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New Delhi, Mar 26 () The Reserve Bank of India on Friday asked all lending institutions to allow three-month moratorium on EMI payments in order to infuse liquidity into the system as the economy grapples with COVID-19 challenges.It has also allowed banks for deferment of interest on working capital loans for the next three months - until June 2020.RBI Governor Shaktikanta Das in a press conference said these are extraordinary circumstances, and unprecedented measures are required to support the sagging economy as all the economic activities have come to a halt.The liquidity measures announced by the RBI will make available a total Rs 3,74,000 crore to the country's financial system.Das said that the deferment on loan and interest repayments will not be classified as defaults and will not impact credit history of borrowers. KPM BALBALBAL

RBI asks lending firms to allow 3-month moratorium on EMI payments

New Delhi, Apr 1 () Three-month moratorium on EMI payments offered by banks is unlikely to bring much relief to borrowers hit by COVID-19 lockdowns as they will have to bear the extra cost of interest charged by lenders and a longer repayment period, according to experts. Experts feel that the three-month moratorium on repayment on loans to help people fight the impact of coronavirus seems to be benefiting banks rather than borrowers as they will have to pay accumulated interest through increased number of EMIs. It is an expensive proposition for any borrower to opt for three-month suspension as announced by the RBI under the relief measures to mitigate the hardship of those hit by the outbreak of COVID-19 pandemic. Last Friday, the RBI had announced that all term loans, including retail and crop loans and working capital payments, will be covered by the three-month moratorium. Banks will now have discretion in deciding the limits on working capital, with the RBI saying that no payment miss should be considered a default and reported to credit information companies. It seems like a double whammy for borrowers as on one side income has been hit due to COVID-19 pandemic and on the other hand, there is a threat of increased tenure if they opt for RBI relief measure. SBI managing director C S Setty said it has two components- people who have term loans and the business units that have working capital loans. "In the case of term loans, the RBI has clarified that the instalments, which includes principal as well as interest, where the instalments are falling due between March 1 and May 31, will be deferred for three months. "So, in a term loan where the instalments are deferred and interest is also deferred means it is to be back ended. No point in again loading the term loan interest right away after three months, which customers would find it difficult," he said. So, what SBI is doing is that these three monthly installments that are falling in this period, will be back ended at the end of the repayment period, he said, adding, any deferment of interest over such long period, if it is there, will entail additional costs because it is not interest waiver, it is interest deferment. The accrued interest will be collected by the lender in the form of additional EMIs from those borrowers who opt for three months moratorium. "We have been telling our customers through social media that if you have the ability and cash flow to pay, it makes sense to pay this amount to avoid the cost. But, the important thing is if you want additional cash flow, you avail this facility, and it costs you," he added. In case of working capital, he said, three months interest will not be applied to the account but it will be applied immediately after the three months. In a note to customers, SBI said, "Interest shall continue to accrue on the outstanding portion of the term loan during the moratorium period". Explaining the financial burden with the help of an example, SBI said for a home loan of Rs 30 lakh with a remaining maturity of 15 years, the net additional interest would be approx Rs 2.34 lakh equal to eight EMIs for those borrowers who opt for the moratorium. "For an auto loan of Rs 6 lakh with a remaining maturity of 54 months the additional interest payable would be Rs 19,000 approx equal to additional 1.5 EMIs". Releasing frequently asked questions (FAQ) Indian Banks'' Association (IBA) said that borrowers whose incomes have not been impacted should pay their EMIs in time. "You may take the benefits under this (RBI) package if there is a disruption in your cash flows or there is loss of income. However, you must take into account that the interest on the loans, though not mandatorily payable immediately and gets postponed by 3 months, continues to accrue on your account and results in higher cost," IBA, an association of banks, said. To give you a perspective, it said, "suppose your loan outstanding is Rs 1,00,000 and you are charged 12 per cent rate of interest on your loan, then every month you are liable to pay Rs 1,000 as interest. In case you opt not to service the interest every month, you are liable to pay interest at 12 per cent per annum, and accordingly you will pay Rs 3,030.10 at the end of 3rd month". Similarly, in case the interest rate is 10 per cent, you are required to pay Rs 833 per month, or Rs 2,521 after three months, it added. Concerning credit card dues, IBA said, there is a requirement to pay a minimum amount and if it is not paid the same gets reported to Credit Bureaus but in view of the RBI circular, the overdue in the credit card account do not get reported to the credit bureaus for a period of three months. "However, interest will be charged by the credit card issuer on unpaid amount. You should check from your card provider to arrive at interest payable. Although no penal interest will be charged during this period, you must remember that the interest rate on credit card dues are normally much higher compared to normal bank credit and you should take a decision accordingly," it said. PNB Housing Finance said that there will be an increase in balance tenure by three months and a possible rise in EMIs for those customers opting for the moratorium. DP HV CS ANZ MRMR

EMI moratorium: Borrowers unlikely to get significant gains; banks to charge interest later

