Base Rate v/s Bank Prime Lending Rate

August 14, 2013

Many a times people are not aware of Base rate & Bank Prime Lending Rate while deciding their loan. What do these rates mean? What is it’s impact on their personal loan? Which is good or bad from the two? In this article I’m trying to differentiate between the two rates.

What is Base rate (BR)?

Base rate is the interest rate below which a bank operating in India can not provide loan unless any specific instruction is given by RBI or Govt. of India. It’s the minimum rate of Interest allowed to charge from the borrowers of the bank.

What is Bank Prime Lending Rate (BPLR)?

BPLR is the rate at which, a Bank is willing to lend to it’s most trustworthy, low risk customer. However often banks lend at rates far below this BPLR. For example, most home loan rates are at sub-BPLR levels. Some large corporates also get loans at rates substantially lower than BPLR. For all banks, BR will be much lower than their BPLR.

The Pain of BPLR?

Earlier almost all banks were adopting a common practice of increasing the BPLR when the over all interest rates in the economy are inching up but when the reverse was happening e.g. interest rates were coming down, the reduction in BPLR was either not done at all or not regularly. Instead of reducing the BPLR, the banks were ready to offer a higher spread (difference from BPLR) to it’s new customers (Mainly home loan customers). this was creating a lot of pain & unfair disadvantage to old customers as their loans were running on higher rates due to lower spread from BPLR & thus were not getting the benefit of low interest rates. To control these malpractices of banks, RBI came forward for the rescue of helpless home loan customers.

RBI Introduced Base Rate & made it compulsory for all banks to offer all new loans to be linked to Base  Rate from 1st July 2010. Also to save old customers, the conversion from BPLR to Base Rate was allowed free of cost. RBI gave free hand to each bank to calculate & declare it’s own BR but it was a more transparent number than BPLR.

How often can a bank change its BR?

A bank can change its BR every quarter, and also during the quarter.

What does it mean for corporate borrowers?

Under the BPLR system, large corporates who enjoyed rates as low as 4-6% will be hit since from July 1 no bank can lend at rates below BR. However, there is a chance that some corporates, with low-risk profile, would get a lower rate under the new system as under the BR regime banks are expected to take into consideration the risk levels of the borrower.

What does it mean for retail customers?

The impact could be an increase or decrease of 25 basis points (100 basis points = 1%) compared to the current rate of interest they are enjoying. However, existing customers will not be impacted by this change.

What does it mean for the banks?

Banks’ net interest margin will be unaffected.

Can a customer move from the BPLR to BR regime before the expiry of the current BPLR-linked loan tenure?

Yes, RBI has mandated clearly that all old customers should be given the choice to move/switch to BR linking of their loans if they so desire. For customers, a shift before the expiry of the tenure of the existing loan will make sense only if the BR-linked interest rate is lower than the BPLR-linked rate.

Although here is one interesting thing, housing finance companies like HDFC, LICHFC, Indiabulls, Dewan etc. are still charging BPLR linked rates as these are governed by National Housing Bank & not by RBI. So in case you have taken your loan from one such housing finance company & not from a bank, this Base rate thing is not applicable to you.

 

So what are your views on this article? Please feel free to share your views, queries in the comment section below.

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Public Provident Fund forms

August 5, 2013

Many a times people search for the correct form to be used for various services of PPF. Here in this post I’m compiling the forms for PPF. The source of these forms is indiapost.

PPF-Public-provident-fund-india

Form A – This is the PPF account opening form. You need to fill it at the time of opening your PPF account in Post Office or Banks.

Form B – This is the deposit form. Your deposits into your PPF account can be done by this form at the counter of Post Office or in Banks.

Form C – This form is your withdrawal form, to be used whenever you want to withdraw from your PPF account.

Form D – This is loan form. whenever you want to avail loan from your PPF account, use it.

Form E – This is your first time nomination enrollment form for your PPF account.

Form F – This form is to be used for cancellation/variation in your existing nomination

Form-G – This form is to be used to claim the amount of PPF lying in a deceased person’s account by his/her legal heirs/successors/beneficiaries.

Form H – This form is to be used for continuation of your PPF account after first 15 year block & after every 5Y block.

Please feel free to share these forms with your friends, family, relatives.


Succession Certificate

August 1, 2013

I Thank Mr. Ashok Kumar Anand for giving the Idea of this article. He posted a query in our FaceBook group.

He posted a basic query as below.

Could someone pls guide me :-

1. What is a succession certificate?
2. How to obtain it?
3. What supporting documents are reqd to get it?
4. How many days it normally takes to get it?

Here we are trying to get answers for each query one by one.
Answer-1.
In the absence of a will, if there is no survivor amongst the account holders and a no nomination had been done by the holder(s) earlier, a Succession Certificate is the primary document through which the heirs can stake a claim to the assets of a deceased relative.
“A succession certificate, under the Indian Succession Act, is a document that gives authority to the person who obtains it, to represent the deceased for the purpose of collecting debts and securities due to him or payable in his name. It establishes the authenticity of the heirs and give them the authority to inherit debts, securities and other assets that the deceased may have left behind.”
Answer-2.
The beneficiary has to approach the district or the high court within whose jurisdiction, i.e legal territory, the assets fall (where the properties of your deceased relative are situated ) and file a petition for a succession certificate. Both these courts have concurrent jurisdiction, i.e they are both at par.  Depending on the value of the estate of the deceased, the matter shall go to the type of court, which can conduct cases for that value [This is known as “pecuniary jurisdiction” of the court]
Answer-3.
The petition should mention the relation of the petitioner with the deceased, details of other surviving legal heirs and beneficiaries, the time, date and place of death and also if he died intestate. You will also have to attach the death certificate and other documents that the court may require.
Answer-4.
The court, after examining the petition, issues a notice to all those concerned. It also issues a notice in a newspaper and specifies a time frame (usually one-and-a-half months) within which anyone who has objections may raise them. If no one contests the notice and the court is satisfied, it passes an order to issue a succession certificate to the petitioner. If there is more than one petitioner, then the court may jointly grant them a certificate but it will not grant more than one certificate for a single asset. For this you have to then submit Judicial Stamp papers of sufficient amount (as per the prescribed court fees structure) in the court, whereafter the Certificate is typed by the court staff, duly signed and sealed and delivered. If the petition is not contested then the court  should roughly take about 3-4 months (sometimes even 5-7) from date of filing to receive your certificate.
Once you have the certificate, you are authenticated to distribute the assets to the legal heirs as per the succession laws. Most people think that if the succession certificate is obtained then the person is the rightful owner of the deceased person’s properties, which is not true. A succession certificate allows the person to act exactly similar to how a nominee would act. It gives the authority to the holder for distributing the deceased person’s assets.
A Succession Certificate is not granted in cases where obtaining a Probate of Letter of Administration is necessary such as when there is a valid will.

We have created an E-book on Indian Succession Act 1925, The same can be downloaded from our facebook group.  

DisclaimerPlease do note, while efforts have been made to provide correct information, We are not an expert in legal laws and it is advisable to visit a qualified lawyer for information on such laws before making any legal moves. We do not take any responsibility, if you read this post and act based on it.