1

A SUMMER TRAINING PROJECT REPORT

ON

COMPARATIVE STUDY OF FINANCIAL INSTITUTIONS OFFERING HOME

LOANSIN

HDFC BANK LTD., DELHI

In the partial fulfilment of the degree ofMASTER OF BUSINESS ADMINISTRATION

SUBMITTED TO; SUBMITTED BY:

MISS. PRAGYA AGARWAL VISHVANATHPAL HOD-HIET, GHAZIABAD MBA-III Semester

Role no.0922070057

HI-TECH INSTITUTE OF ENGINEERING & TECHNOLOGY, GHAZIABAD

GAUTAM BUDDH TECHNICAL UNIVERSTYLUCKNOW

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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

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(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

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shareholders of both banks and the Reserve Bank of India, shareholders of 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 & mid-sized 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 (HSL) and HDB Financial Services (HDBFSL) are its subsidiaries.

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

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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 Award 2008 - 'Best IT Governance and Value Delivery'

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

2008

Finance Asia Country Awards for Achievement 2008 -   'Best Bank and Best Cash Management Bank'

CNN-IBN - 'Indian of the Year (Business)'

Nasscom IT User Award 2008 -   'Best IT Adoption in the Banking Sector'

Business India  - 'Best Bank 2008'

Forbes Asia  - Fab 50 companies in Asia Pacific

Asian Banker Excellence in Retail Financial Services -  Best Retail Bank 2008

Asia money   - Best local Cash Management Bank Award voted by Corporate

Microsoft & Indian Express Group  -  Security Strategist Award 2008

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World Trade Centre Award of honour   - For outstanding contribution to international trade services.

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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EXECUTIVESUMMARY

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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 (HFC’s). 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.

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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 financial real

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.

HDFC is in compliance with the limits prescribed by NHB in respect of

concentration of credit/investment.

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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

HFC’s 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 NHB-

1. 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;

3. To subscribe to o r purchase stocks, shares, bonds debentures and securities of

every other description

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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 HFC’s 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. Promoter’s 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 be

contributed by either one or all of banks , financial institutions, and government

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 ‘arm’s length ‘distance from such

companies. NHB has imposed restrictions as regards to their names, relationship

with construction companies and so on. The names of HFC’s . 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

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borrowing and ending on March 31s 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.

HFC’s 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 HFC’s to offload long-term mortgages to

other investors. The stumbling block here is high stamp duty–as high as 3

percent.

Route more funds through the consumer to the developer . Which obviates the

need for HFC’s 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.

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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 or by cash / DD.

13. The principal is amortized either on annual reducing or monthly reducing basis

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. Employer’s 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 HFC’s

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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

Employer’s details (In case of private limited companies)

Profile of employer on employer’s 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.

i) Annual reports of your employer for the last two to three years

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Proof of age (Any one of the following)

Passport

Voter’s ID card

PAN card

Ration card

Employer’s 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

A copy of a newspaper advertisement publicizing the name change

Marriage certificate

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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)

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.

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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

4. Incidental charges

5. Prepayment charges

6. PDC Swapping charges

Pre-disbursement charges

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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. It’s 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.

Legal charges: Some HFIs levy legal charges that they incur on getting your

property documents vetted by their panel of lawyers.

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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.

Don’t 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.

Don’t fudge salary slips and income statements

Don’t 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. Don’t 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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Don’t 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.

Don’t 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 month’s

salary on your favourite perfume or that gorgeous pashmina shawl, please don’t tell

him.

Don’t 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.

32

Don’t 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 you’ll be able to meet the EMI. Otherwise

you will have to come up with a convincing plan of lowering your expenses.

Don’t hide details about other loans

If there is a recurring payment on an existing loan, make sure you’ve mentioned the

existing liability in the form. Since other loan repayments bring sown your income–to

–instalment ratio and result in a lower loan, this is a vital piece of information.

Don’t hide details about the loan. Consider consolidating all your debt before going in

for another loan.

Don’t 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.

Don’t 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. Can’t even think about it . Even if

you got lucky and your loan officer was the bad apple in the company’s 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?

32

Don’t 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 you’d 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 OFHOUSING FINANCE

Major housing finance institutions are identified on the basis of the following parameters:

1. Net Sales2. Net Profit 3. Net Worth

1. NET SALES

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.

32

2. NET PROFIT

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 Rs. 147.54 crores, ICICI

Home fin. co. ltd Rs .9.58 corers, CANFIN Homes Ltd. With Rs. 16.63 corers and SBI

Home Finance Ltd. Rs.-90.19 corers.

32

3. NET WORTH

In the year 2004–05, 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.

32

ANALYSIS

32

ANALYSIS (LOAN TRANSFER)

Q1. What is the reason / benefit that influences your choice of the financial institution

for a housing loan?

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.

32

Q2. Allocate your preferences in ranking order which makes you decide about a

financial institution for a housing loan.

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 their first preference to easy availability, scheme and repayment

period.

32

Q3 . How do you rate HDFC Ltd. In the following services?

a) Interest Rates

b) Repayment Period

c) Customer Care

d) Transaction Period

32

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

ANALYSISOut 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.

32

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

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.

32

Q6.Can we do anything to help you ?

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.

32

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

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.

32

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

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.

32

TREND ANALYSIS OF FINANCIAL

INSTITUTIONS

32

Trend analysis of financial institutions

HDFC Ltd

YEAR ENDING

SALES Rs Crore

PBT Rs Corer

TREND(%)SALES

TREND(%)PBT

98 1445.25 326.53 61 5999 1762.87 389.02 74 7000 2011.81 460.95 85 8301 2374.8 556.23 100 10002 2692.41 690.93 113 124

SBI home financ e ltd.

