B U S I N E S S

Is it right time to take housing loan?
Chandigarh
THE dream of Indian middle class to have a decent house at any cost seems to have caught the fancy of banking sector and planners of the country. The slashing of interest rates recently and rebate in income tax on housing loans have attracted more and more people towards housing loans.

preparing for retirement
Endowment plan comes handy on retirement
Ludhiana
A well-planned retirement plan, most financial wizards agree, must safeguard against medical expenses on poor health or sudden illness, a comfortable abode and finances to sustain a person comfortably despite the inflation. But in planning a good retirement, none can overlook the fact that one may not be lucky to reach the retirement age.

Revival of rains revives the market
DURING the last fortnight, the monsoon rains have revived after a long period of drought. There was excess rain in a number of states in Northern India. Inevitably, the revival of rains has revived the stock market. Though, the Kharif output of grains would be much lower than last year, there is a clear indication that the sowing of the rabi crop will not suffer.

• Has time run out for DSE?

Display fees at parking lots
OVERCHARGING by parking lot attendants is commonplace. With local authorities who fix the parking fee turning a deaf ear to complaints against parking lot contractors, consumers often find themselves in a situation where they have no choice but to pay whatever is demanded.

TAX & YOU

VRS money
Q: I have retired from bank under VRS. I would like to transfer/deposit some amount in the name of my major son, who is unemployed and major daughter, who is married. Please let me know how much amount can be deposited/transferred to his/her name. In whose income will be included, the income from interest on deposits made in the name of my major son/daughter?

Is it right time to take housing loan?
Manoj Kumar
Tribune news Service

Chandigarh
THE dream of Indian middle class to have a decent house at any cost seems to have caught the fancy of banking sector and planners of the country. The slashing of interest rates recently and rebate in income tax on housing loans have attracted more and more people towards housing loans. In fact, after the success of HDFC Ltd in this sector, the banks have found it as the new engine of growth to boost their credit offtake.

Indeed, a section of households is still hopeful about further decline in interest rates, despite recent announcement of Dr Bimal Jalan, Governor, RBI, that interest rates would not fall further at least in the short term. They feel that in view of overflowing funds, the banks have no other option, but to further cut down interest rates. Since, loaning to individuals for housing purposes is relatively safe as compared to ‘unfaithful’ industrial sector and monsoon-dependent agricultural sector, the banks would continue to focus on this developing sector. They feel that they should wait for some more time, to take a decision about housing loan.

On the other hand, the bankers point out that it is the right time to take a housing loan, as the demand for credit by the industrial and agricultural sector has already nosedived, and the interest rate on deposits are at the lowest possible level. The government is also providing substantial tax rebate on housing loans so that they should not wait further.

Cut in interest rates

Till recently, admit bankers, the home loan market was dominated by HDFC Home Loans and LIC Housing Finance but now the SBI and PNB Housing Finance are also targeting this area besides other banks. Taking a lead, the State Bank of India, has challenged the other players by introducing cheapest home loans in the market. It slashed the rate of interest on August 16 by 50 basis points on all types of housing loans — to 9.5 per cent for below five years term. It is also offering waiver of processing fee and free credit cards to home loan borrowers. The bank would now charge, 10 per cent on loans for five to 10 years. For fixed loans, interest rate would be 0.25 per cent over floating rates for the same period.

The HDFC Home Loans has cut down interest rates even up to 9 per cent for a three year repayment period. However, it is charging interest at a rate of 10 per cent on home loans for five year period, 10.75 per cent for 10 year period and 11 per cent for 15 years and above period. The other banks including ICICI, Corporation Bank and others have also decided to follow the market leader by slashing the rate of interest. The Corporation Bank has also announced a cut in interest rate to 9.5 per cent. The ICICI Home Loans are also available at the same interest rate.

