The Prelude to Reform

It may be said that the Indian economy before the liberalization policy was that of government interference and ownership in which the Banking institutions were much overbearing. The sector was mainly under the regulation of the Reserve Bank of India (RBI) and was dominated by low efficiency, lack of competition and a limited range of financial services. The 1991 economic crisis, which was the result of a currency decline and a substantial budget deficit, was also the catalyst that triggered radical economic changes complemented by a restructuring of the banking industry.

Major Reforms in Banking During Liberalization

Deregulation of Interest Rates

The major reform is related to the interest rates that have been deregulated. In pre-liberalization, the interest rates were controlled by the RBI, which, many times, created inefficiency and mismatches between savings and investment. The underlying reform was towards enhancing competition and resource allocation to result in more functional efficiency of the financial system.

Privatization of Public Sector Banks and Licensing of Private Banks

The policy of privatization of public sector banks, along with a policy of licensing of private sector banks, were major turning points. The Reserve Bank of India started granting licenses to private participants, both indigenous as well as foreign, which created some competition in the banking sector. This step was meant to break the monopoly of public sector banks and bring novelty and efficiency. Notable new entrants included the likes of ICICI Bank, HDFC Bank, and Axis Bank that introduced advanced technology and customer-oriented services in the Indian market.

Strengthening of Regulatory Frameworks

The post-liberalization period saw a sea change in the regulatory framework relating to the banking sector. The RBI took various measures aimed at enhancing banking stability, one such initiative being the issuance of Basel I norms that stipulated international standards for capital adequacy.

Introduction of Prudential Norms

Prudential norms were brought in to overcome the asset quality and financial stability problem. These included a minimum capital adequacy ratio requirement for banks, strict loan provisioning norms, and enhanced practices of asset classification. The reforms were supposed to save the sector from systemic risks and maintain the health of the banking sector.

Financial Inclusion Expansion

The era of liberalization was also marked by a focused approach in the direction of financial inclusion. This included the setting up of NABARD and introduction of microfinance programs. The motive behind financial inclusion was to extend banking into backward and rural areas, thereby increasing the customers and encouraging growth of economy on equitable lines.

Technological Advancement and Banking Innovations

The period of liberalization also saw a spurt in banking services related to the latest technologies. The induction of ATMs, electronic funds transfer systems, and online banking totally revolutionized the way transactions were undertaken. Payment systems also became faster and more secure with the introduction of a National Electronic Funds Transfer – NEFT- and Real Time Gross Settlement – RTGS- system.

Effects of Banking Reforms

Increased Efficiency and Competition

Entry of private and foreign banks increased competition, which, in turn, compulsorily brought overall improvement in the quality and efficiency of services. The customer benefited in terms of diversification of financial products, competitiveness of interest rates, and improvement in banking services.

Growth of Financial Sector

These reforms in the banking system contributed to high growth in the financial sector. Assets in the banking system expanded, and the sector became more integrated into the international financial markets. There was also heightened activity in the capital markets, including banks playing a major role in several issues of corporate bonds and other instruments.

Financial Inclusion and Rural Development

The efforts for financial inclusions created greater access to banking services toward rural and under-served areas. The increasing numbers of banking correspondents facilitated programs for reaching the unbanked population, along with an expanding network of branches, helped in overall economic development.

Challenges and Criticisms

While the reforms ushered in a bunch of benefits, they were not without their share of challenges. Sometimes, rapid deregulation bestowed, upon banks, licenses to take uncalled-for risks, which furthered asset quality issues and, in many cases, the emergence of NPAs. Inadequate infrastructure and unequal spread of benefits across regions were various other problems the financial sector was in a bind about.

Long-Term Impact and Legacy

The banking reforms in the era of liberalization have built a strong foundation for the Indian financial sector. Transition into a more competitive and technologically advanced banking environment helped India face subsequent economic crises and advance economic growth further. Simultaneously, the reforms laid down an improved regulatory framework that would continue to evolve in response to emerging challenges and global trends. The reorganization of Indian banking in 1991 laid the foundation for a financial system that would be much more dynamic, competitive, and resilient in succeeding years. These reforms appropriately positioned India’s integration with the global economy; sustained economic growth, to a large measure, was possible; and these set the stage for future innovations in banking. The lessons from this transformational period still linger on and enlighten the development of the banking sector in India in its ongoing responsiveness to emerging challenges.

For more elaborate view on this topic, you can refer to wikipedia or a book by Mr Bimal Jalan available on amazon- https://www.amazon.in/India-After-Liberalisation-Bimal-Jalan/dp/939032713X

Conclusion

Banking reforms during the era of liberalization in India enabled the remodeling of the financial sector and contributed a lot to the growth of the country’s economy. These reforms birthed competition, upgraded the regulatory environment, and supported financial inclusions that have made an indelible mark on the banking environment of India. As India continues to sail through the challenges of a globalized economy, lessons from this critical transformation period will remain vital in guiding the future of its financial sector.

Car loans have emerge as an essential a part of the monetary landscape, offering people the risk to purchase their favored cars while handling their prices effectively.

What is a Car Loan?

A car loan is a financial product presented with the aid of banks, economic establishments, or non-banking economic businesses (NBFCs) that permits individuals to borrow a selected sum of money to buy a automobile. The borrower has the same opinion to repay the loan quantity along side hobby over a fixed period, usually in equated month-to-month installments (EMIs).

