Public sector banks are going easy on personal loans, good news for people are in need of money can apply for personal loan. Earlier PSBs were abstaining from giving personal loans but now they are loosening the strings on personal loans.
Mr J.P. Dua, Executive Director, Allahabad Bank, told Business Line, “Personal loans are again becoming a significant segment of retail portfolio. In fact, it is time the public sector banks occupied the space vacated by private sector majors such as ICICI Bank”.
On the other hand, till last year private banks, were going aggressive on personal loans lending but now they are getting cautious due to high default rate. They are not focusing much on retail.
For instance ICICI Bank largest private sector bank retail portfolio has decreased to Rs 86,400 crore by September 2009 as against Rs 1,22,500 crore a year ago.
Mr R.S. Reddy, Chairman and Managing Director, Andhra Bank, informed, “In our retail growth, personal loans too are a part. We are offering them along with other products such as gold loans.”
A senior official of State Bank of Hyderabad pointed out the PSBs are charging relatively low interest in order to attract loan seekers.
He stated, “Generally, the interest on personal loans is about 200 basis points more than prime lending rate. This is much lower that charged by private banks and non-banking finance companies”.
However private banks and NBFCs are charging between 16 and 24 per cent, for the loan amount ranging between Rs 50,000 and Rs 2 lakh which is to be repaid in 24-36 months.
A senior SBI official informed, personal loan is being looked as a ‘good’ segment and it is not reluctant’ to expand advances.
Also low credit off take in other sectors (such as corporate lending) is responsible for increased interest in personal loans.
As per RBI data, this fiscal (till October) the bank credit had grown by 4.5 per cent as compared to 12.1 per cent last year. While on a year-on-year basis, it had grown 9.5 per cent as against 28 per cent last year.
The main aim is to tap existing customers. Mr Dua said, “This approach keeps our portfolio healthy.”
According to Mr Reddy, “Catering to the needs of our customers alone can be generating good business”.
SBI country’s largest public sector will be considering the loan on a case-to-case basis for salaried categories even though they are not bank’s customers.
During the diligence process some of the other parameters that are taken into consideration are clean credit history, salary credit into a bank account and high disposable income.
Monday, November 23, 2009
Wednesday, September 2, 2009
Fulfill pre-conditions to take Personal loans
To get a personal loan one has to fulfill pre-conditions such as a professional degree, a salary account or being an existing customer. Earlier personal loans were classified as unsecured loans but now this concept has changed and now these loans are linked to an existing relationship with a bank. Generally banks for sanction of these loans, ask for a salary account and the loan is linked to the monthly salary which show the cash flow of the borrower.
Private Banks have now started focusing on the salaried class or in-house customers similar to the public sector banks, to upsurge their unsecured loan portfolios. Before this private banks used to sanction these loans did not ask for collaterals in case the individual had a good credit history. Borrowers’ salary slip was enough to get a loan. But now banks are checking the customers’ financial status, work experience and about the company where the borrower is employed. According private bankers, “A customer could take a loan on the strength of a good credit history and use it to have multiple loans from various banks. These kinds of loans are getting weeded out”.
After the tightening of norms, the private banks such as ICICI Bank, HDFC Bank and Kotak Mahindra reduced their lending rates to about 15-18 per cent. The industry sources informed some of the banks used to charge 25 per cent or more on such loans before the tightening of norms. The interest rate varied for different customers.
Kamlesh Rao, executive vice-president of Kotak Mahindra Bank pointed out, “Because of rising defaults, private banks are going slow on granting unsecured loans, particularly those based on credit history. All of them have become extremely cautious.” “These loans are less than 2 per cent of our portfolio of unsecured loans.”
Kotak Mahindra Bank’s preferred customers for these loans are self-employed traders and salaried people who on average apply for loan size of Rs 7.5 lakh. The bank unsecured loan book amount to Rs 1,300 crore.
Bank’s loan division informed earlier Citibank used to be liberal in sanctioning unsecured loans, now the bank has put pre-conditions such as professional degree, preferably an MBA, engineering degree, or be a chartered accountant, according to the bank’s loan division. In case the borrower has an account or credit card with the bank, then bank give preference to these borrowers.
On the other hand it is not mandatory to have a salary account for HDFC Bank, but in-house customers are preferred. The bank charges high pre-payment penalty of 4 per cent on outstanding loan. Till last year ICICI Bank was the one to sanction maximum number of personal loans, has now stopped giving small-ticket unsecured loans. By the end of the first quarter bank unsecured loan book amounted to Rs 768 crore. At present bank is busy in rebalancing its funding profile before it starts working on building its growth.
