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Chapter 1

1.1 INTRODUCTION

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Banking can be described as the business of running an establishment where money is
deposited in accounts, withdrawn and borrowed also by the customers. Banks perform
their function of attracting deposits and providing credit. However banks today function
for customer satisfaction rather than being just a mere intermediary. The housing finance
industry in India is estimated to be approximately US $ 5 billion (INR 250 billion. US $
1 = INR 48.5). The market grew at 35 to 40 percent per annum for the last five years, and
industry sources predict this growth to continue for another decade.

Specialized housing finance companies, commercial (local as well as foreign) banks, and
cooperative banks and other non-banking financial companies (NBFCs) are the main
players in this competitive market. Housing finance companies are losing their traditional
dominance to commercial banks.

Several factors are responsible for the growth of this sector. These include:
Continuously rising demand
• Affordability of real estate
• Rising levels of disposable income
• Increasing competition
• Lowering interests
• Government policies

Further push will be provided when the securitization market in India matures, especially
in the mortgage backed securities (MBS) area.
The Indian housing finance companies and Indian commercial banks control 90 percent
of the market. There are as yet no foreign housing finance companies. Of the 45-odd
foreign banks that operate in India, only three foreign-owned banks do housing finance
business of some significance. While there has been consistent growth, the size of
mortgages continues to be extremely small by international standards.

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Individual loan applicants constitute about 75 percent of all loans disbursed by the
housing finance industry. Corporate and government sector have also become an
important market segment; with lending institutions increasing the spread among these
segments. According to a report by Salomon Smith Barney, a transnational consulting
firm (Consumer Finance in Asia, February 2006), consumer borrowings as a percentage
of GDP in India is 2.5 percent. This means that there is a major scope for growth. The
entry of foreign players in the housing finance as well as the larger financial services
sector is governed by specific norms that have been evolving towards progressive
liberalization during the last decade.

Except for a few foreign banks, foreign entities are absent in this sector. That is because
of the small market size. Foreign financial institutions interested in this sector should
wait until the Indian financial sector is liberalized, and the securitization laws are in
place. It is only after the secondary markets become mature will the sector become
attractive to foreign players.
There are many nationalized banks as well as housing companies who offer finance at
affordable interest rates. Some of the leading sources of Home Loans in India are:
 Citibank
 Dewan Housing Finance
 GIC Housing Fin.
 HDFC
 Hudco
 HSBC
 ICICI
 IDBI
 Kotak Bank
 LIC Housing Finance Ltd.
 PNB Home Loans
 SBI Home Loans
 Standard Chartered Bank

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 Tata Housing Finance
Home Loans in India have been made easier with the numerous facilities offered by these
banks and the housing companies. The Tata Housing. Finance includes the premium
payable for a Tata AIG Single Premium Life Cover within the loan amount sanctioned.
SBI offers home loans with no start-up costs. LIC Housing Finance Ltd. lowered the
interest rate by 0.5% for loans covered by a life insurance cover that is taken from LIC.
Some banks like the IDBI or companies like Hudco, offers a special insurance coverage
on the home loan for a low premium which covers property, earthquake and personal
accident insurances.

However, there are some new schemes launched under the Home Loans in India like the
50Plus Scheme of IDBI Home Finance which offers a special housing loan for the client
group above 50 years or a Flexible interest rate product and a FD Linked product offer by
the Kotak Bank.

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1.2 Market Highlights & Best Prospects

Market Profile:
The need for housing a population of 1 billion plus cannot be underscored. Despite this
realization, nothing substantial has been achieved in policy framework until recently.
Outdated laws - some of which continue to hamper proper development of debt
instruments in the housing finance sector - posed major hurdles for the industry to take
root in India.

The banking norms, as they existed until 1990s, prevented commercial banks from
participating in the housing finance sector. But over the last four years the federal finance
ministry and the Reserve Bank of India (RBI) have reconstituted the institutional
framework for consumer finance.

The industry is at a nascent stage when compared to developed western economies or


even the South East Asian economies. While mortgage is an established business practice
in the Indian housing finance market, securitization - in a formal sense - is absent.

The housing finance industry in India is estimated to be approximately US $ 5 billion


(INR 250 billion. US $ 1 = INR 40). The market grew at 35 to 40 percent per annum for
the last five years, and is expected to grow at 40 percent compounded annual rate over
the next decade. The main players in this industry are housing finance companies,
commercial (local as well as foreign) banks, cooperative banks and other non-banking
financial companies (NBFCs). Traditionally, the share of the housing finance companies
has been larger as compared to the other players but it has begun to dwindle over the last
two decades. The commercial banks are set to take the major portion of the pie in the
next two to three years.

At present, Housing Development Finance Corporation (HDFC) is the market leader

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followed by State Bank of India (SBI). The Industrial Credit and Investment Corporation
of India (ICICI) Bank and the Life Insurance Corporation (LIC) Housing Finance
Limited also have significant market share. The balance is divided between numerous
other players. According to industry sources, of the 8 to 10 percent of the market share
that foreign-owned banks have in the industry, Citibank has 5 percent share, followed by
Standard Chartered and HSBC with about the 3 to 5 percent.

Following are the prime reasons for a high annual growth in this sector.

Demand:
The National Housing Bank (NHB) puts the shortage of housing units in India to 19.40
million units (2004). The total demand for housing does not automatically get translated
into demand for housing finance. Primarily, the housing finance and the construction
industries have concentrated on the urban market where the demand for housing was 9.4
million units (2004).

Affordability:
Affordability has two aspects: Affluence and price stability. According to various
estimates there are at least 150 million Indians who are able to and willing to benefit
from the consumer finance industry.
The plateau of the real estate prices in India has meant that there is a match between
income and price for the product. Prices have risen at an annual rate between 5 to 8
percent.

Competition:
The RBI's guideline for commercial banks to earmark 3 percent of their incremental
deposits for housing finance has opened the floodgates for the industry. More players,
ever lowering interest rates, better and varied services have ensured more growth.

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Policy:
The federal government has taken measures in its annual budget to encourage housing
finance industry. The direct tax rebate on housing loans for individual taxpayers has
provided the single-biggest push for generating more demand for housing mortgages. In
addition, National Housing and Habitat Policy announced in 1998 have redefined the
priorities for the housing industry and the focus areas for housing finance industry.

Securitization
the securitization market in India, though in its infancy, holds great promise especially in
the mortgage backed securities (MBS) area. While more complex securitization
transactions and public issuance of securitized paper are still a distant dream, appropriate
legislation and investor education can give the securitization market in India a much-
needed thrust. During the last two years, the federal government has changed several
rules to enable the development of primary and secondary market in housing finance
sector.

Securitization transactions have been undertaken for the last 10 years, and there exists an
active, albeit small, market for this instrument. Shorter tenor instruments have dominated
this market so far, with vehicles forming the underlying asset class. However, over the
last year, according to market experts, 10 mortgages backed securities transactions have
been placed amounting to US $ 15 million.

Changes in policy that has been approved by the Indian Parliament in November 2002
are expected to make the transaction more attractive to potential investors. Now that the
regulations are in place, the securitization market is expected to grow by 25 percent
annually.

National Housing Bank


Another important reason for the spurt in the housing finance industry has been the
constitution of the National Housing Bank (NHB) in 1988. The NHB has a twin role in
the industry - refinancing and regulation. As an apex refinance institution, the principal
focus of NHB's programs is to generate large-scale involvement of primary lending

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institutions in various categories to serve as outlets for assistance to the housing sector.
Its responsibility as a regulator assumes importance as the housing finance system
integrates with the debt and capital markets. In May 2000, the Indian Parliament passed
an amendment to the National Housing Bank Act. The amendment increases finance of
housing banks by adopting asset securitization and development of a secondary mortgage
market in the country.

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1.3 Indian Scenario

Market experts say that the housing finance market in India today is divided almost
equally between the commercial banks and the housing finance companies. But the
future is clearly with the commercial banks. At present, the biggest player in the market
is HDFC, controlling nearly 40 percent of the market, with the State Bank of India (SBI)
emerging as an important player.

The Indian housing finance industry has grown by leaps and bounds in past few years. Total
home loan disbursements by Banks and Housing Finance Companies (HFCs) has risen from
Rs. Rs 51672.7 crores in 2003-04 to 670043.76 crores in 2005-06 witnessing a phenomenal
growth of 36% during this period.

The robust growth experienced by the industry in the last few years has been triggered by a
number of factors, some of which are listed below:

 Tax rebates on housing loans announced in the recent budgets.


 Lowering of real estate prices to affordable levels.
 Greater amount of professionalism being exhibited by developers and builders who
are today acquiring clearer titles and are doing more timely completion of projects.
 Investment options have dried up with lower interest rates in banks and the stock
market being down for number of years.
 Slashing of interest rate on home loans: Fixed interest rate calculated on an annual
rest basis for a loan of Rs 5 lakhs and tenure of 15 years has fallen from 13% in 2000-
01 to 9.4% in 2004-05. This declining trend is expected to continue in the years to
come with industry experts expecting fixed rates and floating rates to fall by another
150 basis points in 2004. Floating rates for short maturity housing loans are today
hovering in the range 7.75-9.75 per cent.

In a recent development, a foreign bank has announced 6% rate of interest for housing loans
during the first year of the life of the loan and 6.5% during the second year. The rate will

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be pegged at 50 basis points above the housing PLR in the subsequent years. This
development brings to light the aggressive strategies being used by foreign banks to woo
retail customers and to grab a share of this growing market. This is also in line with industry
projections of home loan lending rates expected to fall further in future.

Market share of Banks & HFC's in 2001

38%
Share of Banks
Share of HFC's
62%

Market share of Banks & HFC's in 2007

38%
Share of Banks
Share of HFC's
62%

In 2001, the market share hold by the HFC’s was 62% and that of banks was 38%.But
currently the scenario is reversed. The market share in the home loan industry as hold by
banks exceeds than that of the Housing Finance Companies. The banks hold market share of

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58% and that of the HFC’s is 42% at the end of the year 2007. This is mentioned in below
given table.

Table 1.1 Market share of Banks/HFC’s in home loan market :-


Banks / HFC’s Market share in %(2007) Total Market
share
Banks (Out of 58%)
ICICI Bank 24%
SBI Bank 18%
HDFC Bank 16%
HSBC Bank 12%
Kotak Mahindra Bank 10%
Citi Bank 7%
Axis Bank 5%
Punjab National Bank 4%
Bank Of Baroda 3%
Oriental Bank of Commerce 1%
Total Market share of Banks 100% 58%
Housing Finance companies (Out of 42%)
Total Market share of HFC’s 100% 42%
Total Market share 100% 100%
Source – Indiaatbest.com, 12th January 2008.

Housing Finance Companies (HFCs):

Traditionally, the housing finance companies enjoyed a greater market share in the
industry. This is because the Housing Development & Finance Corporation (HDFC)
started the business of home mortgages in India. Currently it has about half of the market

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share. In the coming years, the scenario is likely to change, as smaller HFCs are likely to
fall by the way side.
Of the 345 officially registered HFCs (registration is with the RBI), the National Housing
Bank (NHB) has recognized only 29 for refinance. Even among them, NHB refinance
component comprises a mere 7 percent of the loans disbursed. Most housing finance
companies have to arrange for a major part of the disbursals from their own resources.
The HFC segment of the industry is dominated by HDFC. HDFC's loan disbursement for
year ending 2001 was US $ 3.5 billion financing 1.9 million houses. This represented a
31 percent growth over the previous year. Of its total lending, 73 percent is to individual
home loan seekers, 26 percent is to corporate entities and about 1
percent to other borrowers.
The other important player is Life Insurance Corporation of India's LIC Housing
Finance Limited. It has a wide network in the industry with 67 area offices plus six
regional offices, and about 5000 LIC agents trained for housing finance. As on March 31,
2002, LIC Housing Finance Limited had financed 525,672 units, disbursing loans of
approximately US $ 292 million.

Commercial Banks:

Commercial banks have lagged behind in providing housing finance during the last two
decade. The future looks bright for the commercial banks. The RBI's directive to the
banks to fix the interest rates on term loans beyond INR 200,000 will increase the share
of commercial banks in this sector. Moreover, the cost of raising funds is much lower for
the banks as compared to other institutions offering mortgages. For the year ended March
31, 2002, the nationalized banks (excluding the State Bank of India group) disbursed
loans worth US $ 3.89 billion. The State Bank of India disbursed loans worth US $ 1.67
billion. Collectively, SBI and its associates have disbursed loans worth US $ 2.11 billion.

As one of the largest banks in the world, the State Bank of India (with 9,000 branches)
has begun to move decisively into the sphere of home finance during the last five years.
Since SBI raises low-cost deposits through its branch network, it needed an outlet that is
provided by retail banking. The SBI also has a low-cost advantage. At 8.05 percent, SBI's

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marginal cost of funds is among the lowest in the industry (HDFC: 8.67 percent and
ICICI Bank: 9.5 percent). In addition to the public sector banks, ICICI Bank has a major
share of the market. The ICICI Home Finance Company Limited had disbursed home
loans worth US $ 1.83 billion during 2001. ICICI Home Loans has a presence in 150
cities/towns across world.

GROWTH OF THE HOME LOAN MARKET

The Indian housing finance has grown by leaps and bounds in past few years. total home
loan disbursements by banks and housing finance companies(HFC'S) has risen from Rs.
54326.9 crores in 2005-06 to Rs. 72424.5 crores in 2006-07 witnessing a phenomenal
growth of 33.31% during this period.

Sources:-National Housing bank(NHB)

REASONS FOR THE GROWTH

The robust growth experienced by the industry in the last few years, has, been triggered
by a number of factors, some of which are listed below:-

YEARS HFC’S BANKS TOTAL %


GROWTH
02-03 12637.8 9787.24 22425.09 --------------
5 ---
03-04 14614.4 14744.85 29359.29 30.92
4
04-05 17832.1 33840.53 51672.7 76.00
7
05-06 18641.3 35685.54 54326.9 5.14
6
06-07 24376.5 48047.92 72424.5 33.31
8
TOTAL 88102.4 142106.0 230208.4 --------------
8 8 ---

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 Tax rebates on housing loans announced in the recent budgets.

