Innovation in payment banking

The innovative firms that have taken the first-mover risk in this new market may not necessarily be able to transform themselves in the new mould.

The payments space is one of the few happening spaces in the economy today, with a cash-out pilot currently underway for non-bank prepaid payment instruments (PPIs) and the Nachiket Mor committee’s recommendation of payments banks.

A couple of months back, Reserve Bank of India (RBI) governor Raghuram Rajan had noted, “The key to cheap and universal payments and remittances will be if we can find a safe way to allow funds to be freely transferred between bank accounts and mobile wallets, as well as cashed out of mobile wallets, through a much larger and ubiquitous network of business correspondents.” The question is, how is all this to be operationalized?

The basic proposition as laid out by the governor using banks and non-banks for payments and remittances is crucial for the way forward for inclusion and follows well established international practices. For the non-banks currently in the payments space, operationalizing the governor’s statement under the current framework would mean:

• Recognizing that mobile wallets issued by non-banks are synonymous with having an account in the cloud, that is a digital account.

 • While currently payments through PPIs have to have a bank account at least at one end of the remittance (either remitter or recipient), allowing funds transfer across bank and mobile wallet networks would call for a transition to an interoperable network

 • Allowing cash out/cash-in at designated retail outlets for mobile wallets would help resolve the current issues that customers face in remittance; this possibility is currently being tested under RBI supervision.

What about payments banks? Globally new laws are being framed to enable specialized payments institutions, e.g. Brazil did this last year in line with the European Union Payment Systems Directive of 2009. Under the same principle, the Mor committee has accepted the basic premise of separating payments from other bank functions and has brought in the concept of differentiated banking through specialized banks, e.g. payments banks, that are allowed to provide payments and deposit services but not issue credit. This is an excellent idea designed to rejuvenate the banking space. However, two recommendations in particular may need to be re-looked at so that the objective of encouraging competition and innovation in this otherwise traditional and moribund space is facilitated.

First, the recommendation that calls for existing PPIs to either apply for a payments banks licence or become business correspondents may push out some firms that have valuable experience. The innovative firms that have taken the first-mover risk in this new market, and have consolidated network aggregation may not necessarily be able to transform themselves in the new mould.

Secondly, the recommendation that can impact the existing PPIs is the minimum capital requirement of Rs50 crore. It is important to think through the capital requirement amount carefully as a well-capitalized company brings with it many advantages of professional management, fiduciary obligations, etc.

The quantum of capital needs to be debated: if too low, it could encourage fly-by-night operators; if too high, it could encourage innovative financial engineering. Till 1 April, there were no capital requirements for PPIs; RBI has recently stipulated a Rs5 crore capital requirement for new PPIs, while specifying that existing PPIs will be intimated separately. In any case, the jump to Rs50 crore to become a payments bank could seem slightly high for some existing PPIs.

 In the absence of any explanatory details for the number Rs50 crore, many questions can arise: is there a case for a lower limit for payments banks? Can existing PPIs be given some leeway, allowed to make a stepwise time-bound increase toward a capital target?

Further, while the Mor committee recommends the same Rs50 crore capital requirement for payments banks and wholesale banks, both have essentially different models. The former will not lend, while the primary role of the latter is to lend. The former can hold a maximum balance of Rs50,000 per customer, while the latter is only to be permitted to accept deposits larger than Rs5 crore.

With such basic differences, payments banks will definitely have a relatively economical cost structure compared with wholesale banks, making the case for a lower capital limit.

Putting these thoughts together leads to the question of whether we can think of having tiers in the future that will allow for non-banks in a limited role and encourage competition and innovation:

• Non-bank PPIs with a minimum capital base of Rs5 crore (as given by RBI). 

• Payments banks with minimum capital of RsY crore (where Y < 50). 

• Wholesale banks with minimum capital of Rs50 crore. • Scheduled commercial banks with minimum capital of Rs500 crore.

The message from RBI governor is to think differently, can we rise to the challenge?

Probir Roy is co-founder of PayMate and Sumita Kale is chief economist at the Indicus Centre for Financial Inclusion.

