Agile FINANCIAL TIMES

August
2009

Treasury Management
Preparing for a New Global Environment

PERSPECTIVE
Development of
Term MIBOR

ARTICLE

How Green is my
Technology?

SOLUTION SPOTLIGHT

AGILIS Core Insurance

 August 2009

Editor’s Note
This month, we have gone green, literally. The
issue is a potpourri of seasonal produce - the CONTENTS
Germination of the New World Order, the
Fruition of our Agilis Insurance solution at
Insurance PHB, the Ripening of the MIBOR, PERSPECTIVE

the Regrowth of Treasury after its Autumnal Fall Development of Term

and of course what started it all - the Green MIBOR 4
Technology Revolution! Revolution indeed as
the new cycle goes from Cradle to Cradle (as COVER STORY
against Cradle to Grave). Treasury Management 7

Continuing with our motto of preservation and growth of capital, we

ARTICLE
present comprehensive coverage on treasury and insurance in this
How Green is my
issue. Added to that, are some pure, organic views from the cultivators
Technology? 10
of our economy - the bankers and the insurers. Our customer, Anselem
Igbo, Managing Director of the prestigious Insurance PHB and our
NEWS
reader, Mohan Shenoi, Treasurer, Kotak Mahindra Bank share their
Global Update 13
views from technology to economics.

Interesting to note how the monsoon affects the economics of a nation, ARTICLE

how the farm yields have a direct impact on our money market yields The New World Order 15
and how the right pollination of risk management and liquidity seeds
sustainable balance sheets. SOLUTION SPOTLIGHT

AGILIS Core Insurance 17

From Green Treasures in the garden to the Green Treasuries in the
vault, from cradle to cradle, it rocks on.

Be Agile!

Shefali Khera
Chief Marketing Officer
Write to us at info@agile-ft.com

Three issues have dominated the
discourse in Indian financial
markets, particularly in the
banking arena for some time
now - repo and reverse repo
rates, prime lending rates and
corporate bond markets.
4
PERSPECTIVE
Development of
Term MIBOR - A
Need of the Hour
Mohan Shenoi
Treasurer, Kotak Mahindra Bank
First, why do monetary policy-induced changes in the two
principal channels of monetary transmission, viz. money
supply and the repo / reverse repo rates take an unusually
long time to have an impact on the bank deposit and lending
rates? Second, is the prime lending rate (PLR) announced by
banks divorced from current market reality? Third, how can
the corporate bond market be activated? On the face of it,
these three issues may appear independent of each other.
But a deeper reflection shows that they are indeed
interconnected and perhaps have a common solution.
Theoretically, a monetary transmission mechanism is
expected to be a three-stage process. In the first, stage
policy-induced changes in money supply and repo / reverse
repo rates are expected to nudge banks and other financial
intermediaries to change their short term deposit and loan
rates (medium and long term interest rates respond more to
changes in fiscal policy). In the second stage, changes in
these rates are expected to impact spending and saving
patterns of consumers and firms. In the third stage, a change
in aggregate demand is expected to impact inflation.
The general refrain is that short term deposit and lending
rates of banks in India do not respond to monetary policy
changes fast enough thereby impeding the transmission
process. Bankers have traditionally argued that higher
administered interest rates on small savings schemes of
Government of India compete with bank deposits and
effectively put a floor below which their deposit rates cannot
fall. While there is substance in this argument it is also true
that Indian banks and financial intermediaries do not
respond quickly to changes in indirect instruments of
monetary policy like repo / reverse repo rates. In the past,
during the rising interest rate scenario, it has been observed
 PERSPECTIVE
that only when the Reserve Bank of India (RBI) initiated
sledge hammer measures (like widening the repo / reverse
repo corridor and forcing the market to operate at the upper
end of the interest rate corridor through rapid increases in
CRR) that the banks responded to monetary policy
measures.
A way out of this conundrum is to develop a purely inter-
bank market benchmark rate which responds instantly to
monetary policy changes and to which bulk of the bank
deposit and lending rates are linked.
The Benchmark Prime Lending Rate (BPLR) of banks is a
rate administratively decided by the Asset-Liability
Committee (ALCO) of each bank, taking into account the
average cost of funds, cost of operations, appropriate
provisioning, capital charge and a profit margin. BPLR is
intended to be a reference rate around which most bank
lending would take place. Banks use the BPLR primarily for
re-pricing floating or variable or adjustable rate loans
(floating rate term loans, overdrafts, cash credits etc.).
However, the extant RBI guidelines requires banks to use
only external or market based Rupee benchmark interest
rates for pricing floating rate products.
The liability side of most Indian banks consists of fixed rate
term deposits while the asset side has predominantly
floating rate loans, cash credits and overdrafts. This means
in a falling interest rate environment the asset side of banks
gets re-priced instantly, while the liability side gets re-priced
only over a period of time. This inevitably narrows the
spreads that banks enjoy between their assets and liabilities.
This fact does influence the ALCO of banks when they
periodically review their BPLR.
So for banks to be more responsive to monetary policy
measures while fixing their BPLR there is a need for
development of an inter-bank market benchmark linked to
which banks can raise floating rate term deposits. A floating
rate term deposit will help banks minimise the interest rate
mismatches between their asset and liabilities side. When
such a benchmark emerges there will be no need for a
BPLR. Banks can link their floating rate assets as well to this
benchmark.
A way out of this conundrum is
to develop a purely inter-bank
market benchmark rate which
responds instantly to monetary
policy changes and to which
bulk of the bank deposit and
lending rates are linked.
A lot has been written about development of the corporate
bond market in India. Permitting repo in corporate bonds
was thought to be one of the measures that will activate this
market. However, no development on the regulatory front
has been seen so far in this regard. Higher participation by
financial institutional investors (FII) in the corporate bond
market was also considered another way to revive the
market. Though limits for FII participation in the corporate
bond market have been raised to US$ 15 billion actual
investments by FIIs has been far below the approved limit.
One of the reasons why the corporate bond market has not
grown is because issuers in India can only issue fixed rate
bonds/debentures. Ideally, in a falling interest rate
environment, the issuer would like to issue a floating rate
bond while the investor would like to subscribe to a fixed
rate bond and vice versa in a rising interest rate scenario. To
issue floating rate bond/debentures there is a need for
development of a market benchmark rate linked to which
the floating rate notes (FRN) could be issued. Coupled with
this, if a fixed-to-floating swap market is developed linked to
the same benchmark, both issuers’ and investors’ interest
can be protected in different interest rate scenarios.
It can be noticed from the above that ultimately all the three
issues are interconnected and the solution for them is
common, i.e. development of a market benchmark which is
credible, acceptable to the market players and which
responds instantly to monetary policy changes.
Currently, overnight MIBOR is accepted by the market as a
5

