Escorts Mutual Fund

landscape both for AMCs and distributors. Last month, the market regulator abolished the system of entry load from August 1, and decreed that distributors should collect their commissions directly from the investors.

This is expected to strain the profitability of both asset management companies as well as distributors. According to the Mckinsey report, portfolio management services and alternates will grow faster as the affluent/HNI segment grows and AMCs/distributors also push higher margin products. Within equity, the prevalence of closed-ended fund structures will increase, with AMCs trying to keep the churn ratio to the minimum.

Industry experts however believe well-positioned players should not lose sight of the opportunities presented by the new regulation, which could catalyse multiple innovations in business models for distributors as well as AMCs.

On the charge structure and the subsequent shift in dynamics, banks and national distributors (NDs) are seen as better positioned to charge customers, given their control over a larger share of customer wallet across multiple products (e.g., deposits, broking) and also their wealth management platform.

“For some it presents an opportunity to move from transaction-led pricing to an advisory-led pricing model. This would mean adopting a “relationship value” view of customers and charging them on their overall AuM, rather than on a per MF transaction basis.

In parallel, the retail customer segment may evolve towards transaction-based charges for mutual fund purchase and redemption. These may be “tiered”, depending on ticket size, very much in the way banks currently charge for other services such as draft issuance,” the report said.

Among independent financial advisors (IFAs), only the bigger IFAs with the ability to deliver enhanced service and advice to customers, are expected to be able to charge the customers. However, the smaller IFAs may not be able to charge anything to customers on an average.

Hence, the impact of the regulation on distributor economics may be the greatest on IFAs, especially smaller IFAs, who act as a transaction intermediary rather than an investment advisor. Unless compensated by higher volumes, IFA revenues could be impacted to the extent of 30% revenue loss.

The asset management industry in India in FY2008-09 saw assets under management (AuM) declining by approximately 17% compared to year-on-year growth of approximately 50% between FY03 and FY08. “The capital markets decline and consequent preference for debt and liquid funds resulted in a significant shift in the product mix, with the proportion of debt and liquid funds increasing significantly in FY09,” the Mckinsey report said.

MUMBAI: The mutual fund industry is likely to see consolidation earlier than expected, as many new entrants may not be able to withstand the financial stress arising from the need for higher investments, rising expenses and the importance of organised channels for distribution, says a report by consulting firm Mckinsey & Co.

The report says the new Sebi regulations have the potential to transform the asset management landscape both for AMCs and distributors.

Last month, the market regulator abolished the system of entry load from August 1, and decreed that distributors should collect their commissions directly from the investors.

This is expected to strain the profitability of both asset management companies as well as distributors. According to the Mckinsey report, portfolio management services and alternates will grow faster as the affluent/HNI segment grows and AMCs/distributors also push higher margin products. Within equity, the prevalence of closed-ended fund structures will increase, with AMCs trying to keep the churn ratio to the minimum. Industry experts, however, believe well-positioned players should not lose sight of the opportunities presented by the new regulation, which could catalyse multiple innovations in business models for distributors as well as AMCs.
On the charge structure and the subsequent shift in dynamics, banks and national distributors (NDs) are seen as better positioned to charge customers, given their control over a larger share of customer wallet across multiple products (e.g., deposits, broking) and also their wealth management platform.

“For some, it presents an opportunity to move from transaction-led pricing to an advisory-led pricing model. This would mean adopting a ‘relationship value’ view of customers and charging them on their overall AuM, rather than on a per MF transaction basis. In parallel, the retail customer segment may evolve towards transaction-based charges for mutual fund purchase and redemption. These may be ‘tiered’, depending on ticket size, very much in the way banks currently charge for other services such as draft issuance,” the report said.

Amongst independent financial advisors (IFAs), only the bigger IFAs, with the ability to deliver enhanced service and advice to customers, are expected to be able to charge the customers. However, the smaller IFAs may not be able to charge anything to customers on an average. Hence, the impact of the regulation on distributor economics may be the greatest on IFAs, especially smaller IFAs, who act as a transaction intermediary rather than an investment advisor. Unless compensated by higher volumes, IFA revenues could be impacted to the extent of 30% revenue loss in the worst scenario.

