Government plans interest sops to ease home loans

29-Nov-2008

The government is considering a proposal to make home loans cheaper for consumers through interest subsidy, aiming to stimulate demand in the realty sector which has a spin-off effect on many industries like cement and steel, said a senior government official, who declined to be named.

The proposal will also include providing loans at below market rates to real estate developers. But the loan disbursed under this will come with a number of conditions like an upper ceiling on selling price of flats and individual homes.

The threshold limit for loans is likely to be around Rs 10 lakh, as it was estimated that nearly 75 per cent of the housing loans were below Rs 7.5 lakh. Only developers who have land in their possession or already in the middle of a housing project would be eligible for the government subsidy. Individual planning to construct homes on their own would also be eligible, said an official.

The panel of secretaries headed by Finance Secretary Arun Ramanathan has advised the urban development ministry to prepare a note in this regard and present it to the apex committee headed by Prime Minister Manmohan Singh.

The final decision on the proposal will be taken by the apex committee.

“Discussions were held on this proposal which includes making available loans at around 8 per cent interest rate, which could remain fixed for a period of around five years. The government will pay for the balance interest amount,” said a senior government official.

Interest rate charged by commercial banks in India has risen sharply in the last one year, with prime lending rate of certain banks increasing above 14 per cent as against around 9 per cent a year ago. This has dissuaded many home buyers to postpone their home purchases and also increased loan repayment amount.

To avoid a repeat of subprime like crisis in India, credit worthiness of borrowers would be scrutinised as in normal loans.

This measure is being mooted to ensure that the demand in the economy does not slow down. “If the housing sector does not kick off in the next two to three months, it could have a domino effect. Currently, most housing projects are stuck because of the liquidity crunch. A boost to this sector will mean additional demand for cement, steel and other material, which is likely to stimulate the economy. Moreover, it would also ensure that jobs in the sector are not lost,” the source added.

According to analysts, nearly 80 per cent of the total real estate demand originates from the housing sector. By 2010, nearly 530.5 million square feet of residential space will be developed in the premium category alone in seven major cities, which translates to the supply of 200,000 units per year in the middle income group (MIG) and high income group (HIG) segments.

Indicus Analytics estimates that between 2008 and 2015, 17 million additional dwelling units will be needed.

Source : www.insuremagic.com

VC fund flow into India rises 36% in third quarter

29-Nov-2008

The global economic downturn notwithstanding, venture capital (VC) investments have continued to flow into India and China, with both countries witnessing a significant surge in the third quarter this year.

According to a study by research firm Venture Intelligence, VC investment in India grew by 36 per cent at $290 million for the third quarter ended September 30.

Meanwhile in mainland China, VC investments grew by 22 per cent to $964 million at the end of the third quarter, as per data by Dow Jones VentureSource.

“It is clear that venture capital investors are still eager to put money into emerging markets and, in many areas, they’re actually accelerating the pace of their investments,” Dow Jones VentureSource Global Research Director Jessica Canning said.

The increased investment by existing players and the entry of new funds contributed to the growth this quarter, the Venture Intelligence study stated.

Source : www.insuremagic.com

HDFC MF to float 90-day debt plan

28-Nov-2008

HDFC MF will launch HDFC 90D November 2008 (4), a 90-day plan, under HDFC Fixed Maturity Plan Series X on Thursday. The plan will remain open for subscriptions till December 1, a fund house notice said. The scheme will deploy its corpus in fixed income securities maturing in line with the tenure of the plan.

Source : www.insuremagic.com

**Life apart, insurers may take big hit

28-Nov-2008

THE damage caused to the heritage Taj Palace and the Trident may turn out to be the first major terror related claim in India. After terrorism was globally made an ‘excluded’ risk post 9/11 by global insurers, there has not been any major terror insurance claim on Indian non-life insurers. Thus far, terrorist attacks in India have resulted in loss of human life and damage to public and government property, while damage to corporate property was minimal.

Non-life insurance companies have received claims worth Rs 1.3 crore on account of terror acts this year so far, while the figure stood at around Rs 1 crore for last year. The claims included personal accident cover — claims submitted by persons who had been injured in bomb attacks. The largest terrorism-related claim in India so far was made by Coca-Cola, for a plant that was blown up by Naxalites.

Many insurers believe that the claims on account of the blasts and the fire that followed at the Taj Palace could be significant. Tata AIG General Insurance is understood to have provided cover to the Indian Hotels Group, which owns the Taj, under a global package.

