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home Stories written for Outlook Money October-December 2006 What you could extract and expect from banking in 2007 |
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What you could extract and expect from banking in 2007 December 2006 Lip service to imparting
better service standards is an age-old spectacle. So when Reserve Bank of
India in its latest 2005-06 annual report says that it "has made
improved customer service to the common person as one of its key
objectives" you wonder whether a spectacle is once again being played
out. Its another matter whether the banks that RBI regulates would also
have similar objectives to fulfill. Be that as it may, there are
enough techniques steps you can deploy in this whole new year ahead (desk:
we are referring to 2007 here) in your banking activities on the existing
arena of offerings by the banks. New-fangled advancements will
simultaneously appear at the initiative of select banks and RBI. Lets have
a look at the hows and whats. Juggling between savings account and fixed deposits. Essential it is more often than not for us to park our moneys in
our savings bank account. Amount of money we keep in it can become quite
large if we expect to use it for certain expenditure items in the near
future or if other investment avenues become risky and we park that money
in savings account till we can re-invest it. In such situations it becomes
meaningful to handle the money sleekly by juggling it between savings
account and short-term liquid savings instruments. The idea is to earn more
interest returns. RBI mandates banks to give at least 3.5 per cent
interest per annum on savings accounts but some banks are currently giving
upto four per cent per annum. However, as per RBI norms again, this
interest rate is calculated on the lowest amount in your savings account
between the 10th day of a month to its last day. So effectively you earn
still lower than 3.5 per cent per annum. Banks are therefore happy
when you let your money stay in savings account. Says Satish Menon, a
Bombay-based customer: "For the last few months large sums in my
savings account were lying idle and I would have really liked someone
advising me to deploy that such it remained liquid and yet fetched higher
returns." Menon got none. But, another customer of the same bank as
that of Menon, got a call within a week after investing substantial
portion of his savings account balance with the same bank's fixed deposits
(FDs) advising him to invest in mutual funds which he rejected for
different reasons. Here's how you could juggle.
Determine the percentage of savings account balance that will remain
untouched to be drawn only during exigencies or emergencies required
immediate cash. Add to this an estimated regular sum of money that you
utilise for routine daily personal and household expenses. Whats left
after all this is what you should split up into multiple sums and deploy
in bank FDs of different tenures ranging from 15 days to 15 months. And
earn interest anywhere between 5 and 8 per cent. Although you could also
invest in liquid schemes of mutual funds since the primary underlying
objective is liquidity sticking to bank FDs is a better bet. Most banks
today offer automatic transfer of matured FDs to savings account. Even if
you were to withdraw prematurely you can get the money transferred to your
savings account on the same day. Private sector banks offer you excellent
features through their phone banking and internet banking channels to open
and close FDs smoothly and swiftly. Use them to move money to and fro. Electronic funds transfer.
Exploit all the benefits that that internet-based electronic funds
transfer offer. From your savings account to that of a family member or
any one else having their account in another bank make regular transfers
through your bank's net banking platform. At present about 8-12 banks
provide this facility but more will follow. From your side do not
hesitate to avail of this as it not only saves you the bother of writing a
cheque but also transferring funds within 1-2 days instead of 2-3 days
taken in conventional cheque clearing. Also, are you among the many bank
customers who pay their power and telephone bills through their banks'
phonebanking/netbanking or through a bank-debit authorisation to
third-party bill payment vendors like billdesk.com. If not, join the gang
in this year. Debit or credit card?
– Make it a strong new year resolution to review merits of a
debit-cum-ATM card vis-a-vie a plain ATM card. Consider the risks involved
when you lose a debit card as against that in a credit card and a
fraudster expertly copies the signature and goes on a buying spree. Debit
cards are linked to savings account on a real-time basis and so a
fraudulent use of a non-PIN based debit card can wipe out your entire bank
account balance. And if your fixed deposits are linked to savings account
then you have had it. Majority of debit cards in
the country today are that of Visa International and there is a subtle but
unavoidable pressure on almost all banks to thrust a debit card on
unsuspecting savings account customers. All the conveniences that a
plastic card can be had through the use of a credit card wherein you can
set your own low credit limits thereby minimising risk of loss due to
fraud and pay full outstandings every month thereby not incurring any
credit charge. If the convenience of
plastic money can be achieved through a credit card and you have one then
surrender your debit card to the bank today. Ask them to give you a plain
ATM card. You will encounter statements from branch officials that the
bank has stopped issuing plain ATM card. But that will not be true. Says
Chitra Pandeya, head-liabilities and payment products group, HDFC Bank:
"Our front end tries to ensure that maximum savings account customers
are carded with debit cards but we do not issue unsolicited debit cards at
all." If you still encounter
head-in-the-sand attitude from a bank, raise a hue and cry with officials
of the bank at all levels and demand your right to receive a non-risky
plain ATM card to carry out any-time withdrawals and deposits at your
bank's ATMs. Transaction alerts.