New Delhi, Mar 31 () Banks have started sensitising their branches about three months' moratorium on all term loans, including home, auto and crop loans, to help customers in overcoming financial difficulties due to the coronavirus outbreak and subsequent nation-wide lockdown.Several banks on Tuesday said they have informed and provided their branches with the detailed guidelines on various schemes announced by the RBI recently and customers are being sent messages individually on their registered mobile number about the EMI payment.Union Bank of India Managing Director Rajkiran Rai G told that branches have been informed about with respect to moratorium on all term loans."In case of those who have opted for ECS route for EMI deduction, customers are given the option of availing the facility by informing the branch concerned through mail or other digital medium," he said.Banks on its own unilaterally cannot stop ECS payment due to legal issue but the customer has the option of requesting bank to stop it, Rai said.He further said the customers whose income has not been impacted are encouraged to continue payment as per the scheduled."As per COVID 19 regulatory package of RBI, Indian Bank allows a moratorium by deferring payment of EMI/ Term Loan Instalments &amp; Interest/ Interest on Working Capital for 3 months w.e.f 1st March 2020," a tweet issued by the banks said.Another public sector lender PNB said it presents relief scheme for its customers. "In view of COVID-19, it has been decided to defer payment of all installments on term loan and recovery of interest on cash credit facilities falling due between March 01,2020 and May 31 2020."Canara Bank tweeted, "In terms of Covid 19 - RBI package, borrowers are eligible for moratorium/ deferment of installments/EMI for Term loans falling due from 01.03.2020 to 31.05.2020 &amp; repayment period gets extended accordingly. SMS also has been sent to customers to avail the same." With banks clarifying their positions on EMI moratorium, it will help clear doubts of customers who were confused after getting payment reminders from lenders.Last Friday, the RBI had announced that all term loans, including retail and crop loans and working capital payments, will be covered by the three-month moratorium. Banks will now have discretion in deciding the limits on working capital, with RBI saying that no payment miss should be considered a default and reported to credit information companies."The repayment schedule for such loans as also the residual tenor, will be shifted across the board by three months after the moratorium period. Interest shall continue to accrue on the outstanding portion of the term loans during the moratorium period," the RBI said.Deferred instalments under the moratorium will include principal and/or interest components, bullet repayments, EMIs, credit card dues, it said."Lending institutions shall frame board-approved policies for providing the above mentioned reliefs to all eligible borrowers. Wherever the exposure of a lending institution to a borrower is Rs 5 crore or above as on March 1, 2020, the bank shall develop an MIS on the reliefs provided to its borrowers which shall inter alia include borrower-wise and credit-facility wise information regarding the nature and amount of relief granted," it said.Following the announcement, the banks just had one working day to finalise the details and issue instructions to branches, a senior official of another public sector bank said.As soon as finer points on implementation of moratorium came from the Reserve Bank, the official said, board approval was sought as per the direction of the central bank and necessary instructions have been issued to staff regarding their implementation.Yesterday, the Agriculture Ministry said that farmers will continue to get short-term loan of up to Rs 3 lakh at a subsidised interest rate of 7 per cent, and prompt repayers will get it at four per cent as the government extended the subsidy to banks till May 31.The decision, which are implemented through banks, comes as many farmers are not being able to go to banks for payment of their loan dues on account of restrictions imposed due to the lockdown.Besides, FAQ are expected to be issued by Indian Banks Association on the various measures announced by the Reserve Bank to the benefit of customers. DP MKJ

Covid-19: Banks sensitise branches on EMI moratorium, other RBI relief measures

Mumbai, Mar 23 () With the coronavirus outbreak bringing economic activity to a halt, non-banking financial companies (NBFCs) have sought a one-time restructuring for all existing standard accounts that can potentially default in future. The companies have also asked for relaxation in provisioning requirement for such accounts. NBFCs are at the forefront of financing many of the affected sectors such as small road transport operators, taxi aggregators, infrastructure contractors, MSMEs and traders. In order to help borrowers who are facing challenges, the Finance Industry Development Council (FIDC), a representative body of assets and loan financing NBFCs, has written a letter to the finance ministry and the Reserve Bank of India, suggesting a slew of measures. "Allow one-time restructuring of all regular accounts that are today not in default, but those that may become delinquent in the future without the extant requirement of 5 per cent provisioning in the NBFCs' books," FIDC Chairman Ramesh Iyer said in the letter. The body has also requested to extend the period for recognition of non-performing assets (NPAs) for NBFCs from the current three months to six months past due, but only in cases that are non-delinquent as on March 1, 2020. "Any provision made on loans that are already NPA should not be allowed to be written back to ensure maintenance of the sanctity of recognition of prior NPAs," Iyer said. The slowdown in commerce has resulted in low capacity utilisation of trucks, machinery and other equipment of MSMEs and contractors, FIDC said. Lock-up of commercial spaces such as malls, restaurants and restriction on the number of workers on site by several municipalities and local government is seriously affecting business cash flows, it said. The current situation is likely to result in delayed payment of equated-monthly instalment (EMIs) even by customers with a hitherto excellent and unblemished repayment history, FIDC said. This may adversely affect their credit scores for no fault of theirs, seriously impairing their ability to raise finance in the future for business, Iyer said. "A moratorium should be announced on payment of EMIs for at least a three months period by deferring at least three EMIs. This would ensure that unintended defaults do not affect credit track record and bureau scores of customers," he said. The industry body said most of its members have received requests from their customers, who are already facing a severe strain on their cash flows, for a deferral of EMIs. HV HRS

NBFCs seek one-time restructuring for standard accounts that may default in future

Mumbai, Apr 13 () Owing to the lockdown that has brought almost all economic activities to a standstill, the already sluggish real estate sector is experiencing 65 per cent payment defaults from customers for underconstruction projects, says Indian Chamber of Commerce (ICC)The Indian real estate sector, which is currently worth USD 12 billion and contributing about five per cent to the GDP, has witnessed a drastic drop in sales with no clarity on revival due to social quarantining, it said."The real estate sector, which is already in a slump since last year, is presently experiencing almost 65 per cent payment default from customers paying the installments linked to construction," ICC Director Rajneesh Shah said in a release. He said due to the lockdown, many customers have been requesting developers to allow them to delay their payments as homebuyers are also faced with liquidity challenges due to COVID-19 related issues. "We believe the payment defaults by customers will increase in the next few months," he added. Singh further said the Chamber has made certain recommendations to the government wherein it has suggested that the Delayed Payment Act prevalent in the MSME sector should be extended to the real estate industry. "This will discourage payment default by customers, thus enabling developers to charge penal interest on delayed payment beyond agreed period of time," he added.He noted that since there is uncertainty over the completion and handover of residential projects, mainly due to scarcity of labour and raw material, ICC has sought extension of six months from housing regulatory authority RERA for delivery of such projects."Given the current circumstances, we don't see the sector reviving before August. Real estate sector desperately needs a bailout package on an urgent basis," Singh added. Meanwhile, ICC has also suggested waiver of municipal taxes for at least one quarter and that organisations which are not able to clear up taxes or bills should not be penalised and given around 3-6 months' time for repayment of the same.ICC has further recommended interest free loan EMI moratorium for six months to be provided as a relief to this extensive manpower driven industry to survive this difficult time. "This will in turn prove helpful in protecting employment of the large manpower associated," he added. PSK http://ptinews.com/images/pti.jpg"We bring the World to you"Disclaimer : This e-mail message may contain proprietary, confidential or legally privileged information for the sole use of the person or entity to whom this message was originally addressed. Please delete this e-mail, if it is not meant for you. ANUANU

