Loans & Finances

Banks have sought clarity from RBI on pricing of old home loans once the new `base rate' regime sets in. Loan agreements, stretching for 15-20 years, have no provision for replacing the prime lending rate (or PLR) -- the anchor interest rate to which the floating rates are linked.

However, RBI has told banks to start benchmarking loans to a `base rate' instead of the PLR from April 2010. The base rate is to be calculated on a cost-based formula and would be lower than the PLR, while banks are free to charge a risk spread over the base rate they cannot lend below the base rate.

Significantly, RBI has directed banks that at the time of loan renewals or resetting interest charges, banks should take the `base rate' as the anchor rate. Since home loan agreements, like other loan deeds, are legal documents, bankers fear that many retail borrowers will resist a switchover from PLR to `base rate' and signing on a new agreement.

Bankers will also have to grapple with the fact there is no renewal date in case of home loans and existing loan agreements are for the entire tenure of the loan. Secondly, since the base rate is a floor rate, there is a possibility that interest rates on some home loans may have to be hiked if the base rate of the bank is higher than existing loan rates.

Source: Economic Times Rate Race: Banks Seek Clarity From RBI On Old Home Loan Rates

The highways ministry and the commission have had couple of meetings with the department of economic affairs in the finance ministry on the matter, the Financial Chronicle has reported.

"We will soon open talks with the Reserve Bank of India," quoted B N Puri, senior consultant for transport in the planning commission in the report.

RBI guidelines divide all loans in two categories: secured and unsecured. Most loans to road projects are categorised as unsecured.

Each bank can give unsecured loans up to a ceiling. This limits road developers' access to funds.

Source: Realty Plus Road projects may get cheaper loans

What’s your outlook on hardening of interest rates?
Interest rates will go up next year. But it will be a smooth gradual rise. I do not expect a sharp increase. There will not be a lumpy increase, nothing that will derail the investment cycle. Even RBI is very clear that it wants a balance between inflation and growth, and they will not take a one-sided view with excessive tightening at the cost of growth.

What kind of credit growth will the banking system see in 2009-10?
In the first seven to eight months of the present financial year, the credit offtake was poor and in the next quarter, I expect only a gradual pickup. There is a lag between sanctions and disbursals. But next year I foresee bank credit growth in the upwards of 20 per cent.

Many real estate developers are cash-strapped. Is there any risk for banks?
Banks’ direct exposure to developers is very low. Our exposure will be around Rs 4,000 to Rs 5,000 crore. Real estate should be divided into three parts — residential property, commercial property and retail malls. Residential property has no risk at all. Inherently, there is large demand and the supply will not exceed demand. The office segment is not rosy and demand will remain muted for the next two years as supply is in excess of demand. But the stress is not huge enough to pull any developer down under. Some have raised equity and these funds will see them through. Malls are a drag for the developers and this segment will see maximum stress.

Demand for working capital has shrunk as efficiencies have improved since the crisis. Will it be a drag on credit demand?
It is going to be a fact that credit growth is not going to come from increased working capital cycles. It is going to come from investments that companies make for growth. Companies would focus on improved efficiencies.

Source: mydigitalfc.com 'Interest Rates Will Go Up in 2010, But Only Gradually' :Chanda Kochhar, MD And CEO Of ICICI Bank in An Interview.

There are various reasons for this belief. First, there is an inverse correlation between home loan rates and property demand.

Aditya Verma, business head and vicepresident, Makaan. com, said, " Reduction in home loan rates will always lead to higher demand for properties. In 2006- 07, when home loan rates were between 7.5- 8 per cent, the property market was at its peak.

With higher volumes come higher defaults and delinquencies. In the long term, lower rates will be beneficial for the real estate market but the loan provider needs to be careful in checking the worthiness of the loan taker." Second word of caution came from Anand Narayanan, residential director, Knight Frank India Pvt Ltd. He said, " Sustained period of low interest rates become a fundamental necessity, if India has to achieve a higher home ownership among its populace." He added, " However, Indian banks unlike their US counterparts should not use low upfront interest rates as tools to make home buyers buy into intrinsically unaffordable properties. That would do more harm than good, as we all know by now from the US credit crisis." Therefore, those taking home loans at reduced or special floating rate of interest from banks should remain cautious and prepared for a possible increase of rates.

Moreover, there is a correlation between the interest rates and the rate of inflation.

Source: Mail Today By Devesh Chandra Srivastava Cheap home loans won't stay for long

The Reserve Bank is considering a proposal to allow real estate companys to access external commercial borrowings (ECBs) for integrated townships even if they deal with other types of real estate projects.

As of now, only companies which are purely into integrated townships of specified size are eligible to access ECBs as the RBI was keen to make sure that funds are not diverted to other projects.

Real estate companies have argued that setting up a special purpose vehicle (SPV) for integrated townships entails higher costs. Flagship companies have a credit rating which is obviously better than what a new SPV can get, they have emphasised.

