to it, the probability of fallout elsewhere

would also speed up the banking and other

financial combinations. Removal of Greece

from the picture, would deliver the euro area

way stronger.

The next topic at hand is the high hand of

Germany. Already, it has given a huge chunk

of rescue funds and helped many debtor

nations. There are several reasons for


ISSUE 2 ,VOLUME 1

Germany being in such a powerful position.

Germany’s export based economy barely

depends on euro. It has a competitive currency

as per the other parts of the world as the rate of

the common currency is a living testimony to

the weaker neighbors and the powerhouse of

Germany. Moreover, German banks are

exposed in poorer nations and hence its tax

payers would come to rescue in case of failure

of Spain or Italy. Though nations like Finland

and Netherlands might have inhibitions, every

political leader in Germany is positively alive

to the desired necessities.

A very fascinating issue regarding this crisis is

that in every debtor economy there is a

political center. The avant-garde options

have been rejected very firmly. Portugal and

Ireland have remained confined to their

commitments, Spain and Italy have managed

to surpass with the help of taxes and market

reforms. Greece tried to be different;

nevertheless it had to reverse its course.

They have realized the necessity of solidified

support from political resources.

Finally, the sharp turn downwards for

Europe, has reduced exports and profits in

USA and has left several sectors weak. There

has been estimation that the euro collapse

would provide a recession and starkly

increase the unemployment rate by nine

percent pretty soon. Emerging nations led by

India and China have a sizeable chunk to

themselves and will continue in the near

future. Though this is slow, this is the only

thing that will be instrumental in keeping the

global economy churning. Additionally,

from the troubles of Europe, USA gains

massive advantages as the crisis is

responsible for capitalizing dollar in the

global front paving roads for higher

demands. The probability of Europe

muddling through will provide us and our

election with protection from critical issues.


ISSUE 2 ,VOLUME 1

“The Globalization of the capital market is

actually part of economic globalization. This will

create a change in the entire world economy, not

just restricted to some fields in some countries”

-- Richard A. "Dick" Grasso

What is Capital Market? This question arrives in

our mind. The definition of capital market is a

market in which individuals and institutions trade

financial securities. Organizations/institutions in

the public and private sectors also often sell secu-

rities on the capital markets in order to raise

funds. Thus, this type of market is composed of

both the primary and secondary markets.

The simplest way to improve our financial

condition is to invest in the stock market. It is a

place where the investor can raise their fund

through investing in the right fund.

There is a simple rule "think first

to choose a right share, and then

invest". There is no one in this

world who can say the future

situation of the stock market, but

there are some simplest methods

by which we can choose a right fund to invest. As

my opinion, we can predict that which company's

share is going to be profitable or not.

First of all, we can go through the Fundamental

Analysis. This analysis helps to the investor for

a long run investment. The people who have

knowledge about the Balance Sheet, cash flow

as well as Ratio are able to analyze by their

knowledge and able to know about the

financial position of the Company where it will

be profitable or not to invest. The Company is

capable or not to declared dividend on the

particular share or not. By this method any

investor can able to make the profit through

investing in the particular share.

Secondly, we can go through the Technical

Analysis by which any investor can predict the

future situation of the particular share where to

invest. The people who think that the particular

share has an immense growth and the stock is

on the way to bullish at that situation, the

investor is able to invest on the

particular share. On the other

hand, the investor must sell


JEWEL KUMAR ROY UNIVERSITY OF PUNE

"Capital Market" Ultimate Place to make Money

ISSUE 2 ,VOLUME 1

their particular share on the bearish situation. The

investor who has knowledge about the stop loss,

they can apply the stop loss to save their loss.

Finally, we can go through the Option where Put

Option and Call Option are available. The inves-

tors who want to invest in the particular option

they can make profit whatever they want. The

Option is the instrument where the investor is

able to invest their money and double it within a

day. There is a magic tip for the Option "when

any investor wants to buy the Call Option they

can sell the Put Option without any doubt

because the Put Option is the reverse of the Call

Option. That means when the Call Option is in

the Bullish position, the Call Option is in the

Bearish position. The investor must choose the

right Option to make money double.