Shaky real estate sector staring at 65 pc payment default from customers amid lockdown

Loans are an indispensable part of our lives. As we climb up the ladder, we realize that we are involuntarily tied-up with our banks in form of loans and EMIs. Be it our dream house or the latest car, loans seems to be the easiest way of funding our aspirations. However, it comes as a rude shock if our loan application is rejected by our bank that we have been so loyal to. But ever realized why does this happen? 
	 “Many people simply apply for loan without giving a second thought to how the lender might actually perceive their loan application. The <keyword id="2405124" type="UNKNOWN" weightage="20" keywordseo="Cibil-Report">CIBIL Report</keyword> has been widely used by loan providers to evaluate loan applications for over a decade now. However, only recently have people begun to realize, how crucial it is to be aware of and maintain their credit history,” says Harshala Chandorkar, senior vice president of consumer services and communication, CIBIL. 
	 
	She further adds that an applicant, before applying for a loan, must evaluate his capacity to repay the loan. “How many other loan payments do you have, and what impact do these payments have on your monthly income? Is your income sufficient to cover your contractual obligations, as well as those other day-to-day expenses?” notes Chandorkar. 
	 
	Chandorkar also advises that along with one’s own affordability, an applicant must also look at different banks for a better understanding of the different terms and conditions of the loans. “Check for the terms they are being offered and what suits you the best. While the interest rate is important, it may not vary too much between the banks but the customer service, Internet banking facilities and more may vary extensively. These are the things you have to live with for rest of the tenure of your loan. 
	 
	Similarly, an applicant before applying for a loan should also have a clear understanding of the interest rate being offered on the loan. “For instance what is the base rate and what is the mark up on same to arrive at the lending rate. Have a clear understanding on the interest rate calculation. It will affect your EMIs directly. Also, understand the loan tenure. We tend to go for the longest tenure as the EMIs look more affordable. While this is true, it also means that you end up paying more interest,” she says. 
	 It is important to remember that a bank always looks for both CIBIL report as well as <keyword id="728709" type="ORGANIZATION" weightage="20" keywordseo="CIBIL-TransUnion-Score">CIBIL TransUnion Score</keyword> before clearing a loan application. Harshala Chandorkar tells us some common mistakes that you must avoid lest it hampers your credit score: 
	 
	Late payments or <keyword id="6642053" type="UNKNOWN" weightage="20" keywordseo="Defaults">defaults</keyword> in the recent past 
	 
	The individual’s payment history has a significant impact on the CIBIL Transunion Score. Hence, if the individual has missed payments on any of his or her existing loans, over the last couple of years, the score is likely to be negatively affected because it indicates that the individual is having trouble servicing his or her existing obligations. 
	 
	High utilization of credit limits 
	 
	While the balances on the individual’s loans will only reduce over time as payments are made, he or she must be diligent about making timely payments on credit cards. While increased spending on the individual’s credit cards may not necessarily negatively affect his or her Score, an increase in the current balance on the card over time is an indication of an increased repayment burden and may negatively impact the Score. 
	 
	Higher percentage of credit cards or personal loans 
	 
	While a higher concentration of home loans or auto loans (commonly known as Secured Loans) are likely to be more favorable for the CIBIL Transunion Score, a large number of unsecured loans can do the reverse. Although unsecured loans offer easy access to finance, it's also by far the most expensive forms of credit. More the number of unsecured loans with high utilization, larger are the payments resulting from its high rate of interest. 
	 
	Being credit hungry 
	 
	If the individual has made many applications for loans, or have recently been sanctioned new credit facilities, a Credit Institution is likely to view the individual’s application with caution. This "Credit Hungry" behaviour indicates that debt burden is likely to, or has increased and the individual is less capable of honoring any additional debt, which is likely to negatively impact his CIBIL TransUnion Score.

Common Mistakes That Can Mess Up With Our CIBIL
Report

Going overseas for higher education is quite a common trend now. But as common as it is, going abroad for further studies is equally expensive and can literally burn a hole in your pockets. While most banks are willing to offer education loans for higher studies, but is it enough for us to just sign the documents without any planning? 
	 
	BI India lists down a few tips for a better financial planning before you go overseas for your higher education. 
	 
	Scout for the best loan option 
	 
	It is a tedious job but it is extremely important for anyone to go through and compare the various loan options available to you. And once, you zero in on the offer that you feel suits you, you can negotiate the terms and conditions. 
	 
	Read the document carefully 
	 Understand your loan’s terms and conditions and then sign the papers. There are times when your <keyword id="6388045" type="COMPANY" weightage="20" keywordseo="emis">EMIs</keyword> have to be paid immediately after you complete your higher education, unlike in most loans where the EMIs start only after six months or more of course completion. 
	 
	Remember fluctuating rupee 
	 
	It is important to remember that fluctuation in rupee value will impact your loan. One must remember that the loan will be rupee denominated and hence on conversion into your desired foreign currency, the amount will be lower. 
	 
	“A student has to be prepared to bear this foreign exchange risk. For example, a student applies for an education loan of Rs 20 lakh. However, if the rupee weakens further due to exchange rate fluctuations, there would be an increase in the cost of education from the rupee perspective,” said Harshala Chandorkar, senior vice president, Consumer Services at <keyword id="6380215" type="ORGANIZATION" weightage="20" keywordseo="CIBIL">CIBIL</keyword>. 
	 
