THE FINANCIAL

Cover Story

Banking Amendment Bill

The Financial March 2013

FROM THE EDITORS DESK

Dear Readers, There is always light at the end of the tunnel and when we talk about the light of knowledge or enlightenment per se, even the west looks up to the east. No matter how tall the western financial institutions (FIs) stood, their foundation was always prone to damage. The domino effect that took place in the global economy amidst the recession of 2008 and Euro crisis made sure that few players who were too big to fail or fall also collapsed. But, in the East, particularly India, things were well grounded, thanks to conservative yet slowly progressive central bank policies. The cover story of our magazine talks about such a case in point, The Banking Amendment Bill which looks like a new life in the dark age of global gloom. The Financial on a similar note is happy to be continuously enlightened by the hundreds of ignited minds across the Indian B-schools. It has received an overwhelming response this time. We are happy to bring to you, with this issue, a magazine with several new sections that will grow into a repository of original content and opinion from the Finance Cell at NMIMS. In this issue, we have delved into the viewpoints on The Banking Amendment Bill. The perspectives put forward by the budding managers from across the B schools are sure to give a new dimension and importance to this issue. We have also tried to enlighten the readers about how social media can have an impact on the future and many other novel thoughts and ideas. The process of evolution of The Financial will see a deliberate attempt from Finomenon, to involve the readers as much as possible. The aim this time is not to have an article end with its last word in the magazine but to take it beyond through comments and discussions. Feel free to contact the writers of each article and discuss their views or to even dispute them! As always, I hope you enjoy this issue! Let us know how you feel about the content. Criticisms, suggestions, requests, and jokes, they are all more than welcome. We thank one and all for their valuable contributions to this magazine and hope you enjoy the articles. The Financial is an interactive magazine and, beyond just a magazine, a two-way interactive channel. As we exchange ideas, we will evolve and grow to greater heights. So until we meet again next time and while you wait to see what is in store for the next issue, take care and enjoy reading! Komal Poddar

Senior Team Komal Poddar Achal Mittal

Creative, Design & Content

Prakash Nishtala Srijan Srivastava Akshay Goyal

Finomenon NMIMS Mumbai All design and artwork are copyright works of Finomenon NMIMS Mumbai

Cover Story: Banking Amendment Bill: A new life in the dark age Is silver a better investment than gold? Aadhar and Financial Inclusion Expert Speak: Indian Banking Industry: What Lies Ahead? New Licenses in Banking A leap of faith towards Financial Inclusion: Rural Indias Path to Success FinKnowledge: Making of Indian Union budget Is New Banking Licenses by RBI a good idea? IFRS: A Global Language for Business Affairs FinFun: The Month in Images and Words New Licenses in Banking Sector: An urgent necessity for financial inclusion Corporate Debt Restructuring: Boon Acidified to Bane We Care 2013: A civic engagement internship project Banking and Social Media

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BY AKSHAY GOYAL, NMIMS MUMBAI

Indian Banking Sector has been flourishing post independence of India. A numerous changes in the regulations and functioning of the banks have been brought over the years in order to adapt to the changing needs of the growing Indian Economy. Still the sector is plagued with its own set of problems. The Banking Laws Amendment Bill 2011 which was passed by both the Houses of the Parliament during its Winter Session of the year 2012 seek to address these problems. The amendments were made in the Banking Regulation Act, 1949 and the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970/1980. The major areas where the Bill focuses on are: RBI Gets More Powers The amendment has accorded far reaching powers to the regulator. The Bankers Bank (RBI) now has the power to supersede the boards of banks. The RBI can now overtake the entire board which is a major change when compared to the past. Earlier, the RBI had power to remove only a director or officers of Banking Company and not the entire board. Now the RBI also has the power to inspect the books of accounts of associates including the holding company, joint venture, subsidiary company, an enterprise that controls the composition of the board of directors or other bodies governing the banking company and entities that would be benefitted from the banking company. There has been a considerable increase in terms of monetary penalties that RBI can impose on banks for violation of RBI rules and directives. A stricter approach has been adopted because the issue of new banking licenses necessitates the need of greater regulatory control. Raise in the Voting Rights Banks The Bill has raised the voting rights of the shareholders from 1% to 10% for public sector bankers and from 10% to 26% for private banks. The bill has also increased the authorized capital of the banks from Rs 1500 crore to Rs 3000 crore. All this has paved way for investors to invest more in both public sector and private sector banks. At the same time it has increased the say of promoters who now will have greater influence on the decision of the management. This may be harmful in certain situations where the promoters only seek the welfare of the banking company and may forget about the economic welfare of the country.

Akshay Goyal is a 1st year MBA student at NMIMS. He has an engineering background and loves to write and sketch in his free time. Email ID: akshaygoyalonline@ gmail.com

This is where stricter regulatory norms will come to force. Issue of Bonus Shares The Bill provides provisions for public sector banks to issue rights shares and bonus shares. They can even split the shares into lower denomination which facilitates the trading of their shares. This is good news for public sector banks and their shareholders as till now only private sector banks have been giving away free shares to their shareholders as bonus shares. Public sector banks, in spite of holding huge reserves, could not issue bonus shares so far because the enactments through which they were nationalized provided no provisions to issue bonus shares. State Bank of India (SBI), which is the biggest bank in the country, has the largest free reserves which are nearly 125 times its paid up capital. The free reserves of SBI is Rs.83,280 crore against its paid up capital of Rs.671 crore. If SBI issues bonus shares, the stock market will be bullish, which has till now given a low valuation for all public sector banks as the public sector banks have been unfriendly to the investors till now? Now the bill has cleared the way for them to issue bonus shares, the government should promote banks with substantial reserves to issue bonus shares. The government will also be benefited immensely from such a move as it has a majority holding in all the public sector banks. It will also help banks to raise fresh capital easily from the market and will therefore help them in meeting their capital adequacy requirements prescribed under Basel III norms. Foreign Banks Earlier the foreign banks had to pay 20-30% tax as capital gains and stamp duty when they transferred their branches to a new legal entity. But the Bill allows foreign banks to transfer shareholding to a holding company or to convert their Indian operations into a wholly owned subsidiaries without the need to pay the stamp duty. This move

will be helpful for the foreign banks who are seeking a larger role have a freedom to expand their branches and operations. Conclusion The Finance Minister of India Mr. P Chidambaram said, We need 2-3 world-sized banks. China has three among the world's top 20. We have none. We need more banks". He was quoting the need of a growing economy like India. India is seen as the next superpower along with China. But for that, we need a sound and robust finance sector that can provide a conducive environment for growth. The Banking Laws Amendment Bill 2011 is seen as a major step in that direction. It paves the way for banks to grow into large organizations and increase capitalization. The major impact that the Bill has been successful in bringing is in terms of the power granted to RBI. By giving RBI the power to supersede the boards of banks and inspect the books of all the related entities, it has cleared the way for RBI to issue new licenses. Till now RBI has been apprehensive in issuance of new licenses fearing a misuse of it by the new banks. We will now see more banks competing in the banking space. This will bring new financial products and advanced technology. All this will lead to a healthy competition. Retail customer will benefit to a great extent because of the deeper penetration of banking services. They will have a variety of options both for deposit and credit products. Financial Inclusion, which has been the focus area of the RBI as well as the government, is certainly going to gather pace with new entrants in the banking space. Overall the Bill provides a strong platform using which the Indian Banking Sector can reach new heights and compete with the big names at the global level. It provides an enabling environment for the banking sector to grow and also the Indian Economy to flourish.

BY RADHIKA BHATTER & L R KRISHNAN, MDI GURGAON

If all that glitters is not gold, it might well be Silver. While Gold has dominated the metal market in terms of demand, supplies and returns for many years, it seems it is high time one starts looking for an alternative investment. Gold, for ages, has been an investment to hedge against economic, political, or currency crisis. One is astonished to hear and see the fabulous returns that gold promises its investors, but one should also know that for many years, Silver has outperformed gold in terms of returns and volatility. Investments in precious metals like gold, silver, platinum, palladium etc are made in one of two wayseither people buy such metals physically and store them or they buy them as stock, the value of which changes in tandem with that of the precious metal. There are also several advantages of investing in precious metals. Firstly, being a physical commodity, the investor actually owns a piece of the precious metal rather than a share or stock which is just a sheet of paper. Secondly, there is always scarcity of precious metals in the world which increases their value. Thirdly, over the years, it has been observed that the movement of prices of precious metals is the opposite of the movement of the economy. It has been seen that a large increase in gold prices came at a time of great economic uncertainty. The various instruments used as investment vehicles for precious metals include - bullion bars which can be exchanged over the counter at major banks, coins and rounds, exchange traded products, certificates of ownership, accounts where the metal can be held as currency, derivatives, mining companies. Gold has certain features which are unbeatable in an investors perspective. In India, Gold is something which every family buys because of the attraction for this metal. On any special occasion/ festival, gold is the common mans choice. While not more than 40% of the middle class is capable of affording the currently priced gold, it is hard to believe that the demand for the yellow metal has been rising for a decade now. The gold market is also subject to speculations just like any other market. The history of gold, the role of gold reserves of country, gold's low correlation with other commodities, and its pricing in relation to currencies even during the 2008 global financial crisis, suggest that gold is more like a currency than a commodity. On the other hand, silver has emerged as the so-called poor mans gold and brings with it some properties that gold possesses

Radhika Bhatter is currently a student at MDI Gurgaon pursuing Post graduate programme in Management (2012-14 batch). She completed her BSc (Hons) Economics from St. Xaviers College (Autonomous), Kolkata in 2011. E-mail: pg12radhika_b@mandevi