The asset management industry in India in FY08-09 saw assets under management (AuM) declining by approximately 17% compared with year-on-year growth of approximately 50% between FY03 and FY08.

“The capital markets decline and consequent preference for debt and liquid funds resulted in a significant shift in the product mix, with the proportion of debt and liquid funds increasing significantly in FY09. Retail debt and liquid proportion increased from 23-40% between FY08 and FY09, and institutional debt and liquid proportion increased from 86-91% in the same period. Industry profitability, measured as basis points of average AuM, dropped from approximately 22 bps to approximately 14 bps, putting significant pressure on asset management companies,” the Mckinsey report said.

am running SIPs of Rs 2,000 each in HDFC Top 200, Kotak 30 and Reliance Growth. These are meant for my grandchildren. The time horizon for this investment is 15 years. Should I continue in these schemes?
-Sat Pal Aggarwal
Your scheme selection is good and you may continue in these. However, it is important to regularly track their performance, as the schemes might not remain good forever. If their performance shows signs of deterioration, look for other funds.
The government has proposed to do away with the distinction between short-term and long-term capital gains in the proposed direct tax code. What would be the impact of this change on a SIP calculation for long-term investors?
-Satvik Kumar
Taxing long-term capital gains will mean that when you prepare a SIP for your long-term goals, you will have to take an increased sum into consideration. For example, if the money required is Rs 1 lakh and the tax rate applicable is 20 per cent, then you will need to accumulate Rs 1.25 lakh. Accordingly, the regular contribution amount will also increase.
I want to invest some amount in an aggressive mid-cap/small-cap fund. Please suggest some funds.
-Himmat Singh
Some mid- and small-cap focused funds that have performed well over the past years are Birla Sun Life Mid Cap Plan A, IDFC Premier Equity Plan A, Sundaram BNP Paribas S.M.I.L.E. and Sundaram BNP Paribas Select Midcap. These funds keep a major part of their portfolio in mid-/small-cap stocks.
Usually, the Net Asset Value (NAV) of the dividend option of a fund is found to be lower than that of the growth option because of the periodic dividend payout. This, however, is not true in case of DSP BlackRock Equity Fund. Why?
-S H Godbole
The dividend plan under DSPBR Equity Fund has been in existence since April 1997, while the growth plan under the fund was launched only recently, in June 2007, when the NAV under the dividend plan was already close to Rs 43, while the NAV of the growth plan was started afresh from Rs 10.
I have Rs 1 lakh in fixed maturity plans that mature next fortnight. Suggest some debt investments with a time horizon of two to three years. The return from these funds should be adequate to beat inflation.
-Pramod P Bhave
Given the expected rise in interest rates, volatility in income funds is going to abound (bond prices will fall when interest rates rise). We suggest you invest 90 per cent of the money in high-yielding bank fixed deposits, where the principal will be secure. To get positive inflation-adjusted returns, invest the remaining 10 per cent in large-cap diversified equity funds. Birla Sun Life Frontline Equity, HDFC Top 200 and DSPBR Equity are good picks.
Are the dividends paid under mutual funds deducted from the profits these funds make when selling units in the markets?
-V N Kale
The NAV, which is the price of units for investors, reflects the value of stocks (and some incidental cash) that the investor will hold by way of one unit. Mutual funds do not make a profit when they sell additional units in the markets. Whatever is distributed by way of dividends is a part of the scheme's assets and the NAV falls to the extent of dividend distributed. To pay dividends, funds use the proceeds from new investments or from selling the securities they hold in their portfolio.

MFs) bought shares worth a net Rs 16.80 crore on Thursday, 27 August 2009, lower than Rs 83.90 crore on Wednesday, 26 August 2009.
MFs' net inflow of Rs 16.80 crore on 27 August 2009 was a result of gross purchases Rs 1297 crore and gross sales Rs 1280.20 crore. The BSE Sensex rose up 11.22 points or 0.07% to 15,781.07 on that day.
MFs bought shares worth a net Rs 592.10 crore in August 2009 (till 27 August 2009). MFs had bought shares worth a net Rs 1825.50 crore in July 2009.

