1273507, Anjali Makhija, F1, Q-6, New banking law for more players. Good or Bad?

INTRODUCTION

The Lok Sabha has passed the Banking Laws (Amendment) Bill, paving the way for setting up new private banks and strengthening the regulatory role of the Reserve Bank of India.

The RBI has now been empowered to supersede bank boards to safeguard depositors and shareholders’ interests, as the RBI will be able to investigate the books of the associate enterprises of a bank.

The bill also raises the ceiling on the voting rights of the shareholders of a nationalised bank from 1% to 10% and eases the voting right curbs on foreign shareholders in an Indian bank from the current 10% cap.

Several industrial houses, including the Anil Ambani-controlled Reliance Group and Mahindra and Mahindra (M&M) group, are keen on setting up banking companies.

DISCUSSION

The licensing of new commercial banks had always been a critical issue on which the Central government and the Reserve Bank of India could not seem to see eye to eye. The single most important point that has been debated ever since new bank licenses were being talked about is whether business conglomerates should be permitted to open banks. Allowing corporate houses to enter the banking sector sets the stage for a conflict of interests.                                                                  The new banking law for more player is a bad thing from my view point.
                                 Urban India is well-banked and does not need a new set of players to come and compete. What is really needed for India, is for the rest of the country to get covered through banking services. And what has been demonstrated over the last few years is that no matter how innovative our formal banks are, they are unable to crack the model of commercially viable financial inclusion. And this is what the cornerstone of new banking regime is all about! New bank applicants will be required to open at least 25 percent of their branches in rural areas that lack banking services. But will the corporates, applying for new bank licences, open branches in unbanked areas before jumping to lucrative markets?  Or more banks will lead to more confusion?
Raising concerns over the generation of black money and avenue for corruption, the Parliamentary Standing Committee on Finance has urged RBI to ensure that allowing more private players in the country does not lead to generation of black money. RBI has assured that strict measures have been taken to verify the applications so that only eligible applicants are allowed to start banks. MPs had also suggested auctioning the banking licenses to avoid controversies. Yet, RBI has rejected this suggestion as it may defeat the intended outcome of financial inclusion. Unlike telecom, banking licences cannot be auctioned as banks play a different role in the society, and deal with public money.

CONCLUSION

The question arises as who is going to get benefitted more, a common man or the corporate giants? Most of the industrial houses already have a reasonable financial exposure; for eg. Bajaj has Bajaj Finserv and Reliance has Reliance Capital. But are they attuned to the basic agenda of financial inclusion? RBI is maintaining the stipulation that new banks thus granted licenses, need to open 25 per cent of their branches in rural areas. The question here is, will financial inclusion become real when it shifts from being an opportunity to an obligation? Will new banks be a gamechanger with renewed strength in driving financial inclusion? We'll just have to wait and watch! 

1273544, Hardeep Kaur,F1,Q.25.Gold investment by Indians? It is for good or bad?

INTRODUCTION:

Of all the precious metals, gold is the most popular as an investment. Investors generally buy gold as a hedge or harbor against economic, political, or social fiat currency crises (including investment market declines, burgeoning national debt, currency failure, inflation, war and social unrest). The gold market is subject to speculation as are other markets, especially through the use of futures contracts and derivatives. Gold price has shown a long term correlation with the price of crude oil. This suggests a reason why gold is sold off during economic weakness.

DISCUSSION:

Since November, the price of gold has been unstable but in April, its decline was precipitated. What is surprising is not the fall itself but its speed. In just two sessions, gold prices dropped 13 percent in the steepest fall in 33 years. It wasn’t gold alone that got caught in the bear grip. Prices of other commodities such as silver, crude oil, copper and so on also declined, but not as sharply.

Why? Simply because the factors that caused commodity prices to rise in the last five years were no longer relevant. Gold was selling at $625 an ounce (860 rupees per gram) only six years back in 2008. That October, the world was plunged into a financial crisis of an unusual magnitude. Since then, there has been a rush for gold as an investment. Stock markets crashed, interest rates plunged, investors lost faith in financial assets and opted for gold as a safe investment.

