Advantages of buying properties through Bank Auction/ ForeclosureIndia.com & How do I participate in a Bank Auction

Why would you want to buy a foreclosed home? Here are just a few of the reasons that homeowners and investors are flocking to the foreclosure market.

1.PRICE ADVANTAGE: Approximately 25 % cheaper than market price.

2.LEGALLY SAFE: Since Banks / Financial Institutions have given loan after verification of all the legal aspects only, these are 95 % legally safe.

3.CREDIBILITY OF SELLER: You are buying from a Bank / Financial institution, which is authorized by Govt of India to sell such properties.

4.TIME FRAME: Entire transaction will be over in less than two months period. Ownership in one month.

5.TRANSPARENCY: 100 % transparent transaction. 

6.PROBABILITY: 90% chances of winning in the Bank Auction. 

Loss-making PSU banks may shut down branches

New Delhi: Concerned over rising NPA, the government may ask state-owned banks to shut down branches and cut down on staff strength in loss-making units.

"This is a part of an ongoing dialogue, not only banks but insurance companies also. If there are loss-making branches, then we need to re-look at why they are there.

"If that needs working out a business strategy, may be relocating it, may be scaling down of staff, all that needs to be looked at," Financial Services Secretary D K Mittal said when asked if the government has asked lenders to submit a report on loss-making branches.

"Ultimately, branches have been set up to earn. If they (loss-making branches) have been there for some time, say 12 months, then I think there is a case to re-look at it," he said on the sidelines of a CII event in New Delhi.

There are about 87,000 branches of public sector banks across the country.

Rising interest rates and slowdown in economy have impacted the repayment capacity of borrowers, especially small and medium enterprises, leading to an increase in NPAs.

The non-performing assets (NPAs) of banks have risen to Rs 1.27 lakh crore till December, 2011. Of this, public sector banks' gross bad debt jumped over 51 per cent to a whopping Rs 1.03 lakh crore in 2011.

The gross NPAs of public sector banks have gone up from Rs 68,597.09 crore in December 2010 to Rs 103,891.27 crore as in December, 2011.

On financial inclusion, Mittal said financial institutions have a strategic role. With appropriate financial products, technology and partnerships, inclusion is a viable business model.

In addition to access issues, livelihood generation is a key aspect of financial inclusion. This is necessary to ensure safe return of the money lent, he said.

Let your home solve your cash problems

ANAND KALYANARAMAN 

- The Hindu 

- Business Line




Reverse mortgage loans enable senior citizens to receive regular cash flows from their residential property — even while they continue to live in their house.

These days many senior citizens are faced with a difficult situation.

On the one hand, the value of the house they own and live in has appreciated significantly but they are not inclined to sell it. On the other, they do not have adequate income to meet daily expenses, and do not want to be financially dependent on children or relatives.

Reverse mortgage loans can come in quite handy for such senior citizens. It is the opposite of normal home mortgage loans which entail regular cash outflows (EMIs) by the borrower.

Reverse mortgage loans, on the contrary, enable senior citizen borrowers to receive regular cash inflows from their residential property. This, even while they continue to live in their houses.

The reverse mortgage lender will decide the amount of loan you can raise based on various factors.

This includes the value of the property, the loan-to-value ratio (usually in the 60-80 per cent range), interest rate (fixed or floating), your age and the plan chosen.

Payments can be lumpsum (up to Rs 15 lakh for medical treatment), periodic (monthly/quarterly/half-yearly/annually), through a committed line of credit, or a combination of the above. The higher your age, the greater is the periodic amount you receive.

While the property is mortgaged to the lender, you remain the owner and need not repay the loan till you live.

After your demise, your legal heirs can choose to repay the loan and gain ownership rights to the property. Else, the lender sells the property, adjusts the sale proceeds towards the loan, and returns any excess amount to the legal heirs. Also, you can choose to prepay the loan during the loan tenor without pre-payment penalty.

