An old colleague called me up after reading one of my articles. We spent some time reminiscing about the old times and the people we had worked with before he came to the real reason he had called me. I knew he had lost his job in 2009 and his divorce had also put a lot of pressure on his finances. Although as a finance professional he understood the value of a good credit standing but circumstances had forced him to start defaulting on his car loan and credit cards after his entire savings were wiped out to pre-pay the home loan (his ex-wife got the flat) and to meet his day to day expenses during his unemployed days. He wanted to make a fresh start as he had just managed to get a job offer but his defaults were now beginning to affect his life. He was aware that he would need to repair his credit standing but was not aware of how to go about it. That rang a bell. I have been asked similar questions by a lot of people who either through circumstances (like my friend) or because of lack of financial discipline had defaulted on their financial obligations but were now wanting to make amends but did not know how to.

First a crash course on what happens when you default on your financial obligations. Today every lender is required to share data about the repayment history of their borrowers with at least one credit Information Company (generically known as CIBIL – since Credit Information Company of India Ltd Or CIBIL is the largest and the oldest of the 4 licensed credit information companies). It is a popular misperception that lenders share repayment data only about customers who default on loans. They are required to share data about the repayment of all their borrowers. So anybody who has taken in a loan (and that includes me as well) and is currently servicing it will find “his or her name in CIBIL”. But for most of us this is extremely useful. If I were in the market for a new loan now the banks will be happy to lend to me at good rates simply because they will discover that my existing loan repayments have been bang on time and the level of indebtedness is very reasonable. The issue of course arises if my credit information report shows defaults (current or past).

This credit report has special significance in today’s life (obviously after our school’s report card) as it determines the credit worthiness of any individual. The need for credit is important aspect of modern day life, which one can hardly do without. The day is not far when matrimonial alliances will be based on the credit reports of bride and the groom…so till death do us apart will probably be replaced by …till finances do us apart.

So if you have defaulted on your payments for any reason, your Credit information report will immediately disclose this status to any prospective lender. With a bad credit report it is highly unlikely that you can get any loan or credit card from any bank.

But all is not lost…you can slowly and gradually build your credit history all over again.

Now that you have been reported a defaulter, and you are burdened with debt, then what should you do? The help comes in the form of specialized credit counseling agencies who can assist you in such a situation. The well-known ones are ICICI initiated venture Disha Trust (www.dishafc.org) or Bank of India initiated Abhay Credit Counselling (www. abhaycreditcounselling.com) which assists you in negotiating with your existing lenders and re-structuring your debt, which can be curative and preventive both.

“The customized advise given by Disha Trust is absolutely free irrespective of the bank the customer has a defaulted with and not just ICICI bank,” shared Ms. Nutan Lugani - Counselor of Dish Trust. She adds, “ We hold extensive counseling sessions with the customers then work out an action plan and accordingly make recommendation to the banks. It is not mandatory for the bank to consider them but it is a win win situation for both, the bank and the customers. With restructuring or rescheduling of loans, banks recover their money without incurring costs of litigation etc. and customer gradually comes out of debt.”

So all is not lost. If you are considering obtaining a loan in future with low interest rates, you must have a healthy credit score. “Worrying too much about your bad credit history is not going to help, but doing the right things will certainly help, “ adds Ms. Lugani.

First start with paying off the re-structured debts and start the process of rebuilding your credit history. But remember, rebuilding your credit history is a slow process. It is a misperception that if you could somehow find the money and pay off all the debt now it will give you a clean slate. What the report will show is that you had defaulted in the past but that you cleared everything off at a particular point of time. That coupled with some other steps should help you in slowly rebuilding your credit history. Ms. Lugani says, “ Customers should not be obsessed about CIBIL credit report. They should first think about the loan, which they have to repay, and the need of the hour is how to come out of it, CIBIL report is secondary. Once you regularly start paying your debts in time then with the passage of time your credit history will improve.”

Remember CIBIL keeps your records for 7 years but displays the month-by-month repayment record only for the last 36 months. What it means is that if you start maintaining a clean history after re-structuring or paying off your loans than your credit history will start looking good after 3 years. Of course CIBIL also computes a Credit score (the process is internal to CIBIL) for each individual, which probably is based on the entire 7 years data. However, currently only a few banks use the Credit score so it is your visible data for 3 years that has more relevance.

