Indian Banker Feb 2023

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English & Hindi Monthly Volume X Issue 7 Mumbai

February 2023 Pages: 68 Price: ` 60
What Ails Primary Cooperative Banks

A Multidimensional Analysis
dAsHboArd
Dashboard
1. Banking and Money: All Scheduled Commercial Banks (` Crore)
Outstanding as on % Variation Over
End March
Dec 30, 2022 Dec 31, 2021 Last Month Last Year 25.03.2022
Aggregate deposits 17,734,124 16,241,244 2.54 9.19 7.71
1. demand 2,201,728 2,063,433 7.33 6.70 6.22
2. Time 15,532,396 14,177,811 1.90 9.55 7.92
bank Credit 13,304,393 11,683,413 2.75 13.87 11.89
1. Food 53,972 88,680 3.32 -39.14 -1.89
2. Non-food 13,250,421 11,594,733 2.75 14.28 11.95
Cash in Hand 98,615 94,196 -12.30 4.69 14.77
balance with rbI 841,612 716,432 3.32 17.47 23.14
Investments 5,096,044 4,607,985 0.22 10.59 7.76
Money Supply as on 30.12.2022 31.12.2021
M3 (a+b+c+d) 21,859,357 20,114,298 2.16 8.68 6.69
a. Currency with Public 3,122,019 2,880,907 0.92 8.37 2.78
b. dem. dep. with banks 2,341,912 2,202,572 6.81 6.33 5.83
c. Time dep. with banks 16,332,494 14,979,774 1.82 9.03 7.55
d. other dep. with rbI 62,932 51,045 -11.00 23.29 20.15
2. Price % Variation Over
2022 2021 Month Year
WPI: 2011-12=100 (dec 2022) 150.4 143.3 -1.1 5.0
CPI: 2012=100 (dec 2022) 175.7 166.2 -0.5 5.7
3. deployment of Gross bank Credit by Major sectors (` Crore)

20.11.2020 19.11.2021 18.11.2022 Y-o-Y [2020-21] Y-o-Y [2021-22]
% %
Gross bank Credit 10,434,880 11,162,193 12,947,735 7.0 16.0
World Bank Growth Projections (In Percent)
Non-food Credit 10,345,924 11,079,778 12,895,495 7.1 16.4
Agriculture & 1,263,993 1,402,221 1,595,185 10.9 13.8

Allied Activities
Industry 2,817,624 2,913,713 3,294,514 3.4 13.1
[Micro/small/Medium/Large]
services 2,647,806 2,733,821 3,315,747 3.2 21.3
Personal Loans 2,819,694 3,174,145 3,800,330 12.6 19.7
4. Forex reserves As on A year ago

(Including Gold & sdr) 14.01.2022 13.01.2023
` in Crore 4,707,359 4,652,927
Us $ Million 634,965 572,000
5. bank rate Percent Effective
1. bank rate 6.50 07.12.2022
2. MCLr (overnight) 7.30/8.40 06.01.2023
6. Term deposit rate > 1 year (%) Percent 2022/2023 source:business standard (Global Economic Prospects)
dec-23 dec-30 Jan-06 Jan-13
6.00/7.25 6.00/7.25 6.00/7.25 6.00/7.25
7. Exports, Imports & Trade balance (` Million)
oct-22 Nov-22 dec-22 % oct-Nov % Nov-dec
Trade balance -2,257,421.90 -1,912,054.60 -1,959,917.20 15.30 -2.50
Exports 2,601,675.50 2,850,992.00 2,843,111.70 9.58 -0.28
Imports 4,859,097.40 4,763,046.60 4,803,028.90 -1.98 0.84
8. ratios Percent date

1. Crr 4.50 w.e.f. 21.05.2022
2. sLr 18.00 w.e.f. 17.04.2020
3. repo rate 6.25 w.e.f.07.12.2022
4. Fixed reverse repo rate 3.35 w.e.f. 22.05.2020
5. Marginal standing Facility (MsF) rate 6.50 w.e.f. 07.12.2022
6. Cash dep. ratio 5.30 as on 30.12.2022
7. Investment dep. ratio 28.74 as on 30.12.2022
8. Credit dep. ratio 75.02 as on 30.12.2022
9. Index of Industrial Production - sectoral [base: 2011-12=100] 2022-23

Mining Manufacturing Electricity General
Growth Apr-Nov 4.7 5.0 9.8 5.5
Growth over corresponding period of the previous year (Nov) 9.7 6.1 12.7 7.1
10. Capital Markets (` billion)
sep-22 oct-22 Nov-22 dec-22
Capital Issue 876.2 342.0 1,348.2 1,245.5
Public Issue 39.3 22.5 134.3 113.9
rights Issue 3.3 13.0 4.4 6.3
Private Placements 833.6 306.4 1,209.5 1,125.3
Call Money rates (Weighted Average) as on 13.01.2023 - 6.09%
11. Prime rates / Policy rates as on dec 2022 / Jan 2023 (% p.a)
Us CANAdA ECb JAPAN sWIss brITAIN HoNG KoNG
7.50 6.45 2.50 1.48 1.50 3.50 5.63
(As lending practices vary widely by location, these rates are not comparable)
Sources: 1,2,4,5,6,8 - RBI Weekly Supplement 3 - RBI 7,10 - CMIE 9 - MOSPI 11 - Different Central Banks
2 The Indian banker Vol X No. 7 - February 2023

EdITor’s NoTE
Indian Banks’ Association
Head office:
blocks 2 & 3, stadium House, 6th Floor, 81-83
Veer Nariman road, Mumbai 400 020, India.
Tel + 91-22-22824846
Editorial office:
World Trade Centre, Centre 1, 6th Floor, Cuffe
Parade, Mumbai 400 005, India.
Tel : + 91-22-22174019
Fax: + 91-22-22184222
Editor’s Note
Website: iba.org.in, theindianbanker.co.in
e-mail: [email protected],
[email protected]
Despite their localised presence in large numbers and important role in the last
mile reach, Primary Cooperative Banks, popularly known as Urban Cooperative
Chief Executive & Editor
Banks (UCBs), are witnessing their market share being slowly taken away by
sunil Mehta
other banks. In the cover story of this issue, Dr Ashish Srivastava argues that
UCBs have not been able to create a niche for themselves and face many
challenges, presents a multidimensional analysis of the issues internal to their
IBA Communication Department working and functions, and suggests a way forward. The dimensions are
b N Mishra
cooperative structure, business model and positioning, capital and market
senior Advisor
relativity, scale, cost-efficiency, and governance. In the articles on the Indian
economy, Dr Rashmi Tripathi traces the current dynamics of inflation in India
sangeeta shenwai
senior Vice President
against the backdrop of inflationary trends in major economies, looks into
key factors driving inflation globally, and concludes that the interest rate cycle is
suresh shroff yet to peak in India. In the Hindi section, Satish Singh uses various economic
Manager
indicators to prove that the Indian economy has recovered quite quickly and
there is hardly any risk of recession.
Advertising In the area of emerging financial technologies, Arif A Khan explains the
Finsight Media, concept of Decentralised Finance (DeFi) based on cryptocurrency and
[email protected] Blockchain, which enables peer-to-peer transactions, and discusses the potential
risks of this model. In another article, Manoj Srivastava describes the evolution
Subscriptions of Open Network for Digital Commerce (ONDC), a government of India
subscription rates 1 Year 3 years initiative to promote platform-independent open networks for the exchange of
Member bank Employees* ` 400 ` 1,000 goods and services and its intended role in empowering both end-consumers
other Individuals / and small traders. The increasing use of such technologies has necessitated
Institutions ` 600 ` 1,500 the development of regulatory technology (RegTech) to ensure regulatory
overseas subscriptions Us$150 - compliance. Thomas Mathews gives a comprehensive account of this
* A certificate from the appropriate authority confirming the technology. In the legal area, Anil Kumar Bansal visits the ‘Doctrine of
status should be enclosed. Priority of State Debts’ and analyses its impact on the recovery of banks’ dues,
Printed and published by sunil Mehta on behalf of citing the relevant case law. A report on the one-day introductory seminar on
Indian banks’ Association, printed at M/s Printrade ESG (Environmental, Social & Governance) organised in December completes
Issue (India) Pvt. Ltd., Unit No. 10 Pragati Industrial this issue.
Estate, 316, N. M. Joshi Marg, Lower Parel, Mumbai-
400 011 and published at Indian banks’ Association,
blocks 2 & 3, stadium House, 6th Floor, 81-83,
Veer Nariman road, Mumbai 400 020.
Editor: sunil Mehta
Sunil Mehta
The views expressed in The Indian Banker are not necessarily
the views of the Indian Banks’ Association or the
bank/institution to which the author belongs.
Design, Content and Marketing Support by

Finsight Media Pvt Ltd
Vol X No. 7 - February 2023 The Indian banker 3

CoVEr sTorY
Vision
To work proactively for the growth of a
healthy, professional and forward looking,
banking and financial services industry, in a
manner consistent with public good.
Office Bearers
Chairman
A K Goel
Deputy Chairmen CoVEr sTorY

dinesh Kumar Khara
A s rajeev
Madhav Nair
Honorary Secretary
What Ails Primary 12
dr N Kamakodi Cooperative Banks
Members
sanjiv Chadha Zarin daruwala
Matam Venkata rao - Dr Ashish Srivastava
Gaurav Gupta
shanti Lal Jain Kaku Nakhate
soma sankara Prasad Ashu Khullar
ArTICLE
A Manimekhalai Ajay Kanwal
swarup Kumar saha Vinod G dadlani Tracing the Current Dynamics 20
Ajay Kumar srivastava Arti Patil
rakesh sharma Atul Narayan Khirwadkar
of Inflation in India
shyam srinivasan s ramann - Dr Rashmi Tripathi
Amitabh Chaudhry Harsha bangari
b ramesh babu rajkiran rai G
r subramaniakumar

Contents
NEWsrooM 7
ArTICLE
Understanding Decentralised Finance (DeFi) 26
And Its Convergence with Centralised Finance (CeFi)
- Arif A Khan
ArTICLE
ONDC - Open Network for Digital Commerce 32
More Power to Consumers
- Manoj Srivastava
ArTICLE
RegTech Solutions 40
Driving the Regulatory andCompliance Landscape
- Thomas Mathew
LEGAL
Doctrine of Priority of State Debts 52
Impact on Recovery of Banks’ Dues
- Anil Kumar Bansal
EVENT roUNdUP 57
boI
^maVr` AW©ì`dñWm ‘| 62
‘§Xr Ho Amgma Zht
- gVre {g§h

EDITORIAL COMMITTEE
Ambikanand Jha Dr Rajib K Sahoo Shailesh Kumar Malviya

Deputy General Manager Deputy General Manager Deputy General Manager
UCO Bank Canara Bank Bank of India
Pradeep Kumar Bhool Sibi P M Aravind Kumar Pandey

Former DGM Former DGM Former DGM
State Bank of India South Indian Bank State Bank of India
Jayasree Menon Dr Rashmi Tripathi Dr Sulabha Kore

Senior Vice President DGM- Economist AGM (OL)
Indian Banks’ Association Canara Bank Union Bank of India
Uday Diwakar Manish Kumar Sharad Kumar Hari Misra

Former AGM AGM Former AGM Managing Director
Bank of Baroda Indian Bank State Bank of India Finsight Media

NEWsrooM
Newsroom
higher food and energy prices, current
policy measures provide much-needed
relief but add to existing policy
distortions. Controls on food prices
and energy subsidies benefit the
wealthy and draw government
spending away from infrastructure,
health and education. Lingering
regulatory forbearance, aimed to
ease lending through the pandemic,
can trap resources in failing firms
and divert capital from the most
dynamic sectors or businesses.
Major economies call for World

Bank climate overhaul
Germany has joined the United States

and other major economies in calling
East Asia and Pacific sustaining underway in most countries of East for a ‘fundamental overhaul’ of the
growth, restraining inflation, but Asia and the Pacific. As they prepare World Bank to better address climate
facing risks ahead for slowing global growth, countries change and other global crises.
should address domestic policy German Development Minister, a
According to a World Bank report, distortions that are an impediment to governor of the bank, said that the
growth in most of developing East longer-term development. bank's current model, which is mainly
Asia and the Pacific rebounded in 2022 based on demand from borrowing
from the effects of Covid-19, while Growth in much of East Asia and countries, is no longer appropriate in
China has lost momentum because of the Pacific has been driven by the this time of global crises. According
continued measures to contain the recovery in domestic demand, enabled to the German Minister, the group
virus. Looking forward, economic by a relaxation of Covid-related amounted to around 50 percent of
performance across the region could restrictions and growth in exports. the shareholders of the bank and
be compromised by slowing global China, which constitutes around 86 included the full G7, Australia and
demand, rising debt, and a reliance on percent of the region’s output, uses some others. Berlin, Washington and
short-term economic fixes to cushion targeted public health measures to ‘other shareholders’ have proposed
against food and fuel price increases. contain outbreaks of the virus, a series of reforms to World Bank
inhibiting economic activity. management and requested a roadmap
Growth in developing East Asia and by the end of the year. The German
the Pacific outside of China is forecast The global economic slowdown is Minister also stated that the reforms
to accelerate to 5.3 percent in 2022 beginning to dampen demand for the could include ‘climate lending on
from 2.6 percent in 2021, according to region’s exports of commodities and better terms’ or ‘targeted budget
the World Bank’s East Asia and Pacific manufactured goods. Rising inflation support for governments which want
October 2022 Economic Update. abroad has provoked interest rate to pursue policy reforms to make
China, which previously led recovery increases, which in turn have caused their economies climate neutral’.
in the region, is projected to grow capital outflows and currency The bank has to make it more
by 2.8 percent in 2022, a sharp depreciations in some East Asia and attractive for developing countries
deceleration from 8.1 percent in 2021. Pacific countries. These developments to use World Bank loans for climate
For the region as a whole, growth is have increased the burden of servicing action and biodiversity conservation.
projected to slow to 3.2 percent this debt and shrunk fiscal space, hurting
year from 7.2 percent in 2021 before countries that entered the pandemic The World Bank’s role in fighting
accelerating to 4.6 percent next year, with a high debt burden. climate change has come under
the report says. According to the scrutiny after comments from World
World Bank’s East Asia and Pacific As countries of the region seek to Bank that cast doubt on the science
division, economic recovery is shield households and firms from underpinning concerns about warming.

NEWsrooM
World bank has to work so fast now to The coalition government was systemically important banks.
create space for the climate problems already struggling to revive the Loss-absorbing capital is not paid
that many developing countries are International Monetary Fund (IMF) back in the event of major losses at
facing. The bank was looking for all programme. The global lender's latest banks. Instead, the capital is used to
ways to improve and expand resources. decision, however, has created a ‘absorb losses’ and thus reduce the
UK officials confirmed that much of hole of USD 1.5 billion against the need and likelihood of governments
the G7 was involved, although the final government’s annual financing plan. bailing out the institutions.
decisions were still under negotiation. Just before the revival of the IMF
Other G7 member countries and bailout package in August last year, China's four largest banks, Industrial
Australia did not confirm this. Most of the World Bank had agreed to and Commercial Bank of China,
the Multilateral Development Banks enhance its lending envelope to China Construction Bank, Agricultural
(MDBs) are constrained by strict rules cover a USD 300 million hole. All this, Bank of China and Bank of China,
regarding the financial risk that however, seems to have been lost due are required to hold TLAC, which
constrain the type of projects and to a lack of decision-making from the is equal to 16 percent of their
countries to which they can lend. federal government. risk-weighted assets, by January 2025.
This, coupled with new regulations
World Bank delays USD 1.1 The World Bank added that the in 2022 that widen channels for
billion loan to cash-starved preparation of the RISE-II operation TLAC-eligible issuances from these
Pakistan until next FY is underway, and the World Bank is banks, drive S&P’s belief that there
working closely with the government should be a flurry of issuance of
In a major blow to cash-strapped toward the implementation of senior non-preferred bonds by the
Pakistan, the World Bank has delayed supported reforms. For the current big four banks
the approval of two loans worth USD fiscal year, the government had
1.1 billion until the next fiscal year. hoped to receive USD 30 billion to The credit analyst of S&P Global
World Bank has also opposed slapping USD 32 billion in foreign financing, Ratings noted that a wider range of
a flood levy on imports, creating a but the plans now appear unrealistic. TLAC-eligible instruments will help
new hole in an already ambitious The financing plan included loans China's big four banks to narrow
USD 32 billion annual financing plan. worth USD 2.9 billion from the gaps in regulatory capital requirements
The bank's decision to withhold World Bank. With the current set to come into effect in 2025.
approval of the second Resilient foreign reserves standing at a mere The forecast for the gap has narrowed
Institutions for Sustainable Economy USD 4.3 billion, Pakistan may not be in part because bank profits have been
(RISE-II) loan worth USD 450 million able to reach June without support better than previously expected, whilst
and the second Programme for from foreign creditors. The United growth in the bank's risk-weighted
Affordable Energy (PACE-II) worth Arab Emirates is expected to give assets has slowed. Proactive issuance
USD 600 million will be a major jolt the county a USD 1 billion loan, and of regulatory capital instruments by
for the Pakistan government. The Saudi Arabia is also ‘studying’ the the big four banks over the past few
indicative date for (World Bank) Board possibility of extending an additional years has also narrowed the shortfall.
discussion of the RISE-II project is USD 2 billion. The government, On the upside, the banks have done
the fiscal year 2024, which will start on however, has not yet announced dates well against S&P’s estimates.
July 1, 2023, and end on June 30, 2024. for the disbursements. The lender
The bank’s documents also showed has conveyed its decision to the Banks in South Korea to
that the PACE-II loan might be federal government. maintain eased stance in
approved in the next fiscal year. extending loans
China’s big four banks face
The Pakistan government hoped $550 m short of meeting According to the reports Yonhap,
to receive approval for at least the loss provision based on a poll conducted by the Bank
USD 450 million loan in January, of Korea, banks in South Korea are
which would have unlocked another As per the S&P Global Ratings report, expected to maintain an eased stance in
USD 450 million from the Asian China’s four biggest banks are still extending loans in Q1. The lenders’
Infrastructure Investment Bank (AIIB), $550 m (RMB3.7t) short of meeting increased lending capacity and
which had pegged a USD 450 million the total loss-absorbing capital or intensifying competition to profit off
loan with the approval of the World TLAC provision in order to meet loans will drive this attitude. According
Bank’s RISE-II. international requirements for global to the poll, which included 18 banks,

NEWsrooM
the index gauging banks' lending Beijing and Guangzhou have not Many of China’s elderly prefer
attitude toward households and ventured out, with congestion traditional medicine when they need
businesses stood at 13 for the first levels still very low on working medical care.
quarter period. However, the Bank of days. The Chinese economy is
Korea warned that the credit risks for now projected to grow a little over It is quite concerning that almost all
borrowers in the first quarter would 3 percent in 2022, nearly half the shots have been of the Chinese
also be likely to increase due to a rising the official target of 5.5 percent vaccine, which is less effective and
debt burden from high borrowing announced earlier in the year. of shorter duration than Western
costs. A reading above zero means the This is the country’s worst economic alternatives. The zero-tolerance
number of lenders that will ease performance in decades and will policy has meant that there is no
lending surpasses that of banks mark the first time since 1990 that natural immunity either. Experts
planning to tighten lending criteria. China’s growth has lagged that of estimate that a surge in infections is to
its neighbours. be expected with the adoption of the
China’s reopening complicates new policy, and as much as 60 percent
the global fight against inflation Covid-19 has pushed industrial of the population could quickly
capacity utilisation rates to the lowest become infected.
Mainland China’s swift rollback of levels during the pandemic despite
many Covid-related restrictions has economic recoveries elsewhere in the The numbers already started
been unexpectedly sudden, revealing a world and production bottlenecks. skyrocketing, with cases exceeding
new set of economic challenges. In the With factories closed, consumer 40,000 a day in November, which have
last two weeks, local and central spending has fallen; retail sales since fallen some. Most experts,
government authorities relaxed several dropped 5.9 percent in November, though, attribute reduced testing rather
measures that had forced many people considerably worse than forecasts. than any successful containment effort
to stay home and businesses to operate This is an especially worrisome to that decline. The onset of winter
mostly remotely. Notably, the central development when the Chinese will aggravate conditions, as will the
government said last week that negative Communist Party stressed at the travel that accompanies the lunar new
virus tests and health code checks were 20th Party Congress a few months ago year celebrations. However, most
no longer needed to travel domestically. that ‘development is the Party’s top economists and experts, as well as the
priority in governing and rejuvenating Chinese people, applaud the changes.
Meanwhile, reports of locals falling ill China’. With youth unemployment Kristalina Georgieva, managing
have surged. Since late November, nearing 20 percent last summer before director of the International Monetary
orders for fever-reducing products and the mass protests, the party knows Fund, has welcomed the ‘decisive’
related medicines have surged tenfold. that its legitimacy rests on delivering steps by the Chinese government
There’s an ‘extraordinary shortage’ of jobs and prosperity. This explains the to adjust Covid-19 policies and said
medicines that factories can’t keep up announcement last week by Politburo, that they would help the regional
with, a situation is expected to last for the country’s supreme political economy. It is estimated that a
at least another 3 or 4 weeks. authority, that the government would 1 percent increase in China’s economic
focus on efforts to ‘forestall and growth would yield a 0.2-point gain
On top of the high demand, tens of defuse major economic and financial in the global economy.
workers at 111′s warehouses or offices risks’. Previous statements referred
in different parts of China have only to financial risks, suggesting that It is easy to overdraw conclusions from
tested positive for Covid, creating an recent protests have impacted recent developments. While the scale
‘extraordinary shortage’ of staff also. leadership thinking. Things are likely of the protests may have shaken the
This is a different challenge from to get worse before they get better; government, they are unlikely to have
earlier this year when widespread however, China’s vaccination rates, forced its hand. China is reopening by
Covid lockdowns meant thousands of especially among the elderly, the most choice, not a necessity. In addition,
new orders were getting stranded at vulnerable population, lag behind reopening will not goose the economy.
different distribution points each day. much of the rest of the world. The process will be uneven. Businesses
Social activity remains subdued amid While more than 90 percent of the are already reporting closures as the
the surge of infections and below- population has received two shots, less infection spreads throughout the
freezing weather in northern cities. than 70 percent of those over the age country. Lockdowns are still possible
Traffic data from Baidu indicate that of 80 are double vaccinated, and just if healthcare facilities are
most people in large cities such as 40 percent have received booster shots. overwhelmed. That prospect will

