VOL.

ISSUE-2

May 2014

BMSB

FIN-CONNECT
EDITOR Bikramaditya Ghosh, Asst. Prof.
EDITORIAL COMMITTEE- DR.Umashanker K /Ms. GAYATRI BHAT, Asst. Prof.
/Mr. B.V.RAO /Mr. Keshava Murthy
Strictly for Internal Circulation

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Content
Editorial By Mr. Bikramaditya Ghosh, Asst. Prof. Manipal
University
P-3-3
USD Vs. EURO A comparative Study from INR perspective
By Tanya Singh 10A

P-4-11

HSBC Scandal Case Study on Money Laundering

By Prapti Barman 9E

P-12-21

An analysis of debt securities market in India

By Hardeep Singh Chawla 9D

P-22-34

POVERTY An Economic Perspective

By Richa Prakash 9D
Blog from a Senior Banker - Mr. Keshava Murthy

P-34-43
P-44-49

Research Note from Editors Diary-Mr. Bikramaditya Ghosh, Asst.

Prof. Manipal University
P-49-52

Disclaimer- This magazine does not reflect any views of either BOB or Manipal Group.
This is a pure research endeavor by budding managers of tomorrow.

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Editorial

It has been a dynamic & eventful journey to discover the latent

talent hidden within the student fraternity by virtue of enhancing
their ideas in BFSI domain. The enthusiasm & ideas have come out
so far has been quite impressive. This is our second issue, and with a
promise that many more to come after that, we in BMSB are proud
to show case the work done by our students once again.
I would like to thank our Director Dr. Thammaiah, our Assoc. Dean
Mr. Rahul Aradhya, our HOD Mr. Ramaprasad, our own moving
encyclopedia (Wikipedia) Mr. Keshava Murthy, our Banking
Partner Mr. Ashok Bhatnagar (BOB) and countless colleagues &
students in coming up with such an unique endevour.
The journey in Fin Connect has been as enjoyable as the final
outcome. I invite more & more such Articles to us from the entire
student fraternity. Come up & Show case your talent my friends.
I will conclude by quoting Swami Vivekananda, Arise, Awake!
And stop not until the goal is reached.1

Swami Vivekananda Vol-1 Pg. 342

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USD Vs. EURO A comparative Study from INR perspective

By Tanya Singh 10A

Introduction
Foreign Exchange market forms a very important part of a economy.
The foreign exchange market (Forex, FX, or currency market) is a global
decentralized market for the trading of currencies. The main participants
in this market are the larger international banks. Financial centers around
the world function as anchors of trading between a wide range of
different types of buyers and sellers around the clock, with the exception
of weekends. Electronic Broking Services (EBS) and Reuters 3000 Xtra
are two main interbank FX trading platforms. The foreign exchange
market determines the relative values of different currencies.
The foreign exchange market works through financial institutions, and it
operates on several levels. Behind the scenes banks turn to a smaller
number of financial firms known as dealers, who are actively involved
in large quantities of foreign exchange trading. Most foreign exchange
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dealers are banks, so this behind-the-scenes market is sometimes called

the interbank market, although a few insurance companies and other
kinds of financial firms are involved. Trades between foreign exchange
dealers can be very large, involving hundreds of millions of dollars
Because of the sovereignty issue when involving two currencies, Forex
has little (if any) supervisory entity regulating its actions. A bank has to
have a sound Forex trading policy and at the same time it's important
for every banker to understand the basic idea of foreign exchange and
how our currency is linked to other currency or what is the major
relation between the important or top currencies. Now the Forex
segment of Bank of Baroda deals in majorly 6 currencies i.e.
Australian Dollar
Japanese Yen
US Dollar
Swiss Franc
Canadian Dollar
Euro
The article here tries to throw light on the relation between two of the
currencies mentioned above i.e. USD and EURO. The US$ being one of
the very important currency of the world in which not only majority of
trades take place world over but also it is considered as reserve currency.
Thus one would find that our Forex reserves are quoted in $ terms. Any
major change in US$ rates brings about a big impact in Indian economy
and many other economies. On the other hand Euro is the common
currency of whole of European zone or European countries which
include Germany, France, Austria etc. which are big countries. Thus
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establishing a relation between these currencies and their movements

would help us understand them better.
Calculation
As a part of the comparison here data was taken from past 3 years which
comprised of 622 observations each of US$ as well as Euro rate to see if
there exists a relation or not. For the same purpose the open, closing
position, last traded price, low, high positions were all taken into
account. Afterwards correlation and regression analysis have been
performed to assess the relationship between the two.
SUMMARY OUTPUT
Regression Statistics
Multiple R- 0.9539
R- 0 .9100
Adjusted R is 0.909

Normal Probability Plot

100
80
60
40
20
0
0

50

100

150

Sample Percentile

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X Variable 1 Residual Plot

Residuals

5
0
0

20

40

60

80

-5
-10

X Variable 1

Interpretation
On the basis of the above linear regression model used we can make
the several interpretations which help is making us understand
whether does a relation between US$ and Euro currency exists and if
yes than how can it affect the exchange rates etc.
the regression analysis is basically used to establish relation that
how much change in independent variable can affect our
dependent variable
the R or R square tells about the forecasting of our regression
model i.e. it tells that it can correctly predict up to 91 % of
forecasting or variation in the level of USD due to change in the
EURO rate
this calculation has been made on the basis of 622 observations
which have been taken over the period of past 3years.
T Stat along with P Value teaches us that the phenomenon did not
happened by chance.
T Stat of +- 10 means the extreme ends of the distribution curve.
There if P Value is zero, that will signify that the distribution curve
do not have a long tail in either side.
On the contrary it has zero value in both the Tails, so the
distribution is concentrated straight & long.
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 This further means that confidence level of occurrence of that

event is very high.
So, the Null Hypothesis stands rejected.
Aside from factors such as interest rates and inflation,
the exchange rate is one of the most important determinants of a
country's relative level of economic health. Exchange rates play a
vital role in a country's level of trade, which is critical to most
every free market economy in the world. For this reason, exchange
rates are among the most watched, analyzed and governmentally
manipulated economic measures. But exchange rates matter on a
smaller scale as well: they impact the real return of an investor's
portfolio. Here we look at some of the major forces behind
exchange
rate
movements.
Overview
Before we look at these forces, we should sketch out how
exchange rate movements affect a nation's trading relationships
with other nations. A higher currency makes a
country's exports more expensive and imports cheaper in foreign
markets; a lower currency makes a country's exports cheaper and
its imports more expensive in foreign markets. A higher exchange
rate can be expected to lower the country's balance of trade, while
a
lower
exchange
rate
would
increase
it.
Numerous factors determine exchange rates, and all are related to
the trading relationship between two countries. Remember,
exchange rates are relative, and are expressed as a comparison of
the currencies of two countries. The following are some of the
principal determinants of the exchange rate between two countries.
Note that these factors are in no particular order; like many aspects
of economics, the relative importance of these factors is subject to
much debate.
As a general rule, a country with a consistently lower inflation rate
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exhibits a rising currency value, as its purchasing power increases

relative to other currencies. During the last half of the twentieth
century, the countries with low inflation included Japan, Germany
and Switzerland, while the U.S. and Canada achieved low inflation
only later. Those countries with higher inflation typically see
depreciation in their currency in relation to the currencies of their
trading partners. This is also usually accompanied by higher
interest
rates.

