## How to Calculate a Loan Loss Provision Coverage Ratio

How to Calculate a Loan Loss Provision Coverage Ratio

Loan loss provisioning is a systematic way of handling risks rationally, signalling managerial prudence. Banks across the globe follow a dynamic provision policy. Sometimes, a well – designed policy is not enough to safeguard the interests of all the stakeholders. One such prominent and time – honoured modus operandi to face contingencies is the rate of provisioning to be set aside annually to meet any contingencies.

Banks and credit unions are in the business of lending money to individuals, families and businesses. But not every loan is repaid in full; in fact, many banks lend to risky borrowers by charging high interest rates. To stabilize earnings and remain solvent in bad times, banks estimate losses and seek to hold enough capital to absorb future write-offs.

Estimated Losses: Loan Loss Provisions
The loan loss provision is a balance sheet account that represents a bank’s best estimate of future loan losses. Suppose that a bank extends a Rs.5,00,000, five-year loan to a gas station in its community. If one year later the borrower runs into financial problems, the bank will create a loan loss provision. If the bank believes the client will only repay 60 percent of the borrowed amount, the bank will record a loan loss provision of Rs.2,00,000 ((100 percent – 60 percent) x Rs.5,00,000).

Actual Losses: Net Charge-offs
Some time after creating a loan loss provision for a worrisome loan, a bank will discover how much the borrower is actually able to repay. At that moment the bank will record a net charge-off — the amount of the loan that will never be repaid. In the earlier example, suppose the bank is only able to collect Rs.1,00,000 from the gas station. In this situation the net charge-off would equal Rs.4,00,000 — an amount even greater than the original loan loss provision.

Loan Loss Provision Coverage Ratio
The loan loss provision coverage ratio is an indicator of how protected a bank is against future losses. A higher ratio means the bank can withstand future losses better, including unexpected losses beyond the loan loss provision.

The ratio is calculated as follows: (pre-tax income + loan loss provision) / net charge-offs.

In the earlier example suppose that the bank reported pre-tax income of Rs.25,00,000 along with a loan loss provision of Rs.8,00,000 and net charge-offs of Rs.5,00,000. Its loan loss provision coverage ratio would equal 6.6 (25,00,000 + 8,00,000) / 5,00,000.

Insights Into the Economy

Loan loss provisions are important not only to banks but to the broader business community. During difficult economic times, loan loss provisions and net charge-offs spiked as borrowers struggled to repay their debts. Loan loss provisions and net charge-offs can therefore serve as useful indicators of the overall health of the economy.

How Loanyantra helps

The bad debts to the banks make them run short of money and this will always make the banks increase the loan interest rates. Loanyantra’s customers will know it before hand, as our team constantly track the loan’s interest rate and sends alerts. Also know about different banks interest rates and get into the bank whose interest rate is lower and a process where you can finish the loan earlier.

## PNB-Nirav Modi Scam. What did RBI do?

Is giving Letter of Credit / Letter of Understanding to Nirav Modi is a mistake by PNB?

Actually, according to the banking procedures, there should be  a collateral while lending money. Any lender should not lend money without taking anything as a guarantee.

So, PNB had given a letter of credit stating that PNB guarantees the on time repayment of the loan by Nirav Modi. This had become a common practice by the nationalised banks. For India to grow, these are the small steps taken and the authority given to such high officials. So, to be frank it is not a wrong step by PNB to Nirav Modi.

Another important thing while lending money is, while the borrower is already with an existing loan, the top up loan cannot be sanctioned without looking into the repayment details and guarantor details.

This is the wrong step by the letter of credit issuer and the lending banks that they blindly follow the brand as a guarantee from the borrower instead of looking at the details of their repayment status and credit score. Now, it is  a shock to PNB and the other lenders also as they have to face such huge bad debt.

