By Preeti Kulkarni | 18 Apr, 2016 | Times of India
If you have defaulted on a loan, the rules do not give the lenders a complete walkover. Here’s what you should bear in mind if you find yourself in such a situation.
1.Right to ample notice
A default does not strip you of your rights. Banks have to follow process and give you time to repay dues before repossessing your assets to realise the arrears. Typically, banks initiate such proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests (Sarfaesi) Act. If the borrower’s account is classified as a non-performing asset, where repayment is overdue by 90 days, the lender has to first issue a 60-day notice.
“If the borrower fails to repay within the notice period, the bank can go ahead with sale of assets. However, in order to sell, the bank has to serve another 30-day public notice mentioning the details of the sale,” says banking and management consultant VN Kulkarni.
2.Right to ensure fair value
The lender starts the process of auctioning your property to recover dues if you fail to clear what you owe or respond during the 60-day notice period. However, before doing so, they will have to issue another notice specifying the fair value of the secured asset as assessed by the banks’ valuers, along with details like reserve price, date and time of auction.
“The borrower can object if the property is undervalued. He can justify his objection by conveying any better offer that he may have so that the bank can make a decision,” says Kulkarni. In other words, you can look for prospective buyers on your own and introduce them to the lender if you think that the property can yield a better price.
3.Realise balance proceeds
Do not write off your asset mentally the moment it is repossessed. Keep track of the auction process. Lenders are required to refund any balance after recovering the dues, which s a real possibility given that property prices can shoot up beyond the owed amount After recovering the dues and expenses of conducting the auction, the bank has to re und the remaining amount to the borrower as the money belongs to him,” says Kulkarni
4.Right to be heard
During the notice period, you can make your representation to the authorised officer and put forth your objections to the repossession notice. “The officer has to reply within seven days, giving valid reasons if he rejects the representation and objections raised by the borrower,” says Kulkarni.
5.Right to humane treatment
Following adverse reports about the conduct of recovery agents, RBI had pulled up banks over the issue. Banks too decided to voluntarily commit to certain best practices as par of their code of commitment to customers.
For one, agents can contact borrowers a place chosen by the latter. In case they have not specified a place, the agents can visit either the borrower’s residence or place of work. They are required to respect the privacy of borrowers, and ensure civil behavior. They can only call between 7 am and 7 pm. Agents cannot resort to harassment or intimidation, nor can they humiliate the borrowers or their family members.
Source : http://goo.gl/H0O5X2
RAJIV RAJ Founder & Director, Creditvidya.com | May 28, 2015, 01.18 PM IST | Source: Moneycontrol.com
It may appear to be an easy way out, but it pulls down your credit score. This may lead to denial of credit in future.
You may have taken a loan with a certain plan for repayment, but life may have thrown a spanner in the works, and you now find yourself unable to meet your repayment commitment. At a time like this, if your bank offers you a one time settlement (OTS), you would probably leap at it, but did you know that it can take a toll on your Cibil score?
State Bank of India, India’s largest commercial bank, is currently holding a “Rin Samadhaan” or a loan resolution week, whereby it is hearing out the cases of genuine borrowers who are having a difficulty repaying their loans. To some of these borrowers, an OTS may also be offered as a solution, the media reports. While this may seem like manna from heaven for such borrowers wilting under a debt pile, it can have quite a damaging effect on their Cibil score. Let’s see how.
What a bank does
If a borrower has turned delinquent for a time frame of six months or more, a bank is likely to offer an OTS if the case is genuine. It may consider things such as a job loss, an accident or a serious medical condition. The bank then sits across the table with the borrower, takes stock of his situation and agrees to “write off” the difference between the amount that has been paid and the amount that is due. In effect, it reports a loss, and the borrower is let off the hook. While the borrower may heave a sigh of relief, because recovery agents wont come after him, he may not be aware of the fact that he pays a heavy price for it elsewhere.
The impact on the Cibil score
When a bank writes off a loan, it reports the same to Cibil. While the relationship between the lender and borrower may have been terminated, Cibil does not record this transaction as a “closure” of the loan account and instead records it as “settled”. This is then considered a negative credit behaviour and the your Cibil score can drop by as much as 75-100 points as a result of a “settled” loan.
What is even worse that this is a record that will remain in your Cibil report for as many as seven years. This means that if you need to avail of a loan facility anytime in the seven years after one loan account has been settled, it is likely that prospective lenders will be wary of lending to you. It is highly likely that banks will reject your loan application when it pulls out your Cibil report, to judge your credit worthiness, because of this one blotch on your Cibil report.
Lack of awareness
Usually people who are bogged down by debt, grab the opportunity of an OTS, but in most cases they are unaware that a pound of flesh is being taken elsewhere. As we explained, a settled account will do more damage to your credit history than you can imagine!
The other way out
If you are struggling with the repayment of your debt and do not know what to do, do not jumpt at the first opportunity of a settlement. Instead, see if you can liquidate a part of your portfolio or some other assets to repay your loan. If that does not work out, reach out to your family and friends for some help. What we are essentially trying to say is that, avoid “settlement” by all means! It is not an easy way out, if you thought so.
That having said, the vagaries of life are difficult to predict, and if all doors are closed you may perhaps have to agree to a settlement. However, do use this as the very last option and try and negotiate with your bank on easier payment terms, such as the extension of the repayment tenure or a waiver of the interest component, at least for some time.