Do we really require Banks for Financial Inclusion?

India has tried several routes towards financial inclusion - Gramin Banks, Local Area Banks, Cooperatives, Micro Finance Institutions, Regional Rural Banks, Self Help Groups and of course Scheduled Commercial Banks with their Business Correspondent networks. Yet, access to any form of formal financial services is still restricted to less than half the population, clearly these routes have run their course. There are new moves in play now. The recent Pradhan Mantri Jan Dhan Yojana (PMJDY) scheme to bank 5 crore households with at least one account, and 1.78 cr Rupay cards and concomitant freebies is yet another big step, in the same direction. Four crore accounts have been opened, showing the power of the intent, and inadequacy of previous efforts. However, this initiative has to be seen in the backdrop of Mor Committee report which called for fresh thinking and new directions “to provide ubiquitous access to banking products and services with a universal account”. Under the concept of ‘differentiated banking’, Payments Banks were identified as the instrument which will reach out to all financially excluded Indians. New banks along with other measures i.e. BC networks, Aadhar-linked accounts etc. would complement the efforts to bank the majority of the population in a short period. While this was a perfect grand plan, the PMJDY-RuPay mission was nowhere in that scheme of things! In the current scenario Payments Banks have their task more than well cut out in a manner not envisaged by the Nachiket Mor report. They will now have to a) collaborate with new and existing players by way of technology, platform, product, distribution, points of presence, merchant base, delivery channel, brand, etc to plug the crucial last mile, and b) board new customers for remittances, deposits, payments, micro financial services & DBT. Their ability to leverage cell phone technology to enable accounts mapped to Aadhar/ regular savings deposit/DBT etc. in a low cost and efficient manner will be key. One assumes that the sine qua non for Payment Banks was to bank the unbanked by bringing them into the formal financial system in some small way whether that be by small value- high frequency transactions starting with remittances and payments and moving up the value chain onto other micro financial products. It certainly is moot as to whether the PMJDY scheme has taken the wind out of the differentiated bank play. If indeed the JDY does manage to bank the unbanked and offer a few specific products from day one, then the market space for new banks is disturbed. Further if the Post office is given the first Payments or a Scheduled Banks license then the NPCI and Post office routes will more than address the market, leaving little space for other private non telco players to come in. After all the pet peeve of most analysts is how many bank accounts would a person or family want to open! Therefore, once one has decided to go down the differentiated path route, two things are important. Firstly, one can’t perforce have a ‘one size fits all’ regulation. One has to leave dispensation for encouraging innovation and flexibility whilst the new players feel the river bed one stone at a time. Secondly, the market space has to be attractive enough to allow for several players to come in and offer pan Indian services. One way the business case would be buttressed is allowing Payments Banks to become the official distributors of DBT – both Central & State. Quick back of the envelope calculations indicate that a Payments Bank with cell phone focus with 0.75 % of the DBT market share in terms of gross disbursement will have enough of a business case to make the concept viable from day one. As the program evolves and matures, it is quite possible that with larger reach and volume, this service could be delivered for even lesser ‘transaction fee’ than is envisaged i.e. 2-3 %, thus saving the exchequer a fair bit of extra budgeting requirements and reducing leakages significantly. Yet, for all this to happen, two things must change. First, a move from the traditional emphasis of a formal account in a regular bank to allow for a unique ‘virtual account’ (similar to a mobile wallet) linked to the Aadhar and mobile numbers. This virtual account, ‘Account-in-the-Cloud’, will have simplified KYC/eKYC as per RBI norms. Secondly, cash out must be allowed using established private players (FMCG, retailers, fair price shops, etc), to allow for network effects to kick in a la Tanzania with its 27000 agents for a population of 37 million. With this, direct cash transfers, payments or remittances can be done directly into anybody’s aadhar-linked account-in-the cloud, to be redeemed at merchant points for purchases or cash out, via the established private payment outlets. This is the RBI’s vision- anybody in India can transact with anybody anywhere at ease- and it can be done, but only if the policy makers use a fresh lens.

Defence Planning - A Ticking time bomb!

