 The Finance Continuum 2016 will be organized on 21st of August, 2016 with a theme reflecting the current trends and challenges faced by finance professionals. The Finance Continuum 2016 will see a series of lectures based on the theme: “Innovation and Excellence in Financial Sector: Key to India’s successful sail through stormy waters of world economy” The Following dignitaries participated in the 2016 finance continuum:
Finance Continuum 2016 Finance Continuum 2016 had the following sub themes: Impact of growing NPAs on the current economic conditions: A well-functioning banking industry is extremely crucial to India’s growth story. A predominantly public sector banking industry comes with its own costs, which has led to an accumulation of NPAs worth Rs. 4.5 Lakh Crores. Moreover the government in its Economic Survey 2016 has mentioned that banks would require Rs. 1.8 lakh crores to write off these loans, which will be taxpayers' money at the end of the day. Since the past year, The Reserve Bank of India is trying to control the level of NPAs in the books of the banks with the Governor of RBI calling it a balancing act rather than a broad fishing expedition so as to not to affect investment in infrastructural growth. Upon digging deeper, we find the banks often provisioning for smoothening their earnings rather than for expected NPAs. Corporate sector owes most of this unpaid debt. PSBs tackle SMEs stringently but large corporates seem to be dealt with rather loosely. According to RBI estimates, the top 30 loan defaulters currently account for one-third of the total gross NPAs of PSBs. The continual infusion of capital in to the PSBs needs to be preceded by important changes in governance of these banks otherwise these would amount only to wasting tax payer money and inefficient infrastructural growth. It would be crucial as to how strictly the government acts on this front, and if the problem can be controlled without hampering growth prospects for the country.
Investment Banking Technology: A new era subjugating the legacy architectures: SOCIAL, MOBILE, ANALYTICS, BIG DATA, CLOUD and INTERACTIVE TECHNOLOGY, these new disruptions in technology are leading to transformation of businesses and financial institutions unlike any other period. Investment banks have been big spenders on technology upgradation for the past couple decades adopting new databases, programming languages, operating systems, hardware systems, etc. Goldman Sachs employs about 9000 employees annually in its technology division. Yet, most of this talent is involved in monitoring the bank’s critical systems. The need is to move towards simplifying IT infrastructures to lower costs, free up talent and work towards innovation. Simplifying legal entity structures or booking models will require intricate coordination among legal, finance, compliance, risk, operations and technology. Historically, Investment banks have been product oriented and vertical, which has led to accumulation of technology in a disorganized fashion. The separate technology applications for products or regions may now create a complex web of systems feeding cross-firm risk systems or client reporting. Removing this complexity can involve expensive, non-reusable investment programs, but continuing it creates ongoing competitive disadvantages in terms of costs and impaired flexibility. A smaller number of large Investment banks balancing the tradeoff between short term retail sales and long term investments in disruptive technology that can lead to cannibalization of some of their own departments. But, this delay has led to many smaller players becoming early adopters of the disruptive technologies leaving the larger Investment banks more vulnerable to more of such smaller firms.
A race to zero or more: Trading commissions in Indian brokerage industry: Trading commissions have been on a long-term decline for a long time. Technological disruptions, market changes and deregulation have all come together and brought this decline. About 70 percent of all trades in US and a substantial amount in world’s emerging markets are executed electronically. Stock brokerages' income in India from online transactions surged 57 percent last fiscal over the year-ago period. While a large chunk of the brokerages expanded their client base last fiscal, the number of company-owned offices -- excluding sub-brokers -- of equity broking houses declined 3.1 per cent, indicating a shift towards an online business model. Discount brokerage, Trade Smart On line’s Executive Director said,” We believe going forward broking houses will compete on technology rather than commissions. Broking firms which offer better and faster trading platforms will have the edge.” The flat fee model offered by these brokerages reduces investor costs substantially. But most of the clients are institutional rather than individuals because of the lack of strong research teams and personal advisory services. Robo Advisory services looks like a innovative look into finding a solution to this disadvantage over the existing algorithm based services offered by the discount brokerage houses. Yet, the largest brokerage firm in India, IIFL holdings Ltd in 2014 was looking towards a zero commission model. Rise of the Digital generation is reflected in the number of clients with the discount brokerage firms. Offering better technology, intraday margins, and standardized plans are the advantages that they bring to the floor. Businesses like Acom invest spare change in debit and credit purchases from the nearest dollar into portfolios customized to the client’s risk profile. With such powerful tools at our disposal, there is immense scope for rising firms in India to look towards technology driven brokerage and zero commission models.