Mohan Shenoi is Treasurer and Member of the
Senior Management team at Kotak Mahindra
Bank. Mohan heads integrated treasury
(including forex, fixed income, money markets,
derivatives and bullion), primary dealership,
debt capital markets and the balance sheet
management unit at Kotak Mahindra Bank. He
is also a Director at Kotak Mahindra Prime Ltd.
Shenoi started his banking career at
Corporation Bank in 1978. He was responsible
for shifting the Corporation Bank Treasury from
Mangalore, H.O. to Mumbai in 1990.
Corporation Bank Treasury thereafter became
one of the well-known Bank Treasuries. He
joined ICICI Bank in 1994 - the 5th employee
to join ICICI Bank and member of the original
team which set up the Bank. He moved from
Treasury to Planning in ICICI Bank in 1996,
and was head of Retail in 2000-01. Shenoi is a
Bachelor in Business Management (BBM),
Certificated Associate of Indian Institute of
Bankers (CAIIB) and holds a Post Graduate
Diploma in Bank Management (PGDBM).
6
PERSPECTIVE
credible benchmark. The underlying volumes in this
benchmark are decent. Its acceptability amongst market
participants is also reflected by the fact that an actively
traded swap called Overnight Index Swap (OIS) has
developed linked to this benchmark. However, the
benchmark represents overnight call money rates. Hence it
is not suitable for pricing floating rate loans or deposits or
even as a link rate for monetary policy transmission.
Why should markets in India
wait for elusive turnover in 3
and 6 month MIBOR for it
to be accepted as a credible
benchmark?
Most US Dollar-denominated issuances in the international
markets are linked to 3 and 6 month LIBOR. This is
supplemented by US Dollar interest rate swap market where
the floating leg is linked to 6 month LIBOR. In a similar
fashion, there is a need to develop 3 and 6 month MIBOR
in Indian markets. While these benchmarks are regularly
polled and published, they lack acceptance in the market for
two reasons.
First, the market believes that for a benchmark to get
acceptability there has to be large trading in those
benchmarks in the underlying market. This, in my view, is a
mistaken belief. As per the ECB (2007) Euromoney Market
Survey, in recent years (2000-2007), about 70% of the
transactions were overnight while maturities of one month
or less amounted to about 95%. Notwithstanding this, 6-
month LIBOR is widely accepted as a benchmark globally.
If this is so, then why should markets in India wait for
elusive turnover in 3 and 6 month MIBOR for it to be
accepted as a credible benchmark?
Secondly, the polling and publishing mechanism of term
MIBOR needs significant changes for it to generate
confidence in the market participants. LIBOR fixing process
followed by the British Banks’ Association (BBA) has been
time tested and has worked even during difficult times when
there was a total dislocation of credit markets. The Indian
Bank’s Association (IBA) can adopt a similar process for
MIBOR fixing to generate widespread acceptance of the
benchmark in the market place.
Development of term MIBOR thus can solve three issues at
one go, i.e. assisting the monetary transmission process,
helping banks to manage their interest rate mismatches and
in developing the corporate bond market.
 The Basel Committee on
Banking Supervision recently
released enhancements as part
of its efforts to strengthen the
regulatory capital framework.
A press statement issued by
the stated that the program
aims to introduce new
standards to promote the build-
up of capital buffers that can be
drawn down in periods of
stress, strengthen the quality of
bank capital and introduce a
leverage-ratio as a backstop to
Basel II.
Treasury
Management
Preparing for a New Global Environment
While the efficacy of the new measures will be proven over time, for the time
being it has been pretty much up to the respective governments to haul their
banks out of trenches that they dug for themselves.
Capitalism has made it imperative for banks to be profit centres and they
compete in a financial market fraught with risk. The extent to which banking
regulations can be manipulated was evident with the scenario that unfolded in
2008 and was definitely a case of inadequate governance. None of this happened
overnight and was the result of a cascading effect of a systemic disregard of
basic risk appetite fundamentals.
Unaware and under-prepared
Many claims and counter claims later, the Royal Bank of Scotland (RBS)
eventually used tax payers’ money to pull itself back from the brink of disaster.
Sir Fred Goodwin unceremoniously fell from the pedestal of being the one of
the best in business and after leading RBS to among the top 10 largest banks in
the world. As we try and piece together facts, it emerges that there was gross
negligence on the part of the treasury and top management coupled with a series
of decisions that blatantly ignored basic risk management mandates. RBS did
receive warnings about the global economic condition, the extent and impact of
which was never analysed. The risk calibration system was ineffective because it
7

