Reliance gets EPF deal

Anil Ambani's Reliance Capital has been selected along with two other private companies to help manage the employee provident fund which is worth a whooping Rs two lakh 50 thousand crore.
However, the inclusion of Anil Ambani led Reliance Capital as one of the fund managers for the Employee Provident Fund has angered the Left and the Leftist trade unions are alleging foul play.
The CPM alleges the late selection of Reliance Capital is a payback for the trust vote.
Fresh from the victory in the trust vote and with no allies to wave the red flag, the Government seems to have taken the first step in putting the reform process back on track.
The move to allow private fund managers to manage a part of Rs two-lakh fifty thousand crore provident fund corpus has run into controversy.
The CPM and left allied trade union allege that only three players were given the clearance by the committee but it was expanded for a fourth player to enable Anil Ambani owned Relaince capital to co-manage provident funds.
The Government, they allege, was returning the Samajwadi Party a favour - of bailing them out from the crisis.
"It is a political move," says CPI (M) Politburo Member, M K Pandhe.
However, it is not just the politicians who are alleging foul play.
Sources in the mutual fund industry tell CNN-IBN that HDFC and Birla Sunlife had quoted a nil asset management fee in the tender. Tenders usually favour the company that quotes the lowest rates. That apart they also need pass the technical bids.
Sources say bids from HDFC and Birla Sunlife were rejected based on an earlier court judgement that no service can be rendered without consideration.
That left four players in the fray. HSBC quoted the lowest rates, followed by ICICI Prudential and SBI.
And, what was meant to be a best of three, suddenly saw a fourth player in the form of Anil Ambani's Reliance Capital.
The labour ministry has maintained that the entire process has been transparent. But the manner in which a fourth player was squeezed in to manage the graveyard benefits of four crore employees does raise many question marks of credibility and transparency.
Source: CNN IBN

Price cuts help private cos gain share of motor insurance mkt

Private non-life insurance companies have increased their share of motor insurance, following introduction of free pricing. Private insurers’ share of premium from comprehensive insurance of vehicles is 50% for 2007-08 against 41% a year ago. According to data released by insurance regulator Insurance Regulatory and Development Authority (IRDA), private life insurance companies generated a premium of Rs 4,061 crore from sales of motor insurance cover for ‘own damage’. Own damage or comprehensive cover refers to that part of motor insurance that is voluntary and covers the risk of damage to the vehicle. A year ago, private companies had written only Rs 3,115 crore from this segment. Private insurers have been able to wrest market share from state-owned companies because of aggressive price cuts and tie-ups with automobile dealers. Among private companies, growth in this segment was driven by Reliance General Insurance and Bajaj Allianz both companies increased their motor own damage portfolio by 124% and 50%, respectively. Interestingly, largest private life insurer ICICI Lombard went slow in motor and its own damage portfolio actually shrunk 5%. Interestingly, it is not just the profitable own damage segment that private companies have increased market share. Private companies have made inroads into the compulsory third-party liability portfolio as well. Until a couple of years ago, private companies were shunning the third-party liability covers, as rates on this were frozen and claims ratio were too high. However, following revision of the rates in 2006, private companies have slowly increased market share in this segment as well. In 2006-07, private companies wrote third-party business amounting to Rs 1,528 crore which is two-and-a-half times of the Rs 596-crore business they did in 2006-07. The market share of private companies in this segment has gone up to 33% from 19% a year earlier. Private companies have been able to increase their market share in motor insurance, to a much larger extent than they could increase overall market share. Overall private companies accounted for 40% of total business of Rs 28,126 crore in 2007-08, up from their market share of 35% of the total business of Rs 24,998 crore in 2006-07. Motor and health insurance have been the drivers of growth in 2007-08. Property insurance has seen negative growth on account of detariffing which has resulted in fire insurance premium for the industry declining to Rs 3,516 crore from Rs 4,157 crore a year ago. ICICI Lombard and Tata AIG have been the only two companies to have increased their premium from fire insurance in 2007-08.

