For most individuals, life insurance is the first step towards financial planning. However, many of us end up confusing life insurance products with investments products.Sanjiv Bajaj, managing director of Bajaj Capital and Balwant Jain, chief financial officer of Apnapaisa, a price and features comparison service for loans and insurance products, explain to Businessworld's Tanushree Pillai the different kinds of life insurance products available and the benefits and pitfalls of each. What are the kinds of life insurance products that are available for investors?Bajaj: The life insurance market has evolved tremendously over the last ten years, as there is a wide range of life insurance products which are available for investors now. These include Child Plans, Endowments, Retirement Solutions, Ulips, Term Insurance Solutions and Monthly Income Plans.Jain: First of all, life insurance products should not at all be treated as investment products. One should always separate insurance and investment. Typically, these are the types of products in insurance sphere:1) Term plan2) Traditional Plans 3) ULIP plans How are all these plans different from each other?Bajaj: The various life insurance products differ from each other on the basis of the risk appetite of the client, as to who can choose between unit linked (ULIP) versus non linked products. Also, based on the risk cover requirement, an investor can go for a low-cost term insurance solution or a mix of protection and investment through endowment solution. Child insurance is unique in itself because it often offers a feature called Built in Waiver of premium benefit which assures that in the event case of any mishap with the parent, the child's investments are not frozen or stopped in between. Rather, the insurance company on behalf of the deceased parent would contribute the premium on the due date so that child's financial goals are achieved as it is.Jain: a) Term plan: These are pure insurance products where only the risk is covered. These plans are available for a certain number of years (up to which the risk is covered).There are variations of this as well. A pure term plan is where if the insured person dies during the period of insurance, his nominees get the insurance money. However, in case he survives the term for which the insurance policy is taken, then he does not get anything.Then, there are ‘return of premium policies', where the premium paid is returned without any addition/bonus to that. There are single premium polices we well.These pure terms plans are available both online and off line. Online term plans are cheaper by around 35 per cent as compared to off line plans bought through agents.b) Traditional Plans: These are saving cum insurance plans and thus have higher premium. Historically they have given returns of around 5.5 per cent in the past. These consist of: 1. Whole life polices - money is payable after death of insured person. 2. Money back policies - you get your money back periodically.3. Endowment plans like child plan - money is paid at the end of the term chosen by youThen, there are ULIP plans which have higher component of saving and lower portion of insurance - it is long term product.What are the benefits and pitfalls of each of these products? Bajaj: Endowment is usually bought for a fixed tenure with the objective to receive a lump-sum on maturity to meet one of the financial goals. Being a traditional product, the investment is primarily debt based & hence the investor can expect between 6-8 per cent return only. However, investors are assured of a minimum return called sum assured which is prefixed at the beginning of the policy.Ulips are very flexible investment cum protection solutions where the client has choice in the form of fund allocation, risk cover multiple & transparency in investment returns. But being unit linked, there is no minimum assured return guarantee to the investor & hence he needs to take his own decision on choosing the asset allocation to get the desired returns.Child Plans: There is no replacement for this kind of policy because of the features mentioned above which insures continuity of investment for a child even on demise of the parent. Child products can be bought either as unit link or through traditional versions.Term Insurance Solutions: Term Insurance is the basic form of life insurance bought with an objective to meet the risk cover requirement of an individual.Broadly two types of Term Insurance Solutions are available: With Return of Premium and Without Return of Premium. Pure Term Insurance, which doesn't return anything on maturity, is the cheapest but by adding a little more, one can convert Pure Term into With Return of Premium Solution. The biggest advantage of With Return of Premium Term is that it offers the features like "No Lapse Guarantee" which means that in the situation of the client's inability to pay the premium, his risk cover would get proportionately reduced for the remaining term as against the lapse of a policy in case of the normal term plan.Monthly Income Plans (MIPs): These are the latest and one of the most sort-after products in the life insurance space as they offer guaranteed regular income to the investor for a defined period after he has initially contributed for few years of premium. Since they offer a guaranteed, tax free income, they are ideal for retirement solution or buying a second income for professionals.Jain: Except pure term plan, we would not advise any other product as the returns are abysmally low. Advice to buy only term plan can be taken as rule from us - there are no exceptions to this rule.What should an investor look for before buying a life insurance product?Bajaj: Before buying a life insurance policy, one should contact a financial advisor to help him ascertain his protection needs and investment needs like child education and retirement. Based on this, he should choose between the various type of products mentioned above and also choose the product based upon his risk taking appetite i.e a unit link versus guarantee based traditional plans.Jain: First of all a person should buy an insurance only and only if someone else is dependent on him for financial support. Hence, a student or housewife should not buy any life insurance. However, health insurance for them is a must and one should buy health insurance for all the members of the family irrespective of the age of financial dependency.What should an investor be wary of before buying life insurance?Bajaj: Discipline of staying invested is the key to any life insurance product. Hence an investor should completely satisfy himself as to the requirements and once he has committed to the product, he should stick to the commitment for the full term.Jain: One should get his insurance needs assessed by a professional based on his present living standard, present age, the age at which one wants to retire, number of dependents, life expectancy level. We suggest a person should get his insurance needs assessed through a Certified Financial Planner - one should be adequately insured, neither less nor more.One should buy his insurance term so as to co-terminate with his retirement age. Once a person retires and stops earning he does not have to have any insurance as financial dependency of the family comes to an end.What are the common mistakes that investors make while buying life insurance?Bajaj: The biggest mistake one does while buying a life insurance product is that he buys from the tax saving perspective whereas it is the incidental benefit and should not be the only base in forming a decision. One has to align his financial goals with the life insurance product he is buying. Worldwide majority of the long term savings are primarily done through the life insurance route.Jain: Not disclosing material facts while filling up the insurance proposal form. Normally the insurance agent proposes and fills in the proposal form.One should fill in all the details himself in the insurance proposal form. One should disclose the facts correctly and honestly. Even a small mis-statement on your part can jeopardize the claim in the eventuality of the death of insured.One should not mix insurance and investment at all.If one does not understand investment, there are very simple products like PPF and post office small saving products which combined with term plan will give you better returns any day.
