Finance ministry wants guarantee trust for education loans

The finance ministry is talking to banks to set up a credit guarantee trust for education loans up to Rs 7.5 lakh, a senior ministry official said.

The proposal aims to ensure loans are available to students at a time when employment outlook looks bleak and even top B-schools are bracing themselves for fewer jobs and lower salaries. Over 2.2 million students have education loans worth Rs 43,074 crore outstanding with public sector banks.

About 5% to 6% of them default , according to industry estimates. Fees at top B-schools range from Rs 7.75 lakh to Rs 21 lakh. Directors at IIMs and ISB say 80%-95 % of students avail loans.

Second-rung B-schools charge much less, but most of the defaults are coming from here, bankers say. "The trouble is with small institutes where job prospects are negligible," says an official with Indian Bank.

"Many students are unable to find jobs and, hence, default." Two percent of the bank's education loans of Rs 2,700 crore are non-performing assets. "If you analyse the bad loans in the sector, a maximum of those are under Rs 4 lakh, where no collateral is required," a senior State Bank of India official said. One in 10 loans under Rs 4 lakh turns bad, he said.

"Banks have suggested a guarantee on the pattern of Credit Guarantee Trust for Micro and Small Enterprises (CGTMSE)," said a finance ministry official.

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Loan on debt investment a safer option

Rahul Awasthi heaves a sigh of relief on Tuesday. He wanted to pledge his equity investments for a loan early last year. As the Sensex fell 20 per cent between January and December 2011, this 40-year old’s decision would have suffered badly.

You can take a loan against stocks, mutual fund units, insurance policies and fixed deposits. Bankers say due to associated risks, the margin requirement increases when pledging equity and related investments. Banks sanction up to 50-60 per cent of the current market value of securities. If Awasthi's investment of Rs 1 lakh stood at Rs 90,000 at the time of pledging, banks would have sanctioned only Rs 45,000. And, the fact the markets would fall further could have lowered Awasthi's loan eligibility.

There are two reasons for which you can borrow against your investments: i) to make up for lower income; ii) To enhance your loan eligibility. If Awasthi had taken the loan, his bank could have sold the shares or asked him to make up for the dip in share prices. This would also happen to those who pledge unit-linked insurance plans (Ulips). The insurance regulator is likely to disallow policyholders from pledging Ulips.

Debt instruments are safer options, due to their lesser volatility. Hence, these need lower margin. And, though these loans are treated as personal loans, the rate of interest charged is lower. Unfortunately, these documents need to be endorsed in the name of the bank, revoked when the loan is repaid.

Fixed deposits: This can only be done if you have a deposit with the lender. Banks offer a loan anywhere between 75 and 90 per cent of the deposit, varying with each bank and every customer. The loan is structured as an overdraft against your deposits. Many times, it can be taken from the very next day of making the deposit. There is no restriction on the end-use of funds.

The interest charged is 2-2.5 per cent over the fixed deposit rate. Interest will be charged on the amount drawn and not the limit set. Say, you have a deposit of Rs 1 lakh earning an interest of 10.5 per cent a year. At a 25 per cent margin, your overdraft limit is set at Rs 75,000. If you need Rs 30,000, you can withdraw it from the overdraft account at 12-12.5 per cent (2-2.5 per cent over deposit rate). The interest will be charged on Rs 30,000 and not Rs 75,000.

Debt mutual funds: This is another liquid option preferred by banks. "Income funds can be easily liquidated. However, the same cannot be said about fixed maturity plans (FMPs), as the money can be drawn only on a fixed date. So, income and ultra short-term funds will be preferred over FMPs," says K V S Manian, group head, retail liabilities and branch banking, Kotak Mahindra Bank.

Here, you can get up to 80-85 per cent of the investment amount as a loan, at an interest of 12-13 per cent. The dividends can continue to be paid to the holder of units even during the period of lien. However, no units can be redeemed before the loan is repaid.