There is some precaution to protect the loss in the

Stock Market -

Investor must have knowledge about the Stock

Market.

Think twice before invests.

Investor must have positive mind.

The investors must think about the Stop Loss.

There are some software by which any

investor can invest in the right share.

Analyze the position of the share market

through the economy of the country.

Don't compare the Stock Market investment

with the Bank's fixed deposit.

Last, but not the least, be Smart, to become a

good investor.


ISSUE 2 ,VOLUME 1

Introduction: Hedge funds are a portfolio of

funds which uses different strategies to maximize

the return. Hedge funds are high risk, high return

investment vehicles. They are just like mutual

funds; they pool the money taken from the

investors and invest in a portfolio of funds which

they seem to be profitable. Initially, hedging had

been evolved as the technique to protect the

securities against the price variations of different

securities due to volatility in the markets. Hedge

funds are different from mutual funds in the way

they use different types of strategies which we

will see below.

In mutual funds there won’t be any option for

going short. But, in hedge funds, fund

managers have the option to go short

on some securities in their portfolios.

They use different strategies and pool

the stocks accordingly. Mutual funds

are highly regulated ones where as

hedge funds are very least regulated ones.

Strategies in Hedge funds:

Most of the hedge funds managers won’t reveal

their strategies to the outsiders to maintain their

competitive advantage. Hence, the success of

hedge funds is mostly assigned to the manager of

those funds. The following are some of the

strategies which have been revealed by some

of the successful fund managers in the Wall

Street.

Long/Short strategy: In this strategy, the fund

manager will maintain both long and short

positions in his portfolio. The stocks which he

thinks as undervalued and would have scope to

rise in the future will be taken for long position.

Similarly, the stocks which he assumes as

overvalued and would fall in the near future will

be taken for short positions. Thus, his portfolio

contains both long and short positions (Need

not necessarily to be equal in amounts of both

short and long positions).

Market Neutral strategy: In

this strategy, the main objective

of the fund manager is to

KALI PRASAD BHOGARAJU BITS PILANI


Hedge Funds: The future of Indian capital markets

“success of hedge funds is mostly assigned to the

manager of those funds”

ISSUE 2 ,VOLUME 1

reduce the market exposure on the portfolio. This

could be done by maintaining an equal amount of

long and short positions in his portfolio. In his

portfolio, he needs to hold 50% short positions

and 50% long positions which implies that the

amount to be invested in long positions should be

equal to the amount equal to the short positions.

Hence, either way the market moves, the net

exposure of the market on the overall portfolio

will be negligible.

Paris trading: This is the most famous hedge

fund strategy which capitalizes on the market

inefficiency. Suppose, consider two securities or

two indices which shows a near to 1 correlation in

their movements. Then, the ratio of their share

prices over a period of time in the history gives a

constant value. But, due to market inefficiencies,

this may not occur at each and every moment of

time during the trades in the stock markets.

Observing this, the hedge fund managers buys the

stock present in the numerator and sells the stock

present in the denominator , if the ratio found to

be less than the constant value which they got due

to past observations. Similarly, if the ratio is

found greater than the historical constant, it

implies that the share corresponding to the price

present in the numerator is trading at higher price

and the share present in the denominator of the

ratio is trading at a lower price. Hence, numerator

shares need to be sold and the denominator shares

to be bought. These securities need to be held

until the inefficiencies have been corrected.

Event driven strategies: These strategies are

widely used ones during the times of certain

events like Mergers and acquisitions. During

the times of M&A, suppose, if company

‘A’ acquires a company ‘B’, usually, the share

price of company ‘A’ will go down and share

price of the company ‘B’ will go up. Hence,

most hedge fund managers will buy the

company B shares and sell company ‘A’ shares.

Thus, they could get higher returns.

Mathematical aspects of Hedge funds: Hedge

fund managers should be exceptionally good at

mathematics. Even though strategies vary

across different fund houses, the usage of

statistical tools is almost same in all Hedge fund

companies. Usually, they use statistical tools

like SPSS, R programming, MATLAB etc.,

The analysis of results is relatively complex in

hedge funds compared to other similar

investment vehicles like mutual funds because

hedge funds yields asymmetric expected results.

