Tagged: RBI

NTH :: Banks should link home loan rates to repo rate: RBI appointed committee

By Saloni Shukla – ET Bureau | Updated: Aug 25, 2017, 12.05 PM IST | Economic Times

NTH

MUMBAI: A Reserve Bank of India appointed committee on Household Finance has suggested that banks link their home loan rates to the RBI’s repo rate, the rate at which it lends to banks, instead of the Marginal Cost of Funds based Lending Rate (MCLR), which the banks follow now.

“Banks should quote loans to customers using the RBI repo rate rather than based on their own MCLR rates,” the committee report chaired by Dr Tarun Ramadorai, Professor of Financial Economics, Imperial College Business School, London, suggests. “To facilitate ease of comparison for prospective borrowers at the point of purchase, every floating-rate home loan should be quoted to prospective borrowers in the form of a market-wide standardised rate + spread as opposed to MCLR + spread.”

While these recommendations need not be accepted by the regulator, it comes when the RBI had hinted it was unhappy with the rate transmission under the MCLR regime. In the past three years the central bank has reduced the policy rate by 200 basis points, but the weighted average lending rates have fallen by 145 basis points. A basis point is 0.01 percentage point.

“The experience with the marginal cost of funds based lending rate or MCLR system introduced in April 2016 for improving monetary transmission has not been entirely satisfactory even though it has been an advance over the earlier base rate system,” Viral Acharya, deputy governor RBI had said on August 2. “We have constituted an internal study group across several clusters to study various aspects of the MCLR system and to explore whether linking of the bank lending rates could be made direct to market determined benchmarks going forward. The group will submit the report by September 24th 2017.”

The committee has also recommended that all banks use the same reset period of one month for loans. Under the current system, floating rate loans have a fixation period of roughly one year. The report argues that the current system impedes monetary transmission mechanism and does not allow borrowers to immediately benefit from interest rate drops.

“If the bank decides to link home loans to the one-year MCLR, it should pass through any changes in the one-year MCLR rate to borrowers every month,” the report says. “And if the bank decides to link home loans to the six-month MCLR, it should pass through any changes in the six-month MCLR rate to borrowers every month.

Source : https://goo.gl/kBksEU

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NTH :: RBI makes home loans above Rs 75 lakh cheaper

Mayur Shetty | TNN | Updated: Jun 7, 2017, 03:10 PM IST | Times of India

NTH

MUMBAI: In a move that will encourage banks to lend more for housing in large cities and make high value home loans cheaper, the Reserve Bank of India reduced the risk weightage on home loans above Rs 75 lakh to 50% from 75% earlier.

“Considering the importance of the housing sector and given its forward and backward linkages to the economy, it has been decided as a countercyclical measure, to reduce the risk weight on certain categories. It has also been decided to reduce the standard asset provisioning on such loans,” RBI said in its monetary policy.

In its monetary policy review the RBI retained the repo rate at 6.25% and the reverse repo rate at 6%. The marginal standing facility (MSF) – an emergency funding facility continue to remain at 6.5% as also the cash reserve ratio of 4%.

In another move that will ease liquidity in the banking system by close to Rs 50,000 crore, Reserve Bank of India has reduced the statutory liquidity ratio (SLR) – the prescription for minimum holding of government securities. As against investing 20.5% of their deposits in gilts, banks will now have to invest only 20% with effect from June 24, 2017. RBI said that the reduction was aimed at allowing banks to comply with the international norms on liquidity coverage that come into effect from January 2019.

It was widely expected that the central bank would keep rates on hold. However, economists believed that RBI would ease its stance from `neutral’ to `accommodative’ to send a message that easy money conditions would prevail. The central bank however continued to maintain a neutral stance on the ground that easing of prices might be temporary. It also pointed out that fuel prices have been hiked since the inflation numbers were published and prices might rise further.

Source: https://goo.gl/6c974Q

ATM :: Should you take a home loan from a bank or an NBFC?