Gold: A loan against gold is an easy source of raising cash, as most households have gold jewellery available. It is a secured loan, where your jewellery is the security, and that's why there are less documents needed, including no credit score. Non-banking finance companies like Muthoot Finance offer four schemes valuing gold at Rs 1,035 to 2,260 a gramme at a rate of 12-24 per cent annually. Banks also charge between 12 and 15 per cent every year.

Insurance policies: Not all policies are eligible for loan. You can avail loans on all traditional policies, except money-back plans, only if you have paid the premiums for at least three years. Hence, banks may not always prefer this, as it is less liquid. "You can get up to 85-90 per cent of the surrender value as a loan. The interest rates charged are similar to those for loans against deposits and mutual funds, currently over 12 per cent. Loans are not granted for less than six months," said a senior public sector banker.

Other investments: Long-term investment instruments such as NSC, Indira Vikas Patra, Kisan Vikas Patra can also be used to take a loan, of up to 85 per cent of the investment.

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ICICI Bank to recast Rs 1,300 cr loans in Q4

ICICI Bank, the largest private sector lender in the country, is likely to restructure another Rs 1,300 crore loans in the current January-March quarter. The key loan accounts that are expected to be restructured include GTL and 3i Infotech.

The bank's net restructured loan portfolio was estimated at Rs 3,070 crore as of December 31, 2011.

"With respect to GTL, while we understand that some other banks have done the restructuring in the third quarter, the restructuring arrangement and execution in our case will take place in the fourth quarter," a senior executive of the bank said after the lender announced its third quarter earnings on Tuesday.

"Further, some small exposure could be restructured outside the CDR (corporate debt restructuring) mechanism. The restructured portfolio, as a consequence, is expected to increase from the current levels," the official added.

GTL had taken Rs 650 crore loans from ICICI Bank against a corporate guarantee from its group company Chennai Networks Infrastructure Ltd (CNIL). As part of the restructuring exercise, the lenders have also agreed to transfer ICICI Bank's loan exposure in GTL to the books of CNIL.

GTL's total debt with banks is estimated at around Rs 16,200 crore.

3i Infotech had Rs 1,966 crore loans with banks as of September-end. The loan taken by the company from ICICI Bank was not immediately known.

In October-December quarter, the private lender saw Rs 880 crore additions to its restructured credit portfolio. However, upgradations of some accounts previously restructured capped the net addition to only Rs 569 crore.

Despite the additional loan restructuring in the current quarter, ICICI Bank is sticking to its guidance on provisions to average advances.

"While we do expect more additions (to restructured assets) in the current quarter, we do expect our total provisioning to be within our guidance, which is about 70 basis points of average loans. This shows a strong control on our overall credit quality," Chanda Kochhar, managing director and chief executive of ICICI Bank, said in her post-earnings comments.

ICICI Bank closed the last quarter with a provision coverage ratio of 78.9%. The bank's asset quality during this period also improved.

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Govt forms four panels to set insurance industry norms

The finance ministry has formed four committees to take stock of insurance business in the country with representation from insurance companies, industry bodies, rating agencies and finance ministry officials. The panels that will prepare a “road map” for the insurance industry in India do not have any representation from India’s insurance regulator, three people involved in the process said.

In a first of its kind meeting last week with insurance companies and industry bodies, the ministry also asked their feedback on the Insurance and Regulatory Development of India, or Irda.

The consultation process is part of the finance ministry’s plan to set up advisory groups across segments to discuss issues affecting the sector and finding solutions for these problems. These committees have been formed under these advisory groups to undertake industry-wide consultation.

“It is a consultative exercise. We want to know what are the issues plaguing the insurance industry and the kind of road map that can be envisaged for the sector,” said a finance ministry official, who did not want to be identified. “We want the industry’s view on how to increase penetration, and steps that can be undertaken in the short and long term.”

The four committees will look into issues related to the growth of the industry, development of products, issues with the regulator and other bodies, one of the people who attended the meeting said.

The committees will also discuss ways to improve insurance penetration in the country.

