WHY NOT ISLAMIC BANKING FOR INDIA?

As government grapples with the global liquidity crunch, Islamic banking could offer a way to bring fresh funds into financial mainstream. But while the rest of the world is opening up this avenue, India still has barriers.

Raghuram Rajan committee on Banking Sector Reforms in its reports recommended introducing Islamic Banking in India.

Islamic banking is also known as Interest-free banking. Interest free banking offers new possibilities to bring in the excluded citizens into the formal financial system.

a) Interest free banking is that the investor/lender does not get interest, but gets compensated through a form of profit sharing.

b) This involves equity based financing, and risk sharing basis.

c) When a conventional bank gives loan it takes zero risk as the loan is to be repaid with interest irrespective of whether the business succeeds or fails.

d) In Islamic banking if the borrower makes a loss, then the loan liability is mitigated as the bank will share the loss. And if borrower makes a profit he’ll have to share it with the lender at a pre-determined ratio.

e) Britain with a population of approx. 2 million Muslims has already had 6 Islamic banks 3 of which started in 2008. U.K Financial services authority (the UK’s equivalent to SEBI) sees Islamic banking not as a threat but as an opportunity for economic growth.

f) India have world’s second largest Muslims population of 154 million has lack of Islamic banking.

g) There is at least Rs. 5000 Crore of unclaimed interest in Kerela alone

h) According to estimates, globally assets worth of $300 billion are under management of Islamic banking and this is set to cross $1 trillion by the year 2013.

i) The problem in India on Islamic banking is politics. Any step towards this would be interpreted as “Favoring Muslims”

j) Besides politics there are also regulatory barriers, a bank in India cannot raise deposits without promising a specified rate of return to its depositors, but under Shariah, returns can only be determined on profit.

k) In India banks have to maintain a Statutory Liquidity Ratio (SLR) which involves locking up a portion of funds either in cash, gold or in government securities. Cash does not give any return, government securities are interest bearing which is prohibited under Shariah

l) The other problem involve restriction on equity investment by bank in India (the prime investment avenue in Islamic system) & trading (Islamic mortgages the main source of Islamic bank)

BSE to allot 5% more to global stock exchanges

In my last post I gave the information about declaration of dividend and bonus shares by BSE to its members.

Last year BSE alloted 5% to Duesch Bourses and to Singapore stock exchange at the rate of Rs.5200 per share, according to the current law, stock exchanges can allot not more than 5 % each to any strategic investor. But now the SEBI has raised this limit to 15 % from 5 %.

BSE will now allot more 10 % to Singapore stock exchange and Duesch bourses and also to Hong Kong stock exchange.SEBI is also considering to have self listing for stock exchanges,

If this comes through than these stock exchanges will can now get listed without an IPO

DIVIDEND OF 3,000 % & BONUS SHARES OF 12 FOR EVERY 1sh HELD.....

Have you every heard of this kind that any company issueing bonus to its shareholders in the ratio of 12 shares for every 1 share held in company and that also in such a bad financial market...YES its true.

The Bombay Stock Exchange (BSE) has declared bonus to its sharebroking members in the ratio of 12 shares for every 1 share held of the face value Re.1.00.

This decision was taken in an annual meeting of BSE on 8/11/2008, Also the BSE mulls to list it on exchanges and for that purpose it needs to raise its sharecapital.

According to the present virtue of SEBI law  any company intending to get itself listed on BSE must have minimum sharecapital of Rs.3 cr and for NSE min. share capital required is Rs.10 cr.

At present the share capital of BSE stands at Rs.78,00,000, and post bonus will stand at Rs.10 cr.

The reserves of BSE on the year ended 31 march 2008 was at Rs.1500 cr.

Also BSE had given the dividend of 3,000 % to its members for the year 2007-2008

51 % of the shareholding is held with sharebroker members, BSE has also alloted shares to an international stock exchanges like Singapore stock exchange and Duesch Bourses at an rate of Rs.5,200 per share.

SBI, LIC, BAJAJ AUTO, DUBAI FINANCIAL, ATIX MAURITIUS are some of the stakeholders of BSE.

Looking to the present scenario of the markets it doesnot seems to float its IPO atleast for this year.

But for now it seems that the broker members of the BSE is on full joy as they get dividend of 3,000 % and the bonus share on their investments.

Challo atleast some one is happy

PRAJ INDUSTRIES....A GOOD LONG TERM BUY

World Economic Forum (WEF) have bought out a list of 200 growth companies out of which 22 companies are from India. These companies generally considered as having potential to change the global economic landscape. Praj Industry stands at 6th in the Indian List.

