July 2013 A Financial Newsletter Volume 4 Issue 37

CHRISTUNIVERSITYINSTITUTEOFMANAGEMENT,KENGERICAMPUS

BANKING

In this Issue

03TheFutureofIndianBanks

04RBIColumn

08EconomicRollers

09StockAnalysis

10FinanceBuzz

11PhotoFind

12FinanceQuiz

13Crossword

14Answers

05TheBaselCommitteeandtheglobalbankingMa�ia

06DoesCobrapoststingindicateIndianBanksrunonBlackmoney?

07MarketRoundUp

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Nishka | July 2013 Page 3

Banking is one industry in India which has undoubtedly shown a phenomenal growth amidst economic doldrums. The backbone of this particular industry has remained the bedrock of its sky rocketing performance. The entire accolades cannot be benevolently showered on the players per se. It would be injustice if we forget to appreciate the decisions taken by its lender of the last resort; at every crisis to keep this specific industry blossom. Banking industry has been able to book bumper profits y-o-y and have raised $1,600 billion assets in 2011 from $29 billion in 2001. However, pretty slow market growth aggravated by piling up NPAs has been looming on this industry. Criticalities still continue owing to the discomforts created by constantly changing customer behaviour and ever growing technological advancements. McKinsey 2007 report puts forth the data that India’s customer loyalty has declined by 40%; which has resulted in increase in banking relationships per customer and larger leap in fragmented wallet across banks. Hence, new and alternate banking channel would be required to

compete for the customer base and will be the most differentiating attribute in the upcoming business among Indian banking service. Disruptive new technologies such as wireless broadband, big data and cloud should also be the area of concern for banks. In the near future, banks will be differentiated by: Adopting next generation risk management

skills to profitably target the underserved segments such as SMEs and Mass market.

Deploying innovative multi-channel distribution infrastructure to increase the share of primary banking relationships.

Privileged customer’s insights for a more granular approach to growth.

In other words, Indian banking sector has a long way to go, given that they specifically understand the nuances of the underserved segments and bank upon them to grow organically.

ANINDITA NATH F1

Earlier this month, RBI had issued clarifications on its new bank licensing norms that stated private players aspiring to enter banking space to create a non-operative financial holding company (NOFHC). "The requirement is that not less than 51 % of the voting equity shares of the NOFHC shall be held by companies in the promoter group, in which the public hold not less than 51 % of the voting equity of such companies," the central bank said. The recommendations are: Customer induced options may be provided for

fixing a cap on the value and mode of transactions/beneficiaries.

Limiting the number of beneficiaries to be added per day to be considered.

System alert to be introduced for beneficiary addition.

Number of transactions per day/per beneficiary may be monitored for suspicious transactions

Introduction of additional factor of authentication (preferably dynamic) for unusual transactions to be authenticated on special request.

Banks may consider implementation of digital signature for large value payments for all customers, to start with for RTGS transactions.

IP address capture for transaction may be considered.

“Adaptive Authentication” may be considered for fraud detection.

The Reserve Bank of India (RBI) has also revised

and tightened the guidelines on restructuring of

advances by banks and financial institutions, taking into account the recommendations of the B Mahapatra committee. RBI has relaxed the norms for external commercial borrowing (ECB) for low-cost affordable housing projects under the approval route.

As per the guidelines, developers and builders

with at least three years of experience in undertaking residential projects, against five years prescribed earlier, and with a good track record in terms of quality and delivery can raise funds for on-lending for low-cost housing units.

Low-cost houses are individual units that do not exceed Rs 30 lakh in value, having maximum carpet area of 60 square metres; the loan amount for each of these units does not exceed Rs 25 lakh.

The aggregate limit for ECB under the low-cost

affordable housing scheme has been extended for financial years FY14 and FY15 with a ceiling of $1 billion in each year.The Reserve Bank of India has kept the key policy rates and the cash reserve ratio (CRR) unchanged in its mid-quarter monetary policy review.

Source: www.rbi.org

Page 4

R VISHNU VARTHANA F2

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Before the 1970s, BASEL committee had not come into existence and the banks were valued in terms of their gold amount in the equity. However, with the IMF becoming more powerful, the gold was demonetized and banks could use it as their last resort of an investment medium. Thus banks with gold reserves could not gain any benefit out of it but speculators used it to make short-term profits. This gave rise to the American banks and US Treasury bonds which were the highest quality form of equity. US banks became the global leaders as the Basel I and II countries helped the US by buying its Treasury bonds which helped the US budget and the US dollar. However, Basel III is coming into picture because of strong promotion by the Rothschilds (controller of the main gold reserves) and it considers gold as a special financial asset. This caused turbulence in the US Federal Reserve System and they denied to embrace BASEL III till further notice as their banks would be impacted the most. A similar reaction was given by the European banks.

