What benefits from Banks can I expect if I have a good score?

Rakesh has been making routine visits to his bank for getting his home loan sanctioned. As this was his first loan, he had been curious about the concept of credit score. Counting upon his neighbor, Aditya for all his financial queries, he had even discussed the things banks notice in the credit score with him a couple of days back. You can check the conversation here. So, while they were watching the FIFA World Cup match live on TV, the discussion during the halftime again turned towards the credit score.

“Aditya, do you remember we talked about credit score last week. I checked with my bank manager and came to know that my credit score is 759. Is this something good or bad?” Rakesh checked with Aditya.

“That’s indeed a great score. Any score above 700 is generally seen as a good score.” Aditya said. However, Rakesh was not much satisfied with this plain answer. It seemed like Rakesh had something more to ask.

Noticing this, Aditya continued, “A good credit score is an indicator of creditworthiness, i.e. the person has established positive habits with their finances. One tends to get plenty of benefits with a good credit score.”

Benefits of a Good Credit Score:

1. Better chance for credit card and loan approval – Your credit score is your first impression of you as a borrower in the eyes of the bank. As such, having a good credit score improves your chances for faster and earlier approvals for credit cards and loans etc.

2. Low-interest rates on loans – Several banks have started linking the interest rates applicable to the borrower with credit score. As such, the interest rate you may be charged on your loan can get affected by your credit score. Some time back, Bank of Baroda had become one of the first banks to offer better interest rates on home loans for customers with a credit score above a specified number. Many more banks have already followed the suit and several others are now joining the race. Recently, IDBI Bank has also offered some discount on the applicable interest rates for customers with good credit score. It, therefore, becomes imperative for you to maintain a good credit score.

3. More negotiating power – Your better credit score helps your bank to perceive you as a less-risky borrower. As such, you can ask for concessions on processing fees, higher loan to value ratio (amount of loan against the value of the security) etc. and given your good credit score, such requests can be definitely expected to be considered favorably by the bank as well. Any saving is a good saving, nevertheless.

4. Get approved for higher limits – With a good credit score, you get reflected as a healthy borrower with lower credit risk for the bank. As such, you may also be approved for higher limits against your credit card/ loan etc. However, do make sure that you genuinely need such higher limits before choosing to avail them. After all, the money you are going to use is just a loan and you need to repay it one fine day.

5. Bragging rights – This is more linked to your psychological need. A good score highlights you as a responsible borrower who makes his payments against the debts on time. As such, you can rightfully brag about it within your friends network.

“Keeping all other things aside, let me focus on the last point mentioned by you.” Rakesh quipped.

“Definitely. I have always believed about appreciating good things in life, be it your credit score or a cup of tea. Masala tea or ginger tea?” Aditya was all into smiles as he offered Rakesh a cup of tea.

What do banks see when they look at your credit report?

Rakesh had applied for a housing loan with a leading housing finance company. However, when he read in the newspapers that XYZ Bank is offering relatively lower interest rate, it definitely appealed to him to approach XYZ Bank. Considering the high loan amount, even a 0.50% benefit in interest rate does make a huge difference in the overall outflow from one’s pocket. While the bank was doing its due diligence before sanctioning him the loan, Rakesh’s credit report was also fetched by the bank. Curious about what all would show up in the Credit Report, he visited Aditya, his neighbor and also a Chartered Accountant to look for answers.

“There’s more to a credit report than just how much of money you owe to banks. The credit report details out all of your credit information as has been gathered by the Credit Information Bureau (such as CRIF) from the banks, NBFCs and other types of lenders. Bankers keenly review various details in your credit report before approving the loan.” Aditya said and continued further.

Details Fetched by Bankers from the Credit Report:

1. Credit Score Credit score is the first impression the banker can have of you as a borrower while going through your credit report. Reflecting your repayment tendencies, it indeed impacts your access to the credit. For an individual with a regular credit history, the credit score ranges from 300 to 900. For a bank, higher the credit score, lesser is the probability of customer defaulting on the loan. It, therefore, becomes imperative for you to have a better credit score i.e. above 700.

