Personal Finance - Livemint.com

Ask Mint | Evaluate costs before replacing life policies

On Insurance | TR Ramachandran — Sun, 22 Nov 2009 15:51:00 GMT

The insurance business in India isn’t just growing, but also becoming more sophisticated in terms of product offerings. To help readers keep ahead of developments in this business, Mint features a Q&A on insurance every Monday.

I have seen advertisements for term insurance at much lower rates than the policy I am now paying for. Is it advisable to discontinue my current policy and buy a new lower-cost policy?

Term life insurance rates tend to be very competitive and have seen a decline over the years.

If you find that your needs for insurance could be met by a new, lower-cost term life policy, you might consider dropping the older policy and getting a new lower-cost policy. However, before you do this, you should make sure that the newer policy has the appropriate coverage because a policy with different features might be lower-cost but not have the type of coverage you require.

Also, keep in mind that you are older than when you bought the original policy, and your health status may have changed. Please note that the rates offered in a term life policy depend on various factors such as age and health condition.

My brother recently died in a car accident. He had invested in a unit-linked insurance plan about four years back. How does the nominee/legal heir make a death claim in a unit-linked policy?

In case of a death claim, the claimant (nominee/legal heirs) must submit the following:

• An intimation of the death of the life assured

• Death certificate issued by the local health and medical authority

• Completed claim forms

• Policy of life assurance

• Medical evidence in case of health and disability rider claims

• Other forms as required by the company

As per the insurance regulator’s directive, the claim has to be settled within 30 days from the date of receipt.

In case the claim warrants an investigation, then the insurance company has to complete the investigation not later than six months from the time of lodging the claim.

Readers are welcome to write in with their queries to askmint@livemint.com. The questions will be answered by senior executives from leading insurance firms.

This week’s expert is T.R. Ramachandran, managing director and CEO, Aviva India.

ICICI Pru Life bets on Indian banks, shuns realty

Nishant Kumar / Reuters — Thu, 19 Nov 2009 09:16:00 GMT

Mumbai: Financial sector stocks could lead the Indian share market’s rise over the next three to five years as banks benefit from the country’s growing savings rate and a rebound in economic activity, a top fund manager said.

Manish Kumar, who oversees Rs500 billion ($10.8 billion) as head of investments for ICICI Prudential Life Insurance Co, said he also favoured power and related engineering firms but is wary of real-estate companies given their lofty valuations.

Among the top-10 holdings in his Maximiser Fund, are State Bank of India, the country’s top lender, HDFC Bank and Axis Bank, in keeping with the fund’s overweight stance on the financial sector.

“That is a call we have maintained,” Kumar said in an interview on Thursday.

He said banks’ earnings could be muted in the near term as treasury income dwindles and credit growth takes some more time to revive significantly.

But they remain a structural long-term growth story as more and more savings get channelled through the banking system.

India has about $400 billion in domestic savings but little is funnelled through the banking channel currently to fund the country’s huge requirements to build infrastructure.

He said India’s economic growth has shown signs of strong revival and as capex spending picks up, bank lending will go up.

India’s industrial output grew a faster-than-expected 9.1% in September from a year earlier and finance minister Pranab Mukherjee last week said the economy could expand between 6 and 7% in the year to March 2010.

“We are going to maintain our overweight stance on financials and we are, from a long-term perspective, comfortable with the valuations,” said Kumar, who also holds stakes in Punjab National Bank and Oriental Bank of Commerce.

Bets on power, wary of realty

The fund manager said his portfolios were also overweight on power sector shares, which are likely to benefit from India’s plan to add large generation capacities over the coming years. “There is a huge power shortage in the country,” he said.

“There is going to be a window of opportunity to make a good amount of money in merchant power,” he said, adding engineering firms supplying equipment to the sector would also benefit.

The fund manager has picked stakes in Bharat Heavy Electricals and Cummins India within the sector.

India estimates it needs to spend $500 billion to fix its crumbling infrastructure in its Eleventh Five-Year Plan ending in 2012 with nearly a third of that in the power sector alone.

Its peak power capacity is nearly 14% short of demand, while its transmission and distribution losses are a staggering 40%, according to Planning Commission data.

The Mumbai-based executive said he was shying away from real estate sector given its sharp rise and valuations that are pricing in significant increase in execution.

“That is something we believe is at risk,” he said.

Dismal loan growth in October

Mark to Market | Manas Chakravarty and Mobis Philipose — Wed, 18 Nov 2009 15:23:00 GMT

Bankers have been saying that non-food credit growth will pick up in the second half of the fiscal year ending March. That is logical due to two reasons. One, credit offtake will improve as the economy gets better, and two, the second half of the year has traditionally been the busy season, so credit growth should be more robust than in the first half.

Unfortunately, if the latest data on credit growth from the Reserve Bank of India is any indication, bank lending has been, instead of picking up, slowing even more.

For the period between 9 October and 6 November, outstanding non-food credit by banks went up by Rs2,005 crore. Between 11 September to 9 October, they were up by Rs69,410 crore, between 14 August and 11 September, the increase was Rs25,085 crore and between 17 July and 14 August, they rose by Rs23,686 crore.

