With inflation under control, lending rates will gradually come down as India is moving towards softer interest rate environment, largest private sector lender ICICI Bank CEO Chanda Kochhar said on Tuesday (18 August). ICICI Bank was the first lender to start cutting base lending rates, she said adding "a lot of transmission" of monetary easing to borrowers has already happened. "... directionally we can say that a lot of factors and parameters have come under control, whether it is in current account (deficit) or fiscal side. Inflation is coming under control. So overall we are moving towards a softening interest rate environment," she said. Kochhar added "clearly a lot of transmission has happened because if you see when the monetary policy rates gets cut then the deposit rates fall and the deposit form a only part of cost of funds for the banks." She said 30 basis points (0.30 per cent) rate cut has already happened "which is quite in line with the reduction in the cost of funds." The Reserve Bank of India has cut its benchmark rate by 75 basis points to 7.5 per cent in three tranches so far this year. At the bi-monthly monetary policy earlier this month, RBI Governor Raghuram Rajan wanted banks to transmit more interest rate cuts to borrowers before he further eases monetary stance. "Not only we were the first ones to cut rates we had actually cut them by a much larger amount than any other bank," Kochhar said. She said "gradually as cost of funds keep going down you would see interest rates coming down. Directionally, definitely we are in a softening environment but when and how much that is not something we can say.
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Most working couples do not feel the need of life insurance as they don’t find themselves financially dependent on each other. But is the approach right? Sunil Dhawan explains In today’s world, there are lot of working couple earning a decent living and largely independent of one another when it comes to finances. And one thing they want to stay away from is any kind of insurance. Most upwardly mobile professional working couples refrain from buying insurance citing reason that they both are earning and not dependent on each other. But does it work? Let’s see. The need still exists: When both couples are working and there’s an eventuality with either of them, the surviving member may get burdened with all the liabilities and loss of a source of income. Irrespective of a dual income household, it is important for the couple to be adequately insured as both are contributing financially towards the household expenses. When working couples use their income jointly for the household requirements then a loss of any one member’s income could disrupt the plans. How it helps: There could also be dependent parents at home requiring financial if not just moral support. The long-term goals of children would also require attention and ensured that they don’t get derailed. If there are home loans being serviced, the liability may get added. All this needs a protection plan in place to ensure that the entire burden does not come upon a single earning member. Further, for life to come into a certain rhythm (even financially) in the absence of the other member takes time, thereby the need to have life cover. How much: The amount of protection when both spouses are earning would depend on their earnings. If both are working and are earning enough so that each individual salary is equal to about 75 percent of the living expenses then there is no need for life insurance as long as there are no loans outstanding. If loans are outstanding, adequate insurance cover must be taken to cover loan components. This cover should be taken equally for both to cover the entire loan amount. This is to make sure that in case of the demise of any one of the individuals the survivor should have no loans remaining. What to do: Look closely at the investments earmarked for long term goals such as for children. See, who is funding them or its getting shared by both. Accordingly, plan for it. But, what in case the earnings vary a lot among both. In that case, member with higher income should buy insurance so that family can survive in spite of the higher income being no longer available. Ideally, it should be at least 10 times of annual income. Life is uncertain and protecting it financially even for working couples is best met through term insurance plan that are low-cost, high cover plans. Both members can buy protection covers preferably those plans that come with joint life option.
