New Delhi: Reliance Capital Asset Management and ICICI Prudential Asset Management Company are among the 10 players that have qualified the technical round of the selection process for managing the provident fund money.
The Employees’ Provident Fund Organisation (EPFO) management short-listed 10 fund managers out of 17 on Thursday, on the basis of technical bids submitted by them to manage the provident fund money lying with EPFO, said an official close to the developments who didn’t want to be quoted.
With this, EPFO is just one notch away from increasing the number of firms that will manage the additional money, expected to be in the region of Rs 25,000 crore per annum, that it gets. Currently, only State Bank of India manages this money.
“The financial bid will open on Monday (July 21) or Tuesday,” said the official. The final list of selections will be submitted to the board after assessing the financial bid.
The EPFO management is moving ahead, keeping itself immune to the voices being raised by some employees’ representatives who are against selection of fund managers for the EPFO fund management. “The management will finalise the fund managers as per the mandate given by board and will submit its proposal to the board that will take the final call,” the official said.
Source: Sandeep Singh
Hindustan Times
Friday, July 18, 2008
EPF CANNOT PERENNIALLY OVERLOOK BAD FUND MANAGEMENT
New Delhi: In June, State Bank of India was put in the dock by the country’s biggest retirement fund, the Employees Provident Fund Organisation (EPFO), for poor management of the funds. The Finance and Investment Committee (FIC) of the EPF’s central board of trustees junked an audit report that cleared SBI of allegations of mismanagement of funds, which caused abysmal returns on EPF investments and subsequently complained to the Institute of Chartered Accountants of India (ICAI) for action against the auditor. The institute is yet to give its verdict.
FIC charges included deliberate parking of substantial EPF funds in SBI’s own term deposits, leading to lower returns. It also alleged that monthly PF contributions remitted to SBI branches idled for a while before being credited to EPF investment account and that SBI had failed to disclose this or share returns on these funds which were being used to service bank operations. One FIC member estimated that as much as Rs 150 crore could be lying supine with SBI on a day to day basis.
In reply to the FIC demand that interest be paid to it on daily running balances, SBI offered to pay interest to EPF on a monthly basis, citing RBI guidelines that prevented it from paying monthly interest. That virtually amounts to nothing since interest is calculated at the end of the month by which time the idling funds have been moved.
The matter is, therefore, grave enough for EPF, whose corpus is a colossal Rs 2,40,000 crore (but has fetched nothing more than 8% returns on its investments in the recent past despite rising interest rates) to act fast on its decision earlier this year to engage multiple fund managers, even if limited by the current investment pattern, and rid SBI of its five decade long monopoly. HDFC, ICICI Prudential and UTI asset management companies were among those who eagerly bid for the same. EPF’s central board of trustees is expected to take a call on the bids when it meets later this year.
EPF had to dip into various contingency funds and its Interest Suspense Account to pay 8.5% interest rate to its existing four crore-plus subscribers in both 2006-07 and 2007-08. Although it was becoming increasing clear over the last few years (subscriber payout percentage went down from as high as 12% to only 9%, thanks to lower returns on investments) that the central board of trustees has to do something urgently to ensure a reasonably high level of payout to subscribers, measures to address this were restricted to drastically reducing the number of defaults through higher penalties and sterner legal action. Not surprisingly, they were not enough to stop the central board of trustees from being forced to dip into contingency and reserve funds accumulated over several decades, depleting them systematically in the absence of any bailout packages from the government.
SBI’s ‘sitting pretty’ tactics have been successfully challenged in the recent past by public sector giants such as food procurement major FCI. By questioning the prolonged double digit interest rates charged for food credit by the SBI-led consortium despite prevailing lower interest regime, FCI saved a substantial expenditure on the food subsidy bill. FCI managed this by the simple
precedent of shopping around for alternative funds in an eager market, thus forcing the leading bank’s options.
