Rupee at new low of 74.46/$
The Indian rupee slipped to a fresh record low of 74.46 to a US dollar during the morning session on Thursday.
 
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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Why an Efficient Financial System Is Crucial to Consumption Ecosystem
Access to financing of the right quality and quantity is critical for the growth of companies, industries and economies. In benign financial markets, the aphorism 'A rising tide lifts all boats' holds. It is only when market volatility appears that the quality of various businesses can be truly deciphered.
 
For India to truly boost its consumption-driven economy on the back of a growing middle class, a robust financial system is essential. Recent events, such as emerging markets volatility and decline in share prices, point to the need for companies to pay more attention to their 'capital structure'.
 
India has seen growth across the consumption spectrum. Everything from healthcare, consumer goods and financial services has seen growth over the past few decades, especially since 1991. While the economy has grown extensively, and consumption patterns have seen remarkable changes, there are still significant gaps in the economy that make for attractive investment opportunities.
 
For instance, hospital beds per person in India is still abysmally low at 0.9 per 1,000 people versus a developed economy such as the US which has 3.1 hospital beds per person. There is a need for more hospitals to provide both secondary and tertiary care. There is also an urgent need for educational institutions to impart requisite skill-sets to doctors and nurses. Moreover, rapid urbanisation has led to a rise in chronic diseases. Facilities that can cater to all the above needs create opportunities for investors, regulators and the public alike.
 
The most critical aspect of the healthcare ecosystem is that financing is needed for both infrastructure creation as well as for facilitating consumption. For instance, from a healthcare perspective, financial markets need to provide the right amount of capital and the appropriate capital structure to create hospital infrastructure. Also, financial instruments and financial markets need to help the end-consumer access healthcare.
 
Thus, the entire ecosystem needs to function efficiently. Infrastructure creation, insurance markets and consumer-lending markets need to perform in unison for the multiplier effects to accrue from healthcare.
 
If adequate capital is available for creating hospital infrastructure but access to healthcare for end-consumers is restricted due to a lack of financing options, then the hospital infrastructure will struggle from an investment perspective and fail to deliver economic value in the long run. Thus, for schemes such as Ayushman Bharat to indeed provide value, the entire ecosystem needs access to the optimal level of financing.
 
The need for a robust financial backbone is not limited to the healthcare sector alone. All consumer-driven industries function on the same dynamics, implying that commercial banks, non-banking financial companies (NBFCs) and other financial market participants are critical for economic growth.
 
While short-term solutions to address immediate needs are critical, the greater focus must be on long-term structural changes. The issues that NBFCs specifically, and credit markets in general, face point to the need for creating a robust wholesale finance market. While a deep corporate bond market and a secondary market for loans are critical, these will all take time to evolve.
 
The structural changes needed most urgently are twofold. India needs to reassess the credit rating framework. Unless we find a more robust and foolproof mechanism to reflect credit risk through constant changes to credit ratings, market disruptions through the jump to default scenarios will be unavoidable. There is a need for a more transparent credit rating mechanism from the various agencies that can be a better indicator for embedded credit risk.
 
Additionally, as regulators mull over new regulations for NBFCs, there is scope to limit what sort of an asset-liability mismatch NBFCs can undertake. An NBFC that borrows from the wholesale market to lend to credit markets needs to be restricted regarding how much short-term borrowings can finance long-term lending. The eventual aim is to create a functional 'securitisation' market, whereby the NBFCs can pass on some of the term risk and premium to the institution lending to the NBFC.
 
A more robust credit rating system along with restrictions that lead to better management of 'term risk' is essential for the financial system to deliver value.
 
Structural changes that can create financing and flow of credit across the ecosystem are the need of the hour, especially with an eye on boosting the consumption-driven economy. Each component of the ecosystem merits attention.
 
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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COMMENTS

Ralph Rau

2 months ago

Have the Credit rating agencies have been caught sleeping on IL&FS ?

Does an illustrious promoter group like LIC, HDFC and SBI along with marquee foreign investors lull the CR Agencies into a false sense of security and complacency ?

Are the audit firms and CR Agencies all enjoying cosy relationships with their pay master, their client ?

Who will police the policeman ?

Its time we began rating the quality of the CR Agencies who should be expected to disclose their rating failures on their website.

Going Cashless: Whose Cash Is It, Anyway?
There is a lot of pressure on people from the government, banks and various service-providers to go cashless. In a cashless world, the government prints fewer currency notes and saves on the cost of printing and high security distribution logistics. There is an expectation that the underground or black economy will vanish and we will move to an all-white economy. 
 
Meanwhile, banks will charge customers for all transactions.  It means, the banks as service-providers, get immediate payment at negligible cost, the retailers are freed of the hassles of counting notes and coins if cashless is free for them; the one and only loser is the customer.
 
A switch to a cashless society and online transactions is set to cause a paradigm change in the social, cultural and economic environment of India, entirely driven by technology and the growing computing power. 
 
