Rs10 lakh, The EMI Will Additionally Increase By Rs350

Will there be a slowdown in the real estate market? Will property prices crash?

These questions plagued experts and home buyers after the Reserve Bank of India (RBI) on Tuesday decided to hike lending and borrowing rates by 50 basis points.

This might result in developers pressing the panic button and start disposing of flats in their remaining inventory to pay off mounting debts and interest.

“High volumes of houses on sale will decrease property rates in the city. But, if developers do not succumb to the RBI's pressure, property rates may rise again,” said a real estate expert.

This is the 11th repo rate hike in the last 16 months to tame the high inflation.

“Bankers will increase key policy rates that will have an impact on the interest rates on various loans. So, if person has taken a loan of Rs10 lakh, the EMI will additionally increase by Rs350,” said Paras Gundecha, president of the Maharashtra Chamber of Housing Industry. “Moreover, the civic corporation recently increased 100% premium of the use of additional floor space index. As borrowers, developers also have to pay high interest rates to banks. This load will be passed on to the buyers.”
“Banks should absorb the current RBI hike to reduce the burden on homebuyers,” he suggested.

Pranay Vakil, chairman of Knight Frank, India, feels the RBI’s base rate hike will impact both current and prospective buyers.

“The cost of construction has increased after steel and cement prices jumped by almost 20%. For developers, borrowing will become expensive and they will have little choice. They have to dispose all remaining inventory early to repay loans and mounting interest. The hike might force them to decrease property rate to pay the loan. If it happens then the RBI has achieved its objective,” explained Vakil.

But, he also pointed out that during the earlier base rate hikes, developers were not compelled to reduce property rates. “We have little hope from this hike too. Rather than tackling the root of the disease, the authority is wasting time treating the symptoms.”

Anurag Mathur, managing director of Cushman & Wakefield India, said the repo rate hike was unexpected. “It will weigh down demand in the residential segment. The change in the rates will negatively affect the end users capacity to raise debt. Banks will hike their interest rates on home loans and other loan products," he said.

“Higher rate of interest will lead to market stagnation and in some micro markets that are largely driven by end users, moderate correction in values as well. Capital values, however, will largely continue to hold steady for the next quarter or two,” predicted Mathur.

[Source]

Read More

IRDA For More Cos To Participate In Pension Market

The Insurance Regulatory and Development Authority (IRDA) on Friday said that domination of one company in the pension market could be risky and it was important for other insurance companies to participate actively, reports PTI.

"There is a structural problem that will unwind for the regulator and the industry as a whole, and will affect the country. More than 90% of all the pensions are actually in the Life Insurance Corporation of India (LIC). There is such a huge concentration in one institution. I think that is a recipe for high risk," IRDA chairman, J Hari Narayan, said at an insurance summit here.

"I think it is too much of a risk to be allowed to continue. Therefore, we must build up mechanisms which allow other companies also to participate actively in the pension market," he added.

Mr Narayan further said that pension funds should offer life annuity and companies that sell pension products should have a guaranteed capital.

"I think at the very minimum that every product that is sold as a pension product should have a capital guarantee so that the principal is safe," he said.

Pension plans are estimated to account for about 30% of the life insurance industry's business.

Meanwhile, Mr Narayan said that the regulatory body was working towards creating an exchange for re-insurance, but did not divulge when the mechanism would be in place.

"We have tried to create a platform on re-insurance, which is more transparent and more like a re-insurance exchange. Initial work is going on. What we visualise is that all matters on re-insurance will be routed only through the exchange. The advantage will be that transactions are clear and there cannot be any glitches in terms of the fine print of the policy," he said.

Mr Narayan said the insurance industry was more like a teenager going through exciting times but said there were a few challenges that needed to be addressed.

He said in case of insurance firms floated by banks, the average cost of premium was higher than that of LIC. Though there are some recommendations to allow a bank to have stakes in two insurance firms, he did not agree with this, he said.

"The problem that I have in two insurance companies operating in the same space is the premium is perverse to the bank as to which product they will be selling at branch level.

