D.Y.P.I.M.

R
A PROJECT REPORT ON

HOME LOAN COMPARISON AND CREDIT RATING AT THE INDUSTRIAL DEVELOPMENT BANK OF INDIA
In Partial Fulfillment of Requirement for the award of degree of

MASTER OF BUSINESS ADMINISTRATION (MBA) OF UNIVERSITY OF PUNE Submitted By

AGRAWAL DEEPAK CHHAGANLAL

Under Guidance of
PROF. MEGHNA BHILLARE Dr. D.Y.Patil Institute Of Management and Research,

Pimpri, Pune. 2010-2012

D.Y.P.I.M.R

DECLARATION

I, undersigned, hereby declear that the project report on Implication of HOME LOAN COMPARISON AND CREDIT RATING AT THE INDUSTRIAL DEVELOPMENT BANK OF INDIA submitted to the Dr. D.Y.Patil Institute of Management and Research, Pimpri, Pune. It is my original work & the conclusions drawn there in are based on the data & material collected by myself.

Date:

Deepak Chhaganlal Agrawal

Place:

(Student Name and Signature)

D.Y.P.I.M.R
ACKNOWLEDGEMENT

With a deep sense of gratitude I express very thanks to all those who have been instrumental in the development of the project report. I am also grateful to Dr. D.Y.Patil Institute who gave me a valuable opportunity of involving me in real live business project. I am thankful all the professors whose positive attitude, guidance and faith in my ability spurred me to perform well. I am also in debted to all lecturers, friends and associates for their valuable advice, stimulated suggestion and overwhelming support without which the project would not have been a success. Finally I would like to express my gratitude and sincere thanks to my project guide Prof. Meghna Bhillare for her constant support. She is always a source of Inspiration for me. She has been an exceptional mentor during the entire period of my project. Working under her guidance has been a great learning experience. Lastly, I thanks my friends and near and dear ones for their wholehearted support in this effort of mine.

TABLE OF CONTENTS

SR.NO.

TOPICS

PAGE NO.

1. 2. 3. 4.

EXECUTIVE SUMMARY OBJECTIVE OF THE PROJECT COMPANY PROFILE INTRODUCTION: HOME LOAN & CUSTOMER RATING HOME LOAN SCHEME: IDBI DETAILS ABOUT OTHER LENDING BANKS CRITICAL ANALYSIS CUSTOME RATING RECOMMENDATION CONCLUSION BIBLIOGRAPHY

5. 6. 7. 8. 9. 10. 11.

EXECUTIVE SUMMARY

EXECUTIVE SUMMARY

These days housing finance is in the lime light old private sector bank, new private sector bank & even public sector bank have become extremely active in this field, there is no doubt what so ever that there is a tremendous shortage of housing in our country. With the interest rate of housing loans at historic low along with simplified procedure of optaining it. Many people are willing to take home loans today. With the new trust in the retail segment by the banking community on the whole, this sector has been attractive for both lenders and borrowers. Customer ratings is been carried by banks before sanctioning the loans to the customers. Customer rating reflects the borrowers account liability, expected capability & inclination to pay interest & principal in timely manner. In this report I have study the home loan scheme of banks & then compare them with each other. I have also study in detail about customer rating undertaken by Industrial Development Bank of India. At the end I have given suggestion to the Industrial Bank of India regarding changes which can be made in home loan schemes and activities which can be undertaken to promote this product.

OBJECTIVE OF THE PROJECT

OBJECTIVE OF THE PROJECT

To understand the term Home loan.

To understand the important factors related to home loan scheme.

To study the home loan scheme of the Industrial Development Bank of India along with other leading banks.

To study the customer rating of the Industrial Development Bank of India with reference to home loans.

To compare the home loan scheme of leading banks in India.

