All about SIP (Systematic Investment Plan)

Source :Manikanta Raju CA,CWA,(CS)  

This is the market revolutionary change happened, achieved fame and many of us heard of it without knowing much about it.

Unfortunately, many new investors seem to be under a misconception that it is a type of mutual fund. A Systematic Investment Plan is not a type of mutual fund; it is a method of investing in a mutual fund.

Here's to coming to terms associated with mutual funds. There are two ways in which we can invest in a mutual fund.

Ø  A one-time outright payment

If we invest directly in the fund, we just hand over the cheque and we get our fund units depending on the value of the units on that particular day.

Let's say we want to invest Rs. 10,000. All we have to do is approach the fund and buy units worth Rs. 10,000. There will be two factors determining how many units we get.

a)      Entry load

This is the fee we pay on the amount we invest. Let's say the entry load is 2%. Two percent on Rs. 10,000 would Rs. 200. Now, we have just Rs. 9,800 to invest.

b)      NAV

The Net Asset Value is the price of a unit of a fund. Let's say that the NAV on the day we invest is Rs. 30.

So we will get 326.67 units (Rs 9800 / 30).

Ø  Periodic investments or SIP (Our present area of concentration)

This is referred to as a SIP.

That means that, every month, we commit to investing, say, Rs. 1,000 in our fund. At the end of a year, we would have invested Rs. 12,000 in our fund.

Let's say the NAV on the day we invest in the first month is Rs. 20; we will get 50 units.

The next month, the NAV is Rs. 25. We will get 40 units.

The following month, the NAV is Rs. 18. We will get 55.56 units.

So, after three months, we would have 145.56 units. On an average, we would have paid around Rs. 21 per unit. This is because, when the NAV is high, we get fewer units perRs. 1,000. When the NAV falls, we get more units per Rs. 1,000.

Other important points relating to SIP-

§  Exit load - An exit load is a fee we pay at the time of selling the units, just like the entry load is a fee we pay when we buy the units.

Initially, funds never charged an entry load on SIPs. Now, however, a number of them do. We will also have the check if there is an exit load. Generally, though, there is none. Also, if there is an entry load, an exit load will not be charged. An exit load may be charged if we stop the SIP mid-way. Let's say we have a one-year SIP but discontinue after five months, then an exit load will be levied. These conditions will wary between mutual funds.  

§  Periodic Investments - If we do a onetime investment, the minimum amount that we have to invest is Rs. 5,000.

If we invest via an SIP, the amount drops. Each fund has their own minimum amount. Some may keep it at least Rs. 500 per month; others may keep it as Rs.1,000.

§  Frequency of investment - It would depend on the fund. Some insist the SIP must be done every month. Others give us the option of investing once in three months or once in six months. They also give fixed dates. So we will get the option of various dates and we will have to choose one. Let's say we are presented with these dates: 1, 10, 20 or 30. We can pick any one date. If we pick the 10th of the month, then on that day, the amount we have decided to invest in the fund has to be credited to our mutual fund.

§  Nature of payment - We can opt for the Electronic Clearance Service from our bank; this means the mutual fund will, as per our instructions, debit a certain amount from our account every month. Let’s say we have a SIP of Rs. 1,000 every month and we have chosen to invest in it on the 10th of every month. Under this option, we can instruct our mutual fund to directly debit our bank account of Rs.1,000 on the due date. If we don't have the required money in our account, then for that month, no units will be allocated to us. But, if this continues periodically, the mutual fund will discontinue the SIP. We need to check with each mutual fund what their parameters are.

Alternately, we can give cheques to our mutual fund. In this case, they may ask for five Post Dated Cheques upfront with our first investment. Since these cheques are dated ahead of time, they cannot be processed till the date indicated.

§  Duration of investment – one have to state whether we want it for a year or two years, etc. If, during the course of this period, we realize we cannot continue with the SIP, all we have to do is inform the fund 15 days prior to the payout. The SIP will be discontinued. We can continue to keep our money with the fund and withdraw it when we want. 

§  Type of funds that offer SIP - All types of equity funds (funds that invest in the shares of companies), debt funds (funds that invest in fixed-return investments) and balanced funds (funds that invest in both) offer a SIP.

