Escorts Mutual Fund

MUMBAI: The Association of Mutual Funds of India (Amfi), an industry body representing fund houses, has directed its members not to deal with four distributors allegedly involved in corrupt practices.

The barred entities are alleged to have involved in misselling fund products to investors. Misselling describes a wide array of common malpractices such as selling products which are not suited for a particular investor. Investors have also lodged complaints regarding misappropriation of money by the erring entities. However, the distributors blacklisted by Amfi don’t figure among the country’s top financial advisors. The names of the barred entities were not available.

“Some distributors were carrying out fraudulent activities due to which investors were suffering losses. After seeking explanations from the distributors, we immediately suspended them,” said Amfi chairman AP Kurien. “Amfi has asked fund houses to suspend payment of commission and incentives to select financial advisors,” said a senior fund official.
Mutual fund products are distributed by banks, independent distributors and independent financial advisors. Among the top distributors are HDFC Bank, HSBC, Standard Chartered Bank and independent entities such as NJ India, Bajaj Capital and Blue Chip. Besides institutional sellers, there are about 65,000 independent financial advisors selling mutual fund schemes to retail investors. Mutual funds compete vigorously to sell their products resulting in distributors being wooded by all the fund houses.

All the 65,000 mutual fund agents in the country have an Amfi registration number (ARN) and have to follow a code of conduct mandated by Sebi. Every year, Amfi takes a self certificate from all the ARN holders stating that she/he has followed the code of conduct.

At present, there are more than 30 lakh insurance and mutual fund agents and bank officials selling retail financial products in India.

“They serve about 188 million investors holding financial assets. Of these, eight million investors participate in debt and equity markets, either directly or indirectly through complex and risk-bearing products like mutual funds and market-linked insurance plans. It drives home the need for order,” according to a report by a government-appointed committee which was examining the financial services industry.

http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/Amfi-bars-4-MF-agents-for-misselling/articleshow/5418129.cms

ICICIdirect’s online MF platform ready to take brokers on board

Advisers need to sign an agreement with ICICIdirect and subscribe to the platform’s services for a fee, which hasn’t been disclosed yet.

ICICIdirect.com, the online brokerage division of ICICI Securities Ltd, has launched its online platform for mutual fund (MF) advisers. At present, ICICIdirect allows only its own customers to use the platform to directly invest in funds. The new platform will also enable agents to come on board and transact on behalf of their clients.
Advisers need to sign an agreement with ICICIdirect and subscribe to the platform’s services for a fee, which hasn’t been disclosed yet. Once the adviser is issued a unique username and password, he can begin transacting in about 3,000 schemes across all fund houses that ICICIdirect offers
“This will enable advisors to switch money from the investor’s account to the fund’s account under one roof,” says Anup Bagchi, executive director, ICICI Securities.
What works?
Now, a client can call up his adviser to invest in a fund. The adviser would then transact on his behalf. In other words, investors will not be required to fill up forms every time they want to invest in MFs. Also, since the adviser will electronically transfer funds from the client’s bank account, investors will not be required to write out any cheques. Investors will also get limited access to the platform to check the status of their portfolio.
What doesn’t?
Since ICICIdirect.com is already a primary agent of various MFs, it has an existing commission structure—put in place on 1 August after entry loads were banned—that it imposes on its existing clients. Advisers who come on board this platform will be mandated to charge the same commission to their clients. They will not be able to charge any fee over and above ICICIdirect’s charges.
At present, it charges the lesser of Rs30 or 1.5% for each instalment made through a systematic investment plan and Rs100 for lump sum investments, if the total value of existing investments is less than Rs8 lakh. In addition, investors would need to pay Rs500 to open an investment account and around Rs100 every year, subsequently.
If your adviser chooses to come on board and aims to route your investments through this platform, you will need to open a savings account with ICICI Bank Ltd. You will also need to open an investment account with ICICIdirect.
While Bagchi feels this increases safety as money can then be seamlessly transferred from the client’s bank account to the fund’s account without the client having to log on to the platform, advisers may find it difficult to convince their clients to open a new bank account, if they don’t have it already.

MUMBAI: More than a decade ago, insurance companies in India started offering residential and commercial properties the option of covering potential losses that might occur due to a terror attack. In the year 2008-09 , they had to make good claims amounting to a whopping Rs 500.09 crore after some of the city’s more prominent hotels were attacked by Kasab and nine terrorists during the 26/11 attack.

