[aaykarbhavan] business standard news updates 19-8-2012

Chidambaram asks govtbanks to cut EMIs forconsumerdurable loans

BS REPORTER New Delhi, 18 August Finance Minister P Chidambaram today asked public sector banks to reduce equated monthly instalments (EMIs) on loans for consumer durables, in order to kickstart investment cycle and bolster the sagging economic growth. He also asked banks to ensure the cash lying with the public —about ~11 lakh crore —was channelised into the banking system. For this, he wanted banks to upgrade their ATMs to function as cash-accepting machines too, from only cash disbursal tools at present. He was speaking at a press conference after reviewing the functioning of public sector banks at a four-hour meeting with their chairmen. Consumer durables have been one of the silver linings in otherwise dismal industrial output. While the entire industrial production contracted 1.8 per cent in June and 0.1 per cent in the first quarter of the current financial year, consumer durable goods posted a growth of 9.1 per cent and 8 per cent in these periods, respectively. Chidambaram said a factor inhibiting the growth of consumer durables was EMI. "The middle class is complaining about EMIs, either these have been increased or payments have been stretched," he said. As such, the middle class postpones these purchases. "That is not good for the industry and for the economy. Just as the investment plans must be brought forward, people must be encouraged to buy consumer durables that will keep the investment engine going." Officials said, when banks asked how they could cut EMIs, they were told to reduce bulk deposits and take deposits of PSUs on the card rate. Later, RBI Deputy Governor KC Chakrabarty said 60 per cent of the total deposits of the PSU banks was bulk deposits. He said cutting of rates by RBI would not bring as much change in interest rates as banks reducing bulk deposits and interest rate on these savings. To a query, the finance minister said gross non-performing assets (NPAs) of banks, at 3.17 per cent as on March 31, 2012, did not reflect any alarming picture. Once the economic growth picks up, NPAs would also come down, he said. In 2011-12, the Indian economy grew 6.5 per cent, the slowest in nine years. Most analysts have pegged economic growth at sub-six per cent for this financial year, but the Prime Minister's Economic Advisory Council has projected it to grow by 6.7 per cent. ECONOMY Banks offerfestive bonanza to customers 3 >"We spend a lot of time to find out whybusiness houses, industrial houses sitting on a pile of cash are not investing. Reviving investment is the wayout of ourpresent challenges. Most of ourproblems will be addressed if we revive investments bysmall, medium and large industries" PCHIDAMBARAM Finance minister WHAT THE FINANCE MINISTER WANTS number of ATMs in two years from the 63,000 at present banking in bazaars and markets for daily collections from shops needs of farmers in drought-affected loans rescheduled as mediumterm loans in these areas tweak circular on education loans so that only an officer senior to the one who has the power to grant the loan could reject applications |A branch general manager be penalised if his decision on 5-10 deserving education loan applications are overturned by his superior | Says Cabinet note being prepared to launch credit guarantee fund on education loans before this calendar year |Indian Banks Association set up panel on housing to analyse the issue of reviving demand, finishing the unfinished projects on the one hand and finished houses lying vacant on the other Also wants ~11-lakh-crore idle cash with public to be brought in the banking system No more diktats from FinMin VRISHTI BENIWAL New Delhi, 18 August State-run lenders may no longer get advisories from the finance ministry on running their operations. Finance Minister PChidambaram today made it clear that the government would not unnecessarily interfere in the day-to-day affairs of the banks, and any advisory, if at all required, would be sent only after his approval. 3 >

 

