SC bench to decide on insurers' liability to pay claims

A larger bench of the Supreme Court will decide the issue of whether insurance companies can be compelled to pay the claim even if theyare under no liability to pay such amount? A bench comprising Justice Markandey Katju and Justice AK Ganguly said: “We are of the opinion if the insurance company proves that it has no liability to pay compensation to the claimants, the insurance company cannot be compelled to make payment and later on recover it from the owner of the vehicle.” No doubt, there are some decisions of the apex court which have taken the view that even if the insurance company has no liability, yet it must pay and later on recover it from the owner of the vehicle, the court said....

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Hedging loans with interest rate futures

Interest rate futures (IRFs), which made a comeback this Monday after six years, has opened up a lot of interesting options for an individual.Especially, for high networth individuals (HNIs), IRFs could be a good hedge against loans or existing fixed deposits. Here’s how it will work:Say, a person has taken a home loan of Rs 40 lakh at 8 per cent floating rate for 15 years. His equated monthly instalment (EMI) would be Rs 38,226.FUTURE PERFECTHome loan = Rs 40 lakhRate of interest = 8 per centTenure = 15 years (180 months)EMI = Rs 38,226After one yearRate of interest = 10 per centPrincipal outstanding = Rs 39,77,919Tenure = 14 (168 months)New EMI = Rs 44,083(increase = Rs 5,857)Hedging through...

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DICGC settles claims worth Rs 195 cr from co-op banks

The Deposit Insurance andCredit Guarantee Corporation (DICGC) has settled depositor claims aggregating Rs 195 crore from 28 liquidated co-operative banks, mainly from Karnataka and Maharashtra, in FY2009. This is against Rs 155 crore from 22 co-operative banks in FY2008.The Corporation’s settlement figures highlight the fact that the number of co-operative banks whose licence has been cancelled by the banking regulator is steadily increasing. The regulator, in recent times, has come down heavily on some of these banks for mismanagement of operations, connected lending, failure to meet prudential norms and so on.In the current financial year, so far, the Corporation has settled depositor claims...

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Bankers wary of collateral-free education loan scheme

When a bank extends an education loan it takes a call on the course and the prospect of the student-borrower getting a job on completion of the course.—Collateral-free education loans given by banks under the ‘model education loan scheme for students to pursue higher studies’ has bankers a bit worried.Their concern stems from two counts. While on the one hand they do not have any tangible security to fall back on should an education loan of up to Rs 4 lakh turn sour, on the other, in the current scenario of a slowing economy whereby either jobs are hard to come by or even if a student lands one, he/she is not in a position to service the loan due to low pay. Hence, they are cautious of potential...

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Indian banks pass stress test

MTM risks to the Indian banking sector are limited and manageable.The Indian banking system is resilient to the shocks that may arise due to higher non-performing assets (NPAs) and the global economic crisis, the Reserve Bank of India’s (RBI’s) stress test has shown.RBI’s Annual Report-2008-09 said the test was done to assess the capital adequacy of the banks to sustain losses from deteriorating asset quality, primarily due to falling external demand in the wake of the global recession a subsequent slowing of domestic private demand.A similar test was done to assess the risks associated with the mark-to-market (MTM) losses on the banks’ overseas exposure. MTM means stating losses based on the...

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Chit funds can't take public deposits, says RBI

The Reserve Bank of India (RBI) today prohibited chit funds from accepting deposits, a move that could make banks the sole public deposit-taking institutions in the country.The apex bank said these funds could accept deposits only from their shareholders. Chit funds are dually regulated by state government and the RBI. They are registered with the registrar of chit funds under state governments and are regulated by RBI if they accept public deposits.RBI regulates them through the Miscellaneous Non-Banking Companies (Reserve Bank) Directions Act. Now, the Act has been amended to ban them from accepting public deposi...

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Free ATM withdrawals face caps from Oct 15

From October 15, customers will not be able to enjoy limitless use of third-party ATMs free of charge.The Indian Banks’ Association (IBA) today decided to limit the number of free third-party ATM transactions to five per month. In addition, the maximum amount that a customer can withdraw from another bank’s ATM has been capped at Rs 10,000 per transaction. Banks have also been allowed to charge for withdrawals from current accounts at third-party ATMs.The decision to bring the rule into force from October 15 was taken at a meeting of the IBA in Mumbai today. IBA Chairman M V Nair confirmed the date on which the rule would come into effect. Customers will have to be intimated at least a month...

