Tag: loans

Indian banks’ underwriting standards at risk amid rapid consumer loan growth: Fitch

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Asset quality of Indian banks’ consumer loans has held up well so far, but an accumulation of ”untested risks” due to rapid growth may challenge lenders’ underwriting standards and risk controls, Fitch Ratings said on Monday.

”Fitch’s assessment of Indian banks’ risk profiles also factors in lower transparency in terms of data disclosures on retail underwriting, such as loan-to-value ratio, borrower debt serviceability, credit bureau scores, and recovery rates, than most Asian banking systems,” the rating agency said in a statement.

Indian banks have reported strong loan growth over the last few quarters, boosted by consumer spending amid firm economic growth.

Banks’ loans rose 19% in the two weeks to April 19 from a year earlier, latest data from the central bank showed.

Retail loans, or loans given to consumers, which constitute about 10% of all bank loans, have grown at an annual rate of 20% since 2020-21, Fitch estimates.

Most lenders have reported an improvement in their asset quality, but have banked on unsecured credit to expand margins.

The Reserve Bank of India (RBI), in November, increased risk-weights on certain loan categories to improve buffers against the potential for build-up of risks. It has also applied business restrictions on certain entities in case of supervisory concerns, and is proposing to increase provisioning on project finance.

While the RBI’s measures can foster greater caution towards risk-taking, their effectiveness ”through the cycle” is not yet proven, Fitch said.

Asset quality pressures from the previous credit cycle are subsiding, creating a favorable business environment. Still, loss absorption buffers, particularly at state-run banks, remain ”moderate” against high concentration risks and renewed interest towards sectors such as infrastructure and construction, Fitch said.

Banks’ risk appetite through higher loan growth will remain a key consideration for their intrinsic creditworthiness despite improved financial performance, it said.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

When free loans cost you: A taxing reality for Indian bank employees

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Supreme Court has ruled that the interest-free or concessional loans extended by banks to their employees are “fringe benefits” and is liable to be taxed. 

This decision, seen as a significant setback for bank employees, upholds income tax regulations regarding such benefits.

“Fringe benefits” refer to additional advantages or perks beyond an employee’s regular salary. An employer usually gives ‘fringe benefits’ as an added incentive or reward for performance. 

In this case, the court has considered interest-free or concessional loans offered by banks to their employees as fringe benefits because they represent an added benefit associated with the employee’s position within the bank. Therefore, the employees who get these benefits must pay taxes on them.

Justices Sanjiv Khanna and Dipankar Datta, presiding over the case, clarified that these benefits are distinct from ‘profit in lieu of salary’ because the advantages extend only to those already employed with the company. 

The ruling comes amidst a series of appeals filed by various bank staff unions and officers’ associations challenging the taxation rules.

The bench explained that the employer’s provision of interest-free or concessional loans constitutes a fringe benefit and perquisite, aligning with common understanding and usage of these terms.

The court defended the decision, addressing concerns about the rule’s arbitrariness, which linked the taxation of such benefits to the State Bank of India’s (SBI) interest rates.

It noted that setting SBI’s interest rate as a benchmark ensures clarity and consistency, preventing unnecessary litigation.

Given SBI’s status as India’s largest bank, its interest rates significantly influence those of other banks, justifying its use as a benchmark.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

RBI wants lenders to allocate 5% for project loans

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Reserve Bank of India (RBI) has proposed tighter rules to govern lending to projects under implementation. Under these draft regulations, lenders would be required to allocate 5% of the total loan amount as general provisions for existing and new loans.

This is significantly higher than the current provision of 0.4% for non-default exposures.

It can be noted that in the last credit cycle, project loans were seen to have led to a build-up of stress on bank books.

These provisions are proposed to be applicable to all categories of lenders, including banks and non-banking financial companies (NBFCs).

The RBI’s regulations outline provisions for both standard project loans, including infrastructure and non-infrastructure projects, as well as loans towards real estate.

According to the draft regulations, the 5% general provisions should be made on all existing and fresh project loans in the construction phase, i.e., before the date of commencement of commercial operations (DCCO).

Subsequently, standard provisions on project loans can be reduced to 2.5% once the projects are operational.

A further reduction to 1% of the funded outstanding would be allowed once the project demonstrates positive net operating cash flow sufficient to cover current repayment obligations and a reduction of at least 20% in total long-term debt with lenders.

The draft regulations propose a phased implementation for the 5% standard provision requirements for loans in the construction phase: 2% with effect from March 2025, 3.5% with effect from March 2026, and finally, 5% with effect from March 2027, spread over the four quarters of each financial year respectively.

The proposed guidelines also spell out details on stress resolution, specify the criteria for upgrading accounts, and invoke recognition. It expects lenders to maintain project-specific data in an electronic and easily accessible format.

Lenders will update any change in the parameters of a project finance loan at the earliest but not later than 15 days from such change.

The necessary system in this regard will be put in place within 3 months of the release of these directions, it said.