There is something faintly dubious when one reads about a recent report in a reputed publication (Business Standard, Feb 3,2014)  that the armed forces of India have two major problems (a) of every years capital budget , which as we all know is for acquisitions/procurement of weapon systems, hardware & platforms, just 5 percent is earmarked  for  new acquisitions (i.e Rs 2955 crores in FY 14), with the balance going for payments due on account for past years acquisitions & purchases, and  (b) even then, the  forces are just able to spend just 50-60% of that remaining balance capital allocation!

 Just for perspective for readers. The BMC pothole fixing & road maintenance budget for 2014-15 is Rs 2500 crores – nearly as much as the entire Indian Armed Forces capital budget.

Is this not a travesty for one of the worlds most admired professional military, and a favorite Institution of all Indians?

This is what we do in Information Technology (IT) when evaluating a technology. We look at TCO (Total Cost of Ownership) where capex, opex, upgrades, and almost everything (incl ‘known’hidden costs)is itemized, costed and then added up over its life cycle, and then matched off with alternative options. This by and large leads to a fairly correct decision – even with hindsight.

I wonder after decades of procurement and defence planning – basic principles which were ennunciated by Robert McNamara as Defence Secy,USA in the 60’s/70’s  such as Zero based Budgetting (ZBB) and Program,Planning & Budgetting System (PPBS). That these have  been given short shrift in the corridors of Sena Bhavan and South Block?

What is ZBB? Every year the entire budget is reviewed afresh line item wise, without any reference to the past sanctions or outlay. And as if it is a brand new budget, with no memory! It validates therefore whether there are increases or decreases in that particular line item from the last year. And what are the provisions to be made hence in current year – less, more or same.

PPBS – is a tool, which the US DoD uses for long range forecasting, to establish strategic priorities, by costing, tracking expenditures and achievements against this during a budget year or over its long range defense plan. I guess typically, your raising of a mountain strike corp, or carrier battle group (CBG) or new air command (SAC), etc would ideally be matched off with concomitant expenditures and achievements till date, and then prioritised.

So why are we not using these tools, or some Indian jugad variant of it?

The issue is  a cultural one. Armies generally measure their strength with boots on the ground. This is hardwired into their pride and their DNA. So opex is key. Navies and Air Forces are equipment, technology and  hardware intensive – so capex is key. Force projection for these two arms is a multiple of such capital assets, and not how many guys they have on their payroll!

Now you have between these three services lopsided ratios of capex:opex or teeth to tail ratios which are inherent in nature. And cant serve as a common reference point.

So what do we need to do ? Clearly defence planners (IHQ?/COSC/CDS?)  need to reconcile this.

So while an Army marches on its stomach and in their boots. It does not mean that all responses lie in that direction. For e.g the formation of the new Mountain Strike Corps (MSC)  for the China response. What ought to have be done is square off  with alternate plans & strategic options  viz cyber warfare, use of tactical battlefield ‘low yield’ nuke weapons, use of air force elements , long range missiles, satellite imagery, weapons & early warning, blocking off the Mallaca straits with Naval battle groups, getting staging/berthing  rights in Vietnam, Japan for maritime forces, etc, etc.

So for perhaps lesser revenue outlays (which is the pain point of the moment) it may be able to have more effective response while keeping the teeth:tail ratio sharp.

Inflation is a PIG!