L R Krishnan is currently a student at MDI Gurgaon pursuing Post graduate programme in Management (2012-14 batch). He has done MSc (Hons) in Mathematics from BITS, Pilani. He has 8 months of work experience in the IT industry. E-mail: pg12lr_krishnan@mande vian.com

it is precious, malleable, lustrous, resilient and rare. While silvers existence in the market depends on the same factors as gold, one has to understand a few differences between trading of gold and silver in the market Firstly, silver market is only a fraction of the size of gold market (Demand for silver = $31 billion vs Demand for gold = $222 billion as per 2011). Secondly, silver is driven more by industrial demand (10% in case of gold vs 46% in case of silver). Thirdly, silver prices are highly volatile making it a high risk, high return commodity. The third reason, although, can be derived directly from the first two, it severely impacts the sentiments of an investor. As silver, the commodities impact is shortlived because of perception of investors about gold compared to silver.

the form of thin parts which get lost and therefore, can never be reused. The practical use of gold and silver differ significantly. On the one hand, gold is traditionally seen as a preferred metal for jewellery which does not have much utility apart from a few places. Conversely, silver has more industrial usage than any other precious metal. A report by Hinde Capital states, Its the best conductor of both heat and electricity, the most reflective, and second-most ductile and malleable element, after gold. The white metal is also being put to several new uses like-water purification, air-handling systems and a natural biocide. This extensive use increases the demand for silver substantially. From the above two factors determining price of gold vs silver, it is evident that the demand for gold arises out of purely sentimental reasons while the growth in demand for silver is created by strong fundamentals. Thus, we can conclude that while the ever increasing demand for gold might remain buoyant, the demand for the white metal will see a phenomenal spurt with increasing applications and no foreseeable substitute in sight. Precious metals have a unique property of acting as a substitute to currency as they can be held as physical assets in the most tangible form. Particularly, in times of uncertainty and economic crisis it is seen as the safest investment to make. While gold as an investment has leveraged its positives for many years, lately it has succumbed to certain challenges, both intrinsic to the metal as well as external, from the market. Firstly, it is the purity of

Price of gold and silver are subject to certain factors demand and supply, practical significance of the metal and substitute to currency. The price of any material is determined by the movements in its supply and demand. For instance, the reserves of gold have increased 700% from 1 billion ounces in 1950 to 7 billion ounces in 2010. On the other hand, silver reserves showed an opposite trend as they fell 95% from 10 billion ounces in 1950 to 500 million ounces in 2010. The reason for this is that gold is generally stored in the form of bars or jewellery which is recycled and hardly ever lost in the process. However, silver has several applications in industry where it is used in

gold that is questioned before investing. The gold market has various grades of purity and associates different prices to each kind. If one is not cautious, one ends up paying more than it is worth. Secondly, it faces the threat of authenticity of dealers who deal in gold buying and selling. Random selection of gold dealers might lead you to one of the biggest mistakes of your life. While these two challenges are specific to gold, a major challenge posed by the market to an investor is to time the investment appropriately. While gold prices are constantly increasing and market sentiments changing almost every day, one should time his investment in such a way that one invests in gold to leverage a major hike. Recently, in the fourth quarter of 2012, gold prices declined in major currencies Dollar, Euro, Chinese Yuan and Rupee. Across all currencies, gold fell by 6.2% in that quarter. Volatility of gold and transactions have touched their decades low in the last quarter. According to World Gold Council, market players have been active under selling pressure during this period. About the effect of a loose monetary policy, WGC said The combined efforts of the Fed, European Central Bank (ECB) and Bank of Japan (BOJ) to underwrite markets with promises of unlimited monetary support served to quell nervousness, as did the results of the US elections. The recent observation in the equity market is that investors are pouring money into risky assets, which is seen as a disadvantage for gold. A report by WGC states that general risk aversion is not necessarily characterised by prudent risk managing tactics. It also foresees an opportunity for gold to play a larger role of being a valued commodity in this period of reduced exposure.

If an investor looks for an alternative investment to gold, he would be glad to notice the 300% returns that silver has produced in a span of 3 years (200811) a fact that has gone almost unnoticed. The fact that investors focus has not completely shifted from gold severely impacts silvers price volatility. Adding fuel to the debate is the consistent double-digit returns given by silver in 7 out of the last 10 years. A rough calculation shows that if one had invested in silver in 2005, he would have got a 500% return on his investment today. In the US, Silver has acted as a perfect hedge to the falling currency, showing a -0.79 correlation (over a period of 10 years from 2003-13) to US dollar. Although silvers prices have shown high levels of volatility, it has fared well in comparison to the general market volatility. It has shown a 0.1 magnitude correlation to the general volatility index while S&P 500 has shown a negative correlation of -0.49 with respect to the same index. Currently, the price of silver is determined majorly by industrial demand, where it is almost irreplaceable. As an investor if one looks for a sustainable investment portfolio, one would realize the importance of hedging risk against equity instruments by investing in metals like gold and silver. Studying the phenomenon deeper, one would realize that the growth opportunity and market size that silver can capture is huge compared to gold. Agreeing to what Warren Buffett had to say about gold, it has already run its course while a similar course is just beginning for silver. Therefore, a reasonable investor would choose to go with the one with strong fundamentals rather than being driven by sentiments.

BY NITIN SINGH, SIBM PUNE

The much sought after and of course coveted goal of financial inclusion is the silver bullet for lurking sustainable growth. Yawning divide between rural and urban is spooking our growth. Disparity of financial and even basic banking services is a major stumbling block in the path of nations prosperity. With the rapid advancement of urbanization making inroads into the rural hinterlands, it is imperative that people inhabited there need greater access to banking facilities. With the 72% population nesting in rural India, ignorance or turning a deaf ear would be fatal for economy as well. Penetration of urbanization is quite evident and growth in urbanization in this fiscal year was pegged at a whopping 32%. Commiserate to that, financial inclusion has become a major panacea for economy. As 60% of our GDP contribution is from rural and s m a l l towns. But stark reality is that only 47% of our population is s t i l l banked!! A l a s , looking at the gloomy and poor global economic scenario, it is indispensable that we must spur our internal market. If we can recuperate our botched domestic market, there would be an increased demand and supply. It will give boost to market sentiments and investments too. Amalgamation of Aadhar and Financial Inclusion Aadhar is touted to be an elixir for Direct Cash Transfer Scheme. With burgeoning fiscal deficit, it was inevitable to rein in mounting subsidies. Subsidies in cooking fuel, fertiliser, food etc, given to BPL families is the major reason for skewed fiscal deficit. Vicariously, Aadhar was chosen to accomplish the task cut out. Definitely, Aadhar has its pros that will cut down on middlemen, leakages and evasion of subsidies. According to Aadhar project, eligible people must have bank accounts. Cash in place of subsidies would be transferred directly to their respective accounts. But here comes a grave idiosyncrasy. Paucity of banking facilities becomes the moot point. Now to tide over this intricate issue, people must have bank accounts with them. Though, it is a daunting task for government to facilitate banking facilities in each and every nook and cranny of vast nation. But due to the exigency associated with it and it is the only option available

Nitin Singh, first year student of MBA Finance at Symbiosis Institute of Management Studies, Pune. Had work experience of two years in Java at Tata Consultancy Services, New Delhi. Done graduation, BE in Electronics & Telecommunication from Army Institute of Technology, Pune. Email idnitin.singh2014@sims.edu

with government to exercise. Therefore, Aadhar and financial inclusion must be on the same page to stave off bungled economy. There are some systemic flaws which dither integration of Aadhar and financial inclusion. However, government has tried to roll out Aadhar project in a phased manner. But at the speed with which project is carried out is not adequate. Issues in biometric identification and databases are also impeding speed of project. Lack of skilled labour is another issue. However, it will smooth process of documentation in account opening. Banks can verify Aadhar cards for identification purpose. That means, Aadhar will buttress financial inclusion in this way also. But the issue of paramount importance is of cost incurred to government on this project. Executing such a humongous project covering mammoth population is challenging. It is evident that expenditure involved in it is astronomical. Apart from that the project needs a good amount of time too. Due to dearth of skilled labour which can work in remote areas, drift is observed in project. Financial Inclusion A buzzword In every national daily, it is seen that financial inclusion is making to the headlines. Gradually, financial inclusion is gaining traction. In various quarters of media, this has become buzz now. Many multinational organizations and banks are conducting vari-

ous multifaceted programmes and drive to rev up inclusion. RBI has taken some measures to promote financial inclusion. But as inclusion does not come into the core business of banks, they are turning Nelsons eye to it. Taking all these intricacies into consideration, it is ostensible that inclusion is a Herculean task for government. But as around every bevy of dark clouds there is a silver lining. Hence financial inclusion can see the light of the day if consolidated and integrated efforts are poured in. Recent upturn in banking licences can alleviate the situation. So far efforts taken by RBI have come a cropper. With uptick in more banks operating in our nation, there would be more penetration of banking access to people yet remained oblivious. Thus, there is a golden opportunity for RBI to introduce more effective and beneficial requisites mandated to banks for licences. In this era of cut throat competition, every financial institution or bank vie for marginal market shares as these tad shares can prove to be cliff-hangers. To extract every possible profit out of populace, organizations cannot afford to expend their resources on noncore businesses, where probability of being a leader in the pack is diminutive. So, drawing their attention to inclusion is an arduous task. What our government can leverage is that it must incentivize the inclusion process in a

manner so that people and bank involved are benefitted. Banking Correspondents involved are reluctant to work into rural areas. Aadhar can go haywire Infrastructure needed to accomplish Aadhar project is gargantuan. Especially in remote rural areas setting up workshops for Aadhar is laborious and costly too. Duplication of data stored in National population register is another stubborn issue. Technology related issues can emerge anytime like integration of banking details and biometric data. If tardy progress of Aadhar project is not monitored continuously then it can gather dust by being just a run of the mill project by government. GOI must demarcate a dedicated ministry to keep a tab on Aadhar project. GOI can incentivize people who come for Aadhar registration. That will refurbish mental predilection of people too. In a nutshell Firstly, financial inclusion and Aadhar project must be integrated swiftly to plug any possible loopholes. In a nutshell, I can say that looking at current pros-

pects if intricacies are not weeded out from system in time then situation can worsen. The mission would be completed only if imperfections are regularly revamped in time. For this to happen, coordinated efforts of both GOI and RBI are most important. Though, financial inclusion is a gigantic and Herculean task. GOI and RBI have their task cut out. And these two must dispense their duty in letter and spirit to alleviate widening poverty. Financial Inclusions elusive and laborious goal is hard to achieve but integrated efforts can make us succeed. Any policy paralysis would aggravate the blight. Unrelenting fiscal deficit is the major cause for bleak economy. And in order to stem the nip in bud itself it is vital for us to arrest it. Now panacea for that to happen is financial inclusion. Inclusion is possible only with the on-board coordination with Aadhar project. If we wish to see India transforming into proverbial Golden Sparrow of yore then inclusion is the light of the day for us.

