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| August 21, 2015 |
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| Weekly Facts | | | Close | Change | %Change | | S&P BSE Sensex* | 27366.07 | -701.24
| -2.50% | | Re/US $ | 65.55 | -0.44
| -0.68% | | Gold Rs/10g | 26,650.00 | 650.00 | 2.50% | | Crude ($/barrel) | 45.3 | -4.08 | -8.26% | | F.D. Rates (1-Yr) | 6.25% - 8.20% | Weekly changes as on August 20, 2015
*BSE Sensex as on August 21, 2015 |
Impact 
There are some parts of India where people have to walk several miles to physically reach out to a bank - be it even ATMs. You can imagine the kind of facilities available in such remote parts of the country. The revolution in mobile connectivity though, has made life somewhat simple for people living in remote places. Payment banks, is another revolution which intended at making banking easy for you.
About a couple of years ago, the Reserve Bank of India (RBI) had released a discussion paper on banking structure in India with forward looking view. The said paper spelled the need for niche banking in India. The importance of giving universal access to primary banking facilities was recognised. Many banks thereafter applied for a payment bank licence and awaited the nod.
After screening the finer details of the applicant, the RBI has finally given its 'in-principal approval' to 11 entities which include Aditya Birla Nuvo Limited, Department of Posts, Airtel M Commerce Services Limited, Fino PayTech, Tech Mahindra, NSDL and Reliance Industries Ltd. among others.
The capital requirement to start a payment bank was set at Rs 100 crore and the applicants were also screened on:
- Financial soundness (i.e. five-year track record of the promoter and the key entities of the promoter group)
- Governance issues such as fit and proper' criteria for promoters (based on due diligence reports and / or any other information indicating deliberate and repeated violations of law / regulations)
So what will these payment banks do?
Payment banks would provide barebones banking facilities. Like traditional banks, payment banks will accept deposits upto a sum of Rs 1 lakh, defray interest, convey remittances and dispense payments to recipients (on behalf of account holders) or issue debit cards. They can also offer financial products such as mutual funds and insurance.
But as the word 'payment bank' denotes, unlike traditional banks, they (payment banks) will not be able to offer you a loan or a credit cards. They can only lend to the Government (vide the need to invest at least 75% of their funds in Government securities), which thereby makes them the safest of the banks; as in mostly likely chances Government of India will not default.
Whom are payment banks for?
Well, anyone can open an account with a payment bank and transact. There are no criteria of level of income to open a savings or a current account. Payment banks aim at covering vast range of population that has no access to financial services.
Here are a few advantages of payment banks...
- Connectivity: The biggest advantage of payment banks is connectivity. Even a grocery store can become a facilitator of a payment bank, which is very much unlike a traditional bank. Thus this will help to bridge the miles between bank branch and customers in the remote places of the country
- Ease of performing transactions: Mobile banking may see a boom and reduce dependence on cash while performing monetary transactions. So, if you are looking to transfer funds or pay your utility bills, it may be just a click away or just a step away. The physical presence of banks branches or even ATMs may be not considered necessary to a great extent due to payment banks. Transaction online through your phone may be a substitute for all small payments. Given such potential, companies such as Airtel M Commerce Services Ltd., Tech Mahindra Ltd. who has cutting edge technology may take mobile banking to next level providing ease to customers.
On the other hand, entities such as Department of Post which already have large network of branches (over 1.5 lakh) and public interface would, bridge their physical presence and perhaps even upgrade on technology to serve their customers effectively better.
- Flexibility: Payment banks offer immense flexibility to all stakeholders and thus there could many more payment banks in the offing depending on the initial success of this novel concept.
PersonalFN is of the view that, success of payment banks will depend largely on how quickly people adapt to the new system. From e-banking now we are gradually moving towards m-banking (mobile banking). India has good mobile connectivity which will make it easy for people living in remote areas to pay their utility bills, receive Government subsidies, transfer money seamlessly to their relatives and friends through just one account. Further, absence of credit facility would ensure there is no deterioration to the asset quality of a payment bank.
PersonalFN believes, success of payment banks may pave the way to next level reforms. Payment banks would help reduce the volume of cash transactions, but the challenge remains in making e-payments a daily part of life in India. There is a possibility that payment banks may also help reduce circulation of black money in the country.
Do you think payment banks will achieve their primary objective of improving the penetration of banking services? Share your views here.
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Impact
Being a responsible family member, you must have bought life insurance policies to ensure that your family doesn't suffer in your absence. However, mere buying insurance is not enough. Unless your family is able to claim insurance money without any hassle, insurance policy can't be said to have served the purpose. What should you do to see your loved ones get the claim passed smoothly? You must nominate right.
This is what you should do...
Please remember, you must appoint a nominee to your insurance policy. It was unclear whether a person you nominated will solely get the claim amount before Insurance Laws (Amendment) Act, 2015, came in force. Earlier, it was possible for legal heir, other than the one nominated, to claim their share from the nominee. The amended version of the Act has addressed this issue efficaciously. There is a separate category now called 'beneficial nominee'. If you nominate someone as your beneficial nominee, such nominee, doesn't have to share insurance money with other legal heir. A policy holder can appoint multiple 'beneficial nominee' mentioning their share.
