Sunday, May 31, 2009


"Food, Shelter and Clothing" has been defined as basic needs of a human being and out of the three the one that is hard to come by is shelter or one's own home. In India, buying a home is dream for most of the people because of the high cost of transaction along with several other factors. However, with the availability of home finance , the dream of owning one's own house is becoming increasingly possible for many . If you too are thinking of having your own "dream home" on finance , then you must take care of few things so that you are not short changed by anyone in this process and also your dream home actually turns out just that.
There are broadly 2 activities for anyone wishing to buy a home on finance. First , he needs to identify the property he wishes to buy and second is to arrange for finance. The various things that one needs to check in the whole process is as under:-
The first and foremost step towards owning your own dream home or house is to identify it. The various things that will go into identifying your dream house are
1. The property should be as per your family requirements-For example a family of just husband and wife might need 1BHK (Bedroom hall kitchen) or 1RK(room kitchen) while a family of four might require 2BHK. So you must keep the family size and the area you need while identifying the property.
2. Your Budget - You must also have a clear cut budget defined for your house. This will help you narrow down the potential properties which fit in your budget. Your budget should be the one which you can afford without really stretching yourself too much.
3. Proximity to office and school- Your home should ideally be near your work place and kids school. This will reduce the travel time and will help you lead a much better and stress free life.
4. Society and security arrangements - You must also find out about the society in general (CHS) and the security arrangements in place in the CHS. For example, an affluent businessmen may not be very comfortable in living in a society of lower divison clerks working in government office. Similarly the security aspect can not be overemphasised.
5. Check the approved plan of the building - You must also check the official approved plan of the building. Ask for the approved plan copy from the builder and check if the building is as per the plan. This will avoid any chances of the property being declared illegal by the govt in future.
6. Check for occupancy certificate - Before taking possession of the flat you must ask for the Occupancy certificate from the builder. This OC is given by the government bodies to the builder. Anyone residing in a building without the OC is deemed as an illegal occupant of the said property.
7. Title Check - For all resale properties, you must do a through check on the title of the property. The title of the property must be clear of any encumbrances. The same can be checked from local corporation.
8. Reputation of the builder - For all under construction properties, you must to a background check on the builder's reputation, the kind of projects he has done, the facilities he provides in his building, whether there are any complaints against him etc. This will ensure that you deal with builder who has clean image and has good business ethics.
9. Future appreciation potential - The property should also be ideally located in a place where there is appreciation potential . Check for new infrastructure projects coming up and planned for in the vicinity of the property. It will helps jack up the going rate of the property .
10. Payment of utility bills etc- For all resale property, you must check if all the bills like electricity bills, society maintenance charges etc are paid by the current owner otherwise the same will become your liability and you may have to pay that.
After having identified the property, the next step would be to arrange for the finance form the banks/FIs. For that you must take care of
1. Find out the finance amount and margin money - Banks generally finance anywhere between 60% to 90% of the property value and the rest is the margin money which the borrower will have to pay as down payment. Find out if the bank is willing to finance the property you have identified.
2. Save for the margin money- Since you will have to pay the margin money yourself, you must arrange for it. It is safe to assume that you will have to pay at least 20% of the property value as down payment. One way of bringing down the margin money is to negotiate hard with the builder on the total property price. Generally, you can expect to get some discount from the builder as well. Here too the key is to negotiate hard.
3. Shop around for the best deal- You must shop around for the best deal offered on home loans. The rate charged varies a great deal between banks and hence it makes lot of sense to do some shopping around. You may do this by comparing the rates offered by various banks. This is available on
4. Negotiate hard - Even after shortlisting the bank with the best offer for you, you must drive a hard bargain since most banks have margin for further reduction in rates charged. Even a half percentage waiver on your loan could mean a huge benefit for you over the entire tenure of the loan.
5. Decide on fixed or floating interest rate- You must also decide whether you want fixed rate of interest or floating.In fixed rate loans, the interest rate remains fixed over the life of the loan, irrespective of the interest rates in the open market. The plus point of fixed rate loans is that they remain steady over the years, making at least one aspect of your monthly cash flow predictable. But the flip side is that the lenders charge a higher rate of interest for fixed-rate loans because if interest rates shoot up, they lose the opportunity to make more money on the funds they are lending. In floating rate loans, the rate of interest changes according to a set formula, as interest rates fluctuate in the open market. The plus point is that lenders charge a lower rate for such loans because you are taking on some of the interest-rate risk. The downside is that interest rates may rise anytime and you can end up paying more than fixed rate loans.
6. Limit your EMI to 40% of the monthly income - You must ensure that the monthly EMI on your loan is not more than 40% of your monthly income. This will ensure that your finances are not overstretched and you are able to meet any untoward expenditure in future.
7. Take loan in the name of both the spouse - If your spouse is also working, then it makes sense to take the home loan jointly. It will help you increase your loan eligibility . Both of you will also get Income tax benefit under IT ACT.
8. Be ready to loose the processing fee- Banks charge processing fee just to process your loan application. At times this may not result in your loan disbursal and in such situation, the bank will not refund you the processing fee. You must be willing to pay that as service fee to have them process your application.
9. Find out the prepayment charge - About 50% of the home loan borrowers end up prepaying their loan and as such the prepayment penalty is an important aspect in the whole equation. Look out for lender which has lowest prepayment penalty.
- Legal fee paid to the bank
- Fees paid to the bank for property valuation etc
- Cheque Dishonour fee etc.

Friday, May 29, 2009


ICICI Bank has launched an electronic card in association with mcheck, a mobile payment solution provider. This card is aimed at helping people carry out transactions like bill payment etc from their mobile phones. This card will enable the user to make payments from mobile phones.

The ICICI bank customers can use this card to make payments for bills, money transfer, buy movie tickets , airline tickets etc. This will be another step in making banking an easy and enjoyable experience.

Given the popularity and reach of mobile phones in India, it is expected that mobile phones will be used as a medium to deliver entertainment, banking services and news to the user in near future. The launch of 3G services is expected to kick start the process. 3G will set the ball rolling and we will see a new revolution of sorts in the way mobile phones are used in India currently.Most of the services required for daily use will be migrated to mobile .


My article "10 Questions you must ask your insurance agent " has been featured in the Carnival of Personal finance at . To read the article rush here.


Recently as per a survey done among business people in 24 countries found out that India was the third least affected country from the on going recession. The least affected country was Australia followed by China. This is significant since Indian economy was always expected to be more resilient than other economies as it is primarily dependent on domestic demand. The countries that are least affected from recession , as per that survey is as under
1. Australia
2. China
3. India, Singapore
5. Hongkong
6. Canada
7. Japan, Qatar
9. Newzealand,
The finding in this study was further validated by better than expected GDP numbers for India for the year 2008-09.Today the fourth quarter GDP growth numbers came in for India and it surprised everyone positively . The Q4 GDP growth of 5.8% meant that the 2008-09 GDP growth number for the country is 6.7% which is better than many analyst's estimates.The closest anyone was to this figure was RBI which had predicted GDP growth between 6.5% to 6.7%.
This GDP growth is however much lesser that 9% growth in the last year. Considering the economic situation and the overall demand destruction, we can still say that India has done much better than most of the other countries in the world and that is no small feat. The areas where India did well were private final consumption expenditure, government final consumption expenditure, gross fixed capital formation, change in stocks, valuables, and net exports. The area which is still reeling very badly from the slowdown is manufacturing . The per capita income grew by 12. 6% and is now at Rs 33383 at current prices.


