Interest rebate on Home Loans

Before 1991 banks used to charge higher rate of interest for higher amount of loans. The logic behind such approach was that rich businessmen could afford higher rate of interest. Small businessmen can compete in the market with wholesale dealers and bulk manufacturers only when they are given certain discounts on interest rates. This philosophy worked upto 1991 when social objective was real and truly followed by bankers and this was the sole target of the government too. Banks were nationalized in the year 1969 so that poorest among the poor can also approach banks for keeping their surplus fund and also to seek loan for their business and personal requirements. Banks were opened in villages so that it is made available in even remotest villages and its reach become wider and wider up to even downtrodden villagers and even scavengers in the towns. All types of facilities and rebates were meant for poor and middle class.

In the modern days i.e. after 1991or you can says in the age of economic reformation, liberalization and globalization, the approach of the government and also the bankers have completely changed. After 1991 social objective has in fact become a mask to conceal their hidden agenda of earning more and more profits. Now big businessmen can be given loans in hundreds and thousands of crores rupees at sub PLR rates whereas a small trader cannot expect loan below sub PLR rates. Exporters can be given bulk loan at subsidized rates. There is neck to neck competition among bankers to reduce their lending rates for home loan and car loan seekers. The more loans they ask for, the more discount they will get. All types of infrastructure benefits are now extended to business giants, and not small or middle sized businessmen.

It is ironical that banks even now boast for fulfilling social objective. Yes, they achieve the required ratio of lending in priority sector, but not by making fresh disbursement to small and middle borrowers but by including bigger and bigger loans in the domain of priority sector or by enlarging the activities in the domain of small borrowers. In this modern era even credit facilities upto Rs. 5.00 crores is considered as loan under priority sector.

Home loan up to Rs.50.00 lacs are considered as priority lending at lesser and lesser rates of interest. Here it is worthwhile to mention that loan of Rs.30 lacs can be taken only when house is of the value of at least Rs.40.00 (truly speaking such house may of Rs.50.00 to Rs.60 lacs keeping in mind the black money paid for each home sale). Car loan is given by banks at low rates and various discounts are being allowed to car buyers during festival season. But the million dollar question is who can afford buying a car? Can a common man (95% of population) afford a car?

Now can any one imagine that poor or middle class person having less than three lacs rupees as annual income can afford home loan of more than Rs.12 lacs because maximum permissible finance for home loan is four time of annual income in most of the banks.?

Can a person of income less than rupees three or four lacs can dream of buying a house of Rss.30.00 lacs (including black money) and can he afford repayment of loan of Rs.20.00 lacs by legal source of income?

Obviously banks are reducing lending rates for rich persons, they may be home loan seekers or buyer of costly car or they may be big trade houses, big exporters or large corporate houses.

It is not only banks which are crazy for big fishes. Even government is cutting tax or making such policies that cost on freezes, computers, laptops, mobiles, cars, scooter, wine, air travels is gradually coming down. On the contrary prices of essential commodities which are lifeline for poor and middle class people are sky rocketing day by day. Prices of potato,onion, tomato, green vegetables, pulses, wheat, rice, sugar, milk .and many more such things on which lie the survival of 95% of Indian population are rising up and up, not because of less production but because of faulty policy of the government. Hoarding, black marketing and profit making has become the accepted habit of rich traders and manufacturers.

Businessmen who have the capacity to store the goods of essential use can earn any profit by hoarding the same because government has given them unlimited freedom. Even education has become so costly that common men cannot imagine of quality higher education or even primary education in towns. Common men cannot imagine of cheap health care in government run hospitals and they have to pay unreasonable big amount for treatment in private nursing homes.

Who will take stern action?
Who will stop future trading in commodities?
Who will prevent hoarding and profit making in food items?
Who will prevent bankers extending credit facilities to rich and affluent class at sub PLR?

Obviously none. Because even Manmohan Singh, the Prime Minister of India tells that there is corruption rampant all where in the country, even he accepts that development fund given by government to different agencies do not reach in the hand of poor. Even PM tells that there is a need to check price rise immediately .But he is helpless and unable to prevent price rise. He cannot keep prices in control because he has given unlimited freedom to traders in the name of reformation. He also imagines just like a help less poor, like a common man and like average Indian imagines and curse the system.