Key Features of Car Loans in India:

• Eligibility Criteria: To practice for a automobile mortgage in India, people commonly need to fulfill sure eligibility standards set by way of the lending group. These criteria regularly include factors consisting of age, income, employment stability, credit score rating, and residence balance.
• Loan Amount and Tenure: The loan amount sanctioned by means of lenders relies upon on different factors, consisting of the borrower’s profits, credit score records, the automobile’s cost, and the lender’s regulations. The tenure for car loans generally tiers from one to seven years, presenting borrowers with flexibility in deciding on a reimbursement period that suits their financial talents.
• Interest Rates: Interest charges for vehicle loans in India can be fixed or floating and range amongst creditors. They are typically prompted by using the mortgage amount, tenure, and the borrower’s creditworthiness. Comparing interest fees throughout exceptional creditors is critical to secure the most favorable deal.
• Down Payment: Most creditors require borrowers to pay a certain percent of the auto’s total fee as a down payment, at the same time as the closing amount is financed thru the loan. The down payment percentage can range and is regularly negotiable.
• Processing Fees and Other Charges: Lenders generally rate a processing fee for comparing and processing the mortgage application. Additionally, debtors must be privy to any prepayment costs, past due price costs, or other penalties related to the loan.

Types of Car Loans:

• New Car Loans: Designed for buying brand new vehicles, those loans provide competitive interest quotes and longer compensation intervals compared to other loan alternatives.
• Used Car Loans: Lenders also provide loans for purchasing used or pre-owned motors. The loan quantity sanctioned for a used automobile might be lower, and hobby prices will be slightly better compared to new car loans.
• Loan Against Car: This sort of loan allows folks who already personal a car without any pending loans to pledge their vehicle as collateral to obtain a mortgage for diverse economic needs.

Steps to Apply for a Car Loan:

• Research and Comparison: Research one of a kind creditors, their interest quotes, eligibility criteria, and mortgage terms. Compare those info to find the most appropriate mortgage option.
• Documentation: Gather the desired documents, inclusive of identification evidence, deal with proof, income proof, and information associated with the automobile purchase.
• Application Process: Apply for the loan via the lender’s website, branches, or DSA. Fill out the application and put up the essential files or Documents.
• Loan Approval and Disbursement: After verifying the files and engaging in the important checks, the lender approves the loan. The sanctioned quantity is then disbursed to the automobile supplier or the borrower immediately.

Conclusion:

Car loans in India have significantly eased the method of proudly owning a vehicle, allowing people to satisfy their transportation wishes with out bearing the complete cost upfront. However, it is essential for debtors to thoroughly recognize the phrases, situations, and implications of the loan earlier than committing to make sure a smooth and conceivable compensation journey. When used accurately, car loans serve as a valuable monetary device, supplying get entry to to mobility even as allowing debtors to hold their monetary balance.

Always recall, before opting for any loan, it’s advisable to are trying to find advice from financial advisors and make knowledgeable choices based totally on your economic state of affairs and destiny plans.

If there is anything particular you’d like to dive deeper into or if you need records on a particular issue, sense loose to invite!

We are always confused while selecting SIP or mutual funds whether to invest in Debt funds or Equity funds. Both become jargon for non-financial people’s backgrounds.

To simplify things about both, I am explaining some salient features of both instruments while selecting a SIP for your benefit.

Debt mutual funds and equity mutual funds are two different types of mutual funds that invest in different asset classes.

Here’s a comparison between debt mutual funds and equity mutual funds:

Debt Mutual Funds:

• Asset class: Debt mutual funds primarily invest in fixed-income securities such as government bonds, corporate bonds, treasury bills, debentures, and money market instruments.
• Risk and returns: Debt mutual funds are considered lower-risk investments compared to equity mutual funds. They offer relatively stable returns with lower volatility. The risk associated with debt funds primarily depends on the credit quality of the underlying bonds.
• Income generation: Debt funds focus on generating regular income for investors through interest payments from the underlying bonds. The returns are primarily driven by interest rate movements and credit quality.
• Investment horizon: Debt mutual funds are suitable for investors with a shorter investment horizon or those looking for capital preservation and regular income. They are often preferred by conservative investors or low risk takers.
• Taxation: The taxation of debt mutual funds depends on the holding period. Short-term capital gains (held for less than three years) are added to the investor’s income and taxed at their applicable income tax slab rate. Long-term capital gains (held for more than three years) are taxed at 20% after indexation benefits.

Equity Mutual Funds:

• Asset class: Equity mutual funds invest primarily in stocks or equity-related instruments of companies across different sectors and market capitalizations.
• Risk and returns: Equity mutual funds are higher-risk investments compared to debt funds. They offer the potential for higher returns over the long term but are subject to market volatility. The returns are influenced by the performance of the stock market and the underlying companies.
• Capital appreciation: Equity funds aim to generate capital appreciation by investing in fundamentally strong companies that have the potential to grow over time. Dividends may also be distributed by some equity funds.
• Investment horizon: Equity mutual funds are suitable for investors with a longer investment horizon (typically more than five years) who can tolerate market fluctuations. They are preferred by investors seeking long-term wealth creation.
• Taxation: For equity mutual funds, short-term capital gains (held for less than one year) are taxed at 15%. Long-term capital gains (held for more than one year) up to INR 1 lakh are tax-exempt, and gains exceeding INR 1 lakh are taxed at 10% without indexation.

