ONE-MINUTE GUIDE: RECURRING

DEPOSIT

An RD is a type of term deposit offered by banks

and non-banking financial companies

The recurring deposit (RD) is one of the most basic

financial products available it the market. It can be used
as a tool to inculcate the habit of saving.
What is a recurring deposit?
An RD is a type of term deposit offered by banks and
non-banking financial companies. There are two types of
RDsregular and flexible. A regular RD is offered by all
banks, while only some offer flexible ones. A regular RD
allows you to deposit a pre-specified amount at predecided intervals. It becomes a compulsory investment.
The instalment amount once fixed, cannot be altered.
For instance, if you sign up with a bank to invest
Rs.1,000 every month for 12 months in a regular RD, you
will have to invest the specified amount at a fixed date
every month. In a flexible RD, you can deposit any
amount, on any day, and any number of times. Other
than visiting the branch to open an RD, nowadays many
banks allow you to open using the Net banking facility as
well.

How does it work?

According to loan comparison website, Deal4loans,
you can start an RD with a minimum amount of
Rs.10, but it can vary from bank to bank. The tenure
ranges from three months to 10 years. Some banks
have a lock-in period of 1-3 months. The money you
invest in an RD, earns interest, and it gets
compounded. Data from Deals4loans shows that as
of June, interest rates on RDs were in the range of 79.10% per annum, depending on bank and tenor
chosen. Senior citizens get an additional 15-25 basis
points as interest. (One basis point is one-hundredth
of a percentage point.)
In a regular RD, in case of a delay instalments, a
penalty is charged as a flat fee or a percentage of
the amount. For instance, with ICICI Bank Ltd, the
depositor is liable to pay monthly interest at the
rate of Rs.12 per Rs.1,000, and it depends on time
and the amount. If you withdraw the amount before
the maturity date, you will have to pay 0.5-2% as
penalty, depending on the tenure. You cannot
withdraw partially Some banks allow you to take a
loan against the deposit. Generally, the loan amount
can be 75-90% of the deposit value. For instance,
State Bank of India allows you to take a loan of up
to 90% of the deposit amount at an interest of 0.5%
per annum above the interest rate of the RD.

What should you do?

It can also be useful for those who do not have
access to financial instruments such as equity or
debt. If you are in the lowest tax bracket or have
no taxable income and are looking for
guaranteed returns, it may work for you.
However, you should know that since RDs come
under the definition of time deposits, the
interest earned will attract tax deducted at
source (TDS). So, TDS will be applicable if the
interest earned on the RD (or if you have more
than one with the same bank) exceeds
Rs.10,000. If you come below the income tax
bracket, you can avoid the TDS by filing Form
15G or 15H

BANKS ARE
STRESSED: WHAT
DO WE DO?
There cannot be a turnaround in Indias
banking sector till such time the govt accepts
that capital infusion is just one tool and it
needs to do more for banks revival
A day after the Reserve Bank of India (RBI)
released its biannual Financial Stability Report,
outlining the significant challenges being faced
by Indian banks, 31 of 33 big banks in the US
cleared the final round of the Federal Reserves
annual stress tests, signifying the resilience of the
US financial system .
Only one of the largest banks of the USMorgan
Stanleygot a conditional passing grade and two
others, Deutsche Bank AG and Santander Bank NA,
both US subsidiaries of European banks, failed. In
the previous year too, the duo did not qualify.
The stress tests essentially gauge whether the
banks in the US with at least $50 billion in assets
each have enough capital, management bandwidth
and other safeguards to survive a financial crisis.