 Lowering of real estate prices to affordable levels.

 Greater amount of professionalism being exhibited by developers and builders, who are
today acquiring clearer titles and are doing more timely completion of projects.

 Investment options have dried up with lower interest rates in banks and the stock market
being down for number of years.

 Fixed interest rate calculated on an annual rest basis for a loan of Rs. 5 Lakhs and tenure
of 15 years, has fallen from 16% in 1997-98 to 11.4% in 2002-03. This declining trend is
expected to continue, in the years to come with industry experts expecting fixed rates and
floating rates to fall by another 250 points in 2007. Floating rates for short maturity
housing loans are today hovering in the range 7.75-9.75%.

 Now day’s banks have announced 6% rate of interest for housing loans during the first
year of the life of the loan and 6.5% during the second year. This Development brings to
light the aggressive strategies being used by banks to woo retail customers and to grab a
share of this growing market. With this Kind of strategies being used by the banks, the
home loan lending rates are expected to fall further in future.

1.4 TYPES OF BANKS:


The Indian Banking Industry can be broadly classified into:

1. Public Sector Banks

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2. Old and New Private Sector Banks
3. Foreign Banks
4. Co-operative Banks

1.Public Sector Banks

Public sector banks are banks wherein the government has a holding of 100%.This was a
situation prior to liberalization. The stake has fallen because of a public issue in the post
liberalization period. Some of the other leading banks in this segment have also proposed
to come out with an equity issue to raise further capital. The government is proposing to
bring out a bill wherein its share in all these banks would stand reduced to 33% from the
current levels

The public sector banks largely dominate the Indian Banking industry. These banks till
the early 90s were involved in the traditional banking business of deposits and credit
lending. The public sector banks have a strong distribution network all over the country.
But the strength of the earlier periods has now become a concern for these banks. As
compared to the tech-equipped distribution network of the new private sector banks and
the foreign banks, these banks have found it difficult to upgrade them on the technology
front. These banks are also facing the problem of surplus manpower. Most of these banks
are now coming out with a VRS to bring down their number of employees and improve
the efficiency ratios.

The public sector banks still control a major share in the banking operations of the
country. Their inefficiencies have been exposed only when the market was thrown open
for competition and new players started eating up their share. But given their size and the
strong network, most of these banks can change their perception. The recent thrust on
reduction of government stake; VRS,NPA settlement schemes etc have been some of the
steps in this direction. Since the growth of the economy is largely dependent on the
performance of these banks, even with the growth of new private and foreign players,
these banks will have an important role to play.

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Some of the players here are State Bank of India and its associates, Bank of Baroda,
Corporation Bank, Punjab National Bank, Union Bank Of India, etc.

2. Old and New Private Sector Banks

Private Sector Banks-Old

These banks existed prior to the promulgation of Banking Nationalization Act but were
not nationalized due to their smaller size and regional focus. Most of these banks
continue to have a regional focus and are relatively smaller in size. A large number of
these banks are basically from the south. Being small in size, these banks focus on
service and technology and thus face competition from new private and foreign banks.
Most of these banks are trying to increase their presence nationwide and are planning to
enter other business areas like insurance.

The old private sector banks have performed reasonably well during the FY2000. As
these banks were facing stiff competition from the new private banks and the foreign
players who were making inroads in their markets,
these banks have been able to increase their net profits by over 50%. As a result of the
increasing competition in the sector, these banks have been trying to improve upon their
margins and asset quality. Most of these banks have a high CAR and as such they do not
face any capital constraint in their growth plans. Even their return on net worth has been
at par in most of the cases with the other new players in the market. But the coming years
would be more challenging for these banks as the public sector are also trying to adapt to
the new environment and the new banks have already equipped themselves to have a
major share in any opportunity that would accrue.

Some of the private sector-old players are Bank of Madura Ltd., Tamilnad Mercantile
Bank Ltd., The Jammu & Kashmir Bank Ltd., The Vysya Bank Ltd., etc.

Private Sector Banks- New

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The Banking Regulation Act was amended in 1993 permitting the entry of new private
sector banks. The act also specified certain criteria for establishing new private sector
banks. The criteria are as follows:

1. The banks should have a minimum net worth of Rs1bn.


2. The promoters holding should be minimum 25% of the paid up capital.
3. The banks should offer shares to the public within three years of their operations.

The first new private sector bank started operations in 1995. The minimum net worth
requirement of Rs1bn and difficulty in getting the banking license has kept the option
open for very few players.

The financial institutions have promoted many of these banks. With emphasis on service
and technology, it is for the first time that Indian banks are challenging the foreign banks.
These banks are making heavy use of technology to give good service on par with
foreign banks but to a much wider audience e.g. branch size has been reduced
considerably by using technology and having less manpower. This saves the cost of the
branch. In addition the ATM etc helps drawing large customers to one branch.

The new private banks have been consistently gaining market share from the public
sector banks. The major beneficiary of this has been corporate clients who are most
sought after now.

The new private sector banks have performed very well in the FY2000.Most of this
banks have registered an increase in net profits of over 50%.They have been able to make
significant inroads in the retail market of the public sector and the old private sector
banks. During the year, the two leading banks in this sector had set a new trend in the
Indian banking sector. HDFC Bank, as a part of its expansion plans had taken over Times
Bank. ICICI Bank became the first bank in the country to list its shares on NYSE.

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Some of the private sector-new players include, Centurion Bank Ltd., Global Trust Bank
Ltd., HDFC Bank., ICICI Banking Corporation Ltd., IDBI Bank Ltd., etc.

3.Foreign Banks

Foreign banks have been doing the normal banking business in the country. During the
period of nationalization, the entry of new foreign banks and expansion by existing
foreign banks were prohibited. Even, when the norms were relaxed later on, RBI was
very slow in granting any further approvals to these banks. But most of these banks have
concentrated on the metropolitan cities of the country and have been able to do
reasonably well. These banks have used the latest technology to compensate for the
limited number of branches they have.

In the post liberalization period, there has been a sharp increase in the total business
done by the foreign banks. A number of new players have entered and the existing
players have consolidated their position in the market. In the last couple of years, some
of the foreign banks have entered the retail segment and introduced a number of new
products in the market. This has intensified the competition in the banking sector and has
made most of the old players rethink their strategy.

Some of the foreign banks operating in India are ABN-AMRO Bank N.V., ANZ
Grindlays Bank Ltd, Citibank N.A., Deutsche Bank AG, Standard Chartered Bank, etc.

4.Co-Operative Banks

Co-operative banks are a part of the vast and powerful superstructure of co-operative
institutions, which are engaged in the tasks of production, processing, marketing, and
distribution, servicing, and banking in India. The co-operative banks were conceived in
order to substitute unorganized money market agencies like moneylenders, to provide
adequate short-term and long-term institutional credit at reasonable rates of interest, and

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to bring about integration of the unorganized and organized segments of the money
market.

The main aim of the co-operative banks is to provide cheaper credit to their members,
and not to maximize their profits. There has been an impressive growth in deposits, credit
and working capital of these banks. The annual rates of growth of co-operative banks
have been quite high, and are comparable with those of commercial banks. The
government and the RBI have taken a number of steps to improve the health and strength
of co-operative banks in India. In keeping with other financial sectors reforms, certain
co-operative banking reforms also have been carried out after 1991.

1.5 REGULATORY AUTHORITIES

The RBI and the SEBI together regulate the activities of commercial banks in India. The
urban co-operative banks, in addition to these regulatory authorities, have State co-
operative banks (SCBs) and the District co-operative banks (DCBs) to monitor their
activities.

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In the policy framework, the important priority in the past few years has been to
introduce appropriate norms in respect of capital adequacy, income recognition and
provisioning. The RBI has introduced new guidelines to accelerate credit disbursement in
infrastructure. The liberalization has changed the future course of the Indian banking
scene. This has set trends in greater specialization in niche markets such as retail, hi-tech
agriculture, exports, small-scale industries and corporate sector. There will be a market
shift from the interest-based activities to investment and foreign exchange
operations/bullion trade to shore up the bottom line.

Highlights of policy initiatives and reforms undertaken recently are as


follows:

1. Bank allowed operating different PLRs for different maturities.

2. Bank allowed offering fixed rate for all term loans in conformity with ALM
guidelines.
3. Wherever the deposit rate is in excess of PLR, advances to depositors against fixed
depositors by banks allowed without reference to PLR ceiling.

4. Board of Directors allowed delegating necessary powers to ALM Committee for


fixing interest rates on deposits and advances, subject to reporting to the Board
immediately thereafter.

5. With effect from the year ending March 31, 2000, banks advised to classify a
minimum of 75 % of their securities as current investments.

6. Board of Directors allowed prescribing detailed rules for determining the date of
commencement of commercial production.

7. Interest rate surcharge of 30% on import finance withdrawn.

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8. The minimum rate of 20 % interest on overdue export bills withdrawn; banks
allowed deciding appropriate rate of interest on overdue export bills.

Regulations governing housing sector

The entry of foreign players in the housing finance as well as the larger financial services
sector is governed by specific norms that have been evolving towards progressive
liberalization during the last decade. In the context of the housing finance sector, the
federal government allows 100 percent foreign direct investment with some capital
adequacy requirements:

• If the foreign direct investment (FDI) is less than 51 percent, $ 0.5 million must be
brought in up front
• If FDI is between 51 percent and 75 percent, $ 5.0 million is required up front
• If FDI exceeds 75 percent, $ 50 million is needed, out of which $ 7.5 million must
be brought up front and the balance invested within two years.

Foreign Direct Investment (FDI) in the NBFC sector is put on automatic route subject to
compliance with guidelines of the Reserve Bank of India. The RBI would issue
appropriate guidelines in this regard.

For foreign banks, the federal government permits mergers and acquisition. A 49 percent
limit exists on foreign equity in Indian banks. Foreign banks are given automatic
approval to open branches in India. Since July 1993, the 45-odd foreign banks (about 180
branches) have been required to make 32 percent of their loans to priority sectors.
Within the overall threshold of 32 percent, two sub-limits for loans to the small-scale
sector (minimum of 10 percent) and exporting ventures (minimum of 12 percent) have
been fixed. As of March 2000, the total priority sector lending by these banks is 34.5
percent out of the net bank credit provided by these banks.

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According to Citibank, with reference to the housing finance (and construction) sector,
mortgage and other property related the Indian Contract Act governs by the Transfer of
Property Act and issues. The following are important elements that drive this business in
India.

Land records:
Land records are maintained at the office of the sub-registrar of assurances. Quality of
record keeping and accessibility of the land records vary. Some provide history of
mortgages or encumbrances while others do not. This difference is driven by the Indian
constitution that divides roles between the federal and the state government. Land record
is a state subject.

Registration and Stamp costs:


All property transactions (including creation of certain type of mortgages) must be
stamped, and registered with the sub registrar of assurances. Stamping and registration
costs tend to be high (8 to 14 percent of transaction value). High transaction costs have
led to issues pertaining to under-reporting of transaction values that in turn leaders to
corruption at the offices of the sub-registrar. Foreclosure (normally results in a court-
induced sale) process is divided into various steps.

The Indian legal system is slow. Steps to reform the legal process have started. These
include setting up of the Debt Recovery Tribunals - to manage debt owed to the banking
system. In addition, specialist tribunals have also been established for trail of mortgage
the most eagerly awaited changes pertain to securitization. There are no laws governing
securitization transactions in India. Major restructuring of regulations needs to be done
on this front. The government of India constituted a working group on asset
securitization in July 2000. This group submitted a comprehensive draft securitization
bill to the federal government. The bill has not been tabled in the parliament. A number
of factors, mainly legal and regulatory, need to be addressed to ensure healthy
development of the Indian securitization market.

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Distribution/Business practice:

So far, the preferred channel for reaching the end-users is through the offices of the
housing finance companies or the commercial banks' branches. Some institutions do
deploy representatives and agents. The role of outside agencies is bound to increase once
the market matures. In more developed markets the originator and the distributor of
mortgages are separate entities. This has yet to become the accepted norm of mortgage
business in India, at least in the housing finance sector.

1.6 National Housing Bank (NHB)


Vision
“NHB ensures a sound and healthy housing finance system in India through effective
regulation and supervision of housing finance institutions. As a financial institution,
NHB is known for its commitment, innovation and quality of service offering a broad
spectrum of financial products to address the needs of the housing sector with motivated
employees working in a congenial and participative work environment. When people
think of financial services related to housing, they think of NHB.”

The Objectives of NHB

The National Housing Bank (NHB) was established on 9th July 1988 under an Act of the
Parliament viz. the National Housing Bank Act, 1987 to function as a principal agency to
promote Housing Finance Institutions and to provide financial and other support to such
institutions. The Act, inter alia, empowers NHB to:

Issue directions to housing finance institutions to ensure their growth on sound lines.
Make loans and advances and render any other form of financial assistance to scheduled
banks and housing finance institutions or to any authority established by or under any
Central, State or Provincial Act and engaged in slum improvement and Formulate
schemes for the purpose of mobilization of resources and extension of credit for housing.

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In terms of the National Housing Bank Act, 1987, National Housing Bank is expected, in
the public interest, to regulate the housing finance system of the country to its advantage or
to prevent the affairs of any housing finance institution being conducted in a manner
detrimental to the interest of the depositors or in a manner prejudicial to the interest of the
housing finance institutions. For this, National Housing Bank has been empowered to
determine the policy and give directions to the housing finance institutions and their
auditors.

Besides the regulatory provisions of the National Housing Bank Act, 1987, National
Housing Bank has issued the Housing Finance Companies (NHB) Directions, 2001 as also
Guidelines for Asset Liability Management System in Housing Finance Companies. These
are periodically updated through issue of circulars and notifications.

As part of the supervisory process, an entry-level regulation is ought to be achieved


through a system of registration of housing finance companies.National Housing Bank
supervises the sector through a system of on-site and off-site surveillance.

Regulations
Registration of Housing Finance Companies u/ Section 29A of the National Housing Bank
Act, 1987
Till the end of June 2004, the Bank had received 165 applications from HFCs for granting
of Certificate of Registration (COR). Of this, 46 HFCs have been granted COR and
applications received from 106 HFCs were rejected. In another 6 cases, show cause notices
have been issued as to why their applications should not be rejected. In 7 cases, the COR
granted earlier were cancelled as these HFCs either went out of the housing finance

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business or due to non compliance with the conditions subject to which the COR were
issued.

