Understanding Types of RBI Rates

There has been a lot of buzz in the news about cutting down the repo rates, bank rates, SLR, CRR etc. to control the money supply in the market. We already know that cutting down the rates would increase the money with the commercial banks which can lend the same to the investors who in turn boost the economy with their investments. Also there would be an increase in the private and public consumption. This process is called quantitative easing. Now the question is what are these ratios.  Read More »


What Union Budget of India 2015-16 should include

Finance minister Arun Jaitley will present Union budget of India for 2015-16 on 28th February. Now there are some points which should be included in it.

  1. Infrastructure Projects – There are nearly 5 lakh crores worth of infrastructure projects which are stalled. The reason being inflation, rise in prices of cement and other materials. Banks are not willing to give them loans due to the risk of possible default. The budget should present a plan under which it should give preference to some selected projects which can be completed. This would ensure that capital is not blocked.
  2. Retrospective Tax Laws – Tax system in India is very uncertain. On one side we are asking to “Make in India” and on the other side there is a confusion in the tax regime, particularly retrospective tax system. There should be stable tax laws to eliminate the fear of uncertainty among the potential investors. This would give FDI and FII a big boost.
  3. Labor Laws – Labor laws in India also need an overhauling. Stringent checks should be placed. Trade unions and companies should work together on specified set of rules to prevent conflicts.
  4. Goods and Services Tax (GST) – GST is the much-awaited taxation structure. The reason being simplified tax laws. It will eliminate cascading effect. Credits of excise duty which is included in cost can’t be taken by the trader against the VAT paid and other case where credit of CST is not available against VAT. This is a double taxation system which will be eliminated in GST regime. Main hurdles are being faced due opposition from state governments fearing loss of power and funds.
  5. Boost Public and Private Consumption – This can be encouraged by giving public more disposable income at hand which is possible by some tweaks in tax slabs i.e. increasing the exemption limit to Rs. 300,000. More consumption means more investment which in turn would boost the economy. Cutting repo rate by 25 basis points is the first step which is already taken by the RBI.
  6. Good Samaritan Law – As per wiki “Good Samaritan laws offer legal protection to people who give reasonable assistance to those who are injured, ill, in peril, or otherwise incapacitated. The protection is intended to reduce bystanders’ hesitation to assist, for fear of being sued or prosecuted for unintentional injury or wrongful death.” We really don’t need any reason not to consider this. Thousands of people are being killed in road accidents and bystanders are not willing to help them because of fear of exploitation by police along with other fears like monetary loss. A law should be made where expenses incurred by Samaritan should be reimbursed and she should not be given any trouble for her good deeds. Anyone, including the policemen, going against the rules or misbehaving with samaritans should be punished with fine or imprisonment or both.

FDI vs. FII vs. FPI

For the sake of simplicity, home country is assumed to be India.

You are a businessman living in USA and you have idle funds which you want to invest then you have 3 ways to do it.

  • If you have large capital base then you can try opening a business by acquiring a business in India or setting up a new unit. (FDI)
  • If you have normal capital base and you don’t have time to look after the business but still want to have the controlling interest in India then you can choose to acquire equity of company in India. Say 20-30%. (FPI)
  • If you already have a good portfolio but you want to diversify investments, you may consider investing in securities like debentures, bonds, shares or real property etc. in India. (FII)

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Securitization is the financial practice of POOLING various types of contractual debt such as

  1. Residential mortgages,
  2. Commercial mortgages,
  3. Auto loans or
  4. Credit card debt obligations

and selling said consolidated debt as bonds, pass-through securities, or collateralized mortgage obligation (CMOs), to various investors.

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Satyam 9000 Crore Scandal

The biggest corporate scandal in India, Satyam Scandal where the promoter and chairman Ramalinga Raju fudged the accounting inflating assets and understating liabilities manipulating accounts by $1.47 billion (present value is approximately Rs. 9000 Crores).

  1. Inflating Receivables (Sales) – He raised fake invoices and used an emergency system of feeding the same to the company’s inventory management software thus bypassing validations. He also generated a “Super User” code that enabled him to hide the fake invoices for obvious reasons. CBI said in a statement

    Investigations revealed that the accused have already entered 6,603 out of these false and fabricated invoices amounting to Rs 4,746 crore into their books of accounts thereby inflating the revenues of the company to this tune.

  2. Understated Liability – It amounted to Rs. 1230 Crores.
  3. Overstating no. of Employees –CID told in court that the actual number of employees is only 40,000 and not 53,000 as reported earlier and that Mr. Raju had been allegedly withdrawing Rs. 20 Crores every month for paying these 13,000 non-existent employees. Read More »
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