a study on home loans (rajni) (mba-3rd sem -finance)(col-rdias) delhi

8/14/2019 A STUDY ON HOME LOANS (RAJNI) (MBA-3RD SEM -FINANCE)(COL-RDIAS) DELHI

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STUDENT DECLARATION

This is to certify that I have completed the Project titled A STUDY ON

HOME LOANS under the guidance of Mr. Amit Kumar Gupta in the

partial fulfillment of the requirement for the award of the degree of

Masters in Business Administration from Rukmini Devi Institute Of

Advanced Studies, New Delhi. This is an original work and I have not

submitted it earlier elsewhere.

RAJNI

Rukmini Devi Institute of Advanced Studies 1

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CERTIFICATE

This is to certify that the project titled A STUDY ON HOME LOANS is

an academic work done by RAJNI submitted in the partial fulfillment of the requirement for the award of the degree of Masters in Business

Administration from Rukmini Devi Institute Of Advanced Studies, New

Delhi. under my guidance and direction. To the best of my knowledge and

belief the data and information presented by him in the project has not

been submitted earlier elsewhere.

Mr. Amit Kumar Gupta (Project Guide)RDIAS


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ACKNOWLEDGEMENT

"Gratitude is not a thing of expression; it is more matter of feeling."

There is always a sense of gratitude which one express towards others for their help andsupervision in achieving the goals. This formal piece of acknowledgement is an attempt to

express the feeling of gratitude towards people who helpful me in successfully completing

of my training.

I would like to express my deep gratitude to Mr.Amit Khanna my training coordinator

for their constant co-operation. He was always there with his competent guidance and

valuable suggestion through out the pursuance of this research project. Special thanks to

Mr.Amit Kumar Gupta who guided me to work honestly and to give valuable suggestion

for improving my work Last but not least I would also like to place of appreciation to all

the respondents whose responses were of utmost importance for the project.

Above all no words can express my feelings to my parents, friends all those persons who

supported me during my project. I am also thankful to all the respondents whose

cooperation & support has helped me a lot in collecting necessary information.

I would also like to thank almighty God for his blessings showered on me during thecompletion of project report.


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EXECUTIVE SUMMARY

Home is a dream of a person that shows the quantity of efforts, sacrifices luxuriesand above all gathering funds little by little to afford ones dream. Home is one of thethings that everyone one wants to own. Home is a shelter to person where he rests and feelcomfortable. Many banks providing home loans whether commercial banks or financialinstitutions to the people who want to had a home. The housing sector plays an importantrole in the economic development of the country.

My project title is A STUDY ON HOME LOANS. I selected this topic becauseThe Indian housing finance industry has grown by leaps and bound in few years.Totalhome loans disbursements by banks has risen which witnesses phenomenal growth fromlast 5 years. There are greater number of borrowers of home loans.so by this study we canfind out satisfaction level of customers and problems faced by them in obtaining homeloans.My objectives of study are- To make comparative study of Disbursement of home loans by commercial banks. To study the satisfaction level of customers about home loans. To study the problems faced by customers in obtaining the home loans.For this I had taken four commercial Banks in Dehradun city namely HDFC Bank, PNB,standard chartered Bank, SBI. It includes two public sector banks and two private sector

banks. The period of study is five years commencing from 2004-2008.In the research methodology I had taken both primary data as well as secondary data , inthe primary data I had make a questionnaire to check the satisfaction level of customersabout home loans . In the secondary data I had studied the annual reports of RBI,commercial banks & broachers of these banks.For the first objective I had collected the information about the number of account holdersof specified banks, no of disbursement of home loans and recovery of these loans.After analysis I came to following findingsIn the comparative study of specified banks its found that

Punjab National Bank is having large number of customer base with high loandisbursement and recovery of loans.

The standard chartered bank showed less outstanding balance which presented in percentage form in the diagram.

In case of second objective i.e. customer satisfaction level it is found thatOn the basis of data the HDFC is emerging at higher position a Compare to Standard

chartered bank and other public sector banks on Ground of professionally managedservices, reliable & transparent System, easy query handling etc.

And problems face by customers in obtaining home loans are

The customer does not had proper knowledge about different Home loan productsso they face problem in making a good deal.


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There are procedural delays, which harass the customers lot this will crush thecurtsy of customers to avail the home loan.

The attitude of bank employees some times non cooperative and it creates a hurdlein building trust and Confidence among customers about banks.

The banks do not take into account the paying capacity of customers. So somecustomers are not able to get amount of Loan needed by them.

Finally the whole research was carried out in a systematic way to reach at exact results.The whole research and findings were based on the objectives some of the limitation facedin collecting the data were Lack of time, lack of data, non-response, reluctant attitude andilliteracy of respondents, which posed problems in carrying out the research.

Some of the suggestions are To increase their customers, the banks should provide specialized services in this

sector. These services can be such as proper guidance to the Customer regarding the processing of loans, especially for the customers who are illiterate.

To satisfy their customers and for good dealings in future, the banks should make prompt disbursement of loan amount to the customers so that they can buy or construct their dream home as early as possible.

The Banks should use easy procedure, or say, less lengthy procedure for thesanctioning of loan to the customer. There should be less number of legalformalities, in case this exists, then, these should be completed in less time. Thiswill be helpful in attracting more customers.

Although the interest rates on specific norms, yet customers seek less interest ratewhich can lower their cost of house. So banks should try to lower their interestrates. Needles to say, that the bank which having lower interest rates, have themaximum clients for loans.

The public sector banks should improve their overall services to increase thenumber of customers for home loans. They should recruit professionals to providesuch services and to satisfy the customers.

.


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TABLE OF CONTENTS

Student Declaration .. iCertificate from Company/ Organization . iiCertificate from guide iii

Acknowledgement......... iv

Executive Summary..v

Chapter Scheme.. viList of Tablesvii

List of graphsviiiList of charts.ixList of Abbreviations... x

CHAPTER 1: INTRODUCTION-1.1 Introduction to home loans............... 11.2 Advantages of home loans11.3 Disadvantages of home loans... 21.4 Disbursement of home loans 3

CHAPTER 2: OBJECTIVES OF THE STUDY... 13

2.1 Purpose of the Study......142.2 Scope of the Study......14

CHAPTER 3: RESEARCH METHODOLOGY.. 163.1 Research Design. 163.2 Data collection....163.3 Sample size..173.4 Sampling Technique. 173.5Liminations. 18

CHAPTER 4: REVIEW OF LITERATURE 20

CHAPTER 5: INDUSTRY PROFILE.. 225.1 The History of Indian home Loans.. 225.2 Home Loan procedure in India.235.3 Interest rate provided by banks245.4 Indian Market for Home loans is more than Rs.500,000 cr... 275.5 Indian home loans Industry..285.6 Recent trends oh home loans in India...31


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5.7 Impact of slowdown on home loan market in India315.8 Interest and market trends in year 2009..335.9 Types of home loans...355.10 HDFC home loan..37

CHAPTER 6: COMPANY PROFILE48

CHAPTER 7: DISBURSEMENT OF HOME LOANS BY HDFC .62

CHAPTER 8: COMPARATIVE STUDY OF DISBURSEMENT OF HOME LOANSBY COMMERCIAL BANKS .. 66

CHAPTER 9: ANALYSIS & INTERPRETATION 80CHAPTER 10: FINDINGS.97

CHAPTER 11: RECOMMENDATIONS AND SUGGESTIONS.. 98

CHAPTER 12: CONCLUSION.100

BIBLIOGRAPHY .. 101

ANNEXURES 103


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LIST OF TABLESTABLE NO. TITLE PAGE NO.

