CHAPTER 1 INTRODUCTION TO THE INDUSTRY I

INTRODUCTION TO INDUSTRY
WHAT IS BANKINGBanking in a traditional sense is the business of accepting deposits of money from public for the purpose of lending and investments. These deposits can have a distinct feature of being withdrawal by cheques, which no other financial institution can offer. In addition, banks also offer various other financial services, which includes: Issuing emand !redit !ard !ollection of cheques, Bills of "#change $afe eposit %ockers raft and Travelers !heques

Issuing %etters of !redit and %etters of &uarantee $ale and 'urchases of (oreign "#change !ustodial $ervices Investment and Insurance service

The business of banking is highly regulated since banks deal with money offered to them by the public and ensuring the safety of this public money is one of the prime responsibilities of any bank. That is why banks are e#pected to be prudent in their lending and investment activities. "very bank has !ompliance department, which is responsible to ensure that all the services offered by the banks and the processes followed are in compliance with the local regulation and the bank)s corporate policies: Banking *egulation +ct, ,-.(oreign "#change /anagement +ct, ,--Indian !ontract +ct, ,012 3egotiable Instrument +ct, ,00,

Banks lend money either for productive purposes to individuals, firm corporate etc. or for buying house property, cars and other durable and for investment purposes to individuals and others. 4owever banks do not finance any speculative activity. %ending is risk taking5 having prudent norms for lending should cover the risk. The depositors of banks are also assured of their money by deploying some percentage of deposits in statutory reserve like $%* and !**.

BANKING INDUSTRY IN INDIA

Banking in India has its origin as early as the 6edic period. It is believed that the transition from money lending to banking must have occurred even before /anu. The great 4indu 7urist, who devoted a section of his work to deposits and advances and lay down rules relating to rate of interest. uring the /ogul period, the indigenous banker played a very important role in uring the days of the "ast India lending money and financing foreign trade and commerce.

!ompany it was the turn of the agency houses to carry on the banking business.

The &eneral Bank of India was the first 8oint $tock Bank to be established in the year ,109. The others, which followed, were the Bank of 4industan and Bengal Bank. The bank of 4industan is reported to have continued till ,-:9 while the other two failed in the meantime. In Bank of Bengal in ,0:-, the Bank of Bombay in ,0.: and the bank of madras in ,0.;. These three banks also known as presidency Bank were independent units and functioned well. These three banks were amalgam +cted on 21th 7anuary ,-2,. <ith the passing of the $tate Bank of India +ct in ,-== the *eserve Bank of India +ct ,-;.. In the wake of the $wedes /ovement, a number of bank with Indian management were establish in the country namely, 'un8ab 3ational Bank %td., Bank of India %td., the !entral Bank of India %td., Indian Bank %td., the Bank of Baroda %td., and the !entral Bank of India %td. >n 7uly ,-, ,-9- fourteen ma8or banks of the !ountry were nationali?ed @ in ,=th +pril ,-0: si# more commercial private sector banks were also taken over by the &overnment.
3

Today the commercial banking system in India may be distinguished into:

PUBLIC SECTOR BANKS

$tate Bank of India @ its associate bank called the $tate Bank &roup, 2: nationali?ed banks, *egional *ural Banks mainly sponsored by public sector banks >ld generation private bank, 3ew generation private bank, foreign banks in India, $cheduled co-operative bank, nonscheduled banks

CO-OPERATIVE SECTOR BANKS

The co-operative sector has been developed in the country to the supplement the 6illage moneylender. The co-operative banking sector in India is divided into four components $tate !o-operative Banks, !entral !o-operative Banks, 'rimary +griculture !redit $ocieties, %and evelopment Banks, Arban !o-operative banks, 'rimary +griculture 'rimary %and evelopment Banks, and $tate %and evelopment Banks. evelopment Banks,

DEVELOPMENT BANKS
Industrial (inance !orporation of India BI(!IC, Industrial India BIIBIC, $mall Industrial +griculture and *ural evelopment Bank of India BI BIC,

Industrial !redit and Investment !orporation of India BI!I!IC, Industrial Investment Bank of evelopment Bank of IndiaB$I BIC, $!I!I %td., 3ational Bank for evelopmentB3+B+* :, "#port Import Bank of India.

NATIONAL HOUSING BANK

The Indian banking can be broadly categori?ed into 3ationali?ed, 'rivate Banks @ $peciali?ed Banking Institution. The *BI +ct as a centrali?ed body monitoring and discrepancies and short coming in the system. $ince the 3ationali?ation of Banks in ,-9-, the public sector banks have accrued a place of prominence and have since then seen tremendous progress. !onservative

banking practices allowed India Banks to be insulated partially form the +sia currency crises, India banks are now quoting all higher valuation when compared to Bank to other +sian countries that have ma8or problems linked to huge 3'+)s and payment defaults. !o-operative banks are nimble footed in approach and armed with efficient branch network focus primarily on the high revenue niche retail segments. The India banking was finally worked up to the competitive dynamic of the new India market and is addressing the relevant issues to take on the multifarious challenges of globali?ation. 'rivate Banks has been fast on the uptake and is reorienting their strategies using the interest as a medium. The Interest has emerged as the new challenging frontier of marketing. The large does of liberali?ation have largely brought this transformation and economic reforms that allowed banks to e#plore new business opportunities rather generating revenues from conventional streams i.e. borrowing and lending. The banking in India is highly fragmented with banking unit contributing to almost == of deposits and 9:D of advances. Indian nationali?ed banks continue to be the ma8or lender in the economy duet to their sheer si?e and penetrative networks which assures them high deposit mobili?ation. The India banking can be broadly categori?ed into nationali?ed, private banks and speciali?ed banking institutions. The *BI acts as a centrali?ed body monitoring any discrepancies and shortcoming in the system. It is foremost monitoring body in the Indian financial sector. The nationali?ed banks continue that out of commercial banks operating in India, banks are in the public sector and = are in the private sector. The private sector bank grids also include foreign banks that have started their operation here.

CHAPTER 2 INTRODUCTION TO THE ORGANISATION

INTODUCTION TO THE AXIS BANK

!ommercial banking services which includes merchant banking, direct finance infrastructure finance, venture capital fund, advisory, trusteeship, fore#, treasury and other related financial services. +s on ;,-/ar-2::-, the &roup has 021 branches, e#tension counters and ;,=-= automated teller machines B+T/sC. +#is Bank was the first of the new private banks to have begun operations in ,--., after the &overnment of India allowed new private banks to be established. The Bank was promoted 8ointly by the +dministrator of the specified undertaking of the Anit Trust of India BATI - IC, %ife Insurance !orporation of India B%I!C and &eneral Insurance !orporation of India B&I!C and other four '$A insurance companies, i.e. 3ational Insurance !ompany %td., The 3ew India +ssurance !ompany %td., The >riental Insurance !ompany %td. and Anited India Insurance !ompany %td. The Bank today is capitali?ed to the e#tent of *s. ;=-.19 cores with the public holding Bother than promotersC at =1.1-D.The BankEs *egistered >ffice is at +hmadabad and its !entral >ffice is located at /umbai. The Bank has a very wide network of more than 0=; branches and "#tension !ounters Bas on ;:th 7une 2::-C. The Bank has a network of over ;12; +T/s Bas on ;:th 7une 2::-C providing 2. hrs a day banking convenience to its customers. This is one of the largest +T/ networks in the country. The Bank has strengths in both retail and corporate banking and is committed to adopting the best industry practices internationally in order to achieve e#cellence.

Histor o! A"is #$%&1''() The Bank was incorporated on ;rd

ecember and !ertificate of business on ,.th ATI Bank %td. was

ecember. The Bank transacts banking business of all description.

promoted by Anit Trust of India, %ife Insurance !orporation of India, &eneral Insurance

!orporation of India and its four subsidiaries. The bank was the first private sector bank to get a license under the new guidelines issued by the *BI.

1''*) The Bank obtained license to act as epository 'articipant with 3$ % and applied for
registration with $"BI to act as FTrustee to each. ebenture 4oldersE. *upees ,:: crores was contributed by ATI, the rest from %I! *s 1.= crores, &I! and its four subsidiaries *s ,.= crores

1''+) The Bank has 20 branches in urban and semi urban areas as on ;, st 7uly. +ll the
branches are fully computeri?ed and networked through 6$+T. +T/ services are available in 21 branches. The Bank came out with a public issue of ,,=:,::,::: 3o. of equity shares of *s ,: each at a premium of *s ,, per share aggregating to *s ;,.=: crores and >ffer for sale of 2,::,::,::: 3o. of equity shares for cash at a price of *s 2, per share. >ut of the public issue 2, 2:,::: shares were reserved for allotment on preferential basis to employees of ATI Bank. Balance of ;, .1, 0:,::: shares were offered to the public. The company offers +T/ cards, using which account-holders can withdraw money from any of the bankEs +T/s across the country which is inter-connected by 6$+T. ATI Bank has launched a new retail product with operational fle#ibility for its customers. ATI Bank will sign a co-brand agreement with the market, leader, !itibank 3+ for entering into the highly promising credit card business.

