Although banks are offering cheaper home loan but there are not many borrowers to take loans from banks to buy houses. On the other hand lending to the distressed real estate developers by banks is comparatively high.
By the end of August 2009 the lending to the real estate was high at 41.5% from the previous year. Thus at the end of August 2009, the total commercial real estate loan outstanding amounted to Rs 96,701 crore which is up by Rs 28,353 crore as against the previous year.
A senior public sector banker said, “Banks lent a helping hand to big real estate companies after they got into trouble due to the liquidity crisis when foreign funds suddenly dried up. This was done so that some of the projects do not get stranded”. While, home loans has grown by just 5.4 per cent (Rs 14,668 crore) year-on-year to Rs 29,872 crore.
However year-on-year basis the increase in loans to individuals at the end of August 2009 amounted to just 4.1 per cent in contrast to credit card out standings and consumer durable loans dropped retail loan growth. This supports the sharp down fall in the private consumption demand for the first quarter of 2009-10 as projected in the GDP data.
According to a senior official working with private sector bank, “Banks are recoiling from unsecured lending. Personal loans and credit cards are now issued only to in-house customers after banks faced huge delinquencies”.
The credit card outstanding registered a declined growth of 14.3 per cent as the portfolio compressed by Rs 4,167 crore from Rs 7,173 crore in the year-ago period.
On the other hand the consumer durable loans reported a declined growth of 16.7 per cent with the portfolio compressing by Rs 1571 crore. Thus the banking system reported the total credit card outstanding of Rs 24,889 crore.
According to disaggregated data on sectoral deployment of gross bank credit of up to August 28, 2009 projected 53.8 per cent of incremental non-food credit (y-o-y) which was absorbed by industry against the 47.5 per cent in the corresponding period of the previous year. While the agricultural sector rapt around 21.8% of the incremental non-food bank credit as against 8.5% in the corresponding period of the last year.
The loans given to the industry grew by 17.9 per cent the portfolio showing increase by Rs 1,66,121 crore at the end of August 28, 2009 from Rs 2,30,229 crore in the year ago. The personal loan saw a growth by 2.3 per cent with its portfolio moving up by Rs 12,594 crore during this period from Rs 69,763 in the year ago period.
There was sharp growth of 34.5 per cent in the education loan segment with its portfolio growing by Rs 8,217 crore from Rs 6,576 crore in the year-ago period. However growth in incremental credit for services sector depicted a major deceleration. On year-on-year basis it reported a growth of 11 per cent with the portfolio increasing by Rs 62,775 crore at the end of August 2009.
The professional services segment was the most affected segment which reported the growth by 20.5 per cent while the year-ago period it had registered a growth of 64.6 per cent. Transport operators depicted a portfolio increase of 9.1 per cent from 26.3 per cent in the year-ago period.
Wednesday, October 28, 2009
Monday, October 26, 2009
To get home loan approved has got little more difficult
The banks offering 8% to 8.5% interest rate on home loans have made buying house affordable which in turn has revived the real estate market. On the other hand according to prospective buyers getting a home loan approved has got a little more difficult.
After the economic meltdown, banks are rechecking the installment to income ratios (the figure that determines the EMI). Previously on the loan up to 50% of the monthly salary banks had extended EMI (equated monthly installment). But, now this installment to income ratio is between 30% and 50%. Renu Sud Karnad, joint MD, HDFC, told, "It's not advisable to have a single number".
Also, many banks are taking into consideration only the recurring income of the potential buyer to calculate the monthly EMI. Praveen Kutty, executive V-P and head (retail banking), Development Credit Bank informed, "Banks are no longer looking benevolently at other sources of income such as performance bonus, variable pay, while computing the installment to income ratio". Karnad said, "Our focus is on income sources that are consistent while arriving at the ratio".
Kotak Mahindra Bank a private sector bank takes into account only the monthly income to calculate the EMI. Kamlesh Rao, executive V-P, Kotak Mahindra Bank stated, "We don't look at other incomes such as bonus because it may not be there every year". While some banks to maintain consistency in loan disbursals, they are assigning sector-wise ‘installment to income' ratios. These ratios are calculated on the basis of the performance and the credit rating of the industry.
According to analysts banks are taking stringent steps to improve the risk management.
Clyton Fernandes of AnandRathi Financial Services stated, "Some time back, capital was hard to come by. Banks did not want to set aside huge amounts towards lending because if delinquencies arose, they would have had to make provisions for those".
The banks are scrutinizing documentation stringently before disbursing home loans. Besides checking the pre-requisite documents like IT returns of three years, PAN card copy and bank statements of the last six months, banks are also examining details such as passbook entries to check withdrawal patterns. Rao pointed out, "Banks like us are actively tapping the Cibil (Credit Information Bureau) list to check the credit card payment history. Such checking is now integral to the credit buying process".
