Should we Invest in Gold Monetisation Scheme(GMS)?.

Dr Sankar Thappa

 In India Gold has a specific place in the society. Gold is not considered simply as an ornament only but it is considered as a symbol of purchase on religious/cultural occasion, love, affection, respect, sentiments etc. Indian people are emotionally attached to gold and also consider it traditionally as a safe investment option making it the mostly demanded product in India.   But India does not have its own Gold mines or reserves to meet the demand for gold. The total consumer demand for gold in India in 2014 was ~843 tonnes(approx 26%) as against the world’s total consumer demand of ~3,217 tonnes, making India the largest demand center in the world surpassing China. 80-90 % of the requirement is covered by import. Import of gold in large quantity  is the main reason for India’s Current Account Deficit(CAD).  In FY13,CAD increased to US$ 87.8 billion (4.7% of the GDP). According to the Ministry of Finance in its Annual Budget 2015 there is over 20,000 tonnes (worth over Rs.60 lakh crores) of domestic holding of gold, lying as an ‘unproductive asset’ which is neither traded nor monetised. In this context, an idea that has gained to monetize the gold lying idle with the households and other entities within India and make it available for re-use. To deal with the  CAD and  large stock of unutilized gold, On 9th September, 2015, the Government of India gave its approval for the introduction of the Gold Monetization Schemes (GMS).

Monetization of Gold

In general monetization refers to a process of converting a commodity into domestic currency. Gold Monetization refers to conversion of the value of gold into rupee. Gold Monetization Scheme refers to a process wherein a depositor deposits gold (jewellery, coin, etc.) with a bank which is then lent by the bank to its borrowers (say jewellery makers), after melting into gold bars. This is similar to a savings bank account, but carried out in terms of gold instead of in rupee. 

Mechanism of Gold Monetisation Scheme(GMS):

We   can go to a bank (e.g. SBI) and deposit our physical gold in the Metal Account(Gold Savings Account). Banks will assess the purity and value of our gold. Then Bank will credit our metal account with points. These points represent the value of our physical gold. We will get fixed interest rate somewhere between 2-3% on deposits but in gold unit. The term of deposit can be made for a short-term period of 1-3 years ; a medium-term period of 5-7 years and a long-term period, of 12-15 years . At the time of redemption we can take back either in gold or cash. But the option should be decided at the time of deposit and once decided cannot changed. Minimum quantity required for the scheme is 30gms.

The banks accepting such deposits may sell or lend the gold accepted under short term tenure to Metals and Minerals Trading Corporation of India (MMTC) for minting India Gold Coins (IGC) and to jewellers, or sell it to other designated banks participating in GMS. The gold deposited under medium and long term tenure will be auctioned by MMTC or any other agency authorised by the Central Government and the sale proceeds are credited to the Central Government’s account with the Reserve Bank.

Benefits of GMS:

Governments:

·        GMS will help in mobilizing the large amount of gold lying idle with households, trusts and various institutions in India and benefit the Indian gems and jewellery sector which is a major contributor to India's exports. In fiscal year 2014-15, gems and jewellery constituted 12 per cent of India's total exports.

·        The mobilized gold will also supplement RBI’s gold reserves.

·        It will help in reducing the Government’s cost of borrowing.

·        It will reduce the country's dependence on the import of gold.

Banks:

GMS will be another source of income for the bank. The bank will be free to set the rate of interest according to them. As the bank could be able to make the gold coins and sell to the public or they could give to the jewelers and earn the high rate of interest.

Industry:

GMS will help to reduce the import of gold as it will mobilize the idle gold lying with citizens and bring them in circulation. Gold collected by banks will be made available to jewellers as raw material in the form of loan. This will reduce import of gold by jewelers resulting lowering the  current account deficit.

Depositor/Investor:

1.      GMS will be another investment option for individuals. They can assess the purity of the gold that they purchased and of the gold that has been passed to them generation after generation.