Amendments to Housing Finance Companies (NHB) Directions, 2001

Having considered it necessary in public interest and for the purpose of regulating the
housing finance system, the Bank issued the following Directions to the housing finance
companies, during the year.

To maintain uniformity in the interest rate payable on reparable deposits accepted from
the non-resident Indians by the various players in the financial system, the Bank advised
HFCs in September 2003 that the interest rate payable by them on such deposits should be
the same as is payable by the scheduled commercial banks on these deposits from time to
time.

Considering the fact that financing of real estate forms an integral part of the business
of a HFC, the ceiling on investments by a HFC in real estate except for its own use was
raised from 10% of a HFC’s owned fund to 20% of a HFC’s capital fund as on March 31 of
the previous year subject to the stipulation that the additional limit would be permissible
only for investments in residential units.

In order to align the investment classification and inter-class transfer norms of HFCs
with those applicable to the non-banking financial companies (NBFCs), the Bank amended
the Housing Finance Companies (NHB) Directions 2001 regarding the prudential norms
relating to classification and valuation of investments. This amendment interalia specifies
that the investments in securities shall be classified into current and long term at the time
of making each investment and that there shall be no inter-class transfer from current to
long term or vice versa on ad-hoc basis and if warranted, the inter class transfer can be
effected only at the beginning of each half year.

During the year, the Bank also advised HFCs that they should not sanction loans to State
Government Undertakings/Special Purpose Vehicles (SPVs) for any project solely on the

N.R.INSTITUTE OF BUSINESS MANAGEMENT 25


basis of guarantees extended by the State Governments and instead sanction loans only
after a through appraisal of the project regarding identification of risks, risk mitigation
measures, financial viability of the project and the creditworthiness of the borrower etc.
Similarly, in respect of the housing/infrastructure projects, HFCs have been advised to
undertake due diligence on the viability of the projects.

1.7 Monetary Measures

Bank Rate
the Bank Rate has been kept unchanged at 6.0 per cent.

Repo/Reverse Repo

The repo rate under the LAF is kept unchanged at 7.75 per cent. The reverse repo rate
under the LAF is kept unchanged at 6.0 per cent. The Reserve Bank retains the option to
conduct overnight or longer-term repo/reverse repo under the LAF depending on market
conditions and other relevant factors. The Reserve Bank will continue to use this flexibility

N.R.INSTITUTE OF BUSINESS MANAGEMENT 26


including the right to accept or reject tender(s) under the LAF, wholly or partially, if
deemed fit, so as to make efficient use of the LAF in daily liquidity management.

Cash reserve ratio

The cash reserve ratio (CRR) of scheduled banks is currently at 7.75 per cent. On a review
of the current liquidity situation, it is considered desirable to keep the present level of the
CRR at 7.75 per cent unchanged.

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Chapter 2

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ICICI Bank

ICICI banks are India’s No. 1 Home Loans Provider. At ICICI Bank Home Loans, offer
unbeatable benefits to ensure that borrower get the best deal without any hassles. The
largest home loan provider, ICICI Bank understands how special creating a new home is
for them, and their Home Loans help them to lay the foundation for their dream home.

ICICI Bank is India's second-largest bank with total assets of Rs. 3,767.00 billion (US$
96 billion) at December 31, 2007 and profit after tax of Rs. 30.08 billion for the nine
months ended December 31, 2007. ICICI Bank is second amongst all the companies
listed on the Indian stock exchanges in terms of free float market capitalisation*. The
Bank has a network of about 955 branches and 3,687 ATMs in India and presence in 17
countries.

ICICI Bank offers a wide range of banking products and financial services to corporate
and retail customers through a variety of delivery channels and through its specialised
subsidiaries and affiliates in the areas of investment banking, life and non-life insurance,
venture capital and asset management.

The Bank currently has subsidiaries in the United Kingdom, Russia and Canada,
branches in Unites States, Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar and Dubai
International Finance Centre and representative offices in United Arab Emirates, China,
South Africa, Bangladesh, Thailand, Malaysia and Indonesia. Our UK subsidiary has

N.R.INSTITUTE OF BUSINESS MANAGEMENT 29


established a branch in Belgium. ICICI Bank's equity shares are listed in India on
Bombay Stock Exchange and the National Stock Exchange of India Limited and its
American Depositary Receipts (ADRs) are listed on the New York Stock Exchange
(NYSE).

ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian financial
institution, and was its wholly-owned subsidiary. ICICI's shareholding in ICICI Bank
was reduced to 46% through a public offering of shares in India in fiscal 1998, an equity
offering in the form of ADRs listed on the NYSE in fiscal 2000, ICICI Bank's acquisition
of Bank of Madura Limited in an all-stock amalgamation in fiscal 2001, and secondary
market sales by ICICI to institutional investors in fiscal 2001 and fiscal 2002. ICICI was
formed in 1955 at the initiative of the World Bank, the Government of India and
representatives of Indian industry.

The principal objective was to create a development financial institution for providing
medium-term and long-term project financing to Indian businesses. In the 1990s, ICICI
transformed its business from a development financial institution offering only project
finance to a diversified financial services group offering a wide variety of products and
services, both directly and through a number of subsidiaries and affiliates like ICICI
Bank. In 1999, ICICI become the first Indian company and the first bank or financial
institution from non-Japan Asia to be listed on the NYSE.

Home Loans are the best option that borrower can go for to finance a new home. ICICI
offers them the most convenient and practical home loan plans to suit their needs. With
so many attractive features in every type of home loan bank offer, creating the home that
borrower always wanted is no longer a distant dream. Some of the special offers bank
have are:

• Attractive loan interest rates

• Home loan amounts suited to your needs

• Home Loan tenure upto 25 years

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• Simplified Documentation

• Sanction approval without having selected a property.

• Free Personal Accident Insurance (Terms & Conditions)

• Insurance options for borrower’s home loan at attractive premium

• No matter what the requirement, bank has an appropriate plan for them, though
most of banks home loan plans are for salaried/self-employed Resident Indians. Get
the best deals ever, and finance the perfect home, only from ICICI Bank.

Home Loans from ICICI Bank is the really easy way to fulfill borrowers dreams of a
dream home. With ICICI Bank Home Loans they can avail of a hassle free loan which
can enable borrower to buy an apartment, bungalow or villa in a locality of their choice
quickly & without much effort.

PRODUCTS OF ICICI BANK

Home loans

Home Loans are provided to individuals to own a residential property.


ICICI Bank offers easy home loans for

• First Purchase in ready construction


• Under construction property
• Purchase in re-sale
• Self-construction - extension of existing living space

The following are the features of ICICI Bank Home Loans

• Home loan amount can be chosen to suit specific needs.


• One can avail of a loan up to 85% of Cost Of Property.
• Conveniently pay off the loan over a period of up to 25 years.

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• It can be availed at the Floating rate of Interest or at the fixed rate of Interest or at
the combination of both Fixed & Floating rates.
• Faster repayment as principal repayment in on monthly rest.

Eligibility Norms for Home loans

Home Loans can be availed by Resident Indian whether salaried or Self-Employed and
also by Non- Resident Indian who are Salaried. For resident Indians the following are the
eligibility norms
You must be at least 21 years of age when the loan is sanctioned.
The loan must terminate before or when you turn 65 years of age or before retirement,
whichever is earlier.
You must be employed or self-employed with a regular source of income.

Land loan

Land loans give an opportunity for individual customer to purchase a residential plot of
land to do self- construction. Thus, customer can invest now in a plot of land & build in
future. DA can finance the Land loan only within municipal limits of HUB locations or in
case of direct allotment outside municipal limits. Land Loan can be availed by Resident
Indian whether Salaried or Self-Employed and also by Non- Resident Indian.

Home Improvement Loan

Home Improvement Loan is offered to facilitate improvement of a self-owned dwelling


unit to existing or new customer. HIL considers a range of facilities internal or external to
the structure without increase in the living pace. Thus, a customer can add or improve
facilities to his dwelling unit with a loan at Home Equity Loan rate of interest Home
Improvement Loan can be availed by Resident Indian whether Salaried or Self-
Employed.

Office premises loans

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Office Premises Loan can be used for purchase, construction, and extension & also for
improvement (at the time of acquisition of office premises. It creates an opportunity to
extend loans to self-employed individuals to house their profession or business giving a
permanent address for generating steady flow of income. The product can also include the
estimate of renovation at the time of purchase of the property. This loan is especially meant
for self-employed professionals like Doctors, Architects Home Loans can be availed by
Resident Indian who are Self-Employed and also by Non- Resident Indian who are
Salaried.

EMI under construction

EMI Under Construction is offered for structuring a home loan to enable individuals to
commence his EMI in a partly disbursed under construction project. Commencement of
EMI ensures re-payment towards principal amount leading to savings in interest and faster
repayment of the loan. The EMI paid is as per the sanctioned loan amount and remains
constant during the tenure of the loan. The tenure of the loan keeps moving up
with additional amount being disbursed. EMI under Construction can be availed by
Resident Indian whether Salaried or Self-Employed and also by Non- Resident Indian.

Balance Transfer

Balance Transfer is a facility offering the customer a choice to transfer the outstanding
balance of the loan availed for better terms & conditions. Balance Transfer helps to move
from higher rate of interest to lower rate of interest or increase in loan component as Top
up. BT is possible only from loans taken from HFCs approved by NHB for refinance,
Banks or employer Loans taken from Central or State government Transfer can be availed
by Resident Indian whether Salaried or Self-Employed

Money saver

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Saver account is a home loan account with transaction facility. The account holder can
deposit & withdraw to the extent of balance maintained. On the commencement of EMI the
interest will be calculated on the outstanding debit balance. Thus, the home loan account
holder maintaining large balance in the Money Saver account can save on the interest paid
by faster repayment. This means one can pay less & repay loan faster This product can be
offered only in case of first and final disbursement – Part disbursement cases cannot be
offered this product. MoneySaver would be available at Floating Rates only & Fixed EMI
per lac per month would be applicable. IT certificate in the case of MoneySaver is not
issued. Money Saver can be availed by Resident Indian whether salaried or Self-Employed

Top Up Loan

Top Up Loan is availed for various personal requirement based on value of the property. It
offers the customer additional funds against the security of the same property. To avail Top
Up loan, the vintage of at least six months is required for the loan availed. The basic
eligibility emerges with good repayment track record. The end use letter is essential to be
collected.

The End use of Top Up Loans can be

• Furnishing of home
• Consumer durable
• Child’s education
• Daughter’s marriage
• Family holiday
• Vehicle

Loan on Phone

Loan on Phone is a pre-sanctioned loan. Its is based on the existing relationship of the
customer with ICICI Bank. The biggest advantage is that the customer can get the loan

N.R.INSTITUTE OF BUSINESS MANAGEMENT 34


with minimum documentation. Good banking transactions and repayment records becomes
strength for availing loans in future. Loan on Phone can be availed by Resident Indian
whether salaried or Self-Employed.

Home Equity Loan

Loan against property gives the owner of residential or commercial premises to leverage on
the value of the property. It offers the ability to unlock funds gives the advantage of
looking at the asset as a source of security bringing liquidity and retaining ownership. In
case of HEL the property should be self occupied by one of income considered applicants.
The security of the property ensures competitive rate of interest. The interest component of
the EMI paid by SEP / SENP can be booked as expenses in their P & L

Home Equity Loans are provided for many personal requirements of the customer
viz. –

• Marriage
• Child Education
• Business
• Purchase of Property (Where mortgage is not possible)
• Improvement of Property
• Medical Treatment

Home Equity Loans can be availed by Resident Indian who are Self-Employed and also by
Non- Resident Indian who are Salaried.

Property overdraft

The overdraft facility from ICICI bank home loans allows you to borrow money against
your self-occupied property. The overdraft facility comes with a multi-city chequebook and

N.R.INSTITUTE OF BUSINESS MANAGEMENT 35


phone banking facility. The customer is charged interest only for the amount that he
withdraws from the account. Whenever he deposits funds into the account, they go towards
reducing the outstanding balance in the account.

It offers the following benefits: -

• Generating capital against property (R) or (C) for business or personal use
• Convenience of Pre - Sanctioned limit and draw as you need
• Pay interest on the amount drawn and for days utilized
• Convenience of depositing & withdrawing like any Current Account
• Benefit of cheque Book & Phone banking
• Fast Processing and door-step service
• Multi-city cheque book and phone banking facility

Property Overdraft can be availed by Resident Indian who is Self-Employed.

SERVICES OF ICICI BANK FOR HOME LOANS

Simplified Documentation

Borrower’s loan application process is now easier and their loan approval process, faster with
simplified documentation

Door Step Service

Bank personally deliver borrower Home Loan at their doorstep - so they don’t need to rush out &
disrupt their day’s activities

Attractive Interest Rates

ICICI Bank Home Loans offers borrower a wide range of home loan rates to choose from

N.R.INSTITUTE OF BUSINESS MANAGEMENT 36


• Adjustable Rate Home Loan

• Fixed Rate Home Loan

• Part Fixed, Part Floating Rate Home Loan

• Smart Fix Home Loan

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STATE BANK OF INDIA

SBI is India's largest bank is also home to the country's biggest and most powerful
Treasury, contributing to a major chunk of the total turnover in the money and forex
markets. Through a network of state-of-the-art dealing rooms in India and abroad, backed
by the assured expertise of informed professionals, the SBI extends round-the-clock
support to clients in managing their forex and interest rate exposures.

SBI's relationships with over 700 correspondent banks are also leveraged in extracting
maximum value from treasury operations. SBI's treasury operations are channeled through
the Rupee Treasury, the Forex Treasury and the Treasury Management Group.

The Rupee Treasury deals in the domestic money and debt markets while the Forex
Treasury deals mainly in the local foreign exchange market. The TMG monitors the
investment, risk and asset-liability management aspects of the Bank's overseas offices.

The bank’s trading operations are unmatched in size and value in the domestic market and
cover government securities, corporate bonds, call money and other instruments. SBI is the
biggest lender in call.