	Plan your course of action 
	 In most cases, parents often sign up as a guarantor for the loan availed by you. So, its better to plan your course of action beforehand because if you delay the EMIs or default on them, it will adversely impact their <keyword id="2405124" type="UNKNOWN" weightage="20" keywordseo="Cibil-Report">CIBIL report</keyword> as well. 
	 
	“Rupee depreciation also adds to the woes of many parents who fund their children’s education from their savings as they have to shell out more money. As a guarantor on your education loan your father / mother is liable for its repayment in case you fail to pay the EMIs. His / her credit report will show the details of this education loan and defaults will also show if you do not repay the EMIs on the loan. Thus, your repayment behavior will also impact your parents’ credit score,” she added. 
	 
	Spend carefully 
	 
	While you are overseas, pursuing your higher studies, it is important to do budgeting and know how much can you spend. Becoming a spend thrift can put additional burden on your financials, thus forcing you to delay or default on your loan repayments, negatively affecting your CIBIL report. In case, you cannot avoid certain expenses, consider taking up a job to meet your additional expenses. 
	 
	“If you have taken a loan to study abroad, timely repayment should be the top most priority. Like any other loans and credit cards, education loans are also reported to the CIBIL and get reflected in the borrower’s CIBIL Report. Transactions related to repayment of your education loan will also get reflected in your CIBIL Report and impact your CIBIL Transunion Score. Irregular or non-repayment of EMIs on your education loan will lead to an unhealthy CIBIL Report which can hamper your chances of availing any other loan or credit card in the future,” said Chandorkar. 
	 
	Negotiate 
	 
	This should be your last resort if you find repaying the loan difficult. Try negotiating with your banks for increasing your loan term or lowering your EMIs. “With the impact of rupee fall, one can also ask for further loan from banks. Recently banks have also introduced top-up scheme for education loans where they fill the gap created by the exchange rate fluctuation. This will certainly increase the payback amount but it will help students continue with their studies,” she noted. 
	 
	Image Credit: www.shandelyaoverseas.com

Planning to study abroad but no financial planning? We are happy
to help you!

Are you feeling dejected because your <keyword id="6354730" type="UNKNOWN" weightage="20" keywordseo="Home-loan">home loan</keyword> has been rejected? Well, in that case, fretting is not going to help you. When a <keyword id="1867271" type="UNKNOWN" weightage="20" keywordseo="home-loan-application">home loan application</keyword> says “no”, read it as “try again”. Let there be no place for dejection because your dream home is only an approval away. And how can that be obtained after being rejected? Read on to find out how can you obtain your dream home after your <keyword id="3018457" type="UNKNOWN" weightage="20" keywordseo="loan-lender">loan lender</keyword> says no. 
	 
	1) Dive deep into the details

	The letter issued by the lender conveying loan denial would most probably be a generic one. After reading that letter, don’t let the cloud of disappointment blur your thinking. Instead, try to understand the reason of rejection. If the letter does not specify the same, speak to the concerned officials to understand the exact reason for not granting the loan. This will help you when you reapply for loan. 
	 
	2) Reduce the <keyword id="857141" type="UNKNOWN" weightage="20" keywordseo="loan-amount">loan amount</keyword> After assessment, if the lender has found that the monthly income is not sufficient to support the loan amount, then the application may get rejected. In such cases, rework on the amount to be borrowed. By reducing the loan amount, the <keyword id="3018456" type="UNKNOWN" weightage="20" keywordseo="debt-servicing-ratio">debt servicing ratio</keyword> can be easily corrected and that will make the lender confident about your repayment ability. 

	3) Pay off existing debts

	If you have already availed multiple loans, the chances of your existing monthly payment obligations getting in the way of the home loan approval are high. This basically leads to a high debt income ratio. Which means that, the debt obligations and repayment commitments at that time are more in comparison to the income. Any more debt obligations will put the lender at risk. Paying off a couple of existing debts is the best alternative to rectify this situation. 
 

	4) Work on your <keyword id="2054234" type="UNKNOWN" weightage="20" keywordseo="CIBIL-Score">CIBIL score</keyword> 
	Lenders rely on the CIBIL score and CIBIL report to understand your credit history and credit behavior. Delay in repayments and defaults have a negative impact on the CIBIL score. A poor score is reason enough for rejection. In that case, obtain a copy of your CIBIL report, seek expert advice and work towards improving the CIBIL score. Ensure timely repayment of existing debts and close open issues, if any. It may take a while for the revised scores to reflect. So begin damage control now and approach the lender again with a favorable score.
 

	5) Valuation of security 
	The valuation amount may not be sufficient security for the loan amount in question, and that may lead to rejection. However, you must understand that valuation amount sometimes differs from one lender to another, depending on lender policies and the third party evaluating it. In case, you are certain that the security provided is being undervalued consider checking with another lender. That way either you shall have the loan approved from the other lender or you would know that additional security needs to be arranged.
 

	6) Adjust and make it work The main factors at play when it comes to home loan numbers are the loan amount, the rate of interest and the tenure. <keyword id="6357050" type="COMPANY" weightage="20" keywordseo="EMI">EMI</keyword>’s are calculated on the basis these factors. Now for the EMI to workout according to your income, either the tenure can be increased or the loan amount can be decreased. Keep your mind open to alternatives. Look out for a new property which can be more affordable and also check with other lenders for better home loans rates. 

	The key lies in understanding the lenders requirements and working towards plugging the gaps, if any, at your end. With a bit of patience, determination and financial discipline, be assured that getting your home loan sanctioned will be a smooth process. 
	(Image: Thinkstock)

(About the author: Rajiv Raj is the Director and Co-Founder of <a href="http://www.creditvidya.com/">www.creditvidya.com</a>.)