Interest rates, inflation and exchange rates are all highly correlated.
By manipulating interest rates, central banks exert influence over
both inflation and exchange rates, and changing interest rates
impact inflation and currency values. Higher interest rates offer
lenders in an economy a higher return relative to other countries.
Therefore, higher interest rates attract foreign capital and cause the
exchange rate to rise. The impact of higher interest rates is
mitigated, however, if inflation in the country is much higher than
in others, or if additional factors serve to drive the currency down.
The opposite relationship exists for decreasing interest rates - that
is, lower interest rates tend to decrease exchange rates.
The current account is the balance of trade between a country and
its trading partners, reflecting all payments between countries for
goods, services, interest and dividends. A deficit in the current
account shows the country is spending more on foreign trade than
it is earning, and that it is borrowing capital from foreign sources
to make up the deficit. In other words, the country requires more
foreign currency than it receives through sales of exports, and it
supplies more of its own currency than foreigners demand for its
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products. The excess demand for foreign currency lowers the

country's exchange rate until domestic goods and services are
cheap enough for foreigners, and foreign assets are too expensive
to
generate
sales
for
domestic
interests.

Countries will engage in large-scale deficit financing to pay for

public sector projects and governmental funding. While such
activity stimulates the domestic economy, nations with large public
deficits and debts are less attractive to foreign investors. The
reason? A large debt encourages inflation, and if inflation is high,
the debt will be serviced and ultimately paid off with cheaper real
dollars
in
the
future.
In the worst case scenario, a government may print money to pay
part of a large debt, but increasing the money supply inevitably
causes inflation. Moreover, if a government is not able to service
its deficit through domestic means (selling domestic bonds,
increasing the money supply), then it must increase the supply of
securities for sale to foreigners, thereby lowering their prices.
Finally, a large debt may prove worrisome to foreigners if they
believe the country risks defaulting on its obligations. Foreigners
will be less willing to own securities denominated in that currency
if the risk of default is great. For this reason, the country's debt
rating (as determined by Moody's or Standard & Poor's, for
example)
is
a
crucial
determinant.
A ratio comparing export prices to import prices, the terms of trade
is related to current accounts and the balance of payments. If the
price of a country's exports rises by a greater rate than that of its
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imports, its terms of trade have favorably improved. Increasing

terms of trade shows greater demand for the country's exports.
This, in turn, results in rising revenues from exports, which
provides increased demand for the country's currency (and an
increase in the currency's value). If the price of exports rises by a
smaller rate than that of its imports, the currency's value will
decrease
in
relation
to
its
trading
partners.

Foreign investors inevitably seek out stable countries with strong

economic performance in which to invest their capital. A country
with such positive attributes will draw investment funds away from
other countries perceived to have more political and economic risk.
Political turmoil, for example, can cause a loss of confidence in a
currency and a movement of capital to the currencies of more
stable
countries.
Conclusion
Our regression model above is able to portray a very accurate
picture more than 90% of times. The two exchange rates are very
strongly and positively correlated which can be construed as a
movement in one will result in strong positive movement in the
other currency too. Similarly the regression model explains us that
a movement/change in the independent variable i.e. Euro will
strongly affect dependent variable i.e. US Dollar in the similar
direction, i.e. if there is appreciation in the value of Euro then we
will see appreciation in the movement of USD too. Also if we will
plot the values on the normal distribution curve, it will be a
standard bell shaped curve with no tail as all the observations are
concentrated uniformly near the center.
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References
1. http://www.xe.com/currencycharts/?from=USD&to=INR
2. http://www.xe.com/currencycharts/?from=USD&to=EUR
3. http://www.xe.com/currencycharts/?from=INR&to=EUR
4. http://en.wikipedia.org/wiki/Reuters_3000_Xtra
5. http://en.wikipedia.org/wiki/Electronic_Broking_Services
6. http://en.wikipedia.org/wiki/Currency
HSBC Scandal Case Study on Money Laundering
By Prapti Barman 9E

What is Money Laundering?

When our clothes get dirty, we wash them or launder them to get clean
clothes. The term Money Laundering also derives from a similar
concept. Money derived from illegal channels is known as black
money. When this black or dirty money is surrounded by legitimate
income so as to lose the trail of illegal transactions, it appears to be
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white or legitimate money. Money laundering is a relative term and its

interpretation varies from situation to situation. For instance, in some
places tax evasion may be considered as a form of money laundering
while it may not be so in some other places. Basic process of money
laundering constitutes three different stages which are placing the
money in a legal channel; layering or camouflaging the money source
through series of complicated transactions and the final step is
integrating the funds acquired through illegal transactions. Further
elaboration on this topic is beyond the scope of this article. Money
laundering is a serious crime although it may appear that nobody is
victimized. As per recent statistics, it counts for over $500 billion
annually.

HSBC AML Policy

HSBC Groups global policy is to comply with high standards of antimoney laundering practice in all markets and jurisdictions in which it
operates and to comply with both specific provisions and the spirit of all
relevant laws and regulations. This
policy applies not only to money
laundering but also to terrorist
financing as mentioned in HSBC
Group Money Laundering
Deterrence Global Policy and
Principles. This policy reflects the
Financial Action Task Forces (FATF) 40 recommendations to combat
Money Laundering and 9 special recommendations to counter terrorist
financing. According to these recommendations that were published in
October 2004, any financial institution must maintain customer due
diligence and maintain record, monitoring and reporting of suspicious
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transactions, other measures to deter money laundering and terrorist

financing, regulation and supervision, etc.
HSBC Global policy has provisions to match FATFs recommendations.
Key elements of the policy include:
a) Customer Due Diligence :
i)

Obtaining and verifying identity of a prospective customer

using reliable, independent document/ electronic source
material. Steps to be taken to ensure no customer is using
fake identity.

ii)

Appropriate KYC information (personal, business and

financial details and source of funds) before starting a
relationship. Proper risk analysis using all accounting and
other banking tools available.

b) Identification and Reporting of suspicious transactions :

Appropriate scrutiny and monitoring of transactions and account
activity of customers using a risk based approach with increased
monitoring in case of customers deemed high risk. Any
suspicious activity noted by any business unit should be reported to
a Central Money Laundering Reporting Office Function who will
validate the suspicions and report to relevant authorities.
c) Maintaining records for at least 5 years after the relationship with
customer has ended or after the date of transaction as required by
local law or regulation.
d) Screening of payment against any sanctions/ lists issued by UN or
other competent local authorities.