2,,,) The Bank has announced the launch of Tele- epository $ervices for Its depository
clients. ATI Bank has launch of FconnectE, its Internet banking 'roduct. ATI Bank has signed a memorandum of understanding with equitymaster.com for e-broking activities of the site. Infinity.com financial $ecurities %td., an e-broking outfit is Typing up with ATI Bank for a banking interface. &eo8it $ecurities %td, the first company to start online trading services, has signed a /oue with ATI Bank to enable investors to buyGsell emat stocks through the companyEs website. India bulls have signed a memorandum of understanding with ATI Bank. ATI Bank has entered into an agreement with $tock 4olding !orporation of India for providing loans against shares to $!4!I%Es customers and funding investors in public and rights issues. I!*+ has upgraded the rating ATI BankEs *s =:: crore certificate of deposit programmed to +,H.

2,,1) ATI Bank launched a private placement of non-convertible debentures to rise up to *s

1= crores. ATI Bank has opened two offsite +T/s and one e#tension counter with an +T/ in /angalore, taking its total number of +T/s across the country to ;==. ATI Bank has recorded a 92 per cent rise in net profit for the quarter ended $eptember ;:, 2::,, at *s ;:.-= crore. (or the second quarter ended $eptember ;:, 2:::, the net profit was *s ,-.:0 crore. The total income of the bank during the quarter was up =; per cent at *s ;99.2= crore.

2,,2) ATI Bank %td has informed B$" that $hri B * Barwale has resigned as a irector of the
Bank w.e.f. 7anuary :2, 2::2. + ! $hah, former chairman of Bank of Baroda, also retired from the bank)s board in the third quarter of last year. 4is place continues to be vacant. / amodaran took over as the director of the board after taking in the reins of ATI. B $ 'andit has also 8oined the bank)s board subsequent to the retirement of I & 6assal. ATI Bank %td has informed that $hri 'aul (letcher has been appointed as an +dditional ! ! (inancial $ervice B/auritiusC %td of the Bank. +nd $hri as an +dditional irector 3ominee of onald 'eck has been appointed

irector Bnominee of $outh +sia *egional (undC of the Bank. ATI Bank %td irector of %I! has resigned as a irector of the

has informed that on laying down the office of !hairman of %I! on being appointed as !hairman of $"BI, $hri & 3 Ba8pai, 3ominee Bank.

2,,() ATI Bank %td has informed B$" that at the meeting of the Board of irectors of the
company held on 7anuary ,9, 2::;, $hri * 3 Bharadwa8, /anaging appointed as an +dditional irector of %I! has been irector, r irector of the Bank with immediate effect on ATI Bank5 the private

sector bank has opened a branch at 3ellore. The bankEs !hairman and /anaging

'.7. 3ayak, inaugurating the bank branch at &T *oad on /ay 29. $peaking on the occasion, r 3ayak said. This marks another step towards the e#tensive customer banking focus that we are providing across the country and reinforces our commitment to bring superior banking services, marked by convenience and closeness to customers. -ATI Bank %td. has informed the "#change that at its meeting held on 7une 2=, 2::; the B> ,C To appoint /r. + T 'annier $elvam, former !/ have decided the following: of Anion Bank of India and 'rof. 7ayanth

6arma of the Indian Institute of /anagement, +hmadabad as additional directors of the Bank with immediate effect. (urther, /r. 'annir $elvam will be the nominee director of the

+dministrator of the specified undertaking of the Anit Trust of India BATI-IC and /r. 7ayanth 6arma will be an Independent irector. 2C To issue 3on-!onvertible Ansecured *edeemable ivision. ebentures up to *s.,:: crores, in one or more tranches as the BankEs Tier - II capital. -ATI has been authori?ed to launch ,9 +T/s on the <estern *ailway $tations of /umbai -ATI filed suit against financial institutions I(!I %td in the debt recovery tribunal at /umbai to recover *s.0=cr in dues. -ATI bank made an entry to the (ood !redit 'rogrammed5 it has made an entry into the =- cluster which includes private sector, public sector, old private sector and co-operative banks. -$hri +8eet 'rasad, 3ominee of ATI has resigned as the director of the bank. -Banks !hairman and / r. '. 7. 3ayak inaugurated a new branch at 3ellore.-ATI bank allots shares under "mployee $tock >ption $cheme to its employees.

2,,-) !omes out with *s. =:: mn Ansecured *edeemable 3on-!onvertible

ebenture

Issue, issue fully subscribed -ATI Bank %td has informed that $hri +8eet 'rasad, 3ominee of the +dministrator of the $pecified Andertaking of the Anit Trust of India BATI - IC has been appointed as an +dditional irector of the Bank w. e. f. 7anuary 2:, 2::..-ATI Bank opens new branch in Adupi-ATI Bank, &eo8it in pact for trading platform in Jatar -ATI Bank ties up with $hriram &roup !os -Anveils premium payment facility through +T/s applicable to %I! ATI Bank customers K/etal 8unction B/7C- the online trading and procurement 8oint venture of Tata $teel and $teel +uthority of India B$+I%C- has roped in ATI Bank to start off own equipment for Tata $teel. - I"B>% $ystems 'rivate %td, a wholly owned subsidiary of iebold Incorporated, has secured a ma8or contract for the supply of +T/s and services to ATI Bank -4$B! completes acquisition of ,..9D stake in ATI Bank for .9 m -ATI Bank installs +T/ in Thiruvananthapuram -%aunches *emittance !ardE in association with *emit2India, a <eb site offering money transfer services

2,,.) - ATI Bank enters into a banc assurance partnership with Ba8a8 +llian? &eneral for
selling general insurance products through its branch network. -ATI Bank launches its first $atellite *etail +ssets !entre B$*+!C in Iarnataka at /angalore.

2,,/) -AB% sets up branch in 7aipur -ATI Bank unveils priority banking lounge.

10

M$%$0121%t o! A"is #$%&

Pro2ot1rs) +#is Bank %td. has been promoted by the largest and the best (inancial Institution of the country, ATI. The Bank was set up with a capital of *s. ,,= crore, with ATI contributing *s. ,:: !rore, %I! - *s. 1.= !rore and &I! and its four subsidiaries contributing *s. ,.= !rore each $AATI - $hareholding 21.:2D"rstwhile Anit Trust of India was set up as a body corporate under the ATI +ct, ,-9;, with a view to encourage savings and investment. In ecember 2::2, the ATI +ct, ,-9; was repealed with the passage of Anit Trust of India BTransfer of Andertaking and *epealC +ct, 2::2 by the 'arliament, paving the way for the bifurcation of ATI into 2 entities, ATI-I and ATI-II with effect from ,st (ebruary 2::;. In accordance with the +ct, the Andertaking specified as ATI I has been transferred and vested in the +dministrator of the $pecified Andertaking of the Anit Trust of India B$AATIC, who manages assured return schemes along with 9.1=D A$-9. Bonds, 9.9:D +*$ Bonds with a Anit !apital of over *s. ,.,91.=- crores. The &overnment of India has currently appointed $hri I. 3. 'rithvira8 as the +dministrator of the $pecified undertaking of ATI, to look after and administer the schemes under ATI where &overnment has continuing obligations and

11

/ar-:0 ec-:1 $ept-:1 7uly-:1 7uly-:1 7uly-:1 7une-:1 /ay-:1 +pril-:1 /ar-:1 /ar-:1 /ar-:1 /ar-:1 (eb-:1 (eb-:1 (eb-:1 (eb-:1 7an-:1 3ov-:9 $ep-:9 +ug-:9 +ug-:9 +ug-:9 +ug-:9 +ug-:9 7uly-:9 /ay-:9 /ay-:9 +pr-:9 7an-:9

+#is Bank launches 'latinum !redit !ard, IndiaEs first "/6 chip based card +#is Bank gets +++ 3ational %ong-Term *ating from (itch *atings +#is Bank ties up with Banque 'rivLe "dmond de *othschild "urope for <ealth /anagement ATI Bank re-brands itself as +#is Bank ATI Bank successfully raises A$ ,:=: million ATI Bank ties up with Tata /otors %td. for !ar %oans ATI BankEs e#pansion into +sia supported by (*$ ATI Bank launches E$pice *ewardsE on the bankcards - IndiaEs first-ever merchantsupported rewards program ATI Bank opens a (inancial $ervices !ategory I Branch in the ATI Bank ties up with 4yundai /otor India %td. for !ar %oans ATI Bank ties up with II(!% to provide finance for infrastructural pro8ects in the country ATI Bank launches !ar %oans in association with /aruti Adyog %td ATI Bank opens a (ull %icense Bank Branch in 4ong Iong (inance /inister $hri '. !hidambaram %aunches $hriram - ATI Bank !o - Branded !redit !ard "#clusively (or $mall *oad Transport >perators B$*T>$C ATI Bank announces the launch of its /eal !ard ATI Bank announces the launch of its &ift !ard %I! 'remium payment now through ATI Bank Branches ATI bank opens 'riority Banking branch in /umbai and Iolkata ATI Bank opens 'riority Banking %ounge in 'une ATI Bank launches operations of AB% $ales, its $ales $ubsidiary - Inaugurates its first office in Bangalore ATI Bank announces the launch of its !redit !ard Business ATI Bank becomes the first Indian Bank to successfully issue (oreign !urrency 4ybrid !apital in the International /arket ATI Bank Business &old ebit !ard /aster!ard %aunched related spending by $/"s and self employed professionals esigned for business !ardM in I(! in ubai