5.2 Financial Snapshot

5.3 Interest rates provided by various banks

5.4 CONSOLIDATED EARNINGS (As at March 31, 2008)

7.2 HDFC: 4Q09 Summary

8.1 Disbursement of home loans by different banks

8.2 No. of Home loan account holders

8.3 Home loans distributed by HDFC and commercial banks

8.4 Recovery of Home loans:-

8.5 Outstanding balance

9.1 Age group of surveyed respondents

9.2 Gender classification of surveyed respondents

9.3 Education qualification of respondents

9.4 No .of years are you in Dehradun

9.5 Customer profile of surveyed respondents

9.6 Annual household income

9.7Do you know about HDFC LTD

9.8 Reasons for getting Home financed

9.9 From where you have got your Home financed


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9.10 Source of information home loans scheme

9.11 Opinion about the services of HDFC LTD

9.12 Opinion of customers about Home loan scheme

9.13 Data gives preferences of respondents of Home loanscompanies and banks


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LIST OF GRAPHS

GRAPH NO TITLE PAGE NO

5.1 Indian Market for Home loans is more thanRs.500,000 crore:-

28

5.2 Indian Home loans Industry 29

5.3 Indian Market for Housing mortgage financecompanies

30

5.4 The prices of residents have shot up very high 30

5.5 Residential prices in India 31

5.6 Housing shortage in India 32

5.7 HDFC yielding ground 34

6.3 HDFC Up, up and away 55

7.1 HDFC housing loan spreads 62

8.2 Home loans holders of HDFC and commercial banks 70

8.3 Home loans distributed by HDFC and commercial

banks

72

8.4 Recovery of home loans 75

8.5 Balance due on home loans by HDFC andcommercial banks

77

9.8 Reasons for getting the home financed 86

9.9 From where you have got your home financed 88


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9.11 Opinion about the services of HDFC LTD 91

9.12 Percentage of satisfaction level of customers of HDFC LTD

93

9.13 Data gives preference of respondents home loanscompanies and banks 94


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LIST OF CHARTSCHART

NOTITLE PAGE NO

6.1 Snapshot of HDFC LTD 50

9.1 Age group of surveyed respondents 79

9.2 Gender classification of surveyed respondents 80

9.3 Educational qualification of respondents 81

9.4 Staying years in Dehradun 82

9.5 Customers profile of surveyed respondents 83

9.6 Annual house hold Income 84

9.7 Awareness about HDFC LTD 85

9.10 Percentage of source of information about home loansscheme

89


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LIST OF ABBREVIATIONS

ABBREVIATIONS EXPANSION

ROVR RECOMMENDATION OVER

NRI NON RESIDENT INDIAN

RBI RESERVE BANK OF INDIA

PNB PUNJAB NATIONAL BANK

SBI STATE BANK OF INDIA

IIR INCOME TO INSTALLMENT RATIOFLIP FLEXIBLE LOAN INSTALMENT PLAN

DSAs DIRECT SELLING AGENTS

BSAs BUSINESS SELLING AGENTS

DCOVR DOUBLE CHECKING OVER

RPLR RETAIL PRIME LENDING RATE


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CHAPTER- 1


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CHAPTER 1

INTRODUCTION

1.1 INTRODUCTION TO HOME LOANS

Home is a dream of a person that shows the quantity of efforts, sacrifices luxuriesand above all gathering funds little by little to afford ones dream.

Home is one of the things that everyone one wants to own. Home is a shelter to person where he rests and feel comfortable. Many banks providing home loans whether commercial banks or financial institutions to the people who want to have a home.

HDFC-(Housing Development And Finance Corporation) Home Loan, India have been serving the people for around three decades and providing various housing loanaccording to their varied needs at attractive & reasonable interest rates. Owing to their wide network of financing, HDFC Housing Loans provides services at your doorstep andhelps you find a home as per your requirements.

Many banks are providing home loans at cheapest rate to attract consumers towardsthem. The more customer friendly attitude of these banks, currently offer to consumerscheapest loan over homes.

In view of acute housing shortage in the country, and keeping in mind the social economic role of commercial banks in the present times, the RBI advised banks toencourage the flow of credit for housing finance.

With the RBI reducing bank rate, the home loan market rates nose-diving by 50 basis points. The HDFC Bank and Standard chartered bank has become the first player inthis sector to announce a housing loan for a 20 years period. No doubt it will enhance theend cost people to plan their house over longer duration now; it has been made easy for a

person to buy that dream house which he dreamt of long ago.HDFC also provides with Home Improvement Loan for internal and external

repairs and other structural improvements like painting, waterproofing, plumbing andelectric works, tiling and flooring, grills and aluminium windows. HDFC finances up to85% of the cost of renovation (100% for existing customers).

Current status is that HDFC reduced home loan rates by 50 basis points for all itsexisting floating rate customers. 1.2 ADVANTAGES OF HOME LOANS:-

The various benefits of home loans arising to the customers are:-

(i) Attractive interest rates:-


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The public sector banks charge high processing cost for home loans sanctioning.They are forced to pay serious charges at various stages to fulfill the requirements. Someconsumers are not able to pay such charges so such people could not avail the benefits of home loan schemes.

(iii) Problems in disbursement:-There are many problems in disbursement of home loan amount. There are some

delay in disbursement of loan amount to the customers due to legal formalities. This causes problems to the customers.

These are limitations or disadvantages of home loans. But some times some bankscharges high installments to repay loan amount. Such also causes problem to customers.These limitations can be removed by providing good and promote services to thecustomers.

1.4 DISBURSEMENT OF HOME LOANS :-

The every bank has its own procedure to disburse the loan amount amongcustomers. After choosing your right home, the next step is disbursement of home loans.The loan amount is disbursed after identifying and selecting the property or home that are

purchased and submit the requisite legal documents. In the disbursement of home loans aclear title and full verification to ensure that a person has full rights on his house. The 230Aclearance of seller and /or 371 clearances from the appropriate authority of income tax isalso needed.

(I) Eligibility criteria:-

However, if one is a resident or non-resident individual who is planning to buy ahouse in India, one can apply for a home loan. If a person has decided to buy a property inthe near future, he/she can apply for a loan before even selecting the property. Once themaximum amount to put into the property has been decided, the Housing FinanceInstitutions or Banks will let the customer know that how much he/she is eligible for andthis helps to plan out the budget.

(ii) Conditions regarding co-applicants: -All Housing Finance Institutions lay down conditions on who can be co-applicants.

all co-owners to the property. need to be co-applicants to the loan necessarily. Theseinstitutions do not permit minors to join in as either coowner or as co-applicants becausea minor is not eligible to enter into a contact as per law. They do not permit even friendsor relatives who are not blood relatives to take a property jointly.However, Income of co-applicants can be clubbed together to get higher loan eligibility. Given below is a Tablethat throw light on acceptable relationship of a co-applicant for clubbing of income.Income Clubbing of Co-applicants: - It is as follows:-Combination Income Clubbing: -


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Husband-Wife: - Income of husband-wife can be clubbed.

Parent - son: - It can be clubbed if only son is there but not if any male sibling exists.

Brother-Brother: - If they are currently staying together and intend to stay together inthe new property, then only, their income-can be clubbed for above purposes.

Brother-Sister: - No clubbing-is possible.

Sister-Sister : - No clubbing is possible.

Parent-Minor- Child: - No clubbing is possible in this case also.

(iii) General Terms and Conditions: - The following are the terms and conditionsapplicable to the basic home loan product only. These are likely to change on the basis of the variations of the home loan product. Typically, in general home loans, the followingconditions are applicable :-

1) The loan to value ratio (LTV) cannot exceed a particular percentage. This differs from product to product and from one Housing Finance Institutional Bank (HFI/B) toanother. The components of the value of the Property calculated here are covered under cost of property.

2) The maximum tenure of the bank is nominally fixed by HFI/Bs. However, HFls/Bs do provide for different tenures with different terms and conditions.

