Arms is an innovative project of Asset Reconstruction Company of India Ltd (Arcil) has recently got hold of over Rs 1,200 crore worth of unpaid consumer loans in housing and auto segments. The main recovery is of housing loans segment of Rs 1,000 crore given by National Housing Board and ICICI Bank. Currently Arcil is having around Rs 10,000 crore sticky assets which it has acquired from other banks and financial institutions during the last three years of time.
S Khasnobis, managing director and CEO, Arcil, said, “This is the first time that an organized pan-India attempt is being made to recover distressed consumer retail loans. Arms would focus on resolution through dialogue and borrower co-operation, thereby fostering the culture of responsible borrowing and repayment.”
Khasnobis said the resolving strategy adopted by Arms for retail assets will be quite different from Arcil corporate assets’ recovery practice Recovery solution for retail loans segment is carried out after the thorough assessment of the borrowers’ paying capacity and the values of the collaterals. On the other hand, the company will not get hold of unsecured loans like credit and personal loan. “Though we would acquire them, at a much later stage, we will have to deal with them indirectly as it may involve the same borrowers. We will try to work out a resolution for retail assets,” he said.
Arcil’s latest proposal seems to be significant as a rough estimate by Crisil puts the size of bad loans in the retail segment to around Rs 15,000 crore as on March 31, 2008. This amount includes both housing as well as auto loan defaults in the country. Bankers are of view that in the current fiscal the delinquencies in home and auto loan portfolios might rise further because rise in the interest rates, after the regulators have taken strict steps in its latest monetary policy in order to control the rising inflation. As per the figures released by the Reserve Bank of India, as of May 2008, the total unpaid housing loans in India are estimated at Rs 2,62,486 crore.
Wednesday, August 27, 2008
Thursday, August 21, 2008
Union Bank to provide loans for low cost housing scheme for slums
Union Bank of India the public sector will be providing loans towards the beneficiary contribution in the low cost housing loan scheme planned for the urban poor in Bhubaneswar and Puri.
Under the low cost housing scheme project the houses will be built for the slum dwellers in these two cities under the Integrated Housing and Slum Development Program (IHSDP) being executed in Bhubaneswar and Puri municipality. Under the scheme, the Union government will be providing 80 percent of the project cost as grant and the remaining 20 percent will be shared equally by the state government and the beneficiaries. The Union Bank will be giving loan to the beneficiaries towards meeting their contribution in the project, if the beneficiaries want it.
A senior bank official informed that bank will be giving loan to the urban poor and slum dwellers under JNURM at 4 percent differential rate of interest (DRI).
A Sudhakar, DGM, Union Bank in an interview told the Business Standard "We have in principle agreed to provide loans for the low cost housing project under IHSDP for urban poor and slum dwellers being implemented by the Bhuabneswar and Puri municipalities. It is in the initial stage and we are working out the modalities for the proposed initiative".
He said, the bank will give loan at 4 percent rate of interest for construction of houses in these two municipalities.
However the state government will be looking after the activities like identification of the land, preparing the list of beneficiaries, inviting the bid and construction of houses, banks role will be limit to of providing required loan for the beneficiaries.
The beneficiary will have to pay back the loan to the bank within a set time frame of not exceeding 10 years and the bank will be keep the house mortgaged till the loan is cleared.
The bank will file the request for the approval from its corporate head office after the project details of the scheme are obtained from the state government.
Orissa will be the second state after neighboring West Bengal where the bank is extending loans for a housing scheme for the urban slum dwellers. Earlier bank has supported a similar project in Durgapur in West Bengal in the beginning of the current fiscal.
The progress seems to be important as the state government has received the signal from the Union government that the number of houses projected under IHSDP is most likely to increase substantially this year from about 11,000 last year.
Under the low cost housing scheme project the houses will be built for the slum dwellers in these two cities under the Integrated Housing and Slum Development Program (IHSDP) being executed in Bhubaneswar and Puri municipality. Under the scheme, the Union government will be providing 80 percent of the project cost as grant and the remaining 20 percent will be shared equally by the state government and the beneficiaries. The Union Bank will be giving loan to the beneficiaries towards meeting their contribution in the project, if the beneficiaries want it.
