NTH :: Do not reject loan application based on CIBIL score, says HC

STAFF REPORTER | MADURAI | UPDATED: APRIL 22, 2018 04:14 IST | The Hindu

NTH

Coming to the aid of a law student who sought an educational loan from a nationalised bank, the Madurai Bench of Madras High Court has directed the bank to consider the loan application and disburse the loan within two weeks.

Justice M.S. Ramesh, hearing the plea, observed that nationalised banks had time and again rejected loan applications based on the CIBIL reports of family members.

The student being the principal borrower, the status of parents and family members could not be a criteria for rejecting the application. CIBIL score should not be a ground for rejection of an application. It was a wilful disobedience of various orders passed by the court in this regard, making this case liable for contempt of court orders. The Head of Indian Bank, which had rejected the loan, was directed to issue necessary directions to all its branches in the State to refrain from rejecting educational loan applications on such grounds.

The court was hearing the case of M.Hariharasudhan, a law student of Prist University, Thanjavur, who had sought an educational loan of Rs. 70,000 from the Indian Bank. He moved the High Court after his application was rejected based on his father’s low CIBIL score.

Source: https://bit.ly/2Ht9X3D

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Interview :: Worst over for the market, top 10 stocks to bet on in FY19

Interview with Gaurav Jain, Director at Hem Securities.
Uttaresh Venkateshwaran, Sunil Matkar | Apr 06, 2018 03:19 PM IST | Source: Moneycontrol.com

While the market may have fallen around 10 percent from its peak, experts such as Gaurav Jain, Director, Hem Securities believe that the worst may be over now.

“In the next quarter, the market should settle and then a pullback is likely,” Jain told Moneycontrol’s Uttaresh Venkateshwaran & Sunil Shankar Matkar. He expects largecaps to move ahead and midcaps will play catch-up.

He expects a broad-based pick up in the market going ahead. “In the past few days, a few stocks have risen, which have pushed the market. We should start seeing a pick-up in many more stocks. Essentially, people are not in a panic stage, while retail investors have looked to book profits and are not in a hurry to invest,” Jain further added. Edited excerpts:

The market has been trading off the previous high points. What is the outlook for D-Street going ahead?

Over the last quarter, we saw events such as the Union Budget, which introduced taxes on long term capital gains (LTCG). Global markets reacted negatively, while big IPOs also sucked liquidity from the market, among other factors. As such, the market had a good run up in the past two three quarters.

In the next quarter, the market should settle and then there could be a pullback. Next quarter should be of accumulation and positive movement.

So, what kind of returns are you expecting from this market?

We are in an election year. So, the market could behave differently with results coming on. Overall, for FY18 we are looking at 8-10 percent returns.

What can be seen as triggers for this market?

Firstly, many companies’ results were affected in one quarter on the back of Goods and Services Tax (GST). With new GST Bill coming in full flow, it should give positive flow for most sectors. Even as the e-way bill is introduced, some companies could face some issues at the start and then gradually get comfortable with it.

Secondly, look at growth visibility in the Sensex and Nifty. Several managements are hinting at positive cues. Earnings could improve and several companies have done their expansions on their side.

Lastly, we have to wait for how monsoon pans out. So, overall there is positive momentum and investors are quite bullish on India even at this point.

Does that mean we could go back to the record high levels?

Probably…

What are you hearing on private capex plans? Are they willing to spend on that front as well?

Most companies, the big ones especially, have done their share of capital expenditure. One important reason why this is happening is due to change in technology that is erupting. For instance, look at telecom sector. In case Reliance Jio comes up with a new technology, rivals also tend to counter those. In case of textiles, many things have happened and firms are adding up more technology and machines. With changing technology, fast-growing companies need to adapt to it and they are deploying resources in those areas.

Could you throw some light on the state of midcaps? How do you expect them to perform going forward?

Largecaps should start moving first, going forward, followed by midcaps. Investors currently are playing conservative as they saw their stocks bleeding all through the last quarter. Hence, the money is going into largecaps right now.

But what about valuations for several segments in the market…how did the IPO market perform in FY18?

Look at the number of IPOs that came up with multiples of 30 and 40 times. Fund managers that we spoke to are talking about large systematic investment plans (SIPs) that have to be deployed into such stocks and that is probably why such high multiples were seen.

In FY17, we saw around 37 IPOs hitting the market and this figure could be higher this fiscal, looking at the prospectuses filed and information available from merchant bankers. Also, IPO sizes are a lot larger now.

But will investors have the appetite going forward?

Institutional investors will have it. They will always look at beaten down stocks and they also do not have issues with funds.