In the meantime you can also start adopting measures, which enable you to rebuild credit history like taking secured credit cards, which are given against the security of your Fixed Deposits. Your credit limit will probably be raised in future if you have shown good financial behavior. These credit cards may not be your dream cards, but they are often the best option you have since you are unlikely to be eligible for their regular credit cards.

You can also opt for secured personal loans where an asset is required as collateral. It normally involves bigger sums of money, moreover secured personal loans are preferred by the lenders due to the fact that they are secured against your assets such as jewelry, securities such as shares/mutual fund units, bonds, NSC, KVP, Life Insurance policies with high surrender value, etc. All these loans (with the sole exception of Loan against property which is unlikely to be available for somebody who has defaulted in the past) are available irrespective of your credit record.

Ms. Lugani concurs, “Such customers should look at liquidating the existing liabilities by taking loan against some kind of security, whether it is of stocks and shares or gold, or consider borrowing from some rich relative who can give them at a much lower rate. But word of caution here is that check your expenses, do not increase your credit exposure and repay the present loan to salvage the situation immediately.”

You should pay more than the minimum payments each month if you cannot afford to pay off the credit card fully. Loan, whether big or small needs to be serviced and repaid regularly and on time. Service these loans religiously and the new disciplined you will also reflect in your repayment history in CIBIL records. In fact after three years the remanents of your bad history will no longer be visible.

So remember – slow and steady wins the race.

Next week I intend to cover how to get mistakes in your credit report corrected. I invite readers to share their experiences on this issue.

Ever wondered if you have a single source to manage, execute and account for all your personal financial planning needs like retirement planning. insurance planning, taxation planning, investment planning, loans, mortgage and cash flow management. It would make lives considerably easy cause you wont have to run behind ten different people to get a hold of all your personal finance documents and account statements. With a financial planner your financial management will be easy swift and all in one place.

The biggest advantage of a financial planner is that he will not be a salesman trying to sell products to you with the main intention of filling his pockets with the commissions of the products he sells to you. His main goal and motive is to keep you financiallly safe and secure and help you achieve your goals.

Many agents and salesmen in India pronounce themselves as a financial planner but the diffrenciating factor is that if a person is an agent or a representative of any company then he will not be in a position to give you unbiased advise as his aim will be to tell you some story and sell his companies’ products to you. To be an unbiased advisor the person must be able to provide a comparison of various available product options.

Financial planners charge fees from their clients for the advise given just like a doctor, lawyer or an architect. The advise is genuine and based on the clients needs, budget and after a detailed analysis of several available options

As a child when my first milk tooth fell, I was told to keep the tooth under my pillow at night. When I woke up next morning, I was delighted to discover a One rupee coin instead of the tooth under my pillow. When I asked my parents about it, they told me that a tooth fairy had switched my tooth for a rupee coin during the night. As a child the story had lots of appeal for me. Of course as I grew older I realised that there was no “tooth fairy” and that the One rupee coin was placed by my parents.

The stories doing rounds of zero percent finance scheme are perhaps of the same genre.

The old adage that ‘there is no such thing as free lunch’ aptly describes the zero-percent-interest schemes. These schemes were widely popular till a few years back. RBI regulations advising banks to refrain from offering such schemes as well as the general withdrawal of major banks from consumer durables financing has meant that such schemes have not been in vogue for the last 2-3 years.

However there are several NBFCs ( Non-Banking Financial Companies) that continue to finance consumer durables purchase and also have zero percent schemes. The main attraction of such schemes is that they influence you to purchase consumer goods that could be more expensive than your wallet size. The lure of zero percent interest is an added attraction that makes you feel that ‘YES’ I am getting something free and thus I am able to buy a ‘bigger and better’ product.

So how do these schemes work?

Unlike their names, most Zero percent schemes have other costs in built. The biggest cost is that you forfeit the cash discount that you would have got otherwise from the retailer. Also you will be paying some processing/transaction fees and/or advance EMIs.

