Looking for options to overcome debts-Find out which is better bankruptcy or debt consolidation?

Most of us look for solutions to come out of debt. There are many options available, through which you can deal with your pay off your debts. Bankruptcy and debt consolidation are two such options. But, many of us land in a confused state of mind as to, which one should we go for? You must have always come across this question on your mind Which is better bankruptcy or debt consolidation? For this you need to understand your financial condition. Both have their pros and cons, so it will be better to understand these terms in broader sense to come up with a solution at hand.

What is Debt Consolidation?

Debt consolidation is a strategy used by debtors to manage their debts. It is a process through which you can consolidate your debts through one single payment. All you need to do is, take a debt consolidation loan to pay your unpaid bills, credit card bills and household bills. This enables you to pay one single lower payment on your individual debts. Once you clear off your unpaid bills, it helps in improving your credit ratings. In order to qualify for a debt consolidation loan, the lenders see that you should have the ability to make the new payments in time.

What is Bankruptcy?

Some of you might not qualify for a debt consolidation loan, and then you need to consider Bankruptcy as the last option. It is legal process and differs from traditional debt consolidation in many ways. It protects your assets from being taken off by lenders. It is Federal Bankruptcy Code and can of great relief from debt. Chapter 13 bankruptcy is a type of debt consolidation plan through a court of law. It allows you to structure all your outstanding debts into one single payment. All your possessions and assets are protected under this plan through court. It should only be adopted if there is no way out. The adverse effect is that it stays on your credit report up to10 years. All types of debt are not covered under bankruptcy. Some of which are government funded student loans, child support payments or alimony, certain housing cooperative fees, personal injury and damage caused by the debtor in an accident , fines and penalties owned to government agencies.

You should keep one thing in mind that neither of the two options offer everything. It depends on individual’s financial condition. So, it depends on you to decide which is better bankruptcy or debt consolidation? As it is an important decision, so it is advisable that you seek help from a professional financial advisor who can guide you to chose the right option according to your needs.

Know about interest rate being charged on personal loan

Most of us take personal loans but do not pay attention on interest rates being charged. There are some points regarding the interest rates such as what is period the lender charging the interest for and how the interest is being calculated?

The first question for what period is the lender charging the interest? Whether the interest is being charged is 2% monthly, 2% half yearly or 2% yearly. An interest of 2%, is compounded monthly works out to a yearly rate of almost 27%.

Then how the interest is being calculated? For instance a bank is offering a personal loan of Rs 50,000 at an interest of 12% p.a which is to be repaid over a period of 36 months. Therefore the EMI to repay the loan works out to Rs 1,890 p.m. Here the question arises how a bank can offer a loan at an interest rate of 12% per year, when the interest rate of home loans is similar.

The bank’s calculated EMI in the following manner — an EMI of Rs 1,890 p.m. means that for 3 years you will have to pay the bank Rs 68,040 (Rs 1,890 x 36). Of this the principal amount i.e. the loan you have taken is Rs 50,000. What remains is the interest. So an interest of Rs 18,040 (Rs 68,040 - Rs 50,000) will be paid over a period of 3 years.

Therefore the interest paid per year totals to Rs 6,013 (Rs 18,040/3). Thus an interest of Rs 6,013 p.a. on a loan amount of Rs 50,000 means an interest rate of around 12%. This way of expressing interest is known as the flat rate of interest. But this is not the correct way to calculate.

The actual interest should be 21.25%, which is 9% higher than what the bank makes it out to be.

Thus every time an when you pay EMI a certain part of the principal amount i.e. the actual loan that you had taken is repaid. Therefore, the interest at any point of time has to be calculated on the outstanding loan.

Thus this is the correct way of calculating interest and is known as the reducing balance method.

Interest rates on home, car and other personal loans set to fall

High spending consumers can now start planning for taking loans for various reasons as public sector banks and private banks too are going to reduce interest rates on loans therefore home, car and other personal loans are going to get cheaper.

Soon after the meeting with finance minister Mr P Chidambaram, public sector banks led by State Bank of India gave strong signals of cutting interest rates for home and car loans by at least 50 basis points. Earlier country’s largest lender, SBI, had promised to review its lending rates later this week.

In the meeting with Mr Chidambaram, the heads of public sector banks had discussed ways and means to protect the growth momentum from possible adverse effects of the current global financial meltdown.

After the attending the meeting, the heads of banks including UCO Bank and IDBI Bank announced reduction in benchmark Prime Lending Rates (PLR) by 50 basis points. Before the meeting SBI chairman Mr OP Bhatt had said, “Interest rate cut is on our agenda”.

Other banks who have announced reduction in PLR by 50 basis points include the country’s third largest lender, Punjab National Bank, and UCO Bank, IDBI Bank and Union Bank of India.

Interest rates on all loans given by a bank, fixed or floating are linked to the benchmark rate therefore cut down in PLR is of very important. Increase and decrease in interest rates on car, home or personal loans depend on the increase or decrease in PLR.

PNB was the first bank to announce a cut in lending rates and the Union Bank of India announced cut yesterday. Bank of India has also indicated that it would be deciding upon revising of interest rates very soon.

While the largest private sector lender, ICICI Bank, sources said it will be reviewing the lending rates after watching the impact of the liquidity injection steps taken by RBI last week. On Saturday RBI had cut the short-term lending rate by 50 basis points and the cash reserve ratio by 100 basis points.

The meeting was held between the FM and the chiefs of the banks after the Prime Minister and the industry leaders had met to seek appropriate measures to enhance liquidity and other steps to create an environment conducive for lowering of interest rates.

Deutsche bank launched branch in Pune

Deutsche Bank, a German financial sector is focusing mainly on personal and corporate banking segments showing massive growth potential in state of Maharashtra.

Deutsche Bank, on Monday, opened its 13th branch in India with an aim to attract German companies and major Indian corporates based in western Maharashtra region.

Addressing the reporters before the launch, Deutsche Bank India CEO Gunit Chadha said, “Even if the global financial services sector is experiencing turmoil, we continue to grow in India, which is our biggest market in Asia. Our focus remains on personal and corporate banking, which are among the largest segments for us.”

Currently Deutsche Bank is having a capital of Rs 6,900 crore though it is doing a business of Rs 23,000 crore within India. The bank is already having two branches in Mumbai carrying out operations each in Aurangabad and Kolhapur in Maharashtra.

“Maharashtra is a crucial state for us and we will continue to grow here. Pune is a crucial city considering the industrial belt it has around and a strong presence of German companies in this region,” he added.

The bank is having more than 3,000 employees in India and carrying out operations in cities like Mumbai, Delhi, Bangalore, Chennai, Kolkata, Gurgaon, Noida, Aurangabad, Kolhapur and Pune.

SBI to tap Bhopal circle

State Bank of India (SBI) is expanding its reach to the rising potential areas. Moving forward on this SBI is planning to tap the rising potential in the Bhopal circle.

SBI will get on with its expansion program in the Bhopal circle which covers subscribers in states of Madhya Pradesh and Chhattisgarh. The plan will be completed by next year and will require increase in headcount, branch expansion, more ATMs and creating alternative channels to offer banking services.

