How credit score can impact your employment

The western economies have been considering a person’s credit profile before hiring. The companies consider a bad credit score as an irresponsible behaviour of an individual. The person’s inability to pay the bills on time shows that he is not capable of taking care of things. The companies run a credit check just like they would check for criminal history as it will affect the employer’s reputation as well.

Credit check has become a part of the background check which is done by the human resource team of the employers. A bad credit score is implied as bad intentions in general. If the applicant has ‘settled’ stated across the credit cards, then the HR tries to stay away from such candidates. It is also believed that the people in a high level of debt cannot work efficiently and therefore will not deliver the best results.

It can be argued that those who have been victims of identity theft and wrong entry in the credit report are wrongly judged. Even though this is true, the IT companies are also seen accessing the credit report while running a background check of a candidate. The list of sectors that will run a credit check keeps increasing. The best thing to do is to be aware of your credit score and thoroughly read your credit report.

It is important that you check your credit score and credit report once in a year at least. Access the credit score before you are applying for a job. Check for discrepancies and if you find any, report it to the credit bureau. Check if appropriate actions are taken with the bank and the credit bureau. This doesn’t end there, you need to follow up and see if the matter has been resolved. If this is the case, then you have a valid explanation and make sure that you bring it to the notice of the Human Resource of the company that you are applying at. This will help the Human Resource to take an informed decision rather than simply rejecting your application. 

Though the companies are referring to your credit score, it is not the only deciding factor for a person to get a job. If your credit score is good, then it is only going to improve the prospects of you landing a job that you prefer. A good credit score puts you in a good position. So, pay your loans on time and keep a tab on your credit score and fix it if they are bad. Keep an eye out for false and wrong credit information. IF you find discrepancies, report it to the bureau and take corrective measures and clear it out with the bank and the credit bureau. Follow up on your complaints and check if they have been resolved. 

Companies are now checking the Credit score and report to judge a person’s stability and efficiency. However, the reasoning is held against the victims of identity theft and if there was a wrong entry. But, then they can be resolved.

Why fixed deposits are a good choice?

FD (Fixed deposits) are the safest and simplest form of financial instruments. The interest rate on fixed deposits are higher than that offered on savings account. Some banks offer loans against Fixed Deposit Certificates at competitive interest rate. Some banks also offer credit card with the credit limit up to the amount of the fixed deposit amount. Fixed deposits are permitted for up to 10 years only. The longer the term period, higher is the interest rate provided the repo rates don’t fall. The companies nowadays offer company fixed deposits. But these are not regulated by the RBI.

Company Fixed Deposits are deposits placed by investors with companies for a fixed period of time at an agreed rate of interest. The Financial Institutions and Non-Banking Finance Companies accept the Company Fixed Deposits. They are mobilised by the government under the Section 58A. They are unsecured deposits and therefore if the company defaults, the investor cannot sell the documents to recover the capital. Thus making it a risky investment decision. Company fixed deposits are provided when the companies need cash flow but cannot issue shares, they offer fixed deposits at profitable rates. 

The yield on your deposits vary from individual to individual. You can earn higher interest than that of your colleague as u are in a higher tax bracket and the investment returns are less. You need to optimise the fixed deposits’ utilisation. It can be done through building an emergency fund by opening a fixed deposit account. The money kept aside for emergencies can also earn returns. When a person is setting up new investment base, it is advised that he open a deposit account rather than taking credit. The fixed deposit will appreciate his income potential. By investing in deposits, the individual is ensuring that he has a safety cushion of money to back him up.

When you are investing do not end up investing in high risk investments such as moving investments in equity sector, commodities or even real estate for that matter. You can instead even it out with investing in bank or company fixed deposits. If you wish to save taxes, then you can invest for fixed deposits in your parent’s names as long as they don’t have taxable income. The interest earned on the fixed deposit is tax-free for up to Rs.2 lakhs and up to Rs.2.5 lakhs if they are senior citizens. Senior citizens also earn 0.25% to 0.5% additional interest on the fixed deposits. You can also invest in your eldest child’s name and save interest up to Rs.2 lakhs as it is tax-free.

Fixed deposits also play an important role in the consolidation of investments when you approach retirement. When you are retired, you don’t really have a fixed source of income other than pension. That is when fixed deposits play a pivotal role. You can invest in fixed deposits for different tenure to meet you various financial needs in the future.

But, be very careful when you choose the bank to invest your fixed deposits in as the small co-operative banks may not be able to secure your money at the time of bankruptcy. The rule is that the bank must secure each investors for up to Rs.1 lakh per investor per bank. But, the company fixed deposits do not have any assurance as they are not regulated by the Reserve Bank of India. Keep in mind that the company fixed deposit are unsecure and you have no collateral. But since the risk is higher, the interest rate is also higher. Exercise caution before investing.

Why Non-Convertible Debentures beats Company Fixed deposit

An NCD might not ring a bell in the minds of most Indian investors but is quite popular in the western world. The concept of issuing NCD’s is relatively new to India, having been first issued by SBI in 2008-09 to retail investors. The bonds are listed on BSE/NSE retail debt terminal.

