If any of your relative has defaulted on repayment then you might not get loan. Now banks decision for giving loans or issuing credit card are base on residential address rather than only borrower’s income.
Recently in one of the instance leading private bank rejected credit card application because one of his close relative names was on the defaulter list.
Last month Samar Roy planned to get credit card so he applied for it with a leading private sector bank. As he was earning a reasonably good salary and had not taken any loan, even no credit cards issued to his name.
But bank rejected his application on grounds of “unsatisfactory credit record”. When Roy contacted bank to know the reason, he was told that his application was rejected because his father, who is staying in the same residence, name is on the defaulter list.
Against Roy’s father there is a due of Rs 10,000, which he did not pay owing to a dispute with his credit card issuer. Thus bank reported him as a defaulter to the Credit Information Bureau, India (Cibil).
A banker informed, “In the current environment, in which banks are extremely cautious about lending, everyone has put in mechanisms to prevent defaults. Residential address is one such tool that is used more often in the case of unsecured loans and credit cards”.
Roy was advised that he should ask his father to resolve dues with other bank if he does not want loan applications to get rejected in future.
In case an applicant belongs to a business family and the address is blacklisted the possibility of loan rejection is higher.
There are some banks that have gone one step ahead, they have blacklisted whole localities. An executive with a multinational bank told, “Every bank has risk perception based on their experiences. Some even blacklist areas. Sometimes, even customers with a good profile are not given loans or credit cards because they live in a particular area”.
A banker told, “Such restrictions are put in place because a card-holder can easily ask for an add-on card. Since the dependent card is linked to the primary card, banks usually don’t check whether the add-on cardholder is a defaulter. The same applies to personal loans. Banks cannot detect who will be the end-user of the money”.
Normally, banks separate out applications of credit cards and loans in various categories. For instance many banks do not give loans or issue credit cards to the people working in export houses, business process outsourcing and aviation. Some banks ask for guarantor working in a more stable sector.
According to financial expert these steps taken by banks are part of fraud detection method followed by financial institutions worldwide, as in developed countries as identity thefts are on increase.
Thus Blacklisting addressed is one of the measures to prevent frauds.
In case of secured loans, banks decide on a case-to-case basis. For instance HDFC a leading private sector bank reject loan only when the relative is a joint applicant, not if a blood relative has defaulted.
HDFC spokesperson stated, “If they have applied jointly, we still assess whether it was a one-off case or the person concerned is a frequent defaulter. Further, in case of any dispute with a bank or any other lender we get the details before taking any decision”.
Friday, October 30, 2009
Thursday, October 29, 2009
Banks reject loans if your close relative is a defaulter
If any of your relative has defaulted on repayment then you might not get loan. Now banks decision for giving loans or issuing credit card are base on residential address rather than only borrower’s income.
Recently in one of the instance leading private bank rejected credit card application because one of his close relative names was on the defaulter list.
Last month Samar Roy planned to get credit card so he applied for it with a leading private sector bank. As he was earning a reasonably good salary and had not taken any loan, even no credit cards issued to his name.
But bank rejected his application on grounds of “unsatisfactory credit record”. When Roy contacted bank to know the reason, he was told that his application was rejected because his father, who is staying in the same residence, name is on the defaulter list.
Against Roy’s father there is a due of Rs 10,000, which he did not pay owing to a dispute with his credit card issuer. Thus bank reported him as a defaulter to the Credit Information Bureau, India (Cibil).
A banker informed, “In the current environment, in which banks are extremely cautious about lending, everyone has put in mechanisms to prevent defaults. Residential address is one such tool that is used more often in the case of unsecured loans and credit cards”.
Roy was advised that he should ask his father to resolve dues with other bank if he does not want loan applications to get rejected in future.
In case an applicant belongs to a business family and the address is blacklisted the possibility of loan rejection is higher.
There are some banks that have gone one step ahead, they have blacklisted whole localities. An executive with a multinational bank told, “Every bank has risk perception based on their experiences. Some even blacklist areas. Sometimes, even customers with a good profile are not given loans or credit cards because they live in a particular area”.
A banker told, “Such restrictions are put in place because a card-holder can easily ask for an add-on card. Since the dependent card is linked to the primary card, banks usually don’t check whether the add-on cardholder is a defaulter. The same applies to personal loans. Banks cannot detect who will be the end-user of the money”.
