Companies & Sectors
Sugarcane fair price increased to Rs230 per quintal for 2015-16 season

The FRP of sugarcane payable to farmers by sugar mills is increased by Rs10 to Rs230 per quintal for the 2015-16 sugar season. The FRP will be linked to a basic recovery rate of 9.5%, subject to a premium of Rs2.42 per quintal for every 0.1 percentage point increase in recovery above that level

 

The Cabinet Committee on Economic Affairs (CCEA) Friday approved a Rs10 per quintal increase in the fair and remunerative price (FRP) for sugarcane to Rs230 for the 2015-16 season (October-September).
 
The FRP is the minimum price that sugarcane farmers are legally guaranteed. However, state governments are free to fix their own state advised price (SAP) and millers can offer any price above the FRP.
 
The government has fixed sugarcane price at Rs220 per quintal for the current 2014-15 season.
 
"The CCEA has approved the FRP of sugarcane payable by sugar mills for the 2015-16 sugar season to be fixed at Rs230 per quintal. This decision will ensure a guaranteed price to cane growers," an official statement said.
 
The FRP will be linked to a basic recovery rate of 9.5%, subject to a premium of Rs2.42 per quintal for every 0.1 percentage point increase in recovery above that level, it added.
 
The CCEA has approved in toto the recommendation of the Commission for Agricultural Costs and Prices (CACP), a statutory body that advises the government on the pricing policy for major farm produce.
 
The FRP is fixed after taking into consideration the margins for sugarcane farmers, based on the cost of production of sugarcane, including the cost of transportation.
 

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RBI’s allows banks to become insurance brokers. Are banks even interested?

It is utopian to expect banks to become insurance brokers, given that banks have neither expertise nor interest to sell insurance correctly

 

Seeking to increase “insurance penetration” in the country, the Reserve Bank of India (RBI) has allowed banks to act as brokers for insurers, set up their own subsidiaries and also undertake referral services for multiple companies. Banks have also been allowed to set up subsidiaries and joint venture companies for undertaking insurance business with risk participation, the central bank added.
 
Currently, a bank is allowed to sell the products of only one life and non-life insurance company as a corporate agent. The new guidelines allow banks to act as brokers permitting them to sell insurance policies of different insurance companies. Will the new regulations turn out to be useless? Will banks be interested in insurance broking at all?
 
While an agent represents the insurer, a broker represents the customer. As such, banks utilise their own customer base and hence they represent the customer. With broking license, they would be mandated to give the best deal and product to the customer. With broking license, banks will have a fiduciary responsibility to customers and can be made accountable for mis-selling.
 
Bankers and insurance companies have gone into this in details over the years. In a report on bancassurance published in 2011, Deepak Satwalekar, former managing director and chief executive of HDFC Standard Life Insurance Co Ltd, had said it was rather unfair that banks expect insurance companies to assume the risk arising out of their deficient sales process. If the bankers believe that they are well trained professionals, they should have no hesitation in taking on the liabilities arising from their sales, he had said.
 
He added, “The banks with their ready-made superior distribution network have held the insurance companies to ransom. They have played one insurer against the other in order to ‘extract’ the highest compensation they can get. One hears stories of compensation, either in commissions or as reimbursements in one form or the other, being paid which are higher than that permitted by IRDA. Hence, permitting banks to appoint two insurers, albeit in different geographies, would be like legalising their extortion.”
 
If banks want to act as insurance brokers, then they will have to train properly, their work force first. At present, several of bank employees are unware of the bank’s own product and charges or fees. So, turning them into responsible insurance broker, with added responsibility and liability would be a mammoth task.   
 
Another issue is even though the RBI has relented and allowed banks to become insurance brokers, how many lenders, which promote own insurance company products, would be happy with it?
 
Top private insurance companies are backed by banks, which will find a conflict of interest in the broking idea. For example, ICICI Pru Life, SBI Life, HDFC Life, IDBI Federal, SUD Life, Kotak Life and IndiaFirst are backed by banks like ICICI, HDFC, SBI, IDBI, Federal bank, Bank of India, Union bank of India, Kotak Mahindra, Bank of Baroda and Andhra Bank. Some private insurers the majority of their business through the bank tie-ups. 
 
Even RBI's financial stability report’s Chapter III - Financial Sector Regulation and Infrastructure had raised several crucial questions on bancassurance model’s use of unfair and restrictive practices. 
 