Liquid funds, cash funds and floating rate debt funds do not offer an SIP. These are funds that invest in very short-term fixed-return investments. Floating rate debt funds invest in fixed return investments where the interest rate moves in tandem with interest rates in the economy (just like a floating rate home loan).

§  Tax implications - Let's say we have invested in the SIP option of a diversified equity fund. If we sell the units after a year of buying, there is no need to pay capital gains tax. If we sell if before a year, we are required to pay capital gains tax of 15%.

Let's say we have invested through a SIP for 12 months: January to December 2009. Now, in February 2010, we want to sell some units. The system of first-in, first-out applies here. So, the amount we invest in January 2009 and the units we bought with that money will be regarded as the units we sell in February 2010.

For tax purposes, the units that we sell first will be considered as the first units bought.

·       How can be SIP is different and help full when compared to regular method of investing in mutual fund- When we buy the units of a fund, we may do so when the NAV is really high. For instance, let's say we bought the units of a fund when the bull Run was at its peak, leading to a high NAV.

If the market dips after that, the value of our investments falls and we may have to wait for a long while to make a return on our investment. But, if we invest via a SIP, we do not commit the error of buying units when the market is at its peak. Since we are buying small amounts continuously, our investment will average out over a period of time. We will end up buying some units at a high cost and some units a lower price. Over time, our chances of making a profit are much higher when compared to an one-time investment.

Due Date of filing of I-T returns for corporate taxpayers is 30th September, 2010 for AY 2010-11

The due date of filing of I-T returns for corporate taxpayers is 30th September, 2010 for AY 2010-11. In case you have not already E-filed your I-T return, please do so immediately without waiting till the last minute. 

Since the prior registration of the DSC is a pre-requisite before uploading the I-T return for corporates, please ensure that your DSC is registered or updates immediately without any delay. This will prevent any last minute difficulties.

SBI to mix banking with pleasure

 Source ;fc :Urvashi Jha Sep 21 2010 , Hyderabad

After wooing the super rich with the launch of India’s first crorepati branch, called Kohinoor Banjara in Hyderabad three weeks ago, the State Bank of India (SBI) is now working on a format to attract young working professionals in the age bracket of 21-35. 

To be launched in Hyderabad again in three months, this proposed first-of-its-kind NextGeneration branch will have a resto lounge or a Cafe Coffee Day like environment with loud music, bold design and a colourful ambience.

As its slogan says, the banker to every Indian is doing all to attract customers from every segment of society. 

Be it urban poor with Re 1 account facility to Kohinoor Banjara with minimum balance of Rs 1 crore for the elite class to a NextGen branch for upwardly mobile young professionals.

Shiva Kumar, chief general manager (AP circle) of SBI told FC, “Next month we will start work on a different kind of branch targeted at younger generation. 

Though we already have significant number of Yuva account holders with us we want to change the perception of next generation about SBI with this proposed format.

 We want the young working professionals to know that we have the right technology and the right product in right environment. The resto-look kind of format will be launched in three months in Hyderabad to start-with.”

Kumar declined to share details about the facilities at the proposed branch stating that work is in progress. He added, “We chose Hyderabad because it has the right mix of young and enterprising people to experiment the format with.

 We have started taking informal suggestions from our customers for facilities needed in the NextGen branch.”

According to Kumar, private banks have higher percentage of younger account holders compared to public sector banks. “However, we are seeing increasing number of younger customers walking into our branches too.

 Earlier we would get only grandfathers now young fathers have also started coming-in.” Kumar didn’t have details on absolute number of young account holders across SBI branches though.

Like the plush Kohinoor the NextGen branch will have a distinctive look. For instance, Kohinoor comprises a conference room called Sapphire with video conferencing facilities, wi-fi and plasma display, personal business centres, coffee bar called Pearl and a Nizam lounge. It also provides round-the-clock lockers stationed in AC furnished hall with wall mirrors and a dressing room too.

The high net worth individuals can open an account in Kohinoor only by invitation. In three weeks the existing branch has opened 60 accounts. It plans to add 200 more account holders by year-end.

The bank provides financial products and services like financial planning and advisory support, forex services, range of deposits, NRI services, SBI e- tax for online payment, demat and online trading facility.

