Searching for some clean air solutions

air pollution in Delhi

Few eyebrows were raised when a World Health Organisation (WHO) report ranked New Delhi as the most polluted city in a list of 160 places across the world. Other Indian cities–where the particulate matter (PM)2.5 was higher than WHO standards–included Patna, Gwalior, Raipur, Ahmedabad, Lucknow, Kanpur, Firozabad and so on.

While this happened in 2014, the situation is no better this year. With the levels of PM2.5 and PM10, air pollutants that have adverse health effects, still above permissible limits, there is a sense of worry in the air.

Amid all the commotion, however, some focus has also shifted as to how one can stay clear of the deteriorating air quality. Some clean-air solutions have come in the form of predictive outdoor pollution apps, masks and respirators and air purifiers, but how effective can they be?

One example of a predictive outdoor pollution apps is SAFAR-Air. A government  initiative, the app was developed by the Indian Institute of Tropical Meteorology, Pune. It provides air quality information for major Indian metros.

The app also gives a one-to-three day air quality forecast for cities including Delhi, Pune, Mumbai, Ahmedabad, Chennai and Kolkata. So far, SAFAR-Air has garnered around 10,000-50,000 downloads on the Google Play Store, with many users suggesting that more cities and towns be added to the service.

Meanwhile, others have turned to anti-pollution masks and air purifiers to breath easy. One of them is Kristin Braddock. Originally from the US, Braddock has been in New Delhi for five years and runs a social enterprise called Sewing New Futures. She has been using the Vogmask, a particle filter, anti-pollution mask, for about two months now, but admits that she struggles to use it. “I carry it in my bag and use it whenever I am commuting in an auto-rickshaw or stuck in heavy traffic. To be honest, I really struggle with using it. A few of my friends are better at using it than me. When you are sitting in heavy traffic, there’s a huge difference when you’re using the mask because the pollution is so evident, but in normal, everyday use, I don’t notice a big difference,” says Braddock, who believes that the prevailing conditions in the Capital are bad and that it’s sad people are not taking it seriously. “I have an air purifier for my home and that makes a big difference because it measures the pollution levels for your home,” adds Braddock.

Air purifiers is another segment that has caught the fancy of Indian consumers. Although, there is still a lack of awareness about the product, their demand is improving. “Indian consumers seem less aware around the prospects of air purifiers as they look for an instant gratification and visible results while purchasing goods, especially goods that are health-oriented or improve life. Air purifier sales are growing in India, especially after the recent WHO warning. The growing awareness among people about the surging pollution levels and the risk it causes to their health have encouraged consumers to invest in air purifiers,” says Manish Sharma, president, CEAMA and managing director, Panasonic India & South Asia. Sharma says currently, the size of the organised market for air purifiers in India is 20-25k units and is expected to reach 40k-50k units by 2016.

The bulk of the takers for air purifiers are those who want to improve the air quality at home and offices, especially since indoor pollution can be more threatening at times. “Since outdoor pollution is not within their control, consumers are looking for ways and means to improve air quality inside their homes and offices where they spend almost 80% of their time… There are young people who are buying it for their elderly parents who have developed respiratory illnesses. The expat population, including embassies and other small to medium corporate offices, forms a big chunk of our buyer and enquiry base,” explains Jayati Singh, business head, air, Philips India.

On the medical side, the opinion is divided. Many people, say experts, do not use anti-pollution masks properly.

As for air purifiers, they contend that such devices can’t be carried everywhere, leaving users exposed to the harmful pollutants that could not only affect the respiratory tract but also aggravate existing respiratory issues such as asthma or COPD (chronic obstructive pulmonary disease). “Ninety-nine per cent of the job is the regulatory body and government’s job. On an individual level, there’s very little you can do. Room purifiers, which are selling like hotcakes at the moment, are basically addressing the psychological fear. As for the masks, very high-end masks with n95 or n99 filters, they will work only if you wear them absolutely airtight.

World Bank may revise India’s GDP growth rate forecast: Kaushik Basu

world bank chief economist kaushik basu

World Bank chief economist Kaushik Basu today indicated that the bank may revise India’s GDP growth rate forecast after it goes for stock-taking in a few months.

