Wednesday, January 27, 2010

PSU Bankers, rejoice...

I am very happy for my friends who are in the final stages of their working lives, with PSU banks. In the first round of VRS that came, many did not opt for the pension option. They preferred to take cash. Those days, the co FD rate was 12% plus and it was clear that taking the money out was the best option.
Alas. Interest rates fell and those who did not opt for pension, regret.
Now there is great news. The bank unions have managed to introduce 'pension' as a defined benefit to all employees, including those who left the banks in the first round of VRS! All they have to do is to surrender a small sum and then they will get pension for life. A handsome amount (50% of last drawn wages) with adjustment for inflation also!
So, if you are from a PSU bank, rejoice. If you are a tax payer, grin and bear it. After all, the largesse is going to friends and family.
If you are a shareholder in a PSU bank, get the hell out. It is a matter of time before the pension bill becomes larger than the wage bill.
And of course, who the hell cares about bank profitability? Not certainly the owner or the Chairman. The chairman gets appointed as a reward for politicking at the end of his career and he uses the time to collect his graft.
This of course is beyond the ken of the species called 'equity research' analysts.
Mera Bharat truly Mahaan!!

Saturday, January 23, 2010

Aamchi Mumbai- The decline of Mumbai

The Congress displayed its appeasement as well as divisive politics in Maharashtra. They want to give cab licenses to local lingo speaking and 15 yr domiciled persons only. No one fights. This is clearly un-constitutional, since it does restrict freedom of employment.
Not that this is going to make a difference. If you look at the local lingo domiciled populace, they are not the type who will work hard. Most of them will be content with government jobs, with pension and their daily stroll in the 'naana naani' park. If you really break down mumbai, it is the out of stater who slogs and makes the state and city a better place. This is because he faces hostile odds and has come with a mission. Obviously his hunger is more.
I have seen this happen in Malaysia, where the Bumiputra guy is tolerated since he 'facilitates' business. Mumbai is heading to that. Job reservations for locals will one day mean that a company will treat that as a cost of doing business in the State. So, it will tell the 'statutory' local to stay at home, pay him, and go on with life.
Imagine if the doctrine of the taxi license is applied to call centers in Mumbai. Or to the media in Mumbai. It will be great to see.

Friday, January 22, 2010

Life insurers are happy to see you skip premium payments

For an insurance company, it actually helps if clients default on policies that have not acquired any surrender value

A business paper recently carried a story about life insurance policies worth over a trillion rupees which have lapsed. Some of the interesting bits are:

i) A total of 9.1 million policies lapsed in 2009

ii) The lapse ratio for ICICI Prudential Life Insurance Co Ltd, the life insurance arm of India’s largest private sector lender ICICI Bank Ltd, stood at 53% in 2009, up from 40% in the previous year. About 777,000 conventional policies worth Rs25,269 crore lapsed, the highest among private insurers by value. (Obviously, ICICI does not want to miss market share any which way)

iii) In terms of lapse ratio, Aviva Life Insurance Co India Ltd, leads the list with 32,000 policies or 59% lapsed

iv) Reliance Life Insurance Co Ltd saw its lapse ratio almost double—40% in 2009 against 21% a year ago.

iv) Life Insurance Corp of India (LIC) declined to 4% for 2009 from 6% in the previous year. In absolute terms, nearly 7.3 million traditional policies worth Rs52,926 crore lapsed. Almost half the conventional policies that lapsed in the industry in 2009 were sold by LIC.

If this is not rampant mis-selling, I do not know what is. Most insurance companies do not repay or refund anything, if the policies are less than three years paid up. After three years, the agents’ commissions drop to ‘small’ levels of 2.5%-5%, so he cares two hoots. He would rather tell the fool (the client) to take a different policy after ditching the old, since it would give him a higher commission.

The great thing is that the paper quotes the Max New York honcho as saying that it is not mis-selling but “it indicates a lack of understanding on the part of policyholders”. Sir, who delivers the ‘understanding’?

Most insurance companies have a scheme or a process to ‘revive’ lapsed policies within around three years of the last premium paid. After that, they quietly pocket the money. So, for an insurance company, it actually helps if clients default on policies that have not acquired any surrender value. Probably, they must be hoping for this to happen every year and would be part of their business goals for each year. Probably, they reward agents who bring in such kind of clients into their web of deceit.

It is time people woke up. IRDA, being run by retired guys with either LIC or RBI backgrounds, will never help the insured. They are the owners’ representatives. The ideal rules would be:

i) When policies lapse, blacklist the agent/withdraw his IRDA code, so that he can get no more commissions and sell no more policies. This is the best way to ensure that the mis-selling stops.

ii) When there is a lapse, the insurance companies should refund the amounts collected less the charges they have actually incurred. For instance, if I have paid Rs2,000 per year for two years, I should get a refund of something like Rs2,000-Rs3,000. This should be made statutory and any violation should result in a heavy penalty on the insurance company.

iii) A list of lapsed policies should be put online compulsorily.

iv) Surrender values should be made compulsory even for a one premium old policy. Why should the insurance company rob the payer?
The other option is to explore if third-party buyers of lapsed policies can emerge legally. Maybe they can take a call on whether to revive the policy and take the assignment in their favour and continue it. All possibilities exist.

I am sure that the IRDA will do zilch to resolve this issue. It is high time that the finance ministry stepped in and passed the supervision to another body where the insured is also taken care of. If SEBI can handle mutual funds, I am sure it can handle insurance also. After all, every product they sell (except the pure term policy which they hide) is an investment product with some optional insurance.

