In your interest.
Online Personal Finance Magazine
No beating about the bush.
A housing finance company feels that documents like salary slips are not the only way to judge the credit-worthiness of a potential borrower
If you want a loan to buy an affordable home, but do not have enough documents (like salary slips), do not worry. Micro Housing Finance Corp Ltd (MHFC) is ready to provide a loan of up to Rs6 lakh for people who do not posses these documents.
“We do not believe that documents are the only way to test the trust of a client. I do not think that a salary slip will actually determine whether he or she will be able to repay the loan or not,” said Rajnish Dhall, founder, MHFC.
“A salary slip will only show how much a person earns, but there are other ways to check the earning and repayment capacity of a borrower. You can conduct independent verification and surveys to know that. For example, if I am lending to a vegetable vendor, then I observe his business. I see him every day on the street from 9 in the morning to 8 at night. You can easily make an estimate of his earning,” added Mr Dhall.
According to the latest National Sample Survey Organisation (NSSO) report, there are over 80 million poor people living in India. The slum population is also increasing and as per the Town and Country Planning Organisation’s (TCPO) estimates in 2001, over 61.8 million people in India were living in slums.
There is a huge demand for affordable housing supported by easy finance for this segment. Many banks reject loan applications of a prospective client if his company does not have a provident fund facility as the applicant might be working in a small & medium enterprise.
Besides the urban poor, a person earning Rs 8,000-Rs15,000 per month can approach this
micro-finance company for a home loan.
MHFC is targeting people like vegetable vendors, maids, taxi-drivers, etc. In fact, its first customer is a food vendor, the second is a housemaid, and the third a beautician.
“We conduct personal interviews of the customers and carry out surveys to know about the earnings of people from a particular segment. We can easily make out what a taxi-driver or maid earns. If we are lending money to a maid, we call the employer to enquire more on her earnings. We conduct ample number of enquires before lending,” added Mr Dhall.
The company has an equity capital of Rs33 crore. It has already disbursed around Rs2.50 crore to about 100 borrowers. “We have plans to sanction loans worth Rs60 crore by next year,” claimed Mr Dhall.
“We only mortgage the house being financed. To sanction a loan, we do not require a guarantor or any other security,” said Nachiket Shelgikar, co-founder, MHFC.
MHFC charges a prime lending rate (PLR) of 12% to clients and provides a loan of about 80% of the property value. As a security, the company mortgages the property being financed. While other banks require a minimum of two or three types of assurances, this company does not. MHFC claims that it has not yet faced any problems with loan repayments.
“We take two weeks to sanction loans from the date of application. We also charge 1% processing fee before disbursal, and the client has to pay a Rs300 application fee, based on which we process the application and provide a sanction,” said Mr Dhall.
The micro-finance company does not advertise. It ties up with developers who build affordable housing projects costing between Rs3 lakh to Rs6 lakh per home in urban areas. When the builder advertises his project, he also adds that he has tied up with MHFC.
At present, the company has tied up with seven affordable projects like Shubh Griha (Boisar, Maharashtra); Global City (Virar, Maharashtra); Swarajya (Ambivali, Maharashtra) and Om Shantinagar 2 (Ahmedabad, Gujarat).
“We are planning to tie up with 20 more projects which are in the pipeline. We intend to commence operations shortly in Bengaluru, Surat and Kolkata. We are also in discussions with various State governments for housing initiatives for the economically weaker section or lower income group,” said Madhusudhan Menon, founder, MHFC.
Contact Details of MHFC:
Micro Housing Finance Corporation Limited (“MHFC”)
#3, Victoria Building,
SA Brelvi Rd,
Off Horniman Circle,
Fort, Mumbai - 400 001
E-mail: [email protected]
Contact No : ( +91 22 2266 0130 / +91 22 2266 0427 )
India’s largest lender offers attractive home loan schemes to generate demand, then loses interest when it comes to processing loan requests. One such complaint against SBI exposes the situation
Customers lining up for home loan offerings better size up the uphill task ahead of them. For, even though SBI is going all out to woo customers with attractive packages, it is making them run from pillar to post before releasing even a penny.
One particular complaint by Mr Kalyan Chakravarthy speaks volumes about the troubles home loan customers go through while dealing with bank officers. His case exposes the bureaucratic practices prevalent at the country’s largest bank, State Bank of India. Between the day that SBI’s representative came to collect all the relevant documents till the loan was actually sanctioned, the complainant has been made to run around in search of various documents (among other things) over and over again, and has been yelled at by the bank officials, for no fault of his.
After waiting for two weeks without any answer since providing the documents, when he met the manager for a preliminary enquiry, the Bank referred him to a separate branch where all the loans get processed. This is where his troubles began. Mr Chakravarthy states, “When I went there to know the status, they yelled at the top of their voice as to why we always keep on following up and they would call us once the application is processed. Again we waited for a week and finally I gave up and went to the branch again. Then ironically they asked me to get an estimate of the construction done by a prescribed engineer (Mr Chakravarthy had earlier submitted a valuation report from his engineer). I had to run to that engineer to get the valuation done again, for which he took four-five days and took a fee for the service.”