This staggering claim, which industry sources predict will increase in the coming months after the final settlement is made, is a far cry from the half-a-crore that insurance companies doled out in 2002. “We’re looking at a 900-fold increase ,’’ said an industry expert.

This rise in the last one year alone is due to three major claims made by the Taj Mahal Palace and Tower and the Oberoi and Trident hotels. Their claims account for a little over 42% of the total amount that insurance companies had to meet last year.

The Taj, which was insured by Tata AIG, settled an interim claim amounting to Rs 130 crore as of December 2009. The Oberoi and Trident hotels, insured by New India Assurance, settled claim amounts of Rs 62 crore and Rs 18 crore respectively. According to officials these are only interim payments; the final settlement is yet to be reached, which means that the figure is likely to rise.

A company or residential society can insure its buildings against terror attacks by taking a fire insurance policy. The Taj pays an annual terror insurance premium of around Rs 15 lakh, the Oberoi pays a premium of Rs 10 lakh, and the Trident Rs 6 lakh. All these are part of the comprehensive fire insurance policy.

In 2002, general insurance companies came together to form a common insurance pool from the premium collected under the terror insurance cover. Rates vary depending on the sum insured as well the category of the establishment. Firms are allowed to withdraw money from the common pool and compensate claimants in case of terror attacks on the insured structures. The General Insurance Corporation (GIC) of India maintains this common pool, which has now swelled to Rs 1,500 crore. `This amount remains in the kitty after last year’s claims have been made good,’’ said a GIC official.

“As per the terrorism insurance pool arrangement , all general insurance companies have to contribute 100% of the terror risk insurance premium to the pool. The underwriting results of the pool like premium, claims and expenses are shared among the pool members in agreed proportions ,’’ said the GIC official. The last major claim that was withdrawn from the common pool was in 2003. A sum of Rs 8.4 crore was settled under a terror claim after an oil refinery tragedy in Digboi, Assam, was attacked by extremists.

http://economictimes.indiatimes.com/personal-finance/insurance/insurance-news/Insurance-firms-cough-up-Rs-500-cr-in-terror-claims/articleshow/5418645.cms

Reliance Life Insurance eyes rural market

Announcing its foray into rural and micro-finance segment, Reliance Life Insurance Company Limited on Wednesday announced the launch of two new insurance products, Reliance Jan Samridhi Plan and Reliance Traditional Super Invest Assure Plan (RTSIP).
President of Life Insurance Company Malay Ghosh said in Chandigarh that the company was targeting Rs 100 crore from micro insurance segment this year. He added while Jan Samridhi Plan was rural-centric product that lowered the entry level for providing life cover and savings opportunities with premium as low as Rs 50 a month, Reliance Traditional Super Invest Plan was a regular premium scheme designed to meet the regular savings, protection and income needs of customers having a risk-averse profile. At present 95 per cent of the insurance products sold by company are Unit Linked Insurance Policies while only 5 per cent non linked policies.

http://www.business-standard.com/india/news/reliance-life-insurance-eyes-rural-market/381888/