To ensure that ECB funds are not diverted, real estate companies have said that ECB proceeds can be kept in a separate bank account and all accounting for this money can be done separately. A source in RBI confirmed the proposal from real estate companies on condition of anonymity, but declined to go into the details.

An escrow account for this purpose is what realty companies have proposed and they are willing to undertake strict accounting specifications to prove that ECB proceeds are used only for integrated townships.

Source: Economic Times By G Ganapathy Subramaniam All realty cos may get ECB access for townships

An Indian company that provides a bank guarantee (BG) against a loan taken by a subsidiary abroad will now have to pay tax here for standing guarantee for its associate, irrespective of whether or not it has received a commission from the latter for the BG.

Seven companies which have provided bank guarantees against loans taken by their subsidiaries abroad are already under the tax net of India's transfer pricing administration, a senior I-T official said.

However, from the current fiscal, the TP orders are subject to approval of the recently instituted Dispute Resolution Panel (DRP), a collegium of three members, two commissioners and a director, International Taxation. An aggrieved taxpayer can appeal before DRP, whose order (if at variance with the TP regime) becomes binding on the department.

 The international practice is to charge the associate parties abroad a rate ranging from 0.5 % to 3 % of the bank loans advanced to them, for which the Indian parent stood guarantee. The TP administration took a stand that since the Indian companies were taking huge risks by standing guarantee to the loans taken by their subsidiaries abroad, the latter are obliged to pay a service charge to the parent company in India. Therefore, transfer pricing officers in India found it reasonable to levy a tax on the Indian company which provided the bank guarantee. Tax regimes in other countries also levy a tax on such transactions, informed the official.

Source: Economic Times Surety For Loan By Foreign Arm To Attract Tax Here

ICICI bank has announced a scheme under which the rate will be fixed at 8.25 per cent for the first two years. After that, floating rates will apply. The rates apply to loans sanctioned between December 2009 and January 2010. To avail of the offer, borrowers have to ensure that the first disbursement takes place before the end of March 2010.

Similarly, Kotak Mahindra Bank, which announced its scheme on Tuesday, has fixed the rate on home loans at 8.49 per cent for 30 months from the date of the disbursement of the loan.

Salaried borrowers can hope to get floating rates starting from 7.99 per cent depending on the loan amount. While the fixed-duration rate would be the same, irrespective of the loan amount, the floating rate would vary with the amount, the bank said in a statement.

Source: Realty Plus Rate war in home loan market hots up

The department has proposed the removal of the lock-in of three years on original investment made into integrated township development and other construction development projects.

Currently, FDI in construction and real estate sectors can be repatriated before the stipulated three years only after securing special approvals on a case to case basis from the Foreign Investment Promotion Board (FIPB).

The department wants to remove the condition of minimum period for repatriation of the original investment. The proposal, being discussed with other ministries, is aimed at boosting FDI flow into the housing and real estate sector.

Housing and real estate ranked fourth among the FDI-attracting sectors. It brought in Rs 32,502 crore of investments over the past nine years (April 2000–August 2009). During April–August period this year, the inflow into the sector was Rs 8,719 crore.

Source: Business-standard DIPP proposes further relaxation of FDI for realty

A The following major tax incentives are available in respect of a house property purchased/constructed in India:

a) In computing the total income of an individual for an assessment year, a deduction of a sum not exceeding Rs 1 lakh is allowable in respect of the repayment of amount borrowed by the assessee from a bank or other specified entities for the purposes of construction/acquisition of a house.

b) The interest paid on amount borrowed for the construction or acquisition of a house property is allowed as a deduction against income from house property. Such deduction is limited to Rs 30,000 in case of a self-occupied house. However, a higher deduction of Rs 1, 50,000 in case of a self occupied house is allowed if the amount is borrowed after April 1, 1999, and such acquisition or construction is completed within three years from the end of the financial year in which the amount was borrowed.

c) The house tax paid in respect to the property is allowed as a deduction from the annual letting value.

d) In case the property is let out, a statutory deduction of 30% of the annual letting value arrived at after deduction of house tax paid would be allowed to cover expenses in respect of the maintenance of the house and collection charges etc.

But to construct a house is not all that easy. It is not without substance that a Tamil saying goes, "Veetai Katti Par, Kalyanathai Panni Par" (Basically the saying rates constructing a house and having a child's marriage done among the toughest).

NRI's Woes
To an already difficult task, the sheer distance and absence during construction become problem multipliers for the NRIs. There was an NRI based out of the USA who got a wonderful sales pitch from a builder. The salesman met the NRI at his office in the USA and arranged for all the documentation and also sent video clippings of the apartment at Bangalore. Convinced on the genuineness, the NRI transferred Rs.50 lakhs to the builder's account. The date for the house warming was fixed after one month. The NRI could not make it to the function due to a pressing office work and had asked his parents to do the poojas.

