A SUMMER TRAINING PROJECT REPORT

ON

COMPARATIVE STUDY OF FINANCIAL INSTITUTIONS OFFERING HOME LOANS IN

HDFC BANK LTD., DELHI

In the partial fulfilment of the degree of MASTER OF BUSINESS ADMINISTRATION

SUBMITTED TO; MISS. PRAGYA AGARWAL HOD-HIET, GHAZIABAD

SUBMITTED BY: VISHVANATHPAL MBA-III Semester Role no.0922070057

HI-TECH INSTITUTE OF ENGINEERING & TECHNOLOGY, GHAZIABAD

GAUTAM BUDDH TECHNICAL UNIVERSTY LUCKNOW

DECLARATION
I VISHVANATH PAL Roll No. 0922070057 hereby declare that project entitled COMPARATIVE STUDY OF FINANCIAL INSTITUTION OFFERING HOME LOANS in partial fulfilment of the degree for Master of Business Administration to HI-TECH INSTITUTION OF ENGINEERING & TECHNOLOGY, Ghaziabad (Affiliated to Uttar Pradesh Technical University, Lucknow) is of my own work. I further declare that all the facts and figures furnished in this project report are the outcome of my own intensive research and findings.

VISHVANATH PAL

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CONTENTS
History of HDFC bank............................................................................................7 Executive Summary..............................................................................................12 Company Profile...................................................................................................14 Role of National Housing Bank..........................................................................17 Norms for approval of housing finance Companies by NHB............................................................................................20 Objective of the study.......................................................................................36 Major players in the field of housing finance..................................................38 (a) Net sale........................................................................................................39

(b) Nat profit.......................................................................................................40 (c) Net worth......................................................................................................41 Analysis............................................................................................................44 Tend analysis of financial Institution offering home loans...........................................................................51 Result...............................................................................................................56 Suggestions.....................................................................................................58 Limitations....................................................................................................60 Appendix.........................................................................................................62 (a) HDFC Ltd................. ........................................................................63

(b) SBI home financing ltd....................................................................64 (c) LIC housing financing ltd.................................................................65 32

(d) Can fin financing ltd........................................................................66 (e) ICICI home financing ltd................................................................67 Questionnaire...........................................................................................68 Faq ..........................................................................................................72 Bibliography ...........................................................................................84

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PREFACE
Industrial interface through project is compulsory for the fulfilment of MBA degree course, so that student are able to realize the practical experience of corporate world through project, we come to understand the between theories and real aspects of business. I feel pleasure in presenting this report title FINANCIAL INSTITUTIONS OFFERING HOME LOANS which is detailed collection and survey of HDFC Bank and other competitors. Study of market share is very essential for an organization to position its product in the market successfully. I expect that the comparative analysis of offering home loan by different financial institutions, and various data are beneficial to my company. The conclusions are drawn and recommendations have been put better of the performance of HDFC Bank.

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ACKNOWLEDGEMENT
I am very thankful to Mr. Anshul Shrivastva (officer-recoveries) for giving me valuable suggestions and ideas for completing the project report. I am also grateful to Mr. Prabhat Rao (Branch Manager, Delhi) for his help and keep interest in project. I am grateful to MISS. PRAGYA AGARWAL my project guides who provided me valuable guidance and should a great deal of enthusiasm and commitment for this project, without his guidance this project might not have reached the present stage. All the MBA faculty member of HIET and all the concerned persons contacted under the project report.

VISHVANATH PAL

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HISTORY OF HDFC BANK

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History
The HDFC Bank was incorporated on August 1994 by the name of 'HDFC Bank Limited', with Its registered office in Mumbai, India. HDFC Bank commenced operations as a Scheduled Commercia l Bank in January 1995. The Housing Development Finance Corporation (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. HDFC Bank is headquartered in Mumbai. The Bank at present has an enviable network of over 1416 branches spread over 550 cities across India . All branches are linked on an online real-time basis . Customers in over 500 locations are also serviced through Telephone Banking. The Bank also has a network of about over 3382 networked ATMs across these cities. The promoter of the company HDFC was incepted in 1977 is India's premier housing finance company and enjoys an impeccable track record in India as well as in international markets. HDFC has developed significant expertise in retail mortgage loans to different market segments and also has a large corporate client base for its housing related credit facilities. With its experience in the financial markets, a strong market reputation, large shareholder base and unique consumer franchise, HDFC was ideally positioned to promote a bank in the Indian environment. The shares are listed on the Bombay Stock Exchange Limited and The National Stock Exchange of India Limited. The Bank's American Depository Shares ( ADS ) are listed on the New York Stock Exchange (NYSE) under the symbol 'HDB' and the Bank's Global Depository Receipts (GDRs) are listed on Luxembourg Stock Exchange. On May 23, 2008, the amalgamation of Centurion Bank of Punjab with HDFC Bank was formally approved by Reserve Bank of India to complete he statutory and regulatory approval process. As per the scheme of amalgamation, shareholders of CBoP received 1 share of HDFC Bank for every 29 shares of CBoP. The merged entity now holds a strong deposit base of around Rs. 1,22,000 crore and net advances of around Rs. 89,000 crore. The balance sheet size of the combined entity would be over Rs. 1,63,000 crore . The amalgamation added significant value to HDFC Bank in terms of increased branch network, geographic reach, and customer base, and a bigger pool of skilled manpower. In a milestone transaction in the Indian banking industry, Times Bank Limited (another new private sector bank promoted by Bennett , Coleman & Co. ( Times Group ) was merged with HDFC Bank Ltd., effective February 26, 2000 . This was the first merger of two private banks in the New Generation Private Sector Banks. As per the scheme of amalgamation approved by the shareholders of both banks and the Reserve Bank of India, shareholders of 32

Times Bank received 1 share of HDFC Bank for every 5.75 shares of Times Bank. HDFC Bank offers a wide range of commercial and transactional banking services and treasury products to wholesale and retail customers. The bank has three key business segments: Wholesale Banking Services - The Bank's target market ranges from large , blue-chip manufacturing companies in the Indian corporate to small & midsized corporate and agro-based businesses. Retail Banking Services - The objective of the Retail Bank is to provide its target market customers a full range of financial products and banking services, giving the customer a one-stop window for all his/her banking requirements. Treasury - Within this business, the bank has three main product areas Foreign Exchange and Derivatives, Local Currency Money Market & Debt Securities, and Equities . The Treasury business is responsible for managing the returns and market risk on this investment portfolio. HDFC Securities subsidiaries. (HSL) and HDB Financial Services (HDBFSL) are its

Services offered by the company: Personal Banking

Accounts & Deposits Loans Cards Forex Investments & Insurance

NRI Banking

Accounts & Deposits Remittances Investments & Insurance Loans Payment Services

Wholesale Banking

Corporate Small & Medium Enterprises Financial Institutions & Trusts Government Sector 32

Achievements/ recognition:HDFC Bank was the first bank in India to launch an International Debit Card in association with VISA (VISA Electron) and issues the MasterCard Maestro debit card as well. 2009

Business Standard Best Banker Award Mr . Aditya Puri, MD, HDFC Bank Best Bank Awards 2009 - Best Innovator of the year award for its MD Mr. Aditya Puri - Second Best Private Bank in India - Best in Strength and Soundness Award Euro money Awards 2009 - 'Best Bank in India' Economic Times Brand Equity & Nielsen Research annual survey 2009 - Most Trusted Brand - Runner Up Asia Money 2009 Awards - 'Best Domestic Bank in India' IBA Banking Technology Awards 2009 - 'Best IT Governance Award Runner up' Global Finance Award - 'Best Trade Finance Bank in India for 2009 IDRBT Banking Technology Excellence Governance and Value Delivery' Award 2008 'Best IT

Asian Banker Excellence in Retail Financial Services Best Retail Bank in India Award 2009 '

'Asian Banker

2008

Finance Asia Country Awards for Achievement 2008 Best Cash Management Bank' CNN-IBN - 'Indian of the Year (Business)' Nasscom IT User Award 2008 Sector' Business India - 'Best Bank 2008' Forbes Asia - Fab 50 companies in Asia Pacific

'Best Bank and

'Best IT Adoption in the Banking

Asian Banker Excellence in Retail Financial Services - Best Retail Bank 2008 Asia money Corporate - Best local Cash Management Bank Award voted by

Microsoft & Indian Express Group - Security Strategist Award 2008

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World Trade Centre Award of honour international trade services.

