New Financial Architecture
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May 28, 2009
February 27, 2009
What do you think of the recent controversy around convergence in the US?
Many thanks to Greg Millman for posing this marvellous question.
I am looking forward to hearing your views on this.
Most International Finance Professionals in
The best argument against the adoption of IFRS, comes from the extra financial burden that this will place on US companies. The timing is not great either. However, future savings will be made by reporting in just one format, and not having to perform reconciliations between different reporting methods. As to the timing, maybe that isn’t so bad either, IFRS implementation will certainly generate a lot of work for finance professionals!
The best way out of a recession in my opinion is to work your way out of it. Wealth creation must come before wealth distribution. We have years of catching up to do.
IFRS has the huge advantage of being a tried and tested platform for the unification of accounting practices across the globe. For stakeholders too, one common reporting language will simplify decision making and make financial statements more transparent.
The other glaring advantage is that it works. USGAAP is rules orientated whilst IFRS is based on a conceptual framework. The “IFRS resistance” often seizes on this phrase as a major downside. I would simply point out that UKGAAP has been based on the same conceptual framework for a very long time. The
Sarbanes Oxley was designed to save USGAAP from a re-run of these high profile corporate failures; however the heavyweight tag team, Sox and USGAAP, could not stop the current financial crisis. Most commentators agree that this crisis emanated from the
Over the last twenty years the
It really is a matter of when, and not if IFRS is adopted in the
February 04, 2009
KPMG India launches IFRS Institute
Institute will help companies and individuals to transition from Indian GAAP to IFRS. The institute will be operational from February 4, 2009
KPMG
Mumbai 4th February, 2009: KPMG in
The IFRS Institute is a web-based platform, which seeks to act as a one-stop site for all information, updates and views on IFRS implementation in
Commenting on the launch of the IFRS Institute, Jamil Khatri, Head of Accounting Advisory Services, KPMG in
Corporate preparers would need to understand the impact of the change in accounting principles on their financial statements, financial reporting processes and IT systems. Audit committee and Board members would also need to understand the new reporting principles. Similarly, investors and analysts would need to understand the impact of the new reporting principles on key metrics such a revenues, net profits, earnings per share and reported book value, which all have an impact on how businesses are valued.
Concurrently, KPMG in
Commenting on the IFRS survey, Jamil Khatri, Head of Accounting Advisory Services, KPMG in
The launch of this India-specific IFRS Institute follows a the successful launch of a similar global KPMG IFRS Institute by KPMG LLP in the United States, which provides a similar forum for IFRS implementation issues in the United States and related global developments.
About KPMG
KPMG is the global network of professional services firms of KPMG International. KPMG member firms provide audit, tax and advisory services through industry focused, talented professionals, who deliver value for the benefit of their clients and communities.
KPMG in
For further information contact:
Rohit Varier
Integral PR
98194 03110
2204 7079/ 84
February 02, 2009
IASC announces stronger links with regulators...
The International Accounting Standards Board (IASB) will face greater scrutiny in the decisions it makes in order to boost its legitimacy.In order to achieve this, a monitoring body comprising of leaders from bodies including the US Securities and Exchange Commission, the European Commission and other regulators will be set up to oversee the work of the IASC Foundation.
The change was made in light of recommendations made by the G20 nations at their meeting in November 2008.
Gerrit Zalm, chairman of the IASC trustees, said: "The IASB as an independent standard-setter and the trustees as the oversight body are strengthened by the enhanced governance provided by the link to public authorities through the Monitoring Board.
The new arrangements will help ensure the independence of the IASB, he added.
Recently, the IASB established an action group aimed at dealing with reporting issues arising from the financial crisis.
January 27, 2009
This puts it in perspective
More than a billion people are using the internet
THE number of people going online has passed one billion for the first time, according to comScore, an online metrics company. Almost 180m internet users—over one in six of the world's online population—live in China, more than any other country. Until a few months ago America had most web users, but with 163m people online, or over half of its total population, it has reached saturation point. More populous countries such as China, Brazil and India have many more potential users and will eventually overtake those western countries with already high penetration rates. ComScore counts only unique users above the age of 15 and excludes access in internet cafes and via mobile devices.