Should you take a home loan from a bank or an NBFC?You would find NBFCs more willing to lend even if you have a poor credit score

Adhil Shetty | June 10, 2017 Last Updated at 22:13 IST | Business Standard

ATM
Lending rates have trended downwards over the last two years. Currently, several lenders are offering home loans at an interest rate of 8.35 per cent, way lower than the 10-11 per cent rate that prevailed four years ago. For customers this translates into a lower Equated Monthly Installment (EMI) on an existing loan, or allows them to borrow more to finance a bigger home. As they begin the process of short listing a loan provider, customers may find themselves wondering whether they should borrow from a bank or an NBFC (non-banking financial company). Here’s a look at some of the key criteria that will help you make this decision.
MCLR vs PLR

All new loans with floating interest rates offered by banks are now linked to the Marginal Cost of Lending Rate (MCLR). This departure from the base rate regime began on April 1, 2016. The MCLR serves as a bank’s lending benchmark, upon which they charge an interest rate spread. For example, for home loans up to Rs 30 lakh, a leading bank has a spread of 35-40 basis points above its one-year MCLR of 8 per cent. 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. This wasn’t the case with the base rate-linked loans where transmission of rate cuts was weaker.

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. While banks can’t lend at rates below the MCLR, PLR-linked loans do not have such restrictions. NBFCs and HFCs are free to set their PLR. This allows NBFCs greater freedom to increase or decrease their loan rates as per their selling requirements. This suits customers and provides them more options, especially when they fail to meet the loan eligibility criteria of banks. This also needs to be understood in context of a customer’s credit score, explained below.

Loan to value ratio

The actual cost of property acquisition typically goes up to 105-110 per cent of the property value, including cost of stamp duty, registration, and an assortment of payments towards brokerage, furnishing, repairs, etc. Based on where you are in India, you may pay between 3 and 11 per cent of the property value as registration cost. Banks are allowed to fund up to 80 per cent 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. The other 25-30 per cent of your fund requirements would have to be met by you. Often, these last mile costs weigh heavily on the final decision to buy a property. Both NBFCs and banks are not allowed to fund stamp duty and registration costs. However, 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, thus giving the NBFC an edge over competition.

Should you take a home loan from a bank or an NBFC?

Product bundling

Both banks and NBFCs may bundle products. For example, it’s not unusual for lenders to sell a loan protection insurance plan along with a home loan. The insurance plan helps settle the loan in case the borrower were to pass away during the tenure. Both banks and NBFCs have cross-selling targets. While banks have a much larger range of products to sell, NBFCs push more aggressively to sell third-party products like insurance to bring in more profitability per customer. Compared to banks, NBFCs have a smaller customer base. They have fewer branches and operate in fewer locations. As a result, there is an increased focus on profitability per customer. Customers need to evaluate whether the bundled products are useful to them. If not, they can refuse them and save costs.

Credit scores

Today, there is heightened focus on customers’ credit scores. Increasingly, the interest rate you pay on your loan is linked to your credit score. For example, a leading bank had recently offered its best rates to customers with a CIBIL score of 750 or more. You needn’t wait to apply for a loan to find out your score. You can access one free report a year by visiting the websites of credit rating agencies such as CIBIL or through third-party credit report generators.

If you scan the loan market, you will see that NBFCs have more relaxed policies towards customers with low credit scores. However, with a low score, both banks and NBFCs will likely charge you a higher interest rate. Loan seekers can make the best of both these options. A customer with a low score may start with a loan from an NBFC. Through timely repayment, he can improve his credit score. After this, he may meet a bank’s eligibility criteria and may transfer the loan balance to the bank. If the outstanding loan amount at this point is small, it’s better to continue with the NBFC.

Overdraft facility

A home loan is typically a long-term commitment with significant interest costs. If you borrowed Rs 50 lakh at 8.6 per cent for 20 years, your total interest paid over the loan tenure will be Rs 54.89 lakh, which is more than the principal borrowed. Therefore, loan holders look to reduce their interest outgo through timely pre-payments. An overdraft (OD) loan facility helps in this regard. An OD loan is linked to the customer’s bank account in which he can park surplus funds. The surplus over the EMI amount is treated as pre-payment towards the home loan, thus bringing down the overall loan liability and interest charged on the balance. Moreover, the customer can still withdraw the surplus as and when he requires it. At present, only banks provide the OD loan facility and NBFCs don’t. This facility is useful to families with the ability to generate regular surplus income, such as a working couple. It is also useful for someone who may be in frequent need of short-term funds, such as a businessman who can withdraw this surplus based on his needs.