Many countries including Australia, Hong Kong, Canada, China, Mexico, Saudi Arabia, Singapore, Thailand, Switzerland, South Africa, Japan and India have welcomed BASEL III with open arms. This clearly shows that gold has a strong presence in the world money. If standards are maintained, gold may help banks to clear their liabilities and become a financial asset of the highest order. We can hope to see a better global economy and an end to the so-called “MAFIA RAJ”.

Source: http://bx.businessweek.com/indian-banking/view?

url=http%3A%2F%

2Fwww.commoditytrademantra.com%2Fbanking-

sector%2Fthe-basel-committee-and-the-global-

banking-mafia%2F

Nishka | July 2013 Page 5

DIPTI MALHOTRA F2

Page 6

An undercover sting investigation across India by investigative website, Cobrapost, has shown up startling videos of bank executives of three leading private banks - HDFC, ICICI and Axis - providing ready assistance to a reporter, posing as a minister's aide, for laundering black mon-ey into white through the banking system in clear contravention of banking norms and laws. The Cobrapost expose has established the exist-ence of money laundering as a common practice across public and private sector banks and not as just an aberration. Here are some ways by which banks support money laundering: Currency can be used to purchase one or

more life insurance policies, which may sub-sequently be quickly cancelled by a policy-holder (also known as "early surrender") for a penalty. The insurance company refunds the money to the purchaser in the form of a check, converting black money into white.

Allotting lockers to the client to ensure the safe keeping for their illegitimate, scam-tainted cash.

Arranging forged PAN cards to facilitate in-

vestment of huge unaccounted cash. Splitting the money into tranches, below

the reporting threshold of Rs.50000, to get it into the banking system without being detected. Banks can do this by opening mul-tiple accounts or use accounts of other cus-tomers to channelize the black money into the system for a fee.

Get demand drafts made for the client—either from their own branches or from oth-er banks to facilitate investment without it showing up in the client’s account.

Open an account in some extension of a

branch a couple of months before the in-vestment matures, credit the returns in that account and close it as soon as one with-draw all his money. The point: Extension branches are seldom audited.

Use provisions like Form 61 to show the un-accounted cash as income from agriculture, making the investment of black money and returns thereof unquestionable.

Several bank employees have stated off record that these are common practices as the sales staff are generally given unrealistic targets and evaluated and incentivised on the value of ac-counts they bring in. However, this expose has created a stir in the banking industry with the vigilance teams of the RBI as well as that of the banks frequenting their branches posing as un-scrupulous customers.

Sources : http://www.indiainfoline.com http:// www.cobrapost.com

MUFADDAL FAZLEHUSEN NIMAKWALA F1

Nishka | July 2013 Page 7

US GDP grows less than previously projected. GDP expanded at a revised 1.8% annualized

rate from January through March, down from a prior estimate of 2.4%

Rupee slides past 60 to new record close. Rupee was the worst performer against the dollar

among all Asian currencies with a 1.737% decline.

Reliance Capital rallies on banking licence announcement. Reliance Capital ties up with Sumi-

tomo Mitsui Trust Bank and Nippon Life Insurance for the new venture.

Wal-Mart India unit CEO Raj Jain quits .No reason specified for Jain’s exit; Ramnik Narsey

named as interim head.

iGATE wins fresh 5-year IT contract from MetLife worth $100 mn. iGATE will also provide ser-

vices such as infrastructure application development and enterprise networking

NRI home buyers aim high as rupee falls to record low

India has no plan to increase H1 inflation-linked bond issuance

RBI had said it would sell Rs.1, 000 crore of 1.44% 2023 inflation-indexed government bonds

on 25 June.

Spice to offload 20%; IPO opens on 25th June 2013.

Fresh loan recoveries from Kingfisher set to start. A group of 14 lenders led by SBI expects

to recover at least Rs.1,000 crore from the grounded airline

N R Narayana Murthy's returned back to Infosys as Chairman.

