Personal Loan India

Lending rate hike by ING Vysya Bank

2011-07-28T04:27:00.000-07:00

After YES Bank it is ING Vysya Bank that has reacted to the hike in the policy rates of Reserve Bank of India. The Central Bank has raised both repo and reverse-repo rate by 50 basis points in order to bring soaring inflation rates under control.

After the revision the base rates of the lender now stands at 10.20% and it shall be applicable from 1^st August. More banks are expected to raise their lending rates and join the league very soon.

Banks not lending only to selected few, anymore

2011-06-14T05:31:00.000-07:00

In order to spread their risk amongst more borrowers, the public sector lender has started to reduce the proportion of the loan lent to their top borrowers. As an attempt the risk, during the last fiscal the lenders reduced the concentration of deposits by their top depositors.

Concentration of funds with a few customers increases the risk for lenders; however it is beneficial for a bank to cater to a few customers and to make maximum profits out of them.

Along with State Bank of India, the largest lender in the country few other public sector bank like Bank of Baroda, Punjab National Bank, Union Bank and Oriental Bank of Commerce have also brought down the proportion that they have lent to the their top customers.

Corporation Bank to lend directly to the farmers

2011-06-08T05:44:00.000-07:00

According to the guidelines of the Reserve Bank of India, it is mandatory for all the banks that out of the total lent amount by a bank, 40% must be lent under priority sector lending and out of that 40 percent at least 18 percent must be lent to agricultural activities.

All the banks are required to maintain the lending accounts as prescribed by the Central Bank otherwise banks have to deposit the difference in the amount with NABARD that pays interest as low as 4 percent. Corporation Bank is way short of the target and so it has planned to lend to the farmers directly for the current financial year to meet the targets.

The Chairman and managing Director of Corporation Bank Mr. Ramnath Prdeep said “We had reached a compliance level of 14 per cent (against a target of 18 per cent). But because of disqualification it has come down to 8 per cent.”

About depositing with NABARD, he said “I am incurring a loss of Rs 500 crore on account of this. We are paying depositors an interest rate of 9.5 per cent while the amount deposited with Nabard will earn only 4 per cent.”

HSBC all set to re-enter the unsecured loan segment

2011-03-02T04:12:00.000-08:00

HSBC India is all set to re-enter the unsecured retail loan segment. For past two years the bank slowed down its operations in this section.

The CEO of HSBC India, Mr. Stuart Davis said, “We will offer unsecured personal loans selectively to our customers and not in the open market as we did earlier.”

He also said “Winding down of the unsecured loan book and recoveries in corporate loans helped improve the asset quality.”

The bank will acquire the retail and commercial businesses of Royal Bank of Scotland by the end of this year. “We are expecting a robust loan growth and will continue to build our wealth management platform for increasing our customers,'' Davis said.

IOB plans for agri-jewel loan scheme in urban areas

2011-03-01T04:03:00.000-08:00

Indian Overseas Bank is going to introduce the agri-jewel loan scheme to the urban areas. The scheme has received a very good response in the rural parts and this has prompted the bank to introduce the scheme in the urban areas also.

The bank is planning to open a separate desk for such loans in 25 branches across the country. The bank has also ensured that the interest rates will be considerably lower than those offered by the private banks.

The Chairman and Managing Director of the bank Mr. M Narendra said “Enthused by the agri-jewel loan in rural areas, we thought of capitalising [on] it in urban areas also. We are opening [a] separate desk for gold loans in 25 branches. With this, we will be able to provide very fast gold loan to urban customers also.”

Banks make a re-entry to the Personal Loan arena

2011-01-07T04:36:00.000-08:00

The banks have again started to influence the customers by introducing new schemes in the personal loan sector after a break of one year.

As the income of the people is increasing the spending capacity of the individuals is also increasing. This fact has motivated the banks to re-enter the arena of personal loan.

According to the central bank second financial stability report released on Thursday, personal loans, which had a negative growth of 3.48 per cent in 2009-10, increased 14.49 per cent in September 2010 year-on-year.

The analysis of the data collected from 47 commercial banks shows an outstanding rise in the credit for personal loan Rs 1,16,353 crore in November from Rs 1,12,389 crore in March.

However personal loans are of very insecure from the bank point of view as they are not lent against any collateral , but since they fetch high income to the bank the banks are very interested in personal loan. The banks charges interest rates ranging between 16 to 19 percent for the individuals that are working for a reputed company . the banks even charges more interest rates if the individual is working for a small or lesser known company.

It remains to be seen if personal loans from the country’s largest private bank will increase over the next few months in line with the larger trend.

Axis Bank to increase its retail loans

2010-05-19T02:15:00.000-07:00

Axis Bank the third largest private bank in India, will be increasing its retail loans and contribute about 25% of the total loan portfolio within next two years. To achieve this ambition, the bank will be rolling out 200-250 branches and around 1,000 ATMs every year.

“We want to grow our retail assets and we hope to tap the potential in smaller town and cities. We are expecting to increase the share of retail loans to 25% of our total advances in about two years,” said Axis Bank executive director (retail banking, SME & agri) SK Chakrabarti.

In 2009-10, the bank’s retail advances stood at Rs 20,823 crore from the year-ago amount of Rs 16,052 crore, a growth of 30% year-on-year. At present, bank total advances amount to Rs 1,04,343 crore which had grown by 28% y-o-y. Bank retail loans include 70% of mortgaged home loans the rest comes from credit cards, auto (in 4-wheeler segment) and personal loans.

To increase its retail baking, the bank is taking some measures to mobilize its business operations further. Chakrabarti informed, “We have now divided business responsibilities in 26 circles instead of four zones as it was earlier. Under one circle, there will be 35-40 branches, which will be easy to handle for a manager.”

He added, “We are looking at the customer as an individual having requirement in all the spaces. Our branch expansion will help us acquire more customers and thereby help multiply our retail banking business”.

PSU Banks will focus on personal loans to increase margins and profitability

2010-05-09T23:13:00.001-07:00

To increase interest rate margins and profitability public sector banks are offering personal loans to the people. Among the loans segment personal loans yield more returns.

Banks like Allahabad Bank, UCO Bank, Union Bank of India and United Bank of India have already worked out new strategies to sell their high-yielding personal loan products to their retail customers. Earlier during economic slowdown many of these banks have stopped offering personal loan products as number of defaults have increased at that time.

On an average, these banks have lower average of retail loan share in comparison to the industry. The retail loans outstanding loans average is around 12-14% in comparison to industry average of 20-22%.

Allahabad Bank chairman and managing director JP Dua said, “Personal loan gives a better spread as well as it helps in building relationship.” In the next three years bank will be improving its retail loan shares to 22%.