2. How much you owe and to whom – Your credit report includes information about each of your existing credit accounts, including credit cards, home loans, car loans, personal loans etc. This helps them since the existing liabilities on you and also the type of loans taken by you. Every loan will tend to reduce the repayment capacity of the borrower for a new loan. Bank will be able to understand your monthly outflows (sum of EMI amount and card payments) towards your loans.

3. Repayment habits – This is the primary parameter which impacts your credit score as well. Your credit report tells the potential lenders about your repayment tendencies. It shows up how much amounts are overdue presently, how much amounts had been overdue in the past and in case any one-time-settlement has been resorted to by the borrower in respect of the loans.

4. Are you a Loan Hungry Individual? – In case you applied for loans with many banks in a short period or applied for many loans or cards every couple of months, you’ll seem less appealing to potential lenders. A banker may conclude that you have a high dependency upon debts and therefore you may be desperate for loans.

5. Personal Details – Your credit report will also contain information of your addresses for your existing loans and credit cards. As such, the banker can have a fair idea about the stability of your residence i.e. how long you have been staying at your current place of residence etc.

“So in a nutshell, a credit report is the mirror of my credit profile and repayment habits. A bank is giving my incentive on interest rate if I have a good credit score the since they see me as the less risky customer.” Rakesh tried summarizing his lesson.

“Spot on!” Aditya beamed hearing his disciple’s summarization. “You are the solution of all my financial worries. No wonder, I totally rely upon you.” Rakesh quipped.

RBI to set up Public Credit Registry (PCR) as Central Database for all Borrowers

Reserve Bank of India, in its Monetary Policy Review meeting held on 6th June 2018, has announced setting up a Public Credit Registry (PCR) in a phased manner. If you have just been wondering what PCR is all about or how does it impact you as a borrower, this article is the right place for you to know more about it.

Under the present loan, reporting structure set up by RBI, CRILC (Central Repository of Information on Large Credits) has been set up for loans with aggregate exposure (loan outstanding plus undisbursed sanctioned loan) of more than Rs.5 crores. Further, all the RBI regulated entities are also required to submit credit information (including loan sanctioned, current repayment status etc.) in respect of all the loans to Credit Information Companies (CICs) which can offer credit scoring and other data analytics on the basis of such data. CRIF High Mark is also one of the four CICs operating in the country.

What is Public Credit Registry (PCR)?
Public Credit Registry (PCR) is expected to be a National database centrally and directly managed by RBI or one of its subsidiaries covering all the loans and borrowings by an individual or corporate or any other legal entity. While RBI is yet to issue detailed modalities with respect to PCR, it can reasonably be expected to act as a single point of reporting of all the material events occurring in respect of each loan, irrespective of whether such an event is adverse (negative data) or a favorable one (positive data). A typical example in respect of a favorable event can be the proper closure of a housing loan taken for a 2 RKH house. Similarly, an adverse event can be delay or default in respect of the loan repayment.

Salient Features of PCR
Here are the salient features of Public Credit Registry as can be inferred from the High-Level Task Force Report, which recommended setting up of such PCR:

1. To cover all loans and borrowings – PCR will encapsulate all the types of loans and borrowings including corporate loans.

2. No minimum threshold on loan size – PCR intends to cover all the loans irrespective of any minimum threshold and thus, will reflect the entire indebtedness of the borrower at one single place.

3. Information in respect of borrowers in all legal forms – PCR will cover the borrowers in all legal forms, whether an individual consumer or an MSME or a corporate or any other kind of legal entity (MSMEs etc)

4. Interlinkage with external data sources – The scope of PCR is expected to act like a comprehensive database for the information of the borrower and will also include information with external data sources like MCA for company information, CERSAI for property information, GSTN for an idea on revenues etc. for a more complete view of the borrower.

