Loan To Middle
Income Groups.
Dissertation submitted in partial
fulfilment of the requirements for the
Award of
degree of
MASTER OF
BUSINESS
ADMINISTRATION
No.12CQCM
A008)
Under the
Guidance
of
Mr
Haris
h
Lecturer,
DSCMIT MBA
BU
OF
BANGALORE
UNIVERSITY
By
Agnelamit
B Borges
(Reg.
DayanandaSagar
College of Arts,
Science &
Com
merc
e
ShavigeMalleshwara Hills,
KumaraswamyLayout , Bangalore 560078
Place: Bangalore
Mr Harish
Date: Lecturer,
DSCMIT
MBA BU
INSTITUTE CERTIFICATE
This is to certify that the dissertation titled The Role Of Financial Institutions In
Providing Housing Loan To Middle Income Groups., submitted in partial
fulfilment of the requirement for the award of degree of Master of Business
Administration to Bangalore University, is a record of original work carried out by
Agnelamit B Borges (Reg. no. 12CQCMA008) under the guidance of Mr.Harish
during the academic year 2012-2014. This has not been submitted to any other
university or institution for the award of any degree/ diploma/ certificate.
Dr. Dinakar G
Professor & HOD
(DSCMIT)
Place: Bangalore
Date:
Dr N Suresh
Director
Student Declaration
I do hereby declare that the dissertation Report titled The Role Of Financial
Institutions In Providing Housing Loan To Middle Income Groups. is an
original work done by me, submitted in partial fulfilment of the requirement for the
award of the degree of Master of Business Administration to Bangalore University,
under the guidance of Mr Harish. This has not been submitted for the award of
any other degree/ diploma/ certificate.
Place: Bangalore
Agnelamit B Borges
Date:
Reg.No. 12CQCMA008
ACKNOWLEDGEMENT
I express my sincere thanks and deep sense of gratitude to Dr. N
SURESH
AGNELAMIT B BORGES
TABLE OF CONTENTS
Chapter
s
Contents
INTRODUCTION
1.
1 Background of the study
1.
2 Present scenario of the market
1.
3 Future trend of the market
1.4 Highlights and Comments
1.
5 Bangalore market scenario
1.6 Need and importance of the study
16-41
3.
1 Housing Finance
3.
2 Housing Finance Institutions
3.3 Development Of Modern Banking
3.
4 Structure Of Banking System In India
11-15
2.
1 Introduction To Housing Finance
2.2 Statement Of The Problem
2.
3 Objectives Of The Study
2.4 Research Methodology
2.5 Type Of Research
2.6 Sample Technique
2.7 Sample Size
2.8 Collection Of Data
2.9 Limitations Of The Study
INDUSTRY PROFILE
Page No
1-10
4.
1 Hypothesis
4.
2 Analysis and Interpretation
42-65
FINDINGS, RECOMMENDATIONS
&
CONCLUSION
BIBLIOGRAPHY
ANNEXURES
66-69
70
71-75
TITLE
PAGE NO
01
39-40
02
40-41
03
42
04
43-44
05
44
06
45
07
46-47
08
47-48
09
49-50
10
50-51
11
12
53-54
13
54-55
14
55-56
15(a)
56-57
15(b)
57-58
16
59-60
17
60-61
18
61-62
52
Chapter-1
INTRODUCTION
A home is a place of residence or refuge and comfort. Purchasing and moving into a
dream house would generally rank among the top three things on the wish list of most
people. After all its what been proved by Maslows Law of Hierarchy as well. Middle
income groups cant buy their dream home at once paying huge amount of money that
is the reason they go for home loan to the financial institutions. But nowadays it is
difficult to choose proper financial institutions due to competencies between so many
players in the market. So that financial institutions play a important role to middle
income groups.
The positive outlook of Indian government is the key factor behind the rise of the
Indian real estate sector, the second largest employer after agriculture in India. This
budding sector is today witnessing development in all area such as - residential, retail
and commercial in metros of India such as Mumbai, Delhi, Kolkata, Bangalore and
Chennai. Easier access to bank loans and higher earnings are some of the pivotal
reasons behind the sudden jump in the real estate sector.
Even the property prices are augmenting fast, especially Chennai real estate,
Hyderabad real estate and Bangalore real estate are on the very high phase. The
market boom is spread across the country and hence more and more Indians are not
interested in investing for India real estate. The economy rate as well has managed to
grow faster than 8% each year because of increasing real estate market trend.
As a result, even by 2001, the country faced a shortage of 19.40 million dwelling
units. The housing finance industry emerged as the answer to the problem of housing
by providing finance to individuals planning to own a house.
Till then, banks had offered personal loans for properties. But these loans were
restricted to bank and government (public sector) employees. Private sector
employees had to undergo a lot of hardship to obtain housing loans.
To take care of this problem and to boost investment in housing industry, thegovernm
ent established the Housing Development Finance Corporation LTD (HDFC) in1977.
th
NationalHousing Bank Act, 1987 to function as principal agency to promote Hous ing
FinanceInstitutions and to provide financial and other support to such institutions.
The National Housing Bank Act empowers National housing bank or NBH to:
1
Till the late-1990s, the marketing efforts of Indian HFCs were rather limited because
the industry was largely a seller's market. Even the market leader, HDFC, had not
undertaken any major marketing initiatives.
The entry of commercial banks and other private sector companies, however,
changed the dynamics of the industry, and for the first time, all the players
emphasized on marketing. Many of the HFCs targeted the middle class, which had
begun availing of housing loans largely due to the declining interest rates.
Analysts pointed out that housing loan companies needed a strong brand image to
build a strong relationship with these customers. It was felt that if interest rates
increased in the future, this brand image would help
companies gain/retain their market shares. Direct marketing emerged as a very
effective tool for attracting customers in this industry.
In the early 21st century, the housing industry in India was one of the few sectors that
were growing at a healthy rate of 28-30% in spite of the economic slowdown. A host
of reasons were responsible for this growth, including favorable government policies,
increased corporate activity, and above all, an increasing customer-base.