While banks are well suited to distribute insurance products because of their wide network, several issues have risen regarding their conduct in the process, pertaining to mis-selling and certain restrictive/ unfair practices (such as linking provision of locker facilities to purchase of insurance products, selling of unsuitable and/or multiple policies etc). 
 
According to IRDA’s Annual Report 2011-12, the maximum complaints in life insurance related to mis-selling, mainly pertaining to private sector, although state-owned LIC leads the business with over 70% share. Complaints were mainly in the nature of unfair trade practices and mis-selling of products (e.g. malpractices, actual product sold being different from what was proposed, single premium policy being issued as annual premium policy, surrender value being different from projected, free look refund not paid, misappropriation of premiums). 
 
As a significant portion of private life insurance companies use banks as their corporate agents, there seems to be an urgent need to revisit the marketing and sales strategies used by the banks in pushing insurance products, especially since insurance is among the more complex financial products for common man to comprehend.
 
Earlier in 2013, the Insurance Regulatory and Development Authority (IRDA) had allowed banks to become brokers and sell products of more than one insurer to increase insurance penetration across the country. At that time, RBI had opposed the move saying that banks assuming the role of insurance brokers may also lead to conflict of interests.
 
The new guidelines allow banks to act as brokers permitting them to sell insurance policies of different insurance companies. The guidelines follow an announcement made by the former Finance Minister P Chidambaram in 2013-14 Budget.
 
There are about 87 commercial banks in the country with 1.2 lakh branches across the country. There are 52 insurance companies operating in India; of which 24 are in the life insurance business and 28 are in general insurance business. 
 

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COMMENTS

jaideep shirali

2 years ago

Banks, especially PSU banks, typically use staff on deputation, to sell financial products such as insurance and mutual funds. The staff neither has the knowledge nor the commitment for this work. Banks package insurance with their loans, mindlessly. My client owned a factory, but was sold a Shopkeepers Insurance policy, along with his loan by a PSU bank. If a claim arose, I wonder whether the claim would have been settled, the client would possibly been faulted for the wrong policy. Neither the bank nor the client, who implicitly trusts the bank, is aware of the correct insurance product. So much for banks selling insurance.

vishal

2 years ago

Insurance selling needs specialist training. As one who started the career as a Agent and then became a supervisor for recruiting Agents and getting policies I can say this will be unnecessary burden for the Bank Staff. Seldom a successful Agent of one Company will bother to represent a Bank and Banks can not penetrate the business segment of successful Agents and their family empire.

S K Gupta

2 years ago

My father is a senior citizen he went to ICICI bank to open a FD and the guys duped him and sold him a Annuity Plan with ICICI Pru and finally he lost a lot of money that this age....

S K Gupta

2 years ago

Its like paramedics allowed to become a full blown surgeon without expertise....

Babubhai Vaghela

2 years ago

Unscrupulous Bankers may Abuse RBI Nod to Canvass more for Insurance than Banking.

SuchindranathAiyerS

2 years ago

If Banks stuck to Banking. i.e. "Accepting for the purpose of lending or investment, deposits of money from the public repayable on demand or otherwise, by cheque draft, order or otherwise" and did a good job of it, I am sure we would all be delighted. It would also be excellent if Bankers built the four pillars of Banking i.e. Accountancy, Economics, Law and Integrity instead of getting into all sorts of Americanisms and MBA isms.

Panagariya’s prescription - Part II: Revival of Agriculture

In a speech in February last year Arvind Panagariya, the vice chairman of NITI Aayog had expressed rather radical ideas of reform for agriculture sector.  Will they be too hot for the PM? This is second part of a multi-part series 

 

Prime Minister Narendra Modi appointed his long-time supporter, economist and professor Arvind Panagariya as the vice chairman of National Institution for Transforming India (NITI) Aayog. As we mentioned in the first part, Pangariya, as an economist is known for his radical views on reforms. Now, since he is the vice-chairman of NITI Aayog, it would be interesting to see, if PM Modi subscribes to these views and actually implement it.
 
Panagariya while speaking at the CD Deshmukh Memorial Lecture 'A Reform Agenda for India's New Government' on 11 February 2014, almost described a blue print for reforms and growth. Panagariya mentioned reforming the APMC Act in across the country, for all crops and areas. He also suggested replacing the minimum support price (MSP) by the equivalent of deficiency payments, as used in the US.
 