The public sector banks on the other hand are expanding their personal loans portfolios aggressively by giving loans to only those customers having salary accounts with them. The public sector banks are following the cash flow-based model in which the salary is attached to the loan account and the due payment is deducted directly from the salary account every month.
The State Bank of India country’s largest lender is offering loans at 12.5-15.5 per cent to the borrowers who have salary accounts with the bank. An official of the bank told, “Our delinquency rates are very low as we base it on this model.”
SBI is having a personal loan portfolio of Rs 37,538 crore after a 16 per cent growth since last year. Bank is focusing on existing customers and the well off segment.
Private Banks have now started focusing on the salaried class or in-house customers similar to the public sector banks, to upsurge their unsecured loan portfolios. Before this private banks used to sanction these loans did not ask for collaterals in case the individual had a good credit history. Borrowers’ salary slip was enough to get a loan. But now banks are checking the customers’ financial status, work experience and about the company where the borrower is employed. According private bankers, “A customer could take a loan on the strength of a good credit history and use it to have multiple loans from various banks. These kinds of loans are getting weeded out”.
After the tightening of norms, the private banks such as ICICI Bank, HDFC Bank and Kotak Mahindra reduced their lending rates to about 15-18 per cent. The industry sources informed some of the banks used to charge 25 per cent or more on such loans before the tightening of norms. The interest rate varied for different customers.
Kamlesh Rao, executive vice-president of Kotak Mahindra Bank pointed out, “Because of rising defaults, private banks are going slow on granting unsecured loans, particularly those based on credit history. All of them have become extremely cautious.” “These loans are less than 2 per cent of our portfolio of unsecured loans.”
Kotak Mahindra Bank’s preferred customers for these loans are self-employed traders and salaried people who on average apply for loan size of Rs 7.5 lakh. The bank unsecured loan book amount to Rs 1,300 crore.
Bank’s loan division informed earlier Citibank used to be liberal in sanctioning unsecured loans, now the bank has put pre-conditions such as professional degree, preferably an MBA, engineering degree, or be a chartered accountant, according to the bank’s loan division. In case the borrower has an account or credit card with the bank, then bank give preference to these borrowers.
On the other hand it is not mandatory to have a salary account for HDFC Bank, but in-house customers are preferred. The bank charges high pre-payment penalty of 4 per cent on outstanding loan. Till last year ICICI Bank was the one to sanction maximum number of personal loans, has now stopped giving small-ticket unsecured loans. By the end of the first quarter bank unsecured loan book amounted to Rs 768 crore. At present bank is busy in rebalancing its funding profile before it starts working on building its growth.
The public sector banks on the other hand are expanding their personal loans portfolios aggressively by giving loans to only those customers having salary accounts with them. The public sector banks are following the cash flow-based model in which the salary is attached to the loan account and the due payment is deducted directly from the salary account every month.
The State Bank of India country’s largest lender is offering loans at 12.5-15.5 per cent to the borrowers who have salary accounts with the bank. An official of the bank told, “Our delinquency rates are very low as we base it on this model.”
SBI is having a personal loan portfolio of Rs 37,538 crore after a 16 per cent growth since last year. Bank is focusing on existing customers and the well off segment.
Friday, July 31, 2009
Personal loan figures are lowest amongst various loan segments
The Reserve bank of India (RBI) has released a data according to this industry and agriculture sectors have absorbed a larger amount of the total gross bank credit while in the personal loan segment it is limited also home loans and credit cards has shown decline.
The figure of loans given to the real estate sector is high as it includes all the loans given to the development of hospitals, educational institutes, hotels and commercial finance. The real estate industry has absorbed 47.4% of the total bank credit against 43.2 per cent a year ago.
On the other hand personal loans, such as housing, credit card outstanding, education, consumer durables, and advances against fixed deposits amounted to 7.6 per cent of the incremental non-food credit therefore shows limited lending in this segment. By the end of May, the total amount of personal loans has declined to Rs 29,266 crore as against Rs 72,777 crore a year ago.
According to M Narendra, executive director, Bank of India, “Credit absorption by infrastructure companies have been encouraging, we expect other segments to fall in line with the busy season in the second half. With the economic conditions improving and interest rates going down substantially, housing should see a revival this year. In fact, home loans have started improving, but credit cards are down as banks are cutting back on their losses”.