World famous investment advisor Marc Faber believes it is time for every prudent citizen to become one's own central bank by owning some gold. He believes that gold will be the safest and most valued asset class to hold in times to come. His rational for saying so are

1. With billions of dollars being printed world over by governments to pump into economy to stave off the depression, the risk of inflation in some time is real. The inflation in consumer prices will rise leading to increase in the value of gold .

2. The unprecedented printing of money will also lead to reduced purchasing power of paper currency in due coarse of time and as such gold will gain value in future.

3. Physical gold's supply is limited and with increased demand its price is bound to go up.

4. More and more central banks will look to buy and keep gold , thereby pushing the overall price of gold up.
Read more on this at

Thursday, May 28, 2009


The Indian Stock Markets are showing consistent sign of exuberance ever since the results of the 15th Lok Sabha General Elections have come in. The mandate is being hailed as " historic and path breaking" considering that it is for the first time in nearly two decades that a single party has managed to cross 200 MP mark on its own in the Lok Sabha. As soon as the results came in , the market experts hailed it as game changer for the stock markets. Congress was expected to bring in sweeping reforms on back of a decisive mandate. The same optimism and hope was reflected in the historic rise of stock markets the following Monday when the trade had to be suspended because the markets had breached the upper circuit twice in a single day. This was historic indeed.
But, today as the final lot ministers got sworn in , much of that optimism and hope is being proved little too much for the government to live upto. The government is full of old faces and as such chances are that the pace of reforms may not be as fast as the markets expect them to be.
The Indian stock markets have appreciated by close to 70% from its lows last year. The market is now trading at 16 times the forward earnings while just 2 months back it was trading at 9-10 times the 12 month forward earnings. At these levels, one surely needs to be cautious before approaching the markets. This is not to say that one should shun the markets , but, surely there is need for more rational approach to it.
So, as a retail investor, what should be your strategy in these times. I think for an average retail investor looking to build wealth over a long period of time , following should be the way to go
1. Continue to invest in equities at every dip in the market - Considering that the markets are slightly over valued at this point in time, chances of correction in the market are there and as such as an investor, you must look to buy at every dip in the market. The markets will be volatile and this strategy will help you keep the cost of entry low.
2. Don't look to make quick kill - As a serious retail investor you should not look at equity markets as a place to bet and make a quick kill. This is a dangerous game with too much risk for an average investors appetite. Leave this "Buy in the morning and sell in the noon" strategy to the traders.
3. Always look at fundamentals of the company and its valuations- Some things never change as far as investing in equity markets are concerned like the business fundamental of the company, its management quality, the scope of business, its valuation etc. You must look to invest in a good company with sound business fundamental , great management team . You must alos look at the price at which you are getting into the stock. As you would appreciate that your final returns on your investment is a function of your entry price, you must look to buy stocks which are not very expensive, even though , they are of good companies.
4.Stick to SIP if you have time on your hand- If you are below 40 years of age, then you can not afford to miss equity as an investment option and since time is at your side, best strategy would be to stick to your good old SIP. It will take care of the entry price by the virtue of it's rupee cost averaging tool. You must invest in 5 star rated funds only . Check out morningstar and ratings to spot the winning funds in each category.
5. Don't base your investment decisions on so called "Experts" - One of the most common mistakes people make is to make their investment decisions in equities based on the advice or opinions of the experts on TV channels. For record, most of these experts are proved wrong over a period of time. No one predicted the 2008 bear market and similarly no one predicted the current rally in the markets. On the contrary, most of these experts were busy painting rosy pictures and talking about how BSE would touch 25000 by 2008 end etc. Fundamentally stock markets do not behave in any predetermined rational way and as such it is impossible to predict its movement with certainty over a long period of time. Anyone attempting to do so will be proved wrong more than he will be proved right. So, next time you tune in to listen to these experts , listen to them but when it comes to investing make an informed choice.

Tuesday, May 26, 2009


Most of us have either taken a loan sometime in the past or will be required to take one to fund our car,home, education ,personal needs etc. As a prudent borrower we all look to get the loan at the best possible rate. We all want best deal from the bank. But do you know what exactly constitutes the best deal for you? Is it the rate of interest charged on your loan? or is the mode of interest charged i.e. fixed or floating? Or is it tenure of the loan? or is it something else?
When a person takes a loan, he will most certainly look at the rate of interest charged to him on the loan . He wants a loan at the lowest possible rate of interest. This is not entirely wrong as lower the rate of interest, chances are that the deal would keep on getting better. Now , here I said "chances are" because lower rates do not necessarily mean a better deal or a cheaper loan.
How is that possible? To find out the best possible deal on your loan, you should look at the IRR (Internal Rate Of Return or effective rate of return) on your loan and not the stated rate of interest. IRR gives you the correct sense of the interest you pay on your loan. There are various other parameters in a loan which determine your actual outflow of interest .
1. Advance EMI - Advance EMIs for instance will reduce your stated interest rate but increase the IRR i.e. while it may look like a cheaper loan to you because of the lower stated rate of interest on account of paying upfront advance EMIs, you would end up paying more. When a bank takes advance EMI upfront from you, they are actually giving a loan of lesser amount ( Loan sanctioned - Advance EMI= Loan Given to you). While they give you loan of lesser value they still charge you interest on the original sanctioned amount, which increases your total outflow. Banks use this strategy very effectively to deal with customers who only look at the stated rate of interest before deciding on the loan. This strategy is also widely used in the famous "0% interest loan" for consumer durables. As a prudent customer we must understand that there is no free lunch and the 0% interest loan actually works on the principal of taking 4-5 advance EMIs upfront along with some processing fee. This helps them jack up the IRR on the loan while keeping the stated rate of interest 0. The customer is happy thinking he got a 0% loan and bank is happy because it knows it is getting its share of interest income.
2. Processing Fee - Another important factor that one needs to look at while deciding on any loan is the processing fee part. Most of the banks charge processing or admin fee to the tune of anywhere between 1% to 4% of the total loan sanctioned. The processing fee of 2-3% on home loan works out to be a decent amount. Customers tend to look at this as one time expense and do not consider this as part of the outflow. Banks at times will give a 50 basis point discount or waiver on the interest rate but might increase processing fee to make up for the revenue loss. The customer thinks he got a better deal , but sadly that is not true. Processing fee is very similar to advance EMI as here too the borrower pays an amount upfront from his loan sanctioned and his loan amount gets reduced to that extent. The bank however, will still charge him interest on the original loan sanctioned.
3. Tenure - This is another parameter which decides the overall interest fee outflow that you will have on your loan. A shorter tenure is always better for a borrower since it minimises the interest component in your loan repayment , while a longer tenure will mean you will pay more interest on your loan. Banks use tenure too to play on the mindset of the customer to have a loan with lower interest rate. They will reduce the stated rate of interest but will increase the tenure. This will most probably do more damage to you than benefit you. You need to do your IRR calculation to know the exact scenario.
Simple way of calculating the interest Outflow - Well the best and most accurate way of knowing your actual rate of interest is to find out the IRR on your loan in Microsoft excel or from a scientific calculator. But for people who want some quick bank of the envelope calculations on this, they may consider this

Your loan EMI * Tenure = Total Money paid to the bank
Total money paid to the bank - Loan amount received in hand = Total interest paid
((Total interest paid/Loan amount received in hand)/tenure) *100= flat interest rate ( this is not same as reducing rate of interest)
But, I would suggest you find out the IRR of the loan as it gives the exact picture of the effective interest that you are charged on your loan.
How should you negotiate ? Now , you know that there are 3 elements which impact your IRR or effective rate of interest ( not counting the mode of interest charged that is reducing or fixed, always opt for reducing rate on interest), you must negotiate with the bank to get any one of the 3 elements down or lower while keeping the other 2 constant. Best would be to get all 3 elements down from the banks original offer.
Banks do have some scope to offer discounts on their original rate and hence you must negotiate hard with them.

