Mint ST : 2019-02-11

PERSONAL FINANCE : 17 : 13

PERSONAL FINANCE

13 PERSONAL FINANCE MONDAY, 11 FEBRUARY 2019 NEW DELHI EXPERTSPEAK Disha Sanghvi T he Reserve Bank of India (RBI), on Thursday, reduced its benchmark repo rate by 25 bps to 6.25%. While it is good news for borrowers, depositors may feel the heat. Usually, when there’s a rate cut, banks don’t immediately reduce lending rates whereas deposit rates see a fast change. But some experts are of the view that the situation may change this time around since the growth in deposits has slowed down. But some say it may take a while for the changes to reflect. According to financial planners, there is a possibility of another rate cut; so locking up funds in FDS can be done but not for a tenure of more than 2 years. Beyond that, debt funds are a better option. Existing borrowers are set to benefit at the time of interest rate reset which may take a few months but once that happens, lending rates could become more attractive. However, economists say, Thursday’s announcement wouldn’t really do much unless there are subsequent rate cuts. Will this rate cut actually transition into a change in lending and deposit rates? Four experts share their views on what this means for first-time and existing borrowers and depositors. CEO and founder, Investography Pvt. Ltd Group Chief Economist, L&T Finance Holdings Chief ideator and founder, ithought Economist, RBL Bank FIXED DEPOSITS OKAY BUT ONLY FOR A TENTURE OF 2 YEARS RBI MEASURES TO EASE NBFCS’ FUNDING CONSTRAINTS LENDING RATES UNLIKELY TO CHANGE SIGNIFICANTLY INTEREST RATES TO BE MORE ATTRACTIVE FOR NEW BORROWERS F T O R or people to actually gain from the repo rate cut that was announced on Thursday, banks and other lenders need to pass on the benefit to their customers at the earliest. From what we’ve seen over the years, this is usually not done very promptly by banks. So, a 25 bps cut is good for infusing liquidity in the system and it will encourage consumption, which is a positive sign. The rate cut also means that inflation is lower than anticipated and is pegged to reduce in the near future too which is good for consumers. For existing borrowers, it doesn’t really mean much as benefits are not passed on swiftly by banks; so they’ll have to wait before some real change is seen. New borrowers should ensure they are able to use this to their benefit. Negotiating with the lender before taking the loan is a good way to do this. Depositers should take note that there could be another cut too, so locking up funds in fixed deposits can be done but only for a tenure of two years and not longer. For a three-year horizon, debt funds would be a better option. he monetary policy action reflects the RBI’S apt response, not just to the considerations of ‘price stability’ but also to that of ‘financial stability’. It is not just the repo rate cut or the assurance on liquidity front that would help the retail or corporate borrowers but a plethora of regulatory measures to ease the funding constraints for NBFCS should revive the sagging investment climate.the repo rate cut would certainly influence many benchmark rates and in turn, feed into the actual borrowing cost for the first time (new) retail and MSME borrowers. The existing borrowers will benefit at the time of interest rate reset. The important steps taken by the RBI like linking the risk weights on bank borrowings to the actual ratings of NBFCS, relaxation in foreign portfolio investments (FPI) limits investing in corporate bonds (fixed at 9% of outstanding stock), etc. would increase the fund flows to well-rated NBFCS at reasonable costs and help them lend to retail borrowers or MSMES at competitive rates. ne of the functions of the RBI is to contain inflation and facilitate growth. It could achieve this objective by tinkering with the repo rate (the rate at which banks borrow from the RBI). As an investor, it is important to know that the repo rate influences the rates at which we borrow from banks (home loans, vehicle loans, etc.) and the rates at which we lend to banks (through fixed deposits). In its recent policy meeting, the RBI cut the repo rate by 0.25%. This effectively means that banks will now borrow from you at a lower rate. Fresh fixed deposits will be issued at a rate lower than those of last few months. However, for those who invested in FDS in the past, there will be no change to your returns. Moving on to loans, interest rates on floating interest loans may reduce while fixed interest loans remain the same. For those looking to borrow, rates