Gayatri Verma & Saumya Rana

New Delhi, June 21:Srijesh Nair, Quality Manager at software firm Adobe for the last four years, has no savings today and, in fact, earns just enough to repay his Rs 17-lakh home loan and retain his four-year-old standard of living.

Despite a 10-15 per cent hike in salary, the sharp price rise (inflation at 9 per cent), increased family commitment (a seven-month-old child) and a dramatic spike in home loan interest rates in the last two years, have just about ensured that he stays afloat.

“For the next couple of years, life will be all about pre-paying the loan,” Nair says, who is aggressively liquidating all assets — employee stock options and market investments — to prepay his loan. “I have realised you must take a loan only if you can repay it in five years. Or, you are better off paying rent.”

He is not alone in the ever-increasing swell of salaried urban Indians — about six million and growing by the day — who have been the most hit, not just because of rising prices or inflation at 11 per cent but the higher interest rates and the demands of their improved standards of living. Unlike farmers who get a loan waiver, Nair and his likes are not seen by the political establishment as the aam admi, left to themselves to wage their relentless battle. They are victims of a political establishment still not waking up to the reality of a changing India in urban centres across the country.

Nair had to hardly hunt for a loan.

He was swamped by banks with discounts on prevailing floating rate interest rates. But the tight monetary stance of the Reserve Bank of India over the last three years and the Government’s inability to keep prices stable have dealt Nair — and lakhs of borrowers like him — a double whammy. According to Finance Minister P Chidambaram, four-fifth or 80 per cent of the total number of six million borrowers have taken home loans of under Rs 20 lakh. While the annual income levels of such borrowers are not available, they presumably fall under the Rs 5-10 lakh annual income category given the size of their loans.

Nair, whose annual income is Rs 14 lakh a year, took a Rs 17 lakh home loan from HSBC at a floating rate of 8.35 per cent in February 2006 for a two-bedroom flat in Ghaziabad, where prices had already more than doubled in the previous three years. His equated monthly instalment worked out to Rs 17,000 for 15 years. He liquidated part of his stock options, sold his mother’s old house and together with the Rs 17 lakh loan bought the flat for Rs 23 lakh.

The last two years or so have not been particularly easy for the country’s central bank too. To keep inflation and inflationary expectations at bay, it raised the cash reserve ratio (the amount banks have to keep with the RBI) by 300 basis points to 8.25 per cent now between January 2006 and June 2008. It also had to raise the repo rate (the rate at which banks borrow from the RBI), that signals bank to increase lending rates, to 8 per cent now.

In tandem, HSBC increased the home loan rate by 175 basis points to 11.10 per cent till March 2007. It informed Nair that given the home loan rate hike, he could either increase his EMI by Rs 2,000 to maintain his loan tenure or live paying loans for a couple of extra years. Like most borrowers, Nair has not checked the latest on his home loan rate.

Such monetary tightening has had a larger impact on the housing loan market too. The young urban Indian — who was in the last 10 years fulfilling the dreams of his father who never owned a house — suddenly found it far too difficult to take loans at expensive rates. As a consequence, the growth in loans extended by banks to housing more than halved to 12 per cent in 2007-08 compared to a 25 per cent growth in the previous year.

In 2007-08, housing loans by banks were about Rs 26, 930 crore.

Nair went into an overdrive and sold much of his stock options and other market investments to prepay a chunk of his home loan. Today, his outstanding has shrunk to Rs 9.35 lakh, but on the flip side, he says, their family does not have a back up plan even if Rs 50,000 was needed in an emergency. During his two-year loan tenure, the Nairs had a child — seven months now — and are learning to live with higher food and grocery prices.

Inflation has hit double digit rates and is over 11 per cent now. “The rise in prices over the last two years has increased our household budget by almost 25 per cent,” says Nair. He has sold off his car and thankfully, the company has built in a component in his total costs and given him a car. “I would love to save on my fuel costs, but where is the public transport in Ghaziabad?” he says.

The Nairs have not come to a situation where they have to drink hot water instead of tea. “But, if rates go up further...” That they certainly will, given that the finance minister has already said stronger monetary measures would be taken to rein in prices. Nair is thankful that his child is still too small and he does not have to worry about nursery and school expenses. “But we are definitely not in a position to plan for the future. This is really a totally helpless situation.”

Not all are aggressive planners such as Srijesh Nair.

(Tomorrow: A Company Secretary will pay EMIs on a loan taken in 2004 till he is 70 or till 2044)!

editor@expressindia.com

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