Things you should know about Application Supported by Blocked Amount (ASBA)

Things you should know about Application Supported by Blocked Amount (ASBA)

Things you should know about Application Supported by Blocked Amount (ASBA)

ASBA

With the Zomato IPO in the headlines, you might want to know how to subscribe an issue in the Initial Public Offering or IPO. If you’re so, we suggest you to understand what is an Application Supported by Blocked Amount (ASBA). It is a process developed by India’s Stock Market Regulator SEBI for applying to IPOs, Rights issue, FPS etc. In ASBA, an IPO applicant’s bank account doesn’t get debited until shares are allotted to them. Let us understand what it entails here and what a consumer needs to go though. 

Subas Tiwari

ASBA facility is adopted for application of Initial Public Issue IPO and Follow-on Public Offer (FPO). It is a SEBI based facility on your bank account which was launched in May 2010. It is a process by which retail investors block the relevant amount in their savings account till the shares are allotted, to apply for investment in an IPO or FPO. If shares are allotted to you then this amount is deducted from your bank account otherwise it is unblocked after the allotment process is completed. It can also be understood that if the investor has subscribed for the IPO, then under the process money will not be deducted from the investor’s account until he gets the IPO issue.

ASBA or Application Supported by Blocked Amount is an application containing an authorization to block the application money in the bank account, for subscribing to an issue.

If an investor is applying through ASBA, his application money shall be debited from the bank account only if his/her application is selected for allotment after the basis of allotment is finalised, or the issue is withdrawn/failed.  

Detailed procedure of applying in IPO through ASBA

Under ASBA facility, investors can apply in any public/rights issues by using their bank account. Investor submits the ASBA form (available at the designated branches of the banks acting as Self-Certified Syndicate Banks) after filling the details like name of the applicant, PAN number, de-mat account number, bid quantity, bid price and other relevant details, to their banking branch by giving an instruction to block the amount in their account. In turn, the bank will upload the details of the application in the bidding platform. Investors shall ensure that the details that are filled in the ASBA form are correct otherwise the form is liable to be rejected.

Who can apply through ASBA facility?

SEBI has been specifying the investors who can apply through ASBA. In public issues with effect from May 1, 2010, all the investors can apply through ASBA.  

In rights issues, all shareholders of the company as on record date are permitted to use ASBA for making applications provided he/she/it:

  • is holding shares in dematerialised form and has applied for entitlements or additional shares in the issue in de-materialised form;
  • has not renounced its entitlements in full or in part;
  • is not a renounce;
  • who is applying through blocking of funds in a bank account with the Self Certified Syndicate Bank (SCSB).  

Applying through ASBA vis‐à‐vis applying with a cheque

Applying through ASBA facility has the following advantages:

  1. The investor need not pay the application money by cheque; rather the investor submits ASBA which accompanies an authorisation to block the bank account to the extent of the application money.
  2. The investor does not have to bother about refunds, as in ASBA only that much money to the extent required for allotment of securities, is taken from the bank account only when his application is selected for allotment after the basis of allotment is finalised.
  3. The investor continues to earn interest on the application money as the same remains in the bank account, which is not the case in other modes of payment.
  4. The application form is simpler.
  5. The investor deals with the known intermediary i.e. its own bank.

Is it mandatory for investors eligible for ASBA, to apply through ASBA only?

No, it is not mandatory. An investor, who is eligible for ASBA, has the option of making the application through ASBA or through the existing facility of applying with cheque.  

Can I make application through ASBA facility in all issues?

Yes, you can make application through ASBA facility in all the issues (i.e. public and rights. List of Self Certified Syndicate Banks (SCSBs) and their designed branches i.e. branches where ASBA application form can be submitted, is available on the websites of BSE (www.bseindia.com) and NSE (www.nseindia.com) and on the website of SEBI (www.sebi.gov.in). The list of SCSBs would also be printed in the ASBA application form. 

Self-certified Syndicate Bank (SCSB)

SCSB is a bank which is recognised as a bank capable of providing ASBA services to its customers. Names of such banks would appear in the list available on the website of SEBI. No, ASBA can be submitted to the SCSB with which the investor is holding the bank account.  Five (5) applications can be made from a bank account per issue.  

