indian financial dossier

7/24/2019 Indian Financial Dossier

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1. What is a Life settlement contract?

Compared to the initial days where we had the options of either surrendering the policy back to the

insurance company for its cash value or letting the policy lapse.

Life settlement contract is sale of an existing life insurance policy to a third party for more than its

cash surrender value, but less than its net death benefit.

Reasons to sell vary from:

a. Policy owner no longer wanting the policy.b. ishing to purchase a different kind of life insurance policy.c. Payment of the premium may not be affordable or the person may need immediate money.

2. What happened to ABN AMRO Bank in 1999 which a!e it scale?

!nticipating the emergence of retail banking in "ndia, the bank ac#uired the retail business of the

$ank of !merica in %&&& covering ac#uisition of this line of business in "ndia, 'aiwan and (ingapore.

'he consumer banking business of $ank of !merica to be ac#uired by !$) !mro bank includedconsumer lending, deposit mobilisation, auto finance and mortgage activities.

". #ind a$o%t &ede #%nds' (ri!ate )*%it+ #%nds and Asset Manaement ,ompanies?

$oth hedge funds and private e#uity funds appeal to high net worth individuals *many re#uire

minimum investments of +-, or more/, traditionally are structured as limited partnerships and

involve paying the managing partners basic management fees plus a percentage of profits.

0edge funds provide the highest investment returns possible as #uickly as possible and hence are

primarily high li#uid assets. 'his enables to make profits #uickly on one investment and then shift

funds into another investment that is more immediately promising. 0edge funds invest in virtually

anything and everything 1 individual stocks *including short selling and options/, bonds, commodityfutures, currencies, arbitrage, derivatives 1 whatever the fund manager sees as offering high potential

returns in a short period of time. -he foc%s of hede f%nds is on maim%m short/term profits.

Private e#uity funds more closely resemble venture capital firms in that they invest directly in

companies, primarily by purchasing private companies, although they sometimes seek to ac#uire

controlling interest in publicly traded companies through stock purchases. 'he focus here is on long2

term potential of the portfolio of the companies. Private e#uity funds look to improve the company

through management changes, streamlining operations or expansion, with the eventual goal of selling

the company for a profit, either privately or through an initial public offering in a stock market.

"n hedge funds, investors can usually cash out their investments in the fund at any time. "n contrast,

the long2term focus of private e#uity funds usually dictates a re#uirement that investors commit theirfunds for a minimum period of time, usually at least three to five years, and often from seven to %

years.

'here is also generally a substantial difference in risk level between hedge funds and private e#uity

funds. hile both practice risk management by combining higher2risk investments with safer

investments, the focus of hedge funds on achieving maximum short2term profits necessarily involves

accepting a higher level of risk.

0. #ind the +ear in which $rokers were allowed to let c%stomer sell their )-#s on B)' N).

'hey were allowed to do so from 3ctober, %4.


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. #ind a$o%t Octop%s ,ard?

5sed in 0ong 6ong, the 73ctopus7 is a reusable, rechargeable and contactless 8smart card8 used on

most forms of public transport as well as settling payments at all ma9or convenience stores.

3ctopus fares are sometimes between - and % cheaper than ordinary fares on most trips made on

the ;'R network, while reductions could apply for transits of specific bus services.

"t is the second contactless smartcard in the world after the 6orean 5pass.

3. &ow man+ 4emat Acco%nts are there in 5ndia?


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9. What are N,4s

Non/con!erti$le de$ent%resare simply regular debentures, cannot be converted into e#uity shares ofthe liable company. 'hey are debentures without the convertibility feature attached to them. !s a

result, they usually carry higher interest rates than their convertible counterparts.

)C


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'here are other similar terms too like ''A *=ixed deposits/, 'AA *(tocks and A#uity =unds if kept for

more than % year/.

11. Read a$o%t ;omal


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R=C accounts can be opened as savings or term deposit accounts and can be held singly or 9ointly in

the names of those who are eligible. No loans are a!aila$le aainst the R#, acco%nt.

