Be an Investor

Use Money in Order to Make More Money follow the “Cash Flow Quadrant”

There are four types of income generators in the world
1.    E – The Employee safe and secure job.
2.    S – The Self - Employed own their own job.
3.    B – Business owner why to do it yourself if you can hire someone to do it for you like Tata, Birla etc.
4.    I – investor who makes money with money.

AS SAID RICH V/S MIDDLE CLASS

Rich Earns    - 30% from E or S and 70% from I
Others Earns - 80% or more from E or S and 20% or less from I

Let’s resolve in 2010 to be an INVESTOR:

The Must Haves!

• “Health is wealth” Absolute Truth; when it comes to health. Remember, for yearly executive health check up. Cover your family under Regular Mediclaim / Family Floater Plans & enjoy tax benefit u/s 80D. Sec 80D allows deduction of max limit of 15000, additional limit of 15000 for coverage of dependant parents and for senior citizen the limit is 20000. Opt for LIC’s Health protection plus alongside  and enjoy tax benefit of Rs 15,000 from 2 different files. Sec 80DD allows deduction of max amt of 50,000 or Rs 1, 00,000 for treating maintenance of severe disability for dependent family members. Sec 80DDB includes deduction of medical expenditure on treatment of prescribed ailments.

• “Review Liability Portfolio “ when Too Much is Dangerous clear all your liabilities especially when we are not getting tax benefit out of it e.g. personal loan, car loan, other than business loans and education loan so that we have complete financial independence. Sec 80E includes tax relief of interest payment on education loan for higher studies of child, spouse & self.

• “Home Loan” Let You Family Inherit the House Not the Home Loan; owing a house is not just a dream but a necessity and there are several tax benefits as well. We can always opt for housing loan, as interest paid on home loan can be deducted up to 1.50 lacs, it can be doubled in case of joint borrowers. Further there is no cap on deduction of interest if the house is either let out or deemed to be let out u/s 24 as this can be worked out as a good tax planning tool at the same time it creates asset for you.

• “Life Insurance “is a plan that exalts life and defeats death; At any time human life value in society is far greater in magnitude than value of all property put together.Life insurance plans not only gives peace of mind, but also help us in securing our liabilities. Premiums paid also qualify for sec 80C & 80 CCC. The maturity proceeds are tax free u/s 10(10D)

• “Ready to retire rich ?” Chase your passion, not your pension; With stretched work hours and strenous routines, saturation level are setting in earlier for the youth today. In such a scenario, early retirement has beecome more a need than desire. Remember, the later you start for your destination, the faster you have to travel …the later you start saving for retirement, the more you have to accelerate your rate of saving You can earn tax free monthly income per month by investing monthly from today. Retirement planning assures dignified and independent life.

• Key Person Insurance ; It is an old cliché, but a true one nevertheless, that one of the most essential elements in the success of any business is the quality of people working within it. As a business owner you are a valuable asset to the company ensuring yourself can ensure your company’s future and protect the future of your business. Cost (premium) under Key man Insurance is 100% exempt from business income u/s 37(1).

• “Prepare for Education and Childs Marriage” through mutual funds. With higher apetite to take risk at younger age we can consider investing in mutual funds or unit linked policies  with respect to short term planning. Investing amounts is SIP’s can lead to better results than having lump sum in traditional bank by taking advantage of the volatility in the market.ULIP and few mutual fund schemes are eligible for deduction u/s80C.

Note;The premium can be paid upto Rs 1,00,000/-to avail deduction u/s 80C,80CCC. However the limit of 1Lac can be exhausted by paying premium under any of the said section

• “Succession planning “the key to better planning; Succession Planning combines elements of business design, ownership/management succession, wealth accumulation, retirement design, and estate planning. For further reference we have added the factor on our website www.bharatparekh.com at InstaWILL

• “New Direct Tax Code”; In this budget finance minister is planning to introduce the DTC code which is believed to more simplified and easy but lets talk abt it once it comes.

