Teaser loans: SBI for talking it out with RBI

Seeking to temper the highly charged-up discourse on the teaser loans and the bank's confrontational approach with the RBI, newly-appointed SBI Chairman Pratip Chaudhuri today said the bank will "engage" with the central bank to lower the higher-than-comfortable provisioning requirement.
"The current provisioning requirement of 2 % (on teaser loans) is a bit difficult for the bank when compared with the earlier 0.40 %," Chaudhuri said at his first media interaction at the bank headquarters this evening.
State Bank of India will "engage with the central bank" to solve the issue, as it does not want to take a belligerent stance against the regulator, he said.
"The current product offers enormous value to the customers, it has helped millions to own homes...as a final settlement we would like to have something which delivers value to the customers and also takes care of the regulatory concerns," he said.
Fearing troubles in repayment, RBI had increased the statutory provision coverage by five times to 2 % on the teaser loans -- launched first by SBI in days of high liquidity -- in the November policy review.
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SBI's peers, which after being critical initially had launched their own teaser rate products, have since then discontinued the offering while the nation's largest lender has persisted with the product.

Use credit cards elegantly

A characteristic free credit period in India is 45-51 days. If you pay off the dues within this period, the interest is saved. If in case you are unable to pay off the entire amount within the due date, a common practice is rolling over the dues after paying the minimum amount. This could be expensive as you would have to pay an interest of about 3 % per month and the new purchases made will not get any interest-free period until the dues are completely settled. So, here’s a quick look over the other schemes offered by card companies to clear off credit card bills.
Balance transfer
If you opt for Balance Transfer, you can transfer the outstanding balance from one card to another, and thereby extend the repayment period.
Process
A balance transfer can take place between any two banks. The process takes 7-10 working days with a processing fee, and a maximum of 2 % will be levied.
Low interest rates or sometimes zero interest rates are available for balance transfers.
Points to be taken care of
Check for hidden charges or if the bank charges a transfer fee in addition to the processing fee.
The low interest rates the banks offer on balance transfers may be for an introductory period and once this period is over, it may return to the normal rates.
It is important to note that the credit limit of the card on which your new due is, will be reduced proportionately. Also remember that the balance transfer amount will be limited to a maximum 80 % of your credit limit.
EMIs on credit card loans
If you are having a problem in paying the entire credit card bill at one go, a good option is to convert it into EMIs. This facility is similar to a personal loan. But here, unlike personal loan there is no paper work and no waiting for approvals either.
Another advantage here is that you need to pay a lower interest rate of about 1.5 to 2 % whereas the normal credit card rollover interest rate is higher than 3 %. Also, while this scheme is running, one still gets the interest-free period on new purchases.

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.

Tips for get a low rate personal loans

Personal loans are handy when you are in a spot and need some urgent cash. However, personal loan are tricky and you need to know as much as possible about their basics before applying for one.
Before you choose your personal loan:
Calculate the inexpensive loan offer: Personal loans come with very high interest rates ranging from 14% to 24%. Compare personal loan interest rates and get the complete picture by understanding the annualized interest rates for each offer.
Then figure out the total amount of repayment you need to shell out with all the offers before opting for the loan of your choice.
Processing fee et al: You need to keep in mind the processing fee and other fees that will be levied when you apply for your personal loan.
Prepayment penalty check: Ask upfront if there would be any penalty payments for prepayment of the loan at any point in time. More often than not loan consumers tend to pay up their loans earlier than planned to be rid of debt. Hence, its important to know if your personal loan offer allows part prepayments.
If that is the case, then you should be aware from what time frame in the loan period you can start prepaying and understand the cost you incur due to such prepayments in part or full.
EMI and tenure: Evaluate all loan offers. The first condition for loan offer selection is the total money outflow that the loan will cost. The second factor is the EMI. A loan offer with a lower EMI and a longer tenure may seem attractive, as it could be easy on your purse strings, however not all such loans prove to be cost effective in the long run.
Hence, first calculate the total loan cost and then try to opt for a higher EMI, which you can comfortably manage to enable shorter loan tenure.

Mumbai banks plan to stay loan rates unaffected

Many banks in Mumbai are reconsidering their plans to hike home loan rates next month because of the upcoming holiday season, which will increase the demand for those loans.
This comes after the decision last week by the Reserve Bank of India to change policy rates. The banks said that they will potentially increase their lending rates next month when a review of the base rate is done.
Indian festivals such as Dessehra and Diwali in the next two months are expected to create a big demand for home, car, and personal loans because of the belief that this period is an auspicious time to acquire things.
“Banks may not hike home loan rates immediately since sales are expected to pick up soon after the Pitr Paksha is over,” said Oriental Bank of Commerce CMD Ty Prabhu.
The Hindu festival of Pitr Paksha is considered an inauspicious time to invest so loan rates may remain unchanged at this time.

