Archive for February, 2008

Tamil Writer Sujatha is no more.

Posted on February 29, 2008. Filed under: General |

Tamil writer Mr “Sujatha” Rangarajan is no more. He passed away couple of days back at the age of 72. He is survived by his wife and two sons. Sujatha was a very prolific writer in Tamil and has written number of novels, short stories, science fiction and many more. He also wrote weekly columns in various Tamil magazines over the last several years. His column in Anandavikatan was stopped a month or so ago. I thought he was busy with something else and but now I understand he stopped the column due to his poor health.

The most notable thing about Mr Sujatha was his versatility. He can write about science, fiction, modern and ancient tamil literature, dialogues for Tamil movies in a very lucid and easy to understand manner. He is also credited with the invention of Electronic Voting Machines (EVM) while he worked for Bharat Electronics Ltd., When I searched for Sujatha’s obituary in Google, I came across many articles where people have mentioned that his science fiction writing got them interested about computers and made them choose a career in Science. That is the level of impact he had on his readers.

He has worked closely with Kamal Hasan, Director Shankar and Rajnikanth in their movies. The Tamil literary world and movies would miss him very much.

Good bye Mr Sujatha!!

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Do you know the true meaning of "Lifetime prepaid" mobile telephone connections!!

Posted on February 27, 2008. Filed under: General |

Over the last couple of years all the mobile telephone service providers were selling “lifetime” prepaid telephone connections at ludicrously low rates of, say, Rs999/-. I was always wondering how they can provide lifetime connectivity? Also what does it mean by lifetime connectivity? Is it the lifetime of the subscriber or the lifetime of the company which provides mobile telephone service?

I got the answer today, thanks again to FM radio. Reliance Communications was advertising about the lifetime free connectivity for its subscribers and as a “buyer beware” disclosure, they explained that lifetime connectivity means “till the expiration of the license of the service provider“. In this case, Reliance Communications has the license issued till 2021.

It would be same case with other service providers when they say, lifetime connectivity, it is till the end of their license period not for your entire lifetime!! Buyers beware!!

I have come across this disclosure for the first time in the last two years or so. I have neither seen it in the print media nor heard it on the radio channels. Is this disclosure made only by Reliance Communications or all service providers have started doing this?

Did you know about the real lifetime of “lifetime prepaid” mobile connectivity before?

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New entrant in the consumer finance business!

Posted on February 27, 2008. Filed under: Banking |

Reliance Capital has entered the consumer finance business in a big way. They have set up a company called Reliance Consumer Finance and you can acess the website here.

I came to know about the new venture of Reliance Capital through FM Radio advertisements. They are making high decibel advertisements in FM Radio in Chennai. They offer all kinds of loans from personal loans, car loans, home finance, loan against property and commerical property loans. One thing which immediately caught my attention when I visited their website is that they have clearly mentioned about the eligibility criteria, fees and charges in a very user friendly manner. Ofcourse, the charges mentioned are on the higher side compared to other players like PSU Banks and private banks, I guess the charges would be negotiable.

I personally believe there is lot scope for building the consumer finance business in India. Just like Reliance Money which expanded in a frentic pace in non-urban and non-metro cities, I guess Reliance Consumer finance would also concentrate outside metros to build business in the first place. Considering the pace at which Reliance grows its business, I think it would be a big name in this business in a couple of year’s time.

Watch out Reliance Capital stock!

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Latest Bank Merger – CBoP to merge with HDFC Bank!

Posted on February 25, 2008. Filed under: Banking |

The merger of Centurion Bank of Punjab with HDFC Bank has been announced couple of days back. I guess this a prelude to many other mergers which would happen in the next couple of years to come. The merger share swap ratio has been announced today. That is 1 share of HDFC Bank for every 29 shares of CBoP. (1:29) CBoP itself is an amalgamated organisation of Centurion Bank, Bank of Punjab and Lord Krishna Bank. HDFC Bank has also seen merger earlier when it acquired Time Bank.