Please check if you’ve taken the benefit

• Sec 80C/80 CCC  -  Investments upto Rs 1.00 Lac in Life insurance, ULIP, NSC, tax saver - bank deposits, mutual funds, post office schemes, EPF, PPF, Prin. Payment - home loans & children’s tution fees

• Sec 24  -  Upto Rs 1.5 Lacs on home loan interest payments - For joint borrowers Rs 3.00 Lacs. For let out property, no limit on deduction of interest

• Sec 80E  -  Interest payments on education loan taken for higher studies

• Sec 80D -  Deduction upto Rs 15,000 under mediclaim/ health insurance policies. Additional Rs 15,000 for cover of dependent parents. Sr. Citizens, limit is Rs 20,000

• Sec 80 DD  -  Upto Rs 50,000 for treating  maintenance of a handicapped dependent/ Rs 1,00,000 for treating maintenance of a dependant family member with severe disability. E.g. amt deposited with LIC under Jeevan Adhar plan.

• Sec 80 DDB  -   Deduction on medical expenditure on prescribed ailments

• Sec 37(1) - Cost(premium) under Key person Insurance is 100% exempt from business income u/s 37(1)

Last but not least the “Right Choice”: choose your financial advisor with

• Service Attitude
• Thorough knowledge in his domain
• Efficient team
• Rich experience
• Strong client base.

“ My father aged 69 years was retired and staying with me. He had a credit card since the last 15 years. He expired last year in October and since January this year I have been harassed by phone calls from the bank claiming that there is an outstanding of Rs. 32,000 on his card. Now they want me to pay this outstanding. Is it legal for the bank to demand the dues of the father from his son? What should I do? - Rajesh Batra, Gurgaon*.

As soon as I saw this query on our Ask the expert section of Apnapaisa, the memory of late Bollywood actor Kanhaiyalal (who played money lender Sukhi Lala in Mother India) flashed in mind…Circa 1959.

Here was the new age Sukhi Lala (Circa 2009) who is passing the debt baton from one generation to another…till now I thought that times had changed. The tradition of passing the debt from one generation to another was long dead say since independence.

I always felt that Sukhi Lala - the villainous moneylender in old Hindi films – notably Mother India – extracting money from sons for loans taken by their father was more a caricature than the truth. But here was Rajesh with exactly the same dilemma in 2009.

To rescue people like Rajesh, I consulted a few legal expert friends who gave me the low-down on this:

1) First they corrected me about the “Mother India” analogy. In Mother India the father (played by “Jaani” Raj Kumar) had mortgaged his farmland for taking the loan. Hence the repayment was forced from the heroine (the incomparable Nargis) and her two sons because they were emotionally attached to that land and wanted it to be released from the moneylender’s clutches. If they had refused to pay, the moneylender could have proceeded to take possession of the property and sell it to recover his dues along with interest (at a draconian rate). In the case of Rajesh’s father, it was an unsecured loan, hence clearly this was not applicable.

2) Second the bank only had the ability to proceed against the estate of the deceased. So Rajesh would be liable for the credit card debt only if he had inherited something from his father and that too, up to the value of what he had inherited.

Acting in accordance, I wrote to Rajesh to check if he had inherited anything from his father. He mentioned that he only inherited some personal stuff (such as a ancient copy of Ramayan that his father had nurtured his entire adult life) with almost nil economic value. We told him to write to the bank giving all these details and if they still persisted to file a complaint with both the RBI as well as the police for undue harassment. My lawyer friend also advised him that he would have a good case for damages against the bank if they persisted in trying to recover the money even after they had been advised about the facts in this case.

Rajesh accepted the advice and wrote to the bank. Post that the recovery calls from the bank stopped.

However the story had an unexpected ending. Rajesh checked with me whether his fathers name would show up as a defaulter in the Credit Bureau’s records. I informed him that I was not sure of how the bureau dealt with records of people known to be deceased but it was most likely that his father’s record will show up as a default for the next 7 years. This was not acceptable to Rajesh as he said that his dead father had led a blameless life and had never defaulted in his entire life. Rajesh said that he would settle up with the bank to ensure that his dead father’s name was not sullied anywhere. Last I heard he was in the process of settling the bank’s dues to get the name of his father cleared.

For me this was an extra ordinary ending as it highlighted not just Rajesh’s love for the memory of his dead father but also the efficacy of the newly established credit bureau to bring down the overall outstandings in the retail lending scenario.

