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Small Finance Banks Offer FD Rates equal to Home Loan rates

Microlenders Utkarsh and Suryoday are two new additions to the existing pool of small finance banks in the country today. In total, there are 4 small finance banks in India with Capital Small Finance Bank and Equitas Small Finance Bank being the other two. These banks along with new private sector banks including Bandhan Bank and IDFC Bank and other payment banks are offering higher interest rate structures on fixed deposits and savings accounts in comparison to more established banks in the finance sector. Some of these newbies are offering FD interest rates at their established rivals’ home loan interest rates.

Services offered by small finance banks

These banks offer basic banking products and services to their customers including deposits and serve the unserved and underserved sections with lending. These sections include small and marginal farmers, small business units, small and micro industries and other entities belonging to the unorganized sector.                                    

Interest rate structure offered by small finance banks and payment banks

Suryoday recently opened their first bank branch in Mumbai and are offering an interest rate of 9% p.a. on their fixed deposits with tenures between 1 and 2 years. Senior citizens will enjoy an interest rate of 9.75% p.a. on such deposits. The bank is also offering a range between 6.25% and 7.25% on savings deposits which are payable on a monthly basis as opposed to a quarterly basis, offered by many other banks.

If you compare these rates with other banks in the financial sector, most of the big commercial banks only offer an interest rate between 6% and 7% on their deposits such as HDFC Bank and State Bank of India, to name a few. According to a note from Religare, the rates offered by Suryoday are equal to the home loan rates offered by other big banks.

Airtel Payments Bank is offering an interest rate of 7.25% on their savings account. Payments banks usually accept deposits up to Rs.1 lakh per account from small businesses and individuals.

The component of tax on interest

Interest earned from fixed deposits are subject to tax deductions, if the interest earned exceeds Rs.10,000 per year. On the other hand, interest paid on home loans are tax deductible up to an amount of Rs.2 lakh every year. Furthermore, there are speculations of a further hike in tax deductions on home loans in the budget this year.

Where do small finance banks and payments banks stand in the banking sector?

Religare have opined that currently, payments banks and small finance banks are too small to be in direct competition with their bigger counterparts – small and medium sized private sector banks growing at a tremendous pace. However, if you look at the larger picture, in the long hall, if these banks can move to being strong and well-managed in the financial ecosystem, they may be able to get a decent deposit flow from customers and corporates who have a high net worth.

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Loans against rent receivables – let your property work for you!

Did you know that if you have a rented property you can take a loan against the future rental money it could generate? The best part is, you can use this loan for multiple purposes, such as home renovation, wedding, education of children, debt consolidation, and business or personal emergency.

Features of loan against rentals

Here are some of the key features of loan against rentals:

Loan against rent receivables is a secured loan that allows you to pledge your future rentals with the bank in order to borrow the amount you need.

While you can seek a loan against rentals on both residential and commercial property, it is more common for banks to approve loan against rent receivable on commercial property than residential. But this does not mean that banks do not provide loan against residential rentals – Indian Overseas Bank and UCO Bank are some institutions that give loan against rent on residential property.

The loan amount is determined on the basis of the market value of the property and the net rent receivable, also factoring in points such as lease tenure, expected rent hikes and taxes deductible. So you could get any amount from a few thousands to a few crores.

The repayment tenure ranges from 1 to 10 years, and depends on the balance tenure of the lease agreement. It depends on the bank you are borrowing from.

The interest rate is usually lower than personal loan interest rates but higher than home loan rates.

A processing fee of 1% to 2% of the loan amount is charged.

The monthly repayment can be adjusted with the rent you receive, and you would not have to pay any additional amount.

Who can get loan against rentals?

To be able to take a loan against rent receivables, the following criteria need to be met:

You should be a single or joint owner of a residential or commercial property.

If it is a joint ownership, all owners have to enter into the loan agreement.

The property should either be let out already or should have entered into a lease agreement.

The party with which a lease agreement has been entered into should be a reputed person or institution. Banks have a list of pre-approved organisations that are considered reputed lessees.