2.      The GMS earns interest for the jewellery lying in lockers/household/temple etc. Broken jewellery or jewellery out of fashion can earn interest in gold. Coins and bars can earn interest apart from the appreciation of value

3.      Gold will be securely maintained by the bank.

4.      Redemption is possible in physical gold or rupees, hence giving further earning opportunity.

5.      Individuals can get loan against the scheme they own as per RBI regulations.

6.      Investors can be protected against volatility in gold prices if they have invested in the scheme.

7.      Earnings are exempt from capital gains tax, wealth tax and income tax. There will be no capital gains tax on the appreciation in the value of gold deposited, or on the interest earned on it.

Challenges :

1.      People might not want to melt jewellery because of high emotional attachment to their jewellery  as all jewellery to be deposited has to be tested and melted. The recasting of the gold jewellery significantly decrease the value of the ornament resulting low deposit of jewellery.

2.      Lack of expertise in assessing purity of gold will compel banks to use the services from the purity verification centre. This may increase the transaction cost.

3.    Storage and transportation of gold might be a challenge for the banks. It might increase the handling cost.

4.      Fulfilling the KYC(know your customer) norms will be a big challenge for the people. Many of the people may not have bills on purchase of gold. People might hesitate in depositing gold under GMS.

5.       If gold price rises a lot, many people might want to redeem the investment leading to

burden of repayment on the banks.

6.    People may not be interested deposit gold for long term because of price risk involved.

The success of the scheme would depend on the degree of people are convinced. The Government and the banks have to put a great effort together to convince the people to make the GMS successful.

Small Bank- A New Hope for Unbanked People

A bank is an institution which is being authorized by the government to accept the deposits from public and lend money. For the common people bank    means commercial bank.  Primary banking functions of the commercial banks include:

1.      Acceptance of deposits  2. Advancing loans 3. Creation of credit 4. Clearing of cheques  5. Financing foreign trade 6. Remittance of funds

Scheduled Commercial Banks in India are categorised into five different groups according to their ownership and / or nature of operation. These bank groups are:

(i) State Bank of India and its Associates,  (ii) Nationalised Banks, (iii) Regional Rural Banks, (iv) Foreign Banks and (v) Other Indian Scheduled Commercial Banks (in the private sector).

At present in India the Commercial banks comprise 27 public sector banks, 20 private, 44 foreign, 4 local area banks and 56 Regional Rural Banks.

Along with these existing banks a new feather is going to join in the Indian banking system is Small bank. The banking landscape in the country is set for a big change with the recent ‘in-principle’ approval to ten entities  by the Reserve Bank of India to float small finance banks. Eight out of 10 entities are already operating in the microfinance business, and they are stepping on to start banking operations in the next 18 months.

List of 10 Banks

Sr. No	Approval granted to	Cities
1	Au Financiers (India) Ltd	Jaipur
2	Disha Microfin Private Ltd	Jalandhar
3	Equitas Holdings P Limited	Ahmedabad
4	Equitas Holdings P Limited	Chennai
5	ESAF Microfinance and Investment Private Ltd	Chennai
6	Janalakshmi Financial Services Private Limited	Bengaluru
7	RGVN(North East) Microfinance Private Limited	Guwahati
8	Suryoday Micro Finance Private Ltd	Navi Mumbai
9	Ujjivan Financial Services Private Ltd	Bengaluru
10	Utkarsh Micro Finance Private LTd	Varanasi

Though there is a very high growth in the operation of commercial banking activities all over the country but  these growth  are mostly have been seen in the  urban areas. Still the banking scenario in the rural areas including the north eastern region are not very much satisfactory. A large portion of the population are still out of the reach of the banking services.  Looking into this as a matter of concern and realizing the urgency  the Reserve Bank of India  has started the process of giving permission  to start the small banks in the country.

