Manappuram, Muthoot Finance crash
Kochi, April 15:
The sharp slide in gold prices has impacted the share prices of the Kerala-based NBFC's Muthoot Finance and Manappuram Finance on Monday.
Manappuram Finance lost 9.84 per cent to touch fresh 52-week low of Rs 17.40 on Monday with 38.89 lakh shares changing hands on the BSE. Muthoot Finance, after crashing to day's low of Rs 121.30, recovered a bit to end at Rs 131.50, a fall of 13 per cent.
Commenting on the development, George Alexander Muthoot, Managing Director, Muthoot Finance, said "a 15-20 per cent price fluctuation in gold prices is already factored in our business model. It is not a new event, which has come up. Though gold price is an important factor, the business model should not be misunderstood as a business of financing of bullion or shares where mark-to-market could affect the repayment behaviour.
"Since we are financing only household jewellery, the impact of such fluctuations is minimal. More than the gold price, it is the collection mechanism, which is important in this business. We have institutionalised a system of regularly calling up the borrowers reminding him about the dues on the loan and every branch has a monthly interest collection target.
"These measures ensure regular interface with the customers and engenders repayment habit in the borrowers. We did not record a substantial rise in NPA's also when compared to our disbursements, as loans have a very short duration of 3-6 months." The officials in Manappuram Finance are not available for comments on the development. The company, however, last month had said it may lose Rs 250 crore as the price of the underlying security may not be sufficient to recover the interest in full due to the price correction of gold.
sajeevkumar.v@thehindu.co.in
For 2nd month running, rail reservations dip 10% in March
Ministry says it is due to longer booking period, not fare hike
New Delhi, April 15:
Rail reservations are falling. In March, bookings dipped 10.45 per cent, the sharpest in 2012-13, after slipping 1.6 per cent in February. The fall has been in both air-conditioned (AC) and non-AC segment.
Coming on the heels of the Railways increasing fares across-the-board from January 21, the dip in bookings suggests people are avoiding train travel.
It also coincides with airlines offering discounted fares, narrowing the gap between air and AC train fares.
But Railway Ministry officials think the drop could be due to the widened window for reservations period since March 2012.
This allows people to book tickets 120 days in advance instead of 90 days. So, passengers could book in January itself for travel in May, one of the peak travel months. Denying the drop to be a a fare hike effect, an official said, "Despite announcing train fare hike in mid-January, ticket bookings that month registered an impressive growth of 16 per cent."
Instead, the fall in bookings could be because of the high base effect as, in March 2012, when the booking period was first increased, train traffic recorded 17 per cent growth.
The Railway Ministry maintains that airline capacity is low and too dynamic to make any significant impact.
In fact, in 2012-13, November was the only other month when bookings saw a drop (about eight per cent).
Echoed Sanjay Bhasin, Managing Director, Goibibo.com, "Air and train ticket prices cannot be compared considering the large number of price points and the capacity train offers."
Shift to air travel
Industry watchers, however, do not rule out some shift from AC trains to airlines as many carriers, including SpiceJet, IndiGo and Air India, announced discounted fares after passenger traffic shrank for nine months till January.
Manish Kalra, chief marketing officer, Makemytrip, said, "With a couple of major airlines offering attractive discounts, I believe some cannibalisation must have happened with some of the AC train travellers buying air tickets to travel." .
Taking a joint loan? Watch out!
Their first wedding anniversary was a month away when Sheetal and Kunal bought an apartment in Powai, Mumbai. Many friends admired the young couple's capacity to buy a premium apartment. Actually, the couple merged their earning capacity to be eligible for the Rs 75 lakh loan. They had raised a joint loan. But not long after the monthly payments started, marital troubles surfaced and the couple split.
Who will re-pay the home loan? And who will own the home?
Situations like these aren't unusual today and therefore, women need to know the implications of taking a joint loan with their husbands. In the above case, the property was registered in the name of Kunal and Sheetal didn't get a share of it when they parted. Yet, she has to continue to pay her part of the EMI, or Equated Monthly Instalment because she also signed on as a co-borrower.
