ICICI fined Rs 50 lakh for employing goons

Posted on November 3, 2007

ICICI fined Rs 50 lakh for employing goons
PTI News

NEW DELHI: The Delhi Consumer Commission fined ICICI bank a whopping fine of Rs 50 lakh for employing “goons” to recover loan and deplored the practice of the banks intimidating consumers to pay the installments.

In the significant judgement, the Commission deprecated the “audacity and impunity” with which the banks have been effecting forcible possession of vehicles and ordered ICICI also to pay Rs 5 lakh to a consumer, who was mercilessly beaten by the recovery agents while they snatched a loaned car from him.

“No civilised society governed by rule of law can brook such kind of conduct,” the Commission’s President Justice J D Kapoor said, adding the violent methods adopted by the recovery agents were serious violation of “human rights”.

Holding the ICICI Bank guilty of “unfair trade practice,” the Commission termed such miscreants as “yahoos” and said they are boorish and a brutal lout, who care a fig for legal and judicial authorities, including the Supreme Court.

While taking to task the leading bank, it vented its anger on ICICI for flouting the apex court’s direction that restrained all the financial institutions from employing musclemen to recover a loan amount or possession of a vehicle.

The Commission, also comprising Member Rumnita Mittal, issued notices to the Collection Manager of ICICI and the CEO of the recovery agency, seeking their explanations over blatant violation of the direction of the highest court of the nation.

Its strong worded order came recently while hearing a complaint by Tapan Bose, whose loaned car was taken away by some recovery agents after beating up his friend’s son with iron rods on January eight, leading to serious injuries on his skull and other parts of the body.

What’s short-selling of shares?

Posted on November 3, 2007

What’s short-selling of shares?
13 Sep, 2007, 0211 hrs IST, TNN

What is short-selling?
Short-selling, in the context of the stock market, is the practice where an investor sells shares that he does not own at the time of selling them. He sells them in the hope that the price of those shares will decline, and he will profit by buying back those shares at a lower price. In India, there is no prohibition on short-selling by retail investors. Institutional investors —domestic mutual funds and foreign institutional investors registered with the Securities and Exchange Board of India (Sebi), banks and insurance companies — are prohibited from short-selling and are mandatorily required to settle on the basis of deliveries of securities owned and held by them.

How is short-selling beneficial?
Short-selling is considered an essential feature of the securities market not just for providing liquidity, but also for helping price corrections in over valued stocks. Supporters of short-selling claim its absence distort efficient price discovery, gives promoters the unfettered freedom to manipulate prices and favours manipulators than rational investors. Securities market regulators in most countries, and in particular, all developed securities markets, recognise short-selling as a legitimate investment activity. The International Organisation of Securities Commissions (IOSCO) has also reviewed short-selling and securities lending practices across markets and has recommended transparency of short-selling, rather than prohibit it.

Are there any drawbacks of short-selling?
Critics of short-selling feel selling, directly or indirectly, poses potential risks and can easily destabilise the market. They believe that short-selling can exacerbate declining trend in share prices, increase share price volatility, and force the price of individual stocks down to levels that might not otherwise be reached. They also argue that declining trend in the share prices of a company can even impact its fund raising capability and undermine the commercial confidence of the company. In a bear market in particular, short-selling can contribute to disorderly trading, give rise to heightened short-term price volatility and could be used in manipulative trading strategies.

Will institutional investors in India be allowed to short-sell securities?
Sebi is working on a proposal to introduce a stock borrowing and lending mechanism. This will allow institutional investors to short-sell by borrowing shares. Under this arrangement, an investor A, who feels that a certain stock is overpriced, borrows those shares for a charge from investor B, who is willing to lend those shares. Investor A then sells those shares in the market, hoping that the price declines so that he can buy cheap and return them to investor B.

What is the difference between covered short sales and naked short sales?
Covered short sales are those in which the seller arranges for the delivery of shares he has sold by borrowing them. Naked short sales are those in which the seller does not intend to provide for the delivery of shares he has sold. Most international securities market regulators have prohibited naked short-selling and require the client to have documentary evidence of borrowing/tie-up with lenders before executing the sale transaction. This is because naked short sales in huge quantities can destabilise the market.

How does the stock lending and borrowing mechanism function in other markets?
World over, securities lending and borrowing transactions are, by and large, over-the-counter (OTC) contractual obligations executed between lenders and borrowers. International securities market regulators do not directly regulate the lending and borrowing transactions. In many international markets, entities like custodians and depositories run the lending and borrowing scheme and have their own screens for meeting the demand and supply of securities from their clients.

( With inputs from the Sebi discussion paper on short-selling and stock lending )

Home loan: EMI and tenure

Posted on November 3, 2007

Home loan: EMI and tenure
4 Nov, 2007, 0511 hrs IST,Kavita Sriram, TNN

There was euphoria and expectation. Everyone hoped that the rates would come crashing down. Very much like how the rates peaked steadily with every Reserve Bank of India (RBI) move, the anticipation of a fall was huge. New borrowers were offered lower rates compared to existing borrowers. And Devansh was certainly unhappy and upset.

Three years ago, he procured a home loan of Rs 20 lakhs. The tenure of the loan was 10 years. The rate of interest was a humble eight percent. His monthly EMI outflow was a reasonable Rs 24,000. Today, the interest rate stands at a whopping 13 percent. This translates to a monthly outflow of Rs 30,000. Devansh contacted his bank to find out if any rate cut was being planned for existing borrowers and their answer was ambiguous.

The burden of unanticipated increase in monthly EMIs caught Devansh off guard. He had planned his monthly expenses and other financial commitments. Now, it had all gone for a toss. He had to rework on his finances, take stock of his assets and explore any changes to the structure of his home loan. The two most obvious options before Devansh are pay higher EMI or increase the tenure of the loan.

Some borrowers may feel more comfortable paying higher EMIs to the lender. This way, one does not need to prolong the loan period and bear the brunt of increased rates. Anxious borrowers are keen to repay their dues as soon as possible, as they fear defaulting in case the rates increase to an unaffordable level.

Paying off the home loan gives borrowers peace of mind. Perhaps, increasing the EMI is the best option in case further increases in interest rates is on the cards. This option is not for those who are already over-burdened with EMI repayments and cannot stretch their finances beyond this.

For those who are paying heavy EMIs, remember that in future, in case you need some more money from a lender, you may not be eligible for it. This is because the bank realises that your debt is heavy and bulk of your earnings is set aside for servicing your existing home loan.

Borrowers, who increase their monthly dues to the lender, agree to bear the increased cost of home loan immediately rather than postpone it to an indefinite future. Before increasing your EMI commitment, see if you can manage repayments with ease. A very tight lifestyle and a tight financial position can increase stress and make your life difficult.

If you anticipate a drop in rates in the future, increasing the tenure may not be a bad idea after all. On the contrary, if rates travel northwards borrowers who increase their tenure can end up shelling out more to the lender.

You can benefit from the strategy of increasing the tenure only if rates come down. Otherwise you’ll be bound to an expensive financial commitment. Some banks do not allow borrowers to increase their loan tenure beyond a fixed period say 20 or 25 years.

Others see to it that the borrower repays the loan before he retires. Hence, his retirement age, will decide how much his tenure can be extended. Before taking any of these crucial financial decisions, borrowers must consult their financial advisors or professionals.