If you are in the mood for some bank bashing, check out this wikipedia link. This page lists a few atrocities committed by ICICI bank in India while trying to recover loans.

And yeah, ICICI bank is not a local operation fronted by thugs but is India’s largest private sector bank and its ADRs are listed in NYSE .

Are the allegations about the bank true?

Some may not be true. But a majority are and such behavior even led to the bank being fined 5 million INR by the Delhi Consumer Commission.

Is this the general state of debt recovery in India?

Yes. Banks routinely employ collection agencies and outsource debt recovery to them. There is no supervision or formal processes involved and the agencies operate on a commision based on the amount recovered.

Since the agencies are interested only in maximizing their commission, they routinely take shortcuts by employing thugs who take to beating up borrowers.

Was this the case in India always? Are all the banks involved in this type of behavior?

A short history lesson…

The largest 14 banks in India were nationalized in the 1960s and the general behavior of banks then was to classify unrecoverable loans as NPAs (Non Performing Assets). Of course, this led to banks with huge bad debts in their balance sheets and the system was a mess.

When India started liberalizing in the 1990s, many private banking licenses were granted – ICICI bank was one among them. These banks learnt quite a few lessons from the experiences of the nationalized banks and from the Indian financial environment:

1. Reduce NPAs in balance sheet – ICICI bank is a special case here. The bank was started as a division of ICICI (Industrial Credit and Investment Corporation of India) which was a development finance institution started by the Indian Goverment and the World Bank to fund businesses in India. ICICI itself had a significant amount of NPAs, thanks to giving loans to bad businesses, often under political pressure. I can just imagine all those bankers sitting in a conference room and going – “NEVER AGAIN.”
2. Stockmarket pressures – These banks started at the same time that the Indian stock market started booming. And the principal criteria used to value banks was their balance sheet and no bank wanted the albatross of NPAs.
3. Pressure to grow – India has the world’s largest middle class – 300 million people. In the 1990s, everyone started talking about this and banks wanted to take advantage of this number. So they started offering loans (secured/unsecured) to anyone they could get their hands on. Yes, even we have stories of dogs and kids getting credit cards
4. Good old fashioned greed – For all its flirtations with socialism, Indians are capitalists at heart. And of course, greed is good.
5. No Regulation or Enforcement - It took some time for the customers, consumer advocates and courts to wake up to this problem. The Supreme Court of India banned banks from employing recovery agents but enforcement of these rules has been lacking.

The funny thing – only private banks (Citibank, Amex, Standard Chartered, HSBC…) seem to be involved in such sordid stories. When banks were nationalized, you had more stories of bankers being beaten up for trying to collect loans!!!

Guess this is the revenge of the bankers…

Final Note:

The purpose of this post is three fold:

1. Name and shame banks like this – If you are an employee of any of these banks, please wake up and realize that you need to help your bank clean up its act.
2. Give this information to current and potential customers - Now does this mean I am asking you to stop banking with these people? NO. All I am asking is for you to be aware. And if the banks still haven’t improved their collection practices, take a hard look at your relationship with them.
3. Start looking at systemic changes - Many of these banks have started improving their collection practices and there has been more enforcement of existing laws. We also need more consumer oriented laws like in the USA.

Q: When is 15% savings not enough to retire?

A: When you are a woman.

Consider this:

As a woman, you are more likely to

1. Be out of the workforce to take care of children or parents for 1-3 years on average
2. Be living longer than  your husband
3. Be earning less than men in comparable jobs – the famous 23% wage gap where women earn only 77cents for every $ earned by men
4. Be working in a part-time/non-profit job with no/minimal retirement benefits

So the next time you look at an online retirement savings calculator that says you should save 15% if you are below 30 years of age, please ADD ATLEAST 1% MORE for each of the points above that apply to you. Since 2 & 3 apply to nearly all women, you should be looking to save at least 17% of pre-tax income.

Then we come to the other half of retirement savings – investment. Most women have one or both of these two problems while investing:

1. Not understanding or knowing the latest options/information available – this can range from not knowing that maximizing a Roth IRA is better than funding your regular IRA all the way to not knowing the latest interest rates for savings accounts.
2. Not taking enough risk – A majority of women have their money in “safe” investments like CDs that do not maximize returns over the long term unlike stocks.

If you are currently not investing in stocks either because you do not understand them or because you are afraid, ADD ANOTHER 1%. Then sit down and start educating yourself on investing for the long-term!!

And the proof that you need to save more is right here:

Google search of “savings women” – check out how the first article is for women to save more. Of the top 10 links, 6 are exhorting women to save more. And “Did you mean to search for” shows a very helpful “savings when“. And the kicker – 4 links are advertising products. Now when does shopping for stuff help you save money? The answer: NEVER.

