The financial bulletin, may 2013
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Transcript of The financial bulletin, may 2013
M O N E Y M A T T E R S C L U B - T H E O F F I C I A L F I N A N C E
C L U B O F I B S , H Y D E R A B A D P U B L I C A T I O N
The Financial Bulletin
31st MAY 2013 VOLUME 25 ISSUE I
Learn about Financial Inclusion
Career: Crisis in
Investment Banking
Do women
really need a
bank of their
own?
What opportunities does
Bitcoin bring?
FROM THE EDITOR’S DESK P a g e 2
FROM THE EDITOR’S DESK
The Financial Bulletin
Issue:: I
Volume: XXV
May 2013
Advisor
Dr V Narendra
Faculty Co-ordinator
Dr. S Vijaylakshmi
Student Coordinator
Kanchan Roy
Editor
Komal Jain
Dear Readers
We are happy to announce that since Twenty Five uninterrupted months, The Financial Bulletin, has been reaching the lives of its amazing readers and providing them with financial education.
We hope to continue our journey for many more months and become one of the best Inter Bschool Magazine.
As usual, in order to celebrate the 25th Issue of the newsletter, we bring to you articles from a plethora of genres.
This month’s article of the month’s written by Mr. Soumyajit Datta. It talks about the Impact of Euro-zone Crisis on the Emerging Markets like India, China and Brazil and is worth a read.
We also have a brief coverage on the newly traded form of currency called Bitcoin. The author shares insights on the currency.
Our coauthors also talk about the careers in Investment banking and its current scenario.
There are many more interesting discussions in the newsletter, READ ON to know more!
Happy Reading.
P a g e 3 V O L U M E 2 5 I S S U E I
CONTENTS
ARTICLE OF THE MONTH:
04 Impact of Euro Zone Crisis
on the Emerging Markets.
- by Soumyajit Datta
26 Did Gold lose its Shine?
-by Elma Davies
30 Gold Rush
-by Sachit Reddy
08 The Yellow, the Black and
the Red.
-by Nikhil Mehrotra
12 Globalization in Toto: The
changing gesticulation of the
world economy.
-by Chandra Sekhar
COVER STORY
20 Bitcoin: A new currency to
the world
-by Vipul Agrawal
33 Product of Financial Crisis:
Boutique Investment Banks
-by Ankur Baj & Harshita Preetam
36 Why Financial Inclusion?
-by Pravesh Gupta & Kunal Sanghvi
16 Is licensing of new banks
essential for Financial Inclusion?
-by Elma Davies
24 FDI in Retail in India.
-by Richa Goel
A R T I C L E O F T H E M O N T H
I M P A C T O F T H E E U R O Z O N E
C R I S I S
P a g e 4
The financial crisis of 2008 marked a new
phase in global economics. The institutions
that were once considered to be fortified
from any shocks have had to bear the brunt
of excessive risk exposure. The situation
was further aggravated by the Eurozone
crisis that threatened to fragment the
European Union. The downturns in the
US and the European Union have
supposedly diverted the attention of
investors towards emerging markets.
In such a scenario it is expected that the
investors would have taken out their
money from Europe and parked it in safer
investments. The analysis will be based
on the inflow of foreign funds in emerging
countries namely India, Brazil and China.
INDIA
With a robust service sector in place India
relied gained heavily on the financial health
of the US and Europe. The relaxation of
norms for foreign inflows has been a major
propeller for FIIs to pump their money in
the Indian market since the late 1990s. The
most significant rise in FII inflows came
after the financial meltdown across the US
and Eurozone. A remarkable observation in
the table shown above is that the net FIIs in
India increased from -9,837 million dollars
to 30,253 million dollars within a year after
the financial meltdown occur. Even though
the equity market has not rallied back to
pre-2008 level, a healthy inflow of funds
suggests that the investors abroad perceive
India as a safe destination. The
long term bonds deliver a
return that is above 8% which
is very high when compared to
global standards. While India
has had a topsy-turvy ride of
late, the relaxation of FDI
norms in various sectors has
“India, Brazil
and China
were
considered to
be a safer
investment
avenue”
© Money Matters Club, IBS Hyderabad.
Financial
Year
Net Inflows from FIIs
(in US$ Millions)
2005-06 9,362
2006-07 6,821
2007-08 16,442
2008-09 -9,837
2009-10 30,253
2010-11 32,226
Source: SEBI, 2012
P a g e 5 V O L U M E 2 5 I S S U E I
also played a crucial role in lifting investor sentiment. It has been estimated that the recent policy
changes has helped in bringing foreign funds worth 1.67 billion dollars in the Indian market (The
Financial Express, 2012).
BRAZIL
Like India, Brazil is an economy that is heavily dependent on the service sector. The financial crisis
has moderated the growth of Brazil to an estimated 3% of GDP (Global Finance, 2012). The country
is highly dependent on the US and European nations for exports and the moderation in growth can be
attributed to the fall in demand in these region. The investors on the other hand have treated Brazil as
a very fruitful proposition after the removal of stringent capital gains norms by the government.
Source: World Bank
The inflows have been so overwhelming after 2008 for Brazil that the Real has appreciated to an
extent that has made the import of Brazilian goods costlier for other countries. As a result the
government has had to intervene to maintain the exports at a healthy level. This year the foreign
investors have not shown keen interest in the Brazilian market. “Investments from overseas
plummeted from US$12.4 billion to US$7.5 billion in the first half of 2012, in comparison with the
same period in 2011” (The Rio Times, 2012).
© Money Matters Club, IBS Hyderabad.
P a g e 6
While the era immediately after 2008 was good for Brazil (refer Figure 2), the deteriorat-
ing economic indicators drained the foreign funds. So in spite of providing good yields on sov-
ereign bonds, Brazil has not been able to perform on as well as India.
CHINA
Unlike its other two counterparts, China is heavily dependent on the manufacturing sector to
sustain a high level of growth that is above India and Brazil. While FDI in China has been a
hot topic, the capital market has been far from being a good host to foreign institutions. This
is primarily due to the quota allocation for investors abroad and the lack of proper corporate
governance (CNBC, 2012).
The Chinese government has to some extent liberated the bond market of late for foreign
players by introducing the Qualified Foreign Institutional Investors Scheme. Since there were
restrictions on the debt market, it would be difficult to trace the perception of investors after
the Eurozone crisis. However Table 2 clearly indicates that the level of foreign investment did
not reach levels that were significantly different in percentage terms.
Source: IMF
While there was a hike in absolute terms (from 15.7 billion dollars to 26.6 billion dollars) the
contribution of foreign investors declined significantly from 1.7% to 1.0%. This clearly
indicates that the debt market in China did not attract foreign investors owing to strict
regulation.
The equity market has also undergone drastic changes over the years with the government
allowing institutional investors to participate in “A” shares. China never had a robust system to
win the trust of the foreign investors. The stock markets were marred with weak corporate
© Money Matters Club, IBS Hyderabad.