So let us see how the costs stack up in a so called “zero percent scheme”

Example: A LCD colour television costs Rs. 48000 and is available on “zero percent” EMI scheme for 6 months (i.e. There is a EMI of Rs. 8,000 per month for 6 months). The consumer needs to pay a processing fee of Rs. 1,000. If the customer had bought the same TV by making a full payment he could have availed of a cash discount of Rs. 2,000 which he is not getting if he opts for the “zero percent scheme”.

So it works out like this :

______________________________________________________

Cost of television set : Rs. 48,000/-

—————————————————————————————

Amount paid/Cost incurred in advance:

————————————————————————————–

Processing fees Rs.1,000/-

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Cash discount foregone Rs. 2,000/-

————————————————————————————–

—————————————————————————————-

Total Rs. 3,000/-

—————————————————————————————-

Net finance received Rs. 45,000/-

—————————————————————————————-

Payment made by 6 instalments of Rs. 8,000/- each (aggregating in all to Rs. 48,000/- against the finance received of Rs. 45,000/-).

The effective interest cost works out to 23% p.a. (see the calculator – true cost of zero percent schemes – http://www.apnaloan.com/loan-advice-india/fmcg-interest-rate-calculator.html.

However the popularity of such schemes with consumers particularly in festive season cannot be denied. Market sources say that despite being costlier in some ways, consumers prefer to go for these staggered payment schemes and have been highly successful in pushing sales and expanding the market for the durables. This is primarily because of the fact that purchasing through credit cards is very expensive as compared to purchasing through these schemes.

Also, the success of these schemes can be attributed to the availability of credit at the point of purchase, minimal paper work, small ticket size and hence a not-so-stringent eligibility criteria.

So are there any true zero percent schemes? Yes there are.

Some of them are available on the much maligned credit cards. The credit card that I have allows me to convert specific spends greater than Rs. 5,000/- into a 3 months EMI without any cost or fees. This is the closest that hard nosed bankers come to offering true zero percent schemes. Some other major credit card issuing banks also have similar schemes.

Best way to check if a zero percent scheme is a true zero percent scheme is to ask the following questions :

1) Any fees or charges

2) If I pay full amount do I get a discount that I am not getting if I take the zero percent scheme.

If answer to both the question is “No” then you have a true zero percent scheme!

So you can ‘zero in’ on your zero percent schemes

Loans, probably being my ‘middle’ name, this question coming from me may surprise many as I have been advising consumers on various facets of loans for many years on a day-to-day basis. Here I would like to draw a parallel from Bollywood movie Dayawan where film ends with a question by child character - Was Dayawan (the protagonist who plays a mafia don with a heart of gold) a good person or a bad person?

Same way the consumer in modern day society is perplexed - Are loans good or bad?

Through this article I am attempting to make an analysis of this dilemma.

Ideally loans that create a productive asset or enhance earning capacity can be classified as good. Also loan taken to meet unexpected emergencies do not need a classification. They are a “must” rather than being good or bad. Thus the purpose of the loan plays a crucial role in deciding whether a loan is “good” or “bad”. The other deciding factor is the cost of the loan. The purpose of loan must also be cost effective. If you are undertaking “hair cutting” course for Rs. 20 Lacs, it may not be worthwhile, as the earning capacity may not be enhanced that much. Even when the loan is for a good purpose say paying the fee for an educational course that will substantially add to the earning capacity but if the cost of the loan is too high, then it will not remain a good loan.

So the purpose of the loan (and its cost) and the interest rate of the loan defines the hierarchy of “good” loans or “bad” loans.

At the top of the hierarchy most loans taken to fund education for self or a family member would normally qualify to be a “good” loan as they create substantial earning capacity relative to their cost and are normally available at a reasonable interest cost. Tax breaks on the interest would also reduce the post tax of the loan substantially.

Second would be loan taken to fund a reasonable cost house for your own residence. Normally this asset price appreciates in value and will also act as a source of pension income or retirement through the medium of a reverse mortgage.

Third would be a loan taken to buy your own reasonably priced vehicle (two-wheeler or four-wheeler). This may result in a boost in your productivity given that public transport in most cities in India is quite poor.

Then there are loans taken for consumption such as for funding or an expensive/ luxury consumer durable.

