Teams will study the existing Financial Sector Regulations of various Regulators in India i.e SEBI, RBI, IRDA, PFRDA, FMC etc, (all or any of them) as well as compare them with regulations by global regulators viz SEC, Regulatory Authorities in UK, Singapore etc.

1. FINANCIAL REFORMS
Financial Sector Reforms Suggestions by
CA. Nitin Gandhi
CA. Namrata Shah
CA. Vikas Kabra
BFSICM Study Group
Jan 18, 2014

2. Financial Sectors & Capital Markets
Credit Market
Banks
De – regulation
Balance Sheet Quality
BASEL III
New Bank Policy
Micro Finance
Rural Banking
Jan 18, 2014
Securities &
DP
Equity
Bonds / Debenture
AMC
Regulator
Team Platinum (Nitin Gandhi and team)
Deposit Taking
Entities
MF &
Insurance
IRDA
Listing
2

3. Structure of Credit Market
Jan 18, 2014
Team Platinum (Nitin Gandhi and team)
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4. Concentration of Domestically-Controlled
Bank Assets and Share of Private Banks
Source: Secretariat calculations, Reserve Bank of India, CEIC
Jan 18, 2014
Team Platinum (Nitin Gandhi and team)
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5. Share of Private Banks in Total Bank Assets
Source: Mihaljek (2010), except for Vietnam which is taken from International Monetary Fund (2010a).
Jan 18, 2014
Team Platinum (Nitin Gandhi and team)
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6. Balance sheet quality:
Gross & Net non-performing loans
Source: International Monetary Fund (2010b) and Reserve Bank (2010b).
Jan 18, 2014
Team Platinum (Nitin Gandhi and team)
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7. Bank Credit to the Private Sector
Per cent of GDP (in 2008 for comparator countries)
Source: World Bank Financial Structure Database, 2010 version
Jan 18, 2014
Team Platinum (Nitin Gandhi and team)
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8. Financial Sectors & Capital Markets
Credit Market
Banks
De – regulation
Balance Sheet Quality
BASEL III
New Bank Policy
Micro Finance
Rural Banking
Jan 18, 2014
Securities &
DP
Equity
Bonds / Debenture
AMC
Regulator
Team Platinum (Nitin Gandhi and team)
Deposit Taking
Entities
MF &
Insurance
IRDA
Listing
8

9. Branches and ATM - Banks
No. of Bank ATM
Banks
Till 2000
2010
2013
Public Banks
-
40,680
89,088
Private Bank
-
18,447
46,762
Foreign Bank
-
1,026
1,230
No. of Banks Branches
Banks
1990
2000
2010
2013
Public Banks
41,790
46,082
55,438
70,421
Private Bank
4,695
5175
8,877
14,584
Foreign Bank
-
194
293
RRB’s
13,277
14,447
15,127
17,007
Total
59,762
65,898
79,735
102,343
Jan 18, 2014
Team Platinum (Nitin Gandhi and team)
331
9

10. Banks – Deposit, Advances & NPA
Rs. In Billion
Particulars
1990
2000
2010
2013
1. Total Deposits – All
Banks
993
8,516
45,880
70,549
-
6,469
34,248
52,470
-
961
8,068
13,178
671
4,541
32,650
53,711
3. GNPA (in Amount) – All
Banks
-
640
818
1,839
4. GNPA – Public Sector
-
533
573
1556
5. Priority Sector NPA
-
237
309
669
6. % of GNPA in Priority
Sector
-
44.50%
53.84%
42.93%
a. Deposit - Public Banks
b. Deposit - Private
Banks
2. Total Advances – All
Banks
Jan 18, 2014
Team Platinum (Nitin Gandhi and team)
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11. Reason and Suggestions
Reasons for higher NPA
• Huge capital expenditure and stretched working capital cycle
• Production fall by 56%
• Higher authorities and political pressure for sanction and
disbursement of loan
• Less focus of banks on priority sector or SME lending.
Suggestions
• Tackle problems of unemployment, poverty and food security
through advance to agricultural and small sector
• Branch positioning and Lending focus with incentives to banks
• Align WC Loan to product operating cycle and quantum
• Independence for disbursement in true sense required.
• ATM penetration till 2020 and ATM Positioning policy
Jan 18, 2014
Team Platinum (Nitin Gandhi and team)
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12. Capital Adequacy Ratio
BASEL – I (Tier I and
Tier II Capital)
2000
2010
2013
Public Sector Banks
10.85
12.11
11.22
Private Sector Bank
12.60
15.38
13.39
BASEL – II BASEL – I (Tier I
and Tier II Capital)
2000
2010
2013
Public Sector Banks
-
13.27
12.15
Private Sector Bank
-
15.95
14.72
Rs. in Crores
2013-15
2012-13
Capital Infusion by
Govt. of India
22,000
12,517
Jan 18, 2014
2011-12
12,000
Team Platinum (Nitin Gandhi and team)
2010-11
20,117
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13. Reasons and Suggestions
Reasons for Capital Infusion in Public Sector Banks
• Increasing NPAs impacting internal accruals.