Be clear on where you stand
Whatever your decision may be, make sure you check your Cibil score and your Cibil report after you reach an agreement with your lender, to see where you stand. Once you know what your Cibil score is, concentrate all your efforts in repaying all other loans and maintaining an impeccable credit behavior. While this will not exonerate you completely, it will bring up your Cibil score gradually over a period of 12-24 months.
So, as you can see, a loan settlement is not the best option for a borrower. Whenever you take a loan, make sure you have a contingency plan or some emergency funds that can meet your repayment commitments and you do not have to opt for a settlement that can damage your Cibil score.
Collateralisation of other loans and prior approval for additional leverage are things to watch out for
Divakar Vijayasarthy | April 18, 2015 Last Updated at 21:33 IST | Business Standard
This is a good time for home buyers, with several lending institutions slashing their home loan rates recently. Home buyers have a tendency to skip through the details of a home loan agreement. That should not be the case. Borrowers need to keep in mind a few key clauses while signing the agreement to avoid unpleasant surprises later.
Cross-collateralisation of other loans: Imagine a scenario where you have taken a personal loan as well as a home loan from the same institution. Without your knowledge, you could have actually given your home as collateral for the personal loan. Some lending institutions have an ‘Indebtedness of the Borrower’ clause where the home is automatically made available as a security for all past, present and future borrowings of the borrower with the same institution. Effectively, your personal loan is secured against your home but the rates being charged are at par with an unsecured loan. In such a scenario, a top-up on the existing home loan would have worked out to be far cheaper than your personal loan.
Worse, few institutions cover borrowings from their associates, subsidiaries as well as affiliates under this clause. So, if you have taken a home loan from XYZ Bank Ltd and a car loan from XYZ Car Loans Ltd, a group company, your home could serve as an additional collateral for your car loan. In some cases, the lenders may have an unconditional right to set off any amount paid by the borrower as per the home loan agreement against other borrowings of the borrower with the bank or its affiliates, associates or subsidiaries even without any prior intimation to the borrower. Hence, it is always recommended to have your home loan from an institution with which you do not have any present unsecured obligations.
Schemes where equated monthly instalments (EMIs) are borne by the developer: In a typical 75-25 or 80-20 scheme, the borrower takes a loan and the developer agrees to pay interest till possession or a specified period, say, three years, whichever is earlier. Generally, the developer is paid based on the stage of construction. However, in some cases, there are accelerated disbursements – for instance, when the completion stage is only 60 per cent, 80 per cent of the loan gets disbursed. Since the developer is bearing the interest burden, the borrower may not be too concerned. However, the loan is taken in the name of the buyer, so, if the developer defaults, any delay or default will appear in the Cibil report of the buyer for no fault of his. Further, the buyer will be forced to pay interest once the specified period expires even though the property is still under construction.
The situation becomes even more precarious if the buyer intends to exit the project midway – many developers charge prohibitively high transfer fees ranging from 2-5 per cent of the completed project value, which effectively increases the exit fee percentage in the case of an under-construction property. For example, if someone had purchased a property at Rs 5,000 per sq ft with a 3 per cent exit fee and he exits the project when it is 50 per cent complete, he ends up paying an exit fee of Rs 150 per sq ft (3 per cent of Rs 5,000) on an investment of Rs 2,500 (or 50 per cent of the total cost), amounting to an effective exit fee of 6 per cent.
Further, where accelerated disbursements have been made, it becomes virtually impossible to exit till construction reaches the level of funding. In many cases, buyers are forced to exit at a loss to relieve the burden of the home loan. Hence, the immediate past track record of the developer, management ethos of the promoters and the stage of completion of the project need to be considered before opting for such schemes.
Unconditional right to amend terms and conditions: Few agreements have an open-ended draconian clause which gives the lenders sweeping rights at their discretion, to amend, recall, suspend or terminate the home loan agreement irrespective of whether the borrower had complied with the provisions of the home loan agreement or not. Such lopsided agreements are extremely unjust to the borrower and puts him entirely at the mercy of the lender at all times.
Setting off other balances: Some loan agreements provide for an unconditional right to set off home loan dues against balances in all other accounts of the borrower, including fixed deposit accounts. So in the event of a strain in repayment of EMIs, the banker has the right to dig into to your savings account, recurring deposit or fixed deposit balances to service your EMI without your consent.
Prior approval for any further leverage: Most lending institutions provide that the borrower shall not obtain any further loan or guarantee any further liability without their prior approval. This makes it mandatory for a borrower to approach the lender for a No Objection Certificate (NOC) for any future borrowing.
Prohibition on leaving India: Most of the loan agreements prohibit the borrower from leaving India on long stays for the purpose of employment or business overseas without fully repaying the home loan. Where there is a practical need to leave India, it is advisable to inform your banker and obtain an NOC.
Onus of clear and marketable title: Assuring yourself that your property has a clear and marketable legal title is important. However, few buyers take independent legal opinion on the title of the property as they feel that the home finance institution funding the property would have done their due diligence. While all lending institutions do their legal due diligence, a lot of weightage is given to the profile of the borrower and the institution’s relationship with the developer. For a banker, the loan is given to the borrower and the property is only a security for the loan in the event of default. Most agreements provide that the onus of verifying the legal title is entirely on the borrower and not the lending institution.
Every borrower provides a personal guarantee to the banker for repayment of loan, signs a demand promissory note and provides post-dated cheques for the loan value. There have been instances where serious legal issues have been ignored by bankers for various reasons.