The consumerism boom fuelled by the presence of modern places of worship - Malls, has led to the phenomenal growth of plastic money. Swipe…swipe…swipe is the new mantra chanted by one and all. And the prasad of this mantra is debt…debt…and more debt. The debt on the credit card for longer duration will land you in a financial mess. The borrowing on credit card should not exceed 30 - 45 days, as interest charged is very high on such credit.

Last would be loan taken for speculative purpose such as investments in stock markets. These are strict No-No.

I would like to quote Benjamin Franklin here: “Remember, credit is real money,” which we tend to forget.

Even when you take loans, remember there are two types of loans - secured and unsecured. As the name implies secured has some collateral to secure the credit whereas unsecured doesn’t, so obviously it comes at a higher price. So when taking a loan is an absolute must then try for secured loan rather than unsecured loan.

So to end - remember loans can be very useful - nay - essential to improve the quality of your life and your future generations. At the same time it has the potential to destroy your life if used unwisely. The choice is in yours.

I hope you have got your answer!

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.

Need to fulfill your short term cash needs? Personal loan is the solution. Personal loans are unsecured all purpose loans which can be taken by individuals to meet their short term cash needs. The quantum of personal loan is dependent on your income and repayment capacity. Personal loans usually have a high fixed interest rate with a fixed repayment period, you should always think of taking a personal loan as the last resort after you have utilized all other sources of cash.

Personal loans are available from Rs. 10,000 to Rs. 10 lakhs for any purpose depending on your requirement, you can utilize the money in any way you want to; there is no restriction on the end usage of the loan. Personal loans are given without any security, guarantor or collateral, resulting in a very simple, fast and quick approval process. The loan lifespan ranges from 1 year to 7 years.

The quantum and the interest rate of the personal loans depend on different factors:

1. Whether you are salaried or self employed
2. Your monthly income
3. Your employment stability
4. Total EMI payments towards your existing loans
5. Repayment track record of previous loans, if any
6. Your age
7. Your stability with the place of residence

The personal loan quantum and the rate of interest are totally dependent on your profile and the documents you provide for verification. After signing the loan documents, a demand draft or a cheque is drawn in your favour by the lender and you need to deposit post-dated cheques for the lifespan of the loan agreed by you.

Apart from the interest charged some other charges might be applicable. These charges can be charged at the time of disbursement of loan, during the lifespan of the loan, or when you terminate the loan. These charges include (a) processing charge (b) pre-payment fee (c) late payment charge (d) cheque bounce penalty (e) documentation charges (f) duplicate statement fees

Who can take a personal loan? Personal loans are provided only to resident individuals in India. Banks do check on your age minimum being 25 years and maximum being 65 years, your salary or income (if self employed), stability of profession and place of residence.

Before you proceed for a personal loan do ask few questions to yourself:

1. Is personal loan the right option? As stated above, personal loans are very expensive and you should only opt for this when there is no choice left with you and you are in need for short-term cash.
2. Is my loan lifespan appropriate? Do analyze your daily expenses, otherwise to repay early you might have to cut down your even your necessary expenses. The early repayment might not be the better option in that case.
3. Am I taking advantage of all the discounts I’m eligible for? Women get discount in many public sector banks, NBFC/Banks provide discounts to existing customers, do check on this and avail the discounts available and you are eligible to.
4. Have I chosen the right repayment schedule? There are options available for repayment of the loan, it can be larger payments at the beginning (upfront) or larger payments later in the lifespan of the loan.

You must choose a personal loan repayment period and schedule that matches your needs. Choose a shorter repayment period if you are expecting an inflow of cash in short run, this will help to meet your immediate cash needs and you will be able to repay the loan with less amount of interest.

Most banks and NBFC provide group life insurance as loan protector insurance. Purchasing this insurance ensures that the insurance company pays the lender in case you meet with an unfortunate incident. This protects your dependents from your liabilities.

A comparison of short term credit options:

Using the above table you can choose an option of a short term loan, with a view of repaying it as early as possible.

I have a very bad credit records for various reasons. Currently, I have loans amounting to Rs. 15, 00, 000, in spite of the fact that my wife and I earn pretty well.

