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.
Thursday, May 29, 2008
Tuesday, May 27, 2008
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).
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).
Tuesday, May 20, 2008
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.
"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.
Friday, May 9, 2008
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.
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%.
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.
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.
Tuesday, May 6, 2008
Customers are largely at the mercy of banks for approval of loan application
Most of the time we hear people saying they have been denied a bank loan or credit card on the excuse that they have a bad credit record. In spite of when you have been paying your entire home loan EMIs and credit card bills on time.
Let’s have a look at the world of easy banking which is in no means easy for some unwary customers who have suffered at the hands of the bank.
Here is an example to give a clear picture. Chandan Lunawat, heads a commodities export business. He had applied for a loan but his application was rejected. He was shocked to learn from his bank that his loan request had been rejected because he owed Citibank Rs 3.69 crore on a credit card.
Usually before giving loan the banks check with the Credit Information Bureau (India) Ltd (Cibil), is a one-stop shop for banks to check the credit histories of individuals. The bank that had rejected his loan application said that they have checked with Cibil database and found this information.
Lunawat told DNA reporter he had been regular in paying his credit card bills and auto loan EMIs. On being denied the loan, he asked the bank for his credit report, which a bank is obliged to give once it rejects a loan application. From that credit report he came to know he "owed" Citibank Rs 3.69 crore on a credit card that was started in July 1995 and closed in October 1995.
"I have never held this credit card which is mentioned in the report," Lunawat says. "I took up this issue with the bank (Citibank) and they promised me that my name will be removed from the list immediately. But till date it has not been removed," he told DNA.
On the other hand Citibank said Lunawat had out standings on his Diners/Citibank credit card as in July 2006 and that's why he was reported to Cibil "as per regulatory requirements".
Later on the bank had agreed to issue a "no dues outstanding letter" to the customer following a "mutually satisfactory settlement with the customer in August, 2006," and has promised to correct the customer's credit history with Cibil "at the earliest."
After all this it seems all's well that ends well.
But the question arises when settlement reached in August 2006, why is not reflected in Cibil's database two years later? Today banks are growing at 30-40% every quarter, acquiring customers seems more important than servicing them.
Lunawat's is just one of the cases; there are more customers at the receiving end.
If we see the Credit Information Companies Rules, 2006, a bank has to send across corrected information to credit information bureaus — in this case Cibil — within a period of 21 days.
In case there is a settlement between the borrower and the bank or the borrower repays his dues, then the bank needs to inform the credit information bureau within 30 days. But in Lunawat's case, it has been more than 20 months and Citibank does not appear to have updated the information.
Vishal Gohil, also has a similar story to share. He is an employee of Tata Motors in Pune,. He had applied for a credit card with Standard Chartered Bank. The bank issued a health insurance policy along with the card, but Gohil did not want it. After much persuasion, he was able to get the insurance policy cancelled.
But the bank did not update its data and continued billing his card for the premium on the policy he didn't ask for. Gohil refused to pay this amount as a result he was reported as a defaulter on Cibil's database.
He took up the issue with the bank authorities and the latter agreed to reverse the charges, as well update his status on Cibil's database. As usual it did not happen. "I sought a loan from ICICI Bank, but the bank never responded.
Later, when I applied for a loan at HDFC Bank, I got to know that my status was showing as a defaulter on the credit report. "Later I followed up with my earlier bank (Standard Chartered Bank) and received a confirmation that the data had been updated. Yet, three to four months down the line when I approach banks, I am denied loans", says Gohil.
While Standard Chartered maintained that it had updated the Cibil database and informed Gohil that there is no outstanding against his name, but the pain of being called a defaulter and being denied a loan stays with the customer.
People are also suffering because of the halfhearted attitude of banks to customer concerns. Here is the case of Tejinder Singh (name changed on request). Singh got a divorce from his wife some time back. His wife had an add-on card on his credit card. After divorce he asked the private sector bank to stop his wife's add-on card. The card wasn't stopped.
In fact it is still active. "My ex-wife has been on a spending spree and I have refused to pay the money she has been spending after the divorce", says Singh.
In the meantime, the bank has updated his data with Cibil and Singh is now on a defaulter list as he has refused to pay up money spent by his ex-wife through the add-on card. "I approached a bank for a personal loan recently and was denied one. The bank told me that I had not cleared my credit card bills fully," he says.
After looking at these examples one thing is clear that currently individuals are largely at the mercy of banks when it comes to the kind of credit standing they have.
So what do you do when the bank you have approached for a loan is not ready to give you one because they say you have a bad credit record when you really don't have one?
According to Sujan Sinha, senior vice-president - retail assets of Axis Bank the first and foremost thing to be done in such a situation is to get your credit report from the bank. "Then they should take up the issue with Cibil through a bank."
Currently the individual’s position is very bad as they are largely at the mercy of banks when it comes to get their credit record corrected.