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e) Training of all employees to ensure all of them are aware and

compliant of Groups approach to money laundering deterrence.
Risk Assessment
of customers
Low Medium
- High

Obtaining
KYC
information

Transaction
monitoring
using risk
based
approach

Report of
suspicious
transaction
s

Maintaining
records

Figure 1 : Five steps of HSBC Global Anti Money Laundering Policy

HSBC USA Money Laundering Events :

In 2005 Bloomberg Markets magazine accused HSBC of moneylaundering for drug dealers and state sponsors of terrorism. CEO
Stephen Green quoted This was a singular and wholly irresponsible
attack on the banks international compliance procedures, but
subsequent investigation indicated that the accusation was accurate
and proved that the bank was involved in money laundering
throughout Mexico.

HSBC Mexico which had inadequate money laundering controls,

shipped $7billion to HSBC US operations between 2007-08. Drug
traffickers used HSBC Mexico as conduit to ship US dollars from
Mexico to US thereby fooling the anti money laundering measures.
Evidence indicated bulk travellers cheque worth millions of dollars
and resistance to closing account linked to suspicious activities. The
bank categorized Mexico as low risk zone thereby weakening risk
monitoring policy. Mexican traffickers used boxes specifically
designed to the dimensions of an HSBC Mexico teller's window to
deposit cash on a daily basis.
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Although it is prohibited by US laws to deal with individuals or

organizations deemed dangerous, HSBC US carried on about 28000
such sensitive transactions worth about $19.7 billion between 2001 07 majority of which involved Iran. Other countries were Libya,
Sudan, Cuba, Burma and Korea.

HSBC also had business tie up with Al Rajhi Bank, biggest financial
institution of Saudi Arabia. After suspected tie of US 9/11 terrorist
attack with Al Rajhi Bank, HSBC US cut off all ties with the bank
after 2001. But when Al Rajhi began to threaten to withdraw global
ties with HSBC, HSBC US resumed business transaction with the
bank after 2006.

Between 2005 and 2008, HSBC US cleared $290million worth of US

dollar travellers' cheques which were being presented at a Japanese
bank. Further investigation proved that the origin of said transactions
were from Russia which is flagged as high risk zone in terms of
money laundering activities.

In 2008, the federal prosecutor in Wheeling, West Virginia, began

investigating allegations that a local doctor used the bank to launder
money from Medicare fraud.

And the list continues

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Fin Connect

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Permanent Subcommittee on Hearing HSBC Money laundering

Case

CHAIRMAN - Carl Levin D

Members

RANKING COMMITTEE
MEMBER - Tom Coburn R

David Bagley
David S. Cohen
Paul Thurston

Panel 1

Leigh H. Winchell

Michael Gallagher
Christopher Lok

Panel 2
Irene Dorner

Thomas J. Curry
Grace E. Dailey

Panel 3

Stuart A. Levey

Daniel P. Stipano
Panel 4

Figure: U.S. Vulnerabilities to Money Laundering, Drugs, and

Terrorist Financing: HSBC Case History
US Senate permanent Subcommittee started its investigation since
February 2012.
Location: Room 106, Dirksen Senate Office Building
Time: July 17, 2012 09:30AM

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Violations:
Bank Secrecy Act (BSA) by failing to maintain an effective anti-money
laundering program and to conduct appropriate due diligence on its
foreign correspondent account holders.
International Emergency Economic Powers Act (IEEPA) and the
Trading with the Enemy Act (TWEA) by illegally conducting transactions
on behalf of customers in Cuba, Iran, Libya, Sudan and Burma.
HSBC appeal:
Since 2009 it increased its investment in AML policy nine times and
also withdrew from various business transactions.
Paul Thurston, HSBC Chief of Retail and Wealth Management, said the
bank 'took wrongdoing seriously' and provided evidence for the same
Senate Report:
From 2001 to 2007, HSBC affiliates sent almost 25,000 transactions
involving Iran worth over $19billion (12billion) through HBUS and
other US accounts, while concealing any link with Iran in 85 per cent of
the transactions.
Many of HSBCs breaches related to its use of so-called bearer share
accounts, in which ownership of shares and the income they incur can be
passed from person to person in secrecy.
In 2010, one disgusted top compliance official threw up his hands and
quit after less than a year on the job, according to the report.
At the heart of HSBC's failings was the fact that it served as a hub for
smaller financial firms needing access to the global banking system, the
report said.

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HSBC continued to do business with one client Sigue Corp that admitted
to U.S. law enforcement that it had failed to maintain an effective antimoney laundering system.
Outcome:
Deferred Prosecution Agreement with US Department of Justice.

HSBC US Money laundering aftermath

The settlement is the third time in a decade that HSBC has been
penalized for lax controls and ordered by U.S. authorities to improve its
monitoring of suspicious transactions. Previous directives by regulators
to improve oversight came in 2003 and in 2010.
HSBC agreed to money laundering charges of $881 million.
HSBC Holdings Plc agreed to pay $1.92 billion as penalty for various
accusations of insufficient money laundering charges placed upon them
by US authorities.
The penalty includes $665 million civil penalties to regulators including
to the Office of the Comptroller of the Currency, the Federal Reserve,
and the Treasury Department.
Bonuses would be delayed for top executives of the organization and
would be removed from some current and former executives who had
particular involvement in the wilful breach of U.S. regulations.
HSBC agreed that it had neglected to maintain due diligence with some
of their accountholders and agreed to strengthen their AML policy and
monitor compliance to every step of KYC policy. More number of staff
to be employed for monitoring every step.

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It agreed to incorporate independent monitor to check its improvement

in compliance of Bank Secrecy Act. It will also investigate its Know
your customer files that will cost an estimated $700 million over a
period of 5 years.
Justice or Economy at large ?
The judgment not to prosecute HSBC for such serious accusations and to
avoid criminal proceedings in exchange of $1.92 billion fine leaves us
with a question. Whether justice was delivered?
It is true that this is not the first time that US authorities have warned
HSBC regarding their insufficient AML policy. They have still not
updated their framework to stop their channels from being used by
money launderers. In this regard, they should have been given
punishment more severe than penalty charges.
On the other hand as per Attorney General Eric Holders statement, the
national economy of US would greatly suffer if justice would have been
served and license to HSBC US would have been withdrawn by Office
of Comptroller. All employees of HSBC US branch would suffer from
unemployment which would ultimately tip the scale of inflation further.
The judgement created outrage amongst mass. Many senators and
advocates voiced their revulsion for this decision openly. The utilitarian
view support the judgement as it provides greater benefit of the society
at large. US government avoided retribution to protect the already
struggling economy. Justice was served from the point of view of greater
good. However this vulnerability has provided nothing but leeway to
such banking giants. We can only hope that such incidents would not be
repeated in the future and these monetary penalties would be enough to
deter such organizations from using such inefficient AML policy.