The perverse incentive at branch level is not correct. And I don't think that is a healthy practice. We cannot be having two across the same space," he said.

Mr Narayan pointed out that banks have huge potential to market insurance products.

"From the 80,000 branches across India, only 7,000 sell insurance policies. The bulk of the branches have not been used for selling insurance. We will be failing in our duty, certainly as a regulator, if we don't enable the greater use of the branch outreach," he said.

On distribution front he said that many agents were not happy as the pay was low, but said it was not possible to increase the commission.

"Is it wise to so largely front load commission? Should we look at flattening the commission differentials? At present, we cannot assess it because we are bound by the present Insurance Act," he said, adding that the amendment bill if passed could bring about some changes.

[Source]

Read More

Real State - To Buy Or Not

The real estate market is hanging on the razor’s edge and multiple triggers are slowing the market down. This article examines the current trends in the realty market.

Funding pressures

The sector is facing funding woes in the current environment of rising rates. The Reserve Bank of India had raised interest rates in June 2011 for the 10th time since March 2010. Further, inflation as measured by the wholesale price index rose 9.44 per cent in June, up from 9.06 per cent in May, thus smashing hopes of a pause of a further rise in interest rate.

This has led to higher costs for the buyers. According to analysts, purchasing activity which had seen a drop during the last tranche of interest rate hikes will see a further drop in buyer interest now. Owing to the last 10 rate hikes by the central bank, EMIs for housing loan have risen 25 per cent to Rs 980 per Rs 1 lakh of borrowing, and consequently loan eligibility for home buyers has declined 20 per cent.

Not only buyers, but even the real estate companies are also in troubled waters. Cost of funds for developers ranges anywhere in the range of 14.5-16 per cent depending on the credibility of the borrower. The rate hike is only making it more expensive. Also the banks have been skeptical about lending to the real estate sector in the recent past. The Reserve Bank of India has laid out strict and tedious due diligence standards for banks in sanctioning loans to the real estate sector. The banks have to verify the documents, including cross verification with the local administration to ensure that frauds are eliminated. The central bank has also asked banks to independently verify the authenticity of the chartered accountant’s certificate, property valuation certificate, legal certificate, guarantee/line of credit or any other third-party certification submitted by the borrower.

This could delay loan sanctions at all levels and may lead a further blow to the real estate sector that is witnessing slowing sales and rising losses.

Selective lending, higher rates and stricter verifications have forced many developers to tap other sources of funds, which are much more expensive than bank lending.

Higher costs

The rise in prices of steel, cement, bricks and labour are causing worries for the real estate sector. There has been an 18 per cent gross rise in construction costs over the last two years. Steel and cement alone make up to 40 per cent of the cost of construction and civil costs (i.e. steel, cement, labour) constitute around 70 per cent of total costs. High global demand for commodities, higher production and transportation costs partly due to higher fuel prices has led to the rise in prices of commodities. Further, demand for skilled labour has led to the labour cost seeing a rise of 25 per cent in the past decade.

While some developers believe that input costs have peaked or are close to peaking, some think that inflationary pressures could continue in the near term. This would cause margin erosions for few players, or delays in old projects, changes in product mix and one-time cost adjustments. Some developers have even indicated passing the increases in costs on to customers, which may see some slowdown in sales.

On the sales front, Mumbai, Bangalore, Pune and Kolkata witnessed a further slowdown, while Gurgaon and Chennai gained. Also the new launches were at slightly lower numbers across pan India. Launches declined to 13.5 million square feet in March 2011, from 21.5 million sqare feet a month ago as cautious developers faced regulatory and funding hurdles.

On the price front, the movement has been in a narrow range in the past few quarters as developers have held on and buyers have been playing a waiting game. The past few months have puzzled property buyers. On account of conflicting signals on realty prices, the buyers are confused: whether to wait for prices to fall or rush to buy before they appreciate. The trend of higher prices was followed by the correction in the market.

Now the question is whether this trend will continue, or will there be an upsurge?