NEWsrooM
contribute to uncertainty and which six entities have been selected inflation in the food and beverages
complicate the resumption of normal for the test phase. The target group fell to 4.6 percent in December
economic activity. The rest of the applicants for entry to the regulatory 2022 from 5.1 percent in November
world must be ready for production sandbox were fintech companies, 2022. Inflation in the fuel and light
slowdowns and resulting bottlenecks, including start-ups, banks, financial group rose to 11 percent from
which will produce inflation or, at institutions, any other company and 10.6 percent in November 2022,
worst, a recession. More worrying for Limited Liability Partnerships (LLPs) while the clothing and footwear
the Chinese authorities are structural and partnership firms partnering with group inflation fell to 9.6 percent
problems, demographic issues, debt or providing support to financial from 9.8 percent. Inflation in
and weakness in the real estate sector, services businesses. miscellaneous items rose to 6.2 percent
as well as the intensifying trade war from 6 percent.
with the United States. The reopening The six entities are Bahwan CyberTek,
will add a new layer of complexity Crediwatch Information Analytics, Cabinet approves setting up of 3
and concern. enStage Software (Wibmo), HSBC in new cooperative societies
collaboration with Wibmo, napID
RBI notifies revised list of Cybersec and Trusting Social. These The Union Cabinet has granted
accredited Credit Rating entities have been allowed to test approval to establish three new
Agencies their fintech products to prevent and cooperative societies under Multi-State
mitigate financial fraud as a part of Cooperative Societies (MSCS) Act,
The Reserve Bank of India (RBI) the fourth cohort under the RBI's 2002, to promote organic products,
notified the revised list of accredited regulatory sandbox scheme. Regulatory seeds, and exports. The National level
credit rating agencies for the purpose sandbox refers to the live testing of Multi-State Cooperative Export Society
of assigning risk weight to assets for new products or services in a would provide thrust to exports from
capital adequacy purposes by the controlled / test regulatory the cooperative sector by acting as an
banks. Upon review, banks are advised environment for which the regulators umbrella organisation for carrying out
to use the ratings of the domestic may permit certain relaxations. The and promoting exports. It will act as an
credit rating agencies for risk weighting selected entities would commence umbrella organisation for the export of
their claims for capital adequacy testing their products in February. surplus goods / services produced by
purposes, including Acuite Ratings various cooperative societies across the
and Research Limited (Acuite), The regulatory sandbox allows the country with support from relevant
Credit Analysis and Research Limited regulator, innovators, financial service Union Ministries.
(CARE); CRISIL Ratings Limited and providers and customers to conduct
ICRA Limited. The other two rating field tests to collect evidence on the The National Level Multi-State Seed
agencies are India Ratings and benefits and risks of new financial Cooperative Society would act as an
Research Private Limited (India products. The objective of the apex organisation for production,
Ratings); and Infomerics Valuation and regulatory sandbox is to foster procurement, processing, branding,
Rating Pvt Ltd. Last October, RBI responsible innovation in financial labelling, and packaging, along with
dropped Brickwork Ratings India services, promote efficiency and bring storage and marketing of quality seeds.
Private Limited from the list of benefits to consumers. It will promote the Seed Replacement
accredited rating agencies. Rate (SRR) and Varity Replacement
CPI inflation fell to 5.7 percent Rate (VRR) and help reduce the yield
RBI allows six entities to test in December 2022 gaps and enhance productivity.
fintech products to deal with
financial frauds under the Retail price inflation, measured by The National Cooperative Society
sandbox scheme the Consumer Price Index (CPI), fell for Organic Products aims to
to 5.7 percent in December 2022 from benefit in unlocking the demand and
The Reserve Bank of India announced 5.9 percent in November 2022. This is consumption of organic products
the opening of the fourth cohort the lowest inflation recorded in the in domestic and global markets. It will
under the regulatory sandbox in June last 12 months. Inflation in urban India act as an umbrella organisation or
2022 for the prevention and mitigation fell to 5.4 percent from 5.7 percent in aggregation, procurement, certification,
of financial fraud. RBI received nine November 2022, and the same in testing, branding and marketing of
applications from June 15 to August 1, rural India dropped to 6 percent from organic products with support from
2022, under the fourth cohort, of 6.1 percent. At the all-India level, relevant Union Ministries. These

NEWsrooM
societies will help in achieving the Supreme Court allows states to regulates the NPS, India's voluntary
goal of ‘Sahakar-se-Samriddhi’ impose special road tax retirement savings scheme that
through the inclusive growth model was started in 2004 and now has
of cooperatives. The apex court has ruled that the 16.7 million subscribers, including
state governments can now impose a from the government and private
GST not payable on Government lumpsum road tax on all public sectors as well as from parts of the
incentive to banks for promoting transport vehicles. The tax collected unorganised sector.
RuPay card will be used to improve infrastructure
facilities. The levy is slated to be India's pension fund regulator has
In January 2023, the Cabinet cleared compensatory in nature, and therefore, recommended the federal government
INR 2,600 crore incentive scheme for it’s within the competence of a state introduce a UK-like pension scheme
banks to promote RuPay debit cards legislature. The verdict was given by a for the country's gig workers, a move
and low-value BHIM-UPI transactions bench comprising justices Sanjay K aimed at bringing about 90 percent of
in the current fiscal. Incentives paid Kaul, Abhay S Oka and Vikram Nath. the overall workforce into the pension
by the government to banks for The ruling came out in favour of the fold. PFRDA has recommended
promoting RuPay debit cards and state of Himachal Pradesh. Previously that employers deduct a part of
low-value BHIM-UPI transactions will the state's High Court had quashed their payouts from gig workers' and
not attract GST. the state government's notifications contribute that to the NPS scheme.
issued in the year 2000 for the levy of India's informal or unorganised sector
Under the incentive scheme for the lumpsum taxes and had held that it employs about 90 percent of the
promotion of RuPay Debit Cards could not be levied on general country's workforce, depriving them
and low-value BHIM-UPI transactions, assessment but as per actual default. of social security benefits. The number
the government pays banks an of gig workers, a large chunk of
incentive as a percentage of the value This is a landmark judgment that whom are delivery and sales personnel,
of RuPay Debit card transactions and recognises the power of the state is expected to reach 9.9 million in
low-value BHIM-UPI transactions up to impose taxes for its development. 2022-23, up about 45 percent from
to INR 2,000. This judgment will help the state to 2019-20, according to a report by
impose taxes for developing road thinktank NITI Aayog released in June.
The Payments and Settlements Systems and transport infrastructure. Now the
Act, 2007 prohibits banks and system state will be able to recover crores of Currently, Indian law mandates only
providers from charging any amount outstanding dues. The apex court firms with more than 20 workers need
from a person making or receiving said in the absence of any principles to enrol in the Employee Provident
payments through RuPay Debit cards having been laid down by the Fund scheme, which requires
or BHIM. In a circular to the chief parliament, no fault could be found contributions from both the employer
commissioners of GST, the ministry in the law enacted by the legislature. and employees. This leaves a vast,
stated that the incentive is in the nature The bench mentioned that the unexplored area of the unorganised
of a subsidy directly linked to the price objective of amending the current law sector not covered under any
of the service, and the same does not was compensatory in nature as it would pension scheme. The PFRDA's
form part of the taxable value of the augment funds and finance for the recommendation to bring these
transaction in view of the provisions of construction, maintenance, repair and workers into the pension fold
the Central GST Act, 2017. upkeep of the roads. replicates UK's pension system that
mandates every employer, even those
As recommended by the Council, the India's pension regulator with just one employee, enrol their
ministry clarified that incentives paid proposes bringing gig workers staff into a pension scheme and
by MeitY to acquiring banks under into pension fold: PFRDA contribute towards it. To make the
the incentive scheme for the promotion NPS scheme attractive, the regulator
of RuPay Debit Cards and low-value The Pension Fund Regulatory and has also suggested the government
BHIM-UPI transactions are in the Development Authority (PFRDA), double the annual tax exemption for
nature of subsidy and thus not which manages over $102 billion in subscribers to INR 100,000 ($1,208).
taxable. In December alone, UPI had assets, has proposed that workers at
achieved a record of 782.9 crore digital food and cab aggregators be Jayasree Menon, Senior Vice President
payment transactions with a value of automatically enrolled on the National Department of Research & Statistics
INR 12.82 lac crore. Pension Scheme (NPS). The PFRDA Indian Banks’ Association

What Ails Primary Cooperative Banks
Dr Ashish Srivastava
Introduction the return on assets, return on equity, and net interest

margin. While there was some deterioration in the position
Primary Cooperative Banks, popularly known as Urban of gross non-performing assets (GNPA), a higher
Cooperative Banks (UCBs), are cooperative societies provision coverage helps to keep the net non-performing
registered under their respective State’s or the Union’s assets (NNPA) at the same level as compared to the
cooperative laws and licensed by the Reserve Bank of India previous year.
for undertaking banking business under the provisions of
the Banking Regulation Act, 1949 (AACS). As of March Notwithstanding the financials and despite the localised
31, 2021, there were 1534 Primary (Urban) Cooperative presence in large numbers and an important role in the last
Banks. The position of their deposits, advances and other mile reach, the UCBs are increasingly becoming a marginal
assets is shown in Table 1. player in the Indian financial system. Their clientele share is
increasingly being taken away by other banks by capitalising
Table 2 presents a summary of the key financial indicators on technology, branch network, and a superior public
of UCBs. The year 2020-21 shows some improvements in perception of safety and professionalism. As a result, the
total balance sheet size of
Table 1. Tier-wise Distribution of Primary (Urban) Cooperative Banks UCBs as a proportion to
that of Scheduled
Commercial Banks (SCBs)
has fallen from 5.6 percent
in end-March 2005 to
3.4 percent in end-March
2021, as is shown in
Figure 1. The recurring
phenomenon of UCBs
being in the news for the
Note- Tier I banks are smaller UCBs with deposits under INR 100 crore and working in a single district wrong reasons, certain
or contiguous districts due to the reorganisation of districts. instances of depositors
Source: Report on Trend and Progress of Banking In India 2020-21, RBI. facing trouble due to the

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Table 2. Select Financial Indicators of UCBs (%)
Source: Report on Trend and Progress of Banking in India 2020-21, RBI.
inadequacies in governance and mismanagement have (a) issues concerning the cooperative structure,
added to their woes.
(b) constraints relating to capital, funding, and
Figure 1 shows that UCBs face certain issues and, if not an market relativity,
existential threat, a considerable challenge indeed, which
requires a thorough understanding of the issues and (c) bottlenecks pertaining to the scale, cost and
corrective measures for strengthening the sector. The focus efficiency, and
of this article is primarily on a multidimensional analysis of
the issues internal and closely connected with the working (d) governance conundrums, which is further
of UCBs, and it makes only a passing reference to the described in Figure 2.
external environment. The central idea is that an internally
strong entity can handle the external environment, but These have been discussed in the following paragraphs.
tackling the internal issues is far more challenging and
should be a priority. The rest of the article deals with the 1. Issues concerning the cooperative structure
major issues, constraints, bottlenecks, and conundrums
relating to the functioning of UCBs and the solutions The cooperative philosophy rooted in its members’
thereof. The article concludes by summing up observations
economic and social well-being is a globally successful
and suggestions. business model and has a presence in almost all spheres
of economic activities, including banking and financial
Issues, constraints, bottlenecks, services. Key principles of cooperation1, namely, self-help,
and conundrums independence, members’ economic participation, concern
for the community, and cooperation among cooperatives,
The analysis of the issues facing the UCB sector can have been the hallmark of its success. However, most
be broadly grouped into four broad categories, namely, UCBs are not able to harness the strength of cooperation
and imbibe its core principles in
Figure 1. Assets of UCBs as a percentage of SCBs - Trend their operations.
• Lack of cooperative character

in UCBs
A closer look at the operations

of UCBs, in general, would
reveal that except for the elected
boards and minor procedural
issues which are more to do
with the scale than the structure,
there is hardly any difference in
the way UCBs operate and look
at their business, vis a vis the
Source: Report on Trend and Progress of Banking in India 2020-21, RBI. commercial banks. Somehow, the

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Figure 2. Grouping of the problems faced by the UCB Sector
importance of cooperation as their unique selling position other categories of banks. This enhances cooperation
and a differentiator is lost on most of the UCBs, and they amongst cooperatives. A common emblem helps create a
fail to harness its potential as a competitive advantage. brand identity and business confidence for these banks in
Core principles of cooperation, such as self-help, member Germany. To be effective, UCBs need to come out of
welfare, empathy, and community connection, are seldom their silos and collaborate with each other in the true
seen in their work. spirit of cooperation. A closer look at the scenario shows
that on the ground, there is no effective mechanism for
As a result, UCBs try to emulate the way of working of establishing such cooperation amongst UCBs, even though
commercial banks, which is not bad per se, but it cannot they have their state and national federations. Putting in
be their strength due to various constraints concerning place an umbrella organisation for primary cooperative
the scale of operations, financial and technological banks is a logical extension of cooperation amongst
resources, skilled staff, etc. UCBs need to leverage the cooperatives. There is a great scope to work in this area,
strength of cooperation to expand their business without as evident from the successful operations of cooperative
compromising on their regional character and local banks in Europe, particularly in Germany.
connection and improve operational efficiency. Regional
character, homogeneity, and continuous engagement with • Missing cooperative safety net
members are the core of cooperation and should be
their strength. Furthermore, the need for breaking the silos, some useful
insights can be picked up from Germany, where the
• Professional management bereft of cooperative values National Association of German Cooperative Banks
(BVR)2 acts as an umbrella organisation for the German
Another issue is the need for cooperative value-based cooperative financial network. As an umbrella organisation,
professional management and a strong cooperative culture BVR represents the interests of the cooperative banking
in the UCBs. Organisations with a strong cooperative group at both national and international fora. The BVR
cultural can never indulge in something which could put also operates a dual system of bank protection in the
the members in jeopardy. Failures of cooperative culture, form of deposit insurance and institutional protection.
leadership, and governance can also stem from a situation The BVR’s protection scheme is a kind of voluntary
during which the elected board, at times, is misled by self-help organisation of the cooperative financial network.
professional management. This necessitates a professional The protection scheme run by the BVR helps in ensuring
leadership duly informed by cooperative values and the stability of public confidence in the cooperative
purposes and not just professional management, which financial network. The scheme has been in operation since
would work in the commercial banking space. UCBs need 1934, but no cooperative bank so far has ever turned
to focus on having their professional management duly insolvent. The BVR protection schemes run without any
ingrained and trained in the cooperative structure, values, government support and are designated as BVR-ISG for
and culture. deposit insurance and BVR-SE for institutional protection.
• Cooperatives working in silos In addition, the BVR is legally authorised to take measures
to avert any threats posed to a bank’s continued existence
Cooperation amongst cooperatives is of immense as a going concern. Such a strong safety net developed on
importance in developing an ecosystem of cooperative the principle of cooperation amongst cooperatives is worth
institutions to operate with synergy and to offer support emulating by the UCB sector in India as this not only
and assistance to each other. For instance, in Germany, boosts public confidence in their operations but also lowers
cooperative banks operate within their area of operations the burden of regulators. This is also in the spirit of the
and seldom compete, even though they do compete with self-help principle of cooperation that the cooperative

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banking sector, with a collective identity, takes care of itself one’s interest in its membership. Besides, UCBs ought to
and manages issues as a self-regulatory cohort. have a different business model by standing close to their
members and clients. In a true sense of cooperation, a
• Member apathy and the myth of democratic control cooperative should engage with its members through
various extensions, such as business, education, services,
Member apathy is a challenge globally faced by the and welfare measures.
cooperatives, and UCBs are no exception to it. While
democratic member control is one of the core principles The cooperative culture can be leveraged to develop a
of cooperation, the fact remains that very few people differentiated positioning by UCBs and develop their
join cooperatives with the intent to participate in the unique working models. Since the scale cannot be a source
democratic process and run the cooperative as members. of competitive advantage for UCBs, to survive, expand,
Most people join cooperatives to fulfil their business, and contribute to inclusive finance, it is necessary to have
financial or socioeconomic needs. Hence, one must accept a differentiated business model by leveraging on the core
that many members would be mere passive participants. strength of cooperatives. UCBs are in an excellent position
The organisational edifice of cooperatives should be built to look beyond the mere funding aspects of their credit
based on the recognition of this fact. A latent dysfunction decisions by implementing a credit-plus approach. This
of the one-member-one-vote system in cooperatives is involves undertaking initiatives for education, training, skill
that there is hardly any incentive to provide equity capital, development and handholding of members during pre and
either for controls or returns. post-sanction stages of credit decisions. As cooperatives,
these banks can use their membership network or can tie
In the case of UCBs, the need for compulsory contribution up with suitable institutions to offer such facilities either
to share capital by borrowing members also adds to the free of cost or by charging a nominal fee (Srivastava &
problem of passive and reluctant membership. Due to the Kumar, 2021)3. It is a win-win situation for both the
lack of sufficient incentive for members to monitor the borrowers / members and the bank. This is especially very
operations of the cooperative, agency cost becomes high effective for lending to weaker sections and small
and affects efficiency and performance. Due to a lack of businesses that find it difficult to understand cumbersome
effective monitoring by the stakeholders, the governance documentation and procedural requirements.
weakens, and the executives may have a greater opportunity
to indulge in discretionary or even spurious expenditures. Initiatives for skill development and standing close to
This could be a recurring drain on the financial and other clients not only help in improving the lives of people
resources of the cooperative and hampers its performance. through entrepreneurial activities but also aid in
Hence, increasing the engagement of members on the establishing a healthy credit portfolio by enabling close
strength of collectivism remains a key necessity for the monitoring. Having a core focus on local requirements
successful operations of UCBs. and milieu, offering a credit-plus approach to lending, and
developing a unique selling position on the Ethical banking
• Absence of a differentiated business model and positioning model of the Cooperative Bank, UK, could be a great
advantage. Cooperation, if practised with integrity, is a
A way to improve efficiency and competitiveness lies in great strength as the aspects of trust, integrity, and honesty
the business model. At present, UCBs lend only to their are at the core of both banking organisations. Cooperation
members even though they accept deposits from the amongst cooperatives adds to the cooperative advantage by
public. As discussed earlier, it leads to a situation of putting in place an institutional mechanism of a safety
unwilling or forced memberships, which does not net. Developing and retaining the trust and patronage of
strengthen the cooperative character of these entities. people beyond traditional banking is the core strength
On the contrary, this could result in restricting their of cooperative banks, which should be leveraged upon.
business potential and making their lending uncompetitive
due to the need for a borrower to contribute to the 2. Constraints: capital, funding, and market relativity
bank’s capital.
Moving further from issues concerning cooperative
A suitable business model can help to present cooperatives structure, UCBs also face significant challenges on the
as a form of business just like other forms of business, front of capital and lack of market relativity.
such as companies, partnerships, etc. Separation of
membership from the clientele can expand the scope and • Capital and lack of market relativity
efficiency of business for UCBs and can ensure a true,
open, voluntary, democratic, and committed membership. Despite strengths, the cooperative structure has certain
Obtaining services from an entity is not synonymous with inherent limitations and weaknesses, and one of the most

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Table 3. Component-wise Capital Adequacy of UCBs portion of Tier I capital is

contributed compulsorily by the
borrowers, which could be an
upfront payment or by way of a
deduction from the disbursement
against the borrowing. In case
of deduction from the loan
Note – Scheduled UCBs are banks included in the second schedule of the RBI Act, 1934. disbursement, the borrowing-
Source: Report on Trend and Progress of Banking in India 2020-21, RBI. linked accretion to capital
remains merely a book entry,
Table 4. CRAR-wise Distribution of UCBs as the addition to capital bears
a corresponding debit in the
loan account of a borrower.
Besides, the compulsion on
the borrowers to contribute to
the capital of UCBs places an
extra cost on them and makes
the UCBs uncompetitive in
the market, especially in cases
where the UCBs fail to distribute
Note – Scheduled UCBs are banks included in the second schedule of the RBI Act, 1934. dividends. Finally, the share
Source: Report on Trend and Progress of Banking in India 2020-21, RBI. capital, as also some of the
redeemable instruments included
critical of such problems relates to the capital, as the in the capital, remains refundable. While the refundable
internal accruals by way of retained earnings remain nature of capital is indeed a drain on its permanence and
the main, though not the only, source of their capital. ability to absorb losses, globally, cooperative banks are
There has been limited or insufficient use of other traditionally obliged to redeem member shares if a
capital-raising instruments, such as subordinated debt or member wishes to leave the cooperative. This is because
perpetual cumulative / non-cumulative preference shares there is hardly an alternative mechanism to liquidate
by the financial cooperatives in India. Additionally, due one’s shareholding in a cooperative. Hence, the facility
to a lack of any externally held capital and the absence of redemption of capital in a cooperative is a universal
of tradable ownership rights, the cooperative financial practice. However, it has been a subject of international
institutions, including UCBs, have no market discipline debate, and different jurisdictions have followed different
in matters relating to ownership and control. approaches regarding the recognition and redemption
of capital.
The position of capital as reflected in their capital to
risk-weighted assets ratio (CRAR) is depicted in Table 3 The amendments to the Banking Regulation Act, 1949
and Table 4. The distribution of capital adequacy across (AACS) have opened new avenues for UCBs to raise
the banks is not uniform. There are banks (6.26 percent capital under the provisions of Section 12(1). This can help
of the total number of UCBs) with CRAR under 9 percent UCBs to gradually move away from borrowing-linkage of
(which is the regulatory minimum). However, about capital, which negatively impacts the permanency, longevity,
83 percent of UCBs seem comfortably placed with a and loss-absorption capacity of capital. This can improve
capital adequacy ratio of 12 percent and above. the quality of capital in UCBs and can also build market
relativity in their operations with a positive impact on their
Like the situation in most jurisdictions, the UCBs in India, governance and financial performance. Additionally, it can
being primary cooperative societies, do not have any access work as a sound system of incentive and disincentive,
to functioning capital markets for raising equity or other whereby UCBs demonstrating a stable performance and
funding resources. Unlike the cooperative banks in Europe, offering good returns would find it easier to source capital.
only members can borrow from UCB in India. UCBs in For others, it would become difficult to stay in business on
India, in a way, have characteristics of both members-only account of their inability to mobilise the required capital.
credit unions and cooperative banks, where anybody can
be a client. • Funding: costs and implications
Another peculiar feature of capital in UCBs is the Apart from the issues pertaining to capital, UCBs,
borrowing-linkage of capital, which means that a certain especially small and mid-sized ones, face problems in

