HDFC offers dual rate loans

HDFC Ltd today offered a fixed-rate option of three and five years on its home loans, sparking what promises to be another gripping battle in the highly-competitive housing finance business just when the real estate markets show signs of stirring to life. The fixed-rate option of three and five years appears to be targeted at ICICI Bank which caught the industry by surprise last month when it gave borrowers the choice of opting for a fixed rate for either one or two years. The dual rate home loans reignited memories of the teaser rate home loans that were pioneered by the State Bank of India in February 2009, which had offered a lowball rate of just 8 per cent in the first year before flaring to a market rate in the subsequent years. The SBI has indicated that it does not have any immediate plans to revive the dual rate home loans. Neither HDFC nor ICICI Bank is trying to entice the home loan borrower with a ridiculously depressed rate in the initial years. HDFC is offering a rate of 10.75 per cent on loans up to Rs 30 lakh under the three-year fixed-rate option and 11.25 per cent under the five-year option. It is also offering 11.25 per cent under the three-year option for loans between Rs 30.01 lakh and Rs 75 lakh, which goes up to 11.50 per cent under the five-year option. Loans above Rs 75 lakh will carry a uniform fixed rate of 11.75 per cent under both the options. After the initial period, the loans will switch automatically to HDFC’s adjustable rate home loan product that is linked to the mortgage financier’s retail prime lending rate. “This option is for customers seeking to lock in their home loan interest rates and not take a risk on interest rates moving up in the initial years,” HDFC said in a statement. Customers will have to apply on or before October 31 this year to be eligible for the special offer. The first loan disbursement must take place on or before November 30 — giving a small window of opportunity for home loan seekers. The HDFC offer appears to be an improvement on the overture made by ICICI Bank, which is offering a rate of 10.75 per cent on loans up to Rs 25 lakh under its two-year fixed rate option. HDFC also scores over the country’s second-largest bank by offering 11.25 per cent for loans of Rs 30.01 to Rs 75 lakh for three years against ICICI’s two years for loans between Rs 25 lakh and Rs 75 lakh. However, ICICI is offering 10.5 per cent for a one-year fixed rate home loan of up to Rs 25 lakh. It is also offering 11 per cent under the same tenure window for loans between Rs 25 lakh and Rs 75 lakh, and 11.50 per cent for amounts above Rs 75 lakh. Under the three-year option, HDFC says the fixed rate will be available up to November 30, 2014. Under the five-year option, the fixed rate will be available up to November 30, 2016.

Reliance Capital & Nippon to explore more deals

Anil Ambani-controlled Reliance Capital has signed a deal with Tokyo-based Nippon Life to consider selling a stake in its asset management arm and other businesses to the Japanese company. On Thursday, the two companies entered into a memorandum of understanding (MoU) under which Nippon Life “will evaluate collaboration opportunities including strategic partnerships” in all of Reliance Capital’s financial businesses. A joint statement by the two companies singled out asset management as a potential area. Commenting on the deal, Reliance Capital’s Anil Ambani said, “Nippon Life has already agreed to be our partner in the life insurance business, and we see great potential to work together across our other financial services businesses.” Earlier this year, Nippon Life decided to buy a 26 per cent stake in Reliance Life for Rs 3,062 crore, or $680 million, valuing the Anil Ambani group’s life insurance business at $2.6 billion. The transaction is awaiting regulatory clearances at present. Reliance Capital Asset Management, the AMC in which Nippon is likely to collaborate in, manages funds of $23 billion in mutual funds, pension funds, managed accounts and hedge funds and has over 7 million investors. Nippon Life Insurance, a $80-billion company, posted a profit of $3 billion in the last fiscal. The world’s seventh largest player in life insurance and the biggest in Asia and Japan, Nippon Life manage assets worth over $600 billion. Besides, asset management and life insurance, Reliance Capital’s other businesses include general insurance, broking, consumer and commercial finance. The MoU includes these businesses as well.

A Great news for LIC policyholders

LIC’s ambitious digitisation programme will ensure that from November, policyholders can avail themselves of the insurer’s facilities — such as policy redemption, loans against policies and premium renewals — from any branch in the country and not only from the one where the policy has been issued.

“The process of digitization of policyholders’ documents is expected to be completed next month as Given the pace of work, the remaining 4 per cent will be completed hopefully before the deadline of October 31 and after that we’ll be able to service customers from any location,” said S.K. Roy, zonal manager (east), the Life Insurance Corporation of India.

Hewlett-Packard is implementing the Rs 600-crore project, and 96 per cent of the works have been completed.

The digitization project, which is similar to core banking solutions, will also help the LIC reduce frauds, loss or damage of documents and dispose claims faster.

