Comparative Analysis of Home Loans_m

“COMPARATIVE ANALYSIS OF HOME LOAN CUSTOMERS OF PUBLIC SECTOR AND PRIVATE

SECTOR BANKS.”

PROJECT REPORT2010

Submitted for the partial fulfillment of the requirement for the award

Of

POSTGRADUATE DIPLOMA IN MANAGEMENT

SUBMITTED BY

ARVIND KUMAR(Enrolment No. 9126)

UNDER THE SUPERVISION OF

Internal Supervisor: Dr. Taruna GautamExternal Supervisor: Mr. Arun Kumar

DEPARTMENT OF MANAGEMENTINSTITUTE OF MANAGEMENT EDUCATION,

SAHIBABAD

1

“COMPARATIVE ANALYSIS OF HOME LOAN CUSTOMERS OF PUBLIC SECTOR AND PRIVATE

SECTOR BANKS.”

PROJECT REPORT2010

Submitted for the partial fulfillment of the requirement for the award

Of

POSTGRADUATE DIPLOMA IN MANAGEMENT

SUBMITTED BY

ARVIND KUMAR(Enrolment No. 9126)

UNDER THE SUPERVISION OF

Internal Supervisor: Dr. Taruna GautamExternal Supervisor: Mr. Arun Kumar

DEPARTMENT OF MANAGEMENTINSTITUTE OF MANAGEMENT EDUCATION,

SAHIBABAD

2

INSTITUTE OF MANAGEMENT EDUCATION, SAHIBABAD

DEPARTMENT OF MANAGEMENT

CERTIFICATE

This is to certify that Arvind Kumar having Enrollment No. 9126 of

PGDM (2009-2011) of INSTITUTE OF MANAGEMENT

EDUCATION, SAHIBABAD has successfully completed his summer

project on “Comparative analysis of home loan customers of public

sector and private sector banks.” as a part of summer project for PGDM

course.

______________________(Signature of internal guide)

Place: _____________Date: ______________

3

ACKNOWLEDGEMENT

A successful completion of an endeavour is very gratifying experience. This is the

moment where I feel indebted to people who have supported me at different point

in this project. I would like to express my heartfelt gratitude and thankfulness to

the almighty god for blessing me with the opportunity and ability to work on this

project.

I am thankful to Professor G. D. Sardana, Director of our institute who provided us

the right kind of environment to work on this project. My sincere thanks to Dr.

Taruna Gautam, HOD, PGDM and my internal guide for her invaluable guidance

in completing this project.

My heartfelt gratitude to Mr. Arun Kumar, Chief Manager, Union Bank of India,

Ranchi Loan Point Branch, who spared his valuable time and guided and supported

me through this endeavor.

I would also like to thank my parents for their constant support and providing me

everything I required for study all the time. They are the one who should be

credited for my successful completion of project.

I hope this project provides readers meaningful information about Indian home

loan market and customer trends.

4

EXECUTIVE SUMMARY

Banks in order to face the challenges of the external business environment

successfully focus on mortgage products in their effort to satisfy their client needs.

Mortgages constitute the sector that has had the largest increase in the past. The

purpose of this paper is to study consumers’ attitude towards the possibility to

obtain a home loan from private and public sector banks, costumers’ use of

information sources, the important criteria used by consumers to choose a financial

institution and a home loan.

The research was carried out among 100 bank customers by using a structured

questionnaire. 50 customers were chosen from private sector banks and rest 50 of

public sector banks.

Research was to analyze the mortgage product mix and some cost elements

(interest rate, prepayment penalty) other important influential factors such as the

various offers of banks, the banks reputation, existing cooperation, as well as bank

staff. Research was also to analyze promotion media like television and newspaper

and how it plays an important role, what is awareness level of customers about

various process and products of home loans. The research aimed to analyze the

difference of customer preference based on various factors for private and public

sector banks.

5

CONTENT

Serial No. Title Page No.

