| Good news: Banks are willing to lend | |
| LOANS | | Tinesh Bhasin / Mumbai November 9, 2008, 0:05 IST | |
However, the norms have become extremely stringent. Tinesh Bhasin finds out more.
A recent text message doing the rounds claims: "To take a loan nowadays, you need to first prove that you do not need it." The message is true in many ways. The overall tight situation in the credit market has hit consumers quite badly. Leading banks have either stopped lending to sectors like auto, or made conditions so stringent that applicants have found it almost quite difficult to meet the norms.
However, with the Reserve Bank of India (RBI) taking bold steps to infuse liquidity in the banking system, the sector has declared rate cuts. But the big question is: Are they willing to lend? Here's a first-hand experience.
Home loans: We started by registering in one of the common loan sites and the response was immediate. Within an hour, there were several calls from single or multi-bank direct selling agents (DSAs). The first DSA offered a floating rate of 11.75 per cent for a loan of Rs 15 lakh from a non-banking financial company (NBFC). Interestingly, he claimed that the interest rate rises by 25 basis points for small-ticket borrowers (below Rs 15 lakh).
Also, the loan-to-value earlier was 85 per cent of the value in the agreement, along with the stamp, registration and other amenities. To increase the eligibility, the borrower needed to submit investment-related documents. This is stopped now.
At present, they offer only 80 per cent of the agreement value. Besides, financing the other expenses has completely stopped. Also, only rental income is considered to increase eligibility.
Most importantly, they were more conscious about the percentage of equated monthly instalment (EMI) to take-home salary - 50 per cent is the maximum they are willing to go up to.
Another public sector bank is charging 12 per cent, but is willing to fund up to 90 per cent of the price, including stamp duty and registration. The catch: This is only for new properties. More importantly, the bank's technical team will value the property separately and take into account future corrections, if any. Accordingly, they will disburse the loan. In other words, the agreement value has no meaning. For older property, the funding is only up to 80 per cent. The percentage of EMI could be pushed up to 55 per cent, at best.
DSAs took pains to point out that many banks, whose paperwork could be easier, were charging over 14 per cent and had raised rates in an ad-hoc fashion.
Conclusion: Loans are available, but not easily. Worse still, the margin payment will be much higher because besides the 80-85 per cent cut-off, the property's price could come down further when banks value it.
Personal loan: A rather touchy subject. Even before making an offer, DSAs kept insisting on how banks are cautious now. The rate: 20 per cent a year. While a foreign bank is charging 20.5 per cent, many private sectors banks are lending only to their existing customers. Interestingly, a couple of big NBFCs claimed that they could not process the loan because of a lack of staff.
And things are very, very stringent. Even a single default or delayed payment may lead to rejection. And some banks have even made it compulsory that applicants have to have a landline at their residence.
The limits are down as well. For instance, on a net salary of Rs 30,000 a month, earlier the eligibility would be Rs 4 lakh. But banks are now only willing to offer up to Rs 3 lakh.
Conclusion: Many may not even qualify, given the tough norms.
Auto loans: The rates vary from 12.75 per cent in case of public sector banks to 14.25-14.5 per cent as regards private sector banks. The rates from NBFCs start at 16 per cent. Some banks and NBFCs have stopped lending to this sector completely, though they refrain from admitting it. The limit being offered is also down from 100 to 90 per cent.
But something is more interesting. For the same bank and with the same customer profile, the rates vary from 12.75 to 14.75 per cent. Some DSAs insisted that a car will have to be bought through their dealer and he auto insurance and registration should also be done through them.
Conclusion: Lending norms may not be tougher, but DSAs are calling the shots.
However, this is only half the story. Once the documents are submitted, many customers claim that banks are finding ways and means either to hike the rate or reduce the loan amount or both. For instance, a multinational bank sanctioned Rs 1.05 crore to a high networth individual (HNI). Once the HNI decided on the property and submitted the documents, the bank offered only Rs 80 lakh.
In other words, things have clearly calmed down. Just a year ago, banks would fund 100 per cent of a flat, plus even give a top-up and, sometimes, even a car loan without caring about the repayment ability. Now, they are exercising caution. For genuine customers, things have become a tad more difficult and expensive.
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