That presumption was supported by subsequent trends in gold prices. Over the next five years, prices shot up in India as much as 3-1/2 times, making gold not only safe but also the most lucrative investment. The stock market took all that time to recover from the 2008 shock but has not, even now, come up to pre-crisis levels. Gold became a preferred part of the portfolio and gold-backed exchange traded funds (ETFs) were a favorite with investors.

The financial crisis had engulfed the world economy. Some countries such as the United States, Japan and the UK went into short recessions. Most emerging market economies had to slow their pace of growth. In this context, gold became a hedge against economic adversity. These conditions have now changed and caused gold prices to fall.

CONCLUSION:

The fall in the price of gold is a market adjustment influenced by greater confidence and better yields in other assets. Possibly, there may not be further price correction in the current year except for short periods. But a sharp increase in prices is equally unlikely. That does not make gold a good investment for the present.

1273562, Jyotika Sharma, F1, Q38- Why are banks enhancing process and risk assessments?

1273562, Jyotika Sharma, F1, Q38- Why are banks enhancing process and risk assessments?

Risk Assessment can be defined as the identification, evaluation, and estimation of the levels of risks involved in a situation, their comparison against benchmarks or standards, and determination of an acceptable level of risk.

A risk assessment is simply a careful examination of what, in your work, could cause harm to people, so that you can weigh up whether you have taken enough precautions or should do more to prevent harm. Workers and others have a right to be protected from harm caused by a failure to take reasonable control measures.

Introduction

Banks plays an important role in the national economies of most countries in the world. At the same time, a sound banking system is an important element of financial stability and represents a basis for the maintenance, development and unimpeded functioning of the entire economic system.

Risk taking is an inseparable part of providing bank services, with inadequate awareness and management of risk possible leading to losses, which threatens the financial stability of the system as well as the deposits entrusted by individual to banks. Given the importance of the role played by banks in national economies and the trust placed in these institutions by investors, bank must conduct their business soundly and safely, and must maintain the appropriate level of capital as protection from the possible risks deriving from their operations.

The nature of the banking business brings several types of risk, which differ in substance and scope. Banks cannot avoid them. Relative to their line of business, size, type of organisation, business culture etc. there are many typ of risk such as Credit Risk, Market Risk, Interest Rate Risk, Liquidity Risk, Operational Risk, Strategic Risk, Reputation Risk, Capital Risk, Profitability Risk.

The concept of assessment comprises a qualitative and quantitative part. The qualitative part is a key importance and represents the findings and options of inspectors and analysts on individual risk or control environment element. The findings of inspectors and analysts from the basis for the numerical assessment, which signifies the quantitative end of assessment.

The main purpose of supervising banks is to determine the level of risk encountered by bank and the quality of management these risks. Supervision is performed through monitoring, collecting and checking bank report and notices, performing review of banks operation and through the issuing of supervisory measures. The basic approaches are :

·        Analysis of banking operations through systematic and continuous monitoring of a bank’s operations by means of report and other information at the bank and

·        Reviews of the banks operations (on site).

Discussion

Employers, managers and supervisors should all ensure that workplace practices reflect the risk assessments and safety statement. Behaviour, the way in which everyone works, must reflect the safe working practices laid down in these documents. Supervisory checks and audits should be carried out to determine how well the aims set down are being achieved. Corrective action should be taken when required. Additionally, if a workplace is provided for use by others, the safety statement must also set out the safe work practices that are relevant to them. Comprehensive risk assessment is necessary not only to satisfy the examiners but also to protect the institution in an era of rapid regulatory change. BY CARL PRY Dec 27, 2011 Hence, it is important to carry out a Risk Assessment and prepare a Safety Statement for:

1. Financial reasons: There is considerable evidence, borne out by companies’ practical experiences that effective safety and health management in the workplace contributes to business success. Accidents and ill-health inflict significant costs, often hidden and underestimated.

2. Legal reasons: Carrying out a risk assessment, preparing a safety statement and implementing what you have written down are not only central to any safety and health management system, they are required by law. Health and Safety Authority inspectors visiting workplaces will want to know how employers are managing safety and health. If they investigate an accident, they will scrutinise the risk assessment and safety statement, and the procedures and work practices in use. It should be ensured that these stand up to examination. If the inspector finds that one of these is inadequate, he or she can ask the employer to revise it. Employers can be prosecuted if they do not have a safety statement.