- For outstanding contribution to

Business Today-Monitor Group survey - One of India's 'Most Innovative Companies' Financial Express-Ernst & Young Award - Best Bank Award in the Private Sector category. Global HR Excellence Awards - Asia Pacific HRM Congress: - 'Employer Brand of the Year 2007 - 2008' Award - First Runner up, & many more Business Today - 'Best Bank' Award

2007

Dun & Bradstreet American Express Corporate Best Bank Award 2007 - 'Corporate Best Bank' Award The Bombay Stock Exchange and Nasscom Foundation's Business for Social Responsibility Awards 2007 - 'Best Corporate Social Responsibility Practice' Award Outlook Money & NDTV Profit - Best Bank Award in the Private sector category. The Asian Banker Excellence in Retail Financial Services Awards - Best Retail Bank in India Asian Banker - Its Managing Director Aditya Puri wins the Leadership Achievement Award for India.

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EXECUTIVE SUMMARY

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EXECUTIVE SUMMARY

Housing finance is one of the industries which are driven by ups and downs in the real estate industry. Although there has been an upsurge in the demand for the home loans in the recent past, it has not translated into a stupendous performance by the housing finance companies (HFCs). The housing finance industry is important from the point of view of overall development of the economy. Housing is being increasingly viewed as being important for over all infrastructural development in the economy. The national housing policy reflected the trust, the government wished to give to the

housing sector and pointed out that housing was not merely a consumption expenditure, but also a productive investment which would provide economic activity and create a base for attaining several national policy goals such as providing shelter and raising the quality of life. It specifies the interest rate to be followed in lending and borrowing, income recognition & prudential norms, borrowing limits & audits to the finance cos. In spite of such figures there is an urging need on the part of management to keep close look on financial institutions offering loans. Comparative study of financial institutions that is exactly what our project aimed at. To give our project a more structured look we had taken certain parameters. This provides us a clear picture regarding the financial institutions. In addition to the above proper analysis was done with the help of certain financial tools.

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COMPANY PROFILE OF H.D.F.C

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PROFILE OF H.D.F.C
H.D.F.C . has emerged as the largest mortgage finance institution in the country. The primary objective of H.D.F.C is to enhance residential housing stock and promote home ownership. One of its major objectives is to increase flow of resources for housing through the integration of housing financial institutions with the domestic market. Marketing effort Marketing efforts and initiatives at HDFC LTD have always revolved around the customer. The objective is to reach out to the customer and provide him/her with all housing related solutions. Thus HDFC LTD has right since inception positioned itself not just as a company providing finance to customers, but a company that also provides loan counselling, technical and legal assistance and other property related solutions. Credit appraisal skill and legal and technical expertise has been built over the years. These set of skills, supplemented with the vast database and trained personnel is today proving to be one of HDFC LTD strongest assets. Approvals and Disbursements Total approvals during the year stood at Rs. 9, 041.25 corers as against Rs. 6879.77 cores in the previous year, representing a growth of 31%. Loan disbursements during the year were Rs. 7, 616.56 corers against Rs. 5, 803.01 corers in the previous year representing a growth of 31%. SUBSIDIARIES AND ASSOCIATES Housing is the core business of HDFC LTD. While the main focus is to grow the housing portfolio, organically and inorganically, in order to capitalise on HDFC strong brand value and maximise returns for shareholders, HDFC LTD has made investments in various group companies. These group companies have strong synergies with HDFC LTD and such diversification will enable HDFC LTD to offer a wide gamut of financial services and products to customers. Investments made in the group companies are from borrowed funds, where there is an interest charge debited to the profit and loss account, without a corresponding revenue flow in the initial years. 32

While these investments are long-term in nature, the businesses have tremendous potential, thereby enhancing the valuations of HDFC. The shareholding of HDFC in its subsidiary and associate companies as at March 31, 2003: are given:- HDFC Developers Limited, HDFC Investments Limited, HDFC Holdings Limited, HDFC Trustee Company Limited, HDFC Chubb General Insurance Company Limited, HDFC Realty Limited, HDFC Asset Management Company Limited, GRUH Finance Limited , Intelenet Global Services Limited, Credit Information Bureau(India) Limited, HDFC Securities Limited, HDFC Bank Limited. Risk Management HDFC manages various risks associated with the mortgage business. These risks include credit risk, liquidity risk and interest rate risk. HDFC manages credit risk through stringent credit norms. Liquidity risk and interest rate risks arising out of maturity mismatch of assets and liabilities are managed through regular monitoring of the maturity profiles. PRUDENTIAL NORMS FOR HOUSING FINANCE COMPANIES (HFC's) The NHB has issued guidelines to HFC's on prudential norms for income recognition provisioning, asset classification, provision for Bad and Doubtful, Capital adequacy and c oncentration of credit / investment. HDFC's position with respect to the guidelines is as follows: HDFC's capital for the purpose of determines the capital adequacy companies entirely of Tier 1 Capital. The Tier was Rs. 2,066.71 Corers. In accordance with the norms prescribed by NHB, HDFC's capital adequacy is at 14.05% of risk weighted assets. Assets are classified as standard, Sub-Standard, doubtful and loss assets. Any asset which is not standard asset is a non-performing asset. The principal loans outstanding (along with Preference Shares and Debentures for Estate projects) , Where payments were in arrears for over six months as of march 31,2000, amounted to Rs. 98.71 crores and constituted 0.90% of the portfolio. financial real

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HDFC is in compliance with the limits prescribed by NHB in respect of concentration of credit/investment.

ROLE OF NATIONAL HOUSING BANK

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ROLE OF NATIONAL HOUSING BANK.

National housing bank was formed as a subsidiary of the RBI when national Housing Policy was announced in 1998 regulating the housing finance industry in India. The national housing policy reflected the trust, the government wished to give to the housing sector and pointed out that housing was not merely consumption expenditure, but also a productive investment which would provide economic activity and create a base for attaining several nationa l policy goals such as providing shelter and raising the quality of life. The national housing policy also envisaged that an impetus given to housing would stimulate economic activity through creation of substantial employment opportunities. The national housing bank specifies various norms to be followed by the HFCs and regulates the industry on line of regulation of NBFCs by the RBI. It specifies the interest rate to be followed in lending and borrowing, income recognition and prudential norms, borrowing limits and audit to the housing finance companies. It provides refinancing facility to the housing finance companies and facilitates promotion of these companies on the specified lines. Objectives of NHB The following are the major objectives of NHB1. To promote , establish, support or aid in the promote and establishment of

housing finance institutions; 2. To make a loans and advances or render any other form of financial assistance whatsoever to housing finance institutions and scheduled bank to any authority established by under any central state act and engaged in slum clearance;

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3. To subscribe to o r purchase stocks, shares, bonds debentures and securities every other description

of

4. To guarantee the financial obligations of housing finance institutions and underwrite the issues of stocks, shares, bonds, debentures and securities of every other description of housing finance institutions; 5. To coordinate with LIC, UTI, GIC and other financial institutions in the discharge of its overall functions and 6. To act as an agent of the central /state government(s) or RBI/any authority authorized by RBI.