Midcap and smallcap mutual funds are zooming up on the returns chart, outperforming benchmark indices. The top performing funds have given 130% returns since March this year. CNBC-TV18’s Priyal Guliani reports.
Here is a transcript of Priyal Guliani’s comments on CNBC-TV18. Also watch the accompanying video.
The midcap stocks and small cap stocks are buzzing and so are the midcap funds and small cap funds.
Srinivisan Iyer, Equity Fund Manager, SBI MF said, “When we talk about midcap as a group, we are talking about an index and within the index there will be standard deviation. As a group midcaps tend to outperform in a rising market, they tend to underperform in a falling mkt purely because the beta in a midcap is very high. So, your call on midcap is a function of what u think the market is going to do. If you catch the right stocks you can do pretty well compared to the benchmark or your peer set. We like the media space within consumer discretionary, we like specific sectors within consumer staples, we like midcap IT, we like midcap pharma.

The conclusion of yet another earnings season in the middle of stressed market conditions has seen the rise of several unconventional questions from investors. Lack of clarity and clear reporting of results from hedging activities has led to questions that depict resignation and sometimes frustration from the investing community. Where a few years back hedging programmes were seen as the Holy Grail to performance stability, today investors are questioning companies on hedging losses?
Hedging should fundamentally neither lead to gains nor losses. The perception that either gains or losses arise from hedging activities is a result of two fundamental problems. The first is the lack of transparency in financial reporting relating to hedging. This is primarily due to inadequate accounting standards on disclosures and scarce efforts by companies to explain their hedging strategy and objectives to its investors. The second issue is ‘view based hedging’ resulting in frequent cancellation and re-booking on the back of volatile currency movements which is akin to speculation.
The numbers that flash across tickers on business news channels and make headlines across newspapers include mark to market losses and exchange difference losses. The most keenly watched numbers in the notes to accounts include value of unhedged positions and outstanding derivatives. While these numbers are an important part of financial reporting, they convey only part of the truth. They are by no means the way to judge the effectiveness of hedging programs.
Mark to market losses, for example, reflect losses only on hedging positions. Where hedges are taken against genuine commercial transactions, mark-to-market losses should ideally be off-set by gains on the underlying business transaction. The other keenly watched number is the exchange difference losses. Exchange difference account losses merely reflect the difference between the currency rate at which a transaction was booked and the rate at which a transaction was physically settled. This is again not representative of a company's financial position as revenues may actually be recognised at a rate which is far higher than normal. The exchange difference loss is merely an adjustment to such revenues.
The value of unhedged positions gives the greatest degree of a false sense of security. Unhedged positions as reported in financial statements reflect only that part of foreign currency exposures which are receivables and payables in the books of accounts. They do not tell anything about future foreign currency denominated receivables or payables which can have a larger impact on overall...