BANK
Banks may duck impact of rising yields
With a sharp rise in bond yields in the third quarter, most banks have been saved mark-to-market (revaluing securities to reflect their current value) losses by a whisker.
The yield on the benchmark 10-year government paper increased by 49 basis points during October-December as expectation of policy tightening by the Reserve Bank of India (RBI) gained momentum after inflation shot up in November.
Rising food prices fuelled the wholesale price index inflation to a 10-month high of 4.78 per cent in November, triggering expectation of unwinding of the stimulus policy by the central bank. The inflation rate was 1.3 per cent in October.
Yields on government bonds across maturities hardened in the third quarter. The closing yield on 10-year benchmark paper on December 31, 2009, was 7.68 per cent, about 50 basis points more than the yield of 7.19 per cent on September 29.
“Overall, the third quarter is likely to be relatively modest in terms of treasury performance, compared to the huge profits registered in first and second quarters, as the rise in yields was not enough to trigger large MTM losses. Overall profitability in October-December is expected to be moderate,” Angel Broking said in a report.
“If yields rose another 10 basis points, we might suffer a loss on our bond portfolio,” said the treasury head of a public sector bank.
Though yields are expected to further harden in the current quarter, analysts say it will be more than offset by higher credit growth and lower bad loans.
A senior State Bank of India (SBI) official said his bank’s bottom line would not be hurt by hardening yields since income from high-yield bonds was expected to be more than the provision for MTM losses.
“An internal exercise carried out in the middle of the calendar year showed that yields would harden. To benefit from the emerging trends, the bank has been more active in bonds than treasury bills. It picked up bonds carrying higher yields. This bond folio is expected to give returns to cushion the impact of erosion in the value of bonds that are held in the trading portfolio or are available for sale,” the official said.
Bank credit growth, which hit single-digits in the third quarter, was the lowest in more than a decade and would result in muted net interest income growth sequentially, analysts said. In the past couple of fortnights, credit has showed signs of picking up while the deposit growth has moderated due to improvement in capital markets and unattractive returns.
Broking house Motilal Oswal expects a 10-15 basis point net interest margin improvement on a sequential basis for most banks due to falling cost of funds.
The third quarter will also see a rise in provisions by some banks to meet the RBI mandate on loan-loss coverage. Banks that had a provision coverage ratio of less than 70 per cent would have to make more provisions from the third quarter onwards. As a result, bottom lines may come under pressure. RBI has told banks to have 70 per cent coverage by September this year.
SBI, the country’s largest lender, which had a provision coverage ratio of 43 per cent at end-September, may have to provide Rs 1,000 crore more towards non-performing assets in the third quarter, according to Motilal Oswal.
“While operating profit is expected to increase 16 per cent, net profit growth is likely to be (only) 8 per cent as provisions are expected to increase six-fold,” Motilal Oswal said.
Other state-run banks which will have to increase their provision coverage are Bank of India, Indian Overseas Bank and Dena Bank. According to analysts, slippage from restructured loans is the key factor to watch for Bank of India.
Bangalore-based Canara Bank, which also has a low provisioning coverage ratio at 28 per cent, may not have to make a higher provision as RBI has allowed technically written off assets to be included while calculating the ratio. Canara Bank’s technical writeoffs were nearly Rs 1,000 crore, sufficient to reach the 70 per cent level.
http://www.business-standard.com/india/news/banks-may-duck-impactrising-yields/381863/

SEBI
SEBI extends stock lending, borrowing tenure to 12 mths
MUMBAI: The Securities and Exchange Board of India (SEBI) has extended the tenure of contracts for stock lending and borrowing (SLB) up to a maximum period of 12 months, as it tries to revive the comatose segment.

SLB was introduced in April 2008, starting with a contract tenure of seven days. With hardly any interest from market participants in the product, the regulator increased the tenure to 30 days in November that year. But even that has not helped in attracting investors to the SLB window.

Some institutional investors say stringent margin norms, rather than the tenure of the product, are to blame for investor apathy.

The stock lending borrowing mechanism helps an investor sell shares that he feels are overvalued, even if he does not own them. He does so by borrowing shares for a fee and returning them to the lender at the end of the tenure of the contract. The advantage for the lender is that he can earn a steady income on idle shares in his portfolio. The borrower (also the seller) is betting that the price of shares will decline, so that he can then buy them at a lower price from the secondary market and return them to the lender at contract expiry.

In the latest set of norms that the regulator unveiled on Wednesday, the approved intermediary — clearing corporation/clearing house — will have the flexibility to decide the tenure up to a maximum period of 12 months. The lender/borrower will be provided with a facility for early recall /repayment of shares.

In case the borrower fails to meet the margin obligations, the approved intermediary will obtain securities and square off the position of such defaulting borrower, failing which there will be a financial closeout, the new rules say.
In case the lender recalls the securities anytime before the completion of the contract, the approved intermediary, on a best-effort basis, will try to borrow the securities for the balance period and pass them on to the lender. The intermediary will collect the lending fee from the lender who has sought early recall. In case of early recall by the lender, the original contract between the lender and the intermediary will exist till the contract with the new lender for the balance period is executed and the securities returned to the original lender.

