For ‘Borrowers’ from banks

A leading MNC bank is offering complimentary air tickets to its Platinum personal loan customers who borrow up to Rs 15 lakh. Several banks are promising attractive options and freebies for retail borrowers.

With high interest rates putting off potential borrowers banks are increasingly resorting to novel techniques to win over customers for personal loans. This comes at a time when growth in retail lending slowed down to 15.9% the lowest in nearly four years, for the year ended May 2008, according to latest data.

The year-on-year (y-o-y) credit growth which stood at a heady 44.4% for March 2006, declined sharply even as the Reserve Bank of India (RBI) raised key rates in an attempt to rein in double digit inflation.

The deceleration was led by the housing sector which saw a mere 13.8% growth in credit for the year ending May 2008.

Banks have now become cautious. Lending norms have become stringent. High rates are turning away potential customers, admits an official with a leading private sector bank.

However, growth in industrial credit still remains strong and increased 26.9% for the year ending May 2008. This is higher than the growth registered for fiscal 2007.

Corporates who are confident about their future are not postponing investment plans.

Though the outlook for the corporate sector is not as bright as in the beginning of the year, it still remains positive. The high interest will impact corporate credit growth.

With falling earnings growth, firms have lower retained earnings and are now substituting bank finance for internal resources generation.

Due to the credit crunch in global markets following the US sub-prime crisis firms are also substituting external commercial borrowings with bank credit.

This has pushed credit growth to industry higher than it otherwise would be. Higher global commodity prices have also contributed to higher credit requirements for working capital.

According it RBI’s pre-policy document credit growth in the firm of personal loans has decelerated to about 16% y-o-y.

From the point of view of monetary stability there appears to be a need to bring down overall credit growth so that increased consumption does not feed to inflation through rise in aggregate demand.

A large part of the growth in personal loans had come from a low base as banks went on a lending overdrive in the past few years.

This is definitely not the perfect time to think of loans. Interest rates are on there rise, and aren’t showing any signs of slowing down. Still, for many citizens, borrowing often becomes a necessity irrespective of the prevailing loan rates.

Trouble is, even borrowing it self is not purely dependent on interest rates alone now. With banks resorting to differential rate of interest for different sets of borrowers the smart and well behaved borrowers get a loan at a slightly cheaper rate. So can you:

A financially undisciplined borrower is a nightmare for any financial institution. No wonder they ask for all kinds of documents from bank accounts to card bills as these clearly reflect a person’s repayment history.

Hence, if you are looking for a good deal while borrowing, make sure that your bank account and credit card history is clean.

It’s enough if you just maintain the minimum balance required by your banker, or pay your card company the minimum required amount.

A clean account means it should not have any record of cheque bounces, fines on delayed payments, huge rolling credit balances etc. So the next time you make out a Cheque to our friend or relative be aware that even they need to be.

You have to understand that having a clean image is extremely important as banks and even credit card companies are now sharing their databases of customers amongst themselves. So a poor credit card history can spoil your loan chances.

Gone are the days when defaulting card holders could jump from one banks to another to avoid huge interest costs. Now banks publish a common negative list of customers which enables them to track errant borrowers.

Hence, it’s imperative that you keep your credit card transactions in good health. Even if this doesn’t ensure any cheaper rate of loan, it will at least make you more eligible for your required loan than the next person with similar financial status.

It’s also vital you build and regularly update a file of all papers. For example, a good track record of at least three income Tax returns is a must for those looking to invests in property as banks are unwilling to lend otherwise.

So if you missed filing it last year, set the record straight with a penalty, if need be.