Christ University Institute of Management, Kengeri Campus

January 2014, Volume V, Issue 42

Financial

Governance

A Financial Newsletter

Financial Governance

Upasana Gurung, F1

Financial Governance is an initiative undertaken by corporates to promote economic

growth and increase efficiency of the financial processes. It helps in promoting growth and

also in sustainable development of an organization, so that the firm can mobilize revenue,

borrow prudently, plan and manage the spending of public money in an effective and effi-

cient way, and account for the use of funds and the results achieved. Financial Governance

is achieved using measures and elements such as transparency, participation, responsive-

ness, oversight, accountability and predictability that contribute to the functioning of an or-

ganization.

It improves reliability of Financial Management and reporting. It takes care of the

auditing of the firm, which in turn

leads to greater transparency and in-

creases the overall performance of the

organization. It is seen that many

CFOs pro-actively work on improving

governance of their financial process-

es. They have multiple priorities, in-

cluding the oversight of financial

transactions, management of enterprise

performance, and attestation of finan-

cial reporting.

Every financial office is seeking

to improve their efficiency by introducing International Financial Reporting Standards

(IFRS) which replaces the US GAAP. Financial Governance can provide support to CFOs

in their efforts to build controls on the financing and the investing activities, achieve risk-

adjusted insight with unified financial reporting and in-compliance analytics. Financial

Governance enhances the overall quality of financial reporting.

Financial Governance helps to gain financial leverage. It ensures the integrity of the

data collection process with quality financial data management. Financial Governance can

control costs and make the compliance process easy. It brings about more efficiency by

helping to free-up time for crucial activities in an organization. Business processes co-

ordination and compliance increases with proper financial governance and frees the organi-

zation to focus more on value-added and forecast activities.

It initiates business process integration with more informative and automated con-

trols. It is a continuous control monitoring process to manage and gain insights into critical

risks areas such as executive dashboards and drill down reporting. It prioritizes control ac-

tivities with quantitative and qualitative assessments.

RBI Column

Pawanpreet Kaur, F2

RBI has barred zero % interest

schemes offered by banks to credit card

holders. It will help the bankers to re-

cover dues and help customers by

providing protection, transparency and

accounting integrity. But on the other

hand it will deprive aspirational con-

sumers of goods which they cannot af-

ford and bankers from `10 billion bill-

ing that comes from credit card pur-

chases.

RBI on basis of monetary and liquidity

measures has decided to keep policy

Repo rate under LAF (Liquidity Ad-

justed Facility) unchanged at 7.75% , CRR at 4%, Reverse Repo rate at 6.75%, and

MSF& Bank rate at 8.75%. With the normalisation of monetary measures, India’s:

Liquidity conditions may improve.

Export growth will be positive and there would be a contraction in oil and non-oil

imports.

Foreign exchange market would see more stability.

"What are the hawks basically going on about? Their point is that you have to raise inter-

est rates to such a high level that it leads to strong expectations that inflation will come

down. That kind of discussion is based on developed economies where the expectations

channel works well." says the RBI governor Raghuram Rajan. Reducing inflation is the

motive of the Central Bank but not at the cost of over-tightening of the monetary poli-

cies. Economic effects and risks associated, if inflation does not fall are:

Increase in US $ value or Rupee depreciation.

Increased cost of borrowings.

Increase in mortgage interest payments.

RBI has instructed lenders to treat medium manufacturing enterprises as priority sector

and to lend 40% of their loans to agriculture, students for education, women’s self-help

group, fisheries and small business. This is done due to the on-going slowdown in micro,

small and medium enterprises which are feared to face liquidity crunch.

Financial governance In Indian banks

Purnima Singh, F2

Corporate scandals such as Enron and collapse of the Barings bank have shown the

importance of governance of public listed companies. The best-known regulation in this

context is the Sarbanes Oxley act in the U.S., but every country has its own regulations; for

example JSOX in Japan. The core of financial governance regulations is the requirement

that, all financial processes accord with set of rules and regulations, backed by accurate re-

porting capabilities. Financial governance has been defined using three parameters i.e. ef-

fectiveness, accountability and legitimacy.

In the context of Indian banking, banks

fulfill the fund requirements of every sec-

tor of business, whether it is private or

public, small or big. Any bank, that wants

to survive, has to make sure that it lends

funds for productive purposes. Prioritized

lending may create disparities in a nation.

