Effect of teaser home loan on risk & increased NPA for banks

8/6/2019 Effect of teaser home loan on risk & increased NPA for banks

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Live ProjectLive Project

onon

Effect of teaser home loan on risk & increased

NPA for banks

By- Kshitiz Saxena

Dilip Kumar

Amit Singh

Gajendra Singh


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Group IntroductionGroup Introduction

yy Presented ByPresented By:

y Amit Singh:- Primary data collector

y Dilip Kumar:-Presentation

y Kshitiz Saxena:- M.I.S.

y Gajendra Singh:-Survey Questioner


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Effect ofTeaser Home Loan on risk & increased NPAforEffect ofTeaser Home Loan on risk & increased NPAfor

banksbanks

Content cover under this:

What Teaser Home loan means?

Benefit of Teaser Loan for borrower

Selection of loan by customer

Problem faced under floating rate by borrower

What NPA mean?

Type of NPA

Reasons for increased NPA for banks

Effect of teaser home loan on risk & increased NPA for banks RBIS view on teaser home loan

Treatment of teaser loan by commercial banks


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Activity which we have planed to complete this project:- Telephone call

Survey

News

Banks websites

Interaction with faculties

These allare help us to complete our project in following way:-

Telephone call help us to meet our queries in bank.

Through survey we came to know the different views of people about

loan. News, banks website , faculties timely help us when we feel any

problem relate to project.


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Teaser Home loan means:- Its a type of loan which carry attractive

interest rate & discount offers during the initial phase of the loan.

After specific time period, they relapse back to the then prevailing

rates.


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Reason for like Teaser Home Loan by customer:-

Rate are usually 2 or more per less.

Having dual rate schemes

Due to deckling in property price

So this all are the reason which attract borrowers to borrow such type

of loan from banks.


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Problemfaced by customer in teaser home loan:-

Under it banks charge highly attractive rate for an initial repayment

say 1 to 3 years.

EMIs under this would be calculated at 1.5-2 per less thanprevailing rates initially.

Interest rate go up after the initial period & leads to increase EMIs

for borrowers.

Higher EMIs become the burden for the borrowers at certain years.

Such situation may force borrowers to default on repayment.


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What NPAmeans?

NPA is define as an advance for which interest or repayment of principal

or both

remain outstanding for a period of more th

an two quarters. NPAact as a indicator showing the bankers credit risks & efficiency of

allocation of resources.


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Type ofNPA :-

RBI has issued guidelines for banks for classification of assets into four

categories:-

Standard assets Substandard assets

Doubtful assets

Loss assets


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The classification ofassets ofscheduled commercial bank:-

*(Source-Department of banking supervision, RBI) (Rs in Cr.)

Assets 2003 2004 2005 2006 2007

Standard

assets

131620 167076 216448 296020 382368

Substandard

assets

3703 3127 2213 2396 4378

Doubtful

assets

8512 6391 5578 4438 3923

Loss assets 1118 825 900 940 941

Total assets 13333 10343 8691 7774 9242


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Reason for increased NPAfor banks:-

The may be widely classified classified in two:-

(1) Over hang component(2)Incremental component


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Effect ofteaser home loan on risk & increased NPAfor banks

Teaser loans are offer a low fixed rate of interest in the first few years

after which the loan floats as per the lenders benchmarks rate. Its leads

to increase the EMI of borrowers & create a burden to repay their loan on

time. Finally borrower default in EMIs. As a result it create a risk for bank

in the way of NPA.


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RBI views on teaser loan

RBI has hiked interest rates six times since January; this has raised the

cost of funds for financial institutions. Also, with the apex bank raising

the provisioning norms for housing loans in its last policy review, banks

need to keep aside 2% of the loan value compared with 0.4% earlier.

These issues have made mortgage lending costlier for banks and teaser

loans may not be a sustainable option to offer


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ConclusionConclusion

y Teaser loan is a type of loan having low rate in initial phase & its risesafter that

y Current teaser loan schemes differ in the range of 0.25 to 0.30 per at

teaser rate .

y Higher EMIs become the burden for the borrowers at certain years

y NPA act as a indicator showing the bankers credit risks & efficiency of

allocation of resources.


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Our LearningOur Learning

y Effect of teaser home loan on borrowers.

y How NPA creates in banks.

y Know the banks different functions.

y Provision made by banks to treat NPA.


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Effect of teaser home loan on risk & increased NPA for banks

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