Most of the bigger banks have slashed their lending rates after the persuasion from FM and the Reserve Bank of India.
According to bank officials many of the small and medium Indian banks will like to wait and watch before revising lending rates, even as some of their bigger peers reduced rates in the last few days.
"The bigger ones have done it, but others have not done it yet," said Prakash P Mallya, chairman and managing director of the state-run Vijaya Bank. He added that it would take a view after some of the medium sized banks have revised their rates.
Though on Wednesday four state-run banks, including the country's biggest lender, State Bank of India (SBI), revised their prime lending rates.
SBI and Canara Bank have cut rates by 25 basis points each, while Bank of India and Union Bank of India slashed rates by 50 basis points each.
"We have not taken any decision as yet," said V. Santhana Raman, executive director, Bank of Baroda, saying more so some bigger banks such as Punjab National Bank is yet to decide on the revision of rates.
Chairman Ananthakrishna told, private lender Karnataka Bank plans to keep all rates unchanged for some more days.
He added "We will wait and watch," it could review the rates in the first half of next month.
"We will take a decision in a week's time, maybe after the budget," said M. Venugopalan, chairman and CEO, Federal Bank.
He also added that there is not much liquidity available; however he acknowledged the rates are high after factoring in the deposit costs.
Commenting on whether there can be a rate cut he said, "We can’t be out of the market, we will be in line with the market".
M.S. Sundara Rajan, chairman of Indian Bank said "Our rates (PLR) are already competitive and there is no question of reducing it."
Friday, February 22, 2008
Wednesday, February 20, 2008
Eligibility criteria for getting home loan
There are number of factors that count for the eligibility for a housing loan. Though RBI has drafted guidelines for the eligibility for the loan but the banks have their own criteria to determine the eligibility and quantum of housing loan. The borrower’s should be aware of the factors before applying for the loan.
1. Information on the application form. The information filled by the customer in the application form is verified from various primary and secondary sources - through interviews, calling up the employer, verifying from the database etc. In case of wrong information or discrepancy, the loan application is liable to be canceled.
2. The financial status of an individual is an important factor for determining the eligibility because the repayment capacity of the borrower depends on the financial position. The income level, net income, liabilities etc determine the amount of loan.
The requirements include a particular minimum income or a fixed and certain source of income. The credit history of the borrower has an important role in determining the loan eligibility. Usually, the lenders maintain a database of borrowers and verify the credit history to check for previous repayment defaults, even from other lenders.
3. The personal profile of the individual is also important. These include factors like educational qualification, profession, number of dependents, assets owned, liabilities owed, savings history etc. A higher number of Dependants or existing liabilities implies lower repayment capacity.
4. The individual's age give an idea about the earning life, and the life cycle stage at which the individual is. In case the property is co-owned, the co-owner cannot be a minor. Moreover there is a fixed age limit of the co-owner. The age limits are set to minimize ownership disputes. The age limit is taken into consideration while fixing the tenure of the home loan and EMIs.
The applicant's retirement age is also considered. For example, if the applicant is 45 years of age and is set to retire at 60 years, the maximum loan tenure available will be 15 years.
Also, in case the bank has a 75-year age limit for a co-applicant, if the applicant is 40 years old and the co-applicant is 60 years old, then the home loan will be sanctioned for a maximum period of 15 years only.
5. The reputation of the builder also counts. List of pre-approved builders is available with each bank. Their credentials are already verified by the bank and as such loans are easily available for their properties.
6. Location of property also matters for the eligibility. Banks have specific norms with respect to a minimum area of a flat too. This may be built-up area or carpet area.
7. The age of the property is also an important consideration in case of purchase of existing properties.
If the resale property is less than 50 years old then only home loans are sanctioned. Banks conduct legal and technical appraisal of the property to see whether the title of the property is clear, there are no ownership disputes, the property is free from any encumbrances etc.
In case there are any objections in these appraisals loan application is liable to be turned down.
1. Information on the application form. The information filled by the customer in the application form is verified from various primary and secondary sources - through interviews, calling up the employer, verifying from the database etc. In case of wrong information or discrepancy, the loan application is liable to be canceled.
