2009: Good for investors, tough on MFs

Investors got the upper hand in 2009, while fund houses struggled to cope with regulatory changes and upheavals in the economy, even as the industry shrugged off recession blues with its assets hitting an all-time high of Rs8 lakh crore, reports PTI.


The year was particularly significant as market regulator SEBI acted in favour of the investors and eased norms making it easier for them to invest in mutual funds. The key changes include abolishment of entry load on purchase of schemes and allowing mutual funds (MFs) to be traded on the stock exchanges.


"Even though these are early days, both (regulatory changes) have deep potential for a positive impact. The abolition of entry load is a significant game-changer as it completely transforms the business model of the fund distribution industry. For fund companies as well as distributors, it throws up a challenge of managing a big change if they have to flourish," MF tracking firm Value Research's chief executive Dhirendra Kumar said.


According to market analysts, the move for introduction of MFs on exchanges as well as an improvement in the state of the economy would increase reach of MFs across the country.


With high volatility in the stock market during the year, investors looked for avenues of mutual gains and lesser risk to reap returns on their investments. This was evident with the average assets under management (AUM) of the industry hitting an all-time high of Rs8,07,546 crore, an increase of Rs3.86 lakh crore at the end of November, according to latest figures available on the Association of Mutual Funds in India (AMFI) website.


Analysts believe that the improving economic conditions and relatively good performance of the Indian stock markets show the promise that lies ahead for the MF sector and 2010 should be a better year.


"The total AUM should definitely climb in 2010 and I believe an increase of 20%-25% in industry AUM is possible by end-2010," global financial research firm Celent analyst Anshuman Jaswal said.


During 2008, the industry had incurred heavy losses when the fund houses became poorer by about Rs1,50,000 crore, which left the industry shattered with a huge liquidity crunch. At present, the industry, considered a safe haven for investors, consists of 37 fund houses.


Despite a rebound in the performance of fund houses, equity schemes continued to lag compared to debt and other liquid schemes as investors preferred to park money with funds promising assured returns, although analysts are upbeat that equity MFs would perform better going forward in 2010.


Equity schemes have recorded inflows to the tune of Rs2,104 crore so far this year, while income funds have witnessed investments of Rs2,87,500 crore.


However, Mr Kumar sounded a note of caution, saying that flush with excess funds, investors are only parking money for the short-term with MFs.



RIL strikes third gas reserve in KG basin

Reliance Industries Ltd (RIL) has said that it has made its third gas discovery in the exploration block KG-DWN-2003/1 (KG-V-D3) of NELP-V. The deepwater block KG-DWN-2003/1 is located in the Krishna basin, about 45 kilometres off the coast in the Bay of Bengal, the company said in a release.

The discovery, named 'Dhirubhai–44', has been notified to the Government of India and the Directorate General of Hydrocarbons (DGH). The potential commerciality of the discovery is being ascertained through more data-gathering and analysis, RIL said.

This discovery supplements RIL’s understanding of the petroleum systems within the block, it said. Besides the above discoveries, several prospects have been mapped at different stratigraphic levels to fulfil the balance minimum work commitment of three wells, RIL said.

The block covers an area of 3,288 sq km. RIL holds a 90% participating interest (PI) while the rest is held by Hardy Exploration and Production India Inc.

Earlier in May, RIL struck big in two nearby blocks with estimates putting in place natural gas reserves at 20 trillion cubic feet (Tcf). D-3 and D-9 blocks in the same KG basin may hold 9.5 Tcf and 10.8 Tcf of gas reserves respectively. D-6, which may hold up to 50 Tcf of gas reserves, began producing in April and is slated to double India's natural gas production by the year-end when it reaches 80 million cubic metres per day.

Last month, RIL announced its first oil discovery in the Cambay basin near Ahmedabad. It was the second major oil discovery in the Cambay basin since the past five years. State-run GAIL (India) Ltd, in association with the Gujarat State Petroleum Corp (GSPC), had struck oil in this area in 2004.

At 12.45pm, RIL shares were trading 0.49% higher at Rs1,021.50 on the Bombay Stock Exchange while the benchmark Sensex was up 83 points at 16,684.