• High Operational costs
Suggestions
• Consolidation of Banks based on geography, book-size,
management experience and focus perspectives.
• Professional management like private banks
Jan 18, 2014
Team Platinum (Nitin Gandhi and team)
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14. Gross Domestic Saving in India and
International comparison
Country
1990
2000
2010
India
22.74%
23.20%
33.70%
US
16.30%
16.72%
11.62%
Japan
34.08%
26.55%
20.97%
China
39.63%
37.53%
52.65%
India
1990
2000
2010
Household
17.34%
20.40 %
23.50%
Private Corporate
3.50%
3.70 %
8.10%
PSU
1.90%
(0.90) %
2.10%
Total
22.74%
23.20 %
33.70%
Jan 18, 2014
Team Platinum (Nitin Gandhi and team)
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15. Reason and Suggestions
Reasons - WHY Gross Domestic Saving is higher in India ??
• Inflation is high so relatively higher deposit interest rates
• High blockage of funds in non-productive assets like real
estate and gold
• Absence of social security system (E.g. - Canada)
Suggestions –
• Introduction of Social security plans - Invite FDI in security
and growth oriented plans
• Reinvestment plan and restrictive profit policy for FDI.
Jan 18, 2014
Team Platinum (Nitin Gandhi and team)
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16. Microfinance – Business in India
Rs. in Crores
2000
2010
2013
Portfolio O/s
71
18,344
21,245
Total Clients
0.52
3.11
3.17
• Effective tool for Poor people access to credit and insurance.
• MFI recovery – 30 days + 0.27% delinquencies as on March 2013
• Expected Annualized growth by 2020 to 35%-40%
Suggestions
• Allocate more funds to microfinance business
• Improve policy and good governance of MFI
• Generation of employment through MFI
Jan 18, 2014
Team Platinum (Nitin Gandhi and team)
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17. Financial Sectors & Capital Markets
Credit Market
Banks
De – regulation
Balance Sheet Quality
BASEL III
New Bank Policy
Micro Finance
Rural Banking
Jan 18, 2014
Securities &
DP
Equity
Bonds / Debenture
AMC
Regulator
Team Platinum (Nitin Gandhi and team)
Deposit Taking
Entities
MF &
Insurance
IRDA
Listing
17

18. Securities Issued
Amount Raised through equity issue and debt issue in Rs. Crores
90,000
1,800
80,000
1,600
50,000
U
n
1,400 i
1,200 t
s
1,000
40,000
800
30,000
600
20,000
400
10,000
200
Rs. In Crores
70,000
60,000
0
1989-90
1994-95
1999-00
2004-05
2009-10
0
2013-14*
I
s
s
u
e
d
YEAR
Equity Funds raised
Debt Funds raised
Equity Issues
Debt Issues
*Upto Dec 31, 2013
Equity Issue includes funds raised through IPO, FPO,OFS and Right Issue
Debt Issue includes funds raised through public debt
Source: Primedatabase
Jan 18, 2014
Team Platinum (Nitin Gandhi and team)
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19. Largest Stock Markets by Domestic
Market Capitalization (in $ billion)
1999
• NYSE Euronext US
2009
2013
• NYSE Euronext US (11,838)
•NYSE
• Nasdaq OMX (5,205)
• Tokyo SE (3.306)
•
Nasdaq OMX (6,085)
• Tokyo SE (4,463)
• Nasdaq OMX (3,239)
•
Tokyo SE (4,543)
• London SE (2,855)
• NYSE Euronext (Europe) (2,869)
•London
• NYSE Euronext (Europe) (2,444)
• London SE (2,796)
•NYSE
• BSE (N.A.)
• BSE (1,306)
• BSE (1,139)
• NSE (N.A.)