The writer is co-founder, MeetUrPro
Source : http://goo.gl/1RPvul
By Uma Shashikant | 30 Mar, 2015, 08.10AM IST | Economic Times
A common crib against the younger generation has to do with the habit of borrowing. Now pause to consider the most prized asset in the portfolio of the complaining elder. It is likely to be a house, bought, of course, with a housing loan. Without a home loan, most of us would not be able to own property. However, many of us also overdo it when it comes to banishing loans from our lives.
A borrower takes money not from the lender, but from his future income. The risk comes from the unknown future and the change the loan can make in it. A boastful zero-loaner is likely to have a stable income and routine savings which fuel such righteousness. For the rest, borrowing may be unavoidable.
Loans differ based on the need they serve. A loan that is taken to tackle a liquidity crunch is a mere arrangement. When a company borrows from the bank to pay salaries, it is meeting an immediate need for cash, which will flow in once the sales are realised. A hand loan from a friend to contribute to a farewell party is an arrangement of trust, to return that money with the next ATM withdrawal. A loan that is taken for buying a house or any other long-term asset is a charge on future income and is a funding contract. A lender agrees to fund the asset on your behalf and structures a repayment from you keeping the asset as collateral. A loan taken to punt on the future value of a commodity or index is a leveraged speculative position. It can turn either way. So, find out and understand what your need is before taking a loan.
Habitual hand loan borrowers typically lose friends and contacts. Research on the psychology of borrowers points out that they may actually develop a ‘blind spot’ over time, pushing the memories of loan to the background. While lenders resent the loan made to a friend as repayment gets delayed, the borrower either convinces himself that it is not his fault, or feels a sense of relief that the lender will no longer chase him for repayment. People are known to recall what they lent much more than what they borrowed.
Always see hand loans as liquidity arrangements. They come without interest and are based on trust. The faster you repay these loans, the better it is. If you find yourself taking too many hand loans and struggling to repay them, you may not have a liquidity problem, but inadequacy of income. Your spending needs habitually exceed what you earn and unless you find ways to augment your income, you may find yourself in a debt trap, with no friends to bail you out.
Loans to buy assets are long-term formal contracts. Borrowers own the asset even as they repay. The lender is also secure as the asset can be repossessed and sold in the event of a default. In the case of a home loan, borrowers typically pitch in with a substantial amount of their own. This reduces the probability of default even further. That is why providing a loan against property is good business. However, property loans have, over time, turned into speculative bets on housing prices. Thus, asset-based lending has turned into leverage that risk multiplies.
The sub-prime defaults that led to the global financial crisis of 2008 originated with loans that were enabling home ownership, but were sold and bought with the assumption that housing prices would continue to rise.
Consider one of the popular structures, the interest-only loan. The borrower takes a loan to buy property, but pays only interest for the first three years. This makes the loan look inexpensive and affordable to the simple borrower. It is attractively designed for the speculator, who could sell off in three years to repay the loan. The simple borrowers underestimate the repayment burden in later years. They are driven by overconfidence that simply extrapolates the present. If the borrower fails to see the loss of jobs and income, the speculators assume that the prices will only move up. There is an auto feedback cycle in play when assets are funded with borrowing.
Housing prices respond to demand; demand moves up when loans are easy to get; and loans are more and more viable as the asset values go up. An asset bubble is created and leveraged funds push up asset prices. The collateral damage is huge when asset prices fall. The borrower defaults since the asset he bought with the loan has lost value; the lender gets wiped out when he is unable to resell the asset in a falling market to cover the value of the unpaid loan. A leveraged position runs the risk that asset prices may turn unexpectedly, creating a chain of defaults.
The loan to avoid is speculative leverage. One feels smart while borrowing on the margin and betting on the stock market. Few rounds of winning also boost confidence, but one unexpected correction is enough to wipe off a good chunk of capital. Without the emotional intelligence to manage the capital carefully and take losses on the chin, leveraged speculation can be ruinous.
However, not all borrowing is harmful. If the borrowing creates an asset, the asset meets a need or is useful, and if the repayment is well within the stable income of the borrower, there is no problem. Not all loans need to meet the rigid conditionality of creating an economically valuable asset, such as a home or a business. Simple loans for an expensive gift, a holiday or a car, are also fine as long as they do not stretch the repayment capability of the borrower. Such loans have to be evaluated for the opportunity cost since a higher EMI means a lower SIP. Loans, by definition, are restrictive as they are a fixed charge on the future income. Keeping such ‘low value’ loans to less than 20% of the post-tax income is a good thumb rule. Asking if the routine saving is at least equal to the EMI is also a good check.
Between a high stake bet and the perilous hand loan that kills relationships, is a wide space of responsible borrowing that can help build assets, enjoy the perks of a steady income and indulge in some instant gratification. There is no need to be too hung up about borrowing.
The author is Managing Director, Centre for Investment Education and Learning
Source : http://goo.gl/481Sdw
By Anita Bhoir, ET Bureau | 11 Jun, 2014, 04.00AM IST | Economic Times
MUMBAI: Gender discrimination is not a phenomenon that’s restricted to the bad lands of Uttar Pradesh, or Bihar. It is right here in the middle of the metros and that too in banks, some headed by women.
The probability of a bank insisting on a single woman being asked to bring in a co-applicant is a lot higher than a married one, especially if it is a home loan.
Karishma Amin, a 30-year old staffer in an overseas mission, is among the many people who have been running struggling to secure a home loan, but many top lenders turned her away saying that she would not be eligible unless she brings in a co-applicant.
