LoanRaja Blog- Personal Finance Guide

Tips for building loan portfolio and portfolio management- irrespective of the economic situation or income levels, loans have become an integral part of our lives. Here are some tips for building your loan portfolio.

This New Year build you loan portfolio by bringing renewed hope for fresh plans on all fronts, whether it is to become to be a proud owner of a house, a car or to take a personal loan to meet some other expense. Here, we present some options for your different loans with different strategies suitable for your loan portfolio management.

Why loan portfolio management is important? On the general economic outlook, the Government of India’s Mid Term Review has been comforting. Inflation is down to 7 percent (Dec 2008) and is expected to fall further to 4-5 percent by March 2009. A GDP growth of 7 percent has been predicted. One thing to be kept in mind to build your loan portfolio is that banks have started to slash Prime Lending Rates. However, there is still a need for great caution while taking loans and precautions need to be taken for portfolio management.

Portfolio Management is important considering today’s scenario. In the home segment, buying a house right now looks attractive – if you are looking in the sub Rs 20 lakh range. It is not just public sector banks, housing finance companies and private banks have also slashed rates for this segment. Property prices are falling on the back of last year’s oversupply situation and one can expect new affordable home projects to be launched. Due to this loan portfolio or portfolio management for those in the higher range, it would be advisable to wait for interest rates to fall further, as a result of the monetary measures announced by the Government. However it may take up to six months for any effect of these measures to be felt.

One thing is certain, this year a floating interest rate will be more popular than a fixed one, going by the southward trend in interest rates. As a corollary to falling inflation and the Government’s fiscal measures, one may expect interest rates to go down further -– at least in the next six months — in which case it makes sense to opt for a rate structure that will keep changing with changes in rates. Moreover, it is good to remember that even the “fixed rates” are not always fixed, and the fine print allows the bank to increase rates.

The best argument for buying a car this year is the falling prices of cars. Car manufacturers have announced price cuts, following the cut in Cenvat. Auto loans, like all other loans are set to become cheaper. Unlike home loans, car loans are not flexible to interest rate changes and hence, the rate continues to be same during the tenure of loans. Hence, if you can postpone your buying, you would be better off. Cautious advisers would hold on for some more time, in expectation of further price cuts, considering that auto companies have an inventory build up. For now, consumers can drive as hard a bargain as they wish.

How does loan portfolio management help in personal loans?– the loans that you take to finance a holiday, a wedding, a refrigerator, a medical emergency or to pay off credit card bills – is best avoided. At one time, personal loans were disbursed freely for the asking, part of the reason for a high rate of defaulters. From around September last year, banks practically stopped giving out personal loans and adopting more stringent criteria for lending. Interest rates on personal loans too are higher and banks have shown no signs of cutting rates on them yet. Since personal loan rates too don’t offer the advantage of any fall in future rate for existing borrowers, don’t rush for a personal loan at this juncture.

Overall, the mood is still cautious. Bankers are waiting for real estate and car prices to drop before they can see any increase in retail credit off take.

So now you know why it is worth the wait before you leap in the market. It is best to understand your loan portfolio and manage it wisely for a better future.