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Europe Debt Crisis and Economics

July 25, 2012May 6, 2018 Prasad AjinkyaLeave a comment

Today I was sitting with the Pristine content team and trying to figure out why are we going to see the biggest financial recession ever. Bigger than the one we faced in the year 2008. Definitely bigger than the Great Depression of 1929 that the United States had faced.

So, what’s the problem with have Debt management in first world countries? Well, a lot of the growth in such countries is fueled by increase in the GDP (which is primarily a factor of how much the citizens can consume). Linked with consumerism is the problem of having a limited income. So most organizations think how do I maximize the share of this limited income?

The correct way is to maximize the pocket share, or the mind share within this limited expendable income that an individual has. Apart from that, there are other ways … ways such as Credit! So do not pay me the entire amount now, pay me in instalments … 30 days free trial (which loosely translates into a 30 day credit period), and so on. Credit cards enable us to do that, loans, overdraft accounts … essentially all these instruments help a consumer to spend MORE. At the end of the day when this expenditure has to be met with payments, either the person defaults (in which case this debt is bad debts!) or the person raises another loan to pay off that loan.

What banks do at the other side is that when they recognize such bad debts, they try to sell such debts as forward cash liabilities to other banks. Based on these you have a new instrument which is called a Credit Derivative .. you will remember the CDO crisis of 2007-2008. The culprit is debt or lack of Debt Management.

The problem stems from the fact that Debt management in the first developed countries was not done in a proper fashion. Typically, countries in Europe such as UK, Germany, etc are so developed that a lot of individuals are running in the negative all the time.

But things are changing, in fact I am informed that the debt management in such countries is now being managed by third party agencies, for example, click here for UK debt management. The good part about having such agencies is that individuals can now de-risk themselves. So much so that the UK government is hoping to lean on the taxpayers to lend the government money to pull themselves out from the Euro-Debt crisis.

Interestingly enough, what can be done to reduce future debt crisis is to start cash utilization and stop unnecessary usage of the credit instruments. A reality check on consumerism also needs to be done, which is threatening to take the economies of most developed countries down. In the short run consumerism is definitely a helpful boost in the arm for the country’s economy, but in the longer run it has to be curbed.

Credit Cards in India

June 26, 2012December 19, 2013 Prasad AjinkyaLeave a comment

With the e-commerce sector in India booming, a lot of foreign investors are looking to invest as PE funds in Indian e-commerce ventures. Unlike the Indian outsourcing story, wherein the business is a case of derived demand, the e-commerce stories are catering to the domestic market. With different reports sizing this industry around 5000+ Crores in INR per annum, this is one of the moments in the India Shining dream. One of the major factors in driving this has been the credit card and personal finance industry in India.

The ease with which private banks are issuing credit cards is a testament to the process orientation of this industry. What unnerves me about this is that the same ease is shown when the same credit card user switches to a different card. Over a period of time, users wake up to this and start becoming consumers … demanding better deals on their cards and switching without a moment’s hesitation. What this results into is an easy way out to avoid paying one credit card and get access to another card. Yes … a credit card fraud. The first world nations have already faced this threat and have put up centralized agencies to monitor credit scores.

In the UK, you can do a credit check for free … and that too online. The thing is that such organizations have superior processes powered by reliable and cutting edge technology. Nowadays, I am reading about Credit Cards with Digital Displays. In fact, in the UK the industry is so mature that nation level reporting can be done to find out the country’s credit risk. There are 30 million UK credit card customers holding 66 million cards. Out of these, 62% of all UK adults had at least one credit card. What is great about this is that the government is keenly following this industry and has mandated to the credit card industry to clean-up all malpractices.

India, is still far behind it n these matters … we do have the Credit Information Bureau (India) Limited, but I tried getting a report online and I could not. I had to first make a payment of INR 470, at which I balked. I mean, shouldn’t this data be made available for free? At least to the user on whom its about!

The Credit Card industry in India needs to mature and fast! Otherwise the boon which is fuelling the start-up boom can suddenly become the bane of financial institutions. Proablems such as credit fraud and CIBIL look-ups for all credit related transactions should be institutionalized across the country. Private banks need to stop running after numbers and start working on how to reduce churn. Business analysts need to figure better predictive models for detecting possible frauds (ala Minority Report).

The credit card industry in India is still in the nascent phase, with rural areas still vastly unexplored, there is a huge scope of growth and this industry does require the support of the country to grow. Personal finance will increase personal funding … which will fuel the country’s GDP … reducing the Balance of Payments (BoP) … increasing the Rupee value. An aggressive consumerist movement can give this economy a shot in the arm, and the credit card industry is just winding up for that!

A Question of Ethics

June 25, 2012June 25, 2012 Prasad Ajinkya4 Comments

Disclaimer: I do not have anything personal against IITians, in case you are one, then I am not judging YOU, do not take this personally. This is certainly not an IIT bashing post, but I prefer to think of it as a call to action. In case you have some clout in those areas, please think this through and do correct me if I am passing assessment based on the wrong sample set.

In the last couple of years, I have had both the fortune and misfortune of knowing IITians. Fortune because these people have raw brain power … the CAT although is the most competitive exam, but the IIT-JEE is the real test of thinking and application. Anyone who has cracked the JEE on his own merit, is definitely intelligent (although I can’t make such claims for all the people who have cleared the CAT ;-)).