While in the current situation of tight liquidity conditions, increasing inventories, rising interest rates and construction costs, buyers may stand to gain as the real estate developers may have to opt for distress sale to improve their cash flows. However, rising interest rates (expected to go up further as inflation continues to remain high) may make the home loans expensive for the buyers. Even the rental yields are expected to rise as residential prices correct and owners compensate by increasing rental rates.

[Source]

Read More

Noida Extn Takeover Spared Ex-MLA

Quashing acquisition of 589 hectares of land in Patwari village in Noida Extension by the UP government, the Allahabad High Court upheld the farmers’ stand that authorities breached their right to equality with a “pick and choose” policy in acquiring land by sparing a select few, including one belonging to a former MLA.

Perusing a survey report adduced in court as it adjudicated the challenge to the land acquisition by 11 farmers, a division bench of Justices Sunil Ambawani and S S Tiwari noted that the actions of the government authorities, including Greater Noida Industrial Development Authority (GNIDA), was “vitiated” since the farmers’ fundamental right was transgressed upon.

“We also find merit in the appellants’ plea that the acquisition of their land is vitiated due to violation of the doctrine of equality enshrined in Article 14 of the Constitution. A reading of the survey report shows that the committee constituted by the State Government had recommended release of land measuring 18.9725 hectares. A large chunk of land measuring 4.3840 hectares was not acquired apparently because the same belong to an ex-member of the legislative assembly,” the bench said in its July 19 judgment, a copy of which was made available on Friday.

Dismissing the argument that some land was released because owners had already constructed houses, the court noted a bias: “Many parcels of land were released from acquisition because the land owners had already raised constructions and were using the same as dwelling units... The appellants had also raised constructions on their land and were using the same for residential and agricultural purposes. Why their land was not left out from acquisition has not been explained in the counter affidavit filed by the respondents.”

Read More

Part-Time MBA Courses- Why?

What is the first thought that comes to your mind when you hear about Part-time MBA Courses? Or shall I say, do you know about part-time MBA? Is it some kind of correspondence course? Is it useful? Oh, there is no ROI in part-time courses... Most of the working executives face such questions.

In this article, I would be addressing some of these doubts.

The objective of these courses is 'two-way' learning. Now you would wonder what is two-way learning. Management education in India has been heavily bent towards full-time MBA. The creamy layer of full-time MBAs become heroes in media. Media seems to neglect that fact that the highest salary getter always have very strong experience. Most of the full-timers join to earn money, and it becomes more relevant when the percentage of joiners are freshers having no work experience or relatively negligible work experience. So learning is generally missing in such classes.

Two way leaning is for the students and teachers. Part-time students learn new concepts which can be validated in real context immediately in their respective firms. And teachers get valuable knowledge about the validity of their theories from part-time students' experiences. That's like a win-win situation for any B-school and for the students. And this is the reason why most of the reputed institutes are going for part-time / executive courses. Not to mention that the institute gets good industry interface and part-time students becomes brand ambassadors for these institutes.

No wonder, why such courses are very popular in developed countries.

Now that the objective is clear, we need to know in what way part-time courses are different from other courses. Part-time courses have same level of teaching as in full-time courses but stretched over three years. Yes, your read it right. The contents of part-time and full-time courses are entirely same. However, the disadvantage with full-time courses is that the stress is on grades and not learning as it pays them finally. Executive courses are more focused on a particular functional area.

Correspondence courses do not provide face-to-face teaching, which is very very essential for any course. Until and unless one faces regular exams, clarify doubts from teachers, the sense of ownership can not come. That's the reason why online courses could never become popular anywhere in the world.

As there is growing need for MBA professional, working executives and organisations are realising the importance of part-time MBA. There would be more and more MBA professionals in India, and this would become a necessary requirement to reach to the top level of management. So it is essential to understand the real value of such courses in terms of both learning and monetary perspective. Both are important.

