RBI asks banks not to levy penalty on pre-payment of personal loan, home loan, vehicle loan, corporate loans.

         Providing relief to borrowers, Reserve Bank today directedbanks not to levy any penalty on individual borrowers for pre-paying floating loans.

"...It is advised that banks will not be permitted to charge foreclosure charges or pre-payment penalties on all floating rate term loans sanctioned to individual borrowers, with immediate effect," RBI said in a notification.

Floating loan products include housing, corporate, vehicle and personal loans.

In the first bi-monthly monetary policy statement for 2014-15 released last month, the RBI had said banks should consider allowing their borrowers the facility of prepaying floating rate term loans without any penalty in the interest of their customers.

Some banks are charging pre-payment penalty of up to 2% of the outstanding loans.

Two years ago, RBI had barred banks from levying foreclosure charges or pre-payment penalties on home loans on floating interest rate basis.

It is believed that removal of foreclosure charges or prepayment penalty on home loans will lead to reduction in the discrimination between existing and new borrowers and the competition among banks will result in finer pricing of home loans with the floating rate, RBI had said.

Yesterday, the RBI asked banks not to levy penalties on customers who don't maintain a minimum balance in any inoperative account, as part of a consumer protection initiative.

Several banks, including the State Bank of India, do not levy any charge if the minimum balance is not maintained in an inoperative savings account.

The RBI directed banks in 2012 not to charge customers for non-operation or activation of basic savings bank deposit accounts.

Sources:  Press Trust of India

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The need some extra cash to meet a need often arises, it may be to pay admission fees for the child’s education or undergo a surgery or for renovation the ..

Rahul Ghanekar, 39 year old doctor needed some money to expand his clinic. While he was talking to one of his old patients about it, the patient mentioned the option of taking a top up loan at a very attractive rate.

A top up loan is infact one of the best options for borrowing funds at a low cost. The tenure of these can go up to 15-20 years, depending on your home loan's term. "It is offered only to existing customers. The maximum tenure could be the same as the balance repayment period.However, it is based on our evaluation," says a spokesperson from a HFC. "Usually, the total of outstanding home loan amount and the top-up loan does not exceed 70% of the property's market value.Interest rates on top-up loans are quite low when compared to personal loans. Their EMIs are low because of longer terms, while the amount you would be eligible for is higher," adds a spokesperson from a leading HFC.

The money raised from a top up loan can be used for any purpose (other than speculative activities) including education, marriage or even a holiday.

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A top up loan is often the best choice for borrowing. It offers the advantage of a great interest rate, paperwork that is already done and comfortable tenure. SBI has one of the lowest rates offered for top up loans at 11.25%. Most top-up loans will attract a rate between 11.25-13% currently. If compared with other types of loans you can see why a top-up loan is a clear forerunner.

Loan type	Rate of interest	Repayment tenure
Top up loan	11.25-13%	5-20 years
Gold loan	11.25- 25%	1-3 years
Personal loans	15-25%	1-5 years

The main advantages of a top-up loan are a lower rate of interest, longer tenure and virtually no paperwork.

Things to watch out for

• Even though a top-up loan can be used for any purpose, some banks like Bank of Maharashtra offer a lower rate if the loan is used for actual improvements/extension of the home. The rate is higher if it used for other purposes.
• If you choose to pre-pay the loan, there might be hefty penalty attached to it as high as 4% in some cases.
• Top-up loan may be available to the customer only after he has repaid specified EMIs of the original home loan i.e. the home loan should be repaid to some extent.
• There might be processing charges and other charges which would hike up the cost of the loan.
• Top-up loans are not suited for everyone as they are meant for people who have an existing home loan and have repaid some specified part of it.
• The amount of loan is usually limited by the EMIs repaid.

Top-up loans may be the best choice available if you want to raise some cash for personal purposes. Do explore it before looking into other expensive options.

The author is Co-Founder & Director, CreditVidya  

SOURCE : indiainfoline.com

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Banks lower rates on personal loans.

Nandini Sen Gupta & Aparna Ramalingam, TNN 

CHENNAI: In an effort to grow their lending book, many banks are now offering lower interest rate on personal loans. With the slump in auto sales continuing and certain real estate markets showing signs of sluggishness coupled with corporates shying away from major expansion, banks are looking at new segments for growth

Said Sumit Bali, executive vice president, Kotak Mahindra Bank: "Due to the slowdown in cor.porate lending, there's pressure to increase the book on the retail side as ticket sizes are small and delinquencies are less. Banks are targeting select few 'good' customers from its existing base for personal loans at aggressive rates." Kotak also offers such schemes for its 'good profile' customers where rates can go down to 13.5-13.25%.

