Public sector banks most preferred for auto loans

Public sector banks are moving on a fast track in the sanctioning of auto loans. Now more and more customers are knocking on their doors for auto loans rather than private banks because the public sector banks are sanctioning the loans at the same speed – two or three days and are also offering lower interest rates.

Earlier the private banks were leading the race. Now the private banks have become stringent in financing auto loans due to the global financial crisis. The public sector banks are making use of this opportunity.

For instance recently Mr Wilfred Minz, a supervisor at Life Insurance Corporation planned to get his Alto financed. Therefore he approached the State Bank of Patiala who offered him an interest rate of 12.25 per cent, while private banks rates start from 13 per cent and go as high as 18-19 per cent. The bank was fast in sanctioning the loan. Mr Minz recounts, “My experience has been that despite the extensive documentation they need (public sector banks), I did not have to run around and my loan got sanctioned in just two days,”

Alike, Mr Ramesh Khanna, a marketing manager, had got his Ford Ikon financed from the State Bank of India last month and was taken aback with the public sector bank’s promptness of service.

“It was hassle-free. I could not believe that a SBI official would come even at 9 p.m. to verify my documents,” he said.

A Maruti Suzuki dealer said, “Earlier public sector banks were taking a week or longer to grant auto loans and private banks were doing it in two-three days. Now it is the other way around. In the earlier days private sector banks were not so stringent in lending. Even without Form 16, if the customers had two years in a stable job, the loan got sanctioned. Public sector banks have more checks. Despite this, they are now at par, or even quicker in lending."

Even the carmakers are increasingly betting on public sector banks as private banks are cutting down on vehicle financing. Mr Mayank Pareek, Executive Officer Marketing and Sales, Maruti Suzuki India Ltd. pointed out, “Public sector banks are lending in such difficult times. Though this can help sustain business, for growth to happen there has to be more lending.”

As per bank sources, due to the slowdown, ICICI Bank’s share in financing Maruti cars has cut down to about 1,100 cars a month from the 11,000 cars which was used to be in its hey day. However SBI’s share has grown to 14,000 units a month from around 8,000. Hyundai even has State Bank of India as the second largest financier for its cars.

“The share of public sector banks in financing Hyundai cars has been growing despite their stringent lending norms, but there is scope for more aggression,” said Mr Arvind Saxena Senior Vice-President, Sales and Marketing, Hyundai India.

TimesofMoney & Barclays Bank to launch Barclays Online Money Transfer service

TimesofMoney a leading e-payments and remittance service provider, tied-up with global financial services major, Barclays, to launch Barclays Online Money Transfer, a remittance service, in the UK.

According to a press release issued by the bank after the launch of Barclays Online Money Transfer the bank's customers in the UK will be able to transfer money online directly to any Barclay’s account anywhere in India.

As per release in the near future the services will be extended to other countries as well.

TimesofMoney's President, Avijit Nanda, stated that "with Barclays Bank joining TimesofMoney as a banking partner, it will help us extend our offering to the customers enabling secure online payments."

He added, "With the extension of our white-labeled solutions, our partners can conduct their business with a higher level of security and greater convenience".

Barclays' Global Retail and Commercial Banking, Managing Director, India and Indian Ocean, Samir Bhatia, said that "having partnered with TimesofMoney, who possess strong technology and risk management capabilities in the domain; we are now ready to offer convenient and secure remittance service to our customers and establish our presence in the segment."

Corporation Bank reduces interest rate on home loans and vehicle loan rates

Corporation Bank has announced reduction on interest on home loans and other select schemes and will come into effect from November 17.

According to bank release floating rate on home loans up to Rs 30 lakh, interest rates has been brought down by 75 basis points and higher reduction has been brought about for loans above Rs 30 lakh.

Therefore floating interest rates on “Corp Home” loan up to Rs 30 lakh will be 9.75 per cent (10.50 per cent) and for loans of tenure up to five years, 10 per cent (10.75 per cent) for loans above five years and up to 15 years, and 10.50 per cent (11.25 per cent) for loans above 15 years.

The floating interest rates on Corp Home loan above Rs 30 lakh are: 10.50 per cent (12.25 per cent) for loans of tenure up to 5 years, 10.75 per cent (12.25 per cent) for loans above five years and up to 15 years, and 11 per cent (12.50 per cent) for loans above 15 years.

The interest rate for Corp Mobile (vehicle loan) scheme has been reduced to 12.50 per cent (13 per cent), whereas Corp Consumer (loans for consumer durables) scheme has been slashed down to 14.25 per cent (14.75 per cent) and Corp Vyapar (loan for traders) scheme is reduced to 14 per cent (14.25 per cent).

The release added that the revised interest rate will be applicable for all existing and fresh loans sanctioned. But for the existing fixed rate Corp Home loans, existing interest rate will continue till the new date.

SBI to expand branch network in UP

State Bank of India is considering of expanding its network in Uttar Pradesh.

The bank is thinking of opening up of 162 new branches in the state by March next year.

The new branches will be mainly opened in the rural and semi urban centers of the state.

At present bank is having a network of 1033 branches and with the opening of new branches the network will increase to 1195 in the circle.

According to the latest Reserve Bank of India data for June this year, the Bank has shown growth in market share in both deposits and advances.

As per the data, the market share in deposits for SBI Lucknow Circle has shown the growth in one quarter by 129 basic points. Likewise, in advances the market share has also grown by 64 basic points.

Auto financiers decision not affected by CRR cut, hike interest rates by 100bps

Few days back the Reserve Bank of India (RBI) on an adhoc basis reduced the cash reserve ratio (CRR) by 50 basis points, but this has not affected the decision of the leading auto finance banks, some of the banks have either hiked the interest rates by 100 bps or are planning to do it shortly. Since August this is the third hike and has resulted in a mounting increase of 250-300 bps in interest rates. This in turn has led to an increase of Rs 150 in the equated monthly installments (EMI) on a loan of Rs 3 lakh for a period of three years.

According to Sumit Bali, CEO, Kotak Mahindra Prime, “The recent reduction in CRR has only made more money available with the bank. As a result banks will become little more aggressive on the lending front. But the fact that the amount released is very low and there is no sign of easing of rates on other fronts, we have increased the auto interest rates by 100 bps”.

While N Ravnarain, auto finance head, ICICI Bank says, “Interest rates are the net impact of several factors like deposit base and operating costs and since the situation continues to be tough, the 100 bps hike was inevitable”. The new rate of interest would be the net rate to the customer and will come into effect from October 10, which would float between 15-15.5% as against the earlier rate of about 14-14.5%.

HDFC Bank, a leading car-financing bank in the country, is also thinking over a hike of 100 bps in auto loans from early next week. “At this juncture where banks are starved of cash, the interest rates could only be revised upward despite the recent cut in CRR,” says Rajan Pental, auto finance head, HDFC Bank. “Though there has been no decision, we might go for a 100 bps hike next week,” he adds.

In view of increase in auto loans by 250-300 bps since the beginning of this fiscal, The EMIs on a loan of Rs 3 lakh have also shown a jump of Rs 450-Rs 500.

While a Mumbai-based analyst says, “At a time when the passenger car industry is struggling to pick up speed, the increase in interest rates would dampen the overall sentiments of the buyers during the festive time”.

ING Vysya bank expands its network

ING Vysya Bank is expanding its network across the country. Recently bank has opened 11 ATM outlets in the state including 8 in Hyderabad and one each in Warangal, Khammam and Guntur. Bank will open four more branches in the state at Pedanandipadu, Kondapur, Shamshabad and Kothagudem and 7 additional ATMs in the next six months. After the opening of these branches, the total number of branches will be 176 branches and ATMs 66, spread across the state.

Uday Sareen country head-retail banking, speaking at a press conference said, Andhra Pradesh is a key market for the banks with 33 per cent of its distribution. The bank is doing a total business in the state of around Rs 8,000 crore.

Sareen informed that bank will be implementing the 'Smart Card' project in Chittoor and East Godavari districts and till now it has opened over 40,000 'no-frills accounts'. Bank has plans to open 56 more branches and 100 ATM outlets across the country, this year. Thus, it has increased its headcount by 450.

Andhra Bank to offer Kotak Mahindra Mutual Fund products through its branches

An agreement of distribution tie-up was signed between Kotak Mahindra Asset Management Company, one of India’s leading mutual fund houses, and Andhra Bank. According to this agreement, Andhra Bank will be offering the entire bouquet of Kotak Mutual Fund products through its 1386 branches. MOU was signed by Sandesh Kirkire, Chief Executive Officer, Kotak Mahindra AMC and Rakesh Sethi, General Manager, Marketing, Andhra Bank.

During the signing of MOU, Sandesh Kirkire, Chief Executive Officer, Kotak Mahindra Asset Management Company said, “The banking channel is one of the best platforms to reach out to retail investors. Offering advice on mutual fund investments is an extension of the value added services that are offered by banks. As experts in the field of wealth creation in India, our tie up with Andhra Bank will reinforce our commitment to expand retail participation. With this tie-up customers will gain easy access to the various schemes of Kotak Mahindra AMC at the branches where they do their banking transactions.”

Penalty can be charged on inoperative bank A/C

Do you have any inoperative bank account through which not a single transaction has been done for more than two years and you have forget then make sure either to close or activate that account. As recently banks are mandate to not to charge for reactivation of such an account but they have the right to continue charging for services such as maintenance of lockers and annual debit card fees. The Reserve Bank of India generally does not regulate service charges and penalties charged by individual banks.

