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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.
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US Shutdown: India must have a contingency plan
Financial Express
India must have a “contingency plan” in place to ring-fence the country’s economy if the political showdown in the US leads to a default on its international monetary obligations, industry body Assocham today said.
“As of now, the indications suggest there is a prolonged battle while there are only two weeks left for the US to get a Congressional approval for raising its debt ceiling of USD 16.7 trillion,” Assocham President Rana Kapoor said.
A divided US Congress is fighting over a budget for the fiscal year that began on Tuesday and an hike in the debt ceiling by October 17, when the Treasury Department will otherwise breach its authority to borrow the money required to cover the nation’s existing obligations.
If the US is pushed into a default of its international obligations, the ripples would be felt all across the world. Consequently, it would be in the fitness of things that different wings of Indian Government prepare a Contingency Plan to ring-fence our economy, Kapoor added.
The different wings of the government include the Finance Ministry, Commerce Ministry, the Prime Minister’s Office, Planning Commission, Reserve Bank and market regulator SEBI.
“The most important factor would be to ensure our foreign exchange reserves do not deplete and we keep foreign institutional investor (FII) inflows intact,” Kapoor said.
A default by the US on its debt obligations is likely to cause runaway rise in gold prices as panicky investors would then rush to safe havens, even as they would scamper for exiting from the US bond market.
“Fortunately, Indian banks do not have much exposure to the American treasury markets. However, as a result of global shakeout and panic that may follow, we may face huge pressure on crude oil and other commodities like gold which India imports in large quantity,” Kapoor said.
Meanwhile, the political impasse in the US Congress over budget showed no signs of easing as the first meeting between President Barack Obama and lawmakers since a budget deadlock shut wide swaths of the federal government failed to yield any result.
The US government closed non-essential operations on Tuesday after Congress failed to strike a deal on spending and budget due to differences over ‘Obamacare’, the signature healthcare programme of President Obama. Republicans and Democrats are blaming each other for the impasse.
The shutdown has left nearly 800,000 employees on unpaid leave and closed national parks, tourist sites, government websites, office buildings, and more.
Early Diwali: State-run banks to get funds
from government to provide cheaper loans
Economic Times
Adding sparkle to your festival shopping, the government has said state-run banks will soon provide cheaper loans to fund purchases of TVs, refrigerators, motorcycles and scooters. More goodies could be covered by the scheme later.
The government hopes this selective stimulus will give a boost to capacity addition, employment and production, helping spur growth that fell to a four-year low of 4.4% in the first quarter of the fiscal.
The decision was taken at a meeting between Finance Minister P Chidambaram and RBI Governor Raghuram Rajan on Thursday. Economic Affairs Secretary Arvind Mayaram was also present during the discussions.
The government will increase the capital support to banks from the budgeted Rs 14,000 crore to help them lower interest rates on select category of goods identified.
“While this will bring relief to the consumers, especially the middle class, it is also expected to give a boost to capacity addition, employment and production,” the finance ministry said in a statement.
The additional capital will enable banks to lend to borrowers in select sectors such as two-wheelers and consumer durables at lower rates to stimulate demand, the statement said.
ET had on September 18 reported that the government was considering a mechanism to provide cheaper loans to auto and realty sectors.
Chidambaram will soon meet heads of public sector banks (PSBs) to impress upon them the need to lower interest rates in select sectors, including automobiles, to boost demand and revive sagging growth.
“Lower interest rates will depend on the lending capacity of banks. Banks will decide on sectors where lower rates will boost demand. I will meet bankers soon,” Chidambaram said.
Experts dismissed concern that the government’s measure to prop up demand would undermine the Reserve Bank of India’s efforts to tame inflation. Raghuram Rajan had in his first policy unexpectedly raised the repo rate by 25 basis points as wholesale inflation climbed to a six-month high of 6.1% in August.
“It will work. There is a genuine problem of demand…If pricing power has been lost then this would not really contribute to inflation,” said Abheek Barua, chief economist, HDFC Bank.
However, he said one would need to see the details of the scheme.
Production of consumer durables has fallen 12% in April-July, indicating week demand for discretionary purchases.
Industry, which has demanded measures to boost growth, cheered the move.
