The total value of India's strongest brands has risen by a third (33 per cent) over the last year, according to the second annual BrandZ Top 50 Most Valuable Indian Brands ranking by WPP and Millward Brown. This is the highest rate of growth achieved by any BrandZ ranking in the 10 years since valuations began, exceeding that of the Global Top 100 as well as the rankings for China, Latin America and Indonesia.David Roth, Chief Executive Officer of WPP's The Store commented, "The 2015 study shows that India is a market of great opportunities where consumers are feeling empowered, and this is increasingly reflected in their brand choices. The new Modi government is committed to creating an environment in which brands can flourish. India is distinct in many ways from other fast-growing markets, however, so simply applying strategies that have proved successful elsewhere will not work in India. Any brand intending to compete in India must gain deep insights into its nuances - such as the need to modernise while respecting the past, and the desire to remain fundamentally Indian."India's Top 50 brands are now worth $92.2 billionn (up from just under $70 billion in 2014). The record-setting value increase has been driven by brands' successful response to the rising sense of empowerment among Indian consumers, and the government's efforts to create a more conducive business environment.Prasun Basu, Millward Brown's Managing Director, South Asia said, "India's top brands are strong, and getting stronger - but there is no room for complacence. The top four had to grow their value by 37 per cent on average to hold on to the same positions as last year, and close to 10 per cent of the brands that made the Top 50 in 2014 have dropped out. To benefit from the continuing rise in consumer confidence and optimism brands need to understand the changing consumer, respond with innovative products and breakthrough communication, and experiment and invest in new media that reflect the spirit of the country today."Brands in the financial sector with more than 49 per cent growth made the largest contribution to the overall increase in value, but significant lifts were also seen across most other sectors, indicating the broad strength of India's economy and Indian brands. Home and personal care brands achieved a combined increase of 32 per cent, followed by the auto aftermarket sector at 28 per cent, automobile brands at 27 per cent and telecom providers at 21 per cent.Private companies, state-owned enterprises and brands owned by multinational corporations that are publicly traded in India all experienced growth, illustrating how receptive the market is to brands of all kinds. This is evident from the fact that more than half of the brands in the Top 50 are privately-owned, tracking India's entrepreneurial energy. Furthermore, 30 per cent of the brands are owned by multinationals, which have successfully adapted to the needs of Indian consumers, becoming so embedded in their lives that they are perceived as 'local'.Ranjan Kapur, Country Manager, at WPP India, added: "Building a successful brand in India also means helping to build India itself. Consumers are trustful of brands, but trust can crumble overnight. Brands must work hard to sustain trust by connecting with the country's communal sense of responsibility. Brands need to find ways to support the national agenda, and help to develop a more modern, prosperous and equitable society."BW Online
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Export-Import Bank of India (EXIM) Bank has provided a $35-million line of credit to Guinea to construct and upgrade hospitals in the country."Export-Import Bank of India, at the behest of the Government of India, has extended a Line of Credit (LOC) of $35 million to the government of Guinea for construction and upgradation of regional hospitals at Kankan and Nzerekore in Guinea," EXIM Bank said in a statement today.An agreement for the LOC was signed here between Alexandre Cece Loua, Ambassador of the Republic of Guinea to India and Regional Head of EXIM Bank, Tarun Sharma on Wednesday, it said.This is EXIM Bank's first LOC to Guinea.With the signing of this agreement, EXIM Bank has now in place 199 LOCs, covering 63 countries in Africa, Asia, Latin America, Oceania and the CIS, with credit commitments of over $12.19 billion, available for financing exports from India, it added.(PTI)
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Of late, RBI's policy on external commercial borrowings ("ECBs") has come under severe criticism from economists, practioniers and other stakeholders. The 'Report of the Committee to Review the Framework of Access to Domestic and Overseas Capital Markets (Phase II, Part II: Foreign Currency Borrowing) issued by the committee constituted by the Ministry of Finance, Government of India and headed by M. S. Sahoo in February 2015 ("Sahoo Committee report"), amply illustrates the policy infirmities pertaining to ECBs. The policy is complex and uncertain, and arguably, raises concerns about, engaging in ill-defined industrial policy, the scale of economic or commercial knowledge required to lay down the detailed prescriptive regulations, its impact upon the cost of business, and about rule of law.A case in point to reinforce some of the above criticisms is the ambivalent treatment meted out by the ECB policy to indirect modes of financing, like credit insurances, which Indian eligible borrowers can avail from overseas export credit agencies ("ECAs"). While