3) The installment that one pay is normally restricted to about-50-per cent of the monthly-gross income of the candidate.

4) The total monthly outflow towards all the loans that have been availed of, including thecurrent loan is normally restricted to 50% of the gross monthly income.

5) One will be eligible for a loan amount which is the lowest as per one's eligibility. This iscalculated as per the LTV norms, the HR, norms and the FOIR norms as mentioned above.

6) Most HFls/Bs consider the profile before they judge the repayment capacity. The judgement is based on age, qualifications, number of dependents, employment details,

employer credentials, work experience, previous track record of repayment of any loansthat have been availed of, occupation, the industry to which the candidate's business relatesto, if he/she is self-employed, then the turnover in the last 3-4 years etc.

7) Some HFIs/Bs insists on guarantees from other individuals for the repayment of theloan. In such cases, the customers has to arrange for the personal guarantee before thedisbursement of the loan takes place.


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8) The property should be technically clear before the HFIs/Bs disburses the loansamount. Most of institutions and banks have a teams of technical experts who visit the siteto get a technical report before the disbursement of loan. This is also beneficial to thecustomer as they check for the technical quality and compliance with local laws.

9) The property should be legally clear before one can avail of a disbursement of the loanamount. Housing-Finance Institutions /Banks (HFIs/Bs) take legal clearance from their lawyers before the disbursement of amount. This proves to be beneficial to the customersas a legal expert checks his/her documentation to ensure that he/she get a proper title to the

property.

10) The disbursement of the loan is as per the progress of construction of the propertyunless 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 the customer in case of a partdisbursement will be payable by the customer on the disbursement.

11) The disbursement in most cases will be favoring the builder or the seller or the societyor the development authority as the case may be. The disbursement will come in thecustomer's favour under special circumstances only.

12) The repayment of loan can be made either through deduction against salary, post-datedcheques, standing instructions or Auto debit instructions to bank.

13) The principle is amortized either on annual reducing or monthly reducing basis as thecase may be.

The above terms and conditions are generally true for most Housing finance

Institutions/Banks with respect to the general Home Loans. However, the specific termsand conditions vary with respect to special Housing Finance Institutions or Banks.

(iv) Charges applicable to home loans :-

The different kinds of charges applicable to home loans are discussed below :

a) Processing fees :-

First of all, comes the process fee. This is a charge that is levied by most HFls/Bs.This has to be paid at the time of submission of the application form. It's normally chargedas a percentage of the loan amount sanctioned. Some HFls also charge a flat fee based onthe loan amount instead of a percentage. When a lower amount is sanctioned the excessfees paid at the time of submission of the application is adjusted with the charges, whichone make to the HFI/B subsequently. Most HFls/Bs refund the processing fee if the loanapplication is rejected.

b) Administrative fees :-


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This charge is again, normally, a percentage of the loan amount sanctioned. It iscollected by the HFI/B for the maintenance of customer's records, issuing interestcertificates, legal charges, technical charges, etc. though the tenure of the loan. It is payable

by the customer when he/she accepts the offer letter given by the HFI/B. This payment has

to be made before the availment of the disbursement. The mode of collection of these feesvaries from one HFI/B to another.

c) Rate of interest :-

This is the rate of interest applicable on the loan amount through the tenure of the loan.It is charged on the principal monthly reducing method. Most HFIs/Bs give an option toselect either a fixed rate of interest or a variable rate of interest.

d) Legal Charges:-

Some HFIs/Bs mainly Public Sector Banks levy legal charges that they incur ongetting the property documents vetted by their panel of lawyers.

e) Technical Charges:-

These charges are also levied by certain Housing Finance Institutions/Banks(HFIs/Bs) to meet their expenses on the technical site visits to the customer's property. Thisensures quality of construction and construction within the norms as stipulated by therespective approval authority.

f) Stamp duty and registration charges:-

HFIs that go in for a registered mortgage pass these charges on to the customer. Theseare rather heavy in certain states depending on the laws laid down by the state where one

buy a property.

g) Personal Guarantee from Charges :-

Since the personal guarantee provided by the customer need to be stamped, thesecharges are also recovered from the customer. They are charged to him by HFIs whodemand for Guarantees.

h) Cheque Bounce Charges :-


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In case the cheques through which one make a payment to HFls get dishonored, someminimum charges are levied by the HFI. The same are recovered from the customer.

(i) Delayed payment charges :-

HFls/Bs charge delayed payment charges from the customer if he/she delays the payment of installments beyond the due date. (j) Additional charges :-

These are levied as a percentage on the delayed payment charges by most HFls. Theyare levied if one fail to pay the dues within the stipulated time after a delay has taken place.

(k) Incidental charge :-

This is payable in case the HFI/B sends a representative from their organization tocollect their outstanding dues. It is normally charged at a flat rate per visit. These chargesare levied by most HFls/Bs.

l) Prepayment Charges :-

This is a penalty charged by HFls/Bs from when one makes either a part prepaymentor a full repayment of the loan. This charge is levied only on lump sum payments and noton the EMls that one pays. This charge is levied on the amount prepaid by one and not onthe entire outstanding principal. These charges are gradually being discount. So, these arethe charges levied by most Housing Finance Institutions and Banks while granting home

loan to the customers. Now, the decision on the repayment capacity shall be talked about asfollows.

(v) Judgement regarding repayment capacity on the basis of income :-

To understand how the income of a customer is considered to arrive at his repaymentcapacity, it is first necessary to classify customers into salaried and self employedindividuals.

a) The income of the salaried individual is considered in the following manner:-

Gross monthly income as it appears on the salary slip

Less:- Any non regular variable income appearing on the salary slip (including overtime,etc.)

Add : - 50 per cent of the average variable income of the last six months.


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Add: - Any fixed cash/voucher payments for which proof can be submitted.

Add: - 50 per cent of the average variable cash/voucher payments with proof like travelingreimbursement etc.

Add :- HRA receivable if not being received already in the salary slip.

The above income calculated for the calculation of eligibility using IIR and FOIR norms.For calculation of FOIR, the installments of all the loans that one has availed of currentlyfor which repayment is being made is taken into account as well. The lower of the twoeligibilities is considered as the maximum repayment capacity.

b) To consider income of Self-employed individuals we further classify them intoProfessionals and non-professionals .

Professionals: - Comprising doctors, chartered accountants, lawyers, architects, etc.For calculation of eligibility of professional's income is computed by most HFIsusing the gross professional receipts instead of the Net profit as in the case of self-employed non-professionals.

Non-Professionals : - The income of non-professionals is normally calculated byHFIs in the following manner : -

Average of the net profits of last 2 years as it appears in the profit and loss account(Returns need to be filed for the same. They should be filed regularly before the due dateis over).

Less: - Any income, which is unusual and non-recurring in nature like sale of some asset,etc which affects profits substantially,

Add: - Any expense that is unusual and non-recurring in nature like repairs andmaintenance that has not been capitalized and effect profit adversely.

Add: - 50 per cent of the average depreciation of the last two years. The above income iscalculated for the calculation of eligibility using IIR and FOIR norms.

For calculation of FOIR the installments of all the loans that one has availed of currently

for which repayment is being made is taken into account and the eligibility is worked out.The lower of the two eligibilities is considered as themaximum repayment capacity.

(vi) Credit documentation:-


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Given below is the exhaustive list of credit documents- that need to be submitted for a general home loan product. The documents vary from one HFI/B to another based onone's employer, qualifications experience etc. the general requirements are as follows : -(a) Income Documents : -

For salaried slips for the last three months appointments letter-salary certificate-retainership agreement, if appointed as a consultant-Form 16 issued by the employer incustomer's name income document for self employee - last three years profit and lossaccount statement duly attested by Chartered Accountants. Last three years Balance Sheetsduly attested by Chartered Accountant, last three years Income Tax Returns withcomputation chart duly filed and certified by the Income Tax authorities.

b) Proof of employment : - Identify card issued by the employer- Visiting card.