It can only be beneficial to you if you know about the debit or credit
activity in your bank account as soon as it happens. Presently only 3-4
banks are offering transaction and account balance alerts through SMS to
your cellular phone and email to your email address. Says C.N. Ram,
head-information technology, HDFC Bank: "The basic use of a savings
account is for transactions but very often you don't know how much debits
or credits are happening. Through our transaction alerts you can catch any
misuse before it is too later." Expect more banks to follow
suit in this and as soon as your bank is among them subscribe to these
alerts even if you have to a charge of upto Rs 100 per year for it. Also
demand from banks already offering it to extend the same to alerts on
credit card transactions. Says
HDFC Bank's Pandeya: "We are planning to add alerts for credit cards
very soon." New technology to come.
In the first quarter of 2007, about 20 banks in Delhi and bordering areas
will go live with a RBI-monitored cheque truncation project that aims to
halve the cheque clearing time from 2-4 days to 1-2 days. Says Navroze
Dastur, general manager-payment solutions group of NCR Corporation: "Cheques
will get scanned by the receiving bank and their image files will get
transmitted electronically directly to the clearing bank making faster
clearing possible." You don't have to do
anything new while issuing cheques. Cheque truncation technology will come
into play after you deposit a cheque in your bank. Other than faster
clearing, says Dastur, "it will also convert the cheque information
into queryable data which can enable an early warning for risky
transactions." There is a flip side to this
too. Banks will use the data to get patterns of your transactions and
pester you with advise calls. Dastur gives an example: "If your
cheque payments show regular ones to mutual funds then the bank's
relationship manager will call you and advise to invest in them through
the bank." If you rather not have such interference list yourself in
the bank's 'do not call' registry and ensure that your bank respects your
right not to be disturbed with unsolicited advise. The year 2007 certainly
promises to be a busy one for bank customers. Make the jaunt fruitful for
yourself. December 2006 Intermediaries' negligence and not illegal investor-profiteers get Sebi's rap. The two depositories and eight depository participants (DPs) against whom Securities and Exchange Board of India (Sebi) on November 21, in a continuation of its April 27 interim order in the IPO multiple application scam, issued a disgorgement order of Rs 115.8 crore, are likely to appeal with the Securities Appellate Tribunal (SAT) by the first week of January. was the first time Sebi has resorted to disgorgement. But
will it stick? Disgorgement is taking illegally-earned gains from a manipulator
and giving it to specified victims. The Sebi order, some lawyers are pointing
out, does neither. Around 80 financiers using 24 agents as executants put in
benami multiple applications (in around 21 IPOs during 2004 and 2005) to get
higher allotment and then sold off the allotment shares soon after listing
profiting from the difference between a higher listing price and a lower issue
price. Instead of disgorging from these investors who violated Sebi
IPO norms prohibiting multiple applications Sebi has gone after NSDL, CDSL and
eight DPs whose role was that of facilitation through negligence in preventing
benami demat accounts from being opened in the system. Shockingly, Sebi chairman, M. Damodaran, stated that “there are the people that we regulate (depositories and DPs) against whom we passed the disgorgement order. Then there are other people in the market who are investors. We don’t regulate them." Investors would find this baffling. Says a lawyer: "Section 12A of SEBI Act prohibits violation of Sebi regulations through manipulation by any person and not just intermediaries registered with Sebi." Sebi
has also so far not taken any action on the facilitative role of lead
managers of the 21-odd IPOs in failing to weed out multiple applications
as is required of them under Sebi's IPO norms. As an investor you benefit
only if Sebi disgorges from actual illegally-profiteering investors and
penalises all regulated entities that were negligent." Sapped by gaps in your home loan agreement? December 2006 In our innate desire to stay
in a good home that is owned by us we develop a weakness of overlooking
any potential negativities in our quest to convert this strong desire into
reality. Housing finance companies (HFCs)
that lend to individuals and corporates for the purpose of buying or
constructing homes and other properties tend to exploit this psychological
weakness of ours. Particularly of those of us who can't buy our homes with
our savings and have little choice but to take a home loan to fulfil our
desire of owning a home. It would not be too many
among us who would not take glee in the numerous and easily available home
loans in the market. Competition among the HFCs has ensured that at least
you will have no dearth of lenders. But, almost as if a cartel
were operating behind the scenes, the terms and conditions behind the home
loan are framed in such a manner that the HFC aquires a legal cloak as
strong as steel while simultaneously handing you a haggard cloak. They
want to feel us obligated no matter that they derive their profits from
the interest we pay on the loans. Its about time we cut
through our cocoon of perceived obligations and start expecting to receive
fair treatment from the HFCs. Internationally, legislation exists that
respects borrowers rights as much as lenders rights, The home loan
agreement would be a good starting point. Which, though, and before we
