The Tribune, Chandigarh, India

Pak industry wants India to collaborate in farm sector
Sanjeev Sharma/TNS

Karachi, September 29
While trade between India and Pakistan has several natural advantages, Pakistan industry has listed some steps like agriculture collaboration, opening of banking channels and mobile phone connectivity to enhance the relationship.

Addressing an Indian delegation, SM Muneer, president, India-Pakistan Chamber of Commerce and Industry said economic collaboration in agriculture can help both countries to stabilise the price and attain food security in the region. He said the trade in agricultural commodities could bridge the short-term supply shortages in both countries.

Muneer added the agreement on opening bank branches in both countries has not yet been implemented as Pakistan banks are still awaiting the approval of the RBI. Apart from providing mobile phone connectivity, he said Pakistani companies should be allowed to bring back money for FDI in India.

Some steps towards greater collaboration are underway. The Karachi Chamber of Commerce is signing an MoU with its Mumbai counterpart and clearances from the government are awaited.

Greater collaboration with India in trade is something that a recent IMF report on the Pakistan economy has also suggested. The Pakistan economy is struggling with the rupee falling sharply to 110 to the dollar, energy crisis issues and perceptions about law and order issues hurting investments.

The Nawaz Sharif government is working on the economic agenda to revive investments and growth. Khurram Dastgir Khan, Pakistan Minister of State for Commerce and Privatisation, said at the Expo Pakistan in Karachi that economic revival is the main agenda of the government. He said the aim is to restore growth, investment and jobs.

Khan said the Expo Pakistan will showcase domestic products and manufacturers and the effort is to expand the export base from just textiles to include products like marble and handicrafts, among others.

More collaborations between the companies of India and Pakistan is being stressed as a way to expand trade. Naeem Anwar, Minister of Trade, Pakistan High Commission in New Delhi, stressed that more investments and joint ventures between companies is the way forward.

Anwar said there are sectors like leather, gems and jewellery, furniture, textiles in which India is importing heavily but Pakistan is an exporter and trade in these sectors can be increased.

Indian apparel brand, Raymond has opened an outlet in Karachi through the franchising route. An Indian trade delegation is also attending the Expo Pakistan to explore business opportunities. India’s presence at the trade fair has not been very high-profile. Some companies that were part of the delegation included Sinochem Impex, Tulsi Exports, Khanna Paper Mills, Fam Foods, Genus Power, Ankita Overseas, High Tech Industries, RJ Attire, Dabur and Raymond.

HDFC Bank targets rural areas for inclusive growth

HDFC Bank, India’s second-largest private bank, is going deeper into rural geographies of the world’s second-most populated nation to support inclusive growth. Manohara Raj, Executive Vice-President & Business Head-Sustainable Livelihood Initiative, HDFC Bank, talks to Sanjeev Sharma about how the bank has been empowering women in rural markets through its Sustainable Livelihood Initiative and making a difference in their lives.

Q: A large portion of the population does not have access to formal banking facilities. What role is HDFC Bank playing in changing this scenario?

We have achieved a high portfolio quality reflecting the effect of good risk management, high standard of credit evaluation, and effective post-credit monitoring and follow-up system. This has helped the bank keep the bad loans at less than 1 per cent level
Manohara Raj, Executive VP, HDFC Bank

A: At HDFC Bank, we have a Board-approved mandate to empower 10 million families and make a difference to their lives by bringing them into the banking fold. That’s about 50 million people or 4 per cent of the population. Our Sustainable Livelihood Initiative (SLI) is one way that we are achieving this goal. SLI is a holistic model that has helped empower lakhs of people, particularly women, in rural parts of India, by providing them with livelihood finance, training to enhance occupational skills, credit counselling, financial literacy and market linkages.

Q: What makes this initiative different from others that disburse credit to rural areas?