REVIVAL OF AGRICULTURE
 
Panagariya said we need to completely reform the Agricultural Produce Marketing Committees (APMC) Act in all areas, for all crops, and in all states. This requires giving greater play to the right to directly purchase and sell, facilitating the emergence of competing private marketing yards, expansion of contract farming, provision of cold storage facilities and the building of supply chains. 
 
He also said that that it is worth considering replacing the Minimum Support Price (MSP), and its associated procurement, by the equivalent of deficiency payments in the US. The latter involve cash payments to farmers whenever the average market price drops below a certain pre-specified threshold. An important advantage of such payments is that they do not require the government to procure food grain. Therefore, the benefits extend to all farmers rather than only the lucky few, often the rich ones, from whom the government procures at the MSP. Furthermore, with no procurement required, deficiency payments can be extended to any crop instead of only those the government wants to procure.
 
Improving land sales and leasing markets
 
Land sales and leasing markets are highly distorted in India. We need to bring the policies of those states where these markets are less distorted to those where they are more distorted. Even liberal leasing policies that allow the owner and the lessee to freely negotiate and write contracts would go a long way toward promoting the consolidation of land holdings, which would in turn facilitate mechanization and productivity-enhancing investments in land. We will also make large gains by fully digitising land records and making them publicly available online. A handful of states have done this with positive results. 
 
Use of technology
 
The next government must also promote the application of new technology at all levels. Drip irrigation and other micro-irrigation methods, so successfully introduced in Punjab, Gujarat and elsewhere, can help raise productivity while also preserving water. We need to speed up research on high yielding varieties of seeds that had formed the backbone of the Green revolution in the 1960s and 1970s. The recent resumption of trials on genetically modified seeds is an important positive step in this direction. 
 
Promoting contract farming & food processing
 
We must create an enabling environment for contract farming, which can improve technology while also giving our farmers lucrative prices for high quality and specialty produce. India lags far behind its peers in food processing, which can not only give remunerative prices to farmers but can also create vast numbers of good jobs. Contract farming can be the key vehicle for the promotion of food processing.
 
All these are ideas will mean a total overhaul of the economic structure which has deep political repercussions. Will Modi be so radical in his approach? Or will Mr Panagariya have to lower his expectation from the government? 
 

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COMMENTS

Gama Beta

2 years ago

1. economists need to get on fields and not just take NSSO or similar sampling data.
2.In my place in AP where productivity is high its not affluent who benefit from MSP rather its poor. We never ever sold it to govts. We always sold it to pvt millers by waiting till the price gets higher. This is possible only because we have our own godown worth 50k(just construction cost) that can hold 400 bags of rice. 1400 was the MSP but we always sell it around 1800-2000.
3.Poor on the other hand dont have storage facility to prevent rotting, Need immediate money and hence he is bound to sell as soon as paddy arises but that is a huge supply time and hence low market prices infact less than MSP. He always tend to go to govt procurement centers.
4.I beg panagariya to stay in villages for a year atleast to understand the dynamics. How is Deficiency payments implementable in india? the price in the market varies day by day like NIFTY. How can we set a threshold even if it is a range rather than a absolute number? Costs like transport etc varies highly region to region and all these are to be considered. Despite doing all this our society contains remnants of feudalism where marginal farmers are still depending on medium-large farmers. We need overhaul of criminal justice system, Istitutionalised credit fecilities etc first and then we can talk about deficiency payments.
5. we can say that we should first start and then rectify in the process but that logic doesnt hold when many lives are at stake. Piloting a cash tarnsfer for LPG is ok but not MSP kind of things.
6.Coming to lease i agree that lot of laws need to be reviewed but its not merely legality that prevents many urban migrating families to lease land to farmers back home. Its rather the kabja once given and associated yrs of court roaming that fears the land holders. So we are back to square one where criminal justice system reform is to be the prelude.

krishna

2 years ago

Most of the recommendations are fine but for GM seeds. Agriculture policy will have to look at indigenous methods of productivity and experience of Indian Farmers as well as Agricultural research agencies to enhance quality and productivity.

GM seeds are too expensive and can be devastating for the farming community due to the many issues related to the damage and disease. GM seeds would mean a sell out in a way to enslave India on Food. Similar to a ploy that was tried on India and china way back in 1960's by trying to wipe out Asia's Rice Crop due to a specific disease developed that would have wiped out rice. That failed. It was on the agenda and is suspected to be recycled again in the form of technology.

Niti Aayog should stay away from GM seeds. We will only trust our indigenous methods for our food security.

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