much explaining to do lately? If you've had, it certainly wouldn't
have been to a banker. These days, it's they who must be sheepish-about
delays and so on-and you who must exercise your right: to loans
to fund the life you want to live. The equation has flipped, and
just about everything is within your grasp on equated monthly instalments
Just the other day, a young executive was going
ga-ga over the wonder that is modern banking: giving him the money
to buy an eclectic piece of modern art that no colleague, let alone
banker, understood the point of. But if he thought he'd set a new
standard for ask-me-not expenditure, he was quickly trumped by someone
else, a co-worker who revealed himself as the proud payer of EMIs
on a 'Scientific Thai massage'. This, with his chequebook records
already crammed with post-dated cheques for an apartment, car, washing
machine, Cannes trip and film appreciation course.
That EMI High
Of course, the loan books of banks are still
dominated by the two main must-haves for people with comfort-enabling
incomes: homes and cars. Debt has gone from a source of guilt to
a source of satisfaction, and the EMI has done a swell job of electro-magnetic
induction. More and more people are on an EMI high. "The Indian
consumer now thinks differently," elaborates Chanda Kochhar,
Executive Director, ICICI Bank, "If he or she can afford to
pay a certain EMI for comforts like owning a TV, air-conditioner
or home theatre system, one'd rather enjoy the consumption now than
wait to save up for it."
But the fastest growing set of loans are those
that get recorded under the title 'personal loans'. These can be
availed of by any individual with an annual income of Rs 96,000
or above. Creditworthiness is almost assumed as a matter of course
if you bank with the lender, and the loans bear no collateral, or
even guarantors, though you could take anything up to Rs 15 lakh,
with EMIs spread over 12-60 months.
| MAKING THE MOST OF IT
| Rohan Sharma, 42, Vice President
at a foreign bank, earns Rs 30 lakh per annum
Ruchi Sharma, 38, Project Manager at a software company,
Rs 20 lakh per annum
Son Rohit, 15, studies in tenth grade
Daughter Resha, 9, in fourth grade
Most of their monthly post-tax income of Rs 2.91 lakh
goes into paying off their loans of Rs 1.16 crore
|Home loan (Rs 95 lakh)
|Car loan (Rs 16.8 lakh)
|Travel loan (Rs 2.2 lakh)
|Personal computer (Rs 54,000)
|Daughter's Salsa class (Rs 36,000)
|Home theatre system (Rs 1.1 lakh)
|Figures are Rs per month
"The best part is that they are 'no questions
asked' loans," says Pankaj Desai, Head, Retail Assets, Kotak
Bank, "and hence the end use can be varied-including home renovation
or related expenses, marriage expenses, education costs, transferring
an existing loan from another bank, expansion of business, buying
consumer durables or equipment." What you mustn't do is use
the funds for illegal activity. Or disapproved speculation. Buying
casino chips is a no-no.
The interest rate? Around 12-16 per cent, which
is what makes the deal so attractive. Credit card debt works out
to more than twice that interest, which explains why people take
personal loans to pay off those plastic bills.
Holiday loans, according to Harsh Vardhan Roongta,
CEO, Apnaloan.com, are "one of the fastest growing loan segments".
It helps that tour operators have been quick to tie up with lenders.
"We have a tie-up with SOTC for travel loans," says Kotak's
Desai, who estimates that some 15 per cent of India's outbound foreign
travel is loan financed.
Frequent holidayers wouldn't know what to do
without it. "An instalment of about Rs 10,000 per month for
a year is not much for an all-expense-paid vacation to Singapore,
Malaysia, Bangkok and Phuket for 15 days," says Niranjan Maitra,
26, a finance professional who travels at least once a year, and
is paying off his visits to Mauritius and Switzerland.
"Customers today are increasingly in the
mood of experimentation," observes S. Ramakrishnan, Vice President
and Head (Retail Assets Group), HDFC Bank. And the good part, adds
Kochhar, is that they are not "going overboard with debt".
"We recently opted for a personal loan
to do up our house to the tune of Rs 2 lakh on which we pay about
Rs 18,000 a month," say Prisha Gupta, 26, an account manager
at an ad agency, and Aditya Gupta, 29, a financial controller at
a software firm. They already have a Rs 20-lakh home loan and a
Rs 3 lakh car loan, and pay around Rs 50,000 every month by way
of total EMIs, a hefty chunk of their gross total monthly income
of Rs 1.2 lakh. They had consumer durable loans too, now all paid
No matter how loan-happy you are, bankers still
consider it wise to weigh your EMIs in favour of such assets as
a house (the value of which goes up), than consumption on holidays
and so on. Other than that, always check the repayment schedule,
and ask for clarity on the actual effective interest rate. And,
oh, don't let the EMIs go beyond your repayment capacity. In the
age of EMI-enabled freedom, remember, you're your own regulator.