3. Moral and ethical reasons: The process of carrying out a risk assessment, preparing a safety statement and implementing what you have written down will help employers prevent injuries and ill-health at work. Employers are ethically bound to do all they can to ensure that their employees do not suffer illness, a serious accident or death.

Putting together a compliance risk assessment is pretty much standard procedure by now. Although risk assessment methodology in general has been around for quite a while, its prominence in the compliance field is a fairly recent phenomenon. Formulating the Bank Secrecy Act (BSA)/Anti-Money Laundering (AML) risk assessment about five years ago was many a compliance officer’s first experience with putting one together.

 Fair lending soon followed (initially just for the largest banks; by now, nearly everyone) but now we are at the point where risk assessments are critical to the compliance function overall. Examiners expect banks to know where their compliance risks are and to devote resources to those areas that present the greatest risk to the institution. There is even a growing expectation that banks perform an enterprise-wide compliance risk assessment – that is, evaluate any and all compliance risks across the institution, rate them, then prioritize accordingly.

That is a daunting task to be sure, especially since many compliance officers weren’t “raised” that way. We’re used to putting out fires when they crop up, preparing for new regulatory requirements, and generally providing advice; however this new approach is the way of the future. This isn’t just a compliance concern – increasingly banks are being charged with understanding their operational, credit, market, and reputation risk profiles as well. Some see compliance risk as a subpart of operational risk, but this is a chicken-or-the-egg question: does compliance risk result because of the way banks conduct operations, or are operations conducted the way they are because of legal and regulatory requirements? In the end it doesn’t matter; we have to evaluate compliance risk regardless.

So how best to do it? There is no one “right” way, but there are some best practices that have developed over many trial and error efforts, and that’s what we’ll discuss here. The end game is to effectively evaluate the bank’s risk of violating laws or regulations and to then adequately mitigate that risk through well-designed and executed controls.

To start with, compliance risk belongs to the business units. They own it since the business processes involving the bank’s products and services and interaction with customers are performed in those units, not in the compliance department or anywhere else. The compliance department exists to assist business units in identifying and developing controls to mitigate the risks but those controls should be performed within the lines. Business units must take ownership of the process.

Whatever can be done to achieve that buy-in within the business (and “because the regulators say so” usually won’t do it) will make the process easier and ultimately more effective. An approach that aspires to make everyone’s lives easier, by focusing time and effort on processes that present greater risk, is a much easier sell.

 Rate-Inherent Risk: This is often the most difficult concept to explain to those in the business units. Inherent risk is the risk of violations if there were absolutely no controls in place. No compliance department, no monitoring, no testing, nothing. It can be a difficult concept simply because inherent risk isn’t always explained very well.

Evaluate Controls: Controls are processes to mitigate, or address and reduce, inherent risks that have been identified. They can be automated or manual, but ideally they should be prescriptive, meaning they should perform their function to prevent a violation from taking place. Detective controls, such as identification of past instances of noncompliance, while certainly useful to identify what may continue in the future, only count problems that have already occurred; they don’t control the problem from happening in the first place. Many argue these aren’t controls at all; they are quality control or testing mechanisms instead.

Rate-Residual Risk: Sometimes called controlled risk or something similar, this is the ultimate evaluation of where the institution stands after inherent risk is measured and controls applied. It answers the question “where do we stand right now?” This is also the critical rating from the examiners’ perspective, since it shows where the bank’s gaps are and where resources should be dedicated to further reduce the risk. It should be measured in the same fashion as inherent risk, using the same scale (whatever that might be depending on the bank). A key point here is to ensure that the ultimate rating is supported by documentation, so examiners, auditors, management, or other interested parties can see the assumptions, methodology, and process behind the rating.

As long as banks have a well thought out plan of attack for their compliance risk assessments, adequately document their methodology, assumptions, and conclusions, they’ll be okay as far as the examiners are concerned. But this isn’t solely an exercise for the examiners’ sake; assessing risk is an important task to determine where the hot spots are in the bank and to avoid trouble in the future. In this age of rapid regulatory change, it’s absolutely essential.

