Public sector banks cut home loan rates

Posted on February 20, 2012 by Reserch team

Mumbai: In order to prop up the sagging home loan market, state-run lenders Central Bank of India and Bank of Maharashtra (BoM) have announced slashing of interest rates by up to 0.25 per cent, and also decided to waive the processing fees.

Pune-headquartered BoM has decided to give housing loans under Rs 25 lakh for a five-year tenor at the reduced base rate (below which it cannot lend) of 10.60 per cent, it said.

Similarly, the city-headquartered Central Bank of India has cut home loan rates by up to 0.25 per cent, it said. A home loan of up to 25 years and under Rs 30 lakh will be available at 10.75 per cent.

Both the lenders have also announced waiver of processing charges. While Central Bank of India is offering a blanket waiver of processing fees for loans across amounts and tenors till March 31, BoM has waived it only for applications under Rs 25 lakh.

BoM charged up to Rs 12,500 for such loans in the past. High inflation and the ensuing jacking-up of interest rates by the RBI, coupled with the uncertainties on the economic growth, are believed to have dampened the home loan market.

According to the Reserve Bank’s Financial Stability Report released on January 12, the housing credit growth fell to 2.3 per cent from 10.7 per cent a year ago.

The country’s largest lender State Bank of India is also contemplating a cut in interest rates in select home loan categories where demand is slow.

http://ibnlive.in.com/news/public-sector-banks-cut-home-loan-rates/231744-7.html

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Term insurance policies see 40% increase in sales

Posted on February 17, 2012 by Reserch team

In this tax saving season, sale of term or pure life insurance plans has gone up by 30-40 per cent, say insurers. Most companies, eying the opportunity, have launched online term plans. Online plans are 20-30 per cent cheaper than regular term plans.

Experts suggest that term plan should be bought those who have financial liability, as it has high life cover for low premium. Term plans do not have any investment components and maturity benefits. If the policyholder outlives the tenure of policy, he doesn’t get any return on premium.

“Term plans sales are going up due to increase in awareness. Number of term plans and total sum assured has gone up significantly. But, total premium earned from term plans is not very significant as premium for term plans is low,” Gorakh Nath Agarwal, chief actuary at Future Generali India Life Insurance.

Term plans sold online are cheaper as insurers pass on the cost saved on distribution (agent’s commission) and are loaded with more features. Most life insurance companies have begun offering term plans specially designed to be sold online. HDFC Life Insurance recently launched online term plans. To push online sales, insurance companies are adding more benefits to make their online term plans more attractive. Aegon Religare Life Insurance revised its existing term plan with new features.

“Online plans are cheaper than the ones sold through regular channels because there is no intermediary between the buyer and seller, thus, saving on commission. Online term plans are competitively priced. Customers willing to buy term plans can easily buy it online within few minutes. Number of term plan customer is increasing steadily,” said Yateesh Srivastava, chief marketing officer, Aegon Religare Life Insurance Company.Aegon Religare introduced first online term plan in the market.

One can enhance life cover by adding riders (or attachments) to the life cover by paying a small additional sum. Popular riders include critical illness and personal accident. Basic features of term plans, both sold online and offline, are similar and suicide is excluded.

http://www.mydigitalfc.com/insurance/term-insurance-policies-see-40-increase-sales-790

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Your dream home gets even more distant

Posted on February 8, 2012 by Reserch team

RBI’s new diktat — banks should not include stamp duty and registration in loan amount — will make home buying more difficult

The Reserve Bank of India’s (RBI) latest verbal guidance to banks —not to include registration and stamp duty while arriving at the value of the house — will mean an additional hit of 5-10 per cent for home buyers.

Earlier, banks and housing finance companies included these two components while calculating the amount. This helped buyers in several ways: Their requirement to raise the cash — between Rs 2 and 5 lakh in case of a Rs 50-lakh property —was reduced. Also, the interest rate payable on this loan was much less, compared to a personal loan. In case of a personal loan, the equated monthly instalment (EMI) would be much higher because of the shorter duration. The new warning, therefore, comes as a serious setback for the potential home buyer.

Experts believe home buyers will have to take the personal loan route to fund this cost, in case of inadequate funds. This could lead to defaults. “We fear there will be a spike in borrowers taking personal loans to fund this cost, as it means a lot of money for the larger section of borrowers,” said a regional general manager of a public sector bank.

REALTY THAT PINCHES
States /
Cities		 Stamp
Duty
(%)		 Extra cash
needed
(Rs lakh)
Maharashtra 5 3.0
Karnataka 8 4.5
Madhya Pradesh 3 2.0
Delhi 4 2.5
Kolkata 7 4.0
*Property cost = Rs 50 lakh
Registration fee is assumed at one per cent, though it varies across states, but the variation is not much

Most experts are on the same page as bankers. “Personal loan is the easiest option. Most home loan borrowers, anyway, depend on it to fund 15-20 per cent initial down payment,” says Adhil Shetty of Bankbazaar.com.