BY ISHWAR CHANDRA AGARWAL, MANAGER, UNION BANK OF INDIA

A discussion on the global economy would always be incomplete without bringing in The Banks. I would rather say that Banks are the engine of the global economy. In the last decade, India has emerged as the economic power house. 2008 was the year that registered itself as The Great Recession, witnessed obituaries of several global banks & financial institutions being written down. Thus, cemented its position just a notch below from The Great Depression of 1929 in the list of worst ever global economic crises. Like other economies, Indias economy has been banking on Banking sector, however, it was at an arms length from the turmoil that engulfed US & European Nations financial system. Our Central Banks & governments too conservative policies were proved judicious when India was completely unaffected by the engine missing problem! For instance, when the major economies considered norms of Basel-II to maintain a Capital Adequacy Ratio (CAR) of 8% as a bulwark that would be good enough to keep away all Financial Hazards, at that time Reserve Bank of India that is indeed very reserve asked Indian banks to have a CAR of at least 9%. Thus, rightfully by many of its reserved policies it did not only reserve the Indian economy to slip into the quagmire of bail-outs rather growth trend in India was reversed vis-vis the other major economies falling graph of GDP growth. In the last decade, our banking system has been through a sea change. The emergence of this century welcomed two few new Indian banks. With humble beginnings, these banks have created a special place for themselves in the sector. Remaining abreast with other sectors this sector also has also held the hands with Information Technology & led to the gestation of what we called Core Banking Solution or CBS. As per RBI guidelines, now almost all public & private banks have CBS and CBS in cooperative banks is a part of the undergoing next stage. In last few years, a couple of major changes have taken place when talking about interest paid by banks on savings account. First change is the deregulation of interest to be paid to depositors on savings account with bank. Another major change is the interest rate calculation method. Earlier, the interest was used to be calculated on the minimum amount in an account between 10th & the last date of the month, however now its on daily basis. Banking Amendment Bill that was in lurch since so long has finally got the approval from the parliament. This may entail greater powers in the hands of the central bank. RBI has now a greater power wherein they can call for information and returns from banking companies and even

Mr. Agarwal is a seasoned banker with more than 14 years of experience in banking sector. He has received several accolades for his contribution in the field of knowledge management, customer relationship management etc. Being an avid writer, he willingly contributes analytical articles on Indian Banking Industry.

inspect them. Earlier RBI could remove only a director now it can supersede the whole board, the public sector banks can also issue bonus shares, rights issue or preference shares. The private shareholders of public sector will have 10% voting rights while in private sector banks it 26% voting rights are proposed. This bill also paved the way for issuing new banking licenses. Hence, in the following years more players would be in the market leading to high competitive practices to capture more market share & in the whole act consumers would be benefitted the most. As cited above the whole sector seems to be robust however things are not very hunky-dory. After putting in efforts for so many years still around 33% of the population has bank account and a larger chunk of rural population has been mired in local pawnbrokers when it comes to loans & mortgages. To follow the Basel-III norms the sector needs at least Rs. 90,000 crores in the next 5 years, what makes the matter worse is that in recent budget only Rs. 14,000 crores were allotted contrary to the expectations of

Rs. 18,000 crores. India banks are also nowhere in the periphery of the top-10 banks of the world. While the public sector banks can boast their high levels of Non-Performing Assets (NPA), the top private banks have been plagued down by the allegations made by Cobrapost through its sting nationwide operations. These have been mocking various Know Your Customer (KYC) & Anti-Money Laundering (AML) policies and only time will tell whether the Cobra has indeed stung or not. Seeing the story so far, this sector asks for cautious optimism. We can hope that new banks would embark the new horizons for the sector. The lender of the last resort, together with the government makes sure that Financial Inclusion no more remains a buzz -word. These major stakeholders must identify all the needs and act as necessity is the mother of action. Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of the organization he is working for.

BANKING AMENDMENT BILL: AN INFOGRAPHIC REPRESENTATION

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BY SOUVIK DE, IIM LUCKNOW

In a popular commercial advertisement by one of Indias leading private banking giant captures the ripple effect of an economic activity on the economy as a whole. It struck a chord with the audience as highlights how everyone achieve his or her personal aspirations because of vast banking network. However, it took one vital assumption as granted- the ubiquitous presence of banks in India. However, in reality, according to the recent RBI data, only 59 percent of adult population in India have bank accounts- in other words, 41 % of the population is unbanked. The situation is worse in rural India where banking coverage is 39% as opposed to 60% in urban areas. So, one conclusion can safely be drawn from these statistics that India banking sector is under-branched and underserviced. Existence of an efficient banking system promotes economic growth as they allocate savings to those investments yields higher returns. Banks encourage economic prudence and savings in common mass. Banks have the potential to collect small savings from nook and corners of the country and then mobilize this savings toward capital formation for megainfrastructural projects which has been a bottleneck for Indias economic growth. So, banking plays a pivotal role in monetizing Indian economy. Banking promotes entrepreneurship and plays a crucial role in accelerating the pace of economic development. Banks increase the participation of private sector in economic development by making available the loans easily on reasonable rate of interest. In rural India, micro-finance firms (MFI) has propelled a wide gamut of entrepreneurial activity by giving loans to the Self-help groups (SHG). But, recently some of MFI have been shut down, over questionable practices and high costs, leaving the poor villagers back in the clutches of the moneylenders who are even more predatory. On the flip side, after the economic collapse of 2008, the world has witnessed how reckless banking of few Wall Street Giants has made the worlds economic system teetering on the precipice of collapse. India has, to some extent, decoupled itself from this disaster because of the tight banking regime advocated by the Central bank of our country - Reserve Bank of India (RBI). Now, RBI has faced a dilemma whether to trade this robust system for fulfilling the dream of financial inclusion. Luckily, RBI has found a way out. The process started a long back. In 2010, the

Souvik has graduated in civil engineering from Jadavpur University, Kolkata. Post that, he has worked briefly in a firm associated with power sector consulting. Now, he is a student of IIM Lucknow, batch of 2012-14. Souvik wants to build a career in banking industry. Email Idpgp28170@iiml.ac.in

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Government of India has taken a decision to issue new banking licences in wake of global economic pundits censuring Indian Govt. for not doing the adequate to bring the country out of economic slump. However, cautious RBI managed to put a hold onto the suggestion as it felt the requirement of strengthening the current banking system in order to avert any future economic backlash. Lets us check the current banking landscape of India. Current Indian Banking landscape is constructed by public banks, private banks and foreign banks. India has 96 scheduled commercial banks (SCBs) 27 public sector banks 31 private banks and 38 foreign bankshaving a combined network of over 53,000 branches. In percentage terms, the division is PSU banks (74%), private banks (20%) and foreign banks (6%), according to Crisil Research. Banks are further divided according to their working mechanism into commercial and co-operative banks. So, Indian Banking Industry has service products which cater to citizens from every stratum of society. However, the banking coverage is at abysmal low in some part of the country. Rural only constitute only 30 % of the commercial bank branches where 70% of our population live. Following the news of issuing new license many corporate houses in India, such as, TATA, Reliance, L&T and Aditya Birla Group have evinced interest to set up banks or turn their existing Non-banking Financial Company (NBFC) into a bank. However, RBI declined to grant them new banking license until Banking Regulations Act is passed by Parliament. Ultimately, in the winter session of Lok Sabha of the previous year on 20th December, the Banking Amendment Bill has passed by the LokSabha and is expected to be passed by Rajya Sabha as the Main Opposition Party has been a proponent of the bill. This bill gives RBI the power to supersede the whole board, should the situation come. So, it is expected that under RBI regulation

these banks will behave properly and help us achieve the goals for which they are established. In the draft guidelines issued in August 2011, the RBI had prohibited companies with significant interest in the real estate and brokerage industries from applying for new bank licenses. When few years back the worlds economic system was brought to the brink of oblivion by reckless banks through trading mortgage-backed securities, RBIs apprehension cannot be discounted. However, later on, the clause has been relaxed and any private or public sector entity is allowed to apply for the license before 1st July, 2013. A committee by RBI will check each one of the applications and licenses will be given seeing the objective and past track record of the bank. So, a huge power is given to Reserve Bank on this matter. The way reserve bank handled Indias economic system, there should be little doubts about RBIs intent and capability. Promoter or promoter groups will be permitted to apply for a new bank only through a wholly-owned non-operative financial holding company (NOFHC), which will hold a stake in the bank as well as all the other financial services companies regulated by the RBI or other financial sector regulators. The objective is that the holding company should insulate the the new banking activity from the other commercial activities of the group that are not regulated by any financial sector regulators and additionally, the bank should also be insulated from other regulated financial activities of the group. This step will help a great deal to decouple banking from other upheavals in global financial sectors. Sufficient regulatory measures have been taken by RBI in regard to setting up new banks. Minimum capital requirement of the new banks has been marked at Rs 5 billion which is higher than the capi-