A  small finance banks can undertake almost all operations of a normal commercial bank but  on a smaller scale. The purpose of the small banks will be to provide a whole suite of basic banking products such as deposits and supply of credit, but in a limited area of operation. It is also expected that the small  bank would try to increase financial inclusion by provision of savings vehicles to under-served and unserved sections of the population. The RBI clearly restricts these banks to operate in low-income segment, by stipulating that 75 per cent of the total credit extended by these banks should be given to borrowers who qualify to be in the priority sector as defined by the central bank. The small bank would  primarily be engaged  in operation concentrating  on micro, small and medium enterprises, unorganized sector entities and the lower end of the retail customer base. The maximum loan size and investment limit exposure to single/group borrowers/issuers would be restricted to 15 per cent of capital funds.  Further, in order to ensure that the bank extends loans primarily to small borrowers, at least 50 per cent of its loan portfolio should constitute loans and advances of upto Rs 25 lakh. For the first three years, 25 per cent of branches should be in unbanked rural areas. As a result the small bank are being  forced to operate among low-income segments and not chase big corporate borrowers. After the initial stabilisation period of five years, and after a review, the RBI may liberalise the scope of activities for Small Banks.

  The new  strategy of banking operation are being  expected to give a major boost towards financial inclusion and credit expansion to unbanked areas.This expectation is based on the reason that out of the 10 entities permitted eight are already in the micro finance sector. So they are well-familiar with the nuances of banking with the poor borrowers.  Till now they were  not allowed to accept deposits and engaged in extending credit after sourcing money from commercial banks. After getting access to banking, these entities can accept public deposits  resulting  into  lower their cost of borrowing and enable them bring down their rate of interest on loans from the current 24-26 per cent to a lower double digit figures.

The north-eastern region which offer a natural habitat for small banks because of under-penetration of formal banking in these regions. Where the majority areas are in hilly region the banking scenario in these regions are very poor would be benefitted by the small bank operation.It is a good news that RGVN which have been working in the region being permitted to operate as small bank. It has a good experience of the region as well as the knowledge of the target group also.

Hope the objective of providing the banking services affordable to unbanked people in the country would be fulfilled by the small bank and would  contribute  towards the growth of the economy in future.

Payment Bank- A New Feather in Indian Banking System.

Dr. Sankar Thappa

As per Section 5(b) of the Banking Regulation Act 1949: “Banking” means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawal by cheque, draft, order or otherwise.”

Scheduled Commercial Banks in India are categorised into five different groups according to their ownership and / or nature of operation. These bank groups are:

(i) State Bank of India and its Associates,  (ii) Nationalised Banks, (iii) Regional Rural Banks, (iv) Foreign Banks and (v) Other Indian Scheduled Commercial Banks (in the private sector).

At present in India the Commercial banks comprise 27 public sector banks, 20 private, 44 foreign, 4 local area banks and 56 Regional Rural Banks.

Along with these existing banks a new feather is going to join in the Indian banking system is Payment bank. The primary objective of setting up of payments banks is to further financial inclusion by providing (i) small savings accounts and (ii) payments / remittance services to migrant labour workforce, low income households, small businesses, other unorganised sector entities and other users, by enabling high volume-low value transactions in deposits and payments / remittance services in a secured technology-driven environment.

The Reserve Bank of India (RBI) recently gave an "in-principle" nod to 11 entities for setting up payment banks. The list of 11 entities is as follows:

1.      Reliance Industries Ltd   2. Aditya Birla Nuvo Ltd   3. Airtel M Commerce Services Ltd. 4. Vodafone m-pesa Ltd   5. Tech Mahindra Ltd    6. Shri Dilip Shantilal Shanghvi ,7. Fino PayTech limited   8.National securities depository limited  9. Vijay Shankar Sharma   10. Department of  Posts 11. Cholamandalam Distribution Services Ltd.

What is a payment bank?

A Payment bank is a type of non-full service niche bank in India. A bank is licensed as a payment bank can only accepts deposits and provides remittances.  It is not allowed for lending activities.

