Byapaar.com – The Indian Business Blog

Amidst global economic turmoil and financial crisis caused by US subprime lending crisis that caused havoc in markets around the world, Indian nationalized banks in consultation with the government have announced reduction of interest rates on home loans of up to Rs. 2 million that could lead to partial impetus in the realty sector. Just last week industrial production in India contracted for the first time in 14 years.

According to the new rates set by the banks, housing loans of up to half a million Rupees will now have interests of 8.5 percent and that of loans between half a million to two million will have interest rates of 9.25 percent. Presently, interest for home loans is 9.75 to 10.5 across various sectors in the banking industry.

This brings very good news for millions common people who can not afford to think of a house or flat beyond Rs. 2 million. Another additional feature of the new housing loan package is that interest rates will remain frozen for 5 years which means clients will not have to worry about increased equated monthly installments (EMIs) during this period. Also they will enjoy the benefit of rate cuts in between while banks will take the burden if rates rise. After five years, consumers could choose either fixed or fluctuating rates according to their choice. This makes debt management a lot easier for the common person.

Not only this, but banks have also reduced the margin requirements for loans. While previously, borrowers were required to pay between 20 to 25 percent of the total amount as margin money, it has been trimmed down to 10 percent for loans up to half a million and 15 percent for loans between half a million to 2 million.

According to bankers, this move will see around Rs. 150 to 200 billion being released over next few years and help the common men who constitute eighty percent of nationalized banks’ housing loan book. (continue reading…)

Finally the turbulence of politics is over with the UPA led by the Indian National Congress withstanding a tight no-confidence motion in the Lok Sabha on 22^nd July. The Left Front has been blocking almost all major reforms which are so badly needed to push the economy to the next level. It has been frustrating 4 years for both pro-reform Prime Minister Mr. Manmohan Singh and also the business community. Now that all is over, the UPA government is determined to push through reforms in many fields like insurance, telecom etc. despite the alarmingly high rate of inflation that stands @ 11.98% today!

High rate of inflation has also made the apex bank (Reserve bank of India) to raise interest and thereby make bank deposit attractive. On the other hand, the long bull run of the stock market also ended with the start of the turbulence of government instability and skyrocketing international fuel price.

So as an individual – where do I put my money? Most banks are offering an attractive 10% annual interest rate. But is it long lasting? Despite forecast of an economic slowdown, businesses remain upbeat on long-term economic prospect of the country.

So the ideal way to invest your money is to divide your funds and put them into both the markets. While it is not guaranteed that bank rates will always remain the same, one can not also say for sure when the equity/stock market is going to recover! (continue reading…)

Just imagine what happens if the “title” of this post comes true sooner than later in India. Heard of Credit Rating? Being an Indian, I have only read about it on newspapers occasionally and sometimes found irritating SPAM mails on my inbox by some companies who were enticing me to make my credit score higher even if I had bad debt.

But don’t be surprised if you are denied a bank loan in the near future because of your bad credit score caused by intentional default or irresponsible financial management by you. On the other hand your loyal driver has been paying his mobile bills, gas bills regularly and hence he gets a a very high credit score. He gets cheaper bank loans, but you are denied.

Yes you guessed it right. If everything goes according to the plan the biggest names in credit rating industry ( such as Equifax and Experian ) will be opening their shops very soon infront of your office desk and decide on your eligibility for loans Quite scary! But thats what Indian government has been contemplating based on an assessment by a consortium of banks and financial institutions. They have already filed an application with the Reserve Bank Of India (RBI). So far there has only been one credit rating agency operating in India known s Credit Information Bureau Of India Ltd. (CIBIL). But its work has been limited due to absence of proper regulations. The government passed The Credit Information companies Act. only in 2005 that enables banks and financial institutions to reduce risks of bad debt and fraudulent activity. They can now share sensitive personal information of consumers with a recognized agency without taking permission from the person concerned. These agencies are to analyze the data and collect further information to build profiles of individuals to judge their eligibility for loans. People who gets higher score are to receive bank loans quicker and cheaper. On the other hand those with low scores might even get denied.

However the concept is still new in India and it remains to be seen how willing are banks and other institutions to part with the database. Another factor in this regard is how serious will the bank take on the analysis provided by these credit rating agencies. The government on the other-hand is trying to formulate a more detailed regulation making it mandatory for all banks to subscribe to at least one such agency.

So its going to be bad times for loan defaulter pretty soon. Be careful!

During his post-budget interaction with industry chamber the Assocham, Indian Finance Minister Chidambaram told that he felt home loan rates up to Rs. 20 million should be reduced and it is the duty of the RBI and other banks to see to it that the housing loan rate is slashed.

To quote Mr Chidambaram -

“I shall certainly bear in mind that there is public demand that interest rates for borrowers, who borrow (housing loans) up to Rs 20 lakh, must be lowered,”

According to Chidambaram, around 80 percent housing loans fall under the category of below Rs. 2 million and they carry a low risk for banking and credit industry. Hence, all banks should encourage to tend home to people by offering incentives and sops  through interest rate cuts. This would stimulate a lot of key industrial sectors.

The Finance Minister also lauded the efforts of RBI ( Reserve Bank Of India) Governor for drawing up a policy that maintains a balance between high rate of growth with that of low inflation.