Benefits of a joint loan
Under usual circumstances, taking a joint loan does have benefits. For one, when banks sanction housing loans, they evaluate if the borrower's income is enough to pay back the loan. If a single income isn't enough to cover the loan amount, the borrower will be encouraged to bring in a co-applicant. Many young couples today opt for a joint housing loan to be able to afford a better home. But the flip side of stretching your budget this way is that, it robs both of you of the flexibility to take a mid-career break or switch to a lower paying job.
Many couples also opt for a joint loan as it gives them additional tax benefits. For instance, if you take a joint home loan, both you and your husband can individually claim deduction under Section 80C and Section 24 of the Income-Tax Act towards the principal and interest deductions, says Vineet Agarwal, Director, KPMG. That is, while calculating your taxable income, both you and your husband can deduct up to Rs 1 lakh on principal (Section 80C) and up to Rs 1.5 lakh on interest (section 24) paid on the loan in that year.
But do note that this benefit is only if the home is registered in both your names. Being a co-applicant to the loan alone, doesn't get you this tax break.
Now, for the flip-side
While signing on as co-applicant, however, it is also essential for you to know your liabilities. When the primary borrower defaults, has to file for insolvency or passes away, it becomes the co-applicant's responsibility to settle the loan in full, says K.H. Viswanathan, Executive Director, RSM Astute Consulting Group- a legal consulting company.
And do note that the repayment record on joint loans counts for your CIBIL score. The Credit Information Bureau (India) Ltd maintains information of all individuals' payments relating to loans. It gives scores to individuals based on their credit history. Irregularity in payment by a partner or co-applicant can impact your eligibility in the future for a loan.
So ask yourself if you will have enough money to pay the full EMI yourself in case of an unexpected event. The math is simple: From your monthly income, subtract expenses on fixed commitments, such as school/tuition fees, other loan payments, house rent, food, medicine and emergencies. What is left is the disposable income to pay the EMI.
Put it in writing
Before you sign as a co-applicant in a home loan, make sure that you get a right to the property as well. Registering the house in joint names will get you additional tax benefits as mentioned earlier and your share in the property also becomes undisputable.
The couple taking the loan should ideally take separate term life covers to reduce the financial burden on the other person in case of their demise.
Also, if you are a co-borrower, you could perhaps draw up and sign an agreement with your spouse on splitting the liability. This will avoid any clashes in future. Premnath Rai, Partner, PRA Law Offices, says that in a joint loan, it is possible to state in the loan agreement itself that the wife's or husband's liability as a co-applicant shall not exceed a given per cent of the principal amount of the loan. You can also specify the absolute amount on account of interest that will be payable at any time. But if the lender disagrees to such a clause, then, the husband and wife can draw up an agreement separately by putting the terms in a stamp paper and signing it, says Rai. This agreement, however, will not be binding on the lender; it will be useful only when there is a dispute between the co-borrowers.
Why rents may head up
Pricey homes, more people working in cities and greater mobility will boost demand for rented homes.
House price appreciation in the last five years has brought cheer to home owners in most metros. But the rent on the same properties hasn't kept up with the property value. In fact, rental yields, or the ratio of rent to property values, have actually fallen from five per cent to three per cent over the last decade or so. Renters and owners may both be wondering if rents are expected to stay put, plummet through the floor or shoot through the roof.
While reliable data on house prices is available through sources such as the National Housing Board's Residex Index, similar long term data does not exist for rents. But data from Savill's, a global real estate service provider, offers a sense of how low rents are in relation to capital values in India. In Mumbai, buying a new property entails shelling out four times the annual rent, even with rents increasing in the first half of 2012 and prices falling. Similar data for London shows that you can buy property for a single year's rental value, indicating higher rents relative to price.
Rents — demand-based
Comparing rent to capital cost may lead us to believe that rents move in step with house prices. But that isn't true. House rent and prices march to different tunes.
One big factor that decides rent in a locality is the demand for rented homes relative to their availability. This is why it becomes important to know the proportion of owner-occupied homes.
For instance, rental yields in India are often much lower than elsewhere in the world because relatively few people seek rented homes: 66 per cent of homes in Indian cities and 90 per cent of homes in rural areas are owner occupied. Owner occupation is far lower in many international cities such as Berlin (11 per cent) and New York (45 per cent). Essentially, the number of people on the look-out for rented accommodation is pretty low in India.
