Law on forfeiture of earnest money 

by | Apr 16, 2023 | Legal

Law on forfeiture of earnest money 

Case Law ;Goutam Roy V/S Avolon Projects 

CC No 1941 of 2018 ,Decided on 24.01.2023 (NC)

Builder and Home buyer signed an agreement having forfeiture clause.  In case of cancelling the booking by Home Buyer, 20% of total basic sale price shall be forfeited.

Question before the National Commission was as to how much deduction is reasonable and justifiable 

National commission while referring to number of SC cases on the issue relied upon section 74 of 1872 Contract Act that in case of breach of contract actual damage is to be proved for penalizing the other party. In such matters cancelling the booking flat or property by the buyer, the property remains with builder only and there is hardly any loss to the builder 

National commission ordered for forfeiture of 10% of the total sale cost of the property 

Cases Referred:

Moula Bux V/S Union of India 1970 SC

Sirdar K B Ram Chandra Raj URS v/s SC 2015theory of actual damage as per section 74 of contract act

Proximate nexus between the accident and the body injury is a must for accident claim in insurance matters

Proximate nexus between the accident and the body injury is a must for accident claim in insurance matters

by | Apr 9, 2023 | Legal

Proximate nexus between the accident and the body injury is a must for accident claim in insurance matters

Death due to sun stroke during election duty will not come under the scope of the clause “death only resulting solely and directly from accident caused by external violent and any other visible means” said SC, confirming its earlier decision in the matter of Alka Shukla V/S LIC (2019)SC. 

  Dr Prem Lata, Legal Head VOICE 

A proximate causal relationship between the accident and the physical injury is required, according to the principle established on the subject. The rule of thumb for interpreting insurance contracts is to give the clauses a straightforward reading.

National Insurance Company Ltd. versus Chief Electoral Officer & Ors. Civil Appeal No.4769 of 2022; February 08, 2023

Facts leading to dispute  

The Chief Electoral Officer, Bihar, Patna, entered into a Memorandum of Understanding on 09.02.2000 to provide insurance cover to the persons deployed for election related work for Bihar Legislative Assembly Elections in the year 2000 vide letter dated 10.02.2000. Subsequently the duration of the insurance scheme was extended from 24.05.2000 to 23.06.2000 by way of a supplementary policy keeping in mind the period of the by-polls.

Clause 3 in MOU, the claim compensation is as hereunder 

 “The insurance is intended to provide for the payment of compensation in the event of death only resulting solely and directly from accident caused by external violent and any other visible means.”

Deval Ravidas, Constable, Shivhar District Force, was a member of the Static Armed Force, posted at Booth no.67, Primary School, Mathura Sultanpur, Police Station Bidupur, District Vaishali, who died due to a sun stroke/heat stroke while performing election duty for the Bihar Legislative Assembly. This happened during the extended period of the insurance policy. 

After a long period of time, the late Constable Deval’s wife finally brought up the subject of compensation in a letter dated November 21, 2008.

After filing of this writ, The Assistant Election Officer wrote a letter dated 20.11.2009 addressed to the Under Secretary to the Lokayukta, Patna, Bihar, stating that the death of the deceased Constable occurred on account of heat stroke on 26.05.2000 during election duty and had not occurred on account of any external violent activity/accident. Thus, compensation to the wife deceased Constable Deval could not be found admissible for payment.

Writ Petition before High court  

Wife of Deval in Writ Petition, before the High Court of Patna prayed for quashing the above letter and sought payment of compensation amount of Rs.10 lakhs as per the insurance policy since her husband had died while performing election duty. On direction from Single judge the District Election Officer placed a notice of claim dated 24.04.2011 to the insurance company regarding the claim for insurance. 

Insurance company rejected the claim 

The learned Single Judge in the Writ Petition, CWJC No.1781/2011 then decided not to go into the issue whether the accidental death was in terms of the policy because the Chief Electoral Officer in an affidavit had already acknowledged the eligibility for payment to the wife of the deceased police official. Relying upon that admission and also in view of the facts that the claim was required to be lodged within the duration of the policy, i.e., 24.05.2000 to 23.06.2000. The Court opined that the primary responsibility to raise the claim under the policy was with the officials of the State Government and that they did not raise the claim within the duration of the policy and permitted the policy to lapse. Therefore, the liability to pay the amount to the deceased wife was assigned to the Chief Electoral Officer and the District Magistrate, Vaishali.