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The rupee bounced more than 1 per cent on Wednesday after suspected RBI intervention, a day after the currency had slumped to an all-time low, but global risk aversion meant the Indian unit would remain under pressure in the near term.Foreign funds have been pulling out of shaky stocks over the past week and oil refiners who import about three-quarters of India's crude consumption have been heavy buyers of dollars in recent sessions.The rupee rebounded as much as 1.7 per cent to 51.70 per dollar from the day's low of 52.60 after state-run banks, who often act on behalf of the Reserve Bank of India (RBI), were spotted selling dollars."Lots of selling from state-run banks ... it has to be the RBI, no one else would sell like this," a senior dealer with a foreign bank said.RBI Governor Duvvuri Subbarao, reached by reporters in Hyderabad, declined to comment.Sudarshana Bhat, head of foreign exchange trading at state-run Corporation Bank, said market talk that a separate window would be opened by the RBI for oil refiners to buy dollars directly also led to unwinding of long dollar positions by large companies.By 11:30 am (0600 GMT), the rupee pared the rise and was trading at 52.02/03, 0.5 per cent stronger than 52.2950/3050 at close on Tuesday when it had hit a record low of 52.73 during trade."Today's recovery only seems like a temporary relief for the rupee," Bhat said. "Everyone from the finance ministry, government officials as also central bank officials are talking about the rupee off late, but we need to see what steps these regulators actually take."Risks RemainThe Reserve Bank has always maintained that it does not protect any particular level on the rupee and would only intervene to iron out excessive volatility.Subbarao had said on Tuesday the RBI was watching the situation and would ensure the exchange rate does not impair economic stability.Finance Minister Pranab Mukherjee on Tuesday blamed the fall in the rupee on the international market and said that central bank intervention would have a limited effect.Sensex was trading down more than 1.5 per cent on gloomy global economic outlook adding to slowing domestic growth.Foreign funds have sold more than Rs 2,340 crore worth of shares over five trading sessions till Monday, reducing the net inflows in 2011 to under Rs 1,560 crore, sharply below record investments of more than Rs 150,800 crore seen in 2010.Exposure to short-term portfolio flows, a rising oil import bill and worsening government finances have heightened the risk for the rupee, Asia's worst-performing currency this year.The rupee has lost 14 per cent of its value in 2011 to be the worst performing currency in Asia with the closest second being the Thai baht, which has lost only 3.5 per cent."I think the rupee may stabilise around current levels. It may head back towards 52.5 in the near term but if we see a bounce back again from those levels, then 51.50-52.50 could be the near-term range," Corporation Bank's Bhat said.(Reuters)
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Amid concerns over a slowdown in economic expansion, a research report has said that a fall in the growth rate to 7 per cent could drag the stock market benchmark Sensex to as low as 14,500 points by next fiscal.The report by global financial services giant Deutsche Bank, however, asserted that the long-term growth prospects of the Indian economy remained intact and an average growth rate of 8 per cent was expected in the next two years.But, factors like weakness in the investor expectations for the country's economic expansion and corporate earnings growth could nudge the investment community into a cautious posture.Seeking to evaluate the impact of any slowdown in economic growth rate on the stock market, Deutsche Bank said that a fall in GDP growth rate to 7 per cent in the next fiscal (FY2012-13) would result in a corresponding fair value range of 14,500-16000 for the BSE Sensex.The Sensex is currently trading near 17,500-point level and has not slipped below 15,000 points for more than two years, or since August 2009.The index had traded over 21,000-points in November 2010, but has been sluggish for past few months and touched its 52- week low of 15,745.43 points about a month ago on October 4.The country's economic growth has averaged 8.4 per cent over the past five years. Barring the global financial crisis period of 2008-2009, the average growth rate for past five years has been 9 per cent.Deutsche Bank said that India's position as one of the most rewarding market across the world in the past five years could see some value-erosion in the event of slower GDP growth and declining corporate earnings growth rates."Over the past few months we have seen a 260 basis points compression in India's PE (price-to-earnings) valuation, driven by rising risk aversion (due to global factors) and worries over policy uncertainties," it added.The market has witnessed heavy volatility in recent past and the Sensex has registered a dip of over 14 per cent so far this year and has fallen by about 17 per cent from its 52-week high of 21,108.64 points scaled on November 5, 2010.Deutsche Bank said that the risks were growing for a slowdown in the country's medium-term economic growth trajectory towards 7 per cent, due to concerns over policy uncertainties, conflicting demands and compulsions of a popular democracy and India Inc's growing despondency.However, these risks would decline considerably if global commodity prices cool down and policy actions are undertaken for addressing supply-side bottlenecks in coal, preventing any runaway increase in fiscal deficit and there was an improvement in India Inc's business confidence and inclination to invest.