In a bid to ensure that more insurance funds flow into infrastructure projects rather than into the equity market, the Insurance Regulatory and Development Authority (Irda) may ask life insurance firms to shift focus from unit-linked insurance plans (Ulips) to traditional products such as endowment plans, money-back policies, pension plans and term policies.
According to provisional data by the Life Insurance Council, a representative body of life insurers in India, for the quarter ended June 2009, the total premium generated by private life insurers was Rs13,243 crore, and 85.5% of this came from Ulips.
Ulips offer a policyholder an element of insurance cover and freedom to invest a part or the entire sum of her premium in equity markets. The value of one’s investment in Ulips depends on the net asset value of the units of investments.
“We are examining various ways to get long-term capital for the country’s infrastructure growth from the insurance industry. Companies should generate a minimum amount of capital selling traditional insurance products, instead of focusing mainly on unit-linked products,” said R. Kannan, member-actuary, Irda.
would do to ensure this. “We are However, he declined to comment on what Irda examining it but have not yet decided on whether there should be any stipulation on the minimum percentage of total premium that an insurance firm would need to generate from traditional products,” Kannan said.
official said that as a major part of Ulip premiums flows Another senior Irda into equity markets, the regulator is concerned that enough long-term money is not being generated for supporting the country’s infrastructure growth. “We are closely watching how the firms are selling insurance products and whether they are raising long-term money,” he said. He declined to be identified as he is not directly involved in this exercise.
“Private life insurers should have a fair mix of traditional and unit-linked products in their portfolio. In traditional policies, the companies should increase their share in participatory life insurance plans to provide better support to the infrastructure growth of the country,” Kannan said.
A participatory plan provides life cover for a fixed number of years and if no claim is made, gives the insured a cut of the firm’s profits, in addition to the sum assured. In insurance parlance, the profits are termed bonuses.
In sharp contrast to Ulips, the investment norms for traditional insurance products are stipulated by Irda. Under its norms, a life insurer is required to invest at least 50% of premiums in government securities, 15% in infrastructure-related projects and companies, and the remaining 35% in equities, mutual funds, non-convertible debentures, and other money-market instruments.
Bonuses given on such life insurance plans represent the returns on investing in those products.
As the government envisages $500 billion (Rs24.45 trillion) investment in India’s infrastructure developments by 2012, the insurance regulator is concerned that private life insurance players contribute only a minuscule portion to this growth, as the bulk of their premium comes from Ulips and gets invested in stock markets.
There are 22 life insurance companies in India, including the state-run Life Insurance Corp. of India, the largest and oldest player.
Private insurers hard sold Ulips in past few years, riding high on a bull market. The Sensex, the country’s bellwether equity index, rose seven times, from around 3,000 in March 2003 to 21,200 in February 2008.
After the Sensex lost 52% in 2008 after a 45% annual rise for three years in a row, investors’ appetite for Ulips was dented. This also pulled down the premium income of insurance players in 2008 and at least some of them recorded a decline in such income for the first time since India allowed private players to set up shop earlier this decade.
According to the Life Insurance Council, total assets held by private sector life insurers in equity stood at Rs81,294 crore as on 30 June against Rs45,641 crore a year earlier. In contrast, their investment in the infrastructure sector stood at Rs16,255 in June, up from Rs10,077 crore in June 2008.
“It is desirable to bring a minimum amount of premium through traditional policies. We have been making efforts to achieve this,,” said S.B. Mathur, secretary-general of the council.
“We agree with Irda on bringing more capital of long-term nature from traditional policies. We are planning to grow the premium in our traditional products by 30-40% this financial year,” said Sam Ghosh, chief executive officer, Reliance Capital Ltd, which owns Reliance Life Insurance Co. Ltd. At present, Ulips constitute 95% of its new business premium.
Some 90% of the June quarter premium income of the country’s largest private sector life insurer, ICICI Prudential Life Co. Ltd, was generated from Ulips. For the year ended March, the company collected a total premium of Rs15,350 crore, of which about Rs13,800 crore came from Ulips.
According to Sashi Krishnan, chief investment officer of Bajaj Allianz Life Insurance Co. Ltd, the nature of investments depends on investors’ appetite. “It is true that long-term money in traditional products could be put into long gestation infrastructure projects, but it is the investor who decides which product to buy,” Krishnan said.
About 85% of Bajaj Allianz’s premium income comes from Ulips. “We will focus on increasing the mix of traditional policies, but investors’ choice is most important. Bringing a minimum regulatory requirement as premium from traditional products could impact the freedom of insurers,” Krishnan added.
Jayant Khosla, chief executive officer, Future Generali India Life Insurance Co. Ltd, seconds Krishnan. “We cannot dictate the customers to buy traditional products. The customer will buy a policy, based on his risk-return profile,” he said.