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Products and Services

Asset Liability Management (ALM): The ALM function comprises management of


liquidity, maturity profiles of assets and liabilities and interest rate risks.

Investments: SBI offers financial support through a wide spectrum of investment products
that can substitute the traditional credit avenues of a corporate like commercial papers,
preference shares, non-convertible debentures, securitized paper, fixed and floating rate
products. SBI invests in primary and secondary market equity as per its own discretion.

These products allows borrower to leverage the flexibility of financial markets, enable
efficient interest risk management and optimize the cost of funds. They can also be
customized in terms of tenors and liquidity options.

Home loans available for various purposes

SBI home loans are available for various purposes as: -

 Purchase or construction of house or flat;

 Purchase of a plot of land for construction of house;

 Extension, repair, renovation,

 Alteration of an existing house or flat;

 Purchase of furnishings

Other Loans

Besides home loan, SBI also provides other loans as office premises loans, land loans,
education loans, Car loans, loans for daughter’s marriage, etc..

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SBI HOME LOANS FEATURES
Some of the unique features of SBI home loans are:

• Provision for on the spot "In principle" approval.


• Loan sanctioned within 6 days of submission of required documents.
• Option to avail Home Loan as a Term Loan or as an Overdraft facility to save
on interest and maximize gains (see SBI Max Gain in the following sections)
• Option to club income of your spouse and children to compute eligible loan
amount
• Provision to club depreciation, expected rent accruals from property proposed
to compute eligible loan amount
• Provision to finance cost of furnishing and consumer durables as part of project
cost
• Repayment permitted up to 70 years of age
• Free personal accident insurance cover
• Optional Group Insurance from SBI Life at concessional premium (Upfront
premium financed as part of project cost)
• Interest calculated on daily reducing balance basis, and starts from the date of
disbursement.
• ‘Plus’ schemes which offer attractive packages with concessional interest rates
to Govt. Employees, Teachers, Employees in Public Sector Oil Companies.
• Special scheme to grant loans to finance Earnest Money Deposits to be paid to
Urban Development Authority/ Housing Board, etc. in respect of allotment of
sites/ house/ flat

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Loan Amount

Applicants aged between 18 and 45 years, can get 60 times Net Monthly Income (NMI) or 5
times Net Annual Income (NAI) and for applicants aged over 45 years of age, it is 48 times NMI
or 4 times NAI.

This will be subject to a maximum EMI/NMI ratio as under

EMI/NMI
Net Annual Income Ratio
Upto Rs.2 lacs 40%
Above Rs.2 lac to Rs. 5 lacs 50%
Above Rs. 5 lacs 55%

Margin

The SBI home loan borrower should pay 20% of the cost of home for loans up to Rs 1 crore and
25% for loans above Rs 1 crore.

Repayment Period

The maximum repayment period for home loan is 20 years for applicants below 45 years and 15
years for applicant above 45 years.

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HDFC Bank

The Housing Development Finance Corporation Limited (HDFC) was amongst the first to
receive an 'in principle' approval from the Reserve Bank of India (RBI) to set up a bank in
the private sector, as part of the RBI's liberalization of the Indian Banking Industry in
1994. The bank was incorporated in August 1994 in the name of 'HDFC Bank Limited',
with its registered office in Mumbai, India. HDFC Bank commenced operations as a
Scheduled Commercial Bank in January 1995. With over 200 offices, 90 outreach
programs- HDFC is able to provide home loans is over 240 locations in India.

HDFC Bank operates in a highly automated environment in terms of information


technology and communication systems. All the bank's branches have online connectivity,
which enables the bank to offer speedy funds transfer facilities to its customers. Multi-
branch access is also provided to retail customers through the branch network and
Automated Teller Machines (ATMs).

HDFC Bank's mission is to be a World-Class Indian Bank. The objective is to build sound
customer franchises across distinct businesses so as to be the preferred provider of banking
services for target retail and wholesale customer segments, and to achieve healthy growth
in profitability, consistent with the bank's risk appetite. The bank is committed to maintain
the highest level of ethical standards, professional integrity, corporate governance and
regulatory compliance. HDFC Bank's business philosophy is based on four core values -
Operational Excellence, Customer Focus, Product Leadership and People.

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HDFC’S HOME LOAN FEATURES

• Home Loan Counselling – Sharing of over 30 years of home loan experience.


• The bank have been a part of a 30 years journey with our 26 Lakh customers.
• HDFC’s home loan counsellors offer you the time tested advice.
• Be it legal documentation, project or builder approvals, and technical advice,
they look forward to sharing with borrowers and this service is absolutely free.
• Their project approval facility provides their customers the comfort of
purchasing properties from builders who have complied with all basic
documentation

Loans available for various purposes

HDFC provides loans are available for various purposes as: -

 Purchase or construction of house or flat, furnishings ;

 Purchase of a plot of land for construction of house, row house, bungalow from
developers;

 Short Term Bridging Loans

 Extension, repair, renovation,

 Alteration of an existing house or flat;

 Home Equity loans (Loan Against Property)

 Loan Against Rent receivables

 Properties in an existing or proposed co-operative housing society or apartment


owner's association

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HSBC Bank

The antecedents of the HSBC Group in India can be traced back to October 1853 when the
Mercantile Bank of India, London and China was founded in Bombay (now Mumbai).
Starting with an authorised capital of Rs 5 million, the Mercantile Bank soon opened
offices in London, Madras(Chennai), Colombo and Kandy, followed by Calcutta(Kolkata),
Singapore, Hong Kong, Canton(Guangchow) and Shanghai by 1855. The following
hundred years were in many ways propitious for the Mercantile Bank. In 1950 it moved
into its new head office building in Mumbai.at Flora Fountain. .

The acquisition in 1959 by The Hongkong and Shanghai Banking Corporation Limited of
the Mercantile Bank was a decisive factor in laying the foundation for today's HSBC
Group. Founded in 1865 to serve the needs of the merchants of the China coast and finance
the growing trade between China, Europe and the United States, HSBC has been an
international bank from its earliest days. After the Mercantile Bank was acquired by The
Hong Kong and Shanghai Banking Corporation, the Flora Fountain building became and
remains to this day, the Head Office of the HSBC Group in India.

Through the 1990s, HSBC has vigorously developed its role as one of the leading banking
and financial services organizations in the world. Its strategy of 'managing for value'
emphasizes the Group's unique balance of business and earnings between older mature
economies and faster-growing emerging markets.

HSBC in India is proud to have retained the Group's pioneering streak by being an active
partner in the development of the Indian banking industry - even giving India its first

N.R.INSTITUTE OF BUSINESS MANAGEMENT 44


ATM way back in 1987. The organization’s adaptability, resilience and commitment to its
customers have further enabled it to survive through turbulent times and prosper through
good times over the past 150 year.

 Personal Banking

HSBC offers a wide range of personal financial services, including personal lending
and deposit products, through its branch network in Ahmedabad, Bangalore, Chennai,
Chandigarh, Coimbatore, Gurgaon, Hyderabad, Jaipur, Kochi, Kolkata, Ludhiana,
Mumbai, New Delhi, Noida, Pune, Thane, Trivandrum and Visakhapatnam. Also
offered branch-wide are international Gold and Classic credit cards from VISA and
MasterCard and debit cards from Visa. Customers have access to 24-hour banking
services through an extensive network of automated teller machines (ATMs), an
integrated Call Centre, and internet banking.

 Non Resident Indian Banking

HSBC's Non Resident Indian Banking (NRI) centres located in Asia-Pacific, the
Middle East, Europe and North America, together with HSBC's offices worldwide,
provide the international Indian Diaspora access to a range of products and services.
These include NRI related investment (both international and domestic), transactional
and deposit products, together with a full range of personal and private banking
products in India and overseas. Internet banking also provides easy access to HSBC's s
ervices.

 Financial Planning Services

N.R.INSTITUTE OF BUSINESS MANAGEMENT 45


Services include investment and custodian management and access to stock broking
and insurance services, which are offered to resident as well as non-resident Indians.

 Corporate Banking

HSBC has well-established, long-term corporate banking relationships with large


domestic Indian corporations and foreign multinationals operating in India. Services
include term and working capital finance, trade facilities, corporate deposits,
syndications, payments and cash management services and factoring.

 Business Banking
HSBC's Extra Mile Business Banking offers two types of account to small and
medium-sized businesses - The Business Account and the Business Vantage Account.
Services include Business Phone Banking, Business Doorstep Banking and Multi
Branch Business Banking.

 Payments and Cash Management


HSBC provides integrated domestic and regional transaction support to corporate
clients through a sophisticated range of cash management solutions, including
collection and payment services and integration with customer back-end systems.
Operations and client services are ISO 9001 certified. Hexagon, the HSBC Group's
dedicated electronic banking service allows users to perform financial transactions,
obtain international financial markets information, and review details of their domestic
and international accounts, from anywhere in the world, 24 hours

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Kotak Mahindra Bank

The Kotak Mahindra Group was born in 1985 as Kotak Capital Management Finance
Limited. This company was promoted by Uday Kotak, Sidney A. A. Pinto and Kotak &
Company. Industrialists Harish Mahindra and Anand Mahindra took a stake in 1986, and
that's when the company changed its name to Kotak Mahindra Finance Limited.

Kotak Mahindra is one of India's leading financial conglomerates, offering complete


financial solutions that encompass every sphere of life. From commercial banking, to
stock broking, to mutual funds, to life insurance, to investment banking, the group caters
to the financial needs of individuals and corporates.

The group has a net worth of over Rs. 5,609 crore, employs around 17,100 people in its
various businesses and has a distribution network of branches, franchisees, representative
offices and satellite offices across 344 cities and towns in India and offices in New York,
London, Dubai, Mauritius and Singapore. The Group services around 3.6 million
customer accounts. Since then it's been a steady and confident journey to growth and
success.

KOTAK MAHINDRA BANK’S HOME LOAN FEATURES

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At Kotak Mahindra bank, borrower can avail of home loans for the purpose of purchasing
residential property - whether they are buying it fresh from the developer or it is a resale
purchase. Our Home Loan solutions are designed to suit their needs whether they are:

Moving home When they’re ready to move to a new home, bank can help them in making
the right choice. Bank speed of financing ensures that borrower move without a hitch.

Buying a home for the first time

If borrower have never bought a home before, their apprehension is understandable. Bank
will guide borrowers through the home-buying process and ensure that they get finance
that's good value for them, both now and in the future.

Wide range of offerings Apart from the plain vanilla Home Loan, borrower can also avail
of the exact scheme that suits their needs. Borrowers can choose:

• Kotak Flexi Home Loan

• Fixed Deposit linked Home Loans

Attractive interest rates

Borrowers finance facility comes to them at very attractive interest rates. And what's
more, there are no hidden charges to it.

Free personal accident insurance

Bank offer a free personal accident insurance cover – upto Rs. 1 crore along with their
loan, that ensures that borrower are covered for any accidental mishaps and their family is
well protected.

Pre-Approval facility

Borrowers can get a sanction for their loan amount based on the income, assets and
employment information they provide during their consultation with Kotak Mahindra

N.R.INSTITUTE OF BUSINESS MANAGEMENT 48


Bank. Borrowers may come across a property which they need to close at a short notice.
In such a situation, this sanction can help so that they don't miss the opportunity. Finding
a good home is not easy, so the sanction is good for 6 months, giving them time to shop
for the home of their choice.

Insurance options on borrowers Home Loans

Borrowers can also avail of a reducing insurance cover at an exclusive premium, so that
they are rest assured that should any unfortunate mishap occur to them, their family is
safeguarded from any repayment burdens over the tenure of the loan.

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Chapter 3

N.R.INSTITUTE OF BUSINESS MANAGEMENT 50


3.1 INTRODUCTION

“Home, sweet home, built out of your dreams. A place where you return after a hard day's
work and relax, a place where you share precious moments with your family. A place that
gives you a sense of belonging.”

Buying a house is an exciting event. It will probably be the biggest purchase borrower
will ever make in their life. Understanding the steps involved in securing a housing loan
will help borrower save time and avoid uncertainty and anxiety.

Home loans are provided based on the market value, mainly estimation given by banks or
the registration value of the property. Availing various types of house loans to suit
borrower’s individual needs at the lowest rates & easy financing can now fulfill the
need for a house of their own.

When bound by the constraints of income and the speculations of the inability to finance
the borders between customer’s dream and the ability to materialize it, home loans appear
to be a far cry. But is it indeed that difficult? Are the options as limited as in obtaining a
housing loan in India. Maybe not so; understanding, about a bridge loan could be helpful
with a higher the rate of interest. Now, from filling in the forms to getting the financial
burden solved, the process might appear a bit hectic. But a careful analysis could always
put you in the right track. Home loans relating to Real Estate India are infact only a few
feet away from borrower’s doorstep. Starting with the filling in of application forms the
initial process shall always involve borrower’s parting with a one time processing fee.

Banks have scored over housing finance companies, cornering 65 per cent of the home
loan market that grew to Rs 51,673 crore in the last fiscal. This was stated by a Ficci
survey released. Despite entering the home loan mart late, banks have overtaken the
HFCs in the home loan market. .

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The share of banks in total home loan disbursements has risen from 43.6 per cent in
2000-01 to 65.5 per cent in 2002-03, the survey, covering 47 banks and HFCs, noted.

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3.2 PRINCIPLES OF HOME LOANS

Against the milieu of rapid urbanization and a changing socio-economic scenario, the
demand for housing has grown explosively. The importance of the housing sector in the
economy can be illustrated by a few key statistics. According to the National Building
Organization (NBO), the total demand for housing is estimated at 2 million units per year
and the total housing shortfall is estimated to be 19.4 million units, of which 12.76
million units is from rural areas and 6.64 million units from urban areas. The housing
industry is the second largest employment generator in the country. It is estimated that the
budgeted 2 million units would lead to the creation of an additional 10 million man-years
of direct employment and another 15 million man-years of indirect employment.
.

