Cheques with alteration/corrections will not be honoured from 1st July 2010 1. Paper-based cheque clearing continues to be one of the popular modes of initiating payment transactions in the country. During the period April-December 2009, clearing houses in the country have processed on an average around 4.5 million cheques every day. Several measures have been initiated by Reserve Bank of India to ensure that this retail payment product functions in a safe and efficient manner. 2. Introduction of Magnetic Ink Character Recognition (MICR) technology during the mid-eighties has been the single-most important development responsible for making the cheque clearing popular and efficient – volume-wise, speed-wise and convenience-wise. At the banks’ end too, cheques in MICR format have facilitated post-processing ease in operations, affording credit to customer accounts and reducing reconciliation issues, thus improving customer service. Standardization of cheque forms (leaves) in terms of size, MICR band, quality of paper, etc., was one of the key factors that enabled mechanization of cheque processing. 3. Over a period of time, banks have added a variety of patterns and design of cheque forms to aid segmentation, branding, identification, etc., as also incorporated therein a number of security features to reduce the incidence of cheque misuse, tampering, alterations, etc. Growing use of multi-city and payable-at-par cheques for handling of cheques at any branches of a bank, introduction of Cheque Truncation System (CTS) at New Delhi for image-based cheque processing, increasing popularity of Speed Clearing for local processing of outstation cheques, etc., are a few aspects that led to looking into the need, if any, for prescription of certain minimum security features in cheques printed, issued and handled by banks and customers uniformly across the banking industry. 4. Against the above backdrop, a Working Group was set-up by the Reserve Bank of India for examining further standardisation of cheque forms and enhancement of security features therein. The Working Group comprised various stakeholders viz. commercial banks, paper manufacturers, security printers, etc., apart from Reserve Bank of India. Recommendations of the Working Group were discussed internally as also forwarded to Indian Banks’ Association (IBA), National Payments Corporation of India (NPCI) and select banks for their views. The feedback from these institutions has been received and duly considered. 5. It has since been decided to prescribe certain benchmarks towards achieving standardisation of cheques issued by banks across the country. These include provision of mandatory minimum security features on cheque forms like quality of paper, watermark, bank’s logo in invisible ink, void pantograph, etc., and standardisation of field placements on cheques. In addition, certain desirable features are also being suggested which could be implemented by banks based on their need and risk perception. The set of minimum security features would not only ensure uniformity across all cheque forms issued by banks in the country but also help presenting banks while scrutinising /recognising cheques of drawee banks in an image-based processing scenario. The homogeneity in security features is expected to act as a deterrent against cheque frauds, while the standardisation of field placements on cheque forms would enable straightthrough-processing by use of optical / image character recognition technology. 6. The benchmark prescriptions shall be known as "CTS-2010 standard", specifications of which are annexed. Effective date of implementation of the standard will be advised to you in due course. It is our intention that the revised cheque standard is implemented by banks before the roll-out of CTS at Chennai. IBA and NPCI will be co-ordinating and advising banks on introduction of additional security features on cheques as also other aspects relating to implementation of the standard across the country. 7. Please acknowledge receipt of the circular and indicate your readiness for implementing the "CTS-2010 standard".                       Top | Back

There are many differences between trading and investing. For one, investing is a long-term process, while trading is a short-term process. In investing, company fundamentals, and stop loss play an important role in taking a decision to buy or sell, while trading involves studying charts while deciding on buying or selling a stock. There is no concept of delivery involved in trading. An investor pays the entire share price upfront, while a trader pays only the margin money, which is a part of the actual share price. It allows him to earn massive profits by simply depositing small amounts. We all know of those people who have claimed to make money in stock market. There are reports in newspapers giving attractive accounts of how the investors made a fortune when the stock indices reached an all time high. As a result, many people are drawn towards day trading or intra day as it is popularly know. But is it really all that is made out to be? Are there any drawbacks to day trading or is all sugar and spice? Let us understand what it is, and its pros and cons. What is day trading? In day trading, you buy the shares of a particular company and then sell them off on the same day. There is no concept of taking delivery. You don’t actually hold the stock. There is no concept of stop loss or studying the fundamentals of the company involved in this method. How does a trading differ from investing? E.g. assume the price of a share is Rs. 1200. To own 100 shares, an investor must pay Rs. 1,200,00, which is difficult for a small investors. So a trader can make a deposit of Rs 10,000, which is called as margin money and buy these shares. Now assume the share price rises to Rs. 1300. The trader can now sell his 100 shares and earn Rs. 1,300,00. His profit is Rs 10,000 (Rs. 1,300,00 - Rs. 1,200,00). So simply by making a nominal deposit, a trader earns a healthy profit. What are pros and cons of day trading? While money is the primary motivator that attracts people to day trade, they should not forget the drawbacks of the process. Here are some of the