Steep rise in real estate prices in metros is also responsible for the dull demand home loan segment. By the end of May home loans stood at Rs 13,028 crore, whereas total home loans at the end of May 2008 amounted to Rs 31,735 crore. There was decline in the credit card outstanding by May-end which had come down to Rs 381 crore as against Rs 7,116 crore in the corresponding period a year ago.
However the education loans showed a substantial growth with the total outstanding of up to Rs 7,338 crore by the end of May 2008 from Rs 5,914 crore a year ago, the reason being most of the banks especially the public sector banks had aggressively increased their portfolios.
A decline was seen in the negative growth in consumer durable loans of up to Rs 300 crore at May-end as against Rs 534 crore at the end of May last year.
RK Bakshi, executive director, retail, Bank of Baroda explained, “The growth in credit deployment was lower in 2008-09 because of the economic slowdown in the normally busy season of second half of the year”. In fact the growth in loans to the commercial real estate, continued to be high. In May 22 the loans to the real estate sector had risen to Rs 32,321 crore from Rs 17,018 crore at the end of May 2008.
The figure of loans given to the real estate sector is high as it includes all the loans given to the development of hospitals, educational institutes, hotels and commercial finance. The real estate industry has absorbed 47.4% of the total bank credit against 43.2 per cent a year ago.
On the other hand personal loans, such as housing, credit card outstanding, education, consumer durables, and advances against fixed deposits amounted to 7.6 per cent of the incremental non-food credit therefore shows limited lending in this segment. By the end of May, the total amount of personal loans has declined to Rs 29,266 crore as against Rs 72,777 crore a year ago.
According to M Narendra, executive director, Bank of India, “Credit absorption by infrastructure companies have been encouraging, we expect other segments to fall in line with the busy season in the second half. With the economic conditions improving and interest rates going down substantially, housing should see a revival this year. In fact, home loans have started improving, but credit cards are down as banks are cutting back on their losses”.
Steep rise in real estate prices in metros is also responsible for the dull demand home loan segment. By the end of May home loans stood at Rs 13,028 crore, whereas total home loans at the end of May 2008 amounted to Rs 31,735 crore. There was decline in the credit card outstanding by May-end which had come down to Rs 381 crore as against Rs 7,116 crore in the corresponding period a year ago.
However the education loans showed a substantial growth with the total outstanding of up to Rs 7,338 crore by the end of May 2008 from Rs 5,914 crore a year ago, the reason being most of the banks especially the public sector banks had aggressively increased their portfolios.
A decline was seen in the negative growth in consumer durable loans of up to Rs 300 crore at May-end as against Rs 534 crore at the end of May last year.
RK Bakshi, executive director, retail, Bank of Baroda explained, “The growth in credit deployment was lower in 2008-09 because of the economic slowdown in the normally busy season of second half of the year”. In fact the growth in loans to the commercial real estate, continued to be high. In May 22 the loans to the real estate sector had risen to Rs 32,321 crore from Rs 17,018 crore at the end of May 2008.
Monday, July 27, 2009
Loans are good or bad?
Most of us have taken loan but we don’t know how to classify the loans whether it is good or bad?
A loan which adds to your earning capacity or taken for increasing productive skills then it can be classified as good loan. In case a loan is taken to meet some emergency must not be classified because it is must it cannot be good or bad.
For classification of loan the purpose for which it is being taken is important. Therefore the other deciding factor is the cost.
The cost effectiveness of the loan is related to the purpose for which you are taking loan. The education loan taken for higher studies or the student is from poor family and cannot continue his school; this loan is classified as good because this will generate significant earning capacity in relation to their cost and are available at a low interest rate. On these loans there is tax reduction facility which reduces the post tax of the loan.
The second purpose can be loan taken to fund the cost of your own residence such as renovation or adding a floor. Usually the price of this asset increases in value and will be the source of pension income or retirement by means of reverse mortgage.
The third purpose can be to buy a vehicle reasonably priced. This can add up in your productivity which is getting low because of the bad condition of public transportation in most of the cities in India.
Another reason for taking loan can be for funding expensive/luxury consumer items. With the booming of malls there has been increase in the usage of plastic money which means more and more swipe giving rise to more and more debt.
Then the credit cards having high debt for longer duration can land you in a financial crisis. Thus the loan against credit card should not be more than 30-45 days, as bank charge high interest on this.