Company Profile

THE INDUSTRIAL DEVELOPMENT BANK OF INDIA

The Industrial Development Bank of India is one of the leading bank in India. The head office of bank is situated in Satara, which is just two hour drive from pune. Many eminent personalities hailed from this area. Shri. Annasaheb chirmule was one such personality. He founded western India life insurance company ltd, a leading insurance company in those days. In 1955 due to nationalization of the insurance business by the Indian government, the western India life insurance company ltd. was merged with LIC of India. Annasaheb chirmule worked with the view to native self dependent. He founded the satara swadeshi commercial bank in 1907. The success of this bank leads him to establish one more commercial bank. The united western bank, which commenced operation on March 8,1937 In 1951, the united western bank acquired the status of a scheduled bank. A series of mergers into the bank followed. Union bank of Kolhapur in 1956 & the satara swadeshi commercial bank, in 1961 was merged with the bank. Incorporated in 1936, the bank is one of the largest private sector commercial banks in India. The shareholding of the bank is well dispersed all over the country. The bank has three tier organizational structures: Head office Zonal office Branches The bank 883 branches spread over 47 districts in India; controlled by 5 zonal offices. Mumbai, Pune, Kolhapur, Jalgaon & Nagpur.

Important services provided:

Provide various types of Loans, accepts various types of deposits. Operate 883 fully computerized and partially computerized branches.

Provide extended hours services at branches in residential area.

Operate 1481s ATM centers.

Provide merchant banking facilities. Operate special agricultural finance branch at Kolhapur. Operate 15 foreign exchange centers and 54 foreign correspondences. Provide SANMAN DEPOSITE scheme for senior citizen.

Introduction of Home Loan & Customer Rating

HOUSING FINANCE: Housing finance has not only become popular, but the procedure for obtaining loan has become so simplified that housing loans are easily available. This may be attributed to the change in the housing policy of both the central and state governments. A redeeming feature of Indian housing finance is the recent entry of commercial banking in a big way. Housing and land development occupy a peculiar position in India so far as the state and central government are concerned. Both the governments have the power to make enactments on the subject of housing and land. As a result, the housing policy in India has been wide and varied.

HOUSING: Housing means the houses or conditions that people live in. HOUSING FINANCE: A set of all financial arrangements that are made available by Housing Finance Companies (HFCs) to meet the requirements of housing is called Housing Finance. HOUSING FINANCE IN INDIA- GROWTH FACTOR: Housing finance has received a boost through a combination of growing demand and rising affordability; while the demand for housing has always been there and will be for a long time to come; its increase affordability has

been the key to growth. According to HDFC, every rupee spent on housing finance leads to 78 paisa increase in GDP.

BUDGETARY SUPPORT Tax benefits, a low interest rate regime and high salary levels among certain sections are chiefly responsible for fuelling fast growth in the housing financial servicing sector. Tax benefit for housing finance contributes to housing development. For this purpose RBI maintains a soft interest regime. The bank rate interest in constantly being slashed so that it acts as a stimulant for housing demand Similarly, a sharp increase in size of pay packets has played an important role in making a house affordable. Regardless of salary levels, if the cost of a house comes down it would pep up the demand for housing finance. This is reason to believe that we are witnessing a gradual movement towards loosing the restrictions that increase the cost of a house.

NEW DYNAMICS An important development in the housing finance business has been the entry of new players. The relatively low risk in a housing portfolio has spurred a new entrance in the last few years. Arguably, the most significance entrance has been ICICI Home Finance. The entry of a new players and a consequent increase in competition has been followed by an increasing trend. The interest rate of most housing finance companies moves in unison, there by suggesting that interest rate is not likely to be a competitive tool. The high level of competition has made it impossible for an HFC, with branches across the country, to charge an

interest rate higher than the competition. Commercial banks are an exception to the rule, in the sense that they always charge lower than the competition.

DISTINGUISHING SERVICE Companies are trying to distinguish themselves through a difference in service standards. Industry officials emphasize that service quality is the key to competitive strength. The moment, there seems to be little to choose from among the top housing companies when it comes to service. Assuming almost similar service standards, future growth is likely to decide by access to resources. A strong brand name such as HDFC bank ltd, ICICI bank ltd, and LIC is likely to command access to a lot more resources and customers.