You can either fill up the physical ASBA form available with SCSB and submit the same to the SCSB or apply electronically/online through the internet banking facility (if provided by your SCSB).  

Can I use the existing application form for public issues?

Investor is requested to check the form carefully. In case of public issue, the application form for ASBA will be different from the existing application form for public issues. The application forms will be available with designated branches of

SCSB. In case of rights issue, there will not be a separate form for ASBA. The investor has to apply by selecting ASBA option in Part A of the Composite Application Form. 

How to withdraw my ASBA bids

During the bidding period you can approach the same bank to which you had submitted the ASBA and request for withdrawal through a duly signed letter citing your application number, TRS number, if any. After the bid closure period, you may send your withdrawal request to the Registrars before the finalisation of basis of allotment, who will cancel your bid and instruct SCSB to unblock the application money in the bank account after the finalisation of basis of allotment.  

What to do when application gets rejected

You have to approach the concerned SCSB for any complaints regarding your ASBA applications. SCSB is required to give reply within 15 days. In case, you are not satisfied, you may write to SEBI thereafter.

It is to keep in mind that in ASBA, the entire bank account does not get blocked. Only the amount to the extent of application money authorised in the ASBA will be blocked in the bank account. The balance money, if any, in the account can still be used for other purposes.

If the withdrawal is made during the bidding period, the SCSB deletes the bid and unblocks the application money in the bank account. If the withdrawal is made after the bid closure date, the SCSB will unblock the application money only after getting appropriate instruction from the registrar, which is after the finalisation of basis of allotment in the issue.     

And investors need not necessarily have their DP account with the SCSB, where they are submitting the ASBA form. One is required to submit ASBA to the SCSBs only.  

An investor can apply either through ASBA or through existing system of payment through cheque. If an applicant applies through both, ASBA as well as non‐ASBA then both the applications having the same PAN, will be treated as multiple application and hence will be rejected.

The bids received through ASBA mode gets reflected in the demand graphs displayed in the website of stock exchanges. In case there is an error by SCSB in entering the data in the electronic bidding system of the stock exchanges, the SCSB shall be responsible.

The SCSB shall give a counterfoil as an acknowledgement at the time of submission of ASBA and also the order number, generated at the time of uploading the application details, if sought by the investors in case of need.

ASBA forms need to be treated similar to the non‐ASBA forms while finalising the basis of allotment. In case the issue fails/withdrawn the SCSB shall unblock the application money from the bank accounts upon receiving instructions from the registrar.

In case of any complaints, the investor shall approach the bank, where the application form was submitted or the registrars to the issue.

This can be done provided that your bank have core banking facility and the ASBA form is submitted at a branch which is identified as designated branch by the bank.

The chance of getting allotment is same for all the applicants whether application is made through ASBA or non‐ASBA. ASBA is a simple, easy and smart way of applying in public issues. There are many advantages of applying through ASBA like money does not go out of investors’ account, no hassle of refund, investor keep earning interest on the blocked amount as banks have started paying interest on daily basis w.e.f April 1, 2010 and it gives better opportunity for utilisation of money.

ASBA forms can be submitted only at the SCSBs. In case investor does not have an account with any of the SCSBs, then he cannot make use of the ASBA.

                                                                         (Source: SEBI)

Related

Equity Linked Saving Scheme (ELSS Mutual Fund)

Equity Linked Saving Scheme (ELSS Mutual Fund)

Equity Linked Saving Scheme (ELSS Mutual Fund)

Mutual Funds

How good it would be if with the accumulation of money, there is a bumper exemption on tax as well. Tax exemption also means a kind of savings. This savings money can be put to good use elsewhere. There is a scheme named Equity Linked Saving Scheme or ELSS, with the help of which one can save up to Rs. 46,800. Let’s check it out here.

Subas Tewari

Compared to Fixed Deposit or NPS, ELSS offers many tax saving facilities along with giving higher returns. Mutual funds earn more than FDs or NPS. Therefore, people who invest in ELSS funds or equities consider ELSS to be more effective. ELSS is such a fund which gives maximum returns with minimum lock-in period. ELSS is actually a combination of large and medium size stocks. This fund has been designed in such a way that it is easy for the person taking it to save tax. If you hold this fund for a longer period, there are many possibilities of growth and higher returns. There are many features of this fund. For example, you can start it by investing at least Rs 500. Investment facility is also available in this through SIP. The minimum lock-in period of 3 years is available in this fund. That is, after 3 years, you can easily leave this fund and withdraw your money. The biggest feature is that with the help of this fund, a taxpayer can save up to Rs 46,800.