PNB-Nirav Modi’s case is the same issue as Vijay Mallya’s case. Under Vijay Mallya’s case, the banks had given credit loan of 25 crores by taking the logo of the company as a guarantee. Under PNB-Nirav Modi’s case, the banks had given loan on one LoU, which is really ridiculous. The common man should roam around multiple banks just to get a simple personal loan to fulfil his needs, Whereas the so called promoters get the loan so easy that they can skip the loan and can roam away from India.

Will this misuse by so called bureaucrats influence common man? How?

The scams like PNB-Nirav Modi, Vijay Mallya, surely influence the banks’ economy and state’s growth. When there is such huge bad credit, the banks will not be in a state to pay the Fixed Deposit Interest Rate or Fixed Deposit withdrawls. This makes the banks increase the loan interest rates atleast by a minimum to cover the loss. So, ultimately, it affects the common man paying the loan interest rates.

Axis Bank (one of the lenders in PNB-Nirav Modi case), had already raised the MCLR to 10 basis points, leading to increased lending rates,the second time in last two months.

How did the NPA (Non Performing Assets ) problem become so big?

There are many reasons and no one reason can be attributed as the biggest problem. In some cases, it was just a case of bad promoters taking too much debt and even siphoning off money instead of trying to run a tight ship. They were in turn abetted by lax bankers who did not do much due diligence and also politicians who helped them get loans. In other cases, there were genuine reasons like telecom or mining licenses being cancelled after much money had already been sunk. In still other cases, it was the shortage of gas supplies from the KG basin, on which the project depended on, or dumping by Chinese in some goods. And then there were cases of over ambition where the promoters bought and expanded indiscriminately without having the management depth or the resources to run the companies properly.

The biggest reason for the NPA problem was that the banks got swayed by big project plans of businessmen and simply did not take enough precautions or enough due diligence.

What did RBI do for a solution after PNB-Nirav Modi case?

The new guidelines have specified framework for early identification and reporting of stressed assets. The Reserve Bank of India (RBI) on Monday came out with a revised framework for expeditious resolution of bad loans, harmonising the existing guidelines with the norms specified in the Insolvency and Bankruptcy Code (IBC).

“In view of the enactment of the Insolvency and Bankruptcy Code (IBC), 2016, it has been decided to substitute the existing guidelines with a harmonised and simplified generic framework for resolution of stressed assets,” the RBI said in a notification issued after the PNB-Nirav Modi case came into light.

All lenders will be required to submit Central Repository of Information on Large Credits (CRILC)- Main Report to the Reserve Bank on a monthly basis effective April 1, 2018.

In addition, the lenders shall report to CRILC, all borrower entities in default (with aggregate exposure of Rs 5 crore and above), on a weekly basis, at the close of business on every Friday, or the preceding working day if Friday happens to be a holiday. The first such weekly report shall be submitted for the week ending February 23, 2018, with a view to harmonise the guidelines with the norms specified in the IBC, said the notification while withdrawing existing mechanism for dealing with the bad debt in the banking system. The new guidelines have specified framework for early identification and reporting of stressed assets.

If this practice is observed strictly, from now on, there are chances for many defaulters to come in light like PNB-Nirav Modi case. There are chances, in future to reduce the bad debts number.

But as of now, because of PNB-Nirav Modi’s case, 11,000 crore debt, it is sure that there will be an increase of lending rates.

You should not be the one to get victimised for such increase of lending rates. Be the first one to know which bank offers the lesser interest rate. Come, be a LOANYANTRA customer and know more tips and tricks about your loan interest rates.

## How It Actually Happened – The Loanyantra’s Story

An experienced banker, Harsha, was performing his duty with respect to the banks and also to the end customers. He was aware of the customers problems and knew the banks’ tips regarding home loan. It was his passion to help the customers, in his best means, to get through the loan process as fast as possible.

On his way towards life, came a tech savvy customer, Vijayananda Reddy, who knew a little about home loan. His thirst was to come out of home loan as early as possible. He observed that his 2 year old home loan interest rate was higher than the market interest rate, loan tenure was increasing as the interest rate increases and no change in the loan EMI. So, the intelligent techie Vijayananda Reddy  quoted two issues to Harsha, the intellectual banker,

1. I want to reduce my ROI to the present market ROI which is comparatively lesser than my ROI.
2. I want to keep myself updated about the changing ROIs by different lenders.