Monday, May 25, 2009


People with communist bent of mind have always associated the rapid growth of retail chains with mindless growth of capitalist greed which tends to make profit at the expense of the common man. In some states of India like UP and West Bengal, there were large scale protests over the opening of outlets by some large scale retail formats like Reliance Fresh etc. Unfortunately the company had to shut those outlets in view of the widespread protests. But, the moot question remains to be asked. Are these chains against the overall benefit of the common man? Do they really exploit the common man? These are fundamental questions the answer to which can be both yes and no depending on which side of the divide you are standing on. While there is no doubt that the consumers don't see these retails outlets as a part of the large corporates sinister design to fill their coffers by exploiting them, as is made out by the protesters. At the same time , some would argue that these large scale retail formats take away the livelihood of the traditional "mom and pop" shops or your traditional kirana stores. At the outset , this might look like a credible argument, the fact is that there is no credible evidence which strongly proves this.
My argument is that at the end of the day, the decision should be based on what is in the greater interest of the society. The consumers benefit a great deal because of these malls or retail outlets. Some of the benefits that accrue to the shoppers shopping at these malls are as under:-
1. Lower prices - The prices of the goods at the large malls/retails outlets are comparatively lower than the prices outside in the normal stores. This is because of the fact that these stores buy products in bulk from companies and because of the economies of scale they are able to negotiate better price from the manufacturers. Manufacturers gain due to higher volume sales while the retailer gets better price which he passes on to the ultimate user. This is a win-win for all the parties concerned.
2. More variety and range -The malls also offer better range of products as compared to the traditional "mom and pop" shops. These stores have better variety offering a greater range of products for the customer to choose from.
3. All under one roof - The biggest USP of the malls is that they tend to offer everything that one needs under one roof. One can shop for clothes,grocery, food items, gift articles,books, movie, etc all under one roof. This positions them as "one stop shop" for the customer which results in better shopping experience for the customer.
4. Loyalty discounts- Most of these stores also offer loyalty discounts to their customers who are regular shoppers from their stores. This kind of facility is not available in a regular shop. Stores like Shoppers stop, Pantaloon etc have cards for their loyal customers and offer extra discounts to the holders of these cards on their purchases .
5. Promotional offers - Other than the regular loyalty discounts, retailers at times also offer extra promotional offers to boost sales. For example, Pantaloon group is known for its special "Sabse Sasta Din" campaign in India on 26th january and 15th August of every month. On these 2 days, they offer great discounts at almost every product. This offer is hugely popular among the shoppers. Few retailers offer extra reward points on purchases, some offer extra discounts on use of particular credit cards etc.All these result in savings for the customer.
6.Doubles up as outing as well - The visit to the nearby mall for shopping purposes also doubles up as a recreational outing for the whole family as well where they can have fun while shopping. Kids can play games, family can have dinner together, watch movies etc besides shopping . This is an experience which no "mom and pop store can provide.
7. More taxes for the government - Since these retail chains are from corporates, they do pay corporate tax to the government of India. This money can be used by government of India towards social sectorss like education, rural employment etc. The "mom and pop" shops in India indulge in large scale tax evasion and thus the government does stand to gain a lot from these stores.
8. Expands the market - The argument that these stores will result in closure of mom and shop stores also seems far fetched as in western countries these formats have not really "killed " smaller stores. These large chains do expand the overall market and also provide opportunity to a lot of people in supply chain management . The farmers too get better price for their proceeds from the large format stores.
After listing down the advantages of shopping in a mall, it would be fair for me to point out few disadvantages to give you a balanced picture . There are no major disadvantage, but for the regular criticism against these stores that they encourage people to overspend . Overspending is not a nice habit to have and can be detrimental to your monthly budget. But this can be easily tackled by your discipline. My suggestion would be to have a list of stuff that you want from the store ready before you leave home . And once you are in the mall, ensure that you buy nothing which is not in the list.
With little bit of discipline one can easily save a lot of money shopping from the large malls . There are lot of people who have this preconceived notion that shopping in large air conditioned malls would be expensive. They sure can be if you do not do our research well and end up shopping for things which you don't need. But for smart shopper, it does offer a great avenue to save some bucks from his/her monthly grocery bill.


For all those who have vehicles and either have a vehicle isurance or are about to get one, there are few things which you need to keep in mind and check before you decide on the insurance provider. Lack of knowledge about the various standard policy details and exclusions at times results in unnecessary heartburn and difficulty for the vehicle owner. Following are the important points which you need to keep in mind with regard to your vehicle insurance.
i. You must not take any action on the damaged vehicle -- repairs, moving the vehicle -- before the prior approval of the insurance company/ surveyor. Sometimes, an insurance company might decide to take a spot survey. It is important then that you keep the car at the accident spot till the survey is over.
ii. You must keep all replaced parts for inspection. Do not dispose them till the surveyor gives his/ her approval for the same.
iii. You should never enter into a compromise or make an out-of-court settlement with the injured or legal heirs of the deceased without the insurer's consent since these compromises or settlements are not payable in terms of insurance policy.
iv. The documents you need to deposit with your insurance company include the original bill of repairs/ replacements, cash memo, payment proof,etc, for finalisation/ disposal of your claim by the insurance company.
v. You cannot submit xerox copies of bills/ invoices to your insurance company. Do submit original bills.
vi. Once your claim is approved, arrange to deposit the salvaged/ damaged parts with your insurers. Else they may deduct the salvage value from the claim amount.
vii. Do cooperate with the advocate deputed by the insurance company.

Most insurance policies come with a set of exclusions that we almost never pay attention to.
i. There is a compulsory deduction made when you claim the loss amount. For example, IFFCO-TOKIO General Insurance Co Ltd deducts Rs 500 when a claim is made. This amount differs from company to company and is meant to protect against petty claims.
ii. Other exclusions under the package policies include wear and tear, breakdowns and consequential loss among others.
iii. But the most important exclusion, is the damage to tyres, tubes and other nylon, glass and plastic accessories.
Damage to tyres and tubes is not paid for unless the entire vehicle is damaged at the same time of accident. Liability is limited to 50 per cent of the cost of replacement.

