Citizens' Issues
al-Qaida terrorist held in Bengaluru
New Delhi : A suspected member of the terrorist outfit al-Qaida has been arrested by Delhi Police in Begaluru, sources said here early on Friday.
 
The alleged member of the terror group, identified as Maulana Anzar Shah, was arrested on Wednesday night, Police sources said. 
 
According to sources, he was plotting to carry out a series of terror strikes in the country. "The aim of the group was to attack some prominent leaders along with the crowded and tourist places." 
 
Shah has been brought to Delhi on transit remand and would be produced at the Patiala House court here on Friday.
 
He was arrested by the anti-terrorist Special Cell wing of Delhi Police in its ongoing operation against al-Qaida in the Indian sub-continent (AQIS). 
 
The Special Cell had in December last year arrested two AQIS operatives Zafar Masood and Abdul Rehman. Reportedly, Shah's name popped up during their interrogation.
 
Another terrorist in custody, Mohammed Asif, the recruitment and training head of AQIS, had also confessed to meeting Shah at a religious congregation in Bengaluru, sources said.
 
According to sources, Shah had reactivated himself to provide logistical support when contacted by the AQIS operatives.
 
The Special Cell also has the details of financial transaction between them and Shah, the source added.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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P-2-P Model of lending
Peer-to-peer lending is the next big thing in the financial intermediation space
 
Technology is driving the way the world is functioning, whether it is socialising on virtual platforms, finding love, to buying or selling on a virtual marketplace or financial intermediation. And now technology is all set to chip away at certain segments of banlking as well. One such idea is the online market place for financial intermediation where the borrowers and lenders come together to transact. Lending Club is one of the largest of such virtual marketplaces existing today and in this article, we will be discussing briefly on how the business operates. It is, what is called, a peer-to-peer (P2P) model. 
 
Lending Club, was established in 2007 with the intent to make credit more accessible and is currently the world’s largest P-2-P platform. The platform has over two billion borrowers accessing finance from lenders across globe. The platform facilitated over $7.6 billion of loan in a year, which though is probably 1% of lending undertaken by HSBC in a year, but the sheer volumes indicate that the lenders and borrowers are moving towards dispelling the need for physical presence of the financial institution to facilitate lending relationships.  
 
Lending Model
 
The Lending Club works through a technological platform which intermediates between the borrowers and lenders i.e. it is a market place, where borrowers raise loans from lenders without a physical interface.
 
Lending is intermediated by the platform in the following way:
 
a. The borrowers raise a requisition on the platform for funding requirement. 
b. Lending Club then evaluates the credentials of the borrower and assigns a credit score, grades the borrower for determining the interest rates chargeable to the borrower.
c. Once the borrower’s application is approved, the application is made open for the lenders to express interest in lending to the borrower. 
d. Once lenders’ commitment is received against the loan amount requested by the borrower, Lending Club approaches the bank empanelled with the platform to disburse the amount to the borrower. 
e. Thereafter, Lending Club acquires the loan from the originating bank from the proceeds received from the lenders. 
f. The lenders are issued tradable notes/ certificates representing the exposure of the lender against the borrower.
 
The dynamics of lending through the platform are explained with the diagram below:
 
Lending club, P2P, P2p Lending
Essentials of the platform
 
While the model seems simple to execute, there are key essentials to the platform functioning and are as follows:
 
a. The platform does not invest in any of the borrower accounts. This is to ensure that there is no conflict of interest in any of the borrower accounts that are evaluated for the lenders to take a bid on the exposure;
b. Lending Club only entertains borrower application which meets a requisite FICO score threshold. This is to ensure that too granular loans are not entertained on the platform.
c. Most loans that are open to all lenders to bid on, are standardised loans and run under the standard loan program. 
i. The standard loan programs are of tenure between 3-5 years. 
d. Unconventional loans are not hosted on the platform for all investors. This is to ensure that the general investors who may not have the wherewithal to underwrite a non-standard/ unconventional loan do not take an exposure on such loans merely depending on the scoring/ grading provided by the platform. 
i. The platform calls these loans as custom loan programs and is hosted only for qualified investors only.
ii. The custom program loans include small business loans, super prime consumer loans, education and patient finance loans and personal loans that do not meet the requirements of standard program loans.
e. The model adopted by Lending Club is nothing but securitisation, where the lenders are holding certificates/ notes representing interest in a loan originated by a bank. 
f. Lending Club also indemnifies the lenders against the basic underwriting that it undertakes for any borrower account. This is most critical for a platform to provide considering the lenders are depending on the scoring/ grading offered by the platform, while making a bid on a particular borrower or loan amount. 
g. The repayments from the borrower accounts are not commingled. There are separate bank accounts maintained for inflow and outflow of funds from the borrowers. This is necessary to ensure that the platform is not seen as a vehicle for pooling in of funds.
 
Each of these essential features are critical for any platform to gather the scale it desires and without which the entire purpose of a virtual platform gets defeated.
 
How does the platform earn?
 
The platform earns by way of: 
 
i. transaction fees at the time of origination of loans; 
ii. earns servicing fees for servicing the loans on an on-going basis; and
iii. earns management fees for managing the borrower accounts. 
 
