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Rate cut fails to cheer markets, RBI caution on growth worries investors

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Indian stock markets closed lower on Friday dragged by financial heavyweights, as the Reserve Bank of India’s (RBI) surprise rate cut and extension of moratorium for borrowers failed to cheer investors.

The BSE Sensex ended at 30,672.59, down 260.31 points or 0.84%. The Nifty closed at 9,039.25, down 67 points or 0.74%.

Investors remained worried after the RBI governor Shaktikanta Das cautioned about the macroeconomic impact of coronavirus outbreak adding that ‘risks to growth are acute’. Weakness in global markets also weighed on the investor sentiment.

The RBI slashed repo rate by 40 basis point to 4% and adjusted the reverse repo rate to 3.35% from 3.75% to spur economic growth in the country. Given all these uncertainties, gross domestic product (GDP) growth in 2020-21 is estimated to remain in negative territory, with some pick-up in growth impulses from second half of 2020-21 onwards, said Das. “The monetary policy committee (MPC) is of the view that that macroeconomic impact of the pandemic is turning out to be more severe than initially anticipated,” he said.

Analysts said that the fact that the central bank has refrained from giving a gross domestic product (GDP) growth figure is a reflection of the complexity in giving projections with the present growth models. A takeaway from the policy announcement is that the stress in the banking sector will continue, they feel.

Abhimanyu Sofat, Head of Research, IIFL Securities said, “The commentary of the governor speech underpins the low prospects of a V shaped recovery. RBI commentaries indicate the stress in the economy on both demand and supply is likely to continue. We also believe government should provide subvention on existing loans or bear some cost of the haircut of existing loans. This would ensure more confidence to banks to lend to lower rated entities or individuals.”

There is also a widespread growing worry that transmission of lower interest rates is unlikely to be over soon as overall financial condition remains compromised with majority of economy grappling with supply-related issues.

Prithviraj Srinivas, Economist, Axis Capital believes rising risk perception is holding back monetary transmission and hence rate cuts will not be effective. “Excess liquidity in the banking system and fall in money market rates and some lending rates are not the barometers of improving financial conditions in this situation. Liquidity needs to reach every part of the economy even when it has become difficult to distinguish between good credit and bad credit. We believe that the RBI/public sector will need to stand ready to become lender of last resort, not just for banks, but all financial institutions,” he said.

Bank stocks were worst hit in trading session on Friday due to rising fears that RBI’s extension of loan moratorium to another three months will be a burden on balance sheets of banks. The RBI also announced a slew of other measures to ease stress in the financial sector and real economy.

According to Navneet Munot, ED and Chief Investment Officer (CIO), SBI Mutual Fund, credit spreads are highly elevated but they also reflect the economic uncertainty and constraints in the financial system. He feels that the equity markets in near term will continue to be driven by cues from global markets and the evolution of health crisis and economic situation.

Sovereign bonds saw a jump after rate cuts announced by RBI. The yield on the most-traded 2029 bonds dropped seven basis points to 5.96% at the close. The Indian rupee lost 0.44% to end at 75.96 against dollar.

Meanwhile, markets in other Asian region weakened with deep cuts in Hong Kong. Markets in Hong Kong slipped nearly 6%. China is poised to impose a new national security law on Hong Kong after months of anti-government protests in the Chinese-ruled city. There are concerns that China may be tightening its grip on Hong Kong and it may trigger another wave of pro-democracy protests. The draft law was announced at the annual National People’s Congress (NPC), the Chinese parliament, which kicked off on Friday. Markets in China, Japan and Korea were down over 1%.

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Martin Lewis issues guidance on using credit cards to build ratings – best deals | Personal Finance | Finance

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Martin Lewis regularly urges savers to use caution when utilising debt themed products but at the same time, he acknowledges the need for a decent credit rating to get by financially. Today, the Money Saving Expert was questioned by viewer Miranda on how one can build their credit rating in difficult circumstances.

“What I’d then like you to do is go and do £50 a month of normal spending on it, things you’d buy anyway.

“[Then] Make sure you pay the card off in full every month, preferably by direct debit so you’re never missing it because the interest rate is hideous.

“That way you won’t pay any interest.

“You do that for a year, you’ll start to build that credit history, showing them you’re a good credit citizen.

“Then you’ll be able to move into the sort of more normal credit card range.

“So, bizarrely, to get credit you need credit. What credit will you get? Bad credit, go get the bad credit just make sure it doesn’t cost you.”

Consumers of all kinds may not have the best options at the moment as recent analysis from moneyfacts.co.uk revealed.

In mid-November, they detailed that a number of high street banks have cut the perks and interest on a number of their current account deals.

On top of this, the Bank of Scotland and Lloyds Bank made credit interest cuts of up to 0.5 percent.

Rachel Springall, a Finance Expert at moneyfacts.co.uk commented on the few options consumers and savers currently have available: “Clearly, it is vital consumers decide carefully if now is the time to switch, but if they wait too long, they may well miss out on a free cash switching perk.

“At present, providers will be assessing how they can sustain any lucrative offers in light of the pandemic.