Performance returns: There are two kinds of

performance returns:

Absolute returns: This gives an idea on whether

the fund is high risk, high return or low risk,

low return and informs investor to make a

decision regarding where this fund can be


ISSUE 2 ,VOLUME 1

substituted either in fixed income segment or in

equity segment.

Relative returns: This compares the hedge funds

to other benchmark indices and informs investor

on the performance of this hedge fund Vis-à-vis

the benchmark index. This informs the investor to

choose better investing vehicle.

Standard deviation: For most investments, we

calculate the risk by using the standard deviation

as they follow normal distribution. But, in the

case of hedge funds, due to asymmetric expected

returns, the calculation of standard deviation will

be complex. If the calculation is done simply as

we would do for a normal distribution, it could

cover more risk inherently present in the hedge

funds.

Value-at-risk (VAR): VAR tells us the amount

an investor going to lose in the extreme worst

case (usually, it would be the highest amount that

the investor is going to lose with 5% probability).

That calculation is easy considering the normal

distribution funds like mutual funds or other in-

vestment vehicles. But, in case of Hedge funds,

due to asymmetry in returns, the calculation of

VAR is also complex.

Skewness: Skewness is a measure of asymmetry

of returns. A skewness of approximately zero

indicates normal distribution of expected results.

But, Hedge funds shows negative skewness

which implies that there is little amount of

probability for the hedge funds to yield highly

negative results which would be very higher

when compared to other investment vehicles.

Source: www.forexfactory.com


ISSUE 2 ,VOLUME 1

The Indian enterprises made significant entry

into banking business in the early twenties and

grew during the nationalist sentiment and freedom

movement in the country. During this time, major

banks were concentrated in the hands of few

business houses. To channelize the bank funds

to the few neglected sectors; in the year 1969, 14

banks nationalized followed by another 6 in the

year 1980. These initiatives marked a paradigm

shift in branch expansion and credit delivery

mechanism thereby paving way to Mass Banking

from Class Banking.

The Indian Banking industry was dominated

by Public Sector Banks (PSB) during

pre-reform era and majority of their operations

including pricing of products, were governed by

the Reserve Bank of India.

To instill greater competition in the banking

system and to enhance the productivity &

competence further, RBI adopted a liberalized

policy and allowed Private players to enter

into banking in the post reforms era. These

developments can be classified into three

important phases.

Ist Phase (1993to2003)

RBI granted licenses to few banks like ICICI

Bank, UTI Bank (now Axis Bank), HDFC

Bank, Global Trust Bank, Times Bank, IDBI

Bank, Centurion Bank, Bank of Punjab and

IndusInd Bank to setup banks in India. Many

of these banks pertain to financial

institutions of the country.

IInd Phase (2004to2010)

Although the performance of the New

Generation Private Sector Banks was

adequate, the episode of Global Trust Bank

sent alarming signs to the banking industry.

The regulator was more cautious and

judicious while allowing licenses to new

players and also monitoring the performance

of the existing players. In this backdrop, RBI

gave permission only to Kotak Mahindra

Bank and Yes Bank. The new private sector

banks which initially required entry level

capital of Rs.200 crores was decided to be

increased to Rs.300 crores within three years.

NIRAJ DADHANIYA

JBIMS


IMPACT OF THE NEW BANKING LICENSES ON THE BANKING SECTOR IN INDIA

ISSUE 2 ,VOLUME 1

Large industrial houses were not permitted to

promote new banks but individual companies

which were directly or indirectly related to large

industrial houses were allowed to own 10% of

equity, without any controlling interest. RBI

permitted licenses to 10 New Private sector

Banks since 1993 of which 4 were promoted by

financial institutions and remaining 6 by indi-

vidual banking professionals. Ironically, the

banks which were promoted by individuals

either failed or merged with other banks.