How to find the Lowest Personal Loan Rates

Two people creation the same income, walk into the same bank, wanting the same amount for personal loans. While they both get the loans they were seeking, one gets a much better interest rate and thus gets a much superior deal.
Why Do Some People Get Better Rates Than Others?
First, there is no law saying how much of an interest rate a bank can charge. This means the bank can decide how much and at what interest rate they are willing to offer a personal loans. In most cases, the better rates and the better terms go to those with the better credit score.
How to Improve Your Credit Score
Since your credit score does more than determine the interest rates on personal loans, it is important to do everything you can to keep that score high. People use your credit score to determine job eligibility, insurance premiums, interest rates, availability of personal loans, and so much more. Here are some things you can do to either raise your score or keep it high.
Pay Hospital Bills – Many people are unaware that as long as you pay part of your bill you are ok. Therefore, every month pay something on all your medical bills.
Only have 1 or 2 Credit Cards – Revolving credit is a tricky thing. On the one hand, you need some revolving credit to get a credit score. However, too many credit cards or too many request for credit cards can lower your score.
Keep Balances Low - Paying off your credit cards each month is ideal. If you must roll over a balance, then pay it off as soon as possible. You need to keep a low debt to income ratio.
Pay off Bad Debt - Many people believe that once a debt goes bad, there is nothing you can do. However, paying off charge offs and slow pays will still be better than nothing.

Negotiate Large Debt – Even after a debt has gone to collections or been written off, you can call and try to negotiate a smaller fee. You may be surprised to find the creditor is willing to settle for pennies on the dollar.
The best thing you can do about your credit score is to watch it. Take advantage of the free yearly credit card report to keep the right information on and faulty credit information off.

Gold loan: A more precious debt option

If you have gold jewellery to offer as collateral for personal loan, procedural hassles are minimal and banks don't check your credit score.
The amount of documentation and the excessive verifications before your personal loan gets processed can be a nightmare.
Here is where your jewels can lend a hand, specifically gold.
With the current interest rate fluctuations, opting for a jewel loan as against a personal loan is more lucrative. Not only are your overall costs reduced, this will save a lot of your time.
The Credit Information Bureau (India) Ltd  Score which reflect an individual's credit history are beginning to play an important role in acquiring personal loans. However, a jewel loan requires no such score.
While the requisite documents for a jewel loan differ across lenders, most normally require no more than a proof of income or address.
The clincher: the interest rates between a jewel loan and a personal loan can differ by as much as 5-8 per cent for the same amount loaned.
Some lenders charge a nominal fee for processing and others a small fee as closing charges. Co-operative banks require you to be a member, charges for which, again, can be as low as Rs 5.
Jewel loans can be availed of at co-operative banks, public sector banks, private sector banks and other private lenders. Some banks, however, offer it only in certain regions, the only disadvantage.
While private lenders process the loan in less than a couple of hours, some co-operative and public sector banks may take up to a day to issue the loan.
In any case, the time is much less than the minimum three days of processing time for a personal loan. Loan to value, or the maximum ratio of a loan's size to the value of the asset, for a jewel loan is on par with that of a personal loan.
The Reserve Bank of India has no strict policy on jewel loans.
In late 2007, the RBI had issued a notification which permitted bullet repayment (a lump sum payment of the principal at maturity) of gold loans.
Subject to specific guidelines from the apex bank, each bank may fix its rate for gold, reflecting the market price at that point of time.
Care should be exercised if you have defaulted on a loan earlier, be it personal or any other. Your jewels might not be returned at the end of the loan tenure if you approach the same branch.
Approaching another branch or bank in this case would be one solution, as they would not have any record of your default history.
A State Bank of India official, however, cautioned that some time in the near future, they would start looking at Cibil scores before approving a jewel loan.
The loan tenure is not uniform across banks. With private lenders like HDFC Bank and some co-operative banks, the tenure is annual.
Non-banking financial companies like Mannapuram Finance have one-month tenure. But, an advantage with monthly renewals is that the loan value also increases every month with the appreciation of gold.
At SBI, the individual must repay some amount of the principal along with the interest every month, as non-repayment for a continuous period of three months will render the loan a non-performing asset.
Considering the advantage a jewel loan offers in terms of a rent-free locker, a little bit of juggling can even help you save renting a locker for your jewels! (Obtain a fixed deposit on the loan, which should work out lesser than the rent charged on lockers.)
Of course, it makes more sense to opt for a jewel loan from a public sector bank or a co-op bank, as some private lenders have had a history of shutting down and not returning the gold.