What to do when your home loan gets rejected!

Talking about money is always a tricky affair. So what do you do when someone asks you to be their guarantor for a loan, they want to take. While you may trust the person’s financial credibility, it’s always best to remember a few things before you choose to help them by becoming their guarantor. 
	 “This is because while sanctioning a high value loan, banks often insist on having a family member guarantee the loan for security reasons. While it is okay to guarantee a loan, it is important to understand the implications of the responsibility which you are accepting as a guarantor on this loan,” said Harshala Chandorkar, Senior Vice President – Consumer Services and Communication, <keyword id="6380215" type="ORGANIZATION" weightage="20" keywordseo="CIBIL">CIBIL</keyword>. 
	 
	BI India lists down a few points to remember when you become the guarantor for someone else’s loan” 
	 
	You pay off loan in case of default or untimely death 
	 A guarantor automatically becomes liable to pay <keyword id="6388045" type="COMPANY" weightage="20" keywordseo="emis">EMIs</keyword> in case the principal borrower defaults on payments. “While signing the loan papers as the guarantor, you are pledging as a guarantor on the loan, you are also legally responsible towards the timely repayment of the loan. A guarantor pledges to repay a loan on behalf of a third party who has taken the loan,” said Chandorkar. It’s a similar situation in the case of untimely death of the primary borrower. The onus of repaying loan is on the guarantor. 
	 
	Your CIBIL report is impacted 
	 
	If you sign up as a guarantor for someone, the loan gets reflected in your CIBIL report. According to Chandorkar, the information on the appears in the “Accounts” section of the guarantor’s CIBIL report. “The ownership status of this loan account will be reflected as ‘Guarantor’. The guarantor’s CIBIL report will also show the month-on-month payment behavior of the principal borrower towards this loan. Any delinquencies and defaults will also get captured and reflected in the Guarantor’s CIBIL report,” she noted. 
	 
	Your <keyword id="728709" type="ORGANIZATION" weightage="20" keywordseo="CIBIL-TransUnion-Score">CIBIL TransUnion Score</keyword> gets impacted 
	 
	“In case of defaults and delinquencies by the principal borrower, the CIBIL TransUnion Score of the guarantor will also get negatively impacted. Hence, it’s imperative that the guarantor on the loan should ensure that the borrower pays the EMIs regularly on the due date, month on month,” pointed out Chandorkar.

Are you becoming a guarantor for someone else? Here are a few points to
remember before you sign up as one

Getting a loan is a task. And nothing could be worse if the loan is rejected because of a poor credit score. BI India talks to Harshala Chandorkar, senior vice president of Consumer Services &amp; Communication at <keyword id="6380215" type="ORGANIZATION" weightage="20" keywordseo="CIBIL">CIBIL</keyword> and lists down common mistakes that can hamper your financial future seriously. 
	 “This 3 digit number, is your <keyword id="728709" type="ORGANIZATION" weightage="20" keywordseo="CIBIL-TransUnion-Score">CIBIL TransUnion Score</keyword> which ranges from 300 to 900. This score is calculated based on your credit history as reflected in your CIBIL Report. Today an individual’s CIBIL TransUnion Score is one of the important factors that banks and credit institutions review before granting a loan or a <keyword id="6368202" type="ORGANIZATION" weightage="20" keywordseo="Credit-card">credit card</keyword>. An individual's CIBIL TransUnion Score provides a Credit Institution with an indication on the likelihood of the individual paying his loan or credit card dues on time. Higher the score more favorably the loan application will be viewed by a Credit Institution. Most banks and credit institutions today lend to individuals who have a credit score of 750 and above,” said Chandorkar. 
	 
	Missing out on paying <keyword id="6388045" type="COMPANY" weightage="20" keywordseo="emis">EMIs</keyword> on loans 
	 
	Have you missed out on paying your monthly EMIs on any of your loan. This is quite a common trend often observed amongst young consumers, who often take loans and delay the EMI payment. 
	 
	“Default on the monthly payment will occur if sufficient fund is unavailable in your linked account. Defaulting on loan EMIs is detrimental to your CIBIL TransUnion Score. So ensure you pay your loan EMIs month on month and have adequate funds in your bank account for the loan EMI debit,” said Chandorkar. 
	 
	Defaulting credit card bills 
	 
	“Delay or default on credit card bill payment: Forgetting to pay your credit card bill on the due date or not paying your credit card bill at all can hamper your credit score drastically. Ensure you set up payment alerts on your credit card bill and make the payments before or by the due date,” she explained. 
	 
	Settlement on a loan or credit card 
	You may think it is a wise idea to settle your outstanding credit card bill or loan but believe it or not, it is often considered to be bad credit behavior by the banks. 
	“If the customer has partly paid the dues and settled a loan or a credit card then the status will reflect as "Settled" in the credit report. It is important to understand that though there will be no impact of the “settlement” flag on the customers CIBIL TransUnion Score, his credit history will show a “Settled” status in his CIBIL Report and there will be Days-Past-Due reflecting on the report since the payment on the loan has not been timely. Each bank has its own policy of viewing at a “Settled” status and will decide on the consumers future loan applications accordingly. Therefore it’s best to not ever get into a loan settlement,” pointed out Chandorkar. 
	 
	Exceeding or reaching the limit of your credit card 
	 
	“Spending more than the assigned limit on your credit card or spending close to the limit on the credit card may affect your credit score to some extent. Therefore ensure that you spend well within the limit on your credit card,” she noted.

Straigten up! You have a bad credit behavior if you are doing any
of these!

