SBI won't make unique home-loan provisioning

With the finance ministry’s economic survey backing State Bank of India’s (SBI) controversial yet popular home loan scheme, bank chairman O P Bhatt said SBI will not have to make any special provisioning for such loans.
SBI home loans, which offer a lower interest rate in the initial years and rate increases in the later years, were termed teaser loans by the Reserve Bank of India (RBI). RBI is not comfortable with banks offering such products and had increased the standard provisioning requirement for such loans by five times, to two per cent in October.
The increase in provisioning would have put a huge burden on SBI, as most of its home loans were disbursed after February 2009, when the scheme was launched. After RBI increased the provisioning requirement, SBI has tweaked the scheme by offering a fixed discount in the initial years, instead of charging a fixed rate. All floating-rate home loans will be linked to the bank’s base rate.
“The economic survey has said it is far better than I ever said it before. They have sort of reinforced and reiterated what we have said and I am glad that it has happened. We did not ask for an exception, we are totally compliant with what the regulator wants,” Bhatt said today.
Bhatt said SBI’s loans cannot be termed as teaser loans, a view supported by the finance ministry, and hence no extra provisioning is required.
“It is not about compliance, it is about clarity on the nature of the product that RBI labelled teaser loans. The government has called it terraced loans. According to the definition by RBI, we do not have a single teaser loan. In our opinion, we will not have to make any special provision,” Bhatt said.
On interest rates, the SBI chairman said interest rates are expected to go up, but not more than 25-50 bps. SBI, which raised its rates last month, is not contemplating a rise in both deposit and lending rates immediately, he said. Bhatt also said the bank was comfortable on liquidity.
“We have three per cent excess SLR currently. We have enough liquidity in SBI, partly because retail deposits grew at a good pace, and partly because we picked up bulk deposits quite early and also because of the response we got on the retail bond issue,” Bhatt said.
On the proposed rights issue, Bhatt said it may happen in the early part of the next financial year.

Why you should go for a fixed home loan rate now

Some analysts indicate that home loan interest rates may rise in the near future. There are indicators to this effect. The high inflation rate of around 10 % could affect the stable macroeconomic and interest rate environment here.
The Reserve Bank of India (RBI) may hike the key interest rates again to cool down the inflation rate in the next credit policy review in the next couple of months. The inflation rate has been rising due to the rising food prices.
The RBI had hiked the key rates in the Annual Credit Policy for 2010-11. It increased the short-term lending and borrowing rates and the portion of banks' deposit with it by 25 basis points each.
The move was aimed at controlling the inflation rate spiral without choking growth. It had hiked the key lending and borrowing rates, as also the mandatory cash reserves banks park with it by 0.25 %.
Hike in rates will raise cost of funds for lenders
The RBI increased the repo and reverse repo, the rates at which it lends to and borrows short-term money from banks, by 25 basis points. It hiked the cash reserve ratio (CRR), the portion of money that commercial banks deposit with the central bank, by an identical percentage.
The move was to draw out Rs 12,500 Cr from the system. The hike in the repo and reverse repo rates, to 5.25 and 3.75 % respectively, will raise the cost of funds for lenders.
At that time, borrowers could breathe easy as there was enough liquidity in the system. The policy actions resulted in the cost of funds going up which was absorbed by the banking system.
Interest rates may increase in coming months
Likewise, the RBI had said that it will continue to monitor macroeconomic conditions, particularly the price situation, closely and take further action as warranted.
The three major factors that could have a bearing on inflation are uncertain monsoons, volatile prices of crude oil in the international markets, demand pressures.
Presently, all these factors are uncertain. The global factors including the euro crisis, volatility in the stock markets, oil prices etc are all causes of concern. The inflation rate hasn't really reversed.
The economic growth is contingent to a large extent on the monsoons. All these micro and macro indicators indicate that the interest rates may again increase in the coming months. Bad monsoon, global cues and spiraling inflation, can push up interest rates.
Realty attractive
Following the global slowdown the property prices went through a correction. Now, as the economy has staged a recovery, the prices too are on an upward trend.
There is more job security and homebuyers are back in the market. Regardless of the interest rate movements, this is a good time for those planning to buy property to make a move. The question is which one to go for—fixed and floating rates.
Fixed rate ideal
Those planning to purchase a house may do well to lock-in their borrowing now. They should go in for a fixed rate loan. As such, there is no concept of fixed rate loans for the entire tenure of the home loan. The interest rate is generally fixed for only two or three years, after which it is subject to revision. Yet, one should lock into a fixed rate loan.