Financial governance should not be over-

lapped with the political and legal environ-

ment. Good legal and political framework

promotes financial governance.

In India, the public sector banks are functioning with a safe wall around them provid-

ed by government ownership. The perception of the government owing the liability of bank

failure prevails and attention to know the strength does not receive importance. Government

being the controlling shareholder yields special influence on governance of public financial

institutions as it selects almost all directors of unlisted public financial institutions. On the

contrary, being a government organization, their operations are regulated by rules and pro-

cedures prescribed by Ministry of Finance and by the RBI, hence Board has relatively lim-

ited scope of exercising powers independently. Government ownership is the primary issue

that has a direct impact on the quality of corporate Governance. In public sector banks, the

rights of the private shareholders are considerably curtailed, as their approval is not required

for paying dividend or formalizing the annual accounts.

On the other hand, in private sector banks, the main issue is one of concentration of

ownership of the banks in a few hands. Guidelines on ownership and governance in private

sector banks were issued by the Reserve Bank in February 2005. Another important regula-

tory prescription in this regard is the requirement of Reserve Bank‘s prior approval for any

acquisition of shares in private sector banks resulting in a shareholding of 5% or more of the

total paid up capital of the bank by any resident or non-resident of India. Global financial

crisis has given us an opportunity for strengthening both the regulatory as well as govern-

ance frameworks, by highlighting gaps that exacerbated the crisis. A debate over how much

regulation may substitute Board level governance has been going on for a while.

http://www.rbi.org.in/scripts/BS_SpeechesView.aspx?

Case of Financial Governance at Cadbury Nigeria in 2006

Challapalli Kalyana Karthik, F2

In October 2006, the Board of Directors of Cadbury, Nigeria PLC (Public Limited

Company) informed the world of the discovery of overstatement in its accounts spanning a

period of years (2003-06). This overstatement was to

the tune of between US$ 100 million. Cadbury Nige-

ria was a subsidiary of Cadbury UK.

The situation of overstatements came to light

because of the internal review on the orders of the

Board of Directors. Thereafter, the Chairman of Cad-

bury Nigeria PLC, Rt. Hon. Uduimo Itsueli engaged

an independent firm, Price Waterhouse Coopers (PWC), to investigate the allegation of

overstatement in the company‘s Financial Statements for the period 2003 to 30th Septem-

ber, 2006.

The auditors submitted their report to Nigeria Plc., the sum total of which confirmed

the charge of fraudulent accounting done through overstatements. Because of which the

Managing Director Mr. Bunmi Oni and the Finance Director Mr. Ayo Akadiri were sacked

from the company. Following suit, the council of Nigeria Stock Exchange barred the duo

from running any public quoted company for life. The Securities and Exchange Commis-

sion undertook a detailed investigation of the matter. As a result of cooked accounts, Cad-

bury Schweppes Plc., the parent company made a provision of US$ 100 million in equiva-

lent Pound Sterling an impairment of goodwill held in respect of Cadbury Nigeria, as on

31st December, 2006.

Findings:

Bunmi Oni, the company‘s managing director in concert with the company‘s Board

since year 2002 used stock buy backs, cost deferrals, trade loading and false suppliers

stock certificates to manipulate its financial reports that were issued to the public and

filed with the Commission.

Both Bunmi Oni and Ayo Akadiri, stated that the use of the sale and stock buy-back as

well as the issuance of false stock certificates schemes were motivated by what they

called ―profit management desire/action‖ and that off-shore payments were made to Ex-

ecutive Directors to cushion the devaluation of their pay by soaring inflation.

An undocumented and undisclosed offshore account was maintained and operated by the

company from which Bunmi Oni, Ayo Akadiri and other executive directors were paid

offshore remunerations without the approval of the Committee responsible for fixing re-

munerations of Executive Directors and not recorded in the company‘s financial reports

and accounts.

A balance of Naira 7.7 billion was credited to company‘s accounts in 2005 without con-

firmation of the bank balances from the banks. AWD (External Auditors) did not make

any note in 2005 audited accounts that it did not receive any confirmations from any of

the banks for the balances recorded against such banks.

The heads of internal audit

were the master minds of the

financial malpractices perpe-

trated through the falsification

of sales figures, over statement

of profits/assets and false sup-

pliers certificates to manipulate

its financial records/reports.