In the directive issued on August 22, 2008, RBI in its definition of an inoperative accounts and unclaimed deposits has excluded “service charges levied by the bank or interest credited by the bank...''

Hence, if you do not maintain a minimum balance for a particular period in your savings account and if over the years, fees and charges reduce below the required cutoff, then you might have to even pay a penalty on the already reduced balance.

Therefore in spite of RBI instructions to banks to pay 3.5% savings bank rate of interest on inoperative accounts and matured fixed deposits, there can be chances that the balance may still end up depleting.

There is an advice for the consumers that they should keep a check on their accounts. Recently a Delhi resident, approached the National Consumer Helpline (NCH), a project supported by the ministry of consumer affairs, with an interesting complaint.

The complainant had an account in a southern bank which he left un-operated for a long time. Southern bank merged with a new-age private sector bank some years ago. At that time he had a comfortable balance of Rs 4,800 in his account, the minimum requirement being Rs 1,000. After the merger, however, the limit was raised to Rs 5,000 keeping in with the private bank's policies. "But he was not informed about the change and was slapped a penalty. Today he is left with a minus account," says NCH's Sanjeev Talwar.

The account holder adds, "First of all, they made my balance zero. But the most painful part is that when I approached the bank a year ago and requested them to close my account; they told me that my balance was negative, at Rs 3,000. Now they are asking for a penalty of Rs 10,000".

Therefore, inoperative accounts are a serious issue. As per the recent reports of the Reserve Bank, as on December 31, 2007, the unclaimed deposits stood at a huge Rs 1095.46 crore.

Taking this increase in a view as also the risk of frauds that inoperative accounts carry, RBI has also instructed banks to "play a more proactive role in finding the whereabouts of the account holders whose accounts have remained inoperative".

(Reserve Bank of India's spokesperson Alpana Killawala says that an inoperative account gets the status of a dormant account if it is not operated for more than 10 years. "The monies are then shifted to the bank's suspense account." To reactivate it, credentials of the account holder or his kin must be re-established).

Taking it in a positive sense, all banks TOI spoke to-HDFC Bank, ICICI Bank, State Bank of India, Axis Bank and Citibank-maintained that they do not charge any additional charges on an inoperative account.

K Ramakrishnan, the new chief executive at the Indian Banks' Association, also assures: "To my knowledge, there is no penalty". A senior banker admitted that charging of a nominal penalty, though, was common in the past.

Bank of Rajasthan introduced NEFT facility in all branches

Bank of Rajasthan, a private sector bank is growing fast by adapting latest technology to make banking customer friendly. Following this bank has introduced the NEFT (National Electronic Funds Transfer) facility in all branches.

Bank of Rajasthan is considered to be one of the oldest and a tech savvy private sector bank, by introducing NEFT facility it has moved one step ahead in its technology driven program.

At present Bank of Rajasthan have more than 2 million customers who can now effortlessly transfer money electronically.

National Electronic Fund Transfer is the fastest, secure, efficient, economical, reliable and most speedy system for transferring funds from specific account of one bank to account of another bank available throughout India.

With the launch of this facility bank has proved its customer friendly services associated to technical developments and ease the process.

Drop in consumer loans slows durables sales

With the increase in inflation the budget of every household has come under burden and it has become difficult to take out any extra money for other purposes. Fearing a sharp rise in defaults banks and finance companies have reduced their lending. In turn this has slowdown the sales of finance-linked products.

According to K.R. Kim, Chief Executive officer and Vice-Chairman, Videocon the company in the past 6 months has registered a 10 per cent drop in sales its products linked with consumer financing, especially in the rural and semi-urban areas. He said, however company has recovered the drop in sales through their dealer finance scheme.

Even the consumer goods dealers have also confirmed a drop in sales. Some dealers, refused to be identified, claimed of about 20 per cent decline in sales while others maintained that demand had halved in the past one year.

According to V.Ramchandran, Director, Sales and Marketing LG India has registered a 4-5 per cent fall in the contribution of consumer finance sales. There has been decrease in the number of players who provide consumer financing, this in turn has resulted in the weakening of the durable category.

Steep jump in inflation is one of the reasons for banks to cut down consumer financing, and a consequent rise in interest rate, has generated fears of repayment capabilities according to OV Bundellu, Deputy managing director, IDBI bank the rising interest rates are responsible for the slowdown in consumer financing.

Ramchandran said about 10-20 per cent of the consumer durable industry's sales is directly related to the financing options. ''With the growth of organized retail, need for consumer financing becomes greater,'' he said.

Samsung India, had a growth of 30 per cent in the overall consumer durable sales in the first six months, has also seen a drop by 15 per cent in the sales of products linked with financing. According to company spokesperson some of the banks such as ICICI, Citifinance have withdrawn from consumer financing which has led to rapid fall in sales.

In the past year sales of higher-end products such as LCD televisions, was quite high has been worst hit. The segment has seen drop of 150 per cent in the past six months. According to Kamal Nandi, vice-president, sales and marketing Godrej Appliances the growth of frost-free refrigerators sales, have almost stagnated this year previously it was growing at 20 per cent having a similar impact on sales on entry-level goods.

To overcome the constriction, consumer durable companies are now coming up with their own financing schemes or helping dealers to tie up with banks.

Videocon has started dealer financing/channel financing scheme to boost up sales of their product range through this scheme company aims to make up for a decline in sales. Kim said manufacturers should come up with different schemes to refinance in order to boost sales.

Videocon is working out tie-up with select lenders including ICICI Bank and Standard Chartered Bank to provide financing to the dealers to push up sales.

According to Amit Gupta, Vice-President (sales), Videocon their tie-up with Standard Chartered and ICICI Bank is at the finalization stage, therefore it is expected to enable dealers and distributors to get funds easily at reasonable credit to purchase Videocon's products.

In the meantime, banks are refreshing consumer lending by imposing stricter norms. According to Nandan Shrivastav,General Manager, Retail Banking, Bank of Baroda bank has plans to give consumer loans to customers who have salaried accounts in their banks and have the necessary repayment power.

Deutsche Bank AG, India offers personal loans has also confirmed that there had been a slowdown in the market for these loans even though there are no specific schemes that caters to provision of loans for purchase of consumer durables.

However the banks are expecting lesser demand for purchase of consumer durable goods compared to the previous years in view of rising inflation and rising interest rates.

Three persons arrested for offering fake loan

The Delhi police crime branch Special Operations Squad (SOS) arrested three persons who were alleged involved with an inter-state gang and cheated people by offering fake loans at lower rates. The gang allegedly used to give advertisement in local regional newspapers to lure the victims.

The three accused are Neeraj Kumar Chauhan (29), who posed as the supervisor of their fake firm, Amit Kumar Sagar (29) and Sachin Kumar Nigam (26). Neeraj has graduated from Delhi University; the other two are classmates, who are school drop out. As per police report all three are residents of Tagore Garden in west Delhi. But police have to still arrest the key player of the gang, Anuj Makkad, who has been carrying out operations illegally from Jalandhar and had a major share of the service charges as a share for providing knowledge about the operation.

According to Neeraj Thakur, DCP (Crime and Railways), the gang advertised about its services in several dialect and regional newspapers in states like Assam, West Bengal, Bihar and Maharastra. “They used to offer loans from banks and they would charge a commission of 1-2 per cent of the total amount as their service charge in advance. The gang would rent an office and would mention only their mobile numbers in the advertisements. Most of these were from Assam and West Bengal. Until now, we have found the total fraud to be over Rs 60 lakh and with over a 100 people, mostly small-time traders, having fallen prey to this group,” said DCP Thakur.

DCP Thakur told that most of the victims sent their documents through couriers to their office after doing a brief verification. After few days, the alleged cheats would call up their victims and asked them to deposit their service charges, after which their loan will be sanctioned soon. They used to give their bank account numbers or took service charges in cash. The accused used to operate for five months and after that they would close down their office and disappear. The gang has been carrying out operations since 2004 and till now have changed 15 locations, out of which 13 are in Delhi, added DCP Thakur.

He told the gang was very careful that no Delhiite is included in their clientele. “In this manner, they avoided any detection,” he added.

The crime branch got a complaint from Subhodip Ghosal, a Kolkata resident, against one Gayatri Associates, having base in Sant Nagar near Amar Colony, in this regard. The police took the help of technical surveillance to trace the mobile phones and arrested the gang members.

“Various incriminating documents, one Skoda car, six mobile phones, SIM cards, rubber stamps and computers and accessories were confiscated from them. We are investigating the case and are on the lookout for Makkad and another associate of the group,” said DCP Thakur.

Yes bank in tie –up with Cisco launched hi-tech phone banking services

Yes Bank the new-age private lender has tied-up with networking giant Cisco and launched a facility which will provide new communication technologies for banking services.

Through Yes Bank-Cisco Interactive Experience Centre set up at Gurgaon communication over voice, chat and email services will be provided. The bank's customers will also get the facility of accessing their accounts 24X7 via 'Yes touch' phone-banking services which will support business-related queries and transactions.

Yes Bank Country Head, Direct Banking, Ravishankar, told the reporters, "We are introducing Yes touch phone-banking services, using speech-enabled voice recognition for the first time in the Indian financial services sector for our customers". Speech-enabled voice recognition service will help customers to perform routine enquiries or transactions just by speaking pre-defined aided keywords.

Ravishankar added customers will be able to avail multiple channels currently - email, web-chat, IVR (integrated voice response) and voice to access these services.