January 18, 2009
Early Adoption of IFRS may win investor confidence
India has agreed to use IFRS as its accounting standard from fiscal 2011-12.
"It’s very important for India to reiterate commitment to IFRS and ask large companies to adopt it a year earlier. It will send a very strong signal that India stands for the highest standards in the world."
Read more...
January 14, 2009
IFRS 'facing a critical year'...
Will Rainy, global head of IFRS at Ernst and Young, explained that as an International Accounting Standards Board moratorium on the issuing of new standards has now come to an end, companies using IFRS face a wave of new standards and interpretations.
He said: "With almost 500 pages of new or revised standards and interpretations, companies face a major challenge getting up to speed on and correctly applying the new requirements."
The changes could have an impact on things such as IT systems, merger deals and share-based payment plans as well as accounting, Mr Rainey added.
Yesterday, Fitch Ratings claimed that 2009 will be a pivotal year for accounting. Fair value will be a particular focus, the firm stated.
January 03, 2009
IFRS Around the World
Updated Map of Status of International Financial Reporting Standards 3/1/2009
- RED IFRS APPROVED
- ORANGE STATED MOVE TO IFRS ADOPTION - BRAZIL, CANADA...
- YELLOW ADAPTING TO IFRS - USA, MEXICO, CHINA
ORIGINAL POST 27/08/2007
- The US SEC announced that it will issue a Proposing Release this summer that will request comments on proposed changes to the SEC’s rules. The changes would allow the use of IFRSs as issued by the IASB in financial reports filed by foreign companies registered in the US. Currently, foreign companies are required to reconcile their financial statements according to US generally accepted accounting principles (GAAP). The SEC also plans to issue a Concept Release on the question whether all registrants (including US companies) should be able to report under either IFRSs or US GAAP.
- The Council of the Institute of Chartered Accountants of India decided in July to adopt IFRSs with effect from the accounting periods commencing on or after 1 April 2011, for public interest entities such as listed entities, banks, insurance and large entities.
- China announced that its central-level State-Owned Enterprises and large to mid-scale companies will all adopt China’s new accounting standards that comply with IFRSs by the end of 2009. The decision does not include SMEs, which make up the majority of China’s companies.
- The Brazilian Market Regulatory Agency (CVM) published in July an instruction that openly traded Brazilian companies will have until 2010 to present their consolidated statements in accordance with IFRSs. From 2007, listed companies can opt to present their consolidated financial statements based on IFRSs.
- The Korean Financial Supervisory Commission and the Korea Accounting Standards Board unveiled a roadmap for the adoption of IFRSs at a ceremony in Seoul. All companies in Korea, apart from financial institutions, will be permitted to apply IFRSs, as adopted by Korea, by 2009. Full adoption of IFRSs for listed companies, including financial institutions, will become mandatory by 2011.
- Representatives of the IASB have attended the regional standard-setters meeting in Manila and met standard-setters from Brunei, Indonesia, Malaysia, Philippines and Taiwan.
January 01, 2009
December 12, 2008
All eyes now on India to save the world economy
The gloom is spread all over the place. Exports dropped across all big traded goods and all parts of the world. Exports to America fell by 6.1%; those to the ASEAN countries, which had grown by 21.5% in October, fell by 2.4%. The faster decline in imports meant that China’s monthly trade surplus reached a record $40.1 billion. Exports last fell in 2001.
Such numbers would be nasty enough for any big economy, but they are particularly shocking because China’s racing trade has been an engine of world trade, and thus global growth. During the 1990s China’s exports grew at an annual average of 12.9%; from 2000 to 2006 that growth nearly doubled to 21.1% each year, according to the World Bank. China's rapidly rising imports have also driven growth elsewhere. The chief economist of a Chinese bank calls the latest figures “horrifying”.
The rapidity of the decline is as striking as its extent. Trade growth in October was similar to preceeding months; exports grew by more than 19% from a year earlier. A sudden drop in just a month has surprised even the most pessimistic economists. Some analysts point out that a global shortage of trade finance in November may have exaggerated the decline, but the Chinese juggernaut is definitely stumbling.
