Should you go for loan transfer

My SBI savings account was debited with Rs 5,000 in July 2008, following a failed ATM transaction, although I did not get cash from the ATM of State Bank of Patiala. I received the money back in August 2009, i.e., after 13 months. What is the claim that I can ask for and from which bank?
D YADAV

You are entitled to compensation as per the directives issued by RBI in July 2009. In your case, it pertains to a transaction in July 2008. However, your account was credited on August 2009. RBI has issued instructions on July 19, 2009. Therefore, you may ask for compensation from the date of issuance of instructions by RBI. You need to take up the matter with the bank which has issued the card to you. Please write to the nodal officer of the bank.

I have taken a home loan from Centurion Bank of Punjab, which has now merged with HDFC Bank. My principal was Rs 10,53,320 and I had taken a top-up of Rs 2,94,028. However, now my existing rate of interest is very high and I am planning to get the loan transferred to some other bank where the rate of interest will be lower. At the moment, the interest rate for the principal loan is 12.75% and for the top-up , it is 13.75%. Could you guide me as to whether I should go for a loan transfer?

While switching your home loan, you will have to bear some cost. You need to work out the cost benefit of the whole transaction. The additional costs would include prepayment charges of the bank, which may vary from 0.75% to 1.5 %. The new lender may ask for valuation of the property, which will involve additional fees; cost of stamp paper, which differs from state to state; the cost of equitable or legal mortgage as may be stipulated by the lender; legal expenses and processing fees. Therefore, it is better to wait for some more time, as bankers are contemplating passing on the benefit of the reduced rates of interest to existing home loan clients too.

I want to deposit an amount in my minor daughter’s name, wherein I will be her guardian. Kindly guide me on the following matters: (i)What is the maximum limit for such deposits (ii) Who will get the maturity amount? and (iii)Will there be TDS ?
SUKANT GUDHEKAR

(i) Each bank has its own policy about the maximum amount. You need to check this fact from the bank concerned. Otherwise, there is no ceiling on the maximum amount of deposit. (ii) The amount of deposit will be paid to the minor since he is the depositor in the books of the bank. (iii) TDS will be deducted if total interest paid/payable on all term deposits exceeds Rs 10,000 for 2009-10 . The present rate of TDS is 10% (no surcharge, education cess, etc).

Citibank unveils mortgage product for home loan facility

BANGALORE: Citibank on Monday launched a novel mortgage product 'CitiHome One' to offer its customers a home loan facility.

The universal home product enables the bank's customers to avail a conventional term loan and a credit line for buying or constructing a home of their choice, the leading foreign bank said in a statement here.

"We offer customers a dual advantage of interest savings on their home loans by utilising surplus funds and flexibility to structure repayments as per their convenience," Citi India business manager N. Rajashekaran said.

Customers can also determine the amount they wish to take as credit line with the balance being structured as a term loan.

"The home loan account, where the credit line is set, will serve as an umbrella account and allow customers to consolidate their banking requirements into a single CitiHome One account relationship," Rajashekaran noted.

The maximum limit for the home loan is Rs.5 crore (Rs.50 million), while the credit line can extend up to 30 percent of the total facility or Rs.1 crore (Rs.10 million), whichever is lower.

The loan will have a variable interest rate linked to the bank's mortgage prime lending rate.

The repayment tenure for the term loan is 20 years and for the credit line 10 years.

Customers can also make a one-time repayment or convert the credit line into a term loan and pay back through EMIs (equated monthly installments).

"Purchasing a home is a major life event and a mortgage is one of the financial commitments an individual makes. CitiHome One is designed to place customers in command of their finances and make home-buying a win-win for them," Rajashekaran added.

Banks told to rate old, new home loans at same level

The difference in floating interest rates for old and new home loan customers may soon be done away with following a move by Indian Banks’ Association (IBA) to introduce a uniform rate for all borrowers. While the nitty-gritty is being worked out, floating rate home loans may soon get more efficient in reflecting interest rates prevalent in the market.

At present, there is a dichotomy in rates that old borrowers and new borrowers pay on floating rate loans. Rather than reducing interest rates across the board and bringing down the overall yield on advances, banks have been reducing rates only for new borrowers by coming out with special ‘schemes’ available only for a limited period. Consequently, there are cases where new home loan borrowers pay 8.5% even as existing ones pay around 9.5%.

Now, prodded by RBI, IBA has decided to move towards a regime wherein a uniform interest rate is charged to both old and new home loan customers. The issue was discussed by CEOs of large commercial banks during a recent IBA meeting, which took place after RBI deputy governor Usha Thorat asked banks during an informal meeting to justify the difference in rates offered to old and new home loan customers.

The RBI communicated to banks about the flood of complaints from home loan borrowers who alleged that floating rates on loans only moved upwards while any reduction in rates were made available only to new borrowers

.