In the next 12 months the bank will be launching a new telephonic voice identification system, called voice biometric, in collaboration with a US company

Ravishankar said, "We have the technology for speech biometric and just need fine-tuning for Indian voice recognition and vocabulary, which will have 90 per cent accuracy".

Indian saving bonds can be used as collateral for obtaining loans

In a notification released by finance ministry stated the Indian savings bonds, can be used as collateral for getting loans from banks.

The savings bonds were issued by the government to its officials in those years as a saving avenue who took voluntary retirement or retired at the time.

Notification stated that the scheme will be applicable for 7 7 percent Savings Bonds issued in 2002, 6.5 percent Savings Bonds issued 2003 and for 8 percent Savings Bonds issued in 2003.

Banks see rise in bad loans

Inflation has reached at 12%, RBI has increased repo rate and CRR the banks have started getting a feel of bad loans. Even the admissions have begun. Facing the denial for the better part of the current financial year (2008-09), bankers have started admitting rise in bad loans is going to pose a huge challenge in the next few years. Some of the foreign and private banks are already experiencing a rise in delinquencies. Meera Sanyal, country executive, ABN Amro Bank, India, claimed that there is a slight increase in delinquencies for the bank in the credit card and personal loan segments.

Speaking at the sidelines of a banking conference Sanyal said, “But the medium-term outlook remains positive”

Naina Lal Kidwai, country head for HSBC India, also agreed.

Kidwai said, “There could be delinquencies in credit cards, consumer finance and personal loans and maybe mortgages. Retail loan growth could also slow down”.



The cause for increase in the possibility of defaults especially among customers holding credit cards is the rising interest rates.

Banks fearing higher defaults have already stopped or tightened lending norms for consumer finance and auto loans.

Although ICICI Bank, the leader in retail lending in India, is expecting retail lending this year to grow 5-10% after it has seen a frenetic growth in the last couple of years in its retail lending.

Chanda Kochhar, joint managing director and chief financial officer, ICICI Bank, said corporate credit growth will perform better at 16%.

She does not see any impact of higher interest rates on bank’s loan portfolio. “Business growth for the industry may be impacted, but not ICICI’s loan quality,” Kochhar said.

The banks are facing rise in bad loans.

In the same period earlier its net non-performing assets have increased to 1.74% of total assets in the quarter ended June 2008 from 1.33%.

According to analysts bad loans will be a major challenge for domestic banks even though regulators prepare to give relaxation in the restrictions on foreign banks operating in India in 2009.

“We will have to go through some pain because the right processes were not followed earlier and it may impact the industry,” said Ravi Trivedy, executive director, business advisory services, at KPMG, the audit giant and consultant.

He said, “For example, financing for white goods has more or less stopped. Now, if electronic goods are not sold, their makers face losses because they have invested a lot in producing the goods”.

Trivedy added banks can’t avoid the pain. “Reserve Bank of India has no choice but to hike rates if inflation is at 12% and that will be a problem because if people have taken a loan of Rs 50 lakh and paying 7% interest two years ago, now they are paying 14% which means paying double the interest now,” he said.

However Trivedy said the number of defaulters on their home loans in India will be less because, unlike the US, as the home-loans market in India is a “user’s market.”

Banks come up with innovative schemes to boost car loans

There has been considerable downfall in the car sales because of high prices of raw materials and inflation. Even the interest rates have gone up so there are only few takers of car loan india. The auto financers have started coming up with innovative schemes to boost sales. Lenders are making all their efforts of resorting to lower interest rates, floating rate loans and cutting dealer commissions to increase demand.



Recently two of the largest players in car financing have decided to cut down interest rates by 2% to step up the demand. For this the commission paid by the bank to the automobile dealers has been reduced therefore retaining the rates at a level which makes it affordable to buyers.


HDFC Bank and Kotak Mahindra, both figures among the top three financiers of four wheelers, will be reducing their rack rates by 2%. Kotak Mahindra Prime at present is charging an interest rate of close to 16%, which will now be brought down to 14%.



According to HDFC Bank official’s bank will be bringing down its rates from 14.75-15.5% to 12.8-14.16% depending on the tenure of the loan. Currently lender is giving a commission nearing to 5% to the dealer. Dealers, in turn, used to pass on part of this commission to customers. Thus, the final rates to customers would be 13.75-15%.

Interest rates for car loans have gone up by close to 1.5-2% this year, impacting sales. In July, for the first time, sales of four-wheelers fell for the first time in absolute terms. Sales growth has been decelerating since April.

“The move will help the industry. Earlier, the payouts were as high as 500 bps. It will be now capped at 200. The payout reductions will be passed on to the customer. We will try and come out with new rates next week. The move would also make the portfolio safer. When the payout was 4-5%, dealers used to pass on some of his subventions to fund the margin requirements of customers,” says Kotak Mahindra Prime CEO Sumit Bali.

Adds HDFC Bank EVP Ashok Khanna, “Not all dealers were passing on commissions to the customers. In bigger cities, dealers may pass on more commissions, but in smaller cities, that was not the case. Moving forward, the move would bring in more transparency, as the customer will be more aware of the rates.”



Financers feared that higher interest rates might leave the lenders with the wrong type of customers. In other words, default would be higher if the financers were to sign up buyers who were willing to pay such high rates.


Apart from this Axis Bank, has also reduced dealer commissions, will not be lowering interest rates now, said a senior bank official. From now dealers will be passing around only 1% of the commission to the customer.

Besides from reducing the interest rate as planned by some financiers, ICICI Bank has plans to launch a floating rate product in the next one week to ten days. Kotak Mahindra is also working on similar product, although it has not yet finalized the date.

As per sources earlier this year ICICI, had discontinued its car and commercial vehicle floating rate product is now planning to re-launch a big-ticket supported by aggressive plans of migrating its entire car loan business to floating rate.

“Earlier, only about 2% of customers opted for this product which was offered as an additional option. The lack of demand prompted ICICI to roll it back. But now, with the uncertainty in the rate regime, the product will be relaunched and ICICI will try to increase the ratio of floating auto loans to 100%,” said a top executive with an auto financing firm.

As per sources ICICI is planning to offer a range based on the FRR (floating reference rate) used for its retail products. The FRR would be revised every quarter, depending on the change in the rate regime. HDFC Bank officials are of opinion that that they will not be going for a floating rate as this will make loans steeper.

“It is not in the customer’s interest. Rather we are looking at making the loans more affordable for customers,” said a senior HDFC official. Nevertheless, the latest move taken by the financiers to cut commissions has led to an uproar among car dealers, who play a vital role in the system, as most of the loans come from them.

When ET spoke to the dealers most of them expressed their unhappiness on this new change done by the lenders. In fact dealers are having trouble as these days car sales have been gone down and margins are under pressure.

Gautam Modi of Modi Hyundai, a Mumbai-based dealer said, “Even when the dealer commission (payout) was 5%, we retained only 1%. So, it is not going to be any different now. We will continue to retain 1% as there is stiff competition among car manufacturers and dealers.” While some other dealers avoided to comment on this comments saying that it is a sensitive issue.

At present HDFC Bank is the largest car financier with its monthly disbursements closing to Rs 900 crore. ICICI Bank, which used to be the market leader till a few months back, has come down to second position with disbursements at around Rs 600 crore.

While Kotak Mahindra Prime’s disbursement is close to Rs 250-275 crore. Manufacturers are expecting boost in sales with the cut in rates due to which in the past few months the sales had come down.

Banks to launch online service for loan seekers, pilot project in Haryana

In a State Level Bankers Committee (SLBC) Haryana Chief Secretary, Dharamvir put forward an idea before the members of introducing online service for loan applicants. While speaking in the meeting of SLBC he said, “With this service, loan seekers are not required to visit banks time and again and they would not have to go through the cumbersome process of knowing the status of their applications”.

In the meeting bankers showed their interest in launching an online service for loan seekers to enable them to know the exact status of their loan applications.

Punjab National Bank, Executive Director, JM Garg is also a chair person of State Level Bankers Committee (SLBC) of Haryana said, "Launching an online service for loan seekers is a good idea and it will be started a pilot project here".


Dharam Vir suggested the banks to encourage entrepreneurship among the students to use their young talent and encourage them to start their own business enterprise.

He also advised the banks should aim to make students as their clientele when they start earning, they would later become their investment. This will also instill the habit of cash management in the students at an early age. He suggested the banks to move ahead from mere lending and should work on to promote entrepreneurship.

He further added similarly, banks should also work for the empowerment of women. The banks should introduce some subsidy schemes exclusively for women entrepreneurs. The Haryana Government launched a scheme of registration of properties in the name of women has received good response. After the launch of the scheme the registration of properties in the name of women has increased.

Bankers see hike in interest rate after RBI’s credit policy

After the Reserve Bank of India’s credit policy, bankers have started hinting for further hike in interest rates. On Tuesday RBI in view of restricting current inflationary trends and to tighten credit growth has revised the Cash Reserve Ratio (CRR) by 25 basis points and the repo rate by 50 basis points.

Expressing his views Bank of Baroda chairman and managing director MD Mallya told IANS said, "It is too early to comment on a rate hike but the pressure seems inevitable. We will have to analyze this soon before taking any decision".

Mallya further added that in view of current condition of the market, one needed to be very cautious. "By hiking repo rate and CRR, RBI has clearly indicated that it is serious about curbing inflation," he added.

Bank of India chairman and managing director T.S Narayanasami in his statement said RBI wanted inflation to be under control rather than moderating it, and added: "We expect an increase of minimum 50 basis points of prime lending rates (PLR)."