The personal consumption segment is holding up despite the slowdown - a comeback after the 2008-09 when unsecured loans had completely skewed the market and many lenders burnt their fingers. "Since then the lenders have wizened up and there are many more firewalls to prevent a repeat," said Bali. "And the personal consumption segment - home loans, car loans, personal loans and credit cards - is doing well even in the slowdown. There is not too much stress of delinquency." The risk factor becomes even lower when the loan is offered to a preferred customer with whom the bank already has a relationship in the form of another loan or a long-standing account and whose credit history is impeccable. Hence the lower rates, say sources.

Sometime back, HDFC Bank too sent mailers to its elite customers with attractive offers on personal loans. Accordingly, those who have a take home monthly salary of over Rs 75,000 per month can avail a minimum loan of Rs 10 lakh at reduced interest rates ranging between 12.99% and 14% per annum on a reducing basis. The bank's personal loan portfolio grew by 26% to touch Rs 17,500 crore during 2012-13 as compared to Rs 13,891 crore during 2011-12. This has now moved up to Rs 19,314 crore as at September end of this fiscal.

Some others like Federal Bank are offering overdraft facilities to salaried account holders at an interest rate of 12.55%. "Under this scheme, the interest rate is just two per cent above our base rate (10.55%) which itself is very competitive from the industry stand point," A Surendran, general manager and head (retail), Federal Bank said. Such customers can avail overdraft limits up to six times of their monthly salary.

Last month, as part of its festive offer scheme, Indian Overseas Bank slashed its interest rate on consumer loans (mainly for purchase of durable and white goods) by 200 basis points to 13.5% from 15.5%. This interest rate offer is on till end of January next year. "The whole idea was to revive consumer spending in certain categories," M Narendra, chairman and managing director, Indian Overseas Bank said.

Some others like Karur Vysya Bank are not going in for a revision immediately. "Personal loan segment is still a high risk area. This segment also entails high cost of servicing in terms of repayment and loan recovery. Some growth in the loan book could be achieved by managing the cost of funds and yields," K Venkataraman, managing director and chief executive officer, Karur Vysya Bank said. "We are not looking to reduce rates immediately," he added.

Key Word: Personal loan in Chennai.

Developers want banks to lower interest rates.

NDORE: A slowdown in economy, coupled with high interest rates have forced people to cut down on spending hitting the once booming realty sector hard. Real estate developers in the state are facing problems as inventories pile up and there are no takers.

The situation has reached a stage where realtors want banks to lower lending rates while the bankers want realtors to lower prices. Bankers have refused to budge on the issue of lowering lending rates stating that slackness in realty sector is due to high prices and poor quality offered by developers.

An estimate says that there are about 30-40,000 houses under construction by various big developers in Indore at the moment. Managing director of an Indore-based real estate firm, Silver Lake Vista, Kunal Jhaveri, said, "The cost of construction has gone up and hence it is difficult for us to lower prices of properties offered by us. Now it is up to banks to lower their interest rates on home loan so as to woo buyers".

President of Indore chapter of Credai, Vijay Mirchandani, said, "We do believe that interest rate on home loans will come down by 50 basis points next year. It's important, keeping in view the increasing demand for home loan among people hailing from communities like economically weaker section and lower income group."

Vice president of Credai in Bhopal, Manoj Singh Meek, said, "In case the interest rate on home loan comes down, then the demand for homes will increase for sure".

DGM of IDBI Bank, K L Subedar, said, "We are cautious while financing the real estate projects directly. Rather we want to extend home loans to the end-users". Elaborating it, he said unlike real estate developers, end-users rarely turn defaulters for a simple reason that they use the loan for getting home.

As per an estimate, average take-off of home loan in Indore alone was at Rs 1,000-1,200 crore per month. IDBI bank claims to having lowest interest rate on home loans at 10.25%. Though State Bank of India offers an interest rate of 10.10% upto Rs 30 lakh, its rate of interest goes as high as 10.40% beyond that amount. However, IDBI charges a flat interest rate of 10.25% on all amounts.

CMD of Indian Overseas Bank, M Narendra, said, "The real estate developers must ensure that they not only go for quality projects, but also the fact that they keep their price at a reasonable and competitive level. Above all, they must deliver their property to the buyers in time".

The average ticket size for home loans in Indore stands at Rs 10 lakh. CMD of Punjab National Bank, KR Kamath, told TOI, "that the interest rate on home loan was directly related to the level of inflation. So, one can see the fall in interest rate only in case the inflation comes down."