Anywhere ATM

Word’s worth

“I think the markets would continue be in the current range even for the next week...the Budget is not as negative as people are making it to be” — Ambareesh Baliga, VP, Karvy Stock Broking

“The proposal for an additional deduction of Rs 15,000 to those who pay medical insurance premium for parents is a welcome step” — Sandeep Bakshi, MD & CEO, ICICI Lombard General Insurance

“Valuations are looking good after the decline in the stock market...the growth rate will be around 20-25%” — R Rajagopal, CIO, DBS Cholamandalam Asset Management

“A volatile market is detrimental to IPOs. The retail investor is jittery about listed stocks, so they are bound to be cautious about new listings” — Prithvi Haldea, MD, Prime Database

Source: Financial Express, Economic Times and Business Standard

You might have an account with a wellknown bank that gives you great service—but which has only a handful of ATMs in your city. The lack of ATMs can be a limitation, especially when you see State Bank of India or ICICI Bank ATMs on almost every street. Yes, you can use those machines to get cash, but you have to pay for using an ATM that does not belong to your bank.

Thankfully, this might change by next year, as the Reserve Bank of India (RBI) has set out guidelines that will make access to all ATMs free—well, almost.

Today, you can access the ATMs of other banks for a fee of Rs 56 (minimum). Very often, account holders withdraw far more than they need simply to get full value for that fee. The RBI has asked banks to bring down the usage cost to Rs 20 by 31 March this year. By April 2009, it is likely that this fee will be completely done away with.

This is undoubtedly good news to the millions of customers who use ATMs. And it doesn’t stop here. Did you know that your own bank might charge you for using its ATMs if you do not maintain a minimum quarterly balance?

The RBI has done away with this charge, saying that banks cannot limit access to its own account holders; after all, banks do not charge for visits made to the teller counter. Banks, on their part, are taking notice of the changes in ATM usage patterns and are trying to provide new products and services using the machines to facilitate distribution.

ICICI Bank, for one, has introduced separate cheque deposit machines at some of its branches. These machines scan the cheques for deposit, doing away with paper cheque clearance and reducing the time required to process a cheque to a single working day.

The bank is also testing the feasibility of a cash deposit machine through which you can instantly credit money to your bank account. Says Manjunath Rao, country manager, sales for financial solutions, NCR, the leader in the Indian ATM industry: “Given that ATMs are positioned as an important delivery channel to service customers, banks globally offer many value-added transactions such as envelope-free cash and cheque deposit, bill payment, fund transfer and e-commerce facilities. Indian banks too are exploring opportunities to widen the scope of services through ATMs.”

Remember that you can use the ATM to pay utility bills, recharge your cellular phone and so on, but only if your bank offers such options. But with ATM use getting cheaper and therefore more popular, more and more banks are likely to add value to their machines, turning cash dispensers into full-fledged multimedia kiosks.

— Sushmita Choudhury

Walk into any ATM and…

The ATM growth story
2004-5	17,642
2005-6	21,147
2006-7	25,247
October 2007	31,078
Figures are number of ATMs in India

   
From 31 March 2008:

No charge on balance enquiry, which cost from Rs 8 to Rs 25

Surcharge for cash withdrawal restricted to Rs 20 per transaction. Till now it cost Rs 10-70

No charge for using one’s own bank’s ATM


From 1 April 2009:

Cash withdrawal across all ATMs free of cost

Instant cheque clearance may also be introduced by then

RBI may consider allowing white-label ATMs i.e. ATMs managed by third parties


Public property

The recent Finance Ministry proposal to make it mandatory for companies listed on the stock exchanges to maintain a minimum public holding of 25% should make investors sit up. Money Today explored the holding pattern of some of the most wanted stocks (see table) and we found that if the ministry has its way, barely three companies will make the cut—Larsen & Toubro, Bajaj Auto and Cipla.

But the idea behind the move is to help the case of retail investors—the larger the number of shares and the number of shareholders, the larger the public float. This would also mean lesser possibility of prices being rigged. With most companies diluting just about 10% of their stake through public offers at a high premium, the fair price of a stock is entirely debatable.

In DLF, for example, promoters hold over 88% and retail shareholders own under 3%, the rest being held by FIIs, funds etc. If the proposal is passed, promoters will have to dilute their stake by 22%, creating a free float of 37.6 crore shares in the market; this will bring down the price of a DLF share from Rs 805 as on 28 February, purely on excess supply. Retail investors can anticipate some bargain buys should the ministry win.

— Sameer Bhardwaj

TOP 3 with least public holding
COMPANY	TOTAL PROMOTERS	TOTAL PUBLIC AND OTHERS
DLF LTD	88.17	2.89
WIPRO	79.5	7.68
TCS	77.78	5.41
As on 31 Dec, 2007; all figures in percent

No ambiguity

Different insurance companies have different definitions for “pre-existing disease”. And this makes it difficult for a policy-holder, as his claim can be rejected purely on the basis of a different definition. Now, the General Insurance Council has proposed a single definition of “pre-existing disease” and has submitted this to the Insurance Regulatory and Development Authority.

