How Kalmadi reached Delhi, and slipped

      Source : Moneylife : Veeresh Malik:  April 26, 2011 05:53 PM

Suresh Kalmadi, the so-called darling of the voters and corporate chieftains from Pune, would not have come to much harm had he stayed content as the Lord Arbitrator in that once sleepy retirement town 

On Monday, as the rumour mills in Delhi worked overtime on the Suresh Kalmadi arrest process, much attention was once again focused on what is known as the "CWG scam", as well as various aspects of the Indian Olympics Association (IOA) and its activities in India. The fact remains that till as recently as a year ago, even the accounts of the IOA and Commonwealth Games (CWG) in India were not open to public scrutiny, despite almost total funding by the Indian government, with complete support of the Indian government and its multiple arms. As a matter of fact, Suresh Kalmadi's IOA and CWG defended vigorously across all forums—from the Central Information Commission to the Delhi High Court—their rights to not provide any information pertaining to accounts and activities, and they were backed by the Union of India in this.

Against yours truly, incidentally, was this complete effort mobilised. Until a judgment by the Delhi High Court changed the course of history; by clarifying once and for all the meaning of the term "public authority". (This, incidentally, is being challenged again, by no less an entity than the Securities and Exchange Board of India and a few others, with support from—you guessed it—the same government!)

But is this only about the issue of misuse of public money related to sports activities in connection with a series of incidents referred to as "embarassing" by the current government?

Actually it is all this, and much more, and it certainly does not start or finish with the present high-profile developments over the arrest of Suresh Kalmadi—darling of the voting public in Pune as much as he was a darling of corporate chieftains also from Pune and the page-3 wonders there.

If anything, he was and still is even in absentia the ruling chief as well as 'Lord Arbitrator' of this previously sleepy retirement town, which suddenly evolved especially over the last decade, as not just an extension of Mumbai, but as a hub of industrial, infotech, educational, religious and other commercial activities. This also included a property boom of the sort which Harold Robbin's "The Carpetbaggers" made famous, and a market for tax evasion and fake products which competed with Ulhasnagar; so extensive was its scale.

It has been said that every loaf of bread sold in Pune had two slices removed before it was re-packed, and these were reportedly for the "K Fund". The milk co-operatives were kept out of the retail market and Pune was one city where cooking gas was freely available, for resale, on the pavements of the city. So tight was his hold that even senior managers of central government organizations, like oil companies, would defer to him.

And lest we get taken in by the smug looks and grins on some of the faces of Bharatiya Janata Party (BJP) representatives doing their thing on television, be fully aware that the Big K was equally at home with the BJP and the Shiv Sena, as he was with the Nationalist Congress Party (NCP), in forming alliances as well as sharing the pie. In everything, there was a role and a share for everybody, and nobody knew how to keep things together with opponents as well as supporters as he did.

To a large extent, this was also because the growth in Pune was so exponential over the last decade, that there was enough to go around. So who was, or who is Suresh Kalmadi?

With an Indian Air Force background, which in itself has been the subject of some speculation on the how and why of his departure, to the rapid growth in and around his Poona Coffee House in the Deccan area of Pune's Jangli Maharaj Road, where he also started his filling station and Maruti as well as Bajaj dealerships, to greater game that is still whispered about in the corridors of Air India and ITDC, Kalmadi has been there and seen it all.

Big transport companies? Take a look at the track record of Neeta Travels and Ashok Travels and Tours, allegedly controlled by close friends. There's no smoke without fire, including all sorts of allegations pertaining to the misappropriation of cheques issued to similar sounding public sector companies, and the use of such inter-state bus companies for movement of a variety of contraband, including narcotics and counterfeit currency. Certainly, not proved, but then how does one prove such things?
Octroi evasion? Pune, like Mumbai, has its own octroi games. Along with Pimpri, as well as non-octroi areas surrounding both the municipalities, the environs in and around Pune are a genuine delight for those who wish to evade paying octroi, but certainly do not have an issue with charging it from unwary customers. It is well known that fake "octroi paid" certificates were available for almost everything, and every now and then the issue would be raised, to die down again.

Another racket in which Pune had become famous was as a location where the Road Transport Office (RTO) could be persuaded to do almost anything for a price. Whether this was responsible for Pune becoming a hub for the disposal of stolen vehicles is always whispered about.

But the real big games were always played out in Delhi. Whether it involved Air India or ITDC, or railways contracts, the Big K was always there in the background with his well-oiled fleet of fixers and movers playing their roles. Among various names mentioned in Delhi are his tie-ups with a nephew of the Nehru clan, who is also associated with a major international hotel chain which involves an ex-chief of Air India.