Allahabad bank’s retail loan average is at 13.92% whereas Union Bank ratio is at 11.5%. State Bank of India countries largest lender has the ratio around 21%.

Public sector banks earn maximum return of around 14-15% from off-shelf loan products in personal loan category whereas from car loans they earn a return of around 12%. On the other hand housing loans get a secured and a higher volume of business, but the returns are much less than the other loan categories.

Banks prefer salaried customers for off-the-shelf products as they link such products to the salary accounts of the customers to minimize probability of default.

According to United Bank of India chief Bhaskar Sen with the improvement in economic conditions the purchasing power of middle class families is also increasing therefore this can boost demand for car loan and housing loan products. Mr Sen said, “The housing segment will continue to give banks businesses many more years. In the car loan segment, demand is seen especially in the small car category.”

UCO Bank chairman and managing director SK Goel said: “We have identified 200 branches across the country to push retail loan products as our share of retail loan business is comparatively low.”

United Bank has 12% of retail share whereas UCO Bank retail share is around 14%. Among the public sector banks, Bank of Baroda has a better retail loan ratio at 20% followed by Indian Bank at 18%.

Bank of Baroda executive director RK Bakshi said, “A higher share of retail loan is important for credit diversification. It’s a stable business and it improves relationship with customers.”

Mr Dua of Allahabad Bank said that public sector banks have large number of branches therefore they can easily improve their retail loan base through their network. “We will try to leverage our vast branch network. We plan to expand our current and savings account deposit base to reduce the cost of deposit and a focus of retail loan will accompany this drive,” Mr Dua said.

ABN AMRO to withdraw personal loan, credit card services in India

2010-02-26T03:23:00.000-08:00

Bank officials of Dutch lender ABN AMRO Bank NV, a part of Royal Bank of Scotland NV has informed that, bank is withdrawing its personal loan and credit card services in India and will be focusing only on retail deposits, wealth management, and corporate banking.

In view of this many employees working in credit card and personal loan segments have been asked to leave. Earlier in the beginning of the current fiscal, around 2,850 people were hired by the consumer banking team of the bank, which has 31 branched on India, but at present around 500 of them have left.

An anonymous executive at ABN AMRO Bank told, “The book size of the consumer finance division has almost been halved—from Rs2, 300 crore to Rs1, 200 crore. The plan is to shrink it to around Rs190 crore.”

In 2007 as part of a global acquisition the Indian operations were sold to Royal Bank of Scotland in the year ended 31 March, 2009 had posted a 93% decline in profit to Rs Rs19.39 crore, from Rs280.99 crore in the previous fiscal.

RBS in order to raise funds is selling off businesses chosen as non-core in select markets. Bank sources said it will continue to expand ABN AMRO corporate and wholesale banking activities.

RBS spokesperson in an email response to queries sent by Mint stated, “As part of our regular review of the products and services we provide, in line with many other banks in India, we made a decision earlier this year to discontinue the issuance of fresh credit card or unsecured loans.”

“We continue to maintain our service for existing card and loan customers and remain focused on the branch banking and wealth management businesses in the retail arm of the bank.”

However in February 2009, RBS had announced that it will be shifting to India retail and commercial banking operations, having 2,500 employees, into a for-sale, non-core division. RBS is getting advice from Morgan Stanley on the sale.

There have been rumors that sale to HSBC Holdings Plc, Europe’s largest lender might not get through. But Malini Thadani a spokesperson for HSBC India, refused to “comment on rumors”.

The RBS spokesperson said, “RBS is in ongoing discussions for the remaining retail and SME (small and medium enterprise) assets it has decided to sell in Asia and we will not be making any further comment at this stage.”

This is the third time the UK-based bank is trying to sell its consumer banking assets in Asia including India.

Recently RBS has been holding talks with Standard Chartered Plc and Australia and New Zealand Banking Group Ltd (ANZ) for the sale of its Asian consume banking assets.

But Standard Chartered Bank had walked out of the deal due to bad asset quality and high valuation. Also ANZ is not going to finalize the deal of the Asian consumer banking assets of RBS, including those in India, on the basis of commercial and regulatory uncertainties.

Although ANZ has acquired the retail and commercial banking operations of RBS in Taiwan, Singapore, Indonesia and Hong Kong for around $550 million (Rs2,558 crore). It has also attained the onshore global banking and markets (GBM) and global transaction services (GTS) operations in the Philippines, Vietnam and Taiwan (excluding securities).

Moreover last year bank’s consumer banking operation, which was put on sale reported an operating loss of Rs230.77 crore.

Before this it had made profit of Rs38.99 crore. In the previous year the provisions for non-performing loans, or the money set aside for sticky assets, had risen to Rs335.92 crore which was almost nine times the amount that the bank had provided for in the previous year.

The fiscal year 2009 was not a good year for foreign banks in India, as slowing economy had led to rise in non-performing loans. But no other foreign banks had seen a dip in profit.

Standard Chartered Bank’s India operations had registered 12% growth in net profit; HSBC’s net profit had risen to 8%; while the Indian arms of Citibank NA and Barclays Bank Plc had reported a growth of 20% and 485%, respectively.

Penalties for pre-paying loans might be banned if banks found guilty

2010-02-04T03:29:00.000-08:00

According to report of the acting Director General of the Competition Commission of India, the competition watchdog in India banks – both public and private sectors are working as “cartel” by charging penalty from the customers for pre-paying loans.

In view of this, Commission has issued notices to around 20 banks including big players such as the State Bank of India, Punjab National Bank, ICICI Bank and HDFC among others. The final decision will be taken by the regulator after it receives replies from the banks. On the other hand banks are consulting law firms to get legal view on the issue.

According to the sources closely related to the investigation, banks are charging prepayment penalties to “limit competition or not to have extensive competition and also to discipline customers so that they don’t switch banks at a slight drop in interest rate”. On the other hand banks say pre-payment leads to asset-liability mismatches having a cost attached to it.

The sources added, “The banks have been acting in collusion and charging customers for pre-payment of loan. They decided to charge the interest after a meeting of the Indian Bank Association (IBA) in 2003 where it was decided that all banks would enhance fee-based income and charge customers for paying the loan earlier than the due date. They decided to charge the customers uniformly so that they don’t switch loyalties when interest rates drop”.

However banks charge interest on pre-payment of loan even before the IBA meeting, after meeting the system was formalized and became more organized. The sources said, “This is an anti-competitive behavior and in violation of Section 3 of the Competition Act, which deals with anti-competitive agreements.”

But after the IBA meeting the decision was circulated internally, which is also in violation of the Reserve Bank of India’s guideline.

The sources pointed out that RBI does not support such practices and it has given clear instructions that banks should not levy “usurious charges” and should not have “income without earning”. The RBI has clearly stated that banks must maintain transparency in case of charges and should not charge fee-based income, the source said. Buts the banks are not following guideline of both the RBI and the Competition Act.