HOUSING FINANCE ASSISTANCE-FACTORS:

Housing finance companies consider the following factors before making any financial assistance for housing: Loan amount Administrative and processing cost Prepayment charges Services Value addition Source of finance like HFCs and banks EMI calculation methods

CUSTOMERS RATING The main objective of this is to access the applicants sustained repayment capacity over the period. The main point that are considered are: Income Age Academic background and employment stability Family background Assets and liabilities Servicing record in respect of other institutional borrowings Saving history and capacity Number of dependents Income and expenditure pattern DOCUMENTS REQUIRED FOR SCRUTINY: SALARIED CLASS: Salary certificate Copy of ration card / electricity bill Rent receipt (if applicable) For self employed:

A brief introduction to business / profession Balance sheet and profit and loss account, duty certified by a chartered accountant. Income tax / wealth tax return for the past 3 years. Copies of challans of advance tax. Assessment orders Shop and establishment act certificate of registration Ration card / electricity bill / rent receipt (if applicable) Legal appraisal: After customer rating is done, legal appraisal is done where in all other documents like original title deeds, revenue receipts, and encumbrance (search) certificates for the past 30 years are verified by a lawyer to confirm that the with holder can create an equitable mortgage in favor of the HFC by simple deposit of title deeds. Technical appraisal: The technical officer will verify the original documents and counter check all the furnished information. Following documents are generally required: Layout plan Approved plan No-encumbrance certificate Clearance under Urban Land Ceiling Act Commencement certificate A detail estimate of cost of construction.

HOME LOAN SCHEME: THE INDUSTRIAL DEVELOPMENT BANK OF INDIA

HOME LOAN SCHEME: THE INDUSTRIAL DEVELOPMENT BANK OF INDIA The industrial development bank of India housing loan scheme The industrial development bank of India brings to people vastupurti a unique housing loan scheme that translates their dream. PURPOSE OF LOAN Loan for construction and purchase of house / flat including purchase of land. Renovation / extension / repair of existing house / flat. For taking over of housing loan from other banks / housing finance companies. For furnishing. For purchasing durable goods along with loans for the purchase and construction of house / flat. For purchase of house / flat on resale. ELIGIBILITY any individual with regular source of income either singly or jointly with his/her spouse. Age of person should be at least 21 years. OUANTUM

An amount based on the repayment capacity of the applicant subject to: 45 min. of net income earner or4 times of annual income for business professionals.

Maximum amount Rs.75lakhs. 80% to 85% of the cost of house flat depending on loan amount. Loan amount, the installment of which does not exceed 50% of monthly income Minimum of above will be the loan amount For repairs renovation, modification of existing house up to Rs. 2lakhs. Rate of interest Fixed for the first 5 years @8.5% and then floating as per the prevailing rates after 5 years which would be PLR-3% per annum. Present prime lending rate is 11.5% per annum. Repayment period For construction of new house / flat (18 years) For purchase of new house / flat (18 years) For purchase of new house / flat on resale (18 years) For additional construction of house (7 years) For repair, renovation, extension (7 years) For taking over of housing loan from other banks / housing finance companies (18 years) For furnishing (7 years) Security Main security for loan will be mortgage of property to be purchased out of loan. Processing fees

0.5% Upfront. Maximum Rs.1000 Commitment charges 1% commitment charges on outstanding balance if loan is repaid within first 5 years. Margin 15% for loan up to 5 lakhs and 20% above 5 lakhs. Margin Rs 2052 for first 5 years and after that according to floating rates prevailing at that time.

Repayment holiday Repayment holiday of 18 months.

OTHER LEADING BANKS

DETAILS ABOUTOTHER LEADING BANKS

BANKS IN INDIA Public sector/ Nationalized banks: Allahabad Banks Bank Of India Bank Of Maharashtra Canara Bank Central Bank Of India Corporation Bank Dena Bank Punjab National Bank Syndicate Bank UCO Bank Union Bank Of India.

