In-Fin-NITIE: Also Includes: Bank Loan For Startups MSME Sector Development Global Turmoil and Indian Capital Market

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Volume 7 Issue 1
StreetAtNITIE
In-Fin-NITIE
ALSO INCLUDES:
Bank Loan for Startups
MSME Sector Development
Global Turmoil and Indian Capital Market
IN-FIN-NITIE Vol 7 Issue 1
MESSAGE FROM THE CONVENOR
Want to become an Investment Banker

or a Financial Research Analyst
Stop dreamingAdd the skill sets required to become one
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A mere 25% of graduates that India produces every year is actually employable. Even though India is poised
to become the third largest economy in the world by 2050, out of all the graduates that pass out in an academic year, only 25% are suitable for getting inducted into the industry.
Jeffrey Fuller, Principal Advisor of Human Capital.
There exists a huge gap between the skills that are required by the industry and what the Indian academic
system produces. The objective of IIQF is to impart training to students in those skill-sets that are in demand
in the industry and make them industry ready, or as we call them The Street-Ready.
Certificate Program in
Advanced Financial Modelling in Excel and VBA
Certificate Program in
Financial Modelling in Excel
A course geared towards teaching the practical skills
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etc. This is a program where practicing Investment Bankers and Treasury Professionals teach the latest techniques
and modeling skills that are used in the industry. This
is a hands-on course, with extensive use of computers
and spreadsheets, the training will be imparted through
interactive sessions with extensive use of real world Excel
models.
Lot of financial professionals who do all kinds of financial

modelling feel handicapped to quite a large extent in implementing certain models that requires them to do considerable amount of programming in VBA. Merely knowing how
to record or even write some odd macros in VBA is not of
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Leaning Outcome:
Create MS Excel based financial models.
Use the advanced tools of Excel.
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Contact Person: Nitish Mukherjee (+91-9769860151/ +91-22-28797660)
Heartiest congratulations to all of you. With the release of yet

another edition of the magazine, we are getting bigger and better and
it gives me immense pleasure and satisfaction to be the convenor of
Street. In-FIN-NITIE has given me the opportunity to work with
the students and advance forth with the common goal of learning
and practising finance.
As always, In-FIN-NITIE brings you something new this time
around too. After a series of issues with identified theme and articles
related to that theme, the current issue just gave the students to write
about finance. Themes and matching articles aside, this issue has a
plethora of written words by students about whatever caught their
eye in the field of finance.
I applaud the effort of Street for their unstinting efforts. I hope they
strive to take the magazine to greater heights, and also hope that issue
will entertain you and keep you engaged about the recent happening
is the world of finance. We look forward for your comments and
wish to bring out more interesting issues in the future.
Dr. M Venkateswarlu
Senior Professor of Finance
NITIE
Patron
Prof. Ms. Karuna Jain
Director, NITIE
Convenor
Prof. (Dr.) M Venkateswarlu
Editorial Board
Ankur Gupta
Jitendra Agarwal
Raj Shah
Prashant Pundir
Shashank Kale
Sundeep Tariyal
Design Team
Anish Kumar
Siddhartha Paul
EDITORS NOTE
The Yuan devaluation and the Chinese slowdown has been a major
talking point this year. There had been speculations of a new
financial crisis, affecting the emerging markets in particular. To
unravel the details, this edition presents an objective analysis of the
Chinese currency effects and future implications. With its internal
situation improving, Indian economy has fared better than its
peers and highlighting the same, this edition mentions the agility
of Indian capital markets.
To cover the latest financial related happenings in India, we present
the digital banking and the role of Indian banks in context of
MSME sector.
In our quest to bring to our readers a varied content, we look
into the bank loan issue for startups and present an analysis on
operations of cab-aggregators like Ola and Uber, and the ways it is
being exploited by drivers.
Following the trend, we were inundated with brilliant and exotic
articles that really made us toil hard to find the best. We extend our
sincere gratitude to all the authors who burned the midnights oil to
write such exquisite articles. In our endeavour towards continuous
improvement we invite feedback and criticism at
street.nitie@gmail.com
ii
IN-FIN-NITIE
VOLUME 7 ISSUE 1
Yuan Devaluation: Causes and Impact
Digital Banking: The Way Forward
A Strategic Shift from E-Commerce to M-Commerce
14
Role of Indian Banks in the Development of MSME Sector
19
Street Wall- Payment Banks
22
Strength of Indian Capital Market in the Backdrop of Global Turmoil
24
The First Step is Always the Toughest- Bank Loan for Startups
28
Cab Drivers take Ola and Uber for a Ride
31
Beat The Street- Quiz
34

to $3.56 trillion by the end of August to stabilize the
Yuan. Let us now look into what system China follows for determining its currency value.
Chinas Currency System

China uses a Fixed float exchange regime. This
means that the currency is normally pegged to a reference rate that is set by the Peoples bank of China
(which is now the US dollar). It is float because it is
allowed to fluctuate 2% above or below this reference
rate based on previous days trading. Thus it allows
for the currency to fluctuate based on the market
forces of demand and supply for the Chinese Yuan
but only up to a certain extent. The US and the European Union have been long pressurizing the Chinese
to make their currency fully market driven i.e. float
type of currency as it eliminates excessive intervention and manipulation of the currency by the central
bank.
Chinas leadership has since long, urged the IMF to
include the Yuan in a basket of global reserve currencies comprising the US Dollar, Euro, Yen and
the Pound thus giving it special drawing rights. For
that, China needs to change its currency regime from
Managed float currency to fully float, that is, a currency whose value is wholly determined by the demand and supply forces of the market with minimal
intervention from the central bank. However, following the recent stunt, the US and EU has lost faith in
Chinas willingness to allow its currency to become
free floating and thus be counted amongst the reserve currencies.
YUAN DEVALUATION: CAUSES AND IMPACT --> Will it lead to a global currency war and world economic meltdown

-Rohit Kaul, SIMSREE
Such a devaluation followed months and months of
the Yuan appreciating along with the US dollar, making Chinese exports expensive. This would make the
situation politically dangerous for the ruling communist party of China (CPC) as it could lead to loss
of millions of jobs in the Chinese domestic sector
causing wide outrage against the government. There
were other reasons as well attributed to, as to, why the
Introduction
n August 11 2015, the Peoples bank of China

(PBOC) devalued the Chinese Yuan by about 1.9%
below its previous days close. It sent ripples around
the globe as the world started to believe that Asias
largest economy is going through one of the toughest
phases in its turbulent history a slowing economy
ailed by reduced manufacturing output in the last
quarter. In order to resurrect its dwindling economy and bring it back on
track, the Chinese central
bank had to resort to the
age old technique of depreciating the value of its
own currency a process
called as devaluation.
Figure 1: Graph showing China Yuan, U.S. Dollar Exchange Rate
PBOC had to come up with such a drastic measure,

which would be discussed in detail here, but it is evident that the Chinese authorities alongside central
bank would not hesitate to take such steps in the future if need be.
The Yuan depreciated from 6.23 /$ to almost 6.4 /$

on August 11 before settling down to 6.35 /$ later.
It was the single biggest day fall in
a decade for the Chinese currency.
So much so that the Peoples bank
of China had to start selling dollars
when the currency had depreciated
to 6.4 /$ to arrest the slide of the
Yuan. The reason for selling dollars
was because of the huge capital outflows that were taking place to depreciate the Yuan, as the PBOC kept
printing new money and increasing
the supply of Yuan in the international markets to reduce the value of
its currency. The PBOC in all had to
offload $93.9 billion taking their reFigure 2: China Foreign Exchange Reserves Change ($billions)
serves down from $3.65 trillion
Reasons for Yuan Devaluation
ratio requirements for the banks as discussed earlier.
As can be seen from figure 2, Chinas foreign exchange reserves have swelled, almost tripled, in the
last decade as they have looked to slow the appreciating Yuan (see figure 3). Thus in effect it was selling Yuan to buy more dollars to arrest the upsurge of
Yuan. However, to ensure that such an influx of Yuan
doesnt cause a surge in inflation, it raised its reserve
ratio for the banks.
Impact of yuan devaluation on major global

currencies & economies around the globe
a) Impact on the US:
Major source of concern for the US has been the
strong US dollar which has squeezed their exports.
It has, however, helped
curb inflation below the
2% target set by the Fed.
The Fed ever since the
end of the quantitative
easing rounds, has been
looking to raise interest
rates and bring the economy back on parity. However, that is now expected
to be put on a hold after
the Yuan devaluation, as
such a move would further add to the upward
pressure on the US dollar
as it would lead to more
capital inflows into the
US economy thus further
hurting exports.
Figure 3: vs $ trend and trading band
The Bank of International Settlements (BIS) has said that Chinese companies
have borrowed about $1 trillion abroad, up from
$200 billion in 2009. With the Fed planning to raise
interest rates, the cost of such borrowing would go up
risking default for many of these Chinese companies.
By doing this, China wanted to keep its exports competitive, as China is primarily an export driven economy. Its exports have fallen by about 1.4% in dollar
terms over the last year, with overseas shipments
down by almost 5.5%. This amidst a falling domestic consumption demand has
triggered the Peoples Bank of
China to devalue the Yuan to
give a boost to the Chinese
domestic market. By increasing the supply of Yuan in the
local as well as international
markets (either by printing
more Yuan or selling off existing Yuan), it has put more
money in the hands of people thus encouraging them to
spend more and thus prop up
consumption. To combat the
resulting fear of inflation, it
has put a tab on the reserve

As a retaliatory measure, the only way China could
stop Fed from doing that was to devalue its currency, thus stopping the Fed from raising interest rates
and further strengthening the dollar thus hurting
US exports as stated earlier. Due to muted inflation
rate, Fed could delay the interest rate hike. The Fed
has currently kept the interest rate hovering between
0.0% - 0.25%. It is 0.08% as of now. Although there
have been no inflationary pressures in the US economy, the Fed needs to hike the interest rate soon
enough flush some liquidity out of the market.
would have to write off debts which would go unpaid.

