Companies & Sectors
Morgan Stanley: Quit India

Morgan Stanley Mutual Fund’s exit says a lot about India’s regulatory regime, as much as about the fund companies

Given the fanfare that marked the Morgan Stanley India Growth Fund’s arrival in India, in January 1994, its decision to throw in the towel exactly 20 years later, by selling out to HDFC Mutual Fund, ought to have attracted far more media discussion. That it has attracted less attention than Fidelity Mutual Fund’s exit, a couple of years ago, reflects that sorry state of India’s mutual fund industry. Of course, Morgan Stanley (MS) has itself to blame. It played on the ignorance of Indian investors to launch a whisper campaign in the ‘grey market’ that its units would soar like equity shares. People stood in long, serpentine queues to submit their applications and many even paid a premium for the forms.

Far from opening at a premium, the net asset value of the close-ended scheme did not touch the issue price for over a decade. Investor anger about Morgan Stanley was so high that this fund house had little prospect of launching another scheme to increase its AUMs (assets under management), for a long time.

Morgan Stanley’s cowboy ways were not restricted only to this scheme. When the economy opened up, MS first entered India though a 50:50 collaboration with SBI Mutual Fund (SBI MF) for an offshore fund. The two parted ways a little after executives of the State Bank of India (SBI) found that they were lulled into signing an agreement that gave veto powers to MS over investment decisions. The clause had been quietly slipped into the fine-print and was only discovered much later, when the first disagreement cropped up. The giant SBI discovered, to its shock, that it was the junior partner in the equal deal that they thought they had signed. After that, it was only a matter of time before they broke up. But Morgan Stanley executives, who were treated like movie stars by India’s political establishment and had easy access to India’s top bureaucrats and businessmen, were too cocky to learn any lessons. However, angry investors taught them a hard lesson that culminated in the sale of its business, exactly 20 years later.

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COMMENTS

Anil Agashe

3 years ago

It's good they have quit. Actually they should have quit long back. No need to shed tears, they proved to be useless and took many investors for a royal ride with their first offering itself.

A Rama Krishna

3 years ago

There are many more failures of Morgan Stanley in India.Few years back they had launched a private equity fund through their subsidiaries. Citibank was the broker. Lot of investors were conned into investing in the fund by Citibank. Today after six years the money is worth no more than 25% of the initial investment.

Suiketu Shah

3 years ago

Wonderful article-MS getting the treatment they deserve in India.Like the description "treated like movie stars".Some wealth management executives do think of themselves as celebs(fake ones) like VK Sharma of HDFC sec and one Rishabh Patni of HDFC Wealth Management in Lower Parel.however they are "fake" experts.

With IPOs in doldrums, will SEBI ever understand investor disenchantment

Just one major IPO took place in 2013. Instead of working on reviving investor confidence and protecting them, SEBI plans to reduce disclosure—in a disclosure-based regime—to boost IPO interest.

I f Morgan Stanley’s exit reflects disenchantment with the mutual fund industry, then resource mobilisation through initial public offerings (IPOs) is in even worse shape. In the entire 2013 just one IPO caused a flutter among investors—of Just Dial. The other two worth a mention were VMart and Repco Home, while Power Grid picked up a massive Rs6,958 crore through a follow on offer. While, 35 IPOs from the small and medium enterprises (SME) mobilised around Rs367 crore, the IPO market is as much in the doldrums, as it was after the IPO mania of 1992-96 saw thousands of fly-by-night operators vanish with investors’ money. The difference between the situation 20 years ago and now is that policy-makers neither understand investor disenchantment nor do they care.

Consider the experiment with the SME sector. On the one hand, 35 public offerings based on a different set of rules (no filing of prospectus, but market-making mandatory and minimum application of Rs1 lakh) seem like good performance. But aggregator sites report that only 20 out of 45 stocks listed on the two national bourses are traded and that, too, with low volumes. But, instead of working on reviving investor confidence, the Securities and Exchange Board of India (SEBI) plans to relax entry barriers by scrapping IPO grading, reducing disclosures and doing away with even the formality of making a public offer. This is after the experiment with offering a safety net to investors had also failed (in fact, two issues offering a safety net had to pull out of the market). However, market observers believe this will only lead to SME listings being the newest way to launder money by hawala operators.

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COMMENTS

Vaibhav Dhoka

3 years ago

Investors securities is last priority here.SEBI is BOL-BACCHAN.