A senior official at Tata AIG confirmed that there is a cover, but he said, at present, the focus was the well being of people in the hotel. With the terrorists continuing to be holed up in the Taj and the Trident until late Thursday, an assessment of the damage was impossible. Moreover, considering that fires had broken out in the heritage wing of the hotel, the damage could be considerable.

Unlike foreign insurers, who exclude terror risks from their standard property insurance policies, Indian companies cover terrorism. Indian companies are able to provide protection even without reinsurance support because of the creation of a ‘terrorism pool’ seven years ago.

The pool, which initially provided protection up to Rs 200 crore, can now offer cover up to Rs 700 crore as there has hardly been any terror claim. Yogesh Lohiya, chairman, General Insurance, told ET that the pool has been running at a surplus as premium collections have been over Rs 150 crore a year.

Make sure you’re covered for terrorist attacks

THE terrorist attacks in Mumbai have made many wonder if they are covered under their existing insurance policies for such eventualities. There is no one answer to this question and things vary from product to product. A retail insurance buyer would typically buy products from both life and non-life insurance companies. On the life insurance platform, insurers pay the sum assured for basic life insurance in case of death due to reasons other than suicide. In most life insurance products, the basic sum assured is paid to survivors in case of death of the insured due to any reason other than suicide in the first year. A life insurer may refute the claim on the grounds of ‘non-disclosure’ of material information. In other words, life insurers pay the basic sum assured even if the death takes place due to act of terrorism.

However, things change when it comes to benefits under the additional riders bought by policyholders. Life insurers do not pay double-accident benefit if the death occurs due to act of terrorism or war, as it is one of the chief exclusions mentioned in the policy wordings. Major surgical benefit covers only stipulated surgeries and hence no benefit is payable if a policy holder undergoes surgeries arising out of an act of terrorism. Terrorist acts do not fall under the purview of the critical-illness cover. “Waiver of premium benefit is allowed if the insured dies due to act of terrorism,” says Rahul Agrawal, CEO, Optima Insurance Brokers.

For non-life insurance cover, the industry is divided on allowing benefits in case of act of terrorism for individuals covered under personal accident policies. “Most non-life insurers exclude disability or death arising out of war or act of terrorism,” Mr Agrawal said, adding, “there is no provision to add terrorism cover to the existing personal accident insurance cover.” “Though there are some non-life insurers offering ‘terrorism cover’ under policies, it makes sense to confirm the same by checking the list of exclusions,” says a veteran actuary with a public sector insurer.

For property cover, the terrorism cover is optional. “Prospective policy buyers would be better off comparing the benefits, including the terrorism cover, while buying the property insurance,” warns the actuary.

Source : www.insuremagic.com

Liquid funds likely to change investment norms from April

26-Nov-2008
The mutual fund industry is understood to have agreed to implement the proposal not to invest liquid scheme corpus in papers with maturity beyond 91 days from April 2009.
The decision was taken at a meeting of some of the heavyweights in the Association of Mutual Funds of India (Amfi). Initially, some members were of the view that this should be implemented with immediate effect. However, when a view emerged that implementing the proposal in a hurry may not serve the purpose, the members finally decided to make it effective from April next, said an industry source.
The mutual fund industry is fine-tuning its recommendations before submitting the same to the Securities and Exchange Board of India (Sebi). Amfi had issued the draft proposals in this regard last week.
There were lengthy discussions on the maturity of fixed maturity plans (FMPs). While some players favoured FMPs of three to six months, others advocated a minimum 12-month maturity. Efforts are on to sort out the differences with the help of Amfi. If there is no consensus, the decision may be left to Sebi.
Those favouring a three month maturity argue that if the period is long, investors would go in for fixed deposits (FD) with banks.
They have also decided that all funds will have to mandatorily disclose their complete portfolio at least on their website. A transparent portfolio will help investors in taking informed decision in tough times when generally rumors rule. Already, some fund houses have been making full disclosure.
In next few days, these proposals would be finalised and submitted to the capital market regulator after which Sebi may come out with revised norms for mutual funds.
The industry is of the view that the proposals that Amfi is going to submit should give confidence to the market regulator that mutual funds are quite disciplined in their approach towards investors.
Initially, some members were of the view that this should be implemented with immediate effect. But finally, they agreed on April 2009 for implementing the proposal.
Source : www.insuremagic.com

