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Recent Events Held : REPORT OF SEMINAR ON "CONSUMER FINANCE – EMI AND OTHER MATTERS" HELD ON JANUARY 6, 2005 AT 6.30 P.M. At BABUBHAI CHINAI COMMITTEE ROOM OF IMC.
Mr. V. B. Haribhakti President, CFBP welcomed the gathering and commenced the proceedings of seminar. In his address he elaborated about the multifarious activities of CFBP. He also stressed on the importance of Social Responsibilities of Business. He also informed the gathering about the CFBP– Jamnalal Bajaj Awards Function to be held on January 21, 2005 and Mr. Viren J. Shah, Former Governor of West Bengal will grace the occasion as a Chief Guest. The floral bouquets were presented to the speakers as a token of appreciation from CFBP by the President.
In his address Mr. Subash Chander Gogia, Hon. Secretary & Chairman Programmes Committee elaborated about the objectives of CFBP behind organizing the series of programmes. He stressed on the concept of the Consumer Awareness and Education and also requested the audience to join CFBP.
Mr. Gogia then introduced Mr. Suresh Menon, General Manager, HDFC Bank Limited and requested him to commence his presentation. Mr. Menon clarified several Financial Terminologies and enlightened the gathering about the calculation of EMI. He commenced his presentation stating the concept of EMI i.e. (Equated Monthly Statement) which is very famous now a days. He further stated that there are two elements in EMI namely Interest and Principle. He then gave details about the Standard Discounting Formula for calculation of EMI.
Where p = principal (amount of loan), r = rate of interest per installment period, i.e., if interest is 12% p.a. r = 1, n = no. of installments in the tenure, ^ denotes whole to the power. He also clarified that there are two methods of deciding the date for payment of EMI. In the first method the EMI is payable on the first date of every month. If Loan is given after first day then lending Institutions are charging “Pre EMI interest” before commencement of EMI for the Broken Period. The other method provides payment of EMI on the issuing date of Loan. In which case the EMI is payable on the same date every month. But if the loan is sanctioned on 25th of the month then the EMI is payable on the 25th of each month which may be inconvenient for the salaried people. And hence it is less popular method of payment of EMI. He
then clarified the concept of ‘Rest’. He stated that
it is a Financial Jargon. It is a periodicity by which the principle
amount is reduced. There are three types of rest namely
Mr. Menon then explained the rate of Interest charged on loan. He stated the concept of Fix and Floating rate of Interest. He stated that the rate in case of Floating rate is fixed for the initial period and it is reviewed and changed according to the market conditions periodically. He said that there are three main components of the rate, which are i) Index ii) Spread and iii) Review Period. One should always check for these three things. He then explained the components : i. Index : He said that it is the benchmark, which determines the rate of interest to be charged on the loan. Normally PLR (Primary Lending Rate) of Banks is used to price the loans. The PLR should be informed to the consumers. There should be transparency between consumers and the lending institutions. In India the PLR is internal and normally not communicated to consumers. Again we cannot have common benchmark due to differences in the regulatory compliances. For e.g. If the PLR is 10% then the interest rate may be 8%. ii. Spread : Spread is the difference between year rate and PLR (Index). Spread could be positive and negative. For e.g. if PLR is 10% then the difference between PLR and the rate of Interest i.e. 8% = in this case the spread will be 2%. iii. Rate review period : Normally the rate is regularly reviewed every three to six months. Normally the date of review is fixed (i.e. at the beginning of every quarter of the financial year) Otherwise the rate is reviewed quarterly after sanctioning the loan. He further stated that the Fixed rate of interest on loans is fixed for the entire repayment period of loan. And there is no change in the rate of interest. But now a days the leaning institutions inserting a clause in the contract for change in rate of interest and amend the policies. While concluding his presentation he thanked the CFBP for inviting him to enlighten the gathering on the issues related to Loans and EMI.
Mr. Gogia then introduced Mr. Vivek Patki, eminent consumer activist and requested him to address the gathering. Mr. Patki in his address pointed out the pitfalls in the system. He stated that the time has changed, earlier the Consumers used to approach banks to get loans sanctioned, now a days banks are offering loans to consumers with massive telemarketing. He also stated that consumers should take loans for necessities and not for luxuries. He also stated that one has to be careful while taking loans. He has pointed out certain issues faced by the consumers i.e. i.
Lack of transparency Both the Speakers satisfactorily answered queries raised by the audience. Mr. Bhanu Vakil, Hon. Treasurer, CFBP gave Vote of thanks and expressed his gratitude towards speakers, sponsors, representatives of various newspapers - News Channels and the distinguished audience for attending the seminar. An information booklet on Loan / EMI was distributed to the audience at the end of the seminar. |
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