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!
Thursday, March 13, 2008
Wednesday, March 12, 2008
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.
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.
Wednesday, March 5, 2008
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.
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.
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