Harsha, as his responsibility, is very positive and responsive in solving Vijayananda Reddy’s issues with utmost care and with a hassle-free process. The bright engineer thought he could be helpful to many home loan borrowers by automating this process and by bringing awareness to them.

There rose an initial seed for LOANYANTRA.COM. The two bright worlds banking and IT came together to create a customer friendly home loan process which includes automated, technology oriented home loan management.

Loanyantra.com took its shape in January 2016 and started operating from T-hub, Hyderabad. Proud to be a chosen start-up for t-hub. Also victoriously winning the hearts of the investors.

Now loanyantra.com, with its motto, pay less, pay fast, going ahead successfully with a team of 8. The well planned business strategy not only helps the home loan customers but also guides them to save to the maximum on their home loans.

The LoYans, as they call themselves, have processed 70 cr. loans majorly from Bengaluru and Hyderabad. They want the online home loan management to reach to all those 80% online users in India.

## How does the standard deduction benefit the tax payers?

Union Budget 2018-19, introduced standard deduction of 40,000. Which is a pure deduction from tax, as the tax payer need not show any bills or documents to claim.

So, is the standard deduction really beneficial and how?

For example, a tax payer is getting a salary of Rs. 10,00,000. According to the taxation rules. There is a tax slab till Rs.5,00,000 wherein he need not pay the tax for the Rs.5,00,000. So, the next Rs.5,00,000 is considered as taxable income. The tax payer can claim for tax deduction if he has some investments or expenses. Say, before Budget 2018-19, the tax payer can claim for medical reimbursement of Rs. 15,000 by submitting proper medical bills. Also, there was transportation allowance 19,200.

However, the tax payer can claim those benefits only by showcasing the proper bills. With the budget 2018-19, the medical reimbursement and transportation allowance is removed. But a standard deduction of Rs. 40,000 is added. Which means, the tax payer, without proving or without any reason or without submitting any bills can just need not pay tax for that Rs.40,000.

Aditya Modani, Tax Director, EY India, said, “Re-introduction of standard deduction meets the long-time wish of salaried class taxpayer. Standard deduction will be provided without any requirement to furnish any evidence for claiming such a deduction.”

It is a bundled exemption, in which the individual tax payer might benefit upto INR 5,800.

Plan Now and Save More

You can also get tax exemption if you have investments. Your investments can be in mutual funds, insurance, home loan.  You can claim tax benefits upto INR 3,00,000.

It is perfectly fine to invest. Invest now and claim tax benefit and save more. It is also best time to invest in home as the interest rates are lower. So add both the advantages and flow with the market. Loanyantra helps you to plan well and save more on your loans.

Get to know all the tax exemptions associated with home loans. Claim tax exemption on principal and interest. Loanyantra plans it all for you. Loanyantra is just a missed call away –  040-71011991. Get a call back to let us know more about your requirements. Get a customized service from dedicated relationship manager. Know about all the lenders and choose from the favourite banks with reduced interest rates. Also avail discount on interest rates for an year. Loanyantra will still follow your loan till you close the disbursal loan. Yes, loan. Know more to save more.

## Budget 2018 and Your Loan – Repo Rate Unchanged

Budget 2018-19, the 5th budget and the last budget in P.M Narendra Modi’s tenure, presented by Finance Minister Arun Jaitley, left no hopes for reduction of home loan or personal loan interest rates.

Though the budget sounds rural and weaker section friendly, it is worth mentioning that it is a much foresighted budget which if really implemented and taken as it is to the poor, will surely make India Proud.

After a two day meet, the Monetary Policy Committee (MPC) of the Reserve Bank of India, announced a no repo rate change. Repo Rate, the rate at which the RBI lends money to the banks, doesn’t change and remains at 6%.Five members of the monetary policy committee voted to keep rates unchanged, with one member, Michael Patra, voting for a 25 basis points hike.

