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Understanding the effect of rolling back petrol prices
While Petrol prices seem to be running astray, what one must understand is that causing “Bharat Bandh” and other protests and eventually rolling back prices may not help the situation.
For example, India sells 100 units of produce at Rs 1000. This means as long as India spends Rs 1000, it can recover it by selling 100 units. At this stage, the economy is balanced. Now, let’s say India sells a liter of petrol at Rs 50 instead of Rs 75 (its true value) thus making a loss of Rs 25 per liter. To compensate for this Rs 25 loss, India will either borrow Rs 25 or print currency of Rs 25.Whatever be the case, for the additional Rs 25, India does not produce any goods. The number of units continues to remain at 100. In the absence of any real production, India will recover the Rs 25 from its citizens by spreading the loss across the 100 units.
So, the system had 100 units and was sold at Rs 1000. However, due to the loss, an additional Rs 25 (borrowed money or printed currency) was added into the system. So while the units remained 100, the money in the system became 1025. While the price per unit in the previous situation was 1000/100 = Rs 10, now the price per unit would become 1025/100 = Rs 10.25. This is how the recovery takes place across all the units. In other words, the value of the rupee goes down because the same number of units is now purchased at a higher amount.
A very similar thing is happening in India. People are spending more than they are producing. This is causing fiscal deficit or a gap between what we spend and what we earn. So naturally, the value of money is eroding in the economy as explained in the earlier example. India does not produce enough petrol and therefore imports because petrol is an essential commodity. As shown in our earlier example, the increase in petrol prices is not being passed on to the end consumer. Had the increase been passed on to the consumer, the system might have self regulated itself by way of the consumer and reducing the consumption because of higher prices.
Since the price rise does not get fully passed on, the demand for petrol remains unabated and India has to import more quantity of petrol. This naturally leads to more paper money (or borrowing) in the economy without a commensurate increase of real goods in the economy. This means that the price of goods in the economy increases to offset the loss of petrol sales. Thus, instead of fewer people paying for the increase in the price of petrol, now they pay by way of higher prices of goods. This is what is commonly called inflation. So in essence, by rolling back prices, the people at large may not benefit as they are hit by inflation which erodes the value of their money.
Hope this note gives you an idea on the effect of rolling back petrol prices.
*Welcome to bank licensing Derby
The Department of Post looks a winner
in a race involving 26 new bank licence applicants
The Business Line
On July 1, 26 horses moved up to the starting line for the bank licensing Derby.
The Budget for February 2010 indicated that the process for entertaining applications for new private sector commercial bank licences would be initiated.
The consultative process took three years before the Reserve Bank of India (RBI) announced the final guidelines in February 2013, and then another four months for submission of the applications.
The fact that, on this occasion, there were only 26 applications, as against hundreds of applications on the earlier two occasions in 1993-94 and 2002, is erroneously interpreted as waning interest in applying for bank licences. On the earlier occasions, it was much easier to weed out the less serious applications.
In the present occasion, while there are fewer applications, almost all are serious contenders.
Include Industrial Houses
The Committee on Fuller Capital Account Convertibility (2006) recommended that industrial houses which meet all the criteria set out in the guidelines should be considered for granting licences.
The Finance Minister, in February 2010, while indicating that licences for new private sector commercial banks would be considered, had said that this would include industrial houses.
Attempts by some analysts to debar industrial houses, should be peremptorily dismissed — in fact, such analysts are fighting yesteryear’s battles.
We have long since crossed the Rubicon, since industrial houses have successfully operated in insurance, non-bank finance companies and mutual funds and there is just no point in further sterile debate.
Pleas by applicants for relaxation of the final guidelines should be dismissed. Moreover, care should be taken to ensure that any slippages in meeting the criteria and the regulatory framework should invite withdrawal of the in-principle approval.
This would also require that earlier generation banks be subject to the same criteria such as minimum capital, reduction in the percentage of ownership by the sponsor and opening of branches in rural areas.
In fact, setting up of token ‘tin sheds’ in rural areas should be subject to strictures. Efforts by banks to attain financial inclusion should be assessed by meaningful performance and not attainment of paper targets.
While the media has been active in commenting on the 26 applications for new bank licences it has, by and large, not focussed on the application by the Department of Post (A notable exception is ‘Post Bank of India’, The Hindu, July 5).
The Department of Post has been, for quite some time, articulating the need for the postal system to be given a full-fledged bank licence.
What the media seems to have missed is that the Department of Post has actually applied for a private sector bank licence.
India Post Bank
The new entity would no doubt need to be incorporated, but it would imply that the Government will have a minority stake.
The Department of Post will need to set up a 100 per cent sponsor-owned (that is government-owned) Non-Operative Financial Holding Company, and the sponsor will be required to have a 40 per cent stake in the India Post Bank which would be locked in for five years; thereafter, the sponsor would need to reduce its share in the Bank.
The private holding would best be spread over a number of institutions rather than one institution that would have a controlling interest. After a few years, the new Bank would need to list itself in the stock market and widen its ownership.
The India Post Bank, as a private sector unit, with only 10 per cent of its offices operating as a bank, would have 15,000 branches.
The total number of post-offices are 1,55,000 and, in the initial stages, the bulk of offices would need to work as extension counters of one of the branches. In due course, the larger of these extension counters would become independent branches.
Since 90 per cent of the post-offices are in the rural areas, a full-fledged India Post Bank would provide a major thrust to the avowed objective of financial inclusion.
Thus, the granting of a bank licence to the Department of Post should make it the out and out winner of the private sector bank licensing Derby.
If there is one outstanding initiative emerging from the July 1 list of applicants for new private sector bank licences, it relates to India Post.
Could this be a precursor to a shift in the immutable policy of majority ownership of public sector banks?
Non-CTS-2010 cheques (Cheque Truncation System) will continue till December 31, 2013,the Reserve Bank of India (RBI) said.
While banks have begun to issue fresh cheques in the CTS-2010 format, there is still a large volume of non-CTS-2010 format cheques being presented in image-based clearing.
In March, the timeline for withdrawal of residual non-CTS-2010 standard cheques was extended up to July 31, 2013.
Accordingly, the central bank has decided to put in following arrangements for clearing of residual non-CTS-2010 standard cheques.
Separate clearing session will be introduced in the three CTS centers (Mumbai, Chennai and New Delhi) for clearing of such residual non-CTS 2010 instruments (including PDC and EMI cheques) from January 1, 2014. This separate clearing session will initially operate thrice a week (Monday, Wednesday and Friday) up to April 30, 2014. Thereafter, the frequency of such separate sessions will be reduced to twice a week up to October 31, 2014 (Monday and Friday) and further to weekly once (every Monday) from November 1, 2014 onwards.
Banks may educate and notify their customers of the likely delay in realisation of non-CTS-2010 standard instruments in view of proposed arrangement for clearing of such instruments at less frequent intervals, the RBI said in a notification on Tuesday.
During the transition period (i.e. up to December 31, 2013), the existing clearing arrangements will continue and all cheque issuing banks are advised to make efforts to withdraw the non-CTS-2010 Standard Cheques in circulation.
Is Technology Making an Impact in the Banking Industry?
The Digital Technology
Banking industry is embracing Technology in a big way
to meet the demands of tech-savvy customers.
With TV, music and shopping available with the merest swipe of a screen, it’s vital that the banking industry adapts to meet the needs of tech-savvy customers.
Considering the focus on the banking industry of late, and the much-talked-about state of the economy, the banking industry’s ability to adapt to changing technology could be vital to its recovery from the economic downturn.
Just how has technology been impacting the banking industry of late? Which advances have caused more work for the banking industry, and which have made their lives easier?
Cyber Crime Demands Swift Responses
The constantly changing world of the internet seems to offer more opportunities for hackers, and more ways to stop them.
According to Australian Banking and Finance, there has been a shift away from short-lived cyber attacks, focused on grabbing as many bank details and card numbers as possible. Hackers are moving towards longer-term infiltration which passes below the radar of current cyber crime prevention teams.
For banks, this means a need to keep abreast of the shifts in the type of cyber crime that is being carried out, and to adapt their security and online teams to prevent damage.
A security slip can badly damage a bank’s reputation, so it’s vital that they head off current threats, in order to keep their customers’ trust.
Paperless Technology Cuts Costs
Moving away from paper such as statements and receipts and embracing online and electronic technology instead could theoretically reduce both costs and paperwork for banks.