Graphics: Sandeep Bhatnagar / Mint

It’s best not to compare loan growth in the current year with that during the pervious year because conditions were very different then; oil prices were high and the primary market was non-existent. But just for the record, between 10 October and 7 November 2008, non-food credit increased by Rs76,612 crore.

What’s going on? One obvious fact is that companies are raising a lot of money via the primary market, by qualified institutional placements and other private placements. But perhaps the clue to the dismal non-food credit offtake in the past month is linked to the good credit growth during the previous month. Perhaps firms were stocking up on inventories before the festive season, so they didn’t need to access bank credit during the next month.

This argument ties in with the strong growth in industrial production in September. If credit growth is any guide, then the Index of Industrial Production for October, shorn of year-on-year base effect, should be more muted.

Also, here’s how food credit offtake has been affected by drought. Between 31 July and 6 November, outstanding food credit contracted by Rs6,778 crore, compared with an expansion of Rs7,226 crore in the year-ago period.

Write to us at marktomarket@livemint.com

Money and your child

Harish Rao — Tue, 17 Nov 2009 06:48:00 GMT

download podcast

According to a recent survey commissioned by Cartoon Network, Indian kids received an average of Rs. 258 as monthly pocket money in 2009, a sharp increase from Rs. 193 the kids received in 2008.

The Kid’s Lifestyle Research throws up interesting facts. Kids in Ludhiana receive Rs. 419 on an average and kids in Delhi receive Rs. 295 and in third place are kids in Bangalore with Rs. 290.

The slowdown has not impacted kids in anyway. In fact, parents were willing to cut back on holidays, but not on kid’s pocket money.

The whole exercise had me thinking on how just a typical kid would handle the issue of pocket money. [More...]

a. The Hedonistic Kid :

Blows up the entire pocket money on malls / small treats with friends / toys / other goodies. Runs out his Rs. 258 midway and takes a line of credit from his mom and gradually builds up an impressive outstanding balance. Mom and son / daughter soon have to sit down and negotiate the kid’s balance sheet and CDR (Child Debt Restructuring) gets underway.

b. The Making Ends Meet Kid :

Just about manages to hang on to her Rs. 258. Usually course corrects midway or balances books with help of friends. Such kids know the value of money, but also want to have a good time.

c. The Balanced Kid :

Has the equivalent of a household budget. Prioritises spending and is keen to save a sizeable kitty at the end of every month. Such kids know the power of savings. The act of saving and accumulating a corpus gives them a positive sense of accomplishment. Such kids are every mother’s dream and will grow up as balanced individuals who can delay gratification if the situation so demands.

d. The Financial Planning Kid :

Now, this is a mythical kid that I would like to see emerge. This kid goes up to her dad and has the following dialogue :

Daughter : Dad, thanks for the pocket money of Rs. 250/-. But I need to discuss something important with you.

Dad : Go ahead.

Daughter : I would like you to index it to something relevant, like your salary for example. Give me 0.5% of your salary at all times. Or increase my pocket money by a factor of 10% pa.

Dad : Hmm, sounds interesting. Let me think about it.

Daughter : I have one interesting win-win deal for you.

Dad : Now, what can this be?

Daughter : Of the Rs. 250 you give me, I will invest Rs. 200 every month in an equity scheme. It’s a risk, but its worth it if you give a matching contribution of Rs. 200/- . This amount is independent of the investment plans that you have for me, which I don’t agree with anyway.

Dad : What is wrong with that?

Daughter : The choice of investment for starters. You have invested in an Insurance scheme so that it takes the guilt out of you. I think you were impressed with the celebrity endorser as well as the clever name.

Dad : Nah…It combines Insurance with Investment. And once I invest, I will have complete peace of mind.

Daughter : OMG…you are saying exactly the same thing the advisor uncle said…Honestly, isn’t your term insurance enough. And the money you save on charges and fees may as well be given to me as enhanced pocket money.

Dad : But it is all for your sake, sweetheart.

Daughter : Thanks Dad, keep that dialogue with mom…I am cutting to the chase : Your company group insurance plus some term insurance will do just fine…just re-direct the savings into my bank account. I am in a hurry to accumulate wealth. I want to build my own Antilla.

Dad : Yes madam…what ever you say.

I know all of this is in the realm of fantasy. But one day, some kid may miraculously mutate into one helluva high integrity financial advisor.

RBI tells banks to disclose all charges to customers

Anup Roy — Mon, 16 Nov 2009 16:43:00 GMT

New Delhi: The Reserve Bank of India (RBI) on Monday directed banks to disclose to customers details of all commissions and fees charged for selling or marketing products of various mutual funds, insurance or other financial companies.

Seeking transparency: The RBI building in New Delhi. Mint

Capital markets regulator Securities and Exchange Board of India had in September asked all mutual funds’ distributors to disclose commissions and fees while selling a product.

Separately, RBI said it will soon come out with norms for banks to augment the capital requirements that the lenders have to keep aside against bad assets. “We will be issuing the circular (provisioning against non-performing assets or NPAs) so you can then see details on that,” RBI deputy governor Usha Thorat said. RBI governor D. Subbarao, in the second quarterly review of the monetary policy in October, had said provisioning against bad debts needed to be raised to not less than 70% by September 2010.