It is also possible to appoint 'collector nominee' who will simply receive money from insurance company and facilitate the transmission to legal heir which may happen based on succession laws.
New rules have also made it clear that a nominee has a right to claim money even at maturity in case insured person survived the term of insurance but died before claiming the maturity benefits. What's more, earlier, original nomination used to stand cancel on assignment of policy as collateral to a loan. However, new rules say that, insurer will pay off the creditor first, but will have to directly transfer the rest of the amount to the nominee appointed by the policyholder.
PersonalFN is of the view that, new rules have not only made nomination more effective but have made the process of nomination more meaningful. PersonalFN is of the view that, if you appoint beneficial nominees mentioning the share they are entitled to, you may avoid potential disputes between your legal heirs. PersonalFN also believes you must make a Will to ensure smooth transmission of your property.
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Impact
China's central bank surprised markets around the world as it devalued the Yuan, also known as the Renminbi, by 4% - the largest devaluation in two decades. The move was aimed at reviving China's growth engine by giving it an export advantage. Data from China for the month of July revealed a six-year low in the Chinese producer prices index, which was 5.4% lower on a year on year basis, and a fall in China's exports of 8.3% year on year.
Following the developments in the Chinese economy, the Indian rupee breached Rs 65 mark against the U.S. dollar with international selling pressure surmounting. The Indian rupee is nearing the levels witnessed at the end of 2013, when India was facing a Balance of Payments (BoP) crisis. Nevertheless, on a (Real Effective Exchange Rate REER) basis, the Indian rupee has outperformed other emerging market currencies over the last one year.
A weaker Indian rupee has many advantages for exporters. However certain exporters may face stiff competition from their Chinese counterparts as a devalued Yuan could give Chinese players an added advantage. Indian domestic players in sectors such as steel and textiles may face stiff competition from their Chinese counterparts, as prices of Chinese products would be reduced, prompting import of their goods in India...and perhaps even lead to dumping. If the Peoples Bank of China (PBoC) decides to devalue the Yuan further, an even more challenging environment may emerge. A devaluation of the Yuan by PBoC cannot be ruled out. But it is unlikely that PBoC will cut rates anytime soon as measure to provide impetus to China's economic growth.
FII flows and vulnerability of the Indian rupee
Foreign Institutional Investors (FIIs) have been quite wary after devaluation of Yuan and markets too appear to be nervous (although some short covering is evident in the recent few days). India is among the fastest growing economy in the world and that's encouraging them to evince interest. But going forward, along with the domestic macroeconomic panning out one would need to closely monitor the happenings in the Chinese economy, U.S. economy and the Eurozone to ascertain how FII flows take course.
The Indian rupee vs. U.S. dollar and the markets
Data as on August 17, 2015
(Source: ACE MF, PersonalFN Research)
The Indian rupee would face further pressure on account of the devaluation. There are chances that Yuan devaluation might ignite a currency war where exported oriented Asian countries such as Taiwan, South Korea, and Thailand may devalue their currencies to retain competitiveness. Europe and Japan are into quantitative expansion, which could lead to further devaluations of the Euro and Yen. Therefore, more than just devaluation of Indian Rupee, what may haunt Indian importers and exports is Rupee volatility which may make it difficult for them to rightly hedge their forex positions.
To know more about this and PersonalFN's views over it, please click here.
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Impact
Will Indradhanush Achieve Its Objective Of Revamping PSU Banks? Over the last few years, asset quality of banks in India has come under tremendous pressure; more so of the public sector banks. Until the last financial year (i.e. FY14) gross Non-Preforming Assets (NPA's) of banks touched 4.1% (up from 3.6% in FY13) and this financial year too, the pressure may persist. Tough economic conditions and higher interest rates have weighed in, resulting in the slippage of the quality of assets of Indian banks. Moreover, lapse in risk management processes is also responsible for the poor asset quality of banks.
The Government and RBI have been trying to palliate problems of Public Sector Undertaking (PSU) banks. The Department of financial Services under the ministry of finance recently launched an initiative tagged as Indradhanush which would incorporate a seven pronged approach to revive the asset quality of PSU banks, raise the bar for corporate governance and accelerate their growth rate.
To read more about this news and our views, please click here.
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- Usually, when you eat out, sauces and chopped onions are served complimentary to the menu you ordered. But with soaring onion prices, this practice may silently be stopped at least until prices cool off.
While prices at major wholesale mandis have been ranging between Rs 40 –Rs 50 per kg; retail prices have been as high as Rs 80 per kg. It appears that, hailstorm affected ill-quality rabi crop, deficient monsoon and low quality of imported onions have been primary factors behind soaring prices. Perhaps, the effects of cartelisation are also at play.
PersonalFN is of the view that, you need to take into account such spikes in prices of essential food articles that affect your household budget. Keeping an eye over expenses is as important for one's long term financial wellbeing. |
Currency Peg: "A country or government's exchange-rate policy of pegging the central bank's rate of exchange to another country's currency. Currency has sometimes also been pegged to the price of gold."
(Source: Investopedia)
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Quote : "Understanding the value of a security and whether it's trading above or below that value is the difference between investing and speculating." - Coreen T. Sol
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