 “We expect to generate Rs 500 crore worth business from this branch by next financial year,” said Kumar.
urvashijha@mydigitalfc.com

Busiest week for IPO market in 15 years; a choice of 11 IPOs

Source :ET:NEW DELHI::20 SEP, 2010, 04.42PM IST,PTI 




 This week is slated to be the busiest in the last 15-years for the primary market, with eight companies seeking to raise around Rs 3,000 crore through public offers, in addition to three already underway. 


The initial public offers of eight small and medium scale companies, including Cantabil Retail and Ramky Infrastructure, are opening this week. The combined value of these IPOs is Rs 2,853 crore. 


Besides, three issue which opened last week are underway to raise Rs 612 crore. 


So, in all, people have the choice to invest in as many as 11 companies in a single week, highest since 2007.


"This will be the busiest week in the Indian primary market history after 1995. Even during the red-hot bull market of 2007, no single week featured 11 IPOs," SMC Global Securities Equity Head Jagannadham Thunuguntla said. 


He added that the last high was in February 2007, when 10 IPOs had hit the capital market in one week. 


Analysts believe that there is enough appetite in the market to absorb these issues. 


"There is enough appetite among investors, and large number of IPOs are providing more choices to them. They can choose issue from a variety of options," Enam Securities MD Yogesh Kapur said. 


The companies, which are hitting the primary market this week include, Orient Green Power (Rs 900 crore), VA Tech Wabag (Rs 500 crore), Electrosteel (Rs 285 crore), Tecpro Systems (Rs 268 crore), Ashoka Buildcon (Rs 225 crore) and Gallant Ispat (Rs 40.50 crore). 


While Ramky Infrastructure and Cantabil Retail will hit the capital market with issue sizes of Rs 530 crore and Rs 105 crore respectively. 


Besides, tutorial service provider Career Point, entertainment and media firm Eros International and Microsec Financial Services, which opened last week, will be available for subscription this week. 


Recently, public issues of a number of entities including SKS Microfinance, Prakash Steelage Ltd and Gujarat Pipavav Port Ltd got good response from investors and were oversubscribed. Listing of these firms was also impressive. 


The follow-on public offer of the state-run Engineers India Ltd also received big investor response. 


Corporate India raised over Rs 47,867 crore through 44 public offers during 2009-2010, a period when the stock market benchmark Sensex gave a handsome return of over 80 per cent. 


Apart from some big IPOs such as that of JSW Energy and Adani Power, the fiscal also saw divestment of the government's stake in NMDC and NTPC through the follow-on offers.

11 IPOs to raise nearly R3,500 cr this week

Source :HT Correspondent, Hindustan Times:Mumbai, September 21, 2010First Published: 00:45 IST(21/9/2010)


If the secondary market is on fire, the primary market is trying to play a catch up, seeking to capitalise on the rally driven by foreign institutional investors (FIIs). As many as 11 companies have lined their initial public offerings to raise a total of Rs 3,495 crore in the week that began on Monday.This is however not a green light for investors to line up for these IPOs, as the markets are entering dangerous territory and valuations overall are getting stretched with every day’s rise in markets, experts say.


“The investors will have to be very selective as lot of these are small companies. They should wait for the government divestment that may come up next month,” said a market expert who did not wish to be named.


The size of individual IPOs vary from a high of Orient Green Power’s Rs 900 crore to Gallant Ispat’s low of Rs 40.5 crore.


How much of the FII inflow gets into these IPOs is to be seen. Fund flow from FIIs has concentrated in the secondary market so far in September. Of the net investment of Rs 14,158.6 crore by FIIs this month, only 1.4 per cent or Rs 197.9 crore has gone to the primary market.


Some say this sort of line up for raising money from the primary market is one of a kind.
“This will be the busiest week in the Indian primary market history after 1995. Even during the red-hot bull market of 2007, no single week featured 11 IPOs,” said Jagannadham Thunuguntla, equity strategist at SMC Global.

RBI wants low-cost banking for masses

Source :HT Correspondent, Hindustan TimesSeptember 21, 2010First Published: 01:14 IST(21/9/2010)


Banks should reduce the cost of services by becoming more efficient in order to extend services to people in un-banked areas, said Subir Gokarn, deputy governor, Reserve Bank of India at a seminar organised by Confederation of Indian Industry on opportunities and challenges for financial services inIndia and Europe.