Meanwhile, customers can look forward to a more streamlined experience at their fingertips, without the attendant issuing of paper which must later be filed or disposed of.
Some major banks have been making headway in paperless technology.
Some Chase branches have installed paperless touch-screen teller stations, where customers can initiate everyday transactions such as deposits without the need to fill out a paper slip. Meanwhile, Wells Fargo customers can have receipts emailed directly to them rather than printed.
Customer-Led Banking Requires Excellent Mobile Technology
There has never been a more vital time for banks to deliver a great service to their customers.
With the proliferation of mobile banking, the onus is on banks to deliver a secure, seamless, user-friendly mobile banking experience. Online banking is the cyber equivalent of dropping into a branch, and customers expect the same level of service and ease of use.
In addition to making the most of online and mobile technology, banks are beginning to focus on how to use technology to offer more remote services.
For example, teleconferencing instead of in-person meetings to talk to a mortgage advisor, or secure self-service checkouts that are more akin to a self serve checkout line at the supermarket.
It’s very feasible that such adaptable, mobile banking is the future of the banking industry, so implementing the most up to date technologies has never been more important.
Social Networking Puts Emphasis On Customer Relations
Whether you’re talking restaurants, clothing stores, or banks, the internet is the go-to information repository for customers today.
Gone are the days when banking was a mysterious activity that took place in bank vaults and behind teller windows. Customers expect to be able to interact with their banks online, and to be met with transparency about the bank’s dealings.
There is a need for banks to present a human and friendly face online, and to offer the best customer service possible.
A tweet or Facebook comment can damage a bank’s reputation quickly, so the better and faster their customer service, the better.
Many banks are embracing the more social side of technology, with Bank of America establishing five Twitter accounts, two of which offer customers direct conversation with bank employees. With @BofA_community boasting over 2,00,000 followers, it’s clear that customers are keen to interact with their banks through social media.
Technology can certainly keep banks on their toes, engendering the need to provide better, faster, more personal and more streamlined services.
However, it can also enable banks to adapt more quickly to customers’ needs and connect with them in a way that can build a more trusting relationship.
For quick-thinking banks who are willing to adapt, the benefits are worth the effort.
Foreign citizens/NRIs can now pay PAN application fee in any currency using Credit /Debit Card
As per information uploaded on NSDL website Facility for payment of PAN application fee in Indian Rupees foreign currency by foreign citizens/NRIs using ‘Credit Card/Debit Card’ is now available for those applicants who apply PAN online.
Foreign Citizen /NRI if If communication Address is within India can pay by any of the following methods :-
– Demand Draft
– Cheque – Credit Card / Debit Card +
– Net Banking
If any of addresses i.e. office address or residential address is a foreign address, the payment can be made only by way of Credit Card / Debit card and Demand Draft payable at Mumbai.
Rajan will be among the youngest to head RBI
He will be 50 years and six months old when he takes over as the 23rd governor on Sept 5
When noted economist Raghuram G Rajan takes over as Reserve Bank of India (RBI) Governor next month, he will be among the youngest to occupy the high chair at the central bank. Rajan, a former chief economist at the International Monetary Fund, will be 50 years and six months old when he takes over as the 23rd governor on September 5.
When Manmohan Singh became governor of RBI in 1982, he was 10 days short of his 50th birthday. Singh, born on September 26, 1932, took over as the 15th governor on September 16, 1982. He was appointed by Pranab Mukherjee, the then finance minister in the Indira Gandhi government.
The distinction of being the youngest Indian governor of RBI lies with C D Deshmukh, a civil servant who took over the office at the age of 47 in 1943. He continued as RBI Governor upon India’s independence in 1947, becoming the first Indian to be appointed on the post.
Rajan, who succeeds D Subbarao, will be the first non-civil servant in 10 years to steer RBI. The previous non-IAS RBI governor was Bimal Jalan, who had an almost six-year stint that ended in 2003.
C Rangarajan, who is chairman of Prime Minister’s Economic Advisory Council, served as head of the central bank from December 1992 to November 1997.
Subbarao’s predecessor, Y V Reddy, like him, was an IAS officer and a secretary in the finance ministry and had a stint of five years from 2003-08.
The first governor of the central bank was Osborne Smith, appointed by the British Crown. He was succeeded by another Britisher and Indian Civil Services officer James Braid Taylor in 1937, after which Deshmukh took over.
Ancient And Outmoded
The BusinessworldWe need a new hybrid made up of banks and mutual funds
The Reserve Bank has published a list of applicants for bank licences. Its wish has been almost fulfilled. It would have preferred to issue no licences at all. It tarried as long as it could. For a long time it did not respond to the finance minister’s prodding. Then it issued a discussion paper, and waited for responses. Then it finally called for applications. It is three years now; it is still far from issuing licences. I have often expressed my belief that the Reserve Bank is trying its best to delay and prevent the emergence of new private competitors to the government banks which it owns and loves. Now it will have to issue licences, but can get away with as few as a dozen.
Do we need banks? The answer is obvious: there must be someone who would keep our cash safe; keeping it at home is too risky. But that no longer means there must be banks. There could be one bank — let us call it Reserve Bank — which can keep all the cash. And it does not have to have a branch close to every depositor; it can give everyone a mobile phone like a Samsung or BlackBerry which can be used to check one’s bank account and make and receive payments. If anyone wants a record of the transactions he makes with his telephone, it can be provided to him on Internet or by post — or better still, by going to a post office: the post office can become a monopoly government bank serving everyone. First there was cash. Then came banks, which made cash obsolete. Now we have telecommunications, which have made banks obsolete.
But even a government bank must cover its costs. Managing everyone’s cash and payments is a good service for the government to give, but it has to earn its way; and the simplest way to earn something is to put that cash to some use. Banks lend it out. That is a possibility; but it is bad business in two ways. One is liquidity mismatch: a bank lends out the money for a certain period, and promises to give a depositor his money instantly. So it takes the risk of running out of cash. The other is that even though the bank gives loans, it lends cash to businesses that are risky. Every once in a while, a business fails, or cannot find the cash to repay a bank loan on time. If enough businesses do this together, the bank runs out of cash, and cannot pay its depositors.
Central banks are the government’s solution for these problems: they impose conditions on banks that make them safer, and if a bank still fails, they bail it out. I think there is a better solution: ban banks, and replace them with mutual funds. Every mutual fund must offer its investor a number of options. It would rate borrowers, lend them money, and charge them interest rates that would cover the risk. It would offer its investors a number of debt funds bearing different rates of interest; but they would differ from the present debt funds in one respect — that it is the investor, not the mutual fund, who would bear the risk of bad debts and delayed payments. Similarly, a mutual fund would investigate businessmen thoroughly and then give them equity; it would invest not only in joint stock companies, but all kinds of businesses, large and small. It would package its debt and equity investments according to risk and prospect, and offer the packages to its investors, who would bear the risk. Thus, banks must be abolished, and replaced by investment managers; depositors must be abolished, and turned into investors. An investor would have available to him a range of investment products involving varying risk and return. And if he wants absolute safety, he can give his money to the central bank, and access it any time he wants on his mobile phone. Apart from managing cash, the central bank would also insure all investors against the failure of their investment managers. It would be the risk-taker of last resort. It would choose the most respectable and trustworthy investment managers it can find. But they would not bear investment risks: they would be fully disclosed, but borne by savers.
You can still file your I-T returns
Only those who have paid all taxes and do not have any refund claim can file their I-T returns by 31 March 2014
The Income Tax (I-T) department has urged all those taxpayers who have not filed their I-Tax returns, even by the extended deadline of 5 August 2013, to file their returns at the earliest to keep away unavoidable difficulties. However, the option to file one’s I-T return before 31 March 2014 is available only for those who had paid all their taxes and there are no refund claims.
According to a release issued by Press Information Bureau (PIB), if the returns are not filed by 31 March 2014, there will be a penalty of Rs5,000 levied on the taxpayer. Those with tax dues will have to pay late payment fee leviable for every month of delay since April 2013, the release said.
While I-Tax department gives taxpayers certain grace period to file their returns, there are certain disadvantages associated with late filing of I-T returns. Those who file their returns late, cannot modify their returns if there are any mistakes. They also cannot carry forward any short term and long-term losses.
All those with total income of Rs5 lakh and above and all those having foreign assets have to mandatorily file their IT returns online. Those with total income less than Rs5 lakh can file their returns off-line. So far, more than 1.23 crore taxpayers filed their returns online this year.