was restricted to correctly identifying the risks, but never
took the all important step to precisely quantify the risk. The
risk-reward ratio was unnaturally high during the boom, and
the the warning bell that the balance sheet was skewed was
not loud enough to make an impact. The envelope was
further pushed with the acquisition of ABN Amro, the
exposure to the sub-prime crisis, and RBS finally gave in to
a triple assault of liquidity, credit and counter-party risk.
Credit risk management forms a big part of managing risks
within a bank which manifests when a borrower fails to
repay as per commitments. This needs constant monitoring
of the profile of borrowers, estimate extent of credit losses,
and a constant review of the control mechanism. Since the
credit repayment behaviour reveals itself over a period of
time, it is important for top management to recognise the
signs well in advance to halt the credit doles and therefore
the cascading effect of non-repayment.
Capitalism has made it
imperative for banks to be profit
centres and they compete in a
financial market fraught with
risk. The extent to which
banking regulations can be
manipulated was evident with
the scenario that unfolded in
2008 and was definitely a case of
inadequate governance.
The unrealistic financial boom and security was partly
created by banks, when lending took to proportions never
witnessed before. The aggressive credit expansion, increase
in asset prices and little or no savings in the western
countries spiralled into big trouble for banks. Offerings
across various asset classes with little experience, high
associated risks and aiming at profits did not work well.
One-up on situation
The risks of lending were evident as early as in 2006, when
the rate of non-payment of mortgage loans started to
increase. Some banks such as HSBC took corrective action
on time, and lived to tell the tale. Most of the banks that
survived the crisis were conservative in approach and mostly
8
COVER STORY
on top of their risk management criteria. Spotting a risk has
to be followed up with an appropriate action. It is very
apparent that banks that survived did not do so by chance,
but because they had strict measures in place. While not all
risk models can be completely reliable in terms of extent of
damage, they do indicate a strong possibility of trouble.
Fang Fang, JP Morgan’s China Managing Director and Chief
Executive Officer, recently said that the company was able
to tide over the crisis successfully on account of its strict
internal control and risk management mechanism.
According to him, the company managed to avoid the sub-
prime mortgage crisis as they identified the related risks and
moved away from complex structured financial products
right at the start of the US housing market bubble burst. As
a matter of policy, the company set aside additional capital
earned during the boom to tide over losses in bad years. The
company also maintained a healthy capital adequacy ratio
through out, which has paid off in turbulent times, as clients
and investors have expressed more confidence by moving to
it.
Treasuries: Balancing the Act to Even Out
Bank treasuries are in a position where they have access to
information on both liabilities and assets of a company.
Traditionally treasuries have focused on liabilities, but
considering the way that markets function has changed,
treasuries are now paying more attention to the asset side as
well.
Banks are very susceptible to credit risk, as the chances of
losing capital in credit business are very high. Constant
reviewing of exposure limits is essential to make sure that
caps are commensurate to handle the changing economic
scenario. Adherence to internal controls at all times will
ensure that trading balances risks and rewards within
reasonable limits of size and position.
Facing market risks arising out of liquidity, interest rate,
exchange rate and equity price changes essentially requires
the treasury department to stay close to rule books when it
comes to trading in various securities, bonds, and other
instruments. Maintaining a close watch on liquidity of the
bank ensures that funds are available when needed to tide
over negative cash flows, changing performance of assets,
and be able to cash in on opportunities when they arise.
While there is no clear winner among the risk management
models that emerged during the crisis, it essentially has to be
a mix of various factors.
Greg Fischer, assistance Treasurer, Janus Capital Group,
says, “The primary objective for a treasurer is to protect the
company’s money. Therefore, preservation of principal is
paramount. The next objective is typically liquidity as funds
for operations can be needed any time. Finally, maximising
yield within the prior two objectives should be a goal. The
rise in volatility requires that investments be monitored
 COVER STORY

much more closely than in the past and that complete reliance on a broker or
on the rating agencies is not the approach taken.”

While lean and simple banks would be easier to maintain and regulate nothing
can really predict that they will not suffer in crisis. Bear Stearns was a small
entity and yet it needed government bailout. Distributing risk with larger firms
seems plausible but they will have inherent issues of monitoring and can be
very expensive to rescue. What is essential is keeping the size of the risk small
and this has to be initiated by banks themselves - ensuring that no risk is big
enough to ruin them. Credit Suisse has put in place a capital-allocation risk
management committee which aims at maintaining a balance between the
business opportunity and the downside risk. Although it has a business strategy
similar to that of UBS, its wealth-management division is still attracting
investors. Another example is HSBC, which was able to blunt the impact of its
performance in the US with its sizable presence in emerging markets.

To treat each risk separately and then try to figure out its impact may not be the
best way of ascertaining if the business will still continue to thrive. Banks have Fang Fang, JP
dedicated teams to tackle different risks that work in isolation. To understand
the bigger picture and move ahead in a volatile market, it is imperative that Morgan’s China
banks have platforms where information can be shared.
Managing
For instance, Credit Suisse has a group that looks at market risk and credit risk
together. It is also no secret that banks are increasingly using technology to Director and
provide them with analytics to potentially spot any further adverse blips on the
radar. Chief Executive
Using processes to advantage Officer, said that
Going forward, banks will have to follow many regulations and be more the company was
compliant than ever before. Product innovations will be scrutinised and
weighed, before implementation is allowed. Banks themselves may have to re- able to tide over
define stress tests, and bank treasuries need to ascertain a workable mix of asset
classes under various circumstances, and consider the ramifications of the crisis
depending on too many exotic instruments or very simplistic offers.
successfully on
While most large banks have risk management processes in place, the need
really is greater discipline. Following a well thought-out approach to managing account of its
funds and capital, with basic rules in place and an insistence from the top-
management on adherence will be the key to the effective role of treasury. strict internal
Treasuries also need to strictly follow international best practices of three layers
within the treasury department, where the front office is responsible for deals, control and risk
the mid-office for compliance to tolerance limits and the back office for
settlement. Greater involvement in the business plan is also likely to result in management
better control on liquidity and funding, which can be very important in times
of crisis. mechanism.
9