According to a senior Irda official, the regulator was not informed of any such meeting by the ministry and the consultation has been undertaken without keeping Irda in the loop. Irda chairman J. Hari Narayan said, “The post of member (life) is vacant and hence there was no representation.”

In the past, the finance ministry and Irda have been at loggerheads after the ministry directed General Insurance Corp. of India (GIC Re) not to pay ceding commissions to general insurance firms for the business they mandatorily reinsure with GIC Re. Irda had to step in to force GIC Re to honour the contracts with the insurance companies.

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8% growth projection likely for next financial year

The finance ministry is likely to project economic growth of around eight per cent for the next financial year, compared to a little over seven per cent expected in the current year.

Together with the assumption of average inflation easing to around six per cent next year, that would give a nominal GDP expansion of around 14 per cent. On the basis of that, tax collections, fiscal deficit and other targets would be fixed in the Budget.

"We are looking at around eight per cent economic growth for the next fiscal and inflation at six per cent," a key ministry official told Business Standard.

Advance estimates for this financial year, slated to be out in the first week of February, would be factored in while estimating the GDP numbers for 2012-13, according to the official.

The Budget numbers would be based on the size of the Indian economy for 2012-13, calculated from the nominal economic growth over the advance estimates of 2011-12.

For this year, ministry officials do not believe economic growth would go down as low as 6.8 per cent, as predicted by the World Bank.

The officials peg it at a little over seven per cent. They also reject the World Bank's projection that GDP growth would be flat at 6.8 per cent for the next financial year, too.

The 14 per cent nominal GDP growth was also pegged at the time of presentation of the Budget for the current year.

However, the growth break-up was different: nine per cent real GDP growth and five per cent inflation rate. In reality, inflation never came below nine per cent till November.

It, however, fell to 7.47 per cent in December and is expected to come down to around seven per cent by the financial year-end.

Similarly, economic growth moderated to 7.3 per cent in the first half of this year and no-one is expecting it to go anywhere near eight per cent.

Despite a fall in real economic growth, the government's tax collection targets, particularly on the indirect tax front, have not been missed by much, though there could be shortfall in the range of Rs 15,000-20,000 crore (Rs 150-200 billion) in the direct tax mop-up.

An official of the Central Board of Direct Taxes explained that a one per cent fall in the real GDP would shrink direct tax collections by around Rs 10,000 crore (Rs 100 billion). That way, the expected fall in GDP from the projected level of nine per cent in the Budget could at the most lead to a Rs 15,000-20,000 crore (Rs 150-200 billion) of shortfall in the direct tax collections.

The official said corporate income tax, a major part of direct taxes, would come into the picture after companies had paid all indirect taxes and were left with profits.

"So, our role comes at the end of the tax cycle and our collections are affected by factors not in our control," he said.

Direct tax collections, net of refunds, in the first nine months (April-December 2011) stood at Rs 3,23,955 crore (Rs 3.239 trillion), 61 per cent of the Budget estimate of Rs 5,32,651 crore (Rs 5.326 trillion) for 2011-12.

Indirect tax collections went up 16.10 per cent to Rs 2,85,787 crore (Rs 2.857 trillion) during the nine-month period, which is over 70 per cent of the estimate of Rs 3,97,816 crore (Rs 3.978 trillion) for 2011-12.

Indirect tax collections are projected to be in line with the Budget estimate despite the government announcing duty cuts on petroleum products.

At the time of the Budget 2011-12, the tax proceeds were projected to grow 18.50 per cent at Rs 9.32 lakh crore (Rs 9.32 trillion) over the revised estimate of Rs 7.87 lakh crore (Rs 7.87 trillion) for the last financial year.

Of that, direct tax collections were projected to grow by 19.43 per cent and indirect tax collections by 17.36 per cent over Rs 3.39 lakh crore (Rs 3.39 trillion).

The fiscal deficit was targeted to come down to 4.6 per cent of GDP in the current financial year, compared to 4.7 per cent during 2010-11.

