MANAGEMENT LESSON

-       Once upon a time, a very strong woodcutter asked for a job with a timber merchant, and he got it.
-       The pay was really good and so were the work conditions.
-       For that reason, the woodcutter was determined to do his best.
-       His boss gave him an axe and showed him the area where he was supposed to work.
-       The first day, the woodcutter brought 21 trees.

-       “Congratulations,” the boss said. “Go on that way!”
-       Very motivated by the boss’ words, the woodcutter tried harder the next day but he only could bring 17 trees.
-       The third day he tried even harder, but he only could bring 10 trees.
-       Day after day he was bringing less and less trees.

-       “I must be losing my strength”, the woodcutter thought.
-       He went to the boss and apologized, saying that he could not understand what was going on.
-       “When was the last time you sharpened your axe?” the boss asked.
-       The woodcutter replied : “Sharpen? I had no time to sharpen my axe.
-       I have been very busy trying to cut trees.

"JUST HARD WORK IS NOT ENOUGH TO ACHIEVE SUCCESS,

WORK SMART AND WITH THE RIGHT ATTITUDE TO ACHIEVE SUCCESS IN LIFE".

L&T Mutual Fund to now manage Rs. 12,800 crore for 9.5 lakh investors.

L & T Mutual Fund’s AUM jumps from Rs 3,842 crore in September 2012 to Rs12,800 crore. The AMC will be catering to around 9.5 lakh investors from 200 cities and towns.

“The decision to acquire Fidelity’s mutual fund business in India was made with an aim to become the best value provider of investment solutions across asset classes. With this acquisition, our fund suite spans the whole range of investment opportunities – equity, fixed income, hybrid, domestic and international funds – and moves us closer to becoming one of the country’s leading and admired asset management companies.We now have a high quality business that combines best-in-class practices, a strong domestic brand, market knowledge and a proven performance track record,” said Y.M.Deosthalee, Chairman & Managing Director, L&T Finance Holdings.

The fund house will now be offering 25 funds, amongst which few popular funds are L&T Tax Advantage Fund, L&T Equity Fund, L&T India Large Cap Fund, L&T Triple Ace Bond Fund, L&T India Special Situations Fund and the L&T Global Real Assets Fund, which feeds into Fidelity’s Luxembourg-based SICAV – Fidelity Funds Global Real Asset Securities Fund.  

“The comprehensive fund range, proven track record, geographical reach, our commitment to distributor training and investor education, and the support of our investors provides an opportunity to take the All New L&T Mutual Fund to the next level. We have significantly enhanced our capabilities in all areas including equity and debt fund management, operations and customer service,” said Ashu Suyash, CEO, L&T Mutual Fund.

What is CRR, SLR, Repo Rate and Reverse Repo Rate?

Reserve Bank of India plays an important role in controlling the interest rates in the banking system, by adjusting the liquidity in the system.

How RBI control the interest rates in India? If you want to understand the above, we should understand certain commonly used terms by RBI.

These are CRR, SLR, Repo Rate and Reverse Repo Rate.

What is Cash Reserve Ratio (CRR)

Each bank has to keep a certain percentage of its total deposits with RBI as cash reserves. It is called Cash Reserve Ratio (CRR). On 30^th October.2012, RBI reduced the CRR by 25 basis points to 4.25%. If the bank is having a deposit of 100/-, it has to keep Rs.4.25 as cash reserve with RBI and it can use only the balance 95.75 for lending or investments.

What is the role of CRR in the banking system

RBI uses CRR as a means to control the money supply in the system. When the money supply is on the higher side, RBI will increase the CRR to reduce the supply and vice versa.

What is Statutory Liquidity Ratio (SLR)

Every bank has to maintain at the close of every day a certain percentage of its total liabilities (Deposits) in cash, gold or government approved securities. This is called SLR. At present, the SLR is 23%.

What is the role of SLR in the banking system

Its role is more or less similar to CRR and controls the money circulation the banking system. If RBI wants to suck, excess liquidity from the system, it will increase the SLR. Banks will be forced to keep the higher percentage as liquid assets and its power to lend will come down.

What is Repo Rate

When banks require short term money, RBI will lend member banks against securities held by them. RBI will charge interest on these loans and this rate of interest is called Repo Rate. At present, Repo Rate is 8%.

What is the importance of Repo Rate in the economy

When RBI wants to decrease the lending activities in the country, it will increase the Repo Rate. Once the Repo Rate is increased, the cost of funds to banks from RBI will increase and it will in turn increase the lending rates to customers. This will reduce the lending transactions. But if the RBI feels the need of more lending activities, it will decrease the Repo Rate and reduce the cost of funding. This will translate into lower rates on loans and lending will pick up.

What is Reverse Repo Rate

If banks have excess amount with them, they can park the surplus money with RBI and earn interest on this. The interest on such amount is called Reverse Repo Rate. At present the Reverse Repo Rate is 7%.

RBI will increase the reverse Repo rate, if it wants to reduce liquidity in the system. Banks will be tempted to park money with RBI rather than lending, if this rate is high. At present Reverse Repo Rate is kept 100 basis points below Repo Rate.

By adjusting CRR, SLR, Repo Rate and Reverse Repo Rate, RBI will ensure that the banking system is working fine.  It will adjust these factors to promote an orderly growth of the economy by controlling interest rates and liquidity in the system.