The transaction fees is payable by the bank to the platform. The servicing fees and management fees is paid by the lenders and the borrowers respectively on the platform. 
 
The transaction fee ranges from 1% to 6% of the initial principal amount of a loan. The servicing fee compensates for the costs that the company incurs in servicing the related loan, including managing payments from borrowers, payments to investors and maintaining investor’s account portfolios and may be around 1% of the amount received from the borrowers.
 
Secondary market facilitation
 
One of the key aspects of the platform is to originate the loans; the other key essential to the platform is facilitating liquidity on the investments. 
 
Issuance of notes
 
The lenders invest in the loans by way of notes/ certificates acknowledging their exposure on a borrower account and the extent of exposure in the borrower’s loan. The platform facilitates buying and selling of such notes to ensure that the lenders have the desired liquidity to exit or acquire exposure in the loan/ borrower any time during the subsistence of the loan. This however is done directly through the platform. However, the buying and selling of the certificates is done through the subsidiary of Lending Club. 
 
Notes are issued both under the Standard Loan Program and under the Custom Loan Program. Typically the issuance, sale and purchase of the notes/ certificates are guided by the investment agreement entered by the lender/ investor with the platform at the time of listing itself on the platform. 
 
Whole loan purchase
 
Certain institutions such as banks and financial institutions seek to purchase the entire loan. To meet this requirement the platform sells the entire loan to these investors. In connection with these sales, the investors own the interest, title and rights on these loans. The platform establishes the investors account and also determines any limitation on the amount of investment that can be made.
 
Identifying risks of running the platform
 
The virtual market place for financial intermediation is certainly the thing for the future. However the model is susceptible to several risks. From scalability of the model, to tracking various borrowers and lenders on boarding the platforms to managing several accounts – the risks factors are humungous. 
 
Some of the risks factors critical to any P2P platform are as below:
 
a. No peers or history available to rely on. Considering the fact that P2P is an innovation and by product of technological advancements, there are no precedents to learn from or rely upon for doing business. Lending Club and the peers are setting up business models to be emulated by the subsequent entrants in the market.  
b. The larger the number of borrowers and lenders on platform, the larger is the success of the platform. Hence, the success of the platform is dependent on number of borrowers and lenders using the platform. 
c. For platforms following the Lending Club model, empanelment with banks and appropriate documentation will be a constant challenge and risk for the platform. 
d. Data privacy is of utmost significance. The information provided by the borrowers and the lenders needs to be well protected by the platform. 
e. Simplicity of the product offering and regular functioning of the platform are also risks that the platform needs to tackle. 
 
(Nidhi Bothra is executive vice president at Vinod Kothari Consultants Pvt Ltd. Kanishka Jain also works at the same firm)
 

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Nifty, Sensex may put in a weak bounce – Thursday closing report
Nifty continues to remain weak, even though it may put in an oversold bounce later on Friday
 
We had mentioned in Wednesday’s closing report that Nifty, Sensex rallies may be short-lived and that Nifty may be headed below 7,700. The Indian stock markets suffered a sharp correction due to negative news from China and the major indices fell by over 2% from Wednesday’s close. The trends of the major indices during Thursday’s trading are given in the table below:
 
 
Panic selling triggered by a plunge in Chinese markets, coupled with rising geo-political tensions and upcoming US macro-economic data, dented Indian equity markets on Thursday. This led to the S & P BSE Sensex receding close to its 52-week low on a closing basis. The bellwether indices opened on a negative note following a rout in the Asian markets which was triggered by accelerated devaluation of the Chinese yuan, disappointing domestic macro-data and global uncertainties. Commodity prices, too, plunged as the economy of the world's largest consumer namely China struggled. The benchmark Shanghai Composite Index declined 7% within just 29 minutes, which led to a halt in trading, as the circuit breaker mechanism was triggered. The Chinese markets' fall impacted other global bellwethers, including the Japanese and Australian indices, which reacted negatively.
 
A weak rupee and increase in selling activity by foreign portfolio investors (FPIs) also subdued sentiment. According to data with stock exchanges, FPIs had divested Rs242.48 crore on Wednesday. Market observers pointed out that volumes continued to rise in the sell-off, affirming the weak sentiment. Geo-political tensions in the Middle East and North Korea testing a thermo-nuclear device on Wednesday eroded investors' confidence. Besides, caution prevailed over the upcoming domestic macro-data on industrial output, retail inflation and the third-quarter earnings results which start coming in from January 12. The markets seemed to have ignored the positives, especially the release of latest FOMC (Federal Open Market Committee) meeting minutes which indicated that the US Fed might delay another round of rate hike.
 
The S&P BSE market breadth favoured the bears -- with 2,189 declines and 636 advances. Sector-wise, automobile, capital goods, banking, healthcare and oil and gas indices stocks came under selling pressure.
 