“It has been advised to banks to augment their provisioning cushions consisting of specific provisions against NPAs as well as floating provisions, and ensure that their total provisioning coverage ratio, including floating provisions, is not less than 70%. Banks should achieve this norm not later than end-September 2010,” Subbarao said.

(‘PTI’ countributed to this story.)

Ask Mint | Get fresh cover before cancelling old plans

On Insurance | Rajesh Relan — Sun, 15 Nov 2009 15:47:00 GMT

I am 40-year-old and have recently purchased an apartment worth Rs1 crore. Is there a life insurance plan to insure the home loan? Should I go for it?

Your liability increases the moment you sign on a home loan, which makes it necessary to increase your life insurance cover. There are mortgage-reducing term assurance plans that are designed to give the borrower a life cover equivalent to their outstanding home loan. With such plans, the objective is to introduce customized risk protection at an affordable price. The payment of monthly instalments progressively brings down the outstanding loan over the years and the insurance cover also reduces correspondingly.

I am a 30-year-old man. I bought a money-back life insurance plan, and now I’m considering replacing it. Are there any risks in doing so?

When you buy an insurance policy, you have acted responsibly and in the interests of your family. Hence, it is not advisable to cancel plans that you have already bought.

However, if you do decide to cancel an existing plan, it is better to the weigh the options carefully. You must know that cancelling existing plans may result in some financial loss to you.

Please evaluate the extent of such financial loss and weigh it against additional benefits of replacing it with a new plan. Also, compare the new plans on price, guarantees available, and withdrawal options, and if it is a money-back plan, then the amount and frequency of money back instalments.

Most importantly, do not cancel any existing coverage until the new plan has been approved, paid for and delivered to you.

Readers are welcome to write in with their queries to askmint@livemint.com. The questions will be answered by senior executives from leading insurance firms.

This week’s expert is Rajesh Relan, managing director, MetLife India Insurance Co. Pvt. Ltd.

Coming to a grocery near you: the mobile phone as a wallet

N. Sundaresha Subramanian and Anirudh Laskar — Wed, 11 Nov 2009 16:04:00 GMT

Mumbai: Ashok General Stores is a mom-n-pop store in Lower Parel, Mumbai’s erstwhile textile hub, which is popular with the middle-class families living in the area who still prefer the neighbourhood grocer to the big retail stores. Ashok offers services beyond the goods on the shelves.

Charged up: RBI has allowed prepaid card issuers to offer mobile-based cash cards for up to Rs5,000 for buying goods and services. Madhu Kapparath / Mint

It also recharges the prepaid mobile phones belonging to homemakers, students and construction workers. It collects cash amounts as small as Rs10 and uses the mobile itself to recharge user accounts.

Soon, Ashok will be able to do the reverse. Customers will be able to pay for soaps, cigarettes and milk pouches with their mobiles.

The banking regulator has allowed vendors such as Ashok to collect money from the prepaid cards of mobile users. In August, the Reserve Bank of India ( RBI) said prepaid card issuers can offer mobile-based cash cards for up to Rs5,000 for buying goods and services. This essentially means that even a customer who does not have a bank account can go for cashless transactions through mobiles.

Squeezing a person’s wallet into a phone relies on a technology called near-field communication, which allows any enabled device to communicate with a cash register. When a phone is enabled with the near-field communication technology, shoppers can load bank and credit card information onto their devices and use it to buy goods at grocery stores and fuel stations.

Mehul Desai, chief operating officer, c-Sam Inc.—a company founded by Sam Pitroda—said the existing recharging merchant network offers a good foundation to build upon.

RBI first issued guidelines for mobile banking transactions in October 2008, allowing the use of mobile phones for checking bank balances, bank transactions up to Rs10,000 and transfers up to Rs5,000. In April 2009, RBI made it clear that “the use of mobile prepaid instruments for the purchase of any other goods or services shall not be permitted”. But in August that year, RBI allowed mobile prepaid cash cards for purchases of goods with a cap of Rs5,000.

Since then, three non-bank entities have been allowed to issue such cards and many more are in the queue.

According to the Telecom Regulatory Authority of India (Trai), there are 471 million mobile phone subscribers in India. Roughly half of them do not have bank accounts. Even among mobile users with bank accounts, the usage of mobiles for commercial transacting is very low.

The new RBI norms have the potential to bring together a network of around 1.5 million merchants who use their mobile phones for e-recharging and a large segment of mobile users who do not have bank accounts.

Tariq Husain, director of business development, mcommerce, Sybase 365, says the mobile phone can be both a purchase mechanism (which holds the same information as it is held on a plastic card) and a point of sale, or PoS, terminal. Sybase 365 is a US-based firm engaged in mobile commerce, mobile messaging and providing enterprise software solutions to mobilize information.

“More importantly, for the Indian market, the small street seller that you would not normally provide a PoS terminal to, can now accept payments on his mobile phone, and at the end of the day, upload that value to his bank account,” Husain said. If the mobile can replace the PoS terminal, it can ramp up the revenue stream of the neighbour kirana stores that survive on low-value transactions.

