No matter at what position you are, the time of year, holidays or not, the need for additional money may arise.
There are several ways to get extra money but the two of the most common ways include opening a new line of credit and taking out a personal loan from a bank.
Before understanding which is better between a personal loan and new line of credit, it is important to define the two terms as they are closely related. A line of credit is where you have an agreement with a company to borrow a specific amount of unsecured credit for a specific period of time. This amount of money is available for use at any time as long terms of the agreement are met.
Personal loans are money given by the bank on credit. There is no security given. The amount that is given to you is based on your credit rating and they are usually paid off in a short period of time (two to three years). You can use personal loans for anything that you need it for such as debt consolidation, vacations, medical bills etc. Personal loans have fixed rates and monthly payments until they are paid off.
Let’s see what is the advantage of one loan over the other?
A personal loan provides the total sum of money up front, which has fixed interest rate attached to it. You will be expected to make a payment each month until the loan has been completely repaid. The time period of the repayment of the loan is fixed depending on the length that you and your lender agree upon. The interest rates attached to personal loans are generally much higher than a line of credit. This means that you will pay more interest overall.
Opening a new line of credit has many differences. First and foremost, a new line of credit will give you money as you need it. You get flexibility in spending while providing money in emergency situations. In this the interest rate associated with new credit is adjustable. You have to pay interest on the amount of money you have used. The interest rate keeps varying with prime rates. So it might go up a half a point or so and then drop again. This means that a payment may be a little bit higher one month and then lower the next.
Let’s see the disadvantages related to personal loan.
First of all, when you take personal loan you get money once. This means if someone requires additional money, he or she will have to apply for another loan from a bank or credit union.
Secondly, in personal loan there is no option for tax deductible whereas in many cases a line of credit can be.
New credits do have disadvantages as well.
Interest rates are adjustable, there are no fixed minimum payment and can vary even month to month. The discrepancy of knowing what is owed can be a problem if living on a tight budget.
Now you can decide from these two which one you want to take depending upon your financial needs and financial situation.
Monday 30 September 2013
Loans Personal: Personal loan better option for paying debts than credit card
At the time of medical emergency in her family in January 2007, Nisha Naik used her credit card to clear the hospital bills which amounted to Rs 1 lakh. In such a situation anybody facing such a situation could have done the same.
She being family’s only earning member with no assets to fall back upon, she had to depend on her salary to payback the debt. She had planned to pay off the debt in the following two months, but things did not work out as planned and she ended up paying the 5% minimum due amount till October 2007. By the time she could realize that the money she had been shelling out every month formed mainly the interest component and she still owed the credit card company the bulk of the principal amount nine months had passed. On knowing the reality she quickly applied for a personal loan to clear the credit card dues.
It’s anybody’s conjecture that she would have saved on a lot on her interest outgo had she chosen for a personal loan earlier, which is surely cheaper than credit cards. Says My Financial Advisor director Amar Pandit: “Interest rates in case of personal loans are much lower than credit card loans; generally speaking, personal loans are at least 50% cheaper than credit cards. Depending on the category of employer or whether the individual is self-employed, interest rates could vary from 12% to 23% per annum”.
The other option could have been personal loan on credit card (PLCC). “On the basis of card transaction history, we can also provide a personal loan on the credit card itself,” informs Sachin Khandelwal, head of cards, ICICI Bank. But this carries a processing fee of 2%, as well as foreclosure charges of 3.5%. On the monthly statement it is shown as a transaction entry separately till it’s paid off. This type of loan carries a rate of 16-20% pa whereas credit cards typically have an interest rate of 36-40% pa. There can be variation on interest rate on personal loan from 18% to 21% pa.
“Our recommendation is that if a customer finds that the outstanding amount on his/her credit card is not being cleared in a couple of months, he/she should choose this option. However, if such options don’t help in clearing dues within 12 months, then a personal loan is strongly recommended,” asserts Mr Khandelwal. An important point to remember is while applying for a personal loan the minimum tenure is 12 months and the minimum loan amount is Rs 50,000 (the processing fee for personal loans is 2%).
Usually people make a mistake of not thinking in terms of replacing the high-cost credit card debt with a low-cost one. Though credit cards can be easily acquired and boast of high convenience value, but one should remember that they are strictly meant for short-term purposes and stretching the repayment term will only lead to headaches for you. Hence, set a deadline after which you would start looking for less expensive loans. If you find yourself in a situation of not being able to pay off dues in, say, two months after borrowing on your credit card, then you should opt for cheaper alternatives.
Adds Mr Pandit: “Credit card loans are the costliest forms of loans and I would certainly recommend a person to opt for personal loan. However, even before I do this, I will explore if the person has investments and if he/she can get an overdraft against mutual funds and blue-chip stocks. Generally, this is available in the range of around 11% and should be preferred to personal loan. Same goes for overdrafts on fixed deposits, if any. Here, you pay the interest only for the period the OD is utilised”.
However, since Nisha and her family owned no assets as such, what are the other options that she could have exercised, apart from personal loan, to ensure that her interest outgo was lower? “These days, credit cards offer free rollover for three months, so she could have explored the option of rolling the credit over for three months (without any interest),” replies Mr Pandit. The credit card space has several schemes. For example, banks like ICICI have an option of converting a credit card transaction into an installments-based one — the EMI option. This usually entails a processing fee of 2-4% and the interest rate varies from as low as 0-18% pa.
You can also go for balance transfer schemes, wherein you can transfer the outstanding amount to another bank’s credit card. Under this scheme on the new credit card, for a particular period, you either don’t have to pay any interest or you may be a charged a nominal rate of interest. You can also use such schemes for debt consolidation— you can transfer the credit outstanding on several cards to one card that carries the lowest rate of interest, thereby reducing the interest payable. If you are caught in a situation similar to that of Nisha, it is high time you switched over to schemes that don’t burn a huge hole in your pocket.
She being family’s only earning member with no assets to fall back upon, she had to depend on her salary to payback the debt. She had planned to pay off the debt in the following two months, but things did not work out as planned and she ended up paying the 5% minimum due amount till October 2007. By the time she could realize that the money she had been shelling out every month formed mainly the interest component and she still owed the credit card company the bulk of the principal amount nine months had passed. On knowing the reality she quickly applied for a personal loan to clear the credit card dues.
It’s anybody’s conjecture that she would have saved on a lot on her interest outgo had she chosen for a personal loan earlier, which is surely cheaper than credit cards. Says My Financial Advisor director Amar Pandit: “Interest rates in case of personal loans are much lower than credit card loans; generally speaking, personal loans are at least 50% cheaper than credit cards. Depending on the category of employer or whether the individual is self-employed, interest rates could vary from 12% to 23% per annum”.
The other option could have been personal loan on credit card (PLCC). “On the basis of card transaction history, we can also provide a personal loan on the credit card itself,” informs Sachin Khandelwal, head of cards, ICICI Bank. But this carries a processing fee of 2%, as well as foreclosure charges of 3.5%. On the monthly statement it is shown as a transaction entry separately till it’s paid off. This type of loan carries a rate of 16-20% pa whereas credit cards typically have an interest rate of 36-40% pa. There can be variation on interest rate on personal loan from 18% to 21% pa.
“Our recommendation is that if a customer finds that the outstanding amount on his/her credit card is not being cleared in a couple of months, he/she should choose this option. However, if such options don’t help in clearing dues within 12 months, then a personal loan is strongly recommended,” asserts Mr Khandelwal. An important point to remember is while applying for a personal loan the minimum tenure is 12 months and the minimum loan amount is Rs 50,000 (the processing fee for personal loans is 2%).
Usually people make a mistake of not thinking in terms of replacing the high-cost credit card debt with a low-cost one. Though credit cards can be easily acquired and boast of high convenience value, but one should remember that they are strictly meant for short-term purposes and stretching the repayment term will only lead to headaches for you. Hence, set a deadline after which you would start looking for less expensive loans. If you find yourself in a situation of not being able to pay off dues in, say, two months after borrowing on your credit card, then you should opt for cheaper alternatives.
Adds Mr Pandit: “Credit card loans are the costliest forms of loans and I would certainly recommend a person to opt for personal loan. However, even before I do this, I will explore if the person has investments and if he/she can get an overdraft against mutual funds and blue-chip stocks. Generally, this is available in the range of around 11% and should be preferred to personal loan. Same goes for overdrafts on fixed deposits, if any. Here, you pay the interest only for the period the OD is utilised”.
However, since Nisha and her family owned no assets as such, what are the other options that she could have exercised, apart from personal loan, to ensure that her interest outgo was lower? “These days, credit cards offer free rollover for three months, so she could have explored the option of rolling the credit over for three months (without any interest),” replies Mr Pandit. The credit card space has several schemes. For example, banks like ICICI have an option of converting a credit card transaction into an installments-based one — the EMI option. This usually entails a processing fee of 2-4% and the interest rate varies from as low as 0-18% pa.
You can also go for balance transfer schemes, wherein you can transfer the outstanding amount to another bank’s credit card. Under this scheme on the new credit card, for a particular period, you either don’t have to pay any interest or you may be a charged a nominal rate of interest. You can also use such schemes for debt consolidation— you can transfer the credit outstanding on several cards to one card that carries the lowest rate of interest, thereby reducing the interest payable. If you are caught in a situation similar to that of Nisha, it is high time you switched over to schemes that don’t burn a huge hole in your pocket.
Personal loan can help you pay your debts
Today people are having hard time in making savings. Some of them are able to do savings and for some it is difficult as a result you get deeper and deeper into debt.
Personal loan can be used for consolidating credit card debt. By doing this there is one advantage it is that you will have only one payment and there are usually no late fees if they are they are not as large.
The interest rate is not raises on a personal loan when you don’t make a payment either. Therefore it is important to make sure your payment is with in your budget. You do not want to have a bad mark on your credit.
But there are certain priorities to remember when you are deciding which bills you are going to pay. Some will have to wait until the next pay check.