Innovations in Cyber Security: an aid to digitalization in financial sector: The continuous rise in cyber security has been a consistent threat to financial services providers in the field of safer transactions, identity management, data management, etc. But recently we see many forward leaning institutions shift their data and analytical tools to the cloud. Mobile technology offers opportunities for big data but give new avenues for crackers to steal information. Most firms are looking towards advanced authentication for mobile platforms. The financial institutions today face several new challenges: · Bringing about technological agility with business agility · Threats originating from foreign countries · Security of Near Field communications used by banks · DDOS attacks launched via cloud which are increasing in intensity and impact
Many financial services firms have focused on implementing preventative controls such as firewalls, perimeter security, and vulnerability testing and intrusion prevention. Minimizing the risks of future cyber-attacks requires a fundamental change in the way we approach security—from “building bigger walls” in an attempt to block all malware, to a more realistic approach that focuses on making your organization cyber-resilient. The use of powerful, real-time analytics across multiple data sets – both structured and unstructured – will vastly improve the quality and speed of real-time cyber threat analysis while greatly reducing overall cost. Technologies that will improve cyber security across the nation’s critical infrastructure in areas are in innovative ideas like cyber economic incentives, forensics, cyber competitions, identity management, Internet measurement, software assurance, research data repositories, and experimental research test beds. Leveraging financial inclusion in capital markets: Less than 3% of the population of India invests in capital markets while our household savings account up to almost 30%. Finance has a well-established “supply-leading” character i.e. the level of financial development and stock market liquidity each exerts an independent, positive influence on economic growth. Financial services and financial development (as measured by the size of the intermediary sector) stimulates economic growth by increasing the rate of capital accumulation and by improving the efficiency with which economies use that capital in the current period as well as in the future. In a developed well-functioning financial system, debt markets account for the major portion of capital markets while in India, Equities markets account for 75% of the capital market trade. According to some, the potential cost savings that financial inclusion can bring to trading charges can be up to 50%. Banks have offered 49.39 lakh account holders the overdraft (OD) facility worth for Rs 5,000 crore under the Pradhan Mantri Jan Dhan Yojana (PMJDY). A scheme, which has seen opening of over 20 crore new bank accounts of which a large majority are in the Public Sector Banks. However, large sections of the population are not a part of the formal banking system and are prevented from being part of the capital market even indirectly. The role of capital markets is also vital for inclusive growth in terms of wealth distribution and making capital safer for investors. Capital markets can create greater financial inclusion by introducing new products and services tailored to suit investors’ preference for risk and return as well as borrowers’ project needs and risk appetite. A significant development in Indian Capital Markets have been coining by setting up of SME exchange. The undeniable fact is that a nation’s capital market is the heart line of its economy. Both the markets and inclusion can play a significantly mutually beneficial role. India’s growth story is about leveraging its potential for innovation in markets, and focusing on financial literacy with inclusion. Impact of global turmoil in Commodity markets on Indian economy: The recent year has seen a slowdown in China and a rebalancing act taking away from investment and manufacturing of goods and services. Even US has witnessed gradual tightening of its economy through monetary policy. Lower energy prices, oil prices, commodity prices reflect a subdued demand and expectation of overproduction by the OPEC countries. Financial markets across the world have witnessed higher volatility. This has led to pulling back of global investments in emerging economies. As reported by the IMF, while, growth in emerging market and developing economies is projected to increase from 4% in 2015, the lowest since the 2008–09 financial crisis to 4.3% and 4.7 % in 2016 and 2017, respectively. Growth in China is expected to slow to 6.3% in 2016 and 6.0% in 2017, primarily reflecting weaker investment growth as the economy continues to rebalance. India will continue to grow robustly, by 7.4% in 2016 and 7.3% in 2017, according to the IMF. India and the rest of emerging Asia are generally projected to continue growing at a robust pace, although with some countries facing strong headwinds from China’s economic rebalancing and global manufacturing weakness. Many tools have been implemented by the government to exploit the situation of low oil prices to reduce subsidies, gold imports and savings. But India has still been impacted by this turmoil. Disappointing earnings results, coupled with negative global cues and a slump in crude oil prices, dragged the Indian equity markets to their lowest levels in 2016 in February.
