Home Loan: It’s Need in Building a New Home

It is the dream of every individual to have his own home. If you are planning to build a new home, it is best to avail a good home loan. With the help of home loan, you not only get a home of your own but also save money in the long run.

What is a home loan?

Home loan is a plan in which a lender offers money to the borrower to build his home. On the other hand, the borrower has to pay back the loan amount with interest according to the terms of the agreement within a fixed period of time.

Nowadays, people often avail home loan while building a new home. It not only helps the borrowers to reduce taxes but also saves money. To help borrowers with different financial budget, different home loan companies have come up with generous lending rates and schemes. For those who cannot afford to pay the initial down payment, there are many organizations offering “zero down payment option”.

What are the documents needed in a home loan?

There are various types of home loans available in the market. Different financial organizations offer different loan plans to suit the need of their customers. But to avail a home loan, there are certain documents that you will need. Given below is the list of some of the documents that are needed in home loan:

• Personal id proof such as passport, driver’s license etc
• Photograph (passport size)
• Proof of date of birth
• Residence proof such as rent receipt or loan statement
• Current liability proof which include credit card statements, loan statements etc
• Income proof such as salary slips, financial statements etc

Before you avail a home loan, check out the interest rates offered by various banks and finance organizations to know about the current scenario of the market. You can also take the help of online information to be up-to-date about the home loan quotes. Avail a good home loan option and fulfill your wish of building a new home.

PSBs to offer cheaper loans to farmers to buy tractors

Government is trying to get cheaper loans for farmers to buy tractors. The government is having talks with Indian Banks’ Association (IBA), the apex banking body to provide loan for this segment. An anonymous senior government official told that the government has formed a special cell, to examine credit flow into this segment. The cell will have officials from the ministry of heavy industries and IBA.

After the approval of this proposal the leading public sector banks will offer cheaper loans for tractors to boost farming which is facing set back due to slow economy. In India nine out of every 10 tractors bought are financed by banks.

He added, “The government is in talks with all leading public sector banks to make sure loans are easily available. A formula can be worked out to lower the interest rate or a special scheme can be put into place”. Even IBA official confirmed that such a proposal was under consideration.

It is expected cheaper loans may come as a big help for tractor manufacturers in the current slow down. Tractor Manufacturers’ Association president LD Mittal informed, “We have been pushing for a special scheme for tractor loans as farmers are being denied credit. Apart from bringing down the interest rates, relaxing the borrowing norms is very important. If the norms are not relaxed, it would be difficult to give a boost to agriculture credit”.

Bankers pointed out loans through this facility might be available at 10%-11% as against the prevailing rate of 14%-15%. In the beginning some banks such as State Bank of India and Punjab National Bank may start the offer.

Banks suggest for restructuring loan out standings for small-loan borrowers

The Reserve Bank of India (RBI) has received suggestions from several banks regarding lower provisions on restructuring loan out standings with small-ticket borrowers. Earlier the apex bank had directed the banks to make a provision of 5% on all restructured loans with an out standing due of Rs 1 crore or less.

In an interview given to the ET senior bankers said that as a large number of restructured accounts are below Rs 1 crore, a 5% provisioning will damage the profits. According to some banks the provisioning should be reduced to 2%.

For reorganized accounts with outstanding dues of over Rs 1 crore, banks will require to calculate the net present value in order to arrive at the provisioning requirement. For instance if a borrower has to make a higher net payment to the bank post restructuring (than what it would have had to pay if the loan was not restructured) no provision is required.

But if the net payment to the bank post restructuring is less, the bank has to formulate a provision based on the loss it suffers on the account.

Indian Overseas Bank executive director G Narayanan pointed out, "On one hand, RBI allows restructuring of loans to revive the economy and on the other hand, steep provisioning norm pinches the profit and loss of banks".

Union Bank of India executive director TY Prabhu explained, "For the banking sector, a bulk of accounts, which would be restructured, belongs to the less-than Rs 1 crore categories. But that does not necessarily mean that the economic loss incurred by banks in restructuring these loans is as steep as 5%. There is a case for lowering the provision".

On the other hand RBI has given banks the choice to either calculate the provision on each account of Rs 1 crore or make a provision on the portfolio, which comprise loans of less than Rs 1 crore. But banks prefer making a flat provision on the portfolio as calculating the provisioning amount on each account is a tiresome process.

According to sources the decision to make a 5% flat provision was taken on an RBI study, which depicted losses suffered by banks, while as per past data are about 5%. In August ’08 RBI had taken a decision to fix a 5% provision.

As per circular issued by RBI: "If due to lack of expertise/appropriate infrastructure, a bank finds it difficult to ensure computation of diminution in the fair value of advances extended by small/rural branches, as an alternative to the methodology prescribed above for computing the amount of diminution in the fair value, banks will have the option of notionally computing the amount of diminution in the fair value and providing therefore, at 5% of the total exposure, in respect of all restructured accounts where the total dues to bank(s) are less than Rs 1 crore till the financial year ending March 2011. The position would be reviewed thereafter."

PSU Banks take leading position in auto loan segment

Public sector banks are leading in auto loan segments. PSBs have lent Rs 22,000 passenger car and two-wheeler loan market. Thus the private sector banks who used to be the leading lenders have been overtaken by their public sector counterparts. The increased delinquencies has led the private sector reduce their coverage in the auto loan segment.

Big PSU banks such as SBI, Bank of Baroda, PNB, Canara Bank, Syndicate Bank, Bank of India and Union Bank of India every month in cooperation are lending around Rs 1,000 crore in the Rs 1,800 crore auto loan market whereas the remaining amount is being lent by the private banks. Earlier a year ago the private banks were the leader of the auto loan market with a joint market share of 75-80%.

The loans offered by the PSU banks are largely in the range of up to Rs 3 lakh and are thus lending to two-wheelers in addition to smaller cars like Alto, WagonR, Santo and Indica.

Hyundai Motor India senior vice-president (sales & marketing) Arvind Saxena notify, "PSU banks are offering lower interest rate and so customers are opting for them. Secondly, these banks restrict their ticket size of loans and thereby mostly finance small cars, which form around 76% of the total auto market. Besides they have a wide reach in small cities and rural areas where there is growth."

Although PSU banks have become the higher lenders in the auto segment then also the HDFC Bank is maintaining its lead as the single largest player in auto loans with 30% market share. But the sharp reduction done by other private banks such as ICICI, Kotak Mahindra and Axis has brought down the share of private banks considerably over the past few months.

Till early 2008 ICICI bank held the position of market leader in auto loans later it significantly cut down the lending. ICICI Bank's Head vehicle finance N R Narayanan told, "We have decreased our exposure in the market and now our total loan size is now reduced to around Rs 500 crore annually. We have a large portfolio of the auto vehicles already financed in the past and are focusing on managing it."

According to General Motors vice-president (marketing & sales) Ankush Arora, "Competitive interest rates and easy lending being offered by PSU banks has increase their share. For instance, the share of cars financed by SBI alone has now gone to 15 % for our cars from mere 2% of last year."

Syndicate Bank has just made an entry into the auto financing and initially it has recently entered the auto finance market in the initial stage has kept a portfolio of Rs 1,000 crore for auto finance. Syndicate Bank general manger (Retail Banking) B R Pai notifies, "Auto loan forms a small component of our total consumer finance portfolio of Rs 20,000 crore, but we will increase it subsequently.

We are offering one of the most competitive interest rate of 12% to our priority customers like Hyundai Motors and aim to grab a market share of 10% in the next few years."