Now variable interest rate on recurring deposit Feb 05, 2010

Now variable interest rate on recurring deposit

Feb 5, 2010

Weekly Facts
	Close	Change	%Change
BSE Sensex	16,244.95	61.9	0.38%
Re/US$	46.26	0.1	0.22%
Gold Rs/10g	16,570.00	165.0	1.01%
Crude ($/barrel)	75.37	3.7	5.15%
FD Rates (1-Yr)	5.00%-6.50%

Weekly change as on Feb 04, 2010

Now variable interest rate on recurring deposit

Impact

The housing major, HDFC Ltd announced a Systematic Saving Plan (SSP), which will pay variable interest rates on recurring deposits to investors.

The scheme is a monthly savings plan and is available for all resident individuals. The resident individuals have an option to open the account either in a single or joint name and also do enjoy a nomination facility. The scheme is available at centres where ECS facility is available. The minimum amount of monthly instalment is Rs 2,000 and a maximum amount of Rs 50,000. The rate of interest offered on SSP is:

Period (months)	Rate of Interest (% p.a.)
24 - 35	7.00
36 - 59	7.25
60	7.75

The interest rates on the scheme will be reviewed by the company on a quarterly basis.

We believe the product is an attractive offering for retail investors who generally withdraw prematurely from low interest rate schemes and move to long term schemes when interest rates increase. From the taxation perspective, investors should note that the interest income earned on such schemes will be taxable as per the income tax slab which they fall under.

FII’s net equity investment shrinks

Impact

(Source: CSO)

Foreign Institutional Investors (FIIs) seem to be changing their investment outlook for India. In January 2010, the FIIs turned net sellers to the tune of Rs 500.30 crore. It seems that the FIIs are nervous with the following economic data:

The reasons cited for such a correction are:

Wholesale Price Index (WPI) Inflation at 7.31% posted in the months of December 2009 and also the estimation from many economists on inflation spiralling to double digit number by March 2010

RBI’s calibrated exit from the accommodative monetary policy by hiking the Cash Reserve Ratio (CRR) by 75 basis points in a phased manner

Indication by the Indian Government to withdraw from the current fiscal stimulus

We believe that FII net inflows would bring in volatile times to the equity markets. But it should be noted that, such net inflow shrinkages are temporary and hence should not dampen the long-term investing spirit of investors.

Ensuring transparency

Impact

The Insurance Regulatory and Development Authority (IRDA) has asked life and general insurance companies to publish their balance sheet, profit and loss account, revenue account and key analytical ratios on a half yearly basis in one national and one regional newspaper. The regulator has also asked insurance companies to ensure that the data is made available at least for a period of 5 years. Insurance companies are also required to host on their website, under archives section, the disclosures for a minimum period of 5 years latest by April 15, 2010.

These disclosures, the IRDA said would enable investors/insurance buyers to know:

Financial performance of the insurers

Company profile

Financial Position

Risk exposure

Whether elements of corporate governance are in place at the time when insurance companies goes in for an IPO

We believe that such a measure by the IRDA would ensure transparency and is a move to migrate from a zero-disclosure regime to a situation where there is abundance of data and historical information.

INTERVIEW

In an interview with the Economic Times, Dr. D. Subbarao, Governor, Reserve Bank of India, expressed his views on the decision of hiking Cash Reserve Ratio (CRR) and whether banks would hike the lending rates.

Dr. Subbarao expressed that there are four considerations that guided this decision:

First, inflation was driven by supply-side pressure, with food prices as a big driver

Second, since the recovery is not broad based, they needed to support the recovery process

Third, the decision that the process of normalisation should begin with absorbing liquidity

Fourth,a CRR hike of 75 basis points which will withdraw liquidity by a predictable amount, unlike an interest rate measure where absorption of liquidity would be on a day-to-day basis and uncertain

He also said that the hike in the CRR will result in three major outcomes. It will anchor inflationary expectations, supplement growth and allow a calibrated exit from the accommodative stance.

On whether CRR hike would lead to higher lending rates, he said that "it will definitely put a cost to them (banks), but they have told us that lending rates will not go up immediately. As the central bank we can only signal rates. It is upto banks to act on them".

AND OTHER NEWS...

After declining for three consecutive weeks, food price inflation rose to 17.40% compared to 16.81% in the previous week. The increase in food price inflation was on account of costlier vegetables, spices and poultry products.

The Association of Mutual Funds in India (AMFI) has decided to scrap its plans of launching it own mutual fund trading platform. This decision has been taken by AMFI as they think that launching a similar platform as that of NSE and BSE would be a mere duplication.

T. Rowe Price an American mutual fund company bought 26% stake in UTI Mutual Fund.Hence, now on, UTI investors can expect some good news on the managerial side (fund management as well as general management) of UTI Mutual Fund.

Union Bank of India, one of the largest public sector banks in the country, expects to start its Asset Management Company (AMC) by May 2010. The bank will hold 51% stake in the AMC and the rest will be held by KBC, a Belgian AMC.

According to the World Bank’s latest Global Economic Prospects 2010, the Indian economy is expected to grow at 7.5% and 8% in the fiscal year 2010-11 and 2011-12 respectively.

HDFC Bank revises it Average Quarterly Balance (AQB) requirements on various deposit accounts. In case of regular savings account the minimum AQB will be Rs 10,000 and Rs 5,000 for urban and rural branches respectively. For kid’s advantage account and senior citizens accounts, this figure stands at Rs 5,000 across branches. These changes will come into effect from April 1, 2010 for existing account holders. Earlier the bank had revised rates for its new customers as well.

The limited period offers, which have come to be known as teaser rate home loan schemes, are due to end by March 31. Banks have therefore said that they will review their teaser home loan rates in Marchby assessing the amount of credit offtake taken place, liquidity and cost of funds.