It’s important to note that both debt and equity mutual funds have their advantages and considerations. The choice between the two depends on factors such as an investor’s risk tolerance, investment goals, time horizon, and overall asset allocation strategy. It is advisable to consult with a financial advisor or professional to determine the most suitable investment option based on your individual circumstances in my opinion people who are aged more than 50 or want to take less risk in their investments should always opt for Debt funds/Mutual Funds. You can also refer to https://www.mutualfundssahihai.com/en for more information on mutual funds or https://www.mutualfundssahihai.com/en/what-systematic-investment-plan-sip for more information on SIP’s.

Make correct and informed decision, stay safe, stay healthy

Welcome to my Blog.

I have been little irregular in posting Blogs of late due to other commitments but now onwards I will certainly try to write and publish a blog every 15 days sincerely.

I am starting a new series on Financial Planning. This is Blog 1 of Financial Planning Series. Please go through the Blog and comment is you like.

Today I have chosen a burning topic about SIP’s. Every youngster is having a little concern in mind whether to do SIP or do lumpsum investment in mutual funds.

In today’s dynamic and fast paced world, individuals are increasingly realizing the importance of long-term wealth creation and financial stability. In this pursuit, Systematic Investment Plans (SIPs) have emerged as a popular investment avenue that offers a disciplined and hassle-free approach to investing. SIPs have gained significant traction in recent years, providing individuals with an opportunity to participate in the wealth creation process systematically. In this exclusive article, we delve into the concept of SIPs, their benefits, and how they can be utilized effectively to achieve one’s financial goals.

Understanding SIPs

Systematic Investment Plans, commonly known as SIPs, are investment vehicles that enable individuals to invest in mutual funds periodically. It is a method of investing in mutual funds that involves regular and periodic investments of a fixed amount. SIPs provide individuals with the opportunity to invest in mutual funds in a disciplined and systematic manner. Unlike traditional lump sum investments, SIPs allow investors to allocate a fixed amount of money regularly, typically on a monthly basis. This consistent investment approach is beneficial in mitigating the impact of market volatility, as it involves buying units at different price points, thereby averaging out the cost of acquisition over time which is otherwise in technical terms called hedging.

Benefits of SIPs

• Rupee Cost Averaging: One of the significant advantages of SIPs is the concept of rupee cost averaging. When the market is volatile, the SIP approach enables investors to purchase more units when prices are low and fewer units when prices are high. This strategy helps mitigate the impact of market fluctuations and potentially generates better returns over the long run.

• Disciplined Investing: SIPs instil discipline in the investment process. By committing to invest a fixed amount regularly, investors develop a habit of saving and investing, irrespective of market conditions. This systematic approach minimizes impulsive investment decisions based on short-term market movements and helps individuals stay focused on their long-term goals.

• Flexibility and Affordability: SIPs offer flexibility in terms of investment amount, allowing individuals to start with as little as a few hundred rupees. This affordability makes it an attractive investment avenue for retail investors, enabling them to participate in the capital markets without significant financial constraints.

• Professional Fund Management: SIPs are primarily invested in mutual funds, which are managed by professional fund managers. These experts conduct extensive research, analyze market trends, and make informed investment decisions on behalf of the investors. By leveraging their expertise, investors can benefit from the experience and knowledge of these professionals.

• Long-Term Wealth Creation: SIPs are designed for long-term wealth creation. By consistently investing over an extended period, individuals can harness the power of compounding and generate substantial returns. This approach is particularly advantageous for individuals with long-term financial goals such as retirement planning, children’s education, or buying a house.

Effective Utilization of SIPs

To maximize the benefits of SIPs, investor should consider the following strategies:

• Define Financial Goals: Clearly define your financial goals and the time horizon within which you aim to achieve them. This will help determine the appropriate mutual fund scheme and the duration of your SIP investment.

• Choose the Right Fund: Assess your risk appetite and investment objectives before selecting a mutual fund scheme. Consider factors such as the fund’s performance track record, fund manager’s experience, and the fund’s investment philosophy.

• Maintain Consistency: Consistency is key to SIP success. Stick to your investment plan and avoid discontinuing or pausing your SIPs, even during market downturns. Timing the market is challenging, and regular investing helps reduce the impact of short-term market volatility.

• Review and Rebalance: Periodically review your SIP portfolio to ensure it aligns with your financial goals and risk tolerance. Rebalance your investments if required, by either increasing or decreasing exposure to certain funds, based on their performance and market conditions.

Investing in SIPs (Systematic Investment Plans) is a very straightforward process. Here’s a step-by-step guide on how to invest in SIP:

• Set Your Financial Goals: Determine your financial goals and the time horizon within which you aim to achieve them. It could be saving for retirement, buying a house, funding your child’s education, or any other objective. Having clear goals will help you select the right SIPs and investment duration.

• Assess Risk Tolerance: Evaluate your risk tolerance by considering factors such as your age, financial responsibilities, investment knowledge, and willingness to bear market fluctuations. This assessment will help you choose mutual fund schemes that align with your risk profile. Younger the investor can take more risk.

• Select a Mutual Fund: Research and choose a mutual fund scheme that suits your investment goals and risk tolerance. Consider factors such as historical performance, expense ratio, fund manager’s track record, investment philosophy, and the fund’s asset allocation strategy. You can explore various mutual fund comparison websites, consult financial advisors, or refer to the fund house’s official website for information.

• Complete KYC Formalities: To invest in mutual funds, you need to complete the Know Your Customer (KYC) formalities. KYC involves providing necessary documents, such as identity proof, address proof, and PAN card details. You can complete the KYC process by visiting the website of a mutual fund registrar or through online investment platforms.