The lenders include ICICI Bank, Axis Bank, Indiabulls Home Finance, and Dewan Housing Finance. At least two other women complained of difficulties in getting a home loan, and checks on banks showed that the practice is prevalent. “They said they won’t be able to process the application without a co-applicant,” says Amin. “Since this was a pre-condition for institutions I made my mother who is a dependant as the coapplicant. I haven’t received a convincing response from these institutions on how a non-earning member, my mother, would help their cause.”
“We do not give home loans to single women borrowers unless they have a co-applicant,” said a culture officer from a private sector bank. “There is no RBI norm, but this is an internal credit check that we follow based on our data analytics where we have noticed that the default rate among single women is high.” Most lenders may not explicitly say that a co-applicant is necessary, but could disguise it saying that it is essential to have a guarantor for loans.
“This mentality comes from the fact that women can’t get good employment options and those who do would not be able to sustain the employment,” says Vijayalakshmi Rao, mentor & advisor at Association for Non Traditional Employment for Women. But what exposes the double-standards is that hardly any working male applicant is asked for such guarantors when the property is mortgaged.
“We do not ask for a co-applicant,” said Rajesh Makkar, president and chief development officer, DHFL. “We request for a guarantor to ensure that there is a contact when the borrower is not contactable. This only helps the institution in case of a default.”
Credit information bureaus which generate credit scores on individual loan applicants do not prepare data on single women separately. Their scores are based on their past performance in terms of repayment of loans. “We do not generate any report based on the gender,” says an executive from CIBIL, a credit information bureau. “If at all there is anything, it may be done at the bank level.”
Many banks and housing finance companies sell home loan and other products to women by giving them an interest rate benefit. However, their staff are not equipped and trained to handle queries by single women.
“Most banks and financial institutions have a policy insisting that a single woman borrower having a co-applicant is to secure the loan,” says a third party sales agent of a private sector bank. “Though the flat is mortgaged with the lender they do not want to face the hassles of repossession. They prefer a co-applicant from whom they can recover.”
As against home mortgages, other loans are not as biased against single women. “Gender is not a criteria for benefit or disadvantage for a car loan pricing at HDFC Bank. However scheme/market-based limited period offers are rolled out for various segments including women from time to time,” Rajan Pental, senior executive VP & business manager, auto loans, HDFC Bank. “Since gender plays no role in our credit assessment any need for a co-applicant in a car loan is to bolster the applicant’s debt-servicing/income profile,” said Pental.
Source : http://goo.gl/iFvqq6
InvestmentYogi.com | Updated On: January 02, 2014 15:54 (IST) | NDTV Profit
New Delhi: Owning a home is more of a basic necessity rather than a luxury these days. Home loans have been designed to let you not miss out on this necessity. Once the loan is disbursed, the bank expects you to start paying EMIs every month till the tenure of the loan. All would be fine till you pay the home loan EMIs on time. What if you stop paying them because of a medical emergency or losing a job? This article will tell you what would happen if you stop paying EMIs and the options you have in such a situation.
Will skipping EMIs make you a loan defaulter?
Usually, banks do not consider you to be a loan defaulter when you skip one EMI. However, if you do it for three consecutive times, you will be sent due reminders of the same. Lack of response from your side will make the bank send a legal notice to you. You will then be termed as a loan defaulter.
What happens if you become a loan defaulter?
Once you become a loan defaulter, the bank will start the process of taking over your property. They can arrange an auction to sell your house/flat and recover their due amount. If you want to take any action, you need to take before this auction. Apart from this, your credit score will also be hit hard and you might not be eligible for loans in the future. This can be the worst thing to happen to you.
What are the options in this situation?
The best option for you would be to negotiate with the lender upon this. Banks will be ready to talk you over this issue rather than going through the tiresome process of taking over your asset. You can reach out to them with the past documents of EMI payments for this loan or the previous loans that you have cleared. Let us see what all options you have in hand:
1) Ask for a grace period – You can seek a grace period from the bank in order to continue with the EMI payments. You can clearly explain to them the reasons for not being able to pay EMIs such as loss of job or dip in sales of business, etc. Bank may be willing to give you the grace period for resuming EMI payments with some penalty.
2) Loan refinancing – There could be a case where the interest rates have gone up and hence you may not afford the increased EMI. You can talk to the bank to restructure or refinance your home loan. They can increase the tenure of the loan as a result of which your EMI would go down. Though this will result in you paying more, it will be better than losing possession of the property.
3) Counseling centers – There are counseling centers to help you with this issue. They would provide you the appropriate options based on your situation. They will also give you fair knowledge on the things to be followed so that you do not fall into a debt trap. Dena Bank has a credit counseling center which does exactly this.
4) Liquidating your investments – This will be the final step that you can resort to, if the above options do not work out for you. You can liquidate your existing investments such as deposits or mutual funds to pay the EMIs. You can also use this amount to make part payment for the loan which will reduce the EMI going forward.
So, these are the options you have in case you default or delay your home loan EMIs. To avoid such things, you need to make sure that you have at least 5-6 months of expenses kept aside as an emergency fund. This will help you tide over the crisis. You also need individual health insurance and critical illness policy along with riders including that which pays for a loss in job.
InvestmentYogi.com is a leading personal finance portal.
Disclaimer: All information in this article has been provided by InvestmentYogi.com and NDTV Profit is not responsible for the accuracy and completeness of the same.
Source : http://goo.gl/JD1FLN
Dec 9, 2013, 08.00AM IST| Economic Times
Here are five things to know about Home loan protection plan (HLPP):
1. HLPP is an insurance plan which provides a lump sum benefit on the death of the insured. This can be used to repay the outstanding home loan.