Why ncd beats company fixed deposit from Sathish Mithun

Advantages of investing in NCD’s v/s Bank/Corporate Deposits

1. ·         NCD’s are in demat form- eliminates hassle of maintenance and safety of physical certificates.
2. ·         NCD’s can be traded- The bonds issued under public offer are listed on the BSE/NSE. Absence of lock in period ensures the investor can exit before maturity.
3. ·         No TDS Deduction- Since the bonds are in demat form and are listed there is no TDS.
4. ·         Opportunity to earn profit- The bonds are listed and traded on the market, which gives an opportunity to trade and earn profits. The value of these bonds is inversely proportional to the interest rates in the economy.
5. ·         Secure- Unlike Bank deposits which can generally be insured upto a certain limit, around Rs.1 lakh in most cases, NCD’s are secure in nature.
6. ·         Pledging of NCD’s- Bonds can be pledged with banks/NBFC’s to avail a loan or overdraft facility.
7. ·         Flexibility in tenure of maturity- The tenure of NCD’s could range from less than a year to 30 years. This acts as a buffer against reinvestment risk and also offers a steady source of income through interest.
8. ·         Earn interest income till date of transaction- If an investor sells the bonds before their maturity he/she will get the accrued interest till the date of the sale.
9. ·         Multiple interest payment options- An investor has the option to choose either cumulative payment or regular payment on interest.
10. ·         No settlement risk- The transactions are confirmed off-market but are settled on the NSE/BSE platform, thus eliminating settlement risk.

Asymmetry in monetary policy transmission in India

Transmission troubles

Consider this: An annual review of the Indian economy by the IMF (International Monetary Fund) released last month reported how a repo cut announced by the Reserve Bank of India in January this year is likely to pave way for lower bank lending rates only in September 2017.

What’s more, certain studies have indicated that monetary policy in India impacts output with a lag of about 2 to 3 quarters and WPI headline inflation with a lag of about 3 to 4 quarters.

 

Caught in transmission

The long, variable and uncertain time lags in the process of money policy transmission begs the question: Does India’s monetary policy transmission mechanism leaves a lot to be desired owing to several loopholes including, but not limited to, the inordinate amount of time a repo cut leads to a lending rate cut?

Critics further argue that the studies highlight a larger issue which warrants greater scrutiny- the effectiveness of the monetary policy arrangement between the government and the RBI.

The objectives

Monetary policy transmission in India is aimed at achieving several parameters, some of which are listed below:

●      Ensure price stability

●      Expansion of bank credit 

●      Boost economic output (exports)

●      Facilitate commerce

●      Rein in inflation

Below is a list of channels of monetary policy transmission in India

Market prices	Market quantities
Interest rates	Money supply
Exchange rates	Credit aggregates
Yields	Government bonds

The ‘interest’ factor

Given that India, by and large, is a bank-dominated economy (notwithstanding the growth of equity and debt markets), several studies have indicated that interest rates are one of the strongest channels of policy transmission.

Asymmetry in policy transmission 

The aforementioned IMF report examined how pass-through to deposit and lending rates is slower in India. The report also stated that the deposit rate adjusts more quickly to monetary policy changes than the lending rate.

Banks find it tricky to cut lending rates following policy rate cuts because the cost of deposits does not adjust quickly by virtue of the fixed nature of deposit contracts. On the contrary, banks can raise lending rates, since loans can be re-priced quickly.

There is a view that small banks are more receptive to contractionary monetary policy shocks compared to big banks. Given that big banks have a large resource base including income from stock and foreign exchange markets, they are, to some extent, better equipped to deal with liquidity crunch.

Intriguingly, monetary transmission mechanism in India, is often referred to many as a ‘black box’ since many channels (interest rates, bank lending and asset prices among others) can influence the final objectives.

The complex network of financial markets and transmission lags lead to uncertainty with policy makers faced with the daunting challenge of assessing the actual impact of policy decisions on macroeconomic aggregates and economic output.

Policy decisions of the RBI to transmit through the money market to bond and asset markets (which in turn, influence savings and investment patterns) and from financial markets to labour markets (as reflected in aggregate output.)

Given that monetary policy works via financial markets (by means of interest rates or liquidity), transmission, by and large, depends on the sophistication of domestic financial markets in addition to financial integration with the real economy. Also, exchange rate regimes may influence the pass-through of external shocks on the domestic market. It has also been observed that the speed of pass-through to asset prices depends on volatility in money markets and balance sheets of banks among other factors.

End to end transmission

There is a view that monetary transmission in India is more effective in times of less liquidity i.e, the pass-through of policy rates is higher during tight monetary policy cycle owing to transmission lags. It is, therefore, argued that there is asymmetry in the transmission of policy rate changes between the surplus and deficit liquidity conditions.  While changes in policy rates are quickly reflected in money market rates and government bond yields, there is a certain degree of inflexibility exhibited by banks when it comes to lending and deposits rates.

The introduction of the Liquidity Adjustment Facility (LAF) as an operating procedure for monetary policy in the post-reform period (2000) is generally considered an important milestone. Experts believe there have been significant changes in the post-LAF period such as a marked importance of interest rate, asset prices and exchange rate channels in influencing monetary policy transmission.