The consequences for the Chinese economy, which has seen dizzying rates of growth since economic reforms began in 1978 (growth in the 1990s averaged 10.5%), could now be dire. Its growth is unusually driven by its exports, which have made it the world’s factory. According to the World Bank, 27% of world GDP in 2006 came from exports (up from 21% in 1990). The corresponding figures for China that year show it to be particularly dependent on exports: 40% of its GDP came from exports in 2006, compared with 11% for highly open America and 29% for Britain. Thus the potential for a drop in exports to drag down China’s growth is correspondingly greater.
The World Bank’s latest growth predictions were released on Tuesday. These predict that the Chinese economy will expand by 7.5% in 2009, well under its own calculation of 9.5% growth that it reckons China needs to keep unemployment stable. But even these calculations may prove to be overly optimistic. The Bank’s prediction rests in part on the expectation that China’s exports will rise by 4.2% next year. In fact many analysts expect the slump in trade to continue and possibly worsen; UBS, a Swiss bank, predicts that Chinese exports will not grow at all in 2009.
Chinese workers, who are already restive, may find the new year increasingly difficult. Labour disputes almost doubled in the first ten months of 2008 and sacked workers from closed toy factories rioted. If export growth ceases entirely, and jobs are threatened, social responses could be more severe. An estimated 130m people have moved from the countryside to the cities, many for jobs in factories that make goods for export. Zhang Ping, the country’s top planner, has given warning of the risk of social instability arising from massive unemployment.
The latest trade figures also worsen the already gloomy outlook for the rest of the world. Some were counting on China to prop up the global economy, as much of the rich world falls into recession. Merrill Lynch had expected China to contribute 60% of global growth in 2009. But the dramatic fall in imports suggest that the Chinese can not be relied on to be the consumer of last resort.
Analysts at Goldman Sachs expect several more months of shrinking exports. Speculation that China will devalue its currency is rife, but this would have little effect if world demand is simply collapsing. The experience of South Korea is instructive: its currency has fallen by a third against the dollar this year, but this did not prevent its exports from dropping by 18.3% in November, compared with a year ago. Unfortunately, this may not be enough to deter the Chinese government from trying to push down the yuan, which has appreciated significantly on a trade-weighted basis.
Fiscal stimulus is much more important; efforts to boost domestic demand would help both China and the world. Most analysts expect announcements about new measures on top of the $586 billion package already announced. Interest rates and taxes are likely to be cut further.
December 09, 2008
IFRS is the next SOX
Looking ahead, it’s easy to predict that International Financial Reporting Standards (IFRS) could become the next SOX – an area where the supply of accountants who know the subject falls short of the number of companies who need that expertise. Read original article by The fact that IFRS is coming to America is definitely sinking in. More than half of all CPAs nationwide say they’re getting ready to adopt IFRS, according to a survey released by the American Institute of Certified Public Accountants (AICPA).
"The Security and Exchange Commission’s proposed roadmap calling for U.S. adoption of international standards by 2014 is clearly getting people’s attention,” said Arleen Thomas, AICPA senior vice president for member competency and development. “What our tracking survey shows is that CPAs are increasingly aware that international standards are coming and are starting to feel a real need to get training and gain expertise in this new area.”
Fifty-five percent of about 1,500 CPA surveyed by AICPA said they were preparing in a variety of ways for adoption of IFRS. That’s up 14 percentage points from the 41 percent who were preparing for change according to an AICPA survey in April.
You’re going to have to learn IFRS anyway, so why not get a leap on the competition and pick up the knowledge ASAP. Start with the backgrounder on the International Accounting Standards Board (IASB) Web site .
Then take a class with your state CPA association or the AICPA (courses are typically open to non-members). The CPA review firms have also begun offering IFRS seminars.
Then, if there’s a committee preparing a set of test IFRS statements at your firm, get on it. If there isn’t, start one and viola, instant expert status.