Normally, banks separate out applications of credit cards and loans in various categories. For instance many banks do not give loans or issue credit cards to the people working in export houses, business process outsourcing and aviation. Some banks ask for guarantor working in a more stable sector.
According to financial expert these steps taken by banks are part of fraud detection method followed by financial institutions worldwide, as in developed countries as identity thefts are on increase.
Thus Blacklisting addressed is one of the measures to prevent frauds.
In case of secured loans, banks decide on a case-to-case basis. For instance HDFC a leading private sector bank reject loan only when the relative is a joint applicant, not if a blood relative has defaulted.
HDFC spokesperson stated, “If they have applied jointly, we still assess whether it was a one-off case or the person concerned is a frequent defaulter. Further, in case of any dispute with a bank or any other lender we get the details before taking any decision”.
Recently in one of the instance leading private bank rejected credit card application because one of his close relative names was on the defaulter list.
Last month Samar Roy planned to get credit card so he applied for it with a leading private sector bank. As he was earning a reasonably good salary and had not taken any loan, even no credit cards issued to his name.
But bank rejected his application on grounds of “unsatisfactory credit record”. When Roy contacted bank to know the reason, he was told that his application was rejected because his father, who is staying in the same residence, name is on the defaulter list.
Against Roy’s father there is a due of Rs 10,000, which he did not pay owing to a dispute with his credit card issuer. Thus bank reported him as a defaulter to the Credit Information Bureau, India (Cibil).
A banker informed, “In the current environment, in which banks are extremely cautious about lending, everyone has put in mechanisms to prevent defaults. Residential address is one such tool that is used more often in the case of unsecured loans and credit cards”.
Roy was advised that he should ask his father to resolve dues with other bank if he does not want loan applications to get rejected in future.
In case an applicant belongs to a business family and the address is blacklisted the possibility of loan rejection is higher.
There are some banks that have gone one step ahead, they have blacklisted whole localities. An executive with a multinational bank told, “Every bank has risk perception based on their experiences. Some even blacklist areas. Sometimes, even customers with a good profile are not given loans or credit cards because they live in a particular area”.
A banker told, “Such restrictions are put in place because a card-holder can easily ask for an add-on card. Since the dependent card is linked to the primary card, banks usually don’t check whether the add-on cardholder is a defaulter. The same applies to personal loans. Banks cannot detect who will be the end-user of the money”.
Normally, banks separate out applications of credit cards and loans in various categories. For instance many banks do not give loans or issue credit cards to the people working in export houses, business process outsourcing and aviation. Some banks ask for guarantor working in a more stable sector.
According to financial expert these steps taken by banks are part of fraud detection method followed by financial institutions worldwide, as in developed countries as identity thefts are on increase.
Thus Blacklisting addressed is one of the measures to prevent frauds.
In case of secured loans, banks decide on a case-to-case basis. For instance HDFC a leading private sector bank reject loan only when the relative is a joint applicant, not if a blood relative has defaulted.
HDFC spokesperson stated, “If they have applied jointly, we still assess whether it was a one-off case or the person concerned is a frequent defaulter. Further, in case of any dispute with a bank or any other lender we get the details before taking any decision”.
Wednesday, October 28, 2009
Lending rates not change in the next 3-4 months
The Reserve Bank of India has not changed the key rates in its second monetary policy review therefore retail and corporate loan rates are likely to remain unchanged. Bankers said there is no possibility of any increase in lending rates in the next three to four months.
Corporation Bank Executive Director Asit Pal said, "I do not see any change in the interest rates till March. There is no liquidity problem in the system and credit off- take is less than expected".
In its quarterly monetary policy RBI said the credit growth is unlikely to meet 20 per cent target.
RBI has increased the Statutory Liquidity Ratio (SLR), the minimum amount the bank must park in government securities, by one percentage point to 25 per cent but has not changed the repo rate at 4.75 per cent and reverse repo at 3.
Corporation Bank Executive Director Asit Pal said, "I do not see any change in the interest rates till March. There is no liquidity problem in the system and credit off- take is less than expected".
In its quarterly monetary policy RBI said the credit growth is unlikely to meet 20 per cent target.
RBI has increased the Statutory Liquidity Ratio (SLR), the minimum amount the bank must park in government securities, by one percentage point to 25 per cent but has not changed the repo rate at 4.75 per cent and reverse repo at 3.