As a result, many banks and financial institutions had entered the market withattractiv
e financing rates and consumer-friendly schemes. So that the new home purchase
loan has become much easily available and is much cheaper than what was available
earlier.
Banks were everywhere and the schemes were implemented even in villages and
smaller towns. The housing loans are popular there too, however, the activity of
building flats is little slow. It would not be wrong to say that there has been a boom in
the home loan market and with this boom; there is also a boom in the number of home
loan mortgage brokers in India.
The main reason for this boom in home loan market is the change in government
policies. It is governments motivation that the home loan interest rates in
India have fallen considerably. Lot many banks are offering home loans and this is
available at low EMIs (Equated monthly Installments).
Again, there were different types of home loans available. The interest rate available
is also of two different types. One is the fixed rate loan and the other is the floating
rate loan. In the fixed rate loan, whatever interest is fixed on the start of loan is carried
on for the complete period. However, in the other one, the interest rate is not fixed and
as the interest rate goes up or low the effect is directly transferred to the person who is
taking the loan.
As shared earlier, taking a loan is not a difficult task. However, before taking a loan,
one must realize that the relationship with the bank will be for a longer period usually
15 to20 years so one must ensure faith and integrity in bank. Apart from low rate of
interest, the bank should also provide some value added services. The other thing is to
look into is the property that is to be brought. Making sure that the builder has all
sanctions and facility to build a good building is very important.
Decline in rates of interest to 8%-9% from 12% over the past one year; this amounts
to a 15%-25% reduction in the equated monthly installment (EMI) per lakh of loan
1
2
3
Increase in income
implementation of the
of
government
employees
following
However, it is also likely that a further correction or even stagnation in real estate
prices may lead to borrowers deferring home purchase decisions on the expectations
of another round of correction.
o
1
The entry of banks into the housing finance sector has posed a serious
threat to already existent players in the field.
1
The housing sector is witnessing a clash between major players.
Foremost amongst this is the ICICI and HDFC imbroglio.
2
Housing finance policies provided by the Government of India is a
significant step towards upholding the future prospects of this industry.
Comments
There always has been huge demand of housing and it will remain same in the future.
Indian housing sector has been developing successfully even though its going through
the impact of global crisis as any other developed and developing countries. Few
years ago housing loan interest rate was declining rapidly due to competencies of
many financial institutions in India. The declining interest rest has resulted badly to
value of real state due to increase in prices. And Government of India needed to
handle this problem through its policies. GOI has introduced feasible loan condition
through public bank sectors but it is not enough to supply all the demand. So there is
still a huge demand from the customers for the housing financial institutions. And
interest rates are still remained attractive.
The instigation of housing finance services has helped many in getting their dream home
in Bangalore that was way beyond their immediate reach. The housing loans are available
as homeloans for buying preconstructed realty or developing or renovatinge xisting
property and also as finance against home assets or real estate assets.
With home loans, we can purchase a residential plot or a house in the forms of flats or
apartments. If our home does not have enough space to suffice our requirement and
you want to add an extra floor to it, you can get financial assistance for that. Home
loans for renovation or remodeling by many leading banks are just for that. With rate
of interest going down consistently, home loans in Bangalore offer us a good option to
bring the idea of our dream home into reality.
The erstwhile Garden City and Pensioners Paradise and todays Silicon Valley
of India due to its supremacy as the Information Technology hub has made
Bangalore a hotspot real estate destination.
Now officially renamed as Bengaluru, the city is a metropolitan with a population of
over 10million making it the third most populous city and fifth largest metropolitan
area. Information technology undoubtedly has been the forerunner in setting the stage
for development,
Growing pockets of Bangalore
On analysis of the growth pattern of Bangalore, we witness a push for developments
North of Bangalore
The demand for high-end residential units remains high in the North Bangalore
region. Residential real estate activity in North Bangalore has gained traction post the
commencement of the Bangalore International Airport. The projects located around
Hebbal, Bellary Road and surrounding areas are in the luxury segment. North
Bangalore is assured to be the next economic centre of Bangalore.
Proximity to the International Airport and planned social and the physical
infrastructure in the North have boosted development in the area. Embassy Lake
Terraces, RMZ Latitude, Karle Zenith, Equinox, Embassy Boulevard are some of the
high-end projects in the North Bangalore
South of Bangalore
The demand for high-end residential developments is low in the South. The housing
requirement in this area increased after Electronic City established itself as an IT Hub
in this micro-market. However, it did not attract premium residential developments
due to poor urban and social infrastructure. Electronic city is located in the outskirts of
Bangalore in an area of 332acres and is home for the IT behemoths including Hewlett
Packard, Infosys, and Siemens and Wipro. Sarjapur road is another promising area in
the south of the city. Jaynagar, J.P Nagar, BTM layout are the areas adjoining to
Electronic city developed primarily as residential areas.
East of Bangalore
It has grown till Whitefield, rapidly developing as a commercial area. Though the
connectivity to this part is not au courant, initiatives of government are underway in
form of metro rail and improved road connectivity. Kormangala, Indiranagar and
Hosur road are the prime areas. Prices in the East have remained stable with
priceranging between Rs 2500-7700 per square feet for residential and Rs 30008000 for commercial.
West of Bangalore
It has predominantly been the residential focus with prime areas being Malleshwaram,
Rajaji nagar and Chord Road. Being a residential area the prices have comparatively
been stable hovering between Rs 2000-6500 per square feet for residential and Rs
3000-6000 per square feet for commercial.