(c) Employer's details (In case of private limited companies) : -

Profile of employer on employers letterhead (to be signed by a senior person in theorganization) comprising

Name of promoter/directors

Background of promoters/directors

Nature of business activity of your employer

Number of employees

List of branches/factories

List of suppliers

List of clients/customers

Turnover of employer

Annual reports of the employer for the last two to three years.

(d) Proof of age (Anyone of the following) : -

Passport- Voter's ID card-PAN card-Ration card-Employer's identity card-Schoolleaving certificate-Birth certificate.

(e) Proof of residence (Anyone of the following) : -


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Ration card-Passport- PAN card-Rent agreement, if the customer is staying currentlyon rent- Bank Pass book-Allotment letter from the company if he/she is residing incompany quarters.(f) Proof of name change (If applicable) : -

A copy of the official gazette A copy of a newspaper advertisement publicizingthe name change-Marriage certificates.

(g) Proof if investment (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-employed-any other

photocopies of investments held, if required by the HFC.

(vii) Legal documentation :-

Legal Documentation the typical legal documents that need to be submitted tothe HFC arc discussed here. Given below is a list of legal property documents that need to

be submitted to the HFC for mortgage of the property. The name and the list of documentsvary from state to state and also depend on the type of property being financed. A broadoutline of the documents required is given below.

a) Acceptance copy of the offer letter issued by the HFC/B.

b) Title documents of the property that include -sale agreement duly

Registered-Own contribution receipts - Allotment letter-Registration receipt-Landdocuments indicating ownership, if applicable- Possession letter-Lease agreement, if applicable (Property bought from a development authority) - Mortgage deed if the HFCopts for a registered mortgage.

c) No Objection Certificate from the developer, society or development authority asapplicable.

d) Personal Guarantees, if applicable.

e) In case of alternator additional security, documents for the same depending upon thesecurity details.

f) Post dated cheques for the EMls.


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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 agreement also need to be taken.(viii) The tax benefits that are applicable to housing loans for individuals :-

Currently Tax Benefits to individuals are available only for the Home Loans and HomeExtension Loans products. The benefits available are covered under these sections.

Property Insurance :-

Is it compulsory to insure the property? s ome HFls insist on a mortgage redemption lifeinsurance policy. In this case the customer gets a benefit of an interest rate reduction.Though the HFI may not insist, it is better to go in for property insurance to safeguard theasset against any sort of damage or loss. The customer can select the tenure for the

property insurance. The insurance premium is changed up front. Most insurance companies

provide for huge discounts on the rate of premium for larger tenures. The premium chargedcurrently is seventy-seven for every lakh of property for a year. So a customer has to fulfillvarious conditions to be eligible for availing home loan from a Housing FinanceInstitution/Bank After fulfilling these conditions, a customer can avail loan at low interestrate i.e. fixed rate floating rate. A decision on whether one should go in for a fixed-rate loanor a floating-rate loan now is a function of two factors i.e. One's perception of whereinterest rates in the economy are headed and one' capacity to ride the interest rate changes.A floating-rate loan let one take advantage of further falls in interest rates but one stand toloose if interest rate, rise again. However this decision is based on the perception of theconsumer.


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CHAPTER-2


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CHAPTER-2

OBJECTIVES OF STUDY

There is no strongest foundation for your dream home, than a cheap loan. Home loans have become that stronger foundations for people who want to own a home. The main objectivesof the study are as follows :-

1) The main objective of this study is to know the Customers perceptions about home loans

of HDFC housing development finance corporation LTD.

2)2) To analyze the history of hdfc ltd.To analyze the history of hdfc ltd.

3) Generating good business to the company by promoting and selling the products of

HDFC LTD.

4) To know the ideas of customers about home loan products and services.

5) To make comparative study of Disbursement of home loans byCommercial banks.

6) Fixing the appointments with the customers.

7) To study the satisfaction level of customers about home loans.

8) To study the problems faced by customers in obtaining the home loans.

9) Visiting the customers and closing the deal.


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CHAPTER -3


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CHAPTER-3

RESEARCH METHODOLOGY OF THE STUDY

RESEARCH METHODOLOGY:-

Research methodology is a way to systematically show the research problem. Itmay be understood as a science of studying how research is done scientifically. It isnecessary for the researcher to know not only the research methods but also themethodology.This Section includes the methodology which includes. The research design, objectives of study, scope of study along with research methodology and limitations of study etc. To know the Customers perceptions about home loans of HDFC housing development

finance corporation LTD.

To study the satisfaction level of customers about home loans.

To study the problems faced by customers in obtaining the home loans.

To make comparative study of disbursement of home loans by commercial banks, thestudy shall be conducted in the manner enumerated below-

3.1- RESEARCH DESIGN:-

This project is based on exploratory study as well descriptive study. It was anexploratory study when the customer satisfaction level was studied to suggest new methods

to improve the services of HDFC LTD in providing home loans and it was descriptivestudy when detailed study was made for comparison of disbursement of home loans bycommercial banks.

3.2 SOURCES OF DATA :-


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To fulfill the information need of the study. The data is collected from primary aswell as secondary sources-

A - PRIMARY SOURCE:-

I decided primary data collection method because our study nature does not permitto apply observational method. In survey approach we had selected a questionnaire method for taking a customer view

because it is feasible from the point of view of our subject & survey purpose. Weconducted 100 sample of survey in our project to judge the satisfaction level of customerswhich took home loans.

Sample size;-For the questionnaire I have taken the sample size of 100 customers of HDFC LTD.

B SECONDARY SOURCE:-

It was collected from internal sources. The secondary data was collected on the basis of organizational file, official records, news papers, magazines, management books, preserved information in the companys database and website of the company.

3.3- SAMPLING :-

Sampling refers to the method of selecting a sample from a given universe with a

view to draw conclusions about that universe. A sample is a representative of the universeselected for study.

SAMPLE SIZE :-

Large sample gives reliable result than small sample. However, it is not feasible to targetentire population or even a substantial portion to achieve a reliable result. So, in this aspectselecting the sample to study is known as sample size. Hence, for my project my samplesize was 100.

The Sample Size consists of both the Professional and Business class people. IT peoples, Doctors, Jewelers, Timber Merchants & Real estate Agents are taken as Sample.

SAMPLING TECHNIQUE:-

Random sampling technique was used in the survey conducted.

TOOLS OF ANALYSIS:-

Data has been presented with the help of bar graph, pie charts, line graphs etc.


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PLAN OF ANALYSIS:-

Tables were used for the analysis of the collected data. The data is also neatly presentedwith the help of statistical tools such as graphs and pie charts. Percentages and averageshave also been used to represent data clearly and effectively.

3.4 DATA COLLECTION INSTRUMENT DEVELOPMENT :-

The mode of collection of data will be based on Survey Method and Field Activity.Primary data collection will base on personal interview. I have prepared the questionnaireaccording to the necessity of the data to be collected.

3.5 LIMITATIONS OF THE STUDY:-

This study also includes some limitations which have been discussed as follows:

i) The sample size of 100 customers and 4 banks might prove a limitation because of difficulty in generalization of results.

ii) To collect the data from various banks was quite difficult due to non- cooperation of some banks. This proved to be major limitation of the study.

iii) To access such a large number of customers was difficult because of non-cooperativeattitude of respondents.

iv) Lack of data was also the other limitation of the study as some of banks do not have proper data on topic.

v) There was limitation of time to conduct such a big survey in limited available time.

vi) Ignorance and reluctant attitude of customers was also a major limitation in this study.

Thus above all were the limitations in this research study. The maximum effortswere made to overcome these limitations in the study.