The proportion of floating population in a city, usually seeking employment opportunities, also decides rent. Bangalore, with nearly 57 per cent of its homes up for rent, is a good example of a city with relatively high rents. However, cities with lower proportion of floating population, such as Pune, and smaller towns, typically have lower rents.
Rents and home prices
Theory says that in an efficient market, house prices and rents will adjust so that an individual is indifferent between renting and owning. However, in reality, it does not work out so neatly. Rents need not always move when property prices do.
For one, rent control laws in cities such as Mumbai and Delhi keep rents on some properties out of tune with the market.
Two, many owners may just choose to keep their homes locked up, rather than rent them out due to other factors. They may be worried about wear and tear and the tenants' willingness to vacate the property. Concerns about rental disputes, particularly as most rental agreements are informal, may also discourage renting out. Data from the Ministry of Housing shows that over 1 crore homes in urban areas were empty, as of March 2012. Locked houses reduce supply and help to keep rents artificially high.
Localised factors sometimes tend to drive rents and prices in opposite directions. Data from online real estate site MagicBricks shows that in EM Bypass region of Calcutta, prices increased by 13 per cent in the December 2012 quarter, while rent fell by five per cent. Demand from affluent buyers in this area led to soaring property prices. On the other hand, in Nizampet area in Hyderabad, capital value fell by five per cent, while rent rose by five per cent. Fall in price was due to concerns about construction quality.
Rents may also move out of sync with property prices due to short-term mismatches in demand and supply in a locality. For example, rental rate for Bangalore's high-end villas was on an upward trend from 2007 due to demand from ex-pat community and limited supply. The rate of rent increase has slowed down since 2012, due to reduced demand.
to rent or to buy?
What are the factors one should consider when choosing to rent or deciding to buy? Affordability is a big factor that makes individuals stay put in a rented property. Affordability is measured as a multiple of annual salary to house price, with a multiple of 3 or less considered affordable by international standards. Soaring property prices in recent years have put many homes beyond the reach of buyers. Yet the rents on these properties are still within the reach of renters.
In fact, one may even turn a quick profit by staying on rent and investing the down-payment in a high return investment instead of buying a home. March 2013 data from real estate advisory firm Jones Lang LaSalle shows that a 1,000 sq.ft apartment in Adyar, Chennai, costs between Rs 1 crore and Rs 1.7 crore and fetches rent of Rs 20,000 to Rs 30,000 per month. Suppose one were to rent it for Rs 20,000 and invest 30 per cent of the property value (down payment) at 8 per cent, it would easily cover the rent. This is particularly true when high interest rates are available on safe investment options.
Renting may also be preferable when comparing the cash outflows for rent against the monthly EMI. In fact, December 2012 data from online real estate portal Makaan.com's buy vs rent index (MBRI) shows that this is the case in almost all major cities — Mumbai, Chennai, Pune, Ahmedabad, Delhi, Bangalore and Hyderabad.
Exceptions could be when salaries rise faster than property prices. For example, HDFC's home loan borrower profile shows that the years of salary needed for home purchase has reduced from 5.1 years in 2002 to 4.8 years in 2011, indicating that salaries are rising faster. Since most of the home purchases are funded by home loans, one may consider the number of years needed to save for down payment. A person with an income of Rs 10 lakh and saving rate of 25 per cent will be able to make the 20 per cent down payment towards a Rs 40 lakh-property in three years.
Even when salary is stagnant, affordability improves by spending less and saving more. A low interest rate on home loans and government tax breaks for home purchase also enable purchase of higher value homes.
For many people, the decision to buy may be based primarily on the ability to manage the EMI payments, rather than on absolute property price. So a renter must weigh these financial factors vis-à-vis the psychological yearning to be a home owner.
Next move likely up
So if rents in India are generally low, can renters count on this happy state to continue? Sadly, it is likely to change, for many reasons.
Home purchase for ownership or as investment helped buoy home prices, while metros as well as smaller cities saw anaemic growth in rent. For example, data from Jones Lang LaSalle shows that rents in Wakad area of Pune have been stable at around Rs 10,000-12,000 from May-2012 to March 2013, while price per square foot increased from the range of Rs 3,200-3,500 to Rs 3,800-4,800.
However, rents may increase from these levels. As the urban population grows in the coming decade, demand for housing space in the cities will increase.