Paperwork and processing

Banks have more stringent paperwork requirements for home loans. This is not necessarily a bad thing for the loan seeker. In lieu of the greater scrutiny, he stands to receive an attractive interest rate. NBFCs are known for relaxed paperwork policies and faster processing. For example, in Bengaluru banks will not finance properties that do not have a ‘B’ Khata, but NBFCs will.

The writer is CEO, BankBazaar.com

Source: https://goo.gl/RzrnDg

NTH :: RBI takes surprise action to soak up liquidity

Neha Dasgupta, Suvashree Choudhury, Savio Shetty | Sat, Nov 26 2016. 05 37 PM IST | Live Mint
RBI says banks will need to transfer 100% of their cash under the central bank’s cash reserve ratio from deposits generated between 16 September and 11 November

NTH

New Delhi/Mumbai: The Reserve Bank of India (RBI) on Saturday unexpectedly ordered banks to deposit their extra cash with it, in a bid to absorb excess liquidity generated by a government ban on larger banknotes.

Many Indians deposited their old notes with their banks after the ban on Rs500 and Rs1,000 notes on 8 November, which is aimed at tax evaders and counterfeiting.

Banks had put some of this cash into government bonds, sparking a rally that saw the benchmark 10-year bond yield fall more than 50 basis points to its lowest in more than 7-1/2 years.

The central bank said banks would need to transfer 100% of their cash under the RBI’s cash reserve ratio from deposits generated between 16 September and 11 November, saying it was a temporary measure that would be reviewed on or before 9 December.

Traders called it a drastic move intended to dent the rally in bond markets, adding that the RBI could have opted for more modest measures such as sucking out some of the liquidity through sales of market stabilisation bonds or telling banks to park funds under reverse repos.

The action could also temper market expectations that the central bank would cut interest rates by 25 basis points at its next policy review scheduled for 7 December, after already easing them by the same amount at its last review in October.

“The move is more of a ham-handed one than the finesse expected from the RBI,” said Shaktie Shukla, founder of boutique investment advisory firm Kaithora Capital.

“The liquidity sweep will definitely halt the down move in (bond) yields,” he added. “It will also temper the euphoria pre- RBI policy.”

The move is likely to drain over Rs3.24 trillion from the banks, according to Reuters estimates.

Traders said bond market yields could rise 8-10 bps on Monday, given that the RBI move would deprive the key source of funding seen in the past two weeks, while banking shares would likely take a hit.

Bond investors had also bet India’s demonetisation action would dent economic growth as consumers held back on purchases, raising the prospect of a rate cut by the RBI.

At the same time the bond rally had increased hopes it would lower borrowing costs in the economy and allow banks to reduce some of their lending rates.

On Friday the central bank also relaxed its liquidity auction rules by expanding its basket of securities that it accepts as collateral. Reuters

Source: https://goo.gl/ERqvTL

NTH :: RBI seeks to regulate P2P lending space

The platform owners & investors hail the move as regulation gives RBI’s stamp of approval to a business that is completely banned in countries like Japan & Israel
Anup Roy & Abhijit Lele | Mumbai | April 29, 2016 Last Updated at 00:25 IST | Business Standard

NTH

The Reserve Bank of India (RBI) on Thursday came up with a discussion paper on peer-to-peer lending (P2P), seeking to regulate the fast emerging crowdfunding platforms as the new financing model has assumed importance too significant to be ignored.

Interestingly, the platform owners and investors welcomed the development as regulation gives RBI’s stamp of approval to a business that is completely banned in countries like Japan and Israel.

“Any space where money changes hand should be regulated. Regulation is good for the industry, but it should be light regulation” said Mohandas Pai, former board member of Infosys and investor in Faircent.com, a P2P lending platform. “Regulation will help us in our business and we can approach the court of law as legal entities for our needs and even for recovery,” said Bhavin Patel, co-founder of LenDen Club, a P2P platform.

