Project Sashakt: 5 prong strategy on stressed asset resolution

What is Project Sashakt and how it will work

Finance Minister Piyush Goyal unveiled 'Project Sashakt', a five-prong strategy to deal with non-performing assets. Sashakt aims to strengthen the credit capacity, credit culture and credit portfolio of public sector banks.

The Centre accepted Project Sashakt in the first week of July 2018,which is a five-pronged strategy to resolve bad loans, with the larger ones going to an asset management company (AMC) or an Alternative investment fund (AIF)

What is Project Sashakt?

Project Sashakt was proposed by a panel led by PNB chairman Sunil Mehta.  The Five-Prong Approach is as under:-

1. Outlining SME Resolution approach for Bad loans of up to ₹50 crore - which will be managed at the bank level, with a deadline of 90 days.

2. Bank-led Resolution Approach for bad loans between ₹50-500 crore - Under this approach banks will enter an inter-creditor agreement@, authorizing the lead bank to implement a resolution plan in 180 days, or refer the asset to NCLT. 

3. AMC_AIF Resolution Approach for loans above ₹500 crore - The panel recom­mended an independent AMC, supported by institutional funding through the AIF. The idea is to help consolidate stressed assets.

4. NCLT / IBC Resolution Approach &

5. Asset-Trading Platform Approach.

How will the national AMC work?

According to the committee, banks will have to set up an AMC under which there will be multiple sector-specific AIFs. These funds will invest in the stressed assets bought by existing ARCs, such as ARCIL. The ARCs will use the funds to redeem security receipts issued to banks against the bad loans. Other AMC-AIFs and ARCs will be allowed to bid for these assets, and match the pricing offered by ARCIL or the national AMC. The AMC will be responsible for the operational turnaround of the asset.

Who will own the stressed asset?

The ARC after buying the asset from lenders will transfer ownership to the AIF. The new owner, the AMC-AIF, will hold a stake of at least 76%.

What do investors think about the plan?

While investors are optimistic about the AMC-AIF structure, they believe that pricing will be key to complete the transaction. The Mehta panel suggested that the bidding process follow a market-led approach, inviting bids from AMCs, ARCs and AIFs. Existing players, such as ARCIL and the national AMC, will be allowed to set the floor price for the bad assets, while other players will be asked to either match the price or better it.

What is the money involved?

The total quantum of bad loans worth ₹500 crore or more is estimated at ₹3 trillion. According to SBI chairman Rajnish Kumar, the AMC will require funds of ₹1.2 trillion, assuming a 40% loan recovery. Of this, 60-70% is expected to come from domestic institutions and banks, including SBI, and the remaining 30-35% from foreign investors. The AMC will require funding for six to 24 months, said Kumar.

@ Inter-Creditor Agreement:- Banks and financial institutions, including SBI, PNB and LIC entered on 23rd July 2018, into an overarching inter-creditor agreement (ICA) to fast-track resolution of stressed assets of Rs 50 crore or more which are under consortium lending. The ICA is being signed by 22 public sector banks (including India Post Payments Bank), 19 private sector banks and 32 foreign banks. Besides, 12 major financial intermediaries, like LIC, HUDCO, PFC and REC are also signatories to the pact, according to the agreement. 

As many as two dozen lenders signed the inter-creditor agreement (ICA) on Monday the 23rd July 2018, to tackle bad loans between Rs 50-500 crore, adding up to Rs 3.1 lakh crore. Under the agreement, a borrower will be given an opportunity to ‘cure’ the default and a reference for resolution will be made within 30 days of the default, if not repaid.

The agreement, part of the government’s measure to deal with bad loans under Project Sashakt, will be effective by the end of this month. Under the pact each resolution plan will be submitted by the lead lender to an Overseeing Committee. “The lead lender that is the lender with the highest exposure shall be authorized to formulate the resolution plan, which shall be presented to the lenders for their approval." 

Under the ICA framework, the decision making will be by way of approval of ‘majority lenders’, those with 66 per cent share in the aggregate exposure. Once a resolution plan is approved by the majority lenders, it will be binding on all the lenders that are a party to the ICA. Each resolution plan that is formulated in terms of the ICA shall be in compliance with the RBI circular and all other applicable laws and guidelines.

While the agreement will primarily focus on the Rs 50-500 crore category, it can also be used for assets within the Rs 500-2,000 crore range. According to the agreement, the lead bank will be paid a fee for its services. 

एनपीए की समस्या से निपटने हेतु ‘सशक्त’ योजना की घोषणा

सरकार बैंकों के फंसे हुए कर्ज (NPA) की समस्या से निपटने के लिए प्रोजेक्ट सशक्त का ऐलान किया है. इसके तहत पांच सूत्रीय फॉर्मूला पेश किया गया है. सरकार इसे एनपीए से निपटने के लिए लांग ट्रम स्ट्रेटजी बता रही है. सरकार एनपीए की समस्या से निपटने के लिए बैड बैंक नहीं बनाने जा रही है लेकिन वह इसके लिए असेट मैनेजमेंट कंपनियों और स्टीयरिंग कमेटियों का गठन करेगी.

