All waiting for financial deals between Kotak Mahindra alliance

Japan's Sumitomo Mitsui Financial Group (8316.T) will consider launching retail banking operations in China, Thailand and India through tie-ups with local partners as it seeks to expand in Asia, its president said.

It would be time-consuming to start retail banking operations from scratch on our own. It would be more efficient and effective to enter by tying up with local banks, either through equity stakes or not.

On Wednesday, SMFG's core banking unit, Sumitomo Mitsui Banking Corp, announced that it had agreed to buy a 4.5 percent stake in Indian lender Kotak Mahindra Bank (KTKM.BO) for $296 million.

India has high growth potential and we have determined we need to make a deeper commitment in the market. So far, SMFG and rival Japanese banks' overseas operations have mostly catered to Japanese companies doing business abroad, but they are now trying to reach out to local customers by tying up with local banks.

Portfolio managers hike charges for beating lower returns

Stock brokers have few equals in ingenuity. Even as inflows into their highly-profitable portfolio management service (PMS) schemes have been declining, most large stock broking firms have managed to sustain margins by arbitrarily changing the rules of the game.

Many clients having subscribed to PMS schemes have earned below par returns on their investments in the past few quarters, as stock brokers introduced new charges.

The fee for portfolio management service is higher than plain-vanilla broking transactions, as brokers claim they are giving customised services to their clients.

There is an upfront fee, which the PMS provider partly passes on to the distributor who brings in the business. In addition, the broking firm charges a management fee, performance-linked fee and an exit load if the client withdraws his money before a specified period.

Many broking houses have now introduced charges like allocation fees, custodian fees, incidental charges and also raised brokerage rates and the upfront fee.

Hear the Eko of mobile banking

It was a chance meeting with former president of India APJ Abdul Kalam at Delhi Airport in 2001 that changed Abhishek Sinha’s life forever.

Kalam, who was then a scientific adviser to the government and a recipient of Bharat Ratna, told Sinha that youngsters like him should start something of their own and create wealth not only for themselves but society at large.

Such was the impact of those words that a year later Sinha put his papers in then Satyam Computers to co-start Six DEE Telecom Solutions, a telecom value-added services firm. Though he sold his share in the venture in 2007 due to strategic differences with the partner, a social entrepreneur was born by then.

And along with his brother, Abhinav, he founded Eko Financial Services. The objective being to make banking easy and reachable to the poor people.

This was the time when we as a country were going through a telecom revolution. Even the poorest of the poor has started owning and understanding a mobile banking via phone and our whole idea revolved around promoting it as a financial identity for them.

Today, three years down the line, over 70,000 people in Delhi NCR, Bihar and Jharkhand have opened a no-frills bank account with the help of Eko Financial Services and almost 2,000 people transact currency amounting to Rs 20 lakh on a daily basis using their mobile commerce channel.

Their partners in this venture have been next-door kirana stores, chemists and other such retailers who act as mini bankers or customer service points (CSPs) in the ecosystem. They help accountholders deposit, withdraw and transfer money by punching numbers on mobile phones.

The startup has over 500 CSPs and the total value of transactions exceeds Rs 20 crore. But the journey has been far from smooth. Despite the low-cost financial inclusion model winning TiE-Canaan Entrepreneurial Challenge, a national-level business plan competition in 2006, funding remained a challenge.

We were just not able to raise money. Whatever money my brother and I got from our exit from Six DEE Telecom Solutions soon started drying up.

Though the tale was short-lived. On February 25, the project started and on February 24 the news came of the merger of CBP with the HDFC Bank. By June, the company had to squander its 2,000 accountholders. “We were left like orphans,” he remembers. Our core team of 10-12 people still exists. They never disbelieved the prospects.

The fact that Eko team has nobody from the retail banking experience makes it more unique. The graduate from Birla Institute of Technology, Mesra says the toughest part has been to convince bankers of the SMS-based banking.

In November 2008, American business magnate Bill Gates visited one of Eko’s CSP that offered the much needed visibility. This was a time when Eko found the going really hard as they struggled to pay salaries to their staff and raised money from friends and relatives. Eko now plans to partner 8,000 outlets, targeting to reach a million customers by year end.

Though Eko has started echoing in the market, Sinha says people’s first reaction when they get introduced to SMS-based banking at a mom and pop store is—if it’s a truth or a fraud? Our dream now is to see bank accounts being as popular product categories as pulses or mobile banking via phone recharge coupons are at retail shops

The Govt has cleared 450-cr WB loan proposal for microfinance

Today, the Government has approved a proposal to draw a loan of USD 100 million (about Rs 450 crore) from the World Bank to promote microfinance in the country.

The Cabinet Committee on Economic Affairs (CCEA) cleared the proposal for on-lending to the Small Industries Development Bank of India (SIDBI), which -- in turn -- would disburse the funds to the microfinance sector.

The fund will be used to promote responsible and balanced growth of microfinance outreach, particularly in under-served areas where micro finance penetration is low, thereby serving the larger objective of promoting financial inclusion.