"nterest is credited #uarterly and is taxable. 0owever, if one is a Resident but not an 3rdinary

Resident, then they will be able to avail of a tax exemption on the interest on R=C accounts for thetwo year period when one holds this status.

'here are two types of R=C products2 Resident and )on2Resident. Currently R=C term deposit rates

are in the range of .-24.- for terms over % year for the 5( dollar. "nterest rates vary by term and by

currency.

1". What is the maim%m that a $ank can etend for Loan aainst hares?

'he amount of loan generally does not exceed Rs. lakh per borrower. !s per R$" guidelines loansagainst security of shares, convertible bonds, convertible debentures and units of e#uity orientedmutual funds should not exceed the limit of Rs.% lakh if the securities are held in physical form and

Rs. lakh per individual if the securities are held in demat form.=or subscribing to "P3s, loans given to individuals will not exceed Rs.% lakh.

$anks may extend finance to employees for purchasing shares of their own companies under A(3P tothe extent of & of the purchase price of the shares or Rs. lakh, whichever is lower.

10. Who in!ented ,redit ,ard? Where and how did it $ein?

!ccording to the & while he

was having dinner at a restaurant in )ew ork City.

hen it was time to pay the bill, ;c)amara reali?ed he had forgotten his wallet.

hat happened next depends on whom you ask: !ccording to 7'he


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(imilarly, his term also saw the first 5ndian depositor+ receipts 54R: iss%e, though the concept

was first

$have, who, at )ational (ecurities


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16. What does the %mit Bose report on M5s ellin of #inancial (rod%cts $+ %mit Bose sa+?

'he key recommendation of the Committee is that regulation of financial products must be seen in

terms of the product function and not form. 'hese functions are "nsurance, "nvestment and !nnuity.

'he lead regulator, according to function, should fix the rules.

"n bundled products, the rules of each component should be set by the lead regulator. =or example, ina bundled insurance product, the rules on the investment component should be set by the investment

regulator, while the rules on insurance should be set by the insurance regulator. 'his will help remove

distortions that result in investment oriented products from insurance being relatively expensive and

opa#ue. 'he committee has suggested specific steps to create a level2playing field between all

products, steps that are essential to curb mis2selling.

5mpro!ed disclos%re

'he Committee recommends that the way in which returns is computed should be standardised andshould be a function of the amount invested. 'he norms of this disclosure for investment products

should follow the rules set by the lead regulator. !ll disclosures should be machine readable. 'hesemeasures are designed to help consumers compare products ob9ectively and make appropriate choices.

,ommissions and chares

"nvestment products and investment components of bundled products should have no upfrontcommissions. !ll investment products, and investment portions of bundled products, should move toan !5; based trail model. 5pfront commissions on pure insurance products and pure risk portions of

bundled products should be allowed, and should be decided by the lead regulator since pure risk is adifficult product to sell.

,ommon distri$%tor re%lation

Regulators should create a common distributor *including employees of corporate agents/ regulation.Aach regulator may add rules specific to products regulated by them. Regulators should create a singleregistry of all distributors. !nybody facing the customer should be registered. 'hese steps will enabletracking of distributor actions across products and improve enforcement actions.

17. What is er!%ction model?

! model used to illustrate the four factors that influence the service experience, including those that

are visible to the consumer and those that are not.

'he servuction model consists of four factors that directly influence customersB service experiences:

%. 'he (ervicescape *visible/

. Contact personnelservice providers *visible/

4. 3ther customers *visible/

>. 3rgani?ations and systems *invisible/

'he first three factors of the servuction model are plainly visible to customers.

"n contrast, organi?ations and systems, although profoundly impacting the customerBs experience, are

typically invisible to the customer.


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19. What is the relation of >ishn% 4e%skar with ABN AMRO Art #%nd

!$) !;R3 announces the creation of an !rt "nvestment !dvisory group, which will provide the

Private $anking sector with a wide range of art investment services that can be offered to their clients.orking with (eymour ;anagement *(eymour8s/, the independent fine art advisors and valuers, !$)

!;R3 will offer investment advice on the wide variety of art funds available in the market, as well

as creating a =und of =unds and, over time, its own !$) !;R3 !rt =und.