A recent internet search on ‘environmental
concern’ gave 169,000,000 results, while
‘green initiatives’ gave 12,000,000. While on
their own the numbers may not mean much,
they do indicate the black hole that humanity
has created for itself with persistent disregard
towards the planet’s vulnerable environment.
A greener lifestyle that will counter or even
slow down the rate of damage is eons away
10
ARTICLE
How Green
is my
Technology?
‘Green is in’ but just a cursory stock
check is enough to reveal the anomaly.
One of the many institutions that has taken over the
responsibility of educating people includes the United
Nations Environment Program (UNEP), with focus on
increasing involvement at all levels - governments, scientists,
corporates and the society at large. The pertinent
environmental issues include global warming, waste
generation management, carbon emission reduction and
renewable energy resources. Some statistics from 2009
UNEP Year Book will put in perspective the appaling
situation that we are in currently:

A one-metre rise in sea levels world-wide is enough to
displace around 100 million people in Asia, mostly
Bangladesh, eastern China and Vietnam; 14 million in
Europe and 8 million each in Africa and South America.
In the next century, the estimated rise in sea level ranges
from 0.8 metres to 2 metres from Greenland ice
outflows alone.

2008 had the second smallest area of Arctic sea-ice
following the summer thaw since satellite monitoring
began in 1979.

Studies in 2008 indicate oceans are now soaking 10
million tons less C02.

Over two billion tons of waste is being generated every
year globally; by 2030, China and India are estimated to
contribute about 500 million and 250 million tons of
solid waste every year respectively.
It is no surprise therefore, that conversations about
environmental sustainability have started to move from the
United Nations and Green Peace offices into corporate
board rooms.
 ARTICLE
Green Governments: A Global Tangle
After a number of multi-level conferences, government
representatives from across the globe have found it virtually
impossible to decide unilaterally on hard hitting measures,
instead revelling in blame games, passing the buck, and
procrastination. There is an unresolved conflict of who is
responsible for the current environment pathos and
therefore who should bear the maximum responsibility of
cleaning it up.
The importance of engaging in constant efforts to reduce
carbon emission is not lost, and some of the targets
established over the last one year broadly include the
following:

By 2020, the European Union (EU) plans to cut overall
greenhouse gas emissions by 20% over 1990 levels; aims
to use renewable sources such as wind, waves and plant
waste to generate 20% of overall EU energy
requirement; and to make efficiency savings of 20% over
forecast consumption.

The United States, Canada, Japan and Russia assented to
a G8 declaration to endorse the position on climate
already taken by the EU. According to this, global
temperatures, which increased by 0.7ºC in the 20th
century, should not be allowed to rise by more than 2ºC
as compared to the pre-industrial levels.

Eight other countries, broadly representing the
developing world at the G-8 conference, signed up to the
target.
As usual, experts are skeptical about claims and promises.
This is obvious from the recent G8 meeting in Italy where
the aim was specified, but an implementation road map on
how to achieve this goal was conspicuous by its absence.
Green Corporates: A Global Exigency
In an era of rapid industrialisation, fast growth and
automation that spanned decades, few spared thoughts,
efforts or investments towards making any of this growth
environment-friendly. However, as the atmosphere went
through changes, translating into hardships visible in
everyday life, corporates and governments alike woke up to
the reality and responsibility. In the last 5-7 years, almost all
large corporations are holding themselves more accountable.
UN officials in a General Assembly meeting said they firmly
believed that renewable and clean energy would help combat
climate change and reverse the global economic crisis, thus
indicating the inevitability that corporates need to address
this issue urgently. Increasingly, almost all government
economic stimuli programs have a green component
embedded into them indicating the seriousness.
Balancing ROI
While it is obvious that companies will monitor return on
investment (ROI), and most decisions will be driven by
profitability, investments in greener technologies have
proven to be profitable in the long run. For instance,
General Electric (GE) began its campaign to go green with
an initiative called Ecomagination. Since 2005, the company
has been trying to effectively utilise technology and
industrial capabilities to reduce environmental impact while
also reducing costs by over US$100 million. Such results will
ensure complete acceptance of strategy that weaves in
environment sustainability across the organisation. GE
managed to reduce greenhouse gas emissions intensity on a
revenue basis by 30% by 2008. There was a 33% increase in
offerings portfolio with ecomagination revenues registering
an increase of 21%. The company remains committed to its
revenue target of US$25 billion and an increase in R&D in
2010 in spite of the tough economic environment.
Companies cannot afford to go green as a by-product of
their efforts to control costs. The need of the hour has
moved way beyond this and requires urgent action. Results
are bound to be different when environment is a priority and
an inherent part of business strategy. All industries have
contributed immensely to carbon emissions and efforts have
to be made across each to arrest the impact. Data centres of
IT companies generate huge amounts of heat which is
currently wasted, but has been recycled by some companies
There is an unresolved conflict
of who is responsible for the
current environment pathos and
therefore who should bear the
maximum responsibility of
cleaning it up.
to heat buildings. Even supermarkets are looking to source
locally to reduce their produce ‘food miles’. The maximum
impact towards a greener existence would arguably be in
power and water conservation.
Large corporates are also investing in companies doing
research on environment-friendly technologies. For instance,
Intel announced an investment of US$10 million in five
companies developing technology to promote cleaner
environment. Nokia works with five pillars of Green
initiative identified as Evolve, Recycle, Energize, Create and
Support. Following a life-cycle-based thought process and
with an aim to focus on all facets of operations, devices and
services, Nokia is looking to reduce its overall adverse
impact on the environment. The approach analyses the
11
 ARTICLE

product through the entire chain of operations, starting with extraction of raw
materials and ending with recycling, treatment of waste, and recovery of used
materials. The bigger changes that have made the initiative achieve success are
better product design, control on production processes, and increased material
reuse and recycling.