Reverse mortgage schemes also have ‘no negative equity guarantee'.

This means that you will not be asked to make up for any shortfall if proceeds from the property sale do not cover the outstanding loan.

The reverse mortgage loan scheme, popular in countries such as the US, was introduced in India in 2007-08. It has since undergone changes in terms of favourable tax-treatment (in some product variants) and life-time annuity payment (in others). (See story below)

The regulator National Housing Bank (NHB) has prescribed guidelines to safeguard senior citizens. But adoption of the schemes has been quite low in the country.

There are many reasons for this — the culture of bequeathing property to children, emotional resistance to mortgage the hard-built house, and inadequate publicity to the schemes. Besides, the new scheme with a life-long payment assurance has an unfavourable tax-treatment and does have not enough players.

But adoption of the reverse mortgage option may increase in the coming years, with the growing trend of nuclear families, increasing longevity and rising expenditure. We examine some key conditions, and pros and cons which senior citizens should consider before going in for reverse mortgage.

Eligibility: You should be at least 60 years old. Married couples are also eligible as joint borrowers provided one spouse is aged at least 60 and the other at least 55. Your income level is not a constraint.

Property: The property must have clear title and be free from third-party liability. You must use the property as permanent primary residence — it must be a self-acquired, self-occupied residential property where you spend the majority of your time. This implies that you will not be eligible for reverse mortgage on inherited property, or on houses in which you do not normally reside. Other conditions include that the property must have at least 20 years of residual life.

Use of funds: You can use the funds received for many purposes such as improvement and renovation of house, medical needs, living expenses and other consumption needs.

But using the proceeds for speculative, trading and business purposes is not allowed. This means that investing in shares, real-estate, etc, is not allowed.

Expenses: You will have to incur processing and other charges towards the reverse mortgage loan. This could be 0.25-0.5 per cent of the loan amount to half a month's loan instalment.

Besides, you will have to bear ongoing expenditure such as insurance charges, taxes, maintenance and statutory payments towards the home.

Revaluation of property: The lender will revalue the property at least once in five years. The loan quantum could either increase or decrease on such revaluation. An increase in the valuation could improve your periodic returns, while a decrease could depress them.

Loan Foreclosure: A reverse mortgage loan becomes payable only when the last surviving borrower dies or permanently moves out of the house. A permanent move is when neither you nor your co-borrower has lived in the house continuously for one year. But the loan may be foreclosed in case of certain events of default. For example, if you are declared bankrupt, or are guilty of fraud or misrepresentation. Other trigger points include non-payment of taxes, or if the property is donated, rented out, or not maintained and insured. Adding a new owner to the title or creating third party liability by way of debt, etc, will also make the loan liable to foreclosure. In essence, there are restrictive rules regarding use and upkeep of the property. If the reverse mortgage is foreclosed, the lender will stop making payments.