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REFERENCES
www.google.co.in
http://dealbook.nytimes.com/2012/12/10/hsbc-said-to-near-1-9-billionsettlement-over-money-laundering/?_r=2
http://www.marketoracle.co.uk/Article38132.html
http://www.bibliotecapleyades.net/sociopolitica/sociopol_globalbanking
286.htm
http://en.wikipedia.org/wiki/HSBC
http://www.bbc.co.uk/news/business-18880269
http://www.reuters.com/article/2012/12/11/us-hsbc-probeidUSBRE8BA05M20121211
http://sevenpillarsinstitute.org/case-studies/hsbc-money-laundering-casetoo-big-to-fail-does-not-mean-too-big-to-jail

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An analysis of debt securities market in India

By Hardeep Singh Chawla 9D

(Scenario before 1993)

The market for debt instruments remained under developed due to
various constraints. Some of these are:
Requirement of long term debt by corporate sector was provided
by financial institutions and commercial banks in the form of term
loans
Restrictions on the interest rate payable on these instruments
The principal buyers of debenture issued by companies were
investment institutions. The institutions were bought with a view to
hold them till maturity.
(Scenario from 1993)
The changes that enlightened the debt market since the middle of 1993.
Debt market now poises for substantial growth due to following reasons:

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 Nowadays term loans are being provided lesser to industrial

projects by financial institutions
Now corporate enjoy complete independence in designing debt
instruments
These days there is no ceiling on interest rate
To monitor the performance of various debt instruments various
credit rating agencies have been established
Volatilities present in equity markets has stimulated the investor to
invest in debt securities

Govt Securities
Government Securities are securities issued by the Government for
raising a public loan or as notified in the official Gazette. They consist
of Government Promissory Notes, Bearer Bonds, Stocks or Bonds held
in Bond Ledger Account. They may be in the form of Treasury Bills or
Dated Government Securities.
Features of Government Securities
Issued at face value
No default risk as the securities carry sovereign guarantee.
Ample liquidity as the investor can sell the security in the
secondary market
Interest payment on a half yearly basis on face value
No tax deducted at source
Can be held in Demat form.
Rate of interest and tenor of the security is fixed at the time of
issuance and is not subject to change (unless intrinsic to the
security like FRBs - Floating Rate Bonds).
Redeemed at face value on maturity
Maturity ranges from of 2-30 years.

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The dated Government securities market in India has two segments:

1. Primary Market: The Primary Market consists of the issuers of the
securities, viz., Central and Sate Government and buyers include
Commercial Banks, Primary Dealers, Financial Institutions,
Insurance Companies & Co-operative Banks. RBI also has a scheme
of non-competitive bidding for small investors.
2. Secondary Market: The Secondary Market includes Commercial
banks, Financial Institutions, Insurance Companies, Provident
Funds, Trusts, Mutual Funds, Primary Dealers and Reserve Bank of
India. Even Corporate and Individuals can invest in Government
Securities. The eligibility criterion is specified in the relative
Government notification.
Auctions: Auctions for government securities are either multiple- price
auctions or uniform price auction - either yield based or price based.
G-Sec Auction details
(Number of auctions)
Year
1
2
3
4
5
Fin Connect

201011Q4
201112Q1
201112Q2
201112Q3
201112Q4

Uniform
Price
15
30
34
37
39
Page 25

6
7
8
9

201213Q1
201213Q3
201213Q4
201314Q1

48
0
0
8

Yield Based
In this type of auction, RBI announces the issue size or notified amount
and the tenor of the paper to be auctioned. The bidders submit bids in
term of the yield at which they are ready to buy the security. If the Bid is
more than the cut-off yield then its rejected otherwise it is accepted
Price Based
In this type of auction, RBI announces the issue size or notified amount
and the tenor of the paper to be auctioned, as well as the coupon rate.
The bidders submit bids in terms of the price. This method of auction is
normally used in case of reissue of existing Government Securities. Bids
at price lower, then the cut off price are rejected and bids higher, then
the cut off price are accepted. Price Based auction leads to a better price
discovery then the Yield based auction.

Underwriting in Auction
One day prior to the auction, bids are received from the Primary Dealers
(PD) indicating the amount they are willing to underwrite and the fee
expected. The auction committee of RBI then examines the bid on the
basis of the market condition and takes a decision on the amount to be
underwritten and the fee to be paid. In case of devolvement, the bids put
in by the PDs are set off against the amount underwritten while
deciding the amount of devolvement and in case the auction is fully
subscribed, the PD need not subscribe to the issue unless they have bid
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for it.
State Development Loans
State Development Loans (SDLs) are issued by the State Governments
and RBI coordinates the actual process of selling these securities. Each
state is allowed to issue securities up to a certain limit each year.
Generally, the coupon rates on State Development Loans are marginally
higher than those of GOI-Secs issued for the same maturity.
The State Development Loans are normally sold through the auction
process. All the auctions are multiple price auctions, through
competitive bidding, conducted by Reserve Bank of India and allotment
procedure is similar to that for GOI-Secs. Non-competitive bidding has
been introduced in the auction of SDL. State Development Loans also
qualify for SLR status. Interest payment frequency is half yearly and
other modalities are similar to GOI-Secs. They are issued in
dematerialized form. State Government Securities can be issued in the
physical form (in the form of Stock Certificate) on separate request and
are transferable. Like in the case of G-Secs no stamp duty is payable on
transfer of State Development Loans also.
State Development Loans are eligible securities for Liquidity
Adjustment Facility (LAF)-Repos. Schedule Commercial
Bank(excluding RRBs) and Primary Dealers can offer State
Development Loans as eligible securities to the RBI under LAF Repo
Treasury bills
Treasury Bills are short term (up to one year) borrowing instruments of
the Government of India which enable investors to park their short term
surplus funds while reducing their market risk.

They are auctioned by Reserve Bank of India at regular intervals and

issued at a discount to face value. On maturity the face value is paid
to the holder.

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The rate of discount and the corresponding issue prices are

determined at each auction. When liquidity is tight in the economy,
returns on Treasury Bills sometimes become even higher than
returns on bank deposits of similar maturity.

Any person in India including Individuals, Firms, Companies,

Corporate bodies, Trusts and Institutions can purchase Treasury
Bills. Treasury Bills are eligible securities for SLR purposes.

Treasury Bills are available for a minimum amount of Rs. 25,000

and in multiples of Rs. 25,000 thereafter. They are available in both
Primary and Secondary Market.

