Mayur Shetty | TNN | Updated: Jul 2, 2018, 14:40 IST | Times of India
MUMBAI: Well-heeled borrowers are parking larger amounts in their home loan overdraft account after running out of options for generating high returns. This has prompted lenders to hold back on offering this product to new customers.
The home loan overdraft facility allows the borrower to use the advance as a savings account and transfer surplus funds there. The advantage is that no interest is charged on the home loan to the extent of the extra money kept in the account.
But lenders are unhappy with more money being parked there as they lose out on interest income, while having to make all provisions required for outstanding loans. Traditionally, middle-class borrowers would use any additional funds to prepay loans, while savvy investors would avail of an overdraft facility and park surplus funds there. Kept temporarily, this surplus would be used for another investment.
Now, with both financial markets and real estate in a sluggish state, the idle funds in these overdraft accounts are rising. “If a substantial part of the loan amount is parked in the overdraft account, the bank loses money as there is no interest income but all attendant costs — commission to agents and provision costs — are there,” said a senior official with State Bank of India (SBI).
While banks are not withdrawing the product, they are putting additional conditions to apply for it. Some banks are refusing to take over loans where the customer has parked more than half the loan amount in the account. Others are not offering the loan for smaller amounts. Yet another multinational bank is charging an annual fee on the unused balance.
Sukanya Kumar, founder of RetaiLending.com, which acts as a direct selling agent for many lenders, said, “This is a strange situation where the banks have a product but they do not want to offer it to a customer. Even if they insist on a higher loan amount today, what will they do if customers park more funds in their account?”
Even otherwise, the overdraft version has traditionally never been pushed the way home loans are sold. It was initially offered by multinational banks to their wealthy borrowers to differentiate themselves from other lenders. This was soon picked up by private banks ICICI Bank and Axis Bank, and even state-owned SBI. Most of the multinational banks — including Citi, HSBC and DBS — are offering this to customers. Banks that have shifted focus to retail like IDBI Bank and IDFC Bank are also providing this product. But even as the number of banks has increased, lenders are becoming choosy.
IDBI Bank has already increased its one-year MCLR rate to 8,65 percent, making its loans more expensive for customers. The bank has also increased its two-year and three-year MCLR rate to 8.7 percent and 8.8 percent, respectively
By ZeeBiz WebTeam | Updated: Mon, May 14, 2018 06:12 pm | ZeeBiz WebDesk
If you are thinking of taking a home loan then you must do it as early as possible, as banks are likely to increase their interest rates in near future. IDBI Bank has already increased its one-year MCLR rate to 8,65 percent, making its loans more expensive for customers. The bank has also increased its two-year and three-year MCLR rate to 8.7 percent and 8.8 percent, respectively. This rate has been made effective from May 12. The bank has increased MCLR in the range between 0.5 bps and 0.10 bps.
This is the base rate at which banks provide loans to its customers. If banks get cheaper loans then they also lend at cheaper rates to their customers and vis-a-vis. An increase in the MCLR means, your loans will come at a higher rate, and you will have to shell out more for auto loans, home loans, personal loans or any other loans.
The country’s largest lender State Bank of India (SBI) recently increased its home loan rate for up to Rs 30 lakh from 8.35 percent to 8.65 percent. Allahabad Bank is also providing the home loan amount up to 30 lakh at 8.35 percent.
Other banks including Axis Bank and Bank of India are giving home loans up to Rs 30 lakhs at 8.4 percent, according to Bank Bazaar. For home loans between Rs 30 lakh and 75 lakh, Allahabad Bank, Dena Bank and SBI are charging 8.35 percent. These banks are also charging the same rate for loans over Rs 75 lakhs, according to the financial services company website.
ICICI Bank, however, is charging between 8.75 and 8.95 per cent for loans over Rs 75 lakh, while HDFC Bank is providing loans at 8.6 percent for the amount exceeding Rs 75 lakh. As the banks are increasing their loan rates, this is the right time to go for home loan.
Rachel Chitra | TNN | Updated: May 16, 2018, 09:51 IST | Times of India
BENGALURU : Are banks gearing up to reward you for good behaviour? After Bank of India (BoI) and Bank of Baroda (BoB) announced such measures, IDBI Bank on Tuesday said that it will reward good borrowers by giving them differential pricing on their home loan interest rates based on their Cibil scores.
According to Cibil COO Harshala Chandorkar, this could point to a larger trend of “loan interests more aligned towards a carrot-and-stick policy – where good borrowers can reap the benefits of their financial prudence and bad borrowers get weeded out or have to pay steeper rates”.
With all four credit bureaus in India – Cibil, Equifax, Experian and CRIF Highmark – looking at wider coverage and criteria, from whether you paid your electricity bill on time to whether your parents paid off for the bike they got you in college, this score could affect your loan prospects.
In the last few years, with non-banking financial companies (NBFCs) and micro-finance institutions also sending information on borrowers to credit bureaus, lenders now have a wider and more comprehensive data set to assess. This could further widen as Cibil is currently in talks with telecom regulator Trai for access to data on prepaid recharges, and other agencies for utility bill payment history.
Banking analyst Hemindra Hazari said, “The whole point of Cibil assessing a customer’s data is that at some point it should translate into benefits. Corporates are always being graded on their term loans, unsecured debt and convertibles, AAA or BB++ rating, and that gives a better picture of their credit worthiness.”
In IDBI Bank’s case, it will be offering loans at 5-15bps (1 percentage point = 100 basis points, or bps) cheaper for customers whose Cibil score is above 700. A credit score normally ranges between 300 and 900 – based on credit behaviour and repayment history. Therefore, the higher the score, the more the chances of securing a fresh loan. IDBI Bank ED Jorty Chacko said, “We are keen to provide all aspiring consumers with access to credit. But while doing so, it is important to reward those consumers who have exhibited consistent credit discipline through timely payments and responsible credit management.”
But with many customers unaware of the role credit bureaus play and whether decisions taken earlier in life can come back to haunt one, Hazari said, “I am concerned about the privacy of our data. In India, there is a very low premium on methods employed for data collection and aggregation. And also, many a time, your consent is not required before financial institutions share additional sets of information over and above what is mandated.”
Lenders prefer to offer home loans to individuals who have a credit score in excess of 750.
Nikhil Walavalkar | May 16, 2018 09:46 PM IST | Source: Moneycontrol.com
Issuance of a credit card marks the entry into the world of credit for most millennials. The journey that starts with a credit card generally peaks when one opts for a home loan, thanks to sky-high home prices. Obtaining a home loan at an attractive rate is a task for many. But they forget that if one uses a credit card prudently, it can help strike a better home loan deal. Here is how it works.
Lenders prefer to offer home loans to individuals that have a credit score in excess of 750. This score is not built overnight. If a borrower has been repaying the loan on time, it can help build a credit score over a period of time. Here is how your credit card usage aids in building a credit score and obtain a home loan at an attractive rate of interest.
Timely repayment of outstanding
Credit cards allow you to access funds without interest for a stipulated period of time, if you pay the entire bill before the due date. “Failure to pay the bill in full attracts interest but also harms your credit score,” Satyam Kumar, co-founder and CEO of LoanTap Financial Technologies, said.
He advises paying all credit card dues in full before the due date to ensure that the credit score goes up. If possible use standing instructions on your saving bank account, so that the lender debits the bill from your account. If you pay the minimum amount due, even though the banker is not treating it as a default, credit score companies do not take it positively.
If you miss your bill payment once in a while by a couple of days, it may not kill your credit score. But avoid repeating such instances a few months before applying for a home loan.
Credit utilisation ratio
“Keep your credit utilisation ratio low at around 30 percent,” Kumar stated. For beginners, it stands for how much credit one uses out of the allotted limit. It is calculated for each card separately as well as jointly for all cards. For example, if you have two credit cards – A and B – with a credit limit of Rs 1 lakh each. and spend Rs 60,000 and Rs 2,000 on these cards, respectively. Then the credit utilisation ratio for Card A and B stands at 60 percent and two percent, respectively. Jointly it stands at 31 percent. Had the user spread this expenses equally on both cards he would have been closer to the 30 percent mark.
Once in a while this number may go up. But consistently high numbers shows a credit hungry behaviour. If you are using a credit card with low limits, it makes sense to ask your banker to increase the credit limit on the credit card. This will ensure that your credit utilisation ratio falls, if you keep spending a similar amount.
Longevity of your credit card accounts
Credit score gives more weightage to older credit accounts. Longer the repayment history, better is the credit score. Avoid closing your old credit card accounts. Keep using the old credit card and repaying it before the due date helps the credit score.
Personal loans on credit cards
Many prefer to avail personal loans on their credit card to avoid paying a high rate of interest. This move blocks their credit card limit. The borrower is also expected to repay the loan on time. Late payments or defaults on these loans also pull down one’s credit score.
“Be diligent while repaying these personal loans as they are high-cost credit compared to other secured loan options. Also, failure to repay leads to a fall in credit score,” Vishal Dhawan, Founder and Chief Financial Planner at Plan Ahead Wealth Managers, said.
If there is a dispute with the lender pertaining to a transaction or charge on the credit card, do not ignore it. “Sometimes individuals tear the credit card as they are unhappy with the service. However, it does not help. One has to ensure there is no outstanding and formally close it,” Dhawan added.
Opting for a one-time settlement or not paying it up will lead to adverse remarks in your credit report. “If you spot a disputed transaction or a charge on your credit card, it makes sense to speak with the card issuer and follow up for an amicable resolution,” Kumar said.
If you use your credit card prudently, there is a high possibility that your credit score will remain good and you will be offered a better deal.
Bank of India will offer preferential pricing rates to borrowers with good credit scores for home loans of Rs 30 lakh and above, the state-run lender said.
By: PTI | New Delhi | Published: May 7, 2018 7:35 PM | Financial Express
Bank of India will offer preferential pricing rates to borrowers with good credit scores for home loans of Rs 30 lakh and above, the state-run lender said. Customers with CIBIL score of 760 and above will be offered loan at the minimum home loan interest rate or the marginal cost of lending rate (MCLR) for an year, the bank said in a statement. MCLR is the minimum interest rate of a bank below which it cannot lend. Those with a score of 759 and less, the rate of interest for loans of Rs 30 lakh and above will come at MCLR plus 0.10 basis points for a year.