1. Chapter 1: Introduction. 9-12

Need of the study. 12-13

2. Chapter 2: Review of literature. 14-15

3. Chapter 3: Research Methodology. 16

Objective. 16

Sample, method of data collection. 16

Limitation of research. 17

4. Chapter 4: Home loan - Union bank of India 18-25

5. Chapter 5: US mortgage sector, economic recession. 26-32

6. Chapter 6: Indian home loan sector. 33-36

7. Chapter 7: RBI regulation regarding home finance. 37-54

8. Chapter 8: Data presentation and analysis. 55-74

9. Chapter 9: Conclusion and recommendations. 75-79

10. References

6

LIST OF TABLES

LIST OF TABLES CONTENT PAGE NO.

Table 4.1 Rate of Interest 20-22

Table 6.1 Home loan market size of top ten banks and their growth 33

Table 8.1 Occupation: Public sector banks 56

Table 8.2 Occupation: Private sector banks 56

Table 8.3 Monthly income: Public sector banks 57

Table 8.4 Monthly income: Private sector banks 58

Table 8.5 Association with the bank: Public sector banks 58

Table 8.6 Association with the bank: Private sector banks 59

Table 8.7 Information about home loan: Public sector banks 59

Table 8.8 Information about home loan: Private sector banks 60

Table 8.9 After sales service of the bank: Public sector banks 61

Table 8.10 After sales service of the bank: Private sector banks 61

Table 8.11 Behaviour of bank employee: Public sector banks 62

Table 8.12 Behaviour of bank employee: Private sector banks 62

Table 8.13 Transparency in telling costs: Public sector banks 63

Table 8.14 Transparency in telling costs: Private sector banks 63

Table 8.15 Awareness about different loans: Public sector banks 64

Table 8.16 Awareness about different loans: Private sector banks 64

Table 8.17 Preference of top up loans: Public sector banks 65

Table 8.18 Preference of top up loans: Private sector banks 65

Table 8.19 Awareness about reverse mortgage: Public sector banks 66

Table 8.20 Awareness about reverse mortgage: Private sector banks 66

7

LIST OF TABLES CONTENT PAGE NO.

Table 8.21 Likelihood of using reverse mortgage: Public sector banks 67

Table 8.22 Likelihood of using reverse mortgage: Private sector banks 67

Table 8.23 Rate of interest affects choice of bank: Public sector banks 68

Table 8.24 Rate of interest affects choice of bank: Public sector banks 68

Table 8.25 Flexibility of payment, a criterion: Public sector banks 69

Table 8.26 Flexibility of payment, a criterion: Private sector banks 69

Table 8.27 Margin money affects bank choice: Public sector banks 69

Table 8.28 Margin money affects bank choice: Private sector banks 70

Table 8.29 Prepayment penalty a deterrent: Public sector banks 70

Table 8.30 Prepayment penalty a deterrent: Private sector banks 71

Table 8.31 Insurance availability: Public sector banks 71

Table 8.32 Insurance availability: Private sector banks 72

Table 8.33 Would you recommend your bank: Public sector banks 72

Table 8.34 Would you recommend your bank: Private sector banks 73

Table 8.35 Would you recommend your bank: Private sector banks 73

LIST OF CHARTS

LIST OF CHARTS CONTENT PAGE NO.

Chart 8.1 Ranking of factors 74

8

CHAPTER 1

INTRODUCTION

Owning one’s own home has always been a cherished dream for all of us. Home

has always been considered one of the basic necessities of life. In the present

global as well as Indian scenario, scarcity of affordable housing to common people

is becoming a sort of a problem. Even employed people in cities who have income

cannot afford house as it is too costly for them. Here comes the need for home

loan and a business opportunity which is exploited by banks and other financial

institutions. This also helps to make home affordable to most people and earn

profit.

9

Technically, home loan is a kind of loan provided by banks and other financial

institutions for buying, renovating, or expanding home.

LOAN

A loan is a type of debt. Like all debt instruments, a loan entails the redistribution

of financial assets over time between the lender and the borrower. The borrower

initially does receive an amount of money from the lender, which they pay back,

usually but not always in regular installments, to the lender. This service is

generally provided at a cost, referred to as interest on the debt. A loan is of the

annuity type if the amount paid periodically (for paying off and interest together) is

fixed.

