FinTech in India – The Road Ahead

Over the last few years, the way payment is done in India is similar to way it occurs in global markets with a small time lag. India now represents one of the largest market opportunities for payments. With a population of over 125crs being pushed to go digital, India is poised to make the most of digital developments transforming the payments space. Continue reading “FinTech in India – The Road Ahead”


Impact of Trump Presidency in India

On January 20th, 2017 defeating all the opposition, Donald Trump emerged as the 45th president of the U.S.A. Trump’s 15-point agenda which he had elucidated in the run-up to the elections could impact the Indian government, business sector and people in various ways. Continue reading “Impact of Trump Presidency in India”

IndAS – New Accounting Framework

Starting financial year 2017 all companies will be required to transition from the current reporting format for financial results that is based on Generally Accepted Accounting Principles (GAAP) to Indian Accounting Standards Rules, 2015 or IndAS Rules. The new era of Accounting and presentation for corporate entities has been set by Ministry of Corporate Affairs (MCA) by notifying 39 new Indian Accounting Standards (INDAS) vide its notification dated 16th February, 2015.

Applicability of IndAS


Difference between IndAS and GAAP

The IndAS rules are different from GAAP as they are based on the fair valuation method. In accounting, fair value is a rational estimate of the potential market price of goods, services or assets. It takes into account factors such as acquisition, production and distribution costs.

The new accounting standards based on IndAS are closer to the global standards of reporting financial results and rely on segment revenue, segment assets, segment liabilities and segment results.

As per the Sebi circular, banks and insurance companies will not need to comply with the new accounting norms, and follow the prescriptions of their respective regulators, that is the Reserve Bank of India and Insurance Regulatory and Development Authority of India. Whenever a company gets covered under the roadmap, IndAS becomes mandatory, its holding, subsidiary, associate and joint venture companies will also have to adopt IndAS (irrespective of their net worth).

Financial statements under IndAS

  1. Balance sheet at the end of the period
  2. Statement of profit and loss for the period
  3. Statement of changes in equity for the period
  4. Statement of cash flows for the period
  5. Notes, comprising a summary of significant accounting policies and other explanatory information
  6. Comparative financial information in respect of the preceding period as specified
  7. Balance sheet as at the beginning of the preceding period when an entity applies an accounting policy retrospectively or makes a retrospective restatement of items in its financial statements, or when it reclassifies items in its financial statements having an impact on the balance sheet as at the beginning of the preceding period.

Differences between IndAS and IFRS

India has chosen a path of International Financial Reporting Standards (IFRS) convergence rather than adoption. Hence, IndAS are primarily based on the IFRS issued by the International Accounting Standards Board (IASB). There are also certain general differences between IndAS and IFRS, some of which are:

  1. The transitional provisions given in each of the standards under IFRS have not been given in IndAS, since all transitional provisions related to IndAS, wherever considered appropriate, have been included in IndAS 101, First-Time Adoption of Indian Accounting Standards, corresponding to IFRS 1, First-Time Adoption of International Financial Reporting Standards.
  2. Different terminology is used in IndAS when compared to IFRS, e.g. ‘balance sheet’ is used instead of ‘statement of financial position’ and ‘statement of profit and loss’ instead of ‘statement of comprehensive income’.

Advantages of IndAS

Implementation of IndAS will bring radical changes in corporate financial reporting practices in India. It brings new and complex concepts and higher level of transparency. It is expected that the application of IndAS will improve the quality of financial reporting. For most companies, it will lead to better accounting, better investor relations across the world and third, especially for multinational companies, it will be less costly to have one accounting language.

IndAS enables investors to obtain better information about the company, as it mandates the use of recognition and measurement criteria that better reflect the economic reality of companies and requires the management to provide a large amount of information in the notes. Improved quality of financial reporting improves corporate governance because it helps investors, analysts and other stakeholders to better understand the financial position and performance of the company. However, full benefit of IndAS is derived only when companies take a holistic approach and apply IndAS in true spirit.

Application of IndAS involves significant judgment and estimates. Therefore, it provides significant scope for managing earnings and window-dressing. The audit committee will have to be cautious in approving financial statements.