One basis points is 100th of a percentage point. Bank of India said borrowers availing home loans of over Rs 30 lakh will be benefited from the reduced rate of interest. A consumer’s CIBIL score is a three-digit numeric summary of the credit information report (CIR) — summarising the past credit behaviour and repayment history — and ranges from 300 to 900.
The higher the score, the better are the chances of loan approval. Most banks check a consumer’s CIBIL score and report before approving a loan. “Consumers with a good credit discipline should be rewarded, as it helps propagate the importance and need to maintain a good financial history. Our preferential pricing model aims to reward high-scoring home-loan aspirants with competitive ROI, thereby helping them making their dream home a reality,” Bank of India said in a statement.
Credit information company TransUnion CIBIL’s Head of Direct to Consumers Interactive Hrushikesh Mehta said: “Bank of India’s CIBIL score-based incentive helps further highlight the need to monitor and build a positive credit profile through good credit habits.”
By Sunil Dhawan | ET Online | Updated: May 05, 2018, 12.32 PM IST | Economic Times
Buying that dream home can be rather tedious process that involves a lot of research and running around.
First of all you will have to visit several builders across various locations around the city to zero in on a house you want to buy. After that comes the time to finance the purchase of your house, for which you will most probably borrow a portion of the total cost from a lender like a bank or a home finance company.
However, scouting for a home loan is generally not a well thought-out process and most of us will typically consider the home loan interest rate, processing fees, and the documentary trail that will get us the required financing with minimum effort. There is one more important factor you should consider while taking a home loan and that is the type of loan. There are different options that come with various repayment options.
Other than the plain vanilla home loan scheme, here are a few other repayment options you can consider.
I. Home loan with delayed start of EMI payments
Banks like the State Bank of India (SBI) offer this option to its home loan borrowers where the payment of equated monthly instalments (EMIs) begins at a later date. SBI’s Flexipay home loan comes with an option to go for a moratorium period (time during the loan term when the borrower is not required to make any repayment) of anywhere between 36 months and 60 months during which the borrower need not pay any EMI but only the pre-EMI interest is to be paid. Once the moratorium period ends, the EMI begins and will be increased during the subsequent years at a pre- agreed rate.
Compared to a normal home loan, in this loan one can also get a higher loan amount of up to 20 percent. This kind of loan is available only to salaried and working professionals aged between 21 years and 45 years.
Watch outs: Although initially the burden is lower, servicing an increasing EMI in the later years, especially during middle age or nearing retirement, requires a highly secure job along with decent annual increments. Therefore, you should carefully opt for such a repayment option only if there’s a need as the major portion of the EMI in the initial years represents the interest.
II. Home loan by linking idle savings in bank account
Few home loan offers such as SBI Maxgain, ICICI Bank’s home loan ‘Overdraft Facility’ and IDBI Bank’s ‘Home Loan Interest Saver’ allows you to link your home loan account with your current account that is opened along with. The interest liability of your home loan comes down to the extent of surplus funds parked in the current account. You will be allowed to withdraw or deposit funds from the current account as and when required. The interest rate on the home loan will be calculated on the outstanding balance of loan minus balance in the current account.
For example, on a Rs 50 lakh loan at 8.5 percent interest rate for 20 years, with a monthly take home income of say Rs 1.5 lakh, the total interest outgo for a plain vanilla loan is about Rs 54,13,875. Whereas, for a loan linked to your bank account, it will be about Rs 52,61,242, translating into a savings of about Rs 1.53 lakh during the tenure of the loan.
Watch outs: Although the interest burden gets reduced considerably, banks will ask you to pay that extra interest rate for such loans, which translates into higher EMIs.
III. Home loan with increasing EMIs
If one is looking for a home loan in which the EMI keeps increasing after the initial few years, then you can consider something like the Housing Development Finance Corporation’s (HDFC) Step Up Repayment Facility (SURF) or ICICI Bank’s Step Up Home Loans.
In such loans, you can avail a higher loan amount and pay lower EMIs in the initial years. Subsequently, the repayment is accelerated proportionately with the assumed increase in your income. There is no moratorium period in this loan and the actual EMI begins from the first day. Paying increasing EMI helps in reducing the interest burden as the loan gets closed earlier.
Watch outs: The repayment schedule is linked to the expected growth in one’s income. If the salary increase falters in the years ahead, the repayment may become difficult.
IV. Home loan with decreasing EMIs
HDFC’s Flexible Loan Installments Plan (FLIP) is one such plan in which the loan is structured in a way that the EMI is higher during the initial years and subsequently decreases in the later years.
Watch outs: Interest portion in EMI is as it is higher in the initial years. Higher EMI means more interest outgo in the initial years. Have a prepayment plan ready to clear the loan as early as possible once the EMI starts decreasing.
V. Home loan with lump sum payment in under-construction property
If you purchase an under construction property, you are generally required to service only the interest on the loan amount drawn till the final disbursement and pay the EMIs thereafter. In case you wish to start principal repayment immediately, you can opt to start paying EMIs on the cumulative amounts disbursed. The amount paid will be first adjusted for interest and the balance will go towards principal repayment. HDFC’s Tranche Based EMI plan is one such offering.
For example, on a Rs 50 lakh loan, if the EMI is xx, by starting to pay the EMI, the total outstanding will stand reduced to about Rs 36 lakh by the time the property gets completed after 36 months. The new EMI will be lower than what you had paid over previous 36 months.
Watch outs: There is no tax benefit on principal paid during the construction period. However, interest paid gets the tax benefit post occupancy of the home.
VI. Home loan with longer repayment tenure
ICICI Bank’s home loan product called ‘Extraa Home Loans’ allows borrowers to enhance their loan eligibility amount up to 20 per cent and also provide an option to extend the repayment period up to 67 years of age (as against normal retirement age) and are for loans up to Rs 75 lakh.
These are the three variants of ‘Extraa’.
a) For middle aged, salaried customers: This variant is suitable for salaried borrowers up to 48 years of age. While in a regular home loan, the borrowers will get a repayment schedule till their age of retirement, with this facility they can extend their loan tenure till 65 years of age.
b) For young, salaried customers: The salaried borrowers up to 37 years of age are eligible to avail a 30 year home loan with repayment tenure till 67 years of age.
c) Self-employed or freelancers : There are many self-employed customers who earn higher income in some months of the year, given the seasonality of the business they are in. This variant will take the borrower’s higher seasonal income into account while sanctioning those loans.
Watch outs: The enhancement of loan limit and the extension of age come at a cost. The bank will charge a fee of 1-2 per cent of total loan amount as the loan guarantee is provided by India Mortgage Guarantee Corporation (IMGC). The risk of enhanced limit and of increasing the tenure essentially is taken over by IMGC.
VII. Home loan with waiver of EMI
Axis Bank offers a repayment option called ‘Fast Forward Home Loans’ where 12 EMIs can be waived off if all other instalments have been paid regularly. Here. six months EMIs are waived on completion of 10 years, and another 6 months on completion of 15 years from the first disbursement. The interest rate is the same as that for a normal loan but the loan tenure has to be 20 years in this scheme. The minimum loan amount is fixed at Rs 30 lakh.
The bank also offers ‘Shubh Aarambh Home Loan’ with a maximum loan amount of Rs 30 lakh, in which 12 EMIs are waived off at no extra cost on regular payment of EMIs – 4 EMIs waived off at the end of the 4th, 8th and 12th year. The interest rate is the same as normal loan but the loan tenure has to be 20 years in this loan scheme.
Watch outs: Keep a tab on any specific conditions and the processing fee and see if it’s in line with other lenders. Keep a prepayment plan ready and try to finish the loan as early as possible.
Nature of home loans
Effective from April 1, 2016, all loans including home loans are linked to a bank’s marginal cost-based lending rate (MCLR). Someone looking to get a home loan should keep in mind that MCLR is only one part of the story. As a home loan borrower, there are three other important factors you need to evaluate when choosing a bank to take the loan from – interest rate on the loan, the markup, and the reset period.
What you should do
It’s better to opt for a plain-vanilla home loan as they don’t come with any strings attached. However, if you are facing a specific financial situation that may require a different approach, then you could consider any of the above variants. Sit with your banker, discuss your financial position, make a reasonable forecast of income over the next few years and decide on the loan type. Don’t forget to look at the total interest burden over the loan tenure. Whichever loan you finally decide on, make sure you have a plan to repay the entire outstanding amount as early as possible. After all, a home with 100 per cent of your own equity is a place you can call your own.
Banks and NBFCs follow different guidelines when it comes to lending and, thus, home loans disbursed by them are also done on certain different parameters. Here’s all you need to know.
By: Adhil Shetty | Published: May 3, 2018 1:03 PM | Financial Express
When buying a house, we all want to get the best deal on the home loan we avail as it is probably the longest financial commitment we will make impacting our overall portfolio and expenses. However, deciding on the right financial institution to avail the loan from is a rather tricky task, given the market is competitive.
With the rise of non-banking financial corporations (NBFCs) in India, the choice has only gotten wider as customers can now choose not only among banks, but also NBFCs. But did you know that availing a home loan from a bank and an NBFC may seem similar, but work in very different ways?
Banks and NBFCs follow different guidelines when it comes to lending and, thus, home loans disbursed by them are also done on certain different parameters. Find out how these two differ when it comes to assessing an individual for a home loan and which one can you resort to for your home loan.
1. Interest Rates: MCLR vs PLR
Banks operate their housing loan interest rates based on Marginal Cost of Lending Rate (MCLR), which serves as their lending benchmark and is closely monitored by the RBI. On the other hand, loans by Housing Finance Companies (HFCs) and NBFCs are not linked to the MCLR. They are linked to the Prime Lending Rate (PLR), which is outside the ambit of the RBI. So while banks can’t lend at rates below the MCLR, PLR-linked loans do not have such restrictions.
Banks have both floating and fixed rates, of which before only floating rates felt the occasional impact of MCLR. But in February this year it was announced by the RBI that all new loans whether with floating interest rates or base rates will be linked to the MCLR.
An MCLR-linked loan clearly mentions the intervals at which its interest rate will automatically change. In a falling interest rate scenario, this allows customers to receive RBI-mandated rate cuts in a transparent, time-bound manner.
