FED RATE HIKE AND MY MONEY

This article is totally different from your present scenario. As I am always looking futuristic view with economy because it is nothing but my money.

Fed rate hike -hot topic now .why it is important why I know these things? How I related to it?

The answer is you are not related but it relates to you. In economics every thing is related to you in complex way.

Don't just scroll but read......

what is the relation between fed rate and my pocket.

I am not deep with the concept of fed rate coz it will take at least a week to discuss. so I just give you the outline and proceeds.

What is fed rate?

The interest rate at which banks and other depository institutions lend money to each other, usually on an overnight basis. The law requires banks to keep a certain percentage of their customer's money on reserve, where the banks earn no interest on it. Consequently, banks try to stay as close to the reserve limit as possible without going under it, lending money back and forth to maintain the proper level.

How it works:
Like the federal discount rate, the federal funds rate is used to control the supply of available funds and hence, inflation and other interest rates. Raising the rate makes it more expensive to borrow. That lowers the supply of available money, which increases the short-term interest rates and helps keep inflation in check. Lowering the rate has the opposite effect, bringing short-term interest rates down

Why Fed has decided to increase the Interest Rate after almost a decade.

1. The number of Americans filing for unemployment benefits have reduced over the last five months. It was the 41st straight week that claims that unemployment remained below 300,000, a threshold associated with strong labor market conditions. That is the longest such run since the early 1970s.

2. The other factor that contributed to rise in interest rate is the low inflation.

How it will impact our economy?

Investors borrow in low interest currencies, leverage their positions and invest in other risky assets around the world namely other currencies, stocks, commodtities etc. Each asset class is assigned a risk premium. This is the extra return investor expects in taking that risk investing in that asset class, say indian stock markets and so on. This way of investing is known as 'carry trade' . Borrowing in lower interest rate currency, leverage and investing in other asset classes. 

When US increases interest rates, investors evaluate the whole set of things. Carry trade try to get liquidated as much as possible. They dispose off risky asset clases, deleverage and repay. This process will set off a selling spree in the asset classes. Sudden outflows cause temporary mismatches in curreny positions, causes currency depreciation,  aggregates selling across asset classes. 

2. Worldwide there is always a universal demand for US dollars. When interest rates are increased in US, this causes liquidity of  dollars to dry or diminish. The external commercial borrowings of corporates in India will face pressures for repaymemt of principal and interest payments.  

Individual country's currency depreciation vis a vis USD holds the key to the enormity of effects on increase of interest by US.

Most important points to consider.

Last 2 days the USA wall street records high becoz of this.
Now it open with flat for waiting the meet outcome.

The interest rate hike is like ours. When the interest hike normally they wants to hold our money within the country. Hold the people money within the country.

As we encourage fii invade in our market at the time the interest rate is lower. So they can use "CARRY TRADE" for investing some good market like india. You just refer our market trend in 2014 Dec which was saddened rise.

When demonitation takes place some how investors predict that the fed rate hike. So they try to convert their position and may be went to native.

Minority stocks falls MF Hit bad. However the thing is now more complicated with agreement on CRUDE OIL with OPEC and NON OPEC.

Already crude oil price is increasing with above statement. As us point of view they want to reduce inflation in basic. that will control DOLLER restrictions. So if I want DOLLER for some purpose I pay more money.

The value of Indian rupee may fall coz of import. Our govt taking steps to restrict the gold purchase (import only).crude oil is on another hand we can't do any thing.

My pocket:
I may spend more for fuel.
Import costlier.
Trade deficit.
Inflation may be arise.

All other factors which is related to import & fuel is affected.

Thank you.

Payment Banks vs Traditional Bank

My Guru Mr SOMA SUNDARAM suggest me for given things regarding PAYMENT banks which is not a perfect competitor for traditional banking system.

The below points concentrate based in what RBI panel suggest and USSD code for transfer.

1. Payment Banking System - Recommanded by Nachhiket,

2. Target audience: small businessmen and poor people. (low income households).

3. Potential candidates to run Payment banks: mobile phone companies, consumer goods companies, post office system, agri/dairy type cooperatives and Corporate Business correspondents.

4. Scheduled commercial banks can open payment banks as their subsidiaries.

5. Payment bank will have to keep CRR (Cash reserve ratio) just like other Scheduled commercial banks (SBI, ICICI etc).

6. Payment banks cannot hold more than Rs.50,000 per customer. (This is similar to PPI- Pre-Paid Instrument Providers.)

7. Payment bank cannot involve in any credit risk. (similar to PPI),

*_Characteristics of Payment banks_*

a) Payment bank will enjoy all the rights and responsibilities of a Scheduled commercial banks (SCB- like SBI, ICICI, etc).

b) Entry capital requirement will be Rs.50 crore.

c) Payment bank cannot assume credit risk (they cannot sanction loans). So there is no danger of loan default/NPA.

d) Payment bank can invest money in SLR securities, but they are safe investments, customers can recover money.

e) Payment bank faces near-zero risk of default. so, they don’t need a large capital for emergency backup.

f) Nachiket recommended wholesale investment banks and wholesale consumer banks too.