It was stated by the Chief Electoral Officer that the family of deceased had already been paid during the pendency of writ but the Chief Election Officer preferred appeal against the order of single judge to the Division bench with a plea that insurance company cannot escape from the liability of paying compensation merely because they were late in filing claim. It was said that the election officer was an agent for the purpose of forwarding premium payment to insurance and secondly accident occurred during the tenure of existing policy. Division bench agreed to the point that the incident took place during the policy period, hence liability lies with the insurance company.

Insurance company now comes in appeal before SC

There were two issues before the Supreme Court 

  1. Consequences of delay in filing claim after about seven and a half years  
  2. Whether insurance was covered for ‘accidental death’ under the present facts and situation    

After carefully weighing all the relevant information, previously decided cases, and insurance law, the Supreme Court determined that

  • Admittedly claim was beyond the reasonable time and was not admissible

On the question of liability of Insurance company on merits of the case, it is held that “proximate causal relationship between the accident and the body injury is a necessity as per the definition of Accident Death due to sun stroke during election duty will not come under the scope of the clause “death only resulting solely and directly from accident caused by external violent and any other visible means.” Hence Insurance was not found liable on both the counts.

Buttermilk: A Refreshing Summer Drink

Buttermilk: A Refreshing Summer Drink

by | Apr 9, 2023 | Guest Column

Buttermilk: A Refreshing Summer Drink

Buttermilk is an excellent summer beverage that is not only refreshing and delicious, but also good for your health. Buttermilk has numerous benefits, including being low in calories and fat, high in protein and calcium, and containing probiotics which can help improve digestive health. It’s also a great source of potassium, magnesium, and other essential vitamins. Not to mention that it’s an incredibly versatile drink that can be used in a variety of recipes. Whether you’re looking for a light summer refresher or something a little more indulgent, buttermilk makes an excellent choice. In this article, we have summarized some of the health benefits of buttermilk, how you can add healthy ingredients to make this drink more nutritious, and recipes to help you incorporate buttermilk into your daily diet.

                                                                                                                         Richa Pande

Buttermilk, also known as chaas in some parts of India, is a refreshing drink made by churning yogurt and water. It is a fermented dairy beverage and is slightly sour in taste. Its cooling nature makes it a great thirst quencher on a hot summer day. Not only is buttermilk delicious, but it is also incredibly healthy.

Health Benefits of Drinking Buttermilk Regularly

Buttermilk has numerous health benefits that range from promoting gut health to strengthening bones and teeth. It also helps to keep dehydration at bay and even relieves acidity. Furthermore, it has low calorie content which makes it an ideal choice for those looking to lose weight while still enjoying the benefits of consuming dairy products. Compared to other dairy products, its fat content is also low. It also benefits your oral health. Calcium from fermented dairy foods has been linked to a significant reduction in periodontitis.

Due to its nutritive properties, it can be effective in management of elevated blood pressure. Therefore, buttermilk can be considered a nutritious and delicious beverage that can have great benefits for our overall health. Buttermilk can do wonders for your skin too. It is a nutrient-rich drink which is packed with vitamins, minerals, proteins and probiotics that can improve the look and feel of your skin. Not only does it provide essential nutrients to keep your body healthy, but it also has antioxidant and anti-inflammatory properties which can help reduce wrinkles and other signs of aging. Furthermore, regular consumption of buttermilk can help protect your skin from sun damage, acne breakouts, dryness and other skin problems.

Preparing Buttermilk at Home 

Buttermilk can be easily prepared at home by adding water to curd and then blending them. You can also prepare buttermilk by adding vinegar /lime juice to regular milk.

