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| June 02, 2017 |
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Impact 
The aam aadmi considers fixed deposits as one of the safest investment options to gain returns on their hard-earned money. However recently, fixed deposit schemes with this list of nationalised banks are under threat.
- UCO Bank
- Indian Overseas Bank
- IDBI Bank
- Bank Of Maharashtra
- Dena Bank
- United Bank of India
- Central Bank of India
And before reading any further, please note --
There's no need to panic as the Government of India remains committed to support these banks wherein it's the single largest shareholder.
Nonetheless, it is best to be prepared for some troubles as these nationalised banks are in the firing line of the RBI-- the banking regulator. The RBI has initiated Prompt Corrective Action (PCA) against three more banks, including those listed above, as their financial profile has deteriorated to a worrisome level.
The Financial Express, dated May 30, 2017 reported that, the Net Non-Performing Assets (NPAs) of IDBI Bank and Indian Overseas Bank stood at 13.21% and 13.99% respectively. Dena Bank, United Bank of India, Bank of Maharashtra have a Net NPAs of 10.66%, 10.02%, and 11.76% respectively, while the Central Bank of India stood at 10.20% at the end of March 2017 quarter. The Net NPA ratio indicates the amount of outstanding loans that have turned into non-performing on a net basis. Now you can imagine how fragile the financial position of these banks might be.
In the recent past, some troubled banks have faced strict actions. The RBI restricted depositors of Kapol Co-operative Bank from withdrawing more than Rs 3,000 from their savings and current bank accounts.
A layman may keep wondering why he should be punished for the wrongs of bank management. But he has no other option but to be at the mercy of mighty banking system and its regulator.
It's unfortunate that RBI is reluctant to disclose the names of wilful defaulters, but when it comes to taking punitive action against banks, depositors lose out.
Hopefully, the Government of India won't let this happen in case of Public Sector Banks. Banks in hot water may offer higher rates of interest to attract deposits, but it's upto you to decide the risks to take on your hard-earned money for nominal gains. |
Impact
Some mutual fund houses have incurred about 15%-20% losses on their investments. If you thought stocks might have corrected heavily, causing such a dent, you are mistaken. The losses fund houses are sitting on have been incurred under debt schemes, not under equity oriented schemes.
Shocked?
Please don’t be.
Indian banks have been feeling the pinch of the deterioration of asset quality and in turn, the weakening of their financial profile. Fitch Ratings, an independent credit rating agency, downgraded the credit rating of IDBI Bank’s Long-Term Issuer Default Rating (IDR) from ‘BBB-’ to ‘BB+’. Mutual fund houses collectively have an exposure of about Rs 7,400 to the bonds issued by IDBI Bank.
Following this sharp downturn, the Net Asset Values (NAVs) of schemes holding downgraded bonds have fallen massively. Surprisingly that hasn’t caused any panic among mutual fund houses.
As on March 31, 2017 the Government’s shareholding in IDBI bank was 73.98%; and fund managers are probably relieved by this. The Government may not let IDBI Bank default its debt obligations, as that will be seen as a default by the public sector company.
The bank’s management remained confident about improvement in prospects. Mr M K Jain, MD, IDBI Bank in a media interview stated, “We are looking at all avenues to improve our capital position and bring the bank on the recovery track.”
“We will look at aggressive recovery and cost cutting measures and plan to churn our corporate book and risk-weighted assets which should also ease the pressure on capital”, he added.
Reacting to the news of ratings downgrade, the group president and head-fixed income of UTI Mutual Fund, Mr Amandeep Chopra said, “In our view, GoI through its shareholding and due to the critical importance of the bank within the sector, has an obligation to support the bank and will continue to do so in order to maintain minimum regulatory capital requirement to Smart Investing meet interest payment obligations."
Mr. Chopra’s stance remained optimistic about the repayment of the outstanding debt, “We do not believe that the bank will default as the credit strength of the bank still lies in the majority government shareholding at ~75%.”
It remains to be seen how this story shapes up, however in IDBI’s case, the risk of defaulting appears low. Nonetheless, mark-to-market losses may continue to put the funds’ NAV under tremendous pressure. Even after this sharp slide, there may be limited takers of the troubled bonds, and fund houses that hold long-term debt of IDBI may be stuck with their holdings.
Do you still think debt funds are safe? They are not. And so you always need to be watchful about your choice of a debt fund. Please don’t forget to check your time horizon and risk appetite before investing in any of them.