Digital Disruption of Reliance Jio


It is safe to say that the Indian telecom sector is at least 3 years behind the developed telecom markets of Western Europe and North America which means the technologies and the strategies adopted by the telcos in these developed markets are usually copied or implemented by the telecom players in the emerging markets. Jio is atleast one year ahead of the telcos in India by implementing the technologies /strategies of the telcos in the Western Europe

The Indian telecom market size is expected to touch US$37 billion by 2017 driven strongly by data adoption. Indian telecom market is ruled by three top players Airtel, Vodafone, and Idea which account for a 60% of market share together. The rest of the players like RCom, BSNL, Aircel, Tata Docomo account for almost the rest of the market. Even since the advent of OTT messaging services like WhatsApp, Viber etc. the voice and SMS revenues of the telcos have taken a huge beating. But one thing that has given this sector a growing potential is the data adoption. Data is the driver of the revenue for all the telcos. As we progress further we can see the revenue share of voice dropping and the share of data increasing for the telcos. Reliance Jio’s wants to tap into this huge potential telecom market of India by increasing the data adoption in the country.

The strategy adopted by Jio was mainly based on four pillars: Extensive network coverage, Launch of Content services, Marketing, and Increasing smartphone adoption

Extensive Network coverage:

Reliance has invested INR 1,50,000 Crores in Jio and started services with a 70% coverage of India from day one which is really huge in the telecom sector. Airtel plans to have a 45% coverage by 2020, which clearly gives you an idea about how well Reliance Jio is placed ahead of its competitors in terms of coverage. This extensive coverage of Jio provides un-interrupted 4G services to the customers when moving from one place to another. In terms of coverage, Jio has already reached 18,000 cities and towns, and 200,000 villages. The company plans to expand its coverage to 90% of the population by 2017.

Launch of Content Services:

Content services like Netflix, YouTube, Saavn, Raaga drive the data usage among the users. Jio has launched a range of content services which would drive the data usage among the customers, which in turn will lead to huge data revenues for the telco.


Its range of digital content apps include JioCinema, JioTV, JioMusic, JioMags, JioXpressNews etc. Jio provides all these services at zero subscription costs. The aim of this is to increase the data consumption of the users and earn revenue. Airtel portfolio of content services only include Wynk Music, Wynk Videos and Wynk games. Idea and Vodafone have also followed suit by launching their own content services. But the range of content that Jio provides access to is far more compared to that of Airtel, Idea or Vodafone.


Jio’s marketing strategy to acquire the customers and increase its markets share was to offer free life time voice calls to customers and provide free access to data services till Dec 31st 2016. Jio has also named Shah Rukh Khan as its brand ambassador.

After the free trial is done Jio’s plans are going to be a bit cheaper than the industry standards which is going to hurt the industry margins as the rest of the players would follow suit. According to Jio’s website the plans offered are as below:


A plan of INR 129 would provide 300 MB of 4G data on the network and 700 MB on wifi hot-spots that are currently being installed by the company across India.

Increasing Smartphone Penetration:

India’s current smartphone penetration is below 30%. In order to encourage data adoption via smartphones among low end users and the rural population Reliance has launched LYF branded smartphones which are 4G-enabled. Reliance provides these smartphones at really low prices to the customers. This is a strategy followed by telcos in the developed markets such as Western Europe and Northern American markets to increase the penetration of smartphones in the market which would further improve the telcos’ revenues.

Sectoral Impact of Reliance Jio:

Low Margins for Telcos:

Telecom sector is already a low margin sector. For example, even though the EBITDA of margin of Airtel is around 35% the net profit margin is only around 10% due to the higher depreciation costs and the interests these telcos pay on their loans. The pricing war with Jio is going to force the telcos to adopt lower prices which would further hurt their margins.

Consolidation in the sector:

According to a PricewaterhouseCoopers (PwC), the market will settle on five private sector players, and one state-owned one. The Indian telecom sector is about to witness consolidation which means that there are few players which are going to remain in the market with the bigger players acquiring the smaller ones.