Ahead of the stress tests results on 29 June, the Fed

had said that all big banks would be able to make it
through a recession. Since the global financial crisis in
the aftermath of the collapse of the US investment
bank Lehman Brothers Holdings Inc. in September
2008, the banks have been directed to create a cushion
of large capital against likely losses from a recession or
any other developments that shock the market. The 29
June statement has also outlined areas where the Fed
expects further improvement next year.
The RBI stress test, on the other hand, indicates that
risks to the banking sector increased significantly in the
second half of 2015-16, driven by deteriorating asset
quality and lower profitability. Indeed, the financial
system is resilient but it could become vulnerable if the
macroeconomic conditions deteriorate sharply.
Saddled with bad assets, the banks are expected to
remain risk-averse and not lend money to corporations;
besides, in the absence of adequate capital, their
ability to lend will also be impacted. The RBI stress test
suggests that gross NPAs of the banking system may
rise to 9.3% by March 2017 under a severe stress
scenario. For the state-owned banks, it could be as
high as 11%. Higher bad assets will force banks to set
aside more money, dent their profitability, and they
would need capital infusion to be able to support the
demand of loan from the corporate borrowers.

The RBI stress test suggests that gross NPAs of

the banking system may rise to 9.3% by March
2017 under a severe stress scenario. For the
state-owned banks, it could be as high as 11%.
Higher bad assets will force banks to set aside
more money, dent their profitability, and they
would need capital infusion to be able to support
the demand of loan from the corporate
borrowers.
Unlike the US Federal Reserve, which identifies
the banks that fail the stress tests, the Indian
banking regulator does not expose individual
banks and rightly so, as this could lead to a run
on a bank with a large number of depositors
rushing to withdraw money simultaneously, due
to concerns about the particular banks solvency.
In such a scenario, the money kept by a bank
with RBI in the form of cash reserve ratio as well
as the government bond holdingwhich could be
liquidated to generate cashmay not be enough
to cover the deposit withdrawals. RBI prefers to
talk in terms of number of banks at risk and not
who they are. For instance, stress tests on banks
credit concentration risks, it says, is significant
for eight banks, accounting for a little over 12%
of advances, and they may end up having capital
less than what they require.

Since 2010 when the first signs of stress were seen, the
government has pumped in Rs.67,734 crore capital to keep
the public sector banks running. It has agreed to infuse an
additional Rs.70,000 crore even as the state-owned banks
will have to raise over Rs.1 trillion from the markets to meet
their capital requirements. Media reports suggest that the
finance ministry has already finalized the plan for the first
round of capital infusion of around Rs.10,000 crore. After
pumping in Rs.25,000 crore in 21 state-owned banks last
fiscal year, the government has committed to offer
Rs.25,000 crore capital to these banks in the current year
and another Rs.10,000 crore each in 2018 and 2019.

For the big US banks and their investors, the annual stress
tests are extremely critical as those who pass the grade are
entitled to pay dividends and buy back stocks from their
shareholders. In the Indian context, such a test still largely
remains an academic exercise as the government seems to
believe in a perpetual unconditional bailout theory.

In the thick of global financial turmoil, the US Treasury

announced a Troubled Asset Relief Program, or TARP, of up
to $700 billion to save its privately managed banks from the
so-called subprime mortgage crisis. Most of this amount has
been invested, loaned or paid out by the Treasury and the
banks have returned more in the form of interest, dividend
and fees. The band-aid approach that India follows will keep
the system alive but one cannot expect a turnaround till
such time the government accepts that capital infusion is
just one of the tools and it needs to do more to revive the
weak banks. Meanwhile, wary of corporate credit, now they
are chasing retail loans; the trend will continue till they burn
their fingers.

HERES WHAT FACEBOOK DOES WITH YOUR

PERSONAL INFORMATION
Facebook published a psychological study
involving 700000 persons in 2014 that sparked a
controversy regarding companys ethics.
In an effort to allay concerns over collection of
human data for corporate research, social
networking giant Facebook has published details
about how the website uses personal information
of its subscribers for research purpose.
The social network collects data on roughly 1.6
billion Facebook users, which is then used to
determine behavioural patterns like voting habits,
relationship status and effects of certain types of
content on people.
Because "the issues of how to deal with research
in an industry setting aren't unique to Facebook,"
the company decided to release more details, said
Molly Jackman, Facebook's public-policy research
manager and co-author of the 2014 study.