“CII welcomes government’s in-principle decision to enhance the amount of capital to be infused into public sector banks. Given the tight liquidity conditions in the banking sector, the move will provide a much-needed support to PSBs, which accounts for about 75% of the Indian banking sector assets, to expand their lending facilities to the key targeted sectors,” said Chandrajit Banerjee, director-general of CII.
Banerjee said CII is confident that with enhanced capital base, the move will provide headroom to PSBs to meet the regulatory requirements of Basel-III and priority lending targets for the current fiscal.
The selective stimulus will ensure credit flow only to sectors that are confronting a severe slowdown without derailing the intent of the overall spirit of the monetary policy.
RBI had in 1970s and 1980s used selective credit controls to contain inflation and speculation and the latest scheme is the reverse of this. The government has been eyeing steps to boost growth that fell to decade-low of 5% in 2012-13 and failed to show signs of revival in the first quarter of the current financial year, recording a growth of 4.4%.
Private analysts and even multilateral institutions such as the Asian Development Bank have scaled down the country’s growth projections to near-4% though the government expects the economy to grow by over 5%.
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Here’s aam aadmi’s guide to
Money, Banking and Gold Standard
The Daily News & Analysis
Mumbai, November 30: Recently, the State Bank of India chief questioned the need for banks to maintain 4.50% of their deposits with the central bank as reserves – Cash Reserve Ratio (CRR) – a restriction not applicable to NBFCs and insurance companies.
To have an informed debate, we present a holistic perspective, drawing mostly from the work of Murray Newton Rothbard in “What Has Government Done to Our Money?”, available free of cost at http://mises.org/mon…sp.
Transactions between members of primitive communities were through the direct exchange of goods / services (barter). However, the barter system had limitations.
A butter producer wanting to buy wheat could do so only if she found a wheat seller, who in turn wanted to buy butter (double coincidence of wants). Furthermore, a farmer wanting to sell his cow to buy 1) a set of dress, 2) provisions and 3) tools for his farm, had to find sellers of all these three items at the same time for the transactions to materialise (indivisibility).
Addressing these limitations, physical markets and indirect exchange of goods emerged. The seller exchanged her good(s) for a commodity (like cowrie shells, salt, metal, grains and the like) and later on exchanged this commodity to buy her desired good(s). Over time, metals having higher marketability, divisibility, durability and portability emerged as the medium of exchange.
Among metals, people across the globe, unconnected by modern transportation and communication, chose gold and silver as medium of exchange and hence money. Governments or economists had no role to play in this!
Gold coins needed to be assayed by the recipient (goods seller) in each transaction. To overcome this limitation and avoid the physical risk of carrying metal in person, traders / merchants in medieval Europe placed them with goldsmiths for safe keeping, who in turn issued receipts for the gold deposited.
Alternatively, these warehouses also maintained accounts for traders instead of issuing receipts for gold. By simple debit of one account and credit to another client’s account, upon written request, warehouse facilitated payment between its clients without physical movement of gold precursor to cheque payment). Thus, receipts and deposit accounts were mutual substitutes for gold.
Over time, realising that gold held in their custody was very rarely redeemed, some devious goldsmiths started issuing receipts without backing of gold. An illustration would make this clearer.
Let’s say person A produces goods worth Rs30,000 and exchanges it for 10 gms of gold and in turn deposits it with a goldsmith. A gets receipt(s) with which she can buy goods worth Rs30,000; i.e. the supply of money is Rs30,000,which is backed 100% by gold.
Now, if the warehouse additionally issued receipt worth Rs10,000 to person B, without corresponding gold deposit, then the money supply increases to Rs40,000, which isbacked by only 75% gold (Rs 30,000 / 40,000). In other words, Rs30,000 (75%) is real and Rs10,000 is counterfeit receipt or the amount lent.
Importantly, while person A has produced goods to have Rs30,000, person B has Rs10,000, without producing any output or rendering any service!
As ‘civilisation progressed’, these warehouses became ‘banks’, and their receipts became bank notes, which later on became currency. The book-keeping accounts maintained by warehouses for clients became deposit accounts. Issuance of fake receipts is the not-so-respectable origin of banking lending. Thus, banks are ‘already and always insolvent’. When all depositors demand their gold, bank’s insolvency is revealed (bank ‘runs’).
Enter the Central Bank. Smaller banks held correspondent accounts with the larger bank (banker’s bank), which enabled the former to make payments to clients, with minimal physical movement of gold. During ‘bank runs’, the largest bank usually bailed out the smaller bank, thus emerging as the lender of last resort or the central bank. However, to avail this protection, banks had to deposit their customer’s gold with the central bank as reserve and also accept restriction on lending.
