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Tag: trade finance

  • What Happens When a Public Company Goes Private?

    What happens when a public company goes private? Why would a publicly-traded company make that decision? What are its options once it does? It’s difficult to know how to answer these questions if you have no background information on the subject. To help you get some insight into what happens due to these transactions, we’ve collected seven pointers about going private and provide some insight into what happens due to these transactions. Hopefully, this guide answers your questions and helps you understand what happens if a publicly-traded company decides to pursue another route.

    When a Public Company Goes Private:

    The company is removed from the stock exchange

    No. of Companies listed on Stock Exchange in India
    No. of Companies listed on Stock Exchange in India

    Once a company goes private, it’s removed from the stock exchange. Investors will no longer be able to purchase or sell shares in the company through a major stock exchange.

    The company’s management team may still hold on to some of their shares, which they may sell in the future for a profit. But for most investors, this is the end of their involvement with the company.

    The company’s shares are withdrawn from the stock market

    When a publicly-traded company goes private, its shares are withdrawn from the stock market. This is a major shift for investors, who are used to seeing their investments on display on the stock exchange.

    Management often decides to go private, but investors can also initiate it. In some cases, an investor may buy out other shareholders and control the company. In other cases, multiple investors pool their resources and buy out existing shareholders.

    Existing Shareholders get paid

    When companies go private, their shareholders can receive various payout options. These include:

    • Cash payments to each shareholder are based on the number of shares they own. The payout can either be in one lump sum or spread over time.
    • Stock in a new company is formed when the parent company goes private. This stock could pay dividends or be sold for cash later.
    • New shares in the parent company that’s going private. Once those shares become publicly traded again, it’s possible for investors who hold them to make money off their original purchase price or by selling them at some point down the line.

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    The company no longer releases financial statements to the public

    Once a company goes private, it no longer releases financial information to the public. This means that investors who had previously owned shares of the company in question will no longer have access to any information about its finances or performance. However, this does not mean that the company goes completely dark: companies can still be purchased and sold by other companies using private transactions, which means that their financials are still available to their owners.

    The only major difference is that these transactions are not recorded on any stock exchange. Instead, they must be reported to regulatory bodies such as the Securities and Exchange Board (SEBI), allowing them to track how many outstanding shares exist within the private sector.

    Fewer regulatory requirements and obligations

    By going private, a publicly-traded company no longer has to deal with the many regulatory requirements of being a publicly-traded company. These include:

    • Annual reports: are required for publicly-traded companies and must be submitted to the SEBI.
    • Audited financial statements: audited financial statements must be submitted to the SEBI for publicly-traded companies. This requirement helps ensure that investors access accurate information about their investments.
    • Required disclosures: publicly-traded companies must disclose information about their operations and management team to the public via annual reports and other filings with the SEBI.
    • Corporate governance: corporate governance refers to how businesses are run internally—for example, whether shareholders have voting rights over key decisions made by management, or who sits on boards of directors at large companies.

    Less capital available

    The reason for this is simple: a public company must disclose its financial statements, which means anyone can access them. This is great for investors who want to get in on the action and make money from their investments. Still, it’s not so great for companies that want to be able to keep their financials secret to protect proprietary information or avoid scrutiny from government regulators.

    By going private, companies can keep their financials under wraps and more of their profits for themselves!

    A public company that goes private no longer has to contend with quarterly pressures.

    Public companies are accountable to their shareholders, who demand that the company generate quarterly revenue and profit. These demands make it difficult for companies to focus on long-term goals, often leading to short-term planning and poor decision-making.

    Private companies have more freedom: they can focus on their long-term goals without worrying about those pesky quarterly reports!

    More flexibility

    When a public company goes private, it gains more flexibility in its operations. This means that the company can make decisions that may be unpopular with investors but which are better for the business’s long-term health.

    For example, a public company might cut costs to boost profits and increase shareholder value. This could involve layoffs or outsourcing certain aspects of operations. However, when a public company goes private, they no longer have to worry about shareholder concerns and can focus on what is best for the business as a whole.

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    Conclusion

    There is a lot at stake when a public company goes private.

    So there you have it, folks. That’s what happens to a company when it goes private. Of course, this article is only meant to be a general overview of the process. It may be worth learning more about private equity firms and the going-private phenomenon in general; then, you should do further research on those topics.

    This post’s subject can be applied to almost any situation involving a significant change in company ownership and structure. While there are many options that can be pursued when taking your company public or private, keep in mind the information above: timing and valuation matter. If you’re ready to make the leap, talk to an investment banker or investment broker/advisor, they can help!

    FAQs

    What is privatization in public sector?