RBI might ask banks to make more provisions for bad loans
In case the Reserve Bank of India issue instructions to the Indian banks to keep more funds as a cushion to cover losses occurring in view of loans extended to builders and also make more provisions related to bad loans.
Therefore banks will require setting aside 1% of a loan given to commercial real estate as a provision, which will be more from the present 0.4%. RBI governor D Subbarao has classified such loans, loans given to builders for construction of commercial properties like offices, malls, entertainment zones and hotels.
OP Bhatt, chairman, State Bank of India, pointed out that there will be marginal increase in interest rates of such loans. Most of the banks are giving loans to the builders at prime lending rate (PLR) or at a spread over the PLR.
According to Chanda Kochhar, CEO of ICICI Bank, “There is no issue of asset bubble as such. The provisioning of loans extended to commercial real estate was high previously. Subsequently, the credit flow to this sector fell, which impacted its activity. Now that the activity has picked up in this sector, RBI has raised provisioning requirement back to the old levels. But banks’ exposure towards commercial real estate sector is low. NBFCs and mutual funds are more active in this space.”
Earlier after the collapse of Lehman Brothers the credit lines across banks (globally) were freeze thus the provisioning for such loans was cut down from 1% to 0.4%.
RBI stated the increase in flow of credit in this sector and the restructuring of loans is mainly responsible for the increase in provisioning of such loans. M Narendra, executive director, Bank of India said, “Excess of credit to a particular sector is a concern for RBI, and thus, provisioning has been raised. This will reduce easy access to money (for builders). Hopefully, it should result in builders lowering the price of property, something most have refrained from doing so far”.
Moreover banks have been instructed to recover the provision coverage ratio (PCR) on bad loans to 70%. As all the banks follow asset classification norms, this range between 10% for sub-standard to 100% on loss loan and PCR is the overall provision on bad loans. Thus the banks will be expected to give up PCR amount from a loan in case they have to set aside that loan account. While after holding a meeting with RBI Mr Bhatt said, banks have put forward their request before the regulator to review the entire model of asset classification. While speaking to the media, he gave indication that banks might get more than one year time to adhere to the 70% norm.
However among banks, SBI’s PCR stands to 38% and ICICI Bank’s is 55% as of March 2009, while PNB’s PCR stood at 90%. Early this year, RBI had sent a paper to SBI in which it has asked the bank to raise its PCR to the industry average of 52%. But a lower PCR do not mean the bank has not made adequate provision.
Therefore banks will require setting aside 1% of a loan given to commercial real estate as a provision, which will be more from the present 0.4%. RBI governor D Subbarao has classified such loans, loans given to builders for construction of commercial properties like offices, malls, entertainment zones and hotels.
OP Bhatt, chairman, State Bank of India, pointed out that there will be marginal increase in interest rates of such loans. Most of the banks are giving loans to the builders at prime lending rate (PLR) or at a spread over the PLR.
According to Chanda Kochhar, CEO of ICICI Bank, “There is no issue of asset bubble as such. The provisioning of loans extended to commercial real estate was high previously. Subsequently, the credit flow to this sector fell, which impacted its activity. Now that the activity has picked up in this sector, RBI has raised provisioning requirement back to the old levels. But banks’ exposure towards commercial real estate sector is low. NBFCs and mutual funds are more active in this space.”
Earlier after the collapse of Lehman Brothers the credit lines across banks (globally) were freeze thus the provisioning for such loans was cut down from 1% to 0.4%.
RBI stated the increase in flow of credit in this sector and the restructuring of loans is mainly responsible for the increase in provisioning of such loans. M Narendra, executive director, Bank of India said, “Excess of credit to a particular sector is a concern for RBI, and thus, provisioning has been raised. This will reduce easy access to money (for builders). Hopefully, it should result in builders lowering the price of property, something most have refrained from doing so far”.
Moreover banks have been instructed to recover the provision coverage ratio (PCR) on bad loans to 70%. As all the banks follow asset classification norms, this range between 10% for sub-standard to 100% on loss loan and PCR is the overall provision on bad loans. Thus the banks will be expected to give up PCR amount from a loan in case they have to set aside that loan account. While after holding a meeting with RBI Mr Bhatt said, banks have put forward their request before the regulator to review the entire model of asset classification. While speaking to the media, he gave indication that banks might get more than one year time to adhere to the 70% norm.
