A project report on credit dispensation by commercial banks to the personal segment with special emphasis on loan against property lap By Babasab Patil

A PROJECT REPORT ON CREDIT DISPENSATION BY COMMERCIAL

BANKS TO THE PERSONAL SEGMENT (WITH SPECIAL EMPHASIS ON

LOAN AGAINST PROPERTY (LAP))

Babasabpatilfreepptmba.com Page 1

Executive Summary

The one and half month project undertaken at Home Finance, Pune is about studying the

disbursement process of Loan Against Property. The project is entitled “Credit dispensation by

Commercial Banks to the personal segment (with special emphasis on Loan Against

Property (LAP))”.

Personal segment advances have been at the forefront of credit expansion in the Bank and are

expected to continue to contribute a major share in the growth of credit in the coming years too.

In this scenario, it has become imperative that our Bank adopts an aggressive and sustained

marketing initiative with the objective of not only protecting our market share but also becoming

the most preferred bank for all sections of society for personal segment advances.

As a facilitating tool towards this end, I have brought out this report which covers the following:-

Studying the salient features of each product, which would enrich my job knowledge and

help acquire skills to assess and prepare loan proposals.

Studying each products features, benefits and advantages, eligibility criteria and various

other technicalities of the product.

The project report also covers certain FAQs which deal with the details of the schemes or

products.

Finally, the project report also covers, by way of Annexures, highlights of Personal

Accident Insurance Cover provided on Home Loans, & glossary.





Objective of study The Objective of study while undergoing training was to acquire first hand knowledge of systems

and procedures of the banks. This involved in-depth study of the various systems and procedures

followed by the banks.

The other objectives are outlined as follows:-

To study the Personal segment advances by Commercial Banks.

To study bank‟s aggressive and sustained marketing strategies that has

enabled it to not only protect its market share but also become the most preferred bank

for all sections of society for personal segment advances.

Studying the salient features of each product, which would enrich my job knowledge and

help acquire skills to assess and prepare loan proposals.

To acquire the necessary basic knowledge required for the sanctioning and disbursement

of home loans and specifically loan against property.

To study the various processes involved in sanctioning and disbursement of home loans

and specifically loan against property.

PREAMBLE Food, Clothing and Shelter are the basic amenities of an individual. Once these needs are fulfilled

depending upon other monetary competency he/she may go for other things to improve the

quality of life.





Average middle class man fondly aspires for a roof over head after retirement to live the

remaining life peacefully with his soul-mate, with the children moving out in search of greener

pastures and to establish their own family.

During the recent years Government is encouraging house building activities and housing

finances up to Rs.15lacs is treated as priority sector lending accounting for 40% of the banking

sector lendings along with segments like agriculture, small scale industries and to small and

medium scale enterprises.

As a measure of incentive Government is offering tax rebate and exemption on the instalments

remitted and the interest paid. Apart from this to woo the salaried middle class, banks are quoting

competitive rates for housing loans and offering special concessions for loans availed on the eve

of festive seasons. Never before in the lending history of banks such attractive packages were

offered to the general public.

Operating in the liberalized scenario is also fraught with certain dangers. Unscrupulous

individuals in collision with the builder and developers may misuse the liberal financing.

Therefore the basic authentic documents and records of the property concerned should be verified

for authenticity and correctness. Pre sanction visits, disbursements in stages depending upon the

work progressed to ensure proper end use of funds are very important for a banker, who is the

custodian of trust money.

It is under this scenario I made an attempt to produce a project report titled “Credit dispensation

by commercial banks to the personal segment” after making an in-depth study of systems and

procedures of the banks and also working with them to gain first hand knowledge.

I take this opportunity to place before the reviewing authority my non-conventional project report

without making any specific references to the financing agencies.

ORGANIZATION STRUCTURE





BRANCH HEAD (L1)

PRODUCT HEAD

ZONAL BRANCH

HEAD (L2)

REGIONAL BRANCH

HEAD (L2)

ASSISTANT MARKETING MANAGER (L3)

BRANCH CREDIT MANAGER (L3) BRANCH SALES MANAGER (L4)

ASSISTANT CREDIT MANAGER (L3)

RELATIONSHIP OFFICERS





The bank looks confidently into the future to face and thrive in the intense competitive

environment that is emerging. The bank has now gained experience and has in place the strategies

required for gaining a leadership position. With cutting edge relevant technology, aggressive

marketing, innovation, tight control over costs and with its motivated workforce, the bank is all

set to emerge as a model global corporate citizen in the days ahead.

Personal segment advances have been at the forefront of credit expansion in the Bank and are

expected to continue to contribute a major share in the growth of credit in the coming years too.

In this scenario, it has become imperative that our Bank adopts an aggressive and sustained

marketing initiative with the objective of not only protecting our market share but also becoming

the most preferred bank for all sections of society for personal segment advances.

I. PRODUCTS OFFERED

1. Home Loans

2. Lease Rental Discounting

3. LAP OD

4. Loan Against Property





1. HOME LOANS

Definition – home loans are loans which you can avail against home for either purchasing a

house or for personal or business activities other than speculative or non prohibitive activities.

Bank will decide the loan based on your repayment capacity. Repayment capacity takes into

consideration factors such as

i. Income

ii. Age

iii. Qualification

iv. Number of dependants

v. Spouse‟s income

vi. Assets & Liabilities

vii. Stability and continuity of occupation

viii. Savings history

Spouse can be included as a co-applicant for the Home Loan. His/Her income can be added to

enhance the loan amount. However all co-owners of the property should necessarily be the

co-applicant. A processing fee of 0.5% of the loan amount is to be paid. Administration fees of

0.5% is to be paid after the sanction but before the disbursement.

Product Highlights

1. No application form charges.

2. Transparency in dealing

3. Low processing fee

4. Low margins

5. Option of choosing Fixed/Floating Interest Rates.

6. Competitive ROI/ Low EMI

7. Interest is calculated on daily reducing balance which lowers the effective ROI.

Advantages of home loans:-

i. Flexibility of choosing between floating or fixed interest rate.

ii. EMI on monthly reducing balance.





iii. Personalised service.

iv. Door step service.

v. Simple documentation.

vi. Legal and technical assistance.

vii. Balance transfer facility to acquire your loan from other banks.

viii. Insurance cover on your home loan for a small premium.

ix. You can avail home loans for constructing a home, purchasing a ready built house/ flat,

residential plot and even for re-financing of the existing loans you may have availed from

other banks or housing finance companies.

Application Process

The moment you decide to buy a home, you can apply for the loan. This could be even before you

have selected the property. The property need not even be in the same city where you are

residing. The only condition being that the Bank should have home loan operations in both the

cities.

Eligibility

Following are eligible to apply for an housing loan product

i. Salaried individuals

ii. Self Employed Professionals

iii. Self Employed Non-Professionals

iv. NRIs

Features

i. Tenor of a Housing Loan can be up to 20 years for a Resident Individual whereas the

NRI loans are for a maximum of 10 years.

ii. A cap at 60 years of age in both Resident Individuals and NRIs are applicable.

iii. Security for the loan is a first mortgage of the property to be financed by way of deposit

of the title deeds as a collateral security as may be necessary.





iv. Other parameters include account of the applicant‟s and co-applicant‟s - age, income,

number of dependents and financial stability.

v. Interest repayment on housing loan qualifies for tax saving U/S 24(1).

vi. A rebate U/S 88 for repayment of principal amount to the extent of Rs.20,000/- is also

available.

vii. Loan can be applied for a maximum of 85% of the property value/ cost of property *.

*

Types of land area

1. Carpet area/ Usable area : area within the walls.

2. Built-up area = Carpet area + Wall area.

3. Super built-up area = Built-up area + (Staircase area or lawn/ garden area / No. of flats)

Repayment

We can structure your repayment options to suit your requirements. For instance, the installments

could be lower in the initial year and could gradually increase over a period of time or vice versa.

You repay the loan in Equated Monthly Instalment comprising both principal and interest. If the

final disbursement is still pending, you pay interest on the portion of the loan disbursed which is

called Pre-EMI.