However, the flip side of this much touted cashless society and economic transformation is not so well known. 
 
Newton’s third law of motion says: “For every action there is an equal and opposite reaction.” The same is true of the cashless drive.
 
Apart from known risks such as high cost, digital security, slow Internet connectivity and low tech-literacy, there exists another dimension of risk. It is the Risk of Denial of Service (DoS) or Risk of Exclusion (RoE). And this can affect the life and liberty of citizens.
 
If there is large-scale power or Internet disruption (or connectivity disruption/ malware infection) in a very large service provider’s operations—say, a bank or a telecom company—what will happen in a cashless environment? 
 
These risks are no longer hypothetical or theoretical but are registering their presence on a small or local scale, around the world, especially during natural calamities. And large-scale disasters do not come with a prior announcement.
 
Let me give you a few examples from the past three or four weeks alone: 
 
1. PNB operations at a standstill for almost half a day:
 
I have my personal and business accounts at the Punjab National Bank (PNB), and another one at another bank, as a disaster precaution. I went to PNB’s Sion branch in Mumbai at 10am on 5 October 2018 to withdraw money for some statuary payments and tender document payments as they ask for cash or a demand draft, and the deadline for the payment was 3pm on the same day. 
 
The branch manager told me that the network was down and that I should come back after some time. Accordingly, I returned at 11.15am. The network was still down. 
 
The branch manager now said there was an India network outage since morning and that people were working on it in Delhi. 
 
I asked him why the Disaster Recovery (DR) site was not immediately  operationalised when the DC (data centre)  was down and what the RTO (recovery time objective) was. 
He looked blank. 
 
I asked him, what do I do when I have to make payments and you will not allow me to withdraw my own money? He had no answer. 
 
Ideally, if the main DC is down, the DR site at an alternate location should start operating within a specified, pre-defined time, which is called RTO. For a bank like PNB, the DR site must be a hot site with real-time replication and RTO should be a few micro or milli-seconds. 
 
But, PNB’s operations were down until 12 noon (as I was told next day), which means for at least for 3-4 hours. I had money in my bank accounts but it was not available to me. Customers of the Bank all over India suffered. 
 
In the US, this may have led to a class action suit. 
 
Ironically, the branch manager was not even aware of terms like DR site, disaster recovery plan (DRP) and RTO. He made shocking excuses like ‘even human beings fall ill’. 
It shows the lack of training at PNB even at the branch manager level.
 
I had to borrow money to make my immediate payments. In a cashless environment, I would have missed both payments in case of a disaster. 
 
This is not the first time that this has happened with PNB. There was an operations outage of 50 hours on 24 May 2012 and then for a whole day in 2014. It must be happening with other banks too, I have heard of a few banks making their customers suffer due to their technology problems.
 
2. Indigo Airlines server crashed for two hours 
 
A friend travelled from Kochi to Mumbai on Indigo 6E215 on 7 October 2018. There was a long queue at the check-in counters at Kochi because Indigo’s servers had crashed. 
 
The airline started issuing manual boarding passes, for which they were neither accustomed nor trained. There was  commotion, fights,  and delayed flights. 
 
Things were sorted out after an hour or two. 
 
Since Kochi is a small airport, the disruption was limited, but my question is the same as in the case of PNB. 
 
Are we prepared for disasters or outages in connected or cashless/paperless world? Why is there no DR site, and defined RTO? How can we allow things to remain disrupted for long periods? 
 
3. This blog by a Singapore citizen about an earthquake at Hokkaido island in Japan started ringing alarm bells.  (https://forums.hardwarezone.com.sg/eat-drink-man-woman-16/problem-cashless-society-5913994.html )
 
Among other things, it said, “Japan's Hokkaido strong earthquake (06 Sept 2018) triggered a large-scale power outage, and Sapporo City instantly became the dark capital of Hokkaido. Power restoration took minimum 24 hours to one week. During this period, 1.95 million residents flocked to supermarkets and convenience stores to buy life supplies. However, some of the victims who usually only use mobile phones have lost their ability to pay and can't buy what they need.”
 
 
(Image Courtesy: The Nation)
 
The blogpost goes on to mention an anonymous discussion on a Japanese forum on 6 September  2018. It was about an app that allows only electronic payment, which suffered a large outage after the earthquake. A user decided to stock up on supplies, checked the refrigerator and finding only milk and mayonnaise, rushed to the supermarket to stock up. 
 
 
(Image Courtesy: WTOP)
 
When he arrived at the supermarket, he found that he had no cash at all. He nervously saw that his phone was also 62% charged. When he reached the payment counter, he was told that he could not use electronic payment. In fact, he could not pay electronically anywhere. 
 
At seven o'clock that night, he sat alone at home, hungry.
 