• Choose SIP Frequency and Amount: Decide on the frequency (usually monthly) and the amount you wish to invest through SIP. Select an amount that is affordable for you and consistent with your financial goals. Mutual funds often have minimum investment requirements, so ensure that your chosen amount meets those criteria.

• Complete the Application Form: Once you have chosen the mutual fund and determined the SIP details, fill out the application form provided by the mutual fund house. This form can typically be downloaded from the fund house’s website or obtained from their branch offices or distributors.

• Provide Bank Mandate Details: Along with the application form, you will need to provide a bank mandate form. This form authorizes the mutual fund to deduct the SIP amount from your bank account on the specified dates. Fill in the necessary details, such as bank account number, IFSC code, and other required information.

• Submit the Application: After completing the application form and bank mandate form, submit them along with the necessary documents to the mutual fund house or their authorized collection centers. Alternatively, you can also invest online through the mutual fund’s website or through online investment platforms.

• Monitor and Review: Once you have started investing in SIPs, it is essential to monitor your investments periodically. Keep track of the performance of the mutual funds and review your investment strategy regularly. This allows you to make informed decisions and make any necessary adjustments to your SIP portfolio.

You can use many fintech companies like GROWW (https://groww.in/), ZERODHA (https://zerodha.com/), KUVERA (https://kuvera.in/) etc to simplify the process and start investing through their apps on Android and IOS.

Remember, SIPs are designed for long-term wealth creation, so it is important to stay invested and avoid discontinuing or pausing your SIPs during market downturns. By maintaining consistency and a disciplined approach, you can maximize the benefits of SIP investing over time.

Note: It is always advisable to consult a financial advisor or professional in the sector before making any investment decisions, as they can provide personalized guidance based on your individual circumstances and financial goals.

Thank your for reading my Blog. Please wait for my next blog on financial Planning series.

In our last two blogs I had discussed what banks or credit institutes look for while sanctioning housing loans. We saw how banks look into a proposal from 3 angles that is

1.           Financial discipline of the applicant or customers

2.           Financial capability of the customer

3.           Asset quality

we discussed in this blog series regarding financial discipline being the foremost and most important factor during credit appraisal for a housing loan. Also How Financial capability plays a role in ascertaining the loan quantum.

Today we will discuss about the Asset Quality which customer is buying or investing.

This blog series caters to Housing Loan only. So, customers invest in properties by two ways one is either direct purchase of flat or stand alone building and the other way is purchase of plot and construction there on.

So asset quality refers to the security with the customer offers to the bank for availing the housing loan. Banks are interested in the asset which is being acquired by the customer with the help of the loan. This type of asset is called primary security by the bank as the property is created out of the loan given by the bank.

Now banks will do their due diligence before accepting the property. This depends on the type of property offered by the customer. Some of the criteria is listed below

1. Flats/ ready to move in houses- Banks will see that the flat or house is made on an approved land, whether the flat or house is having approved plan from the concerned authorities of the area and flat or house has been made as per the approved plan. Also the flat or house is having all the basic amenities available or not. How is development of the area. The land where the construction happened is not coming under any dispute or is not under any government regulation.
2. Plots – Banks will scrutinize if the Plot is land Locked or not. Land locked plots are never approved for housing loans. (Land Locked means there is no separate access to the plot and the only access to the plot is through some other persons land). Also is it adjacent to any Rajakaluve (N.B- Rajakaluve refers to water resources and the flow of water into a lake, canal, pond, or other pooled water body, No construction is allowed within 25 meters of a Rajakaluve). Whether is plot is having all necessary approvals (i.e DC conversion if it is revenue land, certificate regarding Non agricultural usage etc). Whether the plot is having having approved Khata from the corporation (In Bangalore there are two types of Khata- A and B, A Khata lands are only sanctioned loan by Government Banks, B Khata lands are sometimes financed by some NDFC’s). Also there are many Green zones classified by Government and NGT where construction activities are not allowed as per laws.

The above are some of the points considered by the Banks while approving the Housing Loan.

If you want to apply for home loan in Union Bank of India, you can visit https://www.unionbankofindia.co.in/english/apply-online-home-loan.aspx.

If you are a first time Housing loan customer, I request you to please go through my all three blogs and make a wise decision. I am always available for any queries regarding Housing loans. Please comment or mail me on prabhatmoharana@gmail.com. Thanks

In our last blog I had discussed what banks or credit institutes look for while sanctioning housing loans. We saw how banks look into a proposal from 3 angles that is

1.           Financial discipline of the applicant or customers

2.           Financial capability of the customer

3.           Asset quality

we discussed in our last blog regarding financial discipline being the foremost and most important factor during credit appraisal for a housing loan.

Today we will discuss about the financial capabilities of the customer which the banks look into and decide the quantum of the loan depending on repayment capacity of the customer

Now what do we mean by financial capability or repayment capacity of a customer.

Repayment capacity or financial capability is the capacity of the customer to repay the loan on time. Banks or credit institutions want to ensure that the customer or the borrower can repay the loan EMI comfortably and without any default.

Banks analyse several factors to assess the repayment capacity of the customer, such as:

1. Monthly income (Salary Income, Rental incomes if any etc)
2. Monthly financial obligations (Existing Loan EMI’s)
3. Existing liabilities (credit card dues, rent, medical insurance premium, children fees etc.)
4. Stability of your income source (Whether Job is permanent or contractual, stability of Job etc)
5. Age of the customer (repayment depends on the age as the younger you are eligible for a longer repayment period and more loan, less EMI)

Banks expect at least 55 to 65% of your monthly income after deductions of monthly financial obligations to be available to pay for the EMI’s of the current applied loan. So, in a nutshell, higher is your monthly income and lower is your monthly financial obligations, the chances of sanction of your housing loan are higher.