Table1: EU-28 main export partners, 2014 (billion EUR)
Country
USA
China
Switzerland
Russia
Turkey
Japan
Norway
The perceived threat of China holding such large US

dollar denominated debt can be seen with the help of
an example. Lets consider we are still under the Bretton Woods system. If China felt it wanted to redeem
some of its US debt, say in 2008, then $100 billion of
redemption at $1000 per ounce would have equalled
2840 metric tonnes of Gold. That would have been
about 35% of the total Gold reserves held by the
U.S. A full redemption of US government treasuries
would have thus completely wiped off all the Gold
reserves from the US and left China with about 9000
metric tonnes of Gold. The Idea of the Gold standard
at that time was to force nations to get their finances
in order before they run out of Gold. It proved to be
a warning signal. However, with such a system not in
place currently, the American people are unaware of
the deteriorating conditions existing in their economy right now.
Exports
311
165
140
103
75
53
50
Share %
18.3%
9.7%
8.2%
6.1%
4.4%
3.1%
2.0%
Cumm %
18.3%
27.9%
36.2%
42.2%
46.6%
49.8%
52.7%
Source: http://trade.ec.europa.eu/doclib/docs/2006/september/
tradoc_122532.pdf
China is also the second biggest buyer of European

goods in general, accounting for nearly 14% of European exports. Sectors with maximum exposure are
basic resources, personal and household goods, autos, technology and the auto sector. In the telecom
sector in China for example, State owned Huawei is
on a fierce competition with Swedens Ericsson and
devaluation could swing the pendulum the way of
Chinese companies like Huawei and ZTE.
Table 2. Chinas main export partners, 2015
Country
USA
European Union
ASEAN
Japan
b) Impact on the European Union:
% Exports
17%
16%
10%
7%
Source: http://www.tradingeconomics.com/china/exports
The strong exchange rate since last year has been a

drag on Chinese exports to the EU. Exports to the
European Union have fallen by almost 12% from July
2014 to July 2015. By devaluing the Yuan, China expects value of its exports to the EU to rise. However,
this could prove detrimental to countries like Greece,
Spain, Portugal, Italy and other peripheral countries
which are already battling a slowing economy, lower wages and dwindling profits. By devaluing Yuan,
China would export their deflation to such countries
adding to the woes of an existing deflationary European environment. Countries like Greece which have
started to implement austerity measures and are already facing low wages, unemployment and low consumer demand would simply be blown away if a large
devaluation occurs. It would put more pressure on
countries like Germany & France which bear a large
burden of their debts on their books and they in turn
A weak Euro, however, isnt in Chinas interest. If

the European turmoil leaves countries like Greece,
Portugal out of EU, they would resort to their own
weakened currencies and since they form an important part of Chinas exports, it would hurt Chinas
trade surplus a lot. China has a strategic interest in
Europe and has adopted a quid pro quo approach. It
has bought European sovereign debt and has shared
the debt burden with Germany and France. Thus in
the event of the PIGS nations going bankrupt, China would be affected drastically. In return for these
risks, China has sought foreign investment in sensitive sectors in the European economy like infrastructure, hi-tech technology and permission to purchase
advanced weapons technology originally reserved
only for NATO allies.
c) Impact on African nations:
get access to cheaper goods.

Some of the steps that the African
economies could take is allowing their
currencies to depreciate thus gaining
a competitive advantage over the Chinese exporters. They should also look
to diversify their economies away
from commodities in the event of a
global commodity crisis.
d) Impact on India:
Impact on the Indian economy as
a consequence of the Yuan devaluation is complex. The rupee fell by
about 1.5% following the Chinese
devaluation and has fallen by about
6% from the start of the year. It was because of the
general sell off of the emerging market currencies that has taken place post the devaluation. Part
of the devaluation has also been due to the fears
of the US Fed hike that could further weaken
the currency, hence forcing to RBI to raise interest rates in India i.e. resorting to a contractionary monetary policy and taking away 18 months
of solid hard won macro-economic stability. India
imports a lot of goods from its eastern neighbour.
The import bill from China was about $60 billion
in 2014. The devaluation of Yuan thus brings good
news to many importers from India especially the
electronic and electrical component manufacturing
companies. However, India competes with China in
many sectors like Chemicals and textile manufacturing and post devaluation Chinese goods might be-
Figure 5: Africas total World trade
Most of the African commodities in countries like

Nigeria and Kenya are still priced in American dollars. Off late though, China has emerged as the largest trading partner for many African countries. To
make buying and selling of goods easier, Nigeria in
2011, pledged to keep 5-10% of its foreign exchange
reserves as Yuan. They also believed that it would
act as a hedge for its local currency, Naira, against
the backdrop of volatile oil prices set in dollars. Later
Kenya, which is a major trade partner in Africa with
China, announced plans to set up a clearing house
for the Chinese currency. However, with the American dollar strengthening against the Yuan, African
exports like platinum, copper and coal could become
expensive for the Chinese counterparts.
Countries in Africa having sizable exports to China
also include South Africa which
exports Gold and wine, Angola
which exports oil and Zambia
which exports copper. These
currencies have already depreciated following the Yuan devaluation. The cost competitive
nature of Chinese products in
these markets has eroded competition from the African counterparts. For some countries like
Ethiopia, Mozambique, Yuan
devaluation is a blessing as it
reduces their cost of importing heavy machinery, electrical
lines and bulldozers. Consumers and retailers in general also
Figure 6: Commodity Prices trend of 5 years
come more competitive than Indian goods in world

markets. That could be a huge problem for the export
industry in India as exports have declined continuously over the past 7 months.
to the slowdown in the Chinese economy, there was

decreased demand for many products from these nations causing prices to fall down.
Also with RMB devaluing, price of Chinese steel will

decline. Thus the government will have to step in and
apply import barriers to prevent Chinese steel from
entering into the Indian market or support domestic
manufacturers via subsidies (which would put pressure on the fiscal deficit.
To summarise the risks associated and the corresponding actions that could be taken by these Asian
economies to subvert the crisis
A Bank of America report suggests that a 1% drop in decreases the commodity prices by nearly
0.4-0.5%. This is because China is
a large commodity importer and
with slowing demand of commodities there, prices of commodities are languishing at their
lowest levels since 2009. A weak
Yuan adds to the woes of commodities even further. This would
be good news for India as India
is a net importer of commodities
and low commodity prices would
help to lower its import bill thus
improving its trade deficit.
References
James Rickards. (2011), Currency Wars: The Making of the
Next Global Crisis, Penguin Book Ltd., England
http : / / w w w. l ive m i nt . c om / Mon e y / lv x b 2 i c v C b I X N 1WiI6V2AI/Since-the-yuan-devaluation-other-EM-currencies-have-depreci.html
http://www.bloomberg.com/news/articles/2015-08-23/
ch i n a - l e d - e me rg i ng - m arke t - tu r moi l - e voke s - wor r i some-1994-parallel
http://www.bloomberg.com/news/articles/2015-09-07/china-s-foreign-exchange-reserves-fall-in-august-on-yuan-support
http://www.telegraph.co.uk/finance/china-business/11801463/How-China-devaluedthe-yuan-for-the-first-time-in-two-decadesand-why-it-matters.html
http://www.wsj.com/articles/china-movesto-devalue-the-yuan-1439258401
http://www.tradingeconomics.com/china/
inflation-cpi
http://trade.ec.europa.eu/doclib/docs/2006/
september/tradoc_122532.pdf
http://marketrealist.com/2015/08/outlook-emerging-economies/
http://www.worldstopexports.com/top-european-export-countries/1889
e) Impact on Asian economies:

The Yuan devaluation meant that other Asian countries also had to devalue their currency in order to
maintain their cost competitiveness in the export
markets. In fact, even before the devaluation, owing
Figure 7: Asian currency % change post devaluation
Apart from these, some breakthrough innovations in

mobile banking services globally:
The digital strategy combined with automating operating models helps in reducing expenses, improves
customer experience, first time processing, revenue
enhancements. The way in which digital technology
works for banks is shown below:-
DIGITAL BANKING- THE WAY FORWARD

-Tuhin Choudhury & Anirudh Arora, Great Lakes Institute of Management, Gurgaon
Executive Summary
Today, many banks economic models are under increasing pressure. High network fixed costs, churn
rates are on the rise and this is causing a general drop
in revenues. However digital provides banks with an
opportunity to rethink their operating models in order to address these current challenges and return to
increased profitability. Now for the banks to be successful, it has to focus mainly on these five areas:-
igital refers to all products and services that can

be completely or partially delivered through virtual
technology. It is not just the use of internet to cross
sell or attract new customers but it is the sum of all
online media resources that establish, maintain, develop and expand the relationship between a brand
and its stakeholders.
Acquisition through digital channels: Banks have to

focus on the client experience as well as the mobile
channel, simplify the online subscription process and
provide user-friendly interfaces. Constant optimization
of the search engine marketing (SEM) and search
engine optimization (SEO) strategy is also key to
enhancing acquisition through digital channels.
Big data and analytics: to be more effective than a

buzzword or new trend, the big data strategy will
have to be led step-by-step, based on the banks
existing assets. To tap into its true potential, first
the bank will need to define how it will use big
data, then it will need to create a virtuous dynamic
(for example, investing in dedicated resources).
Retention and cross-selling via digital

channels: Banks now generally have to take into
account each channels relevance throughout its
client lifecycle, which means understanding the
clients digital behavior to customize products
and services, and provide an enhanced value
proposition.
Digital as a sustainable model: to be profitable,

both online and in bricks and mortar branches,
banks will have to switch from offering low price
to high value products and services. Both
customer education in paying for online services
and definition of a customized offer will enable
banks to define this new profitable model.
Integration of digital in the physical world:

Branch closure cannot be the solution. Retail
banks will have to adapt the network format
and integrate digital into the cornerstone of the
banking relationship.
Barclays
(Britain)
Commonwealth
Bank (Australia)
Caixa Bank
(Spain)
Cloud it:- Enables users to

upload documents and use
custom tags to sort and
manage them.
BPay band- a wearable
payments solution
wristband that enables
customers to make myriad
transactions in shops,
malls, journeys etc.
Payments can be made and

accepted using a mobile
number or email id or
facebook connection or by
simply bumping two
mobiles together. View
account balance with one
simple swipe or promptly
after login app.
A mobile application for

bank transactions using
voice commands. The
service allows users to
make balance enquiries
and transfers, locate nearby
branches and ATMs.
Bradesco
(Brazil)
Westpac
(Australia)
Deutche Bank
(Germany)
App Bradesco para glass:Through the application

the user can locate
agencies, ATMs of
bradesco, receive directions
and coordinates using
Google Maps.
The rising technological trends such as internet of

things, penetrations of smartphones, tablets, explosion of cloud services; evolving customer behavior
like increased usage of mobile internet, worldwide
spreading of digital culture has led to less branches
activity and increased digital activity by banks.
When customer hold their

Westpac mastercard or
Visa under the camera of
ios device, the augmented
reality banking app shows
their recent transactions
and spending trends in 3d
and in a flash. It is
available in iphone,
android and smart watch.
Intensa
sanpaolo
(Italy)
Breakthrough Innovations in Banks and Non

banks globally and in India in the digital
space
O-Key (one time

password) is a security
measure to access services
via internet and cell phone.
Customers can withdraw
affiliate O-key free loan.
Finger print scanning to

unlock the mobile banking
apps with a finger print
scanning and access online
banking.
ICICI Bank
(India)
Payment service using
twitter account. Pay a
friend, prepaid recharges,
check account balance,
view last few transactions.
Some of the top innovations across the continents

(shown in the figure below):-
USA
Europe
Asia
Apart from the Paypal, Applepay, one of the breakthrough innovations in the banking sector was Moven. Some of
its important features are: A smartphone app which tracks the customers money which consists of remarkable features like a spending meter,
automatic categorization, smart transfer of money with social media integration, suspend or unsuspend in case of card
fraud/stolen, it can also be linked with non-moven cards.
Transferwise is the leading online Foreign Exchange Transfer Sevice Provider. It is a peer to peer money
transferring service that is quickly conquering the world. Some of the key features of Transferwise are: It has a website-embedded pay links, call center Center & a smart and aggressive referral program and welcomegifts.
Money Forward; It is a Japanese integrated personal finance solution. It is a brilliant idea that connects 1700
Japanese financial services providers to enable the customer to view all finances on one dashboard. Some of the most
important features: Card accounts, bank accounts, loyalty cards, mileage cards, utility bills, medical billings, insurance billings, phone
bills, phoneenhanced purchases, forex, equity and debt trading, investments, savings, credits, loans and mortgages,
travelrelated costs accounted electronically and many other electronically available financerelated things are visible
on the integrated dashboard.
Africa
M-Pesa It is a mobile money transfer solution that has transformed societies in Africa and is now conquering other
continents. Some of its features are: Deposit, withdrawal, transferring money, making payments to users and nonusers, paying bills, sending remittances,
repaying microloans: phone via PIN secured SMS text messages, receiving funds, microloans. Purchase of goods and
services: phone via PIN secured SMS text messages.
Australia
Nimble- Apply for a loan from your smart phone and receive the money on your account within 60 minutes.
Nimble is quick, paperless, simple and charming, but it is expensive (Establishment Fee: 20 percent of the capital and
Interest: 4 percent per month of the principal).

