This story is from June 1, 2006

Personal loans come to the rescue

SRIKALA BHASHYAM / TNN / Jun 1, 2006, 01:55 IST

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Bankers on their part say there has been a sharp rise in their personal loan portfolio with some of the private banks recording a 50% jump in disbursements.

BANGALORE: Ajay Singh has just applied for a Rs 10 lakh personal loan. No, it is not for an exotic holiday or to pay margin money for a property. He has asked his bank to disburse the loan quickly so that he can pay up his broker.
Just a month ago, Singh had invested Rs 15 lakh in the stock market - hoping to reap a profit of at least Rs 5 lakh. Sadly, he is now staring at a loss of Rs 10 lakh.
28-year-old Kiran began investing in equity only in October last year.The proverbial beginner's luck helped him earn Rs 25,000 in just two months.
In April, he got more adventurous and took an interest-free loan of Rs 60,000 offered by his credit card company. The loan was only for three months without interest, but Kiran was confident of paying back from the rewards of investing in the market.

But the May market mayhem delivered a nasty shock. Kiran's portfolio took a 55% hit. Now if he doesn't pay up, his loan will start mounting as interest would be charged at 35% after the initial period.
Kiran feels the long-term fundamentals of the market is still intact and it's just a matter of time before the sensex starts climbing. But in the short term, he needs Rs 2 lakh to hold on to his investments.
With the sensex refusing to reverse its downward journey, stock market investors are knocking on the doors of banks to cover their losses. In some cases, they have been pushed to postpone bigger plans.

Anitha, for instance, had almost finalised a land deal for Rs 9 lakh and was set to withdraw her mutual fund investments for the purchase. But the market crash shaved off Rs 5 lakh from her savings, forcing her to postpone the land purchase.
Bankers on their part say there has been a sharp rise in their personal loan portfolio with some of the private banks recording a 50% jump in disbursements.
According to an HDFC Bank source, the average loan size has been around Rs one to two lakh and the interest rate is 12-14%. "Only a few have stated the reason for their borrowing, but the market crash seems to be the main driver as this is not even festive season," said an official at a foreign bank.
While brokering houses too provide funds as margin money to clients, the interest rates charged are 3-6% higher than personal loans. But the market crash has put many of these brokering houses also in serious financial trouble.

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