CCI with Parliamentary panel view to keep bank M&As out of its purview

The Standing Committee on Finance, in its report on the Banking Laws (Amendment) Bill, 2011 tabled in the Lok Sabha earlier this week, has supported the government’s proposal to keep bank mergers outside the purview of the Competition Commission of India temporarily but with certain caveats

New Delhi: Competition watchdog Competition Commission of India (CCI) has welcomed the parliamentary panel’s recommendation to keep bank mergers outside its purview temporarily and said that it will pitch in wherever there is “an element of urgency” in decision making.

“What the Standing Committee on Finance has recommended is that they accept the proposal in the bill (The Banking Laws (Amendment) Bill 2011), to exempt bank mergers but what they have said is this should be an exception and this should not be for all time,” CCI chairman Ashok Chawla said.

“They should revisit it and see the experience what is happening and then decide after some time,” Mr Chawla told reporters on the sidelines a function organised by the Standing Conference of Public Enterprises (SCOPE).

The committee, in its report on the Banking Laws (Amendment) Bill, 2011 tabled in the Lok Sabha earlier this week, has supported the government’s proposal to keep bank mergers outside the purview of the Competition Commission of India temporarily but with certain caveats.

While it supports the government’s proposal to keep bank mergers outside CCI’s purview, it recommended that this exception should be considered as a special case.

It suggested the expedient measure be revisited in “due course in the light of experience gained by” regulators RBI (Reserve Bank of India) and CCI.

“Where some weak bank or failing bank is going to be acquired by a healthy bank where there is an element of urgency, where there is some dispatch required in the decision-making, we will intervene, but not across the board in respect of all mergers,” Mr Chawla said.

Sections 5 and 6 of the Competition Act, 2002 empower CCI to approve high voltage mergers and acquisitions.

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SBI expects Rs3,000-Rs4,000 crore capital infusion this fiscal

Talking to reporters on the sidelines of Delhi Economics Conclave, SBI chairman Pratip Chaudhuri that “if they (government) put in Rs3,000 crore (in SBI), so this will mean another 3% increase in government holding”. Currently, the Government of India holds 59.4% in the bank

New Delhi: The country’s largest lender State Bank of India (SBI) on Wednesday expressed hope it would get capital infusion of Rs3,000-Rs4,000 crore from the government this fiscal, reports PTI.

“It (infusion) is round the corner. It could happen any day now. I think (the mode) is not decided, but whatever we are getting we will be getting in cash. We are expecting Rs3,000-Rs4,000 crore either in December or by March,” SBI chairman Pratip Chaudhuri said.

Talking to reporters on the sidelines of Delhi Economics Conclave, he said that “if they (government) put in Rs3,000 crore (in SBI), so this will mean another 3% increase in government holding”. Currently, the Government of India holds 59.4% in the bank.

The government has earmarked Rs6,000 crore for the fiscal for capital infusion in public sector banks to ensure that they meet the regulatory requirements. In 2010-11, the government had provided capital support to the tune of Rs20,157 crore to public sector banks.

The Centre is committed to providing adequate capital to public sector banks so as to maintain their Tier-I capital at 8%.

When asked if the Reserve Bank of India (RBI) will cut interest rates in its Friday monetary policy review, the SBI chief said, “I don't think so because food inflation has come down significantly and steadily. RBI has said 7% is the level they are targeting”.

Food inflation has started easing over the past few weeks and declined to 6.6% in the week ended 26th November.

On the bank’s liquidity condition, Mr Chaudhuri said it was “all right ... (but) systemic liquidity I believe is little tight”.

However, he does not expect RBI to slash the Cash Reserve Ratio (CRR) as it would be contradictory to the monetary stance of targeting inflation.

Mr Chaudhuri further said that SBI has revised its Net Interest Margin (NIM) upward for the current fiscal.

“I am encouraged to revise the (NIM) guidance upward. We had given a guidance of 3.5% at the start of the year... now I am inclined to revise it upwards to 3.7%-3.75% on aggregate basis,” the SBI chief said.

He also said that non-performing assets of the bank stood at 2.04% of the total advances and “we would like to continue at that”.

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ING Life retirement planning – A flawed response to Moneylife article on a flawed product

ING Life retirement planning advertisement in ET Wealth made misleading assumptions. ING responded to our article. Here are ING’s faulty responses defending the flawed retirement path it advertised. Is IRDA listening?

Upton Sinclair has written: “It is difficult to get a man to understand something when his salary depends on his not understanding it.” This applies wonderfully to all financial services companies and their intermediaries.

 
The latest example is the response of ING Life to our article on Monday based on a full-page advertisement in ET Wealth offering “advice” on retirement planning, their traditional product—New Best Years—and throwing at you some numbers to help you retire “on your terms”. Our article pointed out the unrealistic assumptions made by ING, leading to questionable solutions. Please read http://www.moneylife.in/article/ing-life-pension-plan-in-et-wealthmdasha-flawed-plan-to-retire-on/22146.html


Today, we received response from ING Life which we present here verbatim along with Moneylife responses.