 
(Image Courtesy: The Nation)
 
The blog quotes a warning by the Swedish central bank governor Stefan Ingves who said, “A cashless society is unrestrained in the face of war or natural disasters, and the huge social and financial system will collapse in an instant”.
 
It goes on to say that cashless payment is just a supplement to the “payment function” because it requires some basic conditions—electricity, network, base station, etc.
My Internet search indicates that this blog is fairly accurate. 
 
4. Estonia: 
 
A countrywide outage in Estonia on 27 April 2007, caused all websites of Estonian organizations, including the Estonian parliament, banks, ministries, newspapers and broadcasters to shut down for about 2 days. In 2007, Estonia was about 95% digital and paperless. The near-shut down led to riots. In the past decade, Estonia has become a centre of excellence in cyber security and resilience.
 
5. OCBC Bank of Singapore:
 
On 1 September 2018 operations were down from 8:45pm to 11:30pm. The  shut-down caused untold embarrassment to customers who were out at restaurants or shopping/ travelling and had only OCBC Bank’s credit card. Many took their outrage to twitter. That the management issued a detailed apology was cold comfort. 
 
 
(Image Courtesy: Straitstimes.com)
 
What will happen, if we have a large-scale disruption in India? Are we ready for the chaos that will ensue as we push for a cash-less and technology-dependent existence?
The PNB and Indigo incidents suggest that we, as a society, are not even prepared for small disasters. DRP and business continuity plan (BCP) do not seem to exist, or, like fire-fighting equipment in many Indian buildings, do not work when required. 
 
After demonetisation, there was a big surge in digital transactions. PayTM  became a highly popular choice. Of late, Unified Payments Interface (UPI) and Bharat Interface for Money (BHIM) are being actively promoted.
 
But data shows that India has gone back to using more cash than we did before demonetisation. 
 
Cash in the hands of the public (M1) and demand deposits with bank has reached more than Rs19.43 lakh crore, as per the statistics released by the Reserve Bank of India (RBI) on 21 September 2018, a level about 10% higher than what existed before demonetisation. 
 
I like to inquire from retailers about the level of acceptance of e-payment systems like Paytm, BHIM, and UPI. The usual answer is that people are not comfortable with electronic payments because they have no control over transaction failure; are worried about hacking; are hobbled by poor connectivity issues and are irritated about transaction costs – none of these are a problem while using good old cash. 
 
Denial of service (DoS) or Risk of Exclusion (RoE) due to wholesale outage is a new risk added to these concerns.
 
The purpose of this article is not to discourage cashless economy but to highlight the many dimensions to going cashless or even less cash. It cannot be done in a causal manner. If a cashless economy has to succeed, government and service-providers need to do a lot more to provide uninterrupted, quality and secure services to the customers. 
 
Education took us from the thumb impression to signature. Technology must not take us back from signature to thumb impression. 
 
(Dr Rakesh Goyal has a PhD is cyber security. He is a gold medalist both in engineering and PGDM from IIMB. He is the managing director of Sysman Computers Pvt Ltd, one of the few IT security audit organisations empanelled with CERT-In and CCA, with the ministry of IT, and with GoI to audit cyber security of critical national infrastructure/assets. He can be contacted at [email protected].)
 
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COMMENTS

Liju Oommen

2 months ago

The drive towards cashless is because the chowkidar wants it so. Not because it has been deliberated by a team of educated, well informed people. But because the chowkidar wants to be seen as doing some work, he ends up destroying the economy.

Anand Vaidya

2 months ago

New technological advances certainly come with bigger benefits and fewer downsides. This line of argument can be extended to transport, lighting and electricity, piped gas supply, water supply etc.

We citizens, must plan ahead and keep some backup options and not expect tech to work 100% - it is impossible. As a long time server admin and software engineer, I can assure you that, no matter how much man/machine/money is thrown at the problem , there will always be something that won't work.

I recommend:
Keep some cash. Small change, especially. Pay bills early, when everything is working, not at the last minute.
Have 2-3 debit/credit cards (maybe each family member has atleast one, right?)
Have multiple payment options (wallets, debit cards, cash, netbanking etc).
Make friends with neighborhood store owner , so you can pay later in an emergency
etc etc

Ralph Rau

2 months ago

Modi Sarkar will come after you only if you keep big denominations above 2 Lakhs value.

So go ahead and keep small denominations below 2 Lakhs value.

Ralph Rau

2 months ago

Is the banking ombudsman doing the job they are meant to do ?

Is there prompt attention to grievances?

Is there a penalty imposed for failure by a bank to deliver timely service ?

VIVEK SHAH

2 months ago

Denial of service could also be triggered by a Bank. As in my case. When I pointed out an unethical practice by HDFC Bank they exchanged a few emails with me giving flimsy explanation but when I insisted on a proper explanation they unilaterally blocked my card !!! This even after keeping the MD in the loop.

Ramesh Poapt

2 months ago

Nothing but Truth!

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