Home loan for all

• December 25, 2011 
• By Adhil Shetty

• 
  

• Are you looking for a house? Do you have a budget in place, which will ensure that you look for a house that is well within your means? If not, start the process now, as buying a house is a big investment, having financial repercussions for years to come.
  How do you prepare a budget?
  Analyse your current financial situation to determine available resources. You need to answer questions such as, how much cash will you have at hand for a down payment. Also, you would want to know the quantum of housing loan you would be eligible for. After all, how many of us can buy a house today without a housing loan? The housing loan amount will be the critical factor determining your budget. Want to gauge the actual quantum of loan the bank will provide you with. Look for ‘pre-approved’ housing loans.
  What is a pre-approved housing loan?
  It is essentially an in-principle sanction given by a bank for a particular loan amount. A fairly robust process is followed by the banks to determine the loan amount. They will require you to submit a lot of information such as income-tax returns, bank account statements, income proof, salary slips, identity proof, and Pan details among various other things. Banks will also obtain data from CIBIL to check the credit history of the individual.
  Once the checks are in place and the bank pre-approves the loan, it will hand over a letter stating that an in-principle approval of a particular home loan amount has been granted and will be valid up to a particular period. Some banks will also state the rate of interest at which the loan will be provided, the rationale being the interest rate at the time of pre-approving the loan should be applicable. Please note that the pre-approved loan is valid only for a particular period- in most cases it is six months, post which the individual will have to go through the process again.
  Is the bank pre-obliged to provide the loan?
  Banks are not obligated to provide the loan as banks clearly state that the in-principle approval is subject to verification of property documents and the property itself.
  Does it come free of cost?
  Several banks do charge a pre-approval loan processing fee which is refunded if the loan is taken; on the other hand some banks do not charge any fee. Do evaluate your exact need before you opt for a pre-approved loan, it should not be a scenario where you are unable to locate the house of your choice for purchase within the stipulated period of six months.
  If the bank charges a processing fee, then that would be an incurred loss for you. Also, interest rates might change depending on market conditions during the time of the actual loan disbursal, which will not happen until you zero in on the property and the property documents are verified by the bank. Opting for a pre-approved property with a pre-approved loan might enable a quick home purchase process, the pre-approved status for your loan asserts your credibility and repayment capacity while the same for the property indicates the credibility of the builder.
  ADVANTAGES
  * Focus while hunting home: Ensures that you narrow down your home search Getting a loan pre-approved will help you to target a house that is within your budget. This will prevent you from straying — houses bigger than your budget will automatically be eliminated
  * Greater negotiation power: A pre-approved loan will make it clear to the seller that you are a serious buyer and also assert the fact that you have the financial means to close the transaction. Thus he will be willing to offer you a discount or some additional benefits so that the deal is sealed
  * Credibility with real estate agents: Given that the agent will earn commission on the transaction, he will put in extra efforts as he knows you are a genuine buyer
  * Quicker loan disbursal: Processing of the loan application will take place at a much quicker pace if the loan is pre-approved. This ensures that you save time. Many a time, individuals have lost out on good houses, because they were not able to garner resources in time. If you want to make sure that you do not want to lose out on a dream home due to external factors like running short of time, awaiting the loan sanction etc., you could opt for a pre-approved home loan, to ensure a smooth home purchase process.
  (The writer is the CEO of bankbazaar.com)
  http://www.deccanchronicle.com/channels/business/personal-finance/home-loan-all-219

Union Bank to focus on retail biz, recovery of NPAs this fiscal

Currently, retail biz accounts for 10% of total advances

KOLKATA, APRIL 8: 

Union Bank of India plans to focus on growing its retail business and recovery of non-performing assets this fiscal.

The bank will tap the home and vehicle loan segments to expand its retail portfolio, said Mr D. Sarkar, Chairman and Managing Director, Union Bank.

Mr Sarkar - former Executive Director of Allahabad Bank - took charge at Union bank of India after Mr M.V. Nair, retired on March 31.

Currently, retail accounts for ten per cent of the bank's total advances. As on December 31, 2011, Union Bank's total advances stood at close to Rs 1.5 lakh crore.

“With over 3,200 branches and 3,800 ATMs across the country, Union Bank has a strong delivery channel. We need to put this network of 7,000 odd delivery channels to optimum use in order to improve our retail portfolio,” Mr Sarkar told Business Line.

The bank, which opened about 130 branches last year, plans to set up 250 more branches this year.

NPA MANAGEMENT

As on December 31, 2011, the gross non-performing assets (NPA) of the bank stood at 3.33 per cent while the net NPAs were at 1.88 per cent.

“NPA management is a big agenda for us this year. We will focus on arresting slippages and initiate aggressive recovery measures, wherever possible,” he said.

Slippages have been higher in small loans such as agriculture and micro and small enterprises segment. The bank would take stock of these NPAs in a zone wise manner, he added.