Seeing such a situation, market sources say that Cibil is in the process of preparing an Internet-based solution, which will allow individuals to have an access of their credit reports at a nominal cost of Rs 100. That still won't solve the problem of banks declaring you as defaulters through sheer insensitivity.
Let’s have a look at the world of easy banking which is in no means easy for some unwary customers who have suffered at the hands of the bank.
Here is an example to give a clear picture. Chandan Lunawat, heads a commodities export business. He had applied for a loan but his application was rejected. He was shocked to learn from his bank that his loan request had been rejected because he owed Citibank Rs 3.69 crore on a credit card.
Usually before giving loan the banks check with the Credit Information Bureau (India) Ltd (Cibil), is a one-stop shop for banks to check the credit histories of individuals. The bank that had rejected his loan application said that they have checked with Cibil database and found this information.
Lunawat told DNA reporter he had been regular in paying his credit card bills and auto loan EMIs. On being denied the loan, he asked the bank for his credit report, which a bank is obliged to give once it rejects a loan application. From that credit report he came to know he "owed" Citibank Rs 3.69 crore on a credit card that was started in July 1995 and closed in October 1995.
"I have never held this credit card which is mentioned in the report," Lunawat says. "I took up this issue with the bank (Citibank) and they promised me that my name will be removed from the list immediately. But till date it has not been removed," he told DNA.
On the other hand Citibank said Lunawat had out standings on his Diners/Citibank credit card as in July 2006 and that's why he was reported to Cibil "as per regulatory requirements".
Later on the bank had agreed to issue a "no dues outstanding letter" to the customer following a "mutually satisfactory settlement with the customer in August, 2006," and has promised to correct the customer's credit history with Cibil "at the earliest."
After all this it seems all's well that ends well.
But the question arises when settlement reached in August 2006, why is not reflected in Cibil's database two years later? Today banks are growing at 30-40% every quarter, acquiring customers seems more important than servicing them.
Lunawat's is just one of the cases; there are more customers at the receiving end.
If we see the Credit Information Companies Rules, 2006, a bank has to send across corrected information to credit information bureaus — in this case Cibil — within a period of 21 days.
In case there is a settlement between the borrower and the bank or the borrower repays his dues, then the bank needs to inform the credit information bureau within 30 days. But in Lunawat's case, it has been more than 20 months and Citibank does not appear to have updated the information.
Vishal Gohil, also has a similar story to share. He is an employee of Tata Motors in Pune,. He had applied for a credit card with Standard Chartered Bank. The bank issued a health insurance policy along with the card, but Gohil did not want it. After much persuasion, he was able to get the insurance policy cancelled.
But the bank did not update its data and continued billing his card for the premium on the policy he didn't ask for. Gohil refused to pay this amount as a result he was reported as a defaulter on Cibil's database.
He took up the issue with the bank authorities and the latter agreed to reverse the charges, as well update his status on Cibil's database. As usual it did not happen. "I sought a loan from ICICI Bank, but the bank never responded.
Later, when I applied for a loan at HDFC Bank, I got to know that my status was showing as a defaulter on the credit report. "Later I followed up with my earlier bank (Standard Chartered Bank) and received a confirmation that the data had been updated. Yet, three to four months down the line when I approach banks, I am denied loans", says Gohil.
While Standard Chartered maintained that it had updated the Cibil database and informed Gohil that there is no outstanding against his name, but the pain of being called a defaulter and being denied a loan stays with the customer.
People are also suffering because of the halfhearted attitude of banks to customer concerns. Here is the case of Tejinder Singh (name changed on request). Singh got a divorce from his wife some time back. His wife had an add-on card on his credit card. After divorce he asked the private sector bank to stop his wife's add-on card. The card wasn't stopped.
In fact it is still active. "My ex-wife has been on a spending spree and I have refused to pay the money she has been spending after the divorce", says Singh.
In the meantime, the bank has updated his data with Cibil and Singh is now on a defaulter list as he has refused to pay up money spent by his ex-wife through the add-on card. "I approached a bank for a personal loan recently and was denied one. The bank told me that I had not cleared my credit card bills fully," he says.
After looking at these examples one thing is clear that currently individuals are largely at the mercy of banks when it comes to the kind of credit standing they have.
So what do you do when the bank you have approached for a loan is not ready to give you one because they say you have a bad credit record when you really don't have one?
According to Sujan Sinha, senior vice-president - retail assets of Axis Bank the first and foremost thing to be done in such a situation is to get your credit report from the bank. "Then they should take up the issue with Cibil through a bank."
Currently the individual’s position is very bad as they are largely at the mercy of banks when it comes to get their credit record corrected.
Seeing such a situation, market sources say that Cibil is in the process of preparing an Internet-based solution, which will allow individuals to have an access of their credit reports at a nominal cost of Rs 100. That still won't solve the problem of banks declaring you as defaulters through sheer insensitivity.
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