Decisions:

They were ordered to pay a fi-

ne of one hundred thousand

Naira in the first instance and a

penalty of five thousand Naira per day from June 30, 2002 to December 14, 2006 within

21 days from the date of the decision (March 28, 2008) for filing with the Commission,

financial statements that contained untrue/misleading statements; failing which trading

on its shares will be suspended.

Also, a penalty of five thousand Naira per day from August 24, 2005 to the date of the

decision (March 28, 2008) within 21 days, for filing a Rights Circular for the N5 billion

irredeemable convertible loan stock which contained false/misleading statements, failing

which trading on its shares will be suspended.

Also, a penalty of five thousand Naira per day for the period June 30, 2002 to December

14, 2006 within 21 days from the date of the decision for failing to provide funds en-bloc

for the payment of dividends to its shareholders despite the Commission‘s earlier di-

rective.

Inadequate financial governance measures leading to Satyam’s demise

Srijita Mukherjee, F2 Financial governance is visibly seen in the promotion of corporate fairness, transpar-

ency and accountability. Satyam's financial governance plan can give a few pointers to com-

panies on how not to be global leaders. In order to strengthen the financial governance

mechanism, the aftermath of Satyam scam has made

companies increasingly outsource their internal audit

to specialized firms.

In September 2008, the World Council for Cor-

porate Governance honored the now-beleaguered In-

dian outsourcer Satyam with a "Golden Peacock

Award" for global excellence in corporate govern-

ance. With its honoree now engulfed in a major scan-

dal, the Council rushed to distance itself from the

troubled company by rescinding the award, issuing a

press release through the India-based Institute of Di-

rectors stating "the award was obtained as a result of

non-disclosure of material facts."

Shocking revelation of frauds now coming to light would certainly have been un-

known at that time. But a closer look at some of the "material facts"—which the Golden

Peacock judges should have known about at the time of the award—reveals a company

whose governance standards were far from those of a global leader. In fact, in public filings

made several weeks prior to the award show, Satyam demonstrated woeful boardroom inad-

equacies and significant departures from commonly accepted "best practices" in governance.

But Satyam won and painted itself in a self-congratulatory light by using Golden Peacock

logos and references.

Some of the most modest publicly traded companies are following governance prac-

tices far more laudable than those of this "global honoree‖. Below are a few problems in the

board which depicts the governance problems at Satyam:

Board Composition:

The deficit of financial astuteness on the Satyam Board was obtrusive. It is imperative

for each listed company to disclose whether their Board of Directors have identified an Au-

dit Committee Financial Expert, and if not, the reasons why the Board has not done so.

Satyam did not possess an individual serving on its audit committee as an ―Audit Committee

Financial Expert,‖ as it is defined in the Securities and Exchange Commission rules.

Board Independence:

A majority of the Board must consist of independent directors. Five of Satyam's nine

directors, namely Dr. (Mrs.) Mangalam Srinivasan, Mr. Vinod Dham, Prof. M Ram Mohan

Rao, Mr. T R Prasad and Prof. V S Raju were independent within the meaning of the NYSE

standards. Satyam may have divided the roles of chairman and CEO, but the two individuals

who served in these roles were brothers and both were members of the management.

The company had no independent board leadership; the U.K. Combined Code with

which several Britain-based members of the Council should have been patently familiar

with, specifies that Boards should "appoint one of the independent non-executive directors

to be a senior independent director.‖

The non-management directors of each company must meet at regularly scheduled ex-

ecutive sessions without the executive management. Satyam's non-management directors do

not meet periodically without management directors.

Board Committees:

It was known that listed companies ought to have a nominating/corporate governance

committee composed entirely of independent board members, which Satyam did not have.

When unethical executives are intended to commit a fraud in the company, even the most

seasoned directors fail to see through the scam. But what's shocking in the Satyam case is

the recognition this company received for its governance even though its Board failed to

adopt some basic and widespread boardroom best practices, some of which might well have

triggered board awareness that something was amiss.1

Impact of bitcoin on Financial Governance

Sudeshna Bhattacharya, F1

Bitcoin is a new payment system based completely on digital money. It is a peer-to-

peer payment network and digital currency based on

an open source cryptography protocol. It was first

described in a 2008 paper by a single or a group of

pseudonymous developer (s) by the name of Satoshi

Nakamoto. Each bitcoin can be divided into eight

decimal places, forming 108 smaller units called

Satohis. The server used in this process known as

Bitcoin ‗miners‘. ‗Block chain‘ is a concept where

servers communicate over an internet based network

and the transactions are confirmed by adding them

to a ledger which has been updated periodically us-

ing peer-to-peer file sharing technology. It is assumed that the total number of bitcoins will

reach a maximum of 21 million by the year 2140.