Illustratively, if the central bank prescribes gold reserves at 4.50%, then Bank X depositing 10 gms of customer’s gold (Rs30,000) with the central bank can issue notes up to Rs6,66,667 (Rs30,000 / 4.50%). Of this, Rs6,36,667 is the bank lending (fake receipts) on which it earns an interest income. Apparently, some bankers find this ‘restriction’ stifling and discriminatory!
Even without changing the reserve ratio, central bank can create money by lending to banks. In the above illustration, if the central bank lends Rs15,000 to Bank X, then Bank X’s deposit with the central bank increases to Rs45,000. Bank X can now issue notes up to Rs1,000,000 (Rs 45,000 / 4.50%).
Under fiat currency, banks have to deposit, say 4.50%, of their deposits with the central bank as reserve (CRR of 4.50%).
Under gold standard, only producers had money. If this money was lent, the lender could not spend it. Under fractional reserve banking, both the depositor and the borrower get to spend the same money, thus creating money unhinged from real output, with disastrous consequences.
First, it immiserises producers. The lower the reserve ratio, the higher the immiserisation.
Second, money once created gets spent. Thus, fake money leads to needless consumption, which is not possible under real money. Excess consumption (labelled as ‘growth’) has led to unsustainable exploitation of natural resources. Sadly, the link between fake money creation and the ensuing ecological destruction has not been fully appreciated, even by the otherwise diligent environmentalist.
As money is only a medium of exchange, the civilised society ought not to allow its fake creation. Hence, a well-informed question ought to be, ‘Why continue with fractional reserve banking’? As credit without money creation is the norm, returning to the norm or to gold standard would be logical.
Rothbard has made a persuasive case for gold standard while simultaneously demonstrating that economics can coexist with common sense. Fortunately, for the critiques of gold standard, ignorance is not a disqualification.
New banks will mean little to customers
Debashis Basu
Business Standard
Once you are a customer of a particular bank, you will find yourself locked in for multiple reasons. Your salary account could be tied to it. Or it may be close to your workplace or home. Pensioners cannot change their bank accounts easily; transferring a pension account from one branch to another even within the same bank is troublesome. Many small businesses complain that bankers force them to buy insurance or other products as a precondition for getting a loan. Many customers of private banks complain about an overzealous application of know your customer (KYC) norms leading to harassment.
From the point of view of bankers, customers are sticky and can be exploited. Customers, on the other hand, often feel trapped. The textbook answer to this problem is to allow more banks to operate. A lot of sensible people believe that more players mean more competition and that more competition means better customer service and cheaper prices. This is true of many sectors, but not banking services.
Almost three years ago, the ministry of finance – which has many major and critical economic issues to deal with – somehow got interested in telling the Reserve Bank of India (RBI) that the central bank should issue new bank licences. But the RBI either had no interest in increasing competitiveness among banks or was simply too slow. I suspect it is the former. So, although the finance minister was keen on it, the RBI was sitting on the applications – until Raghuram Rajan became RBI governor. Dr Rajan requested former RBI governor Bimal Jalan to head a committee that would screen the applications for bank licences and recommend the applicants to pick from. But Dr Jalan has already spent a month picking his team, which now includes one former banker, one former central bank official and one former stock market regulator. Even as I write this piece, I read that the finance minister is already gently forcing the RBI’s hand – he wants seven new licences to be given.
The question is, will seven new banks change anything for retail customers or small businesses, the two segments that are usually at the mercy of banks? Or is something else needed to transmit the benefit of “competition” to customers? The new bank licences will not automatically make things better for customers. Customers will benefit if the RBI, the “regulator”, applies what is being termed “intrusive regulation” or “twin-peak regulation” around the world (financial conduct and prudential regulation being the two peaks).
But so far, the RBI has been particularly protective of its flock – the bankers. There are innumerable examples of this. One, the central bank has been niggardly about giving licences to new banks, which, in turn, protects the high margins of private banks and condones the inefficiency of public sector banks. Two, on issues that affect customers’ interests, it has often gone to bat for banks. Three, when banks are caught flouting norms, the effort is to hush it up rather than making an example of them – not unlike the behaviour of self-regulating professional bodies of accountants or doctors. When Global Trust Bank collapsed, a public sector bank was picked up for a shotgun wedding over a weekend. We never got to know how bad things got at Global Trust Bank under the RBI’s watch, while the failed bank’s promoters and officials got away easily. The RBI plays God, rather than a mere referee, for the banking sector.