ATI Bank announces the scheme of issuance of M$enior !iti?en I association with ignity (oundation ATI Bank rolls out its 2:::th +T/ ATI Bank opens *epresentative >ffice in $hanghai

ATI Bank and %I! 8oin hands to launch an +nnuity !ard for group pensioners of %I! ATI Bank ties up with &eo8it (inancial $ervices to offer >nline Trading service to its customers ATI Bank opens its first international branch in $ingapore ATI Bank and ATI /utual (und to launch a new service for sale and redemption of mutual fund schemes through the 12BankEs +T/s across the country

MILESTONE PRODUCTS O3 AXIS BANK

"asy +ccess $aving +ccount $aving +ccount for <omen 'rime $aving +ccount $enior !iti?ens $aving +ccount 'riority Banking !orporate $alary +ccount Trust N3&>s $aving +ccount *esident (oreign !urrency +ccount >nline Trading +ccount !urrent +ccount Term eposits %ocker (acilities 3*I $ervices epository $ervices (inancial +dvisory $ervices <ealth /anagement $ervices Insurance $olutions K %ife and &eneral *etail %oans

13

!redit %oans

ORGANI4ATION STRUCTURE O3 AXIS BANK

14

15

CHAPTER ( RESEARCH METHOLODIGY

RESEARCH METHODOLOGY

16

TITLE O3 THE STUDY

SCOPE O3 HOUSING 3INANCE AND RETAIL 3INANCE5

DURATION O3 THE STUDY
.= +O$ T*+I3I3& (rom 2: /ay 2:,; to = 7uly 2:,;

OB6ECTIVES O3 RESEARCH
The main ob8ective of this pro8ect is concerned with getting the opinion of people regarding of whole sale banking operations and what they feel about availing the services of financial advisors. To understand the banking relationship of organi?ations with their e#isting banker. To generate the business by generating leads. This title refers to find the need of customer and on that basis identify the customer in various finance services and promotional tool among the e#isting customer as well as prospecting customer.

DATA SOURCES
ata was gathered through primary and secondary data.

Pri2$r 7$t$- It consists of original information gathered for the specific purpose the data is
generally collected by survey. 'rimary sources were preferred because of its relevance to the issue to have a focused approach due emphasis was given to obtain accurate information from the respondent.

17

S18o%7$r 7$t$- It consists of information that already e#ists having been collected for
another purpose. <ith the help of secondary data collected from various maga?ines newspapers and trade 8ournals market patterns websites of co. @ through net surfing. $urvey method was used to collect the primary data on various parameters by way of personal interview supported by a well-structured questionnaire. Juestionnaire is enclosed in last

SAMPLE SI4E AND METHODS O3 SELECTING SAMPLES$29:1 C;$r$8t1risti8s # Lo$% T1r2 %ess thanNequal to = Oears
+verage loan si?e of *s. ;,,-,9--, with 1;.9D of loans sanctioned since 7uly :, 'roportion of fi#ed rate loans at ;..2D %owest average property area B,,-.,= sqmC and income B*s. 21,091C, $hare of up gradation loans at 20.9D 'resence of co-obligants at ;1.9D and self-employed borrowers at 9..D II* at 22.2-D and %!* at 9..,D

(rom ,: to ,= Oears
+verage loan si?e of *s. 2,1:,:0:, with =:.=9D of loans sanctioned since 7uly :, 'roportion of fi#ed rate loans at ,-.:D 'roperty area at 00.1- sqm and income at *s. ,.,:1= Ap gradation loans at 0.2D $elf-employed borrowers at 9.:D and the presence of co-obligants at ;9.9D II* at 20.-:D and %!* at 91.0;D

18

 (rom = to ,: Oears
+verage loan si?e of *s. ;,.-,-0;, with 9;.19D of loans sanctioned since 7uly :, 'roportion of fi#ed rate contract at 2:.1D +verage property area B,:,.21 sqmC and income at B*s. ,0,-2=C, Ap gradation loans at 2:.,D and the presence of co-obligants at ;-.1D $elf-employed borrowers at 1.1D II* at 2..0,D and %!* at 9;.--D

+bove ,= Oears
+verage loan si?e of *s. ;,29,0.:, with 0:.1=D of loans sanctioned since 7uly :, 'roportion of fi#ed rate contract at ,;.=D +verage property area at -;.,- sqm and monthly income at *s. ,=,,0; Ap gradation loans at 2.,D $elf-employed borrowers at ,=..D and the presence of co-obligants at .,.2D II* at ;,.0.D and %!* at 1,.:;D

S$29:1 C;$r$8t1risti8s # S$%8tio% A2o<%t %ess than *s. ,::,:::

4igh proportion of fi#ed rate contracts at ...:D, with proportion of loans with term below = years at 2=.91D and above ,= Oears at 9.19D

19

%owest average property area B0=.2 sqmC and income B*s. -,902C and high share of up gradation loans B;0.=DC,

'resence of co-obligants at 2-.-D and self-employed borrowers at ...D %!* at =0.9.D and II* at ,9.9=D

Between *s. ,::,::, to *s. 2::,:::

'roportion of fi#ed rate contract at 2=.2D, with proportion of loans with term below = years at ,:.;0D and above ,= Oears at =.-.D +verage property area B0,.:0 sqmC and income at B*s. ,:,=-:C and presence of co obligants at ;,.;D. Ap gradation loans at ,..9D $elf-employed borrowers at ..91D II* at 29.=1D and %!* at 9;.9-D

Between *s. 2::,::, to *s. =::,:::

'roportion of fi#ed rate contracts at ,9.2D, with proportion of loans with term below = years at 9.:2D and above ,= Oears at ,=..D

'roperty area at -=.11 sqm and income at *s. ,=,-.- and up gradation loans at 9.=;D $elf-employed borrowers at 9.-1D and the presence of co-obligants B.2.2DC II* at ;,.,0D and %!* at 9-.1=D

Between *s. =::,::, to *s. ,,:::,:::

'roportion of fi#ed rate contract at ,,.=D, proportion of loans with term below = years at 1.,-D and above ,= Oears at 2...-D
20

+verage property area at ,;,.:9 sqm and monthly income at *s. ;.,909 and up gradation loans at 2.=2D

$elf-employed borrowers at ,2.;2D, with the presence of co-obligants B==.:DC, II* at ;2.92D and %!* at 1;.:0D $elf-employed borrowers at 9.9;D and the presence of co-obligants B.,..DC, II* at 2=.29D and %!* at 91.-=D

+bove *s. ,,:::,:::

+verage loan si?e of *s. 2==,;,9, with median loan si?e of *s. 2::,:::, with high proportion of fi#ed rate contracts B,,.=DC, 'roportion of loans with term below = years at -.2:D and above ,= Oears at 2-.9-D %owest average property area B,-1.;2 sqmC and income B*s. 09,2=.C, 'roportion of up gradation loans at :.-=D only 'resence of co-obligants at 92.9D and self-employed borrowers at ,0.:2D %!* at 19.,0D and II* at ;2.-=D

S$29:1 C;$r$8t1risti8s) D1:$ =D1!$<:t St<7 # R10io% $outhern *egion

,. $mall value loans B=;D below *s. 2, ::,:::C, with fi#ed interest rate contracts of over ;:D, 2. >ver .;.=0D are of ,:-,= year maturity and ...11D below ,: years

21

;. *elatively large average property area B2nd highestC and the highest income B*s. 2:,:9,C, .. 4igh share of up gradation loans B2:DC, =. $econd largest co-obligates B.:DC and the relatively low self-employed borrowers B9.:9DC. 9. $econd highest II* B29.;DC and %owest %!* B92..DC

<estern *egion
,. /edium si?e loans B.:D between *s. 2, ::,::: to =, ::,:::C, with floating rate contracts at 0:D, 2. =,.-.D are of ,:-,= year maturity and ;=..0D below ,: years ;. $mallest average property area B1=.0 sqmC, low B2nd lowestC monthly income B*s. ,=,0,9C, .. %owest proportion of up gradation loans B,:DC, =. *elatively higher proportion of self-employed borrowers B9.1=DC and the lowest presence of co-obligateB;;DC. 9. 4ighest II* B20.9DC and %!* B9-.9DC.

3orthern *egion
,. %arge value loans B,9D of +bove *s. =::,:::C, with floating rate interest contract at 02.=D, 2. >ver .2.-0D are of ,:-,= year maturity and .9.92D below ,: years ;. 4ighest average property area B,21.- sqmC, relatively higher income B*s. ,-,2,.C, .. *elatively higher share of up gradation B,1DC =. 4ighest presence of co-obligates B.-DC and highest proportion of self-employed B0.1;DC

22

9. %owest II* among regions at 2=.2D and low %!* B9..,DC

"astern *egion
,. $mall value loans B=;D below *s. 2::,:::C, with proportion of fi#ed rate contract at 2=.1D, 2. >ver .:.-,D are of ,:-,= year maturity and .9.-1D below ,: years ;. $econd lowest average property area B0... sqmC, lowest monthly income B*s. ,=,1,2C, .. 4igh proportion of up gradation loans B,1DC. =. %owest proportion of self-employed borrowers B;..9DC and relatively higher presence of coobligates B;-DC, 9. *elatively low II* B29.;DC, but high %!* B91.-DC.