The additional cost will vary across states, as stamp duties are different. In Maharashtra, it stands at five per cent. Add to that a registration fee of one per cent, value added tax (VAT) of one per cent and service tax of another 2.6 per cent. Total = 9.6 per cent of the property value. For a Rs 50-lakh property in Mumbai, you will have to shell out another Rs 4.80 lakh from your pocket. Similarly, in Kolkata, you have to cough up Rs 4 lakh for the same property (excluding VAT and service tax). In Delhi, you would pay Rs 2.50 lakh.

Given the cost, buyers preferred the bundling option. “And it was a cheaper option also. Comparatively, personal loans will work out more expensive and will mar their chances of getting any more credit in case of an emergency,” explains a former banker. As a thumb rule, banks do not lend if your monthly loan outgo is more than 50 per cent of your income.

Sample this: For purchasing a property costing Rs 50 lakh in Mumbai, one was already paying 20 per cent or Rs 10 lakh from one’s own pocket. Add another 9.6 per cent to it, and now you are expected to shell out almost Rs 15 lakh or 30 per cent. Say, if the Rs 5 lakh is raised through a personal loan for three years, the EMI would be Rs 19,160 at the 22.25 per cent rate.

Earlier, if your monthly take-home salary was around Rs 90,000, you would have been eligible for this property of Rs 50 lakh. After deducting the initial down payment, the loan amount would have been 40 lakh, plus registration and stamp duty — a total of Rs 45 lakh.

Given the rate of interest is 10.5-11 and 20 year tenure, the EMI would work out to be Rs 44, 927. Under the new regime, the bank will lend you only Rs 35 lakh. But, if you are raising the cash through a personal loan, the numbers would go against you.

While the new EMI will be Rs 34,943, there will be an additional Rs 19,160. In other words, your total EMI-to-salary will go up Rs 54,103 or 50 per cent or more, if your take-home salary is any less than Rs 1 lakh a month. So, your eligibility criteria will also take a hit.

This ratio will make the bank uncomfortable about lending. It may seek extra investments to ensure there is some insurance if you were to default.

http://www.business-standard.com/india/news/your-dream-home-gets-even-more-distant/463923/

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Time to Invest Big in Infrastructure: Infrastructure Bonds – Mr. Suneet Maheshwari, CEO, L&T Infrastructure

Posted on February 2, 2012 by Reserch team

31stJanuary 2012, Mumbai: Mr. Suneet Maheshwari, CEO of L&T Infrastructure Finance Company Limited which opened Tranche 2 of its tax saving infra bonds, expects huge infrastructure investments in India over the next 5 years . While highlighting the strong future prospects of infrastructure sector in India, he said that Infrastructure bonds are a boon to the economy and the tax payers.

Infrastructure bonds are gaining popularity as a tax saving instrument amongst the various debt options. With yields on government securities beginning to moderate, interest rates(which are linked to gilt yields) on future bond issues may not be as high as compared to the current issues. Already, rates on the current tranche of issues are lower than what was offered a month or two ago.

“L&T Infra opened Tranche 2 infra bonds on January 10, 2012 and would remain open for subscription till February 11, 2012. This issue is worth Rs. 300 crore and the allotment is on first-come-first-serve basis, so investors should not miss out as the yields are still high which  may not be the case going forward as the interest rates are expected to soften further,” said Mr. Maheshwari. Infrastructure Bonds provides tax benefit by reduction in taxable income and is specifically targeted to the retail/ salaried income investors who are looking for more options to reduce tax. They are different from tax free bonds (e.g. bonds issued by NHAI) which are even targeted to High net worth / Institutional investors.

Currently the maximum investment limit for tax saving u/s 80CCF is Rs. 20,000 annually.  In the coming budget the Finance Ministry is considering a proposal to double the investment limit in infrastructure bonds to Rs. 50,000 as part of a strategy to provide funding boost to this vital sector.  “Many of us had recommended that the government increase the limit to Rs. 50,000. And, we believe if it does become Rs 50,000, the response might actually be more. A tax break like this will help channelise larger savings into infrastructure.” said Mr. Maheshwari. The tax saving bonds are a good option not just for the investors but also for the issuers to raise funds as it provides them access to LT funds having a tenor of 5 years and above.

This is a boon for tax payers as it is above the existing Section 80C tax exemption available to taxpayers which have a limit of Rs 100,000. Tax payers can now invest in Infra Bonds during Jan-March quarter and reap twin benefits of higher returns and getting a deduction of Rs. 20,000 from, In this regard, their taxable income. Infra Bonds compares well to other tax savings schemes available under the Section 80C of The Income Tax Act.  The investor has two options available – annual interest payment or a cumulative interest payment. The current interest rate offered is 8.7% p.a.

The Tranche 2 Bonds have been rated ‘CARE AA+’ by CARE and ‘[ICRA] AA+’ by ICRA.