Treasury Bills are issued in the form of SGL - entries in the books of
Reserve Bank of India to hold the securities on behalf of the holder.
The SGL holdings can be transferred by issuing a SGL transfer form

Treasury Bills are also being issued under the Market Stabilization
Scheme (MSS)

Type of Treasury Bills

At present, RBI issues T-Bills for three different maturities:
91 days
182 days
364 days.
The 91 day T-Bills are issued on weekly auction basis while 182 day TBill auction is held on Wednesday preceding Non-reporting Friday and
364 day T-Bill auction on Wednesday preceding the Reporting Friday
Treasury Bills are Money Market instruments to finance the short term
requirements of the Government of India. These are discounted
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securities and thus are issued at a discount to face value. The return to
the investor is the difference between the maturity value and issue price
Treasury Bills or T-Bills as they are known are issued by the
Government of India to meet their short-term requirement. T-Bills are
issued for 91-day, 182-day and 364-day maturities. T-Bills are issued at
a discount to their face value and redeemed at par.
364-day T-Bills forms part of the government borrowing programme.
There are three types of Treasury Bills: 91-day T-bill - maturity is in 91 days. Its auction is weekly on every
Wednesday.

182-day T-bill - maturity is in 182 days. Its auction is on every

alternate Wednesday other than a reporting week.

364-Day T-bill - maturity is in 364 days. Its auction is on every

alternate Wednesday in a reporting week.

Features of T-Bills auction

All T-Bills auctions are Price-based.
All T-Bills are auctioned on Multiple-Price basis.
The RBI auctions 91-day T-Bills every Wednesday, 182-day T-Bills on
every alternate Wednesday and 364-day T-Bills on the Wednesday of
the reporting Friday week.
A new segment called the wholesale debt market (WDM) was
established at the NSE to report the trading volume of the Govt of India
debt market.
Trade volumes

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Value (Rs crore)

Year
201112Q1
201112Q2
201112Q3
201112Q4
201213Q1
201213Q2
201213Q3
201213Q4
201314Q1

Fin Connect

G-Sec
511027

SDL
7012

T-Bills
89055

774209

8136

96302

825093

13241

74675

990322

15824

87838

1155405

21143

116493

1335305

26026

162450

1175013

32694

120507

2254019

38103

150879

3655640

43834

161131

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4000000
3500000
3000000
2500000

2000000

G-Sec

1500000

SDL

1000000

T-Bills

500000
0

Share (%)
Year
201112Q1
201112Q2
201112Q3
201112Q4
201213Q1
2012Fin Connect

G-Sec
84.2

SDL
1.2

T-Bills
14.7

88.1

0.9

11.0

90.4

1.5

8.2

90.5

1.4

8.0

89.4

1.6

9.0

87.6

1.7

10.7
Page 31

13Q2
201213Q3
201213Q4
201314Q1

88.5

2.5

9.1

92.3

1.6

6.2

94.7

1.1

4.2

100
90
80
70
60
50
40
30
20
10
0

G-Sec
SDL
T-Bills

Looking at the quarterly report it can be clearly seen that government

securities continued to be market favorites compared to treasury bills
and state development loans. However being short term securities these
two securities were traded less. This clearly indicates the trust and
confidence the investors have in government securities. They are ready
to hold long positions in the market and are assured of the fact that their
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money is in safe hands. This is because of the fact that the yield would
not deviate much in the long run.

Instrument wise active security trade description for the month

of November 2013
Instrument Most active
security

Central
GS CG2023
Government 7.16%
Treasury
TB364D
Bills
040914
State
SG M AH23
Government 9.51%
PSU's
PT PFC18
9.81%
Bank Bonds BB IDBI21
9.45%
Corporate
DB LICH18
debentures 9.16%
Institutional ID EXIM16
Bonds
9.47%

Fin Connect

Value(Rs No of Total
mn)
trades traded
value(Rs
mn)
78532.5 182

%
share
in
traded
value
211913.32 40.81%

11000

148713.53 28.64%

2051.75 7

14363.46

2.77%

11669

64

57601.75

11.09%

1600

5076

0.98%

3000

46387.6

8.93%

35210

6.78%

4000

Page 33

% share in traded value

8.93%

6.78%
Central Government

0.98%
40.81%

11.09%

Treasury Bills
State Government
PSU's

2.77%

28.64%

Bank Bonds
Corporate debentures
Institutional Bonds

The above chart depicts the present status of debt market in India. It can
be ranked as:

Central government (maximum share)

Treasury bills
PSUs
Corporate debentures
Institutional bonds
State governments
Bank bonds (minimum share)

The contribution provided by bank bonds in total traded volume is the

least; this is a matter of concern for the government as banks are the
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emerging developing financial institutions and the debt securities

provide an image of the institution in front of the market.

REFERENCES

www.nseindia.com
www.bseindia.com
www.investing.com
www.google.com
www.investopedia.com
www.ccilindia.com

POVERTY An Economic Perspective

By Richa Prakash 9D

Poverty is scarcity, dearth, or the state of one who lacks a certain amount
of material possessions or money.
Poverty can be of different types like absolute poverty and relative
poverty. There may be many other types- primary poverty, secondary
poverty, and many more. Whatever be the type of poverty, the basic
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reason has always been lack of adequate incomes. Here comes the role
of unemployment behind poverty.
Lack of employment opportunities and the consequential income
disparity bring about mass poverty in most of the developing and under
developed economies of the world.
Poverty is usually measured as absolute poverty or relative poverty (the
latter being an index of income inequality).
ABSOLUTE POVERTY
Absolute poverty refers to a set of standard which is consistent over time
and between countries.
The world bank defines extreme poverty as living on less than US $1.25
per day, and moderate poverty as less than $2 a day (but note that a
person or family with access to subsistence resources, e.g. subsistence
farmers may have a low cash income without a correspondingly low
standard of living they are not living on their cash income but using it
as a top up). It estimates that in 2001, 1.1 billion people had
consumption levels below $1 a day and 2.7 billion lived on less than $2
a day.
RELATIVE POVERTY
Relative poverty views poverty as socially defined and dependent on
social context, hence relative poverty is a measure of income inequality.
Usually, relative poverty is measured as the percentage of population
with income less than some fixed proportion of median income. There
are several other different income inequality metrics, for example the
Gini coefficient or the Theil Index.