Fund’s salient features

There is a limit on the minimum deposit amount in this fund to save tax. In this fund, you get a minimum deposit of Rs 500 and a maximum of Rs 1,50,000. How much you will earn from this fund depends on your deposit amount and market conditions. If we look at the track record of the last one year, then the situation is satisfactory because mutual funds along with shares etc. have also given good returns.

Multiple benefits with single investment

Actually, ELSS fund is a type of tax saving fund in which most of the funds are deposited in equity schemes. Equity funds are such schemes in which money is invested in the shares of companies. Companies are decided under equity according to the capital in the market and are invested in them. If a person deposits Rs 1.5 lakh in ELSS every year, then one can save tax of Rs 46,800 under section 80C of Income Tax. Also, it is allowed to invest more than Rs 1.5 lakh.

Why invest in ELSS?

ELSS is considered to be much better than those who follow the traditional methods of tax saving. Compared to Fixed Deposit or NPS, ELSS offers many tax saving facilities along with giving higher returns. Mutual funds earn more than FDs or NPS. Therefore, people who invest in ELSS funds or equities consider ELSS to be more effective. The biggest thing is that the lock-in period of ELSS is very less as compared to FD or NPS. That is, the possibility of high returns in a short time can be found in ELSS.

Who can invest?

ELSS can be invested by any person who wants to reduce his income tax under section 80C by investing money in tax saving scheme. It is an equity investment, so those who invest money for a long term and expect returns, who are less concerned about market risk, can make the most of this fund. Since ELSS has a lock-in period of 3 years, the fund is taxed on the basis of long-term gains. If earning more than Rs 1 lakh then interest of 10 per cent will have to be paid.

More work with less investment

There is no need to deposit a lot of money in this fund at once. That is, you do not need to take the tension that you will deposit a lot of money, only then you will be able to take advantage of this tax saving scheme. You can enter this scheme with very little money. By taking out the average of this fund every year, you can start investing with the same money. There is no need to make huge payments for each unit of the fund. If you want, you can start investing from 500 rupees. This also gives you discipline in investing.

What are ELSS funds?

ELSS is a mutual fund scheme and is quite similar to diversified equity fund of Mutual Fund. As the name suggests, the scheme primarily invests in equity market by buying equity stocks of companies listed on the stock exchanges. The units of the scheme are offered at the NAV (Net Asset Value). The NAV is announced for all business days and keeps changing primarily depending upon the movement in the prices of stocks held in the portfolio of the scheme in relation to market fluctuations. Mutual Fund ELSS is a good tax-saving instrument but still is not invested in large numbers by tax-savers. So, this article is just to wake them up and take notice of this tax-saving investing option so that there is maximum participation of the public from all walks of life.

What is the urgency to invest in ELSS?

It is most likely that the Direct Tax Code (DTC) proposed by the Government will come into effect (sooner than later), and your most dependable tax saving section – Section 80C of the Income Tax Act would undergo amendments. While the DTC includes a proposal to increase the eligible deduction under Section 80 C, Equity Linked Savings Schemes (ELSS) -also known as “tax saving mutual funds”, would no longer continue to be a part of eligible tax saving instruments, thus leaving you with fewer market-linked investment options to accelerate the process of wealth creation.

Who are advised to invest in ELSS?

YES. This is an important aspect of tax-planning especially when you look at ELSS as a tax-saving option. The following are the factors that could be considered. 

Those who have clear and focused financial goals

If you have financial goals set in your life, the same too should influence the way you do your tax planning and invest in tax saving instruments. So, say for example your goal is retiring from work 5 years from now, then your tax saving investment portfolio should be less tilted towards market-linked tax saving instruments, as you are quite near to your goal and your regular income will cease. Likewise, if you are many years away from the financial goal, you should ideally allocate maximum to market-linked tax saving instruments and less towards those instruments (tax saving) which provide you assured returns.