In billions of US dollars % of total bonds outstanding Local currency bonds as % of
total bonds outstanding
2005 2009 2005 2009 2005 2009
15.7 26.6 1.7 1.0 98.2 99.0
P a g e 7 V O L U M E 2 5 I S S U E I
Source: World Bank, 2011
CONCLUSION
India, Brazil and China present three unique scenarios for investors showing an interest in
emerging markets. Though the capital markets have not opened up (especially China and
Brazil) a constant growth in the inflow of foreign funds since 2008 certainly validate the claim
that emerging markets have been a hot spot for foreign investors. What needs to be
acknowledged is the fact that the level of inflow is not as significant via the FDI route and once
the trepidation of these countries towards foreign investors is removed we could see an
accelerated growth in the capital markets of these countries and the emerging markets as a
whole.
Contributed by:
SOUMYAJIT DATTA
NMIMS, Mumbai
governance and insider trading. It does not come as a surprise that though the financial plight
of the US and Europe was in a mess, China failed to harness the opportunities presented.
© Money Matters Club, IBS Hyderabad.
Year 2007 2008 2009 2010
Foreign Portfolio
equity (in Millions $)
18,509 8,721 28,160 31,357
P a g e 8
Though yellow, black and red are the colors
that can be truly associated with the German
republic since the days of revolution of
1848; they certainly have a lot to say when
it comes to deciding the economic affairs of
a country that lay half a world away from
Germany, called India- our motherland,
home to 1/6th of the world’s population,
seventh largest country in the world and the
world’s biggest democracy.
The colors yellow and black signify gold
and oil in the Indian context and they are
such an important factors when it comes to
drafting economic policies in the country
that even a slightest fluctuation in their
international price can cause shivers and
sweats to the policy makers. These two
commodities form the major chunk of our
annual import bill which currently stood
around $500.3 billion. India is a growing
economy and its growth is propelled by oil
as it is the only viable and greatly acceptable
source of energy but unfortunately India
doesn’t have much proven oil reserves(900
crore barrels as of now) and thus it is forced
to import around 80% of its oil needs. Also,
there is a huge subsidy on petroleum
products provided by the government of
India which further adds pressure to the
Indian economy. Gold, on the other hand,
holds a special position in the Indian
diaspora. It signifies culture, religion,
prosperity and social stature in the society
since time immemorial. Last fiscal year
alone, India has imported around 800 tonnes
of gold which rightly justifies its stature as
the biggest importer of gold in the world.
Jewellery has always remained as the largest
growth driver for the yellow metal followed
by medallions and coins. However, with
increasing awareness, gold electronic traded
fund (ETF) is also gaining healthy ground
throughout the country prompting further
increase in the import of gold. Even though
T h e y e l l o w , t h e b l a c k a n d
t h e r e d
© Money Matters Club, IBS Hyderabad.
P a g e 9 V O L U M E 2 5 I S S U E I
government has almost doubled the import duty on gold, there is no much significant effect on
the gold import. In such a scenario, both oil and gold are becoming menace for the current
account of the Indian economy thus causing it to bleed “RED”. From here comes the color red
which signifies the current account deficit (CAD) of the Indian economy.
THE CURRENT ACCOUNT
The current account balance is one of two major measures used for understanding the nature of
a country's foreign trade (the other being the net capital outflow). The current account is
calculated as follows-:
CA = (EX-IM) + NI + NCT
Here, CA – Current account, EX- Net export, IM- Net import, NI- Net income from abroad and
NCT- Net current transfer.
THE CAD
A continuous surge in import leads to trade imbalance which causes the current account to
become negative thus leading to CAD. Also, fake currency circulating within the country can
further strengthen CAD leading to depletion of the economy. Therefore, RBI has the responsi-
bility to come up with such stringent measures that can tackle with the proprietors of fake cur-
rency and keep their activities at bay. In 2012 alone, fake currency of worth Rs 25.5 crore has
been seized and recovered by the government agencies. As of Q3, 2012-2013, CAD stood
around a record high 6.7 % of GDP .
© Money Matters Club, IBS Hyderabad.
P a g e 1 0
FLUCTUATION IN THE PRICE OF
GOLD
The Speculation
These days, there are a lot of speculations
going on about the faith of CAD due to a
sudden decrease in the international price of
gold and oil due to certain macro-economic
factors. Gold has fallen sharply because of
many crucial events such as disappointing
Chinese economic data, selling of gold
reserves worth $ 525 million by Cyprus to
reduce its debt and wider expectation from
Italy and Spain to reciprocate the same. Oil,
on the other hand, is suffering as a result of
the global slowdown. Amidst all this, News
channels, economists, consulting firms are
all predicting the CAD in the Indian
economy to go down. Japanese brokerage
firm Nomura recently announced that the
recent fall in gold and oil prices can help in
improving the India’s CAD to reach to 4.3%
in fiscal year 2013.
It is widely estimated that these
macroeconomic changes will help in
decreasing the WPI inflation, CPI inflation
along with the government’s fuel and
fertilizer subsidy bill thus providing the
much needed breathing space to the policy
makers. Gold bill is estimated to go down
by $8 billion while oil bill will shrink by
around $10 billion. But at this very point the
question arises –“Are we seeing the
complete picture while reaching out to a
conclusion on the faith of CAD?” The
answer is- “NO”. We haven’t considered all
the factors that can contribute in the deter-
mination of CAD. India is the biggest
importer of gold but also a prominent
exporter of gold jewelries, gold medallions
and coins to the world. As of fiscal year
2012-2013, the revenue from gold exports
stood around $18285.86 million. The
industry has grown by 8.94% in terms of US
$ over the past fiscal year. If the
international gold prices plunges, the yield
from the Indian gold export will also suffer.
Thus the estimated recovery of $8 billion on
gold bill can’t be fully realized in reality.
Similarly, India is also exporting large
variety of petroleum products through its
ports such as Jamnagar. Not only public but
private sector is also deeply involved in
petro-chemical exports. Analyzing all these
indicators thoroughly, we can conclude that
there will be only a moderate effect of the
current economic scenario on India’s CAD.
CONCLUSION
We should always remember that finding a
temporary solution to a severe problem at
hand is always a monstrous betrayal. It can
lead us to situations which are even worse
than expected. Thus, policy makers should
© Money Matters Club, IBS Hyderabad.
P a g e 1 1 V O L U M E 2 5 I S S U E I
focus on finding out a permanent solution to the problem of CAD rather than rejuvenating from
the short lived hope that cyclical events like the steep fall of gold and oil brings to the shores of
our country.
Contributed by:
NIKHIL MEHROTRA
VGSOM, IIT Kharagpur
© Money Matters Club, IBS Hyderabad.
P a g e 1 2
The global economy stands on the threshold of the next phase – Sustainable and globalization in
Toto. Right now and for sometime the world will find itself in the midst of a mega – metamorphosis
and the outcomes that this will have would be multidimensional. The report titled "Realizing the
Asian century by the Asian development bank" cites that by 2050 the GDP of the seven economies
of China, India, Indonesia, Japan, constitutional government of Korea, Malaysia, and Thailand will
account for 45 per cent (%) of all-inclusive GDP. “Metamorphosis taking place in the world
economy are likely to catapult the Asia – Pacific region as the centre of gravity of the world
economy with China, India and Indonesia become apparent as the growth poles for not only the
region, but also the entire world,” as stated by Dr. Noeleen Heyzer UN Under – Secretary –
General and Executive Secretary of the Economic and Social Commission for Asia and the
Pacific (ESCAP) at the Indonesia International conference (2011) in Jakarta.