It has also been whispered that a hoard of documents have been kept by the Big K in these cases, with friendly contacts abroad—specifically with retired officers from a particular intelligence agency. And that's one reason for the delay in arresting him as these entities were slowly and steadily being neutralised.

Another good friend the Big K has is a famous filmstar-turned-BJP politician, whose daughter is an aspirational actress, and whose PR was handled by a company close to the Big K. The friend has been trying to use his not inconsiderable clout, as loud as a shotgun, but has been silenced due to reported linkages with Andhra politicians involved in the Hasan Ali case.

For sure, of course, we have not heard the last of the Big K. Unlike other people who have vanished quietly, he has been around far too long in the corridors of power in Delhi, and would have probably not come to much harm if he had stayed satisfied with his grip over matters in his part of the country. Nobody would, even now, dare question his hold.

But Delhi has always been the aspirational target for many people, and eventual graveyard for them too. While the efforts to save his skin continue, it seems that the word is out—he has been neutralised.

And Pune is now ready for a new leader, who will, hopefully, be loyal to Delhi, instead of trying to take on Delhi. You see, the real Marathas have already made their peace and signed their treaties, so others had to be side-lined. Besides, there is an old saying in Delhi—you really can not mix flour in salt, and then expect to make a paratha that everybody likes. Salt in small quantities in flour, yes.

Rich clients allege foul play by Standard Chartered

Source :30 APR, 2011, 10.24AM IST, NISHANTH VASUDEVAN,ET BUREAU 

Nearly three months after a rogue banker at Citi duped wealthy investors, some rich clients of another multinational lender, Standard Chartered, have alleged that they have been short-changed by the British bank. 

Standard Chartered, the foreign bank with the largest presence in India, sold debt securities to private banking clients with a promise to buy them back, according to sources in the wealth management industry. 

The products on offer included debentures of real estate firms and a Delhi-based education company. Investors were attracted by the buyback option-something not allowed under current regulations-and higher returns. 

Around Rs 150-200 crore of such debentures were sold by Standard Chartered relationship managers to their private banking and wealth management clients, said two people in the wealth management industry. 

In a response to an email query by ET, a Standard Chartered spokesperson acknowledged there was a problem, but described the estimates of Rs 150-200 crore as a "gross exaggeration". 

"We are investigating a small matter involving four customer accounts and are in the process of resolving it. We can assure you that your guesstimate on the amount involved is a gross exaggeration-as indicated, the matter involves just four clients. For reasons of client confidentiality, it will be inappropriate to comment any further." 

Standard Chartered did not comment on whether some of the investors were funded by the bank for investing in the debentures. 

The trouble began when some of the investors tried to sell the papers back to Standard Chartered. According to a source in the wealth management industry, the bank declined to honour such 'deals' because buyback or repurchase of corporate bonds cannot be carried out between a bank and a private client. Currently, repurchase, or repo in technical parlance, of corporate bonds can take place only between institutions like banks and bond houses that are regulated by the Reserve Bank of India (RBI). 

"These clients were keen to raise funds before March 31 financial closing, but were unable to do it. Some of them have threatened to lodge an official complaint. As of now, only a few clients have realised the irregular nature of the transaction," said the person. 

Standard Chartered has asked some officials to quit following investigations by the compliance department. Ashish Shankar, head of investment advisory at Standard Chartered Private Bank, is learnt to have gone on leave. According to sources, the bank is trying to make good the losses of clients who were misled by its relationship managers who had promised to buy back the securities, a promise Standard Chartered is not in a position to meet. 

India Inc's most powerful CEOs 2011: Ratan Tata tops the list for 3 years in a row

Source :29 APR, 2011, 06.53AM IST,ET BUREAU 

 Ratan Tata has topped the ET-Corporate Dossier ranking of India Inc's Most Powerful CEOs for the third year in a row, with Mukesh Ambani ofReliance Industries holding on to second position.

Telecom czar Sunil Mittal has moved from fifth to third position this year, while Azim Premji has climbed from sixth to fourth. 

The survey, which was conducted by IMRB in January, puts Anil Ambani at fifth position, a notch lower than last year. NR Narayana Murthy, who topped the ranking for the first three years of the annual survey, still retains his hold on the public imagination and remains in Top 10, at sixth position. 

The most dramatic entry into the Top 10 is that of Naveen Jindal,, who also happens to be a Congress MP, jumps 37 ranks to take his place at tenth position.

The survey, now in its seventh year, asked 500 senior executives from India Inc largest companies to rate India Inc's CEOs on leadership, strategy and innovation, performance, stature, social contribution and governance. Promoters continue their strong performance in power listing, with 52 out of the 100 CEOs are members of wellknown family business houses. 