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contingency funding when needed. As a result, they tend providers and third parties. Optimisation of asset size,
to keep surplus liquid funds in the form of current and therefore, emerges as an important aspect of economies of
term deposits with commercial banks. Obtaining overdrafts scale and cost efficiency.
against their term deposits is the most widely used liquidity
arrangement by UCBs. This leads to making an impact 4. Governance conundrum
on their profitability and financial performance. The lack
of suitable on-tap refinancing options and the absence Governance refers to a set of structures, processes, and
of a lender of last resort negatively impact their costs relationships between an organisation’s management.
and credibility. An umbrella organisation combining Furthermore, it includes its board, its shareholders, and
features of a cooperative bank federation and a central other stakeholders, through which objectives are defined
banking entity, something along the lines of German BVR4 and processes are set for achieving those objectives
and DZ Bank AG5 for UCBs, is perhaps the desired step along with monitoring tools. The primary objective of
to meet this gap. governance is to safeguard stakeholders’ interests in a
sustained manner by ensuring that work is undertaken
3. Bottlenecks: scale, cost and efficiency in a legitimate, responsible, and ethical manner. In the
case of UCBs, in principle, cooperation should aid in
An issue deeply connected with operational efficiency strengthening the governance structure as cooperatives,
is the need for an optimal asset size. For the UCBs, with by design, are self-help organisations intended to take
large heterogeneity in asset size (INR 100 – 250 crore as care of the interests of members and other stakeholders
the modal asset class, and only 6 percent of UCBs with due to their emphasis on member-centricity and concern
a deposit base of more than INR 1000 crore), an for the community.
understanding of economies of scale helps in improving
their business model and understanding bottlenecks in The UCB sector, however, has witnessed several instances
operations. Srivastava and Upadhyay (2019)6 find empirical of system or governance failures. Many of these cases
support for an optimal asset size for UCBs in the range came to light through whistleblowers after some time
of INR 4000 to 9000 crore for the best utilisation of lag and consequent financial and reputational damage.
resources. They do not find any evidence of scale Common threads across such instances of governance
economies in large UCBs with asset sizes more than failure are managerial misconduct, the concentration of
INR 10000 crore. power, dubious incentive structure, weak systems and
control, and inadequacies of external oversight. In most
For a majority of UCBs, there are ample opportunities cases, the senior management or board members indulged
for organic or inorganic growth, which is a good omen in unscrupulous activities for personal gains. Therefore, the
for the sector. The optimal asset size of INR 4000 to 9000 focus of the governance conundrum in UCBs remains
crore can act as a reasonable benchmark and way forward essentially focused on the following three key issues:
towards consolidation in the UCB sector, whereby
small-sized UCBs can come together to form ideal-sized a. Weakness in the first, second and third lines
banks. This study shows that size matters, and growth of defence8.
in assets help the banks to reduce cost and increase profit
at a decreasing rate, but only up to a certain threshold of b. Relationship between professional management
asset sizes, as indicated above. Consolidation, realignment, and elected boards, and
and optimisation of asset size are the way forward for the
UCB sector to gain the benefit of economies of scale. c. Conduct of elected boards and senior management.
Unlike commercial banks, UCBs tend to have a higher • Weakness in three lines of defence
wage-cost-income ratio (CIR) than non-wage CIR.
While their wage CIR is negatively correlated with asset A well-functioning three lines of defence model
size, non-wage CIR is found to be positively correlated strengthens the governance where the first line takes
with asset size. UCBs in the asset class of INR 4000 crore risks as per defined risk appetite, internal guidelines, and
to INR 9000 crore reflect better cost-efficiency (Srivastava prudential limits. The second and third lines take care of
& Kumar, 2022)7. filtering the risk and misconduct at the frontline through
their oversight, monitoring and reporting responsibilities.
For a substantial number of UCBs with very small sizes, In the case of UCBs, however, this is either missing or
efficient use of technology is difficult due to limited loosely aligned due to a shortage of skilled staff and
financial and human resources. The absence of adequate limited resources on account of the bottleneck of scale,
resources makes them vulnerable to the vagaries of service as already discussed. Hence, most of these aspects exist

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only on paper just to satisfy minimum compliance practice, many small-sized UCBs do not have the financial
requirements without any real emphasis on their roles. wherewithal to hire qualified professionals. As a result, such
In the case of UCBs with decent asset size, the compliance, banks are managed in an ad-hoc manner, and neither the
risk, and internal audit functions (as the second and third senior management nor the board carries expertise in the
lines) do exist and are expected not to have any dual spheres of banking and finance.
hatting and business targets, as well as have a direct
reporting line to the board. However, in reality, it is In many UCBs, the positions in senior management and
difficult for these functionaries to completely dissociate the board are occupied by close relatives or affiliates,
with business processes and functional heads and have which mars the independence of the management and
their independent opinion. leads to a governance conundrum. In such institutions,
certain individuals (senior management or board member)
Thinking in the behavioural context, it is not easy to become too powerful due to their long tenure, relations
be a part of the enterprise and develop an independent or connections, and their writ becomes too large to be
view and perspective. Moreover, it is very natural for the subservient to systems, controls, and procedures. Even
management to place their most talented executives in in cases of no close connection between the senior
the roles responsible for business deliveries and revenue management and the board, this could happen if someone
generation. Besides, many business decisions for want of has a long-standing position and can develop strong
a different perspective may look reasonable in real-time connections and networks to manage things in an
while being proved catastrophic in hindsight. Second-line unscrupulous manner. Evidently, if any head of a business
functionary risks being called too conservative or a vertical or the chief executive becomes very strong and
spoilsport for its adverse opinions, which may or may not well-connected, it turns out to be practically very difficult
be proved right in hindsight. The three lines of defence, for compliance, risk and audit professionals to resist or
at times, do not yield the desired results because of the report any unscrupulous decisions taken by such a person.
factors just discussed. The board, therefore, must take the Hence, one mustn't allow the development of personality
initiatives to ensure expertise and independence in the cults whereby individuals become stronger than systems.
second line and boost their confidence by demonstrating
that red flags raised by the compliance, risk, and audit • Conduct of elected boards and senior management
executives are welcome and helpful. The right tone from
the top helps. While the boards and senior management of UCBs are
assigned the responsibility of putting in place the best
It is also important to understand that most cases of governance standards and leading by example, at times, it
governance failures happen due to insufficient emphasis may be possible that they might be involved in misconduct
on various elements of the governance system, which are for personal gain. This would be a case of the fence eating
intended to achieve good corporate behaviour and achieve the grass and would be perhaps very difficult to be acted
governance objectives of integrity, truthfulness, honesty, against by the first, second, or third lines of defence.
integrity, objectivity, fairness, and transparency in the In such cases, the fourth line (external audit / supervisory
working of banks. A sound system of governance scrutiny) must step into course correction, paving the way
promotes due diligence and oversight, no conflict of for subsequent regulatory action by removing responsible
interest, ethical, legal, and prudential conduct, and the persons from their positions or by superseding the entire
achievement of public interest and the common good board. For the effectiveness of the fourth line, it is
of all the stakeholders. It is quite natural that regulations necessary to have coordination and information sharing
for UCBs, of course, in a proportional manner, focus between external auditors and supervisors, as also market
on strengthening elements of the governance system intelligence. However, it may not be justified to expect that
by mandating independent directors, direct reporting the external auditors would always be able to unearth the
by compliance, risk, and audit functions to the board maladies, as the quality and access to information available
committees, and specifying disclosure requirements. to the auditors may not be truly accurate and transparent,
especially in situations where the perpetrators are internal
• Relationship between professional management and elected boards people sitting at key positions.
Another important aspect of the governance conundrum A way out of such a situation is not straightforward and
in UCBs is the relationship between professional lies in the cooperative ethos and member engagement.
management and elected boards. Ideally, the professional UCBs with a reasonably high level of member engagement
management duly guided and trained by the values and could build a 360-degree oversight by involving members
culture of the cooperatives should work independently (not necessarily board members) at various levels of
under the oversight of elected boards. However, in functions and decision-making. Banks with predominant

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passive or apathetic membership are more prone to 5. https://www.dzbank.de

management misconduct, and hence, UCBs must go back
to their cooperative roots, ethos, and culture. 6. Srivastava, Ashish, and Upadhyay, Ashutosh, Does Size Matter? An Evaluation of
the Relationship between Asset Size, Operating Cost, and Profit of Scheduled Urban
Conclusion Cooperative Banks in India (March 2, 2019). The IUP Journal of Bank
Management, Vol. XVIII, No. 4, November 2019, pp. 61-73.
All the scenarios discussed so far bring to the fore the
key issues, constraints, bottlenecks, and conundrums faced 7. Srivastava, Ashish, and Kumar, Ajit, A Comparative Assessment of Cost Income
by the UCBs, due to which the UCB sector is gradually Ratio of Scheduled Urban Cooperative Banks in India: Benchmarking the Operational
conceding space to other banks and is not able to make Efficiency (February 12, 2021). Prajnan, National Institute of Bank Management,
a mark for itself. In a large and diverse country like India, Pune, Vol. XLX, No. 2, 2021-22.
there is a need for differentiated banks to suit the varying
requirements of individuals, artisans, farmers, small, 8. The “four lines of defence model” for financial institutions, BIS Occasional Paper 11,
medium, and large businesses, etc. Cooperative banking December 2015
has tremendous scope for catering to the savings and
credit needs of people, as well as being an effective tool for
social transformation. There is a need to strengthen the About the Author
adoption of cooperative principles in the operations and dr Ashish srivastava is a dGM and
management of UCBs, and its professional management Member of the Faculty at College of
must also be duly ingrained in cooperative ethos. Agricultural banking, reserve bank of
Promoting cooperation amongst cooperatives and shunning India, Pune.
silos with a differentiated business model can do wonders
for the sector. Certain initiatives, such as the adoption of a He has a Phd in Working Capital
common emblem to assert cooperative identity and unity, Management, MbA (Finance) from the
focus on an ethical banking model, and adoption of a University of Gorakhpur and a Master of
cooperative safety net, can go a long way to strengthen the Finance degree from the Judge business school, University of
UCB sector. Attaining an optimum asset size by organic or Cambridge, UK. He has qualified UGC-NET in Management and
inorganic growth is need of the hour because one must holds a Certified Associate (CAIIb) and Certificate in Treasury
have a minimum critical size to be able to run a bank on and risk Management (CTrM) from the Indian Institute of
professional lines and break the shackles of resource banking and Finance.
constraints. The ability to raise funds and resources and
bring market relativity to their operations is another besides, he possesses an International Certificate in banking
important milestone. risk and regulation (ICbrr) and Certified Financial risk
Manager (FrM) qualification from the Global Association of
Finally, strengthening governance by looking at the root risk Professionals (GArP), UsA. He also has bloomberg Market
causes and plugging the loopholes is perhaps the single Concepts Certification to his credit and is a Certified Financial
most important task to support and promote the UCB Crime specialist (CFCs) from the Association of Certified
sector. With the right positioning and strategic direction, Financial Crime specialists, UsA.
and a firm belief in cooperative principles, UCBs can do a
lot to bring qualitative improvements in the socioeconomic dr srivastava has more than 20 years of experience in
conditions of people around them and the society at large. the field of banking and finance. He has taught postgraduate
courses in business management and has also worked with
Reference: the Food Corporation of India in its finance and accounts
vertical prior to joining the reserve bank of India.
1. International Cooperative Alliance While working for the reserve bank, he has mostly handled
assignments relating to banking supervision as well as
2. Bundesverband der Deutschen Volksbanken und Raiffeisenbanken (BVR), financial literacy. His research interests include banking
https://www.bvr.de/en regulation, risk management and financial analysis and he has
published more than 80 papers in the leading journals and
3. Srivastava, Ashish, and Kumar, Rajender, An Empirical Evaluation of Business magazines. His areas of specialisation include financial
Model and Positioning of Primary (Urban) Cooperative Banks in India (November 30, mathematics, credit management, investment management,
2021). CAB Calling, July-December 2021, Vol 45, Issue 3 & 4/ 2021, College of capital adequacy, regulatory compliance, and macroeconomic
Agricultural Banking, Reserve Bank of India, Pune. developments.
4. www.bvr.de He can be reached at [email protected]

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Tracing the Current

Dynamics of Inflation
in India
Dr Rashmi Tripathi
Inflation remained a key theme for the global financial the global financial system. In view of the same, most of
system in the year 2022, and it continues to illude the the governments, under their emergency policies, gave
central banks across economies. financial support to businesses and individuals to weather
pandemic-related economic challenges.
Due to Covid 19 pandemic, the global economy came to a
standstill. Other than essential services, all other services Households’ savings improved due to procrastination of
were closed, which affected the businesses as well as consumption coupled with the support of these policies.
individuals in terms of earnings and wages, respectively. Consumers who were unable to spend money on services
Due to the Covid pandemic, there was a disruption in the and leisure activities such as eating out, visiting clubs or
supply chain. This affected a wider range of products. gyms, travel, party and wedding expenses, etc started to
Manufacturing companies faced difficulty in sourcing raw spend after the normalisation of Covid on these items,
materials, components and workers to keep up with including cars, houses and accessories. This resulted in a
demand. In addition, transport challenges mounted, surge in demand in specific segments of the economy,
including a backup of shipping traffic in some ports and a leading to outpacing supply. These pandemic-related supply
shortage of truckers to haul
freight over long distances. Figure 1. Trend of inflation in major economies - 2022
There was an
unprecedented impact of
the pandemic which led to
a deep recession across the
globe, resulting in the
contraction of the global
economy by 4.3 percent in
2020. To contain the impact
of the pandemic and help
support the growth
recovery, Central Banks and
National Governments
across the globe embarked
on a path of easy monetary
policy and expansionary
fiscal policy, which resulted
in a condition of surplus
liquidity and historic low
levels of interest rates in

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disruptions and limited production resulted in a scarce monetary policy, tightening from an easy monetary policy
supply of desired goods. framework with the objective of bringing inflation back to
target levels. Figure 2 explains policy rate hikes by major
Post Covid when pent-up demand came, supported by central banks across the globe. Notably, US federal reserve
surplus liquidity and easy finance, inflation started peaking. has raised the policy rate by cumulative 400 basis points
This led to a dramatic surge in inflation to multi-year highs (bps), the Reserve Bank of Australia (RBA) by 300 bps, the
all over the world from the second half of the calendar Bank of England (BoE) by 225 bps, the Reserve Bank of
year 2021, as economies recovered from the impact of the India (RBI) by 225 bps and the European Central Bank by
pandemic and saw a rapid rise in consumer demand as 200 bps, so far in the current financial year.
industries struggled to normalise operations amid labour
shortages. The supply disruptions following an escalation However, recent data on the Indian economy show signs of
of the Russia-Ukraine war protracted shortages of critical moderation in headline inflation, with discussions that it
inputs to industries, and a surge in commodity prices peaked in September 2022 and that it may moderate going
further fuelled the inflationary pressures. forward to come within the RBI’s inflation target range of
Among major economies, inflation Figure 3. Trend of CPI inflation

in the UK and the Eurozone are at
10.7 percent and 10.0 percent in
Nov-22, well above their target level
of 2 percent. Meanwhile, in the US
economy, inflation has moderated
from the Jun-22 peak of 9.1 percent to
7.1 percent in Nov-22, but is still well
above the target level of 2 percent.
In Australia also, the inflation level in
Oct-22 was at 6.9 percent, above its
target range of 2-3 percent. As shown
in Figure 1, in India, headline inflation
moderated to 5.88 percent in Nov-22
as compared to the previous month but
still hovers well above the RBI’s target
range of 2-6 percent. China being an
exception, inflation has moderated to
1.6 percent in Nov-22, below the target level of 3 percent. 2-6 percent by March 2023. With uncertainties emanating
from the global economy still remaining high with a
Policy response of central banks possible impact on domestic inflation, the present analysis
attempts to analyse the trends of inflation in India, along
This condition of high inflation trajectory prompted global with the underlying macroeconomic factors and the
central banks to change their policy stance towards outlook for inflation going forward.
Figure 2. Increased policy rates in major Inflation dynamics is mainly measured by two indices in
central banks India, i.e. Consumer Price Index (CPI) and Wholesale Price
Index (WPI). The dynamics of these two indices are
detailed as follows:
Dynamics of the Consumer Price Index (CPI)
The consumer price inflation in India went through a

roller coaster ride after the onset of the first wave of the
pandemic in Mar-20 till the subsidence of the third wave
in Jan-22. The average retail inflation increased from
4.8 percent in FY 2019-20 to an average of 6.2 percent in
FY 2020-21 due to supply disruptions on account of the
Covid-related lockdowns. Retail inflation moderated
subsequently to the average of 5.5 percent in FY 2021-22,

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Figure 4. Component-wise CPI inflation
led particularly by the easing of food inflation. Figure 3 Food inflation eased mainly due to a significant fall in
shows trends of CPI inflation for pre-Covid, during Covid, vegetable prices, particularly of onions and tomatoes, as
as well as post-Covid. well as prices of fruits. The vegetable prices have
contracted sharply by -8.1 percent y-o-y in Nov-22 from
At the start of 2022, it was expected that the normalisation 7.8 percent in Oct-22. Fruit prices have also moderated
of supply chains and economic activities would help by 2.6 percent y-o-y in Nov-22 from 5.2 percent y-o-y in
soften the commodity prices, which would help moderate Oct-22. The fall in vegetable prices has been attributed to
retail inflation. However, escalation of the geo-political a seasonal moderation in vegetable prices during the
conflict between Russia-Ukraine again disrupted the supply winter months.
chain mechanism leading to a spike in food prices and
other commodity prices. On the other hand, fuel inflation eased up from Jul-22
high of 11.8 percent to 10.6 percent in Nov-22 due to a
This resulted in higher inflation in net importing countries fall in crude oil prices from over $100 / bbl levels in
like India, and retail inflation spiked to 7.79 percent in Jul-Aug-22 to around $83-85 / bbl levels by Oct-Nov
Apr-22 from 6.01 percent in Jan-22, which is the highest 2022. However, core inflation (CPI excluding food and
reading since May 2014 and remained elevated till Sep-22. fuel) remained steady at around 5.95 percent since
Retail inflation eased to 6.77 percent y-o-y in Oct-22 and Mar-21, indicating persistent underlying price pressures.
further down to 5.88 percent y-o-y in Nov-22 on the back As shown in Figure 4, the core component is still sticky,
of a sharp seasonal decline in food prices. with clothing, footwear and the miscellaneous categories
Figure 5. Rural and urban inflation

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Figure 6. Trend of WPI inflation
continuing to witness high inflation of above 6 percent basket as compared to 36.29 percent in urban CPI basket.
level. Companies have been passing on higher input costs However, both rural and urban inflation eased up to
to the end customers, which has resulted in this category 6.09 percent and 5.68 percent, respectively, in the Nov-22
being steady. easing of food prices.
Rural and urban inflation Dynamics of Wholesale Price Index (WPI)
A similar trend was observed in both rural and urban India’s wholesale price index (WPI) based inflation rate
inflation, with rural inflation remaining higher than urban rose to 16.63 percent in May-22, tracking the hardening of
inflation. As explained in Figure 5, rural inflation spiked up commodity prices. However, in the month of Nov-22, it
to an 8-year high of 8.38 percent in Apr-22, reflecting the eased to 5.85 percent y-o-y, the lowest since March 2021,
stress of food inflation on rural households, as food and mainly due to the y-o-y decline in prices of food articles,
beverages have a weight of 54.18 percent in rural CPI basic metals, chemical and chemical products and textiles.
Figure 7. Component-wise trend of WPI inflation

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Figure 6 shows the trend of WPI inflation from Nov-19 On the positive side, food prices are expected to moderate
to Nov-22. further on account of onset of the winter season.
Particularly vegetable prices are expected to moderate
The food articles inflation eased to 1.07 percent in Nov-22, further, which would help moderate the inflation level in
from a high of 11.78 percent in May-22 due to the easing the near term. The expectation of a good Rabi harvest
in prices of vegetables and fruits. On the other hand, the further signals an easing of food prices.
fuel and power segment eased to 17.35 percent in Nov-22
from 49.00 percent y-o-y in May-22. Manufacturing However, on the negative side, upside risks emanate from
product inflation, which has a weight of about 64.2 percent structural price pressures from cereals, milk and spices and
in the WPI basket, has eased from 11.39 percent y-o-y in adverse climate events.
Apr-22 to 3.59 percent y-o-y in Nov-22. This easing of
inflation is led by a y-o-y decrease in basic metals prices. Crude Oil prices: Crude oil prices are another important
Among other major components, chemical and chemical factor that significantly impacts the trajectory of inflation
products inflation has eased to 6.52 percent y-o-y, and in India, as India is a net oil importing nation. International
textiles eased up to 1.59 percent y-o-y in Nov-22. Sharp oil (Brent) has declined from over $100 / bbl levels in
moderation in inflation during Apr-Nov-22 is observed for Jun-22 to below $80 / bbl levels in Dec 2022, amid
‘motor vehicles, trailers and semi-trailers’, ‘fabricated metal growing concerns over an imminent global slowdown in
products, except machinery and equipment’, electrical 2023, which is a positive signal for net oil importing
equipment and rubber and plastic products. Figure 7 shows nations like India.
the trend of WPI inflation component-wise.
Both CPI and WPI inflation indicate a moderation in

inflationary trend since H2 FY23, particularly due to
moderation in food and fuel prices. However, there are a
number of macroeconomic and geo-political factors at play
right now, which would influence the trajectory of inflation
in the near to medium term, which is explained further in
detail in the following paragraphs.
Key factors to drive inflation
Food inflation: A spike in food inflation on account

of the supply disruptions due to the escalation in the
Russia-Ukraine war was a major factor that contributed to
the high inflation in 2022, as it constitutes about 45 percent
weight of the retail basket. However, there has been a However, there are continued upside risks to the trajectory
moderation in global food prices recently on the back of oil prices due to a multitude of factors ranging from the
of easing commodity prices due to the resumption of European Union’s sanction of Russian oil, which came into
some shipping of commodities from Ukraine and Russia. effect on Dec 5, to the OPEC+ decision to continue the
In the Indian economy also, food prices have declined reduced oil supply by 2 million barrels per day, the likely
significantly in Oct-Nov-22, contributing to the easing of increase in demand for heating oil in the winter season and
CPI and WPI inflation imprints. continuation of the war between Russia-Ukraine. Also, the
recent relaxation in the zero-Covid policy by China may
further increase the demand for oil consumption, thereby
posing an upside risk to oil prices.
Supply Chain from China: Chinese firms play a major

role in supplying parts or finished products that are popular
among consumers. There has been an increase in Covid
infection cases in China in recent days. The Chinese
government followed this till a few days back zero-Covid
policy, which resulted in the shutdown of major cities
where infections appeared. This restricts production in
manufacturing facilities and the flow of goods through
Chinese ports as they try to stem the tide of Covid in a