Dinesh Kumar Jain, chief general manager, Bhopal circle, told Business Standard reporter, “We will open 140 more branches to render our customer-friendly services in rural, semi-urban and city areas of both the states. There are newly developed townships, colonies and residential areas in towns like Bhopal, Raipur and Indore, where we do not have a presence but they have good potential in banking.”

The bank is employing the expansion program in a major way and will hire 20,000 personnel this year all over India. “Of those the Bhopal circle will accommodate 2,500-3,000 people in various cadres; clerks, recovery officers and officers”.

He added, “We have already recruited 900 clerks approximately this fiscal (March 2008) and we are in the process of recruiting more techno-savvy dynamic and energetic younger personnel in clerk, recovery and probationary officers grade. As many as 300 probationary officers and 1,100 recovery officers are likely to join the Bhopal circle.” Bank after viewing the record hits received at some of its ATMs, the bank has planned to set up more ATMs.

In addition, the bank is also planning to launch mobile ATMs in Bhopal and other big cities of the states. “We have plans to establish 350 more ATMs in Madhya Pradesh and Chhattisgarh,” Jain added, “the circle will soon start mobile ATMs in bigger cities. The facility is operational in Raipur of Chhattisgarh.”

Bank is having a deposit base of Rs 30,000 crore and advances have touched Rs 20,000 crore in Bhopal circle. Bank expects the deposit figure to go up to Rs 32000 crore (expected to touch Rs 30000 next week) advances to reach Rs 20000 crore vis-à-vis Rs 16000 crore as on March 2008.after the opening of the branch. “Our focus is to migrate people from bank and use an alternate channel to do banking. This will not only arrest the rise in our operational cost but we will be able to render more customer-friendly services,” he added.

The bank has already made signed agreements with few departments of the state government and is carrying out discussions to offer various services; payment of value added tax, power bills, excise and stamp duty payment and college fee payment.

Jain further added, “Some government department are already working with us and more are likely to sync with us through computer network to offer e-governance facilities.”

Standard Chartered Bank ‘1Money’ offer preferred mode of payment

Standard Chartered Bank, a largest foreign bank in India has launched ‘1Money’. Bank has designed a product to help the customers do away with multiple plastic. It is the first the first card which has combined benefits of a debit and a credit card. ‘1Money’, will give the customer the choice of using the same plastic as a credit card or a debit card.

According to the Reserve Bank of India in India there are about 26 million credit card and 70 million debit card users. Year-on-year this number is growing by 28% and 41% respectively and the value of transactions is growing in similar percentages by 20% and 37% respectively. Hence, it is time that the Indian consumers get the option to decide their preferred mode of payment through one plastic.

Speaking during the launch, Shyam Srinivasan, Country Head – Consumer Banking, Standard Chartered Bank, said, “Innovation has always been a key focus in our business strategy. As one of the premium issuer of cards in the country, we have always looked for customer feedback and translated it into the most beneficial products offered. We believe with this initiative Standard Chartered will be the harbinger of a new era in customer delight in the Indian banking industry."

Present on the occasion Sai Narain CDK, Head - Consumer Transaction Banking & Strategic Initiatives Standard Chartered Bank said, “To further enhance customer experience, we felt the need to launch 1Money. The card aims to give our customers the unique experience of using multiple cards while holding just one piece of plastic. It has been our utmost priority to provide unmatched services to our customers and with this new service, we also hope to reach out to new customers who have till date, avoided availing debit or credit cards due to hassles of maintaining multiple plastics.”

The key features of 1Money are:

• The customer will get Visa Platinum Platform related benefits
• Platinum events from Standard Chartered Bank
• Cardholder will get Free Priority Pass
• Free Dining Plus Card offering dining and lifestyle benefits across the country
• Cardholder can avail Petrol Surcharge waiver
• ATM / POS Debit usage of Rs. 200,000 per day
  

The annual fee of the card will be Rs. 6000. Initially the card will be launched in the key metros and later it would be rolled out across in other cities.

StanChart to go low on personal loan business

Standard Chartered Bank has decided to reduce its personal loans business and from now will be focusing on cross selling to its existing customers. The bank will also be tightening its processes of other unsecured lending products. By this move of bank a couple of hundred bank’s sales force is likely to get affected. Most of other banks are using direct sales agent (DSA) network while StanChart will be using its own sales force rather than the direct sales agent (DSA) network.

StanChart’s decision has come following the ICICI bank decision of focusing on selling its two-wheeler loans only to its existing customer-base. The banks decision has come in line with the increased delinquencies in this space for most players. The default in personal loan segment for most banks stands at 5-6%, as against 2% of the entire loan portfolio sometime ago. In the beginning, the rise in default for most banks was mainly in small-ticket personal loans. With the rising interest rates and the collection problems has affected the personal loan portfolio of most banks.

When enquired from Standard Chartered Bank head (consumer banking) Shyam Srinivasan said: “Stanchart continues to be focused on credit cards while focusing on the established existing customer base and new bank customers in targeted segments. On personal loans, given the market cycle at this point, we will offer the product only to existing customers of the bank.”

Most of the foreign and private sector banks have reduced the disbursements in the personal loan business and have also tightened distribution norms on the credit card side. StanChart will be selling personal loans only to its pre-qualified existing customer base, which have clear track records. The bank is having an internal customer-base of 2.2 million, including credit card, SME, saving and current account customers among others.

In the past couple of years the bank has cut down its credit card portfolio as well. In recent times, default on credit cards has gone up around 12% on an average for most players. According to sources this number is much lesser for StanChart.

According to bank officials the reason for the change in business mix is not related to the performance of its own portfolio. In the last few months leveraging among customers has increased. Currently StanChart is having around 60% of personal loan customers who are external customers.

In the credit card segment the bank has 1.38-1.4 million customers. Bank officials told, banks most important business is credit card segment, at present there are no plans to exit from it.

In the past few years, the bank for its credit card customers has increased income criteria. Now it is only focusing on the upper-middle and mass-affluent customer base; mainly with base annual incomes of over Rs 5 lakh. One-and-a-half years ago, this amount stood at around Rs 1 lakh and the bank is sourcing only around 10-15% of the customers in this segment. Sourcing is also done from StanChart’s internal customer base.

Another product on which the bank is focusing more on its internal customer base is the Smart Credit facility, using this facility customers can take overdrafts on their accounts.

In the past couple of years, StanChart has used its own sales force of around 1,800 people, rather than the direct sales force. A couple of hundred people are believed to have been affected by this decision, although this number could not be confirmed. Bank officials also added that all high-performers have been shifted to the mortgages, transaction banking and SME segments. At present, on the secured portfolio, the bank main focus is on mortgages, which is still seen to be growing strong.

It is believed that soon most players will be following the similar steps as defaults continue to grow.

Syndicate Bank re-launched gold loan scheme to widen its personal loan portfolio

Syndicate Bank, is the 7th largest public sector lender bank has head quarter in Manipal has re-launched its gold loan scheme, SyndSwarna Express. Bank has re-launched the scheme with an aim to widen its personal loan portfolio.

The bank, aims to distribute Rs 1,000 crore under the new scheme, during the present financial year. Under this scheme, one can pledge gold and can take the required loan for a maximum period of two years.