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NORMS FOR APPROVAL OF HOUSING FINANCE COMPANIES BY NHB

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NORMS FOR APPROVAL OF HOUSING FINANCE COMPANIES BY NHB

NHB refinances only those HFCs that are approved to be set up by it. Some of the conditions that have to be set up by it . Some of the conditions that have to be met for approval are: 1. Minimum paid up capital of HFC should at least be Rs. 1 cr. 2. At least 2 directors on the board should be nominated by banks, financial institutions or by NHB. 3. Any appointment of auditors should only be done by prior approval of the NHB. 4. At least 75% of the housing loans that are to be granted should be of long term nature. 5. Promoters contribution in HFC should at least be 30% of the total paid-up capital. Of the remaining capital, at least 20% of the capital should or approved housing finance companies. 6. The proposed housing finance company should not promote a real estate or a construction company and should maintain an arms length distance from such companies. NHB has imposed restrictions as regards to their names, relationship with construction companies and so on. The names of HFCs . Should not resemble the name of any construction company and the top management of the HFC should not hold similar offices in construction company . Tax treatment of Loans for constructing Houses: Section 24(1) of the Income Tax Act allows deduction of interest on borrowed capital from the Gross Annual Value of the house on accrual basis. Any interest paid on the loan borrowed for the purpose of constructing/ buying or upgrading the house for which the annual value is assessed, is allowed as deduction. Also, any interest on the amount borrowed during the pre-construction period (starting form the date of 32 be contributed by either one or all of banks , financial institutions, and government

borrowing and ending on March 31 s t or the date of completion of the construction, which ever is earlier) is allowed to be deducted in five successive years. Reduce taxable income by claiming deduction upto Rs. 1, 50,000/- p.a. on the interest payable under section 24(b) of the income Tax Act, 1961. Claim tax rebate upto Rs.4000/-p.a. subject to a maximum principal repayment of Rs.20, 000/-p.a. under section 88(2) (xiv) of the income Tax Act, 1961. The Other Initiatives Problems The lack of adequate loan security is cited as the most pernicious stimulizing block of mortgage finance. Low mortgage tenure. The existing loan tenure is 15 years in India while in overseas it can exceed 40 years. HFCs face asset mismatch problem. Sudden spurt in credit will have an inflationary impact on housing with regard to prices. Mainly because of construction time lag. Possible solutions One route adopted overseas to tackle defaults is by mortgage Insurance, where mortgage premiums are paid along with EMIS. Mortgage terms should be raised and the escalation in mortgage risk for the HFI due to higher tenure can be mitigated by early repayment option. Mortgage securitization permits the HFCs to offload long-term mortgages to other investors. The stumbling block here is high stamp dutyas high as 3 percent. Route more funds through the consumer to the developer . Which obviates the need for HFCs to directly finance the developer in addition, if the developer is dependent on the consumer demand simulated by mortgage availability for a large part of funds, he will reduce cash component to house value too.

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GENERAL TERMS AND CONDITIONS OF A HOUSING LOAN

The Following are the terms and conditions applicable to the basic Housing Loan product only. These are likely to vary with respect to the different types of Housing Loans. 1. The loan to value ratio cannot exceed a particular percentage . This differs from product to product and from one HFI to another. 2. The maximum tenure of the loan is normally fixed by HFIs. However, HFIs do provide for different tenors with different terms and conditions. 3. The instalment that you pay is normally restricted to about 40% of your monthly gross income. This is known as the Instalment to Income Ratio (IIR). 4. Your total monthly outflow towards all the loans that you have availed of including the current loan is normally restricted to 50% of your Gross Monthly Income. This is known as the Fixed Obligation To Income Ratio (FOIR). 5. You will be eligible for a loan amount which is the lowest as per your eligibility. This is calculated as per the LTV norms, the IIR norms and the FOIR norms as mentioned above. 6. Most HFIs consider your profile before they judge your repayment capacity. You are judged on the basis of age, qualifications , number of dependents , employment details , employer credentials , work experience , previous track record of repayment of any loans that you have availed of occupation , the industry to which your business relates to if you are self- employed , your turn over in the last 3 4 years, etc. 7. Some HFIs have a team of civil engineers visit the site to get a technical repor t on the quality of construction and compliance with the local laws before they disburse the loan. 8. Some HFIs insist on guarantees from other individuals for due repayment of your loan. In such cases you have to arrange for the personal guarantee before the disbursement of your loan takes place . 9. Most HFIs have a panel of lawyers who go through your property documents to ensure that the documents are clear and are not misrepresented. This is an added benefit that you get when you avail of a loan from HFI. 32

10. The disbursement of your loan is as per the progress of construction of your property unless it is a ready property in which case the disbursement will be by one single cheque. PEMI or Simple Interest on the loan amount disbursed to you in case of a part disbursement will be payable by you on the disbursement. 11. The disbursement, in most cases, will be favouring the builder or the seller or the society or the development authority as the case may be. The disbursement will come in your favour under special circumstances only . 12. You repay the loan either through Deduction Against Salary, Post Dated Cheques, standing instructions as the case may be. The above terms and conditions are generally true for most HFIs with respect to Housing Loans. However, The specific terms and conditions vary with respect to specific HFIs . Credit Documentation What are the typical credit documents that need to be submitted to the HFI? Given below is the exhaustive list of credit documents that need to be submitted for a general product. The documents vary from one HFI to another based on your employer, qualifications, etc. The general requirements are as follows : 1. Income documents 2. Proof of employment 3. Employers details (In case of private limited companies) 4. Proof of age 5. Proof of residence 6. Proof of name change (If applicable) 7. Proof of investments (If required) 8. A copy of the marriage certificate is required by some HFCs or by cash / DD. 13. The principal is amortized either on annual reducing or monthly reducing basis

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Income Documents

Salary slips for the last three months Appointment letter Salary certificate Retainership agreement, if appointed as a consultant Form 16 issued by the employer in your name Last three years Profit & Loss Account Statement duly attested by a Chartered
Accountant employed.

Last three years Balance Sheets duly attested by a Chartered Accountant, if

self employed.

Last three years Income Tax Returns duly filed and certified by the Income
Tax authorities. Proof of Employment

Identity card issued by your employer Visiting card

Employers details (In case of private limited companies)

Profile of employer on employers letterhead (to be signed by a senior person

in the organization) comprising of : a) Name of promoters / Directors b) Background of promoters / Directors c) Nature of business activity of your employer d) Number of employees e) List of branches / factories f) List of suppliers g) List of clients / customers h) Turn over of your employer. 32

i) Annual reports of your employer for the last two to three years Proof of age (Any one of the following)

Passport Voters ID card PAN card Ration card Employers Identity card School leaving certificate Birth certificate.

Proof of residence .( Any one of the following)

PAN card Ration card Passport Rent agreement, if you are staying currently on rent Bank pass book Allotment letter from your company if you are residing in company quarters.