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Relative poverty measures are used as official poverty rates in several

developed countries. As such these poverty statistics measure inequality
rather than material deprivation or hardship. The measurements are
usually based on a persons yearly income and frequently take no
account of total wealth. The main poverty line used in OECD and the
European Union is based on economic distance, a level of income set
at 60% of the median household income.
MULTIDIMENSIONAL POVERTY INDEX
The multidimensional poverty index (MPI) was developed in 2010 by
Oxford Poverty & Human development Initiative and the United Nations
Development Program. The MPI is an index of acute multidimensional
poverty. It reflects deprivation in very rudimentary services and core
human functioning for people across 104 countries. Although deeply
constrained by data limitations, MPI reveals a different pattern of
poverty than income poverty, as it illuminates a different set of
deprivations.
The MPI has three dimensions health, education and standard of
living. These are measured using ten indicators. Each dimension and
each indicator within a dimension is equally weighted.
The 10 indicators used to calculate MPI are:
Education
Years of schooling deprived if no household member has
completed five years of schooling.
Child Enrolment deprived if nay school aged child is not
attending school in years 1-8.
Health

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 Child Mortality deprived if any child has died in the family

Nutrition deprived if any adult or child for whom there is
nutritional information is malnourished
Standard of Living
Electricity deprived if household has no electricity
Sanitation deprived if they do not have an improved toilet or if
their toilet is shared
Drinking Water deprived if household does not have access to
clean drinking water or clean water is more than 30 minutes walk
from home.
Floor deprived if the household has dirt, sand or dung floor.
Cooking fuel deprived if they cook with wood, charcoal or dung.
Assets deprived if the household does not own more than one
radio, TV, telephone, bike, or motorbike.
A person is considered poor if they are deprived in at least 30% of the
weighted indicators. The intensity of poverty denotes the proportion
of indicators in which they are deprived.
BOTTOM OF THE PYRAMID
In economics, the bottom of the pyramid is the largest, but poorest
socio-economic group. In global terms, this is the 2.5 billion people who
live on less than $2.5 per day. The phrase bottom of the pyramid is
used in particular by people developing new models of doing business
that deliberately target that demographic, often using new technology.
This field is also often referred to as the base of the pyramid.
The phrase bottom of the pyramid was first used by U.S. president
Franklin D. Roosevelt in his April 7, 1932 radio address The Forgotten
Man. The more current usage refers to the billions of people living on
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less than $2 per day, as first defined in 1998 by Professors C.K. Prahalad
and Stuart L. Hart. It was subsequently expanded upon by both in their
books: The Fortune at the Bottom of the pyramid by Prahalad in 2004
and Capitalism at the crossroads by Hart in 2005.
BELOW POVERTY LINE
Below poverty line is an economic benchmark and poverty threshold
used by the government of India to indicate economic disadvantage and
to identify the individuals and households in need of government
assistance and aid. It is determined using various parameters which vary
from state to state and within states.
Criterias are different for rural and urban areas. In its Tenth Five year
plan, the degree of deprivation is measured with the help of parameters
with scores given from 0-4, with 13 parameters. Families with 17 marks
or less (formerly 15 marks or less) out of 52 marks have been classified
as BPL.
In its Tenth Five year plan(2002-2007) survey, BPL for rural areas was
based on the degree of deprivation in respect of 13 parameters, with
scores from 0-4: land holding, type of house, clothing, food security,
sanitation, consumer durables, literacy status, labor force, means of
livelihood, status of children, type of indebtedness, reasons for
migration, etc.
The Planning commission fixed an upper limit of 3.26 lakh for rural
BPL families on the basis of simple survey. Accordingly families having
less than 15 marks out of 52 marks have been classified as BPL and their
number works out to 3.18 lakh.
The poverty line was originally fixed in terms of income/food
requirement in 1978. It was stipulated that the calorie standard for a
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typical individual in rural areas was 2400 calorie and was 2100 calorie
in urban areas. Then the cost of grain (about 650 grams) that fulfill this
normative standard was calculated. This cost was the poverty line. In
1978, it was Rs. 61.80 per person per month for rural areas and Rs.
71.30 for urban areas. Since then the Planning Commission calculates
the poverty line every year adjusting for inflation.

POVERTY IN INDIA
The HRD 2010 measures poverty in terms of a new parameter , namely
multidimensional poverty index (MPI), which replaced the human
poverty index (HPI) used since 1997. The MPI indicates the share of the
population that is multidimensionally poor adjusted by the intensity of
deprivation in terms of living standard, health and education.
According to this parameter, India with a poverty index of 0.296 and
poverty ratios of 41.6 percent (in terms of PPP $1.25 a day) and 28.6 per
cent (national poverty line) is not favourably placed when compared
with countries like China and Sri Lanka.
In fact, the difference in population below the poverty line (BPL) widens
substantially in case of India when this indicator is used instead of the
national poverty line indicator, while for other countries, there is less of
a difference and in some cases even a fall.
National poverty estimates (% below poverty line) (1993 2012)
Rural

Urban

Total

1993 94

50.1

31.8

45.3

2004 05

41.8

25.7

37.2

Year

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2009 10

33.8

20.9

29.8

2011 12

25.7

13.7

21.9

Source: Press Note on Poverty Estimates, 2011 12, Planning

Commission; Report of the Expert Group to Review the Methodology for
Estimation of Poverty (2009) Planning Commission; PRS.

Two committees under the chairmanship of Prof. Suresh D. Tendulakar

and Dr. N.C. Saxena have submitted their reports on methodology for
estimation of poverty and methodology for conducting BPL census in
rural areas, respectively. Further, an expert Group under the
chairmanship of Prof. S.R. Hasim has been set up to recommend
methodology for identification of BPL families in urban areas.
LAKDAWALA COMMITTEE (1993)
In 1993, an expert group constituted to review methodology for poverty
estimation, chaired by DT Lakdawala, made the following suggestions:
(i) consumption expenditure should be calculated based on calorie
consumption as earlier; (ii) state specific poverty lines should be
constructed and these should be updated using the Consumer Price Index
of Industrial Workers (CPI-IW) in urban areas and Consumer Price
Index of Agricultural Labour (CPI-AL) in rural areas; and (iii)
discontinuation of scaling of poverty estimates based on National
Accounts Statistics. This assumes that the basket of goods and services
used to calculate CPI-IW and CPI-AL reflect the consumption patterns
of the poor.

TENDULKAR COMMITTEE
In 2005, another expert group to review methodology for poverty
estimation, chaired by Suresh Tendulkar, was constituted by the
Planning Commission to address the following three shortcomings of the
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previous methods: (i) consumption patterns were linked to the 1973-74

poverty line baskets (PLBs) of goods and services, whereas there were
significant changes in the consumption patterns of the poor since that
time, which were not reflected in the poverty estimates; (ii) there were
issues with the adjustment of prices for inflation, both spatially (across
regions) and temporally (across time); and (iii) earlier poverty lines
assumed that health and education would be provided by the State and
formulated poverty lines accordingly.
It recommended four major changes: (i) a shift away from calorie
consumption based poverty estimation; (ii) a uniform poverty line basket
(PLB) across rural and urban India; (iii) a change in the price adjustment
procedure to correct spatial and temporal issues with price adjustment;
and (iv) incorporation of private expenditure on health and education
while estimating poverty. The Committee recommended using Mixed
Reference Period (MRP) based estimates, as opposed to Uniform
Reference Period (URP) based estimates that were used in earlier
methods for estimating poverty.
It based its calculations on the consumption of the following items:
cereal, pulses, milk, edible oil, non-vegetarian items, vegetables, fresh
fruits, dry fruits, sugar, salt & spices, other food, intoxicants, fuel,
clothing, footwear, education, medical (non-institutional and
institutional), entertainment, personal & toilet goods, other goods, other
services and durables.
The Committee computed new poverty lines for rural and urban areas of
each state. To do this, it used data on value and quantity consumed of
the items mentioned above by the population that was classified as poor
by the previous urban poverty line. It concluded that the all India
poverty line was Rs 446.68 per capita per month in rural areas and Rs
578.80 per capita per month in urban areas in 2004-05. The following
table outlines the manner in which the percentage of population below
the poverty line changed after the application of the Tendulkar
Committees methodology.