pros and cons of day trading. Pros: * Ability to work at the pace and terms of your choice and. You don’t have to deal with a boss, inquisitive colleagues and company rules. * Can be done in the privacy of your home. All that is required is a PC and internet. * You can work any time of the day, since there is no work schedule to follow. * Wide choice of trading sites and brokers, with varying charges. It will let you choose the ones offering best service at lowest rate. Cons: * Higher risk of losing money as the market can crash after buying. * Increase in your tax liability, as the profits earned is treated as business income. * Need to be emotionally detached, as it is important to sell off your holdings as soon as you make losses, instead of sticking with them in order to recover your money. * Need careful monitoring of stocks, since the markets can swing wildly on any given day. This is much more important if you are trading in mid and small caps, which tend to fluctuate wildly. Though trading can be a good money earner, it is important to be careful, as your chances of suffering a loss is as high as making any profit. No wonder, legendary investor Warren Buffet has said it best, when he stated, “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”                       Top | Back

We invest to safeguard ourselves for a rainy day. If you’ve just started investing or want to start, then you could use our 7-step plan to become your own investment consultant! Managing your investments becomes easy when you make it a habit to save, even if it’s very little money. You need to keep a meticulous account of personal income versus expenditure on a monthly basis before you start investing. Here are some steps you can follow: Step 1: Create a budget and track your expenses A budget helps you identify problem spending areas and also helps regulate your cash flow. Tracking your expenses against the budget helps you control spending and free up cash to clear existing debt and save for retirement or your child’s education. For example, your budget allocation includes a certain amount for groceries for a week. You discover on comparing that amount against actual expenses that you have overspent on buying additional items that you did not really need. This will caution you against making similar expenditure next week and at the end of the month, you will end up saving money! Step 2: Pay off your existing credit card debts Are you surprised that paying off credit card debt is a step towards investments? Credit cards charge a high amount of interest along with the principal repayments. When you clear this amount, you‘ll be glad to realize that all the interest amounts and late fees you paid to credit cards can be utilized for your savings and investment program. Step 3: Save effectively for a rainy day Emergencies often arrive unannounced. Ensure that some money is set aside to cover monthly expenses for at least three months. These funds should be invested or set aside in instruments that can be readily accessed should you need cash. For example, keep these funds in a savings account in a bank or invest in a money-market mutual fund. Step 4: Design a disciplined savings program You can open a recurring deposit account. In this case a particular amount from your income gets deposited every month for a fixed tenure. You can also invest in a series of fixed deposits (FDs). For example, if your cash reserve is USD 24,000, this amount can be divided into six FDs of equal amounts, each with a 6-month maturity. At the end of 6 months, you’ll have a fixed deposit maturing every month. You can continue to roll them over to create a source of regular income and minimize risk. Step 5: Invest in education, pension, and retirement insurance plans You can get life cover, education cover and save for retirement when you invest in insurance. Besides this, you get tax exemptions to reduce your current tax payout. For example, you can invest in the insurance plans which offer not only life insurance, but riders for investment of the premium amount so that you get good returns when you retire. Step 6: Buy yourself your dream home Investing in a house is one of the best investments you can make. First, your payments towards interest and real estate taxes are tax deductible. Second, your property increases in value over time. Step 7: Invest in a diversified investment program or systematic investment plan Your risk tolerance level goes a long way in defining your investment approach. If you’re not averse to taking risks, then you may want to invest in an equity based mutual fund. Else, you may want to invest in a plan that involves bonds and other safe securities. Also, ensure that you keep in mind your investment objectives before you subscribe to an investment plan.                       Top | Back

What is a perpetual bond? As the name suggests, these are bonds which do not have any maturity date and are hence perpetual. Since they are never redeemed, such debt instruments give the issuers the comfort that equity capital offers in their capital base. Hence treated as equity by issuers, particularly the banks. Even regulators allow them to treat such bonds as a part of a bank’s tier-I capital, which traditionally comprise equity instruments. (While tier-II capital of a bank comprises debt instruments). But on the flip side, unlike equity, they have to be serviced perpetually by way of paying interest to the subscribers of such bond. Who are the issuers of such bonds? Globally, such bonds are issued essentially by entities in need of very long-term funds such as the government, banks and other financial intermediaries. But in India, it is an innovative instrument that the Reserve Bank of India allowed them to do a few years ago because of its equity like features, and are allowed to be treated as tier-I capital. Why is it relevant in India? After RBI stipulated banks to migrate to Basel-II or the new international bank supervisory practice, capital requirements of Indian banks went up. Allowing only pure equity instruments may not be adequate for banks. Hence, banks were allowed to raise perpetual bonds to meet their capital requirements. However, there is a growing debate that only pure equity and net worth should qualify as tier-I in the future. What are the features of such bonds in India? In India, innovative perpetual debt instruments presently qualify as tier-I capital. They can be issued as bonds or debenture in the local currency and the amount raised through such instruments is to be decided by the bank’s board. They can comprise up to 15% of a bank’s tier-I capital after deduction of goodwill and intangible assets, but before investments. Excess amounts raised will be eligible for tier-II capital. Such bonds can be called back by the issuer after a supervisory approval.                       Top | Back