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CHAPTER-4


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CHAPTER 4

REVIEW OF LITERATURE

SUMMARY:-

After going through pervious studies of Home loans I came to conclude that-

There is growth of home loans after 2001.

Home loans have an inverse relation with interest rates i.e. when interest rate lowthe demand of home loans increase. (Ojha 1987)

People are going more towards home loans than private mortgage insurance.(Berstain 2008)

Government taking various steps to encourage people to go toward home loans.(Haavio, Kauppi 2000)

Growth of home loans are due to increase of living standard of people, shiftingfrom joint family to nuclear family .(Lacourr, Micheal 2007)

There are some problems also attach with these home loans such as time i.e fillingof application of loan to closing ,people have their own specified needs from these homeloans which are not fulfilling. (Lacour Micheal 2006).

SBI provide a very low interest rate on home loans as compared to other banks.(SBI May 2000)

Now after this conclusion the details of reviews are below-


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Berstain David (2009) examined in his study taken from 2001 to 2008 that in this period there is increase use of home loans as compared to private mortgage insurance(PMI).he have divided his study into four sections. Section 1 describes why people aregoing more for home loans than PMI. the main reason for this that now home loans market

provide Piggybank loans for those people who dont have 20% of down payment. Section

2 tells the factors responsible for the growth of home loans and the risks on shifting towardhome equity market without any PMI coverage. PMI can protect lenders from most lossesup to 80% of LTV and the absence of PMI will result in considerable losses in anenvironment. Section 3 tells the measures in changes of type of loans. For this he havetaken the data from the 2001 and 2007 AHS a joint project by HUD and Census The resultsof this analysis presented in Table One reveal a sharp increase in the Prevalence of owner-occupied properties with multiple mortgages among properties with Newly originated firstmortgages. Section 4 describe the Financial status of single-lien and multiple-lienhouseholds and for this he have taken the survey of consumer finance and show thatfinancial position is more weaker in multiple loans than the single loans.Vandell, Kerry D (2008) analysis the sharp rise and than suddenly drop down home prices

from the period 1998- 2008. changes in prices are for the reasons as such economicfundamentals , the problem was not sub prime lending per se, but the Feds dramaticreductions, then increases in interest rates during the early- mid-2000 , the housing boomwas concentrated in those markets with significant supply-side restrictions, which tend to

be more price-volatile; he problem was not in the excess supply of credit in aggregate, or the increase in sub prime per se, but rather in the increased or reduced presence of certainother mortgage products.

La courr, Micheal (2007 ) analysis in his study the factors affected the increase in the levelof Annual percentages rates (APR) spread reporting during 2005 over 2004. the three mainfactors are changes in lender business practices; (2) changes in the risk profile of

borrowers; and (3) changes in the yield curve environment. The result show that after controlling for the mix of loan types, credit risk factors, and the yield curve, there was nostatistically significant increase in reportable volume for loans originated directly bylenders during 2005, though indirect, wholesale originations did significantly increase.Finally, given a model of the factors affecting results for 2004-2005, we predict that 2006results will continue to show an increase in the percentage of loans that are higher pricedwhen final numbers are released in September 2007.

La cour Micheal (2006) examined the home purchase mortgage product preferences of LMI households. Objectives of his study to analysis the factors that determined factorstheir choice of mortgage product , is different income groups have some specified need tomet particular product. The role pricing and product substitution play in this segment of themarket and do results vary when loans are originated through mortgage brokers? For thisthey have use the regression analysis and the results are high interest risk reduce loanvalue. Self employed borrower chooses reduce documented loans than salaried workers.useof this product type seems to be more prevalent among borrowers with substantial fundsfor down payment and better credit scores. In case of pricing Multi families requires price

premium and larger loans carry lower rate. And the role of time, particularly, the timerequired for the loan to proceed from application to closing it is find that government


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lending taking the longest time and Nonprime loans the shortest time.Multi family properties take longer time in closing. And during peak season take longer time to close.And for last objective it is find that broker originated loans close faster.The effect of mortgage brokers on pricing and other market outcomes is fertile ground for additionalresearch.

Dr. Rangarajan C. (2001) said that the financial system of India built a vast network of financial institutions and markets over times and the sector is dominated by banking sector which accounts for about two-third of the assets of organized financial sector.

Haavio, Kauppi (2000) stated that countries where a large proportion of the populationlives in owner occupied housing are experiencing higher unemployment rates. Thancountries where the majority of people live in private rental housing, which might suggestthat rental housing enhances labour mobility. In this paper, they develop a simple inter temporal two region model that allow us to compare owner occupied housing markets to

rental markets and to analyze how these alternative arrangements allocate people in spaceand time. announced that it will offer loans for Rs. 2-10 lakh at 12.5 percent the lowest rateoffered by any housing finance provider, big brother SBI has taken the rate war in thehome loans category to new heights. This is because, apart from the low rate, the intereston these loans is calculated on principal, which is reduced every month unlike other housing finance companies which calculate interest on annually reducing basis.

Narasimham Committee (1991) points out that although the banking system in our country has made rapid progress during the last two decades, there is decline in

productivity and efficiency and erosion of profitability. The committee strongly makeindications of liberlising, deregulating economy to make Indian baking system more

competitive and efficient.Ojha (1987) in his paper "modern international caparison of productivity andProfitability of pubic sector banks of India" making Comparison on the basis of per employee indicators and taking examples of state bank group and Punjab National bank noted that Indian banks are the lowest in all accounts. However such internationalcomparison will not be fair for numbers of reasons.

Godse (1983) in his essay, looking a fresh at banking productivity observe that productivity aspect is only at the Conceptualization stage in banking industry. Hesuggested improvement in productivity and procedures, costing of operations and capitalexpenditure etc.

Fanning (1982 ), while examining bank productivity of British banks observed thatalthough the productivity of the UK clearing banks is improving, they are still heavily over manned as compared with similar banks else where.

Kulkarni (1979) in his study Development responsibility and profitability of banksstated that while considering banks costs and profits, social benefits arising out of it cannot


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be ignored. He suggested that while meeting social responsibility banks should try to makedevelopmental business as successful as possible.

Varde and Singh (1979) in a study "profitability of commercial banks" over 15 years gaveconsideration to two types of factors that effects interest rates levels i.e. internal factors

(including operational and managerial efficiency of individual basis).

Banking Commission (1972 ) reviewed bank operating methods and procedures and maderecommendations for improving and modernizing these, particularly relating to customersservices, credit procedure and internal control systems. It observed that present methods of working out branch profitability are not appropriate and an integrated costing and financialreporting system is needed.

Department of Banking operations and development, RBI : Bombay observed that therapid expansion of banks activities since 1970 called for a phase of consolidations toimprove the quality of banks operational efficiency, productivity and customer services.


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CHAPTER-5


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CHAPTER-5

INTRODUCTION TO THE INDUSTRY

5.1 THE HISTORY OF INDIAN HOME LOANS:-

Home loans in India have made people Buy Property in India in spite of theskyrocketing prices. Today, we find considerable Real Estate Investment in India, either inthe field of Residential Property in India or Commercial Properties in India. Home Loansin India are disbursed by many Banks as Loan Banking is on of the most importantfunction of the Financial Services in India. Property Dealers and Real Estate Consultantsin India usually recommend that we undertake appropriate Home Loan or Mortgage Loancounseling so that we can Buy Apartment in India at an affordable MortgageRate.Purchasing the home of your dreams is not an easy task. Especially when you plan to

buy a home on loan. Home loan means that you buy a house on installments. In simpler terms when you want to own a home and cant afford to pay the amount in lump sum, youcan pay it in monthly installments with an interest rate.