Those who have risk appetite

It refers to your ability to take risk while investing, and it is totally dependent on your age, income, expenses, and nearness to your goal. So, if your willingness to take risk is high (aggressive), you can tilt your tax saving investment portfolio more towards the market-linked instruments such as ELSS. But if you have a moderate-risk profile, then you can take a mix of 60:40 into market-linked tax saving instruments and assured return tax saving instruments respectively.

Thus, now if you are young, income is higher, and therefore willingness to take risk is highest along with your financial goals being far away; you may look at ELSS mutual funds to avail a tax benefit under Section 80C. Please note that ELSS mutual funds are 100 per cent diversified equity funds and a distinguishing feature about them is the compulsory lock-in period of 3 years brings in financial discipline towards holding one’s investments for the long-term. For investment in ELSS, there is a minimum investment amount of Rs. 500 which is unlike the other equity-oriented funds (which generally demand Rs. 5,000 as the minimum investment amount).

What should be the income bracket to enter investing?

It is said that if your income is high, your willingness to take risk is generally high. This can work in your favour, as you can allot your portfolio more towards equity-related instruments such as ELSS, and make your portfolio appear more aggressive. Similarly, if your income is not high enough, you can invest in other tax-saving instruments which provide you assured returns.

What age to enter investing?

Your age should determine your asset allocation. If you are young, you can take more risk and vice-versa. Hence, for prudent tax planning too, if you are young, you should allocate more towards market-linked tax saving instruments such as ELSS. Moreover, you would also enjoy the advantage of greater investment tenure which would enable you make more aggressive investments and create wealth over the long-term to meet your financial goals.

How to select ELSS funds?

Ideally while evaluating ELSS mutual funds, one should assess their performance over a 3-Yr time frame, as this would enable you to judge whether they have created wealth for your post- lock-in period.

Moreover, the Fund has to ensure to its investors to fairly low-risk, but should provide risk-adjusted returns thereby making it a low risk-high return investment proposition in the category.

Also, the returns should have been achieved by the Fund without indulging in much portfolio churning.

What are the benefits of ELSS MF?

Tax benefit on the investment

You can get full tax benefit of investment under section 80 C of Income Tax Act. Maximum taxable limit is Rs. 1, 50, 000 for the current Assessment Year.

Shortest lock-in period (period during which payment will not be made if you go in for tax benefit)

Lock-in period of ELSS is 3 years which is shortest in comparison to any other tax saving investment. This lock-in period is the only difference between diversified equity mutual funds and ELSS. When compared to bank tax-saving FDs, ELSS scores over them as bank FDs have a lock-in period of 5 years.

Tax-free returns

Any profit/ capital gain you have from ELSS is completely tax free. If you compare the returns from NSC and Tax-Shield Bank FDs, these are completely taxable and paid interest is added to your income for tax computation. So, you end up paying tax on interest received. Only PPF Offers tax- free returns but it has a maturity period of 15 years.

Tax free dividends

ELSS schemes give dividends on regular intervals and the dividend you receive is tax free.

No entry loads

Say if you invest Rs. 15, 000 in ELSS Scheme, your Rs. 15, 000 is invested in ELSS Mutual Fund. You have to decide how much do you want to pay your financial advisor. Take a word of caution: some insurance agents sell ULIPS as Mutual Fund + Insurance with lots of ‘load’ expenses.

High growth

Equity funds can be volatile in the short run, but have been known to beat inflation and create wealth over the long run. If you are looking at investing some money that you won’t need in future, and are willing to stand atop the ups and downs of the market, you may find ELSS an ideal tax saving option.

Systematic Investment Plan (SIP) in ELSS

In SIP, you invest a certain amount each month in a fund. It’s an effective way of investing in ELSS as the concept of rupee cost-averaging and the power of compounding works well. Even if you have done your tax planning for this year, start from 1st AUGUST, 2015.

Comparison with Unit-Linked Insurance Plan

The investors and tax-saving public sometimes think of ELSS funds and ULIPs as alternatives. This is a mistake as functionally, there is nothing common between ELSS funds and ULIPs. It’s a basic rule of saving not to mix insurance with investments. ELSS and ULIPs are two different products that serve different purposes.