Analysing the findings, business historian Medha Kudaisya of the National University of Singapore said, "Except for Mr Narayana Murthy, all others come from business communities traditionally associated with trading, money lending, and banking." 

Since a CEO derives his power from the company he controls, it is not surprising to find 13 heads of financial service companies on the list.

At eighth position, Chanda Kochhar of ICICI is India Inc's most powerful woman, followed by Shikha Sharma of Axis Bank , at 24. Other bankers in the top 20 are Aditya Puri and Deepak Parekh of HDFC , OP Bhatt of SBI and Uday Kotak of Kotak Mahindra. 

There are 40 professional CEOS on the list, including 11 PSU CEOs.

 Power is all in the mind, and the most powerful individuals are arguably those who are able to capture the public imagination with the power of their ideas.

 Along with the main CEO ranking, the ET survey also looks at other categories, such as global Indian business leaders, who have risen to powerful positions while based abroad. 

Topping this list is LN Mittal, followed by Indra Nooyi of Pepsico, and Vikram Pandit of Citi. In an era that has seen the rise of the Indian academicians world-wide, another interesting sub-category of the survey is that of global Indian thought leaders. 

The top three here are consultant Ram Charan , Nobel laureate Amartya Sen and Nitin Nohria , dean of Harvard Business School. 

The top three in the powerful MNC CEOs are Ravi Venkatesan , Naina Lal Kidwai and Nitin Paranjpe and in the most powerful women CEOs category, the top honours go to Chanda Kochhar, Kiran Majumdar Shaw and Naina Lal Kidwai. 

How has Ratan Tata managed to retain the top position despite his famed reticence and Radia tapes? 

Russi M Lala, biographer to both Jamsetji and JRD Tata said it is in part due to the reputation built by the previous generations of Tatas. "JRD always believed Ratan would be much like him. If he had been alive today, I am sure he would be proud of what Ratan has achieved," he said.

Wipro result Q4 net up 14% at Rs 1,375 cr, announces 200% dividend

Source : PTI | Apr 27, 2011, 10.40am IST


The country's third largest software exporter Wipro on Wednesday reported a growth of 13.77 per cent in consolidated net profit for the quarter ended March 31, 2011, to Rs 1,375.4 crore. 

Last year, the company had posted a net profit of Rs 1,208.9 crore for the fourth quarter.

"We have made good progress in creating a leaner, simpler and more customer-centric organisation structure. We believe our business strategy along with the new structure will deliver industry leading growth," Wipro chairman Azim Premji said in a statement.

IT services, which contributed 76 per cent to the company's revenues in FY'11, stood at USD 1,400 million, a sequential increase of 4.2 per cent and a year-on-year increase of 20.1 per cent.

The company said it expected its revenues from the IT services business to be in the range of USD 1,394 million to USD 1,422 million for the first quarter ending June 30, 2011.

The IT services segment hired 2,894 people this quarter and 14,314 people during the financial year, taking the total headcount to 1,22,385 employees as of March 31, 2011. It added 68 new customers for the reporting quarter and 155 new customers during the year.

"The business environment is positive and we are focusing on growth by directing investments on momentum verticals. We have announced wage hikes effective June 1, 2011, which would have an impact on the operating margins," Wipro executive director and chief financial officer Suresh Senapaty said.

Net income from sales for the reporting quarter stood at Rs 8,302.4 crore as against Rs 7,016.1 crore in Q4, FY2009-10, up 18.33 per cent.

For the fiscal ended March, 2011, the company has registered a net profit of Rs 5,297.7 crore, compared to Rs 4,593.1 crore during the previous fiscal, up 15.34 per cent.

Net income from sales in the 2010-11 fiscal grew 14.51 per cent to Rs 31,098.7 crore from Rs 27,157.4 in the previous fiscal.

On a standalone basis, the company has reported a net profit of Rs 1,337.6 crore for the quarter, a growth of 8.15 per cent vis-a-vis the same period last year.

"Our journey of building the new Wipro is based on the foundation of customer focus, domain and technology leadership directed toward the customer needs and providing enriching career opportunities for our employees," Wipro executive director and CEO (IT Business) T K Kurien said.

The company's cash and cash equivalents stood at Rs 6,114.1 crore as on March 31, 2011.

IT products comprised 12 per cent of the total company revenue at Rs 3,691 crore for the year, a decline of 3 per cent Y-o-Y. Revenue for the quarter stood at Rs 911 crore.

PAC setback for RBI governor Subbarao

Source :TNN:April 29:2011:4.05am IST




Questions over Duvurri Subbarao's role in the 2G spectrum scam could be a setback to the former IAS officer's chances of getting a second term in the Reserve Bank of India in September.