The parents got the shock of their life, when they landed at the apartment complex the day before the poojas. The complex had only one sample apartment finished (the one in the video). They were told by the Project Manager at the site that the poojas can be done at anytime but the apartment can be delivered only after "6 months".

Another NRI who was building the house himself using an experienced and well referenced engineer found that his house orientation has been shifted by 15 feet. This left him space on the wrong side of the house squashing his plans to build a small commercial complex in future. They now have space for parking 4 cars but none for building a rent worthy space !!!

Source: Economic Times A check list for NRIs buying a house in India

Is There a Way Out?

The Reserve Bank of India (RBI) may step up its efforts to pre-empt another bubble in the local property market by increasing the cost of funds for the commercial real estate sector by up to 200 basis points.

“We are looking at a hike in the risk weight to commercial real estate (CRE) segment to 125% as a measure to ward off another bubble in the real estate segment and to ensure high credit quality,” said an RBI official, requesting anonymity.

Currently, interest rates on most of the loans is between 7.5% and 12.5%, depending on the credit rating of the borrowing company. The current move will make loans to this segment costlier by 75 to 200 basis points.

Bank finance for land development is classified as CRE if the source of repayment would be lease rentals. The segment has started showing signs of a revival after an earlier-than-expected recovery of the country’s economy from a demand slump.

Source: Economic Times Loans to real estate likely to put on risk weight,get costlier

State Bank of India, Deutsche Postbank, ING Vysya Bank and Punjab & Sind Bank are attempting to light up the festival season by lending more for home purchases than they did six months back, thanks to availability of funds and rising trust in the borrower. But individuals are still not buying as high home prices keep them away from their dreams.

“The economy has improved and the liquidity situation is much better and interest rates have eased off considerably,’’ Anoop Pabby, joint managing director at Deutsche Postbank Home Finance, told SundayET. “It is only natural then that the home buyers expect the reduced risks to result in reduction in interest rates and relaxation of margin money norms.”

The housing finance company is now funding up to 80% of the property value to most salaried people and in a few cases up to 85%, depending on the credit worthiness of the borrower. This is more than the 70% it used to lend a few months back.

Indian mortgage lenders, who were funding as much as the full value of the property in some cases, tightened lending standards after the collapse of Lehman Brothers last year this month because of the liquidity crisis and a rise in defaults due to job losses. But the scene has improved since with the Reserve Bank of India cutting lending rates to record lows and pumping in unprecedented amount of money into the system.

Source: Economic Times FESTIVE SPIRIT: Banks Soften Home Loan Norms

Bank of Baroda (BoB) will announce its special offer on Tuesday. Bank of Maharashtra and Corporation Bank are likely to provide special discounts on a case-by-case basis. But personal loans, considered risky, are a no-no in the scheme of things. "The focus to offer special offers is only for the home loan segment," a senior official at a public sector bank said.

The State Bank of India, has already launched announced a waiver of processing fees for three months, while it reduced home loan rates earlier this year with an 8 per cent offer for new loans. BoB is also planning to waive fees for home loans and also cut rates by 0.25 percentage point from the current 8.5 to 9.5 per cent range.

"The reduction in rates and the plan to waive off the processing fee would boost the purchasing capacity of the consumers," said M.D. Mallya, Bank of Baroda's chairman and managing director.

ICICI Bank is scaling down rates currently in the 9.25 to 11 per cent range, but it is not a festival offer, said a bank executive.

According to the report, some public sector banks, including State Bank of India (SBI), have reduced the margin requirement for availing a home loan. Other banks that have offered similar facilities include Punjab National Bank and Pune-based Bank of Maharashtra.

While, State Bank of India has reduced the margin requirement for home loans to 20 per cent from 25 per cent earlier as part of its ongoing special home loan scheme; Punjab National Bank (PNB) has reduced the margin requirement to 15 per cent. Bank of Maharashtra (BoM), too, has brought down the margin requirement to 15 per cent.

Both PNB and BoM banks earlier had a margin requirement of 25 per cent, it said.

While, PNB has revised the margin for home loans a fortnight ago, SBI did it almost a month ago. In case of Bank of Maharashtra, the reduction took place a couple of months ago, the report added.

Source: Realty Plus Home loan margin money requirement drops to 15%

The Union ministry of finance has finalised the interest subvention scheme for low cost housing which had been promised in the Union budget. It will be open for loans up to Rs 10 lakh sanctioned after October 1.

Senior officials told Business Standard the ministry would soon be seeking Cabinet approval for the scheme. "Loans have to be sanctioned between October 1, 2009, and September 30, 2010, though we are also looking at the possibility of keeping the scheme open for only six months till March 31, 2010," said an official.

The concession interest rate scheme that the Indian Banks Association worked out earlier this year is open for five years. Under the scheme, a one per cent interest subsidy would be available on the first 12 equated monthly installments of the loan; the total cost of the home cannot exceed Rs 20 lakh.