The inflation which is at a high pace is expected to increase further, as the analysts see. Commenting on the RBI policy statement, Anjali Verma, economist, Phillipcapital India, said: “The policy decision is in line with our expectation along with the hawkishness that is built into the statement. While we retain status quo from RBI for FY19, a risk to our call may come from higher inflation.”

Here are some other key projections from the central bank’s sixth bi-monthly monetary policy statement of 2017-18:

– GVA growth (value of goods and services) for 2017-18 projected at 6.6%
Reverse repo rate (rate at which it borrows from commercial banks) kept unchanged at 5.75%
– Inflation forecast at 5.1% in fourth quarter of fiscal year 2018
– RBI estimates retail inflation in 5.1-5.6% range in first half of 2018-19, 4.5-4.6% in second half.

Know about repo rate and its influence on loan interest rates

 Repo Rate 6% Reverse Repo Rate 5.75% Interest Rate – Home Loan 8.3% Interest Rate – Personal Loan 10.35%

Tax Advantage from Union Budget :

There is no more medical reimbursement and transport allowance by the government to the salaried and the pensioners. There is a standard deduction of Rs. 40,000, no need of submitting bills and documents. There is an increase of 1% cess from 3% to 4%. The net income on which benefit would be available is INR 5,800 and consequential income-tax saving will depend on the income-tax bracket an individual falls in. In case of taxpayer who are differently abled persons, the transport allowance exemption would continue.

 Tax Details Before Budget 2018-19 After Budget 2018-19 Medical Expenses 15,000 Nil Transport Allowance 19,200 Nil Standard Deduction 40,000

Loans Cheaper than Usual :

Before 2016, the home loan interest rates used to be 14%. Slowly RBI reduced the repo rate and in turn, there is a reduction in interest rates to 8.3%.

If you are one of the luckiest persons to shortlist your dream home, then why delay, the interest rates are much lower than ever before. Book your home and start paying your home loan EMI and close it as fast as you can.

Loanyantra looks at all your financial needs. Why worry for anything else. We look at the trends of the interest rates and guide you the best lender according to your requirements. Whether a home loan or personal loan, we are just a missed call away. Once you are our customer, your loan is our loan. Follow our updates and start saving on your loans and close it early.

## Budget Highlights 2018-19 On Tax: Direct Taxes & Indirect Taxes

High anticipation on budget on Feb-1st

We have complied budget Highlights of 2018-2019.

##### Personal Taxation : Budget Highlights – DIRECT TAXES
 Heading Comments Tax Rates No Change in income tax slab or tax rates or surcharge Education cess substituted with Health and Education cess of 4% Standard Deduction Standard deduction of INR 40,000 or amount of salary received whichever is less. However transport allowance for INR 19200 and medical reimbursement for INR 15,000 was previously available and post this proposal , a bundled exemption of INR 40,000 is available i.e. only an increase of INR 5800. Transport allowance exemption is available only for differently abled person. Capital Gains Provisions of section 54EC – The lock-in period for investment of specified bonds under 54EC is increased to 5 years from 3 years. This is pertaining to capital gains arising from long term capital assets, being land or building or both. This amendment is effective April 1, 2018 Senior Citizen Deductions – health insurance premium and medical treatment Section 80D provides a deduction in respect of payments towards annual premium on health insurance policy or preventive health check-up of a senior citizen or medical expenditure in respect of very senior citizen. This has been proposed to increase from INR 30,000 to INR 50,000. Section 80DDB provides deduction to individuals or HUF‟s in respect of amount paid for medical treatment of specified diseases. The deduction value is proposed to be increased to INR 100,000 from INR 60,000 Withdrawal from NPS S c h e me An employee contributing to NPS is allowed an exemption in respect of 40% of the total amount payable to him on closure of his account or his opting out. This was previously not allowed to non-employee subscribers. However, it is proposed to extend the said benefit to all subscribers Deduction in respect of interest income to senior citizen Deduction of INR 10,000 is allowed under 80TTA with respect to interest income from savings account. It is proposed to allow a deduction of INR 50,000 in respect of interest income from deposits held by senior citizens. Also it is proposed to amend section 194A to raise the threshold for deduction of TDS on interest income from 10,000 to 50,000 PF / Pension As a measure to incentivise employment of women in formal sector and to enable higher take home wages, women employees contribution for first three years of employment is proposed to be reduced to 8%. However, employer contribution to continue at current rates.
##### Non-Corporate Assesses – Tax
###### Assesses (less than <) 60 Years