Some people take loan for tentative purposes such as for investment in stock market. This is not right this can put you in miserable situation. Whenever there is set back in the share market you might face a great loss, such situation came in the last fiscal year when there was global economic crisis.
Hence before taking loan keep in mind these points which can help you in taking the right decision.
A loan which adds to your earning capacity or taken for increasing productive skills then it can be classified as good loan. In case a loan is taken to meet some emergency must not be classified because it is must it cannot be good or bad.
For classification of loan the purpose for which it is being taken is important. Therefore the other deciding factor is the cost.
The cost effectiveness of the loan is related to the purpose for which you are taking loan. The education loan taken for higher studies or the student is from poor family and cannot continue his school; this loan is classified as good because this will generate significant earning capacity in relation to their cost and are available at a low interest rate. On these loans there is tax reduction facility which reduces the post tax of the loan.
The second purpose can be loan taken to fund the cost of your own residence such as renovation or adding a floor. Usually the price of this asset increases in value and will be the source of pension income or retirement by means of reverse mortgage.
The third purpose can be to buy a vehicle reasonably priced. This can add up in your productivity which is getting low because of the bad condition of public transportation in most of the cities in India.
Another reason for taking loan can be for funding expensive/luxury consumer items. With the booming of malls there has been increase in the usage of plastic money which means more and more swipe giving rise to more and more debt.
Then the credit cards having high debt for longer duration can land you in a financial crisis. Thus the loan against credit card should not be more than 30-45 days, as bank charge high interest on this.
Some people take loan for tentative purposes such as for investment in stock market. This is not right this can put you in miserable situation. Whenever there is set back in the share market you might face a great loss, such situation came in the last fiscal year when there was global economic crisis.
Hence before taking loan keep in mind these points which can help you in taking the right decision.
Friday, July 24, 2009
Personal loan ideal for short term need
Personal loan is a unsecured loan and can be taken for certain purposes such as for renovation of house, to meet medical expenses, foreign travel, marriage expenses, purchasing consumer durables, higher education etc. But personal loan has set of advantages and disadvantages attached to it. The main advantage of a personal loan is the flexibility as it can be used for any purpose. Even the application process is comparatively simple with minimal documentation requirements. As the loan is unsecured thus there is no need for any kind of security or guarantor.
Although it appears to be good but these loans are quite difficult to acquire exclusively as these are unsecured. To get this loan the eligibility criteria depends upon the applicant’s income credit history with regard to any other loans and repayment capacity. The interest rates offered on these loans can vary between 15-25 percent depending on the credit profile, income level, and nature of employment of an applicant. If bank find a higher risk in lending to an applicant it might not sanction the loan or charge a high interest rate together with additional security in the form of a personal guarantee.
The loan amount to be sanctioned generally depends on personal income along with other factors like age, profession, education and repayment capability if any other loans have been taken etc. All these factors are also taken into consideration for setting the interest rates. For instance the interest rate might be lower for a person working with a reputed firm as compared to a self-employed person. The tenure for repayment of loan is normally between 12 and 60 months. Generally these loans are not sanctioned for more than five years.
The EMIs are calculated for the repayment of the loan and if a person wants to do prepayment of loan a penalty is charged. The processing fee might be calculated as a percentage of the loan amount for the documentation and verification formalities. Before signing on dotted lines one must study terms carefully whether there are any additional charges or penalties.
Some banks might set flat rates for personal loans. Apparently the rates might look lower than even the current home loan rates. But in actual the flat rate do not reflects the actual cost of the loan. Indeed the effective rate is much higher. It is included in the EMI and person pays it on a reducing balance basis. For instance a loan of Rs 1 lakh figured out at a flat rate of 12 percent with an EMI of Rs 3,800 for 36 months in fact is worked out to an effective interest rate of 22%.
Approximately the total interest of Rs 36,800 works out to a yearly interest of Rs 12,226 and in the same way the rate of 12 percent is quoted. This will be correct in case a person is paying onetime interest at the end of the tenure of the loan. EMIs are calculated from the first month on the principal outstanding, the interest is normally charged at 22%. Therefore check for flat rates of interest carefully and always choose for reducing balance rates. The right approach would be to take loan when there is dire need to do so. Although personal loans are easy to get but one should not burden him unnecessarily with high interest debt without a convincing reason.
