[Current] April-Week2-P2: Economy: SEBI guideline on Crowdfunding, Public-Sector Banks CMD post bifurcation, IRDA ambulance project, mains answerwriting practice

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Economic Survey
  1. Prologue
  2. E2: Crowdfunding- Need SEBI guidelines
  3. E3: Bifurcation of CMD post in Banks
  4. E4: IRDA’s highway ambulance pilot project


Current events in 2014 April Week2 (8-15th)

  1. Part 1/3: Environment, Polity, Polity, History and Culture: Coming soon.
  2. Part 2/3: Economy= you’re here. (nokia taxation deserves separate article, coming soon)
  3. Part 3/3: Diplomacy-international relations. Done click me

Before reading further, answer following questions:

  • UPSC Mains General Studies Paper 2 (200 words and 7 minutes for each question):
    1. Examine the need for reforms in IMF. What will India gain from this?
    2. Explain Crowdfunding and examine the need for SEBI regulation of this activity in India.
  • Interviews:
    1. What’s the difference between Crowdfunding and Crowdsourcing?
    2. What are the limitations of crowd funding?
    3. What’s the difference between Chairman and MD?
    4. Why is Raghuram Rajan insisting that Public sector banks should keep the post of Chairman and MD separate?
    5. Why is Chindu opposed to Rajan’s idea?
    6. Recently IRDA launched highway ambulance pilot project in Hyderabad. Why should IRDA bother with such things? Shouldn’t this be left to health department?

E2: Crowdfunding- Need SEBI guidelines

Q.Explain Crowdfunding and examine the need for SEBI regulation of this activity in India. (200 words)


  • Crowd funding is the process of soliciting money from general public, for business purpose.
  • But outside the traditional mechanism to raise capital i.e. Debt or Equity.


  1. Entrepreneur retains 100% ownership, patents and copyrights.
  2. Ideal for startup tech/IT entrepreneurs, budding music composers and authors- who may not get easy access to capital via traditional sources viz. IPO, Venture fund, Angel investor or Bank loans.
  3. Crowd doesn’t always receive share in the profit, dividend or interest.
  4. Often rewards are symbolic e.g. “patron photo” on the company website, free sample products, software copies, concert passes etc.

Need for SEBI regulation:

  1. In India, crowd funding was on small scale mainly for artistic ventures- music CDs, novels, documentary movies etc.
  2. But recently, entrepreneurs seeking funds for renewable energy projects, IT-gadgets and even promising guaranteed returns to public after break-even point.
  3. Scamsters may enter this field for money-laundering and dupe gullible small investors.
  4. We already have SEBI ordinance, Prevention of Fraudulent and Unfair Trade Practices Regulations to deal with them. But since crowdfunding is mainly done via social networking sites and foreign web platforms such as kickstart.com, hence separate guidelines necessary.
  5. Young entrepreneurs should get easy access to capital but simultaneously we need a safe environment for small-investors: post Sahara, NSEL and Saradha scams.
  6. Even International Organization of Securities Commission (IOSCO) recently called for greater checks on “Crowdfunding”.
  7. Consequently, SEBI, as a member of IOSCO began framing guidelines for crowdfunding.

~250 words

Crowdfunding vs Crowdsourcing

(Interview Q) What’s the difference between Crowdfunding and Crowdsourcing?

What’re the benefits and limitations of Crowdfunding?

crowd + funding = pooling junta’s fund to launch a business = crowdfunding. crowd + out sourcing= outsourcing the work of a traditional employee to aam-juntaa
Profit motive is present in most cases – I’ll sell this product/technology at later stage. Profit motive may or may not be present. Example- seeking public help to prepare tsunami missing person’s database.
You seek “cash” from juntaa to start new business. Here you’re not seeking cash from juntaa but giving them some work to perform.

What are the limitations of crowd funding?