“There could be some changes in the January review of India’s growth forecast,” Basu said.

He was responding to media queries on whether failure of the Centre to get the GST Bill passed will have an impact on the projection.

“Decision-making and reforms can have an impact in terms of growth rate and the fact that a couple of important decisions did not go through could have an impact. But India is dominating for a couple of reasons,” Basu said here today.

Recession in Brazil and Russia and slowdown in China have made India the leading economy in terms of growth prospects for the first time this year, Basu said.

Until October, the World Bank retained India’s growth forecast at 7.5 per cent for 2015-16 and expected it to be 7.8 per cent in 2016-17 and 7.9 per cent in 2017-18.

Basu indicated that India’s dominance in growth will continue due to a couple of reasons. “China has slowed a lot and would go below 7 per cent growth, and Russia and Brazil are in recession,” Basu said.

“But what is helping India is a positive general mood which helps investment climate. The oil price drop is also helping India and Bangladesh.”

He, however, did not clarify on whether the uncertainty over the country-wide sales tax reform would influence the investment sentiment and the projection.

Planning to make a realty investment in 2016? Best options for you

realty L

Buying a home is in everyone’s wishlist and this investment involves financial planning and strategy. If you are planning to buy a property in the year 2016 ensure that that you make a smart choice and not a hurried one.

Indian real estate sector has been sluggish for a few years but is expected to make a turnaround in 2016. Experts believe that the sector is expected to record increase in sales and a reduction in unsold inventories. They believe the government initiatives announced this year will give a push to the sector and reinstate investor confidence.

Sanjay Dutt, managing director, Cushman & Wakefield said,” Overall, the next few years would see forging of some strategic partnerships with select developers, private equity investors also looking at liquidating assets. Consolidation through joint development activities would unlock development potential in major cities, going ahead.”

Real estate experts believe that government’s promotion of 100 Smart Cities, AMRUT (Atal Mission for Rejuvenation and Urban Transformation), Housing for All by 2022 and infrastructure development are some of the government steps that would not only benefit the economy, but would also create a sector-wise
positive impact.

“The government’s easing of FDI policy, the probable implementation of the Real Estate Bill and Smart Cities, and the introduction of REITs(real estate investment
trust) would bring in the much-required transparency into the sector and enhance investor confidence in the coming years. The year 2016 is likely to begin on a
cheerful note on the back of reforms and increased investor confidence,” Dutt added.

The RBI has cut rates by 125 basis points in 2015 and both the developers and buyers expect to see the transmission of these lower rates to consumers in 2016.

If you are planning to invest in real estate in the new year then the buyer should keep in mind certain points as the market has multiple choices to offer.

“It is important for a buyer to get a detailed information on the shortlisted projects including the builder type, locality, to name a few. As a buyer you must not get
lured by freebies and discounts that are being offered all around and rather check all the legal documents thoroughly and carefully. Buyers must get all the documents thoroughly verified by a professional,” CommonFloor Groups, co-founder and head Vikas Malpani said.

Startups get $8.4 bn funding in 2015; Nearly 1,000 deals inked

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Making it a year of startups, Indian and foreign investors have pumped in a whopping USD 8.4 billion in new ventures including e-commerce platforms in 2015 through close to 1,000 deals, even as questions have begun to be asked about their hefty valuations.

Those opening the purse for Indian start-ups included industry titans like Ratan Tata and N R Narayana Murthy as also marquee global investors like Alibaba and Softbank.

According to data compiled by domestic technology and startup blog trak.in, as many as 936 deals worth over USD 8.4 billion have been inked this year — up from 304 deals worth USD 5 billion that took place in 2014.

The industry is looking at a promising 2016, though experts and even the investors anticipate correction on the valuation side. The sectors to watch out for include financial technology, healthcare and enterprise technology among others.

Also, the focus might shift a bit away from e-commerce companies towards some new areas including agriculture.

This year, the e-commerce sector, led by e-retailers like Flipkart and Snapdeal, and the taxi-hailing app Ola, dominated the startup investments space.

Many of these firms commanded very high valuations, with marquee investors like Softbank and Alibaba among others doling out top dollar.