'he $ank will also provide bespoke advice for those putting together or managing private collections

and make available the full range of services to its own private banking clients. !riel (alama, @lobal

0ead, Private $anks at !$) !;R38s holesale Clients business, will head the group.

'hrough !$) !;R38s !rt "nvestment !dvisory group, private banks will be able to offer these

services, either on a white labelled or syndicated basis.7 !rt is a maturing asset classJ for many years

it has been used as an anti2inflationary tool, offering long2term returns that compare favourably with

those from e#uity and bond markets. (ince %&- art has returned between %%.- and %.- per cent on acompound annual basis.

'he bear market in e#uities and increasing uncertainty across global financial markets has led to a

renewed focus upon art as a strong medium and even short2term investment. 'here are now around

!rt =unds covering a wide spectrum of fields, with varying structures and degrees of li#uidity.

Returns are primarily made from the increasing value of the underlying assets held.

!s with all investments, understanding the various complexities involved is vital. Bankin?

'he 'elevision $anking enables customers to conduct banking business with television and 'M set2

top box as the terminal and remote control for the operational tool based on the cable 'M broadband

network. Compared with online banking, television banking is closer to the life of everyone.

'elevision banking enables customers to complete banking transactions through the television, have

access to financial products and industry information, and experience a more fashionable and

convenient wealth management approach.

! sample implementationcould be as follows: a dedicated digital channel for banking purposes canbe provided with a split2screen feature. 'he input for the account holder will be provided in two stepsD using a 'M remote to enter the account number and uni#ue P"). hile one of the split screens willhave the options of possible transactions like P") change, balance en#uiry, balance transfer, and soon, the other part of would be dedicated to an interactive interface with a correspondent *pre2


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recorded/ helping the account holder in the local language. ! voice recognition interface with pre2setvoice commands would be provided for the same.

;oreover, with the advent of rapid penetration of smart and internet2enabled 'Ms, real2timeprocessing of #ueries could be enabled through cloud2based speech recognition software in the near

future. 'he input provided by the user will be sent to the 'M server, which will retrieve informationfrom the respective banking server.

'here are several advantages of 'M$ for financial inclusion. 'he use of the local language will enablea more interactive environment for banking, and would help in increasing trust in the system in sharpcontrast to $Cs who are perceived as temporary salespersons because of the high attrition rate.


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4 2 ($" had fixed interest rates for 4 years to be .H-, whereas for > years and - year tenurs, it

was %

22. What are ,apital ains and ,apital ains Bonds?

'he conventional method of dealing with such a liability is to simply invest in capital gains bonds. "f

you sell any capital asset *like a house property/, a capital gains tax liability can arise on the same. "f

the asset *property in this case/ has been sold within 4F months from the date of purchase, it amounts

to short2term capital gains. Conversely, if the asset is held for a period of more than 4F months, a

long2term capital gain arises. "n case of assets like mutual funds, the holding criterion for determining

long2term or short2term is reduced to % months. (o if you hold the security for over % months, it

#ualifies for a long2term gain.

Capital gains bonds are issued by specified institutions and tax benefits are available under (ection

->AC of the "ncome 'ax !ct.=or the purpose of claiming tax benefits, investments should be madewithin a period of F months from the date when the capital asset was sold. (imilarly, investors are

re#uired to stay invested in the bonds for a period of 4F months from the date of investment.

Redemption before completion of the 4F2month period will negate the tax benefits.

2". What are #amil+ Offices?

=amily offices are private wealth management advisory firms that serve ultra2high net worth

investors. =amily offices are different from traditional wealth management shops in that they offer a

total outsourced solution to managing the financial and investment side of a affluent individual or

family.

=or example, many family offices offer budgeting, insurance, charitable giving, family2owned

businesses, wealth transfer and tax services.

'here are two types of family offices2 single family offices and multi2family offices sometimes

referred to as ;=3s. (ingle family offices serve one ultra2affluent family while multi2family offices

are more closely related to traditional private wealth management practices, seeking to build their

business upon serving many clients.