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Singapore-based wealth managers, already under pressure from a global move towards tax information sharing, face a more immediate threat as Asian countries including Indonesia and India look to chase undeclared money in the low-tax city state. A global crackdown on tax evasion launched during the 2008 financial crisis has already forced Switzerland and other European offshore hubs to surrender their prized bank secrecy. Like those centres, Singapore has committed to automatically start sharing information with foreign tax authorities from 2018, in line with an agreement signed by more than 51 countries last year that seeks to put an end to tax evasion. But Singapore banks face a more urgent challenge. Indonesia, Singapore's main source of wealth assets, is considering offering a tax amnesty to individuals willing to repatriate funds from abroad - targeting $225 billion Jakarta says is parked in Singapore alone. "Indonesia accounts for 30-50 percent of business for private banks in Singapore," a Singapore-based banker at a top global wealth manager told Reuters. "Clients are worried and asking about this, (while) accounting and legal firms are pitching to help clients structure their transactions," said another banker. Both declined to be named due to client confidentiality rules. The second banker said one client was considering whether to pass his wealth directly to one of his children, who is in the process of taking Singapore nationality. Singapore, Asia's second-largest offshore centre by assets behind Hong Kong, has thrived as a banking centre due to its political and economic stability, low taxes and rule of law. It manages $470 billion of private client assets, Deloitte data show. Singapore's central bank has said it has a rigorous regime to combat money laundering and is ready to take tough action if there are breaches. Sources said Monetary Authority of Singapore (MAS) officials have been asking private banks if they have heard any client concerns about the exchange of information mechanism. The MAS didn’t comment. The finance ministry noted that Singapore would need to sign bilateral agreements before any automatic data sharing, and those deals would depend on partner countries having a "robust" legal framework to maintain information confidentiality and "confine its use to tax purposes", a ministry spokeswoman said. Italian ModelSeeking to recoup funds it first bled in the aftermath of former president Suharto's government, Jakarta is looking to introduce a tax amnesty, but has given no timetable for this. "The idea is to first prepare the legal framework," Suahasil Nazara, who heads the fiscal policy office, told Reuters. The planned amnesty, private bankers say, is modelled on a successful but controversial Italian tax scheme that helped Rome recoup billions of euros unlawfully parked in Switzerland against the payment of a modest penalty. This system, which was criticised for allowing tax evaders to come clean without too much pain, is a faster way to recover funds than wading through a myriad of tax and bank data. Pressure MountsIndia, too, is trying to turn up the heat on an estimated $340 billion of undeclared wealth by its residents. The Securities and Exchange Board of India (SEBI), the market watchdog, has asked international private banks to register their offshore units with it if they are soliciting business in India, a Reuters report revealed earlier this month. If banks agree to register, they could be targeted by requests from SEBI to disclose client information. "These changes will certainly make things more complicated for wealth managers. (They) will have to factor in every high net worth client's residence and domicile," said Mark Wightman, a partner for wealth & asset management at EY Advisory. For local banks in Indonesia and elsewhere, the pressure on Singapore is opening up opportunities at home. "The hope is that with the tax amnesty, more funds will be returned to Indonesia," said Jahja Setiaatmadja, president director of Bank Central Asia, Indonesia’s biggest bank by market value. For Singapore-based banks, the move towards data sharing means radically changing a model that had been mainly based on their ability to offer strict client privacy in a low-tax environment. Swiss wealth managers including UBS and Credit Suisse were fined by U.S. regulators for allowing clients to deposit untaxed money, and still face lawsuits elsewhere. "Everybody's in limbo right now," said a senior banker in Singapore. "Clients are scared about opening new accounts and asking whether certain structures work." Experts believe Singapore could continue to be an attractive centre thanks to its strong legal system, security and a deep talent pool for wealth services. "The days of undisclosed assets being held offshore will, in time, become a thing of the past," said Wightman. (Reuters)