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Tal requirements set during the earlier rounds of bank licensing in 1993 and 2001. This clause will encourage only serious player to enter the sector. Also, he bank shall be required to maintain a minimum capital adequacy ratio of 13 per cent of risk weighted assets (RWA) for a minimum period of 3 years after the commencement of its operations. This clause will keep the systemic risk of the industry in check that will enhance with new players entering. To keep the domestic banking sector insulated from global economic upheavals RBI has set a limit of 49 percent foreign shareholding for the first 5 years and post that the existing rule of 74% foreign shareholding limit for private players will be applicable. Now, lets analyse how these new licensee will help India grow economically with financial inclusion. Unlike banks other financial institution like NBFC cant take demand deposit, such as Current Account and Saving Account. Sometimes, few NBFCs might have license to take time deposit such as Fixed Account. However, they cant take CASA funds (Current Account and Saving Account) - the most inexpensive funds amongst all. This cheap fund has the potential to reignite sluggish Indian economy. Product like convertible saving account by which customer can transfer money to fixed account from saving account would be beneficial for both the parties. However, regulations must be there to check on this innovation. For achieving inclusive growth India needs to harness the potential of its rural segment. Some Nonbanking Financial Company (NBFC) and Microfinance Institutes (MFI) are making efforts in this direction. NBFCs are giving tractors on lease to poor farmers who increase productivity through this. Selfhelp groups are provided with seed capital by MFIs to make them self-reliant and enhance their familys

income. Now, this so far financially excluded segment of the society should be brought under organized banking coverage, so that inclusive growth can be attained. Reserve Bank has focused on financial inclusion for the new entrants. Guidelines say a new licensee should open at least 25 per cent of its branches in unbanked rural centres (population up to 9,999 as per the latest census). In addition, it would also be required to meet priority sector lending targets and sub-targets as applicable to existing banks. And also, from the competition theory, its expected the new banks will try to innovate new products for currently unbanked market rather than fighting in highly competitive market space. The first flush of allowing private players to set up banks in the liberalization era has been quite successful. We have the success story of Axis Bank and HDFC bank to support our claim. However, in this context, we must mention old private sector banks have not pursued national-level branch expansion which could have enabled them to provide banking services to a wider population base. So, RBI and government should ensure that so far untapped population base is brought under banking coverage. The apex bank can take some unconventional and innovative measure like issuing license for entity to take over moribund regional rural bank and restructure them into a profitable organization. This mechanism while containing the systemic risk, would be able to achieve financial inclusion. Simultaneously, stand-alone MFI and NBFCs can be allotted new banking license whose balance sheet dont have risky assets and which have good presence in the geographic reach that has remain unbanked so far. There is always a trade-off. New banks along with suitable regulations and supervisions by the apex bank can alter the Indian banking space and give the much-needed impetus to Indian economy. Focus should be always to increase competition and help India achieve financial inclusion. A concerted effort of private sector, RBI and Government of India has become need of the hour to push this reform for a better future India. I hope Indian Elephant start dancing again!

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BY PARTH P. PANDYA, SIMSREE MUMBAI

Financial Inclusion is the process of ensuring access to appropriate financial products and services needed by vulnerable groups such as weaker sections and low-income groups at an affordable cost in a fair and transparent manner by mainstream institutional players. -Mr. K.C. Chakrabarty, Deputy Governor, RBI 1. Introduction India has seen consistent growth during the last few years. However, this growth has been superficial and not to the core of India. The growth has not been witnessed by the rural population. According to the 2011 census about 83 crore people in India live in villages. This 83 crore people have not yet tasted the flavour of Indias economic development. This is evident from the fact that, around 37% people in India still live below poverty line. Financial Inclusion is contemplated in a number of ways. For instance the Finance Ministry considers that financial inclusion ends by ensuring that everyone has a bank account. For the RBI it is ensuring that the money does not leak in the process of transfers. Hence it becomes necessary to understand the actual need of financial inclusion. 2. Need for Financial Inclusion The government has declared a number of schemes and passed a number of bills in the parliament like the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), Food Subsidy bill etc. in order to make the lives of the poor better and easier. The government declares huge subsidies for these people. However the benefits of these subsidies hardly reach the poor. Hence the government has voiced a new method called the Electronic Benefit Transfer (EBT). This is a way in which the benefits or the amount is directly transferred to those who deserve it into their bank account. Hence it becomes necessary that each and every person has a bank account. This will reduce the leakages in the system and reduce the corruption to a great level. This shows the need of providing banking and financial services to every person in the country. According to Census 2011 only 58.7 percent households in the country avail banking services. This suggests that more that approximately half the nation does not get an access to banking services. Hence financial inclusion is something that is stressed upon by the government. Some of the figur-

Parth completed his B.E. in Electronics and Tele-Communications from VESIT, Mumbai in the year 2012. He is currently pursuing his M.M.S. from Sydenham Institute of Management Studies, Research & Entrepreneurship Education, Mumbai. Email Id: parth.pandya@simsre e.net

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es shown in the table suggest that there is a dire need for improving the banking services in rural India. Type of the bank Total no. of Branches Rural Branches Rural branches as a percentage of total 34.35% 31.97% 2.29% 74.73%

major concern of the banks. In case of a default the banks are unable to get back the principal amount by selling the assets as the asset quality becomes a problem. Social exclusion can also be a possible reason. 3.2 Supply side challenges Cost: Banks and NBFCs are the vital touch points as far as providing basic financial services to the rural areas are concerned. However, usually banks are reluctant and cautious to open branches in such areas. The reason is that opening branches requires a lot of capital expenditure like acquiring land, construction, and office staff, providing communication and internet services and others. In the rural areas the transactions are negligible and of very small amounts. Hence the transaction costs itself sometimes exceed the transaction amount. Distance: Moreover such areas are remote and highly inaccessible and hence it becomes difficult for the banking operations. Additionally there is operational risk involved in physical movement of cash and other important documents. This also increases the time taken to complete every transaction where the physical movement of documents is required. KYC: For rural citizens the KYC (Know Your Customer) norms are very difficult to satisfy as they do not have enough documents required to be submitted while opening an account. Thus it becomes difficult for the banks to maintain the database of such customers. 4. Ways and means to achieve Financial Inclusion Lack of access to banking services drives the people to approach informal financial services like money lenders, unregistered financial companies etc. This leads to several imperfections and unethical practices like expensive credit and exploitative conditions. The precious savings of the rural population is lost and they become indebted to the money lenders.

SBI and its Associates Nationalised Banks Foreign Banks Regional Rural Banks Private Sector Banks Total

18685 48284 306 16170

6419 15435 7 12084

12614

1419

11.25%

96059

35364

36.81%

3. Challenges against Financial Inclusion The Reserve Bank of India and the Government of India are constantly striving to make this dream of financial inclusion come true. However there are certain challenges faced in the area of providing financial services from both the demand and supply side. Some of the challenges are listed below. 3.1 Demand side challenges Low literacy rate: Low literacy rate is the major concern as far as the demand side is concerned. People do not even have the basic knowledge about the financial products &services available in the country. Low income: Lower income level is another problem with rural India. There is a huge gap between the per capita income in the rural and urban parts of the country. Considering 2004-05 as the base year the per capita income in the rural areas is around Rs.16400 and in the urban areas is Rs.44170 approximately. Lack of assets: Absence of assets that can be used as collateral is also an issue that is a

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This further creates a rift between the rich and the poor. To tackle this, we considered these options:4.1 Mobile ATMs Since opening physical branches and multifunctional ATMs is costly and unnecessary for the banks, banks can therefore use small mobile ATMs with basic functionality like cash withdrawal, balance enquiry etc. These ATMs can move from a place to the other depending on the time of the day E.g., they can be near market place in the evening or petrol pumps in the morning. This will cost the bank lesser and provide banking facilities at the door step. 4.2 Business Correspondents Banks might grant permission to some correspondents for providing certain basic banking facilities like withdrawal, deposits, cheque books etc. The correspondents can be any trusted person or institution abiding by the rules and regulations. They can be the local grocery stores or certain institutions working for the welfare of the people in rural areas. This carries with it the risk of exploitation and misguidance. However, a strict check on their working can prevent any kind of misguidance by them. 4.3 Mobile Banking According to TRAI there are approximately 90 crore mobile connections in India. So the reach of mobile phones is deep into India and hence it can be used as an instrument for providing financial service on the mobile. Certain services like transfer of money from one account to the other, payments of bills, balance enquiry and other such facilities can be easily provided using mobile as a platform. There is another method in which this model can be used. The retail shops for the mobile recharge are spread across most of the parts in the country including the remote areas. The retailer will have an account with a bank and the customers can deposit and withdraw money from him in a way similar to mobile recharge. The transactions can take place via SMS which can then be considered as a proof of the transaction. The following table shows the cost per transaction incurred because of different delivery channels. 4.4 Financial Literacy

Though the literacy rate of rural India is improving, the number of people having basic financial knowledge is minimal. Thus it becomes necessary to impart appropriate knowledge with regards to the financial products and services. Also the products designed for such rural population must be very easy to understand. Most of the times, people do not become a part of the system because of the complexity of the system products and procedures. The knowledge must be imparted in their native language which would make it easier for them to understand. Delivery Channel Physical Branch ATMs Mobile Banking Internet Banking 4.5 Using UID number The unique identification number scheme that has been started by GOI is considered as an important step when it comes to microfinance and financial inclusion. The number will be acting as an identity proof for those who do not have any documents for this purpose. Hence opening accounts in the bank will be much easier. Also this cards can be used for the disbursal of social benefits like scholarships, pensions NREGA wages etc. This card can also be linked with the micro ATMs and bank accounts of the number bearers. A no frills account can be opened along with a regular account. No frills account is a low balance maintenance account along with lighter KYC norms. Thus the UID number can be a facilitator for the purpose of microfinance and financial support to the financially excluded section. 5. Conclusion It is simple to know that in spite of the continual economic development of India the dream of becoming an economic power cannot be achieved until and unless each and every Indian tastes the flavour of this progress. For this it will be necessary to bring everyone under the ambit of banking and financial services industry. Hence it is high time that the GOI put some concentrated efforts in this direction. Cost per transactions (Rs.) 40 0 to 20 9 6