Proof of name change (If applicable)

A copy of the official gazette

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 A copy of a newspaper advertisement publicizing the name change Marriage certificate

Proof of investments (If required)

Bank statement for the last six months of all operating and salary accounts Bank statements for the last six months of all current accounts, if self-employd Any other photocopies of investments held, if required by the HFI.
Legal Documentation What are the typical legal documents that need to be submitted to the HFI ? Given below is a list of legal property documents that need to be submitted to the HFI for mortgage of your property. The name and the list of documents vary from state and also depend on the property being financed. A broad outline of documents required is given below. For a detailed the documents are required to be submitted, for a property in Maharashtra. 1. Acceptance copy of the offer letter issued by the HFI. 2. Title documents of the property that include

Sale agreement duly registered Own contribution receipts Allotment letter Registration receipt Land documents indicating ownership, if applicable Possession letter Lease agreement, if applicable (Property bought from a development
authority) 32

 Mortgage deed if the HFI opts for a registered mortgage

3. No objection certificate from the developer, society or development authority as applicable. 4. Personal Guarantees, if applicable. 5. In case of alternate or additional security, documents for the same depending upon security details. 6. Post dated cheques for the EMIs. The above documents are only indicative in nature and do not cover the entire list. It may also be noted that in a resale case, the previous chain of agreements also need to be taken. Different kinds of charges applicable to Housing Loan products:All the different kinds of charges mentioned below may not be levied by all HFIs. You will need to check the different charges that are levied by your HFIs before availing of a loan. The different kinds of charges applicable to Home Loans are listed below. Pre-disbursement charges 1. Processing fees. 2. Administrative fees. 3. Rate of Interest . 4. Legal charges 5. Technical charges. 6. Stamp duty and registration charges. 7. Personal Guarantee form charges Post-disbursement charges 1. Cheque Bounce charges 2. Delayed Payment charges 3. Additional charges 32

4. Incidental charges 5. Prepayment charges 6. PDC Swapping charges

Pre-disbursement charges Processing fees: This is a charge that is levied by most HFIs to cover the costs that they incur on the processing of your loan application. This has to be paid at the time of submission of the application form. Its normally charged as a percentage of the loan amount sanctioned. Some HFIs also charges a flat fee based on the loan amount instead of a percentage. When a lower Amount is sanctioned the excess fees paid at the time of submission of the application is adjusted with the charges , which you make to the HFI subsequently. Most HFIs refund your processing fee if your loan application is rejected Administrative fees: This charge is again, normally, a percentage of the loan amount sanctioned. It is collected by the HFI for the maintenance of your records, issuing interest certificates, legal charges, technical charges, etc. Through the tenure of the loan. It is payable by you when accept the offer letter given by the HFI. This payment has to be made before you avail of the disbursement. The mode of collection of these fees varies from one HFI to another. Rate of Interest: This is the rate of interest applicable on your loan amount through the tenure of the loan. It is charged on the principal on either annual reducing method or monthly reducing method. The difference between the two has been detailed out in the Glossary section under the respective heads. Most HFIs give you an option to select either a fixed rate of interest or a variable rate of interest. This is also covers in the Glossary section under the respective for your information.

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 Legal charges: Some HFIs levy legal charges that they incur on getting your property documents vetted by their panel of lawyers. Technical charges: These charges are also levied by certain HFIs to meet their expenses on the technical site visits to your property. Stamp duty and registration charges: HFIs that go in for a registered mortgage or English mortgage (see Glossary for more details) pass these charges on to you. These are rather heavy in certain states depending on the laws laid down by the state where you buy a property.

Personal Guarantee form charges: Since the personal guarantees provided by you need to be stamped, these charges are also recovered from you. They are charged to you by HFIs who demand for Guarantees.

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Post-disbursement charges Cheque Bounce Charges: In case the Cheque through which you make a payment to HFIs gets dishonoured, some minimum charges are levied by the Bank. The same are recovered from you. Delayed Payment Charges: HFIs charges delayed payment charges from you if you delay the payment of instalments beyond the due date. Additional charges: These are levied as a percentage on the delayed payment charges by most HFIs . They are levied if you fail to pay the dues within the stipulated time after a delay has taken place. Incidental charges: This is payable in case the HFIs sends a representative from their organization to collect their outstanding dues. It is normally charged at a flat rate per visit. These charges are levied by most HFIs Prepayment charges: This is a penalty charged by HFIs from when you make either a part prepayment or a full repayment of loan. This charge is levied only on lump sum payments and not on the EMIS tha t you pay. This charges is levied on the amount prepaid by you and not on the entire outstanding principal. These charges are gradually being discontinued by the HFIs. PDC swapping charges: In case , you wish to swap the PDCs given by you to the HFI for your EMI repayments, some HFIs charges a flat fee for the same.

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Look before you leap 1. How not to trip up while taking a loan? Applying for a loan is a complicated process where a customer is faced with many bewildering choices. It is important to make the right impression on your loan officer to get the loan you want. However, there are some important to make the right impression on your loan officer to get the loan you want. However, there are some things that you should just not do. Here are 10 common-enough pitfalls to avoid while applying for a loan. Dont lie in your application form All the columns in the application form are meant to provide vital information that the prospective lender uses to evaluate your creditworthiness. Do not leave out any important details about your income, your address (both temporary & permanent) and about your past or existing relationship with the lender. All this information has also to be supported by documents. Lying in the application form amounts to fudging documents. Dont fudge salary slips and income statements Dont ever fudge salary slips or income statement. Your loan officer handles hundreds of loan cases. The chances are, he knows ever trick in the book before you could even think of one. Fudging salary slips is a serious offence. It is fraudulence of a high order. Dont ever do it. Not only will you not get this loan, you can even be blacklisted by not only this lenders too (given the amount of information-sharing between companies).

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Dont go in for a co-applicant unless it is necessary Loan officers are notoriously conservative. The greater the pile of documents elated

to your case in their files, the more comfortable they feel. You should always put your foot sown when a loan officer asks for more guarantors or asks you to bring another co-applicant. The loan officer could be convinced of your case but may be merely trying to protect himself from all possible eventualities. If you follow his dictates. You are killing the prospects of the co-applicant to procure a loan for herself in the future. Dont offer proof of a lavish lifestyle to prove creditworthiness Your loan officer is only interested in seeing the adequacy of your income. This emerges clearly out of the income documents you submit with your loan application. So an effort to project at lifestyle merely to impress him is a define no-no . It could even backfire on you if he feels that you are living beyond your means. Remember, he can reject your loan application on this ground. If you ever blew your months salary on your favourite perfume or that gorgeous pashmina shawl, please dont tell him. Dont bounce or return cheques Your bank statement speaks volumes about your spending habits. It mirrors your spending behaviour. It provides your loan officer with a comprehensive view of how you manage your money. If there are too many cheques bounced or returned check entries in your bank statement, be prepared with a convincing explanation and papers to prove it. Generally, though, there should not be any Cheque returns or bounced cheques. It lowers your creditworthiness and could result in lower or no borrowing.

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Dont show a cleaned-out account Maintain a certain balance a show some savings in your account. Otherwise you will come across as someone who is barely able to meet his expenses. Savings in your account will show the loan officer that youll be able to meet the EMI. Otherwise you will have to come up with a convincing plan of lowering your expenses. Dont hide details about other loans If there is a recurring payment on an existing loan, make sure youve mentioned the existing liability in the form. Since other loan repayments bring sown your incometo instalment ratio and result in a lower loan, this is a vital piece of information. Dont hide details about the loan. Consider consolidating all your debt before going in for another loan. Dont fudge details of professional degrees Loans to self-employed professionals are extended on the strength of the professional degree and the income (especially in case of a personal loan). In such a case, fudging your professional degree or income documents can seriously jeopardize your loan application. Professional qualifications are almost always verified. Dont ever attempt to bribe the loan officer You perhaps fees that your loan application is not strong enough to get you the loan amount you are asking for. And you probably think that you can grease the palm of the loan officer to enhance your loan eligibility. Cant even think about it . Even if you got lucky and your loan officer was the bad apple in the companys basket (it could happen), your loan is reviewed by two or sometimes three other people. You were not planning to bribe all of them, were you?