Conclusion

The law requires that a business should carry out and record risk assessments if it has more than 5 employees. Businesses are encouraged to carry out the assessments themselves if they have the competency in-house, however it would be wise for a smaller business to take expert advice and support when doing so. A company such as CRL Risk Adviser, for example, offers small businesses a wealth of health and safety information in an easy to understand format. For a low cost – just £47 including VAT in the first year – a business can also access a library of downloadable document templates and support directly from the CRL experts. Services like these are an enormous help to the small business owner who doesn’t have the time to filter the huge amount of information out there and work out what is relevant to his or her business.

Over all, completing risk assessments and effectively managing health and safety in the workplace is good for your business. It not only keeps your employees safer but can have a beneficial impact on business insurance costs – both on premiums and claims. It will also reduce lost production time through employee absence or machinery downtime and improves workers’ motivation and productivity.

DANISH ROLLNO. 1273528 FI TOPIC.. BANK FRAUD IN INDIA? Q18

DISCUSSION
   MEANING OF BANK FRAUD..
 it is the use of potentially illegal means to obtain money, assets, or other property owned or held by  financial institution or to obtain money from depository  by fraudulently posing as a bank or other financial institution
 banks fraud are rising day by day . the type of banking frauds are

• Identity theft
• Credit/Debit card fraud
• Cheque fraud.

 harshad mehta has also commited ban fraud . he was a stockbroker. he was engaged in a massive stock manipulation schmem financed by worthless bank reciept. he had been charged with numerous financial crimes which took place in 1992

in most areas of the world, all types of bank fraud are illegal. One of the more prominent types  of fraud  is known as identity theft, where one person uses another person's private identifying information to obtain money

 SUGGESTIONS

people should pay more attention while doing banking transaction. one should arm himself or herself with information. proper online security can help yourself from identity theft

. one should use strong password for all the account 

the following security tips can help yourself and your money

 be aware of email attachment

 be aware of what and where you click online

secure your smartphone with screen lock

 think before you download appication to your mobile

 CONCLUSION

 At last i would like to conclude to protect money from electronic and identity theft its important to implement basic precautions such as having complex password and only doing online baning through secure internet connection

ROLL NO.1273543,GURVIR SINGH,MBA 4(A), Q24-DEPENDENCE ON MOSOON IN INDIA?

Indian economy was often called the ‘monsoon economy’. It reflects the critical role of the monsoon in Indian agricultural economy. Monsoon plays an essential role in economy of a country. In the countries like India, where agriculture is the greatest source of economy, monsoon season plays a pivotal role. In India, directly or indirectly, 70% of employment is dependent on agricultural sector. This is one the major reason for dependence on monsoon season for the economic growth of India.

How important is Monsoon to us?

·         Agriculture contributes around 17% to GDP

·         India is the 2nd largest producer of rice and wheat in the world

·         3/5th of arable land dry and parched due to low penetration of irrigation system leaves

·         Monsoon acts as a controller of prices of primary articles such as food grains, etc.

·         It impacts industrial production with nearly 40% of the raw-material coming from the farm sector.

How monsoon affects Indian economy?

·       The monsoon rains are vital for farm output and economic growth in India, the world's second-biggest producer of rice, wheat, sugar and cotton. Farm sector shares for about 15% of India's nearly $2 trillion economy, Asia's third biggest.

·     India is largely self-sufficient in major food grains such as rice and wheat, but drought can send the country to global markets. In 2009, India had to import sugar, sending global prices to record highs and pushing up inflation.

·       Higher farm output would rein in food prices and help the government to take steps to cut the fiscal deficit and farm subsidies. India's food inflation rose to 10.66% in May from 10.18% in April, latest figures show.

·         A stronger economic outlook can lift sentiment in equity markets, mainly of companies selling products in rural areas, including consumer goods and automobiles.

·         Monsoon rains impact demand for gold in India, the world's top consumer of the metal, as purchases get a boost when farming incomes rise amid high crop output.

·        Monsoon rains replenish reservoirs and lift ground-water levels, allowing better irrigation and more hydro power output.

·         Higher rainfall can cut demand for subsidised diesel, which is used to pump water from wells for irrigation and makes up for about 40% of India's oil products demand.

IMPACT OF LESS RAINFALL IN INDIA?