The market for housing finance promises healthy growth, despite the odds. The
proportion of outstanding housing loans, as a fraction of GDP, has risen from 3.4 per cent
in 2001 to about 7.5 per cent in 2006. With Government's strong thrust on providing
`Housing for all', this figure is expected to improve over the next few years. Further,
India's mortgage-to-GDP ratio at about 3 percent compares poorly with other South-East
Asian economies, where the ratio ranges between 15 – 20 percent.

Having identified housing as a priority area in the Ninth Five Year Plan (1997-2002), the
National Housing Policy has envisaged an investment target of Rs. 1,500 billion for this
sector. In order to achieve this investment target, the Government needs to make low cost
funds easily available and enforce legal and regulatory reforms. Hence Due to these
reforms the Housing Loan Sector is growing at Tremendous Speed.

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3.3 TYPES OF HOME LOAN

There are different types of home loans tailored to meet borrower’s needs. Here are some of
them listed below:

 Home Purchase Loans:


This loan is availed for the purchasing of new home.

 Home Construction Loan:


It involves funding for construction of existing home or new plot.

 Home Extension Loan:


This is given for expanding or extending an existing home. For eg: addition of an extra
room, bathroom etc.

 Home Improvement Loans:


These loans are funded for executing repair works and renovations for a home that
borrower have already occupied.

 Home Conversion Loan:

This is available for those who have financed the present home with a home loan and wish
to purchase and move to another home for which some extra funds are required. Through
home conversion loan, the existing loan is transferred to the new home including the extra
amount required, eliminating the need of pre-payment of the previous loan.

 Bridge Loans:
As the name suggests are those loans that help the customer to bridge the gap between the
new plot purchased and old sold. The difference of amount between the two is funded by
bridge loans.

 Land Purchase Loans:


This loan is available for purchase of land for either construction or investment purposes.

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 NRI Home Loans

These are given to individuals who are NRI’s and want to buy or invest in residential
properties, this is getting popular these days with the IT professional abroad.

 Refinance Loans:

This type of home loan would helps borrower pay off the debt that have incurred from
private sources like relatives/friends, for the purchase of their present home.

 Balance Transfer Loans:

This type of home loan would help us to pay-off an existing home loan and avail the option
of a loan with a lower rate of interest.

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3.4 TYPES OF INTEREST RATES

Rate of interest is the amount of interest paid for the principal taken from the housing
finance corporation. Rate of Interest is categorized as follows:

1) Fixed Rate of Interest


2) Floating Rate of interest
3) Partly fixed and partly floating rate of interest (Hybrid loan)

1) Fixed rate of interest:


Under fixed rate of interest, interest charged is invariable throughout the loan period.
But this will come at a cost. Interest rates on fixed home loans are higher than those on
floating home loans. Sure borrower get the certainty that home loan rates will not rise
but they end up paying more for it. The interest rate on a fixed home loan is around 1%
- 1.25% higher than that for a flexible home loan. There are different options available
under fixed rate which are enlisted below:

A) Fixed Rate of interest for three :


Under this customer pays fixed rate of interest irrespective of market fluctuations for initial
three years. Then he/she can switch to floating rate of interest or Continue with the current
fixed rate of interest.

B) Fixed Rate of Interest for Five years:


It works similarly like 3 year fixed rate of interest the only difference is rate is reviewed
after 5 yrs. This comes little costlier than 3 years fixed rate of interest.

2) Floating Rate of Interest:


This is the rate of interest that fluctuates according to the market-lending rate. This means
borrower stand the risk of paying more than they budgeted for in case the lending rate goes
up. Floating interest rates are offered at slightly low rates as compared to the fixed rates, as
the borrower bears the risk of fluctuations. If the rates reduce or remain constant over the
loan tenure, the borrower shall gain, as the rate under the floating rate scheme will be

N.R.INSTITUTE OF BUSINESS MANAGEMENT 56


lower as compared to a fixed rate. Whereas, if the interest rate increases over a period of
time, then it could turn out to be expensive, if lender does not allow their to switch from a
floating rate to a fixed interest rate scheme.

3) Partly Fixed & Floating Rate of Interest (Hybrid Loan):


A loan that splits the total loan amount into two parts. One part is charged at a fixed rate of
interest and the other part a floating rate. The customer is given the option of deciding
upon the ratio of the loan amount under fixed and floating rates. So you could take half or
quarter or three-quarter of the loan at a floating rate and the rest at a fixed rate, depending
on their risk appetite. Some banks split the tenure of the loan, fixing the first two to three
years at a fixed rate and then allowing the rest of the loan to float. When interest rates rise,
EMI or tenure of the floating rate part of the loan will increase. There will be no change in
the fixed part of the loan. When interest rates rise, the greater the proportion in a fixed rate,
the better it is for borrower or vice a versa.

"Switching of your interest option is also available with banks but that comes with cost on
the principal outstanding. It may range between 0.5-2%."

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3.5 HOME LOANS INTEREST COMPARISON CHART

Bank/Housing Finance
0-5 Years 6-10 Years Over 10 Years
Corporation
Fixed Floating Fixed Floating Fixed Floating
ABN Amro 12.75 11.75 12.75 11.75 12.75 11.75
Allahabad Bank 13.50 12.00 13.75 12.25 14.00 12.50
Andhra Bank - 10.25 - 10.50 - 10.75
Bank of Baroda 12.00 10.75 12.50 11.00 13.25 11.25
Bank of India - 9.50 - 10.00 - 10.50
Bank of Maharashtra 11.25 10.50 12.00 11.00 - 11.25
Bank of Rajasthan 11.75 10.75 12.25 11.25 13.25 12.25
BHW Home Finance 14.00 - 14.00 10.75 - 10.75
Can Fin Homes - 12.00 - 12.00 - 12.00
Canara Bank - 11.00 - 11.25 - 11.50
Central Bank of India 10.75 10.00 11.00 10.50 - 11.00
Centurion Bank of Punjab 14.00 12.00 14.00 12.00 14.00 12.00
Corporation Bank 12.00 11.25 12.25 11.50 12.25 11.50
Dena Bank 11.00 10.25 11.50 10.75 - 11.00
Dewan Housing Finance Ltd
15.00 12.25 15.00 12.25 15.00 12.25
(DHFL)
Federal Bank 11.25 10.75 12.00 11.50 12.50 12.00
GIC Housing Finance 11.50 10.75 12.00 11.25 12.50 11.50
HDFC Bank 13.25 11.25 13.25 11.25 13.25 11.25
HSBC 13.50 13.75 13.50 13.75 13.50 13.75
ICICI 14.00 12.00 14.00 12.00 14.00 12.00
IDBI 14.00 11.25 14.00 11.25 14.00 11.25
Indian Bank 9.75 9.00 10.25 9.50 11.00 9.75
Indian Overseas Bank 12.00 10.25 12.50 11.25 - 11.50
Indus Ind Bank 13.00 12.00 13.00 12.00 13.00 12.00
Kotak Mahindra Bank - 11.00 - 11.00 - 11.00
LIC Housing Finance 11.50 10.75 11.50 10.75 11.50 10.75
Oriental Bank of Commerce 11.50 10.75 11.50 10.75 11.75 11.00
Punjab and Sind Bank - 11.00 - 11.50 - 11.50
Punjab National Bank 10.25 9.00 11.00 9.25 11.25 9.50
Standard Chartered Bank 12.75 11.85 12.75 11.85 12.75 11.85
State Bank of Bikaner and 12.75 10.75 12.75 11.25 - 11.25

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Jaipur
State Bank of Hyderabad - 10.50 - 11.25 - 11.50
State Bank of India 12.75 10.75 12.75 11.25 - 11.25
State Bank of Indore 12.25 10.75 12.25 11.25 - 11.25
State Bank of Mysore 12.75 10.75 12.75 11.25 - 11.25
State Bank of Patiala 12.75 10.75 12.75 11.25 - 11.25
State Bank of Saurashtra 13.50 11.50 13.50 12.00 - 12.00
State Bank of Travancore 12.50 10.50 12.50 11.00 - 11.00
Sundaram Home Finance - 11.75 - 11.75 - 11.75
Syndicate Bank 11.50 10.00 12.00 10.50 - 11.00
UCO Bank 11.25 10.75 11.25 10.75 11.75 11.25
Union Bank of India 11.50 11.00 - 11.50 - 11.75
United Bank of India 12.25 11.25 12.75 12.00 - 12.50
Vijaya Bank 10.75 10.00 11.25 10.50 - 10.75
(Source - http://finance.indiainfo.com/homeloans/interest.html)

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3.6 HOME LOAN PROCESS

From applying for a home loan to getting it involves various stages. These stages are as
under:

1. Applying for a loan

Filling up the application form is the first step. The look of an application form may differ
from bank to bank, but nearly 80 per cent of the information they need is similar. Most of
this is basically borrower’s personal and professional information, details of their financial
assets and liabilities and the details of the property (if finalised) including the estimated
cost and the means of financing the same.

2. Personal discussion: Face to face

After borrower’s have formally and successfully completed the application process, all
they have to do is waiting till the home finance institution evaluates their papers. The wait
normally lasts only a day or two or sometimes even less. However, some banks insist on
meeting borrower after receiving the application form, and before the loan sanction. This is
to gather more details about their that may not be mentioned in the application form and to
reassure them of their repayment capacity. .

3. Field Investigation:

Thousands of people apply for loans everyday. And however eager a bank is to complete
its targets, every loan is a risk. So, it is only natural that it confirms or validates the details
borrowers provide. The bank checks all their information including their existing
residential address, place of employment, employer credentials (if borrowers work for a
small organisation), residence and work telephone numbers. Representatives are sent to
their workplace or residence to verify the details.

N.R.INSTITUTE OF BUSINESS MANAGEMENT 60


Even the references borrower has provided in the application form are checked out. While
this may sound irritating and an invasion of their privacy, banks are forced to undertake
validation in the absence of any credit bureau. Once their credentials are validated, it helps
establish trust between borrower and the bank

4. Credit appraisal and loan sanction

This is the make-or-break stage. If the bank is not convinced about borrower’s credentials,
their application may get rejected. If it is satisfied, it sanctions loan
.

The bank or the home financier establishes borrower’s repayment capacity based on their
income, age, qualifications, experience, employer, nature of business (if self employed),
etc, and based on these, works out their maximum loan eligibility, and the final loan
amount is communicated to them. The bank then issues a sanction letter. This letter may
either be an unconditional letter, or may have certain terms and conditions mentioned,
which borrower have to fulfill before the loan disbursal. .

5. Offer letter:
Once the loan is sanctioned, the bank sends borrower an offer letter mentioning the
following details:

• Loan amount
• Rate of Interest

• Whether fixed or variable rate of interest linked to a reference rate


• Tenure of the loan
• Mode of repayment
• If the loan is under some special scheme, then the details of the scheme
• General terms and conditions of the loan

N.R.INSTITUTE OF BUSINESS MANAGEMENT 61


• Special conditions, if any

Acceptance copy

If borrowers agree with what is mentioned in the offer letter from the bank, they will have
to sign a duplicate letter of the same for the bank records. Earlier, banks used to charge
administrative fees along with the offer letter. However, with rising competition,
administrative fees have virtually disappeared from the home loan market.

6. The legal angle:

Now, the focus of the bank activities shifts from borrowers to the property they intend to
buy. Once borrowers select their property, they need to hand over the entire set of original
documents pertaining to your property to the bank so that it can keep them as security for
the loan amount given to them. These normally include: :

The title documents of borrower’s seller, which prove the seller's title including the chain
of title documents if he is not the first owner .NOCs from the legal owners such as
cooperative housing societies, statutory development authorities, the lessor of the land “in
the case of leasehold land, etc. NOCs are not required where the property is situated on
freehold land and the entire land is being transferred along with the structure.
These documents remain in the bank custody until the loan is fully repaid.

Technical / Valuation check: Making doubly .7

N.R.INSTITUTE OF BUSINESS MANAGEMENT 62


\su
Banks are extremely careful about the property they plan to finance. They send an expert to
visit the premises borrower intend to purchase. This expert could either be a bank
.employee or he could belong to a firm of architects or civil engineers

Site visit

:The site visits to your property are conducted to verify the following

In case of under construction property

 Stage of construction is the same as that mentioned in the payment notice given
to borrower by the builder.

 Quality of construction

 Satisfactory progress of work.

 Layout of flats and area of property is within permissions granted by the


governing authority.

 The builder has the requisite certificates to start construction at the site.

 Valuation of the property in relation to other deals in the surrounding areas.

In case of ready/resale construction

 External / internal maintenance of the property.

 The age of the building.

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 Will the building last the loan tenure? This has a direct bearing on borrower’s loan
eligibility, since the loan tenure will be restricted to the maximum age of the property as
decided by the bank engineer and this will impact their loan eligibility.

 Quality of construction.

 Surrounding area (development).

 Whether the builder has received the requisite certificates for handing over possession of
the flat.

 There is no existing lien or mortgage on the property.

 Valuation of the property in relation to other deals in the surrounding areas.

These inspections are carried out to protect consumer interests in terms of construction
quality, adherence to local laws, approved building plans, etc. A technical inspection also
lets the bank understand the progress of construction so as to release the staggered
disbursements.

8. Valuation k

Since home loans are cheaper than other loans, there have been cases where individuals
have shown purchase of properties from related entities at inflated prices to obtain cheap
loans. .

Since the risk associated with diversion of funds is higher than if the loan was used for
genuine purposes, banks carry out an independent valuation to find out whether the
transaction is in line with the existing market price of the area. .

Valuation has become a key parameter in determining the loan amount that can be
sanctioned by the bank. The valuation process is quite subjective and depends on the
quality and ability of the person sent by the bank for valuation. .

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Valuation of real estate as a profession is still in its infancy in India and is still non-
standardised. In many cases, the valuer determines the value of the property at an amount
that is lower than the documented cost of the property and this would result in the loan
amount being lower, since the bank funds a certain percentage of the cost or valuation of
the property, whichever is lower .

This practice has led to severe consumer issues in an increasing number of cases, as the
valuation is normally done only after the consumer takes a sanction (by paying a fee) and
after identifying and committing to buy the property. .