Last year the Competition Commission of India (CCI) had received a complaint from the customers regarding the penalty charges imposed by the banks on pre-payment of loans. However the pre-payment penalties are being charged by the banks in order to discourage customers from retiring debt before the scheduled date and also to stop them from switching banks to take advantage of more competitive rates offered by rivals.

In case the Commission finds the banks guilty, the penalty on pre-payment of loans might be banned across the industry, the sources informed. This move of Commission will bring relief to many home loan borrowers who have little choice but to pay pre-payment penalty or stay on with their existing banks even though they have to pay a higher interest rate on their loans.

Public sector banks to go easy on personal loans

2009-11-23T01:53:00.000-08:00

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.

Fulfill pre-conditions to take Personal loans

2009-09-02T05:16:00.000-07:00

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.

Personal loan figures are lowest amongst various loan segments

2009-07-31T03:04:00.000-07:00

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.

Loans are good or bad?

2009-07-27T05:18:00.000-07:00

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.

Personal loan ideal for short term need

2009-07-24T03:20:00.000-07:00

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.

Payment of EMIs taking up most of the salary of metro cities employees

2009-07-01T23:49:00.000-07:00

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".

Banks depositing more funds in MFs due to lower loan off take

2009-05-05T04:35:00.000-07:00

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.

Companies deposit with higher rates a tool for investors

2009-04-22T03:01:00.000-07:00

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.

Banks prefer salaried class for personal loan

2009-03-31T04:02:00.000-07:00

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.

Personal loan out standings high led to slowdown in lending

2009-02-10T02:43:00.000-08:00

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.

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

2008-12-07T22:12:00.000-08:00

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

2008-11-26T01:32:00.000-08:00

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

2008-11-10T03:26:00.000-08:00

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

2008-10-13T00:56:00.000-07:00

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

2008-09-22T01:42:00.000-07:00

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

2008-09-08T00:00:00.000-07:00

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

2008-08-28T21:39:00.000-07:00

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

2008-08-19T04:45:00.000-07:00

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

2008-08-14T02:34:00.000-07:00

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

2008-07-30T04:55:00.001-07:00

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

2008-07-24T04:17:00.001-07:00

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

2008-06-19T02:36:00.001-07:00

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

2008-06-06T03:02:00.001-07:00

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

2008-05-28T04:45:00.000-07:00

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

2008-05-19T04:29:00.000-07:00

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

2008-05-16T05:35:00.000-07:00

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

2008-05-14T05:19:00.000-07:00

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

2008-05-06T03:57:00.000-07:00

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

2008-04-28T04:04:00.000-07:00

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

2008-04-09T03:41:00.001-07:00

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

2008-03-13T03:07:00.000-07:00

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

2008-03-12T00:56:00.000-07:00

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

2008-03-05T01:42:00.000-08:00

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

2008-02-26T03:50:00.000-08:00

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

2008-02-19T04:33:00.000-08:00

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

2008-02-12T01:32:00.000-08:00

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

2008-02-07T01:37:00.001-08:00

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

2008-01-31T04:29:00.000-08:00

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

2008-01-24T23:48:00.000-08:00

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

2008-01-09T01:00:00.000-08:00

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.

Personal loan better option for paying debts than credit card

2007-12-27T03:43:00.001-08:00

At the time of medical emergency in her family in January 2007, Nisha Naik used her credit card to clear the hospital bills which amounted to Rs 1 lakh. In such a situation anybody facing such a situation could have done the same.

She being family’s only earning member with no assets to fall back upon, she had to depend on her salary to payback the debt. She had planned to pay off the debt in the following two months, but things did not work out as planned and she ended up paying the 5% minimum due amount till October 2007. By the time she could realize that the money she had been shelling out every month formed mainly the interest component and she still owed the credit card company the bulk of the principal amount nine months had passed. On knowing the reality she quickly applied for a personal loan to clear the credit card dues.

It’s anybody’s conjecture that she would have saved on a lot on her interest outgo had she chosen for a personal loan earlier, which is surely cheaper than credit cards. Says My Financial Advisor director Amar Pandit: “Interest rates in case of personal loans are much lower than credit card loans; generally speaking, personal loans are at least 50% cheaper than credit cards. Depending on the category of employer or whether the individual is self-employed, interest rates could vary from 12% to 23% per annum”.

The other option could have been personal loan on credit card (PLCC). “On the basis of card transaction history, we can also provide a personal loan on the credit card itself,” informs Sachin Khandelwal, head of cards, ICICI Bank. But this carries a processing fee of 2%, as well as foreclosure charges of 3.5%. On the monthly statement it is shown as a transaction entry separately till it’s paid off. This type of loan carries a rate of 16-20% pa whereas credit cards typically have an interest rate of 36-40% pa. There can be variation on interest rate on personal loan from 18% to 21% pa.

“Our recommendation is that if a customer finds that the outstanding amount on his/her credit card is not being cleared in a couple of months, he/she should choose this option. However, if such options don’t help in clearing dues within 12 months, then a personal loan is strongly recommended,” asserts Mr Khandelwal. An important point to remember is while applying for a personal loan the minimum tenure is 12 months and the minimum loan amount is Rs 50,000 (the processing fee for personal loans is 2%).

Usually people make a mistake of not thinking in terms of replacing the high-cost credit card debt with a low-cost one. Though credit cards can be easily acquired and boast of high convenience value, but one should remember that they are strictly meant for short-term purposes and stretching the repayment term will only lead to headaches for you. Hence, set a deadline after which you would start looking for less expensive loans. If you find yourself in a situation of not being able to pay off dues in, say, two months after borrowing on your credit card, then you should opt for cheaper alternatives.

Adds Mr Pandit: “Credit card loans are the costliest forms of loans and I would certainly recommend a person to opt for personal loan. However, even before I do this, I will explore if the person has investments and if he/she can get an overdraft against mutual funds and blue-chip stocks. Generally, this is available in the range of around 11% and should be preferred to personal loan. Same goes for overdrafts on fixed deposits, if any. Here, you pay the interest only for the period the OD is utilised”.

However, since Nisha and her family owned no assets as such, what are the other options that she could have exercised, apart from personal loan, to ensure that her interest outgo was lower? “These days, credit cards offer free rollover for three months, so she could have explored the option of rolling the credit over for three months (without any interest),” replies Mr Pandit. The credit card space has several schemes. For example, banks like ICICI have an option of converting a credit card transaction into an installments-based one — the EMI option. This usually entails a processing fee of 2-4% and the interest rate varies from as low as 0-18% pa.