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Dont take a loan against your FD as collateral, Break it. A common mistake most borrowers commit is to borrow against their fixed deposit. They prefer taking loan against their own money at a rate higher than the rate they are receiving on their fixed deposit. You should consider this option only when you require funds for a very short term. Otherwise, it makes sense to encash your FDs. This way youd be able to borrow less.

32

OBJECTIVE OF THE STUDY

32

OBJECTIVE OF THE STUDY

To undertake competitive analysis and to understand the information contained in the financial statement with a view to know the weakness and strength of the firm and to make a forecast about the future prospects of the firm .

To assess the present profitability and operating efficiency of the firm To assess the long term as well as short term liquidity position of the firm. To find out the influencing features / benefits behind home loans. To find out the preferences of the people regarding certain parameters.

32

MAJOR PLAYERS IN THE FIELD OF HOUSING FINANCE

32

MAJOR PLAYERS IN THE FIELD OF HOUSING FINANCE

Major housing finance institutions are identified on the basis of the following parameters: 1. Net Sales 2. Net Profit 3. Net Worth

1. NET SALES

NET SALES Net Sales (In Crores) 3000 2000 1000 0

I H D FC LI C IC IC

c
N Sb i

Series1

Financial Institutions

In the financial year 2003 04, HDFC Ltd. recorded the highest net sales of Rs. 2690.47 corers followed by LIC Housing Finance Ltd. with net sales of Rs. 873.26 crores, ICICI Home fin. Co. ltd with Rs. 191.96 corers, CANFIN Homes Ltd. Rs. 138.94 corers and SBI Home Finance Ltd. Rs. 39.36 corers.

C AN FI

32

2. NET PROFIT

NET PROFIT
800 600 400 200 0 -200 Net Profit (In crores)

Series1

I C AN FI N

H D FC

LI C

IC IC

Financial Institutions

In the year 2003 04, HDFC Ltd. recorded the highest net profit of Rs. 580.01 corers followed by LIC Housing Finance Ltd. with net profit of Home Finance Ltd. Rs.-90.19 corers. Rs. 147.54 crores, ICICI Home fin. co. ltd Rs .9.58 corers, CANFIN Homes Ltd. With Rs. 16.63 corers and SBI

Sb i

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3. NET WORTH

NET WORTH
Net Worth (in crores) 3000 2000 1000 0 -1000 HDFC LIC ICICI CANFIN Sbi

Financial Institutions

In the year 200405, HDFC recorded the highest net worth of Rs. 2702.84 crores followed by LIC Housing Finance Ltd. with net worth of Rs. 737. 23 corers, ICICI Home fin. Co . ltd Rs. 161.88 crores, CANFIN Homes Ltd. Rs. 113.05 crores and SBI Home Finance Ltd. Rs.-154.78 crores.

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ANALYSIS

32

ANALYSIS (LOAN TRANSFER)

Q1. What is the reason / benefit that influences your choice of the financial institution for a housing loan?

40 35 30
Percentage

25 20 15 10 5 0
Interest Repayme Scheme nt Pd 0 4 Easy Avail 4 Ads 12 Int/Easy avail 28 Int/Sch 12

Reasons(%)

40

Reasons / Benefits

ANALYSIS From the above given data we can conclude that out of a sample size of 25 , majority, that is 40% of the respondents are influenced by interest rates, 28% by interest rates and easy availability of the loan, 4% look out for various schemes, and 12% are influenced by both interest rates and schemes available.

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Q2. Allocate your preferences in ranking order which makes you decide about a financial institution for a housing loan.

40 35 30
Percentage(%)

25 20 15 10 5 0
Interest Repayme nt Pd 1 Scheme 3 Easy Avail 4 Ads 12 Interest/ Interest/ availabil Scheme 28 12

Percentage(%)

40

Preferenecs Ranked 1

ANALYSIS

From the above graph and data it can be said that 40% of the customers give their first priority to rate of interest, 28% rank interest rates / easy availability as their priority, 12% each are affected by advertisements and interest rates / schemes , and 4%, 3% and 1% give period. their first preference to easy availability, scheme and repayment

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Q3 . How do you rate HDFC Ltd. In the following services? a) Interest Rates b) Repayment Period c) Customer Care d) Transaction Period

70 60 Percentage(%) 50 40 30 20 10 0
Interest Rates Excellent Very Good Good Poor Very Poor 8 60 28 4 0 Repayment Period 40 56 4 0 0 Customer Care 44 16 12 4 24 Transaction Period 20 52 24 0 0
Excellent Very Good Good Poor Very Poor

Services Offered by HDFC

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Q.4) What is the reason of your loan transfer from HDFC Ltd. ?

40 35 30
Percentage(%)

25 20 15 10 5 0
Higher Rate Of Interest 40 Less Lack of Longer Loan Informati Sanction Amount on Period 16 16 8 Annual Rest 20

Percentage(%)

Reasons Of Loan Transfer

ANALYSIS Out of a sample size of 25, 40% of the respondents said that they shifted to other financial institutions because of Higher rate of interest charged in HDFC LTD, 16% transferred because they did not get the full amount they wanted as loan, 16% said they were not given relevant information time to time by the HDFC LTD staff, 8% said that disbursement period was too long and 20% said that EMI was calculated on Annual Rest basis rather than on Monthly rest basis.

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Q5. In what terms / services do you find the other institutions (in which your loan is Transferred) is better than us ?

20%
Better Services Customer Care Full Loan Amount Sanctioned Low Rate Of Interest

44% 24% 12%

ANALYSIS From the above given data we can conclude that 20% out of a sample size of 25, said that services of other financial institutions are better than HDFC LTD, 44% said that they shifted to other institutions because of low interest rate as compared to HDFC LTD, 24% said that customer care services are better as proper information is given and customers are informed personally about the new schemes and 12% said they shifted because they got the desired loan amount sanctioned.

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Q6.Can we do anything to help you ?

40 35 30
Percentage(%)

25 20 15 10 5 0
Monthly rest Option 16 Improve Custome Full Loan the r Care Amount Services 12 24 8

Nothing 40

Percentage(%)

Reasons Of Loan Transfer

ANALYSIS From the above given data we can conclude that 40% of the respondents said nothing can be done now when They have already Shifted to other financial Institutions, 24% said HDFC LTD should improve its customer care services, 16% said hat monthly rest option should be introduced, 12% said services should be improved and 8% said that the desired loan amount should be sanctioned.

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Q7. Are you satisfied with services of the financial institution you are currently dealing with?

40%

Yes

No

60%

ANALYSIS Out of the sample size of 25, 60% of the customers said that they are satisfied with the services of the financing institutions they are currently dealing with but still 40% of the respondents said that services of HDFC LTD were better as compared to other institutions.

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Q8. Financial Institutions in which Customers of HDFC LTD transferred their loan?

12%

4%

8%

44%

16%

16%

ICICI PNB SBI BOB LIC OTHERS

ANALYSIS From the above data we can conclude that majority of customers that is 44% have shifted to ICICI Home fin. co. ltd the reason being low interest rates, 16% have transferred to SBI and PNB, and 8 % have shifted to BOB, 12% have shifted to LIC and rest 4% to other financial institutions like SYNDICATE bank, STANDARD CHARTERED, ALLAHABAD BANK etc.