Bharti Airtel slumps 5% on regulatory concerns

Gold hits 1-month low; skids below Rs 27000 level. Gitanjali Gems crashes nearly 50% in June

2013.

Mahindra Finance pulled back its name from applying for bank licensing.

Low budgeted builders have been allowed to raise funds through ECB route.

FII has withdrawn $5 Millions in less than 20days leading to Depreciation in Rupee value

against the Dollar.

Andhra Pradesh court has allowed the merger of Satyam with Tech Mahindra.

ANKIT MEHROTRA F2

Nishka | July 2013 Page 8

Repo Rate: 7.25%

Reverse Repo Rate: 6.25%

CRR: 4%

SLR: 23%

CBLO (as on 27th Jun 2013):7.18 bps

Inflation as on May 2013:

WPI: 4.70 %

Food inflation: 8.25%

Forex Reserve (as on 14th Jun 2013): $290.6584billion

IIP growth rate (for April 2013): 1.28 %

91 Days T bills (as on 26th Jun 2013): 7.44%

10 year G- Sec Yield (as on 26th Jun 2013):7.49%

Exports during May 2013: $24.50566billion

Imports during May 2013: $44.64926billion

Source:

Finance Ministry, Office of Economic Advisory, HDFC Securities Reports, Ministry of Commerce

ANUBHA F1

Nishka | July 2013 Page 9

Shares moved up on smart recovery in rupee val-

ue marched along with steep hike in gas prices

along with hopes that US Fed will delay tapering

monetary stimulus. Simultaneously S&P BSE

benchmark Sensex rallied 622 points to end at a

three -week high of 19,395.81points. In a high-

lighted step forward in energy sector reforms,

the Centre on Thursday sanctioned near dou-

bling of natural gas prices to $8.4 per mmBtu

from April 1 and approved setting up of a coal

regulator. Recovery in the rupee value to 59.21

levels also touched a historic low of 60.76

against dollar on 26th June, 2013 after current ac-

count deficit (CAD) moderated "sharply" to 3.6%

of GDP in March quarter of 2012-13 fiscal from

6.7% in December quarter.

The BSE Sensex resumed lower at 18,714.06 and

fell further to a two-month low of 18,467.16.

However, it recovered after mid-week to hit a

high of 19,432.94 before finishing at 19,395.81,

showing a smart gain of 621.57 points, or 3.31%.

The key index had dropped by a massive 986.06

points, or 4.99%, in the last three weeks. The NSE

Nifty also rose by a healthy 174.55 points, or

3.08%, to end at a three-week high of 5,842.20. It

had fallen 318.30 points, or 5.32%, in the last three

weeks.

The possibility of maintaining US Governments

bonds purchasing programme by the US Federal

Reserve for a longer period of time after US first-

quarter GDP growth was revised down to 1.8%

from 2.4%. RIL was the top gainer from the

sensex pack with a rise of 8.56% followed by GAIL

India 7.80%. In contrast, Tata Motors declined by

1.99%, SBI by 1.85%, Maruti Suzuki by 1.09% and

HUL by 0.98%.

Focusing on, Foreign Institutional Investors (FIIs)

remained net sellers and they took out Rs

3,126.59 crore during the week, including provi-

sional data of June 28.

The total turnover for the week ended 30th June,

2013 on the BSE and the NSE was higher at Rs

8,701.01 crore and Rs 60,801.28 crore from Rs

7,884.26 crore and Rs 49,317.29 crore.

AJO JOSEPH F1

Nishka | July 2013 Page 10

Acquittance A written document which releases a second party from any financial or other liability. An example of an acquittance would be a receipt indicating payment in full. Clone Fund A smaller version of a retail mutual fund. It is offered as a subaccount in a variable annuity. The daily price of a clone fund is different among variable annuities that carry it because each clone fund starts on a different date and with a base price of $10. Jitney Order The execution and clearing of orders by one member of a stock exchange for the account of another member. Quarantining This denotes the separate calculation of the foreign tax payable on all foreign income of a particular category which may be credited against the domestic tax payable on that category of foreign income. Revolver Revolver is the term banks that issue cards use for card holders who roll over part of the bill to the next month, instead of paying off the balance in full. It is estimated that seven out of ten card holders revolve the debt and are thereby called "good or smart revolvers". Scalp In commodities, purchasing and selling in equal amounts so there is no net position at the end of the trading day; a speculative attempt to make a quick profit by buying at the initial offering price in the hope the issue will increase and can be sold.