Let us understand this by a example

Mr Nayan KR is a salaried person, aged 30 years has a monthly gross income of Rs 1.00 Lakhs

Now, He also pays a medical insurance of Rs 12000.00 per year and children fees of Rs 24000.00 per year. He has also taken a car loan and paying an EMI of Rs 5000.00 per month.

So, if we calculate the repayment capacity

Now, as discussed Banks expect 55-65% of your income after deductions to be available for repayment of the loan EMI’s. We take it as 65% as standard. This is called by many Banks as sustenance factor. Remaining 35% should be left in customer hand for his/her expenditures and survival. This sustenance factor varies from Bank to Bank.

By the above calculation, Mr Nayan KR is eligible to pay maximum of 65% of Rs 86000.00 = Rs 55900.00. So, Mr Nayan KR can repay max Rs 55900.00 every month but for how many years. Maximum banks sanction housing loan to salaried class till age of 60 years and Business class till 75 years but there may be exceptions and vary bank to bank. Max housing loan by Banks is given for 30 years. There may be exceptions.

So, Nayan KR age is 30 years and salaried, he can take loan for 30 years. So, finally, he can pay Rs 55900.00 per month for 30 years. If we take housing loan rate of interest is 7% per annum, then per lakh EMI at 7% pa for 30 years is Rs 665.00. (reference https://www.unionbankofindia.co.in/english/emicalculator.aspx)

So, as per Mr Nayan KR financial capability/repayment capacity, he is eligible for Rs 55900.00/Rs 665.00 = Rs 84.00 Lakhs which is repayable in 360 EMI’s.

From the above simple illustration, I believe you will be able to calculate your financial or repayment capacity and will be a financially learned person while approaching a Bank for your housing loan. This is just a brief and simple calculation to make it easy to understand. Also, you can visit https://www.unionbankofindia.co.in/english/home-loan.aspx for more information for housing loans from Union Bank of India.

In the next blog, we will discuss about Asset quality which is a very important factor while finalising a credit proposal. Thank you and stay tuned

House or home or residential unit is a very big commitment on part of a buyer, be it emotional or financial.

To buy a house be it buying a plot and constructing a House of dreams on that or a flat or straight away buying a villa/Building needs very high financial commitment. To fulfil that dream common people approach banks or financial institutions to finance the purchase of House or Land. The main purpose of making this blog is educate the common people about what these banks or financial institutions look for before sanctioning a loan.

To fulfil this I will divide this blog into 3 parts.

When a customer approaches a bank with a proposal to buy a building or a flat or a piece of land with construction there on, banks look at the proposal in 3 different angles

1. Financial discipline of the applicant or customers
2. Financial capability of the customer
3. Asset quality

So today we will discuss about what and How banks look into financial discipline of the customers.

Financial discipline here means how the customer or applicant has done all the financial dealings in the past and in the present ,in simple language His/Her Credit History, has he been able to repay already outstanding loans at the correct intervals or he/she have defaulted for any loans in the past, have they been willful defaulters for any of the banks or financial institutions. How many enquiries they have made for the present loan.

Now some customers are existing customers of the Bank of finance institution they have approached ,so those banks can take out their history and analyze the financial discipline of the customer. If the customer have approached a new bank for some benefits like less interest rates less processing fee etc. then the new bank has no credit history of the customers.

Then the bank or the financial institute takes help other credit bureaus like CIBIL, Experion, Transunion etc. These credit bureaus compile all the information from their member banks and financial institutes and record them in their servers. All the member banks and financial institutes then pull up the data from this credit bureaus servers with some specific data of customers like PAN, Adhaar, Mobile number etc. these credit bureaus in turn deliver the credit report of the customer to the banks. These credit reports contain all the data about financial discipline of the customers from all the member banks and financial institutions.

These credit reports are analyzed and helps the banks to decide upon the proposal.

Now many of the common people don’t know about these credit bureaus and unknowingly make financial mistakes ( in view of less score in Credit Bureaus) like

• late payment of EMI’s,
• Non payment of EMI’s,
• Late payment of credit card dues,
• Loan accounts written off or settled,
• more number of enquiries for loans etc,
• taking more loans than income.

These all results in low score in these credit bureaus and finally resulting in rejection of your loan application.

So whenever we’re going to apply for a housing loan we should first analyse our financial discipline. These credit Bureau reports give a lot of data to the banks to analyse the customer like if there are in lot of enquiries for the loan, that will suggest the customer is credit hungry and is not so financially disciplined that other banks have refused loans.

Now this credit Bureau reports are also not 100% correct which has to be checked. When a bank rejects your proposal due to less score in these credit reports, we should analyse the credit report thoroughly. There may be a mistake in the data which these credit reports have pulled in from all the member banks and financial institutions.

The most common mistakes are listed below

• Incorrect personal information (name, mobile number, and PAN number, among others)
• Wrong loan accounts on your name.
• Incorrect credit limit.
• Account status.
• Outstanding payment.
• Payment history.
• Duplicate account.