• NSE (1,224)
• NSE (1,113)
(11,438)
Euronext US (17,950)
SE (4,429)
Euronext (Europe) (3,584)
Suggestion:
• Reduce Time lag from filling of prospectus to listing date
• Make pricing efficient – put onus on Merchant Banker, Underwriter
• Disclosure
– Loss of market cap to total issues managed (Merchant Banker wise)
– Funds collected in loss making IPO / funds collected in profit making IPO
Jan 18, 2014
Team Platinum (Nitin Gandhi and team)
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20. Securities held by Depositories
Particular
2001 -02
Quantity
Demat Value
(Units in Crores)
(Rs. Crores)
2011-12
Quantity
Demat Value
(Units in Crores)
(Rs. Crores)
NSDL
5,167
615,001
57,980
7,132,300
CDSL
482
24,337
13,357
1,020,569
Source: Handbook on Indian Securities Market 2012
Corporate Bonds Issued
Particular
Mar 2007
Corporate Bond No. of trades
Mar 2012
Traded Value
(Rs. in Crores)
No. of trades
Traded Value
(Rs. in Crores)
BSE
1,234
4,234
465
3,239
NSE
123
1,486
2,178
24,207
-
-
2,594
24,787
FIMMDA
Source: Handbook on Indian Securities Market 2012
Jan 18, 2014
Team Platinum (Nitin Gandhi and team)
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21. Suggestions
• Compulsory Demat for Bonds issue
• Algorithm
– Minimum Quota size for algorithm trading (either based on number
of share or price ceiling)
• Regulation related to use of social media to disclose financial
by business house, Investment advisor firms and Stock
brokers
Jan 18, 2014
Team Platinum (Nitin Gandhi and team)
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22. Mutual Funds
Particular
Scheme
Equity
Debt
Hybrid
ETF & FoF
Total Units
Mar 2003
Units (nos)
167
180
35
0
382
AUM (Rs. Crores)
11,115
65,208
3,141
79,464
Mar 2013
Units (nos)
347
857
32
58
1,294
AUM (Rs. Crores)
172,508
497,451
16,307
15,177
701,443
Source: AMFI
Suggestion:
• To start mutual fund for top 3 most traded commodity on
commodity exchange
Jan 18, 2014
Team Platinum (Nitin Gandhi and team)
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23. Mutual Funds
Net Asset under Mutual Fund
(in $ Billion)
2002
2012
US
6,390
13,045
Australia
356
1,667
China
N.A.
437
Japan
303
738
India
20
114
Source: 2013 Investment Company Factbook
Suggestion:
• Introduce product that provide return at least equivalent
to G-Sec
Jan 18, 2014
Team Platinum (Nitin Gandhi and team)
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24. Insurance
Particular
2001 -02
2011-12
Life
12
24
Non - Life
13
25
Life
50,094
287,072
Non – Life
12,385
54,578
99.46%
70.68%
Life*
230,369
1,581,259
Non – Life
(26,646)
(881,684)
No. of Companies
Total Premium (Rs. Crores)
Market Share of LIC (based on Total Premium)
AUM (Rs. Crores)
*Includes Life fund, Pension & General Authority Annuity & Group Fund, Unit ULIP fund
Source: Handbook on Indian Insurance Statistics 2011 -12
Jan 18, 2014
Team Platinum (Nitin Gandhi and team)
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25. Insurance Penetration
Particular
2001
2011
US Penetration (%)
8.97
8.10
South Africa Penetration (%)
17.97
12.90
PR China Penetration (%)
2.20
3.00
Japan Penetration (%)
11.07
11.00
India Penetration* (%)
2.71
4.10
*data related to financial year 2001 -02 and 2011-12
Source: Handbook on Indian Insurance Statistics 2011 -12
Jan 18, 2014
Team Platinum (Nitin Gandhi and team)
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26. Insurance - Suggestion
• All policy be categorized and coded under 3 to 5 groups
• FDI In Insurance
– Norms for utilization of FDI funds towards improvement of Service
– Innovation in distribution channel to ensure rural reach
– Use of technology to educate prospective insuree
• Third Party rating of Insurance companies
• Transparent and Standardizing of Terms & Conditions
– Average premium per policy issued be in range of +/- 20% of national
average
– Uniform commission across different product category
• Compulsory Segmentation with respect to issue of policy
• Securitization of insurance products to facilitate additional capital to
Insurance companies
• Promote more companies to act as re-insurance company
Jan 18, 2014
Team Platinum (Nitin Gandhi and team)
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27. Bond
Source: Asian Bonds Online
Suggestion:
• Inflation adjusted bonds (CPI / WPI + benchmark return)
• Insurance based on bond maturity value
• Bonds that provide return equivalent to real rate of return
• Facilitate listing of municipal bonds
Jan 18, 2014
Team Platinum (Nitin Gandhi and team)
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28. BROKERS
• Allocate div for even inactive /closed client
o Transfer to IPF if credit remain unpaid >180 days/ 3 yr
• Client FO Margin –Treat like pledge - shares in client a/c
o Specific lien not general hypothecation.