As NBFCs and HFCs are free to set their PLR, it gives them greater freedom to increase or decrease their loan rates as per their selling requirements. This sometimes suits customers and provides them more options, especially when they fail to meet the loan eligibility criteria of banks. But in many cases, for those who easily meet the criteria this may also result in inflated interest rates compared to banks.
2. Loan Eligibility via Credit Score
As paperless financial technology takes prominence, more and more lenders are depending on credit scores to determine loan eligibility. While there are upper caps set on interest rates through MCLR and PLR, the actual interest rate you pay on your loan is linked to your credit score. Leading lenders are known to offer their best rates to customers with a CIBIL score of 750 or more.
While both banks and NBFCs consider credit scores carefully, NBFCs tend to have more relaxed policies towards customers with low credit scores. However, with a very low score, both banks and NBFCs will likely charge you a higher interest rate. In some cases, banks may ask to convert the home loan into a secured loan by mortgaging some asset if the credit criteria is not met, but you still need the loan.
A customer with a low score can in fact start with a loan from an NBFC. Through timely repayment, s/he can improve his credit score. After this, once the bank’s eligibility criteria is met, the loan balance can be transferred to a bank.
To keep yourself ready, make sure to access credit reports by CIBIL or Experian. This will allow you to be ready even before you approach a lender. Since credit scores change every quarter, you can take your time to improve it before you decide to avail the loan in order to get a better rate of interest and disbursal amount.
3. Loan Amount
The actual cost of property is never just the selling price promoted by developers and builders. During acquisition it typically goes up as other costs like stamp duty, registration, an assortment of payments towards brokerage, furnishing, repairs and more always add up. Based on where you are in India, you may have to pay between 3 and 11 per cent of the property value as registration cost alone.
Banks are allowed to fund up to 80% of a property’s value. For example, if you are buying a property worth Rs 50 lakh, you may receive a loan of Rs 40 lakh from banks excluding the registration cost and associated charges of course. The rest of the fund requirements would have to be met by you and often these last mile costs weigh heavily on the final decision to buy a property.
Although both NBFCs and banks are not allowed to fund stamp duty and registration costs, NBFCs can include these costs as part of a property’s market valuation. This allows the customer to borrow a larger amount as per his eligibility.
4. Pre-Payment, Foreclosure and Late Payment Charges
Just like other loans, home loans also have associated charges attached. Both banks and NBFCs will have charges for pre-payment and foreclosure but NBFCs tend to charge much higher. In addition, late payment charges by NBFCs may sometimes be close to 10 or 20% of your monthly EMI, giving you no respite in case you default on any payment. NBFCs also tend to have higher processing fees, although some banks may charge similar amounts.
Whoever the lender may be, make sure to calculate you future interests and factor in additional costs associated with your repayment as home loans range between 10 and 30 years and you may have to bear such high charges in future.
(The writer is CEO at Bankbazaar.com)
By Sunil Dhawan, ET Online | Updated: Apr 05, 2018, 06.29 PM IST | Economic Times
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.
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.
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.
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.
G BALACHANDAR | Published on April 04, 2018 | The Hindu Business Line
But delinquencies are also on the rise
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.
ET CONTRIBUTORS | By Raj Khosla | Mar 12, 2018, 02.30 PM IST | Economic Times
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.
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.
Currently, banks can decide their own benchmark lending rate, the MCLR. What if your loan was linked to a benchmark set by a third-party? Will you get a better deal?
Vivina Vishwanathan | Last Published: Tue, Mar 13 2018. 08 33 AM IST | LiveMint
India has floating home loans that become expensive as soon as the interest rates go up, but don’t float down when the rates fall. This happens because the banking regulator allows banks to peg their home loan rates to a benchmark that the banks themselves control—allowing them to benefit when they choose to, at the cost of you, the retail borrower. But it looks as if competition is finally arriving in this segment with a new home loan product from Citibank India, which uses a third-party benchmark. Here, we examine if such a thing is good for you or not. But first, some background.
Several times, the Reserve Bank of India (RBI) in its monetary policy review has flagged the issue of rate cut benefits not being passed on to retail customers. It has tried thrice to rationalize the benchmark lending rate linked to home loans, in a way that there is transparency and the benefits are passed on to consumers.
In the last 7 years, we have also seen home loans move through three benchmark rates—from benchmark prime lending rate (BPLR) to base rate in 2010 and then to marginal cost of funds based lending rate(MCLR) in 2016. However, none of these attempts seem to have worked and the desired goal of transparency in loan rates has still not been delivered.
Last year, during a monetary policy announcement, RBI governor Urjit Patel indicated that MCLR could be reviewed as the rate transmission to customers continued to be slow. While the banking regulator waffles on this, Citibank has come out with a home loan product that is linked to 3-month treasury bills (T-Bills).
Is it allowed to do this? “RBI permits banks to link their variable rate home loans to MCLR, provide fixed-rate loans, semi-fixed-rate loans or (even) link their loans to an external benchmark,” said Rohit Ranjan, head of secured lending, Citibank India. This is not the first time a bank has linked its home loan product to an external benchmark. ING Vyasa Bank Ltd, in 2005, had a home loan product that was linked to Mumbai Inter-Bank Offer Rate (Mibor) (you can read more about it here). Let’s understand the home loan products linked to T-Bills and see if you should opt for them.
Citi’s new home loan product is linked to the 3-month Government of India T-Bill benchmark. It is an external reference rate. Citi has decided to pick this data from the Financial Benchmarks India Pvt. Ltd (FBIL), which is a company that aims to develop and administer benchmarks relating to money market, government securities and foreign exchange in India.
How is the data for this benchmark arrived at? According to FBIL, it is based on T-Bills traded in the market. The benchmark rate is announced everyday at 5.30pm, except on holidays.
It is calculated from the data of secondary market trades executed and reported up to 5pm on the Negotiated Dealing System – Order Matching Platform (NDS-OM)—which is an electronic system for trading government securities in the secondary market. All trades of Rs5 crore or more, and having had a minimum of three trades in each tenure are considered. The benchmark T-Bill data is then published for seven different tenures: 14 days, 1 month, 2 months, 3 months, 6 months, 9 months and 12 months.
So that there is consistency, the bank has decided to pick the rate published on 12th day of each month. “Our endeavour is to provide as much stability as possible on rates to our customers. We believe a date towards the middle of the month best suits this objective,” said Ranjan. Usually, the RBI too comes out with its bi-monthly monetary policy in the first week of the month.
As this home loan product will be linked to 3-month T-Bill data, its reset clause will also be set for 3 months. This means, every 3 months your home loan interest would change based on movements in the external benchmark rate.
Is a 3-month T-Bill benchmark appropriate for 20-30 year loans? In a developed market such as the US, mortgages are linked to longer duration benchmark rates. “Linking long-term loans to longer-duration benchmark rates is more appropriate to the extend that it is based on duration. But at the same time in the US, for example, mortgages tend to be fixed. Then it makes sense to link to longer term loan. In case of Citi’s home loan product, the reset is more frequent and linking to a long-term rate may not be appropriate. It is just a strategy,” said R. Sivakumar, head, fixed income, Axis Mutual Fund.
The home loan also comes with a spread. In this case, it is around 200 basis points, plus T-Bill. The 200 basis points can vary depending on your credit profile. “As of today, home loan rate linked to t-bills will be around 8.5%….If your credit profile is good, then the spread could be lower,” said Ranjan. Remember that the spread that you agree to while signing a loan agreement will not be changed till the end of loan tenure.
How T-Bill is different
The RBI has said many times that there is no transparency in the way floating interest rate on home loans is calculated, and that there is need for a benchmark rate that is market linked so that any change in policy rates can be passed on to the consumers. Usually, banks keep the rates high even in a falling interest rate regime and you don’t see an immediate impact or cut in policy rates. To understand if home loans linked to T-Bills will bring in transparency, we compared T-Bills with MCLR and base rate. If you look at both comparisons, the drop in interest rates linked to MCLR as well as base rate come with a lag. If the home loan rates are linked to T-Bills, the reflection on falling interest rate is likely to be immediate on your home loan. The movement in T-Bill yields is a result of two parameters—repo rate and liquidity. Hence, if it is a falling interest rate regime, the fall will reflect faster in your loan rates.
Currently, when your home loan is linked to MCLR, the impact on your home loan rate is also a result of the banks’ cost of funds and other parameters associated with the bank that you take the loan from.
What should you do?
The concept of linking home loans to an external benchmark rate (instead of an internal one) is a good idea, as it makes the process transparent. Typically, banks have some leeway in controlling their rates. An external rate should obviate such a possibility.
However, is it possible for banks to manipulate the external benchmark too? “It is very difficult, since the cut off rate is decided by RBI. The central bank has the ability to manipulate it but a market participant can’t since it is a big and liquid market,” said Sivakumar.
As of now, the interest rate on home loans that is linked to T-Bills and MCLR are similar, due to the spreads attached to each one of them. A Citi home loan linked to MCLR has a spread of 40 basis points while the one that is linked to the T-Bills would have a spread of 200 basis points. Experts say that interest rates linked to an external benchmark will bring transparency and hence will help you to benefit more from falling interest rates.
“The rate will fall as well as rise faster. In T-Bills you will see a decrease before the MCLR decreases. There will be periods where the rates will lead or lag each other. But over the life cycle of the mortgage, say 20 to 30 years, the difference should not be huge, assuming the spread of 200 basis points,” said Sivakumar.
Currently, there have been signals of a higher interest rate regime kicking in. Hence, you may not benefit from T-Bill rates immediately. “The experience with base rate and MCLR has been that the rates tend to fall much more slowly when policy rates are falling. The moment you have an external benchmark, and there is no bank controlling it, the loan will be far more transparent and you are better off having that— especially when rates are falling,” said Vishal Dhawan, a Mumbai-based financial planner.
But what about the 200 basis point spread? “The spread is a function of what you end up believing is the cost of running a business. Ultimately, the bank will also be raising resources, which is not necessarily linked to 3-month T-Bill rate. It will be unfair to believe that the cost of fund for the bank is only the 3-month T-Bill rate and the spread is too much. The value will become far more evident when the rate cycle turns again and rates go down—right now it may not make a big difference,” added Dhawan.