YEAR ENDING

SALES Rs Crore

PBT Rs crore TREND(%)SALES

TREND(%)PBT

98 82.26 -7.56 204 3599 66.99 -44.51 166 20700 53.53 -24.24 133 11201 40.37 -21.55 100 10002 39.46 -90.12 98 418

LIC housing finance ltd.

YEAR ENDING

SALES Rs Crore

PBT Rs Crore TREND(%)SALES

TREND(%)PBT

98 494.84 114.23 65 7999 571.71 124.89 75 8000 657.17 137.83 86 8801 762.03 156.65 100 10002 873.26 180.87 115 115

CANFIN homes ltd.

YEAR ENDING

SALES Rs Crore

PBT Rs Crore

TREND(%)SALES

TREND(%)PBT

32

98 100.26 14.81 78 6499 109.76 19.46 86 8400 112.97 18.27 89 7901 127.63 23.19 100 10002 139.03 24.68 109 106

ICICI HOME FIN. CO. LTD

YEAR ENDING

SALES Rs Crore

PBT Rs Crore

TREND(%)SALES TREND(%)PBT

98 NA NA 0 099 NA NA 0 000 NA NA 0 001 57.75 1.93 100 10002 191.96 12.64 332.39 655

32

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

32

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.

32

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 .

32

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 March 2001 March 2003Operating income 2011.81 2374.8Fund bas e income 1935.9 2271.42Free base income 75.7 102.82Interest costs 1436.95 1689.61Depreciation 41.68 43.06PBDT ( NNRT) 502.63 599.29PBT (NNRT) 460.95 556.23PAT (NNRT) 401.81 473.65Gross fixed assets 424.35 562.06Leased assets 266.29 242.52Investments 3341 3052.14Stock I n trade 0 0Cash and bank balance 1081.18 1007.82Receivables 11569.65 14675.91Net worth’s 2095.97 2371.94Equity capital 119.11 120.08Long term borrowing 12882.82 15406.81Current liability and provision

1226.03 1344.84

* Data Source CMIE

32

SBI home finance Ltd

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

110.77 149.55

* Data Source CMIE

32

LIC HOUSING FINANCE LTD.

LIC housing finance Ltd.

Rs Corer

March 2001 March2003

Operating income 762.03 873.26

Fund base income 724.94 829.62

Free base income 37.09 43.64

Interest costs 568.27 644.6

Depreciation 1.16 1.32

PBDT( NNRT) 157.81 182.19

PBT (NNRT) 156.65 180.87

PAT (NNRT) 121.35 145.32

Gross fixed assets 15.01 21.64

Leased assets 0 0

Investments 241.51 344.21

Stock in trade 0 0

Cash and bank balance 543.76 550

Receivables 5387.49 6368.93

Net worth’s 638 737.23

Equity capital 75 75

Long term borrowing 526.82 6207.05

Current liability and

provision

278.96 344.24

* Data Source CMIE

32

Canfin homes Ltd

Canfin homes Ltd Rs Corer March 2001 March2003

Operating income 127.63 139.03

Fund base income 122.39 132.21

Free base income 5.24 6.82

Interest costs 92.4 100.4

Depreciation 0.56 0.57

PBDT( NNRT) 23.75 25.25

PBT (NNRT) 23.19 24.68

PAT (NNRT) 17.69 18.98

Gross fixed assets 7.42 7.79

Leased assets 0 0

Investments 32.86 32.66

Stock in trade 0 0

Cash and bank balance 31.88 82.02

Receivables 87.56 1060.01

Net worth’s 100.07 113.05

Equity capital 20.49 20.49

Long term borrowing 806.84 968.02

Current liability and

provision

36.63 97.81

* Data Source CMIE

32

ICICI HOME FINANCE CO. LTD

ICICI Home finance co. Ltd

Rs Corer

March 2001 March2003

Operating income 57.79 191.96

Fund base income 43.49  159.44

Free base income 14.3  32.52

Interest costs 33.18  129.25

Depreciation 0.07 0.4

PBDT( NNRT) 2  13.04

PBT (NNRT) 1.93 12.64

PAT (NNRT) 1.49 9.58

Gross fixed assets 0.8 3.4

Leased assets 0 0

Investments 0 7.81

Stock in trade 0 0.1

Cash and bank balance 10.55  62.1

Receivables 721.79  1620.55

Net worth’s 94.57  161.88

Equity capital 95 115

Long term borrowing 251.5  630.08

Current liability and

provision 387.83 902.83

* Data Source CMIE

32

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 for a housing loan?

1. interest rates 2. easy availability

3. interest scheme 4. advertisement

Q2. Allocate your preferences in ranking order which makes

you decide about a financial institution for a housing loan.

1. interest rates 2. easy availability

3. interest scheme 4. advertisement

.

Q3 . How do you rate HDFC Ltd. In the following services?

a) Interest Rates

b) Repayment Period

c) Customer Care

d) Transaction Period

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 2. Monthly rate interest3. full loan amount 4. Low rate interest

Q7. Are you satisfied with services of the financial institution you are currently dealing with? yes1.yes 2. No

Q8. Financial Institutions in which Customers of HDFC LTD

transferred their loan?

1.ICICI 2.PNB

3.SBI 4IDBI

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

Personal Details:-

Name ………………………………………………………..

AGE - 18-25YR 25- 40YR.

40-55YR. MORE THAN 55YR.

SEX - Male Female

Occupation …….……………………………………………

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 your contribution is the total cost of the property

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!

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,

The number of dependents you have,

32

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

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.

32

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.

15) Can I get a loan for a plot of land?

32

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.

19) What is meant by the margin in a loan?

32

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

Pre-Payment Charge

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

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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.

Annual Reducing

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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.

28) What is EMI?

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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?

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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