Besides asking to protect bank depositors from inflation, the Association wants the RBI to extend insurance cover on bank deposits to Rs5 lakh from Rs1 lakh. The question, however, is who will pay the additional money?
The All India Bank Depositors Association (AIBDA) on Monday said that the Reserve Bank of India (RBI) must look at protecting the interests of depositors and not be oblivious to their needs in the clamour to reduce interest rates it its forthcoming monetary policy.
AIBDA held a press conference in Mumbai to put forward a counter-view to the “overwhelming advocacy of reducing the key policy rates from business and industry and their representative chambers of commerce, trade bodies and corporate professionals”. According to AIBDA, “the voice of the borrowing community of banks even finds favour with the Prime Minister’s Economic Advisory Council, Planning Commission, and more importantly, from the finance minister himself”.
At the conference, Sunil Bhandare (president), Nitin Raut (vice-president) and Ashok Ravat made several demands.
AIBDA said that bank depositors need to be protected against inflation. They want the RBI to formulate a scheme that ensures a reasonable ‘positive’ real interest rate to bank depositors. With refrence to this, the AIBDA suggested that small depositors (term deposits with maturity of one year and above) up to Rs5 lakh and senior citizens up to Rs15 lakh must be full protected against inflation. Such deposits must be entitled to ‘real’ interest rate of 3% per annum. In other words such deposits must bear interest rate equivalent to an average annual CPI inflation plus 3%.
Secondly, the AIBDA contends that this is the perfect time for expanding the “deposits insurance cover” on bank deposits. It has been more than two decades since the deposit cover was fixed at Rs1 lakh. After discounting for the inflation factor of the last two decades (average inflation of 6.5% per annum), the real value of insured deposit cover at 1993-94 prices is reduced to Rs33,000 only. Without any further delay the AIBDA suggested that the insurance cover be raised to Rs5 lakh.
AIBDA believe that DIGC has the necessary financial wherewithal and that the banks also need to share a substantive part of the cost of additional deposit insurance premium.
Moneylife Foundation, which is a sister entity of Moneylife, does not necessarily share AIBDA’s views on the two points above. First, it is not clear where the additional interest rate will come from, at a time when banks are working round the clock to extract a variety of charges from customers and are even converting free protection services, such as SMS alerts of transactions into paid services. On the deposit insurance too, Moneylife Foundation believes that most payouts from the DICG are made on account of failed and badly regulated cooperative banks. No payout has been made on account of the large private and public sector banks, which contribute the bulk of the insurance premium, but have never had any payout made on their account. By increasing the sum insured, it will only encourage poor customer choices in favour of under-regulated cooperative banks which are often dominated and controlled by politicians.
Further, the higher insurance premium will be collected from all depositors—this means that those who bank prudently with large, well-run banks or public sector banks will also end up being burdened with higher costs.
Coming back to the AIBDA press confernece, it has expressed strong views on the proposal on the issue of disincentivising cheque usage contained in the discussion paper of the RBI. The AIBDA appreciates the substance and direction of the proposed change towards “Cheque-less and cash-less” modes of payments however the have strong reservations about its relevance and applicability in the immediate future especially from the point of view of individual/household customers. The amount of groundwork that will have to be put in educating the stakeholders about the banking system would be enormous. It may be recalled that Moneylife Foundation has asked for a rejection of the report in toto and even submitted a strong memorandum to the RBI governor on behalf of its 21,500 members.
AIBDA further said that in recent months, there is a growing concern among bank depositors about the rising gross NPAs of banks. AIBDA strongly contends that NPAs not only undermine the confidence of bank depositors, but also patently harm their potential rate of return on deposits. This is because a significant part of rising NPAs eventually translates in rescheduling /restructuring of debt, but worst still in virtual write-offs from the profits of the banks.
Banks appear to be virtually under compulsion to offer lower interest rates to depositors as NPAs continuously squeeze the profit margins. For this AIBDA would like to make a strong case for “zero tolerance” of NPAs. Herein, the RBI has to play a significant role in exerting some degree of decipline or indulge in “moral suasion” so that the interest of bank depositors are adequately taken care of. Building up of NPAs cannot be at the cost of depositors interest.
AIBDA also contends that the preposition to reduce key policy rates is completely biased and one-sided view of the interest rate policy. Bank depositors have suffered enormously in the last three years thanks to stubbornly high interest rates causing erosion of their real earnings. (% interest rate minus average inflation rate.)