Remember it is not a wise thing to keep applying for a loan without any rhyme or reason. If your loan application gets rejected, this is also recorded in your CIBIL record. So weigh the pros and cons before you apply for a loan simultaneously to different banks. Wait till you receive an offer before you apply to another bank. This will give you a chance to rectify errors or update your credit record in case there is an issue with it before you approach another lender. When you apply for a loan, banks judge your ability to repay the loan on various counts including your age, income, job stability and primarily based on your credit report - which is a reflection of your true credit worth. Here are some reasons you need to watch out for and guard yourself against to obtain a loan without any hassles. 1. Your residential address is on the defaulter list! If you live under the same roof as someone who has slipped up on a loan payment or credit card dues and hence been reported to CIBIL, then the probability of your loan application to be rejected is likely to be high. The reason being your residential address will find a match with the one on the defaulters list. 2. Poor track record of credit card or loan repayments You have been accumulating credit card dues over the years resulting in a huge pending payment, which is well past the due date. Or it could be that you have slipped up on a few EMIs. In these instances, your name would have been reported to CIBIL. When a bank looks up your credit card or loan repayment track record - it would have a strong reason to reject your loan. Also, telephone bills and insurance premiums are likely to join this list, so do keep a strict vigil on all your bill and credit repayments. 3. Too many previous loans and too little income If you are juggling too many loans already, then your income minus the ongoing credit repayments is what will be considered as your real income. If another loan is likely to cause a severe strain on this income or make it unlikely for you to be able to repay effectively, then your loan will be rejected. 4. Loan guarantor to someone who didn’t pay up! When you sign the dotted line to be someone’s loan guarantor do exercise a lot of caution. You must make sure the applicant you are vouching for has the ability to repay the loan without hassles. Unless and until you have strong reasons to believe so, do not rush to sign for them as if they fail to repay for any reason you will be accountable to repay the loan on their behalf. In such circumstances, where you have been unable to repay their loan, you will be reported to CIBIL and this will reflect in a bad credit report. 5. Co-applicant has a poor CIBIL record It is important for all the loan applicants to have a good credit repayment record. If you have a clean record but your co-applicant has a credit card issue reported for instance, then your loan application may not be considered. 6. You are a compulsive impulsive job hopper Banks place a lot of importance on job stability and certain banks even insist that an applicant needs to be employed with a particular concern for three years or more to be eligible for a home loan. Also, in instances where a reputed company’s future appears unstable, the bank can reserve its right to provide a loan to the applicant from that company. 7. You want a joint loan with your sister or friends Though some banks might consider providing a joint loan to brothers who are co-applicants, banks as a rule do not provide loans to sisters or a brother and sister or friends, who wish to be co-applicants. However, you can choose to opt for your parents as co-applicants for the loan. 8. Your loan application has been rejected before! Remember it is not a wise thing to keep applying for a loan without any rhyme or reason. If your loan application gets rejected, this is also recorded in your CIBIL record. So weigh the pros and cons before you apply for a loan simultaneously to different banks. Wait till you receive an offer before you apply to another bank. This will give you a chance to rectify errors or update your credit record in case there is an issue with it before you approach another lender. Here are some pointers to be prepared for your loan before you apply for it: a. Gauge your repayment ability. Calculate your net worth and evaluate if you are ready for a loan commitment. b. Get a copy of your credit report from CIBIL and other bureaus, where your records can be found. Analyze them and figure out if there are any concerns in the report, which needs to be addressed. For instance if you have paid all your credit card dues but this is not reflected in your CIBIL record, then you need to approach the bank in question and get proof for the repayment. You will then need to submit the proof to CIBIL and get the information updated. c. Ensure you have back up funds to pay your EMI for a bunch of months, for emergencies like a job loss etc. d. Make as much down payment as possible and prepare well ahead to close the loan as quickly as you can, to continue a good repayment track record. Moreover closing off a debt when possible, will free up your resources for other uses or even for a new loan if the need arises.                       Top | Back   Please do not reply back to this mail. This is sent from an unattended mail box. Please mark all your queries / responses to webmaster@insuregain.com Information provided on this newsletter has been independently obtained from sources believed to be reliable. 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