"ndia has a handful of family offices, including !?im Prem9i8s Prem9i"nvest, !9it 6him9i8s 6him9i

=amily 3ffice, ) R )arayana ;urthy8s Catamaran and the !mbani =amily.

20. What are Reistrar or transfer aents?

'hey are the trusts or institutions that register and maintain detailed records of the transactions ofinvestors for the convenience of mutual fund houses.

;utual fund investors do a number of transactions, like buying, selling or switching units. 'hey could

re#uest for a change in bank details or address. Aach such re#uest is a transaction by itself.

;utual fund houses have to maintain records of each such transaction. ;utual fund houses may not

want to invest in these processes nor would they have the skilled expertise to handle these huge

transactions on a professional basis.

!n RN' agent has a wide network of branches across the country, helping investors get forms of fund

houses, complete their transactions and even obtain their account statements. "t acts as single2window

system for investors.


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!n RN' agent also helps investors with information and details on new fund offers, dividend

distributions or even maturity dates in case of =;Ps *fixed maturity plans/. While s%ch details is also

a!aila$le from f%nd ho%ses' an R@- aent is a one/stop shop for all the information. "nvestors

can get information about various investments in different schemes of different fund houses at a single

place. =rom a mutual fund8s perspective, RN' agents provider greater reach and help save costs.

'he mutual fund house pays money for the services offered by the RN' agent. 'he charges would

depend on the volume of transactions done for the mutual fund. 'he mutual fund, charges such

expenses to the expense ratio of the fund. !s an investor, while doing transactions at the RN' agents

office, you do not have to pay any charges.

2. What is an )state -a?

hen someone in a family dies and the property of the deceased transfers to the younger generation,

the federal government imposes an estate tax on the value of all that property.

'he final net taxable estate value is sub9ect to a tax reduction in an amount e#ual to the remaining

balance of the unified credit. 'he tax laws provide every taxpayer a unified credit amount that

exempts from the estate tax the tax on all lifetime gifts and property transfers at death that do notexceed a specified value.

3nly the value of the tax on all transfers that exceed the unified credit amount is due. 3nly when the

tax on the net taxable estate exceeds your remaining balance of the unified credit does the estate need

to remit a tax payment to the "R(.

23. What is Opi%m -rade? &ow did it affect ,hina?

$y %F&, the $ritish Aast "ndia Company had trading centres *known as 8factories8/ all along the est

and Aast coasts of "ndia. 'he main centres were at ;adras, Calcutta and $ombay. 'he Company

started to protect its trade with its own armies and navies 2 very different from most companies today.

London also became an important trading centre, where goods were imported, exported and

transferred from one country to another. 'he Company would have liked to pay for all its import

goods with silver, but traders in Angland wanted them to export Anglish manufactured goods.

=rom China, the Company bought tea, silk and porcelain but there was correspondingly little demand

in China for AuropeBs manufactured goods and other trade items. Conse#uently, Auropeans had to pay

for Chinese products with gold or silver.

3ver the next % years tea became a very popular drink in Angland, and there was a fear that too

much silver was leaving the country to pay for it. 'o stop this happening, the Company became

involved in a triangular trade by smuggling opium *a highly addictive and illegal drug/ from "ndia

into China.

'he Company grew opium in "ndia. 'hey were looking for something that the Chinese would accept

instead of silver, to pay for the goods they bought at Canton. 3pium was a valued medicine which


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could deaden pain, assist sleep and reduce stress. $ut it was also seriously addictive and millions

Chinese became dependent on the drug.

!lthough opium smoking was a sub9ect of fascinated horror for Auropeans, the Company actually

encouraged people to use the drug in China 2 sales of opium were extremely lucrative. !s a result,

millions of Chinese would die from opium addiction, and the very fabric of Chinese society was

threatened.