Different Ways in which You Can Enjoy Buttermilk

  • You can add ingredients like cumin seeds powder, chopped mint leaves, minced ginger, chopped coriander leaves, black rock salt, pepper powder, cut green chillies, and chaat masala.
  • Mix ragi malt with buttermilk and have it. It is a cooling calcium-rich alternative.
  • Mix soaked chia seeds with butter milk, add salt to it, and have it. This makes a chilling, refreshing, and nutrient-rich drink. 
  • Add sattu powder to butter milk, add salt and chopped mint leaves to it.
  • Add flaxseed powder, cumin seed powder, and black salt to a glass of buttermilk. 
  • Add a teaspoon of any vegetable oil in a pan, add mustard seeds, asafoetida, fenugreek seeds, and curry leaves to it and sauté them. Now pour the buttermilk in pan, stir for 2-3 minutes and serve it. 
  • Make a puree of cucumber and mint leaves and add it to a glass of buttermilk. Add salt to it and serve it.

Packaged Buttermilk – Picking the Healthier Alternatives

  • Packaged buttermilk usually come in plastic packaging which can have some harmful chemicals. If you are planning to have buttermilk regularly, it is always preferred to prepare it at home.
  • Buttermilk packed in tetra packs have added salt and spices, and some of them can have stabilizers too. Read the labels carefully and pick the ones with less sodium and no added stabilisers. It’s recommended not to consume this buttermilk regularly.
  • Bottled Buttermilk: Many food joints serve buttermilk in glass bottles. You can request them to add less salt in your serving. Some joints might sell ready-to-eat buttermilk as well. Always check information on food labels before ordering them.
  • Organic Buttermilk: Some brands sell organic buttermilk in market. This means that this buttermilk is prepared from organic milk.
  • Prefer buying pasteurized buttermilk or make your buttermilk at home to avoid foodborne illnesses.

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Reverse Mortgage Loan

Reverse Mortgage Loan

by | Apr 9, 2023 | loan

Reverse Mortgage Loan

You must be familiar with taking a home loan, but do you know that banks also offer reverse loans against your home. This is called mortgage. For example, on taking a home loan, the bank keeps all the documents with it and gives you a lump sum amount, then you repay this amount in instalments. Reverse mortgage is just the opposite. It is seen as the support of old age.

                                                                                                                                                        Subas Tiwari

In reverse mortgage loan, the bank gives you money every month by mortgaging your house. How much money will be received depends on the cost of the house. The bank gives reverse mortgage up to 60% on the cost of the house. When the person taking the reverse mortgage dies, the house becomes the property of the bank.

If you are a senior citizen (or of age above 55 years & nearing the twilight of your service/profession) and staying alone in a house/flat without family members and/or in need of a regular income to meet your expenses of living a decent life, then this is the best available banking product for you.

This product is very popular in the Western Countries where senior citizen couples almost always stay alone in their apartments with no one to look after them & they require regular money for meeting daily living/travel expenses (medical needs met by NHS).

This product is unique in the sense that the formalities of a loan against property are gone through the entire process of documentation, valuation, fixing rate of interest & tenure of a mortgage loan in addition to creating a mortgage (normally Un-Registered Equitable Mortgage-UREM) in lender’s favour. But the disbursements are made to the beneficiary by way of an Annuity which could be either a lump-sum amount and/or paid in regular monthly/quarterly intervals by charging the amount to the loan account.

So, in effect, it is a loan in reverse-the beneficiary gets an EMI for a fixed period in consideration of creating a mortgage in favour of the lender. As long as one lives, there is no repayment of principal amount and interest. A number of banks are sanctioning such loans in India.

Let’s go into the nitty-gritty of this loan cum annuity product to understand more of the salient features & the reasons for such loans not taking off in volume in our country.

SPARE A THOUGHT ON THESE FAQs 

What is reverse mortgage loan?  

The scheme of reverse mortgage has been introduced recently for the benefit of senior citizens owning a house but having inadequate income to meet their needs. Some important features of reverse mortgage are:

What is my eligibility?

A homeowner who is above 60 years of age is eligible for reverse mortgage loan. It allows him to turn the equity in his home into one lump sum or periodic payments mutually agreed by the borrower and the banker.