Repayment can be made thru convenient EMIs for 10-15 years depending of the rate structure

chosen for resident individuals while 10 years for Non Resident Indians based on Credit

discretions.

Cost of Property = Agreement value + Stamp duty + Registration cost + Car park

+ MSEB charges

Agreement value = Sq. Ft. area/ Built-up area * Market rate





Prepayment Charges

In the event of you opting to pre-pay your housing loan with us a nominal fees of 2% is

chargeable in case it is transfer of loan to other Bank/ Hosing Finance Company however no

charges are applicable if you prepay from your own sources.

LEASE RENTAL DISCOUNTING (LRD)

Definition – Lease rental discounting is a product that enables the customers to acquire loan

against the future expected funds of the property leased out by him and thereby increase his

liquidity.

It‟s a 2 year old product wherein an individual who has let out a property on lease can obtain loan

on such lease rentals. Since the lease rentals are a regular/ constant income an individual can

obtain loan on such lease rentals and thereby increase his liquidity.

Features

i. It‟s a loan against an existing commercial property.

ii. The mortgage needs to be a Registered Mortgage – The loan agreement is registered with

the sub-registrar stating the property which is being mortgaged. A stamp duty of 1% is

borne by the customer himself.

iii. The lessee needs to be a big company, a PSU or an MNC. Should be a big corporate body

and not an individual chit fund.

iv. Credit rated by CRISIL or ICRA. A minimum of AA credit rating is necessary.

v. The property should be a RCC construction and not a shed.

vi. Lessee should have occupied and should be operating from that property.

vii. Minimum of 6 lease rentals should have been made.

LRD Regulations

I. Loan amount Minimum Rs.10 lacs

Maximum Rs.100 lacs

II. Maximum tenor – 9 years subject to the balance lease period or renewable period.





III. Loan to Value – not to exceed 50% of the market value of the property.

IV. Loan to Rental (NPV ratio) – 85% of the Net Present Value of the future expected rentals

(net of TDS) discounted at the applicable rate of interest.

V. Lessee – the lessee needs to be a company as defined under the Companies Act of 1956.

VI. Lease period – the lease period should be for a minimum period of 3 years and a minimum

of 6 months should have passed at the time of loan application. The balance tenor of lease

period to be greater than the loan tenor.

VII. Rate of Interest - Floating/ Variable 10.25%

Fixed 11%

Pre-sanction documents

I. Lease Agreement – A copy of the lease agreement between the lessor and the lessee

needs to be given at the time of sanction.

II. Net worth statement – of the lessor is required. This depicts the difference between

the sum of assets and liabilities.

III. Title report – clean and marketable title in the name of the lessor is required.

IV. Banking statement showing rental income – A minimum of 6 months rentals are

verified as received in the bank statement without any delays or cheque bounces.

Processing of Lease Rental Discounting





I. The process of LRD starts with the agreement between three parties Lessor, Lessee, and the

Bank. These are three separate agreements. It is called the Tripartite Agreement of the Trust

and Retention Agreement. The agreements between –

1. Agreement between Lessor and Lessee

2. Agreement between Lessor and Bank

3. Agreement between Lessee and Bank

II. ESCROW Account – an ESCROW account is opened in the name of the Lessor. The lease

rentals are deposited by the Lessee into this account every month. The bank then debits the

EMI amount to its loan account and other interest payments for the period and the balance

remaining is credited to his i.e. the customer‟s account with the bank.

III. If Lessee is not ready to enter into an agreement with the bank then two separate letters are

required. They are

1. Letter from Lessor to Lessee

2. Letter from Lessee to Bank

The Lessee in this case has to draw two cheques one with the EMI amount in the name of the

bank and the other in the name of the Lessor.

Example

If a person receives lease rentals of the 2,50,000 at the rate of 8% at the end of each year and if

the lease is for a period of 8 years then the Net Present Value (NPV) is as follows

Year Amount Discounting Factor Net Present Value

1 2,50,000 1.00 2,50,000

2 2,50,000 0.92 2,30,000

3 2,50,000 0.85 2,12,500





4 2,50,000 0.78 1,95,000

5 2,50,000 0.72 1,80,000

6 2,50,000 0.67 1,67,500

7 2,50,000 0.62 1,55,000

8 2,50,000 0.57 1,42,500

20,00,000 TOTAL NPV 15,32,500

Discounting factor = 1/(1+rate of interest)

Thus Rs.20lacs is worth Rs.15,32,000 at the end of 8 years.

85% of the NPV is the loan amount that is sanctioned in Lease Rental Discounting

i.e. Rs.13,02,625 (85% of Rs.15,32,000)

LAP OD

Definition – LAP OD is an overdraft facility offered by the bank against stocks and debtors of

retail outlets.

In a normal Cash Credit facility offered by banks audit of the stocks or debtors was made at

frequent interval of time i.e. weekly or monthly. This led to the increased charges on such Cash

Credit limit. LAP OD does not require such audits of stocks thus it is available at cheaper rates.

Features

i. Not offered to salaried class individuals.

ii. Credit offered against stock and debtors and sometimes also against a collateral security

such as a residential or a commercial property, depends on circumstances or bank policy.

iii. It can take over an existing OD/CC limit.

iv. It can be availed for additional Cash Credit limit.

Advantages

i. Higher limit is offered.





ii. Rate of Interest is low.

iii. Free accidental insurance benefit is provided for. In the event of death of the applicant

before the maturity of the loan, the co-applicants are discharged and the outstanding

balance on the loan is paid by the insurance company itself.

iv. No other legal charges except the processing fees are charged to the applicant.

v. It provides for multi-city banking facility.

vi. There exists no prepayment charges.

Non eligible

Salaried class individuals are not eligible for LAP OD.

Eligible

Self Employed Non-Professionals particularly chemists can avail this facility.

Regulations for LAP OD

I. Rate of Interest

Variable/ Floating 10.5%

Fixed 11%

II. Loan Amount

Minimum loan amount of Rs. 5,00,000/-

Maximum loan amount of Rs. 1,00,00,000/-

III. Loan Tenor

Maximum tenor of 15 years

V. Renewal Period

After every 12 months.

The renewed Cash Credit limit is decided upon after every 12 months. However if the

customer does not want his CC limit to be renewed, then such CC limit can be closed.





Example

A customer has an OD limit of Rs.15 lacs for a period of 8 years.

His renewal limit is discounted by a discounting factor which is determined as follows

100/ Tenor

i.e. 100/ 8 = 12.5%

Thus his cash credit renewal limits will be

Year Discounting Renewed limit

8 0 15,00,000

7 1,87,500 13,12,500

6 1,87,500 11,25,000

5 1,87,500 9,37,500

4 1,87,500 7,50,000

3 1,87,500 5,62,500

2 1,87,500 3,75,000

1 1,87,500 1,87,500





The customer is required to pay the minimum amount due i.e. EMI + Interest by the 27th of

each month. However a grace period of 3 days is given to the customer.

LOAN AGAINST PROPERTY (LAP)

Definition – Loan against property are loans provided against mortgage of property. It is a loan

against an existing property of an individual or a group of individuals.

Features

i. It‟s a loan against an existing property.

ii. The mortgage needs to be an Oral Equitable Mortgage done by way of collecting title

documents of the property.

iii. The mortgaged property should be a self-occupied property, should be located within

the geo limits, and should be a constructed house/ flat.

iv. The loan amount can be used for any purpose except illegal and speculative activities.

v. Loan can be applied for a maximum of 60% of the property value in case of residential

property and 45% in case of commercial property.

vi. The market value of the property is considered and not the Cost of Property(COP) since

the cost of property would have changed over the years.





vii. Other parameters include account of the applicant‟s and co-applicant‟s - age, income,

number of dependents and financial stability.

Product Highlights

1. This product comes to the aid of people who have property but would rather not sell it. It

makes it possible for them to keep their property and have liquid funds at the same time.