Moneylife Comment 1: Inflation is assumed to be 5% every year till retirement. Is this realistic in current scenario? This is used to arrive at estimated annual expenses at the time of retirement. Moreover, with longevity today, people can easily live more than 20 years after retirement. The increase in the estimated annual expenses over those years is not mentioned in the calculation. It means that the plan assumes your expenses at retirement to continue unchanged till you die possibly after 20 years.

ING Life’s response: We have been conservative with regards to increases in cost of living as we expect long term inflation to be lower than 5% in line with historic average inflation rates but have assumed 5% for this example. In addition, we have assumed a conservative annuity rate of 5.1%. Together these conservative assumptions will compensate for any inflation in the 20 years.

It should also be noted that the customer (on his retirement) can purchase an inflation adjusted life annuity which protects him/her against inflation that may be available at a future date. Currently, this is not available in the market.

Moneylife’s response
– The inflation rate in India was last reported at 9.36% in October of 2011. From 1969 until 2010, the average inflation rate in India was 7.99%. These are official figures and possibly wrong. For most people in the urban areas, inflation is higher. Wonder what numbers led ING Life to inflation of less than 5% historic average.

There is no historical basis for assuming an inflation of 5%. Projecting an inflation rate of 5% is shooting in the dark. This is another example of financial services companies working without a robust historical database and/ or method of arriving at statically valid assumptions.

Also, why is ING Life even talking about inflation adjusted life annuity when such a product has never been in the market?

Moneylife Comment 2: The advertisement specifies that the customer has the option to choose an annuity plan from ING Life or from the open market at the time of vesting. This is not true after the new pension guidelines from IRDA last month. The customer has to continue with same insurance company for the annuity phase of the product. There is no flexibility.

ING Life’s response: We have clearly mentioned that this product is valid only till 31 December 2011. As per guidelines, annuity can be purchased from open market if one buys an accumulation pension product before 31 December 2011. The new pension guidelines will be applicable from 1 January 2012 only.

Moneylife response - IRDA pension guidelines (8 November 2011) clearly specify that it is applicable from 1 December 2011. All existing products which do not meet the guidelines shall be withdrawn from 1 January 2012. This seems to be limited-time kind of deal offered to customers even though technically the new guidelines are already effective. Any limited time offer is always tempting to naive customers and amounts to mis-selling.

Moneylife Comment 3: The rate of return during the accumulation phase is assumed to be 10%. This number is used for estimating investments you need to make into your policy until retirement, to meet the estimated fund value, if you start savings today. Considering the guarantee of capital specified in the new pension guidelines from Insurance Regulatory and Development Authority (IRDA), it is highly unlikely that 10% rate of return can be achieved. Most of the investments will have to be in the debt market irrespective of it being pension ULIP or pension traditional.

ING Life’s response: ING New Best Year’s fund provides guarantee on account value rather than on total premium paid and therefore allows greater flexibility to invest in aggressive instruments (including some equity). The assumption of 10% interest rate is in line with IRDA’s guidance on using interest rate of 10% and therefore we wanted to be consistent in our approach. Products sold after 1 January 2012 will be more restrictive in terms of investment options because of the guaranteed that must be provided.

Moneylife response - IRDA wants insurance companies to give benefit illustrations of 6% and 10%; not just 10%. ING did not give the 6%illustration, probably because it is not appetising. ING New Best Year is a traditional pension product. How does guarantee on account value allow greater flexibility to invest in aggressive instrument (including some equity)? The product guarantees total contributions after deducting charges on death or maturity. Providing such a ‘guarantee’ can never allow aggressive investment. Capital protection investments have high debt exposure and giving 10% rate of return over long-term is nearly impossible—unless of course interest rates shoot up, in the wake of much higher inflation. In that case, even 10% will be low.

Moneylife Comment 4: The average bonus rate from ING Life in the last five years has been 8.33% on the accumulated funds (premium minus charges), not on the premium paid. The actual returns will be lower and hence achieving 10% return with capital guarantee product is close to impossible in pension products. Moreover, 8.33% is the average of last five years; the bonus rate in the next 20-30 years can be vastly different.

ING Life’s Response: The illustration was shown to highlight how much a person needs to save for his/her retirement and therefore has no relation with the bonus declared by New Best Years. The table titled “Want to make your retired years as the best years” is a generic example to illustrate a possible real life situation irrespective of which pension product he chooses. These calculations are given to make people aware of their pension needs on a reasonable set of assumptions. In addition, we have clearly mentioned the assumptions used for these calculations and in no manner they are related to the product return. On the other hand, the illustration of our product is given in a separate section “See Question in the advertisement: Can you please illustrate how this plan works?”, where an 8% scenario is used.