देश के सरकारी बैंकों के एनपीए अर्थात् नॉन परफॉरमिंग एसेट्स की समस्या को दूर करने के लिए एक समग्र नीति लागू किये जाने की घोषणा की गई है. यह समग्र नीति ‘प्रोजेक्ट सशक्त’ के नाम से लागू होगी जिसे सुनील मेहता की अध्यक्षता में गठित समिति की रिपोर्ट के आधार पर तैयार किया गया है.

'सशक्त' योजना के तहत पांच सूत्री फॉर्मूला लागू किया जाएगा. वित्त मंत्री पीयूष गोयल ने कहा कि देश में करोड़ रुपये से ज्यादा राशि के 200 बैंक खाते हैं. इनमें तकरीबन तीन लाख करोड़ रुपये के कर्ज फंसे हैं.

प्रोजेक्ट योजना सम्बंधित प्रमुख तथ्य

•    पचास करोड़ रुपये तक के फंसे कर्ज खातों के निपटारे के लिए हर बैंक में एक संचालन समिति का गठन किया जाएगा. इसका फायदा छोटी व मझोली कंपनियों को सबसे ज्यादा होगा कि उन पर ही 50 करोड़ रुपये तक का एनपीए है.

•    समिति 90 दिनों के भीतर इन सभी खातों के बारे में फैसला करेगी कि इन्हें और ज्यादा कर्ज देने की जरुरत है या इनके खाते को बंद करने की जरुरत है.

•    50 से 500 करोड़ रुपये तक के एनपीए खाता के लिए यह फैसला किया गया है कि उनके बारे में लीड बैंक की अगुवाई में फंसे कर्जे के निपटारे का फैसला किया जाएगा.

•    इस श्रेणी के खाताधारकों को एक से अधिक बैंक कर्ज देते हैं इसलिए एक कर्ज देने वाले बैंकों के बीच एक समझौता किया जायेगा.

•    500 करोड़ रुपये से ज्यादा राशि के अन्य एनपीए खाते जिनका निपटारा एएमसी के जरिए भी नहीं हो सकेगा उन्हें दिवालिया कानून के तहत ही सुलझाया जाएगा.

•    इसे लागू करने के लिए इन बैंकों की एक स्क्रीनिंग समिति भी गठित होगी जो यह देखेगी कि तय नियमों का पालन पारदर्शी तरीके से किया जा रहा है या नहीं.

सुनील मेहता समिति का गठन

जून 2018 में वित्त मंत्री पीयूष गोयल ने पंजाब नेशनल बैंक की अगुवाई में समिति का गठन किया गया जिसकी अध्यक्षता सुनील मेहता को सौंपी गई. इस समिति को ‘बैड बैंक’ जैसी संरचना की व्यावहारिकता परखने एवं दो सप्ताह में संपत्ति पुनर्निर्माण कम्पनी के गठन के लिए सिफारिश देने के लिए कहा गया. इस समिति में स्टेट बैंक ऑफ़ इंडिया के चेयरमैन रजनीश कुमार, बैंक ऑफ़ बड़ोदा के प्रबंध निदेशक एवं मुख्य कार्यकारी अधिकारी पी एस जयकुमार तथा एसबीआई के उप प्रबंध निदेशक सी वेंकट नागेश्वर शामिल थे.

लाभ

इस योजना का लाभ यह होगा कि इन ग्राहकों से ऋण वसूलने का झंझट बैंकों पर नहीं रहेगा. गोयल ने बताया कि एएमसी पूरी तरह से बाजार आधारित होंगे और देश में एक से ज्यादा एएमसी का गठन हो सकता है. इसमें देसी-विदेशी कंपनियां भी शामिल हो सकती हैं. यह प्रावधान किया जा रहा है कि एएमसी 60 दिनों के भीतर एनपीए का निपटारा करेंगे.

स्ट्रेस्ड एसेट से निपटने के लिए करीब दो दर्जन कर्ज देने वाली संस्‍थाओं ने एक समझौता किया है। इस समझौते में शामिल ज्‍यादातर सरकारी बैंक हैं। इन सभी के बीच में इंटर क्रेडिटर्स एग्रीमेंट (ICA) पर हस्‍ताक्षर हुए। इस समझौते के बाद 500 करोड़ रुपए तक के स्ट्रेस्ड एसेट का जल्‍द निपटान किया जा सकेगा।

सशक्‍त प्रोजेक्‍ट का हिस्‍सा है यह समझौता

यह समझौता सशक्‍त प्रोजेक्‍ट का हिस्‍सा है। पीएनबी के पूर्व चेयरमैन सुनील मेहता की अध्‍यक्षता में एक कमेटी बनी थी, जिसकी सिफारिशों के आधार पर यह योजना बनाई गई थी। इस कमेटी ने जुलाई की शुरुआत में अपनी रिपोर्ट सौंपी थी। इस कमेटी में अन्‍य दो सदस्‍यों में SBI के प्रमुख रजनीश कुमार और बैंक ऑफ बड़ौदा के प्रमुख पीएस जयाकुमार शामिल थे।