Managing liquidity is an important aspect of personal <keyword id="25455" type="ORGANIZATION" weightage="100" keywordseo="finance">finance</keyword> planning. Even individuals with good investment portfolios find it difficult to manage liquidity. A sudden requirement of cash can push one into a situation where he/she may have to sell assets, sometimes at a discount to fair value. However, if smartly used, the traditional bank fixed deposits can come to your rescue. Banks offer personal loans against bank fixed deposits and you can raise short-term money without breaking your fixed deposits. 
 Another advantage that the borrower enjoys is the low <keyword id="37018" type="UNKNOWN" weightage="100" keywordseo="interest-rate">interest rate</keyword>, compared to other <keyword id="180660" type="UNKNOWN" weightage="100" keywordseo="personal-loan">personal loan</keyword>s. Most banks offer personal loans at an interest rate ranging between 16% and 24%. But a personal loan taken against a <keyword id="74427" type="UNKNOWN" weightage="100" keywordseo="fixed-deposit">fixed deposit</keyword> ensures that you pay just 1% more than the rate of interest payable by the bank on the fixed deposit. 
 
For example, if a bank pays 9% interest on a three-year fixed deposit, the rate of interest payable on the personal loan raised against it will be 10%. This saves a lot of money that you would have paid as interest, had it been a traditional personal loan, backed by no security. 
 
Personal loan against a bank fixed deposit is easy to obtain and the process generally takes less than one day. An individual has to submit the application form duly filled, along with fixed deposit receipts and other documents, such as pledge/lien letter and overdraft agreement as notified by the bank. There is no prepayment penalty charged by the bank on the repayment of personal loans against fixed deposit. Banks do charge a small processing fee while providing this loan. But if you have a long-standing relationship with the bank, it may choose to waive half the fee. 
 
Banks generally offer 90% of the value of the fixed deposit. For instance, if you have made a fixed deposit with a bank just one month ago, the bank will be offering you a personal loan to the extent of 90% of the amount you have invested. If the fixed deposit has already run for two years, the bank will be comfortable to lend you a bit more money than the amount you invested as some interest has been accrued on it over the past two years. Simply put, the amount of loan offered against a fixed deposit will be closer to 90% of the value of the fixed deposit. If the borrower fails to service the loan, the bank has the right to foreclose the fixed deposit to recover the money it has lent. This also means that the tenure of the personal loan given against the bank’s fixed deposit cannot exceed the residual tenure of the fixed deposit. 
 
Banks also offer overdraft facility against such fixed deposits. This enables borrowers to have access to liquidity. A borrower can use funds for a short period of time and repay the money much before the due date. In this way, he pays interest only for the time he has availed the cash from the bank. 
 
For example, an individual has a fixed deposit of Rs 1 lakh. The bank’s approved credit limit is Rs 90,000 against the FD and the tenure is 15 months. If the person draws Rs 50,000 on the 1st of the month and then repays the money on 17th of the same month, he is supposed to pay the interest on Rs 50,000 availed for 17 days. 
 However, when you take a loan against a fixed deposit, it should be free from lien or encumbrance, and the deposit should not be in a minor’s name. If this deposit is made under joint names, say a husband and a wife, all holders of the deposit have to execute the loan documents. The liability to repay the loan will lie with all holders of the deposit. The deposit holders will continue to receive interest on the underlying deposit. However, they need to service the <keyword id="6357050" type="COMPANY" weightage="100" keywordseo="EMI">EMI</keyword> on the loan against the deposit. 
 
A personal loan against fixed deposit can help you in times of liquidity crunch. But you should be looking at it as a means to raise short-term money. If you go overboard with a personal loan against fixed deposit and cannot repay on time, you stand to lose your bank fixed deposit as the bank forecloses that fixed deposit to recover the money it has lent. Also, it shows in your credit report, popularly known as the CIBIL report. Such default can pull your CIBIL scores down. Therefore, when you are raising personal loan against bank fixed deposit, do it responsibly. 
 
About the author: Rajiv Raj is the Director and Co-founder of <a href="http://www.creditvidya.com">www.creditvidya.com</a>.

Looking For Quick Cash? Get A Personal Loan Against Fixed Deposit

Won’t you feel cheated if your financial adviser gives you incorrect information or makes you <keyword id="47916" type="UNKNOWN" weightage="40" keywordseo="invest">invest</keyword> in an avenue that gives sub-optimal returns? But what about all those financial lies that we tell ourselves? Many of us are guilty of harbouring grave misconceptions about money matters. 
 
Some of these myths are borne of sheer ignorance and laziness; others are a legacy of the past. We follow these ideas with utmost conviction, without exploring the basis of these attitudes. How many of you believe, for instance, that buying term insurance is a waste of money? Or that planning for your retirement and drawing up a will are better left for later years? 
 
These are just some of the lies we are guilty of telling ourselves. Your mind tricks yourself into thinking that you are making the right financial decisions. Some people may even be fully aware of the lies that they tell themselves, but refuse to make any changes, as it would require them to step out of their comfort zone. 
 Our cover story this week looks at eight such financial lies we tell ourselves all the time. It’s high time we stopped doing so because <keyword id="6362476" type="ORGANIZATION" weightage="40" keywordseo="investments">investments</keyword> based on these misconceptions can hurt your financial wellbeing. Find out which of these lies you have been telling yourself. 
 
“I don’t have to save for retirement so soon” 
 
Missing the initial years can rob your corpus of the magic of compounding. 
 
A NEW car, the latest smartphone, foreign holiday… when young people start earning, saving for retirement is not among the options they tick. Why just the young set, even those who are well-settled in their careers believe that retirement planning can wait. They argue that they will be able to save enough later when they start earning more. But delaying the start can prove costly. 
 
The longer you stave off saving for your golden years, the harder it will be for you at the end. As the graphic shows, if you delay retirement planning by 10 years, even a higher monthly saving will yield a smaller corpus than if you started early at 30. The delay denies the retirement corpus the magic of compounding. What you save in the first few years of your career makes up a huge chunk of your retirement corpus. 
 
One reason people don’t take retirement planning seriously is that they are still living in the past. They believe that their children will take care of them when they are older. But society is fast changing. In metros, joint families have already become exceptions rather than the norm they were some two decades ago. Also, relocating to another city for work is common now. So, don’t lean too much on that hope. 
 