There are at least 1.5 million vendors who recharge mobiles and they can instantly become PoS terminals, said Sunil Kulkarni, chairman, Oxigen Services (India) Pvt Ltd, a Gurgaon-based mobile technology provider. Oxigen provides a variety of electronic payment services, including e-recharge services and a prepaid card called OxiCash. “With a clear framework laid down by RBI for prepaid instruments, it would now proliferate faster. People now using them for recharges would start using them for other purchases.” he added.

Other prepaid card players such as ITZ Cash Card Ltd, awaiting RBI approval to enter the same mobile-banking market, also see huge potential. “It needs a separate approval from RBI. That process is on,” said Navin Surya, managing director, ITZ Cash.

Commercial banks too are planning to use this window to expand their footprint. Vijay Ramachandran, chief marketing officer, Citibank, South Asia, said: “Prepaid cards have the potential to serve varied customer needs. They can be a first, formal account for the unbanked customer, a gift option, a card to make secure online purchases, a convenience for students etc.”

He said prepaid cards will bring different segments of customers into the fold of formal, regulated banking and at the same time, offer an attractive opportunity for card issuers.

ICICI Bank Ltd, India’s largest private sector lender, which has 8 million customers registered for mobile banking, is seeing many more signing up. “These customers are able to carry out their transactions through mobile phone by using SMS, WAP (wireless application protocol) sites of operators and iMobile (a downloadable application),” a spokesperson said.

Many hurdles ahead

While the excitement is high and the potential is huge, the road ahead is not without hurdles. Stringent know-your-customer, or KYC, norms are among these. A spokesperson at Axis Bank Ltd said while the move will enable customers to utilize electronic money without having a bank account, KYC could be a hurdle. “Almost the same set of KYC documents are required for using the open-loop prepaid instrument, which may prove a bottleneck in its growth.”

Service providers too agree that a lot needs to be done. Kulkarni of Oxigen said users and merchants need to be educated about the convenience and safety of this transaction mode. If the payment method gains acceptance, Surya of ITZ Cash expects mobiles replacing PoS terminals can “happen in say two to three years”.

According to Mehul Desai of c-SAM, an appropriate back-end platform that can leverage the existing infrastructure and provides various applications is a key requirement. “To efficiently scale for other services for various financial as well as non-financial services, the settlement network will require additional technology,” he said.

n.subramanian@livemint.com

ING Vysya Life Insurance launches new Ulip plan

PTI — Tue, 10 Nov 2009 11:40:00 GMT

Mumbai: ING Vysya Life Insurance on Tuesday launched ING Flexi Life Plus, a unit-linked investment plan, which offers flexibility in premium payments.

The product offers flexibility in changing the premium amount as per the revised guidelines of the insurance regulatory and development authority (Irda), the company said in a statement here.

“ING Flexi Life Plus allows our customers a lot of convenience to suit their financial needs. It offers customers to vary their premium amount as per the new IRDA regulations,” ING Vysya Life Insurance chief distribution officer Rahul Agarwal, said.

Customers can change their premium amount from second year onwards and this option is available throughout the term of the product. They can either increase their premium to 125% of their first policy year annualised premium or decrease it to 75% of the first policy year annualised premium.

ING Life India is a joint venture between ING Group (26%), Exide Industries (50%), Ambuja Cements Ltd (11.5%) and Enam Group (12.5%).

HDFC Bank disburses Rs3,000 cr retail loans in October

PTI — Mon, 09 Nov 2009 11:11:00 GMT

Mumbai: Backed by strong credit demand mainly in the auto segment, private sector lender, HDFC Bank has disbursed Rs3,000-crore of retail loans in October, its retail banking head said.

The bank, which has a total retail portfolio of Rs60,000-crore, expects to grow its retail loan book “faster than the industry” and has seen a major chunk of its business emerging from non-metros, HDFC Bank, Country Head, Retail assets, Pralay Mondal told reporters here.

“For the full year, our retail credit growth is expected to be a little faster than the industry...The revival in economy and government stimulus have helped reviving the spending power of customers. We expect a pick up in loan growth moving ahead,” Mondal said.

Around 47-50% of the total new incremental advances and 32% deposits of HDFC Bank came from non-metros in October, he said.

In October, the bank disbursed around Rs16,00-crore of auto loans, around Rs500-crore personal loans, around Rs550-crore homeloans and the rest from business banking loans and other portfolios , Mondal said.

The lender, which has a credit card base of 4.5-million and debit-card base of 9-million, saw a 22% rise in card spends over the last month, Mondal said.

HDFC Bank issues around 70,000 new cards every month and has seen non-performing assets in the segment less than 15%, Mondal said.

Nearly 30% of HDFC Bank’s retail asset portfolio is contributed by auto loans, around 16-18% unsecured lending excluding credit cards, 10% business banking and 7-8% commercial vehicle advances amongst others, Mondal said.

Ask Mint | Health plans can be investment tools too

On Insurance | TR Ramachandran — Sun, 08 Nov 2009 16:47:00 GMT

Why should I invest in a health insurance? Why should one buy a health plan when the same is available at lower rates from a general insurance firm?

