Impact 
 The Reserve Bank of India (RBI) at its Annual Conference of Banking Ombudsman is mulling ways through which better customer service can be provided to customers, thereby attempting to reduce or prevent consumer grievance.
The big relief for the customers comes in the form of waiver of pre-payment penalty on floating rate loans. This, if implemented, would make shifting of loans from one lender to another much easier. In other words, refinancing your home loan could become significantly easier and cost effective. At present barring a couple of banks, most banks levy a pre-payment penalty (as it amounts to a loss of interest income for them) which ranges from 2.0% for home loans and 5.0% for auto loans
Moreover the central bank has also proposed for a mandatory insurance cover to credit and debit card transactions, which is an international practice where customers get a cover at the time of buying the card at no extra cost. At present, some banks do offer credit card protection plans (like the one offered by CPP India), where customers can buy a cover by paying a certain premium.
We believe that if this proposal from RBI goes through, it would be in the larger and long-term interest of the borrowers / customers. However, one may witness loan processing fees going up, if the banks provide relief from pre-payment penalty. Raising interest rates as a compensatory effect to this may not be possible for banks as competition amongst banks would be fierce. Providing credit card protection plans too is a pro-customer move, but a strong policy framework needs to be in place in order to resolve grievances (if any) thus attempting to facilitate smooth functioning of the banking system.
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Impact 
The dark clouds of high inflation and global fears have kept the Indian stock markets at bay from generating wealth for investors since the start of this calendar year. Since January 3, 2011, the BSE Sensex has plunged -18.7% to 16,713.33 as on September 5, 2011 from 20,561.05 as on January 3, 2011.
(Source :ACE MF, PersonalFN Research)
While other Asian indices too have been exposed to the global economic headwinds, our markets – BSE Sensex, have plunged the most as against the other Asian markets which have well arrested their downside. Since January 3, 2011 to September 5, 2011, our markets have wiped off  12,14,285 crore of investors’ wealth thereby taking the most beating. Other Asian markets on the other hand have lost anywhere between 10% and 15% in this year, led worsening euro zone debt crisis and fears of a double-dip recession in the U.S. which has dented investors’ confidence.
In our opinion the current turmoil in the Indian equity markets is partly due to the global factors like the Euro zone debt crisis and no improvement in the U.S.’s growth and partly due to the domestic factors like high inflation and corruption scandals unfolding. Even though the GDP growth rate too has dwindle marginally (to 7.7%), the Year-on-Year (Y-o-Y) economic growth rate has been quite appealing as we have grown at 8.5% in the fiscal year 2010-11 (as against the 8.0% growth rate clocked in the previous fiscal year 2009-10). Moreover, prudent policy measures, strong consumption story and lower debt- to-GDP ratio are promising economic factors which will enable India to attract FII flows. However sticky WPI inflation needs to descend before it starts magnifying the dampening effect on the promising consumption theme.
Yes, while we expect volatile times going forward we encourage you investors to invest in a staggered manner at these attractive levels of the Indian equity markets. It would be ideal if you opt for dividend yield funds in these volatile markets. But it is recommended to adopt the SIP (Systematic Investment Plan) mode of investing as this will help you to manage the volatility of the equity markets well (through rupee-cost averaging) and also provide your investments with the power of compounding. Invest with a time horizon of at least 3 to 5 years and invest in funds with a consistent track record and in ones where fund houses follow strong investment processes and systems. |
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Impact
 Investing in winning mutual funds requires a lot of efforts and research which all investors may not be able to undertake simply because either the investors are not able to devote much time to it or rather lack the required intellect to select the right mutual funds.
This in turn leads to hasty investment decisions by many of you investors based on star fund ratings provided by a few rating companies. These star fund ratings which rank schemes rely on past performance. The ratings give no guarantee of outperformance in the future, but most of the inflows to mutual fund schemes arrive merely because they have the top two ratings. This promotes an unhealthy practice of churning and performance chasing.
We believe that selecting the right mutual funds involves a lot of analysis not only on the quantitative parameters but also on the qualitative ones. As an investor you should not blindly follow the star fund ratings, and get swayed by the numbers provided by your agent / distributor / relationship manager since there’s more to evaluating a fund than its past performance. It is vital to be wise and take expert advice before allocating your hard earned money to any mutual fund scheme.
To know more about the parameters to be looked into while selecting winning mutual funds for your portfolio, please click here.
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| Weekly Facts |
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Close |
Change |
%Change |
| BSE Sensex* |
16,866.97 |
45.5  |
0.27% |
| Re/US$ |
46.20 |
(0.1) |
-0.24% |
Gold /10g |
27,570.00 |
265.0 |
0.97% |
| Crude ($/barrel) |
116.19 |
1.4 |
1.22% |
| FD Rates (1-Yr) |
7.25% - 9.25% |
Weekly change as on September 08, 2011
*BSE Sensex as on September 09, 2011
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In this issue
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This Week's Poll !!!
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In an interview with the Economic Times, Mr. Pramit Jhaveri - Chief Executive Officer (CEO) for Citibank’s Indian operations shared his views on the challenges for banks in India and RBI’s policy on new banking licences.
Mr. Jhaveri is of the view that the increasing interest rate environment is challenging for the banking sector. In addition to this he believes that there is also a high degree of wage inflation along with a sense of potential increases in non-performing asset levels. Explaining further he said, "Credit off-take for the last 3-4 months has been a challenge. But if one were to look at it in the context of a GDP that is growing in the range of 7.5-8.5%, we typically look at a banking industry that grows at 2.5-3x GDP. My own view is that the softness in credit off-take is a temporary phenomenon."
On the RBI’s policy front, Mr. Jhaveri believes that there are impediments that exist in the way guidelines have been put out but they are yet to be converted into regulation. "If the regulations address these impediments, we believe that this would present an opportunity for us. The white paper released by RBI has some impediments which include the capital tax and stamp duty. Once you overcome these, we see it as an opportunity to grow our footprint." he said.
Mr. Jhaveri feels that the Indian banking industry is undersized. Explaining his stance he said, "Let's look at one statistic: The loan to GDP ratio in India is 53%. If you look at a country like Brazil, it is 56% and in China it is 120%. When you look at it in terms of size and penetration and India's growth needs over the next few years, there is no doubt that the Indian banking sector is undersized. Further, in a Basel III environment, the capital needs of the industry would only increase. Accordingly, the industry has room for some new, strong healthy institutions. India has always been a hyper-competitive market. In markets such as India, we welcome competition, as healthy competition tends to increase the market pie."
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Credit Insurance: Credit insurance is a type of life insurance policy purchased by a borrower that pays off one or more existing debts in the event of a death, disability, or in rare cases, unemployment. Credit insurance is marketed most often as a credit card feature, with the monthly cost charging a low percentage of the card's unpaid balance.
(Source: Investopedia)
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QUOTE OF THE WEEK
"The highest use of capital is not to make more money, but to make money do more for the betterment of life."
-Arthur Godfrey
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