Although it appears to be good but these loans are quite difficult to acquire exclusively as these are unsecured. To get this loan the eligibility criteria depends upon the applicant’s income credit history with regard to any other loans and repayment capacity. The interest rates offered on these loans can vary between 15-25 percent depending on the credit profile, income level, and nature of employment of an applicant. If bank find a higher risk in lending to an applicant it might not sanction the loan or charge a high interest rate together with additional security in the form of a personal guarantee.
The loan amount to be sanctioned generally depends on personal income along with other factors like age, profession, education and repayment capability if any other loans have been taken etc. All these factors are also taken into consideration for setting the interest rates. For instance the interest rate might be lower for a person working with a reputed firm as compared to a self-employed person. The tenure for repayment of loan is normally between 12 and 60 months. Generally these loans are not sanctioned for more than five years.
The EMIs are calculated for the repayment of the loan and if a person wants to do prepayment of loan a penalty is charged. The processing fee might be calculated as a percentage of the loan amount for the documentation and verification formalities. Before signing on dotted lines one must study terms carefully whether there are any additional charges or penalties.
Some banks might set flat rates for personal loans. Apparently the rates might look lower than even the current home loan rates. But in actual the flat rate do not reflects the actual cost of the loan. Indeed the effective rate is much higher. It is included in the EMI and person pays it on a reducing balance basis. For instance a loan of Rs 1 lakh figured out at a flat rate of 12 percent with an EMI of Rs 3,800 for 36 months in fact is worked out to an effective interest rate of 22%.
Approximately the total interest of Rs 36,800 works out to a yearly interest of Rs 12,226 and in the same way the rate of 12 percent is quoted. This will be correct in case a person is paying onetime interest at the end of the tenure of the loan. EMIs are calculated from the first month on the principal outstanding, the interest is normally charged at 22%. Therefore check for flat rates of interest carefully and always choose for reducing balance rates. The right approach would be to take loan when there is dire need to do so. Although personal loans are easy to get but one should not burden him unnecessarily with high interest debt without a convincing reason.
Wednesday, July 1, 2009
Payment of EMIs taking up most of the salary of metro cities employees
In a recent survey conducted by Assocham it was found in metro cities most of the take-home salary of an average employee is consumed in repayment of car, housing and personal loans and is left with just about 40 per cent of his earnings.
According to the report of the survey of 5,000 employees, "Take-home salary of average employee in metros and large townships has gone down to 40 per cent from 70 per cent around 1999".
The employees from the sectors of IT, Automobile, Hospitality, Civil Aviation, Manufacturing, Gems and Jeweler are feeling the maximum pinch of EMIs from the
Assocham Secretary General D.S. Rawat pointed out, "In an average salary structure of Rs 25,000 per month, the take-home part is not more than Rs 10,000 as average employee shells out over Rs 6,000 on housing loan, Rs 5,000 loan on auto, Rs 1,500 on luxuries item".
He added each month share of insurance premium amounts to be over Rs 2,500 and said over 30 per cent of employees pay out about Rs 5,000 in repaying the office loan advance taken for various reasons like construction, education and marriage.
About half of them informed at present their take-home salary is not more than 40 per cent of their total package so they are left-over with 10,000 which is spent on food, commuting costs, utilities, doctor and education bills.
According to the survey report middle class has suffered the most. It added, "Panic and depression have gripped home-loan borrowers among them particularly".
According to the report of the survey of 5,000 employees, "Take-home salary of average employee in metros and large townships has gone down to 40 per cent from 70 per cent around 1999".
The employees from the sectors of IT, Automobile, Hospitality, Civil Aviation, Manufacturing, Gems and Jeweler are feeling the maximum pinch of EMIs from the
Assocham Secretary General D.S. Rawat pointed out, "In an average salary structure of Rs 25,000 per month, the take-home part is not more than Rs 10,000 as average employee shells out over Rs 6,000 on housing loan, Rs 5,000 loan on auto, Rs 1,500 on luxuries item".
He added each month share of insurance premium amounts to be over Rs 2,500 and said over 30 per cent of employees pay out about Rs 5,000 in repaying the office loan advance taken for various reasons like construction, education and marriage.
About half of them informed at present their take-home salary is not more than 40 per cent of their total package so they are left-over with 10,000 which is spent on food, commuting costs, utilities, doctor and education bills.
According to the survey report middle class has suffered the most. It added, "Panic and depression have gripped home-loan borrowers among them particularly".