Nacil manages to control insurance cost

Reliance General Insurance-led consortium bags the mandate for $24.3 million.
The National Aviation Company of India (Nacil) has managed to avoid any adverse impact of the Air France crash on its insurance cost as it has renewed its annual cover without a significant rise in premium.
This was despite the cover size rising 34 per cent to $8.59 billion as against $6.39 billion in 2008-09. The one-year policy will be effective from September.
The contract has been bagged by Reliance General Insurance along with HDFC Ergo, Bajaj Allianz and Iffco Tokio General Insurance Company. The state-owned airline will pay $24.3 million for 134 aircraft.
The public sector consortium, led by New India Assurance, came close with a bid of $24.9 million. New India Assurance had provided the cover to the national carrier in 2008. The other bidder was ICICI Lombard General Insurance.
“The rate has actually fallen from last year as the hull value has gone up by around 34 per cent as against no rise in premium,” said a senior executive of one of the four insurance companies that had insured the airline.
Nacil had deferred the renewal of the policy after its expiry on June 30 as it could extend the policy for three months at existing rates under a clause in the previous policy.
People familiar with the development said the new management was keen on more competition.
Two private airlines, Kingfisher and Indigo, had to buy insurance cover at the expiry as there was no extension clause in their policies.
On renewal, Kingfisher’s premium had shot up by 40 per cent. The largest private sector insurance company, ICICI Lombard, has provided $3.09-billion cover to Kingfisher Airlines effective from June 24.
Indigo has bought insurance cover from New India Assurance at a cost that is 10 per cent more than its previous cover. However, Jet Airways did not have to pay a higher premium as it renewed its cover at the beginning of the current financial year.

http://www.business-standard.com/india/news/nacil-manages-to-control-insurance-cost/368430/

BANK

Bankers see no upward movement in interest rates

Amidst ample liquidity, bankers do not see interest rates moving up and State Bank of India Chairman O P Bhatt expects the rates to even fall in the next few months.

“In the next 4-6 months, I do not see interest rates going up. Either they will remain stable or may even drop," Bhatt told reporters here after receiving the award from Prime Minister Manmohan Singh for excellence in financing small and medium enterprises.

Bhatt said there is enough liquidity in the banking system, so much so that different banks are offering "all kinds of schemes on specific kinds of products, which are very competitive".

While inflation has stayed in the negative territory for past several weeks, analysts are wondering whether the interest rates have bottomed out with signs of economic recovery. The Reserve Bank left the benchmark rates unchanged in its July credit policy.

Central Bank of India Chairman and Managing Director S Sridhar also does not see any upward movement in the interest rates in the festival season. " In the short-term, interest rates would depend on liquidity, which was enough in the system," Sridhar said.

Chairman and Managing Director of Union Bank M V Nair said it is not the interest rates but the lack of demand in the economy that is a cause of concern.

"I think interest rate is not a concern. It is only the pick up in demand which is a concern," he said.

Nair, however added that the demand is likely to pick up in the next six to eight months due to improvement in the industrial production.

http://profit.ndtv.com/2009/08/28151307/Bankers-see-no-upward-movement.html

No significant impact of meltdown on remittances: RBI

New Delhi: Global financial crisis has so far failed to significantly slow down inflow of remittances in India, the Reserve Bank said.
“Available information indicates that inward remittances to India have not been impacted significantly by the economic crisis,” the RBI said in its annual report contradicting popular perception of a severe impact on remittances.
According to the World Bank estimates (July 2009), remittance flows to developing countries, which increased to $328 billion in 2008 from $285 billion in 2007, are projected to decline by 7.3% in 2009, the RBI said.
Europe and Central Asia are expected to experience the largest decline (15%) among all developing regions in 2009. However, remittance flows to South Asia are expected to decline more modestly by 4%, the report said. India remained the top recipient of migrant remittances with $52 billion in 2008 as against $38.7 billion, it said citing the World Bank estimates, and added remittance flows to South Asia have continued strong growth in 2009.
Uncertainties in oil prices might have “induced the workers to remit their money to India as a hedging mechanism due to its relatively better growth prospects”, the report noted as one of the factors for higher remittances in India. Another reason for the growth of remittances to South Asia and East Asia appears to be a switch in the motivation for remittances from consumption to investment, the RBI said.
Falling asset prices, rising interest rate differentials, hike in interest rate ceilings on NRI deposits since September 2008, and a depreciation of the local currency have attracted investments from migrants, it said. The continued strong growth of remittances in 2009, it pointed out, is also due to the fact that the Gulf Cooperation Council (GCC) countries, a major destination for Asian migrants, have not significantly reduced hiring migrants.
GCC countries are following a long-term strategy of infrastructure development funded by the accumulated reserves and are unlikely to slow down such investments and lay off migrant workers in large numbers, the annual report said. Though there could be some slowdown in remittances in the near term due to the recession in advanced economies and sharp moderation in the West Asia, remittances are expected to return to positive growth in 2010 and 2011, it said.