ELSSULIP
ELSS is an equity fund in the marketULIP is a mix of life insurance and investment offered by life insurance companies
ELSS have predictable cost, and easily understandable returns and are transparent about how the fund operates and what it invests inFrom the premium paid, the insurer deducts charges towards life insurance (mortality charges), administration expenses and fund management fees. So only the balance amount is invested
Only payment of Fund Management Charge (as expenses) per year is applicableULIPs have high first year charges towards acquisition (including agents' commissions)
The total investment under ELSS is in Equity Funds onlyIn a ULIP, the mix of investment and insurance prevents savers from having a clear cost-vs-benefit understanding of either of the two components
In ELSS there in no fixed period of maturity except for the lock-in period as the Fund is open-endedWith an ULIP, you have to block your money for long periods of time. So you sacrifice on transparency and liquidity.
ELSS has a 3 years lock-in periodULIPs have 5 years lock-in
ELSS has no switching facility of funds as it is controlled by the Fund ManagerULIPs provide for ‘switch’ from one fund to another

Where do ELSS stand as a preferred fund for investment?

ELSS is one of the popular tax saving option for savvy investors, as not only that ELSS is a diversified equity mutual fund which has a majority of the corpus invested in equities, but also that it has a lock-in period of 3 years from the date of investment. The returns from investment in ELSS are based on schemes from equity markets. Returns from ELSS schemes are also tax-free.

Based on previous years’ returns, some of these funds have grown 3 times in 5 years. There is also no limit on investment in ELSS funds, but you can claim tax deduction of up to Rs.1,50,000 under Section 80C of the Income Tax Act.

ELSS is always better to invest-

  • Via SIP mode rather than lump-sum (for cost-averaging)
  • In GROWTH options (for wealth accumulation)
  • In DIRECT Plan (to save costs & higher returns)
  • Compare ELSS with other investment options and see the difference.

BEYOND TAX SAVING

ParameterPPFNSCELSS
Tenure15 years6 years3 years
Returns(Compounded Annually)
8.80 % ^
(Compounded
half-yearly)
8.60 to 8.90 % ^
Not assured dividends/ returns
Minimum investmentsRs.500Rs. 100Rs. 500
Maximum investmentsRs.1,50,000No limit*No limit*
Amount eligible for
deduction under Section 80C
Rs.1,50,000Rs.1,50,000Rs.1,50,000
Taxation for interestTax freeTaxableDividends and capital gain tax free
Safety/ Rating Highest HighestHigh Risk

Related

Importance of bike insurance, Two-wheeler insurance

Importance of bike insurance, Two-wheeler insurance

Why you should go for a bike insurance

Bike Insurance

Research says, India witnesses over five lakh road accidents annually with most of the incidents involve two-wheelers. In such a situation, it is important to protect our two-wheelers and ourselves. If you’re wondering, what it requires, go through the below piece where we are telling you about taking a two-wheeler insurance policy.

                                                                                                                                                               Subas Tiwari

 There are two types of bike insurance-third party liability insurance and on damage insurance. A third-party insurance policy covers you when your bike damages other vehicle. If your own bike gets dented then it is the on-damage insurance that comes to rescue. Third party liability insurance is a mandatory policy and also called TP insurance. A person needs to take this policy following the Motor Vehicle Act. And you stand a chance to get a traffic challan if you’re not a policyholder of third-party insurance. Good part is that, in both the kind of insurance policies, the company pays for any theft of the vehicle.

What the third-party insurance covers

Third-party insurance covers you when your bike damages someone’s property, someone’s car, bike or if anyone gets hurt or god forbid if someone dies in an accident with your vehicle. The policy will meet whatever legal expenses are incurred due to the above situations. Also, the insurance company will pay for you if a case goes to the court and the same asks to pay any fine. Kindy note that, an insurance company can pay a maximum of Rs 7,50,000 in the above-mentioned cases.

Third party insurance has a section of “Personal Accident Cover for Owner Driver”. The insurance company gives Rs.15 lakh if the bike driver dies in an accident while driving. S/he can claim this amount when the person has a valid registration certificate and driving license. This amount comes in the form of personal accident cover. However, there is an easily obtained, comprehensive rule, under the third-party insurance that comprehends all policies. Where the vehicle owner’s family can claim for compensation from the insurance company.