The USP of smaller players in this sector is price. Once price becomes no longer their USP, people churn away from them and wouldn’t make sense to fight the battle. They don’t have the capacity in terms of network coverage or the money to increase the coverage, hence they are better acquired by the bigger players. For the bigger players it would be better to acquire the smaller ones to expand their network coverage rather than installing their own equipment. This would also give them the customers of the smaller players.

A consolidated telecom market is inevitable in the near future and would provide better pricing options to the telcos remaining after the consolidation. Some of the mergers which are speculated are Idea and Telenor, RCom and Aircel.


Monetary Policy Committee

What is a monetary policy committee?

The Monetary Policy Committee (MPC) is a committee of the central bank — Reserve Bank of India, headed by its Governor. It was set up by amending the RBI Act after the government and RBI agreed to task RBI with the responsibility for price stability and inflation targeting. The RBI and the government signed the Monetary Policy Framework Agreement on February 20, 2015.

What is the committee’s mandate?

The MPC is entrusted with the task of fixing the benchmark policy interest rate (repo rate) to contain inflation within the target level. The government may, if it considers necessary, convey its views, in writing, to the MPC from time to time. RBI is mandated to furnish necessary information to the MPC to facilitate their decision making.

How is this committee structured?

According to the government, the MPC will have six members. Three each will be nominated by the government and the RBI and each member will have one vote. While the majority voice of the committee will be final in deciding the interest rates and the RBI will have to accept the verdict, the governor gets a casting vote in case of tie.

How is it different from current practice followed by the RBI?

Currently, a technical advisory committee constituted by the RBI, which consists central bank’s top brass including the deputy governor and the governor and external advisors, give their opinion and suggestions on what the RBI should do. But the governor’s word is final on the rates and the advice of the technical advisors is not binding on the RBI

Who are the current members?

RBI Appointed:

  • Urjit Patel, RBI Governor
  • R Gandhi, Deputy Governor, RBI
  • Michael Patra, Executive Director, Monetary Policy, RBI

Government Appointed:

  • Chetan Ghate, Professor at Indian Statistical Institute,
  • Pami Dua, Director at Delhi School of Economics
  • Ravindra Dholakia, Professor at IIM-Ahmedabad

 Further Reading:

Profiles of Govt appointed members

First MPC minutes of meeting

Rail Budget Merger

Understanding the rationale behind rail, general budgets’ merger

Ending a 92-year-old tradition, the Union Cabinet on Wednesday decided to merge the Railway budget with the General budget and agreed in principle to advance the date of its presentation in Parliament.

Why is the Rail budget presented separately in the first place?

Railway historians say that it was during the British rule — in the early 1920s — that on the basis of the report of the Acworth Committee, railway finances (those of government-owned railway companies) were separated from the general finances.

The first Railway budget, under the system, can be traced to 1924.

Why change now?

The move to discard the Rail budget is said to be part of the Modi government’s reform agenda. The NITI Aayog had suggested this merger as the Railway budget was being used to dole out favors by way of new trains and projects.

This merger is also a part of the government advancing the budgetary exercise so as to complete it before March 31 and facilitate the beginning of expenditure on public-funded schemes from April 1.

How is it beneficial?

The merger will help the Railways get rid of the annual dividend it has to pay for gross budgetary support from the government every year. Sources say that the merger will help the cash-strapped Railways save about Rs 10,000 crore annually.

Railway Minister Suresh Prabhu said the merger of rail and general budgets will not impact the functional autonomy of the railways but help in enhancing capital expenditure. It would help the Railways raise extra capital expenditure that would allow them to enhance connectivity in the country and boost economic growth.

How does an early budget help?

An early presentation of budget will ensure that all legislative works are completed before the beginning of the new fiscal, from April, and help in funds allocated to various ministries flowing in from the first quarter.

Sources said the government planned to convene the Budget Session of Parliament before January 25, 2017, present the pre-Budget Economic Survey a day or two before the Finance Minister reads out the budget on February 1.

The advance estimates for the GDP will now be made on January 7, instead of February 7, and mid-year review of expenditure by various ministries is proposed to be completed by November 15.

The idea is to get the budget passed by Parliament, along with the Appropriation Bill and the Finance Bill, before March 24, so as to ensure the implementation of the budget proposals from April 1.

