Prepay your personal loans, Take top -up

The home loan and personal loan cannot be clubbed since both are different products. You can ask your home loan lender to give you a top-up loan on the security of the house and use that to prepay your personal loan. You will be eligible for a top-up loan only if your income is sufficient to repay both the home loan and the top-up loan and the property value is sufficiently large to provide an appropriate margin for both loans put together. If your existing home loan lender is not willing to consider your request, you can shift your loan to another lender with a request for a top-up loan which is likely to come at the same rate on the home loan.
* I had applied for a credit card from the bank in which I have a savings account. But they have rejected my application. What could be the reason behind such action?
Before issuing credit cards or for that matter any credit facilities, banks obtain the credit report of the applicant from the Credit Information Bureau of India Ltd (CIBIL). A bank can reject the credit card application if the applicant has a bad credit record or inadequate income. You are entitled to know the reason for the rejection of your application from the bank. Ask for a formal rejection letter and if the bank refuses, then you can file a complaint to the banking ombudsman at bankingombudsman.rbi.org.in. You can get a copy of your credit report from CIBIL using this link www.cibil.com/ credit-score to download the form.
* I am a 44-year-old businessman, with an annual inco-me of Rs 3.5 lakh. I have a life insurance cover of Rs 12 lakh. Please tell me if this cover is enough; if not please suggest me an action plan.
Considering your age and annual income, you need to take a life cover of at least 12 times of your annual income — i.e Rs 42 lakh. So you need to take an additional life cover worth Rs 30 lakh. A term insurance policy for a 44-year-old non-smoker for 25-year term — if bought online — would be cost you upwards of Rs 11,289.
I have been investing in Reliance mutual fund growth SIP since last three years. The return is not satisfactory. I can continue my contribution to SIP for the next three to five years. Is it advisable to continue my SIP or withdraw in loss?
Never stop an SIP when the market is down. Generally, investments made in the downturn reduce your average cost and produces excellent returns over the long term. So you should definitely continue the SIP though you can review whether the fund chosen by you is still appropriate or not. Reliance MF-Growth is a mid-cap fund. By looking into the fund performance, it has not beaten its respective benchmark returns.

For housing loans, now pay a larger pie of property value

Prospective home loan seekers will now have to shell out 25% to 30% of the value of a property as against 20% until now with the Reserve Bank of India asking banks to exclude stamp duty, registration fee and other levies from total cost.
Effectively, this means that the 'loan to value' ratio has come down by 5-10% for home loans from what it was earlier.
Stamp duty and other levies vary from state to state. In Maharashtra, for example, stamp duty is 5%, while in Bangalore it is 8%, Kolkata 7% and New Delhi 4%.
In Mumbai, value added tax (1%), service tax (2.6%), registration fee and stamp duty add up to 9-10% of the cost of the property.
Experts believe the RBI's latest move is aimed at curbing speculation in the property market. They point out that in December 2010, in order to check excessive lending by banks, RBI had directed commercial banks against lending more than 80 per cent of the value of a loan against property above Rs 20 lakh and not more than 90 per cent for loans below Rs 20 lakh.
While imposing the new set of curbs, the RBI has said, "This overstates the realisable value of the property, as stamp duty, registration and other documentation charges are not realisable. Consequently, the margin stipulated gets diluted."
Property experts say the RBI's move does not bode well for developers as it may lead to a further drop in home sales. "In the short run, the decision will put additional strain on the home buyer, at least till economic conditions improve," said Pranab Datta, vice chairman of Knight Frank, a property consultants firm.
"It is unfortunate that inspite of clarity on importance of the need to provide shelter, RBI has issued such anti-housing guidelines," said Lalit Kumar Jain, national president of Confederation of Real Estate Developers Association of India.
However, Om Ahuja, CEO (Residential) with JLL, another property consultants firm, believes the new notification will not impact home sales.
"So far, individuals used to put in 20% of own money. Now they will have to pay for stamp duty and registration from their own pockets. I think borrowers can do that without much issue as their loan amount also decreases," said Ahuja.