What HDFC Bank gets out of this merger?

1. HDFC Bank gets licenses for 400 odd branches through this acquisition. Today morning, Mr BD Narang, former Chairman and Managing Director of Oriental Bank of Commerce who handled ther merger of Global Trust Bank with OBC, was saying that for HDFC Bank in the normal course would have taken 10 years to get these branch licenses. Then it is a good thing for HDFC Bank.
2. Centurion Bank has relationship with lot of two-wheeler borrowers who are typically in the lower middle income group. With the system driven approach and better product profile of HDFC Bank, it would be able to leverage the existing client relationships.
3. HDFC Bank gets access to branches in southern and northern India. CBoP is strong in Kerala due to the merger of Lord Krishna Bank and it is good break for HDFC Bank, I guess.

As of now, the merger seems to be in favour of HDFC Bank than with CBoP.

There are many other banks waiting to be acquired by a bigger bank like Lakshmi Vilas Bank, City Union Bank, Dhanalakshmi Bank, Catholic Syrian Bank, though none of them dont have any publicly demonstrated intention of selling it out.

Read Full Post | Make a Comment ( None so far ) – the new blog!!

Posted on February 24, 2008. Filed under: General |

The new blog focussing on personal finance and wealth creation has been soft launched two days back.

You can visit it @

Please do let me have your feedback and comments on the blog.

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Reliance Power IPO and the bonus issue of shares soon after!!

Posted on February 23, 2008. Filed under: Markets |

Reliance Power IPO bombed miserably at the share markets when it got listed on Feb 11. As a face saving gesture from Anil Ambani, Reliance Power has proposed issue of bonus shares to all the shareholders within days of the Initial Public Offer!! Ambani’s, known for their path-breaking style, has done this bonus issue of shares in the same style as well!!

Where else in this world, an IPO would be launched at a premium of Rs420 per share and within a week of listing the company announces bonus shares due to its poor showing. Anil Ambani, I believe is not that philanthropic in doling out bonus shares but he is slated to hit the capital markets again in the next 2-3 months for the Reliance Infratel IPO. Better luch investors!!

I came across this article by Ms Sucheeta Dalal on Reliance Power IPO and the bonus shares announcement. Sucheeta Dalal is an active investor protection activist whose consistent efforts in 2000-01 brought to light the mis-deeds of Dinesh Dalmia of Square D software.

Reliance Power’s Strange and Selective Bonus Proposal
22 Feb, 2008

By Sucheta Dalal

One of the first tasks before Securities and Exchange Board of India’s (SEBI) brand new chairman would be to decide on the selective bonus proposed by Reliance Power Limited (RPL) to reduce the price paid by its retail investors. The company claims that it is offering “free shares” to “all the shareholders, excluding promoters who would accept dilution of their stake in the broader interest of over four million investors.” That sounds wonderful and the shares shot up 7% after the announcement; but remember, the promoters paid just a fraction of the money coughed up by retail investors and are the biggest beneficiaries of the IPO. More importantly, the rather too-clever bonus proposal stretches the rulebook and probably rips it as well. It ensures a discount to retail investors with a minimal increase in capital and a substantial jump in market capitalisation. We asked a cross section of finance experts for their opinion on whether a bonus can be selectively issued to some shareholders. They included a prominent investment banker associated with the issue. Not one of them was certain it could be done; the best they could say was that RPL must have obtained legal opinion before making the announcement. Well, yes, but then the Reliance group – in fact both factions – is famous for stretching the rulebook or evolving unique interpretations of statute to suit its purpose. A former SEBI executive director is emphatic that such a bonus “vitiates the concept of equity and is like a preferential offer.” Let’s consider some issues raised by the announcement.

