Tuesday, May 9, 2017

Catastrophe of bank interest rates – 10

Continued from the previous post –
Transport – borrowers from this category borrow mostly to purchase a vehicle. They ply that vehicle and charge for the transport. They earn on mileage. Their margins are over and above the cost of running (fuel, maintenance) around 25% or more depending upon what quality of transport it is. If they get good business in one year, they can repay the loan. They are likely to suffer if there is no business due to market conditions. Interest rate of 15% is no issue to this category when they are busy with work.
Personal loans – this is a third category in this category loan money cannot earn back its own return. These loans are normally taken for sickness, surgery, repairing of house, buying of home and such personal needs are included. To pay back it and its interest borrower has to arrange for money from some other source. Unlike other types, this loan is a liability on the borrower. Other types can arrange to earn back its money as well as its interest if worked properly. Therefore, those loans are not liability to the borrower. People buy apartments for residence and they take loan from banks for that purpose. This type comes in same position as depositors since both come from common person category. Many agencies try to justify lower interest rate for this category by giving excuse that they are common persons and not having much capacity to afford higher rates of interests. However, when we observe the rents on the apartments, we find that the rent is similar to EMI that they pay at higher rates (15%). Quite often it is justified that taking loan for the apartment is like taking it on rent for particular period and after that the flat becomes your. Therefore, this rate of interest cannot be considered as high. All sympathy for borrowers is shown because their lobby is strong. Depositors having no proper lobby are at the receiving end all the times.
When loan taken for health treatment they have to pay back that loan from other source. Therefore, for such loans a small reduction in interest rate may be allowed on humanitarian grounds provided depositors approve of it. If that person has insurance facility that insurance may be able to take care of that interest and help the borrower. Banks are not charitable institutes. They are in business of lending and that they should do earnestly and honestly. We cannot expect them to be generous on such lines. They must look after the depositors first and so to my opinion no need to reduce any interest on such loans. Today we notice that depositors are taken for granted and any amount of exploitation of his funds has become a right of money lending authority.
Continues in the next post –
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