Your mortgage and home insurance should be your first priority in the list. Your house is what provides you with shelter. It is also good for your credit to make sure your mortgage payments are always on time.
If you have your own house then there is property tax that comes along with it. Although you have taxes taken out of your pay check that does not mean that you will have enough when it comes time to pay them. So put money aside to cover taxes that you will have to pay.
On the second position comes the car payment. Transportation is very important. It would be difficult to get back to and from work.
When buying a car better to go for the one which fits in your budget easily. You can look for a used car that is still in great condition.
Most people have credit cards now days. The minimum payments can really add up. Credit cards have late fees and if the payment is not made in time they will raise your interest rate, normally to 29.9%.
When you know that your interest rate is going to be raised. Look at which card has the smallest balance on it, 29.9% of $100 is better then on a $1000.
Another thing to remember is that most credit card companies do not report your late payment to the bureau until it has been 30 days late. So if you pay it 10 days late you will be ok with your credit report. Though you will still have a late fee and the interest rate could still be raised.
When deciding which card to pay first then look if there is a grace period on any of your cards. You can save those cards for the next pay check.
The last thing to pay is your utilities. If you explain about your situation to gas and power companies they will work out for you.
The cable and phone bills are not as important. These are things that we can survive with out. If the phone and cable is shut off it will not affect your well being.
Personal loan can be used for consolidating credit card debt. By doing this there is one advantage it is that you will have only one payment and there are usually no late fees if they are they are not as large.
The interest rate is not raises on a personal loan when you don’t make a payment either. Therefore it is important to make sure your payment is with in your budget. You do not want to have a bad mark on your credit.
But there are certain priorities to remember when you are deciding which bills you are going to pay. Some will have to wait until the next pay check.
Your mortgage and home insurance should be your first priority in the list. Your house is what provides you with shelter. It is also good for your credit to make sure your mortgage payments are always on time.
If you have your own house then there is property tax that comes along with it. Although you have taxes taken out of your pay check that does not mean that you will have enough when it comes time to pay them. So put money aside to cover taxes that you will have to pay.
On the second position comes the car payment. Transportation is very important. It would be difficult to get back to and from work.
When buying a car better to go for the one which fits in your budget easily. You can look for a used car that is still in great condition.
Most people have credit cards now days. The minimum payments can really add up. Credit cards have late fees and if the payment is not made in time they will raise your interest rate, normally to 29.9%.
When you know that your interest rate is going to be raised. Look at which card has the smallest balance on it, 29.9% of $100 is better then on a $1000.
Another thing to remember is that most credit card companies do not report your late payment to the bureau until it has been 30 days late. So if you pay it 10 days late you will be ok with your credit report. Though you will still have a late fee and the interest rate could still be raised.
When deciding which card to pay first then look if there is a grace period on any of your cards. You can save those cards for the next pay check.
The last thing to pay is your utilities. If you explain about your situation to gas and power companies they will work out for you.
The cable and phone bills are not as important. These are things that we can survive with out. If the phone and cable is shut off it will not affect your well being.
For small financial requirements Personal loans are the best option
The festive season is the most expensive time and Christmas celebration have started. Many people spread their festival expenses over several months this is possible with the help of loans available in the market.
Many types of loans are available in the market to choose from. If you want to take loan for a limited amount then go for personal loan. For various financial requirements many people take this type of loans. During Christmas people take these loans to go on vacations, buy gifts for family and friends and decorate their homes. In case your requirement is more and personal loan is not enough then you can guarantee your home to get a big loan amount.
Sanction of loan amount depends upon many things. Before giving you a loan a lender first verifies your credentials and then takes his decision after considering many aspects. Your creditworthiness is checked from credit reference agencies. These agencies have a record of every loan transaction and also provide individual credit ratings. You just pay a small amount of fee to get your credit rating. It will help you in the loan process if you know your credit rating in advance.
If your requirement is big then go for secured personal loans. It can be a home improvement on large scale or buying another home or buying an expensive vehicle. In secured loan the rate of interest is also low and the repayment period tends to be longer than personal loans. These loans are available with high street banks, online lenders and building societies in the UK. You have to fulfill eligibility criteria to apply for a loan. You have to be above 18 years of age and a UK resident to apply for any type of loan. It is better to compare loans offered by lenders as nowadays there are many lenders and it will be if you compare loans before signing any particular loan deal.
Many types of loans are available in the market to choose from. If you want to take loan for a limited amount then go for personal loan. For various financial requirements many people take this type of loans. During Christmas people take these loans to go on vacations, buy gifts for family and friends and decorate their homes. In case your requirement is more and personal loan is not enough then you can guarantee your home to get a big loan amount.
Sanction of loan amount depends upon many things. Before giving you a loan a lender first verifies your credentials and then takes his decision after considering many aspects. Your creditworthiness is checked from credit reference agencies. These agencies have a record of every loan transaction and also provide individual credit ratings. You just pay a small amount of fee to get your credit rating. It will help you in the loan process if you know your credit rating in advance.
If your requirement is big then go for secured personal loans. It can be a home improvement on large scale or buying another home or buying an expensive vehicle. In secured loan the rate of interest is also low and the repayment period tends to be longer than personal loans. These loans are available with high street banks, online lenders and building societies in the UK. You have to fulfill eligibility criteria to apply for a loan. You have to be above 18 years of age and a UK resident to apply for any type of loan. It is better to compare loans offered by lenders as nowadays there are many lenders and it will be if you compare loans before signing any particular loan deal.
Improve your credit score with small personal loans
Thinking of improving your credit score then take small personal loans. If you take big loan you can risk not being able to repay it and defaulting on the loan which would further ruin your credit score.
So go for small personal loans. The small personal loans are not expensive and they are easy to afford. To improve your credit score you can use personal loans and the credit improvements will be done at low cost.
It is easy to get small personal loan you need to apply for a small personal loan; it doesn’t necessarily have to be a short term loan. The repayment of the loan should be continuous to maintain efficiency. However, you should Compare personal loan rates just a couple of hundreds and repay it in several installments. Each installment will be recorded into your credit report as a successful financial transaction and your credit history will start showing a perfect repayment behavior.
So go for small personal loans. The small personal loans are not expensive and they are easy to afford. To improve your credit score you can use personal loans and the credit improvements will be done at low cost.
It is easy to get small personal loan you need to apply for a small personal loan; it doesn’t necessarily have to be a short term loan. The repayment of the loan should be continuous to maintain efficiency. However, you should Compare personal loan rates just a couple of hundreds and repay it in several installments. Each installment will be recorded into your credit report as a successful financial transaction and your credit history will start showing a perfect repayment behavior.
Sunday 29 September 2013
ICICI making zoom in private banking
ICICI bank has a strong foothold amongst the Indian private banks. It has a base of over a lakh customer, and is looking further to embark on a wider branding exercise for its flourishing private banking business.
Anup Bagchi ICICI SGM Global Private Banking said, “We now have a base of over one lakh private banking customers and in a couple of months we start branding the division to help the new generation develop relatedness with the bank."
There has been growth in the financial sector with top executives working with MNC taking home fatter pay packets, with employee stock options and small and medium enterprises on the accent.
Private banking involves specialized financial and investment advisory services for high net worth individuals through relationship managers.
Bagchi said the bank plans to double the number of relationship managers which explains the inherent demand from the sector.
Apart from the four metros cities, the cities like Pune, Nasik, Banaglore and Chandigarh, having large industrial activities too are providing the opportunities for private banking.
Bagchi further added, in the months to come, ICICI will develop special lounges for its private banking customers in 20-25 metopolitian and bigger cities. "The lounges are a way to provide the aspirational value to the customers, who have had a long association with the bank."
Apart from the four metros cities, the cities like Pune, Nasik, Banaglore and Chandigarh, having large industrial activities too are providing the opportunities for private banking.
Bagchi further added, in the months to come, ICICI will develop special lounges for its private banking customers in 20-25 metopolitian and bigger cities. "The lounges are a way to provide the aspirational value to the customers, who have had a long association with the bank."
Anup Bagchi ICICI SGM Global Private Banking said, “We now have a base of over one lakh private banking customers and in a couple of months we start branding the division to help the new generation develop relatedness with the bank."
There has been growth in the financial sector with top executives working with MNC taking home fatter pay packets, with employee stock options and small and medium enterprises on the accent.
Private banking involves specialized financial and investment advisory services for high net worth individuals through relationship managers.
Bagchi said the bank plans to double the number of relationship managers which explains the inherent demand from the sector.
Apart from the four metros cities, the cities like Pune, Nasik, Banaglore and Chandigarh, having large industrial activities too are providing the opportunities for private banking.
Bagchi further added, in the months to come, ICICI will develop special lounges for its private banking customers in 20-25 metopolitian and bigger cities. "The lounges are a way to provide the aspirational value to the customers, who have had a long association with the bank."
Apart from the four metros cities, the cities like Pune, Nasik, Banaglore and Chandigarh, having large industrial activities too are providing the opportunities for private banking.
Bagchi further added, in the months to come, ICICI will develop special lounges for its private banking customers in 20-25 metopolitian and bigger cities. "The lounges are a way to provide the aspirational value to the customers, who have had a long association with the bank."
White goods majors line up price hikes, new launches
Consumer durable companies will embark upon a dual strategy of hiking prices of white goods and simultaneously launching hi-tech models in refrigerators, washing machines and microwave ovens.
Reports say that consumer durables majors like Videocon, LG, Samsung and Haier are all planning price hikes by 2-7 per cent.
Videocon Industries is planning to launch refrigerators with built-in colour television and Internet, which can be operated by remote controls and priced between Rs 20,000 and Rs 1 lakh.
Videocon will increase prices of its white goods range by 5-7 per cent. Korean major, LG Electronics India is planning to hike prices of its washing machines (WM), refrigerators and microwave ovens by about 2- 4 per cent in September 2007.
Samsung India is soon launching new models of high-end side-by-side refrigerators with the improved prices.
Haier is also coming up with new innovative appliances to suit customer's needs, which will be followed with minimal hike in prices.