may become more attractive now. The RBI will expect banks to transmit the rate cuts to consumers and we should see aggressive messaging from the finance ministry in the coming weeks. After all, it is the election season. epo rate is the rate at which RBI lends money to commercial banks. Along with reverse repo rate, it is a part of liquidity adjustment facility. So while a repo rate cut might increase liquidity in the financial system, it’s not directly linked to lending or deposit rates of banks. Lending or deposit rates of banks are decided on various factors that together determine the cost of funds to the banks. The banks thus have a discretion of passing on the rate cut to the borrowers, first time or otherwise, if it makes a difference to their cost of funds. A 25 bps repo rate cut is unlikely to make significant difference to banks’ cost of funds and hence to their lending or borrowing rates. Only if the markets start pricing in further rate cuts in the year, it can potentially trigger a chase for new borrowers at lower rates and subsequent cuts in lending and deposit rates. For now, this particular rate cut would mean little for first time borrowers and existing borrowers and depositors. POWER POINT Parizad Sirwalla How millennials can deal with the FOMO factor m KUNAL BAJAJ TAXATION What are the income tax and LTCG implications in case I gift assets such as a house and equity shares to my daughter? Please mention the implication on me as well as my daughter. We welcome your comments at [email protected] bit.ly/2tfia1c Have an emergency fund: —Name withheld on request As the gift would be given to the daughter by a specified relative (i.e. father), the transaction of gift itself will not give rise to any income tax implications in either your or your daughter’s hands. Generally, gift of an immovable property can be effected by a registered gift deed along with payment of applicable Settle your debts: Give money time to grow. One can’t (and shouldn’t) wait for the perfect time to invest Set goals and save for them: Best home loan rates Spend less than you make: Ahome loan is probably the biggest loan that one takes. Not only in terms of the amount that one pays can be double of what was borrowed. But a home loan is among the cheapest loans available, and usually it is the only way a person can buy a house. A home loan is called a ‘good’ loan because it helps you acquire a tangible asset that can appreciate over the long term. It makes sense to buy a house if you plan to live in it. This is also the reason, apart from the fact that many housing that one should buy a ready-to-move-in house. Here’s a look at the lowest home loan interest rates of some leading banks. Start investing early: Loan amount = 30 lakh. Tenure =20 years Lender Floating rate (%) EMI ( ) Processing fee (excluding taxes) Corporation Bank 8.60-9.30 26,225-27,573 No processing fee 0.50% ₹20,000) Central Bank of India 8.65-9.65 26,320-28,258 of loan amount (max 0.50 % (₹20,000-₹25,000) Indian Overseas Bank 8.70-8.95 26,416-26,895 + applicable taxes UCO Bank 8.70-8.95 26,416-26,895 Not available 0.50% ₹1,000+GST; ₹20,000+GST) Vijaya Bank 8.75 26511 of amount sanctioned (min: max: 0.50% ₹2,000; ₹30,000 + applicable taxes) OBC 8.75-8.85 26,511-26,703 of loan amount (min: max: Ashwini Kumar Sharma 0.35% ₹2,500; ₹15,000) Punjab National Bank 8.75-9.00 26,511-26,992 of loan amount (min: max: [email protected] 8.60-9.10% Federal Bank Ltd. 8.75-9.10 26,511-27,185 (range of spread over MCLR) R eal estate, gold, bullion, bonds and shares are few examples of capital assets. Any gains that you make from the transfer of these capital assets are known as capital gains and attract income tax. The tax liability depends on the assets and the period for which that asset was held by the seller. 0.50% IDBI Bank Limited 8.75-9.15 26,511-27,282 of loan amount plus applicable taxes 0.50% ₹1,500; ₹10,000) Canara Bank 8.75-9.30 26,511-27,573 of loan amount (min: max: ₹100 lakh, 0.40% ₹15,000) Allahabad Bank 8.75-9.40 26,511-27,768 For loan up to of loan amount (max: State Bank of India 8.75-9.50 26,511-27,964 Not available ₹25 lakh ₹75 lakh, 0.25% ₹6,500) Syndicate Bank 8.75-9.85 26,511-28,653 For loans above and up to of loan amt. (max: ₹5,000; 0.40% Citibank 8.75-10.10 26,511-29,150 Application fee up to booking fee of loan amount Piramal Housing Fin. 8.80 26,607 Not available Data taken from banks' website as on 7 Frebuary 2019. OBC: Oriental Bank of Commerce Source:mymoneymantra VIPUL SHARMA/MINT

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