S&P BSE Sensex*	Re/US $	Gold Rs/10g	Crude ($/barrel)	FD Rates (1-Yr)
22,994.23 | 590.34 2.63%	60.06 | 0.28 0.46%	30,100.00 | -650.00 -2.11%	107.88 | -1.53 -1.40%	8.00% - 9.00%

Most investors who are risk averse believe that their money is safe with banks. They prefer to invest in bank fixed deposits for this very reason and stay away from equity as an asset class. If you are one of them, you should try and assess, as to how diligently banks lend money that you trust them so much with your hard earned money. Non-Performing Assets (NPAs) tell you about the quality of assets banks possess. Higher the NPAs lower is considered the quality of assets. All loan accounts are the assets of a bank. Any loan account on which interest and / or instalment has remained unpaid for 2 quarters is classified as a non performing asset.

You see, over the last few years, quality of assets of banks in India has come under tremendous pressure by the way of rise in NPAs. Public sector banks have suffered more than their private sector counter parts.

A worrisome picture...
From about Rs 68,000 crore in 2008-09 NPAs rose approximately to Rs 1,94,000 crore in 2012-13, of which 2/3rd belonged to public sector banks in India. Moreover, about Rs 4,95,000 crore has been the amount of fresh bad loans accumulated over last 7 years by public sector banks in India. This tells us that the state of public sector banks has deteriorated to a great extent. In 2013, nearly 12 rupees out of every 100 rupees lent by banks turned non-performing. This was nearly an 80% rise as compared to NPAs recorded in 2009. Between the similar time periods NPAs of private sector banks declined from 6.6% to 5.3%.

Who is responsible for the rise in NPAs at PSU banks?
It is often said that, lower growth, rising interest rates and weaker state of Indian economy are some of the factors responsible for rising NPAs. However, recently the Reserve Bank of India (RBI) claimed that, under tough conditions private sector banks have done a better job. Reasons for poor performance of public sector banks, as stated by RBI are, reckless lending to corporates. In defence of public sector banks, finance ministry argued that, private sector banks stopped providing big ticket loans post 2008 which is why they were less affected. RBI doesn't seem to be convinced with the point made by the finance ministry as public sector banks didn't exercise prudent lending practices.

The remedy...
Discussion paper released by RBI suggests a few measures for improving performance of PSU banks which include:

• Providing more flexibility to managements of PSU banks;
• Improving governance; and
• Providing market related remuneration to staff

Recently, All India Bank Employees' Association (AIBEA) demanded that, the Government should release the list of major loan defaulters and tighten the loan-recovery norms. It is expected that stringent recovery norms would make it possible to take action against wilful defaulters under criminal procedure. AIBEA has also said that, if the bank personnel are found responsible for rising NPAs then they will have to face investigation and if found guilty, they should be punished.

PersonalFN is of the view that, rising NPA has become a structural problem for PSU banks. The Government coming at the centre (whichever it is) would have to take utmost care that NPAs are not escalated further. Rising NPAs are bad for banks as well as for depositors. Improving governance of PSU banks and offering greater freedom to managements may help curb rising NPAs. Supplementary to that, it would be imperative for the Government (whichever comes to power) to try to get the economy back on track and keep inflation under control through prudent implementation of policies. Movement of interest rates depend a lot on these two factors.

As far as depositors are concerned, PersonalFN believes they would be better off obtaining information about the financial health of a bank before investing huge sums in fixed deposits offered by them. A bank that constantly fails to maintain quality of assets may not be the best bank to invest your hard earned money in.

Do you think your bank is efficient enough to protect your deposits? Share your views

Is fresh bull market on its way?

Election results will be out next week. Indian equity markets have been eagerly waiting for the outcome of Lok Sabha elections. Foreign Institutional Investors (FIIs) have pumped in money hoping that outlook of Indian markets would change if NDA comes to power. S&P BSE Sensex which is one of the widely tracked Indian equity indices crossed 22,000-mark for the first time on March 24, 2014. However, thereafter, the movement has been rather sideways. Nonetheless, the markets have not come below 22,000 levels since then. This indicates that markets are rather edgy sitting on fence, and there could be a big move either ways once the election results are out. There have been speculations that the new bull-run may have started for the market and the on-going rally may continue going forward in case election outcome turns out to be favourable for markets. But would that indeed be the case? Well, here's an interesting analysis from PersonalFN.
  Journey of S&P BSE Sensex

Data as on May 07, 2014
(Source: ACE MF, PersonalFN Research)
S&P BSE Sensex touched 10,000-mark for the first time in February 2006. With correctives occurring in the interim, it took less than 200 days to gain next 1,000 points until the index touched 20,000 levels in December 2007. Journey of S&P BSE Sensex has been tough thereafter. As depicted in the chart above, the index took more than 1,200 days to reach 22,000 levels after having recorded 21,000 in November 2010.