However among banks, SBI’s PCR stands to 38% and ICICI Bank’s is 55% as of March 2009, while PNB’s PCR stood at 90%. Early this year, RBI had sent a paper to SBI in which it has asked the bank to raise its PCR to the industry average of 52%. But a lower PCR do not mean the bank has not made adequate provision.
Monday, October 26, 2009
Loans available, Banks following all guidelines stringently
Although the banks are offering home loans at 8% - 8.5% but it is not easy to get loans. Recently Brajesh Dhoot went to a private bank for a home loan bank offered him a loan at rate of 8.75 per cent for 20 years. The bank also agreed to pay 90 per cent of the total cost of the home.
After this, Dhoot started looking for a house. When he found a suitable apartment and he submitted the documents to the bank, but to his surprise he found the bank has changed the rules.
Though bank was offering 90 per cent of the total cost of the house, but the value of the property was reduced by 15 per cent. This is not the only case, banks agreeing to give loan, but have tightened norms. Some of the measures banks are taking are:
Direct selling agents (DSAs) told banks have reduced the loan-to-value (LTV) ratio by 5-10 per cent – this reduction has a significant effect if you are buying a house. Vinod Prajapati, a DSA told, “Earlier, banks used to lend up to 85-90 per cent of the agreement value (including registration and stamp duty charges). Today, the limit is 75-80 per cent.” For instance now ICICI Bank website shows the LTV ratio 80 per cent, previously it was 85 per cent.
According to industry sources banks are doing their own valuations. For instance if the value of the property is Rs 50 lakh according to the agreement and the bank executive puts the values at Rs 42 lakh, the bank will sanction the loan amount according to the latter’s valuation. Earlier also the banks used to do their own valuations but agreed to give loan according to the agreement value.
Another significant change banks are doing is fall in the installment-to-income ratio (IIR). On this basis bank decides the amount loan you are eligible for depending on your take-home salary. DSAs say there have been 5-10 per cent fall in IIRs.
According to financial expert, “The IIR is higher for those with lower salaries”. Suppose an individual is earning Rs 20,000 the IIR will be 55-60 per cent. While people earning between Rs 25,000 and Rs 50,000 the IIR will be 45-50 per cent.
In case of personal loan the things can be worse. If you do not have a salary account with the bank then you might not get a personal loan. According to a banker, “Even a person with a salary account will require a guarantor”.
DSAs are required to bunch an insurance product with a loan and this is done in cases where the bank is lending more or negotiating on some other criteria’s.
For sectors the banks have completely stopped lending which include business process outsourcing, software and exports were already in the black-list. To this list aviation has been added.
In case a loan applicant is working with a small company, banks have started checking the balance sheet of such firms to check their financial stability. If the customer is unable to provide the details, he is asked to get a company profile form filled by the employer.
In case of second-hand purchase the loan applicants have to do extra paperwork. Now it has become compulsory to submit occupancy certificate, commencement certificate and approval plans. But this is difficult as many old societies do not have all the papers with them.
Prajapati pointed out, “Even for a small deviation such as marginally increasing the LTV, the case paper now goes to higher authorities”. Over a year, junior executives were had the authority to take a call in such matters.
However the loans are available but banks are following all guidelines stringently. The potential borrowers are required to have an extra cash in hand to handle the last-minute situations.
After this, Dhoot started looking for a house. When he found a suitable apartment and he submitted the documents to the bank, but to his surprise he found the bank has changed the rules.
Though bank was offering 90 per cent of the total cost of the house, but the value of the property was reduced by 15 per cent. This is not the only case, banks agreeing to give loan, but have tightened norms. Some of the measures banks are taking are:
Direct selling agents (DSAs) told banks have reduced the loan-to-value (LTV) ratio by 5-10 per cent – this reduction has a significant effect if you are buying a house. Vinod Prajapati, a DSA told, “Earlier, banks used to lend up to 85-90 per cent of the agreement value (including registration and stamp duty charges). Today, the limit is 75-80 per cent.” For instance now ICICI Bank website shows the LTV ratio 80 per cent, previously it was 85 per cent.