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Percentage of population below poverty line calculated by the

Lakdawala Committee and the Tendulkar Committee for the year
2004-05
Committee

Rural

Urban

Total

28.3
25.7
27.5
Lakdawala
Committee
41.8
27.5
37.2
Tendulkar
Committee
Source: Report of the Expert Group on Estimation of Proportion and
Number of Poor, 1993, Perspective Planning Division, Planning
Commission; Report of the Expert Group to Review the Methodology for
Estimation of Poverty, 2009, Planning Commission; PRS
The Committee also recommended a new method of updating poverty
lines, adjusting for changes in prices and patterns of consumption, using
the consumption basket of people close to the poverty line. Thus, the
estimates released in 2009-10 and 2011-12 use this method instead of
using indices derived from the CPI-AL for rural areas and CPI-IW for
urban areas as was done earlier. Table 5 outlines the poverty lines
computed using the Tendulkar Committee methodology for the years
2004-05, 2009-10 and 2011-12.

National poverty lines (in Rs per capita per month) for the years
2004-05, 2009-10 and 2011-12
Year

Rural

Urban

2004-05

446.7

578.8

2009-10

672.8

859.6

2011-12

816.0

1000.0

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Source: Report of the Expert Group to Review the Methodology for

Estimation of Poverty (2009) Planning Commission; Poverty Estimates
2009-10 and Poverty Estimates 2011-12, Planning Commission; PRS
RANGARAJAN COMMITTEE
In 2012, the Planning Commission constituted a new expert panel on
poverty estimation, chaired by C. Rangarajan with the following key
objectives: (i) to provide an alternate method to estimate poverty levels
and examine whether poverty lines should be fixed solely in terms of a
consumption basket or if other criteria are also relevant; (ii) to examine
divergence between the consumption estimates based on the NSSO
methodology and those emerging from the National Accounts
aggregates; (iii) to review international poverty estimation methods and
indicate whether based on these, a particular method for empirical
poverty estimation can be developed in India, and (iv) to recommend
how these estimates of poverty can be linked to eligibility and
entitlements under the various schemes of the Government of India. The
Committee is expected to submit its report by 2014.
[1] While private expenditure on education and health was covered in
the base year 1973-74, no account was taken of either the increase in the
proportion of these in total expenditure over time or of their proper
representation in available price indices.
[2] Under the URP method, respondents are asked to detail consumption
over the previous 30 days; whereas under the MRP method five lowfrequency items (clothing, footwear, durables, education and
institutional health expenditure) are surveyed over the previous 365
days, and all other items over the previous 30 days.

REFERENCES: 1.Press Notes on Poverty Estimates (Government of

India)
2. www.prsindia.org,
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3. Wikipedia
Page 44

TITLE: WHITE MONEY, BLACK MONEY AND DIRTY

MONEY
By Mr. Keshava Murthy, Subject Matter Expert- Trade Finance,
BMSB

The recent debate over Corruption and Money hoarded in secret

accounts of Swiss Banks has made it necessary to take a look at different
colors
of
Money.
What is the color of Money? It may be Greenback as US dollar is called
and well known. It may be Red back as an Indian 20 rupee note is. But
any Money can be broadly classified into three categories; White, Black
and
Dirty.
This classification arises from two important factors - Whether the
money is accounted for? And whether the money is obtained by Legal
means? Or in other words, whether the Money attracts Civil action or
Criminal
action
by
competent
authority?
Any money generated by legitimate economic activity or earned by
selling goods or services etc. and also properly accounted and reported
to the respective authorities is White Money. Or Simply called money,
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as nobody refers to it as White Money. This is the money that is properly

accounted in the books of accounts of the holder and duly declared to the
respective authorities like Income Tax in India and Bureau of internal
Revenue in France or IRS in USA etc. Similarly, amounts declared to
Border Security authorities when carried to another sovereign country or
territory. Nothing to hide. Any person or organization holding such
money need not be afraid of either civil action or criminal action from
any authority. This is the expectation of any civilized and law abiding
society.
Money generated by legitimate economic activity or selling of goods
and services etc., but not accounted in the books of accounts of the
holder and withheld from reporting to the competent authority like
Income tax or IRS is called Black Money. The Mens Rea (Mens Rea in
Latin means "Guilty of Mind") here is to withhold payment of
prescribed tax to the Government and increase one's income or wealth to
that extent. Non-payment of prescribed taxes is an offence under the Tax
laws of any country and attracts civil liability in the form of demand
made for payment of amount of tax evaded and also an additional
amount levied as fine or penalty. However, persistent or repeated
violation of declaring the income or wealth properly may also lead to
criminal liability as per the laws of respective countries. However, it
should be appreciated that such provisions are basically to deter the
citizens from concealment of income, but not a revenue raising measure
as
with levy
of
regular
taxes.
Money generated by illegal activity per se is Dirty Money. Examples of
such money can be money generated by Drug peddling, Arms dealing
(excluding dealing in arms as per license obtained from an authority
established by law like Fire Arms Control Authority), Bribe Money,
funds raised for terrorist activities etc. In creating or dealing with Dirty
money, law of the land are violated at every stage and each of such
actions at every stage attracts criminal liability and punishable as a
criminal offence. Persons or Organizations generating or dealing in such
Money have to be in perennial fear of law enforcement authorities.
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Holders of Dirty Money make efforts to convert such money into White
money, but it is not a simple issue. Holders of Black Money may declare
the quantum of concealed income or wealth well before detection by the
competent authority and get away from the sin by paying the prescribed
taxes and penalty and breathe easy. Not so in the case of Dirty Money.
Just as dirty clothes are to be laundered and changed to clean clothes for
re-use, Dirty Money requires laundering and hence the term "Money
Laundering". Money laundering means disguising illegal sources of
money so that it would appear having received from legal sources. By
using the process of Money Laundering, taint attached to such money is
sought to be removed so that the money can be utilized like legal money.
Methods used for "Money Laundering" make an interesting study. There
are many methods of Money Laundering but all of them consist of three
major steps. The first step is called Structuring or Placement which
involves introducing Dirty Money into financial system by some method
or combinations of various methods explained below. The second step is
to carry out complex financial transactions in order to camouflage the
illegal sources. The third step is to retrieve the money and acquire
wealth generated from such transactions. The second and third step
involves transfer of funds to different accounts in a series of transactions
so that tracing of the source becomes almost impossible.
Some of the interesting methods adopted for Money Laundering are as
under:

Smuggling of bulk amounts in cash to another jurisdiction or

country or a country with higher secrecy laws.