Sunday, May 24, 2009


What if someone told you that this "recession and slowdown" that the whole world is reeling today from is a deliberate and man made creation? What if someone told you that this was deliberately created by US government to achieve their sinister goal? You would not believe it. But, this is exactly what this video says that.
It explains how the policies of the US Fed of artificially lowering the interest rates led to an artificial boom in the commodities and housing sector which ultimately resulted in a collapse. The video further explains " they create the problem and then offer us solution...which gives them unlimited power , capital and control.."
It argues that US and UK want a unipolar world with a single global currency. And the fact that Obama is already talking about a "New World Order" is a clear pointer towards that.World famous trend forecaster Gerald Celente also says that this depression will be worst in the history of US and will result in mass protests , tax revolts etc in 2012.And revolts have already started and 2012 is good 3 years away.
Check out this video . Its a must watch, even if you do not agree with what is said here.

Saturday, May 23, 2009


You must have received SMSes,calls from telecallers or letters from banks saying that they approved loan of certain amounts for you. To take it, you should contact your branch, or send a message from your phone to a particular person or number. While using your phone to check the details of your credit or debit card, you will often find an automated message saying that you are eligible for a loan on phone of a particular amount. Offers of credit cards, too, fall in the same category since the issuing bank is comfortable extending a certain amount of credit to you. Typically, people receive such offers from banks with which they have some relationship—loans, salary accounts, credit cards, among others—and there is often a time limit for accepting the offer. The question is, does it make sense to go for them?

Eligibility criteria- Generally, a bank judges your eligibility before offering a pre-approved loan. This is based on your track record with the bank. For instance, if you have a salary account, the bank will have an idea of your income and cash flow. It could also be based on the amount in your savings account or your servicing of existing loans with the bank.For a secured pre-approved loan, banks not only verify if you meet the above criteria, but also do an asset quality check. An asset quality test simply means the bank will check the kind of asset you are set to buy using the loan—the type of house or car, for instance. They will sanction and disburse the loan only if it fits their predetermined criteria.
So how is it different from the normal loans ? Well actually, they are not different at all from them. Its just that here the bank is making an effort to reach out to you and offer you a loan, rather than you approaching the bank.In terms of cost etc there is no difference at all . Sometimes, banks might sweeten the deal by offering processing fee waiver etc but those concessions are generally available to all the customers on negotiation.

Will you definitely get the loan since its pre approved? No . Infact the whole offer is just to entice you to approach the bank. The bank will conduct its due diligence like it does for all cases and only if you meet all their criteria will you get the loan. The pre approved is infact not really approved loan. So you should be prepared to have your loan request rejected or declined by the bank which offered you the pre-approved loan.

Why do banks do it? Banks do it get as many customers as possible. They are driven to run such campaigns out of competition to garner maximum customers. Also since most of the terms and conditions are similar across banks, they try and differentiate themselves by running such offers. But , in reality they are just trying to get customers to approach them for loans.

Is their any benefit at all in this? One area where a pre-approved loan may have an edge is the time taken in processing the loan. Since banks typically extend such offers to existing customers, the processing can be simpler and quicker, and the paperwork done with a bank representative at a place and time that suits the borrower. The bank already has the PAN, bank statements, proof of residence and most of the other information that is required to have an a prospective borrower under the Reserve Bank of India’s ‘Know Your Customer’ norms. This also helps in processing the loan.

Should you fall for it? You should look at these offers with a pinch of salt. You must not approach a bank simply because it is offering you a "pre approved loan". Rather you must do your research properly by shopping around to find the best deal for you in terms of rate of interest charged, penalties like cheque dishonour cheque, late payment fees etc, the repayment period,prepayment penalty etc. Based on all this , you must approach the bank. Pre-approved or not ,you must take loans only from the lender which is offering you the best deal.

Friday, May 22, 2009


While putting our hard earned money in our bank accounts we feel safe and secure knowing fully that our money is safe with the bank. This is primarily because of the stellar role played by our central bank namely Reserve Bank of India. RBI , as a central bank , ensures that all the banks are financially sound and solvent. It is also the guardian of the customer's interest. Managing such huge network of banks with their ever increasing branches is not an easy task . Just to put things in perspective, State Bank Of India alone has over 11000 branches in the country. RBI has to ensure that the interest of every single customer of each these branches is safeguarded. So how does RBI manages to accomplish all this ? What are the things that it does in order to ensure that your and my money is safe at our respective banks.The following are the few of the important things RBI does in order to achieve this goal.
1. Regulating entry of banks - RBI, by virtue of being the Central Bank of the country, acts as a regulator to all the banks and NBFCs operating in India. It does look at each of the bank's request for a banking license very carefully and only after careful evaluation and due diligence , the RBI allows banks to operate in India. Foreign banks find it even more difficult to get an entry in India as of now, considering that Indian financial system is not yet fully open and globalised.As far as Indian banks are concerned, even they need to have proper permission from RBI before opening any new branch. RBI intends to ensure that banks growth is in a phased and controlled manner.
2.By regulating via CRR,SLR,repo rate,reverse repo rate etc - RBI also keeps a check on the various aspects of the economy and banks health by managing its monetary policy. Increase in inflation tends to reduce the purchasing power of people's savings and RBI tends to tackle this by reducing key rates, while it keeps a check on bank's financial stability by regulating its CRR, SLR etc. Few of the common monetary policy variables with RBI are
Cash Reserve Ratio (CRR) -This is the amount of money that the banks have to necessarily park with the RBI. The base of this is the total of the deposits that a bank has. The RBI pays the bank interest on the amount parked with it.
Statutory Liquidity ratio(SLR)-The amount of liquid assets, such as cash, precious metals or other short-term securities, that a financial institution must maintain in its reserves. The statutory liquidity ratio is a term most commonly used in India.
Repo Rate - Repo rate is the rate at which banks borrow funds from the RBI to meet the gap between the demand they are facing for money (loans) and how much they have on hand to lend. If the RBI wants to make it more expensive for the banks to borrow money, it increases the repo rate; similarly, if it wants to make it cheaper for banks to borrow money, it reduces the repo rate.
Reverse Repo rate -This is the exact opposite of repo rate. The rate at which RBI borrows money from the banks (or banks lend money to the RBI) is termed the reverse repo rate. The RBI uses this tool when it feels
there is too much money floating in the banking system.If the reverse repo rate is increased, it means the RBI will borrow money from the bank and offer them a lucrative rate of interest. As a result, banks would prefer to keep their money with the RBI (which is absolutely risk free) instead of lending it out (this option comes with a certain amount of risk). Consequently, banks would have lesser funds to lend to their customers. This helps stem the flow of excess money into the economy
3.By mandating a limit on investment to risky industries and sectors - In order to ensure that the money deposited by the customers are invested wisely by banks, RBI also , sometimes mandates a ceiling only upto which a bank can invest in a particular industry. For example, recently RBI had advised banks to be cautious towards realty sector lending as it was perceived to be relatively risky. On the other hand, it also makes banks lend to few sectors on priority basis.
4. By carrying out compliance and quality audits- RBI has laid down rules and regulations for banks . Each and every bank is required to follow these regulations while running the branch operations. These rules and regulations are meant to protect the customers interest while keeping the bank's balance sheet in good health. To ensure that each and every bank is following these rules and regulations while discharging their duty, RBI carries out compliance audits regularly where it checks the process compliance on part of the bank. It also checks the books of accounts for any irregularity. if any violation or irregularity is noticed, banks are expected to take note of that and are required to resolve that in a time bound manner.
5. By releasing financially unsound banks - RBI also comes out with an advisory where it lists down the names of banks which are financially not sound and advises customers to stay away from these banks.This is done to ensure that such banks do not continue to operate .
6. By getting insolvent bank to merge with a large bank - At times, even after doing everything, banks fail. It is a reality and one needs to tackle this as well. Sometimes RBI compensates every customer of a bank which went bust upto a maximum of Rs 100000 or his actual savings whichever is higher. But RBI has in the past also tried to salvage the situation by getting the insolvent bank to merge with a large financially sound bank/ This ensures that the new entity is a larger one and the customers of the old bank do not suffer. An example which comes to our mind is the case of Global Trust bank into Oriental Bank Of Commerce following the insolvency of GTB.
RBI does a whole host of other things as well to ensure that the money we put with our neighbourhood banker is not only growing and earning interest but is also completely safe and secure. We owe it to the RBI on this .