2. The cover in an HLPP is usually the same as the loan taken. The premium for HLPP can be paid as a single premium in advance or on an annual basis.
3. Insurance companies also offer an option where the annual premium is clubbed with the Home loan EMI paid by the borrower.
4. Since the value of the outstanding loan reduces over time, the premium for HLPP is lower than that of a life cover for a similar amount.
5. Like a term plan, HLPP does not offer any maturity or survival benefits.
Investment Yogi | Hyderabad |December 2, 2013 Last Updated at 10:33 IST| Business Standard
The score is calculated by taking into account your complete borrowing details, history, repayment pattern and default instances
The loan market has changed a lot in the past 5 years. It is now extremely important for a borrower to keep tabs on the credit report issued by a widely accepted credit reporting agency like CIBIL (Credit Information Bureau (India) Ltd) to get a loan. It is now mandatory to maintain a good credit score for getting all types of borrowings from banks, whether it is a home loan, car loan, personal loan or business loan.
What is a Credit Score by CIBIL?
A CIBIL credit score can be explained as a 3 digit numeric outline of your credit history. The score is calculated by taking into account your complete borrowing details, history, repayment pattern and default instances (if any) etc. It is scaled in a range of 300 to 900 points. The higher the points i.e. close to 900, better will be the chances to get the loan from a lender. A good score is important to get a loan with ease. Lower score (close to 300) indicates a discrepancy for borrowings in the past.
Why CIBIL credit report is important?
A CIBIL credit report contains all the details pertaining to your borrowing history and its repayment discipline.
CIBIL credit report is very important nowadays because:
It contains your past and present credit history.
Banks and FI’s allow loan to a borrower on the basis of CIBIL credit report. A good credit score helps borrowers to get loans easily from banks.
You can inculcate financial discipline by analyzing the credit report.
It helps borrowers to avoid the debt trap.
You can stay away from extreme financial leverage by analyzing the credit report properly.
How to analyse Credit Score?
CIBIL’s credit score ranges from 300 to 900 points. A higher score close to 900 reflects good credit history i.e. lesser defaults in payment, no over leverage and disciplined repayment. A lower score close to 300 reflects bad credit history. Banks prefer lending to borrowers with high scores and 750 to 800+ points is considered as a good score.
What affects the Credit score?
Following are some points that can affect your credit score:
Cheque bounce in the past
Irregularity in Loan repayment
Default in repayment of Credit card bill
Many unsecured loans such as personal loan.
Multiple applications for an unsecured loan can also be negative for credit score
Default as a guarantor
How to keep tabs on your credit score?
It is very important to keep tabs on your credit score, especially if you are aiming for a loan anytime in future. Following are some key points to keep a check on the credit score:
Never default on EMI payment or repayment of credit card dues.
Don’t over leverage your financial position.
Avoid multiple unsecured loans on a single profile
Closing a loan with a regular repayment shows that you are a disciplined borrower, so set a due date reminder on your mobile to avoid delay
If you need multiple loans for various purposes, then try to distribute the same by borrowing in the name of other family members
Never forget to take a “ No Dues Certificate” while closing a loan. It is also important to check the same in an updated CIBIL report after the loan is closed.
How to Check CIBIL Credit Score?
Following are the steps to get CIBIL Score:
Fill online form by visiting the CIBIL website and then click on “Buy your credit score”.
Pay Rs 470
Fill Authentication details
Get CIBIL score within 24 hours in your mail id.
While filing the online form, you would be required to provide details such as name, date of birth, contact address and phone number, information related to loans taken in the past. After completing the form and paying Rs 470/- using your credit card, online banking or debit card, you need to fill the authentication details. Here, you would be given 5 questions based on your credit history and you have to answer at least 3 to get the authentication done. After getting the authentication done successfully, you will get the CIBIL score through e-mail within 24 hours. If you fail to get an authentication, you can send the hard copy of the form along with generated id and address proof to CIBIL. After verifying all the documents, CIBIL would send the credit report to your address.
Your loan account may have dues of paltry amount only, but it can thwart your plan to raise bigger loans. A bad credit report is not acceptable to any of the lending institution while you apply for a loan. It is a very tedious and time taking process to improve the credit score once it is distressed. CIBIL is expected to launch a real time update of credit score through an SMS alert in coming days, it would further help you to keep a check on your credit profile. It is very important to say “no” to products like credit cards and personal loans, unless you really need them.
InvestmentYogi is one of the leading personal finance websites in India
Rosy Sequeira, TNN Nov 29, 2013, 06.53AM IST | Times of India
MUMBAI: The Bombay high court on Thursday upheld State Bank of India’s move to publish photos of two directors of a company that defaulted on repaying nearly Rs 53 crore.
The HC said it was satisfied the bank’s action was not routine and was taken again-st willful defaulters who committed acts of malfeasance.
A division bench of Justices V M Kanade and M S Sonak dismissed a plea by a garment manufacturer and two directors to quash SBI’s October 10 letter intimating them that if they fail to regularize their account within 10 days, it would publish their photos in leading newspapers.
On October 31, SBI told the vacation court it would stay its hands.
The directors’ petition said between 2011-13 they had taken loans of Rs 49.31 crore and repaid Rs 14 crore with interest. But due to power cuts in Tirupur, Tamil Nadu, their manufacturing capacity was hampered and they faced a financial crunch. SBI recalled the amount and invoked the Securitization Act.