Benefits of PCR
1. Single Window for Complete Information in respect of Borrower – Under the present setup, loan related information in respect of large borrowers is not available in a single window. For example, inter corporate borrowing, External Commercial Borrowings (ECBs), Foreign Currency Convertible Bonds (FCCBs), Masala Bonds (Bonds issued outside India but denominated in Rupees) etc. are not available in a single database in public domain. Banks and financial institutions will need to just search for the borrower to get all the related information there itself.

2. Reduction in Compliance Burden of Reporting Entities – The information in respect of loans gets reported to multiple agencies in multiple formats leading to inefficiency and duplication in reporting as well as increased reporting burden for the reporting entities. As and when PCR is implemented, it will result in single-window reporting system and thus help in reduction of compliance burden of banks and financial institutions reporting such information.

3. Prevention of Multiple pledging of Collaterals by Borrowers – In case of a loan to Deccan Chronicle Holdings Ltd. By Canara Bank, it came into notice that the borrower had raised funds from different banks against the same. Such instances can be eliminated if all the collateral related information is available to all the lenders/ prospective lenders in an unbiased manner. PCR will aim to fulfill that objective.

4. Complete data available for Supervision and Research – A central and complete database will provide a timely and holistic view to the RBI to carry out supervision on the banking sector, and also carry out periodic economic research to support policy-making.

Since the PCR will be an extensive database of all credit information belonging to the customers at one place, it a welcome step in improving the information access for the lenders. PCR may not include its Credit Scoring services under its ambit and may just act as the main repository of data.

Renting a House Know Tax Implications

A couple of days back, Rakesh had a talk with Aditya about buying out his rented flat, as his landlord was shifting to Australia to stay with his son now. Since the deal was a total steal, Rakesh was all excited to close it as soon as possible and hence, had already talked with his bank for a housing loan. Read the conversation here where they also talk about how housing loan helps you save tax. Having got educated with respect to the tax benefits given by his housing loan for personal use, Rakesh was now all curious to know what difference did it make it the house was going to be let out. Unable to hide this curiosity, he went to Adityas office right after getting back from bank.

Hi, Rakesh. Good to see you here. So, when are you getting the deal executed? I am so excited to have a cup of tea in your own house. Aditya was equally excited about the deal.

Housing loan formalities are all done with. The purchase should close next week. We are equally excited to host you in our new house. Rakesh informed him about the current status of the transaction.

By the way, I was just wondering if the tax benefits will get higher if I opt to rent my house, instead of using it for self-occupation. Not that I am planning to execute such a thing, but just the curious me wanted to know. Rakesh added.

Well, I know how hard it gets sometimes to put down the curiosity quotient within us. Let me try my best to answer your question. Until the year 2016-17, the deduction towards home loan interest was given on the basis of actual interest charged by the bank during the year, if the house was rented out. However, from the year 2017-18, the loss from house property due to interest has been limited to Rs. 2 lakh, be it towards a self-occupied house property or a rented one. Aditya tried to cover all the points in one go.

He further added, While this limit is for all the house properties taken together, you can save t, as well as the loan,s well as the loan is taken in joint name, as the ceiling limit of Rs. 2 lakh will be on individual basis.

Aditya thought that Rakeshs queries were all sorted now, but this wasnt the case to be.

And what about the rental income so received? Is it fully taxable? Rakesh was still on learning mode.

While the rental income is indeed taxable, there are certain deductions allowed for that as well. Recognising the fact that property tax is paid by the owners, 100% deduction is allowed from the rental income in respect of property tax actually paid by the owner. Further, Govt. has also a maintenance standard deduction towards repairs and maintainence of the house property. So, you deduct this 30% from the net amount i.e. rent minus property tax so paid and then offer the balance 70% for tax. In a nutshell, your taxable income from house property shall be your rental income minus property tax paid minus 30% standard deduction less interest on home loan. Aditya summarised the tax provisions in a nutshell beautifully.

The smile on Rakeshs face was the true indicator of the simplicity Aditya used to explain the provisions.

Even while a cup of tea at your place will be possible next week only, lets have one now. Aditya smiled.