The enterprise data management project, involving 28 crore policies, will allow policyholders to carry their policies to any city they get transferred to within the country.

After September last year, life insurers in the country have been reporting declining policy sales every month. This is because the sales of unit-linked plans, from which insurers were making money hand over fist, have gone down steeply for every insurer under the new regulations implemented from September last year.

Insurance looking for safety

Insurers cannot have an exposure of more than 5 per cent of their investment in promoter group companies under the new investment norms announced by the insurance regulator. Insurance companies earlier were allowed to invest a maximum of 5 per cent of their funds from non-unit linked life, pension and annuity policies, while they could invest a maximum of 12.5 per cent of their earnings from unit-linked policies. Under the new norms, the higher exposure limit in promoter group companies for Ulip funds has been brought on a par with traditional policies at 5 per cent. Besides, the regulator (IRDA) has also clarified that insurance companies cannot make any investment in-group companies either through private placement of equities or in unlisted debt papers of such entities. This is truly one of the most important changes that the insurance regulator has sought to bring in its new investment norms for insurers. The insurance regulator had brought this change to ensure more transparency and safety for policyholders. The other changes are however, mostly clarifications of ambiguities in some words that lead to different interpretations to some clauses. The existing investment regulations require insurers to invest a minimum of 25 per cent of the funds under their non-unit linked business in government securities. As it was not clearly spelt out whether it would be central government or state government securities, a number of insurers misinterpreted the term government securities to mean state government securities as well. They invested a large part of their funds in higher yielding state government securities and in the process brought down their investment in low-yielding central government securities below the 25-per-cent-mark. Now the regulator has made it clear that insurers must invest at least 25 per cent of their total funds in central government securities. Moreover, at least 75 per cent of an insurer’s investment in debt instruments, including central government securities, must have a sovereign rating or a long-term credit rating of AAA or equivalent or a short-term credit rating of P1+ for short-term. Interestingly, the new investment norm has done away with the 10 per cent sectoral cap pertaining to investment in the infrastructure sector by insurance companies. Insurers were asked to give their feedback to the regulator on the new norms by Friday. The new investment norms assume significance as life insurers are struggling hard after the change in regulations for unit-linked life insurance policies last September. Since then, insurers are increasingly leaning to traditional products to rev up their policy sales.

Panel favours pension, PF return parity

A parliamentary panel has recommended that subscribers to the New Pension Scheme (NPS) get an assured return of at least 9.5 per cent on their investments, which is the interest rate given by the Employees’ Provident Fund Organisation.

“The committee would recommend that the minimum rate of return on the contributions to the pension fund of employees should not be less than the rate of interest on the Employees Provident Fund Scheme,” said the panel in its recommendations on the Pension Fund Regulatory and Development Authority (PFRDA) Bill, 2011.

Subscribers to the Employees’ Provident Fund Organisation (EPFO) get an annualised interest of 9.5 per cent on their contribution.

“The government should devise a mechanism so that subscribers of the NPS get guaranteed returns on their pension, so that they are not at any disadvantage vis-a-vis other pensioners,” said the standing committee on finance, headed by Yashwant Sinha.

NPS, launched in January 2004, has about 24 lakh subscribers, mostly those employed with the central government.

Twenty-seven states and Union territories and many private individuals have joined the scheme, the total corpus of which now stands at Rs 10,000 crore.

The parliamentary panel has also suggested imposing a 26 per cent cap on foreign direct investment (FDI) in pension programmes, on a par with the insurance sector.

“The committee notes that foreign investment in the pension sector may be capped at 26 per cent,” the panel said.

The PFRDA bill, introduced in the Lok Sabha in March 2011, has no provisions on FDI.

The Pension Fund Regulatory and Development Authority Bill, 2011 will give legal backing to the regulator, allowing it to put in place a robust system for managing retirement savings and providing a framework to promote old age security.

The committee also suggested that the government make concerted efforts to extend the reach of the scheme in both the public and the private sectors.

Wi-Fi for Howrah Rajdhani

The Indian Railways is planning to make the New Delhi-Howrah Rajdhani Express the first Wi-Fi-enabled train in the country by December-end.

The Wi-Fi facility, available at the international airports in the country, enables laptop users to access the Net without plugging into a regular connection, or having to use a data card.

Both business travelers and commuters will be interested in using wireless services on trains as it will enable them to productively use the nearly 24 hour travel and be in touch with the global community and share their experiences in real time.

They said the facility would be initially available in three rakes of the train and extended to other trains depending on the success of the project.

The estimated cost of the project is Rs 6.30 crore, and the railways have awarded the contract for the equipment and their installation. Browsing of the Net would be through a satellite-based system using Wi-Fi for the distribution of Internet bandwidth.