A secure investment

As per data, the housing finance has registered a growth of 35 per cent during the past fiscal year and expects a 50 per cent growth during the current year. The SBI has registered a substantial growth in this segment over the past one year. Its home loan assets showed incremental growth of Rs 1,018 crore in the first quarter ended June 30 against Rs 200 crore in the corresponding quarter last year.

The track rate of the individuals in home loans, says Mr Neeraj Swaroop, Country Head — Marketing, Retail Banking and Branch Lending, HDFC Bank, has been much better than the corporate sector. He agrees that in comparison to Rs 75,000 crore NPAs locked with the corporate sector, the house financing has negligible default rate. The default rate in this sector is between 0.5 per cent to 1.5 per cent. In fact, all over the world, he says, the banks find individuals especially in the middle class as the best borrowers. Further, in case of default, banks can easily dispose of assets in comparison to industrial units.

Benefits of home loans

The financial experts claim that as compared to savings in banks, mutual funds and share market, the investment in the housing sector provides better value for money. They say that one should now try to build a house by taking loans as it could be easily repaid through savings in rents and income tax. The interest rates have already fallen from 14 per cent to 9.5 per cent.

The borrowers can claim deduction up to Rs 1,50,000 p.a. on the interest payable u/s 24 (b) of the Income Tax Act, 1961. They are also eligible to claim tax rebate up to Rs 4,000 p.a. subject to a maximum principal repayment of Rs 20,000 p.a. u/s 88 (2) (xiv).

However, despite all the claimed benefits one should not forget, says Dr Manoj Sharma of the University Business School, Panjab University that property rates are not witnessing the same rate of growth as experienced during early nineties. He claims, “In Chandigarh and surrounding areas, the property rates might be witnessing a marginal increase every year, however, in towns like Gurgaon, it has drastically come down, making it an unprofitable investment. Secondly, before taking a loan, one should also consider the continuity of one's job, especially in the private sector.”

Eligibility for loan amount

Actual loan eligibility is determined, says K. Ajith Rao, Chief Manager, Corporation Bank, on the basis of repayment capacity as determined by the bank officials. It takes into account income, age, qualification and occupation. In case of, other earning family members are offered as co-borrowers, their income is also clubbed with that of borrower for consideration of eligible loan amount.

In fact, the banks are targeting urban middle class with a permanent source of income for home loans. The franchises of some financial institutions often try to convince every kind of buyers to take home loans, but in many cases, the applications would be rejected as the final decision would be taken by the financial institution after considering all the risk factors. These include financial antecedents and authenticity of property documents.

Mr Swaroop admits that the banks are trying to spread over their risk of repayments. The present land ceiling act and urban rent act are affecting the growth of this sector. Another bankers admitted that the housing finance had failed to expand in rural areas, due to strict land acts. He admitted that since most of the sale deeds in Chandigarh are also held on the basis of power of attorney and according to present rules, one cannot take a loan for such a purchase. He cautioned that one should not be attracted by low interest rate, rather amount of equally monthly instalments (EMI), attached conditions should be the guiding factors.

preparing for retirement
Endowment plan comes handy on retirement
Naveen S. Garewal

Ludhiana
A well-planned retirement plan, most financial wizards agree, must safeguard against medical expenses on poor health or sudden illness, a comfortable abode and finances to sustain a person comfortably despite the inflation. But in planning a good retirement, none can overlook the fact that one may not be lucky to reach the retirement age. Most life insurance plans come in handy not only to cover such a risk on the one hand, but also give you the much-needed capital for a comfortable sustenance.

Endowment plan

Most insurance companies in the life insurance business offer ‘endowment plans’ that serve a dual purpose. Firstly they cover risk to life for the period for which the police is taken and secondly at the end of the term it ensures a saving that can provide a lump sum amount that can be coincided with the retirement.