The interest rates of home loans are expected to go down even further according toanalysts who foresee a cut down in the rates by the RBI in the wake of the decision taken

by US Federal Reserve to cut its rates by a significant margin.There are number of companies offer cheap home loans at a low interest rate. You can

avail loan against existing house for renovation or expansion etc. There are manynationalized banks that offer finance for affordable housing. India Housing has put together a comprehensive data to provide you with the cheapest Home Loans available in themarket. We have listed all the important housing finance institutes and some of the tophome finance banks providing lowest interest rates.

In the last few years, housing loan scenario in India has changed drastically. It hastaken a front seat and people are looking forward to owning their own houses. It is no morea dream that required lifetime saving and a difficult decision to make. Today the new home

purchase loan is much easily available and is much cheaper than what was available earlier.Banks are now everywhere and the schemes are implemented even in villages and smaller towns. The housing loans are popular there too, however, the activity of building flats islittle slow. It would not be wrong to say that there has been a boom in the home loanmarket and with this boom; there is also a boom in the Number of home loans mortgage

brokers in India.


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The main reason for this boom in home loan market is the change in government policies. It is our governments motivation that the home loan interest rates in India havefallen considerably. Lot many banks are offering home loans and this is available at lowEMIs (Equated monthly Installments). High EMIs are now a thing of past. Today lendingrate is in the range of 7.5 to 15 %.

Again, there are different types of home loans available today. The interest rateavailable is also of two different types. One is the fixed rate loan and the other is thefloating rate loan. In the fixed rate loan, whatever interest is fixed on the start of loan iscarried on for the complete period. However, in the other one, the interest rate is not fixedand as the interest rate goes up or low the effect is directly transferred to the person who istaking the loan. In the last few years the floating interest rate has been a favorite amongmost of the people taking home loans.

There is also a trend to opt for home construction loan. This loan is available tothose who want to design their homes according to their requirement and taste. In other words, this loan is meant for those who themselves want to construct their new home.

As shared earlier, taking a loan is not a difficult task. However, before taking a

loan, one must realize that the relationship with the bank will be for a longer period usually15 to 20 years so one must ensure faith and integrity in bank. Apart from low rate of interest, the bank should also provide some value added services. The other thing is to look into is the property that is to be brought. Making sure that the builder has all sanctions andfacility to build a good building is very important.

Taking home loans these days has become simpler. With the RBI regularly bringdown interest rates; taking home loans have become extremely easy. Housing loans whichwere 16.5% to 18% a few years ago fell by 11.5% to 13%. With interest rates going down,

people increasingly number apply to take these loans. Some of the leading banks offeringhome loans in India, including ICICI Bank, IDBI Bank, HDFC Bank , Bank of Baroda,SBI, Standard Chartered Bank and Axis Bank .

5.2 Home Loan Procedure in India :-Submission of Application Form: - After choosing a particular home loan, the customer submits the application form to the housing finance company (HFC) along with other relevant documents as required by the HFC. They comprise documents to establish income,age, residence, employment, investments, etc. The customer also needs to hand over acheque for payment of an up front (non -refundable) processing fee of about 0.5-1% of theloan amount to the HFC.

Validation of the Information: - In the next stage, HFCs validate the information provided by the customer on the application form. They usually conduct checks on theresidential address of the customer, the place of employment of the customer, andcredentials of the employer. Some HFCs may insist on a personal interview with thecustomer and perform a reference check on the references provided by the customer on theapplication form.

Issue of Sanction Letter :- After due appraisal of customer profile, a sanction letter isissued which contains details such as loan amount, rate of interest, annual / monthlyreducing balance, tenor of the loan, mode of repayment and general terms and conditions


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of the loan. This is the actually the approval of the money lending procedure by thecompany. However, the money is sanctioned only after the documents and the property on

behalf of which the loan is being granted is thoroughly verified.

Submission of Documents: - Once the sanction letter is passed, the customer is required to

leave the entire set of original documents pertaining to the property being purchased withthe HFC as security for the loan amount sanctioned. These documents remain in thecustody of the HFC till the time the loan is fully repaid. Once the documents are handedover to the HFC, they send all the documents for a thorough legal scrutiny.

Validation of Property: - Prior to disbursement, the HFC also conducts a site visit to thecustomer's property to ensure that all construction norms have been adhered to properly.Once the HFC is satisfied that the property is legally and technically clear, they disbursethe loan amount. The disbursement from the HFI is on the basis of the stage of constructionof the property.

Payment Procedure: - Once all the above mentioned process, the borrower is entitled totake the money from the lender party. Until such time that the entire sanctioned amount isnot drawn, the customer is supposed to pay a simple interest on the Actual Amount drawn(without any principal repayments). The EMI payments commences only after the entiresanctioned loan amount is drawn.

5.3 INTEREST RATES PROVIDED BY VARIOUS BANKS

Finance Institution Loan Period(in years) FixedEMI / Lakh

(INR) FloatingEMI / Lakh

(INR)

Bank of Baroda

Up to 5 9.00 2076 8.00 20286 to 10 9.25 1230 8.25 122711 to 15 9.50 1044 8.25 97016 to 20 9.50 932 8.50 868

State Bank Of India

Up to 5 9.50 2100 8.75 20646 to 10 9.75 1300 9.25 128011 to 15 - - 9.25 1029

16 to 20 - - 9.75 949

HDFC

Up to 5 11 2175 9.50 21016 to 10 11 1375 9.50 129411 to 15 11 1137 9.50 104516 to 20 11 1033 9.50 933


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and points are locked in, you should be protected against increases while your applicationis processed. This protection could affect whether you can afford the mortgage. However, alocked-in rate could also prevent you from taking advantage of price decreases , unless your lender is willing to lock in a lower rate that becomes available during this period.

It is important to recognize that a lock-in is not the same as a loan commitment,

although some loan commitments may contain a lock-in. A loan commitment is thelenders promise to make you a loan in a specific amount at some future time. Generally,you will receive the lenders commitment only after your loan application has beenapproved. This commitment usually will state the loan terms that have been approved(including loan amount), how long the commitment is valid, and the lenders conditions for making the loans such as receipt of a satisfactory title insurance policy protecting thelender.

Oral or written lock-in agreement? :-Some lenders have preprinted forms that set out the exact terms of the lock-in

agreement. Others may only make an oral lock-in promise on the telephone or at the time

of application. Oral agreements can be very difficult to prove in the event of a dispute. It iswise to obtain written, rather than verbal, lock-in agreements to make sure that you fullyunderstand how your lenders lock-ins and loan commitments work and to have a tangiblerecord of your arrangements with the lender. This record may be useful in the event of adispute.

Charges of a lock-in:-

Lenders may charge you a fee for locking in the rate of interest and number of points for your mortgage. Some lenders may charge you a fee up-front, and may not refundit if you withdraw your application, if your credit is denied, or if you do not close the loan.

Others might charge the fee at settlement. The fee might be a flat fee, a percentage of themortgage amount, or a fraction of a percentage point added to the rate you lock in. Theamount of the fee and how it is charged will vary among lenders and may depend on thelength of the lock-in period.

Types of lock-in:-

Locked-In Interest Rate--Locked-In Points :- Under this option, the lender lets you lock in both the interest rate and points quoted to you. This option may be considered to be atrue lock-in because your mortgage terms should not increase above the interest rate and

points that youve agreed upon even if market conditions change.

Locked-in Interest Rate--Floating Points:- Under this option, the lender lets you lock inthe interest rate, while permitting or requiring the points to rise and fall (float) withchanges in market conditions. If market interest rates drop during the lock-in period, the

points may also fall. If they rise, the points may increase. Even if you float your points,your lender may allow you to lock-in the points at some time before settlement at whatever level is then current. (For instance, say youve locked in a 10 percent interest rate, but notthe 3 points that went with that rate. A month later, the market interest rate remains the


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same, but the points the lender charges for that rate have dropped to 2. With your lenders agreement, you could then lock in the lower 2. Points.) If you float your pointsand market interest rates increase by the time of settlement, the lender may charge a greater number of points for a loan at the rate youve locked in. In this case, the benefit you mighthave had by locking in your rate may be lost because youll have to pay more in up-front

costs.

