With further rate cuts expected, EMIs are set to fall, writes Sunil Dhawan HDFC Bank cut its base rate by 0.35 percent thus reducing the base rate from 9.70 per cent to 9.35. This appears to be an aggressive move by the country’s largest lender and has certainly taken the market by surprise. Only a few months back, SBI managing director and group executive for national banking B Sriram had remarked “We don't foresee any rate wars, all the lenders are competing with similar rates in similar bands.” But, it seems the race to lower the rates is catching up. Canara Bank has also cut its base rate by 10 basis points to 9.90 per cent from 10 per cent. With festive season nearing, SBI, ICICI and Axis bank too are expected to lower the rates. Borrowers of all kinds including corporates and retail individual stands to gain if rates fall further. The previous base rate reduction happened in June when Axis bank, SBI, ICICI and HDFC all of them cut their base rates SBI’s current base rate is 9.70 per cent, for ICICI its 10 per cent, while for Axis its 9.85. Such variation may not sustain longer and soon a cut may be witnessed in these institutions. What to do: When bank base rates fall, those holding home loan on flexible interest rates benefits as against those holding fixed home loans. Most banks have passed on the benefit of lower base rate to their home loan customers. For someone with an existing a home loan, the benefit can be availed in two ways-- either EMI’s may be reduced or the tenure may be reduced. Banks on their own typically reduce the tenure automatically and thus transfer the benefit of lowering base rate to their customers. Ask your banker, how has the adjustment been done or log on to your home loan account online to see if the benefit has been passed on to your account. If you wish to lower your EMI, you need to contact your banker and submit revised ECS mandate. If the existing loan is nearing completion, the impact of base rate change may not be much. Ideally, if your exiting loan is around three years old, consider switchover or lowering the tenure. The base rate may further witness a fall this year. If you are contemplating switchover, getting a new loan or bringing a change in your existing loan, it could be better to wait a little more. The margin to cut rates still exists and don’t be surprised to see further lowering of rates in near future.
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Public sector general insurers are competing with their private sector counterparts in London markets to bag the $27 million Air India insurance account, which will be up for renewal on October 1, a senior official said. The insurers have to place their bids by September 7 and the national carrier expects its premium payout to fall because of soft reinsurance market. The struggling flag carrier is seeking a $9.6-billion cover for its fleet of over 100 aircraft. Currently, Air India has a cover from New India Assurance for a premium of $27 million, a company official told PTI. Public sector general insurers led by New India Assurance who is the current insurer for Air India and private sector insurers led by ICICI Lombard have visited London market, where Air India held a road show last week, to choose its reinsurers. Large aviation accounts like Air India's get reinsured to the extent over 95 per cent in the London market and general insurers visit London to get reinsurance quotes from leading reinsurers before placing their bids. Both the parties will submit their rates to Air India by September 7 which will choose the insurer which quotes the lowest premium. Though there was no major claim by Air India this year, globally, the recent Indonesian plane crash may have some impact when Air India's cover comes up for renewal, sources said, adding that "otherwise the market remains soft for airlines". Despite some large claims, airlines' insurance cost globally and for domestic airlines, is likely to fall this year due to competition and better risk management practices, Martin Stevans, chief underwriting officer at Global Aerospace, a unit of AIG had told PTI earlier. This would come as a double bonanza for bleeding airlines due to the steep fall in fuel prices after the massive crash in crude prices since the middle of last year. "Despite a rise in volume in aviation insurance business in the country, the overall premia have fallen as the rates have remained soft in the global markets. We do see premia falling further here in the days to come. The reason being that there is too much of competition in the market," Stevens had said. However, he did not quantify the fall in premium cost for the bleeding airlines, which have lost billions of dollars due to accidents and spike in oil prices last year. Stevans had said due to intense competition and better risk management practices by domestic carriers, the premium is set to fall further this year. AIG, which is the largest global aviation insurer with a 15 per cent market share, leads in providing reinsurance business to Air India and Jet Airways. Mounting LossesAir India, which last made a profit in 2007, is expected to report another operational loss for the 2014-15 fiscal year when it announces its results. Once India's biggest carrier, Air India's market share has tumbled to about 15 per cent amid rising competition from nimbler private sector rivals. It is sitting on 500 billion rupees ($7.6 billion) of debt and annual interest costs of $600 million are hampering investment in its revival. The airline received a $5.8 billion government bailout in 2012. The continued modernisation of its fleet, a plan to sell property assets worth $60 million and lower fuel costs should help the airline return to profitability under the new boss Ashwani Lohani this year, Reuters reported citing a senior executive. (Agencies)