Some Breakthrough Innovations in India:-
Leveraging
smartphone capabilities to
Is an innovator in personal finance space, providing a completely digital
improve app funccustomer experience
Aditya
tionality: With a
The platform itself provides a financial aggregation tool, assimilating various
financial
relationships
of
an
individual
under
one
roof.
The
initial
attraction
is
Birlas My therefore being able to see all of ones accounts in a single place, track expenses
flurry of affordable
and manage ones personal expenses
smartphones being
Universe
launched in the Indian mobile market
through
aggressive
pricing strategies, de The joint offering provides both companies with a host of opportunities. For
the tie up will drive more purchases as customers will now have
Snapdeal- Snapdeal,
vice penetration is exa payment mechanism to use, apart from potential sales increases with
offers from using the card on Snapdeal.
pected to experience
HDFC co- specific
Further, the targeting of smaller towns will be beneficial to Snapdeal that
sizable growth. Acsees a significant portion of its 3 Biilion annual USD gross merchandise
branded
sales generated from Tier III and Tier IV towns and cities. The move will
cording to an e-Maropen up customer acquisitions in smaller towns for HDFC, apart from
credit card also
keter report, by 2016,
gains from increased card usage and transaction volumes.
India will have more
than 200 million
smartphone users, overtaking the US as the worlds
Digital banking the way forward:second largest smartphone market. Along with the
latest internet trends, designing content tailored for
Take advantage of richer, cheaper data access: So- smartphones, and leveraging the increased functioncial platforms have developed themselves into fer- ality of smartphones, including GPS, camera and actile ground for developing customer insights, un- cess to fast internet, will continue to be a key driver
derstanding the latest trends of likes and dislikes, as for the growth of the industry. Developing innovative
well as testing hypotheses and building brand equity. apps and mobile experiences will be a major hook in
By combining access to rich, varied data with pow- engaging potential customers. Expanding the scope
erful analytics tools and techniques, banks can now of banking app functionality to provide options for
go beyond the traditional demographic and finan- not just existing customers but potential customers
cial data sources to utilize social data while profiling could be a major step towards using the platform as
customers better to understand their individual re- a customer acquisition tool. For example, tying in
quirements. Search engine optimization is another the smartphones GPS functionality to provide cusapproach that continues to be a formidable customer tomers with top retail offers and discounts in their
acquisition strategy. According to the Shop.Org and vicinity can be a pull to download and use the app.
Forrester State of Retailing Online 2014 study, 85% Bundling this with further discounts when using the
of retailers put search engine marketing as the most banks products can then induce the user to apply for
effective online customer acquisition tool.
the banks products. If the app can be used to set up a
meeting with a bank sales representative (messaging
Building partnerships: E-commerce websites and ag- or calling through the app or geo-tagging the customgregators: With phenomenal boom being observed in ers location) or even allow the potential customer to
the e-commerce space in India, banks can use these apply for the product directly through the app, the
channels as a means to reach out to new customers, conversion from potential to existing customer is far
including those in smaller cities. Apart from explor- more likely. Such hooks to promote customer interest
ing regular advertising strategies on these websites, that require low initial customer effort will provide a
joint product offerings could be an innovative oppor- good opportunity to increase lead conversion.
tunity. The e-commerce boom has also increased the
customers comfort with online purchases. And this Optimizing acquisition processes through digital:
is slowly expanding to the financial products space as With the onset of Adhaar, biometric technologies are
is evident with financial product aggregators witness- fuelling innovation in this space. By leveraging such
ing business growth. Eg:- Bankbazaar.com, which is technologies, banks can now develop doc-less applian aggregator for loans and credit cards among other cation processes. By scanning ones fingerprint and
financial products, saw disbursals double across all hitting the Adhaar database, ones KYC is automatiproduct categories.
cally generated, eliminating the need for photo-iden-
10

tification or having to carry duplicates. This, combined with a camera, fulfils all KYC requirements.
to incorporate the PayPal functionality into website

applications and mobile apps.
Digital Payment Solutions: Outdoor payments enabled by near field communication technology:- Most
outdoor micropayments will be driven by near field
communication (NFC) devices, as is evident with the
bPay band, a wearable payments solution launched
by Barclaycard. It is a wristband that enables customers to make myriad transactions in shops, bars, cafes
as well as public transport. The wearable device offers
customers a simpler way to pay for goods and services by just tapping their wristband to pay for bus
journeys, their morning coffee, lunchtime sandwich
or post-work drinks. Turkcell Wallet for instance
is a digital wallet product that offers customers the
payment option for both, online as well as point-ofsale transactions based on the NFC technology. EpClearing is a payments framework, designed for high
volumes of low-value cross-border payments, ensuring a cost-effective and transparent service for secure
international payments. Unlike traditional open loop
(correspondent banking or wire payment) systems,
Earthport processes a cross-border payment as a domestic credit transfer, interlinked through a sophisticated virtual accounting engine.
Innovation Roadmap for Banks:-
Key Trends:- Biometrics is considered to change the

future of payments and how consumers interact with
their service providers. One such example is of Pay
Tango, which enables customers to pay through a fingerprint scan. Pay Tangos system links a form of payment such as debit or credit card, to a users fingerprint. The user will then have to only place the index
finger and middle finger on the biometric fingerprint
scanner in order to make the payment. The software
immediately then recognizes the user and authorizes
the transaction. Cards need to re-invent and innovate in order to find its purpose in the new digital
commerce environment. It will require transforming
card payments and processing capabilities, since dematerialization and digitization of plastic cards will
leave them irrelevant. For example, Apple Pay combines digitized cards with mobile contactless capabilities, and has the power to transform how consumers
make payments in-store as well as for in-app purchases from mobile devices. The next step in the transformation of payments will result in exposing payment
functions over digital channels. Banks and payment
providers can expose services through application
programming interfaces (APIs) for third-parties in
order to embed within their applications. For example, PayPal offers a set of APIs that provide the means
Apart from the digital innovations of BANKS as

mentioned : E-Comm Smart, Get Smart, Bank Statement Analyzer and Partnerships with e-commerce
companies, here is our innovation roadmap based on
our research.
The Target Segment:-
Segment Profiles:Segment
Age
Aspiring
18-34
Bloomers
Ardent Afflu- 18-34
ents
Liberal Users
35-54
11
Cautious Seniors
Disinclined
Conservatives
55+
55+
Income
Less than or equal to
Rs 500000 annually
Greater than Rs
500000 annually
Rs (500000-1000000)
annually
More than Rs 1000000
annually
Rs (500000-1000000)/
month
Aspiring Bloomers:- This segment is digitally inclined

but not among the first to adopt digital banking.
However they access mobile based services once a
week which includes features like checking balances,
transferring funds etc. Consumers in this segment are
willing to try and adopt advanced features such as
mobile bill pay, virtual wallet services. To retain and
further penetrate this segment banks can educate these
consumers about advanced features through direct
marketing campaigns.
Ardent Affluents:- This segment is highly engaged

with their mobile devices. They use advanced features
like pay through mobile wallet, bill payments through
payment gateways and are interested in seeking
guidance on personal finance and investments. They
seek value added services such as spending pattern
analysis, loyalty rewards/points, shopping updates
and portfolio monitoring. Sustaining this segments
interest in digital services by keeping up with their
innovation needs can help BANKS to acquire and
retain this segment.

2. Increase Visibility through enhancing SEO/SEM
strategy:Identify the keywords for search engines in order to
bring the client to the right web page and decrease
the no. of clicks required to reach the desired product -> improve the conversion ratio. Identifying and
analyzing clients navigation habits by following their
browsing history through cookies will help Banks to
target the right customers with the right advertisement. For e.g. a customer that have visited some vehicle websites is likely to buy a car, so Banks should
target car loan advertising for this particular customer. Careful monitoring of keywords should lead to
adapted landing pages that can increase ratio by 20%
or more, generate higher leads, rebound page analysis and more.
Liberal Users:- This segment use digital banking

solutions but not extensively. They also seek advice to
help them improve how they manage their finances.
This segment has the potential to respond best to
services related to money management.
Disinclined Conservatives:- This segment has serious
concerns about the safety and security of mobile
transactions. Currently available banking services
(branch-brick and mortar) meet their existing needs.
BANKS can penetrate into this segment by informing
them more about mobile banking and alleviating
security concerns.
Cautious Seniors:- These consumers are value seekers.

They are generally interested in products that offer
tangible rewards. They are also highly sensitive to
mobile security concerns. To make mobility more
palatable to them BANKS have to extol the virtues of
mobile banking, including its safety and security.
1. Customer Acquisition through Mobile Banking:Provide clients with a value added experience/proposition that would contain a preferential price e.g.
provide them with a good interest rate on savings account, enhanced customer experience with rapid and
simple subscription process, a five click subscription
process as follows:i)Automatic calculation of the loan amount by the
system.
ii)Personal data collection (e.g. e-KYC) along with
contact details.
iii)Automatic and paperless income data checking
process.
iv)Liabilities data collection and check, assign credit
rating to the client.
v)Finalize deals and sync agreements.
Here online verification will be based on small money transfer from the clients bank. If data in the transfer made by the client is consistent with data given by
him/her in the application, the verification should be
considered positive.
Here the target segment would be ardent affluents
followed by aspiring bloomers. The budget required
will depend upon the fees charged by app developers
which can range in between $15k to $25k based on
the applications it can provide through the mobile
app.
count, tax by enhancing the personal financial management (PFM) experience through the mobile app.
The target segment here should include all the smartphone users having internet connections (both existing and new customers) comprising of ardent afluents, aspiring bloomers, liberal users, cautious seniors
as well as disinclined conservatives (try to penetrate
more into this segment). Since this strategy includes
application chat facilities, a customer care team has
to be put in place who can connect and engage with
customers real time and solve queries accordingly.
The Branch of Digital Banks:-
Challenges:The banks opting for digitalization can face competition from payment banks and small banks like Bandhan Financial, IDFC as they will bring in new competencies. Also most banks are now turning towards
digital banking in which HDFC is leading from the
front. Meanwhile RBI Governor Raghuram Rajan
has a long list of reforms for this sector which ranges from reviewing the archaic priority sector lending
norms to the development of the debt market. These
reforms will offer both opportunities and challenges
for Banks. Apart from these there are some key cyber
security risks associated with digital implementation
(shown aside) but the opportunity which lies forward
is an exciting journey Banks can embrace with.
Here the target segment is definitely ardent affluents, aspiring bloomers followed by liberal users and
cautious seniors to some extent. A Google Analytics
consultant generally charge $125/hour for google analytics services, so the budget has to prepared keeping the consultants fees and time in mind.
System
inoperability
caused by a breach:
inability to execute
trades and access
to information
Damage to the
brand and
reputation: Loss of
share value and
market confidence
Financial and Intellectual

property: Loss of credit, cash,
competitive edge, trading
algorithms and techniques
The Road Ahead
3. Retain Customers with Long term and Customized