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BY PRAKASH NISHTALA, NMIMS MUMBAI

Budget has always been a cynosure of all the people of the country. Preparing the annual Union Budget is a laborious and lengthy exercise that takes over five months, and is accompanied, in the final stages, by an obsessive emphasis on secrecy. The budget preparations has two important facets: Content side and Logistics Side Content Side: The budget content-wise has two major parts: Revenues Expenditures Department of Revenue assesses the revenue collection from various central taxes while the Department of Expenditure estimates the expenditure needs for the next financial year which also includes assessment of resources of the public sector undertakings (PSUs). The Budget division is a part of the Department of Economic Affairs. The Finance Secretary coordinates the overall Budget-making process. All of them keep the finance minister informed and seek directions from time to time. The Chief Economic Advisor assists the concerned departmental officer in this process. 1) Resources (Revenues) side Apart from the tax receipts, the other sources of the revenue which go into the Budget are the dividends paid by the PSUs on the government shareholdings which include the interim dividends and the capital receipts on account of the divestment of the government entities. Also, external receipts on account borrowing from international agencies like World Bank, ADB, etc, are included in the estimation. PSUs are generally funded through their own resources except in some strategic and economically vital areas where the budgetary support is provided based on the recommendations of the Planning Commission. This assessment of the Internal and External Budgetary Resources (IEBR) conducted by the Department of Expenditure forms part of the total plan resources and is also reflected in the budget documents. Estimation of the earnings of the PSUs is done by inviting the CMDs or the finance directors of the PSUs to the North Block. A one-on-one meeting is conducted by a joint secretary level officer of the ministry of finance to estimate the revenues. This information is then passed on

Prakash Nishtala is a first year student of MBA at SBM, NMIMS, Mumbai. He holds a B.Tech degree and has 2 years of work experience in IT and Stock Exchange (F & O Segment) Email ID : prnishtala@gmail.c om

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to Expenditure Secretary, who in turn, passes on the information to Finance Secretary. This revenue forms a part of plan expenditure. Now, the role of different ministries comes into the picture. The financial advisor from each ministry is called by the ministry of finance and asked about the expenditure of the amount allocated to his ministry. Based on the inputs of different ministries Revised Estimate (RE) is prepared. Revised Estimate means as to how much is actually required by the ministry. The government has issued instructions to various ministries to adhere to the quarterly expenditure schedule and to avoid bunching of the expenditure in the last quarter. Additional funds are also provided in the RE stage. Important is the estimates of the non -plan requirement for the next year. Plan allocations are to be provided by the Planning Commission later based on the total gross budgetary support (GBS) indicated by the ministry of finance. This exercise starts in the month of OctoberDecember. As is known, the Department of Revenue, the ministry of finance has two boards, Central Board of Direct Taxes (CBDT) and Central Board of Excise and Customs (CBEC). By mid-January, these boards give the figure of tax collection up to December 31. For remaining three months, tax collection is assumed on the basis of previous trends. The boards also estimate the tax revenue expected in next financial year. The integrity of the budget making depends on the realistic nature of these estimates particularly in the face of the fiscal discipline imposed by the FRBM Act. 2) Expenditure side While the ministry is busy estimating the revenue receipts, the Planning Commission, simultaneously, goes into stock-taking mode. It starts meeting with individual ministries in the month of SeptemberOctober and reviews ongoing schemes of the ministries, considers allocation for them, etc. It may de-

cide to stop some ongoing scheme or merge two similar schemes. Thus, an estimate of Plan Budget is prepared. The Planning Commission conveys to the ministry of finance that it requires so and so amount to run planned schemes for next financial year. The finance minister and the Deputy Chairman of Planning Commission discuss the demand in detail. This way Plan Expenditure is ready. Different ministries are also asked to tell about their fund requirement, which forms a part of budget estimate. Side by side, Department of Economic Affairs meets representatives of trade unions, industry chambers, economists and other groups. In the Budget-making exercise, suggestions of different stakeholders are kept in mind. FMs decision with his team By this time, the finance minister is in a position to estimate as to how much it will get through taxes and how much it has to spend in coming financial year. The finance minister has other constraints also. He has to abide by FRBM Act and cut fiscal deficit. Keeping in mind all these, the finance minister -with his team -- decides whether some new taxes should be levied to collect more tax, how to widen tax net in order to earn more revenue. While doing so the suggestions from various interest groups are duly taken into account. GDP assessment The Department of Expenditure and the Department of Economic Affairs sit to decide GDP assessment for next year. Generally, a nominal growth in GDP is projected. Actual growth in GDP is nominal growth of GDP reduced by inflation figure. The Budget Speech of the FM The finance minister delivers the Budget Speech in Parliament. Normally, on February 28, the finance minister delivers the Budget Speech in Lok Sabha. After which Budget documents are made available.

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Logistics Side: The following pictorial representation shows the various levels of logistical support activities that goes behind the making of the budget.

The above picture is taken from Hindustan Times, February 23, 2013.

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BY VIDHI JAIN, TAPMI MANIPAL

Indian economy is one of the fastest growing among emerging economies. The strong policy measures by government have helped India recover quickly from the crisis. Counted as an attractive destination for investment, there is robust demand for banking services in India. India has huge and untapped potential for banks fueled by growing demand for affordable and high return savings products. Other avenues which demonstrate huge possibility for growth of Norms Minimum Capital Requirements banks are rising affluence in country, liberal investment regimes with options in diverse sectors as tourism, infrastructure etc and increasing middle class segment. The key objective of broadening and deepening reach of banking services in India has prompted RBI to consider giving fresh banking licenses after 10 years. Following is the insight into those license norms by RBI which merit consideration:

Vidhi Jain is currently in second year of her PGDM from T A Pai Management Institute, Manipal

Description The minimum paid up capital requirement for applicant is Rs. 500crore.

Remarks This amount is neither too less(<=300 crore) nor too high (1000 crore). Thus will hinder non-serious players from applying.

Ownership Pattern

At the start of banking operation promoter should bring in minimum 40% capital with 5 year lock-in, which has to be brought down to 15% within 12 years.

This clause will ensure promoters interest in making banks business model a success due to high stakes, The dilution of stake at later stage will ensure diversification and no entity will have significant control as the bank grows.

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Eligible Promoters

Unbanked rural area coverage

Anyone can apply for license be it public entity, private entity or financial institution. At least 25% of new banks branches must be in rural centers with no banking facility.

Foreign shareholding

FDI is capped at 49% for first five years after which it can be extended.

This gives fair chance to everybody and allows broader set of entities in banking. This move will benefit population excluded from banking services earlier. With new banks coming into the system the penetration will improve. It would also lead to more people coming into the system. This restricts foreign investors willing to invest more capital in India. However increase in voting right will help in attracting foreign investors as they will have more say in banks. This will ensure only companies with market exposure to less volatile prices will pass through.

High Asset Price Volatility Clause

The business model of promoter group should not indulge in activities which are speculative or subject to high price volatility.

The new banking licenses are undoubtedly likely to encounter challenges of geographical coverage, insufficient infrastructure and inadequate technology. However certain regulations have gathered opponents more than proponents. On the contrary The opponents of reform allowing industrial houses to enter banking space have argued of conflict of interest between corporate interest and banking interest. It has been observed that regulators in other countries also do not allow corporate to set up banks and if they do there are restrictions on ownership and voting rights. The flaw in the reform is possibility of increase in risky loans from lending to related firms. If the loans backfire it could trigger a huge crisis. But on the flip side India can leverage upon deep pockets of corporate and bring new technologies to extend financial inclusion to underserved markets. Rural branch coverage compulsion can be a bottle neck as it is difficult to service those in remote areas and also be profitable. Achieving priority sector

lending target of 40% also seems unrealistic considering existing banks failure to meet the target. But constraints give way to innovations. FMCG companies have long back understood the dynamics of the rural segment and have been making maximum money from bottom of the pyramid. But careful thought and strategy will enable banks to seek niches in this segment of population and make a difference. Likely new entrants - NBFCs, Realtors, Brokers? The criterion for new bank applicants is sound financial track record for past 10 years. This has been a setback for realtors as last few years have been challenging for real estate sector with high debt ratios and low market valuation. Brokerage sectors may stand a slightly better chance than Realtors but financial ratios may or may not be optimum considering dip in equity trading due to 2008 financial crisis. Most of the pure-play NBFCs are best placed to meet RBIs criteria and have much better financial ratios. NBFCs stand a good chance of foraying in

21

the banking space also due to their prior presence in financial sector. Currently higher rates of borrowing and lending by NBFCs impede growth of borrowers. Conversion to banks will give NBFCs access to lowcost CASA (current account, savings account) funds which will in turn reduce lending rate to borrowers in urban and semi-urban areas. The regular NBFC clients like Infrastructure, farming companies will receive equipment financing at low cost making them competitive. Also capitalized banks is what India needs and some leading NBFCs are wellcapitalized than existing banks. RBIs Objective RBI along government have taken major steps of nationalization of banks, priority sector lending norm, emphasis on mobile banking in the past to bring un-banked population under the umbrella of banking services. Being bank of banks RBI has responsibility of safeguarding the public interest. It has come up with tight guidelines to ensure only responsible people enter the banking space.