Tuesday, May 5, 2009
Banks depositing more funds in MFs due to lower loan off take
Although banks are reducing the interest rates on loans but the loan demand has to yet to pick up. Therefore banks are investing their surplus funds in mutual funds (MFs).
With loan demand yet to pick up, banks are parking a chunk of their surplus funds with mutual funds (MF). For the first fortnight of the current fiscal (FY10), banks have invested over Rs 40,000 crore in MF schemes thus the amount is over and above the Rs 80,000 crore they have invested into government bonds.
As per the latest figures given out by the Reserve Bank of (RBI), between March and April 10 commercial banks have collectively invested Rs 40,423 crore in various MF schemes, stimulating their total exposure to MFs to Rs 85,557 crore. The combined investment in government paper and other approved securities stands out to be Rs 82,074 crore. In comparison to this banks have lent only Rs 1429 crore in the fortnight.
Arvind Chari, fixed income portfolio manager of Quantum Mutual informed, “Banks cannot keep all their money in RBI’s daily money market operations since returns here are less than their cost of funds”. Banks make 3.25% through RBI’s liquidity window. He added, “Liquid funds that are fetching returns of 5-5.5% and short-term income plans delivering about 6% are a good alternative”.
Banks are compulsorily required to invest 24% of the deposits they raise in a fortnight in government and other qualified bonds. These investments are known as statutory liquidity ratio (SLR) investments. By April 10, banks had invested 7% extra (31% of deposits) in government bonds.
Of the non-compulsory investments, mutual funds appear to be the apparent choice for most banks.
Ashok Khajuria, head of treasury at IDBI Bank pointed out, “A bank may not have headroom to buy debt of another bank because of RBI regulations”. He added, “Mutual funds offer an easy and reasonably safe way to invest in such debt”. He explained that the rating agencies keep check on the MF investments which gives further comfort.
Majority of the banks have an internal policy for investing in MFs that place down in which fund houses the bank can invest and how much.
Bankers are of view that most of the investments are going into liquid schemes as these offers an instant exit with no penalty. Liquid funds make their profits by investing in treasury bills and bank CDs, in addition to lending in the CBLO market.
In October the interest rates were very high, thus the liquid funds delivered almost 9-10% returns. But, with RBI cutting rates in the past few months, their average annual returns have reduced to almost half of that figure.
With loan demand yet to pick up, banks are parking a chunk of their surplus funds with mutual funds (MF). For the first fortnight of the current fiscal (FY10), banks have invested over Rs 40,000 crore in MF schemes thus the amount is over and above the Rs 80,000 crore they have invested into government bonds.
As per the latest figures given out by the Reserve Bank of (RBI), between March and April 10 commercial banks have collectively invested Rs 40,423 crore in various MF schemes, stimulating their total exposure to MFs to Rs 85,557 crore. The combined investment in government paper and other approved securities stands out to be Rs 82,074 crore. In comparison to this banks have lent only Rs 1429 crore in the fortnight.
Arvind Chari, fixed income portfolio manager of Quantum Mutual informed, “Banks cannot keep all their money in RBI’s daily money market operations since returns here are less than their cost of funds”. Banks make 3.25% through RBI’s liquidity window. He added, “Liquid funds that are fetching returns of 5-5.5% and short-term income plans delivering about 6% are a good alternative”.
Banks are compulsorily required to invest 24% of the deposits they raise in a fortnight in government and other qualified bonds. These investments are known as statutory liquidity ratio (SLR) investments. By April 10, banks had invested 7% extra (31% of deposits) in government bonds.
Of the non-compulsory investments, mutual funds appear to be the apparent choice for most banks.
Ashok Khajuria, head of treasury at IDBI Bank pointed out, “A bank may not have headroom to buy debt of another bank because of RBI regulations”. He added, “Mutual funds offer an easy and reasonably safe way to invest in such debt”. He explained that the rating agencies keep check on the MF investments which gives further comfort.
Majority of the banks have an internal policy for investing in MFs that place down in which fund houses the bank can invest and how much.
Bankers are of view that most of the investments are going into liquid schemes as these offers an instant exit with no penalty. Liquid funds make their profits by investing in treasury bills and bank CDs, in addition to lending in the CBLO market.
In October the interest rates were very high, thus the liquid funds delivered almost 9-10% returns. But, with RBI cutting rates in the past few months, their average annual returns have reduced to almost half of that figure.