NET INTEREST MARGIN

The bank's NIM improved sequentially to 3.31 per cent in the third quarter of financial year 2011-12, up from 3.21 per cent in the second quarter.

Margins are likely to remain at similar levels in the March quarter as well, he said.

The bank's asset-liability committee is slated to meet next week to take stock of its business mix.

FEE INCOME

The bank would focus on loan syndication and distribution of third party products to increase its fee-based income. Union Bank's fee based income grew by 20 per cent to Rs 592 crore as on December 31, 2011.

“Sale of gold coins has been a very good fee garner for us. This apart, we will also focus on loan syndication and third party products distribution,” he said.

CAPITAL

Union Bank recently received capital worth Rs 650 crore through the issue of shares on a preferential basis to Life Insurance Corporation of India. As on December 31, 2011, the bank's capital adequacy ratio stood at 11.72 per cent.

“We are comfortable on the capital front and are not looking at infusing funds immediately,” he said.

CUSTOMER SERVICE

Providing good customer service is the key to acquiring new customers, Mr Sarkar said.

“We are trying to groom our employees to enable them to focus on providing customer service as this is important to acquire new customers and retain older ones,” he pointed out.

Union Bank has recruited close to 2,500 employees at various levels to meet the shortage in manpower due to retirements. A majority of those recruited were young people and needed adequate grooming, he said.

LIQUIDITY, INTEREST RATES

The tightness in liquidity could lead to a rate cut. The Reserve Bank of India could cut cash reserve ratio rates by 25-50 basis points in its monetary policy this month.

“We will take a call on interest rates once the RBI announces its stance in the monetary policy,” he said. The bank had recently lowered its base rate by 10 basis points to 10.65 per cent.

SBI aims 19-20% credit growth in FY13

PTI, Apr 5 2012. 7:00 PM IST, Mumbai:

Country’s largest lender State Bank of India (SBI) on Thursday said it is aiming to post a credit growth of 19-20% in the current financial year. “The target (for credit growth) is 19-20% (this fiscal), which was 18-20% (last fiscal),” SBI chairman, Pratip Chaudhuri said.

During the last fiscal, the public sector lender had reduced its credit growth target to 16-19% from an estimated projections of 19-22% at the beginning of the year. Lowering of growth targets was mainly due to lack of demand from corporates owing to economic slowdown in general.

Meantime, the loans by banks increased by over 17% to Rs. 47.6 lakh crore as on 23 March, against Rs. 40.6 lakh crore reported in the same period last year.

Referring to concern regarding bad asset, Chaudhuri said things are improving in the NPA (non-performing asset) front. “Initial response has been encouraging. The NPA situation seems under control. We seem to be winning the war against NPA,” he said.

The gross non-performing asset (NPA) ratio stood at 4.61% during third quarter (Q3) as against 4.19% in the previous quarter (Q2). Similarly, the net NPA ratio grew to 2.22% during Q3 against 2.04% reported in the previous quarter.

Net profit of the bank increased over 15% to Rs. 3,263 crore in the quarter ended December. Net Interest Income (NII) of the public sector lender rose by 27% to Rs. 11,466 crore during this period.

Attention . Attention, Attention please.......

SBI SCHEME FOR ONE TIME SETTLEMENT OF NPA's OF MSME SECTOR.

( SBI OTS-MSME , 2012)

Save the rod ... and create a Frankenstein

Like all morals and most hazards, moral hazard is man-made. Only man can reduce it.
Dipankar Choudhury - LiveMint

A close friend, who works for an asset reconstruction company, recently told me after a few drinks: “I suggest that you do a project report and take a Rs.100-200 crore loan. The bank, RBI, government –will all treat you like a king if you default. Don’t borrow just 5 or 10 crore, then you will be in trouble.”

He went on: “If my son wants me to find a match for him, I will look for the daughter of a defaulter. Then his life will be made”. Yes, some entrepreneurs regularly dream of graduating from facing a problem to becoming a problem for the system.