“There is clearly a perception that old floating rate borrowers have been let down and something needs to done about it. It’s also a question of retaining customer loyalty. The IBA management committee had discussed this issue at length recently and we feel that going forward, there is a need to move towards uniform rates. It is too early to say how the transition to a uniform rate will happen. It is being examined,” said MV Nair, chairman of IBA and CMD of Union Bank of India.

The difference in the rates charged to new and old home loan customers varies from bank to bank and depends on the size of the loan. The spreads are narrower for small-ticket loans and wider for big-ticket loans, ranging between 50 and 150 basis points (0.5-1.5 percentage points).

For over a year now, a number of banks have been offering floating rate loans where rates for the first year are frozen at 8% to 8.50% for a year while old customers on floating rates continue to pay interest rates in the range of 8.5% to 10%.

Among private banks, Axis Bank has already communicated to the RBI that it will soon frame a policy wherein old and new customers will be charged uniform rates.

However, IBA’s decision to move towards a uniform rate for old and new customers is not binding on member banks. Some banks are of the view that since companies in every industry launch festive offers (where products are sold at a discount to attract customers), banks should also be allowed to float such schemes.

“The core issue is whether banks should continue with the current system of tinkering with spreads (the difference between the BPLR and the rate actually charged to the customer) each time they come out with a new scheme. Or, should banks fix a spread linked to BPLR and each time the BPLR moves, interest rates for all home loan customers would change accordingly? Once the issue is sorted out, there will be clarity on pricing home loans,” said a senior banker present in the meeting.

Bajaj FinServ may foray into home-loan biz

Bajaj FinServ, the Bajaj group’s financial services arm, is looking to widen its footprint to businesses as diverse as home loan andconstruction equipment financing as the ‘next logical step’ in its expanding bouquet of services. ( Watch )

“We already offer secured loans against property and we are the fourth-largest in that segment. We are now evaluating getting into the home loan business, though we have not taken a final decision yet,” Bajaj Finserv managing director Sanjiv Bajaj told .

Two of the planned diversification moves are slated to take off next year. “We will start offering retail loans against shares next year and we are also entering the construction equipment financing business. FinServ may even look at commercial vehicles when sister company Bajaj Auto diversifies its portfolio,” Mr Bajaj said.

Already, Bajaj FinServ has expanded into two new businesses this year. In April 2009, Bajaj FinServ signed an agreement with insurance partner Allianz for an asset management company (AMC). Bajaj Financial Solutions, a 100% financial products, services distribution and advisory offshoot, was set up later. “We want to tap into a new set of customers with these businesses,” said Mr Bajaj.

“Currently, 90% of the AMC business is in the top six cities, but we want a low-cost delivery system to access the next level of customers outside of those six cities,” he added. Ditto for the financial advisory business. “Today, that business too is very high-end, but we want to look at the middle class and build some simple products for that segment,” said Mr Bajaj.

The advisory business, for which the business plan is being finalised and should be ready in 3-4 months, may also include brokerage. “It could cover both equity and non-equity, and should be ready for launch by mid-next year,” Mr Bajaj said.

SBI give a cue to IDBI bank , to offer home loan at 8.25 pc

Taking a cue from biggies like SBI, ICICI Bank and HDFC, state-owned IDBI Bank today joined the home-loan war by offering 8.25 per cent fixed rate for all its new loans till March 2012.

The offer is applicable to all new home-loan customers applying on or before March 31, 2010, and taking a part or full disbursement during the offer period, an IDBI Bank press release said.

After the offer period, interest rate will be charged based on the then prevailing floating rates, the bank said.

Presently IDBI Bank is offering 8.75 per cent for loans up to Rs 30-lakh, 9 per cent for loans between Rs 30- lakh and up to Rs 50-lakh and 9.25 per cent for loans above Rs 50-lakh.

A host of lenders, including market leaders State Bank of India and ICICI Bank had announced similar schemes in the recent past to woo aspiring home buyers.

Early this month, banking majors, ICICI Bank and Kotak Mahindra and homeloan financer HDFC had announced special home loan schemes for new loans irrespective of the loan amount.

While ICICI Bank offered new home loans at a fixed rate of 8.25 per cent for the first two-years, irrespective of the loan amount, Kotak Mahindra Bank offered 8.49 per cent fixed interest for 30-months.

Country's largest lender, State Bank of India set the ball rolling by announcing a scheme offering an 8 per cent interest rate early this year.

The scheme, earlier scheduled to end in November, was extended till March 2010, following a huge demand from the market.

The bank which offers the special scheme under 'My Home Campaign', offers an 8 per cent fixed interest rate for 5-years for loans up to Rs 5-lakh, with a maximum tenure of 10-years.

