What is MUDRA Loan?

Many ask, what is a MUDRA loan?

MUDRA stands for Micro Units Development and Refinance Agency Ltd.

It is a Non-Bank Financial Companies (NBFC). It is not a direct lending institution.

MUDRA does a refinance support to Micro Finance Institutions (MFI), NBFC and Banks for lending to Micro units having loan requirement upto Rs.10 Lakhs, under the aegis of Pradhan Mantri Mudra Yojana (PMMY).

Who are all eligible?

Any individual including women, proprietary concern, partnership firm, private limited company or any other entity are eligible applicant under PMMY loans, whose loan requirement is up to Rs.10 lakh.

Any Indian Citizen who has a business plan for a non-farm income generating activity such as manufacturing, processing, trading or service sector whose credit need is up to  10 lakh can approach either a Bank, MFI or NBFC for availing of MUDRA loans under PMMY. The usual terms and conditions of the lending agency may have to be followed for availing of loans under PMMY. The lending rates are as per the RBI guidelines issued in this regard from time to time.

What are the types of MUDRA loans?

MUDRA loans are available in three categories. 

   SHISHU : upto  Rs. 50,000

   KISHOR : Rs.   50,000 - Rs.  5,00,000

   TARUN  :  Rs.5,00,000 - Rs.10,00,000

Depending on the nature of business and project requirement you can access finance from one of the intermediaries of MUDRA as per the norms.

What are the requirements?

The requirements are decided by the respective banks, NBFCs based on their internal guidelines and policies.

• Generally IT returns are not insisted for small value loans.
• KYC is mandated
• Loan amount and repayment terms will be decided by the anticipated cash flow from the business activity.

Please note:

MUDRA is a refinancing Institution. MUDRA does not lend directly to the micro entrepreneurs / individuals. Mudra loans under Pradhan Mantri Mudra Yojana (PMMY) can be availed of from nearby branch office of a bank, NBFC, MFIs etc. Borrowers can also now file online application for MUDRA loans on Udyamimitra portal (www.udyamimitra.in). Currently, the site is under construction. Please check back.

CLICK HERE to know more about MUDRA

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RBI measures announced today

RBI Governor held a press conference briefing today (22 May 2020) announcing certain monetary easing measures including extending the moratorium period by another 3 months till 31-Aug-2020.  

An unscheduled meeting of the Monetary Policy Committee (MPC) voted 5:1 to cut the repo rate by 40 bps (basis points) to 4.00%. It is an an emergency cut in the policy repo rate. You can see how the repo rates moved over the last 10 years. We are nearing almost where we were in 2009.

Accordingly, the reverse repo rate now stands at 3.35%. The lowest reverse repo rate in the last 15 years was in Apr 2009, when it was 3.25%.

What are these repo rate and reverse repo rate? To know more about it and on CRR, LAF, please CLICK HERE.

The Marginal Standing Facility (MSF) rate is down to 4.25%

What is MSF? It is a facility given to the banks to borrow money from the RBI by pledging the government securities at a rate which is higher than the repo rate. This the banks borrow when the inter bank liquidity dries up.

Measures to ease financial stress:

• Extension of moratoriums by additional 3 months from June 1, 2020 till August 31, 2020 - i.e  6 months moratorium
• Permit lending institutions to convert the accumulated interest on working capital facilities over the total deferment period of 6 months (i.e. March 1, 2020 up to August 31, 2020) into a funded interest term loan which shall be fully repaid during the course of the current financial year, ending March 31, 2021.
• Easing of Working Capital Financing – In respect of working capital facilities, lending institutions may recalculate drawing power by reducing margins till the extended period, i.e. August 31, 2020 and by reassessing the working capital for the borrowers upto an extended period till March 31, 2021. Any changes in credit terms will not result in asset classification downgrade.

Measures to support Exports and Imports:

• Export – RBI has decided to increase the maximum permissible period of pre-shipment and post-shipment export credit sanctioned by banks from the existing one year to 15 months, for disbursements made upto July 31, 2020.
• Extension of time for payment of Imports – RBI has decided to extend the time period for completion of remittances against normal imports into India from 6 months to 12 months from the date of shipment for such imports made on or before July 31, 2020. The measure will provide greater flexibility to importers in managing in their operating cycles in a Covid-19 environment.

Due to this pandemic situation, the GDP is expected to be remain in a negative zone.

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10 ways to save your hard earned money

10 ways to save money from your monthly expenses at this inflationary situation:

1. Credit Card / Personal Loan

Do not use credit card without knowing your repaying capacity. You will be surprised when you see the Interest & other charges when you default a payment or pay only the Minimum Amount Due.
Some credit card companies attract people by offering Interest free EMI. This is a catch. They will charge an one-time, upfront service charge, which is almost translate into your interest cost.