You can also go for balance transfer schemes, wherein you can transfer the outstanding amount to another bank’s credit card. Under this scheme on the new credit card, for a particular period, you either don’t have to pay any interest or you may be a charged a nominal rate of interest. You can also use such schemes for debt consolidation— you can transfer the credit outstanding on several cards to one card that carries the lowest rate of interest, thereby reducing the interest payable. If you are caught in a situation similar to that of Nisha, it is high time you switched over to schemes that don’t burn a huge hole in your pocket.

Secured Personal loans have repayment interval longer

2007-12-20T02:09:00.001-08:00

Do you want to take a loan; you can find many lenders who are ready to give loan. Personal loans can be secured and unsecured types.

In secured personal loans guarantee is offered to the moneylender and the time period of repayment of loan is longer. In this the defaulter can borrow a large loan volume. Therefore, nation who have recompense in real estate or who own houses can take secured loan. But one should not forget the fact that the house is used as collateral and can be taken over by the owner in case the insolvent is incompetent to pay back the loan.

Want to take loan which one –Personal or New line of credit

2007-12-19T03:58:00.000-08:00

No matter at what position you are, the time of year, holidays or not, the need for additional money may arise.

There are several ways to get extra money but the two of the most common ways include opening a new line of credit and taking out a personal loan from a bank.

Before understanding which is better between a personal loan and new line of credit, it is important to define the two terms as they are closely related. A line of credit is where you have an agreement with a company to borrow a specific amount of unsecured credit for a specific period of time. This amount of money is available for use at any time as long terms of the agreement are met.

Personal loans are money given by the bank on credit. There is no security given. The amount that is given to you is based on your credit rating and they are usually paid off in a short period of time (two to three years). You can use personal loans for anything that you need it for such as debt consolidation, vacations, medical bills etc. Personal loans have fixed rates and monthly payments until they are paid off.

Let’s see what is the advantage of one loan over the other?

A personal loan provides the total sum of money up front, which has fixed interest rate attached to it. You will be expected to make a payment each month until the loan has been completely repaid. The time period of the repayment of the loan is fixed depending on the length that you and your lender agree upon. The interest rates attached to personal loans are generally much higher than a line of credit. This means that you will pay more interest overall.

Opening a new line of credit has many differences. First and foremost, a new line of credit will give you money as you need it. You get flexibility in spending while providing money in emergency situations. In this the interest rate associated with new credit is adjustable. You have to pay interest on the amount of money you have used. The interest rate keeps varying with prime rates. So it might go up a half a point or so and then drop again. This means that a payment may be a little bit higher one month and then lower the next.

Let’s see the disadvantages related to personal loan.

First of all, when you take personal loan you get money once. This means if someone requires additional money, he or she will have to apply for another loan from a bank or credit union.

Secondly, in personal loan there is no option for tax deductible whereas in many cases a line of credit can be.

New credits do have disadvantages as well.

Interest rates are adjustable, there are no fixed minimum payment and can vary even month to month. The discrepancy of knowing what is owed can be a problem if living on a tight budget.

Now you can decide from these two which one you want to take depending upon your financial needs and financial situation.

For small financial requirements Personal loans are the best option

2007-12-14T02:16:00.001-08:00

The festive season is the most expensive time and Christmas celebration have started. Many people spread their festival expenses over several months this is possible with the help of loans available in the market.

Many types of loans are available in the market to choose from. If you want to take loan for a limited amount then go for personal loan. For various financial requirements many people take this type of loans. During Christmas people take these loans to go on vacations, buy gifts for family and friends and decorate their homes. In case your requirement is more and personal loan is not enough then you can guarantee your home to get a big loan amount.

Sanction of loan amount depends upon many things. Before giving you a loan a lender first verifies your credentials and then takes his decision after considering many aspects. Your creditworthiness is checked from credit reference agencies. These agencies have a record of every loan transaction and also provide individual credit ratings. You just pay a small amount of fee to get your credit rating. It will help you in the loan process if you know your credit rating in advance.

If your requirement is big then go for secured personal loans. It can be a home improvement on large scale or buying another home or buying an expensive vehicle. In secured loan the rate of interest is also low and the repayment period tends to be longer than personal loans. These loans are available with high street banks, online lenders and building societies in the UK. You have to fulfill eligibility criteria to apply for a loan. You have to be above 18 years of age and a UK resident to apply for any type of loan. It is better to compare loans offered by lenders as nowadays there are many lenders and it will be if you compare loans before signing any particular loan deal.

Improve credit scores and ratings with fast personal loans

2007-12-12T01:37:00.000-08:00

Individuals are able to get various possibilities for seeking money through fast personal loans for a variety of their financial needs. Fast personal loans can also help in improving credit scores and ratings. There is no demarcation, available to anyone and everyone. Personal information is all that must be provided in order to be approved. You can get help in debt also. Consolidating debt into one monthly payment will save the consumer time and money.

An individual gets an opportunity to improve its credit rating. At times the bad financial decisions lead to poor or blemished credit rating. So it becomes very important to be aware of the credit score, especially when purchasing homes, vehicles, or taking out any type of financing. By receiving the fast personal loan and making payments on schedule, a credit score can be improved. Fast personal loans often can be completed even with poor credit history.

Only little information is to be provided to get finances. As the loans are not of great amount personal information will be enough to get an approval for a fast personal loan.

At times companies dealing with fast personal loans will require credit history, but poor ratings will often still be approved in order to assist the borrower in improving that score.

Debt consolidation is an excellent reason to apply for this type of financing. Individuals get the opportunity to pay off their credit card bills, loans, and a variety of expenses with fast personal loans in turn for monthly payment toward the payments. This will help the customer to save money because the interest rate on credit cards can often be very high. Loan approvals that offer lower rates will allow the consumer to save money. Whenever dealing with money matters remember that Proverbs 13:11 says "Wealth gotten by vanity shall be diminished: but he that gathereth by labour shall increase."

With this the borrower gets many opportunities. If you have increased credit score then fast personal loans is an excellent reason to apply for. These loans are very attractive to consumers because of the option of providing very limited amount of personal and financial information. Also, there are possibilities of receiving finance in order to consolidate debt that may have mounted over a period of time. With many providers, this type of financing can be acquired with little effort on the part of the consumer.

Personal loan can help you pay your debts

2007-12-08T03:21:00.001-08:00

Today people are having hard time in making savings. Some of them are able to do savings and for some it is difficult as a result you get deeper and deeper into debt.

Personal loan can be used for consolidating credit card debt. By doing this there is one advantage it is that you will have only one payment and there are usually no late fees if they are they are not as large.

The interest rate is not raises on a personal loan when you don’t make a payment either. Therefore it is important to make sure your payment is with in your budget. You do not want to have a bad mark on your credit.