As a borrower, however, you now have an option to pick a home loan based on an external benchmark. If it doesn’t work for you, you always have the option to switch to an MCLR-linked home loan.
A high credit score certainly boosts the chances of your loan approval. However, if you fail to qualify on other parameters, even your high credit score will not help.
Published: March 14, 2018 4:37 PM | Financial Express
A high credit score certainly boosts the chances of your loan approval. However, it doesn’t guarantee it. Credit score is just one of many parameters used for credit approval by lenders. If you fail to qualify on other parameters, even your high credit score will not help. Here are the some of the most common reason why loan applications are rejected despite a good credit score:
1. Minimum income eligibility: Most lending products have minimum income criteria for loan applicants. Lenders may also set varying income eligibility criteria depending on your location, i.e. metro, urban, semi-urban and rural areas. As this is often the first filter that lenders apply for processing loan applications, those who fail to meet this criterion are usually rejected outright, even without the consideration of other eligibility factors, such as credit score and EMI affordability. As this criterion may vary across lenders, visit online lending marketplaces to find out the loan options available to you basis your monthly income.
2. Age: Most lenders cap the age of loan applicants at 60 years. This is because monthly incomes usually dip after retirement, which increases of the risk of default. Some credit products may also cap the age by which the repayment has to be completed. For example, most lenders require the borrowers to complete their home loan and loan against property repayment before they turn 70. Those who fail to meet these requirements may have their loan applications rejected. If you too are approaching your retirement age, improve the chances of loan approval by making your spouse or employed children your co-applicants.
3. Frequent job changes: Nowadays it is quite common to frequently change jobs for better career prospects and higher income. However, frequent job changes is considered as a sign of an unstable career and hence, job hoppers are regarded as less creditworthy, especially for longer tenured loans like home loans and loan against property. If you too are planning to avail a longer tenured loan, avoid job changes for some time.
4. Guarantor of other loan: Whenever you become a guarantor to someone else’s loan, you become equally liable for its repayment. Hence, during fresh loan application, lenders will reduce your loan eligibility by the amount of outstanding loan guaranteed. This might lead to the rejection of your loan application. As banks do not allow changes in guarantor(s) unless requested by the borrower himself, ask the primary applicant of the loan to find another guarantor as your replacement.
5. High FOIR: Fixed obligation to income ratio (FOIR) is the proportion of your total income which goes out as EMIs (including the EMI for the new loan application) and other repayment obligations like house rent, insurance premiums, etc. As lenders prefer to lend to those with FOIR of 40-50% or lower, those exceeding it may have their loan application rejected. Hence, those with higher FOIR should prepay their existing loans in whole or part to increase their loan eligibility. Alternatively, opt for lower EMI for the new loan if that contains your FOIR within 40-50%.
6. Job and employer’s profile: Many lenders also consider your job description and/or your employer’s profile while processing your loan application. Lenders prefer government employees and those working with top corporates and MNCs the most due to their higher job certainty, whereas those working with lesser-known or financially-strained companies are less preferred. Employees with hazardous job profile have lower loan approval chances. Consider loans from NBFCs if banks reject your loan application due to your job or employer’s profile.
(By Naveen Kukreja, CEO & Co-founder, Paisabazaar.com)
Don’t see property prices going up for now: Renu Sud Karnad, Managing Director, HDFC
ANIL URS | Published on March 14, 2018 | The Hindu Business Line
BENGALURU, MARCH 14
Renu Sud Karnad, Managing Director, HDFC, in an interview with BusinessLine, explains how the realty and home-loan sectors are shaping up as the new regulatory regime sets in. Excerpts:
How is the property market doing pan-India?
Apart from New Delhi and Chennai, where we see slow offtake, the market is good in other major cities. By good I mean, we are doing good business.
How do you see property prices moving?
As I see it now, I don’t see any increase in property rates happening.
What about interest rates, especially in the wake of rising bond rates?
Yes. Interest rates are rising a little bit. But let me put it this way. I don’t think the rates are going to come down. I think next year we will see a quarter to 1 per cent increase in rates.
Is this rise in rates low, or how do we understand it?
A quarter to half a per cent is nothing when compared to the high interest rate days, when home loans were going at 13-14 per cent. Now they are at 8.3-8.4 per cent. So they may go up to 8.9-9 per cent.
How is HDFC’s home loan growth?
At 23 per cent, our home loan growth is excellent. We have seen good growth coming from Mumbai, Bengaluru, and Pune. In the National Capital Region (NCR) it is a little slow. Otherwise, home loan growth normally is about 15-18 per cent.
Are any banks on your radar for acquisitions?
We are always on the look out whenever an opportunity arises.
How far are you in picking up CanFin Homes?
Actually, you should ask them, because five to six people are talking to them. I don’t know what pressure of time they have and don’t know when they need to announce it. Yes, we are also talking to them.
Have you firmed up your business plan for the next fiscal (2018-19)?
We are in the process. But I can tell you we are looking at 15-18 per cent growth.
How is the borrowing by property developers?
They, I think, are now looking at new avenues. PE funds are giving them money. Banks have also started to explore. Once the sector gets used to new regulatory framework, we could see good amount of lending.
Definitely the last one year had been challenging from them. But I think in the next six months, things should settle down.
PTI | March 5, 2018 | India Today
Mumbai, Mar 5 (PTI) Even as rivals continue to be reluctant about adopting external benchmarks for setting lending rates, American lender Citi today launched the countrys first market benchmark rate-linked lending product.
The bank has introduced a home loan product that will be linked to the rate of treasury bills, which is used by government for its short-term borrowings.
The lender, which already has similar external benchmark-linked products in other markets like the US and Singapore, said it does not see any impact on net interest margin (NIM), a key determinant of profitability, because of the launch of the product where a borrowers rates will be reviewed every three months.
Frustrated at poor transmission of its policy moves into lending rates for borrowers, the Reserve Bank had last October mooted the idea of moving to a market-linked benchmark and suggested three such instruments, including the T-bills rate, the rate for certificate of deposits and its own repo rate to determine the interest rate.
Bankers, led by their lobby grouping Indian Banks Association, had opposed such a move, claiming that the existing marginal cost of funding based lending rates is working well and also pointed out that deposits are not linked to any market benchmark.
Citis country business manager for global consumer banking Shinjini Kumar, said a shift to a market benchmark like the T-bill is transparent, simple and will also help with better transmission.
Loans will be sold at a fixed spread above the T-bill rate which will be maintained throughout the loan tenure, she said, adding there will be quarterly readjustments for the borrower.
There will be a range of spread above the T-bill rate which the bank will follow, its head of secured lending Rohit Ranjan said, adding the average spread will be 2 percentage points. Existing customers will also be able to move to the new product without any refinancing costs, he added.
The banks country treasurer Badrinivas NC sought to downplay concerns surrounding customers being exposed to T- bill rate volatilities, which may happen due to external events like the taper tantrum in 2013 and hinted that the rates also reflect the policy decisions at a particular point of time which get captured through the quarterly resets.
He said the bank has a diversified liability profile, including a high 60 per cent composition on the low-cost current and savings account deposits and also other retail term deposits, which will make it possible for it to offer such a product.
The bank feels the RBI will be on a long pause and may go for a hike in rates only if there is a surge in inflation, he said.
In a few cases, especially concerning top corporates, the bank has been benchmarking rates against market benchmarks but those were deals done on a one-on-one basis, and this is the first time that any lender is going to the market with such an offering, Kumar said.
The bank had a gross home loan book of Rs 9,000 crore, while the overall India book stood at Rs 57,000 crore as of December 2017. Even as rivals struggle with dud assets, its NPAs on the mortgage lending is a healthy 0.05 per cent, the bank said.
Commenting on the recent changes in priority sector lending (PSL) requirements for foreign banks, Kumar said Citi is already compliant on PSL requirements, including the sub- categories and in some cases it uses priority sector lending certificates.
The bank will be resorting to use of digital technologies and tying up with partners to comply with the new requirements, she said. PTI AA BEN BEN SDM
Sidhartha | Updated: Mar 1, 2018, 17:41 IST | Time of India
NEW DELHI: Several lenders, including State Bank of India, ICICI Bank and Punjab National Bank on Thursday announced an increase in lending rates, a move that may make your home loans a little expensive.
The hikes come amid tightening liquidity or cash supply in the banking system, accentuated by the year-end rush that prompted SBI, the country’s largest lender, to raise deposit rates by up to 50 basis points for retail borrowers.
On Thursday, SBI increased its marginal cost of lending rate, which is linked to the interest rate on funds raised by a bank, by 20 basis points (8.15% from 7.95%).
Like SBI, starting March 1, ICICI Bank and PNB increased their MCLR but by a slightly lower magnitude of 15 basis points. Some lenders such as HDFC Bank will review rates next week.
Typically, while extending a home loan, banks keep a spread over the MCLR which results in a higher interest rate on these loans. PNB said that its home loans will cost 8.6% for most borrowers, while women will get it at 8.55%.
SBI has a spread of 40 basis points over the MCLR for most borrowers and 35 basis points for women borrowers (100 basis points equal a percentage point).
While the government has been seeking a lower interest rate and has repeatedly prodded the Reserve Bank of India to pare policy rates, the central bank has resisted a softer interest rate regime, arguing that there is a risk of higher inflation given the recent rise in global crude petroleum prices as well as the impact of domestic measures such as higher allowances for government employees following implementation of the seventh pay commission recommendations. Besides, it has pointed to higher food prices to refrain from cutting policy rates.
With economic growth picking up, RBI may not move that path now and last month the government’s chief economic adviser Arvind Subramanian had acknowledged that the scope to lower rates may have narrowed.
After a few hikes in marginal cost based funding rate (MCLR) by some banks in past two months, banks first raised the rates on bulk deposits.
Nikhil Walavalkar | Mar 01, 2018 01:13 PM IST | Source: Moneycontrol.com
The largest public sector bank in India – State Bank of India – has decided to increase the interest rate payable on retail deposits, followed by an increase in MCLR (marginal cost of funds-based lending rate) – the rate charged on loans – by up to 20 basis points. As the largest lender revises its interest rates, should you be worried with your financial plan?
Before getting into corrective measures and means to exploit the rate action, you should spend a minute understanding why rates have gone up.