http://publication.samachar.com/pub_article.php?id=5337411&navname=Business%20&moreurl=http://publication.samachar.com/

SEBI

NSE to launch IRFs today

The National Stock Exchange (NSE) is all set to launch interest rate futures (IRFs) tomorrow. The launch would elevate the country’s financial markets into the big league, making it possible for investors, traders, banks and business class to hedge their interest rate risks.
Initially, the segment would be available only on NSE, as the other two exchanges, the Bombay Stock Exchange (BSE) and MCX SX would take time to launch the trading in this segment. While BSE has been granted permission for IRFs by the Securities and Exchange Board of India (Sebi) and has announced that the segment would be launched in a couple of months, MCX SX is awaiting permission from the regulator.
IRFs are known to be a complex products for retail and small investors but it generates nearly 20 per cent volume in the derivative financial market around the world. Large banks, mutual funds and institutions use it to hedge their investment and loan risks.
The concept of IRFs is like any other derivative product, except for the underlying — which is 10-year notional coupon bearing government security. This underlying security is assumed to pay interest (called a coupon) at a rate compounded at 7 per cent on a half-yearly basis.
How can you make use of this instrument?
If one has invested Rs 3 lakh in an infrastructure bond and the central banks lowers the repo and reverse repo rates, the floating benchmark in this case will lead to an interest rate decline, which would also mean a decline in your assets. However, in such a scenario one can hedge this risk with the use of IRFs, by taking long position in the segment.
When the interest rate declines, the yield rates of the bonds would also decline resulting in corresponding price of a bond to increase. So, when the bond future prices go up your long position can help you hedge your risk. Bond prices decrease with an increase in interest rates.
The contracts to be settled on delivery basis would be through any one of the 19 different government securities for a contract. The daily settlement would be done on a daily mark-to-market mechanism basis.
The size of the contract would be Rs 2 lakh and there would be four contracts ending in March, June, September and December. The last trading day would be the seventh business day prior to the last one of the delivery month.
http://www.business-standard.com/india/news/nse-to-launch-irfs-today/368578/