But there are certain priorities to remember when you are deciding which bills you are going to pay. Some will have to wait until the next pay check.

Your mortgage and home insurance should be your first priority in the list. Your house is what provides you with shelter. It is also good for your credit to make sure your mortgage payments are always on time.

If you have your own house then there is property tax that comes along with it. Although you have taxes taken out of your pay check that does not mean that you will have enough when it comes time to pay them. So put money aside to cover taxes that you will have to pay.

On the second position comes the car payment. Transportation is very important. It would be difficult to get back to and from work.

When buying a car better to go for the one which fits in your budget easily. You can look for a used car that is still in great condition.

Most people have credit cards now days. The minimum payments can really add up. Credit cards have late fees and if the payment is not made in time they will raise your interest rate, normally to 29.9%.

When you know that your interest rate is going to be raised. Look at which card has the smallest balance on it, 29.9% of $100 is better then on a $1000.

Another thing to remember is that most credit card companies do not report your late payment to the bureau until it has been 30 days late. So if you pay it 10 days late you will be ok with your credit report. Though you will still have a late fee and the interest rate could still be raised.

When deciding which card to pay first then look if there is a grace period on any of your cards. You can save those cards for the next pay check.

The last thing to pay is your utilities. If you explain about your situation to gas and power companies they will work out for you.

The cable and phone bills are not as important. These are things that we can survive with out. If the phone and cable is shut off it will not affect your well being.

Improve your credit score with small personal loans

2007-12-07T00:01:00.000-08:00

Thinking of improving your credit score then take small personal loans. If you take big loan you can risk not being able to repay it and defaulting on the loan which would further ruin your credit score.

So go for small personal loans. The small personal loans are not expensive and they are easy to afford. To improve your credit score you can use personal loans and the credit improvements will be done at low cost.

It is easy to get small personal loan you need to apply for a small personal loan; it doesn’t necessarily have to be a short term loan. The repayment of the loan should be continuous to maintain efficiency. However, you should Compare personal loan rates just a couple of hundreds and repay it in several installments. Each installment will be recorded into your credit report as a successful financial transaction and your credit history will start showing a perfect repayment behavior.

DCB to cut share of personal loan and get into retail segment

2007-12-04T00:04:00.000-08:00

Development Credit Bank, the small private sector banking group, has planned to cut the share of personal loans in its credit portfolio to diverge risks.

Instead it will, get into the commercial and construction equipment business, which is a secured portfolio in the retail segment.

The bank will be raising the share of retail assets comprising commercial vehicles and construction equipment in total advances from 45 per cent to 55 per cent. The large and mid corporates currently is having 55 per cent share in total loan base. The total advances at the end of September 2007 stood at Rs 3,195 crore.

There are more chances of more number of defaulters in case of personal loans. The bank saw a minor rise in net non performing assets in the first quarter, earning out of personal loan segment.

The managing director and chief executive Gautam Vir said, “We plan to bring down the share of personal advances in total retail loans from 47 per cent to 35 per cent over the next financial year.”

As of September 2007 the personal loans stood at Rs 713 crore, while commercial loans were Rs 279 crore. The bank has already stopped the low ticket loan below Rs 50,000, as it have higher delinquencies space.

It has tied up with HDFC for steady growth and market its home loan products.

“This (home loans) is not our area of expertise (which is volumes business). The bank will focus on origination and servicing customers,” Vir said. This will help in boosting banks other income.

It has applied to Reserve Bank of India for permission to open 50 branches to expand its network. Currently DCB is having 74 branches, predominantly in the western region of the country.

The western region comprises Maharashtra, Gujarat, Goa, Andhra Pradesh, National Capital Region and Rajasthan.

“We will continue to expand the region (western), where the growth is high and our brand is known. We will also open branches at SME clusters outside the western region”, he said.

Now you can take wedding insurance plan

2007-11-23T00:26:00.000-08:00

In India wedding is considered to be very auspicious occasion. In India, the wedding market, pegged at about Rs 1.25 lakh crore, is growing at 25 per cent per annum.

A three-day cocktail event may take away Rs 1.5 crore from your pocket and the cost of a

Grand wedding day can start from Rs 2.5 crore – a very popular concept these days. According to Tarun Sarda, CEO, Vivaha Interactive, which organizes wedding-related annual exhibitions says, “The most expensive are the wedding décor and entertainment. A fairly well-known entertainer would command Rs 30 lakh for an evening’s performance.”

In India there is no provision for the recovery of loss if some mishappening occurs, but in western countries there is an insurance cover against the loss of the wedding ring, the elaborate wedding gown not reaching on time, or even the non-appearance of the photographer to cover the gala event.

But in India the concept is not very popular yet. Except for a few nationalized companies and a clutch of private players, not many insurers provide such a cover.

T A Ramalingam, head, underwriting, Bajaj Allianz General Insurance, told DNA Money, “Such plans are still in their nascent stages due to low awareness and, given the sacred nature of the ritual, nobody wants to discuss the negatives.”

In the west people are aware of wedding insurance plans whereas, in India, wedding insurance is more of a customized event insurance plan which includes all specific risks related to a wedding.

In India wedding planners consider wedding insurance makes sense as heavy expenses are involved. Wedding insurance usually covers fire or allied perils like accidents to the bride, groom or their blood relatives, burglary of jewellery, clothes or valuables, wedding cancellation due to legitimate and specified causes, damage to the venue by natural causes or acts of crime/terror, and, in certain cases, even food poisoning.

At present Bajaj Allianz has a wedding package product with four sum insured options, starting from Rs 20 lakh-Rs 70 lakh. The premium ranges from Rs 3,770 to Rs 14,276.

Kartik Jain, head, marketing, ICICI Lombard General Insurance, said: “These (the company’s policies) are personalized covers and each event differs from the other. The insured amount and the premiums are decided on a case to case basis. Premiums vary from 0.75-1 per cent of the total sum insured.”

ICICI Lombard is having a general event policy, which provides cover for cancellation of the wedding due to unforeseen perils, for eg, if the marriage hall gets flooded or there is an occurrence of earthquake, the irreversible cost of the wedding will be reimbursed as per the policy terms and conditions.

Along with this material damage to property like stage, seats and wardrobe due to fire and public liability are also covered.

White goods majors line up price hikes, new launches

2007-09-03T03:20:00.003-07:00

Consumer durable companies will embark upon a dual strategy of hiking prices of white goods and simultaneously launching hi-tech models in refrigerators, washing machines and microwave ovens.

Reports say that consumer durables majors like Videocon, LG, Samsung and Haier are all planning price hikes by 2-7 per cent.

Videocon Industries is planning to launch refrigerators with built-in colour television and Internet, which can be operated by remote controls and priced between Rs 20,000 and Rs 1 lakh.