#easier said than done

Crowdfunding website

The conventional method of operating crowd funding is following:

  • you open an account at a crowd funding site  such as kickstarter.com
  • There you Post an article/video explaining your business project and write an amount say “I need 1000 $.”
  • kickstart.com will let you use their advertisement platform for a fixed deadline (e.g. 30 days)
  • Within that much time if juntaa doesn’t pledge total 1000$ then you’re gonecase. You don’t get a single penny.
  • If you decide to run “Solo campaign” e.g. open your own blog/website and seek funding= hard to gain google search engine visibility quickly. In that case even 10$ won’t come in a year.
  • >50% of the projects fail to attract the minimum investment required.
  • Some “Backers” don’t give money but pledge support in other forms e.g. “I’ll ask my facebook friends to read about your products, I’ll post review video on youtube etc.” But often their enthusiasm fades away after few weeks.

#social media following

  • You need high presence on facebook/twitter/social media to attract such juntaa.
  • Therefore, it’s easier for Yoyo Honey Singh to get crowdfunding for his next music album than Anoop Jalota.

#hard to get advice

  • For business loans, project financing- chartered accountants can help you.
  • For IPO- investment bankers and underwriters can help you.
  • But similar consultancy services is absent in crowdfunding, especially in Third World countries
  • So, you have to go by trial and error and google searching- which is not always suited to your requirements.
  • Much of your time and creative talent is wasted in attracting in the juntaa to fund your project rather than working on the project itself.

E3: Bifurcation of CMD post in Banks


  1. What’s the difference between Chairman and MD?
  2. Why is Rajan insisting that Public sector banks should keep the post of Chairman and MD separate?
  3. Why is Chindu opposed to Rajan’s idea?
  • IPO => Shareholders=> general meeting=> Board of directors elected.
  • the chairman = head of the board of director
  • they form overall policies of the company, decide how much of the profit should be re-invested in the company and how much should be given to shareholders as ‘dividend’.
  • Board of director appoints the MD.
  • MD looks after day to day operations of the company- just like chief Secretary looks after state administration.
  • long term vision
  • Day to day firefighting.

India public sector banks CMD system

In public sector banks of India- the post is combined: Chairman + MD = CMD.

favour against CMD post
  • simplicity in management
  • efficiency in decision making
  • Conflict of interest. Chairman needs to see the interest of shareholders, while MD has to see the interest of company. Often both are not the same. example company wants bigger portion of the profit should be re-invested while shareholder want bigger portion of the profit as dividend.
  • Two power centres (Chairman vs MD)= lack of coordination, powerplay, Someone’s ego gets hurt like JaiKant Shikre. Hence better let only one person have both posts.
  • Same person is holding two seats= Leads to dictorship.
Eliminates possible politics and ego clash between two people at the top
  • Germany, Netherlands have laws that same person cannot hold both posts.
  • in USA many high profile scams by CMD= government looking to bifurcate the post.

Why does RBI Governor Raghuram Rajan want CMD to be bifurcated into two separate posts?

  1. The CMD of Indian PSU banks enjoys absolute powers.
  2. in Public sector banks, board of director mere rubber stamps of CMD. Hence bifurcation of CMD post = Board will be empowered.
  3. Once RBI allowed Global Trust Bank’s chairman to hold MD position as well=> bank gets involved in Ketan Parkesh Scam=> collapse and merged with Oriental Bank of Commerce.
  4. 2004: RBI’s A S Ganguly Committee recommended the bifurcation of the CMD post in Banks.
  5. Private sector banks started implementing.
  6. But Finance ministry didnot implement it in Public sector banks.

Why did Chindu reject Rajan’s idea?

  1. CMD of public sector banks does not enjoy absolute powers. They’re accountable to government of India (because government is majority shareholder).
  2. CMDs of public sector banks are thorough professionals, having long experience in the banking sector. They’re not scamsters like Rajan believes!
  3. Bifurcation of CMD post may lead to Sonia vs Mohan rubberstamp situation like Sanjay Baru explained in his book “The Accidental Prime Minister : The Making and Unmaking of Manmohan Singh”.

