Life Insurers Get Time To Adopt Standard Proposal
Life insurance companies have time up...
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?
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?