Costly Kiddy Bank Accounts

Pester-power may lure you to open an account for your child, but it is expensive and there are hidden risk.

Have you noticed a Kotak Bank advertisement for a ‘Junior Account’ for children. The 8-year old daughter of Shyam Prasad, a Bengaluru-based chartered accountant did, and wanted to open an account. Mr Prasad thought it was a good idea too and approached the Bank. He  was in for surprises. First, the junior account is expensive. It offers 6% interest but requires a minimum balance of Rs10,000. Second, Bank officials demanded he deposit twice the sum at the account opening stage, but could withdraw it later. This was not disclosed in the brochure.

This is probably because a Kotak junior account can be opened only if the parent/guardian issues a “standing instruction to debit Rs1,000 or above” in the junior account. This is linked to the guardian’s account in the Bank, casting several risks and responsibilities on the parent. It also says, “To be eligible for Kotak junior account proposition, RD (recurring deposit) or Investment account opening form should be submitted with the account opening form.” This has to be a recurring deposit or a systematic investment plan for 12 months. The Bank claims there will be no NMC charge (non-maintenance charge) but only as long as the guardian keeps topping up the account every month with an SIP or a recurring deposit. Otherwise, an average monthly balance of Rs5,000 has to be maintained.

Kotak Bank is probably banking on the pester-power of children to get a set of new deposits, with a steady accretion of funds. This forced saving may seem like a good idea, especially if you hope to inculcate the saving habit in your child. But, if you are going to keep Rs10,000 locked up and add to it every month, why do it at 6%? Why not open a fixed deposit that will earn significantly higher? All leading private banks also have child accounts—IDBI Bank, HDFC Bank, ING Vysya, Axis Bank and ICICI Bank. Most are cheaper to open, unless there are informal instructions that are not mentioned on their websites. Some, like HDFC Bank, offer an attractive Free Education Insurance cover of Rs100,000 (only if the parent or guardian dies in a vehicular accident). Many offer debit cards, net banking and phone banking. But none of the banks mentions any risks or warns people to educate their child before gifting their children the power of saving and spending. Parents/guardians will be saddled with the responsibility and liability if the child becomes a victim of phishing, fraud or simply loses a debit card. Doesn’t seem like such a great idea anymore, does it?

User

COMMENTS

S Venkatram

3 years ago

I had a bitter experience with Kotak Bank too. Charges sprung without prior information.
My experience with HDFC has been equally bad. I had two FDs and a SB Account with Bank of Punjab before it was taken over by HDFC. The relationship manager advised me to continue my FDs to ensure no cut in interest. I had closed my SB account but she persuaded me to open one with the bank, telling me that as I maintained the FDs with the bank I did not need the required minimum balance in the account. Imagine my shock when I discovered that after some months of honouring the commitment, the bank had started deducting penalty charges for not maintaining the minimum balance. It had not bothered to send me a letter or inform me on my mobile. I discovered it only when I went to the bank after many months.
The bank manager expressed his helplessness saying the rules had changed. He offered to reverse the charges (about Rs 300 a month!) for the last two months and only if I put in additional amount in the SB account to bring it upto the minimum balance. I had lost trust and chose to have no further dealings with the bank. This happened a year ago. Is there any way I could have recovered the amounts they so unfairly deducted? Can I do anything now?

ramanathan dwarakanathan

3 years ago

opening a bank account for a minor is of less use as the a/c will be managed by the guardian/parent. this is just a mktg gimmick by banks.

REPLY

Arun Mehta

In Reply to ramanathan dwarakanathan 3 years ago

Thro this marketing 'Gimmick' the Bank generates what in marketing called ';Pester Power' of the kids to pester their guardians to get the Child a card just like he or she saw it in the class with some one.It's shame that the Bank is targeting a vulnerable group who have no rational thinking power for a financial product.

Vaibhav Dhoka

3 years ago

One has to be most careful when name of Kotak comes in picture may it bank or stock trading you are bound to be DUPED by this brand.