In fact, the names of economic affairs secretary R Gopalan and chief economic advisor Kaushik Basu have already started doing the rounds as a possible successor. 


Both joined the finance ministry afterPranab Mukherjee moved into North Block in late 2008.

Apart from having been in charge of the financial sector department in the ministry, Gopalan was a public sector bank employee before joining the IAS. Basu is an economist who is on leave from Cornell University.

When Subbarao moved to Mumbai in September 2008, he was given a three-year term and he was widely expected to get a two-year extension. 


Yaga Venugopal Reddy, Subbarao's predecessor on Mint Road, had served a five-year term while Bimal Jalan's three-year term had been extended though he decided to resign midway to become a Rajya Sabha member.

The draft PAC report, which was not accepted by all the committee members, had said Subbarao should be asked to explain why he did not raise questions over telecom ministry's move to ignore finance ministry's recommendations.

Officials said there was no formal proposal to either extend the present governor's tenure or find a replacement. A final call would be taken by Prime Minister Manmohan Singh and finance minister Pranab Mukherjee closer to the expiry of Subbarao's term.

In 2008, in a first, a committee headed by P Chidambaram, then finance minister, with C Rangarajan, chairman of the Prime Minister's economic advisory council, as a member shortlisted possible candidates and zeroed in on Subbarao.

Though Subbarao is seen to have handled the impact of the global financial crisis well, he has publicly opposed the government on at least two issues. The first area of difference was the establishment of a joint committee of regulators for dispute resolution that is headed by the finance minister. Similarly, he was severely critical of the government's decision to set up the Financial Stability & Development Council, which is again headed by the finance minister.

On both occasions, however, he was placated by the government after signals from the North Block that RBI governor is the first among equals when it comes to financial sector regulation.

After Chidambaram's departure from the finance ministry, the government has stayed away from reappointments in regulatory agencies with former Sebi chairman C B Bhave and former RBI deputy governor Usha Thorat being examples. At least two senior finance ministry officials - revenue secretary P V Bhide and finance secretary Ashok Chawla - were not given extensions and were allowed to retire just a month before the budget was presented.

In case of banks and financial institutions, too, the government has decided that any reappointment will take place only after the incumbent's performance is reviewed by a specially-appointed panel.

Exim Bank to begin new lines of biz in export finance

Source : BL:MUMBAI, APRIL 28:2011

In a strategic move, the Export-Import Bank of India (Exim Bank) has decided to gradually get out of businesses where it is in direct competition with commercial banks.

Towards this end, Exim Bank, according to its Chairman & Managing Director, Mr T.C.A. Ranganathan, is whittling down its portfolio of short-term loans and exiting the packing credit business.

Instead of competing with commercial banks, Exim Bank will concentrate on its core competencies in the field of export finance.

While lines of credit and project exports will continue to be its bread and butter businesses, the development financial institution (DFI) will also focus on new lines of business such as Buyers' Credit (non-recourse lending) and R&D financing.

“We want to play the role of a catalyst. As a development financial institution, we will seed new lines of business in the export finance area so that commercial banks can enter the same,” said Mr Rangathan.

Buyers' Credit has been launched by Exim Bank in association with the Export Credit Guarantee Corporation of India under the Government's National Export Insurance Account to boost exports.

To support R&D by export-oriented units in fields such as pharmaceuticals, engineering and hi-technology, the DFI will offer term loans or a hybrid facility to the extent of 80 per cent of the R&D cost.

On new initiatives, the Exim Bank chief said the bank has started giving loans that are benchmarked to the government security, with one-year residual maturity, to companies with active treasury operations.

The DFI has moved the government to increase its authorised capital to Rs 10,000 crore so that it can support exporters in a big way. Currently, its paid-up capital is at Rs 2,000, the same as its authorised capital.

Meanwhile, Exim Bank has reported a 12 per cent increase in profit after tax at Rs 868 crore in the financial year ended March 31, 2011, against Rs 772 crore in the corresponding period last year.

Loan assets increased by 17 per cent in FY2011 to Rs 46,041 crore from Rs 39,371 crore as of March-end 2010.

Kamakodi elevated as MD and CEO of City Union Bank

Source :BL::COIMBATORE, APRIL 28:L. N. REVATHY:

Within four months of assuming office as Executive President of Kumbakonam-headquartered City Union Bank, Dr N. Kamakodi has been elevated as Managing Director and Chief Executive Officer of the bank.

 He is to take charge from May 1.

He will replace Mr S. Balasubramanian, who has been appointed Non-Executive Chairman (Part-time) from the date of assuming office. 

Mr Balasubramanian takes the place of Mr P. Vaidyanathan, who demitted office as Non-Executive Chairman on April 26 on completion of two years.