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The Reserve Bank of India cut cash reserve requirements for banks by 50 basis points on Tuesday to ease tight liquidity, signalling a policy shift towards reviving growth after nearly two years of fighting inflation.The 0.5 percentage point CRR cut will inject Rs 32,000 crore into the system, but the measure may not lead to immediate reduction in EMIs for borrowers.With core inflation still stubbornly high, the RBI as expected left its policy repo rate unchanged at 8.50 per cent for the second consecutive review.While RBI "shifted" the policy stance from inflation to growth which faces downside risks, borrowers reeling under high interest rates can draw solace from the announcement that "future rate actions will be towards lowering them".However, the interest rate cut (repo rate) would depend on the government disciplining its expenditure, RBI said.The central bank had raised rates 13 times between March 2010 and October 2011, which made it one of the most hawkish central banks anywhere.Addressing concerns over decelerating growth, upside risks to inflation and tight liquidity conditions, the central bank has left banks with more resources for lending through CRR cut, which will come into effect from January 28."The growth-inflation balance of the monetary policy stance has now shifted to growth, while at the same time ensuring that inflationary pressures remain contained," RBI Governor Duvvuri Subbarao said in his policy statement.Despite a sharp reduction in food prices, RBI took a cautious view and refrained from reducing interest rates."Based on the current inflation trajectory, including consideration of suppressed inflation, it is premature to begin reducing the policy rate," RBI Governor D Subbarao said adding March end inflation would be 7 per cent.RBI lowered growth projection for 2011-12 to 7 per cent from 7.6 per cent in view of global slowdown and domestic policy constraints. The new CRR rate would be 5.5 per cent.The stock market reacted positively to the policy announcement and the banking stocks, in particular, shot up.Subbarao warned that unless the government contains its fiscal deficit, rate cut is not possible. "In the absence of credible fiscal consolidation, the RBI will be constrained from lowering the policy rates...the forthcoming budget must ...begin this process in a credible and sustainable way".Bond, Swap Markets HappyBond and swap markets initially applauded the cut in the cash reserve ratio (CRR) before disappointment that there was not definitive guidance on a policy rate cut pushed bond yields and swap rates higher. The BSE Sensex, however, was sharply higher, rising as much as 1.66 percent on the day, powered by bank shares."RBI has clearly said growth concerns have come center-stage despite lingering inflationary pressures," said Sumedh Deorukhkar, senior economist at BBVA in Mumbai, who expects a 25 basis point cut in the repo rate at the RBI's next review on March 15 and a combined 150 bps in cuts by the end of 2012.Expectations had grown in recent days that the RBI would cut the cash reserve ratio, the share of deposits banks must hold with the central bank. The cut on Tuesday lowered CRR to 5.50 percent and releases 320 billion rupees of liquidity into the banking system.Inflation Worry PersistsThe RBI kept to its hawkish stance long after most central banks shifted their focus to growth, as inflation in India remained high due to elevated food prices, infrastructure bottlenecks, and an expansionary fiscal policy that pushed up rural spending power and strained government finances.Annual headline inflation, measured by the wholesale price index, slowed to a two-year low of 7.47 percent in December, thanks to a sharp decline in food inflation.However, manufactured product inflation edged up from the previous month, and the RBI said in a report on Monday that the two drivers of rate policy will be core inflation and the impact of exchange rate changes on inflation.The 16 per cent drop in the rupee in 2011 has made imports even more expensive."Our sense is that the cut in cash reserve ratio is a reaction to the acute liquidity deficit that is persisting. As far as the inflationary situation is concerned, it has not materially changed apart from some softening in food prices," said Sujan Hajra, chief economist at Anand Rathi Securities.Subbarao reiterated his call for more fiscal discipline from New Delhi, which is widely expected to fall far short of its deficit-cutting target for the current fiscal year."In the absence of credible fiscal consolidation, the Reserve Bank will be constrained from lowering the policy rate in response to decelerating private consumption and investment spending," Subbarao said in his report.C. Rangarajan, chairman of the prime minister's Economic Advisory Council, told TV channels that the RBI should cut interest rates only when there are definite signs of non-food inflation easing.As expected, the RBI lowered its GDP growth forecast for the fiscal year that ends in March to 7 per cent from 7.6 per cent, and left its wholesale price index inflation target unchanged at 7 per cent for the end of the fiscal year in March.Asia's third-largest economy grew 8.5 per cent in the previous fiscal year. The RBI said it expected a "modest" recovery in growth in the fiscal year that starts in April, and said that while inflation may ease, price pressures persist."Upside risks to inflation arise from global crude oil prices, the lingering impact of rupee depreciation and slippage in the fiscal deficit," it said.CRR SignalTuesday's CRR cut should be seen as a signal of easing intent, Subbarao said."The reduction can also be viewed as a reinforcement of the guidance that future rate actions will be towards lowering them," Subbarao said, adding that it was premature to cut the policy interest rate based on the current inflation outlook.On Monday, Indian banks borrowed 1.42 trillion rupees from the RBI's repo window, more than double the 600 billion rupees that would indicate a liquidity deficit of 1 percent. The RBI's guideline is for liquidity deficit or surplus within 1 percent of aggregate deposits."Banks will now have access to more money. They might still do selective lending, but the environment will improve, which is right now fully chocked," Tapash Majumdar, chief financial officer at infrastructure builder C&C Constructions.(Agencies)
