Mumbai, August 26
Growth deceleration that began last fiscal, when GDP growth slipped to a nine-year low of 6.5 per cent, has been led primarily by a near 50 per cent dip in new investments in large projects, the Reserve Bank said.

"Envisaged total fixed investment by large firms in new projects, which were sanctioned financial assistance during FY12, dropped by a whopping 46 per cent to about Rs 2.1 trillion from Rs 3.9 trillion a year ago," according to the FY12 RBI annual report.

As per the report, the drop was led by the infrastructure and metals sectors.

"Envisaged investment in infrastructure declined by 52 per cent to Rs 1 trillion in FY12 from Rs 2.2 trillion in FY11, led by the power and telecom sectors," said the report, quoting data collated from banks and financial institutions.

While investment in the telecom sector has dried up, that in roads, ports and airports has also decelerated sharply, it added.

Gross bank credit to infrastructure outstanding as of April 2012 was Rs 6.2 trillion. However, the flow of bank credit to the sector has decelerated, on the back of policy delays and higher interest rates, the report noted.

Data on sector-wise gross deployment of bank credit shows that its year-on-year growth has declined to 14 per cent in FY12 compared to 38 per cent growth in FY11.

Noting that over half of the envisaged corporate fixed investment in large projects has been coming from the infrastructure space since 2008-09, the report said, its share, however, dropped to 48.6 per cent in FY12 from a high 54.8 per cent a year ago.

This massive slippage has had a ripple effect on the economy. Order books of capital goods producing firms have declined as the size of the pie has reduced. Their share has also gone down as they have been out-competed by cheaper imports by foreign firms, points out the report.

In addition, investment climate in the power sector has been affected by rising losses of public sector utilities.

Though power tariffs have been raised by many SEBs over last two years and several other steps have been initiated to improve the financial health of SEBs, drought in many parts could put additional pressure on their profit line during 2012-13, the report warned. On the impact of losses in power sector on balance sheets of banks, the report says a significant portion of trillions of rupees is locked up with loss-making SEBs which will have to be restructured and may even become non-performing.

The exposure of banks to the power sector is about Rs 3.3 trillion as per the sector-wise deployment of credit obtained from 47 scheduled commercial banks that account for 95 per cent of total non-food credit.

Attributing the reasons for the poor show by the infra space, the report underlines that lower coal production and supply shortages have emerged as a major bottleneck in the sector. — PTI

Religare Finvest is a non banking financial company (NBFC) and an arm of Religare Enterprises promoted by Malvinder and Shivinder Singh of Fortis Healthcare. One of the leading NBFCs in the country, It has a loan book of over Rs 14,000 crore to small and medium enterprises (SME). In an interview with Sanjeev Sharma, Kavi Arora, CEO, Religare Finvest talks about trends in lending to the SME sector, slowdown in the economy and fund raising plans.

Q: We are into the second quarter of the financial year. How will you rate this year so far? What has been the growth in advances?

A: The year so far has been good, although we are seeing signs of slowdown in some sectors. In the first quarter, we disbursed Rs 1,700 crore of loans to SMEs, resulting a growth of 7.4 per cent as year on year basis.

Q: Are you observing slowdown in demand for loans from the SME sector in line with the economy’s slowdown?

A: The Indian economy is currently going through a difficult phase. Economic developments in the western world have a spillover effect on it. The impact can be seen in export oriented business value chains. A few sectors have experienced slow down, broadly the SME sector has demonstrated some resilience and continues to show some decent economic activity. This has helped us to maintain credit demand from the sector. Still, we are cautious about our customers to ensure portfolio growth with sound credit parameters and good credentials.

Q: Are you planning any other schemes for SME sector to beat the slowdown?

A: Since inception, we’ve supported SMEs through various funding products and also provided a solution based approach to sustain their fundings and other business needs. Further, we have internally enhanced our credit assessment processes to address the customers’ needs in a better way and improve our ability to underwrite loans, while making the process transparent..

Q: Currently, which SME sectors are under your consideration for demand for loans?

A: We have observed a uniform credit demand across various sectors. However, the task at hand is to be selective and to extend credit to most worthy sectors and customers especially in the current economic environment.

Q: Also, which region/state's SME sector tops in demand for loans?

A: We see demand from all SME clusters across states. Overall Metros & Tier I towns continue to contribute major share in the demand for SME loans.

Q: Is there any pressure on quality of loans due to slowdown?

A: Our underwriting is based on a strong credit assessment framework taking into account customer business and cash flows, track record and collateral quality. Furthermore, the portfolio is well diversified across sectors and geographies. As such, we haven’t seen any considerable pressure on the quality of portfolio.

Q: What are your fund raising plans for the remaining year?

A: Last year, in September 2011, we raised public debt to a tune of Rs 800 crore through a retail bond issue which was well received in the markets. Now, we are planning to raise funds from the public market in the second quarter.

Q: Do you observe any prospects in the North India market?

A: The North Indiia market offers great opportunity and is poised for more growth in the coming years.