The interest subvention would be routed through scheduled commercial banks and housing finance companies (HFCs) registered with the National Housing Bank. The measure would cost the exchequer Rs 1,000 crore.

An official said they did not expect the entire money to be used up. With an average loan size of Rs 8 lakh in this category, at least 12.5 lakh loans need to be sanctioned during one year for using up Rs 1,000 crore.

Source: Business-standard FinMin readies interest subsidy scheme for low-cost homes

The DTC, while proposing a moderate tax structure, has suggested scrapping of tax benefits currently being granted on payment of interest on housing loans.

As of now, one is entitled to tax benefits on interest payment of up to Rs 1,50,000 per annum on housing loans.

"At this juncture of time when the housing sector is in doldrums because of the ripple effect of the economic slowdown, the proposal to remove tax benefits on interest payment on housing loans would virtually drive away potential home seekers," a high ranking official of the Confederation of Indian Industry (CII) told Deccan Herald.

"While the government is trying to boost the housing sector by providing several fiscal measures like interest subsidy on housing loans, the DTC proposal is quite perplexing," the official said.

"The basic factor that prompts majority of salaried class people to go for a house is the current fiscal policy of granting tax benefits on interest as well as principal payment on housing. If the government scraps this benefit the housing sector will receive a jolt," the official said.

Reacting to the proposals contained in the draft DTC, Federation of Indian Chambers of Commerce and Industry President Harsh Pati Singhania said: "Doing away with the house loan interest deduction facility may come in the way of the `Aam Adami' in his quest for affordable dwelling units."

As such, the real estate and construction sectors are of the view that withdrawal of tax benefits on housing loans will hamper the growth of the housing segment.

"The draft DTC has been put in public domain for debate and discussion. All the feedback will be taken into account. The final decision will be taken by the government. Again all these will have to be approved by Parliament," a senior official of the Central Board of Direct Taxes said on condition of anonymity.

Housing finance companies are currently regulated by NHB, which is, in turn, regulated by RBI. NHB is wholly-owned by RBI.

Sources close to the developments said the government is yet to take a decision on the suggestion since RBI's proposal has met with some opposition. Ownership of NHB will give the government greater say in the boards of housing finance institutions and flexibility to issue directions to meet its priority sector credit objectives.

RBI sources said the need for regulating housing companies arise because they do not have prudential guidelines or risk-linked capital limits to which banks, which come under the central bank's purview, are subject.

"There is clearly a regulatory arbitrage here. Housing is a priority sector, so many entities are getting into this business by floating housing companies and thereby skirting RBI's stringent prudential guidelines," said a source.

Source: Business-standardRBI wants to regulate housing finance firms

"There is a compelling need for state level real estate regulators," Parekh said in an annual report of the company sent to shareholders.

Discussing various aspects of real estate, he said, "It would be a missed opportunity if the government were not able to lay out an institutional framework for a real estate regulator".

According to Parekh, regulators' role would be to monitor the affordable housing agenda, promote real estate reforms, ensure transparency especially by mandating that flats be sold only on carpet area and act as a platform to protect buyers from real estate fraud.

Referring to the affordable housing, Parekh observed that affordable housing is not about box-sized, budget homes in far-flung places where there is no connectivity to work places and little surrounding infrastructure.

Source: The Tribune HDFC's Deepak Parekh Bats For Real Estate Regulator

The central bank had said that since repayment of loans by developers who rent out units was linked to real estate prices and not economic activity, it was a real estate activity. The commerce department, however, disagrees. "We have pointed out to the RBI that ultimately repayment of all loans taken by developers are linked to economic performance of units and hence there should be no discretion in classification of SEZ development activities as infrastructure or real estate projects. All activities should be treated as infrastructure," a commerce department official, who did not want to be named, told ET.

Infrastructure projects get funds at about 2% lower interest rates compared to real estate projects, and also have access to funds earmarked for infrastructure activities.

While all SEZ activities, at present, are classified as real estate activities in terms of bank exposure, the RBI had last month defined SEZ projects as infrastructure projects. It then came up with draft commercial real estate exposure guidelines which, once formalised, would give clear instructions to banks on SEZ funding.

Source: Economic Times Commerce min for core tag for all loans to SEZs

यह रकम एम्प्लॉयर से बैंक को मिल जाएगी। यह कटौती तब तक जारी रहेगी, जब तक पूरी रकम की वसूली न हो जाए। जिन एम्प्लॉयी ने कार्ड पेमेंट में डिफॉल्ट किया है, वे सैलरी से कटौती पर ऐतराज नहीं जता सकेंगे। प्राइवेट सेक्टर में सबसे ज्यादा रकम उधार देने वाले इस बैंक ने 'नियमों और शर्त' में नया प्रावधान जोड़ा है। इसके मुताबिक, कार्ड होल्डर और एम्प्लॉयर पर लागू कोई 'लॉ या कॉन्ट्रैक्ट' बैंक को इस तरह की कटौती से नहीं रोक सकेंगे। न ही एम्प्लॉयर बैंक को भुगतान रोक सकेगा। आगे जानिए कितनी कटेगी सैलरी इसका फैसला कोन करेगा और किसे है डरने की ज़रूरत कार्ड होल्डरमेंबर के एम्प्लॉयर को आईसीआईसीआई बैंक ही बताएगा (निर्देश देगा) कि कितनी रकम काटी जाए। कार्ड होल्डर/मेंबर इस कटौती पर कोई ऐतराज नहीं कर सकता है। नए प्रावधान के साथ संशोधित 'नियमों और शर्त' को 23 जुलाई से लागू किया जा चुका है।