Fedders Lloyd Corporation is planning to launch new models of Llyods microwave ovens and washing machines with different prices toplug various price gaps.
In March-May 2007, durable companies hiked product prices by 4-8 per cent.
Reports also say that the prices are expected to stabilise by Diwali. Plans are on the anvil to launch premium range of refrigerators in 400 and 500 liters by changing the outdoor aesthetics and four new models of solo and grill convection microwave ovens.
Reports say that consumer durables majors like Videocon, LG, Samsung and Haier are all planning price hikes by 2-7 per cent.
Videocon Industries is planning to launch refrigerators with built-in colour television and Internet, which can be operated by remote controls and priced between Rs 20,000 and Rs 1 lakh.
Videocon will increase prices of its white goods range by 5-7 per cent. Korean major, LG Electronics India is planning to hike prices of its washing machines (WM), refrigerators and microwave ovens by about 2- 4 per cent in September 2007.
Samsung India is soon launching new models of high-end side-by-side refrigerators with the improved prices.
Haier is also coming up with new innovative appliances to suit customer's needs, which will be followed with minimal hike in prices.
Fedders Lloyd Corporation is planning to launch new models of Llyods microwave ovens and washing machines with different prices toplug various price gaps.
In March-May 2007, durable companies hiked product prices by 4-8 per cent.
Reports also say that the prices are expected to stabilise by Diwali. Plans are on the anvil to launch premium range of refrigerators in 400 and 500 liters by changing the outdoor aesthetics and four new models of solo and grill convection microwave ovens.
Loan Personal: Secured Personal loans have repayment interval longer
Do you want to take a loan; you can find many lenders who are ready to give loan. Personal loans can be secured and unsecured types.
In secured personal loans guarantee is offered to the moneylender and the time period of repayment of loan is longer. In this the defaulter can borrow a large loan volume. Therefore, nation who have recompense in real estate or who own houses can take secured loan. But one should not forget the fact that the house is used as collateral and can be taken over by the owner in case the insolvent is incompetent to pay back the loan.
In secured personal loans guarantee is offered to the moneylender and the time period of repayment of loan is longer. In this the defaulter can borrow a large loan volume. Therefore, nation who have recompense in real estate or who own houses can take secured loan. But one should not forget the fact that the house is used as collateral and can be taken over by the owner in case the insolvent is incompetent to pay back the loan.
Improve credit scores and ratings with fast personal loans
Individuals are able to get various possibilities for seeking money through fast personal loans for a variety of their financial needs. Fast personal loans can also help in improving credit scores and ratings. There is no demarcation, available to anyone and everyone. Personal information is all that must be provided in order to be approved. You can get help in debt also. Consolidating debt into one monthly payment will save the consumer time and money.
An individual gets an opportunity to improve its credit rating. At times the bad financial decisions lead to poor or blemished credit rating. So it becomes very important to be aware of the credit score, especially when purchasing homes, vehicles, or taking out any type of financing. By receiving the fast personal loan and making payments on schedule, a credit score can be improved. Fast personal loans often can be completed even with poor credit history.
Only little information is to be provided to get finances. As the loans are not of great amount personal information will be enough to get an approval for a fast personal loan.
At times companies dealing with fast personal loans will require credit history, but poor ratings will often still be approved in order to assist the borrower in improving that score.
Debt consolidation is an excellent reason to apply for this type of financing. Individuals get the opportunity to pay off their credit card bills, loans, and a variety of expenses with fast personal loans in turn for monthly payment toward the payments. This will help the customer to save money because the interest rate on credit cards can often be very high. Loan approvals that offer lower rates will allow the consumer to save money. Whenever dealing with money matters remember that Proverbs 13:11 says "Wealth gotten by vanity shall be diminished: but he that gathereth by labour shall increase."
With this the borrower gets many opportunities. If you have increased credit score then fast personal loans is an excellent reason to apply for. These loans are very attractive to consumers because of the option of providing very limited amount of personal and financial information. Also, there are possibilities of receiving finance in order to consolidate debt that may have mounted over a period of time. With many providers, this type of financing can be acquired with little effort on the part of the consumer.
An individual gets an opportunity to improve its credit rating. At times the bad financial decisions lead to poor or blemished credit rating. So it becomes very important to be aware of the credit score, especially when purchasing homes, vehicles, or taking out any type of financing. By receiving the fast personal loan and making payments on schedule, a credit score can be improved. Fast personal loans often can be completed even with poor credit history.
Only little information is to be provided to get finances. As the loans are not of great amount personal information will be enough to get an approval for a fast personal loan.
At times companies dealing with fast personal loans will require credit history, but poor ratings will often still be approved in order to assist the borrower in improving that score.
Debt consolidation is an excellent reason to apply for this type of financing. Individuals get the opportunity to pay off their credit card bills, loans, and a variety of expenses with fast personal loans in turn for monthly payment toward the payments. This will help the customer to save money because the interest rate on credit cards can often be very high. Loan approvals that offer lower rates will allow the consumer to save money. Whenever dealing with money matters remember that Proverbs 13:11 says "Wealth gotten by vanity shall be diminished: but he that gathereth by labour shall increase."
With this the borrower gets many opportunities. If you have increased credit score then fast personal loans is an excellent reason to apply for. These loans are very attractive to consumers because of the option of providing very limited amount of personal and financial information. Also, there are possibilities of receiving finance in order to consolidate debt that may have mounted over a period of time. With many providers, this type of financing can be acquired with little effort on the part of the consumer.
Saturday 28 September 2013
HDFC and Citigroup plan of cross-selling products canceled
The agreement signed between Housing Development Finance Corporation (HDFC) and Citigroup has been cancelsd. According to this agreement the two were to sell the mortgage lender’s loan products under the American bank’s India network.
In this working agreement the two has agreed for cross-selling each other’s products recently, which followed the increase of Citigroup venture in HDFC to 12.3 percent and also nominated its representatives in HDFC board. Citigroup officially describes its venture in HDFC as a financial investment.
According to banking sources Citigroup and HDFC are not going ahead with their plan as it would have created a conflict of interest between HDFC Bank and its promoter, HDFC. HDFC Bank has not launched its own home loan products and instead sells HDFC loans for a fee. HDFC holds around 23.32 per cent in the bank.
Citigroup, in response to an email query, said, “We will have to decline comment.”
HDFC did not reply to an email sent a week back.
In May, managing director of HDFC, Keki Mistry, said that the agreement between HDFC’s and Citigroup will be worked out in such a way that there would be no conflict of interest with HDFC bank.
HDFC recently while filing with the Securities and Exchange Commission with regard to its $700 million American depository receipts issue, recently released a statement that, “the bank may face potential conflicts of interest relating to our principal shareholder, HDFC Limited."
HDFC and Citigroup had plans to expand their cross-sell relationship beyond home loans, which were to be sold based on the mortgage lender’s risk criteria.
When HDFC decided to make a preferential allotment to private equity investor Carlyle Group, Citigroup sought a preferential allotment to itself to ensure the US financial services provider’s venture in HDFC remains at 12.3 per cent.
In this working agreement the two has agreed for cross-selling each other’s products recently, which followed the increase of Citigroup venture in HDFC to 12.3 percent and also nominated its representatives in HDFC board. Citigroup officially describes its venture in HDFC as a financial investment.
According to banking sources Citigroup and HDFC are not going ahead with their plan as it would have created a conflict of interest between HDFC Bank and its promoter, HDFC. HDFC Bank has not launched its own home loan products and instead sells HDFC loans for a fee. HDFC holds around 23.32 per cent in the bank.
Citigroup, in response to an email query, said, “We will have to decline comment.”
HDFC did not reply to an email sent a week back.
In May, managing director of HDFC, Keki Mistry, said that the agreement between HDFC’s and Citigroup will be worked out in such a way that there would be no conflict of interest with HDFC bank.
HDFC recently while filing with the Securities and Exchange Commission with regard to its $700 million American depository receipts issue, recently released a statement that, “the bank may face potential conflicts of interest relating to our principal shareholder, HDFC Limited."
HDFC and Citigroup had plans to expand their cross-sell relationship beyond home loans, which were to be sold based on the mortgage lender’s risk criteria.
When HDFC decided to make a preferential allotment to private equity investor Carlyle Group, Citigroup sought a preferential allotment to itself to ensure the US financial services provider’s venture in HDFC remains at 12.3 per cent.
RBI Annual Report for review of payment system
The Reserve Bank of India (RBI) will conduct an annual review of the payment and settlement systems to ensure that customers receive timely, cheap and dependable service.
The first review is proposed for the year-ended March 31, 2007. Business Standard reports that the review will be based on parameters like timeliness of customer service, cost of operation, service charges and the overall impact on the financial system.
RBI’s Board for Regulation and Supervision of Payment and Settlement Systems (BPSS) will give directions and set standards for payment and settlement systems.
The board is to study payment systems in select countries, prepare a road map for moving from paper-based products to electronic payment systems and promote card-based payments as one of the strategies for increasing the use of electronic payments.
The board has recommended exploring the option of setting up a low cost cross-border remittance system with neighbouring countries, especially Nepal, and also proposed an assessment of the real time gross settlement (RTGS) system and bringing all RTGS-enabled branches under the national electronic funds transfer (NEFT) system.
The suggestions include looking at the feasibility of a couple of large banks providing associate memberships to smaller banks to participate in the cheque truncation system.
While, the RBI had rejected the panel’s suggestion to levy a charge on cheques, the other recommendations for incentivising electronic payment systems are being considered by the RBI.
The annual turnover, in value terms, in the various payment and settlement systems rose 37.5 per cent to Rs 4,23,74,063 crore in 2006-07 from Rs 3,08,15,285 crore in 2006.
The first review is proposed for the year-ended March 31, 2007. Business Standard reports that the review will be based on parameters like timeliness of customer service, cost of operation, service charges and the overall impact on the financial system.
RBI’s Board for Regulation and Supervision of Payment and Settlement Systems (BPSS) will give directions and set standards for payment and settlement systems.