In 1993, six new private banks were issued licences, after three decades of misguided nationalisation. In 2001, just two more were allowed in. So, parallel to two decades of fast economic growth, just eight new banks have been issued licences (apart from a few institutions that have been allowed to convert into banks). Of these, four – including the Bank of Punjab, Centurion Bank and Times Bank – were sold at a good profit. Only Global Trust Bank collapsed. Those that survived are enjoying extraordinary profits that a competitive marketplace would not allow.
So customers have nothing to get excited about seven new banks. As it is, banking is a slow-growth and capital-intensive business, and so new banks take time to attain a meaningful size to make a difference. But the point is that “competition for the consumers” (of banking services) hardly delivers the real benefits of competition. Banks don’t compete. They collude. Banks also pass on the enormous cost of technological experimentation to customers because there is no technology audit. All banks are buying the same systems and paying similar hourly consulting rates to a small group of service providers. This is recovered through various banking charges. That’s why while theoretically banking charges are free, they don’t vary much from bank to bank. And, whenever possible, all of them miss-sell third-party products such as mutual funds, insurance, private equity and portfolio management services. Seven new players will do exactly the same thing as the 17 before them.
For banking customers to be treated as kings, we need intrusive regulation. This is what regulators in developed countries learnt in the aftermath of the 2008 financial crisis; they changed their regulatory structure, processes and objectives accordingly. India is far behind in this regard. In response to complaints of poor customer service or malpractices, K C Chakrabarty, deputy governor of the RBI, has just one advice: change your bank. As explained in the first paragraph, this is impractical. He also admits that the RBI has no mechanism or framework for customer protection. Nobody in the Bimal Jalan committee is likely to speak powerfully for customers.
I wait for the day when Raghuram Rajan, the new RBI governor, will first use the word “financial conduct” in one of his statements. Until then, consumers will have little to look forward to in the new bank licences.
(The writer is the editor of www.moneylif…)
*Health, motor insurance policies may go paperless from January
Move will eliminate risk of losing physical document
The Business Line*
Policyholders will not be charged for this facility as insurance repositories will be paid directly by insurance companies.
Mumbai, October 8: After life insurance, it is now the turn of health and motor insurance policyholders to be able to hold their policies in the electronic format, doing away with the paperwork.
Insurance repositories will extend the facility of storing such policies on electronic platforms by January 2014, said industry officials. Policyholders will not be charged for this facility as the insurance repositories will be paid directly by the insurance companies.
Currently, insurance repositories offer the facility of holding e-insurance accounts only for life insurance.
The benefit of holding policies electronically is that there’s no risk of losing the physical document. Also, policyholders can pay their premiums online and renew policies through the portals.
Recently, the Insurance Regulatory and Development Authority permitted five companies to act as insurance repositories — NSDL Database Management, SHCIL Projects, Central Insurance Repository, Karvy Insurance Repository and CAMS Repository Services.
S.V. Ramanan, Chief Executive Officer of CAMS insurance repository, said the company is currently in discussions with general insurance companies and the general insurance council to offer e-insurance services. “By December end, we will have our systems ready. Initially, we will offer it for health and motor insurance. Subsequently, we will offer e-insurance accounts for other general insurance products as well,” said Ramanan.
CAMS Insurance repository has tied up with five life insurance companies — ICICI Prudential Life, Reliance Life, PNB Metlife, Kotak Life and Indiafirst Life. CAMS insurance repository is also in discussions with Life Insurance Corporation for offering e-insurance accounts to its policyholders.
“Electronic record keeping is just the start of the relationship with the policyholder. What you need is to service the customer through the life-cycle, which we will provide,” said Ramanan. “At present, while agents offer these services, we will be a support to them. While insurance agents can focus on the sales aspect, repositories can provide the services part to policyholders,” said Ramanan.
Life insurance companies bear the upfront cost of tying up with insurance repositories. However, it is estimated to cut costs significantly for the life insurance industry in the long term. According to industry estimates, a life insurance company now incurs about Rs 600 to acquire a new customer. But if the policy is held in an e-insurance account, the cost can be brought down to Rs 100 a year.