ThirdPhase(Beyond2010)

The Finance Minister announced in the Budget

2010 that the RBI was considering some

additional banking licenses to private

sector, including NBFCs like Reliance Capital,

Tata Capital, Aditya Birla Financial Services with

an objective to expand the geographic

coverage and to improve access to banking

services.

Pros: The main idea behind the Non-operative

holding company (NOHC) which would

hold the bank and other financial services of a

group, is to segregate the financial services of the

group-which are over seen by regulators and the

remaining other activities. The NOHC would

hold at least 40 percent of the bank's paid-up

capital with a 5-yearlock-inperiod. Experts

believe these steps will attract only serious

long-term players.

Cons: The draft requires new banks to ensure

the same priority sector lending targets which

The existing domestic banks have to follow-

40 percent of their loans should go to rural,

small and medium enterprises, and they

should open at least 25 percent of their

branches in rural areas - villages with a

population of less than 10,000. They should get

listed on stock exchange within two years of

obtaining their licenses. The purpose behind

setting up new banks is to promote greater

financial inclusion but enforcing the norms set

for old banks on them will not serve the

purpose.

It is evident that a majority of NBFCs are

backed by large corporate entities showing

keen interest in banking as this segment is

lucrative and a valuable channel to mobilize

low cost funds to fund their business interests.

The positive aspect of NBFCs to become

Banks they are complimentary financial

institutions to banks, focusing on the niches

that are neglected by the banking channel in a

way promoting financial inclusion.

The entry of Private Sector Banks forced

the PSBs to pay more attention on customer

service to sustain and grow in the aggressive

environment. However, PSBs are forced to

function in uneven level playing field since they

continue to balance both commercial


ISSUE 2 ,VOLUME 1

element and social cause. In this case, opening of

new banks may lead to further drop in

clientele base (high-value) and market share of

PSBs.

The Road Ahead

As per the guidelines which are

applicable now, the new private sector banks are

expected to meet priority sector lending target as

applicable to domestic banks and branch

expansion criteria. The most significant question

is–how are the new banks are going to carry out

the desired branch expansion and inclusive

growth when the performance of the existing

private sector banks itself is far from satisfactory.

Few private banks are contemplating to achieve

the task by adopting the strategy of Branchless

Banking through Business Facilitator (BF)/

Business Correspondent (BC) model. This

business model (BC/BF) can be easily replicated

by PSBs since these banks are equipped with

Core Banking, which is a requirement for

Branchless Banking.

To bring the new system into place, the

regulator should focus his attention on the

following important aspects to ensure the solidity

of financial system and to guard the interest of the

public at large A decent track record of at

least 10 years in the financial services business

for Industrial Houses to be allowed. New players

would start operations with minimum capital of

1000 crores. Real estate exposure in terms of

assets should not be more than 10% of the

total assets of the group. The control and

ownership of the real estate arm should be

separated from that of the financial services

business. No dilution of promoter’s stake

should be allowed for the initial 10 years.

Source: www.moneylife.in


ISSUE 2 ,VOLUME 1

Whenever I pore over national dailies of our

nation, there used to be a lot of brouhaha over the

trade deficit of ours. That insinuates that trade

deficit is of huge importance to us. But instead of

forging measures to rein in trade deficit, it is

ostensible that people responsible for that task are

digressing for their own excuses. If we visit the

website of Ministry of Commerce to get the

statistics of trade, a pall of tantrums would be

there. Our kind ministry has not even made

website operational!!! Now what else can we

expect from the Diaspora which has its task cut

out.

Recent (Current account deficit) CAD figures for

December quarter are out. The stupefying finding

in that release was a whopping CAD of 6.7%

which is all time high. Resurging

trade deficit and widening gold

import are wreaking havoc on

worsening CAD position. This fiasco

in macro-economy bells death knell

for our economy. If we can’t arrest

burgeoning CAD, it will cause wider implications

for our mounting external debt. Yawning external

debt is already at an alarming level of 8.9% of

GDP. It is pegged at $376 billion. Hence it will

be ill afforded to finance our CAD through

external borrowings.

Why our economy is afflicted with trade

deficit?