November 21, 2008
Cash is King
SELDOM has corporate strategy been turned on its head so quickly. Barely a year ago, cash was a dangerous thing to accumulate: activist investors stalked companies, urging boards to return it to investors, to pay special dividends or to buy back shares. Ever since the 1980s the fashion had been to make companies as lean as possible, outsourcing all but your core competencies, expanding your just-in-time supplier system around the globe, loading up with debt to “leverage” your balance-sheet. Old-style defensive conglomerates, such as Arnold Weinstock’s General Electric Company, were dismantled. Companies that hoarded cash—even ones as good as
No longer. For many big American companies, the day of reckoning came two months ago when the deepening financial crisis brought about the abrupt closure of the overnight commercial-paper market. This briefly sent even the most solid companies into a desperate scramble to find money to meet such basic obligations as paying their staff. Since then, the guiding principle for managers everywhere has been to gather up whatever cash they can find, and then do their damnedest to keep as much of it as possible for as long as possible.
For some firms—the investment banks or the
Thrift and its paradoxes
This cash squeeze is a huge problem for the world economy, because as firms cut discretionary spending wherever they can, the result is likely to be a corporate version of what John Maynard Keynes called the “paradox of thrift”. Every firm does what is prudent for itself, but by cutting its spending it slows down the economy still further and thus hurts everybody, including itself. This will only reinforce the need for expansionary monetary and fiscal policy (see article) to boost demand; and also for more direct support in credit markets, such as the Federal Reserve’s prop for the commercial-paper market (already tapped by some large American firms).
These are vital tasks for politicians and regulators, but for managers the paradox works the other way: spending money might be in society’s interests, but not in their shareholders’. For a whole generation of bosses, what they do in the next few months may come to define the rest of their careers.
For the few lucky hoarders, this is a time to feel both smug and predatory. Japanese firms have been able to make $71 billion in foreign acquisitions so far in 2008, which is on track to be a record year. Bill Gates thought his company should have enough cash to survive a year with zero sales: its $21 billion pile now gives it even more options than normal. Cash-rich drugs firms, such as Eli Lilly, Roche, Merck and Bristol-Myers Squibb, have all said that the financial turmoil presents an opportunity for them to buy biotechnology companies at knock-down prices.
For the non-hoarders, there is a balance to be struck. In the short term some of the old ways to perk up your share price now seem suicidal. Huge dividends or share buybacks have to be regarded as reckless (even though share prices, as Warren Buffett points out, look cheap). What was once seen as evidence of corporate fitness for the moment looks like anorexia. More padding—in the form of cash in the bank—will be necessary to secure a clean bill of health. Likewise, ultra-lean supply chains no longer look like such a brilliant idea when you have to find cash to keep afloat a supplier that cannot get even basic trade credit. “Just in time” is giving way to “just in case”.
The bloodbath or the death spiral?
But for how long? This new conservatism is not solely motivated by the fact that cash is hard to come by; demand is also falling for most firms’ products. Households and firms alike have hit the pause button, and no one knows when they will press “play” again. Companies need to plan for that day as well.
As in every downturn, who succeeds and who fails is likely to be determined not by what costs are cut, but how they are cut and above all which ones are not cut. There is a hint of blind panic about some redundancies. Companies argue that one big swing of the axe does less harm than what Sequoia calls the “death spiral” of successive morale-sapping rounds of modest job cuts. But firms that get a reputation for too readily offloading people whom they described only recently as “our most important assets” will suffer eventually in the labour market. One reason why downturns tend to be good times to launch new businesses is because established companies abandon promising growth opportunities too fast. Oracle and Microsoft were both born in difficult economic times.
And there will also come a time when the necessity to safeguard cash is not so all-consuming. Rash though some of them seem today, the Western management fads of the past 30 years improved productivity (one year’s outperformance does not prove the Japanese model was right). But even if cash does become more plentiful, it is doubtful whether today’s generation of managers will be quite so cavalier about taking it for granted. That change in attitude, more than anything else, will be the legacy of this credit crunch for the corporate world.
September 15, 2008
Starting in 2009 USGAAP to Move to IFRS by 2016
The Securities and Exchange Commission recently announced that the U.S. will abandon Generally Accepted Accounting Principles -- for almost 75 years, the bible for U.S. accountants -- joining more than 100 countries around the world instead in using the London-based International Financial Reporting Standards. Pointing to the "remarkably quickening pace of acceptance of a true lingua franca for accounting," SEC Chairman Chris Cox set out a timetable for all U.S. companies to drop GAAP by 2016, with the largest companies switching as early as next year. See here.There are specific differences between the two systems; for example, the international system only allows the first-in, first-out inventory accounting system. The most important difference is that the international standard is based on principles, whereas GAAP is based on rules. GAAP suffers from the complexity of trying to set rules for all situations, a complexity that often masks economic reality.