“The technology and e-commerce sectors have been in the limelight in 2015, and our country is the fastest-growing startup ecosystem in the world, right now,” Indian Angel Network (IAN) president Padmaja Ruparel told PTI.

“Eleven of the 68 ‘unicorns’ globally, (companies that are valued at over USD 1 billion) are of Indian origin,” she added.

However, a debate has begun over the high valuations at which many companies have received funding.

Several industry titans including former Tata group chief Ratan Tata, Infosysfounder NR Narayana Murthy and techie-tuned angel investor TV Mohandas Pai, have questioned the high price e-commerce companies are commanding for parting stakes.

Tata, who himself has personal investments in more than a dozen startups, took a dig earlier this year at the fledgling sector, saying “valuations” and not “evaluations” are driving the play.

Pai also believes that only about 10 per cent of the startups will succeed over the next few years, and about 25 per cent will stay afloat, while the rest are bound to fail, leading to consolidation.

Ruparel pointed out that following the meteoric rise in the first half of 2015, valuations have become more grounded in the second half, and investors are also more keen to find out the business parameters before backing a company.

The year has also seen several startups crumble after being pushed to scale up rapidly due to investor pressure.

Food-technology startups like Zomato, TinyOwl and Housing.com, which had to shut down operations in some cities and fire hundreds of employees, are among those having faced the pressure.

“Still, start-ups are set to emerge as a major job creator if the government evolves an enabling policy environment for them,” Pai said.

Currently, India is home to over 18,000 startups valued at USD 75 billion and employing 300,000 people. This makes India the world’s second largest startup ecosystem while the growth rate is estimated to be highest here.

Right policies can help startups could grow over fivefold in numbers over the next decade, Pai says.

On the regulatory side, the markets watchdog Sebi has eased rules for initial share sale by startups to allow investors to cash in on the e-commerce boom and to prevent such companies from going abroad for listing.

While there has been a slow take-off for such listings, three e-commerce companies including Infibeam, Matrimony.com, QuickHeal have got the regulatory go-ahead to raise money from the capital markets, which is now likely to happen early next year.

“Several policy initiatives like Digital India, as also easing of taxation, labour and registration norms for startups will help the entrepreneurs tremendously,” Ruparel said.

Industry observers expect some churn in the sector going forward with some sector rotation happening on the funding side.

Sharad Sharma of technology and startup thinktank iSpirt believes that growth will shift away from metros to small towns.

“We can expect consolidation, and a correction in valuations as well, though we cannot predict a hard-landing or a soft-landing,” Sharma said.

“An interesting trend for 2016 will be a huge opportunity for startup entrepreneurs to innovate and kick-start and empower the Digital India programme by providing the building blocks to develop consumer-centric apps,” Sharma added.

Since the consumer market is very large, technology startups could open up many new avenues of opportunities in financial services, healthcare and education sectors of the economy, he said.

FinMin, RBI plan to put curbs on capital funds, term loans for firms

Arun Jaitley

In order to develop the corporate bond market, the finance ministry and the Reserve Bank of India are planning to restrict the amount of working capital funds and term loans that companies can borrow from banks. The ministry and the regulator plan to encourage companies to meet a portion of their funding requirements by raising funds in the corporate debt market and through commercial papers.

Another measure on the cards is to lower the transaction in corporate bonds for all category of investors, and reserve a specific portion of the bonds for retail investors, just as it is done in case of share sale during initial public offers by companies, a finance ministry official said.

Corporate bond issuance in India is currently dominated by private placements with institutions, which accounts for over 95 per cent of the total issuance of corporate debt. “We have met the RBI a number of times in recent months and discussed ways to boost the corporate bond market. A roadmap is being prepared, which will be rolled out in due course. The plan is to get companies to raise more funds through corporate bonds and to attract institutional and retail investors to participate in the market,” the official said.

The Financial Stability and Development Council, chaired by finance ministerArun Jaitley, has discussed these steps as well.

The government further plans to amend the SARFAESI (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest) Act, 2002 to enable bond and debenture trustees to use provisions of this law in case of default by a corporate bond issuer.