ArTICLE
very strict way. However, recently Chinese government gradually opening up. Additionally, the continued sticky
relaxed Covid norms, after which a surge in infection has nature of core inflation, likely adverse climate events and
been observed. The developments in China need to be elevated inflation trajectory of major economies pose a
closely watched as it is going to impact the supply of further upside risk to domestic inflation. Considering these
products sourced from there. factors, I expect inflation imprint to be likely moderate to
5.4 percent y-o-y in Q4 FY23. However, the full
Spillover impact of inflation from major developed FY2022-23 inflation figure is expected at 6.5 percent
economies: Inflation in major developed economies like y-o-y, which is above the upper limit of RBI’s inflation
the US, UK and Eurozone are still at elevated levels, well trajectory of 2-6 percent.
above their respective target range. The spillover impact
from these major developed countries poses an upside risk In December 2022, in the Monetary Policy Committee
to domestic inflation in India. meeting, RBI Governor continued to emphasise the
need to tame inflation. He opined that further calibrated
Further, worsening of the global growth outlook monetary policy action is warranted to ‘keep inflation
would keep demand for the dollar strong amid risk-averse expectations anchored, break the core inflation persistence
sentiments, leading to depreciation pressures on Rupee, and contain second-round effects’, thus bringing headline
which again has negative implications for the net CPI inflation within RBI’s 2-6 percent target band.
oil-importing Indian economy. This suggests that the monetary tightening cycle is not
over yet, despite the 225 bps repo rate hike so far in the
Table 1 Projection of CPI inflation for major current financial year.
economies
Further, in the December 2022 meeting of the US
Fed policy-setting committee, US Fed maintained a
hawkish tone and noted that despite the moderation of
inflation in the US economy in November 2022,
it would take substantially more evidence to give
confidence that inflation is on a sustained downward path.
Market participants are closely monitoring the US Fed to
see if it can achieve a tamer inflation environment without
sending the US economy into a recession. The confluence
Source: Bloomberg of interest rates, inflation and corporate profit growth are
Note:1. * CPI Inflation for India is for Financial Year (Apr-Mar) and three factors for investors to monitor in the coming
FY21: 6.2, and FY22: 5.5 are actual values (A); 2. For other months, as the rate of economic growth will likely be
Economies inflation data is for the calendar year (Jan-Dec). reflected in corporate earnings and stock prices.
Factoring in the global inflationary trends and their direct Conclusively, with this background of inflation, RBI’s
bearing on the Indian economy, RBI has projected retail hawkish tone in the Dec-22 monetary policy meeting and
inflation to remain at 6.7 percent in FY 2022-23, above the major global central banks still raising rates, we expect RBI
RBI’s inflation target range. Table 1 shows the inflation to continue to hike rates in Q4 FY23, albeit at a slower
projections of other major economies. It also displays an pace of 25 bps in February 2022 policy meet and terminal
elevated trajectory of inflation in 2023 before the expected repo rate is expected at 6.50 percent.
moderation by 2024.
Outlook for inflation going forward About the Author

dr rashmi Tripathi is presently working as
The easing of inflation imprint to an 11-month low of AGM-Economist, Canara bank. Prior to its
5.88 percent y-o-y in Nov-22 and crude oil prices to merger, she was AGM-Chief Economist at
below $80 / bbl in December 2022 bode well for the syndicate bank.
Indian economy. Going forward, a seasonal decline in
vegetable prices is expected to soften the food inflation she holds Phd in Economics. In addition
further in Q4 FY23. However, there are big upside risks to she is also a Certified Associate of Indian
oil prices due to global headwinds from the continued Institute of bankers and diploma in
escalation of the Russia-Ukraine war, OPEC supply cuts Information and systems Management.
(2 mn barrels/ day), EU sanctions on Russian oil, seasonal
winter demand and China relaxing Covid restrictions and she can be reached at [email protected].

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Understanding
Decentralised Finance
(DeFi)
And Its Convergence with Centralised
Finance (CeFi)
Arif A Khan
Introduction What is DeFi?
The earliest form of trade was peer-to-peer, also known as DeFi typically refers to the decentralised applications
the barter system. Barter was considered inefficient because providing financial services on a blockchain network.
supply and demand could never be exactly matched DeFi is based on a peer-to-peer philosophy that typically
between peers. To overcome this matching problem, money operates without centralised intermediaries or institutions
was introduced as a medium of exchange. Early issuance and uses open-source protocols that allow services to be
and circulation of currency were not centralised. programmatically combined in flexible ways. DeFi tends to
Eventually, as time progressed, the currency had tangible make finance easily accessible to all and seeks to replace the
value and the issuance of currency was institutionalised and traditional centralised institutions such as banks, financial
controlled by central banks. Even though the form of institutions and NBFCs (Non-Banking Financial
money has changed over time, the basic infrastructure of Companies). It relies on the self-executing ‘smart contracts’
financial institutions has not changed. on the blockchain network with zero human intervention,
thereby reducing the chances of errors and increasing
However, the stage is now set for a historic disruption of efficiency. Some of the key features of DeFi that attract a
our current financial infrastructure. Decentralised Finance wide range of consumers are:
or DeFi uses cryptocurrency and blockchain technology to
manage financial transactions. It aims to make finance • It eliminates the fees that banks and other financial
easily accessible to all by replacing legacy, centralised institutions charge for providing financial services.
institutions with peer-to-peer relationships that can provide
a full spectrum of financial services, from everyday banking • The consumer holds the money in a secure digital
to loans and mortgages, to complex contractual wallet instead of keeping it in a bank.
relationships to trading in assets.
• The components of DeFi are stablecoins (a type of
Considering its cost effectiveness in providing financial cryptocurrency backed by an entity or pegged to a
services to customers, it is expected that DeFi will currency like dollar), software, and hardware that
replace the majority of centralised financial infrastructure enables the development of applications.
in the future. DeFi offers considerable potential for
solving the key problems associated with centralised • Anyone with an internet connection can use it without
finance, like, centralised control, limited access, needing the approval of any central authority and funds
inefficiency, lack of interoperability, etc. The rapidly can be transferred almost instantly.
growing landscape of DeFi applications presents a
plethora of future opportunities which can benefit from How does DeFi differ from CeFi?
the network effects of combining and recombining
DeFi products and capture the lion’s share of the We have been living in a world of Centralised Finance
financial ecosystem. (CeFi) where Central banks control the money supply.

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Almost every aspect of banking and lending is regulated by transparent, a key characteristic of blockchain
centralised systems and financial services are provided by technology. Codes of the DApp and transactions are
traditional banking institutions. Consumers need to deal publicly available for anybody to look at or audit.
with an array of financial intermediaries to get access to Anyone can scrutinise the contract’s functionality to
various financial services, and there are hardly any ways for find bugs or find ways to improve an algorithm.
consumers to access capital and financial services directly.
• Disintermediation: Everybody can build an
However, during the last few years, considerable progress application on top of smart contracts as well as
has been made on a much different model - Decentralised interact directly with smart contracts from their
Finance or DeFi. DeFi challenges this centralised financial crypto wallets without having to go through a
system by removing intermediaries and middlemen, and third-party intermediary.
empowering consumers to interact directly with peers
through a common ledger that is not controlled by any • Interoperability: DeFi applications can be run on
centralised organisation. Today, people put their savings several blockchains, and applications can be built by
in an online savings account and earn an interest of combining other DeFi applications.
around 3%. The bank then lends that money to another
customer at 6% interest and pockets the 3% profit. How does DeFi work?
With DeFi, people can lend their savings directly to others,
cutting out that 3% margin and earn the full 6% return Decentralised Finance (DeFi) uses the blockchain
on their money. Figure 1 shows how DeFi and CeFi technology that cryptocurrencies use. A blockchain is a
systems work. DeFi offers significant benefits over distributed ledger wherein the transactions are recorded in
Centralised Finance (CeFi) in the following areas: blocks and then verified by other users. If these verifiers
agree on a transaction, the block is closed and encrypted;
Figure 1. DeFi and CeFi layout another block is created that has information about the
previous block within it. The blocks are ‘chained’ together,
and information in previous blocks cannot be changed
without affecting the following blocks, so there is no way
to alter a blockchain. DeFi applications use computer codes
called smart contracts that run on the blockchain network.
DeFi protocol users can interact with these smart contracts
using their digital wallets to transfer funds, borrow, lend, or
avail other services provided by DeFi. DeFi applications
remove middlemen and provide easy and cheaper access
to capital, efficient lending and borrowing mechanism.
Since DeFi runs on a blockchain network, anyone with an
• Autonomy: DeFi applications do not have restricted internet connection can view, audit the source code, and
access, and the operations are not managed or see all the transactions. This creates a secure financial
controlled by a central authority, as in CeFi. Everything system that relies on codes and open-source systems.
is done through a smart contract, and transactions are
directly recorded on the blockchain, making it almost DeFi Financial Products: Peer-to-peer (P2P) financial
impossible to disrupt these applications. Once the smart transactions are one of the core premises behind DeFi.
contract is deployed on the blockchain, the DeFi Imagine getting a loan processed in a centralised financial
applications can run with minimal human intervention. system. One needs to go to a Bank or another lender and
If a consumer does not like the services offered by a apply for a loan. If the loan is approved, the bank or lender
DApp, he can easily switch to a competitor DApp in a will charge interest and service fees for providing the
seamless and paperless manner. financial service. However, in DeFi, one has to log in to the
decentralised finance application (DApp) and enter his loan
• Availability: Unlike CeFi, DeFi applications are requirements. An algorithm will then match up peers that
available via the internet from anywhere in the world, at meet your needs. Once you agree to the chosen lender's
any time of the day and even from the comfort of terms, you will receive the loan in your wallet, and the
one’s living room. transaction will be recorded on the blockchain network.
The lender then starts collecting payments at agreed-upon
• Transparency: The current CeFi system is very opaque intervals. When the loan instalments are paid through
and relies on government regulators to spot trouble in DApp, it follows the same process in the blockchain, thus
the financial system. DeFi, however, makes everything creating a verifiable trial of payments made to the lender.

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Figure 2. Layered structure of DeFi • Decentralised exchanges (DEXs) allow

users to trade their digital assets peer-to-peer
and let users retain control over their money
without any centralised intermediaries
(Uniswap, IDEX, Balancer, etc).
• Stablecoins: While cryptocurrencies are

known to be highly volatile, stable coins are
less volatile digital assets whose price is
pegged to the value of the underlying reserve
asset like the US dollar. (Tether (USDT), USD
Source: Assessing Risks in Decentralised Finance, Moody’s Analytics Coin (USDC), etc).
DeFi Currency: DeFi is designed to use cryptocurrency • Derivatives (synthetic assets) are contracts whose
for P2P transactions. The technology is still evolving and value is derived from the performance of underlying
developing, but much of the concept revolves around assets. Cryptocurrency based synthetics allow customers
stablecoin, a cryptocurrency backed by an entity or pegged to trade the value of various digital assets on the
to a currency like the US Dollar. DeFi platforms can be blockchain network without having to hold the
subdivided into the following layers, which are explained in underlying assets (Synthetix, dYdX, etc).
detail with the help of Figure 2.
• Insurance: DeFi allows users to get coverage for
• The settlement layer handles the settlement of certain risks (mainly against smart contract failures and
transactions between parties communicating through the risk related to their crypto assets) without any
the DeFi application. centralised insurance intermediary. (Nexus Mutual, etc).
• The protocol layer governs how the protocol operates • DeFi aggregators connect to various protocols,
and is the layer where smart contracts are executed. allowing customers to get the optimal yield / market
rates for their transactions and help in creating more
• The application layer is the front end which users efficient markets in the DeFi ecosystem (yEarn Finance,
interact with through an application or a browser. Harvest Finance, ValueDeFi, etc).
• The aggregation layer is like financial building blocks in The DeFi platforms, to function, require capital to be
DeFi, allowing assets and products to be used and deposited as loan collateral or liquidity in trading pools.
combined without explicit agreement or permission. This locked capital is measured in terms of total value
locked (TVL), which calculates how much money is
The DeFi landscape currently locked in smart contracts in different DeFi
protocols. A higher TVL means more capital is locked in
DeFi protocols are being used in a wide variety of simple DeFi protocols, with participants enjoying greater liquidity
and complex financial transactions. It is powered by and better returns. As of March 2022, the total locked
decentralised apps called “DApps,” or other programs value in DeFi protocols across all blockchain networks
called “protocols.” DApps and protocols handle was nearly $198 billion. Out of this, the Ethereum network
transactions in the two main cryptocurrencies, Bitcoin holds the largest TVL, with $108.51 billion or almost
(BTC) and Ethereum (ETH). While Bitcoin is more 55% of the total value locked in DeFi protocols.
popular, Ethereum is much more adaptable to a wider
variety of uses, resulting in greater use of Ethereum-based Risks and downsides of DeFi
code in the development of much of DApps and protocol
landscape. Some of the ways DApps and protocols are Decentralised Finance (DeFi) is a relatively new
already being used are: phenomenon, having boomed in 2020, and financial market
experts, along with the public, are struggling to come to
• Lending and borrowing: Key functions in today’s terms with this new type of investment. As with any new
financial system like payments and lending are technology, there are associated risks and challenges that
already happening through DeFi. With blockchain must be dealt with. Some of these risks include:
technology, users are now able to carry out activities
without the help of intermediaries (MakerDAO, • Lack of consumer protection: DeFi has thrived in
Compound, etc). the absence of rules and regulations, which also means

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that users may have little recourse if some foul play is employees that are well-versed in this space because of
suspected in transactions. In centralised finance, for the opportunities in the private sector.
instance, the regulators bail out the customers up to a
specified amount if a bank fails. Moreover, banks are KYC for DeFi platforms
required by law to hold a certain amount of their capital
as reserves to maintain stability and ensure liquidity in DeFi is a rapidly expanding and evolving space that is
times of need. No such protection exists in DeFi. revolutionising the way people and businesses approach
and interact with financial services. It has opened access to
• Threat of hackers: While a blockchain may be nearly loans and other financial services to the almost 1.7 billion
impossible to alter, other aspects of DeFi are at risk of unbanked people in the world (as of 2021) and provided
being hacked, which can lead to theft or loss of funds. new ways for the proliferation of peer-to-peer financial
All the potential use cases of decentralised finance rely services. However, the limited nature of the Anti-Money
on software systems that are vulnerable to hackers. Laundering (AML) and Know your Customer (KYC)
checks performed by DeFi platforms creates the potential
• Smart contract risk can arise from a flaw in one of for DeFi projects to be used for money laundering
the algorithms. Typically, they can be of two types: a purposes. This has also attracted the attention of global
logic error and an economic exploit. A logic error may regulators whose task is to prevent money laundering and
arise if the algorithm does round off, such as 13.9999 other forms of criminal and terrorist financing. Global
to 14: which could cause a command to fail because regulatory watchdog the Financial Action Task Force
of insufficient funds. Economic exploits often take (FATF), which develops much of the regulatory guidance
advantage of exchanges that are illiquid (that is, for that is adopted by national financial authorities for
assets that cannot readily be traded or sold). The price regulating their financial systems, treats DeFi platforms in
on an illiquid exchange can be manipulated, and if that the same way as traditional Financial Institutions (FIs),
price feed is then used on another exchange, profits which means that most of the DeFi platforms are also
could easily be made. subject to the same reporting requirements and KYC
guidelines as traditional Financial Institutions (FIs).
• Custodial risk: DeFi applications require the storage of The majority of crypto exchanges and DeFi platforms,
cryptocurrency assets in digital wallets. These wallets are however, implement very loose KYC/AML measures and
secured with long and unique private keys, known only regulators have by and large taken a lenient approach
to the owner of the wallet. If the owner loses the towards regulation in this area, but all signs point to a far
private key, they lose their cryptocurrency, and there is tougher and more stringent regulatory environment in the
no way to recover a lost private key. future. DeFi platforms can implement an automated KYC
onboarding system that ensures compliance, prevents fraud
• Governance risk: DeFi, by definition, is decentralised. and builds trust while maintaining its decentralised nature.
A small group of users could take control of an
algorithm and use it to their advantage. Automated KYC for DeFi Platforms
• Decentralised exchange risk: DeFi involves a new Most DeFi platforms have evolved in a period of
way to exchange assets, a decentralised exchange, or regulatory uncertainty, and many of them have adopted a
DEX. With DEX, the investor communicates with an ‘wait and see’ approach when it comes to implementing
algorithm rather than a broker, which gives rise to AML and KYC guidelines. However, implementing a
different sets of rules and protocols. robust KYC / AML on a DeFi platform ensures that
access to the platform is limited to genuine and certified
• Regulatory risk: Regulators are trying to understand users whose identities can be established. DeFi platforms
the Defi applications and develop a suitable framework can implement an automated KYC onboarding system
for them. The regulators need to be careful and find the which can carry out checks using a combination of
middle ground because if the regulations are too harsh, database, AI-driven verification tools, and enhanced due
innovation is nipped or if it is too lax, people may take diligence (EDD) processes. A robust onboarding process
advantage of the loopholes. Finding the middle ground for DeFi platforms can involve the following steps:
will be tough and challenging, mainly due to the
following three reasons. First, the technology being 1. Categorisation of users: The user being onboarded
complicated, considerable investment in time needs to can be checked if it is an:
be made to understand the new landscape. Second,
technology is evolving so quickly that it is hard to keep • Institution - Institutional KYC process can be triggered
pace with new developments. Third, it is hard to find that involves checking an entity’s name against the

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global corporate registry and commercial databases, mass redemption event on stablecoins with significant
ensuring that it is real, licensed, and active entity with a holdings of such short-term debt instruments could cause
verifiable address. considerable disruption in CP and other short-term
credit markets.
• Individual investor - Individual user’s identity can be
established by verifying ID documents against New avenues have been created for the use of DeFi assets
government databases. Biometric verification and by traditional payment service providers: Visa announced
tampering detection technologies can also be used to the settlement of payments in USDC stablecoins on the
ensure that uploaded ID documents are genuine. Ethereum blockchain and PayPal has started allowing users
New age tools have been developed with live detection to spend their crypto-asset holdings at online merchants
features that allow for seamless verification of users globally. Centralised exchanges and other FinTech players
from video chats or selfie uploads. are offering user-friendly interfaces and products linked to
DeFi protocols. The financial services market has been
2. AML Watchlist screening - This step involves the vetting experiencing growing institutional investor interest, and
of the applicant for a possible match on global several financial products have been launched to allow
watchlists. The watchlist includes individuals and sophisticated investors to get indirect access to crypto-asset
entities that are known to have been involved in an products. Goldman Sachs offers bitcoin investment
illicit financial activity or listed under global sanctions vehicles, and Morgan Stanley offers its private wealth
list. Both institutional and individual watchlist screening management clients access to bitcoin and crypto funds.
can also crosscheck the applicant names against global BlackRock added bitcoin futures as a potential
lists of Politically Exposed Persons (PEPs). non-principal investment for two of its funds, while several
other investment banks are launching digital assets units.
3. Screening of wallet address - The wallet addresses of Currently, the linkages between DeFi markets and CeFi
applicants can be checked for possible association with appear to be at a nascent stage, but it may increase in
money laundering activities, terrorist financing and future if the adoption of crypto-assets reaches scale and
other risk indicators. there is an increase in tokenisation of assets leading to
increased use of stablecoins. Centralised and decentralised
4. Risk Profile - Once these elements have been ascertained technology-enabled business models need to coexist,
and evaluated, the potential applicant can be assigned a creating the need for hybrid solutions. The DeFi-CeFi
risk profile based on risk assessment guidelines and hybrid is expected to provide the level of innovation and
regulations. The system can then determine whether the decentralisation people want within the realms of a
applicant can be granted access to the DeFi regulated world.
network/platform or passed on to a human compliance
team for EDD or denied access to the platform. DeFi and the future of finance
Convergence of DeFi and CeFi Decentralised finance is still in the evolutionary stage.
However, in the past few years, it has been gaining traction
The primary value proposition of most of the banks and and has the potential to bring sweeping changes in the
financial institutions is the ‘convenience’ they offer to the financial world. With disintermediation as its core
customers, and it is highly unlikely that the centralised philosophy, transactions on DeFi and Decentralised
financial system will be completely replaced by DeFi Exchanges (DEXs) offer consumers an experience
models. However, it is increasingly clear that CeFi and different from traditional banking institutions. DeFi, in the
DeFi will intersect, and this convergence will bring forth form of decentralised exchanges, lending and borrowing of
great business opportunities. Increasing interest and different asset types or through insurance products, is
adoption of crypto-assets by institutional investors and evolving and rapidly expanding to replicate the traditional
other traditional financial service providers is leading to a financial services ecosystem and is seen as an alternative
greater intersection between CeFi and DeFi systems. that is cheaper, quicker, and more efficient. DeFi is quite
The increasing use of stablecoins makes the boundaries different from fintech, which has hogged the limelight
of the two systems more porous and increases the risks during the last few years. Fintech companies are challenging
of spillovers to the traditional financial system. Issuers of traditional financial services companies by lowering
stablecoins pegged to national currencies are increasingly transaction costs and improving the user experience.
investing in commercial paper and other short-term assets. Though fintech firms offer a seamless user experience, they
One of the largest stablecoins in circulation, Tether, holds still use the legacy infrastructure of centralised financial
around USD 30 billion in commercial paper, ranking as the institutions. So, while traditional financial institutions are
7th largest holder of such instruments globally. A sudden being challenged by the new generation of fintech firms,

