Thursday, December 25, 2008

Where is the bailout package for employees?

Governments have rushed into saving complacent and greedy Investment Banks and Housing Giants who were trying to make merry on wide spreads on sub-prime credits. However, nowhere have we seen measures being taken to save employees being sacked from these as well as other directly or indirectly affected organisations. Targets are usually the newest employees on board who had no or the littlemost role to play in there failures. Is it not the job of the government to protect them by ways of passing extraordinary legislations which shall make these organisations pay dearly before sacking them?

Tuesday, December 16, 2008

Make severance pay Tax free!

We are already seeing lay-offs in India which is quite a new phenomenon for India Shining and there shall be many more in next months if economic downturn or the US recession continues to plague us. All these lay-offs come with severance money to employees facing lay-off, which range from 15 days to 3 months. I think severance money should not be treated the same way as notice pay which is paid to employee when fired for non-performance. Severance is paid when organisation has decided to lay-off people when it decides to take actions which were not foreseen earlier and people being laid-off may not be responsible for it. Hence, government should immediately intervene and bring in standards for deciding severance whereby employees in probation should also be entitled to an equal or higher severance pay than permanent employees as they are less likely to find jobs given their inexperience.

Also, the govt should introduce tax incentives to people facing lay-off as last thing, not only on their severance money but also maybe a tax credit/refund for tax paid in earlier years because in current scenario when everyone if firing/laying-off, majority of these people are less likely to land a job anytime soon and people would definitely like to see a portion of their money coming back which hey paid to government in their good times.

To sum-up, people being laid-off need the help of the govt as the employers are mostly going to be ruthless in paying severance and govt has made good hay in past few years from these employees and it is its time to pay back.

Thursday, December 11, 2008

Home Loan rates cut! Will Home prices come down too?

I commented on my other blog "Economics for common man" on 15th October about a possible cut in home loan rates. The same is not happening in the way I predicted but is happening in somewhat unexpected way i.e. through Indian Banking Association (IBA) decision to act on RBI's action to cut risk weightages on home loans (below 20 lakhs only) and subvention (read subsidy to banks) on loans below Rs 5 lakhs (Read in ET here and Rupee Times here) . Welcome move but what remains to be seen is that how'd this happen. Deposits rates are still hovering ~ 10-11% with most of the banks which will create a good arbitrage opportunity for next few months for people sitting on cash.

Another interesting thing is that new homes in that range i.e. below Rs 20 lakhs are just not available in cities like Mumbai and Delhi and therefore this benefit shall only be for home loans for people in Tier-II and smaller cities like Jaipur, Chandigarh etc.

It'd also be worthwhile to note that ICICI Bank recently declared that it will reduce interest rates on new home loans below Rs 20 lakhs to 11.5% from 13% (hiked just 1 month ago, read here on Domain-B and here on ET ). This is making existing home loan borrowers suffer like anything (read comments below these articles). I think it is simply making people more aware of guiles of private sector banks who in order to maintain short term shareholder returns compromise on millions of customer relationships who shall never deal nor recommend them to anyone in future.

Now, the ultimate question. Will new home prices drop any further? Well, the answer is yes for the ultra expensive ones where no bank would be cofortable lending till buyers fork out a huge margin but home prices of new homes under Rs 20 lakhs will only rise and Builders would like to capitalise on this opportunity by jacking up prices of inferior new homes in that bracket in Tier-II and smaller cities and making their sales force guile people into buying loans at very attractive "new home loan rates". There may be some good offers too but chances of that seem slim. Therefore, one needs to be very careful in wake of these facts while making a new home purchase decision especially in sub Rs 20 lakh category. In the high-end homes, people'll continue to have bargaining power with realty companies who'd like to take out money from expensive and luxury homes, probably drop some projects and come out with smaller and smaller new homes