Beyond CSR: Onus on CIOs

When green initiatives are proactively driven from the top management level,
they form an important part of the strategy as it affects the way the customers,
clients, suppliers and government perceive the company.

According to research estimates, environmental concerns will be one of the top

five priorities for Chief Information Officers (CIO) for the next 5 years in 50%
of large organisations. CIOs select and implement information technology in
organisations to enable and support the business plan. Going forward,
operational efficiency needs to be targeted in tandem with environmental
efficiency more as a rule than an exception. Involving other top management
executives will be important in implementing a mix of the easier and obvious
energy efficient options along with the more strategic investment in processes
and information technology.

Starting with short term changes and goals, it is imperative that these then
further evolve into schemes that are specifically aimed at increasing awareness
about their carbon footprint. Measures on a larger scale would entail using
renewable sources of energy, water harvesting and usage, alter power
consumption patterns, using environment friendly methods of heating and
According to research cooling, and infrastructure changes which have to gradually be incorporated
into long-term plans and visions, spreading the message within the company
estimates, and industry.

environmental In this scenario, some initiatives that CIOs are already addressing include:

concerns will be one
Altering and optimizing business processes.

Reducing the size of offices so that more people can work out of smaller
of the top five spaces.

Initiating use of technology to allow remote working, connectivity,
priorities for Chief communication and co-ordination.

Cutting the use of paper through online processes.
Information Officers
Monitoring and reducing power consumption.

Optimizing the use of servers and computers.
(CIO) for the next 5
Initiating virtualization; reduction in travel has been found to be the most
effective and easy measure.
years in 50% of large
Corporates are likely to be more successful in their efforts if implementation
organisations. CIOs and adherence to procedures is regulated and monitored. With smaller, definite
and achievable targets, progress is achievable and measurable. CIOs of global
select and implement companies can spread the message faster and ensure compliance across all
branches. Similarly compliance across supply chains, both forward and
information backward, needs to be insisted upon. Encouraging employees to be sensitive to
the environment, albeit at a smaller scale, would still have a cascading effect.
technology in CIOs of leading companies in all industry segments need to propagate and
practice green best practices, and provide an example to the rest of the
organisations to industry. With many industry leaders having already taken green initiatives, and
established profitable practices, it is only a matter of acknowledging the
enable and support importance of each little contribution before the environment finds itself
embedded in all business plans and strategies. The results would be for all to
the business plan. see as they are tangible, measurable and adaptable.

12
 NEWS
Global
Update
A quick review of industry news from
around the world.
Abax Global Capital to Start Private Equity
Fund in China
Hong Kong based will soon start a private equity fund in
China to invest in companies making environmentally-
friendly products like clean energy. Abax, which is promoted
by Morgan Stanley, plans to raise US$73 million from
Chinese investors in the first round. Abax came into
existence in 2007, and initially focused on investing in
companies that managed transactions like mergers and
acquisitions, asset sales and large share buybacks. According
to Donald Yang, president, Abax, "From a business point of
view, having a single strategy is risky. What we’re trying to do
is to build a platform with multiple strategies." Earlier this
year, Abax raised US$50 million from a small group of high
net worth individuals in China for funds that focus on
publicly issued, frequently traded high-yield and convertible
bonds.
Risk of Double-Dip Recession?
Nouriel Roubini, the New York University professor who
predicted the financial crisis, has said in the press that the
chance of a double-dip recession is increasing due to risks
related to ending global monetary and fiscal stimulus.
According to Roubini, the global economy will bottom out
in the second half of 2009 and the recession in the US, UK,
and some European countries will not be "formally over"
before the end of the year, while the recovery has started in
nations such as China, France, Germany, Australia and
Japan. Governments around the world have pumped in US$
2 trillion to revive their economies. Government and
bankers may undermine the recovery and put their
economies back into "stagdeflation" if they raise taxes, cut
spending and mop up excess liquidity in their systems to
reduce fiscal deficits, said Roubini. He currently expects a U-
shaped recovery, where growth will be "anemic and below-
trend for at least two years."
Challenger Financial Services to Increase
Funds Under Management
James Packer-backed Austria-based Challenger Financial
Services Group has announced that may increase its funds
under management as much as 50 percent to A$30 billion by
buying domestic or overseas rivals. Challenger also recently
agreed to sell its mortgage business to National Australia
Bank and is now focusing on life insurance and managing
savings. With a spare capital of A$880 million, the company
is looking at expanding the annuities unit. Four years ago,
Challenger bought HSBC Holding’s Australian asset
management unit, and according to a statement by its CEO,
is looking for more such transactions.
Thailand Easing out of Recession
The central bank in Thailand has not reduced the interest
rates, with signs of the recession easing last quarter due to
government spending and improvement in export orders.
The gross domestic product fell 4.9 percent in the second
quarter from a year earlier, after contracting 7.1 percent in
the previous three months, according to a government
statement. Very recently, the cabinet approved a revised 1.06
trillion- baht, three-year investment program to help lift the
13