Documents required

With a loan against rent receivables, the bank generally draws a tripartite agreement with you and your tenant, and the tenant will pay the rent directly to the bank as repayment of your loan. A separate loan agreement is also signed between you and the bank. Apart from these, you will be required to submit:

The lease or rent agreement with your tenant;

The authorised building plan and title deed of the property;

The latest property tax payment receipts;

Your bank statement for the last 6 months;

Your identity and address proofs;

A copy of your PAN;

Your income proofs and income tax documents;

Your photographs

Some of the banks that offer loan against rental property are IDBI Bank, Bank of Baroda, State Bank of India, HDFC Bank, Indian Overseas Bank, Federal Bank, UCO Bank, Tamilnad Mercantile Bank, Dena Bank, PNB Housing, and Aditya Birla Finance.

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Pros and Cons of Affordable Housing

Customers today, are surrounded by multiple hoardings of builders advertising flats and villas that are available at affordable prices such as a 2BHK for a flat price of Rs.25 lakhs and so on. And since housing is quite expensive, these rates entice prospective customers into buying them, quite effectively. Price of real estate and housing today, has skyrocketed and affordable houses are being lapped up eagerly for those looking to buy their own place. Price of property in cities are much higher than semi-urban or rural areas and these rates also vary from one city to another. For example, a house in Bengaluru will be much more affordable than a house of the same dimension in Mumbai. Recently, a number of real estate developers have undertaken projects to provide affordable housing to the general public. These houses can vary between 1BHK to 4 BHK and are priced between Rs.15 lakhs to Rs.60 lakhs generally.

Some homes are available through a direct sale and others through a lottery system. These systems are designed under various affordable housing schemes organized by the Government of India. For example, the Haryana Urban Development Authority (HUDA) has allotted several projects in Gurugram through a lottery system.

Although affordable housing projects seem to be a boon to most middle class buyers, there are a few not-so-rosy aspects to this as well. This article will briefly shed light on the various advantages and disadvantages of affordable housing projects.

Advantages of Affordable Housing

Today with the increase in population and rise in living costs, the demand for affordable housing is more than ever. This is especially the case in metropolitan cities, which seem to be getting more crowded by the day. From independent houses at one point of time, apartments are being constructed today on a larger scale, to accommodate the growing crowds. Also, cities have expanded and areas that were once far off are now a part of the main city. This increase in demand also results in a rise in prices, making it difficult for individuals to purchase their own home at economic rates. Hence, the presence of affordable housing makes it easy for many individuals to realise the dream of owning a house.

Additionally, due to this heavy demand, a number of large corporate developers have shown interest in providing affordable housing and hence, will also facilitate an early delivery of these projects, which is usually a major problem noticed in the real estate sector. Consequently, customers will also not have to wait for an indefinite period to get their home.

Disadvantages of Affordable Housing

However, there are negatives to every aspect and similarly the case with affordable housing. If looked at closely, most of these houses are actually located in an area that is far-off from the main city or is not fully developed, therefore absorption would be low. Additionally, buyers would also have to travel to far off areas for purchases, offices, schools etc., making it rather inconvenient for them. Hence, most customers would prefer buying houses in central areas, but will have to compromise on the price of the house and its size.

The above situation along with a low demand could result in the slowing of sales in projects that are constructed in far-off areas. Hence, even if the project has been completed, occupancy would not be there. This triggers a chain reaction wherein without occupancy, building society or resident’s associations will not be formed on time, resulting in maintenance and other organizational issues. This in turn will result in a blow to the reputation of the project and delaying its occupancy even further.

Also, as mentioned previously, due to the fact that these projects are constructed in far-off areas that may not have been developed, basic social and other infrastructures might not be existent. This will in turn only cause more problems to the residents. Therefore, although they have purchased a home of their own, it will not convenient for them due to other issues. Depending on the builder might be their only choice if there are no residents’ associations in their apartment complex and this may also not yield fruitful results.

Road Ahead?

There are experts who believe that, this is currently a buyer’s market and they would be able to impact the current market trend. Prospective customers would be able to bargain based on the price quoted, for a greater discount. Negotiations must be done from both ends. There are a number of apartments and houses that are left unsold and this might give customers more leverage to bargain with. Stability in prices may also be expected, albeit slightly.

Every good idea comes with its own set of advantages and disadvantages. This is also the case with affordable housing. Although it is a boon to most individuals who cannot afford residences that are in posh localities or those that are overpriced, the location and size of these houses may not be to their advantage. Hence, customers must go ahead with their choices only after a thorough research and understanding of all the options available to them.