At present, only banks and financial institutions can use the SARFAESI Act provisions in case of default. Amendments to the SARFAESI Act are being finalised and these are expected to be moved in the upcoming Budget session of the Parliament, the official said. One problem being faced in development of corporate bond market is that while the corporate loans given by banks are

not marked to market, there is a requirement of bonds to be marked to market, the

official said. This means whenever a company’s bonds rating come under pressure or there are doubts on the company’s repayment capacity, the bond investors including banks have to book mark-to-market losses in their books of accounts. In case of corporate loans, there is no such requirement of booking mark-to-market losses. The government and the RBI are trying to resolve this anomaly, the official said.

The RBI has also proposed that corporates may be encouraged to re-issue existing bonds under the same International Securities Identification Number or ISIN code. This is expected to augment market liquidity, reduce the cost of borrowings and prune the documentation requirements.

The official said that the Insolvency and Bankruptcy Code, 2015, which was introduced by the government in Parliament on Monday and later referred to a 30-member join parliamentary panel, would also help in developing the corporate bond market.

The bill aims freeing up banks’ resources for other productive uses and boosting credit markets by providing for faster liquidation of a company’s assets in case of defaults.

As per the proposed legislation, the corporate insolvency would have to be resolved within a period 180 days, extendable by a further 90 days. It also provides for fast-track resolution of corporate insolvency within
90 days.

Boost for corporate debt market

# Corporate bond issuance in India is currently dominated by private placements with institutions, which accounts for over 95% of the total issuance of corporate debt

# Only banks and financial institutions can use the SARFAESI Act provisions in case of default

# The government further plans to amend the SARFAESI (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest) Act, 2002 to enable bond and debenture trustees to use provisions of this law in case of default by a corporate bond issuer.

Affordable segment: Cities on the periphery taking the centre-stage

real estate bill

The real estate industry has not seen much demand despite the 125 basis point cut in repo rates (at which RBI lends to commercial banks) by the RBI and a subsequent cut in interest rates by banks by up to 70 basis points over the last 11 months.

While there has been a marginal pick up in credit deployment of scheduled commercial banks for housing sector as it has gone up from 16.2 per cent in October 2014 to 17.6 per cent in October 2015, industry experts say that pick-up is only being witnessed in lower and middle income category in the Tier 2 and Tier 3 cities.

Metros and big cities continue to suffer and have not witnessed any notable surge in demand. “From a growth perspective, for metros, the transactions are still on the lower side as customers feel that the prices are still on the higher side and they will fall from their current levels. However, in the peripheries there is a growth in transactions as the prices are lower,” said Harshil Mehta as CEO, DHFL.

There are some who feel that the steps taken by the government over the last one year and cut in rates by the RBI will have its impact in the next year and there should be a pick-up in demand across the residential housing segment.

“The stability in property prices across major locations along with reduced rate of interest has led to an increase in consumer confidence and we believe markets will only improve from here,” said Brotin Banerjee, MD & CEO, Tata Housing Development Company.

Even, Anuj Puri, chairman and country head at JLL India feels that while 2015 did not see growth coming from the residential real estate, a decline in launches by developers has helped in reduction of inventory and there may be a pick up in the coming year.

Smaller cities leading

If the developers across Delhi, Mumbai, Chennai, Bengaluru etc are still facing issues of high unsold inventory, experts feel that there is a pick up in demand in the peripheries of these cities. End users are buying properties in the outskirts of Mumbai and Delhi and even cities such as Vapi, Surat, Ankleshwar and Baroda in Gujarat are witnessing good demand. Even in the South areas such as Coimbatore, Mysore have seen demand coming in. While the property prices in these areas are low, the demand is also a result of the rise in economic activity across these regions resulting into the demand for housing.

“We have seen demand for houses going up in Hapur, Meerut, Karnal, Kurukshetra and other cities that are on the outskirts of metros. Buyers include both category 3-4 employees who commute to metros for work and also those from the villages looking to educate their kids in the nearby cities. The fact that these places have decent infrastructure and educational institutions has resulted into a sharp rise in economic activity in these areas,” said Mehta.

Developers in Haryana who are developing projects under its affordable housing policy have witnessed strong demand for their projects and this only goes to show that the market is not starved of demand, it is just the absence of supply at the right price which is keeping home-buyers at bay. Projects launched by Delhi-based Raheja Developers and Supertech among others in Gurgaon, under the Haryana Urban Development Authority’s (HUDA) affordable housing policy, witnessed strong demand from homebuyers.