Banks ask borrowers to wrap their personal loans, overdraft services

The banking sector, reeling under a rise in non-performing assets (NPAs) from the corporate sector, is seeking to hedge loans to individual borrowers. Increasingly, borrowers are being asked to buy insurance policies to cover their loans. “Covers with personal loans and overdraft facilities have gained traction in recent times. Both public and private sector banks are aggressively pushing these products to retail customers,” said a senior State Bank of India (SBI) official. According to Reserve Bank of India data, outstanding personal loan, without housing, consumer durables, credit cards, etc, stood at Rs 12,817 crore at the end of December.
Insurance industry players say at present, almost 30 % of personal loan borrowers are buying insurance covers. And, that is increasing at a fast clip. In comparison, the penetration in case of home loans is up to 90 %, mostly for loans between Rs 10 lakh and Rs 1 crore and around 75-80 % for an average education loan of Rs 4 lakh and above.
 Since personal loans are for a period of three-five years, the premium is not very high. Also, if the borrower purchases a group insurance policy, the premium is even cheaper.
“At a small cost, both banks and borrowers are assured of peace of mind,” said a public sector bank head.
The premium for a 35-38-year old is Rs 350-400 per lakh annually, if one takes the group insurance route. A single-premium policy for five years will cost Rs 1,500-2,000.
Says A S Narayanan, chief distribution officer at Bajaj Allianz Life Insurance, “Group mortgage covers are fast gaining ground. A lot of people are buying covers for personal and overdraft to avoid burdening their families in the event of their death.”
Group mortgage covers are mostly single-premium covers, especially for personal loans, as these are short-duration loans as opposed to housing loans. There are various options, such as a single-premium reducing cover, a single-premium level cover, and regular-premium reducing and level covers.
Reducing covers, as the name implies, decrease as the outstanding loan amount (principal borrowed) decreases over the loan tenure.
This results in a lower premium as the loan amount decreases. On the other hand, a level cover stays stagnant even if the loan amount decreases. “Some of these policies also have a money-back proposition where the buyer gets back a certain sum at the end of five years,” said a senior SBI official.
According to bankers, borrowers are being sold the covers under the proposition of ‘no headache to families, in case of an untimely death or even unemployment’.
“Borrowers are showing interest because if there is a default due to death, the family will not be pestered or will not be burdened with a loan,” said the retail head of a private sector bank.
Some banks have even made it mandatory to purchase a cover with a personal loan. In the case of some, the premium is included as part of the loan fee. However, a senior SBI official says since the central bank does not allow linking an insurance product with any loan, banks have to take a consent order from the customer before selling such bundled products.

Trends of loans in January 2012

In year 2011, RBI kept increasing rates till Nov and just by the year end, they gave signals that rates may come down.
So in year 2012, here is what we expect in the loans market.

• Personal loans Trends

Personal loans  rates were stable in between 14%-40%. This range is defined by where do you work, how much you earn and what is your credit history.
So If you work for a top brand and your salary is above 75000 per month, you can get a personal loan for 14% but if you salary is 10000 and you work in a small company, you can expect 30-40% rate of Interest.
Personal loan are given on fixed rates so RBI fluctuation during your loan tenure doesn't affect your rates for your ongoing personal loan.This means once you take a Personal loan and the rate is given by the bank, this will not change - may whatever is the market condition.
For year 2012- we see Banks may tighten there norms for personal loans as they see that recession may hit India and Personal loan being unsecured loan, Banks will like to take a risk averse actions and may give it to only where they are sure of that they will get it back.
The rates may reduce if RBI eases rates and liquidity , but may only happen for top executives and best companies.

• Home Loans Trends

In year rates touched 11% due to many hikes pushed by Rbi actions on liquidity etc.In another major move the regularity body on home loans issues guidelines to housing finance companies to go away with prepayment charges. The housing loan companies did and some Banks also had to follow the step of giving away prepayment charges.
This is one major help for customers who can now shift to alternate Bank/housing finance companies if there existing Bank is charging at a higher rate.
For year 2012, we expect Rbi to loosen the liquidity and for existing home loan customers- rates may come down. We also see rates coming down for new home loan customers.

• Car loans Trends

In year 2012 - in the first quarter 50 new cars are set to be launched in India.This will bring a lot more push to sell more cars and thus leading to more Car loans.
Car loan rates are fixed , so for customers rates do not change during the tenure of the loan. For new car loan customers- rates may come down with liquidity ease measures expected in the first three months.
The rates may come down also for used car loan market.
Thus in end, the rates will come down this year-But how much will depend on the inflation in the country and RBI measures.So expect a better year for loan takers but anyways taking loan