The petitioners’ advocates, Narayan Swamy and Jyoti Chavan, said under the Act there was no provision to publish photos of defaulters and the move was highhanded, unconstitutional and violated their right of privacy. They relied on two judgments of the Calcutta and Kerala HCs which restrained banks from publishing photos. “If the photos are published nobody will help us. Our image will be spoilt. Personal life will totally collapse,” said Swamy.
SBI’s senior counsel Aspi Chinoy said appeals were pending against those HC orders but the MP and Madras HCs had upheld publication of photos. He said SBI had non-performing assets of nearly Rs 50,000 crore.
“It is not that we publish in each and every case. Shame is not from photos but the act itself,” he said, adding that the decision was taken looking into acts of malfeasance, including where the petitioners had tried to divert sale proceeds, collected cash from buyers instead of routing sale proceeds to bank accounts and availed loans from other banks without SBI’s consent.
Observing that there is no legal bar, the judges said Securitization Rules permit revealing names and addresses of willful defaulters to the public and to caution unwary buyers from buying property mortgaged by defaulters to the bank. SBI said it would not act for three weeks to give the petitioners a chance to move the Supreme Court.
Source : http://goo.gl/W9yC3w
BankBazaar.com | Updated On: November 06, 2013 13:02 (IST) | NDTV Profit
Enough can’t be said on the diligent care one must take when handling a credit card. Sometimes, you may feel that a particular card is not of much use to you, or you may realise that you are holding several credit cards and many of them are not getting used. So you may wish to cancel your credit card.
However, you may sometimes realize that despite taking the initiative to cancel the card, you continue to receive statements from the bank declaring that you have unpaid dues in your account. What is the reason behind this? It is possibly because the exact procedure has not been followed in cancelling the card.
Let’s take the case of Narendra who had applied for a credit card from ABC Bank about a year ago. 12 months after getting the card, Narendra realised that he did not receive much benefits from the card, and it was simply an additional headache to manage. So he decided to cancel the card and adopted the following process while closing his credit card –
Step 1: Narendra contacted the customer service desk of the bank by dialling the number given behind the card. He then found out what is the actual amount outstanding in the card.
Step 2: He made an online payment for this amount and cleared all dues in the card account. As the amount was small, he made the payment in one go. Sometimes, the amount outstanding is quite large for an individual to pay it at once. In such a case, make regular payments, either on a weekly or monthly basis and clear the dues. Note that if a monthly payment is made, you will still accrue interest on the balance, and the final payment should include all fees and charges. Narendra kept a record of his payment as proof.
Step 3: On making a full payment of the outstanding balance, Narendra contacted the customer service desk again and placed a request for cancellation of the card. He made a note of the date and time of the call, as well as the name of the representative who took down the request. Narendra also got a request confirmation number, which would be the reference for all future correspondence on the request.
Step 4: Narendra then wrote to the credit card company and sought verification that the account has been closed. He mentioned the details of his call with the customer service representative. He sent the letter through Registered Post, so that there is a legal record of the same.
Step 5: After a few weeks, Narendra received confirmation from the bank that the credit card has been cancelled and closed. He then proceeded to cut the credit card into small pieces across the magnetic strip. This completes the cancellation process.
Things to keep in mind while cancelling the credit card:
The first most important thing to remember is that the bank will not cancel your card unless you have paid all dues. This not only includes the expenses you incurred on your card, but also includes all interest, fees and charges on the card. Sometimes, you may cancel your card after the billing date, and as a result, there may be a residue amount which is not reflected in your last statement.
Most customers feel that some card charges are unfair and proceed to cancel the card without paying these. However, the bank will not cancel the card unless you pay these dues. Further, you will have to continue paying interest and late payment charges on these dues till you settle everything.
Simply cutting the card at your end and mailing it to the bank will not cancel the card. Insist on getting a written acknowledgement from the bank that the card has been cancelled.
Does closing a credit card affect your credit score?
Closing a credit card can reduce your credit score. This is because you are reducing your overall credit limit by closing a card. As a result, your credit utilization will go up on an overall basis. Assume you have three cards with a total credit limit of Rs.1.5 lakhs and you spend Rs.75,000 in a month. So your credit utilisation is 50 per cent. Now supposing you want to close one of the cards which has a credit limit of Rs.50,000 as you are not using this card – Then your overall credit utilisation will be 75 per cent (75,000/100,000). This can suggest that you are credit hungry in nature.
Does this mean that you should not close unused cards? No. It is better to close unused cards to prevent misuse or fraud. However, if you wish to close more than one card, you should do so gradually and not all at once.
Further, the older the credit history, the better it is for your credit score. A long track record will help lenders judge your track record and hence determine future behaviour and default chances. Hence you must always look at keeping older credit cards alive, and close the newer ones if the need arises. This is because the history of closed unused cards goes off the report after some years. Remember, if you already have a weak score, then work on improving your score first before proceeding to cancel the cards.
What happens if the credit card is not closed properly?
If you do not follow the proper steps in closing the card, there may be a case when there is an outstanding balance on your card. For instance, if you do not get an acknowledgement from the bank, the bank may charge renewal fees which will get showed as unpaid dues, even though you may have cut the card. This will get carried on month after month, attracting penalties. This will automatically affect your credit score, affecting your future prospects of availing a loan. So remember to actively follow up with the lender and get your credit card closed.
BankBazaar.com is an online loan marketplace.
Disclaimer: All information in this article has been provided by BankBazaar.com and NDTV Profit is not responsible for the accuracy and completeness of the same.