Sensing the demand in the affordable segment, Tata Value Homes also expanded its presence in Kolkata and Delhi NCR during the year and launched its projects in the affordable housing segment. In Delhi NCR, Tata Value Homes launched its project in Bahadurgarh. It also launched its second affordable project, in Boisar, near Mumbai and this is only a reflection of the demand within the segment.

The price impact

However, affordable housing on itself cannot take the entire sector that is down in the dump and cannot act as a substitute to the residential market in large cities where the ticket size is big.

While a number of developers were started developing projects in the high end or luxury category, the market witnessed a sharp rise in the supply of such houses and now most of the projects have high unsold inventory. “There is demand in the market but you need to have right kind of supply to match it. Wherever you see the gap, it is because of that. So much is the gap that if there is a customer willing to spend Rs 3-4 crore, he has multiple options and in that case he looks to go with a credible developer,” said Mehta.

It is ironical to see that despite a cut in interest rates, dip in inflation, no rise in property prices and rise in income levels prospective home-buyers are staying away from the market. Experts say that it is perception that is playing a role. While the prices have not moved anywhere over the last 12-18 months, experts say that the customers are staying away from the market as they perceive that there will be correction in the market. So the question arises is whether one should wait for that price cut or look to buy his house as there are plenty of options available in the market.Experts say that since land constitutes almost 70 per cent of the cost of the project there is not much that the developer can do and so there may not be a big fall in the prices.

“Developers are not cutting the price across the board as it will antagonise their existing buyers. However, they are willing to negotiate with a customer sitting across the table and are offering to pay for stamp-duty registration, parking space or benefits such as white-goods, modular kitchen etc to the customers. Customers are not only having substantial incentive but they also have a lot of choice in the market,” said Mehta.

If delivery of projects on time was a big concern among home-buyers, the market is currently full of choices where the development work is complete and hence there is not development risk for the customers.

Another factor that points towards the revival of the residential housing segment is the pick up in the commercial and office space market. Experts say that logically, this should lead to a pick up in the residential housing market too. Puri feels that while initiatives from developers like offering attractive schemes and deal terms, coupled with lowering of interest rates by the RBI has already resulted into some activity, the growth may come next year though it may also witness fall of some small players. “2016 may well bring an end to the long and painful journey this sector has had, and signal an upward growth trajectory. It will mature further into an organised industry in which some lesser-organised players become casualties,” said Puri.

Policy gap stops investors from expanding power grids in rural India

bgr electric

Lack of clarity on policy governing privately-owned renewable energy-based mini-grids is preventing investors from expanding their network in the hinterlands of north India.

Husk Power Systems, which was formed in 2007 and operates over 70 mini-grids in several districts of Bihar, is one such company that is unsure about its investment if the state government decides to install centralised grids in the areas of its operations. Each of the company’s mini-grids is connected to a 25 kW biomass power plant.

“The policy isn’t clear for players like us and while the Electricity Act, 2003, allows us to put up mini-grids
without securing any licence, it doesn’t deal with the situation where centralised grids eventually come in our area of operation,” Manoj Sinha, co-founder, Husk Power Systems. He added that centralised grids jeopardise the viability of mini-grids as consumers prefer power from state discoms which have a dubious distinction on billing efficiency.

The issue was raised with the authorities by California-based SunEdison, when it announced it would install 241 kW of solar PV micro-grids with battery storage in 54 remote Indian villages, providing electricity to 7,800 off-grid individuals. The company had, in September, said it will build, operate and then transfer the facilities to the public within five years.

However, the company had maintained that policy uncertainty would affect its expansion plans in the absence of an investment protection mechanism.

Husk Power uses rice husk as the source of power to cater to nearly 15,000 households in 400 villages, including commercial installations like rice mills in power-starved Bihar. In the last seven years, Husk Power has established a business of selling power to villages for six hours daily at Rs 160 per month but the company, in October, tied up with a US-based photovoltaic maker to install solar power plants to double the capacity of their installments, thus enabling them to offer 24X7 power supply to each household.