proceed, itself is in focus in terms of accessibility. Are the HFCs
interested in making available easily a copy of the loan agreement to the
borrower? The answer is an apalling no as HFCs use every trick in the book
to refuse or delay handing over a copy. But it’s time to demand a
copy and read your home loan agreement even though its a bulky document
that runs almost into 50 pages and despite the difficult-to-decipher egal
lingo. And this should be done before signing the agreement. We attempt to
assist you a bit of the way as we pinpont a few of the unscrupulous
clauses in the agreement. Don’t
get fixed on fixed rates. Many borrowers are
opting for a fixed rate to hedge against the current trend of rising
interest rates although it comes at 1-1.5 per cent premium. So does that
mean the interest rate is locked at 11.5 per cent for the entire life of
the loan? Not anymore. This is because banks are introducing a reset
clause in their fixed rate home loan agreement to effect a change in the
interest rate at a future date. Then why mislead borrowers
with the word 'fixed' at all? The farce will go on but as a borrower you
can put a halt to it by refusing to fall in their trap. Un-mentioned
mix of fixed and floating. Often a
semi-fixed rate loan gets advertised as fixed rate loan. You can find out
the real picture only if you happen to read a clause such as this:
“Provided further that from time to time, the bank may in its sole
discretion alter the rate of interest suitably and prospectively on
account of change in the internal policies or if unforeseen or
extraordinary changes in the money market conditions take place during the
period of the agreement." Defining
a default. Conveniently, not for you
but for the bank, there are numerous clauses on what constitutes a
default. A lay person can not be faulted for thinking that a default means
purely non-payment of one or more loan instalments. But HFCs go way beyond
this. So other than non-payment being a default you encounter
default-constituting events such as this (taken from a Citibank home loan
agreement's description of events of default: (i) "where the
borrower, or where the loan has been provided to more than one borrower,
any of the borrowers is divorced or dies (applicable in case of an
individual)", and (ii) "if the borrower or any of the borrowers
is/are involved in any civil litigation or criminal offence." Clearly, something is amiss.
Says Ahmed Abdi, a Bombay High Court advocate, "No loan agreement can
impose restrictions on citizens' constitutional rights to litigate. Even
in the situation of the borrower himself being a respondent in any court
case the person can not be held guilty unless the final court
verdict." Liability in defaults.
What happens in case you face financial difficulties and miss paying a few
EMIs? In the face of default, the attitude of some banks is appalling. Can the HFC send rude
recovery agents to your home? Under the law of the land, it can not. Says
Abdi, "Possession of property or any other physical action has to be
through a court order under some legislation." As this real-life case
brings out – in August 2005, a ICICI Bank car loan borrower Someshwari
Prasad (an advocate with Allahabad High Court) was kidnapped by collection
agents of the bank and taken to the bank branch where he was beaten up by
bank officials. Prasad filed a FIR with the police and had the bank
officials and collection agents arrested. Hearing a habeas corpus
petition filed by ICICI Bank to release its arrested officials the
Allahabad High Court raised numerous questions about recovery agents and
the process. It asked, "Whether ICICI Bank or its collection agency
can take coercive action against the borrower by snatching the vehicles or
taking possession of the property without following the procedure
established by law and take further coercive action by locking the
individual borrower in the bank or at some other place?" Says Prasad, "Direct
snatching is not provided by any law and in fact violates multiple
provisions of the Indian Penal Code." Lending HFCs' legal remedy
for defaults on loans having outstanding amount of Rs 10 lakh and above,
is to file a suit against the borrower under the Sarfaesi Act (Securitisation
and Reconstruction of Financial Assets and Enforcement of Security
Interest Act. For lower amounts they can file a suit in the civil court. When property prices
crash. You may be paying your EMIs on time. But when property prices
crash you will be asked to provide security over and above the home
mortgage. The clause that enables this reads like this: “the bank may...
declare all sums outstanding under the Home Loan (including the principal,
interest, charges, expenses) to become due and payable forth with if the
value of the property or any security (including guarantees) created or
tendered by the Borrower, in the sole discretion and decision of the Bank,
depreciates entitling the Bank to call for further security and the
Borrower fails to give additional security.” The bank will deem you to be
a defaulter if you don't give the additional security. Assignment to third
parties. HFCs take your authorisation to assign collection and
administration rights on your loan to third parties. A Citibank home loan
agreement does it through this clause: "Borrower expressly...accepts
that the Bank shall...be entitled to appoint...third parties as the Bank
may select which gives to such third party all or any of its functions,
rights and powers under this Agreement...including the authority to
collect...MMR (minimum monthly repayment) due by the Borrower..." Elsewhere, this agreement
further states "the Bank may...assign any of its rights or
obligations herein without any approval or consent of the Borrower."
