Banks directed to set up Entrepreneurship Development Institutes

The State government is focusing on the self employment of the youth and has asked the banks that are having more than 15 branches in the state should set up the Entrepreneurship Development Institutes (EDIS) in line with the Rural Development and Self Employment Training Institute (RUDSET Institute). The official sources said that the banks that have not opened their EDIs should speed up the process of setting up a similar institute in the state.

The State Bank of India (SBI), UCO Bank, Andhra Bank, Canara Bank and Syndicate Bank have set up such institutes; Union Bank of India has started the process of setting up a similar institute in the state.

The banks that have not yet opened their EDI have been instructed to set up such institutes in the rented premises without further delay. They can also look for land/shed/building in the districts where they propose to set up these institutes.

In the recent meeting of the State Level Bankers’ Committee (SLBC) held in October it was discussed that the interested banks will have to apply to the collector of the concerned district through the District Industries Centre (DICs).They can take support or assistance from the National Bank for Agriculture and Rural Development (Nabard) and involve it in the process while opening such institutes.

Further, in the situation of insufficient finance with the micro, small and medium enterprises (MSMEs) in the state, the banks have been instructed to improve credit flow to the sector. The pending applications for loans under MSME category will be cleared off at the earliest.

In addition banks have been directed to take maximum advantage of the Credit Guarantee Trust for Micro and Small Enterprises (CGTMSE) as it helps the entrepreneur to get collateral free loans up to Rs 50lakh. It is being expected to boost the finance under SME sector.

The SLBC has formulated a plan of action to improve the credit-deposit ratio in the state and also to increase the quantum of differential rate of interest (DRI) loans to 1 percent of the total advances.

According to the plan of action, the cent percent financial inclusion of Kendarapada, Koraput, Kandhamal, Kalahandi, Nuapara, Baragarh, Jharsuguda, Jagatsinghpur, Bhadrakh, Balasore, Dhenkanal, Mayurbhanj and Gajapati would be completed at the earliest and for the entire state the process must be completed by 2009.

Whereas the banks who have accepted the handloom clusters must extend necessary finance to those clusters, and the banks who have not yet adopted the clusters must which adopt the clusters which have been identified by the textile and the handloom department of the Orissa government.

Further more, to boost crop production in the state, banks have been asked to finance the schemes related to farm mechanization, Jalanidhi program and other subsidy linked scheme sponsored by the agriculture department of the Orissa government.

Home prices to cut by 25% this Diwali

There is good news for people who still have plans to buy home that most realtors are advertising cash discounts of 5-10 per cent on upfront payment and buyers can get up to 25 per cent discount if they book properties and can wait for two to three years until possession. Consultants are of view that developers might even give 15-20 per cent discount on the price as they are eager to clear inventories.

Generally, the October-December is the period when the sale accounts to around 60 per cent. But this year the developers are under tension due to sharp decline in property sales. Since the beginning of the year, home sales have halved due to high interest rates and a sharp rise in the monthly loan payouts of borrowers.

Recently a national poll was conducted among top property brokers by Mumbai-based brokerage Edelweiss Securities, in which nearly 90 per cent said they have seen a drop in transactions in the last one month and almost 80 per cent have witnessed a reduction in enquiries during the same period.

Oberoi Constructions had planned to launch a 300-apartment complex called Oberoi Island in the Goregaon suburb of Mumbai during Diwali. The realtor was considering offering apartments under construction, which were expected to be completed in two years, at Rs 9,000 per sq ft from the current price of Rs 12,000 per sq ft.

Some of the developers such as Mumbai-based Sunil Mantri Realty are more honest about the price cuts, as there company has already advertised a 6 per cent discount for its 206-apartment complex Mantri Royale in Bangalore, was launched last Thursday. The company will be selling flats at Rs 2,590 per sq ft, instead of the normal Rs 2,750 a sq ft, for the next 15 days and is planning to extend it further, depending on the buyers’ response.