For loans above Rs 5-lakh and upto Rs 50-lakh, interest rate has been fixed at 8 per cent during the first year and 8.5 per cent during the second and third years, State Bank said.

The bank is also offering SBI MaxGain, under which it offers home-loans as an overdraft with the possibility of saving interest.

Befor Going for a home loan? Negotiate for best terms

While banks are currently going all out to offer home loans around the 8% range - for a limited period of two to three years - consumers are advised to not sign up hurriedly for any without first hunting for the best bargain.

This suggestion comes from a senior banker, who further asks prospective home buyers to look up the FAQs (frequently asked questions) recently put up on the Reserve Bank of India website (www.rbi.org.in) for a comprehensive ‘to-do’ vis-a-vis home loans. Sample an advice on the site: “Once you know what each bank has to offer in terms of rates, fees and down payments, negotiate for the best deal.”

Senior bankers second that both loan rates and terms and conditions are up for negotiation. “Ask the bank to reduce the processing fees, waive other charges... There is nothing like a bank syndication in loans. There will always be variation,” says a banker.

The FAQs make another point which is relevant in the context of the current rate war - you may try to negotiate a lock-in that should include the rate that you have agreed upon initially and the period the lock-in lasts.
The banker says that although banks do not admit to this, the lock-in period during which banks do not reset the rate of interest or convert a loan to floating can be stretched. “But get the assurance from the bank in writing.” This is especially common in loans to high networth individuals or in group bookings.

K Unnikrishnan, deputy chief executive at the Indian Banks’ Association, insists that negotiations are not seen in low-value loans, but “in specific cases, in large-value transactions, banks can go back to the treasury and customise the loan. They can measure the risk and do it accordingly”.

The banker says home loan applicants must consider the external benchmarks to which the reset rate of interest will be pegged to. “If you’re taking a fixed loan, and it is reset after five or nine years, you must look at the reset peg and compare the loans on offer accordingly.”

The RBI website suggests, “Ask the lender to write down all the costs associated with the loan. Then ask if the bank will waive or reduce one or more of its fees or agree to a lower rate. Do make sure the bank is not agreeing to lower one fee while raising another or to lower the rate while raising the fees.”

Consumers must make it a point to go through the terms and conditions to look for any hidden charges and clauses, especially reset clauses, if any. If a consumer has blindly signed up on such a document with a clause, the banking ombudsman - the grievance redressal authority for banks - can do little to help.

A banking ombudsman official, though, points to a recent case where a customer who had opted for a 7.5% fixed home loan three years ago, suddenly found that his loan was converted to floating at 12% rate. “The bank is at fault here, as there was no mention of any such clause in the loan agreement,” says the official. Consumers must watch out for such malpractice.

‘Cut ceiling on priority home loans to Rs 5L’

The urban development ministry has proposed that priority sector status for housing loans should be limited to amounts up to Rs 5 lakh

to encourage banks to support low-cost housing, but the idea may not find favour with the lenders.

“Although the scheme provides for subsidised funding for housing for the poor, it would be successful only if banks are made to disburse loans to the economically weaker sections,” said a government official who asked not to be named.

Currently, loans up to Rs 20 lakh qualify as priority sector lending. Banks are required to earmark a certain percentage of their funds to some identified sectors, which would otherwise find it difficult to access funds. Such sectors get loans at discounted rates.

In a submission made to the Planning Commission as part of the mid-term appraisal process for the on-going Eleventh Five-Year Plan, the urban development ministry pointed out that an “enabling environment” has to be created for successful implementation of the government’s vision of slum-free cities through its flagship scheme Rajiv Awas Yojana.

It has also suggested that mass affordable housing should be declared as infrastructure to reduce the cost of funds.

The ministry is apprehensive that the current Rs 20-lakh ceiling reduces fund flow to the economically weaker sections, as banks are often fearful of smaller loans that they may be asked to waive off. Moreover, it is also difficult to forfeit mortgage of the poor and the cost of collection is high.

The proposal is, however, likely to be contested by banks, which will need to disburse a greater number of loans to meet their priority sector targets. When the limit for priority sector lending is as high as Rs 20 lakh, banks get away by avoiding requests for smaller loans. They get to meet their priority sector target by sanctioning a smaller number of bigger loans.

“If banks are asked to bring down the ticket size of housing loans to Rs 5 lakh, many of us will not be able to meet the priority sector lending targets without a spike in nonperforming assets,” said the head of a new-age private sector bank.

Existing guidelines mandate that at least 40% of net bank loans be earmarked for certain designated sectors, which include exports, housing, rural and agriculture sectors. At least 18% of the net bank credit should be earmarked for agriculture. For foreign banks, the priority sector lending target has been fixed at 32%.

Three out of 27 PSU banks and five out of 22 private sector banks in the country missed the priority sector lending targets. More than half of the banks couldn’t meet the sub-targets for agriculture and weaker sections.