Analysis conducted by PersonalFN reveals that markets nearly doubled within 20-22 months Between February 2006 and December 2007. They had crashed to sub 10,000-mark again in the aftermath of global financial crisis of 2008-09. Even in the recovery phase, markets failed to sustain new highs. But looking at current rally it seems markets are hoping that fundamentals of Indian economy might change if NDA led Government comes to power. Markets have advanced to 22,000 levels after a long wait of more than 3 years and have sustained those levels for more than a month now which has not happened so far in last 6 years. But having said that could be momentary as the market sits on the fence. All would depend how many seats the dominant parties will get.

PersonalFN is of the view that, although index level has remained stagnant, earnings have not improved much keeping valuations relatively rich. This suggests that, unless earnings of Indian companies grow substantially, current market levels seem unsustainable. Which Government comes to power will have to deliver as promised.

PersonalFN is of the view that markets might have turned around after staying sideways for a prolonged time period, however, it would be unadvisable to speculate on their direction. PersonalFN has always believed that investors should follow their asset allocation and invest regularly. While you invest in equity oriented mutual funds, consider only those funds which are consistently performing across timeframes and market phases. Selecting a right fund for your portfolio is crucial rather than timing the market.
 

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Paying bills on-time and keeping a track of them may now be easy

If you miss the due date of a bill, you will be charged some penalty. Those who don't have time to stand in long queues, often opt to pay online rather than visiting collection outlets of billers for making payments. You can also avail the auto debit facility or pay by using credit card. But these systems also have their limitations. If your bank doesn't have a tie-up with the biller, you won't get auto debit facility. Moreover, if you have enrolled for 10 services, it is likely that you will have to visit websites of respective service /utility providers and honour bills separately for each of them. This process is cumbersome and time consuming. Often banks charge you per transaction which results in cost escalation. But soon this situation might change.

What will change now?
RBI had appointed an advisory committee to look into the mechanisms and structure of a nation-wide bill payment service. As per the observations made by the committee, cash and cheque payment modes still dominate the payment systems in India. With an aim of encouraging people for using electronic payment systems and lowering their dependence on cash, the committee recommended that pan-India integrated bill payment system should be developed. The committee further recommended that, a not-for-profit entity, Bharat Bill Payment System (BBPS) and a for-profit entity, Bharat Bill Payment Operating Units (BBPOUs), should be setup. Aforesaid entities would have distinctive roles. While BBPS would have to set standards and would be responsible for brand positioning, BBPOUs would carry out functions such as enlisting billers, providing infrastructure, handling transactions, customer grievances and providing value added services.

To read more about this news and the view of PersonalFN over it, please click here.

Why FD rates are likely to go up?

Rise in the cost of living and increasing demands of our family members make investing your hard earned money extremely imperative. Most people have started realising this and have become avid investors. Many investors prefer investing their savings in safer investment avenues such as bank fixed deposits (FDs), especially in uncertain times such as the present. Surely you must have heard a lot about this fixed income instrument from your family, friends, neighbours etc. To make it easy for depositors to invest in a bank FD, banks also provide the facility of directly debiting your savings account for a pre-determined amount and transferring it to a FD linked with that account. The rate of return on FDs is ranging from 8.0% - 9.0% for 1 year deposits at present, but now it appears that the rate of return on such FDs may go up further, thereby yielding investors with better returns. Dena bank is the first to make such a move by offering a higher rate of 9.15% for 444 day deposits through a 2-month window, and other banks may also follow suit.

To read more about this news and the view of PersonalFN over it, please click here..

Correction: A reverse movement, usually negative, of at least 10% in a stock, bond, commodity or index to adjust for an overvaluation. Corrections are generally temporary price declines interrupting an uptrend in the market or an asset. A correction has a shorter duration than a bear market or a recession, but it can be a precursor to either.

Quote : "If you don't study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards." - Peter Lynch