A common fallacy is that “things will work themselves out in the end”. If you are also among those who believe that you will cross the bridge when you get there, it’s time to change the mindset. Start saving for your retirement now if you don’t want to spend your sunset years in penury. 
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“My expenses will come down after I retire” 
 
Many expenses come down, but healthcare and medical insurance costs shoot up. 
 
FOR A lot of people, retirement means a life far simpler than that they led during their working years. It is also perceived to be easier on the pocket, as living expenses go down, children become self-sufficient and most loans are repaid. 
 
But many other expenses start creeping up. While transportation, fuel and household expenses surely come down when one stops working, medical expenses shoot up as one grows older. Your healthcare costs are probably negligible in the early stages of your life, but once you hit 50, these will make a sizeable chunk of your expenses. According to estimates, almost 70-80% of the total medical expenses incurred by an individual during a lifetime happen after 70. 
 
India’s healthcare costs may be among the lowest in the world, but they are rising at a fast pace. Experts say that healthcare inflation is rising at 15-18% each year, nearly double the pace of consumer price inflation. At this rate, even regular surgeries like angiography, cataract, appendectomy, etc, will become more and more costly as you age. 
 
The cost of health insurance cover will also see a rise in the coming years. The premium for a Rs 3 lakh health cover is just Rs 2,500 a year when you are 30, but for someone above 65, it is Rs 18,000 a year. Given this scenario, it would be wise to factor in these expenses in your retirement planning and target a higher sum. 
 
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“My employer health cover is enough” 
 
Group plans are useful, but not enough because of the terms and conditions. 
 
DO YOU have medical insurance? Most people in the organised sector are covered by group medical insurance from their employers. While such covers are definitely useful, they may not be enough. Group plans have too many strings attached and offer very low cover due to sub-limits on various heads. A person who depends only on his group medical cover is never fully covered. Besides, the cover is valid only till you are with a company. If you are between jobs, you and your family may not have any cover during the intervening period. 
 
The group health cover may also become invalid if the company fails to pay the premium or if the insurer pulls out of the contract. In both situations, the employee has little say in the matter. Moreover, not all employer-provided health policies offer protection to the entire family. If you have dependent parents, you will need to buy a separate health cover for them. In recent years, many companies have cut costs on health care by reducing the coverage or introducing restrictions. 
 
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“I can pick winning <keyword id="6354298" type="ORGANIZATION" weightage="40" keywordseo="stocks">stocks</keyword>, so why should I buy a fund?” 
 
Individuals will not be able to beat a fund manager in the long run. 
 
WHEN MARKETS are on an upswing, as they are right now, everybody becomes an expert. Even newbies start behaving like stock analysts, and why not? The stock market has the potential to deliver huge returns and, therefore, many newbie investors try their hand at stock picking. Many also end up burning their fingers, but that doesn’t stop them from trying again. 
 
If they manage to earn good returns in the first instance, it is enough to convince them that they have the required expertise. It encourages them to hunt for more such stocks. However, the stock market often proves to be a great leveller and small investors usually end up with losses. There is no harm in trying your hand at this game, but do so in a cautious manner. Do not get carried away by a few good stock picks. It might be due to pure dumb luck. Mutual funds provide a much more convenient route to investing in equities. 
 
Though there is no guarantee that a mutual fund will not lose money, its diversified portfolio and the expertise of professional managers will ensure your investment does not fall off the cliff. Yet, small investors continue to buy stocks directly because it makes them feel as if they are in control. As one expert has said, if your direct investments in stocks are able to beat the returns of a mutual fund over the long term, you are in the wrong profession. 
 
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“Pure term insurance is a waste of money” 
 
It is more cost-effective than a policy with a maturity value. 
 
WHEN WE make a payment, we are not satisfied unless we get something in return. This is why it is difficult to convince people to buy a pure term insurance. In a term plan, the entire premium goes into buying the life cover and you don’t get anything back. Agents use this feature to brand term plans as a terrible waste. Instead, endowment policies and money-back plans are more popular among people, purely because they have a maturity benefit and offer something at the end of the term. 
 
However, by seeking a return on your investment instead of pro- tection for your family, you are wavering from the very premise of life insurance. Pure term insurance plan is the simplest, unadulterated form of insurance. If the policyholder dies, it pays out the sum assured to his dependants and helps secure their financial well-being. Other forms of life insurance are savingscum-insurance products, which give very low cover and charge huge premiums. As the table shows, a term plan and PPF combo works better than an endowment plan. 
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“Bank fixed deposits are the only safe investment” 
 
Other options are just as safe and offer much higher returns. 
 
BANK FIXED deposits are considered the safest investment because they offer guaranteed returns. While this is true, the obsession with bank fixed deposits is not warranted. 
 
First, these are not completely safe. The Deposit Insurance and Credit Guarantee Corporation (DICGC) insures deposits of up to Rs 1 lakh per customer across all branches of a bank. This means that any deposit amount higher than Rs 1 lakh with a bank is at risk in the event of default by the bank. Secondly, a bank fixed deposit is not a taxefficient investment. Don’t underestimate the impact of tax on your returns. Interest from fixed deposits will be taxed at the normal rate applicable to you. For a person in the 30% tax slab, a fixed deposit fetching 9% interest would effectively yield only 6.3% after tax. 
 
Keep this in mind before deploying a chunk of your money in bank fixed deposits. There are now several alternatives to a fixed deposit, some of which may not be considered safe in the traditional sense, but are nevertheless lowrisk investments. Tax-free bonds issued by government undertakings, for instance, are at par with bank FDs on the safety scale. These offer the same rate of return, but the income is completely tax-free for the investor, making them a more tax-efficient investment. 
 
FMPs from mutual funds are another alternative. They offer roughly the same yield, although this is not guaranteed. However, these are also more tax-efficient as they offer the benefit of indexation, which reduces the tax to almost nil. 
 