Videocon will increase prices of its white goods range by 5-7 per cent. Korean major, LG Electronics India is planning to hike prices of its washing machines (WM), refrigerators and microwave ovens by about 2- 4 per cent in September 2007.

Samsung India is soon launching new models of high-end side-by-side refrigerators with the improved prices.

Haier is also coming up with new innovative appliances to suit customer's needs, which will be followed with minimal hike in prices.

Fedders Lloyd Corporation is planning to launch new models of Llyods microwave ovens and washing machines with different prices toplug various price gaps.

In March-May 2007, durable companies hiked product prices by 4-8 per cent.

Reports also say that the prices are expected to stabilise by Diwali. Plans are on the anvil to launch premium range of refrigerators in 400 and 500 liters by changing the outdoor aesthetics and four new models of solo and grill convection microwave ovens.

RBI Annual Report for review of payment system

2007-09-03T03:20:00.001-07:00

The Reserve Bank of India (RBI) will conduct an annual review of the payment and settlement systems to ensure that customers receive timely, cheap and dependable service.

The first review is proposed for the year-ended March 31, 2007. Business Standard reports that the review will be based on parameters like timeliness of customer service, cost of operation, service charges and the overall impact on the financial system.

RBI’s Board for Regulation and Supervision of Payment and Settlement Systems (BPSS) will give directions and set standards for payment and settlement systems.

The board is to study payment systems in select countries, prepare a road map for moving from paper-based products to electronic payment systems and promote card-based payments as one of the strategies for increasing the use of electronic payments.

The board has recommended exploring the option of setting up a low cost cross-border remittance system with neighbouring countries, especially Nepal, and also proposed an assessment of the real time gross settlement (RTGS) system and bringing all RTGS-enabled branches under the national electronic funds transfer (NEFT) system.

The suggestions include looking at the feasibility of a couple of large banks providing associate memberships to smaller banks to participate in the cheque truncation system.

While, the RBI had rejected the panel’s suggestion to levy a charge on cheques, the other recommendations for incentivising electronic payment systems are being considered by the RBI.

The annual turnover, in value terms, in the various payment and settlement systems rose 37.5 per cent to Rs 4,23,74,063 crore in 2006-07 from Rs 3,08,15,285 crore in 2006.

Indusland Bank looking for a new name, image to attract customers

2007-09-03T03:19:00.000-07:00

Indusland Bank wants to consolidate its presence in the private sector banking in India and has started hunting for a new name.

Financial Express reports that the names short-listed so far are Indus Bank, the Plus Bank, the Right Bank and so on. Sources say that the bank is in the midst of appointment of an international consultant to carry out the make over. The consultant will also help the bank for the upcoming media blitzkrieg.

The bank management wants to complete the change of name exercise by November 2007 and launch a nationwide media campaign thereafter.The campaign is scheduled to g on till March 2008 with an initial budget of Rs 10 crore.

The bank recently had a successful GDR issue and its net worth touched Rs 1,056 crore as on March 31, 2007. The bank posted a total business turnover of Rs 28,700 crore and is poised for greater growth in the years ahead.

Personal Loan business is growing aggressively

2007-08-23T00:03:00.000-07:00

Market for personal loan in India is growing and has become competitive with the coming of foreign banks and non banking finance companies entering this space. Banks such as ICICI Bank, HDFC Bank, Citibank, Standard Chartered Bank, Centurion Bank of Punjab and non banking finance companies such as GE, DBS Cholamandalam, and Fullerton India among others are aggressively marketing personal loans.

With the growth the level of delinquency has gone up by 10-20 per cent. This rise in the delinquency has led the banks to tighten their due diligence of marketing agents and also reviewing recovery strategies.

The RBI data shows the growth of 23 percent in the personal loans year-on-year to Rs 87,944 crore as on May 25, 2007.

Banks and NBFCs are working on unsecured loans products as the yield in this business is high which covers for any defaults. There is a variation in the interest rate on personal loans from 14 percent to 30 per cent.

Neeraj Swaroop, CEO, Standard Chartered India said, “We see growth in the personal loans business. In the unsecured space, we have better ability and hence, we are aggressively pursuing the personal loans business.”

But there are some banks like IndusInd Bank, a private sector bank who are opting out of the personal loan business. Bhaskar Ghose, managing director, InduInd Bank said, “The yield in unsecured loans is higher. However, whenever there is an economic downturn or the customer faces an economic crisis, individuals tend to default on these loans. Hence, on a standalone basis we have stopped giving personal loans.”

IndusInd Bank will give personal loans only to customers with corporate salary accounts as the number of defaulters is rising. Ghose said, “This is the safest way to do the business as the bank deducts the installment from the salary account and if the employee decides to quit the organization, then the amount is deducted from the final settlement.”

According to bank’s loan data, 58 per cent accounts for vehicle finance loans, 13 per cent account for other retail loans and balance is wholesale (corporate) loans.

ICICI making zoom in private banking

2007-08-06T04:43:00.000-07:00

ICICI bank has a strong foothold amongst the Indian private banks. It has a base of over a lakh customer, and is looking further to embark on a wider branding exercise for its flourishing private banking business.

Anup Bagchi ICICI SGM Global Private Banking said, “We now have a base of over one lakh private banking customers and in a couple of months we start branding the division to help the new generation develop relatedness with the bank."

There has been growth in the financial sector with top executives working with MNC taking home fatter pay packets, with employee stock options and small and medium enterprises on the accent.

Private banking involves specialized financial and investment advisory services for high net worth individuals through relationship managers.

Bagchi said the bank plans to double the number of relationship managers which explains the inherent demand from the sector.

Apart from the four metros cities, the cities like Pune, Nasik, Banaglore and Chandigarh, having large industrial activities too are providing the opportunities for private banking.

Bagchi further added, in the months to come, ICICI will develop special lounges for its private banking customers in 20-25 metopolitian and bigger cities. "The lounges are a way to provide the aspirational value to the customers, who have had a long association with the bank."

Apart from the four metros cities, the cities like Pune, Nasik, Banaglore and Chandigarh, having large industrial activities too are providing the opportunities for private banking.

Banks discourage customers from taking personal loans

2007-07-27T22:20:00.000-07:00

In January this year the central bank imposed higher provisioning norms on personal loans due to this state-owned banks are discouraging retail customers from taking personal loans in spite of slowdown in loan growth and abundant liquidity.

There has been a growth in personal loans over the past few years, along with a rise in earnings of the organized workforce in a buoyant economy. But, once the Reserve Bank of India’s norms on provisioning kicked in, banks had to set aside 2% as standard provision on personal loans. According to this norm for each personal loan of Rs 100 which is treated as a standard loan, banks have to set aside Rs 2 as a provision. This is deducted from operating profit.