The property should be clear from encumbrances and should have clear title of the borrower.

What about repayment?

No repayment is required as long as the borrower lives. Borrower should pay all taxes relating to the house and maintain the property as his primary residence.

What about amount eligibility?

The amount of loan is based on several factors: borrower’s age, value of the property, current interest rates and the specific plan chosen. Generally speaking, the higher the age, higher the value of the home, the more money is available.

The valuation of the residential property is done at periodic intervals and it shall be clearly specified to the borrowers upfront. The banks shall have the option to revise the periodic / lump sum amount at such frequency or intervals based on revaluation of property.

Married couples will be eligible as joint borrowers for financial assistance. In such a case, the age criteria for the couple would be at the discretion of the lending institution, subject to at least one of them being above 60 years of age.

Repayment of annuity/loan on death

The loan shall become due and payable only when the last surviving borrower dies or would like to sell the home, or permanently moves out.

On death of the home owner, the legal heirs have the choice of keeping or selling the house. If they decide to sell the house, the proceeds of the sale would be used to repay the mortgage, with the remainder going to the heirs.

National Housing Bank Scheme

As per the scheme formulated by National Housing Bank (NHB), the maximum period of the loan period is 15 years. The residual life of the property should be at least 20 years. 

From FY 2008-09, the lump sum amount or periodic payments received on reverse mortgage loan will not attract income tax or capital gains tax.

Note- Reverse mortgage is a fixed interest discounted product in reverse. It does not take into account the changes in interest rates as yet.

                                                                                                                                               (Courtesy-RBI site)

Reverse Mortgage Loan Scheme in India

The Government of India (Ministry of Finance-CBDT) had by a Gazette Notification (No.93/2008 dated 30th September, 2008) formulated this Scheme to be implemented by National Housing Bank (through its Housing Finance Companies) and Scheduled Commercial Banks effective from 1st April, 2008 and has given the following definitions.

What is Reverse Mortgage? 

Reverse Mortgage is a mortgage of Capital Asset by an eligible person against a loan obtained by him from an approved lending institution.

What is a Reverse Mortgage Transaction?

A transaction in which the loan may be disbursed to the Reverse Mortgagor but does not include transaction of sale, or disposal, of the property for settlement of the loan.

What is the cap (upper amount) on the Reverse Mortgage Loan?

  1. Periodic payments to be decided mutually between the approved lending institution and the reverse mortgagor.
  2. Lump-sum payment in one or more trenches, to the extent that the aggregate of the amount disbursed as lump-sum payments does not exceed 50% of the total loan amount sanctioned.

What is the maximum loan period?

The loan under the reverse mortgage shall not be granted for a period exceeding 20 years from the date of signing the agreement by the reverse mortgagor and the approved lending institution.

Why it could be attractive to Senior Citizens?

  • Senior citizens, who have a lack of regular income or financial support from children can opt under this scheme easily.
  • This loan will make them less dependent on their children for their amenities and medical needs.
  • Senior citizens could receive a regular stream of income from a lender (a bank or a financial institution) against the mortgage of his home. The borrower (i.e. the individual pledging the property), continues to reside in the property till the end of his life and receives a periodic payment on it. So this Scheme ensures regular income while permitting stay in their own house.
  • A reverse mortgage is an ideal option for senior citizens if the property is of illiquid nature for some reason.

Salient features

  • Reverse mortgage is the “opposite” of a conventional home loan in that you get paid instead of payment to be made.
  • It doesn’t require income or credit history of the borrower as repayment is based on the value of the house owned by the borrower. 
  • Here, the borrower doesn’t have to pay principal or interest payments during the loan tenure.
  • The amount received from the lender with property as collateral is not taxable, as the same is considered as loan and not income with ownership fixed with the owner.
  • Prepayment of loan: Borrowers could prepay the loan at any time during the tenor of the loan, at no prepayment penalty or charges.
  • Outliving the tenure of the loan: If the borrower outlives the tenure of the loan, he could continue to stay in the house. The lending institution may however cease the monthly payments. Settlement of the loan is done only after the borrower’s death.
  • Death of one of the spouses: If one of the spouses dies, the other can still continue living in the house. Only on death of both, settlement of the loan takes place.
  • Foreclosure: The loan could be foreclosed by the lender if
  1. The borrower has not stayed in the house for a continuous period of one year or
  2. The borrower has not paid property taxes and fails to insure the home or
  3. If the borrower declares himself as bankrupt or
  4. If the mortgaged property is donated or abandoned by the borrower.