Savings accounts to offer higher interest?

Source :TNN | Apr 29, 2011, 12.47am IST


 The Reserve Bank of India (RBI) has finally set the ball rolling on the issue of deregulating interest on savings accounts —- a move which large banks like SBI and HDFC Bankfiercely oppose and lenders like Yes Bank look forward to. 

Deregulation would essentially give banks the freedom to set interest rates on savings accounts, which is currently fixed at 3.5%. Theoretically, a consumer could get a higher interest rate on a savings account due to the move, but it all depends on the RBI's final decision. 

On Thursday, the central bank floated a discussion paper highlighting the pros and cons of deregulation, seeking public opinion on whether rates should be freed. 


The central bank has also pointed out that real interest rates — interest rates adjusted for inflation — have been largely negative for savings account holders. 


It said that savers would benefit from deregulation as rates are likely to rise. It has also said that freeing of interest rates would improve transmission of monetary policy by pushing up interest rates on savings accounts whenever the central bank raised policy rates. 

In the past Aditya Puri, MD, HDFC Bank, and Shikha Sharrma, MD, Axis Bank, had said that savings rate should not be deregulated when there is a liquidity shortage and interest rates are rising. 


Former SBI chairman O P Bhatt had also said that deregulation would not benefit small depositors as banks that offer high interest rates would also seek a higher minimum balance to make up for transaction costs.


 Similarly, former RBI governor Y V Reddy was strongly opposed to savings rate deregulation stating that common people don't have time to apply their mind and shift money from one account to another and was strongly in favour of a uniform savings rate. 

However, the extent to which deregulation will benefit small depositors is not yet clear. So far banks have been offering around the same return on 7- to 15-day term deposits which they pay on savings deposits (3.5%). But bankers say that this cannot be an indication. Although interest on savings deposits is calculated on a daily basis, savings accounts tend to be more 'sticky' than term deposits as savings accounts form the core of the retail customer's relationship with the bank. 

Following the recent liquidity crunch many banks have realized the importance of having a higher share of current and savings account deposits (which are termed CASA deposits by the industry). Banks such as Yes Bank and IDBI Bank have been making all-out efforts to raise their share of CASA deposits and are seen as most likely to offer higher rates following deregulation. 

"The effect on competition is still nebulous. It may be noted that movement of savings deposits and associated schemes amongst banks is constrained by inertia on the part of savers and barriers in the system in terms of minimum lock-in periods, penal interest rate, etc," said Madan Sabnavis, chief economist, Care Ratings. While banks would be induced to raise interest rates to mobilize savings deposits, funds may not flow freely as there would always be scepticism about changes in the interest rates structure unlike term deposits where the rates are fixed for a tenure, he added. 

The questions asked by the RBI include: 


Should savings deposit interest rate be deregulated at this point of time? 


Should it be deregulated completely or in a phased manner, subject to a minimum floor for some time? 


How can the concerns with regard to savers (senior citizens, pensioners, small savers, particularly in rural and semi-urban areas) be addressed in case savings deposit interest rate is deregulated? 


How serious are concerns relating to a possible intense competition amongst banks and asset-liability mismatches if savings deposit interest rate is deregulated? 


Should higher interest rate be paid on savings deposits without a cheque book facility?

Bankers point out that even in the current environment savers have alternatives to savings deposits such as sweep-in accounts (where funds are transferred to FDs on a daily basis). 


There are also liquid funds where investors can park funds for a couple of days. Considering that the per capita savings deposit is around Rs 7,767, a one percentage point increase would add only Rs 6 per month on an average. 

SBP, SBH on merger list: SBI

Source :TNN, Apr 27, 2011, 07.03am IST

 State Bank of Patiala and State Bank of Hyderabad are expected to be next in line for merger with State Bank of India, SBI chief Pratip Chaudhuri said on Tuesday.

Chaudhuri, who was in the national capital to attend the review meeting of state-run banks convened by the finance ministry, said both associate banks were 100% owned by SBI and it would provide some flexibility if these two banks were taken up for merger.

"It is easier to merge when you have 100% ownership," Chaudhuri told TOI. He said the discussions were on and a decision was expected soon.

Indian Bank to raise $1 bn through overseas bonds

Source :Press Trust of India / Chennai April 23, 2011, 18:32 IST

State-owned Indian Bank plans to raise $1 billion (about Rs 4,500 crore) through overseas bonds to fund business growth, a top bank official said today.


"The bank's board has approved $1 billion Medium Term Note programmed to raise funds from overseas market during the current fiscal," Indian Bank Chairman T M Bhasin said after announcing 2010-11 financial results.



"With the Board approving the MTN, we will be able to complete the process in the next three months," he said.