Other Public Sectors Bank: IDBI Bank OLD Private Sector Banks: Bank of Rajasthan Ltd. J & k Bank Ltd.

Karur Vysya Bank Ltd South Indian Bank Ltd. United Western Bank ltd. New Private Sector Banks: HDFC Bank Ltd. ICICI Bank Ltd. UTI Bank Ltd.

HDFC Bank Ltd. Purpose Of Loan: Construction /purchase of house/flat Extension, Renovation and Repair of Existing house/flat. For taking a home loan from any other bank and financial instituition. Quantum : For purchase/construction. Loan up to 85% of property. Repayment period: Up to 20 years. Margin: 15% of the total cost in case of house/flat.

ICICI Bank Ltd. Purpose of Loan: For construction /purchase of house/flat For renovation/extension/repair of Existing house/flat. For purchase of plot for construction of house/flat. Quantum : Up to Rs. 3 crore. Repayment period: Up to 20 years. Margin: 15% in case of purchase and construction of house/flat. 25% in case of purchase of land for construction of house/flat.

State Bank of India Purpose of Loan: Construction /purchase of house/flat. Renovation/ extension/ repair/alteration of existing house/flat. For taking a Home Loan from any other bank, financial institution. Quantum : Up to 60 times the net monthly income will be sanctioned depending upon age of customer. Repayment period: Up to 20 years. Margin: 25% for new house/flat. 20% for old house/flat. 20% of the cost for renovation/repair.

The Karur Vysya Bank Ltd. Purpose To purchase a ready built flat / house (new and also existing not older than 10 years) To purchase a plot and construction of house For repairs / renovation / additional construction For taking over housing loan liability from other banks & recognized housing finance companies Quantum Loan available up to Rs.1500000/Repayment period Repayment of loan up to 15 years with holiday period 12 months Margin 25%

South Indian Bank Ltd. Purpose: Purchase of flat or house Construction of flat/ house For major repair, renovation, extension or improvement of flat/ house Takeover of HL from other Banks/reputed housing finance companies. Purchasing land & construction a house Quantum: Loan for new construction/ purchase/ take over etc MAX: Rs.50 lakh For renovations/ additions/ major repair, improvement etc MAX: Rs.5 lakhs Margin: Purchasing land & constructing a house 30%: old house/ renovation. Repayment Period: Minimum 5 years & Maximum 20 years

CRITICAL ANALYSIS Interest Rates (%): Lenders Name IDBI South Indian Bank Ltd. Syndicate Bank Union Bank Type of Loan Up to 5yrs 6-10yrs 11-15yrs 16-20yrs

8.5% for the first 5years and then floating rate as per PLR Fixed Floating Fixed Floating Fixed Floating 9 8 8 7.25 8.25 8 8.5 9.5 9.75 7.75 8.5 8 8.5 8 8 7.75 8 8.5 8.25 8 9.25 9 8 9.75 9.5 9.5 8.5 8.5 7.75 9 8.75 9 9.5 10.25 8 8.5 8 9.5 8.5 8.75 8 9.5 9.25 9.25 9.5 10.75 8 8.5 8 9.5 8.5 9 8.25 9.5 9.25 9.25 9.5 10.75 8 8.5 8

United Bank of India UTI Bank Ltd ICICI Bank Ltd IDBI Bank

Fixed Floating Fixed Floating Fixed Floating Fixed Floating

J&K BANK LTD

Fixed Floating

Karnataka Bank Karur vysya Bank ltd. Punjab national bank Allahabad bank Bank of Baroda Bank of India Bank of Maharashtra Bank of Rajasthan Canara bank

Fixed Floating Fixed Floating Fixed Floating Fixed Floating Fixed Floating Fixed Floating Fixed Floating Fixed Floating Fixed Floating

8.25

8.75

10.5 10 9.25 7.75 8.25 7.25 9 8 8.5 7.25

10.5 10 10.25 8 8.75 7.75 9.5 8.5 9.25 8

10.75 10.25 10.5 8.25 8.75 7.75 10 8.5 9.25 8.5 10.5 8.25 9.25 8.25 10 8.75 9.25 8.5