How the Reverse Mortgage Loan Works

When the owner’s home is mortgaged, its monetary value is arrived at by the bank, on the basis of the condition of the property, legal ownership by means of an advocate’s report as well as the valuation of the property through a report obtained from approved valuers in the lender’s panel as regards market value, circle rate value & distress sale value. The bank then disburses a loan amount to the borrower in the form of periodic payments, after relating to the Annuity Chart prepared by the bank for such loans. The periodic payments are also known as reverse EMI or Annuity Payments which are received by the borrower over fixed loan tenure.

Tax Benefits

  • The lump sum amount or periodic payments received on reverse mortgage loan will not attract income tax or capital gains tax.
  • Amount received through reverse mortgage is a loan and not income. Hence it will not attract any tax. However, a borrower is liable to capital gains tax, at the point of alienation of the mortgaged property by the mortgagee for the purposes of recovering the loan.

Limitations/Disadvantages

  • The reverse mortgage loans are not available for commercial property. Thus, this requirement limits bank lending.
  • Inherited property will also not be eligible under this scheme. Indians treat owned property as an important family asset to be inherited by the next generation. So this could be a dampener.
  • Seniors who own real estate are typically guaranteed care and support during their golden years. So, the younger generation dissuades their elders from obtaining such loans in their twilight years.
  • This loan is available only to house owners above the age of 60. If spouse is a co-applicant, then she should be above 58 years. This again restricts bank lending & many are deprived from availing such loans.
  • Property should be the permanent primary residence of the individuals. So this prevents senior citizens who do not possess property in their name.
  • If the borrower outlives the tenure of the loan, he could continue to stay in the house. The lending institution may however cease the monthly payments. Settlement of the loan is done only after the borrower’s death. So in effect, the loan is in a dormant state.
  • Another point to note is that in reverse mortgage, the loan amount is capped, so it is less lucrative for the borrower.
  • There is no lifetime income which most retirees search for in any fixed income avenue. Payment beyond 20 years cannot be made by the lender.
  • The liability of repaying the loan arises as the term gets over. So, if someone lives the term, one runs a risk of losing the house if one is not able to repay the loan.
  • If the borrower makes changes in the residential property, that could affect the security of the loan for the lender. This could be renting out part or entire house, addition of a new owner to the house’s title or creating further encumbrance on the property.
  • It is surprising that private commercial banks have not come forward to lend under this scheme. This could be perhaps due to long gestation period for recovery & is primarily linked to the death of the beneficiary for loan recovery.

Some of the Terminologies Explained

MARGIN- This is not the ‘margin’ you normally associate with a bank loan product, where you provide your stake capital or risk capital for the loan. Here, margin component is meant to convey that a certain portion of the value of the property arrived at would be deducted towards margin & the loan will be based on the value of the property thus arrived.

INTEREST RE-SET- In this system, the interest rate is initially offered for a limited number of years governing the loan. Thereafter, the interest rate is re-fixed or re-set (mostly, it would be a marginal rise in ROI) for another fixed period of the loan tenure. This would be decided by the bank after giving option for the borrower to agree to interest re-set or close the loan.

Reverse Mortgage Loan Interest Rates of Top Banks

Bank Name

Interest Rate (p.a.)

State Bank of India

8.05% onwards

Axis Bank

10.05% onwards

IDBI Bank

10.20% onwards

Punjab National Bank

9.50% onwards

HDFC Bank

8.75% onwards

 

Home Loan by NBFCs

Home Loan by NBFCs

by | Mar 12, 2023 | loan

Home Loan by NBFCs

In the current scenario, the category of Non-Banking Financial Companies (NBFCs) has registered good growth in the last few years. The credit goes to the various marketing tools being adopted by these companies, customer-oriented services, offering attractive offers and easy and transparent processes being followed by them for functioning.

These days, if you want to borrow money for a home but are having trouble getting a loan from a bank, you can turn to Non-Banking Finance Companies (NBFC).

                                                                                                                          Subas Tiwari  

What NBFCs offer?

In India, there are a large number of Non-Banking Finance Companies (registered under the Companies Act) which are engaged in offering credit to the public like that of banks. They also lend for availing Home Loans to eligible borrowers which are not always uniform.

If you feel that the local nationalized bank where your salary is being credited or your neighborhood bank is delaying their decision in sanctioning you a Home Loan (eligibility/ less amount of sanction issues) or rejecting your loan application for availing housing finance (your Credit Score is inadequate- 750 preferred), NBFCs are the next best option.

How do they do it quicker?

  • They have less documentation
  • They are aggressive in their approach
  • Their loan process is quicker
  • Their Credit Policy is flexible
  • They sometimes provide doorstep services

Salient features of a NBFC Home Loan for individuals (salaried)

  • Rate Of Interest is fixed based on Prime Lending Rate of the NBFC
  • An inadequate Credit Score borrower would be sanctioned albeit with increased ROI
  • Online loan application & process is available
  • When they encash the advance cheque given for process fees, you know that your papers are in process

Are interest rates reasonable?

This is one area where the NBFCs are competitive, but this is also an area of concern for a consumer as his priority is to get the cheapest offer possible. Most of the NBFCs disclose their basic rate of lending, but also state applicability vaguely, maintaining that the rate of interest would depend upon individual requirements & consumer profile such as permanency in job, professional qualifications, etc. As & when interest rates change downwards, the NBFCs insist on payment of additional charges for each such interest downgrade/review. 

Interest Rate-How are they fixed by NBFCs?

  • What is MCLR?

RBI governs the lending rates in India for financial transactions by financial institutions. Earlier, RBI used to follow a system known as BASE RATE in which RBI would decide the Base Rate & all FIs would follow that rate as the Minimum Lending Rate (MLR).

Since April 2016, RBI has changed the system to fix Base Rate to Marginal Cost (of funds based) Lending Rate (MCLR). There are set guidelines in RBI for revising this rate every month based on several factors including borrowing rates & the REPO rate.

  • FLOATING RATE OF INTEREST

This is the lending rate charged to a loan borrower that is based on MCLR. Any change in MCLR will automatically affect the floating rate (increase or decrease). But the borrower enjoying a floating rate will not usually feel because when MCLR goes up, the tenure also goes up & vice versa. So when there is no change in the floating rate, the EMI stays fixed as it was though there would be a change in the floating rate which will affect/benefit the borrower in the rate of interest charged on his loan account.

In case the borrower wants the benefit of reduced EMI consequent to a reduction in the floating ROI, he needs to approach his NBFC to avail the benefit in which case the tenure of the loan (remaining period of loan) goes up accordingly.

  • FIXED RATE

This is the lending rate which is charged to a borrower that stays fixed irrespective of change in MCLR. NBFCs do not usually encourage from Fixed Rate to Floating Rate but encourage vice versa.

  • PRIME LENDING RATE

While it is mandatory to pass on the benefits under the MLR system (followed by banks), the same is not true under the Prime Lending Rate system followed by NBFCs. Under the PLR system, when RBI effects changes in MCLR, the PLR rate is kept unaffected as the NBFCs absorb the marginal increase. When MCLR is reduced, the PLR is kept intact & the benefit, if any, is passed on to the borrower on payment of additional Process fees after a written request is made for the same. This is true of each decrease in PLR. So NBFCs are free to set their PLR of their choice. 

It is left to the prospective borrower to negotiate the interest rate skillfully with the NBFC to obtain the best rate for himself.

Interest Rates of Top Housing Finance Companies in India

Name of Lender

Up to Rs. 30 Lakh

Above Rs. 30 Lakh & Up to Rs. 75 Lakh

Above Rs. 75 Lakh

LIC Housing Finance

8.65% – 10.10%

8.65% – 10.30%

8.65% – 10.50%

HDFC Ltd.

8.45% – 10.35%

8.45% – 10.60%

8.45% – 10.70%

Tata Capital Housing Finance

8.95% onwards

8.95% onwards

8.95% onwards

Bajaj Housing Finance

8.75% onwards

8.75% onwards

8.70% onwards

PNB Housing Finance

8.50% – 14.50%

8.50% – 13.00%

8.50% – 10.85%

Repco Home Finance

9.25% onwards

9.25% onwards

9.25% onwards

GIC Housing Finance

8.45% onwards

8.45% onwards

8.45% onwards

Indiabulls Housing Finance

9.30% onwards

9.30% onwards

9.30% onwards

Aditya Birla Capital

8.75% – 14.50%

8.75% – 14.50%

8.75% – 14.50%

ICICI Home Finance

9.20% onwards

9.20% onwards

9.20% onwards

Godrej Housing Finance

8.64% onwards

8.64% onwards

8.64% onwards

L&T Housing Finance

8.65% – 8.75%

8.65% – 8.75%

8.65% – 8.75%

Interest rates sourced from- https://www.paisabazaar.com as of 8th February 2023

Eligibility for a Home Loan

Eligibility for the home loan is based on the borrower’s profile such as

  • Age
  • Monthly income (Gross & Take Home)
  • Spouse income
  • Assets & Liabilities
  • Stability of occupation
  • No. of dependents
  • Savings history
  • Possibilities/opportunities for canvassing other institutional business income

What about Processing fees & Other Charges?

NBFCs ask for advance payment of Processing Charges while accepting loan proposal. The same is collected even when the loan process is incomplete.

Other Charges may include

  • Charges for obtaining Statement of Account
  • Document retrieval
  • Addition/deletion of co-borrowers
  • CERSAI (central Agency where documents are maintained) charges
  • Database Admin fees
  • External Legal opinion
  • Fees for Valuation of property

Margin component (your financial contribution in the loan)

Most of the NBFCs charge upto 20% of the loan amount as borrower’s stake in the loan, though it is not uniform. NBFCs sometimes increase the margin component (so as to reduce their exposure on the loan amount) in case of certain inadequacies in the borrower’s profile such as inadequate credit score, job profile issues, etc. 

Insurance

To protect their risk on the loan in the event of unforeseen mishaps, almost all NBFCs want insurance coverage on the property mortgaged for a home loan against fire, earthquake, floods, etc.

It is also suggested that borrowers who avail a Home Loan against property mortgaged to NBFC, should also go in for life insurance (loan secured policy) on the borrower/co-borrowers, the Assured amount of which would be the outstanding in the loan account from time to time. This way, the huge loan burden would be met by the pre-maturity of the policy & spouse/legal heirs would be spared of the loan burden in case of the unfortunate death of the borrower. The premium on this policy can either be met directly by the borrower or request the NBFC to permit debiting of this premium amount to his loan account, if the NBFC so agrees.

Tax benefits

As per Income Tax Act, there are 2 sections under which exemptions can be claimed on NBFC-Home loan from your gross total income eligible to tax.

SECTION 80 C provides for income deduction on & upto Rs.1, 50,000 per assessment year for the principal amount of home loan repaid during the same assessment year.

SECTION 24(b) provides the applicable exemption from payment of tax on & upto Rs.2, 00,000 per assessment year on the interest component paid during the same year.

For ascertaining the interest component in the EMI (it includes interest & principal component) as well as the principal, you need to take Certificates from the NBFC every year for claiming the above exemptions (or ask for Amortization Schedule).

EXAMPLES OF HOME LOANS BY NBFCS  

Example 1 Example 2
(Salaried) (Salaried)
LOAN AMOUNT Rs.50, 00,000 LOAN AMOUNT ** Rs.42, 50,000
REPAYMENT PERIOD 30 YEARS REPAYMENT PERIOD 20 YEARS
(360 MONTHS) (240 MONTHS)
EMI Rs.38, 446.00 EMI Rs.40, 033.00
(Criteria-Stability in job, regular promotion,fixed income, etc.)
(Criteria-frequent job changes, transferability/job relocation, etc.)

Disadvantages of obtaining a Home Loan from NBFC

  • NBFCs are fussy & secretive about internal loan process
  • NBFCs sometimes force the borrower to buy other financial products
  • In some NBFCs, process fees are at higher levels
  • A few NBFCs insist on stiff conditions (such as providing collaterals) in their loan sanction
  • Some NBFCs insist on higher margins (increase borrower stake)
  • NBFCs do not normally disclose the reason for loan rejection (some of the reasons are too flimsy & not based on facts)

Grievance Redressal

Every NBFC is having an in-house Grievance Redressal Management system in place for aggrieved borrowers under the following tier system.

I Tier (Customer Service Department of the NBFC)

–Call Toll free Number

-Send SMS

-Send email

-Send letter (hard copy)

-Visit website & register your complaint/grievance online, you will get a customer service number

II Tier- (if no response is received within 6 weeks of your complaint or you are dissatisfied with the reply received)

–Email/write to the Grievance Redressal Officer (of the NBFC) with the copy of your grievance & the reply if any received at Tier-1

III tier- (if you are unhappy with the reply received from the GRO)

Approach the below on the prescribed format at- 

  • Complaint Redressal Cell
  • National Housing Bank

Online-https://grids.nhbonline.org.in/

By Post (offline mode)-write to

National Housing Bank

Department of Regulation & Supervision

(Complaint Redressal Cell)

4th Floor, Core-5A

India Habitat Centre

Lodhi Road, New Delhi-110003 

(National Housing Bank is the Regulator for NBFCs)

Keep these things in mind before obtaining a Home Loan from a NBFC

  • Home loans offered by NBFCs are usually linked under the prime lending rate system. But all banks are now mandated to have all loans linked to MCLR (Marginal Cost of funds Based Lending Rate). This is more beneficial to a customer and also provides all customers a similar rate of interest on home loans. However, a prime lending rate system may have higher interest rates and the rates may fluctuate throughout the term of the loan.
  • Banks are also mandated to pass on the benefits of the RBI to customers, whereas NBFCs are not required to do so. NBFCs are free to set their own rates of interest while banks have to reduce their rate of interest in case the RBI does so. On the flipside, banks are not allowed to lend below their MCLR values, but Non-Banking Financial Services are more than welcome to do so. In some cases customers may benefit from lower interest rates as well.
  • Banks have the option of providing an overdraft facility on a loan. The overdraft facility is linked to the borrower’s account and can be used if he/she wishes to avail a surplus amount. NBFCs do not have this option.
  • NBFCs are less stringent when it comes to paperwork and other regulations. However, it must be understood that this also means that there is no regulation on the interest rate that a NBFC can offer. They can offer you a rate of interest that is considerably higher than that of a bank. Another point to take note of is the fact that you may still obtain a loan from a NBFC even if you have a low credit score as they are less stringent in the approval process. While banks are comparatively stricter when it comes to approving a loan. Usually customers looking for a home loan with low credit scores get their application rejected by banks.
  • As NBFCs have a smaller customer base, it is more likely that you will get your home loan approved. Non-Banking financial companies will sell you housing loans and other financial products simply to boost their business. However, you must evaluate your repayment capacity before jumping into obtaining a home loan with a NBFC. If you are incapable of repaying, your financial health can decline for quite some time.

      Although obtaining a housing loan with a NBFC has its benefits, always do your research, evaluate you repayment capability, and understand the offer at hand before accepting the loan. It may be comparatively easier to attain a home loan from a NBFC, but can be a financial burden if the interest rates obstruct your repayment capacity.

    The important handles of this story

    • Use your skills in getting a better rate of interest
    • Pay Processing Fees only if your loan is processed to your satisfaction
    • Insist on interest Rate Review as & when markets indicate rate reduction
    • Take life insurance policy to cover the loan burden
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