According to the figures shown in the report on Trends and Progress of Banking in India 2006-07 released by the Reserve Bank of India, loans for buying consumer durables has grown sharply in 2006-07. In the current fiscal year there has been the growth of 63 percent to Rs 7,296 crore as compared to the growth in the previous fiscal year which was 17 per cent only.
Although the growth of overall retail portfolio has shown a growth by 29.9 percent as compared to 41 percent in the previous fiscal year but still it was faster than the overall rate of credit growth.
There has been a very low increase of 25.8 percent as compared to 25 .5 percent in the share of retail advances in the total loans and advances of Rs 18,93,775 crore.
The largest portion of the retail collection comprises of housing loans of about 46 per cent. These loans have grown by 25 per cent in 2006-07 to Rs 2,24,481 crore against of 33.4 per cent in the previous fiscal.
Credit card receivables remained strong with a growth of 47 per cent to about Rs 18,317 crore as of end March 2007.
There was a sharp decrease in the auto loans sector showing a growth of 34 per cent to Rs 82,562 crore against 75 per cent growth in the earlier year. Other personal loans grew by 31 per cent to Rs 1,55,204 crore.
Wednesday, November 28, 2007
Monday, November 26, 2007
Bankers search new way to deal with defaulters
The bankers have been searching a way to deal with the defaulters. In response to increasing customer complaints against banks resorting to strong arm tactics to recover loans, bankers have now decided to first send a letter to defaulters, informing them that they have a month’s time to clear dues, before handing the case to a recovery agent.
Aditya Puri, managing director and chief executive officer, HDFC Bank said, “We have, in consultation with the Banking Codes and Standards Board of India (BCSBI), decided to send a letter to a defaulter giving him/her enough time to clear the dues. If the customer reverts to us we would give the individual necessary credit counseling. However, if the customer does not show up within the specified time frame we would hand over the case to the recovery agent as informed to the customer.’’
The Reserve Bank of India, judiciary, governments and public has been getting stricter towards the banks for their debt recovery practices. Due to the strictness the banks and non banking finance companies decided to either scale down or exit the small ticket size personal loans business where the default rates were increasing.
Leading private sector banks like ICICI Bank and HDFC Bank have exited the small ticket size personal loans. Citigroup tightened its lending procedures.
A foreign banker informed, “Recovering loan from the defaulters is become very difficult. The activism against collection is very unfortunate. The regulator and the Indian Banks Association is quite on the issue.’’
Aditya Puri, managing director and chief executive officer, HDFC Bank said, “We have, in consultation with the Banking Codes and Standards Board of India (BCSBI), decided to send a letter to a defaulter giving him/her enough time to clear the dues. If the customer reverts to us we would give the individual necessary credit counseling. However, if the customer does not show up within the specified time frame we would hand over the case to the recovery agent as informed to the customer.’’
The Reserve Bank of India, judiciary, governments and public has been getting stricter towards the banks for their debt recovery practices. Due to the strictness the banks and non banking finance companies decided to either scale down or exit the small ticket size personal loans business where the default rates were increasing.
Leading private sector banks like ICICI Bank and HDFC Bank have exited the small ticket size personal loans. Citigroup tightened its lending procedures.
A foreign banker informed, “Recovering loan from the defaulters is become very difficult. The activism against collection is very unfortunate. The regulator and the Indian Banks Association is quite on the issue.’’
Interest-free Loans under the Fringe Benefit Tax
The interest-free loans from employers have been settled down under the "Fringe Benefit Tax" (FBT). The subject of taxation of interest-free loans to employees has been under discussion and finally the issue has been settled down. From so many years these loans carried no tax liability because the income tax (IT) department gave the employers the complete deduction on the interest paid to the bank on borrowed money. In spite of this fact some part of these borrowing is being used to make interest-free loans to the employees.
Usually, all businesses borrow from banks by way of overdraft or cash credit for their working capital requirements. On such loans, businesses (employers) have to pay interest to the banks. This interest payment is fully tax deductible for incoming at the net taxable income. And this relief is extended to the companies, even when they divert a part of these borrowings for paying out loans to employees.
