How ‘hawks’ and ‘doves’ impact your EMI
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A dove is inclined towards easy monetary policy, while a hawk is not
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Tag: EMI
How to improve your credit score post-pandemic
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When any adversity hits, we as human beings put our rational thought process on the back-burner and err. If these decisions are linked to financial matters, then the cost multiplies, snowballing beyond one’s control.
When the pandemic struck, the behaviour was no different. Loss of job or paycuts, bulky medical expenses – borrowers were forced to cut corners. Loan and card bills suffered, impacting the credit score.
As green shoots emerge, it is an opportune time to reflect on the financial faults and correct the past mistakes such that your credit score gets a fillip.
The Reserve Bank of India’s moratorium gave respite to borrowers for the period between March 1, 2020 to August 31, 2020, while ensuring that the moratorium seekers’ credit report is not affected.
However, there could be other aspects such as credit utilisation and monthly repayment obligations which need your attention now.
A good credit score not just brightens the prospects of getting a loan, but also determines the rate at which the loan is given. If another catastrophe strikes, a high credit score acts like a shield to guard you from a credit crunch.
Start with the basic step of sourcing a copy of your credit report from either of the credit bureaus. Note that every credit bureau offers the borrower a free credit report once a year.
Pay up costly loans
To make ends meet during the pandemic if you went all out seeking loans, especially withdrawing cash using credit cards, then that should be your first rectification step. Cash on credit card is the costliest loan and any surplus that you have, should be used to pay that at the first instance.
Next on your radar should be to shorten the list of loans, trimming them based on the interest rate you pay – the highest rate loan paid out first. Fewer loans mean better focus at handling debt, which augments your credit score.
Continue older loan/ credit card
To shorten the list of loans, do not consider closing the older loans or credit cards first. With the older loans and credit cards there is credit history, and this can positively impact your credit score.
Restructure loans
If you are struggling with your loan repayment as the pandemic left you without a job even six months later, then sit across the table with your bank and renegotiate the payment terms, interest rate or EMI amount, such that it is easier for you to pay. Such restructuring of loan enables you to make timely repayment on your terms, ensuring your credit score is not affected due to loan defaults.
Minimise credit utilisation
Using up 100 per cent of your credit card or overdraft limit indicates your inability at handling money. Bankers fix their gaze on what is referred to as ‘credit utilisation’ or the amount of free credit limit available on your cards. Instead of using up 90 per cent of your credit limit on one credit card, it makes immense sense to have three cards with 30 per cent credit limit consumed. This simple but critical step aids to your credit score as only a small portion of the available credit limit has been used.
Lastly, treat these credit sanitisation practices like hygiene. Difficult to establish, but once inculcated, they feel like second nature.
(The writer is, MD and CEO, CRIF High Mark)
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‘Buy now pay later’ is big draw for India’s Gen Z
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Players see multi-fold rise in usage from pre-Covid levels
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‘We have not sold a single loan to any ARC’
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The turnaround for YES Bank has been much faster as it could usually take at least two to three years, believes Prashant Kumar, Managing Director and CEO, YES Bank. In an interview with BusinessLine, Kumar said the bank is hoping to continue with the growth in advances in the fourth quarter with good demand from retail and MSME segments. Edited excerpts:
How has the bank managed such a robust growth in net interest income?
Some of the recovery has been booked as interest income, which has given a boost to the NII. This robust growth in NII will continue but it will depend on whether you will make recovery for interest. This may not happen in all the cases; normally there is always a haircut.
How is the growth in advances?
We had set a target of ₹10,000 crore of disbursements in the third quarter for retail and MSMEs and we disbursed ₹12,000 crore. Corporate disbursements were at ₹2,000 crore. We are seeing demand from the retail and MSME segments but corporate demand is yet to pick up.
We were earlier lending to large project finance companies on the corporate side but we are not doing that as a strategy now as we don’t have that kind of size of balance sheet. But we will definitely participate in working capital requirement and small requirement of term loans like ₹300 crore on the corporate side but not very large. Aviation, hospitality and real estate have been impacted badly by the pandemic as well as sectors related to entertainment, and shopping malls.
For the fourth quarter, we have not kept a target on advances but would like to do the same as the third quarter.
Also read: This is the peak in terms of NPAs and slippages: YES Bank chief
How have operating expenses come down?
We are avoiding wasteful expenses. Due to the pandemic, we realised people can work from home. In our Mumbai building, we have vacated two floors from 12 floors and will be in a position to vacate another two floors in the coming months. Similarly, in Delhi, we have shifted our premises from Chanakyapuri and are moving to Noida.
So, will the bank go for branch expansion?
In terms of business growth, we need to expand the branch network. Till now, our branches have been concentrated largely in northern and western India. Our presence in southern, eastern and central India is very small. We need to wait for two to three quarters but we are coming out with a strategy of opening branches in the areas where we are not there. Branch expansion will be a part of the strategy but we need to wait and see the real impact of the pandemic.