  • If SEBI and the Ministry of Corporate Affairs (MCA) permit a selective bonus that excludes the promoters, will it also permit the reverse where the promoters use their majority stake to award themselves a bonus and exclude retail investors or a strategic investor? Once the door is opened to a selective bonus issue for RPL, it will permit various forms of shareholder abuse.
  • Can RPL announce a selective bonus without even a board meeting? Is the role of the board limited to rubber-stamping the bonus ratio? More importantly, will SEBI question them?
  • Can RPL unilaterally decide to exclude Reliance Energy from the bonus without REL’s board discussing the issue or seeking its shareholders’ consent? Remember, Reliance Energy investors have already gone to court over the unilateral transfer of power generation licences to Reliance Power and the Mumbai High Court asked SEBI to look into their grievances. However, former SEBI chairman, M Damodaran brushed aside all issues and cleared the IPO.
  • The bonus announcement punishes those investors who sold the shares on listing by using their money to pay those who remained invested. So you have a unique situation where a company that over-priced its shares punishes those investors who prudently cut their losses and rewards those who bought the shares at a lower price after they were listed. Who were these smart buyers who got a double benefit? Can a company use the share premium account to issue a bonus within days of listing? Does this not make a mockery of the IPO price discovery process? Normally, a bonus has to be paid out of free reserves; here is a company that has not even achieved financial closure (but was still allowed to raise public money) selectively distributing the money it has collected as share premium.
  • The bonus has been announced to compensate investors and make amends for the high offer price and excessive hype; but can a bonus issue be a form of compensation? What are the tax implications of such a payout?
  • What exactly does this bonus mean for the promoters of RPL and the shareholders? The promoters invested just Rs2,000 crore, whose post-listing value had jumped to around Rs75,000 crore. On the other hand, public shareholders invested Rs12,000 crore whose value dropped to Rs7,500 crore in a matter of days. Who is being compensated?
  • On another note, grey market operators, who had refused to honour their commitments after RPL shares listed at a discount to the offer price, suddenly turned honourable around the time that the bonus was announced. Some say that they received crisp Rs1,000 notes in cash in lieu of the money they had earned by short-selling the shares. With the grey market having restored its credibility, the stage is set for similar operations in future IPOs, unless SEBI, under the new chairman, puts an end to this dubious activity.

As we said earlier, the new SEBI chairman has quite a task in dealing with this issue.

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Poor customer service experience – this time with Kotak Securities!!

Posted on February 20, 2008. Filed under: Markets |

Sometime back I was lamenting about the very poor service levels of financial services companies and their lack of apathy for customers. You can read that story here.

This is another example of that poor service levels with regard to meeting clients on the appointed time, this time by Kotak Securities. Kotak Securities was behind me for more than 5 days asking for an appointment to explain(!!) about the new “investment” product their group company, Kotak Life has launched. I guess it is nothing more than a new ULIP product. I was very reluctant to meet the financial advisor and I tried my level best to avoid him. He persisted with me for 5 days and I finally relented to meet him on last Saturday at 10.00 AM at my home. The appointment was fixed on Friday morning so I never thought this guy would fail to make it on the next day. But he never turned up on saturday and neither he has called me after that to explain why he didnt turn up. I cant really understand what happened in between Friday morning and Saturday for this guy in not turning up, that too, after pestering me for 5 days!!

The point I dont understand with these financial firms are how they can treat customers with so much disdain? Not able to meet a customer at an appointed time, is a great sin, I would say.
There is usually no clarity or quality in the explanation being made by these so called financial advisors while explaining the products nor they can understand anything beyond what they already know. I believe financial services marketing is a very sensitive area where the customer needs and aspirations are to be kept paramount, but after seeing many Indian companies flouting them with impunity, I can only pity the poor Indian investors, thats us!!

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Credit card upgrades and direct debit authorisations!