A senior bank official informed that bank will be giving loan to the urban poor and slum dwellers under JNURM at 4 percent differential rate of interest (DRI).
A Sudhakar, DGM, Union Bank in an interview told the Business Standard "We have in principle agreed to provide loans for the low cost housing project under IHSDP for urban poor and slum dwellers being implemented by the Bhuabneswar and Puri municipalities. It is in the initial stage and we are working out the modalities for the proposed initiative".
He said, the bank will give loan at 4 percent rate of interest for construction of houses in these two municipalities.
However the state government will be looking after the activities like identification of the land, preparing the list of beneficiaries, inviting the bid and construction of houses, banks role will be limit to of providing required loan for the beneficiaries.
The beneficiary will have to pay back the loan to the bank within a set time frame of not exceeding 10 years and the bank will be keep the house mortgaged till the loan is cleared.
The bank will file the request for the approval from its corporate head office after the project details of the scheme are obtained from the state government.
Orissa will be the second state after neighboring West Bengal where the bank is extending loans for a housing scheme for the urban slum dwellers. Earlier bank has supported a similar project in Durgapur in West Bengal in the beginning of the current fiscal.
The progress seems to be important as the state government has received the signal from the Union government that the number of houses projected under IHSDP is most likely to increase substantially this year from about 11,000 last year.
Thursday, August 14, 2008
FM advised public sector banks not to raise home loan rates in chief’s meet
Finance Minister P Chidambaram in a meet of chiefs of public sector banks has advised the public sector banks not to increase interest rates for home loans up to Rs 30 lakh and lend more to consumer’s even as the Reserve Bank of India is trying to moderate credit growth to contain inflation.
After the meet Chidambaram told the reporters, “(Responding to the monetary policy) Public sector banks have increased their benchmark prime lending rates by 75-100 basis points. Banks have said almost unanimously that it will not impact existing home loans up to Rs 30 lakh, auto loans and education loans”. According to sources banks have been advised by the minister not to raise interest rates for new home loans up to Rs 30 lakh also.
Sources added Chidambaram also requested the banks’ chiefs to increase disbursement of auto loans as well as personal loans by keeping interest rates affordable.
Taking indications from the North Block, most of the banks already have not touch interest rates in the above categories. Some banks such as the Punjab National Bank, which has raised interest rates for existing borrowers in these categories, but has given the assurance that they will re consider these portfolios.
After taking opinion from banks, Chidamabram said credit growth will be rapid this year. He indicated that advances are likely to grow by over 20 per cent, while deposits can be more than 17 per cent.
RBI has hooked the credit growth at 20 per cent and the deposit growth at 17 per cent for the banking sector in 2008-09. “Deposits are growing at a satisfactory rate compared to last year. Advances are higher compared to the last year (in the first quarter),” Chidambaram said.
Most banks have expressed that they are not witnessing any slowdown in credit demand. But, there has been no growth in farm credit due to the relief scheme.
After the meet Chidambaram told the reporters, “(Responding to the monetary policy) Public sector banks have increased their benchmark prime lending rates by 75-100 basis points. Banks have said almost unanimously that it will not impact existing home loans up to Rs 30 lakh, auto loans and education loans”. According to sources banks have been advised by the minister not to raise interest rates for new home loans up to Rs 30 lakh also.
Sources added Chidambaram also requested the banks’ chiefs to increase disbursement of auto loans as well as personal loans by keeping interest rates affordable.
Taking indications from the North Block, most of the banks already have not touch interest rates in the above categories. Some banks such as the Punjab National Bank, which has raised interest rates for existing borrowers in these categories, but has given the assurance that they will re consider these portfolios.
After taking opinion from banks, Chidamabram said credit growth will be rapid this year. He indicated that advances are likely to grow by over 20 per cent, while deposits can be more than 17 per cent.
RBI has hooked the credit growth at 20 per cent and the deposit growth at 17 per cent for the banking sector in 2008-09. “Deposits are growing at a satisfactory rate compared to last year. Advances are higher compared to the last year (in the first quarter),” Chidambaram said.
Most banks have expressed that they are not witnessing any slowdown in credit demand. But, there has been no growth in farm credit due to the relief scheme.