आईसीआईसीआई बैंक के प्रवक्ता ने नए प्रावधान की पुष्टि की है। प्रवक्ता का कहना है कि नया प्रावधान सिर्फ उन्हीं कस्टमरों पर लागू होगा, जो क्रेडिट कार्ड पेमेंट में डिफॉल्ट करते हैं। भुगतान में डिफॉल्ट करने वालों को ही इससे चिंतित होने की जरूरत है। यह बात रेगुलर रहने वाले कस्टमर्स के लिए चिंता की बात नहीं है। आगे देखिए क्या अब कंस्यूमर रहेगा किंग सभी कस्टमरों को इस बात की जानकारी देने के लिए उन्हें पूर्व सूचना भेज दी गई है। कंस्यूमर मामलों के जानकार सचिन पुरी का कहना है कि अब तक वसूली के मामले में कंस्यूमर का पक्ष मजबूत रहता था, अब बैंक हावी हो जाएंगे। पेमेंट को लेकर विवाद होने पर बैंक सैलरी से रकम कटवा लेगा और गलत ढंग से कटे पैसे वापस पाने के लिए कंस्यूमर को परेशान होना पड़ेगा।

सैलरी पर हाथ डालने के बाद क्रेडिट कार्ड होल्डर के लिए घर चलाना मुश्किल हो जाएगा।

कितना सही है ये फैसला?...कुछ सवाल
कुछ सवाल भी हैं: -यह शिकायत आम है कि बैंक गलत पेमेंट की मांग करते हैं। ऐसा भी देखा गया कि बिना खरीदारी किए बिल आ गया। बैंक ने किसी को एकतरफा ढंग से डिफॉल्टर मान लिया तो परेशानी नहीं होगी।
-2. बैंक कस्टमर की हैसियत के मुताबिक कार्ड ऑफर करते हैं। यह कस्टमर और बैंक का आपसी मामला है, जिसका एम्प्लॉयर से कोई लेना-देना नहीं। एम्प्लॉयर को बकाये की कटौती के लिए बैंक किस तरह से मजबूर कर सकता है?
-3. नए प्रावधान के दायरे में सिर्फ सैलरीड क्लास आएगा। क्या बैंक सोचते हैं कि यही लोग डिफॉल्टर हो सकते हैं? जॉब चेंज करने की स्थिति में बैंक किस तरह से कटौती कराएगा?
-4. बैंक इस डिमांड पर वे कान नहीं देते कि कार्ड पर इंटरेस्ट रेट बहुत ऊंचे हैं। बैंक 37 से लेकर 49 पर्सेन्ट तक इंटरेस्ट चार्ज करते हैं। कई तरह की पेनल्टी और चार्ज इसके अलावा हैं। क्या इन रेटों को सही रखना उनका फर्ज नहीं है?

Till now, less than 500 applicants have availed this loan in India since its inception in 2007, a senior bank official, who did not wish to be identified, said.

The reasons for the model not taking off in India are manifold. From an emotional attachment with one's house to real estate price correction; from an absence of clear guidance against legal complications to inadequate marketing, the plan has been unable to meet the expectations of financial institutions.

Reverse mortgage is a plan through which senior citizens can avail loans from either banks or other financial institutions by mortgaging one's home.

If a senior owns a house and has a mortgage on the house, he might get a reverse mortgage to pay off the existing loan and then have some money left over to take care of his expenses for the rest of his life. The homeowner could get that as a lump sum or a line of credit, and wouldn't have to pay it back until he moved or died and the house was sold.

The banks can sell off the property to realise the loan amount. However, there is a provision that the legal heirs can acquire the property back by paying off the loan to the bank.

Dewan Housing, which is one of the largest housing finance companies, has been able to sell only 4-5 reverse mortgage loans during the last two years. Two large financial institutions, HDFC, which incidentally is one of the largest home loan lenders in the country, and Kotak Mahindra do not have reverse mortgage in their portfolios.

Source: Economic Times House Proud: Elders refuse to buy reverse mortgage

HDFC's prime lending rate (PLR) remains unchanged at 13.75%, which means existing borrowers will not see any change in EMIs or cost of fund. A 50-basis point cut in interest rate lowers EMI by around Rs 34 for a Rs 1-lakh loan.