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RBI group suggests survey on consumer confidence

Data pertaining to areas such as consumer confidence, business outlook for services and employment may soon be available. The Reserve Bank of India’s Working Group on Surveys has recommended these as some of the topics on which the RBI should bring out surveys.Explaining the need for a consumer confidence survey, the group, in its report, said that changes in household confidence, personal financial situation, savings and investment intention have an impact on real activities and are, therefore, of particular relevance for policy purpose.Similarly, a regular survey of the credit market conditions would help the RBI analyse trends and developments in credit growth. Such a survey can cover the...

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MAT changes will hit NBFCs

The Direct Taxes Code (DTC) is slowly being put to deeper scrutiny. As is always the case, some of the changes may be ushered in with good intention, but inept drafting leaves the door open for needless litigation.The newly crafted Minimum Alternate Tax (MAT) is a case in point. Ever since Rajiv Gandhi unleashed the book profits tax on India Inc. in 1987, it has generated controversies galore and kept all the courts busy interpreting the intention and scope of the provision.At present, MAT is applicable to corporates at 15 per cent on published profits. The nominal tax rate for the corporate sector is 33.99 per cent and the effective rate after all deductions/concessions stands at around 22.22...

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RBI surplus jumps 66.6 per cent

The Reserve Bank of India’s (RBI’s) transferable surplus to the Government of India for 2008-09 jumped 66.6 per cent to Rs 25,009 crore from Rs 15,011 crore in the previous year.According to the RBI Annual Report, the surplus has come primarily due to increased earnings from domestic investments.The income from domestic sources in 2008-09 at Rs 9,935.77 crore was higher compared with the last year’s level of Rs 5,867.52 crore, primarily on account of an increase in ‘Interest on Domestic Securities and LAF operations,’ which increased from Rs 4,533.87 crore in 2007-08 to Rs 8,683.11 crore in 2008-09 and ‘Interest on Loans and Advances,’ which increased from Rs 325.60 crore in 2007-08 to Rs 1,254.80...

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Sharp rise in State Govts’ borrowing costs

The State Governments’ borrowing costs have seen a sharp escalation despite the liquidity overhang in the financial markets.The sharp increase in costs was evident from the last auctions for the State development loans held on August 25. The loans were placed at an average yield of 8.22 per cent or a little over 100 basis points over the sovereign ten-year yield bonds. State development loans are normally placed for tenures of 10 years. The spreads have progressively increased since the beginning of this financial year. At the April auctions, the spreads were barely 75 basis points.Increase in demandThe Chief Economist of rating agency Credit Analysis & Research Ltd, Dr Soumendra K. Dash,...

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RBI to ensure regular supply of fresh bank notes

Besides examining options to enhance the life of bank notes, the Reserve Bank of India has initiated a multi pronged approach involving regular supply of fresh bank notes, speedier disposal of soiled bank notes and extended mechanisation of cash processing activity to ensure that good quality bank notes are in circulation in the system.The Bank has in its Annual Report stated that during 2008-09, the value of bank notes increased by 17.1 per cent and by 10.7 per cent in volume terms.The total supply of bank notes by the Bharatiya Reserve Bank Note Mudran (P) Ltd during 2008-09 (July-June) was 8,501 million pieces as compared with 8,488 million pieces during 2007-08.The Government-owned Security...

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Forex reserves rise by $932 million

After declining for two consecutive weeks, the country’s foreign exchange reserves increased by $932 million to touch $271.957 billion for the week ended August 21, according to the Reserve Bank of India’s Weekly Statistical Supplement.In the earlier week, foreign exchange reserves fell by $214 million to $271.025 billion.The increase in reserves was on account of currency revaluation, as the dollar appreciated against major currencies during the week, said a dealer with a public sector bank.The foreign currency assets increased by $928 million to touch $260.938 billion. Foreign currency assets expressed in US dollar terms include the effect of appreciation/depreciation of non-US currencies...

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Rupee gains tracking equities

The rupee gained on Friday against the dollar tracking the surprise gains made by the domestic equity markets, said forex dealers. The rupee opened higher at 48.83 and closed at 48.65, which was also the day’s high. On Thursday, the rupee had closed at 48.91/92 and had also crossed 49 briefly. There was regular dollar inflow during the day as foreign banks were seen selling dollars on behalf of their foreign institutional investor clients, said a forex dealer with a public sector bank. FIIs were net buyers in the equity markets. “In the whole month, the rupee weakened only due to month-end demand. The rupee is now tracking the equity markets which are stronger compared with other Asian markets,”...

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