Products:i) Customize loan offers proposed on the client mobile /tablet app with simulations.
ii) Develop Private sales like Happy Hours, Incredible Deals in branch or dedicated campaigns .
For e.g. Get home loans @ 9.5% on Signature homes
from the period of 5th to 7th October 2015, in branch
or dedicated campaigns and push alerts on clients
mobile.
iii) Develop complementary services like access to
experts (chats or videos) which can provide an instant service that will prevent client from looking for
more customized products from competitors, access
to communities, newsletters, notices for a dedicated
client segment.
iv) Enable clients to manage their several short/mid
term budgets like (information related to) savings ac-
12
Limited to no integration with risk

Only bureau (often single source)
and internal data used to
determine the credit decision
Digital risk is managed using
existing frameworks, typically
requiring the rekeying of data into
legacy systems
Risk management is heavily reliant
on human intervention and
validation
Multi- bureau credit data sources

Risk framework, policy and
procedure translated for digital
Risk processes optimised and
automated to support an electronic
distribution paradigm
Big data analysis used to leverage
additional data sources and
improve marginal risk decision
making
13
New lending models- such as

proactive mortgage offers- will
result in targeted, location based
sales distribution
New behavioural paradigms will be
utilised such as trust based
decision making, taking into
account customer online behaviour
across multiple digital sources
ing mobile devices for activities such as Internet browsing, online purchase and online dating.
So, why not keep mobile website ON? This is because
there is an increased focus by the consumers & producers alike on Apps because mobile web-browsers
are not-so-customer-friendly. Plus the consumers
have a tendency to browse through a higher number of
products & have better repeat purchase rates on a mobile-app as compared to mobile or desktop websites.
The Transition from E-Commerce to

M-Commerce
So, how has this mobile revolution affected e-commerce? A The Times of India article stated that most
of the prominent Indian e-comm players are witness
to the fact that mobiles contribute to more than 50%
to 60% of the transactions today which used to be below 5% a year ago. This, as article states, is attributed
to the exponential rise in penetration of smartphones.
Another article on Medianama in May 2014 described how Snapdeal, the second largest homegrown e-tailer in India behind Flipkart, had seen
its mobile sales increase 25 times in one year. The
Company is expecting almost 90% of its orders to
come from mobile apps in the coming three years.
TOWARDS A NEW DAWN: A STRATEGIC SHIFT FROM E-COMMERCE TO M-COMMERCE

Is app-only strategy profitable in Indian e-commerce industry?
n a first-of-its-kind move by an e-commerce player anywhere in the world, Myntra morphed into a
mobile based retailer form on 15th, May 2015. The
company which had already turned down the mobile version of its website, closed its website (even on
computers/laptops) in an attempt to become a mobile App-only retailer. Moreover, Flipkart, the parent company of Myntra, went ahead with a similar
move in late march this year and pulled off its mobile
website. If the tweets of Sachin Bansal, the co-founder & CEO of Flipkart, are anything to go by, Flipkart
also plans to replicate the mobile app-only retailer
if the experiment with Myntra becomes successful.
So why such a craze for the morphism? To answer that
lets begin first with why to have m-commerce when
e-commerce is already there. As Mr. Bansal puts it,
pursuing a website-only retailing model is probably
the riskiest thing in e-commerce business anywhere
in the world because that way you are not catering to
the customer segment which looks for far more ease
& has far less technical upgradation & sophistication.
-Akshay Gajghate, IIM Shillong
OK! Accepted! But then why App-only? Lets discuss this matter by first looking at the changes which took place in Indian landscape on
the basis of which the decision was taken.
Smartphones in India
3G Subscribers
Monthly addition
Monthly app downloads
Indias M Commerce market size approximately

Source: DC, Ystats Mobile in India Report & various other industry reports
The Mobile Leap

The Internet and Mobile Association of India predicts that there will be 60.17% of all internet users in India will be mobile users by year end. The
mobile user base has grown as much as by four
times in the last three years. The prime drivers for
a shift of consumers to Mobile only internet are
14
believed to be the declining costs of connectivity and the speedy deployment of connectivity in
emerging economies and developing countries.
So, Mr. Bansal bases the decision of re-launching Myntra as a mobile-app only retailer, on the fact that India is going through a mobile commerce revolution.
Myntra derived 90% of its traffic and 70% of its sales
through the mobile platform. The company had about
9 million mobile app users with approximately 4 million customers having made purchases through it.
Last year SAP conducted a comprehensive research

survey regarding the usage for shopping and mobile adaptation patterns of Indians. One of the most
revealing conclusions of the study
Smartphone User Growth [2013-2018] - Top 5 Countries
was that more than
97% of participants 800.0
China
US
India
Japan
Russia
672.1
favored and asked 700.0
624.7
for mobile based
574.2
600.0
platforms to deal
with utilities, retailers, bank, and
other business entities. 80% of the
answerers
conceded that besides
messaging
and
calling, they are
progressively us-
500.0
519.7
436.1
400.0
300.0
200.0
143.9
100.0
76
40.5
35.8
0.0
704.1
2013
165.3
184.2
123.3
50.8
49
167.9
58.2
57.4
2014
2015
15
198.5
243.8
204.1
65.1
211.5
71.9
61.2
63.9
2016
2017
279.2
220
76.4
65.5
2018

The mobile channel is immensely facilitating
growth in orders from non-metros cities. Tier
II and Tier III cities in the country are an important market space for any online retail because of the absence of an organized retail sector.
The year 2014 saw billions of dollars being pumped
into the Indian e-commerce business. Majority of
the investment has gone into the growth of manpower, marketing and infrastructure. A major
highlight of this investment is that almost all of the
marketing money is being spent to develop the mobile base as India expects to double its base of mobile internet subscriptions and smartphones users
by the 2015 year end. Thus, leading to rapid rise in
numbers of Mobile-Only and Smartphones users.
Major players have come to terms with the fact that
in a business as fierce and ruthless as that of e-tailing,
where price is the king and where switching costs are
absolutely absent, the only way to have a more personalized interaction with a customer is by means of
a mobile app. They are in the hopes that a major shift
to an app-only strategy in the near future will help
them capture a share of the substantial market opportuning that is
about to arrive. This is the primary
why most of the multi-billion dollar
e-commerce companies are counting on an app-only strategy. There
are about 900 million people in India who are still not internet users,
most of whom will mostly come online through the mobile platform.
So is the Hidden Secret behind cellular most effective Diktat: Stopping rate comparison?
After doing some literature review
of articles by product managers
and users of e-commerce portal, we may conclude that Myntra
wishes to hinder the process of rate comparison because comparing prices on cellular apps is a daunting task. Thus, to minimize wastage of time and
mobile data, the customer will have limited options.
Echoing our view, Jabong co-founder, Praveen stated, Getting a rate discovery from an app can be very
elaborate. Price or rate assessment is vastly diminished there. Considering the small screen size, some
customers would find it a visibility impediment.
5 whys and wherefores m-commerce is the

Next Big Thing
By going app-only, Flipkart will kill two birds
with one stone. It will cut infrastructure costs
and expand its market to cover all of India, in a quest to defeat Amazon. Heres how.
1.Mobile is the unconquered frontier
You must have wondered as to why Facebook took
over WhatsApp & that too for $19 Billion. Why
are mobile payment platforms the preferred acquisitions of E-Commerce companies? The signs are
there for all to see. The upcoming innovations are
happening in the mobile platforms. And, thus, before any smart startup attempts to leverage the power and characteristics of the mobile platform and
establish itself, Flipkart aims to grab the platform
by the throat. In order to take full advantage of the
mobile platform, Flipkart should be able to bring
in benefits such as cash-less transactions, ability to
run the app with minimum possible bandwidth, etc.
2. Burgeoning smartphone penetration in India

As can be seen by the graphs, the smartphone user base in India is growing at an accelerated rate & is going to surpass US by 2016.
India will have about 200 million smartphone users
by 2016, signaling a brave new world and plethora of
opportunities for leading e-commerce, m-commerce
players and digital entrepreneurs. Conceive 20 crore
Indians endowed with a phone that connects them
to the internet bountiful chances for m-commerce.
16
3. Add a personal touch!

Mobile phones are thoroughly personal, much more
than desktops and laptops. Flipkart is aiming to make
shopping a much more personalized experience by
going the app-only way. It will make them have a
way more targeted approach and at the same time
enhancing the shopping experience for users with
features like pre-logged in accounts, geo-tagging
and personalized notifications on the basis of user
history. Added benefits such as customized notifications for a new product launch or for price changes.
4. Promote loyalty
Consumers in the Indian market are more likely to
change loyalties & adherences on the basis of competitive prices. This is restricted to a great extent on
mobile-based purchases as the peer comparison is
a lot more difficult on a mobile-app than on desktops/laptops. Also, given the fact that the suggestions
made on the app would be much more relevant &
specific to the consumer, going mobile would ensure better click-throughs & a higher conversion
rate. Thus, going mobile-only will thrust forward
more customers in the following lifecycle curve:
Awareness Consideration Conversion Commitment
Loyalty
5. End to the loss of privacy at the discretion of

browser owners
Browsers, especially Chrome, typically feed the companies that own them. It registers, records all the
preferences of users and stacks them in the owners
servers. Therefore, browsers are not always neutral

and are generally, on the contrary, pro-owners. It
analyzes a players customer base and later uses it
to milk profits from them. It bodes well for e-commerce majors to realize and address this menace
as early as possible. Android or other operating
systems do not have the capability to analyze what
is going on in their apps. Hence no source of data
or insights on consumer base to outside parties
and no longer the beguilement of jumping websites asking users to compare various products.
So, though the risk of data misuse is still
there but its lot more restricted & you
know well in advance whats causing what.
What do market players have to say about it

The users are broadly dissatisfied with this decision, and have expressed their anger and frustration. After all, not each consumer wants
to get sticky with one app as comparing
costs turns into a headache on a cellular app.
On a brighter side, not all e-commerce portals in
India are emulating Flipkart and Myntra and the
top three portals have overtly come out and guaranteed all their customers that their computing device
version will continue to exist, along with cellular.
Strategically speaking, this is a massive morale booster
for users of desktop/laptop variant of ecommerce portals, and at the same time, a tremendous demoralizer
for Flipkart and Myntras advertising and marketing
17

team, as they appear to have gone astray as of now.
shoppers to use one certain medium to buy on.
We cant force a consumer Jabong

As the present development goes, even Jabong, biggest rival of Myntra, has admitted that 50% of all
visitors and revenues originate on their cellular app
and the contribution is growing. However whilst,
they cant force a customer to purchase by app alone.
The customer is the best person to gauge whether or
not they want a site or an app to make the purchase.
Conclusion
Praveen Sinha, co-founder of Jabong, mentioned that they firmly believe the buyers
should have the ability to choose whether to
purchase on his smartphone or on the laptop.
In the conclusion, we would suggest that the e-commerce players should keep on experimenting with
the ever-dynamic Indian Consumer which will lead
them to a better strategy. As the Rama Bijapurkar, in
her book We Are Like That Only: Understanding the
Logic of Consumer India, states that the Indian Consumer shouldnt be assumed to be going the same path
as their western counterparts went in their consumerism. In a country with such a cultural, social & financial
diversity, micro-segmenting is the best way forward.
The might lies with the consumer Amazon