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fintech will be challenged by DeFi in future. • DeFi and the Future of Finance, a research paper by Harvey et al, April 5, 2021
The centralised financial systems have not substantially
changed over decades. It is true that processes at most • Assessing Risks in Decentralised Finance, Moody’s Analytics, January 2022
financial institutions have been digitised, but the basic
infrastructure is substantially the same. The centralised • DeFi: Defining the future of finance, a research report published by PWC, June 2021
financial systems are still grappling with many structural
issues and problems: Retailers face almost 2-3% transaction • DeFi Beyond the Hype: The Emerging World of Decentralized Finance, an article by
fees on credit card transactions and have to wait for funds The Wharton School, May 2021
to appear in their accounts, why is the transfer of money
in this internet age so expensive and time-consuming? • How DeFi is revolutionising the financial industry, an article published by
Why are savings rates so low or even negative in some Moneycontrol.com
economies? Why are lending rates so high? Why it takes
almost two days to transfer ownership of shares in a • Decentralised Finance (DeFi), an article on Investopedia, updated on Feb 14, 2022
company? Why are almost 1.7 billion people in the world
still unbanked? All these problems have a financial cost, • Why DeFi Will Reshape the Future of Finance, an article by Sean O’Connor, Dec
and the friction that has persisted over so many years has 09, 2021
taken a toll on economic growth.
• The explosive growth in DeFi is less impressive than it seems and is still far from
DeFi holds the potential to bring about a structural change adoption by mainstream investors, an article published by JPMorgan group in ‘Market
in the financial system that will lead to a new system of Insider’, Nov 12, 2021
exchange, savings, lending, tokenisation, and insurance.
It will enable economic growth as anything can be • More Than 80% of the Funds Locked in Decentralised Finance Are Kept on 5
tokenised: goods, services, art, music, etc. As a result, in the Chains, 21 Different Defi Protocols, an article by Jamie Redman, March 14, 2022
future, consumers will be able to choose how to pay. At the
supermarket, customers can pay with a token backed by • What is total value locked (TVL) in crypto and why does it matter? An article by
gold or perhaps use one backed by Microsoft stock. If the Emi Lacapra, May 22, 2022
choice of the consumer does not match with what the
store wants, a decentralised exchange can seamlessly • The Convergence Of CeFi And DeFi: The Banks’ Big Opportunity, an article
exchange the asset into something the store is willing to published by Forbes, April 27, 2021
accept. This sounds similar to barter, in fact, a more
efficient form of barter. The central banks will face tough • Why Decentralised Finance (DeFi) Matters and the Policy Implications, a report
competition and may lose their monopoly over money. published by OECD, 2022
According to tracking service DeFi Llama, the total value
locked into DeFi services grew from less than $1 billion in • HyFi will Eradicate CeFi and DeFi silos to make digital assets interoperable, an
2019 to over $15 billion by the end of 2020, zooming to article published by Finextra, Nov 29, 2021
around $254 billion on Dec 02, 2021 before settling to
$106 billion on June 4, 2022, due to a steep depreciation in • KYC for DeFi Platforms, an article published by KYC-Chain, Feb 11, 2022
the value of various cryptocurrencies. The total value
locked represents the current value of all deposits locked in
the form of cryptocurrencies for lending, liquidity pool and About the Author
so on. DeFi is a new, fast-growing area, but there are Arif A Khan is AGM (research) at state
certain issues also to the mainstream adoption of DeFi bank Institute of Consumer banking
protocols such as uncertainly about regulations, (sbICb), Hyderabad. He has over 20 years
governance, cybersecurity measures, money laundering of experience in banking and has worked in
compliance, asset valuation and interoperability Asset Liability Management department
requirements. We are still in the early days of DeFi and shares & bonds department of sbI
disruption, however, with limitless possibilities and Corporate Centre, Mumbai and has also
continuing innovation, issues will possibly be fixed, and headed various branches of the bank.
DeFi is all set to completely overhaul and rebuild our
financial system. He holds a Masters degree in Chemistry and diploma in
Treasury, Investment and risk Management and was awrded a
References Gold Medalist in Chemistry. His travels have taken him to more
than 56 countries.
• What Is DeFi? Understanding Decentralized Finance, an article published in Forbes,
April 8, 2022 He can be reached at [email protected]

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ONDC - Open
Network for Digital
Commerce
More Power to Consumers
Manoj Srivastava
To start with the basics, ONDC stands for Open Network Internal Trade, Government of India. ONDC registered
for Digital Commerce. With the increasing trends in as a Non-Profit making (Section 8) private limited company
online marketing of goods and services globally, the and got a certificate of incorporation on December 31
expectation of customers also increases. Digital India 2021. The objective of ONDC is to move to democratise
Mission was launched in July 2019 in our country to make digital commerce and move it from a platform-centric
governance easy and transparent. Focus on Internet model to an open network model. Success story of
facilities and the use of mobile has been emphasised in platform-independent protocols like UPI developed by
the Digital India programme. the National Payment Corporation of India (NPCI) to
be replicated to provide alternatives to proprietary
The basic infrastructure for Digital India is picking up e-commerce sites and create a mechanism to connect
speed in order to provide Internet facilities to remote buyers and sellers.
rural areas also. It was aimed that the Digital India Mission
will help the country in the generation of employment Merchants will be able to save their data under ONDC to
potential, education, health, banking and online build credit history and reach consumers. Open Network
marketing etc. for Digital Commerce (ONDC) is an initiative aiming at
promoting open networks for all aspects of the exchange
Digital penetration and transactions in India have witnessed of goods and services over digital or electronic networks.
rapid growth throughout the country. In the time of the ONDC is to be based on open-sourced methodology, using
digital revolution globally, it should be a pressing priority to open specifications and open network protocols
promote and encourage digital or online transactions. independent of any specific platform.
During the period of March 2020, the entire world,
including our country, faced the adverse effects of the The foundations of ONDC are to be open protocols for
Covid pandemic; a major impact was the small businesses all aspects of the entire value chain of activities in the
closing down in many parts of the country. exchange of goods and services, similar to hypertext
transfer protocol for information exchange over the
This created a challenge for the government and for the Internet, simple mail transfer protocol for the exchange of
administration to provide adequate food items supply and emails, and unified payments interface for payments.
basic needs to the people. People realised the importance
of promoting digital transactions in order to avoid physical These open protocols would be used for establishing public
contact and to maintain the mantra of social distancing, as digital infrastructure in the form of open registries and
well as the need for a strong e-commerce structure. ONDC open network gateways to enable an exchange of
is an advanced step over e-commerce initiated by the information between providers and consumers. Providers
Government of India. and consumers would be able to use any compatible
application of their choice for the exchange of information
ONDC is an initiative of the Ministry of Commerce and and carrying out transactions over ONDC. Thus, ONDC
Industry Department for the promotion of Industry and goes beyond the current platform-centric digital commerce

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Table 1. Digital programmes in India products and services

are availed through
electronic means in an
online environment, it
was necessary to bring
e-commerce under a
legal framework, and
for this Indian
government created
specific regulations for
the e-commerce industry
in September 2019.
India has emerged as the

fastest-growing economy
in the world and is
model where buyers and sellers have to use the same expected to be one of the top three economic powers over
platform or application to be digitally visible and do a the next 10-15 years. Propelled by rising smartphone
business transaction. ONDC protocols would standardise penetration, the launch of 4G networks and increasing
operations like cataloguing, inventory management, consumer wealth, the Indian e-commerce market is
order management and order fulfilment. Thus, small expected to grow to USD 200 billion by 2026. The Indian
businesses would be able to use any ONDC-compatible e-commerce industry has been on an upward growth
applications instead of being governed by specific trajectory and is expected to surpass the US to become the
platform-centric policies. This will provide multiple options second-largest e-commerce market in the world by 2034.
for small businesses to be discoverable over the network Figure 1 describes a basic e-commerce business model,
and conduct business. It would also encourage easy and Figure 2 explains the concept of an open and
adoption of digital means by those currently not on digital closed network.
commerce networks.
In the existing Close Network, there is a single platform
India has all the strength and skill to set the activity in between the buyer and seller. The buyer is supposed to
motion globally in population-scale digital transformation. download various apps for the purchase of any product
Public digital infrastructure using open protocols networks online, and he / she cannot access more products of the
has been a key to the digital revolution.
Some of the digital programmes initiated Figure 1. E-Commerce business model
in India are given in Table 1.
E-Commerce
E-Commerce, Electronic commerce or

e-commerce is a business model that lets
firms and individuals buy and sell things
over the Internet. E-commerce is an
online based business model which has
been set up to provide consumers with an
online market portal used by people for
buying and selling products and services.
The Consumer Protection Act 2019
defines the term as buying or selling
goods or services, including digital
products, over a digital or electronic
network. E-commerce usually functions
using various electronic services like
Internet services, electronic fund transfer
services, electronic data exchange etc.
Since in India, a large percentage of

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Figure 2. Concept of close network and open network
seller at a single point in time; options are limited to (HTTP) is for the World Wide Web, and UPI for payment
the buyer, which may result in a payment of high prices systems, the open network idea has been conceived to
and compromise the quality of a product. In the existing transform digital commerce in India.
platform-centric digital commerce model, buyers and
sellers must use the same platform / application to do a ONDC advisory council
business transaction.
Presently, ONDC is in its pilot stage, and the government
Open Network goes beyond the current platform-centric has set up a nine-member advisory council, including
model where the buyer and seller must be part of the same Nandan Nilekani from Infosys and National Health
platform / application to enable transactions between Authority CEO R S Sharma, on measures needed to design
them. In an open network model, buyers and sellers can and accelerate the adoption of ONDC. The Government
transact no matter what platform / application they use to of India constituted an advisory council to analyse the
be digitally visible, enabling the flow of value. potential of ONDC as a concept and to advise the
government on measures needed to design and accelerate
In my opinion, it can be better understood by the the adoption of ONDC.
difference between Ombudsman Scheme and Integrated
Ombudsman scheme. On one side, the Ombudsman Participants in ONDC
scheme plays as a closed network, whereas the Integrated
Ombudsman scheme plays the role of an open network. ONDC is by the market for the market. Figure 3 shows
that all participants in the value trade will be able to
Open-source software is code that is designed to be participate and benefit from the network.
publicly accessible; that is, anyone can see, modify, and
distribute the code as they see fit. An open network based Investment in ONDC
on the open protocol will enable location-aware, local
commerce across industries to be discovered and engaged ONDC has received a fund of INR 157.50 crore in the
by any network-enabled application. As the Internet first stage of its project from 17 banks and other
Message Access Protocol (IMAP) / Simple Mail Transfer institutions as on March 31 2022. The list of these
Protocol (SMTP) is for emails, Hypertext Transfer Protocol investors is given in Table 2.

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Figure 3. Participants and beneficiaries of ONDC These 17 entities were included in

the list of investors by March 2022.
Now it will be increased to
20 shortly by the addition of
NSDL, Bank of India and
National Payment Corporation
of India. NPCI has planned to
own a 9-10 percent stake in
ONDC. Currently, ONDC has
received a fund infusion of INR
255 crore for the first stage of its
project from several banks and
financial institutions.
Online platforms on the

ONDC network
Online platforms like PhonePe,

Paytm, Dunzo, Sellerapp,
Microsoft, Tally, Gofrugal, FarEye,
GrowthFalcons, eSamudaay,
Microsoft, Goodbox and the
Federation of all Indian IT
associates are in the advanced stage
of integration with ONDC.
Discussion is under progress

with more than 80 players across
e-commerce to plug into the
network like India Post, BHIM,
Google pay, Reliance Retail, Max
Table 2. List of investors Wholesale, Metro Brands, Zoho, Shoppers Stop, GeM
(Government e-Marketplace), PayNearby, Snapdeal and
Samsung. Snapdeal will launch on ONDC with three key
categories that are fashion, home, beauty and personal care.
Reliance Retail-owned logistics provider Grab has

integrated its platform with the ONDC network. Reliance
Retail, alongside Flipkart and Amazon, is also likely to join
the ambitious UPI-like ONDC initiative. It is noteworthy
that Flipkart’s logistics verticals, Ekart and LoadShare, have
already integrated with ONDC for its logistics services.
Why ONDC?
Amazon and Flipkart have become huge players in online

marketing in India; they have control over almost more
than 60 percent of e-commerce in India. Similarly, Swiggy
and Zomato are the major monopoly-type companies in
food delivery e-commerce. The impact of e-commerce
through these companies is on the small retailer and small
MSME units business. They suffer a lot because of poor
connection to the online platform. For those small
businesses, the government has come out with an open
network platform that will be open for all.

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Process-search from customer perspective on buyer side app.
Let see an example how oNdC will work - if a buyer wants to buy grocery item like rice. The buyer will open an app
say PhonePe buyer side app which is connected to oNdC, go to search option and type rice. The search report goes
to oNdC network. The search will be sent to oNdC gateway and it will broadcast to all seller side app in retail
network in buyer’s location. The buyer will get the kinds of result of all local grocery merchants through seller side
app with qualities and price wise details. The buyer selects the products say rice A from b merchant connected to
oNdC through seller side app called seller app that also provides free delivery. The buyer needs to add the product
A to the cart.
After adding to the item to the cart the buyer will be able to see total of his order and on the top the buyer can see
the order has been verified which means it has been updated in real time with price quotes, inventory and offers
of the merchant on payment of cash on delivery. The buyer will now confirm the order, the buyer can see on buyer
side app-order placed successfully. The merchant confirms the order on his seller side app. buyer will also gets
confirmation. Now seller will broadcast the order to delivery person through logistic provider. The buyer will get the
delivery of product. The buyer will also be able to track the delivery status in the google map available in oNdC
network, the buyer side app PhonePe will also show the live tracking status of delivery agent.
Figure 4. Workflow of ONDC across different platforms in the e-commerce space, which is
currently dominated by Amazon and
Flipkart. ONDC promises to provide
a level playing field to small
merchants also.
Its proponents say that ONDC will

move Indian e-commerce away from
the current platform-centric model,
dominated by market leaders like
Amazon and Flipkart, to an open
network. It will do so by making
several operational aspects like
onboarding of sellers, vendor
discovery, price discovery and
product cataloguing open source.
This will allow more and more
traditional retailers to benefit from
selling their wares online and compete
with large e-commerce firms.
It is envisaged that ONDC will

ONDC will help in curbing the monopoly of big players eventually cover everything from electronic goods and food
and increasing the reach of small merchants. It will also delivery to mobility. From what we know so far, the
help in making a larger number of buyers available to all ONDC will mean the creation of a separate digital
the sellers present on the network. This way, both new and platform with easier processes for onboarding sellers.
existing buyers will benefit from this initiative. Government For example, if a buyer wants to buy a black shirt, he / she
officials believe that ONDC will create a level playing field can open Amazon or Flipkart's website and find the
between e-commerce behemoths such as Amazon and product hosted on Amazon and Flipkart in various price
Flipkart, which hold the lion’s share of the market, and ranges, as well as find the black shirt being sold by local
offline traders who have been accusing big e-tailers of shops in their neighbourhood. In the ONDC framework,
unfair trade practices. a person who wants to purchase a black shirt will be able
to search for the black shirt on the common open
Today, someone who has a Google Pay account can send platform. This product, say a black shirt, will appear on the
money to another person who uses PhonePe because both open platform of various sellers' apps through ONDC;
are using the common Unified Payments Interface or UPI price-wise and quality-wise, buyers shall have the freedom
platform. The government is planning a similar experiment to choose the best available option.

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ONDC is expected to give a leg-up to offline retailers, enable buyers and sellers registered with it to be visible
helping them compete with online sellers and thus and discoverable by adopting the ONDC architecture.
boosting hyperlocal deliveries. For sellers, ONDC will In the long run, the hope is that this will result in the
mean their products become visible on multiple rapid digitalisation of small businesses and consumers.
e-commerce websites without them having to register on The open network concept will not be restricted to the
each platform separately. retail sector but will extend to mobility, food delivery, and
travel, among others.
The government claims that ONDC will help in ending
predatory pricing in high-margin, high-value products. Consumers, meanwhile, will have a wider range of choices
ONDC is being set up with the following objectives: and better customer experience because of greater access
to more sellers at any given point in time. Figure 4 shows
1 Promote interoperability to create an open, inclusive, the outline of how ONDC works between buyers and
and competitive marketplace. sellers using different platforms.
2 Be an enabler with minimal public digital infrastructure. The pilot project for ONDC was launched in April 2022
in five cities in the country, and this includes Delhi NCR,
3 Be scale efficient and build for population-scale Bengaluru, Bhopal, Shillong, and Coimbatore. Currently,
adoption. it is operative in 19 cities, and approximately 150 retailers
are onboarded. ONDC expanded to Noida, Faridabad,
4 Make digital commerce small-business friendly. Lucknow, Bijnor, Bhopal, Chhindwara, Kolkata, Pune,
Chennai, Kannur, Thrissur, Udupi, Kanchipuram, Pollachi,
5 Pave the way to unlock innovation for reimagining Mannar and Ramanathapuram.
digital commerce.
Target under ONDC
6 Ensure rapid digitalisation of MSMEs and consumers.
1 Increase the number of cities to 100 by the month of
How ONDC works October 2022.
Through ONDC, a uniform platform will be available 2 To sign up 900 million digital buyers by 2027.
where all the platforms, like Amazon, Flipkart, Swiggy,
and Zomato, would do business, and all other small 3 Generate 3 billion orders per month.
e-commerce platforms or grocery stores would also have
equal visibility of their product and work accordingly. 4 Bring 15 million neighbourhood shops online.
Through ONDC, sellers, especially grocery store owners,
are expected to get wider access to buyers. Adopting 5 E-commerce in 75000 pin codes in India.
ONDC will significantly increase the discoverability of
their businesses while also lowering the cost of doing 6 To onboard 3 Crore sellers and 1 Crore retail
business, leading to better prices and profit margins for merchants online.
them in the long term.
One District One Product (ODOP) through ONDC
ONDC will work on the principle of an open network,
where buyers and sellers don’t have to be on the same Mr Piyush Goyal, the Minister for Commerce and Industry,
platform to conduct business with each other. Rather, the Consumer Affairs, Food and Public Distribution, and
network will enable them to be digitally visible and transact Textiles, on August 30 2022, called for the One District
no matter what platform or application they use. Imagine One Product (ODOP) project and the Open Network for
ONDC as a common catalogue or a registry where the Digital Commerce (ONDC) to be combined. The Minister
seller doesn’t need to follow a separate set of compliances stated that by bringing buyers and sellers together on a
or rules for different marketplaces. Similarly, consumers will democratic platform, ONDC would contribute to further
be able to see sellers from all marketplaces, such as extending the ODOP's boundaries.
Amazon and Flipkart, and even their neighbourhood
groceries store. Mr Goyal emphasised that unless the most remote regions
of the country have equal stakes in development and share
The aim is to enable large-scale democratisation of digital equally in the benefits of growth, India cannot develop and
commerce by providing equal opportunities to both large expressed that ODOP would contribute to the prosperity
and small merchants in the country. The network will of individuals at the base of the economic pyramid.