Globalization in Toto, a term that has been frequently used entails much more than what has
happened so far. In essence it requires a process of decision making about global concerns
including international finance that is not controlled by the priorities, considerations and markets of
few but by the interests of all nations and individuals. It was obvious particularly after the
occurrence of the Asian economic crisis that the global financial system required a certain process
of reform that did not happen. While there are signs of trade liberalization slowing down as a result
of the prevalent recession in most advanced nations the increasing role of the developing world in
spearheading liberalization is evident. The expansion of South – South Trade is becoming an
increasingly significant constituent of trade liberalization and in subsequent years plausibly it would
be one of the main drivers of the process. The year 2015 is the deadline for the Millennium
Development Goals (MDG) that were drawn out in 2000. There would be hardly any countries in
the developing world that will be able to meet any of the MDGs by 2015.
As far as reaching ramification of the crisis that began in 2008 continues to play out in the
Eurozone and United States, it becomes increasingly evident that the path that lies ahead for these
regions is nothing short of an economic overhaul. The impact of the meltdown reverberated
G L O B A L I S A T I O N I N T O T O : T H E
C H A N G I N G G E S T I C U L A T I O N O F
W O R L D E C O N O M Y
© Money Matters Club, IBS Hyderabad.
P a g e 1 3 V O L U M E 2 5 I S S U E I
globally and its outcome did dampen market
sentiment. The ensuing slowdown in economic
activity led to a discernible contraction of
output and economic growth which occurred
in almost every country. According to the U.S
Congressional Budget Office, (CBO), if the
nation continues on the same track deficit will
remain high throughout the rest of this
decennium and beyond the bounds, and debt
will spiral ever higher, reaching 90 percent
(%) of GDP in 2020. “It is evident that
approximately a billion people remain hungry
threatens the ability to achieve the
Millennium Development Goals (MDG) of
hunger reduction. It is also evident that
economic boost, while imperative, will not be
sufficient in itself to eliminate hunger within
an acceptable period of time” (Food and
Agricultural Report on Food Security
2010). In this context three critical aspects
need to be examined:
1. The role of agriculture in economic
development.
2. The impact that agricultural trade
liberalization has had on the small and subsis-
tence farmer.
3. The possible role that speculation will be
having on the pricing in food grain (Cereals,
Pulses) markets.
Imminently the question arises how one
defines agricultural trade liberalization? The
most convenient way to do will be referring
to the Doha Development agenda (It is the
negotiations at WTO (World Trade
Organization) that is generally indicative of
the trade barriers that exist and those do not).
On the basis of the new methodology the
Tendulkar committee has re-estimated
poverty for states and all India for 2004-05
wherein it cites All India poverty estimates
(head count ratio) of 41.8 per cent (rural) and
37.2 per cent (combined rural-urban). This is
higher than the existing official’s poverty
estimates for the country which is 28.3 (rural)
and 27.5 per cent (combined).
An article by Jayant Sinha and Professor
© Money Matters Club, IBS Hyderabad.
Goal: 1 Eradicate Extreme poverty and hunger
Goal: 2 Achieve universal primary education
Goal: 3 Promote gender equality and empower women
Goal: 4 Reduce child mortality
Goal: 5 Improve maternal health
Goal: 6 Combat HIV/AIDS, Malaria and other disease
Goal: 7 Ensure environmental sustainability
Goal: 8 Develop a global partnership for development
Table: Millennium Development Goals
P a g e 1 4
Ashutosh Varshney titled “It is time for
India to rein in its robber Barrons” says
both in its rot and inebriating dynamism,
India is dawning to resemble America’s
Gilded Age (1865 – 1900). This article
makes an interesting comparison of the
present phase that the Indian economy is
passing through with that of America’s
gilded age which was the era of industrial
capitalism in 19th century America. If the
dynamism of India’s vibrant economy is to
result in sustained progress it is essential
that it raises above the political economy of
underdevelopment. The question that arises
is weather the political economy of
underdevelopment in India will weaken.
This has already begun to happen, but much
more needs to be done and it needs to be in
the direction of consolidating and strengthen
the political economy of development.
China recently released its five year
program (2011-2015) and notably the word
used instead of plan is program. According
to a recent report by the IMF about China
(July 2011), “China is now the World’s
most “central” trader, with the largest and
most important connections to other major
trading nations; it has become a dominant
importer of commodities and exporter of
capital goods and transitional products.” A
sophisticated known and recent instances of
intellectual oppression in China was the 11 year
prison sentence that Noble Prize recipient Liu
Xiaobo was given for co-authoring a proposal
for political and legal reform in China. Thus
china’s process of liberalization was not merely
about reducing trade barriers and opening up its
markets it was rooted in a wider process of
reform that gathered pace during eighties. The
eighties was a decade that can be described as
an era of metamorphosis for China. This was a
phase during which China’s metamorphosis to
higher level of economic progress had begun, it
was consistent but not smooth sailing. By the
end of this phase China and Deng Xiaoping
were confronted with yet another challenge,
perhaps the most daunting that it had
encountered after the seventies.
China’s transformation was driven by the
progress that it had made in the direction of
poverty reduction and education. Having
embarked on large scale poverty reduction
program since the early fifties China managed
to reduce the number of poor from 200 million
in 1981 to 34 million in 1999. According to the
Human Development Report of China
2009/10 China has a low level of capacities,
skills and institutions overall. It lacks strong
macro-management capacities, i.e., “the highest
level of China’s Government has endorsed
moving towards a low carbon path that can
simultaneously advance human development.
© Money Matters Club, IBS Hyderabad.
P a g e 1 5 V O L U M E 2 5 I S S U E I
CONCLUSION
Last but certainly not the least I would like to conclude that this is the time of sustainable and all
around globalization and to achieve Unattainable Millennium development goals and to make eco-
nomic progress by reducing poverty and by increasing Literacy rate which can simultaneously ad-
vance Human Development.
Contributed by:
CHANDRA SEKHAR
MBA Batch of 2014
ABV-IIITM, Gwalior, M.P.
© Money Matters Club, IBS Hyderabad.
P a g e 1 6
© Money Matters Club, IBS Hyderabad.
I s l i c e n s i n g o f n e w b a n k s
e s s e n t i a l f o r f i n a n c i a l
i n c l u s i o n ?
RBI has declared that licenses are going to be
given to few private sector banks for which
they have invited entries till July 1, 2013.
According to the circular, ‘Guidelines for
licensing of new Banks in the Private sector’
issued on February 22, 2013, RBI is planning
to provide licenses as per the guidelines set up
by RBI including a minimum 10 year
experience, a minimum paid-up capital of
Rs. 500 crore and a maximum level of foreign
investment (including FDI/FII and NRI) up to
49 percent.
RBI believes that the licensing of new banks
will promote financial inclusion and infuse
competition into the banking sector. RBI
Governor, D Subbarao at a function on
financial inclusion, organized by the World
Bank and Organization of Economic Co-
Operation and Development (OECD) asserted
that an important criterion for processing the
application for entering the banking field and
obtaining a license is the amount of financial
inclusion attained or planning to attain by the
players.