If you have personal loans and have some surplus cash, better part close the personal loans.

3. Plan your time. It has a cost

Do car pooling. It saves money for you and for nation.

For short distance & traveling alone - use two-wheeler (of course, wear helmet)

If you plan to go to place and have time - look for Public Transportation If you have no time, take an auto-rick and give a thought to taxi finally.

Plan ahead and book a train / Bus for an overnight journey. If not, you will end up driving or flying.Plan your flight trip well ahead, so that you can get a better deal in the net.

Plan your travel time. Less traffic means fuel efficiency & less stress.

Fill fuel early morning (before 7am). Once the heat sets in, the petrol expands and you get less for the money you pay.

4. Communication

Nowadays, the communication cost has come down. It is psychological that when you know something is cheap, you dont mind spending and end up more. So, use your mobile & landline diligently for long distance (Domestic & International).

Look at other avenues like Chat, Skype, etc., Few of them have video facility too. Above all, they are free.

5. Electricity

This is what I have done in my home.

Take bath at a particular time - This will improve the Geyser usage. This is the main contributor for the bill. If possible and you are used to - take cold water bath. Good for health & purse.

Switch off lights & fans when not required - This is religiously done by my family members.

Use CFL bulbs.

Accumulate your clothes for ironing and do it once or twice a week, depending on the requirement. This will save your time and also power.

6. Cooking cost

Eat together - this will reduce the separate heating cost and good for family to have food together.

Prepare yourself with the vegetables before cooking. Buy vegetables, which has good shelf life once a week and use them. This will reduce your trip to the stores. Do not waste food.

7. Water

For those in apartments & individual houses, water cost is a nightmare. So, use the water diligently. We use the recycled water (from the water purifier) for plants.

Use bucket for bathing than using Shower.

Don't keep the water running while washing vessels/clothes, brushing teeth,shaving etc.,

Take water from home in a pet bottle. It is good for health and also on your purse.

8. Entertainment, shopping & malls

When we crib about increasing cost, we do not want to restrict ourselves from spending. Look at possibility of reducing the number of visits to multiplex. There are cinema theatres still, which is airconditioned,with DTS effect. Only thing that will be missing is the luxury chairs. Remember, we are going to be there only for 2-3 hours. Why spend money when you have plethora of channels for entertainment.

If possible, avoid visiting malls. The offers will attract you and you may end up buying, which you may not really need it, since there is an offer. It is better to keep the credit card at home when you go there.

9. Exercise regularly

Keep your body fit and in good condition. The medical cost itself will kill you. It is better not to fall sick nowadays. Exercise regularly, have a good eating habit. Take a medical insurance, if you do not have one. Look for some stores, which offer discounts on medicines & other items sold by them (example: MedPlus).

10.Monthly budget

Prepare a monthly budget and spend some time in monitoring your expenses against the budget. It will work and is working for me. If you have any annual payouts like Investment for tax savings (PPF, LIC Premium, etc.,), annual fee for the kids, start a Recurring deposit with a bank and make sure the amount is made available for your use.

Plan and spend for essentials & necessities. Avoid luxury and nice to haves.

Good Luck,

Cheers

Gopal

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Credit Policy - Highlights

Further to my post on the Credit Policy expectation, here are the highlights of the Credit Policy:

The Repo rate and the Reverse Repo Rate were increased by 25 basis points. Now the Repo rate stands at 6.5% and the Repo rate at 5.50%

The Cash Reseve Ratio (CRR) remains unchanged at 6%.

With inflation daunting the Indian economy and the government, the RBI is cautious in increasing the rate by 50 basis points - they settled for 25 bais points this time. I am sure that RBI will slowly start increasing the rates by another 50 basis points in the months to come (mostly in March).

How these rates impact the liquidity and the inflation? I am reproducing my earlier post on Repo & Reverse Repo below for your easy reference.

2. What is REPO RATE?

 

Repo (means Repurchase Agreement) Rate is the rate at which the banks borrow funds from the Reserve Bank of India to fund their shortfall (the money they require to do business vis-a-vis the money they have with them to lend). Repo rates plays a critical role in the liquidity position. If RBI wants more liquidity in the market, it will reduce the repo rate so that the borrowing cost becomes cheap for the banks. So they will borrow more and lend more. If the RBI wants to cut the liquidity position, it will increase the repo rate, so that the borrowings will be more expensive for the banks and result in reduced borrowings by the bank. This borrowings are of short-term in nature and often for overnight borrowing. It will help the RBI to push money into the banking system for more float.