Source : http://goo.gl/kiU9SY
By Amit Shanbaug, ET Bureau | 27 May, 2013, 08.00AM IST |Economic Times|
Last week, Kochi-based Anjana Badoor discovered that the option to prepay a loan does not rest with the borrower after all. “I had taken a loan of Rs 50,000 last year from a public-sector bank against jewellery roughly worth Rs 75,000. Though the loan tenure was two years, I was asked to prepay the entire outstanding amount immediately,” says the 53-year-old.
Given that she was servicing her EMIs on time and in full, Badoor can’t understand what prompted her bank to force her to prepay the loan. The reason is plummeting gold prices, which fell from Rs 32,500 per 10 gm in September 2012 to below Rs 27,000 in May 2013, a 17% drop. And yes, banks and NBFCs are within their rights to demand part prepayment or complete repayment of a loan.
Says Harsh Roongta, chief executive officer of Apnapaisa.com: “The terms and conditions for loans against gold are similar to other products, such as shares or other types of collateral. So if there is a drop in the value of the collateral, financial institutions can insist on accelerated payments to safeguard their money.”
Till mid-2012, banks and NBFCs were allowed a loan-to-value (LTV) ratio of 80-95%. In other words, you could walk home with a loan that was 95% of the value of the collateral you put up. As is evident, a high LTV ratio will be seen as higher risk. “Now that the price of gold has come down, the worth of jewellery pledged by gold loan borrowers is less than that at the time of giving the loan,” explains Rajiv Raj, co-founder and director at CreditVidya.com.
He also adds, “Banks, therefore, run the risk of some borrowers defaulting on their loans.” The default rates in leading gold loan companies are reportedly in the range of 7-9% of the total loans. As a preventive measure against collateral threat, they are likely to resort to prepayment notices.
The RBI move to cap the LTV limit for NBFCs to 60% in March 2012 is a safeguard mechanism, but it does nothing to protect loans that were disbursed earlier. These are the borrowers who need to be wary at the current juncture. According to Raj, if the LTV goes beyond the prescribed limit, lenders prefer to change the terms of the original deal. This isn’t really a bolt from the blue since most lenders clearly mention in the terms and conditions that customers need to make good on the margin if the collateral value of the asset comes down.
The good news is that banks rarely resort to twisting the customers’ arms as a start. Badoor happens to be unlucky to have been stuck with a panicked branch manager, who preferred to limit the risk exposure by calling in the entire outstanding amount. Ram Sangapure, general manager, Central Bank of India, explains that though banks have the right to recover the entire loan amount at any point, most refrain from doing so. “The possibility of a borrower defaulting would be higher if the banks force them to repay the entire amount at once. So most banks avoid doing so,” he adds.
Moreover, banks are wary of selling the collateral as it may not always fetch the outstanding amount. Besides the fact that organising the sale of collateral involves costs, gold jewellery also runs the risk of depreciating by 15-20% on making charges, if auctioned.
According to Sangapure, banks typically offer two options to a borrower in case there is a sharp drop in the value of the collateral. “The first one is part-payment of the outstanding principal amount, wherein the LTV ratio becomes appropriate again,” he says. Here, the customer may have to pay just the minimum outstanding principal to get the ratio right. Though prepayment penalties on gold loans are rare, experts confirm that the banks/NBFCs charging this fee waive it if they exercise their right to an early foreclosure.
Alternatively, banks may ask for a rise in the pledged collateral. “Most borrowers would prefer to take the second route if they are sure of repaying their dues and recovering their jewellery,” adds Sangapure.
If you are stranded
Badoor is thankful that she had taken a relatively small loan and managed to repay it by borrowing from friends. However, this option may not be open to everybody. If you are slapped with a notice for an immediate prepayment or increased collateral, but are unable to opt for either, don’t panic.
Explain the situation to the bank and it is likely to work out a mutually agreeable solution. For instance, you could ask your branch manager to be allowed to pay the difference in the LTV ratio. If you are expecting some cash flow in the near future, leverage on this windfall. As long as you have a good credit record, your bank is likely to extend you grace period. Unfortunately, the chances of being able to negotiate on your EMI are slim. “The lenders will not agree to alternatives such as a higher interest rate for the same collateral since they need to report these instances to the regulator,” says Raj.
The one thing you need to be careful about is not defaulting on the loan. For, you will not only lose your pledged jewellery, but will also ruin your credit score, making it difficult to land any other loan in the future.
National Housing Bank forms India’s 1st loan mortgage guarantee company
TNN | Apr 24, 2013, 06.09AM IST | Times of India |
NEW DELHI: National Housing Bank (NHB) on Tuesday formed a joint venture company India Mortgage Guarantee Corporation Pvt Ltd (IMGC) with Genworth, Asian Development Bank (ADB) and International Finance Corporation (IFC) to extend mortgage guarantee to banks and housing finance companies (HFCs) against defaults by home loan borrowers . The move is likely to soften the interest rates on home loan.
IMGC has been registered by RBI as the first mortgage guarantee company in the country. The JV company will have a paid up capital of Rs 135 crore. NHB will hold 38% stake in the JV company and Genworth 36%. ADB and IFC will have 13% stake each.
IMGC’s primary clients will be HFCs and banks that at present are engaged in most of the mortgage lending in the country. To extend the credit guarantee, IMGC will charge fess from the HFCs and banks. The lending institutions , having taken cover from a mortgage guarantee company, besides getting protection for their money disbursed as loan, will also benefit from capital relief against such guaranteed loans through lower risk weights.