Many have applauded the RBIs move to
provide an entry to more private players into
banking. Yet, the Parliamentary Standing
Committee on Finance have questioned the
‘subjective nature’ of the RBI set guidelines
and thus opposed the move. Even if the
guidelines setup for providing licenses to
banks is transparent, one question that arises is
who will gain from these new banks? Will the
entry of new private players in banking
encourage financial inclusion? Or is the
licensing of more private sector banks an
effective solution to reach 6, 50,000 villages
and provide them financial services?
FINANCIAL INCLUSION
Financial Inclusion is defined as ‘the process
of ensuring access to appropriate financial
products and services needed by vulnerable
groups such as the weaker sections and
low-income groups, at an affordable cost in a
fair and transparent manner by mainstream
institutional players’.
PROBLEMS TO FINANCIAL
INCLUSION
While implementing financial inclusion, a
viability gap arises for the banks due to the
P a g e 1 7 V O L U M E 2 5 I S S U E I
high cost of operation coupled with low
probability of growth and expansion and the
issue of recovery of assets in the rural areas.
Besides, the biggest issue faced by banks in
financial inclusion is the issue of dormant
accounts. Rural population may have a savings
account, yet financial activity, which are
detrimental for the smooth operation of bank
are absent. Such operations have always
turned out to reduce the returns of banks and
thus discouraged them from moving towards
large scale financial inclusion.
The other nuances include the issues of
resolving technological problems, accessing
inaccessible regions, security concerns and
lack of infrastructural facilities.
WILL MORE NUMBER OF BANKS
HELP?
Initiatives taken by banks in India towards
financial inclusion have not been very
successful due to the lack of financial literacy
among the rural population. Quoting Mr. SL
Bansal, the CMD of Oriental Bank of
Commerce, ‘Banking can finance economic
activity, provided it exits there. Banks cannot
create an economic activity’. Thus the efforts
of banks towards financial inclusion are futile
unless there is sufficient financial literacy in
these villages. Thus even when the existing
banks could not achieve their financial
inclusion benchmarks, entry of new players
cannot assure significant returns unless they
innovate themselves with better models.
Moreover, India has 96 scheduled commercial-
27 public sector banks, 31 private banks and 38
foreign banks which have been able to serve
53,000 branches around the country. The entry
of 7 or 8 more of new banks may bring in 8000
more branches. Yet the reach is not sufficient to
cover the 6, 50,000 villages in the country. Thus
arguing that the licensing of more private sector
banks is the ultimate solution to financial
inclusion cannot be accepted.
HOW TO ACHIEVE FINANCIAL INCLU-
SION?
Initiatives taken by banks in India towards
financial inclusion have not been very
successful due to the lack of financial literacy
among the rural population. Quoting Mr. SL
Bansal, the CMD of Oriental Bank of
Commerce, ‘Banking can finance economic
activity, provided it exits there. Banks cannot
create an economic activity’. Thus the efforts of
banks towards financial inclusion are futile
unless there is sufficient financial literacy in
these villages. Thus even when the existing
banks could not achieve their financial
inclusion benchmarks, entry of new players
cannot assure significant returns unless they
innovate themselves with better models.
© Money Matters Club, IBS Hyderabad.
P a g e 1 8
Moreover, India has 96 scheduled commercial- 27 public sector banks, 31 private banks and
38 foreign banks which have been able to serve 53,000 branches around the country. The
entry of 7 or 8 more of new banks may bring in 8000 more branches. Yet the reach is not
sufficient to cover the 6, 50,000 villages in the country. Thus arguing that the licensing of
more private sector banks is the ultimate solution to financial inclusion cannot be accepted.
HOW TO ACHIEVE FINANCIAL INCLUSION?
Financial inclusion cannot be achieved unless the people feel the need for financial
institutions. Thus economic activity and an environment for economic transactions should
first be in place. This can be achieved only through financial education. Financial literacy will
empower the rural population to take control of their lives and prevent themselves from being
exploited. When the people feel the need for saving their money or availing credit facilities,
the need for financial institutions arises and thus financial inclusion
For financial inclusion, microfinance must go back to its roots and focus on clients. Rural
needs may be different from the urban ones. Thus the product portfolio must be customized
according to the changing needs which requires in depth understanding of the customers.
Many a times, large banks with a wider portfolio may not have the expertise to tap into the
rural needs. Local players like NBFCs or microfinance institutions may be more equipped for
the same. The microfinance sector and MFIs in India is estimated to have outstanding total
© Money Matters Club, IBS Hyderabad.
P a g e 1 9 V O L U M E 2 5 I S S U E I
loans of Rs. 160 to Rs. 175 billion, and Rs. 110 to Rs. 120 billion, respectively as on March 31, 2009.
CRISIL estimates that as of March 31, 2009, MFI’s outstanding loans to have increased to Rs. 114
billion from Rs. 60 billion a year ago. CRISIL estimates that the overall disbursements during
2008-09 to be around Rs.287 billion, of which disbursement of Rs. 185 billion was made by MFIs.
This is reflective of the increased acceptance of MFIs as commercially viable and their ability to
attract capital.
Presently, lack of regulatory frameworks for microfinance institutions and other providers is one
reason for the lack of effective financial inclusion. Thus if RBI and Government turn their focus
towards strengthening such microfinance institutions, effective financial inclusion can be achieved.
CONCLUSION
To get a banking license, the banks will have to open 25 percent of the branches in rural area. Opening
a branch in rural area does not ensure financial inclusion as majority of the accounts opened in such
villages are dormant. Thus to achieve financial inclusion, government should direct its efforts towards
providing financial literacy and empowering and regulating the microfinance segment of the country.
Contributed by:
ELMA DAVIES
PGDM (Batch of 2014)
SIMSR, Mumbai
© Money Matters Club, IBS Hyderabad.
P a g e 2 0
The best way to describe Bitcoin is, it is
an invisible, virtual form of currency.
Bitcoin is a new decentralized electronic
currency, also known as crypto-currency.
Bitcoin is digital currency and can be
sent through the internet. Bitcoin is a
concept which was first described by Wei
Dai in 1998 on the cypherpunks mailing
list. This scheme was first suggested by
Satoshi Nakamoto in 2008, and became
fully operational in January 2009. Bitcoin
are digital coins which are not issued by
any government, bank, or organization,
and are purely peer to peer online pay-
ments sent directly from one party to
another without any interruption of any
financial institution.
Building upon the notion that money is
any object, accepted as payment for
goods and services or repayment of debts
in any given country, Bitcoin is designed
around the idea of using cryptography to
control the creation and transfer of
money.
Unlike other commodities like gold,
silver we mine them by digging and
extracting it, similarly Bitcoin can also
be mined not by actually digging but by
generating it on the internet and it is done
by programmers.
WHO GENERATES IT?
Bitcoin can be generated all over the
internet by anybody, running a free
application called a Bitcoin miner.
Mining requires a certain amount of work
for each block of coins. This amount is
adjusted by the network such that the
Bitcoin are generated at a predictable and
a limited rate. The network is
programmed such that the money supply
will increase in a slowly increasing
geometric series until the total number of
bitcoin reaches an upper limit of about 21
million BTC's. Each bitcoin is subdivided
into 100 million smaller units called
C o v e r s t o r y
B i t c o i n : a n e w c u r r e n c y t o
t h e w o r l d
© Money Matters Club, IBS Hyderabad.