And from the professionals who have shifted to metros, banks are asking for title deeds of house in the hometown even though it is registered in the name of the parents, to establish the repayment capacity of the executive.
After the economic meltdown, banks are rechecking the installment to income ratios (the figure that determines the EMI). Previously on the loan up to 50% of the monthly salary banks had extended EMI (equated monthly installment). But, now this installment to income ratio is between 30% and 50%. Renu Sud Karnad, joint MD, HDFC, told, "It's not advisable to have a single number".
Also, many banks are taking into consideration only the recurring income of the potential buyer to calculate the monthly EMI. Praveen Kutty, executive V-P and head (retail banking), Development Credit Bank informed, "Banks are no longer looking benevolently at other sources of income such as performance bonus, variable pay, while computing the installment to income ratio". Karnad said, "Our focus is on income sources that are consistent while arriving at the ratio".
Kotak Mahindra Bank a private sector bank takes into account only the monthly income to calculate the EMI. Kamlesh Rao, executive V-P, Kotak Mahindra Bank stated, "We don't look at other incomes such as bonus because it may not be there every year". While some banks to maintain consistency in loan disbursals, they are assigning sector-wise ‘installment to income' ratios. These ratios are calculated on the basis of the performance and the credit rating of the industry.
According to analysts banks are taking stringent steps to improve the risk management.
Clyton Fernandes of AnandRathi Financial Services stated, "Some time back, capital was hard to come by. Banks did not want to set aside huge amounts towards lending because if delinquencies arose, they would have had to make provisions for those".
The banks are scrutinizing documentation stringently before disbursing home loans. Besides checking the pre-requisite documents like IT returns of three years, PAN card copy and bank statements of the last six months, banks are also examining details such as passbook entries to check withdrawal patterns. Rao pointed out, "Banks like us are actively tapping the Cibil (Credit Information Bureau) list to check the credit card payment history. Such checking is now integral to the credit buying process".
And from the professionals who have shifted to metros, banks are asking for title deeds of house in the hometown even though it is registered in the name of the parents, to establish the repayment capacity of the executive.
You can reduce EMIs, tenures of home loans by opening current account
The EMI (equated monthly installments) paid every month in case of home loan upset your budget. But if you plan your spending you can reduce the tenure and, also the interest component in your loan - in some cases will be reduced by half.
For instance, you take a home loan of Rs 10 lakh whose tenure is 20 years you have to pay an EMI of Rs 11,361. From your savings if you keep aside another Rs 3,000, you can reduce the tenure of your installments by 48 per cent and will be able to save around 53 per cent in interest.
Such scheme works in those cases where a bank grants a home loan and at the same time opens a current account, through which the EMI is to be paid. Usually, banks charge 0.5 per cent higher for such schemes than the normal home loan rate. The banks offering such schemes are State Bank of India offers and some foreign banks such as HSBC, Standard Chartered and Citibank.
“Since the interest rate will always be higher than the deposit rate, this is an ideal product in which one can save a lot on the interest part and clear off the loan at a faster rate,” a senior SBI official said.
However bank does not give any interest on the amount kept in a current account. But you can save extra money in your current account which will be advantageous. Banks calculate interest rate of your home loan on the principal amount outstanding minus the amount that is available in the account. This is calculated every month, and on the daily basis. Although this will not bring any change in the EMI amount, but the bank will reduce the tenure depending on how much interest has accrued from your money in the current account.
According to one of the financial expert, “Overseas, these kinds of loans are very popular and are known as ‘offset loans’ as the balance in the linked account offsets the home loan amount. These loans are the best for individuals who look to repay the home loan early by saving some sum in their kitty”.
Under this scheme you have the flexibility of using the money in the current account, in case of need. According to financial expert, “The advantage of this product is that it allows you to use your cash surplus to reduce interest liability and at the same time gives the flexibility of withdrawing whenever they want”.
For instance, you take a home loan of Rs 10 lakh whose tenure is 20 years you have to pay an EMI of Rs 11,361. From your savings if you keep aside another Rs 3,000, you can reduce the tenure of your installments by 48 per cent and will be able to save around 53 per cent in interest.
Such scheme works in those cases where a bank grants a home loan and at the same time opens a current account, through which the EMI is to be paid. Usually, banks charge 0.5 per cent higher for such schemes than the normal home loan rate. The banks offering such schemes are State Bank of India offers and some foreign banks such as HSBC, Standard Chartered and Citibank.
“Since the interest rate will always be higher than the deposit rate, this is an ideal product in which one can save a lot on the interest part and clear off the loan at a faster rate,” a senior SBI official said.
However bank does not give any interest on the amount kept in a current account. But you can save extra money in your current account which will be advantageous. Banks calculate interest rate of your home loan on the principal amount outstanding minus the amount that is available in the account. This is calculated every month, and on the daily basis. Although this will not bring any change in the EMI amount, but the bank will reduce the tenure depending on how much interest has accrued from your money in the current account.