2. The financial status of an individual is an important factor for determining the eligibility because the repayment capacity of the borrower depends on the financial position. The income level, net income, liabilities etc determine the amount of loan.
The requirements include a particular minimum income or a fixed and certain source of income. The credit history of the borrower has an important role in determining the loan eligibility. Usually, the lenders maintain a database of borrowers and verify the credit history to check for previous repayment defaults, even from other lenders.
3. The personal profile of the individual is also important. These include factors like educational qualification, profession, number of dependents, assets owned, liabilities owed, savings history etc. A higher number of Dependants or existing liabilities implies lower repayment capacity.
4. The individual's age give an idea about the earning life, and the life cycle stage at which the individual is. In case the property is co-owned, the co-owner cannot be a minor. Moreover there is a fixed age limit of the co-owner. The age limits are set to minimize ownership disputes. The age limit is taken into consideration while fixing the tenure of the home loan and EMIs.
The applicant's retirement age is also considered. For example, if the applicant is 45 years of age and is set to retire at 60 years, the maximum loan tenure available will be 15 years.
Also, in case the bank has a 75-year age limit for a co-applicant, if the applicant is 40 years old and the co-applicant is 60 years old, then the home loan will be sanctioned for a maximum period of 15 years only.
5. The reputation of the builder also counts. List of pre-approved builders is available with each bank. Their credentials are already verified by the bank and as such loans are easily available for their properties.
6. Location of property also matters for the eligibility. Banks have specific norms with respect to a minimum area of a flat too. This may be built-up area or carpet area.
7. The age of the property is also an important consideration in case of purchase of existing properties.
If the resale property is less than 50 years old then only home loans are sanctioned. Banks conduct legal and technical appraisal of the property to see whether the title of the property is clear, there are no ownership disputes, the property is free from any encumbrances etc.
In case there are any objections in these appraisals loan application is liable to be turned down.
Tuesday, February 19, 2008
Banks to unload more of bad home loans to Arcil
Banks in a view to clean up their loan books drop by drop they are unloading their bad home loans to the Asset Reconstruction Company India Ltd (Arcil), the aggregator of distressed industrial assets.
It is not a frightening surge yet, but there are signs of more bad mortgages being passed on to Arcil to an extent that it is expecting of buying as much as Rs 2,500 crore of bad home loans —- or a quarter of its total distressed assets book —- by the end of 2008.
S Khasnobis, managing director and CEO, Arcil, said the company recently bought some more of distressed home loan receivables.
"The total size of our retail home-loan paper would be about Rs 800 crore at present," he said. "This is through Rs 400 crore worth of receivables collected in each of the last two quarters."
He said the ratio of bad home loans in the Arcil portfolio is going to increase, and this business is expected to drive future growth for the company.
Earlier in its recent study, rating agency Crisil had accredited the rising trend of defaults in home loans to increasing competition in the banking sector to capture market share.
Non-performing home loans are currently quite high at around 3.3 per cent, Crisil said.
Khasnobis said defaults on home loans ensue last in an economic unwind, after defaults on credit cards and personal loans.
Crisil said domestic housing finance companies have told it that non-performing home loans have risen in India because of "willing defaulters" and an "emerging population of fraudsters" over the last two years.
"This is a reflection of the industry's aggressive marketing tactics and some inadequacies in appraisal standards and systems," the rating agency said.
Khasnobis said to be profitable in the bothered home loans segment, economies of scale are crucial.
"We are setting up a dedicated team to manage home loan paper. Some people have already been recruited," he said.
It is not a frightening surge yet, but there are signs of more bad mortgages being passed on to Arcil to an extent that it is expecting of buying as much as Rs 2,500 crore of bad home loans —- or a quarter of its total distressed assets book —- by the end of 2008.
S Khasnobis, managing director and CEO, Arcil, said the company recently bought some more of distressed home loan receivables.
"The total size of our retail home-loan paper would be about Rs 800 crore at present," he said. "This is through Rs 400 crore worth of receivables collected in each of the last two quarters."
He said the ratio of bad home loans in the Arcil portfolio is going to increase, and this business is expected to drive future growth for the company.
Earlier in its recent study, rating agency Crisil had accredited the rising trend of defaults in home loans to increasing competition in the banking sector to capture market share.
