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


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).


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


In billions of US dollars % of total bonds outstanding Local currency bonds as % of

total bonds outstanding

2005 2009 2005 2009 2005 2009

15.7 26.6 1.7 1.0 98.2 99.0


Source: 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.


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



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 .


http://en.wikipedia.org/wiki/Net_capital_outflow

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


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


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



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


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.



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.


P a g e 1 6


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


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.


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



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


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



“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


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


http://en.wikipedia.org/wiki/US_dollar

http://en.wikipedia.org/wiki/Euro

http://en.wikipedia.org/wiki/British_pound

http://en.wikipedia.org/wiki/British_pound


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


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


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


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


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,



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.


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



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


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


V i e w s : g o l d r u s h


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.


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


The views expressed in the article are purely personal.


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-


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


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.



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


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?


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.



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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