The national institutes (IITs and the IIMs) are a haven of variety, and were created to be an incubation center of the nations next generation of talent. Due to it’s separation from the surrounding environment, and policies … these institutes have also become an eco-system having their own flavor.

Yes, talent is nurtured and given guidance. Some of them do great things … but do they teach things like Ethics in such places? I doubt it.

Of all the IITians I have met in the past (and there’s a lot of them), all of them have indulged in unethical behavior. From simple copying someone else’s notes, to downright corporate espionage. From avoiding taxes to downright embezzlement. From speaking a harmless lie to generate some laughter to downright filing a wrong criminal case.

It’s not a one off case that I am citing here, its 7-8 different people of different ages and in different circumstances. There is absolutely no qualm for breaking the law, or what’s ethically right. Perhaps its ignorance, but it could also be indifference.

You may say that they have their own set of moral code, but that code seems to be based on the premise of individual superiority over the rest. Which seems logical since they have been hearing the same thing over and over again – a self-fulfilling prophecy of sorts. I am not the moral police, but a basic level of ethics needs to be inculcated into the raw talent of the country.

They should follow the Spiderman quote –

With great power comes great responsibility.

India Bandh, A waste of time and money

June 3, 2012February 4, 2017 Prasad AjinkyaLeave a comment

The entire nation was in uproar with the recent price hike in petrol prices. A 10% hike essentially meant that suddenly the 14 litres of petrol I bought with INR 1000 would be reduced to 13. Agreed, that the uproar seemed to be fueled by the opposition party, but hey, that’s why they are there in the first place! To keep the ruling party in check.

A nation-wide bandh seemed like an appropriate action. 31st May was set as the D-Day and the entire nation waited.

The employees of the nation waited because of the undisputed holiday that they would get.

The shopkeeper’s waited because of the surge in sales before and after the strike that they would get.

Media waited (with baited breath) to create a highly hyped event out of this.

I woke up late hoping that it would be a holiday in our company. Sadly, it was’nt and I had to reach office. Due to my family’s concern for my safety, I was asked to walk the distance to my office. The only reason I agreed was that I could see first hand how things were there out on the roads. On TV the strike had taken its toll, all channels were talking about the mediocre success of the strike throughout the nation. With the exception of Aurangabad (and possibly Kolkata), the rest of the cities seemed to be working in swing.

Shops were closed till 5pm (with the exception of chemists), and PSU units were kept closed. Most of the private enterprises were open and local transport was working. All in all, this strike had gone to the dogs.

Yesterday, the efforts of the strike had borne fruit. Finally, some results! To my chagrin, the margin by which the hike was reduced was a measly 2 INR per litre. Meh! Not only was this strike a waste of time, but also a waste of money. The only person who would really be affected by this is the common man. All the others will hike up their prices … the employees will have to wait for their poorly done appraisals.

I wonder if there is a correlation of the inflation rate of the country to the attrition amongst employees?

Corrupt Administration!

May 11, 2012February 4, 2017 Prasad AjinkyaLeave a comment

The price good men pay for indifference to public affairs is to be ruled by evil men. – Plato

In an earlier post where I was complaining about the lack of revolutionaries in the system, little did I know that in a few days I would be experiencing the wisdom of Plato first hand.

We are in the process of shifting our offices from Goregaon to Andheri. The office is within 2km of my home, and pretty much what you call my locality. Due to my efforts in securing kindergarten admission for my daughter, I have also come in touch with our local administration.

Now, the person in charge of the sprucing up of the new office did not do his homework, and started the interior decoration of the office without any checks with the local authorities. Three months down the construction, when we have shifted into a makeshift office (its going to be our computer lab in the new office), and have no other alternative offices to go to, the local authorities intervened and stopped the construction.

Upon enquiry, we found out that a permission needs to be taken from the Buildings and Industries department of the Bruhanmumbai Municipal Corporation (BMC). Without this said permission, construction cannot go on.

Since the BMC officials refuse to parlay with “north-Indians” and they are from the Shiv Sena party, guess who has to liaison between the organization and the BMC :)

When I went to the officials, I was made to wait indefinitely biding for my time to come. Fortunately, I knew someone higher up in their chain of command and not wanting to play the waiting game, I made the required calls, and got to meet the concerned person.

I do not know whether it was my fortune or misfortune, but the person with whom I had clout in the administration was also the source of my predicament! It was his department that had raised the issue and was waiting for my organization to respond.

So began the diplomatic dance. The dance where you avoid saying the obvious and stick to the unsaid protocol. All said and done, I was presented with two choices – one, the way of the right, wherein we would have to chase this permission across the city for 3-6 months. The other, the way of the corrupt, wherein we have to pay for silencing the officials.

The sum mentioned was in the right range … I don’t know how these officials do it, but someone needs to learn pricing from them. The amount was not too high for us to outright say no, it was lower than the opportunity cost of keeping our employees at their homes :), and yet it was high enough to grease the right palms and keep their pockets filled.

We are PWN’ed and most likely will give in to their demands. The price of sheer negligence on one senior partner’s part is a 2 lakh bribe. Talking about corruption is one thing, but when the efforts to fight the system means you will lose more than what you will save, then does it make sense to fight it? We would be writing it off this year.