The payments bank will be registered as a public limited company under the Companies Act, 2013, and licensed under Section 22 of the Banking Regulation Act, 1949, with specific licensing conditions restricting its activities mainly to acceptance of demand deposits and provision of payments and remittance services. It will be governed by the provisions of the Banking Regulation Act, 1949; Reserve Bank of India Act, 1934; Foreign Exchange Management Act, 1999; Payment and Settlement Systems Act, 2007; Deposit Insurance and Credit Guarantee Corporation Act, 1961; other relevant Statutes and Directives, Prudential Regulations and other Guidelines/Instructions issued by RBI and other regulators from time to time. The payments bank will be given scheduled bank status once it commences operations, and is found suitable as per Section 42 (6) (a) of the Reserve Bank of India Act, 1934.( RBI, Guidelines)

Background of Payment Bank

In September 2013, the RBI constituted a committee to study ‘Comprehensive financial services for small businesses and low income households’ headed by Dr. Nachiket Mor. The focus of the committee was to recommend innovative solutions to the RBI to accelerate financial inclusion in unbanked and under-banked sections of the society in sustainable and cost effective way.

The committee submitted its report to the RBI report in January 2014. One of the key recommendations of the committee was to introduce specialized banks (‘Payments Bank’) to cater to the lower income groups and small businesses. (Deloitte)

Characteristics:

Status: Payment banks are a non-full service banks, whose main objective is to accelerate financial inclusion.

Name of the Bank: These banks have to use the word 'Payment Bank' in its name which will differentiate it from other banks.

Minimum Capital: They will need to have a minimum paid-up equity capital requirement of Rs 100 crore.

Restriction on Lending: Payment banks aren't allowed to engage into lending activities.

Issue of Debit/Credit Card: While payment banks can issue debit and ATM cards, it is not allowed to issue credit cards to its customers.

Subsidiary: Payment banks cannot form subsidiaries or undertake any non-banking activities.

Promoter Stake: Under payments banks, the stake of a promoter should be minimum 40% for the first five years.

Activities of Payment Bank

The payments bank will be set up as a differentiated bank and shall confine its activities to further the objectives for which it is set up.

i.                    Acceptance of demand deposits, i.e., current deposits, and savings bank deposits from individuals, small businesses and other entities, as permitted. No NRI deposits should be accepted.  payments bank will initially be restricted to holding a maximum balance of Rs. 100,000 per individual customer.

ii.                  Issuance of ATM / Debit Cards. Payments banks, however, cannot issue credit cards.

iii.                Payments and remittance services through various channels including branches, Automated Teller Machines (ATMs), Business Correspondents (BCs) and mobile banking.

iv.                Internet banking - The RBI is also open to payments bank offering Internet banking services.

v.                  Functioning as Business Correspondent (BC) of another bank – A payments bank may choose to become a BC of another bank, subject to the RBI guidelines on BCs.

vi.                As a channel, the payments bank can accept remittances to be sent to or receive remittances from multiple banks under a payment mechanism approved by RBI, such as RTGS / NEFT / IMPS.

vii.              Payments banks will be permitted to handle cross border remittance transactions in the nature of personal payments / remittances on the current account.

viii.            Payments banks can undertake other non-risk sharing simple financial services activities, not requiring any commitment of their own funds, such as distribution of mutual fund.

ix.                The payments bank may undertake utility bill payments etc. on behalf of its customers and general public.

Difference between Payment Bank and Commercial Bank

1) Lending

A payment bank is not allowed to lend, Whereas  commercial banks in India can lend.

2) Maximum Limit deposit

Payment banks can collect deposits upto Rs 1 lakh only. Commercial banks do not have any such restriction.

3) Issue credit cards

Payment banks are cannot  issue credit cards, but they are allowed to issue debit cards. Commercial banks can issue both.