How does the Bitcoin work?

Each user of Bitcoin gets a digital wallet and a Bitcoin address which is the address

from and to which bitcoin can be transferred. It is a transfer of value between bitcoin ad-

dresses that get included in the system log, which checks whether the transaction is valid or

not. Each person can use his or her bitcoin only once which means that the person cannot

double-spend the same bitcoin which also helps in avoiding double counting in the measure-

ment of the national economy. ‗Private Key‘ is the signature of the owner which makes it

unique from other bitcoin owners. The signature is also used to prevent the transaction from

being altered by anybody once it is used.

1 http://cgleaders.wordpress.com/tag & http://www.weforum.org/issues/financial-governance.html

Difference between Bitcoin & bitcoins:

Bitcoin refers to the whole system and the transaction network of the bitcoins, where-

as bitcoin (s) refer to the currency itself.

How does one acquire bitcoin?

Purchase bitcoins at a Bitcoin Exchange.

Earn bitcoins through competitive mining.

Exchange bitcoins.

Make payment for goods & services.

Bitcoins & Indian Laws:

Indian laws do not define digital currency or virtual currency. Bitcoin cannot be clas-

sified into Currency, Securities, Derivatives, Negotiable Instruments or a prepaid payment

instrument. Let us understand it with the following examples:

1. If Mr. X owns an Indian rupee note worth ` 1,000 and if everyone refuses to accept it,

he can always go to the Governor of the RBI and claim ` 1,000 from him. Similarly, if

Mr. X owns bitcoins, then whether it can be accepted or not is completely dependent on

the party from whom he has got the service or taken the goods. So, in case of acceptance

of bitcoin we have to be dependent on the party to whom we are paying the money.

2. Mr. Y orders a pair of jeans from a vendor. Now whether he can pay the amount through

bitcoin is determined by the vendor itself. Therefore, it is clear that bitcoins do not fit

into the definition of currency under Indian Law.

Pros and Cons of Bitcoin

Pros:

Bitcoin is used to pay for products and services. In Bitcoin there are no transaction

fees as compared to credit cards and so anyone can accept bitcoins from any country in the

world. When the bitcoins are received, merchants can instantly exchange their proceeds in-

to the preferred currency by merchant services like BIPS, Bit-pay or Coinbase.

Bitcoin users are in full control of their transactions. Merchants cannot force unwant-

ed or unnoticed charges which can happen with other payment methods. It can happen

without personal information tied to the transaction. As encryption has been used; infor-

mation cannot be hacked by unscrupulous parties.

Cons:

As bitcoin is an anonymous coinage, it is not easily traceable. Bitcoin has been used

for illegal activities like illicit drug, gambling transactions and money laundering.

3D printing will surely turn out to be a spoiler for economies with reference to print-

ing bitcoins in a fraudulent manner. Most negative aspect of Bitcoin is the fluctuation in the

currency due to lack of liquidity and absence of a party to balance supply & demand. Ac-

cording to The Hindu, 29th December, 2013 the value of Bitcoin had moved to $740, down

25 percent from its peak. The Bitcoins Alliance India's founder-members also commented

that people should avoid getting into serious business of Bitcoins.

http://cis-india.org/internet-governance/bitcoin-legal-regulation-india & http://www.thehindu.com/business/

Economy/bitcoin-gang-gets-67-new-ecurriences-value-grows-to-13-bn/article5515128.ece

Corporate Column

Sai Nanthini R K, F2

To gain insights on financial governance, an article from RBI has been reviewed in detail.

Need for Financial Governance

Real Financial governance requires tough financial

regulators which effectively work to safeguard investors’

interests in securities and endeavor to create a proper envi-

ronment for the securities market to develop. The financial

regulators – Securities and Exchange Board of India (SEBI)

in India, and Securities and Exchange Commission (SEC),

in the US – have been created by the legislature.

The core of financial governance is the requirement

that all financial processes are managed according to a

stringent set of rules and regulations, backed by accurate reporting capabilities. This man-

agement and recording of internal controls be set down in a concise and controlled manner

can save an enterprise, significant amount of time and money.