A: SLI is a direct approach of providing credit, financial and non-financial services to the weaker segment using the Bank’s own infrastructure and resources for client sourcing, development, engagement and graduation. The Bank thus touches the target segment directly, eliminating intermediaries. The difference comes from the emphasis given to pre and post credit counselling sessions to impart financial literacy at the time of loan disbursal. We stress the importance of savings, through micro deposits, that can help tide over medical emergencies or meet life cycle needs like children’s education, marriage etc. SLI also facilitates capacity-building training, based on needs and demands, like tailoring, embroidery, jewellery design etc. The bank further ensures that the participants have direct market linkages; such as tie-ups with large enterprises, with the objective of sustaining their livelihood in a holistic manner.

Q: When did SLI start and how has it evolved at HDFC Bank?

A: HDFC Bank started with lending to Microfinance Institutions in 2003 and self-help group credit linkage through business correspondent model in 2006. The Bank had developed comprehensive branch network in rural and semi-urban areas by 2010, which is when direct SLI intervention was implemented. Today, SLI has reached the doorsteps of almost two million households in rural India, reaching over 7,000 villages across more than 20 states. The bank has more than 410 business hubs, which are involved in SLI, reaching out to un-banked or under-banked areas.

Q: How viable is this business model, given that it includes the cost of training and other engagement activities?

A: Profitability is not the immediate objective and it may take some time for this model to be profitable. The initial cost of account opening, client development by way of capacity building training and financial literacy are more in the form of one-time developmental expenses. After a couple of seasons of engagement with the women customers, the expenditure on client development expenses comes down. The main motivation is that the bank directly addresses the bottom of the pyramid, making an impact on their livelihood and improving their socio economic status.

Q: What are the challenges?

A: The major challenges in providing financial services to this segment are lack of validation mechanism at villager-level data, small-ticket financial needs but large number of transactions, high level of human resources investment, financial illiteracy among villagers at these locations and gap in their enterprise capacity, unsecured nature of credit exposure and dispersed locations and difficulty to reach, especially in rural geographies.

Q: What is the level of bad loans? And is the business big enough for so many banks to compete in the segment?

A: We at HDFC Bank have achieved a high portfolio quality reflecting the effect of good risk management, the high standard of credit evaluation, and the effective post credit monitoring and follow-up system. This has helped the bank keep the bad loans at less than 1 per cent level.

With 70% of households below poverty line or just above it, and excluded from organised financial services, their credit demand is more than Rs 8 lakh crore (at the rate Rs 50,000 per family for around 16 crore families). Currently, both the banks (through SHG credit linkage) and NBFC MFIs put together have loan portfolio of about Rs 60,000 crore, meeting just 8 per cent of the demand. Clearly there is a very big and untapped market in the hinterland for all.

Tax Advice
No tax on proceeds of PPF account
by SC Vasudeva

Q. After retiring from the Army, I have joined Punjab & Sind Bank. My income from salary, pension and house rent is over Rs 8 lakh p.a. I plan to invest Rs 1 lakh in a five-year tax-saving scheme of the bank and Rs 1 lakh in PFF. Will I have to pay tax on maturity value of both? What are other options available to save tax?

I have gifted my all retirement benefits (nearly Rs 24 lakh) to my elder daughter and she has invested it in a FD. Is it the right way to save tax? I could not gift any amount to my younger daughter because she is only 17 years old. Can my elder daughter gift at least 50% of the gifted money to her on her becoming a major? I want to gift my money equally to both my daughters. Can I take a loan from my daughter out of the gifted money and later repay as she will also take a loan from against the FD?

Please let me know if money gifted to my wife by her relatives would be clubbed in my income or not. She is a beautician-cum-housewife and does not file return as her income is less than Rs 2 lakh in a year.