Health problems have become increasingly common and growing medical expenses can make a huge dent in your savings. Health insurance plans secure your future against such medical emergencies. In some cases, it can also act as an investment tool as in the case of a health insurance bought from a life insurance firm. The key difference between a health policy bought from a general insurance firm vis-a-vis a life insurance firm is that the general insurance firm reimburses the actual expense in case of a claim, subject to the insured amount, while the life insurance firm usually offers fixed benefits that can help you meet additional expenses. Some life insurance firms also offer a maturity benefit.

In case I decide to invest in a child policy, how would it be different from investing in a regular term insurance plan?

A term policy purely offers protection in case of any unfortunate event. On the other hand, a child plan not only fulfils the investment objective, but also provides protection in case something unfortunate happens to the parent. This is the only product that ensures that the corpus that you have planned to save for your child’s future is available when your child is 18 or 21 years old. The choice of product, however, depends on the risk appetite of parents.

Various child plans are available with options such as premium waiver, so that the policy continues even in the case of the parent’s death, disability or critical illness (if the rider has been opted for), while the sum assured is paid out. Such plans also provide regular income (if the rider has been opted for) to meet the child’s everyday expenses in case of the parent’s death. On maturity, the child gets the fund value.

Readers are welcome to write in with their queries to askmint@livemint.com. The questions will be answered by senior executives from leading insurance firms.

This week’s expert is T.R. Ramachandran, managing director and CEO, Aviva India.

Banking | SBI, PNB cut deposit rates by 0.25-0.50%

Anup Roy and PTI — Fri, 06 Nov 2009 17:18:00 GMT

Mumbai: The country’s two largest banks, State Bank of India (SBI) and Punjab National Bank (PNB), on Friday cut deposit rates by 0.25% to 0.50%, effective 9 November even as SBI extended its cheap home loan rate scheme till March.

Following the rate cut, deposits for 181 days to less than one year will offer 5.25%, down from 5.75%. Deposits between one year and less than two years will offer 6% interest against 6.25% earlier and deposits for three years to less than five years will offer 6.50% against the current rare of 7%.

The bank has also extended its low-interest rate home loan facility till March.

The three schemes under which SBI gives home loans starting at 8% was scheduled to end in November.

In case of PNB, the maximum rate on retail term deposits will be 7% in the bracket of deposits of three years and more.

*********

Credit growth falls to single digits at 9.6%

Mumbai: The credit growth in the Indian banking system has fallen to single digit, at 9.7% for the week ended 23 October, as against 29.1% a year ago, according to data from the Reserve Bank of India (RBI).

The last time credit growth rate fell to these levels was in March 1997, at 9.6%.

The credit growth in the industry has been falling since the start of the credit crisis in September 2008 as companies stayed away from availing fresh loans from banks for their new projects.

The sluggish credit growth has forced RBI to revise its credit growth target in its second quarter review to 18% from 20% for the fiscal year ending March.

RBI also advised banks to step up their lending exercise but banks complain that companies are not availing loans already sanctioned to them. The low credit growth was one of the crucial factors why RBI did not raise interest rate in the system, as even with this prevailing low rates, companies have not been availing money from banks. However, bankers are saying that companies have started availing loans and in the coming days, the credit growth figure would increase.

— Anup Roy

*********

Govt to change law to cut stake in SBI

Wed, 04 Nov 2009 17:54:00 GMT

New Delhi: The government plans to amend a law this year allowing the government to reduce its holding in State Bank of India (SBI) and let the nation’s largest lender raise funds, a finance ministry official said.

The government, which is currently required to hold at least 55% of the Mumbai-based lender, intends to introduce legislation in both houses of Parliament and secure approval when lawmakers reconvene this month, the official said, declining to be named before an announcement. The Centre holds 59.4% of SBI, according to ‘Bloomberg’ data.

The lender will need Rs36,000 crore over the next five years to maintain its capital adequacy ratio at 12% and grow credit, chief financial officer S.S. Ranjan said on 2 November.

— Bloomberg

*******

SBI has no plan to revise home loan rates

Mumbai: State Bank of India, the country’s largest lender, on Wednesday denied that it has any plans of withdrawing its special home loan scheme that carries a rate of 8% for the first year of repayment.

“News reports have been appearing in various newspapers across the country indicating that SBI plans to withdraw its special home loan schemes carrying an interest rate of 8% for the first year of the repayment period. SBI has no immediate plans to revise the interest rates on home loans,” the state-run bank said in a statement.

— Staff Writer

Tort reform no miracle cure for healthcare costs

Matt Golosinski — Wed, 04 Nov 2009 16:14:00 GMT

The lawyers can relax. There’s no need to follow Shakespeare’s advice to kill them after all.

Illustration: Jayachandran / Mint

In fact, an assessment of out-of-control US healthcare costs has shown that malpractice and related litigation are just “a drop in the bucket”, according to Kellogg School assistant professor of man-agement and strategy Lee-more Dafny.

“These costs, all told, have been estimated to be only about 2% of healthcare expenses,” says Dafny, an economist and expert in healthcare competition.