Expansion in the working population and higher mobility of employees would lead to greater demand for rented homes.
As older homes are re-developed to good quality and newer construction, rent escalation will likely happen too. Also, delays in urban infrastructure development create rental hot-spots where demand far outstrips supply.
The trend of rents rising faster than prices is already seen in markets such as Noida-Greater Noida Expressway.
Jones Lang LaSalle data shows that rents increased from Rs 11,000-12,000 in May 2012 to Rs 12,000-14,000 in March 2013 while sale price per square foot was stable at Rs 4,000 to Rs 5,500.
Higher rents may not be welcomed by renters, but the higher monthly cash flow will bring cheer to investors.
REITs in India
If rents are set to climb, is there a way to benefit from this, without all the hassles of owning a property? Yes, you could benefit if there were Real Estate Investment Trusts (REIT) in India. REITs raise funds from investors, purchase rent generating assets and pay out majority of the rental income. So far, Indian real estate investment has focussed on capital appreciation rather than income generation. The launch of REITs would offer an alternative to purchasing property and develop income focussed investing. This could also potentially reduce speculation and stabilise house prices.
But REITs face a lot of challenges in the Indian context. For one, the low rental yield may discourage investors. Laws that protect tenants and inherent long delays in seeking legal recourse are also dampeners. The lack of transparency in real estate dealings would also make companies cautious about launching REITs. Tax structure and schemes that offer incentives to home owners rather than renters also lower REIT uptake.
Slow decision-making keeping off investors: Nancy Powell
"Slow pace of approval process sends mixed messages to American companies planning to invest here," says Powell.
Mumbai, Apr 15:
A "slow pace" of approval process in India is inhibiting foreign investments, the US Ambassador to India, Nancy Powell today said.
"Slow pace of approval process sends mixed messages to American companies planning to invest here," Powell told a gathering of the Indo-American Chamber of Commerce here this evening.
Noting that Indian economy has grown at least 10 times since the 1991 liberalisation, Powell said "this could not have been possible without the help of multi-nationals and the business model adopted by the government".
"But there is even brighter future, provided the government improves its decision-making process, especially those of foreign investment proposals," she added.
Powell also complimented the recent government decision to allow increased FDI in various sectors like aviation and retail, saying such measures are "encouraging," and added that more such initiatives in defence collaboration, energy and financial sector are needed.
"If implemented, such measures can enhance the country's capabilities in these critical sectors," she said.
"India needs and deserves the best military services in the sub-continent for which the US is ready and prepared to help. Your security challenges are genuine and the US can help enhance your internal security," Powell said.
Are NBFCs our own Swiss banks?
It is possible to unearth the black money in NBFCs and cooperative banks.
April 15, 2013:
There are many in India — the chattering class and the cognoscenti — who vent their anger at the unaccounted money salted away in Swiss and other banks.
They rail at the secrecy enjoyed by depositors, as well as against the impotency of the Government in establishing the money trail and demanding the money back from the banks in these countries.
But there is also a growing feeling that the Government should focus more on the low-hanging fruit — the black money brazenly deposited with an assortment of non-banking finance companies (NBFCs) and cooperative banks within the country itself, smug in the knowledge that the long-arm of the law can never reach out to it.
These institutions are lax in enforcing Know Your Customer (KYC) norms. The absence of a strict regulatory oversight on a par with one obtaining for nationalised banks gives them as well as their depositors freedom from questions on the source of funds.
The tussle between the market regulator, Securities and Exchange Board of India (SEBI), and Sahara has its origins in the alleged dubious deposits. Information emanating from the SEBI gives one the unmistakable impression that a chunk of deposits has been made from non-existent addresses, reinforcing the inference that they are benami.
REAL ESTATE LAW
The Income-tax Act, 1961 till the year 2001, enabled the Department to make preemptive purchases of immovable properties beyond a specified threshold level, that differed from city to city, if it suspected understatement of actual consideration with a view to avoiding capital gains tax. In Delhi, for example, the threshold limit was Rs 75 lakh.
Anyone wanting to sell his property at a stated consideration of, say, Rs 80 lakh had to notify the competent authority of his intention. If the Department got a whiff that the actual consideration was Rs 1.30 crore, with Rs 50 lakh changing hands in cash, it could stump the seller by handing him a cheque for Rs 80 lakh.
