Few takers of travel loans due to high interest rates and slump bites

This year the tour operators are getting very less bookings for outbound travel even though the season has set in. The reason being there are few takers of travel loans as these loans are clubbed under the personal loan segment and for some banks this segment is not a top priority or have stopped giving personal loans. According to tour operators the decrease in demand may be due to economic slowdown and higher interest rates for travel loans. Tour operators say generally people choose to take travel loans for outbound travel especially to destinations like Europe, US, Australia and New Zealand among others. Summer holidays (April-July) alone account for 60% of the total outbound travel in a year. Last year around 10 million Indians traveled abroad.

According to Karan Anand, head, relationships and supplier management at Cox & Kings, "The concept of travel loans is still at a nascent stage. But it was beginning to catch up. However, we don't expect to see the same kind of growth we saw last year.'' Last year around 5-7% of the total travelers took travel loan, as many believe traveling abroad as a luxury. Cox & Kings has a tie-up with Citibank for the same.

At present there is enough of liquidity in the banking system but banks are unwilling to disburse loans as they fear could be on the default category. Another most important reason why travelers are keeping away from taking loan as the interest rate on personal loans come is high (12-19%) in comparison to housing, auto or education loan among others. Moreover, operators believe that people might be uncertain to undertake expensive holidays, at a higher interest rate, when in India pays are being slashed and also there are job cuts.

On the other hand bankers say that they don't have any data on travel loans, as they club it along with personal loans. An official working with a foreign bank stated, "We don't offer travel loans. Anyone who applies for a personal loan can use it for whatever purpose he wants to. We don't ask them any questions’’. He further added, "All we look at is the person's credentials, history, and his repaying capacity''.

Another private lender pointed out banks might not be interested in disbursing personal loans as they are unsecured and carry a heavy default risk. He added, "When somebody is going through financial difficulties, he or she is not likely to default on the housing loan. Most likely they are going to default on their personal loans first, then the car loan and only then they would think of defaulting on the housing loan. That is why personal loans are considered risky by banks''.

Private Banks to stop auto loan biz for commercial & passenger vehicles

Private Banks are planning to close the loan segment for commercial and passenger vehicles as they have not received any clear guidelines from the Reserve Bank of India which prevents them from the repossession of the vehicles from defaulting borrowers.

The bankers communicated their views in a recent meeting with RBI and finance ministry officials in the presence of auto industry representatives. On the other hand the government and the banking regulator do not consider repossession as unlawful provided banks carry out this activity according to a set of procedure.

An anonymous finance ministry official informed, “Repossession of any mortgaged property is not illegal as misunderstood by some of the borrowers. The government is working out with the RBI and the auto industry to bring out guidelines, which will help end the ambiguity regarding recovery and repossession”.

In India more than 80% of all the vehicles are financed. According to industry estimates auto loan portfolio of all banks put together stands around Rs 1,00,000 crore.

The official stated, “The RBI will come up with detailed guidelines, empowering banks to auction repossessed vehicles”. He stated, “It may also include norms on getting repossessed vehicle back from the banks”. Even the public sector banks agreed to this that in the absence of proper repossession norms their business has got badly affected. But their better financial position has allowed them to continue offer auto loans in spite of risk involved.

Unwillingness of banks in offering auto loans can clearly be seen in the recent finance ministry data, which indicates that fresh sanctions of auto loans have come down for the 15 days ended March 13. The figures also depict the case of public sector banks. Fresh loans to auto sector have come down to Rs 767 crore for the fortnight ended March 13, from Rs 971 crore for the previous fortnight.

Since last few months’ private sector banks have been experiencing negative growth in their credit flow in almost all sectors, as per the data available with the RBI. Until now none of the private banks have, publicly disclosed their plans to stop offering auto loans.

An anonymous executive working with a Mumbai-based private bank stated, “We are lending on a case-to-case basis. The bank has to keep in mind the creditworthiness of the borrower. We are playing conservatively and going slow”. The matter has also been brought in front of the Cabinet Secretary for the discussion in his recent meeting with the chief of top bankers and industry representatives.

Bank offers schemes for Nano

Tata Nano is said to be a common man car promising value for money with its low pricing. On the other hand banks which are the preferred lenders for the car are offering various schemes. The schemes being offered by the banks are almost uniform in their charges and interest rates; only the quick and efficient service provided by them will help them score over their competitors.

The Nano loan schemes are being offered mainly by the public sector banks, with the big daddy, State Bank of India along with its associate banks is setting the movement in terms of interest rates and down payment. Other public sector banks are Central Bank of India, Union Bank of India, Indian Bank, Corporation Bank and Punjab National Bank. The private sector players include ICICI Bank and Kerala-based Federal Bank.

SBI’s, potential Nano customer is an employed professional drawing Rs 75,000 a year or a self-employed person making Rs 1 lakh a year.

SBI in its scheme is offering a Nano booking loan product with a one-time upfront booking fee of Rs 2,999 for the base model (which has an ex-showroom price of Rs 1.2 lakh in Delhi), Rs 3,499 for the intermediate model (Rs 1.40 lakh) and Rs 3,999 (Rs 1.70 lakh) for the high-end model.

An SBI official pointed out the eligibility criteria has been relaxed as the Tata Nano is designed to meet the demands of low-income customers.

If the customer name gets listed in the list of the lucky ones to get allotment of Nano, then the booking loan can be converted to a SBI Nano car loan. The loan will be provided up to a maximum of seven years at 11.75-12 per cent interest. The margin requirement for the loans will be set to 15 per cent. That is, for Rs 1 lakh loan, the customer would have to pay Rs 15,000 upfront to get the bank to give a loan for Rs 85,000.

Union Bank of India has set the minimum down payment for the base model at Rs 2,950 for the booking amount, for the second model it is Rs 3,459 and for the higher model it is Rs 3,952.

In case a customer wants to take a car loan by himself for the Nano, the bank’s auto loans rate is 11 per cent for three years and 11.25 per cent for three to five years.

An official from the bank told, “We expect very good response from rural and semi-urban areas.”

Corporation Bank has also set Rs 2,999 as down payment for the booking amount of the base model, Rs 3,744 for the second model and Rs 4,231 for the third model. The bank is charging 11 per cent in case the customer opts for a car loan once he or she gets allotment.

An official from the bank explained that at these rates, the monthly repayment will stand to Rs 3,274 per lakh for a three-year loan, Rs 2,187 on a five-year loan and Rs 1,739 for a seven-year loan.

ICICI Bank is hoping to take benefit from on its online booking facility through both the bank’s Web site and ICICI Direct.com, informed Mr N.R. Narayanan, General Manager, retail loans, He added, “We are very bullish about the Nano booking online as it offers huge convenience to our customers. ICICI Direct also has a lot of customers who log on for share trading”. The bank is offering car loans at 13.5 per cent for three to five years.

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

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

What is a home loan?

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

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

What are the documents needed in a home loan?

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

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

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

PSBs to offer cheaper loans to farmers to buy tractors

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

PSU Banks take leading position in auto loan segment

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

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

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

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

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

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

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

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

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