The decision is expected to help broad-base credit disbursals.

Growth in the microfinance sector has been very high in the last few years, with some of the institutions registering 100 per cent year-on-year growth.

Home loan rates may rise

It seems that home loan rates can rise as the base rate regime will come into effect from July 1.

Increase your home loan eligibility

Teaser home loan rates of some banks, including State Bank of India (SBI), which charges only 8 per cent for the first year may rise, as Reserve Bank of India (RBI) has not allowed banks to lend below the base rate. While SBI indicated that its base rate is likely to be around 8 per cent, for others banks the rate will be 8.25-8.5 per cent. SBI will announce its base rate before June 15.

Get a leeway on home loans

In a meeting held last week, bankers have discussed the issue and are of the opinion that they have to increase their home loan rates. The home loan scheme of SBI will be reviewed by the end of the month, as it was extended till June 30, a bank executive said.

Country's largest lender, SBI which pioneered the concept of teaser rate last year and forced others to follow suit, had earlier said the fixed-cum-flexible scheme was launched as the bank was having huge liquidity following the global financial crisis. However, now the surplus liquidity is no longer there as the banks started to access the repo window of RBI since last week.

Fixed deposit rates mey be rising by Sept

It seems that the decline in fixed deposit rates may be ending soon. A bottoming out by September is being expected (and the figure could touch) to 18.2% by March 2011.

The current growth in bank's fixed deposits is way below comfort levels. If this continues, the full-year target of 18% won’t be reached.

RBI’s projection takes into account the resource needed to meet credit offtake by the private sector and government borrowings along with growth and inflation outlook. Not only are government borrowings high this year, credit growth is also expected to be higher than last year at 20%.

Interest rates on deposits are too low now and in some time banks would have to consider their sources of funds and take a decision on deposit rates so that they are in a position to meet credit growth targets.

There is an upward bias in deposit rates because banks will need money to meet credit demand. Union Bank of India has already revised its interest rates on bulk deposits for 1 year to 6.5% from 6% earlier. It had revised its retail deposit rates to 7.5% for 5 years, 7.25% for 3 years and 6.5% for 1 year in mid-April and is continuing with these rates for now and will take a call when markets start showing signs of liquidity crunch.

With inflation expected to ease out by this financial year end, it is expected that RBI will dilute liquidity tightening. The RBI may hike policy rates by 25 basis points in July and October each unless the European contagion spreads.

Easing inflation will also help in cutting the cash demand. Public cash demand is also expected to scale down as softer inflation reduces the demand for money for day-to-day transactions.

Ample liquidity appears to have drained out to someextent as banks have started borrowing from RBI under the repo window daily to meet their creditdemands.

Spectrum fee eases fiscal deficit pressure

All else remaining unchanged, it is now expected the fiscal deficit of the Union government will be a lot lower than the 5.5% estimated in Budget 2010.

The unexpectedly aggressive bidding for spectrum to provide third generation mobile services and wireless broadband has fetched the government Rs 1,06,262 crore, 200% more than what was budgeted. All this money would be available to the Centre by the end of this month, as winners of the spectrum for wireless broadband have to pay up by June 22.

The spectrum fee will, in one stroke, cut budgeted fiscal deficit from Rs 3,81,408 crore to Rs 3,10,146 crore, or about 4.5% of the nominal GDP assumed in Budget 2010.

This is assuming taxes will grow at the projected rate and disinvestment through the year will fetch Rs 40,000 crore. The two major component of direct taxes — tax on personal income and on corporate profits — is estimated to grow by 15% during the current fiscal to Rs Rs 4,21,897 crore.

That’s the rate at which revenues from these two taxes rose even in the last fiscal when the economy grew only 7.4% in real terms. It would, therefore, seem that the estimates for revenue growth is conservative, even after considering the big give-aways for individual tax payers in this year’s budget.

The finance ministry has estimated collection of tax on corporate profits would climb 23.2% and that on personal income would decline by 1.4%.

But given the strength of the recovery, evident from the robust industrial performance — illustrated by the vigorous growth in fourth quarter profitability and 17.6% expansion of the Index of Industrial Production — these targets may be improved. But there are some impediments to surpassing these target.

With pressure on containing fiscal deficit at 5.5% having eased with the completion of auction for spectrum for new telecom services, the tax department runs the risk of slipping into complacency. It may not make enough effort to bring many more evaders into the tax net.

Risks to global growth can resurface, as the European sovereign debt crisis illustrate. That can affect growth in the Indian economy, and therefore tax revenues of the government. Inflationary pressures may prompt the Reserve Bank of India to adopt a tighter monetary stance, and that can choke off growth some bit.

Curbing of the fiscal deficit is also dependent on the government raising about Rs 40,000 crore from sale of equity in the public sector enterprises. Again, there is a risk that these targets may not be met in a volatile market, even with the new rule that all listed entities should have 25% public float. That apart, coalition members could put a spanner in goverment’s plans.

Lastly, any slippage on the keeping government expenditure within budgeted limits too can play a spoiler in bringing down the deficit to 4.4%.