Bank is charging interest of 13.5 per cent on this loan as compared to the earlier 15.5 per cent during last fiscal. It will be lending up to Rs 850 per gram of gold. The bank will be disbursing loan through single windows opened at 300 designated branches across the country for the quick appraisal of gold jewellery and disbursal of loan amount.

Bank said by the end of the present fiscal the scheme will be extended to around 700 branches. Bank sources explained that there is no ceiling on the loan amount and no penalty will be charged for pre-closure of the loan account and the interest will be calculated on the reducing balance.

George Joseph, has taken over as the new chairman and managing director of the bank told Business Standard: “As part of our efforts to adopt a ‘Blue Ocean Strategy’ (creating uncontested market space), we have been introducing new products and gold loan scheme is one such scheme, which is not openly encouraged by public sector banks. For the first time, we are taking the gold loan product to the mass market in cities. Earlier, it was restricted only to rural areas where farmers were pledging gold to raise loans for meeting their agriculture requirements. But, now we have extended it to urban customers at competitive rates.”

Joseph added, “With this scheme, we want to help customers avoid private money lenders who charge between 18 per cent and 24 per cent depending on the tenor of the loan. Our single window will disburse the loan in five minutes”. But, bank will be charging a processing fee of Rs 1.50 for a loan amount of Rs 1,000.

During the financial year 2008-09, Syndicate Bank have plans to disburse Rs 1,000 crore, the growth is close to 17 times over last fiscal’s growth for this product.

Banks have started waiving penalties for loan prepayments

The domestic private sector and foreign banks charge prepayment penalties ranging between one and three per cent of the outstanding loan principal amount. As certificates of deposit (CD) have headed to breach the 11-per cent mark on the back of tight liquidity, banks are in progress of waiving penalties for loan prepayments.

Public sector banks have already started waiving the prepayment charges. But private sector banks are still to follow the suit. Get the updated interest rates for Personal Loan India here also read the articles about how to avail the best personal loan for you.

ING -Vysya Bank sources said, “We have already done away with penalties on partial prepayments.”

Earlier banks typically opposed prepayments when interest rates were low and liquidity was in surplus. Bankers said their decision has been influenced by tight liquidity conditions and soaring costs of working funds.

Bankers stated that three- month CDs were raised at 10.5 per cent. Inclusive of costs for maintaining mandated reserve ratios (cash reserve ratio of 9 per cent and statutory liquidity ratio of 25 per cent), the effective costs were closer to about 11.5 cent on the funds raised through CDs.

CDs are considered as part of banks net demand and time liabilities and consequently eligible for both CRR and SLR. Bulk deposits through CDs comprised at least 30-35 of private sector bank lend able resources. While of foreign banks, the ratios are closer to about 40 per cent. Also, retail deposits are close to 10 per cent.

Bankers informed that till the middle of last year, many banks did a thorough research of some of their home and auto loan portfolios. The securitized papers were positioned them with other financial institutions that included mutual funds and insurance funds. Such resources were free from reserve ratios.

Prepayments of outstanding loans are free from reserve ratios and this allows banks to add to lend able resources.

On the other hand some of the foreign banks have raised cross -border resources for meeting their lending requirements. But part of the cross-border resources is short term in nature which consequently has the inherent risk of mismatches. But cross- border funds are no longer cheap, unlike in the past.

Moreover, switching over to Basel II has also pushed banks to reduce the risk-weighted assets on their books. This year, complete banking sector will be becoming compliant to BASEL II. A shrunk asset book reduced banks’ capital requirements. This is particularly in a situation, when the capital funds in the domestic and international markets are becoming increasingly difficult. Domestic banks have been facing pricing pressures for making tier two bond issues. Tier two capital bonds for public sector banks are currently priced at well over 11 per cent, including placement and reserve ratio costs.

Bankers also said that in the current scenario of hardening interest rates, delinquency risks have risen. Delinquency has forced far higher costs on the balance sheets than prepayments. This is because the process involves large provisioning or preparing for a write-offs that could translate into losses.

FM to advice banks to be prudent on personal loans

The Reserve Bank of India (RBI) is taking anti-inflation steps to curb inflation. Recently in credit policy RBI has hiked the benchmark short-term rate by 50 basis points and also hiked the cash reserve ratio (CRR) for banks by 25 bps. Following this the finance ministry might advice public sector banks to moderate credit disbursal for personal loans so that productive sectors can get more money supply.

The ministry wants that banks should be more careful when distributing loans although country’s growth do not get affected directly.

It seems a message to this effect will be conveyed personally by finance minister P. Chidambaram to bankers when he will meet bankers for the review of credit policy.

Finance ministry on Tuesday issued a statement indicating towards the things to come. It said banks should take “prudent” decisions while distributing credit so that credit is made available to the productive sectors.

Expressing his views on the statement issued by the finance ministry a banker said, “This means that we would have to put a check on personal and retail loans”.

Commenting on the anti-inflation steps taken by RBI in credit policy the finance ministry said that theses steps will help in bringing inflation to a reasonable level which is now on the edge of 12%.

Further the finance ministry stated, “Government expects that the measures taken by RBI, in continuation with measures already taken over the last two months, will help in moderating and containing inflation”.

Currently inflation is ruling at 11.89%, which is much above the RBI’s comfort level of 5%. RBI is expecting that the monetary measures taken in the credit policy will bring inflation down to 7% by March next year.

Loan fair organized in North Dinajpur district for tribals in Islampur

A loan fair was organized for the tribals by the West Bengal SC; ST Corporation in North Dinajpur district with assistance of Islampur Municipality. In loan affair Rs 25,000 loans were allotted to 36 beneficiaries of the SC; ST categories. The loanee have received training on tailoring and handicraft from the West Bengal SC; ST Corporation.

In a speech the District Magistrate of North Dinajpur Mr Sukumar Bhattacharjee said: “It was an attempt to bring the SC, ST communities under income generating schemes. Soon a section of SC, ST population of Raiganj subdivision would be brought under the scheme.”

RBI bulletin show rise in small agri debts, fall in personal loans

In the latest monthly bulletin published by Reserve Bank of India the figures of agriculture credit sector clearly indicates that there has been increase in the number of small loan accounts held with nationalized and cooperative banks during last few years. According to the figures published there has been significant increase from 35.5% in 2004 out of the total small accounts to 41.8% in 2006, an increase of more than 17%.

However, during the same period, the share of small personal loan accounts has come down from 41.8% to 35.5%. But the share of small borrowers in the banking sector is still going down with their share of accounts dropping down from 96.4% in March 2001 to 90.3% in March 2006 and their share of the total loan volumes shrinking from 19.7% to 16.4% during the period.

Recently RBI conducted a survey of Small Borrower Accounts, which covered 33.8% of the 7.71 crore small borrower accounts with credit limits of Rs 2 lakh. As per survey details though the share of small borrowers continues to decline, the share of agriculture loans in the total small loans has increased substantially from 33.4% to 41.2% an increase of 8.8 percentage points just over in two years. Though the share of the amount outstanding against agriculture loans only went up from 29.1% to 31.1% during the period.