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TREND ANALYSIS OF FINANCIAL INSTITUTIONS

32

Trend analysis of financial institutions

HDFC Ltd YEAR ENDING 98 99 00 01 02 SALES Rs Crore 1445.25 1762.87 2011.81 2374.8 2692.41 PBT Rs Corer 326.53 389.02 460.95 556.23 690.93 TREND(%)SALE S 61 74 85 100 113 TREND(%)PB T 59 70 83 100 124

SBI home financ e ltd. YEAR ENDING 98 99 00 01 02 SALES Rs Crore 82.26 66.99 53.53 40.37 39.46 PBT Rs crore -7.56 -44.51 -24.24 -21.55 -90.12 TREND(%)SALE S 204 166 133 100 98 TREND(%)PB T 35 207 112 100 418

LIC housing finance ltd. YEAR ENDING 98 99 00 01 02 SALES Rs Crore 494.84 571.71 657.17 762.03 873.26 PBT Rs Crore TREND(%)SALE S 114.23 65 124.89 75 137.83 86 156.65 100 180.87 115 TREND(%)PB T 79 80 88 100 115

CANFIN homes ltd. YEAR ENDING 98 SALES Rs Crore 100.26 PBT Rs Crore 14.81 TREND(%)SALE S 78 TREND(%)PB T 64 32

99 00 01 02

109.76 112.97 127.63 139.03

19.46 18.27 23.19 24.68

86 89 100 109

84 79 100 106

ICICI HOME FIN. CO. LTD YEAR ENDING 98 99 00 01 02 SALES Rs Crore NA NA NA 57.75 191.96 PBT Rs Crore NA NA NA 1.93 12.64 TREND(%)SALES TREND(%)PBT 0 0 0 100 332.39 0 0 0 100 655

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Trend (%) sales of financial institution offering home loans-A comparison

350 300 Trend Sales % 250 200 150 100 50 0 HDFC SBI LIC CANFIN ICICI Financial Institutions 1998 1999 2000 2001 2002

PBT Trend (%) of financial institutions offering home loans- A comparison

Profit Before Tax Trend (%)

800 600 400 200 0

LI C FI N FC I SB N IC D IC I

1998 1999 2000 2001 2002

Financilal Institutuions

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ANALYSIS

From the graph and the data table we can arrive the conclusion that on the whole, there was a continuous increase in volume as well as profit before tax of financial institutions except SBI home finance Ltd. Not only the client was arrested but positive growth was also visible from the year 1998 to 2003. But the figure of t he SBI home finance Ltd when compared with the figure of other financial institutions reveal that the sales have reduced year by year. The sales of the financial institutions have continuously over a period of five years commencing from 1998. The overall analysis of the financial institutions shows that the financial institutions are doing well and financial position is bound to be good.

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RESULT

32

RESULT
On the basis of the ratio analysis and trend analysis it can be said that the position of the HDFC Ltd is sound from the point of view, of l everage, profitability, and solvency. On the other hand interest coverage ratio and fixed assets turnover ratio of HDFC Ltd is showing and increasing position, of course, never falling below the previous year. This means that firm is maintaining its liquidity and long term solvency position of the firm seems to be stronger than othe r financial institutions. The gross profit ratio of HDFC Ltd has also increase which reflects better managerial and operational picture. The HDFC Ltd. Is showing a study and upward trend of percentage sales and the trend percentage of profit before tax which is growing year by year. Finally we want to give some suggestions on the basis of comparative study of financial institution offering home loans.

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SUGGESTIONS

32

 RATE OF INTEREST should be competitive with other financing institutions. Emphasis should be given on retaining customers. Proper credit appraisal of the customers should be done. Relevant information should be provided to customers time to time.

People who deal with customers should have full knowledge about the housing finance industry. The area where we lack is the area of Advertising HDFC Ltd should do more organized communication between the costumer and the branch offices.

Regular news letter should be send to the customers by post, courier to enhance awareness of the home loan schemes .

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LIMITATIONS

32

LIMITATIONS
1) Time was a major constraint, in completing the project. As the project was very vast and there was paucity of time. 2) From the different financial institutions we could not get the data of ending year 2005 so i am not able to comparative study on the ending year 2005. 3) During the analysis i have taken those financial institutions which have the same accounting policies. 4) Some of miner factor where neglected during the analysis because of lack of time how ever i try to put in my best in the limited period and covered the major factor.

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APPENDIX

32

APPENDIX Financial results of the financial institutions for the year ended March 2001 & 2003 HDFC Ltd HDFC Ltd Rs Corer Operating income Fund bas e income Free base income Interest costs Depreciation PBDT ( NNRT) PBT (NNRT) PAT (NNRT) Gross fixed assets Leased assets Investments Stock I n trade Cash and bank balance Receivables Net worths Equity capital Long term borrowing Current liability and provision * Data Source CMIE March 2001 2011.81 1935.9 75.7 1436.95 41.68 502.63 460.95 401.81 424.35 266.29 3341 0 1081.18 11569.65 2095.97 119.11 12882.82 1226.03 March 2003 2374.8 2271.42 102.82 1689.61 43.06 599.29 556.23 473.65 562.06 242.52 3052.14 0 1007.82 14675.91 2371.94 120.08 15406.81 1344.84

32

SBI home finance Ltd SBI home finance Ltd. Operating income Fund base income Free base income Interest costs Depreciation PBDT ( NNRT) PBT (NNRT) PAT (NNRT) Gross fixed assets Leased assets Investments Stock in trade Cash and bank balance Receivables Net worths Equity capital Long term borrowing Currant liability and provision * Data Source CMIE March 2001 40.37 37.95 2.42 53.66 1.91 -19.64 -21.55 -21.55 32.05 25.17 32.5 0 21.7 361.88 -64.59 15 389 110.77 March 2003 39.46 36.88 2.58 57.62 1.86 -88.26 -90.12 -90.12 32.15 25.17 34.71 0 21.33 375.26 -154.78 15 435.9 149.55

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LIC HOUSING FINANCE LTD. LIC housing finance Ltd. Rs Corer Operating income Fund base income Free base income Interest costs Depreciation PBDT( NNRT) PBT (NNRT) PAT (NNRT) Gross fixed assets Leased assets Investments Stock in trade Cash and bank balance Receivables Net worths Equity capital Long term borrowing Current liability and provision * Data Source CMIE March 2001 762.03 724.94 37.09 568.27 1.16 157.81 156.65 121.35 15.01 0 241.51 0 543.76 5387.49 638 75 526.82 278.96 March2003 873.26 829.62 43.64 644.6 1.32 182.19 180.87 145.32 21.64 0 344.21 0 550 6368.93 737.23 75 6207.05 344.24

CANFIN HOMES LTD Canfin homes Ltd Rs Corer Operating income Fund base income Free base income Interest costs Depreciation PBDT( NNRT) PBT (NNRT) PAT (NNRT) March 2001 127.63 122.39 5.24 92.4 0.56 23.75 23.19 17.69 March2003 139.03 132.21 6.82 100.4 0.57 25.25 24.68 18.98 32

Gross fixed assets Leased assets Investments Stock in trade Cash and bank balance Receivables Net worths Equity capital Long term borrowing Current liability and provision * Data Source CMIE

7.42 0 32.86 0 31.88 87.56 100.07 20.49 806.84 36.63

7.79 0 32.66 0 82.02 1060.01 113.05 20.49 968.02 97.81

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ICICI HOME FINANCE CO. LTD ICICI Home finance co. Ltd Rs Corer Operating income Fund base income Free base income Interest costs Depreciation PBDT( NNRT) PBT (NNRT) PAT (NNRT) Gross fixed assets Leased assets Investments Stock in trade Cash and bank balance Receivables Net worths Equity capital Long term borrowing Current liability and provision * Data Source CMIE March 2001 57.79 43.49 14.3 33.18 0.07 2 1.93 1.49 0.8 0 0 0 10.55 721.79 94.57 95 251.5 387.83 March2003 191.96 159.44 32.52 129.25 0.4 13.04 12.64 9.58 3.4 0 7.81 0.1 62.1 1620.55 161.88 115 630.08 902.83