The board is to study payment systems in select countries, prepare a road map for moving from paper-based products to electronic payment systems and promote card-based payments as one of the strategies for increasing the use of electronic payments.
The board has recommended exploring the option of setting up a low cost cross-border remittance system with neighbouring countries, especially Nepal, and also proposed an assessment of the real time gross settlement (RTGS) system and bringing all RTGS-enabled branches under the national electronic funds transfer (NEFT) system.
The suggestions include looking at the feasibility of a couple of large banks providing associate memberships to smaller banks to participate in the cheque truncation system.
While, the RBI had rejected the panel’s suggestion to levy a charge on cheques, the other recommendations for incentivising electronic payment systems are being considered by the RBI.
The annual turnover, in value terms, in the various payment and settlement systems rose 37.5 per cent to Rs 4,23,74,063 crore in 2006-07 from Rs 3,08,15,285 crore in 2006.
Indusland Bank looking for a new name, image to attract customers
Indusland Bank wants to consolidate its presence in the private sector banking in India and has started hunting for a new name.
Financial Express reports that the names short-listed so far are Indus Bank, the Plus Bank, the Right Bank and so on. Sources say that the bank is in the midst of appointment of an international consultant to carry out the make over. The consultant will also help the bank for the upcoming media blitzkrieg.
The bank management wants to complete the change of name exercise by November 2007 and launch a nationwide media campaign thereafter.The campaign is scheduled to g on till March 2008 with an initial budget of Rs 10 crore.
The bank recently had a successful GDR issue and its net worth touched Rs 1,056 crore as on March 31, 2007. The bank posted a total business turnover of Rs 28,700 crore and is poised for greater growth in the years ahead.
Financial Express reports that the names short-listed so far are Indus Bank, the Plus Bank, the Right Bank and so on. Sources say that the bank is in the midst of appointment of an international consultant to carry out the make over. The consultant will also help the bank for the upcoming media blitzkrieg.
The bank management wants to complete the change of name exercise by November 2007 and launch a nationwide media campaign thereafter.The campaign is scheduled to g on till March 2008 with an initial budget of Rs 10 crore.
The bank recently had a successful GDR issue and its net worth touched Rs 1,056 crore as on March 31, 2007. The bank posted a total business turnover of Rs 28,700 crore and is poised for greater growth in the years ahead.
DCB to cut share of personal loan and get into retail segment
Development Credit Bank, the small private sector banking group, has planned to cut the share of personal loans in its credit portfolio to diverge risks.
Instead it will, get into the commercial and construction equipment business, which is a secured portfolio in the retail segment.
The bank will be raising the share of retail assets comprising commercial vehicles and construction equipment in total advances from 45 per cent to 55 per cent. The large and mid corporates currently is having 55 per cent share in total loan base. The total advances at the end of September 2007 stood at Rs 3,195 crore.
There are more chances of more number of defaulters in case of personal loans. The bank saw a minor rise in net non performing assets in the first quarter, earning out of personal loan segment.
The managing director and chief executive Gautam Vir said, “We plan to bring down the share of personal advances in total retail loans from 47 per cent to 35 per cent over the next financial year.”
As of September 2007 the personal loans stood at Rs 713 crore, while commercial loans were Rs 279 crore. The bank has already stopped the low ticket loan below Rs 50,000, as it have higher delinquencies space.
It has tied up with HDFC for steady growth and market its home loan products.
“This (home loans) is not our area of expertise (which is volumes business). The bank will focus on origination and servicing customers,” Vir said. This will help in boosting banks other income.
It has applied to Reserve Bank of India for permission to open 50 branches to expand its network. Currently DCB is having 74 branches, predominantly in the western region of the country.
The western region comprises Maharashtra, Gujarat, Goa, Andhra Pradesh, National Capital Region and Rajasthan.
“We will continue to expand the region (western), where the growth is high and our brand is known. We will also open branches at SME clusters outside the western region”, he said.
Instead it will, get into the commercial and construction equipment business, which is a secured portfolio in the retail segment.
The bank will be raising the share of retail assets comprising commercial vehicles and construction equipment in total advances from 45 per cent to 55 per cent. The large and mid corporates currently is having 55 per cent share in total loan base. The total advances at the end of September 2007 stood at Rs 3,195 crore.
There are more chances of more number of defaulters in case of personal loans. The bank saw a minor rise in net non performing assets in the first quarter, earning out of personal loan segment.
The managing director and chief executive Gautam Vir said, “We plan to bring down the share of personal advances in total retail loans from 47 per cent to 35 per cent over the next financial year.”
As of September 2007 the personal loans stood at Rs 713 crore, while commercial loans were Rs 279 crore. The bank has already stopped the low ticket loan below Rs 50,000, as it have higher delinquencies space.
It has tied up with HDFC for steady growth and market its home loan products.
“This (home loans) is not our area of expertise (which is volumes business). The bank will focus on origination and servicing customers,” Vir said. This will help in boosting banks other income.
It has applied to Reserve Bank of India for permission to open 50 branches to expand its network. Currently DCB is having 74 branches, predominantly in the western region of the country.
The western region comprises Maharashtra, Gujarat, Goa, Andhra Pradesh, National Capital Region and Rajasthan.
“We will continue to expand the region (western), where the growth is high and our brand is known. We will also open branches at SME clusters outside the western region”, he said.
Friday 27 September 2013
A Personal Loan without risk
When anybody thinks about taking a loan the first thing that comes in mind we have to guarantee something as security with the lender to get a loan and the interest rates. But there is a loan that comes in your hands without having to guarantee any property as security.
An unsecured personal loan, is one such loan that you can take without any big problem from lenders. You can utilize unsecured personal loan for any purpose including home renovations, buying a car, for wedding and holiday tour or for debt consolidation.
In this loan you are not at all required to furnish any of your property to the lender as collateral in taking unsecured personal loan. This makes borrowing any amount a fully risk free affair for the borrower. This loan is especially useful for tenants or non-homeowners.
Unsecured personal loans are solely approved on the lender’s faith in the borrower’s capacity to repay and intention of timely clearing the installments. So you are required to show your income and employment documents to the lender.
Smaller amount ranging from ₤5000 to ₤25000 is usually approved as unsecured personal loans. The paying back period is 5 to 15 years.
But the interest rate matters a lot in loans. And unsecured personal loans carry very high rate of interest. If your credit history is good then you may get the loan at lower rate. But the people with low credit score, the loan rate goes even high. Before applying for the loan check your credit score.
The people with bad credit are also eligible for unsecured personal loans only if the lender is satisfied about their loan repaying capacity. So take an assuring repayment plan for the loan approval.
It is better to study the market first, take rate quotes of lenders so that you know the prevailing interest rate for your circumstances.
For fast processing and approval of the loan preferably apply to an online lender for the loan.
An unsecured personal loan, is one such loan that you can take without any big problem from lenders. You can utilize unsecured personal loan for any purpose including home renovations, buying a car, for wedding and holiday tour or for debt consolidation.
In this loan you are not at all required to furnish any of your property to the lender as collateral in taking unsecured personal loan. This makes borrowing any amount a fully risk free affair for the borrower. This loan is especially useful for tenants or non-homeowners.
Unsecured personal loans are solely approved on the lender’s faith in the borrower’s capacity to repay and intention of timely clearing the installments. So you are required to show your income and employment documents to the lender.
Smaller amount ranging from ₤5000 to ₤25000 is usually approved as unsecured personal loans. The paying back period is 5 to 15 years.
But the interest rate matters a lot in loans. And unsecured personal loans carry very high rate of interest. If your credit history is good then you may get the loan at lower rate. But the people with low credit score, the loan rate goes even high. Before applying for the loan check your credit score.
The people with bad credit are also eligible for unsecured personal loans only if the lender is satisfied about their loan repaying capacity. So take an assuring repayment plan for the loan approval.
It is better to study the market first, take rate quotes of lenders so that you know the prevailing interest rate for your circumstances.
For fast processing and approval of the loan preferably apply to an online lender for the loan.
Now you can take wedding insurance plan
In India wedding is considered to be very auspicious occasion. In India, the wedding market, pegged at about Rs 1.25 lakh crore, is growing at 25 per cent per annum.
A three-day cocktail event may take away Rs 1.5 crore from your pocket and the cost of a
Grand wedding day can start from Rs 2.5 crore – a very popular concept these days. According to Tarun Sarda, CEO, Vivaha Interactive, which organizes wedding-related annual exhibitions says, “The most expensive are the wedding décor and entertainment. A fairly well-known entertainer would command Rs 30 lakh for an evening’s performance.”
In India there is no provision for the recovery of loss if some mishappening occurs, but in western countries there is an insurance cover against the loss of the wedding ring, the elaborate wedding gown not reaching on time, or even the non-appearance of the photographer to cover the gala event.
But in India the concept is not very popular yet. Except for a few nationalized companies and a clutch of private players, not many insurers provide such a cover.
T A Ramalingam, head, underwriting, Bajaj Allianz General Insurance, told DNA Money, “Such plans are still in their nascent stages due to low awareness and, given the sacred nature of the ritual, nobody wants to discuss the negatives.”
In the west people are aware of wedding insurance plans whereas, in India, wedding insurance is more of a customized event insurance plan which includes all specific risks related to a wedding.
In India wedding planners consider wedding insurance makes sense as heavy expenses are involved. Wedding insurance usually covers fire or allied perils like accidents to the bride, groom or their blood relatives, burglary of jewellery, clothes or valuables, wedding cancellation due to legitimate and specified causes, damage to the venue by natural causes or acts of crime/terror, and, in certain cases, even food poisoning.
At present Bajaj Allianz has a wedding package product with four sum insured options, starting from Rs 20 lakh-Rs 70 lakh. The premium ranges from Rs 3,770 to Rs 14,276.