GAAP rules fill a nine-inch, three-volume set of pronouncements plus interpretive information. In contrast, IFRS is a slim two-inch book. GAAP was crafted in part by the pressures of the U.S. legal system. Companies have been glad for GAAP rules as defenses for claims of accounting irregularities. But these rules often only pretend to provide clarity. There are hundreds of pages of GAAP covering how to account for derivatives, but this didn't stop opaque pricing mismatches, which helped create the credit crunch. GAAP rules allowed trillions of dollars in securitized financial assets and liabilities to stay off the books of U.S. financial firms, while the international standard, by focusing on the true underlying economics, kept these on the books for firms based elsewhere.
It's surprising that there is no common language for measuring the performance of companies. Until recently, all major countries had their own accounting rules, but IFRS has become the approach of choice. Inconsistent approaches to accounting make it hard to compare an energy company based in Texas with one based in Amsterdam, a bank in New York with one in London, or a biotech firm in Boston with one in Singapore. A single set of accounting rules would mean more effective global disclosure and transparency. It would reduce costs for multinationals that must now prepare multiple books. It would also make U.S. exchanges more competitive for listings by eliminating accounting differences.
A measure of the importance of a single standard is the dislocation that getting there will cause. It will mean rewriting business school texts and retraining of corporate finance departments. The forensic accountants who sniff out problems will have to develop instincts using a new set of measures. The transition will also be tough on investors. Under the SEC proposal, larger companies in the same industry would switch to the international standard before smaller companies do. Investors for the transition period would have to compare similar companies using different accounting.
The big U.S.-based accounting firms generally support the abandonment of GAAP. Skeptics could call this switch in systems the equivalent of the accountant full-employment act for many years, but the profession itself also recognizes that GAAP often fails to reflect underlying economics.
A PriceWaterhouseCoopers briefing document for executives on the accounting change notes that changes will also be necessary in the law. "If an accounting and reporting framework that relies on professional judgment rather than detailed rules is to flourish in the U.S., the legal and regulatory environment will need to evolve in ways that remain to be seen." These include that "regulators will need to respect well-reasoned professional judgments."
A system based on principles could create new defenses for company boards and accountants who try to do the right thing, if they fully disclose why they thought that a particular accounting treatment made sense. The law will have to adjust to accept more ambiguity in accounting, as a necessary condition for reporting with maximum accuracy.
As technology has shown in other areas of life, agreed-upon standards and accepted operating systems drive usage and efficiency. Common measures add value to information. If even the belt-and-suspenders accounting profession is willing to take on the risks of switching its basic system for assessing businesses, we're truly in an era when anything that adds to understanding belongs in the asset column, while anything that undermines transparency is a liability.
June 18, 2008
NASSCOM BPO Summit in Bangalore
Some interesting articles
- A final word from India: moving beyond "old BPO"
- Musings from abroad: Futuristic BPO
- The Legacy of Global Sourcing – What is (Y)our Legacy?
- NASSCOM dispatch: "We're now past the era of BPO" (Pramod Bhasin)
- How do you feel about Human Resource Professional Organizations?
- Musings from abroad... dispatch #3... Indian drivers
- BPO: It's all about taking ownership to get results
- IBM/Bristol-Meyers: a shot in the arm for HRO
- Finance and Accounting BPO continues its growth path
- HRO Redux: 8/10 buyers don't look back, while the vendors look ahead
- BPO partnerships are opportunistic, rarely strategic
- Will the EDS acquisition spark a BPO feeding frenzy?
- Can this Marriage Be Saved?
- Bored? Look no further
- HP/EDS redux
- Whom do you trust for balanced outsourcing advice?
- Is it time to dump the term "outsourcing"?
- Are we reaching an inflection point of business globalization?
- Quest for an Organic Approach to Offshore Outsourcing
- Is the sub-prime lending crisis placing outsourcing engagements on the backburner?
