Bank Fixed Deposits (FDs): Five Rules You May Not Know

For investors looking for a guaranteed or regular income, bank fixed deposits or bank FDs remain very popular investment options. Many banks offer the options of opening fixed deposits online. Maturity period of up to 10 years are also offered by some banks. Premature closures of fixed deposits are subjected to applicable charges. Investors can earn interest monthly/quarterly/half-yearly or yearly basis according to their convenience. Fixed deposits also come with loan/overdraft facility against fixed deposits. SBI, for example, offers loans/overdraft facility of up to 90 per cent of the principal deposit, according to the bank's website.

1) From this financial year, starting April 1, 2018, senior citizens will get higher interest income exemption limit on deposits in banks and post offices, including recurring deposits. Under the new tax laws, a new Section 80TTB has been inserted to allow a deduction up to Rs.50,000 in respect of interest income from deposits held by senior citizens. Currently, a deduction up to Rs.10,000 is allowed under Section 80TTA of the Income Tax Act to an individual in respect of interest income from a savings account. However, no deduction under Section 80TTA shall be allowed for senior citizens.

For senior citizens, it does not matter whether deposit with banks or post offices in question was made before or after April 1, 2018, says Srinivasan Anand G of Taxmann. Interest income is deductible only if it is from deposits with a bank or co-operative bank or post office, he says.

2) TDS Provisions: Banks deduct TDS or tax deducted at source at the rate of 10 per cent on the interest earned on fixed deposits, if the interest income for the year is more than R

s.

10,000. From 2015, TDS provisions have also been made applicable on the interest earned on recurring deposits. For senior citizens, Budget 2018 raised the threshold for deduction of tax at source on interest income to Rs.50,000 from Rs. 10,000.

3) You can access the details of TDS deducted by viewing your Form 26AS. This is basically your tax credit statement which shows all taxes received by the Income Tax Department. You can access Form 26AS from the tax department's website. This helps you ascertain whether the tax deducted has been correctly deposited with the government. "It is extremely important to go through the Form 26AS to ensure that all due credits for TDS deducted from a person's salary, FD interest, etc. are duly accounted for," said Sandeep Sehgal, director of tax and regulatory at Ashok Maheshwary & Associates LLP. In case of mismatch in tax credit, investors should approach the banks, says tax experts

4) It should be noted that all bank fixed deposits are not eligible for income tax benefits. Under Section 80C on the Income Tax Act, investment in a bank FD in a scheduled bank with maturity of five years or more is eligible for deduction, subject to a maximum of Rs. 1.5 lakh. For example, SBI offers tax-saving fixed deposit for a minimum tenure of five years and maximum of 10 years under tax-saving scheme. There is lock-in period of five years in case of tax-saving bank FDs and you can't avail any loan against the term deposits opened under tax savings scheme.

5) Form 15G/ Form 15H: Many banks allow fixed deposit holders to submit their 15G/15H forms online. Forms 15G/15H are self-declaration forms by an individual stating that his or her income is less than the taxable limit. To prevent the bank from deducting TDS, depositors can submit Form 15G /15H with the bank. If one fails to do so, the person will need to claim the tax refund by filing his/her income tax return.

Source- NDTV

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Home loan from bank or NBFC: Which one should you opt for?

When buying a house, we all want to get the best deal on the home loan we avail as it is probably the longest financial commitment we will make impacting our overall portfolio and expenses. However, deciding on the right financial institution to avail the loan from is a rather tricky task, given the market is competitive.

With the rise of non-banking financial corporations (NBFCs) in India, the choice has only gotten wider as customers can now choose not only among banks, but also NBFCs. But did you know that availing a home loan from a bank and an NBFC may seem similar, but work in very different ways?

Banks and NBFCs follow different guidelines when it comes to lending and, thus, home loans disbursed by them are also done on certain different parameters. Find out how these two differ when it comes to assessing an individual for a home loan and which one can you resort to for your home loan.

1. Interest Rates: MCLR vs PLR

Banks operate their housing loan interest rates based on Marginal Cost of Lending Rate (MCLR), which serves as their lending benchmark and is closely monitored by the RBI. On the other hand, loans by Housing Finance Companies (HFCs) and NBFCs are not linked to the MCLR. They are linked to the Prime Lending Rate (PLR), which is outside the ambit of the RBI. So while banks can’t lend at rates below the MCLR, PLR-linked loans do not have such restrictions.