Kartik Jain, head, marketing, ICICI Lombard General Insurance, said: “These (the company’s policies) are personalized covers and each event differs from the other. The insured amount and the premiums are decided on a case to case basis. Premiums vary from 0.75-1 per cent of the total sum insured.”
ICICI Lombard is having a general event policy, which provides cover for cancellation of the wedding due to unforeseen perils, for eg, if the marriage hall gets flooded or there is an occurrence of earthquake, the irreversible cost of the wedding will be reimbursed as per the policy terms and conditions.
Along with this material damage to property like stage, seats and wardrobe due to fire and public liability are also covered.
A three-day cocktail event may take away Rs 1.5 crore from your pocket and the cost of a
Grand wedding day can start from Rs 2.5 crore – a very popular concept these days. According to Tarun Sarda, CEO, Vivaha Interactive, which organizes wedding-related annual exhibitions says, “The most expensive are the wedding décor and entertainment. A fairly well-known entertainer would command Rs 30 lakh for an evening’s performance.”
In India there is no provision for the recovery of loss if some mishappening occurs, but in western countries there is an insurance cover against the loss of the wedding ring, the elaborate wedding gown not reaching on time, or even the non-appearance of the photographer to cover the gala event.
But in India the concept is not very popular yet. Except for a few nationalized companies and a clutch of private players, not many insurers provide such a cover.
T A Ramalingam, head, underwriting, Bajaj Allianz General Insurance, told DNA Money, “Such plans are still in their nascent stages due to low awareness and, given the sacred nature of the ritual, nobody wants to discuss the negatives.”
In the west people are aware of wedding insurance plans whereas, in India, wedding insurance is more of a customized event insurance plan which includes all specific risks related to a wedding.
In India wedding planners consider wedding insurance makes sense as heavy expenses are involved. Wedding insurance usually covers fire or allied perils like accidents to the bride, groom or their blood relatives, burglary of jewellery, clothes or valuables, wedding cancellation due to legitimate and specified causes, damage to the venue by natural causes or acts of crime/terror, and, in certain cases, even food poisoning.
At present Bajaj Allianz has a wedding package product with four sum insured options, starting from Rs 20 lakh-Rs 70 lakh. The premium ranges from Rs 3,770 to Rs 14,276.
Kartik Jain, head, marketing, ICICI Lombard General Insurance, said: “These (the company’s policies) are personalized covers and each event differs from the other. The insured amount and the premiums are decided on a case to case basis. Premiums vary from 0.75-1 per cent of the total sum insured.”
ICICI Lombard is having a general event policy, which provides cover for cancellation of the wedding due to unforeseen perils, for eg, if the marriage hall gets flooded or there is an occurrence of earthquake, the irreversible cost of the wedding will be reimbursed as per the policy terms and conditions.
Along with this material damage to property like stage, seats and wardrobe due to fire and public liability are also covered.
Personal Loan business is growing aggressively
Market for personal loan in India is growing and has become competitive with the coming of foreign banks and non banking finance companies entering this space. Banks such as ICICI Bank, HDFC Bank, Citibank, Standard Chartered Bank, Centurion Bank of Punjab and non banking finance companies such as GE, DBS Cholamandalam, and Fullerton India among others are aggressively marketing personal loans.
With the growth the level of delinquency has gone up by 10-20 per cent. This rise in the delinquency has led the banks to tighten their due diligence of marketing agents and also reviewing recovery strategies.
The RBI data shows the growth of 23 percent in the personal loans year-on-year to Rs 87,944 crore as on May 25, 2007.
Banks and NBFCs are working on unsecured loans products as the yield in this business is high which covers for any defaults. There is a variation in the interest rate on personal loans from 14 percent to 30 per cent.
Neeraj Swaroop, CEO, Standard Chartered India said, “We see growth in the personal loans business. In the unsecured space, we have better ability and hence, we are aggressively pursuing the personal loans business.”
But there are some banks like IndusInd Bank, a private sector bank who are opting out of the personal loan business. Bhaskar Ghose, managing director, InduInd Bank said, “The yield in unsecured loans is higher. However, whenever there is an economic downturn or the customer faces an economic crisis, individuals tend to default on these loans. Hence, on a standalone basis we have stopped giving personal loans.”
IndusInd Bank will give personal loans only to customers with corporate salary accounts as the number of defaulters is rising. Ghose said, “This is the safest way to do the business as the bank deducts the installment from the salary account and if the employee decides to quit the organization, then the amount is deducted from the final settlement.”
According to bank’s loan data, 58 per cent accounts for vehicle finance loans, 13 per cent account for other retail loans and balance is wholesale (corporate) loans.
With the growth the level of delinquency has gone up by 10-20 per cent. This rise in the delinquency has led the banks to tighten their due diligence of marketing agents and also reviewing recovery strategies.
The RBI data shows the growth of 23 percent in the personal loans year-on-year to Rs 87,944 crore as on May 25, 2007.
Banks and NBFCs are working on unsecured loans products as the yield in this business is high which covers for any defaults. There is a variation in the interest rate on personal loans from 14 percent to 30 per cent.
Neeraj Swaroop, CEO, Standard Chartered India said, “We see growth in the personal loans business. In the unsecured space, we have better ability and hence, we are aggressively pursuing the personal loans business.”
But there are some banks like IndusInd Bank, a private sector bank who are opting out of the personal loan business. Bhaskar Ghose, managing director, InduInd Bank said, “The yield in unsecured loans is higher. However, whenever there is an economic downturn or the customer faces an economic crisis, individuals tend to default on these loans. Hence, on a standalone basis we have stopped giving personal loans.”
IndusInd Bank will give personal loans only to customers with corporate salary accounts as the number of defaulters is rising. Ghose said, “This is the safest way to do the business as the bank deducts the installment from the salary account and if the employee decides to quit the organization, then the amount is deducted from the final settlement.”
According to bank’s loan data, 58 per cent accounts for vehicle finance loans, 13 per cent account for other retail loans and balance is wholesale (corporate) loans.
Thursday 26 September 2013
Watch on end use of loans
Some banks are of view that the corporate credit is finding its way to stock market, due to this some banks have clamped down on general purpose loans to corporates. On other loans banks are insisting that payments on behalf of the corporates be made directly.
Central bank fears corporate credit is finding its way to the bourses. Some public sector banks, concerned that the money lent to corporates could find its way into the stock market, are asking branches to follow stricter due diligence in lending to corporates.
The benchmark Bombay Stock Exchange (BSE) Sensex has already marked 13 record highs in 16 trading sessions. The Sensex ended at a new peak of over 15,732 points today. Foreign institutional investors have been net buyers in July.
According to a senior public sector bank executive, “whatever is happening in the stock markets has highlighted the need for monitoring the end use more diligently now. The end use of funds is of prime concern to us. We do not want our money to find its way into the stock market.”
Some banks are looking to avoid making fresh disbursements where it is not possible to ascertain the end use of funds. These banks are looking to cut down on loans advanced for general purpose.
“We are trying to avoid or reduce giving general purpose loans. We are giving loans where it is possible to verify the end use of funds. We are sensitizing branches and zones on how to monitor the end use,” said A D Parulkar, executive director, Bank of India.
Borrowers are required to state the purpose for which they are taking the loan and also submit an auditor’s certificate at the time of availing of credit.
“However, a mere declaration by borrower or submitting a chartered accountant’s certificate is not enough. We are also looking at direct remittance or payments on behalf of corporates,” said the senior executive.
Where banks lend as a part of a consortium, the lead bank is asked to monitor the end use of the funds. Last month, the practice of banks providing short-term, unsecured loans to corporates at low interest rates had come under the Reserve Bank of India (RBI) scanner.
The RBI had asked banks to furnish information on short-term, unsecured loans disbursed at rates below the prime lending rates (PLRs) after realising that such low-cost lending was replacing working capital loans.
The RBI was concerned that some banks, driven by their zest to increase portfolio sizes, had extended short-term loans without adequate due diligence on the end use.
The central bank is also worried that lax monitoring and absence of collaterals could lead to a decline in the asset quality during tough times.
Central bank fears corporate credit is finding its way to the bourses. Some public sector banks, concerned that the money lent to corporates could find its way into the stock market, are asking branches to follow stricter due diligence in lending to corporates.
The benchmark Bombay Stock Exchange (BSE) Sensex has already marked 13 record highs in 16 trading sessions. The Sensex ended at a new peak of over 15,732 points today. Foreign institutional investors have been net buyers in July.
According to a senior public sector bank executive, “whatever is happening in the stock markets has highlighted the need for monitoring the end use more diligently now. The end use of funds is of prime concern to us. We do not want our money to find its way into the stock market.”
Some banks are looking to avoid making fresh disbursements where it is not possible to ascertain the end use of funds. These banks are looking to cut down on loans advanced for general purpose.
“We are trying to avoid or reduce giving general purpose loans. We are giving loans where it is possible to verify the end use of funds. We are sensitizing branches and zones on how to monitor the end use,” said A D Parulkar, executive director, Bank of India.
Borrowers are required to state the purpose for which they are taking the loan and also submit an auditor’s certificate at the time of availing of credit.
“However, a mere declaration by borrower or submitting a chartered accountant’s certificate is not enough. We are also looking at direct remittance or payments on behalf of corporates,” said the senior executive.
Where banks lend as a part of a consortium, the lead bank is asked to monitor the end use of the funds. Last month, the practice of banks providing short-term, unsecured loans to corporates at low interest rates had come under the Reserve Bank of India (RBI) scanner.
The RBI had asked banks to furnish information on short-term, unsecured loans disbursed at rates below the prime lending rates (PLRs) after realising that such low-cost lending was replacing working capital loans.
The RBI was concerned that some banks, driven by their zest to increase portfolio sizes, had extended short-term loans without adequate due diligence on the end use.
The central bank is also worried that lax monitoring and absence of collaterals could lead to a decline in the asset quality during tough times.
Banks discourage customers from taking personal loans
In January this year the central bank imposed higher provisioning norms on personal loans due to this state-owned banks are discouraging retail customers from taking personal loans in spite of slowdown in loan growth and abundant liquidity.