3. What is a Reverse Repo Rate (RRR)?

As you would have guessed, it is the opposite of repo rate. It is the rate at which the RBI borrows or Banks placing their monies with RBI. This is a very handy tool for the RBI to control the availability of money in the banking system.

If the RRR is increased, the banks would prefer to place their funds with RBI, as it is the safest one. By this, the money circulation is curtailed. When RBI feels that there should be more money in the system, it would reduce the rate, so that the banks would lend to outsiders for a better interest rate. The RRR helps the RBI to absorb the liquidity from the banks.

With the fear of interest rate hike, the stock market is also in for correction.

Cheers,

Gopal

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Review of Monetary Policy - Today

Today is the Credit Policy day. RBI will release the Credit Policy today and the markets are eagerly waiting for the same.

It is expected to see an increase of 25 basis points in the repo and reverse repo rates.

So, for those who are waiting for good FD rates, expect the same soon.

If you remember, Review of Monetary Policy was my second post (on 28th Jan 2009). For those who want to know, what is SLR, CRR, LAF, Repo, Reverse Repo rates, please have a look at the blog posting (http://gopalramanan.blogspot.com/2009/01/third-quarter-review-of-monetary-policy.html).

Will post tomorrow on the review of the policy.

Cheers,

Gopal

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RBI hikes CRR by 75 bps to 5.75% in two stages

The Reserve Bank of India (RBI) has hiked its cash reserve ratio by 75 bps to 5.75% as against 5% at its credit policy meet today.

 

The move will be implemented in two stages. The first 50 bps hike will come into effect on February 13 while the next 25 bps hike will be effective February 27. A CNBC-TV18 poll had forecasted a 50 bps CRR hike. The move will result in a mop-up of Rs 36,000 crore by February end.

The central bank has left unchanged the reverse repo and repo rate at 3.25% and 4.75% respectively. It says the FY11 growth pace of 7.5% will continue amd has upped its March-end inflation forecast to 8.5%. The apex bank has also lowered its bank loan and deposit growth expectation to 15% and 16% respectively.

Bankers say that even if the CRR is raised, they have no leeway to raise rates because nobody is demanding money much these days.

Expected Outcomes

• Reduction in excess liquidity will help anchor inflationary expectations.
• The recovery process will be supported without compromising price stability.
• The calibrated exit will align policy instruments with the current and evolving state of the economy.

Source : MoneyControl Flash News

This is in line with my expectations shared with you all on 24th Jan 2010. Expect the market to react today by going up ! Let me see.

Cheers,

Gopal

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Monetary Policy - What the RBI will do?

We have the Reserve Bank of India (RBI)  to come out with the next review of the Monetary policy by the end of January 2010. With the expansionary policy last year, the RBI was able to do some justice. The indicators currently points towards reversing or taking back the expansionary policy in the coming review. This may put a  cap on the rising prices. 

The current liquidity position is good, so we can expect an increase in the interest rates. Whoever looking out to invest in Housing because of lower housing interest rate, be quick! The interest rates may go up in Jan 2010.


The RBI may hike the Cash Reserve Ratio (CRR), this will reduce the liquidity in the market. I hope all will know what CRR is. Refer my posting on 28th Jan 09. To put it simple, it is the deposit that a bank has to keep with RBI. With the money moved out of the banks to lend, the liquidity will be tightened.

It looks like the RBI may come out soon with their recommendations. Let us wait and watch what the next steps of RBI.

Cheers,
Gopal

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Weekly Digest 16 Nov 09

Contents:

• Public sector banks roll out the red carpet for MBAs
• Understanding how hedging works!
• Bill Gates, Warren Buffett on surviving the fin crisis
• India to be $2-trillion economy by 2014-15
• SFIO to begin Satyam prosecution soon: Khurshid
• Domestic BPO mkt to touch $6.82 bn by 2013: IDC

Public sector banks roll out the red carpet for MBAs

When he took over as the chairman of Union Bank, M V Nair was one of the youngest entrants to the corner office of a public sector bank. So it’s natural that Nair didn’t think twice before rewriting the rules of the recruitment game for his bank.

In his hunt for talent from the Indian Institutes of Management (IIMs), Nair offered a 12-year fast-forward for young graduates -- direct appointment as a Scale III officer (at Rs 5 lakh plus other substantial benefits). That's a game-changer for public sector banks which tend to set great store by seniority to move up the corporate ladder. CLICK HERE TO READ FURTHER

Understanding how hedging works!