“We will convert three more of our installations into hybrid (rice husk and solar) ones and study the data to ensure its economically viable before we convert all our installations into hybrid,” Sinha said. He added that policy uncertainty will continue to be an overhang as the company has already had to shut at least three of its installations after consumers moved to a centralised grid that was installed in their area of operation. Each of these hybrid installations cost nearly $80,000 or over Rs 50 lakh.

Although the firm says the government has assured them of a policy framework to deal with the gray area, the current amendments pending in Parliament do not address the lacunae. “We have proposed several solutions to the authorities to safeguard investments in distributed, mini-grid solutions. One of them is allowing mini-grids to feed in power to a central grid at a fair feed-in tariff. The other option could be of discoms entering into power purchase agreements with us,” Sinha said.

Despite the threat of uncertain policy, Husk Power is looking to raise $10 million for expanding operations in India and Africa. Another US-based solar power producer, SunEdison, which has been developing mini-grids for villages around Lucknow, has raised the issue with the government.

Raghuram Rajan sets new rules for a faster, transparent rate transmission

rbi raghuram rajan

A major concern of Reserve Bank Governor Raghuram Rajan has been the slow transmission of policy rates by banks to their customers. Since the rate reduction cycle that commenced in January, less than half of the cumulative policy repo rate reduction of 125 bps has been transmitted by banks, he says. For borrowers, the median base lending rate has declined only by 60 bps though many banks slashed deposit rates by up to 125-150 points.

The RBI has been urging banks to pass on the benefit arising from repo rate cut to borrowers but with little success. The central bank then decided to change the structure of calculation of lending rate. In short, it followed the motto: change the system if the system doesn’t work. The Marginal Cost of Funds based Lending Rate (MCLR) announced by the RBI last week is not only expected to improve the transmission of policy rates into the lending rates of banks, but also set to improve transparency in the methodology followed by banks for determining interest rates.

Bankers say the RBI is expected to ensure availability of bank credit at interest rates which are fair to the borrowers as well as banks. Further, RBI says marginal cost pricing of loans will help banks become more competitive and enhance their long run value and contribution to economic growth.

For monetary transmission to happen, lending rates have to be sensitive to the policy rate. Currently, banks follow different methodologies for computing their base rate, the minimum lending rate. While some use the average cost of funds method, some have adopted the marginal cost of funds while others use the blended cost of funds (liabilities) method. The RBI deduced that Base Rates based on marginal cost of funds are more sensitive to changes in the policy rates. “While these (MCLR) guidelines will benefit the new customers, existing customers will also have an option to shift to the new regime with some conditions. Sufficient time has been given to banks to switch over to the new regime. We have moved closer to international manner of benchmark rates,” SBI chief Arundhati Bhattacharya said.

How it works

All rupee denominated loans from April 1, 2016 will be linked to MCLR which will be calculated by banks on a monthly basis. Unlike the current base rate system, MCLR will be a tenor linked internal benchmark, which addresses major inefficiencies of the current system.

Banks will review and publish their MCLR of different maturities every month on a pre-announced date. The RBI has prescribed that banks should publish the internal benchmark for maturities: Overnight, one-month, 3 -month, 6-month and one-year MCLR. Banks will publish their MCLR of different maturities every month on a pre-announced date. The MCLR will comprise of marginal cost of funds, negative carry on account of cash reserve ratio, operating costs and tenor premium. Banks will add the spread to MCLR to factor in the credit risk or market conditions while pricing any loan.

The MCLR prevailing on the day the loan is sanctioned will be applicable till the next reset date, irrespective of the changes in the benchmark during the interim period. The exact periodicity of reset will form part of the terms of loan contracts and must be of one year or lower. Banks will continue to review and publish base rate along with the MCLR. Existing loans and credit limits linked to the base rate may continue till repayment or renewal.

The RBI has accepted the major demand of banks by not linking base rate linked existing loans to new MCLR regime. “As a result, we see minimal impact on the net interest margin (NIM) of banks due to shifting to new lending rate regime. Although new MCLR will be linked to marginal cost of funding but components like tenor premium, operational expenses and credit risk premium are within banks’ control,” said a review by Reliance Securities.