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QUESTIONNAIRES

32

QUESTIONNAIRES

I say thanks for agreeing to spare 5 minutes of yours time for filling up this questionnaire. I do this survey by 100 customers of bank. Q1. What is the reason / benefit that influences your choice of the financial institution 1. interest rates 3. interest scheme for a housing loan? 2. easy availability 4. advertisement

Q2. Allocate your preferences in ranking order which makes you decide about a financial institution for a housing loan. 1. interest rates 3. interest scheme . Q3 . How do you rate HDFC Ltd. In the following services? a) Interest Rates b) Repayment Period c) Customer Care d) Transaction Period 2. easy availability 4. advertisement

Q.4) What is the reason of your loan transfer from HDFC Ltd. ? 1. less loan amount 2. Annual rest 3.higher rate of interest 4. Lack of information

32

Q5. In what terms / services do you find the other institutions (in which your loan is Transferred) is better than us ? 1. Better service 2. Full loan amount 3. low rate interest 4. Customer care Q6.Can we do anything to help you ? 1.customer care 3. full loan amount 2. Monthly rate interest 4. Low rate interest

Q7. Are you satisfied with services of the financial institution you are currently dealing with? yes 1.yes 2. No
Q8.

Financial Institutions in which Customers of HDFC LTD transferred their loan? 2.PNB 4IDBI

1.ICICI

3.SBI

Suggestions and feed back (about e-age banking and challenges) . .

Personal Details:Name .. AGE - 18-25YR 40-55YR. SEX Occupation Male 25- 40YR. MORE THAN 55YR. Female

. 32

FAQ

32

FAQ
1) Who can avail of a home loan? Anyone! Well, anyone who earns a regular income that is! Whether you're in business or working with a company, as long as you're in a position to make repayments, you're eligible. The categories of eligible applicants are

Salaried Individuals Self-Employed Individuals Partnership Firms

Private Limited Companies So if you belong to any of the above, consider your loan granted! 2) When can I make an application? You can apply the minute you've decided to buy or construct a house! That's right , no bureaucratic waiting periods here! In fact, some HFCs (Housing Finance companies) even assist clients in locating suitable properties through their dedicated in-house teams. While you're in the process of identifying and selecting your property, you can get an in-principal approval. This is valid for 3 months during which the interest rates at which the loan can be taken are locked in. Just keep in mind, however, that all this depends on whether the property you've chosen is acceptable to the finance company, to enable them to create a valid mortgage against it. 3) How do I go about getting myself a home loan? Nothing could be easier! Pick up the prescribed form for loan applications from your HFC office or download it from the company website . Fill in all the details and submit it along with the application fee mentioned. Besides the application fee, you will have to pay a non-refundable processing fee, which will be around 0.3-1% of the loan applied for . Once you accept the terms of the loan offer made to you by the HFC, you will be charged a minimal administrative fee another 0.5-1% of the loan amount sanctioned. And that's it you're on your way to buying that dream home for your family! 32

Remember: if you are not the only person who will own the property you plan to buy, the other proposed owners will also have to sign as co-applicants. That however does not mean that all co-applicants have to be co-owners. Just a point to keep in mind, some HFCs charges a commitment fee of 1% per annum on the amount of the loan yet to be drawn. This fee starts being applicable nine to twelve months from the day you accept the loan and continues to be charged till you avail of it fully. 4) How much time will the loan approval take? Approximately between 2 and 3 weeks. 5) How much time will the loan disbursement take? Fortunately, not much! After all the relevant documents have been thoroughly checked and all other formalities such as payment of margin money (your contribution) etc., are completed, your loan will l be disbursed in one or two weeks, at the most. And just in case you're wondering minus the amount of the loan! 6) In how many instalments can the loan be disbursed? The loan will be disbursed in full or in suitable instalments (normally not exceeding) taking into account requirement of funds and progress of construction, as assessed by the Housing Finance company. So if you're in a time and a cash crunch, you'll probably get your loan accordingly! your contribution is the total cost of the property

7) Are there any conditions I have to fulfil to avail a home loan? Well , depending on which category you belong to, you need to meet the following basic requirements In the case of self-employed/salaried individuals

The age of the individual, at the time of applying for the loan, should not be less than 21 years and not more than the retirement age at the end of the loan tenor. For a self-employed person, this outer age limit can be extended to 65 years. 32

The individual should be employed for the last 3 years.

The individual should be a resident of the city where the HFC has a collection centre. In the case of professionals/businessmen

A professional (Doctor/ Engineer/ CA etc.) should have an established practice that has been operational over the last 3 years.

A businessman should be able to prove his financial soundness over the last 3 years. 8) What are the general documents required? To put it in a nutshell Proof of Identity Proof of Residence Proof of Income.

9) What is the maximum amount I can borrow? Generally speaking, you can borrow a maximum of 80-85% of the cost of the property (this includes stamp duty and registration charges). However , do remember that this limit is also linked to your paying capacity. Usually the instalment-to-income ratio (IIR) ranges between 25-50% of a person's total income. Yet another factor would be the upper ceiling on the amount that the HFC itself can lend. So depending on how much you earn and how much the HFC is able to lend - the maximum amount would vary from person to person. 10) How will the HFC decide the loan amount I am eligible for? Good question! Let's see the most basic criterion will be your repayment capacity! That in turn will depend upon Your income, Its stability and continuity, Your age, Your educational qualifications, 32

The number of dependents you have, Your spouse's income, Your assets and liabilities, Your savings history.

Other factors which would influence the amount of loan granted would be

The purpose for which you're taking the loan (purchase, construction, extension or renovation of the house property), the time you need to repay it.

To put it simply, what the HFC is concerned with while determining loan eligibility is that you should be able to repay the loan - comfortably! 11) Now if you're wondering how the HFC calculates your monthly income: here's a close look at how it all adds up! The HFC takes into account all your recurrent credits i.e.:

Basic Salary, HRA, and other allowance apart from LTA and medical any rental income that you are getting.

The amount you save on rents thanks to your moving from a rented house to your own house.

If your spouse is working and is your co-applicant, his/her income will be clubbed together with yours. In short, for salaried people, the calculation will be, in the form of a simple sum Net cash inflows -- expenses + commission For self-employed people or private companies, the calculation will be as per your profit and loss account Net profit + 2/3rd depreciation + directors' remuneration

32

Once the EMI capacity of the person has been estimated and the tenure of loan repayment is known, the HFC decides on the loan amount it can provide. This is done with the help of an EMI table. As you can see, it's all very scientific and sensible, so you don't have to worry your own head too much!. That's as far as detailed calculations goes . However some HFCs have schemes for professionals like CAs, Doctors, MBAs and Architects which are delightfully termed 'plain vanilla deals'. In these cases the amount of loan is simply 1-2 times the gross receipts of the said professional. 12) What kinds of property can be financed through a home loan? To get finance, the property you choose has to be acceptable to the HFC. The age of the property should not be more than 25 years and the title to the property should be clear and unencumbered. In other words, there should be no hidden snags or doubtful ownership claims for the property loan to get a go-ahead. 13) Can I get a loan for commercial property, like offices etc.? Yes, you certainly can but in that case, the loan to property-value ratio is much less than in the case of a residential property. 14) Can I get a loan for renovation? Yes, you can get a home improvement loan for internal and external repairs (waterproofing, roofing, painting, plumbing, electrical work, tiling, flooring etc.) and other structural improvements. The improvements have to be those that will increase the life of your home, contribute towards a better living environment and at the same time, add to the value of your house. To get such a loan, you need to submit an estimate from your architect to the HFC. However, you must remember that the maximum loan amount and the maximum loan tenor allowable is much less in this case than if you were buying or constructing a brand new house.

