Loan beyond 80% of home value, not possible!!!

Reserve bank of India (RBI) has introduced new guidelines for home loans. The central bank has made it tougher for property loan valuing more than 75 lac.

The RBI has said that the banks can provide loan only 80 percent of the cost of property, rest 20 percent has to be necessarily arranged by the borrower. These new guidelines are introduced by the bank, considering the excessive flow of money from the banks in real estate sector.

According to a notification issued by RBI "In order to prevent excessive leveraging, the LTV (Loan to Value) ratio in respect of housing loan hereafter should not exceed 80 per cent," however the central bank said that the banks can provide upto 90 pecent loan to small housing loan upto 20 lacs.

Reacting to the revised policy, some banks like ICICI and HDFC have already withdrawn their teaser rate scheme while SBI will follow the renewed guidelines from next month.

LICHF says all loan approval norms duly followed

Central Bureau of Investigation arrested many top officials of financial services firms as well as public sector banks yesterday in pertanance to the housing finance scam. Amongst them was CEO of LIC housing finance (LICHF), Ramachandran Nair .

"All procedures and due diligence consistent with board approved guidelines have been adhered to in approving the loans, as has been followed in the past, by the competent authority," LIC Housing Finance said clarifying its stand.

Other than Nair, the arrested officials include Naresh K Chopra, Secretary (Investment), LIC, R N Tayal, General Manager of Bank of India (Delhi), Maninder Singh Johar, Director (Chartered Accountant) of Central Bank of India, Venkoba Gujjal and Deputy General Manager of Punjab National Bank (Delhi).

CBI also said that it has arrested Rajesh Sharma, CMD of Mumbai-based firm Money Matters Ltd and two of its employees -- Suresh Gattani and Sanjay Sharma.

LIC Housing Finance said, "All the loans are secured by the underlying assets to the full satisfaction of the approving authority. All the loans have been approved with relevant regulatory norms."

"As on date all the loans in question are performing assets," added LICHF.

CBI spokesperson R K Gaur commented on the issue saying that, "Officers of top management and middle management of various public sector banks and financial institutions viz. BoI, Central Bank of India, PNB, LIC and LICHF were receiving illegal gratifications from the private financial services company who were acting as mediators and facilitators for corporate loans and other facilities from financial institutions."

"They were also gathering confidential business information from financial institutions," added Gaur.

IDBI Bank and State Bank of Mysore raised lending rates

IDBI Bank and State Bank of Mysore have raised lending interest rates.

IDBI Bank is the first bank to raise its interest rates after the Reserve Bank of India (RBI) raised key policy rates by 25 basis points. The bank has raised its term deposit rates by 10-50 basis points across maturities to attract customers.

Bank has also revised its benchmark prime lending rate by 25 basis points to 13.5%. The new rates are effective from November 4.

IDBI Bank Chairman and Managing Director R M Malla said RBI has pointed to the issue of negative returns on deposits. He added, bank is willing to give better returns to small depositors.

State Bank of Mysore has raised its base rate by 25 basis points to 8%. According to bank statement, the revised rate has come into effect from November 1.

Central Bank to provide loan to rickshaw pullers

Central Bank of India will be providing finance for rickshaw pullers. Bank CMD S Sridhar will launch a rickshaw finance program in Uttar Pradesh capital on November 9.

Through this program the aegis of Rickshaw Federation plans to provide loans to rickshaw pullers to own their rickshaw units and thereby bringing them under the formal banking system. Sridhar will meet the state government officials regarding this.

Corporation Bank launches three new loan products in Mangalore

Corporation Bank has launched three products in Mangalore - Corp Shubha Vivah (loan scheme to meet expenses related to marriage), Corp Ghar Shobha (loan scheme for house renovation/extension/furnishing) and Corp SB Smile (flexi savings deposit scheme for micro traders). The products were launched by P Shivshankar, chief executive officer, zila panchayat.

Narendra Singh, executive director of the Bank said, “Corporation Bank has always been responsive to the social realities and needs. We understand the financial difficulties faced by parents at the time of marriage of their children, especially daughters Corp Shubha Vivah is specially designed to take care of the entire marriage expenses”.

While explaining about the Corp SB Smile Scheme he said, “Hawkers and street vendors are an important link in the overall supply chain in our marketing system. But, they are not formally integrated into the system. Their banking needs are limited. Owing to the limited exposure to education, they are not comfortable with the banking system and hence they try to fulfill their banking needs outside the system with a daily collection account or sometimes a term deposit. The Bank has come up with a novel scheme Corp SB Smile, especially focused to cater to the needs of this segment.”

Narendra Singh said, “Corp Ghar Shobha is designed as a complete housing solution, providing financial assistance for repair, renovation, extension, improvement, and furnishing of house.”

Products

Corp Shubha Vivah loan has been designed specially to take care of the expenses related to marriage. The loan will cover the entire expenses related to marriage such as shamiana, hall booking, food and catering, purchase of jewelry, clothes, etc. The loan repayment period is 7 to 15 years and at present bank is offering loan at an interest rate of 12% (4.25% above the base rate).