 FY 2018-19 Tax rate 0- 2,50,000 Nil 2,50,001- 5,00,000* 5% 5,00,001- 10,00,000 20% 10,00,000 Plus 30%

Surcharge Applicable to Individual Income

 FY 2018-19 Tax rate 0- 5,00,000 Nil 50,00,001- 1,00,00,000 10% 1,00,00,000 plus 15%
###### Assesses (more than >) 60 years and (less than <) 80 years  / Senior Citizens
 FY 2018-19 Tax rate 0- 3,00,000 Nil 300001- 500000* 5% 5,00,001- 10,00,000 20% 10,00,000 Plus 30%
###### Assesses (more than>) 80 years
 FY 2018-19 Tax rate 0- 5,00,000 Nil 5,00,001- 10,00,000 20% 10,00,000 Plus 30%
##### Corporate Assesses – Tax
Excise Duties :
 Category Comments Excise duty on Petrol and Diesel Changes in Basic Excise Duty on motor spirit (petrol) and high speed diesel oil (effective from February 2, 2018) Categories Existing Rate / litre Revised Rate / litre Unbranded Petrol 6.48 4.48 Branded Petrol 7.66 5.66 Unbranded Diesel 8.33 6.33 Branded Diesel 10.69 8.69 > Additional Duty of Excise (Road Cess) of INR 6 per litre on motor spirit (petrol) and high speed diesel oil will be abolished upon enactment of the Finance Bill, 2018. > Road and Infrastructure Cess levied on petrol and high-speed diesel at INR 8 per litre. > Upto the enactment of Bill, levy of road cess has been exempted on domestically manufactured and produced petrol and high speed diesel. Other exemptions The following products are exempt from Road and Infrastructure cess subject to payment of appropriate excise duties on petrol and diesel and GST on ethanol or bio- diesel used for making such blends. (i) 5% ethanol blended petrol. (ii) 10% ethanol blended petrol. (iii) Bio-diesel, up to 20% volume.

Service Tax :

 Category Comments Retrospective exemptions granted >> Life Insurance services provided to Coast Guard personnel by the Naval Group Insurance Fund (for the period 10 September 2004 to 30 June 2017) >> Services by Goods and Services Tax Network to Central Government, State Government or Union Territories (for the period 28 March 2013 to 30 June 2017) are proposed to be exempted from service tax. >> Government‟s share of profit petroleum on services by Government by way of grant of license or lease to explore / mine petroleum crude or natural gas or both (for the period 1 April 2016 to 30 June 2017). >> Refund can be claimed within 6 months from enactment of the Finance Bill, 2018.
Customs Duty :
Compile by NMR & Associates Chartered Accounts
For any information/assistance Contact: CA. NAGARAJ MUTT RACHAIAH

e-Mail ca.rajmrn@gmail.com | nmrandassociates@gmail.com

Cell: +91 9980 662 817 | Phone +91 8023 464 517

## Home Loan For Women Borrowers

Loan for women borrowers– new focus area of banks/ financial institutes.

Home loans have become a popular way for the buyers to buy a new house; however, it has been observed that lately there has been a rising inclination of banks/financial institutes to motivate home loan for women. Successive measures by government and banks to encourage women empowerment and including women in all spheres of financial decision is a step in the direction of making women financially secure.