Invest in a policy that earns better

Some companies offers an endowment plan that not only covers your life, but also ensures your savings do not lie idle. Such companies invest a portion of your premium in various financial instruments ensuring a considerable growth in your savings. With the opening of the insurance sector, some of the 12 Life Insurance Companies even offer a plan that allows you take a few days to decide if you want to stay with the police or not.

One marked change from previous years of LIC monopoly is that by and large now the insurance premium paid is deposited by the company into the policyholders personal Accumulation Account from where the expenses, risk cover charges and survival benefit payouts are regularly deducted. It is only the balance that is invested in various financial instruments (as per IRDA regulations) so your money works to earn more for you. One marked advantage of this is that even if you are unable to pay a premium for some reason, life risk remains covered.

Maturity of the plan

Maturity of the plan gives the policyholder the sum assured and in addition the bonus. But in the event of the death of the policyholder, the beneficiary will receive the Sum Assured plus the excess, if any in the Accumulation Account. The newly introduced Endowment plans ensure that if you for some reason default in making payments towards the premium, the automatic cover maintenance facility ensures your policy remains in force in case you miss premium payments after the first three years of the term. So even though you miss payments, your life is still insured, a substantial benefit over the previously offered plans.

Loan in financial emergency

Most good companies offer you a loan against the money you have already paid towards your Endowment policy. This loan amount depends on the balance in your Accumulation Account at that time. The interest rate will be determined according to the prevailing interest rates. Flexible Endowment plans also offer you the option of surrendering the plan. This is not a very advisable step, as the policyholder would lose the life insurance cover if he surrenders the policy.

Working of an endowment plan

All endowment plans qualify the policyholder for a tax rebate under Section 88 of the Income Tax Act, serving a dual purpose again of covering your life and saving tax, which translates into additional saving for the retirement. This is how it works: Say 40-year-old people were to take an Endowment plan for Rs 1,00,000 for a period of 20 years to coincide with the retirement.

The annual premium of this plan works out to Rs 4,640. If the insurance company declares a bonus of say 5 per cent the policyholder gets a bonus addition of Rs 24,400 and takes the total maturity value to Rs 1,19,800. But in case of a bonus of 10 per cent per annum the bonus amount works out to Rs 1,19,800 giving the person Rs 2,19,800 at retirement.

Look for value addition

Most new entrants into the life insurance sector offer value added services at a normal premium that cover additional risks like the term cover, accident death benefit, permanent disability benefit, critical illness etc. The term cover provides a beneficiary additional death benefit amount, which is over and above the Sum Assured.

Explore your options

Even though the LIC remains the largest operator, other smaller operators are positioning themselves to provide customised and individualised services that suit particular requirements. So, scout well for a plan that takes care of your insurance and retirement plans before getting stuck with something that does not fulfil your personalised needs.

MARKET SCAN

by J. C. Anand

Revival of rains revives the market

DURING the last fortnight, the monsoon rains have revived after a long period of drought. There was excess rain in a number of states in Northern India. Inevitably, the revival of rains has revived the stock market. Though, the Kharif output of grains would be much lower than last year, there is a clear indication that the sowing of the rabi crop will not suffer. The Sensex has crossed 3100 points mark last week. In fact the market tone throughout the week was positive. It appears that the worst is over and the stock market would maintain its gains.

Much will depend on the 2nd quarter results of the corporate sector which would be announced in October. It appears that during September, the market would move within a narrow range, for all the major companies have already reported their Ist quarter results and no fresh news is expected which may push up the market by a wide margin. In fact, Vidhan Sabha elections in J&K may divert public mind away from the stock market to the election news.

Considering the impact of drought on agriculture and industry, Morgan Stanley has lowered the GDP growth forecast for India from 5.1 per cent to 4.7 per cent. Last month, it had also lowered its GDP growth forecast from 5.4 per cent to 5.1 per cent. The Centre for Monitoring India Economy (CMIE) has also lowered its growth estimates for the GDP to 3.1 per cent from its earlier projection of 4.5 per cent.

