CONTENTS
LETTER
ISSUE CONTENTS
6 September 2012
FROM THE
EDITOR A Paradigm Shift
Needed: Financial literacy for regulators
T
he regulation of financial services is undergoing a fundamental change in the UK and, to some extent, in the US. UK is creating an organisation called Financial Conduct Authority (FCA) which will do something that regulators have not done all these decades. It will regulate all marketplayers on their conduct towards customers. The reason is a series of realisations (after the 2008 financial crisis). These are: financial companies cannot be trusted to compete and consistently improve the quality of their offerings; distribution is a shadowy area where malpractices are rife; and, most importantly, regulators’ assumptions, about the people they protect, are flawed. In the words of Martin Wheatly, designated to head the FCA: “You have to assume that you don’t have rational consumers. Faced with complex decisions or too much information, they default.” Behavioural studies have long established that humans are hardwired to be irrational when confronted with financial choices. They cannot calculate the impact of inflation; cannot understand risk; they have irrational fears; they cannot deal with volatility. And, of course, they simply won’t do any hard work themselves. A regulator’s job is not just to frame the rules, extract maximum disclosure and let buyers and sellers make rational decisions. If they do only that, there will be repeated mis-selling; most of the customers will be alienated from the financial world. This will have costs and consequences for economic growth. At last, some regulators seem to have realised the urgency and moved forward in a meaningful way. But are Indian regulators even alive to this issue? Elsewhere in the issue, Sucheta writes about how we are failing to handle human resource issues—whether in large organised sectors like public sector banks or Maruti or unorganised sectors of the economy, creating huge stress and inefficiency. Moneylife Foundation had a packed August and, on 8th September, will hold another day-long financial literacy session in Pune, its third in that city. Looking forward to your participation. After all, they are meant for you. Debashis Basu MONEYLIFE | 6 September 2012 | 10
22 Cover Story Needed: Financial literacy for regulators
18
STOCKGRADER 43
Stock Exchanges: BSE’s Gambit; Fixed Deposits: Call Option for Finance Companies; Big Bang Reforms: What about Regulation & Supervision?
of 20 Price Inequity Can India keep running away from Bharat? SMART MONEY
31
Complex Protection
Investors must beware of being sold ‘capital protection’ schemes as they tend to be very complicated
14
Your Money
Prices: SEBI’s reforms may leave investors cold; RBI: Lowest numbers of ATMs and PoS terminals; Home Loan: NHB cuts interest rate on refinance, SBI trims home loan sales target Fixed Deposits: Premature repayment of deposit
16 Current Account Consumer Behaviour: Seasons Can Make You Overpay
17 Loose Change Moneylife Quiz; Sound Bites: KC Chakrabarty, deputy governor RBI; Markandey Katju, chairman Press Council of India; Ratan Tata, chairman, Tata Motors; Ajit Singh, Union aviation minister Disclaimer: Moneylife has a policy of not allowing its editorial staff to buy and sell stocks that are written about in the magazine. All personal transactions in individual stocks are subjected to internal disclosure rules.
Several large-cap stock were on a winning streak
INSURANCE
– Health Insurance: Apollo Munich Optima Senior: Competitive Option for Seniors – Motor Insurance: HDFC ERGO Add-ons for Car Insurance – Interview: “Hospital visits have helped to control fraud and inflated bills” - AM Mallesh, Vice President – Star Health and Allied Insurance
for 48 Brace Fee Impact Airlines in India are shortly going to unbundle their services and try to get maximum money from your pockets STOCKS
32 Value Picks Shuffle the Cards
36 Street Beat – Wim Plast – Narmada Gelatines STOCK PERFORMANCE: Steady
40 Popular Picks Size Does Not Matter
41 Which Way FIIs have poured a stunning $2.2 billion in two months
the 54 Along Silk Road Jaideep Mukherjee takes a trip along Khiva, Bukhara and Samarkand—the Silk Road cities that played a big role in the 19th century
46 Insurance Trends
AIR TRAVEL
Your Interest
Consumer Confidence up in July; Rs500 Fine against Pesky SMSes; Mobile Towers Affecting Wildlife: Environment Ministry; Rs10,000 Fine for Unlawful MNP Rejection: TRAI
Several stocks in our list have reported excellent results
Long Term DIFFERENT STROKES
It is clear now that mis-selling is rampant, experts don’t know that much, the human mind is not hardwired to understand money and the band-aid of financial literacy is irrelevant. No wonder the financial sector is shrivelling. There is a way out. Our financial regulators need to be educated about it first
13
Medium Term
TRAVEL
LEGALLY SPEAKING
57 Unfair Deal Why is a railway accident victim discriminated against? ML FOUNDATION EVENTS
on Food 60 Seminar Adulteration
CONSUMER ALERT
at 49 Home-buyer the Mercy A real-estate regulator is more important to the citizens than a stock market regulator AUTO
in the 50 Cruising Mountains Mountain driving requires deft skills & common sense HEALTH
Is Not All 52 Health Physical – When the mind becomes tranquil, the body becomes healthy and happy – Pulse Beat: Medical developments from around the world
“Nearly 25%-30% of edibles sold are intentionally adulterated,” Dr Arvind Shenoy BEYOND MONEY
Pratisthan, 66 Karmayogi the Able Guide The one source that a Mumbaikar can tap for information on any civic issue or education, is www.diehardindian. com, a website run by Karmayogi Pratisthan
DEPARTMENTS Letters............................. 4 Book Review.....................58 Money Facts.....................63