After all who will cure the system when everyone cry and cry only against the cancerous disease of mal administration, corrupt and inefficient government machinery?

Who cares for poor?
Of course Bankers do not care at all and neither can they afford doing so.
If anyone is interested to know the reality I would like RBI to submit data on following two points so that educated class and so called economists and social reformers can understand the reality of social agenda of the bank.

Loans outstanding up to Rs. 5.00 lacs( including home loan , education loan, trade loan or agricultural loan ) as on 31.12.2005. 2006, 2007, 2008, 2009 and as on date and disbursed during these years .These data will tell the real story of social objective and tell whether poor and middle class men are really getting loans from banks.

Secondly to know the amount of bulk financing made by banks at Sub PLR ,year wise disbursement made by banks to rich people in the range of Rs.10 crores and above can also be obtained to compare the same with that made to common men up to Rs.5.00 lacs.

Danendra Jain
Agartala
26th September 2009

erosion in Bank's margin

After causing much damage to banking system RBI data now reveals that the impact of high cost deposits coupled with slowdown in lending may result in shrinking of margin of the banks. Long ago I had pointed out that bankers are raising deposit rates abnormally without taking care of lending rates. When interest rate on deposits rises, depositors will not delay in switching over to new rate structure. Most of big depositors prefer breaking of old deposits and avail high rate of interest under new structure. But the same things do not appear to happen in lending rate. More often than not, it takes 15 days to 30 days in message reaching to branches. Then it takes months together for branches to actually put the increased rate into action. There may be several such branches where still old interest rates are continuing on advances.
Such negligence although do not occur in CBS branches ,non CBS branches covering more than 50 percent of business undoubtedly affects the margin available to banks. Moreover in many cases of retail lending, rate chargeable on advances is fixed and hence cannot be changed. To add fuel to fire, major portion of the advances in most of the branches (I would say more than 50 percent) are non performing assets in practice. Though not all bad advances are declared as non performer by banks it causes damage to bank's health slowly but steadily.RBI will be awakened from deep slumber when it is too late.
Altogether impact of such unwise policies is that banks have to see erosion in their margin and without fail they have to suffer weakness in bottom line.
Experts say that growth of lending is also low in the first two months and this time such slowdown is more pronounced because of rising interest rates on advances. My opinion says that it is an advantageous for banks that poor credit will reduce the chances of advances becoming non performing assets. Already quantum of NPA in banks if declared honestly crossed the limit of survival. Banks are being projected healthy to please the ministers but actually they all are on ventilators.
In such position RBI should ponder over causes of irregularities and weaknesses the ailing banks suffer and increase deep monitoring instead of believing on data submitted by banks. The ground reality is that RBI has inadequate manpower to monitor 65000 banks branches. Similarly all branches have been suffering from shortages of man power as compared to their requirement in tune with their business. That is why adhocism is prevailing all where. Somehow or other bankers are pulling on days and leaving the work of reformations and curbing growth of indiscipline and negligence (added by dirty politics of our rulers) to their successors. Who will bell the cat? When birds of the same feather are sitting at the helm of affairs in most of Public Sector Banks..