Her own research, drawn from various demonstration projects already implemented at the state level, indicates that the most common legal reforms would collectively reduce health insurance premiums by 2%. This is “real money,” she admits, given that private insurance premiums now top $800 billion (Rs37.6 trillion), but still no “silver bullet” solution to the overall healthcare crisis.

The data appear in The Impact of Tort Reform on Health Insurance Premiums, a new working paper she has co-authored with Ronen Avraham, professor of law, University of Texas, and Max Schanzenbach, Benjamin Mazur professor of law, Northwestern University. The research evaluates the effect of tort reform on employer-sponsored health insurance premiums of around 10 million Americans annually between 1998 and 2006.

Dafny’s findings offer little cheer to anyone seeking a quick legal fix to the challenge of making healthcare more widely affordable.

“This is a very long-term problem and it’s going to take quite a while to see any appreciable difference unless we have some major and drastic reforms,” says Dafny, adding that even some of the proposals that US President Barack Obama outlined in his 9 September national address on healthcare would require four years to phase in. “It sounds like a long time, but these things take a long time,” she says.

The ideal—and exceedingly difficult—goal of healthcare reform is to vastly expand coverage to include an estimated 46 million Americans currently without health insurance while simultaneously reducing costs. Some, including President Obama, have considered legal reforms as one way to help make the numbers add up. Dafny’s research suggests that this line of thinking is unlikely to produce any-thing other than a very modest advantage.

Tort reform—changes to the legal system that in the case of healthcare would limit the liability damages of physicians and insurance companies—has been a perennial hot-button issue. Some have argued that such reform would reduce the threat of liability that can drive doctors to prescribe tests and procedures that may not be medically required, but which keep the patient happy and safeguard the practitioner against lawsuits.

Tort reform advocates have long argued that this “defensive medicine” contributes to the overall cost burden in the health-care system without providing much real benefit. But until now little aggregate empirical data existed to support the claims of either tort reform proponents or detractors. Dafny’s research clearly shows that such reforms would be limited.

“Tort reform’s impact is significant—meaning we can measure it—but significant and small,” says Dafny, who has been among the economic experts talking with senior members of the Obama administration to share research-based recommendations about the best way to improve the nation’s healthcare system. “To the extent that defensive medicine is driving up costs, malpractice reform is not going to curb it very much.”

So what is more likely to have a bigger impact on fixing healthcare? Dafny believes several pieces are critical, including creating incentives that encourage stakeholders to be more aware of cost, which in turn should lead to more thrifty behaviour.

One possibility is to mandate the purchase of insurance through a regulated exchange. Households choosing less generous coverage would pocket the savings, and the government could provide income-based subsidies. All would be required to have a certain minimum package of benefits.

Even this scenario, though, presents challenges. Dafny says: “What we consider a ‘minimum of care’ is still going to be costly to provide.”

Ultimately, she says, fixing the system will require a shift in expectations.

“I think Americans will have to come to accept more limits, more gatekeepers, more utilization review than they have in the past,” Dafny says. “We’ve been content to say that 46 million people don’t have any coverage and the rest of us have everything.”

Bringing those uninsured on board is “untenable”, she adds, if we expect to provide them with the type of care enjoyed by the currently insured.

As the healthcare debate continues, Dafny’s research is part of the discussion. With malpractice reform being such a hot topic, she says it’s important to consider the hard data.

“So many people have blown out of proportion the impact that tort reform could have,” Dafny says. “Now we know. We’ve done some tests and it turns out that it’s not going to be a huge fix. We’ve got to look at something else.”

Send your comments to kelloggscorner@livemint.com

Matt Golosinski is executive editor, Kellogg School of Management, Northwestern University.

Ask Mint | Personal life insurance plan always advisable

On Insurance | Rajesh Relan — Sun, 01 Nov 2009 16:17:00 GMT

What is the difference between an endowment plan and a money-back plan? What are the benefits of opting for a money-back plan?

A money-back plan not only covers your life, it also assures a certain per cent of the sum assured as cash inflow at regular intervals. Under a normal endowment plan, it is on the maturity of the plan that the policyholder gets the sum insured plus the accumulated bonus, if any.

Traditional money-back plan can help plan effectively for critical milestones of your life since they can be tailored to give periodic payments at specific periods (intervals as stated in the policy document) according to the needs of the policyholder. The risk cover continues for the entire term of the plan in spite of the instalments already paid. If you outlive the plan, the balance sum assured is paid back to you.

I am a 26-year-old man working in a private company. If I have group life insurance through my job, do I still need an individual life insurance plan?

Group life insurance is a benefit some people receive through their employers. But no matter how good the benefit package is, it comes with the job with the employer currently paying the premiums to cover your basic protection needs. As you are at a young age, you might opt for other alternative career opportunities. In such instances, the insurance cover your current employer offers may cease the moment you leave that job. With an individual life insurance plan, the life insurance cover stays with you no matter where you work. So, it is always advisable that your own personal plan should be the mainstay of your coverage, with the company’s offerings supplementing as incremental source of protection. A sound balance between these two may be the right choice for you.

Readers are welcome to write in with their queries to askmint@livemint.com. The questions will be answered by senior executives from leading insurance firms.

