Taraqi Ki EMI watch & share

Govt plans higher interest subsidy for economically weaker section in Home Loans

In a move to ensure every household has a roof over their heads by 2022, the housing ministry is likely to increase interest subsidy for flats under economically weaker section (EWS) and low income group (LIG).

Sources said that the proposal has been formulated based on the recommendation of an informal group of ministers, which looked into the 'Housing for All' scheme. The fresh proposal would be placed before the Cabinet for its approval.

TOI has learnt that one of the ministers in the group has even suggested that there should be 0% interest for people falling under the category of economically weaker section. He has also suggested that the cost of such flats should not be more than Rs 5 lakh in any urban area so that people across all sections can own a house.

One of the major components of the ambitious Housing for All scheme is to construct at least two crore affordable housing in urban areas. The cost of such flats is estimated to be around Rs 6.5 and Rs 7.5 lakh. There are also provisions including interest subvention scheme in the housing sector that will meet part of the buyers' home loan burden.

Providing two crore affordable housing is likely to involve investment of about Rs 13 lakh crore in the next seven years.

Sources said that Cabinet clearance of the urban component of Housing for All is crucial. "We cannot start work until the proposal is approved by the Cabinet. We are losing crucial time since we have to meet the target by 2022," said a source.

Source: http://timesofindia.indiatimes.com

India recovers from car sales slowdown in next year

As per the recent study conducted by the research firm Deloitte, the slowing down car sales in the Indian market will bounce back again in year 2012, as the car loan interest rates and inflations in the country are expected to decrease in the next year.
In its report – Driving through BRIC markets, Lessons for the Indian market – Deloitte said that a number of poor microeconomic factors have affected the growth of the passenger vehicle segment in recent months including the likes of skyrocketing fuel prices, high auto loan interest rates and restrained growth of real disposable income.
Since the deregulation in year 2010, there has been a jump of 34 percent in the fuel prices in the Indian market. On the other hand, the interest rates on new car loan have surged to 13 -14 percent.
As per a report given by Mr. Kumar Kandaswami, "The current slowdown is not here to stay as the fundamentals of car sales growth namely urbanization and car density are still very attractive."
The report further elaborates, "Car sales have declined, and registering de-growth since July 2011, compared with the previous year and is not expected to recover unless the macroeconomic factors become attractive. In FY 2011-12, car sales are expected to grow by a meager 2-3 per cent against 30 per cent in 2010."

PSU Banks approve credit proposals up to 400 crore

The government has quadrupled the limits on loans that a bank's internal committee can approve, a move that could quicken credit clearance at 26 state-run banks, including the Bank of Baroda and PNB.
The government has directed banks to set up a credit approval committee - comprising chairman, executive directors and three chief general managers who handle credit, finance and risk management functions. This group can approve credit proposals up to 400 crore. Currently, any loan above 100 crore has to be vetted by the management committee of the board, which met once a month, or 20 days.
"The new initiative will help in facilitating credit disbursement at a much faster pace," said KR Kamath, CMD of PNB. "This would take care of a substantial part of the lending business."
The chairman, through a credit approval committee, can now lend up to 400 crore to an individual borrower. Under the old regime, a management committee of the board, which included a RBI nominee and two independent directors appointed by rotation, the bank's chairman and managing director and executive directors, took these decisions.
This limit is applicable on Category 'A' banks with a business of 3 lakh crore, while smaller public sector banks can use the same structure to approve loans up to 250 crore. If a loan under consideration is higher than these limits, it would be taken to the management board.
"The government decision would enable the management to take operational decision and the board could focus on policy matters," said S Ravi, shareholder director at Union Bank.
Over the past few years, the project size has increased many folds and the restriction of 100 crore was seriously affecting the lending business, said one of the person quoted above. "At least 60-70% of the loan size is above 100 crore, which used to be referred to MCB. Now less than 10% cases would be referred to MCB," he added.
"Though a credit approval committee has replaced the board's management committee, the two are significantly different. The MCB has outside members such as RBI nominee and independent directors; the new committee comprises two EDs and chief general managers, who report to the CMD," said another retired chief of a nationalised bank.
SBI, the biggest, already follows such a practice where loans of up to 500 crore are approved by such a committee and loans bigger than this are referred to the board's committee.

Demand of Car loan Increased in Nov 2011

The unyielding attack on interest rates in a bid to rein in runaway prices is elastic results: the demand for vehicle loans has come down. The growth rate of Car loan volumes have almost halved so far in 2011-12 compared to the same period last fiscal,RBI.
While vehicle loans disbursed by banks in April to October 2010 rose by 13%, in the current year the pace has come down to just 7% this fiscal year. Interestingly, apart from the plunging auto sales, another factor for this decline is a rise in cash-down purchases.
Among car and utility vehicle buyers, customers opting for vehicle finance went down from 80-84% to 70-74%, according to Pawan Goenka, president, Mahindra & Mahindra.
“Another trend is people increasing their down payment. The LTV (loan-to-value) ratio came down from 85% to 75%, in some cases 50:50,” he said. The increased cost of finance added up to the overall cost of vehicles, prompting many aspiring car buyers to postpone their purchases.
“There is a decline in demand for vehicles and it impacted car loan as well. Hike in interest rate also is a crucial factor,” said Jairam Sridharan, senior vice president and head of consumer lending, Axis Bank. Auto loans account for 13% of Axis Bank’s retail lending.
RBI has hiked the repo rate 13 times by a cumulative 3.5 percentage points since March.
Maruti still lags, but auto sales rise 7% in November
After four months of decline, domestic car sales in India grew by 7% in November despite market leader Maruti, which controls almost half of the industry volumes, posting a near-20% decline in sales during the month.
Second-placed Hyundai Motor, homegrown Tata Motors, Toyota, General Motors, Ford and Volkswagen all grew handsomely during the month, but industry body Society of Indian Automobile Manufacturers (SIAM) warned that December could see sales drop again and a full revival will only happen in 2012.
“Sales would fall again in December though it would not be as drastic as in the last four months,” said Sugato Sen, director, SIAM. “Sales growth would only happen from January onwards but even then it would not be enough to reach our target of 2-4% for the entire fiscal.”
So far this year, car sales have declined by 3.5% as a mix of high interest rates, fuel prices and runaway inflation have dampened consumer sentiment.
There is however, no hint of a slowdown in two-wheeler sales in the country, which grew by over 25% during the month. The segment that accounts for a lion's share of overall industry volumes, ensured that total automobile sales in the country grew by 22% during the month at 1,489,714 units.

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.