If you see any of the above in your credit report then then the next step is to approach these credit bureaus and raise a complaint or grievance. These credit bureaus will then investigate the matter and rectify data which was incorrect earlier. This will certainly increase your credit score and banks will also accept the same for your credit proposal.

So with this blog you must have understood how much financial discipline plays a role to determine whether you can take a loan or not.

If you want to know anything more about financial discipline, credit bureaus, credit score you feel free to approach me and I will try to resolve all your doubts regarding the same. If you want me to make a blog specifically on credit bureaus how to rectify your credit score please write to me. I’ll certainly take up that.

Next blog will be on the next important part where banks look upon this financial capability of the customer. Stay tuned.

But looking into the financial constraints of building a house or purchasing a Flat, most of the earning class still lives in rented facilities. To encourage middle class and earning fraternity of public and with government policy aim of ‘Housing for all by 2022’, Government of India has bought in place several tax exemptions for availing a Home Loan. As you would be wondering, why Government is interested in having you a house as Housing is also an investment activity and provides impetus to economic growth. Because of its forward and backward linkages, even a small initiative in housing will propel multiplier effect in the economy through the generation of employment and demand.

This article brings to you in a very simplified layman language to understand the same and implement in your saving of Income Tax with several practical examples.

So, Lets start…..

Today housing loan can be availed from varied sources be it commercial scheduled Banks (Government or Private), NBFCs, Subsidiaries of Banks i.e CANFIN Homes, PNB Housing Finance etc. Interest rates have also fallen to a very low level starting from 6.75% (Union Bank of India) and upwards. This low interest levels have prompted many people to home loans and move to their own dream houses.

So whats the benefits besides having your own house and taking home loan

1. Sense of accomplishment –

Buying a home is one of the biggest financial investments you may make in your lifetime; and that’s not just because of the sentimental value. The sum that most of us sink into our home (and home loan of course if taken) does make it the largest component of our investment portfolio!

2. Capital Appreciation – No need to elaborate I feel

3. Lower Interest Rates

4. Tax benefit on interest paid

5. Tax benefit on principal payment

6. Buying a house vs Renting a house – This is very subjective and depends on case to case basis calculation but buying a home will pay off most for people who plan to stay in one location for a long horizon (say 15 years) and those who are in the higher tax brackets. Apart from this, property prices have to appreciate at a reasonable rate, preferably higher than inflation.

On terms of tax benefits, there are various sections of IT Act which we may to understand and implement which is the major talk point of this article.

1.    Section 80C: Deduction up to Rs 1.5 lakh on home loan principal repayment

Tax deduction up to Rs 1.50 lakh under Section 80C for repayment of principal component of a home loan can be availed by you for purchase or construction of residential property.

N.B – Construction of property must be completed within 5 years from the end of the financial year in which the loan was taken. Also, if the property is transferred or sold by you within 5 years, tax deductions claimed under Section 80C so far till date of sale should be reversed, i.e. added back to your income in the year of sale, and then taxed according to your tax slab.

2.    Section 24b: Deduction up to Rs 2 lakh on interest repaid during pre and post construction period

So, considering two scenarios under the section

1. Interest on Home loan during Pre-construction Period – When Home loan is availed for construction of house, tax deduction for interest paid during this period (which banks will anyway charge in gestation period or construction period) under Section 24b can be claimed on interest paid for up to 5 years (in 5 equal instalments).

• Interest on Home loan during Post-construction Period- As far as interest paid in the post-construction period for self-occupied property is concerned, tax deduction up to Rs 2 lakh can be claimed under Section 24b of the Income Tax Act. In case of a let out property, there is no upper limit for claiming interest deduction. Remember that this deduction can only be claimed from the year in which construction of the house is completed.

Note: the maximum amount that can be claimed remains capped at the overall limit of Rs 2 lakh per year, including both pre and post construction period’s interest repayment.

• Section 80EEA: Additional interest deduction of up to Rs 1.5 lakh under affordable housing for home loans sanctioned between 1st April 2019 and 31st March 2020 and now extended till 31^st March 2021

The Budget 2019 provided major impetus to the ‘Housing for All’ mission by announcing additional deduction of Rs 1.50 lakh on interest payment made on home loans availed between 1st April 2019 and 31st March 2020. The same benefits were extended till 31^st March 2021 in Budget 2020. In order to qualify for tax deduction under section 80EEA, the value of housing property has been capped at Rs 45 lakh.

Note-to be eligible for tax benefits under Section 80EEA:

• Housing loan must be taken from a financial institution or a housing finance company for buying a residential house property.

• Stamp duty value of the house property should be Rs 45 lakhs or less.
• The taxpayer should be a first-time home buyer. The taxpayer should not own any residential house property as on the date of sanction of the loan.
• Carpet area of the house property should not exceed 60 square meter ( 645 sq ft) in metropolitan cities of Bengaluru, Chennai, Delhi National Capital Region (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurgaon, Faridabad), Hyderabad, Kolkata and Mumbai (whole of Mumbai Metropolitan Region)
• Carpet area should not exceed 90 square meter (968 sq ft) in any other cities or towns.
• Borrowers living in rented houses can also claim this deduction. Moreover, the deduction can only be claimed by individuals for the house purchases jointly or singly.
• If a person jointly owns the house with a spouse and they both are paying the instalments of the loan, then both of them can claim this deduction. However, they must meet all the conditions laid down.

4. Section 80C: Deduction for Stamp Duty and registration charges

Borrowers can also claim tax benefits on stamp duty, registration charges and other expenses which are directly related to the transfer of the property, which were paid during purchase of house property. These charges can be claimed within the overall limit of Rs 1.5 lakh under section 80C. Remember that such deduction can only be claimed in the year in which these expenses have incurred.