Friday, January 15, 2010

The Midas Touch Investor-

A compelling read on Goldman Sachs.The clout with the Feds (packed with ex Goldman guys) and the entry of Warren Buffett (who again ensured that the firm got the best of terms from the US govt) shows corporate governance at its abysmal worst. After this, if the world even expects corporate governance in any part of the world, it is only fooling itself.
It is money that counts. The more you can get, the more power you get. Does not matter how you get it. The key thing is not to get caught. If you involve the Fed, Warren Buffett etc, you are never going to get caught.

Jai Ho for Goldman and for Warren !

Moneylife : More Money, Less Life

Moneylife : More Money, Less Life

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Friday, January 8, 2010


Today is the retirement day that I had anticipated whilst in school. School days. There was no job markets. People you knew either worked in government offices or with multinationals. Dream was to retire at age 55 with a salary of twenty thousand rupees a month! And we would be happy if we could land a job with a start salary of five hundred rupees a month! Never thought of buying a house, because it was simply out of reach. Never thought about how we are going to manage our future in the single room chawl that we grew up in. Never even thought about buying a car. In those days you had a fiat or a an ambassador. A two wheeler was perhaps the dream, with a Bajaj Chetak being available early if you had a NRI friend. Otherwise, you had to settle for something less, with a wait period of over a year! Of course, it cost you a fancy five thousand rupees! Other than that, I do not think our entire group worried about anything. Life was uncomplicated. One could commute cheaply and easily in the local trains. Auto rickshaws were unknown. You easily walked five to six miles everyday without even thinking about it. Of course, eating out was a luxury. The ultimate was to have a thali at Purohit which cost upwards of three rupees and five rupees if you opted for a silver thali!.
Movie going was fun and cheap. A single rupee was sufficient to catch a movie and a couple of hot samosas.
Once we got out of school, the highest academic ambition used to be IIT. No one knew about MBA. No guide. Sit down at an Irani hotel and decide the future. Could have joined any stream or college after SSC. Commerce and closest to home was the final choice, because of a five minute brain storming at a railway station. That was enough to set one off on a career!
Time for thanksgiving. Got far more than I yearned for or imagined possible. Retirement is a continuous thing. Change is a better option. At some point no one wants you, then you are truly retired. Hope that there is enough to do once the stage is reached.
Grateful to friends who made this long journey easy.Too many to thank individually.
Lucky that I am still part of a group that grew up together from school and still meet (not on the net, but on the streets)
Family has been a pillar of support, though I cannot be accused of reciprocating always.
Thanks to my friends and family for letting me get far more than what I deserved.

Thursday, January 7, 2010

Inflation - missing the count..

There are multiple sets of inflation numbers, all official, none true. One of them is the Cost Inflation Index, used by the IT authorities for the purpose of capital gains calculations etc.

Cost inflation index (CII)as notified by Central Government is as under:

Financial Year (CII) Financial Year (CII)

1981-82 100 1993-94 244

1982-83 109 1994-95 259

1983-84 116 1995-96 281

1984-85 125 1996-97 305

1985-86 133 1997-98 331

1986-87 140 1998-99 351

1987-88 150 1999-2000 389

1988-89 161 2000-2001 406

1989-90 172 2001-2002 426

1990-91 182 2002-2003 447

1991-92 199 2003-2004 463

1992-93 223 2004-2005 480

2005-2006 497

2006-2007 519

2007-2008 551

2008-2009 582
Above table is the government numbers on Consumer Price Index. Today, the numbers for the week indicate that the pace of price increase has fallen down. My yesterday’s visit to the grocery shop indicated otherwise. Sugar, Dals, etc posting taxi meter like price rises. FMCG companies resorting to reducing packaging to absurd sizes like 782 gms etc for detergents, as they keep the price steady and the cartons empty. There should be a law stating that all prices should be given in Rs. Per kilo. That would make more people notice.
Mr Montek Singh had, a couple of weeks ago claimed to have inside information that inflation would come off. Not visible on the streets. So, he now has to fiddle with the numbers or what?

Heard that index composition is again going to be changed. They are going to stuff the index with obscure stuff like ‘roses’, ‘football’ etc. Anything to bring the numbers lower. Only guys who believe the numbers are the FII investors and the research analysts and economist. Read a nice line about economists:
But economists don't work for 'everybody.' They work for the government...or Wall Street. Both sectors have a keen interest in making people believe in what isn't so. 'We live in the greatest, most flexible, most dynamic economy the world has ever seen,' said the politicians. 'Yeah...and it will only get better,' added Wall Street.
True. It does not bother anyone that after the data is published, the governments keep revising them quietly a few times. No one keeps score.
Maybe I will start to keep a consumer price index that is based on day to day living. No newspaper or publication or agency wants to do this. Is anyone game enough to sponsor this ‘real cost of living index’?

Saturday, January 2, 2010

Aegon Religare- Well Done-

Aegon Religare has launched a pure term life insurance policy. Available only online. In other words, they have the guts to do away with the agent who takes away most of your premium. A 25 year policy, with under 10K a year as prem for a 50 lakh policy. Good enough for most middle class mortals. If you kick the bucket, your dependents get paid.
Life insurance and medical insurance are no different. You need insurance when you want to provide money to your dependants. In case you do not have any, you do not need insurance. And if you do not earn, dont take insurance. And if you are well off, do you need it at all?
I hope more insurance companies follow suit.
Do not get in to the trap of buying shit like ULIP's etc which basically screw you.
Take a simple term policy for life and the rest can be best invested through mutual funds, which give far superior returns than any insurance company does. Insurance companies lie about returns, lie about benefits and steal too much of your money.