However, the deficit touched over 85 per cent of the Budget estimates in just eight months.

The expected fall in direct tax collections, lower disinvestment proceeds, higher expenditure due to rising subsidies and the lower real economic growth rate itself would lead to a rise in the fiscal deficit in proportion to GDP for 2011-12.

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Global Demand for U.S. Financial Assets Rises on Europe

Global demand for U.S. financial assets rose more than forecast in November, boosted by investors seeking shelter from the European debt crisis.

Net buying of long-term equities, notes and bonds totaled $59.8 billion during the month compared with net purchases of $8.3 billion in October, the Treasury Department said today in Washington. Including short-term securities foreigners bought a net $48.6 billion compared with net selling of $39.6 billion the previous month.

“Demand for U.S. treasuries continued strong amid stress in Europe,” Guy Lebas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, said before the data were published. “It’s a desire for European banks and other investors to reduce the risk of their portfolios.”

The U.S. Treasury data released today capture international purchases of government notes and bonds, stocks, corporate debt and other securities.

Economists had forecast net buying of $40 billion of long- term assets, the median of five estimates in a Bloomberg News survey before today’s report. Their estimates ranged from a net buying of $20 billion in long-term assets to $75 billion.

China Biggest

China remained the biggest foreign holder of U.S. Treasuries in November after its holdings fell by $1.5 billion to $1.13 trillion. Hong Kong, counted separately from China, lowered holdings by $5.4 billion to $105.3 billion.

Japan, the second-largest holder, increased its holdings in November by $59.9 billion to $1.04 trillion.

Total foreign purchases of Treasury notes and bonds were $54 billion in November compared with buying of $15.3 billion in October.

Even as European leaders boosted their rescue fund to 1 trillion euros ($1.3 trillion) and persuaded bondholders to take a 50 percent nominal loss on holdings of Greek debt in late October, investors remained skeptical about ongoing negotiations that may be subject to bouts of political infighting and investor revolt.

Loss Protection

Investors are protecting against losses amid signs European leaders have yet to contain the crisis. Standard & Poor’s stripped France of its AAA rating and lowered the credit rating of eight other European Nations last week. S&P cut the rating of the European Financial Stability Facility, the region’s temporary bailout fund, to AA+ from AAA on Jan. 16.

The U.S. deficit in fiscal 2011 was $1.3 trillion and the White House budget office in September forecast it will be $956 billion in the current fiscal year.

Treasuries outpaced company securities last year, returning 9.8 percent including reinvested interest, compared with 6.8 percent for the Bank of America Merrill Lynch U.S. Corporate & High Yield Master Index.

--With assistance from Roger Runningen in Washington. Editors: Kevin Costelloe, Gail DeGeorge

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Bajaj Finserv profits increase, but life insurance business palls

Bajaj Finserv Ltd’s net profit in the December quarter grew 58% from a year ago to Rs170 crore. But investors would be keenly tracking how the insurance segment performed. The insurance regulator introduced a new set of rules such as capping expenses and ensuring a lock-in period for policies in September 2010, which crippled growth in insurance premia. Thus, the December quarter is the first one where the so-called base effect can be ruled out.

The short point is that the insurance industry hasn’t recovered from the blow, as is evident from Bajaj Finserv’s December quarter numbers. Its unit Bajaj Allianz Life Insurance Co. Ltd reported a business profit of Rs283 crore for the quarter, down from Rs300 crore a year ago. That’s mainly because policyholders’ surplus fell. The management said that it could be a one-off owing to some products maturing and also the falling markets.

To be sure, because of Insurance Regulatory and Development Authority rules, which recommend that profits from the “policyholder account” can be transferred to the “shareholder account” at the end of the fiscal year, very little of the insurance segment profit is reflected in the December quarter consolidated results. At the earnings before interest and tax level, this segment accounts for one-fifth of consolidated profits.