“Banks should bring down the cost of services so that people in un-banked areas can also avail their services,” said Gokarn.


 He said financial inclusion should not be just about adding numbers but providing banking services to the masses and the Unique Identification Number (UID) project can be leveraged for taking banking services to rural and semi urban areas.


Gokarn said greater transparency and stability in the financial sector is needed to avoid any recurrence of the financial crisis.


 Gokarn said the trend of convergence in the financial sector called for a mechanism to share information between regulators.


MV Nair, chairman and managing director of Union Bank of India, pointed to the untapped potential in the Indian banking sector, as a vast section of society does not have access to financial services.

IBM agrees to buy Netezza for $1.7 bn

Source :Bloomberg, Sep 21, 2010, 04.39am IST



International Business Machines Corp, the world`s largest computer-services provider, agreed to buy Netezza for about $1.7 billion to gain analytics technology. Netezza investors will receive $27 a share in cash, IBM said on Monday in a statement. 


That`s a 9.8% more than the Marlborough, Massachusetts-based company`s September 17 closing price. 


IBM CEO Sam Palmisano said in May he is planning to spend $20 billion on buyouts in the next five years, investing in markets such as analytics software, which helps companies predict trends.

Sensex regains 20k level, Nifty crosses 6,000

SOURCE :Press Trust Of India:hindustan times:Mumbai, September 21, 2010 09:42 IST(21/9/2010)


The BSE benchmark Sensex shot up by over 135 points to regain the magical 20,000-level in the opening trade today for the first time since January 17, 2008, on spurt in buying of oil and gas, capital goods and banking sector stocks. 


The 30-share index of the Bombay Stock Exchange surged by 135.42 points to 20,041.52 in the opening trade, for the first time since January 17, 2008. All the sectoral indices were trading with gains up to 1.30 per cent.




Similarly, the wide-based National Stock Exchange also crossed the crucial 6,000 points to trade 36.40 points higher at 6,016.85 points.


Both indices have regained these levels after almost 32 months. Analysts said sustained inflows of overseas funds, bolstered by fast expanding economy, helped indices to touch the 32-month high.

Bhave, Gopinath inaugurated United Stock Exchange

Source :PTI,TOI:MUMBAI: Sep 20, 2010, 06.13pm IST


 United Stock Exchange of India (USE), the newest stock exchange for currency derivatives, has commence its operations from Monday. 


The exchange  inaugurated by Securities and Exchange Board of India (SEBI) Chairman C B Bhave and Reserve Bank of India Deputy Governor Shyamala Gopinath at the Bombay Stock Exchange (BSE) on Monday, an official said here. 


USE has commence its operations in all four currency pairs currently allowed by SEBI, namely the dollar-rupee, euro-rupee, yen-rupee and pound-rupee. 


The exchange is offering  better platform to corporates and SMEs for managing forex risk.


The exchange was formed through a unique public-private partnership, with equity participation by both PSUs and private sector banks. 


Among the 21 public sector banks which have a stake in the USE are Allahabad Bank, Andhra Bank, Bank of Baroda, Bank of India, Canara Bank, IDBI Bank and State Bank of India, among others. 


In addition, five private sector banks -- namely Axis Bank, Federal Bank, HDFC Bank, ICICI Bank and J&K Bank -- also have equity participation in the new exchange. 


Apart from banks, Jaypee Capital, MMTC and Indian Potash also have a stake in the United Stock Exchange. 


Bombay Stock Exchange is a strategic partner of the USE, as it holds a 15 per cent stake and all of its members are connected to the new USE platform.

India third most powerful nation: US report

SOURCE : TOI :WASHINGTON:IANS, Sep 21, 2010, 12.01pm IST






India is listed as the third most powerful country in the world after the US and China and the fourth most powerful bloc after the US, China and the European Union in a new official US report.

The new global power line-up for 2010 also predicted that New Delhi's clout in the world will further rise by 2025, according to "Global Governance 2025" jointly issued by the National Intelligence Council (NIC) of the US and the European Union's Institute for Security Studies (EUISS).