Price of agricultural products rises : 

Since there is deficit in the rainfall this year, the production of crops, vegetables and fruits is highly affected. Due to shortage of rainfall, sowing of groundnut, paddy fields, soya beans, and kharif crops in the different states have been affected. Productivity of rice, oil seeds, sugarcane is also being affected. The agricultural sector is undergoing a bad experience. Since, the farmers are dependent on the monsoon; they are not able to do anything except to wait for the monsoon. The shortage of supply and huge demand of the agricultural products has increased the price.

Shortage of power supply : 

Rise in temperature has resulted in shortage of power supply in many states of India. The power cut is also one of the main reasons for shortage of products. And this finally results in the hike in the price of agricultural products.

Shortage of water supply : In states like Maharashtra, where the water supply of whole year is dependent on the monsoon rainfall, people experience the shortage of water supply. In Mumbai, the rainwater is collected in the huge tanks which is processed and supplied across the city around the year.

Inflation : 

Less rainfall will result in less production. This will create drought like situation. Though India is self-sufficient for production of agricultural needs, but, if such situation occurs, then, India will be pushed into global market. This will result in inflation.

Conclusion:

Indian economy is highly dependent on the agricultural sector. The needs of the agricultural sector are mostly met from the rural area whose purchasing power is greatly affected by the poor monsoon. If the condition remains same, then agricultural sector is going to experience very bad situation which will directly affect the Indian economy. Therefore, Indian government must initiate some actions to improvise the infrastructure of agricultural sector in order to make the Indian economy independent of monsoon rains.

1273511,anuradha,f1,Q8 Need for a total review of CBLO - money market instrument ?

      INTRODUCTION

In early years of last decade RBI had decided to phase out the non-bank entities from call money market. RBI had also imposed restrictions on access to call money market by Banks and Primary Dealers. Entities that were not forming part of the banking system were not to be allowed to participate in the Liquidity Adjustment Facility (LAF) auctions conducted by the RBI.

At that time The Clearing Corporation of India (CCIL) had devised a product called as “Collateralized Borrowing and Lending Obligation (CBLO)”. Reserve Bank of India in its Mid Term Review of Monetary and Credit Policy for the year 2002 – 2003 had briefly mentioned about the introduction of CBLO as a Money Market Instrument (MMI) and brief operating instructions were issued in this regard vide its letter No. MPD. 227/07.01.279/2002-03 dated December 20, 2002. CCIL had launched the Collateralized Borrowing and Lending Obligation (CBLO) in January 2003, a money market product which was based on Gilts (G.Secs) as collateral.

In the international market mainly four types of REPOs exit. 
1. Buy-sell / Sale-buy back repo
2.  Classic repo
3.  Bond borrowing and lending repo
4.  Tripartite repo

The Tripartite repo operate under a standard global master repurchase agreement, DVP, provision for Substitution of securities, automatic marking to market, reporting and daily administration by single agency which takes care of market risk on itself and automatic roll-overs, while does not disclose identities of counter parties. The process starts with the signing of the agreements with the global master repurchase agreement and tripartite repo service agreement. This minimizes credit risk while dealing with the clients with low credit rating.

The product designed by CCIL is some what comparable to tripartite repo and with the Hold-in-Custody type Repo used exclusively by RBI under Liquidity Adjustment Facility (LAF). However this product was given a color of a transferable / lending / investment product, a Money Market Instrument. 

In CBLO the eligible securities are not physically transferred to the third party (CCIL in this case) or to the buyer of CBLO, i.e., Lender of money but are simply kept ‘on hold / Lien’ in the fund’s borrower’s Gilt Account (GA), maintained with CCIL (the third party). The securities continue to be in the name of borrower of funds. Technically Securities of the borrower are held in the Gilt account under GA-Constituent SGL account opened with CCIL and are said to be subjected to a paramount lien. 

What is a CBLO?

As CCIL puts it CBLO is:
* An obligation by the borrower to return the money borrowed at a specified future date;
* An authority to the lender to receive money lent at a specified future date with an option/privilege to transfer the authority to another person for value received;
* An underlying charge on securities held in custody (with CCIL) for the amount borrowed / lent.