Change in the Law – Attempt One
In 1984 the Taxation Laws (Amendment) Act, for the first time tried to make interest-free loan as a “perquisite" under section 17 of the Income Tax (IT) Act, 1961 with effect from April 1, 1985. But the Finance Minister withdrew the proposed amendment with a view to avoiding adversity to the employees, if the interest-free loans were to be subjected to tax as privilege. Even the Supreme Court in the year 2000 held that there was no element of perquisite, merely because the loan did not carry any interest (in the case of V M Salgaokar & Bro.), thereby upholding similar judgments by the high courts of Kolkata and Karnataka.
Attempt Two
This situation remained for the employees for a short time because from assessment
year 2002-2003, the Central Board of Direct Taxes (CBDT) was empowered to frame rules for valuation of benefit accruing to employees as a result of such loans from employers. The said rule 3(7)(i) for ready reference reads something like this:
The value of the benefit to the assesses or any member of his household resulting from the provision of interest-free or concessional loan for any purpose given by the employer shall be calculated as the sum equal to the interest computed at the rate charged for the year by the State Bank of India for a similar loan. However, no value would be attached if such loans are made available for medical treatment in respect of diseases specified in rule 3A or where the amount of loan does not exceed Rs 20,000.
Clearly, the IT department has been interested in charging some value to the interest-free loans being offered by employers. And for medical treatment, only loans for diseases or ailments set in the Income tax rules (rule 3A) are eligible for the requisite exemption. However, this list is fairly comprehensive and includes several commonly encountered medical problems like those of eye, ear, nose and throat, besides the more serious ones like mental disorder, cancer, heart, tuberculosis and others.
Under the FBT
The Finance Act, 2005 has introduced a new Chapter in the IT Act, called the "Fringe Benefit Tax" (FBT). This tax is imposed on value of perquisites provided by employers to their employees. But with regard to FBT on interest free/concessional loans to employees, the FBT makes it clear that employer will not have any tax liability. For loans above Rs 20,000, the employees will be taxed under Income Tax Act.
Usually, all businesses borrow from banks by way of overdraft or cash credit for their working capital requirements. On such loans, businesses (employers) have to pay interest to the banks. This interest payment is fully tax deductible for incoming at the net taxable income. And this relief is extended to the companies, even when they divert a part of these borrowings for paying out loans to employees.
Change in the Law – Attempt One
In 1984 the Taxation Laws (Amendment) Act, for the first time tried to make interest-free loan as a “perquisite" under section 17 of the Income Tax (IT) Act, 1961 with effect from April 1, 1985. But the Finance Minister withdrew the proposed amendment with a view to avoiding adversity to the employees, if the interest-free loans were to be subjected to tax as privilege. Even the Supreme Court in the year 2000 held that there was no element of perquisite, merely because the loan did not carry any interest (in the case of V M Salgaokar & Bro.), thereby upholding similar judgments by the high courts of Kolkata and Karnataka.
Attempt Two
This situation remained for the employees for a short time because from assessment
year 2002-2003, the Central Board of Direct Taxes (CBDT) was empowered to frame rules for valuation of benefit accruing to employees as a result of such loans from employers. The said rule 3(7)(i) for ready reference reads something like this:
The value of the benefit to the assesses or any member of his household resulting from the provision of interest-free or concessional loan for any purpose given by the employer shall be calculated as the sum equal to the interest computed at the rate charged for the year by the State Bank of India for a similar loan. However, no value would be attached if such loans are made available for medical treatment in respect of diseases specified in rule 3A or where the amount of loan does not exceed Rs 20,000.
Clearly, the IT department has been interested in charging some value to the interest-free loans being offered by employers. And for medical treatment, only loans for diseases or ailments set in the Income tax rules (rule 3A) are eligible for the requisite exemption. However, this list is fairly comprehensive and includes several commonly encountered medical problems like those of eye, ear, nose and throat, besides the more serious ones like mental disorder, cancer, heart, tuberculosis and others.