The new entity is required to set up a wholly-owned Non-Operative Financial Holding Company (NOFHC). This will protect banking operation from other businesses of group. The high quality regulation can ensure liquidity and profitability of banks. Kotak Mahindra bank is the best example for the same. Road Ahead Overall guidelines by RBI seem to be a welcome development, paving way for more capital and more players in the sector. For the industry dominated by state lenders new banking license move is intended to increase competition and efficiency in the sector. Although challenges of risk management, rising NPAs, capital adequacy ratio compliance and other stringent norms remain, the strong performance of banking sector over past few years showcases vast opportunities.

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BY APRA CHORDIA & STAR JAIN, IMI DELHI

Introduction Since the advent of internet, the world has shrunk, distances have lost their importance and information has no more remained a differentiating factor in this global arena. Globalization-the BUZZWORD has swept nations within its leap and business at this hour, across the international boundaries has become as easy as it was in the domestic setup. Unfettered, unbridled, the corporate world is expanding and spreading its reach beyond nations conquering them at the rate of knots and boundaries have lost their relevance without a doubt. At this point, it is the need of the hour to have globally set standards in all domains to avoid discrepancies and conflicts across boundaries and have a well defined, structured policy framework throughout. In this regard, a need for an internationally accepted accounting standard becomes all the more unavoidable so as to ensure greater accountability and homogeneity in the financial sector and bridge the lacuna that exists in the accounting standards. So, the transition from GAAP i.e. Generally Accepted Accounting Principles to IFRS- International Financial Reporting standards becomes indispensable. What is IFRS? All EU listed companies were reInternational Financial Reporting Standards (IFRS) are designed as a common global language for business affairs so that company accounts are understandable and comparable across international boundaries. These are standards for reporting financial statements applicable to all the companies under its ambit. IFRSs are developed and approved by IASB (International Accounting Standard Board) One of the basic features of IFRS is that it is the principle based standard rather than rule based Need of IFRS in India With the transition of a large number of countries towards acceptance of IFRS as their financial reporting standard, it has become the need of the hour for India to quickly adopt the IFRS standards so as to stay competitive and investor friendly. Also to ensure greater flexibility, ease and friendly environment for the growth of our companies we need a globally accepted reporting framework so as to ensure greater credibility of the Indian companies on the global podium. Global Scenario

Apra is currently pursuing her PGDM (1st year) at IMI, New Delhi. After completing her engineering in Computer Science, she was associated with TCS for 2 years. She is a member of Finance Committee at IMI. E-mail Id: apra.p12@imi.edu

Star is currently pursuing PGDM I yr at IMI, New Delhi. He graduated as a Computer Science Engineer and then worked with Infosys for 21 months. He has a strong inclination towards finance and he loves to reads and writes articles. Email Id: star.p12@imi.edu

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quired to prepare their financial statements following IFRS from 2005 as a result of a regulation passed in 2002. The Securities and Exchange Commission (SEC), in 2007, also announced that it would allow foreign companies to have access to US Capital Markets while reporting under IFRS, which in turn affected around 1100 U.S. companies with US listings, along with any companies planning U.S. IPOs. A roadmap for mandatory adoption of IFRS, in US, by 2016 has also been proposed by the SEC. Following EU and America, China has taken the path of IFRS adoption but in its new domestic version called the Accounting Standards for Business practices, which was issued by its Ministry of Finance in Feb, 2006. India Starting 1st April, 2011, The Ministry of Corporate affairs (MCA), a part of Government of India, laid out a roadmap for transition to IFRS Converged Indian Accounting Standards (IAS) in January 2010 in three different phases for companies. Roadmap for Companies for the transition towards IFRS For companies who do not fall in the above categories, if voluntarily wants then they can disclose their financial statements under IFRS.

Benefits: Effective Comparison of performance with other business With the acceptance of IFRS by all the nations, the burden on the multinationals in reporting their accounts and profitability will be much less and their accounts will be more comprehensible. Increased transparency There will be greater transparency for the companies in comparing the performance of the company outside its country. It will also help the companies in judiciously evaluating the companies in foreign lands and taking the decision about their prospective alliances or partners in different countries. Universality Adoption of a universal reporting standard will help the users in easily understanding the financial statements and hence make the business decisions.

Ease of application It will be easy and simple for the internat ional bodies to make the changes and enforce them globally as much subsequent changes will be needed. Flexibility and Reusability A huge amount of rework is avoided as changes done by the companies need to be

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done again and again if all the countries in which the company is listed, originally belong to or operates in all adopts the IFRS, hence ensuring greater flexibility. Increase the credibility of Indian companies globally Ease in partnering with global partners

Realizing the utter need of IFRS, The MCA finally took a step forward and announced a three phase roadmap for the companies specifying the date for them for reporting their financial statements in accordance with the IFRS. In order to ensure the smooth attainment and helping companies in the transition process, government of India has taken the following steps: A high level task force was set up in India to expedite the convergence process. Extensive Research and surveys were carried out to understand the state of readiness of the companies on adoption of IFRS and it was concluded that a large number of them had successfully attained the pilot phase. Small and Medium Enterprises (SMEs) were exempted in adopting the IFRS in the roadmap proposed as the whole transition is very cost intensive and will pose great burden on SMEs. Also ICAI has suggested that for SMEs, a separate standard may be formulated based on the IFRS issued by the IASB after modifications, if necessary. As per a senior official of ICAI, they are planning to upgrade the CA curriculum with the adoption of IFRS in India by including some of the certification courses , conducting programs and also training people on this. Conclusion Since the inception of the idea of a universal financial reporting standard, more than 100 countries have already adopted it to enjoy the long term benefits derived due to its homogeneity and standardization. Seeing and analyzing the benefits of IFRS, it becomes all the more pertinent for a country like India to adopt it as soon as possible so as to maintain investors positive sentiments and also strengthen their faith and credibility in the Indian Market. The adoption might lead to short term investments and initial challenges but the long term benefits are strong enough to justify the initial hassles of implementation and adoptability. A holistic roadmap, with the support of the government, must be chalked out to train all the people from the top management to all the stakeholders involved so as to gain maximum benefits from IFRS.

Drawbacks of non adoptability of IFRS: The increased burden on foreign investors who have their financial statements reported under IFRS to convert it to GAAP in order to list themselves on Indian stock exchanges. This extra cost will mitigate the investment sentiments and will in turn reduce the foreign capital inflow to India. The non-adoptability of IFRS has attracted a very poor rating in terms of ease of doing business in India. Challenges Inadequate trained people on IFRS A large pool of people trained on IFRS will be required which is a big challenge for India. Complex Transition Transition from GAAP to IFRS is complex as it not only requires changes in the accounting procedures but also in our IT systems. IFRS requires assets to be reported as per the market value instead of historic value as required under GAAP. This may adversely impact the financial statements of a huge number of firms initially and is attracting resistance from a large number of corporate houses. Unlike other countries, the accounting framework in India is subject to a wide number of laws and regulations. With the complete adoption of IFRS, changes need to be incorporated in various regulatory requirements under The Companies Act 1956, Income Tax Act 1961, SEBI, RBI etc. Along with the people preparing the financial statements; stakeholders, regulators, auditors, employees, tax authorities, management and people in other decision making bodies need to be trained. Indian Efforts towards Adoption of IFRS

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THE MONTH in images and words

In times like these when the global and domestic scenarios do not give us much to cheer about we could use some comic relief. This section captures some of the main events of the past three months in cartoons, coupled with some of the insightful and sometimes humorous quotes.

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Compiled by: Anirudh Kowtha, MBA I Year, NMIMS, Mumbai

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BY SOUMYA CHATTOPADHYAY, IIM KOZHIKODE

The government decision of allowing new banks to come up was much awaited and RBI has finally come up with guidelines for financial institutes to be eligible for setting up new banks. The new bank licences are expected to start a new era in Indian banking by inducing fresh blood in the markets. Indias banking sector progression story is one of a careful progression in the global financial arena that is heavily dominated by the likes of US and European entities. However, the crying need for increasing the number of banks does not derive solely from a competitive point of view. There are other reasons substantial enough to suggest that we need more banking entities. If the question is about Indias need for more banking, the answer is a firm yes. Indias GDP growth has been mostly sustained by its huge domestic savings. At one hand we have a huge population that needs a safe place to deposit their savings and on the other, we have Industry in the need of financing to operate and grow. If we consider the low per capita income of our country, the aggregate savings by the households is significantly high. Banks have played the crucial role of intermediaries, channelling funds from one end to the other. It is very important to note that Indian economy is having a financing model which is predominantly bankoriented, which is crippled by the absence of debt market and as a result, we have over reliance on the banking system as the source for funds for both short and long term growth. But the most significant reason that many tend to overlook is the abysmally low financial inclusion in our country and the urgent need to include more and more people under the coverage of institutionalized finance. Banking system in our country had an audacious target of covering close to 55.8 million excluded households and all villages with greater than 2,000 populations by 2012. It is already 2013 and we have missed the target by miles. More appalling is the fact that there was a tacit acceptance among the authorities well before the deadline about the infeasibility of the target. It is high time Government takes a hard look at its own financial inclusion initiatives. With the change in PDS system and direct cash transfer proposition, it is high time we approach financial inclusion with adequate urgency. It is a necessity rather than being a choice for us. Over the decades since the initial phase of bank nationalization in 1969, the regulations have demanded the financial institutions to have a wider reach into the rural, semi-urban and other financially excluded areas. It is no wonder that only significant locations of the

Soumya is currently pursuing MBA from IIM Kozhikode as part of 2012-14 batch and is an elected member of MEDIA CELL. He is also a member of the Economics, Politics & Society Interest Group at IIM K. Author is a 2009 batch pass out, ECE engineer with 31 months of work experience in ERICSSON. Email Id: soumyac16@iimk.ac.in

