Following a preliminary enquiry by CBI, four public interest directors of MCX-SX, including Pillai, had expressed their desire to quit the Board
Following the resignation of GK Pillai, MCX Stock Exchange (MCX-SX) on Friday elected Thomas Mathew T as its new chairman and Dr Ashima Goyal as its vice -chairman. In a release, MCX-SX also dismissed reports claiming that several of its board members are likely to put in their resignations.
Earlier in the day, Pillai, the former home secretary, resigned as chairman of MCX-SX, even as the union government and market regulator Securities and Exchange Board of India (SEBI) tried to assuage concerns arising out of the bourse coming under the scanner of Central Bureau of Investigation (CBI).
The resignation came hours ahead of a scheduled board meeting of MCX-SX, where Mathew, the former chairman of Life Insurance Corp of India (LIC), was elected as new chairman and Dr Goyal, professor at the Indira Gandhi Institute of Development Research (IGIDR) as vice chairperson of the Exchange.
SEBI is looking at ways to assuage the concerns of investors, trading members and other stakeholders in MCX-SX, according to senior officials.
Meanwhile, Finance Minister P Chidambaram said he hopes that directors of MCX-SX would act in public interest and that there was an orderly resolution of the crisis.
Soon after a preliminary enquiry (PE) registered by CBI on Thursday into the grant of licence to the exchange way back in 2008 and the subsequent renewals, Pillai and some other ‘public interest directors’ of MCX-SX had expressed their desire to quit.
Surprisingly, the PE has also been registered against SEBI’s former chairman CB Bhave and ex-member KM Abraham, besides MCX-SX promoters Financial Technologies India Ltd (FTIL), and Multi-Commodity Exchange (MCX).
In a release, Saurabh Sarkar, managing director and chief executive of MCX-SX said, "The board meeting was as per the schedule and planned one month in advance. Mr GK Pillai, the outgoing chairman, has played a key role in ring-fencing the exchange at a critical juncture and helped bring stability to the exchange. All other directors continue to be on the board."
The Exchange also announced that FTIL and MCX have been re-classified from the category of "promoter shareholder" to "public shareholder".
MCX-SX management also announced that the ongoing rights issue (in the ratio of 2:1) has received good response and it has received expression of interest from new investors.
MCX-SX has come out with a rights issue to reduce its related companies’ stakes. Financial Technologies and MCX hold 5% each in the Exchange while their total stake has to be brought down to 5% in all, according to SEBI guidelines.
There are apprehensions that the licence of the Exchange, which is already battling low business volumes due to problems at National Spot Exchange Ltd (NSEL), can be cancelled if CBI probe finds something detrimental.
The original promoters of MCX-SX have been issued show-cause notices by regulator SEBI after Commodity markets regulator Forward Markets Commission (FMC) ruled they were not “fit and proper” to run any exchange in the wake of the NSEL fallout.
The exchange was initially granted permission for only a limited segment of currency derivatives in 2008, on the condition its licence would require approval every year.
The PE was registered into the MCX-SX licence matter on a day when CBI carried out raids at various premises of NSEL.
Kicking off a fresh controversy, AAP leader Kejriwal alleged that 'heavy amounts' have been paid to promote Narendra Modi
Aam Aadmi Party (AAP) leader Arvind Kejriwal has accused the 'whole' media of being 'sold out' to Bharatiya Janata Party (BJP)'s prime ministerial candidate and Gujarat chief minister Narendra Modi. Kejriwal also threatened to send media people to jail after an inquiry into the issue if AAP comes to power.
“The whole media is sold out this time, it is a big conspiracy, a huge political controversy. If our government comes to power, then we will set up an inquiry into this. And along with the media people, all will be sent to jail,” he said, hitting out at the media for focusing on his security deployment.
Kicking off a fresh controversy, Kejriwal alleged that 'heavy amounts' have been paid to promote BJP’s prime ministerial nominee Narendra Modi.
But he later denied having made the accusations against the media after his remarks came under attack from the Congress, BJP and CPI.
“Since the last one year, we have been told that Modi is here, Modi is there. Since one year, Modi has also been saying that. Even some TV channels have been saying that ‘Ram Rajya’ has come and corruption has vanished....Why did they do it? Because money has been paid to TV channels. Heavy amounts have been paid to promote Modi,” Kejriwal alleged in a video aired by a TV channel.