Hail the spirit & concern of people like Rajesh!

* Name changed to protect the identity.

Interest rates on home loans for new consumers have come down by around 4% since September end 2008 but consumers who had the misfortune to take their loan before that have only seen their rates drop by around 1.50% – 2.25%.  

We are inundated with anguished queries from existing customers where they raise concern about this partial treatment like “I have taken a floating home loan from XXX bank in 2005. At present the interest rate I am paying is 12.5% whereas for new customers it is around 9.25%. Why this discrepancy? Isn’t there any rule that forces the banks to pass on benefits to existing consumers as well? Can I take legal recourse? “

Firstly fixation of floating rates in this manner is in direct contravention of existing RBI regulations. See this article for details of this regulation (http://blog.apnapaisa.com/2009/09/15/why-some-regulations-are-more-important-than-others/) . So your best bet is to file a complaint to the banking ombudsman about the non following of the regulations.

But if that is too slow for your tastes you as a consumer have other options as well to benefit from the drop in rates.

You too can take advantage of the drop in interest rates if you have maintained a good track record of payment with your existing lender.

As a first step, you will have to devote a bit more time on this major financial obligation than you probably have done so far.

Secondly find out what interest rates the lenders  (including your existing lenders) are offering in market for new consumers. This can easily be done from the comfort of your home or office by referring to price and feature comparison sites such as www.apnapaisa.com.

Thirdly if your existing lender is more or less in line with the market, your best bet is to make that valuable call to your existing lender to say that you want to pre-pay the loan and want a statement of overall dues so that you can make the pre-payment. Almost every single bank will offer you an option to shift to the rates that they offer to new consumers (or very close to that) on payment of a fee.  If you are the lazy type and cannot be bothered to do much more, you can accept this offer and still save significant monies over what you are currently paying. But ideally if you are of the type that wants to get the best possible deal and are willing to work for it then read on…

Before you decide to switch lenders, shop for a better deal. It is necessary to get a fair idea of the offers available from other potential lenders. Remember for these other lenders you are a new customer and they will offer their best rates to you. Approach various lenders with the intent of transferring the loan.

With new lender, the process largely resembles that of taking a new home loan. You will have to fill in an application form with the requisite details annexed with photocopies of all the property documents that you had   submitted to your existing lender. The new lender will do the legal and technical vetting of the property as well as valuation and then you will get a sanction letter from them outlining the terms and conditions of their loan to you.

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Pointers:

1.      Maintain good track record of payment

2.      Shop for the better deal

3.      Compare various deals offered by banks/ lenders

4.      Approach lenders with the intent of transferring the loan

5.      Be prepared to undergo some operational grind before the loan is taken over

———————————————————————————————

Now comes the tough operational part before you can actually start enjoying the lower interest rates from the new lender.

You will need the following letters from your existing lender:

A) Letter giving the details of the amount to be paid to completely settle the entire loan. This letter will have to mention the details like total loan amount taken, the loan amount outstanding as well as the prepayment charges, if any. The amount mentioned will be calculated as on a future date, to enable time for the buyer to arrange the payment. This letter is pretty standard and should not be too tough to get from the existing lender.

B) Letter listing all the documents held by them as security for the home loan. In most cases if you have an official receipt for the documents submitted to them at the time of disbursement then this letter may not be needed.

C) Letter from your existing lender addressed to your new lender agreeing to release the documents of title directly to them (the new lender) within a fixed number of days after receiving the full payment from them. It’s this letter that causes the issue particularly if your existing lender does not want to cooperate (after all he is loosing a good customer). There is no compulsion on your existing lender to give any such letter to a third party (your new lender) with which it has no contract. This is the letter for which you have to do a couple of rounds to your existing lenders office to get them to issue it.  

Once you get this letter from the existing lender, the new lender will make payment in favour of the existing lender to close the account and also collect the documents from the old lender.

You can then go ahead, enjoy the fruits of your labour.

A leading pink paper on Tuesday September 22, 2009 broke a story on its front page  about how RBI is planning to ban all sub-PLR loans for tenures beyond a year. The story mentioned, “If RBI bans sub-PLR rates on loans above a year, banks will find it difficult to reduce rates only for new home loan customers”.