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The Minister spoke about the success of ODOP that it has 4 Consumers can potentially discover any seller,
achieved in numerous states, including Uttar Pradesh, and product or service by using any compatible a
stated that convergence, or ‘Samanvay,’ is a crucial element pplication or platform, thus increasing freedom of
that will fuel ODOP's success. choice for consumers.
Mr Goyal requested that the government's major initiatives, 5 It will enable the consumers to match demand with
such as Start-up India, Make in India, districts serving as the nearest available supply. This would also give
export centres, etc., be brought into line with the ODOP's consumers the liberty to choose their preferred
mission. He requested that all Ministries work together to local businesses.
develop complementing projects that will assist ODOP's
mission to be further expanded. India’s districts and 6 Thus, ONDC would standardise operations, promote
villages are home to crores of talented weavers, artisans inclusion of local suppliers, drive efficiencies in logistics
and craftsmen. Mr Goyal asked ministries, departments and lead to enhancement of value for consumers.
and other government bodies to consider ODOP
products exclusively for gifting purposes both within and 7 The digital market will be widened to accommodate
outside India. more Micro, Small, and Medium Enterprises (MSMEs)
and small traders in the country.
Benefits of ONDC
8 The monopolies of large e-commerce companies will
1 ONDC will empower sellers and buyers by breaking the be broken, leading to improvement in access,
monopoly of big market parties to drive innovation. innovation, and variety of businesses.
2 ONDC is expected to make e-commerce more inclusive 9 The transparent rules will attract more investments into
and accessible for consumers. businesses in the e-commerce space.
3 ONDC will offer equal opportunities to small 10 Enble dynamic pricing for small retailers and merchants
businesses to enjoy the benefits of digital commerce so that they can get the best market price for their
and also trade on a democratised platform. products and services.
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8 No regulator.
Conclusion
ONDC is expected to make e-commerce more inclusive

and accessible for consumers. Consumers can potentially
discover any seller, product or service by using any
compatible application or platform, thus increasing
freedom of choice for consumers.
It will enable the consumers to match demand with the

nearest available supply. This would also give consumers
11 Enable intelligent searches for different buyer apps in the liberty to choose their preferred local businesses.
the ONDC network so that there is better Thus, ONDC would standardise operations, promote the
discoverability of seller catalogues. inclusion of local suppliers, drive efficiencies in logistics
and lead to the enhancement of value for consumers.
12 Will open doors for many start-ups and help in
generating employment. The basic purpose of ONDC is to assist the small,
undigitised trader, who must be assisted to get digitised and
Challenges before ONDC avail of opportunities offered by the e-commerce
ecosystem. Since the alpha launch in five cities in April last
A massive awareness campaign has to be organised because year, ONDC has been testing with a closed user group for
most small business owners lack the technical expertise to end-to-end execution to understand their fulfilment.
get involved in this program. Small businesses also lack the Existing e-commerce platforms are popular because they
resources to match the discounts offered by Flipkart and remain consumer-focused.
Amazon. However, the following are the main challenges
before ONDC. They have created robust trust in their platforms based on
their ability to deliver on promises made about products,
1 Majority of small businesses have no digital access. fulfilment of orders on time, returns policies and
The smaller businesses may still find it hard to compete consumer-friendly refunds. ONDC will be tested against
with the number of resources available to major these benchmarks, and it must create consumer trust
e-commerce players. The lack of digital education through robust mechanisms for ensuring the redressal of
among a large section of small business owners may grievances of consumers and enforcing transparent policies
hamper the objectives of the initiative. for returns, refunds and cancellations.
2 E-retail penetration in India is only 4.3 percent, The inclusion of ODOP in the ONDC network will also
compared with China’s 25 percent, South Korea’s open a new door of development for farmers in rural
26 percent, and UK’s 23 percent. areas that would enable them to increase their income.
ONDC will help further expand the frontiers of ODOP
3 Limited digital available infrastructure and limited reach by bringing buyers and sellers together on a
in small towns and rural areas. democratic platform.
4 The possibility of a mismatch in payment gateways of

different platforms will compromise the aim of a About the Author
seamless transaction. Manoj Kumar srivastava is working as
Principal, Central bank officers Training
5 The legal aspects of the functioning of ONDC and College bhopal.
its association with other e-commerce platforms are
still unclear. He has worked as a branch head,
faculty member and regional manager.
6 The liability of issues faced by consumers concerning He has banking experience of more
the quality of products, payments, services, etc is also than 32 years. His qualification is b.sc.,
not specified. CAIIb and MbA (Finance).
7 Logistic issues - courier, payment and return policy. He can be contacted at [email protected]

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RegTech Solutions
driving the regulatory and
Compliance Landscape
Thomas Mathew
Abstract from banks in the United States alone exceeded $200

billion. In addition to this, the annual spending by these
Over the past few years, financial institutions (FIs) have financial institutions on compliance itself was estimated to
been aligned with fintech on various facets of the business. be more than $70 billion every year1. As a result, the cost
While the primary focus was on customer-facing areas, of regulation and compliance has become a prime concern
companies have now started dedicating attention to for the banking industry. There was also a rise in the
back-end aspects also. With added pressure from regulators augmented use of technology within the financial sector.
on overall data compliance and governance, RegTech Technology advances and innovations led to an increase in
within the fintech ecosystem has gained significance, and the number of fintech companies that created technology-
with digitisation and automation of various compliance driven products to enhance the customer experience.
obligations, RegTech is helping improve effectiveness,
reporting accuracy, and transparency in the financial sector. The pure dependence on customer data to produce digital
products has led to concerns among regulatory bodies
What is RegTech? calling for more stringent laws on data privacy usage and
dissemination. The combination of more regulatory
RegTech is also popularly known as regulatory technology. measures and laws with a sector more reliant on technology
The term RegTech was first presented by the UK’s brought about the need for regulatory technology. Figure 1
Financial Conduct Authority (FCA), which described it as shows a diverse spread of regulatory measures that affect
‘A subset of fintech that focuses on technologies that may different business settings.
facilitate the delivery of regulatory requirements more
efficiently and effectively than existing capabilities’. Through the digitisation and automation of processes,
RegTech provides a cost-effective solution to meet these
In easier terms, it refers to any technology that helps regulatory obligations. Technology-based systems can help
companies in meeting their regulatory obligations. RegTech financial institutions collect data and produce reports
is the management of regulatory processes within the following the format and schedule required by various
financial industry using technology. The main functions of regulatory bodies. For regulators, it strengthens their
RegTech include monitoring regulations, reporting, and regulatory and supervisory capacity by effectively using the
regulatory compliance. RegTech or regulatory technology data they receive to monitor the rapid developments
uses the power of Big Data, Artificial Intelligence and happening in the sector.
Blockchain to reduce financial risk, increase regulatory
compliance and help monitor money laundering and fraud. Understanding the worth of RegTech
History of RegTech A rise in the usage of digital products has given space for
the growth of data breaches, cyber hacks, money
After the 2008 financial crisis, the financial sector laundering, and other fraudulent activities. RegTech
regulation increased manifolds. Post-crisis fines collected solutions use the power of big data and machine-learning

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Figure 1. Widespread spectrum of regulatory standards
technology to reduce cyber and money-related fraud risk by payment sphere. Any outlier is communicated to the
offering data on money laundering activities that a financial institution to investigate and determine if
traditional compliance team may not be able to give due to fraudulent activity is taking place. Early identification of
the overload of work or oversight. potential threats can minimise the risks and costs
associated with lost funds and data breaches. RegTech
RegTech tools usually monitor transactions on a real-time also uses Cloud computing technology through
basis to identify problems or irregularities in the digital software-as-a-service (SaaS) to help banks and financial
institutions comply with regulations efficiently and
Figure 2. RegTech used in Cloud-based settings cost-effectively. Figure 2 gives a basic idea of how RegTech
uses a Cloud-based environment.
Banks usually receive a large chunk of data and may find it

too complex, expensive, and time-consuming to scrutinise
it on a regular basis. A RegTech firm, on the other hand,
combines complex information from a bank with data
from previous regulatory failures and predicts future
potential risk areas that the bank should work on and make
better. A RegTech firm saves the bank time and money by
creating the analytical tools needed for these banks to
comply successfully with the regulations.

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The rise of AI Graph 1. Global RegTech investment

during 2015-2019
Meanwhile, another important shift which started
disrupting nearly every space was the rise of artificial
intelligence. Deep learning and neural networks taught
the system how to complete mammoth tasks using a large
dataset of examples rather than through task-specific
programming. This has a wide range of implications.
The process of writing a program is extremely laborious.
With deep learning, programmers started feeding
algorithms data sets to help machines learn. Figure 3 shows
the process flow of how AI helps make it easier to analyse
larger chunks of data and develop programmes.
Natural language processing and machine learning

capabilities began to disrupt the industry one after
another. In no time, companies brought the power of world, totalling $1.1 billion. By 2019 the numbers jumped
these new technologies to bear on the regulatory up to 317 deals totalling $8.5 billion. This investment and
compliance challenges. development helped push RegTech solutions out of the
innovation phase so that they could operationalise benefits
Figure 3. Process flow of developing in a real-life environment. This helped RegTech providers
the programme convince financial institutions / banks that the value they
now offered was real and meaningful. Graph 1 shows
global RegTech investments from 2015 to 2019.
Need for RegTech
The financial service sector had to face a plethora of

regulations, and these regulatory policy changes are a
regular factor. Regulators enforce overly complex and strict
timelines upon the financial institutions / banks for
implementation of these changes and to undertake the
modernisation of their businesses. To reduce the enormous
and ever-increasing load of these terms, banks / financial
institutions have started embracing new technology
solutions. Figure 4 shows the importance of using RegTech
solutions in financial institutions.
The RegTech revolution Regulatory Technology (RegTech) has established a solid

foundation within the fintech ecosystem to overcome these
At this very crucial point of the regulatory burden and the challenges and has come up with solutions that are targeted
exceptional rise of AI, RegTech was born. Initially, the to new and complex regulations, litigation and regulatory
financial services industry met RegTech with apprehension. redressal areas faced by financial institutions (FI), conjoined
The solutions promised by the RegTech providers were with an overall decrease in cost compliance.
attractive, but the subject of regulatory compliance was
vast and complex, and the margin of error was nil. Globally there are a lot of RegTech companies providing
RegTech companies were to prove to the financial firms a range of solutions and services to support financial
that their solutions are worth betting on. institutions with their compliance needs. Most of the
RegTech firms help in compliance with Payment Services
Finally, the investors stepped in. They understood the Directive 2 (PSD2), the Markets in Financial Instruments
depth of the opportunity and invested capital in helping Directive (MiFID II), the Fourth Money Laundering
turn this plan into reality. A lot of capital was available to Directive (4MLD) and General Data Protection Regulation
these RegTech companies. According to a study done in (GDRP). And much of these RegTech solutions are
the year 2015 by a company named RegTech Analyst, there available through an open Application Programming
were 149 RegTech investment deals made around the Interface (API) and Software as a service (SaaS) model.

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Figure 4. Need for RegTech solutions Characteristics of RegTech
Agility
RegTech can quickly separate

and organise cluttered and
intertwined data sets through
extract and transfer load
technologies.
Speed
RegTech can also be used to

generate reports quickly.
Integration
It can also be used for

integration purposes to get
Legacy solutions used by banks are not up to date to meet solutions running in a short period of time.
the increasingly stricter requirements implemented by
regulators across the world. Therefore, RegTech solutions Analytics
provide a seamless way for banks / financial institutions to
meet these requirements without overhauling their existing RegTech uses analytic tools to mine big data sets and use
models entirely. them for different purposes.
Figure 5. Transactional journey of the RegTech process

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Five major activities of RegTech
The world of RegTech is multifaceted and involves the

following major activities:
1. Compliance: Compliance is the foundation of

RegTech. The technological capabilities of AI and machine
learning in regulatory compliance allow for the following:
• tracking down the latest regulations in the industry,
• examining new documentation,
• data monitoring on a real-time basis, transactions manually, and even if done, it will eat away
substantial resources of the organisation. RegTech
• accepting and implementing regulations according to technologies can monitor transactions in real-time and
specific business demands, generate warnings in case of suspicious activity. Figure 5
explains the transactional journey from onboarding to
• data visualisation, and reporting the RegTech process.
• assisting employees’ training. Applications of RegTech solutions
2. Management of identity and control: Identity RegTech solutions operate in numerous spheres of the
verification is very important to reduce money laundering financial and regulatory space. They have automated
risks, but it is also extremely arduous. When it comes to employee surveillance, data management compliance,
a ‘risky’ group of customers that require extra screening, prevention of fraud, and audit trail skills. Regulation
the procedure time may double. Banks using RegTech technologies go beyond just supporting financial services
can remove manual KYC (know your customer) procedures organisations to meet their regulatory requirements.
altogether. They not only save time but also get in-depth Regulation technology compliance solutions are used in
details. With these strong advantages, RegTech has the following other various fields:
become a powerful tool for fraud detection within
financial institutions. • Governance, legislation, and supervision.
3. Regulatory reporting: With the growth in the number • Medical system.

of regulations around businesses, a huge amount of data
is getting accumulated daily. Documents prepared with • Vendor risk management.
redundant and repetitive sets of data were submitted for
compliance. The documents were manually prepared and, • Checks and identification of one’s antecedents.
at times, not in order. With the introduction of RegTech,
nothing needs to be done manually now. AI can collect • Information security and cyber security.
essential datasets, categorise them, and form reports
according to the established regulatory standards and the • General compliance management.
needs of the compliance team.
How does the process of banking RegTech work?
4. Risk management: Another important use of the
powers of Artificial Intelligence data analysis is to predict The RegTech process consists of five fundamental parts:
issues and challenges. RegTech solutions for banks or
financial institutions can process big chunks of data in 1. Authorisation of the customer: Every business starts
no time and, more importantly, with the smallest details. with the need of the customer and their satisfaction with
This feature makes RegTech the best tool to classify and the product or service, and the same stands true for banks
assess compliance risks. and financial institutions also. Before starting any process,
the customer should be introduced to the system, assets
5. Transaction monitoring: Transaction monitoring is a must be verified, and quality onboarding must be ensured.
constant process but still a challenging task for banks and RegTech companies start working at this stage by doing
financial organisations. It is almost difficult to check all the user ID checks with different sources.

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and financial institutions. Its key solutions and capabilities

include the following:
1. Data platform – This feature stores the records from

various sources (like customers’ orders,
telecommunications etc. and dispenses analytical
information.
2. Mandatory transaction reporting – It helps in transaction

reporting of EMIR (European Market Infrastructure
Regulation) and MiFID II (The Markets in Financial
Instruments Directive) transactions with almost 100
percent accuracy.
3. Supervising trade – SteelEye helps to monitor all the

trading activities, find out possible fraud threats and
other risks and inform the organisation with reports.
4. Communication oversight – It helps to keep track of each

communication and then analyses them, which in turn
helps in detecting adverse behaviours.
5. Insights – It helps in preparing multifaceted reports

2. Data monitoring: Banks and financial institutions are based on information received from different
supposed to monitor a lot of financial and non-financial departments.
activities on a continuous basis and make sure that they
fulfil thresholds, records, personnel supervision, the 2. Workiva: This is a SaaS (Software as a service) company
latest regulations, and market changes. RegTechs help and provides various tools for Cloud-based robust
in the process. reporting. This RegTech solution helps to keep a close eye
on vital business aspects like finance, risk management,
3. Fraud detection: RegTech is an efficient detection tool compliance, and basic accounting. Its key solutions and
for various kinds of fraud activities and acts as a means capabilities include the following:
of protection from financing terrorist activities. RegTech
technologies identify the risk signs or fraud patterns and 1. Documentation integration and report formation for
alarm the bank or financial institutions. various regulations required for Sarbanes-Oxley Act
(SOX) compliance, The Comprehensive Capital
4. Reporting: This is the most important part of the Analysis and Review (CCAR), Lead Renovation, Repair
RegTech process because only reporting can prove that and Painting (RRP), and other regulations.
regulation rules are properly followed. Machine learning
algorithms collect sufficient information to prove that 2. Provides proper ESG reports (environmental, social,
suspicious actions have taken place, and it also helps and governance data).
report it quickly.
3. Establishes smooth GRC (governance, risk
5. Means of control: Finally, efficient RegTech is management, and compliance) reporting.
only possible with proper control tools. They guarantee
compliance, risk mitigation, and effortless processes across 3. Continuity: The primary activity of this company was
all parts of the workflow. It is a solid foundation to keep to automate everything related to compliance and risk
the RegTech system steady and scalable. management for banks and financial organisations.
This company was started around the year 2008. Its key
RegTech solutions for banks solutions and capabilities include the following:
Five noteworthy companies and their capabilities: 1. Compliance management solutions - The solution sets
provided by this company help banks and financial
1. SteelEye: The primary focus of this company is to firms comply with ever-changing regulations and
make compliance simpler and more cost-effective for banks automate workflows.

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2. Enterprise risk management (ERM) technology – It helps 4. Adverse information and media insight – It ensures proper
financial institutions to deal with different risks, which can screening against FATF (Financial Action Task Force).
be strategic, regulatory, and / or compliance.
Benefits of employing RegTech in banks / FIs
3. Vendor management technology – It supports financial
institutions in dealing with third-party relationships’ risks. Compliance with regulations (new and existing)
Persistent monitoring helps the organisation to reduce extra
spending for consulting and outsourcing. RegTechs enable banks and financial institutions to
comply with regulatory requirements more efficiently.
4. Performance management technology – This facility keeps track These solutions are proactive while incorporating new
of the performance of the above three points, i.e. and ever-changing regulations and understanding what-if
compliance, risk, and vendor management. situations and thus, enabling robust solutions in the
regulatory ecosystem. All these RegTech companies
finally help in time reduction for client onboarding, fraud
identification, adaption to new regulations and improved
data collection and data analytics.
Simplifies data management
There has been an exponential growth of data stores

in recent years. Banks and financial institutions have
been looking for ways to process these structured and
unstructured data for better insights. Regulations like data
storage of Aadhaar cards in India require strategic data
management methods, and to collect and examine this
4. Acuant: This company serves, among others, more than large chunk of data, banks / FIs require huge computing
400 fintech companies. The tools provided by RegTech are power. Banks now store, access, and process data on
in the majority used for verification for customers all over a large scale.
the world and to secure their transactions. Its key solutions
and capabilities include the following: With the additions of new regulations, banks and financial
institutions are pushed to prepare a front-to-back approach
1. Acuant Verify – This feature helps to guarantee secure to data infrastructure. Data sets are made deep and
user verification regardless of where the device is located. accurate, and their contents are probed, viewed, and
manipulated with more flexibility for different uses and
2. Acuant compliance – It handles the need for anti-money purposes. RegTech solutions provide more efficient,
laundering (AML) regulations. transparent, and useful regulatory filings laced with these
all-powerful data sets.
3. Acuant identity – This feature works on the full cycle of
identity management which includes building, analysing, Real-time reporting
and verifying the identities of the user.
RegTech contains dynamics to completely change how
5. ComplyAdvantage: This company provides anti-money the compliance effort is approached by providing real-time
laundering technology to financial institutions. It uses analysis of the data for banks and financial institutions.
artificial intelligence and natural language processing to These advanced data analytics helps RegTechs to analyse
provide these facilities. Its key solutions and capabilities in different ways, such as scenario analysis, regulatory
include the following: ecosystem analysis, and real-time user engagement analysis
and thereby helping firms to proactively identify risks,
1. Customer screening and monitoring – Actively identify risks issues, and opportunities.
related to fraud and nip them at the early stage.
Data analytics and decision making
2. Transaction monitoring – It uses a rule engine to identify
suspicious behaviour patterns. RegTech companies provide predictive analytics for risk
management. Predictive analytics can evaluate the root
3. Transaction screening – Screens all the transfers with the cause of a regulatory breach and use this information to
connected sanctions lists. forecast future risk areas or compliance issues.

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This feature also helps in risk Figure 6. Challenges faced by financial institutions
modelling. Developments in
areas like Cloud computing
and artificial intelligence can
further enhance the usefulness
of RegTech solutions.
Regulation reframes
implementation of
new governance
The RegTech solutions are also

known as compliance intelligence
firms which refers to the
predictive aspect of RegTech.
RegTech solutions provide fast,

accurate, end-to-end automated regulatory-compliant • High penalty for non-adherence to the regulations.
solutions. The solutions provided are flexible and
future-proof to easily comply with existing and new • Legacy system constraints and insufficient
standards. By taking an all-inclusive approach to automation and digitisation to match the pace of
compliance, companies can identify risks promptly, and regulatory changes.
the front office will be able to do their work better.
• Unstandardised approach, unsuited systems, and
Fraud and risk management inadequate integration of systems.
Collaboration with RegTech solutions provides banks and Market Snapshot of RegTech (2022-2032)
financial institutions with cost-saving solutions, increased
return of capital and solution to all regulatory and The latest report, ‘RegTech Market’ released by Future
compliance needs. RegTech systems in risk management Market Insights, shows that global sales of RegTech
help in data aggregation for capital planning and liquidity Market were around US$ 8.2 Bn in the year 2021.
reporting, scenario analysis, and forecasting with stress
testing. Companies in the areas of know-your-customer Table 2 shows that with the projected growth of
(KYC), real-time AML screening, AI / ML-based fraud 16.2 percent, the projected market growth during
prevention, and real-time compliance monitoring had 2022-2032, the market is expected to reach US$ 45.3 Bn by
the maximum level of adoption by banks. Other areas 2032, and among this growth, Cloud deployment-based
which have become popular are Cloud computing for RegTech is expected to be the highest revenue-generating
data standardisation, AI / ML-based e-KYC, cleansing category at CAGR of 15.8 percent. Some of the major
and derivation of audit and board-level governance, trends and growth factors for the RegTech market are
analytics dashboard, and predictive analytics for advanced explained in the following list as well as in Figure 7.
risk management.
1. Region which is projected to offer the
Challenges faced by FIs largest opportunity.
Banks and financial institutions face a lot of challenges in • North America is the most profitable region, with
managing risks which are explained in the following list as double-digit projected growth.
well as in Figure 6.
• Augmented awareness of RegTech solutions among
• Regular additions of new financial regulations banks and financial institutions and increased
by governments. partnerships between RegTech enterprises and
regulatory authorities are the key drivers of RegTech
• Continuous modifications of existing regulations. solutions.
• Cost of production and deployment of • Approximately US$ 2.3 Bn in 2019 was raised by the
Regtech solutions. top ten RegTech deals.