Making banks accountable for tech frauds

An improved code forces banks to be more careful about technology-related frauds on their customers, for which banks are unaccountable now

The year promises to begin on a better note for bank customers. A report in the Economic Times (ET) says that the revised code of services by the Banking Codes and Standards Board of India (BCSBI) is going to be significantly pro-consumer and move towards a better balance of rights and obligations between banks and their customers. According to the ET report, there are two main changes. First, when it comes to electronic fraud, the onus of proving that the customer participated in the fraud or compromised the user ID and password will shift to the bank. While the details of the changes prescribed by BCSBI are not known, these changes were recommended by the Damodaran committee on customer services way back in 2011.  

Its report had said that Internet banking should be so designed that it would make consumers feel that electronic transactions are safe. And that there should be “a secure total protection policy/zero-liability against loss for any customer induced transaction, utilising technology through ATMs (automated teller machines)/PoS (point of sales)/online banking, etc. A customer should not be made to be out of funds when any loss is suffered on account of Net (Internet)/ATM banking transactions.”

In fact, the committee recommended that banks should allow customers to put in various checks to prevent fraudulent transfers. These could include, restricting transfers abroad unless specified and restricting transfers above a certain value. More recently, at a meeting of nodal officers and banking ombudsmen, Dr KC Chakrabarty deputy governor of the Reserve Bank of India (RBI) had emphatically said that banks cannot push the burden of proof on the customer and, if they could not find suitable insurance cover to mitigate their risk, they may want to reconsider offering Internet banking at all. “Nobody forced you to offer Net Banking,” he said.

The committee recommended tiered security for the safety of mobile transactions which have already been introduced by almost 50 banks. These include—cap on transaction value, destination of transaction (two-level authorisation for non-routine destinations), security based on handsets and the frequency of payments. More importantly, it had said that grievances about mobile banking should be dealt by banks without hassling the customer by referring the matter to the service-provider.

A frequent complaint is about ATMs failing to dispense cash. RBI already requires complaints to be resolved within seven days and the money credited back to the account, failing which the customer is entitled to a compensation of Rs100 per day of delay. RBI’s customer services department is now following up on the Damodaran committee’s recommendation that a small camera should be trained on cash being dispensed into a bin. But banks have been resisting the move on the grounds of the high.

A revised BCSBI code is certainly a big move forward, but customers must remember that the code will not protect customers who fall for phishing or vishing attacks on the pretext of account verification or succumb to the lure of a fake lottery or prize.

Another change in the BCSBI code is that banks will have to drop the quid-pro-quo deals with third-party products on customers, usually borrowers. These would include insurance tie-ups with car dealers, especially when there is a loan involved or making a specific insurance mandatory on mortgage loans.

This is again a small step forward in the large fight that Moneylife has been waging about stopping banks from selling third-party products altogether. We believe it is a strange travesty that banks take advantage of their fiduciary role of keeping deposits safe and, instead, push customers to withdraw funds to buy toxic and expensive insurance and investments, to earn commissions for themselves. But this is a global battle which will require persistent effort by bank customers around the world.

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COMMENTS

Col Madan Sharma

3 years ago

Dear All, Yet another aspect in banking is wrong calculation of dues of the customer . In this there are instances where Banks have calculated the dues of the customer wrongly based upon the authority of Government letter and credited the same to the customers account. The customer is kept unaware of the said calculation. Any over payment thus made should be the reoncibility of the concerned bank who should bear the cost of any such over payments

SuchindranathAiyerS

3 years ago

Banks must be held accountable on the principle of "Proximate cause of negligence". It is the Banks who purchase, own and control the technology.

nagesh kini

3 years ago

Yes, Sucheta has put it very rightly.
The BCSBI has to go ahead immediately the whole hog with the complete implementation of the Damodaran Committee suggestions that are still hanging fire.
There is no reason why the commercial banks need to accord low priority to depostors' interests. They seem to forget their savings in the CASA are the sine qua non of the banks' existence.
There has to be a major shift in the so-called "inclusivity" to adopting depositors as a whole instead of pandering to the big ticket borrowers who only swindle the banks dry.
The IBA is nothing but a Cartel. Its latest stand on charging for use of ATMs is the last straw on the small depositors.
This dysfunctional body ought to be given a decent burial asap!

Yerram Raju Behara

3 years ago

Better late than never. The BCBSI is moving ahead with the well crafted recommendations of 2011 Damodaran Committee.
Taming the ATMs seems to be a guardian knot. Several banks' ATMs deliver only 1000 and 500 note denominations! Several of them do not operate securely even after the tragic episode of Bengaluru. In fact, in the West and Middle East as well, ATMs can be found in the street corners and not in secure cabins like in India. But India with its spread and diversity is different and should operate in a secured environment. There is need for a thorough study as to make them more customer friendly and with optimal cost to the operating banks.

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