Mantri Realty is also planning to give similar offers at its upcoming projects at Gwalior in Madhya Pradesh and Solapur in Maharashtra, slated for launch in the second and fourth week of October respectively.

“It makes much more sense to give discounts and waive off stamp duty to persuade customers to buy apartments when the market is facing a slowdown. Every buyer demands a little more for his money and we are doing that,” said Sunil Mantri, promoter of Sunil Mantri Realty.

In view of sharp decline in property sales, the Maharashtra Chamber of Housing and Industry (MCHI), a trade body of realtors, has already directed its members to bear the stamp duty charges and pay a part of the interest cost on loans in order to improve the declining sales.

In the National Capital Region (NCR) of Delhi too, where price alteration was deeper than Mumbai, developers are giving out discounts to attract customers. Delhi-based Pearls Infrastructure is also giving 6 per cent discount on down payments in its Nirmal Chaaya Tower at Zirakpur and has announced 8 per cent discount in the Pearl City project at Mohali in Punjab.

However big developers such as DLF, Ansal API, Parsvnath Developers and Raheja Developers have not yet advertised discounts, they are launching their new projects, for the mid-income segment during Diwali to attract buyers in the mid-income segment.

"We want to launch our projects during Diwali because properties launched at this time get better response. At a time when sales are down, Diwali comes as a major sentiment booster for developers as well as customers," said Dimple Bhardwaj, spokesperson, Raheja Developers, which is launching a 412-apartment project at Gurgaon.

Whereas some realtors and consultants are of view that the discounts and offers will not help improve property sales since home loan rates are high and property prices are out of reach of ordinary buyers.

“This Diwali will not be like that of previous years. The current market sentiment is down and the developers are feeling the heat. I do not think that the discount offer of Rs 1-2 lakh will make a customer buy an apartment that costs more than his pocket,” said Anshuman Magazine, managing director, property consultancy CB Richard Ellis.

Akshaya Kumar, MD of Park Lane Property Advisors, added, "This Diwali will be a damp squib for the property market. Only in 2010, developers can do some good business. Developers may offer 5-10 per cent discount this time depending on their strength,'' Kumar says.

Prakash Gurbaxani, founder and chief executive of Bangalore-based QVC Realty, points out competitive pricing is the key to sell property than discounts. QVC is launching its 100-villa project QVC Hills, with each villa costing Rs 2-4 crore, in Bangalore during Diwali. "Nobody will wait for a Rs 5 lakh discount to buy a Rs 2 crore house. You have to price the property right and product should be good,'' he said.

Banks to offer Diwali bonanza by cutting home loan rates

The creditworthy borrowers can look for Diwali bonanza to be offered by many commercial banks that are planning to cut home loan rates by about 50 basis points after RBI has announced cut in repo rate on Monday.

the State Bank of India (SBI), country’s largest lender will probably will be reducing retail home loan rates before Diwali whereas Punjab National Bank (PNB) and Union Bank of India (UBI) have already cut rates by up to 50 basis points. But all types of loans might not carry the rate cut of 50 basis points.

On the other hand the private home loan providers like HDFC and ICICI have plans to adapt the wait and watch policy, a rate cut by market leader, the SBI, often has a ripple effect on many banks. UBI has cut rates by 50 basis points for loans up to Rs 30 lakh.

The rate cut for loans above Rs 30 lakh, however, will be only 25 basis points. Also, there is the possibility that for loans amounting to Rs 75 lakh and above, the rate cut may be even lower. Sources say some banks may even decide against cutting rates for loans above Rs 75 lakh.

While many banks, including SBI, have set a new ceiling of home loans above Rs 75 lakh; they have laid down a different rate structure for these loans. However the government recognizes only two types of home loans, those below and above Rs 30 lakh. However the former comes under priority sector lending. Moreover, rate cuts will not be applicable to commercial borrowers like real estate companies.

“Our bank is contemplating a rate cut following the recent measures taken by the Reserve Bank. Though the decision to reduce rates may come at any point in time, it’s expected that the bank would take a decision after seeing RBI’s half-yearly monitory policy on October 24,” an SBI official said.