Currently, retail investors are investing less. If they have Rs 100 with them, they are looking to invest Rs 20 right now. In fact, many retail investors have booked profits in the past quarter.

Is there much downside from the current market levels?

I don’t think so. The worst should already be over. In the past few days, a few stocks have risen, which have pushed the market. We should start seeing a pick-up in many more stocks. Essentially, people are not in a panic stage, while retail investors have looked to book profits and are not in a hurry to invest.

So, what will your advice be to a 35-40-year old investor?

They must invest in mutual funds. But you could also do it making money by directly investing in equity markets as well.

What sectors are you looking at currently?

We expect pharmaceuticals to perform, while it could be a challenge in case of information technology names.

You can look at infrastructure sector as well. These companies are flooded with orders.

On banks, it is clearly not the case that all PSU banks are bad. Right now, people are not trusting PSU banks and private banks are usually considered more transparent.

It is a play on perception and that could be seen in cases of a recent listing such as Bandhan Bank. The IPO came at a very good multiple and still listed at good returns. These are companies with professional management which are growing along with having fast execution and chasing for business. As such, we were seeing a shift to private sector banks, but currently investors also do not know about hidden concerns in PSU banks too.

LTCG tax on equities has become a reality now. Are you getting queries about it and what are you telling them?

I think the sentiment around it has been already digested in the market. People are taking in the transition in stock market. I feel that this is not an issue at this point.

How much of a risk is political scenario for the market?

The market tends to be very volatile on political instability. As soon as there are chances of dent to existing government, it starts reacting. The question is not about which government, but about a stable one. This is important from a foreign investor perspective. These would have regular impact but not larger level…the market will make a comeback once the elections are over.

As we move into end of this year (and closer to general elections), investors may hold for couple of months to understand what is happening (on the political front).

On the global front, any statement from the US with respect to protection of its own trade boundaries is a major risk for the market.

Lastly, what are your top stock picks for FY19?

hem securities

Disclosure: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.

ATM :: Despite RBI maintaining status quo on rates, your loans may pinch more

By Sunil Dhawan, ET Online | Updated: Apr 05, 2018, 06.29 PM IST | Economic Times

ATM

The Reserve Bank of India (RBI) may have kept the repo rate unchanged at 6 percent in its first bi-monthly review for the financial year, but it would be premature for home loan borrowers to rejoice.

This is because equated monthly instalments (EMIs) on loans may still go up as some banks have already increased their marginal cost-based lending rates (MCLR) over the last month owing to rising cost of funds. Repo rate was last cut in August 2017 when it was reduced by 0.25 percent.

“In the current interest rate cycle, we have touched the lowest level and it will come as no surprise if the cycle turns. Against this background, the impetus for stimulating housing demand does not lie on interest rate alone but on other reforms and steps taken by various stakeholders. Measures such as implementation of RERA in true letter and spirit, palatable payment plans for home buyers and relatively cheaper house prices are some of the critical determinants to revive the real estate sector. Until such time the benefits of these measures percolate across markets, the sector will continue to reel under pressure,” says Shishir Baijal, Chairman & Managing Director, Knight Frank India.

All bank loans, including home loans, taken after April 1, 2016, are linked to a bank’s MCLR and any rise in it will push the interest rate higher. As things stand today, the interest rate appears to either remain stagnant or there exists a remote possibility for them to move up in the near term. Unless liquidity in the system improves and inflation is well under RBI’s target, borrowers, both existing and new, will have to make do with a high interest rate regime.

At a home loan rate of 8.4 percent, the EMI on a Rs 1 lakh loan for 15 years comes to Rs 979. If the rate is increased by by 100 basis points (or 1 percent), the EMI will go up to Rs 1038 — a difference of Rs 59 or about 6 percent increase.

Rising MCLRs
Interestingly, State Bank of India, the country’s top lender by assets, had increased its MCLR across most maturities in March. SBI also raised the 1-year MCLR to 8.15 percent from 7.95 percent, other lenders like ICICI Bank and Punjab National Bank, followed suit and raised their MCLR, albeit by a slightly lower magnitude of 15 basis points. Other banks may hike their MCLR too, and thus EMIs may rise.

When base rate fails
It is important to note that several loans taken before April 1, 2016 which are still linked to base rate are still being serviced by the borrowers. They stand to benefit only when the bank will cut its base rate. Not many banks have cut their base rate in the recent past. SBI had it by 0.30 percent on Jan 1, 2018, before this it had cut it by 0.5 percent in September 2017. Effective April 1, 2018, Allahabad Bank had cut base rate to 9.15 percent from 9.6percent and even its benchmark prime lending rate (BPLR) has been brought down to 13.40 percent from 13.85 percent.