On the other hand Punjab National Bank chairman and managing director KC Chakrabarty said bankers will be passing on the burden to customers.

"I expect a raise in interest rates in coming weeks," Chakrabarty said.

Commenting on RBI’s hike in CRR, ABN AMRO country executive Meera Sanyal said as she expected a CRR hike to tighten liquidity conditions, "the repo rate hike clearly signals that RBI wants the credit growth to ease off".

Similar views were expressed by Indian Overseas Bank chairman and managing director S.A. Bhat. He told IANS, "We expected increase in cash reserve ratio but not the repo rate". "The credit policy measures have come as a bolt from the blue."

He, however, informed that his bank will not increase interest rates on deposit, as existing rates had factored in changes in the RBI policy

While giving her views ICICI Bank vice chairman Chanda Kochhar told television channel her bank will "definitely" look at further hike in interest rates, but agreed bankers will have to come up with tightening measures.

RBI hikes interest rates in credit policy, loans may turn costlier

The Reserve Bank of India today held its credit policy meeting in which it announced strict measures to be taken to face the challenge being put by inexorable inflationary pressure. The central bank said it has become necessary to hike mandatory cash reserve of the banks and its short-term lending rates to suck up an estimated Rs 8,000 crore (Rs 80 billion).

On Monday, RBI Governor Y. V. Reddy while presenting the first quarter review of the annual statement on Credit and Monetary Policy for the year 2008-09 announced the hike in reserve repo rate by 0.25 per cent to 8.75 per cent and the short-term lending (repo) rate by 0.50 percent to 9.00 per cent. The rates will come into effect from the fortnight beginning August 30, 2008

As per the analysts this move of central bank can make loans dearer for housing, car and personal expenses as also to the industry.

The central bank has kept its other rates such as the Bank Rate and CRR unchanged at 6 per cent and 5 per cent respectively.

RBI has maintained the GDP growth projection for 2008-09 at 8.0-8.5 per cent to around 8.0 per cent, barring domestic or external shocks in its first quarterly review of the Monetary Policy announced on Tuesday. Governor added the policy actions will aim to bring down the current distressing level of inflation to a bearable level of below 5.0 per cent as soon as possible and about 3.0 per cent over the medium-term. He added at this time the practical approach of the policy will be to bring down inflation from the current level of about 11.0 – 12.0 per cent to a level close to 7.0 per cent by March 31, 2009.

In the press conference Dr Reddy said though there are early signs of some moderation in money supply and deposit growth but they continue to expand above the analytic projections necessitating for continuous vigilance and appropriate and timely policy responses.

"Monetary policy may not be unidirectional. Global economy and financial markets are changing swiftly. As far as global developments are concerned, we should be prepared to move in either direction in the longer term," Dr Reddy said.

Dr Reddy added in view of the developing environment of increasing uncertainty in global markets and the dangers of potential spillovers to domestic markets, liquidity management will continue to receive priority in the hierarchy of policy objectives over the period ahead.

Expecting the emergence of any adverse and unexpected developments in various sectors of the economy, assuming that capital flows are effectively managed and taking in view the current assessment of the economy including the outlook for growth and inflation, the overall stance of monetary policy in 2008-09 will broadly emphasize in ensuring a monetary and interest rate environment which is mainly concerned with price stability, credit quality as well as credit delivery, especially for employment-intensive sectors, while pursuing financial inclusion.



RBI hikes interest rates in credit policy, loans may turn costlier

The Reserve Bank of India today held its credit policy meeting in which it announced strict measures to be taken to face the challenge being put by inexorable inflationary pressure. The central bank said it has become necessary to hike mandatory cash reserve of the banks and its short-term lending rates to suck up an estimated Rs 8,000 crore (Rs 80 billion).

On Monday, RBI Governor Y. V. Reddy while presenting the first quarter review of the annual statement on Credit and Monetary Policy for the year 2008-09 announced the hike in reserve repo rate by 0.25 per cent to 8.75 per cent and the short-term lending (repo) rate by 0.50 percent to 9.00 per cent. The rates will come into effect from the fortnight beginning August 30, 2008

As per the analysts this move of central bank can make loans dearer for housing, car and personal expenses as also to the industry.

The central bank has kept its other rates such as the Bank Rate and CRR unchanged at 6 per cent and 5 per cent respectively.

RBI has maintained the GDP growth projection for 2008-09 at 8.0-8.5 per cent to around 8.0 per cent, barring domestic or external shocks in its first quarterly review of the Monetary Policy announced on Tuesday. Governor added the policy actions will aim to bring down the current distressing level of inflation to a bearable level of below 5.0 per cent as soon as possible and about 3.0 per cent over the medium-term. He added at this time the practical approach of the policy will be to bring down inflation from the current level of about 11.0 – 12.0 per cent to a level close to 7.0 per cent by March 31, 2009.

In the press conference Dr Reddy said though there are early signs of some moderation in money supply and deposit growth but they continue to expand above the analytic projections necessitating for continuous vigilance and appropriate and timely policy responses.

"Monetary policy may not be unidirectional. Global economy and financial markets are changing swiftly. As far as global developments are concerned, we should be prepared to move in either direction in the longer term," Dr Reddy said.

Dr Reddy added in view of the developing environment of increasing uncertainty in global markets and the dangers of potential spillovers to domestic markets, liquidity management will continue to receive priority in the hierarchy of policy objectives over the period ahead.

Expecting the emergence of any adverse and unexpected developments in various sectors of the economy, assuming that capital flows are effectively managed and taking in view the current assessment of the economy including the outlook for growth and inflation, the overall stance of monetary policy in 2008-09 will broadly emphasize in ensuring a monetary and interest rate environment which is mainly concerned with price stability, credit quality as well as credit delivery, especially for employment-intensive sectors, while pursuing financial inclusion.

Co-operative banks demand change in loan waiver scheme

Co-operative banks across the Bengal state want changes in the existing guidelines for selecting farmers under the Center’s loan waiver scheme. The authorities of the cooperative banks said the existing guidelines should be changes so that those farmers who have repaid their loans by selling either their farm lands or ornaments should be brought under this scheme and a percentage of money should be exempted and returned to them as relief.

Regarding this the bank authorities have submitted a memorandum before the state cooperation minister Mr Rabin Ghosh at a state conference of the cooperative banks held at Mecheda in Midnapore East district.

The bank authorities have submitted a memorandum at the time when the loan waiver scheme is awaiting for implementation of the Rs 71,000 crore farm debt waivers and relief scheme is in progress with public sector banks, regional rural banks and cooperatives displaying names of the beneficiaries at branches. The Contai Cooperative bank, Mr Sisir Adhikari, said that those farmers who have been repaying their loans on time and regularly have now said that they will not be doing so as it looks like the government is helping only those who have defaulted with their payments. Because of this unwavering attitude of the farmers, majority of co-operative banks in the state are now facing an acute fund shortage. He said this situation has arisen due to the surge in kharif loan demands from fresh eligible borrowers in the wake of the Centers debt waiver scheme.

Mr Adhikari also said: “We have asked the government to exempt a percentage of the loan amount for repayment for those who have returned their loan amounts to the banks during the stipulated period”. During his speech before the delegates, Mr Ghosh said: “The state has already asked the Centre to include in the scheme names of those farmers who had paid their loans and also those farmers who had rescheduled their loans.”

Restrictions on agents make loan recoveries difficult NPAs on rise

Since the Reserve Bank of India (RBI) has formulated rules for the recovery agents of the banks, banks have been facing difficulty in recovering from the loan defaulters. And in turn this has led to an increase in their NPAs.

Adhikrut Jabti Evam Vasuli, a Mumbai-based authorized seizure and recovery Agency Company engaged in collection of loans from offending bank customers has been forced to cut down its workforce by half due to restrictions on agents. Whereas mounting defaults should have made it a time to expand rather than reducing the staff. The reason behind this is clear the state-owned commercial lenders have to go soft on defaulting borrowers after the central bank stepped in on the complaints of harassment and threats.

After the restriction the lenders including State Bank of India (SBI), the nations largest have to deal with the bad loans problem in their credits at the time when inflation has moved up to double digits to 13-year high and increasing interest rates have made credit more expensive said, “Most of the public sector banks are going slow on recovery. We have reduced our staff strength from 400 to 200 beginning 2008.” SBI is now running most of its collection activity in – house, and other state-run banks.

“The bank (SBI) has started stress asset resolution centers all over the country. This has definitely taken away some business from us,” Shah said.

In the last fiscal year, his company started employing only women as recovery agents which has resolved stressed assets worth Rs400 crore and has been able to make cash recoveries of Rs110 crore, which he anticipates will more than halve to Rs50 crore this year.

After some customers took banks to courts and filed police complaints against bank employees and agents for alleged use of force RBI disciplined loan collection agents who have been using tactics ranging from ceaseless phone calls to use of eunuchs to embarrass defaulters or thugs to beat them up.

In rules and regulation for recovery agents the apex bank in April made police verification and training of agents mandatory. Banks were also required to inform the customer before handing over a loan recovery case to a collection agent.

Fearing the risk on their reputations several banks shifted the bulk of loan collection work in-house. This has brought down the business of the collection agencies, which earn commissions ranging from 3.5% to 20% of the amounts they recover. In India there are about 146,000 recovery agents engaged by banks across the country.

With credit becoming cheap and abundant, and income level increasing India has seen more than 35% annual growth in retail loans to finance the purchases of apartments, cars and other consumer durables in the past few years. While mortgage costs had fallen to as low as 7.25% and personal loan rates dipped to 8%.