Pune-based Praj Industries is an engineering company and is the market leader in ethanol technology. It provides turnkey project implementation services to set up ethanol distillation units. The company has developed technologies to produce ethanol from a variety of feedstock such as sugarcane, sweet sorghum, corn etc and is trying to develop a commercially viable method to convert cellulose into ethanol.Besides ethanol - which accounts for over 80% of its revenues - the company also carries out distillation for breweries and plans to enter the bio-diesel space.Praj has executed projects in over 35 countries. Over the past couple of years, it has taken steps to strengthen its global presence. These include an acquisition in the US and tie-ups with foreign companies in Europe and Brazil. With this, the company has established its presence in key markets across the world.

Key Financials: -Praj's net profit has witnessed a cumulative annual growth rate (CAGR) of 43.2% over the past 10 years, while its net sales have grown by 27.3%. At the current market price of Rs 70.85, the scrip is trading at a price-to-earnings multiple (P/E) of 19.8 based on its earnings in the past 12 months, which is nearly half its P/E just a couple of months ago. Considering Praj's current order book, ability to win new orders and investment in research & development, we expect the company to maintain its EBIDTA margins above 20%. For FY09, we expect Praj to report earnings per share (EPS) of Rs 10.1 .

Key Negative: - The shareholding of the promoters and public has fallen, while institutional holding is on the rise.Technicals are not in favour.

Key Positive: - Ethanol and bio-diesel are gaining acceptance worldwide as eco-friendly fuels. Ethanol blending has already become mandatory for petrol in a number of countries, including its largest consumer, the US. The proportion of blending is slated to go up, with governments in the US and India mandating 10% blending over the next 2-4 years.The company already has an order book of Rs 900 crore, which will be executed over the next 12 months. Praj is gearing up to cater to the fastpaced growth in future by expanding its capabilities. It has increased its manpower and set up its second manufacturing unit at Kandla SEZ. It has also established a full-fledged research centre for bio-fuels to develop new technologies in this field.

* Article for information purpose only.

Fixed Maturity Plan

In this market scenario, investors are quite skeptical about investing in Equity & equity related funds. When most of the investors are in loss – FMPS come as a relief. 


Fixed Maturity Plan is a close-ended pure debt fund that is for a pre-stated tenure, ranging from 1 month to 36 months. The objective is to invest only in fixed income securities (with high quality credit ratings) like debentures of reputed companies or in securities issued by Government of India. These securities have a defined interest rate and a defined period of maturity. We receive this interest, typically every 6 months or a year, and at maturity, we receive the amount we originally invested and the due interest. Each AMC has a series of Plans, with different maturity periods. More Tax-efficient than other taxable fixed income options like bank deposits, from the point of view of post -tax returns depending on your (Investors) tax bracket. Pre-defined returns and maturity with varying maturity periods like 3 months, 6 months, 1 year, etc, subject to credit risk. The fund manager invests in fixed-income securities with high credit instruments in a manner, which ensures that the fund's holdings mature exactly when the fund is due for redemption, hence minimizing market/price/interest rate risk. 


FMP is the most friendly investment option if an investor is seeking- 
• Post tax returns that may work out to be higher than in other taxable fixed income instruments/bank deposits. 
• Pre-defined returns over a defined period of time comparable with high-grade taxable fixed income instruments/bank deposits. 
• Flexibility to withdraw your investments before maturity on specified dates at applicable exit load.


If you are wondering what is meant by Yield and Coupon Rate then lets clarify it. Coupon Rate is the fixed rate of interest on a debt security. Yield- is the rate of return on any financial instrument, normally expressed as a percentage. It is a measure of return on an investment, stated as a percentage of price. Yield can be computed by dividing coupon by current market price. Thus yield on the underlying instrument is the rate of return on any any tradable instrument which has a defined market price. Post-tax returns for long-term FMP (FMP of maturity more than 1 year) - Income from traditional fixed income instruments like bank fixed deposits are fully taxable, and attract the marginal rate according to the individuals personal income tax bracket. In comparison, since it is a mutual fund instrument, gains from investment in FMPs, if held for over one year and redeemed afterwards, are considered long-term capital gains. In the case of long-term capital gain, the investor is given the option of choosing between- 20 per cent tax rate with indexation benefit, and 10 per cent tax rate without the benefit of indexation. 


The Indexation Benefit allows you to reduce the extent of capital gains to be taxed, by adjusting it for the inflation between start and end period of the FMP. For calculating long-term capital gains, the amount invested is multiplied by the inflation multiple (Inflation Index for Redemption Year/Inflation Index for Investment Year) and then this inflated indexed cost is subtracted from the amount realized at redemption. The extent of capital gains gets reduced, and so does the tax liability.