This is clearly an unfair provision. Suggests Abdi, "you look at a
bank's reputation and credibility before entering into a home loan
agreement with it; so when an unknown, undisclosed, and potentially
un-credible third party takes over you should be allowed an exit option
whereby you could move your home loan from bank X to bank Y." Again,
unfortunately, no HFC offers such an exit option. Other twisted clauses.
Some clauses are ambiguously worded. Sample this: “The bank/HFC will be
notified of any change in the borrower‘s employment, business or
profession well in advance.” The legal jurisdiction in
case of disputes is always at the place where the HFC's central office is
located. Says Abdi, "Individual borrowers, who are spread across the
country, can not afford to travel long-distance to seek legal
enforceability of their rights." Cross default is another
faulty clause where the HFC deems you a defaulter on your home loan if you
have made any kind of default in any other loan or facility with the same
HFC. Argues Abdi, "These are two different transactions and each's
performance or non-performance should be measured independently." The biggest twist in the
loan agreement is in the amendment clause. Sample it from the Citibank
home loan agreement: "The Bank shall...at its sole discretion
alter...the terms...of this Agreement by written intimation sent to the
Borrower by...courier. ...any amendment...proposed by the Borrower shall
be valid only if made by a written agreement signed by bothe the
Parties." So there you are – your hands bound and tied. What
you should do. Standing up for what is
fair and due to you is not difficult.
In all the above cases highlighted and those which we didn't but
which you will discover in your scrutiny ensure that you bring it to the
notice to the HFC that you consider the terms as biased against you.
Suggest changes and bargain hard to make them happen. If the HFCs persist then
lodge a formal complaint with National Housing Bank (NHB), a fully-owned
subsidiary of the Reserve Bank of India. As recently as September 2006 NHB
had come out with guidelines for HFCs with regard to fair practices code. So, if your home loan is from a non-bank HFC then write in your observations on all the unfair clauses of your agreement to NHB through its website www.nhb.org.in. For banks write in to RBI at helpprd@rbi.org.in or go through its website www.rbi.org.in. November 2006 Inter-connectnedness between money and nature yet again gets highlighted.
Global warming is perhaps why you are not feeling the winter
chill as often as you did in the past but this report on global warming and its
impact on consequences on world economies will send a shiver down your spine. A newly-released report on an independent review
commissioned by Its economic impact would be such, says the review, that the
overall costs will be equal to wiping out of between five and 20 per cent of
global GDP each year. "The costs of extreme weather, including floods,
droughts and storms, are already rising, including for rich countries,"
warns the Stern review. Says Deepti Bapat, Bombay-based environmental educationist:
"Climatic patterns changing will have a cascading effect on world
economies. For instance, as rising temperatures heat up the temperate regions
the malaria virus-bearing mosquito that thrives on bacteria in hot tropical
areas will move up and countries and areas that never had to spend on fighting
malaria will now have to spend heavily."
November 2006 Sebi is thinking of allowing hedge funds to invest directly, but it should also ban P-notes. If it leads to the ban on investment through offshore derivative
instruments or participatory notes as they are more often called as, then
Securities and Exchange Board of India (Sebi) chairman M.Damodaran's recent
announcement that Sebi is exploring letting international hedge funds invest
directly in Indian equities. In a seminar on October 26 Damodaran remarked "direct entry
of hedge funds should be facilitated rather than through participatory
notes." But whether the direct entry would mean mandated requirement of registration
of hedge funds as foreign institutional investor (FII) or FII sub-account
(FII-SA) was not clarified by Sebi chairman. International hedge funds and Indian companies are understood to
be behind the P-notes issued by FIIs and FII-SAs. Half of FII+FII-SA investment
in Indian equities is made up of P-notes. At present, Sebi permits these foreign entities to register as
FIIs—pension funds, mutual funds, insurance companies, investment trusts,
banks, university funds, endowments, foundations, and charitable trusts or
societies. FII-SAs can be foreign corporates, individuals and proprietary FII
funds, and hedge funds can still register themselves as FII-SAs. But since Sebi
permits P-notes hedge funds don't bother to register as they would then have to
make disclosures of their antecedents and track record to Sebi. But if Sebi bans P-notes and allows hedge funds to register as
FIIs or FII-SAs it will pave the way for increased transparency in FII
investments in Indian equities. |