Choose add ons carefully

In a comprehensive insurance policy, companies provide many add on benefits. You can opt those match your need. In this policy, you will get the facility of zero depreciation cover, engine and gearbox protection cover, key and lock replacement cover, helmet cover, 24×7 site assistance add-on, etc.

Take insurance for a long time

By taking an insurance plan for a long time, you can also save a little money and you can also get rid of the hassle of renewing it every year. Apart from this, you can take advantage of the no-claim bonus throughout the term of the policy. Even if you have made a claim during this time period.

 The following figures tell you the importance of insurance:

  • Two-wheelers constitute more than 80 per cent of all vehicle sales in India
  • For every 1000 Indians, more than 100 owns a two-wheeler
  • About 13 per cent of these vehicles are stolen every year
  • Which accounts for more than 300 such vehicles per day

What does the motor vehicles act says about an insurance?

Chapter XI of the MV Act, 1988 deals with Insurance of Motor Vehicles with Third Party Risk & Clause 146 deals with “necessity of insurance against third party risk’.

Third party liability insurance

As of now, the MV Act mandates that all two-wheelers are to be covered under the third-party liability which shelters liability for injuries and damages to others, that you (the vehicle owner) is responsible for. This is also called Limited Liability Insurance which covers the insured and the owner/driver of the two-wheeler/pillion rider against third party liability arising out of an accident, which causes damage or loss to the third party or its property as well as death/disability of the owner/driver arising out of the accident. However, to fix the quantum of premium for third party liability cover, the IRDA rules will apply.

Insurance for comprehensive cover

While MV Act does not provide for covering insurance for other types of risks including, theft, fire, etc, as also damage to the owner’s vehicle, almost all the general (non-life) insurance companies are offering the comprehensive cover as an optional cover, which is not mandatory.

Why cover the vehicle for comprehensive cover?

A comprehensive policy covers the following:

The comprehensive cover (also called package policies) assures the following benefits-

On total or partial loss/damage to your two-wheeler

  • Against natural calamities such as-
  • Fire
  • Explosion
  • Self-ignition or lightening
  • Earthquake
  • Flood
  • Typhoon
  • Hurricane
  • Storm
  • Tempest
  • Inundation
  • Cyclone
  • Hailstorm
  • Frost
  • Landslide
  • Rockslide
  • Against manmade calamities such as
  • Burglary
  • Theft
  • Riot
  • Strike
  • Malicious Acts
  • Accident by external means
  • Terrorist activity
  • Any damage in transit by road, rail, inland waterway, lift, elevator or air

What are not covered in your policy (exclusions)?

  • Normal wear & tear
  • Breakdowns
  • Consequential loss
  • Loss occurred due to invalid driver license (expired license)
  • Loss occurred on account of drunken driving and/or drugs intake
  • Loss due to Civil War, War, etc
  • Claims arising out of contractual liability
  • Use of the vehicle otherwise than in accordance with ‘Limitations to Use’

(as and when driven by a person other than owner/driver and/or as stated in the ‘driver’s clause)

  • Any accidental loss or damage and/or liability caused/sustained/incurred outside the geographical area

(The list is indicative and not exhaustive)

What are optional add-on covers?

The following additional covers are available on payment of extra premium-

  • NIL Depreciation Cover (Nothing payable in case of partial loss; depreciation available to a maximum of 50 per cent on various metal, plastic, fibre or rubber parts in the event of total loss)
  • Loss of accessories (electrical/electronic)
  • Loss of driving license
  • Daily cash allowance (during the period of post-accident repair)
  • Engine protection
  • Tyres & Tubes
  • NCB Protection
  • Anti-Theft Device

Grievance redressal mechanism

Our study revealed that only a few insurance companies have posted a robust GRM system in their website. So, they are summarised below for our readers.

What is your grievance?