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Sunil Dhawan says sector funds including banking funds suits those with high risk appetite and needs regular tracking of sector developments. The banking sector sectors especially the PSU pack were on a roll on Monday (17 August). Understandably so, as the private banks were being preferred by the market for long. Some recent measures taken by the government including that of capitalisation of PSU banks and the announcement of the seven-pronged PSU banks' revival plan ‘Indradhanush’. The markets reacted positively to these long-awaited measures for the growth of PSU banks. Capital infusion by itself may not help as has been seen in the past. Revamping management and governance in PSU banks also needed to happen. Both these steps concurrently may put some things in right place but the biggest concern of banking sector that of high and rising levels of non-performing assets (NPA) still remained unanswered by these measures. The government could deal with the NPA’s issue separately. Whether the reforms package would change banking sector fortunes is not known but the markets reacted positively. CNX PSU BANK index was up by nearly 6.19 per cent with all 12 stocks ending up. Bank of Baroda and Canara bank rose in double digits clocking 14.99 and 12.87 percent respectively. For individual investors, it’s always recommended to participate in the equity markets through mutual funds. Tracking a sector and within it understanding as to how each company works is not something an individual will have the time and acumen to lay hands on the winner. Every stock, every bank has its own story and functionality. Therefore, sticking to diversified mutual funds helps to meet long term goals. However, a portion of one’s portfolio can be put into sector specific funds. A word of caution: The contours of a sector may change in a matter of days especially due to external factors such as economic policies, governmental change in rules and guidelines etc. impacting the fortunes of the entire sector and not just few companies within it. Hence, the risk-return equitation is the high in sector funds. For all those looking to embrace such high risk, a look at Banking Sector mutual funds. There are two such banking sector funds available as ETFs. Kotak PSU Bank ETF with an expense ratio of 0.49 per cent and GS PSU Bank BeES with 0.51 per cent were up nearly 4.5 per cent today. Banking sector in India being the lifeline to economic activities, accounts for more than 80 per cent of funds flowing through the financial sector interlinking all financials services including post offices, mutual funds, and insurance, lending activities to retail, institutions and small enterprises amongst others. For the economy to turn corners, banks play a vital role. The credit off take in the recent years for the banks, however paint a different picture. With banks loaded with NPAs, when their capital gets eroded, they are left with o much less money to lend. The government therefore capitalise banks which has been recently announced. Government is s providing Rs 25,000 crore each in the current and next fiscal year, while Rs 20,000 crore would be provided during 2017-18 and 2018-19 in a bid to boost capitalization of public sector banks. The downside: What matters the most in banking sector funds is the NPA. According to Economic Survey, 2014- 2015, gross NPA increased from 4.1 per cent (March 2014) to 4.5 per cent (September 2014). Keep an eye of the level and act accordingly. The credit off take is on the slide. Unless it picks up, banks profitability will remain low. Other industries performance as per recent corporate earnings, hasn’t been exciting too. What to do: If one is optimistic about economy by expecting it to do well over the next 2-3 years, banking sector funds should be a part of the portfolio. Choose funds that a have a mix of PSU and private sector banks. Most such funds are heavily invested in ICICI, HDFC bank and AXIS bank so choose carefully for diversification. One may even consider Bank ETF’’s that come at less than half of what it costs in terms of expense ratio compared to offline MF’s. Finally, do not go overboard and invest not more than 10 percent of your portfolio in banking sector funds only though SIP in such funds.
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North Block’s strategy to rehaul the affairs at state-run banks is commendable, but execution will be the key, says Raghu Mohan Raghu MohanThe first step came almost a week ago when it was announced that the Centre will infuse Rs 25,000 crore each during fiscal’s 2016 and 2017; and Rs 10,000 crore each over the next two fiscals. Last week (Friday), it said that the infusion of Rs 20,088 crore into thirteen state-run banks will be done in a month's time with the State Bank of India guzzling Rs 5,531 crore. The urgency is reflective of the precarious situation at several of these banks which are capital deficit ahead of Basel-III implementation which kicks in from fiscal 2019. Ananda Bhoumik, Managing Director & Chief Analytical Office, India Ratings & Research points out that while most state-run banks will be relieved at the end to uncertainty on the government's contribution, these banks will need to raise an additional Rs 15,000 crore from the equity market together with Rs 40,000 crore in bonds (additional tier-1 bonds) during the year. “In addition, our research suggests provisioning gap due to overleverage in distressed corporates, which may need to be filled in by equity. It is, therefore, imperative for these banks to improve performance and market valuations”, says Bhoumik. The issue of distressed assets in banks can’t be taken care of by mere provisioning – that's mere accounting for bad debts. To get back these assets in to “working” mode much more needs to be in the realm outside banking at the policy implementation level – they pertain to fuel supply, the poor state of discom’s financial health; and issues akin in aviation, steel and