SBI offers personal loans to existing borrowers at housing loan rates

State Bank of India is offering a bonanza to its existing home-loan customers. They can take personal, or top-up, loans at the same rate that they are paying on home loans under a limited-period offer from the nation's top lender.

In effect, an existing borrower can take a personal loan at 10.15%, provided he had been paying his home loan EMIs on time. For women, this will be even cheaper at 10.10%. The rates imply a 0.35-0.40 percentage point cut in the top-up loan rates that SBI has been charging.


It charges 13.50-18.50% on personal loans to other customers. A senior SBI official, who did not want to be named, said the rate on top-up loans was lowered to boost the bank's loan book. "Also it is a safe bet for the bank to attract their existing customers with good track record to borrow from them rather than approaching its rival banks."

The rate reduction comes at a time when RBI has signalled a softer interest rate regime by cutting policy rates twice - both by a quarter percenta

Basix gets 100 crore loan on personal guarantees of directors

In a first of its kind loan transaction in the troubled microfinance segment, public sector Central Bank of India has sanctioned a `100 crore loan to Bhartiya Samruddhi Finance Ltd (BSFL), the flagship company of the Basix group, against personal guarantees of its directors, including group chairman Vijay Mahajan.
According to Basix’s website, it has nine other directors on its board. The loan is yet to be disbursed.
Mahajan, 56, who is also the president of micro-lending industry body, microfinance institutions network (Mfin), and is currently undertaking a Shodh Yatra, a nationwide tour to “extended grassroots enquiry into the lives and livelihoods of poor people”, confirmed the development but said it may not necessary for Basix to avail of the loan as a bank consortium, led by Small Industries Development Bank of India (Sidbi), is looking into a `650 crore recast of the firm’s debt.
“The bank has sanctioned the loan for Basix. We are exploring the possibility of obtaining personal guarantees from MFIs against loans,” a Central Bank of India official said. He declined to be named as he is not authorized to talk to media.
BSFL is the fifth largest MFI in India, with around two million borrowers in Andhra Pradesh, Maharashtra and Orissa. It has a total personal loan outstanding of around `1,800 crore.
This is the first such loan that an Indian bank is extending to any microfinancier in the country after the industry plunged into an operational crisis in mid-October, when Andhra Pradesh, the fifth largest state in India accounting for at least one-fourth of country’s micro-lending industry, enacted a law to put an end to alleged coercive methods resorted to by some micro-lenders to recover loan dues from poor borrowers.
Officials of micro-lending industry said if banks insist for personal guarantees or any other sort of high collateral requirements, it would be extremely difficult for small MFIs to secure adequate bank finance to run their operations.
“No bank has entertained our requests for fresh loan ever since the crisis happened. What can I do if they seek guarantees worth `10-50 crore when my net worth will be far less than that?” asked the head of a Hyderabad-based MFI, who did not want to be named.
The budget for 2012 has proposed to create a `100 crore equity fund with Sidbi to help smaller MFIs survive when banks are not forthcoming to offer them loans. Indian banks, including Sidbi, have lent around `14,000 crore to microfinance institutions as on 31 March 2010, according to data from National Bank for Agriculture and Rural Development.
But since October, fresh lending has happened to few companies that have operations outside Andhra Pradesh.
The Andhra Pradesh law banned micro-lenders from giving a second loan to a borrower without prior government approval and made monthly collection mandatory for such firms instead of weekly or daily collections. This resulted in a sharp fall in the collection of loan instalments from borrowers, promoted banks to stay away from lending fresh loans to MFIs and forced micro-lenders not to give any new loans to their borrowers.
The Reserve Bank of India and (RBI) finance ministry stepped in to resolve the issues in the sector that is vital for financial inclusion of rural poor.
An RBI committee, chaired by Y.H. Malegam, had recently proposed a cap of 24% for MFIs and a margin cap of 10% for large ones, besides making it compulsory that not more than two MFIs can lend to the same individual.
RBI also asked banks to continue holding on operations to the sector by recycling loans to MFIs to the extent of recovery and resume lending, with a view to assist the ailing industry tide over the current crisis phase. But there are not many takers for the regulator’s call.
Perturbed by the regulatory uncertainty in the sector, some banks are now demanding higher credit enhancements in the form of cash collateral, personal guarantees and other securities such as land assets from MFIs for new loans and even to buy securitized portfolios.

