Home Loan – Should buyers go for it now?

Non-food credit grew 11.3 per cent – its lowest figure in the last 12 years, for the period ending on Oct 09, 2009. Home loan, a part of non-food credit did not report very healthy credit off-take too. Nevertheless, the festive offers made by different PSU banks along with reduced interest rates offered by private counterparts revived the home loan disbursals. Various banks offered the ‘8 per cent-first year offer’. This along with reduced property rates aroused the buyers’ appetite to buy homes.
While the market think tanks called these festive rates as teaser rates, similar to the rates offered in western countries which created asset bubble, the central government along with PSU banks offered these special rates for a limited period to revive the realty market on which many builders were dependent or on the verge of collapse.
Initially, in the first two quarters of FY 2010, home loan disbursals were on the track but following the increase in property prices by 10-30% in the last 6 months, consumers have started postponing the buying as they are apprehensive of a possible market correction.

Offerings by PSUs and Private banks
Almost all the PSU banks have come out with special home loan offer where the first year interest rate is pegged at 8 per cent followed by 8-9 per cent rates for next 4 years. Subsequently, the rates would be benchmarked against the said BPLR. They have also offered ‘nil’ processing charges during the festive period along with ‘nil’ prepayment penalty unlike in private banks where they still charge processing fees and prepayment penalties along with higher interest rates.
So, currently PSU banks offer better deals in terms of total incentives albeit they take higher processing time..

Fixed or Floating?
In the market scenario, it is better to blend the fixed with floating. Following the outlook in the 2nd quarter 2009-10, the RBI has indicated to unwind the expansionary monetary policies in near term; so, interest rates may go up in FY 2011. So, it is recommended for the current buyers to lock in the fixed rates to get the early benefits from a possible rise in interest rates.

Time to buy
Moreover, RBI has also asked the provisioning requirement for real estate loans which will also push the cost of the property as builders will pass the cost to consumers. But it won’t be easy to pass the additional cost to buyers as the property markets are already flooded with substantial supply while demand has not evolved. So, the buyers looking for a property should go for it.

Down-payment requirement
In the current calendar year, many banks have reduced the margin requirements for home loan borrowers from 25% to 15-20% of the total property prices. So, it is a further push and an incentive to home buyers.

What percentage of your net income you can have your EMI?
Generally banks offer loan with an EMI in the range of 35%-65% of total monthly income. It also depends upon the credit history of the individuals. So, one can expect an EMI at a moderate level of 50 per cent of total monthly salary.

What should customers do?
The improved economic conditions have already pushed the property rates by 10-30%; so it would be prudent to take the buying decision in the current period as regulatory caps would push up the prices further. Moreover, the festive rates are valid will Dec 31, 2009 after which the normal rates would apply and there won’t be any additional incentives available.

Searching the life

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Searching the life..

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RBI exits from expansionary policies

The domestic economy has started experiencing its feel-good factor with the encouraging numbers from all ends. However, the global economic outlook scripts a different picture. The abundance liquidity, inflationary pressures and week credit off-take forced the central bank to initiate some precautionary steps.

Keeping in mind to provide a balanced approach to our coupled economy, the Reserve Bank of India (RBI) in its second-quarter review of monetary policy 2009-10 maintained its status-quo on its lending and borrowing rates by keeping repo and reverse-repo rates unchanged at 4.75 per cent and 3.25 per cent respectively. It has also kept the Cash Reserve Ratio (CRR), the portion of deposits which the commercial banks need to keep with the RBI unchanged at 5 per cent. However, the bank has hiked the Statutory Liquidity Ratio (SLR), the amount which the commercial banks need to maintain in the form of cash, government approved securities (G-Secs) and/or gold before providing credit to the borrowers, to 25 per cent from 24 per cent effective from Nov 07, 2009 which will suck up over Rs 30,000 crore from the system. The central bank also aims to reduce the surplus liquidity and fight the higher inflationary expectations, which have been building up following a deficit monsoon (22% deficit) causing an increase in prices of food articles and food products.

The RBI has also revised the inflation target from 5 per cent to 6.5 per cent. The inflation has increased from -0.12 per cent to 1.21 per cent within a span of six weeks, thus, reflecting a rise of more than 1 per cent. It has also kept the GDP target unchanged at 6 per cent with an upward bias.

The RBI has responded in a way so that its growth and inflationary targets are met well within their target limits as set and also bridge the fiscal gap by initiating the first phase of its exit from expansionary policy. It has ended the forex swap facility for banks and cut the export credit refinance facility to 15 per cent, the level seen in pre-crisis time from the current level of 50 per cent. It has also ended the special repurchase window for banks, mutual funds and NBFCs with immediate effect.

Following the announcements by RBI, the domestic markets have responded negatively. The barometer Sensex tanked 386 points on profit booking across all sectors except IT companies. The BSE realty index and metals were heavily battered slipping 6.24 per cent and 5.43 per cent respectively. On the debt front, the ten year G-Sec yield slipped from 7.41 per cent to 7.31 per cent, a gain of 0.1 per cent or 10 basis points.

Jounced…

Well everyone dreams a life…a life filled with colors, dreams, expectations, planning etc…Hmm planning? For what? For whom? With whom? Life must go in a direction acceptable to the world, a world to which you own some obligations. Human beings have got a wonderful quality of falling into thoughts, the thoughts on which great discoveries, inventions and other new happenings revolve around the world.