— Sharat Kumar Naik

A. The amount received at the time of maturity of deposit made under five-year tax saving scheme and PPF scheme are not taxable. Some of the other avenues available to you for saving are NSCs, taking an insurance policy on the life of your children.

a) There is nothing wrong legally in gifting Rs 24 lakh to your elder daughter.

b) Your elder daughter can gift the money to her sister.

c) You can take a loan from your daughter provided interest on the loan is paid to her.

d) The amount received by your wife from her relatives is her streedhan. The income arising from such amount is not required to be clubbed with your husband.

Personal finance
How to plan your home loan EMI
Brijesh Parnami

Buying a home is like a dream come true. Nowadays almost every house is purchased through a home loan, which means payment of heavy amount as a down payment and adding more expense to your bank balance in the form of an equated monthly instalment (EMI).

Nowadays, more and more borrowers are families where both husband and wife are working. As a result, loan eligibility is more, and people think they can afford to borrow more simply because they are eligible to do so. It’s important to remember that banks grant you loan based on the net take home salary, hence you must borrow only to the extent you can comfortably repay.

Here are a few ways to plan your cash flows so that your EMIs are managed:

Firstly, instead of cursing yourself for having purchased the house without doing calculations, be thankful that your monthly income is going towards servicing a loan for an asset which has the potential to appreciate, rather than spending on unnecessary items.

Next, look at how you can streamline the process you follow while you service your home loan. You can start off by analysing where you spend your salary other than the EMI. Look at areas where you can cut expenses, especially on the discretionary areas. For instance, if your expenses on eating out comes to Rs 5,000 per month, look at how you can reduce this — either by reducing the number of outings or cooking attractive options at home which will consume much less money.

Have separate accounts for servicing the loan and for savings. When you route all expenses through one savings bank account, it becomes difficult to keep track of various debits in the account. Further, if both you and your spouse are working, then there will be income credits in both your salary accounts. Discuss and take a joint decision beforehand on the expense heads which will be debited from your account and your spouse's account.

For example, you can decide to pay for all utility bills and household expenses from your account, while your spouse's income can be used for meeting lifestyle expenses. When you have different accounts for tracking different expenses, it becomes more disciplined and easier to control expenses. This will also allow you to track patterns of your expenses on the same head in different months. Spending less means saving more and that leads to comfortable cash flow position. You should always maintain a contingency fund which will help you pay your EMIs even in cases of emergencies. Remember when you borrow a home loan, it is your duty to service the loan under any circumstance, come what may. A failure to service your EMI promptly will mark you as a defaulter, and as a result cause a dip in your credit score. Your contingency fund should be able to service at least three EMIs comfortably, if there is an emergency. Start building this corpus gradually in small instalments when you begin your home loan.

How to reduce the burden of EMI Plan pre-payment if your salary increases

Increase your contribution to yearly pre-payment corpus if your income increases. If you receive a raise each year, it would be sensible enough to divert your funds towards this goal unless you require the money elsewhere.

Analyse your salary outgo other than on EMI

Look at areas where you can cut expenses, especially on the discretionary areas.

Invest in mutual funds

If you have any excess savings during the month, invest in good quality mutual funds, which will give you good returns over the long term. Since an ideal investment in mutual fund should be more than five years, you can continue investing in the fund for more than five years and then use that money to prepay the principal amount. It can be a smart option since here you can expect to earn 12 to 15 per cent tax-free returns. This can be in addition to pre-payment amount to be shelled out every year as mentioned above. You can also have a look at balanced funds for this purpose.

Analyse your home loan statement

This statement will give you an idea as to how much amount of your monthly EMI is going towards the principal component and how much is the interest component. Many borrowers seldom see home loan statements and thus are unaware of huge interest component they are paying.

Maintain emergency fund

This is the basic rule of financial planning. Make sure you build up an emergency fund of 4-8 months so as to take care of any unforeseen expenses. It will also help you not to shell out funds you are saving for pre-payment of the home loan. In a nutshell, you need to ensure that you have enough liquid savings to handle emergencies such as unexpected medical expenses.