Caution is key word at banks as NPAs fly

Banks’ non-performing assets have shot up nearly 30% at the end of calendar 2009 from a year ago due to stress in many sectors and farm loan waiver, indicating sharply lower profits for banks and possibility of curbs on exposure to sectors that have contributed to the bad assets.
In a reply to the Rajya Sabha, the government said the overall NPAs have increased to Rs 80,023 crore at the end of December 2009 from Rs 61,647crore at the end of December 2008, an increase of over 30%. “Banks will be more cautious towards lending to sectors such as real estate, exports and even retail loans,” says a senior banker with a private bank. A number of private banks have already curtailed their retail lending, specially personal loan.
A recent report by Fitch ratings on ‘banks’ restructuring loan portfolio’ pointed that restructured bank loan worth Rs 30,675 crore may turn bad in 2010-11 and further push up banks’ gross non-performing assets (NPAs) on an average by one percentage point.
State-owned banks, however, feel that the rising NPAs will not impact their profitability and that NPAs are minuscule as compared to the total advances.
“If you look at our figures, the gross NPAs are at 1.8% of our total advances. Besides, all banks have been making provisions for these loans, which have been reflected in third quarterly results. There will be some caution but it’s not over-exercised,” said CGM Punjab National Bank, RIS Sidhu.
The bank reported a flat 1% increase in the net profit to Rs 1011.31 crore for the third quarter of this financial year.
Country’s largest lender, State Bank of India (SBI) also feels that increase in NPAs would not result in lending curbs. “There are no indications that loans to a particular sector has totally gone bad. Every sector has reported bad assets and there seems no reason to stop lending to any particular sector,” said chief financial officer SBI, SS Ranjan.
Incidentally, the gross NPAs to gross advances for the public sector banks has also shown an increase of 0.27% as compared with last year.
In a move that could put more pressure on PSBs, the government has allowed an extension for loan repayments to large farmers under the Agricultural Debt Waiver and Debt Relief Scheme. The total amount under the one time settlement (OTS) for large farmers is estimated at Rs 10,000 crore.

Personal Loans First Guide

A Personal Loan is loan you borrow from a lender to use for your private economy. The lender can either be an institution like a bank or an investment broker; or it can be a private lending company. You can either apply for the loan on the internet or in your hometown.

You can use a personal loan for a variety of purposes like education, vacation, vehicle repairs, home repairs and legal bills. You can also use it for debt consolidation.

Personal loans are regularly confused with a line of credit; and even though there are some similarities it is not the same. When raising a private loan you will be paid a lump sum of money, while you can access your funds up to your credit line with a line of credit. Then you can have the amount you need; when you need it.

Personal loans can be either secured or unsecured. Secured loans like Home Loan mean you will offer the lender some type of collateral that they can claim in the event you don’t repay the loan. This can be a vehicle, land, or other asset you own. Unsecured personal loans mean there is no collateral. The interest rates for unsecured loans are higher because there is a greater risk of non-payment.

The terms of a personal loan are generally one to five years. The terms of your loan will depend on the lender and the amount of money you borrow. It is important that you understand the loan terms prior to accepting the funds.

You will have a lower payment if you raise a loan with longer terms. But in the long run you will pay more because of the higher Personal Loan interest rates. So never borrow more than you need. And try to pay it back as soon as possible. To avoid the risk of failing to pay the loan, set the monthly payment to something within your reach.

The most common use of a personal loan is to consolidate other debts. This is a great way to have one monthly payment and reduce your monthly expenses. However, this scenario only works if you are willing to set a budget and life within the boundaries of it. Too often, a person who gets a personal loan to consolidate their debt racks up huge debt again quickly. Then they not only have that debt to pay again, but now they have a personal loan payment to meet each month as well.

It is wise to enroll in a debt management course if you feel you may be at risk to continue the cycle of accumulating more debt. These can be taken for free at many non-profit credit counseling centers.
Personal loans are a great way to access the money you need quickly. The application process is simple. You will generally need to verify employment, income, and residence. The lender will pull a credit check. You will likely still qualify for a personal loan if you have bad credit or no established credit. However, be prepared to pay a higher interest rate and have some type of collateral to offer.

LOANS AGAINST LIFE INSURANCE POLICIES

There are many banks providing home loan but loan will cover maximum 85% of your property value. Your dream house cannot be 100% funded by a home loan as Banks are not allowed to do so.
This is to serve two purposes. Firstly, 85% limit ensures that the person taking the loan has a significant risk in the house. Secondly,  in case of fall in property prices, lender (viz. bank) has sufficient security against the loan. Although this will make it difficult for the borrowers with insufficient savings to make down payments though they are earning decent salaries.
It is possible to take another loan to cover the complete funding but then it has to be borne in mind payment of  EMIs (Equal Monthly Installments) of both the loans. Study say that an individual’s EMI should not exceed 50-65% of his gross income.
Another point to remember is that a personal loan affects home loan repayment capacity. Mortgage lenders regard the loan eligibility based on the repayment capacity.
Income, age, qualifications, work experience, the number of dependents, job profile, spouse’s income (if any), assets, liabilities (which include personal loan), continuity of occupation and savings history are few elements considered while assessing the repayment capacity. So the alternate could be to borrow against liquid asset like life insurance as they come at a cheaper cost than personal loans and credit card.
Infact this could prove to be the best option if the Insurance Company lends the amount. Then you could benefit in two ways, firstly, the low interest rate and secondly, convenient repayment schedule. But, one can borrow against an endowment policy only (not term policy or unit-linked plan). LIC allows one to borrow 90% of the surrender value of the policy on which an interest of 9% is to be paid half yearly.
Alternatively one can choose to deduct the loan amount at the time of claim payments. Or, a loan can be raised by pledging the insurance policy with a bank.
In both the cases, in the event of ones death, the benefits will repay the loan outstanding and any surplus left-over is paid to the nominees.