Friday, August 1, 2008
Banks hike floating home loan rates
HDFC and ICICI Bank are the two largest housing finance lenders in the country, have hiked their floating home loan rates by 0.75 per cent, which means a predicted over 12 percent of increase in the overall repayment.
ICICI Bank, biggest private sector lender of the country, has also increased the interest rate for retail fixed deposits by 0.75-1.00 per cent, which will come into effect from August 1.
In addition, bank has also increased its floating reference rate for consumer loans, including for housing by 0.75 per cent with an immediate effect.
Individually, HDFC informed that it has revised its retail prime lending rate on which adjustable home loans rate are benchmarked by 0.75 per cent, will be effective from August 1. With this hike, the floating rate home loans will cost at a minimum of 11.75 per cent for new HDFC customers, meanwhile bank has not touched the fixed rate which remains at 14 per cent.
While ICICI Bank sources said that the revised floating reference rate for its consumer loans will increase to 14.25 per cent, which are 13.5 per cent at present.
ICICI bank sources said fixed rate loans for its customers have been left unchanged. Although bank has announced a hike of 0.75 per cent in its benchmark advance rate, which would now increase to 17.25 per cent from 16.5 per cent currently.
The hike in floating reference rates by the banks means consumers will have to now take out over Rs 1,000 more every month as EMI for a loan of Rs 20 lakh, whose repayment is spread over 20 years. Yesterday few of the banks had announced hike in rates and others are expected to soon follow suit.
Hence on an 11.75 per cent floating rate, the EMI is estimated to work out to around Rs 21,675 per month, up Rs 1,031 from Rs 20,644 at a rate of 11 per cent. This is going to increase an overall additional burden estimated to Rs 2, 50,000 over the 20-year period.
Banks are revising rates in the wake of tight monetary measures announced by the RBI on Tuesday, when it asked the banks to maintain higher mandatory cash reserves with it and also increased its short-term key lending rates for them.
IDBI Bank, another private sector bank has increased its benchmark prime lending rate (BPLR) by 0.50 per cent to 14.25 per cent. As per bank release the increase will come into effect from August 1.
Yesterday Axis Bank hiked its PLR by 0.5 per cent to 15.75 per cent, which came into effect from July 31, while Jammu & Kashmir Bank has hiked its PLR by up to one per cent.
In order to tighten liquidity in the banking system to counter inflation, the apex bank has hiked the short-term inter-bank lending rates (repo rate) and mandatory cash reserve (CRR) by 0.50 per cent and 0.25 per cent, respectively.
According to experts in the coming years home loans can get costlier again as the RBI is expected to further tighten its monetary policy with additional CRR and repo rate hikes.
Other private-sector lenders Bank of Rajasthan (BoR) and Yes Bank has also hiked their BPLRs today by one per cent and 0.5 per cent to 16 per cent and 17 per cent, respectively.
ICICI Bank, biggest private sector lender of the country, has also increased the interest rate for retail fixed deposits by 0.75-1.00 per cent, which will come into effect from August 1.
In addition, bank has also increased its floating reference rate for consumer loans, including for housing by 0.75 per cent with an immediate effect.
Individually, HDFC informed that it has revised its retail prime lending rate on which adjustable home loans rate are benchmarked by 0.75 per cent, will be effective from August 1. With this hike, the floating rate home loans will cost at a minimum of 11.75 per cent for new HDFC customers, meanwhile bank has not touched the fixed rate which remains at 14 per cent.
While ICICI Bank sources said that the revised floating reference rate for its consumer loans will increase to 14.25 per cent, which are 13.5 per cent at present.
ICICI bank sources said fixed rate loans for its customers have been left unchanged. Although bank has announced a hike of 0.75 per cent in its benchmark advance rate, which would now increase to 17.25 per cent from 16.5 per cent currently.
The hike in floating reference rates by the banks means consumers will have to now take out over Rs 1,000 more every month as EMI for a loan of Rs 20 lakh, whose repayment is spread over 20 years. Yesterday few of the banks had announced hike in rates and others are expected to soon follow suit.