Risk and Returns go hand-in-hand. When we look at high returns, the danger of risk is quietly lurking underneath, ready to pounce at a slightest miscalculation. Hedging refers to a method of reducing the risk of loss caused by price fluctuation. An example of a hedge would be if you owned a stock, then sold a futures contract stating that you will sell your stock at a set price, therefore avoiding market fluctuations.

With an increasing number of people becoming interested in finance, it has become important for people to understand financial terms, jargon etc. Let’s take a look at one such term which is encountered by individuals who frequently dabble in the stock markets - Hedging. CLICK HERE TO READ MORE

Bill Gates, Warren Buffett on surviving the fin crisis

Despite the financial crisis, former Bill Gates, Chairman, Microsoft, and Warren Bufffett, Chairman, Berkshire Hathaway, say America's economic future remains robust.

The two richest men in the world, who are also good friends and business partners, came together at the Columbia Business School to talk about the future of the American economy. Here's Warren Buffett and Bill Gates on surviving the global financial crisis and the lessons from it. CLICK HERE TO READ FURTHER 

India to be $2-trillion economy by 2014-15

India will be a $2-trillion economy in the next five years as its GDP growth is likely to average at 12 per cent in nominal terms powered by a huge consumption demand, Enam Securities has said.

"India's GDP is likely to grow at (an) average 12 per cent in nominal terms. Hence, India will be a $2-trillion economy by 2014-15," Enam Securities head-research, Nandan Chakraborty, and economist Sachchidanand Shukla said in a report titled 'India Strategy' released on Monday. CLICK HERE TO READ FURTHER.

SIFO to begin Satyam prosecution soon : Khurshid

The government said on Monday its serious fraud probe arm SFIO will start prosecution proceedings against Satyam founder B Ramalinga Raju and others this month, as there was sufficient evidence of their involvement in the over Rs 10,000-crore (Rs 100-billion) scam in the IT firm.

"During this month, the SFIO will begin prosecution on those or those areas of company laws that the SFIO is expected to and have been authorised to proceed with," corporate affairs minister Salman Khurshid told reporters in New Delhi.  CLICK HERE FOR FURTHER READING

Domestic BPO mkt to touch $6.82 bn by 2013: IDC

BPO industry would evolve from just running isolated processes for customers to engaging more deeply in identifying and transforming core business processes

After establishing itself as a major player in the international business process outsourcing (BPO) market, India is now set to shift focus on the domestic market, which is projected to grow at over 30 per cent annually. CLICK HERE TO READ FURTHER

Cheers,

Gopal

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Weekly Digest 01 Nov 09

Contents:

Business

• He became an entrepreneur while at high school
• Wim Elfrink: Global Culture Is Respect For Time Zones

Economy

• India is more prosperous than China - Legatum Prosperity Index
• Second Quarter review of Monetary Policy for the year 2009-10
  

Money & Market

• Inoperative Current / Savings Bank A/c - RBI Clarification 
• Cash flow statement: What it tells you? 

He became an entrepreneur while at high school

Click HERE to read the story of a successful businessman who did not want to do anything in life but be an entrepreneur. 

Wim Elfrink : Global Culture is respect for Time Zones

A five hour flight from India covers 70 percent of world population, says Wim Elfrink, Cisco’s chief globalisation officer. Now, he wants to replicate the company’s India model of decentralisation in other emerging economies. CLICK TO READ FURTHER.

India is more prosperous than China - Legatum Prosperity Index

Is India more prosperous than China? Yes, says the Legatum Prosperity Index. India ranks 45th in the index well ahead of China. CLICK FOR FURTHER READING.

Second Quarter review of Monetary Policy for the year 2009-10

CLICK HERE to read the Second Quarter review of the Monetary Policy for the year 2009-10 - by Dr. D. Subbarao, Governor on 27th Oct 2009.

Inoperative Current / Savings Bank A/c. - RBI clarification

Please refer to Paragraph 24.2 (iv) of our Master circular DBOD. No.Leg. BC. 9 / 09.07.006 / 2009-10  dated July 1,  2009 on 'Customer Service' in terms of which a savings as well as current account should be treated as inoperative / dormant if there are no transactions in the account for a period over two years. Further, in terms of Paragraph 24.2 (vi), for the purpose of classifying an account as inoperative, both the types of transactions i.e., debit as well as credit transactions induced at the instance of customers as well as third party should be considered. CLICK HERE FOR FURTHER READING.

Cash flow statement: What it tells you?

