Aman Yadav

Know Your Customer (KYC) Process and its Steps

As per the Financial Action Task Force (FATF) Recommendation, one of the ways to curb Money Laundering, Terror Financing, etc. is for the financial institutes to periodically do “KYC (Know Your Customer)” Checks on their customers.

KYC (Know Your Customer) refers to identifying and verifying customer details regularly while maintaining a Business Relationship. This process is mandated for both New and Existing Customers. Its records must be checked & updated regularly by financial institutions. Also, KYC helps financial institutions and governments in the detection of fraud/suspicious activity in current accounts. In 2004, RBI (Reserve Bank of India) made it mandatory for financial institutes to Implement KYC to know every customer.

KYC is an important step in preventing Money Laundering in which the first step is Placement. For Example- When the audit was completed in HSBC BANK, Paris Branch. It was found out that they have knowingly opened a few accounts for people like the Chinese Drug Mafia & Politicians with known records of taking bribes. Regulators fined HSBC BANK $1.9 Billion and asked it to Re-Risk all its customers globally.

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Now, we will discuss the steps involved in KYC Process. The first & foremost step is the Customer Identification Process (CIP). In this, CIP is done to ensure that the customer is who they claim to be depending upon the type of customer. The Banks can collect various documents from the customer and verify these documents. The Second step is the Customer Acceptance Process (CAP) which entails that the Banks do assessments and ask for a few additional documents from new customers to decide whether they should Onboard the New customer or not. Lastly, the third and last step is Customer Due Diligence (CDD). In this step, Banks do a risk analysis and rate the clients based on the chances of being involved in Money laundering activities like whether the new customer is a Low-risk customer, Medium Risk Customer, Or a High-Risk customer.

Case Study on Succesful Business Strategy of Adani Group

Most of us who already know the Financial Market and follow the Indian Stock Market regularly can relate to this question “How did Adani Group become so successful in a short period?”. The Adani group stocks are up between 90% and 195% this year and have led an aggressive strategy of expanding their business to “Renewable energy, Media, Airports” and More.

Currently, Adani Group has Single-handedly gone on to become India’s largest private port operator, Largest coal importer & coal miner, Largest private power producer & City Gas distributor, and largest edible oil importer in the country. Their growth hasn’t been halted by the Covid-19 that is very rare because the majority of the businesses did plunder and some of them haven’t recovered yet.

Adani Group has been buying giant companies. For Example= In 2018, The Group bought Reliance transmission for Rs12,300 Crore, JMR Chattisgarh for Rs5,200 Crores, and Kattupalli Port for Rs1,950 Crores and, paid Rs228 Crores for the Power transmission line from Bikaner to Sikker. Also, This Year they bought Ambuja Cement and ACC for Rs.81,000 Crores and went on to become the second largest civil manufacturer of Cement Overnight. With the help of these Expansions in Past 5 Years; the stock price of Adani Power has shot up by 800%, the stock price of Adani Enterprise has increased by 2400%, and Adani Green has rallied up by a mind-boggling 5000%.

Although; While most of us are amazed at these figures, very few people realize that the Adani Group is not sitting on the mountain of Profits but a mountain of Debt of Rs2.21 Lakh Crores in Financial Year’22. But, Company’s Cash Flow Strategy is the game changer that’s why they are creating more and more opportunities to build up an ecosystem around Adani Group.

“Why Job Opportunities are shrinking but GDP rising in India?” Self-analysis of this Spooky situation.

Nowadays, Student protests are creating a lot of noise on national news. The most recent example is Protests against the Introduction of the Agnipath Scheme by the Indian Armed forces (IAF) for the future recruitment processes. According to the data for February 2021 of the Center for Monitoring the Indian Economy, the country’s employment rate has reached 6.9%. It means that out of 100 people who are capable and willing to work, about seven are not getting employment opportunities. On the other hand, India seems to be maintaining the world’s fastest-growing economy position. In the Financial year 2021-22, India’s GDP growth rate was 8.9% and if we compare this to other world economies’ GDP. According to the International Monetary Fund (IMF), the global GDP growth rate was only 3.6% during this year.

Economic development means the increasing value of goods and services made in the country. By this, more people must require to increase production but we have seen a reverse cycle here. According to World Bank, the unemployment rate in 1990 (just before govt. introduced Liberalisation, Privatisation, and Globalisation policies) was 5.55%. From 1991, till 2002 the unemployment rate was constant at around 5.7%. Since the Covid Pandemic started, the unemployment rate has got worsened and reached 8.7%. Let me give you an example; During UP police Group D recruitment in 2018, the required educational qualification was Class fifth pass for 62 vacancies. The shocking fact is among the applicants there were 3,700 PhD holders, 28,000 Postgraduates and 50,000 Undergraduates. We can see a paradigm of the problem in the above example.