Also read: YES Bank posts Q3 net of ₹151 crore
What about deposit mobilisation?
Growth on deposits is always a slow process. Earlier, YES Bank’s deposit was at ₹2-lakh crore plus. But at that time, there was a very large deposit book of the government, which has come down. Some States are not placing deposits with private sector banks and we are also not getting deposits from the Central government. The government deposit book was ₹45,000 crore but now it is only at ₹7,000 crore to ₹8,000 crore. On retail and corporate deposit book, we are back on track. Our focus will be to open CASA accounts.
What is happening on the bad bank proposal? Are you looking to sell off any NPAs?
We are waiting for regulatory approvals. We have not sold a single loan to any ARC (asset reconstruction company) and we have no plans. If we are able to set up our own ARC, then we will transfer it to our own ARC. Selling doesn’t make any sense, it brings in hardly 20 per cent. We are able to recover much more.
What are your expectations from the Budget?
Real estate has been impacted by Covid-19 and has been under difficulties in the last three to four years. Addressing this sector is important as a large number of people are also impacted. People are paying EMIs but not getting their flats. This sector, if taken care, will give a boost to infrastructure. Banks would be able to recover their loans and the government will also get huge taxes. Also, hopefully the Budget will continue to provide support to MSMEs. It has a big role in the GDP and needs support in terms of releasing payments, protection, and ease of doing business.
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Know how the rent collected is accounted for I-T purpose
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Request response on the following questions on tax pertaining to undivided property and tax applicable to rent:
1. Can the rent allotted from undivided properties located in urban neighbourhood be considered separately under Hindu undivided family account for income tax purpose? If this rent is less than minimum slab, is it necessary to file an undivided family account?
2.A Father occupies a house with the name of his son, he pays a nominal rent as a relief to his son. Whether this can be considered as a gift and gets relief for the son from paying income tax?
3. When an individual owns only one house in an urban neighbourhood and collects a rent. He however, stays in another town for living. How is the rent accounted for IT purpose?
4. An individual has purchased a house using a housing loan — EMI basis in a city– and has a house in an urban neighbourhood and collects a nominal rent. Which I-T form needs to be used? The first house has not yet been transferred to his name. How is this rent accounted for I-T purpose?
— Raman
1) Pursuant to section 22 of Income Tax Act, 1961 (the Act), rental income derived from the undivided property owned by the Hindu undivided family (HUF) shall be assessed in the hands of HUF. Further, if the total income derived by the HUF in a financial year (FY) is less than the basic exemption limit (₹250,000 for the FY 2019-20) HUF is not required to file the Income tax return (ITR). However, if the HUF had deposited amounts exceeding one crore rupees in one or more current accounts during the FY or incurred foreign travel expenditure exceeding two lakh rupees or electricity expenditure in excess of one lakh rupees then tax return has to be filed even if the total income is below the basic exemption limit.
2) We understand that the house property is owned by son and his father pays nominal rent for occupying the house. As the underlying transaction is occupation of the house and payment of rent therefore, such payments by father to son ought not be regarded as ‘Gift’ under section 56 (2) (X) of the Act. Accordingly, such rental income earned by the son need to be offered to tax under the head ‘House Property’.
3) Rental income earned by the individual from the property located in urban neighbourhood is liable to tax under the head ‘House property’. Standard deduction of 30 per cent on such rental income earned and actual municipal taxes paid could be claimed as deduction under the Act. Further, interest on housing loan (if any), without any deduction limit can be claimed under section 24 of the Act.
Further, where the individual stays in a rented accommodation in another town for his living, he may claim, either of : Exemption of house rent allowance (HRA) u/s 10(13A) of the Act, if he is a salaried person, or Deduction u/s 80GG of the Act, subject to fulfilment of specified conditions.
4) Based on the details provided, a house property is owned by the individual and the same is currently let out. He earns a nominal rental income from that property. As per section 23 of the Act, the annual value of the property let out during the year shall be higher of the actual rent received/ receivable or fair rental value for which the property is expected to let out.
For let out property, rental income shall be offered to tax while filing the tax return and specified deductions (30 per cent standard deduction, municipal taxes paid and interest on housing loan) can be claimed. With respect to the other house property which is not transferred to the name of the individual, it may tantamount to not having a legal ownership in that property and the eligible deductions with respect to interest/principal payment may not be claimed under the Act. It needs to be further analysed based on the documents in place. For property under-construction, any interest paid before possession is tax deductible in five instalments beginning from the year in which construction was completed under the Act. Deduction for interest on housing loan is capped at ₹200,000 for a self- occupied property and the amount of principal payment can be claimed up to ₹150,000 u/s 80 C of the Act, subject to conditions.
Use of IT form: ITR 1 could be used if the income is less than ₹ 50 lakhs in a FY and the individual has salary income, one house property, further subject to specified conditions.
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