Following the meltdown bank lending has fallen drastically. The alternative options aren’t easy either, says Sunanda Roy
Bang#@$! That’s what you must be hearing by the time you read this.
Yes, your dream house, dream car, dream travel plan and so many other dreams (definitely, those supposed to be funded by bank loans) have just been hammered to pieces by the bankers. Wondering how? Well, just try to avail a loan today, and you get to know everything. The prevailing loan situation is worth pondering over - loans are becoming dearer day by day, with banks adopting stringent norms and tightening all loopholes. After all they also don’t like to risk their money, when the whole world is going gaga under the financial crisis and liquidity crunch.
Their cautiousness can be well judged from the fact that subsequent to the slump in realty markets, banks have nearly doubled the margin money (the percentage of purchase price that the buyer has to get to the table) for home loans to 40% from the prevailing 20-25%. That simply means that for buying a house a bank won’t lend you more than 60% of the purchase price. Looking at the ongoing crisis, banks now want to make sure that even in the case of a sharp fall in prices and a default on part of the borrower, they should be able to recuperate the loan amount. And this has come at a time when high interest rates have already made house purchases dearer. Private as well as Public - many banks, if not all, have augmented the margin money by 5% to 25% depending on the amount borrowed. However, the best news for many is the fact that the country’s largest private lender ICICI Bank has not changed its margin money requirement yet. “We have not made any changes in the margin money requirement for home loans. We have been fairly prudent in our lending process,” said an ICICI Bank spokesperson.
All the segments in loan portfolio have seen some recent slowdown. The latest numbers from auto majors show a decline in sales, and undoubtedly scarcity of loan providers can be termed as a reason for the same. In case of home loans and car loans, most people have postponed their purchases. Educational loan is usually not something you can afford to postpone – so that’s left aside! However, banks are taking rigorous actions to guarantee that only borrowers with sound repayment capability are extended the advances. The tough loan apparatus and higher margin condition have definitely put a check on the practice where house buyers could borrow roughly the full sale consideration, up to 85% of the price in loan and the balance for furnishing the house. Harsh Roongta, CEO, Apnaloan.com told 4Ps B&M, “Of late demand has certainly come down a bit on home loans, with changes in the eligibility criteria, there has been mismatch of demand and supply in the loan appetite, be it home loans, car loans or personal loans.”
For a loan seeker, for sure, this is the right time for a soliloquy - am I taking this loan for the right reason, as the interest rates on most floating rate loans, be it home, car or personal, have also escalated by almost 3-4% in last couple of months. On the other hand, the soaring inflation has made cost of living go up. Considering all the points, it’s definitely advisable that with more mess, to mess you up, like job instability and declining income it is better to avoid a financial mess at the moment.
In general, housing loans are considered safe as one is investing in an asset. And in case of any trouble one can readily sale it off at an appreciated price to recover his money and along with some profit. But the ongoing correction in housing prices has put that philosophy in jeopardy. Hence, one must be patient before you decide to go for a loan and buy a property.
So, would we thus conclude that the credit crunch is somehow crunching down the loan disbursal by banks and the capacity of people to obtain it? Well, as per Anil Mascarenhas, Editor, India Infoline, “Recent months have seen a crunch. But the situation will gradually improve with the RBI’s latest measures over the weekend.”
Banks are cautious, and customers are dubious. What shall be done then? If even after reconsidering the need for a loan one finds out that there is actually a requirement, then where does one get to avail such need of the hour? Though limited in number, there are few alternative options available actually. The first and foremost which comes to mind are the next door money lenders. But then be prepared for an unbelievably high rate if you go for it. It’s adviced only when banks decline to end someone. A loan from peers in times of need could well be an option to ponder over. But considering the crunch, the difference between possibility and probability apparently seems to be on the higher side. NBFCs present themselves as a good option, but again their operational credentials need to be known. For tiding over short term needs people can avail of overdraft facilities and credit card loans. In the worst case scenario one can alternatively pledge their assets including home and jewellery and even encash their fixed deposits to realise their dreams. But as mentioned it’s too harsh an option to abide by.
Interest rates could, however, may come down soon - making loans cheaper and saving less attractive as the central bank has cut the rate at which it lends short-term funds to banks by half a percentage point apart from infusing an additional Rs.1,200 billion crore into the banking system. On the other hand, stress on banks to slash rates has risen sharply in the past few days with the RBI making clear that the crisis could only be resolved if banks followed up with measures to enhance demand and maintain spending. But still it’s a distant dream, till then let’s wait and watch and put a control on our dreams. Else, again we will get to here something like Bang@#$!