Nearly 20 years ago, Michael Fay, an American student in Singapore, was sentenced to six cane lashes for vandalism, which due to hectic American lobbying was reduced to four and he was let off with that. His partners in crime got more severe punishment. Four years later, Fay was held in the US for possessing drugs.

Wikipedia defines moral hazard as a tendency to take undue risks because the costs are not borne by the party taking the risk. The bothersome part is that it is rife even in developed and developing countries which hold the rule of law in high esteem. Just the perspective differs: in the West, public discourse sees moral hazard largely as excessive risk-taking by overpaid bankers, in India it is repeated defaults encouraged by mollycoddling lenders.

Where genuine accommodation ends and mollycoddling begins is extremely tough to ascertain ex-ante. There have been cases of remarkable borrower resuscitation after one lifeline, and even two. And then there are the perpetual delusions. Most banks do not have this data, or choose not to compile it.

But one thumb rule will always work. Indulgence by a lender makes sense only if the underlying fundamentals of the borrower’s business are sound and he happens to be facing a cyclical problem (this of course is a judgment call but not too difficult to make, e.g. it takes some imagination to contend that airlines are facing a temporary problem and their fundamentals are sound). Else it is mala fide and a potential source of moral hazard.

It is a difficult and unpleasant subject as a result of which not much literature is available. However, in a noteworthy paper titled “Financial Intermediation in India: A Case of Aggravated Moral Hazard?” dated July 2002, Saugata Bhattacharya and Urjit Patel made an attempt to look at this issue very early in the lending growth cycle in India. Many points presented there are still relevant.

The authors identify three reasons for the malaise: large and increasing government role in the financial sector, high regulatory forbearance and absence of efficient bankruptcy procedures. They premise that the resultant moral hazard inhibits effective co-financing and capital formation in the economy.

On the first point, it is important to note that the authors identify government participation in the financial sector and not just government ownership that leads to increasing moral hazard. It includes provision of government guarantees to projects, priority sector lending, mandating write-offs of loans, and so on. In good times, there is little incentive for the government to change the status quo, and in bad times, it feels the need to increase its involvement, at which point prudence takes a back seat.

Regulatory forbearance ensures lenders, especially banks, do not close down. At least for banks there is this argument, though shallow, that faith in them should not erode. Why wholesale lenders like IFCI have to remain in perpetual life support is less understandable. If a lender will most likely never be allowed to fail, depositors will not care to monitor lender performance, managers will be less vigilant and the borrower incentivized to take advantage of the system.

Developments on the bankruptcy procedures front have however been encouraging. The SARFAESI Act (which is India’s foreclosure law) has been quite effective but there is still a long way to go.

Ironically, bankers suggest that it has been used largely as a stick to beat the borrowers with and bring them to the negotiating table, and not for seizing and selling off security, the ostensible purpose for which the law was enacted. Thus the effectiveness is at best sub-optimal. Judicial and quasi-judicial proceedings for debt recovery are still tortuous.

To conclude, I particularly like one sentence which the authors use: “This process of increasingly aggravated moral hazard driving…riskiness of the asset portfolios…is analogous to riding a bicycle without brakes – once on it, if you stop pedaling, you will fall off.” Very similar to what Ramalinga Raju remarked along with his confession of having cooked the books of Satyam for years. Let’s not carry on the comparison further; it looks scary.

RBI asks banks to improve NPA management

PTI Mar 29, 2012, 01.54PM IST

MUMBAI: The Reserve Bank today asked banks to improve their ability to manage stressed assets, but said there was nothing alarming about an unexpected rise in the NPA levels this fiscal.

"Concerns (on NPA) are there. Banks have to improve their ability to manage NPAs. We have told banks what is their lacuna. They have to improve their information system. But we see that the situation is not alarming. Though this is our concern. Hope banks will be able to manage them," deputy governor KC Chakrabarty told reporters on the sidelines of a function organised by Yes Bank here.