What is PIG? In non-capital letters, of course we can define the animal – whether quadruped or human. But nowadays a new set of inflation measures are also known as PIG - Pure Inflation Gauges, as explained by Indian economists Dr Krishna Durba and & Dr Urjit Patel. Most of India's financial newspapers seem to believe that interest rates and inflation are inversely linked, and that you can slay the inflation dragon with the interest rate sword. I am not too sure. Over the period 2010-2013, the Reserve Bank of India effected over 13 policy rate hikes, but the Wholesale Price Index today is still rising at 6 per cent; the Consumer Price Index is in double digits; and food inflation at 18 per cent. And mind you, rupee twerking in a manner not seen even by Miley Cyrus (10 per cent movement either way in just a few days!). Clearly something is out of sync. Maybe inflation is no more just a monetary phenomenon, any more than monsoons are a rain event. And interest rate and inflation best share a correlation between the two, but that should not be confused for causation. There are three issues which need attention: What to target? a) Inflation (CPI, WPI, Core, etc); b) GDP; or c) external economy (rupee, current account deficit). Which policy instruments and methods to tag each target with? And what should these targets be? While the Reserve Bank has been looking at WPI, it is actually CPI which impacts the public. That is the inflation index it should target. If one goes by the PIG theory that food and energy does not contribute to inflation, then choosing between headline or core inflation is meaningless. Whatever is the appropriate target is par for the course. What inflation does is hose the feedback loop on negative sentiments. Businesses and firms are holding off on investments and projects, consumers are looking to alternate non productive assets. Credit offtake is low, and with little or no impact on output, prices and employment and the economy is in a tailspin of its own making. So while inflation targeting is necessary, focus on it solely as a panacea for economic ills is misshapen. Let me put it this way. India is an economy which is 50 per cent underground, where proper estimates of money supply and impacts of tightening and loosening is not known or measurable (think System D in France). India is still a 96 per cent cash economy with 12 trillion crores of M0 circulating in the economy, and just 50 per cent of all non-cash measurable split evenly between cheque and electronic channels. This formal economy cannot be a good approximate of the informal one. And therein lies the problem. A case in point is that even with a good monsoon and good agricultural output, prices of agricultural products are high, and imports are being resorted to. It would seem demand and supply forces are not working themselves through the system, and information is asymmetric on account of supply chain inefficiencies and distributional distortions. Growth is the critical factor – without it, we are seeing high inflation and unemployment. Better to have growth with inflation and employment. The rupee should be allowed to find its own level as it is a barometer of how the world economy views the strength of the Indian economy. Intervention by the RBI should be swift and determined if the rupee is under speculative stress. Not dictating the rate, but preventing volatility. Not by resorting to textbook tools but beating the speculators whether they be dealers, brokers, traders, arbitragers from within an institutional system or working within the dark anonymous shifting shoals of international finance. The problems of the rupee are not fundamental but on account of shorting and profit-taking by the gnomes of Zurich. The trade deficit or CAD is more addressable, and gold imports should be controlled rather than cutting off external remittances. On parallel, increasing the supply of dollars is important through foreign direct investment (FDI), share purchase by parent companies, exports, invisibles and de-risking on pure FII inflow is paramount. There are schools of thought where some are of the view that you need one policy instrument for one objective. Central banks have a toolkit for each policy instrument - for example, the repo rate, MSC, CRR, SLR, reverse Repo, etc. Sometimes, one signals a course of action with one instrument only to send the opposite signal with the other tools at ones disposal. Even if you don't use more than one instrument to tackle one goal – one must have congruence. A more critical issue is inflation targets - whether inflation should be 200 basis points behind growth, and growth set at 7.5- 8.5 per cent. This is what some economist call as NGDP targeting. In the USA the trilemma is a three way drift between inflation, GDP and unemployment – and in trying to find the sweat spot. In India it is just two - inflation and growth. Of course the third could be the fiscal deficit or even CAD. But just to keep things simple I have take these as the two main macroeconomic objectives on a merit order basis. Currently, with growth down, it is important to bake a larger cake. Inflation may be a concomitant. But it cannot be the determinant. Therefore some amount of inflation has to be tolerated and perhaps even encouraged for risk: return perceptions to play a role in freeing up animal spirits of enterprise and industry.