Banks have both floating and fixed rates, of which before only floating rates felt the occasional impact of MCLR. But in February this year it was announced by the RBI that all new loans whether with floating interest rates or base rates will be linked to the MCLR.

An MCLR-linked loan clearly mentions the intervals at which its interest rate will automatically change. In a falling interest rate scenario, this allows customers to receive RBI-mandated rate cuts in a transparent, time-bound manner.

As NBFCs and HFCs are free to set their PLR, it gives them greater freedom to increase or decrease their loan rates as per their selling requirements. This sometimes suits customers and provides them more options, especially when they fail to meet the loan eligibility criteria of banks. But in many cases, for those who easily meet the criteria this may also result in inflated interest rates compared to banks.

2. Loan Eligibility via Credit Score

As paperless financial technology takes prominence, more and more lenders are depending on credit scores to determine loan eligibility. While there are upper caps set on interest rates through MCLR and PLR, the actual interest rate you pay on your loan is linked to your credit score. Leading lenders are known to offer their best rates to customers with a CIBIL score of 750 or more.

While both banks and NBFCs consider credit scores carefully, NBFCs tend to have more relaxed policies towards customers with low credit scores. However, with a very low score, both banks and NBFCs will likely charge you a higher interest rate. In some cases, banks may ask to convert the home loan into a secured loan by mortgaging some asset if the credit criteria is not met, but you still need the loan.

A customer with a low score can in fact start with a loan from an NBFC. Through timely repayment, s/he can improve his credit score. After this, once the bank’s eligibility criteria is met, the loan balance can be transferred to a bank.

To keep yourself ready, make sure to access credit reports by CIBIL or Experian. This will allow you to be ready even before you approach a lender. Since credit scores change every quarter, you can take your time to improve it before you decide to avail the loan in order to get a better rate of interest and disbursal amount.

Major Difference in Home Loans Between Banks and NBFCs

Features	Banks	NBFCs
Eligibility Criteria	Stringent with detailed checks	Easier and faster
Interest Rate Benchmark	MCLR	PLR-Spread
Passing interest rate benefit to borrowers	Not much room for existing borrowers	High chance for existing and new borrowers to benefit from discounts
Interest Rates	Rate of interest will be comparatively lower	Mostly higher than banks but depend on the property and applicant

3. Loan Amount

The actual cost of property is never just the selling price promoted by developers and builders. During acquisition it typically goes up as other costs like stamp duty, registration, an assortment of payments towards brokerage, furnishing, repairs and more always add up. Based on where you are in India, you may have to pay between 3 and 11 per cent of the property value as registration cost alone.

Banks are allowed to fund up to 80% of a property’s value. For example, if you are buying a property worth Rs 50 lakh, you may receive a loan of Rs 40 lakh from banks excluding the registration cost and associated charges of course. The rest of the fund requirements would have to be met by you and often these last mile costs weigh heavily on the final decision to buy a property.

Although both NBFCs and banks are not allowed to fund stamp duty and registration costs, NBFCs can include these costs as part of a property’s market valuation. This allows the customer to borrow a larger amount as per his eligibility.

4. Pre-Payment, Foreclosure and Late Payment Charges

Just like other loans, home loans also have associated charges attached. Both banks and NBFCs will have charges for pre-payment and foreclosure but NBFCs tend to charge much higher. In addition, late payment charges by NBFCs may sometimes be close to 10 or 20% of your monthly EMI, giving you no respite in case you default on any payment. NBFCs also tend to have higher processing fees, although some banks may charge similar amounts.

Whoever the lender may be, make sure to calculate you future interests and factor in additional costs associated with your repayment as home loans range between 10 and 30 years and you may have to bear such high charges in future.

(The writer is CEO at Bankbazaar.com)

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A new governance framework for banks

The current crisis in the banking sector provides a good opportunity to clean up the mess and put the house in order

The recent banking scams have led to an understandable sense of outrage as it involves issues of propriety and governance.

The irony is that what started off as a problem with PSBs, which had the critics and private bankers argue for privatisation – has come a full circle with the focus now shifted to private banks. As this story involves several elements — the government, central bank, banks and other stakeholders — this is a good opportunity to get the house in order.