Moneylife’s response – The bonus declaration is not on premium; but premium minus charges. For example, the charges for ING Life New Best Year (as specified in benefit illustration) are 11.66% for first year and 3% for each year thereafter. The management fee is 1.5%-2.5% of fund value. All the charges eat into the returns which will be much lower than 8.33%. Again, if you show 10% in advertisement, a conservative 6% calculation should also be shown to be a possibility as the regulator requires.

Moneylife Comment 5: It comes up with estimated value of your retirement fund required to meet the estimated annual expenses. The issue here is it never mentions that annuity is taxable. With the possible annuity interest rate they give, when we consider the annuity being taxable, you will not be able to meet your estimated annual expenses.

ING Life’s response: We agree that tax has not been allowed for, because one cannot forecast the tax slabs & tax rates that may be applicable at that point in time. In addition, the current tax slabs for a senior citizen are reasonable enough to allow either zero tax or a low tax on small part of annuity income (after allowing for tax slabs) which is sufficient to manage expenses. We consider that the similar will be the situation on retirement as well.

Moneylife’s response
– Since ING is “educating” a prospective customer, it could have added one more fine print in the advertisement that annuity is taxable. There are high net worth individuals with huge corpus in pension funds. Customer education is also important; not just slick advertisement to rake in business from susceptible readers in garb of safe advice.

 

User

COMMENTS

manoja

5 years ago

Hi,

I had typed out a long message and when I pressed the submit button after entering the security code, it said message could not be posted due to security code not matching. Two things here.

What is the need to mention the secuirty code? I mean, if you want boarders to post messages, make their life simple.

Two, if you really feel security code is important, change the software such that if the security code does not match for whatever reason, the typed out message is retained in the comment section and a new security code appears.

Could you please look into this?

REPLY

raj

In Reply to manoja 5 years ago

good suggestion. will surely look into it.

For now, you can type the message, do copy and then submit. If there is any problem, you can paste the message and resubmit.

Nagesh Kini FCA

5 years ago

The so-called 'clarifications' in response by ING are not only flawed but warrant punitive action from the Insurance Regulator IRDA.
The assumptions of 5% inflation and 20 years of post-retirement longevity both beat logic and to expect the aging insured to go back to them is the height of deception.
It requires immediate action from IRDA for mis-selling plain and simple.

Madhur Kotharay

5 years ago

ING has been dishonest. From 1981 to 2010, the inflation CAGR is above 8%.

There are only 6 years of these 30 years, when the inflation has been below 5%.
2000: 4.5%
2003: 3.8%
2004: 3.7%
2005: 3.6%
2006: 4.7%

And don't forget:
1992: 13.7%
2010: 14.9%

These two years itself were bad enough to nullify the effect of sub-5% inflation on the averages.

With Indian affluence, especially the rural incomes being on the rise, our inflation will be structurally higher in the years to come.

My guess: 8% inflation will be the norm. RBI is fighting a battle that will come at a grave expense, by destroying growth. Given that India is resource-poor country and our oil burden is so high, there is no possibility of inflation staying low for long stretches of time, except the times of severe economic downturn.

Deepak patil

5 years ago

I fully second the issues raised by Moneylife in the issue even though I have been and am an active insurance advisor.
I have never ever felt the need to misrepresent facts the way the Company (and even some people in the Company I represent) puts forth.
It is such weak arguments that the Company gives by way of replies that earn a bad name for the entire sector.
I must also add that I charge fees for the advice I render IN ADDITION to the commissions that I earn and about which I DO reveal to clients.

REPLY

naren

In Reply to Deepak patil 5 years ago

I agree. The company would have done better by not responding or accepting mistakes.

PPM

5 years ago

The only way to avoid this type of complicated products is just to stop the hybrid products like - ULIP (Insurance + investment), Pension Plans etc.

Insurance companies need to offer only insurance - to cover the risk - no more assured return plans. But who will bell the cat? IRDA is part and parcel of the insurance companies and IRDA will not work against the interests of the inurance companies.

Other option is to bring the ULIPs and other hybrid plans which involve equity related investments under the purview of SEBI.

REPLY

nagesh kini

In Reply to PPM 5 years ago

If i'm not mistaken IRDA has won over SEBI in the spat on this issue.

arvind

5 years ago

Someone told me to ask this question to the Fund Manager/Insurance salesman when buying a retirement plan'Who's retirment are you talking about..your or mine?
By hawking such a misrepresented product...someone surely is going to have a happy retirement..question is who?

REPLY

Debashis Basu

In Reply to arvind 5 years ago

No surprise there.
Financial services businesses are designed for employees who sell. Not for those who buy. Not even for the shareholders of these companies.
There is plenty of evidence of this

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