Indian Navy - Future Ready

The ‘sea blindedness’ and ‘continental’ mindset of Indian political class and bureaucracy have hobbled us. The fact that colonial powers like Britain, Spain, Portugal, Dutch, and French conquered and commercially exploited us by sea is lost on them. These countries, if taken in totality, have less than half the coast line we have (7516 Kms). Yet we have been colonized more from the sea than from land! So, instead of becoming a sea faring nation and outward in outlook. India has remained inward looking and insular in nature. It is to the credit of naval planners that they have built true blue water navy inspite of this mindset in 60 odd years. All this with patience and perseverance, and mostly without the benefit of any higher political direction (no White Papers, or Defence Reviews; not even approval of the recommendations of committees convened by the GoI)One could argue that this perhaps has been a blessingin disguise! Of late there has been some soul searching on whether the recent submarine accident could have been avoided, or has there been any setback to the blue water vision by spreading oneself too thin - embarking on ambitious carrier, nuclear propulsion program and 30 sub plans. It would seem that the diversion of (scarce) men, money and material can either do one or the other well. But not all. Hence ‘overreaching strategic ambitions’. Not so. All professional and blue water navies have had to cope with (or rather learn to cope with) rapid growth during its ‘scaling up’ stage - from coastal/littoral and sea defense navy to a blue water one. Recruitment at entry levels have to scale up. Training, induction and infrastructure also has to keep pace to ‘feed’ and constantly update the various arms of the navy whether it be pilots, divers, electrical/system engineers, artificers, long course specialist officers, cooks, etc. During this phase different parts of the Navy tend to grow at different rates – some faster, some over decades. That is natural. For e.g. (1) the nuclear submarine propulsion programme was conceptualized in 1967 with a feasibility plan prepared by the Navy & BARC, and went thru several fits and starts till 1980. It was only in 1984 that the program got its due budget, focus and political mandate. And now has come to its logical fruition. (2) On the other hand the aviation wing came off the starting block faster than any other arm with the original INS Vikrant (1961) coming in very early in the navy’s evolution (this is Naval aviations 60th anniversary), and the vision for subsequently embarking upon a 2/3 carrier navy being in the pipeline from the late 80’s (3) The 30-sub plan also has also been in the making from the late 90’s. But delays in decision making have dogged this plan from coming in on time. At the end they have all come together rather nicely. Therefore In isolation and in totality, naval planners seem to have cut their cloth according to their long term vision – not too much, or too little. For a country which is still a developing one with numerous resource constraints, a noisy and often time’s fractious democracy with several competing forces for scarce means. This is creditable. Naval Vision 3.0 My view, and I have held this for some time now, that the Indian Navy needs ideally 3 Battle Groups (BG’s). Two being CBG’s. One for the Arabian, ME & Mediterranean regions HQ’d in Mumbai/Karwar (lets call this command as CinC,AMEN) . One for the Indian Ocean and Littoral States (CinC,IOR) HQ’d at Cochin/Karwar, and one for the South Asia & Far East (CinC,SAFE) region HQ’d at Vizag and Port Blair. I know the 2+1 is the carrier tasking policy, but there will be times when all three carriers will be in active operational simultaneously. And when, 2+ 1 kicks in, then the capital ship of the third Battle Group will be a Nuke Sub or amphibious assault ship/Helo carrier. These BG’s will not only be there for deterrence and defence of the homeland and expeditionary operations, but more importantly, to ‘fly the flag’ from Vietnam to Venezuela – where significant Indian economic & commercial assets and interests are expected to lie in within the next 20 years. The soft power that is talked about by all. And which China with its hospitals ships and visiting warships to areas of their interest have been doing for some time, and of course the western powers perfected to an art form over the last 300 years! The fly the flag activities will be cross subsidized by the MEA, since this will form part of its outreach and ‘winning friends’ program. If and when India gets to the high table of the permanent member of the UNSC, this will be a hygiene factor. And if the roadmap and intent is laid out in advance, then an enabling condition.

Now your Bank account in the sky!

