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Manage expectations in terms of return

Manage expectations in terms of return
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First Published: Mon, Jan 17 2011. 12 04 AM IST

Financial advice: Manisha Natarajan (left) and Monika Halan hosting the Let’s Talk Money show.
Financial advice: Manisha Natarajan (left) and Monika Halan hosting the Let’s Talk Money show.
Updated: Mon, Jan 17 2011. 12 04 AM IST
Mint, along with the Hindustan Times and NDTV, brings you a personal finance show called Let’s Talk Money. The weekly call-in show, anchored by Monika Halan, editor, Mint Money, and Manisha Natarajan, editor and senior anchor, special programmes, NDTV, aims to answer viewers’ questions about money-linked issues. This is an edited transcript of the show that was aired over the weekend on NDTV Profit and NDTV 24x7.
Financial advice: Manisha Natarajan (left) and Monika Halan hosting the Let’s Talk Money show.
Natarajan: ...We’re all surrounded by news of several investors getting duped...be it Citibank or EndMark Forex. Our agenda is to enable you to figure out what are the points at which your money is vulnerable, when should your red alerts go up and scream there’s something fishy and how to keep a tab on your investments... My panel today—Monika Halan, editor, Mint Money; Ambareesh Baliga , vice-president, Karvy Stock Broking Ltd; and Rohit Mahajan from forensic services, KPMG. Let’s get to the Citi fraud first, but to sum it, (Shivraj) Puri took about Rs300 crore, leveraged it to Rs1,200 crore and brought it down to Rs375 crore, simply put, isn’t it?
Halan: And it always takes a number of zeros before something comes up in the headlines. This has been happening at a smaller level across thousands of accounts, but this just hit the headlines now. You have a situation where there is a regulatory crack, where wealth managers and advisers are unregulated entities and you have banking staff selling insurance products and mutual funds, but there is no umbrella regulation. So there is a regulation crack. Mix with that a product which allows the bank to operate a product which works on general power of attorney, so you are taking money in the name of somebody else and not the financial product and pulling it in and acting on behalf of the customer.
Natarajan: But this is unique to Citi...
Halan: Most of the banks refuse to take this risk on their head and now we know why they do that, probably few banks which do it and third you have customers who are happy to hand over the keys of their locker to a person representing a bank. So you have these three things
Natarajan: I like that point.
Halan: Then into this mess there is a person with intention to defraud, this is what happened with Citi. Again—we have talked about this before—unless we have regulation of financial advisers, wealth managers in India, this will continue to happen. Government will have to come out with this regulation very quickly and put an end to this.
Natarajan: So regulation is needed. Let me get Rohit Mahajan. Rohit, I like the point which Monika mentioned that the locker keys were handed over to Puri and that’s what happened, the fraud happened because you trusted someone so much and you need regulation to control frauds like that. Is that something that is possible? Do you think there should have been red alerts within the Citibank system which could have prevented that level of fraud.
Mahajan: Yes, I think in terms of Citibank having processes in place to minimize the risk of this kind of a fraud, I am sure they are there. So what happens is that when you have two parties where one is a customer and one is a relationship manager, now what kind of transaction (takes place and) to what extent does Citibank as an organization have visibility in those transactions (is unclear). Now, I am sure that there are processes wherein you know (a) certain kind of analysis has been done in the back-end within Citi itself, or as a matter of fact in every bank.
The most critical part here is that the activities of the relationship manager—were they operated or reviewed by the supervisor? That...can be defined, you know, as a control which could be set up in an organization. And also, is there a developed independent and a robust process to review to confirm client orders?.. There should be a back-end which actually follows up or calls to a customer to get a confirmation from the customer whether the customer has given approval to those kind of transactions. So these kinds of checks and balances from an organization stand point in the back-end would be necessary in a situation wherein there is a relationship manager and the client.
Baliga: Basically you should not give general power of attorney (PoA) to your broker. It has to be (a) very specific power of attorney, he can only execute that deal or transfer from your account to the broker account. He really can’t transfer anywhere else. So this kind of PoA has to be given and I mean even the client should not sign anything blank, he should see...what he is signing.
Natarajan: Alright, there is a lot to discuss around that because there are several case studies which are claiming that shares were sold from their account without their knowledge...
Rajiv Ranjan, 55, retired, New Delhi
I invested Rs45,000 in the FD (fixed deposit) scheme of CRB Capital Markets Ltd in the year 1997 and (am) yet to get even (my) principal back, leave aside any interest... This company did all this right under the watchful eyes of the regulators like Sebi (Securities and Exchange Board of India) and RBI (Reserve Bank of India) and the scheme was rated “A” by...Credit Analysis and Research Ltd (CARE).
For small investors from small towns meeting their means doing small businesses, this was betrayal of the worst kind... Fraudsters like CRB colluded with governing bodies like Sebi and RBI and simply disappeared with their deposits...
Natarajan: ...In case of CRB there is a regulation, there is a court case going on, there are assets of CRB and the promoters which have got liquidated, but investors haven’t got anything at all.
Halan: Why would you put your money in a deposit which is not coming from a bank or a reputed company? Where we put our money is also important. (If) anyone...is assuring returns of more than the five-year deposit rate, you need to ask the question: where is he getting (the) money from, and if the scheme was so good, why would he not borrow at a lower rate and invest in that particular investment. So I think we need to manage all our expectations in terms of return. So you have to manage greed and then be really prudent with your money. CRB case was a case of clear fraud and investors got into it thinking that return would be much higher.
Natarajan: It was a case of investor getting greedy. I was working out of Ahmedabad and I remember, the number of investors—retired army officers—who were coming and saying that we want all our money in CRB and CRB was offering at least 5-6% more than any reputed corporate deposit was and almost 8% more in the bank FD.
Halan: So if the scheme is too good to be true, it is not true, it is not going to give money back to you. Some people will make money in the beginning, but in long term it’s a pyramid scheme—it will fail.
letstalkmoney@livemint.com
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First Published: Mon, Jan 17 2011. 12 04 AM IST