S$29:i%0 9ro817<r1
The sample is selected in a random way, irrespective of them being investor or not or availing the services or not. It was collected through mails and personal visits to the known persons, by formal and informal talks and through filling up the questionnaire prepared. The data has been analy?ed by using the measures of central tendencies like mean, median, mode. The group has been selected and the analysis has been done on the basis statistical tools available.

S$29:1 71si0%
ata has been presented with the help of bar graph, pie charts, line graphs etc.

S$29:i%0 9:$%
S$29:i%0 <%it - <ho are to be surveyed. S$29:i%0 si>1 - 4ow many are to be surveyed.

23

&oing by the sampling ob8ectives of the study there was all those sales team manager, !.+. , ta# consultant, I!!, Businessmen, &ovt. servant and also general public, means almost all the people, which are considered to be a sample unit and together constitute universe. *espondents were incorporated in the study on the basis of simple random sampling technique.

3IELD WORK
/ainly the (ield work was done in the various areas and localities of 7aipur city, and big task was to go for the different age group persons Bless than ;= years and /ore than ;= yearsC to differentiate the Investment behaviors of the Oouth and the /iddle aged persons.

P P P P

*"$"+*!4 +''*>+!4"$: >bservations and $urvey. *"$"+*!4 I3$T*A/"3T: $tructured Juestionnaires. $+/'%" $IQ": 2:: B,::H,::C *espondents of 7aipur city B,:: respondents than ;= years and ,:: respondents of less than ;= years ageC. $+/'%I3& '*>!" A*": !onvenient $ampling of more

LIMITATION O3 RESEARCH

ue to time constraint, the research was confined to 7aipur only.

$ample si?e is very small. $ome of the respondents shows biasness and gave wrong information $ome of the respondents do not cooperate and are not interested in answering. $ome of the persons were not so responsive. 'ossibility of error in data collection. 'ossibility of error in analysis of data due to small sample si?e.

24

CHAPTER 3ACTS ? 3INDINGS

25

3ACTS ? 3INDINGS

@$A D1:$ Ris&

The following variables were found to determine the level of delay risk for a loan: G1o0r$9; : %oans originating in the $outhern and the <estern *egion have a marginally higher risk than the loans in the 3orth, at the end of five years into loan age. The "ast has a lower risk compared to all other regions. Ori0i%$tio% P1rio7: *ecent loans carry higher risk as compared to loans disbursed in prior periods of study. This may be a result of high level of competition leading to a certain amount of slackening of controls. Lo$% A2o<%t: 4igher value loans carry higher risk during the later years of the study period, whereas the smaller loans carry a relatively higher risk during the first two years of the loan term. Lo$% T1r2: %onger term loans carry relatively lower risk, e#cept for the loans with ,:-,= year tenure. +lmost three fourths of the long term loans have been disbursed for the purpose of purchasing new dwellings. Co-o#:i0$t1: The presence of a co-obligate helps mitigate risk under most circumstances, as the default risk is lower for loans backed by co-obligates. Lo$% P<r9os1: %oans disbursed for up gradation of property have a higher risk, followed by loans disbursed for purchase of new dwellings and for purchase of old dwellings respectively. BorroB1r O88<9$tio%: $elf-employed borrowers carry a higher risk than employed borrowers, but small-loan employed borrowers carry the ma#imum risk.

26

This analysis gives a fair view of the determinants of delay risk in terms of the abovementioned variables. 4owever, the credit analysis process would need to consider the variations in credit risk arising out of segment, borrower and loan profile.

@#A D1!$<:t Ris&

+s mentioned earlier, the definition of delay risk in this study is relatively stricter than the definition of default risk. efault event has been defined as a situation where a borrower has ; or more outstanding installments at the end of one year from the date of first delay. Based on this analysis, in summary, the following variables have been observed to determine the level of default risk for a loan: G1o0r$9; : %oans originating in the <estern region have the highest default risk, followed by the $outhern, 3orthern and the "astern *egions. Ori0i%$tio% P1rio7: <hile default risk for earlier period loans is observed to rise only during the later years of loan age, the loans during the recent period show an increase in probability of default during the earlier years of loan age. Lo$% A2o<%t : $maller loans have a higher risk of default during the later years of loan age. Lo$% t1r2: %oans with term between = to ,= years carry a higher risk as compared to the Below = years and the +bove ,= year loans. Co-o#:i0$t1: The presence of a co-obligate mitigates the risk of default e#cept in the 3orthern region.

27

BorroB1r 9ro!1ssio%) $elf employed borrowers carry higher risk, e#cept in recent loans

+s evident from the graph above, the share of default in the category of self employed borrowers have been higher than the overall Bcombined for all borrowersC default rate in each %oan to !ost *atio %!* category. Lo$% P<r9os1: %oans for new dwelling units are observed to have higher risk compared to the loans for old dwellings. *elationship between efault *ate and %oan to !ost *atio,

The study revealed that there is a significant change in the default rate as the %!* changes. <hile there was a steady increase in the default rate as the %!* increases, the trend was reversed in the highest %!* category when the rate actually shows a southern trend.

R1:$tio%s;i9 #1tB11% 71!$<:t r$t1 $%7 :o$% to 8ost r$tio

28

%oan to !ost *atio may be interpreted as %oan to 6alue *atio as the data has been based on the value of properties. + fair degree of consistency was observed in the credit risk behavior of the different %!* categories across regions and time periods. Though the proportion of self employed borrowers in the higher %!* was lower, the average Installment Income *ation BII*C was observed to increase with %!*. (rom the observations, it was fair to infer that higher default with increase in %!* could be resulting from increased pressure on borrower due to higher II*. >rigination 'eriod: *ecent period loans carry a higher prepayment risk as compared to loans issued in earlier periods of the study. @8A Pr19$ 21%t Ris& The study revealed that the level of prepayment risk for a loan is determined by the following variables: G1o0r$9; : %oans originated in the $outhern region have the highest prepayment risk, followed by the 3orthern, <estern and the "astern region. Lo$% A2o<%t : $maller loans have a lower initial prepayment risk compared to larger loans >n a realistic note, '%Is have been using their e#perience to address various risk elements in their lending for housing finance. 4(!sN Banks use the presence of a co-obligate as a credit

29

risk mitigation mechanism, as it is perceived that co-obligant backed loans carry lower risk. This has also been corroborated by the study. +gain, as the smaller loans are observed to carry a relatively higher risk during the earlier years of a loan, a firm with a larger share of smaller loans in its portfolio may need to invest more resources in the monitoring and collection process. <e observe a similar trend in loans sanctioned during the recent years, compared to loans sanctioned earlier, irrespective of the loan amount.

The findings of the study also indicate that as the industry gains greater maturity in terms of harvesting e#isting opportunities arising from different demographicsN socio economic conditions, there may be a reason to determine the risk-ad8usted return that the '%I is able to achieve in different segments and allocate capital to different regions or sub-portfolios Bmapped to different market segmentsC depending on the risk.

CHAPTER .
30

ANALYSIS ? INTERPRETATION

ANALYSIS ? INTERPRETATION

RETAIL 3IANCEIndian *etail finance continues to redefine the credit growth in the country. It grew by a whopping ....D in 2::=-:9 to touch *s;, =;0 billion. This leap was despite the increase in risk weight by *BI for housing and real estate loans during +ugust, 2::=. 4ousing, which constitutes more than =2D of all retail loans, grew at a robust rate of ...;=D during 2::=-:9. In order to help banks in India to understand the market and competition and plan future strategies, we have 8ust come out with an Industry Insight on Indian *etail finance K 2::9 edition. This report analyses the *etail finance market and its segments in India and presents the key trends, along with issues and challenges.

31

The annual growth in bank credit to the commercial sector is at 2=..D as on /arch ;,, 2::1 and was lower than 21.2D against the previous year. Antil 2:,:, *etail finance is e#pected to grow at a !+&* of 20D to touch a figure of I3*-, 1:: billion. This requires e#pansion and diversification of retail product portfolio, better penetration and faster service mechanism. The report on *etail finance Industry in India covers industry segments like housing loan, auto loan, personal loan, education loan, consumer durable loan, credit card and regulatory frame work for retail banks is also discussed. The report gives *etail finance industryEs current performance and future outlook. + total of 22 ma8or retail banks in India are covered in terms of their performance, strategy and outlook. *etail finance in India has fast emerged as one of the ma8or drivers of the overall banking industry and has witnessed enormous growth in the recent past. The *etail (inance *eport encompasses e#tensive study @ analysis of this rapidly growing sector. It primarily covers analysis of the present status, current trends, ma8or issues @ challenges in the growth of the retail finance sector. *etail lending across the globe has been a showcase of innovation in the commercial banking sector. !ountries like !hina and India have emerged as potential markets with huge investment opportunities. The higher growth of retail lending in emerging economies is attributable to fast growth of personal wealth, favorable demographic profile, rapid development in information technology, the conducive macro-economic environment, financial market reforms, and several micro-level supply side factors. . The retail finance strategies of banks are undergoing ma8or transformation, as banks adopt a mi# of strategies like organic growth, acquisitions and alliances. This has resulted in a paradigm shift in the marketing strategies of the banks. 'ublic $ector Banks players are adopting aggressive strategies, leveraging their branch network and their customer vase to earn a larger share of the retail pie. Banks are also going in for innovative strategies like cross selling and packaged selling of retail products. +t the same time, new foreign players are also entering this high growth sector.