All leading banks and finance companies have their branches in Bangalore wherethey
provide home loans experts who guide you about the formalities and eligib ility
procedure of each bank and the housing finance product most suitable to your
Chapter-2
LITERATURE REVIEW & RESEARCH DESIGN
Home has been the centre and instrument for mankind's moral and material progress
ever since the advent of civilisation. Since home life affects the very foundation of an
individual's life, the house becomes an integral part of it. The first step in house
construction is collecting money to own a house. These days one need not have ready
cash to start house construction. There are many financing institutions which give a
helping hand in fulfilling one's dream of owning a house. This is a topic on which
many studies have not been done in our country. The available literature is reviewed
under the following heads. Importance of housing, problems, shortages, cost
effectiveness, environment awareness and various sources of housing finance, urban
sat on approach, Marxian views, effects of decentralization, and the developmental
rd
efforts for the future housing sector. Man spends 1/3 of his lifetime in sleeping. In a
modern society a house not only satisfies the need for shelter to man but also security
and pleasure in the society. To have this, one should have the capacity to purchase or
hire or to build their dream home. Since a large part of the population of middle
income groups have the capacity to own a house but lack to gather huge amount at
once. Here comes the role of financial institutions to fund this type of construction. In
the present scenario of falling interest rates, the study on role of Financial Institutions
in providing housing loans for middle class income group has become a subject
matter of paramount importance.
Gelfand (1966, 1970) suggests that lenders can choose borrowers with
stable incomes in the case when credit terms are too liberal
Clauretie and Herzog (1990) found that loan losses for lenders
reduced when regressed on rising property prices and rising interest rates. The
reason is that an increase in the current market rate of interest reduces the
incentive for borrowers to default on the mortgage carrying lower rate
RESEARCH DSIGN
2
3
4
Any type of research should deal with the methods employed and the tools
applied to fulfill the objectives of the study.
2.5 TYPE OF REASERCH:
A descriptive study has been undertaken for this study to know about the
functionality of housing loan industry, major players, norms and procedure, interest
rates patterns, cost of loan to the customers.
2.6 SAMPLE TECHNIQUE:
The respondents with respect to current and potential applicants had been
picked on the basis of random convenience sampling.
The sample size of this study was 50 for current customers and 50 for potential
customers. These samples would be selected from Bangalore.
2.8 SAMPLE DESCRIPTION:
The sample size obtained for the study would be between the age group of
25years to 60 years whose monthly income ranges between Rs10,000/- to Rs.40,000/and would be chosen from different parts of the city.
2.9 COLLECTION OF DATA:
Primary source of data
Primary source of data from potential customers is obtained from meeting them
personally and got the questionnaire filled. It is a firsthand data.
The primary collection of data from current customers is done through sending
questionnaire through friends, relatives and also by personal meeting with the
respondents.
Chapter-3
INDUSTRY PROFILE:
Direct finance:
Indirect Finance:
Loans granted t public housing agencies like HUDCO, StatedHousing Boards, State L
evel Agencies, HDFC, Housing Finance Institutions, Housing Boards and other
Agencies are classified under Indirect Finance. Also, financing for Land acquisitions
and to Private Builders is classified under Indirect Finance.
to banks.
6) Cut throat competition prevails among Banks, Housing
Finance Companies
and NBFCs
As the name indicates, we can avail these loans for the outright purchase of our
homes.
1
Construction Loans
We could avail of this loan if we want to build a floor or expand it but only after we
obtain the requisite approvals from the municipal and town authorities.
1
External work like structural repairs or waterproofing and internal work like tiling,
plumbing, electrical work painting, flooring, etc., remains to be done even after weve
bought the house. This is when a home improvement loan comes in handy.
1
Simply put, this loan enables us to transfer our current loan (which we took to buy our
house) to the new house, thereby providing us with additional finances for the
If weve opted to invest in land instead of buying a flat in town, we could apply for a
land purchase loan. We could later apply for a construction loan separately to build
our dream home on the land.
1
This is extended against the stamp duty amount payable on our purchase of a house.
This particular loan could be worth considering, especially in cities like Delhi,
Mumbai and Bangalore where Real Estate prices are on the high side and the stamp
duty payable is substantial.
1
NRI Loans
Loans today are available not only to resident Indians but also to NRIs if they wish
to buy or construct a house in India. But for an NRI the documentation required is
different. He/ She would have to submit his/her work permit ( where applicable),
stamped visa on the passport, employment contract, latest salary slip and overseas
bank statement of the past few months, Repayment of the loan could be done through
the normal banking channels using either a Non-Resident (external)or a Non-Resident
(ordinary) account
1
Bridge Loans
In short, bridge loans are short-term finance loans that cover the period till we sell off
your old house. To elaborate slightly, supposing we plan to buy a new house (which
weve already found) and want to sell the one were currently living in but are unable
to find a buyer, a bridge loan proves useful. Repayment of a bridge loan can be done
through a lump sum or in installments.
1
Refinance Loan
This simply means that a housing finance company gives us a home loan to repay our
earlier debt. But the condition is that the earlier debt shouldnt be over six months.
A refinance loan therefore works out cheaper when your present house has entailed a
borrowing for mother sources such as friends, provident funds, etc.
Balance Transfer (swap)
Age
It influences the amount and eligibility for a loan by the way of being a major and the
period remaining for retirement.
1
Savings
How much of ones savings can one put for the house? The more one can put into the
down payment, the less he needs to borrow. Yes, given the low interest rates and
attractive tax breaks, it perhaps makes more sense to take higher loans now than never
before. But remember: there isnt a one-size-fits-all option here; the down paymentloan ratio will largely be determined by ones specific financial situation.
For instance, the young couple in our example wont have a substantial
corpus of savings but will be looking to make the most of their tax breaks by taking
the largest possible loan. With their incomes likely to increase over time, they can
easily service their loan on the other hand single mother with her childs education to
worry about, or man with dual responsibilities will want to limit their loan repayment
liability with higher down payments.
1
Income
Obviously a major determinant of, how much loan one can get and how much quickly
one can repay it. Each EMI consists of a principal component and an interest
component. As a thumb rule, the maximum possible EMI is usually put at 35-40% of
your gross monthly income. Most lenders allow the borrowers to club one coapplicants income with their own to increase ones loan eligibility.
Debts
If one has commitments like repayment of a car loan, it will limit the finances one
can raise for a house. Then the loan will be lesser than what one could have taken had
been debt-free. Basically, it is about ones disposable income. The lender is interested
in knowing what resources are available to the borrower to service the loan.
1
Interest rate
The choice of lender may also be determined by how the interest is calculated. Under
certain calculation methods, the interest outgo is more.