Yield table

Series 1 – Annual interest payment 2 – Cumulative interest payment at the end of maturity
Face Value per Tranche
1 Bond (`)		 ` 1,000 ` 1,000
Interest Rate 8.70 % p.a. 8.70 % p.a. compounded annually
Frequency  of InterestPayment Annual, i.e. yearly payment of interest Cumulative interest payment at the end of maturity or buyback, as applicable
Time to Maturity 10 years from the Deemed Date of Allotment. 10 years from the Deemed Date of Allotment.
Time to Buyback N.A. N.A.
Tax Rate (%) Tax Benefit adjusted rate of return on Maturity (with TaxBenefits up to ` 20,000 per annum) u/s 80CCF of theIncome Tax Act, 1961
10.30 10.41% 9.89%
20.60 12.41% 11.24%
30.90 14.81% 12.79%
Tax Rate (%) Tax Benefit adjusted rate of return on Buyback (with TaxBenefits up to  20,000 per annum) u/s 80CCF of theIncome Tax Act, 1961
Buyback on the first Working Day after the expiry of 5 years from the Deemed Date of Allotment Buyback on the first Working Day after the expiry of 7 years from the Deemed Date of Allotment Buyback on the first Working Day after the expiry of 5 years from the Deemed Date of Allotment Buyback on the first Working Day after the expiry of 7 years from the Deemed Date of Allotment
10.30 11.52% 10.88% 11.09% 10.40%
20.60 14.82% 13.42% 13.83% 12.34%
30.90 18.75% 16.45% 17.04% 14.59%

The TARR is calculated assuming a gross investment of ` 20,000 less the relevant tax benefit under Section 80CCF of the Income Tax Act, 1961 available to the investor (varying according to the tax rate applicable to the relevant investor) resulting in a net invested amount. The aggregate of annual or cumulative interest coupon and the redemption amount receivable by the investor, as applicable, discounted over time divided by such net investedamount leads to the TARR. All interest received as the TARR will be subject to income taxas further set out in the section titled “Statement of Tax Benefits” at page 38 of Prospectus – Tranche 2.

About L&T Infrastructure Finance Company Limited

L&T Infrastructure Finance Company Limited incorporated in 2006, is registered with the Reserve Bank of India (“RBI”) as a systemically important non deposit taking NBFC and an Infrastructure Finance Company (IFC). The Company has also been granted the status of Public Financial Institution (PFI) in the current fiscal by the Ministry of Corporate Affairs. The business comprises the provision of financial products and services for its customers engaged in infrastructure development and construction, with a focus on the power, roads, telecommunications, oil and gas and ports sectors in India.  The Company is also registered with the RBI as an IFC and an NBFC-ND-SI, which allows it to optimize its capital structure by diversifying its borrowings and accessing long-term funding resources, thereby expanding its financing operations while maintaining its competitive cost of funds. L&T Infrastructure is a 100% subsidiary of L&T Finance Holdings which has been recently listed in the stock market.

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SBI to raise interest rate on car loans

Posted on February 2, 2012 by Reserch team

State Bank of India (SBI) will increase the interest rate on car loans by at least 50 basis points from tomorrow to bring these in line with competing banks.

A senior SBI official dealing with the retail business confirmed the country’s largest lender’s decision. He did not reveal the quantum.

SBI’s website shows its car loan rate as 11.25per cent. Competors like ICICI Bank, HDFC Bank and Axis Bank levy levy rates that are 25-400 basis points higher, based on tenure and the amount of loan.

CAR LOAN RATES OF SELECT BANKS
Bank name Rate range
in %*		 Processing fee
in Rs *
ICICI Bank 11.5-17.00 2,500-5,000
HDFC Bank 11.5-12.25 2,325-4,275
Axis Bank 11.5-14.25 3,000-3,500
SBI Bank 11.25 0.5% loan amount
*Rates and processing changes vary based on amount and tenure

SBI’s auto loan portfolio stood at Rs 22,025 crore in September 2011, showing a growth of 25.25 per cent over September 2010.

Its pace, however, showed a moderate rise in the first six months of this financial year. Its auto loan grew by just Rs 1,115 crore. The auto loan portfolio at the end of March 2011 was Rs 20,910 crore.

The bank’s annual growth in lending for purchasing of vehicles declined to 17.9 per cent in November 2011 from 25.57 per cent in the year-ago period. The vehicle loan portfolio of banks was Rs 86,877 crore in November 2011, according to the Reserve Bank of India.

The passenger vehicle industry saw strong growth for four years, till the end of the last financial year. According to a sectoral review by rating agency Icra, it showed a robust compound annual growth rate of 16.3 per cent in 2007-11.

However, since the beginning of 2011-12, the industry has been witnessing a slowdown in volume growth marred by rising inflation, hardening interest rates and increasing fuel prices that combined to dent consumer sentiment.

Even the festive season failed to stoke domestic demand, despite new model launches, aggressive discounts and promotional schemes offered by OEMs, according to Icra.

Another SBI official said the bank’s present rate was cheaper than others. “A hike of, say, 50 basis points will not make our product costly. Nor will it move the demand to some other player,” he told Business Standard. Also, SBI is not planning to change its rate for two-wheeler credit. “This is not a priority segment for us. The bank incurs higher per unit cost due to small ticket size and higher risk of defaults,” he added.

http://www.business-standard.com/india/news/sbi-to-raise-interest-ratecar-loans/461932/

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