After he submitted the valuation report, again nothing moved and Mr Chakravarthy had to approach the branch again. This time they demanded legal advice, again from a prescribed legal advisor. He was also asked to get an encumbrance certificate and a duplicate will of the property. Even after doing all this, and after waiting for ten more days, SBI demanded the details of his previous employment as the Bank wanted a two-year working record. Even though he had already submitted relevant IT returns for three years, his arguments fell on deaf ears.
A week later, the complainant finally got a call from the manager asking him to sign the final documents, to seal the deal. Needless to say, his troubles didn’t end here. The manager asked him to pay stamp fees, which came to a staggering 0.5% of the loan amount! The reason for this absurd demand—the Bank was worried that in case he defaulted, it would have to file a case in the court, where the Bank needs to pay the stamp duty fee. As the complainant puts it, he was already being made out to be a defaulter!
Even after paying the required stamp duty, Mr Chakravarthy was referred to another manager, who made his own new list of requirements, including another encumbrance certificate. To complete all the formalities, when the complainant tried to open a new account, his request was flatly refused, as he had made the abominable mistake of coming on a Saturday! His alacrity won him a further round of abuses. After two days, his loan was finally sanctioned, but not without the customary new list of requirements. Even after going through all this mess, the complainant still remains unsure of getting the loan disbursed!
Mr Chakravarthy has highlighted the following issues:
They (the Bank) are asking the customers to get various documents which are very crucial (like legal advice and an encumbrance certificate). I guess this should be done by them independently as in today's world it’s very easy to get a fake certificate and the possibility of a fraud is not ruled out in these circumstances.
They (the Bank) are advertising 0% processing charges, but asking the customers to bear the expenses of getting a valuation certificate, legal advice, encumbrance certificate and also the stamp duty which in my case came to around 1.2% of the amount of loan. Is this not cheating, had I gone to any private bank wouldn’t I have just paid the 0.5% processing charges and got the loan without any hassles?
With such kind of practices, won’t SBI lose the customer base and business thereby, as many customers would opt to go for private banks and avoid PSUs as far as possible?
What is the reason for taking the stamp duty from all the customers in the beginning; is SBI of the impression that all will default on payments or do they want to increase the revenue for the government from these stamp duties?
This is the response they give to educated professionals—I’m not sure about the plight of a common man who is not aware of financial jargon and procedures, forget about illiterates.
That is the alarming situation currently playing out. After squirming about low credit off-take for the most part of this year, when customers are now slowly lining up for credit, SBI is getting cold feet in expediting the processing of loan requests. Moneylife tried to contact SBI for its comments, but didn’t get any reply.
–Sucheta Dalal with Sanket Dhanorkar [email protected]
Monopoly position enables international behemoths Visa and MasterCard to levy exorbitant costs on client banks; a domestic payment system would be considerably cheaper
The country’s central bank, the Reserve Bank of India (RBI), is considering putting in place a domestic card payment system that would handle all debit or credit card transactions in the country. If implemented, the new system would compete against international card associations Visa and MasterCard, who have a virtual monopoly in card transactions worldwide. These two players have access to superior technology and employ stringent practices that make settlement of card transactions a breeze for banks worldwide.
This position of strength enables the two giants to demand huge fees for their services from client banks. Banks thus have to pay a high cost for associating with Visa and MasterCard. So much so that there is no alternative for banks but to accept whatever charges these two players think fit to levy for their services.
The list of service charges is quite exhaustive. Apart from transaction charges, they have a plethora of other fixed charges including annual service charges, monthly maintenance charges and quarterly charges. These are levied irrespective of whether the cardholder uses the card. The problem lies in the fact that banks cannot transfer all these charges to the customer. They have to bear the costs themselves. A senior banking official said, “These organisations are exploiting their monopoly position and technological expertise. Our current agreement requires us to unilaterally accept any future charges that may be introduced. They dictate their terms and conditions; banks don’t have any say in the matter.”
Dhimant Roy Turakhia, assistant general manager, Bank of Maharashtra said, “This is a welcome move from the RBI. If the RBI is to introduce this system, it is going to be highly economical to the bank and also to the cardholders. The charges would come down to 10%-15% of current outgo. The profitability of public sector banks will also increase and the burden will also reduce to that extent. After all, we can only pass on limited expenses to our customers.”
The most astounding fact is that Visa and MasterCard are not liable to pay a penny to the government in the form of taxes. Essentially, they are earning truckloads of revenues which are entirely tax-free. Banks are supposed to pay the service tax on behalf of Visa or MasterCard.
The RBI has already established a National Financial Switch (NFS) which handles many domestic transactions for cash withdrawal. It has been operating since the last 18 months. For the same transactions, Visa charges more than 10 times what RBI asks from banks. RBI is also looking at establishing a PoS (point of sale) switch network for routing domestic card transactions. Currently, even domestic transactions are routed through a switch located outside the country. The Visa switch lies in the US as well as Singapore. However, for this new system to work, a 24-hour fund transfer mechanism will have to be put in place. The existing National Electronic Fund Transfer (NEFT) network operates during weekdays from 9 am to 5 pm and on Saturdays from 9 am to 12 noon. The RBI is also pursuing the suggestion to extend this network to work on a 24*7 basis.
–Sanket Dhanorkar [email protected]