A part of each EMI one pays goes towards reducing the principal amount. How
much this portion is- on which the interest rate is based- depends on how the interest
is calculated by the lender. It may be calculated on a yearly, monthly, or daily reducing
basis. The daily reducing balance method is the most cost-effective. As a thumb rule,
given an interest rate, the more frequently the interest is computed, the better for the
borrower.
1
Tenure
One can opt for long loan tenures when he is sure he can still repay even after 15 or
25 years. One must also be reasonably certain that unexpected and substantial
monetary obligations wont crop up, as in the case of the young widow or the man
with a growing family and aged parents. If he is close to retirement, he must be
looking at a declining repayment capacity- it makes sense to go for shorter tenures or
smaller loans.
But even for the young couple, a 30 year loan can prove counter-productive. Unlike in
the US, where interest rates are lower for long-term loans, in India the rates are same
for all tenure. This results in a sharp increase in interest obligation for 30-year loans
without a corresponding increase in loan amounts.
The Appraisal Officer prepares the file and discusses the case with the
Branch Manager. The Branch Manager should substantiate recommendations
of the Appraisal Officer. The file is then recommended for sanctioning by the
competent authority.
If approved, applicant collects the Loan Offer letter. They fill Property
Details formand Acceptance Note and sign the same. This signifies your
acceptance of the proposal. Then, they are required to collect the disbursement
within a month of the acceptance of the offer letter failing which a
Commitment Charge of generally 1% on the loan is levied
The Technical Officer visits the property and submits the Technical
Report. TheTechnical officer as per the stage of completion recommends the
amount f or disbursement.
The accounts department prepares the cheque which is then sent to the
authorizedsignatories. The Disbursement Memo is attached with important do
cuments likeinterview sheet, Legal Report, Technical Report, PEMI Status
Report applicable etc.
Loan Application form duly filled and signed by the borrower and coborrower (where applicable).
Xerox copy of the first and last page of the ration card.
Xerox copy of the first and balance page of Bank Pass Book.
Xerox copy of the LIC policy along with a copy of the latest premium
receipt.
10
Proof of age.
11
12
Xerox copy of the agreement of the property if the property is already
selected and agreement is entered into.
Rate of interest
This is one of the most important factors. Simply put, this is the rate at which we
borrow money to buy the house.
Its not always a fixed rate. Though interest rates vary from lender to lender, they
usually range from 8% to 10%, depending on the amount of loan.
The rate for small loans (below Rs.5 lakhs) is lower than that for Rs.10 lakhs and
above. The interest rate on home loans is much lower compared to that of a personal
loan, like a car loan.
Interest rates offered are of two types:
1) The floating interest rate loan:
Here, the interest rate payable is linked to the market rate like the bank lending rate.
As the bank rate varies, the interest rate payable will also rise or fall. Since theres an
element of risk due to the interest rate fluctuations, the floating interest rates offered
are slightly lower than the fixed interest rates.
2) The fixed interest rate loan:
The interest rate is constant over the loan tenure.
1
from 5years to 15 years. Typically, the tenure of the loan dose not extends beyond the
age of retirement or when we turn 65- whichever comes first.
1
This is the method of reducing the principal amount repaid from the
outstanding loan amount. Every time you make a payment, the interest you pay is on
the part of the original principal sum that remains un-prepaid till then. You could
calculate the reducing balance in three ways:
1
2
In the daily reducing balance method, the principal is reduced every day as if you
were making repayment of the principal on a daily basis.
In the other two cases, the reduction in the principal outstanding is made at the end of
every month and every year respectively. So, the EMI in the monthly reducing balance
method will be lower than in the annual reducing balance method given the same rate
of interest.
1
Today, many companies offer a wide range of personalized services. Sometimes a loan
is sanctioned even before a property is identified. The speed of approval and
processing, however, varies across HFIs. A few institutions offer you not only
financial advice but also consultation services on property. Some incentives offered to
the customer range form free credit cards, free ATM cards, and free accident insurance
to discounted consumer loans. Some companies even send a representative to your
home to discuss and deliver the loan and also pick up the EMI cheques.
1
Additional charges
Processing charges
This is a certain charge payable on the loan we have applied for and not on the
amount of loan eventually sanctioned. This charge varies and is typically fixed,
Commitment fees
There could be a delay in availing of the sanctioned loan as you may not have found
the right house or the builder couldnt deliver the property on time. In such case, aco
mmitment fee, depending on the lenders policy, may be levied on the loan amount set
aside for you.
1
Hidden Charges
Documentation charges, consultation fee of an advocate to get the title clearance for
the property, etc., could be a few of the hidden charges payable. But this should be
considered as part of the total charges levied by the lender.
1
Interest tax
This is a tax on the interest paid on the loan. The interest rate announced may not
include the interest tax. HFIs normally include the interest tax while banks charge it
as 2%additional interest tax- ( charged only on the interest paid and not on the
principal- i.e. on a loan carrying an interest rate of 15, the additional interest payable
will be 2% of 15% -i.e.0.3%)
1
Pre-payment
Returning part of the loan before it is actually due for repayment, as per their payment
schedule, means a pre-payment.
1
Foreclosure
S foreclosure is when you repay the entire outstanding loan at any point of the time
before the end of the loan tenure.
1
In both cases you are charged a penalty called pre-payment penalty. This ranges from
1% to 2% of the amount being pre-paid. But it varies across HFIs. There are a few
HFIs which do not charge either of the penalties.RBI advised that banks will not be
permitted to charge foreclosure charges or pre-payment penalties on all floating rate
term loans sanctioned to individual borrowers, with immediate effect,
Interest rates may look upwards again, so if you wish to avail a loan
transfer do so now, by locking an old loan into a new, lower rate loan.
Be aware that the old institution will not allow you to walk away
easily.
A loan transfer makes sense when the loan amount outstanding is still
large.
Institutions are always on the lookout for a good loan. Try and
convince your own finance company to provide the benefit of a lower interest
rate regime. They will respond.
Check out what is the pre-payment penalty for an old loan. Some
institutions have waived it off.