QUORA Answer:

Pros and Cons

Some facts first

After 1924, the Railway Budget was separated from Main Budget and the Railway budget was 84% of Main Budget.

But now Railway Budget is about 4% of Union Budget.

As per Bibek Debroy- The Smart Investor

“There is no need for separate railway budget. We have said it very categorically in the committee report. There are five reasons why railways budget is not necessary,” Debroy said.

Elaborating it, he said, “The origin of this goes back to the Acworth Committee report in 1924. The report was triggered by the question whether East Indian Railway Company should be granted an extension of its lease. Only recommendation of separate railway budget was implemented.”

He further said, “All those countries that Acworth Committee mentioned no longer have separate railway budget. The second reason is that there is no constitutional or legal requirement for separate railway budget. Union Budget is a constitutional requirement. If one is expecting the railways to function according to commercial principles then decisions should be left to railway board. The decision cannot and should not be left to Parliament.”

The economist explained, “The railway budget is an avenue for populism with MPs demanding new trains and stops for existing ones. These decisions should be taken by railway board on a commercial basis. A lot of resources are wasted in the process of preparing it. A very complicated relationship between Finance Ministry and Railways has evolved. We should simplify it,” he added.

Hope it answers, why it needs to be merged?

There seem to be no cons of this as of now, but when it is actually merged we will know. Railways will work fine whether this way or that way. Issues affecting Railways are beyond the budgets.


Impact of US Fed Rate Hike on India

IMPACT on INDIA (Expert opinions)

Indranil Sengupta, India chief economist, Bank of America Merrill Lynch

“We hold the contrarian view that Fed tightening is a long-run positive, although EMs could well see one round of sell off in the coming months. We expect softer oil prices and sufficient forex reserves to keep Fragile Five fears at bay for India in the event of a sell-off, although India’s BoP indicators still trail other BRICs. Fed tapering is also pulling down oil prices below US$100/bbl from US$118/bbl when INR crossed Rs68/USD last year,”

Dipan Mehta, Member, BSE and NSE

FII flows are driven by interest rates movement in the US and other developed economies. Also, asset price movements in those economies also impact global flows.

No doubt, to that extent India is vulnerable and if there is a selloff in global equities or emerging markets, then we will not be spared. “However, the decline may be less than other markets. Nonetheless, there will be a negative effect. India cannot escape a ‘risk off’ trade. Since the new government formation, international events are having a less of an impact as investors focus on government steps to revive the economy and the RBI moves based on macro data such as inflation, GDP growth rates, IIP etc.,” he added.

How would India benefit?

Sutapa Roy, Research Analyst-Economy at Microsec Capital Ltd.

“Now for India, the economic situation is much better than it was 2-3 quarters ago. India has taken some of the major steps compared to its EM peers to control currency movement and increase foreign exchange reserves. Only in recent past the Indian market hit an all-time high. So corrections will definitely be there, but not as much as we saw in 2013 as fundamentals are better now,”

Roy is of the view that India has already outperformed the other markets in the recent past and after corrections, it will definitely attract some fresh capital. Although it will take the US Fed some time to shift from its zero interest rate policy, but if they do that, there may be a kneejerk reaction wherein some hot money may try to get out.

Vikram Kotak, CEO & MD, Asset & Wealth Management, Fortune Financial Services

“On a totality basis, India is possibly the only market in the emerging market basket, where a 15 per cent to 20 per cent earnings growth is reasonable to expect and the economy recovery looks robust with GDP move from 5 per cent to 7.5 per cent in three to five years’ time being almost a surety. There are a lot of positives for India right now than the negatives. However, you might see some healthy corrections coming in when the markets start consolidating again,”

The overall trend of the market looks quite positive and given the fact that the markets have run up in the last three to four months, a correction is indeed healthy as it will give opportunity for fresh investments.

Hemang Jani, Senior Vice President, Sharekhan

 “The US FOMC meet could provide the much-needed correction and about 5 per cent to 10 per cent correction at the index level in any market is part of the bull market story. I am not really perturbed by this. In fact, this would be a great opportunity for a large number of retail investors who have not been able to participate to the extent they would have wished. So it is a great welcome sign for the investors.”