Interestingly, it was the central board of trustees itself that suggested, in 2005, a more relaxed investment pattern, albeit not linked to the capital market, to the finance ministry. In December last year, the central board of trustees declined to okay the proposal for investment of a symbolic percentage of its corpus in the capital market, within the prescribed limits of the investment. Instead of equities, it proposed investment in safer post office term deposits and NSS, both of which were rejected by the finance ministry.
This year, to bolster its sagging coffers and poor returns from mismanagement of investments, EPF has amended its rules to bring 45 lakh more subscribers under its ambit. It is also expected to soon hike the salary ceiling on par with ESIC to boost the quantum of contributions to its kitty. Whether the higher interest rates this year will mean better returns on current investments, and to what extent, will only be known by the end of the fiscal but EPF cannot ignore the urgent signs for reform in investment management for optimum returns. Options appear limited even when multiple fund managers are appointed.
”Fundamental investment pattern changes are essential to realise optimum returns but there is enough leeway on investment in existing pattern which the central board of trustees has failed to maximise. In similar situations, in other emerging economies where capital market investment options are deliberately restricted, both transparency and performance are taken into account for assessing the services of fund managers,” said an official.
A 2004 study the India Pension Research Foundation’s R Sane and N Harishankar maintains that contracting out of the EPFO in principle would indeed provide a great deal of flexibility to employers to constitute and administer provident and pension funds for employees despite EPFO initiatives for reform which could lead to exempt funds. As per the study, there is still considerable lack of information on the functioning of exempt funds that has meant less knowledge about the portfolio distribution of exempt funds and the credit ratings of the instruments held by them. The investment regime prescribed is “highly restrictive” the authors maintain, with exempt funds finding it difficult to keep up to the mandated interest rates with such regulation. There has to be flexibility in either one or the other: either interest payout rate or regulations, the study says. Studying their portfolio distribution in detail could help the EPFO in getting an estimate of the viability of exempt funds and strengthening its own yields on investments.
As for the New Pension Scheme (NPS), which is comparable, the target is to have a corpus of $300 billion in another 10 years (the current corpus is a little over Rs 2,000 crore and it is largely lying uninvested in the public account). While secure and riskborne investment options are being mulled to start with, the fact is that if these extant corpus had been parked in the capital markets in the last four years instead of in public account, returns would have been 14-29%. How well the NPS fund managers performed would be clear by mid next year but by incorporating transparency and performance-oriented rating for fund managers as priority criteria for investment of pension funds, the NPS subscribers may well manage to get far better returns on investments than the EPF subscribers.
Source: Prabha Jagannathan
The Economic Times
FIC charges included deliberate parking of substantial EPF funds in SBI’s own term deposits, leading to lower returns. It also alleged that monthly PF contributions remitted to SBI branches idled for a while before being credited to EPF investment account and that SBI had failed to disclose this or share returns on these funds which were being used to service bank operations. One FIC member estimated that as much as Rs 150 crore could be lying supine with SBI on a day to day basis.
In reply to the FIC demand that interest be paid to it on daily running balances, SBI offered to pay interest to EPF on a monthly basis, citing RBI guidelines that prevented it from paying monthly interest. That virtually amounts to nothing since interest is calculated at the end of the month by which time the idling funds have been moved.
The matter is, therefore, grave enough for EPF, whose corpus is a colossal Rs 2,40,000 crore (but has fetched nothing more than 8% returns on its investments in the recent past despite rising interest rates) to act fast on its decision earlier this year to engage multiple fund managers, even if limited by the current investment pattern, and rid SBI of its five decade long monopoly. HDFC, ICICI Prudential and UTI asset management companies were among those who eagerly bid for the same. EPF’s central board of trustees is expected to take a call on the bids when it meets later this year.
EPF had to dip into various contingency funds and its Interest Suspense Account to pay 8.5% interest rate to its existing four crore-plus subscribers in both 2006-07 and 2007-08. Although it was becoming increasing clear over the last few years (subscriber payout percentage went down from as high as 12% to only 9%, thanks to lower returns on investments) that the central board of trustees has to do something urgently to ensure a reasonably high level of payout to subscribers, measures to address this were restricted to drastically reducing the number of defaults through higher penalties and sterner legal action. Not surprisingly, they were not enough to stop the central board of trustees from being forced to dip into contingency and reserve funds accumulated over several decades, depleting them systematically in the absence of any bailout packages from the government.