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The Reserve Bank of India (RBI) listed State Bank of India and ICICI Bank as the country's two "systemically important banks", lining them up for tougher supervision to avoid collapses that would rattle the financial system and economy.The designation by the RBI on Monday (31 August) is the rough equivalent of the "too big to fail" applied to lenders in other countries, including the United States.The RBI said State Bank of India would now need to set aside an additional Tier 1 common equity of 0.6 per cent of its risk-weighted assets. ICICI Bank will have to maintain an additional 0.2 per cent.The RBI said it will review its list of systemically important banks every year and announce them in August.(Reuters)
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After repeated chiding by RBI chief Raghuram Rajan on banks not passing rate cut benefits to consumers, HDFC Bank today lowered its base lending rate by 0.35 per cent to 9.35 per cent -- the lowest in the industry.The move may trigger a fresh round of rate cuts by other banks as well."HDFC Bank has decided to lower its base rate, or the minimum rate of lending, to the lowest level in the industry, to 9.35 per cent from the existing 9.70 per cent. The new rates will be effective tomorrow," a source told PTI.Currently, the base rate stands same at 9.7 per cent for the country's three largest lenders -- State Bank of India, ICICI Bank and HDFC Bank.In its last monetary policy review on August 4, the RBI Governor had rued that banks have lowered their rates by only 30 basis points despite the central bank having cut its benchmark rate by as much as 75 basis points since January.Rajan has also linked better monetary policy transmission or banks cutting their lending rates to any future rate reduction by the central bank."The central bank will look for more room to ease policy rate pending fuller transmission of rate cuts by banks as they have cut only 0.30 per cent at the median level as against the RBI's cut of 0.75 per cent," Rajan had said.The RBI has lowered its policy rate by 25 basis points each on three occasions so far this year, the first being on January 15, followed by another cut in March. Banks first lowered their rates in April and then in June after Rajan chided them for holding onto higher rates.(PTI)
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The government plans to change the Reserve Bank of India Act before the end of the fiscal year so it can set up a new committee to direct the country's monetary policy, retiring Finance Secretary Rajiv Mehrishi told Reuters.The committee would be comprised of appointees from the government, the Reserve Bank of India, and independent members appointed by the government, but any changes have to be approved by the parliament, which has blocked other government bills."An attempt will be made to bring in by December. If it cannot be done by December, then of course by February," Mehrishi said in an interview, just before his last day in the job.On Monday, Prime Minister Narendra Modi appointed Mehrishi as the top official of the India's Interior Ministry for two years' period.The central bank and finance ministry have been trying to resolve differences over the panel's composition - chiefly over the balance of representation between government and RBI appointees.The finance ministry last month signalled a willingness to retreat from a blueprint that would have ensured its effective control over a seven-member committee.RBI Governor Raghuram Rajan has said the central bank and government have reached a "broad consensus" on the composition of a rate panel, without disclosing details.Mehrishi said the composition of the panel would reflect the views of Rajan, the government and lawmakers, but details would be disclosed first to the parliament."His views have been noted and would be taken into account in making any decision. But what the decision is does not depend solely on the RBI governor," Mehrishi said.The government also plans to set up an independent public debt management agency (PDMA), mainly under New Delhi's control, in the current fiscal year, which ends next March, he said.He said the finance ministry had agreed in principle with the RBI to allow Indian bonds to be settled through Euroclear, the world's largest securities settlement system, as part of efforts to boost capital inflows and deepen the bond market."It is a FEMA (Foreign Exchange Management Act) requirement so RBI has to consult the government," he said. "So we will respond to RBI. I think this week