• 50% - IPF must be used for benefits of losses of < 1 lac
clients - No Education seminars
BANKS
• Set of standard for servicing - levying charges - bounce sms
intimation MUST
• Penalty for non-performance (EOD non credit)
Jan 18, 2014
Team Platinum (Nitin Gandhi and team)
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29. DP
• Broker Pool AMC linked to volume & Min charge
Rs. 2500 p.m. be cancelled
• Transfer to Unpaid client a/c - free or half cost –
broker must compulsory hold separate A/c
• Non pan a/c holder – upload on site – let claimant
come forward
Credit card
• Heavy penalty for double collection
Eg: Agency relationship
Jan 18, 2014
Team Platinum (Nitin Gandhi and team)
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30. Disclosure – SEBI and Exchanges
• Migrate IPO Process- like OFS - let broker take risk of pay-in
• Strict vigilance of “Concentrated Applications”
• MB performance index( Loss of Mkt cap) for launching IPO –
MUST disclose
• Tighten insider trading norms – UPSI
• FO obligation upload of all MB+, BRLM+, in Settlement
Prohibition Period
• Vigilance of > 5% position holder/Top 25 broker position (F+O)
• Launch of IRF – Int rate future- Qualitative
Jan 18, 2014
Team Platinum (Nitin Gandhi and team)
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31. Banks
•
•
•
•
•
Introduce Banking Transaction Tax
Migrate from Corporate Agent to Insurance Broker
Remove 25% ceiling from promoter group biz
Incentive for technology tie up for multiproduct branches
•
Mor committee report CFS4SBLIH
o Far reaching over path breaking ambition
o Do away int subvention and debt waiver - Stop evergreening
o Interoperability of last mile- 15 min by walk – BC, PI
o Externalise cost of delivery – client protection – Mobile wallet
o Weighted Priority sector lending – Incentivise for difficult
lending
o Universal Electronic bank a/c by 2016 for access credits
o Payment bank (Nw 50 cr) - Priority sector wholesale
Jan 18, 2014
Team Platinum (Nitin Gandhi and team)
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32. New Bank Entry Policy
• In mid of 1990 ,10 banks opened and only 4 survived
• Allow only Focus Small Bank that can convert MFI into bank to
focus on Agri and small Business
Jan 18, 2014
Team Platinum (Nitin Gandhi and team)
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33. Custodian-FPI
• P-note holder can register directly- $1000 fees- save 2-2.5%
transaction cost
•
• Decide responsibility for TDS- custodian/ QDI/ QFI
• YU- E –BAO-– Chinese bank savings int. 0.35% MMF yields -6%
-17 times
Jan 18, 2014
Team Platinum (Nitin Gandhi and team)
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34. International Reforms China
760 IPO Queue… 2010 347 raised $ 82 bn…..
• Substitution approval - based system with a Registration - based
Mechanism
• Steps for strengthening investor confidence
• Buyback for misleading disclosures detected - extended lockup
period
• If 50% drop in business profits in year 1
- temporarily stop applications from underwriter
• Sponsor-Issuer Collusion, inflated IPO Valuations, Over –
intervention on pricing, slap –on- wrist penalties for misleading
financial reporting
• Compulsory market oriented delisting program
Jan 18, 2014
Team Platinum (Nitin Gandhi and team)
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35. International Reforms Japan
•
•
•
•
•
•
•
•
•
•
FIEL Fin. Instruments and Exch. Law
Short Selling Reform –
Prohibition to participate in IPO to settle short positionsSettlement Prohibition- Illegal Act
As an Investment Technique- permitted -More flexibility in the
short selling price - Uptick Rule
Permanent ban on naked selling,- Secure borrowing of shares
Revamped system of reporting/ publication of short positions
Two –Tier system
Short selling balance ratio of 0.2 % report .50% publicize by exch
Expansion of the scope of the regulations to PTS
Jan 18, 2014
Team Platinum (Nitin Gandhi and team)
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36. International Reforms USA : Dodd- Frank Wall
Street Reforms & Consumer Protection Act
• Accelerated rule making Release for Leverage, Derivatives, REITS,
mortgage pools
• Incentive Based Compensation for legal Advisers
• Monthly reporting –FORM SLT
• Client can ask for contact of Enforcement Investigators and copies of
deficiency Letters
• Whistleblower Program- Revitalize bounty program who tips insider
trading
• Wiretaps
• Pay to play rule –Permits Advisers to compensate regulated persons
• SRO to enhance oversights of registered entity
• Clg. House major Swap Participant
• Fiduciary Standards for broker Dealers
Jan 18, 2014
Team Platinum (Nitin Gandhi and team)
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37. Mobile Banking
Banks 1lac branhces+ BC+ Grameen - 57 banks with 17000
branches still
• 40% still have no access to financial services
• Use of Mobile Wallets – Financial transaction without
presence of bank
• Additive Model
• Transformational Mode – E.g. Kenya
Jan 18, 2014
Team Platinum (Nitin Gandhi and team)
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