Reserve Bank Of India has taken cognisance of the fact that credit cards need to be more secure in the hands of the users to ensure that their misuse and frauds are minimised if not eliminated completely. RBI has taken whole host of steps in this year to make banking an easier and user friendly process. Some of the most recent steps include the removal of ATM transaction fee charged by the banks in case the customer removed money from non-bank ATM. Some other steps include making provision for calculating interest on savings account on daily balance basis as against the current provision of paying interest on monthly average balance in savings account.
Now RBI has mandated that from 1st August 2009, all the banks need to provide another security code to each of its credit card users in addition to the credit card number, CVV etc which the banks already provide. This extra code is meant to be made available to the user directly and wont be on the card. This is significant since currently a card can be used by anyone since all the required information to use the credit card is already mentioned on the card. One needs to know the credit card number, expiry date and CVV number in order to be able to use the card. All the three information is printed on the card itself. So , once a person flicks a card from the user, he/she can easily misuse it.
Now with this extra code , the chances of this misuse will be greatly minimised as one will need an extra security code in order to be able to use the card . This security code will only be there with the genuine user of the card. The banks still need to finalise the technology that they will use in order to make this a reality , but , the bottom line is that the credit cards are set to become much more secure.
So after 1st Aug 2009, you can afford to be little more relaxed while paying your restaurant bills or petrol bills by your credit card. This will go a long way in reducing the losses of the banks as well since most of the outstanding on cards due to credit card misuse or frauds end up becoming NPAs and are finally written off by the banks. So its a win-win for both the bank and the credit card user.

Thursday, May 21, 2009


For people looking to invest their hard earned in money in safe investment options, Fixed deposits with banks comes on top of their priority list. This is because of the fact that bank FDs are absolutely safe and secure investments. The chances of banks defaulting on fixed deposit payments are almost nil since the banks are heavily regulated by RBI which ensures that the bank is in sound financial position. Fixed deposits become more popular in times of instability in equity markets. Fixed deposits are also a favourite with senior citizens. Considering that FDs are one of the most widely used investment options by millions of people, we need to know the various ways in which we can get the maximum benefit out of FDs.I am listing down the following "5 Points to Ponder" before you put your money in a fixed deposit.
1. Rate of interest- The first and the most obvious thing to look at while deciding on your fixed deposit is the rate of interest being offered by various banks. The rate of interest can vary a great deal between banks for similar tenure of fixed deposit and hence it makes sense to find out the bank which gives you the best deal. However, you must also consider the safety and stability of the bank itself . Generally , the co-operative banks offer higher rate of interest as compared to other bigger banks like SBI, ICICI etc. But since co-operative banks are not as solvent and stable as some of the other banks, you will do well to stay away from them. You must compare rates offered by similar banks. For example, you may consider the rates offered by SBI, ICICI, PNB, HDFC, AXIS,CITIBANK,HSBC etc. This is just an indicative list. The idea is to stick to larger banks.
2.Frequency of compounding of interest rate - The second point to consider while choosing the bank for your FD is the frequency with which the bank compounds the interest. Banks generally compound interest earned quarterly, half yearly or yearly. The best frequency is quarterly as it results in higher effective rate of interest for you. For example, If both bank A and Bank B offer to take FD for a year at 10% pa. and offer compounding of interest at quarterly and yearly basis respectively, then the effective rate of interest that you will get on your FD with bank A (quarterly compounding )will be higher than the effective rate of interest on your FD with Bank B.

3. Tax Benefit - If you are looking to invest your money in safe and secure manner while also saving tax under Sec 80 C on Income Tax Act, then tax saving FDs are just right for you.In that case , choose only those FDs which offer tax benefits under Sec 80 C. All FDs do not qualify for tax break under Sec 80C. Also you must consider the rate of interest offered by various banks on their tax saving FDs and settle for the one giving you the best deal.These fixed deposits have a lock-in period of five years and premature withdrawal is not allowed. You can’t use this deposit as a means to secure loan from the bank and the maximum amount you can invest in this instrument is Rs 1 lakh. HDFC Bank at present offers 9.50% interest (calculated quarterly) on tax-saving FDs as well as on regular FDs for 5 years. ICICI Bank, on the other hand, gives 8.5% interest (calculated quarterly) on tax-saving FDs and 9.5% (calculated quarterly) interest on regular FDs for 5 years.
If you fall in the higher tax-slab, investing in tax-saver FDs will fetch you more return than a regular FD as tax-saving FDs are exempted under Section 80C.

4.Interest reinvested or paid - Almost all FDs offer the option of either having the interest amount reinvested in your FD or have the interest amount cashed out. The option that you need to choose will depend on your needs. For example, if you are a retiree or a senior citizen who requires liquidity at regular intervals, then you might consider opting to cash out your interest payment. However, if you are still young and in accumulation stage, then you must have your interest component reinvested . this will ensure higher effective rate of interest for you at the end of the tenure and your interest component too earns interest on it.

5. Splitting the FD -TDS (tax deductible as source) at 10% is applicable on fixed deposits in India , if the interest earned exceeds Rs 10,000 in a financial year. To avoid TDS, you can split your fixed deposits, that is, open fixed deposits in different branches of the bank, so that the interest earned does not exceed Rs 10,000 in a particular branch. You could also open fixed deposits in different banks to avoid TDS. Splitting you fixed deposits has another benefit as well. If you are in need of urgent cash and need to withdraw money, you won't have to break all your fixed deposits.

Wednesday, May 20, 2009


We all know that frauds in credit cards and ATM cards are on the rise these days. The various methods in which credit card and ATM fraudsters scam us shown in these videos below.





Hope that these videos would have given you the insight into the grave danger these scamsters pose to everyone carrying this plastic . We need to be more vigilant and careful with our cards. Its after all money that we are dealing with so what if its in plastic form.