Even this move will not end the trouble of existing home loan consumers who watch on enviously as new customers get lower and lower rates while they are stuck with higher rates. To understand this let’s look at how PLR affects home Loan consumers.

So what is this PLR? PLR stands for Prime Lending Rate or in other words the rate at which the banks will lend to their most Prime customers (customers with the best credit parameters). This way PLR should be the lowest rate at which the bank will lend.  In India lot of banks have more than 80% of their loans being lent out on rates below their PLR. This is due to non-transparency in fixing PLR making PLR itself meaningless.

Also PLR is normally supposed to apply across all loans but most Private banks have different PLRs for different products which completely send the whole concept of PLR for a toss. 

You can see the box below to see how banks can continue to charge existing consumers a higher rate than what they offer to new consumers even after SUB-PLR rates are banned.   

In fact the remedy for home loan consumers already exists in  the form of existing RBI regulations that require that all reference rates should be external and objective which is not being followed by banks. (see this link http://www.apnaloan.com/home-loan-india/some-important-regulations.html). 

So if you are an existing  Home loan customer being treated unfairly by your lender you should immeidately complain to the banking ombudsman that the bank is not following existing RBI regulations regarding transparent fixation of reference rates.

How banks will continue to charge more even after banning SUB-PLR lending?

All floating rate are linked to the movement in a reference rate. For banks in India the reference rate for floating rate loans is a particular PLR of that bank.

Let us say you took a home loan from bank A at 3% below their PLR for home loans (say called Retail PLR) when the Retail PLR was 12%. Thus the effective rate applicable to you became 9% (Retail PLR at 12% less 3%).

Now if the lending rates drop in the market to say 8% it may offer loans to new customers at 8% by increasing the spread from the Retail PLR (i.e. Retail PLR 12% less 4% = 8%). Since the Retail PLR itself has not changed, the existing customers continue to pay 9% whereas the new customer gets 8%.

How banks can continue to provide lower rates to new Home loan customers whilst charging higher rates to existing customers even after the ban on Sub-PLR loans

Just participated on a hour long TV show on a popular hindi business channel devoted entirely to CIBIL. The panel of experts included a retired PSU bank chief and a well known politician cum consumer activist from Mumbai. The anchor and the political panelist panned CIBIL for accepting any data that the banks/NBFCs provided to them (CIBIL) and branding consumers as  ”defaulters” on the basis of such wrong data. Suggestions were made on how CIBIL should seek confirmation from the customer before accepting any such data from the lenders. The retired PSU head also correctly suggested that CIBIL is only a reporting institution and that lenders can ignore the CIBIL report if they are satisfied with the consumers explanation of any default reported by CIBIL.   What he perhaps missed is that in retail lending the consumer does not get a chance to explain his side of the story.

I was almost ignored when i tried to get in a word that CIBIL keeps records of all your payments to lenders - whether on time or not -  as reported by lenders . I also pointed out that this ensures that for 90% of the consumers their good repayment track record (now provided by an independent reporting agency like CIBIL) ensures that they get fresh loans at a good rate and speed. This is how Credit bureaus work anywhere else in the world. Off course the banks there are under a legal obligation (Fair Credit Reporting Act in the US)  to report correct and accurate information. Obviously in a country where courts can award millions in punitive damages the banks do carry out their obligations seriously. The only role that a credit bureau plays is in making the credit reports available to the consumers themselves and allowing them to raise a dispute on any item. The disputed entries are referred to the concerned lender and the entry is deleted if the lender does not respond within a fixed time frame. Similiar provisions exist in Indian laws governing Credit Information companies such as CIBIL though such laws have just come in effect and will take time before they are implented on the ground.

Even on www.apnapaisa.com we receive about  10-20 queries daily purely on CIBIL related matters. The blogosphere is also full of how this new animal called “CIBIL” is affecting their financial lives without giving them a chance to provide their side of the story.

Thus CIBIL is fast acquiring a perception of a BIG brother hand in glove with the banks that is out to make the helpless consumer pay up monies that are not due from him.

Clearly therefore there is very little understanding of the role that a credit information company like CIBIL plays in the market. So what has led to this wrong perception in the market.