If you can’t find a suitable debt fund for your portfolio, you may like to try “Debt Select”--an unbiased research report service offered by PersonalFN.
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Impact
Within a span of 3 weeks, one of India's most tracked stock market indices, S&P BSE Sensex rallied 1,000 points. You might think it's been a return of just over 3% in a month, so what's the big deal about it? This hasn't been the first occasion when the Sensex has rallied this much in 3-4 weeks.
But a 1,000-point jump becomes a special event when country's bellwether index scales to new highs amidst global uncertainties. As you might be aware, the Sensex recently breached 31,000 mark-- a psychological milestone. During the journey of Sensex from 30,000 to 31,000 broader markets also did well. As the Economic Times dated May 26, 2017 reported, 3 stocks doubled 32 stocks gained over 50% while 167 stocks generated returns over 20%. This denotes how bullish investors have been on the Indian markets.
But before you too join the bandwagon, it's time to do some assessment and see what led markets to rally so much in a matter of 21 days.
To read more about this story and Personal FN's views over it, please click here.
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Impact
As the S&P BSE Sensex and Nifty 50 scale new highs, mutual fund houses are delighted for two main reasons:
First, owing to their strong growth in assets - thanks to the market rally; and Second, increased investor participation in equity mutual fund schemes as the market has been trending upwards.
On such occasions, fund houses launch a variety of schemes with unique investment objectives to attract investors. One category of schemes that came to the forefront is ‘Opportunities-style’ Funds or simply put Opportunities Funds. In 2004-05 itself, as many as five of the 11 opportunities funds came into existence, but post the global financial crisis in 2008-09, fund houses have not launched a single opportunity fund. Some opportunity funds were merged with other schemes due to their low AUM and lack of performance. So, from the looks of it, opportunities fund have made hay while the sun shined, gathering assets along the tide.
Today, while there are hundreds of equity mutual fund schemes available, opportunities-style funds are just a handful.
Are these funds worthy of your investment? PersonalFN brings you the scope...
To read more about this story and Personal FN’s views over it, please click here.
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Impact
Mutual fund houses often cry over the lack of retail participation in the Indian capital markets and try to justify their commission-driven business models. But instead of winning over the investors' trust by being more transparent and competent, they prefer to be diplomatic with their investors. In an attempt to secure their asset base, they don't communicate fundamental changes clearly, and later try to hide behind technicalities.
Recently, Birla Sun Life Mutual Fund modified asset allocation structure of 3 of its Monthly Income Plans (MIPs). As per the new mandate, the equity exposure of these schemes will be in the range of 0 - 10%. Later the fund house changed their names too. After these modifications, erstwhile Birla Sun Life MIP (BMIP), Birla Sun Life Monthly Income, (BMI) and Birla Sun Life MIP II - Savings 5 Plan (BMI5) are now Birla Sun Life Long Term Accrual Fund (BLAF), Birla Sun Life Low Duration Fund (BLDF), and Birla Sun Life Credit Opportunities Fund (BCOF) respectively.
To read more about this story and Personal FN's views over it, please click here. |
What are the redressal mechanisms presently available if you, a customer, are dissatisfied with the services of your bank?
There seems to be hardly anything you can do about it. Of course, one solution is to close down your account and open a new one with another bank.
But this is an inconvenient way, isn't it?
After all, you need to complete the paperwork once more and agree to the terms and conditions mandatorily, irrespective of these being reasonably in your favour or otherwise.
Soon however, banks will lose this dominance. Bank account portability is likely to become a reality. The proposed new facility has put bankers on the back foot. They have started raising various concerns revolving around cost management and inadequacy of the IT infrastructure required to support the smooth functioning of portability, if sanctioned. Looking at the success of this portability drive in the telecom sector, it appears this is fear-mongering by banks. They can't afford to take their customers for granted anymore.
If this is approved, it will up the ante in the performance of competing banks, indicating that bank account portability will be beneficial to the future of the Indian banking system.
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Basel III: Basel III is an international regulatory accord that introduced a set of reforms designed to improve the regulation, supervision and risk management within the banking sector. The Basel Committee on Banking Supervision published the first version of Basel III in late 2009, giving banks approximately three years to satisfy all requirements. Largely in response to the credit crisis, banks are required to maintain proper leverage ratios and meet certain minimum capital requirements.
(Source: Investopedia)
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Quote: "The stock market is a no-called-strike game. You don't have to swing at everything--you can wait for your pitch. The problem when you're a money manager is that your fans keep yelling, 'Swing, you bum!"-Warren Buffett
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