8 8.25 7.5 8 7.5

8.5 8.75 8 9 8.25

8.75 9 8.25 9.25 8.5

8.75

9.25 8.5

Central bank of India Corporation bank

Fixed Floating Fixed

8.5 8 8.25

9 8.5 8.5

9.5 9 8.5

9.5 9

Floating Dena bank Fixed Floating HDFC bank Fixed Floating

7.5 8.75 7.25 8.75 7.75

8 9.25 7.75 8.75 7.75

8.25 9.5 8 8.75 7.75

8.25 9.5 8 8.75 7.75

EQUATED MONTHLY INSTALLMENT PER LAKH (Rs)

Lenders name IDBI South Indian bank ltd Syndicate bank Union bank

Type of loan

Up to 5 yr

6-10 yr

11-15 yr

16-20 yr

2052 for the first five yrs. And then according to floating interest rates Fixed Floating Fixed Floating Fixed Floating 2076 2028 2028 1992 204 2028 2052 2052 2112 2016 2052 2028 2052 2028 2028 2016 2040 1214 1240 1227 1253 956 1029 1014 1014 837 949 932 1294 1240 1240 1200 1267 1253 1267 1267 1335 1213 124 1214 1044 1229 999 956 1044 1059 1029 1029 1121 956 985 956 932 868 900 852 932 916 916 916 1015 836 863 837

United bank of India* UTI bank ltd ICICI bank ltd IDBI bank ltd J & K bank ltd Karnataka bank ltd Karur vysya Bank ltd

Fixed Floating Fixed Floating Fixed Floating Fixed Floating Fixed Floating Fixed Floating Fixed Floating

2149 2125

1349 1322

1121 1090

Punjab national bank Allahabad bank Bank of baroda Bank of India Bank of Maharashtra Bank of Rajasthan Canara bank Central bank of India Corporation bank

Fixed Floating Fixed Floating Fixed Floating Fixed Floating Fixed Floating Fixed Floating Fixed Floating Fixed Floating Fixed Floating

2070 2000 2040 1992 2076 2028 2051 2004

1320 1200 1254 1200 1294 1240 1280 1213

1090 960 1000 941 1075 980 1029 985

990 950 916 852 965 883 915 868

2028 2037 2004 2025 2001 2052 2028 2037 2002

1240 1250 1213 1264 1224 1267 1240 1237 1211

999 1014 971 1025 981 1044 1014 982 967

884

911 864 932 900

849

Dena bank

Fixed Floating

2067 2013 2064

1280 1200 1250

1044 956 996

932 836 880

HDFC bank

Fixed

Floating

2013

1200

942

821

INTEREST RATE (%) COMPARISON

1 2 1 0 8 6 4 2 0 ID I B B ANK K URVY Y AR SA B ANK S OUTHIND IAN B ANK K NATAK AR A B ANK

Interest rate

Lenders name IDBI bank Karur vysya bank ltd. South Indian bank ltd. Karnataka bank

Interest rate (%) up to 5 yrs. 8.50 10.50 9.00 8.25

EMI PER LAKH (Rs)

2160 2140 2120 2100 2080 2060 2040 2020 2000 1980 E MI PR E L H AK IDB BANK I K URVY YA AR S BANK S OUT INDIAN H BANK K NAT A AR AK BANK

Lenders name IDBI bank Karur vysya bank ltd. South Indian bank ltd. Karnataka bank

EMI per Lakhs(Rs) up to 5 yrs. 2052 2149 2076 2040

PROCESSING FEES (%)

1 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 proces ing s fees K URVY Y AR SA B ANK S OUT INDIAN H B ANK K NAT A AR AK B ANK IDB BANK I

Lenders name IDBI bank Karur vysya bank ltd. South Indian bank ltd. Karnataka bank