How do you value a company? Any investor wanting to invest his money into a company should find out the real value of a company. But how do you do it? The company's cash flow statement can give you a fair idea of the status of the company and if it is worth your investment or not.CLICK HERE FOR FURTHER READING.


Cheers,
Gopal

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Weekly Digest - 02 Oct 2009

Contents:

• Ernst & Young (Hong Kong) in trouble
• Ex-CFO of Satyam, PW auditors guilty: ICAI
  
• Good news for those who live on Savings Bank interest
• Gift in kind above Rs.50,000 is taxable from 1-Oct-09
• IMF says after recession, world economy to grow by 3% in 2010
• Indian economy to grow 5.4% in 2009 : IMF
• Why the Bharti-MTN deal failed

=========================================

Police in Hongkong raided Ernst & Young amid fraud =========================================

The Hong Kong offices of accounting giant Ernst & Young were raided by police as part of a fraud investigation linked to the city’s biggest corporate collapse, local media said Wednesday.The search, which occurred Tuesday, came after Ernst & Young was accused in court earlier this month of falsifying documents to shield itself from a negligence claim brought by the liquidators of electronics company Akai Holdings, the South China Morning Post reported. Continue Reading Source : TaxGuru.in

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Ex-CFO of Satyam, PW auditors guilty: ICAI
====================================

The Institute of Chartered Accountants of India (ICAI) has found two top officials of Satyam Computer and four auditors of Price Waterhouse prima facie guilty in the Rs 7,800-crore fraud case, a top ICAI official said on Monday.

Besides, the apex body of chartered accountants has also found audit firms — Price Waterhouse, Kolkata and Price Waterhouse, New Delhi — prima facie guilty of misconduct. “The director (discipline) has found two officials of Satyam Computer, Price Waterhouse and its four auditors prima facie guilty of professional misconduct in the Satyam case,” ICAI president, Uttam Prakash Agarwal, said. Click for further reading. Source : Times of India

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Payment of Interest on Savings Bank Account on a Daily Product Basis ========================================================

Now, your savings bank account earns interest around 3% on the lowest balance maintained between the 10th and the last date of a calendar month. From April 1, 2010, the interest will be calculated on the daily balance. How is this beneficial? For example,

• your balance is Rs.10,000 on 1oth of a month
• deposit Rs.10,00,000 on 11th of that month
• withdraw the Rs.10,00,000 on 29th of that month.

You will earn interest only on the 10,000, which was the lowest balance between 1oth and the end of that month and your deposit of Rs.10,00,000 will not earn any interest though you kept it for 19 days.

With the new rule coming in, you will get interest on this Rs.10,00,000 also. Click here for the RBI circular. Source : RBI Website

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Gift in Kind above Rs.50,000 value to become taxable from 1st Oct 2009 ==============================================================

Any gift in cash above Rs.50,000 was taxable and did not cover the gift in kind. Now the new Finance Bill 2009 made it (with effect from 1-Oct-2009) clear that any gift in KIND (other than Cash) is also taxable, if it exceeds Rs.50,000.
Why this is, most of the people trying to avoid the tax incidence, gift non-cash items (like gold, silver, shares) and escape the tax. Later the person, who received the gift can sell those items and take cash.
Now it is not possible. Further reading Source : CAClubIndia

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IMF says after recession, world economy to grow by 3% in 2010
====================================================
As the world economy comes out of a deep global recession, global activity is forecast to expand by about 3 percent in 2010 after contracting by about 1 percent in 2009, according to the International Monetary Fund (IMF) projections. Click for further reading. Source : Times of India

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Indian economy to grow 5.4% in 2009 : IMF
===================================
The International Monetary Fund on Thursday retained its projection for Indian economic growth at 5.4 per cent in 2009, implying a slower growth in the second half of this calendar year. In its twice-yearly World Economic Outlook released in Istanbul, the Fund lowered the projection for the next year by 0.1 per cent to 6.4 per cent.

The Indian economy grew by 5.8 per cent in the first quarter and 6.1 per cent in the second quarter of this calendar year. Click for further reading. Source : Times of India


========================
Why the Bharti-MTN deal failed
===========================
The fate of the unsuccessful Bharti-MTN deal was sealed by the South African government s treasury as much as three weeks back, according to sources. CNBC-TV18 now learns that the treasury wrote to MTN Phuthuma Nhleko on September 11 insisting that for the deal to go through, the potential merged company should remain domiciled in South Africa and should be listed in both companies, something that was not a possibility under existing Indian laws.