According to the release, a person defaulting in filing returns of income could be liable for prosecution under Section 276CC of the Income Tax Act, 1961. Conviction may result in rigorous imprisonment for a term not less than six months but which may extend to seven years and a fine, if the tax liability which has been evaded exceeds Rs25 lakhs.
Recently, the additional chief metropolitan magistrate in New Delhi sentenced a taxpayer to six months imprisonment in one assessment year and one year imprisonment in subsequent assessment year for repeating the offence of not filing return of income. Source -mlf
Tatra Tiger
What Does it Mean?
A nickname or colloquial term for the central European nation of Slovakia. It became known as the Tatra Tiger following economic growth rates that were among the highest in Europe in the first decade of the 21st century. Following its separation from the Czech Republic in 1993, Slovakia embarked on significant economic reforms that spurred growth, and enabled it to join the European Union in 2004. The term “Tatra Tiger” is derived from the Tatra mountain range that straddles the border between Slovakia and Poland.
Jim Rogers: Why I’m shorting India
The hedge fund manager on the financial crisis, his bets for the future and his decision to be extremely negative about India in his just-released book0
The Future of Banking: Putting Human Tellers in ATMs
Herb Weisbaum, The CNBC
ATMs have served us well for more than 40 years now, but it’s time for a reboot. We trust these machines to dispense cash and accept deposits. But it turns out they can do much more, and more quickly and efficiently, when remote human tellers are involved in the transaction. The new Interactive Teller technology from NCR accomplishes that. Because these machines let people talk to a remote teller on a video monitor, customers can do things that wouldn’t be possible otherwise. For example, if you lose or forget your ATM card, you can prove your identity by showing the teller a driver’s license.
This is not a simple video chat. The teller on the screen is controlling that machine and all its functions. “We’re creating a personalized interaction that’s very secure, but also with very high functionality,” said NCR Vice President Brian Bailey. Because a human is at the helm, an Interactive Teller can cash a check to the penny and disburse bills in any denomination you request. Want singles or fives rather than 20s? That’s not a problem at this ATM.
Another benefit: faster service.
Because the remote teller doesn’t have to count cash or physically enter the amount of each check—the machine does it—transactions are conducted more quickly than they would be inside the branch. NCR has about 350 Interactive Tellers in service, and Bailey predicts that the technology will be in widespread use within the next 12 months. “We’re finding that consumers’ trust … is really off the charts,” he told me.
The executives at Coastal Federal Credit Union in Raleigh, N.C., certainly believe in the technology. Its 15 branches no longer have tellers on-site—they’ve all been replaced with Interactive Tellers. “They’re more convenient, faster and safer—robberies basically go away with this—and they allow us to provide better service,” said Willard Ross, chief retail officer at Coastal Federal. “Customer response has been fantastic.” By switching to this system, the credit union was able to extend its hours from 7 a.m. to 7 p.m. seven days a week. Steve Ferrani, who uses an Interactive Teller at least once a week for his business deposits, appreciates the longer hours.
He also likes having those deposits posted to his account sooner. It typically takes a day or two for processing a deposit made at a traditional ATM, but because Coastal Federal’s Interactive Teller can verify the deposit in real time, it’s credited that day. By the way, the machines work like any other ATM unless the customer pushes a button to request a human teller. Analysts believe it’s critical that customers decide when they want to do a totally self-service transaction and when they want some help. “If you make the teller available on demand, only when requested by the consumer, then those types of transactions are more likely to be done at the ATM,” said Bob Beara, a senior analyst with the research firm Celent. “And that’s good for both banks and their customers.”
Bank of America believes remote tellers will help it build a deeper relationship with customers. In April, it began installing the first ATMs with what it calls Teller Assist in Boston and Atlanta. The bank plans to fast-track deployment through 2014. “This is the future of banking,” said Shelley Waite, Bank of America’s senior vice president for ATMs. She calls the new technology “groundbreaking” because it lets machines do 80 percent to 90 percent of what a teller inside the branch can.
Right now, customers using a machine with Teller Assist can talk to that virtual teller in English or Spanish. More languages could be added in the future. “The feedback has been tremendous,” she said. “Some customers are surprised there’s somebody right there who asked them about the weather and helped them with the transaction.”
Up next: The first ATM app
If you had the choice, would you rather use your debit card or your smartphone to access your account at an ATM? Given the insatiable appetite for apps, some bankers believe they must embrace the mobile option. Diebold, which makes more than half the ATMs in the U.S., just announced the first machines with Mobile Cash Access. “I think it will be adopted fairly quickly,” said Jim Block, director of advanced technology at Diebold. “It gives people a combination of convenience, security and control, which makes it a very lucrative mechanism to integrate with banking.”
Wintrust, a financial holding company that owns 15 community banks in greater Chicago and Milwaukee, will be the first to roll out Diebold’s mobile-enabled machines. The company is testing a few machines now, and if all goes as planned, the bank’s entire fleet of 180 ATMs will offer this service before the end of the year. With the Mobile Cash Access app, customers can preload transactions at their convenience. When they get to the ATM, they just push a button and a QR code comes up on the screen. The phone reads the code and tells the machine what you want to do. If you requested cash, the money is dispensed and an electronic receipt is sent.
Those prestaged transactions only take about 10 seconds, according to Thomas Ormseth, executive vice president of retail strategies at Wintrust. Because no card is involved, Mobile Cash Access eliminates the risk of skimming, in which an identity thief steals your account number as you insert the card into the machine. The phone is secure because your account information is stored in the cloud, not on the device. You must enter a PIN to use the app. And because you get a text or email after each transaction, you’d know right away if someone gained access to your account.
The bank expects big things from this technology.
“We’ll be very happy if we get 20 percent market penetration next year and we can prove that we’ve gotten some new customers because of it,” Ormseth said. “Given the feedback we’re getting, I do think this is realistic.”
How you can avoid Insurance Claim Rejection
An insurance claim can be rejected for lot of reasons like hiding of important information related to your family and personal details, medical history, providing wrong information in the insurance proposal form, invalid nomination, lapse of insurance policy etc. Insurance is the most important component in risk cover to secure you and your family from unforeseen events. The main reason of taking an insurance cover is to safeguard your family from financial challenges when you are not there. But, a denial from your insurer to settle the claim can add woes to any grief stricken family. In order to keep oneself foolproof against such denials, itā€™s necessary to be cautious while buying the plan and re-examine the details of the policies which you already hold.
Main Reasons for Insurance Claim Rejections
(1) Hiding of important information ā€“ Insurer fixes the premium based on the information provided by you which includes your age, occupation, liquor/tobacco intake, pre-existing diseases, family history, details of other policies that you hold etc. It is a mistake to conceal facts in order to lower the premium amount as it can backfire. Disclosure and reporting of facts are entirely the responsibility of the insured; therefore, ā€ do notā€™ conceal any material facts while taking life insurance.
(2) Lapsed Insurance Policies ā€“ Claims can be settled only when the policy is active. So, itā€™s important to put a reminder for yourself of the premium payment due dates. Forgetting to pay the premium within the grace time can result in policy lapse and the claim made even after a single day of such lapse will be rejected by the insurer.
(3) Absence of Valid Nomination ā€“ Information pertaining to the nominee is very essential as he/she will be the actual beneficiary when the claim is made. Therefore, take caution that this space is kept updated at all times. If the nominated person in an application dies before the policy holder then change the nominee in the policy immediately. Also, it is common for an unmarried man to name his parents as nominees. But, after marriage he should ideally make his wife as nominee, as there are chances that at the time of death of the insured, his parents may also be deceased.
(4) Discrepancy in the insurance proposal form ā€“ Most of the people entrust their agents or advisors with the work of filling up the form without realizing that a single miss out of fact can jeopardize their insurance plans. This can be easily managed if you sit with your agent (or online) and fill up the form yourself as chances of missing any fact will become rare and you would also be assured that you have complied with all the details asked in the form. It is also advisable to keep a copy of the filled form with yourself.
(5) Medical History ā€“ Although most of the insurers demand a compulsory medical test to be done before approving the proposal, however there are few who waive-off this condition. It is always in the best interest of the insured to have his medical test done to rule out the possibility of having pre-existing disease as a rejection reason. Moreover, ensure that any material medical history of you or your family is intimated to the insurer.