Let us discuss the reasons behind these types of situations like above.

Firstly, East Asian countries like China, Japan, Singapore, etc. opened their economies in the 1960s long way before India opened its economy in 1991 because of which India’s growth was largely dependent on the service sector, rather Industrial or Manufacturing sector.

Secondly, Less spending on the Education sector. If we compare India’s budget for the Education sector with other major global economies like the USA, UK, Germany, etc. Then, USA and Germany spend 6% of their GDP on the education sector. On the other hand, India spends only 3% of their GDP on the Education sector that’s why India is lagging over quality and modern methods of Education. Although, the Budget for the education sector in India is far better than a lot of countries like Pakistan and many more.

What is Anti-Money Laundering and Recent Cases of Money Laundering in India?

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Before Understanding the term Anti-Money Laundering, we need to know about Money Laundering. Money Laundering is the process of making Illegal money that appears to have come from Legal Sources. Illegal money is the money obtained from Illicit activities or means. For Example- Money came from selling drugs. Now, there are a lot of sources of Illegal Money such as Tax Evasions, Printing & Using counterfeiting notes, Trafficking of Drugs/ Human/ Human Organs/ Arms & Ammunition, Poaching of Endangered species & selling their parts, and smuggling of goods.

“Anti-Money Laundering” is the process by which financial institutions set Laws to prevent Money Laundering. There are 3 steps involved in the Money Laundering process Placement, Layering, and Integration. Moreover, Financial Action Task Force (FATF) is an international body established in 1989 to work toward the objective of Anti-Money Laundering. Every country should have a Financial Intelligence Unit (FIU) to work against money laundering and related crimes.

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Recently, India came across a lot of cases of Money Laundering such as the Enforcement Directorate (ED) seizing assets worth Rs. 96 Crore of Madhucon Group, Cases of Chinese mobile manufacturing companies like VIVO & XIAOMI, a Probe against Delhi minister Mr Satendra Jain, and many more other cases.

Crude oil Prices Plunged, “Are we heading towards Global Recession?”

Pumpjack in rural Texas. Original image from Carol M. Highsmith’s America, Library of Congress collection. Digitally enhanced by rawpixel. by Carol M Highsmith is licensed under CC-CC0 1.0

Crude oil prices have been continuously plummeting for the past few days. West Texas Intermediate (WTI) Crude oil futures are currently trading at $98.3 and touched their lowest mark of $95.5 today since the Russia-Ukraine Conflict started. Also, Brent Crude oil futures have stumbled upon the $100 significant level and are currently trading at $99.8. This significant price fall in Crude oil is creating less demand for petroleum products because of fears of an economic slowdown in the world economy.

The targets for futures of crude oil are diversified between $65/Barrel and $380/Barrel. Recently, JPMorgan issued its report which summarises that the prices of Crude oil will reach a humungous price of $380 in the coming year if the US and European Union continues to add more penalties on Russia. Although, Citi Bank has predicted in its reports that the Crude oil price will plunge to $65 by the end of this year. The dive in the price of Crude oil came as Saudi Arabia decided to hike prices by $2.80/barrel for all its Crude grades in August.

According to the Nouriel Roubini (Re-Known Economist), who is popularly known as “Dr Doom” predicted that the world’s major economies are heading towards a “Stagflation debt crisis” and this recession will be much worse than all the previous financial crises including 2008 Financial Crisis.

Why did the Government of India (GoI) raise the Import duty on Gold?

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The Government of India (GoI) has elevated the import duty on gold by 4.25% to earn more on the import of yellow metal and to achieve its target of Reducing the Fiscal Deficit. This change already came into effect on 30 June.

Before this, the primary customs duty on gold was 7.5%, which is 12.5% currently. This decision was necessary because there was a drastic increase in gold imports in May, i.e., 107 tonnes of gold were imported and the imports of gold were continuously increasing in June too. The continuous plunging of the Indian Rupee against the US Dollar was one of the effects seen in the Financial Markets. The Indian Rupee hit its lowest at 79.09/$. But, after increasing the Import duty on gold, The Indian Rupee recovered its position against the US Dollar and closed at 78.94/$.

The Indian Economy was facing too much pressure on the Current Account Deficit (CAD). The current account balance of India showed a deficit of 1.2% of GDP in the 2022 Financial year against a surplus of 0.89% in the 2021 Financial year. Also, The Trade imbalance increased to $189 billion from $102 billion in-between both financial years.

According to The World Gold Council, India imported its highest gold level in 2021 in over a decade. However, the Government of India is ensuring that the decision of increasing import duty on gold won’t impact economic growth.

What is a “Fat-Finger Error” or “Freak Trade”?

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Some of us might not have heard about the term “Fat-Finger Error” or “Freak Trade”. Although, This term(Fat-Finger Trade) was recently in the news When NSE (National Stock Exchange) cautioned brokers and traders upon executing bogus trades. So, Let’s understand “What is Fat-Finger Error?”.

