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.
Friday, July 31, 2009
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".
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