Wednesday, April 22, 2009
Companies deposit with higher rates a tool for investors
Banks are reducing their deposit rates in view of cutting down their lending rates. On the other hand companies are offering attractive interest rates on their deposits thus it is becoming a good investing option for the people.
Some of the big companies are offering around 12% rate of interest for a one-year deposit and 12.5% for a three-year term. While small time financial advisory companies are claiming that they are getting many queries on these deposits these days. On the other hand seasoned investment advisors, are advising investors to be careful, as they might be taking unnecessary risk to get higher returns from these deposits.
"We are getting a lot of queries about fixed deposits (FDs), including company deposits. Our clients are interested in assured returns, as they have lost money in equity mutual funds," says an official with an investment advisory firm. "But not many people are coming forward to make investments as they are not sure about the safety of their capital. They have heard old stories about company duping their parents or relatives," he adds.
That is exactly the point Kartik Jhaveri, director, Transcend Consulting, makes. "Companies are coming out with deposit programme, but it is not as if they have crowded the market with their offerings and people are jumping to make investments. As far as we are concerned, we are very clear that the safety of capital is the most important thing you should consider while opting for an FD. We don't compromise on that," he says.
According to Amar Pandit, certified financial planer, My Financial Advisor, "We are not comfortable with some company FDs. There is the question of corporate governance and quality of balance sheet. That is why these companies are offering a little more interest than the bank deposits". "In fact, they are compensating with a higher interest rate for the higher risk you are taking."
Then what advice they give to their clients? After all, even they might be interested in earning some extra interest? Amar Pandit explains, "We don't look at company FDs if they are not from trusted brands like Tata or HDFC. We tell our clients they are better off earning 10-10.5% in a safer place than taking extra risk for 12%". "We are also slightly sceptical of the real estate sector because of the corporate governance and transparency issues. We have even stayed away from fixed maturity plans which invested in the real estate papers."
Transcend's Jhaveri is also of view that investors should always go for highly-rated issues with good derivation to ensure their money is in safe hands, minimizing risks.
Some of the big companies are offering around 12% rate of interest for a one-year deposit and 12.5% for a three-year term. While small time financial advisory companies are claiming that they are getting many queries on these deposits these days. On the other hand seasoned investment advisors, are advising investors to be careful, as they might be taking unnecessary risk to get higher returns from these deposits.
"We are getting a lot of queries about fixed deposits (FDs), including company deposits. Our clients are interested in assured returns, as they have lost money in equity mutual funds," says an official with an investment advisory firm. "But not many people are coming forward to make investments as they are not sure about the safety of their capital. They have heard old stories about company duping their parents or relatives," he adds.
That is exactly the point Kartik Jhaveri, director, Transcend Consulting, makes. "Companies are coming out with deposit programme, but it is not as if they have crowded the market with their offerings and people are jumping to make investments. As far as we are concerned, we are very clear that the safety of capital is the most important thing you should consider while opting for an FD. We don't compromise on that," he says.
According to Amar Pandit, certified financial planer, My Financial Advisor, "We are not comfortable with some company FDs. There is the question of corporate governance and quality of balance sheet. That is why these companies are offering a little more interest than the bank deposits". "In fact, they are compensating with a higher interest rate for the higher risk you are taking."
Then what advice they give to their clients? After all, even they might be interested in earning some extra interest? Amar Pandit explains, "We don't look at company FDs if they are not from trusted brands like Tata or HDFC. We tell our clients they are better off earning 10-10.5% in a safer place than taking extra risk for 12%". "We are also slightly sceptical of the real estate sector because of the corporate governance and transparency issues. We have even stayed away from fixed maturity plans which invested in the real estate papers."
Transcend's Jhaveri is also of view that investors should always go for highly-rated issues with good derivation to ensure their money is in safe hands, minimizing risks.
Tuesday, March 31, 2009
Banks prefer salaried class for personal loan
Before financial crisis taking personal loans from any bank was easy. But economic slowdown and increase in the NPA (non-performing asset) has forced banks to withdraw this segment of loan. However most of the banks has reserved it only for the salaried class customers those having accounts in the respective banks. Banks are not giving personal loans to the businessmen and self-employed professionals.
The reason banks give for stopping the personal loan is that the NPA in personal loan segment (personal loans, car loans, home loans) have doubled to around four per cent due to recession and large-scale retrenchments. In 2007 it was around 2%.