availing direct financing from ECAs is permitted, availing indirect financing from ECA - in the form credit insurances - seems fraught with many challenges and uncertainties. ECAs, are government- backed institutions that provide loans, guarantees or insurance to banks or corporates that lend to borrowers/importers in developing countries and emerging markets, that are considered risky (commercially or politically) for conventional corporate financing. Credit insurances from ECA's can substantially lower the commercial or non - commercial risks faced by an overseas lender while lending to an Indian company, and thus can lower the cost of borrowing for the Indian company. As part of a financing package, an offshore commercial bank, funding an Indian company's import of capital asset, often mandates the Indian borrower to avail of credit insurance from an ECA. It also agrees to fund the premium and other costs payable by the Borrower to the ECA. The amount of the premium and fees payable to the ECA, understandably, will have to be within the permissible all-in-cost ceilings. This financing package, despite being compliant in terms of the recognized lender and all - in - cost, cannot be availed by an Indian borrower under the automatic route. The ECB guidelines specifically set out what are, and what are not, permissible end uses. As is the problem with any prescriptive regulation, any end use, that does not fit the bill, is indiscriminately deemed to be prohibited. Accordingly, and in the absence of any clear economic or legal guiding principle, payment of premium and fees of an ECA, is treated as a non- permissible end use under the automatic route, although there are differing views which are also prevalent. Financing costs for availing indirect financing (credit insurance) within the permissible amounts, from recognised lenders (being ECAs) and within the permissible all- in- cost limits, should not pose any additional or unforeseen foreign exchange risk, that the ECB regulations seek to protect the Indian borrower, or the financial system, against . The prohibition, therefore, appears to be illogical and counter -productive, as it denies Indian firms the ability to obtain cheaper debt capital available on a global scale. As the Sahoo Committee report notes, the policy on end-uses under the ECB guidelines do not seem to follow any economic rationale relevant today. If the RBI does wish to specifically outline the policy in absolute details, then it must accept such power with the added responsibility of drafting guidelines which are not reactionary but preempt all the commercial imperatives. This is indeed a tall order, and therefore, leaves all with the other workable alternative of making the regulations normative or principle based. The Handbook on Adoption of governance enhancing and non-legislative elements of the draft Indian Financial Code, issued in December 26, 2013 and put together by the Department of Economic Affairs, Ministry of Finance, Government of India does suggest a similar approach to be followed by the regulators for regulation framing. The Sahoo Committee Report also illustratively discusses the more nuanced and mature approaches adopted by other emerging market economies such as South Korea, Brazil, South Africa etc. in their regulation of external commercial borrowings.Another criticism levelled against the ECB policy is that it is not neutral - in that the policy allows some sectors and not others, or some companies and not others, to access ECBs. Statistics proves that non- resident international banks have been the highest source of ECB facilities extended to Indian borrowers. As a mitigant for the counter party risk, it is natural that such foreign banks are likely to favour large, internationally active and low credit risk firms. This is likely to be compounded by the capital controls, where all in cost ceilings impose interest rate caps on returns on ECB's. Therefore, it hardly comes as a surprise (and probably as an unintended consequence) that only relatively larger Indian companies are able to access the cheaper bank credit through the ECB route. The ability to effectively use credit insurances from ECA's and use the ECB facility, within the permissible parameters, to pay for availing such insurance, would certainly go a long way to make the ECBs equally accessible to all Indian eligible borrowers - thus, making it a more neutral policy. Considering that the incumbent government has, over the past one year, laid much emphasis on the 'Make in India' project and more recently, the 'Digital India' project, which are aimed at boosting manufacturing in India across various sectors, extensive rethinking and policy liberalization regarding ECBs is the need of the hour. Along with foreign equity, easier access to foreign debt as a source of capital is also extremely vital for Indian companies.Exchange control regulations must be shaped such that it permits maximum benefits to the Indian firms, without compromising the integrity of the financial system. As clear from the instances discussed above, the experience with the ECB Guidelines is often the opposite. Consistent with the shift from foreign exchange "regulation" to "management", the regulators should devise a policy framework that insulates the Indian system from macro- economic risks, and provides maximum flexibility to Indian businesses. The views expressed here are his own.The author, Soumitra Majumdar, is a senior associate with J. Sagar Associates, Advocates and Solicitors.
