RBI opens up another ear - ARE THE BANKS LISTENING? Jun 11, 2010

RBI opens up another ear – ARE THE BANKS LISTENING? TDS

June 11, 2010

Weekly Facts
	Close	Change	%Change
BSE Sensex	16,922.08	100.3	0.59%
Re/US$	46.97	0.3	0.60%
Gold Rs/10g	18,725.00	180.0	0.97%
Crude ($/barrel)	73.42	0.9	1.20%
FD Rates (1-Yr)	5.00%-6.50%

Weekly change as on June 10, 2010

RBI opens up another ear - ARE THE BANKS LISTENING?

Impact

Customers of banks can now look forward to better treatment from banks, as the RBI has constituted a six-member committee under the Chairmanship of Mr. M. Damodaran, to put in place a system for quick grievance redressal. The Committee will review the existing system of attending to customer service in banks with a three point consideration:

:: Approach

:: Attitude

:: Fair treatment to customers from retail, small and pensioners segment.

Further, they will also evaluate the structure and efficacy of existing systems and recommend measures for expeditious resolution of complaints. And interestingly, to do so, the Committee will also set-up time limits for settling complaints.

The Committee will also propose ways of leveraging technology for better customer service, in light of the increasing use of internet banking products and services. Moreover, the Committee will also recommend measures to enhance IT security.

Presently, besides setting up a separate customer services department within the central bank (in addition to the office of Banking Ombudsman), the RBI has also set up a separate Banking Codes and Standard Board (BCSB), directing banks to adopt fair practices in customer services.

(www.rbi.org.in)

But despite all these measures, customer complaints are on the rise. In FY09, the Bank Ombudsman received 69,117 complaints, which are 44% over the previous financial year. Of this, 9,433 complaints are still pending.

Something good could come out of this, but we feel that just forming one more committee will really not solve the problem. In our opinion what is required is a proactive and conscious effort on every bank's part, to provide right service to its customers, in order to lead to customer delight. The framework exists - what is required is implementation!

Its Rupees not percentage, says SEBI

Impact

The Securities and Exchange Board of India (SEBI), is taking every step to infuse transparency and preclude mis-selling in the mutual fund industry. SEBI sent a letter to all mutual fund houses, telling them to declare dividends in Rupee terms and not in percentage terms, with immediate effect.

The SEBI letter to mutual fund houses said, "In order to bring greater precision and clarity in dividend distribution, you are directed to declare and disclose dividend only in the form of Rupees per unit in advertisements and all other communications such as half yearly portfolio disclosures, annual reports, etc to investors in this regard,"

Till the recent past, mutual fund houses declared attractive dividends in percentage terms which lured investors to make impulsive investment decision, just for enjoying dividends.

In our opinion the letter issued by the market regulator, will preclude mis-selling, and now hopefully investors will not get enticed by fancy dividend payout expressed in percentage terms. It is noteworthy that, for investors the "dividend yield" ratio is more relevant, as it reflects how much investor's earn as dividend on their investments.

IRDA to regulate distance sales channel of insurance

Impact

In order to streamline the promotion of insurance products through "distance sales channels", such as telephone and internet, the Insurance Regulatory and Development Authority (IRDA) has proposed certain guidelines.

The regulator intends to issue guidelines for selling under 'voice mode' (includes telephone calls), 'electronic mode' (includes e-mails, internet and interactive television) and 'physical mode' (includes postal mails and newspapers)

It is noteworthy that although web-based selling of insurance products is in its nascent stage in India (low volumes), the IRDA has said that the guidelines would cover distance marketing activities of insurers, brokers at the stages of offer, negotiations and conclusion of sale.

Hence, insurers or brokers will be required to prepare standardised scripts for presentation of benefits, features and disclosures for each of the products which are proposed to be sold. Moreover, IRDA also wants name of the insurer, name of the caller, the language options available, and the purpose of approach to be clearly highlighted. Therefore, the telecaller will have to ask the client if he is interested in continuing with the subject, and thereafter the process of solicitation would follow, subject to the client's consent in explicit terms. In order to make this whole process more vigilant and professional, IRDA has also asked insurers to ensure every telecaller is trained either in-house or at an institute accredited for pre-license training of agents.

In order to monitor the complete sales channel post-sales, insurers will be required to monitor the quality of sales through telephonic confirmation for all modes of marketing - including in-person and distance modes, by calling up not less than 20% of all the policyholders every month.

We believe that, the move taken by IRDA is in the long-term interest of the policy holders, as it has built-in a reasonable mechanism to infuse transparency in the sale process and curb mis-selling. Insurance companies will see this as an extra cost and may find ways to work around the directive - IRDA must ensure its intent in issuing these guidelines is well executed.

FM's hints at IRDA regulating ULIPs

Impact

Speaking at the launch of the new headquarters of the Insurance Institute of India in Mumbai, Finance Minister, Mr. Pranab Mukherjee hinted at a resolution of the dispute between SEBI and IRDA, over regulating Unit Linked Insurance Plans (ULIPs).