Taking stock of the situation, RBI in its February meet had stated that, “Since MCLR is more sensitive to policy rate signals, it has been decided to harmonize the methodology of determining benchmark rates by linking the Base Rate to the MCLR with effect from April 1, 2018.”

MCLR linked home loan
Banks, however, may or may not lend at MCLR. They may ask for a spread or a mark-up or a margin. The actual home loan interest rate can be equal to the MCLR or have a ‘mark-up’ or ‘spread’, but can never be lower than the MCLR.

Untitled-2

Note: Loans are disbursed by HDFC Ltd.

New home loan borrowers
For new home loan borrowers, it’s only the MCLR linked loans that matter. Don’t wait any longer in the hope of an interest rate cut if you are thinking of getting a loan. Instead, if you are eligible, you can opt for the benefit under the Pradhan Mantri Awas Yojana (PMAY) scheme. The deadline to avail the benefit under this scheme is March 31, 2019. Under the scheme, a credit-linked interest subsidy is given according to the applicant’s income level.

Existing home loan takers

a) Home loans linked with MCLR
As was no rate cut today, there is unlikely to be any downward pressure on MCLR. On the flip side, with banks increasing their MCLR, the possibility of home loan rates going up when the reset date arrives cannot be ruled out either. In MCLR-linked home loans, the rate is reset after 6/12 months as per the agreement between the borrower and the bank. The rate applicable on that date becomes the new rate for servicing the EMI’s.

Untitled-1

b) Base rate home loans
Interest rates charged under the base rate system is relatively higher as compared to that under the MCLR regime. Still, if your home loan interest rate is linked to the base rate system, you might want to reconsider the option of switching to an MCLR based loan. As has been seen in the past, there has been a lag in the transmission of cut in repo rate by banks to the consumers after the central bank reduces rates. However, under the base rate system, whenever RBI had raised repo rates, the banks used to raise their base rates without any delays.

Source: https://bit.ly/2qjZSzv

 

 

ATM :: Mutual fund investing: Basic facts to know while investing in balanced funds

Balanced Funds have an overall equity spread of almost 65% either in the large, mid or small cap stocks.
Navneet Dubey | Apr 04, 2018 11:27 AM IST | Source: Moneycontrol.com

ATM

Balance funds are the funds which have exposure to two main asset classes – equity and debt. This fund gives you exposure to stocks as well as money market instrument. These funds have the equity orientation as around 65% of your monies get invested in equity and remaining 35% in debt funds. The risk associated towards equity exposure is almost of the same amount as the risk is associated with any normal equity fund do have. So, are these balanced mutual funds really ‘balanced’ enough? SEBI has recently proposed to change the name of the balanced fund into three categories – Aggressive Hybrid Fund, Balanced Hybrid Fund and Conservative Hybrid Fund.

We bring you the main features of balanced funds and tell you how to go about making the most of your investment in them:

What does the equity spread consist of?

Balanced funds have an overall equity spread of almost 65% either in the large, mid or small cap which can be extended even towards micro-cap funds. Having flexibility towards too many categorisations, the fund manager gets the liberty to choose stocks, however, that may welcome more risk to your portfolio. Therefore, check the holdings before investing in these balanced funds as the range between mid-caps to micro-cap can be risky if you are a conservative investor.

What are new balanced funds?

As per the regulator (SEBI), the categorization of these balanced funds will get further differentiated into various sub-heads to provide more clarity to mutual fund investors. These can be termed as follows:

The Aggressive Hybrid Fund: It will invest in equities & equity related instruments between 65% and 80% of total assets and debt instruments between 20% and 35% of total assets.

The Balanced Hybrid Fund: It will invest in equities & equity related instruments between 40% and 60% of total assets and debt instruments between 40% and 60% of total assets. However, no arbitrage would be permitted in the scheme.

The Conservative Hybrid Fund: It will invest in equities and its related instrument between 10% to 25% of overall assets and debt instruments between 75% and 90% of total assets.

Other hybrid funds which investors can further look to make investments can be – Arbitrage fund, Dynamic asset allocation fund and Multi-asset allocation funds.

To provide more clarity to investors, these new categories of balanced funds termed as new types of hybrid funds will help investors to understand their funds in a much better way. Not only this, fund managers will also get clarity to structure their fund as per new rules, getting clear direction as to which stocks to select while designing the scheme. Hopefully, in future, there may be no room for confusion while selecting balanced funds for investing and switching between high risky to a less risky portfolio.