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The Bank of England said on Thursday (10 September) its rate-setters felt the threat to the world economy from China's stock-market slump did not signal a slowdown for Britain, as they left interest rates at a record-low of 0.5 percent.Policymakers voted 8-1 to keep rates unchanged, as expected, and they broadly agreed with Governor Mark Carney, who has said that, so far, China's slowdown is unlikely to derail the plan to gradually raise British rates.Sterling jumped to a two-week high against the dollar after the rate decision and the publication of the minutes of the Monetary Policy Committee meeting, which ended on Wednesday.Economists said a rate hike looked on track for early 2016."The MPC doesn't appear too shaken by recent global developments, which it said did not materially alter its central view," said Vicky Redwood, from the consultancy Capital Economics. "Indeed, the minutes highlighted that inflation should still pick up around the turn of the year."The BoE's decision followed a month of declines on global stock markets, driven by financial turmoil in China, and signs of some weakness in Britain's economic recovery.Investors are also uncertain about whether the US Federal Reserve will raise rates next week for the first time since the 2007-09 financial crisis. Such a move would be likely to have knock-on effects across global financial markets."Although the downside risks emanating from overseas had risen, it would be premature to draw strong inferences from this month's events for the likely path of activity in the United Kingdom," the MPC said in minutes of its monthly policy meeting.Domestically, the MPC is balancing a relatively robust recovery with inflation that is far below target due to past oil price falls and subdued wage pressure.But a minority of policymakers saw a danger that near-zero inflation could rise faster than forecast and exceed its 2 percent target in a couple of years, suggesting they would not take much more persuading to back a rate hike.For one policymaker, Ian McCafferty, this risk was already big enough that he voted for a second month in a row for an immediate rate rise to 0.75 percent, arguing it would help ensure rates rise only gradually.Carney, the BoE's governor, said last month the decision on when to raise rates was likely to come into "sharper relief" around the turn of the year, and that China's problems did not appear poised to have a big impact on Britain.However, figures on Wednesday showed an unexpected drop in British industrial output, partly due to faltering overseas demand. Broader surveys have pointed to a slowdown in growth in the third quarter to around 0.5 percent.The central bank's staff trimmed their forecast for third-quarter growth to 0.6 percent from 0.7 percent, roughly in line with Britain's average rate of growth.(Reuters)
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Taxation and pricing holds the key for the success of Sovereign Gold Bonds scheme, writes Sunil Dhawan We, as Indians are obsessed with gold. Every year we import about 800 tonnes of gold and a large portion of that is used for making jewellery. The demand for physical bars and coins is around 300 tons every year. According to the World Gold Council, over the next decade, there are likely to be 15 million weddings per year in India, where more than half of the population is under 25. If not jewellery, there has to be a better option available with Indians to invest in Gold. And yes, we have Gold Exchange Traded Funds (Gold ETF) and the recently approved (yet to be launched), Sovereign Gold Bonds Scheme by government of India. Let’s see how comparative Gold ETFs and Sovereign Gold Bonds are under the current structure. Cost: The high initial buying and even selling charges that goes into owning jewellery, bars or coins gives an extra edge to the low-cost Gold ETF’s and Sovereign Gold Bonds. The initial cost in owning physical gold can be as high as 25 per cent. In Gold ETF’s, the cost incurred could be around 1-1.5 percent of the amount invested. It also saves the trouble of keeping the physical gold and what’s more, the transparency in pricing is another advantage. In case of Sovereign Gold Bonds, it appears that there will not be