It is very important to review the matters printed in the Insurance Policy document once you receive it. verify the details mentioned therein with that provided by you. Report any mismatch/error to the insurer immediately and ensure that it gets rectified. In the event of a claim, the claimant has to provide the mandatory documents for smooth settlement of claim. The whole process, if followed unfailingly, can curtail the claim rejection possibilities to a greater extent.
Gujarat vs Bihar: which development model works best?
Display cash non-availability at ATM before transaction: RBI
The Economic Times
To improve services, the Reserve Bank today asked banks to display a message to let customers know about the non-availability of cash in an ATM before they start a transaction.
“The message regarding non-availability of cash in ATMs should be displayed before the transaction is initiated by the customer,” the RBI said in a notification. Such notices may be displayed on the screen or in some other way.
Banks should also highlight the ATM ID within the premises so that customers can quote it while making complaints or suggestions, according to the notification.
The RBI said despite a number of instructions to banks to enhance customer service and handling of complaints, certain operational issues continue to persist.
It asked banks to make forms available within the premises for filing ATM complaints and also to display the names and phone numbers of officials handling complaints.
“This will help in avoiding delays in lodging complaints,” it said.
To help customers to file complaints, banks have been advised to provide sufficient toll-free numbers, prominently displayed at the ATM premises or bank’s website.
To prevent fraudulent withdrawal at ATMs, banks have been advised to enable time-out sessions for all screens or stages of a transaction as an additional safety measure. This should be done keeping in view the time needed for such functions in the normal course, it said.
“Banks may ensure that no time extensions are allowed beyond a reasonable limit at any stage of the transaction.”
Banks should create awareness about electronic banking products to prevent frauds and make their customers aware of their rights and responsibilities, it said.
Further, RBI has asked them to register mobile numbers or email IDs of customers for sending alerts and these details should be periodically updated with KYC details.
“In view of changes taking place in this field, banks, in collaboration with Indian Banks’ Association, may run advertisement campaigns in both print and electronic media at regular intervals,” it further said.
Why dollar rate pinches?
The Times of India
Our imports are from all over the world. So, why does the dollar exchange rate matter so much?
Although the share of goods from the US in India’s import basket was less than 5% last year, the dollar is the dominant currency in international trade and most of India’s trade with other parts of the globe is also denominated in dollars. Foreign investment flows, whether foreign direct investment (FDI) or foreign institutional investment (FII), are also largely in dollars. The exchange rate for most currencies in India is linked to the dollar-rupee rate.
How is the exchange rate determined?
The exchange rate of any currency is really its price in another currency. Like the price of any product in the market, the exchange rate is determined by the demand for and supply of each currency. Say, if there is more supply of dollars in India than its demand, the rupee will become stronger vis-à-vis the US currency. In the current situation, the demand for dollars is outstripping their supply for several reasons. These include the fact that our imports are much higher than exports and that FIIs have been pulling money out of Indian markets.
How does the market for dollars work?
Over 90 % of the trade in the forex market is between banks. Banks maintain their dollar stocks in a foreign bank or with their overseas branches. When anyone approaches a bank to either buy or sell dollars, the bank quotes a price. The price at which the bank buys a currency will always be lower than the selling price, as is the case with a trader in any other commodity. It determines these prices based on its assessment of how much the market will bear. Of course, what the competitors are offering is also a factor. The bulk of transactions in the currency market involve the same set of traders buying and selling. For instance, in April, the daily interbank volumes in the spot forex market ranged between $8 billion and $10billion. Of this, only around $2 billion was on account of merchant trade. Global currency trading (across countries) is estimated at $4-5 trillion (around Rs 340 lakh crore) a day.
How does trading take place?
Like most modern financial markets, the dollar is traded electronically. Earlier, banks in India used a closed electronic dealing system where they offered two-way or buy-sell quotes on the currency. Just as stock brokers quote a price for a stock, dealers quote a price for a currency pair such as dollar-rupee.
So, how does a manufacturer plan given the fluctuating rates?
There are a variety of ways in which companies can ‘fix’ their exchange rate. They can enter into a forward contract with a bank which agrees to sell or buy dollars in future at a predetermined rate. (For instance, Company A may enter into a contract with Bank B that it will buy $1 million on December 1 at, say, Rs 75.) They can buy currency options in the derivatives segment of the stock exchange. Forwards and futures are nothing but hedging tools, which help companies minimise their currency risks. Of course, it also means that any possible gains from rates moving in their favour in the spot market have to be fore gone. In the above example, if the rupee appreciates to 60 to a dollar, the company would miss out on the favourable exchange rate.
What are non-deliverable | forwards?
Investors in emerging markets such as India want to hedge against currency risks outside the country. This is out of fear that the government may place capital controls as happened in Mexico in 1982. In the NDF, investors who bet on rupee futures will get the equivalent amount in dollars on the due date, say, a month or three months later. The NDF market is seen to have greater depth than the futures contracts offered on Indian stock exchanges as large foreign banks trade abroad. Since these markets exist in places such as Singapore, Indian regulators have no control over them. With Indian companies venturing abroad, the scale of the NDF market has now grown.
How does the RBI intervene?
In recent years, RBI intervention has largely been through public sector banks. The central bank offers dollars to state-owned banks at a price it fixes and these are then sold in the foreign exchange market to prevent a steep climb of the US currency. Alternatively, when the rupee is appreciating, public sector banks buy up dollars from the market.
Why is the rupee falling so sharply?
Markets anticipate events and take positions accordingly. The fear of a oil price spike due to a possible USled attack on Syria, has made investors nervous about the impact on countries such as India. The rupee, which was already under pressure, due to a weakening economic situation and global factors, was amongst the worst hit on Wednesday.
Is it not possible to curb speculation?
RBI has put restrictions on banks and on exporters and importers on trading in dollars. It has barred them from buying dollars in anticipation of future demand. But, exporters can still speculate by putting off bringing their earnings home, in anticipation of a further weakening of the rupee. Similarly, importers can pay early to avoid spending more rupees to buy the same amount of dollars later. Also, the size of the unregulated non-deliverable forward market has grown and is now around 70% of the size of the domestic market, compared to 20% a decade ago.
COMPANIES BILL, 2012
h1. Will Auditors Become a Vanishing Breed?
Shailesh Haribhakti
Soon after the Rajya Sabha passed the new Companies Bill, corporate affairs minister Sachin Pilot hogged the limelight by asserting that the basic intent of the new law was lesser regulation, more compliance and to ignite the entrepreneurial spirit by offering “freedom” to entrepreneurs. What’s ironical is that the government has conveniently forgotten the role of auditors, even when it tom-toms that the new Bill seeks to ensure better enforcement of accounting laws in the corporate world.
A glance at various provisions of the new legislation makes it clear that the days of the auditing firms are numbered and soon the auditors will be an extinct breed. Clause 140 confers the right to the proposed National Company Law Tribunal to order a change of auditors in case it finds the auditors have acted fraudulently or abetted or colluded in any fraud by the company or in relation to the company.
Additionally, the clause specifies the responsible audit firm will be banned from fresh appointment as auditors for any company for a period of five years from the date of order given by the tribunal. Clause 245 introduces the concept of class action that gives the right to members and depositors of a company to claim damages or compensation from the company, its directors, auditors and experts. Such damages can be claimed from auditors for any improper or misleading statement of particulars made in the report or for any fraudulent, unlawful or wrongful act or conduct.
The unlimited liability under class action will be on the firm and the partners involved. If we take a cue from the multimillion-dollar class-action settlements across the globe, the collateral costs and compensation could be so exorbitant that it could easily make the audit firm and its partners bankrupt.
If this provision is implemented, a majority of audit firms will have to shutter down their practice. This will, in turn, hugely polarise auditing in favour of large firms that have the money power to shoulder such a burden. But considering the limit on the number of audits per partner, the question remains: who will do the balance auditing? Further, this clause runs counter to the concept of limited liability partnership as it tends to create unlimited liability. There are various monetary penalties ranging, from Rs. 25,000 to Rs. 25,00,000, which have been introduced in the Bill for non-compliances related to filing, reporting, fulfilment of powers and duties, etc, by the auditors.
Further, the Bill lays down provision for imprisonment, if an auditor is found to be guilty of fraud, which ranges from six months to 10 years. Referring to the current low-fee structure, the average fee per listed company is lower than Rs. 10,00,000 now. If private companies are counted for the same, the average fee per company is even lower at around Rs. 5,00,000. Considering the onerous liabilities cast on auditors vis-à-vis their fees, the audit firms will be prevented from taking up the audits.