Recently there has been rise in interest rates, so the customers have started defaulting on their equated monthly installments, or EMIs, on unsecured personal loans and credit card payments. Delinquency as a percentage of loans outstanding has gone up to 5.9% from 4.5% last year for banks handled by Omega Alliance Recovery Solutions Pvt. Ltd, a Mumbai-based collection agency.

“We get at least 10 calls a day from consumers who say they do not have the capacity to pay and they want a settlement. This means we have to compromise even on the principal amount. Forget earning interest on loans,” said an executive at a foreign bank in Mumbai who did not want to be named.

According to RBI data personal loan growth has halved. The outstanding personal loans grew by 13.2%, or Rs58,669 crore, in last fiscal year as on 15 February 2008, after expanding by 30.6%, or Rs1.04 trillion, a year earlier.

There are various reasons for defaults. One is the personal loans have been used for investment in a stock market which has slumped after a five-year rally. The benchmark index of the Bombay Stock Exchange, the Sensex, lost some 37% since January; the borrowers who used their personal loan for purchasing shares have been unable to pay back their loans.

The owner of a Mumbai-based collection agency, who did not want to be named, told that “Banks have not ensured the end-use of funds, particularly when they extended a personal loan”. “NPAs are the highest in personal loans,” he added.

Banks are trying out new ways to educate borrowers to pay their loans on time. Banks are launching nationwide campaigns to persuade borrowers to pay their loans on time.

But “the atmosphere is not conducive for recovery (of bank dues)”, says a private bank executive who did not want to be named. “Collection efforts are now largely restricted to making phone calls.”

Pointing to the figures of NPAs he said the percentage of NPAs in personal loans at some banks has increased to 12-15% of total lending from 6-8% earlier.

“The growing number of defaulters has forced us to tighten our lending norms,” said the same bank executive. “Earlier, we were comfortable lending to an individual with an annual income of Rs60, 000 but now we don’t lend unless one has an annual income of Rs1 lakh.”

In the past few years, many borrowers took multiple loans but now they are finding difficult to pay back their loans after banks raised their lending rates. “Customers are prioritizing,” said another banker. “They pay their home loan EMIs on time but they don’t mind defaulting on a personal loan or their credit card dues.”

Although some of the private banks and foreign lenders are still hiring collection agents, such as Alliance, which has 150 employees on its pay roll and wants to OMEGA, expand. In fact its director Pankaj Joshi, wants to start another agency.

Joshi said he is willing to pay well. “A collection agent’s salary has gone up by 20-25% this year and it’s comparable with any sales executive employed with a corporate house.”

But he is finding problem recruiting people: only few want the job of a collection agent.

“There is a level of stigma attached to this job,” Joshi explains.

“Additionally, there are alternate job opportunities available which are socially accepted. People prefer to work as sales representatives with corporate houses.”

He added that recent instances of police complaints brought by defaulters against bank-recruited collection agents have also turned people against the profession.

Banks are selling insurance policies to loan seekers

The banks especially who have an insurance arm of their own or that are marketing the products of an insurance provider are selling insurance products to the loan seekers.

The loan seekers who are applying for the loan are finding themselves in a tricky situation as they are being asked to take insurance policy and the reason they are giving that this will enhance the ‘chances’ of loan approval. The policy is on the life of the borrower against accident and other risks.

Amongst the customers some of them are finding insurance cover useful and some feel that they are being forced to take policy by banks which is against the norms set by Insurance Regulatory and Development Authority.

Mr P. Muneeswara Rao, a small-time employee in IDL told Business Line, “I was forced to go for a shield policy when I took a personal loan of Rs 1.3 lakh by a branch manager of a public sector bank, which cost me about Rs 12,000. I was told that the loan application would be approved only if I go for it.”

Mr Sesha Rao, a software professional with Google, agrees: “When I approached State Bank of India for a housing loan of Rs 25 lakh, I was told curtly to buy insurance as well, though I have a very reasonable cover for life.”

Mr Ravi, an IT professional working for Computer Associates, informed that the customers don’t have any choice either. He said, “Even though I have many insurance polices, I was made to go for another policy when I took a home loan from ICICI Bank.”

In fact in some of the banks loan application forms carry a column for insurance that even says explicitly that “efforts will be made to pursue the loanee to go for insurance”.

According to the sources selling of insurance policy is becoming a trend as the bank officials are being pressurized to sell banc assurance products in order to increase the fee-based income and the safe recovery of loan amount, among others.

According to a leading private bank official, “It is a fact that some pressure is put on the loan applicants for insurance. It sure is a drain on the purse for them but its adds to our performance if we could convince them to go for insurance cover.”

Banks introduce reset clause to home loan

Over the past few months number of factors has been responsible for the hike in home loan interest rates. The Reserve Bank of India (RBI) has increased the repo rates and reverse repo rates which has added to the interest rate increase process. Hence interest rates on housing loans are no exception.

Till now, it was believed loans carrying a fixed rate of interest did not get affected with interest rate movements. They were supposed to remain neutral to the market movements. But with the recent continuous increases in the interest rates, this has led to loss for banks. Therefore many banks have searched a way out by introducing a reset clause in their fixed home loan documents to effect a change in the interest rate at a future date.

The reset clause will allow banks to review rates at the end of certain time period. Some banks have set the reset clause as applicable at the end of certain number of years - usually two to three.

Most banks have started introducing these clauses in their home loan documents since the interest rates started moving upwards. With this reset clause the fixed rate loans become equivalent to floating rate ones and nothing remains fixed in the strict sense of the word.

From the viewpoint of banks and financial institutions, such a step may be necessary as they no longer have access to relatively cheap long-term lines of credit to offer long tenure fixed rate loans. In case of most of the banks, the average tenure of deposits is less than four years, and if they lend for a longer period, their cost of funds strike high as also the yields. Over the past the interest rates have become unstable.

Following the increasing instability in the interest rates, the banks are not ready to take a view on where interest rates are headed in the times to come, as banks are already under pressure to protect their margins. Because of all these factors banks are forced to review the pricing and product structure of loans.

With reset clauses Bank would be able to revise the interest rates on loans in case of certain circumstances. The banks will have the discretion to increase the interest rates in case the market rates of interest increase. This tends to evade the banks against interest rate increases at a future point in time. But this is going to put the borrower in a disadvantageous position. In any case the fixed rate of interest is higher than the floating rate.

The criteria that can trigger the rest clause have been specified in the loan document. Reset clause depicts changes in interest rates to the fixed rate borrowers. The only difference in respect of a floating rate loan is that changes in the interest rate don't happen frequently.

An entrepreneur duped six banks of Rs5 crore

A 45-year-old city-based entrepreneur, Indrajit Chatterjee, duped six banks of more than Rs 5 crore in the last two years and police is in search of him as he is hiding.

Indrajit Chatterjee had introduced himself as a tenant of an residential building located on 19/1A, Zamir Lane in Gariahat and as the owner of an apartment on Syed Amir Ali Avenue while taking a loan of Rs 1.45 crore from the Rashbehari Avenue branch of Karnataka Bank in December 2007.

He submitted the deed of his apartment to the bank as mortgage. On investigation it was found that he submitted the same deed earlier and had taken a loan amounting to Rs 4 crore from five other city-based banks. The accused is originally a resident of Dumurjala in Howrah and owns two offices at Hare Street and Southern Park which have been sealed by the police recently. A senior officer of the city police's detective department told the accused had taken loans for business purposes. His wife had signed as a guarantor in Chatterjee’s loan application, who was the proprietor of a Bengali film producing unit.

Mr Jawed Shamim, deputy commissioner of the city police's detective department said, officers of the bank fraud section are looking for Chatterjee, but till now they have no leads.

A senior city police officer informed Chatterjee first took loan of Rs 1 crore from the Lake branch of Bank of Baroda in 2006. Later in the same year, he took loan from UCO Bank, Allahabad Bank, City Bank and Canara Bank and each time he his apartment deed as mortgage.

Karnataka Bank authorities came to know about the cheating when Chatterjee didn't pay his monthly interest. Bank authorities registered a complaint against Chatterjee in which they said the Chatterjee was not found in the address which he had mentioned in the loan application papers. “We had raided Chatterjee's residence and offices but he was not there. He has gone into hiding with his wife,” the officer said.

Officer said, a few years ago Chatterjee had also allegedly duped the Gujarati Society of Rs 18 crore a few years ago and a case against him was pending in the Alipore special court of the Central Bureau of Investigation (CBI).

The officer said the police is thinking of advertising in different media outlets in search of information about Chatterjee.

Loans provided to sex workers for self employment projects

In Kolkata Usha Multipurpose Cooperative Bank has been set up to help sex workers to take loan for their self-employment projects and help in opening saving account in the bank. Durbar Mahila Samanwaya Committee has taken an initiative to upgrade the infrastructure of the cooperative bank so that sex workers are able to get more loans. On Thursday state cooperative department bought the bank’s share worth Rs 2 lakh.

The state cooperative department's joint secretary, Mr HP Roy informed, “Over 10,000 sex-workers in the city are account holders of this bank. They often seek bank loans for self-employment projects. The bank would now be able to allot loans to more account holders. The loan amount could be increased as well.”

Besides helping in self-employed projects, the setting up of cooperative banks in the districts will also benefit the sex-workers in saving the money for their future. Moreover, there are plans to recruit the sex-workers and their relatives as bank staff.