The Mobile Battleground
Prosenjit Datta
The Business World
How banks are fighting back to become
the dominant players in the mobile platform
So far, most technology revolutions have aided the banking industry, instead of posing any threat to it. Automated teller machines (ATM) drove down the cost of transactions — and with it operational costs — for banks. Credit and debit cards, along with point of sale machines, helped boost transaction volumes exponentially. Credit cards also increased the volume of consumer credit enormously; and, given the high interest rates charged for that credit, the business became highly profitable for most banks. As Internet penetration increased, it helped lower transaction costs further, reducing the number of branches banks needed to service customers in a geographical area. The Internet did throw up some competitors — payment platforms such as PayPal. But eventually, even these platforms helped banks — to open a PayPal account, you still needed to link it to a bank account or credit card.
It was perhaps due to these benign effects of technology that most banks did not fully realise that mobile technology was a different proposition. Most banks initially treated the mobile revolution as just another platform for handling customer queries or providing simple services. Most banks, and this is especially true of Indian banks, did not initially realise that the mobile revolution could help in actual transactions. And that it could help solve many problems such as transferring money to people who did not even have a banking account.
Telecom service providers such as Vodafone and Airtel in India, and Vodacom and Safaricom (in Africa) realised the potential of the mobile phones much before many banks did. The m-pesa service, which allows small transfers of money using the mobile phone, became a hit in Africa and is gaining traction in India as well. For poor people who have mobile phones but not bank accounts, it provides a great convenience. It allows them to transfer money from one city to another, and to carry out transactions without having to access a bank. Meanwhile, technology providers such as Google with its Google Wallet, and PayPal, are also trying to gain sufficient followers in this game.
The fact is that mobile transactions offer good fee-based business. The fee charged for an m-pesa transaction is stiff — at least in India. But it offers unparalleled convenience to a person who has a mobile phone.
Now banks are fighting back to become the dominant players in the mobile platform. Given that they have a helping hand from the banking regulator, they are likely to gain the lead even though they started out late. In our cover story, senior associate editor Raghu Mohan looks at how the mobile battleground is looking currently in India.
More to CSR than doling out cheques
C. Gopinath
The new Companies Bill has both given a boost to corporate social responsibility (CSR) and broadened its scope. Yet, some of what it would allow can make us wonder if this is really CSR.
Traditionally, arguments in favour of CSR have come from the stakeholders’ perspective. This takes the view that the organisation is answerable not just to its stockholders but to all its stakeholders as well, which includes the community, vendors and customers.
- Naming the motives
Scholars often debate the motives that drive CSR. One extreme view is that it is an oxymoron — that companies only have a responsibility to their shareholders and not to vague notions of doing good to society. Although this view is diminishing, those who recommend CSR try to find ways to justify the actions.
The motives for adoption of CSR could be both economic and moral. The economic argument is presented to mollify those who see CSR activities as beyond the scope of an enterprise. Arguing that undertaking CSR can still provide economic benefits to the organisation may give some business legitimacy. On the other hand, the moral justifications for CSR also rest on the symbolic nature of the activity.
The argument here would be that the corporation is a member of society and needs to behave in a responsible manner like any citizen, and there is no point in even trying to calculate the benefit to the company, since this is just the right thing to do.
The motives that drive a firm involved in CSR seriously affect its implementation. A firm that does so with economic motives will be driven to those aspects of CSR that can be clearly measured and provide immediate results. When the motive is symbolic, the firm may be driven to activities that get it good media coverage, but do not necessarily make the most significant impact.
One ‘market’ mechanism that has pushed many companies towards CSR has been the ISO 9001 standard. Having the certification improves a company’s legitimacy in the marketplace, prevents consumer abuses and even deals with the health and safety of employees. It safeguards the public from the company making misleading advertising claims, and unreliable products. Thus, rather than promote CSR as a cheque-writing activity, that is, the company making a donation to some non-profit organisation, the standard ensures the company conducts its activities in a socially responsible manner.
The UN’s Global Compact tries to achieve the same. Since these are process- and not performance-based standards or guidelines, they help transform the organisation, but still leave open the question of measuring how it benefits the organisation.