4) Minimum capital

Payment bank  should have a minimum capital of Rs 100 crores. The promoters have to contribute not less than 40 per cent to the capital. Capital of commercial banks is way higher and their balance sheet size is enormous.

5) Foreign holding in payment  banks

The foreign holding in payment banks would follow the same policy as is currently prevalent for FDI in the banking sector at the moment.

6) Distribution of financial products

Payment bank can engage in the distribution of financial products like mutual funds schemes, insurance etc. Commercial banks to can act as intermediaries to serve the needs of financial products of individuals.

Payment bank and North East:

According to CRISIL the east, north-east and central India offer a natural habitat for payments banks because of under-penetration of formal banking in these regions. Eight of 17 states in this geography have a CRISIL Inclusix index score below 40, compared with the all-India average of 50.1 as on March 31, 2013.The index measures financial inclusion on three parameters – branch penetration, deposit penetration and credit penetration. (Crisil press release dt 21st Aug,2015).

Hope the objective of providing the banking services to unbanked people in the country would be fulfilled by the payment bank and would be able to contribute  towards the growth of the economy in future.

How to Save People from Chit fund Companies?

What the investor should do?

• Control your greed: Chit fund companies might promise you to give more return than in usual investment options in general. Do not get attracted to this and avoid this kind of promise and offer always.
• Check always profile and status of the companies: When somebody approach to you for investment and you want to invest in this kind of companies. First get all the details information about the company- registration, licence, approval for the collection of deposit from all concerned authorities like- Reserve Bank of India, SEBI, IRDA, Indian Companies Act etc.
• Be aware : Always have updated knowledge about the happening s in the environment. Get some information about SEBI,IRDA, RBI, Comanies Act, etc which would help you about knowing your rights and investment schemes which are safe for investment decision.

What the media should do?

• The news paper, TV channel  before accepting any advertisement should verify the  profile and status of the companies. Without proper valid documents of the companies they should not publish/telecast any advertisement of the companies. Because it is the responsibility and moral duty of the media to inform the public about these companies background. Secondly they are in better position and equipped to do this as compared to the public themselves. Majority of the public believe and make wrong assumption about the companies when they see big advertisement in the newspaper and the TV channel. 

What the Govt should do?

• The Govt should  make a Special cell for monitoring the activities of financial companies in the state as well as central level which would look after the monitoring activities of the companies in a very micro level. 
• The Govt should make the staff of some department very skilled enough to check the activities of the NBFCs/Chit Fund companies. Specially the Police and the bank staffs. These are two key role players which may have the information about the NBFCs or chit Funds. The police from top to bottom must be in a position to know what is a company, what is a Chit fund company, what is NBFCs, What are the activities could be carried out by the NBFCs, Who are the regulatory authorities, what are the guidelines.
• The Govt should also try to conduct some awareness program at villages, small towns about the investment alternatives . Where should they invest and where should not. 

Role of other parties:

• Anybody who knows anything about the NBFCs or Chit funds  see  that people are being cheated or mislead by the companies in their locality should try to stop the activities by informing the local authorities or media people immediately so that the people could be save from the worst situation.  

AGAIN   FOLLOWING ' PREVENTION IS BETTER THAN CURE'  IF THE ABOVE STEPS ARE CARRIED OUT BY ALL PARTIES OF THE SOCIETY HOPE TO SOME EXTENT WE WOULD BE ABLE TO  SAVE THE PEOPLE FROM THE CHIT FUND COMPANIES.

'BE AWARE  KEEP AWAY THE CHIT FUNDS'

ACCOUNTING FOR NON FINANCE PEOPLE

ACCOUNTING FOR NON FINANCE PEOPLE.