Under the FBT
The Finance Act, 2005 has introduced a new Chapter in the IT Act, called the "Fringe Benefit Tax" (FBT). This tax is imposed on value of perquisites provided by employers to their employees. But with regard to FBT on interest free/concessional loans to employees, the FBT makes it clear that employer will not have any tax liability. For loans above Rs 20,000, the employees will be taxed under Income Tax Act.
Friday, November 23, 2007
A growth in loans gain pace
In October banks showed very slow growth in lending out loans. Last fortnight banks gathered pace especially on the back of the retail loans. According to the report released by RBI loans extended by banks to corporates, individuals and other businesses rose by Rs 37,447 crore during the fortnight ended November 2007, taking the outstanding non-food credit figures to Rs 20,27,459 crore.
Even the loan for food procurement by the Food Corporation of India (FCI), rose by close to Rs 850 crore during the fortnight. Total bank loans rose by Rs 38,301 crore to Rs 20,64,180 crore, in contrast to the growth in October which was almost flat.
It would be too premature to go for conclusion as there is a strong revival in credit growth. According to bankers many corporates, which sought sanctions in the previous fortnights, are utilizing their credit limits. Besides, there are companies which even announce a token expenditure on projects on the ‘auspicious occasion’ of Diwali.
This is true in case of personal and other retail loans also. Many banks had revealed limited period offers. For example, some banks had announced waivers on processing fees on home loans until Diwali and also some concessional rates on specific retail loans. It is likely that many individuals could have availed of these offers at the last minute.
Bankers are of view that yet a strong revival in loan demand has to come from corporates, but certain pockets like infrastructure are seeing an above-the-trend-growth rate in loans. Besides, in home loans which have emerged as a strong area of growth for banks, many borrowers are waiting for cues on the direction of interest rates. Many expect banks to cut interest rates on home loans too.
In other developments, aggregate deposits rose by Rs 41,372 crore during the fortnight to Rs 29,19,327.43 crore. Both demand and term deposits recorded a robust growth during the fortnight at Rs 22,166 crore and Rs 19,206 crore, respectively. Part of the rise in demand deposits, which are otherwise seeing a slowdown, could also be due to the festival. Many individuals parked funds in their savings and current accounts to meet their festival expenditure.
Significantly, the period also saw some huge growth in retail sales not only in large metros, but also tier-II cities. Bank investment in government and other approved securities touched Rs 9,48,346.01 crore by November ‘09, down Rs 944.99 crore over the previous fortnight’s levels.
Even the loan for food procurement by the Food Corporation of India (FCI), rose by close to Rs 850 crore during the fortnight. Total bank loans rose by Rs 38,301 crore to Rs 20,64,180 crore, in contrast to the growth in October which was almost flat.
It would be too premature to go for conclusion as there is a strong revival in credit growth. According to bankers many corporates, which sought sanctions in the previous fortnights, are utilizing their credit limits. Besides, there are companies which even announce a token expenditure on projects on the ‘auspicious occasion’ of Diwali.
This is true in case of personal and other retail loans also. Many banks had revealed limited period offers. For example, some banks had announced waivers on processing fees on home loans until Diwali and also some concessional rates on specific retail loans. It is likely that many individuals could have availed of these offers at the last minute.
Bankers are of view that yet a strong revival in loan demand has to come from corporates, but certain pockets like infrastructure are seeing an above-the-trend-growth rate in loans. Besides, in home loans which have emerged as a strong area of growth for banks, many borrowers are waiting for cues on the direction of interest rates. Many expect banks to cut interest rates on home loans too.
In other developments, aggregate deposits rose by Rs 41,372 crore during the fortnight to Rs 29,19,327.43 crore. Both demand and term deposits recorded a robust growth during the fortnight at Rs 22,166 crore and Rs 19,206 crore, respectively. Part of the rise in demand deposits, which are otherwise seeing a slowdown, could also be due to the festival. Many individuals parked funds in their savings and current accounts to meet their festival expenditure.
Significantly, the period also saw some huge growth in retail sales not only in large metros, but also tier-II cities. Bank investment in government and other approved securities touched Rs 9,48,346.01 crore by November ‘09, down Rs 944.99 crore over the previous fortnight’s levels.
Subscribe to:
Posts (Atom)