Category: Analysis

Bank loans may not get cheaper soon

By Atmadip Ray, ET Bureau | 3 May, 2013

KOLKATA: Consumer loans may not get cheaper immediately despite a repo rate cut since banks continued to pay high to depositors to improve a modest collection.

Top bankers said that RBI’s growth direction with repo rate cut has pleased them but the absence of a cut in cash reserve ratio will not allow them to cut lending rates across the spectrum. A reduction in the reserve ratio would have released funds for banks to lend without looking for deposit mobilisation at a high price. Banks are forced to keep rates high to overcome a slow deposit growth.

“A mere repo rate cut will not help us in terms of lowering of lending rates,” Punjab National Bank chairman and managing director KR Kamath said. “One can’t go for drastic reduction of deposit rates as mobilisation has been sluggish. The issue is when it is going to be the right time for a deposit rate cut. Till such time, it will be difficult to reduce lending rates across the board.”

RBI said its assessment of the growth-inflation dynamic does not allow further monetary easing. However, the central bank governor D Subbarao assured banks that it will to actively manage liquidity to reinforce monetary transmission, consistent with the growth-inflation balance.

“The call in reduction in base rate may be taken over a period of time and would depend upon, how the deposit rates move,” Corporation Bank chief Ajai Kumar said. “In the present scenario where deposit mobilisation is still not picking up, it would be too early to comment on lending rate cut.”

A 25 basis point cut in repo rate, the rate at which RBI lends to bank, will reduce the cost of fund only for borrower banks. But banks which park their excess fund with the central bank will now earn 25 basis point less as reverse repo rate has been lowered by similar extent.

Uco Bank chief Arun Kaul said that cutting rates would depend upon cost of funds and how much it comes down in the near future. These lenders said they will try to adjust rates for some selective sectors with strong growth links.

“We need to do a fine balancing act for lowering lending rates for small sectors,” United Bank of India chairperson and managing director Archana Bhargava said.

Commercial Mortgage – Experts In Market Place

When it arrives to real estate or house matters, people constantly want to do it themselves only given that they think that it really is their own residence and there is no need to have to include a 3rd social gathering. On the other hand, this is absolutely improper. What these individuals will not recognize is always that handling real estate problems, specially mortgages, is often a overwhelming task and it’s vital to use the help of experts while in the marketplace. Inside case of mortgages, a broker would definitely help. Permit us take a look at a lot of the great things about hiring a Commercial Mortgage broker.

Due to their encounter and proven contacts from the monetary industry, these brokers are ready to offer you with expert advice concerning your house. Besides furnishing you advice, these brokers also help you discover loans which can fulfill your personal economic needs. A commercial mortgage broker may be of much help in obtaining you a loan whether or not you have a historical past of late payments and a low credit score rating. Also, the broker can help you find a loan with reduce interest levels and charges due to his contacts and accessibility to much more specialized resources of knowledge.

Obtaining the correct financial institution that could suit your requires can definitely be considered a time consuming procedure in case you come to a decision to get it done by yourself. However, a mortgage broker simply compares the lenders and loans offered and helps you to make the best choice. The many details, documents and sorts essential to be submitted to future loan companies could be really thorough and in some cases complicated to a layman. In these a scenario, employing a commercial mortgage broker generally allows. A broker is definitely an professional in gathering data and summing up the paperwork which is expected by mortgage loan providers. This saves you quite a lot of your respective valuable time which it is possible to invest on your other crucial function.

Mortgage brokers also have understanding of the legal terms which can be linked to the transactions and will thus establish helpful because they can effortlessly clarify the legal phrases that are way past the comprehension of most laymen. They are several of the advantages of hiring a commercial mortgage broker. Today, because of to the services these brokers supply, many individuals are trying to find the help of the broker who will help them locate the best mortgage bundle. In the event you also want to obtain the best deal then it’s recommended that you hire a broker as soon as possible and emancipate one from the undesired troubles which are connected with acquiring the best mortgage.

The skills of the Commercial Mortgage broker are often very important to the achievements of one’s commercial expense. Commercial mortgage brokers are experts at choosing the best mortgage in your case and frequently are knowledge about their region. They could help you with area, mortgage rate as well as the best possible loan company.