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The new RBI guideline — not allowing banks to invest more than 10 per cent of its networth in liquid and liquid plus funds — has been worrying Rajan Krishnan, managing director of Baroda Pioneer Mutual Fund, who feels the bread and butter business (liquid and liquid plus) will put further pressure on the mutual funds that continue to reel under pressure of stringent regulatory norms and the overall weak market condition. In a freewheeling chat with Businessworld he discussed a gamut of subjects from business strategy to lack of decision making by the government to European crisis and its impact on the equity market.Though he doesn't see the Reserve Bank of India (RBI) cutting rates next week, he feels it could be a welcome move if the governor cuts cash reserve ratio (CRR). Holding on to its equity investments through mutual funds he is bullish on sectors like auto, IT and pharmaceutical, while bearish on FMCG. Overall he feels this could be an appropriate time for investors to build a good equity portfolio for a long-run and would advice investors to come through systematic investment plan (SIP) to avoid volatility.Excerpts from the conversation: What impact do you see on the overall P&L of the mutual fund with the RBI norm of restricting banks to investing not more than 10 per cent of its networth in liquid funds coming into effect?The new ruling of a 10 per cent cap by the investments of bank in liquid will see the Assets Under Management (AUM) in liquid funds come down substantially for the industry from the peak levels seen a year or so back. Maybe by 50 per cent or more. While Liquid Funds are low margin products, the big reduction in AUM could see a very significant drop in revenues for a number of fund houses, without any commensurate drop in expense levels.What would be the strategy of Baroda Pioneer to grow its AUM and investor base? How much are you investing in the business?We are very committed to both – increasing AUMs as well as our investor base. However, we have taken a call that we will pursue growth at a meaningful cost rather than growth at any rate. We have been investing in strengthening staff, improving systems, widening distribution, internal communication &training etc. For the moment, we have not been spending much on creating visibility through external communication.The AUM growth is likely to come from growth in corpus of our fixed income product range. Here the key approach from Baroda Pioneer is to pursue and convert as many large clients as possible. And from the converted one pursue higher allocation. While doing that, we have kept our focus on the smaller companies who can benefit from the opportunities provided by our various schemes. Over the last couple of quarters, our average AUM has gone up from around Rs 3,395.58 crore to Rs 4,581.67 crore currently.On the retail side of the business where growing the investor base is key, Baroda Pioneer's focus to a large extent has been in working closely with Bank to Baroda to extend our coverage to as many branches and locations as possible. We believe that the branch network of Bank of Baroda is a very effective platform to reach out to investors in even the smaller towns. We hope to be active in all 3,500 plus Bank of Baroda branches, including rural ones, by mid-2013. These efforts have yielded some success and we have increased our investor base from 57,000 at the end of 2011 to more than 116,000 currently.What is your view on the overall financial market? Do you think the downgrades in Europe will have a major impact on the Indian markets?Currently there are huge challenges facing the financial markets. At a global level as well as at country specific level. Even as one set of issues seem to find a solution others are cropping up. Even though I am optimistic that we will see improved conditions in the coming quarters, I expect that financial markets will keep us on our toes for the next 12 to 18 months.Overall, financial markets are driven by news flow from Europe, global economic data and domestic macros. While conditions in the US are improving slowly and Asia presents a mixed bag, Europe continues to be under pressure. Undeniably, major problems in Europe have and will move global financial markets. Global financial markets are beginning to price in the possibility of a break-up of the Euro, which would have catastrophic consequences not only for Euro but for the global financial system because of the interconnectedness. The European crisis or downgrades in Europe may not affect our economy that much but it will have an impact on the Indian markets. However, spill-over effects from European defaults (or sovereign departures from the Euro) to the banking system and economy to other countries would be manageable. Ever since long-term refinancing operations (LTROs) were issued on 21 December 2011, the tail-risk situation seems to have been averted and liquidity has improved for EU banks. Last week, Spain and Italy could sell more bonds than its planned target. The IMF now says they have $500 billion to lend to Europe's bailout fund. The funding crisis there is over for time being which is a big a positive for European market and equity markets elsewhere.Till when do you see such a drag market condition and why? What is your take on the Indian equity market and why?I am more worried about domestic issues. The growth rate has been retreating. Investment climate has worsened. On the political front, worsening political gridlock and revelation of a slew of scams left the government unable to deliver on any structural reforms. We do not see that quick a recovery in growth. Improvement in fiscal situation too will take some time. The European crisis will continue to weigh heavily on global markets. Things are not looking great but then most negatives have been factored in. We see 2012 to continue to be a challenging year. We expect to see some relief on the inflation and interest rate fronts. Downside from the current level is probably capped at 8-10 per cent. The market is trading below long term averages and this is a good time for long- term investors.In your view what will be the next trigger for the Indian equity market? And why? And when do you see it coming?Decline in inflation and interest rates: The sharp slowdown in economic growth and a decline in food inflation have led us to advance our policy easing call. We believe the RBI will begin easing monetary policy in 1Q12, probably starting with a CRR cut and following it up with a series of cuts in benchmark interest rates.Industrial growth, particularly led by an upturn in manufacturing and infrastructure construction, should revive in 2H12.Potential downgrades in earnings estimates, particularly for FY13. However, we believe the January- March quarter should mark the end of the earnings downgrade cycle, particularly for the rate-sensitive sectors.On the political front, observers hope for a second lease of life to reforms after the conclusion of the key state elections in February-March 2012. We expect the policy environment to remain unsupportive in 1H12 due to the election season.What is your take on next week's RBI policy? Will it set the tone for a rally in the market?In Tuesday's RBI policy, we expect the central bank to be dovish showing concern on slowing growth. With inflationary expectations changing for the better and growth decelerating, RBI will initiate easing monetary policy. But inflation is still not in the comfort zone for RBI which may force RBI to refrain from cutting policy rates just yet. RBI may indicate easing measures from next policy in March if inflation slips below 7 per cent. We feel market is factoring in the above as 10-year government yields has rallied recently. Whether as a signal of policy or not, a CRR cut would be very welcome given the