The important legislations for regulating the entire corporate structure and for deal-

ing with various aspects of governance in companies are Companies Act, 1956 and Compa-

nies Bill, 2004. These laws have been introduced and amended, from time to time, to bring

more transparency and accountability in the provisions of financial governance. Secondly,

the Securities Contracts (Regulation) Act, 1956, Securities and Exchange Board of India

Act, 1992 and Depositories Act, 1996 have been introduced by Securities and Exchange

Board of India (SEBI), with a view to protect the interests of investors in the securities mar-

kets as well as to maintain standards of financial governance in the country.

How does it influence Bitcoin?

Bitcoin is a virtual currency, or crypto-currency, used only for online transactions.

Though not backed by any central bank in the world, the currency is traded on a number of

exchanges or swapped privately. The biggest threat for investing in Bitcoin is the possibility

of regulators coming up with laws that affect the system retrospectively.

RBI is examining the issues associated with the use, holding and trading of these so-

called cyber currencies under existing legal and regulatory framework of the country, in-

cluding foreign exchange and payment systems laws and regulations.

According to RBI, since VCs are in a digital form and stored in electronic wallets,

these are prone to losses arising out of hacking, loss of password, compromise of access

credentials, malware attack, etc. Since these were not created by or traded through any au-

thorized central registry or agency, the loss of e-wallet could result in a permanent loss of

VCs.

RBI said Bitcoin does not have any legal status and traders of such currencies are ex-

posed to legal and financial risks. Citing the reports from RBI that pointed to usage of VCs

for illicit and illegal activities in several jurisdictions, they warned such transactions could

subject users to unintentional breach of anti-money laundering norms or laws on combating

the financing of terrorism (AML/CFT).

What is the future of financial governance?

It is true that the 'Financial governance' has no unique structure or design and is

largely considered an amalgam of disparate and scattered rules and norms. There is still a

lack of awareness about its various issues, like quality and frequency of financial and mana-

gerial disclosure, etc. There

have been many instances of

failure and scams in the corpo-

rate sector, like collusion be-

tween companies and their ac-

counting firms, presence of

weak or ineffective internal au-

dits, lack of proper disclosures,

non-compliance with standards,

etc. As a result, both manage-

ment and auditors have come

under great scrutiny.

In the years to come, fi-

nancial governance will become

more relevant and a more acceptable practice worldwide. This is easily evident from the

various activities that are undertaken by many companies in framing and enforcing codes

of conduct and honest business practices; following more stringent norms for financial and

non-financial disclosures, as mandated by law; accepting higher and appropriate accounting

standards; enforcing tax reforms coupled with deregulation and competition; etc.

Insight:

The importance of Financial Governance

lies in its contribution, both to business prosperi-

ty and to accountability. Good corporate govern-

ance results in structured financial governance.

In the age of globalization, global compe-

tition, good corporate governance helps in im-

proving business competitiveness and potential-

ly opens up new business geographies Financial

Governance is a means not an end, Financial Ex-

cellence should be the end.

The picture depicts the current scenario in a few companies, but if people practice

and maintain good governance, they can actually achieve success in the long run due to

sustained profits.

http://rbi.org.in/Scripts/BS_SpeechesView.aspx?Id=793, http://business.gov.in/corporate_governance/

legal_framework.php & http://www.livemint.com/Money/FfvWQokhp9aCQ11cB3uk1N/RBI-flags-

caution-on-use-of-virtual-currencies.html

Market Round Up

K. Alekhya, F1 and B. Suma Sravya, F2

High inflation in November set to keep pressure on RBI: Inflation is forecasted to re-

main close to 9-month highs in November, a Reuters poll showed, putting further pres-

sure on the Reserve Bank of

India (RBI) to follow up on its

back-to-back interest rate

hikes despite slowing econom-

ic growth – 11/12/13 (BS).

Government aims to garner

`180 billion from PSU disin-

vestment - The government

will garner about ` 180 billion

from seven approved disin-

vestment in public sector units

and an Exchange Traded Fund (ETF) – 11/12/13 (BS).

Retail inflation jumps to 9-month high to 11.24% in November: Costlier fruits and

vegetables such as onions and tomatoes pushed retail inflation to a nine-month high of

11.24 % in November and wholesale inflation to 7.52%, making it harder for the Reserve

Bank to promote growth through monetary measures - 12/12/13 (Business Today).

Japanese premium two-wheeler maker, Kawasaki is planning to set up a manufactur-

ing plant in India, as it works towards doubling its business from emerging markets of

India and ASEAN region by 2020 - 13/12/13 (ET).