M-Pesa is Kenya’s Payment bank. (Fundamentally, it is a Mobile payment service, just like our Airtel Money.)
M=mobile; Pesa=swahili word for money.
M-Pesa is the brainchild of Vodafone (=enemy#1 of our Income tax department) + Kenya’s local mobile company called Safaricom +IBM.

2006: M-Pesa launched. At this time, more than 70% of Kenya’s Juntaa didnot have bank accounts.

We can go to an M-Pesa outlet (local kiranawalla, shopping center, petrol pump, paan-ki-dukaan etc.)
Give him cash, he fills up our M-pesa electronic account with that money. (just like how you recharge your prepaid mobile).

This M-pesa Account is tied up with your mobile phone. Wherever you go, money goes.

M-pesa helps in money transfer between one person to another, international remittances (e.g. Kenyan worker from USA can send money home), utility bill payments and so on.
We can even borrow money from Microfinance Institutions (MFI) via mobile phone (and later repay the loans, via same mobile phone).
M-Pesa size and Success:

More than 75% of Kenya’s juntaa uses M-Pesa system
More than 25% of Kenya’s GDP flows through M-Pesa system.

M-Pesa also offers a separate model called “M-Shwari” to give 2-5% interest rate on your money saved in that M-Pesa account.

If Payment bank model can succeed in Kenya, it can also succeed in India. (Atleast that’s what Mr.Nachiket believes).

M-Pesa model you saw above- it is nothing “radically new”- SBI, ICICI and all other big banks already offering such services via mobile banking platform, instead of opening new Payment banks, better just let those existing banks to give these banking-investment-insurance services through their branches, mobile banking, internet-kiosks, business correspondents and bancasurrance model.

OR
Mr.Nachiket could have simply recommended “all PPIs like Airtel money should pay interest on the money held in digital wallets.” instead of coming with a new type of “payment banks”, that is not 100% financial inclusion

Financial inclusion is a bigger thing than mere “payment/money transfer”- Financial inclusion means access to complete bouquet of financial services —banking, investment, insurance, pension – everything.
But that’s very difficult to achieve through Payment bank system. (Because Nachi himself said, bank cannot assume “Credit risk”).

Schedule commercial banks also permitted to run Payment banks through their subsidiaries. That defeats the whole purpose because SBI is a giant elephant with large resources and manpower.

If it starts a payment bank then other small player’s payment banks cannot compete, and they’ll bleed in price wars.

Instead of allowing NBFCs and private companies to open “Payment banks” and compete with regular (commercial) banks, Nachiket should better suggest a model where they all can work in synergy to achieve 100% financial inclusion.

USSD and Conflict of Interest.

Suppose both Airtel and Idea got Payment bank license. We open a payment bank account with Idea but keep airtel phone number.

Then what if airtel charges more money per SMS when we want to do some net banking /balance inquiry about my Idea BANK account?
And airtel walla also promises me that if I open Payment bank account in Airtel, they’ll give free services.

To solve this problem, All mobile companies must be ordered:

to provide USSD connectivity as per recent TRAI regulations (Rs 1.5 per 5 interactive sessions.)
to categories all SMSs related to banking and financial transactions as Priority SMS services (with reasonable rates)
USSD connectivity for Banking
USSD=unstructured supplementary service data

USSD can be used for prepaid call-back service, location-based content services and menu-based information services.

Unlike SMSs, USSD messages create a real-time connection during a USSD session.

The connection remains open, allowing a two-way exchange of a sequence of data making USSD more responsive than services that use SMS.

TRAI cameout with guidelines on USSD that:
For banking related USSD, the mobile company can charge only Rs.1.50 per session.

This money will be charged on subscribers account (i.e. “balance” in your mobile phone).

ICICI and SBI have already launched their USSD Based mobile banking services.

My sincere thanks to
My Guru

Challenges for PAYMENT BANKS

I am coming here with an another article related to PAYMENT BANK's. And how banking is challenging to them.

Earlier I discussed about how payment banks will competitor with normal banks.

Now I explaining how they will change banking system.
I am not going through interior part of RBI guidelines. Out of 11 only 8 will function/ functioning. 3 cholamandalam, Dilip shanitilal shanhvi (Manappuram) & tech Mahendra Ltd withdraw. so 8 1) Aditya Birla nuva Ltd, 2) airtel m commerce service Ltd, 3) postal depot 4) fino paytech Ltd 5) NSDL 6) Reliance industries Ltd 7) Vijay Shekhar Sharma (Paytm) 8) Vodafone m pesa Ltd. Are in race.