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rural areas of major states came under adequate banking services coverage as it was only about meeting regulatory guidelines. However, huge part of population living in interior villages is excluded and accumulative figure of exclusion is shocking. Quoting NSSO data, 45.9 million farmer households (51.4%), out of a total of 89.3 million households have no access to credit, neither institutional nor non institutional sources. Moreover, despite the continuously improving network of nationalised banks rural branches, not even one third of total farm households are indebted to formal sources .Farm households lacking access to credit from formal sources as a proportion to total farm households is shockingly high at 95.91%, 81.26% and 77.59% in the North Eastern, Eastern and Central Regions respectively. Thus apart from financial exclusion being large, there is noteworthy variation across regions, groups and communities. The poorer the group, the greater is the exclusion. It is true everywhere irrespective or region, religion, ethnicity or any other identity. Asset holding or lack of it is primary key to understanding financial exclusion pattern. However, there is strong counter view as well. It champions the cause of having few, stronger banking entities by consolidation in the sector rather than creating new banks which would mean more number of banks that are comparatively small. Creation of more banks will increase the competition and customers are supposed to benefit from that. But it is not that easy to say if competition within the banking sector comes with significant benefits, if at all. Competition squeezes margins and forces banks to take increased risk to ensure returns for shareholders and compensation for executives. What happened in 2008 in global finance meltdown can largely be con-

tributed to such a scenario. The advocates for larger banks instead of more banks also argue that in a country with rather shallow financial markets dominated by short term speculative players, where nearly 70% of bank assets are bottled up in cash reserve ratio, statutory liquidity ratio and priority sector lending obligations, leaving only 30% of the kitty to generate returns for shareholders, the environment is ripe for excessive risk-taking if competition increases further in the banking sector. It is important to understand that what we need is variation in banking sector. We need new entities that would not be just a replica of already existing private banks because in that case granting new licenses will simply increase competition in the case. It is not desirable keeping in mind the consumers side is sufficiently protected by ever vigilant RBI. Any further competition in the banking sector will cause much more harm than benefits to the customers, if any. The purpose of creating more banks must be expanding the reach of institutionalised finance. The utility of having new banks has to be measured by how much financial inclusion can be achieved through them rather than their ability to cater to the needs of industry or upper middle class and rich section of the population. With total bank lending less than even half the size of the GDP, Indian banking system is stunted, something which is a boon to unauthorised local money lenders, who occupy the space vacated by the banks. There should be no doubt that we need more banks but new licensing regulations and eventual market player selection must ensure that the very purpose of this expansion activity is not defeated by creating replicas of existing urbanised private banks.

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BY DADICH BHATT & VAISHNAVI SHAH, SCHOOL OF PETROLEUM MANAGEMENT, GANDHINAGAR

The best of intentions get defeated when a system is not used judiciously. -K.C.Chakrabarty What is Corporate Debt Restructuring? Corporate Debt Restructuring is a mechanism by which a company attempts to reorganize its outstanding obligations. This can be done in any of the following ways:

Borrowers perspective: When a company is having outstanding debts which cannot be serviced under its existing operations, it can either go towards not so sustainable path of enhancing its quantum of debt with an expectation to increase its profitability and repay its original debt which comes with its own risks or cease the operations of the company leading to its natural death. A more viable alternative which is formulated by governments of many countries is to consider a structured plan to renegotiate the current debt with its existing lenders itself. This is where restructuring gains prominence. Lenders perspective: The primary interest of lenders lies in recovering the principal amount lent to corporates along with returns on that investments and not in liquidation of assets. Apart from this liquidation, proceedings are notorious for yielding low returns for creditors. CDR gives lenders a unique opportunity to avoid being encumbered with NPAs. Hence, CDR becomes an instrument for lenders, i.e. banks to aid the transformation of otherwise NPAs into productive assets.

Dadich is a Electrical engineer having a work experience of 35 months in petroleum industry. He is currently studying at School of Petroleum Management, Gandhinagar. Email Id: dadhich.bhatt@gmail.co m

Increasing the tenure of the loan Reducing the rate of interest One time settlement Conversion of debt into equity Converting un-serviced portion of interest into term loan

Vaishnavi is an IT engineer from University of Ballarat, Australia with a work experience of 10 months in IT industry. She is currently studying at School of Petroleum Management, Gandhinagar. Email Id: vaishh1807@gmail.com

There are occasions when corporates find themselves in financial hitches due to factors beyond their control and also sometimes due to internal glitches. For the resurgence of corporates and for the security of the money lent by the banks and financial institutions, timely support through restructuring of genuine cases is called for. Why do corporates go for CDR and also what interests does it serve of lenders?

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How does CDR work? The Corporate Debt Restructuring (CDR) Mechanism is a voluntary non-statutory system based on Debtor-Creditor Agreement (DCA) and InterCreditor Agreement (ICA) and the principle of approvals by super-majority of 75% creditors (by value) which makes it binding on the remaining 25% to fall in line with the majority decision. The CDR cell negotiates the exits of companies whose loans are being restructured if they fulfill conditions as follows: Have been in the CDR mechanism for at least 5 years Reported a 25% growth in earning before interest, tax, depreciation and amortisation (EBITDA) for the last 2 years Declared more than a 10% dividend Undertaken major capex expansion How has the CDR cell helped the Indian companies? As per the latest data available with CDR cell, a total of 466 cases, involving total debt of Rs 2.46 lakh crore, have been referred to it since its inception. Of this, 101 cases involving about Rs 64,000 crore have been referred in 2012 itself. Of the total 466 cases referred to CDR cell so far, 75 cases involving Rs 27,400 crore have been rejected by the bankers, while 64 cases (totalling over Rs 31,000) crore are under finalisation of restructuring packages. A total of 327 cases have been approved since the start of CDR mechanism as on September 30, 2012 for a total amount of Rs 1.88 lakh crore. Between its inception in 2001 and March 2013, the corporate debt restructuring (CDR) cell will have successfully negotiated the exits of over 80 cases worth over R60,000 crore. Major companies benefitted from CDR so far were Subhiksha Retail, Vishal Retail, Kingfisher Airlines, Wockhardt, Hindustan Construction Company, Suzlon, Essar Oil, Essar Steel, Jindal Steel to name a few. Also, due to the non-availability of coal and indigenous natural gas power plants are lying idle and due

to the price increase in coal input cost of distributions companies and power producers become very high which they cannot transmit over the consumers because of government regulations hence their balance sheet have seen red color often. According to the power ministry, the Cabinet took up a proposal to recast about Rs 2 lakh crore debt of the power distribution companies to provide financial support for the sustainability of those companies however CDR cell approved only 3869 crores which also helped power and distribution companies to survive. So during economic downturn CDR provides fresh blood to the companies which are striving for cash flows. Whats in for banks? The banking system has also improved the quality of its assets over the years - the industry has reduced the outstanding gross NPAs from 11.4% in FY01 to 2.3% in FY11.Further, the overall net profit of the banking industry in FY01(before CDR was implemented) was merely 10% of the outstanding gross NPA. This has become 75% in FY11. An attractive mechanism, isnt it?The most vital statistics often hide more than they reveal. Why did so many Indian companies opt for CDR? Many companies started raising money through FCCB (Foreign Currency Convertible Bonds) for their expansion plans and to cater to their capital needs. However, the actual cash flow generated from the growth plan didnt meet the expected level of return, thereby leaving them with insufficient amount to pay debts. Also, during recession, as the stock market crashed, the shares of most of the companies plummeted meaning conversion unviable for bondholders. This was further catalyzed by the depreciation of rupee. Hence, most of the companies were finding it unviable to continue their operations. Adding to the prevailing difficult scenario was rise in interest costs, which led the companies to default

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on their financial obligations, resulting in sharp increase in CDR cases. The story of how companies get themselves into debt distress has many strands. Consider Iron and Steel Industry which is a cyclical business. During boom times, they go ballistic on expansion. Capacity addition leapfrogs suddenly, which means they take a lot of debt. When the economy slows, raw material and inventory move slowly, and revenues do not go fast enough to recover the debt. Consider retail firms. Vishal and Subhiksha based on consumption forecasts, expanded rapidly. Soon, they found themselves buried under a mountain of debt. Due to high real estate costs, excessive inventory and falling revenues, their balance sheets were awash in red, taking them down the road to a painful CDR. So, what went wrong? What happens when foreign holders and bondhol ders , and domestic banks dont do a deal? This is evident from KSL case. KSL and Industries, a textile company which is a part of the Tayal group wanted to restructure its 700 crore loans to state owned banks. It had also raised 500 crloan by the way of foreign currency convertible bonds. Bank of Mellon New york, trustee of bondholders, filed a petition in the Bombay HC said that they would lose out from the restructuring if they were not part of it. KSLs Response: It bought back the FCCB from the foreign banks by raising loans through the Indian

Banks, thereby leaving the Indian banks holding the bag. If the reason for the current increase in restructured accounts is the downturn in economy, it should have been echoed equally across public as well as private and foreign banks. This reflects arguable mirrors that public sector has not been as judicious in the use of restructuring as a credit management tool as the private sector and foreign banks. Lopsided burden sharing: It has been discovered that the public sector banks share a disproportionate burden of such accounts. Chennai's Indian Overseas Bank has the highest percentage of restructured assets, 9.7 per cent, followed by Mumbaibased Central Bank of India, 8.39 per cent. In comparison, the restructured assets of ICICI Bank, HDFC Bank and Axis Bank, are all below two per cent. Also, the data on restructuring suggests that the restructuring is substantially biased towards more privileged borrowers vis-a-vis small borrowers. This highlights an issue if the misuse of CDR by banks as well as corporate. It has been observed that availability of standing regulatory forbearance to CDR mechanism has prompted banks to avoid using other means of credit management judiciously , i.e., proper due-diligence before sanctioning a credit facility, regular and proper monitoring of accounts after disbursal and taking prompt corrective action on the first signs of weakness in the accounts.