very tight liquidity conditions in the country currently.What is your view on the overall corporate performance of Indian Inc? Have the December-ended quarterly results that have been declared so far been in line with your expectation? Which are the sectors that you are bullish and bearish?December quarter results are likely to reflect the challenging environment being faced by India Inc. There could be several one-time hits due to forex losses. Till date major results from IT, banks, financials and metals are in line with expectations. However, the commentary about future from the IT sector has disappointed the market. We are positive on pharma and IT companies which will benefit from rupee devaluation. We are positive on auto manufacture, which are trading at reasonable valuations. We are bearish on the FMCG sectors due to its stretched valuation.In current market condition where will you advice investors to invest? Currently where are you investing your own money? And why?Given India's long-term growth story, equity investments would continue to offer good returns. I would advise retail investors to invest in equities through the SIP route, as it is a time-tested strategy to even out the effects of volatile markets like what we are going through. I continue to hold my equity investments, mainly through mutual funds. As a fund manager what call will you take on the overall portfolio of the mutual fund? What will be your short-term strategy in the current market condition?We are not trying to ride on momentum. At present, it is better to spread out and balance our portfolio across sectors rather than sticking to defensives or going too aggressive.What is your take on the 10-year G-Sec yields and why?We maintain our stance that 10-year-yield could soften to 8 per cent level in next 3 to 6 months due to weak global economy, slowdown in growth, decrease in inflation and open market operation (OMO) purchase by RBI. But the key risks are deterioration in the government fiscal position, supply of government securities and higher crude and commodity prices.Fixed income, particularly FDs and bonds have become a flavour among investors, even equity fund managers. In your view is fixed income still a cushion for equity investors?We believe fixed income is a cushion during a bear phase in equity markets. Currently the equity market is volatile and may continue to remain so for some more time. Therefore, we have seen asset allocation shift towards fixed income/cash by investors as well as equity fund managers.What is your take on the 1 year, 2 years, 3 years, 5 years and 10-years yields in corporate bonds? Will you be a buyer in corporate bonds and what would be the tenure?We expect the 1-year CD rate could come down by 75 to 100 bps in next 6 months. Similarly 2- and 3-year bond yield can potentially come down by 40 to 60 bps. The 5- and 10-year ones can come down by 20-30 bps to 8.75 per cent in next 6 months but the risk is higher in the long end of curve due to deterioration in the government fiscal position and supply of government securities. In this scenario, the short to medium term bonds offer better risk adjusted return.What is your view on gold? Should it take maximum share of one's portfolio as the world economy is still not showing signs of revival?Gold is another important asset class. An asset class that Indians have been extremely familiar with, has not been taken that seriously as a pure investment option. Its only more recently that Gold ETFs have become popular as an investment opportunity. Gold has run up quite a bit in the last few quarters with uncertainty levels high. As the global economic conditions stablise there is every possibility that we will see a correction in gold prices. Hence, it may not be prudent to have a disproportionate part of your portfolio in gold.
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The Reserve Bank of India (RBI) said the growth outlook and business climate have weakened but warned of upward risks to inflation, a day before it is widely expected to keep policy interest rates on hold.Indicating that it may not tweak interest rates in Tuesday's policy review, the Reserve Bank said on Monday it will try to strike a balance between the need for promoting growth and containing inflationary expectations.The RBI said that GDP growth during the current fiscal is likely to fall below its earlier projection of 7.6 per cent, while inflation, which is still a cause for concern, may moderate to 7 per cent by March-end."Even as the growth slowdown emerges as the major challenge, inflation risks persist, posing a challenge for monetary policy in achieving low and stable inflation with minimal sacrifice of growth," said the Macro-Economic and Monetary Developments Review released by the RBI on the eve of the third quarter policy announcement.Consequently, "Monetary actions will need to strike a balance between risks to growth and inflation," it said."Growth is likely to turn weaker than earlier anticipated," the RBI said.The government also said growth could be around 7 per cent in 2011-12, down from 8.5 per cent a year ago.The RBI left interest rates unchanged in December after raising them 13 times between March 2010 and October 2011.Economists say it may choose to cut the cash reserve ratio (CRR), the share of deposits banks must maintain with the central bank, from 6 percent, to ease tight liquidity, at its review on Tuesday."The critical factors in rate actions ahead will be core inflation and exchange rate pass through," the RBI said on Monday in its quarterly review of macroeconomic and monetary developments.The rupee depreciated by 16 per cent against the dollar in 2011, putting upward pressure on prices of imported goods, especially energy.Commenting on the recent improvement in the price situation, the RBI said, "While in the short run, moderating inflation will provide some space for monetary policy to address growth concerns, in the absence of structural measures to address a range of supply bottlenecks, this will be temporary respite."Overall inflation, which has remained near double digits for 11 months, declined to 7.5 per cent in December, 2011.Investment in industrial capacity that would ease supply bottlenecks in Asia's third-largest economy has been slowed by sluggish decision-making in New Delhi, while programs that increase the spending power of rural Indians has driven up demand for items such as protein-rich foods.The central bank said that while open market operations -- buybacks of bonds from the market by the central bank -- have been its weapon of choice for addressing tight market liquidity, other measures could be considered."Enabling smooth functioning of other markets by ensuring that the liquidity deficit remains within acceptable limits is also a policy priority," the report said.Expressing concern over the deterioration in the fiscal position of the government, the RBI suggested that the government should move ahead with reforms, especially in direct and indirect taxes."The central government's deficit indicators are under duress due to higher subsidies and lower tax collections.Fiscal