The Finance Minister was praising IRDA for their recent work in regulating ULIPs but also emphasised the need for more reforms. He said, "IRDA has taken some very positive steps in respect of regulations of ULIPs, which are in the interest of both the insurance industry as well as the policyholders. Some of these measures like cap on charges, extending the minimum term of the policy to five years, bringing the concept of compulsory annuitisation to pension policies and the proposal of fixing the maximum limits of surrender charges have brought in the much-needed reforms."

In our opinion the steps taken by IRDA are "reactive" (following the steps which SEBI has taken for regulating mutual funds), rather than "proactive". We also feel that the aforesaid statement made by the Finance Minister, is an indication that ULIPs will continue to be regulated by IRDA.

POLL

Should IRDA continue to regulate ULIPs?

Click here to give your views...

INTERVIEW

In an interview with CNBC – TV18, Mr. Nilesh Shah, Deputy Managing Director of ICICI Prudential Asset Management Company, shared his views on the impact of global factors on the Indian equity markets and interest rates.

According to Mr. Shah, in the short-term, global factors will continue to affect our market. He explained this by saying that the downside risk will open-up, but also mentioned that the risk will not be as high as experienced in 2008. This is because the crisis of 2008 was the first of its kind, which shook the foundations and now fortunately we have become wiser from those experiences. He also backed this statement through his belief in India's strong economic fundamentals as portrayed by GDP growth rate. Talking about the developed world investors, he said that "they are yet to recognise the definition of risk. For generation they have been brought up on the belief that safe markets are in the developed world, and now those myths are broken up. Suddenly they realised that the developed world also have same problems like our developing worlds, at least we have growth and there they do not have growth". He therefore recommends that investors to start investing with a medium to long-term perspective, as he believes that these are attractive opportunities.

On interest rates in the country, he is of the opinion that they would be range bound, rather than soften significantly. He justifies this statement by believing that RBI is in a fairly comfortable position because inflation, though presently high, would come down in the months to come. Moreover, he also feels that the success of the 3G auction, would reduce the pressures on the fiscal deficit.

AND OTHER NEWS...

At a time when the banking sector is mulling over a sensible rate hike on all loans, State Bank of India (SBI) drove teaser rates into the car loan market. The SBI Ezee Car Loan Scheme offers car loans at 8% per annum for the first year and 10% for the second and third years. Thereafter, from the fourth year onwards interest rates will be reset at the card rates (rack rates which doesn't include dealer discounts or other subventions) contracted on the date of sanction, depending on the tenure of the loan.
Mirae Asset Global Investments (India) Pvt. Ltd. will unveil four new products by the end of the current fiscal, as it aims to capitalise on the growing interest of investors in mutual funds. "We will be filing more products with the market regulator SEBI and expect to launch four funds this fiscal year. The portfolio of these funds will be spread over debt and equity, and will give an opportunity to invest in overseas markets", said Mr. Gopal Agarwal, the equity head.

In an attempt to increase its geographic foot prints and fend off rising competition, the National Stock Exchange (NSE) is actively scouting for alliances with regional stock bourses. NSE has signed a memorandum of understanding with three regional stock exchanges – Jaipur Stock Exchange (JSE), Madhya Pradesh Stock Exchange (MPSE) and Vadodara Stock Exchange (VSE).
In a move to curb mis-selling of ULIPs, the insurance regulator IRDA has directed life insurance firms to attach a `key-features' document with every policy to help customers understand what they are buying. The proposed document will spell out details such as the type of the policy, minimum surrender value, list of complaint centres, benefits of the policy as well as benefits not payable and also the risk involved for the policy holders along with their obligations or commitments

In order to make this mandatory for insurance companies, a new provision will also be inserted in the `Regulations for Protection of Policyholders Interests'.
Amid intense speculation about a rate hike by RBI in the next policy review meeting to curb spiralling inflation, Planning Commission Deputy Chairman, Mr. Montek Singh Alhuwalia said, inflation was likely to fall to 5% - 6% by year end. Meanwhile, RBI's Deputy Governor, Mr. Subir Gokarn also commented saying, the central bank will continue with the moderate monetary-tightening pace.
Moody's Analytic said, led by China and India, most of the Asian economies are expected to expand in the current and next year, although uncertainty over the global recovery threatens to derail growth.
State Bank of India's Chairman Mr. O.P. Bhatt has been elected as the new Chairman of the Indian Banks Association (IBA) for the year 2010-11. Mr. Bhatt will take charge from Mr. M.V. Nair, Chairman & Managing Director of Union Bank.
IDBI Bank Chairman and Managing Director, Mr. Yogesh Agarwal has been appointed as Chairman of Pension Fund Regulatory and Development Authority (PFRDA).

New Issues

Taurus Mutual Fund launched an open ended index fund named "Taurus Nifty Index Fund". As per the offer document, the fund is mandated to invest 95% - 100% of the collected corpus, in stocks covered by the Nifty, as well as derivatives linked to the S&P CNX Nifty Index. Its investments in debt and money market instruments will be restricted to 5%.

As per the offer document, the investment objective of the scheme is "to replicate the S&P CNX Nifty index by investing in securities of CNX Nifty Index in the same proportion/weightage".

The New Fund Offer (NFO) is open for subscription from June 4, 2010 to June 10, 2010 and thereafter the fund opens for continuous sale and repurchase from July 9, 2010.

IN THIS ISSUE