    Privatisation of public sector means the transfer of ownership, management, and control of the public sector enterprises to the private sector.

    Which sectors are privatised in India?

    The sectors privatised in India are:

    • Atomic Energy
    • Space and Defence
    • Transport
    • Telecommunications
    • Power
    • Petroleum
    • Coal and other minerals
    • Banking, insurance, and financial services

    What happens if public company goes private?

    When a Public Company Goes Private:

    • The company is removed from the stock exchange
    • The company’s shares are withdrawn from the stock market
    • Existing Shareholders get paid
    • The company no longer releases financial statements to the public

    Which are the public companies that went private?

    Some of the popular public companies that went private are:

    • Twitter
    • Dell
    • Burger King
    • Hilton Worldwide Holdings
    • Reader’s Digest

  • Investment vs Trade: The Differences To Acknowledge For Better Profit

    A financial market is looked upon by both investors as well as traders to gain an advantage by the means of sharing and buying financial assets with utmost security. The financial market broadly classifies the terms that stand for a marketplace where bonds, currencies, and equity are traded off. The financial market serves as a connecting link between investors and collectors by joining them with capital. The two different aspects of taking part in the financial market are Investors and traders. Investors look out for the opportunity to invest in an eligible place, whereas traders lookout to trade their part with increased value. The basic definition and other useful details about both parts are shared below.

    Investment
    Things to consider before investing
    Points to remember for successful Investment
    Trade
    Things to consider before trading
    Points to remember for having a successful trading
    Investing vs Trading

    Investing vs Trading: Investing is done for a longer duration with minimal risk to gain average profit. Whereas, Trading is done within a limited period involving higher risk and profit.
    Investing vs Trading: Investing is done for a longer duration with minimal risk to gain average profit. Whereas, Trading is done within a limited period involving higher risk and profit.

    Investment

    Investment is defined as putting money into financial schemes, shares, and properties to achieve higher profit. It can also be considered as purchasing an item with the thought of selling it in the future to gain an extra from its increased value. In other language investing means allocating money with the expectations of some benefits or returns in the future. The return can either be counted as a benefit or can turn into a loss. Investors generally expect more return from riskier investments. If a low risk or low investment is made, the return is also generally low i.e. Low investment gives low profit.

    Things to consider before investing

    Risk

    Risk is an essential point to consider before investing. Every investment is prone to some level of risk. There can be a high chance of losing some of the whole investing amounts before its outcome.

    Every person gives a different response to ‘risk’, and the best reaction is noted from previous similar experiences encountered. Most investors or consultants suggest that you should exit a financial investment when the investment value is scrapped to 80%.

    Return

    There are two types of returns on financial investments, Assured Returns and Variable Returns.

    Assured and variable returns are now replaced by Least Volatile and Highly Volatile returns. The least volatile financial investment includes parts like debt instruments and small saving schemes. Whereas, Equity, Gold, and real estate are counted under Highly Volatile investments. The only ‘risk’ free return is a fixed deposit return. Investors should decide the percentage of exposure in the Least and Highly Volatile investment.

    Taxation

    Taxation is the most important point of financial investments. Taxation benefits can be reversed under specified conditions. The Short Term Capital Gains (STCG) for an investment period under three years are taxed at the individual slab rate, but the Long Term Capital Gains (LTCG) are taxed at 20% plus surcharge and cess with indexation.

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    Income source

    Income and source of income are also important in investment. Salary may be a more stable source of income than self-employed or businessmen persons. Families with more sources of income can be more secure compared to single-income source families. The double income family saves more and more saving means more investment.

    Knowledge of finance

    Investors should know financial aspects before starting with the basic process. As blind investment is suicidal. Hence, taking advice from knowledgeable persons and experienced people is the best way to start followed by a few searches on the web.

    Points to remember for successful Investment

    Make a financial plan

    Before making any investments, one needs to be fully aware of the financial background and the expectations from it. There is no guarantee of getting benefits from each investment. Few investments can turn into tremendous victory whereas some can prevail as a failure. It’s very essential to make a financial plan before starting with investment planning.

    Taking risks.

    Besides all investments, there is some sort of risks. Risks like losing all or some amount of money can also occur and some similar situations can also prevail. However, the higher the risk, the higher returning benefits.  Hence, it is essential to consider all risk factors before investing.

    Avoid fraud investments

    Some investments use high publicity news to give assurance of more profit. Before trusting such options, it is more recommended to get an additional inquiry done from related persons.

    Always maintain an emergency fund

    Always put some savings outside the investment to cover an emergency. Emergencies can be situations like loss of investing amount and its notable profit. At those moments, emergency funds can come in handy.