Using the insights of a host of experts from Brazil, Russia, India and China, among others, and fictionalised scenarios, the report illustrates what could happen over the next 25 years in terms of global governance.

In 2010, the US tops the list of powerful countries/regions, accounting for nearly 22 percent of the global power.

The US is followed by China with European Union at 16 percent and India at eight percent. India is followed by Japan, Russia and Brazil with less than five percent each.

According to this international futures model, by 2025 the power of the US, EU, Japan and Russia will decline while that of China, India and Brazil will increase, even though there will be no change in this listing.

By 2025, the US will still be the most powerful country of the world, but it will have a little over 18 percent of the global power.

The US will be closely followed by China with 16 percent, European Union with 14 percent and India with 10 per cent.

"The growing number of issues on the international agenda, and their complexity, is outpacing the ability of international organisations and national governments to cope," the report warns.

This critical turning point includes issues of climate change, ethnic and regional conflicts, new technology, and the managing of natural resources.

The report also highlights the challenges proponents of effective global governance face.

On one hand, rapid globalization, economic and otherwise, has led to an intertwining of domestic politics and international issues and fuelled the need for more cooperation and more effective leadership.

But on the other hand, an increasingly multipolar world, often dominated by non-state actors, has put a snag in progress toward effectual global governance, it said.

Sahara may buy Hollywood icon, MGM

Source :Boston/New Delhi:Financial ExpressAgencies : Monday, Sep 20, 2010 at 1051 hrs IST

Diversified business house Sahara India Pariwar is in talks to acquire Hollywood-based film production and distribution major Metro-Goldwyn-Mayer (MGM) Inc.


Though details on the Sahara-MGM deal were not available, media reports suggest that the Lucknow-based corporate major has made a bid of about USD 2 billion to buy the debt of the Hollywood studio.


When contacted, a Sahara spokesperson said that talks are on, but it is too early to comment on the issue.


"On mutual interest, discussions are on, but it is too early to comment on the issue," Sahara India Pariwar Head of Corporate Communications Abhijit Sarkar said.


MGM, however, could not be reached for the comment. Sahara India Pariwar has a presence in the finance, infrastructure and housing, media and entertainment, consumer products, 
manufacturing, services and trading businesses.


Metro-Goldwyn-Mayer Inc is an independent, privately-held motion picture, television, home video and theatrical production and distribution company.


MGM is owned by an investor consortium comprised of Providence Equity Partners, TPG, Sony Corporation of America, Comcast Corporation, DLJ Merchant Banking Partners and Quadrangle Group. MGM has about USD 4 billion in debt.


The company owns the world's largest library of modern films, comprising approximately 4,000 titles, and over 10,400 episodes of television programming, as per details available on its website.


Its film library has received 205 Academy Awards, one of the largest award winning collections in the world, and includes numerous successful film franchises, including James Bond, The Pink Panther and Rocky.


The studio is facing possible bankruptcy and several companies have shown an interest in acquiring it. Earlier, there were reports that the Anil Ambani Group is interested in acquiring the debt-ridden Hollywood studio.


Spyglass Entertainment, Time Warner Inc and Lions Gate Entertainment Corp are also reported to be interested in acquiring the firm.

Microsoft launches Web browser IE9

Source:San Francisco: Financial express :agencies :Saturday, Sep 18, 2010 

 Microsoft Corp released the latest version of its Web browser, saying that it would work at faster speeds, deliver better graphics and be less obtrusive to users.

Internet Explorer 9, unlike previous versions and many competing browsers, pushes itself into the background.

"People go to the Web for site, not the browser," said Dean Hachamovitch, general manager for IE, at a press event in San Francisco. "Today Web sites are boxed in, the box is the browser."

IE9 is available in a public beta, or trial version, in more than 30 languages.

 Many of the world's most popular sites including Facebook, Amazon.com, Time Warner Inc's CNN, eBay and Twitter are taking advantage of IE9's new features.

The browser has become one of the most important programs on a PC. As people watch more video and use sites such as Facebook, Twitter and YouTube, browser makers are making their latest versions quicker and better at handling graphics.

Microsoft is promising a faster, cleaner, more secure version of its browser, one that will support evolving Web technologies, such HTML5, a standard for presenting content.