LIC's overseas arm outshines parent in premium growth

26-Nov-2008LIC International logs 104% cumulative growth in Jan-Oct
LIC International (Bahrain), the overseas arm of Life Insurance Corporation (LIC), has scored over its parent with a cumulative growth of 104% in January- October this fiscal.
On its part, LIC suffered one of the biggest knocks in the April-October period, with a 16% de-growth. Sudhin Roy Chowdhury, CEO and managing director. "There has been an 854% growth in premium in October alone. Being vulnerable to international market tremors, we were very cautious about our investment pattern. Plus the prudent marketing strategy in the last few months paid off."
Unlike in India, where investments of insurance firms have to comply with regulatory norms, insurers in the Gulf can be flexible on investments.
"The strategy had to be prudent. We preferred government bonds, financial securities in the energy sector. We did not opt for futures or derivatives or any so called toxic investments. Managing cash flows is crucial at this stage. In fact, we did some exit payments in October without encashing investments. We have a comfortable solvency margin and have money in general reserves", Roy Chowdhury said.
LIC International has raked in a total premium of $50-60 million as of now with a first premium income of $17 million in January-October, as against $9 million in the corresponding period last year.
"We expect to close the fiscal with $20 million premium. The only hitch is the appreciation of the dollar against the rupee now. NRI customers are remitting back money to take advantage of this," he added.
LIC International, which has been low profile in international markets, went in for a campaign in the last few months in all the Gulf countries to leverage a customer base of 80,000.
"The key challenge is to make LIC International's product the customer's choice and to achieve a global footprint. We are close to finalising a branch in Thailand. For Malaysia, we would be going in for a tie-up with a broker and negotiations are on. Next year, we plan to set up an office in USA and with the free trade agreement between the countries, capital will not be an issue," Roy Chowdhury said.
Source : www.insuremagic.com

SBI signs pact with IAG for general insurance venture

25-Nov-2008
In a bid to expand its product portfolio, country’s largest bank State Bank of India (SBI) signed an agreement with Insurance Australia Group (IAG) to set up a 74:26 joint venture for general insurance business.
The JV will approach the Insurance Regulatory & Development Authority (Irda) once it receives other approvals, including the one from the Reserve Bank of India. SBI and IAG, which finalised their deal this summer, can start selling the products only from next year.
The general insurance venture is the latest in a series of tie-ups by SBI, which is already into the life insurance business through SBI Life, a 74:26 JV with Cardiff. Recently, it received the clearance to forge a JV with Societe Generale for the custodial business.
In addition, it is eyeing the private equity space and has also entered the pension fund management business, where it has gone solo for the government pension business.
Currently, there are 14 general insurance companies in India, which includes the four government-owned players accounting for over 60 per cent of the market at the end of March 2008. Following detariffing last year, the general insurance saw a steep reduction in premium rates resulting in a 12.5 per cent growth in premium in 2007-08.
“Insurance penetration in India is very low and the general insurance industry is expected to grow at 15-20 per cent annually over 10 years. This initiative will further diversify SBI’s portfolio of financial services offered to its customers,” SBI chairman O P Bhatt said in a statement.
“Entering the Indian general insurance market has been a priority for IAG for some time, to support our longer term growth and profitability...This provides us with an exciting opportunity to be a key participant in India’s rapidly growing general insurance market, by leveraging the combined strengths of our two organizations,” added IAG Managing Director and Chief Executive Officer Michael Wilkins.
SBI shares closed 3.03 per cent lower at Rs 1,147.30 on the BSE, while the Sensex ended 0.14 per cent lower.
“This initiative will further diversify SBI’s portfolio of financial services offered to its customers”.
Source : www.insuremagic.com

China Life may buy Asian assets of AIG

25-Nov-2008
China Life Insurance, the world’s biggest life insurer by market value, is interested in buying Asian assets of American International Group, a senior China Life manager briefed on the situation.
“We want to buy parts of AIG’s business, especially those in areas of Asia such as Hong Kong, Singapore and South Korea,” the manager at the Beijing-based company
Chinese newspapers including the Southern Daily on Monday quoted China Life President Wan Feng as telling a media briefing the day before that the quality of AIG’s insurance business in Asia was good but needed further observation, as AIG’s financial condition might worsen.
AIG, once the world’s biggest insurer, is putting its non-essential businesses up for sale after receiving a $152 billion bailout from the US government to avoid bankruptcy as it was hit by the subprime debt crisis.
Japan’s Nikkei business daily reported on Friday that aconsortium led by China’s sovereign wealth fund, which includes Chinese insurers, is in talks to buy a 49 per cent stake in AIG unit Alico in a deal that could be worth up to $10.6 billion.
AIG’s preferential talks with the China Investment Corp-led consortium carry a year-end deadline, the newspaper said. China Life spokesman Li Ke and Shanghai-based AIG spokeswoman Annie Hou declined to comment.
Source : www.insuremagic.com