&*><I3& *"T+I% /+*I"T

32

+. T. Iearney recently identified India as the Msecond most attractive retail destinationM of ;: emergent markets. $imilarly, +ssociated !hambers of !ommerce and Industry of IndiaEs B+ssoc ham)sC study, pro8ected the overall retail market to grow from *s =,00,::: crore now Bunorgani?ed market *s =,0;,::: core, organi?ed *s =,::: croreC to *s 0,::,::: crore by 2::-. The success of the organi?ed retail market R encompassing the department store format, hyper-market cash-and-carry store, supermarket format and specialty retailing R rests on the right assessment of demographic customer profiles. "#ploitation of the latent Mglobali?ationsM Bthink global, act localC potential requires robust growth in retail loans. The Basel-II credit risk framework is based on a /erton-type model, calibrated to fit three retail e#posure types relating to qualified revolving e#posures, residential mortgage e#posures and other retail e#posures.

The steadily burgeoning retail banking portfolio, the constant refinements to the nature and pricing of retail products and the renewed emphasis on the customer-centric system, or what 'rof !. I. 'rahlad calls the Mbottom of the pyramidM, make retail lending the core competence of banks. +cquisition of an agile, broad-based business model generating economies of scale requires synchroni?ed action through direct communication with the end-user, product differentiation, product management, customerEs credit history, proper borrower identification and skilful risk management. In the shift from bricks to clicks, multi-channel delivery strategies R +T/s, the Internet and telebanking R need to be increasingly used.

*I6"*$ >( *"T+I% BA$I3"$$ I3 I3 I+ <hat has contributed to this retail growthS %et me briefly highlight some of the basic reasons. 3irst, economic prosperity and the consequent increase in purchasing power have given a fillip to a consumer boom. 3ote that during the ,: years after ,--2, IndiaEs economy grew at an average rate of 9.0 percent and continues to grow at the almost the same rate K not many countries in the world match this performance.

33

S18o%7, changing consumer demographics indicate vast potential for growth in consumption both qualitatively and quantitatively. India is one of the countries having highest proportion B1:DC of the population below ;= years of age Byoung populationC. The B*I! report of the &oldman-$achs, which predicted a bright future for Bra?il, *ussia, India and !hina, mentioned Indian demographic advantage as an important positive factor for India. T;ir7, technological factors played a ma8or role. !onvenience banking in the form of debit cards, internet and phone-banking, anywhere and anytime banking has attracted many new customers into the banking field. Technological innovations relating to increasing use of credit N debit cards, +T/s, direct debits and phone banking has contributed to the growth of retail banking in India. 3o<rt;, the Treasury income of the banks, which had strengthened the bottom lines of banks for the past few years, has been on the decline during the last two years. In such a scenario, retail business provides a good vehicle of profit ma#imi?ation. !onsidering the fact that retail)s share in impaired assets is far lower than the overall bank loans and advances, retail loans have put comparatively less provisioning burden on banks apart from diversifying their income streams. 3i!t;, decline in interest rates have also contributed to the growth of retail credit by generating the demand for such credit.

*"T+I% B+3II3& '*> A!T$ +3

$"*6I!"$

<ide range of retail banking products and services are offered by the banks, which cover both epository and +dvances to suit various segments of customer like salaried persons, businessmen, traders, professionals, pensioners etc. are as follows:T 4ousing loan. T 'ersonal loan. T 6ehicle or automobile loan. T %oan for consumer goods. T !redit and ebit cards-&lobal and international.
34

T %oan for holidays. T Insurance products. T &old loans. T "vent loans. T >verdraft. T /utual funds etc. T %easing, hire purchase and factoring services

R1t$i: #$%&i%0 719ositori1s in various segments like children, housewives, salaried class, professionals etc. include the following: -

T (le#i deposit accounts. T $avings bank accounts. T *ecurring deposit account. T (i#ed deposit T %ockers. T >ther short-term deposits.

Banks are coming out with more features to add value to retail banking products and services. These are called 6+%A" + " '*> A!T$ +3 $"*6I!"$. These include the following: -

T (ree collection of specified number of outstation instruments per month. T Instant credit of outstation cheque.

35

T !oncession in commission, e#change for issuance of pay orders and demand drafts. T Issuance of free chequebooks. T Issuance of free +T/ cards. T Interest rate options Bfi#ed or floatingC T <aiver of credit card issuance fees. T (ree issuance of +dd >n cards to the members of the cardholders. T +ccident insurance cover. T +rranging for insurance cover on the lockers in the bank. T *educing the fees charged on locker facilities. T (ree e#ecution of standing instructions of customers. T (ree investment advisory services. T %egal services for documentation T $ervices to senior citi?ens

Ot;1r s1rCi81s i%8:<71 T 'ayment of bills like electricity bills, telephone bills and water bills etc. on due date. T 'ayment of monthly or quarterly education fee for children. T 'ayment of insurance premium on or before due dates. T emating of shares, debentures and bonds. T Telephone banking. T Internet banking. T /aking payments at doorsteps.

36

$T*+T"&I"$ (>* I3!*"+$I3& *"T+I% B+3II3& BA$I3"$$

+. !onstant product innovation to match the requirements of the customer segments: The customer database available with the banks is the best source of their demographic and financial information and can be used by the banks for targeting certain customer segments for new or modified product. The banks should come out with new products in the area of securities, mutual funds and insurance

B. Juality service and quickness in delivery: +s most of the banks are offering retail products of similar nature, the customers can easily switchover to the one, which offers better service at comparatively lower costs. The quality of service that banks offer and the e#perience that clients have, matter the most. 4ence, to retain the customers, banks have to come out with competitive products satisfying the desires of the customers at the click of a button.

!. Introduction of new delivery channels: *etail customers like to interface with their bank through multiple channels. Therefore, banks should try to give high quality service across all service channels like branches, Internet, +T/s, etc. . Tapping of une#ploited potential and increasing the volume of business. This will compensate for the thin margins: The Indian retail banking market still remains largely untapped giving a scope for growth to the banks and financial institutions. <ith changing psyche of Indian consumers, who are now comfortable with the idea of availing loans for their personal needs, banks have tremendous potential lying in this segment. /arketing departments of the banks be geared up and special training be imparted to them so that banks are successful in grabbing more and more of retail business in the market.

". Infrastructure outsourcing: This will help in lowering the cost of service channels combined with quality and quickness.

37

(.

etail market research: Banks may go for detail market research, which will help them in

knowing what their competitors are offering to their clients. This will enable them to have an edge over their competitors and increase their share in retail banking pie by offering better products and services.

&. !ross-selling of products: '$Bs have an added advantage of having a wide network of branches, which gives them an opportunity to sell third-party products through these branches.

4. Business process outsourcing: >utsourcing of requirements would not only save cost and time but would help the banks in concentrating on the core business area. Banks can devote more time for marketing, customer service and brand building. (or e#ample, /anagement of +T/s can be outsourced. This will save the banks from dealing with the intricacies of technology.

I. Tie-up arrangements: '$Bs with regional concentration can reap the benefit of reaching customers across the country by entering into strategic alliance with other such banks with intensive presence in other regions. In the present regime of falling interest and stiff competition, banks are aware that it is finally the retail banking which will enable them to hold the head above water. 4ence, banks should make all out efforts to boost the retail banking by recogni?ing the needs of the customers. It is the innovative and competitive products coupled with high quality care for clients will only hold the key to success in this area. In short, bankers have to run very fast even to stay where they are now. It is the survival of the fastest now and not only survival of the fittest.