State Bank’s UGLY Practices

I have been a regular reader of Moneylife and really like the way you expose the irregularities, inefficiencies and grievances faced by the common man. In this context, I want to bring to the notice of your readers the bureaucratic procedures and attitude of the employees of State Bank of India (SBI) towards their loan applicants. I waited for the entire procedure to get completed so that I could convey my painful experience of getting a housing loan.

I am a chartered accountant working as a finance manager in a multinational company. I applied for a loan on 25 September 2009 when the SBI representative came to collect all my documents. He advised us not to call them for at least 10 days, which was the minimum processing time. After two weeks, we called to check the status but our calls went unanswered. On consulting the branch where we made our initial loan enquiry, we were directed to another branch that processed all loans applications.

When I approached it to enquire about my application, they yelled at me for pestering them and said they would call us when the application was processed. After a week we went to the branch again. This time, they asked me to get an estimate of the construction cost from a prescribed valuer; this took four-five days and I had to pay a service fee.

Even after I gave the valuation report, nothing moved. When I went to the branch again, I was asked to get legal advice from a prescribed legal advisor, who told me to get an encumbrance certificate (providing details of the property transaction) and a duplicate title deed of the property. I got the legal advice and submitted it to the branch and waited another 10 days. When I finally inquired, there was a new requirement. I was asked to get details of my previous employment, since they wanted a two-year service record. I argued that I had already submitted income-tax returns for three years, but nothing stands before the SBI bureaucracy. I produced the documents and was again asked to wait.

A week later, I went to the branch again and was asked to come back in two days (a Saturday) to sign the final documents. I reached the branch at 10am and was made to wait. At 12.30pm, the manager called us urgently and told us to pay ‘stamp duty fee’, which was 0.5% of the loan amount.

Surprised, I asked why I was being charged this fee. The manager said that if I defaulted on repayments, the bank would need to pay stamp duty to file a case in court, which they were collecting in advance, in anticipation of a default. I was shocked; there was no question of my defaulting on the loan and I am not sure if all banks follow this practice. By then it was 1.00pm and the bank closed for the day. Clearly, the manager was only buying time since his processing work was not complete. I paid the stamp duty but felt disgusted at the assumption that I could become a defaulter.

I was now asked to take all the loan papers to another manager for review—I felt like a schoolboy taking test papers to the teacher. This manager had a new list of requirements. When I asked why these were not sought earlier, he shouted back that I should have known the procedures. He wanted a fresh encumbrance certificate (although I had provided one two weeks earlier). What if I had mortgaged the property with someone in the past two weeks? The SBI bureaucracy won again. It took me a week to get the new certificate.
Next, the bank asked for details of the bank account to which the loan amount was to be transferred (again on a Saturday). We were made to open a new savings account, jointly in the name of my father and myself. I was told that SBI does not allow new accounts to be opened on Saturday (is this an RBI rule?). When I protested, he yelled at the top of his voice saying that if I needed the housing loan, I had to come another day or ‘get lost’.

Two days later, I was told that my loan had been sanctioned, but the story didn’t end there. When we went to the branch, we were told to submit bills to get the loan disbursed. Since we had already spent

Rs4 lakh on construction, we produced the bills. But they wanted receipts with revenue stamps, not just bills/vouchers. I am still in the process of getting these and hoping that I will finally get the loan disbursed.
Let me highlight various loopholes that are detrimental to SBI and to loan-seekers:

  • Asking customers to submit crucial documents (legal advice, encumbrance certificate, etc) could be dangerous because they could easily get a fake certificate. The bank must get these independently.
  • SBI advertises 0% processing charges, but customers are asked to pay for the valuation certificate, legal advice, encumbrance certificate and stamp duty which, in my case, was 1.2% of the loan amount. Is this not cheating? A private bank would have charged me 0.5% processing charges and sanctioned the loan without any hassle. Won’t SBI lose customers and business due to such practices?
  • How can SBI assume all borrowers will default and make them pay stamp duty? Is it increasing government revenues through stamp duty?
  • If SBI treats educated professionals so badly, what is the plight of those who don’t understand financial jargon and procedures?

I request you to take these issues up and help people who are exploited. I don’t know when our banking and financial systems will become hassle-free and transparent. I want to raise my voice and hope to make a difference even though it may not solve the problem immediately.
Kalyan Chakravarthy, Hyderabad, by email


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