GlaxoSmithKline Plc. (GSK), the UK’s largest drug maker, offered to spend up to

US$ 1 billion to raise its stake in Indian subsidiary Glaxo Smith-Kline Pharmaceuticals

Ltd., through a voluntary open offer. The move will result in GSK investing a total US$ 2

billion dollars or so in its two Indian subsidiaries - 17/12/13 (BS).

Arvind Mayaram says India better prepared to deal with Fed tapering: Arvind Ma-

yaram, India's economic affairs secretary, reckons Asia's third-largest economy is in a

much better shape this time, thanks to the measures taken to bolster the Forex reserves

and control the current account deficit (CAD), to handle the fallout of any decision to re-

duce the stimulus by Fed - 18/12/13(Business Today).

Britain’s Tesco Plc. on 17/12/13 sought the government‘s nod to invest US$ 110 million

to acquire 50% stake in Tata-owned Trent Hypermarkets that owns Star Bazaar -

17/12/13 (BS).

UN lowers India's growth forecast to 4.8 per cent for 2013: United Nations has low-

ered India's economic growth forecast for 2013 to 4.8 per cent while warning that emerg-

ing markets should be prepared to deal with the impact of US Federal Reserve's quantita-

tive easing program - 19/12/13(Business Today).

India has given a go-ahead to services and investment deal with 10-member ASEAN as

part of Comprehensive Economic Cooperation Agreement (CECA) - 20/12/13(ET).

PMEAC Chairman Rangarajan says inflation may ease to 6.5% in Dec: Chairman

of the Prime Minister's Economic Advisory Council (PMEAC), C. Rangarajan has said a

fall in vegetable prices is likely to ease headline inflation to 6.5 per cent and retail infla-

tion to 9.20 per cent in December - 23/12/13.

Anand Sharma for easing gold import norms to check smuggling: Advocating relax-

ation of gold import norms to check smuggling, Commerce and Industry Minister Anand

Sharma said the government will take action at an appropriate time - 24/12/13(Business

Today).

2013 roundup: Rupee suffers reality check, speculation hits further: The Indian ru-

pee was among the worst performing currencies this year, hitting a record low of `68.85

against the dollar due to the weak domestic economy and speculation over scaling back

of stimulus by Fed, or extra printing of notes by the US - 24/12/13(Business Today).

Ratings agency CRISIL (Credit Rating Information Services of India Limited) said

government‘s fiscal deficit would touch 5.2% during current Fiscal above the target by

0.40% - 24/12/13(ET).

Stock of the month– Axis Bank

There have been no major developments in the month of December 2013 for AXIS bank. But bank-

ing sector altogether has been the hunting ground for investors lately. A cut of 25 basis points in repo rate

by RBI will fare well for India and its economy as it will help in lowering borrower costs and help in kick

starting the capital investment activity. RBI also expects inflation to be around 5.5% and base line growth

projection at 5.7% for the current fiscal year. For investing, one should wait for some time and trade by us-

ing volatility in the markets for best use.

Rates Percentage/Amount

Repo Rate- 25th December, 2013 7.75%

Reverse Repo Rate- 25th December, 2013 6.75%

CRR- 25th December, 2013 4%

SLR- 25th December, 2013 23%

MSF- 25th December, 2013 8.75%

Bank Rate- 25th December, 2013 8.75%

Base Rate- 25th December, 2013 10%

Saving Deposit Rate- 25th December, 2013 4%

Call Money Rate (Weighted Average) 8.70%

91-Days Treasury Bill (Primary )Yield 8.7%

364-Days Treasury Bill (Primary) Yield 8.8381%

10 Years Government Security Yield 9.02%

WPI -14th November, 2013 7%

CBLO 9.50%

Food Inflation 18.19%

Forex Reserve US $183.649 Billion

IIP Growth Rate -1.8%

Export US $ 27,270.97 Million

Import US $ 37,827.02 Million

Economic Rollers

Simmy Kumari, F2

Source: Finance Ministry, Office of economic advisory, HDFC securities report, Ministry of

commerce, RBI

Stock Market Analysis

Sooraj Kumar C. and Anwesh Jain, F1

Thanks to robust FII inflows and hopes of wider and

better reforms after the 2014 elections, the Indian economy is

on a path of overlooking, recent slowing economic growth

and rising inflation. The benchmark stock indices Sensex and

Nifty scaled new highs after a gap of 5 years during the last

week. A strong show by BJP in state assembly elections also

contributed to stock indices breaking their previous records.