As per definition goes it due to the excess of

imports over exports of a country. But the

moot question which arises here is that why the

burgeoning trade deficit is not tamed by our

government. If we took a insight into this matter

we would find that our manufacturing sector

(IIP) is in bleak form from past one year. No

growth in capital goods and dud investment.

NITIN SINGH

SIMS PUNE


Trade Deficit and its implications on macro economy

“trade deficit is due to the excess of imports

over exports of a country”

ISSUE 2 ,VOLUME 1


ISSUE 2 ,VOLUME 1

Another reason is our huge appetite for yellow

metal. The import duty paid on gold is causing

cascading misbalances in trade balances.

According to World Gold Council, India holds

the top rung position for demand of gold.

Source: www.hindustantimes.com

The import of crude oil is leading the pack.

Import of crude oil is the biggest reason for trade

imbalance. It is already creating far-reaching

catastrophic consequences in our economy.

Source: Ministry of petroleum and Natural Gas

Depreciation of rupee is one of the worrisome

concerns which create ripples in our trade bal-

ances. Lack of political will is also a major con-

cern which can be factored in. Ultimately, gov-

ernment has all the vested powers to clear this

mess.


ISSUE 2 ,VOLUME 1

The unbridled trade deficit is adding to worsening

current account deficit. Due to this our Balance of

Payment is getting badly affected.

Source: RBI

Silver lining or panacea

Consumption of crude oil cannot be stopped as it

is vital for our industries and transport. But cer-

tainly we can cap this yawning consumption by

using it judiciously. Use of renewable energy

sources must be heavily promoted. Mounting sub-

sidies on fuel should be tamed down.

Excessive import of yellow metal has to be ar-

rested. Government can impose higher duty to

divert the demand of gold. Better small savings

scheme and mutual funds or debt funds can also

attract investors towards them.

Political will has to be instilled in the modus

operandi of government. And most important,

we need to boost our exports to recuperate our

trade with other countries. Government can

make changes in their sophomoric policies to

induce small scale industries to scale up their

production.

Source: Indiamics.blogspot.com

Trade policy with other nations can be made

comprehensive to soothe trade imbalances. For

example, China is the biggest manufacturing

exporter in the world. India must also put in

place its abundant resources to leverage them.

Anti dumping rules must be strengthened to in-

crease competition in market.

WTO negotiations are indispensable for our

nascent economy. As we are a fledgling econ-

omy, we need selective concessions in our trade


ISSUE 2 ,VOLUME 1

tariffs to support our economy. Special trade

status such as the Most Favored Nation (MFN)

provisions a streamlined process to increase one’s

exports.

In a nutshell if above slated measures are taken

into consideration, then we can dream of a India

which is free from trade deficit. Specter of twin

deficits i.e. fiscal deficit and current account

deficit can be nipped in the bud itself.

I dream of our Bharat turning into Golden

Sparrow of the yore.

Source: sp1947.blogspot.com

Source: www.sundaytimes.lk


ISSUE 2 ,VOLUME 1

Ponzi Scheme and its Origin:

Ponzi Scheme is a fraud scheme that was started

by Charles Ponzi in the year 1920. In this scheme

investors are paid returns from their own money

or money paid by the subsequent investors rather

than the profit generated by the organization.

Charles Ponzi started it as business that would

buy postal reply coupons in Italy and exchange

them with stamps in the US. This was an

arbitrage business which took advantage of the

price difference. Charles Ponzi attracted investors

by promising them high returns but instead of

investing their money in stamps, he used the

money of subsequent investors to pay high

returns to the previous investors. This resulted in

extraction of huge amounts of profits,

investors lost around USD 20 million

(approximately USD 225 million) by

the time scheme collapsed. The

second-biggest Ponzi Scheme was

done by Bernard Mad off, a Hedge

Fund Manager in New York. This resulted in

losses of USD 20 billion in 2008. Currently, the

developed economies are facing the effect of

Ponzi Scheme.