Check out the tax benefits relating to a loan transfer. The tax benefits
may or may not accrue to you if you go in for a loan transfer, as there is
currently no income tax ruling on this.
Try and get the new organization to directly buy the loan from the old
one, by paying a certain premium. Do not try and chase documents yourself.
To go for best home loan the applicant should check following points:
10
fee,
etc.
the
margin between the housing demand and the availability of houses, The National
Housing Bank was set up in the year 1988. This was done by keeping in mind that a
home seeker though does have a desire for a house but lacks the resources for
construction or buying it. To give an enhancement to private housing finance
institutions the National Housing Bank came into the picture. It is a principal agency
to promote housing finance institutions both at local and regional levels and to
provide financial and other support to such institutions. While it is important to keep
in mind that the National housing Bank itself does not give loans or finance
Dayananda Sagar College of Arts Science and Commerce Page 26
1
2
Banks
Private sector Finance
GIC Housing Finance Ltd., a company from the house of General Insurance
Company has also emerged as a strong housing finance institution in the recent years.
OTHERS:
The other major players in the public sector are: Corporation bank Homes,
Canara Bank Home Finance Limited (can fin homes), HDFC etc...
Banks
Almost all the banks throughout India provide housing finance, except a few small
branches. The major banks that provide loans for housing are Bank of Baroda, Bank
of India, Bank of Maharashtra, Bank of Punjab, Canara Bank, Cooperative Banks,
Citi Bank NA, Corporation Bank, Dena Niwas, HSBC, ICICI Home Finance,
Canara bank
As a premier commercial bank in India, Canara Bank has a distinct track record in the
service of the nation for over 100 years. Today, Canara Bank has a strong pan India
presence with3002 branches and over 2000 ATMs, catering to all segments of an ever
growing clientele base of over 36 million. They are recognized as a leading financial
conglomerate in India, with as many as nine subsidiaries/sponsored institutions/joint
ventures in India and abroad. As they step into the second century, they aspire to
emerge as a Global Bank with Best Practices.
o HSBC bank
HSBC's origins in India date back to 1853, when the Mercantile Bank of India was
established in Mumbai. The Bank has since, steadily grown in reach and service
offerings,keeping pace with the evolving banking and financial needs of its customers
.In India, the Bank offers a comprehensive suite of world-class products and services
to its corporate and commercial banking clients as also to a fast growing personal
banking customer base.
o
The Bank has a network of 1,694 branches and about 4,883 ATMs in India and
presence in 18 countries. ICICI Bank offers a wide range of banking products and
financial services to corporate and retail customers through a variety of delivery
channels
and
through
its
specialized
subsidiaries
and
affiliates
in
management. ICICI Bank Home Loans, offer unbeatable benefits to ensure that we
get the best deal without any hassles. As one of the leading home loan provider, ICICI
Bank understands how special building a new home is for us and their Home Loan
help us lay the foundation for our dream home. ICICI offers us the most convenient
home loan plans to suit our needs. With so many attractive features in every type of
home loan they offer some of their key benefits are:
Simplified documentation
IDBI bank
Presenting IDBI Bank's ultra flexible home loan we have been looking for. They
realize what owning our home means to us and our family.
We can avail of the Home Loans for constructing a home, purchasing a ready built
house/flat, residential plot and even for re-financing existing loans we may have
availed from other banks or housing finance companies.
o
With over 38 million satisfied customers and 4668 offices, PNB has continued to
retain its leadership position among the nationalized banks. The bank enjoys strong
fundamentals, large franchise value and good brand image. Besides being ranked as
one of India's top service brands, PNB has remained fully committed to its guiding
principles of sound and prudent banking.
PNB reaches out to us with fast, friendly and most convenient
home
loans
for:
Construction
or
purchase
of
house/flat.
Carrying
out
housing finance HDFC was established in 1978 with the support of the Industrial
Credit and Investment Corporation of India, the International Finance Corporation
private housing finance sector. Since 1984 in the market, today it has 22 branches all
over the country. Union Bank of India has obtained an equity involvement in
DHFCL's capital composition. It is interesting to note that DHFCL's shares are listed
on Mumbai, Delhi and Ahmadabad Stock Exchanges.
DHFCL offers a Double Protection Plan in the form of Free Accident Risk Cover +
Property Insurance to the extent of the loan liability to safeguard the interest of the
borrower. It also has a Regressive Payment Scheme for applicants who are due for
retirements within 5-10 years and apply jointly with the eligible younger coapplicants.
o
Individual Home Loan Scheme and Home Improvement Scheme. Oriental Bank of
Commerce, one of the leading nationalized banks, also participates in the equity of the
company.
o
Upgrade loans for renovation of the existing house, which has been purchased or
constructed at least one year ago. The renovation can be in the form of flooring, tiling,
plumbing, paint, polish, etc., Easy extend loans for extensions of an existing house,
Easy Home loans for outright purchase of a ready built house, Easy Build loans for
Maharishi Housing
Maharishi Housing Finance Corporation Ltd., a company from Maharishi
Group started in 1997 also caters home loans. One of the key attractions of Maharishi
Housing is its 35-year loan repayment scheme.
o
Others
Other key housing finance providers in the private sector are Sundaram Home
Finance, Home trust Housing, Gruh Finance, Weizmann Homes, GLFL housing, etc.
Acting as Trustees.
Acting as Intermediaries.
Collection Business.
Government Business.
Co-operative Banks
Commercial Banks:
Amongst the banking institutions in the organized sector, the commercial banks are
the oldest institutions having a wide network of branches, commanding utmost public
confidence and having the lion shares in the total banking operations. Initially they
were established as corporate bodies with share holdings by private individuals, but
subsequently there has been a drift towards central ownership and control. Up to late
sixties commercial banks were mainly engaged in financing organized trade,
commerce and industry, but since they are actively participating in financing
agriculture, small business and borrowers also. Progress of Commercial Banking in
India banking in India on western lines had started from the beginning of 19th century.