Leaning perspective has already been discussed. Talking about monetary benefits, the comparison is done for monetary gains and loss compared to full-time. A normal two-years experience (minimum requirement for any part-time course in India) executive would be earning around 3 LPA. Some guys earn even more and some guys less. Taking this figure as base for two years, the total amount is 6 LPA (discounting the increase in salary over years and also increase in money by time value of money concept). This was opportunity cost for leaving job and going for full-time course. Also, the actual cost of doing MBA is generally around 3-4 Lakhs (could cost more including the interest to be paid on loan, cost of staying in hostel, food, etc.). Overall, the cost comes around 10 Lakhs. And yes, don't forget the loss in experience for the 2 years!

So all the working executives who go for full-time courses have to answer this question. Is it really worth paying such huge amount? I hope this would bring some clarity towards such courses.

This article is not to demean any other management courses but to give the part-time course its due importance, which it truly deserves. And also clarifying what is the objective of such courses and how is it comparable vis-à-vis other management courses. I hope that students would be in better position to decide what and which management course will suit their requirement.

[Source]

Read More

ICICI Lombard, Star Health & New India Assurance bid for insurance scheme for poor

Three general insurance companies - ICICI Lombard Health Insurance, Star Health Insurance and New India Assurance Health Insurance - have bid for a lucrative Maharashtra government health insurance scheme for poor, a scheme the general insurance council (GIC) said companies should 'desist' from because of a 'refund' clause.

The GIC is a statutory body under the Indian Insurance Act 1938 and represents all non-life insurers in the country.

There are 22 general insurance companies in India. Most of them abided by the GIC directive but others went ahead and submitted bids for the Rajiv Gandhi Jeevandayi Arogya Yojana (RGJAY) scheme of the Maharashtra government.

RGJAY's CEO, K Venkatesham confirmed to ET that ICICI Lombard, Star Health Insurance, and public sector New India Assurance, are the three final contenders.

ICICI Lombard's bid, ET learns, is the lowest.

Depending on the bid, the successful bidder will get a premium of about Rs 2,000 crore. In response to an ET query ICICI Lombard spokesperson clarified that the company received the GIC directive after it had submitted the bid.

"The communication from GI Council was received consequent to submission of our tender application for RSJY," ICICI Lombard spokesperson said.

The company also said that the directive was recommendatory.

"We would like to clarify that the said communication from GI Council was recommendatory," the spokesperson said.

"We request all the non-life insurance companies to desist from agreeing to the 'refund' clause 14 of Part 1, section A of the scheme," said SL Mohan, secretary general GIC in a letter to all non-life insurers.

The GIC had further referred to an IRDA circular which advise insurance firms not to agree to profit sharing while bidding for a tender.

Under the RGJAY scheme, the insurers would have to refund 90% of the left over surplus to the government after claims at the end of the policy period.

Other non-life insurers are not happy with some of the companies going ahead despite the GIC directive and have decided to take up the issue with the insurance regulator Insurance Regulatory and Development Authority (IRDA) and state government of Maharashtra.

Read More

Salman-Sanju Baba to host season 5 of ''Bigg Boss'' together

Mumbai, Jul 20 (PTI) For the first time, popular reality show 'Bigg Boss' has roped in two Bollywood actors to host the show. 'Dabangg' star Salman Khan and actor Sanjay Dutt will come together to host the fifth season of 'Bigg Boss'. The show is expected to go on air in October. "Over the last three years, Colors has taken 'Bigg Boss' to newer heights of entertainment and popularity. Now, with both Salman Khan and Sanjay Dutt as hosts, we are sure that the appeal of 'Bigg Boss- season 5' will touch unprecedented heights," Head of Programming, Colors, Ashvini Yardi said. Salman, who had hosted the fourth season of the reality show, is the only celebrity, who will be hosting this show for the second time. 'Bigg Boss' is a reality show where celebrity contestants stay in a house for about three months, cut off from the outside world. They are overseen by a 'mysterious person' known as 'Bigg Boss'. The first season that kick-started in the year 2006, saw actor Arshad Warsi hosting the show, followed by actress Shilpa Shetty. While, Megastar Amitabh Bachchan hosted the third season, the fourth one was hosted by Salman.