There has been a growth in personal loans over the past few years, along with a rise in earnings of the organized workforce in a buoyant economy. But, once the Reserve Bank of India’s norms on provisioning kicked in, banks had to set aside 2% as standard provision on personal loans. According to this norm for each personal loan of Rs 100 which is treated as a standard loan, banks have to set aside Rs 2 as a provision. This is deducted from operating profit.
To discourage customers from seeking personal loans, banks have started to insert fresh clauses in loan documents which make it difficult for customers to avail of such loans. Some banks like Corporation Bank and Canara Bank have started asking customers to provide for an undertaking from their employers. “This is like seeking a guarantee from the employer which is not very easy to get,” pointed out a senior banker.
According to senior Canara Bank official, the bank is also insisting that the borrower should have a salary account with them in order to obtain personal loans without any collateral. “This is because we have noticed rising instances of loans without any security going bad. Thus, if the borrower has a salary account with us, the EMI is directly deducted from it which reduces the scope of default.”
Further to discourage personal loans, some banks are insisting on third-party guarantees in case the loan value is very high, besides seeking a guarantee from the borrower. For instance, Bank of India has decided not to increase its target on its personal loan portfolio. This means that fresh loans will be given only to the extent of repayment of the existing loans.
According to bankers, a substantial chunk of salary accounts, especially of private corporate, has been cornered by private banks. However, when it comes to locking in to loans, many employees prefer to access personal loans from PSU banks, mainly due to lower rates charged by them. While most PSU banks have pegged personal loans to the prime lending rate (12-14%) or a 100-200-basis point premium on big ticket loans, private and foreign banks charge as high as 16-21%.
With the upswing in property prices, banks are adopting a cautious approach to approving home loans. More and more banks are reluctant to approve home loans at a fixed rate. Banks like Canara Bank and Bank of India have stopped disbursing fixed rate loans while others such as State Bank of India, Punjab National Bank and Allahabad Bank have inserted a reset clause in their fixed rate loan documents.
Recently, the Bank of Baroda board also passed a resolution to insert a reset clause at the end of five years for their fixed rate home loans. Sources said Central Bank of India, too, is considering inserting a similar clause in its fixed rate home loans. The decision will be taken after the bank completes its IPO by the end of this month. The reset clause protects the lender from fluctuations in interest rates.
There has been a growth in personal loans over the past few years, along with a rise in earnings of the organized workforce in a buoyant economy. But, once the Reserve Bank of India’s norms on provisioning kicked in, banks had to set aside 2% as standard provision on personal loans. According to this norm for each personal loan of Rs 100 which is treated as a standard loan, banks have to set aside Rs 2 as a provision. This is deducted from operating profit.
To discourage customers from seeking personal loans, banks have started to insert fresh clauses in loan documents which make it difficult for customers to avail of such loans. Some banks like Corporation Bank and Canara Bank have started asking customers to provide for an undertaking from their employers. “This is like seeking a guarantee from the employer which is not very easy to get,” pointed out a senior banker.
According to senior Canara Bank official, the bank is also insisting that the borrower should have a salary account with them in order to obtain personal loans without any collateral. “This is because we have noticed rising instances of loans without any security going bad. Thus, if the borrower has a salary account with us, the EMI is directly deducted from it which reduces the scope of default.”
Further to discourage personal loans, some banks are insisting on third-party guarantees in case the loan value is very high, besides seeking a guarantee from the borrower. For instance, Bank of India has decided not to increase its target on its personal loan portfolio. This means that fresh loans will be given only to the extent of repayment of the existing loans.
According to bankers, a substantial chunk of salary accounts, especially of private corporate, has been cornered by private banks. However, when it comes to locking in to loans, many employees prefer to access personal loans from PSU banks, mainly due to lower rates charged by them. While most PSU banks have pegged personal loans to the prime lending rate (12-14%) or a 100-200-basis point premium on big ticket loans, private and foreign banks charge as high as 16-21%.
With the upswing in property prices, banks are adopting a cautious approach to approving home loans. More and more banks are reluctant to approve home loans at a fixed rate. Banks like Canara Bank and Bank of India have stopped disbursing fixed rate loans while others such as State Bank of India, Punjab National Bank and Allahabad Bank have inserted a reset clause in their fixed rate loan documents.
Recently, the Bank of Baroda board also passed a resolution to insert a reset clause at the end of five years for their fixed rate home loans. Sources said Central Bank of India, too, is considering inserting a similar clause in its fixed rate home loans. The decision will be taken after the bank completes its IPO by the end of this month. The reset clause protects the lender from fluctuations in interest rates.
Loans but at what Price?
Now days the changes are occurring so fast, the way of thinking and living have changed. Every one is trying hard to keep themselves up to mark in this race. To help people banks/NBFCs are providing loans so that people can fulfill their wishes. But the lucrative offers in these loans make people end up in heavy debts.
At the time of giving loan banks check all the income related documents attached with the application. The banks do explain terms and conditions and the interest rates the loan carries with it. But these unsecured loans in many cases may be of a small ticket size, but, they carry high interest rates and also other charges in the event of default. In many cases, lending organizations are taking advantage of the unregulated interest rate regime and vulnerability of their customers and subjecting them to the torture of recovery agents.
Many times customers end up repaying the outstanding, which consists of little principal but high amounts of financial charges/fees and other charges. In select cases, interest rate can be as high as 48% per annum and in case of default and non-payment, when other fees with service tax are added, this can easily cross more than 100% per annum. In case the borrower wants to pre-pay the loan, there is a pre-payment charge. So a situation is created through a loan agreement or card holder agreement, the ramification of which is never explained to the borrower by the DSA/DMA.
There had been a case in which the Supreme Court of India in criminal appeal No 267 of 2007 on February 26, a case involving a leading bank has come out with a lot of important observations. One point made is that — for the lender — it is not a mere question of lending the money that matters, but also the consequence thereafter. Thus, there is an element of social responsibility. Secondly, recovery of loans or seizure of vehicles can be done only through legal means. Thirdly, strictures ought to be imposed on erring banks to curb their high-handed activities and make them answerable to the general public. Finally, the apex court has said that banking procedures should be people-friendly and at the same time, strict in its enforcement and educative enough to guide the public of the benefits of prudent banking and the lender should be transparent in their transactions with the borrowers.
The provisions of The Usurious Loans Act 1918 read with The Punjab Relief of Indebtedness Act, 1934 indicates that any rate above 12.5% simple rate of interest per annum on unsecured loans can be considered as ‘usurious’ by the competent court.
Against the above back drop, the Reserve Bank of India in it’s Annual Policy Statement for 2007-08 made a mention of the complaints received by it and Banking Ombudsman offices and stated that in a deregulated interest rate regime, rates of interest beyond a certain level may be seen to be usurious and can neither be sustainable nor in conformity with banking prudence. Therefore, the banks are advised to lay down internal principles and procedures so that such usurious interest including processing and other charges are
not charged.
This was followed by a directive through a circular dated May 7 to all commercial banks inter alia stating that the total cost to the borrower, including interest and all other charges levied on a loan, should be justifiable having regard to the total cost incurred by the bank in extending the loan, which is sought to be defrayed and the extent of return that could be reasonably expected from the transaction. Besides they are required to put an appropriate ceiling on interest and other charges and suitably publicize it.
The banks are required to implement this circular by September 7. Similar directions have been issued to Regional Rural Banks (RRBs), urban banks and NBFCs and RNBCs by RBI. However, in case of NBFCs/RNBCs, RBI has advised that excessive interest rate can neither be sustainable nor be conforming to normal financial practice. Therefore, the board should lay down internal principles and procedures in determining the interest rate and processing and other charges.
The step taken by RBI is in the interest of the society and the banks/NBFCs. It is mandatory for the banks/NBFCs to implement the same. At the same time there is need to keep check whether all these institutions will voluntarily reduce the interest rates and other charges adequately in a fair and just manner keeping in mind the corporate social responsibility, as a good corporate citizen, as no ceiling has been prescribed by RBI.
There are certain regulatory measures which NBFCs and RNBCs have to take in consideration. NBFCs and RNBCs beyond a cut-off asset size may be asked to publish their balance sheets and profit and loss accounts in newspapers and put it in their websites so that the public at large become aware about the profit generated in their business. Also it may be considered to put in place a non-discretionary penalty on banks/NBFCs by prescribing the amount for any violation noticed and established in a transparent manner.
For credit cards, the banks may be advised to open service points/contact points where a card holder can walk in to obtain a duplicate bill, make payment towards his bill, surrender the card or report loss of card against proper receipt which will mitigate most of the after sales problems faced by the card holders.
The regulator is doing its duty now it is the borrower who has to show his understanding. The banks and NBFCs are commercial organizations; the borrower should borrow sensibly to avoid a debt trap.
At the time of giving loan banks check all the income related documents attached with the application. The banks do explain terms and conditions and the interest rates the loan carries with it. But these unsecured loans in many cases may be of a small ticket size, but, they carry high interest rates and also other charges in the event of default. In many cases, lending organizations are taking advantage of the unregulated interest rate regime and vulnerability of their customers and subjecting them to the torture of recovery agents.
Many times customers end up repaying the outstanding, which consists of little principal but high amounts of financial charges/fees and other charges. In select cases, interest rate can be as high as 48% per annum and in case of default and non-payment, when other fees with service tax are added, this can easily cross more than 100% per annum. In case the borrower wants to pre-pay the loan, there is a pre-payment charge. So a situation is created through a loan agreement or card holder agreement, the ramification of which is never explained to the borrower by the DSA/DMA.
There had been a case in which the Supreme Court of India in criminal appeal No 267 of 2007 on February 26, a case involving a leading bank has come out with a lot of important observations. One point made is that — for the lender — it is not a mere question of lending the money that matters, but also the consequence thereafter. Thus, there is an element of social responsibility. Secondly, recovery of loans or seizure of vehicles can be done only through legal means. Thirdly, strictures ought to be imposed on erring banks to curb their high-handed activities and make them answerable to the general public. Finally, the apex court has said that banking procedures should be people-friendly and at the same time, strict in its enforcement and educative enough to guide the public of the benefits of prudent banking and the lender should be transparent in their transactions with the borrowers.