First off course is the operational inefficiency of the banks (see my blog on  can we trust our lenders http://blog.apnapaisa.com/2008/06/26/can-we-trust-our-lenders/) . Bank’s machinery to deal with consumer grievances is only now acquiring some shape and form under the threat of the banking ombudsman. This leads to many disputes in loan/credit cards and in quite a few cases the consumer is clearly right. Thus when the data provided by the banks itself is suspect any reporter of such data also comes in the circle of suspicion automatically. This has more to do with the banks then CIBIL itelf.

However the perception gets magnified when CIBIL does not take active steps to dispel the wrong perception. CIBIL identifies only the lenders as it’s clients (after all they pay the bills) and perhaps see the obligation  to supply the consumers own credit report to him as a  drain on its profitability. The fact that this report would have to be supplied has been known for the last 30 months and yet they did not put into place any mechanism to deal with it as soon as the license was issued. Even now (almost 2 months + after the license has been issued) CIBIL is yet to officially give a date by which this facility will finally be available to consumers. Niether is there any word on the interim measures to provide credit reports to at least those consumers who are immediately  affected by any alleged wrong reporting by the banks.

CIBIL (and the other 3 credit information companies that have also been provided a license) will need to factor in the consumers as a significant stakeholder in the whole credit reporting process if they have to change the perception about themselves as “only collection aides” for the bankers.

Clearly a robust credit reporting structure benefits the consumers immensely but a consumer education drive is needed so that it does not acquire a bad name.

Any views or comments are welcome.

It’s that time of the year again when wishes are horses (well almost). Imagination (and hope) runs high . Well here is my wishlist for Mr. Mukherjee.

http://www.apnaloan.com/prebudget-wishlist.html

QABChgs, Oct-Dec08+ST93. Withdrawals - 843. As ICICI Bank savings account holder you would be familiar with this code language, rather annoying language popping up in your bank statements. If you are one of those lucky ones who did not have the opportunity to encounter this kind of code, then let me explain this to you, in case you happen to see it in future. The above mentioned code is the charge levied for quarter Oct-Dec 08 (in this case) for not maintaining a minimum average balance of Rs.10000 in that particular quarter. Isn’t it frustrating? Yes, especially when you don’t get an SMS alert for the same because the penalty is smartly kept below Rs. 1000. This minimum balance problem is present in most banks’ savings account with variations in the amount.

In such a scenario ICICI b2 branch-free banking can in many ways be your one-stop solution. In this tech-era where Internet based products are on an upswing, having financial transactions through Internet makes perfect business sense.

So what is b2 branch-free banking?
It is basically a zero balance online savings account with various added features. This way the issue of maintaining minimum quarterly balance is resolved which was its basic shortcoming. Moreover, there are no charges levied for  opening this savings account.

Not only you save on these costs, but this account gives you an opportunity to earn too. Your contingency funds in your existing savings account gives you returns of 3.5% per annum. On the other hand if your balance in the b2 account exceeds Rs.5000, it automatically gets linked to a fixed deposit in multiples of Rs. 5000 giving you returns as applicable bank fixed deposit rates. This is called the quantum optima facility. Another interesting feature is the online demand draft facility. All you need to do is to first register your beneficiary after you login. After authentication of the beneficiary he is registered as per standard practice. You then place an online request for a demand draft to the beneficiary and confirm the payment. The amount gets debited instantly and demand draft will be sent to the address of your choice. So what about the fee? A nominal Rs. 15 as courier charges which anytime works out to be less than what you would pay had you done it manually, thus saving time, money and energy. Apart from this you have features such as:
e-wallet: which acts as a pre-paid visa-card, used only for online purchases to pay bills.
Virtual credit card: Works as an online credit card.
Pre-approved Personal Loan: You get a pre-approved personal loan based on your credit history. You have an option to take it all at one go or in parts as per your convenience.
Live customer care chat: Just in case you find the features difficult to understand you have a live customer care chat option to solve your queries at one go.