E4: IRDA’s highway ambulance pilot project


  • Road accidents = loss to all type of insurance companies: vehicle insurance + health insurance + life insurance.
  • For every 100 rupee premium earned, the insurance companies end up paying 140 rupees.
  • Hence IRDA started this project

IRDA’s ambulance project

  1. pilot study @ Hyderabad- Vijaynagar highway
  2. Collaboration with insurance company, NHAI, police, doctors and IT professionals.
  3. 24/7 mobile police van with speed gun, breath analyzer and other gadgets to prevent rash driving under the influence of desi liquor.
  4. High-tech ambulance to provide emergency relief during highway accidents.
  5. Both Police van and ambulance available at every 50 km of this route. Centralized coordination via call centre @Hyderabad- even tie up with insurance companies for quick clearance of claims.

Benefits of this pilot project:

  1. understanding accident patterns in India
  2. Design long term solution for accident prevention, medical relief and insurance claims.

Visit Mrunal.org/CURRENT for entire Archive weekly current affairs compilations published so far.

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54 Comments on “[Current] April-Week2-P2: Economy: SEBI guideline on Crowdfunding, Public-Sector Banks CMD post bifurcation, IRDA ambulance project, mains answerwriting practice”

  1. please can u elaborate about chit fund scams and rbi measures taken to regulate it.

  2. can anyone tell me why credit default swap is bad??

  3. bhaiyon can anyone tell me why credit default swap is bad??

  4. Mrunal..could u plz upload the old eco articles….dey a useful fo d beginners…..

  5. Sir in currents affairs article of april week2 part2 u mentioned abt some scams in usa by CMDs. Can you tell me in short wht happened ?


  7. great article… one quick add-on…. When Rajan said that the top-notch positions at the public sector banks should better be bifurcated, he didn’t mean that he doesn’t trust heads of public sector banks……he implied that in any bank if the MD and Chairman’s posts are held by different people then it is better for the bank’s own operations…..this is because more quality decisions will be taken at policy making level and on daily working mechanism’s level….. this will add to the accountability of the bank’s heads as well….. as far as ketan parekh’s scam goes,,, it just indicates towards the need of Indian financial system’s having better auditing and control mechanism systems…. we have evolved from that now … thnxxx

  8. Mrunal,

    Great explanation of crowdfunding. I think from prelims/mains point of view the guidelines given by SEBI are crucial too. The numbers can be asked in an MCQ and the guidelines as a whole can be asked in a 10/5 marker. Kindly append the guidelines to the present article. Here are a few of them which I found important.

    * Under the proposed norms, crowdfunding platforms can be provided by only Sebi-registered entities, while companies can raise up to Rs 10 crore in a year through this route.
    * Given the high-level of risks associated with this new way of fund-raising activity, Sebi has also proposed that only ‘accredited investors’ be allowed to participate in crowdfunding activities.
    * The crowdfunding investment of retail investors would be capped at Rs 60,000 or 10 per cent of their networth.
    * Only those entities would be allowed to raise funds through crowdfunding which are not associated with a business group having turnover of more than Rs 25 crore. Equity crowdfunding platforms can be set up by recognised stock exchanges and Sebi-registered depositories, government backed incubators and groups of at least 100 investors with a minimum experience of three years.
    * Entities with an established business, already listed on an exchange or being in existence for four years or more would be barred too.
    * Issuers will also be barred from directly or indirectly incentivising or compensating any person to promote its offering.
    * Crowdfunding platforms are being asked to limit the number of investors to 200 and appoint a 10-member screening committee to vet investments. The screening committee clearing investments must comprise of at least three people with banking and capital markets experience and four experts who have mentored early-stage companies.

  9. hello sir my self Nageanndhra plz provide me how to analyse the general studies mains previous years paper also tell me whats the hint/key hideing behind mains how to find out key to crck mains ezam??

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