The valuation issue rarely arises when a property is purchased through a reputed builder
directly or if the property is pre approved. In both the cases, the banks would have
already completed the valuation and therefore, borrower can safely assume that there is
no difference between the documented cost of the property and the bank valuation
amount

.
9. Registration l

After the legal and technical / valuation check, the draft documents as cleared by the
lawyer need to be finalised and signed and the stamping and registration of the
documents need to be done. Also, if any NOCs are pending, these need to be obtained in
the format approved by the bank lawyer. .

10. Signing the home loan agreement In black &


white
All borrowers need to sign the home loan agreement. You also need to submit post-dated
cheques for the first 36 months (if that is the agreed mode of repayment). The original
property documents have to be handed over to the bank at this stage. Some banks also
create a document recording the handing over of the property documents to them as
security for the due repayment of the home loan. .

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This document is also called a memorandum of entry and attracts significant stamp duty
depending on the amount of the loan in some states. The stamp duty payable on such a
memorandum is naturally recovered from them. .

Not all banks create this memorandum and hence the stamp duty may or may not be
payable, depending on the practice of the specific bank. However, even where no such
memorandum of entry is created, the state government concerned may, in the future,
demand a stamp duty on the loan transaction, which naturally is recoverable from
borrower as per the home loan agreement signed by borrower .

11. Disbursement t

After the bank has ensured that the property is legally and technically clear, all the
original documents pertaining to transfer of ownership of property in borrower’s favour
have been submitted and all the necessary loan agreements have been executed, finally, it
is payment time! Borrower will now actually receive the cheque in their hands. Time to
celebrate! But hold on a second. Before the big moment arrives, borrower need to submit
documents to prove that they have paid their personal contribution towards the property,
since banks normally finance only up to 85-90 per cent of the total cost of the house.
.

In case borrowers are expecting money from other sources to fund their own
contribution, they need to provide sufficient evidence for the same. It is only after
submitting this proof that the bank will release part-disbursement of the loan.
.

The cheque will be in the name of the reseller (for resale flats), builder, society or the
development authority. It is only in exceptional circumstances, that is, if borrower
provide documents to support that they have made an excess payment from their own
account that the cheque will be handed over to borrower directly by the bank .
.

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Disbursement in stages

Usually, loans are disbursed on the basis of the stage of construction of the property. So,
in case of resale or ready possession properties, the disbursement is full and final.
However, in case of under-construction properties, the payment is made in parts, also
known as part-disbursement. .

Each option would have different disbursement processes. .

Part disbursement:

When a loan is partly disbursed, the bank does not start EMIs immediately, since it is
calculated on the total loan amount at a particular rate of interest and for a given tenure.
Moreover, it normally does not start breaking up the installments into its principal and
interest components until the entire loan amount is disbursed.

To overcome this difficulty, banks charge simple interest on the partly disbursed loan
amount. For instance, if borrower has a sanctioned loan of Rs10 lakh, but the property is
under construction and the bank has disbursed only Rs4 lakh, borrower will be charged a
simple interest only on the disbursed amount. This process continues until the final
disbursement takes place. The simple interest paid is called Pre-EMI interest or PEMI.

At this stage, banks may take only around three to six post-dated cheques on account of
PEMI. .

Full and final disbursement:

If it is a ready-possession property, the bank disburses the entire loan amount in favor of
either the reseller or the builder. r .

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N.R.INSTITUTE OF BUSINESS MANAGEMENT 68
Chapter 4

(A) Research objectives

 To analyse customer’s selection criteria for providers of home loans.


 To find out customers’ decision making process for home loans.
.

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(B) Scope of the study

The scope of study is limited to the selected banks which provide home loans in
India. The analysis is based on responses received from respondents in Ahmedabad
city only.

(C) Research type

The research type is descriptive research.

(D) Data collection sources


.
 Primary Sources :- Questionnaires
 Secondary Sources :- Websites, articles, newspapers

(E) Sampling Method


Convenient sampling

(F) Sample Size

The sample size is as under: -

1. For banks, sample size is top five banks selected on market share basis.
2. For customers of home loans, sample size is 200 customers.

(F) Sample Universe

The sample universe for banks is the banks located in Ahmedabad. The sample
universe for the customers is total number of customers of home loans in
Ahmedabad

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(G) Sample Unit

The sample unit is single bank and single customer in Ahmedabad


respectively.

(I) Beneficiaries

BANKS
This Project will be useful for the banks to enhance their services for home loan
from the survey of customers.
(J) Limitations

 Limited time duration


 Survey is limited to 5 banks and customers of Ahmedabad city only.

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Chapter 5

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Findings – Customers Questionnaire

Q.1 Which alternative would you prefer for taking home loan?

A. Housing Finance Companies


B. Bank
C. Agencies
D. Others

Options No. of Respondents % of Respondents


HFC 72 36%
Bank 90 45%
Agencies 20 10%
Others 18 09%
Total 200 100%

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Home Loan Lender's selection

50%
45%
45%
40% 36%
35%
HFC
30%
Bank
% of Respondents

25%
Agencies
20%
Others
15%
10% 9%
10%

5%
0%
HFC Bank Agencies Others
Lenders preffered

Interpretation

 From this chart we find that 36% of the customers have obtained home loans from
Housing Finance Companies, 45% of the customers have obtained from banks and
remaining 19% are obtained through various agencies and others.

 Previously, before few years the proportion of home loans acquired by the
customers was majority obtained through Housing Finance Companies as compared
to the banks.

 Currently, many banks have jumped up in providing home loan services and now
the numbers of customers for home loans have increased.

 Here this chart shows that now the customers opts more to obtain loans from the
banks as compared to other alternatives.

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Q.2 If bank, through which bank you have taken home loan?

A.HDFC
B. SBI
C.ICICI
D.HSBC
E. Kotak Mahindra Bank
F. Others.____________________________

Options No. of Respondents % of Respondents


HDFC 32 16%
SBI 38 19%
ICICI 56 28%
HSBC 28 14%
Kotak Mahindra Bank 20 10%
Others 26 13%
Total 200 100%

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Most Preffered Banks by customers
30% 28%

25%

19% HDFC
20%
16% SBI
% of Respondents

15% 14% ICICI


13%
HSBC
10%
10% Kotak
Others
5%

0%
HDFC SBI ICICI HSBC Kotak Others
Banks Preffered

Interpretation

 Out of the total number of customers surveyed, there are 28% of the customers such
that have obtained home loans through ICICI bank and 19% of the customers have
obtained from SBI bank, 16% of them obtained from HDFC bank, 14% from
HSBC bank, 10% from Kotak bank and remaining 13% of customers have obtained
from other banks like Bank of India, Punjab National bank, Bank of Baroda, Citi
bank and others.

 From 200 customers, 56 customers have taken home loan from ICICI bank. This
shows that from various banks providing home loans, majority of the customers
prefers to obtain the loans from the banks as ICICI, SBI and HDFC as they have
created good reputation in their eyes.

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Q.3 What are the citerias for which you have opted to take home loan from your
selected bank? (Rate them – 10 as best and 1 as worst)

A. Prestige of the bank


B. Rate of interest offered
C. Automatic insurance policy
D. Mortgage requirement
E. Flexibility in fore-closure
F. Mode of repayment
G. Less processing time
H. Less processing cost
I. Less documentation
J. Authentication of property

FEATURES -- SBI No. of Respondents % of Respondents


Prestige of the bank 6 16
Rate of interest offered 7 18
Automatic insurance policy 5 13
Mortgage requirement 1 2
Flexibility in fore-closure 3 9
Mode of repayment 2 4
Less processing time 3 7
Less processing cost 4 11
Less documentation 5 15
Authentication of property 2 5
Total 38 100

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ICICI BANK

Important Features of ICICI Bank

Prestige of the bank


7%
18% Rate of interest offered
15%
Automatic insurance policy
Mortgage requirement
13%
Flexibility in fore-closure
Mode of repayment
11% Less processing time
5% Less processing cost
16% 2% 4% Less documentation
9%
Authentication of property

Interpretation

 Out of the 200 customers surveyed, 56 customers were of ICICI bank.

 From the total customers of ICICI bank, 10 customers assumes that the bank have
the special features that it has good reputation and 8 customers assumes that it takes
very less processing time and 8 assumes that it takes very less documentation work.

 Thus, ICICI bank is ranked as number one home loan provider bank. It has good
prestige and is famous for their services also.

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STATE BANK OF INDIA

FEATURES -- SBI No. of Respondents % of Respondents


Prestige of the bank 6 16
Rate of interest offered 7 18
Automatic insurance policy 5 13
Mortgage requirement 1 2
Flexibility in fore-closure 3 9
Mode of repayment 2 4
Less processing time 3 7
Less processing cost 4 11
Less documentation 5 15
Authentication of property 2 5
Total 38 100

Important Features of SBI

5% Prestige of the bank


16%
15%
Rate of interest
offered
Automatic insurance
policy
Mortgage requirement
11% 18%
Flexibility in fore-
closure
7%
4% 13% Mode of repayment
9% 2%
Less processing time

Less processing cost

Less documentation

Authentication of
property

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Interpretation

 Out of the 200 customers surveyed, 38 customers have obtained home loans from
SBI bank.

 From 38 customers, 7 assumes that the main feature for selecting SBI bank for
home loan is the lower rate of interest offered by the bank and 6 customer believes
that it good prestige and is one of the oldest bank in India in the eyes of people due
to which they have opted to take loan from SBI.

 15% of customers assume that it requires very less documentation work and 11% of
them believe that it has very less processing cost as compared to other banks.

HDFC BANK

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FEATURES -- HDFC No. of Respondents % of Respondents
Prestige of the bank 5 15
Rate of interest offered 4 13
Automatic insurance policy 2 7
Mortgage requirement 1 4
Flexibility in fore-closure 1 2
Mode of repayment 3 9
Less processing time 5 16
Less processing cost 3 11
Less documentation 6 18
Authentication of property 2 5
Total 32 100

Important Features of HDFC bank

5%
15%
18% Prestige of the bank
13%
Rate of interest offered

Automatic insurance
policy
11% Mortgage requirement
7%
4% Flexibility in fore-closure
16% 2%
9%
Mode of repayment

Less processing time

Less processing cost

Less documentation

Authentication of
property

N.R.INSTITUTE OF BUSINESS MANAGEMENT 81


Interpretation

 Out of the 200 customers surveyed, 32 customers have obtained home loans from
HDFC bank.

 From 32 customers, 6 assumes that the main feature for selecting HDFC bank is
that the bank requires less documentation work and 10 customers assumes that it
good image and also requires very less processing time due to which they have
selected HDFC bank for home loan.

 Other customers also assume that the bank implies very less processing cost and
also offers lower interest rates than others.

HSBC BANK

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FEATURES -- HSBC No. of Respondents % of Respondents
Prestige of the bank 5 18
Rate of interest offered 4 15
Automatic insurance policy 4 13
Mortgage requirement 3 11
Flexibility in fore-closure 1 2
Mode of repayment 4 16
Less processing time 3 9
Less processing cost 2 7
Less documentation 1 5
Authentication of property 1 4
Total 28 100

Important Features of HSBC bank

Prestige of the bank

5% 4%
18% Rate of interest offered
7%
Automatic insurance
9%
policy
Mortgage requirement

Flexibility in fore-
15% closure
Mode of repayment
16%
13% Less processing time
2% 11%
Less processing cost

Less documentation

Authentication of
property

Interpretation

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 Out of the 200 customers surveyed, 28 customers have obtained home loans from
HDFC bank.

 From 28 customers, 18% assumed that the main reason for which they have
selected HSBC bank for home loans is that the bank has its own prestige as it is
known as World’s Local bank.

 15% customers also assume that the bank offers lower interest rates than others.

 11% customers assumes that the main feature for selecting HSBC bank is that the
the mortgage requirement by the bank is low as compared to the other banks.

KOTAK MAHINDRA BANK

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FEATURES -- Kotak Bamk No. of Respondents % of Respondents
Prestige of the bank 3 16
Rate of interest offered 4 18
Automatic insurance policy 2 15
Mortgage requirement 2 9
Flexibility in fore-closure 1 2
Mode of repayment 1 7
Less processing time 2 11
Less processing cost 3 13
Less documentation 1 5
Authentication of property 1 4
Total 20 100

Important Features of Kotak Bank

5% 4% 16% Prestige of the bank


13%
Rate of interest
offered
Automat ic insurance
18% policy
11% Mortgage requirement

7% Flexibility in fore-
2% 9% 15% closure
Mode of repayment

Less processing time

Less processing cost

Less documentation

Authenticat ion of
property

Interpretation

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 Out of the 200 customers surveyed, 20 customers have obtained home loans from
Punjab National Bank.

 From 20 customers, 18% assumed that the main reason for which they have
selected Punjab National Bank for home loans is the bank offers home loans at
lower interest rates than other banks.

 16% of customers have selected the bank for home loans because of its prestige and
15% assumes that the bank also provides automatic insurance policy.

 13% customers assumes that the bank includes less processing cost than other
banks and 11% assumes that the bank takes very less processing time as compared
to other banks.

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Q.4 Whose referrals motivated you to obtain home loan from the bank/HFC’s?

A. Friends
B. Relatives
C. Neighbours
D. Colleagues
E. Building Contractor
F. Others

Refferals No. of Respondents % of Respondents


Friends 12 6
Relatives 40 20
Neighbours 28 14
Colleagues 16 8
Building Contractor 80 40
Others 24 12
Total 200 100

Refferals used by customers

Others Friends
12% 6%

Relatives
20% Friends
Relatives
Neighbours
Colleagues
Building Contractor
Others
Building Contractor Neighbours
40% 14%
Colleagues
8%

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Interpretation

 Out of the total 200 customers, 80 customers obtained home loans through the
references of the building contractors, 40 customers used the referrals of their
relatives, 28 through neighbours, 12 through friends, 16 through their colleagues
working with them and the remaining 24 customers have approached through
others or self.

 From this we can very well interpret that majority of the building contractors guide
the customers for the home loans towards particular banks or HFC’s.

 There are 28 customers who were guided by their neighbours for the home loans.
Some of these neighbours have also taken the home loans and have experience of
the banks or housing finance companies.

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Q.5 For which of the following purpose have you taken home loan?