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Table 2. Market snapshot of RegTech 2022-2032
• North American companies accounted for 9 of the • In 2021, the Regulatory Intelligence category
10 deals. (application) held a significant revenue share in the
RegTech sector.
2. Country that lies at the centre-stage for RegTech
Market Revenue. RegTech in India and RBI’s plans
• By the end of 2032, the United States is expected to E-governance initiatives launched in India, such as the
have the highest market share of US$ 15.6 Bn. ‘Digital India’ campaign, have aimed to catapult the
country into a digitally empowered society and knowledge
• IBM, Deloitte, and Broadridge Financial Solutions economy, converting many sectors in earlier unseen
companies are focused on delivering a variety of ways. This digitalisation initiative gave rise to a range of
RegTech solution products. technology-powered financial and insurance products
called ‘FinTech’ and ‘InsurTech’. With the rise of fintech
• IBM and Ascent finalised a deal in 2020 to merge their and insurtech, the augmented pace of digitalisation, big
RegTech technologies to help banks and other financial data, and the complexity of modern financial offences
institutions in managing their growth and ever-changing have further complicated the task of financial regulation
regulatory policies. and supervision. Regulators are dependent on technological
solutions to combat these problems.
3. RegTech Segment, which is projected to witness
the fastest growth among RegTech types. Indian financial sector regulators have also risen to the
challenge and are renovating their practices through
• RegTech revenues are expected to grow in cloud RegTech. However, RegTech usage is not limited to the
deployment and are forecasted to grow at over financial sector alone. For example, India’s telecom
15.8 percent during 2022-2032. regulator, TRAI, tried to put an end to the menace of
spam calls through a blockchain technology solution.
• The scalability feature delivered by cloud computing will Even though the emphasis of RegTech may be on financial
allow the financial sector to keep up with the pace of regulators, other economic and financial institutions such as
data increase. RBI, stock exchanges, and ministries of finance which need
continued monitoring and supervisory functions, are also in
• Global public cloud services industry expanded to the scope of RegTech’s enabled transformation.
17 percent in 2020.
Early days, compliance and supervisory reporting involved
4. Product type and application of RegTech, which is the use of Excel, XML, and emails for submitting data
expected to score the highest growth to regulators. Collection and analysis of data was a
separate, manual process with a limited scope of checking
• The solutions segment of RegTech is expected to completeness, errors, formatting method and accuracy.
grow at the highest CAGR of over 15.9 percent With the explosion in big data technology, financial
during 2022-2032. products and amplified regulatory requirements, the

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traditional compliance and supervisory Figure 7. Worldwide growth factors of the RegTech market
processes became redundant and financial
institutions started missing critical
information and deadlines. Regulators
also struggled with inadequate resources
non-compliance with regulations and thus
resulting in inefficiencies in supervision.
The RBI has begun to employ SupTech

(the latter category of RegTech,
a contraction for supervisory technology)
to ease its compliance and supervisory
functions by effective data collection,
data analysis, data management, and
smooth reporting between regulators
and the Bank and for carrying out
risk-based supervision of banks.
SupTech can be used for a range of supervisory mechanism that was dependent on pre-defined data
functions, but RBI’s main aim is to use this technology collection prone to incompleteness and errors into a
to enable seamless data collection, reporting, analysis, fool-proof AI and ML run system, and the system will
and decision-making. RBI also planned to use the securely extract specific data sets directly from source
solutions for licence streamlining, market monitoring systems of banks and financial institutions.
and surveillance, KYC, anti-money laundering activities,
combating terror financing, cybersecurity data or RegTech trends – Indian scenario
evidence-based policymaking.
RegTech trends in India include AML compliances,
Applications of RegTech by RBI privacy and surveillance guidance, cross-border risk
management and tax-efficient investment support.
1. Import Data Processing and Monitoring System
(IDPMS): It facilitated efficient data processing Figure 8 lists some of the RegTech trends related to
for payment of import transactions and its effective the Indian scenario and market.
monitoring and was designed in consultation with the
customs authorities. Anti-Money Laundering
2. The Export Data Processing and Monitoring With the growing trend of scams and money laundering
System (EDPMS): This is another platform that cases surfacing in India, RegTech solutions are deemed to
integrates India’s banking system with RBI facilitates be the appropriate cure. Anti-Money Laundering activity
and facilitates efficient data processing of export monitors funds transferred between parties and the firms
transactions, and its effective monitoring. that control them, raises alarms if frauds are detected and,
in the process, improves the working of the bank and
3. RBI’s Central Repository of Information on financial institutions. RegTech solutions can be the best
Large Credits: It is RBI’s central database that was partner for this monitoring.
formed for consolidating off-site supervision and early
recognition of financial distress. Privacy and Surveillance
4. Integrated Compliance Management and A large amount of data is getting added during the
Tracking System: It was designed to enhance the everyday working of a bank / financial institution.
on-site supervision of entities to enable monitoring of This large chunk of data needs to be processed, examined,
an end-to-end compliance cycle. It enables automated and stored. With the demand for transparency in work
inspection and is supported by an efficient online being the utmost priority these days, it has almost become
complaints and compliance management system. tough for companies to draw a thin line between business
requirements and data privacy. Therefore, the need for
The RBI has on numerous occasions stated that it is AI platforms arises to separate vital data from the
updating its traditional off-site supervision and reporting entire communication.

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Figure 8. Trends of RegTech in the Indian market References
1. As per an article published in the year 2017 by development. Asia (An initiative of
the Asian Development Bank).
2. https://development.asia/explainer/how-regtech-helping-banks-manage-risks
3. https://www.ascentregtech.com/what-is-regtech/
4. https://medium.com/the-regtech-hub/regtech-driving-innovation-of-banks-fintech-
2ea63716542e
5. https://thefintechtimes.com/intro-to-fintech-regtech/
Crossborder risk management
6. https://builtin.com/fintech/regtech-companies
With an increase in globalisation and liberal trade policies,
cross-border transactions have grown immensely in the 7. https://www.pwc.in/industries/financial-services/fintech/fintech-insights/regtech-a-
Indian market. With the increase in business, the associated new-disruption-in-the-financial-services-space.html
risk with such transactions, additional regulations, and
compliances have also increased. RegTech solutions 8. https://zoop.one/2021/01/22/top-trends-to-look-forward-to-in-regtech-in-2021/
assist well in monitoring such transactions and employing
the compliances and regulation framework without 9. https://amlegals.com/regtech-how-it-is-transforming-the-financial-space-in-india/
any haziness.
10. RBI’s circular on IDPMS dated October 6, 2016
Banking compliance and tax-efficient
investment support 11. RBI’s circular on EDPMS dated September 15, 2017
RegTech tools are a blessing for banking institutes to 12. RBI, Fifth Bi-monthly Monetary Policy Statement, 2019-20 Resolution of the
comply with regulations such as KYC, AML, trade-based Monetary Policy Committee (MPC), 7
laundering, etc in an effective, accurate, and innate way.
RegTech tools also provide essential insight for wealth 13. RBI, Report on Trend and Progress of Banking in India 2019-20, 4-5.
management customers by developing profiles for
investors, allocating assets, identifying tax rules, and 14. https://www.futuremarketinsights.com/reports/regtech-market
analysing their influence on the investment strategies
embraced. 15. https://www.aninew s.in/news/business/business/teamlease-services-increases-stake-
in-avantis-regtech-and-renames-company-to-teamlease-regtech20211102111501/
Conclusion
16. https://chisw.com
Data quality, technology, and competence are the key areas
where the RegTech market seems to swing in the coming About the Author
years. With the induction of major disruptions in the last Thomas Mathew is working as research
few years, financial markets have started navigating it by officer in state bank Institute of Innovation
working harder and longer. Banking and other financial and Technology, Hyderabad. He has ten
industries need to improve the working of the compliance years of experience working in branches.
department with the help of the highest quality tools, He was selected as the best branch
which can give better insights derived out of a large chunk Manager for year 2017 for Karnataka.
of data sets.
His qualifications include MCA, PGdbA,
Moreover, banks and other financial institutions must be MHrM, JAIIb, CAIIb and eight certificate courses of IIbF. He
continuously reminded that risk digitalisation and has also completed sbI Life Insurance Certified Agent Exam,
compliance management activities are one of the last steps sbI General Insurance Certified Agent Exam and AMFI Certified
of compliance automation and using RegTech applications Agent Exam. He has published several articles in the in-house
to good effect will be the next. Regulations are here to stay, magazines of sbI.
while innovations are here to make compliance a natural
part of the workflow. He can be reached at [email protected]

LEGAL
Doctrine of Priority
of State Debts
Impact on recovery of banks’ dues
Anil Kumar Bansal
The doctrine is also known as the ‘Doctrine of Priority of 1. Common Law doctrine about the priority of Crown
Crown Debts’. It has its origin in the Common Law of Debts constitutes ‘Law in Force’ within the meaning of
England. It is expressed in the legal maxim ‘Quando Jus Article 372 (1) of the Constitution of India and
Domini Regis Et Subditi Concurrunt Jus Regis praeferri debet’, continues to be in force.
which means where the title of the King and that of
subjects concur, the King’s title prevails over the title of the 2. There is a consensus of judicial opinion that arrears of
subjects. In other words, the statutory dues of the tax due to the state can claim priority over private debts.
government shall take priority over the dues of the
citizens and citizens are bound to first pay the statutory 3. The basic justification for the claim of priority of State
dues before payment to the creditors. Way back in the year Debts is the rule of necessity and the wisdom of
1938, in the matter of Manickam R Chettiar, AIR 1938 conceding to the state the right to claim priority in
Mad 360, a decree was passed in favour of an individual respect of its tax dues.
who was sought to be executed. Income Tax authorities
staked their claim stating that they should be paid income 4. The doctrine may not apply in respect of debts due to
tax dues of the debtor in preference to the creditor. the state if they are contracted by citizens in relation to
Hon’ble Madras High Court held that the Crown had commercial activities, which may be undertaken by the
priority with regard to its debts over all other debts. It was state for achieving socio-economic good.
further held that though the procedure laid down in the
Income Tax Act was not followed, even then, the court Impact of doctrine on the recovery process
had inherent jurisdiction under Section 151 of the Code of banks
of Civil Procedure to recognise the claim of the Crown.
In another case of Builders Supply Corporation vs The biggest malady of banking sector is the absence of any
Union of India, AIR 1965 SC 1061, it was held by effective legal remedy to recover their ever-increasing dues.
Hon’ble Supreme Court that the doctrine has been So far as the recovery mechanism of banks and financial
consistently recognised by all courts in India and that it institutions (FIs) is concerned, our legal system has not
amounts to ‘Law in Force’ within the meaning of 372 (1) kept pace with changing commercial practices and financial
of the Constitution of India. It was further held that sector reforms. To tackle the malaise, Debts Recovery
recovery of tax due from citizens must take precedence Tribunals (DRTs) were established on the recommendation
and priority over the unsecured debts from the citizens to of M Narasimham and T Tiwari. Initially, DRTs held some
their other private creditors. ground, but after a few years, it became apparent that the
DRTs did not prove to be very fruitful and failed to serve
In the leading case of Dena Bank vs Bhikhabhai the purpose for which they were established. Looking at
Prabhudas Parekh & Co 2000(5) SCC 694, Hon’ble the grim scenario of recovery, the Government of India
Supreme Court held that the statutory dues will have constituted Narasimham Committee and Andhyarujina
priority over the dues of the private secured creditor and Committee to examine the Banking Sector reforms and
held further that: recommend the need for change in the legal system relating

LEGAL
to the recovery of dues of banks and FIs. issued Recovery Certificate. At this stage, the revenue
These committees recommended the enactment of new officer issued notice to borrowers for recovery of sales tax
legislation for securitisation and empowering the banks and and attached the properties which were mortgaged in the
FIs to take possession of the securities and to sell them bank’s favour. The revenue officer claimed that under
without any intervention of the court. Accordingly, the Section 26B of the Kerala General Sales Tax Act, the State
SARFAESI Act 2002 was enacted on the recommendations Government has the first right to properties. The matter
of these committees. SARFAESI Act has fairly improved escalated to the Supreme Court, which held that Section
the recovery position of banks and FIs. However, the 26B of the Kerala Act creates a prior right of the
doctrine of Priority of State Debt has been a big stumbling government over the properties of the dealer or any other
block in the way to recovery of the banks and FIs. person liable to pay sales tax. This is the position regarding
the hypothecation of movable properties and mortgage of
Hindrances in the recovery of bad loans immovable properties.
Banks obtain security from the borrowers at the time of In another important matter of Thane Janata Sahkari
granting loans so that in case of default in repayment by Bank Ltd vs Commissioner of Sales Tax & Others,
the borrowers, banks / FIs may be able to recover their Bankers Journal 2007 (1) 566, the bank informed the
loans by the sale of that security. It is also a fact that sales tax authorities that the bank had granted certain loan
revenue collection is one of the most important functions facilities to borrowers against securities of mortgage of
of the government. The doctrine has come in the way of plant and machinery and land and building. Bank requested
banks / FIs in the recovery of their debts in a big way, due sales tax authorities to note the bank’s charge upon these
to which they are not able to recover their dues from the properties but received no response. Upon default of
defaulting borrowers. It has been provided in various repayment by the borrowers, the bank proceeded against
statutes that the dues of the government / government them under SARFAESI Act. After the auction of the
departments / tax authorities / workers shall take properties by the bank, sales tax authorities issued a notice
precedence over the dues of the banks / FIs. Accordingly, to the bank to remit the amount of the auction to them
if the central or state law provides that such dues shall have towards sales tax dues from the borrowers. On challenge,
priority over the secured creditors, it is binding on them, the Bombay High Court held that provisions of the
notwithstanding that they may be the first charge holders. SARFAESI Act are merely procedural in nature which
In such a situation, secured creditors have to first satisfy does not create a charge in the bank’s favour. It was further
the debts of the state out of sale proceeds of the charged held that it does not override Section 38C of the Bombay
properties / secured assets. Sales Tax Act, and the bank does not get precedence or
priority over the statutory first charge under the Bombay
It has generally been seen that in case the borrowers have Sales Tax Act.
not paid the taxes imposed by various government
departments, the concerned departments stake their claims However, the position is different relating to the pledge of
over the properties charged in favour of the secured goods which was explained in the matter of Bank of
creditors / seize their properties to realise their dues Bihar vs State of Bihar & Others, AIR 1971 SC 1219;
though the properties might have been charged with the the bank advanced loan to the borrower on the security of
banks as security for the loans granted by them. The issue pledge of sugar bags. The borrower was liable to the State
has been dealt with by Hon’ble Courts from time to time of Bihar for arrears of sugar cess. The matter escalated to
which can be illustrated by way of the following cases: the Supreme Court, which held that the pledge was
intended to give the bank a primary right to sell the goods
In the matter of State Bank of Bikaner and Jaipur, 1995 in satisfaction of the liability of the pawnor and the Cane
ISJ Banking 190, Hon’ble Supreme Court held that the Commissioner, who was an unsecured creditor, could not
statutory first charge created by Section 11 AAAA of the have any higher rights than the pawnee bank and was
Rajasthan Sales Tax Act 1954 has priority over an earlier entitled only to the surplus money after satisfaction of the
mortgage created in favour of the bank. It implies that it dues of the bank.
could override the claim of even a secured creditor,
provided the statutory first charge has been created by the The doctrine vis-a-vis recovery laws
statute concerned. Similarly, in the matter of Central Bank
of India vs State of Kerala & Others, CA No 95 / 2005, Banks / FIs resort to various legal and non-legal remedies
decided on February 27, 2009, the Appellant Bank granted for the recovery of their bad loans. Among legal remedies,
cash credit facilities to Kerala Refineries Ltd who banks file their cases either before the Civil Courts or the
mortgaged their immovable properties in the bank’s favour. DRTs depending upon the threshold pecuniary limit. Cases
Upon default of repayment, Debts Recovery Tribunal are not uncommon when the banks and FIs receive notices

LEGAL
from various authorities about the attachment of the banks and FIs run industries which are governed by various
properties (charged in the banks’ / FIs’ favour) for labour / industrial laws, e.g. Industrial Disputes Act,
recovery of their dues first. In such a situation, banks and Workmen’s Compensation Act, Employees’ State Insurance
FIs are put in a very piquant situation. If the banks and FIs Act, Employees’ Provident Funds and Miscellaneous
have proceeded under SARFAESI, they cannot proceed Provisions Act etc. These acts contain certain provisions
further to auction the properties of the borrowers after that the dues payable to employees shall have first charge
taking possession in view of the notice of attachment of on the assets of the employer. In case of non-payment of
properties by other authorities. If Recovery Certificate has the dues, the Industrial Courts / Tribunals have been
been issued by the Presiding Officer under the Recovery of vested with powers to issue recovery certificates through
Debts and Bankruptcy Act 1993, the Recovery Officer which the dues can be realised out of the assets of the
cannot proceed further to auction the properties due to the employers. These provisions have an important and direct
attachment of the properties in question. As the provisions bearing on the interests of the banks and FIs, them being
stood before amendment in the Recovery of Debts and the creditors of many industrial undertakings. Hence, in
Bankruptcy Act 1993 and SARFAESI Act 2002, the debt of case of any default in payment of dues of the employees
the state got priority over the dues of banks and FIs. by the employer, banks’ interests are likely to be prejudiced
in more than one way.
To tackle this problem, the government amended these two
acts in the year 2016, which provided for priority of In most of the labour laws, there is a provision that the
recovery for dues of the secured creditors. After the dues payable by the employers to the employees, if they
amendment, the doctrine of priority of state debts has remain unpaid, shall be treated as arrears of land revenue
been virtually diluted so far as the recovery of dues of the and shall be recoverable as such. This is a very stringent
banks and FIs is concerned. By way of amendment, a new provision which affects the banks / FIs also. In the matter
Section 31B has been added to the Recovery of Debts and of Textile Labour Association vs Official Liquidator,
Bankruptcy Act 1993, which states that notwithstanding (2000) 99 Comp Cas. 189, Gujarat High Court held that
anything in any other law, the rights of secured creditors to the amount of gratuity could be recovered through the
realise secured debts by the sale of assets over which collector as arrears of land revenue by way of the sale of
security interest has been created, shall have priority and be assets of the company. The court further held the claim of
paid in priority over all other debts and government dues secured creditors on the assets of the company must be
including revenues, taxes, cesses and rates due to central subject to all charges in favour of the workman. Similarly,
government, state government or local authority. Similarly, as per sub-section (2) of Section 11 of the Employees’
a new Section 26E has been added in the SARFAESI Act Provident Funds and Miscellaneous Provisions Act 1952, if
2002, which states that notwithstanding anything contained any amount is due from the employer, either in respect of
in any other law, after registration of security interest, the employees’ contribution or employers’ contribution, the
debts due to any secured creditor shall be paid in priority amount so due shall be deemed to be first charge on the
over all other debts and all revenues, taxes, cesses, and assets of establishment and be paid in priority of all other
other rates payable to the central government, state debts notwithstanding anything contained in any further
government or local authority. In effect, the amendment law for the time being in force.
provides that the rights of secured creditors to realise
secured debts by the sale of assets over which security Likewise, Section 14A of the Workmen’s Compensation
interest is created shall have priority over all other debts Act 1923 provides that the compensation payable to the
and government dues, including revenues, taxes, cesses and injured workman under the act is stipulated as the first
rates due to central government, state government or local charge on the assets of the employer. Section 45B of the
authority. After the amendment, it seems that, as of now, Employees’ State Insurance Act 1948 provides that any
one of the biggest roadblocks in the process of recovery contribution payable under the act may be recovered as
has been demolished. It is expected that the amendments arrears of land revenue. It is further provided under
brought about in these two legislations shall boost the Section 45C that upon receipt of the recovery certificate,
recovery position of the banks and FIs substantially, and the Recovery Officer shall proceed to recover the amount
the banks and FIs shall be able to recover their dues specified in the recovery certificate by attachment and sale
through the sale of properties without any rider. of the properties of the establishment, arrest of the
employer, appointment of a receiver for the management
Doctrine vis-a-vis industrial laws of properties of the establishment.
The impact of the doctrine cannot be overemphasised so Section 33C of the Industrial Disputes Act 1947 provides
far as industry and industrial law is concerned. It is that wherever any money is due from an employer to the
extremely important to note that several borrowers of workman, it can be recovered as arrears of land revenue

LEGAL
through a recovery certificate. In an important case of C.J. b. All wages and salaries of the employees due for a
Thomas vs Labour Court and others (1993) 1 LLJ 278, period not exceeding 4 months within 12 months
it was held that Labour Court has got no jurisdiction to immediately before the relevant date;
stay the revenue recovery proceedings. In one more
important case of Central Bank of India vs Siriguppa c. All accrued holiday remuneration becomes payable
Sugar and Chemicals Ltd, (2007) Comp Cas 149 (SC), to any employee;
the company had taken a loan against a pledge of stock of
sugar from the bank. Labour Commissioner passed an d. Unless the company is being wound up voluntarily
order under Section 33C of the Industrial Disputes Act in merely for the purpose of reconstruction or
respect of the dues of workmen. The said order was amalgamation with another company, all amounts
challenged by the company before High Court, and the due in respect of contributions payable during a
bank was also impleaded as a party. During the pendency period of 12 months immediately before the
of the writ petition, revenue authorities took possession relevant date;
of the sugar stock which was pledged with the bank.
The court directed the sale of sugar stock to pay the dues e. All sums due to an employee from the provident
of workmen and dismissed the writ petition. The matter fund, the pension fund, gratuity fund or any other
was escalated to the Supreme Court. It was held by fund for the welfare of the employee maintained
Hon’ble Supreme Court that the rights of the pawnee by the company; and
over the pawned sugar have precedence over the claim
of the cane commissioner. It was further held that the f. The expenses of any investigation held in
rights of the workmen, in the absence of liquidation, pursuance of Sections 213 and 216 in so far as
only stand as unsecured creditors, and their rights cannot they are payable by the company.
prevail over the rights of the pawnee of the goods.
Hence, the non-payment of dues of the employees by the It would be seen that so many debts are to be paid to
establishment / employer has far-reaching implications the government authorities in priority to the debts of
which directly affect the banks and financial institutions. the creditors, which is bound to have an impact on
the creditors.
Doctrine vis-a-vis Companies Act 2013
Doctrine vis-a-vis Insolvency and Bankruptcy
Banks and FIs grant huge loans to various corporates, Code 2016
which form a major chunk of their loan portfolio. If these
corporates / companies are not able to repay the loans and The code has been enacted with the objectives of
have to undergo liquidation, the bank’s interests are likely promoting entrepreneurship, availability of credit and
to be at stake. Section 326 of The Companies Act 2013 balancing the interest of all stakeholders in a time-bound
says that in the case of winding up of the company manner. The objective of the code is also to maximise the
following debts shall be paid in priority to all other debts: value of assets of such persons and connected and
incidental matters. Obviously, the objective of the code is
a. Workmen’s dues; and, not the recovery of bad debts. However, for the purpose of
this article, it is relevant to discuss the doctrine and
b. Where a secured creditor has realised a secured provisions relating to the priority of distribution of assets
asset, so much of the debts due to such secured under the code. In this regard, it is of utmost importance
creditor as could be realised by him or the amount to note that one of the objectives of the code is ‘alteration
of workmen’s portion in his security (if payable in the order of priority of payment of government dues’.
under the law), whichever is less, pari passu with
the workmen’s dues. Section 53 of the code provides that in the event of
liquidation, different types of creditors shall have different
Section 327 of the act further provides that subject to the entitlements to the assets. The code provides for a
provisions of Section 326, in winding up, the following mechanism known as the ‘Waterfall Mechanism’ for the
debts shall be paid in priority to all other debts: order of payments prioritising the claims of various
stakeholders out of the proceeds of assets. This section
a. All revenues, taxes, cesses and rates due from the specifically provides that notwithstanding anything to the
company to the central government, state contrary contained in any law enacted by the parliament or
government or local authority having become any state legislature, the proceeds from the sale of
payable within 12 months immediately before liquidation assets shall be distributed in the order of
that date; priority as provided under the section. As per Section 53,