3 musts for a SAFE digital banking experience

Technology has impacted every aspect of human life and banking is no stranger to this. Digital banking has taken the world by a storm and made it possible to avail banking services all through a simple click of the mouse. While digital banking is safe and convenient, there are a few aspects you need to look into to ensure a safe and secure experience. Awareness is the best defence, so here we go!

Do Not Share your Account and Card Information with anyone
It is always advisable to resist from sharing any of your account or card information with anyone, especially over calls, even if the person at the other end is posing to be a bank official. Further, to protect your online and digital banking experience, you should create strong passwords with a mix of alphabets, numbers, and special characters. Do remember that many fraudsters are just waiting for one mistake from your end. Since past few days, one SMS is moving across the mobile devices:
– Dear Customer, your XXXX Bank Debit Card points worth Rs. 6897 expired by XXXXXX. Kindly convert your points in cash by click here. We came across several instances where the receiver of the message clicked on the link and shared their card details on the link in the message. While no points got converted into cash as such points were non-existent, the card holder became a victim of fraudulent activity.

Protect your device
Digital banking is highly dependent on the use of physical devices such as smartphones, tablets, and laptops. In the unfortunate event that we lose any of these devices, all personally identifiable information (PII) about our bank accounts becomes prone to loss or theft. So always protect your devices through passwords, screen locks and the like. This will make it almost impossible for any other individual with access your device to read into private data, especially the financial one.

Ensure that KYC Documents submitted by you are Put to That Use Only
When you submit some documents to the bank officials as part of Know Your Customer (KYC) process, make sure that such documents are stored in the records only for that very purpose only. There have been instances of use of such documents for opening of fraudulent accounts in your name. Since the documents disclose your identity in the bank’s records, you may be held liable for any such fraudulent activity in that account. It is a general practice to hand over the PAN card and other identity/ address copy duly forsigned for applying a new credit card when executives visit our office with great card deals. Make sure you also put up the purpose of the document submission on the self-attested copy so that the document cannot be used another time.

These small yet significant practices form the cornerstone of secure digital banking, and should be followed diligently by one and all. We, at CRIF, deploy the best safety practices to deal with your sensitive data and make sure that any unauthorised access to such information is detected and eliminated at the first instance.

Unauthorised Electronic Banking Transaction- Loss To Consumer Or The Bank?

This year, the Financial Literacy Week by RBI focuses on “Consumer Rights” to educate consumers on their liability for unauthorised electronic banking transaction.

Can you imagine the possibilities of electronic banking transactions? Having the ability to receive or send money whenever and wherever. Buying things online in the quickest way. Or getting your bank related work done in minutes if not seconds. Well yes, it’s all that and more. Electronic banking has given consumers convenience like never before. Saving time and energy of physically getting things done are diminishing by each passing day. But with all that power, also comes a great deal of caution and responsibility.

Do you remember the times you have received a message saying- ‘Do not share your user ID and password with anyone’? Is it safe to say more than once? Definitely. So, what is a banking fraud and how is electronic transaction susceptible to such a cause quite easily sometimes? Let’s say that you got an email from your bank asking for your details for xyz type of update and you enter the site only to realise there is something odd. Or you put in your details on some random site without genuine or easily recognisable credentials? Or the very common act of responding to Spam messages that claim to send you 10 million dollars because someone is really ‘generous’? And most recently, where sites have actually been known to sell your data that you entered trusting that one and only social website?

Fraudulent acts of banking can come from anywhere and anytime. A known term for this is called ‘phishing’ where an organisation or an individual tries to illegally obtain your personal information to do just about anything. So, how do you deal with it? Earlier, a commonly known fact was bearing the loss. Why? Is it because you didn’t know whom to ask for help? What to tell the bank if they question you for sharing details to a third party website? Or you just didn’t get notification soon enough to realise the urgency of notifying an authority? Can be one and can be all.