Bang#@$! That’s what you must be hearing by the time you read this.
Yes, your dream house, dream car, dream travel plan and so many other dreams (definitely, those supposed to be funded by bank loans) have just been hammered to pieces by the bankers. Wondering how? Well, just try to avail a loan today, and you get to know everything. The prevailing loan situation is worth pondering over - loans are becoming dearer day by day, with banks adopting stringent norms and tightening all loopholes. After all they also don’t like to risk their money, when the whole world is going gaga under the financial crisis and liquidity crunch.Their cautiousness can be well judged from the fact that subsequent to the slump in realty markets, banks have nearly doubled the margin money (the percentage of purchase price that the buyer has to get to the table) for home loans to 40% from the prevailing 20-25%. That simply means that for buying a house a bank won’t lend you more than 60% of the purchase price. Looking at the ongoing crisis, banks now want to make sure that even in the case of a sharp fall in prices and a default on part of the borrower, they should be able to recuperate the loan amount. And this has come at a time when high interest rates have already made house purchases dearer. Private as well as Public - many banks, if not all, have augmented the margin money by 5% to 25% depending on the amount borrowed. However, the best news for many is the fact that the country’s largest private lender ICICI Bank has not changed its margin money requirement yet. “We have not made any changes in the margin money requirement for home loans. We have been fairly prudent in our lending process,” said an ICICI Bank spokesperson.
All the segments in loan portfolio have seen some recent slowdown. The latest numbers from auto majors show a decline in sales, and undoubtedly scarcity of loan providers can be termed as a reason for the same. In case of home loans and car loans, most people have postponed their purchases. Educational loan is usually not something you can afford to postpone – so that’s left aside! However, banks are taking rigorous actions to guarantee that only borrowers with sound repayment capability are extended the advances. The tough loan apparatus and higher margin condition have definitely put a check on the practice where house buyers could borrow roughly the full sale consideration, up to 85% of the price in loan and the balance for furnishing the house. Harsh Roongta, CEO, Apnaloan.com told 4Ps B&M, “Of late demand has certainly come down a bit on home loans, with changes in the eligibility criteria, there has been mismatch of demand and supply in the loan appetite, be it home loans, car loans or personal loans.”
For a loan seeker, for sure, this is the right time for a soliloquy - am I taking this loan for the right reason, as the interest rates on most floating rate loans, be it home, car or personal, have also escalated by almost 3-4% in last couple of months. On the other hand, the soaring inflation has made cost of living go up. Considering all the points, it’s definitely advisable that with more mess, to mess you up, like job instability and declining income it is better to avoid a financial mess at the moment.
In general, housing loans are considered safe as one is investing in an asset. And in case of any trouble one can readily sale it off at an appreciated price to recover his money and along with some profit. But the ongoing correction in housing prices has put that philosophy in jeopardy. Hence, one must be patient before you decide to go for a loan and buy a property.
So, would we thus conclude that the credit crunch is somehow crunching down the loan disbursal by banks and the capacity of people to obtain it? Well, as per Anil Mascarenhas, Editor, India Infoline, “Recent months have seen a crunch. But the situation will gradually improve with the RBI’s latest measures over the weekend.”
Banks are cautious, and customers are dubious. What shall be done then? If even after reconsidering the need for a loan one finds out that there is actually a requirement, then where does one get to avail such need of the hour? Though limited in number, there are few alternative options available actually. The first and foremost which comes to mind are the next door money lenders. But then be prepared for an unbelievably high rate if you go for it. It’s adviced only when banks decline to end someone. A loan from peers in times of need could well be an option to ponder over. But considering the crunch, the difference between possibility and probability apparently seems to be on the higher side. NBFCs present themselves as a good option, but again their operational credentials need to be known. For tiding over short term needs people can avail of overdraft facilities and credit card loans. In the worst case scenario one can alternatively pledge their assets including home and jewellery and even encash their fixed deposits to realise their dreams. But as mentioned it’s too harsh an option to abide by.
Interest rates could, however, may come down soon - making loans cheaper and saving less attractive as the central bank has cut the rate at which it lends short-term funds to banks by half a percentage point apart from infusing an additional Rs.1,200 billion crore into the banking system. On the other hand, stress on banks to slash rates has risen sharply in the past few days with the RBI making clear that the crisis could only be resolved if banks followed up with measures to enhance demand and maintain spending. But still it’s a distant dream, till then let’s wait and watch and put a control on our dreams. Else, again we will get to here something like Bang@#$!
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