HOUSING 3INANCE-

4ousing is a significant engine for growth and development of the economy. The growth in housing and housing finance activities in recent years reflect the floating state of housing

38

market in the country. The multiplier effect of investment on housing has grown over the past few years as the proportion of outstanding housing loan as percentage of & ' increased from ;..D in 2::, to -..D by 2::1 this is quit indicative of that potential e#ists if the proportion of investment in housing in the other developed and emerging economies considered. + quick look on the statistics shows that the housing loans e#posure in India is much lower compared to other countries. The ratio in India is merely .D of & ' as against =.D in A$+, =1D in AI, ,.D in Thailand, ,1D in !hina. +lso, the net 3'+ in 4ousing is less than 2D, which is much lower than other segments. The construction boom is limited only to the metros and big cities and this cannot be the parameter for the !entral Bank to make the loan price dearer. 4ousing finance e#panded rapidly because of investment demand and acute housing shortage. +s housing became a key contributor to banksE profitability, certain facilities began to be routinely e#tended. These included processing fee waiver, pre-closure charges and guarantees, simplified loan procedure and provision of different services such as house insurance, repayment protection, creditNdebit cardsN+T/ cards, and personal accident insurance. <ith a growing number of players and increased competition, the housing sector becoming increasingly market driven. The sector efforts safe and secure residential assets good business opportunities for the lending agencies and for the borrowers. >verall the affordability of housing loan clearly appears to have improved with fast growing number of borrowers. This has also partly resulted from higher levels of disposable income seen among the earners. <hile the market has also witnessed change in lending practices in certain segments to accommodate customer needs, as an offshoot of increased competition and an buyers) market. There is a felt need for standardi?ation and uniformity in practices in order to improve transparency in the market and bring greater efficiency. The impact of these positive growth indicators and sentiments has not been uniform in the rural and urban areas. The reasons are infrastructural limitations and legal inadequacies coupled with geographical divergences. There has been a growing concern about reaching credit for rural housing on market terms and conditions. The concerns have been articulated in various policy pronouncements and the sector has to gear up to find market related solutions for them. Investment in housing in the rural areas on a large scale, besides ameliorating living conditions, also impacts the economic profile or the region and can result in all-round development. There is a strong case for

39

supportive and an enabling policy framework for bringing in large investments in rural housing, this can well change the economic landscape of rural India.

TYPES O3 HOUSING LOAN

4ome loan products are offered by almost all banks5 from loans for purchasing real estate to buying a flat, from home improvement to home e#tension loans. The "/I and rate of interest is decided, taking into account a number of factors such as, the loan amount, market value of the land or building, tenure of loans etc. The following types of home loans are generally available in the market5 Ho21 ED<it Lo$%s) + form of finance to the customer by way of mortgage of e#isting

property to the financier for taking a loan for some other purpose. The current market value of the property is the basis for providing home equity loans. Ho21 E"t1%sio% Lo$%s) The purpose of this loan is the e#tension of e#isting houses like addition of rooms, toilet facilities etc. $uch loans fall under category of home loans.

Ho21 I29roC121%t Lo$%s: These loans are provided mainly for repairs and maintenance of e#isting houses. These could include internal and e#ternal repairing, waterproofing and roofing5 compete interior renovation, tiling and flooring etc. Ho21 P<r8;$s1 Lo$%s: (inance provided for the purchase of ready-made houses. L$%7 P<r8;$s1 Lo$%s) These loans are being provided for the purchase of land for the purpose of construction of residential houses.

HOUSING LOAN DISBURSEMENT

40

>ver the past few years, the steady growth registered in housing finance disbursements indicates continued buoyancy in the industry. Table reveals that a significant increase during the year 2:,,-,2.the total disbursements of housing finance stood at *s. 190,-.:: crore registering an overall growth of .,..1 percent. The five year compounded +nnual &rowth *ate as on 2:,,-2:,2 stood at ;2.,=D.

Ho<si%0 :o$% 7is#<rs121%t

9:::: =:::: .:::: ;:::: 2:::: ,:::: : 2::0-:2::--,: Y1$rs 2:,:-,, 2:,,-,2 4(! $!B

RsE

B*s. In !roreC

HOME LOAN DISBURSEMENT BY PUBLIC SECTOR BANK 2,1,-2,12

Ho21 :o$% Dis#<rs121%t

Bank of India Bank of m aharas tra !entral Bank of India ena Bank Anited Bank of India

41

The housing loan party may not quite be over for the nationEs public sector banks. But there is concrete evidence that the tempo may at least be slowing down. The loan disbursements which grew by over .: per cent in the two years prior to the fiscal 2:,2-,. have seen these banks posting a growth rate of 8ust 2, per cent in the year 8ust gone by B2:,2-,.C. The portfolio grew from *s ,, ,,,9;- crore to *s ,, ;=,:=2 crore, according to information available from sources in the (inance /inistry. !ontrast this with a more than ,:: per cent rise over a twoyear period between 2:,2 and 2:,. that saw the home loan portfolio move up from *s =;,1;1 crore to *s ,,,,,9;- crore. >f course, it would have been an even more depressing tale of sluggish growth, but for a few banks continuing to register smart rise in their portfolios. Banking industry sources have for some time been cautioning that a combination of rising interest rates, high cost of real estate Bwhich however has shown some signs of coming down from the yearhigh perchC and higher margins in bank loans would slow down growth in home loan portfolios. The &overnment has on its part been keen that the impact of high interest rates should somehow be softened on the small and medium borrowers. The (inance /inister, /r. '. !hidambaram had recently asked the chief e#ecutives of public sector banks to protect the interests of borrowers in the *s 0-,: lakh category to the e#tent possible.

HOME LOAN INTEREST RATES Interest rates largely remained kind, including those on housing loans, and are e#pected to remain competitively affordable in the coming years also. Banks follows their policy for calculating interest rates but most banks follow the yearly reducing-balance method, which accounts for your principal repayments only at the end of their financial year. +s a result, you pay interest on the principal that you have already returned to the bank. The effective interest rate is therefore higher than the quoted interest rate by around :.1D. $ome banks may also follow the daily or monthly reducing-balance method, which results in a lower interest burden. There are two types of interest rates.

42

(i#ed *ate of Interest: (i#ed *ate of Interest means that the interest rates remain (IU" for the entire duration the loan. This basically means that you do not benefit, even if the rates of interest drop in the market.

(loating *ate of interest: This is the rate of interest that fluctuates according to the market lending rate. In recent times, the interest rate started to move up as can be witnessed for the fact that during the last one-year period in, interest rates on housing loans have been increased twice by about =:bps. 4ome %oans *ates have seen a drastic mount over the last ; years. <e have reached to the matching situate to that of in the year 2::-, where most of the bank provided home loans in India at the rate of ,:.=D, 3evertheless there was a decline in the year 2:,:-2:,2 where interest rates even touched as low as -.1=D, this might have attracted many of us to take home loans and invest in the prime properties. That was year 2:,2 and as of today the home loan rates are at ,2.=D which is nothing but a back-stab for the ones who took home loan at half of the interest rates. 4ousing budgets, already stretched by spiraling prices, will get further strained due to higher outgo on home loans. 4ome loan market leader 4 (! announced a =:basis point)s hike in interest rate for all e#isting borrowers with floating rate loans. This means that the "/I for new customers will be *s. ,:;;, for every one lakh on a 2:-year loan. (or e#isting floating rate customer, the "/I will be *s.;. for every *s ,lakh loan with an outstanding tenure of 2:years. The largest bank I!I!I also announced a 1= basis points hike in the fi#ed as well as floating home loan interest rate. The fi#ed rate of interest for I!I!I home loans will now be ,..1=D. 'ossibly costliest in the sector. $tate Bank of India also decided to raise interest rates on home loans by =:bps on all credit linked to prime lending rates B'%*C. /eanwhile two government banks Bank >f India and !anra Bank decided to spare home loan borrowers from the rate hike, even as they increased interest rates for other categories of borrowers. Bank of India have raised their by =:bps to ,;.2=D, but left home loan rates untouched. >n a floating rate basis, Bank of India offers home loans in the band of -.2=D-,:D. The Anion Bank of India and the $tate Bank of India has increased their benchmark prime lending rates by :.=: per cent each. This hike will result in change in $BI benchmark rate to ,2.1= per cent immediately and to ,;.2= per cent in case of ABI from 7uly ,, 2:,2.
43

The hike follows the !** and the repo rate hike by the *eserve Bank of India B*BIC. This will lead to increase in interest rates for all loans linked to the benchmark rates. In the *eserve Bank of India annual credit policy meeting on +pril 2-, 2::0, the provisioning requirement has been lowered for home loans up to *s. ;: lakh. (ollowing the move, *BI e#pects the banks to pass on the benefits of reduced rates to loans consumers. +ccording to media reports, currently 0= per cent customers are in up to *s. ;: lakh category. In the total home loan portfolio, .: per cent are on fi#ed rate. Based on the revision of the provisioning requirement, home loans of *s. 2:-;: lakh will be charged at par with those below *s. 2: lakh, but there will be no change in interest rates for loans below the threshold. The move might give the banksS %ending business a much needed boost. ue to frequent revision of interest rates since 2:,:, there is a slowdown in the growth of loans. The home loan portfolio of banks grew 8ust ,2 per cent between +pril 2:,: and (ebruary ,=, 2::,, B*s. 29,-;: croreC compared to 2=.0 per cent growth B*s. .9,:,- croreC between +pril 2::0 and (ebruary ,=, 2::1. %oans to individuals for housing grew ,9... per cent to touch *s. ,, .0,.0- crore in /arch 2:,: against *s. ,, 21,=22 crore in /arch 2:,,.