The Bill also stipulates the constitution of the National Financial Reporting Authority (NFRA) that will oversee the quality of service of professionals associated with compliance of accounting and auditing standards. Currently, the audit firms are subject to peer review by the Institute of Chartered Accountants of India (ICAI), review of audited financial statements by the Financial Reporting Review Board (established by ICAI) and review of audit firms under the aegis of Quality Review Board (established by government of India under Chartered Accountants Act, 1949).
The constitution of NFRA will create an additional review burden on the firms. Again, the overdose of regulation will only deter firms from taking up auditing. The law that claims to usher in quality seems to be putting a high price on it.
More importantly, any hope of enforcement of new provisions by the government will be illusory. In the early 1980s, total composition of CAs was 80% in practice and 20% employed. However, over the last decade, 90% of CAs are employed and just 10% are in practice. The provisions of the new Bill will further dissuade CAs from joining the practice and push them to scout for risk-free jobs.
Now, the moot query is: who will audit the companies? The CAG?
4 easy ways to avoid TDS on fixed deposits
The ND-TV Profit
Fixed deposits (FD) are one of the most favored investment instruments in India. Fixed deposit can be defined as a financial investment where money is invested for a fixed tenure at a pre-agreed interest rate. There are many varieties of FD schemes available in the market today, and an investor can pick one depending on its need and suitability.
Let us take a look at the various types of FDs available today:
Regular FD: In this type of FD scheme, the tenure is fixed for a period ranging 1 week to 10 years. The interest rate of each period is pre-determined, and an investor can choose to stay invested for a suitable period.
Tax saving FD: This type of FD scheme attracts investors who want to invest for saving income tax. There is a compulsory lock-in of five years under this type, and the fund cannot be withdrawn before completion of the period.
Special FD: In special tenure FD schemes, the fund can be invested for a special period like 333, 399 or 555 days, and rate of interest is higher.
Recurring deposit scheme: Recurring deposit (RD) scheme is another popular investment option available to investors today. Under this scheme, an investor can regularly deposit a fixed amount every month for a fixed tenure and at a pre-decided interest rate. The corpus keeps on growing every month towards the maturity period.
Floating FD: Under this scheme, an investor can opt for a market-based interest rate. The rate of interest is renewed automatically with the change in the base rate.
Important points for picking the right FD
Interest calculation: Interest varies, and monthly, quarterly, half-yearly and yearly calculations are available under different conditions.
Interest payout: An investor has the option to reinvest the interest earned and increase the FD corpus or to receive regular payouts every month.
Penalty: Some institutions penalise for breaking an FD before maturity by lowering interest rates. Investors can search for such banks/institutions that have the lowest penalty rates for pre-maturity liquidation of fixed deposits.
Tax deduction on FD interest
The interest earned under an FD is taxable under “income from other sources”. The amount invested under 80C of the Income Tax Act is exempt but interest earned under such investments is taxable. If the interest earned under FD exceeds Rs. 10,000 in a financial year, it would be eligible for tax deduction at source (TDS) at 10 per cent plus 3 per cent education cess, therefore a total 10.3 per cent of the interest earned.
For example, if an investor has earned Rs. 20,000 as interest in one year, the bank would deduct Rs. 2,000 and pay only Rs. 18,000 as the amount that exceeds the limit of Rs. 10,000.
The TDS limit for companies’ deposit schemes is at Rs. 5,000. It means if the interest earned from a company deposit exceeds Rs. 5,000, the investor is liable for a TDS it.
NOW, HOW TO SAVE TDS ON FIXED DEPOSITS
There are multiple ways to achieve this. Here are four easy ways you can follow to save TDS on FDs:
1. By submitting Form 15G/15H
If an investor submits Form 15G stating that he has no taxable income, the bank would not deduct any TDS on the interest earned. For senior citizens, the requisite form to avoid TDS is 15H.
2. Distributing FD investment
Another way to avoid TDS is by splitting the deposit into separate branches of the bank in such a way that interest earned from any of the FDs does not exceed the Rs. 10,000 limit.
3. Timing the FD
You can also save TDS by timing your FD in such a way that interest for any of the financial years does not exceed Rs. 10,000.
For example, a 12-month fixed deposit of Rs. 1 lakh at 10.5 per cent could be started in September as financial year closes on 31st March. This way, the interest would split in two financial years, and hence TDS will be avoided.
4. Splitting the FD
An individual can start one fixed deposit under his/her personal bank account and another one under an HUF account, and, so, both will be treated as separate. So an investor with an HUF identity can split the corpus under such two heads.
Fixed deposit is an all-time favourite financial investment instrument. It provides a handsome return as well as liquidity at the time of need to an investor. Looking at the volatility, high associated risk and less assured return by other financial instruments currently, the attractiveness of fixed deposits is set to grow in the future.
Aadhaar mandatory to avail LPG subsidy in DBTL districts
The Direct Benefit Transfer for LPG (DBTL) Scheme has been launched so far in 20 districts of the country covering 7.3 million LPG consumers. The list of districts is attached herewith. As per the scheme, cash subsidy is transferred for the LPG cylinders directly into the bank accounts of the LPG consumers while the sale happens at the market price. In order to avail transfer of cash subsidy into the bank account, Aadhaar number of the LPG consumer has to be linked to the LPG consumer number and the bank account of the LPG consumer for which a three month grace period from date of launch is provided.
So far around 3.5 million LPG consumers have already linked their Aadhaar numbers to the LPG consumer numbers and their bank accounts in the above 20 districts and 2.4 million consumers are already receiving the subsidy directly in their bank accounts. The DBTL scheme is now slated to be launched in another 34 districts of the country on 1.9.2013 covering 14.7 million LPG consumers. All LPG consumers of these 34 districts (as well as 20 districts covered earlier) are advised to obtain Aadhaar number and provide them to their LPG distributors and to their banks if they wish to avail of the LPG subsidy. It may be noted that Aadhaar number is mandatory for availing LPG subsidy in DBTL districts after the initial grace period of three months (this was confirmed by Petroleum Minister yesterday on 27/08/2013) . However, Aadhaar number is not required for availing LPG cylinders at non-subsidized rate.
Additional pension for 80 year old retired govt officials
The changed rules provides the same benefits for the spouse or
next of kin of a government officials getting family pension
New Delhi, August 28: Retired All India Services (IAS, IPS and IFoS) officials will get 20 per cent of additional pension after completing 80 years of age, according to new rules notified by the central government. According to the amended rules, this extra pension will also be increased after every five years and retired bureaucrats will get 100 per cent of such additional benefits, other than the regular pension drawn by them, after they complete 100 years of age.
Such retired government officials will get 20 per cent of additional pension after they complete 80 years of age, 30 per cent of after completing 85 years, 40 per cent after crossing 90 years of age, 50 per cent after reaching 95 years and 100 per cent of additional pension after completing 100 years of age, says the amended All India Services (Death-cum-Retirement Benefits) Rules, 1958.
The rules have been notified by the Ministry of Personnel, nodal authority to decide on personnel matters related to All India Services comprising Indian Administrative Service (IAS), Indian Police Service (IPS) and Indian Forest Service (IFoS). The changed rules provides the same benefits for the spouse or next of kin of a government officials getting family pension.
As per norms, a retired government official is entitled to get 50 per cent of average emolument as pension on the basis of last pay drawn. Minimum pension presently is Rs 3,500 per month. Maximum limit on pension is 50 per cent of the highest pay in the Government of India (presently Rs 45,000 per month).
The amount of pension and rules vary on the basis of years of service of an employee and nature of retirement (voluntary or after reaching age of superannuation) among others. Officials in the Ministry of Personnel said the changed rules may also be made applicable to other categories of central government employees.
Chidambaram’s one year report card: More misses than hits
Little-known tax deductions you might have missed while filing returns
Genuine borrowers hit by incorrect credit reports
Often, banks do not inform Cibil even after the issue is settled
Business Line
S. Subrahmanyam, working for an Indian IT major, received a rude shock when his application for a car loan for Rs 4 lakh was rejected.
The reason: His credit card account with a major foreign bank still shows an outstanding balance, according to the Credit Information Bureau of India Ltd (Cibil), even though it had been fully paid.
“I have never defaulted on any payment for the last 20 years. But my credit record is spoiled as the bank failed to notify the transaction after I surrendered my card,” he told Business Line. The fight to get his record corrected took nearly a year. Apart from his peace of mind, he had to put off his plans to buy a home and a car.