In case of early repayment of securities by the borrower, the margins will be released immediately on the securities being returned by the borrower to the intermediary. The intermediary will, on a best effort basis, try to onward lend the securities. And the income arising out of the same will be passed on to the borrower, making the early repayment of securities. In case the approved intermediary is unable to find a new borrower for the balance period, the original borrower will have to forego lending fee for the balance period. In case of early recall by the lender or early repayment of securities by the borrower, the lending fee for the balance period will be at a market determined rate.
http://economictimes.indiatimes.com/SEBI-extends-stock-lending-borrowing-tenure-to-12-mths/articleshow/5418122.cms

Stock lending tenure raised to one year

In a move which could infuse more liquidity in the markets and make it more dynamic, the Securities and Exchange Board of India (Sebi) on Wednesday extended the tenure of contracts in securitiesThe regulatory move has come at a time when the country is heading for its Union Budget in a month and a half.
In its second revision of the SLB framework since its operationalisation in April 2008, the market regulator said, “The tenure of contracts in SLB may be up to a maximum period of 12 months. The approved intermediary (clearing corporation/clearing house) shall have the flexibility to decide the tenure.” It further added that lender and borrower of share would be provided with a facility for early recall and repayment of shares.
At the beginning, the tenure was of only seven days, which was later increased to 30 days.
Motilal Oswal, managing director of Motilal Oswal Financial Services, said, “Earlier, the tenure was too short a period to make this window attractive. With the extended period, there will be more activities and liquidity in the market. Non-F&O stocks will see the most activities.”
Market observers said that with the 30-day period of contract, it was not easy to take the benefit of SLB. This was basically the reason why it could not take off in a big way. “Extension of period will boost the market and liquidity will take off,” said Dharmesh Mehta, head-broking, Enam Securities.
According to Jagannadham Thunuguntla, equity head at SMC Capitals, the move would act as a fillip for the recovery of the market and hedge funds, and would be able to encash on the benefits out of it since a month’s time was too short for them.
If the lender of the shares recalled the securities anytime before completion of the contract, the intermediary would try to borrow the security for the remaining period and pass it to the lender. However, in this case the lender who had sought early recall, would have to pay lending fee to the intermediary.
In a scenario of early recall, the original contract between the lender and the intermediary would exist till the contract with the new lender for the remaining period was executed and the securities returned to the original lender, said Sebi in a note on Wednesday.
Mohan Natrajan, executive vice president of Edelweiss Securities, said, “The step is in the right direction from the market point of view. It may substantially trigger the volumes in the market as with extended contract period flexibility between lender and borrower will increase. It may act as a spark, which would make future arbitrage more effective. But it is yet to be seen how the market participants take it.”
If the borrower of shares wished to do early repayment of securities, the margins would be released on the securities being returned by the borrower to the intermediary. However, if the intermediary was unable to find a new borrower for the balance period, the original borrower would have to forego lending fee for that tenure.
In both cases, early recall or early repayment of securities, the lending fee for the balance period would be at a market determined rate, added Sebi.
lending and borrowing (SLB) to 12 months from one month.

Our Bureau
Mumbai, Jan. 6
SEBI has collected from Mr Jitendra Lalwani and Ms Sheelu Lalwani Rs 14.89 crore as disgorgement amount in the IPO scam (2003-05).
The two are the two key financiers to the key operators in the scam.
SEBI passed a consent order on the applications filed by Mr Jitendra Lalwani and Ms Sheelu Lalwani while SEBI proceedings in the matter were in progress, the order said.
Cornering shares
The capital markets regulator had alleged in its April 2006 order that the two entities financed the key operators, which led to cornering of shares reserved for retail investors in several IPOs including those Suzlon Energy, Sasken Communication and FCS Software.
Mr Lalwani remitted Rs 9.62 crore comprising disgorgement amount of Rs 7.40 crore and Rs 2.22 crore towards settlement charges.
Ms Sheelu Lalwani remitted Rs 5.27 crore – Rs 3.96 crore towards disgorgement and Rs 1.30 crore towards settlement charges.
The order said SEBI will file an application in the CBI Special Court, Mumbai, for withdrawal of the Protest Petition that it filed before the same court against Mr Jitendra Lalwani in the matter of IDFC.
Prior to this order, SEBI has collected about Rs 20 crore through various consent orders from other key operators and financiers in the IPO scam.
http://www.thehindubusinessline.com/2010/01/07/stories/2010010751691000.htm