reforms, including the Direct Taxes Code and Goods and Services Tax, are, therefore, needed to contain deficits in 2012-13," the RBI said.It also called for budgetary solutions to contain the growing subsidy commitment in order to enhance the potential growth rate of the economy.Last month, Finance Minister Pranab Mukherjee had said the subsidy burden in FY'12 could exceed Budget estimates by Rs 1 lakh crore. This is likely to put pressure on the fiscal deficit, which is projected at around 4.6 per cent of the GDP.It said that a widening current account deficit (CAD) and a mounting revenue deficit is putting the fiscal position under strain and impacting the government's wherewithal for capital spending.The report admitted that the liquidity deficit is higher than what suits the RBI, but did not say anything specific on measures to be adopted, like a cut in the cash reserve ratio (CRR), as banks have been asking.Banks have borrowed nearly Rs 1.5 lakh crore from the overnight borrowing window in the past few weeks, leading to demands for a cut in the CRR, or the amount of deposits banks park with the RBI.The RBI has hiked interest rates 13 times since March, 2010, to control inflation. Industry is of the view that repeated rate hikes have made borrowings costlier and has impacted investments. With inflation undergoing a moderation, the RBI took a pause on its rate hike strategy at its policy review last month.CRR Cut Likely?Economists polled by Reuters last week were unanimous in their view that the Reserve Bank of India will keep rates on hold this week, despite weakening economic growth.A minority - 7 out of 20 - forecast that the RBI would cut the CRR, the proportion of deposits that banks must hold with the central bank, by 25 or 50 basis points from 6 per cent, where it has stood since April 2010."Liquidity tightness is persisting and it is getting far too uncomfortable. More importantly, it has not eased after the open market operations," said Shubhada Rao, chief economist at Yes Bank, referring to bond buybacks by the central bank.A cut in the CRR would ease banking system liquidity tha has been far tighter than the RBI's target of 1 per cent surplus or deficit in terms of aggregate deposits.Goldman Sachs, however, rates the probability of a 25-basis-point CRR cut on Tuesday at 60 per cent, noting that tight liquidity effectively pushes up rates and pointing out the slow pace of monetary policy transmission in India."With the long lags in the system, there is a need to start the easing process early to help investor and corporate confidence to kick-start the recovery in 2012," Goldman Sachs economist Tushar Poddar wrote in a note on Monday.Goldman Sachs expects the RBI to cut its 7.5 per cent economic growth forecast for the fiscal year that ends in March, as well as its headline inflation forecast for March."With a potential set of forecasts which call for lower growth and inflation compared to its earlier projections, the RBI would need to signal a change in stance," Goldman said.The market will scour the bank's quarterly macroeconomic report at 5 pm on Monday for clues on what to expect on Tuesday. While the review is mostly backward-looking, the tone of the comments will be critical.A Reuters poll last week forecast annual Indian GDP growth of 7 per cent in the current fiscal year, far below the 8.5 per cent of a year earlier.The RBI, which held to its hawkish stance long after other major central banks shifted their focus towards lifting growth, left rates on hold at its last review in mid-December but sent a strong signal that its next move would be to ease policy.(With Agencies)
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Not sure how credit information reports and scores effect your chances of getting that home loan? Vikram Narayan, Country Manager & Managing Director, Experian India talks to Businessworld's Tanushree Pillai about the importance of credit reports and scores and how individuals and lenders can benefit from these. Excerpts: What is the job of a credit bureau and who all can avail of its services?A Credit Bureau or Credit Information Company (CIC) as it is known in India, is an independent organisation that compiles public data, statutory information, identity information, credit transactions and payment histories of individual consumers and organisations. A CIC such as the Experian Credit Information Company of India, stores information provided by various sources in the same way as it is provided to them - the CIC does not alter or represent the data in any other way. Similarly a CIC does not offer opinions on the data they hold or make any decisions on behalf of lenders who use their services and reports in the credit decision making process.A CIC simply provides the data that is held about an individual borrower to the lender who will make their own assessment based on a range of factors, including the data we manage. The role of a Credit Information Company is to facilitate a culture of information sharing amongst lenders; to provide accurate information to lenders; to make it possible for lenders to quickly make fair, consistent, responsible and profitable lending decisions; to facilitate mass market access to credit, without security; to protect consumers against over indebtedness by providing a full picture of credit exposure and therefore capability to repay; to help lenders guard against fraud, which is a growing and serious problem; to provide consumers with copies of their Experian Credit Information Reports upon request; to educate consumers on the importance of Credit Information Companies; to promote responsible lending and responsible borrowing.Only organisations as described by the Reserve Bank of India under the Credit Information Companies (Regulation) Act 2005 (CICRA 2005) as users and those who are members of our information-sharing scheme can avail our services. Our information-sharing scheme is strictly regulated by the Reserve Bank of India as per the CICRA 2005. There are strict rules governing the ways in which lenders can access and use the data we hold about consumers.How much does a credit report help an individual while applying for a loan?As your credit history plays a key role in your ability to obtain credit and on what terms, it is important to understand the information that is shared by lenders with a credit information company, such as Experian. By understanding your credit history it enables you to take control of your financial situation, make informed financial decisions and also helps to protect yourself from identity theft.What does Experian Services do?Experian's products and services help businesses in customer acquisition, customer management, fraud management, risk management and debt recovery. These are grouped under four principle business lines: Credit Services, Decision Analytics, Marketing Services and Interactive Services. Experian Credit information Company of India Private Ltd is the 16th Credit Bureau operated by Experian. It will provide credit information services to lenders and consumers. We are in the process of acquiring 3 more credit bureaus in Latin