Category Archives: News Corner

HSBC suspends MF, insurance sales in India

HSBC suspends MF, insurance sales in India amid allegations of mis-selling and certain sharp practices

Economic Times, 3/11/2012


HSBC, the word’s third-largest bank, has stopped selling insurance and mutual fund products in India. Amid mounting allegations of mis-selling and certain sharp practices, the London headquarters of the British bank, which carried out a "culture audit" of the Indian retail banking and wealth management practices, has ordered a suspension of sales.

HSBC Bank is the largest distributor of mutual funds in the country. The foreign bank, which has been doing business in India for close to 150 years, reported a 30% spurt in commissions on mutual fund sales last fiscal – one of the toughest years for fund houses, life insurers and financial services brokerages.

The parent organisation has given HSBC India two months to fix the system in order to ensure that customer complaints came down, said a source. Besides mis-selling of insurance policies, these complaints related to frequent churning of mutual fund portfolios of many well-heeled investors.

Emails from ET to HSBC went unanswered till the time of going to press.

Fund distributors often earn higher commissions by advising investors to shift from one mutual fund scheme to another. Indeed, the Securities and Exchange Board of India, or Sebi, in an earlier note had pointed out rampant portfolio churning by many banks.

"Churning and mis-selling of insurance happen in other banks and brokerages as well, though the extent may differ. HSBC is possibly trying to correct its system to see that the nature of products meets customers’ appetite," said a chartered accountant associated with a fund house.

In many markets, large financial services groups insist that all telephonic conversations between customers and personal bankers or wealth managers should take place on recorded lines. But this may be difficult in markets like India where bank or distributor officials use their mobiles to call clients after office hours.

‘HSBC Bank a Tough Negotiator’

According to a senior fund manager, HSBC officials recently told CEOs of top fund houses that it would go slow on sales, and in some cases stop selling till further notice. Fund house sources said HSBC Bank had been a tough negotiator when it came to taking fund distribution mandates.

Several fund executives told ET that the bank often demanded higher up-front fee to drive ‘exclusive sales’ of equity schemes of a particular fund house. Such commissions were in addition to the upfront and annual trail fees that mutual funds pay distributors for selling their schemes. HSBC Bank’s fund portfolio largely comprises lumpsum subscriptions from affluent investors. The bank, said distributors, pools a few thousand crores of investments every year.

This is the second time in five years that the Indian retail banking operations of the bank faced an internal scrutiny. In 2007-08, a team from HSBC’s regional headquarters had inspected the books following suspicions that the bank was dressing up retail assets and credit card portfolios by spending more on sales agents who in turn routed a slice of the money for interest payments on loans.


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Investor associations cry foul

Investor associations cry foul as Ministry closes Helpline

Business Line, 12/9/2011


Closing of Investor Helpline by the Ministry of Corporate Affairs (MCA) has not gone down well with investor associations.

While the Ministry says it closed the helpline in June to avoid duplication of work, it is being alleged that there is a money grab by industry associations.

The Ministry is better equipped to handle investor grievances than anyone else, said an MCA official.

“The number of complaints being registered on our website was increasing and those on the helpline were decreasing for more than a year now,” an MCA official told Business Line. According to IH, it received 14,300 grievances in 4.5 years and resolved or closed 98 per cent of them. The Ministry, however, was not able to share the number of grievances it received or closed despite repeated requests.

Questions are being raised by some investor associations on operations of Investor Education and Protection Fund (IE&PF) and the committee that administers it.

A committee of 12 with a two-year term is formed to administer the IE&PF. MCA Secretary is the Chairman and the committee must have representations from RBI, SEBI and other organisations actively involved in investor activities. IE&PF has 174 NGOs registered with it as on March 31, according to the website. Some of its past members are Ms Sucheta Dalal of Moneylife, Mr P.N. Vijay, Tamil Nadu Investors’ Association and Mr Manu bhai Shah of CERC.

In February 2009, representatives of industry chambers such as FICCI, CII, ASSOCHAM and NSE entered the committee with not even a token presence of an NGO, non profit organisation or investor activist. In May 2010, an extension for two more years was issued to the committee that also had representatives from professional institutes CA, ICSI and ICWA.

“What is the NSE Managing Director doing on the IEPF? He has a few hundred crores under an investor protection fund of the NSE, why doesn’t he concentrate on spending that? Especially when the number of retail investors in India has shrunk from 20 million to 8 million in the past 20 years,” said Ms Sucheta Dalal.

The committee has suo moto powers to call upon any company to pay due to the fund. This constitutes an inherent contradiction in the nature of IEPF and its responsibilities, said Mr Virendra Jain, President, Midas Touch Investors Association that set up IH.