Home Loan: Getting an owned house is not difficult further

Most of us cannot afford to build our own homes. This may be due to scarce financial resources or unavailability of land or the absence of a desire to live in an owned home. Whatever the reason may be, there is no denying the fact that an owned home is always better than a rented accommodation since it saves valuable finances and is a valuable long-term investment by all standards.
In context of the Indian housing market, it can be clearly said that the home loan borrowers are happy customers these days, all thanks to the customer-friendly terms, conditions and plans. The reduced home loan EMIs due to intensified competition have opened the doors of personal prosperity and asset accumulation for many home loan aspirants these days.
Due to the emergence of new market players in the Indian housing loan market, the interests of home loan aspirants have blossomed to a considerable extent. There is a remarkable difference in the Indian loan market of yesteryears and today. The changing market trends and attitudes of the financial institutions as well as the other lenders have bolstered the overall growth and prosperity of the Indian housing loan market.
The industry and customer-friendly guidelines issued by the Reserve Bank of India (RBI) have also strengthened the market norms and attitude. If we have a close look at the home loan EMIs rates for the last few years, we can easily conclude that the reformative measures introduced by many financial institutions and the Indian government in all these years have contributed significantly in an attempt to grab the attention of home loan aspirants. The home loan EMIs has helped the middle and low-class income earners to start thinking about their own homes. This is evident from the fact that in the last two years, the majority of customers asking and/or availing the home loans belonged to these economic classes. The option of making an equated monthly instalment rather than making a lump-sum payment obviously encourage more home loan aspirants.
Some of the most eminent Indian financial institutions such as State Bank of India, HDFC, ICICI, Standard Chartered and Punjab National Bank etc. have opened their hands to greet the home loan aspirants. The plans and policies of these banks have motivated the working class of the country to strive for an owned home rather than living the life of misery in rented or PG accommodation.
A prospective home loan borrower must consider certain things before starting the search for a lender. He must be ready to spend some of his valuable time in understanding the present home loan market trends as that will help him to get effective bargains without losing his focus. The advice of a financial expert, who is dealing in the arena of home loans, is highly recommended since he can offer a complete insight into the complexities of the housing loan segment.
Home loan in India can be taken by any individual who is of the age of 18 years and holds the citizenship of India. Some of the banks are also offering the home loans to NRIs, subject to fulfilment of certain pre-defined conditions. The loan applicant must have a regular source of income and preferably must be enjoying a good credit rating. He must have a valid identity and residence proof such as Government ID card, PAN card, passport, voter ID card and bank statement with address etc. The loan formalities are quite easy, making it pretty easy for the loan aspirants to obtain such loans.
Thus, it can be easily said that the reducing home loan EMIs have surely helped the Indian masses to think beyond the self-defined limits.

Fixed rates loans the best option

The RBI increased the repo and reverse repo, the rates at which it lends to and borrows short-term money from banks, by 25 basis points. It hiked the cash reserve ratio (CRR), the portion of money that commercial banks deposit with the central bank, by an identical percentage. The move was to draw out Rs 12,500 crores from the system. The hike in the repo and reverse repo rates, to 5.25 and 3.75 percent respectively, will raise the cost of funds for lenders.
At that time, borrowers could breathe easy as there was enough liquidity in the system. The policy actions resulted in the cost of funds going up which was absorbed by the banking system. Moreover, the RBI had said that it will continue to monitor macroeconomic conditions, particularly the price situation, closely and take further action as warranted. The three major factors that could have a bearing on inflation are uncertain monsoons, volatile prices of crude oil in the international markets and demand pressures.
Presently, all these factors are uncertain. The global factors including the euro crisis, volatility in the stock markets, Greece debt crisis, oil prices etc are all causes of concern. At home, the inflation rate hasn't really reversed. The economic growth is contingent to a large extent on the monsoons that are not yet very certain.
All these micro and macro indicators indicate that the interest rates may again increase in the coming months. A bad monsoon, global cues, and spiralling inflation, can push up interest rates again.
Realty attractive
Following the global slowdown the property prices went through a correction. Now, as the economy has staged a recovery, the prices too are on an upward trend. There is more job security and homebuyers are back in the market.
Regardless of the interest rate movements, this is a good time for those planning to buy property to make a move. The question is which option to go for between fixed and floating rates.
Fixed rate ideal
Those planning to purchase a house may do well to lock-in their borrowing now. They should go in for a fixed rate loan. As such, there is no concept of fixed rate loans for the entire tenure of the home loan. Nowadays, the term fixed rate loan is relative. The interest rate is generally fixed for only two or three years, after which it is subject to revision, depending on the market rates of interest. Yet, one should lock into a fixed rate loan.
Some analysts indicate that home loan interest rates may rise in the near future. There are indicators to this effect. The high inflation rate of around 10 percent could affect the stable macroeconomic and interest rate environment here.