This week’s expert is Rajesh Relan, managing director, MetLife.

Customer complaints against banks rise 44%

Anita Bhoir — Mon, 26 Oct 2009 17:06:00 GMT

Mumbai: Customer complaints about banking services during 2008-09 increased by 44%, with a majority related to credit card services followed by the failure to meet commitments, the Reserve Bank of India (RBI) said in a report. State Bank of India (SBI), ICICI Bank Ltd and the local unit of HSBC Holdings Plc saw the largest number of complaints filed against them, according to RBI data.

Tough going: A file photo of a New Delhi branch of ICICI Bank. In the last fiscal, 33,141 complaints were filed against public sector banks, that meet 70% of India’s banking needs, and 21,982 against the private sector. Amit Bhargava / Bloomberg

The annual study—Report on Trend and Progress of Banking in India, 2008-09—said the number of complaints registered with banking ombudsmen for the year ended 31 March rose to 69,117 from 47,887 a year earlier.

The number of complaints against public sector banks, which meet some 70% or more of India’s banking needs, was the highest at 33,141, up from 25,694 during 2007-08.

Private sector banks and foreign banks saw 21,982 and 11,700 complaints filed against them, respectively.

The SBI group faced the most—18,167—of the complaints against public sector banks. SBI, the nation’s largest lender, alone accounted for 15,306 complaints, with 4,295 related to credit cards, followed by 2,631 over failed commitments.

Credit card-related complaints rose to 17,603 from 10,107 a year ago. Foreign banks had 5,737 credit card-related complaints, against 5,950 for private banks.

ICICI Bank, the largest credit card issuer in the country with around 8.5 million cards, saw 3,560 credit card-related complaints filed against it, followed by 1,914 filed for failure in meeting commitments made.

Among foreign banks, HSBC saw the highest number of complaints—2,838, of which 1,418 were related to credit cards.

“The credit card-related complaints could be associated with the customer being wrongly charged for a transaction not done by her. There could be disputes over certain charges levied by the bank,” said the credit card head of a private sector bank who did not want to be identified as the bank is in its silent period prior to the announcement of its second quarter results.

A significant number of complaints related to pension payments, especially in the case of public sector banks, and direct-selling agents, especially for new private sector banks, according to the study.

“In case of pensioners, the common error made by bankers is when they are doing the dearness allowance computation,” said an RBI official who did not want to be identified as he is not the official spokesperson for the central bank.

The “banking ombudsman offices at New Delhi, Chennai and Mumbai together accounted for 44.1% of the total complaints received during 2008-09 compared with 36.3% during the previous year”, the report said.

anita.b@livemint.com

Start planning early for your child’s future

On Insurance | TR Ramachandran — Sun, 25 Oct 2009 18:49:00 GMT

I have a 2-year-old daughter. I want to start saving for her education and marriage. When is the right time to start investing and how do I decide how much I need to save?

The best way to start planning for your child’s future needs is to start early. With every year that you lose out on, you will have to pay an extra premium for the same corpus. There are four simple steps to help you save for your child’s future:

Step 1: Decide the corpus you wish to provide for her future and the time when the same should be made available. This will define the premium and policy term.

Step 2: Choose the level of protection you require. This should be reflected in sum assured and the riders (such as income benefit, comprehensive health benefit and accidental death benefit) that you choose. This would ensure that no matter what happens to you, your child’s future is secure and her education is not affected. Our new child plan Young Scholar offers all these riders.

Step 3: Choose the premium, premium payment term and frequency.

Step 4: Choose the funds you want to invest in based on your risk appetite.

I am a 30-year-old executive working for an MNC. I am looking at investing in a unit-linked retirement plan. Which fund option should I go for, wherein fund management charges are lower?

There are some retirement products available in the market that will allow you to create long-term wealth. I would suggest that you look at a product that gives you an option to invest in an index fund. Index funds invest typically in Nifty’s 50 firms and have lower fund management charges as compared with other equity-linked funds. The fund can invest in equities in the range of 80-100% and debt and money market securities in the range of 0-20%. In the long run the fund value will grow higher with growth in each firm’s share price.

Readers are welcome to write in with their queries to askmint@livemint.com. The questions will be answered by senior executives from leading insurance firms.

This week’s expert is T.R. Ramachandran, CEO and MD, Aviva India.

Ask Mint | On investments

Vipul Verma — Sun, 25 Oct 2009 18:17:00 GMT

I would appreciate if you could tell me what are the equity index funds that are available in the Indian market. Also, if you could guide me to the sources or research to learn more about them before investing.

—Vijay Kumar

Key equity index funds include: Banking BeES, Benchmark S&P CNX 500, Birla Sun Life Index, Canara Robeco Nifty Index, Franklin India Index BSE Sensex, Franklin India Index NSE Nifty, HDFC Index Nifty, HDFC Index Sensex, ICICI Prudential Index Retail, ICICI Prudential SPIcE, Kotak PSU Bank ETF, Kotak Sensex ETF, LIC MF Index Nifty, LICMF Index Sensex, Magnum Index, Nifty Benchmark ETS, Nifty Junior BeES, PSU Bank BeES, Principal Index, Quantum Index, Reliance Banking ETF, Shariah BeES, Tata Index Nifty A, Tata Index Sensex A, Tata Index Sensex B, UTI Master Index, UTI Nifty Index, UTI Sunder.