2. Interest rates are determined on daily reducing balance method.

3. Low processing charges.

4. Long repayment period upto 60 months.

Advantages

1) It is cheaper than a personal loan, which is usually issued at interest rates in the region

of 16%-21%. This is generally on a daily or a monthly reducing balance method. LAP

is issued is in the 9.75%-11.50% range. The lower rate is partly because the lending

entity has a security in the form of the housing mortgage vis-à-vis a personal loan that

is given without any security.

2) The tenure for a LAP is usually longer than that for a personal loan. Generally, LAP is

given for a maximum tenure of 10 years. Since the rate of interest is lower.

3) The motive for borrowing does not have to be disclosed to the lending institution. Part

prepayment as well as full prepayment of LAP is also allowed.

Points to be borne in mind while applying for a LAP:-

Some financial institutions make LAP available only under the floating rate. Fixed rate

loans are off limits. Borrowers need to enquire before finalising a LAP from lending

institutions.

The „technical inspection report‟ of the individual‟s property needs to be in order. This

report qualifies the merit of the property to be mortgaged. Otherwise the LAP could be

rejected.

Types of customers





There are basically two types of customers

1) Retail Customers

2) Non-Retail Customers

1) Retail customers – retail customers are those customers who apply for a loan upto Rs.5

lacs and for a tenor of 15 years.

2) Non-Retail customers – non-retail customers are those customers who are applying for a

loan above Rs.5 lacs and for a tenor of 10 years.

Loan Against Property(LAP) – focuses on the non-retail customers segment since they meet the

regulations of LAP.

Non-eligible

Following are not eligible to apply for loan against property

i. Individuals related to the film industry.

ii. Individuals connected to politics.

iii. Contractors and Builders.

iv. NRIs

v. Partnership firms

vi. Proprietor/ Trust/ Societies

vii. Private Limited Companies*

* Private Ltd. Co. individuals can avail LAP on fulfilling the following conditions :-

i. Minimum salary of the individual needs to be Rs.10,000/-

ii. Minimum qualification of graduate.

iii. Minimum experience of 5 years.

Company can avail LAP on fulfilling the following conditions :-

i. Minimum turnover of the company needs to be Rs.1crore.

ii. Should be a profit making company.

iii. Minimum number of employees should be 20/





iv. Providend Fund deduction is a must.

Eligibility

Following are eligible to apply for loan against property

i. Salaried individuals

ii. Self Employed Professionals

iii. Self Employed Non-Professionals

i. Salaried individuals :- are those individuals who earn a fixed sum of pay for the work

done during an accounting year.

1) Government jobs – both State and Central Government individuals.

2) Public Limited Company

3) Private Limited Company – on fulfilling certain conditions.

The appraised income of individuals is taken into consideration while determining the loan

eligibility.

LAP Regulations for Salaried

I. Income norms

Appraised income = Gross salary + Income from other sources.





For employees of Private Limited Company, Trust, Partnership Firms and Sole

Proprietorship

Category A – Rs.12,000/- p.m.

Category B – Rs.10,000/- p.m.

Category C – Rs. 8,000/- p.m.

II. Age norms

Applicant – Minimum 21 years of age

Maximum 65 years of age at the time of maturity of the loan

Co-applicant – Minimum 18 years of age

Maximum 70 years of age at the time of loan application

Maximum 80 years of age at the time of maturity of the loan.

III. Rate of Interest

Variable/ Floating 9.75 % on residential property

10.25% on commercial property

Fixed 10.5% on residential property

11% on commercial property

IV. Loan Amount



V. Loan Tenor


VI. Number of Post Dated Cheques (PDCs)

Minimum 36 PDCs and in multiples of 12 thereon

VII. Loan To Value(LTV) ratio





60% of property valuation (recommended by Technical Valuer/ Engineer) in case of

residential property


commercial property

VIII. Fixed Obligation To Income Ratio (FOIR)

50 % of the appraised monthly income for both residential and commercial property.

IX. Combined LTV & FOIR

120% in case of residential property

105% in case of commercial property

X. Property value

Minimum value of property : Rs.7/- lakhs across all cities.

XI Possession of the property

The property being offered for mortgage should be occupied by at least one applicant

whose income is considered for the loan.

XII. Documents required

1) Application form completely filled with photographs of both applicant and co-

applicants.

2) Processing/ Administration fee cheque including service tax of 10.2%.

3) Age proof and address proof of both applicant and co-applicants.

4) Job confirmation proof – in case of the applicant being below 23 years of age.

5) Signature verification proof.

6) Annual salary slip/ salary certificate

if there exists a fixed salary then only 1 salary slip is required





If there exists variable salary component then 4 salary slips are required.

The average of such four figures is considered and 50% of such amount

is eligible.

7) Form 16 showing the annual income of the individual.

8) Latest 3 years ITRs.

9) 6 months bank statement.

10) 7/12 Extract.

11) Existing loan statement or Repayment Track Record from the lending company.

XIII. End use letter

Is an undertaking by the borrower specifying the end use of the loan availed and that

the loan shall not be used for any speculation, litigation or any other illegal activities.

XIV. Banker verification

Required for all borrowers.

XV. Additional conditions

Minimum qualification of graduate.

Minimum experience of 5 years.

Income consideration of salaried class for calculating their eligibility





Si. No. Source of Income Proof Percentage

eligible

1. Basic salary Appointment letter 100%

2. HRA Appointment letter 100%

3. Pension Income (50% of Basic

salary + DA of the last pay drawn)

Latest salary slip or

pension slip

100%

4. Bonus Annual salary

certificate

100%

5. Annual benefits Annual salary

certificate

50%

6. Variable items like overtime or

performance incentive.

4month salary slip/

salary certificate

50% if avg.

of last 4m.

Other sources of income

Si. No. Source of Income Proof Percentage eligible

1. Agricultural income 3 years ITRs & 7/12

extract

50% of avg. of last 2

years

2. Rental income 3 years ITRs 100% of avg. of last 2

years

3. LIC commission,

postal savings, NSC

Original commission

slip from company

50% of commission

on new business &

100% on renewal

business

4. Interest/ Dividend

income

3 years ITRs 50% of avg. of last 2

years

The aggregate of other sources of income should not exceed 100% of the

aggregate of main salary income/





ii. Self Employed Professionals (SEP) :- are individuals who are practicing profession

they are qualified in. Eg. Doctors, Lawyers (High Court/ Supreme Court), Architects,

MBAs providing consultancy & CAs.

LAP Regulations for Self Employed Professionals (SEP)

I. Minimum Income norms

Metros : Net Profit of Rs. 2 lacs.

Non Metros : Net Profit of Rs. 1 lac.

II. Age norms











IV. Loan Amount



V. Loan Tenor












commercial property






X. Property value


XI. Possession of the property





applicants.


3) Age proof and residence address proof of both applicant and co-applicants.

4) Office address proof.



7) Qualification certificate

8) Firms 3 years P&L a/c and Balance Sheet with Schedules or Annexures.

9) Firms latest 3 years ITRs.

10) Individuals ITRs with computation





11) Individuals P&L a/c and Balance Sheet with schedules or annexures and tax audit

report, if applicable.

12) Bank statements of the applicants.

13) Memorandum/ Articles of Association of the Company (s) alongwith Annual

Return of the Company (s).

14) Existing loan statement or Repayment Track Record from the lending companyof

corporate as well as personal loans.

15) Loan closure letter.

16) Sanction plan/ Completion certificate.










iii. Self Employed Non-Professionals (SENP) :- these are other then SEPs. They

include businessmen running grocery stores or owning a manufacturing industry.

LAP Regulations for Self Employed Non-Professionals (SENP)

I. Minimum Income norms

Metros : Net Profit of Rs. 2 lacs.

Non Metros : Net Profit of Rs. 1 lac.

II. Age norms











IV. Loan Amount



V. Loan Tenor












commercial property






X. Property value


XI. Possession of the property





applicants.


3) Age proof and residence address proof of both applicant and co-applicants.

4) Office address proof



7) Firms 3 years P&L a/c and Balance Sheet with Schedules or Annexures.

8) Firms latest 3 years ITRs.





9) Individuals ITRs with computation

10) Individuals P&L a/c and Balance Sheet with schedules or annexures and tax audit

report, if applicable.