“Towards the end of the financial year the liquidity in the market has gone down. The banks are keen to raise money. The rates are hiked as a lagged response to the rising bond yields,” said Mahendra Kumar Jajoo, head – fixed income, Mirae Asset Management.
For the uninitiated, the benchmark 10-year bond yield has moved up to 7.78 percent from a low of of 6.18 percent on December 7, 2016.
Banks typically take time to raise their fixed deposit rates. After a few hikes in MCLR by some banks in past two months, banks first raised the rates on bulk deposits. Now interest rates on retail fixed deposits are being hiked. This is a sign of relief for most fixed deposit investors who were forced to consider investing in the volatile stock markets through mutual funds.
Though the interest rate hike on fixed deposits is good news for conservative investors, one should not expect fireworks in the form of aggressive rate hikes in near future.
“As of now the liquidity tightening is the cause behind the fixed deposit rate hikes. RBI has maintained its neutral stance on the monetary issues. This may change to hawkish over next six months,” said Joydeep Sen, founder of wiseinvestor.in, a Mumbai-based wealth management firm.
Though the interest rates are set to go up and others are expected to follow SBI, the process of rate hikes will be gradual. “Bank fixed deposit investors may see higher rates over next six to twelve months. You can consider opting for six months to one year fixed deposits and rolling it over at higher rates when they mature,” Sen advised.
Rising interest rates, however, ring alarm bells for both bond fund investors and borrowers. The increase in yield suppresses the prices of bonds and thereby hurts investors in bond funds as net asset values of the bond funds go down. Recent spike in bond yields have taken a heavy toll on bond funds. Long term gilt funds lost 2.1 percent over past three months, on an average.
The prevalent bond yields are a result of the market discounting RBI’s hawkish stance one year down the line, according to experts. Although opinions are divided on the extent of a further surge in yields, there seems to be a consensus when it comes to volatility in the bond market.
If you are not comfortable with the volatility, you should stay away from long-term bond funds and income funds that invest in longer-term paper.
“Short term bond funds are good investment option at this juncture as they invest in bonds maturing in two to three years, where the yields are attractive,” said Jajoo. If you are comfortable with some amount of volatility and expect a sideways move in yields, you may consider investing in income funds and dynamic bond funds.
While fixed income investors see a mixed bag in the rising interest rate regime, borrowers, especially those on floating rate liabilities, are expected to see tough times ahead. The banking sector is undergoing a situation of extreme pressure on margins due to an increase in non-performing assets like never before.
The rise in yields and fixed deposit rates will ensure that banks will be forced to raise their MCLR. This will result in an increase in the floating rate for home loan borrowers. For example, if you have a Rs 50 lakh home loan for 15 years and the rate is hiked to 8.45 percent from 8.25 percent, then the EMI changes to Rs 49,090 from Rs 48,507, an increase of Rs 583. You may ascertain the possible impact on you using EMI calculator.
“Other banks will definitely follow the MCLR hike action of SBI. The rates on home loans may be hiked by the end of this month or in early April,” said Sukanya Kumar, founder of RetailLending.com.
Banks may postpone their rate hikes to attract home loan volumes and close the financial year with good numbers. But home loan borrowers should be prepared to pay higher EMIs in the near future.
Rates will be revised depending on the MCLR time frame. For example, if your home loan is linked to 6-month MCLR, you can expect rates to change after six months from the last reset. The 6-month MCLR prevalent at that time will be applicable to your home loan at the time of reset.
If interest rates continue their journey northward, cash flows do change for you. Account for them well in advance to ensure that you do not get caught off guard.
By Vishwas Mudagal|Feb 27, 2018, 06.17 AM IST | Economic Times
Someone once asked me, “What is the biggest hindrance to entrepreneurship?” I replied that there are many, but the key reason is a home loan. He was surprised. I’m sure you are too, but let me explain the correlation.
As a child, from the time we start school, we are told to score well in exams so that we can get admission in a good college. Once we enter college, we are told to work towards getting a good campus placement. Once you get married, they want you to have a child. Once you have a child, they say, “One is not enough! Have a second one.”
Between the push to take up a job, get married and have children, people also ask you, “Do you have your own apartment?” Saying that you don’t is not an acceptable answer. They make you feel that if you don’t have a house of your own, you are worthless. Such is the pressure from parents, relatives and acquaintances that you eventually succumb to the constant nagging and buy yourself an apartment.
To buy this house, you take a loan and commit yourself to paying a large amount as EMI for the next 20-25 years. Here is where your ability to take risks goes for a toss.
It’s not easy to quit a job and launch your own venture when you are servicing a home loan EMI. You need a fixed inflow of money every month to ensure that the EMI cheque does not bounce. Your dreams go out of the window.
Now, do you get the correlation between home loans and entrepreneurship?
When someone asks me, “What does it take to become an entrepreneur?” I just tell them one thing: It requires a lot of courage and the ability to face failures and bounce back.
There is nothing wrong with buying your own house, but don’t do it just because society expects you to. Remember, if you take a home loan early in your career, you would find it extremely difficult to take risks. But if you take risks early in your career and become an entrepreneur, you may never need a loan to buy your dream house.
Society has created a system to produce people who blindly follow the tide. It’s time to break away from dogma and do what you love. Have the courage to find your passion and follow it. Don’t waste your time on thinking about what “those four people” will say about you. You have one life, make it worth it.
(The author is an angel investor and CEO of Goodworklabs AND Goodworks Cowork)
A prudent borrower will plan it wisely to make his home loan EMIs affordable.
Ravi Kumar Diwaker | Magicbricks | February 23, 2018, 18:21 IST
Home loan is a long-term financial commitment and it is important to ensure your EMIs are within your budget and do not impact your monthly income. It is seen as a financial burden which has to be planned very carefully.
A prudent borrower will plan it wisely to make his home loan EMIs affordable. Often, home buyers choose a long-term home loan in order to pay a lower EMI but end up paying more interest.
These easy steps can help you reduce the total interest on your home loan.
Buyers should choose a short-term for their home loans as it ensures a reduced long-term financial commitment. A 15-year loan is better than a 20-year home loan as it results in a lower interest rate on your total amount. Your monthly EMI may be higher but interest will be less. A short-term tenure means the principal amount of your loan is paid faster leads to lower interest rate because interest is calculated on the outstanding principal amount.
Reduce interest rate
You must always choose the lowest interest rate home loan and go ahead with refinancing of your loan if your interest rate is coming down.
Pay the principal
Make sure that you are paying the principal as quickly as possible as the lesser principal amount means lesser interest to be paid to the bank. If you have extra cash in hand then try to give it to the bank and get your principal amount reduced. Some buyers do that so that the EMI interest can come down.
More than one EMI
You can also pay more than one EMI every year. This will reduce your loan tenure and interest cost as well. It is very important to calculate your finances based on your income. It will make you pay more but ultimately you will be benefited.
With rise in your salary, you can choose to pay a higher amount of EMI. It is good to reduce your home loan interest burden. You can calculate the interest rate as per your home loan amount, tenure and interest to find out how much amount you are paying less by this step.
Compare interest rates
Banks will not reduce the interest rate to the existing home loan borrowers till you go there and ask them to do it and fill a form for the same. If your existing bank does not reduce the interest rate then find out which bank is offering you lower interest rate and get your loan refinanced. You must also find out the charges for switching the loan before going ahead with refinancing.
These are some tips for home loan borrowers to help them reduce the burden of home loans. The government is already giving the CLSS benefit to buyers purchasing affordable homes. You can also opt for that so you pay less amount of EMI. A short-term loan may reduce your interest payout but it will increase your EMI and may impact your monthly income. You need to choose the EMI amount that is affordable to your pocket.
RADHIKA MERWIN |Published on January 8, 2018 | Business Line
Despite a weak start, industry expects better response to PMAY(U) in FY19
January 8, 2018: In Budget 2018-19, the Centre may have to redo its math on the allocations to the interest subvention scheme on housing loans.
While the credit-linked subsidy scheme (CLSS) under the Pradhan Mantri Awas Yojana (Urban) [or PMAY(U)] for the middle-income group (MIG) is off to a weak start, the number of beneficiaries for the economically weaker section (EWS) and low-income group (LIG) has shot up in the past year.
MIG beneficiaries numbered a mere 9,944 and received a subsidy of ₹204.6 crore till date, Union Minister Hardeep Singh Puri told the Lok Sabha last month. However, Budget 2017-18 had allocated a larger sum of ₹1,000 crore as interest subsidy for MIG beneficiaries.
Interestingly, the number of beneficiaries under CLSS for EWS and LIG — the beneficiaries originally envisioned under PMAY(U) — rose sharply from 17,634 in 2016 to over 53,000 accounts in 2017. The ₹400 crore earmarked in last year’s Budget for this segment appears to grossly fall short of the actual disbursement.
With industry players expecting a better response to the scheme in the middle-income category, too, the Centre could end up allocating a far higher amount for CLSS in the upcoming Budget.
In June 2015, the Centre had launched the CLSS under PMAY(U) for EWSs and LIGs. However, to placate the common man reeling under the impact of demonetisation, Prime Minister Narendra Modi had extended the scheme to middle-income home buyers.
Budget 2017-18 had reduced the allocation to the EWSs and LIGs to ₹400 crore from ₹475 crore in 2016-17, and instead, apportioned ₹1,000 crore to MIGs under the CLSS.
Given that a total of 80,680 beneficiaries have availed interest subsidy under the CLSS schemes for all categories until now, it would seem that a little over 53,000 EWS and LIG beneficiaries claimed interest subsidy in 2017.
This would imply a subsidy of around ₹1,300 crore disbursed against the budgeted ₹400 crore for the EWS and LIG category (assuming an average of ₹2.5 lakh per beneficiary).
The Centre had recently increased the eligible carpet area from 90 sq m to 120 sq m for MIG I and from 110 sq m to 150 sq m for MIG II.
“Based on the feedback given by industry players, the Centre has fine-tuned the scheme to cover more beneficiaries under the MIG scheme,” says Sriram Kalyanaraman, Managing Director & CEO, National Housing Bank (NHB).
He adds that there has been a significant step-up in the pace of construction of houses under the scheme, which should lead to more takers in 2018.