Payment Banks


New players in the banking sector that can use technology in order to achieve financial inclusion in a cost effective manner. These banks are expected to reach customers mainly through their mobile phones rather than traditional bank branches.

It could be uneconomical for traditional banks to open branches in every village, so RBI is giving out differentiated licenses to Payment banks helps these small financial institutions to acquire customers at low costs and increase the financial inclusion.

Whom are they targeted at?

Rural markets, migrant laborers, low-income households and small businesses.

Inspired by the success story of M-Pesa:

Mobile phones could be an easiest way to reach masses as proved hugely in other developing countries like Kenya, where Vodafone’s M-Pesa has been very successful. Two out of three adults use M-Pesa in Kenya to store money, make purchases and transfer funds to friends and relatives.

Services offered by Payment banks:

  • CASA accounts with limit of deposits up to Rs. 1 Lakh
  • Issuance of debit cards usable on ATM networks of all banks.
  • Transfers and remittances through a mobile phone
  • Automatic payments of bills, and purchases in cashless, cheque less transactions through a phone
  • Offer card acceptance mechanisms to third parties such as the ‘Apple Pay.’
  • They can offer forex services at charges lower than banks.

Apart from the services mentioned above, Payment banks can also play a crucial role in implementing the government’s Direct Benefit Transfer Scheme (DBTS), where subsidies on healthcare, education and gas are paid directly to beneficiaries’ accounts.

Basic services not offered by Payment banks:

  • Can’t offer loans
  • Can’t issue credit cards

Which basically mean that these banks can’t earn revenue in the form of net interests which form a majority of a traditional bank’s income. This also means that Payment banks have to operate at really low operational costs for their business model to be viable.



  • Payments banks have been mandated to hold 75% of their liabilities in SLR securities
  • Maximum 25% of it at saving deposits and fixed term liabilities of other commercial banks

Since majority of their balances are held with G-Secs which will yield very low interests, payment banks will transfer these low interests to their customers.

Revenue Model:

Because of the many restrictions imposed by RBI it is clear that the only revenue streams available are fee income from remittances, merchant fees for digital payments. Whether this revenue model is viable is something that has to be seen. Since the poor would be charged fee on every transaction would they find these banks attractive? is a question that needs an answer.

SBI chairperson Arundhati Bhattacharya said, “Neither payments banks nor small finance banks seem to have as yet devised a business model that can be said as viable.”


Although 41 entities applied for a Payment bank license, RBI granted in-principle approvals to 11 entities for setting up payments banks (PBs) in August 2015.

Aditya Birla Nuvo Ltd, Airtel M Commerce Services Ltd, Cholamandalam Distribution Services Ltd, Department of Posts, Fino PayTech Ltd, National Securities Depository Ltd, Reliance Industries Ltd, Dilip Shantilal Shanghvi, Vijay Shekhar Sharma, Tech Mahindra Ltd, Vodafone m-pesa Ltd are the entities which received approvals to their applied licenses.

Out of these Tech Mahindra, Dilip Shangvi (Sun Pharmaceuticals) and Cholamandalam Investment are the ones who pulled out.

Players who could win the race:

Since it’s a low margin and high volume business, Raghuram Rajan feels that the payments bank would work well for those who already have a base of operations and many contact points. Mobile companies are probably in the best position to get the business model right because of their reach. Another entity that is expected to succeed is India Post Payments Bank (IPPB) which is being wooed by commercial banks, insurance firms and asset management firms for equity partnerships and other business alliances. IPPB has a network of at least 150,000 branches; close to 140,000 of them are in rural India. This is its great strength.


RBI’s Measures Towards Masala Bonds


RBI announced that banks can now raise capital through rupee-denominated overseas bonds, or masala bonds. The analogous bonds of China are called “Dim sum” while those of Japan are called “Samurai” bonds. Indian companies are allowed to raise a maximum of $750 million per year through masala bonds with a minimum maturity of 5 years.