or latest by next week."RBI officials were not immediately available for comment.Rates Out Of SynchMehrishi said the RBI's high policy rate - now at 7.25 percent - was out of synch as it was encouraging inflows of volatile "hot" money into Indian markets."We have to find some kind of (middle way) via media where we do not incentivise the parking of hot money in India," Mehrishi said.Finance Minister Arun Jaitley has called for lower rates to boost domestic demand and investments. However, under a historic monetary policy overhaul agreed to between the RBI and the government in February, RBI Governor Rajan has a specific mandate to control inflation, meaning price stability takes priority in policy making.Mehrishi said high interest rates were putting pressure on companies to borrow money abroad and making government borrowing more expensive.However, he said the central bank was the best judge to decide policy rates which have to be seen from monetary policy perspective as well as liquidity in the market.(Reuters)
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Despite the Reserve Bank of India (RBI) slashing the statutory liquidity ratio (SLR) — the percentage of deposits that banks have to invest in government securities (G-Secs) – over time to 21.3 per cent from 23 per cent, banks continue to hold around 28 per cent (by way of SLR). In its Annual Report for 2014-15, Mint Road explains the reasons for the excess holding of SLR by banks: “… the buffer providing access to collateralised borrowings from the wholesale funding market and the Reserve Bank. Maintaining excess SLR securities also helped banks to weather the impact of the current slow phase of the economic cycle on their balance sheets and earnings”. Simply, put what it means is that bank held excess by way of SLR – that is, they invested higher amounts in G-Secs — as they could pledge them to raise funds from the money markets; and that at a time of dip in asset quality, such investments stood them in good stead. Data on sectoral deployment of credit, which constitutes about 95 per cent of total bank credit by banks, indicate that deceleration in credit off-take in 2014-15 was more pronounced with respect to the industry and services sectors, which together constituted about 68 per cent of total non-food credit. Credit growth in the services sector was weighed down by its major components: trade and non-banking financial companies (NBFCs) that accounted for nearly 48 per cent of the total credit to the services sector. In the industrial sector, growth slowed down across sectors, particularly for infrastructure, basic metals and food processing. The sectors which witnessed lower incidence of non-performing assets such as personal loans saw higher growth during the year. Infrastructure accounts for nearly one-third of the credit to the industrial sector. Its main components are power and roads, constituting 60 and 18 per cent of the total infrastructure credit respectively. While deceleration in credit to the power sector was modest, the slowdown was sharp with respect to roads in 2014-15. Non-food credit growth decelerated sharply in 2014-15 to 9.3 per cent (year-on-year), with incremental non-food credit declining to Rs 5,50,000 crore from Rs 7,30,000 crore in the previous fiscal. A host of factors weighed down on credit off-take, including lower corporate sales, softening of inflation rate, risk aversion by banks due to rise in non-performing loans, and procedural delays in debt recovery. Some in Inc also shifted to alternative sources for financing. Sale of significantly larger amount of non-performing loans (Rs 31,000 crore) by banks to asset reconstruction companies (ARCs) during 2014- 15 also contributed to a deceleration in bank credit. Mint Road’s Annual Report is ominous. It says that viewed in conjunction with other indicators of investment activity such as stalled projects, capital goods imports, production and capex spending, the decline in the private investment intention appears to have become more pronounced in 2014-15 relative to the preceding year. As per the RBI’s data on new projects which were sanctioned financial assistance by banks and financial institutions (FIs) or funded through external commercial borrowings, foreign currency convertible bonds, domestic capital market issuance, investment intentions for such projects aggregated to Rs 14,590 billion during 2014-15 as against Rs 20,810 crore in the previous year. “A turnaround in the investment demand cycle, therefore, assumes critical importance to steer the economy on to a sustainable high growth trajectory. The recent experience suggests that a strong step up in public investment may be required to dispel the inertia constraining private investment and to crowd it in, given the robust business sentiment”, says RBI in its Annual Report. Key to this effort will be putting stranded investments in stalled projects back to work while ensuring the availability of key inputs such as power, land (especially for roads) and skilled labour. Steadfast implementation of structural reforms like the goods and services tax (GST) is also required to reinvigorate productivity and competitiveness. Well, we know that story well.