To discourage customers from seeking personal loans, banks have started to insert fresh clauses in loan documents which make it difficult for customers to avail of such loans. Some banks like Corporation Bank and Canara Bank have started asking customers to provide for an undertaking from their employers. “This is like seeking a guarantee from the employer which is not very easy to get,” pointed out a senior banker.

According to senior Canara Bank official, the bank is also insisting that the borrower should have a salary account with them in order to obtain personal loans without any collateral. “This is because we have noticed rising instances of loans without any security going bad. Thus, if the borrower has a salary account with us, the EMI is directly deducted from it which reduces the scope of default.”

Further to discourage personal loans, some banks are insisting on third-party guarantees in case the loan value is very high, besides seeking a guarantee from the borrower. For instance, Bank of India has decided not to increase its target on its personal loan portfolio. This means that fresh loans will be given only to the extent of repayment of the existing loans.

According to bankers, a substantial chunk of salary accounts, especially of private corporate, has been cornered by private banks. However, when it comes to locking in to loans, many employees prefer to access personal loans from PSU banks, mainly due to lower rates charged by them. While most PSU banks have pegged personal loans to the prime lending rate (12-14%) or a 100-200-basis point premium on big ticket loans, private and foreign banks charge as high as 16-21%.

With the upswing in property prices, banks are adopting a cautious approach to approving home loans. More and more banks are reluctant to approve home loans at a fixed rate. Banks like Canara Bank and Bank of India have stopped disbursing fixed rate loans while others such as State Bank of India, Punjab National Bank and Allahabad Bank have inserted a reset clause in their fixed rate loan documents.

Recently, the Bank of Baroda board also passed a resolution to insert a reset clause at the end of five years for their fixed rate home loans. Sources said Central Bank of India, too, is considering inserting a similar clause in its fixed rate home loans. The decision will be taken after the bank completes its IPO by the end of this month. The reset clause protects the lender from fluctuations in interest rates.

HDFC and Citigroup plan of cross-selling products canceled

2007-07-26T23:45:00.000-07:00

The agreement signed between Housing Development Finance Corporation (HDFC) and Citigroup has been cancelsd. According to this agreement the two were to sell the mortgage lender’s loan products under the American bank’s India network.

In this working agreement the two has agreed for cross-selling each other’s products recently, which followed the increase of Citigroup venture in HDFC to 12.3 percent and also nominated its representatives in HDFC board. Citigroup officially describes its venture in HDFC as a financial investment.

According to banking sources Citigroup and HDFC are not going ahead with their plan as it would have created a conflict of interest between HDFC Bank and its promoter, HDFC. HDFC Bank has not launched its own home loan products and instead sells HDFC loans for a fee. HDFC holds around 23.32 per cent in the bank.
Citigroup, in response to an email query, said, “We will have to decline comment.”

HDFC did not reply to an email sent a week back.

In May, managing director of HDFC, Keki Mistry, said that the agreement between HDFC’s and Citigroup will be worked out in such a way that there would be no conflict of interest with HDFC bank.

HDFC recently while filing with the Securities and Exchange Commission with regard to its $700 million American depository receipts issue, recently released a statement that, “the bank may face potential conflicts of interest relating to our principal shareholder, HDFC Limited."

HDFC and Citigroup had plans to expand their cross-sell relationship beyond home loans, which were to be sold based on the mortgage lender’s risk criteria.

When HDFC decided to make a preferential allotment to private equity investor Carlyle Group, Citigroup sought a preferential allotment to itself to ensure the US financial services provider’s venture in HDFC remains at 12.3 per cent.

A Personal Loan without risk

2007-07-25T23:44:00.000-07:00

When anybody thinks about taking a loan the first thing that comes in mind we have to guarantee something as security with the lender to get a loan and the interest rates. But there is a loan that comes in your hands without having to guarantee any property as security.

An unsecured personal loan, is one such loan that you can take without any big problem from lenders. You can utilize unsecured personal loan for any purpose including home renovations, buying a car, for wedding and holiday tour or for debt consolidation.

In this loan you are not at all required to furnish any of your property to the lender as collateral in taking unsecured personal loan. This makes borrowing any amount a fully risk free affair for the borrower. This loan is especially useful for tenants or non-homeowners.

Unsecured personal loans are solely approved on the lender’s faith in the borrower’s capacity to repay and intention of timely clearing the installments. So you are required to show your income and employment documents to the lender.

Smaller amount ranging from ₤5000 to ₤25000 is usually approved as unsecured personal loans. The paying back period is 5 to 15 years.

But the interest rate matters a lot in loans. And unsecured personal loans carry very high rate of interest. If your credit history is good then you may get the loan at lower rate. But the people with low credit score, the loan rate goes even high. Before applying for the loan check your credit score.

The people with bad credit are also eligible for unsecured personal loans only if the lender is satisfied about their loan repaying capacity. So take an assuring repayment plan for the loan approval.

It is better to study the market first, take rate quotes of lenders so that you know the prevailing interest rate for your circumstances.

For fast processing and approval of the loan preferably apply to an online lender for the loan.

Watch on end use of loans

2007-07-24T23:18:00.000-07:00

Some banks are of view that the corporate credit is finding its way to stock market, due to this some banks have clamped down on general purpose loans to corporates. On other loans banks are insisting that payments on behalf of the corporates be made directly.

Central bank fears corporate credit is finding its way to the bourses. Some public sector banks, concerned that the money lent to corporates could find its way into the stock market, are asking branches to follow stricter due diligence in lending to corporates.

The benchmark Bombay Stock Exchange (BSE) Sensex has already marked 13 record highs in 16 trading sessions. The Sensex ended at a new peak of over 15,732 points today. Foreign institutional investors have been net buyers in July.

According to a senior public sector bank executive, “whatever is happening in the stock markets has highlighted the need for monitoring the end use more diligently now. The end use of funds is of prime concern to us. We do not want our money to find its way into the stock market.”

Some banks are looking to avoid making fresh disbursements where it is not possible to ascertain the end use of funds. These banks are looking to cut down on loans advanced for general purpose.

“We are trying to avoid or reduce giving general purpose loans. We are giving loans where it is possible to verify the end use of funds. We are sensitizing branches and zones on how to monitor the end use,” said A D Parulkar, executive director, Bank of India.
Borrowers are required to state the purpose for which they are taking the loan and also submit an auditor’s certificate at the time of availing of credit.

“However, a mere declaration by borrower or submitting a chartered accountant’s certificate is not enough. We are also looking at direct remittance or payments on behalf of corporates,” said the senior executive.

Where banks lend as a part of a consortium, the lead bank is asked to monitor the end use of the funds. Last month, the practice of banks providing short-term, unsecured loans to corporates at low interest rates had come under the Reserve Bank of India (RBI) scanner.