With the day-by-day shift to digitisation, which acts as a boon to advancing technology meant to simplify processes as well as optimise security; it also brings a need to educate people on safe practices and awareness in case of being victimised by a fraudulent act. Considering the surge on consumer grievances relating to unauthorised transaction resulting in debits to their account / cards, the criteria for determining customer liability in these circumstances have also been reviewed. All said and done, you may now understand your power as a consumer, thanks to RBI’s law on safeguarding consumer rights and their money.

According to the law, RBI makes it clear that the consumer has no liability when an unauthorised transaction happens in case of a fraud or even contributory negligence and/or deficiency on part of the bank. But what if neither the consumer nor bank is at fault? The law says that the consumer will not bear the loss if he/she notifies the bank within 3 days of the fraudulent occurrence. In this case, the bank shall be liable to pay the consumer full amount within 10 days of time.

However, in cases where the fraud is due to consumer’s negligence by sharing payment credentials then the loss till the time he/she reports to the bank shall be borne by the consumer only. Now, here’s a catch! What if the consumer is not!at fault and the bank blames them for sharing their information with a third party that inherently led to an unauthorised transaction? The bank will play dumb to admit their leniency in the matter or even admitting a third-party breach. Fret not, the law by RBI as dated July 2017 clearly states, ‘the burden of proving customer liability in cases of unauthorised electronic banking transactions shall lie on the bank’.

In other words, the bank has to do all the hard part to prove their innocence in the matter and your complete fault. Sounds easy? It is not. The RBI further emphasizes the need for banks’ attention to not only send immediately and without fail, SMS and e-mail alerts, but also ensure that such messages are enabled to carry the customer’s reply too so that a consumer can report any such fraud immediately.

So, to sum it up- as consumers, know your rights and don’t ever share your personal and banking information with other people for your own security. Now that you know, share this blog and let’s unite with RBI to spread the importance of being financially-sound this Financial Literacy Week 2018.

Safe Digital Banking Experience- How We As Consumers Can Help

This year, the Financial Literacy Week by RBI focuses on "Consumer Rights" to educate consumers on their part to have a safe digital banking experience.

"Ignorance is bliss" is a common phrase that falls in the negative of banking or finance related books. Regardless of what we hear every day or read in every passing ad- we all fall short to follow the simplest of steps to ensure a safe online banking experience. An online banking fraud happens when a person (or in this case, a hacker) takes hold of your bank account details to do absolutely anything, from taking out cash to selling details to another party to posing threats to someone under your name.

As our financial transactions become more digital, banking and other financial institutions are making sure to secure their own network and their customer’s money in the best possible manner. But as an individual, it is important to follow few simple steps that ensure security provided by your bank is supported by your diligence and caution.

First and foremost, secure the basics-

Password- Keep it Gibberish, one that no one can predict. Use uppercase, lowercase, numbers, symbols and anything that you can think of!

Log in- Only through secure networks. Do not use the free Wi-Fi available at public places for your banking work. Keep all bank related work preferably at home with your private network or mobile data.

Monitor- Your debit and credit cards are vital mediums for potential hacking. Make sure you always keep an eye out on every transaction and SMS sent by the bank.

More of the above 3, the better- To safeguard your bank account, keep another level of security at every stage. Login with OTP sent to your mobile number, or use secret question to avoid potential hacking at that moment, and do monthly reviews of your bank statements.

Second, understand the enemy-

System attack- A commonly known term "malware" is software designed to infiltrate or damage a computer system without your knowledge. Examples of malware (malicious software) include computer viruses, trojan horses, spyware and adware. Don’t fall prey to such an attack by making sure you have updated anti-virus software that scans everything including emails, on your computer as well as on your mobile phones and tablets.

Email attack- Your bank will never ask you to provide personal information via any email or online communication. Similarly, nobody is ever so rich to just send you money from abroad by only getting your personal information. Do not pay heed to such activities or emails. Such kind of activity is called "phishing" where an individual or organisation tries to acquire your details for a fraudulent act.

Browser attack- Known as "domain spoofing", this cyber crime interferes during browsing activity, only to reroute you to a fraudulent site. Once there, you are asked to enter personal information, just as with "phishing".