RBI credit policy

It is really a matter of concern for all fiancial experts and administrators who are responsible to safeguard financial insitutions that over the last one year in particular and one decade in special households have absorbed a higher portion of the credit growth . It is true that individual loans for home have seen a growth much more than that for industry. It is easy to disburse loan for house than for industry. Similarly it is easy to achieve target for credit growth through home loans than through other commercial loans including that for industry. However in a country where repayment of loan is beyond the control of the government our all policy for disbursal of loan are deceiptive and suicidal .Borrower come to beg money from banker once but banker has to beg repayment hundred times at the door of borrower. It is because there is no repayment culture at all .Even a shopkeeper/businessman who sells his product on credit faces the same music. Ultimately a shopkeeper whose sell is more in credit compared to cash sell succumbs to sundry debtors and it is known to all that such shops finally fails and become bankrupt.Banks should therefore take lesson from the balance sheets they analyse and businessmen they finance .It is universal truth that credit sale is always harmful for the growth and even sustainance of the business.It is worthwhile to mention here that outstanding credit to individuals are Rs.324491.00 crores while that to the industry is at Rs.448494.00 crores. Obviously consumption/unproductive credit growth is more than productive credit.Industries if grow generate employment opportunities whereas on the contrary home loans hardly generate such opportunity.It is more painful when circulation of money is slowed down due to non-repayment of loan by the borrower. Bankers feel cheated when even government machinery fails to recover the money from defaulters.There would be increasing provisionig every year because rise in default rate is unstoppable. NPA in retail sector particularly home loan is growing fast.It is different that repayment period is too large and bankers are clever to manage and conceal the facts of Non-repayment in such loans.But is undoubtedly true that actual NPA is far more than what is declared by the bankers. Lastly such loans will definitely affect adversely the profitability of the banks. Government or RBI may be in deep slumber but none can stop particularly PSU banks facing capital erosion in the near future only due to unmanageable growth in NPA. I stress on PSU banks because they have become more ambitious to compete with Private and Foreign banks without developing infrastructure and manpower. They are increasing profits by curtailing expenses on manpower and infrastructure. They are even unable to monitor existing business with existing quality and quantity of manpower but they are busy in credit to retail sectors including home loans without caring for repayment.Such banks are exploring the business in stocks, insurance,mutual fund to increse non-interest income with the existing manpower jeoperdising the credit they disbursed. They hardly earn Five paise through non-interest income compared to loss of hundred rupees due to growing NPA.It is surprising that RBI governor also knows that the non repayment of laon in banks is deterimental for banks but he finds himself handicapped to do something only because of vote-bank policies of our politicians. Mr. Reddy said that there have been bad experiences in certain economies like Hong Kong and Korea where the growth in credit card lons and unsecured loans have been allowed unregulated.To avoid a replication of this in the Indian economy the central bank s rightfully concerned in this regard. But the concern is only from higher growth in credit delivery but they never bothered for growing tendencay of borrowers not to repay loan they avail from banks .Governor should keep in mind that even courts are unable to ensure repayment as per stipulated time. Police authorities are not interested to execute warrants issue against defaulters because they work only for those who pay them bribe.Advocates also devote much time for borrowers because they receive more fee from defaulters than banks. That is why I say that as long as recovery of loan is not taken seriously all talks of disbursement of loans is nothing but harmful for the health of the financial institutions.

Is sealing in Delhi Justified

I would like to say that government of Delhi is doing injustice to inhabitants of Delhi in the name of sealing imposed by Supreme Court. At the ouset I would like to put entire blame on the MCD personels who authorised construction of big houses ,market and offices.They must be hanged to death before executing the order of Supreme Court.Secondly those who have started their business or residing there only after permission of MCD are nowhere at wrong path and hence they must be adequately compensated.Thirdly in the name of justice Delhi government have become insensitive to people's problem .There are many instances when government have changed the statute to safeguard the interest of the public.Here in this case government has taken no pain seriously to convince the court to allow status quo so that crores and crores of rupees worth property is saved from destruction.In case court do not permit they could have asked for acquiring for government purpose or donated the same to poor people for whom government announce so many scheme during election times.After all what is the benefit in destroying the valuable property.Fourthly what steps state governments in general and central government in poarticular have taken to stop repetition of such violation of rule and such blatant misuse of authority by MCD/municipal authorities/block level officials.Because I am hundred percent sure people are without any restriction perpetrating such violation in collusion with authorities.If public is ready to pay the prevailing rate of bribe to authorites of the departments he can take any permission for construction of house at any place .Even encroachment on road throughout the country is done only with the hidden blessing of officials who collect Dadagiri tax from poor poeople.I therefore propose that through ordinance or unbreachable guidelines government should instruct all authorities concerned to ensure that rules of construction are not violated anywhere in the country.Besides none of citizen,rich or poor should be allowed to encroach upon government properties in future. Action only can convince the court that rulers of the country are really and honestly serious.Otherwise there was no need of the supreme court to intervene in administrative matters. It is only when the misuse of law goes beyond the limit of tolerance PIL is filed and the court take cognisance of the matter and pass such perilous and harmful orders which has disturbed the society ,created anarchy and position of bloodbath in Delhi.Delhi goverment should rather resign instead of being silent spectator of injustice in the name of justice.To add fuel to fire Jai Pal Reddy comes forward that he is ready to change the consitution if needed. But when? Is he waiting just like police personnel waits before reaching the stage of accidents or loot . Perhaps Mr. Ready is allowing public to suffer so that when remedial measures aretaken by them ,voters will vote for Congress Party in obligation.