A. Home purchase
B. Home Construction
C. Home Extension/ Improvement
D. Land Purchase loans
E. Bridge loans
F. Refinance Loan

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Options No. of Respondents % of Respondents
Home purchase 124 62
Home Construction 24 12
Home Extension/ Improvement 16 8
Land Purchase 20 10
Bridge 6 3
Refinance 10 5
Total 200 100

70
62 Purposes for Home Loan
60

50
% of Respondents

Home purchase

40 Home
Construction
30 Home Extension/
Improvement
20 Land Purchase
12 10 loans
8 Bridge loans
10 5
3
Refinance Loan
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N.R.INSTITUTE OF BUSINESS MANAGEMENT 90


Interpretation

 Out of 200 customers surveyed, 62% of the customers have obtained the home
loans for home purchase, 12% have taken for construction purpose, 10% have taken
for Land purchase purpose, and remaining have taken for extensions,
improvements, bridge and for refinance purposes.

 From this we can very well interpret that majority of the customers have obtained
home loans for purchasing new house and secondly for construction purposes.

 There are very less percentage of customers who have obtained loans for bridge and
refinance purposes.

Q.6 On what basis do you choose a lender?

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A. Eligibility period

B. Interest rates

C. Other costs (Administration fee, processing fee).

E. Documents required.

F. Penalties

Options No. of Respondents % of Respondents


Eligibility 44 22
Interest rates 70 35
Other costs 34 17
Documents required 22 11
Penalties 30 15
Total 200 100

Lender's selection decision

40
35
35
30
Eligibility
25 22
% of Respondents

Interest rates
20 17 Other costs
15
15 Documents required
11
Penalties
10
5
0
Eligibility Interest rates Other costs Documents Penalties
required
criterias

Interpretation

 Out of 200 customers surveyed, 35% of the customers considers interest rates are
the first preference to be given while selecting the lender, 22% considers eligibility
as the second alternative and how much period they are providing for the

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repayment of loan, 17% gives preference to the costs involved in it like
administrative costs and other charges.

 15% of the customers gives preference to the Penalties, i.e., what are the penalties
to be paid in case of any default or delay in the repayment of the installment.

 Customers gives less preference to the documentation work required by the bank as
compared to other options..

Q.7 By which way do you increase the eligibility for which you can obtain a home
loan?

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A. Stretch your loan tenure

B. Clear your outstanding debts

C. Step-up loan

D. Balloon Payment (loan against investment)

Options No. of Respondents % of Respondents


Stretch your loan tenure 60 30
Clear your outstanding debts 76 38
Step-up loan 24 12
Balloon Payment 40 20
Total 200 100

Options for increasing eligibility

40 38

35
30
30

25 Stretch your loan tenure


% of Respondents

20 Clear your outstanding debts


20
Step-up loan
15 12 Balloon Payment

10

0
Stretch your loan Clear your Step-up loan Balloon Payment
tenure outstanding debts
Options

Interpretation

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 This question is asked to know the customers response about what should they do
for increasing their eligibility for home loans.

 38% of the customers gives preference to the option that firstly, they should clear
their outstanding debts which may be of Personal loans, Car loans, etc. If their
EMI’s are cleared then that increases your eligibility for home loans.

 30% of the customers give preference to the option of stretching their loan tenure.
The basic rule of EMI is larger the tenure lower will be the EMI and similarly
shorter the tenure higher will be the EMI and if borrower will take the larger tenure
then automatically their EMI will decline and their paying capacity increases.

 The reason being their principal amount is spread among the number of years and it
lowers the amount of EMI but amount of interest paid is higher in larger tenure, as
one of the major components while calculating interest rates is
tenure.ijmjimijmimijmjnhubnbgbbybybunyyyy

Q.8 For what time duration has you taken home loan?

A. Up to 5 years
B. 5 years to 15 years

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C. 15 years to 25 years
D. 25 years onwards

Options No. of % of
Respondents Respondents
Up to 5 years 42 21
5 years to 15 years 62 31
15 years to 25 years 72 36
25 years onwards 24 12
Total 200 100

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Period of Home loans obtained

40 36
35 31
30
Up to 5 years
25 21
5 years to 15 years
% of Respondents

20
15 years to 25 years
15 12
25 years onwards
10
5
0
Up to 5 years 5 years to 15 years 15 years to 25 25 years onwards
years
years

Interpretation

 Out of 200 customers surveyed, 36% of the customers have opted for the home loan
with period of 15 to 25 years.

 31% of customers have opted for the home loan with period of 5 to 15 years.

 It states that larger the tenure, lesser the EMI’s and larger the interest that the
customer has to pay.

 There are only 12% of customers who have obtained home loans for more than
period of 25 years.

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Q.9 What amount have you taken a home loan?
A. Up to Rs.10 lacs
B. Rs.10 lacs to Rs.20 lacs
C. Rs.20 lacs to Rs.30 lacs
D. Rs.30 lacs onward

Options No. of Respondents % of Respondents


Up to Rs.10 lacs 46 23
Rs.10 lacs to Rs.20 lacs 56 28
Rs.20 lacs to Rs.30 lacs 68 34
Rs.30 lacs onward 30 15
Total 200 100

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Home loan amounts obtained by customer's

40
34
35
30 28
23 Up to Rs.10 lacs
25
Rs.10 lacs to Rs.20 lacs
% of Respondents

20
15 Rs.20 lacs to Rs.30 lacs
15
Rs.30 lacs onward
10
5
0
Up to Rs.10 lacs Rs.10 lacs to Rs.20 lacs to Rs.30 lacs onward
Rs.20 lacs Rs.30 lacs
amount

Interpretation

 Out of 200 customers surveyed, 34% of customers in Ahmedabad have opted for
home loan range between Rs.20 lacs to Rs.30 lacs.

 This states the increasing prices for purchasing of new flats or tenements.

 There are only 15% of customers who have been given home loans for more than
Rs.30 lacs. So, there are very few customers who have obtained loan for Rs.30 lacs
or more, as such loans are more risky for the banks and it also contains larger
interest payments.

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Q.10 Which type of interest rate would you prefer?

A. Fixed rate.

B. Floating rate.

C. Combination of fixed & floating rate.

Options No. of
Respondents

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Fixed rate 104
Floating rate. 66
Combination of fixed & floating 30
rate
Total 200

Interest rates Selection

Combination of fixed & Fixed rate


floating rate
15%

Floating rate.

Combination of
Fixed rate
fixed & floating rate
52%
Floating rate.
33%

Interpretation

 Out of 200 customers surveyed, 52% of customers in Ahmedabad have obtained for
home loan at fixed interest rate.

 There are only 33% of customers who have obtained loan at floating interest rate.

 Only 15% of customers have obtained loans with combination of fixed and floating
interest rates.

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 This is because floating interest rates are fluctuating, customers don’t want to take
risk and believe in paying fixed interests.

Findings – Bank’s Questionnaire

Q.1. Which income group takes more home loans? (Assume from 100%)

A. Up to Rs.5000 pm
B. Rs.5001 – Rs.15000 pm
C. Rs.15001 – Rs.25000 pm
D. More than Rs.25000 pm

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Average customers%
Level of Incomes of 5 Banks
Up to Rs.5000 pm 8%
Rs.5001 – Rs.15000 pm 26%
Rs.15001 – Rs.25000 pm 46%
More than Rs.25000 pm 20%
Total 100%

Income groups of home loan customers

8%
20%

26% Up to Rs.5000
pm

Rs.5001 –
Rs.15000 pm

Rs.15001 –
46% Rs.25000 pm

More than
Rs.25000 pm

Interpretation

 Out of 5 banks surveyed, the 46% of the home loan customers of averaged 5 banks
fall in the income group of Rs.15001 to Rs.25000 per month.

 There are 26% of customers who fall in the income group of Rs.5001 to Rs.15000
per month.

 This means that out of the total loans issued by the banks, 72% of home loans are
provided to the income level group between Rs.5001 to Rs.25000 per month.

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 This is because issuing home loans below and above that range; the bank faces
more risks in repayment of them.

Q.2 How many percentage of customers selects to obtain loans at the below mentioned
levels? (Assume from 100%)
A. Below 5 lakhs
B. 5 lakhs – 15 lakhs
C.15 lakhs – 30 lakhs
D. 30 lakhs – 50 lakhs
E. Above 50 lakhs

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Amount of home loan obtained by Average customer’s%
customers of 5 Banks
Below 5 lakhs 12
5 lakhs – 15 lakhs 18
15 lakhs – 30 lakhs 42
30 lakhs – 50 lakhs 20
Above 50 lakhs 8
Total 100

Amount of home loans obtained by the


customers

8% 12% Below 5 lakhs

20%
18% 5 lakhs – 15 lakhs

15 lakhs – 30 lakhs

30 lakhs – 50 lakhs

42% Above 50 lakhs

Interpretation

 Out of 5 banks surveyed, the 42% of the home loan customers of averaged 5 banks
have been provided the loans between Rs.15 lacs to Rs.30 lacs.

 There are 20% of home loan customers who have obtained home loans between
Rs.30 lacs to Rs.50 lacs and comparatively, there are very few customers who have
obtained home loans with more than 50 lacs amounts.

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 From this we can interpret that issuing higher amounts of loans can be more riskier
to the banks and secondly, the higher the amount may charge the customers with
higher rates of interest.

Q.3 Normally, what is the tenure for the home loans that customers prefer? (Assume from
100%)
A. Less than 5 years
B. 5 years – 15 years
C. 15 years – 25 years
D. More than 25 years

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Average customers % of 5
Years for which home loans obtained banks
Less than 5 years 18
5 years – 15 years 56
15 years – 25 years 20
More than 25 years 6
Total 100

Tenure for home loans taken

6%
18%
20%

Less than 5 years


5 years – 15 years
15 years – 25 years
More than 25 years

56%

Interpretation

 Out of 5 banks surveyed, the 56% of the home loan customers of averaged 5 banks
have obtained the loans for tenure between 5 years to 15 years.

 There are 20% of home loan customers who have obtained home loans for tenure
between 15 years to 25 years and comparatively, there are only 6% of customers
who have obtained loan for more than 25 years of tenure.

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 From this we can interpret that issuing higher tenured home loans can be more
risky to the banks for getting repayment of loans.

 The customers who have obtained home loan for more than 20 years of period of
time have to pay more interest rates.

Q.4. Rate the following elements of marketing strategy in order that you normally use for
home loans? (1-worst and 5-best)

A. Advertisement by print media


B. Publicity through agents
C. Advertisement by TV, movie halls

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D. Mailers to customers
E. Telemarketing

Elements of Marketing straregy used by


banks Average customers % of 5 banks
Advertisement by print media 27
Publicity through agents 13
Advertisement by TV, movie halls 33
Mailers to customers 20
Telemarketing 7
Total 100

Elements of Mktg strategy

7%
27%
20% Advertisement by print media
Publicity through agents
Advertisement by TV, movie halls
Mailers to customers
13% Telemarketing
33%

Interpretation

 Out of 5 banks surveyed, the 33% of the averaged 5 banks uses advertisements
through television as main element for marketing home loans, 27% of the banks
uses advertisements through print media for marketing strategy.

 There are only 20% of banks that uses mailers to the customers for marketing home
loans.

 Only 7% of banks uses telemarketing for marketing of home loans.

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 From this we can interpret that advertisements through television and through print
media have greater impacts on customers for marketing home loan.

Q.5 What is the major purpose for which the customers buy home loans? (Assume from
100%)
A. Home purchase
B. Home construction/extension/improvement
C. Land purchase
D. Bridge

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Purposes for home loan Average customers % of 5 banks
. Home purchase 60
Home
construction/extension/improvement 19
. Land purchase 13
Bridge 8
Total 100

Purposes for home loan

8%

13%
. Home purchase

Home
construction/extension/impro
vement
19% 60% . Land purchase

Bridge

Interpretation

 Out of 5 banks surveyed, the 60% of the averaged 5 banks have issued home loans
for home purchasing purpose.

 There are only 19% of banks that have issued home loans for home
construction/extension/improvement purposes such as : -
o External repairs

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o Tiling and flooring
o Internal and external painting
o Plumbing and electrical work
o Waterproofing and roofing
o Grills and aluminum windows
o Waterproofing on terrace
o Construction of underground/overhead water tank
o Paving of compound wall (with stone/tile/etc.)
o Borewell
 Only 8% of home loans are issued for bridging purpose which is a short term loan
to help customers with the interim period between the sale of their old home and
the purchase of a new home.

Q 6. What are eligibility criterias used by the bank for giving home loans? (Rate them)
A. Income
B. Qualifications
C. Age
D. Spouse's income
E. Number of dependants
F. Stability and continuity of occupation

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G. G. Assets/Liabilities
H. Saving’s history
Eligibility criterias used by the banks Average Ratings of 5 banks
Income 8
Qualifications 2
Age 3
Spouse's income 4
Number of dependants 1
Stability and continuity of occupation 5
Assets/Liabilities 6
Saving’s history 7

Eligibility criterias used by banks

9 8
8 7
Ratings given

7 6
Income
6 5
5 4 Qualificat ions
4 3
3 2 Age
2 1
1 Spouse's income
0
Assets/Liabilities
dependants
Income

Number of dependants
Age

Number of

Stability and continuity


of occupat ion
Asset s/Liabilities

Saving’s history
Criterias

Interpretation

 Out of 5 banks surveyed, the eligibility criterias that are verified by the banks are
mentioned. Out of these criterias, banks have given highest rankings to the income
of the individual applying for home loans.

 Secondly, the banks verifies that what is the savings history record of the customer
applying for the loan and then it verifies what are the assets and liabilities that they
have.

 After that bank verifies the stability and continuity of the income of an individual
on the basis of his occupation.

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 Thus, it is very important for the banks to know these individual details before
issuing the home loans.

Q 7. Out of the total loans outstanding, what is the proportion in which it is distributed
to the following alternatives? (Assume from 100%)

A. Individuals
B. Corporates
C. Others

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Total Outstanding Loans Average customers % of 5 banks
. Individuals 62
Corporates 28
Others 10
Total 100

Total Outstanding Loans

Others
10%

Corporates . Individuals
28%
Corporates
Others

. Individuals
62%

Interpretation

 Out of 5 banks surveyed, from the total loans outstanding, there are 62% of home
loans that are outstanding from individuals. These loans includes the loans that
individuals apply for Personal loans, Car loans, Home loans, Education loans, etc.