economy out of its recession. This is in addition to a 116.7
billion- baht stimulus package implemented in the first half
of 2009.
Banco do Brasil to Increase Lending
The largest lender in Latin America - Banco do Brasil, is
planning to double credit to individuals over the next few
years as a drop in interest rates have increased demand for
car and home loans. Personal loans may contribute to 50
percent of the bank’s total credit portfolio, up from 27
percent in the second quarter. The bank’s net interest margin
increased to 7.3 percent in the second quarter from 7.1
percent a year earlier. The bank has regained its position as
Latin America’s largest bank in the second quarter from Sao
Paulo-based Itau Unibanco. Banco do Brasil is also awaiting
US regulatory approval to start a retail business in the US
this year to serve the population of Brazilians living there.
The bank also has plans to expand in Africa and Asia, with
more than 10% of earnings in future targeted from
international markets.
Nigeria Fires Five Bank Chiefs
Nigeria’s central bank Governor Lamido Sanusi recently
fired the CEOs of five banks due to a debt crisis in the
industry, and has announced that the central bank would
inject around US$2.7 billion into the banks. Nigeria’s anti-
graft agency is seeking the former CEOs of two of the five
banks that received cash injections from the central bank.
Cecilia Ibru of Oceanic Bank and Erastus Akingbola of
Intercontinental Bank are wanted in connection with
fraudulent abuse of credit process, insider trading, capital
market manipulation and money laundering, according to
the Economic and Financial Crimes Commission. Both Ibru
and Akingbola have moved the Nigerian court and are
challenging their dismissals.
Standard Chartered to Sell Insurance in Africa
Standard Chartered has entered into a six-year agreement
with Sanlam Ltd to sell its life insurance products in five
African countries. The agreement includes Standard
Chartered’s units in Botswana, Tanzania, Ghana, Zambia
and Kenya. In addition, Standard Chartered is also planning
to expand its bancassurance business in the region to
provide cover for illness, funeral expenses, savings and
education.
Philippines Stocks Hit Seven Month High
The Philippines benchmark stock index rose to its highest
point in seven months on expectations that it has avoided a
recession in the second quarter and is poised for an
economic recovery later this year. Diwa Guinigundo, deputy
governor of the central banks, said that economic prospects
are much stronger and policy makers will keep rates steady
for as long as necessary. The Philippines economy is
14
NEWS
believed to have expanded 0.9 percent last quarter, as
compared to a low of 0.4 percent in the previous three
months.
Bank of China to Increase Real Estate Lending
in the UK
Bank of China, which is expanding into the real estate
lending business in the UK, is looking at cherry-picking
prime borrowers from British lenders. The Chinese bank is
looking at attracting customers with good credit histories
who are struggling to get new mortgages or restructure their
debts from traditional real estate lenders in the UK. While
Bank of China was earlier focused on lending to the ethic
Chinese community in the UK, it is now expanding its
horizons, and is signing up mortgage distributors consisting
of around 15,000 brokers to sell the bank’s home loan
product. Bank of China currently employs 250 people in the
UK, and aims to raise its loan-to-deposit ratio in the UK
from the existing 30 per cent to around 70 percent.
ASIC to Gain New Powers to Supervise Markets
The Australian government will bestow new powers on the
country’s corporate regulator to supervise real-time trading
on all domestic licensed markets. The Australian Securities
and Investments Commission (ASIC) will be responsible for
supervision as well as enforcement of the laws against
misconduct on Australia’s financial markets, said treasurer
Wayne Swan recently. In the existing scenario, the
responsibility for day-to-day supervision of trading,
investigations into possible breaches, and providing referrals
to ASIC rests with ASX Ltd. According to Anshuman
Jaswal, an analyst with Celent, "The reduction of regulatory
powers of ASX was necessary in encouraging competition
in the Australian equity markets and the possibility of entry
into the Australian market from end-2010 onwards is an
exciting opportunity for the exchanges in Asia. Leading
exchanges such as those in Tokyo, Shanghai, Singapore and
Hong Kong, and also NSE and MCX (operated by Financial
Technologies) in India, should see this as an opportunity to
expand their global footprint and establish themselves in an
economy which has weathered the recent economic crisis
relatively well." The implementation is expected to take
effect by the third quarter of 2010, and will announce a
transition plan after the legislative framework has been set
up.
Ahli United to Increase Stake in Egypt and Iraq
Bahrain-based Ahli United Bank has announced that it plans
to increase its stake in lenders in Iraq and Egypt. The bank,
which is the largest commercial lender in Bahrain, has
received approval from the Egyptian central bank to raise its
stake in Ahli United Bank Egypt to 90 percent, up from 35.3
percent. Ahli United has also received an approval from the
Iraqi central bank to increase its stake in Commercial Bank
of Iraq to 75 percent, up from 49 percent.
 ARTICLE
The New
World Order
Life After the Recession
All through the second half of last year, the financial sector
went through some of the most defining events of the
recessionary period. Analysts speculated on likely financial
players that would crumble under pressure and then laid
threadbare the causes and effects. Banks are perceived as the
rock-solid institutions with expertise and control on all
matters related to money, not just their own but also the
investors. The recent collapse, against popular perceptions,
left no doubt about their vulnerability. Together, they left
investors and eventually governments alike with gaping
holes in their pockets. Take-overs and bail outs changed the
face of the industry and economies across continents.
Build-up to the Alarming Scenario
The looming recession was evident as early as 2007. The
risks associated with sub-prime mortgage played out at its
worse. Oppressive competition in housing-loan segment and
profitability driving all decisions, risks were ignored.
Housing sector went under, leading to the crippling
mortgage market collapse. The number of defaulters caught
banks and other financial institutions on the wrong foot. As
the financial sector crumbled, wealth and savings
disappeared. In the ensuing crunch, companies across
industries were left with no recourse and job cuts became
very much a part of corporate life. As per US Department
of Labour, the number of people who have lost jobs since
the star of recession was pegged at 6.5 million at the end of
June 2009, and the unemployment rate is at 9.5%. Europe is
not far behind with an unemployment rate of 9.2%.
Even as the erroneous judgments were being strung
together to evolve into a pattern, governments rushed in to
save these banks, announcing measures and bail-outs. There
was debate and opposition, but eventually, billions of dollars
were pumped in. With this life-support in place, efforts
moved onto measures to make the financial sector more
resilient. Evaluation of policies and regulations of countries
that emerged with banks intact from this crisis revealed that
stricter controls and guidelines to regulate the industry was
the key. This is no doubt an oversimplification of prevailing
conditions and their ramification, but this is where all the
immediate changes are bound to happen.
Preparing for Take-off: Altering the Basics
The financial sector overhaul is inevitable. The US
government has been very open in its criticism of the way
companies conduct business. There is however more to it
than just competition and risk appetite. Evidently the
regulatory system was ineffective, inward looking and could
not keep up with the changing demand and supply pattern in
market. The last couple of months have indicated the course
of the industry going forward - the direct fall out of this
crisis include increase in government role, decline in
consumer spending and basic policy and procedural
changes in banks. The impact of the recession, corrective
measures and their repercussions will initiate not only
functional metamorphosis in banks, but will alter consumer
habits and national economies.
Bail-out: Governments to Control Strings
The one common line of thought that has emerged as the
15