Besides, the bank is also planning to raise capital through follow on public offer (FPO).


"We were waiting for the results to be announced. Having announced our results today, it (FPO) will move at a fast pace," he said.

The bank reported 7 per cent increase in net profit at Rs 438.86 crore for the fourth quarter ended March 31, 2011.


Total income of the bank grew by 23.65 per cent to Rs 2,865.8 crore in the January-March quarter from Rs 2,317.73 crore in the same quarter a year-ago.


For the whole 2010-11 fiscal, the bank's net profit rose by 10.23 per cent to Rs 1,714.07 crore compared to Rs 1,554.98 crore in the previous year.


During the year, total income expanded by 16.74 per cent to Rs 10,542.91 crore against Rs 9,030.77 crore in 2009-10.
On future plans, Bhasin said, "We are proposing to open three more branches in Trincomalee, Batticaloa, Hambantota in Sri Lanka this year."


The bank has been holding discussions with the regulators for getting approval in expanding presence in Sri Lanka. Indian Bank has two branches, one each in Jaffna and Colombo.

SBI's Rs 20,000 cr rights issue this year: chairman

Source :Press Trust of India / New Delhi April 26, 2011, 16:28 IST
Country's largest lender State Bank of India today said it will launch its Rs 20,000 crore rights issue this year to augment its lending operation.


The bank is in dialogue with the government and the proposed rights issue should happen this year, SBI Chairman Pratip Chaudhuri said here.



SBI had earlier announced its intention of coming out with the rights issue in the previous fiscal ending March 31, 2011. The government owns 59.4% in the bank.

The bank had raised over Rs 16,000 crore through a rights issue in 2008.

When asked about SBI's plan to merge with associate banks, Chaudhuri said, the bank is working on it and will initiate something this year.

He said SBI would prefer to merge associate banks where SBI holds 100%, rather than where the holding is less.

SBI did first ever amalgamation of its associate State Bank of Saurashtra in 2008, followed by State Bank of Indore in August last year.

SBI has five associate banks -- 
State Bank of Bikaner and Jaipur, 
State Bank of Travancore,
 State Bank of Patiala, 
State Bank of Mysore
and 
State Bank of Hyderabad.

SBI plans consolidation of remaining five associate banks with itself in the next 12-18 months, the Finance Ministry had earlier informed a Parliamentary Committee.

Among these, the State Banks of Bikaner and Jaipur, State Bank of Mysore and State Bank of Travancore are listed companies

Education Loan

Source :money :out look india:April 20.2011

Expenses Covered By Education Loan

• Fees payable to college/school/hostel
• Examination/library/laboratory fees
• Purchase of books/equipment/instruments/uniform
• Caution deposit/building fund/refundable deposit
• Travel expenses/passage money for studies abroad
• Purchase of computers/laptops considered necessary for completion of course
• In some cases, cost of a two-wheeler, up to certain limit
• Any other expenses required to complete the course, such as study tours and project work

***

The Groundwork

1. Find out whether banks provide loan for the course you wish to pursue. Ensure that the banker understands it if you want to fund it through a loan.
2. Check the accreditation of the institution you are seeking admission to: whether it is approved by authorities concerned (UGC, AICTE, and so on).
3. If you plan to repay the loan from your own earnings, verify the institute’s placement record.
4. Compare the fees vis-à-vis the expected salary following the course’s completion.
5. Find out if the institute has a tie-up with banks for education loans. This expedites the process.
6. Consult several banks for the most favourable rate of interest.
7. If the loan amount exceeds Rs 4 lakh, think of the securities at your disposal that you may offer to pledge to the bank.
8. Arrange for guarantor(s) (parents/siblings/spouse) with adequate annual income and good credit history.
9. Understand the moratorium period. Make note of the interest rate structure during the moratorium period and following the start of repayment.
10. If possible, arrange for interest payment during the moratorium period. This will reduce the interest rate by 1 per cent and also lower your burden when repayment starts.
11. When deciding on the loan amount and repayment tenure, make sure that the EMI does not exceed 20-30 per cent of your future monthly income.

***

The cost of education is rising—and how! As the Indian economy expands at a rapid pace, it’s becoming increasingly tough for most Indians to fund their education from their own means. 


With new avenues of employment opening up, specialised courses are cropping up by the day. There is the promise of a flying career, but it doesn’t come on a platter. So, does it mean that you should let your dreams die because the resources at your disposal aren’t enough? The answer is no, because help is round the corner.


Take the case of Ranjan Kumar, who was working with the customer service department of a multinational firm when he decided to switch gears in 2006 and pursue an MBA. While Ranjan had saved enough to meet his recurring expenses, he needed to finance his MBA course fee. 