-इस समझौते के बाद बैंक और अन्‍य वित्‍तीय संस्‍थानों के बीच एक प्‍लेटफार्म तैयार हो जाएगा जो NPA में फंसे पैसों की वसूली में मदद करेगा। इस वक्‍त बैंक और वित्‍तीय संस्‍थानों का करीब 12 फीसदी पैसा बैड लोन के रूप में है। इस समझौते की मदद से बैंक अपने 50 से 500 करोड़ रुपए तक के फंसे हुए लोन की वसूली तेजी से कर सकेंगे।

ज्‍यादा बैंक ले चुके हैं बोर्ड से अनुमति

मेहता के अनुसार इंटर क्रेडिटर्स एग्रीमेंट हो चुका है। ज्‍यादातर बैंकों ने अपने बोर्ड से इसकी अनुमति ले ली है और जो बाकी हैं वह यह प्रोसेस तेजी से पूरा कर रहे हैं। इस कदम का उद्देश्‍य फंसे हुए कर्ज की वसूली तेज करना है। उनके अनुसार आज यह ए्ग्रीमेंट 18 सरकारी बैंकों, तीन निजी क्षेत्र के बैंक सहित एग्जिम बैंक ने इस पर साइन किया है। उनके अनुसार अभी कई बैंक और वित्‍तीय संस्‍थान इस समझौते पर साइन करेंगे। यह संस्‍थान अपने बोर्ड से इस सबंध में अप्रूवल लेने की तैयारी में है।

जुलाई के अंत तक इस पर शुरू हो जाएगा काम

उन्‍होंने कहा कि जुलाई के अंत यह समझौता आपरेशनल हो जाएगा। उन्‍होंने आशा जताई कि जल्‍द ही सभी बैंक इसका हिस्‍सा बन जाएंगे। मेहता के अनुसार इस समझौते पर विदेशी बैंकों ने अभी साइन नहीं किया है। इसके लिए उन्‍हें अपने बोर्ड से अप्रूवल लेना होगा।

बैंकों का फंसा है काफी पैसा

मार्च 2018 तक बैंकों का 50 से लेकर 500 करोड़ रुपए का बैड लोन करीब 3.10 लाख करोड़ रुपए का है। वहीं 50 करोड़ रुपए से कम के लोन में बैंकों का करीब 2.10 लाख करोड़ रुपए फंसा हुआ है।

 Dainik Bhaskar dt. 24th July 2018

Source: Financial Express, Business Standard, Live Mint & Economic Times, Jagran Josh, Nai Dunia Jagran, Dainik Bhaskar

Liquidity and its Management by RBI

                 

With Rs 4.8 trillion of excess funds flooding the system, the RBI  shifted its policy focus to liquidity management by raising reverse repo rate by 25 bps and slashing MSF by an equal measure. In its First Bi-Monthly Monetary Policy on 6th April 2017 RBI stressed upon the "Liquidity Management". 

                 The central bank also promised to have a more effective liquidity management tool in a new instrument called a Standing deposit facility (SDF) at the earliest. 

                  It is therefore essential for a common man to know what is meant by Liquidity Management. It is our endeavour to make common man understand about Liquidity and Liquidity Management.

             Liquidity: Liquidity Means available cash in the economic system, be it neutral, deficient or surplus. Availability of the higher amount of cash in the system leads to lowering/softening of the interest rates, whereas deficiency of cash may lead to higher interest rates even without the RBI intervention.  Similarly availability of the liquidity in the system influences RBI policy action either through increase or reduction in the policy rates.

    

           RBI's Apprehensions : The banking system had excess cash. In March, the average liquidity was about Rs 4.81 lakh crore, which was conducive to lower overnight rates. In fact, inter-bank call money rate dipped about 65 bps lower than the policy or repo rate at 6.25%. This was clearly not in RBI's comfort zone and could well upset its policy stance. RBI likes to have overnight rates within 15-25 bps range over the policy rate. The central bank changed its policy stance to `'neutral'' from “accommodative“. A neutral stance is contrary to surging liquidity in the system.

                 Reasons for Excessive Liquidity: The Government's move of demonitisation by banning Rs 500 and Rs 1000 SBN's wef 8th Nov 2016 has flooded the economic system with cash and high Bank deposits. Now with the remonitisation the situation has started coming to normalcy.

         RBI's Tools for Sucking Excess Liquidity from the system:  With the remonitisation drive of the Government after 31st December 2016 and RBI to print new Currencies and the removal of cash withdrawal limits the excess cash from the system is being withdrawn. This is yielding positive results in addition to the traditional tools such as Open market operations, Cash Management Bills (CMB) and reverse repo auctions.