To assess the ethical impact of its research

efforts, Facebook has set up a five-person panel
that includes experts in law and ethics.

 If a manager determines that a research project

deals with sensitive topics such as mental health,
the study gets a detailed review by the group to
weigh risks and benefits, as well as to consider
whether it is in line with consumers' expectations of
how their information is stored.

Managers have been authorised to simply approve

proposals that they see harmless. They will also
have to decide which research gets a full review.
The review group is modelled on the institutional
review boards (IRBs) that assess the ethics of
human-subject research at academic institutions.
Facebook has hired Stanford University's IRB
manager Lauri Kanerva to oversee its research
review process.

DIFFERENCE BETWEEN CAPITAL

MARKET AND MONEY MARKET

Difference between money market and capital

market is made on the basis of maturity period of
instruments and claims. Short-term instruments
maturing within a period of one year are traded in
money market whereas the capital market deals
with longer maturity financial assets and claims.
Although both types of markets facilitate the
transfer of funds from savers to users, still the
difference between the two is maintained with
reference to the time-period covered by the
transactions.
Capital market includes trading in securities,
mutual fund units and government debt
instruments. On the other hand money market
facilitates
dealings
in
short-term
financial
instruments such as inter-corporate deposits,
certificate of deposits, treasury bonds, commercial
papers, commercial bills, etc.
Money market and capital market can be
differentiated as follows :
1. The subject matter of capital market is long-term
financial instruments having maturity of more than
one year. On the other hand, money market deals

2. Money market is a wholesale market and the

participants in money market are
large
institutional investors, commercial banks, mutual
funds, and corporate bodies. However, in case of
capital market even a small individual investor can
deal by sale/purchase of shares, debentures or
mutual fund units.
3. In capital market, the two common segments are
primary market and secondary market. Both these
segments are interrelated. Securities emerge in
primary segment and their subsequent dealings
take place in secondary market. However, in case
of money market, there is no such sub-division in
general. In efficient money market, secondary
market transactions may also take place.
4.

The total volume of trade that occur per day in

money market is much higher that of the volume
per day taking place in capital market.

5. In capital market, the financial instruments being

dealt with are shares, debentures , public sector
bonds and units of mutual funds. On the other
hand, money market has different financial
instruments such as treasury bills, commercial
papers, call money, certificate of deposits, etc.

NTRODUCTION TO FINANCIAL INSTRUMEN

Often investors invest through financial assets or
financial instruments or securities. Investments
that represent debt, ownership of a business or a
legal right to acquire a part of ownership interest in
business are called securities.
The important financial instruments are Treasury
Bills, Certificates of Deposits, Commercial Bills,
Commercial Papers, etc.
The money market instruments have maturity
period upon one year. Money market instruments
are highly liquid, short-term debt instruments
which mature in less than 12 months, and normally
pay continuously varying returns. These involve no
or very little degree of risk.
The money market instruments pay return to
investors in the form of discount at the time of
issue. On the other hand, Capital market has
instruments of longer maturity period. These
instruments are :
1) Ownership Securities : Equity Shares,
Preference Shares and Cumulative Convertible
Preference Shares.
2) Debt Securities: Non-convertible debentures,
partly convertible debentures, zero interest fully
convertible debentures, optionally convertible

3) Mutual Fund Units: Income schemes, growth

schemes, sectoral schemes, equity schemes and
money market schemes.
Apart from these capital market securities, other
investment options available, particularly to
individual investors, are Savings Bank accounts,
Fixed Deposits in banks, Post-Office Savings
Schemes, Unsecured deposits in companies, etc.
A financial instrument (security) is issued under a
set of terms and conditions about the payment of
interest/dividend to the holder, maturity life,
redemption value, etc.
Equity shares and debentures are issued by
corporates under virtually a standard set of terms
and conditions-Some of these are statutory terms
such as the preference shares in India must be
redeemable within a maximum period of 20 years;
or rate of dividend on cumulative convertible
preference shares need not exceed 10% p.a., or
debentures must be credit rated, etc.