The move by SEBI’s in order to boost MF volumes on stock exchanges has drawn brickbats

Mutual fund distributors say that online trading of mutual funds will leave investors at the mercy of stockbrokers and expose them to further mis-selling

Market regulator Securities and Exchange Board of India's (SEBI) latest effort to shore up mutual fund trading volumes on the stock exchanges has not gone down well with the distributors' community. Industry experts believe that having mutual fund investments in demat form does not serve investors' interests and will expose them to further mis-selling.

No investor is being forced to open a demat account for investing in mutual funds. The article said that the regulator has invited suggestions from the Association of Mutual Funds in India (AMFI) by 15 June 2010, on making it mandatory for all mutual fund investors to open demat accounts.

Recently, the regulator sought banks' help to promote the stock market route for mutual funds. However banks' managements were not keen on SEBI's suggestions. The meeting was attended by NSE's deputy MD Chitra Ramakrishna and BSE's deputy CEO Ashish Chauhan. From the banking side, senior officials from Union Bank of India, State Bank of India, HSBC and Canara Bank were present at this meeting.

The independent financial advisor (IFA) who wishes to make a living from advice will never lose out. His clients may have a demat account but they don't have to trade and transact based on their broker's advice. Brokers provide little value-add as advisors.

The role of an IFA is that of a financial planner, guide and friend to the client. By investing in mutual funds through the demat route; the personalised role of an IFA is diminished. The IFA has to become a sub-broker with a national distributor and work according to the policies and objectives of the national distributor whose objective may not always be in the best interests of the mutual fund customer. The reason for this is that the platform they work on is speculative in nature. The broker (who normally trades for his clients on shares) will have no time to give quality advice to the clients.

Demat totally defeats the very purpose of abolition of loads to bring down the cost of investing in mutual funds. I fail to understand the logic of the suggestion of the regulators

Do you want an insurance for a vintage car?

It is widely reported that classic car insurance is far cheaper than a modern car policy but it is important to be vigilant and well informed. Also, it is important to understand that the condition and scarcity of classic car insurance can vary dramatically, and an owner’s perception as to the value of his beloved car is often at odds with his insurer’s valuation in the event of a claim. It is always better to search for a specialist insurer; they are more likely to provide specialist assistance and provide a better rate.

How many times have we seen a movie scene where a someone or the other is fawning over his car as though it’s his child? Car enthusiasts pride themselves on the car that they drive and care for it as though it’s a part of their family and not just a mere mode of transportation. This is especially true for owners of vintage cars who draw their purse strings together when it comes to taking care of their beloved cars.

Prices of vintage (produced before 1929) and classic cars (up to 1965) are escalating at the rate of 15-20 per cent every year.

Experts say, not more than 1,000-3,000 vintage cars exist in India today, valued at Rs 350 crore (Rs 3.5 billion). Some of the country’s biggest collectors - Pranlal Bhogilal of Ahmedabad, Sharad Shanghi of Indore and UB group chairman Vijay Mallya - own 350-odd vintage and classic cars between them, including the rare Mercedes 540 K and the Rolls Royce Silver Ghost, both valued at over Rs 1 crore.

But when you think about securing such priceless cars, insurance is something that first pops up into your mind. Classic cars often don’t have modern safety features, and are thus prone to damage and possibly expensive to insure. They do not have things like seatbelts, crumple zones, airbags, or any type of rollover protection, as these things were mostly added in the time since the generally accepted “classic” period. The maintenance and repairs can be surprisingly expensive, meaning that any serious owner should definitely think about having insurance.

Though available, providing insurance for vintage and classic cars is not a mainstream option among the many insurance companies in India. Insurance for your classic car is dependent on a number of factors, predominant among which are:

* Age - Cars made up to 1904 are considered “veteran cars,” while the Edwardian period stretches from 1905 to 1918, and the Vintage age lasts from 1919-1930. For the most part, cars are usually called “classics” if they were manufactured at least 25 years ago, but even some relatively recent cars which are thought of as especially rare and collectible are thought of as classics. Therefore, it is important to know what definition of a classic or vintage car does the insurance company follows, since most have different definitions.

* Value of the car - Policies can be sold based on the actual cash value of the car, in which case a book value with depreciation will be paid out by the provider in the event of a claim; then there is the “stated value” policy, which can still depreciate, but is based on the owner’s valuation for the car; and agreed value, which might not necessarily depreciate, and depends on a consensus between owner and provider.

It is important that you take into account the coverage which the insurance company provides. You need to check whether or not the policy liability covers public events; coverage including events and shows; coverage for damages incurred during restoration; and moveable premiums taking into account mileage, which naturally varies significantly for classic cars from year to year.

It is widely reported that classic car insurance is far cheaper than a modern car policy but it is important to be vigilant and well informed. Also, it is important to understand that the condition and scarcity of classic car insurance can vary dramatically, and an owner’s perception as to the value of his beloved car is often at odds with his insurer’s valuation in the event of a claim. It is always better to search for a specialist insurer; they are more likely to provide specialist assistance and provide a better rate.