  • Any partial or total repudiation of claims by the insurance company
  • Any dispute in regard to premium paid or payable in terms of the policy
  • Any dispute on the legal construction of the policy in so far as such disputes relate to claims
  • Delay in settlement of claims
  • Non-issue of any insurance document to consumer after receipt of the premium
  • Any other grievance (not specified above)
  • Tier-I- call the Company’s toll-free number or customer care number and lodge your grievance. Follow this up by sending e-mail and hard copy to ensure that your complaint is on their desk for their first-look.
  • Tier-II– If dissatisfied with the reply, escalate to the Company’s AVP or company’s customer service desk at apex level-follow the same as above.
  • Tier-III– If the issue still remains unresolved, then approach the insurance ombudsman pertaining to your jurisdiction for the redressal of your grievance. Access to irdaindia.org & www.gbic.co.in/ombudsman.html )

What the government could do?

  • The irony is- almost all the insurance companies are doling out similar policies with almost the same inclusions and exclusions- leaving the consumer more confused than ever. He is forced to choose that policy which charges reasonable additional premium for add-on covers to bring out the BEST POLICY for consumer benefit!
  • IRDA could mandate to bring out a standardized comprehensive cover covering all major aspects of some vital covers (which are now in the add-on list) such as anti-theft device which would be compulsorily offered by insurance companies while selling a comprehensive policy to the consumer

Important to know

  • Go for policy cover for a longer period (to avail discount)
  • Go for policy purchase online (discounts are available)
  • Go for vital additional covers such as engine protection, zero depreciation and anti-theft device (to ensure additional protection on payment of a small price)

Related

Five steps to know if you miss paying your home loan EMI during this pandemic

Five steps to know if you miss paying your home loan EMI during this pandemic

Five steps to know if you miss paying your home loan EMI during this pandemic

Home Loan EMI

The pandemic has hit the salaried employees gravely and a lot have lost jobs as well. In facing such tough situations, what if you miss paying the EMI of your home loan. Here is a guide that gives a heads up.

Subas Tiwari

Generally, the majority part of one’s salary goes to pay the home loan EMI and when that person has to suffer a job loss or salary cut, the EMI goes for a toss. And, the interest amount is added to your overall balance every month. Consequently, this increases the tenure of the loan as well as many more difficulties may come. If you face such difficulties, first of all, contact your bank and tell them about your situation frankly. The bank will certainly offer you an extension if your credit history is good and you have paid EMI regularly. The bank also has the right to extend the duration of your home loan, which will reduce the EMI.

Three to tango

The bank does not take immediate action if you miss one or two EMIs. Firstly, it will issue a notice if you miss three EMIs in a row. However, the bank will give you a grace period of two months for the last time to resume EMI if the borrower does not pay EMI for six consecutive months. Even after all these efforts, if EMI is not deposited, then the bank declares such loan as non-performing asset i.e. NPA. Now, the bank can seize your property and proceed with the auction process.

What is SARFAESI Act of 2002?

SARFAESI or the Securitization and Reconstruction, of Financial Assets and Enforcement of Security Interest Act of 2002 helps financial institutions, including nationalised and private banks, in securing the quality of their assets in a different way. Banks also use this Act for debt collection, on which a writ was also filed by the common people in the High Court and Supreme Court of many states.

This Act empowers banks to auction property of borrowers. Through this Act, the bank reduces the burden of its NPA. For this, the bank does not need approval from any court. But the bank first tries to ensure that the EMI starts again in some way. When all the options are closed, the bank moves further with the property auction process.

The borrowers have a chance to acquire their property until the day the bank announces the auction date. The borrowers can stop the process of this auction by making a payment to the bank. Apart from this, due to the announcement of the auction process by the bank, some charges will also have to be paid separately.

The SARFAESI Act is commonly used to recover the debt. As NPAs of banks continue to grow and loans were not recovered even after strict action against defaulters, the Act gives banks a form of force through which they can acquire their assets. Let us know some more about this SARFAESI ACT 2002.

Rights of banks under SARFAESI Act

The bank has the facility of money transactions, loans are also sanctioned by almost all banks. Money is issued from home loans to personal loans. According to the RBI guidelines, it is the responsibility of the banks to help common men financially. Arrange loans for them and they can also be given relief on delay in repayment of a loan. Not only this, but banks have also been explicitly instructed that they will give preference to lower-and middle-class people in loan disbursement.