These debts have accumulated as a result of excessive expenditure towards education of my children and other contingencies. I also have a history of cheque bounces on my account. My weak financial situation will last for another two years, till the completion of the education of my 2 children who are undergoing their 5th semester (of an eight-semester course) in Engineering. Once my children are through with their course, I may be able to save some money, even if we don’t get any financial support from them. I am also willing to ensure full security of bank loan in case of my death or retirement as a normal course. I am a salaried individual with 7 years of service pending before retirement. Will there be a bank willing to lend me? The situation I am in was unavoidable; will this mean that I can’t get a loan ever? Can I get some sort of a loan with an option to pay of the loan within 10-20 years. I can afford to pay an EMI of Rs. 17, 000 per month.

Personal Loans are loans taken to meet any type of personal expenses e.g. medical, marriage, family function, education, vacations, travel, home purchase, improvements etc. No security is needed but qualifying criteria is stringent and banks are more than happy to entertain qualified individuals with minimal paperwork. Personal loans are cheaper than credit cards, but more expensive than home loans. So if you have taken a personal loan and are thinking about prepaying the personal loan, you must base your decision on prepayment keeping the following things in mind.

Firstly you must be aware of the Method of calculation of Interest Rate for your personal loan. This is very important to know in order to compare other options (interest rates) available to you. Personal loans are usually given by either Flat rate, Reducing Balance or Advance EMI (normally used for consumer durable loans). In the flat rate methodology, the Interest charged is basically Simple Interest.So if you take a personal loan of Rs 2,00,000 at a flat rate of 15%, your Interest is going to be Rs 30,000 per year for tenure of loan. In the case of Reducing Balance, the EMI and the Interest computation is equated in EMI’s over the tenure of the loan and then you are charged. The Interest is charged on the Balance Outstanding. So effectively this means that between going for 10% flat and 10% reducing EMI method for same tenure, the reducing methodology is a cheaper option.

In Advance EMI lenders/banks normally take 2-3 EMI’s in advance effectively reducing your principal amount. Interest is charged on the entire amount instead of the reduced principal interest. So basically, for a loan of Rs 2,00,000 with 3 advance EMI’s(Rs 30,000) of Rs 10,0000 your loan may actually be for 1,70,000 but you may be charged interest on the entire Rs 2,00,000. Therefore, once you are aware of the method of calculation of interest for your personal loan you can consider the various options available at the time of prepayment and make a sound judgment on the prepayment of loan.

Secondly, an important factor to consider is the foreclosure penalty that you will have to pay while foreclosing (early payoff of loan) your loan. So if you have gone for a 1 year, 2 year, 3 year, 5 year personal loan and you decide to foreclose the entire amount, then banks charge you about 4%-5% as foreclosure loan. The reason is because at the time of taking loan they have quoted you a competitive rate based upon a set tenure. So if you think that you have money available to you through other means and that the 4% cost is something you are willing to incur, you can make prepayment of your loan. Also, when the bank offers you the option of pre-payment it does not give the flexibility of part payment . If you decide to repay the loan earlier than the pre-determined period, you have to pay the whole outstanding principal. If you have a minimal surplus available to pay a part of your loan that would reduce your interest burden, but the bank does not allow it.

Finally, the decision is based taking into account the above mentioned factors along-with the Interest rate scenario at the time of deciding to prepay. If Interest rates have risen since the time you have taken your personal loan it would make sense to continue with the loan. However if interest rates have fallen since you have taken personal loan it may be worth considering taking another personal loan (with reduced interest rate) in order to pay off the more expensive loan on the condition that the bank allows you to do so and after taking into account the various costs (processing fees of new loan, cost of foreclosure of old loan, etc), prepayment would still be the cheaper option.

The author is a Certified Financial Planner, working as Senior Manager with Mumbai-based SRE Financial Planners.

Question: Can you afford to purchase a new car?
Another question: if you can indeed afford it, how much exactly can you afford? Which, in turn, pops up another question - What can you afford to pay per month?

Okay, answers now.