The first joint stock bank was established at Calcutta by the name Bank of Hindustan
and was under European Management. But this bank failed at that time. Then later
The Bank of Bengal (1806), Bank of Bombay (1840), and Bank of Madras (1843)
were started with final participation of the Government. These banks were called as
the Presidency Banks and were given the right of note issue in their respective
regions. The first purely Indian Joint stock company was the Oudh Commercial Bank
which came into existence in 1889; it was followed by the Punjab National Bank in
1894 and the Peoples Bank in 1901.
The Swadeshi Movement of 1905 gave great stipules to the starting of the Indian
banks. The Indian Banking system had gone through a series of crisis and consequent
bank failures. Its growth was quite slow during the first half of 19th century. But after
independence, the Indian banking system recorded rapid progress; this was due to
planned economic growth, increase in money supply, and growth of banking habit,
control and guidance of Reserve Bank etc. The number of commercial banks declined
Unscheduled Banks
It constitute of those banks that have been included in the second schedule of Reserve
Bank of India (RBI) act, 1934. RBI in turn includes only those banks in these schedule
that satisfy the criteria laid down vide section 42 (60 of the act). Some co-operative
banks are scheduled commercial banks albeit not all cooperative banks are. Being the
parts of the second scheduled confers some benefits to the banks in term of access to
accommodation by RBI during the terms of liquidity constraints. At the same time,
however, this status also subjects the bank certain conditions and obligations towards
the reserve regulations of RBI.
This1
sub sector can broadly be classified into:
Public sector
2
Private sector
Foreign banks
Unscheduled Banks
They are those joint stock banks, which are not included in the second schedule of the
RBI act on account of the failure to comply with the minimum requirements for being
scheduled.
In the first category the primary co-operative banks which are small sized units
organized in the cooperative sector which operate both in urban and non urban centers
.they finance small borrowers in industrial and trade sectors, besides professionals and
salaried classes .regulated by Reserve Bank of India, they are governed by the
banking regulations act 1949 and banking laws (co operative societies) act 1965.
Co-operative Banks
cooperatives, as well as
Chapter 4
DATA ANALYSIS AND INTERPRETATION
The data collected from the survey conducted at Bangalore city has been analyzed and
interpreted in this section. The interpretation is based on the information collected
through a structured questionnaire prepared for research...
The research was divided into a sample size of 100 into 2 parts of 50 each for
present/existing applicants and potential/prospective applicants respectively. Research
was maintained in similarity with respect to age, occupation, monthly income and
savings in order to have better comparison between the two sample sizes. Following
are the Tables and graphs which will be for the total of 100 respondents.
Age
No. of Respondents
Percentage
25-34
32
32
35-44
22
22
45-55
22
22
55-60
24
24
Total
100
100
Graph 4.1
5-34
35
35-44
45-55
55-60
30
Respondents No of
25
Age
2
0
No.
of
Resp
onde
nts
1
5
1
0
5
Perc
enta
ge
0
2
u35n44yea
INTERPRE
TATION: drs and
e22%
This r of
study
g ectively.
r
Table No 4.2 to
represent the
u occupation of the
p respondent
o
was them
focused on t under
the
age hthe
eage
group
between
group
25years
to aof 44-
60years.
g55yea
Out Finall
of
100 gy
respondents urespo
fall
age s fall
f the
fall age
32%
the
Business Man
IT Professional
under pndent
Govt. Employee
respondents r 24%
of oof the
Occupation
Total
r
e Dayananda Sagar
s College of Arts
Science and
p Commerce
43
Page
Graph 4.2
Govt.Employee
22%
30%
26%
22%
IT Professional
Business Man
Professional
(Except
Govt. Emp. And
IT
Professional)
INTERPRETATION:
The effect has been made to cover people of earning class having lower and higher
income levels in middle income group (MIG). Table shows, 30% respondents were
from professional group (other than government and IT professionals). Government
employees totaled 26%. IT professionals were about 22% and Businessman was
respectively represented as 22% respondents each in the study.
No. of Respondents
Percentage
Below 15000
32
32
15000-20000
32
32
20000-35000
16
16
20
20
Total
100
100
(In Rs)
s Respondent
Graph 4.3
35
30
25
Monthly
Income
No of
20
15
10
No.
of
Respo
ndent
s
Perce
ntage
imp
orta
INTERPRETATION
nce
:
to
Dayananda Sagar
College of Arts Science
and
Co
m
erce
m
Page 45
Monthly Savings
No. of respondents
Percentage
Below Rs.2,000
12
12
Rs.2,000-Rs.5,000
18
18
Rs.5,000-Rs.8,000
34
34
Rs.8,000-Rs.11,000
14
14
22
22
Total
100
100
Respondents No of
Graph 4.4
3
5
3
0
2
5
2
0
1
5
1 N
0
5
0P
Monthly Savings
Residential Status
No. of Respondents
Percentage
Own House
46
46
Rented
44
44
Lease
10
10
Total
100
100
N of
o
Respond
ents
Graph 4.5
No. of
Respondents
50
20
40
30
10
0
Own House
Percentage
Rented
Residential Status
Lease
Purpose
No. of respondents.
Percentage
26
26
74
74
Any others
Total
100
100
Purchase of plot/house
Purchase of site for
construction
Respondents No of
G
1
0
0
5
0N
Percentage
0
Purpose
Rank-1
Rank-2
Rank-3
Rank-4
Tax benefits
16 (16%)
32(32%)
32(32%)
20(20%)
58 (58%)
8(8%)
26 (26%)
8(8%)
Convenience
16(16%)
40 (40%)
16(16%)
28(28%)
10(10%)
20 (20%)
26(26%)
44(44%)
Attributes
Graph 4.7
RespondentsNo of
6
0
5
0
4
0
3
0
2
0
1
0
0
R
a
nk-1 Rank-2
Rank-3 Rank-4
Att
rib
ute
s
Ran
k
Tax
benefits
Low
interest
rates
Convenien
ce
Good
Service
by
financial institutions
Dayanan
da Sagar
HFIs
R-1
R-2
R-3
R-4
R-5
R-6
R-7
Vijaya Bank
60(60%)
2(2%)
9(9%)
8(8%)
--
18(18%)
6(6%)
PNB
--
10(10%)
--
9(9%)
44(44%)
8(8%)
32(32
%)
SBM
--
16(16%)
9(9%)
24(24
%)
18(18%)
36(36%)
--
HDFC
38(38%)
18(18%)
20(20%)
9(9%)
8(8%)
10(10%)
--
Canara Bank
--
18(18%)
42(42%)
30(30
%)
4 (4%)
6(6%)
--
2(2%)
36(36%)
20(20%)
20(20
%)
14(14%)
8(8%)
--
IDBI Bank
--
--
6(6%)
6(6%)
12(12%)
14(14%)
62(62
%)
Graph 4.8
7 -5
0
R-6
Ranks
on
HFI's
Vij
ay
a
Ba
nk
6
0
Respondents No of
R-7
5
0
4
0
PN
B
3
0
2
0
SB
M
1
0
H
DF
C
0
R
1
Ca
na
ra
Ba
nk
R
2
ICI
CI
Ba
nk
ltd
.