world economy struggles and looks ahead to post recession
days - regulations are mandatory and here to stay. Bail out
packages removed all possibility of resistance to regulatory
initiatives and bodies going forward. Issues in for
moderation are interest rates, possible areas of business,
business models, requisite minimum capital, risk
management, borrower profiles etc.
Government involvement that started with bail outs will
continue with insistence on compliance. For instance
Obama’s Financial reform plan has increased the scope of
responsibilities of Federal Reserve with different mandates
for large and mid-sized firms. A new bank agency, the
National Bank Supervisor was established to monitor
national banks, including federal branches and agencies of
foreign banks. Requisite capital requirements and credit
exposure are under scrutiny.
Among the various lessons that this slowdown taught the
global market, one was how the erstwhile frowned upon
regulated financial sector in some nations, withstood the
test. Canada and Australia are free economies yet certain
mandates helped banks and economies tide over the crisis,
without external aid. While there seem to no immediate
measures to nationalise banks that have under-performed,
policy interventions are imminent.
Holding on: Consumer Spending Declines
Apart from these long-term measures, change in consumer
spending pattern will have immediate effect on the banks.
The effect will be manifold, as it will directly impact
earnings, business opportunities and growth strategies of
the banks. Expenditures will decline across both classes of
customers - individual and corporate.
The ripple effect has been reduction in credit card usage by
retails customers especially on the ‘nice to have’ luxurious
items. A chunk of bank earnings are from ‘interchange’
charges levied on retailers and roll-over charges paid by card
holders. While realisation of earlier defaults is an issue,
further decrease will force banks to change their schemes.
Customers prefer to hold on to their cash, and are placing
them in safe accounts. This reduces the opportunities for
banks further. Loan facilities is another form of revenue
stream for banks, and one that is depleting fast. Job cuts and
devalued investments have hit the consumers hard. Chances
are that they would not want to increase their liabilities.
Considering interest rates will be high with added emphasis
on borrower profiles, chances are that loan seekers will defer
decisions.
Secure Landing: Accruals and Rebuilding
There is complete consensus that the road back is unwieldy
and long. Though there are some reports of positive growth
from some countries, banks having repaid some part of
financial help, markets creeping up, etc, these are few and far
16
ARTICLE
between. Colossal gains, consistently over a long period are
needed to offset the recent overt losses - no doubt
underlining the ultimate catchphrase - easier said than done.
Product portfolio: Going back to the root, the financial
sector, where most of these aforementioned arguments will
create an impact - will witness drastic remodeling in the
structure. These institutions under the circumstances, where
government involvement has gone up, and consumers are
cautious, will have to revamp their product portfolio. The
portfolio will have to optimise returns, minimise risk and
discourage malpractices.
Risk aversion: With almost all banks and companies re-
evaluating their exposure to risks, viability and strength of
financial relationships are under scrutiny. Investments and
lending deals are under the scanner. Interbank exchanges are
cautious, reflected in increased LIBOR. Individual investors
are opting for safer investment options, even if that means
lower returns.
Slower growth: Credit availability has squeezed, and
interest rates are up. Liquidity issues are cropping up, and
funds to tide over these challenges are hard to come by.
Companies are postponing their expansion plans, their
working capital requirements are pending, jobs are being cut,
and almost all industries predict much slower growth rates in
coming quarters. Margins will be affected as almost all
sectors are battling for survival.
Likely weakening of USD: The US was one of the worst
affected countries, and the volatility had an adverse impact
on the strength of USD. Even during the crisis, a number of
companies and countries started on attempts to reduce their
over dependence on USD. They have used alternate
currencies to invest, to conduct business, and plan to
continue diversification for further transactions.
Leaner finds favour: While job cuts were painful, they did
help cut the flab. Job cuts were most rampant in the US, and
experts opine that the lean economy may find it easier than
others to be back on track.
While the governments issue blanket decisions on the
financial sector, self discipline by banks and financial
institutions will definitely be more effective. Risk
management is crucial for survival. These institutions must
determine what businesses they would like to engage in and
continue with those without getting pressurised by
competitors, and other new businesses. Forays into new lines
of businesses have to be backed by reason, and be subjected
to pre-requisites. Interest rates are determined on risk
factors associated with borrowers, which ideally then should
not spiral out of control, as borrower profiles are scrutinised
and risk is capped. With margins under pressure now, this is
more critical than ever. Self regulation and self discipline by
the industry will encourage its otherwise slow return to
normal.
 SOLUTION SPOTLIGHT
AGILIS Core
Insurance
A solution for insurance companies
from Agile FT
As insurance companies, both conventional and Islamic
(Takaful), strive to create innovative business models, reduce
costs and increase market share, the limitations of their
current processes, software and infrastructure are major
impediments in achieving these business objectives.
In addition, insurers have to deal with the nuances of
soliciting and servicing customers both directly, and through
intermediaries.
Most insurers frame strategies that attempt to differentiate
their products and target market segments to win customer
sets from competitors. This drives a need for more product
sophistication and quality market data, sometimes across
geographic boundaries.
Emerging markets represent a significant business
opportunity for insurers, but the rules and requirements to
do business in such markets are very different. In their quest
for meeting changing customer demands, increased
regulation, and creating innovative business models,
insurance companies need a technology platform that can
truly support their changing needs without affecting their
capital allocation and operating expenses to a large extent.
AGILIS Core
The features of AGILIS Core include:
New Business
The new business feature handles the business process from
the point of getting a proposal for new policy up to the
issuance of the policy (or any other disposal of the
proposal). The proposal goes through a number of checks,
validations and decision points before the insurance
company issues or rejects the proposal. The system handles
proposal entry (including scanning of documents), tracking,
verification, scrutiny, automatic and manual underwriting,
collection of first premium, and issue of policy document.
The new business feature enables consistency of process
and improved turn-around-time leading to higher levels of
customer service.
Workflow
The solution can be configured to a specific workflow to
reflect the desired business process. While the solution
comes pre-configured with a proposed business workflow,
there are provisions in the system to change this workflow.
This enables the automation of movement of a transaction
through its life cycle in the system, coupled by the scanned
images of the associated documents.
An automated workflow ensures that the policy document
travels through a defined business process, which eliminates
delays in processing that may otherwise take place.
Policy Management
This module enables capture of transactions pertaining to
policy after its issue, such as receipt of renewal premium /
recurring premium, alteration of fixed information of the
policy, policy lapse, reinstatement or surrender.
17