The effect was either that the purchaser lost Rs 50 lakh, if he had already paid it through dubious means, or that the seller had to meekly make do with Rs 80 lakh.
The scheme registered a modicum of success while it lasted, but its sudden abortion on the ground that the department was burdened and saddled with unsold properties in a weak market did not cut ice with those in the know.
Whatever the reasons for its discontinuance, the scheme did send a chill down the spines of people in the real-estate market.
IMPOUNDING DEPOSITS
Can something similar be replicated with deposits? There is no reason why the Government should not be armed with powers to notify institutions alleged to be giving a safe sanctuary to black money.
It can ask them to hand over deposits on maturity to an arm of the government. The depositors to whom the money is repayable should prove their identity and source of funds at the time of redemption.
If the institutions concerned are lax in preventing money laundering while inviting deposits, there is nothing wrong in setting into motion a machinery to identify such money at the time of its redemption.
A one-size-fits-all approach, of course, is neither possible nor warranted. Therefore, there may be a cut-off point, as was the case with preemptive purchases of immovable properties under the income-tax law, with a rider that suitable auditing software be put to use to lump together deposits placed in the names of dubious individuals.
The money trapped, so to speak, by the Government from these institutions can be the trigger for a detailed investigation into the generation of black money.
If the dispensation in place has failed to nab black money at the point of entry, there is nothing wrong in nabbing it at the point of exit. Those unable to prove their identity or source will have the mortification of losing the deposits to the government.
ENFORCEMENT ISSUES
The Benami Transactions Prohibition Act, 1988, which has been scrapped now on the promise of introducing a vastly improved law on the issue of benami properties contemplated something similar — all benami properties would be confiscated by the Government. That was a brilliant statement but the one that begged the question —how to identify a benami property in the first place?
The regime suggested herein with regard to deposits addresses the issue in a pragmatic way by placing the onus on the deposit holder. The problem with the aborted benami law was it was excellent in intent, but clueless in terms of enforcement detail.
The proposed regime on deposits would not suffer from this infirmity. Can honest depositors be caught in the crossfire?
That will not happen, because they would be able to identify themselves, besides being able to explain the source. There must be a fast-track window to dispose of their cases.
(The author is a New Delhi-based chartered accountant.)
More youth showing interest in politics, says CSDS survey
New Delhi, April 15:
Of late, the campus slogan "If politics determines your future, it is time you determined your politics" seems to be ringing true among urban youth.
A new report finds that youth interest in politics is rising in India, though it is not yet reflected in direct participation in politics, such as voting and joining a political party.
State of the Urban Youth, India 2012, by Iris Knowledge Foundation, commissioned by the UN Habitat's Global Urban Youth Research Network, comes at a time when momentum is building up for the general elections due next year in India.
The report, which collated various academic studies and data to give a glimpse into India's demographics, recognises the "politicisation" of urban youth, but says that their recognition as a political category is "still only an emerging phenomenon."
"…Youth in towns and cities take more interest in politics now compared to the past. Data indicate that while in 1996 only 43 per cent of urban youth said that they had an interest in politics, in 2011, this number had risen with just a little less than three-quarters of youth (71 per cent) admitting to having an interest in politics," the report says quoting a survey by the Centre for Study of Developing Societies.
In recent times, widespread youth participation was seen in the anti-graft stir led by Anna Hazare, in the protests against the gang-rape in Delhi, in the Telangana agitation in Andhra Pradesh, against the 'custodial' death of a student and the recent vandalism in Presidency College, Kolkata, among others.
Among the major reasons influencing the growing interest of youth in politics is education, economic background, and media exposure, says the report.
Voter turnout
Despite growing interest in politics, the report finds no significant increase in voter turnout among youth.
Interestingly, when asked why they had not voted, the single most important reason given by urban youth was that they were out of station.
Gender divide
However, a gender divide is evident. "Young urban men are more interested in politics than young urban women. About 46 per cent of young urban women are interested in politics as compared to 81 per cent of young urban men," says the report.
Interestingly, the more educated among women seem least interested in politics. "The categories among women which report the highest 'No Opinion' are the college educated and high school-pass women. This is not only in contradiction to men but to the general hypothesis that education makes an individual more likely to have an opinion," it adds.
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