Also See | Staying ahead 

But the key metric in this segment is business premia. New business premia fell 21% to Rs653 crore in the three months ended December. While the extent of the fall is less than what was seen in the preceding couple of quarters, remember that the base effect no longer applies. More worryingly, renewal premia fell by 28.6%. That is sharper than the 20% fall seen in the September quarter. Managing director Sanjiv Bajaj said that business could pick up in the next couple of quarters as the insurance regulator allows banks to sell policies of more than one insurer.

So, essentially, the other businesses such as finance and general insurance propped up Bajaj Finserv’s profits. Bajaj Finance reported a 58% jump in net profit and continued to do well owing to its near monopoly in consumer financing. The general insurance segment has picked up well and its net profit nearly doubled from a year ago. However, there is a red flag here. With the third-party motor pool closing by the end of March, Bajaj—as well as the industry—will have to make extra provisions. Although the Bajaj Finserv stock has outperformed its benchmark for most of this fiscal year, the extent of outperformance has come down. The general insurance provisions plus how the life insurance segment pans out will have a bearing on the stock’s performance in the coming months.

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Why The Critical illness Health Insurance Is So Vital?

A very pivotal type of the insurance that each individual must have is a best health insurance plan and if that plan is a critical illness health insurance plan, then it is altogether an icing on the cake. We all are aware that the hospital or the medical costs are never going to plunge down and in the near future it will altogether become a very difficult task for those individuals not having sufficient amount of the money to get the treatment. If the diseases are very critical which means that getting the treatment requires huge amount of money, then you can only imagine the type of the situation you have to encounter. This is the very reason for most of the families in India to buy a best critical illness health insurance plan in order to get that extra sort of the protection that will prove to be very much beneficial in the testing times. Critical illness diseases can be many such as kidney failure, cancer, heart attack and so on. If the critical illness health insurance plan is there, then it will provide all sorts of the financial assistance that the individual is looking for.If you are looking for the benefits from this kind of thehealth insurance policy, then you will get the benefit of the taxation under the Section 80D of the Income Tax Act. So, get the critical illness health insurance today, and secure the healthy living.

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Car Finance Calculator – Get The Dream Car Loan Rates

If you are ready to buy your dream car and for that very purpose you have decided to approach the car loan bank, then it is very much important that the decisions must not be taken in a very fast manner or better sat without thinking much. Before deciding to approach the bank, there are few set of questions that you must ask with yourself. The very first question that you must ask is whether you really want a car? Another question is that if you are firm of taking the car loan, then how much you can actually afford in reality? If you have answers to these set of questions, then your task of getting the best car finance becomes a lot simpler as well as easier.However, do you know that you can get the best car loan from the car loan company just by using the very best tool that is being used by the large number of the people all around the world and it is the car finance calculator. Yes, I am damn right, by using the simple calculator; you become very aware of the various car loan interest rates that the several car loan companies in India are distributing. By this way, you would be quite able the select the best car loan company. Therefore, it is quite evident that by using the simple car finance calculator, you can get the best rates that you were looking for very long period of time.

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Best Steps To Get Best Home Loan

Everybody has a desire to get the best home loan in India so that they do not have to witness any kind of the bottlenecks in the future. Getting the affordable home loan amount ensures that you will get the best home loan rates along with the certain benefits. However, getting the best home loan is not that easy task in India when we see a large number of the home loan companies having set up their base here. When everyone is trying to woo the prospective home loan customers, then the task of acquiring the affordable home loan amount becomes quite an expensive task. If the borrowers undertake some steps, then there are chances that may come out victorious and get the rates that suit them the most.

The effective steps that the individual can take are:

1. In the first basic step all the integrated effort must be made to clear away all the outstanding debts (if any) as soon as possible.

2. If there is not outstanding, then in the next step the borrower must monitor his/her credit history.

3. In the third step, look after your finances. Make a plan first and see if your financial budget really allows you to make a home loan application.

4. Arrange some money for the purpose of the home loan down payment which is very much a necessity.  

5. To get the best home loan, it is necessary that the best home loan company in India is selected.

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