[Source]

Read More

Safe Banking - Know About More Fraudulent Methods

With growing usage of the Internet for banking transactions, fraudsters are constantly coming up with ways and means to steal money online from unsuspecting victims like you. The most common type of online account theft, is called 'Phishing'. Please visit our Safe Banking section to know about more fraudulent methods of extracting your confidential details.

While we make every effort to protect your account, it is very important that you do not share your confidential banking information with anyone and take precautions to safeguard yourself against online frauds.

It is really easy to transact online in a safe manner if you take some simple precautions.

• Do not reply to any email, asking for confidential information like your Internet Banking user id or password, even if the sender claims to be your bank. Your bank will never send e-mails asking for your confidential details.

• Do not access your bank account through links in e-mails. Type the web address in the browser.

• If you have made a financial transaction from a cybercafe or a shared computer, change your password at the earliest.

• Log off and close your browser after using Internet Banking.

Visit ICICI Safe Banking section at: http://www.icicibank.com/phishing to know about more fraudulent methods of extracting your confidential details.

Read More

Bankers Want a Halt To Interest Rate Hikes

Amid a steep slowdown in credit off-take and an unexpected spike in deposits, bankers on Monday urged Reserve Bank of India to hold the policy rates at the current levels, and sought a clearer picture on the future interest rates and inflation scenarios at the policy review next week.

"Credit growth has been too lax for some time now. So we want the monetary authority to send out to a signal that there is a pause on rate tightening. Such a stance can send out the right signal to bankers as well as the industry.

We have also urged RBI to come out with a clear statement on the future interest rate and inflation scenarios in the July 26 policy document, so that the banks and the industry can plan better," chief executive officer of Indian Banks Association, K Ramakrishnan, told reporters.

He was talking to the media after the customary pre-policy meeting with RBI brass at Mint Road office in Mumbai.

Prominent bankers, led by State Bank chairman Pratip Chaudhuri, HDFC Bank's Aditya Puri, Bank of Baroda's M D Mallya and Bank of India's Alok Misra met deputy governor Subir Gokarn and aired views on the interest rates, credit and deposit growth, overall economic growth, stressed assets and other macroeconomic data ahead of the first quarter policy review on July 26.

In its attempt to tame inflation, the central bank has spiked its key rates a record 10 times, whereby it has ratcheted up the short-term lending (repo) and reverse repo or borrowing rates by a massive 275 basis points since March '10.

Analysts are expecting another 25 bps spike on July 26 as inflation remains still highly sticky.

Since the June provisional inflation number has sniffed at a double-digit mark at 9.44 percent on the back of the recent hike in fuel prices, analysts and the industry are expecting further fillip to price rise, and another bout of tightening next week by RBI.

Bank of Baroda chairman and managing director M D Mallya, who is also chairman of IBA, warned of a steeper slowdown in credit growth; and said as no new projects are being planned by the industry, it is unlikely that banks will see an uptick in advances in the current quarter as well.

However, he said, the industry would wait a while longer to decide whether to scale growth target further down.

On the sectors which have seen the most muted level of credit growth, he said it was mostly the infrastructure space.

Ironically, this was one of the most vibrant sectors last year, he pointed out. Telecom alone took out nearly Rs 70,000 crore (Rs 700 billion) from the system last year to pay for the spectrum licences, he said.

The head of the third largest state-run lender also warned that bankers could see more deterioration in the asset quality of SME advances going forward, if the overall industry scene remained cloudy as it is today.

On the liability front, the bankers in general have been witnessing reasonable growth in deposits, especially savings accounts.

Bank of India chairman and managing director Alok Misra said it was a bit early to revise downward the industry's growth target, even as the early signals were not encouraging.

[Source]

Read More

Employee Mediclaim Benefits Set To Shrink

If you're banking solely on the health cover provided by your employer to take care of your and your family's insurance needs, it's time to change the strategy. You will have to beef up your insurance portfolio with an individual policy as group policies offered by employers are slowly undergoing a transformation.

Restrictions, such as those on room rent and sub-limits on claims, which were a part of individual mediclaim policies so far, are slowly being incorporated in group insurance covers too.

Compare Indian Providers Rates Of Family Health Insurance [Source]

Read More