Several organisations, such as those in the Tata Group, have built a reputation for social responsibility, derived from the vision of their founding rather than economic or competitive justification. On the other hand, we find even organisations such as ITC, whose social responsibility credentials while being in the tobacco business can be questioned, have yet undertaken innovative business activities like the e-Choupal which, while being a hard-nosed business venture, has impacted farming communities in a positive way.
- Meaningful CSR
Unlike in the Tata case, where we can give credit to history and tradition, the ITC case brings to our attention what scholars would call the role of managerial autonomy. With little external pressure, salaried employees of the organisation, at some time, have entered an area of activity that combines good business with positive social impact.
One definition of CSR is that these are practices that further some social good; they are beyond the interests of the firm, and they are not required by law. That changes in India with the Companies Bill requiring some firms to spend 2 per cent of their three-year average annual profit towards CSR activities. By making it a requirement, efforts to justify CSR now have to take on the shades of compliance instead.
Given the criteria of networth, profit and turnover, it is estimated that the law applies to only about 1 per cent of active companies in the country. Although spending is not mandatory, reporting is. By requiring a board-level CSR committee, the law is trying to gently push companies in the direction of making CSR impact strategic thinking within the company rather than another law that has to be satisfied. Thus, again, it is along the lines similar to the Global Compact.
But the Bill has also raised the question of what CSR is. In a recent interview I read, Corporate Affairs Minister Sachin Pilot commented that investment in skills upgrading by companies would be counted as CSR spending. I would argue that it should not, and doing so will only dilute the meaning of CSR.
A company pays attention to the skills of its personnel from a purely selfish perspective, namely, to derive competitive advantage. These are a part of its efforts to maintain the desired performance. It has little to do with responsibility to society. If companies can claim that their expenditure on training programmes for executives are a part of CSR, it completely negates the spirit behind CSR.
-——————————————————————————————————————-
CSR is not about making profits; it’s just the right thing to do.
PSU banks need to set up 137 ATMs a day to meet FinMin target
Economic Times
Public sector banks will have to race against time to install 137 ATMs every day to meet the Finance Ministry’s target of putting up cash dispensing machines at all their branches by March end.
According to the ministry, all the public sector banks are running behind schedule. The banks, which are required to install onsite ATMs at 34,668 branches by March 31, had set up 5,726 at the end of August.
In the remaining seven months of the financial year, the 26 public sector banks will together have to set up 28,942 ATMs, or an average of 137 every day.
The government has directed public sector banks to have ATMs at all their branches as part of its financial inclusion drive. Finance Minister P Chidambaram said in his last Budget speech that “public sector banks have assured me that all their branches will have an ATM in place by March 31, 2014.”
At the end of March 2013, public sector banks had a combined 72,340 branches, of which 37,672 had onsite ATMs.
According to the monthly rollout plan, 1,114 ATMs were set up in August against a target of 2,959.
As of August end, State Bank of India, the country’s largest lender, had 3,339 ATMs left to be installed in the current financial year.
Bank of India has 2,586 ATMs to be set up and Allahabad Bank has to install 2,174 ATMs.
BRL (Brazilian Real)
The currency abbreviation symbol for the Brazilian real (BRL), the currency for Brazil. The Brazilian real is made up of 100 centavos and is often presented with the symbol R$. The Brazilian real (plural reais) is regulated by the Central Bank of Brazil’s (BCB) Monetary Policy Committee (COPOM).
@B@R_0_0_D wrote:@
h4. BRL (Brazilian Real)
The currency abbreviation symbol for the Brazilian real (BRL), the currency for Brazil. The Brazilian real is made up of 100 centavos and is often presented with the symbol R$. The Brazilian real (plural reais) is regulated by the Central Bank of Brazil’s (BCB) Monetary Policy Committee (COPOM).
Uncle… How will this help us simplify our own finance? 
Online retail creating India’s retail revolution
Jayant Sinha,
India’s kiranas, chemists, sareewalas and mom-and-pop stores need not fear Wal-Mart. Instead, they should fear Indiatimes Shopping, FlipKart, Myntra, RedBus, HealthKart and so on. Yes, modern retailing is coming to India – but it is not going tobe driven by traditional, big-box retailers; instead, it is going to be driven by a swarm of innovative, new-age retailing companies that are reinventing the business for a 21st-century India.
The current sterile debate on FDI in retail is misguided. While it might be important in terms of political theatre or to attract some big-box retailers from the west, it is likely to have limited impact on the fast-evolving Indian consumer. In fact, large-scale modern retail is already here in India and it has only had modest success.