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Misuse of CDR by borrowers: The CDR route for debt mitigation has also been found to be unfairly exploited by Kingfisher, a private airline, by getting a part of its massive debt to banks converted into equity at inflated valuations. The Way Forward: Make it Personal: One of the prominent recommendations by the RBI working group was to ask promoters to provide a personal guarantee to the loans so that they do not see loans just as the liabilities of the corporate but have their own skin into it. The problem faced is some of the promoters do not agree to provide personal guarantee but the group of RBI went on recommending that the RBI should prescribe promoters personal guarantee as a mandatory requirement for all cases of CDR. Develop Specified Risk Architecture: Banks should develop specific risk architecture to analyze the credit worthiness of borrower prior to go with the restructuring. For example, banks need to examine the effective levels of leveraging in the project. Higher leveraging raises the risks of a project especially in an uncertain environment. There have been many instances of even the promoters equity component being financed out of debt. There have also been instances of debt flows being structured as equity and of the private component of Public Private Partnership projects being debt finance. Borrowing from another bank is not equity and adds to

the burden of debt servicing. It is thus important to ensure, at the time of restructuring that projects are not over leveraged. It would also be important to establish that the borrowers are sincere about the project, in particular, that the borrowers, or at least the senior management of the borrowing companies, are willing to tighten their belt and share the burden of restructuring (Dr. K. C. Chakrabarty). Equal attention to small players: There should be a structured mechanism for restructuring of retail, SME and agricultural loans same as for larger accounts. This structure will need to be built in at various levels at the state, the district, the region and the bank level. Hence, our entire approach towards restructuring should be reoriented to depict more compassion towards small players. Time: Time is very often a critical essence in the turnaround of the companies and therefore an elongated process of restructuring assessment could erode the viability of the project. Hence, for restructuring process to be successful in helping the borrower tide over the temporary difficulties, it is vital that the assessment of the proposal and its approval gets done in a specific time period, around 90 days. Rightly put by a veteran bankerwhen a small man owes a few thousands to a bank, he is in deep trouble but when a big tycoon has outstanding running into crores with the bank, it is the bank that faces the music!

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We care 2013: a civic engagement internship

Espousing its rich tradition, School of Business Management, NMIMS successfully organized We Care- 2013 which received a lot of praise from industry and students alike. The aim of the programme was to socially sensitize MBA students through We Care: Civic Engagement Internship Project. Under this project, the students worked in NGOs/social enterprises to gain firsthand experience in examining social issues impacting the Indian society and exploring how social sector organizations strive to make a difference. We Care achieved its mission by placing students across all the geographical parts of the country. Students worked in various domains like Advocacy, Women Empowerment, Rural Development, Disaster Management, Social Research and Micro Finance. Team Finomenon is happy to share few of such handpicked experiences of students who have worked for Micro Finance Institutions/NGOs. Our objectives mainly focused on studying the current state, financial and otherwise, of the several tribal people who stay in Abu Road block. Keeping the time and distance constraints in mind, a suitable sample size and a suitable methodology was chosen to undertake the study. The entire course of carrying out the survey for the project left us with wonderful experiences. A great learning came out from the entire process, which we are sure, would not have come to us through class room teachings. We realized how herculean is the task of organizations like Jan Chetna Sansthan, which deals with people having extremely low level of awareness. The field trips that we made for our survey helped us become more sensitive about the pathetic situation of most basic facilities like roads and electricity. We discussed the results in an analytic manner, mainly to cater the needs of our own academic purpose. We have aimed that the project helps to understand, analyze and interpret the various aspects of the lives of the Adivasis (the local tribes) and it leads to some initiatives that will help to enhance their livelihood. - Vivek Verma, MBA Banking Management, I year, NMIMS interned with Jan Chetna Sansthan, Abu Road SAATH savings and credit cooperative ltd. (SSCCL) has been supporting the urban slum population of Ahmedabad since 2002. By encouraging saving habits amongst the people, it has worked towards financial inclusion and betterment of living standards. In 2007, it launched the joint liability group (JLG) model for procuring loans. This innovative model has made it possible for groups living in the same community to procure financial aid without providing any substantial security. The members of the group are only required to save a minimal amount every month on which they also receive interest. The liability of paying back is on the entire group and this reduces the default risk. So, SAATH has been able to revolutionize the Micro Finance landscape through this innovation. My experience at SAATH was very enlightening. I learnt a lot about the Micro Finance sector and the needs of the poor. I realized that they have a huge potential to better their lives if given a chance. They are highly adept at managing their local businesses. Its only that they are overlooked which prevents them from improving their lives. - Pratik Bajaj, MBA, I year, NMIMS, interned with SAATH, Ahmedabad

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BY IPSITA PRADHAN, IFMR CHENNAI

Corporate social media is not a new concept anymore. Social media has opened up a huge potential gateway for business. But opening an account and getting likes or followers is not enough. In a research done by Harvard Business Review there have been only a few who have been successful in taking advantage of the platform. Few industries are as highly regulated as finance. So it may seem counter-intuitive for the industry to

Ipsita Pradhan is currently pursuing her management studies from Institute: Institute for Financial Management and Research, Chennai. Email Id: ipsita.pradhan@ifm r.ac.in

Analytics Services, there are 43% of companies, who have entered social media usage, but have not made effective use of it. While 45% of the rest are still planning, only 12 % have been able to use the platform effectively. Today, even if many companies have opened social media accounts,

call for enhanced regulation and guidance. But presence in social media necessitates strategic planning and strict corporate governance for banks, given the highly sensitive nature of information handled by the institution. Social media provides a lens into the beliefs, needs, desires and beh-

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viors of tens of millions of people across all consumer segments. They are increasingly comfortable expressing themselves more often and across a wider variety of topics. There is no limitation of knowledge imposed by a fixed number of pre-determined survey questions. Various tools are being used for surveys e.g. there are monitoring tools that use key words to search relevant data. Besides collecting data, companies are using shout marketing," by using social more often to promote their brand, monitor trends among customers, and even research new product ideas. Information can be provided to the customer about policies, offers, changes etc. Customer feedbacks can be taken about changes, offers, interests, problems, choices, etc. It can also be used for recruitment purposes e.g. announcing vacancy. So first of all, the objective/objectives of using social media should be defined Next step would be deciding the platform/platforms. Since, choices are many, it is essential to identify on one or two key platforms and decide on the phases in which the engagement will take place. The choice of platform could be made on the basis of potential for reaching ability of the platform to required customer segment, means of interaction provided by the media, popularity of the media, customer expectations, security etc.

The most important stage in the process is the development of right corporate governance. A social media account establishes an organizations online identity. There are two important areas here. First, building and maintaining the profile/profiles. The name should be given so as to be easily recognized and found. It is of critical importance that password access to the account be given only to the respective responsible personal and a set of rules written down to guide and restrict the use. It should be clearly mentioned in the rules and regulations, about who can access the account and what is allowed and what is not allowed to be done. A separate department may be formed to manage the account or accounts. This would require a set of policies to determine the adequate method to do the job. These policies have to be separately formulated, since they would be different from the regular bank policies. The employee engaged to the accounts should have a clear idea about the type of content that can be made public and should have good communication skills to respond to customer enquiries, complaints etc. The time plot for response strategy should be formulated and conveyed. Since bank handles a lot of sensitive data, it is essential to take extra care in handling the content that is public in the account/accounts. Customers should be given advice/ instruction to avoid posting sensitive information

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The records so generates should be managed carefully. While they can be used for research purpose, it is important to protect the information from unauthorized access. Care should be taken to follow the policies and laws. In India, the legal implications must be viewed in accordance with the law of land e.g. RTI Act, IT ACT 2000 & IT Amendment Act 2008 etc. as also rules and regulations made there under. These policies must be circulated internally to ensure uniformity of response. The second thing to keep in mind is that, most of the employees have social accounts of their own. They indirectly represent the company. Actions taken by them, especially anything written by them about their bank might be seen as voice of the bank itself. A set of rules and regulations is necessary in order to avoid possible adverse effects. For example, employees may be asked to write a disclaimer specifying their own opinion and not that of bank, while updating anything about the bank. Before going online, a small scale pilot project should be created and monitored. All the ideas should be tried and reviewed. The study should be used if possible to make further improvements in the system, wherever required. There should be regular inspections of social media usage. Innovative ideas should be encouraged from time to time, in order to improve the engagement. Every time, before a new idea is fully introduced, small tests should be conducted.

Establishing the best account, a set of rules and a system to work on it is not enough. What most accounts are lacking today is continuous usage and responsiveness. For example, on a twitter account, while SBI made frequent announcements of new plans, ICICI used the platform to respond to a customers complaint, apologizing for the inconvenience, promising quick solution and asking for phone number or email ID for further contact. While SBI used the account for generating awareness, ICICI used it not only for awareness but also to directly reach the customer. These days, many new ideas are coming up. While HDFC had been using the platforms for engaging visitors with interesting facts, ICICI has been trying to incorporate online banking in social media. The best users understand that social media is a conversation, not a monologue. More effective companies use social media to interact with customers by creating online customer groups and monitoring trends. Social media usage is still relatively new and it provides a platform to experiment new ideas in order to enhance performance. In the long run, it is important to ensure that the project is scaled and integrated with the existing administrative and communication structure. Although the idea may seem too far-fetched or unrealistic to many, its a growing trend and its growing fast. What is important to do, is not only to embrace the opportunity but, to do it the right way.

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"Money was never a big motivation for me, except as a way to keep score. The real excitement is playing the game." - Donald Trump

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