11) Bank statements of the applicants.

12) Memorandum/ Articles of Association of the Company (s) along with Annual

Return of the Company (s).

13) Business existence proof i.e. Partnership Deed in case of partnership firm.

14) Business profile

15) Existing loan statement or Repayment Track Record from the lending company

of corporate as well as personal loans.

16) Loan closure letter.

17) Sanction plan/ Completion certificate.










Mathematical Concepts & Formulas

1. Fixed Obligation to Income Ratio (FOIR): not entire income earned during the month

can be considered for arriving at the eligibility since the individual may be having some

fixed obligations like Equated Monthly Instalments (EMI) of existing loan etc. Such

obligation has to be deducted from the gross monthly income/ salary for arriving at the

eligibility. However the obligation has to be outstanding for more than 12 months, if not

then such obligation is not considered.

An EMI refers to an equated monthly instalment. It is a fixed amount which you pay every month

towards your loan. It comprises of both, principal repayment and interest payment.

2. Maximum Loan Amount : is the loan amount which the applicant is eligible for. This

considers the appraised monthly income and fixed obligations if any. Obligations which

are not outstanding for 12 months are not considered for determining the loan eligibility.

Maximum Loan = Income per month * Applicable FOIR – Fixed Obligations, if any

Amount

Applicable EMI

FOIR = EMI + Fixed Obligations

Gross Salary





3. Instalment to Net Salary Ratio (INSR): this ratio depicts the ratio between the monthly

instalments to the net monthly disposable income/ salary. This ratio cannot exceed 70% if

it exceeds 70% then the deviation has to be approved by the concerned authority.

Eligibility calculation methods

1 SEP (Self Employed Professional) method

i. GPR multiplier method

ii. 100% FOIR – GPR method

100% FOIR – NP method

2. SENP (Self Employed Non-Professional) method

i. GPR(Gross Professional Receipts) multiplier method: This is one of the methods for

calculation of eligibility of a professional. GPRs are the income receipts of a professional

during a year. Eg. GPRs of a consultant would be the consultancy fees he/she charges.

According to this method a multiplier is assigned for determining the eligibility on the basis of

his/her qualification and years of practice. The multipliers are as follows:-

MBBS, MD, MS, BDS - in profession for at least 3 years the relevant multiplier is 1.5

times the average GPR.

BAMS & BHMS – in profession for at least 5 years the relevant multiplier is 1 time the

average GPR.

CWA & CS, Architects, Lawyers (High Court & Supreme Court), MBA Consultants – in

profession for at least 3 years the relevant multiplier is 1 time the average GPR.

CS & Architects – in profession for at least 5 years the relevant multiplier is 1.5 times the

average GPR.

In all of the above cases the average of latest two years GPR is considered.

INSR = EMI

Net Salary





Example –

A Dental Surgeon in profession for 5 years with GPR for the year 03-04 being Rs.6.5 lacs and

year 02-03 being Rs.10 lacs, then the average GPR will be Rs.8.25 lacs. The relevant multiplier

for an MBBS with 5 years of experience is 1.5 times the average GPR. Thus his eligibility as per

GPR multiplier method is Rs.12,37,500 (8,25,000*1.5).

ii. (A) 100% FOIR – GPR method : is a method used for calculating the loan eligibility of

doctors only. As per this method 100% FOIR(Fixed Obligation to Income Ratio) is

considered i.e. 100% of the per month income is considered for determining his/her

eligibility.

Example –

If the average GPR of a Dental Surgeon is Rs.8.25 lacs then his per month income will be

Rs.68,750 further if his fixed obligations are Rs.1,500

Si.No. Qualification Years of

experience

Multiplier

1. MBBS, MD, MS, BDS 3 1.5

2. BAMS & BHMS 5 1

3. CWA & CS, Architects, Lawyers(High

Court & Supreme Court), MBA Consultants

3 1

4. CS & Architects 5 1.5

Maximum loan = Per month GPR*100% - Fixed obligations, if any

amount

Applicable EMI





Then his maximum loan amount possible for 10 years at 9.75% rate of interest will be

68,750*100% - 1,500

1,305

=Rs.51.53 lacs

Thus the individual would be eligible for a loan amount upto Rs.51 lacs as per this method.

ii. (B) 100% FOIR – NP method : in this method the per month average NP(Net Profit) is

considered for determining the loan eligibility. As per this method 100% FOIR(Fixed

Obligation to Income Ratio) is considered i.e. 100% of the per month profit is considered for

determining his/her eligibility.

Example –

If the average net profit of an Architect is Rs.12 lacs then his per month income will be Rs.1 lac

further if his fixed obligations are Rs.5,500

Then his maximum loan amount possible for 10 years at 9.75% rate of interest will be

1,00,000*100% - 12,500

1,305

Maximum loan = Per month net profit*100% - Fixed obligations, if any

amount

Applicable EMI





=Rs.67.04 lacs

Thus the individual would be eligible for a loan amount upto Rs.67 lacs as per this method.

The lower of the amounts derived from the above mentioned two methods is

considered.

In our example of the applicant being a Dental Surgeon, he/she would be eligible for a loan

amount of Rs.12,37,500/- (lower of Rs.12,37,500 & Rs.51 lacs).

2. SENP(Self Employed Non-Professional) method : This is one of the methods for

determining the eligibility of a Self Employed Professional but is the only method for

determining the eligibility of a Self Employed Non-Professional. According to this method the

per month appraised income of an individual is considered for determining his/her loan

eligibility. It takes into consideration the average of latest two years net profits, depreciation

and income from other sources, if available. Such income is multiplied by the normal FOIR rate

of 50% and divided by the applicable EMI to arrive at his/her eligibility as per this method.

Example –

If the Dental Surgeon‟s Net Profit for the year 03-04 is Rs.6.5 lacs and that of 02-03 is Rs.10 lacs

depreciation of Rs.50,000 & Rs. 38,000 for the respective years has been provided for further if

has income from house rent of Rs. 15,000 for the previous 2 years, then his eligibility for 10 years

at 9.75% rate of interest would be derived as follows:-

Source 03-04 02-03 Average Per Month

Net Profit 6,50,000 10,00,000 8,25,000 68,750





Depreciation * 50,000 38,000 44,000 3,667

Income from

house rent

15,000 15,000 15,000 1,250

Total Appraised monthly income 73,667

* Depreciation Criteria

66.67% of the current years depreciation

OR

100% of average of the previous two years depreciation

Whichever is higher

Maximum Loan Amount = 73,667 * 50%

Possible 1,305

= Rs.28.22 lacs.

Maximum of the above two figures is considered for final loan eligibility.

In our example the Dental Surgeons eligibility during the first elimination was Rs.12,37,500/- and

now he/she is eligible for Rs.28.22 lacs. Thus the Dental Surgeons final loan eligibility is

Rs.28,22,000/-

In the above example depreciation would be -

66.67% of Rs.50,000 is Rs.33,335

100% of average is Rs.44,000 (88,000/2)

Thus Rs.44,000 is considered (Higher of the above two amounts).





Thus this is how the loan amount of an individual is determined. We even have a term called

FLIP for determining the eligibility of an individual. FLIP is considered if the basic salary has

changed during 12 months period. Thus the applicant will have 2 different EMIs to pay on a

single loan availed.

INCOME OWNERSHIP MATRIX

Income Ownership Matrix : This matrix outlines whether the loan could be given to the

applicant or not. It depicts under what circumstances loan could be or could not be granted to

individuals taking into consideration the income and ownership of the property.

1. Brother + Brother

Income and ownership of the property of one brother allowed.

Income of one brother and ownership of property of another not allowed.

2. Father + Son

Income and ownership of the property of father/ son is allowed

Income of father and ownership of property of son will not be allowed however if he is

the only child, then it is allowed.





3. Mother + Son

Income and ownership of the property of mother/ son is allowed

Income of mother and ownership of property of son will not be allowed however if he is

the only child, then it is allowed.

4. Father + Daughter

Income and ownership of the property of Father/ Daughter is allowed

Income of father and ownership of property of daughter will not be allowed however if

she is the only child, then it is allowed.