Corp Ghar Shobha is a loan designed to provide complete housing solution. The loan covers cost of repairs/renovation/extension/improvement/furnishing of house/flat. This loan also covers consumer durables like refrigerator, television, washing machine, laptops, digital cameras etc. In the metro centers the maximum loan amount is Rs 10 lac. The loan can be repaid in the form of EMI in maximum period of 10 years. At present the rate of interest is 10% (2.25% above the base rate).

The third product Corp S B Smile is a loan specially designed Flexi Savings Deposit with Sweep facility for Micro Traders. Under this scheme an account can be opened with an initial deposit of Rs 200. When in Corp SB Smile account balance touches to Rs 6000 the system will automatically transfer in units of Rs 5000 in the SB account

Govt proposes to include loan products in financial inclusion program

The government and Reserve Bank of India has been pushing public sector banks to adopt financial inclusion program in order to reach out to the unbanked segments in the country. Earlier under financial inclusion program banks were to provide basic banking facilities like opening accounts, issuing smart cards for transactions, now government is planning to include loan products. This was stated by Department of Financial Services Secretary R Gopalan. Around 10 PSU banks in the South including Indian Bank, Andhra Bank, Corporation Bank, Canara Bank, Indian Overseas Bank, Syndicate Bank, Vijaya Bank, State Bank of Mysore, State Bank of Tranvancore and State Bank of Hyderabad are carrying out financial inclusion program which was reviewed by Gopalan.

He said, “Corporation Bank is already undertaking such initiatives by opening credit lines to unbanked segment customers to start small businesses like saloon and cycle shops by granting small value loans of Rs 10,000 to Rs 15,000. This can be replicated by all banks after the ministry approves it at the national scale. It works somewhat like a kisan card.”

He said as per the finance ministry’s budget proposal to reach out to 72,300 habitats having population of 2,000 people, up till now the review of FIP implementation in Western and Eastern region has been done. He added in south, approximately 30,000 habitat locations were identified for FIP implementation.

“We are focusing on providing facilities including deposits, withdrawals, remittances, micro-pension, micro-insurance in the identified FIP pockets.”

He told the projected regulatory framework on microfinance institutions is in final stage and the department has getting feedback from public and other stakeholders. However, he said, regulation will not include interest rates as in the Indian financial markets the interest rates are deregulated.

He said, the banking sector is prepared for huge HR challenge as about 3-4 lakh staff is expected to retire in the next three to four years. He added, “New age banking workers has to reorient themselves for new situation. In the modern day banking, more work will be handled at the back offices with conventional banking adopting Business Process Re-engineering at the front-end to stay relevant. We need people with indepth skills in areas like Risk Management, Forex management, Treasury Management, Credit appraisal, etc to meet the demands of the modern era banking."

APGVB ‘Suvidha Vikas’ boon for poor borrowers

Andhra Pradesh Grameena Vikas Bank (APGVB), a government owned bank has a debt swapping scheme called ‘Suvidha Vikas’ for poor people in Warangal. But poor borrowers do not have awareness about the scheme due to which it has remained under utilized by these borrowers who go to private micro-finance institutions (MFIs) for help.

Although loan borrowers go to MFIs for help, the borrowers of Warangal unit of APGVB are in safe hands.

Suvidha Vikas’ loan book show loan of up to Rs 5 lakh given to self-help groups (SHG) (without any security) and monthly installment repayment, as against the weekly installment system followed by private MFIs.

Except for Chennaraopet, Gudur, Tadwai, Dornakal and Cheriyal mandals, the scheme is doing well in rest of the 45 mandals of Warangal.

Moreover, besides Warangal, the APGVB scheme is running in four other Telangana districts of Medak, Mahbubnagar, Nalgonda and Khammam and three more districts in Andhra.

The sources informed, APGVB Warangal is providing services to members of 14,590 SHGs under Suvidha Vikas, each group having an average 12 members. M. Balathimma Reddy, manager (advances), APGVB, Warangal, who looks after Suvidha Vikas said, “In the last two months, we have seen a sudden rise with 192 new SHGs, who constitute the majority of loan borrowers from private MFIs, being added in Warangal.”

Although APGVB officials are not able to market their loans efficiently as the agents employed by private MFIs do through sweet-talk, but APGVB charge low interest on loans as compared to what is charged by private MFIs.

Mr Reddy said, “As against the high rate of interest charged by MFIs, we charge only 14 per cent interest rate. Of this, the state government pays on 5 per cent interest rate as subsidy under Pavala Vaddi scheme to the poor borrowers.”

According to sources, there is a major drawback with Suvidha Vikas scheme, that it does not completely takeover loans of borrowers from private MFIs instead it only provided the SHG another loan to pay-off the first loan.

A. Vinayak Reddy, professor of Economics, Kakatiya University said, “As of now, Reserve Bank of India has not given permission to public sector banks (PSUs) to take over loans from MFIs.” Mr Reddy further said as the state government provides support for the setting up of SHGs, so it becomes the primary responsibility of the government to provide them loans when they require.