America and setting up one more credit bureau in Australia.Experian Credit Information Company of India is a joint venture with 7 banks and NBFCs such as Axis Bank, Punjab National Bank, Union Bank of India, Indian Bank, Federal Bank, Sundaram Finance and Magma Fincorp for providing credit information services. Experian Plc is the single largest shareholder in the company. In addition to providing credit information reports to lending institutions which are members of the Experian Credit Information Company and to individual consumers, we have also launched various value-added services which allows Indian lending institutions to unlock greater customer insight. Experian's customer management products such as Triggers, Account Review, Premier Attributes, CIR+, etc. are used by many leading banks and NBFCs around the world to deploy customer level strategies across the organisation; increasing customer value and account revenue whilst reducing operational costs, credit losses and customer attrition.What does a product like Triggers do?Experian Triggers™ is India's first daily notification service which provides Indian banks and NFBCs with information about consumer credit activity. By providing automated notifications about changes to a customers' financial situation, Experian Triggers helps banks and NBFCs take immediate steps to minimise bad debt.Triggers was launched in June 2011 with Axis Bank and Fullerton as our early adopters. Since then we have added more banks to the list. When did Experian come to India?Experian Services India has been providing decision analytics services and products in India since 2007. Our renowned global experts provide consultancy on all aspects of risk management and work with customers to determine the most optimal strategies to deliver tangible improvements in credit and operational risk practice. Connect+ is an industry standard gateway that helps connect bank's internal systems with multiple credit bureaus and other information sources providing actionable intelligence. Recently HSBC signed an enterprise wide deal to use Connect+ to further standardize its third party data access around the world. Hunter is the application fraud detection and prevention solution which helps users go beyond conventional scoring and underwriting techniques to identify fraudulent applications early in the origination process. Currently, Axis Bank and ICICI Bank are using Hunter in the local mode. We have also launched Strategy Manager which will help banks and NBFCs to treat every customer as an individual and make the right business decisions which will enable them to protect their customer base. Tallyman is a product which helps our customers manage their collections process end to end.In 2010, Experian launched its Indian marketing services business. It products and services provide actionable competitive intelligence to its customers and enables them to identify, target and acquire customers. Experian CheetahMail is the trusted service provider of email marketing for top enterprises worldwide. In India, CheetahMail is being used by Kingfisher Airlines, Lemon Tree Hotels, MakeMyTrip among others.You recently launched Hunter. What does Hunter do?The best strategy to prevent fraud is to detect it at the application stage before a customer is accepted. Experian National Hunter brings in global best practices in fraud based on Decision Analytics experiences, in terms of fraud techniques and trends, and mechanisms to identify/manage them. Globally, Hunter has been able to provide billions of dollars of fraud savings to more than 100 major institutions.Combining a rules-driven business engine with intuitive investigative tools, National Hunter creates a continuous cycle of fraud prevention and detection. The system can be used for all types of loan applications and fraud identification across multiple loan types and channels. Hunter operates on two levels - Local and National. Local Hunter is when the service checks for inconsistencies and past records within the bank across branches. National Hunter is when the service checks for inconsistencies and past records not just within the bank but across banks which have signed up to be members of the Closed User Group. India's Top Three private sector banks - Axis Bank, HDFC Bank and ICICI Bank are already using the service.How can an individual access his credit report from Experian?As per CIRCA 2005, every individual has the right to seek his or her credit information report from the credit information companies. At Experian, we have made it easy for the consumers to access their credit information.An individual simply needs to apply to us and request for the application form to be sent to him. A duly signed form along with identity proof, address proof and a fee of rupees 138 is all one needs to send to us. After validating the information provided by you with the latest records provided by our members and as maintained by us and after authenticating your identity and confirming your address we will dispatch your Experian Credit Information Report within 20 business days.Does Experian provide an individual credit score? Can a retail customer have access to his score? How?Currently, we provide only a credit information report to the individual consumers. We do provide a bureau score to the member banks and NBFCs but not to the consumers.Not many individuals are aware of credit reports and score. How do you think this issue can be tackled?Retail loan is still in its early days of growth in India and hence it is natural that not many will be aware of credit information reports or credit scores. At Experian we believe that an informed and aware consumer is always good for the overall health of the banking industry. This leads to responsible borrowing by the consumers resulting in lesser defaults and delinquencies. Thus we have invested in creating consumer education programs which educates individual consumers about credit, credit histories and credit management. We conduct seminar to educate the consumers at various places and through various forums. We have created literature to help consumers understand the importance of credit management at various life events such as moving homes, bereavement, illness, getting married, etc to enable them to take control of their financial situation.What does one need to do to maintain a healthy credit history and why is it important to do so?When you apply for a loan, banks have to make sure that you are who you say you are and that you are likely to repay the loan. They will look at the information in your application and will check your credit report from a Credit information Companies (CIC). Banks and NBFC's provide a record of your loan and credit card repayments to a CIC such as Experian. A CIC is an independent organisation that compiles public data, identity information, credit transactions and payment histories of consumers. Our Credit Report contains identity information, past and present credit obligations, previous addresses and enquiries made by banks for all your loan applications. If your report shows that you repay credit on time, this will usually help you get credit at favorable terms. Thus it is important to maintain a good credit history.There are a number of things that you can do to improve your credit profile and thereby your chances of getting credit: always make your payments on time. If you cannot do this, contact the lender as soon as possible to discuss what options are available to you, it is always better to speak to your lender immediately if you are experiencing any difficulties in maintaining your payments; If you have paid off a debt but your report doesn't show this, contact the organisation concerned and ask them to make the necessary changes or contact us and we will contact the relevant organisation for you. Close any accounts you no longer use; Check your credit information report regularly. It always makes sense to get a copy of your credit information report before you apply for credit or if you are refused credit as a result of information held by a credit information company.tanushree(dot)pillai(at)abp(dot)in