Any kind of financial crisis offers an opportunity for introspection where rules can be reformulated to bring them in sync with the new order. It is necessary to continuously revisit systems, laws and practices and bring them up to date.

But it should be highlighted that none of the irregularities witnessed recently has involved any loss to any deposit holder and even the share prices have reverted to their arithmetic mean.

The banking scams have brought to focus not just the lack of transparency in the functioning of banks but also that of audit and inspection practices.

Also the allocation of responsibility for identifying and ensuring remedial action is nebulous and needs to be delineated now.

There is now a blame game on, where the question is — why has a concerned party not looked at a certain aspect of the controversy?

The debate has taken on a moral tone, but the questions raised cannot be refuted or dodged. But certain clear lines of thought can be put down and the new rules can be formulated so that there is less ambiguity in future.

Banks’ perspective

Let us look at the issue from the point of view of banks. First, in a private bank who is to uphold the moral responsibilty?

Is it the CEO, or executive Board members or the non-executive Board members? This issue is important because whenever there is a conflict of interest, it has to be clear as to which executives are to be held accountable.

Now if it is the CEO who is accountable, then does that imply that none of his relatives can have any credit dealings with the concerned bank?

This seems unreasonable and one way to get around this problem would be to disclose the financial dealings of the relatives, if any, in the Annual Report or the bank’s web site.

By making such disclosures upfront, the bank can ensure that no questions are raised in future.

Hence greater transparency is the key to avoiding such ‘conflict of interest’ issues.

Second, the performance of bankers has come under the lens now which was never the case before. Can the central bank or the government have a say in the salary package of a private company? The answer is probably ‘no’ because in the private sector Boards take a call on this issue.

There are no penalties for the government officials non-performance and their tenures are safe. If regulators fix or approve pay packages of the regulated, then that should hold good for all industries. So whenever companies make losses, the regulators should hold back bonuses – but this doesn’t seem reasonable.

What happens then in the telecom, power or petroleum sectors? Therefore, this should also be debated and the rules must be clearly laid out.

CEO tenure

Third, the tenure of the CEO is always open to debate. Allowing anyone to carry on for more than a term of say five years is a call taken by shareholders or Boards.

But allowing such extensions also lead to creation of power centres affecting the grooming of second rung leaders.

Ironically in PSBs, CEOs have short terms as they get their positions closer to retirement while in private banks they begin their tenures at an early age – and can often get a stint of more than a decade before they retire.

This is also an issue that needs to be looked at as it has given rise to controversies in recent times.

Regulator’s perspective

From the regulator’s side, the issues that need to be addressed are:

First, the responsibility of the Boards should be clear on issues of governance and any deviance from regulation or conflict of interest should be discussed at this level.

Second, the presence of a nominee director of the regulator on the Board, though controversial, is justified as he is the ‘ear of the public’ and ensures that all compliances are in order.

Third, when audit reports are carried out on banks, the lacunae or important findings should be made public so that everyone is aware of them. It can be put up on the web site of the regulator or the concerned bank.

This is one way of ensuring that banks become complaint.

Fourth, as a practice of good governance, the regulators too should disclose on their web sites the names of the relatives of the senior officials who are employed with the regulated entities. This will add to transparency in operations of the system.

Lastly, any deficiencies in compliance should be reviewed within a specified period of time and highlighted to the public so that it puts pressure on the bank to perform. Therefore, as was in the case of a bank where audit had pointed out that the core banking system did not capture the SWIFT data and no action was taken, it should have been made known to all.

Otherwise the purpose of audit and inspection becomes a closed affair which remains hidden until a crisis emerges.

So this is the right time to take the necessary action in revising the rules and regulations concerning the functioning of banks, their boards and CEOs.

Rather than getting over obsessed with moral issues, a practical way would be to strengthen the regulatory framework and review it every two years based on the banks’ response. More importantly it has to be revisited periodically – maybe every 3-5 years.

The writer is Chief Economist, CARE Ratings. Views are personal

Source - The Hindu Business Line

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High-value notes reason for cash crunch, says bank body

All India Bank Officers Confederation (AIBOC) has said that the present cash crunch is due to dependency on high-value currency notes of Rs 2,000 and Rs 500.