It is also more tightly integrated with the company's Bing search engine, which the company hopes will begin to eat away at the dominance of Google.

In IE9, the rendering of graphics and text has shifted to the graphics card from the CPU, accelerating speed and visuals. As a result, Microsoft said sites will look and perform more like applications that are installed directly on a PC.

IE9's tight integration with Microsoft's Windows operating system, which runs on most of the world's PCs, enables IE9 to use a computer's hardware in a way that rival browsers cannot, said Forrester Research analyst Peter O'Neill.

"This is going to make the Windows platform more attractive, and Microsoft hopes, help stop people from leaking away to other browsers," he said.

IE has been the market leader for many years, but has been losing share to Mozilla's Firefox and Google's Chrome.

IE had 51 percent of the worldwide browser market last month, according to StatCounter, compared to Firefox's 31 percent and Chrome's 11 percent. Apple Inc's Safari and Opera Software's browser had about 4 percent and 2 percent.

Overseas investors play the market a lot more than SEBI data show

RBI numbers point to even bigger swings.

Source : Business line :Lokeshwarri S.K:BL Research Bureau:Chaeeai:sep 20,2010

If investors went by the SEBI data alone, then it would seem that Foreign Institutional Investors (FIIs) pulled out almost $12 billion from Indian equity in 2008, making equity prices spiral down hopelessly. But, do you know that depletion in portfolio investment of external investors was a more staggering $34.8 billion in that year, according to the RBI data on such investments?

The numbers put out by SEBI are widely followed, because the data are published every day, making it a major sentiment-driver in the Indian stock market. On the other hand, the International Investment Position (IIP) report published by the RBI is quarterly and comes with a lag of one quarter, thus giving it little short-term interest.

As the above-mentioned figures show, portfolio investments by FIIs reported by the RBI at the end of every quarter, and the cumulative FII investment reported by SEBI on the same date, invariably differ as shown in the adjacent graph. The difference tends to widen in times of greater volatility and is narrower in more sedate periods.

In 2007, the year of the raging bull market, FII investments in equity increased by $43 billion, according to the IIP report. SEBI reported a more modest growth of $18 billion in that period.

The sharp appreciation of the rupee in 2007, RBI's apprehensions about managing humungous inflows, SEBI's clamping down on overseas derivative instruments et al, can be understood better against the backdrop of RBI's numbers than against SEBI's.

In the quarter to June 2009, when stock prices rose vertically after the UPA Government came to power, the IIP report showed a jump of $12.5 billion in FII portfolio position, while the increase in FII investment, according to SEBI, was half that number, at $6 billion.

Again, if we consider the quarter to December 2008, when the credit crisis was the most acute, following the Lehman collapse and hedge funds going on a selling spree, IIP reported erosion in FII position of $9.2 billion while SEBI reported a much lower number at $3.3 billion.

Why different

The most important reason for the difference in the numbers reported by RBI and SEBI is that they differ in the point of capture. While the IIP report is based on the transactions put through by FIIs in their custodial accounts held with banks and hence the inflow or outflow is captured when the money enters or leaves the country, SEBI data arebased on the actual purchase and sales of securities in primary or secondary market.

It is, therefore, possible that un-invested funds lying in custodial accounts would account for part of the difference. Profit booked by FIIs in the stock exchanges that have not been re-invested would also increase the FII portfolio investments as reported by the central bank. Similarly, losses booked in stock exchanges would deflate this number.

The other reason for the difference is that SEBI data captures only fund flow in to cash segment of the exchanges and does not account for the margin money that FIIs hold for trading in derivatives. This portion of FII funds is short-term money and could see greater inflow and outflow in times of turbulence. Fluctuation in the Indian rupee could be yet another cause for this disparity.

NHB mulls early refinance to housing finance cos

Source : Business Line :K.Ram Kumar:Mumbai, Sept.20,2010 Low and lower middle income segments to benefit.

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Normally, housing finance companies can tap NHB for refinance at concessional interest rates in respect of home loans, given by them only after their business stabilises i.e. two to three years after kicking off operations.

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To encourage flow of housing finance to low-income households, the National Housing Bank is examining the possibility of giving concessional refinance to housing finance companies, set up exclusively to fund the home ownership dream of these households, within a year of commencement of operations.