Hence on an 11.75 per cent floating rate, the EMI is estimated to work out to around Rs 21,675 per month, up Rs 1,031 from Rs 20,644 at a rate of 11 per cent. This is going to increase an overall additional burden estimated to Rs 2, 50,000 over the 20-year period.
Banks are revising rates in the wake of tight monetary measures announced by the RBI on Tuesday, when it asked the banks to maintain higher mandatory cash reserves with it and also increased its short-term key lending rates for them.
IDBI Bank, another private sector bank has increased its benchmark prime lending rate (BPLR) by 0.50 per cent to 14.25 per cent. As per bank release the increase will come into effect from August 1.
Yesterday Axis Bank hiked its PLR by 0.5 per cent to 15.75 per cent, which came into effect from July 31, while Jammu & Kashmir Bank has hiked its PLR by up to one per cent.
In order to tighten liquidity in the banking system to counter inflation, the apex bank has hiked the short-term inter-bank lending rates (repo rate) and mandatory cash reserve (CRR) by 0.50 per cent and 0.25 per cent, respectively.
According to experts in the coming years home loans can get costlier again as the RBI is expected to further tighten its monetary policy with additional CRR and repo rate hikes.
Other private-sector lenders Bank of Rajasthan (BoR) and Yes Bank has also hiked their BPLRs today by one per cent and 0.5 per cent to 16 per cent and 17 per cent, respectively.
Tuesday, July 22, 2008
NHB prepares mechanism to buy banks’ home loan portfolios
The National Housing Bank (NHB) is preparing a mechanism under which it has plans to buy housing loans from banks and housing finance companies (HFCs) and in turn it will provide liquidity and free up capital to these lenders. On the successfulness of this plan the housing finance market will be able to breathe easy as far as liquidity is concerned. NHB will be providing securities on the loan portfolios and sell the papers to institutional investors like banks and insurance companies.
In an interview to ET NHB executive director RV Verma said this is the first time NHB has planned to start such scheme. He said, “This is a new initiative which will provide liquidity to lenders and free up capital. This will ultimately channel more resources to the housing finance sector. This will also ease pressure on home loan interest rates.”
He explained the working of the structure. NHB will be holding purchased assets in its balance sheet for advance securitization. In this process, the portfolios will get more tested with NHB. It means NHB will work as a warehouse of mortgage assets need to be securitized and then will be sold to investors without diluting the standard of the assets.
On Monday a meeting was held between NHB brass and the lender in which the decision was taken to develop this new liquidity window. NHB will be providing this facility in parallel with the usual refinance window.
As indicated by preliminary discussions, the apex housing bank will be buying only the standard assets which are having low risk weight age. Loans which are less than or equal to Rs 30 lakh will be eligible for this arrangement. “We would like to buy loans which have minimum seasoning of at least six months,” Mr Verma said.
After the amendment in Securities & Contracts Regulation Act securitized instruments can be traded and this has given an added flexibility to the securitized market. “The seasoning of assets and trade ability will help fetch a good price for the securitized assets,” Mr Verma said, further adding that this whole exercise of securitizing will in turn help NHB continue funding over and above the exposure limit to individual entities.
In an interview to ET NHB executive director RV Verma said this is the first time NHB has planned to start such scheme. He said, “This is a new initiative which will provide liquidity to lenders and free up capital. This will ultimately channel more resources to the housing finance sector. This will also ease pressure on home loan interest rates.”
He explained the working of the structure. NHB will be holding purchased assets in its balance sheet for advance securitization. In this process, the portfolios will get more tested with NHB. It means NHB will work as a warehouse of mortgage assets need to be securitized and then will be sold to investors without diluting the standard of the assets.
On Monday a meeting was held between NHB brass and the lender in which the decision was taken to develop this new liquidity window. NHB will be providing this facility in parallel with the usual refinance window.
As indicated by preliminary discussions, the apex housing bank will be buying only the standard assets which are having low risk weight age. Loans which are less than or equal to Rs 30 lakh will be eligible for this arrangement. “We would like to buy loans which have minimum seasoning of at least six months,” Mr Verma said.
After the amendment in Securities & Contracts Regulation Act securitized instruments can be traded and this has given an added flexibility to the securitized market. “The seasoning of assets and trade ability will help fetch a good price for the securitized assets,” Mr Verma said, further adding that this whole exercise of securitizing will in turn help NHB continue funding over and above the exposure limit to individual entities.