5. Mother + Daughter

Income and ownership of the property of Mother/ Daughter is allowed

Income of mother and ownership of property of daughter will not be allowed however if

she is the only child, then it is allowed.

6. Brother + Sister

Income and ownership of the property of Brother/ Sister is allowed

Income of brother and ownership of property of sister will not be allowed.

7. Sister + Sister

Income and ownership of the property of either of the sisters is allowed

Income of one sister and ownership of property of other sister will not be allowed.

INCOME OWNERSHIP MATRIX

INCOME Father Mother Son Daughter Brother Sister

O

W

Father





N

E

R

S

H

I

P

Mother

Son

Daughter

Brother

Sister

PREPAYMENT CHARGES

Fees on Part Prepayment

A Prepayment Documentation Charge of Rs.500/- would be levied at the time of each

prepayment

Fees of Full & Final Prepayment

2% on amount prepaid and on all amounts tendered by the Borrower towards Prepayment of the

Loan during the last one year from the date of final prepayment.





Types of property

1) Self construction

2) Direct from Development Authority

3) Direct from Builder

1) Self construction – self construction is wherein an individual acquires a plot, contacts an

Architect/ Builder, approves the building plan and finances the work done. Sometimes

the individual himself supervises the work done

i. Plot in society

ii. Free hold plot

i. Plot in society – is where a society is formed for the purpose of purchasing land and each

member of the society is allocated a plot.

List of property documents to be submitted by the borrower –

PROPERTY

SELF

CONSTRUCTION

DIRECT FROM

DEVELOPMENT

AUTHORITY

DIRECT FROM

BUILDER

PLOT IN

SOCIETY

FREE HOLD

PLOT





1. Original registered Sale deed/ Lease deed/ Partition deed/ Gift deed under which the plot

of land has been acquired by you.

2. Certified true copy of the agreement with the builder/ seller.

3. Original money receipt issued by the Sub-Registrar.

4. Search Report – search report is a report prepared by the lawyers of the customer. It

shows the history of the plot into consideration for the last 30 years. The cost of

generating the search report has to be borne by the customer himself.

5. All previous chain of Sale Deeds establishing title of plot.

6. Latest 7/12 Extract

7. Property card extract in the name of the owner of the land – this shows the number

allotted to the plot into consideration by the City Survey.

8. Commencement Certificate – It shows the date on which permission was given for

commencement of the construction work.

9. Copies of previous title documents.

10. Title report for the property under consideration.

11. Detailed estimate of the cost of the project.

12. Approved building plans.

Plot in Society requires the following additional documents –

1. Original share certificate issued by the society.

2. No Objection Certificate from society.

3. Original Allotment letter from society specifying the flat number and cost of the flat

allotted.

4. Own Contribution Receipts.

5. Copy of society registration certificate and byelaws of the society.





Directly from Development Authority


1. Original allotment letter from the Development Authority.

2. No Objection Certificate from the Development Authority.

3. Money paid receipts.

4. Possession certificate.

5. Share certificate

6. Original receipts, issued by the Development Authority, for the payments made for the

flat.

7. Own Contribution Receipts

8. Lease deed

Directly from Builder

Builder after construction gives possession either to an apartment or a society.

Documents specific to an apartment

1. Agreement to sell

2. Apartment deed

Documents specific to a society

1. Agreement to sell

2. Share Certificate


1. Sale deed/ Lease deed/ Development agreement of the builder.

2. Copies of previous title documents.

3. Approved building plans.

4. Commencement certificate from Municipal council/ corporation.

5. Latest 7/12 extract.

6. Property Card Extract in the name of the owner of the land.





7. City Survey extract if the land is within the city survey limits.

8. Partnership deed/ MOA/ AOA of the builder.

9. Completion certificate

10. Certified true copy of the agreement with the builder.

11. Original money receipt issued by the Sub-Registrar.

12. No Objection Certificate (NOC) from the builder.

13. Own Contribution Receipts.

14. Registration Receipt (RR) and Index To document issued by the Government.

15. Share Certificate issued by the society/ builder if no society is formed.

Property documents – property documents are those documents which state the true owner of

the property under consideration.

1) Title documents

2) Ownership document

3) Sale deed





4) Share certificate

5) Lease agreement between the Development Authority and Society. The lease agreement

should be between a Regulatory Authority.

Cases where title documents are not available with the customers –

1. Documents pending with the Sub-Registrar- the documents between the period

1988-1995 are still pending with the sub-registrar for the procedure called “Photocinco”.

2. Already mortgaged.

3. Where the documents are lost

4. Where the individual is not the real owner.

5. Disputes.

6. Illegal ownership

7. Ancestral property

Procedure undertaken for loss of title documents during disbursements

1. Indemnity from the buyer and seller.

2. FIR lodgment with the police.

3. Notice of loss of documents in newspapers.

The customer is given 15 days time to complete this procedure.

Processing of Loan Against Property

PRELIMINARY PHASE

1. Receiving of files

2. Arranging of documents and raising of preliminary queries.

3. Generating Customer Identification Number (CIN).

4. Dedupe procedure

5. Risk Contentment Unit

6. Firing of Technical and Legal

7. Preparing of EXCEL SHEET





PRELIMINARY PHASE

DISBURSEMENT PHASE

16. Collection of loan documents & PDCs.

17. Preparation of disbursement cheque.

18. Delivering of disbursement cheque.

SANCTIONING PHASE

12. Preparation of CAM/ Maintaining of records.

13. Log in of file

14. Preparation of sanction letter

15. Obtaining approval from the customer.





I. Receiving of files

The processing begins with the receiving of files from the Field Counselors. After a

brief introduction to the product and its features if the customer is interested in

acquiring the loan the Counselors are then required to do the following -

Ask the customer to fill in the application form for the said loan. The customer who

wants to avail the loan and whose income is considered becomes the applicant and the

spouse or the co-owner of the property becomes the co-applicant. A maximum of 5 co-

applicants is allowed.

Collecting the Administrative/ Processing fee cheque from the customer – normally a

blank cheque is collected from the customer. However the customer is free to specify at

the back of the cheque an amount to which the amount of the cheque would be limited

to. The processing fee charges are 1% of the loan amount plus service tax of 10.2% on

the fee charges.

Example – If a customer wants a loan of Rs.10 lac then the processing and

administration charges would be as follows

Administrative fee = Rs.5,510 (i.e. Administrative fees 0.5% of Rs.10lacs and service

tax of 10.2% on Rs.5,000)

Processing fee= Rs.5,510 (i.e. Processing fees 0.5% of Rs.10lacs and service tax of

10.2% on Rs.5,000)

Collect the following documents from the customer

Previous 3 years Firms P&L a/c and Balance Sheet with schedules or annexures.

Firms ITRs with computation of income.

Individual P&L a/c and Balance Sheet with schedules or annexures.

Individual ITRs with computation of income.

6 months firms bank statement.

Individuals bank statements.

All of the above documents have to be properly filed by the Field Counselors and is to

be submitted to the respective channels Relationship Officer.





The file is then passed on by the Relationship Officer to its Credit Processing Agent

(CPA) who will undertake the sanctioning process.

II. Arranging of files & raising of preliminary queries

After receiving the file the CPA is required to check file and arrange the documents as per

the filling format. The CPA needs to check the file thoroughly and see that the application

form is completely filled and that all the required documents necessary as per policy are filed

if not then the CPA passes the preliminary queries. The queries are generally with relation to

non-availability of a required document or highlighting the violation of the policy.

Ex. If the co-applicant is of the age of 70 years then a query is passed requesting for a change

in co-applicant.

Every file contains a query sheet wherein the queries need to be written. The person writing

the query needs to sign and also specify the date on which the query is passed.

These queries need to be solved by the Field Counselor himself.

III. Generating Customer Identification Number (CIN)

CIN number is a unique number generated for each of customer. This number helps in

identifying the customer. The CIN number is generated by filling in details of the customer

such as his name, address, phone number, source of lead, the name of the company, & loan

amount in an online application form. The above details need to be submitted and the system

generates a unique number for the customer.