After being in between a tight range for the major part

of the year, the BSE Sensex recorded a new intraday high of

21,483.74 on December 9. In 2013, so far, the 30 share index

has risen by 1,653.03 point or 8.5%., from 2012 close of

19,426. Last year, it gained 26%. The Sensex has garnered

240.78 points or 1.16% so far this month (till 24th December

2013).

In 2013, best performing blue chips included TCS (up 68.41%), Infosys (53.22%),

Wipro (39.20%), Dr. Reddy‘s (37.21%), Maruti Suzuki (21.56%) and Tata Motors

(19.41%). However, Jindal Steel tumbled by 44.01% followed by L&T (33.89%), BHEL

(27.52%), SBI (26.51%), Sun Pharmaceuticals (21.31%), Coal India (19.94%) and Tata

Power (17.90%) The 50-issue CNX Nifty of the National Stock Exchange (NSE) also

moved accordingly to register a new intra-day high of 6,415.25 on December 20th. It gained

369.15 points or 6.25% since its last year‘s close of 5,905.10. In 2014, markets will be

guided by the outcome of General Assembly Elections and positive economic reforms to be

introduced by the new government to aid growth.

Finance Buzz

Vyom Goel, F2

Corporate Kleptocracy:

The greed of corporate executives who use underhanded tactics to siphon off wealth

at the expense of shareholders is known as Corporate Kleptocracy.

Sarbanes-Oxley Act of 2002:

An act passed by U.S. Congress in 2002 to protect investors from the possibility of

fraudulent accounting activities by corporations. The Sarbanes-Oxley Act (SOX) mandated

strict reforms to improve financial disclosures from corporations and prevent accounting

fraud. SOX act was enacted in response to the accounting scandals in the early 2000s. Scan-

dals such as Enron, Tyco, and WorldCom shook investor confidence in the financial state-

ments and required an overhaul of regulatory standards.

Forensic Accounting:

Forensic Accounting utilizes accounting, auditing, and investigative skills to conduct

an examination into a company's financial statements providing accounting analysis which

is suitable for courts.

Cook the Books:

Describing fraudulent activities performed by corporations in order to falsify their fi-

nancial statements. Typically, cooking the books involves augmenting financial data to yield

previously non-existent earnings or assets or obliterating liabilities.

Andersen Effect:

Auditors performing more careful due diligence when auditing companies in order to

prevent accounting errors. This extra level of accounting scrutiny often leads to companies

restating earnings even though they have not necessarily intentionally misrepresented mate-

rial accounting information.

Governance, Risk Management and Compliance – GRC:

An integrated approach used by corporations to act in accordance with the guidelines

set for each category. Governance, risk management and compliance (GRC) is not a single

activity, but rather a firm-wide approach to achieving high standards in all three overlapping

categories.

Camouflage Compensation:

Compensation that is granted to upper echelon employees, directors, consultants and

related parties not fully disclosed in mandatory company filings. In some cases of camou-

flage compensation, the compensation is fully disclosed, but in such a way that it is very

difficult for the average investor to decipher the true value of gross pay compensation.

Finance Quiz

Srinivas Rahul Chaganti, F2

1. 1 bitcoin amounts to how many Dollars?

2. The only business establishment in India which

accepts bitcoin is ________

3. HDFC on Tuesday (24th December) promoted its

long-time second-in-command _________as depu-

ty managing director.

4. The policy repo rate under the Liquidity Adjust-

ment Facility (LAF) is at _____per cent?

5. The rate of interest on the Floating Rate Bonds,

2020 applicable for the half year December 21,

2013 to June 20, 2014 shall be ______ per cent per

annum?

6. Which are the three home loan institutions which

have reduced the home loan rates by 15-25 basis

points to catch borrowers in a fiercely competitive

market?

7. Amtek Auto recently bought a German firm for € 200 million. Name the firm.

8. RBI's OBICUS survey indicates that capacity utilization for manufacturing companies

touched ___% at end-FY13, a four-year low.

9. Microsoft acquired Nokia for US$ ____million?

10. A NBFI declared on 26th December, 2013 its intentions to enter Housing Finance busi-

ness. Name the NBFI.

An

swer

s:

1.

US

$6

44

2.