NHB CMD R V Verma said IMGC will bring good value to the industry. Mortgage guarantee will help expand the housing finance sector along with stability.
It will also help the end users , as it will finally lead to lowering of the interest rates. Verma said mortgage guarantee operations will give a boost to the housing sector by making home loans more accessible to a larger segment of the population. The increased access will result from lower down-payment requirements for borrowers due to additional security provided by the mortgage guarantee company . However, the lenders will be required to adhere to prudent appraisal standards for all borrowers covered by the mortgage guarantees to ensure that the quality of loan portfolio is always maintained .
25 Mar, 2013 | By Amit Shanbaug, ET Bureau
Buying a house is the most expensive purchase you are likely to make, so you may need help in funding it in the form of a loan. What if you take a home loan, but after some time, find yourself unable to pay the EMIs?
There could be several reasons for this, from losing your job to depleting your savings for a medical exigency. Will the bank seize your property if you miss 2-3 mortgage payments? No, not immediately, but if you continue to default for six months, the bank will take over your house.
Lenders are willing to negotiate
Attaching a property is the last thing a lender wants to do. Though banks have the power to enforce the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, (SARFAESI) to recover non-performing assets without the intervention of a court of law, this is the last step they prefer to take.
Lenders are willing to negotiate
“If the borrower doesn’t respond to any of the mails, the bank sends a legal notice through its legal department,” says VN Kulkarni, chief counsellor at Abhay Credit Counselling Centre, which is sponsored by the Bank of India. A bank waits for three months before declaring an asset a non-performing one.
“After the end of this period, the bank can officially term the home loan an NPA and start the process of recovering the property through the SARFAESI Act,” says Kulkarni. Even after invoking the Act, the bank gives the borrower a 2-month notice period to repay the dues.
Lenders willing to offer leeway if borrower is serious about paying the dues
“Finally, five months after the first default, the bank sends a notice, stating that it has valued the property for a certain sum and that it will auction the house on a particular date. This is usually set for a month from the date that the bank mails you the auction notice,” adds Kulkarni.
Says Pankaaj Maalde, head, financial planning, Apnapaisa.com: “Banks and financial institutions are more interested in recovering the money than in starting legal proceedings as the procedure of attaching and auctioning a house is lengthy and takes time. So, they will pursue the matter for at least six months before taking legal action.”
The last stage is usually when a borrower gets a notice from the Debt Recovery Tribunal (for loan amounts of more than Rs 10 lakh). It is compulsory for you to attend the hearing that is set by the tribunal, where you can reach an agreement with the bank. If you are serious about paying your dues and have a good repayment track record, the bank will be willing to offer a leeway.
Lenders allow borrowers to reclaim your property
The first step that the bank takes is to understand the reason for the default since a home loan is a secured one, with the bank having more control over the asset. “If a bank is satisfied that the problem is genuine and that the borrower will start paying the EMI soon, it will be willing to wait for some more time. However, banks take such decisions on a case-to-case basis,” says Maalde.
Adds Rajiv Raj, director of CreditVidya: “Most lenders take a practical view of the situation and understand how critical the house is for the individual. So they will closely interact with the borrower to understand the reason for the financial hardship.”
In fact, a bank will allow you to reclaim your property even after it has seized it, though this has to be done before the auction takes place. Says Kulkarni: “Even if the auction date has been announced, the borrower can come in at any stage and pay the dues to save his property. However, if the bank has incurred any charges for announcing the auction, the borrower will have to pay these.”
A bank usually lets one mortgage payment default slip by, but for the next one, it will mail you a reminder to inform you that your payments are late. After three defaults, the bank will send a demand notice, asking you to pay your dues as soon as possible.
What are your options?
If you’ve lost your job, but are confident of getting a new one within six months, you can ask the bank to offer you a moratorium for this period. However, if your finances are strained due to some other reason, such as the EMI going up because of a hike in interest rates or increase in personal expenses, ask the bank to restructure your loan. To either reduce the EMI or keep it at the same level despite a higher interest rate, you could increase the loan tenure.
If you have taken an insurance product, which also provides a cover for loss of job, the insurance company will take care of the EMIs for three months from the date that you lost your job. For instance, ICICI Lombard’s Secure Mind Health plan provides a cover for nine major medical illnesses and procedures, death and permanent total disability due to accident and loss of job.
Ensure that credit score is not adversely affected
Under the plan, the insurer will pay three EMIs on any loan that you have taken if you lose your job. The hitch is that the job loss should be due to retrenchment, layoff or health reasons, and not because you were fired.
Also, though you can take a cover equivalent to your outstanding loan amount, the policy tenure is only five years. The main reason you need to start paying the EMI again, other than avoiding possession of your home by the bank, is to ensure that your credit score is not adversely affected.
About 30% of your credit score is based on repayment history and a significant part of this usually depends on how regularly you repay your home loan, if you have taken one.
Dip into your savings and redeem your investments
Even one or two missed payments can negatively impact your credit score, and a continuous default will dent it severely, making it difficult to get loans or credit cards in the future.
Since this is a dire circumstance, you could dip into your savings and retirement kitty and redeem your investments to pay the EMIs. However, if it seems that the situation may not improve even after six months, a better idea may be to sell the property.
You can talk to the bank about this and use the sale proceeds to prepay the loan. However, ensure that while the sale negotiations are on, you continue paying the EMIs. This will prove to the bank that you aren’t taking it for a ride and will ensure that your credit score doesn’t dip.
Source : http://goo.gl/i82Qp