There have been 100 mobile money deployments in emerging markets. At least 84 of them within the last three years. What I have found to be common for those that are successful (14 of them, as defined by number of payments relative to the size of the addressable market) are growing the customer base and network in tandem. This makes the overall agent economics and agent enrollment efforts remunerative. What is not so explicitly stated, but key, is role of ‘Regulation’. In under regulated, low banking penetration, light regulatory touch economies such as Somaliland, Kenya, Tanzania, and Uganda it has worked well. But in robustly regulated and supervised markets like India – the outcome is poor. M-pesa cant be re skinned for local conditions just with addition of 'a' and 'i' and drop of an 'e', Vodafone has been experimenting with M pesa in India for some years. They launched in 2011 with a pilot in Chomus, Rajasthan. And recently with ICICI Bank. It would be interesting to assess the outcome of that pilot and understand goals set with ICICI Bank. The original program was envisaged to board 10 million farmers for its financial inclusion efforts. Before that Tata Teleservices launched its own domestic money transfer program with Corporation Bank. As did Axis Bank and Airtel for the same purpose. While Airtel & SBI’s JV was short lived. In India it seems banks and telcos are dancing an endless tango to see how best to crack the conundrum of mobile money. Ideally the telcos have been trying hard to edge the banks out of this - they see it as a next value driver and best geared organizationally to deliver tangible results. And the Banks are generally wary and averse against this being driven solely by telcos and the customers being owned by them. Probably for the same reason. Except they call it fear of systemic risk! So what is the way out? Even if the over strict interpretation of Banks role for cash-in/cash-out (CICO)is maintained, there are ways to skin the cat - so that 'unbanked beneficiary' can still avail of the service.. But for this to happen (and happen it has to) two things need to change. First, the differentiation between a payment service providers and credit issuers has to be understood. In the former accepting and keeping 100 % of monies collected in pooled accounts by way of escrow or reserve requirement does not constitute systemic risk, or, constitute what is known as a Systematically Important Payment System (SIPS). In fact the mobile wallet poses even less overall risk than banking and any other payments systems. For e.g. in 2010 the accumulated balance in all Mpesa, Kenya accounts represented just 0.2 % of all bank deposits even though M Pesa transactions accounted for over 70 % of all electronic transactions! Further, as a measure of abundant caution, PPI’s do not intermediate funds or issue credit! Second, regulatory dispensation has to now accommodate a sender/receiver or both NOT necessarily (a) Having any form of formal Bank account, but just having an unique mobile wallet issued by a RBI certified PPI’s. This mobile wallet, is what I call as - ‘Account-in-the-Cloud. Lets us give it a generic brand name – My Paisa account. (b) As per prevailing RBI norms some form of KYC applies for creation/loading up such a virtual wallets. Aadhar, as a (mandatory in time) RBI accepted e-KYC tool per se – as valid ID proof serves that purpose, The aadhar number also doubles up as an unique identifier mapped to the wallet and mobile number, and in due course to a no frills account or regular account. (c) Of course until UID reaches mass acceptance, the older KYC norms used thus far over the last 60 years will suffice for creation of the wallet as per prevailing RBI Prepaid guidelines. (d) While the conventional Bank-ICT based BC/BF/CSP Model has yet to categorically deliver any tangible over the last 7 years. Either, by way of account registration and/or account activity terms. Arguably it may have met its penetration levels into villages. This effort is now best also complemented by established private players (viz. FMCG, retailers, fair price shops, etc) to allow for network effects to kick in a la Tanzania with its 27000 agents for a population of 37 million, or Somaliland with its 8600 agents for a population of 3.85 million. (e) In India a clear a million such existing unique established and trusted points of presence are there built up over the last 100 years. Even if we don’t count the Telco touch points. Allowing for cash -out on such a larger definition of BC's/BF's/BA's by leveraging established & accepted networks of private payments processors & agent aggregators, will be par for the course (f) No program can be sustained if it not remunerative to the stake holders, and does not make sound business sense. So a competitive fee structure payable to the key stakeholders is key. This has to be either borne by the consumer like it is done for PO/MO’s etc or by the Govt for DBT. A fee structure of between 2-4 % with an appropriate cap would find a sweet spot. With account in the cloud, and with minimum stake holders the fee structure could even be aggressive without destroying the business proposition. Once this is done, direct cash transfers or payments or remittances can be done directly into a farmer’s, citizen, or customers or any aadhar-wallet account, to be redeemed at merchant points for goods & services or cash out, via the established private payment processors outlets. Subsequently one could look at e money issuers (Non bank PPI’s ) to also pay the customer interest on an e float maintained by the account holder by way of some form of subvention where on the pooled account some interest is earned.