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When the stock market fall considerably, it becomes all the more imminent to invest more. Not doing so is damaging your portfolio returns. Sunil Dhawan explains how and why As per few reports, there has been increase in the number of SIP’s in the last 12 months compared to earlier period. This is absolutely a good sign for investors and markets too. Retail investors especially those who were recent entrants into the markets felt a big jolt few days back when the markets crashed 1600 points bringing down the NAV’s of their market-linked investments. The one big mistake that retail investors need to avoid is to stop their SIP. On the contrary, it is imperative to not just stay invested but also put in more funds. For all those who opt to sit out without putting in fresh money the damage to their portfolio could be huge. Assuming that the market goes up from here and deliver a return of 15 per cent by end of Aug. next year. For someone who doesn’t put in additional investment, the returns in all likelihood would still be a negative return. Let’s say, you had a fund value of Rs 1-lakh as on August 2014 which gets reduced by 15 percent by August 2015. Scenario I: You do not invest further Market moves up by 15 per cent till August 2016 and your fund grows to Rs 97,750 yielding a negative return of 1.23 per cent over the 2-year period for your portfolio. (August 2014-August 2016) Scenario II: You invest further.Additional investment of Rs15, 000 is made into your portfolio.Market moves up by 15 per cent till August 2016 and your fund grows to Rs 1, 15,000 yielding a break-even return over the 2-year period for your portfolio. (August 2014-August 2016) Any amount above Rs 15,000 (by the amount that has got eroded) is all the more better to increase your overall returns. The calculations are based on the principle of cost-averaging The assumption of achieving 15 percent return over the next year may not hold true, however, pumping in more money to generate a healthy CAGR is all the more essential and is tried to be portrayed. Allocating more funds into the asset class whose returns have fallen is also the part of asset allocation strategy. The approach suggests to buy more of equities when its allocation falls is precisely for this reason. MF and Ulip holders: If you are mutual funds investor, investing more at these levels bring the cost of your funds down as the NAV’s and the stock prices are at lower levels. Keep your investments staggered and keep buying at different levels. However, it is equally important to keep reviewing one’s portfolio to weed out the laggards and add the performers into the portfolio especially after a big fall in market. For policyholder of Ulips, the requirement is passive. The renewal premium does the trick for them. The structure of an insurance product like Ulip is such that it asks for a renewal premium and hence helps in averaging your cost. Renewals help you hold more units at the lesser NAV thus bringing down the overall cost of investments. Whenever markets start delivering returns, the benefit to a low-cost holder of units will be more than someone holding high cost units. One may also use the top-up facility to add funds in the portfolio. End note: It is not the timing rather than the time one spends in the market that will determine the returns. If markets go down from current levels, one needs to keep allocating as per asset allocation approach. After all, the markets are currently at a level on which it was a year back. BSE 100’s 1-year return is a low 1.64 percent. Remember, investment in equities are only meant for goals that are of long term i.e. at least 5 years away. So, now it’s clear as to what an investor should do every time the portfolio returns falls.
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Spooked by the new black money law, a number of Swiss and other European banks have begun asking Indian clients to disclose their accounts to the tax authorities back home as they fear being accused of "abetting" the hoarding of untaxed assets. These banks, which include those headquartered in Switzerland and London, are asking their customers from India, including those having turned NRIs, to avail the ongoing "one-time compliance" window provided by the Indian tax authorities for disclosure of undeclared foreign assets. Besides, these banks are also asking their clients to give fresh undertakings to state that they are "in compliance" with all the laws in their home countries, executives at some of these large financial institutions said. Under the new law, a three-month compliance window has been given for disclosure of all undeclared foreign assets till next month, for which they would need to pay 30 per cent tax and 30 per cent penalty and escape further action. After this window, anyone with undisclosed foreign assets would have to pay 30 per cent tax and 90 per cent penalty and they would also be labile for jail term of up to 10 years. The law also provides for "punishment for abetment". This provision would be applicable to everyone who "abets or induces in any manner another person to make and deliver an account or a statement or declaration relating to tax payable under this Act which is false and which he either knows to be false or does not believe to be true or to commit an offence". The abettor would be "punishable with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine." Seeking to come clean on illicit funds, the Swiss banks, including Switzerland-based arms of some other European banks, have asked their Indian clients to provide fresh undertakings to ensure that untaxed money is not stashed in their accounts. 'Clean Status'Swiss banks, long perceived to be safe havens for parking unaccounted funds, have also started asking for auditor certificates from high net worth individuals and corporate clients to vouch for the "clean status" of their money. India is aggressively making efforts to bring back illicit money parked by its citizens overseas and Switzerland has also agreed to cooperate on the issue. Sources said that Swiss banks are asking their Indian customers to provide fresh undertakings that all taxes have been paid on funds deposited by them in these accounts. Such directives are believed to have been issued to high networth individuals, wealth management and portfolio management clients, sources said. Indian authorities are already pursuing cases related to its citizens who had kept unaccounted funds in HSBC's Geneva branch, after receiving a list of names from the French government few years back. HSBC was asked by the Indian authorities to show cause why action should not be initiated against it in case of non-cooperation with regard to "suspected tax evaders and offenders of tax crimes". The latest on these notices could not be ascertained. HSBC has come under regulatory cross hairs in multiple jurisdictions including India, following an expose that revealed thousands of entities allegedly parked their illicit funds at its Swiss branch. To curb the black money menace, a Supreme Court constituted special investigation team is probing various cases while the government would soon be coming out with a stringent that provides for hefty penalties as well as imprisonment for stashing away unaccounted money. Efforts are already underway in India to bring to book those who were named in the HSBC list and against whom the Indian government has garnered evidence. Switzerland is also moving towards automatic exchange of tax information with various jurisdictions, including India. Indian and Swiss officials have also held high-level deliberations on boosting co-operation with regard to the black money problem. (PTI)
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