Insurance PHB Accelerates Pace with AGILIS
Nigeria-based Insurance PHB has signed an agreement with
Agile FT to implement AGILIS Core Insurance.
The implementation will be overseen by FASYL, Agile FT’s
partner in Nigeria. The selection of the core application
software from Agile FT was made after an extensive
evaluation process that included detailed workshops and site
visits to existing clients of the software. Insurance PHB's
intention is to create a strong technology backbone that would
become a foundation for its growth strategy. When fully
implemented, the software will improve turnaround time of
operations in the company.
As an integrated comprehensive solution for insurance
companies, applying powerful tools that cover the entire
business cycle from underwriting and claim management to
reinsurance and accounting, AGILIS Core Insurance will
enhance Insurance PHB's business processes. Employing a
modular and parametric approach to management of the
insurance business and deploying its enterprise wide, web-
based technologies, AGILIS will ensure quick, accurate and
easy access to information. The online portals are expected
to greatly enhance interaction between Insurance PHB's
clients, sales force and agents, as well as provide a
competitive edge in expanding its distribution network.
Speaking at the signing ceremony, Anselem Igbo, Managing
Director, Insurance PHB, said the partnership between the
two companies is a mutually beneficial arrangement, which
gives Insurance PHB the opportunity of offering seamless
services to its clients. By deploying state of the art technology
offered by Agile FT, this project will set an industry benchmark
on the timely and effective use of technology within Nigeria,
especially as web services and AGILIS’ robust technology
framework will result in creating new possibilities in client
servicing in Insurance PHB.
Kalpesh Desai, CEO, Agile FT, pledged the readiness of his
organization to demonstrate new possibilities for Insurance
PHB and was confident that Agile FT's systems and
processes will be the foundation and enabler of Insurance
PHB's vision of growth and expansion of its market share.
Bade Aluko, CEO, Finance Application Systems Limited
(FASYL), said that with its wealth of experience of Nigeria's
financial industry, their alliance with Agile FT promises to offer
customers in Nigeria access to best-of-breed solutions,
backed by strong service, and will support organizations to
achieve mutual long-term success. He expressed confidence
on AGILIS as a solution that is proven, scalable and reliable
whose tools are very well integrated. Aluko said organizations
can take advantage of FASYL'S presence in Nigeria and their
understanding of the business requirements to partner with
them on similar projects.
18
SOLUTION SPOTLIGHT
Underwriting
The underwriting module supports both automatic and
manual processes, with complete flexibility to the
insurer while defining the rules. It has the ability to
analyse the current data about the proposer, combine it
with past experience data about the proposer and the
total risk cover in force, and then approve the case with
appropriate cover and premium. The system supports
manual intervention as per the defined workflow.
Channel Management
This module keeps track of the distribution channel
through which a proposal was received, policy issued,
and commissions processed. The software maintains
identity of the distribution channels, their members,
and the relationships between the members, including
hierarchical relationships.
It is capable of dealing with multiple channels such as
employees, agents, brokers and bancassurance partners.
In addition to tracking training, computation of
productivity, contests and rewards, it also handles
payment processing to channels in an automated
manner.
Security
The solution provides security at the data, usage and
role levels, enabling the organisation to enable specific
users to handle specific functions only. All authorised
users of the solution are protected by their unique
identifiers and passwords, and are governed by the
permissions given by the system administrator. The
application maintains an audit trail of all activities
taking place in the system. This enables complete
tracking of all actions matched with the identity of the
user who carried out the action.
Claims Management
The benefits management function services the claims
made by the beneficiary and provides simplified
document handling, with all documents pertaining to a
claim scanned and integrated into the defined workflow,
including steps like receipt of first intimation of loss,
receipt and verification of claim documents, payment
decision and settlement.
Management Reports
The system allows for generation of management
reports related to operational control as well as service
levels pertaining to all processing. Reconciliation and
exception reports are also available in the system, as are
reports on business performance, trends and regulatory
compliance.
 www.agile-ft.com

Agile Financial Technologies Pvt Ltd Agile Financial Technologies Agile Financial Technologies Pte Ltd
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Views expressed in this publication do not necessarily represent the views of Agile FT and the information contained herein is only a brief synopsis of the issues discussed herein. Agile FT makes
no representation as regards the accuracy and completeness of the information contained herein and the same should not be construed as legal, business or technology advice. Agile FT, the authors and
publishers, shall not be responsible for any loss or damage caused to any person on account of errors or omissions.