In the present round of cuts, HDFC has reduced rates for new borrowers under its floating rate scheme by widening the spread between the PLR and loan rate.

The rate cut, surprisingly sans wide publicity, comes at a time when most bank chiefs have predicted higher rates due to a bloated government borrowing programme.

HDFC officials were not available for comment. In the past, whenever HDFC cut rates for new customers, company officials justified it by saying the institution was merely passing on a reduction in incremental cost of funds. According to them, the PLR is reduced (and rates for new as well as old borrowers) only when there is a sustained fall in interest rates in the system.

Since December 2008, HDFC's prime lending rate has fallen by 125 basis points. But the lending rate has fallen more steeply for new borrowers.

Earlier this month, India's largest bank SBI also revised its home loan scheme for new customers. New borrowers would get loans at 8% for the first year and 9% for the second and third years. From the fourth year, the interest rate would be linked to the bank's prime lending rate.

There are rumours of HDFC planning a new loan product, which may be announced after the company's board meeting and AGM on Wednesday. The AGM will also approve Deepak Parekh's appointment as chairman until end-December '09. With Mr Parekh deciding to quit as executive chairman, this is likely to be the last AGM with him as the chief executive.

The department has asked for a reduction in the minimum area to be developed under each project from 25 acres to 10 acres for development of serviced housing plots. It has also asked for reduction in the minimum built-up area for construction development projects to 10,000 sq m.

DIPP feels that in smaller cities and towns, developing serviced plots or built-up areas according to guidelines prescribed in Press Note 2 is not economically viable. The minimum area requirement is viewed as a deterrent infusing FDI into companies desirous of undertaking small-size construction projects.

Foreign investment brought into such projects will be subject to a lock-in period from the date of infusion. The lock-in would also hold for three years after project completion.

To promote infrastructure development in tourism, DIPP has recommended that 100 per cent FDI be allowed in mixed development projects. The FDI policy permits foreign investment up to 100 percent through the automatic route in tourism-related industry, hotels and hospitals when they are standalone activities. There are an estimated 1.2 million hotel rooms in the country. The country needs to double its hotel rooms to 2.9 million by 2010, to meet the demand during the Commonwealth Games.

The Reserve bank of India (RBI) recently granted infrastructure status to projects in these SEZs that will let them access cheaper funds. The central bank will now release revised commercial real estate exposure (CREE) guidelines for banks to identify activities that can be classified as infrastructure.

The draft norms have been circulated for comments to banks and general public, and once they are finalised, SEZ developers will be able to source funds at about 2% cheaper rates for most activities in the processing areas that are likely to be classified as infrastructure, a government official said.

The move will benefit both small and big SEZ developers such as Reliance, Adani and Essar, and IT companies such as Infosys and Wipro.

"The development is definitely positive as SEZs have been facing a cash crunch due to the global slowdown. Once banks adopt the new guidelines, SEZs will get access to funds earmarked for infrastructure projects at lower interest rates, giving them a much-needed boost," the official added.

Source: Economic Times Coming soon, cheaper loans for SEZ developers

HDFC has said it will take a view after the Budget, which is only days away. ICICI Bank said it has reduced interest rates in line with the movement of systemic rates and deposit costs since December `08. "We believe that the home loan segment has robust potential and we would continue to focus on this segment," said an ICICI Bank spokesperson. LIC Housing Finance--the second-largest mortgage finance company--has also reduced home loans for existing borrowers by 50 basis points.

According to Ms Karnad, there has been a remarkable pickup in home sales. "We are seeing this because of a real reduction in property prices. Builders like Unitech and Lodha have brought down rates in Delhi and Mumbai and are seeing growth in sales." She added that the pickup in sales was so sturdy that prices have started picking up again--a perception echoed by SBI. "There is a definite pickup in home purchases partly driven by a fall in cost of loans and real fall in property prices. There are pockets where the resurgence is so good that property prices have started picking up; it has come a full circle quickly," said an SBI official who did not wish to be named.

Source:Economic Times RAte War Special Schemes: SBI Ccuts Home Loan Rates For First 3 Years

This move will provide a boost to the real estate industry that has been reeling under impact of severe economic slowdown. Projects facing delays or staggered out completion schedules may also get a fresh lease of life. This is because renewed interest among buyers to claim full exemption on both principal and interest paid during the year may lead to early completion of projects. Mukherjee is likely to make an announcement in this regard in his budget proposals on July 6.

At present, tax benefits are available to home loan borrowers only when construction of the property is completed and the house is handed over to the buyer before the end of the financial year. Though the principal amount repaid to the bank before the possession of the property is not eligible for tax benefit in the particular year or any subsequent year, interest payable for the period gets tax exemption in the five subsequent years in equal installments.

Under the proposed tax structure, both the principal amount as well as the interest paid on the loan before possession will be eligible for tax rebate, according to a finance ministry official. The entire interest amount paid before the possession will be granted tax rebate in one go, compared with five installments at present.