 Secondly, the banks outstanding loans are 28% from the corporate. These are less in
amount as compared to the total outstanding amount of individuals.

 Thus we can interpret that home loans, Car loans, etc. issued to the individuals
increases the risks for the banks of repayment for the same.

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Chapter 6

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ANALYSIS FROM QUESTIONNAIRES

 For home loans most of the customers prefer to obtain loans from banks as
compared to HFC’s.

 Out of the banks most customers have obtained loan from ICICI and SBI majoritily.

 ICICI bank is famous for its prestige and takes less processing time for providing
home loans from the customer’s context.

 According to customers, SBI is providing loans at lesser interest interest rates and
has good prestige too.

 HSBC is famous for customers for its prestige of world’s localized bank and as per
their views, it asks for less mortgage requirement.

 Punjab national bank provides home loans at cheaper rate and it also maintains
good image in eyes of customers.

 Most referrals used by the customers are through Building Contractors from whom
they have purchased home and secondly through their relatives.

 Majority of customers obtains home loans for the newly purchasing of house and
secondly for the purpose of construction and extension purposes.

 While selecting the lenders, the customers mainly gives priority to the interest rates
offered by them and secondly give significance to the availability of the time
period.

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 For increasing their eligibility for the home loans, the customers would opt to clear
their outstanding debts of previous loans obtained, like car loans, personal loans,
etc. must be paid off firstly.

 Majority of the customers have taken the home loans for the period ranging
between 15 to 25 years because if they obtain it for more years then their EMI’s
gets shorten up and can afford to repay the amount easily in installments.

 Most of the customers have obtained the amount of home loans ranging from Rs.20
lacs to Rs.30 lacs.

 The customers selects more to pay fixed interest rates as compared to that of
floating interest rate because they don’t want to take any risk and want to pay fixed
interest.

 The banks have issued maximum loans to the customers falling under the income
group of Rs.15000 to Rs.25000pm.

 Banks have issued home loans to the customers up to the amounts of Rs.30 lacs
because for banks issuing loans more than that can be more risky ones to be repaid
by customers.

 Television and print media are the main elements used by the banks for marketing
home loans.

 The main eligibility criterias used by the banks before issuing home loans to the
customers are their income, savings history, assets and liabilities,etc.

 Out of the total outstanding loans taken by banks, the proportion of loans provided
to individuals is larger as compared to the corporates. This portion may include
home loans, car loans, personal loans, etc. issued to individuals.

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Chapter 7

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SUGGESTIONS TO CUSTOMERS

These are some suggestions for the customers who are applying for obtaining home
loans that must be considered before making the decision.

 The suggestions to the customers are that as obtaining home loan is a very rational
decision making process, the customers should verify certain factors and then
obtain loan.
 The customers should firstly get the pre approval of home loans. They should
obtain first proper knowledge of interest rates provided by the banks and HFC’s.
 They should collect the brochures from the banks and HFC’s and make visit to their
websites also.
 The customers should study all the details relating to the banks and HFC;s as the
costs occurred, time period provided for repayment of loans, processing time and
costs, their prestige and many other factors.
 The customers should firstly pay off their outstanding debts if any, like car loans,
personal loans, etc. before applying for the home loans.

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Chapter 8

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CONCLUSION

Aim and culture emanates from its complete obsession with its quality, not just in product
and services and also in the operations and approach be it manufacturing, marketing,
consumer satisfaction or even the dedication and commitment.

Through this programme we learnt how to deal with the housing sector of Indian Banking.
The important point was extracting as much information as possible, which helped us to
improve our potentials. And this definitely has helped us in our enhancing our academic
career.

Last but not the least, we can say correctly for our professors that “You inspire it, we
develop and stand by”.

Finally, we can state that the Housing Sector Financing in India is developing rapidly and it
is a boon to the people to ease their need of a home. There is keen competition between
various banks, HFC’s, etc. in this sector. Due to existence of keen competition, customers
are benefited lot and they have better alternatives available for making decision of from
where to obtain home loans?

We can conclude that each customer have different perceptions before obtaining the loans.
They make decisions on the basis of quality of services offered, costs, benefits available
and other such factors. Thus we can say that customer is selective in approaching towards
home loans.

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Chapter 9

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QUESTIONAIRE FOR CUSTOMERS

Name: - Qualification:-
Area: - Age:-

Q.1 Which alternative would you prefer for taking home loan?

A.. Housing Finance Companies


B. . Bank
C. Agencies
D. Others

Q.2 If bank, through which bank you have taken home loan?

A.HDFC
B. SBI
C.ICICI
D.HSBC
E. Kotak Mahindra Bank
F. Others.____________________________
Q.3 What are the criterias for which you have opted to take home loan from your
selected bank? (Rate them – 10 as best and 1 as worst)

A. Prestige of the bank


B. Rate of interest offered
C. Automatic insurance policy
D. Mortgage requirement
E. Flexibility in fore-closure
F. Mode of repayment
G. Less processing time
H. Less processing cost
I. Less documentation
J. Authentication of property
Q.4 Whose referrals motivated you to obtain home loan from the bank/HFC’s?

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A. Friends
B. Relatives
C. Neighbours
D. Colleagues
E. Building Contractor
F. Others

Q.5 For which of the following purpose have you taken home loan?

A. Home purchase
B. Home Construction
C. Home Extension/ Improvement
D. Land Purchase loans
E. Bridge loans
F. Refinance Loan

Q.6 On what basis do you choose a lender?

A. Eligibility period

B. Interest rates

C. Other costs (Administration fee, processing fee).

E. Documents required.

F. Penalties

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Q.7 By which way do you increase the eligibility for which you can obtain a home
loan?

A. Stretch your loan tenure

B. Clear your outstanding debts

C. Step-up loan

D. Balloon Payment (loan against investment)

Q.8 For what time duration has you taken home loan?

A. Up to 5 years
B. 5 years to 15 years
C. 15 years to 25 years
D. 25 years onwards

Q.9 What amount have you taken a home loan?

A. Up to Rs.10 lacs
B. Rs.10 lacs to Rs.20 lacs
C. Rs.20 lacs to Rs.30 lacs
D. Rs.30 lacs onward

Q.10 Which type of interest rate would you prefer?

A. Fixed rate.

B. Floating rate.

C. Combination of fixed & floating rate.

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QUESTIONAIRE FOR BANKS
Name of bank:-
Name of employee:-
Q.1. Which income group takes more home loans? (Assume from 100%)

A. Up to Rs.5000 pm
B. Rs.5001 – Rs.15000 pm
C. Rs.15001 – Rs.25000 pm
D. More than Rs.25000 pm

Q.2 How many percentage of customers selects to obtain loans at the below mentioned
levels? (Assume from 100%)
A. Below 5 lacs
B. 5 lacs – 15 lacs
C.15 lacs – 30 lacs
D. 30 lacs – 50 lacs
E. Above 50 lacs

Q.3 Normally, what is the tenure for the home loans that customers prefer? (Assume from
100%)
A. Less than 5 years
B. 5 years – 15 years
C. 15 years – 25 years
D. More than 25 years

Q.4. Rate the following elements of marketing strategy in order that you normally use for
home loans? (1-worst and 5-best)

A. Advertisement by print media


B. Publicity through agents
C. Advertisement by TV, movie halls
D. Mailers to customers
E. Telemarketing

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Q.5 What is the major purpose for which the customers buy home loans? (Assume from
100%)
A. Home purchase
B. Home construction/extension/improvement
C. Land purchase
D. Bridge

Q 6. What are eligibility criteria used by your bank for giving home loans? (Rate them)
A. Income
B. Qualifications
C. Age
D. Spouse's income
E. Number of dependants
F. Stability and continuity of occupation
G. G. Assets/Liabilities.
H. Saving’s history.

Q 7. Out of the total loans outstanding, what is the proportion in which it is distributed
to the following alternatives? (Assume from 100%)

A. Individuals
B. Corporates
C. Others

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Chapter 10

GLOSSARY

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Acceleration Clause
A proviso in an agreement that confers upon the owner the right, while keeping the
agreement alive, to recover from the defaulting hirer the entire unpaid balance of the loan
amount. In such case, on default in payment of any one installment, the full outstanding
balance of the price shall immediately become due. .

Acceptance Letter
The letter submitted by the loan applicant indicating his willingness to accept the loan as
per the terms of issue mentioned in the sanction letter. This letter is normally sent out
within a particular time frame varying between 1-3 months from the date of the sanction
letter.

Adjust Rate Home Loan


This is a loan where the rate of interest is linked to the Prime Lending Rate (PLR) and the
gains/ losses arising out of fluctuation in the interest rate are borne by the borrower. The
rate on loan is generally revised at regular intervals. If there is a change in RPLR (Retail
Prime Lending Rate), although the EMI (Equated monthly installment) on the home loan
disbursed to the customer will not change, the tenure will increase or decrease depending
on whether the interest rates rose or fell from their previous level.

Amortization Period
This refers to the period of time for which you will owe interest and principal to your
lender - the bank or HFC (housing finance company). .

Amortization Schedule
This is a schedule that details the principal and interest payments and the amount
outstanding at any given point during the amortization period.

Application
This refers to the entire process of applying for a loan starting with the submission of the

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application form used to apply for a loan, which contains relevant information about you to
enable the HFC or bank to process your loan .
Appraisal
An estimate of the value of the property/ asset, made by a qualified professional called an
"appraiser". A credit appraisal is carried out by your HFC or to determine your repayment
capacity on the basis of which the loan amount and terms will be decided.

Balloon Mortgage
Also known as Payment mortgage, this is usually a short-term fixed-rate loan, which
involves small payments for a certain period of time, and one large payment for the
remaining amount of the principal at a time specified in the contract.

Borrower
One who applies for and receives a loan in the form of a mortgage, with the intention of
repaying the loan in full. The borrower is also known as the mortgagor.

Bounce charges
These charges are levied by the HFC (housing finance company) if your cheques get
dishonoured due to some reason.

Co applicant
As a customer you have an option of having a co - applicant to your loan. The co -
applicant cannot be a minor and most HFCs allow for only brother - brother, parent - son
and husband - wife combination for a co – applicant. t
t.
Collateral
An asset (such as a car or a home) that can be used to guarantee the repayment of a loan.
The borrower risks losing that asset pledged as collateral if the loan amount is not repaid in
a timely fashion.

Collection
The process of forcing a borrower to pay what he owes on a loan and, if required, to

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proceed with foreclosure. This happens in case of the borrower not making his payments in
a timely fashion.

Construction Loan
Also known as interim loan, this provides the funds necessary to pay for the construction
of buildings or homes. The lender advances funds to the builder at periodic intervals as the
work progresses.

Contingency
A specified stipulation that must be met before a contract is legally binding. The two most
common contingencies in home purchasing are that t
:
1.The house must pass the home inspection, an d
2. The borrower must get the loan

Credit Appraisal
An appraisal conducted by the HFC's panel of credit appraisal officers who process the
loan application. They take into account factors like income of the applicants, number of
dependents, monthly expenditure, repayment capacity, employment history, number of
years of service left over and other such factors, which affect the credit rating of the
borrower. Proof of income will also be verified for the purpose of approval of the loan

Credit Report
A report documenting the credit history and current status of a borrower's credit standing.
If there are debts you owe which you never paid, or times in which you've been delinquent
in paying, these items will presumably show up on your credit report and can hurt your
chances of getting approved for a loan.

Default
Failure to meet legal obligations in a contract, in this case, failure to make the monthly
payments on a mortgage. If this happens, the borrower can end up losing the property.

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Delinquency
Failure to make payments on time is called delinquency. This can lead to fore-closure.

Documentation
The papers to be signed in connection with the loan at the HFC, i.e., the loan papers, is
called documentation. The section on basics of housing loans deals with documentation
.
Down Payment
Money paid to bridge the difference between the purchase price and the mortgage amount.
Down payments usually are 10-20% of the sales price on conventional loans.

Equated Monthly Installment (EMI)


This is the installment amount the borrower has to make towards repayment of his loan.
The EMI comprises of both the principal and interest.

First Mortgage
The mortgage, which is the primary lien against a property.

Gross Monthly Income (GMI)


The Gross Monthly Income of an individual as considered by an HFC to calculate his loan
eligibility. For a salaried customer GMI would indicate the Monthly Income on his salary
slip including any Fixed Income generated regularly from a fixed source. For Self-
employed professionals who are practicing on their own, GMI would reflect their Gross
Professional Receipts while for self-employed non-professionals; GMI stands for Net
profits that they earn from their business.

IIR (Income to Installment Ratio)


This ratio signifies the percentage of the income that can be set aside for repayment of the
loan under the assumption that 50-60% of the income is required by the person for his own
sustenance

Loan Against Property


When the borrower takes a loan against existing property, this is considered as a loan
against property. In this case, the existing property is mortgaged with the lender. The rate

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of interest for loan against property is generally higher than the interest on home loan as
the end use of the funds cannot be monitored.

Loan Tenure
The time duration for which loan has been provided .

LTV (Loan to Value Ratio)


This ratio denotes the percentage of value of the property that is financed by the company.
This ratio usually ranges between 80-85% of the property.

Mortgage
A legal contract that is registered against the title to a property in order to guarantee that a
loan will be repaid. This is a form of hypothecation of the property to the HFC where, if
the borrower defaults in paying the installment on the home loan and he has filed for
bankruptcy, the HFC's claims will lie in precedence to other creditors' charges.

Pre approval
In a Home Loan, you have a facility to apply for a loan before you decide on the property.
The loan is sanctioned however, disbursement takes place only after the property is
selected and is technically and legally cleared. Such cases are called Pre - approvals as the
loan is approved before the customer selects a property. This helps you to decide on a
budget to buy a property of your choice.

Tenure
The term used to represent the number of years for which the loan is given. The loan
amount gets amortized over the period of the loan

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Chapter 10

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BIBLIOGRAPHY
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http://www.apnaloan.com/primers/home-loan-india/loanprocess.html#

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http://www.deal4loans.com/home-loan-icici-bank.php

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