It can be noted that following the continued slowdown in economic activities on the back of rising interest rate regime, banks, especially the state-run ones, have been reporting higher NPAs in their books since the second quarter.

The country's largest lender SBI had reported record gross NPAs in Q3 at Rs 40,080 crore and saw an 87.5 per cent spike in its provisioning. But private lenders are better off.

The total NPAs in the system are set to top 3 per cent of the total assets this fiscal, against a 2.3 per cent last fiscal at Rs 98,000 crore.

But what's worrying the regulator is the an over 300 per cent spike in corporate debt recast this fiscal, which has already touched Rs 76,251, against Rs 25054 crore in the previous fiscal. This makes the overall CDR asset in the system to over Rs 1.9 trillion.

ICRA assigns `AA+` rating on IDBI Bank

Source: IRIS (29-MAR-12)

Credit rating agency, ICRA has assigned AA+ rating with a stable outlook to the Rs. 3500 billions (enhanced from Rs 25 billions) Senior & Lower Tier II Bondsprogramme of IDBI Bank (IDBI). ICRA has withdrawn AA rating with a stable outlook from the unutilized Rs 10 billion Upper Tier II Bonds.

IDBI Bank also has AA+ rating with stable outlook, AA rating with stable outlookand MAA+ on the other outstanding Long Term and Lower Tier II Bonds, Upper Tier II and Perpetual Bonds, and Fixed Deposits, respectively.

IDBI`s ratings factor in the implicit sovereign support enjoyed by the bank in its role as one of the larger commercial banks in the country and the demonstrated support from Government of India (GoI).

The ratings also take into account the highly competitive operating cost structure, comfortable regulatory capitalization post the impending equity infusion in March 2012 which will boost the core capital and the bank`s improving presence in the retail segment and non-urban centres.

The ratings are constrained by the moderate (though improving) low core profitability1 from operations consequent to low interest margins which though improving is likely to remain weaker to peers over the medium term.

The rating also takes into account the relatively high ALM (Asset Liability Mismatch) gap in the short term buckets while acknowledging the current excess SLR investments and the steps taken by the bank to reduce the same.

ICRA`s has taken note of the relatively large amount of restructuring done by the bank and the deterioration in the asset quality indicators of the bank which are expected to remain in pressure in the short to medium term.

ICRA has also taken note of the merger of wholly owned subsidiaries IDBI (Q,N,C,F)* Home Finance and IDBI Gilts.

With the bank in Q4FY11 and the likely synergies from the merger. The ability of the bank to manage its exposure to power and airlines sector which is currently seeing some headwinds and its relatively higher proportion of restructured assets is the key rating sensitivity.

Recent Results:

For the nine months ended Dec 31, 2011, IDBI reported a net profit of Rs 12.61 billion on a total income of Rs 186.32 billion as against Rs. 1134 billion and Rs 149.84 billion respectively for 9MFY11. The improvement in the profit was driven by the improvement in the net interest income and the core fee based income along with reduction in credit costs for the bank. However, the bank witnessed muted business growth and increase in provisions towards large NPAs and restructured assets in Q3FY12. Net profitability of the bank dipped by 21% QoQ to Rs 4.1 billions in Q3FY12. Capital Adequacy Ratio of the bank stood at 13.53% (Tier I of 7.54%) while its Gross NPA stood at 2.94% and Net NPA stood at 1.96% as on Dec-11. Fresh slippages of the bank increased to Rs 12.34 billion in Q3FY12 (Rs 9.25 billion in Q2FY12), the bulk of which was from a single aviation account. Total restructured assets of the bank also remained high at 6.10% of total advances as on December 2012.

Shares of the company declined Rs 4.05, or 3.87%, to settle at Rs 100.55. The total volume of shares traded was 1,207,276 at the BSE (Thursday).