Troubles of banks with the Act

The biggest difficulty of banks is that their NPA is increasing. In 2019, the NPA increased to around Rs. 10 lakh crore. Most of the NPA cases are related to loans. Banks have released money for loans to a large number of people, but their recovery has not been done. Many big industrialists are also involved in this, who have been declared defaulters due to inability to repay the loan amount. They have fled the country after securing loans worth billions of rupees from banks. Apart from this, loans were also sanctioned to promote small companies, development authorities, and cottage industries, but in most cases, banks have not been able to recover.

The attitude of banks for recovery

The SARFAESI Act gives a range of powers to banks. It also includes debt collection rights. It has been said by RBI that banks can recover their loans from people. However, banks have also been accused of misusing this law. In many cases, extortion was done by banks. The banks used to threaten the borrowers by reaching home and then dragging the vehicles in the case of personal loans. Lawsuits were also filed against them in the respective police stations, due to which the common people, who were unable to repay the loan, had to face many challenges.

Banks cannot mistreat borrowers using this Act

True that the SARFAESI Act 2002 gives banks the right to recover loans, but banks cannot mistreat borrowers for this. Recovery agents can go to people’s homes only between 7 am to 7 pm. Can talk to them. Consumers can adopt legal processes matching their needs. If any kind of misbehavior is done by the recovery agents, then customers can complain to the banks. In the absence of a hearing in the banks, the voice authorities can also be written.

SARFAESI Act 2002 for co-operative banks

The Supreme Court has said in a case that the SARFAESI Act will be applicable in co-operative banks as well and such banks are covered under it. Debt collection is an essential part of banking activity and this cannot be excluded from this Act. However, the court has also instructed banks to listen to the customers or borrowers before taking any action.

Ways to repay your home loan EMIs during difficult times

 

  • Use of an emergency fund

It’s advisable to maintain an emergency fund by either keeping the amount in a savings account or in some debt instrument such as fixed deposits.

Ideally, this fund should be at least six times your current monthly income. You could go for a bigger emergency fund savings if you want to. The emergency fund can help you pay your EMIs and keep you from defaulting.

  • Take loan insurance

There are various loan insurance plans in the market that can cover your EMIs for a short period. You can consider buying such a plan along with your home loan. A typical scenario where you will find this insurance useful is when you have lost your job. Hence, a loan protection insurance plan is a short-term measure, but beyond it, you will need concrete ways to repay your debt.

  •  Raise funds by disposing of assets

If you have exhausted your income and savings and are unable to repay the loan, then you can look at other options for raising some cash. You may dispose of your assets such as gold, a car that now seems like a luxury, electronics you don’t need, or withdraws some amount from any long-term investments such as Public Provident Fund (PPF).

  • Contact your lender and find a solution

When your inability to pay EMIs is due to a genuine reason such as loss of employment, a serious medical condition, or short-term difficulty, you can discuss the matter with your lender. You can try to persuade your lender to understand your difficulties and convince them that you can resume your loan re-payments soon.
You can show your track record of repaying your previous loans (other than home loan) on time in order to convince the lender. On a case-to-case basis, after an evaluation of your credit history and your current difficulties, your lender may agree to offer you some options that can ease your financial stress. These options include:

i) Grace period:A brief moratorium on re-payments of loan can be given to you by the lender, that is, a short time period during which you do not need to pay your EMIs to enable you to recover yourself from your short-term difficulty and re-start re-paying the home loan.

ii) Refinancing/restructuring of loan:Restructuring of your loan- where the lender can increase the loan tenure and reduce your EMI amount – can also help you.

  • Interest rate reduction

A lower interest rate may be offered to you with certain terms and conditions. The lender can reduce the rate of interest on your loan provided such rate is non-discriminatory and is as per the published rate grid. However, case-specific interest rate reduction to a level below the rate grid is neither permissible nor customary, except in case of a settlement in which case the home loan account would be classified as a ‘settled’ or ‘written off’ (partially or fully) account. “In such a case, the bank will have to recognise the loan as a write-off and your credit score would also be negatively hurt. Hence, it is in your interest to not get caught in a legal tangle and instead find a way to repay your loan. Therefore, maintain contact with your lender and go over any options you may be offered.

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