The public has been given time till June 15 to respond to the proposals.

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Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

RBI wants lenders to stop unfair interest rate charges right away

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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To promote fairness and transparency in the lending sector, the Reserve Bank of India (RBI) has issued a directive to all regulated entities, including commercial banks, cooperative banks, and non-banking financial companies (NBFCs), to cease unfair practices related to the charging of interest.

The central bank’s directive comes in response to findings unearthed during onsite examinations conducted up to March 31, 2023.

The examinations revealed a trend wherein lenders engaged in practices that unfairly burdened borrowers with excessive interest charges.

One of the unfair practices identified was the charging of interest from the date of loan sanction or execution of the loan agreement, rather than from the actual disbursement of funds to the borrower.

Additionally, some lenders were found to be charging interest from the date of the cheque issued for loan disbursal, even if the funds were handed over to the borrower several days later.

Furthermore, RBI discovered instances where lenders charged interest for the entire month, irrespective of the actual duration for which the loan remained outstanding.

Additionally, some regulated entities were collecting multiple instalments in advance while calculating interest based on the entire loan amount, rather than adjusting it for the period for which the loan remained unpaid.

Expressing concern over these unethical practices, RBI has mandated that regulated entities immediately cease such practices and take corrective action.

The central bank has instructed lenders to review their loan disbursal procedures, interest calculation methods, and other charges to ensure adherence to principles of fairness and transparency.

In cases where overcharging has occurred, supervised entities have been instructed to refund excess interest and other charges to affected customers promptly.

Moreover, RBI is encouraging the adoption of online account transfers for loan disbursals, aiming to streamline processes and mitigate the risk of unfair practices associated with cheque issuance.

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Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

If you want a bank loan, the manager owes you these details from October 1

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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From October 1, 2024, individuals and businesses seeking loans from banks and non-banking financial companies (NBFCs) in India will be entitled to comprehensive information regarding their loan agreements, thanks to new rules mandated by the Reserve Bank of India (RBI).

This initiative aims to enhance transparency and empower borrowers to make well-informed financial decisions.

The RBI on Monday (April 15) said that retail and micro, small, and medium enterprises (MSMEs) loan agreements will now require a Key Facts Statement (KFS) detailing all terms, including interest rates and additional costs.

This KFS will be provided in a standardised format, making it easier for borrowers to understand.

The central bank emphasised that regulated entities (REs) must implement the guidelines without exception for all new retail and MSME term loans sanctioned on or after October 1, 2024.

Even existing customers availing of fresh loans will fall under these regulations.

The central bank clarified that charges recovered from the borrowers by the REs on behalf of third-party service providers on an actual basis, such as insurance and legal charges, should also form part of the annual percentage rate (APR) and should be disclosed separately.

Borrowers must receive receipts and related documents for all such payments within a reasonable timeframe.

The guidelines also prohibit REs from levying fees or charges not mentioned in the KFS without explicit consent from the borrower during the loan term.

However, exemptions are granted for credit card receivables.

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Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Key tips to get a personal loan at the lowest interest rate

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Personal loans offer individuals the flexibility to navigate various life situations with ease. Whether it’s consolidating high-interest debt, funding unexpected expenses, or pursuing personal aspirations, the significance of personal loans cannot be overstated. However, it’s equally important to be cautious while taking personal loans.

Key factors to consider when taking a persona loan (as compiled Tradofina, an instant credit platform:

Maintain a required credit score

A good credit score is of integral importance in the eyes of lenders to determine your repayment ability.

A fine-looking credit rating displays past behaviour of making loan and credit card payments well on time.

Compare the lenders

Comparing the lenders offering personal loans online is of utmost importance to get the right financial offer.

As we already know, many lenders are available online ready to offer their financial products and services. So, it is important to compare lenders based on interest charges, processing fees, loan amounts, and other terms and conditions.

Know all the loan costs

There can be several costs involved under personal loans, like processing fees, prepayment charges, late payment fees, and more.

Therefore, users must first determine all the costs involved in the process of taking and repaying a small personal loan.

Evaluate repayment ability

Another important consideration to make when applying for a small personal loan is repayment ability.

Customers must evaluate their fixed monthly income, deduct fixed expenditures, and be aware of how much money is left at the end.

One should determine the loan repayment capacity as per this calculation, .

How to get a personal loan at the lowest interest rate?

“Maintaining a high credit rating is key,” the Tradofina’s spokesperson said.

“Lenders give first preference to borrowers having good credit ratings as reliable individuals who will repay loans on time. Based on this, many lenders charge low interest rates from such borrowers. Therefore, make sure to maintain high credit ratings in the profile and obtain a loan at the lowest rates,” he said.

Additionally, improving one’s credit history can significantly impact loan terms.

“Consistent, timely payments on previous credit obligations demonstrate financial responsibility and enhance eligibility for favourable loan rates,” Tradofina’s spokesperson advised.