IV. Dedupe procedure





This procedure involves checking whether the individual is already a customer of the bank

and whether he/she has defaulted any payments or whether there are any cases of cheque

bounces of the said individual. Again the customer details need to be fed into an online

application and the system generates a report of the said individual. If there are any matches

then the number of matches is stated on the report.

V. Risk Contentment Unit(RCU)

During this process both firm‟s and individuals ITRs are checked to see the genuineness of

the ITRs . The ITRs are either Sampled or Screened. The Sampled ITRs are further

investigated into to verify their genuineness and a report is given by a professional stating

whether the results are positive or negative. In case the individual has submitted a fake ITR a

negative report is generated.

VI. Firing of Technical and Legal

Technicals are the estimation of the cost of property being mortgaged done by a professional

valuer. 2 technical needs to be done and the minimum values of the two will be considered

for determining the loan eligibility of the individual.

The Technical is fired by filling in the Technical Request Form. This form states the

customer name, property address and the ID number of the counselor. The valuer then sends

the report stating the type of construction, built-up area, percentage complete, cost of the

property.

Legal firing is a procedure where in a panel of advocates inspects the legal documents of the

individual to study its genuineness.





VII. Preparing of EXCEL SHEET

The next process calls for preparing EXCEL SHEET from the income figures of both the

firm and individuals whose income is considered for determining the eligibility of the

applicant.

The P&L a/c and Balance Sheet figures have to be fed into the EXCEL for 3 years

period. The format is as follows -

Name of the Company

Profit and Loss Account 31.3.2004

Rs. Lacs

% Growth

in 2004

31.3.2003

Rs. Lacs

% Growth

in 2004

31.3.2002

Rs. Lacs

Net Sales (Net of excise)

Other income (incidental

to Business)

Other income

(Nonbusiness income)

Total Income

Raw Material Cost

Manufacturing expenses

Wages

Gross Profit

Administration Expenses

Selling & Distribution

Expenses

PBDIT

Depreciation

Interest

Non cash expenses written

off

Profit Before Tax

Tax





Continued…

Profit and Loss Account 31.3.2004

Rs. Lacs

% Growth

in 2004

31.3.2003

Rs. Lacs

% Growth

in 2004

31.3.2002

Rs. Lacs

PAT

Cash Profits

Salary to Partner/ Director

Interest Expenses paid to

partner/director

Actual Cash Profit

Balance Sheet % Growth

in 2004

% Growth

in 2004

Share Capital

Reserves & Surplus

Total Networth

Revaluation Reserve

Adjustable Networth

Long Term Loans from

Banks/ FI

Working Capital Limits

from Banks/ FI

Total Borrowing from

Banks/FI/NBFCs

Unsecured loans (others)

Unsecrured loans from

partners/ shareholders

Deferred tax liability

Other liabilities

Total Liabilities to





outsiders

Balance Sheet Total

Fixed Assets less

depreciation

Investments

Liquid/Marketable

Investments

Group Co. Investments

Unquoted/Dead

Investments

Current Assets

Inventories

Debtors > 6 months

Debtors < 6 months

Cash and Bank

Loans & Advances

Loans & Advances given

to directors/partners etc.

Loans & Advances given

to others

Misc. Expenses

Balance Sheet Total

In case where the co-applicants income is considered then such income data relating to the co-

applicant should be fed into the co-applicant sheet of the EXCEL DOCUMENT. It is similar to

the applicants EXCEL SHEET.

Ratios such as Current ratio, Debt Equity ratio, Interest Coverage ratio, DSCR, Gross Profit

Margin ratio, Net Profit Margin ratio, Cash profit ratio, Average collection period, Average days

in inventory, Inventory to cost of goods sold etc. gets generated automatically after we feed in the

respective years incomes and expenses into the EXCEL SHEET.





VIII. Eligibility Calculation

The eligibility calculation part is automatic. The inbuilt formulas retrieves the respective figures

from the P&L a/c and shows the Total income and Appraised Monthly Income. However Income

from other sources needs to be added. The ELIGIBILITY SHEET looks as follows

Name of the Company

Applicant Name 2003-04 2002-03 Average Eligibility Eligible

Income

Profit after tax - - - 100% -

Depreciation - - - 100% -

Remuneration from Firm - - - 100% -

Interest Income - - - 100% -

Co-applicant 1 Name





Co-applicant 2 Name





Total

Appraised Monthly Income

Appraised Obligations

Max FOIR(for a combined

LTV & FOIR of 120)





Max EMI

Tenor (Months)

Rate Of Interest

Valuation

EMI Factor

Eligibility(Rs. In Lacs)

RECOMMENDATION

Tenor (Months)

Rate Of Interest

Loan AMT(Rs. In lacs)

EMI

Actual FOIR

Actual LTV

Combined LTV & FOIR

CONDITIONS

DEVIATIONS

NOTES





Approved Authority Designations Signatures

The applicant and co-applicants total income is shown in the total income cell & from the

appraised monthly income we need to deduct such obligations which are outstanding for more

than 12 months period. The FOIR and tenor in months need to be entered in the respective cells

the rest is automatic. The applicants eligibility is shown in the eligibility cell of the excel.

In the Recommendation part of the excel the maximum loan that can be given to the applicant

which is higher then his/her eligibility is shown. This calls for deviation which should be

approved by the Branch Credit Manager(BCM) before sanctioning.

In the Conditions part of the excel the BCM mentions the conditions which are essential to be

satisfied before the sanctioning of the file.

Deviations suggested and accepted by the concerned authority is mentioned in the Deviations part

of the excel.

Finally the eligibility sheet is approved by the concerned authority which is normally the Branch

Credit Manager(BCM).

IX. Preparing Credit Appraisal Memo(CAM) Sheet

CAM is prepared in three stages. They are as follows –

First stage - Prepared by the CPA

Second stage - Prepared by the RO

Third stage - Prepared by the BCM





The first stage of CAM preparation requires the CPA to feed in the data of the applicant &

co-applicant with regard to their name and the name of the company, ROI, Repayment

mode, document check (whether all the documents are available) & obligations summary.

The second stage of CAM preparation requires the RO to feed in data with regards to the

filling of ITRs & bank statement analysis.

The final stage of CAM preparation requires the BCM to feed in the financial data of both

applicant & co-applicant(if his/her income is considered for determining the eligibility).

X. Obtaining approval from Branch Credit Manager and other senior manager.

During this stage the final approval is obtained from the BCM and other senior managers.

The present value of the property which is given by the valuers in the technical report is

considered as a basis for the approval. If the value of the property is very low and if the

applicants eligibility on his/her income alone is lower then what was suggested then the

decision is reconsidered. The senior managers together take a decision with regards to the

deviation and the respective authority will decide on its approval.

XI. Conducting Personal Discussion with the applicant

Personal Discussion is held with the applicant before the disbursal informing him about

his/her eligibility, clarifications with regard to the end use of such loan amount, ROI, tenor,

EMI‟s etc. If the applicant is a company then the PD is held with the co-applicants. The

personal discussion is normally conducted by the senior managers. However if the loan is of a

smaller amount say 5lacs, then the CPA conducts the personal discussion over the phone.





SANCTIONING PHASE

I. Preparation of CAM

This stage calls for maintaining of Xerox of the original documents such as the application

form, RCU report, processing fee cheque, CAM Sheet, Deviation sheet, Personal Discussion

Sheet & Legal and Technical report as a proof or for future reference.

II. Logging-in of file

Next the sanctioned file has to be logged in. This details out the sanctioning branch name, the

loan amount & tenor and the conditions subject to which the loan will be disbursed. a

thorough review of the file is made by the sanctioning authority during this process. The file

would be kept on hold if any of the process is incomplete or a further clarification is required.

III. Preparation of Sanction Letter

Sanction letter needs to be prepared after the file has been approved for sanctioning. The

sanction letter outlines the following –

The letter is addressed to both applicant and co-applicant.





Type of loan availed, loan amount, tenor, ROI – FRR applicable, no. of EMIs,

administrative & processing fee charged, LTV, property address and other terms

and conditions the sanction is subject to.