Non-performing home loans are currently quite high at around 3.3 per cent, Crisil said.
Khasnobis said defaults on home loans ensue last in an economic unwind, after defaults on credit cards and personal loans.
Crisil said domestic housing finance companies have told it that non-performing home loans have risen in India because of "willing defaulters" and an "emerging population of fraudsters" over the last two years.
"This is a reflection of the industry's aggressive marketing tactics and some inadequacies in appraisal standards and systems," the rating agency said.
Khasnobis said to be profitable in the bothered home loans segment, economies of scale are crucial.
"We are setting up a dedicated team to manage home loan paper. Some people have already been recruited," he said.
Tuesday, February 5, 2008
Cibil and Banks plans database to curb home loan frauds
To keep a check on the home loan frauds banks along with the Credit Information Bureau (India) or Cibil have plans to create a database of mortgaged properties.
Cibil, which collects borrower details from banks, has approached the Indian Banks Association (IBA) with a proposal to develop a repository for mortgages. Banks have shown interest in creating a mortgage database as cases of borrowers having availed of multiple loans against the same property have come to light.
With the creation of mortgage database banks would be able to determine whether a property has been already mortgaged when a borrower comes to them for a loan against it and this would help in checking the increasing instances of housing loan frauds.
Banks will be giving details of the mortgaged property to help Cibil create the repository, besides sharing the borrower profile. Details such as the location and address of properties will be collected.
A senior IBA official said besides this from a credit report on the borrower, banks will be able to match the property to see whether it had been mortgaged already.
At present, a bank can only check the ownership details of a property, but it is not possible for them to determine if a loan has already been taken against it. It is possible to take color photocopies which are very similar to the original.
Even in the case of under-construction properties frauds have been detected. These properties have been unoccupied when a bank visited these for inspection, the official said.
Cibil is the only operational credit bureau in the country with 143 members, which includes 77 banks. In 2004 the number of checks done by members has gone up to 90 million per annum from 4 million annually.
Arun Thukral, managing director, Cibil, said: "There are registered mortgages and equitable mortgages. The repository would hold information on all mortgages. We are talking to banks. It is too early to say what shape or when the product will be launched."
Cibil, which collects borrower details from banks, has approached the Indian Banks Association (IBA) with a proposal to develop a repository for mortgages. Banks have shown interest in creating a mortgage database as cases of borrowers having availed of multiple loans against the same property have come to light.
With the creation of mortgage database banks would be able to determine whether a property has been already mortgaged when a borrower comes to them for a loan against it and this would help in checking the increasing instances of housing loan frauds.
Banks will be giving details of the mortgaged property to help Cibil create the repository, besides sharing the borrower profile. Details such as the location and address of properties will be collected.
A senior IBA official said besides this from a credit report on the borrower, banks will be able to match the property to see whether it had been mortgaged already.
At present, a bank can only check the ownership details of a property, but it is not possible for them to determine if a loan has already been taken against it. It is possible to take color photocopies which are very similar to the original.
Even in the case of under-construction properties frauds have been detected. These properties have been unoccupied when a bank visited these for inspection, the official said.
Cibil is the only operational credit bureau in the country with 143 members, which includes 77 banks. In 2004 the number of checks done by members has gone up to 90 million per annum from 4 million annually.
Arun Thukral, managing director, Cibil, said: "There are registered mortgages and equitable mortgages. The repository would hold information on all mortgages. We are talking to banks. It is too early to say what shape or when the product will be launched."
Self-help groups can take loans to build a house
National Housing Bank (NHB) has tied up with Chennai-based Repco Foundation for Micro Credit to distribute micro-housing loans. This will enable the Self-help groups (SHGs) to take loans for constructing a home. Before, SHGs used to take loans for starting enterprises. National Housing Bank (NHB) along with Repco Foundation for Micro Credit will give out loans on a pilot basis in five districts in Tamil Nadu.
Repco Foundation for Micro Credit, has been promoted by State-owned Repco Bank, is a Section 25 entity and has so far distributed loans worth Rs 50 crore among 5,000 SHGs.
In India, there is a provision for non-profit / public charitable organizations which can be registered as trusts, societies or a private limited non-profit company, under Section-25 companies.