P a g e 2 1 V O L U M E 2 5 I S S U E I
“Satoshis”, defined by eight decimal
places.
Unlike Fiat currency (Dollar, Euro,
Pound etc.) which are issued by a
government, despite the fact that it has no
intrinsic value and is not backed by any
reserves, Bitcoin has no centralized
issuing authority. The network is
programmed such that the money supply
will increase in a slowly increasing
geometric series until the total number of
bitcoin reaches an upper limit of about 21
million BTC's.
Bitcoin miners are awarded with bitcoin
for cracking or solving an extremely and
increasingly difficult proof-of-work
problems which confirm transactions and
prevent it from double-spending.
To receive an award, the network
currently requires approximately over
one million times of more work for
confirming a block. Currently 50 BTC's
are awarded than whenever the first
blocks gets confirmed.
HOW IS IT TRADED?
To start with a bitcoin transaction
participants begin it with by first
acquiring a program called a Bitcoin
wallet. Bitcoin are store in this digital
wallet. This wallet has an address and
one can have more than one Bitcoin
addresses. Bitcoin addresses are used for
receiving bitcoin, in the same way we use
our e-mail address for receiving e-mails.
Payments through Bitcoin is in
experimental phase, it is already
deployed on a large scale (the current
value of all the coins issued so far ex-
ceeds 100,000,000 USD) and attracts a
lot of media attention.
A user addresses are characterized by
their public/private key pairs owned by
him and the string length can differ in a
range from 27-34 e.g
1NvQuPB4L2hkJtY6iNw9fLT1HQMYLfC
4b.
A bitcoin transaction is a general form of
a regular bank transaction, likewise that it
allows multiple sending addresses and
receiving addresses in the same
transaction. The transaction doesn’t
discloses anybody’s identity about who
gave how much to whom and specifies
how many bitcoin were taken from each
sending address and how many bitcoin
were credited to each receiving address.
WHERE IS IT TRADED?
There are various bitcoin exchanges,
where bitcoin are bought and sold at a
variable price against the value of other
© Money Matters Club, IBS Hyderabad.
P a g e 2 2
currency. Bitcoin has appreciated rapidly
in relation to existing fiat currencies
including the US dollar, euro and British
pound. In April 2013, 1 BTC were traded
from $100–$260.
CAN THIS MONEY BE ROBBED?
As none is involved between peer to peer
transactions, Bitcoin unique feature lies
in this, that transactions are accepted or
denied just by agreeing on a single
history of transaction on the network.
Due to many connectivity and
propagation issues it makes difficult to
make everyone aware about the
transaction at all times, and can be
abused by double-spending the same
money. Due to such flaws and
incapability of the network someone
could actually spend the same money
twice before the first transaction gets
completed.
Solution:
To avoid such fraudulent transactions
Bitcoin were introduced. On Bitcoin
exchange network people are identified
by the software applications they are
running and their respective IP addresses.
The validity of transaction keeps a track
of many IP’s and this could be hacked by
someone who can able to allocate these
many IP’s. This technology is known as
proof-of-work and was originally sug-
gested by Adam Back's Hashcash as a
measure to prevent email spam.
WHATS THE SCENARIO IN
INDIAN MARKET FOR BITCOIN?
Bitcoin has so far gotten very less
popularity in India. This is due to
following reasons:
India has more programmers/
computer people than the rest of the
world combined.
People in India love tangible assets
(gold/silver)
The Rupee is crashing and the gold
price has just hit an all-time high in
Rupees.
Millions of Indians live outside India
and send money to/from relatives in
India.
Unlike China, India has no “great
firewall”
2013 is expected to be a big year with
small Exchanges emerging out for
Bitcoin in India. Remittances is a
growing market and there is a huge
© Money Matters Club, IBS Hyderabad.
P a g e 2 3 V O L U M E 2 5 I S S U E I
opportunity for Bitcoin in India. Initiatives are being planned for the same to roll out this or
coming next year.
Remittances market is currently dominated by banks or Hawala operators. Bitcoin can be
the one stop shop and better solution for this which can instantly bring a tremendous
positive change in this remittance market. This change can even be driven and adopted by
the remittance companies and banks currently operating in India.
Contributed by:
VIPUL AGRAWAL
WELINGKAR INSTITUTE,
Mumbai
© Money Matters Club, IBS Hyderabad.
P a g e 2 4
FDI Foreign direct investment (FDI) or
foreign investment refers to the net
inflows of investment to acquire a
lasting management interest (10% or
more) in an enterprise operating in an
economy other than that of the investor.
Foreign direct investment is the sum of
equity capital, reinvestment of earnings
and other long or short term capital as
shown in the balance of payments. It
usually involves participation in
management, joint venture, transfer of
technology and expertise.
SINGLE BRAND Single brand implies
that foreign companies would be
allowed to sell goods sold internation-
ally under a ‘single brand’, viz.,
Reebok, Nokia and Adidas. FDI in
‘Single brand’ retail implies that a retail
store with foreign investment can only
sell one brand. For example, if Adidas
were to obtain permission to retail its
flagship brand in India, those retail out-
lets could only sell products under the
Adidas brand and not the Reebok brand,
for which separate permission is
© Money Matters Club, IBS Hyderabad.
F O R E I G N D I R E C T
I N V E S T M E N T S I N R E T A I L I N
I N D I A
required. If granted permission, Adidas
could sell products under the Reebok
brand in separate outlets.
MULTI BRAND FDI in Multi Brand
retail implies that a retail store with a
foreign investment can sell multiple
brands under one roof. Opening up FDI
in multi-brand retail will mean that
global retailers including Wal-Mart,
Carrefour and Tesco can open stores
offering a range of household items and
grocery directly to consumers in the
same way as the ubiquitous ’kirana’
store.
PRESENT SHAPE OF FDI The retail
industry in India is the second largest
employer with an estimated 35 million
people engaged by the industry. There
has been opening of Indian economy to
foreign organization for foreign direct
investment through organized retail.
The union government has sanctioned
51% foreign direct investment in multi-
brand like Wal-Mart, Carrefour, Tesco
and upto 100% in single brand retail
like Gucci, Nokia and Reebok. This will
P a g e 2 5 V O L U M E 2 5 I S S U E I
make foreign goods and items of daily
consumption available locally, at a lower
price, to Indian consumers. The new
policy will allow multi-brand foreign
retailers to set up shop only in cities with
a population of more than 10 lakhs as per
the 2011 census. There are 53 such cities.
This means that big retailers can move
beyond the metropolises to smaller cities.
The final decision will however lies with
the state governments. Foreign retailers
will be required to put up 50% of total
FDI in back-end infra-structure excluding
that on front-end expenditures.
Expenditure on land cost and rentals will
not be counted for the purpose of
back-end infra-structure. Big retailers
will need to source atleast 30% of
manufactured or processed products from
small retailers. The government will go
for surprise checks and if found
irregularities then the deed will be broken
with a second of time. Home grown
retailers have not muscles and the reach
to go for the big game like Subiksha and
Vishal Retail. They have expanded their
retail chain but did not have the resources
to manage the backend across several
cities. If we look rationally at the FDI in
retail sector then it will be a win-win
situation for all.
