Tax-Free Bonds Expected
Rates will be much lower than on those issued in 2013-14
Tax-free bonds may attract...
Premium Content
Monthly Digital Access


Already A Subscriber?
Yearly Digital+Print Access


Moneylife Magazine Subscriber or MSSN member?

Yearly Subscriber Login

Enter the mail id that you want to use & click on Go. We will send you a link to your email for verficiation
Review of ‘Getting More of What You Want’
Academic polish on how to haggle
Daniel Pink, in his bestseller To Sell is Human (reviewed in Moneylife), argued that we are all sales people, all the time in some situation or the other. Someone who wants to persuade you to buy a pair of shoes is no different from the parent who is trying to persuade his daughter to study harder. Exactly the same can be said for negotiating. We are negotiating all the time say Margaret Neale and Thomas Lys, whether we are aware of it or not. Here is a story they narrate at the start of the book to drive home what they mean.
In early 1996, one of their students, working as a product manager for a pharma company, approached them for help in responding to business proposal. A physician had offered the student a chance to buy off the patent the physician had developed and given out for annual royalties. His asking price was $3.5 million. 
After some complex calculations, Thomas and the student decided that the company would, at most, pay $4.1 million. This meant an immediate gain of $600,000. On the other hand, if he could negotiate the purchase price down to $3 million, the gain would be $1.1 million.
At that point, Margaret pointed out: “Just a second; you are not ready to negotiate.” In his mind, the student was already thinking of the potential benefit of $1.1 million for his company and his next promotion. From the doctor’s perspective, the deal did not make sense. The expected present value to the physician for the next seven years of royalty payments was $5 million. 
Why was his opening bid only $3.5 million? “Our student had fallen into a classic negotiation trap,” write the authors. He had focused on the analysis from his own perspective, ignoring the doctor’s side. Caught up in the prospect of closing the deal, he became convinced by his initial, favourable computations and failed to do any due diligence.
According to the authors, three psychological factors contributed to this behaviour: the power of a familiar story, the confusion of accuracy and precision, and the inherent attraction of reaching an agreement. 
First, the company and the physician had a decade-long relationship and the student was too familiar with the patent and the difficulties of that had arisen from the contract. It was easy for him to believe that the doctor had decided to sell the patent simply as a matter of convenience. 
Second, the student had computed a value for the patent to several decimal points that made sense to him, promised a quick deal and a great return. The numbers were precise which probably prevented further analysis. 
Third, once people are negotiating for a while, getting to say ‘yes’ often feels like success, even if accepting the deal was not sensible. After some further analysis, the student backed out of the deal. In less than a year, the company was using a new patent, not developed by this physician, which was a better one. The older patent had become worthless.
Stories like these are peppered throughout the book which is divided into two parts. The first explains the basics of negotiation including when to negotiate (chapter 1); how do you know what a good deal is and at what point you should walk away (chapter 2); what are the trades you need to consider when you think about claiming value and creating value (Chapters 3 and 4); what should you know (or attempt to discover) about your counterpart (Chapter 5); what information will help you claim value—and what information will hurt (Chapter 6); when should you make the first offer (Chapter 7); how can you fill in the gaps in your knowledge about your counterpart (Chapter 8); what strategies can you use to encourage your counterpart to make concessions (Chapters 9, 10 and 11); how should your strategies change when your counterpart is a team or when you are confronting multiple counterparts (Chapter 12); when should you think about switching from negotiations to auctions (Chapter 13); and, how should you end your negotiation (Chapter 14).
Maragret Neale is the Adams distinguished professor of management at Stanford Business School where she holds the position of director of the influence and negotiation strategies executive programme, among other positions. Thomas Lys is the Eric L Kohler chair in accounting and professor of accounting information and management at the Northwestern School of Law. 
The book deftly brings together psychology and basic economic logic to arm you in your next negotiation. Worth a read.


Reserve Bank's provisional nod for 10 small banks
The Reserve Bank of India (RBI) on Wednesday said it has accorded "in-principal" approval for 10 small finance banks that will focus on small geographies for operations but with a strong capital base.
"The 'in-principle' approval granted will be valid for 18 months to enable the
applicants to comply with the requirements under the guidelines and fulfil other
conditions as may be stipulated by the RBI," the central bank said in a statement.
Those selected are: Au Financiers, Capital Local Area Bank, Disha Microfin, Equitas Holdings, ESAF Microfinance, Janalakshmi Financial Services, RGVN (North East) Microfinance, Suryoday Micro Finance, Ujjivan Financial Services and Utkarsh Micro Finance.
Finance Minister Arun Jaitley had said in his budget speech last July that a structure will be put in place for continuous authorisation of universal banks in the private sector. 
"RBI will create a framework for licensing small banks and other differentiated banks. Differentiated banks serving niche interests, local area banks, payment banks etc. are contemplated to meet credit and remittance needs of small businesses, unorganised sector, low income households, farmers and migrant work force,” he had said.
The selection of these small banks was on the basis of the recommendations from three different committees, backed by a detailed case study for each applicant, including that by an External Advisory Committee chaired by former deputy governor Usha Thorat. 
"An important factor was proposed reach into unbanked areas and underserved sections of the population," the central bank said.
"Going forward, the Reserve Bank intends to use the learning from this licensing
round to appropriately revise the guidelines and move to giving licences more
regularly, that is, virtually 'on tap'."
In 2009, a Committee on Financial Sector Reforms under Raghuram Rajan, now the RBI governor, had examined the relevance of small banks in the Indian context. The panel felt there was sufficient change in the environment to experiment with small banks.
It recommended the entry of private well-governed deposit-taking small finance banks to offset their higher risk from being geographically focussed, by requiring a higher capital and strict norms.
Draft guidelines for licensing of small finance banks were released for public comments on July 17 last year and based on the comments, the final norms for licensing of small finance banks were issued on Nov 27.



MG Warrier

2 years ago

The approval for 10 small banks marks the fulfilment of a promise from RBI after Dr Raghuram Rajan took over as Governor to bring more players into mainstream banking business though granting differentiated banking licences. Two licences for universal banks were issued in April 2014, of which Bardhaman has already commenced business in August 2015. 11 players including Department of Posts were issued licences for starting payment banks on August19, 2015.

A revamp of the institutional arrangement in the financial sector was overdue since 1990’s and was dodged for extraneous reasons. It needed a different leadership at Mint Road for RBI to gather the courage to make new experiments despite legal and political constraints. Instead of grumbling about poaching and cannibalisation (referring to transfer of existing business to new entities), the existing banks should take this as an opportunity for preparing for competition thrown open in the banking sector and put their houses in order fast.

The MFIs and other players who could not make it in the first batch to transform into ‘banks’ should see this as an opportunity to change themselves by offering services and financial products which can compete with those offered by banks.

A word about cooperatives. NABARD should take initiative in reforming thousands of primary cooperatives(both multi-purpose and credit) so that their clientele do not migrate to the new banks for better service.

We are listening!

Solve the equation and enter in the Captcha field.

To continue

Sign Up or Sign In


To continue

Sign Up or Sign In



The Scam
24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
Moneylife Magazine
Fiercely independent and pro-consumer information on personal finance
Stockletters in 3 Flavours
Outstanding research that beats mutual funds year after year
MAS: Complete Online Financial Advisory
(Includes Moneylife Magazine and Lion Stockletter)