infrastructure. Until, these bottlenecks are resolved, recapitalising banks may turn out to be an exercise that throws good money after bad. Mint Road’s estimates had put the total amount of capital – equity and non-equity – for Basel III at closer to Rs 5 lakh crore; it is a dynamic numbers and depends on a whole range of factors – credit growth, dud loan provisioning and the technicalities under Basel III. Raman Uberoi, Business Head-CRISIL Ratings (Large Corporates) qualifies that “success will depend on relentless implementation, and staying the course no matter the obstacles. What’s encouraging is that the government has hit the ground running”. It was pointed out that conceptually, Indradhanush takes cognisance of both internal and external factors that influence the performance of state-run banks. The internal ones are better governance, greater efficiencies and a performance evaluation framework that incentivises management focus on capital conservation and credit rating. The external factors are linked to legal, recovery and dispute resolutions such as coercing promoters to sell non-core assets, setting up fraud resolution processes and six new Debt Recovery Tribunals, and enhancing the role of asset reconstruction companies. “We believe the clear timeline given for the setting up of a Bank Board Bureau and the announcement inducting professionals as non-executive chairmen will eventually drive qualitative changes in governance, strategy formulation, capital efficiency, and human resource practices. And allowing bonus and stock options for senior management will make public sector banks competitive and go a long way in attracting right talent”, adds Uberoi. The steps announded by the Centre is a summation of what has been articulated over time; just that it has been put in a neat capsule. On paper, Indradhanush looks as impressive as a rainbow; but it all depends on execution. A failure here can make it a rainbow chasing effort!P.S. Mission Indradhanush was to immunise kids against seven vaccine-preventable diseases. The latest one is to immunise banks!
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Creating separate portfolio for each goal will make your financial planning have a smooth ride, says Sunil Dhawan Most of us might not be financially savvy. We won’t even have a plan to meet short-medium-long term goals. In the absence of a plan, the expenses incurred or the investments, both are largely on ad-hoc basis. Withdrawals from existing investments at the time of need could happen towards household or big-ticket purchase, thus jeopardising long term goals. For many of us, buying and selling of MF units based on market conditions and thus trying to timing the market happens. This is mainly because no earmarking for funds is there. If goal is longer, and funds are set aside irrespective of market conditions, the investments will continue and client won’t break investments. The need to create separate portfolios arises because not all goals are of the same tenure. Some like owning a home might be 3-5 years away while others like kids’ education may be 10 or even 15 years from now. Even kid’s marriage expenses might have to met about 15 years down the road. The retirement similarly may be 30 years in the horizon. When the tenure of arriving at the goal is not same, the kind of assets one requires to reach there differs. What’s the benefit: Creating separate portfolios helps in clearly identifying the expense head. How much is required to be saved till what period is well-defined. There’s no overlap or duplication of portfolio. Most importantly, over or under deployment of funds towards that goal is largely taken care of. Investments towards each goal continues concurrently and hence reaching them is easy. Also, one doesn’t run the risk of overdrawing for the nearest goal leaving less for later goals. For instance, if one withdraws too much from child's education, the retirement goal could be jeopardised. Creating separate portfolios also helps to track progress during the review process. One might have to take corrective action then by either increasing investible amount or adding or deleting certain laggards from the portfolio. While creating separate portfolio, actuals amount is arrived at and no estimating or approximation happens. Exact amount gets to be known. Even inflation is taken into account. This helps to know exactly how much is required to be saved. Role of assets: Over a longer tenure, equities as an asset class has historically outperformed all other asset classes and delivered higher than inflation returns. However, because of its volatile nature, goals that are to be met over medium term need less of equity and more of debt. Debt assets which include bank fixed deposits, post office savings products, bonds are less volatile thus helps in preserving capital. The risk of erosion of capital is less. Each asset has its specific risk-return matrix and hence a mix of them works better in achieving most of the needs. Further, while choosing products within each asset-class, consider distinguishing features like liquidity, basis and taxability of returns, lock-in of funds among others. End note: Even while one creates separate portfolios, it’s important to cover risks at the same time. The risk of dying early and derailing the goals like children’s expenses may fall back on the family members. Get a pure term insurance plan for adequately providing for all the future goals.