FAVORABLE:
Indian farmers: The biggest
beneficiary of FDI in retail would be
farmers who will be able to improve their
productivity. The farmers will not only
be able to increase their output but will
also get better rewards in terms of
supplying to organized retailers by tying
up long term contracts with them.
Indian consumers: India is now the
home of the largest number of moneyed
consumers. Indian consumers will get
access to quality goods at a low cost, that
too at home.
Proper tax system: Tax revenue will
increase like VAT and service tax. The
organized sales with computerized billing
system will also yield more revenue
through commodity taxes like VAT and
service tax to the government. Thus tax
buoyancy of the economy would
increase.
High availability of jobs: There will
be huge job opportunities in the country
(in crores) as there will be opening of
malls and store houses.
Distribution system: The report
shows that 30-35% of India’s total
production of fruits and vegetables is
© Money Matters Club, IBS Hyderabad.
P a g e 2 6
wasted every year due to inadequate cold
storage and transport facilities. Almost
half of this wastage can be prevented if
fruit and vegetable retailers have access
to specialized cold storage facilities and
refrigerated trucks.
Knowledge enhancement: FDI in
retail will make way for inflow of
knowledge from international experts.
There will be drastic retail growth
through the development of the retail
capability.
Inflation control: Inflation will be
curbed.
UN-FAVOURABLE
The arguments against are that the new
system will displace the traditional shops
and petty retail stops in markets. India
has two types of un-organized retailers:
one the big un-organized retailers i.e. the
shop of wealthy consumers and the other
small un-organized retailers i.e. the shop
of poor consumers. The latter will remain
untouched while the former may be
marginally affected. The real India which
is hardworking bread earners, comprising
of 80 crore people will surely not be
benefitted. In terms of employment in
retail sector around 38% in rural areas
and around 47% in urban areas depend
on retail trade for their livelihood, which
will be effected. Around 14 crore people
are directly or indirectly earning from the
retail sector and if we associate their
family members then this number would
reach 40 crore. This may in turn render
the people engaged there jobless and non
business oriented. The medium and small
retailers will surely be effected but not in
a big way.
CONCLUSION
The future of foreign retail players is also
uncertain like that of Indian retail play-
ers. Apprehensions were raised on many
such occasions in the past on virtually
every measures of liberalization of Indian
economy but most of the apprehensions
proved wrong while many others come
true. It is better to act and watch than not
to act at all.
Contributed by:
RICHA GOEL
MBA (Batch of 2014)
GGSIPU,
© Money Matters Club, IBS Hyderabad.
P a g e 2 7 V O L U M E 2 5 I S S U E I
Over the past one decade, gold prices have
been showing an increasing trend. The
yellow metal has been considered as a safe
asset having stable value that immune to
inflation. Gold prices were high even in
acute financial crisis like the one in 2008
when investors lost faith in financial assets
and preferred a more tangible form of
investment. People have been hoarding gold
irrespective of the fact that it does not pay
interest like any other form of financial
asset.
But lately, the scenario has changed
completely. There has been a freefall in the
prices of gold worldwide. The metal was
supposed to be the ultimate hedge against
any market driven inflation or shocks. But
the prices has been falling in the last month,
that too by 13 percent; which was nearly
the steepest fall in gold prices in the past 33
years. It was priced at $1321, around 25
percent below a record high of $1920.30 hit
in September 2011.
HOW DID IT START?
The price of gold has been unstable since
November 2012. Thus a fall in the bullion
market was not unprecedented. But what
came as a shock was the speed of the crash.
Many circumstances have led to this
decline.
The US economy has been improving
leading to the belief that gold need not be
held as a hedge by the investors. The key
factor responsible for the fall of gold prices
was the expectation that the US Federal
Reserve will tighten monetary policy by
stopping its quantitative easing (QE)
program. If executed, this program would
have controlled inflation giving no reason
for investors to hold on to a safe haven such
as gold. They could now safely shift to
riskier assets like stocks. Thus they started
selling gold which increased the supply of
gold and fuelled the fall in prices.
© Money Matters Club, IBS Hyderabad.
D I D G O L D L O S E I T S S H I N E ?
P a g e 2 8
Another reason for fall in Gold prices was
Cyprus’s announcement that to finance its
part of €10 billion euro EU/IMF bailout i.e.
€400 million, it was considering the option
of selling its gold reserve. This news created
mayhem in the market which triggered a
huge fall in the gold prices by nearly 1.6
percent in the first week. Investors were
confused and speculation with respect to
how countries like Italy and Spain were
going to finance their bailout was mounting.
This further affected investor confidence
and triggered more investors to sell gold and
bring down the prices further.
WHY WAS THE FALL?
A deeper look into the economic scenario
around the globe tells us that the market was
not affected by panic alone. Economic and
political decisions worldwide have affected
the gold prices. India, the world’s biggest
buyer of gold bullion introduced a 50%
import tax to curb the investment in gold.
This has triggered a 24% fall in the amount
of gold brought to the country. Moreover,
the environment as a whole was in support
of alternate forms of investments. Interest
rates from other forms of investment have
increased considerably and investors are
getting better profits. They have realized
that the risk taken in financial instruments
have better growth prospects. They have
also found markets in developing countries
filled with opportunities. This reduced the
demand for gold reducing the gold prices.
All these factors have made the investors
think twice about the dependability and
profitability from gold as an investment.
Warren Buffet, who has never been a big
fan of investing in gold, has even said that,
“Caves might be a better investment than
gold”.
WHO ARE AFFECTED?
The recent fall in gold prices has mainly
affected two sections of retail consumers:
Individuals buying gold for consumption
and consumers buying gold for investment.
Individuals buying gold for consumption
purposes are delighted by the falling prices.
India has always been known for its affinity
for the yellow metal and with the
approaching wedding season, the fall in gold
prices have made people rejoice with joy.
The consumers who purchase gold for
investment purposes showed a mixed
opinion towards the falling gold prices.
There are few investors who find the decline
in gold prices as an opportunity to buy gold
cheaply and invest in ETFs. However, gold
prices are driven by speculation and
sentiment for the metal. Thus the crash in
© Money Matters Club, IBS Hyderabad.
P a g e 2 9 V O L U M E 2 5 I S S U E I
the prices has led many investors to doubt
the true worth of the metal. Their belief that
gold prices will always keep increasing, has
been affected. This has led many to go for
huge scale redemption of ETFs post the
crash.
The main people affected by the dipping
gold prices are the products/businesses that
have come up recently riding on the
enormous gold rally: gold loan companies,
mutual funds selling exchange-traded funds
(ETFs), banks that have given huge amount
of credit taking gold as collateral etc. The
risk associated is very high for them as it’s
likely that the customers will not repay the
debts if the value of their asset (i.e. gold)
decreases. This will bring in huge losses for
the firm.
SO, WHAT NEXT?