Credit scores are becoming increasingly important in today's world. These scores determine whether or not a person gets credit or loan from the lender and at what rate . The use of credit scores is being made at various places and its usage is increasing at exponential rate.As such having a good credit score can do a great deal of good to you. Few of the direct and obvious benefits that you will get because of good credit score are as under:-

1. Loans at lower interest rate - While a person having a bad credit score is denied a loan completely, a person with good credit score will not only get a loan ,but, will get the loan at a much lower rates. This is because banks and financial institutions follow risk-based pricing, while extending credit. Risk based pricing means , the banks charge interest rate as per the perceived risk profile of a customer i.e. charge higher rate of interest to a customer who is perceived risky and lower rate of interest to a person who has good credit history. A higher CIBIL/credit score denotes better credit history and consequently, you will get loans at lower rate of interest.

2. Utilities too will be linked to your credit score - In most of the western countries , credit scores are used by utilities providing company to verify the credit history of the applicant before deciding to extend the facility to them. In India too going forward, your credit scores will be used by mobile company, electricity provider etc before they decide to offer their services to you. So, a good credit score is not only handy while availing credit or loan , but also for availing other services as well. Not only this, the credit rating agencies will going forward also consider your payment of utility bills history also while arriving at your final credit score. So its imperative that we pay off all our utility bills promptly and on time.

3. Better chance at getting a new job- Some of the recruiters in sensitive industries like financial services, BPO etc do a check on the candidates credit score also to find out his/ her credit history. A peek into credit history of a person gives vital information about his financial condition , but, more importantly it also can point out "integrity issues" of the candidate ,if any.Thus having a credit history full of cheque and loan EMI bounces ,loan defaults etc wont be viewed very positively by the prospective recruiter. This is though not done in India currently since credit score is not available to anyone other than banks/FIs as on today. However, this is expected to change with CIBIL working on a proposal to make CIBIL scores available to general public on payment of a fee.
So,what are the ways in which we can improve or maintain a high credit score? I am listing down few of the tips for the same.

Tips to Improve or Maintain a High Credit Score:

1. Make loan payments on time and for the correct amount.

2.Avoid overextending your credit. Unsolicited credit cards that arrive by mail may be tempting to use, but they won't help your credit score.

3.Never ignore overdue bills. If you encounter any problems repaying your debt, call your creditor to make repayment arrangements. If you tell them you are having difficulty, they may be flexible.

4. Be aware of what type of credit you have. Credit from financing companies can negatively affect your score. 5.Keep your outstanding debt as low as you can. Continually extending your credit close to your limit is viewed poorly.

6.Limit your number of credit applications. When your credit report is looked at, or "hit," it is viewed as a bad thing. Not all hits are viewed negatively (such as those for monitoring of accounts, or prescreens), but most are.

Credit is not built overnight. It's better to provide creditors with a longer historical time frame to review: a longer history of good credit is favored over a shorter period of good history.
Hope by following the above mentioned tips , you will have a credit score which will be ,to borrow a line from Onida's devil, "Owner's pride ,neighbour's envy".

Tuesday, May 19, 2009


One of the first steps in your journey towards financial security and independence is to start budgeting for all your expenses. Having a budget is a must for each and every person who aims to become rich and amass wealth over a period of time. In the book "Millionaire Next Door" , the author comes out with various traits that rich millionaires share between them. And the most common of them was the fact that they all had a strong ethic of making a monthly budget for all expenses and then sticking to it. The study also noted that most of the people who earn a fat salary but are not wealthy also share a habit between them. And that was that none of them had the habit of preparing a budget for themselves.
Budgets help you in number of ways like
1. It helps you get an idea of your necessary and non-necessary expenses.
2. It tells you the areas where you need to cut down on expenses.
3. Helps you deploy your money effectively and efficiently.
4. It helps you get the habit of saving going.
5. It helps you keep a tab on impulse expenses like eating out etc.
So, the moral of the story is that you must have a monthly budget of your household expenses and income if you don't have one already. For those of you wondering how to get started on it, please refer the video below. Gives you a nice idea about how you should have your budget. People who prefer to make budget on paper can do so by using the same concept.


Online shopping just got easier and safer with the virtual credit card. But, what's a virtual card? A virtual card is just like your credit/debit card; only it isn't tangible. It was introduced to check the rising instance of fraudulent transactions over the internet.

How does it work?Many banks offer this facility but the process works differently with different banks. However, here’s a general outline: Let's assume you have a bank account with ABC Bank. Now, follow these steps to get your very own card.

Step 1: Log on to your online account

Step 2: Register for the use of this virtual card

Step 3: Fill in the amount you will need for shopping

Step 4: The bank will generate an exclusive 16 digit number, a CVV2 number and expiry date for this virtual cardThere you go, you are ready for shopping online.

However, the card will be valid only for a particular period of time; usually, it’s valid for 24 hours. So, you need to use it within that time frame. It can be used at any merchant website, which accepts the service provider (VISA, Master card) mentioned in the card.

Features of a virtual card

1. It is a safe and risk-free option

2. It has temporary PIN numbers, which assures safety

3. It is time bound; one needs to use it within the time limit specified before the virtual card expires

4. You need to set a limit to your spending and will be eligible to avail the amount specified on the card, which is dependent on the credit limit of your credit card or cash reserves on your debit card.

5. You can use both your credit card and debit card to generate your virtual card!

6. The balance amount, if any, will be credited back to the main account.

There are a few disadvantages: There could be delay in shipping merchandise, as the merchants might wait to receive the money before dispatch of goods. Also, you need to complete a transaction within 24 hours. So, forget about paying at your leisure. Once a transaction has been completed successfully, the card cannot be used a second time. There is also a spending limit of Rs 50,000 with most banks that you need to keep in mind.Cost Most banks provide the use of a virtual card for free. You only need to be registered with online banking, and you can generate several virtual cards in a day.

Sunday, May 17, 2009


The 15th Lok Sabha election results came out last Saturday(16th May) and boy what a result it was. The Indian democracy is celebrated all across the globe for its vibrancy and dynamism and this time the results proved it beyond doubt. This election result has been unprecedented and unexpected for a variety of reasons. The elections have thrown lot of stories within the large story of return of the electorate to the national parties. The government will now be more stable and hopefully more effective and decisive one. How will this impact your and my life? Should we be really rejoicing like the whole world is doing or should we be cautious? Well , I think its a momentous occasion in the Indian democracy and is a good news for all the citizens . The reason I say this is because:-
1. Stable government means more money in the economy - A stable government headed by the original reformist Mr . Manmohan Singh will send a strong signal to the whole world about India's pro-reform stance and its ability to push thorough tough decisions which were not possible till now, because of various opposing parties in the parliament like Left etc. This will bring large money in the Indian economy in form FDI, FII etc. India is a capital starved nation, as on today, and the expected money flow can do wonders to its much needed infrastructure programs . More money will mean more investment leading to better growth rate.Andits no secret that better grwoth means higher income and better lifestyle for you ,me and Joe.
2. Reforms will get a push - With anti-reform parties biting dust in the election, it is expected that government will push through reforms is key areas like Insurance (increasing FDI limit to 49% from current 25%), pension, banking etc . Reforms in areas of health care, education, police ,judiciary,administrative reforms etc are also much needed to ensure that the country reaps full benefit of its demographic advantage, it has over other countries. Divestment of PSUs and 3G spectrum sale will also see the light of the day. All this will bring in more money to the government exchequer which will improve its fiscal deficit situation.
3. Better sovereign risk rating - With more investment in the economy, improved fiscal status,more revenues due to divestment etc and higher growth rate will ultimately result in better sovereign rating for the country. This will make India an even better investment destination.
4. Continued focus on equitable growth - With implementation of NREGS , the government has made a laudable attempt to include the poorest or poor in the growth story of India. This also is an attempt to provide some sort of social security to the poor people in the country. This is likely to continue. Schemes like these ensure that the rural economy keeps ticking which in turn benefits companies in FMCG, pharma, durables industry. This too helps the growth of the country. In fact one of the reasons why India is relatively better off than its peers in the western world today is because of its vibrant and growing rural economy.
As I write this, the stock markets in India have given a thumbs up to the new verdict and how. The trading has been temporarily suspended because the markets zoomed 20% in less than a minute of trade. This speaks volume about the confidence the investors have reposed in Mr. Manmohan Singh and his party. But, the government needs to siege this opportunity and use this mandate to make a difference to the long term story of India like Mr Singh did in 1991 with his first reforms. The time is right and Mr Singh has all the arsenals he needs to fight the gloom and doom of recession. He needs to use his vision and conviction one more time. I am sure Mr. Singh will remember what US President George Bush said before leaving whitehouse."Histroy will judge me" .