Pros of Masala bonds:

  • Issuers carry less risk compared to the investors
  • Since these are rupee denominated, they will be shielded against the risk of foreign currency fluctuations.
  • They create a demand for rupee and would support towards the stability of the rupee

Current state of Masala bonds:

Masala bond issues are in a very nascent stage in India and only have been issued by three big names such as HDFC ltd., NTPC Ltd., and Adani Transmission. The details are as below:


Currently costlier compared to the domestic issues:

The issuers have high domestic ratings but their international ratings are only limited to the country’s sovereign rating i.e. BBB-, a shade above junk. The issuers, though big names, raised money at a cost higher than the companies would have raised in the domestic market due to the fact that the issuers had to bear the withholding tax on top of the initial coupon as the foreign investors refused to bear the tax component. Masala bonds proved to be a costlier source of raising funds for these companies as opposed to the normal. Companies might not choose to raise funds through this method if this route continues to be expensive.

Opinions of industry experts:

According to the head of treasury of a foreign bank, “The reason for going in to this market is purely the novelty factor for now. Otherwise, it makes very little sense for the companies to offer the withholding tax component every time they issue a bond. Demand for these bonds will take a long time to get established.”

Jayesh Mehta, head of treasury at Bank of America-Merrill Lynch said, “It will take time to make Masala bonds acceptable to international investors. Demand for the bonds of lower rated companies will be quite muted. Foreigners ask far more risk premium than Indian investors who are familiar with the Indian names”.

Public sector companies might increase masala bond issuances:

During his November 2015 visit to the UK, PM Narendra Modi had promised to list $1-billion equivalent of masala bonds from government power and utility companies.

Impact of such a move:

PSUs such as NTPC, PFC, REC issue domestic bonds in the range of Rs 20-30,000 crore each every year. If masala bonds eat up a portion of these, the demand for their domestic issues will shoot up even more. Thus the interest rates on the domestic issues might come down making the domestic issues cheaper for the companies. This, perhaps, will offset some of the cost associated with the overseas bonds


RBI’s Measures Towards Corporate Bonds


With the growing NPAs, apart from certain measures like Strategic Debt Restructuring (SDR), Scheme for Sustainable Structuring of Stressed Assets (S4A), and asking banks to increase provision towards bad loans, RBI has also taken following steps to encourage big Corporates to raise money through the issuance of bonds and decrease their reliance on banks for borrowing money.

Increasing the Partial Credit Enhancement:

The central bank has now allowed banks to increase the Partial Credit Enhancement (PCE) they provide for corporate bonds to 50% from 20% now thus providing an additional source of assurance, that the bond issuer would honor the obligation towards the bond buyer.


  • This will enhance the credit rating of the bonds issued by the corporates
  • Would help lower-rated companies to access the bond market as their bond ratings would be improved.
  • As the risks associated with the bonds will come down, the interest rates in the bond markets will be lowered and will in turn allow the corporates to raise money at cheaper rates

Accepting corporate bonds as collateral at LAF:

RBI also announced that it’ll be accepting corporate bonds as collateral at its Liquidity Adjustment Facility (LAF) operations.


  • This will make corporate bonds more attractive to banks, as banks can use corporate bonds as security apart from the G-Secs to borrow from the RBI

Facilitate electronics trading:

RBI announced that it’ll facilitate direct trading of corporate bonds on an electronic platform compared to the present Over The Counter (OTC) market for Indian and foreign portfolio investors (FPIs).


  • This will increase transparency in the bond market
  • This will allow easy access into the bond market for the foreign investors who usually bring in a lot of money and will in turn enhance liquidity

Permit brokers as market makers:

In addition to banks, primary dealers, insurance companies that are currently allowed as market makers, registered brokers will also be authorized as market makers for the corporate bonds


  • This move will make corporate bonds easily accessible to the investors and thus boost turnover in the secondary market.

Encouraging Masala bonds:

RBI announced that banks can now raise capital through rupee-denominated overseas bonds, or masala bonds. Although HDFC Ltd. raised Rs.3000 Cr though this method others companies such as NTPC Ltd., and Adani Transmission have followed trend. Indian companies are allowed to raise a maximum of $750 million per year through masala bonds with a minimum maturity of 5 years


  • Issuers carry less risk compared to the investors
  • Since these are rupee denominated, they will be shielded against the risk of foreign currency fluctuations.
  • They create a demand for rupee and would support towards the stability of the rupee