Ponzi Schemes in the Developed World:

The Developed Nations of the World are in huge

public and private debt due to the Global Finan-

cial Crisis. According to a study by Bank for

International Settlements (BIS), the combined

debt of government, private households and

nonfinancial companies in 18 countries of the

OECD, increased from 160 percent of GDP

in1980 to 321 percent in 2010, leading to

increase in Debt-GDP ratio. These economies

have borrowed intensely from the future to meet

their current consumption, putting a pressure on

the next generations. This will also lead to a

slowdown in the growth of the economies. Thus

steps should be taken to achieve political and

economic stability because another recession

can start anytime.

Apart from debt, the Ponzi Scheme in the

developed also exacerbated by

hidden liabilities of government

and companies. It is the younger

generation that pays for the

SAUMYA RASTOGI NMIMS HYDERABAD


Ponzi Schemes and its Effect on the Developed World

“In Ponzi scheme investors are paid returns from

their own money or money paid by the subsequent

investors rather than the profit generated by the

organization”

ISSUE 2 ,VOLUME 1

older generation which is mainly due to increase

in life expectancy rates in the developed world.

Steps that the Developed World should take to

Overcome Ponzi Scheme:

There are some steps that the Developed World

can take to reduce debt, increase GDP and end

the era of Ponzi Schemes.

Elimination of Debt: It is important to finish the

existing debt in the economies. Most of the debts

that exist will not be paid for and there will be

defaults in the future. Debt can be managed

through write-offs, restructuring, increase in

taxes, and inflation. Though this will result in

losses for creditors and holders of financial

wealth and higher taxes for tax payers, it will also

help in ending existing debt in the economies.

Reduction of Unfunded Liabilities:

Government should raise the retirement age,

reduce social-insurance payments and manage

health care systems for greater efficiency. These

measures can help in reducing government

spending on social welfare benefits.

Increase in Government Efficiency:

Government can be made more efficient by

making the social welfare system more efficient,

reducing the number of public employees as a

percentage of total population. New entrants must

be encouraged to increase competition in the

economies

Manage Labor Scarcity: Developed nations

need to take steps to reduce the declining

labor. Efforts should be taken to increase

participation of elder generation in the

workforce, increasing women participation

and encouraging family formation to

contribute to larger working population.

Development of Immigration Policy: These

developed nations should be open to

immigrants. The aim should be encouraging

well educated immigrants from outside. Such

immigrants will contribute to economic growth

and development of the nation. Thus countries

need to develop smart immigration policies.

Investment in Education: Investment in

education can lead to growth in per capital GDP

of the country. Developed nations should focus

on improving average education levels,

improving the quality of teaching. Government

should also support bright and intelligent

students and encourage innovation and

entrepreneurship. Government should invest in

Universities and ensure that topics related to

future growth and development are taught in the

Universities.

Reinvestment in Assets: There is a need for

reinvestment in public infrastructure and public

assets. Airports, railways systems, highway

networks and energy grids should be

modernized. Government should also involve

private sector in these activities as it will


ISSUE 2 ,VOLUME 1

improve strategic planning and governance,

reduce process complexity and improve

prioritization and selection of projects.

Government should also encourage private

investment

Increase in Raw-Material Efficiency: Business

should aim at increasing production efficiency of

supply chain. Companies should invest in

material-efficient products to meet the changing

consumer needs. Government should encourage

development of policies for efficient technology.

Global Cooperation: Though the competition

will increase in the World, it is important that the

Countries must cooperate only then can the

problems be solved, else it will result in

Beggar-thy-Neighbor leading to slower economic

growth. Emerging economies should focus more

on domestic consumption as compared to export

based growth.

Innovation: Developed world should invest in

product ive workforce and encourage

technologists to innovate and entrepreneurs to

start new business. Many government policies are

designed to protect traditional industries which

inhibit innovation. Thus antitrust policies should

be developed to encourage innovation to achieve

economic growth.

Thus the fraudulent Ponzi Scheme can be put to

an end only when society, government and

companies cooperate. Only when the debt-GDP

ratio decreases in the developed nations will

they prosper.