MTN, South Africa s largest telecom company, and India s Bharti were exploring a deal that could lead to a merger between the two companies resulting in a USD 23 billion entity. This was the second failed attempt between the two companies to strike a deal. Earlier in May 2008, the two companies had initiated talks to explore the possibility of a similar deal. Click for further reading. Source: MoneyControl.com

Happy Birthday to Gandhiji !!!

Cheers & Have a nice and long weekend,
Gopal

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Adani Power - Initial Public Offer - An analysis

We all know that the most promising industry in India is Power. There are many players who are jumping into this arena to generate power, as our demand for Power is growing tremendously. Reliance Power came with a bang and now quoting way below the issue price (It never closed a day above the issue price). Though the price of Adani Power is more compared to the fundamentals, it was tipped to get more return on what is called as Listing Gain. The amount you will get in the market vis-a-vis the price you purchased in an IPO. This created more hype for the Adani Power and the NHPC as the market was in a bull phase. Everyone knowing that the price and of Rs.90-Rs.100 is a bit high, but applied for the same.

The issue was over-subscribed. The portion reserved for qualified institutional buyers got subscribed over 39 times the shares on offer, while the non-institutional and retail investors portion were subscribed over 8 and 2.5 times respectively at the close of the IPO. So, the company decided to fix the price of the share at Rs.100 (top of the band)

Today (20th August 2009) the share got listed. On the National Stock Exchange (NSE), the share listed at Rs 108 (a premium of 8% to its issue price of Rs 100 a share). On the BSE, the share had opened at Rs 105, (a premium of 5%).

At the end of the day it closed at Rs 100.10 on the NSE. During the day ita high of Rs 110 and low of Rs 98.30.

On the BSE, it closed at Rs 100.05 . During the day It touched an high of Rs 107.90 and low of Rs 98.50.

What do we learn from this? Look for the fundamentals like Price to Book Value, Price to Earnings, etc., and not listing gains. Look at the peers (Tata Power, Reliance Power, NTPC) in the industry with proven record and compare the fundamental.

The news is that the share of Adani Power may go up a bit and then come down below Rs.90 soon. For a long term investment, get this share at Rs.80 - Rs.90 level.

More people may wonder why I wrote suddenly on a Stock! Some of my friends asked me this question on how the IPO is priced what is a listing gain and how to analyse the fundamentals of a particular stock. This is a start and frequently I will write on the basics of the Stock Market (in India)

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Tax planning

Come March, all will march towards our consultants to reduce our tax liabilities. Though we know that this is the same case, every year, we will start our planning only during the last month of the year or the last month the employer !

Here are some thoughts on saving some money from tax:

a. Do not invest for the sake of saving tax. For example, you invest Rs.100 to save Rs.30 (average tax rate taken at 30%). But the investments having the tax benefits are all long term in nature. So your Rs.100 is locked atleast for 3 years (if not 5 years). So your Rs.100 would be earning around 8% (max). If you want you can pay tax Rs.30 and have the balance Rs.70 at your disposal. If you are smarter, you can earn more on the Rs.70 at your disposal. So have a mix of tax saving and cash at hand for some real good investment. You can also look at closing some high interest paying loans (personal loans, housing loans) with the Rs.70.

b. Do not go for housing loan just for the tax benefits. Leveraging through Debt is recommended, but in these markets, having too much debt is not desirable. I have seen people buying house to save on tax. If you can rent a house, you are better off. For getting a benefit of Rs.45,000 (30% saving on Rs.150,000) you pay interest of Rs.150,000. Why do you need to pay Rs.150,000 to get Rs.45,000? If you dont pay, you are better off with Rs.150,000 in your hand!

c. If you have made and money (short term) in the stock market, it is better to save tax now. How? Your short term Capital Gain from Shares are taxed at 15%. With the share prices going south wards, I would suggest selling the shares, which you have bought less than a year ago, at the current prices and book losses. The short term Capital Loss (STCL) can be adjusted against the Short Term Capital Gains (STCG). So, your taxable portion of the STCG is reduced and your taxability also come down. I will explain with an example:
I have made Rs.10,000 STCG. I hold 200 shares of X Ltd (bought at Rs.100 and current market price is Rs.40...so I have a loss of Rs.60 per share). I know the market price of X Ltd is keep falling. I sell the 200 shares @ Rs.40 and book a loss of Rs.12,000 (200 shares X Rs.60). I get Rs.8,000 in my hand as my sale proceeds (200 shares X Rs.40). Now my STCG of Rs.10,000 is adjusted against the STCL of Rs.12,000. So, I need not pay any tax, as my STCL is more and there is no STCG. Also, I can carry over the excess loss of Rs.2,000 over the next 8 years and adjust against STCG. What is so great about this? Here comes the interesting part. When the market goes down further and the share price of X Ltd goes down to Rs.35, you again buy 200 nos. You now got your 200 shares of X Ltd (your position remains same as far as the share holding is concerned). You have saved Rs.1500 (15% of Rs.10,000 STCG) and also carrying over Rs..2,000 to adjust in future years STCG. If you are smart and can predict the market, this is the best way to avoid STCG.

