Personal Finance guide

Over the last few years Indian Banking, in its attempt to integrate itself with the global banking has been facing lots of hurdles in its way due to its inherent weaknesses, despite its high sounding claims and lofty achievements. In a developing country like ours, banking is seen as an important instrument of development, while with the strenuous NPAs, banks have become helpless burden on the economy. Looking to the changing scenario at the world level, the problem becomes more ironical because Indian banking, cannot afford to remain unresponsive to the global requirements. The banks are, however, aware of the grim situation and are trying their level best to reduce the NPAs ever since the regulatory authorities i.e., Reserve Bank of India and the Government of India are seriously chasing up the issue. Banks are exposed to credit risk, liquidity risk, interest risk, market risk, operational risk and management/ownership risk. It is the credit risk which stands out as the most dreaded one. Though often associated with lending, credit risk arises whenever a party enters into an obligation to make payment or deliver value to the bank. The nature and extent of credit risk, therefore, depend on the quality of loan assets and soundness of investments. Based on the income, expenditure, net interest income, NPAs and capital adequacy one can comment on the profitability and the long run sustenance of the bank. Further, a comparative study on the performance of various banks can be done using a ratio analysis of these parameters. There are a number of ratios that can be used to comment on the different aspects :

The essential ratios that can be used for assessing the banks’ profitability and sustenance are

Profitability

Intermediation Costs/Total Assets

Assets

Net Interest Income/Total Assets

Other Income/Total Assets

Asset Quality

NPAs/Total Assets

NPAs/Advances

Staff Productivity

Net Profit/ Total Number of Employee

Sustenance

Capital/RWAs

For commenting on the Bank’s performance, a comparison to the total assets of the bank will give a true picture.

Controlled Expenses

The intermediation costs of a bank refer to the operating cost of the bank and include all the administration and operational costs incurred while offering its services. The ratio of the intermediation costs of the bank to the total assets should be kept low to ensure greater profitability. As mentioned earlier, a technology savvy bank will always be in a better position to reduce its operating costs. Consider the operating expenses of the various banking sectors and the industry average for the year 1999-2000. The costs for the entire SCBs rose by 9.1 percent. The maximum rise of 25.1 percent has been witnessed in the new private sector banks while the foreign banks experienced a decline in the operating costs by 3.3 percent. The ratio of the intermediation costs to the total assets indicates a decline. The maximum decline was in the case of new private sector banks and the foreign banks.

Margins – Lowered by Subdued Interest Rates

The ratio of the net interest income (Spread) to the total assets gives the net interest margin of the bank. This ratio is the actual measure of the bank’s performance as an intermediary, as it examines the bank’s ability in mobilizing lower cost funds and investing them at a reasonably higher interest. By borrowing short and lending long, banks can earn higher spreads nevertheless by doing so they will be exposed to greater risks. Hence banks need to be cautious and should not accept risks beyond their ability to control/manage them. Product innovation using the right technology is one approach, which can be followed by the banks to mobilize cheaper funds.

Continue reading ‘Performance measurement of Banks -NPA analysis & credentials of Parameters’ »

The Banks in India Face the problems of swelling non-performing assets (NPAs) and the issue is becoming more and more unmanageable. The NPAs have direct impact on banks profitability, liquidity and equity. The NPAs of Indian Banks are relatively huge by international standard. Therefore the biggest ever challenge that the banking industry now faces is management of NPAs. It is true that banks have to restrict their lending operations to secured advances only with adequate collateral securities.

In this connection banks must aware of the problems and recovery legislations of NPAs Non performing assets means an advance where payment of interest or repayment of installments of principal or both remains for a period of more than 180 days.

Continue reading ‘PROBLEMS AND RECOVERY OF NPA AT BRANCH BANKS’ »

The contemporary trends in Banking operations and services with the help of computers are quite cheering for customer. As we find information technology invading the banking sector, only banks, which used the right technology, could come out with success. Banks are required to ‘restructure’, re-invent and reengineer themselves go meet the necessary performance improvement and get the competitive edge due to the introduction of information technology (Internet Baking) being an imperative one

Application of Information Technology

Phone banking:

1. Bank on phone, provides easy access for customers to have large businesses through telephones. Data are exchanged over the phone regarding any queries, to issue instructions on balance transfer, statement of account, cheque- book, stop payments, new schemes, interest rates etc. at any convenient time and place. Tele banking has gone a long way in providing maximum customer satisfaction within the limited infrastructure.