Many financially-disciplined bank customers are facing such situations due to incorrect Cibil data, which is now being used by all banks while deciding on extending loans.
According to N. Krishna Mohan, Banking Ombudsman, Andhra Pradesh, banks, especially private and foreign ones, are ‘playing havoc’ with customers with regard to ratings with the credit bureau. “Every day, we receive complaints about this and we actually need a special session to talk about this,” he said. Overall, 15 banking ombudsmen across the country received 70,541 complaints during 2012-13. Going by the details of the complaints received, wrong Cibil reports could be due to a variety of reasons, including non-closure of credit cards after clearing of outstanding amounts or annual fees imposed by banks after misleading customers that there would be no fee on a particular service.
In one instance, a credit-card holder was declared defaulter despite having cleared all dues through an agent of the bank. Three years after having paid all dues, the bank asked the customer to ‘settle’ the issue by threatening a bad credit record in case of non-settlement. And, after receiving the payment, the bank still reported to Cibil that the customer was a defaulter before ultimately settling the issue.
Sometimes, individuals without even an account with certain banks have received bad credit raps from them.
Cibil, however, has no role in this melee as it only compiles credit scores for rating based on data shared by banks.
‘Thank God, the Reserve Bank of India exists’
D Subbarao
The crisis over the last five years has reopened some fundamental questions about central banks – their mandates, the limits to their autonomy and the mechanisms through which they render accountability. These questions are playing out in India too. Several committees have suggested that the mandate of the Reserve Bank of India (RBI) should be narrowed on the argument that its currently broad mandate is diluting its focus on price stability – the core concern of monetary policy. The Financial Sector Legislative Reforms Commission which submitted its report to the government in March this year has argued that the mandate of the RBI should be restricted to monetary policy and regulation of banks and the payment system.
In the context of the mandate of central banks, one needs to keep in mind that the global financial crisis was a powerful rebuke to central banks for neglecting financial stability in the pursuit of price stability. In the immediate aftermath of the crisis, which saw the US Fed and other central banks provide liquidity in spades and use unconventional tools, a consensus had emerged that financial stability needed to be explicit in the objectives of monetary policy. Put differently, the fundamentalist view of a central bank with a single-minded objective (price stability), and a single instrument (short-term interest rate) is being reassessed across the world.
The jury is still out, but a consensus is building around the view that central banks now need to balance price stability, financial stability and sovereign debt sustainability. There are no easy answers. But there are certain tenets that must inform the thinking over this issue. First, the fundamental responsibility of central banks for price stability should not be compromised. Second, central banks should have a lead, but not exclusive, responsibility for financial stability. Third, the boundaries of central bank responsibility for sovereign debt sustainability should be clearly defined. Fourth, in the matter of ensuring financial stability, the government must normally leave the responsibility to the regulators, assuming an activist role only in times of crisis. The crisis has made a strong case for a more expanded role for central banks. Do we ignore all that, and fall back on the old understanding of what a central bank should or should not do to change the RBI’s remit and scope of influence?
Related to all this is the question about the limits to the autonomy of the Reserve Bank and where and to what extent it should defer to the executive. Finally, there are also questions about the accountability of the Reserve Bank for the outcomes of its policies.
As Governor of the Reserve Bank, I not only welcomed the debate on these issues, but even encouraged it, in the firm belief that such a debate is in the larger public interest.
Admittedly, the Reserve Bank has a mandate that is wider than other central banks. This is an arrangement that has served the economy well. There are synergies in the various components of the Reserve Bank’s mandate and we should not forefeit those synergies. Surely, our institutional structures must adapt to the changing socioeconomic context, but any such change must be brought about only after extensive debate and discussion.
In a full length feature on the RBI in 2012, The Economist had said that the RBI is a role model for the kind of full service central bank that is back in fashion worldwide. It is also important that the mandate of the Reserve Bank is written into the statute, so that it is protected from the political dynamics of changing governments.
In the opening part of my lecture today, I explained the rationale for an autonomous central bank. Like in most other developing economies, the Reserve Bank was not born autonomous; it gained its autonomy over time as a result of the lessons of international experience and the maturity of our political executive who saw the benefits of preserving the autonomy of the Reserve Bank. On its part, the Reserve Bank earned this autonomy by staying committed to the pursuit of larger public interest.
Accountability is the flipside of autonomy. The Reserve Bank of India Act does not prescribe any formal mechanism for accountability. Over the years, however, certain good practices have evolved. Let me briefly illustrate. We explain the rationale of our policies, and where possible indicate expected outcomes. The Governor holds a regular media conference after every quarterly policy review which is an open house for questions, not just related to monetary policy, but the entire domain of activities of the RBI.
The Reserve Bank also services the finance minister in answering Parliament questions relating to its domain. Most importantly, the Governor appears before the Parliament’s Standing Committee on Finance whenever summoned, which happens on the average three to four times a year.
It has often struck me that for a public policy institution with such a powerful mandate, these mechanisms for accountability are both inadequate and unstructured. Perhaps, we should institute an arrangement whereby the Governor goes before the Parliament Standing Committee on Finance twice a year to present a report on the RBI’s policies and outcomes and answers questions from the members of the Committee. In my view, this will not only secure the accountability structure but also protect the Reserve Bank from any potential assaults on its autonomy. I have dwelt a bit longer on this last challenge of autonomy and accountability if only because we have not debated this in the larger public domain as much as we should have. And to the Reserve Bank staff, I want to say that they must be as zealous about rendering accountability as they are about guarding its autonomy.
Thank God, the Reserve Bank Exists
There has been a lot of media coverage on policy differences between the government and the Reserve Bank. Gerard Schroeder, the former German Chancellor, once said, “I am often frustrated by the the Bundesbank. But thank God, it exists.” I do hope Finance Minister Chidambaram will one day say, “I am often frustrated by the Reserve Bank, so frustrated that I want to go for a walk, even if I have to walk alone. But thank God, the Reserve Bank exists.”
More cows, less poverty
R S Khanna
Dairying can lift more people out of poverty than farming, food subsidy or NREGA. The government must wake up to this.
Critics often like to define India in terms of ‘India’ for the rich and ‘Bharat’ for the poor and destitute. The United Nations has estimated that one-fourth of the poor and undernourished of the world live in India. Government after government has announced poverty removal programmes, and yet none has been able to meet the needs of the poor and undernourished.
Farmers, who produce food for India, are the ones most prone to suicides. The first reason for suicides is their inability to repay loans taken for farming activities. Next is their inability to feed themselves and their family.
It is important to note that despite sheer poverty, food always includes milk and milk products and its budget has been increasing — a fact that comes out in National Sample Survey Organisation data over the years. In terms of items of food consumption, milk is in second place after cereals. While the budget for consumption of cereals is declining, that of milk is increasing. The reason is easy to find. Milk is a commodity that is produced daily in the household. While a family may not have cereals and grain stored at home, milk would be produced if the family has a cow or a buffalo.
If milk is produced at home, a part is available for home consumption. Sale of milk gives daily or weekly income. In exchange for the money earned, a family can feed itself. A farmer owning no land but having a milking animal is not likely to commit suicide, while his land-owing counterpart may commit suicide when the crop fails.
The World Bank has singled out “Operation Flood” for praise. It observed that apart from being a programme for dairy development “Operation Flood” was actually responsible for reducing rural poverty.
Another positive lesson from dairy development is the research carried out by the Central Arid Zone Research Institute. The study concludes that areas where farmers rear animals as a source of family income suffer less when there is drought.
Loan for livestock
Therefore, is it possible to help farmers own dairy animals such as cows, buffaloes and goats? On paper, the Government has created guidelines through Nabard for giving subsidies and soft loans to rural people for purchase of own livestock. But are they able to get these loans?
The answer is ‘no’. All agricultural loans and subsidy, including those for livestock, are channelised through commercial banks. The onus of recovering such loans lies exclusively on the financing bank, and not on Nabard. Commercial banks do not give loans without land as collateral. The fact is that close to 60 per cent of rural people engaged either in milk production or as labour are without land. They become ineligible for loan.
On the other hand, farmers who own land take loans year after year. Even if the previous loan has not been fully paid, they can get further loan against their land. In fact, farmers wait for a bad year when the crop fails.
It is well known that after every three or four years farmers’ loans are waived. The commercial banks are not worried at the accumulation of such non-performing assets for two reasons. First the bank has given loan against a security, and second the default in repayment of the loan has been created through an order by the government to waive loans.