Hoarding of Rs 2,000 notes began after the Reserve Bank of India (RBI) stopped printing it and has precipitated into a cash crunch. Ravinder Gupta, the Delhi circle head of AIBOC told India Today TV that the cash crunch situation will take at least 7-10 days to normalise.

The AIBOC office bearer said that as per the data released by the RBI out of the total currency in circulation -- Rs 18.43 lakh crore -- close to 90 per cent is in Rs 2,000 and Rs 500 notes.

While smaller notes of Rs 100, Rs 50 and other denominations constitute a very small proportion yet remain in high demand by common people.

"When the RBI stopped printing Rs 2,000 notes, those hoarding money got a whiff of it and began accumulating these notes; this is the reason why Rs 2,000 notes are fast going out of circulation," Gupta said.

Experts suggest that Rs 2,000 notes are a favourite with hoarders and the government is aware of this. And that's one of the reasons why RBI has stopped printing these high-denomination notes.

Despite the cash crunch the RBI has made it clear that it will not resume printing of these notes. Instead the government has announced that Rs 500 notes worth Rs 2,500 crore will be printed per day instead of Rs 500 crore printed now.

AIBOC has blamed the RBI for the cash crunch. "The inequitable distribution of cash has lead to shortage in some states; Bihar, Gujarat are not poll bound but are facing cash crunch. This is as a result of poor management of cash," said Gupta.

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Banks Gross NPA ratio may worsen by March,2018

Banks’ gross NPA ratio (GNPA) may increase to 10.8 per cent by March 2018 and further to 11.1 per cent by September 2018, according to RBI’s Financial Stability Report. The banking regulator however, feels that stress in the banking sector may be bottoming out, which comes as a good news for banks. The other positive news is that credit growth of scheduled commercial banks has shown an improvement between March and September 2017.

The gross non-performing advances (GNPA) ratio of banks increased from 9.6 per cent to 10.2 per cent between March and September 2017. Private sector banks (PVBs) registered a higher increase in GNPAs of 40.8 per cent as compared to their public sector counterparts (17.0 per cent).

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New FRDI Bill won't take away your money in the bank says Finance Minister

The Financial Resolution and Deposit Insurance Bill, 2017 (FRDI Bill) goes beyond the current provisions to provide greater protection to depositors, the finance ministry has said defending the Bill that has raised apprehensions in some quarters. 

The statement follows concerns regarding "bail-in" provisions of the Bill. "The provisions contained in the FRDI Bill, as introduced in the Parliament, do not modify present protections to the depositors adversely at all. They provide rather additional protections to the depositors in a more transparent manner," the statement said clarifying the provisions. Introduced in the Lok Sabha on August 10, the Bill is presently under the consideration of a joint committee of Parliament, which is consulting all the stakeholders on the provisions of the proposed legislation. The claim of depositors will be further strengthened as the FRDI Bill raises the order of priority for uninsured deposits above than unsecured creditors, central and state governments, a government official told ET. 

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Bank loan growth – The devil is in the details

One key parameter that is closely watched by economists and analysts to signal growth in the economy is the growth of non-food credit. The needle refused to move even as the government tried nudging banks to increase lending.

The fact that the effect of demonetisation and poor implementation of Goods and Service Tax (GST) is diminishing is visible in the non-food credit growth. Data released by Reserve Bank of India (RBI) shows loan growth of banks has hit a three-year high in November. Credit offtake had touched multi-decade lows in the past year as banks focused their energy on recovery and ‘managed’ their non-performing assets (NPAs). Credit growth was below 5 percent in February 2017.

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Bank Preference List for IBPS SO

IBPS has activated the link to apply online and after that we have got many request to post the bank preference list so that all the aspirants can fill accordingly. This is an all India level job where you may get posting anywhere in India. So friends it is just an estimation and high probability of getting posting in the areas where the grip of the bank is most. Considering the fact that a bank is having the most number of branches in the areas near the headquarter, we are providing you the list of the banks according to their headquarters.

Best Choice for North India‐

States Include: Delhi, Punjab, UP, UK, J&K, HP, Haryana

1. ECGC

2. Punjab National Bank,

3. Bhartiya Mahila Bank,

4. Bank of Baroda,

5. Oriental Bank of Commerce,

6. Allahabad Bank,

7. Punjab & Sind Bank,

8. Canara Bank,

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