SBI’s ‘sitting pretty’ tactics have been successfully challenged in the recent past by public sector giants such as food procurement major FCI. By questioning the prolonged double digit interest rates charged for food credit by the SBI-led consortium despite prevailing lower interest regime, FCI saved a substantial expenditure on the food subsidy bill. FCI managed this by the simple
precedent of shopping around for alternative funds in an eager market, thus forcing the leading bank’s options.
Interestingly, it was the central board of trustees itself that suggested, in 2005, a more relaxed investment pattern, albeit not linked to the capital market, to the finance ministry. In December last year, the central board of trustees declined to okay the proposal for investment of a symbolic percentage of its corpus in the capital market, within the prescribed limits of the investment. Instead of equities, it proposed investment in safer post office term deposits and NSS, both of which were rejected by the finance ministry.
This year, to bolster its sagging coffers and poor returns from mismanagement of investments, EPF has amended its rules to bring 45 lakh more subscribers under its ambit. It is also expected to soon hike the salary ceiling on par with ESIC to boost the quantum of contributions to its kitty. Whether the higher interest rates this year will mean better returns on current investments, and to what extent, will only be known by the end of the fiscal but EPF cannot ignore the urgent signs for reform in investment management for optimum returns. Options appear limited even when multiple fund managers are appointed.
”Fundamental investment pattern changes are essential to realise optimum returns but there is enough leeway on investment in existing pattern which the central board of trustees has failed to maximise. In similar situations, in other emerging economies where capital market investment options are deliberately restricted, both transparency and performance are taken into account for assessing the services of fund managers,” said an official.
A 2004 study the India Pension Research Foundation’s R Sane and N Harishankar maintains that contracting out of the EPFO in principle would indeed provide a great deal of flexibility to employers to constitute and administer provident and pension funds for employees despite EPFO initiatives for reform which could lead to exempt funds. As per the study, there is still considerable lack of information on the functioning of exempt funds that has meant less knowledge about the portfolio distribution of exempt funds and the credit ratings of the instruments held by them. The investment regime prescribed is “highly restrictive” the authors maintain, with exempt funds finding it difficult to keep up to the mandated interest rates with such regulation. There has to be flexibility in either one or the other: either interest payout rate or regulations, the study says. Studying their portfolio distribution in detail could help the EPFO in getting an estimate of the viability of exempt funds and strengthening its own yields on investments.
As for the New Pension Scheme (NPS), which is comparable, the target is to have a corpus of $300 billion in another 10 years (the current corpus is a little over Rs 2,000 crore and it is largely lying uninvested in the public account). While secure and riskborne investment options are being mulled to start with, the fact is that if these extant corpus had been parked in the capital markets in the last four years instead of in public account, returns would have been 14-29%. How well the NPS fund managers performed would be clear by mid next year but by incorporating transparency and performance-oriented rating for fund managers as priority criteria for investment of pension funds, the NPS subscribers may well manage to get far better returns on investments than the EPF subscribers.
Source: Prabha Jagannathan
The Economic Times
AVIVA TO TAP RURAL MARKET IN PUNJAB
Madrid: Keen on reaching out to a larger number of rural customers, Aviva Life Insurance is planning to forge liaisons for micro-insurance with financial institutions across various states, including Punjab.
The company was working towards providing new and integrated products to cater to specific needs of low-income segments and also have a paperless policy enforcement in rural areas, said Monica Agrawal, director corporate initiatives, Aviva, on the concluding day of the Aviva Insurance Summit here today.
With an untapped potential of almost $2 billion, rural India provides immense commercial opportunity to insurers, said Agrawal. “We are working with self-help groups and various micro-finance institutions like BASIX and Arohan in 12 states. The focus now, apart from building new products, is on process initiatives."