Indian Economy is growing at a nice pace (8% p.a) which is also driving per capita incomerise. The demand of real estate has reached at a new peak according to ninth five year planthere is a shortage of 42million houses .But in India the figures to GDP are smaller incomparison to the other countries Contribution of housing to GDP is close to 8%. Sources:

NHB

5.4 Indian Market for Home loans is more than Rs.500,000 crore:-Today, not only the metros are witnessing the housing crunch even the second tier cities

like- Jaipur, Bhubneshwar, Lucknow, Trivendrum etc. are falling into the dearth of livingspace and wanting for more expansion.India Report:Indian credit report in comparison to the other Asian countries is shown in the statistics

below, which is among the lowest. It is Indian psyche that credit is termed bad, Indian aretraditionally not inclined to take credit this reflects in the figures below:-

GRAPH :- 5.1


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5.5 Indian home loans Industry:-

Indian Home loans industry is growing at a fast pace 30% per annum, this can beseen in the stats shown below with average ticket size (loan size) and Amount disbursed is

rising every year the opportunities have become more dominant for different organizationin India. The demand drivers are fast growing middle class population, rise in workingwomen workforce, bigger aspirations of youth, Tax saving, Transparency in the real estatemarket.

GRAPH:- 5.2

Still in comparison to other nations India has a long way to go, The figures shown

below shows that even the GDP/mortgage ratio is low which indicates that credit is notwell sought as figure below shows the average percentage of mortgage to GDP.


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GRAPH:-5.3

Comparison with other nations India fall behind in terms of Mortgage Penetration whichdirectly demonstrates the potential in Indian market for Housing mortgage financecompanies

GRAPH:- 5.4


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Real Estate is currently sought of as a great means of Investment, the prices of residents have shot up very high which is clearly shown in the figure below, the major cities have witnesses lot of development and price appreciation which demonstrates thegrowing demand . more and more people are migrating to cities for work / business. Moreand more jobs are created and price index rise becomes inevitable.

Price Index: FIG-5.5


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The above figure shows the rise in prices of space per sq feet in different major cities.

Housing shortage in India: - The below figure shows the ever-increasing demand for

houses in India and also mentioned here is the Rural and urban requirement. Banks aredriving new strategies to tap both the markets in a different way Rural/Urban. There arecategories with Indian loan demand, which is shown in this figure

FIG:- 5.6

5.6 Recent trends of home loan in India:-

In order to understand the recent trends we need to know or understand variousfactors. These factors play vital role in Indian home loan market. These include interestrate on which banks provide home loan, tax rebate on home loan and its impact. Apart fromthis to understand the recent trend we need to compare the trends of home loan of differentyears. Here we have compared the interest and other market trends of year 2009 with 2007-08. This kind of comparison gives the result which helps us to understand the trends of market of any industry. Apart from the impact of present and past economic ups and downalso affect the trends. Today the US slowdown is the major issue which has affected almost


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all the industry. So we have also discussed this issue in terms to define trend of home loanmarket in India.

5.7 Impact of slowdown on home loan market in India:-The fear of a recession looms over the United States. And as the clinch goes,

whenever the US sneezes, the world catches a cold. This is evident from the way the Indianmarkets crashed taking a cue from a probable recession in the US and a global economicslowdown. U.S slowdown has affected almost all sectors not only in US but to all over theworld. Indian economy has also been affected by this slowdown because India is a growingcountry and almost in all sectors various multinational companies have major contribution.So the role of this slowdown is a major issue to be discussed while talking about HomeLoan Market in India.

Bankers who were earlier falling over each other to dole out home loans, even for soft furnishings, have suddenly become choosy. Banks like SBI, ICICI Bank, UTI Bank,IDBI Bank and leading mortgage firm HDFC are now apparently making a conscious

attempt to curb their aggression in the home loan market.situation is like that if a customer who recently approached a private sector bank for a home loan of about Rs 10 lakh for atenure of 15 years found, to his shock, that the eventual loan disbursement was just Rs 5lakh. Most bankers aren't willing to confirm any slowdown in their home loan portfolio.On record, they attribute the marginal dip in home loan disbursements to the recent hike ininterest rate.

Privately, however, they have a different story to tell. "The slowdown in the homeloan market for select players like ICICI Bank was evident from January. ICICI Bank'saverage home loan disbursement in a month is around Rs 2,500 crore in a month, whichhas come down to almost Rs 2,000 crore in March," said a private sector banker. ICICIBank officials denied any slowdown in their home loan portfolio and they say that the

recent dip in interest rates has had some impact on disbursals. However, in absolute terms,it is still low. Even this slowdown the deposit growth for the sector as a whole is around17%, while credit is growing at almost 28%, forcing banks to become selective. Institutionsnow charge a floating rate of 8 to 8.25 per cent on home loans above Rs 20 lakh. Initialestimates by bankers suggest that the increase in rate for home loans and other segmentswould be around 25-50 basis points (0.25% to 0.5%). Even as the provisioning requirementhas gone up around 60 basis points, the hike in interest rates may be lower as the impactwould be felt for the first year. It would also depend on how well capitalized the banks areas the rise in provisioning and risk weightage would affect the return on equity for banks.Weaker banks and banks with a large portfolio of these loans are likely to be more affectedand may hike rates first.

Home loan growth of disbursals were at 20 per cent in 2007-08 according to a study by the credit rating agency CRISIL, a Standard & Poors company. This rate is lower thanthe 30 per cent annual increase seen in the past three years, but in absolute terms representsa substantial expansion. The slower growth reflects the impact of rising property prices andinterest.

HDFC: yielding Ground: -Loan growth may slow down in 2009-10 as the company loses some market share.


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GRAPH :5.7

Competition is not new to HDFC, after all ICICI Bank was a tough competitor when it went on a customer acquisition spree some years back. This time around, althoughICICI may not be in a position to give HDFC a run for its money, public sector banks,especially State Bank of India (SBI) could.

The difference between four years ago and now is that money today is not yetcheap and certainly not as inexpensive as it was back in 2004 and 2005. Of course with bank loans to HDFC now treated as priority lending, the cost of funds for HDFC shouldcome down. But should long-term rates go up, HDFC will feel the pinch.

Thats why the market sat up and took note when SBI kicked off an 8 per cent in-the- first -year product believing HDFC could lose some market share. In the recent rally,the stock which had plunged to a two year low, has gained 31 per cent to the Sensexs 23


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per cent. The good news is that transactions could start picking up in the second half of 2009 now that property prices have started trending down as have interest rates.

But although the home loan major believes it can manage a growth of 20 per cent in2009-10, analysts are not so sure. CLSA points out that HDFCs loan growth (pre-

securitisation) would be around 15-17 per cent. One reason for this is that HDFC Bank may now hold back a higher proportion of loans that it originates; the bank currentlysources just over a fourth of HDFCs loans.

As a result HDFCs operating income may increase by about 15 per cent in 2009-10while its net profits should grow by about 10-12 per cent. HDFC has always scored when itcomes to keeping bad loans in check, which is why a few delays or even defaults will nothurt the balance sheet. At Rs 1,653,the stock trades at around 2.8 times the estimatedadjusted book value for 2009-10.