From my teaching experience in MBA program it has been found that the people who are not having commerce background it is a big and tough task to learn accounting. So I have given the following easy steps to learn accounting in a very simple way without any difficulty:

• At the very out set learn the basic terminology which are to be used  in accounting. These terminologies are considered as the letters to learn a language like accounting which is considered as the language of business. e.g. Capital, Assets, Liabilities etc
• After that learn the concepts or principles which are to be followed in recording the transactions or events and presentation of results. e.g. money measurement concept.
• Next  learn the rules to be followed  in recording the transactions in the books of accounts. e.g. Journal, Cash Book, Ledgers

• Learn how to prepare the  financial Statements. e.g . Trading Account, Profit & Loss Account, Balance Sheet.

Follow the link for details of my PPT to learn Accounting:
www.slideshare.net/.../sankarpresentation1accountancy-13762426

STEPS TO BE FOLLOWED IN SELECTING THE RIGHT INSTITUTE FOR MBA

How to select a good institute/university for MBA?

Answer: In my 13+ years experience of teaching in MBA program I have seen that many students failed to make a right choice in selection of institute/university to pursue MBA/PGDM program. Therefore I have thought on this matter and try to find out some precautionary steps to be followed before making any final decision about admission which are as follows:

• Check the profile of the organisation in terms of  Trust/Society. If  Trust/Society check out whether the organisation is being registered properly or not and if yes still the validity is there or not.For this ask for the Registration certificate of the organisation.
• If  affiliated institute check the affiliation extension letter from the respective university batchwise. check whether the batch to which you are going to take admission it is extended or not. Alongwith this check the NOC of the state govt in which state it is operating regarding that particular program.Check the status by visiting the website of the university whether it is affiliated or not.
• Check whether the MBA/PGDM program is being approved by AICTE or not. If the institute is claiming as approved check the approval letter for last five years and the batch for which you are going to take admission. Check the status of the institute by visiting the website of the AICTE ( www.aicte-india.org). When you find this o.k then only be convinced.
• Regarding claim of the placement ask for the list of placement of the students from the institute for last five years and  cross verify 4-5 organisation from the list via email or phone regarding the reliability of the list given to you.
• Always check double if the list contains any public sector organisation like SBI,LICI, etc because some institute claims as placement for the student though this are achieved by the student as a result of their personal efforts.
• Check the list of the Faculties and cross verify 3-4 out of them whether it is true or not. As because many institutes show a long list of faculties with big names but when checked it is found that they are working in some other organisations or they do not know even about it.
• Check all amenities physically claimed by the institutes. Donot believe only in papers

Hope if you follow the above mentioned steps would help you to make a right decision about your career.

BEST OF WISHES ON BEGINNING YOUR  CAREER JOURNEY

Dr Sankar Thappa

JOURNAL OF  RESEARCH  IN  ACCOUNTING & FINANCE.

A bi-annual journal  for publishing  articles, research papers, case studies, Phd thesis(abstract) in the areas of  Accounting and Finance. The contribution could be made by all academician, research scholars, practitioners, corporate CEOs, Top level managers, Policy makers  in the respective areas. There would be no publication fees . It would be totally free of cost.

Editor : Dr Sankar Thappa

Sent yours papers to : sankarbhakta@gmail.com

JOURNAL OF  RESEARCH  IN  BUSINESS AND ECONOMIES.

A bi-annual journal  for publishing  articles, research papers, case studies, Phd thesis(abstract) in the areas of  Business and Economies. The contribution could be made by all academician, research scholars, practitioners, corporate CEOs, Top level managers, Policy makers  in the respective areas. There would be no publication fees . It would be totally free of cost.

Editor : Dr Sankar Thappa
Sent yours papers to : sankarbhakta@gmail.com

JOURNAL OF  RESEARCH  IN  MANAGEMENT.

A bi-annual journal  for publishing  articles, research papers, case studies, Phd thesis(abstract) in the areas of  Management- General Management,Marketing, HR, Strategic Management etc. The contribution could be made by all academician, research scholars, practitioners, corporate CEOs, Top level managers, Policy makers  in the respective areas. There would be no publication fees . It would be totally free of cost.
Editor : Dr Sankar Thappa
Sent yours papers to : sankarbhakta@gmail.com