So, from now on, the definition will be “any condition, ailment or injury or related conditions for which you have signs or symptoms, and/or were diagnosed, and/or received medical advice/treatment within 48 months prior to your first policy from respective insurers”.

Healthy way to wealth

Health insurance seems to be the latest fad among life insurers with both LIC and Reliance Life launching market linked health insurance plans. LIC’s Health Plus and Reliance’s Wealth Plus Health promise to not only take care of your health, but also build your wealth over the tenure of the policy. This is intended to take care of all your insurance needs in one stroke.
   
Your life is covered, your health is covered and you have the option to add specific health riders such as critical illness, major surgery benefit, hospital cash benefit and even accident related perils. There’s more: the premiums you pay go towards investments as well, taking care of your health and wealth.

Both policies, like any other unit-linked plan, after charging insurance costs and fund-related charges, invest the balance amount into a fund. So, unlike a pre-fixed premium for an annual health cover, you pay a fixed premium for a fixed tenure for the policy to be in force. With the benefits of Ulips— flexibility and liquidity—the product is a must-have in your insurance portfolio.

Take, for instance, the Wealth Plus Health plan: for a premium of Rs 15,000 for a 10-year tenure, a 30-year-old gets a constant cover for Rs 1.35 lakh for self, wife and one child, besides accumulating Rs 1,66,159 (at 6% return) over 10 years.

What to expect

Convenience of taking care of your family's health

Flexibility to switch between funds/plan options

Option to pay top-ups

Income tax benefit under sections 80C, 80D and 10 (10)D

Annual premium Rs 5,000 (Health Plus); Rs 10,000 (Wealth+Health)

 

Right on track

The Indian Railways carries “more than the entire world’s population every year”, which works out to a mind-boggling 18 million passengers daily, according to the chairman of the Railway Board. In a sense, then, you are, as a taxpayer and as a passenger, a shareholder in one of India’s largest companies.

And so, the better it does, the more you will benefit in the form of lower fares, better services and increased network. Which is one reason to give the annual Railway Budget a second look. By now, you’ll know all the details of the fare reductions and benefits extended to various sections of the population.

But did you know that much of this was possible because you, and millions of others, account for 26% of the annual earnings of the Railways? Earnings per passenger grew by 9.6% (average) over the last year, while the number of passengers grew by 6% in the same period. The highest earnings came from First AC, First Class and AC Chair Car fares, which, incidentally have seen the maximum fare reduction—7% for First AC compared with 6% for general sleeper class.

Revised rates for 2007-8
	AC I	AC II	AC III	SLEEPER
Revenue per passenger (Rs)	1,618	940	663	230
Percentage cut in fare	3.5%*	2%*	5%#	6%#
* Discounts are for the peak season. They are doubled in the lean season.
# Discounts are valid for higher capacity coaches only.

Mortgage  clarity


Budget 2008 has cleared the confusion regarding tax treatment of funds received through reverse mortgage. Reverse mortgage is essentially a loan against a home that a senior citizen would not have to pay back for as long as he lives in that house.

The Income Tax Act will be amended to provide that reverse mortgage would not amount to ‘transfer’ (read sale) and the stream of revenue received by the senior citizen would not be ‘income’ and therefore not subject to income tax. This was one of the biggest hindrances in the growth of the scheme; launched last year, only 160 odd policies have been sold till now.

However, while the clarification might generate demand, it is still unclear about how the interest accrued to the lender would be treated for tax purposes. This might be a dampener for banks and might prevent them from aggressively pushing their products, according to experts.

This has, however, not stopped LIC Housing Finance from entering the market after Dewan Housing Finance first launched a product in September 2006. The loan offering from LIC will be offered at a fixed interest rate, subject to reset every five years.

The maximum loan balance will be 90% of the property value and the loan balance will include interest till maturity. To begin with, the company will launch the scheme in Delhi, Mumbai, Kolkata, Hyderabad, Chennai, Lucknow and Bangalore.

— Rakesh Rai

LIC housing reverse mortgage
Loan amount	Up to Rs 50 lakh
Interest rate	Fixed (to be reviewed after 5 years)
Property	Should have at least 20 years of residual life
Payment	Monthly, lumpsum or a combination of both
Tenure	15 years

 

Good savers, always

Indians earn more. Indians spend more. But the good news is that they also save more. The Economic Survey 2007-8 reveals that per capita income of Indians clocked a growth of 7.2% and per capita consumption increased by 5.3% last year. There is a significant gap between the two figures and it is this difference that has made the government and your -coffers heavier.

Most of what Indians don’t spend, they save. In 2007-8, gross household savings remained almost constant at 23.8% to gross domestic product (current prices). This indicates an increase in savings in absolute terms. But if you are wondering why savings did not jump drastically, don’t look beyond the tax man.