Police nabbed software engineer and his accomplice for cheating banks

Hyderabad police arrested a software engineer and his two other partners for cheating banks of Rs 28 lakh by submitting fraudulent documents. Bandi Durga Prasad was an employed in a firm at Panjagutta. He partnered ship with two others to get loan from bank by floating a bogus software firm and fabricated pay slips of reputed companies.

Later, the trio taking fake pay slips to show that the listed employees were working in Satyam Computers and getting Rs 84,000 salary per month approached various banks including Citibank, Barclays and HDFC to get loans for over Rs 28 lakh.

Cops have been able to arrest Prasad and have launched search for the other two. Police recovered cash totaling Rs 6.5 lakh and one laptop from him.

Reverse mortgages for senior citizens yet to gain momentum

Reverse mortgage was designed to provide a major helping hand to old people without a steady stream of income. In India there are around 7.71 crore senior citizens, most of whom have to bear a lot of difficulties in their old age due to inadequate financial resources.
Therefore reverse mortgage scheme was introduced but, is yet to find many though this year’s Budget granted income tax and capital gains exemption on the product.
Under this scheme banks give loan funds to senior citizens as per the value of their property. After the death of the client, the property belongs to the bank.

Up till March 31, PNB had sanctioned 96 such cases all over the country for Rs 38.81 crore. Whereas SBI its competitors in the segment had sanctioned to 6 up till March. Bank sources said however, SBI’s business has picked up in the subsequent months. In fact Syndicate Bank and Union Bank also launched the product over two months back.

An LIC housing finance official told FE that since it launched the scheme in March, there have only been enquiries. “Many senior citizens do not find it acceptable to mortgage their property in their old age. In these three months, not a single reverse mortgage loan transaction has taken place.”

Even though the business has been a slow starter till date, bankers are also cautious about the implications of the recent law cleared by Parliament. The Maintenance and Welfare of Parents and Senior Citizens Act, passed in December 2007, have made it compulsory for children and relatives to take care of parents in their old age. According to Maintenance Tribunals, to be set up under the law soon can ask the heirs of a senior citizen to pay up to Rs 10,000 a month for their maintenance.

According to some bankers this maintenance law can discourage senior citizens from taking to reverse mortgaging facility, which enables them to get a stream of income. K Balasubramaniam, deputy general manager, State Bank of India accepts that, “there may be a remote possibility of the legislation having an impact on the reverse mortgage business.”

Best way to keep recovery agents at bay

If you have taken loan from the bank and have not repaid the amount then you might get nightmare of recovery agent employed by your bank. Firstly the recovery agent will call you and rudely tell you to repay loan amount immediately otherwise you might have to face consequences for this.

There has been an incidence where a BPO employee Sinith Mechery, 25 got call from recovery agent. Mechery says, "It was the worst experience of my life," says BPO employee Sinith Mechery, 25. "Due to some unavoidable circumstances I defaulted on a few loan repayments." He added a recovery agent called him up and rudely demanded that he make an immediate payment. Mechery just hung up on him. "But he called at least 35-40 times that day and his language was abusive. I'd never had an issue with my banks prior to this, but this incident has definitely left a bad taste in my mouth," he says.

Then there was an incidence which shocked the nation, ICICI Bank customer and Mumbai resident Prakash Sarvankar, 38, who had taken a Rs 50,000 personal loan, committed suicide last year, holding a recovery agent responsible for his death in his suicide note.

However there are three persons involved in a recovery story, the lender and the recovery agent. It’s easy to sympathize with the harassed individual, but banks, too, have reasons for outsourcing debt recovery.

Axis Bank chairman and CEO P J Nayak points out, "Axis Bank has an in-house collection department; we also employ reputed third-party collection agencies that comply with non-aggressive methods."

The job an agent, in-house or third-party, is to facilitate the process of recovery. If the borrower doesn't want to deal with a recovery agent, he can directly approach the bank for direct negotiations.

"If there are genuine reasons holding up repayment, we can work with it. For example, credit cards dues can be easily converted to an EMI, which is part payment, instead of the total outstanding due," says Nayak.

Most banks are prepared to make adjustments if the reasons for default are genuine. HDFC Bank spokesperson says that if there is a real problem, the bank works out things as per its policy.

Recovery agents basically work on a commission basis, therefore, are highly motivated to show efficiency.

Arun Saxena, president, International Consumer Rights Protection Council maintain, "Debt recovery agents often treat borrowers in unacceptable, illegal ways. Customers should be careful about giving any money to agents; payments should be made against a proper receipt. One can even approach the National Human Rights Commission if need be."

The important thing is to not get frightened. the Reserve Bank of India has issued guidelines that a recovery agent and the bank that employs him have to honor to protect the interests of both the borrower and the creditor in the debt recovery process.

Earlier this month based on these guidelines, the Supreme Court in one of the case hearing restated that banks cannot deploy goons for recovering loans from defaulters.

Mumbai-based high court lawyer Rohini Pandit says, "The creditors have the right to recover their dues, but there is a right way to so. Laws have to be followed, which is not necessarily followed by many creditors."

The central bank has clearly stated it may ban a bank from engaging recovery agents in a particular area, either jurisdictional or functional, for a limited period in case of persistent breach of its guidelines. In fact the RBI can extend the period of the ban or the area of ban.

Hence it is better to be safe otherwise a recovery agent will come into the picture only because you slipped up.

The reasons could be many: overspending, over borrowing, a personal crisis (sickness, loss of employment), or pure bad luck (a loan repayment cheque lost in the post). But at the end you have to be responsible for financial indiscipline.

To help people who have got trapped in debt there are a number of financial counseling centers that offer free service to such people.

Many banks have SMS or email services to alert you on payments. Autopay (or direct debit) is also an easy way to avoid failure to notice on loan repayment cheques.

So it’s better not to take loan more than your capability to repay it back. Though, it is rapidly becoming uncommon.

Corporates ask banks to extend fixed-rate loans for three years

Inflation has crossed 8%. Oil prices hiked, prices are expected to remain high there are no signs of reduction and weakening rupee is making imports more expensive. All these factors are creating pressure on interest rates.

Corporates fear the Reserve Bank of India (RBI) might hike interest rates in order to tighten the liquidity in order to control inflation; therefore banks may also raise lending rates. Hence corporates are asking banks to extend fixed-rate loans. Currently, most of the large and mid-sized corporates are taking loans with a one-year reset clause, which means that the interest rates are fixed for one year and consequently come up for review. Therefore corporates are demanding for fixed-rate loans for three years. On the other hand banks have completely stopped offering fixed rate loans for more than one year.

A senior banker told, “Since we take deposits at market-related rates, it is not feasible for us to lend at fixed rates for longer tenure. We will suffer from interest-rate risk.” The best-rated corporates are being charged in the range of 9-9.30% for the one-year fixed-rate loan. On retail loans differential between interest rate for fixed rates and floating rates is high whereas corporates are charged almost the same rate for fixed rates or floating rates. In the current situation where the liquidity is slowly drying from the system and profit on the benchmark 10-year government bonds crossing the psychological barrier of 8%.

The best-rated corporates are charged in the range of 9-9.30% for the one-year fixed-rate loan. Further, unlike retail loans where the interest rate differential between fixed rates and floating rates is high, corporates are charged almost the same rate for fixed rates or floating rates. With the liquidity is slowly drying from the system and yield on the benchmark 10-year government bonds crossing the psychological blockade of 8%, many corporates are rushing to take fixed rate loans fearing that they might have to pay more if rates are hiked.

Currently banks’ prime lending rate (PLR) is secured in the range of 13-15%. However, highly-rated corporates have got most loans at rates way below the PLR. According to bank sources the credit pick-up has been better since the beginning of this fiscal year, as there has been large demand from oil, manufacturing and infrastructure sectors. Sources say that State Bank of India alone has sanctioned close to Rs 20,000 crore since April.

“We are lending aggressively to ensure the momentum continue and to ward off the perceived slowdown in the economy,” said a banker.

“Similarly, the corporates, too, are in a hurry to tie up funds to protect themselves from interest-rate risk,” they added.

Money supply growth is crossing 22.5%, hence it is widely expected that the central bank will come up with monetary measures. Bankers are also expecting that RBI might increase the cash reserve ratio which can push up bond yields higher. In the secondary market for government securities, profits on the 10-year government bonds have increased from below 8% in early May to 8.3%.

Women recovery agents to replace men

Now instead of heavily built, threatening collection agents bank loan defaulters will have to face smiling, soft-spoken women employed by banks as recovery agents.

Nearly 200 women across eight cities including Chennai have already been employed by Adhikrut Jabti Evam Vasuli, and are doing job for 20 nationalized banks and gradually their number is growing. A number of times SC has come down heavily on banks for using musclemen for recovering loans, replacing musclemen with women recovery agents looks much better option and have a bright future.

Adhikrut Jabti Evam Vasuli firm had started operation in Indore, now have offices in Tamil Nadu, MP, Rajasthan, Jharkhand, Chattisgarh, Orissa and Karnataka. The agency gives training to the agents in recovery of loans for immovable property. Firm gets around 800 assignments daily.

Vasuli joint managing director, Manju Bhatia, in an interview told TOI that the women recovery agents, consisting of 80% of the Vasuli staff, have changed the concept that recovery agents must be men with muscle power to persuade defaulters.

"Our principle is persuasion is better than prosecution. We make defaulters understand the problems they may face if they don't pay," Manju said.

