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.
Monday, April 28, 2008
Wednesday, April 9, 2008
Fitch Ratings expects defaults in unsecured personal loans in India to increase
Personal loans are usually fixed rate loans, and are unsecured in nature. They do not carry any guarantee, collateral or guarantor. Given their unsecured nature, personal loans are not pleasant to the same recovery efforts that are seen in other asset classes.
Fitch Ratings said personal loan financing in India is very competitive business and this might have pushed many institutions to initiate loans in riskier segments.
According to Fitch Ratings defaults in unsecured personal loan sector in India will continue to increase. In its recently published report titled 'Indian Unsecured Personal Loan Transactions', Fitch has stated that the loan performance has continued to worsen in India since July 2007. In support to this, the rating agency had noted that delinquencies in the personal loan sector have been higher than those seen in other asset classes.
"Since then, loan and recent events have seen some lenders criticized for their recovery strategies, which in some cases may have led to other borrowers willfully becoming delinquent," Fitch said.
In response to the advertising of the engagement of recovery agents, the Reserve Bank issued draft guidelines to all scheduled commercial banks in its medium-term review of the annual policy for 2007-08 in November 2007.
In its report the rating agency stated that the immediate impact of rising delinquencies in unsecured consumer loans is on declining collection efficiencies in personal loan transactions mainly because banks are resorting to a softer recovery approach in the form of legal notices and increased phone calls.
In the long run, the regulator seems to make banks more accountable for their third-party recovery agents.
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.
Thursday, March 13, 2008
Banks going for strict norms for personal loans to keep borrowers at bay
When you enquire from the banks whether they are going slow on personal loans you will get answer as No. But there are some subjective evidences which points towards it. The banks have intentionally stopped promoting it as a product and laying more stress on home loan and educational loan melas.
Then what is the reason for this becoming an unpopular product? There are a number of reasons for not being too aggressive about this product now. Bankers, not wanting to get his name disclosed said, “The default rates are on the rise; we have to make higher provisioning to cover the risk weights; and this is making the product more costly leading to higher default. The monitoring mechanism is not easy. Borrowers prefer to default on personal loans since there is no collateral that can be seized. It is a vicious cycle.”
Banks directly are not rejecting the loan applicants but have fixed more stringent norms to keep such borrowers at bay. Selective private banks in the South when asked they said they have had revised the parameters to make it a ‘well-structured’ product. One of such new norm says - not to lend loans to people who have held a job for less than 3 years.
Earlier banks used to give personal loans if you had been employed in a place for at least one year time period but now these straightaway rule are going to set as rolling stones for those who hop for jobs every year.
An official maintain that “We found every 10th such account giving us problems. This clause disqualifies those that hop jobs more frequently”.
Banks are stressing more on investing in stock market due to which they have started refusing personal loans, for purchase of unapproved site and to those that do not have a monthly salary.
Even the loan amount approved has also come down. The approvals do not exceed five times the gross annual income as compared to seven times the gross income sanctioned earlier.
Though, some banks are stepping ahead of sanctioning loans for conducting a daughter’s marriage or some other personal function at home.
The official referring to the marriage advance said, “Personal loan is relationship banking. And such advances have not gone bad”. It seems you have to play the sentiment card to get a personal loan now!
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!
Wednesday, March 12, 2008
Public Sector Banks impose virtual ban on personal loans
The number of defaults has been on increase due to which banks are not willing to sanction personal loans to the customers. Some of the public sector banks have even imposed a virtual ban on personal loans (which are also called clean loans as they carry no security on them), while in private banks there has been a considerable slowdown in the pace of these loans.
So if you have any plans of taking personal loans to meet any expenses then it is better to go for any other option.
While some public sector banks have imposed a virtual ban on personal loans (which are also called clean loans as they carry no security on them), there has been a significant slowdown in these loans in private banks.
“It is true that the personal loan market is tight and there is more caution among the banks. As some banks would be Basel-II compliant by the end of this month, there is more focus on risk mitigation,” Mr Amitabha Guha, Managing Director, State Bank of Hyderabad (SBH), told Business Line.
According to sources many banks, including State Bank of Hyderabad, Andhra Bank, Vijaya Bank and Bank of India, have taken back the power from the branch manager of sanctioning loans and the zonal offices have been given the discretion or the centralized retail asset processing centers have been authorized with this power. “Clean loans are a strict ‘no’ in our bank now though you cannot get any thing on record. The increasing defaults and recovery difficulties are behind this,” a senior official of Andhra Bank said.
However no coverlet ban has been imposed officially, the bankers are devising their own ways of discouraging the customers.
Mr Nagendra, who works for a private firm have sought for a personal loan from Central Bank of India branch, confirms this that the banks are not willing to sanction personal loans.
“I have been asked to produce salary certificates and bank statement for last three years besides property documents in my name for a clean loan of Rs 50,000,” he said.