Tax treatment: Debt and equity-oriented funds

Currently, all the balanced funds today are having an average exposure of 65% to equities, they come under the ambit of equity oriented fund. However, in future the new conservative hybrid funds can get debt tax treatment as more of the exposure is tuned towards debt asset class.

However, in overall mutual fund taxation structure, equity funds and debt funds are taxed as below:

Equity Oriented Fund

LTCG: There is no long-term capital gain tax on equity funds after one year if gains do not exceed Rs 1 lakh. However, if capital gains exceed Rs 1 Lakh, the realised amount will get taxed at 10%.

STCG: Short-term gains are taxed at 15%. Where gains are realised within one year.

Debt Oriented Fund

LTCG: These mutual fund schemes are taxed at 20% long-term capital gain tax and

STCG: When realised within 3 years, these are taxed at marginal tax rate where a maximum taxation of 30% can be applied to short-term capital gain tax for both Resident Individuals & HUF.

Source: https://bit.ly/2qhYwFj

NTH :: Surge in self-employed taking home loans: Crisil

G BALACHANDAR | Published on April 04, 2018 | The Hindu Business Line
But delinquencies are also on the rise

NTH

CHENNAI: The share of home loans to THE self-employed has increased to a little less than a third of the overall housing loan portfolio of housing finance companies (HFCs) from one-fourth of the portfolio four years ago, points out a report of rating agency Crisil.

Primarily driven by the government impetus to affordable housing, there has been a big surge in the self-employed taking home loans. In the overall home loan portfolio of HFCs, the share of self-employed borrowers is about 30 per cent now when compared with about 20 per cent four years ago.

“Several initiatives of both the government and the regulator in the recent past have led to fast growth in home loans taken by the self-employed. We expect such mortgages to continue showing good growth because of the sharp focus of smaller HFCs and increasing interest of the larger ones,” said Krishnan Sitaraman, Senior Director, Crisil Ratings.

Loans to the self-employed segment have grown at a CAGR of about 33 per cent in the past four years, compared with 20 per cent for the overall home loan segment. Home loans outstanding in the self-employed segment are expected to have topped ₹2 lakh crore by the end of 2017-18. Though new, small and larger HFCs have been aggressively catering to the self-employed segment, banks are also strengthening their presence in the home loan segment due to subdued credit demand from corporates and asset quality pressures.

However, on the flipside, delinquencies are also rising in the self-employed segment. Gross non-performing assets (NPAs) in the segment are estimated to have inched up by 40 basis points to about 1.1 per cent by the end of 2017-18, compared with about 0.7 per cent a few years back. This trend, however, warrants caution because lending to the self-employed is largely based on assessed income. Additionally, a section of borrowers, who have a limited credit history or banking experience, are highly vulnerable to disruptions such as demonetisation, and see high volatility in cash flows in the event of exigency.

“The two-year lagged NPAs in the self-employed segment, at about 1.8 per cent, is much higher compared with about 0.6 per cent in the salaried segment, where the portfolio quality has remained largely stable over the years,” said Rama Patel, Director, Crisil Ratings.

Given that the self-employed segment is relatively riskier than the salaried segment, HFCs tend to demand higher yields to offset higher credit cost. Further, to surmount borrower data issues, HFCs are adopting practices such as offering lower loan-to-value ratio, higher in-house sourcing, and developing the expertise to assess un-documented income.

While financiers are adopting a risk-based pricing approach, long-term sustenance will depend on strong credit and underwriting practices, said the report.

Source: https://bit.ly/2Ewjvby

ATM :: In love with largecaps? Here are 20 stocks in which 4 top MFs are betting on

After the recent correction valuations of most of the mid & small caps as well as largecaps have come to more reasonable levels, but are still not in lucrative.
Kshitij Anand | Apr 04, 2018 09:27 AM IST | Source: Moneycontrol.com

ATM

So where are fund managers betting your money in FY18? Well, a close look at the funds which outperformed benchmark indices in the largecap space suggested that fund managers are in no mood for experiments.

They stuck to quality stocks despite volatility, according to data collated from Morningstar India database. Five funds which outperformed Nifty include names like Invesco India Growth which rose 18.9 percent, followed by BOI AXA Equity which gained 18.09 percent, BOI AXA Equity Regular rose 17.13 percent, and Edelweiss Equity Opportunities Fund rose 16.46 percent.

A close look at the stocks in which some of these funds have made their investments include names like HDFC Bank, RIL, Maruti Suzuki, ICICI Bank, Graphite India, L&T, IndusInd Bank, IIFL Holdings, HDFC, Avenue Supermarts, TCS, Sterlite Technologies, and Escorts etc. among others.