!fter the Company8s trade monopoly was abolished in %E4>, smuggling of opium into China by

Auropean private traders intensified. 'he Chinese state was deeply disturbed at this and threatened

force. $ritain was prepared to defend 8free trade8 and, in %E>, they went to war. 'hese 83pium wars8

led to a humiliating defeat of the Chinese and a trade treaty which ceded 0ong 6ong to the $ritish

26. What is 5OB ,ase all a$o%t?

Reserve $ank of "ndia *R$"/ has initiated a Oprompt corrective action on "3$ to improve internal

controls and consolidate its business activities.'he shares of the bank have slumped >%.4 per cent so

far this year. "3$ team have said that that the action will not have any material impact on the

performance of the bank.

! decision to initiate prompt corrective action is typically taken because of a surge in bad loans at abank or in cases where the bankBs capital ade#uacy levels have fallen below levels prescribed by the

regulator.R$" has specified certain regulatory trigger points, as a part of prompt corrective action

*PC!/ framework, in terms of three parameters 22 capital to risk weighted assets ratio *CR!R/, net

)P! and Return on !ssets *Ro!/, for initiation of certain structured and discretionary actions in

respect of banks hitting such trigger points.

"n the case of "3$, the bank reported a surge in bad loans in the Gune ended #uarter which led to a

slump in profits.!s of 4 Gune, the bankBs gross non2performing assets *)P!s/ stood at Rs.%F,>-%crore, up nearly F from Rs.%,4- crore reported in the year2ago period. !s a ratio of total loans,

gross )P!s stood at &.> at the end of the !pril2Gune #uarter as compared with -.E> in the same

#uarter a year ago.=or the !pril2Gune period, the bankBs net profit was Rs.%>.HF crore down &- from

the same period a year ago due to large provisions against bad loans made during the #uarter."n the

last five years, "3$Bs advances have grown at a compounded annual growth rate *C!@R/ of %F.E

fromRs.HE,&&&.%F crore to Rs.%.H%H trillion. 3ver the same period, gross )P!s have grown at a

C!@R of 4.E from Rs.4,F%%.E crore to Rs.%>,&.>- crore.!s of Gune, the capital ade#uacy ratio,

an indicator of financial strength expressed as a ratio of capital to risk2weighted deposits, stood at


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&.H-. 3f this, 'ier " capital or core capital made up F.4.!ccording to $asel """ norms, banks are

re#uired to have a total capital ade#uacy ratio of &, of this a minimum of H should be in the form

of 'ier " capital starting from the financial year %-2%F.

27. &ow man+ ltra/&ih Net Worth 5ndi!id%als are present in 5ndia?

"ndia now has ,E4 ultra2high2net2worth individuals with more than +- million net wealth, 4

higher than %>. "t has ,->, members of the top % per cent of global wealth holders.'he number

of 5(< millionaires in "ndia is pro9ected to rise by F- per cent in the next five years to reach 4,-,in , compared to the current %,E-,.

29. (oni cheme

=raudulent "nvestment 3peration where operator pays returns to investors from new capital paid to

operators by new investors, rather than profit earned by operator. 3ccasionally begins as a legitimate

business until business fails to achieve returns expected.

"8. Bernard Madoff

$ernard ;adoff was convicted of fraud and also used Pon?i (cheme. 0e was the admitted operator ofPon?i (cheme

"1. Michael Milken

;ichael ;ilken was related to Gunk $onds fraud. 0e had felony charges for violating 5.(. (ecurities

Laws. 0e was indicted for racketeering and securities fraud in %&E&.

"2. 5!an Boesk+

"van $oesky was indicted for insider trading scandal in %&EBs in 5(. ;ichael ;ilken provided

information about ;N! to $oesky to invest thus indulging in insider trading.

"". hi!raC (%ri

0e was indicted in > crore Citibank (cam. 0e gave a fake circular from R$" to investors and also

got blank che#ues signed and deposited the money into his personal accounts as well as familyBs

accounts

"0. Minim%m 5nterest Rate on a!ins Acco%nt

$anks are free to determine the interest rates as they want from -%%% but under following

conditions:


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*a/. 5pto % lakh, have to charge a uniform rate

*b/. !bove % lakh, differential rates could be charged

".What is the so%rce of f%nds for &4#,?

0

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