Friday, May 15, 2009


In a country where elections are won and lost on the issue of price rise , it is ironical that most of the economists and also the media focuses on Wholesale Price Index and not the Consumer Price Index. The inflation , in India, is tracked by measuring the percentage change in WPI index over same period a year back. This denotes the price change in the goods and services comprising the wholesale price index. In my opinion, while WPI is an effective indicator of inflation in the economy, it does not fully represent the inflationary pressures facing the common man on the street. Why is it so? This is because the rate of change in WPI and CPI index can vary a great deal. While the WPI in India is currently at 0.4% , the CPI is pegged at well over 9%. This means while , the whole country is looking at WPI index and thinking that the rate of price rise is only 0.4%, the same is not true for the common man on the street. He still has to pay 9% more for buying the same goods and services over last year's price. So should we not look at CPI more closely and should we not give it more importance. The answer is Yes. In fact RBI does give CPI due importance , but, more needs to be done.The political parties too don't seem to understand this. Congress party launched a campaign in the last election where they took credit for fall in prices. Firstly, fall in inflation means fall in the rate of increase in prices and not an actual fall in prices. These are two very different things. Secondly, they were referring to WPI index and not the CPI, while the voter who votes is concerned with the rate of inflation in CPI and not in WPI.CPI gives the real picture of the inflationary pressure or stress being faced by the common man and as such needs to given little more weightage.

Thursday, May 14, 2009


Have you ever thought who is supposed to get the life insurance claim money after the insured person's death? Is it the nominee or is it the legal heir or is it the wife and children? Who is the real heir to the claim money? Well the answer to this is that the money that one gets as life insurance claim is to be paid in the hands of the nominee mentioned by the policyholder in his policy document. But, he or she is not the only claimant to that money.
The nominee only gets the money in his/her hand from the insurance company. This money is then to be distributed to all the legal heirs of the deceased as per their legal share. This includes his wife, kids ,dependent parents etc. Thus , the nominee can not claim the full money as his or her own.
In lot of cases, due to lack of understanding of this legal clause, the nominees refuse to pass on the legitimate share to other legal heirs and as such the money gets locked in a legal battle. So, one must avoid going to courts etc as it can take time during which period no one gets to use the money. This will result in the dependents not getting the money when they need it the most.So, one must try and avoid this situation by mutually settling the issue between the various legal heirs.

Wednesday, May 13, 2009


We all know that we can avail loans against our gold jewellery,LIC policy , equity shares etc. But, did you know that you can take loan against your mutual fund units as well? Yes, you can pledge your mutual fund units and take loans against them. The unit holder will have to pledge the units of his mutual funds in favour of the bank/financial institution granting him the loan . These pledged units will serve as security for the loan sanctioned by the bank/financial institution.
How does this work?
The Units of the mutual funds will have to pledged by the unit holder in favour of the concerned bank or financial institutions. The AMC will note and record such pledged units. A standard form for this purpose is normally available on request from any mutual fund.
Can you redeem your pledged units? The pledger will not be able to redeem the units that are pledged until the entity to which the units are pledged provides the written authorisation to the Mutual fund that the pledge charge may be removed. As long as units are pledged, the pledgee (bank/FI) will have the complete control over its redemption.
Does Mutual fund have any say in loan disbursement? No. It is important to understand that disbursement of such loans will be at entire discretion of the loan sanctioning authority i.e bank/financial institution/NBFC etc. The Mutual Fund will have no role to play in this regard.
Where can you get such loan? In India, as of now there are only limited companies offering this facility. However, Birla Global Asset Finance Company is an aggressive player in this segment.

Tuesday, May 12, 2009


New Pension Plan has been opened up for everyone in India with effect from 1st May 2009. While its a very good saving scheme aimed at providing everyone with an option to save for pension , it has few problems or disadvantages which the government will do well to iron out.
In my view , few of the problems with the New Pension Plan are as under:-
1. No Tax Benefit on Maturity Proceeds - New Pension Plan works on EET tax regime. This means that while the contribution and the interest on the contribution is tax free under this plan, the maturity proceeds are taxed . This is not the case with other long term savings plan like PPF, PF, NSC etc which operate on EEE (Exempt.Exempt,Exempt) tax regime. This makes the NPS a little less attractive in its current form . The government needs to bring about uniformity in tax treatment to this plan as well by making the maturity proceeds tax free.
2. Very Little Awareness about NPS- While NPS has been launched , there is not much awareness about it among the masses. This is because of the lack of promotion on part of the government. In contrast, we are inundated with promotional campaigns from insurance companies regarding their own pension schemes. Max New York will tell you "retirement ho to aisa" while Religare Aegon will urge you to find your own pension amount. The same is true for whole host of other insurance companies. But sadly, there is very little promotional effort going in towards making NPS popular. The government needs to understand that a good product by itself is not enough. It needs to be promoted well so that its received well by the masses.
3. Banks yet to sell NPS at full throttle- DNA newspaper did a reality check on the preparedness of banks nominated to sell NPS in Mumbai, by checking with the respective banks about the availability of forms etc. Most of the bank officials very not very sure about the way NPS works . This was obviously due to training issue, which is expected to be sorted out in due course. Another potential threat to success of NPS could be the danger of bank officials trying to convince the NPS customers to buy the pension plans from insurance companies. This is a possibility since banks get more as commission on insurance company's pension. PFRDA needs to keep a tab on this. Also as a customer , we need be more aware of this. Insurance company's pension plan is not same as NPS.
These problems notwithstanding, NPS is a revolutionary product which is superior to all other pension plans available in India as of now. Once these problems are sorted out, this will become even better and customer friendly.