So, he applied for a five-year education loan from the State Bank of India (SBI) with his father as a guarantor. He agreed to service the interest during the moratorium period of the loan from the bank, which allowed him a 1 per cent interest rate reduction. Till now, Ranjan has repaid his loan for two years and three months. During this period, he has also built a corpus from which he can prepay his education loan should he want to. 


But, as he is getting income tax benefit on the interest repayment of the loan and as the rate is relatively low, he has decided to continue with regular repayment. He has, instead, deployed his surplus to generate better returns.


It’s not just the new professional courses that are burning a hole in parents’ pockets; even the cost of traditional courses has become nightmarishly high. 


For instance, IIM Ahmedabad, which charged a fee of Rs 12.5 lakh for a two-year PGP till 2009, raised it to Rs 13.75 lakh in 2010. Currently, it’s Rs 14.45 lakh. As education loans fall under the priority sector lending, banks are required to meet their target mandated by the Reserve Bank of India (RBI) and government. 


Public sector banks have been more forthcoming in giving education loans than their private sector counterparts. Says Rishi Mehra founder-director, Deal4-loans.com: “Public sector banks have shown a growth of about 20 per cent year-on-year in this portfolio. Private banks haven’t delivered growth in this sector.”


Talking about the popularity and growth of education loans, Bhaskar Niyogi, chief general manager, State Bank of India, says: “There has been an average growth of 35-40 per cent in education loans during the past five years. With the government promoting higher education, further growth is anticipated. SBI has a market share of 25 per cent of all educational loans in the country. The average CAGR is also around 38 per cent.”


Plan early
Despite the government’s push for them, getting an education loan is not really an easy task as banks consider them a risky asset. Says Prashant A. Bhonsle, country head, Credila Financial Services, an HDFC company: “One of the challenges that lenders face in giving an education loan is evaluating the quality of the course and the institute. Moreover, tracking and collection in this segment where the student is constantly shifting jobs and cities, especially during the first few years of the career, is also difficult. Therefore, sometimes, lending without a proper understanding of the above facts may impact the portfolio performance negatively.” As banks don’t have access to full details of new courses or institutes, it may become relatively difficult for the students to get loans, adds Bhonsle.


The recent spurt in education loan defaults has made banks adopt a more cautious approach. The majority of the defaults occur in the below-Rs 4-lakh category, where no security is required. Banks are doing their homework to address this concern. 


As Niyogi says: “The Indian Banks’ Association (IBA) has taken up with the Union Ministry of Finance the issue of setting up a guarantee scheme for unsecured loans up to Rs 4 lakh, on the lines of the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).” Niyogi says that the HRD ministry is in the process of dematerialising the educational awards/certificates and setting up a depository for maintaining the records in dematerialised form. Also, the permanent account number (PAN) or unique identity (UID) number may be obtained from a student for the purpose of tracking.


Guarantee or not, the first step for banks will always be doing due diligence before sanctioning your loan. A better understanding of the things which determine the approval of a loan application will help you plan better to ensure that you don’t face unnecessary problems.


Time it well
Admissions to any course is a time-bound process. If you don’t arrange the required fee in the stipulated time, all your efforts will come to a nought. Hence, planning well in advance is the key. For this, you may like to visit the bank to obtain a checklist of documents required at the time of applying for a loan. You can also get the information on the website of the concerned bank, or of the institution from where you wish to pursue a course if it has a tie-up with a bank. If you have an existing relationship with a bank and enjoy a good reputation with it, that makes the process all the more easier.


Do some fact-finding
When the institution in question is as reputed as an IIT or an IIM, there’s little that you need to worry about. However, it’s a different story when it comes to courses or institutions which are not that popular. Instances of students falling prey to hollow promises by education institutions are not rare. Many students get swayed by advertising gimmicks and end up paying the initial amount to secure admission, only to find later that banks are unwilling to finance the study. Says Niyogi: “While opting for a course, a student should check whether the institute or the course is recognized by AICTE or UGC or other governing councils, such as IMC, INC, and so on. Also check the reputation of the institute in the market and its placement record.”


Talking about the need to select the right institution, Arvind Hali, head, retail assets and credit cards, Dhanlaxmi Bank, says: “Assuming that the student is meritorious, he should look at institutions which have a good standing in terms of track record and placement, especially for job-oriented professional and technical courses. Go to an institution which has a merit-based system for accepting students.” Instead of taking promises on their face value, always try to get first-hand information about the placement record from students and alumni. This could be done through blogs and social networking sites.