The satellite link-up cost is more than Rs 1.75 crore and the equipment to facilitate Internet access will cost around Rs 4.5 crore, as per a senior railway ministry official.

RailTel Corporation, a wholly owned subsidiary of the Indian Railways, had conducted successful trials in the Mumbai-Ahmedabad Shatabdi Express in January.

RailTel conducted the technical trial with vendors, including the UK’sNomad Digital and Belgium’s 21Net, who have deployed satellite-based Internet for VIARail (Canada), Thalys (EU) and NTV (Italy).

“The trials have proved that passengers will experience seamless connectivity on running trains. Considering the revenue it will yield, the project is being given top priority,” officials said.

The railways plan to equip other Rajdhani and Shatabdi trains with Wi-Fi facility in the future.

Passengers will have to make a requisition to the travelling ticket examiner to access the Internet. The examiner will send the requisition to the central hub and a password will be sent through SMS to the passenger’s mobile phone.

According to the other option being considered, passengers will have to visit the RailTel website, register themselves and purchase credit to access the Net.

While the charges for Internet use and the security issues are being worked out, officials said payment could be through credit, debit card or Net banking.

Bank savings deposits lose ground

Savers are now putting relatively less money into current and savings accounts (CASA) of banks, instead parking them in term deposits. This is limiting the ability of banks to raise low-cost resources. At present, commercial banks offer 4 per cent interest on savings accounts after the Reserve Bank of India raised the rate by 50 basis points in May. The revision came after eight years. On the other hand, term deposit rates are an attractive option having moved up around 250 basis points over the past six months in the one-three year maturity periods following regular interest rate hikes by the central bank. The State Bank of India, for instance, offers 9.25 per cent interest on deposits of one year to less than two years. With the rate gap widening, bankers have been witnessing a decline in demand deposits, while term deposits have shown a strong growth. Demand deposits are deposits that can be withdrawn quickly. This shift has affected the banks’ CASA ratio — the proportion of current account and savings account deposits in total deposits — during the first quarter of this fiscal. The ratio has been lower on a sequential basis. While some lenders such as Axis Bank saw only a marginal fall in their ratio, it was more pronounced for a few such as Corporation Bank and IDBI Bank. In IDBI Bank, the CASA ratio dropped even after the bank waived all transaction and service charges on current and savings accounts. Banks have been laying stress on CASA deposits because of their low costs — current account is non-interest bearing, while the 4-per-cent interest payable on savings accounts is less than half of what they pay on term deposits. Hence, a fall in the CASA ratio may affect margins at a later stage. This was evident in the first-quarter numbers of ICICI Bank, the SBI and some other banks where current account deposits showed a fall in absolute terms. Tough task Bankers now admit that mobilising more current account and savings account deposits will be a challenge given the fact that interest rates are likely to stay at higher levels for some more time. Others say that rates have peaked. IDBI Bank recently trimmed its CASA ratio guidance for the year to 17-18 per cent from an earlier estimate of 25 per cent, while ICICI Bank hopes to post an average ratio of around 40 per cent for the year.

Funds for SBI

The government is expected to provide capital support to the State Bank of India (SBI) during the current fiscal, and a decision in this regard will be taken soon.

The finance ministry received a proposal from the SBI in this regard a few weeks ago.

According to the proposal, the SBI requires Rs 20,000 crore to fund its growth plans over the next two financial years. Based on the proposal, sources said various possibilities were being looked at for the capital infusion. 

It could be by way of a rights issue, preferential share issue and warrants.

However, it is too premature to comment on the exact mechanism for the capital infusion as all the options are still being explored.

The government is committed to providing adequate capital to all PSU banks to maintain their tier-I capital at 8 per cent and the government’s stake over 58 per cent, the sources added.

As on June 2011, the capital adequacy ratio of the SBI stood at 11.6 per cent.

Savings account going to be costlier

Interest rates on savings bank deposits will be deregulated soon, but the move may affect small depositors, as they will have to bear additional costs. “Following the deregulation of the savings bank rate, the universal savings bank product will also undergo changes,” K.R. Kamath, chairman and managing director of Punjab National Bank, said on the sidelines of a Ficci event @ Kolkata. According to Kamath, who is also the vice-chairman of the Indian Banks’ Association, “A number of free-of-cost facilities that now come with a savings bank account, including the minimum balance, will go away and this will hurt the small depositors most.” The RBI itself had suggested deregulating the savings bank rate and the change would be brought about soon. “It will happen. The question is should it happen now?” Kamath said. “Savings bank interest rate is the anchor rate on the basis of which banks formulate their other rate structures. If the savings bank rate is deregulated, banks will take some time to readjust,” Kamath said. Public sector banks are against the deregulation of the savings bank rate. However, the Reserve Bank of India has already taken a few steps towards complete deregulation. Interest on savings bank deposits is now calculated on the balance in the account at the end of each day and at a higher rate of 4 per cent. While depositors are now getting a higher interest on savings bank deposits, the scenario may change post-deregulation with banks planning to levy charges for various services. For example, the minimum balance to maintain a savings account may go up, the number of debit transactions may be limited and there can even be a charge for updating passbooks.