Ho21 Lo$% I%t1r1st R$t1 @B1:oB 2, :$&;A

B$%&s +llahabad Bank Bank of /aharashtra !anara Bank 4 (! I!I!I ena Bank Bank of India 3:o$ti%0 ,:.2=-,, ,:.2=-,:.1= ,:.=-,:.1= ,, ,,.2= - ,,.1= ,:.1= -.1= K ,:.2=

44

'3B 4ousing (inance %td. $tate Bank >f India A!> Bank ,:.1= ,,.2= ,:.= K ,:.1=

MAXIMUM IIR TO UNABLE INCREASE IN EMI +s the interest rate head north, panic-stricken home loan borrowers are flocking to home loan counters to restructure their debt, this is not surprising as since late 2:,,, home loan interest rates have raised whopping .::-.=: basis points. Ideally, borrowers who have taken loans for more than ,= years neither should not go for e#tension of the loan tenure. If the income installment ratio BII*C is less than ;:-;= D, there is scope for increase in "/I to cover the hike in interest rate. >therwise, borrowers should make upfront payment to reduce the principal burden. Technically, borrowers have three options when the interest rates shoot up. They can either liquidate their investment or saving or shell out lump sum to reduce the principal loan amount or agree to a higher "/I if disposable income permits or e#tend the tenure of the loan. 4owever, e#perts in the housing finance segment believe that the last option should be avoided as it often leads to a situation where repayment of loans does not cover the amount of interest due for what the particular loan period. $BI, which was the first to react to *BI)s dual dose of repo rate and !** hike, said it would not levy any prepayment charge if borrowers pay op fully or partly from their own resources. The prepayment fee is charged when borrowers transfer loans to other lenders.

I3$TITATI>3+% '"*(>*/+3!" The need for long term finance for housing in the country is met by the following types of institution: , $!4" A%" !>//"*!I+% B+3I$

45

2 $!4" A%" !>->'"*+TI6" B+3I$ B$!4" A%" $T+T" !>->'"*+TI6" B+3I$, $!4" A%" I$T*I!T !>->'"*+TI6" B+3I$ +3

$!4" A%" A*B+3 !>->'"*+TI6" B+3I$C ; *"&I>3+% *A*+% B+3I$, . +&*I!A%TA*" +3 *A*+% "6"%>'/"3T B+3I$

= 4>A$I3& (I3+3!" !>/'+3I"$.

The housing demands of various economic and demographic sections of the population are met by these institutions by way of their housing loan schemes. The banks have the largest network of branches and are also the largest mobili?er of savings in the country. $ince housing finance becomes a part of the .: per cent priority sector lending, it makes business sense for banks to undertake this activity. /oreover, a favorable ta# and regulatory regime, act as catalyst for doing business in this sector. (urther the earmarking of ; percent of incremental deposits of Banks to finance housing activities has ensured availability of adequate funds for housing activities. $ecurities by way of mortgage of property and robust demand have been ma8or considerations for banks to lend this sector.

The prominent players in this industry continue to be commercial banks. !ooperative banks and other own niche and have been catering to their markets e#tensively. The institutional performance of these institutions has been influenced by more than 8ust customer demand. $tricter 3'+ norms, rising interest rates and stiff competition in mobili?ing low cost deposits, have all affected the supply side factors, which in turn has influenced the performance of these institutions in terms of volume and competitiveness.

HOUSING 3INANCE DISBURSEMENTS BY VARIOUS INSTITUTIONS

46

V*s. !roreW PRIMARY LENDING INSTITUTIONS $!4" A%" !>//"*!I+% B+3I$ 4>A$I3& (I3+!" !>/'+3I"$ ,.9,. ,10;2 2:092 29:.2 21.,, ;:.=0 2,,/,* 0=99 2,,*,+ 2,,+,' 2,,'1, 2,1,11 2,1112

2;==; ;20,9 =:;-0 =092; 9:;-0

!>->'"*+TI6" I3$TITATI>3$

910

9.2

92;

XX.2,

,:2.1

T>T+% X$ource: *BI, 34B

2;0=0 .2:21 =.;:, 190,- 19;-0 -:0=9

XX istribution by +pe# !o-operative 4ousing (inance $ocieties only

4>A$I3& %>+3 +$ '"*!"3T+&" >( & ' The accelerated growth of housing finance has resulted in an increase in its share in the & '. >utstanding housing loans as a percentage of & ' has risen from ;.. per cent in 2::9 to 1.2= percent in 2:,: and 0.=: per cent in 2:,2. The figure has been pegged at about ,2 per cent by the end 2:,:. In view of the increased investment in the services sector, which contributes about =: per cent to the nationEs & ', and growth in urbani?ation, it is e#pected that the share of housing in & ' would go up substantially in the coming years. The last year has witnessed significant developments in the global economy. (ollowing the deterioration in the A$ sub-prime housing loan market, the A$ economy is e#pected to e#perience a sharp slowdown in growth. uring fiscal 2:,:, the Indian economy continued on its high growth path, despite some moderation due to difficult conditions in global markets and increasing inflationary pressures and monetary tightening. The !entral $tatistical >rgani?ation B!$>C put & ' growth at -.:D during fiscal 2:,: following the -.9D & ' growth in fiscal

47

2::-, reflecting a slight moderation in growth of the economy. &rowth in fiscal 2:,: was driven mainly by double-digit growth in the services sector and growth in the industrial sector. The Inde# of Industrial 'roduction BII'C recorded an annual average growth rate of 0.,D in fiscal 2:,:, moderating from ,,.=D in fiscal 2::-. This was mainly due to moderation of growth in the manufacturing sector from ,2.=D in fiscal 2::- to 0.9D in fiscal 2:,:. The momentum of growth in the services sector Bincluding constructionC continued with ,:.1D growth during fiscal 2:,: following the ,,.2D growth in fiscal 2::-. &lobal oil prices increased sharply during fiscal 2:,:, increasing inflationary pressures e#perienced on this account. International crude oil prices increased from A$Y 9=.01 per barrel at /arch ;:, 2::1 to A$Y ,:,.=0 per barrel at /arch ;,, 2:,: and further increased to A$Y ,;=.-: per barrel at 7une ,;, 2:,:. In view of rising inflation, *eserve Bank of India B*BIC increased the !ash *eserve *atio B!**C from 9.::D to 1.=:D during fiscal 2:,: and further to 0.2=D effective /ay 2:,:.

!*" IT +3

'*"'+O/"3T *I$I '*>(I%" I3 4>A$I3& (I3+3!" /+*I"T

The Indian housing finance market has grown fairly significantly during the last few years. (iscal incentives for investment in housing for households and treatment of housing finance as 'riority $ector lending for banks have been two of the main factors contributing to growth in this market. 4owever, a large part of the industry portfolio has been acquired in the present low-interest rate scenario and during the period when economic conditions have been relatively stable. The key to further growth in the Indian housing finance market, as elsewhere in the world, is the ability of housing finance firms Bincluding banksC to trade their portfolio. $ecuriti?ation has been one of the most important risk-sharing arrangements in the housing finance market, the world over. It has been proved that securiti?ation can help lower the cost of credit, broaden the pool of investors and borrowers and lessen the variability in availability of capital for the housing finance firms.

48

$uccess in the development of the securiti?ation market depends on the ability to understand the behavior of underlying mortgage assets under varied economic conditions for different market segments. The knowledge of borrower, property and loan characteristics is critical to understanding the nature of risk associated with packages of securiti?ed assets. Towards this end, as per study of the credit and prepayment characteristics for a sample of housing loan portfolios across different geographical markets. The ob8ective was to identify relevant tools in respect of pricing of securiti?ed assets and determine factors, which would contribute in the choice of credit enhancement instruments. In addition, the study was e#pected to facilitate product design, credit analysis processes and pricing decisions by the housing finance institutions. Borrower !haracteristics + closer look at the borrower characteristics suggests that there is a large variation across regions, sanction amount, and sanction period and loan terms. (ollowing are the data on borrower characteristics for each of the segments for the delayNdefault risk sample. The study covered the following aspects of the housing finance market: ,. Borrower characteristics- B>ccupation, Borrower +ge, Installment to Income *atio, /onthly 4ousehold Income and 'resence of !o-obligateC 2. %oan characteristics- B$anction +mount, "/I, %oan to !ost Bor 6alue K our data is in terms of valueC *atio, Borrowing 'urpose K *efinancing and 3ew purchase, Interest *ate and 3ature of Interest *ate !ontract, /ode of 'ayment, /ode of >rigination and %oan TermC, and, ;. 'roperty characteristics- B'roperty +rea and 3ature of gradationC The key ob8ective was to understand the credit and prepayment risk associated with each of the segments that emerged based on these characteristics. The segments that were considered for the study were: Z *egion Z %oan Term Z $anction +mount welling Anit- >ld, 3ew or up

49

The !redit *isk has been defined using two events -

elay and

efault event.

elay event is

the situation where the borrower has an overdue amount or pending installments Birrespective of the amount dueC at the end of ; months from date of first delay in repayment. This is a relatively stricter definition of credit risk B elay *iskC. efault event is the situation where a borrower has ; or more outstanding installments at the end of one year from the date of first delay B efault *iskC. 'repayment risk event is the case where the borrower has prepaid his or her loan in part or full. + descriptive analysis of the sample data was carried out to map the profile of various segments and to confirm that the choice of segments and variables is reasonable and appropriate.