R
3
R
4
ID
BI
Ba
nk
svider
in
ethe minds
sbest
r of
respondents
INTERPR vcustomer
ETATION
i plays
:
cmajor
erole
The
knowledg
e
of
in
bank.
62
for
home
business
econsumers prefer
psuccess.
dnationalized banks
r 60
oresponden
safe,
i on
secure
nrespect to
and
with
private
usually
cbanks and
the
othats the
interest
mreason
rate
of pICICI
least
low i score.
and better s
Dayananda
Sagar College of
Arts Science and
Commerce
Page 51
Attributes
No. of schemes
offered
Past/Present
relationship
Service offered
Reputation/Brand
image
R-1
R-2
R-3
R-4
--
12(12%)
36(36%)
52(52%)
28(28%)
20(20%)
22(22%)
30(30%)
42(42%)
28(28%)
18(18%)
12(12%)
30(30%)
40(40%)
24(24%)
6(6%)
Graph 4.9
6 -2
0
Respondents No of
5
0
4
0
3
0
2
0
1
0
0
R
1
R
R-3
R4
R
a
n
k
s
o
n
A
t
t
r
i
b
u
t
e
s
No. of
schemes
offered
Past/Prese
nt
relationshi
p
Service
offered
Reputation
/Brand
image
TABLE NO 4.10 to represent the purpose for which the housing loan
was opted.
No. of Respondents
Percentage
Purchase of plot
12
12
82
82
Renovation of existing
property
Extension of existing
property
100
100
Total
Graph 4.10
2%
4%
12%
Purchase
Sit for
constructi
82%
INTERPRETATION:
The Major purpose behind applying for housing loan is identified as Loan for
purchase of site and for Residential construction which accounts for 82% of the
total by 82 respondents. 12 respondents stated that the purpose to have loan for
purchase of plot.
Renovatio
existing
property
Extension
existing
property
Loan amount
No. of respondents
Percentage
18
18
24
24
48
48
10
10
Total
100
100
Graph 4.11
RespondentsNo of
60
0
10
5
0 0
4
0
Below Rs.2
lakhs
3
0
Loan
Amoun
2
t
INTERPRETATION:
Percent
age
Mhe
orespondents
of
s had
applied
t for
loan
Rs.2
onde with
amount
18%
olakhs to Rs.5
nts respectively.
f lakhs
had
accounted
t nearly
to
24%.
and
10%
Tenure
No. of respondents
Percentage
Below 3years
20
20
3years-8years
38
38
8years-12years
30
30
Above 12 years
12
12
Total
100
100
0
RespondentsNo of
4
0
3
5
3
0
2
5
2
0
1
5
1
0
5
Graph
4.12
No. of
respondents
Perce
ntage
Tenure
Tenure is one of the critical factors to determine the decision on loan amount.
38 respondents opted the tenure of 3 years to 8 years was the highest percentage i.e.,
38%. The second largest groups of respondents have chosen the tenure between
8years to 12 years were accounted 30% with 30 respondents. Remaining 20% were
from below 3years and the rest 12% for above 12 years of tenure.
No. of respondents
Percentage
92
92
Total
100
100
Graph 4.13
0
Respondents No of
1
0
0
8
0
6
0
4
0
2
0
Dayan
anda
No.
of
Percent
age
respond
ents
Typ
e
of
Int
ere
st
Rat
e
Fixed
interest
rate
Floating
interest
rate
Satisfaction
No. of respondents
Percentage
Yes
80
80
No
20
20
Total
100
100
Graph 4.14
20%
Yes
No
80%
INTERPRETATION:
It is important to know that the customer satisfaction with respect to service
provided by HFIs is to gauge the industry performance with respect to the service
offered 80% were satisfied and 20% of total respondents were not satisfied.
R-1
R-2
R-3
R-4
20(20%)
30(30%)
16(16%)
14(14%)
24(24%)
18(18%)
28(28%)
10(10%)
34(34%)
24(24%)
18(18%)
4(4%)
Attractive schemes
2(2%)
8(8%)
18(18%)
32(32%)
Accessibility
payment/repayment
for
Graph 4.15a
3
5
Respondents No of
3 Fast
0 process@
low cost
2
5
2
0 Acce
ssibili
1 ty for
5 paym
ent/r
1 epay
0 ment
5 Low
0interest
R rates
offered
1
R Attractive
- schemes
2
R
3
R
4
Attributes
Ranks
t
s
TABLE
NO 4.15
(b)
Dissatisfi
.
ed
Applican
Low
payment/repayment
Terms and Dayananda
conditions Sagar
College of Arts
Science and
Commerce
Page 60
1
4
Graph
4.15b
RespondentsNo of
1
2
1
0
8
6
4
2
0
R
ai
t
D
t
r
INTERPR
ETATION: i
b
Satisfied u
current t
applicant
s ranked e
high for s
the
lowest
w
interest
e
rates
offered r
by the e
atisfied
current
financial
HFIs as
the major a
attribute c
for their c
satisfactio e
n and next s
important s
attribute
applicants institutions.
ranked
rigid terms
and
conditions
for availing
home loan
as the most
dissatisfyin
g attribute.