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15) Can I get a loan for a plot of land? Sure you can Again, however, the loan to value ratio will be less than in the case of other home loans. 16) Does the agreement for sale have to be registered? Yes, very much so. In many states in India, the Agreement for Sale between the builder and the purchaser is required by law to be registered. You are advised, in your own interest to lodge the Agreement for Sale at the office of the Sub-registrar appointed by the State Government under the Indian Registration Act, 1908 In fact, the Union cabinet decided to make registration of immovable property compulsory and restrict it to the area where the property is located in order to streamline the system, curb malpractices and black money generation, and plug huge revenue leakages. As a result of this order, 'benami' purchases and illegal transfers on power-of-attorney basis, both common practices in cities like Delhi, will hopefully be controlled and reduced to some extent.

17) Does the property have to be insured? Yes, you will have to ensure that the property is duly and properly insured for fire and other appropriate hazards, as required by the HFC during the period of the loan and will have to produce evidence each year and/or whenever required by the HFC. The HFC will be the beneficiary of the insurance policy. This is an added cost that will add to the final cost of purchase of the property - so don't forget to account for it when you're planning your house! 18) Can I get a loan for properties held on power-of-attorney basis? No. After the measure taken by the union cabinet to make the registration of immovable property mandatory, the Housing Finance companies would not be able to grant a loan for property held on a power-of-attorney basis.

32

19) What is meant by the margin in a loan? The finance companies do not finance the full value of the house. They finance up to 80-85% of the property-value. The remainder has to be invested by the person taking the loan. This is called margin money. 20) What is meant by the term co-applicant? A home loan is taken either in a single name by an individual or jointly. In such a case, the other person applying for the same loan is known as a co-applicant 21) Who can be my co-applicant? If you are an individual your spouse, your parents, or even your children can be your co-applicants and their incomes can be clubbed with your income to enhance the amount of loan you are eligible for. It makes sense therefore, that the co-owner of a property has to be a co-applicant , but a co-applicant need not be the co-owner of the property. If you are a partnership or a private limited company , any one of the directors or partners can be your co-applicant 22) What are the various costs that have to be paid to the Housing Finance company to avail of a home loan? After all, you need to know what you're going in for Well, the various charges involved in availing a housing loan are

Interest cost The interest cost for the finance provided.

Processing, Overhead and Administrative Charges these are one-time payments made for initiating the process of a housing loan. They are generally taken as a percentage of the loan amount, subject to a maximum and minimum amount

32

Pre-Payment Charge these are the charges that are levied for pre-paying the loan.

Commitment Charge This charge is levied on the un-drawn amount of the loan. The period for which it is levied commences after a breathing period of a few months from the date of sanction. The charge is levied after this period till the borrower withdraws the funds. 23) What is the interest rate on a home loan? Interest rates range between 12.5-14.5% and vary depending on the loan amount and the period of repayment. 24) Which interest rate structure is better daily/monthly/annual reducing and why? Before you agree to a re-payment structure, here are the pros and cons of them all Daily Reducing In this case, reducing principal repayments are credited at the end of every day Monthly Reducing Here, whatever you repay on your principal is credited at the end of every month, and interest is calculated on the outstanding principal remaining. Since you end up paying interest on the reduced principal every month as compared to interest On the outstanding principal at the end of every year in the case of annual reducing, this tends to be the most beneficial structure, and is indeed what most people go for.

32

Annual Reducing Under this arrangement, interest is calculated on an annual basis on the outstanding at the beginning of the year. The EMI therefore becomes 1/12th the Equated Annual Installment. The difference between daily and monthly rest is very negligible.

25) Can I get the benefit of reduced interest rates in the intervening period or the during the balance tenure of my loan? Yes you can, but only if you have opted for the floating rate being offered by some of the big HFCs.

26) What is meant by security? Simply what you can offer as guarantees to the HFC As you will see, there are various types of securities acceptable

The first mortgage (equitable/registered) of the property to be financed by way of deposit of title deeds.

The personal guarantee of one/two individuals acceptable to the HFC.

In the case of loans to allotters of flats/houses built by state housing development authorities or members of co-operative housing societies interim security such as LIC policies, pledge of marketable shares and such other investments need to be provided. 27) What kind of security do most Housing Finance companies require? In most cases, the property itself, bought or intended to be bought, becomes the security and is mortgaged to the lending institution till the entire loan is repaid. Some companies require additional security such as life insurance policies, FD receipts, share or savings certificates. 32

28) What is EMI? EMI or Equated Monthly Instalment, refers to the fixed sum of money that you will be paying to the HFC every month. It comprises both interest and principal repayment. The size of the EMI depends on various factors

1. The quantum of the loan, 2. The interest rate applicable and the term of the loan.

29) What is a Monthly Reducing Loan? A loan in which the principal on which you pay interest reduces with every monthly payment you make. Like we mentioned earlier, this is the most beneficial type for the borrower. 30) What is an Annual Reducing Loan? Under this scheme, the principal reduces only at the end of the year. Therefore, you continue to pay interest on a portion of the principal which you've already actually paid back to the lending company. In effect, you end up paying more under the Annual Reducing Loan as compared to a Monthly Reducing Loan. 31) What is Fixed Rate of Interest? A fixed rate of interest means that the rate of interest on the loan amount remains unchanged for the entire duration of the loan agreement, irrespective of changes in the interest rates in the economy. Therefore, if you opt for a fixed rate of interest you will not be able to benefit if interest rates are falling. On the other hand, if the rates are rising, you end up paying more than you had bargained for. So you see, it's one of those double-edged decisions. 32) What is Floating Rate of Interest? 32

A floating rate of interest is one that fluctuates according to the market lending rate. Hence, in an environment where interest rates are rising, your budgeted expenditure on the house loan also goes up. Conversely, when they fall you get yourself a cheaper deal. 33) What are the tax benefits that are applicable to Home Loans and Home Extension Loans? Every Home Loan customer is eligible for tax benefits under Section ( 24) of the Income Tax Act.

Allowable deduction of interest paid during the year As per the Budget 2000-01, every customer can claim a deduction on interest amount of a maximum of Rs. 1,50,000 or the actual interest paid (whichever is lower) to the Housing Finance Company from his Gross Taxable Income.

Tax

exemption

on

Principal

repaid

during

the

year

Budget 2000-01 provides for tax exemption on a maximum of 20% of a principal amount of Rs. 20,000 or the actual interest paid during the year (whichever is lower) to the Housing Finance Company from the total tax payable by the customer. 34) Can I repay my loan ahead of schedule? Wow, looks like you're liquid. Yes, you can pay your loan ahead of schedule. However, you must consider that Housing Finance companies charge a fee for early redemption of loans. This fee can vary between 1-2% of the loan amount being prepaid.

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BIBLIOGRAPHY

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BIBLIOGRAPHY Center for Monitoring Industrial Economy Books M. A. SAHAF - Management Accounting principle and practice R. P. RASTOGI Financial Management PANDEY I. M. Financial Management

Web Sites www.etinvest.com www.hdfcindia.com www.indiainfoline.com

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