The global outlook for gold appears to be
bearish in the short term due to the strength-
ening dollar and better promises for profit
from other financial instruments. This
present scenario is subject to changes. The
assumption that the US economy might
recover can turn out to be wrong in the long
run. The European crisis may not turn out to
be as severe as expected and countries like
Italy and Spain may emerge out unscathed.
The whole industry runs on speculation.
Thus the long term implication of the
present trends is not predictable.
LESSONS LEARNT
The recent crash in gold prices has
completely shattered the belief that gold is
the ultimate hedge against inflation or
economic turmoil. Gold, like any other form
of investment is subject to fluctuation in its
prices depending on the market forces and
speculations around the globe. Thus any
investment in gold should be preceded by
proper market analysis and study of global
happenings. After all, ‘All that glitters may
not be gold’.
Contributed by:
ELMA DAVIES
PGDM (Batch of 2014)
SIMSR, Mumbai
© Money Matters Club, IBS Hyderabad.
P a g e 3 0
A few years ago, the idea of gold only
made me think of a costly metal that is
considered to be as a prerequisite for
festivals and weddings. As the years passed
by, world has changed with the change in
technology and change in the way the
precious yellow metal is perceived.
Now, the slightest and remotest notion of
gold brings with it a litany of complex
terms which I could not have
comprehended without the help of Google
or a lexicon. Some of the terms which I
was referring to include Inflation, Current
account deficit, foreign reserves, Import
duty and the likes. The Price of the gold
has been constantly appreciating as its
reserves across the globe are depleting at a
faster rate. The demand for gold has
increased the world over by 24% in
2010-11, but the demand in India has
grown by 39% in the same fiscal year. This
shows the country’s obsession with the
yellow metal. There are quite a few reasons
to the people’s inclination towards gold
and the Gold Rush that entered India.
Firstly, gold is considered as a hedge
against inflation, for it has been in the news
for quite some time for high levels, making
the Indian middle class to suffer in the
form of cuts in their spending and
consumption. Gold undoubtedly has been
the safe bet for the smart Indian masses to
hedge against rising levels of inflation.
Gold imports have grown from $21 billion
in 2009 to $56 billion in 2011.
Second, the average return on gold in the
past couple of years is hovering around
25%. Given the amount of return gold is
giving, why would the ‘aam aadmi’ invest
his money in a savings account or in a term
deposit with a bank for a paltry interest
rate? Price of an ounce of gold in 2007 is
$700 and it surged to $1600 in 2011 which
corroborates the above hypothesis that the
return on gold is significant.
Third, Capital markets across the globe
have been quite volatile. Therefore,
investing in capital markets only brings in
uncertainty on the returns. Gold has been
the best alternative to stock markets as
returns on gold are comparatively stable
and robust. Moreover, investing in gold
does not entail KYC norms and helps one
in avoiding tax, unlike financial
© Money Matters Club, IBS Hyderabad.
V i e w s : g o l d r u s h
P a g e 3 1 V O L U M E 2 5 I S S U E I
instruments.
Fourth, gold can be easily liquidated into
cash in the times of need. No financial
instrument is as liquid as gold.
Lastly, gold is considered as a status
symbol since ages. The more gold
(jewellery) you flaunt, the more status you
have.
All is well for the ‘aam janta’ of India, who
have cleverly diverted their savings to an
attractive investment option. But all is not
well and there is some apprehension when
viewed through the eyes of policy makers.
Gold purchases might have been a good
option for Indian masses keeping in mind
the long term benefits it provides. But
Government has been importing gold in
order to meet the rising demand at the cost
of country’s foreign reserves. Gold by
itself does not lead to any productive
activity and does not help improve the
economy of the country. Hence, it is
considered as an unproductive asset. Most
important of all, gold imports has become
the prime reason for ever burgeoning
‘Current account deficit’
Keeping in mind the above ill effects of
gold imports, government of India is trying
its best to restrict the imports of gold and
contain the current account deficit. Some
of the measures which might discourage
gold purchases:
Increase the import duty on gold.
Government has already increased the im-
port duty from 2 to 4 per cent. But this
measure did not seem to be fruitful as this
did not deter people from buying gold.
Rather, it compelled them to buy more in
anticipation of further hike in import duty.
Gold backed financial instruments. For
example, Gold ETFs which are units
representing physical gold, which may be
in paper or dematerialized form. These
units are traded on the exchange like a
single stock of any company. It does not
attract wealth tax and one will not have any
fear of theft as gold is not in physical form
but on paper.
Set up a Gold bank or Bullion corporation
of India to reduce the imports of yellow
metal. This was proposed in 1992 by then
finance minister Manmohan Singh. The
bank’s functions will include acting as a
‘backstop facility’ to offer refinance of
gold to institutions lending against the
collateral of gold, issuance of gold bonds
in lieu of collection of gold stocks, storage
and safekeeping facilities for bullions and
close coordination with other international
bodies such as World Gold Council. The
idea was, however, never implemented.
© Money Matters Club, IBS Hyderabad.
P a g e 3 2
Other measures include introduction of Inflation indexed bonds, Increase the rate of
interest on savings account to make people deposit their money with the banks and launch
a massive awareness campaign to make people aware of attractive investment options
other than gold.
With all the above measures, will the government of India be able to successfully reduce
gold imports and contain Current account deficit? We will have to wait and watch.
Contributed by:
SACHIT REDDY
© Money Matters Club, IBS Hyderabad.
The views expressed in the article are purely personal.
P a g e 3 3 V O L U M E 2 5 I S S U E I
Investment Banking is the most sought after
career path in elite B-schools as majority are
attracted by high salaries and bonuses, big
size deals, working for some of the biggest
names from various sectors and most impor-
tantly, pride. However, a lot has changed
since the subprime crisis. Though Investment
Bankers still get paid much more than other
professionals, including doctors and engi-
neers, however the gap is narrowing. Remu-
neration experts believes that this develop-
ments, marks only the beginning of poten-
tially the largest adjustment in decades. The
average pay per head (in a sample of some of
the European and US investment banks) has
fallen from the peak in 2006 of 9.5 times the
private sector average to around 5.8 times in
2012, according to a research compiled by
PwC (for Financial Times.)
The biggest names such as Lehman Brothers,
Merrill Lynch and Bear Stearns no longer
exist. Let’s take the case of Bear Stearns.
Bear Stearns was involved
in securitization as well as it also issued large
amounts of asset-backed securities. When the
investor losses increased in those markets in
2006 and 2007, Bear Stearns actually in-
© Money Matters Club, IBS Hyderabad.
P R O D U C T O F F I N A N C I A L
C R I S I S : B O U T I Q U E I N V E S T M E N T
B A N K S
creased its exposure, majorly in the mortgage
-backed assets, which were central to
the subprime mortgage crisis. So in March
2008, the Federal Reserve Bank of New
York provided an emergency loan in an at-
tempt to avert a sudden collapse of the com-
pany. However, the company could not be
saved and was sold to JP Morgan Chase for
$10 per share (and not the $2 per share as
originally agreed by Bear Stearns and JP
Morgan Chase). This was a price far below
its pre-crisis 52-week high of $133.20 per
share. This event was prelude to the crisis as
many of the biggest banks were also heavily-
exposed to these sorts of investments. Finan-
cial portfolios heavy with toxic debt were
one of the major causes of the global finan-
cial crisis of 2008.