Even the major private banks like ICICI Bank and HDFC Bank have tightened up their procedures by revamping the score system.
“Compared to last year, there has been a 30-35 per cent increase in the rejection of personal loan applications in the last six months due to tough due diligence,” an ICICI Bank official said.
“The fact that banks are ready to lose a lucrative interest income ranging up to 22 per cent shows things are not well,” an official in SBH Retail Assets Central Processing Centre here said.
So if you have any plans of taking personal loans to meet any expenses then it is better to go for any other option.
While some public sector banks have imposed a virtual ban on personal loans (which are also called clean loans as they carry no security on them), there has been a significant slowdown in these loans in private banks.
“It is true that the personal loan market is tight and there is more caution among the banks. As some banks would be Basel-II compliant by the end of this month, there is more focus on risk mitigation,” Mr Amitabha Guha, Managing Director, State Bank of Hyderabad (SBH), told Business Line.
According to sources many banks, including State Bank of Hyderabad, Andhra Bank, Vijaya Bank and Bank of India, have taken back the power from the branch manager of sanctioning loans and the zonal offices have been given the discretion or the centralized retail asset processing centers have been authorized with this power. “Clean loans are a strict ‘no’ in our bank now though you cannot get any thing on record. The increasing defaults and recovery difficulties are behind this,” a senior official of Andhra Bank said.
However no coverlet ban has been imposed officially, the bankers are devising their own ways of discouraging the customers.
Mr Nagendra, who works for a private firm have sought for a personal loan from Central Bank of India branch, confirms this that the banks are not willing to sanction personal loans.
“I have been asked to produce salary certificates and bank statement for last three years besides property documents in my name for a clean loan of Rs 50,000,” he said.
Even the major private banks like ICICI Bank and HDFC Bank have tightened up their procedures by revamping the score system.
“Compared to last year, there has been a 30-35 per cent increase in the rejection of personal loan applications in the last six months due to tough due diligence,” an ICICI Bank official said.
“The fact that banks are ready to lose a lucrative interest income ranging up to 22 per cent shows things are not well,” an official in SBH Retail Assets Central Processing Centre here said.
Wednesday, March 5, 2008
Arcil plans to float an independent company to take over bad retail assets
There has been rise in defaults in the personal loans segment and to clean up their balance sheets the banks have been selling their bad retail assets to Asset Reconstruction Company (India) Ltd (Arcil). In view of this Arcil has is planning to float an independent company to arm to take over bad retail assets.
According to sources “Arcil is close to floating a company over the next month. We are talking to FIIs and banks to bring them together to form a company”. But it’s not clear whether the private company would require getting a license from RBI. As per sources RBI had earlier turned down Arcil’s proposal to float a subsidiary for its proposed retail venture. Asset reconstruction companies act as debt collector and acquire non-performing assets (NPAs).
Amongst private sector banks Arcil is handling Rs 800 crore of bad retail assets from ICICI Bank. Several public sector banks have also approached Arcil to take over their bad retail assets. Up till now Arcil has acquired bad loans from 47 banks and financial institutions in the country.
As per Crisil report, gross NPAs in retail loans are set to rise to 4% over the next two years from 2.7% at end-March, 2007. Dues across all retail asset categories have gone up and are likely to rise further in 2008-09.
For corporate bad assets, there are slew of measures, including Corporate Debt Restructuring, BIFR and Debt Recovery Tribunals, are avenues for resolving bad debt, whereas in the case of retail loans every debt will have to be handled individually. “Greater attention will be given to resolution of loans. The tenure for loans may be extended to address credit stress,” an Arcil official said.
The average expected rate of return for retail loans is around 20%. The average size of a bad asset in the retail portfolio is much smaller therefore it is more difficult to resolve. “The rate of return could be about 8-10% for a retail loan, but if one takes an average for a package of loans it could even be 20%,” a source said. Whereas rate of return of bad corporate assets range between 20-25%.
According to experts except home loans, all other assets in the retail portfolio register a fall in price. In the case of housing loans, real estate prices have appreciated; hence the pricing for such assets will be different.
Banks are now reluctant to get rid of their bad industrial assets since these accounts are revolving well on the back of improved fundamentals in the economy. They are gambling on fundamental real estate assets backing these bad accounts.
Pricing is an issue for most banks.
According to analysts so far, Arcil was the only major asset reconstruction company, making pricing for bad assets uncompetitive. But with the opening of 4-5 ARCs the pricing for bad assets will improve.
According to sources “Arcil is close to floating a company over the next month. We are talking to FIIs and banks to bring them together to form a company”. But it’s not clear whether the private company would require getting a license from RBI. As per sources RBI had earlier turned down Arcil’s proposal to float a subsidiary for its proposed retail venture. Asset reconstruction companies act as debt collector and acquire non-performing assets (NPAs).