Google search of “savings men” -  the first article is about shopping. Of the top 10 search results, 3 again talk about how women trail men in savings.

The bottomline: Everyone agrees that women need to save more than they currently are and learn about investing for the long-term. And help is right here for you to start

I came across this essay titled “Democracy in Corporate America” by John Bogle while blog hopping. In this essay, Bogle puts across the following points:

1. Shareholder interests are rarely served by companies these days.
2. Boards are not independent but loyal to managers.
3. Managers have become all-powerful and are misusing their power by fudging earnings and rewarding themselves disproportionately large bonuses.
4. Managerial thinking is more short-term.
5. States and the federal goverment have not come out with rules to help this situation.

And this is the state in one of the most developed countries in the world !!

This got me thinking about the situation in India, especially about the big soap opera that the Reliance split was. For the uninitiated, Reliance industries is a Fortune 500 company and is also India’s largest private sector company. It was started by Dhirubhai Ambani and his two sons, Mukesh and Anil, inherited it. Sibling rivalry led to the split of the company into two in 2005 and this deal was brokered by their mother, Kokilaben.

And the best thing about this – everyone, and I mean EVERYONE, went along with this. There was no noise from shareholders about this issue. The split ended up giving all energy related businesses to Mukesh and financial/telecom businesses to Anil.

The problem: Mukesh was the telecom visionary but his long term strategies were now lost to that business.

Since this was a huge conglomerate and had been split into two, there was a major unlocking of value and the stock price shot up for both companies. That made the average stock holder who preferred short term gains over long term strength happy. And it sickened long term investors like me who now have to study two separate companies while making investment decisions

I have now realized that making companies accountable is a problem everywhere in the world and it also tough to get governments to help out with this issue. Being a shareholder in both India and USA, hopefully I can help educate investors in both countries about this problem.

Once I decided to take control of my finances, the easiest way for me to track accounts, manage expenses and calculate networth was to use personal finance software. I will be reviewing some popular and not so popular money management products that I have used.

In each review, I will also be rating the software on some parameters that are important for me:

a) Price (Free/Ouch) – I prefer free software. Yes, this means losing out on good systems like Quicken and Microsoft Money. It also means that the replacements may sometimes not be fully featured and may lack customer support. An open source alternative like GnuCash does not have a 1-800 number you can call for questions. However, the price makes it perfect for me and I do not mind haunting support forums and googling for answers.

b) Platform (Online/Desktop) – I am still ambiguous as to which platform i prefer. Any decision will be based on

• Security – Restricting my software to the desktop takes care of security issues. But I also use online bank accounts and the standary security practices like 128 bit SSL encryption are generally safe, notwithstanding the high profile data breaches one hears about.
• Flexibility - If my accounts are online, I can access information even when i am at work. Or on vacation. But beware : At one point, my homemade excel sheets were residing in Google docs and I ended up on vacation to a place with no internet access. Go figure My solution these days : Have a daily backup/sync routine between the desktop and ipod. Wherever I am, my ipod is with me and as long as the computer has a USB port (which is a standard issue these days), I am all set to access my data.

c) Budgeting (Yes/No) – I do not budget to the last dollar. What I have are spending categories and I know how much i generally spend in each category. Some like rent are constant and I don’t track them each month. However, i track my groceries a lot as the amount can vary wildly from month to month, depending on whether i have a carbohydrate craving or have jumped on the eat natural bandwagon. Any software i look at should allow me to set up my own spending categories. Mint has finally added the budget feature and is now in my list of software to try out.

d) Complete Picture - If I am a starving college student, the total of my bank balances would be enough for me. All I would need to know : You have less than 5$ in the bank – so DO NOT buy that latte. Now that I have 401K, Roth IRA and investment accounts spread across two continents, any number shown to me must include the latest information on all these accounts. And yeah, that number needs to be displayed in atleast 2 currencies Most of the products out there work well for investments in USA but suffer if you get out of the country.

e) Fancy Schmanzy – This is all those graphs and charts which should always show that my networth is increasing and I have no debt (crossing fingers ) . Achieving this in a home grown system is not impossible but I have realized that I will never know all the features of Microsoft Excel and in fact, do not want to. So pictures are in and any software that can do that with my numbers gets a vote.

f) Setup / Maintenance Time – Since I need to work on this blog (a lot !), software that has a great degree of automation built in helps. Setup time needs to be low. I need software to automatically connect to my accounts, download information and refresh all my balances. My maintenance activities should be restricted to looking at reports and updating my budgets.