As per survey reports a considerable disparity has been found in the share of small borrowers across the states. The states with the highest share of small borrowers accounts were the poor and middle income states like Andhra Pradesh (94.2%), Bihar (95.9%), Jharkand (93.8%) and Tamil Nadu (94.5%) while that with the least share included rich states like Delhi (76.7%), Maharashtra (78.9%) Punjab (80.2%) and Haryana (82.7%). Likewise the share of small borrowers in total borrowings was found highest in least developed states like Bihar (56.9%), Assam (42.1%) and Orissa (41.9%) whereas it has been least in the developed states like Delhi (3.8%), Maharashtra (5.8%), and Gujarat (15%).

The RBI bulletin stated the worst impact has been seen on industry where the share of small borrower lending has declined marginally both in terms of number of accounts and amount outstanding to 3.7% and 4% respectively. According to figures of individual loans, the unfairness against women continues to increase.

There has been increase in the share of males both in total number of small borrower accounts and also in the amount outstanding, while the share of women has declined by 1.7 percentage points to 16.5% in the case of number of loans and by 1.1 percentage points to 13.9% in the case of loans outstanding....

BoM follow FM starts implementation of debt waiver scheme

On the direction of finance minister Bank of Maharashtra (BoM) has started implementation of the debt- waiver scheme for farmers.

Bank sources said instructions have been given to branches to identify the borrowers for waiver or debt relief and make them eligible for fresh finance.

To make the implementation of the scheme successful senior executives of the banks are visiting branches in districts across the country.

After collecting the data by 30th June bank will be displaying a list of all eligible accounts at the branches and work for making fresh finance available to all eligible farmers under the scheme will be started.

The scheme has been formulated with an aim to provide benefits to the small and marginal farmers by way of waiver of short-term production loans and overdue installments for the term loans taken by them.

Magma Shrachi Finance to launch personal loan by June

Financial Services Company Magma Shrachi Finance announced their entry into personal loan business, with main focus on rural and semi-urban market. Magma Shrachi Vice-Chairman and Managing Director Sanjay Chamria said preparations for the launch of the product in northern and southern India is complete and by June the product will be launched in all the locations.

He added "We are launching (the product) in 54 locations across India and already have set up our team to manage the business."

Company sources said at the time of filing to the Bombay Stock Exchange the company has a target of initial monthly turnover of Rs 30 crore and hopes to increase it up subsequently.

"The company will offer the product to salaried, self-employed professional and non-professionals," he said.

The company sources said that in the country several leading players have withdrawn from personal loan market but it will continue to focus on the rural and semi-urban market.

Retailers’ latest offer loans for shoes and groceries

People who are obsessed to purchases, but find hard to afford, there is good news for them retailers are offering a helping hand — with loans that are small and interest-free. Now you can take loan for buying even a pair of shoes or for your monthly grocery purchases with loans.

In New Delhi at Reliance Retail Ltd’s footwear store, Reliance Footprint, which opened in January, consumers can help themselves to zero-interest loans for as low as Rs5,000 on buying shoes.

For instance you like a-pair Gecco shoes prices at Rs18,000, but can’t afford it, the firm will promptly finance it through the company’s tie-up with ICICI Bank Ltd — also at zero interest. The customer should have a banking relationship with ICICI Bank or HDFC Bank Ltd. Recovering the loan is the task of the bank.

The plan, in its initial stage, is having very few takers; hardly 10 people have already purchased shoes through financing at the New Delhi store in the last five months. It is believed that in the near future the number will increase with the awareness.

Mostly people take loans for home furniture to consumer electronic items which run in the mid to high thousands, retailers say the loan size could go so low that consumers could fund even their monthly grocery purchases with loans. “The ability to convert a one-time investment into an over-a-period-plan always improves the purchasing capability of people,” says Muralidhara Kadaba, president and chief executive for finance and travel, Reliance. “You make customers aspire for things they otherwise may have postponed or might settle for something that maybe compromising.”

Pankaj Rana, a catering service business owner, hasn’t bought his groceries on loans yet, but has liked the loan idea. On a grocery shopping visit to Big Bazaar in Wazirpur in north Delhi earlier this month, he ended up buying an LG television set through finance. “I was walking around the store and saw the TV on display… Store staff explained the finance option and I liked it,” says Rana. “You pay Rs700-800 per month as installment and it doesn’t affect your pocket much.”

Not everyone is as easy to convince as Rana, and Reliance is finding out that the mindset is hard to change.

“People don’t want to take EMI (equated monthly installments) on shoes,” admits R.K. Azad, manager for the Reliance Footprint store in Mayur Vihar in east Delhi. Referring to the consumer mindset that prefers to pay through credit and debit cards rather than taking small loans he said, “Rather, they would use plastic money.”

Although, credit card loans attract an interest payment, the concept has been widely in use in India for well over a decade now. Retailers believe that loans still need to score through the mindset in a country raised on a proverb of “saving for a raining day”.

“Somehow it hasn’t picked up in India,” admits Rakesh Kakkar, chief executive of Future Money, the consumer finance arm of Future Group. According to Kakkar major share of loan for consumer products is restricted to “high-ticket” products, including LCD television sets and expensive furniture. He added if we compare globally, 30-35% of consumer durable items are purchased through financing while it is just between 4-5% in India. On an average at Future Group’s Big Bazaar hypermarket in Wazirpur, the number of consumers opting for loans to purchase consumer durable items is still very small. According to officials of hypermarket finances, there are about five consumers to buy electronic items to furniture in a month.

Undeterred, Future Group, the parent of the country’s largest retailer Pantaloon Retail (India) Ltd, company official on condition of anonymity because they are not authorized to give out the details for the plan this early said the company is planning to introduce a card where consumers can make purchases of up to Rs3, 500 on grocery shopping, because they are not authorized to give out the details for the plan this early. No further details were available.

“We may look at grocery (financing) sometime later,” Kakkar says, but he declined to comment on the card with a Rs3, 500 credit limit.

However Kakkar, informed that company has plans to introduce loans for purchases of Rs5, 000 on apparel, jeweler and health and wellness products among others from the current minimum finance of Rs7, 000 on consumer electronics and furniture in the next two months.

Reliance Retail is also planning to launch cards which will allow consumers to shop on credit at Reliance Retail-owned stores. Similarly, Reliance also plans to widen the reach of its financial arm, selling everything from loans to insurance to a large number of its stores.

Besides this India’s largest discount retailer Subhiksha Trading Services Ltd has also tied up with financial firms to offer loans on mobile phones priced at Rs5, 000 and above. But it is sceptical whether consumers would want to buy their monthly grocery through financing.

“I am not very sure that customers are looking for financing for grocery at the moment,” says R. Subramanian, managing director of the Chennai-based Subhiksha. “It’s a month-on-month thing and why would anybody need financing?” he asked. Sharing his experiences in selling mobile phones through financing, he says, “Typically, nobody avails loans for buying mobile phones for Rs3, 000.”

Schoolteacher Ritu Sood is a case in point. She has a budget of about Rs10, 000 per month for her family of six, but it’s a clear “no” for her when it comes to taking loans on her grocery purchases.

“I don’t think so….We don’t need loans on that,” she says while pushing a trolley of grocery items in Big Bazaar in Wazirpur area.