“These institutes and the industry chambers have direct pecuniary and professional relations with the companies against whom the IEPF is supposed to protect the investor’s interest,” he said.

In 2010-11 more than 3,500 seminars were held from the fund. The primary objectives of the Fund according to the Act are “promotion of investors’ awareness” and “protection of the interests of investors.”

IE&PF was established under the Companies Act, 1956, to promote investor awareness by utilising the funds that are unclaimed for seven years such as dividends, deposits, debentures, etc of investors.

The unclaimed amount is transferred to a central corpus, which is Rs.500 crore as on date, with an annual budget of Rs 5 crore. The online grievance redress portal, investor helpline, was receiving Rs 50 lakh an year.

Sebi ups vigil on market to prevent manipulation

Rajesh Abraham, Anto T Joseph, Financial Chronicle, 25/8/11


The Securities and Exchange Board of India (Sebi) is beefing up its internal market surveillance systems to check stock manipulations on a real-time basis, chairman UK Sinha said.

The market regulator is also concerned about rising retail participation in the risky equity derivatives segment, Sinha said, adding that Sebi would check if some sort of misselling or mis-communication is going to investors to lure them into this segment.

At present, retail segment’s share in equity derivatives – termed as weapons of mass destruction by billionaire investor Warren Buffet – is nearly 60 per cent compared with that of only 13 per cent from institutions, who are relatively better equipped to deal with such sophisticated and risky trades.

In an exclusive interview with Financial Chronicle, Sinha said the capital market regulator through its integrated market surveillance system generates 12 different kinds of alerts on doubtful or suspicious trades in the stock market. This will be beefed up further to send a clear message to rogue traders that the regulator was on top of things.

“Sebi has introduced an integrated surveillance system. This means we have our own independent system where data from all exchanges are captured automatically on a real-time basis. That part of the project is over,” Sinha said.

“The second part is what we do with the data? Have we developed enough business intelligence to take that data forward to identify any pattern that can be suspicious? That part is going on,” the Sebi chief said.

The alerts on which the system generates information is only the initial stage of phase one. “We have to take it to a very different level so that if anybody is trying to manipulate any scrip or the market, our system is able to tell us immediately. Bu immediately, I mean immediately, on a real-time basis. That is our ambition,” Sinha said.

The Sebi chief said allowing an offence to take place and punish the guilty was not the regulator’s goal. “Our job is to stop the offence. It will take a few years. One phase will be completed by the end of this year,” he said.

On increased participation of small investors in the risky equity derivatives segment, Sinha said it throws up challenges for Sebi to see what sort of communication was going to them.

“Are retail investors being told in very clear terms what are the risks? If there is any mis-selling and mis-communication, we will definitely look into it, because if 60 per cent of investors in a country like India, where the level of financial literacy is not very high, are participating in derivatives, then Sebi should look at the way sales are happening. We will definitely look at the way communication is happening,” he said.


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Government Lokpal Bill Vs Jan Lokpal Bill

Issue View of ‘India against corruption’ Government’s view Comments
Prime Minister Lokpal should have power to investigate allegations of corruption against PM. Special safeguards provided against frivolous and mischievous complaints PM kept out of Lokpal’s purview. As of today, corruption by PM can be investigated under Prevention of Corruption Act. Government wants investigations to be done by CBI, which comes directly under him, rather than independent Lokpal
Judiciary Lokpal should have powers to investigate allegation of corruption against judiciary. Special safeguards provided against frivolous and mischievous complaints Judiciary kept out of Lokpal purview. Government wants this to be included in Judicial Accountability Bill (JAB). Under JAB, permission to enquire against a judge will be given by a three member committee (two judges from the same court and retd Chief justice of the same court). There are many such flaws in JAB. We have no objections to judiciary being included in JAB if a strong and effective JAB were considered and it were enacted simultaneously.
MPs Lokpal should be able to investigate allegations that any MP had taken bribe to vote or speak in Parliament. Government has excluded this from Lokpal’s purview. Taking bribe to vote or speak in Parliament strikes at the foundations of our democracy. Government’s refusal to bring it under Lokpal scrutiny virtually gives a license to MPs to take bribes with impunity.
Grievance redressal Violation of citizen’s charter (if an officer does not do a citizen’s work in prescribed time) by an officer should be penalized and should be deemed to be corruption. No penalties proposed. So, this will remain only on paper. Government had agreed to our demand in the Joint committee meeting on 23rdMay. It is unfortunate they have gone back on this decision.
CBI Anti-corruption branch of CBI should be merged into Lokpal. Government wants to retain its hold over CBI. CBI is misused by governments. Recently, govt has taken CBI out of RTI, thus further increasing the scope for corruption in CBI. CBI will remain corrupt till it remains under government’s control
Selection of Lokpal members

1. Broad based selection committee with 2 politicians, four judges and two independent constitutional authorities.

2. An independent search committee consisting of retd constitutional authorities to prepare first list.

3. A detailed transparent and participatory selection process.

1. With five out of ten members from ruling establishment and six politicians in selection committee, government has ensured that only weak, dishonest and pliable people would be selected.