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“It is better to buy a house than live on rent” 
 
High property prices and oversupply mean you can live on rent comfortably. 
 
A SURVEY of mutual fund investors shows that most of them plan to invest in property this year. Would that be a sensible investment? If you are shelling out a huge rent every month, you would probably say yes. Buying a home seems a better alternative to living on rent and getting bullied by the landlord every time your lease comes up for renewal. But consider these points before taking the plunge in the housing market. 
 A study by Arthayantra shows that buying is not always a better option. For instance, the high property prices in Delhi make renting a better option than buying. A 1,000 sq ft property will cost you roughly Rs 1.1 crore in Delhi, while the rent for a similar property will be around Rs 25,000 (see graphic). In Mumbai, rents are high but property prices are higher. According to Arthyantra, even those with an income of up to Rs 25 lakh a year will find renting more affordable than paying the <keyword id="6354730" type="UNKNOWN" weightage="40" keywordseo="Home-loan">home loan</keyword> <keyword id="6357050" type="COMPANY" weightage="40" keywordseo="EMI">EMI</keyword>. Of course, in some cities, such as Kolkata and Ahmedabad, the high rents and relatively low property prices make outright purchase a better option. 
 
Before you buy, you must also consider your financial position. Where will you arrange the downpayment from? Will you be able to afford the EMI on the loan? Are you forsaking other financial goals to buy the house? After your monthly household expenditure, will you have enough savings for other financial goals? For someone in the middle income bracket and living in a metro, this is a highly unlikely possibility. It would be much cheaper to rent the house than to buy one, despite the high rentals. 
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“I have all the time to draw up my will” 
 
There is no saying what happens tomorrow. Draw up a will now. 
 
RETIREMENT PLANNING is not the only thing we tend to put off for later. People also give little importance to estate planning—the process by which an individual arranges the transfer of his assets to his legal heirs. Why don’t people take this seriously? For many, the task of writing a will is best left for the later years, something they can do after retirement. 
 
For others, a will is something only the super rich need to worry about. Both explanations are flawed. There is just no way to know when a person may die. That is why we have a multi-crore life insurance industry. If you have not taken the necessary steps beforehand, your loved ones will have to do a lot of running around to prove that they are the only legal heirs. They will have no access to any A SURVEY of mutual fund investors shows that most of them plan to invest in property this year. 
 
Would that be a sensible investment? If you are shelling out a huge rent every month, you would probably say yes. Buying a home seems a better alternative to living on rent and getting bullied by the landlord every time your lease comes up for renewal. But consider these points before taking the plunge in the housing market. 
 
A study by Arthayantra shows that buying is not always a better option. For instance, the high property prices in Delhi make renting a better option than buying. A 1,000 sq ft property will cost you roughly Rs 1.1 crore in Delhi, while the rent for a similar property will be around Rs 25,000 (see of the assets that you have meticulously built up for them over the years. It is wrong to assume that your estate will automatically pass to your spouse and children, because sometimes other relatives can also stake claim to your assets. 
 
Simply naming a nominee in your investments will not suffice. Having a will ensures that your assets are distributed to your loved ones in the way you desire. In fact, you should make a will as soon as you start building assets. It can then be revised at any point to reflect any further additions to your estate, as well as modifying the distribution of assets among the heirs. Just remember that if you die without making a will, it will cause a lot of inconvenience to your loved ones. Do not put it off for tomorrow. 
 
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Busting Common Investor Myths On Money Matters

Today <keyword id="6380214" type="UNKNOWN" weightage="100" keywordseo="credit-score">credit score</keyword> has become an important tool in gauging your ability to repay your credit on time. Be it securing a <keyword id="6354730" type="UNKNOWN" weightage="40" keywordseo="Home-loan">home loan</keyword> or applying for a credit card, if your credit score is low, you stand to lose on all these. 
 
Credit score, popularly known as CIBIL score, is an indicator of your creditworthiness. Credit score of an individual is a number that is derived after studying factors such as borrower’s loan repayment record, outstanding loans against his name, and nature of loans – secured or unsecured. Credit score may range between 300 and 900, and a score above 750 is an indicator of a good credit profile. Nowadays, banks use credit score to decide a person’s loan eligibility. 
 A good credit score provides access to credit. However, if the credit score is poor, typically below 750, or <keyword id="524374" type="UNKNOWN" weightage="100" keywordseo="credit-report">credit report</keyword> of the applicant of a loan has a mention of a default on loan in the past, banks may choose to reject his loan application. Use of credit score is not restricted to only loan approval process. Banks have been using credit score to lure right customers. 
 Banks have shown willingness to offer marginally lower <keyword id="6371181" type="UNKNOWN" weightage="40" keywordseo="interest-rates">interest rates</keyword> to a person with a good credit score. At 11% <keyword id="37018" type="UNKNOWN" weightage="40" keywordseo="interest-rate">interest rate</keyword>, for 20 years tenure for a loan amount of Rs 50 lakh, <keyword id="6357050" type="COMPANY" weightage="40" keywordseo="EMI">EMI</keyword> works out to Rs 51,609, whereas if one gets the loan at 50 basis points lower – at 10.5%, the EMI works out at Rs 49,919, monthly saving of Rs 1,691. A loan applicant with a good score can negotiate with the bank to reduce or waive other charges such as processing fee, prepayment fee. So, to put it simply, a good credit score puts a loan applicant in a rewarding position. Individuals will be better off using credit responsibly. So, repay your loans on time, build your credit score and maintain your credit profile attractively. Because, in observing these factors, you will not only save money, but will also enjoy peace of mind. 
 
Rajiv Raj is the Director and Co-Founder of <a href="http://www.creditvidya.com" onclick="window.open(this.href, '', 'resizable=no,status=no,location=no,toolbar=no,menubar=no,fullscreen=no,scrollbars=no,dependent=no'); return false;">www.creditvidya.com</a> 
 
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