Income tax and service tax collections swelled by nearly 21% last year. While much of this may be attributed to increase in volume—tax rates remained unchanged last year and tax slabs changed only slightly— some of it may be due to the extension of service tax to cover many new services.

As is usually the case with rising per capita consumption, the share of luxury items— including durable goods, entertainment services, transport and communications— in the household consumption basket is growing at over 10%, while the share of food items has declined.

The overall increase in household consumption is a good sign. Deeper pockets of both the government and taxpayers should ensure sustained demand in the economy and hence a continuation of the growth cycle.

-Kamya Jaiswal

Using money right
GROWTH IN PER CAPITA
YEAR	INCOME (%)	CONSUMPTION (%)
2003-4	6.8	4.2
2004-5	6.6	3.6
2005-6	7.6	7.0
2006-7	8.1	5.6
2007-8	7.2	5.3
Per capita Income and consumption (at 1999-00 prices) Income is taken as GDP at market prices Source: Economic Survey 2007-08

 

Quiz

Financial Wisdom

Do you know why you’ve invested and what you’re invested in? Starting this issue, you can check your financial wisdom quotient here.


1    Equity-linked savings schemes or ELSS have the longest lock-in period when compared with other taxsaving options under Section 80C
    YES/NO

2    When paying income tax, you have to pay a surcharge of 10% no matter what your annual income is
    YES/NO

3    I have to pay tax on my provident fund withdrawal if I close the account after six years
     YES/NO

4    Phishing is when a bank sends you an invitation to join an anglers’ club
    YES/NO


Rate yourself

Give yourself 0 for every Yes and 1 for every No

 0-1: Better luck next time (and do take the time to read this magazine. There’s plenty of information that could prove useful)
2-3: You’ll do—your grasp of your finances seems pretty good, though, of course, it could be better!
4: Obviously a know-it-all. Just make sure to keep reading and keeping your knowledge up-to-date

What’s hot, what’s out

Tracking the frequency with which the 10 most exciting, most riveting, most watched auctions take place on eBay helps you get a sense of what is selling and what is not. Jewellery has consistently topped the charts, with mobile phones being bought in twice the time it takes for a piece of jewellery to be sold.

One glaring change is the extra time taken by most of the top 10 items to be bought—an MP3 player which used to go every 13 minutes in August 2007 now takes 33 minutes.

Item	Jewellery	Mobile Handset	Apparel	Book	Storage Device	MP3 Player	Watch	Coin or Note	Movie	Home Décor
Rank in this Quarter	1 sells every 7 mins	2 sells every 14 mins	3 sells every 18 mins	4 sells every 25 mins	5 sells every 30 mins	6 sells every 33 mins	7 sells every 38 mins	8 sells every 47 mins	9 sells every 48 mins	10 sells every 52 mins
Rank in Dec 2007	1	4	3	2	5	7	9	6	-	-
Rank in Aug 2007	1	6	7	8	3	2	5	9	-	-

 

No fine print


Hot on the heels of standardising monthly holdings across mutual funds, the Securities and Exchange Board of India (Sebi) is planning to simplify the offer document of mutual funds’ new fund offerings.

This is yet another step towards investor protection and awareness, and will help investors make better decisions when filling up the offer document. Says AP Kurian, chairman, AMFI: “Sebi is in consultation with us to make this a standard template across fund houses.”

The new rule will also reduce the costs and time involved for mutual fund houses to prepare and file offer documents with Sebi.


India shining

Never mind high interest rates and a see-sawing Sensex, the consumer confidence of Indians is riding high, according to the MasterCard Worldwide consumer confidence index. The survey creates a forward looking index over the next six months and the Indian consumer seems to be way ahead of consumers in other countries across South Asia, Middle East and Africa.

“These results are unexpectedly buoyant, as the survey measures sentiment among middle-class consumers in the major metros. It is also striking that the confidence of Indian consumers is as high as those in countries enjoying an unprecedented oil boom,” says Suman Bery, director-general, National Council for Applied Economic Research.

The current index score of 86.6 is the highest on record for India since the survey commenced in 2004. The scores, ranging from 0 to 100, are based on responses to five variables. A score of over 50 says that consumers are optimistic about the economic climate. “Looking at the stock market confidence, Indians clearly believe in the India story,” says Nitin Gupta, GM South Asia, MasterCard Worldwide.

Consumer confidence
	OPTIMISTIC	NEUTRAL	PESSIMISTIC
EMPLOYMENT	65.7	22.8	11.6
ECONOMY	63.7	24.8	11.6
REGULAR INCOME	62.9	29.9	7.3
STOCK MARKET	64.9	26.1	9.1
QUALITY OF LIFE	62.2	27.7	10.1
The survey was conducted at the end of 2007, for the six months from January to June 2008