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India has brought in private sector executives to run two of its largest state-owned banks, the first such appointments in a broad reform plan to shake up the country's dominant but often inefficient government-backed lenders. Earlier this year, the government announced steps to overhaul its state banks, including the appointment of five new chief executives, with applications welcome from both public and private sector candidates. The government hopes these changes can help the banks to improve governance and boost earnings, important measures as they prepare to tap the markets for capital to strengthen their balance sheets. The move also fits with Prime Minister Narendra Modi's preference for modernising the management of state-run firms, rather than privatising them, a policy he honed in his home state Gujarat where he made failing state industries profitable. India had previously always picked bosses for public sector banks from the state sector, which makes up more than 70 percent of the country's banking assets but has lagged private rivals in profitability and has amassed bad loans at a faster pace. India's banking sector, dominated by more than two-dozen state-run lenders, has been hobbled by its highest bad-loan ratio in a decade as slower economic growth hurt companies' ability to service debt. The government on Friday named Rakesh Sharma, head of private sector bank Laxmi Vilas Bank, as chief executive of Canara Bank Ltd, and appointed P.S. Jayakumar, chief executive of real estate developer VBHC Value Homes Pvt Ltd, as head of Bank of Baroda. It also named chief executives for Bank of India, IDBI Bank Ltd and Punjab National Bank from within the state sector. In addition to senior jobs, financial services secretary Hasmukh Adhia said that the government was also considering allowing public sector banks to hire mid-level executives from outside the state banking sector. "We are very hopeful as the process unfolds that we will have other really, really good people coming in and being part of the public sector," junior finance minister Jayant Sinha told CNBC TV18 network. The bank reforms, expected to help to revive India's sluggish growth, also included more details of a so-called bank board bureau that will help state banks with strategies for growth and development. They were announced following a parliamentary session in which Prime Minister Modi's reform agenda suffered a setback on important tax and land reforms.? The finance ministry on Friday also reiterated its plans to provide public sector banks with more capital. These include providing 250 billion rupees ($3.9 billion) each in the current and next fiscal year, while 200 billion rupees would be provided during 2017/18 and 2018/19. Of 250 billion rupees allocated for this fiscal year, about 200 billion rupees will be allocated to 13 state lenders soon, a ministry statement said. The allocation of remaining 50 billion rupees would be decided in the March quarter. The country's big six banks, State Bank of India (SBI), Bank of Baroda, Punjab National Bank, Bank of India, Canara Bank and IDBI, will get 146.8 billion rupees ($2.3 billion), the ministry said. (Reuters)
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The Rohatyn Group has sold its stake in Sharekhan, India's leading online retail brokerage, to French bank BNP Paribas, according to a source familiar with the deal, marking the latest in a series of sales of investments from a portfolio the private equity firm bought two years ago. No terms could be obtained for the deal but Rohatyn, which invests about $5 billion exclusively in emerging market assets, has realized roughly $2 billion on sales of investments from its portfolio over the last 12 months, the source said. BNP Paribas was not immediately available to comment. A spokesman for Rohatyn declined comment. The Rohatyn Group, run by Nick Rohatyn, the son of legendary financier Felix Rohatyn, bought Citigroup's emerging markets fund in December 2013 when the bank was forced to shed assets to comply with new financial rules. Analysts at the time considered the Citi portfolio largely illiquid, but Rohatyn has made seven exits - or sales - since then. Most recently, the firm sold Egypt's Amoun Pharmaceutical Co to dealmaking powerhouse Valeant Pharmaceuticals and before that it sold a stake in Bulgarian drug company Huvepharma to Advance Properties. The fund's outstanding investments have increased 15 percent from the time the portfolio was acquired to the spring of 2015. That compares with a loss of 2.8 percent for the MSCI EM Index. The exits have had an internal rate of return of 17 percent over the fund's eight-year life, according to the person familiar with the deal. (Reuters)
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