There are various non-monetary factors that are holding back India’s economic growth recovery and also adversely affecting investment outlook. Therefore RBI must not succumb to the macro economic trends, AIBDA suggests that while determining the scope and direction of monetary policy, the RBI must give adequate considerations towards ensuring stable, fair and reasonable rate of return on bank deposits.
-Additional reporting by Khalid Memon
Saradha Group has about 160 registered activities including realty and resort but not even one activity was registered as Chit Fund in the state, All India Association of Chit Funds general secretary TS Sivaramakrishnan said
Objecting to the use of word ‘Chit Fund’ in multi-crore Saradha Group financial fraud, industry body CFAI today said none of the entities of the Kolkata-based Group was operating as a registered chit fund.
“The failure of some multi-level marketing (MLM) or a Ponzi scheme is explained as failure of a chit fund company. This is totally unfair," All India Association of Chit Funds general secretary TS Sivaramakrishnan said.
Saradha Group has about 160 registered activities including realty and resort but not even one activity was registered as Chit Fund in the state, he said, while addressing a press conference.
“Our grievance is failure of some other activity, why is it branded as failure of Chit Fund?,” he added.
The association also demanded that the government come out and clear the air over Chit Funds.
There are about 10,000 Chit Funds registered in India with annual subscription of Rs30,000 crore per annum. “We are governed by the Chit Fund Act 1982 and implementations by the respective states. This Act is notified in entire India,” he said.
“Principle regulator is the Reserve Bank of India, Act is made by the Central Government and rules are made by respective state governments,” Sivaramakrishnan added.
The regulator of chit funds is the Registrar of Chits appointed by respective state governments under Section 61 of Chit Funds Act.
Powers of adjudication vest in the Registrar and the state government concerned is the Appellate authority. In case of failure of a chit fund business, the responsibility for winding up such a business also vests with the respective state governments.
As per the law, a Chit Fund company is not allowed to accept deposit from the public and can only accept subscription amount from the members.
However, Saradha Group accepted deposits from investors and worked as a Multi-Level Marketing company.
Meanwhile, the government has said several of its investigating wings like SEBI, RBI, I-T department and Enforcement Directorate have begun crackdowns on Ponzi schemes and have initiated action against Saradha Group under various laws including the Prevention of Money Laundering Act (PMLA).
Despite slumping sales and a sluggish cement industry, its net profit was boosted due to lower depreciation
Shree Cements has posted a net profit of Rs274.09 crore for the quarter ended 31 March 2013 as compared to Rs114.28 crore for the quarter ended 31 March 2012. Total Income has increased from Rs1,453.56 crore for the quarter ended March 2012 to Rs1,514.41 crore for the quarter ended 31 March 2013.
We had recommended this stock at Rs4,470 and it is currently quoting at Rs4,410.85, up over 2% on the Bombay Stock Exchange (BSE).
Further analysis of the company showed that the company has had a disappointing quarter, growing its net sales only 7% year-on-year (y-o-y) when compared to its three-quarter y-o-y average of 27%. Its operating profit grew at a slightly higher rate of 13% but still well below its three-quarter y-o-y average of 40%. Yet despite these, the company has reported 139% y-o-y higher net profit, at Rs274 crore due to lower depreciation outlay and low cost of power. The company continues to maintain high return ratios, with return on networth and return on capital employed at 39% and 26% respectively. The company is valued at a market capitalisation of 8.47 times operating profit.
SBI Cap Securities, a financial institution, has pegged the stock as a “Hold” and values the company at Rs4,211 per share. One of the key things that helped the operating parameters of the company, according to SBI Cap Securities, is power. The report states:
“Higher contribution from the power segment helped SRCM make up for the weak cement contribution in 3QF13.” Furthermore, the report states: “Remarkably the cement related power & fuel cost dropped sharply to Rs408/tonne compared to Rs573/tonne in 3QF12 and Rs608/tonne in 2QF13. The power cost benefit was driven largely by fall in pet-coke prices that fell to an average of Rs6,375 in 3QF13 from Rs6,900/tonne in 3QF12(Rs6,502/tonne in 2QF13).”
The board of directors has declared interim dividend of Rs8 per equity share of Rs10 each for the financial year 2012-13. The date of payment of dividend will start from 7 May 2013.