She said products like credit plus, that were linked with loans, and gramin suraksha that offered a premium as little as Rs 110 were helping the company increase its penetration in the rural segment.
Amid challenges like absence of a proper banking infrastructure, Aviva, through its partners was involving local people to increase awareness. An increasing number of customers in urban areas were approaching insurance companies through channels like mobile phones and the Internet, said Abhay Johorey, director, transformation and services. He said the proportion of those using mobile phones was much higher than the ones who opted for the Internet.
"There are issues like reducing the time gap to reach customers once they contact the company using a phone or the Internet and also having systems that can deal with the changing technologies in mobile phones so as to gain the maximum through these channels," he added.
Johorey said insurance players had covered barely 2 per cent of the population that could be tapped.
Source: Shveta Pathak
The Tribune
The company was working towards providing new and integrated products to cater to specific needs of low-income segments and also have a paperless policy enforcement in rural areas, said Monica Agrawal, director corporate initiatives, Aviva, on the concluding day of the Aviva Insurance Summit here today.
With an untapped potential of almost $2 billion, rural India provides immense commercial opportunity to insurers, said Agrawal. “We are working with self-help groups and various micro-finance institutions like BASIX and Arohan in 12 states. The focus now, apart from building new products, is on process initiatives."
She said products like credit plus, that were linked with loans, and gramin suraksha that offered a premium as little as Rs 110 were helping the company increase its penetration in the rural segment.
Amid challenges like absence of a proper banking infrastructure, Aviva, through its partners was involving local people to increase awareness. An increasing number of customers in urban areas were approaching insurance companies through channels like mobile phones and the Internet, said Abhay Johorey, director, transformation and services. He said the proportion of those using mobile phones was much higher than the ones who opted for the Internet.
"There are issues like reducing the time gap to reach customers once they contact the company using a phone or the Internet and also having systems that can deal with the changing technologies in mobile phones so as to gain the maximum through these channels," he added.
Johorey said insurance players had covered barely 2 per cent of the population that could be tapped.
Source: Shveta Pathak
The Tribune
SBI LIFE TO OFFER HEALTH COVER
Calcutta: SBI Life Insurance Company, a joint venture between BNP Paribas Assurance and the State Bank of India, will launch its first standalone health insurance plan next month. “We got the approval of the insurance regulator for the product last month and at present we are upgrading our information technology system for this product. Hopefully, we’ll launch our first standalone health insurance plan in August,” said U.S. Roy, managing director and CEO, SBI Life Insurance Company.
Sensing big business in health insurance, the Life Insurance Corporation of India, Bajaj Allianz Life Insurance, Reliance Life Insurance and Tata AIG Life Insurance have already launched standalone plans besides offering critical-illness riders.
Like other life insurers, SBI Life’s health insurance scheme will be a defined benefit plan where the policy-holder will be given a predetermined sum in the case of hospitalisation. Only Bajaj Allianz has recently introduced a family floater indemnity plan that will reimburse the hospitalisation bills subject to the sum assured — similar to the mediclaim policies of the general insurance companies.
In 2007-08, SBI Life clocked a total premium income of Rs 5,622 crore, of which income from new policy sales was Rs 4,800 crore. “Our net profit for the year stood at Rs 34 crore compared with Rs 3.5 crore in 2006-07 and Rs 2.02 crore in 2005-06,” Roy said. The life insurer reported net profit for the third year in a row. It was incorporated in March 2001.
“We have shown more than 100 per cent growth in business during the first quarter of the current fiscal. However, since we provide mark-to-market provisioning for our investments as a prudential practice, though it is not required for long-term investments such as life insurance. Our growth in profitability will not be much given the turmoil in both stock prices and interest rates,” Roy said.
SBI Life reported a premium income of Rs 426 crore from new business in the first quarter of 2007-08. Between April and June this year, the insurer expects a first year premium income of between Rs 800 crore and Rs 900 crore.
“For the current financial year, our target is to achieve a total premium income of Rs 10,500 crore and a first year premium income of Rs 8,500 crore,” Roy said. The company now ranks second in terms of market share among private life insurers in the country.