Purchasing bearer instruments/securities in small amounts and later

depositing them elsewhere again in small amounts.

Breaking funds into small lots of deposits (below reporting levels)

to defeat the provisions of Anti Money Laundering reporting.

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Transfer of money to shell companies or entities in Tax havens like

Mauritius, Bahamas, Cayman islands, Liechtenstein etc.

Carrying on cash intensive business and adding illegal money to

increase volume.

Over invoicing goods or services and meeting the extra charged

through illegal money.

Converting Dirty money to white money by using Casinos.

It is interesting to note that cash intensive business can be used for

generating black money as well as Money Laundering. Under reporting
of proceeds received by sale of goods results in unaccounted or Black
Money. Over reporting of receipts and adding illegal money to meet the
deficit becomes Money Laundering. Similarly, under invoicing and
receiving the difference in value overseas or in another territory creates
black money whereas over invoicing and meeting the deficit through
dirty money results in Money Laundering.

Conversions through Casinos and Real Estate makes interesting study. A

person having Dirty Money can go to a Casino and buy chips or gamble
using it and then seek refund of the remaining chips or credit. The
payment for such amounts can be obtained by means of a cheque and the
same can be later deposited in a bank account as genuine winnings from
gambling. Purchase of Real Estate with part of illegal money and later
realizing the amount by sale of Real Estate also provides a source for
Money Laundering.
An inter-governmental organization by name FATF (The Financial
Action Task Force) or GAFF (Groupe d action Financiere - in French)
has been set up as early as in 1989 as a part of G-7 countries initiative
for the purpose of developing policies to combat Money Laundering and
terrorist financing. The FAFT functions from the secretariat of OECD
(Organization for Economic Co-operation and Development)
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headquarters in Paris, France. One of the directions given by the FAFT

to all Commercial Banks is to report any suspicious transaction as well
as big transactions beyond a cut-off limit to the designated authority
(usually a cell in the Central Bank of the country like RBI in India or
FED in USA). Once the transaction is reported, the designated authority
takes up the next stages of tracing and monitoring the money. AntiMoney Laundering Acts have been enacted by many governments.
Money laundering has come to sharp focus after 9/11 terrorist attacks on
World Trade Centre in New York, USA. There is a close connection
between Dirty Money and terrorist activities even though Money
Laundering has much wider ramifications than terrorism alone. FAFT
does not give any estimate of Money Laundering and admits that it is
impossible to estimate it. However, IMF estimates it to be 2% to 5% of
worldwide global economy, an estimate which could be disputed as
definite methodology for estimating the same are not available due to the
very nature of the money involved. However, it can be safely assumed
that the volumes of Money Laundered is an undisputed threat to World
economy.
Another term used in dealing with Money is Hawala. Hawala is an
informal value transfer system based on a huge networks of brokers and
is over 1000 years old. It is said that the hawala system was used in
Middle East and parts of India and China as early as 8th Century AD.
Hawala by itself is not illegal unless it is banned by the governmental
authorities. It is used many times to defeat the payment of commission
to banks. In this system money is paid to a hawala operator in one place
and his counterpart pays the equivalent value in another place. There
will be a series of such transactions and the two hawala operators settle
the difference between the sum of transactions over a period of time in a
mutually acceptable manner. This method is attractive due to its simple
nature and no paper work involved, especially for small amounts and for
illiterate persons due to avoidance of regulations. But growth of a strong
formal banking system and regulators insistence for routing all financial
transactions through approved banking channels has rendered hawala
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system now being used mostly for illegal transfer of funds, by defeating
provisions of various laws.
In a nutshell the nut is in the shell - if you want peace of mind have only
one type of Money. The Money or (White) Money. Earn legally, account
properly and pay your due taxes. And be Happy!

Written By Asst. Prof. Bikramaditya Ghosh (Editor)

Economic Update

Crude Oil price steadily went up to 122 USD per 1 Barrel. Also, 1
USD= 66 INR, that means dual loss has made the way for the
Government. However some respite came to Government as the US
10 Year Benchmark moved in to 2.85% zone. So, the investments
That GOI made are paying them handsome dividends. Equities are
reacting sharply & Market Volume is taking a beating along with
Market width.
Non Deliverable Forwards or NDFs are speculating rather than
hedging.

NDFs are commonly quoted for time periods of one month up to one
year, and are normally quoted and settled in U.S. dollars. They have
become a popular instrument for corporations seeking to hedge
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exposure to foreign currencies that are not internationally traded or

partially convertible in nature.

10 Year G Secs in Indian market is trading around 8.55% with 1

Year rates hovering around 10.75%. Yield Curve is still sharply
inverse in nature for almost two months now. Interest Rate driven
sectors such as Realty, Auto, and NBFCs & Banks continue to
disappoint. Their shrinking margins are not indicating any chance
of revival in current Quarter.
RBI, the Apex Bank in India is still selling Dollars for Importers
through the State run Banks. The 1 Year Forward Earning of S&P
BSE Sensex is hovering around sub 14 zone. This clearly indicates
that market has gone in to the oversold zone. But where the
Technical Analysis stops, behavioral effect comes in to the picture.

Current 1D 1W 1M 3M 1Y
1-Year 10.36 -35.7 32 59 300 212
2-Year 9.70 -47.0 8 37 236 145
5-Year 9.06 -21.1 17 23 172 83
10-Year 8.79 -20.2 18 25 142 48
15-Year 9.01 -13.8 23 36 158 58
20-Year 9.15 -11.8 31 47 167 62
30-Year 9.18 -13.4 29 43 169 53
10Y Benchmark 8.48 -26.6 -31 -25 105 24
10Y-5Y Spread* -59 -57 -6 -3 11 1
Fin Connect

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Change Over (Basis Points)

*Difference between 7.16% 2023 and 7.28% 2019 in bps for all the
periods.
If we give a close look at the trading of the G Secs as on 2nd
September, we find that for the first time since 15th July 2 Year G
Sec segment has come down to a level of sub 10% (By 47 BPS). One
Year Yield too has crushed well by 35 BPS.
Short end of the curve will come down now.
This confirms trend reversals in effect of MSF hike of 200BPS on
15th July.
However all the segments across the Yield curve it has been spotted
that the trend is steadily down. This confirms even at the real long
end such as 30Y G Secs too.

Thank You

Fin Connect

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