any entry charge and even the fund management cost as seen in Gold ETF will not be there. The issuing agency which would pay distribution costs and a sales commission to the intermediate channels would be reimbursed by Government. Pricing: In Gold ETF, the pricing is transparent. The price on which Gold ETF unit is bought is probably the closest to the actual gold prices and therefore the benchmark is the physical gold price. For Sovereign Gold Bonds , the Government will issue bonds with a rate of interest to be decided by the Government. The rate of interest will take into account the domestic and international market conditions and may vary from one tranche to another. This rate of interest will be calculated on the value of the gold at the time of investment. The rate could be a floating or a fixed rate, as decided. The price of gold may be taken from the reference rate, as decided, and the Rupee equivalent amount may be converted at the RBI Reference rate on issue and redemption. This rate will be used for issuance, redemption and LTV purpose and disbursement of loans. Holding mode: The Sovereign Gold Bonds will be available both in demat and paper form, while for Gold ETF one needs a trading account with a share broker and a demat account. It remains to be seen how existing brokers make available the Sovereign Gold Bonds along with Gold ETF’s in their offerings. Limits: Sovereign Gold Bonds will be issued in denominations of 5, 10, 50,100 grams of gold or other denominations, and the cap remains at 500 grams per person a year. In Gold ETF’s, one my create SIP and even a gram of gold can be bought online, with no upper limit of investment. Sovereign Gold Bonds will be issued on payment of rupees and denominated in grams of gold and is capped at 500 grams per resident Indian person per year. They will carry sovereign guarantee both on the capital invested and the interest declared and accrued to the bonds. Where to Buy: Issuing agencies would be the designated banks, NBFCs, Post Offices, National Saving Certificate (NSC) agents and others, as specified. They would be authorised to collect investments and even redeem bonds on behalf of the government. Gold ETF can be bought from a broker’s online account, example icicidirect, hdfcsecurities. Liquidity: The tenor of the bond could be for a minimum of 5 to 7 years unlike Gold ETF where units can be liquidated anytime. Bonds can however be used as collateral for loans. Further, bonds would be allowed to be traded on exchanges to allow early exits for investors who may so desire. Taxation: Currently, Gold ETF holds advantage over Sovereign Gold Bonds as far as taxation is concerned. Gold ETF units are subject to tax according to a non-equity mutual fund. For short-term gains below 36 months, gains are added to income while on long term gains, indexation benefit is provided. In Sovereign Gold Bonds, capital gains tax treatment will be the same as for physical gold for an 'individual' investor". The department of revenue has said that they will consider indexation benefit if bond is transferred before maturity and complete capital gains tax exemption at the time of redemption," Economic Affairs Secretary Shaktikanta Das told reporters, after the Cabinet approved the scheme. On maturity: On maturity, the redemption will be in rupee amount only. The rate of interest on the bonds will be calculated on the value of the gold at the time of investment. The principal amount of investment, which is denominated in grams of gold, will be redeemed at the price of gold at that time. If the price of gold has fallen from the time that the investment was made, or for any other reason, the depositor will be given an option to roll over the bond for three or more years. Remember, any upside gains and downside risks will be with the investor and the investors will need to be aware of the volatility in gold prices. End note: The pricing will be important especially when an alternative in the form of Gold ETF exists. Also, taxation concern will not be clear till next budget. Still, as of now taxation is at par with physical gold. Capital gains tax exemption will make gains tax-free thus giving a fillip to the scheme. Should you invest in gold bonds when they are launched? Keep watching this space.