The provisions of The Usurious Loans Act 1918 read with The Punjab Relief of Indebtedness Act, 1934 indicates that any rate above 12.5% simple rate of interest per annum on unsecured loans can be considered as ‘usurious’ by the competent court.
Against the above back drop, the Reserve Bank of India in it’s Annual Policy Statement for 2007-08 made a mention of the complaints received by it and Banking Ombudsman offices and stated that in a deregulated interest rate regime, rates of interest beyond a certain level may be seen to be usurious and can neither be sustainable nor in conformity with banking prudence. Therefore, the banks are advised to lay down internal principles and procedures so that such usurious interest including processing and other charges are
not charged.
This was followed by a directive through a circular dated May 7 to all commercial banks inter alia stating that the total cost to the borrower, including interest and all other charges levied on a loan, should be justifiable having regard to the total cost incurred by the bank in extending the loan, which is sought to be defrayed and the extent of return that could be reasonably expected from the transaction. Besides they are required to put an appropriate ceiling on interest and other charges and suitably publicize it.
The banks are required to implement this circular by September 7. Similar directions have been issued to Regional Rural Banks (RRBs), urban banks and NBFCs and RNBCs by RBI. However, in case of NBFCs/RNBCs, RBI has advised that excessive interest rate can neither be sustainable nor be conforming to normal financial practice. Therefore, the board should lay down internal principles and procedures in determining the interest rate and processing and other charges.
The step taken by RBI is in the interest of the society and the banks/NBFCs. It is mandatory for the banks/NBFCs to implement the same. At the same time there is need to keep check whether all these institutions will voluntarily reduce the interest rates and other charges adequately in a fair and just manner keeping in mind the corporate social responsibility, as a good corporate citizen, as no ceiling has been prescribed by RBI.
There are certain regulatory measures which NBFCs and RNBCs have to take in consideration. NBFCs and RNBCs beyond a cut-off asset size may be asked to publish their balance sheets and profit and loss accounts in newspapers and put it in their websites so that the public at large become aware about the profit generated in their business. Also it may be considered to put in place a non-discretionary penalty on banks/NBFCs by prescribing the amount for any violation noticed and established in a transparent manner.
For credit cards, the banks may be advised to open service points/contact points where a card holder can walk in to obtain a duplicate bill, make payment towards his bill, surrender the card or report loss of card against proper receipt which will mitigate most of the after sales problems faced by the card holders.
The regulator is doing its duty now it is the borrower who has to show his understanding. The banks and NBFCs are commercial organizations; the borrower should borrow sensibly to avoid a debt trap.
Change in the payment protection insurance over the internet
People taking out personal loans online are set to save large amounts of cash because payment protection insurance will no longer be sold to them automatically.
That is according to independent payment protection insurance provider Paymentcare.co.uk.
The Financial Services Authority (FSA) announced publicly that major finance firms have agreed to change how they sell payment protection insurance over the internet.
Before payment protection was automatically included, using techniques such as a 'pre-ticked' box in the online deals offered by the personal loans providers.
With this decision taken by the personal loan providers, as a result customers have to actively choose to buy insurance.
Shane Craig, the managing director of Paymentcare said, "this is excellent news for consumers and yet another step in the right direction towards ensuring they receive the fair treatment they expect and deserve,"
"It’s also a very positive move for the image and reputation of the industry and will help to ensure that the people who really want protection will no longer be scared off."
Vernon Everitt, FSA director of retail themes, added: "We have made payment protection insurance a top priority and are pleased that firms have agreed to change the way they sell payment protection insurance over the internet.
"Naturally, many customers are focused on getting the loan itself, but it is just as important that they also think about whether or not they want to protect their loan repayments by taking out payment protection insurance cover.
"This change means that it will be up to the customer to actively choose to buy payment protection insurance rather than it being sold automatically."
That is according to independent payment protection insurance provider Paymentcare.co.uk.
The Financial Services Authority (FSA) announced publicly that major finance firms have agreed to change how they sell payment protection insurance over the internet.
Before payment protection was automatically included, using techniques such as a 'pre-ticked' box in the online deals offered by the personal loans providers.
With this decision taken by the personal loan providers, as a result customers have to actively choose to buy insurance.
Shane Craig, the managing director of Paymentcare said, "this is excellent news for consumers and yet another step in the right direction towards ensuring they receive the fair treatment they expect and deserve,"
"It’s also a very positive move for the image and reputation of the industry and will help to ensure that the people who really want protection will no longer be scared off."
Vernon Everitt, FSA director of retail themes, added: "We have made payment protection insurance a top priority and are pleased that firms have agreed to change the way they sell payment protection insurance over the internet.
"Naturally, many customers are focused on getting the loan itself, but it is just as important that they also think about whether or not they want to protect their loan repayments by taking out payment protection insurance cover.
"This change means that it will be up to the customer to actively choose to buy payment protection insurance rather than it being sold automatically."
Wednesday 25 September 2013
HDFC Bank increases NRE deposit rates
HDFC Bank has increased interest rate on its (Non-resident Indian – external) NRE deposits, effective from July 1, 2007. Interest rate on NRE deposits for three to five years maturity will increase by 16 basis points to 5.45 per cent against 5.29 per cent earlier. Deposits of 2 to less than 3 year maturity, the increase is by 12 basis points to 5.43 per cent as against 5.31 per cent earlier.
The rate of interest for deposits maturing between one and two years is up by 3 basis points to 5.42 per cent as against 5.39 per cent earlier. The NRE rates were last revised by the bank on June 1, 2007.
The rate of interest for deposits maturing between one and two years is up by 3 basis points to 5.42 per cent as against 5.39 per cent earlier. The NRE rates were last revised by the bank on June 1, 2007.
Tuesday 24 September 2013
#Lab13 Leaders Speech
I thought this speech was very good and well delivered. I think it was over one hour long with numerous interruptions from genuine standing ovations. How on earth can he memorise it all? I can't even remember a 3 minutes speech!
It projected him as a potential Prime Minster and national leader “who will not only stand up for the weak but also stand up to powerful”.
He is making a obvious play towards the self employed and those on low wages by stressing how disillusioned many people are who work hard but still find it impossible to make ends meet. "They used to say 'a rising tide lifts all boats'. Now the rising tide just seems to lift yachts." Not much detail.
He rightly hammered home that you can only trust Labour with the NHS and that the Party will have to rescue it again from the Tories mishandling when we return to power.
He made an excellent point about the Tories received £25 million from Hedge funds and surprise, surprise Hedge funds receive a £145 million tax break. He might have said "trade unions are the cleanest money in British politics" - but he didn't.
Not really sure why he kept using the term "we are Britain" rather than we are "British"?
A welcome commitment to build 200k new homes a year and "use the land or lose the land" threat to builders and speculators who are sitting on large land banks. Not sure how he will do this? Nationalisation? Compulsory purchase? Tax?
Beforehand we were wondering what new policies he would announce during the speech. We agreed that they would be headline grabbing but not cost very much to a future government. The votes for 16 and 17 year olds and the welcome freeze on energy prices met those tests.
The Scottish Nationalists will not like the example he used of a Liverpool hospital caring for a patient from Glasgow as a reason why we are "better together" but I think it is a fair point and I’m glad that we are finally making the case for devolution and the United Kingdom.
Overall, I thought he is looking more like a credible Prime Minister than Cameron and now the election is getting nearer he can come out with policies that will make the difference between Labour and the Conservative clearer and give people positive reasons to vote for us.
Overall, I thought he is looking more like a credible Prime Minister than Cameron and now the election is getting nearer he can come out with policies that will make the difference between Labour and the Conservative clearer and give people positive reasons to vote for us.
#Lab13 - Responsible Capitalism and Workplace democracy. Giving workers a real voice
TUC General Secretary Frances O'Grady started off by saying some of her members think that "responsible capitalism" is an Oxymoron! But her main point was why is corporate governance in the UK so peculiar and out of step with the rest of Europe? Where employee representation on company boards is common place.
We need to rebalance Labour and Capital. Frances quoted a terribly condescending and even insulting comment (which she described as "patronising twaddle") from the CBI about why in the UK British employees aren't good enough to being represented on boards. Workers keep being told that they are the organisations "greatest assets". Yet the arguments being made against employee representation remind her of those made in 19th century against getting rid of the property qualification in order to vote.
Chuka Umunna MP believes that it is all about balance. Do we want a mixed or a laissez faire economy? Leading businesses started talking about this debate before we did in Parliament. Things have got to change. Need to promote the long term. Value investment in people and skill up. Look at the damage done to BP reputation and profitability after the oil disaster. It is in companies self interest to have good governance models.
Tom Powdrill from PIRC thought that the governance mascot was Lord Myners. Why did shareholders not stop the banks from destroying themselves? Excessive executive pay levels are being driven to the levels found in financial markets. Since oversight is not by shareholders but by fund managers and hedge funds who naturally will think such levels are appropriate. Need a dose of reality. Tackle the problem up stream before a decision is made. UK Companies already invest in Europe where employee representatives are widely accepted -so why don't they support similar models over here?
Nita Clare from the IPA (see previous post here) was Tony Blair's advisor on trade unions and before that a national officer for unison for 17 years. Good businesses know the value of stakeholders. The CBI quote is now quite old fashioned. She stressed the importance of the supply chain to business. If there is a fire in a Bangladeshi factory it is no use saying "nothing to do with us".
There has been a death of deference and trust at work. 60% of employees surveyed said they don't trust managers. Management style is critical. If you have a culture of fear in any organisation, private or public, then it will fail. The Social partnership approach in Germany will be difficult to adopt in UK
My question to the panel was similar to the one I made before was how is it that I am an employee representation on a £900 million pension scheme and I sit on a joint committee on health and safety that looks after the safety of thousands of workers but I cannot sit on the management board or remuneration committee of my organisation?