          Impact of Narrowing of LAF Corridor by increasing Reverse Repo rate: By increasing the reverse repo rate the RBI has curbed volatility. This will help short term rates to increase thereby bringing them in line with the policy rates. We expect the short term bonds to outperform long term bonds. Short term bonds are less sensitive to the policy outlook as well as to global risks. In the past few days the policy move has yielded positive results in raising overnight rates.

              Liquidity vs Inflation: Since the Economic System which is having excess liquidity is prone to Inflationary tendency. Since RBI's prime objective is to control Inflation RBI focuses on the Management of Liquidity in the system. RBI Governor Mr. Urjit Patel said liquidity management has become important now to contain inflation 

Source: Economic Times, Business Line

What is the difference between a Money Bill & a Finance Bill?

In the Parliament whenever the Budget session starts the Ruling and Opposition Parties Deliberate on whether the Bill to be introduced should be a Money Bill or Finance Bill, Recently the NDA Govt. has passed the Four (4) supplementary GST Bills as a Money Bill despite the opposition demand for Finance Bill.  But for the common man Money Bill and Finance Bill are a confusing one. Hence this article is based on to distinguish between the two types of Bills.

see pdf : What is the difference between a Money Bill & a Finance Bill?  

[Money Bills are governed by articles 108, 109, 110, 111 and 117 of the Constitution and Rules 72, 96, 103 to 108 of the Rules of Procedure and Conduct of Business in Lok Sabha.]

Source: Central Govt. Act  - Constitution of India, Indian Express, Economic Times  & GK Toda

Fed Rates Rise - In depth: US interest rates

Why have rates in the US been held so low for so long?

The US was hit by the crash in its housing market and banking sector between 2007-09. The Fed felt it needed to pull out all of the stops to prevent the economy from collapsing into a new Great Depression. One way of keeping things afloat was by cutting the cost of borrowing to rock-bottom levels.

Will rates return to pre-crisis levels?

Not for the foreseeable future, according to Fed policymakers’ own projections. The Fed believes the rate compatible with stable growth and prices has sunk sharply because of the lingering effects of the crisis and will increase only gradually. In this subdued post-crisis world, the central bank will need to keep its foot on the accelerator for some time to come.

How does a rise in central bank interest rates get transmitted to the wider economy?

Adjusting the federal funds rate - the rate banks charge each other for short-term loans - affects other short-term rates paid by firms and households. These movements also have knock-on effects on long-term rates, including mortgages and corporate bonds. Changes in long-term rates will have an influence on asset prices, including the equity market. During the crisis the Fed also purchased longer-term mortgage backed securities and Treasury bonds to lower the level of long-term rates. These purchases could now make the mechanics of raising rates more complicated for the Federal Reserve.

US ECONOMY

Is the US economy ready to cope with more interest rate rises?

That is the trillion dollar question - and opinions vary widely. To optimists, the Fed has managed to engineer a respectable recovery that is outshining many other economies. They say a quarter-point increase, as the Fed has announced, would have a negligible impact but is a sensible first step to ensure the Fed stays ahead of inflation. Sceptics warn that inflation remains on the floor and the Fed risks roiling world markets and pushing up the value of the dollar.

Are businesses ready for increased borrowing costs?

Many corporations have taken advantage of the low rate environment to borrow money via the bond markets. Most companies say they are relaxed about the impact of a small rate hike, believing the market has already priced their bonds or such an event. However, some economists say the interest payments for companies who have issued low-grade debt could rise more quickly.

What will higher interest rates mean for consumers

An upward move in short-term interest rates will be positive for savers who have been missing out on interest on their deposits. But the change could also be transmitted to a range of other interest rates, including car loans, credit cards and mortgages, which would make them more costly. However, the burden of household debt has fallen since the crisis, reaching 114 per cent of net disposable income last year, according to OECD statistics, suggesting consumers are better prepared for higher borrowing costs.

Financial Markets

How are investors reacting to higher US interest rates?

Investors' immediate reaction to the first rate rise in nearly a decade was generally one of relief that it is finally happening. The end of the Fed’s “zero interest rate policy” has been anxiously anticipated by investors for more than a year, but policymakers have worked hard to stress that the coming monetary tightening cycle will be exceptionally gentle, to avoid a repeat of the market “taper tantrum” that erupted when they announced the end of quantitative easing. From the intial market movements after the rate rise decision was announced, it seems they have succeeded

How are currency traders positioning themselves?

Currency markets are fickle, but differences in interest rates tend to drive movements in the longer-run. For example, if a European investor can borrow cheaply in Berlin and buy a higher-yielding US bond, then all else being equal the dollar will rise versus the euro. As a result, the dollar started the year in rip-roaring fashion, with an index measuring the US currency against a basket of its peers rocketing to a 12-year high, as investors bet on the Fed tightening monetary policy and bond yield differences widened.

Since then it has continued to beat up emerging market currencies but the broad rally has fizzled out as the euro and the Japanese yen have regained their footing. However, many analysts and fund managers expect the greenback to continue to climb higher in the coming years, as the Fed raises interest rates further.

What investments are most sensitive to interest rate rises?