A look at current personal loan rates of lenders

(Source: Bankbazaar)

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Here’s why Indian government is worried about gold loans

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Indian government looks worried about gold loans, possibly on lack of transparency surrounding the utilisation of funds, experts told CNBC-TV18. In an exclusive conversation, Abizer Diwanji, who recently stepped down as head of financial services at EY, emphasised that the core issue at hand lies in the evolving business strategies of banks, particularly their increasing focus on retail lending.

He noted a trend wherein banks are leaning towards unsecured loans, with a significant portion of borrowers remaining unidentified.

This has raised eyebrows within regulatory circles and prompted a closer examination of the risks associated with such practices.

Diwanji further highlighted the growing frequency of regulatory interventions by the Reserve Bank of India (RBI) and characterised them as preemptive measures rather than responses to specific instances of fraud.

He explained that the RBI’s actions aim to forestall potential financial bubbles, akin to recent market volatilities, which pose uncertainties regarding the implications for various lending practices.

“A clampdown is more a precursor, a worry that the central bank is looking at. It is not necessarily fraud, but it is a process-related issues that they are going to be concerned about. The only thing is that the frequency of it is causing a bit more of an alarm with too many things happening too quickly is what is causing the panic,” he told CNBC-TV18.

Former Deputy Governor of RBI, SS Mundra, also emphasised the operational lapses in gold loan operations.

He suggested that while the issue doesn’t necessarily reflect governance failure, there could be pressure on banks to meet targets, leading to compromises in operational controls.

The concern arises amidst a surge in gold loans, which reached ₹1.01 lakh crore by January 26, 2024, marking a 17% increase from the previous year.

This surge coincided with a 16.6% rise in gold prices.

Major banks like the State Bank of India (SBI), Punjab National Bank, and Bank of Baroda hold substantial gold loan portfolios.

A look at gold loan interest rates offered by key banks

(Source: Bankbazaar)

The Finance Ministry has even directed Public Sector Banks (PSBs) to conduct a thorough review of their gold loan portfolios flagging instances of non-compliance with regulatory norms.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Banks must tell borrowers the entire cost of a loan including fees and other charges: RBI

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

SBI concludes issuance of $1 billion via syndicated social loan

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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State Bank of India (SBI) on Wednesday, January 3, said it concluded the issuance of $1 billion ($750 million and green shoe of $250 million) through syndicated social loan.  The loan book was closed on January 2, 2024, the lender said in a regulatory filing.

A syndicated loan is a loan offered by a group of lenders (called a syndicate) who work together to provide funds for a single borrower.

Last month, SBI raised interest rates on certain fixed deposits (FDs) by up to 50 basis points or 0.50%. The hike spans various deposit brackets, marking the bank’s first significant adjustment in the past ten months.

The rate adjustments target deposits below ₹2 crore.

Notably, SBI has increased rates across various tenures, excluding FDs maturing within one year to less than 2 years, 2 years to less than 3 years, and 5 years to 10 years.

The revised rates entail 50 basis points (bps) rise for deposits maturing in seven days to forty-five days, now fetching 3.50% interest rate. Similarly, for 46 days to 179 days, the bank has raised rates by 25 bps to 4.75% interest.

Fixed deposits ranging from 180 days to 210 days will yield increased interest rate of 5.75% after a 50 bps hike. Meanwhile, the 211 days to less than 1 year tenors will now provide a 6% interest rate following a 25 bps increase.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

RBI grants three-month extension for implementation of loan account penal charge norms

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Reserve Bank of India (RBI) has extended timeline for implementation of rules relating to penal charges in loan accounts by three months. In a circular issued on December 29, 2023, the RBI stated that the new rules will now be implemented from April 1, 2024, with a final cutoff not later than June 30, 2024.

Originally set to take effect from January 1, 2024, the RBI said it has opted for an extension due to requests from several regulated entities (REs) seeking clarification and additional time to reconfigure their internal systems to operationalise the circular’s requirements.

According to the central bank, the quantum of penal charges should be proportional to the defaults/non-compliance of material terms and conditions of loan contract up to a threshold, RBI said in its circular on ‘Fair Lending Practice – Penal Charges in Loan Accounts’.

There should be no capitalisation of penal charges — that is no further interest computed on such charges.

As of now, lending institutions have the operational autonomy to formulate board-approved policy for levy of penal rates of interest under the extant of RBI’s guidelines. However, many RBI regulated entities (REs) use penal rates of interest, over and above the applicable interest rates, in case of defaults/non-compliance by the borrower with the terms on which credit facilities were sanctioned.

RBI earlier said that the intent of levying penal interest/charges is essentially to inculcate a sense of credit discipline among borrowers through negative incentives and to ensure fair compensation to the lender.

Penal interest/charges are not meant to be used as a revenue enhancement tool over and above the contracted rate of interest, the central bank said.

Penal charges are levied when borrowers miss or delay repayments of EMIs on time, or in case of cheque bounces, for pre-payment of loans, among other cases.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow