OCTOBER 10, 2004
 Cover Story
 Personal Finance
 BT Special
 Back of the Book

Q&A: Montek Singh Ahluwalia
The celebrated Deputy Chairman of the Planning Commission speaks to BT Online on the shape of post-liberalisation planning to come. What prompted his return to India, what exactly is the Commission up to, what panchayats mean to India's future, and yes, the relevance of Planning in the market era.

Of Mice...
Mouse-click yourself any which way in cyberspace; why net-surfing plans are such a drag.

More Net Specials
Business Today,  September 26, 2004
Living Life EMI Size
Whew! Equated monthly instalments on Salsa classes? That, and a whole lot more.
Book Value Investing
Signs of Rising

Had 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 (EMIs).

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.

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)
Total EMIs
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.

Diverse Uses

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 up.

Self Regulation

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.




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