Revenue sharing partnership between landowners and builders on the rise

12 Jul 2012, ET Bureau.

NEW DELHI: Businessman Vijay Gupta has accumulated so much land in Gurgaon over the years that he is left with 1,500 acre even after selling huge tracts to builders as the Delhi’s suburb has grown into a global business hub. Finding it difficult to sell off the land, Gupta has joined hands with builders and given them the rights to build the property on his land on a revenue share basis.

Gupta is just one among several land aggregators who have turned developers.

“Land owners see an upside in holding on to their land and doing such joint developments rather than selling. Returns are better this way,” says Anckur Srivasttava, chairman of GenReal Property Advisers.

Gupta, chairman of Orris Infrastructure, recently tied up with the Noida-based The 3C Company for a 48-acre parcel of land in Gurgaon. Since Gupta had already taken approvals and permissions to build a group housing project on the land, his partner is in a position to launch the project in just four-five months. If 3C had bought land on its own, it would have taken at least a year or more to kick-start the project.

Gurgaon-based Sidharth Chauhan of Sidhartha Developers, Sharab Reddy of the Triangle Group in Bangalore and Prashant Solomon of Chintels in Gurgaon are tying up such agreements with developers to maximise their returns.

“Land prices have shot through the roof, so developers don’t see value in buying land outright,” says Sidharth Chauhan, who has been consolidating land for over a decade and is now developing properties on his own as well. In the past, he has also aggregated land for Adani’s SEZ in Gurgaon.

“Most developers today are already leveraged to the hilt and can’t invest to buy land today. Joint development agreements (JDA) are the only way out for them,” says Amit Bhagat, CEO of ASK Property Investment Advisors.

Home sales have dropped by more than 50 per cent over the past year and a half and banks have turned cautious while lending to the sector. This has pushed developers into a liquidity crunch, making it difficult for them to buy land, even as they need to launch newer projects in order to sustain their cash flows. Several developers have also taken huge amount of debt for construction and other activities.

“The cost of doing projects has gone up with higher construction cost and approvals taking time. In a JDA, the developer is rid of all these issues and since there is no interest burden the overall margins are better as well,” says Sharab Reddy, managing director of the Triangle Group, which holds over 500 acre that it started collecting in the mid-1980s. “The risk, too, is shared between the two partners.”

Reddy, who turned a developer in recent years, is building close to one million sq ft of space in Bangalore. Just last week, he signed a JDA with a large developer in Bangalore for a 100-acre township.

In a typical agreement, the landowner and the developer sign an agreement to share revenues in 40:60 ratio. Where the price of land is very high, in city centre locations, for instance, the ratio can reverse as well.

“There is very little a developer has to put in upfront in a JDA,” says Solomon, who holds over 500 acre in and around Gurgaon. His company identified and bought land in an untapped area of Gurgaon in the 1980s. With the Dwarka-Manesar expressway being built here, land values have soared. Chintels has tied up with Sobha Developers and ATS Group for two JDAs, which will also include the Chintels brand name in the projects.

Bangalore-based builder Puravankara Projects has adopted a similar strategy for its affordable housing brand, Provident. “Land is expensive and there is no point investing such large sums upfront, especially for affordable housing projects,” says chief operating officer Jack Bastian Nazareth.

Home buyers more keen on resale market; project delays trigger boom

10 Jul 2012, ET Bureau.

NEW DELHI: Home sales in new projects across the country may have dipped in the last few quarters, but this hasn’t affected the resale market where business is actually booming.

Even banks and housing finance companies are seeing a shift as homebuyers are not willing to take a chance with delayed projects. Nearly 70% of those taking loans are investing in ready or nearly-ready homes, which is in sharp contrast to last year’s when 70% customers took loans to buy new homes and only 30% entered the resale market, says Destimoney, a company which provides home loans.

“Enormous delays in execution, liquidity crisis, high cost of borrowings and growing rentals are reasons why home buyers now want ready properties,” says Sameer Jasuja, chief executive officer of property research and analytics firm PropEquity.

Home buyers, wary of delays, prefer to enter projects at a much later stage and are even willing to pay a premium rather than live with uncertainty. PropEquity’s research shows that nearly half of the 930,000 under-construction residential units in India, scheduled for delivery between 2011 and 2013, are likely to be delayed by up to 18 months.