The NHB, one of the Central Nodal Agencies to channel the subsidy to lending institutions, has covered 42,481 accounts and disbursed ₹906 crore subsidy between April 2017 and 5 Jan 2018 under EWS and LIG.
Sudhin Choksey, Managing Director, Gruh Finance says: “The CLSS under PMAY (Urban) has been a vast improvement over the earlier schemes. Higher awareness and increase in supply of houses should see more beneficiaries being covered under the scheme”.
Gruh Finance continues to focus on the EWS and LIG segment, which constitutes 85 per cent of their loans. In 2017-18 (so far), it disbursed 25,768 loans, of which 40 per cent have availed of the interest subsidy under CLSS.
Source : https://goo.gl/PfV1mE
PTI | Updated: Jan 9, 2018, 16:01 IST | Times of India
MUMBAI: Even as a lot of thrust is being given to the affordable housing segment, a report has flagged concerns about the growing delinquencies in this segment, which are expected to continue in 2018.
Competitive pressures and larger exposure to the self-employed are the prime reasons for the build-up of stress in the segment, a joint report by Moody’s and its domestic affiliate Icra said today.
“While asset quality is expected to remain stable in the traditional housing segment, delinquencies could further build up in the affordable segment in the calendar year of 2018,” Icra’s structured finances head Vibhor Mittal said.
In a note on asset backed securities (ABS) co-written with its parent Moody’s, the report said gross-nonperforming assets in the affordable housing segment have inched up to 1.8 per cent as of September 2017.
The average cum 90+ days past due level for affordable housing was nearly seven times the level observed for traditional housing loan pools, it said.
Going into the reasons for the higher stress in the low ticket size loans, Mittal said, “this would be driven by factors like intensifying competition– resulting in some easing in lending standards — and a higher share of lending to the self-employed segment.”
It can be noted that the Modi government is targeting to ensure that there is a house for all by 2022 and has provided a lot of incentives for the affordable housing segment, including making it as a priority sector lending for banks and huge interest subvention and direct cash subsidy.
However, housing loans continue to be seen as the best performing retail loan asset class in the country, demonstrating low and stable delinquencies over the years, in 2018, it said.
This is possible because of the underlying collateral, which is self-occupied residential property, absence of steep correction in property prices and moderate loan to value ratios, the report said.
Moody’s said the impact of demonetisation and the implementation of the goods and services tax (GST) will lead to higher delinquencies in ABS for loans against property (LAP) to small and medium enterprises.
“Introduction of a GST in July 2017 and demonetization have placed stress on the SME sector,” Icra’s assistant vice- president Dipanshu Rustagi said.
The report also said auto ABS-backed by commercial vehicles loans will remain stable on the back of healthy domestic economic growth.
Icra said the microlending segment is on a “road to resurgence” after the note-ban setback with an increase in repayment rates to 94 per cent in September from the low of 87 per cent seen during December 2016 during the peak of the note-ban move.
By Babar Zaidi | ET Bureau|Jan 08, 2018, 06.30 AM IST | Economic Times
Most of us are aware of deductions available to a taxpayer on gross total income. The most well known are the deductions under Section 80C. Here are a few more breaks available under 80C and various other sections of the Income Tax Act that you can make the most of to further reduce your taxable income.
1. Education loan
If you have taken an education loan for yourself, your spouse or children, or a student you are legal guardian to, you can claim this deduction under Section 80E for the interest paid on the loan amount. The entire interest paid in a financial year is eligible for deduction without any limit. School tuition fees also qualify for tax benefit under Section 80C. The amount of tax benefit is within the overall limit of the section of Rs 1.5 lakh a year. For tax purposes, the fee lowers the total gross income of the taxpayer, which in turn, reduces the tax liability.
2. Medical insurance premium
The amount paid as medical insurance premium is eligible for deduction under Section 80D. The maximum deduction that can be claimed under this section is Rs 60,000, but there are many sub-limits. An individual can avail a maximum deduction of Rs 25,000 for premium paid for themself, their spouse or dependent children. An additional deduction of Rs 25,000 is allowed on premium paid for parents. If the policyholder is a senior citizen, the deduction limit is Rs 30,000. One can also claim a tax break of Rs 5,000 on preventive health checks.
3. Home loans
- Repayment of the principal amount of a home loan is allowed as tax deduction under Section 80C. This deduction is available irrespective of the year for which the payment has been made. The amount paid as stamp duty and registration fee is also allowed as a deduction under Section 80C.
- A tax break for payment of interest on home loans is allowed under Section 24. The maximum tax deduction allowed of a self-occupied property is Rs 2 lakh.
- Section 80EE provides for an additional deduction of Rs 50,000 for interest on home loans for first-time buyers. In this case, the loan amount should be below Rs 35 lakh and the value of the house should be lower than Rs 50 lakh.
4. Interest on savings account
Interest earned on savings bank account is allowed as deduction under Section 80TTA. The maximum amount that can be claimed is Rs 10,000. This does not mean that interest of up to Rs 10,000 is exempted income. You should show this amount as income from other sources in your ITR and then claim deduction under Section 80TTA.
Source : https://goo.gl/gUB5Ss
There are lock-in periods that need to be observed in case you have claimed deduction against repayment of home loan
Ashwini Kumar Sharma | Last Published: Mon, Jan 08 2018. 08 20 AM IST | LiveMint.com
There are various income tax sections under which you can claim deductions for expenses and investment incurred by you during the relevant financial years. Such deductions help you to bring down the taxable income for the respective fiscal and consequently reduce your tax liability.
However, in many cases, a lock-in period is specified—under the section of the Act as well as the instrument against which you may have claimed a deduction. If you fail to observe the lock-in period, the deductions that you availed can be revoked.
Let’s read more about the lock-in periods that need to be observed in case you have claimed deduction against repayment of home loan principal amount.
The deduction on home loan
If you take home loan for purchase or construction of a house, the capital repayment and interest paid on the home loan qualify for deduction under separate income tax sections. While principal repayment qualifies for deduction under section 80C of the Income-tax Act, 1961 and has an overall limit of Rs1.5 lakh a year, the interest payment on home loan qualifies for deduction under section 24(b) of the Act, with an overall limit of Rs2 lakh a year. There is an additional deduction of Rs50,000 for interest payment on home loans under section 80EE for the first-time homebuyers.
While there is no lock-in period for deduction claimed against interest payment on home loan under section 24(b) or 80EE, the section 80C(5) (relating to repayment of principal) of the Act stipulates that if you sell your house within 5 years from purchase or date of possession, the deduction claimed on principal repayment during previous years gets revoked. In this case, all the deductions claimed for home loan principal repayment under section 80C during the previous years too have to be clubbed together and added to income of the year of sale, and be taxed accordingly.
Let us assume you had bought a house in May 2014 with a home loan, and had claimed about Rs4 lakh under section 80C over the last 3 financial years—FY2014-15 to FY2016-17. If you sell the house now, the entire Rs4 lakh claimed earlier as deduction under section 80C will get added to your income for FY2017-18 and you will have to pay tax on the total income as per the income tax slab applicable to you.
Apart from home loan principal amount, the stamp duty and registration fee paid for registration of property also qualify for deduction under section 80C in the year of purchase. If you had claimed stamp duty and registration fee as deduction, you need to observe the 5-year lock-in in these cases too.
If the property is sold before 5 years, the deductions claimed against stamp duty and registration fee will get revoked and get added to the income of the year of sale and tax accordingly.
So, before you decide to sell your house, keep the lock-in criteria in mind. Else, your tax liability may increase considerably in the year of sale.
Jan 08, 2018 04:27 PM IST | MoneyControl.com
The following article is an initiative of BankBazaar.com and is intended to create awareness among the readers
Applying for a loan can be nerve-racking, with a number of formalities expected to be completed. Most of us think that our job is done once the loan is sanctioned, but this is not the case. The real story, in most cases, begins once the loan is disbursed, for this is when we encounter problems with the repayment.
So if you are someone who has recently applied for a loan, (be it a home loan, a personal loan, car loan, medical loan, or any other loan), you should consider these 5 rules to ensure that you get the most out of the money.
1. Never miss your EMI – Taking a loan is a huge financial responsibility. Banks sanction loans for a specific time period (the tenure), charging interest rates on the amount loaned. The borrowed money is expected to be repaid within the given time, with the entire sum and the interest component split into EMIs. Paying the EMI on a monthly basis is not merely a requisite with regards to the legalities, it also helps in building a good credit score.
A missed payment is reflected on the credit report, which could make it difficult to get a loan sanctioned in the future. Missing successive payments could result in lenders blacklisting one, which could ultimately lead to the borrower being labelled a defaulter.
A borrower should ensure that he/she has sufficient funds to repay the loan on time. In certain cases, banks can charge a fine for late payment, which can be a considerable sum in case of high loan amounts (for example a home loan).
2. Never use your savings to repay the loan – Most of us invest in certain saving schemes like PPF, fixed deposits, mutual funds, etc. These funds are ideally designed to help us during emergencies. Utilising them to repay a loan is an absolute NO-NO. Similarly, digging into your retirement fund to meet your EMI obligations should be avoided at all costs, for this can have a huge impact on your future, where you might find it hard to have a regular source of income.
3. Take an insurance cover for the loan amount – Certain loans can be of extremely high values. This is especially true in the case of home loans, where the loan amount is typically in excess of Rs.10 lakh. This can be a significant sum for most people, with it taking years to repay it. Given the unpredictability surrounding life, one should always take an insurance policy which covers the loan liability in case of the borrower’s death. A number of life insurance policies come with this option, wherein the outstanding loan amount (in case the insured passes away) is paid by the insurer. This can limit the financial strain on the family members of the borrower. One could also consider taking an insurance policy in case of other loans, if the repayment amount is significant.
4. Avoid taking additional loans while a current loan is active – Banks and NBFCs often come up with attractive offers to promote borrowing. A number of us can often give in to the lure of extra money, applying for additional loans even when we don’t need them. This should be avoided at all costs, for any additional loan increases the financial burden when it comes to repayment. Also, applying for multiple unsecured loans like personal loan or travel loan while already paying EMIs can come across as sketchy, in addition to having an impact on the credit score. Banks would be wary of offering loans in the future in such instances. If one truly is in the need of additional financial resources, he/she should first close an existing loan before taking a new one.