The name of the RO who would assist the customer with the requirements of the

loan.

3 copies of the sanction letter needs to be removed of which one copy is retained by the customer

the second copy goes into the CAM and the third copy remains with the bank.

IV. Obtaining final approval from the customer

This calls for determining whether the customer is interested in availing the loan subject to

the approval of the sanctioning conditions.

DISBURSEMENT PHASE

Normally it would take 4-7 working days for the disbursement process from the date of receipt of

all the documents. The process goes as follows –

The representative collects legal documents, loan documents & PDC‟s from the

applicant.

A lawyer vets the legal documents.

Site Engineer visits the property to verify the stage of construction.

Disbursement cheque is prepared.

The disbursement cheque is delivered to the customer.





FAQs

Eligibility Criteria

Income from which sources can be considered for enhancing the loan eligibility?

The income for the spouse may be added if he/she is a co-applicant or consents to stand as a

guarantor.

Regular income from all sources can be considered provided the sanctioning authority is satisfied

with the proof of income.

What are the precautions that the sanctioning authority should take while assessing

the maximum loan amount possible?

Besides value of the property, the maximum amount that can be sanctioned is limited by the net

income of the applicant. The sanctioning authority should exercise due diligence for arriving at

the net income.





Repayment

Should EMI be altered with every Interest rate fluctuation?

EMI need not be altered with every Interest rate fluctuation. The net effect of interest rate

fluctuations is accounted for by way of increase or decrease in the number of instalments.

Can EMI be reset downwards during the tenure of the loan?

Under floating rate - in case of decline in ROI the sanctioning authority may refix the EMI

downwards.

Under fixed rate – the EMI can be set downwards by establishing a fresh check-off or obtaining

fresh PDCs.

What are the prepayment charges?

Prepayment charges as shown below will be levied -

Fees on Part Prepayment

A Prepayment Documentation Charge of Rs.500/- would be levied at the time of each

prepayment

Fees of Full & Final Prepayment

2% on amount prepaid and on all amounts tendered by the Borrower towards Prepayment of the

Loan during the last one year from the date of final prepayment.





Personal Accident Insurance Cover provided on Home Loans

Objective

To provide Personal Accident Insurance Protection to all customers availing housing loans.

Scope of Cover

The insurance shall cover the death (only) of the borrower due to accident/ resultant of any

accident anywhere in the world, during the period of insurance in force subject to terms and

conditions mentioned. The Insurance Company shall pay to the Bank (for credit to the account of

the person insured) the sum insured if any of the Insured Persons shall sustain any bodily injury

resulting solely directly from accident caused by external, violent and visible means and if such





injury shall within twelve calendar months of its occurrence be the sole and direct cause of the

death of the insured person.

Sum insured under the policy for each borrower

Sum insured under for each borrower shall be the total outstanding Principal loan amount

including the interest thereof in respect of housing loan (s) as on the date of death.

The sum insured under the policy being total outstanding principal loan amount including the

interest thereof of the loan account of the loanee. In case of loans with more than two persons in

the joint loan account, the sum insured of the total outstanding loan amount with interest thereof

will be divided amongst all of them in equal proportion. The liability of the insurance company

shall be limited to the proportion of the sum insure for the deceased borrower.

Important points

Eligibility Criteria

Age at entry: 18-60years

Term of the plan: 2-22years

Max. cover ceasing age: 70years

Min. sum assured: Rs.25,000/-





Max. sum assured: Equivalent to the loan amount

Coverage

The insurance cover would start from the date of first disbursement of the home loan and the

Insurance Co. will accept the risk from the date the premium is debited to the account of the life

assured. The insurance cover would be as per the original loan schedule.

On death of life assured

ROI is the same – Outstanding loan amount as per the original loan schedule will be payable to

the bank.

ROI has increased – Outstanding loan amount as per the original loan schedule will be payable

to the bank. The excess amount due to the bank will have to be paid by the nominee/s.

ROI has decreased - Outstanding loan amount as per the original loan schedule will be payable

to the bank. The excess amount will be payable to the nominee/s by the bank.

In case of part pre-payment of the loan

The Outstanding loan amount as per the original loan schedule will be payable to the bank. The

excess amount will be payable to the nominee/s by the bank.

Non-medical limit

In case life assured opts for a loan cover of more than Rs.15 lacs then he/she will need to undergo

a medical examination.

Benefits

Protection of the applicant’s family - In the event of death of the applicant, the

Insurance Co. will pay the outstanding amount to the bank directly.





Cover throughout your insurance tenure of the loan – the applicant just has to pay a

single premium to opt for the insurance cover and he/she will continue to remain covered

throughout the insurance tenure.

Convenience in application: simple application form needs to be filled.

Higher loan eligibility: your loan amount can be increased to the extent of the premium

amount.

Tax benefits: the premium paid for the cover will be eligible for tax benefits u/s 80C and

the proceeds if payable to the family are tax-free.

Joint life coverage: coverage will be provided for both the applicants.

No sum payable under this policy shall carry interest.

Procedure for claims

All the claim correspondence will be only with the Insured Bank‟s branches where the insured

person was having his/her loan account.

On occurrence of a contingency, the Insurance Company shall be intimated immediately, on

receipt of information of the insured person. The following documents are required to be

submitted for further processing of claim:-

Claim form as per format prescribed

Death Certificated from the Competent Authority

Post Mortem Report

Other supporting papers such as Police Report (FIR).

Certificate from the Bank branch, to the extent that the person was holding Home loan

account in the prescribed format.

Service Level Agreement

The Insurance Company shall, on receipt of complete set of claim documents, as specified above,

shall process the claim. Any requirements/ deficiency in the documents submitted shall be sought

within 10 days of receipt of the claim. All the documents being in order, the Insurance Company

will settle the claim within 15 days from the date of receipt. In case of unexplained delay beyond





30 days, the Insurance Company shall pay interest @ 2% above prevailing Bank Rate, as per the

IRDA regulations.

The Insurance Company shall provide the certificate of Insurance to all the Insured Persons

giving the details of the cover and basic terms, conditions and exclusions of the policy through

the Bank Branches. The pre-signed certificates will be valid after the same is counter-signed by

an officer of the Bank branch.

Conditions

1. Upon the happening of any event which may give rise to a claim under this policy, written

notice with all particulars must be given to the Insurance Company immediately. In case of

death, written notice must be given before cremation, and in any case, within one calendar

month after the death.

2. Proof satisfactory to the Company shall be furnished of all matters upon which a claim is

based. In the event of death, to make a postmortem examine of the body of the insured

person.

3. No sum payable under this policy shall carry interest.

4. The Company shall not be liable to make any payment under this policy in respect of any

claim, if such claim be in any manner be fraudulent or supported by any fraudulent statement

or device, whether by the insured or by any person on behalf of the insured.

5. No claim (except death due to accident) will be admissible in the first 45 days from the date

of commencement of life cover. In addition, claim arising from death due to suicide will be

excluded for a year from the date of commencement of your life cover. In both these cases,

only the premiums paid after deducting appropriate costs will be refunded.

6. This being a group policy, no individual policy will be issued to you. Only an insurance

certificate confirming your entry into the scheme will be given.

Glossary

A

Adjustable-rate mortgage (ARM)





A mortgage with an interest rate that changes periodically based on the changes in a specified

index.

Application

A form, used to apply for a mortgage and to provide information regarding a prospective

borrower and the proposed security.

Appraisal

A written analysis of the estimated value of a property prepared by a qualified appraiser.

Appraiser

A person qualified by education, training, and experience to estimate the value of real property

and personal property.

Appreciation

An increase in the value of a property due to changes in market conditions or other causes.

Asset

Anything of monetary value that is owned by a person. Assets include real property, personal

property and enforceable claims against others (including bank accounts, stocks, mutual funds,

etc.).

B

Balance sheet

A financial statement that shows assets, liabilities and net worth as of a specific date.

Balloon mortgage

A mortgage that has level monthly payments that are insufficient to fully amortize the principal

and interest within the term of the loan. With a balloon mortgage, a lump sum payment ("Balloon

Payment") is due at maturity.