Cost-cutting measures for troubled companies in these tough economic times- Blog-culture is ripping up the rule book for the outsourcing services and technology media industry
- Taking control of your vendor relationship
- Can outsourcing be a catalyst for driving down the cost of healthcare?
March 03, 2008
Anglo Swiss Chamber of Commerce Event
Wednesday, 12th March 2008, Geneva (Geneva Chapter)
Luncheon addressed by The Earl of Home CVO CBE, Chairman of RBS Coutts Bank LtdIs Big Beautiful?
But what size is viable? And on what does it depend? Is Scotland, for example, too small to be in Europe? Is Citigroup too big? Is Europe too big?
These and other fascinating questions will be addressed by a speaker of considerable business experience who leads one of the great names in British banking. He is also an active member of the House of Lords whose public speeches are widely acknowledged for their eloquence and wit.
He is the scion of one of the leading families in Scotland and the son of the late British Prime Minister Sir Alec Douglas-Home. He inherited the title of the 15th Earl of Home in 1995. Lord Home was appointed Chairman of Coutts & Co in 1999 and became Chairman of Coutts Bank (Switzerland) Ltd. a year later. He is also a director of Douglas & Angus Estates in Scotland and Governor of the Ditchley Foundation in England.
Grand Hotel Kempinski, Geneva
Kindly sponsored by
Barclays Bank (Suisse) SA,
RBS Coutts,
Lloyds TSB Bank Plc,
PricewaterhouseCoopers AG
Withers LLP
Invitation / Register and pay online for this event
January 17, 2008
Looking at the Markets in 2008: A view from Canary Wharf. Blue sky or grey clouds ahead?
British Swiss Chamber of Commerce luncheon at the Hôtel Beau Rivage in Geneva addressed by Mr Henk Potts, Equity Strategist, Barclays Wealth Management,
Will economic uncertainties continue throughout the New Year? Is the widening effect of the sub-prime crisis in the U.S. due to “snooty bankers and financiers” unable to cope with the complexities of the products in which they were investing, as someone said recently? Or are the markets merely responding to a Newtonian principle?
With growing inflation in the Eurozone, a looming economic slowdown and flat consumer spending in the U.S., plus the seemingly unstoppable acceleration of India’s and China’s globalized economies, how nervous – or optimistic - should we all be feeling as we start the year of the Beijing Olympics? There could not be a better complement to a start-of-year business lunch menu in Geneva than enjoying the bonhomie of the BSCC generously served up with the astute analysis and relaxed wit of our guest speaker from Canary Wharf.
Kindly sponsored by Barclays Bank (Suisse) SA, Coutts Bank von Ernst Ltd, Lloyds TSB Bank Plc, PricewaterhouseCoopers AG and Withers LLP
September 10, 2007
Forecasting foreign investment in China, Japan and India
Asia’s three giants—China, Japan and India—all acknowledge the importance of attracting foreign direct investment (FDI), yet their fortunes in this sphere will vary widely between now and 2011, according to a new report. FDI has become an inextricable part of the Chinese economic success story and this is likely to continue.
The report—World Investment Prospects to 2011: Foreign direct investment and the challenge of political risk—produced by the Economist Intelligence Unit (EIU) in co-operation with the Columbia Program on International Investment (CPII), charts global FDI trends over the next five years, including on the basis of a global survey of more than 600 direct investors. Within this global survey, the Asian giants—together accounting for nearly 30% of global GDP measured at purchasing power parities—loom large.
Whereas
With projected inflows of some US$87bn per year in 2007-11
Despite some signs of the incipient FDI protectionism that is also affecting many other parts of the world, the dominant trend in
Still Japan Inc
As the world’s second-largest economy (at market exchange rates) and boasting one of the world’s largest consumer markets (with a wealthy population of nearly 130m),
Officially, the Japanese government now welcomes inward FDI. In practice, however,
FDI inflows into
Despite strong growth in FDI inflows in 2005-06,
Funding the boom
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Mr Nagda is glad he was able to borrow money |
Satya Nagda, 45, thought he was going to lose everything last year. The cornershop owner in one of Mumbai's small suburbs had run into bad financial trouble and lost a lot of money. Read original article.
A father of three, he could not afford to keep his fledgling business running.