5. Make prepayments when you have extra money – There are a number of times when we come across additional income. Returns from investments, a bonus from the office, an increase in your salary, etc. can be used to prepay a loan. This can help one save money on the interest payable, in addition to offering peace of mind, knowing that one’s liability is reduced.
A loan, when used effectively can help us out during financial emergencies, but being frivolous once it is sanctioned could lead us towards additional turmoil.
PTI | Published Date: Jan 02, 2018 07:52 am | FirstPost.com
Mumbai: In a major boost to homebuyers, the country’s largest lender State Bank of India has extended the processing fee waiver till March-end and also reduced the base rate by a sharp 30 basis points to 8.65 percent.
The reduction in base rate, effective from Monday, is going to bring relief for nearly 80 lakh customers of the bank whose loans are still linked to the base rate and not the marginal cost of funds-based lending rates (MCLR).
Flushed with excess liquidity, SBI had announced processing fee waiver for auto and home loans late August. In fact, since last fiscal, and especially after the November 2016 note-ban, all the banks have been saddled with excess liquidity amidst continuing degrowth in industrial credit.
For the first time in over two years, credit uptake by corporates entered the positive terrain but with a paltry 1 percent growth in November this year. “We’ve decided to extend the ongoing waiver on home loan processing fees till March 31, 2018 for new customers and others looking to switch their existing loans to us,” SBI said in a statement on Monday.
Managing director for retail and digital banking P K Gupta said that with stability returning to the realty space after the implementation of the Real Estate Act (Rera), he sees lots of demand for home loans going ahead. “With most states having the realty regulator Rera now, stability has returned to the market in terms of project approvals. The teething troubles of the initial Rera months are behind the market. So, we foresee lots of demand for home loans. So, we think this is the right time to continue with that waiver to enable people for buy homes,” Gupta said in a concall.
The bank revised down the base rate to 8.65 percent for existing customers from 8.95 percent, while the BPLR (benchmark prime lending rate) is down from 13.70 percent to 13.40 percent.
The bank, however, did not change the marginal cost of funds-based lending rate (MCLR). The one-year MCLR of the bank stands at 7.95 percent.
“We had done the rate review in the last week of December, and based on whatever deposits rates we had, our base rate was brought down by 30 basis points to 8.65 percent now,” Gupta said.
The move is going to give nearly 80 lakh customers of SBI who were on the old lending rate regimes and have not moved to MCLR. Banks review MCLR on a monthly basis, while the base rate revision happens once a quarter.
“The MCLR was reduced earlier also as the gap between MCLR and base rate had become quite wide. This reduction will help in reducing that gap,” he said.
Due to weak transmission of policy rate by banks under the base rate system, the Reserve Bank had introduced the MCLR from 1 April, 2016.
With the banks not fully passing on the rate cuts that the central bank has done in the past two years, the regulator is not happy even with the base rate regime and has mooted an external benchmark to better reflect market realities and speedier transmission.
Gupta said the current revision of base rate will ensure transmission of the policy rate cuts in the recent past.
Several cities under the Smart Cities initiative hold a distinct advantage and can be safe bets for ‘smart’ real estate investments, say Mehta.
Sarbajeet Sen | Retrived on 1st Jan 2018 | MoneyControl.com
The real estate sector has seen some major changes in 2017 including ushering in of RERA. It also had to bear the impact of demonetisation, which slowed down sales. In an interview to Moneycontrol, Harshil Mehta, Joint MD & CEO, DHFL, tells how he sees property prices and home loan rates moving in the New Year.
Year 2017 saw the Real Estate Regulation Act (RERA) coming into play. How has the new Act impacted the real estate market?
RERA is a well-timed effort by the government and a good step towards accomplishment of ‘Housing for All by 2022’ and other housing and housing-development related initiatives. Several states have implemented RERA and has positively impacted buyer sentiments as a result of the mandatory disclosures of project details and strict adherence to project deliverables such as the area, legality, amenities and the quality. It has also ushered a more transparent ecosystem for developers and housing finance companies. DHFL has also undertaken a drive to assist developers in various states to help them understand the regulatory implications of RERA and become RERA compliant.
How do you see home prices moving in 2018, especially in the affordable segment?
We do not foresee any reduction in prices in the affordable housing segment because of the increasing demand and the limited supply to meet this demand. To attract buyers and maintain sales volume, developers are launching attractive offers and other benefits to encourage customers to fulfill their aspiration of owning their dream home.
Home loan rates have come down substantially. Do you think there is a likelihood of further lowering of rates by lenders?
Owing to the last few monetary policies, home loan rates have stabilised and we do not foresee any further reduction.
So, for those waiting to buy property, do you think this is a good time?
Yes, it is a good time for the buyer.
What is the loan bracket that you are seeing the largest offtake?
We have been seeing a steady offtake in the affordable housing segment that ranges from Rs 15-30 lakhs. The affordable category has received a strong boost led by the government’s various incentives and efforts to stimulate the industry. All these efforts have started to show visible impact on the ground. Benefits from the recent Credit-Linked Subsidy Scheme (CLSS) under PMAY and lower interest rates have further given a boost to the consumer’s loan eligibility.
What is the home price segment DHFL is targeting?
Since inception, DHFL has always targeted the affordable housing finance segment catering to the low and middle income in the semi urban and Tier-2 and Tier-3 towns. This has remained unchanged for the last 33 years. As we mentioned earlier, we are witnessing strong uptake in the affordable finance segment driven by the incentives and conducive industry dynamics particularly from Tier 2 and 3 towns and cities which are emerging as India’s new growth engines.
Is government’s push for affordable housing having a bearing on loan offtake?
The Indian housing finance industry and, in particular, the affordable housing segment, is witnessing one of the most exciting times. Over the last few months, the Government has been taking several significant, growth-oriented steps to develop demand as well as generate greater supply through impacting policy frameworks towards greater financial inclusion. Granting infrastructure status to the real estate industry, announcing the extended CLSS to include MIG 1 & 2 and most recent announcement on RERA, are some commendable efforts to stimulate demand of affordable housing. These customer friendly measures and efforts have definitely given a strong fillip to loan offtake.
What are the market and sub-markets where you are seeing a high demand for home loan?
Affordable Housing has clearly been a central growth agenda for the Government. Initiatives such as ‘Housing for All by 2020’, PMAY, CLSS, home loan rate cuts and housing regulations such as RERA has considerably sparked interest for affordable housing options across the consumer pyramid. Most of the first-time home buyers fund their property purchase through home loans. As a result, there has been a surge in home loan demand across India specifically the Tier-2 and Tier-3 markets.
What according to you are the best emerging real estate investment destinations across the country?
Post the launch of the Smart Cities Mission in 2015, the Government shortlisted cities from all regions of India having high economic and industrial potential. Smart cities will become catalysts in improving the quality of life and give a major fillip to the real estate in urban locations. Considering the upcoming infrastructure projects and other growth drivers, several cities under the Smart Cities initiative hold a distinct advantage and can be safe bets for ‘smart’ real estate investments.
What more, according to you, needs to be done to boost the housing sector?
For all the benefits to make real impact, customer centricity is becoming key. Financial institutions and HFCs need to focus on making the entire experience of home purchase more seamless and customer friendly. Companies need to think how we can address their financial needs across their whole financial life cycle through customised products.
To further boost the affordable housing sector, external commercial borrowings (ECB) should be extended to housing finance companies to enable onward lending to developers in the segment. Also, single-window clearances is another step towards increasing development in the affordable segment and ensuring timely delivery.
Interview: Ravi Narayanan, senior general manager and head – retail secured assets, ICICI Bank.
By: Shritama Bose | Updated: November 28, 2017 12:20 PM | Financial Express
The home-loan market seems to have slowed down, first because of some postponement of demand with demonetisation, and then with the implementation of RERA. Where do you see things going from here?
The supply in the system had anyway started reducing in the last two years. Between September 2016 and September 2017, supply has dropped by over 10-12% in residential real estate in the top 40-45 cities. Till a year back, the inventory overhang used to be about 18-20 quarters in the industry. Along with supply, absorption of units was also coming down because of various reasons, one of which could be demonetisation. People expected a price correction. With RERA coming in, my estimate is that the supplies will go down still further because the act has put in various guardrails as to how the builder must manage the finances available for the project. This augurs well because inventory overhang should not be so much. The second outcome of RERA will be a rise in customer confidence. So once this whole dust settles, we will see pick-ups rising. So there will be a decrease in inventory and an increase in sales and that should be good for the industry.
Won’t that also cause asset prices to rise?
It will follow a pattern. There is an oversupply right now. If the demand-and-supply gap comes down drastically, then the prices will go up. In the next six to eight months, a lot of consolidation might happen in projects underway, which may not be amenable for prices to go up. Prices will remain, more or less, at the same level or there may be some fall in prices. Also, in the last six-seven years, real estate has seen a slight downturn. Typically, the industry follows an eight-to nine-year cycle. So in my opinion, 2018 will again see a rise in sales.
A development that followed demonetisation was the expansion of the credit-linked subsidy scheme (CLSS) for housing. Are you seeing supply and offtake picking up in that category?
Over 60% of new home launches in the industry in the first half of FY18 had ticket sizes under Rs 25 lakh. Because of this scheme under the Pradhan Mantri Awas Yojana, a lot of projects have started coming up in this category. Builders are also entitled to certain benefits if a part of their projects are of sizes below a certain threshold.
So is the phenomenon of builders allocating more space to smaller units a countrywide one?
This is happening primarily in Mumbai and Pune. Some of it is happening in Chennai and Bangalore. But, it is not happening across the country as yet. That’s partly because you have to keep operating costs and land cost under control to be in affordable housing. It is a very price-sensitive market. However, given the focus on this sector from this government, there’s bound to be more players flocking to it.
In mortgages, banks have continuously been losing market share to housing finance companies (HFCs). Have they actually weaned away bank customers for their growth?
No, because the mortgage industry is really big. The mortgage book of the country is now at Rs 15 lakh crore; over the next few years, at a CAGR (compound annual growth rate) of 20%, it should go up to Rs 50 lakh crore. When the pie is so large, everyone will have a share. It’s just a question of how each player orients themselves. Today, most banks are focused on the metros, while HFCs are operating in the peripheries (of cities). So we are not meeting each other much. But very soon, it will all become one playground. Banks venturing into the peripheries will be much faster because we anyway have branches.