However, Azad is trying to convince middle-class Indians that it’s okay to walk in borrowed shoes.

SBI, GE Money to expand JV to personal loan and credit insurance segments

State Bank of India (SBI) and GE Money are trying to repair their joint venture after a brief period of strain over bad debt and losses at SBI Cards, the country's second largest card company. The SBI Card JV will continue to operate, under two separate JVs: SBI Cards & Payment Services Pvt. Ltd. (SBICPSL), which focuses on the marketing and distribution of SBI Cards, and GE Capital Business Processes Management Services Pvt. Ltd. (GEBPMSL), which handles the technology and processing needs of the JV.

SBI and GE Money have jointly announced to expand their 10 year old strategic partnership to a new level of growth and expansion in the future. A meeting was held between Mr. O. P. Bhatt, Chairman, State Bank of India and Mr. Yoshiaki Fujimori President & CEO, GE Money Asia in which it was decided SBI and GE would maintain the same percentage of ownership in both the ventures.

The JV partners also agreed to nominate Mr. Diwakar Gupta, one of the top executives of State Bank of India, as the CEO of SBI Cards & Payment Services Pvt. Ltd.

Under the new strategic initiative, SBICPSL will be better positioned to participate in the high-growth consumer financial services industry by offering other consumer financial products, such as personal loans and credit insurance, effectively expanding the scope of the JV. This move is a natural extension of the JV's leadership in the credit card space, and the success enjoyed by both partners. By cross-selling related financial services and products to its existing large pool of customers, the JV will also be offering an enriched portfolio of products to help customers realize their financial needs.

GEBPMSL will control the scale of its processing platforms to serve other providers in India, in addition to SBI Card's products and services.
After the bank's annual results Mr Bhat told the reporters that the bank has plans to turn around the cards business. He pointed out," India's rapidly expanding financial services sector offers several business opportunities and State Bank of India will be pleased to exploit these opportunities, in partnership with a global giant like GE, wherever possible."

He added SBI was also unhappy with GE's decision to partner LIC for its credit card venture. However, with GE Money reviewing its Indian operations, the senior management has not shown much interest in pursuing the venture. LIC's MoU with GE entered into last year was valid for 90 days and has since expired. The card business was to be launched on April 1, but there has been no movement on this business. LIC may review its business plan in consultation with Corporation Bank.

GE Money personal loans, mortgage biz portfolios find no takers

GE Money India wants to sell its mortgages portfolios and personal loan and has been searching for the right party but it seems, it has not been able to find the takers for its portfolios. Although some interested parties have quoted but it has not been up to the mark of the company’s expectation. The bidders are of a view that this can ultimately lead to the proposed divestment plan being scrapped.

According to sources recently the bidders have informed Morgan Stanley, advisor to GE Money India that their assessments are in the range of $150-200 million. Whereas GE Money had pegged the base price of these two businesses at $400 million - the amount it had invested in them - and was looking for a premium over this.

They added the businesses, which are on the block have lost their charm as the result of the US subprime crisis and subsequent depreciation of personal and mortgages portfolios across the globe. Subsequently the portfolio quality has also declined for most of the players in India because of the aggressive methods being used by the collection agents hired by the regulators.

Experts are of the view that the situation is unlikely to get better in a year or so.

"Under the changed scenario, the attraction for GE's businesses could be their network. But we did not find merit in quoting more than $200 million for the network which we can built across the country in a year or so," said a source close to one of the bidders. It has 180 offices in 120 towns with 450 full-time employees and 2600 contingent staff.

A source close to another bidder said, "We are not very confident about quoting anything near to GE's expectation as we believe delinquencies in most retail businesses in India are going up, with GE being no exception. In fact, that's why big banks are slowing withdrawing themselves from the personal business."

When ET reporter contacted GE Money India, the company spokesperson said, "As mentioned in the past, we have received strong expressions of interest for a likely partnership for our wholly-owned personal loans and mortgages portfolios. The process of review is still underway and hence we will not be able to respond to speculations or make any comments until such time that a final decision is made. GE Money remains steadfastly committed to India as a market for long-term growth and investment."
Code-named 'Project Intrepid', four months ago GE had put GE Money Housing Finance (excluding home loans distributed through a JV with Wizard home loans) and the personal loans business known as GE Money Financial Services on the block.

Around 40 companies including Tata Capital, Future Group, India bulls, the Aditya Birla Group and Carlyle carried out the due diligence. Reliance Capital had stepped back from the race in the initial days of the sale process citing the “high asking price.” GE Money India has planned an arrangement with Australia-based Wizard Home loans, a subsidiary of GE Money worldwide.

GE Money announced about this planned tie-up in September 2007. Company officials had talked of a $200-million equity investment and of building $2-billion home loan portfolio by 2011.

Enjoy foreign trip, pay in EMIs

To go on a foreign tour for vacation is no longer a dream. This vacation enjoy with your family in Bangkok and pay in EMIs, this mantra being chanted by travel agencies to attract customers who wish to go to Bangkok and Malaysia but unable to afford the trip.

The agencies, in alliance with banks, are offering loan facilities for customers to pay for membership in holiday clubs.

Sony Mehta, the owner of Skyline Travels, pointed out that they are providing loan through a tie-up with ICICI Bank.

“We have tied up with ICICI Bank for personal loans. Our customers can pay EMIs according to their convenience. The trend of taking loans for vacations is slowly catching on as several people want to visit places such as Singapore, Mauritius and Bangkok but cannot get the money up front,” Mehta said.

He added this has also made possible for the middle class, “easier even for the middle class to enjoy foreign tours, which was not a possibility some time ago”.

“They can take a loan for a trip and, in some cases, need to pay EMIs of only Rs 3,200 for three years. This is an easy system,” Mehta added.

The travel agent reported that this season the craze to travel abroad on vacations has increased. “We already have 10 clients who are going to Bangkok on bank loans,” Mehta added.

Neeraj Singh, the proprietor of Club Mahendra Holidays, said they have introduced a 25-year membership option. Membership fee ranges from Rs 1.31 lakh to Rs 6.65 lakh.

“We have 3,700 resorts all over the country and a member can holiday in any one of our resorts located at places such as Manali, Goa and Bangkok. We have facilities such as kitchens at these resorts,” said Singh. Apart from this members can also get a week of free holiday every year.

Regarding the loan repayments Singh said, members can pay EMIs of Rs 3,201. “This summer, demand has been pouring in for memberships and we have approximately 300 to 400 members in Jharkhand. More are joining,” Singh added. Anuj Kapoor, a government official, has also planned spending his summer holiday at Bangkok.

“It was through our friend that we learnt about the loan facility for holidays. My family was quite happy to hear about such an option,” Kapoor added.

Government to control inflation is attempting to lower personal loan growth

The government on Friday in a reply to question said in order to control inflation it is deliberately attempting to slow down the growth in personal loans.

Minister of State for Finance P K Bansal told Lok Sabha in a written reply in 2006-07 there was a growth of 23 percent in personal loans which was lower than the overall credit expansion. Adding to this he said government is following a policy to encourage growth while disallowing inflationary pressure.