According to one of the financial expert, “Overseas, these kinds of loans are very popular and are known as ‘offset loans’ as the balance in the linked account offsets the home loan amount. These loans are the best for individuals who look to repay the home loan early by saving some sum in their kitty”.
Under this scheme you have the flexibility of using the money in the current account, in case of need. According to financial expert, “The advantage of this product is that it allows you to use your cash surplus to reduce interest liability and at the same time gives the flexibility of withdrawing whenever they want”.
Wednesday, October 21, 2009
Interest rate war brewing up in the home loan segment amongst banks
This festival season, people can gain out of the interest rate war brewing up amongst the banks, in the home loan segment. Recently Development Credit Bank (DCB) and GIC Housing are offering home loans below the 8% level. DCB has recently entered the segment, is offering 7.95% for loans up to Rs 5 crore at fixed interest rate for the first year and floating rates from second year onwards.
Praveen Kutty, executive V-P and head, retail banking, DCB said, “While affordable housing is the buzzword these days, the market would get a further boost if attractive financing options are available”. While the Central Bank of India and Punjab National Bank on certain loan segments have waived off processing fees and documentation charges. On comparing rates one will find that there isn’t much difference between 7.95% and 8% home loans, thus bankers say that it’s mainly a psychological pricing to attract more borrowers.
According to analysts borrowers prefer to go for low interest bearing home loan accounts and that too offered by the nationalized banks over private banks. VS Reddy, MD, Lakshmi Vilas Bank pointed out, “While there has been demand in the affordable home loan segment (up to Rs 30 lakh), the activity in the upper bracket (loans above Rs 50 lakh) has mostly revolved around restructuring or takeover of such accounts by another bank”.
On the other hand private sector bankers caution borrowers that before signing on the dotted line they should check through the sub 8% schemes.
Renu Sud Karnad, joint MD, HDFC says, “Many of these 8% schemes are of short duration, between three months and one year. But for us, housing finance is the only product...unlike some of the other lenders for whom home loans maybe just one of their products”. The bank is offering a floating rate of 8.75% for loans up to Rs 15 lakh, 9% (Rs 15-50 lakh) and 9.5% for loans above Rs 50 lakh up to 20 years. Thus HDFC is expecting to increase its disbursal by at least 20% this year.
On the other hand borrowers say it is not easy to do such change over. IT professional R Ram who took a Rs 8 lakh home loan from a private bank at 12% is planning to change account to a nationalized bank for sometime now.
“I am half way through my EMI repayment and have been trying to shift my account for sometime now but it’s not happening. First, the bank with whom I have a home loan said I have to pay a hefty penalty and transfer fees. After I agreed to that, they are now insisting that they need clearance from head office in Mumbai. The bank is saying some more documentation needs to be completed and more procedures need to be followed. It is quite frustrating.”
Praveen Kutty, executive V-P and head, retail banking, DCB said, “While affordable housing is the buzzword these days, the market would get a further boost if attractive financing options are available”. While the Central Bank of India and Punjab National Bank on certain loan segments have waived off processing fees and documentation charges. On comparing rates one will find that there isn’t much difference between 7.95% and 8% home loans, thus bankers say that it’s mainly a psychological pricing to attract more borrowers.
According to analysts borrowers prefer to go for low interest bearing home loan accounts and that too offered by the nationalized banks over private banks. VS Reddy, MD, Lakshmi Vilas Bank pointed out, “While there has been demand in the affordable home loan segment (up to Rs 30 lakh), the activity in the upper bracket (loans above Rs 50 lakh) has mostly revolved around restructuring or takeover of such accounts by another bank”.
On the other hand private sector bankers caution borrowers that before signing on the dotted line they should check through the sub 8% schemes.
Renu Sud Karnad, joint MD, HDFC says, “Many of these 8% schemes are of short duration, between three months and one year. But for us, housing finance is the only product...unlike some of the other lenders for whom home loans maybe just one of their products”. The bank is offering a floating rate of 8.75% for loans up to Rs 15 lakh, 9% (Rs 15-50 lakh) and 9.5% for loans above Rs 50 lakh up to 20 years. Thus HDFC is expecting to increase its disbursal by at least 20% this year.
On the other hand borrowers say it is not easy to do such change over. IT professional R Ram who took a Rs 8 lakh home loan from a private bank at 12% is planning to change account to a nationalized bank for sometime now.
“I am half way through my EMI repayment and have been trying to shift my account for sometime now but it’s not happening. First, the bank with whom I have a home loan said I have to pay a hefty penalty and transfer fees. After I agreed to that, they are now insisting that they need clearance from head office in Mumbai. The bank is saying some more documentation needs to be completed and more procedures need to be followed. It is quite frustrating.”
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