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.

HSBC to rebuild retail loans book

HSBC Bank Plans to focus on credit cards and home loans this year.
After booking losses on its consumer banking business for three straight years, Hong Kong and Shanghai Banking Corporation (HSBC) looks to rebuild its retail loan book in 2010, aided by an improving credit environment.
The UK-based bank, the third-largest foreign lender in India by assets, plans to focus on credit cards and home loans, where lending was virtually at a standstill till the second half of 2009.
The bank is now disbursing home loans worth Rs 100-150 crore every month. “Our focus for 2010 is to expand our mortgages business profitably,” said Rajneesh Bahl, country head, personal financial services.
In 2009, the lender cut exposure to mortgages in India by 20 per cent to Rs 4,061 crore from Rs 5,115.2 crore at the end of 2008 to keep a lid on losses.
“There is no doubt the economy is looking up again and customer confidence is on the rise. As the market picks up, so does the demand for affordable housing; we believe the overall pie will get only bigger, which could result in an increased market share for all players,” Bahl said.
After months, the bank is expanding its credit card portfolio. And as a sign of growing confidence in the market, HSBC has started sourcing credit cards from the open market this week onwards, according to bank sources. During the consolidation phase, the bank will only service specific requests for credit cards and not solicit customers.
“We never stopped open-market sourcing. For some time now, we have opted to grow selectively. We continue to offer cards to customers with a good profile and track record,” said Bahl.
In a departure from its earlier policy, the bank introduced co-branded credit cards last year. “Earlier, our thinking was that the HSBC credit card brand is strong and we should not dilute its value by co-branding. However, seeing the success of co-branded credit cards, we decided to introduce our own cards,” said a senior executive at the bank.
Among foreign banks, HSBC was one of the hardest hit by the downturn, reporting a loss of $219 million (about Rs 1,007 crore) on its consumer banking portfolio in 2009.
Standard Chartered Bank, the second largest foreign lender in the country by assets, reported an operating profit of Rs 248.4 crore from its consumer banking division in 2009.
Citigroup’s non-banking finance company, Citi Financial, reported a loss of Rs 729 crore for the year ended March 31, 2009.
HSBC saw stress on its consumer banking book even before the onset of the economic downturn in India. It reported a retail banking loss of $70 million in 2007. The loss widened to $155 million and $219 million in 2008 and 2009, respectively.
In 2009, loan impairment charges on consumer banking at the global level rose 9 per cent to $649 million, mainly due to rising delinquencies in unsecured consumer lending businesses in India and Indonesia.
“The delinquencies in India began to moderate in the second half of 2009 as measures implemented by HSBC in the second half of 2008 to mitigate loan losses, including ceasing consumer finance loan origination and tightening lending criteria on other unsecured lending products, began to take effect,” HSBC had said in its 2009 Annual Report.

Loan Against Property- An easy way to fulfill your Financial Needs

Loan against property is cheaper than personal loans.
Banks have aggressively beefed up their loan against property portfolio, in the last one year. but in October 2008 the credit crunch, bankers looked for products that were secured and Loan against property (Lap) was a clear choice.
Loan against property was basically a domain of multi-national and private banks. They offered the product to fund their self-employed customers’ business-related needs. Lately, all banks are offering this product including the public sector banks.
This has come as a boon for borrowers who need large sum of money to fund their urgent situation financial needs. Bankers said that mostly salaried customers take Lap when they need money for marriage or foreign education of kids, when they are buying a new property and are renovating their house. Self-employed seek this loan to fund their business needs and to pay off debt.
In Lap, customers can avail up to 50 % loan of the existing property value. The interest rate in Lap is around 200-300 basis point higher than bank home loan. This is a floating rate loan. “Lenders see more risk in this product and so price it higher,” said a banker. The current rate can range between 12-14 %.
The minimum loan that banks disburse in this product is around Rs 2 lac – example -HDFC Bank. Foreign banks, have higher limits, some look for minimum loan size of Rs 20 lac.
"The amount of loan disbursed depends on the end use. For instance, if the property is Rs 2 crore, obviously we will not sanction a loan of Rs 1 crore for renovation of the house," said head of retail assets with a foreign bank. Before taking the loan, the borrower needs to sign a declaration stating the end-use of fund.
If the property is currently not under any mortgage, the process to avail a Lap is simpler as compared to a mortgaged one. In the former, the process is similar to taking a housing loan. The customer needs to give evidence for being able to pay the instalments. For this, the borrower needs to submit a salary proof and income tax certificates. The bank, then, comes down to evaluate the property. A no-objection certificate, is also required, from the society.
In case of a mortgaged property, the person can go for a top-up loan with the bank he has an ongoing loan with. In this case, the bank will fund the difference between the outstanding and the original loan taken. For example: A person has taken a Rs 30 lac loan for the property that was worth Rs 40 lac at the time of purchase. He has an outstanding is Rs 20 lac. The same bank will give him a top-up loan equal to the difference between the outstanding and the original loan, even if the property cost has risen. Here, it would be Rs 10 lac.
On the other hand, if fund requirement is higher the borrower can approach another bank and opt for a product called 'balance transfer plus top-up'. This is part of Loan against property. The other bank will take fresh look at the property value, take over the loan and lend up to 50 % of the existing value. In the above example, if the house price is now Rs 70 lac, the bank will take over the Rs 20 lac outstanding. The customer can avail funds up to Rs 15 lac (50 per cent of the property value, which is Rs 35 lac, minus the existing loan of Rs 20 lac).