In reply to another query, he said present there is no scheme before the government to lower the rate of interest to four per cent per annum on crop loans availed by farmers.

He informed that the government is giving interest financial support of two per cent per annum to public sector banks, regional rural banks and cooperative banks on their lending.

With regard to shortage of coins Bansal, in reply to a separate question, said shortages of coins have been reported from various parts of the country around second half of 2006-07, after which the casting of coins and their distribution through RBI has been accelerated and steps are being taken to meet the demand.

The demand for 50 paise and 25 paise coins is less as compared to coins of Re 1, Rs 2 and Rs five denominations, he added.

To another query, he told the RBI has got complaints about few instances where it has been noticed the attempts were made by some persons to use plastic cards other than credit/debit cards at ATMs to effect withdrawal of cash, particularly in Chennai.

Fitch Ratings expects defaults in unsecured personal loans in India to increase

Personal loans are usually fixed rate loans, and are unsecured in nature. They do not carry any guarantee, collateral or guarantor. Given their unsecured nature, personal loans are not pleasant to the same recovery efforts that are seen in other asset classes.

Fitch Ratings said personal loan financing in India is very competitive business and this might have pushed many institutions to initiate loans in riskier segments.

According to Fitch Ratings defaults in unsecured personal loan sector in India will continue to increase. In its recently published report titled 'Indian Unsecured Personal Loan Transactions', Fitch has stated that the loan performance has continued to worsen in India since July 2007. In support to this, the rating agency had noted that delinquencies in the personal loan sector have been higher than those seen in other asset classes.

"Since then, loan and recent events have seen some lenders criticized for their recovery strategies, which in some cases may have led to other borrowers willfully becoming delinquent," Fitch said.

In response to the advertising of the engagement of recovery agents, the Reserve Bank issued draft guidelines to all scheduled commercial banks in its medium-term review of the annual policy for 2007-08 in November 2007.

In its report the rating agency stated that the immediate impact of rising delinquencies in unsecured consumer loans is on declining collection efficiencies in personal loan transactions mainly because banks are resorting to a softer recovery approach in the form of legal notices and increased phone calls.

In the long run, the regulator seems to make banks more accountable for their third-party recovery agents.

Banks going for strict norms for personal loans to keep borrowers at bay

When you enquire from the banks whether they are going slow on personal loans you will get answer as No. But there are some subjective evidences which points towards it. The banks have intentionally stopped promoting it as a product and laying more stress on home loan and educational loan melas.

Then what is the reason for this becoming an unpopular product? There are a number of reasons for not being too aggressive about this product now. Bankers, not wanting to get his name disclosed said, “The default rates are on the rise; we have to make higher provisioning to cover the risk weights; and this is making the product more costly leading to higher default. The monitoring mechanism is not easy. Borrowers prefer to default on personal loans since there is no collateral that can be seized. It is a vicious cycle.”

Banks directly are not rejecting the loan applicants but have fixed more stringent norms to keep such borrowers at bay. Selective private banks in the South when asked they said they have had revised the parameters to make it a ‘well-structured’ product. One of such new norm says - not to lend loans to people who have held a job for less than 3 years.

Earlier banks used to give personal loans if you had been employed in a place for at least one year time period but now these straightaway rule are going to set as rolling stones for those who hop for jobs every year.

An official maintain that “We found every 10th such account giving us problems. This clause disqualifies those that hop jobs more frequently”.

Banks are stressing more on investing in stock market due to which they have started refusing personal loans, for purchase of unapproved site and to those that do not have a monthly salary.

Even the loan amount approved has also come down. The approvals do not exceed five times the gross annual income as compared to seven times the gross income sanctioned earlier.

Though, some banks are stepping ahead of sanctioning loans for conducting a daughter’s marriage or some other personal function at home.

The official referring to the marriage advance said, “Personal loan is relationship banking. And such advances have not gone bad”. It seems you have to play the sentiment card to get a personal loan now!

Public Sector Banks impose virtual ban on personal loans

The number of defaults has been on increase due to which banks are not willing to sanction personal loans to the customers. Some of the public sector banks have even imposed a virtual ban on personal loans (which are also called clean loans as they carry no security on them), while in private banks there has been a considerable slowdown in the pace of these loans.

So if you have any plans of taking personal loans to meet any expenses then it is better to go for any other option.

While some public sector banks have imposed a virtual ban on personal loans (which are also called clean loans as they carry no security on them), there has been a significant slowdown in these loans in private banks.

“It is true that the personal loan market is tight and there is more caution among the banks. As some banks would be Basel-II compliant by the end of this month, there is more focus on risk mitigation,” Mr Amitabha Guha, Managing Director, State Bank of Hyderabad (SBH), told Business Line.

According to sources many banks, including State Bank of Hyderabad, Andhra Bank, Vijaya Bank and Bank of India, have taken back the power from the branch manager of sanctioning loans and the zonal offices have been given the discretion or the centralized retail asset processing centers have been authorized with this power. “Clean loans are a strict ‘no’ in our bank now though you cannot get any thing on record. The increasing defaults and recovery difficulties are behind this,” a senior official of Andhra Bank said.

However no coverlet ban has been imposed officially, the bankers are devising their own ways of discouraging the customers.

Mr Nagendra, who works for a private firm have sought for a personal loan from Central Bank of India branch, confirms this that the banks are not willing to sanction personal loans.

“I have been asked to produce salary certificates and bank statement for last three years besides property documents in my name for a clean loan of Rs 50,000,” he said.

Even the major private banks like ICICI Bank and HDFC Bank have tightened up their procedures by revamping the score system.

“Compared to last year, there has been a 30-35 per cent increase in the rejection of personal loan applications in the last six months due to tough due diligence,” an ICICI Bank official said.

“The fact that banks are ready to lose a lucrative interest income ranging up to 22 per cent shows things are not well,” an official in SBH Retail Assets Central Processing Centre here said.

Arcil plans to float an independent company to take over bad retail assets

There has been rise in defaults in the personal loans segment and to clean up their balance sheets the banks have been selling their bad retail assets to Asset Reconstruction Company (India) Ltd (Arcil). In view of this Arcil has is planning to float an independent company to arm to take over bad retail assets.

According to sources “Arcil is close to floating a company over the next month. We are talking to FIIs and banks to bring them together to form a company”. But it’s not clear whether the private company would require getting a license from RBI. As per sources RBI had earlier turned down Arcil’s proposal to float a subsidiary for its proposed retail venture. Asset reconstruction companies act as debt collector and acquire non-performing assets (NPAs).

Amongst private sector banks Arcil is handling Rs 800 crore of bad retail assets from ICICI Bank. Several public sector banks have also approached Arcil to take over their bad retail assets. Up till now Arcil has acquired bad loans from 47 banks and financial institutions in the country.

As per Crisil report, gross NPAs in retail loans are set to rise to 4% over the next two years from 2.7% at end-March, 2007. Dues across all retail asset categories have gone up and are likely to rise further in 2008-09.

For corporate bad assets, there are slew of measures, including Corporate Debt Restructuring, BIFR and Debt Recovery Tribunals, are avenues for resolving bad debt, whereas in the case of retail loans every debt will have to be handled individually. “Greater attention will be given to resolution of loans. The tenure for loans may be extended to address credit stress,” an Arcil official said.

