Simplified Laws Guide to Taxation and Legal Concern If you ask any traditional businessman, he will out right reject the loan facility proposed by private or new generation banks. It is believed that private banks charge higher rate of interest as well as debit ‘hidden’ charges! Contrarily, the nationalized banks offer lower rate of interest without any hidden charges or ‘after shocks’
Here are three cases where the so called nationalized banks namely Vijaya Bank, Bank of Maharashtra and Corporation Bank charged interest, putting even private banks to shame!
Case 1 – We have a client who is banking with Vijaya Bank for the last 25 years. He has borrowed working capital loan of Rs.2 Crores. It was in May 2015 that Axis Bank came forward to offer working capital facility for an interest rate of 11.75%. This is when the company checked the rate of interest charged by Vijaya Bank and to their surprise the rate was 15.25%! (You may not believe, but it is true). In absolute terms, it means an excess interest payment of Rs.7 lakhs per year!
When the company approached the bank, they failed to give an explanation for higher rate! They asked the company to submit a letter and based on that letter reversed an interest to the tune of Rs.6.50 Lakhs. Not only this, they made a revised offer of 11.50% interest on working capital loan.
Case 2 – One of my friends had availed a housing loan from Bank of Maharashtra three years ago. While checking his interest statement for the FY 2014-15, he realized that the rate of interest on housing loan is 12.50%. (You may be aware that the prevailing rate of interest on housing loan is around 10%) In absolute terms, it means an excess interest payment of Rs.65000 per year.
When he approached the bank, they advised him to switch the loan to another scheme called ‘Super Housing Loan’ where the interest rate is 10.35%.
Case 3 – One of our clients borrowed Rs.1 Crore from Corporation Bank. The banker computed the EMI without considering the repayment of principle amount! They banker collected EMI for 3 years towards interest amount! The client was shocked to see the loan outstanding at the end of 3 years!
Case 4 – One of the clients paid loan processing charges of Rs.80000 for a loan of Rs.2.50 Crore in a private bank. Whereas, on a similar loan, another client paid Rs.2.26 lakhs to a nationalized bank.
So, friends, don’t have blind faith on the banker whether nationalized or private when it comes to the interest payouts! The branch manager may be very co-operative or friendly, but you have to do your homework about the cost of borrowings! There is no point in blaming or replacing your accountant for not bringing this point to your notice. What matters is the personal vigilance you have on your bank loans!
There are many new schemes for Small and Medium Enterprises, Women Enterprenuers, Subsidy on Capital Item purchases, etc. Similarly, by shifting the loan from old schemes to new schemes, one can save lakhs of rupees.
It is needless to say that the interest payment is a silent killer of your business. Every rupee you save on account of interest, processing fee, renewal fee, etc. will directly add to the bottom line of your business.
Also Read:
- Whether TDS has to be done on Interest paid to NBFC
- Housing Loan Interest Calculator – Comparison between normal housing loan and home saver account
- 9 things one should know about Tax benefit on payment of Housing Loan and Interest on self occupied property (w.e.f.Financial Year 2014-15)
- The best tool to save income tax and maximise your wealth – Home Saver Housing Loan Scheme
- Do you know you can get bank loan without collateral security?
Thought for the day
Never neglect details. When everyone’s mind is dulled or distracted the leader must be doubly vigilant – Colin Powell.
Thank you for the article.
Great blog that I enjoyed reading.