Monday, July 14, 2008
Banks hike home loan rates HDFC, ICICI hike by 75 bps
Inflation has already stretched everybody’s household budget. Now the banks are hiking interest rates on home loan which is going to further strain the budget as they have to reduce their spending to pull out more for EMI.
HDFC home loan market leader announced an increase of 50 basis points hike in interest rate for all its existing borrowers with floating rate loans. But for the new borrowers the increase will be around 75 basis points on floating as well as fixed rate loans.
After this increase the new customers will have to pay Rs 1,033 for every Rs 1 lakh as EMI on a 20 year loan. While for the existing floating rate customers EMI will increase by Rs 34 for every Rs 1 lakh loan with an outstanding tenure of 20 years.
Therefore after the revised structure the floating rate for new borrowers will be 11% and fixed rate 14%. The same level was last seen in the mid 90s. The hike in rates will be effective from July 1.
Along with HDFC the country’s second – largest bank, ICICI also announced a 75 basis points hike in the fixed as well as floating home loan interest. After this hike there will be 14.75% increase in the fixed loan interest perhaps the costliest in the sector.
Country’s largest public sector bank State Bank of India (SBI) will also be raising interest rates on home loans and auto loans by 50 bps on all linked to prime lending rates (PLR). SBI has increased PLR from 12.25% to 12.75% last week due to the increase in short-term lending rate to banks and the mandatory cash deposits that banks need to keep with the apex bank (CRR) by 50 bps each by the Reserve Bank of India. Punjab National Bank has also increased its PLR by 13%.
After the increase in PLR by the banks the households are now left with higher returns on deposits as their support. HDFC bank has hiked interest on deposits by 50bps while ICICI bank has increased by 50 to 100 bps more to new deposits and renewals.
In February HDFC bank had lowered its PLR by a quarter points. On the other hand the two public sector banks Canara Bank and Bank of India at present has decided not to hike home loan and auto loan rates even though they have increased interest rates for other categories of borrowers by 50 bps to 13.25%. On a floating rate basis, Bank of India is offering home loans in the group of 9.25-10% and Canara Bank is charging 10-10.75%.
Allahabad Bank and Dena Bank the state owned banks have also taken decision to raise PLRs by 50 bps to 13.5%. Canara Bank, Allahabad Bank and Dena Bank have increased their deposits by 25 to 75 basis points, whereas Bank of India is yet to decided on the same.
HDFC home loan market leader announced an increase of 50 basis points hike in interest rate for all its existing borrowers with floating rate loans. But for the new borrowers the increase will be around 75 basis points on floating as well as fixed rate loans.
After this increase the new customers will have to pay Rs 1,033 for every Rs 1 lakh as EMI on a 20 year loan. While for the existing floating rate customers EMI will increase by Rs 34 for every Rs 1 lakh loan with an outstanding tenure of 20 years.
Therefore after the revised structure the floating rate for new borrowers will be 11% and fixed rate 14%. The same level was last seen in the mid 90s. The hike in rates will be effective from July 1.
Along with HDFC the country’s second – largest bank, ICICI also announced a 75 basis points hike in the fixed as well as floating home loan interest. After this hike there will be 14.75% increase in the fixed loan interest perhaps the costliest in the sector.
Country’s largest public sector bank State Bank of India (SBI) will also be raising interest rates on home loans and auto loans by 50 bps on all linked to prime lending rates (PLR). SBI has increased PLR from 12.25% to 12.75% last week due to the increase in short-term lending rate to banks and the mandatory cash deposits that banks need to keep with the apex bank (CRR) by 50 bps each by the Reserve Bank of India. Punjab National Bank has also increased its PLR by 13%.
After the increase in PLR by the banks the households are now left with higher returns on deposits as their support. HDFC bank has hiked interest on deposits by 50bps while ICICI bank has increased by 50 to 100 bps more to new deposits and renewals.