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The government needs a regular stream of revenue over the financial year; personal income tax is one of the sources of revenue. Accordingly taxpayers are required to discharge their tax obligations over the period in which income is earned. Generally, income in the nature of salary, interest etc. is subject to tax deduction at source (TDS). The tax payer is required to pay taxes in advance during the financial year on the estimated amount of income expected to be earned during the financial year as well. However, where the tax liability of the individual (after considering the taxes withheld) is less than Rs 10,000 the taxes could be remitted as self assessment tax, before filing the tax return. The obligation to pay taxes in advance is triggered only where the estimated amount of tax is expected to exceed Rs 10,000 after the adjustment of TDS. The tax payer, therefore, has an obligation to remit the taxes payable — to the extent it has not been met through TDS — by way of advance tax by the 15th of March. A shortfall in payment of taxes attracts interest. Interest liability will arise, both on account of deferment in payment of taxes, as well as on the delay in payment of taxes beyond the financial year. On the flip side, where the tax paid exceeds the actual taxes due, a refund will arise in the tax return. Since the processing of refunds by the tax departments could take its own time, tax payers need to plan their tax payments in an optimal manner. Taxpayers could experience a short fall in payment of taxes due to various reasons. There could be a shortfall in TDS on salary income. This will typically arise where the employee has changed his employment during the year, and both the employers provide the benefit of lower rates of tax in the initial income slabs in computing the taxes. On aggregating the income and computing the taxes, there will be a balance tax due. A short deduction could also arise where the benefit of deduction for specified investments is provided by both the employers, or the employer provides the relief based on declaration from the employee, and ultimately the investment is not made within the financial year. The rates at which taxes are withheld on interest income, house property rentals etc. is generally lower than the personal marginal rate at which the individual is subject to tax. For instance, the rate at which taxes are deducted on interest is at 10 per cent, whereas a tax payer could be subject to tax at the rate of 30.90 per cent depending on his income level. Tax payers could consider meeting the above tax obligations in different ways:The Income Tax Act enables employers to include income declared by employees relating to an earlier employment, or income under other sources, and compute the tax withholdings accordingly. Salaried employees could provide information relating to the remuneration from previous employment to their employer for computing TDS. This will address the concern on short deduction of taxes. The employee could declare house property income, interest income, capital gains etc to the employer as well. With respect to losses, if any incurred by the employee, the employer is authorised to consider losses arising from house property alone. For instance, the employer is not authorised to consider capital losses. However, if the employee has a net capital gain (after setting off the losses), the employer could consider the net number in computing TDS. The above process will help the tax payer in reducing interest liability. Once the income is declared to the employer, and appropriate taxes are withheld, the employee will not have an interest liability even if the declaration to the employer is made during the later part of the financial year. On the other hand, under the advance tax mode, there will be an interest liability for deferment in payment of earlier installment of taxes. Since taxes are withheld from the salary on a monthly basis, employees could plan their cash flows as well. Tax payers could have concerns in sharing their personal income details with their employer and may prefer to pay the differential taxes in the form of advance tax. Tax payers having business income / capitals gains will also need to plan for advance tax payments. Arriving at a reasonable estimate of the revenues from business and the possible deductions for the entire year could be a challenge. Furthermore, in arriving at the taxable capital gain, the tax payer needs to consider possible set offs on account of capital losses which could arise during the later part of the financial year as well. An estimation of possible taxes that will be deducted at source on such incomes will need to be made as well. Meeting timelines is crucial, as interest is levied for deferment beyond the due date. For instance, even where the tax payer misses the timeline of 15 September, and remits the taxes within the same month, interest liability could be as high as 1 per cent per month till the subsequent due date of 15 December. Effectively the tax payer pays a 3 per cent interest on the shortfall, even for a minimal delay. With respect to capital gains, interest liability does not arise where taxes are paid up through the remaining installments of advance tax. For instance, when a tax payer has a capital gain income arising in the month of November, 60 per cent of the taxes due on such income needs to be paid by 15 December, and the balance by 15 of March. There will be no interest liability for non-payment of taxes in September. Interest liability is also triggered from the 1 of April of the subsequent financial year to the month of payment of taxes, when at least 90 per cent of the total taxes due are not paid by way of TDS or advance taxes. The estimation of taxes therefore needs to meet an accuracy level of 90 per cent. Needless to state, a certain amount of care and planning in the payment of taxes will go a long way in reducing the interest costs to the tax payer.Saraswathi Kasturirangan is senior manager at Deloitte Haskins & Sells
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