Plan your EMI with life partner

If both you and your spouse are working, then discuss and take a joint decision in advance on the expense heads which will be debited from your account and your spouse’s account. When you have different accounts for tracking different expenses, it becomes easier to control expenses. This will also allow you to track patterns of your expenses on the same head in different months.

No penalty on pre-payment

Do remember that some time ago the RBI had indicated that banks would not levy any penalty on pre-payment of home loans. If your loan has the flexibility to allow increased regular repayments and lump sum repayments without penalty, take advantage of it whenever you can.

The author is CEO–Distribution, Destimoney Enterprises Pvt Ltd. The views expressed in this article are his own

How MF can be your retirement stick
Ronak Morjaria

As per surveys conducted by many organisations in India, we have seen that most Indians consider retirement as their primary goal. Most of us wish to retire in the late 50’s or latest by early 60’s. Many people assume their pension plans will take care of their retirement. Do you really think so? I personally do not feel so, because the corpus accumulated depends on the insurance companies’ profits in case of traditional pension plans and on fund performance in case of unit-linked pension plans. Also, these plans are not flexible since there are few regulatory mandates for pension plans.

Mutual funds for retirement

You must have heard certain terms such as SIP, STP or SWP of mutual fund; but won’t know how you can use these options for investing in mutual fund and benefit from it. Let us understand how these options can be useful for your easy retirement. But before following this exercise, you need to undergo a warm-up session of calculating your inflation- adjusted retirement corpus depending on your household and health insurance expenses; and find out monthly investment required for accumulating the desired corpus.

Accumulating corpus via SIP

It is always advisable to invest in equity systematically. Systematic Investment Plan (SIP) is one of the best methods of saving and investing in equity mutual fund. SIPs help us to benefit from the market volatility and helps in Rupee Cost Averaging. SIP removes the hurdle of timing the market. You should start monthly investment for accumulating your inflation adjusted amount in mix of equity diversified mutual fund and debt (EPF/PPF/debt fund) or even simply investing in a balanced fund, depending upon time to your retirement. The earlier you start saving for retirement, the lower is the monthly amount required for accumulating the corpus.

Shifting corpus to debt fund via STP

You should always start shifting your investments to debt when your retirement (or any other financial goal) approaches. It is advisable you start shifting your portfolio from equity to debt, 2 to 3 years before your retirement. Shifting the corpus is necessary and important because equity investments are very risky, and you cannot afford to take high risk till your retirement age. As you should not time the market for entering into equity, the same is applicable for exit also. You should shift the accumulated corpus systematically via Systematic Transfer Plan (STP), an option under mutual fund. With the help of STP, you can systematically transfer specific amount periodically (monthly/ quarterly) from one scheme to another scheme (equity to debt and vice-versa) of the same AMC (Asset Management Company). So with the help of STP, you can shift your portfolio to debt systematically.

Withdrawing from the corpus via SWP

Now at the age of retirement, your corpus must have been shifted to debt funds of mutual funds via Systematic Withdrawal Plan (SWP). You can now start withdrawing specific amount of money periodically (monthly/quarterly/ half-yearly/yearly) equal to your household and other expenses required for your retirement with the help of Systematic Withdrawal Plan (SWP) option of mutual funds. SWP provides you with regular income during your retirement through withdrawals, along with growth/ appreciation of the balance corpus in the debt fund.

The key to accumulate your retirement corpus in this manner by investing in mutual funds is ‘discipline’. You should make sure your SIPs do not bounce, or you should not stop your investment when you see equity market falling. Another thing you must consider is, reviewing your investment periodically (advised quarterly). You must review your investment periodically; it may be quarterly/half-yearly or yearly. You need to review the performance of the funds where you have invested and compare it with its peers and benchmark and make changes in the portfolio accordingly. So forget pension plans, calculate required retirement corpus and start your SIPs. As it is said, it is never too late; you can start saving for your retirement now!

The author is a Research Analyst, Apnapaisa. The views expressed in this article are his own