Thus, under the scheme the borrowing members of CCIL are required to maintain a Gilt Account with CCIL for lodgment of G.Sec which is to be used as collateral for borrowing. The borrowing limits for the members are fixed at the beginning of the day taking into account the securities deposited in the CSGL account. These securities are subjected to necessary haircut, after marking them to market. Then limit is set up for CBLO. The limits in effect denote the drawing power up to which the members can borrow funds. Lenders deposit cash to meet initial margin requirements that are designed to take care of the settlement risks. On date CCIL has 72 members (including associate members). Associate members settle their trades through the members. For simplicity the discussion on and reference to associate members/borrowers is omitted.

Lender of funds in CBLO has an underlying interest in securities that are blocked in the borrowers account (GA) with CCIL. On sale of CBLO by lender of funds, in the secondary market, the underlying interest in the security gets automatically transferred to the new lender of the CBLO. In real terms it is a anonymous borrowing or lending collateralized by G.Sec with CCIL guaranteeing settlement in both issue and repayment leg.

DISCUSSION

CBLO is a Money Market instrument 

RBI has given CBLO a status of Money Market Instrument. However there is no-gazette notification which states that CBLO is Money Market Instrument under Sec 45 U (b) of RBI Act. If we assume it exist it might become security for depository purposes (SEBI Depository Regulation 28 of 1996) though may not be a security not under SCRA. It being a transferable product it should be clear whether it is Negotiable Instrument (NI) or otherwise as the transferability is linked to the nature of the instrument. As per the current legal frame work, NI is essentially an instrument in writing and cannot be directly brought in, in an electronic form. In my opinion, no direct creation of NI, in electronic form, would be possible as in case of equity/bonds. Hence CBLO may not be NI. Even if such creation could becomes possible as NI or such Money Market Instrument is treated as bond/debenture it cannot be created without payment of required stamp duty, unless exemption in stamp duty is granted by the Central Government. To determine the stamp duty the nature of instrument needs to be clear. Further is should be noted that CBLO is nothing but borrowing obligation secured by underlying Govt security held by third party (CCIL) and lender of funds can sell / transfer the right/s to another person (for a consideration), to receive the underlying amount on maturity from issuer of CBLO (borrower of funds). The underlying interest in G.Sec is expected to get automatically transferred along with the transfer of title of CBLO Asset. 

CONCLUSION

CCIL’s product document states that its risk exposure in the CBLO segment emanates on two counts:
(a) Risk of default by a borrower in repayment on maturity of a CBLO. As the repayment of borrowing under CBLO is guaranteed by CCIL, it should have enough security to meet any eventuality of a default by the borrower. To take care of this risk, all borrowings are fully collateralized. This process is managed through setting up of a Borrowing Limit from members against their deposit of Government Securities as collateral. These collateral are subjected to hair-cuts and are revalued on a daily basis. Any shortfall in the value of collateral (to meet outstanding borrowing) is collected through end of the day margin calls.

(b) Risk of failure by a lender to meet its obligations to make funds available or by a borrower to accept funds by providing adequate security.

Manish Singla,1273569,F1, Q-43- How will India’s rating affect stock investors?

                                     How will India’s rating affect stock investors

                                             INTRODUCTION

A stock investor is an individual or firm who puts money to use by the purchase of equity securities, offering potential profitable returns, as interest, income, or appreciation in value (capital gains). This buy-and-hold long term strategy is passive in nature, as opposed to speculation, which is typically active in nature. Many stock speculators will trade bonds (and possibly other financial assets) as well. Stock speculation is a risky and complex occupation because the direction of the markets are generally unpredictable and lack transparency, also financial regulators are sometimes unable to adequately detect, prevent and re mediate irregularities committed by malicious listed companies or other financial market participants. In addition, the financial markets are usually subjected to speculation.

                                                   DISCUSSION

The Indian government has approved 36 new infrastructure projects in a bid to give the ailing economy a boost. Energy and transport projects worth £17.7billion have just been given the go ahead by the Indian government including oil and gas developments, transport links and new roads.

Finance Minister P Chidambaram said that the government was sending a message that “the investment cycle has restarted, and we are pushing it”.

This message could not come soon enough. The Indian currency has dipped to an all-time low against the dollar and the stock market is experiencing unattractive levels of volatility. Pioneering emerging market investor Mark Mobius of Franklin Templeton said that India needed urgent reform and a change to the government administration to make business and investment more viable.

                                                     CONCLUSION

Hence India’s rating will affect stock investors because if the rating is good then stock investors will gain more profit.