The rally was not as swift among the benchmark indices which rose 10-11 percent in the last 12 months. After a blockbuster 2017 and FY18, all eyes are on FY19 which according to most experts belong to largecaps.

Mid & smallcaps outperformed largecaps by a wide margin in the year 2017, but for FY19, most analysts suggest investors not to ignore this space. One possible reason is attractive valuations compared to mid & smallcaps.

Street expectations are for at least high-teens earnings growth in large-caps and about 20 percent earnings growth in mid-caps and small-caps. But, for investors, a healthy balance of large and midcap funds would make a strong portfolio.

“Performance of stocks in FY19 will depend on the quality of companies, quality of managements, balance sheet performances and profitability. FY19 will not be as easy as FY18 when markets were at an all-time high,” Jagannadham Thunuguntla, Sr. VP and Head of Research (Wealth), Centrum Broking Limited told Moneycontrol.

“The year 2018 will differentiate men from boys. We recommend that 50-60% of capital should be parked in large caps, 20-40% in mid& small caps and 10-20% in thematic stocks,” he said.

After the recent correction valuations of most of the mid & small caps as well as largecaps have come to more reasonable levels, but are still not in lucrative. The best strategy for investors is to use the mutual fund route to invest in quality largecaps as well as midcaps.

“On a broader portfolio basis, for a person in the age bracket of 35-40 years, the exposure to direct equity should also ideally be around 50-60% while the rest could be spread across other avenues of investments,” JK Jain, head of equity research at Karvy Stock Broking told Moneycontrol.

“A mixture of flagship mutual funds schemes from different segments like Largecap, Midcap, Balanced and Multicap funds, which have delivered in the past must be a part of one’s portfolio,” he said.

Disclosure: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.

Source: https://bit.ly/2v4u3iG

ATM :: Why prepaying a home loan may be the best investment option in current yields scenario

ET CONTRIBUTORS | By Raj Khosla | Mar 12, 2018, 02.30 PM IST | Economic Times

ATM

Major banks and housing finance companies have raised their lending rates. Whenever home loan rates are hiked, borrowers want to know whether they should prepay their loans to save on interest. In the past, there was no clear answer because there were several investment opportunities that could yield better returns than the interest paid on the home loan.

Not any longer. Stock markets are looking jittery, fixed deposits are tax-inefficient and debt funds are giving poor returns. If a penny saved is a penny earned, prepaying a home loan may be the best investment option available. Where else can you get 8.5% assured ‘returns’ on the surplus cash? Another compelling reason to rework the math and at least partially repay your home loan is the new tax rule that caps the deduction on home loans at Rs 2 lakh a year. If you have a large home loan running, you would do well to make partial prepayments as soon as you can.

There are some obvious benefits of foreclosing a long-term loan. The longer the tenure, the higher is the interest outgo. Just like long-term investments build wealth for you, longterm debt burdens you with high interest. Yet, a long-term loan may be unavoidable in some circumstances. A young person who has just started working may not be able to afford a large EMI. The loan tenure would have to be increased so that the EMI fits his pocket.

In such situations, borrowers are advised to go for a ballooning repayment, where the EMI increases every year in line with an increase in the income. This can have a dramatic impact on the loan tenure. If you take a home loan of Rs 50 lakh at 8.5% for 20 years, the EMI will be Rs 43,391. But a 5% increase in the EMI every year will end the loan in 12 years and two months. If you tighten your belt a bit and increase the EMI by 10% every year, you can become debt-free in less than 10 years (see grphic)

Pay off a 20-year loan in less than 10 years
Hiking the EMI every year reduces the tenure drastically.

pg-7

Contrary to what T.S. Eliot said, April is not the cruellest month. Any salaried individual will vouch for this. While annual increments are something to celebrate, people with large outstanding debts should also try and increase their EMIs in line with the increase in income. In a few weeks, they will also get their annual bonuses. At least some of that should be used to prepay the home loan.

Reducing your outstanding debt or closing the loan is naturally a psychological boost. It gives the individual a sense of financial freedom.

Some people argue that prepaying the home loan robs the individual of liquidity. That’s not correct. Several banks offer home loans with an overdraft facility that allows the borrower to withdraw money as and when he needs it. Though overdraft facilities normally entail annual maintenance charges, home loan overdraft facilities are exempt from this charge. It’s also a good idea to use a loan against property to repay other costlier loans. For instance, an unsecured personal loan that charges 18-20% can be replaced with a loan against property that costs 8.5%.

(Author is founder and managing director, Mymoneymantra.com)
Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of http://www.economictimes.com.

Source: https://goo.gl/UpcRzh