Automatic Teller Machines: (ATM)

1. Now, the banks provide this facility in a more sophisticated way that a customer of one bank and branch can withdraw from any other banks, at any other branch, nation wide. In developed countries, this service is provided to their blue chip client globally. This is possible only through worldwide networking and communication system.

Credit cards:

These plastic cards enable customers to spend whenever he/she wants within the prescribed limits and pay later. Debit card is a prepaid card with stored value, whereas credit card is post paid with fixed limits. It is seen that spending is higher through debit cards than with credit cards currently CITY Bank and time bank have started with Debit cards and now other banks are also following these to launch their own cards.

Electronic Funds Transfer: (EFT)

Electronic funds transfer is a system of processing and communication of payment through electronic methods. EFT assumes greater significance in the banking system as the RBI also encourages the commercial banks to adopt this technique. Normally, payments are made through cash, cheques, drafts and credit cards. The latest in this process are the debit card system, charge, digital cash, and electronic purse and so on.

SPNS- (Shared payment network system):

SPNS installed by the IBA in the city of Mumbai, enables electronic banking service like cash transactions, extended hours of banking, utility payments, cheques, point of sale facilities by the SPNS can go to any ATM linked to SPNS.

Electronic Clearing Services [ECS]:

Electronic clearing of funds from one centre to another for handling bulk transactions like salary, interest, dividend, commission etc., has dispensed the cheques. A part of electronic clearing service is computerized clearing of cheques at metropolitan centers and linking with international communication system of SWIFT. These services have contributed in a great way towards improving the customer’s services globally. ECS was introduced in India in 1996. It has made it possible for customers to get the funds next day itself.

Point of sale [POS] terminal:

Payment card at a retail location for electronic transfer of fund is called POS. The client enters his personal identification number [PIN] and confirms the amount due. Customer’s account is automatically debited with the amount of purchases and it credits the retailers account POS installed at petrol stations and large retail houses are linked to banks network.

Continue reading ‘INTERNET BANKING SERVICES IN BANKS-BOON TO CUSTOMERS’ »

Having bad credit or no credit makes life really hard. Do you agree? Building a good credit history is essential if you want to get a home loan, rent an apartment, or buy a new vehicle. Knowing how to build credit will put you in a position to do a lot of things you otherwise couldn’t. If you want to build your credit you must pay close attention to your expenses and pay attention to the way you spend.

Here are some tips to build credit score.

The first thing you need to do is open up a bank account. Most credit applications require you to provide your bank account information. These companies want to see that you know how to manage your money. If you show them that you are stable you are more than likely to get an extended line of credit. You can visit your local bank and open a checking account. You must bring proper identification and between $5-$100 to open an account depending on the bank.

Next, you could ask a parent or another relative maybe even a close friend to put your name on their credit card account as an authorized user. This is an easy way to build your credit, the hard part is finding someone to do this for you. You will not have much control over the account but you can use the card to make small purchases. These will show up on your report and will build credit score.

This next option may be a bit far fetched for some but, if you can find someone to co-sign with you for an auto loan your question on how to build credit will be answered. This is probably the fastest way to do this but, just like trying to find someone to put you on their account it can be tuff. If you end up doing this make sure that you pay your payments on time because if you don’t it will effect you and your co-signer. If you don’t think that you can make the payments don’t do this option! You will do more harm than good.

Continue reading ‘Learn How To Build Credit and Get That Fabled 700 Score!’ »

Although it is mostly industry practice to charge a variable rate of interest on outstanding credit balances at a certain percentage rate above Prime Lending Rate, it is possible, these days, to obtain a fixed rate credit card. So, when would you want to apply for a fixed rate credit card over a variable rate credit card?

The answer to this may not actually sound as simply as you may think. Two factor need to be borne in mind: first, what is the Prime Lending Rate at the moment; and second, what are the chances of the percentage rate plus Prime Lending Rate going above the fixed rate?

Continue reading ‘Fixed Rate Vs. Variable Rate Credit Cards’ »

ATM fees are something that most people cannot avoid. If you want to use an ATM chances are there will be a fee involved. However, there are a few ways that you can end up without fees. There are some banks, for example, that offer ATM fee reimbursement. This could be for a variety of reasons. Either they just want to do a nice service for the customers or they are trying to compensate for the fact that they are a bank that is solely over the internet and there are no physical locations to visit. Another way that you can avoid ATM fees is to visit an ATM that is powered by your bank.