Source: Realty Plus New tax sop for home loan borrowers on cards

The cut would be effective from Monday, the bank said. With this, SBI has lowered its BPLR by 200 basis points since November 2008, when the Reserve Bank of India signalled a soft interest rate regime.

The move comes within a fortnight of finance minister Pranab Mukherjee's advisory to public sector banks to lower their lending rates. Union Bank of India and United Bank of India have also announced rate cuts. United Bank today said it would cut its BPLR by 25 basis points to 12 per cent from July 1.

By staggering the rate cuts till the end of the first quarter, banks would be able to show a healthy net interest margin (NIM) for April-June, said an executive with a private bank.

While SBI had lowered deposit rates four times in the first quarter of the current financial year, it had not cut its BPLR, fearing an impact on NIM. It had last lowered its BPLR in January. However, since then, it has lowered lending rates for home and auto loans and for small and medium enterprises.

The bank is seeing rigidity in cost of funds as it had mopped up retail deposits by offering 10.5 per cent a year for 1,000 days. While it is unable to reset interest rates on these deposits up to October 2011, its earnings from advances will drop immediately after the rate cut. As a result, SBI's NIM fell by 14 basis points to 2.93 per cent at the end of March 2009, as against 3.07 per cent a year ago. In the fourth quarter, its NIM fell 22 basis points as it raised around Rs 1,000 crore a day through retail deposits in the third quarter and the early part of the fourth quarter.

But SBI executives said the BPLR cut would hit the bank's NIM by just five-six basis points.

It has been decided to cut lending rate by up to 125 basis points, sources said.

Earlier, HUDCO had reduced its lending rate by 50 to 125 basis points with effect from January 1, 2009.

The company had reduced its rate of interest on project loan by 50 basis points and individual home loan (Hudco Niwas) between 100 and 125 basis points for loans up to Rs 20 lakh for floating rate of interest.

For home loans up to five years, the interest rate was lowered to 10.25 per cent from 11.50 per cent, a cut of 125 basis points.

For home loans with payback period beyond five years, the interest rate was cut by 100 basis points to 10.75 per cent from 11.75 per cent.

Gone are the days when a project used to get oversold as soon as it was launched, and the funds thus raised were diverted towards construction of the project. However, the global economic downturn and its concomitant effects have changed the dynamics of the country's real estate industry. Now, there is a demand for projects that are nearing completion or are at least 60 per cent complete, analysts tracking the real estate sector say.

"Developers will certainly have to cough up more money from their coffers in future projects, than they were doing in the past. If developers had overleveraged for some time, at times they have to be underleveraged as well. During the realty boom, many people had overleveraged and now it's time for greater capitalisation. Naturally, the equity component will be larger than the debt component in future projects. In case of our group also, we know that we will have to put in money from our own pocket while taking up future projects and we are prepared for that," said Harsh Neotia, chairman of Ambuja Realty.

Rajeev Talwar, executive director of DLF, India's largest publicly traded real estate firm has a different take.

"Right now, we are launching only residential projects, funding for which will come from banks and from sales. We looked at private equity (PE) only for commercial projects. As of now, we are not launching any commercial projects."

DLF's joint venture partner for a few projects in Mumbai, BSE-listed Akruti City, however, concedes that developers need to put in more funds for their projects that are to be launched.

Source: mydigitalfc.comPersonal finance

At present, taxpayers taking housing loans are eligible for income-tax exemption on interest payment of up to Rs 1.5 lakh every year. Besides this, the repayment of principal amount is part of investments eligible for benefit under Section 80(C) of the Income-Tax Act, which has a ceiling of Rs 1 lakh.

The government has already identified housing as one of its focus areas, a fact highlighted by President Pratibha Patil in her address to both the houses of Parliament.

The existing tax exemption limit is considered inadequate at a time when a two-bedroom house in big cities costs at least Rs 25 lakh.

Considering a person takes a loan of Rs 20 lakh at an interest rate of 9.5 per cent, he would pay Rs 1,88,493 towards interest alone in the first year. His annual interest payment in the first five years would be more than Rs 1.5 lakh.

Get more value out of your property. At a time when banks have tightened lending norms, certain low risk solutions can help to process a loan
faster.

So if you own a property and want to make the most of this asset, get a loan against it. Currently, loan against property is seeing a high demand. And the logic is simple. A longer repayment tenure, a lower rate of interest than personal loans and a high value of the underlying asset makes these loans rather attractive.

Rajiv Sahni, partner, real estate, Ernst & Young, says while loan against property is a mature product in the west, In India it has started finding flavour only since the last 5-6 years. "The popularity of the product has picked up as it frees up liquidity for indulging in opportunities. Borrowers have been typically using such loans for personal or business uses. The challenge lies in clear title of the property and income eligibility of the borrower, as banks will still look for re-payment ability of the borrower."