A “Fat-Finger Error” is an input error made from a keyboard or mouse misclick by Brokers during trading sessions at Financial markets. For Example- Suppose, If a broker initiates a trade at the stock market where he wants to place an order to buy 1,000 Apple shares and ends up buying 10,000 Apple shares. In this case, the broker has performed an error related to the stock quantity in the order. If, The broker will carry out any mistake in trade related to the Quantity, Price, Wrong stock or contract, or any other input errors. Then, The broker made a “Fat-Finger Error”.

Now, We will look at some circumstances where this error took place. In October 2012, Emkay Global Trader faced a loss of Rs 60 crore in Nifty contracts. From this, the Nifty index tanked by almost 15%.

In 2014, An Inflated order of $600 Billion for blue chips took place at a Japanese exchange.

To counter this, The Exchanges and some brokerage companies have set filters to alert brokers while executing these errors during the trade. Through Filters, Automatic systems might be able to catch these errors and cancel that particular order.

“How is Indian Rupee looking now against Dollar and might look in coming Months”?

The Indian currency(RUPEE) was trading at its All-time low against American Dollar on Wednesday,i.e. 79.05/$. But, It improved its position on Thursday and climbed up by 0.12. The Indian Rupee has taken a spill in the past few months because of the Price rise in crude oil prices globally which is caused by the geopolitical tension between Russia and Ukraine. Also, The global central banks have adopted some monetary policies to control high Inflation, and the foreign investors are continuously withdrawing their investments from the Indian market. In 2022, Foreign Portfolio Investors(FPIs) have pulled out More than Rs.1.81 Lakh crore until Mid-June.

Yesterday, FM N. Sitharaman shared his views on this subject “The Indian Market is relatively placed better. We are not a closed economy and are part of the globalised world. So, Our Economy will be impacted”.

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Now, Let’s look at “How the Indian rupee might perform in the coming months?”.

US Federal Reserve will have decided to meet in July to discuss Controlling Inflation. According to Industry Experts, The Central bank could hike Interest rates by another 50 or 75 Basis-Point. Now, This decision might make the Indian Rupee weaker against Dollar. But, Reserve Bank of India(RBI) will also have a meeting in August on this same subject. So, Let’s see how both of these meetings will go and What decisions will be taken by both country’s Central banks.

Long Season of Lay-offs by major Indian Start-ups

The majority of us have heard about the news of the large number of employees who have been sacked by major Indian Startups in the past 5 months. Until today, More than 10,000 Employees have been Lay-off by 25 Indian Startups, which include unicorns like Unacademy, Byju’s, Vedantu, Cars24, Ola, MPL, Meesho, and Trell. Now, If I talk about Edtech companies, “Why are they laying off thousands of employees?”

Currently, we are slightly moving towards a post-covid era. So, The students are shifting toward offline teaching options like Schools and Colleges as they are open. There is one more strategy for edtech start-ups that became their huge limitation, i.e. Startups did a Bulk hiring during the Covid-19 Pandemic to expand their business and reach out to more students.

If we talk about other Startups, they are trying to cut down their costs as much as possible because their funding has slowed down and not able to handle pressure from investors. The story doesn’t end here. According to Industry Experts, Start-ups will sack more employees in upcoming months to become more cost-efficient.

CLEAN PRICE V/S DIRTY PRICE

A “Clean price” is the price of a bond that does not include Accrued interest. On the other hand, A “Dirty price” is the price of a bond that consists of Accrued interest and a clean price. The Exact calculation of Accrued interest depends upon the “Day Count Conventions”.

In Clean price, the price quotes the percentage of the face value and it fluctuates with interest rates and bond market conditions. The Clean Price is applied to compare different bonds. In Dirty price, the price is based on clean price and interest accrued and it changes each day that interest accrues. The Dirty Price is applied to determine the total cost of a bond.

Now, Let’s take an example to understand these terms. If company XYZ issues a bond at $1000 face value and it’s quoted at 900. The clean price of the bond is $900. If company XYZ pays an 8% coupon annually, the “clean price” of the bond is still the same,i.e., $900. Also, A Clean price is applied to calculate the Dirty price. Suppose Company XYZ issues its coupon payments on January 1 each year. In the US, Corporate bonds usually follow a 30/360-day count convention. The Accrued interest is calculated as follows:

Accrued interest = FV x C/P x D/T

FV: Face value.

C: Coupon rate.

P: Number of coupon payments per year.

D: Days Since the last coupon payment was made.

T: Days between Payments or accrual period.

I am assuming the date of selling the bond is July 1. Now, we will use the above formula to calculate the accrued interest. The accrued interest is $40. So, The Dirty price is an addition of $900(clean price) and $40(accrued interest), i.e., $940.