Investment Cycle

Age: 20 – 35 (Growth Period)

• Try and collect your assets to achieve immediate needs or long-term goals

• It is all right if you take risks at this age, because you have a long-term investment horizon, which will give you enough    time to collect more assets, and enjoy it

• Learn more about investment, take advice from professionals; this will help you, increase your knowledge of investing

Age: 35-55 (Consolidation Period)

• You are doing well at this age in your career; your earning should exceed your debt

• This should then be invested in your future retirement in medium-risk investments for your retirement needs

• Your goal should be to retire wealthy

Age: 55-75+ (Spending period)

• By this time you would have saved a lot from your earnings and you take that long holiday, or buy that big house

Tax trauma for Satyam again

On Monday, Mahindra Satyam — the entity that emerged from the ashes of India’s biggest accounting fraud — said it had received a tax demand of Rs 2,113.42 crore for two assessment years 2002-03 and 2007-08 — which roughly cover the period during which rogue industrialist B. Ramalinga Raju had fiddled the accounts of the software exporter. Last September, Mahindra Satyam had come out with restated accounts for the period that estimated the total financial irregularities committed by Raju and his cohorts since 2002 at Rs 7,934.9 crore. The forensic audit revealed that the accounting fudge between April 1, 2002 and September 30, 2008 — the last date up to which the company had published its financial results — amounted to Rs 6,763.1 crore, surprisingly close to Raju’s claim that he had padded the accounts by Rs 7,000 crore. The tax demand has come from the additional commissioner of income tax. He is seeking Rs 1,037.69 crore for the assessment year 2002-03 and Rs 1,075.73 crore for 2007-08. In a notice to the stock exchanges today, the company said the draft of the proposed assessment orders proposed disallowance of certain tax exemptions /deductions claimed by the company. It was not immediately clear whether these related to the tax breaks that the government had granted software exporters housed in the so-called software technology parks. The STP tax benefit has been withdrawn from the current financial year. Mahindra Satyam has been contesting the reopening of tax assessment for assessment year 2002-03 and had even filed a writ petition in this connection before the high court of Andhra Pradesh. The company has been seeking court direction that any fresh assessment should be carried out only after stripping out the fictitious sales figures and fictitious interest that Raju claimed he had earned in a desperate attempt to paper over the huge accounting gaps in the software exporter’s books. The latest tax demand “does not exclude the fictitious income wrongly offered to tax by the earlier management”, the company said. Mahindra Satyam said the petitions were still pending before the high court. It added that even the government agencies had confirmed the “existence of fictitious sales and fictitious interest”. On December 28 last year, the income-tax authorities had ordered a special audit at Satyam Computer Services for the years 2002-03 and 2007-08. The company was ordered to get its accounts audited for this period under Section 142 (2A) of the Income-Tax Act. Sub-section 2A of Section 142 confers power on the assessing officer to order a special audit. The tax demand from the IT authorities flows from the December directive.

SkyTeam offer for Air India

SkyTeam the world’s No. 2 international airline alliance has approached Air India with a membership offer following Star Alliance’s decision to keep out the national carrier from the global grouping.

According to officials in the ministry of civil aviation, the SkyTeam delegation, led by managing director Michael Wisbrun, met civil aviation secretary Nasim Zaidi last week and expressed interest in making the national carrier part of its alliance.

In the aftermath of the Star Alliance fiasco, both SkyTeam as well as Oneworld have approached Air India with membership proposals and the offer to help the national carrier improve its international operations.

SkyTeam — founded in 2000 by Aeroméxico, Air France, Delta Air Lines and Korean Air — is the last of the three airline alliances to be formed.

It has grown to become the second largest global alliance in terms of passengers and members, behind Star Alliance and ahead of Oneworld.

The alliance consists of 14 carriers, including Al Italia, KLM and Delta Air Lines, from four continents and flies to 916 airports in 169 countries.

It operates over 14,000 daily flights with a combined fleet of 3,400 aircraft, including associate carriers.

It has 465 lounges worldwide to serve its 474 million annual passengers. SkyTeam also runs a separate cargo alliance SkyTeam Cargo that collaborates nine carriers who are all SkyTeam members.