Arun Mehta

3 years ago

I had a bitter experience with this Bank which opened a S/B account for me thro a society Camp and with no min Balance stipulation.But later when I was not using the a/c regularly startyed debiting my a/c at 750 /Quarter for min Balance of 10,000(Not disclosed earlier) so much so when I went to close my a/c they debited 3750 of may balance.Be careful with this bank for 'Bait and switch' tactics and keep away other wise.Even their Ad campaign of 6 Pc on SB a/c is sham with T/C not disclosed in the TVC ad.

REPLY

Masoom Shaikh

In Reply to Arun Mehta 3 years ago

3,750/- at account closure? How could you allow it, I could kill for that sum ;)

nagesh kini

3 years ago

Imposing unreasonable conditions like heavy minimum balance requirements in fine print "Conditions apply" is a strict NO-NO and must be brought to the notice of IBA, BCSBI and RBI Customer Services Dept.
Linking with parental accounts may be good safeguard. Certainly not standing instructions for transfering hefty sums or high initial and minimum balance requirements. NO WAY!

REPLY

Naresh

In Reply to nagesh kini 3 years ago

Consumer protection in the financial services arena is non existent. There is no law and no teeth to any regulator besides SEBI for consumer protection. One can only invest after carefully reading all conditions and searching on the internet if anyone has had problems before with the financial product you are investing in. It is called due diligence. Relying on marketing is a definite no no. Simply put there is no redressal in case you are shafted by the seller. You have to suck it up.

Pradeep Mishra

3 years ago

Madam, i want to correct your categorisation of IDBI Bank as a private sector bank. It's a public sector bank and service delivery is as good as any of the private sector banks..

REPLY

nagesh kini

In Reply to Pradeep Mishra 3 years ago

I entirely agree with Pradeep Mishra.
IDBI Bank is a PSB and its services are indeed good.

shekhar

3 years ago

Hi ,I just want to ask whether the advanced brokerage is legal? Does SEBI give permission ? I hv open account but now thr service is poor.Can I get balanced brokerage back?

Naresh

3 years ago

Moneylife is doing a stellar job going through financial offerings with a fine tooth comb. SEBI can now safely shut its doors and let the private sector intervene in the form of Moneylife. Soon Moneylife will be as credible as an empanelled rating agency. Credibility comes not from statutory powers rather from a consistent approach which gives consistent results which is what moneylife is doing. Good job.

REPLY

Sucheta Dalal

In Reply to Naresh 3 years ago

Many thanks Mr Nayak. But we have a long way to go -- the bigger challenge is to let people know that we exist. We truly appreciate your kind words and hope we can reach out to more people -- especially with our financial literacy initiatives.

hasmukh

3 years ago

Private Banks are a better option than Public sector banks as the staff there is more polite, efficient etc., but you have to be very careful as these private banks are very prompt in debiting various charges under various heads some bearing new terms, not heard before). Such chgs form their major head of income.
Incidentally, Kids' accounts ought to be completely free of any charges whatsoever, but with their profit motive in mind, they will even penalise kids with heavy charges.

SEBI To Act on an FSA Tip-off. Really?

The market watchdog has announced an investigation but its track-record does not give us much hope about the outcome

Although SEBI has been collecting kudos for getting the Anil Ambani-led, ADAG group to sign the biggest consent order of Rs50 crore in 2011, Moneylife has always held that the regulator, under CB Bhave, allowed the group to get away easily. It did not admit guilt and claimed to have no knowledge about the round-tripping of a massive $250 million into Reliance Communications. Yet, the consent order was conveniently vague and did document the group’s shady transactions through UBS and a host of overseas entities. In fact, the Financial Services Authority (FSA) of the UK shared plenty of information with SEBI on that case and eventually acted more stringently against UBS officials.

On 12th August, The Economic Times reported that SEBI is conducting a wide-ranging investigation into the use of funds parked in undisclosed overseas bank accounts allegedly owned by several prominent promoters and CEOs, based on a tip-off from overseas regulators. Apparently, the investigation covers three European banks—two from Switzerland and one from the UK, which, with the help of portfolio managers, have been helping Indian industrialists round-trip money and manipulate share prices. Will SEBI get serious or simply go through the motions of investigation?