Banks are also following some tough norms. He informed that the bank is following strict norms while deciding an individual’s creditworthiness for allocating loans so that the bank do not have to face the subprime-like situation.

Meanwhile according to finance ministry sources the government is in constant touch with commercial banks to ensure easy liquidity for priority sector loans.

“The government and the central bank have taken a series of measures to infuse liquidity into the system and there is no reason that the banks should be wary of providing credit to genuine borrowers even after that,” an official said.

Banks slowdown on loan disbursal, both retail and corporate

Banks have slowdown the disbursal of loan, both retail and corporate due to shortage of funds. Banks are distributing loans on selective basis and holding back the fund commitments to corporate customers. Bankers pointed out that banks are asking for higher margins and more security against the loans, in loans to sensitive sectors.

A senior official from State Bank of India said the bank is monitoring loans for big projects more carefully, especially real estate loans, for which the bank is asking for higher margins and greater security. “We are being careful about big projects and are examining various parameters, because we are dealing with a scarce commodity,” he said, referring to the cash crunch.

He added but no reduction has been done in retail loans such as housing loans and car loans and loans to SME and agri sectors.

Mr R.S. Reddy, Chairman and Managing Director, Andhra Bank, pointed out that the liquidity crisis in the financial markets is also responsible for driving banks to hold fund commitments to corporate customers.

“With inter-bank call rates going as high as 22 per cent (for temporary liquidity) how can we lend at 15 per cent? So, big corporate customers are being told to wait,” he said.

Mr Romesh Sobti, Managing Director and CEO, IndusInd Bank, also stated that banks have stopped lending. “Lending is down to a trickle in whatever form it is,” he said.

Ms Renu Challu, Managing Director, State Bank of Hyderabad said though there is no respite in applications for funding projects or working capital from the corporates, but there has been decrease in the disbursal due to lack of liquidity from the banks’ side.

“There is no halting of lending, but it has been put on hold in some cases. And, till recently, RBI actually wanted this to tame inflation. However, now with the inflation coming down and RBI sending signals about increasing liquidity, the situation should improve,” she said.

While Mr S.K. Goel, Chairman and Managing Director, UCO Bank, pointed out that banks have not stopped lending, people have started withdrawing deposits more out of panic.

Mr K.R. Kamath, Chairman and Managing Director, Allahabad Bank stated for banks to get short-term money is a costly to affair when the cost of funds moving up significantly. “Banks are facing problem raising short-term funds, therefore, there has been some slowdown in credit disbursements on a short-term basis,” he said.

Mr V.K. Dhingra, Executive Director, UCO Bank, stated that banks are finding lending operations difficult in view of tight liquidity conditions. “There has been some slowdown in short-term lending operations of banks,” he observed.

Mr T.M. Bhasin, Executive Director, United Bank of India said, “There is a demand from the corporate side, liquidity was the only constraint. The present cut in CRR will hopefully enable banks to extend short- term advances.”

According to Mr Deepak Khaitan, Chairman, McNally Bharat Engineering Company Ltd said that on the corporate borrowing front, companies are holding back their decisions to raise funds. “The CRR cut will help infuse some money into the system; however, there seems to be little improvement in the interest rate situation which continues to remain high. We are therefore cutting down our borrowings and repaying our debt in order to reduce the burden,” he said.

Regarding the loans against shares bankers said many of the banks are asking for higher margins or selling shares.

Mr Sobti pointed out, “There are no broker defaults, SEBI has stated this. However, there are small cases of defaults when margin calls are not met. In such cases, shares are being sold by the banks”.

“Due to RBI’s strict restrictions and timely advice on exposure to capital market and commercial real estate, there have been no broker defaults so far. We have been charging slightly higher on loans due to the liquidity crunch,” Mr Goel said.

Arcil acquired distraught consumer loans in housing and auto segment

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.

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.

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.