Balloon payment

The final lump sum payment that is made at the maturity date of a balloon mortgage.





Before-tax income

Income before taxes are deducted.

Beneficiary

The person designated to receive the income from a trust, estate or a deed of trust.

Biweekly payment mortgage

A mortgage that requires payments every two weeks (instead of the standard monthly payment

schedule). The 26 (or possibly 27) biweekly payments are each equal to one-half of the monthly

payment that would be required, and they are usually drafted directly from the borrower's bank

account. The result for the borrower is a substantial savings in interest.

C

Cap

A provision in an adjustable-rate mortgage (ARM) agreement that limits how much the interest

rate or mortgage payments may increase.

Cash-out refinance

A refinance transaction in which the amount of money received from the new loan exceeds the

total of the money needed to repay the existing first mortgage, closing costs, points and the

amount required to satisfy any outstanding subordinate mortgage liens. In other words, a

refinance transaction in which the borrower receives additional cash that can be used for any

purpose.

Certificate of Reasonable Value (CRV)

A document issued by the Department of Veterans Affairs (VA) that establishes the maximum

value and loan amount for a VA mortgage.

Certificate of title

A statement provided by an abstract company, title company or attorney, stating that the title to

real estate is legally held by the current owner.

Chain of title

The chronological order of the title's transfer from the original owner to the present owner.





Change frequency

The frequency (in months) of payment and/or interest rate changes in an adjustable-rate mortgage

(ARM).

Clear title

A title that is free of liens or legal questions as to ownership of the property.

Co-borrower

A person who signs a promissory note (mortgage) along with the borrower. A co-borrower's

signature guarantees that the loan will be repaid, because the borrower and the co-borrower are

equally responsible for the repayment. Also referred to as a co-maker or co-signor.

Collateral

An asset (such as a car or a home) that guarantees the repayment of a loan. The borrower risks

losing the asset if the loan is not repaid according to the terms of the loan contract.

Collection

The efforts used to make a delinquent mortgage current and to file the notices needed to proceed

with foreclosure.

Commission

The fee charged by a broker or agent for negotiating a real estate or loan transaction. A

commission is generally a percentage of the price of the property or loan.

Construction loan

A short-term, interim loan for financing the cost of construction. The lender makes payments to

the builder at periodic intervals as the work progresses.

Contingency

A condition that must be met before a contract is legally binding. For example, homebuyers often

include a contingency that specifies that the contract is not binding until they obtain a satisfactory

home inspection report from a qualified home inspector.





Contract

An agreement between two or more people, or entities, that creates or modifies a legal

commitment.

Cost of funds index (COFI)

An index that is used to determine interest rate changes for certain adjustable-rate mortgage

(ARM) plans. It represents the weighted-average cost of savings, borrowings and advances of the

11th District members of the Federal Home Loan Bank of San Francisco.

Covenant

A clause in a mortgage that obligates or restricts the borrower and that, if violated, can result in

foreclosure.

Credit

An agreement in which a borrower receives something of value in exchange for a promise to

repay the lender at a later date.

D

Debt

An amount owed to another.

Deed

The legal document conveying title to a property.

Default

Failure to repay a loan on a timely basis or otherwise meet the terms of a commitment or

agreement.

Delinquency

Failure to make payments on time. This can lead to foreclosure.

Depreciation

A decline in the value of property due to wear and tear, adverse changes in a neighborhood, or

any other reason.





Disclosures

Information that must be given to consumers about their financial dealings.

Documentation

A list of documents that you will be required to provide when submitting a loan application.

E

Earnest Money Deposit

A sum of money given to demonstrate intention to complete the purchase. With regard to

mortgages, it is the sum of money given to demonstrate intention to complete the loan, a show of

good faith.

Escrow

Refers to a third neutral party who carries out the instructions of both the buyer and the seller to

handle all closing paperwork. May also refer to an account held by the lender into which the

homebuyer makes tax and/or insurance payments.

F

Fixed Rate Loan

A loan with the same interest rate and monthly payment over the life of the loan.

Float Period

The float period refers to the time between when you accept a loan and when you lock-in your

rate. During this time the interest rate and points on your loan will fluctuate with the market until

you lock.

Foreclosure

A legal proceeding in which the default borrower is extinguished of all rights, title and interest on

the underlying property.





H

Home Equity Loan

Sometimes referred to as a second mortgage or borrowing against your home. The loan allows

you to tap into your home's built-up equity, which is the difference between the amount your

home could be sold for, and the amount that you still owe. Homeowners often use a home-equity

loan for home improvements, to pay for a new car, or to finance their child's college education. A

home-equity loan is a good way to borrow money for two main reasons: 1.) the interest rate is

usually one of the lowest loan rates a borrower can get and 2.) the interest you pay on the loan is

usually tax-deductible. But taking out a home-equity loan also means the lender can take

possession of the home if the loan isn't repaid.

I

Interest

A charge paid for borrowing money. Interest is usually expressed as a percentage of the amount

borrowed, or interest rate.

Interest Rate

The annual rate of interest on the loan, expressed as a percentage of 100.

L

Lender

Any licensed person or entity advancing funds that are to be repaid. Also known as a mortgagee.

Lien

A claim upon a piece of property for the payment or satisfaction of a debt or obligation.

Liquid Assets

Cash or assets that can be immediately converted to cash.





Loan Amount

The amount of debt, not including interest.

Loan Officer

Your loan officer is your personal guide throughout the mortgage process. He or she will help

you to identify your needs, select a loan program, complete the application process, offer advice

and answer any questions you may have.

Loan-to-Value Ratio

The relationship between the amount of the mortgage loan and the appraisal value of the property,

expressed as a percentage.

M

Margin

The amount a lender adds to the index on an ARM to establish the adjusted interest rate.

Market Value

The highest price that a buyer would pay and the lowest price a seller would accept on a property.

Market value may be different from the price a property could actually be sold for at a given time.

Marketable Title

A title that is free and clear of objectionable liens, clouds or other title defects. A title that enables

an owner to sell his property freely to others and that others will accept without objection.

Minimum Down Payment

Minimum down payment is the amount of money you are required to put down at closing. If the

minimum is 10%, you must make a down payment of at least $10,000 on a $100,000 house.

Monthly Payment

The amount paid each month towards the principal and interest amount of a loan. The monthly

payment may or may not include taxes and insurance.





Mortgage

A loan for a house. Also referred to as a lien or claim against real property.

O

Origination Fee

The fee charged by a lender to prepare loan documents, make credit checks, inspect and

sometimes appraise a property; usually computed as a percentage of face value of the loan.

P

Prepayment

A privilege in a mortgage permitting the borrower to make payments in advance of their due date.

Allows the borrower to pay the loan off sooner and save on interest. Not all mortgage agreements

allow for prepayment, and some lenders will charge a fee for early repayment of debt, see

Prepayment Premium

Money charged for early repayment of debt if the original mortgage commitment does not allow

for prepayment.

Principal

The amount of debt, not counting interest, left on a loan.

Processing

Processing is the steps a lender takes to gather borrower information for underwriting. Processing

includes getting the credit report, appraisal, verification of employment, assets, etc.

Q

Qualification

Qualification is the initial process to verify that a borrower has enough cash and sufficient income





to purchase a home. Qualification is not an approval because it does not include a credit check.

Qualified borrowers can be turned down if they have poor credit history.

R

Rate

In lending, the amount of interest on the loan expressed as an interest rate or annual percentage

rate (APR) of the principal.

Real Estate Broker

A middleman or agent who buys and sells real estate for a company, firm, or individual on a

commission basis. The broker does not have title to the property but generally represents the

owner.

Refinancing

The process of the same borrower paying off one loan with the proceeds from another loan.

T

Term

The life of the loan. The period of time between the beginning loan date on the legal documents

and the date the entire balance of the loan is due.

Title

A document that gives evidence of an individual's ownership of property.

Title Search

An examination of municipal records to determine the legal ownership of property. Usually is

performed by a title company.

A project report on credit dispensation by commercial banks to the personal segment with special emphasis on loan against property lap By Babasab Patil

Education