Distances and time have been dwarfed; everyone is looking to be famed for its brevity in all possible paths covered. India, a country of valued and rich culture, customs and its incredibleness have voyaged an inter-generational expedition. Once to be called as Golden Birds, India is fighting hard to retain its lost glory. Even though to some extent on the global front, India is known for its inimitability and equally counted as a forward player which others watch to replicate per se. In London and US airports when Indian executives take a ride on the taxi operated by Indians, the drivers feel proud as Indian companies have galloped some of the overseas giants to show the financial muscles, a message to be flashed in foreigners’ minds we have reached to you. Similarly, in row inter se Harbhajan and Symonds in India-Australia tour, a newspaper in UK quoted, “India showed its financial muscles”. When India threatened to cancel the ongoing tour due to inter-cultural arguments, ICC nudged with a fine of Rs 3.5 billion which BCCI happily replied that the cheque was ready”.

Coming on the individual front, everyone seems to improve, grow in a perpetual way in line with the current world’s demands. Some does it at other’s costs; some achieves at its own strength. In the current now-and-then, we have forgotten our own families, own people. Nuclear family has become a way of life where everyone is strained and stressed. People look for the fun and peace at other places and with others. Discos, regular psychiatrist visits, pubs, extra-marital affairs etc have become a way of life. People struggle for the magic Smile and hardly laugh out. Just ask yourself, when did you laugh last for yourself?

The granny knot of Husband-wife’s relation works as strong as Himalaya. In the current stressed world where people are fighting for the sake of its existence, in some families they live with each other with a compromise which would be followed till its divide. The movie “Life in a metro” clearly depicted the true picture of the world where relations move beyond its existence and take a new shape. Should we continue with the current theme or it would become a trend of the life? Endless questions and eternal explanations have let the relations to reach at the point of extremity. We are fighting over trivial things which need to be looked into. The world needs to be relooked into.

Why do markets go up/down?

Sellers outnumber buyers, says a simple market theory. But the game of economics in the current globalised world which keeps the countries coupled with each other makes the markets gyrate either in upward or downward direction. We often read the financial news “The financial markets reacted to the report with a sharp fall…”. But in reality, do the markets react to the news in this way? Our traditional economic theory says that markets are mostly in equilibrium, reflecting an overall balance of economic forces. Markets’ direction change when these forces change i.e. when any good news about a company increased demand for its stock, making its price go up.

But the theory of simple buying and selling which determines the price discovery seems to fail with the current crisis triggered by the bursting of a financial bubble in the US mortgage markets in 2007 that had grown to gruesome proportions, thanks to lax regulations and complex financial instruments that hid risks. The issue on the top was the issue of ‘moral hazard’. Brokers were incentivized to generate borrowers and investment banks took on these risky loans and lumped them together into “Collateralized Debt Obligations”. And a single failure at one of the nodes of a tree made it to collapse. The striking feature of the crisis is that the situation appeared to be driven by ‘emotion’. The word ‘fear’, not an equilibrium concept, appeared in almost all newspapers. “Too big to fail” syndrome tasted dust with the fall of Lehman Brothers, an investment bank giant. Traditional economic models don’t capture these dynamics. Market dynamics can be bewilderingly complicated, with thousands or even millions of participants – ranging from banks and mutual funds to individual punters – all interacting with one another.

The system of leverage has created a surprised situation in the market. Lots of leverage begins to pose a threat of failures cascading through the market and it bursts out if it crosses a certain threshold. A single failure sends ripples of trouble through the entire market, making it to nosedive.

Moreover, many economic parameters have become so relevant in the financial markets that even a marginal negative movement in these numbers can let markets move in uneven directions. Some of the dominating factors are Index of Industrial Production (IIP), Purchasing Managers Index (PMI), Libor-Dollar movement, GDP growth rate, fiscal deficits, government borrowings, Composite Leading Indicator (CLI) given by OECD, MSCI Index et al. Since the financial crisis in 2007, these numbers performed miserably, before some ‘green shoots’ were visible at the end of last quarter of 2008-09, thanks to series of stimulus plans, bail outs, low interest rates, tax sops etc by central banks across the world. The emotions played stronger, emerged as the major tool in deciding the market movements.

The natural reaction to a crisis is to update and upscale regulation and supervision. The markets unwillingly move in either direction by millions of investors; those with stronger steam make it move in their direction, thus, disproving the basic dynamics of demand and supply. To a large extent, it is the man made movement. The game goes simple, “there is no place for snoozers”. The theory of money making goes on with either party making losses or gains. The only unidirectional beneficiaries in this game are the bourses which just smile, make money and see these punters betting to each other.

Life in a Wheel

Life in a Wheel

Have you ever imagined the importance of a wheel?

The world began approaching towards its current civilizations on ‘Sumerian’ wheels,

From rollers or logs, the first wheel-like devices to the evolution of solid wheels,

It sets its own path irrespective of impediments,

It finds its own journey, if, shown a target,

When attached with a vehicle, it covers a distance,

When walked across its diameter, you reach the same point,

It depicts the life cycle traversing in phases.

Life divulges within an endless series of time cycles,

Human life cycle which repeats itself over again and again,

It never ends its journey and discerns new evolutions and new visions.

The wheels of life are being illustrated as wheels within wheels.

The wheel is whirling and you can’t inhibit.