So as you can observe, a first time buyer can make a tax exemption on interest paid of up to Rs 3.50 Lakh in a year and on principal amount of Rs 1.50 Lakhs.

So, start searching for your dream house and also let me know if I could be of any help to you…..

Who can open a NSC account?

1. The scheme is open only for individual Indian citizens.
2. NRI’s, Hindu Undivided Families (HUF) and trusts cannot open a NSC account.
3. NSC can be purchased from the nearest post office in subscriber name, for a minor or with another adult as a joint account. 

Features of NSC Account

1. Fixed income: Presently, you get guaranteed returns (6.8% annual interest) and can enjoy a regular income.
2. Types: The scheme originally had two types of certificates – NSC VIII Issue and NSC IX Issue. The government discontinued NSC IX Issue in December 2015. So, only the NSC VIII Issue is open for subscription currently.
3. Tax saver: As a government-backed tax-saving scheme, you can invest for up to Rs.1.5 lakh to claim the benefits of 80C deductions.
4. Start small: You can invest as low as Rs.1,000 (or multiples of Rs.100) as an initial investment, and increase the amount when feasible.
5. Interest rate: Currently, the rate of interest is 6.80 %, which the government revises every quarter. It gets compounded annually but will be payable at maturity.
6. Maturity period: The maturity period is five years.
7. Purchase : You can purchase this scheme from any post office by submitting the necessary documents and doing the KYC process. It is easy to transfer the certificate from one PO to another too.
8. Loan collateral: Banks and NBFCs accept NSC as a collateral or security for secured loans. To do this, the concerned postmaster should put a transfer stamp to the certificate and transfer it to the bank.
9. Power of compounding: Interest you earn on your investment gets compounded and reinvested by default, though the returns do not beat inflation.
10. Nomination: Investor can nominate a family member (even a minor) so that they can inherit it in the unfortunate event of the investor’s demise.
11. Corpus after maturity: Upon maturity, you will receive the entire maturity value. Since there is no TDS on NSC payouts, the subscriber should pay the applicable tax on it.
12. Transfer : In case of NSC VIII , transfer of certificates from one person to another can be done only once from date of issue to date of maturity.
13. Premature withdrawal: Generally, one cannot exit the scheme early. However, they accept it in exceptional cases like the death of investor or if there is a court order for it.

TAX BENEFITS UNDER NSC

The five year NSC or NSC currently fetches interest of 6.80 %.(Revised by Government of India on regular basis). There is no upper limit for investment in the NSC and the minimum investment required is Rs 100. Deposits of up to Rs 1.50 lakh in the NSC in a financial year qualifies for tax deduction under Section 80C.

Interest accrued yearly on NSCs is deemed to be reinvested on behalf of the investor and qualifies for deduction under Section 80C within the total limit of Rs 1.50 lakh. But as the final year’s or the fifth year’s interest is not reinvested, it cannot be claimed as a deduction from taxable income under Section 80C. Therefore, the last year’s interest income is added to the certificate-holder’s income and taxed accordingly.

Comparision of NSC and other TAX Saving instruments

If you are planning for a fixed income and tax efficient instrument, then invest in NSC.

NSC interest calculator

A National Savings Certificate holder can calculate how much interest he/she would receive by investing in NSC by using an NSC Calculator. You can visit https://www.incometaxindia.gov.in/Pages/tools/interest-on-national-savings-certificate.aspx to calculate the amount of interest that will be earned.

Once the details are entered, the calculator will reveal the total interest amount accrued so far. The interest paid on a National Savings Certificate is compounded annually and is paid at the time of maturity. The annual interest earned on NSC can be reinvested and qualifies tax exemption under section 80C of the Indian Income Tax Act, 1961.

NSC Calculator

Subscriber has to calculate the tax liability every year on the interest amount received.

For safe and sound returns, invest in NSC!!!!!!!!!!

If any query related to NSC, please comment below. I will be happy to help…..

Attractive part of APY is its guaranteed pension for subscriber and his/her spouse and the corpus fund for the nominee.

The Government of India (GOI) was concerned about the old age income security of the working poor and middle class. They were focused on encouraging and enabling them to save for their retirement. To address the longevity risks among the workers in unorganized sector and to encourage the workers in unorganized sector to voluntarily save for their retirement, ATAL Pension Yojana was introduced as a new scheme by GOI in 2015-16 Budget.

The APY is focussed for all citizens in unorganised sector. The scheme is administered by PFRDA through NPS architecture.

Who can open a APY account?

1. Your age must be within 18-40 years of age.
2. You should have a Savings Bank Account.
3. The subscriber(you) must have a mobile phone.
4. This number you should provide during registration

Features of APY Account

1. This scheme offers you the minimum guaranteed pension of Rs. 1,000, Rs. 2,000, Rs. 3,000, Rs.4, 000 or Rs.5, 000 per month. This pension will start once you attain the age of 60 years. However, this pension amount depends on the contributions made by the subscribers.
2. The subscribers can invest like monthly, quarterly, half-yearly or yearly modes.
3. The penalty on delayed payment has been also has been simplified to Rs.1 per month for a contribution of Rs 100 for each delayed monthly payment instead of different slabs given earlier.
4. Premature withdrawal now is possible with some conditions.
5. The subscriber will get the refund of the contributions made by him to APY, along with the net actual interest earned on his contributions.
6. If the subscriber dies before 60 years of age, then his/her spouse would be given an option to continue contributing to APY account of the subscriber which can be maintained in the spouse’s name, for the renaming vesting period(years), till the original subscriber would have attained the age of 60 years. The spouse of the subscriber shall be entitled to receive the same pension amount as that of the subscriber until the death of the spouse.