“With this in mind, we could well see more changes in the months to come and if this does indeed occur, consumers would be wise to review whether their account is still worth keeping.”



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Should you use a balance transfer to pay off debt?

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Should you use a balance transfer to pay off debt?
Image source: Getty Images.


A balance transfer might be the solution if you have debts and want to gain control over your finances. But whether a balance transfer is right for you will depend on a number of factors.

Things to consider before using a balance transfer

The size of your debt

If you want to apply for a balance transfer credit card, be aware that most providers will allow you to transfer up to 90% of your credit limit.

Your credit limit will be dependent on your own personal circumstances, including your salary, your credit history and your residential status (homeowner or renter).

Be realistic about your debt. For example, if you earn £25,000 per year and you have a debt of more than £15,000, a balance transfer might not be cheapest way to pay the debt.

The time taken to pay the debt

The main advantage of a balance transfer credit card is that many offer an interest-free period on the balance. So, if you can pay off your balance in that period, you won’t accrue any further interest charges.

However, these periods typically range from 18 to 24 months, so if you think you will need more time to pay the debt, you may need to factor in additional interest charges when the interest-free period ends.

Whether or not a balance transfer is the right debt payment solution will depend on your personal circumstances. Check our balance transfer calculator if you want to work out how much a balance transfer could save you in interest payments.

Your credit score

The advantage of a good credit score cannot be underestimated in this situation.

When applying for a balance transfer credit card, the company will check your credit score. Based on this score, they could refuse your application.

Even if you are accepted, if you have a bad credit score they could reduce your credit limit. Ultimately, this will determine the benefit of a balance transfer as a suitable debt payment solution.

If you think your credit score might be a problem, it’s worth checking with the credit reference agencies before applying. That way you can avoid any nasty surprises.

There are three main consumer credit reference agencies in the UK. They are Equifax, Experian and TransUnion (Noodle).

Alternative solutions to balance transfers

You could still use a balance transfer even if the size of your debt is bigger than the credit limit.

Transferring part of the debt would enable you to benefit from any interest-free period, where applicable.

Alternatively, if you have multiple debts, you could consolidate all of your debts so that you can make a single regular payment. If necessary, you could do this using an unsecured personal loan over a period longer than 24 months.

Take home

Look at your own personal circumstances with a critical eye. Remember that you need to factor in living expenses when thinking about how long it will take you to pay off your debt.

Balance transfers are a useful method for debt repayment, but be aware that credit cards are an expensive way to borrow money. Take full advantage of any 0% deals wherever possible. Check out our list of the best 0% credit cards.


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Turn credit declines into a win-win | 2020-11-20

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The pandemic has left millions of people needing credit at a time when lending standards are tightening. The result is a lose-lose situation—the consumer gets a bad credit decline experience and the credit union misses out on a lending opportunity. How can this be turned into a win-win?

The case for coaching

Let’s start by deconstructing the credit decline process: The consumer is first encouraged to apply. The application process can be invasive, requiring significant time commitment and thoughtful inputs from the applicant.

After all that, many consumers are declined with a form letter with little to no advice on actions the applicant can take to improve their credit strength. It is no wonder that credit declines receive a poor Net Promoter Score (NPS) of 50 or often much worse.

On the flip side, forward-looking credit unions provide post-decline credit advice. This is a compelling opportunity for several reasons:

  • Improved customer satisfaction. One financial institution learned that simply offering personalized coaching, regardless of whether or not consumers used it, increased their customer satisfaction by double digits.
  • Future lending opportunities. Post-decline financial coaching can position members for borrowing needs even beyond the product for which they were initially declined.
  • Increased trust. Quality financial advice helps build trust. A J.D. Power study noted that, of the 58% of customers who desire advice from financial institutions, only 12% receive it. When consumers do receive helpful advice, more than 90% report a high level of trust in their financial institution.

Provide cost-effective, high-quality advice

AI-powered virtual coaching tools can help credit unions turn declines into opportunities. Such coaches can deliver step-by-step guidance and personalized advice experiences. The added benefit is easy and consistent compliance, enabled by automation.

AI-based solutions are even more powerful when they follow coaching best practices:

  • Bite-sized simplicity. Advice is most effective when it is reinforced with small action steps to gradually nurture members without overwhelming them. This approach helps the member build momentum and confidence.
  • Plain language. Deliver advice in friendly, jargon-free language.
  • Behavioral nudges. Best-practice nudges help customers make progress on their action plan. These nudges emulate a human coach, providing motivational reminders and celebrating progress.
  • Gamification. A digital coach can infuse fun into the financial wellness journey with challenges and rewards like contests, badges, and gifts.

Virtual financial coaching, starting with reversing credit declines, represents a huge market opportunity for credit unions. To help credit unions tap into that opportunity, eGain, an award-winning AI and digital engagement pioneer, and GreenPath, a leading financial wellness nonprofit, have partnered to create the industry’s first virtual financial coach. To learn more, visit egain.com.

EVAN SIEGEL is vice president of financial services AI at eGain.

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