Thirdly, now that you know the above two, be alert:

Do not share your card or account details- No matter how trusting you are towards the other person; you or the other person might still be unaware whether they’ve been a victim of online fraud. Banking is a personal activity which you should never let anyone else handle for you.

Turn off the Bluetooth- It’s very common to be hacked via your Bluetooth device in your mobile phone. Hackers, once getting access into your phone can create chaos in unimaginable places, including your bank account.

Log out properly- Thinking that by cancelling your browser window, all processes will be shut down is a myth. Always make sure you log out of your profile before exiting the window.

Update your systems- Whether it’s iOS, Android or Windows; your system will always prompt you when an update for operating system is needed- do not ignore it. Keeping your system updated ensures safety against potential threats that change their ways every day!

Online fraud is becoming common day-by-day but so is it’s antidote with various software and techniques. Having said that, at our end, we must ensure conscientious practise of safety measures for a fraud-free online banking experience.Now that you know what to do, spread this knowledge and let’s unite to help RBI attain financial literacy all across the nation this RBI Financial Literacy Week 2018.

Risk Vs Returns- Be Alert Towards ‘Quick Money’ Investment Schemes

This year, the Financial Literacy Week by RBI focuses on “Consumer Rights” to educate consumers about the crimes by investment fraudsters and how they should always be on a lookout to never fall into such schemes.

Thinking about securing your future always tends to aim at an understanding spree about investments. Sometimes though, we come across hard-to-believe schemes in the name of banks associated with it. Here’s a quick tip: Do not fall prey to these kinds of activities. Understanding investment plans are realizing that higher the returns, higher would be the risks- that is the principle. But one needs to grasp that higher returns may come with higher risks but higher risks might not necessarily always come up with higher returns. You must understand that it’s the market time you enter and not your timing in the market.

Before understanding the fruitful returns, be wary of the sources you plan on investing in or with. Investment frauds generally pose as a wide range of deceptive practices used by scammers to entice investors into making blind investing decisions. Given the game-changing ways of fraud each day, investment frauds generally follow one or all traits listed as below:

High ‘guaranteed’ returns-
Let’s face it, the principle says “higher the returns, higher are the risks”, but even then is no guarantee to it. So, if a scheme claims to guarantee your returns portion- do not engage further with it.

High initial investment-

This is like a “Ponzi” scheme. Here, investors are lured to invest large sums of money because the returns received are chunks of their own money as there is no other source of income.

Vague/complicated investment strategy-
At all times, financial experts always advise on investing in schemes that you understand properly, in and out. Now, when a representative approaches you with a scheme that you try to understand better and in return get a more complex version of it- you are probably talking to a con man.

Unsustainable business model-
A company promising you ‘incredibly’ high returns should ideally have a sound business model with proper affiliations. If the story sounds odd or fake to you- simply walk away.

Being generous by paying back of losses-
When a representative says that he/she shall pay any losses if incurred from their own pocket- you definitely should run towards the door.

So, what can you do?
Ask for proper regulatory approvals
A registered company will never give an entity permission to mobilize public money. It needs approval from either Sebi or RBI.

Do your own research of the company and the scheme
Do not hesitate to ask one of your trusted financial consultants, consult your friends and search on the internet about the company and the scheme for any consumer reviews. If you are in doubt, better to avoid.

Do not issue cheques in the name of a third party
Always issue payments in the name of a bank or an institution and not towards any individual or third party. Also, remember never to issue blank cheques or sign on blank papers.

Ask for regular account statements
A genuine investment scheme will always provide account statements at regular intervals, either monthly, quarterly, half-yearly or annually. If it isn’t doing so, something might be wrong.

Match performance with stated investment strategy
The performance of your invested scheme must be in line with the returns promised. If not, investigate and if needed, take necessary action by reporting the case.

Now that you know, be alert of the frauds that claim fast money with your hard earned income. Share this knowledge with others and let’s unite with RBI to spread financial literacy this Financial Literacy Week 2018.