Single tribunal for financial sector needed

Newspapers have recently reported that a proposal has been mooted in government to convert the Securities Appellate Tribunal (SAT) into a “Financial Services Appellate Tribunal” to hear grievances against orders passed by various sub-sectoral regulators. Presently, the SAT hears appeals only against orders passed by the Securities and Exchange Board of India (SEBI).
India has not opted for a single integrated regulatory approach unlike the United Kingdom, which has the Financial Services Authority as the sole regulator. We do not even have a “twin-peak” model where regulatory oversight is divided between the role of market development and safety and the role of conduct-of-business regulation. We have a combination of a functional approach (where you are regulated on the basis of the function you carry out) and an institutional approach (where you are regulated by a regulator depending on the nature of your institution).
While there may be no single “correct” approach, in India, the ground reality is that individual institutions are regulated by multiple regulators. For example, a firm or group of firms (all consolidated as far as balance sheet strength is concerned) may be a member of stock exchanges, commodity exchanges, provide advisory or distribution services for mutual funds and insurance companies, investment banking services and also be an intermediary in the money markets.
We have numerous cases of commercial banks regulated by the Reserve Bank of India (RBI) also carrying on depository participant business, regulated by SEBI. Each function played by an institution has a regulator and the same compliance team ends up having to be conversant with the idiosyncrasies and peculiarities of multiple regulators.
Each of these sub-sectors in the financial system may have its own raison de etre and therefore each regulator may have its own turf. However, the persons who are regulated are one and the same. A financial disaster affecting one role can impact the risks faced by the other role. While there are numerous arguments for and against having different regulators for different roles, an important feature of any good regulatory system having an effective check and balance on the regulator’s role in the form of an appellate process as a matter of right. An appellate mechanism keeps regulators on their toes and improves regulation.
Presently, SEBI is the only regulator that is subjected to a statutory right to appeal against its orders. The SAT is a creature formed by the SEBI Act, 1992, with powers to hear appeals against any decision of SEBI by which any person is aggrieved. The SAT was set up in 1995 with a far more limited role. A parallel appellate body then sat in the Ministry of Finance, taking decisions but failing to contribute to well-articulated jurisprudence. However, over time, the SAT has developed into a robust institution – truly one of the best specialised tribunals in the country.
The RBI, which administers banking regulations and exchange controls does not have any regulator overseeing its functioning. Indeed, the scope of an appellate oversight of the RBI ought not to include appeals against its decisions to raise or lower interest rates, or its decisions on whether to support the Indian Rupee or to let it depreciate. However, the RBI increasingly takes decisions that affect a significantly wider band of people with every passing year.
In the antiquated days of the Foreign Exchange Regulation Act (FERA), exchange controls had a very narrow constituency – not many bought foreign exchange, not many set up shop outside India, and in fact, not many even travelled outside India. Today, the picture is completely different. Any person can remit USD 200,000 abroad. Indian tourists visit the rest of the globe. Indian companies are liberally up shop abroad. Foreign investors freely set up shop in India. The sheer number of people whose lives are affected by RBI’s decisions has expanded exponentially.
The RBI does a number of things that SEBI does – it writes regulations on its own, issues circulars, issues show cause notices, initiates enforcement action, and even has powers to compound offences. Yet, there is no appellate oversight over such regulatory functions of the RBI. Therefore, the only recourse for anyone affected by a wrong decision of the RBI is to file a writ petition. Writ courts, by definition, are not expected to consider merits in detail but would only examine if due process has been followed. For example, recently some banks have been penalized by the RBI for breach of know-your-client norms through terse and inarticulate orders from the RBI, with no appellate recourse, and yet the same bank’s depository participant business, when penalized by SEBI, is subject to the important safeguard of an appeal.
The RBI is but an example. The Insurance Regulatory and Development Authority (IRDA), which regulates the insurance sector has a Parliamentary mandate identical to that of SEBI – to protect the interests of policyholders and to promote the orderly development of the insurance sector. Commodity exchanges, once the preserve of commodity merchants is now a wide market with numerous investors trading in commodity derivatives.
The Forward Markets Commission (FMC) takes a number of decisions that impact members of commodity exchanges and even the exchanges themselves. Yet, the IRDA and FMC are not subject to appellate oversight.
There may be a compel-ling case to have different horses run different course for the primary regulation of various sub-sectors. However, the appellate process and the factors that would weigh with an appellate body in judging a decision would be very similar, and primarily a function of well established principles of administrative law. Therefore, consolidating all the potential appellate powers in one single tribunal without creating multiple tribunals would be a very welcome measure.
http://www.business-standard.com/india/news/single-tribunal-for-financial-sector-needed/368585/

Real Estate

Disclose all loan details to buyers, RBI tells builders

The Reserve Bank on Friday made it mandatory for builders borrowing funds from banks to disclose their loan details to the home buyers.
RBI has issued directions to banks to include the disclosure clause in their loan agreement with the builders, pursuant to a recent Bombay High Court order.

“While granting finance to specific housing/development projects, banks are advised to stipulate that the builder/developer/company would disclose in the pamphlets/ brochures, the names of the banks to which the property is mortgaged,” RBI said in a notification. A builder would have to publish loan details in advertisements given in newspapers or magazines, and also mention that it has a no-objection certificate from mortgagee banks for sale of the property, it said.

“Banks are advised to ensure compliance of the above terms and conditions and funds should not be released unless the builder/developer/company fulfills the above requirements,” the notification added.

Working Group’s tenure
RBI on Friday also extended the tenure of Working Group to review the Benchmark Prime Lending Rate (BPLR) by one month to end- September 2009. “The Reserve Bank of India has on Friday extended the tenure of the Working Group on Benchmark Prime Lending Rate (BPLR) by one more month, from end-August 2009 to end-September 2009,” RBI said in a release.

The RBI had constituted a six-member working group in June to review the benchmark prime lending rate (BPLR) system and suggest a mechanism for pricing floating rate loans, a move that will improve transparency in the way banks set interest rates on housing loans.

The working group, chaired by RBI Executive Director Deepak Mohanty, comprises J P Morgan India Chief Economist Jahangir Aziz and Indian Institute of Management Ahmedabad Professor T T Rammohan as members.

http://www.deccanherald.com/content/22084/disclose-all-loan-details-buyers.html