The average expected rate of return for retail loans is around 20%. The average size of a bad asset in the retail portfolio is much smaller therefore it is more difficult to resolve. “The rate of return could be about 8-10% for a retail loan, but if one takes an average for a package of loans it could even be 20%,” a source said. Whereas rate of return of bad corporate assets range between 20-25%.

According to experts except home loans, all other assets in the retail portfolio register a fall in price. In the case of housing loans, real estate prices have appreciated; hence the pricing for such assets will be different.

Banks are now reluctant to get rid of their bad industrial assets since these accounts are revolving well on the back of improved fundamentals in the economy. They are gambling on fundamental real estate assets backing these bad accounts.
Pricing is an issue for most banks.

According to analysts so far, Arcil was the only major asset reconstruction company, making pricing for bad assets uncompetitive. But with the opening of 4-5 ARCs the pricing for bad assets will improve.

Bank defrauded of multi-crore by well renowned school

The multi-crore fraud came into light when some teachers discovered about personal loans against their names after the death of the chairman, management committee Dr Shyam Sunder Sharma (42) on January 15. According to bank reports personal loans against 30 staff members, including teachers and 297 students. But according to sources the names of all 297 such students mentioned in the list are not on the school rolls.

The case seems to be first of its kind in which the Chairman of the management committee of Doon Dhruva Public School, a well-known ICSE-affiliated residential school near here, has fraudulently took personal and educational loans worth crores from a nationalized bank in the name of staff members and students by forging their signatures and using bogus documents

In 2006 for this school a special scheme of educational loan was approved by the bank. According to the sources the total outstanding amount of both types of loans is estimated around Rs 8 crore even as the bank authorities claimed it to be around Rs 4-5 crore. Everything appeared to be okay as per the bank’s auditing report as repayments of the loans were being made regularly. After the untimely death of Mr Sharma the repayments stopped.

It is also bizarre that the branch manager concerned did not know that more than 500 signatures and documents were fake.

After the exposure, regional manager of the Central Bank of India J.R. Sharma personally supervised the investigation and removed the manager K.J. Rawat of the Sela Qui branch of the bank after discovering the grave lapses committed by him in executing the loans.

Sharma in his statement to The Tribune said, “As per a preliminary inquiry, we have found the branch manager prima facie guilty of not executing the loan documents in his own presence which he must have done as per banking rules. This cannot be possible without his connivance. The inquiry is on but I must tell you, this is the first case of its kind in my 35 years’ banking career”. The matter has been taken up to the higher authorities of the bank and all accounts operations with school have since been stopped.

The school was started four and half years ago, run by All-India Nilkanth Educational Society, Delhi, has 310 students from all parts of the country as well from Nepal and Bangladesh. It has 305 students on rolls, including 205 boarders. Its chairman Dr Sharma was a chartered accountant in Delhi before starting the school. His wife and vice-chairman Purnima Sharma, who has been personally looking after the school after her husband’s demise, pretended ignorance when asked for her comments on the whole matter.

Loan at low interest rate to Class III, IV staff to buy computer

The standing committee had approved the civic administration’s decision to extend the loan facility provided to its Class I and II employees as also to its Class III and IV employees for purchase of computers.

In a query by corporator Sunil Gogale, civic administration said, “The loan facility at cheaper interest rate to purchase computer for Class III and IV employees have received the standing committee and general body approval. However, there has been increase in the loan amount from Rs 25,000 to Rs 40,000 made by the general body meeting and it needs another approval for its implementation.”

But the civic administration’s much overvalued decision to give loan at lower interest to its class III and IV employees for purchase of computers remains wedged in the administrative process.

The civic administration said it has planned implementation of the proposal and is waiting for the go ahead indication.

According to the proposal, an employee can take loan up to Rs 40,000 or the maximum cost of the computer at an interest rate of three per cent. The loan should be repaid in maximum of 60 monthly installments.

However the loan facility have a condition attached to it that the Class III employees should have certificate in basic computer applications and should have completed service of minimum five years. The Class IV employees should have completed service of minimum 15 years.

BOI slashes rates on retail loans

State run Bank of India (BOI) reduced interest rates on retail loans.

A senior official informed about reduction of interest rates on retail loans by between 25 basis points and 250 basis points which would be taken into consideration from February 1.

D. Krishnamurthy, general manager of credit at the bank told that the rates on auto loans and personal loans have been cut by 250 basis points whereas the rates on home loans of up to Rs 0.2 crore have been cut by 25 basis points.

Whereas he added the revised rate for home loans up to Rs 0.2 crore is 9.75 per cent and interest rates on educational loans have also been reduced by 100 basis points.

Bank of India has not touched 13.25 percent, its prime lending rate or the rate at which it lends to its best borrowers.

Long queue of buyers for home and personal loan portfolios of GE Money

GE Money Financial Services had announced selling of personal and home loan portfolio of General Electric’s consumer finance company. There is a long queue of portfolio buyers. Around a dozen players, from India as well as foreign, have shown their interest in buying these divisions. The list includes Kishore Biyani’s Future Capital, the Tata group’s recently-floated financial services firm Tata Capital, private equity investors such as Carlyle Group, ChrysCap, Newbridge Capital, Cambridge Place and the Temasek subsidiary Fullerton. Amongst the large banks like HDFC Bank and Deutsche Bank also seems to be interested. It will take a few months to finalize the deal that might get GE Money a assessing close to Rs 1,000 crore.

According to sources GE Money’s advisor, Morgan Stanley is having talks with these players for the portfolio sell-off. But it is not clear whether GE will be offloading the entire portfolio. Other Indian entities interested in GE Money are Anil Ambani’s Reliance Money and Indiabulls.

When contacted, the GE Money spokesperson told that it was looking for a strategic partner for its “wholly-owned personal loans and mortgage portfolio only.” However, she declined to give out the names of bidders. She said: “It is too early for us to give a definite answer. GE Money will continue to build on its partnership in SBI Card and continue to invest in its fast-growing Wizard Home Loans JV, as well as to seek growth opportunities in other segments. GE Money remains committed to India as a market for growth and investment”.

As per sources, the deal is seen as a ‘complex transaction’. “The value of the operations lies in GE Money’s network since a large part of its business in India is mortgages and barely profitable,” said a source. Most of the players, who are interested in the deal, are quite new entrants keen to expand their operations in the country. HDFC Bank and Deutsche Bank are also said to be looking at the transaction.

Last year GE Money profit declined to Rs 10 crore as against Rs 50 crore in the previous year. It is having a Rs 6,000-crore loan book dominated by residential mortgages. In the loan book home loans is at the top accounting for over 50% of the portfolio while the remaining is personal, auto and consumer durables loans.

Dhanpal Zaveri, who has recently joined the Future Capital board, is negotiating on behalf of the Biyani group. Till last year he was associated with Sterlite Industries’s ADR. When contacted, officials at Future Capital and Tata Capital declined to comment on the development.

Picking up GE’s consumer finance business will be helpful for Future Capital to scale up its presence in the country. The company’s consumer finance business, Future Money mainly target at the middle and mass end of the consumption market with a retail credit plan that will cover every aspect of consumer finance from credit cards, auto and consumer durable finance, mutual funds, insurance, money transfer, financial planning, microfinance and mortgages.