A dairy farmer is not so fortunate. So far, no government has ordered waiver of loans to livestock owners. This is because it is not possible for the milk production to fail absolutely. Milk production per animal can be low, but will not fail. There is no politician to lobby for the milk producer if he produces less milk. This is how India’s political economy is successfully creating two Indias.
There is need to ensure that Nabard loans and subsidies reach the rural poor and arm them with milking animals. Dairy animals could be insured, and the insured animal can be taken as collateral for providing loans.
The government should create a separate system of monitoring banks for livestock loans. At present, loans for animals are clubbed along with other agricultural loans. Therefore, it is not possible for Nabard to assess loans given exclusively against the hypothecation for livestock.
Gyan from sage
There is a beautiful story that has been narrated in Skandpuran. Maharishi Aapstamb performed tapas over a period of 12 years immersed in holy river Narmada. Over this period, all the living beings in the river became friendly with the Maharishi. He was their protector and saviour. He loved all of them.
One day a group of fishermen came hunting for fish in the river. They threw the net in and harvested a large number of fish and other creatures. Unfortunately for the fishermen, the Maharishi also got trapped in the net. Just as they were pulling the net out, the fishermen realised their mistake.
They fell at the feet of the Maharishi. The Maharishi advised them to return the fish to the river, failing which he said he would commit suicide.
The fishermen did as he said, but told him that harvesting fish was their only means of livelihood. It was a situation of death either for the Maharishi or the fishermen.
Information about this reached King Nabhag who rushed to the spot. Maharishi Aapstamb advised the King that he should pay to fishermen the value of his (Maharishi) life or he will commit suicide for having made the fishermen go without food. The King offered to pay a lakh gold coins. Maharishi said, “Do you value my life at one lakh gold coins only?” The King offered to pay one crore gold coins. The Maharishi was still not satisfied.
Meanwhile, Rishi Lomash arrived at the scene and offered to help the King. He told the King that Maharishi Aapstamb would become very happy if a good milking cow was given to every fisherman in exchange for his life.
He told the King that a cow is considered as the beginning, middle and end of every yagya and is a source of eternal happiness to the owner. The King immediately agreed to give one good milking cow to every fisherman.
To the King’s surprise, Mahrishi Aapstamb agreed to the proposal. All the fishermen were happy because they would now be able to meet their needs on a continuing basis.
Let us compare this story to what is happening now. It is not important to pass cash to the poor through the Aadhaar card. It is not important to give dole though NREGA for 100 days in a year. It is not important to give, free of cost, 35 kg of cereals and grains to the poor every month.
Poverty cannot be removed even if gold coins are given to the poor. Giving cash under NREGA or free foodgrains as per the Food Security Bill would be perpetuating poverty. The poor would be made permanently dependent on government alms.
This is a negative action. What the government needs to do is to make people actively employed so that they can get a source of living on a regular basis.
Dairy farming is the way. Out of Rs 10,000 crore passed in the current Budget for giving subsidy on food, if government can pass even 1 per cent annually for giving milking cows and buffaloes to the poor, India would have lesser poverty and more milk.
EU seeks to limit fees for debit, credit card payments
The Business Line
Brussels, The European Union proposed on Wednesday to cap fees for bank cards, dismissing arguments by providers such as MasterCard that consumers will ultimately have to pay more. “The proposed changes to interchange fees will remove an important barrier between national payment markets and finally put an end to the unjustified high level of these fees,” said the EU’s market regulation commissioner, Michel Barnier.
Practically everyone with a bank account in the EU has a debit card, while 40 per cent also use a credit card, according to the bloc. The EU’s executive, the European Commission, has for years been investigating interchange fees, which banks pay each other to process payments made by debit or credit cards. It has launched several anti-trust probes involving card giants Visa and Mastercard.
It is now proposing to introduce legislation that would cap the fees across the EU at 0.2 per cent of transactions for debit cards and 0.3 per cent for credit cards — first for cross-border transactions and then for domestic transactions after 22 months. The move will approximately halve the total amount of fees collected, according to media reports. “The interchange fees paid by retailers end up on consumers’ bills,” EU Competition Commissioner Joaquin Almunia said. “The regulation capping interchange fees will prevent excessive levels of these fees across the board. A level playing field will be created.” “New players will be able to enter the market and offer innovative services, retailers will make big savings by paying lower fees to their banks, and consumers will benefit through lower retail prices,” he added.
But opponents of the measure reject those claims, with MasterCard warning of “unintended consequences.” “History has shown that the biggest losers in the event of interchange regulation are consumers and small businesses,” the credit—card giant said in a recent statement. “We have seen this happen in Australia, Spain and the United States.” EU member states and the European Parliament would have to approve the commission’s proposal for it to become law. It also foresees a ban on surcharges that retailers apply to card payments — for instance for flights booked with low-cost airlines.
The only exception would be for more expensive cards that will not be subject to the capped fees, such as American Express and Diners. The commission’s package additionally includes measures to increase the security of online transactions and better protect consumers against payment fraud.
Card payment may require biometric check
Kirtika Suneja
The next time you swipe your debit or credit card at a point-of-sale terminal, you may be asked for biometric authentication. This is because your Aadhaar number will soon be linked to your bank account to reduce cases of fraud.
The Unique Identification Authority of India (UIDAI) will begin the process of mapping Aadhaar numbers with card numbers at the backend once it receives the green signal from the Reserve Bank of India. According to UIDAI officials, biometric authentication will be done using a USB biometric scanner costing Rs 2,000, which will be connected to the card swipe machine at point of sale (PoS) terminals.
In fact, the RBI had proposed — though at the pilot project level — double authentication of credit card transactions through Aadhaar as the move would make transactions at ATMs and PoS or merchant terminals more secure. Based on the recommendations of the Gowri Mukherjee-led working group — formed for securing card-present transactions — the RBI said that banks could consider the Aadhaar biometric authentication, along with the MagStripe (magnetic stripe), as an additional factor for authentication for card-present transactions at ATMs and POS terminals.
Magnetic stripe card and biometric (Aadhaar finger print) data checks protect against both domestic counterfeit (skimming) and lost or stolen card fraud. The biometric data, captured by the UIDAI, can be used as authentication for protection as the cardholder has to be physically present at the POS terminal/ATM to authenticate the transaction. Even if the card is counterfeited, the fraudster will not be able to use it as the biometrics of the customer would be required.
The authority had done a pilot project in January when a few thousand transactions were conducted using Aadhaar authentication. “New issue of cards need not happen if the biometric authentication can be done simultaneously. However, a few banks are not supportive of this scheme. If banks want to issue new cards, then the Aadhaar number will be integrated with it,” a UIDAI official said.
At present, EMV machines or the card swipe terminals depend on cards with embedded integrated circuits or chips. These are better than cards with magnetic strips, whose data can be skimmed relatively easily, say experts. However, these chips and pin codes are no match for biometric data which is unique to each individual.
Digital currency to abet money laundering:
Financial Express
The growing use of digital currency will result in rise in cyber laundering as hacking attacks and online scams take centre stage on Internet, says a latest report.It said the Indian banks and authorities may wary as money laundering using online black-marketing route and other techniques will expand with the use of digital currency.
“This new techniques of money laundering (using digital currency) includes opening accounts with low cost and little known payment gateways, buying digital currencies, purchasing stolen data, setting up online shops with payment gateways, using the bank accounts of money mules to transfer so earned money to different countries,” said the report by Pune-based ‘Indiaforensic’.
The firm, which conducts fraud examination and forensic accounting among others, has helped the country’s investigating agencies like CBI in several high-profile cases including multi-crore Satyam scam.
Digital currency is the alternative to the traditional currency, which is used in online transactions. It is very similar to the operations of the loyalty points.
The report - ’Laundering in Cyber World The Digital Currency Way’ — cited a recent case in the US involving ‘Liberty Reserve’ — a digital currency website which was used for laundering at least USD 6 billion by data thieves, drug dealers, child pornographers, identity thieves, hackers and other criminals.
“Traditional money laundering has often been a secondary process – preceded by an illegal activity, such as drug trafficking but the liberty reserve case shows that data thefts, hacking attacks and online scams are replacing the traditional crimes and the digital currency is now at the centre of the laundering operations,” said Mayur Joshi, head of Indiaforensic.
According to the research conducted by Indiaforensic in 2011, the estimated size of money laundering in India was Rs 18.86 lakh crore for the 2000-2010.