2. Search committee to be selected by selection committee, thus making them a pawn of selection committee

3. No selection process provided. It will completely depend on selection committee

Government’s proposal ensures that the government will be able to appoint its own people as Lokpal members and Chairperson. Interestingly, they had agreed to the selection committee proposed by us in the meeting held on 7th May. There was also a broad consensus on selection process. However, there was a disagreement on composition of search committee. We are surprised that they have gone back on the decision.
Who will Lokpal be accountable to? To the people. A citizen can make a complaint to Supreme Court and seek removal. To the Government. Only government can seek removal of Lokpal With selection and removal of Lokpal in government’s control, it would virtually be a puppet in government’s hands, against whose seniormost functionaries it is supposed to investigate, thus causing serious conflict of interest.
Integrity of Lokpal staff Complaint against Lokpal staff will be heard by an independent authority Lokpal itself will investigate complaints against its own staff, thus creating serious conflicts of interest Government’s proposal creates a Lokpal, which is accountable either to itself or to the government. We have suggested giving these controls in the hands of the citizens.
Method of enquiry Method would be the same as provided in CrPC like in any other criminal case. After preliminary enquiry, an FIR will be registered. After investigations, case will be presented before a court, where the trial will take place CrPC being amended. Special protection being provided to the accused. After preliminary enquiry, all evidence will be provided to the accused and he shall be heard as to why an FIR should not be regd against him. After completion of investigations, again all evidence will be provided to him and he will be given a hearing to explain why a case should not be filed against him in the court. During investigations, if investigations are to be started against any new persons, they would also be presented with all evidence against them and heard. Investigation process provided by the government would severely compromise all investigations. If evidence were made available to the accused at various stages of investigations, in addition to compromising the investigations, it would also reveal the identity of whistleblowers thus compromising their security. Such a process is unheard of in criminal jurisprudence anywhere in the world. Such process would kill almost every case.
Lower bureaucracy All those defined as public servants in Prevention of Corruption Act would be covered. This includes lower bureaucracy. Only Group A officers will be covered. One fails to understand government’s stiff resistance against bringing lower bureaucracy under Lokpal’s ambit. This appears to be an excuse to retain control over CBI because if all public servants are brought under Lokpal’s jurisdiction, government would have no excuse to keep CBI.
Lokayukta The same bill should provide for Lokpal at centre and Lokayuktas in states Only Lokpal at the centre would be created through this Bill. According to Mr Pranab Mukherjee, some of the CMs have objected to providing Lokayuktas through the same Bill. He was reminded that state Information Commissions were also set up under RTI Act through one Act only.
Whistleblower protection Lokpal will be required to provide protection to whistleblowers, witnesses and victims of corruption No mention in this law. According to govt, protection for whistleblowers is being provided through a separate law. But that law is so bad that it has been badly trashed by standing committee of Parliament last month. The committee was headed by Ms Jayanthi Natrajan. In the Jt committee meeting held on 23rd May, it was agreed that Lokpal would be given the duty of providing protection to whistleblowers under the other law and that law would also be discussed and improved in joint committee only. However, it did not happen.
Special benches in HC High Courts will set up special benches to hear appeals in corruption cases to fast track them No such provision. One study shows that it takes 25 years at appellate stage in corruption cases. This ought to be addressed.
CrPC On the basis of past experience on why anti-corruption cases take a long time in courts and why do our agencies lose them, some amendments to CrPC have been suggested to prevent frequent stay orders Not included
Dismissal of corrupt government servant After completion of investigations, in addition to filing a case in a court for prosecution, a bench of Lokpal will hold open hearings and decide whether to remove the government servant from job. The minister will decide whether to remove a corrupt officer or not. Often, they are beneficiaries of corruption, especially when senior officer are involved. Experience shows that rather than removing corrupt people, ministers have rewarded them. Power of removing corrupt people from jobs should be given to independent Lokpal rather than this being decided by the minister in the same department.
Punishment for corruption