“Around 800 farmers have committed suicide in Gujarat in the past 10 years, but none of the channels showed it,” he alleged and added that farmers have sold their land to a company for just “one rupee but even this has not been shown by any channel”.
However, as the video went viral, the AAP leader denied making the remarks.
“I didn’t say that. I didn’t say anything. How can I be upset with you (media),” he said.
IRDA has asked SBI Life to refund Rs275 crore for collecting premium upfront on a policy, which had two premium payment terms. But why did IRDA approve this product which was cleverly designed to earn hefty commission for SBI?
The Insurance Regulatory and Development Authority (IRDA) has ordered SBI Life to refund Rs275.29 crore to the policy holders as the money was collected from them in violation of norms.
The product had two premium payment term (PPT). Yet, in nearly 95% of the policies sold, SBI Life had collected the second year premium for its policy Dhanaraksha Plus Limited Premium Paying Term in the first year itself. What is worse, this policy was sold to those who availed of home loans from SBI and its associate banks during the period 2008-2011. The policy was intended to cover the outstanding loan in case of death of the policyholder during the term of the loan. As every one who has taken a mortgage in recent times knows, there is also an element of indirect coercion to take these policies to secure the borrowing.
SBI Life also had a single premium version of the product, but it did not provide an informed choice to the buyer. The reasons were simple. The single premium policy earned only 2% commission for intermediaries, which in this case was mainly SBI and its associate banks. The two PPT policy earned hefty 40% of the first year premium as commission and 7.5% of the second year premium as commission to banks which sold the policy. Clearly, the two PPT policy was bound to be much more expensive than the single premium policy if the commission levels have such huge difference.
It can be concluded that SBI and its associated banks did not act in best of customer interest by offering a cheaper option. SBI Life crafted a product with two PPT which could not have been for customer convenience. It would have been justified if the PPT was for two-thirds or at least half of the loan repayment period. In that case, there is respite to the customer in having flexibility to pay premium over a period of time. But, what is the advantage of two PPT versus single premium for customer? It is disadvantageous as the premium paid over two years would be higher than single premium due to inbuilt humongous difference in commission levels.
So, why did IRDA permit the two PPT toxic product to be launched at all? Did the regulator fail to anticipate that the product was structured to be mis-sold and is completely against customer interest? While IRDA may seem to have helped investors by asking for the premium to be refunded, this is a fit case for holding the regulator itself accountable. In fact this would also be a fit case for class action, both against SBI Life as well as the regulator.
Did IRDA expect that the consumers can easily find out that single premium option was available? Approving a toxic product can remind one of ULIPs before September 2013 which even had high upfront charges of up to 70% and mind-boggling surrender charges.
Getting a loan application approved itself is a task and the customer is at mercy of the bank which ensures that the customer accepts whatever loan and property insurance is offered. Any resentment from the consumer can even be deal breaker for loan application. It can be seen from the fact that 93% of second year premiums were received in advance along with first year premiums in the year 2008-09, 94% in the year 2009-10 and 97% in 2010-11. Thus the premium collected is more on lines of a single premium than two yearly regular premiums against the approved File and Use features.
Making the two PPT product work as single premium by taking the second year premium upfront is a violation of approved File and Use features, but the insurer may argue that paying second year premium in advance was allowed by IRDA till 2013. But, SBI Life cannot be exonerated from its culpability to offer toxic insurance product; it casts a shadow over other life insurance products offered by the insurer.
IRDA order states the following issues (a) Dhanaraksha Plus Limited Premium Paying Term product was sold as single premium policy in violation of approved File and Use features, (b) Paying excess commission to Corporate Agents over and above the eligible 2% commission they would have been otherwise eligible had the single premium version of the policy been offered. (c) No informed choice given to the members of these group insurance policies as envisaged under Regulation 3(2) and 3(3) of IRDA (Protection of Policyholders’ Interests) Regulations, 2002. Thus it is concluded that these violations were detrimental to the interests of members of group insurance schemes of the concerned master policyholders.
SBI Life will be appealing against the IRDA order as per the recourse available to them.