Posted on February 19, 2008. Filed under: Banking |

We frequently come across offers for Credit Card upgrades from Silver to Gold and now more recently, Platinum cards based on the transaction history. Though going for a platinum card is useful from reward points and other benefits perspective, the point we need to be careful about is the migration of direct debit authorisations given to various utility bill payments like telephone bills, electricity bills etc.,
Recently I was offered a Platinum card by State Bank of India replacing my Gold card. I gleefully accepted the new card but failed to notify my mobile telephone company of the change in the credit card number. The mobile telephone company could not execute the direct debit authorisation and they started sending me SMS’s and made calls asking me to make the payment. I was very angry with the person who called from their call centre asking for payment since I had already given direct debit authorisation on my credit card, but I didnt realise that the credit card to which I have provided the direct debit authorisation was no longer valid. It stuck me suddenly couple of days after the call that I have upgraded my credit card and the credit card number would have got changed.
I have to now submit a new direct debit authorisation to the mobile telephone company with the new credit card details.
Is it not possible for the credit card issuing companies to provide the upgraded cards with the same credit card number to ensure continuity of direct debit payments?

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Saravana Stores – a front-runner to Pantaloon Retail!!

Posted on February 18, 2008. Filed under: Books |

When I wrote about Pantaloon Retail’s story I failed to mention about the reference he makes about Saravana Stores, T Nagar, Chennai. Kishore Biyani accepts that before starting the retail venture across India, he himself has visited Saravana Stores at T Nagar many times to understand their business model and how customers buy things in an organised retail set-up.

It is not only Kishore Biyani who visited Saravana Stores, but the entire top management team has to mandatorily visit Saravana Stores, T Nagar and take notes to be discussed during their Management meeting.

I guess this a great acknowledgment of retail revolution ushered in by Saravana Stores in late 1980’s and early 1990’s before the better organised players expanded it in a big way. Though the group has split into may companies, it stills remains a great attraction for all shoppers at T Nagar Chennai.

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Free switches in Pension Funds – should use it more pro-actively!!

Posted on February 16, 2008. Filed under: Retirement Plans |

I have a Unit Linked Pension Plan account with ICICI Prudential where I have chosen the “Maximiser” option. Under this option, 100% of the corpus would go into equity investments. I have been accumulating my nest egg for retirement slowly over the last 3 years. You may have seen in all the Unit Linked Pension Plans, the Insurance company gives you an option to switch between funds, like moving from equity to debt or vice-versa. I have long wondered how these switches across different funds could be useful for investors during the initial years where funds are getting accumulated. I know that closer to your retirement date, you try to move a substantial portion of your accumulated savings to debt fund to protect the capital accumulated.

I guess, we all got an opportunity to exercise this option of switches during the recent market crash. The Nifty was cruising along above 6000 levels in January 2008 in-spite of global markets correcting in a big way. Like most of the investors, I was also feeling uncomfortable with the equity valuations, but did nothing other than speculating when the market would crash. I definitely believed that the valuations are stretched and anytime the market would fall. Knowing this, I did nothing to protect my pension plan accumulations. I just completely ignored the need for protecting my capital accumulated under the pension scheme.

What I should have done during Dec/Jan 2008 was to have moved from equity oriented “Maximiser” option in ICICI Prudential to a debt option. By doing this, I would have avoided a huge erosion in the NAV of my Pension accumulation. This is a good lesson and now I understand the need and importance of having “free switches” in these pension plans.

I need to find out the following in these pension plans:

1. Can partial switch-over of the accumulated units possible? I guess, it should be possible.

2. How the actual process of switch happens?
Though all companies claim free switches, practically insurance companies would have built a cost to the investor by having a entry load into the new scheme.

3. How many days does it take to carry out a free switch?

4. What modes can be used to carry over the switch? Phone, online facility or the time tested hard copy letters?

5. Is there anybody who has done these switches successfully in the past what has been their experience? Did they pre-empt the crash in 2008 and protected their retirement nest egg?

If anybody has more information on the above questions, please post it as your comment.

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