Quoting instances in Chennai, Manju said, "We have recovered loans by seizing schools and hospitals worth Rs 20 crore. Ten women, assisted by a videographer and a photographer were involved in drive."

Manju said there are a number of reasons for the success of women agents. "Defaulters, who are generally men, find it embarrassing to be addressed by a woman and hasten to pay up large parts of the loan," she said, adding, "Those who find it easy to bribe male recovery agents realize that they can't do the same with women."

Harassed by bank agent man commits suicide

A 32-year-old physically challenged youth Satya Narayan Dutta committed suicide at his Baranagar residence on being hunted and harassed by recovery agents of a private bank for just Rs 17,000.

Satya Narayan had missed only two of his EMIs and for this the bank had sent recovery agent who abused and threatened him. The deceased widow Tapasi lodged a complaint against the bank – Citi Financial – with Baranagar police.

The incident has happened in less than a year after recovery agent of SBI allegedly drove a transporter, Manabendra Mondol, to suicide on August 5, 2007. He had also missed just two installments.

Dutta, a resident of Barada Basak Street, disabled from birth ran a small grocery shop to provide for his family of three. He faced loss in the business therefore he took loan to revive his business.

He applied for loan with Citi Financial on October 2006; Citi Financial agreed to give him personal loan of Rs 28,000, to be repaid in 48 months through fixed EMIs of Rs 1,342. Dutta used the loan for his business and his business improved. Tapasi told, "He paid the installments regularly. The bank approached him with a top-up loan of Rs 13,180 and the EMI was revised to Rs 1,743".

Till November 2007, everything was OK. But in December, when Dutta's cheque bounced bank sent him a notice in January 2008.

Banks face crisis as unable to recover loans

The number of loan repayment defaulters has increased; the Reserve Bank of India has put restrictions on the procedures adopted by banks for recovery of loans. Therefore Banks are facing crisis as they have been unable to recover the loans given to various sections of people especially the farmers.

In the Budget 2008-2009 Congress-led UPA Government announced loan waiver scheme for the farmers who had became defaulters to strengthen its vote bank. Centre is finalizing the guidelines for the loan waiver scheme. Meanwhile out of 17 lakh only 2.4 lakh farmers are expected to get benefit of loan waiver and this will increase the burden on the exchequer of about Rs 300 crore. Though, Chief Minister Y S Rajasekhara Reddy has promised to work out a separate package for the farmers who were not covered under the scheme.

The announcement of loan waiver scheme has irked the farmers who have been paying their installments regularly. They are also demanding for their inclusion under the scheme and have stopped repaying the installments.

Telugu Desam supremo N Chandrababu Naidu, during his ‘Mee Kosam’ yatra in the district early this month, as a political stunt has assured the farmers that his party would return to power in the next general elections and he would waive all loans.

During the last financial year ending on March 31, 2008 the combined outstanding of all 190 banks in the district was Rs 1,103 crore during out of which Rs 300 crore waivers has been announced by the Centre but there has been no discussion about the remaining loans.

In an interview a senior bank official told the website's newspaper that, "Due to non-recovery of loans, all banks are worried as they will not be in a position to give fresh loans for the kharif season beginning next month. Last year, the percentage of loan recovery was around 70 per cent but this year, it is abysmally low."

He said the banks are in a state of confusion they don’t what to do as no orders have been received on the loan waiver scheme till date. The kharif time is coming near and the farmers are getting worried as the banks are not coming forward to provide new loans until their previous debts are cleared.

"If the banks fail to provide crop loans in time, the ryots would approach private money lenders pushing the agriculture sector in the district on the brink of disaster," the official said.

According to bank sources some of the banks which had given the maximum crop loans in the district include Andhra Pradesh Grameena Vikas Bank (Rs 152 crore), District Cooperative Central Bank (Rs 130 crore), Andhra Bank (Rs 86.35 crore) and State Bank of India (Rs 83.20 crore). Similarly, many other banks gave crop loans and some of them were in deep trouble, sources said.

Apply for loan just at a click

Applying for bank loan has become easy, you just have to click. Online facility for applying loan has made it possible. For instance Syndicate Bank, a public sector bank having head quarter in Manipal has launched a new online service to enable the customers to apply for loans online.

Online a format of an application form is available you just have to fill up the form and post it online. Once posted online, will go to the bank's central processing server. On the other end the bank executives will be able to see the request as a pop-up, and call the applicants for a physical meeting, if satisfied with the parameters.

Originally the online service was launched to enable the small and medium enterprises (SMEs) access credit facilities, seeing the positive response the service has now been extended to students, professionals, self-employed persons, traders, corporates, agriculturists and individuals.

Now days over 80 per cent of transactions in some of the big private sector banks take place through direct channels such as telephone, internet, ATMs and mobile phones.

In ICICI Bank largest private sector bank around 85 per cent of the transactions take place from direct banking channels. On any particular day, the bank sends information on various products through one million SMSes.

"When we launched mobile banking, 7 million customers registered with us in about a year. Initially, customers were using mobile phones to receive information on account status. Slowly they have graduated to receiving statement of savings and loan accounts and getting credit invoice among others," says V Vaidyanathan, executive director (retail banking), ICICI Bank.

Recently, HDFC bank has tied up with ngpay, a mobile solution brand from JiGrahak Mobility Solution, to make transfer of funds easy for the customers to any HDFC or non-HDFC bank account holder.

YES Bank, was the first one to offer advantages in many areas starting from providing Real Time Gross Settlement (RTGS) over internet to providing single PIN system for all the banking transactions, points out that technology is crucial for the bank's success.

Says Abhisek Anand Bhagat, vice-president, corporate development & strategy, technology & operations, YES Bank: "There has been a fundamental shift within technology organizations due to advent of the new technologies. This is why the relationship between the financial institutions and technology providers has evolved from just the traditional vendor-supplier relationship to a strategic partnership."

Public sector banks have also started making efforts to use technology.

Corporation Bank has tie-up with Mumbai-based PayMate to make possible for its customers pay LIC insurance premiums through SMS. Canara Bank is offering non-banking services such as booking of railway tickets, payment of excise and service tax etc.

Even the mobile banking is taking up as some of the global handset manufacturers are planning to roll-out solutions for mobile banking.

"Mobile banking will certainly pick up in India, especially since people in many parts of the country do not have access to banking. We are looking for partners in India to launch the service," said Ravin Singh, market development manager, mobile commerce & location-based services, Mobile Devices, Motorola.

Allahabad Bank to speed up processing of retail loans through hubs

Kolkata-based Allahabad Bank will be setting up six retail hubs. The main idea behind the set up of hubs is to speed up the processing of retail loans. Along with this bank will also be setting up special business units (SBU) to boost its fee-based income. Bank has selected small and medium enterprises as the other thrust area.

In the beginning the hubs will be set up across Chennai, Bhopal, Delhi, Kolkata, Mumbai and Lucknow in over three months. At these hubs the processing of personal, education and auto loans will be done. Allahabad Bank Executive Director J P Dua stated that

the retail segment of the bank accounts for 17 per cent of the bank's total advances of Rs 50,000 crore, with the coming up of hubs the advances will increase credit contribution of the retail segment to 25 per cent by 2010.

Once the hubs become operational the disbursement of educational loan which currently takes 2-3 days will reduce to 24 hours. The bank

The idea behind the hubs is to speed up processing the retail loans. At present, education loan disbursement takes 2-3 days, which will now be reduced to 24 hours. The bank has online application facility for educational loans therefore it has tied-up with 250 colleges across the country to make it easy for the students to apply for the loan. Likewise disbursement of auto loans will also be reduced to two days as compared to a week’s time.

Giving details about the plans related to the SBUs for selling third-party products such as insurance and mutual funds, Dua said, "We've identified 140 units within the bank, which will concentrate on improving fee-based income through selling insurance and mutual fund products. The bank aims to earn a commission of Rs 50 crore in 2008-09."

Allahabad Bank has tied up with Life Insurance Corporation (LIC), UTI Mutual Fund, Principal PNB, Kotak Mahindra Mutual Fund and Reliance Asset Management Limited.

Dua told Allahabad Bank has obtained licenses to open 114 new branches across the country and most of them will be located in new suburbs, tier-II and tier-III cities.

He informed as on March 31, 2007 the bank’s total business grew up by around 20 per cent to Rs 1.22 lakh crore over Rs 1.01 crore. The bank has set a target of Rs 2 lakh crore by December 2010. "By March 2009, we aim to achieve a business of Rs 1.5 lakh crore," said Dua.

However the deposits grew to Rs 71,600 crore in the last financial year (Rs 59,544 crore), while advances increased to Rs 50,300 crore (Rs 42,000 crore).

SBI freezes farm equipment loans

State Bank of India a public sector bank is the largest player in the tractor and farm financing business. The bank's total farm sector loan is close to Rs 43,000 crore, with non-performing loans estimated at 7 per cent of this portfolio. There has been increase in the number of defaults on loans for new tractors and combine harvesters, so the bank has decided to put a temporary freeze on fresh credit to buy such farm equipment. The bank sources said it will concentrate on receiving bad debt from such advances. However this decision of bank might face political reaction.

"The bank has issued instructions not to grant fresh loans for tractors and similar equipment for the next two months. The incidence of non-performing loans in this category is very high, a trend which is harmful from the commercial angle," a senior SBI executive confirmed.

Bank sources said in the farm equipment segment the payment default rate is as high as 17 per cent on a portfolio of Rs 7,000 crore. The problem of defaults is more acute in the more prosperous states like Punjab and Haryana.