After all, what are Wal-Mart, Carrefour and Tesco going to do in India that Reliance, Birla, Future and Bharti have not already tried? It is not as if India’s business groups lack capital, technology or management expertise. In fact, these same business groups are actually exporting their terrific business capabilities across the world.
So, if there was money to be made by investing in cold chains, directly procuring from farmers, developing exciting new retail formats or from just lowering prices, you can be sure that Reliance, Birla, Future and Bharti would have already done it.
Actually, traditional retailing in the west – as exemplified by Wal-Mart, Carrefour and Tesco – is in deep trouble. Many retail companies have gone out of business, business is slow and market capitalisation has plunged. Market savants such as Eddie Lampert and Bill Ackman are ruing their investments in iconic companies such as Sears and Target.
Retailing is fundamentally changing due to the power of the internet, digitisation of many products and super-efficient retailers such as Amazon and Costco. Thus, it makes no sense for India to seek to import traditional retailing models, which are in deep trouble in the west.
In any case, traditional retailing, as developed in the west, was hardly likely to be successful in India. India’s cities are too dense, parking is not available, real estate costs are too high, supply chains are completely different, the infrastructure is much worse – there are so many reasons why traditional western-style retailing in India is likely to struggle. In fact, India’s mom-and-pop stores are perfectly evolved to be successful in such conditions. Displacing them is very hard.
What will displace them is retailing innovation for India, of India and by Indians; not FDI in retail from traditional western retailers. Ironically, FDI in retailing is already widespread; only, it is coming in the form of venture capital in start-ups and not FDI. Innovative, entrepreneurial companies such as Indiatimes, FlipKart, Myntra, RedBus, HealthKart and Yebhi will transform Indian retail.
The new-age retailing models that are becoming successful in the country are online models with excellent offline enablement. These business models are incredibly innovative in terms of their procurement, inventory management, vendor base development and collections approach (primarily cash-on-delivery).
These models are customised for Indian conditions. Efficient suppliers are cultivated from around the world. Inventory is transferred to well-designed warehouses close to major urban locations. Then, speedy courier services ferry your goods directly to your doorstop. There are significant cost-savings at each step in the supply chain.
The net result: the Indian consumer gets the delivery and credit of the neighbourhood kirana store, while sampling a huge assortment and getting 20-40% lower prices. It is an irresistible value proposition. Can Wal-Mart or Carrefour match that?
Talking heads on TV can debate whether hypotheticals might happen. Will Wal-Mart take away jobs? Will Carrefour invest in cold chains? How well will Tesco pay farmers? I believe this is of academic interest to much of India and may only be relevant to middle-class families living in Gurgaon and Whitefield. FDI in retail may also prompt approving comments in Washington and London, but we need home-grown entrepreneurial innovation.
The good news is that this type of innovation is already working its silent magic and will have a much more transformational impact. It is making life easier for the student in Guwahati buying his textbook from FlipKart. The schoolgirl in Patna is thrilled with her new green kurti that she bought from Myntra. The clerk in Trichy is thanking RedBus for his SMSed ticket, which spared him a special trip to the bus depot. The diabetes patient in Muzaffarnagar is delighted to have authentic blood testing strips delivered to his doorstep by HealthKart. And, the badminton player in Srinagar is finally back on the court now that his special shoes have been couriered over by Yebhi.
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World’s 6th largest number of billionaires in India
The Times of India
Indian billionaires, the sixth largest group in the rich world, have thrown up an interesting trend found nowhere else in the world — holding on to one’s roots. Despite popular notions of billionaires being jet-setting, cosmopolitan individuals, most Indian billionaires remain where they were raised.
The World Billionaire Census 2013 released on Wednesday shows that 95% of Indian billionaires who currently have their primary business in India, also grew up there. The trend globally is very different. Around 23% or just 1 in 4 billionaires globally made their home city the city of their primary business. Only 39% of all billionaires globally have the same home state as the state of their primary business
Billionaire hotspots such as Singapore, Switzerland and Hong Kong have emerged as favoured destinations for the ultra-rich. However, only 36, 34, and 25% of their billionaire populations respectively, grew up in these countries.
Another significant finding is that not all these Indian billionaires have college degrees, let alone attending Ivy League for a degree in business management. Three of every 10 billionaires in India don’t even have a college degree.