4.BEYOND BOUNDARIES: HOW RURAL MARKETING HAS TRANSFORMED FINANCE COMPANIES

Challenges for banks:In the last few months, over 115

million new zero balance bank
accounts have been opened to bring
in a larger chunk of the population
under the ambit of the financial
services.
Banks need to create physical (brick
& mortar) infrastructure, invest in
managing cash and recruit/retain
competent employees willing to
work in these remote locations,
engage with reliable businesscorrespondents and ensure high
levels of service.
Volatile income patterns make
financial discipline a difficult task for
rural populations.
Simplicity of product design is

Methods of
communication by banks .

The communication approach is therefore completel

7.HOW WOMEN ENTREPRENEURS ARE GAINING BIG FROM THE

ONLINE RETAIL REVOLUTION

As India sees a revolution in its

$300 billion retail industry with
the
emergence
of
online
marketplaces such as Amazon,
Snapdeal and Flipkart, thousands
of women are gaining financial
independence by selling products
These women now constitute
about 20% of the 1 million sellers
on platforms that form the $12
billion online retail industry
It gives women the advantage of
Minimum investment, Maximum
profit guaranteed, Make money
from home
Women have become microentrepreneurs

 But on Flipkart, of the 30,000-odd sellers,

about 20% are women. Interestingly, about
15% of these women are customersturned-sellers.
"These
women
have
identified the gap and launched their own
brands
offering
regional
handicrafts,
antique pieces, and designer wear.
Some of the success stories highlighted:Namita Jain, a former homemaker who
saved about Rs 4 lakh to invest in starting
Neerav Stores on Delhi-based online
marketplace Snapdeal.
Arti Goel, 47, started the experiment of
selling online three years ago as an
addendum
to
her
husband's
home
furnishing supply business to hospitals and
hotels. Within three years, the online
business has taken over the offline.

8.CUSTOMER LOYALTY: THATS WHERE SAMSUNG

BEATS APPLE

A new survey suggests that

Samsung enjoys markedly
more customer loyalty than
Apple.
Customers perceived value,
brand
trust,
customers
satisfaction,
repeat
purchase
behavior,
and
commitment are found to
be the key influencing
factors of brand loyalty.
Customer loyalty goes a
long way in defining how a
company is being received

 The
SurveyMonkey
defines
industry benchmarks to help
companies judge where brands
stand. Samsung scored a 35 for
customer loyalty, while Apple
managed a 28. Both scores were
above the industry benchmark of
19.
Where Apple did better, was in
customer
service
satisfaction.
There, it scored a 41 percent
positive rating, while Samsung
managed only 25. Both companies
may still have much to do. The
industry benchmark for customer
service satisfaction is 75 percent.

10.MAKE IN INDIA: FOREIGN FIRMS PRODUCING

IN INDIA MAY GET TO SELL ONLINE

The government is keen to raise the share of

manufacturing in the country's GDP, for which
the prime minister has launched a dedicated
programme 'Make in India' to attract
investments to the sector.

Foreign investors setting up manufacturing

facilities in India will be able to access the
country's rapidly growing online market as
part of the Narendra Modi-led government's
plan to attract overseas capital in the
languishing manufacturing sector.

The move will give a big boost to foreign

funded home-grown entities such as Fabindia
that are engaged in manufacturing as well as
retailing and are keen to expand to online
platforms while making the sector lucrative for
foreign investment

To ensure consistency in policy and prevent

tax issues later, the government will pick up

 Allowing manufacturers to sell directly to

consumers through ecommerce is seen as
a big incentive to attract foreign
investment in the sector.
The move could also open the doors for
entities that are engaged in third-party
manufacturing and outsource part of
production to local producers to widen
their customer base through online selling.