Source: thelabeconomics.blogspot.com


ISSUE 2 ,VOLUME 1

The reach of banking and other financial

services were very limited to the mass

population of India as in spite of so many

years after independence of our country half

of our population is unbanked. Although

many programs like Co-operative Movement,

Setting up of State Bank of India,

Nationalization of banks, RRBs, Self Help

Groups were initiated on behalf of

Government of India and other government

bodies like RBI, NABARD etc. to include the

financially excluded population but these

programs were not that of huge success in

ground level due to many constraints to cover

all sections of population.

Thus with the primary objective of

ensuring greater financial inclusion

and increasing the outreach of the

banking sector in India the BC model

has been implemented. In the year

2006 RBI initiated the Business

Correspondent (BC) Model in which Non-

Governmental Organizations/ Self Help

Groups (NGOs/ SHGs), Micro Finance

Institutions (MFIs) etc. were used as

intermediaries between the banks and the

financially excluded population of India for


providing various financial and banking

services. These intermediaries are known as

Business Correspondent or Business

Facilitator’s. And RBI has defined the

parameters and criteria for all those entities

who can become BC.

The different entities who are working as

BC’s of various banks are in proper legal

agreement with the banks. And they cannot

offer any new product or services until they

have taken the prior permission of banks. And

for each transactions or opening of any new

accounts or for any other services they pro-

vide to the customers on behalf of the bank

they are working with they

receive an amount of

commission for that. And

the banks will be fully

BC MODEL – a revolution in banking service is the pathway to promote financial inclusion in India

“entities who are working as BC’s of

various banks are in proper legal

agreement with the banks”

SOUVIK

NIT SILCHAR

PRIYANKA

NIT SILCHAR

ISSUE 2 ,VOLUME 1

responsible for all the activities of the BC and

their retail outlet i.e., Customer Service Point

or CSP. Thus BC is primarily the

representative of banks who provides banking

services through use of ICT based solutions in

his own or nearby villages. And the banks

give remuneration and or transaction based

commission to them against the service they

provide.

Figure1: BC Model

RBI also took several corrective measures to

promote BC model by allowing banks and

their respective BC’s to open No Frill

Accounts to promote the drive of financial

inclusion. The reason to promote No Frill

Account was because those accounts could be

opened with either zero or for a minimal

balance requirement which was not present

earlier. And thus it was easy for the banks to

open new account especially in the rural


sectors among the BPL i.e. Below Poverty

Line people. Even the KYC norms were

simplified to enhance the outreach of banking

in rural sectors.

BC offer its clients a mix portfolio of different

financial products and services like

micro-loans, micro-savings, micro-insurance

and micro-remittances services etc. The

different scope of activities that BC can offer

to its customers are strictly guided by RBI’s

notification and they include (i) disbursal of

small value credit, (ii) recovery of principal /

collection of interest (iii) collection of small

value deposits (iv) sale of micro insurance/

mutual fund products/ pension products/ other

third party products and (v) receipt and

delivery of small value remittances/ other

payment instruments. BC model is

increasingly being recognized as the most

suitable approach for achieving financial

ISSUE 2 ,VOLUME 1

inclusion in the long run as it allows banks to

service customers and extend their geographic

reach at a much lower cost.

Figure 2: Various services offered by BC

To further strengthen the pace of financial

inclusion program in India in the year 2011

the Government of India in association with

Indian Banking Association started the

SWABHIMAN SCHEME. And under this

scheme the banks were advised to draw up a

road map to provide banking services in every

village having a population more than 2000

by March 2012 either through brick and

mortar branches or through Business

Correspondents. Thus 73000 villages were

identified and allotted to various banks with


the help State Level Bankers’ Committee’s

i.e. (SLBCs).

Initially several banks started pilot project to

test the viability of BC model and gradually

the pace and rate of expansions of Business

Correspondents and their retail outlets

Customer Service Provider increased to a

greater extent with the usage of Information

and Communication Technology i.e. ICT

based solutions. Thus the customer provided

with a Multi-application Smart Card, mobile

phone enabled banking facilities, biometric

ATMs, Internet Kiosks helped a lot to gather

the momentum of the financial inclusion

program in India. The Financial Inclusion

Technology Fund is used for investing in

ISSUE 2 ,VOLUME 1

Information Communication Technology

(ICT) based solution for promoting financial

inclusion. Thus new technologies are invented

especially for innovating new models and

approach to mitigate the demand and supply

of banking services in India.