One of the major advantages of use of technology in financial transactions is that it reduces the probability of falling prey to the increase in the enormous amounts of fake notes being circulated in the market. A recent data of RBI shows that in 2007-08 about 1.95 lakh fake notes amounting to Rs. 5.5 crore (twice the amount detected a year ago) were detected by commercial banks in India. Online payments would drastically reduce the chances of falling in the trap and would save you from losing a handsome amount of cash, because in India, unlike England you are not compensated in case you have received a fake note from any source.

On the flipside, having an all-internet banking facility makes it accessible only to the net-savvy. This account does not issue passbooks, cheque books or even debit/credit cards as this is a completely online and branch free account. So cash-withdrawal is an issue. All you get is a security card which allows transfer of funds from your account. Imagine if you were in urgent need of cash, and you see numerous ATM’s around, but you have no debit card to withdraw cash. That can be disastrous in an urgent situation. Also, if you have low balance in your account and you need immediate cash to be deposited in the account for usage it will not be possible through any ICICI branch around. Transfers can only be done online. But not always do you have net access. The transfer of funds from ICICI to b2 and vice-versa online is immediate, but the transfer takes two working days in case of other bank to b2-account and vice-versa. This account cannot be linked to any other account (Say Your trading account.).

After analyzing all the aspects and understanding of the account, one needs to take a call on whether to go for this account based and close existing savings account due to various penalties. . If you do not have salary account but only savings account for trading online etc. then it would not be a wise decision to take  it as it does not provide linkage of account. Moreover cash withdrawal facility is also not there. However with an existing salary account one can have the best of both the worlds, with immediate cash withdrawal and linkage of account facility of your salary account as well as zero-balance, online Demand draft, quantum optima facility and other features explained above of the b2-account.

So weigh your options and then decide…

I have taken a loan of Rs 20 lakh from ICICI home finance. I want to insure my property and my life. Kindly suggest me which insurance company shall I look at for property and life insurance. Currently ICICI Prudential is offering me Life insurance which they claim is especially for the home loan applicant. Should I go for it?

What has the RBI done?

On Saturday, November 1 2008 the RBI cut CRR by 100 basis points (50 bps effective October 25 and 50 bps effective November to 5.5%. Further the repo rate was reduced by 50 bps to 7.5%.

It also cut banks’ statutory liquidity ratio (SLR) by 1 percentage point to 24 percent of their deposits.

What are repo/reverse repo rates, CRR rate and SLR?

Repo and reverse repo rates are the tools of liquidity management. The RBI uses these measures either to inject liquidity into the system when the liquidity conditions in the markets are tight or suck out liquidity, when there is excess liquidity in the system.

Why does the RBI do this?

Excess liquidity in the system stokes up inflation. Higher inflation leads to higher prices, which in turn leads to lower demand adversely affecting the overall economic growth. In times like these, to control inflation, RBI sucks out liquidity from the market, thus reducing the money supply.
Similarly, tighter liquidity means banks have less money with them to lend, which forces them to raise interest rates. Raising rates leads to consumers postponing their purchases; businesses deferring their expansion plans, thus reducing the aggregate demand, adversely affecting the economic growth.

Thus it is the RBI’s prerogative to manage inflation without compromising on growth.

How does the RBI do this?

Simply defined, the repo rate is the rate at which RBI buys securities from the banks and lends them money. When the liquidity in the markets is tight, the RBI reduces the rate at which it lends to the banks to incentivise banks to borrow more money from them. Thus banks have more money with them to lend to consumers and businesses giving an impetus to economic growth.
Also, changes in repo rates have a direct bearing on other interest rates like your bank FD rates, home loan rates, and so on.

Cash Reserve Ratio (CRR): Banks are mandated to keep certain percentage of their deposits with RBI. This is the CRR. Thus, an increase in the CRR leads to banks parking more money with RBI reducing the funds available with banks.
On the other hand a reduction in the CRR keeps more money with banks boosting liquidity in the markets.

To put it simply, the repo rate is a rate management tool, whereas the CRR is a liquidity management tool of the RBI.

SLR: It is the amount that a bank has to maintain in the form of cash, gold, or approved securities. The quantum is specified as some percentage of a bank’s total demand and time liabilities i.e., the liabilities that are payable on demand anytime, and those liabilities that are accruing in one month’s time due to maturity. This ratio is fixed by the RBI.