“Now the money laundering is expected to grow even faster with the digital currencies,” it said.
Currently, digital currencies are neither produced by government-endorsed central banks nor necessarily backed by the national currency.
Digital currency is decentralised, controlled by its users rather than the governments.
“This means it is anonymous, and that, unlike credit cards and PayPal, which block payments from a number of countries, it enables instant payments to anyone, from anywhere in the world.
“That’s why criminals along with some online retailers love it. It is money without any sort of safety net underneath. There’s no legislation to protect your investment and you can’t predict fraud,” said the report.
Ripple, Microcash, Litecoin, Bitcoin, BBQCoin, Novacoin, RuCoin, Terracoin are some of the popular forms of digital currencies used across the world wide web.
“Many Indians have just begin to hear the term digital currency but the growing international use of digital currency will pose a bigger challenge before the Indian law enforcement agencies and the regulators,” the report said.
Indian regulators and the law-enforcement agencies are unprepared to deal with the new reality of cyber-laundering and the sophisticated methods organised-crime groups use for money laundering.
“Extensive training and education at all levels are needed, including small-town and rural police departments,” it added.
Six ways to stay ahead of inflation
Use a mix of instruments that will beat both the wholesale and consumer price indices
Anil Rego
In the past few months, though the wholesale price index has been dropping, the consumer price index, which tracks inflation for end consumers, has been really high – and trending upward. The WPI is at 4.7 per cent, the CPI at 9.3 per cent; that’s 4.6 per cent higher.
You may have noticed that prices of all essential household items have shot up considerably in the last few years. Prices of regular day-to-day items have risen significantly, in some cases up 30 per cent over the last two years. Prices of milk and sugar have jumped 50 per cent in the last three years. That is what causes wallets to shrink.
Inflation not only makes goods and services more expensive, it also makes saving more difficult since the greater the inflation the less the actual savings. For example, if the inflation rate is 5 per cent and the interest rate is 10 per cent, one’s actual returns will only be 5 per cent (This assumes no taxes. Where taxes are payable, actual returns would be even lower.) Hence, any investment avenues which offer returns lower than inflation actually result in loss of value of the capital (in nominal terms) over a period of time.
Here are a few investment avenues that could offer inflation-beating returns.
1. Embrace equities for the long term
This is one of the best methods of beating inflation, as equities have always given superior returns over the long run. Another benefit of investing in equities is that since one is investing in companies which themselves are growing at a reasonable rate, the rate of returns should typically be more than inflation in most years. This is a high-risk, high-return strategy but almost unavoidable if beating inflation over the long term is a definite objective. One can invest in equity mutual funds or even directly in stocks if one has sufficient knowledge of the stock markets.
2. Lock into good corporate debt
Several large companies offer fixed deposits or bond schemes which can turn out to be good investment options. These companies typically offer returns in the range of 14-18 per cent p.a, which should suffice to beat inflation. However, note that this is a high-risk option because one not only would one take on economic and industry risk, one would also face the risk of the company going bankrupt, etc. It is advisable to invest only in blue-chip companies or offers that are rated high by one of the credit-rating agencies. This investment is suggested only for those who have a high-risk appetite.
3. Diversify across the globe
Investors can look to diversify their portfolios with global investments, either directly or through global equity mutual funds. This would enable an investor to diversify investments geographically as well as benefit from growth in other parts of the world. This has the dual advantage of beating domestic inflation and diversifying investments.
4. Consider property investments
This is another high-risk, high-return investment option that can yield inflation-beating returns. The advantage with property investments is that returns are typically very high, often many times the original investment. The drawbacks are many, however. Property is typically illiquid; a glut in the market may result in years before an investor realised any returns. Also, there is much paperwork and legal issues involved in purchasing and selling property. Property also requires a large corpus to begin with.
5. Look at tax-efficient schemes
Some government savings schemes such as the Public Provident Fund, Post Office Savings Scheme, and National Savings Scheme are good options to invest in because security of capital is guaranteed. Returns are typically around 9-10 per cent, which should beat inflation in most years. In PPF particularly, because the returns are not taxed, and investors get better post-tax returns.
6. Don’t ignore inflation-indexed bonds
The government recently announced inflation-indexed bonds that would help combat rising inflation. These bonds essentially provide an investor with capital protection from erosion of value due to inflation. They typically carry an interest rate that would be added to the inflation rate to give a rate of return for the year. For example, if a bond offers a 3 per cent real return and inflation hovers at 8 per cent, an investor would earn 11 per cent that year; if inflation is only 5 per cent an investor would earn 8 per cent. These bonds are a great savings instrument when inflation levels are very high. Other investment options, however, are better in periods of low inflation. Remember, this will only beat WPI and not CPI.
Keep in mind the tax rules applicable on the various kinds of investments in one’s portfolio, since taxation would determine the final returns on that portfolio.
(The writer is CEO & Founder Right Horizons)
Affluenza
What Does it Mean?
A social condition arising from the desire to be more wealthy, successful or to “keep up with the Joneses.” Affluenza is symptomatic of a culture that holds up financial success as one of the highest achievements. People said to be affected by affluenza typically find that the very economic success they have been so vigorously chasing ends up leaving them feeling unfulfilled, and wishing for yet more wealth.
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LawMin to decide whether Aadhaar’s e-KYC is valid
Doubts over whether PMLA needs to be amended or the
IT Act puts electronic KYC on a par with physical verification
Business Standard
Several months after it was launched with much fanfare, the ambitious plan of the Unique Identification Authority of India, or UIDAI, to substitute physical verification with electronic know your customer (KYC) authentication as a means to provide government services, including opening bank accounts, is yet to take off. Reason: There are still doubts on the current legal sanctity of the proposal.
The matter has now been referred to the law ministry for an opinion.
While the authority is arguing that the Prevention of Money Laundering Act (PMLA) doesn’t need to be amended to make e-KYC legal, as the Information Technology (IT) Act already permits it, the finance ministry agrees but says the PMLA rules will have to be changed. Meanwhile, banks which have to finally implement it have a completely different concern – security.
An official of the UIDAI, which is implementing the Aadhaar, or the UID project, said according to the Section 3 of the IT Act, any physical document is equal to the electronic record so PMLA doesn’t need to be amended. “But to be sure, the matter has been referred to the law ministry, which will give its view soon,” the official added. The person, who did not want to be identified, added though the finance ministry and the UIDAI were on the same page on the issue, the matter has been referred to the law ministry to just get some clarity.
When implemented, the e-KYC will enable citizens to open a bank account by just giving their Aadhaar number and authenticating themselves using their biometrics as the Reserve Bank of India (RBI) has notified the Aadhaar number as a valid proof of address and identity. The information sent by the bank to the UID server will verify whether the information given is authentic or not. The service can also be used to avail of other government services which require authentication.
A finance ministry official said amendment in the PMLA would not be required as it is already covered under the IT Act. Another official added for the purpose of allowing online authentication of Aadhaar, only the PMLA Rules would need to be changed and not the Act. “There is no need to go to Parliament, as this issue can be addressed through the rules. We are working on it,” the official told Business Standard.
While making its case for e-KYC, the UIDAI has been arguing that it will save administrative costs as banks and other government departments incur huge expenditure while storing and verifying physical documents. It will also be more fool-proof compared to paper records which can be easily forged, it says. Also, given the government’s current push towards the roll out of the direct cash transfer project in the country, if approved, e-KYC could also fast-track seeding of bank accounts with the Aadhaar number to ensure smooth linkage with the Aadhaar payment bridge, which will facilitate the flow of government subsidy money directly into the bank accounts of the beneficiaries.
While bankers agree with the possible advantages of e-KYC, security concerns are denting their confidence in the new system. An executive director with a public sector bank said the bank would be more comfortable if the information sits on its server. “There should be proper security. The government is trying to work out a solution.” The person added the benefits of e-KYC could not be ignored as it would save substantial space on the servers of the banks and help in faster seeding of Aadhaar with bank accounts.
“It is feasible but the only question is whether to use our system for authentication of Aadhaar or to use the UIDAI’s system. Both the systems are different and the government is trying to integrate those,” said an executive director with another state-run bank.
He added security of the data was the biggest concern of the banks in e-KYC as the UIDAI system has not been tested yet, and thus banks want the authentication to pass through their security gateway. On its part, the UIDAI is assuring banks that upon receiving the customer’s consent, the authority can enable the KYC data to be stored on the banks servers also.