“The focus on asset liability management, higher competition due to potentially higher demand for refinancing and reduced flexibility in loan pricing will put pressure on bank’s margins,” said an analyst with Prabhudas Lilladher. Banks with higher share of fixed rate loan portfolio and/or higher proportion of loans at the longer end will stand to benefit while banks with higher share of loans at short end will likely face yield pressure.

How customers benefit

Home and personal loan customers saw the RBI slashing repo rate by 125 points in 2015, but this benefit did not reach them in full in terms of a lower equate monthly installment (EMI) on their loans. The new system will be closer to the reality on the ground and the customer gets an idea about the rate structure more periodically. While several MCLR rates would increase operational expenses for banks, borrowers can look at the option of refinancing activity more frequently as they are likely to borrow at shorter end where the MCLR rate is lower due to lower premium.

Customers will see a fall in EMI at a faster pace when the RBI cuts the repo rate as banks will have to revise MCLR of different maturities every month on a pre-announced date. The method of calculation is clearly defined and transparent and banks can’t dilly-dally on revising the lending rate whenever the RBI cuts the Repo rate. It will be immediately reflected in the monthly MCLR calculation.

“We expect short tenure MCLR of banks will be 50-120 bps below their current base rate and will help them to get back the business they had lost to the money market due to the introduction of base rate regime in 2010. Under the new MCLR system, banks are allowed to charge a differential rate for short tenure loans, which will help them to compete with money market for corporate borrowings,” said an analyst.

Both the old system and MCLR will eventually merge. “The sense I am getting is it is historical and there is a future. Future has to be on marginal based and historical can continue the way it’s. That’s fair. At some point of time, history will get over and we will move to marginal,” said Uday Kotak, Vice Chairman and MD of Kotak Mahindra Bank.

Interestingly, the RBI has raised the possibility of a benchmark gaining traction on the lines of LIBOR (London Inter Bank Offered Rate). “They (RBI) have also made one thing clear. If the banks lend at external benchmark, it does not need to follow marginal cost of lending. RBI has actually opened up that window. Of course we will look at benchmarks like MIBOR (Mumbai Inter-Bank Offer Rate) or something like

Treasury Bills or government securities,” Kotak said.

According to bankers and analysts, there are still some grey areas. They say tenor premium has not been defined by the RBI and there’s no clarity on whether MCLR will be based on the overall cost of funds or the cost of funds for a particular maturity segment. Further, banks still enjoy discretion in spreads and operating cost. That said, the RBI’s plan of speeding up monetary transmission is expected to show the
desired results and customers can enjoy repricing of loans and faster changes in rate transmission.

New Home Sales Drop to Near 1-Year Low

New Home SalesWASHINGTON — New single-family home sales fell to near a one-year low in September after two straight months of gains, but a jump in prices suggested that housing remained on solid ground.

The Commerce Department said Monday sales dropped 11.5 percent to a seasonally adjusted annual rate of 468,000 units, the lowest level since November 2014. August’s sales pace was revised down to 529,000 units from the previously reported 552,000 units.

The September report does little to alter our view that the housing market is continuing to recover.

The moderation in new home sales is at odds with other housing reports that have painted a bullish picture of the sector. New home sales, which account for 7.8 percent of the housing market, tend to be volatile on a month-to-month basis because they are drawn from a small sample.

“The September report does little to alter our view that the housing market is continuing to recover. We view the new home sales data as unreliable and many other more reliable housing indicators have been sending upbeat signals lately,” said Daniel Silver, an economist at JPMorgan (JPM).

September data on existing home sales, homebuilder confidence and housing starts have been fairly strong.

The housing index fell more than 1 percent on the data, underperforming a marginally weaker stock market. D.R. Horton (DRI), the largest U.S. homebuilder, dropped 2.7 percent. Lennar (LEN), the nation’s second-largest homebuilder, fell 2.1 percent.

Prices for U.S. government debt rose, while the dollar slipped against a basket of currencies.

Housing Supporting Economy

A sturdy housing market is supporting consumer spending through an increase in household wealth, which is helping to soften the blow on the economy from faltering global growth, a strong dollar and weak capital spending in the energy sector.

Efforts by businesses to reduce an inventory bloat also have weighed on growth, leaving gross domestic product growth estimates for the third quarter running below a 2 percent annualized rate.