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    Be up-to-date

    Being up to date about financial assets plays an important role in investments. Keeping an eye on the current financial investment assets makes the investment better. As for those lagging in being up to date can cause them great misfortune of losing their investing amount due to inappropriate knowledge.

    Trade

    Trade involves the purchasing and selling of goods and services with compensation paid by a buyer to a seller. Trading refers to the exchange of securities through sale and purchase. On the other hand, we can say that trading is buying, selling, or exchanging assets. The financial market consists of the trading of securities such as shares, currencies, commodities, and derivatives. The trading market aims to make a profit by buying at a lower price and selling at a higher price within a short period. A trader can be anyone from an individual investor to a global institution. We can trade directly or with the help of a broker.

    Things to consider before trading

    Risk

    Trading is riskier than investing. Market risk is the major risk of trading and is out of anyone’s control. Market risk is bound to rise or fall, but knowing the risks and making a market plan could save you from losing your money.

    Profit

    Trading is more profitable than investment. Trading provides one with the option of earning extra credits without any set limits. Indian stock market is one of the highest liquidity markets where people can make any amount of money. Profit depends on the purchase and sale of desired stock. We can say the profit depends upon the stock market value.

    Points to remember for having a successful trading

    Keep an eye on the market

    Trading wholly depends on the basic propaganda of the market, i.e. demand and supply. Before trading, one must learn the basics of the stock market by keeping an eye on financial news, the price range of stocks, and taking up a course on the stock market are all excellent ways to become an efficient trader. Online stock trading simulators help to learn online trading efficiently and accurately.

    Make a plan

    To become successful in financial goals, it is better to make a strategic plan. Since the trading is riskier, advance decisions should be made on options like the last limit of investing, eligible loss amount, etc. The practice is the golden key to becoming a successful online trader.

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    Trust

    Trading is all about knowing the market and how the market is changing. As a trader, one needs to be fully confident in their strategies. Most of the profits can be earned through a personalized strategy applied at the perfect time instead of going ahead with the option of following others’ plans in trade.

    Holding the stocks

    One can buy stocks and hold them for better profit. The holding of socks may help them with more profit because of the long-term purchase of high-quality stock at a low price when their demands go up. However, it is always applicable to some amount of risk due to the involvement of uncertainty.

    Investing vs Trading

    Now the most important question is, which one is better? Investment or trading? It is very difficult to choose which one is better because investment and trading are two different aspects of finance. However, the guide shared above can help one determine a better option. If someone wants to take no risks or low risks and avoid volatility, investing is better for you. You will get an 8% to 10% return annually. Investment means short-term wins and can get fewer several losses. If someone is more of a  risk-taker and would like the chance to earn money in a short time, trading is considered the best option for them. Trading can be a thrilling way to earn quick money and may also lead to big losses.

    Conclusion

    Investing stands for buying any stock or product to create wealth. Trading means purchasing and selling products to make profits. Both the methods give a similar output of generating profit. However, they both vary in their processes ad risk factors. Investing is typically for those looking out to create wealth within some interval of time and trading is generally for those looking out to generate profit in less amount of time.

    FAQs

    what is meant by financial investment?

    Financial Investments stands for the fixed amount sided to gain some percentage from it at the speculated interval of time.

    Which are online platforms available for investing?

    Some of the online platforms for investing are eToroeToro, Fidelity Investments, E*Trade, etc.

  • Vayana Network- Aims To Solve Trade Finance For India’s SME Sector

    Company Profile is an initiative by StartupTalky to publish verified information on different startups and organizations. The content in this post has been approved by Vayana Network.

    With trade prospects diminishing amidst COVID-19, India’s small-and-medium enterprises (SME) sector — one of the largest in the world — could be exposed to life-threatening risks. With the government targeting an ambitious $5 trillion economy, trade was anticipated to climb steadily.

    Trade financing could be the answer to a lot of these problems. By giving sellers access to credit lines, helping them discern business demands, using predictive analytics to solve problems, recognize changing consumer trends, and optimizing their supply chain operations, SMEs could better withstand the downturn in business activity. Pune-based Vayana Network — one of India’s biggest trade finance companies – is perfectly positioned to help SMEs do just that, and more.