Amazon has made clear that in an emerging and a
price sensitive market like India, the decision making mandate has to be handed over to the customer. Although they admitted that almost 50% of their
revenue are taking place on their cellular app, both
internet site and cell must co-exist. Amazon sticks
to its ideology of being a purchaser-obsessed company which enables its customers to buy whenever, wherever, and whatever s/he wishes to buy.
Respect laptop and desktop users Snapdeal
Snapdeal has mentioned that their analytics knowledge indicates that there are tremendous quantity of laptop website users on
their portal, and they just cant abandon them.
A spokesperson from Snapdeal stated that they have
stats to support the fact that many buyers use PCs
to shop on-line & they do not wish to push their
The market is rife with both supporting & opposing views on being mobile-only retailer. Thus,
a lot remains to be seen on the basis of its impact
on profitability & market share. The writers of the
article tried to search for authentic data representing such a case study but as of now the e-comm &
m-comm players are giving contradictory views.
References
http://www.statista.com/statistics/257048/smartphone-user-penetration-in-india/
http://www.ibtimes.co.in/myntra-sees-10-dropsales-after-moving-app-only-format-633160
http://trak.in/tags/business/2015/05/18/amazon-snapdeal-jabong-refuse-flipkart-myntras-mobile-only/
http://www.huffingtonpost.in/dhritiman-hazarika/6-reasons-why-flipkarts-a_b_7800628.html
http://yourstory.com/2015/05/myntra-app-only-move-mobile/
http://trak.in/tags/business/2013/10/21/m-commercegrowth-india-30-snapdeal-sales-mobiles/
http://www.ibtimes.co.in/myntra-sees-10-drop-sales-aftermoving-app-only-format-633160
18
ROLE OF INDIAN BANKS IN THE DEVELOPMENT OF

MSME SECTOR- where the future of India lies
-Deepa Yadav, SIMS Pune
The Micro, Small and Medium Enterprises (MSME)
plays a pivotal role as a growth engine of Indian Socio-economy and is a major contributor towards the
equitable and sustainable development of the economy. It is one of the main pillars of the Prime Ministers Mr. Narendra Modi Make in India campaign.
MSMEs is one of the critical component of growth
story of India with its continuous contribution towards generating the highest rates of employment in
India after the agricultural sector. It is also making
significant contributions towards the GDP, imports,
exports, gross industrial value of output, gross value added and investments in fixed assets which ultimately results in the development of the Indian manufacturing, services and infrastructure sectors. It is
not wrong to say that the future of India lie in hand
of these MSMEs.
MSMEs contributes approximately 37.5% to the
GDP of India in the year 2012-2013 and has steadily
maintained it for the past three years, which comprises of 30% contribution from the services sector
and the remaining from the manufacturing sector. It
means it has added a gross value of Rs. 20.56 lakh
crore out of which services sector has contributed to
71.2% and the remaining 18.8% by the manufacturing as per the latest Report of the MSME committee
which came in Feb, 2015. MSMEs also accounts for
around 40% of the exports of India and significantly
generates employment for nearly 80 to 100 million

people in the country as per the Ministry of MSMEs
Annual Report of 2013-2014.
Before coming to the role of Indian banks in the development of MSME sector we first need to understand the meaning of MSME in India. MSME sector
has been categorised into two parts: Manufacturing
and Services and the specifications of both are different. The table given below defines what exactly
a MSME is in the Indian market as per the Indian
MSMED (Amendment) Bill, 2014:
Categories
Micro
Small
Medium
Manufacturing
Services
(Investment in plant
(Investment in
and machinery)
equipment)
Does not exceed Rs. 50 lakh
Does not exceed Rs. 20 lakh
More than Rs. 50 lakh but does
More than Rs. 20 lakh but does
not exceed Rs. 10 crore
More than Rs. 10 crore but does
More than Rs. 5 crore but does
In order to maintain and sustain any MSMEs and for

the continuous development of MSMEs India, adequate availability of the credit and finance is required
as the most important key input for financing its
business processes and to meet the meet its working
capital requirements at the right time.
19

This fact is available to any MSME developed by either an entrepreneur or a business unit. Generally,
MSMEs in India are owned by first time entrepreneurs who does not have adequate capital or have
very little capital which requires initial investment to
start the business in addition to technical, marketing
and managerial support. In addition to that, they also
require additional capital from time to time for technological up gradation, capacity expansion growth,
marketing and imports & exports.
Indian banks plays crucial role in providing financial
facilities to various and huge numbers of MSMEs
through their various branch offices, regional offices
and other banking divisions across the country. Various stakeholders like Reserve Bank of India (RBI),
private banks, public banks, commercial banks,
scheduled banks, academia & entrepreneurs etc. are
working together to for the sustainable economic
growth of the India. In order to channelize the flow
of credit and finance to the to the MSMEs, RBI has
mandated banks specific targets for lending a certain
amount of their portfolio to the MSMEs as a part of
Priority Sector Lending norms. RBI has mandated all
banks to lend at least 7% of their annual total lending to these MSMEs to solve their problem of capital
scarcity. RBI has also made various policies for solve
the financing problem of these MSMEs and for their
proper development.
Banks prefer to offer loans against collaterals to MSMEs as they prefer collateral in order to avoid defaults and to secure their loan books as per their risk
framework. The Loan Against Property (LAP ) of
these banks forms a major chunk of MSME loans in
the range of Rs. 30 million to Rs. 150 millions.
In addition to this, RBI has also proposed the setting
up of various credit rating agencies for the
credit rating of these MSMEs which made
the SME Rating Agency (SMERA) to inYear (last
corporate banks like Small Industries Development Bank of India (SIDBI), Dun reporting Friday)
and Bradsheet etc. which will evaluate the
various rating products and rate various
MSMEs so that they can easily get access March 2012
to banks for financing at better terms and
conditions. The Government of India and
the Ministry of MSME has launched a March 2013
Credit Guarantee Scheme which will help
in the strengthening of credit delivery sysMarch 2014
tem to the MSME sector. This scheme is
financed by the GOI and SIDBI in theratio of 4:1. This

will help in resolving the problems where MSMEs
have lack of collateral with banks offering collateral
free loans based on the assurance and credit guarantee cover offered by the Credit Guarantee Fund Trust
Scheme for Micro and Small Industries (CGTMSE)
up to 75% of the amount of default to the Member
Lending Institutions (MLI). This scheme is a boon
for the MSMEs who now dont have to worry about
collaterals to raise the initial investment and funding
for their Capital Expenditure.
The Union Budget 2015 also offered a brand new
source of financing trade to MSMEs with the proposal of setting up of Factoring: Trade Receivables
Exchange which will ultimately result in success of
PM Mr. Narendra Modis ambitious programs such
as Make in India, Micro Units Development and Refinance Agency Bank (MUDRA) and smart cities in
order to increase the contribution of MSMEs to the
overall economic growth of India.
The bank have special focus on the overall MSME
sector as they form around 15% of its asset book and
the contribution of micro sector is around 45% of
their MSME book. As a result of which the total bank
credit to MSME sector has increase to Rs. 7.9 trillion
in FY2014 at a compounded annual growth rate of
25% from Rs. 833 billion in FY2005. The public sector
banks and commercial banks have reported a CAGR
of around 36% when it comes to providing the loans
to MSME sector due to huge demand of capital requirement by these MSMEs. The most reluctant ones
are the foreign in terms for providing loans to these
MSMEs. The aggregate credit outstanding to MSMEs
from the scheduled commercial banks has increased
to Rs. 10.35 lakh crore in FY2014 from Rs. 6.81 lakh
crore in FY2012 as the data provided by RBI.
(Provisional)
20
All Scheduled
Public Sector
Private Sector
Banks
Banks
5,33,279.29
1,24,725.66
23,300.71
6,81,305.66
6,43,525.02
1,82,247.82
43,251.30
8,69,024.14
(20.7%)
(46.1%)
(85.6%)
(27.6%)
7,54,391.07
2,46,025.76
34,359.17
10,34,775.99
(17.2%)
(35.0%)
(-20.6%)
(19.1%)
Foreign Banks
Commercial
banks
The table given above shows the aggregate bank credit

flow to MSME for public sector banks, private sector
banks, foreign banks and all scheduled commercial
banks with their annual growth rate for the financial
period of 2012 to 2014.
In order to cater to any market, a service provider
needs to devise methods and design products and
services as per the customers requirements. The very
same thing is applicable to the Indian banks who
has to consider the requirements of the MSME so
that they can design relevant products and services
in order to reach the targeted MSMEs and to fulfil
their responsibility towards the countrys economic
growth by acting as an efficient financial intermediary. In order to understand the MSMEs sector, the
Indian banks has to adopt a two- pronged approach:
one towards Sectoral & Cluster based approach and
the other towards Product Design approach. The first
approach will help in understanding the cash flow
dynamics and the value-chain of the MSMEs and the
second approach will help banks to design the products and services according to the value-chain analysis and the role of debt financing in the growth of
MSMEs and small businesses in the value-chain. This
will also help in offering value-added loans like consumer loans and distribution strategies in order to
tempt the small business loans on a very large scale.
The government of India has announced a creation
of a committee in order to examine and analyse the
overall financial architecture of the MSME sector by
the Ministry of Finance and the Department of Financial Services in its Union budget FY 2014-2015
which will interact with financial institutions, intermediaries and MSMEs to design products as per their
needs. It will help the banks to reach out to a larger
number of MSMEs and to increase their distribution
for the purpose of financial inclusion of MSMEs on a
very mass scale.
The main objectives of this committee and banks
specific to MSMEs are
To ensure every registered MSME has a bank account i.e financial inclusion
To facilitate ease of doing business in India for MSMEs
To increase the flow of equity to the MSME sector
To encourage the establishment of an effective,
online and technology-driven receivables financing
platform
Expand coverage under and enhance effectiveness
& utilization of credit guarantee/insurance schemes