Also, while the regulator is checking round-tripping, the bigger issue probably ought to be terror funding in the Indian stock markets. Dr SV Raghavan and V Balasubramaniyan, in an article on 12th August, have documented growing evidence of this menace. This was first mentioned by then Intelligence Bureau chief MK Narayanan in 2007, but met with great scepticism. Since then, in 2011, minister of state for finance, Namo Narain Meena told parliament that “10 suspected cases of terror funding in the stock markets have been reported in the previous three fiscal years from 2009-2011.” In November 2012, home minister Sushil Kumar Shinde told an Interpol conference that “credible intelligence suggests terrorist outfits are investing in stock markets through spurious companies, setting up fictitious businesses and laundering money.” The authors say that the Financial Intelligence Unit received several suspicious transaction reports (STR) between 2009 and 2011 that ‘may be linked to terrorist financing’. They further point out that SEBI’s 2011-12 annual report says that it initiated an enquiry against 35 brokers for non-compliance with anti-money laundering (AML) regulations and combating financing of terror (CFT) regimes.
Given the seriousness of the issues involved—terror funding, money-laundering and stock manipulation—will the newly-empowered market regulator be under pressure to come up with some answers?

User

I'm Not Loving It: Big Mac's strange Indian franchisee

The strange goings-on in Westlife development and its stunning price rise does not seem to attract SEBI's attention. Why?

Why does the Securities & Exchange Board of India (SEBI) need more powers when it does nothing about the most blatant manipulation? Take the case of Westlife Development of the BL Jatia group, which now holds the lucrative franchise of American fast food giant McDonald’s in south and west India. In July 2013, the Jatias turned Hardcastle Restaurants, into a direct subsidiary of Westlife (earlier called Dhanaprayog Investments) which was a family-owned but listed shell company. But not before the price of Westlife had been ramped from under Rs10 to Rs183. Moneylife first wrote about the ramp up in June 2010. No action from the regulator.

In July 2013, we wrote about the continued astronomical rise in Westlife’s stock price and pointed out that it had just 64 shareholders and the price hits the upper circuit with just two to three shares being traded everyday. SEBI officials follow our writing; so it is hard to believe they haven’t noticed Westlife’s vertical price rise. Moneylife also pointed out that the company seemed like a habitual offender and had been pulled up twice earlier for failing to make proper disclosures. We asked why Westlife was not transferred to the illiquid stocks that come under the call auction regulation. Is one big inter-se transfer of shares among promoters per quarter enough to keep the stock outside this regulation? Nothing has changed.

In July, we also pointed out that 12 shareholders held 75% of the equity in the company. The remaining 25%, ought to be public shareholding, but four shareholders own 24.17%, according to company disclosures of March 2013—they are Cyprus-based New Leaina Investments Ltd (with a 4.95% stake), Mauritius-based India Discovery Funds (which holds 1.06%) and Rajiv Himatsingka, an NRI, who holds 15.70% and is apparently not a promoter.
The remaining 48 persons hold 0.7% of the equity. On most days, one share is traded and it hits the upper circuit. A 1:1 bonus has apparently satisfied the 25% public shareholding norm, making a mockery of that regulation.

After this ramp up, on 23rd July, the company sold 54 lakh shares (3.47%) for Rs180 crore to Arisaig, a foreign portfolio investor which means that Westlife is now valued at Rs5,000 crore. This is not the end of the story. The giant McDonald’s, say sources, has mysteriously diluted its 50% shareholding in Hardcastle Restaurants. Has it? While the regulator refuses to investigate, keep reading Moneylife for answers.

User

COMMENTS

Veeresh Malik

3 years ago

Something even more strange - It is McDonalds in the US in the business of "food service retail" and it is MacDonalds in India in the business of "quick service restaurants". In addition, the linkage between McDonalds in the US and Macdonalds in India goes cold as far as EDGAR filings for McDonald are concerned in the US.

Varun Sethi

3 years ago

I agree with the author and fellow readers about malpractices like circular trading, insider's trading, non compliance with minimum shareholding norms etc. But the consolidated valuation of the consolidated entity viz westlife + hardcastle would essentially be that of harcastle as it houses the profitable operating entity (MCD franchisee) and it does not matter if it does ONLY MCD as of now. They might add up more .sr businesses in future.

If the valuation of hardcacastle is Infact the prevailing price or the price paid by the new investor Arisaig, why is someone doubting the valuation.?? It is OK from a legal standpoint also as the new investor paid the fair value per foreign investment norms.