Band of men in their yellow submarine!

Unlike the lyrics of the famous Beatles song, one does not “live a life of ease, and have all you need”, if you join the submarine arm. As recent events have shown. As I am sure many of your readers know only too well submarine accidents are not the domain of 'happens only in India'! And from 1947 to now probably around 80 accidents have taken place. Since the year 2000 itself , there have been twenty-seven major naval incidents involving submarines from: ten American submarines, five Russian, five British, two Canadian, one Chinese, two Indian, one Australian, and one French. Eight nuclear submarines have sunk as a consequence of either accident or extensive damage: two from the United States Navy, four from the Soviet Navy, and two from the Russian Navy. Only three were lost with all hands: two from the United States Navy and one from the Russian Navy. All sank as a result of accident with the exception of K-27, which was scuttled in the Kara Sea when repair was deemed impossible and decommissioning too expensive. All of the Soviet/Russian submarines belonged to the Northern Fleet. Although the Soviet submarine K-129 (Golf II) carried nuclear ballistic missiles when it sank, it was a diesel-electric submarine and is not in the list below. Of the 8 sinking’s, 2 were due to fires, 2 were due to explosions of weapons systems, 1 was due to flooding, 1 was weather-related, and 1 was sunk intentionally due to a damaged nuclear reactor. In 1 case, the cause of sinking is unknown. All of the subs are in the Northern Hemisphere, and there are none in either the Indian or Pacific Oceans. In fact it is to the credit of the Indian Navy to have had over 40 years of submarine operation almost blemish free. I don’t know of any other Navy who can claim the same track record. Having said that, there is no excuse for any peacetime accident in one’s own berthing station regardless of the cause. Commanding any warships is a non compromising job. The Captain of a warship is responsible and accountable for his ship and men at all times, short of an unexpected act of God. In the merit order of calamities. Losing a submarine in war is forgiven, than losing it in peacetime while on patrol or exercise. And certainly, losing your ship while it is in harbor or tied up alongside is not acceptable. Captains, whose ships are hit and sunk in wartime, therefore choose to go down with their ships to avoid the shame & ignominy of their fellow men in not being able to secure their ships, and bring their men home back safely, and are in line with naval traditions from centuries of seamanship. Death before dishonor best describes this practice. Nothing has changed since. Two points; (1) Other than the usual suspects (engineering/material failure/faulty equipment, battery, electrical, aux, etc) which will be investigated. The issues of (a) human error by way of SOP’s/ inspection regime before and during handling of ordinance loading (b) Availability, preparedness and adherence to ’Stand by' SOP's in case of exigency /eventualities of such nature, and (c) any reduction in the recently concluded 'full overhaul' for submarine fleet operational reasons, merit some attention. If I recollect this is the third incident within Mumbai naval dockyard and harbor in last few years. Sinking at ones berthing station was last evidenced at Pearl Harbor! And that was during 'imminent hostile action. Since then the US Navy changed their strategy, as did all professional navies of the World. The sinking’s of USS Thresher (1963) and USS Scorpion (1968) with all hands on deck were defining points in submarine history - as that kicked off the most ambitious submarine safety, rescue program, and culture of its kind (SUBSAFE). Lessons obviously lost on the Russians with their plethora of mishaps with various submarines over the last few years! (2) Perhaps this will give a fillip to (a) expediting the 30 sub fleet plan & replacement of obsolescence (b) improve submarine rescue capability, and (c) last but not least, a secular and steady programme of navy indigenization – with near zero dependence on diffident suppliers of yore! Sending ships to and fro their original yards and paying top $ for such services for major overhaul and refits creates an unhealthy dependency. I hope the Navy BOI headed by a senior submariner does get to the bottom of it and makes requisite changes in SOPSs, inspection & verification regime, safety regulations compliance, command & control, training, drills, exercises, manuals, contingency plans, emergency response, etc. When you join the submarine arm, you it is not just a well paid job or post with good retirement benefits. It is a calling, a passion. Where margins of error are zero, and consequence is life!