    Vayana Network- Company Highlights

    Company Name Vayana Network
    Headquarter Pune
    Founder Ram Iyer
    Founded 2017
    Sector Supply Chain Trade Finance
    Website vayana.com
    Registered Entity Name Vay Network Services Pvt Ltd

    Vayana Network- About and How It Works
    Vayana Network- Founder
    Vayana Network- Name, Logo and Tagline
    How Vayana Network was Founded
    Vayana Network- Vision and Mission
    Vayana Network- Target Market Size
    Vayana Network- Product/ Sevices
    Vayana Network- Business and Revenue Model
    Vayana Network- Startup Launch
    Vayana Network- Customers/ Clients
    Vayana Network- Funding
    Vayana Network- Advisors and Mentors
    Vayana Network- Acquisitions and Mergers
    Vayana Network- Recognitions and Achievements
    Vayana Network- Future Plans

    Vayana Network- About and How It Works

    Vayana strives to provide easy, digital access to low-cost financing to every enterprise – from large corporations to MSMEs – to help manage their working capital, grow business and create employment. Because of the relationships Vayana has cultivated over the years with corporates and financial institutions, most of the applications that it passes on to banks and NBFCs get approved quickly. The company trades on the trust it has built with all of its stakeholders, and it does so swiftly and successfully.

    Vayana’s data-driven digital platform enables identification onboarding, financing, and servicing of creditworthy SMEs at significantly superior unit economics compared to traditional lenders. This allows them to create and offer affordable, convenient financing to the entire supply chain. They are also India’s largest GSP and e-invoicing platform.

    Vayana Network- Founder

    Vayana Network is founded by Ram Iyer.

    Vayana Network Founder | Ram Iyer
    Vayana Network Founder | Ram Iyer

    Ram Iyer | CEO & Founder, Vayana Network

    Ram Iyer, Founder & CEO of Vayana Network, is a serial entrepreneur with over 25 years in the Cash and Trade space providing solutions to some of the largest Banks across the globe. At Vayana Network, Ram has led the company’s vision to democratize access to affordable finance for MSMEs. Previously, he was the co-founder and CEO of CashTech Solutions, a leading Cash Management vendor in Asia which was acquired by Nasdaq listed Fundtech (now a part of the Finastra Group). He has previously worked with Accenture in their management consulting business.

    He is a management graduate from IIM Ahmedabad and an Engineer from Mumbai University. A guest speaker at various Fintech & Trade forums, Ram brings an exceptional understanding of B2B trade, payment ecosystems, and technology.

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    Irrespective of hierarchical positions, they attract people who see themselves as ‘producers’ and ‘creators’ and not ‘managers’. They also are keen that everyone joining sees their role as something very significant – not just to the company but to their own professional and personal journeys.

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    Vayana Network- Name, Logo and Tagline

    Vayana Network Logo
    Vayana Network Logo

    Vayana: The Act of Weaving

    Originated from Sanskrit, Vayana represents its vision of building meaningful Trade Financing relationships between Businesses and their Supply Chain partners.

    How Vayana Network was Founded

    Vayana is not Ram’s first entrepreneurial stint, Ram Iyer was previously the co-founder and CEO of CashTech Solutions, a leading Cash Management vendor in Asia which was acquired by Nasdaq listed, Fundtech in 2004.

    After CashTech, he began selling banks systems to help manage companies’ trade finance. That’s when Mr. Iyer realized that there was a need and potential for a company like Vayana after several bankers he worked with told him that even though trade finance was a lucrative proposition, volumes of credit applications were quite low.

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    Vayana Network was started with a vision to democratize the access to trade finance to the smallest of enterprises. Team Vayana designs tailor-made, affordable, closed-loop programs to meet the financing demands of businesses and their supply chain partners with simplicity and speed.

    The employees, partners, and investors fully understand how Vayana Network operates as it is just as crucial as what they accomplish to create value for all stakeholders. Together, Vayana strives to provide easy, digital access to low-cost financing to every enterprise – from large corporations to MSMEs – to help manage their working capital, grow business and create employment.

    Vayana Network- Vision and Mission

    Vayana Network was started with a vision to democratize the access to low-cost trade finance to the smallest of enterprises. They believe that for an economy like India to achieve momentum, the millions of hard-working small wheels (i.e. Micro and small businesses) must run smoothly and financing is critical to this.

    Vayana’s mission, therefore, is to ensure that every entity on a supply chain, from the largest to the smallest, can access financing affordably and conveniently. They strive to make financing an integral, seamless part of the trade process and not a separate activity.

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    Vayana Network- Target Market Size

    Through Supply Chain Finance Vayana is looking to address a short-term trade credit gap of $ 260 Bn faced by Small and Micro Enterprises in India.

    India has about 63 Mn MSMEs of which only 5% have access to formal sources of financing. The cumulative financing gap faced by MSMEs left out of the formal system, is about $260bn.