The obvious advantage that comes through for a consumer is that the interest rate on such loans is in the range of 11-14% against over 18% for personal loans. "For certain individuals who find it difficult to avail or qualify for a personal loan, banks are more comfortable extending such mortgage-based loans as the underlying security value is high.

These loans can operate as an overdraft facility for customers who do not want the hassle of fixed monthly repayment installments but would prefer to repay through surpluses like annual bonuses or business profits. Borrowers should, however, carefully study the loan agreement for prepayment or foreclosure charges and interest rate reset clauses," adds Sahni of E&Y.

Source: Economic Times Get more value out of your property

"Banks should have a board approved policy in place for valuation of properties including collaterals accepted for their exposures," RBI said in a notification to all states and district central co-operative banks.

The notification further said that the banks should obtain minimum two independent valuation reports for properties valued at Rs 50 crore or above.

At present, RBI said, different banks are following different policies for valuation of properties and appointment of valuers for the purpose. The issue of correct and realistic valuation of fixed assets owned by banks assumes significance in view of its implications for correct measurement of capital adequacy position of banks.

"In this context, there is a need for putting in place a system or procedure for realistic valuation of fixed assets and also for empanelment of valuers for the purpose," it added.

Since market value of properties keep changing, the Reserve Bank said that it is necessary that revaluation reserves represent true appreciation in the market value of the properties and banks should have a comprehensive policy for revaluation of fixed assets owned by them.

"Such a policy should inter alia cover procedure for identification of assets for revaluation, maintenance of separate set of records for such assets, the frequency of revaluation, depreciation policy for such assets, policy for sale of such revalued assets," it said.

According to the report, LIC Housing Finance and HDFC have increased the margin requirement to up to 25 per cent, which means they would finance only up to 75 per cent of the house cost. While LIC Housing Finance has set the limit at 25 per cent, HDFC has made it 20 per cent. The earlier level was 15 per cent for both the institutions.

Although no formal comments could be obtained from the two institutions, officials dealing with clients said the financiers have raised the margin requirement on home loans. Rise in margin requirement means reduction in maximum limit that the bank would finance and increase in borrower's contribution.

"We have raised the margin requirement to 25 per cent from 15 per cent earlier as the condition was such in the last few months. Now we finance upto 75 per cent of the house price," an official at one of the branch of LIC Housing Finance said.

A client executive of HDFC said, "We finance between 75 per cent to 80 per cent of the home cost". Ironically, official websites of both the institutions still state the maximum financing limit as 85 per cent.

Source: Realty Plus Banks increase margin to 25% on housing loans

The company has also extended the deadline for the submission of the application forms to May 28 for the 1,000 unit-integrated township, a press release issued here today stated. MHFC has set up a stall at the Boisar site in Thane district in order to assist consumers in the procedure. The MHFC loans will be long-term micro mortgages for need-based housing, the release said, adding that MHFC would be flexible in its documentation requirements and will make its interest rates affordable.

Bookings will be accepted till May 28 along with the initial booking amount of Rs 10,000 through a bank pay-order at the Tata Housing office at Fort in south Mumbai and the site office at Boisar.

Tata Housing's Managing Director and CEO, Brotin Banerjee, said that "With Shubh Griha, the consumer at the bottom of the pyramid has an opportunity to fulfil his dream of owning a house in a city like Mumbai. We are delighted to partner with MHFC and provide an opportunity to all those who aspire for a home to realise their dreams."

"We have also extended the date of submission of the forms in order to give the applicants a chance to arrange for finance through MHFC," he added.

The first Shubh Griha property will be launched in Boisar in the city and will be priced between Rs 3.9-lakh to Rs 6.7-lakh, the release said.

"We believe we share common values with Tata Housing in creating a long-term solution for quality, affordable housing in urban India, particularly to lower income groups," MHFC's Director Madhusudhan Menon said. "We believe that the Tata housing project at Boisar will be very attractive to this target audience and hence, we look forward to providing assistance to its potential buyers," he added.

"We are very clear in our mind that the economic environment clearly points towards southward movement of the lending rates. Banks are aware of that and we expect them to move in that direction," Finance secretary Ashok Chawla told reporters here.

Chawla, however, said that it was up to the banks to take a call on the timing and quantum of rate cuts.

"How much and when precisely (banks will cut rates) is the decision that banks have to take," said Chawla.

With industrial output contracting, industry is demanding cheaper cost of funds, including lending rates of banks.

In March this year industry chambers met prime minister Manmohan Singh and expressed concern over high lending rates even when inflation had reached near-zero level.

Around a month after the meeting, the Reserve Bank cut its lending and borrowing rates, or repo rate and reverse repo rate respectively, by 25 basis points, signaling reduction in lending rates by banks.

Industry was complaining that private sector banks are not cutting lending rates, but top private lender ICICI Bank was first to cut its lending rate by 50 basis points followed by other banks