For the purpose of analysing and research, some of the good websites are ‘www.livemint.com’, ‘www.valueresearch.com’ and ‘www.mutualfundsindia.com’.

I am short on the Nifty at 4,937 points. Should I cover my Nifty at current rates or should I roll over my positions to the next cycle, as the expiry is due this week?

—Suresh

You may wait for two days and then take a call.

If Nifty breaks past 5,060 points, it could then gain further.

However, any fall beyond 4,962 would be considered a sign of further decline.

It would be better to base your decision on levels rather than on time.

Further rise in inflation may trigger RBI rate hike: HDFC Bank

PTI — Thu, 22 Oct 2009 07:56:00 GMT

Mumbai: The Reserve Bank of India (RBI) is likely to wait for a further rise in inflation before it raises its benchmark lending and borrowing rates around December or January, HDFC Bank said on Thursday.

The private sector lender, however, expects RBI to hold key rates in its monetary policy review due next week.

“Our bet is that the RBI will wait until December-January period when inflation actually spikes up before changing policy rates. However, we continue to believe that the policy will maintain status quo (on 27 October),” HDFC Bank chief economist Abheek Barua said.

He said that it was unlikely for the RBI to embark on an ‘aggressive rate hike cycle’, even if it were to move rates upward.

“If the central bank is indeed looking for reasons to delay its exit from its super-accommodative monetary stance, the recent inflation prints certainly gives it one,” he said.

India’s wholesale price index (WPI) inflation rose to 1.21% for the week ended 10 October from 0.92% in the previous week. HDFC Bank expects WPI inflation to moderate in the second half of FY10.

Barua said that a robust industrial production data for August at 10.4% has raised the probability of a rate hike in the 27 October policy.

“RBI may, however, need more confirmation that India has climbed out of the bottom of the industrial cycle before it takes a decision on rates,” he added.

“The central bank may also carry out some ‘indirect monetary tightening´ over the next two months to drain out excess liquidity from the system,” he said.

“Some indirect monetary tightening is likely over the next couple of months. For one, the RBI could reduce the quantum of OMO purchases form the market. Second, the RBI is unlikely to intervene aggressively in the forex markets as intervention would add to local liquidity,” Barua said.

He said that the apex bank would also needs to be vigilant as demand may drive up pricing pressures before 2011.

Proposed base rate for banks will bring transparency: Assocham

PTI — Wed, 21 Oct 2009 12:34:00 GMT

New Delhi: Industry body Assocham on Wednesday said the Reserve Bank of India’s panel suggestion to have base rate for lending would ensure transparency and efficiency in pricing loans, which the current system of BPLR does not provide.

“The current methodology adopted by banks for calculating benchmark prime lending rate (BPLR) is not transparent since it is never disclosed to the public,” it said in a statement.

On Tuesday, a RBI working group recommended the replacement of the BPLR system with a base rate mechanism.

Under the proposed mechanism, all banks will be required to declare a base rate and charge interest rates over that depending upon the credit profile of the borrower and repayment period.

The rate would include those cost elements which can be clearly identified and are common across borrowers.

The new system of having base rate should be applicable to all customers and not the fresh ones as hitherto, the industry body said.

Assocham said that the inefficient and not so well managed banks pass on such cost to borrowers which is neither fair nor competitive.

“This will also help to price loans efficiently and dispense with other existing unrelated parameters which include detailing of borrowers fee based business,” it said.

Farm credit offtake rises 57% during April-August

PTI — Tue, 20 Oct 2009 09:27:00 GMT

New Delhi: Farm loans disbursal surged by 57% till August this fiscal to 1.13 lakh crore as the government strove to mitigate the impact of drought on farmers through timely supply of credit.

“Farm credit worth Rs1,13,569 crore has been extended in the first five months of this fiscal against Rs72,236 crore in the corresponding period last year,” a senior government official said.

“The government will definitely meet the target of extending Rs3.25 lakh in farm credit this fiscal,” he added.

While presenting the Budget 2009-10, finance minister Pranab Mukherjee had announced farm loans at a subsidised interest rate of 6% for those who pay their dues in time and raised the agriculture sector credit target by 16% to Rs3,25,000 crore this fiscal.

At present, farm loans are extended at an interest rate of 7% per annum.

Mukherjee had said the Rs71,000 crore debt waiver scheme, announced during the Budget 2008-09, would be extended by six months till 31 December this year in view of the delay in monsoon.

Institutional credit to the agriculture sector touched Rs2,87,150 crore last year, exceeding the target of Rs2,80,000 crore.

According to the provisional figures, commercial banks disbursed Rs2,23,663 crore, which is 77.9% of the total farm credit last year.

Among the commercial banks, public sector banks disbursed Rs1,64,350 crore (57.2%) whereas private banks lent Rs59,313 crore (20.7%) to the agriculture sector.

Cooperative banks gave credit worth Rs36,762 crore (12.8%) and RRBs Rs26,724 crore (9.3%) in 2008-09.