Mu

mb

ai‘s

Cas

tle

Blu

e sp

a an

d S

alo

n

3.

Par

esh

Su

kth

ank

ar

4.

7.7

5%

5.

8.9

2%

6.

SB

I,IC

ICI,

HD

FC

7.

Ku

epp

er G

rou

p o

f C

om

pan

ies

8.

77

%

9.

US

$7

.17

Mil

lio

n

10

. M

ann

apu

ram

Photo Find

Nilanjana Chatterjee, F2

1. 2.

3. 4.

5. 6.

Crossword

Samyuktha Reddy, F2

Across

2. After diminishing demand, and getting

a £6.5m loan from the UK government in

April 2005, the company went into admin-

istration. After the loss of 30,000 jobs, Nan-

jing Automobile Group bought the compa-

ny's assets.

3. After falling share prices, and a failed

share buy back scheme, it was found that

the directors had used fraudulent account-

ing methods to push up the stock price.

Rebranded MCI Inc, it emerged from

bankruptcy in 2004 and the assets were

bought by Verizon.

4. In addition to being the largest bank-

ruptcy reorganization in American history

at that time, _____ was attributed as the

biggest audit failure.

6. After struggling to maintain business

levels at its brand names Karstadt and

KaDeWe, Arcandor sought help from the

German government, and then filed for

insolvency

7. After the financial crisis of 2007-2008,

the bank was forced to be nationalized by

the Irish government.

9. The best known regulation in context

of financial governance in the U.S

10. In early 2000, this insurance company

became insolvent. Director Rodney Adler,

CEO Ray Williams and others were sen-

tenced to prison for fraudulent activity.

Down

1. 88888 account is popularly known as?

5. It was brought down in 1995 due to un-

authorized trading by its head derivatives

trader in Singapore, Nick Leeson

8. After a series of attempted takeover

bids, and a finding of fraud in a subsidiary's

purchase of another subsidiary, it filed for

Chapter 11 bankruptcy. It emerged from

bankruptcy on 2 October 2012.

Answers for Crossword:

1. Five eights account

2. MGRoverGroup

3. WorldCom

4. Enron

5. Barings

6. Arcandor

7. AngloIrishBank

8. Dynegy

9. SarbanesOxleyAct

10. HIHInsurance

Answers for Photo Find:

1. Sachin Pilot, Minister of Corporate Affairs.

2. U.K. Sinha, Chairman of SEBI.

3. Sidharth Birla, President of FICCI.

4. Logo of ENRON (well-known example of wilful corporate fraud and corruption).

5. Nicholas "Nick" William Leeson, former derivatives broker whose fraudu-

lent, unauthorized speculative trading caused the collapse of Barrings Bank.

6. The logo of ‗CoinMonk‘, a Bitcoin venture runs by ‗Bitcoin Meetup Group‘ in Banga-

lore (India) that aims to bring Bitcoin awareness to general public.

NISHKA TEAMNISHKA TEAMNISHKA TEAM

Nishka is a monthly finance magazine brought by the students of the finance club of Christ

University Institute of Management, Kengeri Campus. The idea behind coining this issue of

the magazine is to establish a learning among the students, which helps them to gain an

insight about the world of finance.

Faculty Coordinator

Prof. Shrikant Rao

Coordinators

Niharika Shadra, F1

Niken Jain, F2

RBI Column

Pawanpreet Kaur, F2

Finance Buzz

Vyom Goel, F2

Market updates

B.S Sravya, F1

Katepalli Alekhya, F2

Economic Rollers

Simmy Kumari, F2

Stock Analysis

Sooraj Kumar, F1

Anwesh Jain, F1

Crossword

Samyuktha Reddy, F2

Quiz

Rahul Srinivas, F2

Photofind

Nilanjana Chatterjee, F2

Corporate interview

Sai Nanthini, F2

Designing

Krishnendu Kundu, F2

Niken Jain, F2

Editor

George P Job, F2

Neha Mishra , F2

Introduction

Upasana Gurung, F1

Article coordinators

Ashwathy Edison, F1

Sudeshna Bhattacharya, F1

Article writing

Kalyana KarthiK, F2

Purnima Singh, F2

Srijita Mukherjee, F2

CHRIST UNIVERSITY INSTITTUTE OF MANAGEMENT, KENGERI CAMPUS

Please mail your valuable feedback/reviews to nishka@mba.christuniversity.in

(For private circulation only)