According to industry sources banks are doing their own valuations. For instance if the value of the property is Rs 50 lakh according to the agreement and the bank executive puts the values at Rs 42 lakh, the bank will sanction the loan amount according to the latter’s valuation. Earlier also the banks used to do their own valuations but agreed to give loan according to the agreement value.
Another significant change banks are doing is fall in the installment-to-income ratio (IIR). On this basis bank decides the amount loan you are eligible for depending on your take-home salary. DSAs say there have been 5-10 per cent fall in IIRs.
According to financial expert, “The IIR is higher for those with lower salaries”. Suppose an individual is earning Rs 20,000 the IIR will be 55-60 per cent. While people earning between Rs 25,000 and Rs 50,000 the IIR will be 45-50 per cent.
In case of personal loan the things can be worse. If you do not have a salary account with the bank then you might not get a personal loan. According to a banker, “Even a person with a salary account will require a guarantor”.
DSAs are required to bunch an insurance product with a loan and this is done in cases where the bank is lending more or negotiating on some other criteria’s.
For sectors the banks have completely stopped lending which include business process outsourcing, software and exports were already in the black-list. To this list aviation has been added.
In case a loan applicant is working with a small company, banks have started checking the balance sheet of such firms to check their financial stability. If the customer is unable to provide the details, he is asked to get a company profile form filled by the employer.
In case of second-hand purchase the loan applicants have to do extra paperwork. Now it has become compulsory to submit occupancy certificate, commencement certificate and approval plans. But this is difficult as many old societies do not have all the papers with them.
Prajapati pointed out, “Even for a small deviation such as marginally increasing the LTV, the case paper now goes to higher authorities”. Over a year, junior executives were had the authority to take a call in such matters.
However the loans are available but banks are following all guidelines stringently. The potential borrowers are required to have an extra cash in hand to handle the last-minute situations.
Wednesday, October 21, 2009
Tata Capital offers auto loans at lowest interest rate of 10.5 per cent on new cars
Tata Capital, a subsidy of Tata Group Company has introduced its auto loans at attractive rates.
According to press release, "Tata Capital auto loans will be offered at very attractive rates to the discerning customer. Customers looking out for a quick and hassle-free way of getting an auto loan will now be able to avail the same through Tata Capital's offices across leading markets in India".
Company is offering auto loans at lowest interest rate of 10.5 per cent on all new car loans along with special waiver on processing and foreclosure charges.
The release stated the offer is being given on all fresh loan proposals and will be valid till October 31.
Tata Capital's Consumer Finance and Advisory Business Head, Jamshed Daboo informed, "While taking an auto loan seems simple enough, people are often left wanting for relevant advise and available finance options. Our well-trained advisory team will empower our customers with accurate information to help them take informed decisions."
Tata Capital had recently got into Consumer Finance and Advisory Business (CFAB) business, includes sales and service structure integrating all consumer finance and advisory products and services into a single network.
Tata Capital through CFAB will be offering various combined retail offering together, in the areas of consumer loan products and financial advisory services, including auto loans.
The release also stated company proposes to expand its business, following this in 71 cities it will be opening a chain of over 120 branch offices by December this year.
It added, through these branches company will be offering various combined retail offerings in the areas of consumer loan products and investment advisory services.
According to press release, "Tata Capital auto loans will be offered at very attractive rates to the discerning customer. Customers looking out for a quick and hassle-free way of getting an auto loan will now be able to avail the same through Tata Capital's offices across leading markets in India".
Company is offering auto loans at lowest interest rate of 10.5 per cent on all new car loans along with special waiver on processing and foreclosure charges.
The release stated the offer is being given on all fresh loan proposals and will be valid till October 31.
Tata Capital's Consumer Finance and Advisory Business Head, Jamshed Daboo informed, "While taking an auto loan seems simple enough, people are often left wanting for relevant advise and available finance options. Our well-trained advisory team will empower our customers with accurate information to help them take informed decisions."
Tata Capital had recently got into Consumer Finance and Advisory Business (CFAB) business, includes sales and service structure integrating all consumer finance and advisory products and services into a single network.
Tata Capital through CFAB will be offering various combined retail offering together, in the areas of consumer loan products and financial advisory services, including auto loans.
The release also stated company proposes to expand its business, following this in 71 cities it will be opening a chain of over 120 branch offices by December this year.
It added, through these branches company will be offering various combined retail offerings in the areas of consumer loan products and investment advisory services.
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