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Merger of weak banks with strong has its downside. Is it worth the pain? Raghu Mohan explores It’s an idea which has been spoken about in the past, and finance minister Arun Jaitely has thrown up the same again -- that the Centre is not averse to merging weaker state-run banks with stronger ones. On Wednesday (9 September), Jaitely said that while steps to shore up the financial strength of state-run banks has been done through capitalisation, “After this (measures) if there is a fragile bank, we are looking at consolidation with stronger banks. So it's not that banks don't get a priority. In fact, after inheriting the banks in a fragile situation, we are systematically trying to address each of these problems”. The reference is to concerns that the weaker among state-run banks may be too fragile to continue to do business in the emerging landscape – that’s even after the steps taken to capitalise them and re-engineer their innards with the “Indradhanush” initiative. The Triggers NowThe number one headache for Jaitely and team is the mess as ariticulated S S Mundra, Deputy Governor-RBI (Indian Banking Sector: Emerging Challenges and Way Forward; 5th May 2015). That while the banking system is adequately capitalised, he saw challenges on the horizon (for some of banks). For the system as a whole, capital adequacy has steadily declined; as at end-March 2015, it stood at 12.70 per cent from 13.01 per cent a year earlier. “Our concerns are larger in respect of state-run banks where it has declined further to 11.24 per cent from 11.40 per cent over the last year”, he said. He went on to add that even the best performing state-run banks have been hesitant to tap the markets to raise their capital levels; that it would be difficult for the weaker to raise resources from the market. “There is a constraint on the owners insofar as meeting the capital needs of these banks and hence, the underperforming banks are faced with the challenge of looking at newer ways of meeting their capital needs. A singular emphasis on profitability ratios (based on RoA and RoE) perhaps fails to capture other aspects of performance of banks and could perhaps encourage a short term profitability-oriented view by bank management”. Mundra made it clear that he did wish to get into the merits of this approach, “but from a regulatory stand point, we feel that some of these poorly managed banks could slide below the minimum regulatory threshold of capital if they don’t get their acts together soon enough.. The need of the hour for all banks, and more specifically, in respect of state-run banks, is that capital must be conserved and utilised as efficiently as possible”, Mundra explained. And given the state of fisc, Jaitely will do well to conserve the Centre’s wallet too; but as to whether it should be done by merging the weak with the strong is a moot point. But let us step back and look at the historical to get a grip on what we are on. Blast From The PastFrom the early days of reforms, banking sector consolidation has been detailed in various reports – M Narasimham Committee -I (1991), S H Khan Committee (1997), M Narasimham Committee-II (1998), S S Tarapore Committee on Fuller Capital Account Convertibility (2006), Raghuram G. Rajan Committee (2009) and the Committee on Financial Sector Assessment (CFSA-2009; chairman Rakesh Mohan who was deputy governor-Reserve Bank of India). In his inaugural address on the annual day of the Competition Commission of India on May 20th 2013, P Chidambaram as finance minister alluded, inter alia, to the need for restructuring of banks through mergers. To quote “ ... some banks, including some public sector banks among the 26 public sector banks that we have, may be better off merging. The need for two or three world-size banks in an economy that is poised to become one among the five largest in the world is rather obvious”. What should not be missed is Chidambaram’s reasoning for this: that we need globally competitive large banks; it was not to “bailout” weak banks! Since 1961 till date, there have been as many as 81 bank mergers out here of which 47 took place before the first phase of nationalisation in July 1969. Out of the remaining 34 mergers, in 26 cases, private sector banks were merged with state-run banks; and in the remaining eight cases, both the banks were private sector banks. The spate of mergers before and immediately after nationalisation is not relevant to the times we live. Let’s come to the post-reform period -- there have been 31 bank mergers. And mergers prior to 1999, (under Section 45 of the Banking Regulation Act, 1949) – and this is the most critical period -- were primarily resorted to in response to the weak financials of the banks being merged. Of this lot, the merger of Global Trust Bank with Oriental Bank of Commerce must find particular mention – that of a basket case new-generation private bank being merged with a state-run bank or of tax payers paying for private loot! Whatever be the colour of capital, the bottomline is there is no reason for a good bank pay to for the sins of a rotten apple. In the post-1999 period, however, business sense led to voluntary mergers between healthy banks under Section 44A of the Act. The merger of New Bank of India with Punjab National Bank (way back in 1993); and the acquisition of State Bank of Saurashtra (2008) and State Bank of Indore (2010) by the State Bank of India are the only instances of consolidation among state-run banks. All involved pain. Bank Mergers The Pros: • Larger banks may be more efficient and profitable than smaller ones and generate economies of scale and scope. Furthermore, the reorganisation of the merged bank can have a positive impact on its managerial efficiency. The efficiency gains may lead to lower cost of providing services and higher quality as the range of products and services provided by larger banks is supposedly wider than what is offered by smaller banks. Experience in some countries indicates cost efficiency could improve if more efficient banks acquire less efficient ones.