Whatever tax planning you do, please do keep in mind to maintain some liquid assets (like Cash, FD etc.,) to meet emergencies and also to grab some real good investments (like real estate). If you do not maintain liquid money, it may turn out that you may loose an opportunity of your life time. Also, maintain a long-term portfolio like Land, Gold etc, which can give a better return than any other product.

Consult your advisors, auditors before taking any decisions. In today's marktet you may get carried away by the marketing gimmicks by Insurance. Mutual Fund advertisements. So, be careful.

I came across a good article on Questions & Answers relating to tax benefits. The link is HERE (http://www.cogzidel.in/blog/taxing-times/)

Good Luck and happy investments.

Cheers,
Gopal

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RBI announces rate cut

D.Subbarao, the RBI governor has announced a rate cut of 50 basis points (pbs) on the repo & reverse repo rate on 4th March 2009. Now the repo rate stands at 5% (earlier 5.5%) and the reverse repo stands at 3.5% (earlier 4%). These rates, a year ago were 7.75% and 6% respectively (in Jan 08). During mid-2008, the repo rate was around 9%, while the reverse repo was pegged at 6%.
Okay, what does this reduction in the rates signifies?
If you recollect my earlier blog on the Third Quarter Review of Monetary Policy, we discussed on the reverse repo rate and the repo rate and how RBI uses them as a tool to control / loosen the availability of money in the system (called liquidity).
So, now that the RBI has reduced the repo rate, the banks can borrow from RBI to fund its activities. Also, the RBI has reduced the reverse repo rate. What does that mean? Now the banks deposits with RBI will earn only 3.5% return. Is it good? Do you know how much your bank gives interest on your savings bank account? Check with them...it should be somewhere in the range of 3.5%. So, the banks pay 3.5% and gets 3.5% return on their deposit!! Are they into charity operations? No. So what they will have to do? They have to increase the spread (the difference between the rate at which they borrow and the rate at which they earn). Now that the earning is known, so to increase it, they have to cut the deposit rate - simple. Why I took the example of Savings bank account is that, we all know that product and also it is the lowest interest paying deposit account.
Coming back to the banking side. They know that borrowing from RBI is cheap and also know that placing deposit with them will not earn much money. What they will do? They are now forced to lend to customers (other than RBI) to generate revenue to cover their cost. Else, they will sink. This will sound simple, theoretically. But in reality, it is not that easy to lend in this economic situatoin. Banks are very cautious in lending money. Forced lending will land them in trouble.
So banks are looking at various opportunities of reducing their borrowings (offering lower rate of Interest on their borrowing products like Deposits). They lend to top notch clients, look for more securities etc., Most of you know that Mar 15th is the last date for the Advance tax remittance for Income Tax. In the given economic conditions, corporates & business people will look for money to pay their tax dues. So, in my opinion the banks will start reducing the rates after 15th March.
Poor banks, they are now having funds and are looking for borrowers! Are you credit worthy, you can easily get loans and help the banking system. Look out for reduction in the Home Loan interest rates, FD rates, SB rates, etc.,
Let us wait and watch!
Cheers,
Gopal

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Speech by M.R.Venkatesh on Globaliz(s)ation !

Presentation by CA M.R. Venkatesh, Chennai Part of INDIA RE-DISCOVERED
A Seminar on Global Economy By SWADESHI JAGARAN MANCH and VISION INDIA TRUST

The video is on the left side of the blog. Click play button...if it is not working...click the following link:

http://video.google.com/videoplay?docid=4343898391323537541&hl=en

Nice one..please watch!!!

Cheers,
Gopal

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Third Quarter Review of Monetary Policy

My friends have asked me too many questions on "Satyam" (How can the accounts be fudged) and also on the recent Monetary policy review. I prefer to answer the Monetary policy, which is of interest in the current slowdown!

I reproduce below the portion of the speech relating to Monetary measures and then explain what is Repo rate, reverse repo, bank rate etc.
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Third Quarter Review of Monetary Policy - Press statement by Dr.Subbarao, Governor - RBI

Following are the summary of the Monetary Measures

Bank Rate
The Bank Rate has been kept unchanged at 6.0 per cent.