LEGAL
secured creditors are in second position in the order of observations of the Hon’ble Court shall have far-reaching
priority along with the dues of the workmen, whereas the implications so far as the banks / FIs are concerned. It has
dues to the government have been put in fifth position. virtually diluted one of the objects of the code, which
categorically provides for alteration in the order of priority
However, very recently, the Hon’ble Supreme Court, in the of payment of government dues. The author feels that the
matter of Sales Tax Officer vs Rainbow Papers Ltd., decision rendered by Hon’ble Supreme Court needs to be
has inter alia held that a resolution plan which ignores dues reviewed being against the letter and spirit of the code.
payable to the state / Legal Authority is liable to be
rejected. The order states that Section 48 of the GVAT Act Conclusion
is not inconsistent with the code and that code does not
override the GVAT Act. Furthermore, Section 3(30) of the It can be established from the discussion so far that the
code Secured Creditor means creditor in favour of whom doctrine has undergone several changes as per
security interest is created. Such security interest could be requirements and needs under the given circumstances.
created by the operation of law also. The term ‘secured Moreover, different High Courts have different views with
creditor’ does not exclude any government or government regard to the priority of debts. Recovery of dues is a major
authority, and the state is also a secured creditor under concern for the whole banking industry. The priority of
GVAT Act. state debts was a huge hindrance in the way of recovery.
Respectfully, the verdict of the Hon’ble Court is in After the enactment of the SARFAESI Act, the recovery
contradiction with the specific provisions of the code so position has definitely improved. However, the recent
far as the order of distribution of assets is concerned. amendment providing for priority of recovery of debts to
The code specifically provides for the priority of the creditors has come as a major relief.
distribution of assets as per Section 53, wherein the dues
of the government have been placed at number five. The IBC 2016 has specifically provided the mechanism
The non-obstante clause is used by the legislature to of distribution of assets which has been reiterated by
provide an overriding effect to the provision that could various courts. However, the recent judgement of the
clash with another law. But in the present case, the Hon’ble Hon’ble Supreme Court seems to have stirred up a
Court held that Section 48 of the GVAT Act is not hornet’s nest. It is expected that the matter will be
contrary to or inconsistent with Section 53 of the code reviewed by the Hon’ble Court.
without properly appreciating and analysing the objects of
the applicable laws and provisions.
About the Author
The expressions ‘security interest’ and ‘secured creditors’ Anil Kumar bansal retired as AGM-Law
need to be examined for the purpose of analysing the from Assets recovery branch Central
implications of the judgement. As per Section 3(30), bank of India Mumbai.
‘secured creditor’ means a creditor in favour of whom
security interest is created, and ‘security interest’ means a He started his banking career as a Law
right or title created by a transaction which secures officer, PNb at Head office, delhi and
payment or performance of an obligation. The expression shifted to work as a Manager-Law in
‘transaction’ under Section 3(33) means an agreement or Central bank of India. He had practised as
arrangement in writing for the transfer of assets, funds, an advocate for five years before joining the bank. He has
goods or services from or to the corporate debtor. handled cases relating to staff / service matters / disciplinary
This implies that the corporate debtor must be a party to Actions, recovery Matters, banking ombudsman cases, rTI
such a transaction. Hence the definition covers only those cases, bIFr Cases and cases relating to tenancy. He was
security interests covered by the act of parties. deputed as recovery officer in drT Chandigarh for 3 years.
His educational qualifications are bA, LLb and CAIIb.
However, the Hon’ble Court has charges deemed to have
been created by statute and not created as a part of the He has written more than 170 articles which have been
transaction, which is also a ‘security interest’ under the published in various journals like, IbA bulletin, The Indian
code. On this ground, the Hon’ble Court has held that the banker, banking Chintan Anuchintan, Legal Journals, Central
tax dues rank at par with that of a secured creditor. It is bank of India’s in-house journals. He is writing head notes on
submitted that if the intention of the legislature was to give decisions of the supreme Court and various High Courts which
the tax dues the status of a secured creditor, it would have are being published in various monthly legal journals.
specifically provided so while providing for the distribution
of assets under Section 53. In effect, the judgement and He can be reached at [email protected]

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Introductory Seminar on ESG
IbA organised a one-day Introductory seminar on Environmental, social & Governance (EsG) on
december 09, 2022 at Centrum Hall A & b, Centre 1, WTC, Cuffe Parade, Mumbai. PwC India was
the Knowledge Partner for the seminar.
Inaugural Session social impact of it and how to improve our governance

standards so that whatever we do is for creating value for
Welcome Address the entire ecosystem.
Sunil Mehta, Chief Executive, IBA Let me admit in the beginning that we are just a beginner.
We are at an awareness stage; a lot of geographies have
You are all well aware that we owe a great responsibility to done a better job. They have started developing
the next generations. We are blessed with getting all the taxonomies, they have started developing standards, they
natural amenities - air, earth, and environment. We now have created sectoral data, while we are right now at an
have a responsibility to conserve the same for our future awareness stage. So, IBA thought that to create awareness,
generations because if we use all the natural resources let us bring all the important key players in the market to
which God has blessed us with, we will not be doing justice one platform and create a series of information
to the next generation. So as good citizens, it is our moral dissemination, a knowledge series through webinars where
responsibility to take care of the environment to conserve the banking fraternity can understand the risk of how
it for future generations. economic activities can impact the climate and vice versa.
With economic activity, we do deforestation; we go with
With the G20 presidency coming to India, our role in the excessive use of minerals and plants. All these activities
the world is all the more critical. The entire world is create climate change. Sometimes it leads to floods and
now looking at India for leadership in this area, and natural disasters in various forms, such as cyclones. So, all
environmental, social, and governance sectors are these things are interlinked, and as a responsible society,
paramount in the deliberation. You are also aware that what we all need to do to conserve the climate, to reduce
RBI has come out with a note on ‘Climate Risk and the impact of our economic activity on the climate, is to
Sustainable Finance’ seeking inputs from various conserve the natural resources by optimally utilising them
stakeholders. IBA is collecting that information from without disrupting the social and economic activity so that
various banks on how to embed the ESG framework into we don’t create the climatic change.
our underwriting and risk standards. Let me share with you
that at the IBA level, we have created a standing committee We do not have a perfect database because the climate is
on the ESG framework, which is headed by the chairman geography-linked. The climate of Kashmir is different
of SIDBI with senior bankers as members. These senior from than climate in Rajasthan; the climate of Kerala is
bankers will look into the role the Indian financial system different than what is there in Assam. Incidentally and
can play in conservation of the climate, how to analyse its fortunately, India is blessed with a diversified climate; we

EVENT roUNdUP
have the highest mountain peaks, and we have got the AFD, SIDBI and
Himalayas on one side and the largest peninsula on the IBA are working
other side. We have a desert in the western part of it, together because we
and the world’s highest rainfall area is in Meghalaya. want to take the lead
This localised climate data and its impact on the economy that the European
is a big challenge for all of us because we are at a learning Union has taken.
stage, and we don’t have a readymade model to see how it AFD is an agency
is going to impact us. We need to understand what the promoted by the
different geographies and different experts in these areas Government of
are doing. On what basis are they collecting data, on what France, and they were
basis are they developing the model, and how, as a banker, the first ones who
can we embed these processes and these systems into our came to us, and we
risk and underwriting standards? collaborated and
exchanged knowledge. We have learned from them.
To push our agenda forward, we need to incentivise the Today, there is another set of specialists who will share
sector. I know many of the banks have already started their knowledge. We will keep on engaging in these
this journey. We have seen a presentation from Axis Bank, seminars in the times to come. The purpose is to create a
and they have done a good job. SBI has already taken the better awareness within the banking fraternity on how we
lead, but right now, all the efforts are scattered. Every can support the conservation of the climate, the social
bank, every institution, every private player, and even impact of the steps we are taking, and how we can bring
consultants are working in their own space. IBA provides better governance. You are all well aware that SEBI, in the
a very efficient platform for all these stakeholders to come last seminar, said that they have already come out with
together and pool their knowledge which can help us in minimum disclosure requirements. First, they went with the
designing industry-level standards for embedding the risk first 100 companies, then they expanded to 500 companies,
into our processes, finding the mitigants, creating the and now they have gone to 1000 companies. These are the
underwriting covenants to support climate conservation disclosures companies need to make about the impact of
and incentivise the system through differential pricing. their economic activity, and their industrial activity on the
Some of the banks have already started doing it. The way environment. Once SEBI has made it mandatory, every
female students get a concessional rate of interest for their corporate entity will start looking at its processes to
educational loan; in the same way, for climate conservation, evaluate how their economic activities, their production or
electric vehicles, which are going to replace fuel, are manufacturing or service activities are impacting the climate
eligible for a concessional rate of interest. So that is one and what they can do to make it greener and what they can
of the incentives. We can incentivise the real estate sector do to conserve the environment. Rating agencies have also
based on whether their projects have a solar system or started working in the area of creating the standard for
not, whether they have water harvesting systems or not, ratings for green financing. It is a work in progress, and the
and whether the type of material they are using for the rating standards are yet to begin.
construction of the building is green or not. Green means,
does it conserve the environment, whether it uses natural RBI is looking forward to collective views from the
wood or it uses recycled material, material which conserves banking industry on how we want to undertake this journey
the environment. These are the standards we can create and support our national objectives and the international
as an industry, and that is the whole purpose that IBA goals of the ESG framework, and today’s workshop by
has brought knowledge partners like PWC with us. IBA is one step in that direction. We provide a platform for
There are other players in the panel discussions who will all the stakeholders to come and share their knowledge and
come out with their perspectives. As IBA, we will assimilate their thought processes. Then, we can create something
all these thoughts, and we will see how we can make use of which is commonly acceptable to all for adoption in their
this information and how we can make use of this systems and creation of their policies so that we do not
collective knowledge to design industry standards for the drag the entire goal into different directions. We go the
ESG framework. same way because one individual entity does not deal with
only one bank; they do not deal with only one institution.
We have different panel discussions in which participants So if SBI provides a different underwriting standard for the
from different fields will give their perspectives. It is high ESG framework, Standard Chartered provides a different
time when the G20 presidency is with India, and when the framework, and Axis Bank provides a different framework,
entire world is looking at it for leadership in this area, we the industry which has to comply with it will not be on the
started taking some steps in this direction as the banking same page. It would create chaos in the system because one
industry. IBA has already collaborated with AFD. entity or one corporate entity may be dealing with more

EVENT roUNdUP
than ten banks. There has to be uniformity in our (ESG) on the theme ‘ESG- Emerging Imperatives for
approach to what we expect them to do. What covenants Banks’. I was told that the morning session was quite
should be there? What should be made mandatory? interesting, which deals with ‘Environment’ and ‘Social
What should be made optional? What will qualify them climate risk’, and the afternoon sessions will focus on
for getting some incentives? What will be the disincentives ‘Governance’ as well as ‘Climate Risk’. All these topics
if they don’t comply? For this, we are also now are quite relevant to the banking sector as they play a key
collaborating with IFC; we are also collaborating with role in encouraging us to adopt environment-friendly
WWF, and they have also come forward. Maybe in the next policies, processes and procedures for the benefit of the
sessions, we will invite them to share their perspectives so larger society.
that we get a 360-degree view of what is being done by
international financing agencies in this area. Then, we can There is also an opportunity for Indian banks to engage
pick what is best suited for the financial sector and can fit with corporate clients and make a positive impact by
it into the overall scheme of things for designing guiding them to implement environmental, social and
underwriting and risk writing standards in the financial governance (ESG) standards and goals. Although quite a
sector. This is the main objective of today’s workshop, and few big corporates are already doing this, it is our
I am sure with the eminent speakers available here to share responsibility as a banker also. We should take the
their knowledge, sharing their perspectives, we will be necessary initiative on this because it is at a very initial
enriched and get a lot of input. I welcome you all once stage as of date.
again to the seminar and hope our today’s deliberations will
enrich and benefit all of us. (Ends) We have been hearing about global warming, the increasing
incidence of natural disasters, climate risk in the social
It was followed by an address by Ankit Jain, Co-Founder sector and financial sector, carbon emission, etc, for quite
& CEO StepChange and the theme presentation by Vivek some time now. Now, all these incidents indicate that we
Prasad, Markets Leader, PwC India have mismanaged the use of natural resources in our
pursuit of several other goals. This has led to a situation in
The next session, which was a ‘Panel Discussion on which our survival on this beautiful earth is becoming a big
Environment’, began with the speech of the lead speaker, question mark.
Vishal Dev, Director-Sustainable Business, WWF- India.
The discussion was moderated by Sandeep Mohanty of According to a report by Munich Re - a leading global
PwC India. Upendra Bhat, Co-founder and MD, player in reinsurance and insurance-related risk solutions -
cKinetics; Aditi Bhatia, Regional Sales Manager- South the cost of economic damages caused by natural disasters
Asia, Sustainalytics Corporate Solutions; Lakshmi Prakash in the Asia Pacific region has reached 22 billion USD in the
from Cyril Amarchand Mangaldas were the members first half of 2022. On a global scale, natural disasters have
of the panel. Shanthanu Jaiswal, Head of BNEF generated, as of 30 June 2022, economic damages worth
India, Bloomberg, also joined the discussion via 65 billion USD, 52.6 percent of which, that is around
Video Conferencing. 34 billion USD, were borne by insurers. The picture is
really scary. Environmental and climate-related issues are
It was followed by a ‘Panel Discussion on Social materially impacting many sectors of the economy,
Issues’. The lead speaker for this session was including banks. At the same time, banks are essential for
Prof Hema Swaminathan, Centre for Public the transition to a sustainable economy.
Policy-Chairperson, Internal Committee, IIM, Bangalore,
via Video Conferencing. Sumit Gupta, Chief Risk Officer, Banks are increasingly evaluating business opportunities,
Yes Bank; Ravi Vukkadala, CEO, Northern Arc risks, and ways to
Investments, were the members of this panel discussion in support and
which Roopa Satish, Country Head, Sustainable Banking, accompany clients on
Indusind Bank, also joined via Video Conferencing. the journey to climate
neutrality. Along the
Post Lunch way, they are
reviewing their own
Opening Remarks operating models
to ensure that
A K Goel, Chairman, IBA climate-related
matters are adequately
I am very happy to be with all of you in this IBA’s maiden addressed. Only when
seminar on the Environmental, Social and Governance banks adopt

EVENT roUNdUP
environment-friendly policies internally would they be in a mitigate or adapt to the risks along with the financial
position to provide advice to their clients with examples of implications of the same.
actions taken by them internally. In this long journey, the
banks have to collaborate with the government and other In Aug-2022, SEBI issued a consultation paper on Green
stakeholders to find solutions to this problem. and Blue Bonds as a mode of sustainable finance which
essentially captures the debt instruments specifically aimed
The government, RBI and SEBI have taken measures at raising investments in green projects. These projects
to create an enabling environment for facilitating include renewable and sustainable energy, clean
ESG standards. For all stakeholders, including banks, transportation, climate change adaptation, sustainable waste
clear directions from the government - some broad management and others. SEBI’s paper explores the
targets are essential for moving on. At COP 26, that is, ecosystem of environmental, social and governance (ESG)
the 26th Conference of the Parties to the UN Framework investments through green and blue bonds.
Convention on Climate Change (UNFCCC), our
government has committed to meet 50 percent of our Reserve Bank of India has issued a discussion paper on
energy requirements from renewable resources by climate risk and sustainable finance. This has set a series of
2030, reduction of total projected carbon emissions by discussions at various events on sustainable finance and
one billion tonnes from now to 2030, reduction of the climate risk.
carbon intensity of the economy by 45 percent by 2030
over 2005 levels and achieving the target of net zero It is pertinent to note that corporates and banks have
emissions by 2070. already adopted several policies for protecting the
environment and reducing carbon emissions. Recently,
A few months back, the Union Cabinet approved India’s India’s ranking has improved to 8th position in Climate
updated Nationally Determined Contribution (NDC) to Change Performance Index (CCPI). The ranking given
be communicated to the UNFCCC. The updated NDC by CCPI places India as the only G-20 country in the top
seeks to enhance India’s contributions towards the 10 ranks. Published annually since 2005, the Climate
achievement of the strengthening of a global response to Change Performance Index (CCPI) is an independent
the threat of climate change, as agreed under the Paris monitoring tool for tracking the climate protection
Agreement. Such action will also help India usher in low performance of 59 countries and the European Union.
emissions growth pathways. It would protect the interests
of the country and safeguard its future development needs I am sure with more focus and more awareness of ESG,
based on the principles and provisions of the UNFCCC. our aims will be achieved with concerted efforts from all
stakeholders. I wish all the participants a fruitful
Similarly, The Securities and Exchange Board of India conference. Thank you. (Ends)
(SEBI) introduced the requirement of ESG reporting back
in 2012 and mandated that the top 100 listed companies by The ‘Panel Discussion on Governance’ had CA (Dr)
market capitalisation file a Business Responsibility Report. Adukia Rajkumar Satyanarayan, Central Council
This was later extended to the top 500 listed companies by Member, Mumbai ICAI as the lead speaker. The discussion
market capitalisation in 2015. was moderated by Sumit Seth, PwC India, with Partha
Pratim Sengupta, MD & CEO, Indian Overseas Bank;
In 2021, the SEBI introduced a new ESG reporting Bose Varghese, Senior Director-ESG, Cyril Amarchand
structure by the name Business Responsibility and Mangaldas and Madhav Nair, CEO, Mashreq Bank as
Sustainability Report (BRSR). Under BRSR, listed entities members.
(top 1000) need to provide an overview of the entity’s
material ESG risks and opportunities, an approach to The next session was a ‘Panel Discussion on Climate
Risk’, which was moderated by Kuntal Sur of PwC India
with Neha Kumar, Head, South Asia Programme, Climate
Bonds Initiative and Rahul Prithiani, Senior Director-
Sustainability, CRISIL, as members. Quyen Thuc
Nguyen, Senior Climate Finance Specialist, IFC and
Ashish Garg, Partner, BCG, also joined via Video
Conferencing. David Croen, Head, Risk, Bloomberg was
the lead speaker who too joined via Video Conferencing.
Brij Raj, GM of RBI, delivered the closing remarks.

The seminar concluded with a vote of thanks.

{hÝXr
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Vol X No. 7 - ’$adar 2023 {X B§{S>¶Z ~¢H$a 61

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62 {X B§{S>¶Z ~¢H$a Vol X No. 7 - ’$adar 2023

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Cƒ gH$b {~H«$s `m amOñd g§J«h, `m Am` H$mo g§X{^©V H$aVr h¡. Q>m°n-bmBZ
d¥{Õ H$m `h AW© hþAm {H$ H§$nZr Zo Hw$b {~H«$s `m amOñd `m Am` ‘| Cƒ d¥{Õ B©‘ob: [email protected]

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{X B§{S>¶Z ~¢H$a

English & Hindi Monthly Volume X Issue 7 Mumbai

What Ails Primary Cooperative Banks

3. deployment of Gross bank Credit by Major sectors (` Crore)

Agriculture & 1,263,993 1,402,221 1,595,185 10.9 13.8

4. Forex reserves As on A year ago

8. ratios Percent date

9. Index of Industrial Production - sectoral [base: 2011-12=100] 2022-23

2 The Indian banker Vol X No. 7 - February 2023

Design, Content and Marketing Support by

Vol X No. 7 - February 2023 The Indian banker 3

Deputy Chairmen CoVEr sTorY

4 The Indian banker Vol X No. 7 - February 2023

Vol X No. 7 - February 2023 The Indian banker 5

Ambikanand Jha Dr Rajib K Sahoo Shailesh Kumar Malviya

Pradeep Kumar Bhool Sibi P M Aravind Kumar Pandey

Jayasree Menon Dr Rashmi Tripathi Dr Sulabha Kore

Uday Diwakar Manish Kumar Sharad Kumar Hari Misra

6 The Indian banker Vol X No. 7 - February 2023

Major economies call for World

Germany has joined the United States

Vol X No. 7 - February 2023 The Indian banker 7

8 The Indian banker Vol X No. 7 - February 2023

Vol X No. 7 - February 2023 The Indian banker 9

10 The Indian banker Vol X No. 7 - February 2023

Vol X No. 7 - February 2023 The Indian banker 11

Introduction the return on assets, return on equity, and net interest

12 The Indian banker Vol X No. 7 - February 2023

Table 2. Select Financial Indicators of UCBs (%)

Source: Report on Trend and Progress of Banking in India 2020-21, RBI.

• Lack of cooperative character

A closer look at the operations

Vol X No. 7 - February 2023 The Indian banker 13

Figure 2. Grouping of the problems faced by the UCB Sector

14 The Indian banker Vol X No. 7 - February 2023

Vol X No. 7 - February 2023 The Indian banker 15

Table 3. Component-wise Capital Adequacy of UCBs portion of Tier I capital is

16 The Indian banker Vol X No. 7 - February 2023

Vol X No. 7 - February 2023 The Indian banker 17

18 The Indian banker Vol X No. 7 - February 2023

passive or apathetic membership are more prone to 5. https://www.dzbank.de

4. www.bvr.de He can be reached at [email protected]

Vol X No. 7 - February 2023 The Indian banker 19

Tracing the Current

20 The Indian banker Vol X No. 7 - February 2023

Among major economies, inflation Figure 3. Trend of CPI inflation

Dynamics of the Consumer Price Index (CPI)

The consumer price inflation in India went through a

Vol X No. 7 - February 2023 The Indian banker 21

Figure 4. Component-wise CPI inflation

Figure 5. Rural and urban inflation

22 The Indian banker Vol X No. 7 - February 2023

Figure 6. Trend of WPI inflation

Rural and urban inflation Dynamics of Wholesale Price Index (WPI)

Figure 7. Component-wise trend of WPI inflation

Vol X No. 7 - February 2023 The Indian banker 23

Both CPI and WPI inflation indicate a moderation in

Key factors to drive inflation

Food inflation: A spike in food inflation on account

Supply Chain from China: Chinese firms play a major

24 The Indian banker Vol X No. 7 - February 2023

Outlook for inflation going forward About the Author

Vol X No. 7 - February 2023 The Indian banker 25

Introduction What is DeFi?

Signature(s) _______

Name(s) _____