Processing fees (%) 0.50 1.00 0.25 0.25

CUSTOMER RATING

CUSTOMER RATING

Customer rating reflects the borrowers accountability, expected capability and inclination to pay interest and principal in timely manner. A customer rating is a simple number which many lenders use to determine whether or not they will give a loan or line of credit to an individual. The main objective of this is to assess the applicants sustained repayments capacity over the period. The main points that are considered are: Income Age Academic background and employment stability Family background Assets and liabilities Servicing record in respect of other institutional borrowing Saving history and capacity Number of dependents Income and expenditure pattern

Documents required for scrutiny: Salaried class Salary certificate Copy of ration card / electricity bill Rent receipt (if applicable)

For self employed: A brief introduction to business / profession: Balance sheet and profit and loss account, duly certified by a chartered accountant Income tax / wealth tax return for the past 3 yrs Copies of challans of advance tax Assessment orders Shop and establishment Act certificate of registration Ration card / electricity bill / rent receipt (if applicable)

Customer profile from contains the following information:

Name of the applicant Address Date of birth

Phone number

Qualification Occupation Period of service Names of dependents Annual income (as per income tax / salary certificate) Sum total of all deductions (including taxes, repayments, etc) Annual income of spouse (as per income tax / salary certificate) Sum total of all deductions (including taxes, repayments, etc) of spouse

Type of accommodation of the applicant

Assets owned by the applicants Details of bank accounts of the applicants Details of bank accounts where salary is certified Details of loans and advances taken so far Signature of the applicants

Information contained in customer rating form is as follows: Name of the applicant Address Date of birth Phone number Qualification Occupation Period of service Number of dependents Annual income Annual income of spouse Type of accommodation of the applicants

Assets owned by the applicant

Details about all bank accounts of the applicant

Average balance in saving bank account for one year

Deposits, if any with the Industrial Development Bank of India Details about any loan taken earlier Details about repayment of earlier loans Present monthly obligation, if any (as percentage to salary or monthly income)

Applicants are given points on the information given by them and if the total point scored by the applicant is satisfactory and other formalities are also completed then home loan is sanctioned by bank.

RECOMMENDATION

RECOMMENDATION

Bank should decrease paper work regarding sanctioned of home loan it should also complete the paper work and legal requirement relating to sanctioned of home loan on behalf of applicant thus, minimizing applicants work

Loan sanctioned period should be decrease to suit applicant requirement

The processing fees or prepayment rate should be decrease or either of them should be waived for few years Bank should go for corporate tie-up where it would provide loans to employees of that company at a rate lower rate bank prevailing rates Door-step service should be provided by banks. This kind of service is appreciated by people and can help bank in increase its business. Bank should promote product (home loan) it should setup stall in different part of cities for few days. Stall should also be set up in property exhibitions advertisement should be given in news papers with bank phone number, because it is necessary to make people aware about the home loan scheme Bank has less presence in other state apart from Maharashtra. Branches should be opened in important cities as most people in other state are still of aware about the existence of this bank

CONCLUSION

CONCLUSION

Growth in population and income level had lead to increase in the demand for home loan to meet the growing housing need of people. Affordable interest rate and easy loan sanctioned by banks and financial institutions have increased the demand of home loan in India From detail study and comparison of home loan scheme of different banks, I observed that few changes that required in the home loan scheme of the Industrial Development Bank of India A decrease in existing paper work requirement along with the decrease in the loan sanctioned period is must Bank should also decrease its processing fees or its prepayment rates. It should also go for corporate tie-up and should also undertake some promotion work for its loan product i.e. home loan scheme

Customer rating for designed by the Industrial Development Bank of India, contains all necessary information about the applicants that help the bank in generating loan to the applicant. After studying this form I observed that the information contained in it is beneficial for the bank as it help in proper scrutiny of applicant capacity to repay the amount of loan. Bank checks the information to its satisfaction before generating loan to the applicant. This form contains all necessary information about the applicants financial information and also the detail information about the property.

BIBLIOGRAPHY

Banknetindia.com Idbibankindia.com Marketview.com Icfai.org