SBI head sees interest rates hardening soon

There could be some hardening in interest rates in the days to come, according to Mr O.P. Bhatt, Chairman, State Bank of India.
“There continues to be surplus liquidity in the system and credit offtake has not picked up, in fact it has been negative and by the end of June it could be flat. Capital inflows also look good for now, so there is no pressure on liquidity, however, if RBI takes steps to control inflation, liquidity could dry up, and there could be an upward bias in interest rate,” he said.
The bank aims to raise Rs 15,000-20,000 crore, preferably by way of a rights issue by the end of this fiscal.
“We have adequate capital at present. But we are in talks with the Government for seeking their approval for a rights issue, which would help us maintain the Government's stake at the present level of 59 per cent,” he said.
The bank also had the option of raising funds by diluting government's stake from 59 per cent.
“Though rights issue will be the preferred route, in case government does not agree for that, then we have the cushion of bringing down government's stake to 55 per cent (59 per cent). There is also a Bill in the Parliament, which will enable us to bring down government's stake further to 51 per cent so we can dilute up to eight per cent and can raise about Rs 20,000 crore,” he pointed out.
The bank also plans to come out with a retail bond issue of about Rs 200 crore in the first half of this year. The bonds would have a duration of 15 years, with a call option for 10 years, or duration of 10 years, with a call option of five years, he said.
The bank also wanted its life insurance venture, SBI Life, to be listed, he said. “We are not in need of capital for the company, but we would like it to be listed, so that there can be some price discovery. We are in touch with IRDA for that,” he said.
On the overseas front, the bank plans a foray into the Latin American countries.
“There are places where we already have licenses. For example, in Botswana we already have licenses and we have not utilised that so far,” he said.
The bank would also consider foraying into countries where there is business from India but the bank has no presence so far – such as in Africa, where Indian companies might go for energy, metals or minerals, he observed.
SBI Card may break even
SBI Cards, the credit card venture of the bank is likely to break even by the end of this fiscal, he said and added, “The losses have been coming down, we have been able to issue about 25,000 fresh cards on a monthly basis; we are hopeful of breaking even by this fiscal.” The net loss was down by 17 per cent at Rs 154 crore (Rs 185 crore) during the present fiscal.

Steps For choosing a safe, beneficial home loan

Owning a home is a dream of every person. Purchasing a home may mean different things to different people. To a middle- class person, it is an achievement of a life-time, while for the affluent it may represent their arrival on the social stage.
Nevertheless, whatever one’s means, banks and housing finance companies have consistently played a pivotal role in fulfilling this basic need? For a safe and beneficial home loan, proper awareness over the products, policies, terms and conditions of the bank is most important as ignorance may result in wrong decisions having a lifelong impact.
WHILE CHOOSING A HOME LOAN MANY QUESTIONS ARISE
How do I go about obtaining a loan?
How do I find a property that suits my budget?
What will be the EMI? How is it calculated?
What are the eligibility conditions for a home loan?
What are the home loan rates offered by Banks?
These are basic questions that need to be answered! Obtaining a home loan may seem very cumbersome but a systematic approach will allow you to be a proud owner of your home.
CHOOSING THE LENDER

First before one sets out on the journey to buy a home one needs a pre-qualified home loan. Without this in hand, it isn’t recommended you begin your search for a new house. The more you hunt for a home without funds, the greater will be the stress. The first step towards your loan is choosing the besthousing finance companies (HFC) which can guide you through the entire procedure.
Various points need to be kept in mind when discussing and finalising a home loan - interest rates, application processing fee (generally around 0.50% to 1.00% of total loan amount), legal charges, pre-payment charges, valuation fees, and other hidden costs.
WHILE CHOOSING THE BEST OPTION COMPARE FOR THE FOLLOWING IN THE COMPETITION

Check the rate of interest being charged.
Check the processing fees being charged.
Check the movement of the benchmark rate over the last two years.
Check the partial and prepayment fee clause.
Consolidate debt so that not more than 50% of the monthly income is going into servicing debt.
THE PROCESS