New Delhi August 26
In a major leap towards using latest technology in financial markets, market regulator SEBI plans to allow investors to make payments for Initial Public Offers (IPOs) through ATM, debit and credit cards, as also via mobile banking.

A final decision would be taken by SEBI after examining operational and legal feasibilities of enabling investors to make such payments for IPOs, a senior official said.

The proposed move is part of SEBI's efforts to attract more and more investors to the market through IPO route. It has already announced various steps for reforms in the primary market, which include increasing the reach of IPOs in electronic form through nation-wide broker network of stock exchanges.

After its last board meeting on August 16, SEBI chairman UK Sinha said investors can approach brokers at over 1,000 locations to apply in IPOs physically or electronically.

Stock exchanges have also been asked to facilitate investors to view the status of their IPO applications on the websites, similar to the secondary market transactions.

Besides, SEBI has modified its rules to enable retail applicants to get a minimum lot of shares in IPOs. It has also decided to make brokers responsible for uploading the bid on the exchange platform and for banking the cheque and handling of ASBA (Application Supported by Blocked Amount) applications. In ASBA system, the money remains in the applicant's bank account till the time of share allotment.

Brokers would be compensated by the issuer, so that they are interested in directly or indirectly marketing the issue as well. — PTI

New Delhi, August 26
In an attempt to plug revenue loss of Air India, Civil Aviation Minister Ajit Singh has imposed a blanket ban on free excess baggage checked in by ministers and civil servants.

Singh, in a letter to Air India chairman & MD Rohit Nandan, said the airline should stop the practise of carrying excess baggage without charges immediately on domestic and international flights, a senior official said.

Singh added no such requests should be entertained as the airline needs to generate more revenue, he added, referring to his letter written on Thursday.

The world over excess baggage fee is a form of an ancillary revenue for airlines.

Welcoming the move, airline officials said they get many requests for waiver of excess baggage fees on Air India flights from some "important persons".

"Sometimes we’re unable to say no to their request," they said, adding this practise would end now "as we can flatly tell them it’s an order and we’ve to abide by it. We’d be able to save not only fuel but also earn handsome revenue," the officials added.

It is a common practice by the airlines to levy a charge for luggage checked in over and above the free baggage allowance.

Normally, the free baggage allowance is 20 kg for a flier but Air India has been lenient in dealing with special requests, especially by VIPs who fly by the national carrier.

On international routes, an Air India passenger can carry 28 kg checked-in baggage free on a London flight but they have to pay Rs 1,570 per kg for excess baggage. — PTI

Q. I want to give a cheque of certain amount to my grandson as a gift. He holds a PAN number and dependant upon his parents. In similar way, his parents also want to give him some cash. Will the interest accrued on such deposits given to him (grandson/son) be included in the income of his parents or not? — Jagat Narain

A. The interest earned on the amount gifted by you to your grandson who is major, would not be includible in your income. Similarly, the interest earned on the amount gifted by the father or mother to the son or daughter who is major, shall not be included in the income of the father or mother.

Q. Is the amount received on account of medical re-imbursement for indoor treatment of chronic disease, such as cancer taken from a private hospital with due permission from the competent authority, taxable or is there any exemption? If it is exempted from the tax, can the disbursing authority deduct the tax from the bill and later on, should the claimant claim refund from the authorities? — Resham Singh

A. Any sum paid by the employer in respect of any expenditure actually incurred by the employee on his medical treatment or treatment of any family member in any hospital approved by the Chief Commissioner of Income Tax with regard to prescribed guidelines is not treated as a perquisite and hence it is not taxable. The query does not indicate whether the hospital which provided the treatment is approved by the Chief Commissioner of Income Tax or not. In case the hospital is approved, the amount reimbursed to you would not be taxable and the disbursing authority should not deduct tax from such an amount.

Q. My daughter is a state government employee. She underwent a caesarean operation at DMC, Ludhiana, and delivered a child who was operated upon immediately after the birth as he was suffering from the prebirth intestinal obstruction. She has received a sum of Rs 1,60,700 as medical reimbursement for both of them. Tell me whether the illnesses fall u/s 17(2) or11 DD of the Income Tax Act 1961 and how much amount is exempted from tax. — Harmesh Singh

A. Your daughter would be covered within provision (ii)(a) to Section 17(2) of the Income Tax Act 1961 which provides that any sum paid by the employer in respect of any expenditure actually incurred by the employee on his/her medical treatment or treatment of members of his/her family in any hospital maintained by the government or any local authority or any other hospital approved by the government for the purposes of medical treatment. You will have to ascertain whether DMC, Ludhiana is approved by the government for the purposes of medical treatment of its employees and or members of the family of the employee. If it is not approved, the amount reimbursed by the government would be taxable. It may be added that Rule 11DD of Income-tax Rules 1962 is not applicable in this case.

As regulatory authorities-government, Civil Aviation Ministry and Directorate General of Civil Aviation (DGCA)- are in deep slumber, private airline operators are making hay while the sun shines on their empires. Regardless of the circumstances prevailing in the aviation sector, a steep rise in air fares is not unjustified.