Loans are mainly of two types

1. Secured Loans.

2. Unsecured Loans.

SECURED LOAN: A secured loan is a loan in which the borrower pledges some

asset (e.g. a car or property) as collateral for the loan.

UNSECURED LOANS: Unsecured loans are monetary loans that are not secured

against the borrowers assets. These may be available from financial institutions

under many different guises or marketing packages.

10

MORTGAGE

A mortgage is the transfer of an interest in property (or in law the equivalent - a

charge) to a lender as a security for a debt - usually a loan of money. While a

mortgage in itself is not a debt, it is lender's security for a debt.

It is a transfer of an interest in land (or the equivalent), from the owner to the

mortgage lender, on the condition that this interest will be returned to the owner of

the real estate when the terms of the mortgage have been satisfied or performed. In

other words, the mortgage is a security for the loan that the lender makes to the

borrower.

BANKING SYSTEM

The various banking systems have undergone very important changes globally.

More specifically, increased competition, technological developments and the

growth of the various institutions have significantly altered the environment in

which banks operate. At the same time, many banking activities are now

performed by non-banking institutions. In reality, banking institutions in

developed countries have started to lose their market shares, while technology has

minimized transaction costs and the number of competitors is continuously

increasing.

Legislative liberalization has strengthened competition not only among banking

institutions but also among other non-banking organizations.

11

Until recently, regulations imposed restrictions in invoicing, distribution and

particular characteristics of offered services. Yet, restrictions in the accession of

new enterprises in the market have become notably less, while the liberalization of

the banking sector has led to the fall of prices and banking profits.

Moreover, banking transactions are now characterized by increases in terms of

volume, dissemination, location, type and quality. Changes in customer behavior

have also imposed changes in decisions related to offered services, as these

services need to be of high quality in order to satisfy today’s demanding clients.

The International Research Journal of Finance and Economics - Issue 10 (2007)

154 price must be proportional to the perceived value, while distribution means

should be used in order to achieve a high level of satisfaction.

NEED OF THE STUDY

Banks in order to face the challenges of the external environment successfully

focus on mortgage products, in their effort to satisfy their clients’ needs. As

competition grows constantly, it is very important to examine the factors that have

a positive impact on consumer purchasing decisions, so that banks can create the

appropriate marketing strategy.

Mortgages constitute the sector that has had the largest increase in the last years.

The great fall of interest rates along with the offering of new, more flexible and

attractive products has led to an increase in demand relating to housing.

12

Thus, most of today’s banking institutions pay great attention to mortgages by

promoting and advertising more and more competitive products within an

environment that is based on offering the best services and suitable products for the

client’s benefit.

The rates for the provision of mortgage products have been maintained at

particularly high levels for the last years with commercial banks having the leading

role. Today’s bank clients are more informed on market products due to the load

of circulating information, making them capable of directly comparing the various

competitive products. Clients communicate with other clients, study brochures and

receive information from television and the Internet. Therefore, clients are more

influenced than in the past by bank pricing policies and seek low borrowing

interest rates and low costs for the provision of services. Today’s clients turn

easily towards the services of another bank than in the past, especially when they

only find little and insignificant differences among the various products and

services.

Therefore it is very imperative that a study should be done to identify various

factors that affect consumers’ choice of bank to avail loan facility. This study can

help identify how a consumer perceives a bank. This study can help identify

factors that can help modify various home loan products according to the need of

customers, so that customers are more interested and bank can generate maximum

revenue out of mortgage products.

13

CHAPTER 2

REVIEW OF LITERATURE

The importance of segmentation in the financial institution sector has been well

documented. The importance of identifying profitable customer groups is

increasing and market segmentation strategies which recognize the importance of

concentrating on the needs of homogeneous groups within a larger heterogeneous

market, are receiving greater attention.