On the other hand, growth in the infrastructure sector is higher to 9.3 per cent in July, 2002 as against 0.8 per cent growth in July, 2001. For the first four months of the current financial year, the infrastructure sector grew by 6.6 per cent as against 1.1 per cent growth during the corresponding period last year. The cement sector has been doing very well. These data indicate that in spite of drought, the corporate sector is likely to do well particularly the cement manufacturing companies like Larsen & Toubro, Grasim etc.

The Union Budget for the financial year 2003-04 is also likely to be investor-friendly. The government is keen to win back the middle class investors in view of elections to the Lok Sabha and Vidhan Sabha in a number of states during the next two years. Now, that the stock market has bottomed out and the market sentiment has improved, it is time for long-term investors to pick up shares in well-managed companies but choose only those equity shares which have good liquidity in the market and are favourite with the speculators. Tisco, L&T, Reliance and Hindustan Lever appear to be good purchase for long-term investment. However, avoid Optical Fibre’s shares like Sterlite Optical and Aksh Optical for there is a slowdown in the International markets particularly in Telecom Industry. The demand for optical fibre has fallen. BSNL has also not placed any orders. There is no mid-term possibility of improvement in the market price of Optical Fibre shares.

Has time run out for DSE?

New Delhi, August 25
The Delhi Stock Exchange (DSE) will implement its revival plan from October 1 but capital market experts and brokers feel that the local bourse has been in slumber for too long and now it is too late to resurrect it.

“DSE has lost its meeting, it simply does not have the scale to be viable,’’ Mr Dhirendra Kumar of Value Research said, while Prithvi Haldea of Prime Data Base said the local bourse had awakened too late.

“DSE should have read writing on the wall five years back, now it is too late,’’ Mr Haldea said.

They should have responded when NSE’s volume started rising five years back and BSE opened its terminals for other exchanges three years ago, he added. Mr Kumar said DSE had basically been regional bourse and it did not have the scale to attract players. “Companies are getting delisted from the bourse.’’

The revival package of DSE, approved by the Governing Board on Monday last, was quite contrary to the earlier proposal of appointing market makers. According to the package, those who trade one lakh worth of shares per day would be given free cable connectivity for six months. At present Rs 2,000 per month is charged for the connectivity.

To prevent de-installation of V-SAT, as sought by many members in view of tradeless sessions in a row for days together, the board had decided to provide ownership of the system to individual brokers at Rs 30,000.

DSE would have to shell out Rs 30,000 per broker for the de-installation process.

Brokers were paying Rs 6,500 per month as rent for V-SAT connectivity to DSE even when trading does not take place in the exchange. UNI

CHECKOUT

by Pushpa Girimaji

OVERCHARGING by parking lot attendants is commonplace. With local authorities who fix the parking fee turning a deaf ear to complaints against parking lot contractors, consumers often find themselves in a situation where they have no choice but to pay whatever is demanded.

Here is an unusual case of a consumer who decided to fight against such overcharging. The amount involved was very small, but he felt that somebody had to step in and stop the blatant exploitation of consumers. It all began when Mr R.L. Aggarwal parked his scooter at the railway parking lot at Ludhiana. A board at the parking area mentioned the parking fee fixed by the railway administration as 50 paise, but the attendant demanded Rs 3. Mr Aggarwal protested, but was abused and insulted. When even the station master to whom he complained expressed his helplessness, Mr Aggarwal was forced to pay the amount demanded .

However, Mr Aggarwal was not prepared to accept such treatment.. First of all, he had registered his grievance in the complaint book provided by the station master. When he failed to get any response, he again wrote to the Station Master and then the Additional Divisional Railway Manager at Ferozepur, requesting action against the contractor for overcharging consumers. Failing to get any communication from them, he filed a complaint before the District Consumer Disputes Redressal Forum, seeking a refund of the excess amount charged. Holding both the railway administration and the contractor responsible for the way consumers were treated at the parking lot, he wanted the excess money collected from all vehicle owners to be recovered from the contractor or the railways and deposited in the Consumer Welfare Fund.