It is important to keep track of your ATM fees if you have a tendency to use ATM machines a lot. If you don’t you could end up spending more money than you actually have in your account. If you have overdraft protection then this really is not that much of a problem. If you don’t, you will have to deal with more fees on top of the ATM fees you were slammed with. As a rule, it is a good idea to make an attempt to avoid fees altogether. Because of them you are spending money on something that you don’t really need to be spending money on.

Continue reading ‘Should we really have to be paying ATM fees’ »

ATM safety is something that you should really be concerned with. That is because ATM machines are a breeding ground for potential crimes. It is pretty easy for a thief to scope out a lot of ATM locations, especially those that are located at bars, restaurants, gas stations or are simply out in the open. However, following ATM safety procedures is a good way to make sure that you stay safe and don’t get robbed while using ATM machines.

ATM machines are a great convenience. They allow you to get your cash twenty four hours a day. This means that if you need money at 2 AM you can have access to it as long as you can find an ATM machine. Unfortunately, the very thing that makes it convenient is also one of the things that can potentially make it unsafe. There are certain locations and certain places for ATM machines that make it a breeding ground for crime. However, all ATM machines should be treated with caution.

Continue reading ‘Are ATM'S safe to use?’ »

ATMs are an important part of our culture because they allow us instant access to our cash twenty-four hours a day. It used to be that when we wanted to withdraw some money, we had to take a special trip to the bank. This easy-access that ATMs bring can be a blessing, especially for those who work or have odd hours. Sometimes it just is not feasible to make it to the bank during standard operating times.

But, the convenience factor of ATMs is also overshadowed by the fact that there are some risks involved with using them. The possibility of crimes happening is big. If a thief is lurking in the shadows and sees you taking the money, they could easily emerge from the shadows and steal your purse or wallet after are done. There have also been instances of ATM fraud happening and other problems. So even though they are a good thing, ATMs should be handles with care and caution.

Continue reading ‘ATM machines are those that you can access from your car’ »

Do you need to find a lender who will finance your automobile purchase, but have a less-than-perfect credit score? You are not alone. There are a growing number of people who find that a lot of banks will not lend money to them because they have subprime credit scores (usually a score of 620 or less). But never fear – there are plenty of lenders who are willing to give you the second chance that you need that can quickly put you behind the wheel of your new car!

There is a multitude of creditors who actually specialize in subprime lending – and they are eager to loan money to individuals who have bad credit. Of course, there are penalties for being a subprime applicant – including higher interest rates than buyers with flawless credit scores. However, securing your automobile loan is a great first step in repairing lower credit scores, which makes the higher interest rate more appealing than a future of bad credit.

Know Your Credit Score Before You Apply

Before you approach a potential lender, know that facts on where you stand. Check your credit report for accuracy. Any discrepancies in items reported should be addressed with the credit bureau that is holding the report. By contacting the credit bureau in writing, you can make a formal denial of any unfamiliar or incorrect items that you find. Get your report and score. For a small fee, most credit reporting agencies will not let you know your score. This gives you a better feel of where you actually stand when it comes to financing your automobile.

Continue reading ‘Bad Credit? Drive Away In Your New Car Today’ »

A mortgage is a loan secured by property or real estate. A mortgage is usually paid back with monthly payments that usually include principal, interest, insurance, and taxes. The principal is the amount of the loan, and the interest is what it costs you to borrow the money for the month. The taxes are a percentage of the value of the property and remitted to your local government, while the insurance covers the mortgage amount in case of default by the borrower as well as property loss from hazards. The tax and insurance monies may be collected and held in escrow to be paid annually.

How do banks decide how much mortgage money you can borrow? They base their decision of the amount of a mortgage on their estimate of your ability to repay the loan. This estimation is based on your income, available cash, debt, and your credit history. The amount of money banks will loan is usually in the neighborhood of two to four times your annual salary. When applying for a mortgage your debt to income ratio can be a limiting factor. Banks first look at your front-end ratio or how much of your income will be devoted to paying your mortgage. About 28% of your annual income is the amount most banks feel a person can afford to pay for a mortgage, and this of course would cover the amount of the principle, interest, and any escrow payments. You can calculate this yourself by taking your annual salary and multiply by .28 and then divide by 12, this will give you an estimate of the maximum mortgage amount you could be offered.

Continue reading ‘How Much Can I Borrow For A Mortgage?’ »