    SCF market in India today is approx $10 Bn, which is less than 1 % of India’s GDP. In the next 5 years, we expect the market to be roughly 4% of India’s GDP, which is the case today in countries like China. This growth will be backed by the increasing formalization of the economy brought about by GST and E-Invoicing initiatives of the government, RB

    [ Sources- IFSC report on Financing MSME, RBI report authored by UK SInha and other sources.]

    Vayana Network- Product/ Sevices

    Starting from big ‘anchor’ companies at the top of the supply chain, they can detect, analyze and leverage the ‘creditworthy networks’ of downstream buyers, using real-time data. The digital process of onboarding is quick, painless, saving time, effort, and cost

    • SMEs can access affordable finance easily. A simple one-click process removes friction, enabling high utilization
    • Banks and FIs gain access to an expanded book from new segments which they could not viably access till now
    • ‘Anchor’ corporates enjoy the benefits of expanded supply chain coverage – predictable cashflows, increased sales, and frictionless supply chain relationships.

    And all of this without requiring any change in internal systems and processes.

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    Vayana Network- Business and Revenue Model

    Vayana’s technology & services platform enables their partner Banks and FIs to build a scalable and profitable portfolio, retain it and grow over time. The entire cycle from sourcing to settlement is managed by Vayana, hence partner institutions pay Vayana a service fee on the financed portfolio. Vayana is also a leading GSP (GST Suvidha Provider) offering a seamless API gateway for Corporates, Institutions, and MSMEs for their GST, EwayBill, and eInvoicing compliance needs; against platform fees.

    Vayana Network- Startup Launch

    The core emphasis of Vayana Network, when launching the company, was to build a process that is scalable and serves to solve the most critical need of any business i.e. freeing up the cash flow. One of the key needs for this process to run successfully was to create something that is so easy to use that one forgets that it is there.

    Initially, a lot of their business was driven via more of one to one interaction, but as they have grown from strength to strength they are now very well entrenched in the psyche of both the corporates as well as their FI partners, who appreciate the know-how and key knowledge we bring to the table for all the concerned parties, thus creating a healthy and meaningful trade network.

    Vayana Network- Customers/ Clients

    One of the key driving philosophies was to keep the process as simple as possible or as our CEO states “Dal – Chawal will never go out of fashion, as oppose to exquisite continental food that is good but, in the end, you will always crave simple food as it solves for your basic need.” Similarly, there are multiple solutions that are available in the market, but all businesses from large corporates to the SMEs are looking to solve for the key pain area i.e. freeing up their working capital allowing them to do business at a much larger scale and this is where Vayana comes in by managing the entire trade financing network in such a manner that business no longer needs to worry about the credit crunch and concentrate on what they do best, growing the business.

    Vayana with its simple & robust processes allows it to onboard large corporates as well as the smallest of MSMEs with equal ease in the shortest possible time thus eliminating long and tedious onboarding processes.

    Vayana Network- Funding

    Date Stage Amount Investors Name
    2017 Series A & B $ 9 Million Chiratae Ventures, Jungle Ventures & Recruit Strategic Partners

    Vayana Network- Advisors and Mentors

    The company is blessed with a strong set of experienced professionals and seasoned entrepreneurs on its Board and advisors like Dr. Marti G Subrahmanyam, Mr. Kannan Ramasamy, and Mr. Kalyan Basu.

    Vayana Network- Acquisitions and Mergers

    The company is open to acquisition opportunities in allied areas of strategic interest and has already made 2 acquisitions in the last two and a half years. Vayana focuses on lean teams working on some great models/ ideas in the space of facilitating B2B trade and where both teams see a great cultural fitment and commonality of interest. One such acquisition was of SahiGST in 2018 – a leading cloud-based ASP; to further strengthen our GST and E-Way Bill Portfolio. The next acquisition (not yet public) is in the B2B payments space.

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    Vayana Network- Recognitions and Achievements

    Vayana has been recognized as “Fast Learner” Fintech Startup at Fidelity WyAQ Award 2020 and has also won NASSCOM’s ‘Emerge 50’ in the Fintech category in 2019.

    Vayana Network- Future Plans

    Vayana Network is successfully servicing clients from over 25 industries, further impacting more than 20,000 MSMEs and 300-plus supply chains and processing more than 1.7 million invoices. Vayana has a CAGR of 300 percent, with an organic growth rate of up to 45 percent. The company recently finished financing $USD 5 Bn (Rs 37,000 crores) on their platform.

    Currently present in the US, Singapore, Thailand, Malaysia, Vietnam, and Indonesia, the company is targeting either Japan, South Korea, or Taiwan next.