A minimum dividend of 30%, declaration of special dividend and issue of bonus shares are the new guidelines from the central government as the owner for central public sector enterprises (CPSE). The department of economic affairs under the union ministry of finance in its office memorandum on 5 January 2016, said as a majority owner of CPSEs, the central government has decided on the new dividend policy. According to the new policy, a CPSE will declare an annual dividend of 30% of profit after tax (PAT) or 30% percent of the central government's equity whichever is higher; declaration of special dividend as a return for its equity investments; and issue of bonus shares by companies having large cash reserves. According to the department, the companies will have to look at market borrowings for capital investments so as to leverage the favourable debt-equity ratio. The economic affairs department also said market borrowing for capex would enforce more professionalism in the CPSEs. The new dividend policy seeks to increase the dividend income for the central government from the earlier rates of 20% of PAT or 20% of equity whichever is higher.
 
The government is mulling selling part of its stake in the nation's third-biggest private sector lender, Axis Bank, Newschannel reported on Thursday. The government is considering the sale to meet its asset sales target, Newschannel tweeted its newswire report which cited unnamed sources. At the current market price, the government's about 11.6% stake is worth around $1.8 billion. Axis Bank shares closed at Rs409.35, down 4.98% on the BSE.
 
Nearly 340,000 bank employees across the country will strike work on January 8 to protest the implementation of the new Career Progression Scheme (CPS), a leader of the All India Bank Employees' Association (AIBEA) said here on Thursday. He said the strike will be in protest against the violation of the bilateral settlement by five associate banks of the State Bank of India (SBI), namely State Bank of Mysore, State Bank of Patiala, State Bank of Hyderabad, State Bank of Bikaner and Jaipur and State Bank of Travancore. 
 
The World Bank has cut the global growth forecast for 2016 to 2.9%, saying that weak growth among major emerging markets will weigh on the global scenario during the year. In its Global Economic Prospects Report issued on Wednesday, the Washington-based institution expected the world economy to grow 2.9% in 2016, 0.4% lower than the bank's forecast in June 2015, but higher than the estimated 2.4% growth in 2015, Xinhua news agency reported. Developing economies are forecast to expand by 4.8% in 2016, less than expected earlier but up from a post-crisis low of 4.3%  in the year just ended; advanced economies are expected to grow 2.1% this year, also lower than its June forest but up from the estimated 1.6% increase in 2015. 
 
"The January Global Economic Prospects tells us that if 2015 was a disappointing year for the world economy, 2016 is the risky year," said Kaushik Basu, World Bank Group vice president and chief economist, at a media briefing.  "The global economy, in particular the emerging economies could hit a road bump." Downside risks, including slower growth, financial stress around the US Federal Reserve tightening cycle, weak commodities prices, and heightened geopolitical tensions, have become increasingly centred on emerging and developing countries, said the report.
 
The emerging economies seem to be coming apart, with Brazil and Russia expected to remain in recession in 2016, while China and India forecasted to grow around 7% China is forecasted to grow 6.7% in 2016 and 6.5% in 2017, lower than the estimated 6.9% growth in 2015. In 2016, the global growth, the emerging market growth in particular, will depend on continued momentum in high income countries, the stabilisation of commodity prices, and China's gradual transition toward a more consumption and services-based growth model.
 
The central parity rate of the Chinese currency, the renminbi or yuan, depreciated to its weakest point in nearly five years, new data showed on Thursday. The yuan's central parity rate lost 332 basis points to 6.5646 against the US dollar on Thursday, the lowest level since March 18, 2011, data from the China Foreign Exchange Trading System (CFETS) showed, reports Xinhua. As of the end of 2015, the CFETS exchange rate composite index, which measures the yuan's strength relative to a basket of 13 foreign currencies, stood at 100.94, up 0.94% from the end of previous year. In China's spot foreign exchange market, the yuan is allowed to rise or fall by 2% from the central parity rate each trading day. The central parity rate of the yuan against the US dollar is based on a weighted average of prices offered by market makers before the opening of the interbank market each business day.
 
The US stocks suffered big losses on Wednesday as rising geopolitical tensions and sinking oil prices weighed on investor sentiment. The Dow Jones Industrial Average slumped 252.15 points, or 1.47%, to 16,906.51. The S&P 500 dropped 26.45 points, or 1.31%, to 1,990.26. The Nasdaq Composite Index lost 55.67 points, or 1.14%, to 4,835.77. Wall Street was nervous after the North Korea announced it successfully carried out its first hydrogen bomb test Wednesday. Over the weekend, Saudi Arabia cut off diplomatic ties with Iran after angry protesters stormed its embassy in Tehran, the capital of Iran, to protest against Saudi's execution of prominent Shiite cleric Sheikh Nimr Baqir al-Nimr. Analysts said the heightened geopolitical tensions sent traders scurrying from stocks into safe haven assets. Also, oil prices hit their lowest level in more than 11 years on Wednesday as the US crude output of last week increased unexpectedly, which in turn dampened market sentiment. Dragged by plummeting oil prices, the energy sector, the biggest laggard among the S&P 500's ten sectors, slumped 3.62% on Wednesday.
 
The top gainers and top losers of the indices are given in the table below:
 
 
The closing values of the major Asian indices are given in the table below:
 

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