Repo Rate/Reverse Repo Rate

• The repo rate under the LAF has been kept unchanged at 5.5 per cent.
• The reverse repo rate under the LAF has been kept unchanged at 4.0 per cent.
• The Reserve Bank has the flexibility to conduct repo/reverse repo auctions at a fixed rate or at variable rates as circumstances warrant.
• The Reserve Bank retains the option to conduct overnight or longer term repo/reverse repo under the LAF depending on market conditions and other relevant factors.
• The Reserve Bank will continue to use this flexibly including the right to accept or reject tender(s) under the LAF, wholly or partially, if deemed fit, so as to make efficient use of the LAF in daily liquidity management.

Cash Reserve Ratio
The cash reserve ratio (CRR) of scheduled banks has been kept unchanged at 5.0 per cent of NDTL.

Liquidity Facilities

The Reserve Bank has allowed banks to avail liquidity support under the LAF for the purpose of meeting the funding requirements of mutual funds (MFs), non-banking financial companies (NBFCs) and housing finance companies (HFCs) through relaxation in the maintenance of SLR up to 1.5 per cent of their NDTL. Second, a special refinance facility for scheduled commercial banks (excluding RRBs) was provided by the Reserve Bank on November 1, 2008 under Section 17 (3B) of the RBI Act, 1934 up to 1.0 per cent of each bank’s NDTL as on October 24, 2008. Both these facilities are currently available up to June 30, 2009. In order to ensure that banks continue to have flexibility in their liquidity management operations in the current market conditions, it has been decided:

• To extend both the refinance facilities up to September 30, 2009.
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Okay. For those who are not familiar with the terminologies, let me try to explain in a simple way.

1. What is BANK RATE?

Bank Rate is the rate at which the Reserve Bank of India lends to the other Banks / Financial Institutions. The bank borrows money and then lend it. The difference between the rate at which it lends and borrow is called the SPREAD. Any movement in the bank rate will have am impact on the interest rate of the bank. This is more of an long term nature. When RBI increases the Bank Rate, the Banks will also increase their lending rates to maintain their spread. When RBI reduces the Bank rate, the banks will aslo reduce their lending rates.

Now you may understand why the Housing Loan market looks at the Bank rate!

2. What is REPO RATE?

Repo (means Repurchase Agreement) Rate is the rate at which the banks borrow funds from the Reserve Bank of India to fund their shortfall (the money they require to do business vis-a-vis the money they have with them to lend). Repo rates plays a critical role in the liquidity position. If RBI wants more liquidity in the market, it will reduce the repo rate so that the borrowing cost becomes cheap for the banks. So they will borrow more and lend more. If the RBI wants to cut the liquidity position, it will increase the repo rate, so that the borrowings will be more expensive for the banks and result in reduced borrowings by the bank. This borrowings are of short-term in nature and often for overnight borrowing. It will help the RBI to push money into the banking system for more float.

3. What is a Reverse Repo Rate (RRR)?

As you would have guessed, it is the opposite of repo rate. It is the rate at which the RBI borrows or Banks placing their monies with RBI. This is a very handy tool for the RBI to control the availability of money in the banking system.

If the RRR is increased, the banks would prefer to place their funds with RBI, as it is the safest one. By this, the money circulation is curtailed. When RBI feels that there should be more money in the system, it would reduce the rate, so that the banks would lend to outsiders for a better interest rate. The RRR helps the RBI to absorb the liquidity from the banks.

4. What is LAF?

LAF stands for Liquity Adjustment Facility. It was introduced in Jun 2000 by RBI. The main objective is that the funds under LAF are used by the banks for their day-to-day mismatches in liquidity.

To know more on LAF, click here.

5. What is CRR?

CRR stands for Cash Reserve Ratio. It is the portion of the deposits (in cash) that a bank has to maintain with the RBI. This is done to make sure that a part of the bank deposits are risk-free and liquid. Whenever the RBI increases the CRR, the banks are forced to keep more money with the RBI resulting in controlling the liquidity. The CRR is computed as a percentage of the Net Demand & Time Liabilities (NDTL). Oh! What is this NDTL?

Demand Liabilites are those which are payable on demand and include Savings bank, current deposits, balance in overdue Fixed Deposits etc.,

Time Liabilities are those which are payable otherwise on demand and include Fixed Deposit, Cumulative Deposit, Recurring Deposit

6. What is SLR?

SLR stands for Statutory Liquidity Ratio. The banks are required to keep a portion of their deposits in Government securities for liquidity purposes. SLR also acts in playing around the bank's lending pattern. More the SLR, lesser the lending and vice-versa.

Cheers,
Gopal

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