SBI executives there has been rise in defaults after the announcement of the Rs 60,000 crore farm loan waiver program in this year's Budget, especially on the part of those who have the ability to repay debt.

"There is definite scope to improve recovery and we will concentrate on this front and resume lending in this segment later," they said.

SBI Chairman OP Bhatt said rising defaults in farm loans had added to the bank's bad debts even after the announcement of the fourth quarter results. The bank said there has been rise by Rs 2,800 crore in gross non-performing loans of which Rs 1,000 crore was during the fourth quarter due to defaults after reports of the government's plans for a farm debt waiver started circulating towards the end of December.

May be other banks follow SBI’s footsteps, but bankers are not willing to admit to this. "Such a move is fraught with political reaction, which may force us to review our decision," a senior executive with a public sector bank explained.

A Bank of India executive informed though his bank has been facing a problem in recovery of loans for farm equipment in some zones, but there are no plans to put a ban on fresh lending for equipment. "These loans have a political dimension and a ban could create a backlash," he added.

On the other hand a senior Bank of Baroda executive said there is a general tendency to delay payments but it is assessing whether the problem was chronic.

Banks, HFCs yet no plans for cut in home loans rate

Housing finance players, including ICICI Bank, HDFC and State Bank of India, are in no mood to cut lending rates on home loans immediately on account of rising inflation and borrowing costs.

Bankers say although the Reserve Bank of India (RBI) has decided to reduce the risk weight for home loans between Rs 20 lakh and Rs 30 lakh to 50 per cent, the possible benefit for banks appears to be more than counterbalance by 75 basis point rise in cash reserve ratio (CRR) and increase in the cost of resources, which is associated to profits on government bonds and competition.

CRR is the share of deposits that has to be kept with RBI without getting any interest on them. Higher the CRR, lesser is the sum available with banks to organize for lending operations.

On Wednesday, a public sector, Union Bank of India announced a 25-100 basis point reduction in interest rate on home loans up to Rs 30 lakh.

On the other hand a senior State Bank of India official dealing with retail assets said with high inflation, rising cost of funds and tightening of CRR, there is very little room to manipulate or experiment with home loan rates.

In fact last week, SBI Chairman O P Bhatt had pointed out that interest rates both on lending and deposit side are expected to be stable in next the three-five months.

Agreeing with the views expressed by public sector bank executives, senior Housing Development Finance (HDFC) official said, "The relaxation in risk weight could some benefit to us. But, we depend on banks to mobilize resources through various financial instruments and loans and they are charging higher rates. So there is no scope for easing the rates at least in the short term."

Tipping-of at stable rate regime for now, ICICI Bank CEO K V Kamath said in Delhi that looking at the current scenario there are no indications from the market to signal a change in interest rates.

Expressing his views a senior IDBI Bank official said it (Union Bank decision) came as a surprise and his bank is not revising the interest rates on home loans for now. A hike in CRR leaves fewer resources with the bank, indirectly increasing the cost of funds.

An official from Bank of India said, "We reviewed the implications of RBI policy decision to reduce the risk weight for loans between Rs 20 lakh and Rs 30 lakh to 50 per cent. It is not going to make much difference in the form of benefit to be passed on to borrowers."

If we look at the average size of home loans contracted by public sector banks is between Rs 7.5 lakh and Rs 10 lakh. This is well below the old ceiling of Rs 20 lakh (for 50 per cent risk weight). The official added therefore, the relaxation is not expected to make a major difference in the demand pattern.

Loan waiver will impact adversely on repayment culture

In the Budget 2008 the finance minister announced Rs 60,000-crore farm waiver package to help the farmers who are in the debt. The practitioners of microfinance sector are looking at the impact the waiver package will have on the repayment culture in the country. They believe that the waiver package will have adverse impact and repayments are going to suffer as it is sending the wrong message across.

According to a member of a microfinance institution, “The message being sent across is that repayment is not important, since it makes a joke of those who have repaid”. Though, he said that since farm loans are a small portion of MFIs’ portfolio, the impact might not be much.

The scheme will come into force on June 30 as the operational guidelines of the scheme are yet to be finalized by Nabard and RBI soon. Nabard is the proposed regulator for the microfinance sector and has the largest self-help group (SHG) network in the country. The government is selling it on the panel of fresh flow of institutional credit to farmers, to keep the balance-sheets of banks clean. It is being expected that it will help in stimulating economic activity in rural areas.

If we see the past history of the loan waiver of 1991 the data shows that it had actually improved credit offtake and repayment. In RBI’s annual report of 1991-92, it has been stated the total amount of loan waivers claimed by banks, under the Agricultural & Rural Debt Relief Scheme, 1990, was Rs 7,800 crore.

A Nabard official said, “Farm loans constitute a small portion of the MFI portfolio, and are unlikely to have an impact. If farmers can avail subsidized farm loans at 7% from banks with a 2% subvention from the government, they are better off. The cheapest rate of interest offered by an MFI will be several times over considering the administrative costs.”

According to an internal source of industry, “By now, the microfinance sector has established a particular payment culture, independent of what is happening in the formal banking system. Small borrowers are aware of the prudence of regular repayments. After all, the recovery rates in the sector have been fairly high. In any case, the spread of formal banking is still limited; a large part of the population is financially excluded.” The MFI network is an important part of a bank’s operations to reach out to the financially-excluded.

Under the farm waiver scheme, the marginal farmers who are holding up to 1 hectare and small farmers holding up to 2 hectares are eligible for a complete waiver of all loans overdue on December 31, 2007, and which remained unpaid till February 29, 2008. About quarter of 40 million targeted farmers will not be benefited from the loan waiver scheme because most are a part of the informal system of money lenders.

While other farmers are eligible for a one-time settlement (OTS) scheme for all loans that were overdue on December 31, 2007, and which remained unpaid till February 29, 2008. Under the OTS, a 25% rebate will be given against payment of the balance 75%.

Now loan recovery agents can’t bully you anymore

The Reserve Bank of India (RBI) has been receiving complaints from borrowers regarding threatening tactics being used by recovery agents hired by banks. In view of this the apex bank recently issued guidelines for banks which have been published on the website of the apex bank. It is expected norms formulated for banks will bring relief to borrowers facing harassment from recovery agents.

It’s ok the norms have been formulated but do people know how they will be benefited with these norms. VN Kulkarni, head, debt counseling, Abhay Debt Counseling Centre explains, “The borrowers can now pinpoint the duties of a recovery agent; he/she can object if the agents fail to work within the framework given to them. If the borrower is a defaulter, he has to pay the money borrowed, no doubt, but the agents too cannot take law into their own hands.”

Poorvi Chothani of law firm Law Quest International, also explains that, “The borrowers need to know that now the bank cannot forward a case to its recovery agent if the borrower has lodged a complaint or grievance proceeding.”

As indicated by the guidelines, the recovery agent cannot step in unless such a complaint has been finally disposed of or the bank is convinced, with relevant proof, that the borrower’s claim is frivolous. In case, the case has been referred to the recovery agency, the banks are required to furnish the details of the recovery agencies to the borrower. Also, the banks with the borrower’s consent ensures should have a process of recording text/calls to ensure that no harsh or threatening calls are made by the recovery agents to the borrowers.

She further added that the guidelines authorize the borrower to raise his/her voice if the recovery agents cross the line. One needn’t put up with recovery agents using abusive language, making calls at residence at odd hours, creating a scene before neighbors and so on.

Ms Chothani explains, in any case the recovery agent land up at your doorstep, you must verify their credentials before entertaining them. You must examine their identity cards and note down their names and time of visit, as this would help you take up the matter with your bank. She adds, “In addition, the banks are now required to ensure that the recovery agencies hired by them carry out verification of the antecedents of their employees, which may include pre-employment police verification. This will deter the agents and/or agencies from employing persons with questionable police records.”

Now it becomes banks foremost responsibility for the actions of their agents, which mean the responsibility of ensuring that guidelines are followed rests with the banks; thus, you can intimate the bank about any harassment faced. Even RBI can be informed about any high-handed behavior.

“A borrower should be aware of his/her rights. They need to educate themselves by going through the model codes adopted by the banks. Almost all banks have adopted the code of Bank Commitments to Customers prepared by the Banking Codes and Standards Board of India (BCSBI). Copies of the same are available at branch offices of banks on demand,” advises Mr Kulkarni.

Besides getting threatening calls from recovery agents, the other aspect which adds to the worries of the borrowers is the possession of their property by the bank to recover its dues. “Generally all loan documents give unfettered rights to banks for recovery of their dues.

The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) has given extensive powers to the banks to take possession of property after following the Act’s guidelines. For example, the bank has to serve a 60 days’ notice and if the borrower does not make the repayment, the bank can take possession of property and auction the same for recovery of its dues. There is no need to mention this clause in loan agreement, as it is a right given to banks by an Act of Parliament. The borrower needs to be aware of this,” cautions Mr Kulkarni.

Therefore, the borrower must study various clauses thoroughly concerning repossession — if such a clause has been added in the loan agreement. The banks, from their side also make sure to bring such a clause to the loanee’s notice at the time of signing the agreement as also ensure that the repossession is legally valid and complies with the provisions of the Indian Contract Act.

The guidelines make it compulsory for the banks to clearly mention the notice period before taking possession, circumstances due to which the notice period can be waived, the procedure for taking possession of the security, a provision regarding final chance to be given to the borrower for repayment of loan before the sale/auction of the property, and the procedure for giving repossession to the borrower as well as sale/auction of the property.