Normally, HFCs can tap NHB for refinance at concessional interest rates in respect of home loans, given by them only after their business stabilises i.e. two to three years after kicking off operations.

The proposal to offer refinance to HFCs, catering solely to the home loan needs of those in the low and lower middle income segments, early on is expected to have a beneficial ripple effect. For one, HFCs, based on refinance backing, will lend more.

 For another, knowing that home loan is available to those in the low income bracket, builders will be encouraged to construct affordable dwelling units.

Low and lower middle income households are those with a monthly income of Rs 3,000-20,000. A low-income housing unit is one whose maximum selling price does not exceed Rs 15 lakh.

Concessional refinance, according Mr R.V.Verma, Chairman and Manging Director, NHB, will galvanise all key players in the housing ecosystem — lenders as well as builders — to do more for low income housing.

“Since low and lower middle income households are not able to get home loans, builders are not creating affordable dwelling units.

 However, this situation is expected to reverse as housing finance companies focused on giving home loans to these households are coming up. Availability of early refinance to these companies will encourage flow of housing finance,” said Mr Verma.

Low and lower middle income households are a good credit bet for lenders, emphasised the NHB chief. Unlike the well-heeled, most of these households, subject to finance being available, will be able to buy a house only once in a lifetime. So, they will do their utmost to diligently service the home loan.

Credit delivery network

NHB regulates HFCs, extends refinance in respect of the home loans extended by primary lending institutions, and promotes housing finance institutions to improve/strengthen the credit delivery network for housing finance in the country.

The provision of affordable housing is one of the most formidable challenges that the country faces, according to the report of the high-level committee on affordable housing for all. Approximately 42.8 million persons or about 15.2 per cent of India's urban population live in slum settlements.

According to the Census of India, 35 per cent of urban households live in single room dwelling units and 68 per cent of such households have four members or more. 

The 11th Five-Year Plan has estimated an urban housing shortage of 24.7 million units with 99 per cent of the shortage pertaining to the economically weaker sections and the lower income groups.

Banks press pause button on power loans

Source : Business line :Priya Nair:Mumbai, Sept. 19.2010

The power sector could run into a funding crunch as banks are going slow on lending.

Many lenders have hit the sectoral credit exposure limit and concerns have emerged over environmental and coal mining clearances.

As a precautionary measure, banks are laying down conditions such as tying up coal linkages. Some are even insisting that the coal supply should be only from within India and not from countries such as Indonesia and Australia, from where a lot of companies are now trying to source coal.

Problems

But, domestic coal production is beset with its own set of problems like obtaining clearances from the Ministry of Environment, which can take ages or may not come at all.

A senior official from a public sector bank said that currently, disbursements are only for power distribution and transmission projects.

Agreeing that disbursements are not happening, even though sanctions are in place, Mr M.D. Mallya, Chairman and Managing Director of Bank of Baroda, said the bank looks into factors such as the capability of the promoter to ensure supply of coal and back-up plans in case supply gets affected.

“Coal linkage is the most important factor for a power company to succeed. After all, coal is the raw material,” he said.

BoB's exposure to the power sector would be around 7-8 per cent of it total loan book, which still leaves it with some room to lend, Mr Mallya added.

Power and roads account for a major part of the total infrastructure lending for most banks.

Additional plants

According to a report by India Infoline, as of July, India had 87 gigawatt of coal-based power generation capacity and work on an additional 90 GW of plants is under way. 

However, a senior bank official said that about 50,000 MW of power projects could be left in limbo, following the Ministry of Environment and Forests' recent classification of certain coal blocks as ‘no-go' areas or areas where there is a dense cover of forests and mining cannot be done.

An official from Union Bank of India also said the bank is restricting loans to the power sector and insisting that coal linkages, power purchase guarantees and security coverage need to be in place before sanctioning the loan.

“There is demand for funds and projects are coming up, but power companies are facing uncertainties with regard to clearances due to the Environment Ministry's rules.

 So, financial closures of these projects are not happening and sanctions are not getting converted into disbursements,'' he said.

The power segment comprises over 20 per cent of Union Bank's total advances. If the sanctions get converted, the bank will exceed its limits, he added.