Once you have identified the right institution, you will need to fill some forms: an application form, Know Your Customer form (KYC), age proof, and submit employment and Income details to the financial institution. The application is processed on the basis of income papers and KYC documents of the customer.
After this the Bank will do a due diligence to verify the authenticity of the borrower and check the veracity of the income papers. Once the due diligence is over, the Bank will assess the repayment capacity of the applicant and then sanction the loan on the basis of his/her credit worthiness.
On the basis of the sanctioned loan, it becomes easier for the applicant to identify the property. Later, if the applicant wishes to downsize the loan sanctioned, it can be done by simply intimating the same to the bank.
SELECTING THE RIGHT PROPERTY

Choosing the right property depends on various factors like budget, area, amenities, location, proximity to workplace , convenience. The importance you assign to each of these would depend on one’s profile, income and age.
A young executive, for e.g.,  would give importance to amenities, proximity, convenience, area and location. A senior level executive would prefer area, location, amenities, convenience, and proximity keeping in mind that the area where the house is located is a symbol of his social status.
A good real estate consultant who understands the wishlist can speed up the process.
TAX IMPLICATIONS

Government of India has provided various tax benefits on home loans.
The interest of up to Rs 1.50 lac paid on home loan on self-occupied property during the financial year can be availed by the borrower as a deduction from his/her income for that year. In addition, the borrower also gets an exemption within overall limit of Rs.1 lac under Section 80C of Income Tax Act for Principal amount repaid by him/her during the financial year.
The interest paid by the borrower on the home loan, till completion of construction of the property, is allowed as deduction from his/her income, in equal installments for the next five years within the applicable limit.
INTEREST RATES AND FORCED MAJEURE CLAUSE

Almost all banks offer home loans with - both fixed and floating rates of interest. As a thumb rule, the customer should go for floating rates when the rates are expected to fall and fixed rates when they are expected to rise in future. However you must realise that there is something called as Forced Majeure Clause. The Force Majeure Clause enables the lender to undertake appropriate modifications in the interest rates on home loans they sanction to their borrowers. This situation applies even if the borrower has opted for a home loan at a fixed interest rate.
So, while you read your home loan agreement papers, you can spot statement like this Provided further that from time to time, the bank may in its sole discretion alter the rate of interest suitably and prospectively on account of change in the internal policies or if unforeseen or extraordinary changes in the money market conditions take place during the period of the agreement.
There is a lot of awareness out there in the market and customers are increasingly examining the various aspects vs - vs home loans. Having said this, one should not get swayed by the lucrative interest rates and other such schemes being offered. Buying a home is definitely a dream comes true and home loan fulfils that dream. I will advise you to spend considerable time with your banker in helping you make a fair decision so that your dream home always has pleasant memories. Click Here for Apply Home Loan

Top taxpaying foreign bank in India

UK-based Standard Chartered Bank has pipped Citi Bank and HSBC Bank to become the top taxpayer among foreign banks operating in India during fiscal 2009-10.
With advance tax payment of Rs 1,405 crore, up 14.2 per cent from previous fiscal, StanChart stood as the 16th highest taxpayer in India among all corporates, banking and otherwise, according to advance tax figures made available to PTI.
Standard Chartered Bank was followed by HSBC Bank, which paid an advance tax of Rs 835 crore for FY'10 and American lender Citi Bank that paid Rs 800 crore during the year.
While StanChart saw a rise of 14 per cent in its tax payment, Citi Bank and HSBC Bank saw fall of 53 per cent and 39 per cent (from Rs 1,710 crore and Rs 1,375 crore in the year-ago period), respectively, in tax payment.
Among all bankers in the country, foreign as well as local, StanChart stands behind only three big names -- State Bank of India, Punjab National Bank and ICICI Bank.
While SBI with Rs 6,552 crore advance tax payment leads the corporate segment, PNB paid Rs 2,018 crore and ICICI Bank Rs 1,502 crore as advance tax.
Among other major lenders, HDFC Bank, Bank of Baroda and Union Bank of India paid Rs 1,375 crore, Rs 1,277 crore and Rs 767 crore, respectively as advance tax.
Among the foreign bankers, Deutsche Bank comes in at the fourth slot with an advance tax payment of Rs 413 crore. This, too, saw a decline of about 13 per cent over fiscal 2008-09.
Next in line is Bank of America with Rs 298 crore, up 23 per cent compared to last year, followed by Barclay's Bank (Rs 275 cr) and DBS Bank (Rs 220 cr).