The economy grew at a 3.9 percent rate in the second quarter. The government will publish its advance third-quarter GDP estimate Thursday.

Economists had forecast new home sales slipping to only a rate of 550,000 units. Sales were up 2 percent compared to September of last year.

New home sales tumbled 61.8 percent in the Northeast to the lowest level since April. Sales declined 6.7 percent in the West and were down 8.7 percent in the populous South. In the Midwest, sales fell 8.3 percent.

With sales weak, the stock of new houses for sale increased 4.2 percent to 225,000 last month, the highest level since March 2010. Still, supply remains less than half of what it was at the height of the housing boom.

At September’s sales pace it would take 5.8 months to clear the supply of houses on the market, the highest since July 2014. That was up from 4.9 months in August.

The median price of a new home rose 13.5 percent from a year ago to a nine-month high of $296,900.

“The strong price gains suggest either that the mix of houses shifted to more expensive houses or that homebuilders are pushing up prices,” said John Ryding, chief economist at RDQ Economics in New York. “Weakening demand would be accompanied by slowing price gains or price declines.”

5 Ways Frugal People Aren’t Cheap

Greed
Many people often confuse frugality with being cheap. It’s an understandable thought, as their definitions share similarities. Both traits are considered economical. Both want items at a lower price. Both want to use as few resources as possible. The end result in many of these situations is saving money.

There is, however, a key difference. We all love to save money, but it’s the approach taken that makes all the difference. It’s this difference that separates someone who is frugal from someone who is considered cheap. So, before you confuse a frugal person with someone who likes to be cheap, take a look at some of the following traits.

1. Frugal people take a macro-level view of finances. I’ve found that most frugal individuals often take a big picture view of their money. Yes, they’re concerned with what they might spend on a certain item. That’s a given for a frugal person. The amount spent isn’t the determining factor of the spending decision, however. The determining factor is the value the item will bring into their lives.

For example, if there is a certain hobby they enjoy, they will spend the money necessary to enjoy that item. They won’t cut every corner; they will get value because they’ll derive value out of what the item will add to their lives. On the other hand, someone who is cheap will simply look to spend as little money as possible. While understandable, cheapness misses the bigger picture for the sake of saving a few dollars.

2. Frugal people look at quality. Similar to taking a macro level view of finances, frugal people look for quality. They also realize quality might mean spending a little more to get it. The simple reason is spending a little more, in the beginning, will mean less money spent in the long run. Not only does this desire to spend on quality mean less money spent overall, but it also means less waste — another hallmark of frugality.

3. Frugal people don’t steal. When was the last time you were at a restaurant and saw someone grab a bunch of extra napkins or sauce packets and thought the person was frugal. We’ve all seen it happen. Perhaps we’ve even been guilty of it at times.

This isn’t frugality; it’s theft. While it may help you save some money in the long run, it’s not worth the hassle or embarrassment to a frugal person. You’re betraying your values, which are worth more than money.

4. Frugal people look at time. A frugal person is keenly aware of the time spent on an item or task. A cheap person, on the other hand, forgets about the aspect of time and looks simply at the money saved. For example, when was the last time you heard someone brag about buying gas for ten cents less a gallon than you did?

That might sound great, on the surface, until they tell you it took them 20 minutes to drive across town to get the savings. A frugal person sees that 20 minutes and extra few dollars as a waste. They’d rather spend their time on something that brings greater value than chasing savings.

5. Frugal people splurge on occasion. Splurging on an item sounds like it might be contrary to a frugal mindset. It really isn’t. In fact, it’s a key part of frugality. Frugality is concerned with value, not being so miserly that you never have anything you want.

A frugal person is going to order their spending to get something they want, even if it’s seemingly expensive. Whether that be a nice vacation, a certain brand name or more expensive and healthier food, a frugal person is going to adjust spending to allow for that splurge.

The bottom line is that frugal people are not overly worried about money. Frugal people simply want to make money work for them in the best way possible. They want their money to grow. They want to receive quality for their spending. They want more time to do the things they enjoy and they use wisdom to accomplish those things.

Frugality and cheapness are often confused. That’s understandable. Before you confuse frugality with being cheap, look at the kind of life the person is living and the value they’re receiving from it.