In February HDFC bank had lowered its PLR by a quarter points. On the other hand the two public sector banks Canara Bank and Bank of India at present has decided not to hike home loan and auto loan rates even though they have increased interest rates for other categories of borrowers by 50 bps to 13.25%. On a floating rate basis, Bank of India is offering home loans in the group of 9.25-10% and Canara Bank is charging 10-10.75%.
Allahabad Bank and Dena Bank the state owned banks have also taken decision to raise PLRs by 50 bps to 13.5%. Canara Bank, Allahabad Bank and Dena Bank have increased their deposits by 25 to 75 basis points, whereas Bank of India is yet to decided on the same.
Tuesday, June 17, 2008
RBI links risk weight on home loans to loan-to-value ratio
Reserve Bank of India (RBI) has linked the risk weight on home loans provided by co-operative banks to the loan-to-value ratio of the advance extended.
In the near future co-operative banks will find much easier to extend home loans if the loans are for only a small portion of the property value. The Reserve Bank of India (RBI) has coupled the risk weight on home loans provided by co-operative banks to the loan-to-value ratio of the advance extended.
Therefore for home loans up to Rs 30 lakh and below 75% of the value of the property, banks will be required to set aside only 50% of the capital which they were required to maintain earlier.
In case the loan amount exceeds Rs 30 lakh in absolute terms but is still less than 75% of the property value, the capital requirement will be 75% of standard requirement. But there is no relief in capital adequacy requirement, if the bank provides loans for more than 75% of the value of the property.
The amount of capital banks are required to set aside for each loan is decided by the minimum capital adequacy ratio prescribed by the central bank.
Capital adequacy ratio is the ratio of a bank’s net worth to its risk-weighted credit exposure. The risk weight age, in turn, is the ratio which determines the credit risk in a particular loan asset.
However capital adequacy ratio is fixed at a flat 10% for banks, RBI reduces the capital requirement by increasing or reducing the risk weight age for loans in certain segments. For instance, for home loans up to Rs 30 lakh, the risk weight age on the loan is 50%. Hence banks will be required to set aside only 50% of the capital they keep aside for loans with a 100% risk weight age.
RBI increases or reduces the risk weight age depending on its observation of risk in a particular segment. Banks are able to reduce loss with the higher risk weight age in the event of a default. Banks also discourage lending in such segments by making it more capital intensive.
The central bank has made norms easier for branch and ATM licensing for co-operative banks, subject to their maintenance of a minimum CRAR of 10% on a continuous basis. There is one more condition for the co-operative banks that they need to have net NPAs of less than 10% and should have made a profit in the preceding year.
In the near future co-operative banks will find much easier to extend home loans if the loans are for only a small portion of the property value. The Reserve Bank of India (RBI) has coupled the risk weight on home loans provided by co-operative banks to the loan-to-value ratio of the advance extended.
Therefore for home loans up to Rs 30 lakh and below 75% of the value of the property, banks will be required to set aside only 50% of the capital which they were required to maintain earlier.
In case the loan amount exceeds Rs 30 lakh in absolute terms but is still less than 75% of the property value, the capital requirement will be 75% of standard requirement. But there is no relief in capital adequacy requirement, if the bank provides loans for more than 75% of the value of the property.
The amount of capital banks are required to set aside for each loan is decided by the minimum capital adequacy ratio prescribed by the central bank.
Capital adequacy ratio is the ratio of a bank’s net worth to its risk-weighted credit exposure. The risk weight age, in turn, is the ratio which determines the credit risk in a particular loan asset.
However capital adequacy ratio is fixed at a flat 10% for banks, RBI reduces the capital requirement by increasing or reducing the risk weight age for loans in certain segments. For instance, for home loans up to Rs 30 lakh, the risk weight age on the loan is 50%. Hence banks will be required to set aside only 50% of the capital they keep aside for loans with a 100% risk weight age.
RBI increases or reduces the risk weight age depending on its observation of risk in a particular segment. Banks are able to reduce loss with the higher risk weight age in the event of a default. Banks also discourage lending in such segments by making it more capital intensive.
The central bank has made norms easier for branch and ATM licensing for co-operative banks, subject to their maintenance of a minimum CRAR of 10% on a continuous basis. There is one more condition for the co-operative banks that they need to have net NPAs of less than 10% and should have made a profit in the preceding year.
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