• Consolidation may facilitate geographical diversification and penetration towards new markets. *• Big banks are usually expected to create standardised mass-market financial products. The merging banks may try and extend marketing reach and enhance their customer-base.• The common criticism against consolidation is that it will have an adverse effect on supply of credit to small businesses, particularly, those which depend on bank credit, as consolidated big banks would deviate from practising relationship banking. But, there is recent evidence that reduced credit supply by the consolidating banks could be offset by increased credit supply by other incumbent banks in the same local market.• The transaction costs and risks associated with financing of small businesses may be high for small banks. Large and consolidated banks can mitigate the costs better and penetrate through lending into these sectors.• One of the arguments cited against consolidation is that it may result in rationalization of branch network and retrenchment of staff. However, rationalisation may lead to closure of branches in over banked centers and opening of new branches in under banked centers where staff can be redeployed. And the Cons:• It can result in neglect of local needs leading to reduction in credit supply to some category of borrowers, particularly small firms. The consolidated bank may rather cater to big ticket business, in the process adversely affecting financial inclusion.• Not all customers are treated in the same way by the big banks. There is empirical evidence that one consequence of the merger wave in US banking in 1990s has been that loan approvals for racial minorities and low income applicants have fallen and the extent of this decline was more severe for large banks.• The consolidating institutions are found to shift their portfolios towards higher risk-return investment.• Consolidation could also result in less competition through structure-conductperformance-hypothesis giving fewer choices to the customer and arbitrary pricing of products.• Empirical evidence suggests that financial consolidation led to higher concentration in countries such as US and Japan, though they continue to have much more competitive banking systems as compared with other countries. However, in several other countries, the process of consolidation led to decline in banking concentration, reflecting increase in competition. Source: RBI Discussion Paper on Banking Structure in India -- The Way Forward (2013). Prepared by the Department of Banking Operations and Development; and Department of Economic Policy and Research. A working group set up by Indian Banks’ Association (IBA;2004) “Consolidation in Indian Banking System: Legal, Regulatory and Other Issues” was of the view that it made sense to bring all banks under the Companies Act so as to ensure that legal dispensation for mergers in banking sector is akin to that of corporate mergers. But it never made a case for a merger between weak and the strong. It can take down both!
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IT & ITES continues to be the preferred sector for PE/VC investments and within it, e-commerce generates significant investor interest, reports Paramita Chatterjee At a time when a host of economic reforms in the Indian economy are in a logjam and capital markets are reeling under pressure due to lack of cues from both the international and domestic market, the investor community is happy. Reason: the fast pace at which private equity and venture capital investments are taking place this year. In the month of August alone this year, the number of private equity and venture capital deals jumped to 102, more than double the number of deals sealed in August 2014, as per latest data available with Grant Thornton. In absolute terms, this is an almost 113 per cent jump as the number of deals in August 2014 stood at 48. And if that is not enough, in terms of value, investors pumped in $1,725 million, a 228 per cent jump from $526 million infused in August 2014. However, as far as mergers and acquisitions (M&A) were concerned, sentiments were muted when compared to the corresponding month last year, largely due to fewer and smaller big ticket deals this year. The number of M&A in the month of August 2015 came down to 42 worth $899 million from 47 totalling $1,127 million in August 2014. IT & ITES continues to be the preferred sector for PE/VC investments and within it, it is e-commerce that is increasingly evincing significant investor interest. “Over the past one year in particular, there has been an explosion of online companies that have the potential to give superlative returns,” says Arvind Mathur, President at Private Equity and Venture Capital Association (IVCA). “Sectors such as mobile and online services offer tremendous opportunity. The nature of the business is such that on an average even if one out of 10 becomes a blockbuster, the purpose is served,” he adds. Some of the significant private equity deals include $500 million investment into Jasper Infotech that owns Snapdeal by Foxconn, Alibaba and SoftBank and Kohlberg Kravis Roberts’s investment in JBF Industries Ltd Manufacturing. In the real estate sector, Goldman Sachs infused $150 million in Piramal Realty. “Private equity and inbound (mergers and acquisitions) deals continue to demonstrate growth perhaps because the overall macro level indicators continue to look positive, whereas domestic M&A activity and outbound transactions have been falling behind,” said Prashant Mehra – Partner at Grant Thornton India. The total number of PE/VC deals so far this calender year (January-August period 2015) stood at 675. In 2014, there were 388 deals sealed during the same period.