1. Maximum punishment is ten years

2. Higher punishment if rank of accused is higher

3. Higher fines if accused are business entities

4. If successfully convicted, a business entity should be blacklisted from future contracts.

None of these accepted. Only maximum punishment raised to 10 years.
Financial independence Lokpal 11 members collectively will decide how much budget do they need Finance ministry will decide the quantum of budget This seriously compromises with the financial independence of Lokpal
Prevent further loss Lokpal will have a duty to take steps to prevent corruption in any ongoing activity, if brought to his notice. If need be, Lokpal will obtain orders from High Court. No such duties and powers of Lokpal 2G is believed to have come to knowledge while the process was going on. Shouldn’t some agency have a duty to take steps to stop further corruption rather than just punish people later?
Tap phones Lokpal bench will grant permission to do so Home Secretary would grant permission. Home Secretary is under the control of precisely those who would be under scanner. It would kill investigations.
Delegation of powers Lokpal members will only hear cases against senior officers and politicians or cases involving huge amounts. Rest of the work will be done by officers working under Lokpal All work will be done by 11 members of Lokpal. Practically no delegation. This is a sure way to kill Lokpal. The members will not be able to handle all cases. Within no time, they would be overwhelmed.
NGOs Only government funded NGOs covered All NGOs, big or small, are covered. A method to arm twist NGOs
False, Frivolous and vexatious complaints No imprisonment. Only fines on complainants. Lokpal would decide whether a complaint is frivolous or vexatious or false. Two to five years of imprisonment and fine. The accused can file complaint against complainant in a court. Interestingly, prosecutor and all expenses of this case will be provided by the government to the accused. The complainant will also have to pay a compensation to the accused. This will give a handle to every accused to browbeat complainants. Often corrupt people are rich. They will file cases against complainants and no one will dare file any complaint. Interestingly, minimum punishment for corruption is six months but for filing false complaint is two years.

source: India Against Corruption


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Direct Tax Code set to miss deadline again

Santosh Tiwari, Business Standard, 12/8/2011


The implementation of the Direct Taxes Code appears set to miss its deadline once again.

The Direct Taxes Code (DTC) Bill, introduced in Parliament on August 30 last year, proposes to replace the 50-year-old Income Tax Act.

Initially proposed to come into force from April 2011, the code’s deadline had been extended to April 2012 as the draft Bill was referred to a Parliamentary standing committee.

The standing committee is unlikely to give its report on the draft Bill in the ongoing session.

Though a standing committee member said the government could implement the DTC from April 2012 even if the panel’s report was presented in the Winter session, a senior finance ministry official handling the process told Business Standard it would be very difficult.

“There won’t be enough time. The Act needs to be passed by March 31 for implementation from April 1. If the standing committee report comes in the Winter session, the final Bill can at best be tabled in Parliament in the Budget session and it would not be possible to announce the implementation from the next financial year in the Budget without the Act’s passage,” explained the official.

The new direct tax law proposed to simplify and streamline the income tax regime. After it missed the April 2011 deadline, Finance Minister Pranab Mukherjee had shown optimism it would be implemented from April 2012. The official, however, said the delay in implementation by another year would not create problems, as the government had started the process of moving towards the DTC under the existing income tax provisions in the last two years.

“Ideally, after the passage in Parliament, both the income tax department and industry should get at least nine months to prepare themselves to handle the new framework,” he added.
The industry, in fact, has indicated to the finance ministry it would be good to implement the DTC from April 2013 along with the proposed goods and services taxation (GST).

"The industry wants certainty and time to understand the exact implications of a particular law to settle down before getting into a new policy framework," said the official.

The Central Board of Direct Taxes has started working out the systemic requirements to handle the DTC and implementation of the code from April 2013 will give it extra time to develop the infrastructure.

The annual I-T exemption limit is proposed at Rs 2 lakh in the DTC Bill compared to Rs 1.8 lakh at present.

Under the Bill, the government proposes to widen tax slabs to levy 10 per cent tax on income between Rs 2 lakh and Rs 5 lakh, 20 per cent on Rs 5-Rs 10 lakh and 30 per cent above Rs 10 lakh.

Currently, income up to Rs 1.8 lakh per annum is exempt from tax for individuals. For women and senior citizens, the limit is Rs 1.9 lakh and Rs 2.5 lakh, respectively.

Tax is levied at a 10 per cent rate on income between Rs 1.8 lakh and Rs 5 lakh, 20 per cent on Rs 5-Rs 8 lakh and 30 per cent above Rs 8 lakh.


AUG 2009
First DTC draft put up for public discussion

JUNE 15, 2010
Revised draft issued for discussion

AUG 26, 2010
Cabinet clears DTC Bill

AUG 30, 2010
* DTC Bill tabled in Parliament

* Deadline extended to April 2012 from April 2011

* Bill referred to the standing committee

AUG 2011
Standing committee report expected in Winter session, not enough time to complete process by March 31


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