Here I noted another point some micro finance companies apply for private bank licence 1) Bajaj fin serv 2)m&m fin serv 3) tata capital 4) India bulls hsg.

Here some technical issues for your consideration.
Fino paytech Ltd has tie with ICICI, NSDL with IDBI, reliance with SBI.AB nuva with idea.

Some questions will arises 1) why big jambavan TATA not in payment bank?
2) why tech Mahendra, cholamandalam & Manappuram withdraw?

You just think in the way of THANI ORUVAN style. tata & m&m applied and awaited for bank licence, cholamandalam & manpuram already in NBFCs so will apply for bank in future.

I heard from some where but can't remember "India is poorest country then why are you eager to do business?"answer is " India is a biggest Market place".

Who occupied most of these market just think....
It is nothing but our telecom most of us having it not only have but OWN.

I started with AB NUVA with idea. Idea is on the great communication networks in our country. AB also owned many retail shops and company with trusted customers but the issue is reaching customers with potential.

Next one is AIRTEL already started. they having enormous No of customers with 24*7 customer support. They already rehearsal with airtel money. But not a big deal in banking. Many outlet of airtel haven't proper KYC details. Migrant people is the problem.

Postal is a new venture they came with rural people's help. but biggest challenge is know how's and implementation.

Fino paytech with icici fino having good opportunity to learn entire banking with wealth management from ICICI. No problem with technology. But accessing middle and low class people's need.

NSDL with IDBI. NSDL is expertise in demat, depository and repository just record keeping. But banking is new to them. Technology wise one of the great venture. Very clean KYC.

RIL with SBI. RIL got permission from RBI and introduced JIO offer with PAKKA KYC compliance with Aadhaar provide free internet for mar 31st.now they are the fastest growing telecom sector. Beat whatup also. Sbi also has high no of customers and big team of  KNOW HOWs and technology knowledge. Very easy to reach customers with 3rd party products other than banking. JIO clouds are clear only after RIL withdrawn the DATA pack.not predictable wait and watch.

Paytm already reached small shops what we seeing in every day news paper. The invest huge amount for that.

Vodafone is the only company will effect trouble if same scenario going on (jio fear).

So all companies without help of bank will suffer initially.but will recover with KNOWHOWs.
Customer support is another issue becoz finance is the one of the sensitive area of people.

Service charges which is initially less but it will increase further. This will panic among people.

Traditional will not broken in one night but time consumable. The sustainable development will needed. Any small mistake or unrealised trust  will a loop hole of payment bank business.

KYC may be a big problem other than JIO & NSDL.

The retail outlet trust is biggest question mark.

Implementation and advertising problem. If all of the above company resolve the problem what PSU banks faced past will be shorted otherwise complex.

Cashless transactions - socialistic pattern of Capitalism.

Cashless transactions - socialistic pattern of Capitalism.

I am going to use this article to simply outline with basic economic concepts of socialistic pattern & Capitalism. Not statistical point of view.

We are living in the world of
Capitalism may be Are we are moving right now. I can't think how we will grown without Capitalistic pattern. Communism may be in the other hand most of it eat by capitalist. We just surviving in the present scenario.

Let's discuss cashless economy many newspaper discussed about that I am not touched or boring with it.as of know we have some little knowledge about cashless economy. Whether it will create socialistic pattern? I definitely say with big YES.

HOW?
whenever the corruption eliminate - money from one hand to other is may restrict with fear of TAX. every shops in a country going to CLT. They will register their shop and try to fix a wage the rules says that the registered company must access EPF for their employees. Govt may instruct the shops to get group insurance. If it is possible every shop try to retain Their labours so competitive is more for labour. This will cover the people's two needs health & retirement.

Another thing is education.
You just think about education system in India and how the institutes will comparative with global. What's our position. With in short span of time how numerous ENGG college started?. Who is our professors? Teachers?.

2 months ago I was going through FAULT LINES written by our EX governor RAGHU RAM G RAJAN. He has outlined one of the USA economy fault line is education system at the time of sub prime crisis. The same thing placed now in our country.

Who is our teachers?
Know how demand with inadequate supply. Persons are high but know how's?
Ex: if I know 100 things I shared 50 of it, that listener shared 25 out of 50. The above is sharing pattern.
If a college consist of his senior student as a staff than what is the OUTPUT.
So production wise unhealthy. Then How one will get good job. They always forced to work like seasonal employment.

The cashless system may eradicate unwanted currency circulation in educational institution. That will induced comparative ness among college they try to post some good know how's for attract students and increase placements.

Three things completed.
1) health 2) education 3) Job.

The above pattern has possible when CLT takes place in all places. If one can got above three with out govt's much intervention. just one CLT take place with full pledged.

The competitive Capitalistic society's create SOCIALISTIC pattern.

I don't want the country like Denmark. Our people must access their basic needs without any intervention.