From the past few quarters, the real estate markets in India have been going through a phase of massive change.
Kanika Gupta Shori | Retrived on 1st Dec 2017 | Moneycontrol.com
How do you time your entry in any investment channel — whether it is equities or real estate? Is it the juncture when the markets are booming and everyone is joining the fray? Does that make for a sound investment decision? Probably, not!
Most retail investors and homebuyers make this mistake. They buy when the prices are peaking. Naturally the returns are not as expected. Am I right?
Well, I am citing the basic principle of investing here. If you are on board, I would further explain why 2018 should be the year you should enter the real estate market.
From the past few quarters, the real estate market in India has been going through a phase of massive change. The regulatory reforms implemented through frameworks defined under the Real Estate Regulatory Act (RERA), and Goods & Services Tax (GST) to an extent, have led the sector in a certain direction.
It is mandatory for all the real estate projects to be in compliance with the provisions of RERA, which attempts to make sure that projects are delivered in time and the money paid by buyers for certain projects is not squandered for other purposes.
In short, RERA protects consumers’ interests. It will be impossible for fly-by-night operators to be in the market and only the most-committed players will be able to navigate the roadmap. This will benefit both buyers and sellers, in the long term.
It is a buyers’ market
The combination of excess supply, high prices and low consumption has translated into huge inventories across the country. The consumption side has also been impacted by demonetization. Clearly, it is a buyers’ market for now – and for the next few quarters. But not for long!
With RERA in place, developers are now focusing on completing their existing projects. The new home launches, across top eight cities in India, have gone down by more than 75 percent in the third quarter of the current fiscal, as per industry research reports. The overall number of project launches has gone down by more than 40 percent in the first nine months of the current calendar year. These trends imply that the supply side will gradually find some equilibrium with demand, and prices will subsequently start picking up pace.
However, in the present environment, there is a situation of excess supply and property buyers are in a better position to negotiate, and grab a great deal.
As per industry reports, the National Capital Region (NCR) and Mumbai Metropolitan Region (MMR) have around 2 lakh and 1.8 lakh unsold units respectively.
Home loan interest rates are at all-time low
The excess liquidity in the banking system have led the RBI rejig the key lending rates. Resultantly, the home loan interest rates that were recorded at around 9.5 percent a year in 2016 have now been floating in the range between 8.3-8.4 percent.
That makes for considerable savings in the EMI costs; enabling people to avail of low-cost home finance, and become a home owner. It is expected that the home loan rates will remain low for the next several quarters and may even come down further.
Considering the average annual rental yields at 5-6 percent, there is not much difference between the costs of rent and owning a home.
Steady revival of interest from global investor fraternity
The implementation of overarching regulatory mechanisms has instilled a much higher level of confidence in the global investor fraternity. The real estate sector is projected to receive Private Equity (PE) investments to the tune of US$4 billion during this fiscal year, as per industry reports.
Not just the PE funds from the US, Canada and Singapore are interested in infusing capital in the sector, but countries such as Japan, China, Qatar, Hong Kong and the Netherlands are also poised to invest in the sector.
At the same time, global sovereign wealth funds—that are otherwise known for their risk-averse, conservative approach—have been increasing their exposure to the market and it proves that the sector is headed in the right direction.
As for property buyers, it is a sign of revival on the cards.
In overall, the current environment presents an opportunity to buy property and make the best out of the coming year.
(The author is COO of Square Yards)
Growth in mortgages in the banking sector slipped to 11.4% year-on-year (y-o-y) in October from 12.8% in September, data released by the Reserve Bank of India (RBI) on Thursday showed.
By: FE Bureau | Mumbai | Published: December 1, 2017 4:51 AM | Financial Express
Growth in mortgages in the banking sector slipped to 11.4% year-on-year (y-o-y) in October from 12.8% in September, data released by the Reserve Bank of India (RBI) on Thursday showed. Home-loan outstandings at banks had grown 16.6% y-o-y in October 2016. The total outstanding on mortgages in the banking system stood at Rs 9.03 lakh crore as on October 27 this year. Retail loans as a category grew 16% y-o-y in October, a shade slower than 17% in October 2016. Outstanding retail loans as on October 27 stood at Rs 17.45 lakh crore. Loans to individuals had been clocking growth figures in the mid-to-late teens since May 2015, before signs of a slowdown began to surface in November 2016.
In September, outstandings on credit cards grew the most, at 37.7%, among all categories of loans to individuals. Vehicle loans grew 7.4%, significantly slower than 23.5% in September 2016, while consumer-durable loans dropped 9.4%, as compared to a year-ago growth figure of 20.3%. Credit to industry contracted on a y-o-y basis for the thirteenth straight month in October, falling 0.2% y-o-y to Rs 26 lakh crore. In October 2016, the corresponding figure stood at Rs 26.05 lakh crore, 1.7% lower than the October 2015 level.
Industrial credit has been falling almost consistently since August 2016, with September 2016 being the only month of positive growth ever since. Credit deployment in industry fell 13.5% y-o-y in the medium industry segment. However, loans to large industry and micro-and-small industry recorded positive growth, rising 0.2% and 1.2%, respectively, over the year-ago period. Bank credit to industry has been muted for the past couple of years as lenders turned cautious amid worsening asset quality and well-rated corporates chose to raise money from the bond market.
Loan growth has been suffering partly due to capital-starved public sector banks. Analysts expect the recapitalisation of state-owned banks to fuel credit growth in the months ahead. In a recent note, Kotak Institutional Equities wrote that lenders like Bank of Baroda, Canara Bank and Union Bank of India should see loan growth improving. “Loan growth for PSU banks is also partly supported by loan buy-outs from NBFCs and private banks. Retail cycle continues to hold up well, prompting many banks to pursue this segment more aggressively,” Kotak said. Trends in the corporate loan growth appear anaemic, according to the brokerage, with few signs of a turn in the capex cycle.
Updated: Nov 03, 2017 | 11:07 IST | ET Now Digital
Good news for State Bank of India (SBI) customers and for those willing to take a home loan in the near future. SBI, the country’s top lender by assets, has made its home loans cheaper. The bank has reduced home loan interest rates by 5 basis points to 8.30 per cent per annum. With this reduction, SBI’s offering in the home loan segment has become the lowest in the market, as the bank claims.
The new rates are effective November 01.
The effective interest rate for all eligible salaried people will be 8.30 per cent per annum for loans up to Rs 30 lakh. Rates have been reduced by 5 bps point in all the brackets. Over and above of 8.30 per cent rate, an eligible home loan customer can also avail an interest subsidy of Rs 2.67 lakh under the Pradhan Mantri Awas Yojana scheme.
At present, for a new customer there’s now the possibility of taking bigger loans or incurring lower interest costs in making their dream home purchase a reality.
Before you finalise the loan ask these five key questions to get a good deal on your home loan
1. Negotiate rate of interest
Lenders mostly define the interest rate in a minimum and maximum range, the actual rate charged depends on your eligibility criterion. As a borrower you have the ability to negotiate a better interest rate.
Financial advisers say you can do this not just by comparing your loan options, but also by improving your eligibility by adding a co-borrower and combining the co-borrower’s income with your own.
2. Buy a home loan only after comparing
Before you zero in on a loan, compare between the different loan products available in the market.
Look at the equated monthly installments (EMIs), the interest rates, the processing fee and other related charges to choose the perfect loan. These days home loans offered online, you can always explore with a few clicks.
Look at the base rate, the margin offered, what is the maximum tenure offered, and how is the eligibility calculated and most importantly whether a property similar to yours has been funded by this lender earlier.
3. Fixed rate or floating?
Home loans can be extended either on fixed or on floating rates. If a home loan is taken on fixed rate then the interest rate will not change during the entire loan period and the borrower continues to pay the same EMI throughout the loan term.
All new floating rate bank loans today are linked to the MCLR, whose interest rate automatically resets at fixed intervals. This is beneficial for customers since interest rates have been trending downwards of late.
If the interest is expected to fall then opt for a floating rate and if it is expected to rise then opt for a fixed rate loan.
One can pre-close the loan ahead of its original tenure. If you are on a floating interest rate, no charge will be applicable. If you are on a fixed rate, there may a charge applicable.
4. Understand your borrowing capacity
People often decide to pay high EMIs thinking the loan load would come down with time due to annual increases in their income. However, their incomes may or may not rise with time. Therefore, they must borrow to the limit where paying EMIs would not stretch their finances.
5. Additional costs
When you take a home loan remember that interest is not the only cost you have to bear; there are certain additional costs too.
Every time you apply for a loan with a bank or non-banking financial institution, you are charged a percentage of your loan amount as processing fee. The amount may vary from 0.5 per cent to 1 per cent of your loan amount.
Legal fees are charged by banks or NBFCs to ascertain the legal status of any property. Usually, legal fees are applicable for home loans or loan against property.
Depending on your loan type, you may be charged an amount for prepayment of your loan. If you do not repay your loan EMIs on time, you will be charged a late payment fee. The late payment fee will depend on your lending bank or NBFC and the type of loan.
By Staff Reporter | Published On: Mon, Nov 13th, 2017 | Accommodation Times Bureau
NEW DELHI: Tata Housing said they are partnered with Indiabulls Housing Finance on Friday to offer home at 3.99 percent interest rate for those home buyers who buy flat in ongoing 11 projects. In the current scenario, the home loan rates are around 8.5 percent.
On Friday ‘Monetize India’ campaign was launched by Tata Housing in partnership with Indiabulls Home Loans.
The company said in a statement, it gives more opportunity to home buyers to own Tata Housing property “at a special, one-time home loan rate of 3.99 percent. This special home loan rate would be valid for the first five years.”
“It has been an eventful year for the sector in India which is standing on the threshold of change…We hope that this will stimulate fence-sitters to act on their need or wish to invest in real estate, as it continues to be one of the best forms of security and wealth generating assets,” According to Tata Housing Head – Marketing and Sales Tarun Mehrotra.
The scheme, valid from today until December 12, 2017, would be offered across 11 projects by Tata Housing in seven cities.