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Owning a home is a long-standing dream for many Indians. However, after spending an enormous amount of time and energy on identifying and finalising a suitable property, many people are stopped short by rejection at the loan-approval stage. What are the reasons for this rejection and how can you avoid them?There are three main reasons why your loan application is rejected:1. Personal ReasonsOften, a loan size much higher than your current income can afford is a reason for rejection. Lenders want to be assured that you have a sufficient monthly income that will allow you to pay off your loan obligation. To avoid rejection, choose a property that fits in with your income profile. If you choose too expensive a property, the projected EMIs will consume a large part of your monthly income, which is not sustainable over a long period. Choose a loan size and loan tenure where the monthly instalment (EMI) remains affordable. Having multiple existing loan obligations is another factor for rejection. Lenders look at your monthly income, deduct your existing EMI obligations across all your loans, and then calculate if you can afford an additional repayment on your remaining net income. There are two ways you can overcome this problem. You should pay off your smaller loans before applying for a housing loan. Doing this will reduce your monthly EMI outflow when you apply for the housing loan. Alternatively, choose a longer loan tenure so that your repayments are spread over a longer period which will bring down your monthly EMI obligation.Residing in an incompatible pin code could also disqualify you, strange though it may seem. Through experience, banks have drawn up a credit profiling system that identifies 'negative pin codes', where a high percentage of defaulting customers live. If your postcode happens to be on that list, you will be automatically disqualified. Unfortunately, there is no way of knowing if you live in a negative pin code until you check with a bank before applying.2. Credit reasonsHaving an unstable employment history with frequent changes of jobs is not conducive to loan approval. Housing loans have a long repayment period, stretching over decades, and lenders want to be assured that the customer has a steady, relatively predictable monthly income that will allow repayments over the entire duration of the loan. If you are planning to apply for a housing loan, make sure that you have been with the same employer for at least one year.Your past credit history plays a significant role in the loan application process. Lenders typically look for a CIBIL score of 750 or above and check your credit report for any negative behavior - high percentage of delayed repayments and any negative status reported. Multiple loan applications recorded in your credit report also have a negative impact on your application as it signifies that you are credit hungry and have applied for credit from multiple sources.Another negative factor is rejection of past applications for credit - whether auto, housing, personal loan or credit card applications. It sends a signal that previous lenders did not judge you to be credit-worthy. Finally, having multiple existing (open) loans can affect your approval since lenders are nervous about your ability to take on an additional debt burden.There might also be some external reasons for rejection. You might be guarantor for a loan that has been defaulted on. Or your co-applicant for this housing loan could have a very bad credit score.The good news is that improving your credit history and becoming loan-eligible is one area that is completely in your power. Make sure that you check your credit report at least a year before you plan to apply for a loan. This way you have enough time to identify any problem areas in your credit profile and work towards resolving them.3. Legal reasonsThe lack of a clear title is often the most common reason for loan rejection on legal grounds. You need documents that establish the title of the existing owner - in other words, the seller should have documents proving that he is the legal owner of the property that he is selling to you. All the requisite government approvals for the property need to be obtained. Further, if the house/apartment you are contemplating purchasing is very old, lenders might be hesitant to extend a loan.All these personal, credit and legal reasons can be overcome if you plan sufficiently well in advance and are well-prepared before embarking on the loan-application process. Whenever you contemplate buying a house, your first step should be to take a look at your credit report so that you have enough time to rebuild your credit health, if required, and become credit-worthy. If you take these few steps, that dream of home-ownership will very likely come true.The author, Ranjit Punja, is CEO & Co-Founder, www.creditmantri.com
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