and make the programmes accessible to a wider set
of credit providers
The inclusion of banking institutions like scheduled
commercial banks, micro finance institutions, nonbank finance companies, cooperative banks, the proposed Post Bank and the proposed new small finance
banks of India in the financial architecture t serve the
MSME sector.
To encourage the expansion of credit bureaus
The Government of India has also appointed an apex
body SIDBI for the promotion, development and financing of MSMEs. Its provides financial supports to
these MSMEs in the form of refinance and resource
support through eligible Primary Lending Institutions (PLIs), such as, Banks, State Financial Corporations (SFCs) and other intermediaries for onward
lending to MSMEs, direct assistance to MSMEs, with
focus on niche areas like risk capital/equity, sustainable finance for promoting energy efficiency and
cleaner production, receivable financing, service sector financing, etc. and Micro Finance through MFIs.
The total credit flow outstanding of SIDBI to MSME
is Rs. 61, 271 crore including refinance of Rs. 39,000
crore in the FY 2014 which provides assistance to
more than 340 lakh units/persons.
The Indian banks are constantly trying to improve
and leverage upon the existing MSME financial architecture in order to create new financial construct
and opportunities for MSMEs so that they can easily
get access to financing across the country at better
and competitive interest rates. This will surely not
only help in the development of the MSME sector in
India but also benefit the financial sector, employment generation and overall sustainable economic
growth of India.
References:
http://economictimes.indiatimes.com/small-biz/money/
msme-sector-undercapitalized-role-of-bank-finance-crucial/
articleshow/47890997.cms
http://www.business-standard.com/article/finance/-banks-toplay-bigger-role-in-msme-sector-110121900037_1.html
Research Paper: Micro, Small and Medium Enterprises
(MSME) in India; Financing by banks, www.ijbmi.org, Volume
3, Issue 1, January 2014, PP.07-16
Research Paper: The Role of SIDBI in developing the MSMEs
in India, IOSR Journal of Economics and Finance (IOSR-JEF)
e-ISSN: 2321-5933, p-ISSN: 2321-5925. Volume 1, Issue 6
(Nov. Dec. 2013), PP 08-14 www.iosrjournals.org
MSME Committee Report, Feb, 2015
21
22
23
But during the 2008 global financial crisis, the Sensex

almost crashed more than 50%, from 20,000 to 9,000
odd levels. FIIs had been withdrawing heavily from
Indian equity as they moved their capital to safety.
This seriously crippled the liquidity of our stock market. It led to no appetite from retail and institutional investors and the primary and secondary markets
were in a deep abyss.
Despite the great fall in the popular stock market indices, few quarters later, our stock markets provided
strong resistance to the global financial contagion.
The turnover of the NSE rose by 50.2% in 2009-10
compared with 2008-09 and by 2010 the markets
consolidated, thanks to better macro fundamentals.
Role of FIIs and retail investors in equity markets

One of the key reasons for the recovery was investment by FIIs, to which the market is very sensitive.
RBI, in 2010, has estimated that a 10% fluctuation
in FII investment results in a 35% variation in stock
prices. Thus, capital markets have always reacted to
the decisions of FIIs, and hence play a key role in the
performance of capital markets.
STRENGTH OF INDIAN CAPITAL MARKET IN THE BACKDROP OF GLOBAL TURMOIL
Retail participation in capital markets has always

been muted. Less than 1.5% of the population invests
in securities, compared with almost 18% in the U.S
and 10% in China. Just 2% of Indias household savings are exposed to equity while in the U.S. it averages
around 45%. If retail investors show more excitement
in channeling their investments towards capital markets, it will help our capital markets generate more
funds for their investments.
-Vaghul Ramanujam, SIBM Pune
-Bharathwaj Chandrashekhar, IMI

Introduction
his article tries to explain how our capital markets

have been performing in recent times, their reactions
to global turmoil and how they will fare with respect
to the current world happenings. Development of
our capital markets, the role that FIIs play in our
markets and the advantages of Indias better macros
have also been studied in order to explain how our
markets will behave in future.
Development of Capital Markets

The Indian capital market has witnessed a paradigm
shift to be at par with the advanced markets of the
world in the last couple of decades. The 1990s might
probably go down as the most important decade for
the Indian capital market, with the emergence of
SEBI, participation of Foreign Institutional Investors
(FIIs), new industrial policy, entry of private sector
banks and mutual funds, etc. It was also known for

some not-so-good reasons like scams by Harshad
Mehta and Ketan Parekh etc. which led to reform of
equity markets. These helped to strengthen the market to avoid any such misdeeds in future.
For a long time, debt markets have been anticipated to make significant developments but are still at
a nascent stage. The bond market is not customized
and is illiquid which acts as a key deterrent for investors to participate. Nearly 98% of the bond market
in India is through private placement and there is a
lack of competitive intermediaries. Corporate bonds
are not actively supported by FIIs and pension funds.
The government should actively focus on these issues
to generate interest amongst investors to hold these
asset classes.
Hence, there has been lukewarm interest in debt
markets of India, among global as well as domestic
investors, and de-facto equity markets have always
run the show in India.
24
Peek into the past

During the Asian crisis, Indian markets were quite
resilient. In the 2000-01 dot-com crash, only the
stocks in the technology domain suffered mostly; the
rest of the market actually did quite well, including
the industrial stocks.
March 2005
3.29%
DIIs, 8.81%
FIIs,
14.50%
Promoters,
54.05%
March 2015
March 2010
NonInstitutions,
15.35%
NonInstitutions,
19.34%
The chart below shows the holdings of different class

of investors in equities in India.
Others, 3.82%
DIIs,
12.42%
FIIs,
15.53%
Promoters,
52.87%
25
NonInstitutions,
15.06%
Others, 4.23%
DIIs,
10.77%
FIIs, 20.94%
Promoters,
49%

In the last 20 years, since they have been allowed to
invest, they have poured in over Rs. 13,000 billion in
Indias equity market. India needs lot of investment
in the coming years to pick up its growth trajectory. Hence its important that FIIs show keen interest
in investing in Indian equities, which can fuel our
growth story.
The chart below shows the net monthly investment of
FIIs in equity and debt markets of India.
Understanding the Impact of Fed Hike

Starting from 2004 till 2006, Fed has raised interest
rates 17 times, i.e. from 1% to 5.25%. This has resulted
in a sharp outflow from Indian debt markets as FIIs
pulled out significantly and their cumulative holding
went down by 70% by June 2006. On the contrary,
Indian equities witnessed a strong inflow, thanks to
FIIs pumping in their investments. But this was the
period when most asset classes were doing well and
there were few uncertainties.
Seven years ago, the Fed reduced its
rate to 0.25% and the dollar carry
trade has benefited many emerging
market assets. Carry trade refers to
borrowing in a lower interest rate
currency and investing in riskier equity and debt of emerging markets.
The International Monetary Funds
Financial Stability Report states that
assets of emerging market bond
funds have more than doubled since
2009, and currently stand at close to
$1 trillion.
Earlier, among foreign investors, only FIIs were allowed to invest in Indian stocks. Now, even retail investors from abroad can invest in markets. Further,
several mutual funds and insurance companies have
invested through the institutional route; hence, no
single group can influence the market.
Chinese Downturn
After rising by 150% in the last one year, Chinese
stocks have dramatically nose-dived in the last few
months. The rapid decline has sparked fears that
Chinese stocks may be entering a long-term bear
run. This fear can be attributed to the slowing Chinese economy and its high debt-to-GDP ratio levels.
Indian stocks have managed to stay relatively resilient to the turmoil in Chinese stocks of late. While
the Shanghai Index has dropped 40% since June 12,
2015, the Sensex has lost only 5% in the same, even
though it touched 25,000 levels in this period. It implies that though Indian equities got affected by the
Chinese drop, they have managed to recoup and are
currently nicely placed.
the Fragile Five economies and its inflation was spiking with falling GDP growth. The situation is very
different now.
Advantage India
The crash in oil prices have helped to limit the import
bill, hence the CAD is tamed. Inflation and interest
rates are trending down, which is a good sign for the
economy, which wants to invest more to stimulate
growth. India is best placed in comparison with its
other emerging market peers, which are still struggling to get its macros in good shape. This puts India
in a sweet spot and will hold it in good stead when
the Fed starts increasing its interest rates.
The present stability of the rupee, as against the sharp
depreciation in the Brazilian Rial and Turkish Lira is
testimony to the strength of the Indian economy and
an indication of the shape of things to come.
Forex reserves have swelled to a great extent, which
puts India in a relatively better fiscal position, providing cushion against volatility. It can be attributed
to the RBIs continuous buying of dollars in the last
As the US economy slowly gets back on track, there

is an impending rate hike which might happen by the
end of the year. The US dollar has appreciated against
most emerging market currencies and has damaged
carry trade and liquidity in emerging countries capital markets.
The aftereffects of taper announcement of 2013 are
unlikely to be repeated when the Fed hikes rates, as
the markets are already correcting itself in anticipation of it. Although some short-term volatility is expected to happen, the effects might not be substantial.
Taper Tantrums
During the announcement of taper, the initial selling
happened in the Indian debt markets. The selling created some panic and the rupee depreciated sharply
touching 68.85 to the US dollar on 28 August 2013.
It was this unexpected crash in the rupee that created more panic among FIIs forcing them to pull out
funds from equities as well.
Another major factor that can explain why markets
went crashing was Indias poor fundamentals. Indias
twin deficitsfiscal and current accountwere in
dangerous territory, it was classified as one among
26
couple of years. The countrys foreign exchange reserves now stand at $350.8 billion, making India one
of the top 10 holders of Forex reserves in the world.
It is true that the Indian market is presently trading at
premium valuations. But it is important to note that
India has the best structural growth story among its
emerging market peers. Therefore, considering the
expected recovery in growth and earnings, the stocks
might provide greater returns even though they
might currently be expensive buys.
The return on equity (RoE) in emerging markets is
on an average 11% and falling whereas in India, it is

16% and expected to rise. In this scenario, FIIs will
continue to invest in India. Thus Indian markets will
be resilient and better prepared to face minor external shocks.
Impact on Indian debt markets

The same rosy picture cannot be painted for debt
markets as well. There is a greater threat of volatility
in debt markets as foreign investors are more shortterm in their investment horizon and are very sensitive to yields and currency movements.
They have poured $53 billion in debt since the beginning of 2009. While $13 billion was pulled out in
2013 due to Fed taper announcement, $32 billion has
been pumped in since the beginning of 2014.
As the bond market in India is relatively less liquid, as
pointed out by the IMFs Financial Stability Report,
money tends to flee from illiquid assets such as EM
bonds when risk-aversion rises. Hence, Indian bonds
face greater risk when compared to equity.
Also the performance of debentures has been disappointing. The recent credit downgrades of Amtek
Auto, Jaiprakash Associates, Jindal Steel and Power, Bhushan Power and Steel, etc. have created fear
amongst investors, and hence might be difficult for
the market to repose faith in the investors that these
assets are safe investments.
For all the above cited factors that might induce capital flight, the debt markets still have one big advantage. India has a 6% advantage on bond yields (Indian 10-year yield is at 7.8% while the US 10-year bond
yields are at 2.2%). This yield differential is highly
attractive for investors and hence might mitigate the
capital outflows from debt market.
Markets will be resilient

Hence, for any major global happenings, we expect
the markets to be strong enough to withstand downturns, even though there might be some short term
volatility. The macros are strong enough to support
these markets, which would repose the faith in both
domestic and foreign investors. It is expected that
Indian markets would be the favorite among global
investors in comparison to its EM peers and hence
where else but India the money would flow into.
27

business operations, a minimum turnover and cash
profit and a demonstrated growth in turnover before
it sanctions a loan. Naturally, a start-up in need of
seed capital can rarely meet these criteria.
Secondly, what distinguishes equity from debt is that
the latters repayment has to be secured. There are
three kinds of securities Primary security (charge
on the assets created out of the loan proceeds),
Collateral security (charge on the borrowers assets,
existing prior to the loan being sanctioned) and Personal or Third-party Guarantee (guarantee to repay
the loan amount out of the personal assets of the
borrower or a third party in case of default).
THE FIRST STEP IS ALWAYS THE TOUGHEST

BANK LOAN FOR STARTUPS-An Analysis
-Siddharth Gupta, XIM Jabalpur
Financial institutions, unlike angel investors and venture capitalists or for that matter family and friends, do
not extend loans on the basis of a gem of an idea or lucrative income projections.
An entrepreneur needs two primary resources to
start up a business idea and adequate seed capital.

