Instead of intelligently reviewing the existing mechanism of customer services, the Damodaran Committee only wants to add to it
The release of the Damodaran Committee report has to be among the strangest in recent times. After 13 months of deliberation, the report was released without M Damodaran (former Chairman of the Securities & Exchange Board of India, SEBI) being anywhere in the picture. As Moneylife has reported, he did not even provide the transmittal letter for the report.
This dissonance, which is probably the result of a disinterested chairman, is reflected in the report itself, which is major letdown. The report makes all the right noises and is correctly and overtly pro-investor. But what was expected from the committee was "a review of the existing system", including the many pointless circulars issued by the Reserve Bank of India (RBI) seeking many layers of committees and meetings, starting at the branch level and extending to the board. Instead of reviewing the existing mechanism, the Damodaran Committee only wants to add to it. For instance, it wants each bank to have its own Ombudsman, over and above the Banking Ombudsman system, which works reasonably well.
Interestingly, after the Talwar Committee of 1975, the Goiporia Committee of 1990 and the Tarapore Committee of 2004, the Damodaran Committee on customer services was supposed to take us to the next level of review and recommendations to improve service delivery to bank customers. But that hasn't really happened, mainly because there is no indication of a thorough review of the existing customer-protection mechanism. The committee claims to have met a broad swathe of stakeholders from bankers to customers, NGOs, micro-financers and pensioners. Yet, it has few concrete solutions to offer. In fact, large chunks of the report that cover issues such as pass books, KYC (Know Your Customer) norms, inoperative accounts and issues with TDS (Tax Deduction at Source) certificates (especially banks' refusal to rectify faulty TDS certificates) and remittances could easily have been set right by the RBI's own customer services department without waiting for a customer services committee to make recommendations. Some recommendations are downright amusing. For instance, the committee says, "Branches should be provided with dedicated phones/computers with Internet connection so that customers can avail themselves of the facilities such as Call Centre, Internet Banking and Phone Banking in the branch itself." Surely, customers can avail of all banking services at a branch and Internet and phone banking is provided, precisely to enable to them to access their account from remote locations?
One of the biggest omissions is the absence of a detailed discussion on the rampant mis-selling of financial products-including insurance, mutual funds and derivatives or structured products by target-driven Relationship Managers and Wealth Managers. For instance, Osian Art Fund, the collective investment scheme, which SEBI failed to regulate, was hard-sold by wealth managers of a foreign bank. Importantly, the high attrition rates among this category of officers ensure that they never carry the can when their false promises and fake guarantees come to light.
Let's look at a few areas where we expected concrete proposals. Consider the simple example of bank lockers. The committee merely notes the views of banks and customers and calls for the RBI to revisit guidelines "to ensure that the activity itself is not dis-incentivised and the customers continue to have availability of lockers at an affordable charge." In fact, Moneylife alone had done better. In February this year, we polled 458 persons and flagged many more issues. The overwhelming feedback was that people wanted more lockers and they weren't available. Surely, the Damodaran Committee could have explored the issue of locker rentals in more detail to come up with a specific workable recommendation?
The same goes for recommendations on bank service charges. While reporting customers' desires with regard to service quality, it ought to have been weighed against cost and feasibility. After all, as a customer, I too desire the service standards of a foreign bank's priority customer while paying what nationalised banks charge! We would have liked the report to consider banks' perspectives on these, instead of making unilateral recommendations that will be debated and negotiated by the IBA (Indian Banks' Association) until RBI closes the debate by issuing an order. This applies to many of its recommendations regarding electronic payments as well as account number portability.
Another half-way recommendation is that insurance cover for deposits should be expanded to Rs5 lakh in order to "encourage individuals to keep all their deposits in a bank". It also wants to explore the possibility of full insurance cover for bank deposits. This is a seemingly good suggestion. But consider this. A deposit insurance cover is unnecessary for nationalised banks; even large private banks are most unlikely to be allowed to fail. The global financial crisis of 2008 has plenty of evidence of governments bailing out the banking system. In India, RBI didn't allow Global Trust Bank (GTB) to fail because it exposed its own failed supervision. The increased cover makes sense only for politically-manipulated cooperative banks or tiny private banks. Couldn't the committee have spoken to the Deposit Insurance & Credit Guarantee Corporation (DICGI), which is an RBI affiliate and headed by an RBI Deputy Governor, to come up with a more reasoned recommendation based on the actual payouts over the last decade?
In fact, if most of the payouts under insurance guarantee are made on account of cooperative banks (as we suspect they are), then we must strongly oppose the move to enhance insurance cover and press for better supervision of these banks instead. In fact, Moneylife Foundation's financial literacy initiatives make a big effort to educate savers about the dangers of faulty supervision of (largely) politically-controlled cooperative banks.
Given that the report is largely a bunch of general statements, a great opportunity to create the right approach for customer services has been lost.
Short rally in the Nifty possible after a few days up to 5,400
Panic selling resulted in the Nifty suffering a major loss of 2.26%, its biggest one-day decline since 4 May 2011. The sell-off happened on huge volumes of 80.37 crore shares, which was way above its 10-day moving average and the index closed at its lowest level in nearly 14 months.
The market is likely to remain down for a few days before a short rally starts. For the uptrend to continue, it is essential that the market closes above the 5,400 level.
The domestic markets opened sharply lower as worries about a serious global economic slowdown sparked a slide in the markets globally. Investors worried about foreign investors pulling out funds from emerging markets and the impact on domestic companies due to the slowdown, particularly in the US and Europe.