Amongst private sector banks Arcil is handling Rs 800 crore of bad retail assets from ICICI Bank. Several public sector banks have also approached Arcil to take over their bad retail assets. Up till now Arcil has acquired bad loans from 47 banks and financial institutions in the country.
As per Crisil report, gross NPAs in retail loans are set to rise to 4% over the next two years from 2.7% at end-March, 2007. Dues across all retail asset categories have gone up and are likely to rise further in 2008-09.
For corporate bad assets, there are slew of measures, including Corporate Debt Restructuring, BIFR and Debt Recovery Tribunals, are avenues for resolving bad debt, whereas in the case of retail loans every debt will have to be handled individually. “Greater attention will be given to resolution of loans. The tenure for loans may be extended to address credit stress,” an Arcil official said.
The average expected rate of return for retail loans is around 20%. The average size of a bad asset in the retail portfolio is much smaller therefore it is more difficult to resolve. “The rate of return could be about 8-10% for a retail loan, but if one takes an average for a package of loans it could even be 20%,” a source said. Whereas rate of return of bad corporate assets range between 20-25%.
According to experts except home loans, all other assets in the retail portfolio register a fall in price. In the case of housing loans, real estate prices have appreciated; hence the pricing for such assets will be different.
Banks are now reluctant to get rid of their bad industrial assets since these accounts are revolving well on the back of improved fundamentals in the economy. They are gambling on fundamental real estate assets backing these bad accounts.
Pricing is an issue for most banks.
According to analysts so far, Arcil was the only major asset reconstruction company, making pricing for bad assets uncompetitive. But with the opening of 4-5 ARCs the pricing for bad assets will improve.
Tuesday, February 26, 2008
Bank defrauded of multi-crore by well renowned school
The multi-crore fraud came into light when some teachers discovered about personal loans against their names after the death of the chairman, management committee Dr Shyam Sunder Sharma (42) on January 15. According to bank reports personal loans against 30 staff members, including teachers and 297 students. But according to sources the names of all 297 such students mentioned in the list are not on the school rolls.
The case seems to be first of its kind in which the Chairman of the management committee of Doon Dhruva Public School, a well-known ICSE-affiliated residential school near here, has fraudulently took personal and educational loans worth crores from a nationalized bank in the name of staff members and students by forging their signatures and using bogus documents
In 2006 for this school a special scheme of educational loan was approved by the bank. According to the sources the total outstanding amount of both types of loans is estimated around Rs 8 crore even as the bank authorities claimed it to be around Rs 4-5 crore. Everything appeared to be okay as per the bank’s auditing report as repayments of the loans were being made regularly. After the untimely death of Mr Sharma the repayments stopped.
It is also bizarre that the branch manager concerned did not know that more than 500 signatures and documents were fake.
After the exposure, regional manager of the Central Bank of India J.R. Sharma personally supervised the investigation and removed the manager K.J. Rawat of the Sela Qui branch of the bank after discovering the grave lapses committed by him in executing the loans.
Sharma in his statement to The Tribune said, “As per a preliminary inquiry, we have found the branch manager prima facie guilty of not executing the loan documents in his own presence which he must have done as per banking rules. This cannot be possible without his connivance. The inquiry is on but I must tell you, this is the first case of its kind in my 35 years’ banking career”. The matter has been taken up to the higher authorities of the bank and all accounts operations with school have since been stopped.
The school was started four and half years ago, run by All-India Nilkanth Educational Society, Delhi, has 310 students from all parts of the country as well from Nepal and Bangladesh. It has 305 students on rolls, including 205 boarders. Its chairman Dr Sharma was a chartered accountant in Delhi before starting the school. His wife and vice-chairman Purnima Sharma, who has been personally looking after the school after her husband’s demise, pretended ignorance when asked for her comments on the whole matter.
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.
Tuesday, February 19, 2008
Loan at low interest rate to Class III, IV staff to buy computer
The standing committee had approved the civic administration’s decision to extend the loan facility provided to its Class I and II employees as also to its Class III and IV employees for purchase of computers.
In a query by corporator Sunil Gogale, civic administration said, “The loan facility at cheaper interest rate to purchase computer for Class III and IV employees have received the standing committee and general body approval. However, there has been increase in the loan amount from Rs 25,000 to Rs 40,000 made by the general body meeting and it needs another approval for its implementation.”
But the civic administration’s much overvalued decision to give loan at lower interest to its class III and IV employees for purchase of computers remains wedged in the administrative process.
The civic administration said it has planned implementation of the proposal and is waiting for the go ahead indication.
According to the proposal, an employee can take loan up to Rs 40,000 or the maximum cost of the computer at an interest rate of three per cent. The loan should be repaid in maximum of 60 monthly installments.
However the loan facility have a condition attached to it that the Class III employees should have certificate in basic computer applications and should have completed service of minimum five years. The Class IV employees should have completed service of minimum 15 years.
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.
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