The RBI had asked banks to furnish information on short-term, unsecured loans disbursed at rates below the prime lending rates (PLRs) after realising that such low-cost lending was replacing working capital loans.

The RBI was concerned that some banks, driven by their zest to increase portfolio sizes, had extended short-term loans without adequate due diligence on the end use.
The central bank is also worried that lax monitoring and absence of collaterals could lead to a decline in the asset quality during tough times.

Loans but at what Price?

2007-07-22T23:21:00.000-07:00

Now days the changes are occurring so fast, the way of thinking and living have changed. Every one is trying hard to keep themselves up to mark in this race. To help people banks/NBFCs are providing loans so that people can fulfill their wishes. But the lucrative offers in these loans make people end up in heavy debts.

At the time of giving loan banks check all the income related documents attached with the application. The banks do explain terms and conditions and the interest rates the loan carries with it. But these unsecured loans in many cases may be of a small ticket size, but, they carry high interest rates and also other charges in the event of default. In many cases, lending organizations are taking advantage of the unregulated interest rate regime and vulnerability of their customers and subjecting them to the torture of recovery agents.

Many times customers end up repaying the outstanding, which consists of little principal but high amounts of financial charges/fees and other charges. In select cases, interest rate can be as high as 48% per annum and in case of default and non-payment, when other fees with service tax are added, this can easily cross more than 100% per annum. In case the borrower wants to pre-pay the loan, there is a pre-payment charge. So a situation is created through a loan agreement or card holder agreement, the ramification of which is never explained to the borrower by the DSA/DMA.

There had been a case in which the Supreme Court of India in criminal appeal No 267 of 2007 on February 26, a case involving a leading bank has come out with a lot of important observations. One point made is that — for the lender — it is not a mere question of lending the money that matters, but also the consequence thereafter. Thus, there is an element of social responsibility. Secondly, recovery of loans or seizure of vehicles can be done only through legal means. Thirdly, strictures ought to be imposed on erring banks to curb their high-handed activities and make them answerable to the general public. Finally, the apex court has said that banking procedures should be people-friendly and at the same time, strict in its enforcement and educative enough to guide the public of the benefits of prudent banking and the lender should be transparent in their transactions with the borrowers.

The provisions of The Usurious Loans Act 1918 read with The Punjab Relief of Indebtedness Act, 1934 indicates that any rate above 12.5% simple rate of interest per annum on unsecured loans can be considered as ‘usurious’ by the competent court.

Against the above back drop, the Reserve Bank of India in it’s Annual Policy Statement for 2007-08 made a mention of the complaints received by it and Banking Ombudsman offices and stated that in a deregulated interest rate regime, rates of interest beyond a certain level may be seen to be usurious and can neither be sustainable nor in conformity with banking prudence. Therefore, the banks are advised to lay down internal principles and procedures so that such usurious interest including processing and other charges are
not charged.

This was followed by a directive through a circular dated May 7 to all commercial banks inter alia stating that the total cost to the borrower, including interest and all other charges levied on a loan, should be justifiable having regard to the total cost incurred by the bank in extending the loan, which is sought to be defrayed and the extent of return that could be reasonably expected from the transaction. Besides they are required to put an appropriate ceiling on interest and other charges and suitably publicize it.

The banks are required to implement this circular by September 7. Similar directions have been issued to Regional Rural Banks (RRBs), urban banks and NBFCs and RNBCs by RBI. However, in case of NBFCs/RNBCs, RBI has advised that excessive interest rate can neither be sustainable nor be conforming to normal financial practice. Therefore, the board should lay down internal principles and procedures in determining the interest rate and processing and other charges.

The step taken by RBI is in the interest of the society and the banks/NBFCs. It is mandatory for the banks/NBFCs to implement the same. At the same time there is need to keep check whether all these institutions will voluntarily reduce the interest rates and other charges adequately in a fair and just manner keeping in mind the corporate social responsibility, as a good corporate citizen, as no ceiling has been prescribed by RBI.

There are certain regulatory measures which NBFCs and RNBCs have to take in consideration. NBFCs and RNBCs beyond a cut-off asset size may be asked to publish their balance sheets and profit and loss accounts in newspapers and put it in their websites so that the public at large become aware about the profit generated in their business. Also it may be considered to put in place a non-discretionary penalty on banks/NBFCs by prescribing the amount for any violation noticed and established in a transparent manner.

For credit cards, the banks may be advised to open service points/contact points where a card holder can walk in to obtain a duplicate bill, make payment towards his bill, surrender the card or report loss of card against proper receipt which will mitigate most of the after sales problems faced by the card holders.

The regulator is doing its duty now it is the borrower who has to show his understanding. The banks and NBFCs are commercial organizations; the borrower should borrow sensibly to avoid a debt trap.

Change in the payment protection insurance over the internet

2007-07-16T02:00:00.000-07:00

People taking out personal loans online are set to save large amounts of cash because payment protection insurance will no longer be sold to them automatically.

That is according to independent payment protection insurance provider Paymentcare.co.uk.

The Financial Services Authority (FSA) announced publicly that major finance firms have agreed to change how they sell payment protection insurance over the internet.

Before payment protection was automatically included, using techniques such as a 'pre-ticked' box in the online deals offered by the personal loans providers.

With this decision taken by the personal loan providers, as a result customers have to actively choose to buy insurance.

Shane Craig, the managing director of Paymentcare said, "this is excellent news for consumers and yet another step in the right direction towards ensuring they receive the fair treatment they expect and deserve,"

"It’s also a very positive move for the image and reputation of the industry and will help to ensure that the people who really want protection will no longer be scared off."

Vernon Everitt, FSA director of retail themes, added: "We have made payment protection insurance a top priority and are pleased that firms have agreed to change the way they sell payment protection insurance over the internet.

"Naturally, many customers are focused on getting the loan itself, but it is just as important that they also think about whether or not they want to protect their loan repayments by taking out payment protection insurance cover.

"This change means that it will be up to the customer to actively choose to buy payment protection insurance rather than it being sold automatically."

HDFC Bank increases NRE deposit rates

2007-07-10T06:18:00.000-07:00

HDFC Bank has increased interest rate on its (Non-resident Indian – external) NRE deposits, effective from July 1, 2007. Interest rate on NRE deposits for three to five years maturity will increase by 16 basis points to 5.45 per cent against 5.29 per cent earlier. Deposits of 2 to less than 3 year maturity, the increase is by 12 basis points to 5.43 per cent as against 5.31 per cent earlier.

The rate of interest for deposits maturing between one and two years is up by 3 basis points to 5.42 per cent as against 5.39 per cent earlier. The NRE rates were last revised by the bank on June 1, 2007.