Finally, these are the things i can live without in my software:

1. Social whatever – I prefer reading personal finance blogs for saving and investment tips. Being a compulsive reader, I know that the quality of advice and interaction in the blogosphere is greater than any other single website can give me.
2. Email/SMS notification – SMS is very costly and I hate reading stuff in small screens. And since I am connected to the internet 24*7 and battling with information overload, I would prefer one less email in my inbox.
3. Latest and greatest - I still haven’t understood why many popular software products are updated every year. I can understand fixing of security bugs but at what point do you realize that it is software and NOT BLOATWARE? It is ok for me if the IRA contribution limit for the current year is not there. I can get the information online and I can update the value manually.

For the uninitiated, NRI is a Non Resident Indian.

There is your dollar, sitting in

• checking accounts with no interest,
• savings accounts earning less than 1%, or
• money market / high yield savings accounts earning around 5%.

As you track the consistent fall in the greenback’s value and wonder whether something can be done, look no further than the home country.

The simple math: Savings accounts in the US are currently yielding around 5% annually. In India, you can get 6.5% for the same money.

Consider this scenario – you want to buy a home and would like to  save around 10 lakhs in two years. If you send the money to your recurring deposit account in an Indian bank @ 1000 dollars a month, you will have 996,688 rupees after year 2. Holding the amount in dollars will net you 26,290. At the current exchange rate of 39$, you will fall short by 15000 rupees.

Of course, this assumes that the exchange rate will stay closer to 40.

Here’s a probably stupid and I hope to be proved wrong prediction: I think the rate will go down all the way to 35 Rs for each dollar. This would mean converting at the end of year 2 leaves you with a shortfall of 115,181 rupees.

My 2 cents – if you plan to use the money in India within the next 2 years, it is better to have your savings in rupees.

1. Budgeting – If you have overspent on Food, the software will show you what you need to do – stop eating outside, cut down trips to grocery. Many software have budgeting modules that let you set monthly targets for how much to spend.
2. Manage payments – You will know how much balance you have left on the credit card, what is the minimum payment, what is the interest rate on the auto loan, when is the county tax due for your house….If you are planning a Debt Snowball to get rid of debt, a software will help you figure out the lowest debt and will calculate how long it will take to be debt free.
3. Automate savings – “Pay yourself first”, this basic rule can be implemented easily with software that lets you set up a direct deposit with your bank.
4. Help at tax time - When was the last time you used a real live person to help with taxes? And even if you did, what did they use to help compute your taxes? A personal finance software gives you all the information you need during tax time to simplify the data collection process.
5. Track net worth – It is not the salary, stupid!!! It is the net worth – that number which tells you that you have more assets than liabilities or that you have a huge amount of debt and need to start paying it down fast. A software gives you the overall picture and you will know whether you are on track.
6. Visual Representation – You will be able to track your debt, savings, investments on a daily/weekly/monthly/yearly basis with graphs and charts offered by many personal finance software.
7. Access to information – If you are a road warrior, text messages, email and RSS feeds will help you stay on track.
8. Social Networking – You will know exactly where you stand in your peer group – people with your education, people of your age, people in your industry, your state. You will be able to swap ideas with them and help each other out.
9. Planning for huge expenses – Buying a home, paying for college, saving for retirement – Software helps you come up with a target, a plan and tracks your progress.
10. Inventory of expensive artifacts – You can take pictures and scan price tags of costly articles and store them. This inventory will help to get insurance and calculate your net worth.

Yes, this is yet another personal finance blog. So why should you include this in your reading list?

A few reasons why this blog may help you:

• You are not in debt upto your eyeballs on credit cards and pay day loans. Paying your balance off each month comes naturally and any further debt you take on will only be for “good” things like buying a house or student loans. I will be discussing strategies and issues surrounding these loans as I am currently evaluating going for an MBA and also have plans to buy a house in the next five years.
• A portion of your finances is tied to India. This could be because you are an India, will be living in India for some time, plan to retire there or would like to know more about investing in India.
• You deal with dollars. I am currently a resident alien in USA and will be for the next few years. I have learnt a lot about spending, saving and investing in this country and would like to share that with you.
• You are a nerd and are interested in a systematic approach to your personal finances. I have used difference financial software and will be reviewing them. I also have elaborate systems constructed to invest and save and will be blogging about them too.
• You are a woman and are sick and tired of every financial guru talking down to you, not giving you facts in plain English but attacking your emotions/feelings on money.

Mostly, with this blog, I will not be addressing issues like “ohmigod, i have credit card debt because i spent and spent and do not know what to do”. I hold “Spending less than you make” and “Pay yourself first” as self-evident truths and will try to go beyond them.

Here’s hoping you have as much fun as I am going to

Cheers,

zzz