Good forindustry, good forinvestors SEBI PROPOSALS BS REPORTER Investors would be a tad disappointed with the Securities and Exchange Board of India's (Sebi) latest measures to 're-energise' the mutual fund industry. The market regulator has put the onus on them – by increasing some costs marginally– to provide more funds for the industry and distributors. So, the expense fee is up 20 basis points. Then, there is another 30 basis points if the fund house collects 30 per cent of its money from smaller cities and the service tax incidence will be on the investors – all these will increase the costs for the investor. While Sebi's changes have received both bouquets and brickbrats, the exact manner in which they will play out, will only be known over a period of time. On the face of it, the increase in the permissible total expense ration (TER) is a negative measure for investors and a positive one for the asset management companies (AMCs). However, it is not as bad as it seems. First of all it is not applicable on the entire corpus of the scheme. Only that portion which is procured from the smaller centres will be eligible. Hence, the TER will not rise by a uniform 30 basis points for everyone. The weighted average will be much lower. This is a small price to pay if it achieves the objective of increasing penetration. The introduction of a new plan for self directed investors plugs a gap which has been existing since January 1, 2008. Self-directed investors (such as ones who invest through a mutual fund's website) have often asked why they should bear the trail commission component in their Net Asset Values when they are investing on their own, This change will remedy that unintended consequence. This will spur more investors in the top 15 cities to invest on their own. After all, they are the ones supposed to be more enlightened and more at ease with technology. Easing the process for enrolling distributors should have a positive effect in terms of enrollment in the case of smaller centres in the long term. However, increasing the number of educated but 'mutual-fund illiterate' agents will actually increase the training costs for funds. After all, selling a relatively complex product like a mutual fund is different from selling Government guaranteed savings products such as National Savings Certificates. Again, different levels of certifications will not be of much help if the consumers / investors are unable to discern one from another. This is only going to help the cause of educational institutes who provide coaching for such certifications. A reduction in the fees for the exams and registration, is agood, albeit, not critical proposal. After all, serious distributors will keep their registration alive, despite the fees and the ones who are not serious will not continue even if there are no charges. The service tax and brokerage aspect is not such a big issue as it is being made out to be. Across industries providers are passing on the service tax to consumers, who are paying up without a murmur. To top that, here the tax is levied only on the fund management charges and not on the entire expense ratio. Hence, the final impact on the investor should not be significant. To offset this, the cap on brokerage that a scheme pays, is bound to help the cause of investors. The relaxation in the requirement for PAN card for applying for mutual funds, appears to be a cosmetic move. It is unlikely to result in hordes of farmers queuing up to purchase units by paying in cash. But more pertinent, there is no clarity on how the redemption proceeds will be processed. It is highly unlikely that it will be in cash. This may be a bigger impediment than the PAN Card for such prospective investors. Mis-selling and churning are widespread evils. However, as in the case of insider trading, it is difficult to pin down offenders who mis-sell. Usually, agents make clients sign on undertakings that they have understood the features and are cognisance of the various risks involved. If at all, pushcomes-to-shove, agents could always hold up that document as evidence that they were in compliance. The additional 20 basis points towards penalty for early redemptions may not really deter inveterate traders, as the figure is fairly insignificant. However, it is a non-event for investors who remain invested. A slew of measures have been proposed, aimed at safeguarding the investor against wolves in sheep's clothing. Unfortunately, there are so many stratifications available within the proposals, that virtually everyone will be eligible to serve as an advisor. Ultimately, investors will go to the ones they trust, irrespective of whether the Regulator believes they are eligible or not. The only puzzling thing is the point which states that people who give advice in good faith are exempt. This could be the Achilles heel of this section. In a nutshell, the proposals are a step forward. However, revival of the industry may depend as much on market sentiment, as on regulatory forbearance. I only hope retail investors do not flock to mutual funds after the stock market has already enjoyed a stellar run. In that case, no amount of regulation could prevent them from suffering loses whenever the markets undergo the next bout of correction. But given the thrust of Sebi, it proves that the low retail penetration is the effect of the apathy of funds and distributors and not the effect of the ban on entry loads. As mutual funds had limited personnel, there was an over-reliance on distributors to garner retail and High Net Worth (HNI) monies. The distributors, in turn, concentrated on the easier pickings (read top cities) which in turn led to sub-optimal nationwide penetration. These moves will hopefully make things simpler. Yes, costs are up marginally for the time being. But in a good market, returns won't take long to catch up Proposal Impact E-IPOs and ASBAenhancement Useful, butno short-term positive impact Increase in minimum application Increase is minimal. Guarantee may amountand guaranteed allotment help widen shareholder base Employee BenefitSchemes cannot Notgood for existing shareholders . purchase shares from the secondary as the number ofoutstanding market shares will increase IMPACT ON INDIVIDUALS No more diktats from FinMin to banks: FM VRISHTI BENIWAL New Delhi, 18 August State-run lenders may no longer get advisories from the finance ministry on how to run their operations. Finance Minister PChidambaram today made it clear that the government would not unnecessarily interfere in the day-to-day affairs of the banks, and any advisory, if at all required, would be sent only after his approval. The assurance from the finance minister came at a meeting with chiefs of public sector banks today. This has brought relief to some bankers who often expressed their displeasure, though not officially, over the frequent instructions from the finance ministry. Chairman of a bank who attended the meeting, said Chidambaram highlighted that the government, being the majority shareholder in the banks, would like to give suggestions at times, but it also wanted to give a free hand to the banks in running their operations. Another banker said though most of the instructions from the finance ministry were in the interest of the banks and were aimed at improving their efficiency, the generalised approach did not suit all banks. "(But) the goals and client base of each bank is different, and you can't go with a one-size-fits-all approach," he said. In the recent past, the finance ministry, headed by Pranab Mukherjee, had sent many advisories to public sector banks on issues such as agenda of board meetings, putting a cap on bulk deposits, reviewing interest rates, mandatory board approval for short-term unsecured corporate loans, joint lending for corporate loans or raising EMI tenure instead of the amount. Though no major advisory has gone to the banks from the finance ministry since August 1 when Chidambaram took charge, some of the issues highlighted by him in today's meeting were in line with the instructions sent by Financial Services Secretary DK Mittal. The finance minister is learnt to have asked the banks to lower their cost of funds by shedding bulk deposits. He also asked the lenders to cut EMIs on loans for consumer durable goods. Last month, RBI Governor D Subbarao had said there were concerns over the government exercising its ownership rights not through the established channel of the board, which was not a good example of good corporate governance. Finance ministry officials always defended the move saying the government was just giving its suggestions as the owner of the banks, and it was for the banks to take a call on those issues in their board meetings. PChidambaram makes it clear that any advisory, if required, would be sent only after his approval FINMIN ADVISORIES |Hold one board meeting every quarter to discuss major policy and strategic issues |Cap bulk deposits at 10% and certificate of deposits at 5% of total deposits |Quickly relook at all lending rates in light of reduction in CRR and repo rate |Make board approval for short-term unsecured corporate loans mandatory |Enter into a joint lending agreement for corporate loans over ~ 150 crore |Don't increase EMI in order to provide some relief to the borrowers

 

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CS A  RENGARAJAN,, B.Com ,FCS, LLB, PGDBM
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