The Nifty opened at 5,204, down 128 points, and the Sensex tanked 343 points to resume trade at 17,350. The IT, realty and power sectors led the decline.
After the weak opening the market was range-bound, even as the benchmarks registered high points within the hour. The intra-day high for the Nifty was 5,230 and for the Sensex 17,358. The sell-off worsened around noon and at the lowest point the benchmarks were down by over 3.5%.
The Nifty made an intra-day low at 5,116 and the Sensex at 16,991. A pull-back was noticed as European markets opened with limited losses and the indices recovered more than 1% from the day’s lows to close with a big loss on the day. The Nifty ended at 5,215, down by 117 points, and the Sensex finished at 17,305, a huge loss of 387 points from its previous close.
The advance-decline ratio on the National Stock Exchange (NSE) was 243:1566.
The broader indices were mauled in the market mayhem. The BSE Mid-cap index sank 2.16% and the BSE Small-cap index tumbled 3.08%.
All sectoral indices closed lower with the BSE IT index (down 3.93%) and BSE TECk (down 3.38%) the worst affected. BSE Realty (down 3.13%), BSE Power (down 3.09%) and BSE Consumer Durables (down 2.77%) all lost heavily.
ONGC (up 1.08%), Hindalco Industries (up 0.77%) and Cipla (up 0.73%) were the only gainers on the Sensex. Reliance Infrastructure (down 7.43%) and Reliance Communications (down 7.16%), which will go off the Sensex from Monday, were the top losers. These were followed by Sterlite Industries (down 6.22%), Tata Steel (down 4.48%) and Infosys (down 4.35%).
The top performers on the Nifty were BPCL (up 1.87%), Hindalco Industries (up 1.52%), ONGC (up 1.48%), IDFC (up 0.53%) and Jindal Steel (up 0.27%). The draggers were Reliance Infra (down 7.35%), Cairn India (down 7.18%), RCom (down 6.66%), Sterlite Industries (down 5.79%) and Sesa Goa (down 5.75%).
Markets in Asia tumbled between 1.45% and 5.58% as analysts warned that the US economy may slip back into recession if steps were not taken to strengthen growth and euro zone debt concerns spread to Italy and Spain.
The Shanghai Composite declined 2.15%, the Hang Seng tanked 4.29%, the Jakarta Composite tumbled 4.86%, the KLSE Composite fell 1.45%, the Nikkei 225 slipped 3.72%, the Straits Times retreated 3.61%, the Seoul Composite lost 3.70% and the Taiwan Weighted plunged 5.58%.
On Thursday, foreign institutional investors were net sellers of shares worth Rs254.55 crore, whereas domestic institutional investors were net buyers of stocks worth Rs316.50 crore.
State-run power utility major NTPC is likely to invest about Rs1 lakh crore in setting up a 9,500MW hydel power project in Arunachal Pradesh. The company is in talks with the Arunachal Pradesh government about the project. It also plans to commission a 800MW Koldam project in Himachal Pradesh, next year. The stock declined 3.45% to end at Rs170.95 on the NSE.
Tata Consultancy Services, the country’s largest IT software firm, has earmarked a capital expenditure of Rs2,300 crore for the financial year 2011-12. The company will consider investments or acquisition opportunities in some of the market areas, as and when they arise. The stock declined 3.37% to Rs1,058.90 on the NSE.
GMR Infrastructure is considering a bid to operate airports at Barcelona and Madrid, after the Spanish government authorised a stake sale in the two aerodromes. The company is also looking at bidding for airport projects in Puerto Rico and South Korea, where it has initiated discussions with the respective governments for setting up new airports in these countries. The stock fell 1.16% to close at Rs29.95 on the NSE.
The fund house says this step will improve economies of scale and better management. But what are the implications for investors in these funds?
JM Financial Mutual Fund has decided to merge JM Nifty Plus Fund into JM Equity Fund (the surviving scheme) and JM Emerging Leaders Fund into JM Multi Strategy Fund (the surviving scheme), in the interest of all unit holders in the respective schemes and to benefit from better economies of scale that will allow for more efficient management. The merged schemes will continue according to their respective dividend and growth options.
Of late, fund houses have started clubbing some of their non-performing, or smaller schemes, into one plan. The market regulator, SEBI, has also supported the move by revising the norms for such mergers.
It is important to monitor your investment closely, and we are not talking only about its market value. Many investors let their investments run on auto pilot, not bothering to check how they are faring. For instance, a merger of two schemes may also mean a capital gains tax liability for you.
When a scheme gets merged into another, the first scheme ceases to exist. In such a case, units of the first scheme are redeemed, but not returned to unit holders. They are then reinvested in the scheme in which the first scheme is to be merged. So even if you choose to stay invested, it is still deemed as a withdrawal from one scheme (the one that will be merged) to another.
In this case, the investor needs to mention his income in his tax returns and pay the capital gains tax (if any). If your investment tenor in the merged scheme has already completed a year at the time of merger, you don't need to pay tax as the long-term capital gains in equity funds is nil.
In case the investor is not in agreement with the merger, he has the option to exit without payment of any exit load. The option to exit can be with or without payment of exit load, according to the choice of individual fund houses.
In the case of JM, unit holders who do not redeem/switch out, the current value of their holding in respective merging schemes as on 29 July 2011 will be converted into units of the respective surviving scheme, through allotment of units at the applicable NAV as on 29 July 2011.
The return of JM Nifty Plus and JM Emerging Leaders since inception till 30 July 2011, is 10% and -13% respectively. (Based on raw NAV.)