The
next
important
that
dissatisfied
the
Dayananda Sagar
Commerce
Page 61
No. of
Suggestions
respondents
Attractive schemes
20
20
34
34
28
28
18
18
Total
100
100
Graph 4.16
RespondentsNo of
Percentage
3
5
3
0
2
5
2
0
1
5
1 N
0
5
0
n
d
e
n
t
s
P
e
r
c
e
n
t
a
g
e
S
u
g
g
es
ti
o
ns
Respondents
Total
Percentage
Willingness
64
64
Un-Willingness
36
36
Total
100
100
Graph 4.17
36%
Willingness
Un-Willingness
64%
Respondents
Percentage
Vijaya Bank
18
18
Canara Bank
22
22
SBM
36
36
HDFC Bank
08
08
PNB
06
06
IDBI
06
06
ICICI
04
04
Total
100
100
Graph 4.18
Vijaya Bank
Canara Bank
SBM
HDFC Bank
PNB
IDBI
ICICI
From the above Pie Chart it is evident that people mostly like to go
in for nationalized banks rather than going in for Private Banks the reason being such
as safety, security, less interest rate and other things too. However a major chunk of
the respondents opted for SBM and the number of respondents being 36 which sums
up to 36%, the next bank respondents have shown interest is in Canara bank the
number of respondents being 22 which amounts to over 22%. Over 18% of
Respondents have chosen Vijaya bank and the rest of the ones have given their will
for HDFC bank as 8%, PNB 6%, IDBI and ICICI 6% and 4% respectively.
Chapter 5
FINDINGS FROM THE STUDY
POTENTIAL APPLICANTS:
It was found that the HFIs play a key role in the provision of housing
finance.
Most of the respondents wanted to have loan for purchase of site or for
construction of house on the owned site.
Vijaya Bank is the well known bank for providing housing loan in the
minds of potential applicants.
It was found that applicants were willing to shift from existing service
provider if the other service provider in the market would offer better
services and low interest rate.
4 Those current applicants were not satisfied with the service provided by
HFIs due to rigid terms and conditions for availing home loan.
It was found that the current applicants were not satisfied with the
behavior of staffs at some HFIs
It was found that loan for renovation and extension of property has
become least purpose. The most important purpose for which home loan is
opted
was for purchase of site and construction.
It was found that the respondents having own house would prefer to
have another residential house rather than the respondents living at rented
house
It was found that tax benefits, low interest rates and convenience were
the major decision drives behind a decision for seeking home loan form
Financial Institutions.
1.
Before taking a decision on home loans, applicants should consider other factors
such as tricky EMI calculations, unfair collateral demands, prepayment
penalties, and hidden costs.
2.
Key decision on home loans viz., type of interest rate, mode of interest
calculations should be given serious thought by the applicants.
3.
4.
5.
6.
Falling interest rates and stabilized real estate prices since from the year 1995
bought boom in housing finance industry. It has been known that only 36% of total
construction was financed through Housing Financial Institutions. The industry is
growing at the rate of 25% to 30% every year. Housing Development Finance
Corporation Ltd. the industry leader covers 45% of market share and facing rivalry
from new entrant for the industry ICICI Home loans Ltd. During the period 1995-96
to 20013-14, the interest rates on housing loans have declined from a high of 16%18% to 9%-12% in line with decline in the inflation rates in the economy. At present
the interest rates are one of the lowest as far as housing finance is concerned. The
housing loan portfolio of Banks is highly sensitive to sops announced by the
Government of India on exemption on personal tax.
From the analysis made the research concludes that the occupations viz.,
Government employees, professionals and IT professionals were ideal groups to target
home loans. The tenure and monthly savings were inversely proportional to each
other. Current housing loan industry scenario had influenced the applicants to go for
housing loans. Low interest rates, tax benefits and convenience were the major
decision drives for home loans. Most of the customers were aware of best offers in the
industry. Services are the key for next competitive era in the housing loan industry.
1. Book Referred :
HOUSING LOAN MANUAL FOR MANAGERS, OFFICERS
2. Daily News Papers :
1. TIMES PROPERTY TIMES OF INDDIA
2. DECCAN HARALD
WEBSITES
1. www.hdfc.com
2. www.indiahousing.com
3. www.timeofmoney.com
4. www.propertymart.com
5. www.indiahomeseek.c
6. www.housingfinance.com
7. www.home@indiainfoline.com
Sem) and as per our MBA program we are supposed to carry out a dissertation and the
title of my study is: a study on the role of financial institution in providing housing loan
to middle income groups, This is the questionnaire i have designed. i request you to
kindly spare a few minutes and fill this questionnaire.
(KINDLY FILL THIS FORM FOR OUR ACADEMIC REQUIREMENTS)
1. Name
2. Age
25-34 yrs
45-55 yrs
3. Occupation
Govt. employee,
Professional,
4. Income
35-44 yrs
55-60 yrs
Business Man,
Others Specify
:
Below Rs.15,000
Rs.15,000-Rs.20,000
Rs.2,000-Rs.5,000
Rs.8,000-Rs.11,000
Rented
Lease
No
If yes, continue.
8. Which option would you prefer, please specify.
Purchase of Plot/House
Any others,
If yes to (a) or (b) go to question number 9.
9.
10. If your response is (a) please rate the following attributes, affecting your decision
making according to your specification.(Highest rate-1, lowest rate-4)
Tax benefit
Convenience
11. Rank the following financial institutions according to your preference (Highest
rank-1, lowest rank-7)
Vijaya Bank
Canara Bank
PNB
ICICI Bank
IDBI Ban
HDFC Ltd.
Please rank the attributes that made your selection of financial institution for
Service offered
13. Please indicate the purpose for which you applied for home loan?
Purchase of plot
3 years 8 years
8 years - 12years
above 12 years
No
Others (Specify)
19. Are you willing to shift from fixed interest to fluctuating interest rates?
Yes
No
Canara Bank
PNB
ICICI Bank
IDBI Bank
HDFC Ltd.
21. Time taken to process the loan
Less than 15 days
15 to 30 days
30 days and above