Conversing with the Tribune reporters, UCO Bank field general manager, Ripan Murgai said due to economic downturn the personal loan segment has been worst affected. He said, “As personal loan is an unsecured loan (where no collateral is required), a number of borrowers in Punjab and Haryana have become delinquent. The NPA level in housing and auto loans is also going up, but recovery here is better as house or car is a collateral security.”
He added, “In Haryana, the NPA in personal loan segment has gone up by over three per cent. Though the economic downturn is one of the main reasons for delinquency, the debt waiver announced for various sectors by the government has also created a bad credit culture, with people desisting from paying back their dues”.
In fear of losing their money banks initiated their stressed assets management cells. SBI country’s largest lender has added new recruitments in their recovery cell in order to speed up recoveries on personal loans, home loans and finance against immovable properties.
In addition to this many banks are working on restructuring their personal loan segments so at to certain that more accounts do not get offended.
Tuesday, February 10, 2009
Personal loan out standings high led to slowdown in lending
The last quarter has seen the credit crunch struck India. The Reserve Bank of India has provided the disaggregated credit data from it can be known how bad it was and to whom did the banks lend?
According to the data personal loans outstanding went up by Rs16,384 crore between 29 August and 19 December, for the two dates for which data have been provided. This means an increase of just 2.9% over the level on 29 August.
This is in contrast to the rise of Rs24,044 crore between 23 May and 29 August, therefore it is clear that distribution of personal loans has suffered a severe slowdown.
In the personal loans segment the out standings on account of housing loans increased by a mere Rs2,879 crore, or 1%.
The possible reason for this may be the rising non-performing assets in credit cards which must have spooked the banks, as credit card out standings rose just Rs303 crore over the period.
However education loans, rose by Rs2,965 crore over the period, a rise of 12.5%.
On the other hand real estate loans continued to increase, going up by Rs8,267 crore, or 12%.
Loans to non-banking financial companies rose by 11.7% over the period. However loans to the services sector, including real estate, increased by 4.5% over the period. Lending to industry was quite profitable showing a growth of 9.5%, or Rs86,251 crore. But a major portion of that—Rs17,221 crore—was on account of the increase in advances to the petroleum sector.
While the loan out standings to the infrastructure sector went up by Rs27,846 crore over the period, or a rise of 13.3% ,over the 29 August level.
And in spite of the clamor by industry, there were considerable increases in advances to textiles, construction, iron and steel.
Therefore in spite of the acuteness of a credit crunch over the last quarter, data advocates that much of the slowdown in credit was not in the industrial sector but in personal loans.
Hence loan outstanding to the priority sector fell slightly, signifying that lending to weaker sections has declined.
Thus, industry has been clamoring about a credit crunch not because banks are not giving loans but because the loan amount they are getting has not been enough to fill the gap caused by the drying up of other sources of funding.
According to the data personal loans outstanding went up by Rs16,384 crore between 29 August and 19 December, for the two dates for which data have been provided. This means an increase of just 2.9% over the level on 29 August.
This is in contrast to the rise of Rs24,044 crore between 23 May and 29 August, therefore it is clear that distribution of personal loans has suffered a severe slowdown.
In the personal loans segment the out standings on account of housing loans increased by a mere Rs2,879 crore, or 1%.
The possible reason for this may be the rising non-performing assets in credit cards which must have spooked the banks, as credit card out standings rose just Rs303 crore over the period.
However education loans, rose by Rs2,965 crore over the period, a rise of 12.5%.
On the other hand real estate loans continued to increase, going up by Rs8,267 crore, or 12%.
Loans to non-banking financial companies rose by 11.7% over the period. However loans to the services sector, including real estate, increased by 4.5% over the period. Lending to industry was quite profitable showing a growth of 9.5%, or Rs86,251 crore. But a major portion of that—Rs17,221 crore—was on account of the increase in advances to the petroleum sector.
While the loan out standings to the infrastructure sector went up by Rs27,846 crore over the period, or a rise of 13.3% ,over the 29 August level.
And in spite of the clamor by industry, there were considerable increases in advances to textiles, construction, iron and steel.
Therefore in spite of the acuteness of a credit crunch over the last quarter, data advocates that much of the slowdown in credit was not in the industrial sector but in personal loans.
Hence loan outstanding to the priority sector fell slightly, signifying that lending to weaker sections has declined.
Thus, industry has been clamoring about a credit crunch not because banks are not giving loans but because the loan amount they are getting has not been enough to fill the gap caused by the drying up of other sources of funding.
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