Source : The Economic Times

Govt to give Rs 1,000 cr more to LIC for Aam Admi Bima Yojana

The government on Thursday decided to provide an additional Rs 1,000 crore to Life Insurance Corporation to cover another one crore rural landless households under the social security scheme 'Aam Admi Bima Yojana'. The scheme will cover an additional one crore landless households by September 30, 2009 under the AABY to provide death and disability benefits to the head of the family or earning members of the family, Information and Broadcasting Minister P R Dasmunsi told reporters after the Cabinet meeting. The scheme, which is being implemented through the LIC, was launched on October 2 last year. The union government bears 50 per cent of the premium of Rs 200 per year per person and the state governments pays the rest of the premium on behalf of the beneficiaries. Besides, the Cabinet also approved giving Rs 500 crore towards Social Security Fund maintained by LIC to provide 50 per cent share of premium Janshree Bima Yojana for all women self help groups credit linked to banks. Dasmunsi said the decision will facilitate providing life and permanent disability cover to 2.5 lakh women SHGs under the scheme by March 31, 2009. Janshree Bima Yojana was launched in August 2000 to provide life insurance protection to the rural and urban poor under various vocational groups. The premium under the scheme is Rs 200 per member per annum, of which 50 per cent premium is paid by beneficiaries of the scheme and the rest pitched in by the government through the fund maintained by LIC. At present, there are 45 vocational or occupational groups covered under the scheme.
Source: The Economic Times

DECISION ON WHO MANAGES PROVIDENT FUND DEPOSITS

New Delhi: After two private fund managers, ICICI Prudential and HSBC Asset Management Company (AMC), emerged as front-runners to manage Rs 25,000-crore incremental deposits of Employees Provident Fund, a final decision on their fate will be taken on Tuesday by the apex decision-making body on the matter — the EPFO’s Central Board of Trustees.

The Board, chaired by labour and employment minister Oscar Fernandes, will meet on Tuesday to take a final call on recommendations of the EPFO’s Finance and Investment Committee. The committee, in its meeting held last week, had given nod to the pruned list of two private fund managers and a public fund manager, State Bank of India from among the seven private and three public fund managers that had qualified technical bids.

Meanwhile, legal opinion on eligibility of Asset Management Companies or other financial institutions in addition to banks as portfolio managers was sought from the labour and employment ministry. The opinion, which contained certain ambiguity, however, was put aside by Central Provident Fund Commissioner, A Viswanathan, stating that management and deposits or investment of EPFO funds are two different activities. Therefore, portfolio management by AMCs can be made as long as they channelized these investments in the name of the CBT and EPFO within specified guidelines.

However, the proposal is likely to be debated hotly within the board, with employees’ representatives, comprising of leading trade union organisations, opposed to private participation in the fund management.

Earlier, independent consultant, Crisil had been appointed by a three-member committee to assist EPFO in selection of multiple fund managers. Crisil has also been given the mandate to establish an Investment Monitoring Cell and help authorities in monitoring the performance of chosen fund managers for a specified period. Later, EPFO would be expected to build in-house competence for monitoring these fund managers’ performance.

Source: The Indian Express

MEET TODAY TO DECIDE ON EPFO FUND MANAGERS

New Delhi: Efforts by two private sector asset management companies – HDFC AMC and Birla Sun Life AMC – to provide fund manager services gratis for the Employees Provident Fund Organisation (EPFO) and pay certain statutory expenses on behalf of it have been rejected by EPFO’s finance and investment committee.

The EPFO has rejected the proposals made by the two companies based on the opinion of its external legal advisors. The private sector players suggested this strategy to garner a portion of the EPFO corpus (about Rs 1.4 lakh crore) under their management. There were a total of 10 qualified bidders in the fray for becoming EPFO fund managers.

The finance and investment committee, however, has recommended HSBC AMC and ICICI Prudential AMC as fund managers along with the present fund manager -- State Bank of India.

The Central Board of Trustees (CBT) of the EPFO will meet on Tuesday to take a final call on the matter. One of the CBT members, who is also a member of the finance and investment committee, told Business Line that HDFC AMC and Birla Sun Life had made the gratis offer to derive “goodwill” as fund managers of the second largest financial institution in the country after Life Insurance Corporation. This, they felt, would enable them to generate enough business to make good the losses that would be incurred for providing free services to the EPFO.

“The two companies had said that though they would charge no fee as direct consideration for the services to EPFO, but hoped to get compensated in terms of enhanced reputation and brand value,” a CBT member said, adding that the companies had quoted zero rates despite knowing that charges related to custodial services, which are to be borne by the fund managers only, are to be included in their fees. “This is an offer unheard of,” he said.

EPFO’s legal advisors have recommended rejection of the zero rate proposals stating that they are not legally enforceable. The legal advisors state that creation of goodwill cannot be considered as a consideration as it is intangible and uncertain in nature.

“As an agreement without consideration is not a valid contract, hence the defect/infirmity in the contract cannot be cured by relying on the performance guarantee,” they explained while recommending rejection of the proposals.

Source: The Hindu Business Line, The Financial Express