Scholarships for Accredited Schools in West Virginia
Scholarships for Accredited Schools in West Virginia
Scholarships for accredited schools, and accredited degree programs in West Virginia certainly exist. In fact, traditional West Virginia scholarship sponsors require that scholarship recipients must attend or anticipate on attending an accredited school, college, or university in West Virginia. Another qualification by some scholarship sponsors is that students seeking West Virginia scholarships should know something about the history of West Virginia. As a general rule of thumb, the greater the value the West Virginia scholarship then more is expected of the West Virginia scholarship recipient.
Scholarship Quiz Questions for West Virginia Scholarships destined for accredited West Virginia Schools
The obvious question for persons seeking scholarships, grants, and financial-aid to attend one of the many accredited schools in the state of West Virginia is: What must I know to qualify for a scholarship, grant, or financial-aid?
Persons seeking scholarships for the purposes of attending an accredited school or college in West Virginia should know that many scholarship sponsors have different requirements, and altogether different scholarship applications. However, if a scholarship applicant is seeking scholarships, grants, or financial-aid sponsored by National Academy of American Scholars then the scholarship applicant should know at least the basic historical and founding facts surrounding West Virginia.
For example, West Virginia became a state following the Wheeling Conventions and broke away from Virginia during the American Civil War. The new state was admitted to the Union on June 20, 1863, and was a key Civil War border state. West Virginia was the only state to form by seceding from a Confederate state and was one of two states formed during the American Civil War (the other one being Nevada, which separated from Utah Territory).
Why are scholarships for accredited schools in West Virginia needed?
West Virginia scholarships are needed for accredited schools and universities in West Virginia because the West Virginia Department of Education is focused on education, and students should be rewarded for attending an accredited vs. a non-accredited school. By sponsoring scholarships, and grants for students attending accredited schools in West Virginia, we support the belief that every student matters. Also, a high-proportion of West Virginia moms, West Virginia , mothers, West Virginia women, and high-school graduates, as well as a large proportion of West Virginia working adults pursue some form of higher education.
We sponsor West Virginia scholarships for West Virginia moms, women, working adults, and students. Nearly all of these moms, women, working adults, and students rely upon accredited West Virginia scholarships, grants, and financial-aid. West Virginia colleges and universities have experienced consistent year-over-year growth in enrollment, as well as a notorious habit of raising tuition each year. Unlike some states with lower educational standards, and a high proportion of students who drop out of schools, West Virginia is a state with stringent educational standards, and high expectations. Also, West Virginia has many quality school districts. Students whom plan on attending any of the quality universities in West Virginia like West Virginia University, or West Virginia State University, will need scholarships to attend such accredited schools or programs.
One of the best possible resources for moms, women, single moms, and adults seeking scholarships, grants, and financial-aid for accredited colleges or accredited universities is the website of National Academy of American Scholarships. We encourage adult students, moms, women, and single mothers to explore these financial-aid options for scholarships, as well other West Virginia scholarships that are not listed but may be accessed by visiting our West Virginia Scholarships pages:
For a detailed continuation of this article, and numerous sources of renewable High-paying West Virginia scholarships, official State of West Virginia Pell Grants, Supplemental Educational Opportunity Grants (SEOG), and various other official West Virginia Grant programs, and private sources of West Virginia scholarships, grants, and financial-aid, please visit our West Virginia Scholarships page:
Understanding financial statements (Part 1) - The income statement
To be an investor, you have to know how to read financial statements. I would say that this is a skill that every investor must know. In fact, Warren Buffet said that the greatest skill a young person can learn during his or her school days is the skill of accounting.
In an annual report, you will basically find 3 financial statements.
1) The Income Statement
2) The Balance Sheet
3) The Cash Flow Statement
I will go through all 3 statements in detail as simple as I can. For this post, we shall use the company Singtel's financial statement as an example. It is the largest company listed on SGX in terms of market capitalization. It is also one of the blue chip stocks and is one of the 30 components stock that make up the Straits Times Index (STI).
Let's start with the income statement.
The Income Statement
I personally use investing.businessweek.com to read up on a company's financial report. You can access Singtel's income statement here. Alternatively, you can get the full annual report from either SGX or Singtel's own investor's relation website.
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Revenue
The income statement shows how much a company is making or losing. The first thing we see on the income statement is revenue. It is the sales the company has made for that quarter or year. This is the money it earned through selling a service or product. For Singtel, it can be the selling of mobile phone service which we pay a monthly subscription. The money collected is recorded as revenue. For Singtel, its 2012 revenue was $18.18 Billion
Cost of goods sold
Next, we see the cost of goods sold. This is the cost that is directly involved in creating the revenue. It can be labor costs, raw material costs, or the initial cost price of the goods. This is deducted from the revenue.
Gross Profit
After deducting cost of goods sold from revenue, we get gross profit. Gross profit is revenue minus cost of goods sold. For Singtel, its 2012 gross profit was $5.5 Billion. This is after deducting cost of goods sold of 12.7 Billion.
Selling General & Admin Expenses, Total
Next we see Selling General & Admin Expenses. This is also known as operating expenses and includes expenses such as marketing costs, administrative salaries and research and development costs.
Depreciation & Amortization, Total
The next is Depreciation & Amortization. This cost is the depreciation on assets that the company purchases. Assets like machineries and motor vehicles will drop in value over time. The depreciation reflects the cost of the depreciation.
Operating Income
Another important one we should know is operating income. This is revenue minus cost of goods sold and also all operating expenses. It is the profit the company made from its actual operations. For Singtel, it is the earnings from its main business in the mobile, internet and IPTV services.
Interest Expense/Income
You'll see the next 2 rows being interest expense then interest income. This records the interest the company paid on bonds it issued or the interest collected from bonds it owns.
EBT, Including Unusual Items
EBT means earnings before taxes. A more accurate term you can look at is EBITA. This is earnings before interest, taxes and amortization. You will realise that before the EBT, there is a big chunk of expenses called other non-operating expenses. Accountants may remove this expense and not include it in the calculation towards earnings.
Net Income
This is the company's profit after all expenses have been deducted. It is the income that most companies will report on when they release thier earnings result. However, do note that the figure may be distorted as it includes one time charges or investment income. It does not really reflect on the true operating profit of the company. Investors sometimes look at operating income as it reflects the income earned from its actual operations in the business.
Summary
We have just gone through the various items included in the income statement. In summary, the income statement reflects the income and expenses of the company. For an investor, we do not just analyze a company's earnings power using the income statement only. You'll come to realise that the cash flow statement is a more accurate measure of a company's financial health. Income can be distorted more easily while cash flow is harder to fake. It is the actual cash that flows into the company business.
The next 2 financial statements, namely the balance sheet and the cash flow statement, will be discussed in the next part.
In an annual report, you will basically find 3 financial statements.
1) The Income Statement
2) The Balance Sheet
3) The Cash Flow Statement
I will go through all 3 statements in detail as simple as I can. For this post, we shall use the company Singtel's financial statement as an example. It is the largest company listed on SGX in terms of market capitalization. It is also one of the blue chip stocks and is one of the 30 components stock that make up the Straits Times Index (STI).
Let's start with the income statement.
The Income Statement
I personally use investing.businessweek.com to read up on a company's financial report. You can access Singtel's income statement here. Alternatively, you can get the full annual report from either SGX or Singtel's own investor's relation website.
Revenue
The income statement shows how much a company is making or losing. The first thing we see on the income statement is revenue. It is the sales the company has made for that quarter or year. This is the money it earned through selling a service or product. For Singtel, it can be the selling of mobile phone service which we pay a monthly subscription. The money collected is recorded as revenue. For Singtel, its 2012 revenue was $18.18 Billion
Cost of goods sold
Next, we see the cost of goods sold. This is the cost that is directly involved in creating the revenue. It can be labor costs, raw material costs, or the initial cost price of the goods. This is deducted from the revenue.
Gross Profit
After deducting cost of goods sold from revenue, we get gross profit. Gross profit is revenue minus cost of goods sold. For Singtel, its 2012 gross profit was $5.5 Billion. This is after deducting cost of goods sold of 12.7 Billion.
Selling General & Admin Expenses, Total
Next we see Selling General & Admin Expenses. This is also known as operating expenses and includes expenses such as marketing costs, administrative salaries and research and development costs.
Depreciation & Amortization, Total
The next is Depreciation & Amortization. This cost is the depreciation on assets that the company purchases. Assets like machineries and motor vehicles will drop in value over time. The depreciation reflects the cost of the depreciation.
Operating Income
Another important one we should know is operating income. This is revenue minus cost of goods sold and also all operating expenses. It is the profit the company made from its actual operations. For Singtel, it is the earnings from its main business in the mobile, internet and IPTV services.
Interest Expense/Income
You'll see the next 2 rows being interest expense then interest income. This records the interest the company paid on bonds it issued or the interest collected from bonds it owns.
EBT, Including Unusual Items
EBT means earnings before taxes. A more accurate term you can look at is EBITA. This is earnings before interest, taxes and amortization. You will realise that before the EBT, there is a big chunk of expenses called other non-operating expenses. Accountants may remove this expense and not include it in the calculation towards earnings.
Net Income
This is the company's profit after all expenses have been deducted. It is the income that most companies will report on when they release thier earnings result. However, do note that the figure may be distorted as it includes one time charges or investment income. It does not really reflect on the true operating profit of the company. Investors sometimes look at operating income as it reflects the income earned from its actual operations in the business.
Summary
We have just gone through the various items included in the income statement. In summary, the income statement reflects the income and expenses of the company. For an investor, we do not just analyze a company's earnings power using the income statement only. You'll come to realise that the cash flow statement is a more accurate measure of a company's financial health. Income can be distorted more easily while cash flow is harder to fake. It is the actual cash that flows into the company business.
The next 2 financial statements, namely the balance sheet and the cash flow statement, will be discussed in the next part.
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