Source: The Telegraph, The Statesman, Business Standard, The Financial Express
INSURANCE SCHEME FOR VEGETABLE GROWERS
Thiruvananthapuram: The Kerala government proposes to institute an insurance scheme for vegetable growers on the lines of a scheme now in operation for the benefit of paddy cultivators, Agriculture Minister Mullakkara Ratnakaran told the Assembly on Thursday.
Compensation
Vegetable growers would be compensated for crop loss just as paddy cultivators were being compensated at the rate of Rs. 12,500 a hectare over and above the Central and State level crop insurance schemes, he said in response to a calling attention motion from K.P. Mohanan (JD-S).
The government would also launch the Kisan Abhiman project, which envisages provision of pension to farmers, from this year, the Minister added.
Source: The Hindu
Compensation
Vegetable growers would be compensated for crop loss just as paddy cultivators were being compensated at the rate of Rs. 12,500 a hectare over and above the Central and State level crop insurance schemes, he said in response to a calling attention motion from K.P. Mohanan (JD-S).
The government would also launch the Kisan Abhiman project, which envisages provision of pension to farmers, from this year, the Minister added.
Source: The Hindu
VEHICLE BUYERS SEEK ‘PREMIUM’ ADVICE
Coimbatore: You have decided to buy a car. Say you have made up your mind on the make, colour and model. The next step you will probably take is get a quote from a dealer or two in the vicinity, compare the offer/freebies and approach a bank for finance support.Here again, you will compare the rate or EMI before submitting your papers for getting a legal sanction of the loan. Thereafter, you leave it to the dealer to insure and register the vehicle before delivering the same at your doorstep. Right?
But when Mr Sekar, a businessman, decided to take a Skoda, he not only compared the EMI dues (to the bank), but also sought the help of an insurance broker to get him the best premium. “In the detariffed scenario, every company has started to offer a huge discount. To get the best rate, I approached an insurance broker,” he said
The broker got Mr Sekar the quotation from five insurance companies — Oriental Insurance, Bajaj Allianz General, Cholamandalam MS General Insurance, IFFCO-Tokio and ICICI Lombard. While ICICI Lombard quoted a final premium of Rs 38,073, the others stuck to a premium of Rs 43,880 on the vehicle, whose declared value was Rs 15.46 lakh. Mr Sekar chose the ICICI offer.
Offer analysis
A closer look at the quotation from the various companies revealed that the own damage premium, basic third party cover and personal accident cover were the same across these companies. ICICI offered the maximum discount of Rs 20,673 compared to Rs 15,504 by the other four players.
Asked about the huge difference in the motor vehicle premium rates, the Head of Pioneer Insurance & Reinsurance Brokers Pvt Ltd, Mr C. Kumar, said the general insurance companies were offering discounts which ranged between 10 and 30 per cent for private cars. “But one has to demand to get the best offer,” he said.
Unaware of offers
With most vehicle buyers preferring to allow the dealer complete all the formalities, such as insurance and registration, customers rarely get to know about such discount offers.
Mr Mohan Kumar, Managing Director of Link-K Insurance Broker Company (P) Ltd, said it is the job of a broker to get the best rate for his clients. To a query on discount, he said, “There is a whole range such as volume discount, good feature discount and the like.”
Industry insiders say that insurance companies have not streamlined or codified the discount, but follow the same yardstick in arriving at the ‘good feature’ discount.
Interesting yardstick
The yardstick, though not publicised or put in the public domain, is interesting.
“The insurer captures all details about the vehicle owner, his vehicle usage pattern, commuting within the city or use for long distance travel, the driver’s background, age, driving experience, past claims experience, the type of vehicle and the client relationship with the company,” Mr Kumar explained.
The good feature discount is extended only to private cars and in the case of a new vehicle, is taken into consideration only from the second year. But not many are in the know about this. At this point in time, it looks like an ‘on-demand’ offering.
Source: The Hindu Business Line
Subscribe to:
Posts (Atom)