NAVEEN KUMAR M F2

Nishka | July 2013 Page 11

T KIRUTHIKKA DEVI F2

Nishka | July 2013 Page 12

1. What is the character recognition technology used primarily by the banking industry to facilitate the processing and clearance of cheques and other documents? 2. What is the process of taking a private industry or private assets into public ownership by a gov-ernment or state? 3. Name the bank that has decided to surrender its banking licence in India, which includes exiting its fixed income business, forex operations, and credit services? 4. What are the credentials for setting up a new bank in terms of capital & track record? 5. Name the private lender that raised Yuan 650 million in an offshore Chinese debt market offer-ing? 6. Which is India's second largest private sector bank and is now the largest scheduled commer-cial bank in India? 7. Name the first Indian bank to open a branch outside India in London in 1946 and the first to open a branch in continental Europe at Paris in 1974. 8. Name the route through which FDI up to 49% is allowed in private banking? 9. The latest Forex reserves of India could be approximated to? 10. At what percentage of GDP does gold imports presently stand?

AMOGHAVARSHA P F2

Nishka | July 2013 Page 13

1. The bank traces its ancestry to British India, through the Imperial Bank of India, to the founding in

1806 of the Bank of Calcutta. 4. Transfer of funds initiated by electronic means such as an electronic terminal, telephone, com-

puter, or ATM. 6. It is an unbiased forum formed to resolve complaints registered by bank customers with respect

to the services provided by banks 7. It is an 11 character code assigned by RBI to identify every bank branch uniquely. 10. Non-payment of a cheque by the paying banker with a return memo giving reasons for the non-

payment. 11. Doing banking from a cubicle from which food, newspapers, tickets etc. are also sold.

Across

2. Refers to the distribution of insurance products and the insurance policies of insurance

companies which may be life policies or non-life policies 3. Charge against property for an amount of debt where neither ownership nor possession is

passed to the creditor. 5. Cheques issued by a bank and function as cash but are protected against loss or theft

when travelling. 8. Giving back some portion of money spent by the cardholder through the credit card to the

cardholder himself. 9. A unique code which comprises of 9 digits given at the bottom of the cheque number.

Down

ABHISEK SAHU F2

Nishka | July 2013 Page 14

PHOTO FIND 1. Dr. Urjit Patel, Deputy Governor of

RBI

2. Logo of JP Morgan Chase

3. Logo of Small Industries Develop-

ment Bank of India (SIDBI)

4. Shri. Pratip Chaudhuri, Chairman of

State Bank of India

5. Mrs. Naina Lal Kidwai, CEO of HSBC

bank

6. Logo of J&K bank

FINANCE QUIZ 1. MICR(Magnetic Ink Character Recognition)

2. Nationalisation

3. UBS(Union Bank of Switzerland)

4. 500 Cr & 10 years

5. ICICI Bank

6. Federal Bank

7. Bank of India, founded in 1906 in Mumbai

8. Automatic route

9. $290.66 billion

10. 6.7%

ACROSS 1. SBI—the bank traces its ancestry to British In-

dia, through the Imperial Bank of India, to the founding in 1806 of the Bank of Calcutta

4. NEFT—Transfer of funds initiated by electronic means such as an electronic terminal, tele-phone, computer, or ATM.

6. OMBUDSMAN—it is an unbiased forum formed to resolve complaints registered by bank cus-tomers with respect to the services provided by banks

7. IFSC— it is an 11 character code assigned by RBI

to identify every bank branch uniquely. 10. DISHONOUR—Non-payment of a cheque by the

paying banker with a return memo giving rea-sons for the non-payment.

11. KIOSK— doing banking from a cubicle from which food, newspapers, tickets etc. are also sold.

DOWN 2. BANCASSURANCE—refers to the distribution of

insurance products and the insurance policies of insurance companies which may be life policies or non-life policies like home insurance - car insur-ance, medi-policies and others, by banks as cor-porate agents.

3. HYPOTHECATION—charge against property for an amount of debt where neither ownership nor possession is passed to the creditor.

5. TRAVELLERS—cheques issued by a bank and function as cash but are protected against loss or theft when travelling.

8. CASHBACK—giving back some portion of money spent by the cardholder through the credit card to the cardholder himself.

9. MICR—unique code comprising 9 digits given at the bottom of the cheque number.

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