Savings bank A/C to be more attractive   Sep 17, 2010

In our opinion, the proposed deregulation of interest rates on savings bank account would benefit the customers, and also bring out the liquidity management ability of banks. However, banks should disclose their interest rates publicly, in order to infuse transparency for account holders, thus precluding any discrimination.

According to the quick estimates released by the Central Statistical Organisation (CSO), the main reason for such a jump in the IIP growth was on account of:

• Accelerating manufacturing growth - The manufacturing index, which is the principal component of the IIP, accelerated to 15.0% in July, when compared to 9.7% in the previous month (June 2010).
• Growth in sectoral output – The growth in the output of capital goods soared to 63.0% in July 2010 (from 9.7% in the previous month). However, the output of consumer durables mellowed to 22.1% (27.4% in the previous month). The downtrend was also seen in the growth of consumer non-durables as it mellowed to 0.5% (1.3% in the previous month). Overall growth in consumer goods also fell to 6.7%, from 8.3% in the previous month.

Reacting to such IIP numbers, Deputy Chairman of the Planning – Mr. Montek Singh Ahluwalia said, "The July figures are better than what I had expected. On the whole, taking together April-July, it suggests we are on track at least to achieve the growth rate target".

We believe that such a soaring IIP number for July 2010, is on account of fading of base effect but nonetheless signals the robustness of the Indian economy, thus supporting the Government's expectations of an 8.5% growth in Gross Domestic Product (GDP) for the current fiscal year. However this number has also tempted RBI's hawkish move of increasing the repo rate and reverse repo rate by 25 and 50 basis points respectively (in mid policy review meeting of September 16, 2010), in order to tame surging food inflation (15.1% as on September 4, 2010).

Breaking the barriers once again, the Insurance Regulatory and Development Authority (IRDA) has allowed life insurance companies to offer loan facilities against their new Unit Linked Insurance Plans (ULIPs). Until now, insurers offered loan facilities only on traditional plans, barring term plans.

It is noteworthy that earlier, partial withdrawals were allowed in ULIPs only after the completion of three years. But now, since the lock-in period has been increased to five years, catering to the short-term fund requirements of policyholders would have got difficult, which thus resulted in IRDA making such a move.

In a circular issued by IRDA in June 2010, where sweeping changes were introduced in the ULIP charge structure; the insurance regulator had specified the norms under which such loans could be disbursed. The maximum loan amount was capped at 40% of the net asset value in ULIPs where equity accounted for over 60% of the total portfolio, while in case of policies where debt instruments made up more than 60%, the ceiling stood at 50%.

We believe that offering loans during the lock-in period would take care of the short-term needs of the policyholders. However, such loans will be available at higher interest rates. Thus, investors should keep in mind the interest payable and the purpose of the loan required before availing such a loan.

We believe that IRDA's stance for cashless mediclaim (for existing policyholders) was highly called for, as a policyholder could not be at the mercy of whether a hospital comes under the PPN list of the insurer. At such times of medical emergencies, convenience of the policyholder should be of utmost importance. However, a complete scrapping of the Preferred Provider Network system is needed, as this would make cashless facility available across all hospitals.