"Our experience with SHGs shows that at least 90% of them want assistance for housing. We plan to disburse at least Rs 10 crore of credit for housing this year," said Mr M Balasubramanian, managing director, Repco Bank. In the initial stage the loans will be distributed in five districts in Tamil Nadu – Nilgiris, Coimbatore, Trichy, Madurai and Karur.
The ticket-size of the housing loan will range from Rs 25,000 to Rs 2 lakh, at an interest rate of 11.5%. "This loan is for people who already own the land and will be mostly used for renovation and additional construction, which usually takes around Rs 50,000," Mr Balasubramanian said. Also, as per the agreement, NHB will provide 100% refinancing for the loans disbursed.
A study was conducted on housing microfinance by IFMR's Center for Micro Finance according to the result of the study the main challenges faced by the housing microfinance in India are funding sources and security linkages, in terms of complicated land titles and security issues. Also, as housing is a consumption loan with no returns, unlike a business venture, micro finance institutions are reluctant to meet the housing demands
Industry analysts say that housing microfinance is still at a growing stage in India, with only a small group of micro finance institutions having disbursed this form of credit.
"This is mainly because the lending methodology is completely different and the repayment period is much longer than the normal loan period," said Ms Minakshi Ramji, research associate, Centre for Micro Finance- Institute for Financial and Management Research (IFMR)
In case of Repco's, the loans will be disbursed only to borrowers who have been associated with them at least for two years and each SHG will give the credit to the individual. "There is a credit guarantee provided by the group. The repayment period in such a loan is 84 months, compared to a normal loan which is 12 to 24 months," Mr Balasubramanian said. No collateral will be required for the loans up to Rs 50,000.
According to a report by NHB, in spite of refinance support to primary lending institutions, in rural areas the housing credit has remained dormant at 10% of the total bank credit during the last few years. Approximate calculations indicate that even by 2020, only 60% of India's population will be in the rural areas, in spite of increasing trends towards urbanization.
Repco Foundation for Micro Credit, has been promoted by State-owned Repco Bank, is a Section 25 entity and has so far distributed loans worth Rs 50 crore among 5,000 SHGs.
In India, there is a provision for non-profit / public charitable organizations which can be registered as trusts, societies or a private limited non-profit company, under Section-25 companies.
"Our experience with SHGs shows that at least 90% of them want assistance for housing. We plan to disburse at least Rs 10 crore of credit for housing this year," said Mr M Balasubramanian, managing director, Repco Bank. In the initial stage the loans will be distributed in five districts in Tamil Nadu – Nilgiris, Coimbatore, Trichy, Madurai and Karur.
The ticket-size of the housing loan will range from Rs 25,000 to Rs 2 lakh, at an interest rate of 11.5%. "This loan is for people who already own the land and will be mostly used for renovation and additional construction, which usually takes around Rs 50,000," Mr Balasubramanian said. Also, as per the agreement, NHB will provide 100% refinancing for the loans disbursed.
A study was conducted on housing microfinance by IFMR's Center for Micro Finance according to the result of the study the main challenges faced by the housing microfinance in India are funding sources and security linkages, in terms of complicated land titles and security issues. Also, as housing is a consumption loan with no returns, unlike a business venture, micro finance institutions are reluctant to meet the housing demands
Industry analysts say that housing microfinance is still at a growing stage in India, with only a small group of micro finance institutions having disbursed this form of credit.
"This is mainly because the lending methodology is completely different and the repayment period is much longer than the normal loan period," said Ms Minakshi Ramji, research associate, Centre for Micro Finance- Institute for Financial and Management Research (IFMR)
In case of Repco's, the loans will be disbursed only to borrowers who have been associated with them at least for two years and each SHG will give the credit to the individual. "There is a credit guarantee provided by the group. The repayment period in such a loan is 84 months, compared to a normal loan which is 12 to 24 months," Mr Balasubramanian said. No collateral will be required for the loans up to Rs 50,000.
According to a report by NHB, in spite of refinance support to primary lending institutions, in rural areas the housing credit has remained dormant at 10% of the total bank credit during the last few years. Approximate calculations indicate that even by 2020, only 60% of India's population will be in the rural areas, in spite of increasing trends towards urbanization.
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