How to invest in this APY scheme?

1. Approach your bank branch where you have a savings bank account.
2. Subscriber have to Fill the APY Registration Form.
3. Provide Aadhaar and Mobile Number
4. Make sure you have sufficient balance in saving account for monthly transfer.
5. As your monthly investment in this scheme will be done through an auto-debit facility.

How to withdraw from APY Scheme?

1. When subscriber attains age of 60, then subscriber have to fill the exit form in order to get the pension with 100% annuitisation of the wealth accumulated.
2. In case of death of the subscriber, the pension will continue to the spouse.
3. On the death of both subscriber and spouse, then the pension corpus would be returned to the nominee.
4. Exit before 60 years of age is permitted the only in case of the death of a subscriber or terminal disease.

Settlement in a case of death of the subscriber before attaining the age of 60 years

1. If subscriber died before attaining the 60 years of age, then the below rules will apply.
2. If death occurs before attaining 60 years of age, then his or her spouse will be allowed to continue the account in their name.
3. The account will attain the eligibility for a pension once the age of original (first) subscriber age reaches 60 years of age.
4. After that period, the spouse of the deceased subscriber will be eligible to receive the pension as usual.
5. However, if spouse not interested to continue the account, then the account will be closed and the accumulated corpus will be given to the spouse(wife/husband).
6. If spouse not alive, then the corpus will be payable to the nominee.

Atal Pension Yojana monthly contribution for indicative pension.

Full chart can be accessed at https://www.npscra.nsdl.co.in/scheme-details.php

As you can observe from the table, early you start, the more beneficial it is.

For example, a 19 year old invests in APY for 41 years Rs 228.00 per month, then his total contribution is at 60 yrs Rs 112176. If he/she or spouse lives till 80 years, then total pension received is Rs 12.00 Lakhs apart from Rs 8.50 Lakhs for nominee after subscriber and spouse death.

Also, a 40 year old invests in APY for 20 years Rs 1454.00 per month, then his total contribution is at 60 yrs Rs 348960.

PRAN, Transaction Statements and Contribution Under APY

1. Transaction statement and PRAN Card can be viewed and printed anytime, from anywhere and free of cost by visiting www.npscra.nsdl.co.in>> Home>>Atal pension Yojana>> APY e-PRAN/Transaction statement view.

• Subscriber can request for issuance of Physical PRAN card after paying the requisite sum at the website https://enps.nsdl.com/eNPS/APYRePrintPRAN.html>>Atal Pension Yojana>>Print APY PRAN Card,

• After enrolling into Atal Pension Yojana, Physical transaction statement will be sent once in a year to the registered address i.e. the address provided by a subscriber after enrolling for Atal Pension Yojana.

• All the queries regarding APY account / contribution should be made to the APY-SP branch only or through CGMS.

• Information about the status of contributions will be communicated by CRA-NSDL through periodic SMS alerts on registered mobile number of the subscriber

Modification of Subscriber Details under APY

1. Subscriber will have to fill the desired changes in APY Subscriber modification form and submit the same to the APY-SP branch along with the required documents for modification of personal information like address, phone number, etc. The form can be downloaded online from https://www.npscra.nsdl.co.in/nsdl-forms.php

• Change in frequency of contribution e.g. from quarterly contribution to monthly contribution or from half yearly contribution to quarterly contribution etc. may be done after submission of written request by the APY subscriber to the APY-SP branch. Upgrade/ Downgrade of Pension Amount

• APY subscribers can upgrade/downgrade their pension amount once in a financial year.

• The feature enables the user to check the differential amount to be deposited/ to be received back as per the new guaranteed pension amount chosen.

• Higher amount needs to be deposited in case of upgrade and additional contributions would be returned to the subscribers in case of down grade.

• Switching facility is available anytime once in a year for which “APY Subscriber Modification Form” available at https://www.npscra.nsdl.co.in/ >>Home>>Atal Pension Yojana>>Forms>>Subscriber Maintenance>> Subscriber Modification Form, is to be submitted to APY-SP branch. To upgrade the pension amount means to increase the pension amount of a subscriber and to downgrade the pension amount means to decrease the pension amount of a subscriber.

FINAL VERDICT

The government is considering a proposal to raise the pension limit under Atal Pension Yojana (APY) to up to ₹10,000 per month from the existing slab of up to ₹5,000.00.

As it is a Government guaranteed scheme, so the tension of purchasing annuity schemes for pension and studying interest rates for pension annuity is not required.

If both husband and wife purchase APY scheme, then the pension amount may be descent enough to survive retired life for a middle class family. Even after death of one, other will continue to receive both pensions. Nominee will receive corpus of both pensions.

APY enjoys the same tax benefits as NPS or National Pension System, which means a contributions paid in APY can be claimed for income tax deduction up to Rs. 50,000 under Section 80CCD (1B) of the Income Tax Act, over and above the Rs. 1.5 lakh allowed under Section 80C.

If you have not taken APY yet, please go and take one from your Bank. Rush…but submit the application in legible handwriting and submit spouse name and nominee name correctly.

If any query related to APY, please comment below. I will be happy to help…..