5.8 Interest and market trends in year 2009:- Home loan interest rates, especially on

new home loan accounts, started softening from the beginning of this year when theReserve Bank of India (RBI) announced sharp cuts in the repo rate and cash reserve ratio(CRR). The RBI started slashing the key policy rates since October last year, after takinginto account the worsening liquidity situation of banks here. The central bank has reducedits key policy interest rates (repo and reverse repo) and reserve ratio (CRR) four times inthe last six months. The cut in the repo rate meant commercial banks would have fundsavailable at a lower cost. On the other hand, the cut in the CRR meant banks would have tokeep less money with the RBI and hence they had more money to lend. Analysts believethat interest rates have not yet bottomed out and there will be further cuts in borrowingrates over the next few months.

While the interest rate cut expectation is a thing of the past, the question is will it go

back to the old levels of 7-8 percent which contributed to a property boom? Consensus isalready building up for the fact that we are headed towards a low interest rate regime in thecoming couple of years, in line with global trends. In the case of the domestic economy, thetrigger for low interest rates has already happened on the deposit front with banks reducingthe rate by 1-2 percent in the last few weeks. Now, the deposit rate has come down tosingle digit even with respect to long term deposits (on 3-5 years) and that would mean

banks have access to cheaper funds. With inflation too sliding down at a rapid pace, there ishope for continuance of a cheaper rate regime.

Following in State Bank of Indias (SBIs) footsteps, other state-run banks may alsocome out with scheme offering home loan at a fixed rate of 8%. The Indian BanksAssociation (IBA) would review the response of borrowers towards the SBI scheme after

three weeks and if it finds that there has been a good response, other banks will follow suit.Last week, SBI had announced that it would offer home loans at a flat rate of 8% to all borrowers and would freeze this rate for one year. The chairman of one of the major banks,who asked not to be named, said SBI can afford to lend at such cheap rate as it has one of the best current and savings account (CASA) deposit ratio. CASA deposits are the cheapestsource of funds for a bank and a high CASA deposit ratio brings down their average cost of funds. This in turn helps the bank in offering cheaper credit while maintaining their net


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interest margin (NIM). NIM is the difference between the rates at which banks borrow andlend.State-owned banks started cutting their home loan rates after country's largest lender; StateBank of India froze its new home loan rates at eight per cent for one year recently.

HDFC Reduces Home Loan Rate By 0.5 Percent: - Home finance major HDFC reducedhome loan rates by 50 basis points for all its existing floating rate customers. HDFC alsosaid that it will charge 10.25 percent of interest annually from new applicant for a loan of Rs 20 lakh or less. And for loans of more than Rs 20 lakh, it will charge interest at 11.25

percent. The bank also reduced the interest rate on deposits that it accepts from the public by 50 basis points. In a statement to the media, HDFC informed that all the changes willcome into effect from December 22.HDFC was able to bring home loan cuts because the government and RBI had taken seriesof measures to infuse liquidity into the economy. Over the last three months, RBI has cutkey policy rates, including cash reserve ratio, repo and reverse repo rates, and statutoryliquidity ratio. Government has also infused money into the housing sector through the

National Housing Bank. PSU banks are also forced to cut rates for new home loans up toRs 20 lakh.

Although in the past few weeks several banks cut home loan rates, but those decisionsapplied only to new customers. HDFC is the first major housing lender to cut rates for bothcurrent and new customers. While commenting on this matter, Keki Mistry, HDFC vicechairman and MD said that the bank was able to exercise the move especially because of the recent reduction in the cost of funds. The wholesale funding rate has declined fromOctober-November levels hence HDFC decided to pass on the benefits to its customers,

both old and new ones.

5.9 Types of home loans: -

Housing loans offered by banks are of different types:-

Home Purchase Loans Home Construction Loans Home Improvement Loans Home Extension Loans Home Conversion Loans Land Purchase Loans Stamp Duty Loans

Bridge Loans Balance Transfer Loans Refinance Loans Loans to NRIs

Home purchase loans:-


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This is the basic home loan for the purchase of a new home. If you want to buy aflat in some society or some already built house, banks and HFCs sanction you home

purchase loans for this process.

Home construction loans:-

This loan is available for the construction of a new home on a said property. Thedocuments that are required in such a case are slightly different from the ones you submitfor a normal Housing Loan . If you have purchased this plot within a period of one year

before you started construction of your house, most HFCs will include the land cost as acomponent, to value the total cost of the property. In cases where the period from the dateof purchase of land to the date of application has exceeded a year, the land cost will not beincluded in the total cost of property while calculating eligibility.

Home improvement loans:-These loans are given for implementing repair works and renovations in a home

that has already been purchased, for external works like structural repairs, waterproofing or internal work like tiling and flooring, plumbing, electrical work, painting, etc. One canavail of such a loan facility of a home improvement loan, after obtaining the requisiteapprovals from the relevant building authority. the following are coming under the homeimprovement loans:

External repairs Tiling and flooring Internal and external painting Plumbing and electrical work Waterproofing and roofing Grills and aluminum windows Waterproofing on terrace Construction of underground/overhead water tank Paving of compound wall (with stone/tile/etc.) Borewell.

Home extension loans:-

An extension loan is one which helps you to meet the expenses of any alteration tothe existing building like extension/ modification of an existing home; for exampleaddition of an extra room etc. One can avail of such a loan facility of a home extension

loan, after obtaining the requisite approvals from the relevant municipal corporation.

Home conversion loans:-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 a home conversion loan, the existing loan is transferred to the new homeincluding the extra amount required, eliminating the need for pre-payment of the previousloan.


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Land purchase loans:-This loan is available for purchase of land for both home construction or investment

purposes.

Stamp duty loans:-This loan is sanctioned to pay the stamp duty amount that needs to be paid on the purchase of property.

Bridge loans:-Bridge Loans are designed for people who wish to sell the existing home and

purchase another. The bridge loan helps finance the new home, until a buyer is found for the old home.

Balance- transfer loans:-Balance Transfer is the transfer of the balance of an existing home loan that youavailed at a higher rate of interest (ROI) to either the same HFC or another HFC at thecurrent ROI a lower rate of interest.

Refinance loans:-Refinance loans are taken in case when a loan for your house from a HFI at a

particular ROI you have taken drops over the years and you stand to lose. In such cases youmay opt to swap your loan. This could be done from either the same HFI or another HFI atthe current rates of interest, which is lower.

NRI home loans:-This is tailored for the requirements of Non-Resident Indians who wish to build or buy a home or property in India. The HFCs offer attractive housing finance plans for NRI investors with suitable repayment options.On would be entitled for home loans in the range of Rs 5 lakh to a maximum of Rs 1 crore,

based on the repayment capacity, previous credit history and the cost of the property. The bank may provide a maximum of 85% of the cost of the property or the cost of construction as applicable and 75% of the cost of land in case of purchase of land. Therepayment capacity is calculated taking into account factors such as:

Age Income/Salary

Qualifications Dependant/(s) Assets/Liabilities Credit History Stability / continuity of your employment/business Income of co-applicant/(s)


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Taking home loans these days has become simpler. With the RBI regularly bringdown interest rates; taking home loans have become extremely easy. Housing loans whichwere 16.5% to 18% a few years ago fell by 11.5% to 13%. With interest rates going down,

people increasingly number apply to take these loans. Some of the leading banks offeringhome loans in India, including ICICI Bank, IDBI Bank, HDFC Bank State Bank, Bank of

Baroda, Kotak Bank, SBI, Standard Chartered Bank and Axis Bank.

5.10 HDFC Home Loan:-

Highlights:-

HDFC markets its parent HDFC's home loan products. Finances up to 85% of the cost of the property (Agreement value + Stamp duty +

Registration charges). Home improvement loan, which facilitates internal and external repairs and other

structural improvements like painting, waterproofing, plumbing and electric works,

tiling and flooring, grills and aluminum windows. Finances up to 85% of the cost of renovation (100% for existing customers). Home extension loan for extension of an existing dwelling unit under the same

terms as