I have some queries regarding income tax deductions based on housing loan. I have taken a housing loan for a house that will be completed by February 2008 end. I have paid Ppre-EMI till November 2007 and EMI has started from December 2007 onwards. I will be letting the house on rent from March 2008 onwards. That means I am eligible for the deductions based on the interest paid on my housing loan this year. There is no limit for this deduction i.e. I can claim deductions beyond Rs.1,50,000. Pre-EMI interest comes to around Rs.1,72,000 in current year and Interest component in EMI comes to around Rs.51,000. That means, I can claim deduction up to Rs.2,23,000. Also I can claim deduction on HRA. Please correct me if I am wrong.

I had taken a home loan from ICICI Bank in December 2007 at the rate of 9.25%, for 228 months. In April 2008, interest rate changed to 10.75% which again changed to 11.75% in May 2008. Earlier when the bank sent repayment schedule it showed - for Rs. 7463 paid as EMI - Rs. 1296 paid towards the principal component of the loan and Rs. 6167 paid towards interest. Now the bank repayment schedule shows a principal payment of Rs. 539 and Rs. 7780 as interest. I don’t understand how principal can be less than interest. For financial year 08-09, the total interest paid comes as Rs. 92,468 and principal is only Rs. 6504.

Is this correct or is the bank fooling me? If it is correct, then please explain me how.

Increasing costs of steel and other such inputs have already led to an increase in car prices. Add to that the sky-rocketing fuel prices and owning a car becomes bloody expensive.
What about those who already own a car, especially the ones who have bought them on loans? Rising interest rates have had a greater impact on these borrowers in terms of the increase in EMIs. The slack in the job markets, stop on salary increases…mounting pressures of inflation on expenditure… All these mean that a lot of borrowers are moving from being car owners to car loan defaulters.
Wait, this isn’t over.
Banks seem to be taking to tougher recovery measures. On the other hand, the Supreme Court extended the deadline on repossessing and selling defaulters’ cars to three months from the erstwhile 24 hours deadline.
These developments have had a two-pronged impact on the sector: lenders have made lending norms stricter and old car prices have dropped.
Finally the good news - old car prices have dropped by 15 to 25 per cent. About a quarter of the cars in this market are repossessed cars. Borrowers who can get a loan can get good cars at cut rates. They could also vie for a luxury car as these prices will see steeper falls.

Interest rates on loan can be changed, easily. Just read the agreement.

In case of floating interest rates, take rate change for granted. I read a clause in a home loan agreement of one of India’s largest private sector bank. The clause is that this rate of interest is linked to what is known as its Floating Reference Rate (FRR). And, the bank holds the right to change it at its sole discretion. The bank also holds the right to increase or decrease the EMI at its sole discretion. It’s called adjustable interest rate anyway!

What about fixed rates? I have read that banks do offer something called a fixed rate but then there is a rest clause attached to it. In the agreement terminology, it is known as “Fixed rate of interest with money market conditions.” (This is how ‘fixed’ your interest rate really is). The clause in the agreement goes something like this:

“From time to time, ___ Bank may, in its sole discretion, alter the rate of interest suitably on account of change in ___ Bank’s internal policies or if unforeseen or extraordinary changes in the Money Market Conditions take place during the tenure of the Facility. Thenceforth, the rate of interest varied as aforesaid shall be applicable to the Facility.
___ Bank shall be the sole judge to determine whether such conditions exist or not. If the Borrower/s is not agreeable to the revised rate by ___ Bank then within fifteen (15) days of the receipt of the notice from ___ Bank intimating the change, the borrower (s) shall be entitled to ___ Bank to terminate the Facility and prepay Facility and all the amounts due to ___ Bank in full in accordance with the provisions of the Facility/Agreement relating to prepayment.”

Basically, the bank allows it unlimited wriggle room to increase rates as and when they damn well please. Not that they do that, but they have legal immunity built in because of the clause.

For some of us, who have seen the recently released movie EMI, newspaper reports about recovery agents may seem to be some sort of a controversy set to malign the profession and the banks involved. ‘Sattar’ in the movie might as well be confused with some angelic figure; falls in love with a debtor, Prerna… bye bye Prerna’s debt…

In real life, recovery gents, the process, and the very fact that you are a defaulter can be a serious pain in the posterior.

How do banks recover loans?
Banks have appointed special recovery agencies for loan recovery. These agencies could be either on contract or commission.
Some banks may start the process of loan recovery after a single defaults, other may wait for at least two such instances. The process begins with calls to the borrower. And, what follows is the field recovery process, which involves face-to-face interaction.

Are there any rules for recovery agents?
We have read countless newspaper reports about how the recovery agents come to a defaulter’s house or office at all god-forsaken hours. A bank’s representative is to contact the borrower between 7 am and 7 pm, unless one needs to visit a borrower at odd hours and occasions such as continuous irregularity in the accounts.
Agents also should avoid making calls or show up to meet the person concerned on inappropriate occasions such as mourning in the family or such other occasions for making calls/visits to collect dues.

The agents are required to carry proper identification and carry the concerned bank’s or agency’s authority letter. The agent should display the letter as and when required.

Before the recovery agent is sent across, the bank needs to have given sufficient notice (as prescribed by law) to the borrower before the filed recovery process is initiated. These are just a few of the guidelines.

Notorious Fame
What is it that the ‘agents’ are famous for?

Most agents are known to threaten people and verbally abuse and threaten the defaulters, despite bank’s directions. Some may threaten or actually use third-degree treatment on the borrowers.

Lucky, a recovery agent from Delhi told CNN-IBN in an interview that some recovery agents not only used lathis for recovery, but also their Mausers. These agents may stop a defaulter’s car on gunpoint and beat him up.

These recovery agents are not on any bank’s rolls but stand to get a hefty cut of booty they help recover.

Another recovery agent decided to take law in his hands and turned robber to recover the loan. In September 2008, in Pune, recovery agent Nitin Narayan Chavan robbed Gita Buremukla (25) of jewelry worth Rs 35,000.

This HSBC Bank recovery agent met Buremukla and informed her that there was a loan outstanding. She informed him that the person who had taken the loan no longer lived on the address, a Mr. K. Rambabu.

That didn’t satisfy the agent. The agent came back the next day to Buremukla’s house and entered it on the pretext of drinking some water. Note, recovery guidelines say that the recovery agent can’t gain forceful entry into a defaulter’s house.

Chavan locked the main door and threatened Gita with a knife and forcibly took her mangalsutra worth Rs 35,000.