Corporate Tax structure in India: Complications and loopholes: “Why is it that subsidies going to the well-off are portrayed in a positive manner? Let me give you an example. The total revenue loss from incentives to corporate taxpayers was over Rs 62,000 crore…I must confess I am surprised by the way words are used by experts on this matter. When a benefit is given to farmers or to the poor, experts and government officers normally call it a subsidy. However, I find that if a benefit is given to industry or commerce, it is usually an ‘incentive’ or a ‘subvention’.” – Prime Minister Narendra Modi, February 15, 2016, Delhi. In 2013, corporate tax rates were about 30% and yet the effective tax rate collected was just over 23%. Over 52,000 firms in India pay zero taxes because of the myriad of exemptions (like accelerated depreciation and exemptions for R & D) accumulated into the complex corporate tax structure in India since independence. Government’s proposal to phase out these exemptions over the next couple of years and bringing down corporate tax rate to 25% is mush welcome steps in the direction of democratizing the burden, removing inequity of the corporate tax system. Block chain technology: Opportunity for businesses and government to capitalize on Blockchain is a distributed general ledger recording that a transaction happened, when it happened and that it happened correctly, without exposing any confidential details about the subject or the parties’ involved. The underlying concept in bitcoin, Block chain is software protocol on its own. The distributed ledger technology of Blockchain can be used for way more than currencies: • Virtual wallet / payments / exchange offering (Bitreserve, BitPesa) • Process payments (BitPay, Coinbase) • Clearing and settlement solutions (Hyperledger, Serica) • Developing and offering cryptocurrency denominated products (SolidX, Tinker) It is the cheapest, fastest and safest way to send money between two countries; it is faster and cheaper than Western Union can come become a replacement for banking and other financial services for the many who are not included in the formal financial system of our country. There are over 1000 start-ups who have already received more than USD 1 billion in funding to innovate around the blockchain and related technologies. There are other industries such as insurance, trading, investment banking, global payments industry, and capital markets, e-commerce that can effectively get affected, influenced, and disrupted by the blockchain technology. Evolution of Alternative Investment Funds in India: Alternative Investments Funds (AIFs) have grown to Rs. 27,500 Crores over the past decade. The basic appeal of Alternative Investments (defined simply as any investment that is not a long position in fixed income, equities or cash) lies in their low correlation with the traditional asset classes and therefore has a meaningful diversifying potential in the overall portfolio. But most of the investments have come in the last few years. A distinct difference can be seen between phases from 2000 to 2005, 2006-2011, and there on. In the period 2005 to 2011, performance of AIFs were linked to Public markets which defeated the purpose of achieving diversification. The latest changes happened after the crashing of prices across asset classes after the 2008 crisis. These changes were accompanied by new regulations for AIFs by SEBI in 2012. AIF as an investment vehicle was established to pool in funds for investing in real estate, private equity and hedge funds. Till now, in India, pooling of capital was allowed only for Indian investors, and investment was done according to a pre-determined policy. However, selectively approval route for investment was used by overseas investors and non-resident Indians (NRIs). AIFs are primarily aimed at high net worth individuals, and according to the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012, the minimum investment from an individual is Rs.1 crore. Now that foreign investors are allowed to participate in AIFs, it is expected that these funds will attract investments from NRIs and overseas institutions. The merger of FDI and FPI will minimize the administrative bottlenecks of investing and increase the flow of long-term capital. Big Data Analytics: mitigating risk in increasing financial complexity: The amount of data in the world is expanding rapidly in variety, volume and velocity. Over 90% of world’s data has been created in the past two years. Big Data technology has revolutionary potential. It can improve the predictive power of risk models, exponentially improve system response times and effectiveness, provide more extensive risk coverage, and generate significant cost savings. Big Data technologies can help risk teams gain more accurate risk intelligence, drawn from a variety of data sources, in almost real time. Quicker response to risk is the best way to tackle it and efforts are being made towards building tools that can work with large variety and volume of data including that from mobile and social technology such as data lakes. In a number of key domains - particularly operational and compliance risk - Big Data technologies will allow the development of models that will support everyday Risk Officer’s decision-making. Big data potentially allows banks to measure and manage risk at an individual customer level, as well as at a product or portfolio level, and to be much more precise in credit approvals and pricing decisions. The most important other application of big data analytics in finance industry is in compliance. The increasing regulations and ever changing rules are tracked closely through big data. Restructuring: a necessity to thrive in today's competitive business scenario: Restructuring through Amalgamations and acquisitions, if suitably chosen and implemented, can permit an organization to leapfrog into a novel orbit of markets, customers, products and technologies almost overnight. On the other hand, it may well take more than a few years of strive to get into that trajectory if a company is stuck to crude style of expansion alone. Inorganic growth, for this cause is the popular alternative. Restructuring through M&As all over the world have, therefore, been used quite significantly. Indian companies have been steadily restructuring themselves through amalgamations, divestitures, Leveraged buyouts (LBO’s), sell-offs, spin-offs etc., especially, post liberalization. The corporate world today is witnessing a sudden surge of M&As sweeping across all the industries, which has totally restructured the Indian corporate environment. Rising competition, swift advances in technology, more demanding shareholders and increasing difficulty of the business conditions have increased the burden on managers to deliver superior performance and value for their shareholders. Corporate restructuring helps companies deal with poor performance, adopt new strategic opportunities, and achieve credibility in the capital market. It can also have an enormous impact on a company’s market value, often in terms of billions of dollars. Changing taste of retail investors in India: Equity markets over traditional investment options: After liberalization of the Indian economy in 1991, capital markets in India have kept pace with the forward moving nation and its ambitions. The equity markets in India have grown manifold. Yet, only 3% of our population invests in equity markets. The processes are much simple now, yet we have been unable to gain the confidence of investors. The only asset class where long-term gain is not taxable is equity. Most stock exchanges with dedicated platforms for small and medium enterprises (SME), including top bourse BSE, are seeing overwhelming retail participation in SME stocks, a report said. According to a study by World Federation of Exchanges (WFE), retail investors dominate the BSE SME market, with most being high net worth individuals due to the minimum lot size of $1,526 prescribed by regulator Securities and Exchange Board of India (SEBI). Indian markets still remain dominated by Foreign and domestic Institutional Investors. The mix of retail investors has to shift from being dominated by aforementioned players. The retail investors are very important for progress for India with their participation in not just capital formation but also in improving corporate governance. With real estate investments and interest rates taking backstage, now is the best time for retail investors to consider the equity markets alternative |
Continuum 2016 >