It has started rolling out Money Bazaars across the country. Tata Capital too has ambitious plans. Six months ago the group had announced that Tata Capital will project into capital market services, merchant banking, housing finance and private equity investments, assets and vehicle financing and retail finance. Sources said acquiring of GE Money will give Tata Capital a major entry into the retail financing space.

GE Money India looks for partners for personal loan and mortgage biz

Mr Iqbal Singh will be taking over as CEO and President of GE Money India from February 1, said GE Money India is surveying for a strategic partner for its wholly-owned personal loans and mortgage businesses.

“My priority would be to find a strategic partner for personal loan and mortgage businesses so that it would fit in with our rest of the model. I also want to look for new opportunities for growth. It may look from outside that we are selling off and getting out. I won’t be coming here to India if we are looking to completely exit these businesses”, Mr Singh told Business Line here today.

Mr Singh the newly appointed CEO said that GE Money India is even prepared to give up calculated interest on the wholly owned personal loans and mortgage businesses to the identified strategic partner if a strong brand, good customer base, distribution and products are brought to the partnership.

Before becoming a CEO and President of GE Money India, Mr Singh was Chief Marketing Officer for GE Money Asia and CEO of the Singapore business. In India, Mr Singh will be replacing Mr Vishal Pandit who has now decided to pursue opportunities outside GE.

On his new role, as CEO and President of GE Mr Singh said that he was “pretty excited about India” given its growth trends. “We think the future is here. We want to invest in India and want to grow. We have a great platform of businesses in place. We need to see how we can up the scale in terms of momentum and get to scale much faster than we had originally hoped”, he said.

Speaking about the partnerships Mr Sing said they are really moving ahead. He said that such partnerships in various markets including Korea, Indonesia, Turkey, Latin America and India will create the synergies that work well for GE Money.

“Increasingly, we are looking at partnerships as the way to go. In a way this is not new to us. We would tie up with large retailer groups and launch finance program or cards under their name. Those were more in the nature of a programme. We have now taken it to the next level where we are actually running the partnerships. That’s the way we see us growing. In the same way, we don’t want to keep GE Financial Services in India as standalone. We are looking for strategic partner that would help it to scale,” he said.

In India GE Money is already having partners the State Bank of India (credit card joint venture) and Wizard (home loans). A Memorandum of Understanding has also been signed between GE India and LIC of India.

According to Mr Singh mortgages and credit cards are the big growth drivers of GE Money India in the coming years.

PSU banks plan to give soft loans to newly TRPs

A few state-owned banks are functioning on a scheme to give soft loans to newly-minted tax return preparers (TRPs) for buying office equipment such as personal computers to help them start business in the current assessment year.

“The loan scheme would be normal commercial transactions with much easier terms,” said a finance ministry official. Details on loan costs were not available, but state-owned banks currently offer education loans of up to Rs5 lakh at interest rates between 11% and 11.5%. Banks started working on the loan scheme after industry body Indian Banks’ Association agreed to the finance ministry’s request to help TRPs, the official added.

TRPs will be unique as they will receive a financial incentive from the income-tax department to bring in new tax assesses, this is the first time in the department’s history that outsiders will be paid for widening the tax base.

At present, 3,545 people have qualified as TRPs. As many as 1,254 people who have got TRP training, but were not able to clear the final test in the first around, will get another chance for the test soon, the official said.

The training program for TRPs was completely funded by the government, which held a qualifying exam last year to shortlist people for the training. The income-tax department will formulate a strategy to constantly monitor the quality of work done by TRPs.

Work on the TRP scheme started sincerely after finance minister P. Chidambaram, during his Budget 2006 speech, said it would be introduced.

Generally individual taxpayers take help form Chartered accountants (CAs) to file their income-tax returns if they choose not to do it on their own.

But the Institute of Chartered Accountants of India (ICAI) is not happy with the TRP scheme. It has requested the income-tax department to take a re look at the scheme. Ved Jain, the institute’s vice-president said that ICAI feels that only CAs are capable and have requisite skills to handle tax returns. TRPs, unlike CAs, can not be allowed to take up statutory audits such as the ones that are needed to be filed by companies. In addition, the income-tax department has restricted TRPs’ probable client base and limited the fees they can charge.

A TRP will not be able to file the return of anyone with an annual taxable income above Rs3,00,000 and their fee has been capped at Rs250. The government, however, has tried to encourage TRPs to widen the tax base by giving incentives that exceed Rs250 in the event they file returns on behalf of a first-time assesses. Every addition to the tax base of about 3.27 crore assesses (end-March, 2006) through a TRP will result in an incentive of 3% of the tax return, subject to a ceiling of Rs1,000.

Once a new assesses files a return for the first time, he/she is likely to continue filing returns annually. This will help the income-tax department write off the relatively high initial expenses over a long period and keep the tax collection costs in line with the average.

Last year the finance minister said the cost of tax collection in India is 0.67% of the total tax collected, it is lowest in the world.

Rise in Credit card due to loss in small ticket personal loans

A report by Crisil Ratings stated that loss levels in small ticket personal loans and a portion of credit card receivables, which are at present at 7-9 per cent, can rise to 10-13 percent in three years.

Describing this section as ‘sub-prime’ assets in the Indian context, the report stated that these are unsecured loans between Rs 5,000 and Rs 25,000-30,000. Out of the total credit card received, about 15-20 per cent comes in the profile of low income groups.

Mr Tarun Bhatia, Head, Corporate and Government Ratings stated that the total retail assets of the Indian banking industry are about Rs 4 lakh crore. From this the portion of the ‘sub-prime’ section is about 5 per cent or Rs 20,000 crore.

There was a sharp point of failure during September-October 2007 due to the slowdown in recovery efforts, following the controversy over recovery methods of some banks.

Mr Bhatia said that there will be a slowdown in this section and some banks might exit the small ticket loans segment in the future.

It is considered that the retail segment which saw a compounded growth of 30-40 per cent two years back, is likely to see a growth of 20-25 per cent this year.

Delinquencies across all retail assets are likely to increase.

An increase is expected in the gross NPAs in home loans, which comprises over half of total retail loans, to 2.7 per cent in 2008-09, from 2.2 per cent in March 2007.

Whereas the gross NPAs for car loans are likely to go up by 3 per cent (2.3 per cent) and for commercial vehicles it is likely to increase by 5.5 per cent (4 per cent).

The Public sector banks may see higher NPAs as their risk management systems and collection practices are not as effective as their private sector counterparts

Mr Bhatia said that PSU banks are getting into the retail asset classes without fully understanding it. As per now even that problem had been resolved to a large extent.

When asked about the profitability of banks, Mr Bhatia informed that it will remain under pressure and might see a fall of 15-20 basis points in 2007-08, because of high cost of deposit.

As most of the banks have taken advantage of the rising equity market and this would be reflected in their profits.

Mr Bhatia stated for the next six months a reduction in lending rates on the retail side is unlikely in the near term, as deposit costs are still high and the Reserve Bank of India too had not reduced rates.