  • Revisiting the Financial Crisis of 1991- A Case Study

    The economic crisis that jolted the Indian subcontinent in 1991 did not happen overnight. It was facilitated by a plethora of factors including poor economic policies, trade deficits that lead to the Balance of Payment crisis, inefficient public sector etc. The economic imprudence of the 1980s had started to set the tone for the impending crisis which was called a “policy-induced crisis par excellence” by Joshi and Little in their seminal work.

    Inconsistent Rise and Falls
    Import Liberalisation and its Ramifications
    Political Instability and other indigenous and Exogenous Factors
    The Deal With the IMF (International Monetary Fund)
    Balance of Payment Crisis
    The Gulf War
    The Revival of the Indian Economy
    FAQ

    Inconsistent Rise and Falls

    As the country’s fiscal policies were going loose at the behest of the country’s worst drought since independence and a global oil shock in 1979 caused by the Islamic revolution in Iran, the recommendations of the seventh Finance Commission was rather one-sided than concentrating on means to cater to both consumers and suppliers.

    It recommended a significant increase in the revenue shares of states without easing the responsibilities of the central government, which caused the existing fiscal deficit of the government to sour.

    The increasing political assertions of the marginal groups along with the decaying powers of political institutions also resulted in mere populist measures to address problems that were not only insufficient but also short-termed.

    Along the same line, the country saw an increase in procurement prices with no corresponding increase in issue prices. Taxes were reduced and subsidies burgeoned ten times their value last year.

    Import Liberalisation and its Ramifications

    Deviating from its regular economic conservatism in 1976 the Indian government liberalised import which was expected to increase the supply of intermediate and capital goods. However, export growth could not keep up with it.

    By 1985, imports swelled and India was facing twin deficits. One that of fiscal deficit and the other that of trade deficit. Average fiscal deficits moved up to 6.5% from 5% in the 1970s. The only factor that held everything together was the increasing remittances from employees in the Gulf region.

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    Political Instability and other indigenous and Exogenous Factors

    The central government was going through a tumultuous time as the ruling party (Janata Party) split into two and collapsed. This political instability was accompanied by severe drought and the oil shock of 1979.

    As agricultural productions nosedived by a sixth in terms of trade, oil prices and current account deficit soured. It was only the timely procurement of food grains over the year that saved the nation from famine.

    The Deal With the IMF (International Monetary Fund)

    In order to expand the energy sector, exports and savings, along with reviving the Indian economy the central government approached the IMF to fund its package in 1980. The IMF however, resorted to different financial measures which the country had to abide by.

    Later, the Chandra Sekhar government failed to pass the budget and the poor ratings given by Moody made India ineligible for any short term loans. In this situation, the IMF also stopped their financial assistance which forced the government to mortgage the country’s gold for bailing out.

    In May 1991, India had to airlift more than 20 tones of gold to raise $240 million. Although the desperate move was heavily criticized, it was inevitable.

    Newspaper cutout of 1991
    Newspaper cutout of 1991

    Balance of Payment Crisis

    The 1980s also saw a BoP crisis as the current account deficit remained between 40% and 50% of the exports in the latter half of the 1980s. It resulted in the increase of external liabilities in the 1990s, 50% of which as owned by the public sector. India’s forex reserves started to deplete as imports increased.

    By July 1991, India had only less than $1 billion in its foreign reserves which can last to fund three weeks of imports. The major cause of the Balance of Payment crisis was the inability of exports to catch up with imports, improper management of the investment savings which resulted in deficit and depending on non-concessional external borrowing to cater to that deficit.

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    The Gulf War

    The Gulf War in the 1990s was the tipping point for the already fragile Indian economy. The fuel prices skyrocketed which affected the prices of all goods in the country. The war also meant that a lot of Indians lost their jobs and had to come back. Thus, the remittances which held the economy together was not available anymore. India fell into a deep economic crisis where it was at a disadvantageous position from all sides.

    The Revival of the Indian Economy

    The Narsimha Rao government with Manmohan Singh as the Finance Minister, began its journey towards economic recovery. First, to reduce inflation and promote internal markets, export subsidies were cut.

    The value of the rupee was first depreciated by RBI to 9% and then to 11%. Further, domestic supply constraints were cleared and doing business was made easier by reducing the complexity of procuring permits and licenses.

    India: Gross domestic product (GDP) in current prices
    India: Gross domestic product (GDP) in current prices

    The economy was liberalised, privatisation was promoted. Foreign Direct Investments were also largely encouraged. Industries were given better structural and operational freedom which helped them expand and develop. The budget of 1991-92 was more about continuing these economic reforms to sustain and strengthen the changes.