The first step is to assess your personal budget and determine what you can afford a month. There are many personal budgeting guides out there that will give you an idea of how much spare money you have each month. As a general rule of thumb, you should track every paisa you spend over a period of at least a month. This will help determine where you really spend your money and how much you can afford. Take into consideration all basic necessities and set aside a certain portion for contingencies. You might be actually surprised to learn exactly where your money is going each month. And make slight adjustments to your spending patterns to ensure that you have a respectable amount that you can set aside.

Now work backwards from here.
Let’s assume that you can afford to pay Rs.10000 a month for that new car. Taking into calculation current interest rates offered on car loans, you can now calculate how much you can borrow.

If you can afford an EMI of Rs.10000, at an interest rate of 14% per annum for a 60-month loan, you are eligible for a loan of Rs. 4.29 lakh approximately.

You now know your upper limit for the car loan. If your EMI outlay per month is around 30-40% of your net take-home pay, you are home and dry. You can have that car and the cost will not play havoc with your monthly budget.

The above tips will help you to get an idea of the new car that you can afford. Loan amounts disbursed are totally at the discretion of the lender. If you have good credit history, lenders could finance 100% of the car cost. Typically, you need to put up 10-15% of the cost of the car. In the above-mentioned scenario that would work to around Rs. 75000. Add this to the loan amount and the car you can afford is really over Rs. 5 lakh!

The author is a Relationship Manager working with the Mumbai-based SRE Financial Planners.

“To be, or not to be, that is the question.” Shakespeare wrote this line underlining the dilemma faced by his Prince Hamlet. He could as easily have been writing about today’s home buyers. The dilemma of whether to be a home owner or not means that the potential home buyer is sitting on the proverbial fence in a trance-like state trying to make sense whether it is the right time to buy a house or…

The home loan is the biggest component of any house purchase and any change in home loan interest rates affects the decision to buy a home. Till recently (2006-07), exploding property prices and rising interest rates were the major dampeners to buying homes. In the last few months of 2007, banks had reduced the interest rates between 0.5-0.75 percentage points to no discernible increase in demand for home loans given the exorbitant property costs.

So what does the rest of 2008 have in store for you, the ardent home shopper?

The first quarter of 2008 has been quiet where property purchases are concerned. The present quarter also promises to be underwhelming, which is followed by the traditionally slack July-September quarter. For any sign of life, you will have to wait till fourth quarter of this year.

HOME LOAN PREDICTIONS 2008

• Interest rates unlikely to decrease, may increase
• Property prices may soften
• Demand for home loan to be soft
• Slack period till September 2008
• Rising inflation to affect interest rates
• Mortgage guarantee to come in effect

It is expected that property prices may continue to soften but are unlikely to nosedive.
Though this softening may trigger a few purchases, it actually may give rise to purchases being postponed. Home loan buyers might expect them to fall further, resulting in a wait-and-watch attitude - wait for property prices to fall further and watch at what price they can make the purchase.
We therefore expect that demand for home loans will be soft because the downward correction in property prices may not finish during this year.

In the case of interest rates, these are not expected to decrease any further; in all likelihood they will increase. A bank’s ability to bring down interest rates on housing loans is not just a function of housing stock demand-supply. Interest rates are also determined by other factors affecting the overall economy

The promised banking liberalization in 2009 should see some more transparency come into the market due to a combination of increased regulation and competition. Hopefully we shall see regulation that ensures a more transparent basis for adjusting floating rates; thus making its movement both ways rather than just one way (upwards, as it is at present).

Also, we should see the first of the licenses granted to a credit information company (popularly called a credit bureau). This will increase the economic incentive for customers to pay their dues on time; defaulting financial obligations would result in the customer being blacklisted at the credit information company.
Another factor which will impact the property loans market is the introduction of the mortgage guarantee. Banks and home finance companies would like to get risk cover on home loan defaults. The National Housing Bank (NHB) is setting up a mortgage guarantee firm as a joint venture with global financial institutions to provide risk cover to lenders against defaults in housing loans. The NHB is in talks with global partners such as the International Finance Corp (IFC) and the Asian Development Bank (ADB) for the venture.

All things considered, 2008 is likely to be a wait and watch year as far as residential property and home loans are concerned.

Harsh Vardhan Roongta is the CEO of apnaloan.com.