While the idea is an intrinsic resource which no one
other than the entrepreneur can generate, capital
is an extrinsic resource for which the entrepreneur
has to fall back on an external source, sooner or later.

The good news is that angel investors and venture
capitalists are slowly warming up to indigenous startups. According to a report by Venture Intelligence, a
research firm focused on venture capital and private
equity deals in India, there are 43 angel networks,
111 venture capital investors and 37 incubators in
the country, giving a much needed boost to the Indian startup ecosystem. To add to these, crowdfunding
has found its own place among the new generation
entrepreneurs. The bad news is a very small fraction
of entrepreneurs are able to garner funds from these
sources, the others being forced to bootstrap - rely on
personal savings or funds from family and friends.

And the more money the entrepreneur infuses into
the startup, the more risk he assumes.
This is where loans come in. Loans allow us to buy
assets with borrowed funds, with the belief that the
income from the asset will be more than the cost of
borrowing. This excess adds to the profits from the
business, thereby having a multiplier effect on the
Return on Equity (ROE). This is what we call leveraging or gearing. However, historically, it has always
been difficult for entrepreneurs to obtain loans while
raising funds.
The foremost reason for low penetration of institutionalized credit among startups is their poor creditworthiness. Financial institutions, unlike angel investors and venture capitalists or for that matter family
and friends, do not extend loans on the basis of a gem
of an idea or lucrative income projections. A bank
would ordinarily require at least three years of
28
Any bank would require security that is at least 1.25

times the loan amount, even more for borrowers with
less creditworthiness. The primary security is almost
always not enough to secure the loan, thus requiring
the borrower to bring in collateral security or provide
personal guarantee to meet the banks requirements. This directly increases the financial risk for
the borrower and the absence of adequate collateral
often becomes a stumbling block to availing a loan.
guarantee. All this at a comparatively lower rate of

interest? Seems impossible? Not now. The answer
lies in a scheme operated by the Ministry of Micro,
Small and Medium Enterprises (MSME), Government of India, called the Credit Guarantee Scheme
(CGS).
The Credit Guarantee Scheme allows entrepreneurs
to avail credit up to Rs. 1 crore (Yes, 1 crore!)
Without providing any collateral security or personal
guarantee. The scheme mandates that the lender
gives high importance to project viability and secures
the credit only through primary security. In case the
borrower fails to discharge his liabilities to the lender,
the Government make good the loss of the lender
up to 75% (80% for women entrepreneurs) of the
outstanding amount subject to a maximum limit
of Rs. 62.50 lakhs (Rs. 65 lakhs for women entrepreneurs). For this purpose, the Ministry of MSME
and the Small Industries Development Bank of India
(SIDBI) have jointly set up a trust called the Credit
Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).
Besides the guarantee cover, banks also have the incentive of assigning zero weight to the portion of
the loan guaranteed by CGTMSE while calculating
capital adequacy ratio. In simpler words, greater the
quantum of loans sanctioned under this scheme by a
bank, lesser will be its requirement for capital, thereby reducing its total cost of acquiring capital. On account of these incentives, banks are required to provide differential rates of interest to MSE borrowers.
This implies that borrowers under the scheme can
avail loans at comparatively lower rates of interest.
Prime Ministers Employment Guarantee ProThirdly, raising money through debt brings the addi- gramme (PMEGP) is another scheme under which
tional burden of interest payments. The early stages entrepreneurs can startup by contributing only
of a startup are characterized by low revenues and 10% (5% for women entrepreneurs) of the project
significant expenditure on capacity building. Debt cost from their own funds, the government providservicing increases the recurring fixed cost, thereby ing 15% (25% for women entrepreneurs) of the projputting added pressure on cash flows.
ect cost. However, this scheme is applicable only to
startups whose investment does
The above points do present But what if a startup could not exceed Rs 25 lakhs for mana strong case as to why start- avail a loan based on its ufacturing sector or Rs. 10 lakhs
ups are unable to avail bank future viability rather than its for service sector.
loans. But, what if a startup business history, without the
could avail a loan based on its entrepreneur having to submit
future viability rather than its collateral security or personal The above schemes directly adguarantee,
all
this
at
a
dress the aforementioned apbusiness history, without the
comparatively lower rate of
entrepreneur having to submit
prehensions of an entrepreneur.
interest? Seems impossible?
collateral security or personal Not now..
29

Firstly, he is not required to put his personal property at stake so as to secure the loan and his exposure
in the business is limited to the initial equity that he
has to bring. While under PMEGP, the entrepreneurs
equity contribution is very low on account of the
Government subsidy, under CGTMSE banks would
ordinarily require a debt-equity ratio of 2:1 implying
that he would have to bring only around one-third of
the total project cost.
Secondly, he can avail loans at relatively lower rates
of interest. Besides,
the Credit Information Bureau (India)
Ltd. (CIBIL) maintains records of the
credit history of every person on the
basis of which it assigns a credit score
ranging from 300
to 900. This credit
score is considered
by all lenders before sanctioning a
loan. Borrowers with a credit score of more than 700
can negotiate for even better interest rates. Also, the
interest expense, unlike dividend on equity, is
deductible from income for tax purposes, leading
to tax savings and further reducing the cost of
capital.
Thirdly, banks often allow an initial moratorium, allowing the business to start the repayment process
only after 18-24 months. The borrower can also negotiate for a step-up repayment schedule where the
instalment amount keeps increasing with the passage of time, thus reducing the pressure on cash
flows in the initial stages of the business.
Fourthly and most importantly, for loans under
these schemes, banks shall pay heed to the project
feasibility and sustainability rather than depending
on previous financial statements while sanctioning
the loan. Thus, a few months old startup with low
revenues can also obtain a loan provided he can convince the banker of a promising future for the company. But how easy is it to convince the banker?
Well, not easy. The thought of NPAs (Non-Performing Assets) sends a chill down the spines of bankers.
Loans to start-ups carry a higher degree of risk and
the government guarantees only 75% of the outstanding amount in default; the remaining amount turns
into losses for the bank. Naturally, banks are wary in
sanctioning such loans. Convincing the banker that
a loan to the business is a safe investment, requiring
good homework on the part of the borrower. He
must back his business plan with detailed pro-forma
income statements, cash flow statements and balance
sheets for the next five years. Moreover, the worth
of a startup depends greatly on the vision, sincerity and determination of the entrepreneur, of which
the banker must be convinced.
Besides, it is important to
be acquainted with every
detail of the loan scheme;
otherwise the banker
might easily take the borrower for a ride. It is also
advisable to approach at
who says, Yes, I will.
Just keep looking and the
startup least three banks
at least three banks at
once, preferably those with the borrower has exciting
relationship.
Even then, getting a proposal sanctioned might take
some time. But if the idea is worthy, there will surely
be a banker who says, Yes, I will. Just keep looking
and the startup might soon be up and running!
Trivia
All Scheduled Commercial Banks (either PSU, Private or Foreign Banks), select Regional Rural Banks
and such of those institutions as may be directed by
GOI are covered under CGTMSE. Small Industries
Development Bank of India (SIDBI), National Small
Industries Corporation Ltd (NSIC) and North Eastern Development Finance Corporation Ltd (NEDFI) have also been included as eligible institutions.
More than 1.1 million proposals have been approved under CGTMSE till April 2013,providing
guarantee cover for a total sanctioned loan amount
of Rs543.22 billion.
Almost 50% of the U.S states offer some form of tax
break to angel investors.
The number of angel in the U.S has tripled since
1999.
According to estimates in the last two years 225000
people have made an angel investment in the U.S.
30
CAB DRIVERS TAKE OLA AND UBER FOR A RIDE

-Market Maniacs, Great Lakes Gurgaon
Cab driver to customer (just after a ride ends):
Bhaiyya aap mujhe ek aur ride de doge kya? (Can

you provide me with another ride?)
Customer: Woh kaise bhaiyya (How would I do
that?)
Cab driver: Cab book karne ke option me jao app
se, kyunki main paas hun, aapki request mere paas
hi aaegi (Try requesting for a cab from your app
and since I am near you, the request will come to me
only)
Customer: Nahi bhaiyya, mere paise kat jaenge
(No, no my money will get deducted)
Cab driver: Cash option select karo na aap (Select
to pay by cash)
Customer: Par main aapko pay to karunga nhi
Cab driver: Mujhe Rs. 200 incentive milega, peak
hours me ride ke liye. Main yahan se ghar chala
jaunga 5-6 kms. Bill banega 100-120. Tab bhi Rs. 80

ka fayda hoga mujhe chahe aap pay bhi na karo
(I get an incentive of Rs. 200 for getting a ride in the
peak hours. I will go home from here and when I
end the ride it will be recorded as a ride of Rs. 100Rs. 120. Even if you dont pay, I will reach home for
free and in fact earn a bonus Rs. 80)
Customer: Thk hai bhaiyya start kar di app. 2 minutes me cab dikha rha hai. Book kar rha hun.Kar
diya (Ok then I am booking a cab, it is showing a
cab in 2 minutes. I am done with the booking)
Cab driver: Han aa gya mere paas request. Thank
you. Main 5 star rating dunga aapko (Yes I got
the request. Thanks a lot. I will give you a five star
rating)
False Revenues
Ola and Uber boast of the fact that they incentivize
the cab drivers so well that well educated people and
even engineers are signing up for this job. It is
31

difficult to say whether they are aware of this flaw in
providing a Rs. 200 incentive during peak hours, but
it is true that this provision is being heavily exploited.
We will try to estimate how much false revenue it accounts for Ola in a month:
No. of cabs operating in a day
60000
No. of cab drivers involving in

this unethical behavior (A)
10% of 60000 = 6000
No. of fake rides in peak hours

per cab driver(B)
Total no. of fake rides during
the peak hours in a day (A * B)
Average false revenue per ride
Rs. 100
Amount Cab Aggregator pays

to the driver for this ride (C)
Rs. 80
Estimated false revenue of the

day (D)
Rs 100 * 12000 = Rs. 12 lakh
Estimated loss for the day (E)
Rs 80 * 12000 = Rs. 9.6 lakh
Estimated Monthly False