    Conclusion

    The efforts of the Narasimha Rao government was not in vain. Indian economy started to boom in the years that followed. At a time when the country is struggling with negative growth rates and shrinking GDP, the lessons learned from the 1991 financial crisis should be revisited and analysed so as to come up with efficient solutions. There is absolutely no doubt that there will be flaws.

    Even the economic reforms of 1991 also had its own flaws and it still bears the grunt of the criticisms. However, it is important to come up with valuable reforms that can save the economy from an economic depression like in 1929.

    FAQ

    What caused the 1991 currency crisis in India?

    The 1991 financial crisis was caused due to currency overvaluation.

    Who was the finance minister of India in 1991?

    Manmohan Singh was the finance minister of India in 1991.

    Who was the prime minister in 1991 in India?

    P. V. Narasimha Rao was the prime minister of India in 1991.

  • Impact Of Blockchain In Banking Sector

    From early history, the banking industry has been acting as an intermediary to conduct financial transactions. Technology has always had an impact on the banking system. Major banks and financial institutions are realizing that blockchain technology could vastly improve the efficiency of their processes –particularly in cross-border payments – and reduce costs. A Blockchain is a digital, immutable, distributed ledger that chronologically records transactions in near real-time. Blockchain in the banking sector can play a key role in helping Indian banks and financial institutions realize significant benefits. Blockchain proposes a solution for this criticism as well as provides a competitive advantage over the Fintech industry.

    The banking industry represents a major part of the global economy. Banks are the biggest and oldest financial intermediaries around the world. Over time, the technology-facilitated Automated Teller Machine (ATM), electronic fund transfer, electronic clearing service, real-time gross settlement, online banking, debit-credit cards, and mobile banking to the customers. Today, the banking industry is reliant on technology, and therefore, blockchain could prove to be the game-changer in the industry.

    Blockchain
    Blockchain

    Fraud Prevention

    Protection from identity theft and fraud is a constant challenge for everyone involved in buying and selling. Blockchain’s decentralized technology can enable banks and financial institutions to be more effective in the areas of fraud management and money laundering.

    KYC/AML

    Current KYC procedures which are used by leading banks and corporations around the world are completely dependent on human beings and are therefore slow and inefficient. Know Your Customer(KYC) and Anti-money Laundering(AML) is very essential for the identification of clients and also for preventing and tracking crime. Blockchain technology has proved to be very effective and compelling for cryptocurrencies to run successfully but it’s not the only thing that it can be utilized for. Creation of a common KYC & AML registry that could be utilized by various banks & financial institutions. This would drastically increase the process and reduce the expenses of KYC compliances. KYC & AML registry could be utilized for intra-bank purposes also. For KYC document storage, it makes sense for the banks to develop a shared private blockchain.

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    Faster Payments

    The World Economic Forum estimates that 10% of global GDP will be stored using blockchain by 2027. Most of this will be captured within cryptocurrencies. Unlike traditional currencies, cryptocurrencies enable quick transactions, secure, and global. Blockchains are revolutionizing the world of payments by fulfilling the bank’s desire for faster processing. Cryptocurrencies have barely been used for everyday payments and purchasing due to a few complications with regulation and trust. Cryptocurrencies have barely been used for everyday payments and purchasing due to a few complications with regulation and trust.

    Forest is an open-source blockchain platform specially developed for high-speed private payment. This platform integrates a large number of the latest technologies in the field of blockchain technically. The main objective of a payment ecosystem is to use a decentralized network to enhance payments and financial settlement.

    Centralised Payment System
    Centralised Payment System

    Clearance and Settlement systems

    A Distributed Ledger Technology (DLT) like blockchain could enable bank transactions to be settled directly and keep track of them better than existing protocols such as Society for Worldwide Interbank Financial Telecommunication (SWIFT). DLT is viewed by many as having the potential to disrupt payment, clearing, settlement, and related activities. DLT could reduce the traditional reliance on a central ledger managed by a trusted entity for holding and transferring funds and other financial assets.

    Proponents of the technology highlight its ability to transform financial services and markets by:

    • Reducing complexity
    • Improving end-to-end processing speed and thus the availability of assets and funds
    • Decreasing the need for reconciliation across multiple record-keeping infrastructures
    • Increasing transparency and immutability in transaction record-keeping
    • Improving network resilience through distributed data management
    • Reducing operational and financial tasks

    The use of DLT, however, does not come without risks. In most instances, the risks associated with payment, clearing, and settlement activities are the same irrespective of whether the activity occurs on a single central ledger or a synchronized distributed ledger. Which said that DLT may pose new or different risks:

    • Potential uncertainty about operational and security issues arising from the technology
    • The lack of interoperability with existing processes and infrastructures
    • Ambiguity relating to settlement finality
    • Questions regarding the soundness of the legal underpinning for DLT implementations
    • The absence of an effective and robust governance framework
    • Issues related to data integrity, immutability, and privacy

    Fundraising

    Fundraising has been taking place for as long as people have been using money to carry out business transactions. Blockchain is becoming another source of capital for entrepreneurs.