###### Some basic documents and criteria of loan for women borrowers:
• Loan application form
• Passport size photographs
• ID proof like voter ID, PAN Card, Adhar Card Driving Licence
• Residence Proof like utility bills (electricity, telephone, water etc.)
• Those women who are not salaried employees, they need to submit business address proof
• Bank statement of last six months
• Completed loan application
• Passport size photographs
• Proof of identify (photo copies of Voters ID card/ Passport/ Driving licence/ IT PAN card)
• Residence proof (photo copies of recent Telephone Bills/ Electricity Bill/
• Property tax receipt
• Personal assets and financial liabilities statement
• Details of other loans if any
• A woman must be either the sole applicant or a co-applicant.
• The property for which then loan has to be sanctioned should in the name of the woman applicant or she should be the first owner.

Special bank accounts for women, concessional rates and special loans for women borrowers, all directed in the direction to motivate women home buyers.

###### Let’s have an understanding about thespecial privileges that a woman home loan borrower getsfrom the bank / financial institutes :
• Lower interest rate – The rate of interest levied on a home loan by banks or financial institutes is lower for women. It is lower by atleast 0.05%. For example : SBI has the scheme of HER GHAR, HDFC has scheme of WOMAN POWER
• Better probability of home loan application being accepted – Under the guidelines of Pradhan Mantri Awas Yojana, preference is to be given to women. Widows, single working-women, persons belonging to scheduled castes and scheduled tribes, backward classes, differently abled and transgender people will be given preference. Women borrowers are perceived as less risky by banks and HFCs and hence they hold a better chance of getting their loans approved. Banks do consider other factors like credit score and documents before approving the home loan.
• Lower stamp duty charges – In some states, if a property is bought in the name of a woman, the stamp duty levied is lower compared with what’s applicable for a man. For instance, in New Delhi, a woman has to pay 4% stamp duty compared with 6% for a man. This is also true in case of conversion of a property from leasehold to freehold, and in case of gifts.

One of the conditions as eligibility criteria for many banks for loan approval is presence of home loan co-applicant. Co-applicant is basically a person who acts as a guarantor and shares equal responsibility of repaying loan as the main applicant. Banks nowadays are insisting on having a co-applicant without educating the customer about its repercussion and legal liabilities. In case of women borrowers having a co-applicant increases your eligibility to avail high amount of loan but at the same time this can pose a few risks like:

• Dispute between husband and wife – In cases where you have your spouse as a co-applicant but not the co-owner, you can face the problem of repayment of EMI. This is applicable vice-versa. Any kind of dispute in the future leaves the co-applicant male or female in a mess.
• Asset risk of the co-applicant – In case the primary applicant fails to repay the EMIs, the burden falls on the co-applicant. Whether you are the co-owner or not you have to repay the loan.
• Reduced credit eligibility- Being a co-applicant reduces your credit eligibility up to 50% which may impact your future loan applications.

Although, being a co-applicant poses some disadvantages it has some benefits too like:

• Eligibility for higher amount – Having a co-applicant makes you eligible to apply for home loan of a bigger amount.
• Tax Benefits –As per Income tax Act, 1961, you reap the tax benefits. Joint ownership can be beneficial if both the spouses take home loans as each can claim tax deduction for the interest paid on loan.

Note : It depends on the mutual understanding of the applicant and co-applicant; however, there is a legal way out for it. You can sign a document which clearly shows the liability of both and this can be executed on a stamp paper and should be notarized.

Loanyantra special cutter pack of home loan for women borrowers:

There are many companies offering loan for women borrowers but it is important that you are through with the legal aspects of the home loan. Loanyantra is a one stop shop solutions for your entire home loan requirement. You can easily connect with us and we suggest you how you can reap the maximum benefit out of the special home loan schemes for women. Moreover, Loanyantra also offers a discount of 0.01% on the home loan interest rate which is a discount on the bank / financial institutes interest rate.

Plan your home loan well and close it early. Get in touch with us today.