Revenue (D * 30)
Estimated Monthly Loss for
Ola/Uber (E * 30)
Rs. 3.6 crores
Possible Remedies
There are a few solutions that might appear fool-proof
in saving a fortune for these companies but there is
a shortcoming which exists with each one of them
Rs. 2.88 crores
This is a very conservative estimate that one

can make of this scenario. Given that the valuation of the company depends on the gross revenue it makes, it is beyond doubt a huge number.
Cab drivers also indulge in starting two trips simultaneously in both Uber and Ola apps in two
different devices. This is possible if there are two
commuters and both of them book the cab for the
same driver. The cab driver asks the customers to
make multiple bookings to verify the costs by Uber
and Ola but charges only for the cheaper of the two
fares. There is not much financial mismatch in this
case but the whole model becomes a joke. Thus,
the recent regulation which involves a driver being asked to pay a service fee of Rs. 300 per week
will act as a stringent measure for this practice.
Similar instances were reported when huge incentives of Rs. 5000 were announced by the Ola cabs
for every 10 rides completed and used to double
for 20 rides during the week starting with Christmas leading up to the New Year. Some smart cab
drivers bought cheap smartphones and installed
Ola apps in their phones, booked rides for each
other, drove the cab for a few kilometers to show
genuineness. In the process, some of the cab drivers made 70,000 during those 10 days, with an estimated loss of 2.4 million dollars during that period, by doing a similar calculation as shown above.
Solutions
This will ensure that the customer cannot escape

payment and since money will be deducted from
his/her account, he/she will not indulge in allowing a
false ride to the cab driver. (Note: This might lead to
lesser sales)
Proposed Solution
Other unethical practices
12000
Making the payments only by Ola/Uber Money
Is there a way out?
If a transmitter can measure how far a user is from the cab and how much time has elapsed from the last
ended ride, an algorithm can be implemented to stop the user from booking the same cab again
Putting a time limit of 30 minutes on not being able to request the same cab can be another easier solution but
as mentioned above, it will be a pain for a user genuinely wanting to travel in the same cab, to make a fresh
booking for a different cab because of this constraint
Cab-aggregators have to be absolutely sure of the consequences whenever they announce a new incentive.
Not having their own inventory causes very less monitoring or control over the vehicles plying under their
brand name. In the race to grow faster, Uber had to
do away its limitation of being able to book a cab only
using the mobile wallet Paytm, which otherwise was a
better framework to avoid these fraudulent activities.
Lastly, the customers should realize that such practices cannot occur if they do not allow it. There
is a need to advise the customers about the kind
of losses the company providing them these services can suffer and discouraging it would make
the company more capable in serving them better.
Shortcomings
Cab driver pays in cash the loss incurred by the
customer
It may lead to lesser sales

The cab driver may convince the user that he will
pay for the amount that gets deducted from
his/her Ola account in cash
Making it impossible to book a cab by the same user

for the same cab for the next 30 minutes
A genuine re-booking of the same cab will not be

possible
This would need a tracking in terms of which was the

last user served by a cab. No customer will wait for 30
minutes to give a ride to the cab driver.
In case a user genuinely wants to book a fresh ride

with the same cab due to some reason, the app will
not allow the same
32
33
1) Famously known for keeping their product ad-free

for a long time, X struck a deal with Omnicom worth
upto $100 million to show advertisements under its
umbrella.The ads could come in the form of static
images or videos and are meant to be consistent with
the quality of content on X. Identify X
2) ---- is the approved custodian for acceptance of
GOI securities under the security deposit requirement
a)
NSE b)
NSCCL
c)
NSDL d)
NCDEX
3) In context with the falling rupee, a leading newspaper wrote recently that RBI has used up most of
the available ammunition to prevent the rupees slide
in the over-the counter market, but without much
success. Which among the following steps was taken
by RBI, which has been referred to available ammunition in this statement?
a) RBI sold the foreign currency in market
b) RBI purchased the foreign currency from market
c) RBI purchased the stocks from various stock exchanges in India
d) RBI Revaluated the Indian Rupee
4) A firm has an expected dividend pay-out ratio of
60% and an expected future growth rate of 7%. What
should the firms fundamental price-to-earnings
(PIE) ratio be if the required rate of return on stocks
of this type is 15%?
a)
7.1x b)
7.3X
c)
7.5X d)
7.9X
5) Two parties enter into a 2 year fixed for floating
interest rate swap with semi-annual payments. The
floating rate payments are based on LIBOR. The 180,
360, 540 and 720 day annualized rates are 5%, 6%,
6.5%, 7%. The swap rate is closest to
a)
6.62 b)
6.96
c)
6.03 d)
6.16
6) An analyst gathered the following data

Net Sales 4000

Dividend declared
170

COGS 2000

Inventory increased by
100

Accounts payable increased by
300

Cash expenses for other inputs
500

Long term debt principal repayments 250

Cash tax payments
200

Purchase of new equipment
300
What is CFO of the company based on above data?

7) In a one period bionomial model the hedge ratio is
0.35. to construct a riskless arbitrage involving 1000
call options if the option is overpriced what is the appropriate portfolio?
Calls Stocks
a)
Buy 1000 options
Short350 shares
b)
Buy 1000 options
Short 2857 shares
c)
Sell 1000 options
Buy 350 shares
d)
Sell 1000 options
Buy 2857 shares
8) For whom these series of notes were issued?

9) An analyst calculates the following ratios

2016
2015
2014
Debt to capital
56.3% 56.4% 56.2%
Fixed Charge Coverage 3.3x
3.4x
3.5x
Interest coverage
4x
3.9x
3.8x
These most likely shows
a) Use of operating lease increased
b) Interest obligation increased faster than earnings
c) Capital structure become more reliant on equity
financing
d) Use of operating lease decreased
Refer to the table for 10-12
AAA
Revenue/ Share
115
EPS
2.5
DPS
1
ROE
25%
BVPS
10
Stock Price
60
Required Return
20%
BBB
52.8
4.8
1.6
15%
32
70
12%
CCC
25.75
4
2.5
8%
50
35.5
10%
10) Select the stock that is most undervalued by applying justified Price to Book value
11) Justified price to sales ratio of BBB is closest to
a)
1.3 b)
1.5
c)
1.7 d)
1.9
34
13) AVON Ltd. purchased a machinery in exchange

of its debentures. The machinery was installed on
March 31, 2003. The value of securities exchanged is
Rs.185000. It is expected that the machinery will have
a useful life of 10 years after which it will have a salvage value of Rs.5000. The machinery was put to use
with effect from April 01, 2003. The company follows
straight line method of depreciation, the amount of
depreciation charged for the year 2003-04 is
a) Rs.18,000 b) Rs.20,500
c)
Rs.15,500
d)
Rs.15,000
14) Amount that can be realized by a company when
it sells its business as an operating one is called as
a)
Going concern value
b)
Market value
c)
Book value
d)
Replacement value
15) Interest rates observed

Year Spot Rate
1 10%
2 11%
3 12%
Based on this data 2 year forward rate 1 year from
now is closest to
a)
11% b)
13%
c)
15% d)
17%
The project is expected to increase pre-tax net income and cash flow by 3000 in each of the next 8 years
D/E=1
Cost of equity 12%
Pre-tax cost of debt capital is 6%
Tax rate 33%
The NPV is approximately
a)
1551 b)
6604
c)
7240 d)
2656
19) The current spot price for corn is $3/bushel,
the effective monthly interest rate is 1.5%, and the
monthly storage costs are $0.03/bushel. The 3-month
forward price for a bushel of corn is closest to
a)
3.23 b)
2.93
c)
3.93 d)
2.15
20)SoftBank invested 627 million US dollar in the
online marketplace A in October 2014. First acquisition of A after this investment is B
21) The following picture is associated with an acquisition. Name the company which acquired it.
22) Mention acquisition associated with the picture

23) Connect

16) For a bond currently priced at 1018 with an effective duration of 7.48, if the market yield moved down
75 basis points, the new price would be approx.
a)
961 b)
1075
c)
1094 d)
1186
17) A 25 year 1000 par semi-annual pay bond with
a 7.5% coupon and a 9.25% YTM. Based on a yield
change of 50 basis points, the approximate modified
duration is
a)
8.73 b)
10.03
c)
12.5 d)
13.33
18) Refer to the below information
The proposed project cost 10000
35
ANSWERS:
BEAT THE STREET- QUIZ
12) Based on justified P/S AAA Corporation

a)
Overvalued; the stock trades at more than
double its justified value
b)
Overvalued as compared to BBB but undervalued as compared to CCC
c)
Undervalued; the stock trades as less than half
its justified value
d)
Equal to justified value
1. Instagram 2. B)
3.
A) 4.
C)
5.
A) 6.
1500
7.
Sell 1000 options, Buy 350 shares
8.
For haj going pilgrims by RBI
9.
A) 10.
BBB
11.
C) 12.
A)
13.
A) 14.
A)
15.
B) 16.
B)
17.
B) 18.
A)
19. A)3.23
20.
A Snapdeal B Wishpicker 21.
Facebook
22.
Liftware by Google
23.
Crypto-currency
About NITIE
NITIE Mumbai is a premier
institute and a centre of
excellence recognised by
the Government of India.
It was setup in 1963 in
the collaboration with
the International Labour
Organization. Since its
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Industries. Today, NITIE
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best in the country. Throughout the year, NITIE and its alumni have carved a
niche for themselves in the industry.
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related activities and is commited to encourage and engage the finance enthusiast
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IN-FIN-NITIE Vol 7 Issue 1

IN-FIN-NITIE Vol 7 Issue 1

MESSAGE FROM THE CONVENOR

Want to become an Investment Banker

Lot of financial professionals who do all kinds of financial

This is why we have designed this course tailor-made for

For more information log on to: www.iiqf.org or email to: info@iiqf.org

Heartiest congratulations to all of you. With the release of yet

Yuan Devaluation: Causes and Impact

Digital Banking: The Way Forward

A Strategic Shift from E-Commerce to M-Commerce

Role of Indian Banks in the Development of MSME Sector

Street Wall- Payment Banks

Strength of Indian Capital Market in the Backdrop of Global Turmoil

Cab Drivers take Ola and Uber for a Ride

Beat The Street- Quiz

IN-FIN-NITIE Vol 7 Issue 1

IN-FIN-NITIE Vol 7 Issue 1

Chinas Currency System

n August 11 2015, the Peoples bank of China

Figure 1: Graph showing China Yuan, U.S. Dollar Exchange Rate

PBOC had to come up with such a drastic measure,

The Yuan depreciated from 6.23 /$ to almost 6.4 /$

IN-FIN-NITIE Vol 7 Issue 1

Reasons for Yuan Devaluation

ratio requirements for the banks as discussed earlier.

Impact of yuan devaluation on major global

Figure 3: vs $ trend and trading band

IN-FIN-NITIE Vol 7 Issue 1

would have to write off debts which would go unpaid.

The perceived threat of China holding such large US

China is also the second biggest buyer of European

b) Impact on the European Union:

The strong exchange rate since last year has been a

A weak Euro, however, isnt in Chinas interest. If

IN-FIN-NITIE Vol 7 Issue 1

IN-FIN-NITIE Vol 7 Issue 1

c) Impact on African nations:

get access to cheaper goods.

Figure 5: Africas total World trade

Most of the African commodities in countries like

Figure 6: Commodity Prices trend of 5 years

come more competitive than Indian goods in world

to the slowdown in the Chinese economy, there was

Also with RMB devaluing, price of Chinese steel will

e) Impact on Asian economies:

Figure 7: Asian currency % change post devaluation

IN-FIN-NITIE Vol 7 Issue 1

IN-FIN-NITIE Vol 7 Issue 1

Apart from these, some breakthrough innovations in

DIGITAL BANKING- THE WAY FORWARD

igital refers to all products and services that can

Acquisition through digital channels: Banks have to

Big data and analytics: to be more effective than a

Retention and cross-selling via digital

Digital as a sustainable model: to be profitable,

Integration of digital in the physical world:

Cloud it:- Enables users to

Payments can be made and

A mobile application for

App Bradesco para glass:Through the application

The rising technological trends such as internet of