The closure of the Big Investment Banks
came as shock to the Bankers who built their
careers in an era when world of finance
seemed to keep inexorably growing, they
were woven into the fabric of the modern
economy, along with very high levels of
banking pay.
Hence, this has led to the rise in the Bou-
tiques Investment Banks which offers same
P a g e 3 4
© Money Matters Club, IBS Hyderabad.
services as any Investment Bank. Some of the key boutique investment banks were set up dur-
ing market turmoil of 2008 Sub-Prime Crisis. This development has allowed for a realignment
of capital. The main beneficiaries of this realignment were smaller companies who get financed
at a point of time when large firms were worried more about cutting costs rather than looking at
innovative deals or alternate deal structuring.
This entire development can be seen as a process which has the following steps- First, due to
Market turmoil, the best and brightest bankers are incentivized leave and come up with their
own specialized boutique investment banks . Innovation and focus on niche areas help in the
rise of Boutique Banks, generally speaking specialty Banks. This innovation then helps smaller
companies procure innovative financing for their businesses which the larger banking groups
may not be interested in until there is some value add. Finally, these Boutiques help in speed up
of the velocity of the capital which allows for a sustainable recovery.
In past few years, at least a dozen Boutique Investment Banks has mushroomed in India. And
they provide most of the services similar to a full-blown investment bank will perform.
This includes advising on mergers and acquisitions, managing IPOs, and raising all types of
funds which include private equity (PE) and bank debt. They are happy to serve clients whose
capital need may be less than Rs 100 crore and even sometimes less than Rs 50 crore. This is
what the major investment Banks- like Goldman Sachs, Morgan Stanley, JM Financial- will not
cater to. Some of the notable Boutique Investment Banks in the country are- Veda, Cogence Ad-
visors, MAPE, Ripple Wave, Equirus Capital and Intequant Advisors to name a few.
P a g e 3 5 V O L U M E 2 5 I S S U E I
© Money Matters Club, IBS Hyderabad.
As the number of deals and size of the deals have gone down significantly, the new scenario has
made the Boutiques business model more feasible.
The clients also find their services better. Not only the services costs less but also the fact that Bou-
tiques are always there for the clients, guiding them and also the senior partners giving them un-
wavering attention from the beginning of the transaction till the execution. Boutiques also cajole
the client to look at new areas, as well as offer to raise funds from them. These services and atten-
tion leads to invariably results in long-term relationships which are contrasting to the transaction
based one.
Hence, the Boutique investment bank model is the new face of financial services and is poised to
become a major player in the investment market.
Contributed by:
ANKUR BAJ
PGDM
Great Lakes Institute of Management, Chennai
HARSHITA PREETAM
PGDM
Great Lakes Institute of Management, Chennai
P a g e 3 6 V O L U M E 2 5 I S S U E I
Financial inclusion is providing basic
banking services to the financially illiterate
and low income in group in India which
account for majority of population in India
Financial inclusion is the basic condition for
sustaining equitable growth. There have
been rare instances of an economy
transforming from an agricultural based
system to a post-industrial modern society
without broad-based financial inclusion.
Consumption in rural India is growing faster
than in urban areas if we compare the past
3 years from 2009 to 2012.The additional
spending was Rs. 3750 billion in rural areas
to 2994 in urban areas.Banks can play a key
role in converting the large pool of untapped
small deposits into business oppurtunities
and help facilitate the aspirations of the rural
people.
WAYS TO ACHIEVE FINANCIAL
INCLUSION.
Business correspondent agents have been
selected by banks to provide banking
solutions at places other than banks and
ATMs to ensure a close relationship
between poor people and organized financial
system.
Branch Expansion:
There is a limit to opening of a Brick & Mortar
branch in different areas to cover the whole
population. Scheduled commercial banks (SCB)
must be encouraged to open branches in all
towns having population greater than 5000. In
this way the penetration could be
increased .Incentives should be provided to
banks to opening their branches in Tier 5 and
Tier 6 cities which don’t have any SCB branch
for banking transactions for customers. Ultra
small branches (USB) need to be set up in the
Why
Financial Inclusion?
© Money Matters Club, IBS Hyderabad.
P a g e 3 7
villages where the setting up of Brick & Mortar branch is not viable; there a bank
designated officer will be available at an already fixed day and time of the week. A USB
branch needs to be set up in unbanked blocks.
Bank Account Facilities:
Awareness regarding “Small Account” created under Prevention of Money Laundering
Rules, 2005 for those having no KYC documents needs to be spread. It requires a
photograph and declaration of residential address and a statement of declaration before a
branch officer that one doesn’t have any proof currently and promises to submit it within
12 months. Small accounts has no introductory balance, maximum balance allowed is
Rs 50,000 , maximum credit of Rs 1,00,000 per year and maximum withdrawals of all
types are Rs10,000 per month, with foreign inward remittances not allowed. This is the best
type of account to rope in the crores of migrant workers within the country.
Basic Savings Bank Deposit Account offering facilities like ATM card , no minimum
requirement of balance and no charge for in-operative account. Simplification of Savings
Bank Account Opening Form for migrant labourers, street hawkers etc.
Mobile phone banking has potential for providing the unbanked with banking services. It is
becoming a prevalent source of banking in developing countries.
© Money Matters Club, IBS Hyderabad.
P a g e 3 8 V O L U M E 2 5 I S S U E I
RBI has eased the KYC guidelines by
proving a list of 30 documents for Proof of
Identity and 33 documents for Residence
proof.
Other Initiatives:
Financial Literacy cum Credit
Counselling Centre (FLCCC) : 14
FLCCCs in Tamilnadu for the benefit
of the tribal of Nilgiri district to create
awareness about various financial ser-
vices product.
Mobile banking vans by Bank of
Baroda : Work as a medium of adver-
tising and awareness in rural areas in
proximity to a bank branch.
Rural Training Centre (RTC),
Karaikudi by Indian Overseas
Bank : Established jointly by the IOB,
Indian Bank and NABARD.
RTGS and NEFT Systems for Elec-
tronic Payments: These are central-
ized payments systems. They are im-
portant, vital and convenient payment
channels. Department of Financial ser-
vices have advised the Public sector
Banks (PSB) to provide sub-
membership of the centralized pay-
ment systems to all the banks includ-
ing the state co-operative banks.
Direct cash transfer through Scheme Imple-
menting Department (SID), to the Bank account
of the beneficiary is being implemented. The
beneficiary can than withdraw the money from
a branch or ATM and use it for his personal
consumption or for helping out his business.
Such transfers into the account of the benefici-
ary are referred to as Electronic Benefit Trans-
fer (EBT).
Credit facilities provided to poor people :
Issue of Kisan Credit Card (KCC) , General
Credit Card (GCC) with a view to helping the
poor and the disadvantaged with access to easy
credit. Banks are instructed to consider intro-
ducing general purpose GCC.The facility is up
to `25,000 at their rural and semi-urban
branches .No condition is set up i.e. without
persistence on security, final use of the credit
and purpose.
Union Saubhagya (Micro Credit scheme
from Union Bank of India)
Sri ram loans for truck owner
Contributed by:
Pravesh Gupta & Kunal Sanghvi
SIMSREE
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