This practice is called reverse merger and is quite prevalent globally not just India where the promoters in unlisted entity buys the public listed shell entity and unlisted entity then merges or is made the subsidiary of the listed valuation. . It is an indirect method of getting listed. Not really sure bout the corporate structure post MCD'S dilution or Arisaig investment though.

AK

3 years ago

It's hard to believe that McDonald's corp is not aware of this given these guys are a huge franchisee (all of west and south India). Won't be surprised if McD corp even has a role to play in this structure.
Going through the "parent" company (Westlife) website's about page (excerpt and link pasted below) - they don't even say what they do other than run McDonalds.. so why exactly is that a subsidiary?? At the least this calls for a thorough audit of Westlife and ideally some investigation into the practices of the corp globally as well.

http://www.westlife.co.in/web/our_compan...

"WestLife Development Pvt. Ltd. (WDL), a diversified group, is focused on building and developing India’s Quick Service Restaurant (QSR) industry through its subsidiary Hardcastle Restaurants Pvt. Ltd. (HRPL), which operates McDonald’s restaurant in west and south India. "

Saurav

3 years ago

A clear case of insider trading and a gross violation of the public shareholding norms when one looks at the shareholding and the trading patterns. Hope McDonald's USA takes notice and investigates if it does not want to be seen engaging with an unethical company and take a hit on its brand image which is more important than any franchisee going to this extent to rake in money. It is widely known that in the case of Walmart India, the principals have ensured strict action against anyone found engaged in corruption. Hope this brand too follows suit. Will Mr. Sinha of SEBI please investigate and prevent ignorant investors from falling into this dirty trap? Hope so.

Ankit

3 years ago

What a complete mockery of the rules this is. You can see from the share price increases, to the "trading" to the dilution of stake, that something is very fishy here.

If these are the kind of practices our regulators choose to ignore - what kind of company evaluations are real? Not expected from a global giant like McDonalds - all the 'corporate imagery' goes down the drain completely

RS

3 years ago

Incredible!

Why/How can one of the largest brands in the world allow such sub par corporate governance and non transparent dealing ?!!

Who would have thought that one of the largest corporations in the world would come under the scanner for violations as serious as Insider trading, circular trading, price manipulation/rigging and non-compliance with laws in their complete spirit.

Did not we recently hear of another big American MNC being investigated by its own government for allegedly corrupt/illegal practices in foreign shores? Is this heading the same route?

What also appears to be extremely serious is what the article talks about regarding the MNC diluting its stake in the Indian partnership. At today's market cap, that stake would be worth around US$ 280 million. The MNC is a listed company in the US. It has legal and fiduciary duty to explain what it was paid for this stake sale.

Do its shareholders know what has happened?

Great work by the author in digging out all this.

Dr Hardeep Singh

3 years ago

Burger mein kuch kala hai! It seem's that SEBI's role is not that of a market regulator but that of one to ensure that markets are kept irregular! Who is SEBI trying to protect by it's inaction? Allegations of McDonald's dilution of shareholding must be answered - either by the regulator or by your continued investigative journalism (more likely the latter given SEBI's track record). Truth must prevail quickly as this looks like joining the long list of corporate scams with tacit collusion of the regulator/government. Let's find out which one of them has their hand in this till

Dr Hardeep Singh

3 years ago

Burger mein kuch kala hai! It seem's that SEBI's role is not that of a market regulator but that of one to ensure that markets are kept irregular! Who is SEBI trying to protect by it's inaction? Allegations of McDonald's dilution of shareholding must be answered - either by the regulator or by your continued investigative journalism (more likely the latter given SEBI's track record). Truth must prevail quickly as this looks like joining the long list of corporate scams with tacit collusion of the regulator/government. Let's find out which one of them has their hand in this till

R Ravi

3 years ago

Strange to read about such happenings. I am sure the truth will surface sooner rather than later. Meanwhile, one waits it with bated breadth.

Sunder Hemrajani

3 years ago

The developments at Westlife are a shocker!!This is a good example of people enriching themself through market manipulation.Obviously,the Regulator(SEBI)has gone to sleep...not surprising since most institutions which are expected to regulate have degenerated.A well researched article.

Sunder Hemrajani

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