We have had number of instances where bank's and financial institution's customers were abused, badly treated and at times physically harmed as well at the hands of debt recovery agents . Nuisance of recovery agents, is a genuine concern, facing each and every borrower today. While it is obviously not correct on the part of the customer to not honour his commitment of repaying the loan , it is also to be noted that most of the loans are of long term and it is very common for people to go through bad phases financially once in a while. During such period, borrowers deserve to be treated fairly by the banks. But ,that most of the times,does not happen. So much so that , the menace of recovery agents has driven few to take the extreme step of taking one's own life, just to avoid the mental and physical disgrace meted out to them by these agents.So, the question to be asked is , is this justified? Can recovery agents do all this ? And as a borrower cant we do something about it? Well the answer to this is that obviously none of this is justifiable and in fact in most of the cases even banks don't want this to happen to their customers.It is the recovery agents , who do it . These recovery agents
are mostly from an outsourced agency ,not banks employees hence the bank has limited control over them. However this does not absolve the banks from their responsibility. And as a customer there are lot of things that you can do to ensure that none of this ever happens to you.
In order to deal with recovery agents better, you must know and understand the broad guidelines RBI has issued in this regard. These are the guidelines which every bank/financial institution must follow.
1. Banks are supposed to carry out due diligence before recruiting agents. They have to do detailed background check on the agents, which includes police verification as well, to ensure that they don't end up recruiting anti social elements as their recovery agents.
2. The banks are supposed to inform the customer the details of the agent before handing over the customers details to the agent. In case this is not possible, the agent is supposed to carry the letter from bank mentioning all his details when he meets the cutomer.
3.Banks are required to record all the calls made to the customer by the agent and vice versa.
4. Banks are required to ensure that the agents don't resort to any form of abuse either physical or verbal, with the customer.
5.Recovery agents are not supposed to make visits at the customers place at late hours in the night.
6. Banks must resolve all the complaints received against the agents within stipulated time frame.
Now , you have a fair idea of the broad jurisdiction in which a recovery agent is supposed to carry out his duties on the bahalf of the bank. Ideally, no one should ever be harassed or hurt by an agent because the RBI guidelines say so. But, we don't live in an ideal world and hence we need to be prepared for the worst. So what can you do ? Try this.
1.Avoid taking loans from private banks - As far as possible , you should avoid taking loans from private banks. This is because , In India at least, most of the public sector banks have a better record when it comes to dealing with delinquent customers as compared to the private banks. The fact that public sector banks are owned and controlled by banks means that they stick to the guidelines laid down by RBI much more than private banks. Private banks , in their quest of maximising profits, put unnecessary pressure on recovery agents to recover money anyhow , which leads them to resort to arm twisting tactics. In fact,if you notice, all the major incidents of harassment at the hands of recovery agents have happened to the customers of private banks like ICICI, Citibank etc. So my first advice would be to stay clear of private banks while taking any loan. As they say ,prevention is better than cure.
2.Inform the bank - In most of the cases, the recovery agents resort to arm twisting tactics without the bank's
mandate to do so. They do it on their own . So if you get into such a situation ever, first thing to do is to inform
the local bank branch about this incident. Make a formal complaint with the bank manager Have a copy of the
complaint letter acknowledged by the bank officials. This will ensure that the banks put pressure on the agency
handling your case not to harass you in future. These days RBI is very strict on banks failing to protect
customers right against recovery agents and as such banks will take your complaint seriously.
3.Record the abusive calls- Sometimes the agents call the customer and abuse them. On phones they are more abusive because they know that you cant reach them (since they call from call centre location of which they wont tell) and also of the times they call using fake names. While banks are supposed to record all the calls made to the customer, you cant always be sure of that. Hence it makes sense to record the abusive calls from the agents. You can use this as an evidence against them.
4. Lodge a Complaint to the Police - Since harassing a person is an offence, you can also take police's help in dealing with the agents. If they continue to harass you , lodge a complaint with the police.The agents are generally very wary of the police and hence this works almost at all times.
5.Move Banking Ombudsman - You can also approach the banking ombudsman with your complaint. But before you approach them ,make sure that you have approached the bank with your complaint and given them sufficient time to resolve it.
6.Go legal - You can also file a legal case against the recovery agent/agency as well. You can make the relevant
bank a party to it as well.
7.Approach Media - As a last resort,you can approach the media. Most of the banks do not want any negative
publicity and as such would like to do everything possible to avoid that. Use the power of media , if all other
channels fail you.
But, these measures are meant to cure the symptoms only, not the disease. Hence , the most effective and long lasting cure to this menace is to pay off the debt. Remember, banks have lent you money when you needed it and hence now you must pay it back. In case of financial stress, you may approach the bank officials and they will be more than happy to help you by restructuring your loan terms etc.

Monday, May 11, 2009


US President Barack Obama is pushing for a legislation to control the unfair rate hikes and penalties levied by the credit card companies in US. As of now, the biggest complaint against credit card companies is that they rip off customers at will and there are far too many hidden charges in a credit card. The same is also true in India. Here too the credit cards companies have been charging interest rates as per their own whims and fancy. There is no benchmark and the rates charged on credit cards can vary from 36% to 45% pa. These are atrociously high interest rates.Worse is that the credit card companies reserve the right of increasing the interest rate at any time with them. Also there is no uniformity in the penalties like late fees , cheque bounce charges etc that are charged to a credit card user. To top it all , there are issues of sales malpractices being used by company representatives to push card sales which ultimately harms the user financially.
So, India too needs to take a cue from Mr Obama and push for greater clarity and uniformity in credit card industry in India. The RBI in India did try to restrict the maximum interest rate that banks can charge on the credit cards , but , the same is yet to be implemented as Banks association are against it. There are quite a few issues in the way credit card companies work and needs to be corrected. Lets look at some of the major problems facing the credit card customers and the possible solutions to it.
1.No uniformity and ceiling in the interest rates charged - As of now, there is no maximum limit on the interest rate that a bank can charge on the credit cards. Also the rates vary a great deal between banks . The interest rates on credit cards can vary from 35% p.a. to 50% p.a.
Solution - The RBI/government needs to fix a ceiling on the maximum interest rate, that credit cards can charge to their customers. This was done by RBI but the Banks Association went to court against it. Also the banks need to charge similar rates to all the credit card customers. Any differential pricing must be based on customer's credit worthiness only . For example, banks ,may charge higher rate to a person having lower credit score than a person having higher credit score. But, this must also be told to the customer so that they know why they are charged the rate that they are on their cards.
2. Banks can change the interest rate at any point in time - The banks reserve the right to change the interest rate at any point in time without giving any notice to the customer. So effectively, banks can increase the interest rates whenever they want without really bothering to inform the customer.This is case of high handedness on the part of banks and must be done away with.
Solution- The banks must be forced to inform the customer about any change in the credit terms before implementing it. Also they must give notice period of at least 30 days before they implement this. This will ensure that those who don't agree with changed credit terms have an option to pay off the outstanding balance and exit out of the credit card by surrendering it.
3.Uniformity in the penalties imposed - Credit card issuers charge penalties like late payment fee, cheque dishonour fee etc to the customer. These charges are necessary to ensure that customers behave rationally, but, the charges need to have some sort of uniformity between the various credit card issuers. As of now there is great deal of variation in these charges charged by banks.
Solution - RBI can mandate minimum and maximum limit on each of these charges so as to protect the customers from being fleeced by the banks.