“Buyers are scared of an indefinite wait and are trying to mitigate risk. It is a good signal for the industry and will put pressure on developers to finish projects on time,” says RV Verma, chairman and managing director of the National Housing Bank. “Developers should look at it as a caution signal.”

“Prudence has come in as people are being careful today,” says Renu Sud Karnad, managing director of India’s biggest mortgage lender HDFC Ltd, which is expecting a 18-20% growth in home loan take-up in the April-June 2012 quarter.

In the January-March 2012 quarter, new home sales dropped by 57% in the National Capital Region, 58% in the Mumbai Metropolitan Region, and 18% in Bangalore. According to real estate brokers and consultants, a good amount of this business has moved to the secondary market.

“People are willing to pay a premium for ready properties,” says Brijesh Parnami, chief executive officer, distribution, at Destimoney. In the past one year, along with property prices, rentals too have increased considerably. In Mumbai, rentals are up between 10%-20% depending on the location, while in Noida, rents have zoomed by 30% and above during the period.

“This is putting pressure on a number of prospective buyers who are jumping at the opportunity of buying a house they can move into so that they can save on rent,” says Sumit Joshi, director of Noida-based real estate brokerage firm Real Credit Consultancy. In Pune, most end users today want to buy ready property.

Guarantor is as much responsible as borrower for loan repayment

By Harshala Chandorkar, Senior Vice-President, Consumer Relations, CIBIL

‘A friend in need is a friend in deed’ goes the age-old saying. Many of us believe this notion when a friend asks for help. But in today’s day and age, what one doesn’t realise is that these ideas have to be taken with a grain of salt, especially when it comes to financial transactions.

Take, for example, the case of 29-year-old Rohit, hailing from Saharanpur, who dreams of buying a house in Powai. Rohit works with a private equity firm and earns a good six-digit salary. On immaculately collating all the requisite documents and having an impressive salary certificate attached to his loan application, Rohit was confident of getting the credit sanction within days.

However, to his shock, he was informed by the bank that his loan application was not sanctioned owing to his credit history and credit score. This fact surprised Rohit since he has never borrowed before and holds only two credit cards on which he diligently makes sure to pay his EMIs on time.

His credit card statements have been regularly showing no outstanding amount and no days past due, month on month. On further probing with the bank, he was advised to get a copy of his credit history from a credit information company (CIC). A CIC collects and maintains records of an individual’s payments pertaining to loans and credit cards.

These records are submitted to the CIC by banks and other lenders on a monthly basis. This information is then used to create a Credit Information Report (CIR), which is provided to lenders to help evaluate and approve loan applications. On getting a copy of his CIR from Cibil, Rohit saw that the discrepancy in his credit history and credit score had nothing to do with his own credit behaviour.

It was due to the defaulting of the EMIs on a loan taken by his friend, that Rohit’s CIR showed a negative impact. Are you wondering why? That’s because Rohit was the guarantor on this friend’s home loan, taken two years ago. It was only then that Rohit realised that by pledging as a guarantor on the loan of his friend, he was also legally responsible towards the timely repayment of the loan and his credit history and credit score gets impacted because of this loan.

It is important to understand that as a guarantor on any form of loan, one is equally responsible to ensure the repayment of the loan. A guarantor pledges to repay a loan on behalf of a third party who has taken the loan. Hence, he provides a guarantee to the lender, that he will honour the obligation, in case the principal applicant (in this case Rohit’s friend) is unable to do so. Also, on the other hand, a guarantor’s credit score may be checked by banks depending on their credit sanctioning policies.

However, it is always a prudent practice to have a guarantor who has a higher credit score to guarantee your loan facility. Since Rohit was not under any financial liability, his friend’s loan was sanctioned immediately. But his friend’s default on the loan repayment hit Rohit’s CIR and credit score negatively.

Information on the default of such payments appears in the “Accounts” section of the guarantor’s Credit Information Report (CIR). Hence, it’s imperative that the guarantor on the loan should ensure that the borrower pays the EMIs regularly on the due date, month on month. But, surely, all’s not lost yet for Rohit.

By ensuring that his friend pays all his dues to the bank and regularly starts paying the loan EMIs, Rohit can rebuild both his friend’s and his own credit history and score. He can then re-apply for the loan and fulfil the aspiration of his own home. Financial discipline coupled with prudent credit management will ensure that Rohit and his friend enjoy all the benefits associated with having and building a good credit history and credit score.

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