Almost every asset class on the planet exhibits some evidence of frothiness these days, but some seem more vulnerable to higher interest rates. Normally, higher interest rates indicates that economic growth is firm, and that is good for listed companies. Gold typically loses its shine when interest rates climb, as the metal doesn’t pay any interest like a bank account will, but has already been beaten up heavily recently. The bond market looks more exposed. Highly rated debt is trading with very low yields, which means they are vulnerable to even a modest rise in Fed interest rates, while bonds issued by companies rated “junk” could suffer if more expensive borrowing tips some weaker groups into bankruptcy.

Will the UK follow the US in raising rates?

There is no automatic or formal link between US and UK interest rates but the widespread expectation is that the Bank of England will be the next central bank after the US to raise rates. The UK’s economic recovery is well on track, with solid growth and a strong labour market.

The Bank of England typically follows the Federal Reserve's lead

Historically, US and UK market interest rates, as measured by government bond yields, have also moved in tandem. These are the rates, set by the financial markets that feed down into the real costs of borrowing for households and companies.

Bond yields move in tandem

What are we expecting from UK interest rate rises?

Bank of England governor Mark Carney has stressed that while the next move in rates is likely to be upwards, the path of increases will be “limited and gradual”.

In the most recent meeting of the Bank of England's rate-setting monetary policy committee, all nine members again voted to keep interest rates at historic lows of 0.5 per cent. Most forecasters have now pushed back their estimates for when the BoE will raise rates. JP Morgan believes a rate rise won't come until the first quarter of 2017.

Global Reaction

Are all major central banks around the world thinking of raising interest rates?

No. As the prolonged weakness in oil prices continues to keep inflation low, many central banks in the rich world are expected to loosen monetary policy further, for example by expanding their programmes of quantitative easing. Mario Draghi, president of the European Central Bank, paved the way for an extension of QE and the Bank of Japan cut its rates to negative territory in January. In China, the central bank may also cut rates further to stimulate growth. The outlook for emerging markets is harder to gauge: were a Fed hike to trigger turmoil across Africa, Asia and Latin America, countries there may choose to cut rates to help the economy, or increase them in order to dissuade investors from taking their money abroad.

Why would a rate rise in the US impact emerging market countries?

We have already seen one of the main impacts: a stronger US dollar. Backed by higher US interest rates, the dollar tends to depress the values of emerging market currencies at a time when many EM economies are already weakening and their currencies have already slumped against the greenback. The Fed’s rate rise could exacerbate the EM currency turmoil, and even help precipitate a full-blown crisis.

Jargon Buster

What is tightening and loosening?

When a central bank “loosens” or “eases” policy it essentially increases the supply of money in the economy and pushes down the cost of borrowing. This could be by lowering interest rates, or buying more assets with the aim of putting more money into circulation and encouraging greater economic activity.

“Tightening” is the opposite. If policymakers worry that an economy is begin to overheat, potentially generating too much inflation, they can tighten policy – such as raising the interest rate they charge banks to borrow from them, to make the cost of credit more expensive.

Changes to interest rates can take up to 18 months to feed through into the real economy.

What is monetary policy?

Central bankers control more than just interest rates. “Monetary policy” is a broad brush term for a whole range of actions, including things like selling or buying assets such as government bonds, raising or reducing the amount of capital banks need to hold against liabilities, and raising or lowering interest rates.

All of these actions impact the cost and supply of money in an economy which are the main levers central banks use to try and keep inflation at its target level and the economy growing at a sustainable speed.

Changes in monetary policy can take-up to 18 months to feed through into the real economy.

Who makes the rate decisions within the Federal Reserve?

The Federal Open Market Committee, sometimes called the FOMC. This group of people are responsible for determining monetary policy, which means they decide whether rates will go up or down. The FOMC has 12 voting members: The seven people on the Fed's board of governors, plus five of the 12 regional reserve bank presidents, on a rotating basis. 

Who are these FOMC members?

The Federal Open Market Committee within the Federal Reserve has changed its look following it regular rotation of members at the beginning of 2016.

Fed-watchers like to pigeonhole officials as hawks, who favour tighter policy, or doves, who want stimulus. Preferences on policy reflect many underlying issues, however, and with the state of the economy in constant flux, it is never easy to predict how a given official will vote. Janet Yellen, the Fed’s chair, for example, is traditionally seen as a dove, but that did not stop her presiding over the first rate increase in nearly a decade in December 2015.

Issues that will matter in 2016 include the weight Fed officials place on inflation versus unemployment; how far they think factors such as energy prices, the dollar and slack in the labour market will hold back inflation; their optimism about economic output; and the degree to which they worry about financial stability.

Below is the Financial Times 2016 guide to the voting members of Fed’s FOMC, how they think about monetary policy, and a tentative judgment on whether that makes them a hawk, a dove, or somewhere in between.

THE DOVES	THE HAWKS	OTHERS
Janet Yellen	Stanley Fischer	Jerome Powell
Lael Brainard	Loretta Mester	Kathryn Dominguez
Daniel Tarullo	Esther George	Allan Landon
William Dudley	James Bullard
Eric Rosengren

Source Financial Times

Peer-To-Peer Lending (P2P)

Peer-To-Peer Lending (P2P)
A method of debt financing that enables individuals to borrow and lend money - without the use of an official financial institution as an intermediary. Peer-to-peer lending removes the middleman from the process, but it also involves more time, effort and risk than the general brick-and-mortar lending scenarios. This is also known as "social lending".
The advantage to the lenders is that the loans generate income in the form of interest, which can often exceed the amount interest that can be earned by traditional means (such as from saving accounts and CDs). Plus P2P loans give borrower’s access to financing that they may not have otherwise got approval for by standard financial intermediaries.

The method is not without its disadvantages as the lender has very little assurance that the borrower, who traditional financial intermediaries may have rejected due to a high likelihood of defaults, will repay their loan. Furthermore, depending on the lending system employed, in order to compensate lenders for the risk that they are taking, the amount of interest charged for peer to peer loans may be higher than traditional prime loans.

The key differences on P2P lending platforms are:
• The lenders are individuals who are lending their own money.
• These individual lenders look for a certain amount of responsible behaviour from potential loan seekers which means if one has too many cheques bouncing, their chances of getting a loan is very low.
• Articulating your need and being truthful about your repayment capacity is something lenders look for when they look at a borrower listing for giving him a loan.
• Month end balances are a key factor in deciding which borrower to give loan to and lenders place a great emphasis on this as this signifies spending patterns.
• Being accurate about the end use of the loan amount is very important in getting an offer from a lender.
• Vague statements do not inspire confidence in lenders. So if one needs money for education or for an function or to buy something , be specific on the end use of the loan. This will help in building credibility with lenders.
• Finally one has to give as much information as much as possible

Leading P2P lenders online are : www.faircent.com , www.i-lend.in,www.lendbox.in .

Source:

Peer-to-Peer Lending | Personal Loans | P2P Loans India | Faircent

a community loan exchange platform offers P2P lending and personal loan at low interest rates in India. Best investment plans for your money.

FAIRCENT.COM

Crude Oil - Impact of Fall in prices in Indian Economy – Falling Prices impact Favourable OR Adverse

क्रूड ऑयल, कीमतें घटने का कहां पड़ता है असर - कच्चे तेल की कीमतों में गिरावट से सिर्फ फायदा नहीं

Crude oil Prices

Crude Oil is a commodity whose prices are governed globally. Economy of various countries is solely dependent on the price movement of crude oil. The rise and fall in the prices of crude oil impacts the lively hood of common man. This not only impacts the GDP growth of the country but for some of the countries particularly the Gulf countries this is the only source of Income for the country. On an average 924 lacs Barrel Crude oil is consumed globally of which share of consumption by the countries such as China, America, Japan and our country India is more. India ranks among the top 10 largest oil-consuming countries. India faces a large supply deficit; it imports about 70% of its total oil consumption and makes no exports. The oil reserves of the country are located primarily in Mumbai High, Upper Assam, Cambay, and the Krishna-Godavari and Cauvery basins. Crude oil plays a vital role in the Global Economy.

What is Crude Oil
Naturally available raw oil is known as Crude Oil. It is a Black coloured thick viscous fluid. It is a type of Dark Hydrocarbon matter found globally beneath the earth surface and/or sea available since past 30 crore years. It takes minimum 20 gallon gasoline to prepare one Barrel. Crude oil measurement is done in Barrels and one Barrel is equivalent to 159 litres.
CRUDE OIL UNITS 
1 US barrel = 42 US gallons. 
1 US barrel = 158.98 litres. 1 Gallon = 3.79 litres
1 tonne = 7.33 barrels. 
1 short tonne = 6.65 barrels. 
Note: barrels per tonne vary from origin to origin.

The Processing / Refining of crude oil is done in Oil Refinery through Fractional Distillation and we get by-products such as  Kerosene, Petrol, Diesel, Natural Gas, Vaseline, Lubricants

Types of Crude Oil

Crude Oil is of three types – Brent Crude, WTI. and Shale oil. Brent Crude is traded in London-UK and WTI  and Shale oil in USA. In India Brent crude oil is imported. In India Trading of Brent Crude is done.

Brent Crude
Brent Crude oil, extracted from the North Sea, is a sweet light crude oil with less than 0.4% of sulphur and an API gravity of 30 °API. It is light because of its relatively low density, and sweet because of its low sulphur content. In fact these are the two main characteristics by which crude oil are classified-sulphur content and density-which the petroleum industry measures by its American Petroleum Institute (API) gravity. Brent Crude is a mix of crude oil from 15 different oil fields in the North Sea and comprises Brent Blend, Forties Blend, Oseberg and Ekofisk crudes. The Brent Crude benchmark is known as the Brent Blend, London Brent, or Brent petroleum. 

Brent is the leading global price benchmark for Atlantic basin crude oils. Originally, Brent Crude was produced from the Brent oilfield. The name ‘Brent’ comes from the naming policy of Shell UK Exploration and Production, which originally named all its fields after birds (in this case the Brent goose). 

West Texas Intermediate (WTI)
West Texas Intermediate (WTI), also known as Texas light sweet, is a grade of crude oil used as a benchmark in oil pricing. This grade is described as light because of its relatively low density, and sweet because of its low sulphur content.It is the underlying commodity of New York Mercantile Exchange's oil futures contracts.

The price of WTI is often referenced in news reports on oil prices, alongside the price of Brent crude from the North Sea. Other important oil markers include the Dubai Crude, Oman Crude, Urals oil and the OPEC Reference Basket. WTI is lighter and sweeter than Brent, and considerably lighter and sweeter than Dubai or Oman. WTI is used in making low sulfur gasoline and low-sulphur diesel.

Crude Oil Production - Millions of barrels per day(MBD)

S. No.	Country	MBD
1	USA	13.7
2	Saudi Arabia	11.9
3	Russia	11.0
4	China	4.6
5	Canada	4.4
6	Iraq*	4.0
7	UAE	3.5
8	Iran*	3.4
9	Mexico	2.7
10	Kuwait	2.7

OPEC countries combined together have 40% plus share approx 63% in Global Oil Production.
Source: US Energy Information Administration; Data includes crude oil, lease condensate, natural gas plant liquids, and refinery processing gain; Updated Feb. 11, 2016.

Given the high volatility in oil prices, risk management techniques are of utmost importance for market participants, such as producers, marketers, processors, and industries. Amidst uncertainty, modern techniques and strategies, including market-based risk management financial instruments like ‘Brent Crude Oil Futures’, offered on the MCX platform can improve efficiencies and consolidate competitiveness through price risk management. A third type of Oil is Shale Oil - Difference between Oil Shale, Shale Oil & Shale Gas:- Shale gas: It is basically natural gas which is extracted by the process of fracking. Countries like USA and China are using this method. Oil Shale: Oil shale is the raw material for producing Shale Oil. It is organic rich rock from which shale oil is extracted. 3. Shale Oil: Shale oil is the oil produced from oil shale. It is a substitute for conventional crude oil. There has been a tremendous increase in the shale oil production in the recent years. It causes land pollution. For Details Please click on following Link: What are shale oil, shale gas and oil shale? and What is Shale Gas? What is OPEC Organization of the Petroleum Exporting Countries (OPEC) is an intergovernmental organization of 13 petroleum-exporting nations, founded in 1960 by the first five members, and headquartered since 1965 in Vienna, Austria. The 13 countries account for 40 percent of global oil production and 73 percent of the world's "proven" oil reserves, making OPEC a major influence on global oil prices. OPEC's stated mission is "to coordinate and unify the petroleum policies of its member countries and ensure the stabilization of oil markets, in order to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers, and a fair return on capital for those investing in the petroleum industry."  OPEC's members are Algeria, Angola,Ecuador, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia         (the de facto leader), United Arab Emirates, and Venezuela. Two-thirds of OPEC's oil production and reserves are in its six Middle Eastern countries that surround the oil-rich Persian Gulf. The formation of OPEC marked a turning point toward national sovereignty over natural resources, and OPEC decisions have come to play a prominent role in the global oil market and international relations. The effect can be particularly strong when wars or civil disorders lead to extended interruptions in supply.

MARKET INFLUENCING FACTORS ·         OPEC output and supply. ·   Terrorism, weather, war and any other unforeseen geopolitical factors that causes supply disruptions. ·         Global demand particularly from emerging nations. ·         Dollar fluctuations. Much of the economy depends on oil. This is why prices of oil matter to almost every economy. Global crude oil prices are down nearly by 60% this year to $40 per barrel-levels from $110 / barrel at the start of the year. This has caused a crisis in countries like Russia, which depends on oil exports.

India is the IVth largest country to import crude oil. Around 35 lakh Barrels per day consumption is estimated for India. India’s growth story hovers around the import of oil as India imports 80% of its crude requirements. Any negative change in the crude oil price has an immediate positive impact on the increment in the GDP and IIP. A one-dollar fall in the price of oil saves the country about 40 billion rupees. Oil is one of the most important commodities in recent times.

Fall in Oil prices affect India in following ways:

Current account balance:

India is one of the largest importers of oil in the world. It imports nearly 80% of its total oil needs. This accounts for one third of its total imports. For this reason, the price of oil affects India a lot. A fall in price would drive down the value of its imports. This helps narrow India's current account deficit - the amount India owes to the world in foreign currency. A fall in oil prices by $10 per barrel helps reduce the current account deficit by $9.2 billion, according to a report by Live mint. This amounts to nearly 0.43% of the Gross Domestic Product - a measure of the size of the economy.

Inflation:

Increases price of Goods and services ie. Rail, Road and Air Fares. Oil price affects the entire economy, especially because of its use in transportation of goods and services. A rise in oil price leads to an increase in prices of all goods and services. It also affects us all directly as petrol and diesel prices rise. As a result, inflation rises. A high inflation is bad for an economy. It also affects companies - directly because of a rise in input costs and indirectly through a fall in consumer demand. This is why the fall in global crude prices comes as a boon to India. Every $10 per barrel fall in crude oil price helps reduce retail inflation by 0.2% and wholesale price inflation by 0.5%, according to a Money control report. The fall in Inflation leads to reduced Transportation costs which in turn will lower price of Air, Railway and Bus fares. It also helps in reducing the prices of consumer durables, fruits and vegetables etc. The prices of paints, plastics, fertilisers, shipping etc. will also come down.

Oil subsidy and fiscal deficit:

Even it affects the PSU Oil Cos. profitability, in case of Diesel Prices which is deregulated,The PSU Cos have to buy more Dollars ($) to pay its Bills.The government fixes the price of fuel at a subsidized rate. It then compensates companies for any loss from selling fuel products at lower rates. These losses are called under-recoveries. This adds to the government's total expenditure and leads to a rise in fiscal deficit - the amount it borrows from the markets. A fall in oil prices reduces companies' losses, oil subsidies and thus helps narrow fiscal deficit. However, since diesel was recently deregulated, the fall in oil prices will likely have less effect on the government's fiscal deficit. Moreover, the government still has to pay for previous under-recoveries. Any benefit from the fall will be offset by payments for the past under-recoveries.

Rupee exchange rate:

The value of a free currency like Rupee depends on its demand in the currency market. This is why it depends to a great extent on the current account deficit. The fall in crude oil price is good for all users, including major importers like India, as it lowers their trade deficit and hence strengthens their currencies. A high deficit means the country has to sell rupees and buy dollars to pay its bills. This reduces the value of the rupee. A fall in oil prices is, thus, good for the rupee. However, the downside is that the dollar strengthens every time the value of oil falls. This negates any benefits from a fall in current account deficit.

Petroleum producers:

The fall in global oil prices may be beneficial to India, but it also has its downsides. Directly, it affects the exporters of petroleum producers in the country. India is the sixth largest exporter of petroleum products in the world, according to media reports. This helps it earn $60 billion annually. Any fall in oil prices negatively impacts exports. At a time when India is running a trade deficit - high imports and low exports, any fall in exports is bad news. Moreover, a lot of India's trade partners and buyers of its exports are net oil exporters. A fall in oil price may impact their economy, and hamper demand for Indian products. This would indirectly affect India and its companies. For example, the share prices of Bharti Airtel and Bajaj Auto fell because of the devaluation of the Nigerian currency - Naira. Both the companies have a significant presence in the African country.

Monetory Policy:

The decline in crude oil prices helps the Reserve Bank of India to cut interest rates during the credit policy review and thus helps in Growth of the economy.

Negative effects of Decline in Oil Prices

A high deficit means the country has to sell rupees and buy dollars to pay its bills. This reduces the value of the rupee. A fall in oil prices is, thus, good for the rupee. However, the downside is that the dollar strengthens every time the value of oil falls. This negates any benefits from a fall in current account deficit.

For the oil exporters, this is bad news as it lowers their export earnings, and given that most countries are dependent on oil exports, their growth would suffer. Domestic consumers might only see a small portion of their income "freed up" as the government's increase of excise duties on diesel and petrol mean that retail prices haven't fallen by as much in India as they have elsewhere.

The decline in the Crude oil prices has brought loss of approx 2 Lac crore to Oil exploration industry. These cos. are at a loss and are not able to meet their cost of production. The Cos. are facing the challenge of reducing their production. If these cos. Are not able to come out of this situation at the earliest they will be facing Bankruptcy like situation. International Energy Agency(IEA)  has warned of economic situations like that of Russia and Venezuela. The  IEA had predicted Crude oil demand at 9 lac BPD in 2015. Decline in crude oil prices means Less Income for the Exporting Country. Since the Decline of Oil prices will affect Global demand in International Market and in turn affect Exports from India

Current Outlook 

With crude oil prices rebounding since February 2016 to around US$ 40.00 per barrel the experts believe that oil prices may not remain at lower level for long and may hover around this level in near future.The OPEC is also making efforts to convince the oil producing countries to limit the output to check at least further fall in oil prices. However, the experts also stated that the oil demand will grow at 12% a year in next 5 years as compared to 17% annual growth during the period 2009-2015. The next meeting of OPEC with Non-OPEC members is scheduled on April 17th 2016 to arrive at a decision to Cap the Oil production limit. In the meantime Iran has also added additional oil supply to the market after the US lifted its sanction on Iran.

Source
- Mcx
- Kotak Mahindra Securities
- ET
- http://money.bhaskar.com/news-cppst/MON-EXPR-MARK-crude-oil-fall-impact-on-indian-economy-4933843-NOR.html
-http://www.forbes.com/sites/judeclemente/2015/08/07/indias-rise-to-3rd-place-in-oil-demand/