In fact, RBI itself is aware of this and sounded a little hesitant in giving this recognition to the business model. But the central bank officials, including Governor Raghuram Rajan, have said the RBI cannot remain indifferent to new innovation in financing activities and growth in P2P sector. To allow regulation, RBI’s discussion paper said the platforms should adopt a company structure that can then be regulated by the central bank. Currently, the P2P platforms are run by individuals, proprietorship, partnership or limited liability partnerships — areas outside RBI’s jurisdiction. The P2P platforms are largely technology companies registered under the Companies Act and acting as an aggregator for lenders and borrowers thereby, helping create a match between them.

“Although nascent in India and not significant in value yet, the potential benefits P2P lending promises to various stakeholders (to the borrowers, lenders, agencies etc.) and its associated risks to the financial system are too important to be ignored,” RBI said.

Presently, there are around 30 start-up P2P lending companies in India, RBI said. Globally, the cumulative lending through P2P platforms at the end of fourth quarter of 2015 reached £4.4 billion, from just £2.2 million in 2012. While banned in some countries, in some other jurisdictions, the P2P platforms are either considered part of banking, or are intermediaries.

RBI’s own discussion paper favoured the platforms to act as intermediaries, to be registered as non-banking finance companies with a minimum capital of Rs 2 crore, so that promoters have “skin in the game”. The discussion paper also sought to curtail the freedom of these companies significantly and said funds raised through the platforms should go directly from the lenders’ bank account to the borrowers’.

P2P LENDING BUSINESS

  • The business size globally is £4.4 billion but nascent in India
  • Completely banned in Israel and Japan but allowed elsewhere
  • RBI plans to treat it as intermediary NBFC
  • Minimum capital requirement is Rs 2 crore
  • Should not take deposits
  • Cannot show lending and borrowing funds in its balance sheet
  • Money should go directly from lender to borrower
  • Can only take fees, provide creditworthiness info
  • Should not provide cross-border transactions
  • Management should be stationed in India

Source : http://goo.gl/HB0yhG

NTH :: Raghuram Rajan has just turned your smartphone into a bank, here is how you can use it

By Preeti Kulkarni & Pratik Bhakta | ET Bureau | 12 Apr, 2016, 10.24AM IST | Economic Times

NTH

Smartphones are not just useful for social media, videos and taking selfies. They will now become an important part of your daily life by doubling up as a portal for making payments, sending and receiving money etc.

Ten of the country’s biggest banks along with the Reserve Bank of India have just launched a Unified Payments Interface (UPI) — a mega app that will sit on your smart phone once you have downloaded it and dramatically reduce the cost and time taken for making simple payments. What’s more, you can use this app to pay for any transaction below Rs 1 lakh, even something as low as Rs 50.

The biggest impact of this app will be on third-party payments. Today, if you want to pay someone, you need to add him or her as a beneficiary. You need the IFSC code and bank account number and branch etc. The UPI app does away with all this. All you need is the receiver’s unique ID. Open the UPI app, select the amount to be paid, add the unique ID of the beneficiary and select ‘send’. The app will ask for a mobile pin to authenticate the payment after which it is done.

This can be useful not just in making regular payments but also in transactions between friends. You have just had a drink at the bar and want to share the bill. One person pays and the others just transfer the money to his account. No need to use cash, no need for the IFSC code and all that.

Remittances will also become easier and the same process applies here as well. Cash on delivery, the big driver behind the ecommerce boom, will probably die a natural death for people with smartphones. They can use the UPI app to pay after receiving the goods. All they need to know is the unique ID of the ecommerce firm. The buyer can also scan a QR code that the delivery boy carries through his UPI app or pay directly to the unique ID of the delivery boy.

Raghuram Rajan has just turned your smartphone into a bank, here is how you can use it

How can a customer use UPI

1. He will need to have a bank account and a smart phone.

2. Download the UPI app of a bank from PlayStore

3. Connect the bank account

4. Create a Unique ID

5. Generate a mobile pin

6. Also link Aadhaar number

Only 10 banks are part of this now but others are expected to join. Another big feature of UPI is that you can use any bank’s systems to transfer money or make payments. You don’t need an account with that specific bank to be able to use its UPI app. All you need to do is to download that bank’s UPI app, register yourself and make the payment.

Source : http://goo.gl/oou2db