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Insurance Claim settlement process will be faster with e-KYC
Suppose someone bought a Life Insurance Policy 25 years ago, he didn’t provide documents for his age proof at that time as KYC was not mandatory then. When the policy holder went to claim his policy from the insurer after it matured after 25 years, he had to re-submit all of his physical documents to the insurance provider. Even then it took over a one to two months for his claim to be settled.
But individuals can avoid delays or buy new insurance policies easily with-KYC. The Insurance Regulatory and Development Authority (IRDA) recently said that the e-KYC (electronic know-your-customer) services operationalised by the Unique Identification Authority of India (UDAI) would be accepted as a valid KYC process for insurance. In other words, the AADHAAR card, which has all your details including age and biometric identification, can now serve as the sole valid document for customer identification. This will help those people who bought policies a few years ago when KYC was not mandatory. Insurance companies are in the process of updating their systems to e-KYC.
The documentation process can be faster with e-KYC. This will be beneficial for life insurers and policyholders too.” It will not only render the administrative work paper-less but also reduce the turnaround time to sell policies and settle claims. The e-KYC will help customers of a higher age get policies quickly. For instance, there are many who do not have a birth certificate to confirm their age, or those living in rented apartments don’t have an established address proof to offer.
So far, UIDAI has rolled out 460 million Aadhaar numbers. It is aiming at 600 million by early next year. For an e-KYC, one has simply to provide an Aadhaar number, after which one’s fingerprints are scanned to extract data to confirm that such details match those already recorded in the system. After this, a customer is not required to provide any further documents or photographs.
Usually in life insurance, the KYC of a nominee is also equally important as it can help avoid fraudulent claims. “It will reduce cases of fraud because, through e-KYC, a policyholder can maintain utmost privacy in choosing nominees and scanning and sending documents across to the insurer,” said an expert from the industry.
This e-KYC facility will not only greatly help investors to secure insurance cover, but will also help them apply for mutual funds and various pension plans available in the market.
Employees Provident Fund – limit on contribution to Pension Scheme
As the Employees Provident Fund Organisation (EPFO) has capped the monthly contribution to the Employee Pension Scheme 95 (EPS95) to a maximum wage ceiling of Rs 6,500 or a contribution of Rs 541, it leaves those desiring extra pension in their retirement years to scout out other alternatives.
The EPFO has capped the contribution to EPS 95 to a wage ceiling of Rs 6,500 for fresh cases. The order from the EPFO states that “contribution to EPS-95 on higher wages would not be allowed and shall be limited to wage ceiling (Rs 6,500)”. In some cases, employers were contributing more based on requests from employees.
According to EPFO rules, employees have to contribute 12 per cent towards EPF and the employer has to match the amount. Of the amount contributed by the employer, 8.33 per cent has to go towards pension, and Rs 541 works out to 8.33 per cent of Rs 6,500. Now the EPFO has mandated that the contribution to pension should not exceed Rs 541, irrespective of the salary of the employee.
This is unlikely to make a huge difference to employees, since it means that the extra contribution will now go to your regular employee provident fund (EPF) account instead of the EPS 95 scheme.
However, while this option was available many employees did not avail of this facility. Most companies in India contribute only Rs 541 as of now and not more, which is the mandatory amount to the pension component, perhaps due to lack of awareness.
As contributions towards pension will come down, employees can now build a larger provident fund corpus and also make larger withdrawals, if needed for special situations such as a marriage or construction of a house.
On the other hand, the EPS 95 scheme pays a monthly pension to its members. But now if you were planning to contribute more towards your pension account, experts suggest you could, using the funds from the provident fund corpus, immediately purchase annuity products such as annuity plans from insurance companies.
To avail of the pension, the EPS 95 rules state that you have to have worked for 10 years and have passed the age of 58. If you have put in less than 10 years of continuous service, you can withdraw the pension amount, but will not get any interest on it. So, you are perhaps better off with lower pension amount and more going toward your provident fund, which you can withdraw as a lumpsum.
Those who feel that they are better off securing a higher pension, that is monthly income rather than a lumpsum, should start investing in the National Pension Scheme. This would allow one to build a corpus and provide regular income when one retires. Since the fund managers under the NPS have the option of investing in equity and debt instruments, returns from them can work out to be quite attractive over the long term.
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