COMPETITORS ,. 2. ;. .. =. 9. 1. 0. -. I!I!I Bank %td. 4 (! Bank %td. $tate Bank of India 4$B! Bank *B$ B*oyal Bank of $cotlandC /aharashtra Bank of India !anara Bank +ndhra Bank I BI bank

,:. Bank of India ,,. 'un8ab 3ational Bank ,2. !entral Bank ,;. +llahabad Bank ,.. I3& 6ysya

50

51

CHAPTER 6 SWOT ANALYSIS

SWOT ANALYSISStr1%0t;s
$trength captures the positive aspects internal to your ob8ect that add value or offer you a competitive advantage. This is your opportunity to remind yourself of the value e#isting your ob8ect. "#cellent /arket !overage. Juality K !onscious >rgani?ation5 the !ompany is always able to compete on Juality. "#perienced work force. The employees are satisfied with their present 8ob profile.

W1$&%1ss1s

52

<eaknesses capture the negative aspects internal to your ob8ect that detract from the value you offer or place you at a competitive disadvantage. These are areas you need to enhance in order to compete with your best competitor. The 'rice of !ompany 'roduct is high than the !ompetitors. "mployees turnover. 3arrow product range. Anorganised labour contractors %ack of 4* development

O99ort<%iti1s
>pportunities reflect the potential you can reali?e through implementing things. >pportunities may be the result of growth, lifestyles changes, and resolution of problems associated with current situations. There so many opportunities to make better utili?ation of the work force if the management gives better cash reward to the employee)s than worker will work hardly. Benchmarking 4* practices $haring 4* practices with other locations.

T;r1$ts
Threats include factors beyond your control that could place your things at risk. These are also e#ternal Kyou have no control over them, but you may benefit by having contingency plans to address them if they should occur. 'roblem of labour turnover. There is need of development in technology change and to change the present market policy.

53

54

CHAPTER 7 CONCLUSION

CONCLUSION

I$> -::, certification for its depository @ custody operations @ for its backend processing of retail operation @ housing finance operations. The bank has a near competitive edge in area of operations. The bank has a market leader in cash settlement service for the ma8or stock e#changes in its country. +UI$ Bank is one of the largest private sector banks working in India.

55

 The bank has started facing competition from players like $BI, '3B Bank in the finance market itself. This reduces the profit margins in the future. $ome 'vt. Banks have 1 days banking. $ince profit is the overall ob8ective of a business enterprise, this ratio is a barometer of the overall performance of the enterprise. It measures how efficiently the capital employed in the business is being used.

CHAPTER 8

56

RECOMMENDATIONS & SUGGESTIONS

RECOMMENDATIONS ? SUGGESSTIONS

AE B<i:7i%0 $% i%8:<siC1 ;o<si%0 !i%$%81 s st12The housing finance market has been consistently e#hibiting rapid growth in the past few years with an estimated !+&* of ;0D. &rowth has been largely in urban areas and in the middle to high income groups, in particular the salaried class. This growth was partly fuelled by the entry of commercial banks seeking asset growth in a sluggish business environment coupled with the ta# incentives on housing loans. The banks, with their lower cost of funds, e#tensive branch network, capability to provide a range of personal banking services and aided by the average low default rates in housing finance, could e#pand the market considerably. They

57

however, continued to focus on middle to higher income groups with the lower income groups, self employed, rural population by and large e#cluded. Thus, notwithstanding the phenomenal growth of housing finance, outstanding housing loans constitute a mere estimated .D of the country)s & ', much lower than other comparable countries such as Iorea, !hina, Thailand, /alaysia, Bra?il. In the conte#t of the apparent potential for housing finance in the country, the issues of affordability, new and customi?ed products, delivery channels, policy interventions and their sequencing assume relevance. <hile the e#panding middle and higher income groups may continue to access conventional housing finance, increasing attention will need to be paid to the needs of the unnerved and underserved. 4ow can housing be made an instrument of financial inclusionS That housing is the largest component of an individual in the middle and low income groups is well recogni?ed. The challenge is to leverage housing for equitable economic growth and poverty reduction. +t the same time, the housing finance market is an integral part of the financial market and would need to be deepened, widened and made more sophisticated by participation in the liberali?ation of the financial sector.

BE I%%oC$tio% $%7 Pro7<8t D1C1:o921%t

<ith the e#pansion of the market and entry of new classes of borrowers, the need for innovation through development of new products, adaptation of e#isting products, developing new delivery mechanisms and channels cannot be over emphasi?ed. Innovative %enders would see new business opportunities which offer them market e#pansion as well as higher margins in a manner that fits into their corporate strategies. !ommercial banks, in particular, might be able to identify opportunities for cross selling a range of financial products with the growing convergence of Indian financial markets and offer innovative personal financial solutions to individuals to address their home loan, insurance, savings and investment needs. In order that innovation is facilitated and scale of economies is e#ploited, standardi?ation of business, underwriting processes, documentation would be called for. This

58

would not only be of value to the individual businesses but also spur higher levels of speciali?ation and e#pertise in the industry. (urther, it would also address regulatory concerns.

CE M$r&1t I%!r$str<8t<r1
The rapid growth of the housing sector has left the market infrastructure lagging behind. In developed economies, housing stocks and mortgages are leading indicators of economic activity and are widely tracked. In India, housing data is scattered resulting in insufficient analytical work which is a constraint in public policy formulation. Building a detailed data base covering housing and housing finance at a disaggregated level is both urgent and important. $uch a database could include housing stocks, sales of e#isting houses, the nature of house construction, house prices at different centers, profiles of homeowner classes including affordable mortgages, information on construction, loans to developers, construction finance, information on defaults, frauds.

DE Co%s<21r AB$r1%1ss $%7 Prot18tio%

In the ultimate analysis, the borrower i.e., the home buyer is and should be the focus of attention as far as the housing finance industry is concerned. In the absence of adequate regulations, the average home buyer is often at the receiving end due to one-sided documentation, little awareness of rights, inadequate education on the legal and financial aspects of home purchase as well as home loans. <ith the *BI emphasi?ing the need for codes and standards for the banking industry in the interest of greater transparency and fairness to the consumer, similar effort is called for in the housing and housing finance industry. 34B has advised housing finance companies that they should consider financing only those residential pro8ects which conform to the prescribed regulation standards. 34B has also initiated a dialogue with the builders and real estate developers where a system of rating of pro8ects and developers can be e#ploited by the industry so that the consumer can make a fair choice. It is also necessary to educate first-time home buyers on the processes and the regulations involved in purchasing a house and the various ma8or loan terms and covenants when they borrow to finance the pro8ects. >f late, with increase in interest rates, borrowers who had taken floating rate loans in the past, obviously attracted by the lower interest rates,
59

have been making submissions that they have not been adequately informed about the implications of increase in floating rate loans. Thus, the need for greater transparency in housing finance transactions to enable borrowers to make enough choice about products and profiles of lenders is the primary requisite of a well informed market... +mongst other activities, the banks should ensure that its members embrace best consumer oriented practices. +nd should develop a system of independent home loan counselors who will act in the best interest of the consumer. In some, the development of a sustainable housing finance system could in due course emerge as a cornerstone of the financial systems.

CHAPTER ' APPENDIX

60

APPENDIX

61

DI33ERENT RATES ? CHARGES IN AXIS BANK YEAR 2,11-2,12

R$t1 o! I%t1r1st C;1D<1 Bo<%81 C;$r01s C;1D<1= I%str<21%t SB$9 8;$r01s Pr19$ 21%t= 3or8:os<r1 C;$r01s D1!$<:t I%t1r1st R$t1 D<9:i8$t1 St$t121%t Iss<$%81 C;$r01s D<9:i8$t1 A2orti>$tio% S8;17<:1 C;$r01s D<9:i8$t1 I%t1r1st C1rti!i8$t1@ProCisio%$:= A8t<$:A iss<$%81 C;$r01s Ci#i: R19ort Iss<$%81 C;$r01s St$29 D<t C;$r01s Iss<$%81 C;$r01s !or P;oto8o9 o! Lo$% A0r1121%t= Do8<21%ts

,=.::D to 2..::D *s. =:: per cheque bounce H $ervice Ta# as applicable *s.=:: per instance H $ervice Ta# as applicable 3il [2..::D per annum i.e 2D per month on the overdue installment *s 2=: per instance H $ervice Ta# as applicable *s 2=: per instance H $ervice Ta# as applicable *s 2=: per instance H $ervice Ta# as applicable *s. =:N- per instance per setH service ta# as applicable +s per $tate $tamp +ct *s 2=: per instance H $ervice Ta# as applicable

62

63

CHAPTER ' BIBLIOGRAPHY

BIBLIOGRAPHY

WEBSITES-

WWWEGOOGLEECOM WWWEMONEYCONTROLECOM WWWEAXISBANKECOM WWWEWIKIPIDIAECOM

BOOKS F

64

 I / 'andey, Financial Management Iothari, !.*., \*esearch /ethodology /ethods @ Techniques], 2::9, 3ew +ge International BpC, 'ublishers 'rassan !handra, (inancial /anagement &upta, $.%., \ /arketing @ (inance],2::., "#cel Books

TOPICS-

+ new beginning: the turnaround story of Indian bank. Banking and financed Banking developments in India Basics of banking

65