Figure 3: BC using ICT based solutions

Figure 4: Growth Chart of BC Model released by RBI


Government’s decision to use BC Model in

transferring monetary benefits of government

programs like NREGA, Social Security

Pensions etc. is also helping the model to gain

momentum. The recent tie up of direct

transfer of subsidies with the help of

ADHAAR card i.e. a Unique Identification

Number with the help of BCs network also

ISSUE 2 ,VOLUME 1

shows that how effective and efficient BC

Model has been in reality that even

Government is using it for promoting its own

programs.

Thus BC Model has been a perfectly game

changing model for reaching the financially

excluded population of India. And the pace of

growth of BC’s and their retail outlet i.e. CSP

is really a positive sign for the growth story of

financial coverage in India. The banks also

actively participated for caring out new

different strategies and plans for making the

BC Model more effective in the ground level.

And the latest data released by RBI can

highlight the real success story of BC Model


and why it can be used as a pathway to

promote financial inclusion in India.

ISSUE 2 ,VOLUME 1

Hello,

My name is Ekta Singh and i come from city

of joy, Kolkata. I have done my graduation

from St. Xaviers College, Kolkata. I am also a

certified Company Secretary. I hold a work

experience of two years with HSBC Global

Resourcing and PriceWaterHouse Coopers

India.

I am fortunate enough to be a part of Money

Matters Club. Here I was able to explore my

passion for learning more through support

from our mentors, faculties, teammates.

Another major development for me in last one

year's time was cracking the best summer

internship programme (SIP) campus in D.E

Shaw. The experience of SIP was amazing

when it came to learning, team work,

showcasing my skills-sets, interaction with

corporates and big companies like E&Y,

Blackstone, J.P Morgan, Silver Creek etc.

The selection process was too rigorous

starting from written test, group discussions,

panel interviews.

D.E Shaw is an investment and software

company incorporated in 1988. I got an

opportunity in working for the best team of

D.E Shaw India which is Financial


Operations- Financial Reporting Team. The

work area involved preparing financial

statements for the hedge funds according to

various GAAP like U.S GAAP and

Luxembourg GAAP, audit confirmations and

interaction with our investors and auditors,

roll forwards, working on acrobat and PDF's,

Microsoft Outlook etc. Apart from the work ,

the team was highly skilled and set of

professionals who imparted us learning every

single day.

Being part of D.E Shaw didn't only gave me

exposure to various work fields but we also

had fun during our non-working hours as

company had highly equipped gym, regular

yoga and aerobics classes, delicious food,

gaming area, various sports and competitions.

I would like to express my gratitude towards

Money Matters Club which helped me getting

a wonderful industry experience by preparing

us well in the field of finance well.

D.E. Shaw SIP Experience

EKTA SINGH

IBS, HYDERABAD

ISSUE 2 ,VOLUME 1

Q UIZ TIME

1. A former derivatives broker whose fraudulent, unauthorized speculative trading caused the spectacular collapse of Barings Bank, the United Kingdom's old-est investment bank lead to a loss of $ 1.4 billion in 1995 is ------------------------

2. Name the first Indian woman CEO of a Foreign Bank?

3. He is the pioneer in mutual fund industry and often referred as the Father of Index Fund investing. He created the first S&P 500 Index fund. Identify this famous person?

4. Who founded the famous Wall Street Journal?

5. Name the person who introduced the 'Double Entry' book keeping concept?

6. Who is known as the Father of modern Economics?

7. NASDAQ is acronym for

1. Nick leeson 2. Tarini vaidya of KBC bank India and South

Asia

3. John Bogle

4. Charles Dow and Edward Jones

5. Lucas Pacioli

6. Adam Smith 7. National Association of Securities Dealers

Automated Quotations

Answers


the financial bulletin,june 2013 edition

Documents

indian rupee

nmims hyderabad

indian economy

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nitin singh

new banking licenses

indian currency

downfall of rupee