The Railway administration, which till then had not even bothered to reply to Mr Aggarwal’s letters told the court that they had investigated his complaint and had imposed a fine of Rs 500 on the contractor. Satisfied with this, the District Forum held that there was no deficiency in the service rendered by the railways. It also dismissed the plea for recovery of the excess amount charged by the contractor from all the consumers. Much worse, it observed that “charging of Rs 2.50 extra than the prescribed rate is too trivial a matter to be taken note of”.

Unwilling to accept such a verdict, Mr Aggarwal filed an appeal before the State Commission. His contention was that the contractor never abided by the terms of the lease agreement entered into with the railways. He overcharged consumers and those who protested were abused and sometimes even manhandled . Yet the railway administration failed to take corrective action. A belated fine of Rs 500 was too small a punishment to a contractor who overcharged as many as 300 scooter owners daily.

After scrutinizing the terms of the agreement under which the parking area was leased by the railways to the contractor, the Punjab State Commission held the contractor guilty. The railways was equally liable as it had failed to take action against the contractor for breach of agreement governing the contract. It therefore directed the railways and the contractor to jointly and severally pay Mr Aggarwal a compensation of Rs 15,000, besides Rs 2000 as costs.

The railways challenged this order before the National Consumer Disputes Redressal Commission. And in return, got directives from the apex consumer court on how to protect consumer interest vis-à-vis parking lots. Sign boards specifying the parking fees should be conspicuously displayed at parking lots.. The parking receipts should also mention the fee in bold letters, the Commission said. It also directed the railways to ensure that every consumer complaint is acted upon with alacrity and stringent action taken against contractors who overcharge or misbehave with consumers, even to the extent of terminating the contract. Imposing a fine of Rs 500 on a contractor who overcharged hundreds of vehicle owners daily, cannot be a deterrent punishment, the Commission observed.

TAX & YOU

by R.N. Lakhotia

VRS money

Q: I have retired from bank under VRS. I would like to transfer/deposit some amount in the name of my major son, who is unemployed and major daughter, who is married. Please let me know how much amount can be deposited/transferred to his/her name. In whose income will be included, the income from interest on deposits made in the name of my major son/daughter?

— B.M. Sharma, Ambala City

Ans: You can transfer funds from your VRS money in the name of your major son/daughter by way of “Gift”. Once the money is gifted, then the income there from would not be taxable in your hands and the same would be taxable as income belonging to your son/daughter.

Tax return

Q: My son is working in the USA. He has sent me a draft for Rs 10 lakh. Kindly clarify.

(a) Is this amount taxable?

(b) Should I show this amount in may return? and

(c) Whether interest on this income will be taxable?

— Shashi Bhushan Gupta, Panchkula.

Ans: This amount is not taxable as income in your hands. It is better to show this amount in the Income-tax return under the caption “Exempted Income”. The interest income earned by you on this amount would, however, be taxable in your hands.

House rent

Q: With due respect, I beg to say that I am working as a Pharmacist in Health Department, Punjab. My gross salary for Financial Year 2001-2002, is Rs 1,55,634, including all allowances. As I am entitiled for rent free accommodation, so after getting rebate of Rs 7125 on house rent, my income becomes less then 1,50,000. So please clarify:-

(1) How much standard deduction, I will get for Financial year 2001-02. Will it be Rs 30,000 or Rs 25,000?

(2) As per new Income-tax policy for Financial Year 2002-03 for the same case, how much rebate on savings will be; will it be 20% of savings or 10 per cent of savings?

— Ashok Kumar, Sangrur

Ans: On the facts stated by you the standard deduction would be Rs 30,000 p.a. For the financial year 2002-03 the tax rebate permissible to persons having taxable income upto Rs 1,50,000 is 20 per cent.