The study reveals that air fares on domestic sectors in India are costlier than most other countries. It is not only scheduled airlines which have increased fares but even low-cost carriers have also jacked up their fares without showing any concern to passengers.

It is not only the seat in the aircraft that costs you more, poor passengers have to pay for everything accompanying his/her travel. The cancellation charges as well as baggage rates have been substantially increased.

In the past eight months, fares have jumped four times. Besides this, there is no stability in fare structures as they go up during tourist and holiday seasons. The airline managements believe that it is a matter of demand and supply and we have no option except to raise fares to survive in razor-sharp market. This is a penalty which passengers have to pay for due to the introduction of open market in this sector in the early 1990s. There is no law or rule existing in the sector. It is a jungle raj!

Surprisingly, new DGCA chief Arun Misra said: “It is within the right of the airlines to hike charges for facilities….If they do so within the given band, we have no role to play.”

There was a time when travelling by air even on domestic sectors was a sheer joy. Now, it is all anxiety on board as every bit of facility carries a price tag. In the latest circular effective from August 19, the fuel surcharge has been hiked by Rs 100 to Rs 150 for first 1,000 kilometre and beyond.

Fares in all sectors--national and international--have increased as agents’ commission has been further reduced and they are, in the process, billing it to passengers.

Indeed, airlines worldwide are battling because of increase in jet fuel prices, but the situation in the country is much worse than elsewhere.

Most people do not evaluate their life insurance needs before buying a life insurance plan and end up buying a wrong product that may not be suitable for providing protection to their families. Life insurance products are mostly bought to save on tax and, hence, most people do not have adequate insurance cover.

One must calculate the exact life insurance requirements before closing on the cover amount needed and the plan to be purchased. It is always advisable to take a term plan so as to cover the time till your retirement. Once you stop earning there is no need for life insurance. You should also read carefully the exclusions mentioned in the policy document.

Insurance- a prime need

Whether it is cricket, F1 race or any other sport, if you start the game wisely, then it becomes easier for you to win it. Same thing applies to achieving your financial goals; the earlier you start, it becomes easier for you to achieve goals, whether it is for children's marriage, their higher education, buying a house or your own retirement.

Generally, you feel that the small amount of money left with you at the end of the month after meeting all household expenses will not increase your savings and will not be able to contribute much towards achieving your future goals. So, you prefer spending it on either shopping or catching a movie in a nearby multiplex, which makes you momentarily happy. You will regret such unnecessary spending when you actually need money in future. Our parents taught us to save money in our piggy banks from the pocket money we used to get. Now when we have grown up and our pocket money has been replaced by our monthly salary, we forget this teaching and hardly use piggy bank or any other means of saving.

Save as much as you can

Even a small amount saved every month can turn into a magical figure, but for that you need to understand the magic and the power of compounding.

I will explain you this with an example of my two friends Rajan and Jigar. Rajan started investing Rs1,000 every month when he was 25-year-old, in an investment instrument earning a rate of return of 12% p.a. for 25 years, whereas Jigar started saving Rs 1,000 from the age of 35 years. At the age of 50 years, Rajan's savings grew to Rs 18.79 lakh and Jigar's savings grew to Rs 5 lakh. So you can clearly see the difference in their future amounts. Rajan's money grew 3 times of what Jigar's money grew, just by investing 10 years early. You can also see, investing small amount of Rs1,000 monthly can grow to lakhs of rupees in 25 years. Thus the power of compounding can be best described by the famous saying, "boond boond se sagar bharta hai".

No need to underestimate

You should at least save and invest 15% - 20% of your monthly income. This specific portion of your income should be kept aside as your expense, since these investments are going to be utilized in future for your financial goals. You should never underestimate and assume that small amount of savings will not be fruitful in future. You should start saving and investing your surpluses as early as possible, as "better late than never".

Disciplined investment

It is necessary to have a disciplined investment. You should not discontinue your regular investments or withdraw profit or some amount from the accumulated fund even if the market is low and the returns are poor, which usually happens while investing in SIPs. If you don't maintain discipline, the overall returns from the investment will be low.

You should choose investment instruments for regular savings by taking into account the investment time horizon and your ability to take risks. There are varieties of investment vehicles available in the market for regular investment. For short-term investment horizon (less than 5 years), you shouldn't take any risk. You should invest in recurring deposit schemes or start SIP in conservative MIP mutual fund scheme. For medium term investment horizon (upto 9 years), you should invest in balanced mutual fund schemes via SIP. For long-term investment horizon (more than 9 years), you can take equity exposure upto 90% by investing in equity mutual funds scheme via SIP and the balance in debt MF or gold fund. You can also deposit some amount of savings in PPF account as well, but you need to keep in mind the lock-in period and restrictions on withdrawal of funds from the account.

So you should save as much as you can and that too as early as possible, that's why it is said, "Well begun is half done". You should develop savings habit right from the beginning and not think that you have ample time in future to save. The earlier you start saving and investing in the right instrument, better and fruitful it will be in future.

The author is a research analyst at Apnapaisa.com, an online insurance price & features comparison engine for loans and investments. The views expressed are his own