In his 1997 book, The Innovator’s Dilemma, Harvard professor Clayton M. Christensen coined the term ‘disruptive technology’ to signify new ground-breaking technologies and related concepts that refer to the use of these technologies. As the World stands on the brink of a technological revolution that is fundamentally altering the way everyone lives and works, it’s obvious to observe a complete disruption of various industries and their business models. Financial institutions are no exception. Fintech- an amalgamation of two worlds- finance and technology- involves an evolution of the use of technology in financial services. It locks financial services and technology in a firm embrace. And with this fusion comes both disruption and synergies.
Category: Finance Page 1 of 11
In 2016, as many as 200 regulatory changes were recorded on an average in a day. That translated to over 70,000 changes that needed to be accounted for and complied with; and these were besides the regulations that were already in existence for financial institutions (you’ve probably seen some of them like GDPR, KYC and Basel-III norms). Unsurprisingly, the cost of compliance is high. Not just in the form of penalties to be paid if they fail to comply, but even the cost incurred to ensure compliance. Some of the largest banks in Britain spend £660 million a year on Anti-Money Laundering compliance alone. In spite of this, many banks have had to pay hefty fines to the regulatory bodies in the past. While such a sum is a huge burden for large institutions, it is a question of survival for the smaller ones. And this challenge of regulatory compliance is bound to become more taxing in the wake of the pandemic and the transition to the virtual world. The landscape is changing every day, the regulations are adapting to the unique issues presented by the digital world, and the financial institutions are caught in between.
When it comes to the trading of securities in the financial market, our imagination may restrict us to believe that it’s all about trading of equity with profit and loss dependent upon share price of different companies. However, in practice, a significant portion of the financial market trading is also managed through derivatives. A derivative in the ordinary term refers to any financial security/contract, the value of which is dependent on or derived from an underlying asset/assets (commonly referred to as only “underlying”). It is, therefore, an agreement between two or more parties that is completely dependent upon the underlying asset, the value of which is bound to change over time due to one or several factors. This change in value leads to profit/loss. Currency, commodities, market indexes, stocks, bonds, etc. form the underlying asset. Various types of derivatives that are useful for hedging from loss, risk management, speculation gains, etc. are forwards, futures, swaps and options. This article will be restricted to options.
When researching stocks for investment, stock analysts are always looking at what’s known as beta values, in order to measure the risk associated with the stocks. Beta measures the volatility of a stock compared with the volatility of the market as a whole i.e. it shows how often a stock’s price appears to fluctuate up and down with regard to other stocks. A high beta means that the stock price is more sensitive to market news and information and will move faster than a low beta stock. In general, high beta means high volatility or risk, but also offers the possibility of high returns if the stock turns out to be a good investment.
India is currently facing one of its worst NPA (Non-Performing Assets) crises in history. Due in equal measure, to bad policy choices and the pandemic, NPAs are expected to be 12.5 % of all bank loans by March next year. To put the scale of the crisis into perspective, the global average NPA to total loans ratio is about 3 percent. NPA ratio in countries like Australia, UK and Republic of Korea is less than 1 percent. The situation is so adverse that just a couple of years ago, India’s 4th largest private bank, Yes Bank, almost collapsed. But while the current crisis has been heavily documented, the NPA crisis from 1997 to 2002 has not received much attention by scholars and politicians alike. It is important to dissect the causes and effects of that crisis to effectively address the current one. This article will attempt to give a general outline of what transpired during those 5 years.
Every now and then there is a headline in newspapers “XYZ acquired some percentage of ABC company” or “XYZ company to get merged into ABC company”. The question is why do companies take such a step and how it can impact the consumers. To start with, let us first understand the difference between acquisition and merger.
Suppose a farmer grows tomatoes and enters into a contract to supply 5000 kg of tomatoes to the ketchup factory which is situated far away. The ketchup factory arranges to pick up the tomatoes from the farm and transports them to the factory directly. The tomatoes are supplied at the market prices prevailing on the date of supply. Having said that, both the farmer and the ketchup factory has to face the price risk as neither of them was sure about the prevailing market prices on the day of supply. This is where a basic forward contract comes into picture.
Merger refers to collaboration of two or more business entities to form a larger one with common ownership. Mergers of banks began in India in the 1960s thereby reducing the number from 27 in 2017 to 12 till date. On 30th August 2019, our Honourable Finance Minister, Smt. Nirmala Sitharaman announced the merger of 10 separate Public Sector Banks (PSBs)into four entities which came into effect from April 1,2020. Oriental Bank of Commerce (OBC) and United Bank of India (UBI) merged with the Punjab National Bank (PNB), making PNB the second-largest Public Sector Bank of India with ₹17.95 lakh crore business and 11,437 branches.
Second merger is of Canara Bank & Syndicate Bank, forming Canara bank the fourth largest public sector bank with ₹15.20 lakh crore business and a branch network of 10,324. Andhra Bank and Corporation Bank merged into Union Bank of India forging Union Bank,the India’s fifth largest public sector bank with ₹14.59 lakh crore business and 9,609 branches. In the fourth merger, the Indian bank would be merged with the Allahabad Bank, declaring Allahabad bank the 7th largest Public Sector Bank of India with Rs.8.08 lac crore business and the number of branches would be 6,104.