The shop is his life. It provides him and his family with their only means of survival.
Then, he got a second chance, in the form of a $1,000 (£500) loan from Cholamandalam DBS, one of the biggest lenders in the Indian sub-prime business.
"I needed money to keep my shop aflloat", Satya says as he packs away a bag of groceries for one of his customers in his small cornershop.
"If I had tried to get a loan like this 10 or 20 years ago, it would have been impossible.
"People like me were never given loans from banks. I've been lucky. I got $1,000 I am paying it back over a number of years."
Financial failure
Getting a loan in
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Atul Pande, managing director of Cholamandalam DBS |
There's no real tried and tested way yet of telling what the credit history is of the customer 
But it wasn't always so.
As recently as three decades ago, if you lived in one of the back alleys of Mumbai and did not have a large salary or a reliable income, then chances are you would be overlooked for a loan.
Many had to turn to informal ways of borrowing money to find their way out of financial difficulties.
Borrowing from money lenders or pawning the family jewels became common place. But interest rates were exorbitant - at times over 100%.
There was also what analysts call the "shame factor" that stopped consumers from borrowing money officially.
Getting into debt was considered embarassing by many Indians. Encouraged from a young age to save their money rather than spend it, a frugal lifestyle was lauded during the days of
Admitting you were not able to maintain a secure and consistent bank balance was basically admitting that you were a failure.
Intense competition
Times have changed.
In
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Akhilesh Tilotia, Parks Financial Advisors |
Borrowing money to buy a new car, a new home, or expand your business is no longer seen as something shameful. It is seen as savvy banking.
Banks and financial instutions in
Cholamandalam DBS, the financial institution that Mr Nagda got his loan from, is a joint venture between
But there is intense competition in the sub-prime market in
HSBC, GE Money and Standard Chartered are just a few of the foreign banks fighting for the business of Indian borrowers. Dozens of Indian banks are also involved in this business.
There are worries though that in the rush to add new customers, banks in India could overlook whether or not borrowers will be able to pay back their loans - sparking fears that India could be headed for a debt crisis of its own.
"In
"So there's no real tried and tested way yet of telling what the credit history is of the customer.
"That will change over time as the sector here becomes more sophisticated. Also,as competition for business increases, there's a risk that banks and financial instutions will over-lend to borrowers who have paid back their loans in the past, to try and attract them as new customers. That could endanger the customer because he may not be able to pay back this loan."
Lasting boom
But those fears are not affecting the credit card business in
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Dr Girish Kulkarni |
Although it makes up just a fraction of the consumer loans business, credit cards are a growing sector here, and it' is common to see youngsters whip out a plastic card to pay for their meal at a restaurant, or to buy a fancy new MP3 player in a shop.
"I don't think so," says Akhilesh Tilotia, a financial advisor with Parks Financial Advisors.
"The difference between the
"You also have an environment here where salaries are rising quickly, and are expected to continue rising. I think unless there is a huge global slowdown the credit boom in
Violent creditors
But there are those who have suffered as a result of this credit boom - and are now paying the price for it.
Girish Kulkarni, a doctor in Mumbai, took on a loan of $9,000 seven years ago to keep his medical clinic running.
He says he was cheated by a fraudulent bank agent who stole the money he borrowed from the bank by writing checks to himself. To reclaim its loan, Mr Kulkarni says the bank has sent people to threaten him to him.
"They have sent recovery agents to my house at least once every two months," he says during an interview in his clininc.
"These people harass me by using bad words, and insult me and my profession. It's insulting to hear such abuse, and I have felt very distressed by this entire incident."
Because there is no formal way of recovering loans here, many Indian banks have taken to the practice of outsourcing their debt recovery services.
There have been many reports in Indian papers recently of these agents harassing and at times even beating up or making threatening phone calls to customers who have not paid back their loans.
The Reserve Bank of
But until stricter regulations are enforced in
He has now taken legal action against the bank, and has lodged an official complaint over the tactics used by the debt recovery agents, but it is unlikely with the number of cases backed up in the courts here that he will get a swift resolution.
The strong economic growth in
But the worry is that in this race for business, the risks of a looming debt trap have not been accounted for - and regulations to protect