Check out the fee
Even if an education loan is readily available to you, it shouldn’t stop you from ensuring that the institute is not charging exorbitantly. The fees you pay should be in line with what you expect to draw after finishing the course. Says Hali: “You have to look at the fee that an institute is charging vis-a-vis the kind of returns that will come. In certain courses, the salary a person draws is not commensurate with the kind of fee he has paid.” It hardly makes sense for you to pay a fee of Rs 8 lakh for a course which would get you a job of just Rs 15,000 per month as you would end up paying your entire salary for loan repayment.

How much loan?


While deciding the loan amount, be aware of ground realities as far as the repayment period is concerned. A proper research would give you an idea of the kind of job and salary you could expect. As far as possible, try to keep the loan amount in a range where the repayment EMI is not more than 30 per cent of your future monthly income.


Studying Abroad
The maximum amount of loan which banks in India provide for studies abroad is Rs 20 lakh. While courses from reputed institutions overseas offer great career prospects, the fee they charge is generally higher than Rs 20 lakh. Is this the end of the road for meritorious students who have done exceedingly well to qualify for these institutes? Not any more, as Credila, an HDFC company which deals only with education loans, provides students loans above Rs 20 lakh also.


Subsidy for girls
In keeping with the government’s drive to promote literacy among girls, many banks provide special schemes with interest rate subsidy for girl students. For instance, Bank of Baroda gives a rebate of 1 per cent on interest for girl students. Don’t miss out on such schemes if you are a girl student or are taking a loan for your daughter.


Margin money and collateral
Margin money is the amount you need to fund through your own sources. Banks do not ask for any margin money for loans up to Rs 4 lakh. For loans above Rs 4 lakh, they seek margin money of 5 per cent of the total amount for study in India and 15 per cent for overseas study. On the collateral front, banks accept third-party guarantee for loans above Rs 4 lakh and up to Rs 7.5 lakh. For loans above Rs 7.5 lakh, they ask for tangible securities equivalent to 100 per cent of the loan amount as collateral, such as property, fixed deposits, bonds, and so on.


Pay interest to reduce cost
The time between the disbursal of the first instalment of the fee and the completion of the course is called moratorium. During this period, the bank charges a simple interest on the disbursed loan amount. Parents who have already squeezed their resources face a dilemma: whether to pay the interest during this moratorium period, or to let the interest accumulate so that the student can start repaying the whole amount when he/she gets a job.


For courses of long duration, such as 4-5 years, not servicing the interest during moratorium could prove costly as the accumulated interest can become a substantial amount. This would lead to an unnecessary burden on the student right at the start of his or her career. 


Says Bhonsle: “If you don’t pay the interest during moratorium, it gets accrued and compounded and the student may end up paying more over the entire tenure of the loan. Second, it is a very good way of building a positive credit history for getting future loans, such as two-wheeler, car, home and personal loans, at much better rates.” Also, it gives you a benefit of 1 per cent interest rate reduction.


Interest-free moratorium
There is some special cheer for meritorious students. The government of India has launched a scheme called ‘Education Loan Interest Subsidy Scheme’, especially designed to provide interest subsidy for the period of moratorium on educational loans taken by students from economically weaker sections. Under this scheme, you don’t have to pay any interest during your studies as it would be borne by the government. 


When you start repayment, you need to pay the original amount borrowed and the interest that will be charged only after moratorium.


The maximum loan limit under this scheme would be Rs 10 lakh. Says Niyogi: “Under this scheme, loans should be taken for pursuing higher technical/professional courses in India within the IBA Model Education Loan scheme. The gross parental income should not be more than Rs 4.5 lakh per annum. 


The scheme is for disbursements made during the 2009-10 academic year and onwards.” This subsidy will be available only to students enrolled in recognised technical/professional courses (after XII) in India in educational institutions established by Acts of Parliament, other institutions recognised by the concerned statutory bodies, IIMs and other institutions set up by the Central/state government. 


There would be a tag or marker on the degree and marksheet of the student indicating his repayment liabilities. An electronic tag will enable employers to identify loanees.


Stay on course of repayment
At the beginning of their careers, many students may not realise the importance of having a good credit history. They need to be sensitised about the need to repay the loan on a regular basis. Says Bhonsle: “We inform students that it (irregular payments) will make it extremely difficult for them to not only avail other loans, but also hamper their future employability if employers look into their credit record. On the contrary, if the repayment history is good, there are much higher chances of them getting other financial products at most attractive prices.”


Tax benefit
Education loans provide a tax-saving opportunity, both for the parent and the student under Section 80E of the Income Tax Act. Parents can enjoy tax benefits in the moratorium period during which they pay interest on the loan. After that, the student can avail unlimited tax benefit on the interest portion of the EMIs.


If used wisely, an education loan can really work as a facilitator to a bright future for you.