    ‘It’s a brand new way of transmitting money without the need for traditional banking networks, as well as a means to store data in a transparent and unalterable way’. – Sean Williams of Motley Fool

    Blockchain can be used as a source of funding. The main thing is the ‘ICO’ or Initial Coin Offering.

    There are three types of ICO tokens:

    • A currency token is one that has a corresponding ‘fiat’ value. Bitcoin is an example.
    • A utility token is a hybridized token that has a stored value based on the economics of supply and demand. Utility tokens are typically used for things like in-app purchases. An example is Ethereum.
    • A security token represents real-world securities or assets. A security token can be efficiently fractionalized and can represent ownership in a fund. Examples of security tokens include Blockchain Capital (BCAP).

    To gain funding for the project, the developer issues a limited amount of tokens (could be utility or security). The tokens must have a limited amount because:

    • It makes sure that the ICO has a goal to aim for
    • As the demand rises and the supply of tokens diminishes, it makes sure that the value of the tokens will go up. The tokens have a predetermined price which may go up or down depending on the demand.

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    Security in Banking Sector

    Blockchain technology is being used to protect sensitive records and to authenticate the identity of a user. Keyless Security Infrastructure (KSI) stores data hashes on blockchains and runs a hashing algorithm for their verification. Public Key Infrastructure (PKI), an encryption approach that is particularly vulnerable to man-in-the-middle and DDoS attacks. Blockchain has emerged as one of the most disruptive technologies and has minimized the prevailing security issues in financial transactions.

    • Blockchain removes the middleman in asset rights transfers, lowering asset exchange fees, giving access to wider global markets, and reducing the instability of the traditional securities market
    • Moving securities on the blockchain could save $17B to $24B per year in global trade processing costs

    IDC’s most recent five-year forecast, which goes through 2023, indicates that blockchain spending will be led by the banking sector with approximately 30% of the worldwide total.

    Banking Security
    Banking Security

    Loans and Credit

    According to Experian, fintech consumer lending has more than doubled in just four years, growing from a 22.4% share of personal loan originations in 2015 to 49.4% in 2019. Before the rise of banks, loans and repayments took place peer-to-peer. People had to trust each other. Built on a distributed ledger, the very nature of its design is trustless and decentralized. This makes it possible to transfer ownership of an asset from one person to another. The benefits for banks of utilizing blockchain technology are much the same as for individual loan providers, but perhaps even more useful for larger institutions.

    According to a report issued by the World Economic Forum, by the year 2025, 10% of the world’s GDP will be stored on the blockchain.

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    Trade Finance

    Trade Finance in its simplest form can be seen as the financial transactions of both domestic and international trade that take place between a seller and a buyer facilitated by intermediaries such as banks and financial institutions. These trade finance transactions generally include lending, issuing letters of credit, factoring, export credit, and insurance. While blockchain is already being used by many industries ranging from manufacturing, healthcare to real estate, or government application, one of the main industries that can benefit from this technology is trade finance.

    Blockchain Trade Finance procedure:

    • Receiving and classification of trade documents
    • Extraction of data from the recorded documents
    • Generation of valid reports for cross-documentation and transaction
    • Automatically validating the data between documents and generated reports is done
    • Document scrutiny is performed adhering to various rules and regulations

    Digital Identity Verification

    Digital identity arises organically from the use of personal information on the web and the data created by the individual’s actions online. The identity and access management market is expected to grow from $8.09 billion in 2016 to $14.82 billion by 2021, representing a 12.9% CAGR. Managing digital identities done by three Cs – Cumbersome, Costly, and Challenging. Blockchain has evolved significantly from the distributed ledger technology created to track bitcoin ownership. Blockchain can empower users to have greater control over their own identities. Blockchain has facilitated the so-called self-sovereign identity, which is inherently unalterable and more secure than traditional identity systems.

    Users sign up to a self-sovereign identity and data platform to create and register a DID. During this process, the user creates a pair of private and public keys. A decentralized identifier (DID) is a pseudo-anonymous identifier for a person, company, object, etc. Each DID is secured by a private key. Only the private key owner can prove that they own or control their identity.

    In principle, self-sovereign identity would allow users to :

    • Control their identities
    • Access and update information
    • Choose the information that they prefer to keep private
    • Transport the data
    • Delete the identity if that’s what is wanted