What is the current scenario?

In line with its global peers, the RBI also was forced to reverse its tight monetary policy that was being followed to control inflation, to solve the problems arising due to shortfall of funds. Domestic events like advance tax payments, regulatory intervention by the RBI in forex markets to stabilize the depreciating rupee, (aggravated by merciless selling by FIIs in Indian equities) created a huge liquidity crunch in the markets. The liquidity shortage drove up the overnight call rates (rate at which banks give money to each other for short term needs) shooting up to over 20% levels. Banks raised their benchmark prime lending rate (PLR) and were reluctant to disburse loans against the sanctioned limits owing to the liquidity crunch. To cool off this liquidity crunch, the RBI in its credit policy on October 24 announced a 250 bps cut in CRR and 100 bps cut in repo rate. The cuts effectively added around Rs 1, 30,000 crore to the system. When even this was not enough to tackle the ongoing liquidity crunch, the RBI further announced a slew of rate cuts on Saturday.

• It cut CRR by 100 basis points (50 bps effective October 25 and 50 bps effective November to 5.5%. Further the repo rate was reduced by 50 bps to 7.5%.
• It cut SLR by 1 percentage point to 24 percent of their deposits.

If one considers the macro data points, the conditions for easing monetary policy appear favorable owing to:

1. Inflation showing signs of peaking out
2. Oil prices continuing their southward journey
3. Slowing economic growth

The one percentage point cut in CRR is set to release additional liquidity of Rs 40,000 crore into the system.

The SLR cut would inject about Rs 40,000 crore into the banking system.

The RBI now expects banks to pass on the benefit of rate cuts to final consumers in the form of lower interest rates on housing loans and personal loans to boost consumption and revive the slowing economy. Some of the banks have already reacted positively by proactively cutting the benchmark PLR.

Impact on equity markets:
The RBI move was a welcome trigger for the stock market, albeit a short-term one, as we saw the markets rallying from the lows of 7700 to 10600. As expected, banking stocks contributed the lion’s share to the rally on the expectation that lower rates will boost consumption demand positively affecting the margins of the banking sector. Also, a cut in CRR (on which banks don’t get any interest) and SLR would enable banks to earn higher margin on released funds.

Kapil Mokashi is an Associate Financial Planner, working with Sharekhan Ltd. as an equity advisor.

Things have been happening so suddenly. It was a while before I realized I am almost stuck in a trap (or at least to me it seemed to be so). I am not much of a savings person. I use my credit card a lot.

The only saving grace seems to be that I have taken no loans and I have no liability.
Otherwise I’d be stuck in a debt trap. With no way to know how to get myself out of it. Let’s just say that I am one of the “lucky” ones. What about those who are not so lucky? What can they do when in a debt trap?

One option is to go to a financial advisor or consultant. But, they can be expensive.
The better solution is to approach a credit counseling center. There are several credit counseling centers in cities across India.

Some banks also have own credit counseling centers too, such as the Bank of India-sponsored Abhay, at Dadar in Mumbai. This agency, the first of its kind, also has centers in Gumla (Jharkhand), Wardha, and Chennai.

ICICI Bank’s credit counseling centre, Disha has centers at Ahmedabad, Hyderabad, Vijayawada, Kanpur, Delhi, Chennai, and Kolkata.

These centers will help you chart out a plan to repay your debts. You can swap your high cost borrowings for low cost debt. Interest rates may be bought down to as low as 18 per cent for levels such as 36 per cent in some cases.

These centers can also help you restructure the loan portfolios and formulate repayment plans. They may also help borrowers negotiate with banks for restructuring debts.

Here are the addresses:

• Abhay (Bank of India), 61 A, Sadanand, 1st Floor, Above Bank of India Branch, Gokhale Road (north), Dadar (West), Mumbai- 4000 028. Call 022-24221843.
• Disha (ICICI Bank), Prince Apartments, Ground Floor, Karani Lane, Ghatkopar (West), Mumbai 4000 028. Call 65971815/86/87. Visit www.dishfc.org
• Union Mitra (Union Bank of India), Union Bank Bhavan, 239, Vidhan Bhavan Marg, Nariman Point, Mumbai- 400021. Call 022-22896502.