The Mortgage Experience of Greek Bank Customers John Mylonakis.

Here the researcher tried to identify various factors which a customer considers for

a mortgage product. He also tried to identify the role of branch as a medium of

distribution of the home loan. The research revealed interesting results.

At the Indian Banking Conclave (Bancon) in Mumbai on January 12, Reserve

Bank of India (RBI) deputy governor Usha Thorat warned against what she

considers risky mortgage lending practices. "In the area of housing loans, teaser

rates are increasingly being offered, which is a cause for concern," she said. "I

hope banks are ensuring that borrowers are well aware of the implications of such

rates and the appraisal takes into account the repaying capacity of the borrowers

when the rates become normal."

14

Prabhat Khabar, June 22, 2010, the newspaper talks about various issues that a

customer should take care of while planning to obtain home loans from various

banks. It specifically talks of various public sector banks’ initiative to provide

home loan to various customers. The article also identifies certain good builders

who have tie up with various banks and help customers obtain home loan and

become proud owner of the home.

The study shows that choosing a home loan institution on the basis of professional

advice is the most frequently cited choice criterion, closely followed by interest

rates. Differences in the importance of choice criteria with respect to gender, class,

household income, educational attainment, ethnicity and financial maturity are

apparent.

15

CHAPTER 3

RESEARCH METHODOLOGY

OBJECTIVE OF STUDY

The purpose of the study is to know:

Consumers’ attitude toward the possibility to obtain a home loan.

Costumers’ use of information sources when choosing a home loan.

The choice criteria used by consumers to choose a financial institution.

The choice criteria used by consumers to choose from different home loan

products.

SAMPLE SIZE: From a statistical point of view, the sample comprised of 100

bank customers who completed the questionnaire.

METHODS OF DATA COLLECTION: This study was based on primary data.

The data used in this study were collected by means of a questionnaire completed

during face-to- face interview. The data were collected during the month of June

2010.

QUESTIONNAIRE: The questionnaire consisted of 12 questions with question

no. 9 having 13 sub-questions with answers in yes and no.

Questionnaire can be broadly divided in four parts

1. Demographic characteristics of customer.

2. Type of bank he or she chose and his perception of the bank.

16

3. What factors he considers important and what is his awareness level with

respect to various home loan products.

4. Ranking of various factors and his suggestions about to improve the home

loan services of the bank.

LIMITATION OF RESEARCH

This research was carried out as a part of summer internship with limited resource.

Thus a limited 100 customers were taken for sample.

The sample of customers interviewed was taken entirely from different parts of

Ranchi on a random basis. It is reflection of customer perception of Ranchi only.

Since the research was carried out for comparison of bank customers, so housing

finance companies like LIC housing finance and HDFC were not taken into

account.

17

CHAPTER 4

HOME LOAN

Union Bank

of India

18

OUR PROFILE

The dawn of twentieth century witnesses the birth of a banking enterprise par

excellence- UNION BANK OF INDIA that was flagged off by none other than the

Father of the Nation, Mahatma Gandhi.

OUR VISION:

To become the Bank of first choice in our chosen areas by building beneficial and

lasting relationship with customers through the process of Continuous

improvement.

CORPORATE MISSION:

Our corporate mission to gain market recognition in chosen areas by building

effective strategies

VARIOUS REQUIREMENTS FOR HOME LOAN

ELIGIBILITY

Indian Citizen - 21 years and above.

Either single account or joint account with other family members viz.(father,

mother, spouse or son ) with regular source of income.

Individuals who may be employed/self-employed in business having regular

income.

A minimum of 40% marks as per investment grade scoring chart(Internal

method of the bank).

19

PURPOSE

Purchase/construction of independent house/flat.

Repair/Improvement/Extension.

Repayment of loan availed from another agency/Bank/NBFC.

For purchase/ construction of 2nd property (independent house/flat)

Plot sold by a Government-recognized agency viz., HUDA, HOUSEFED

and such others.

QUANTUM

Max Rs. 300 Lacs for Mumbai, Delhi, Kolkata, Chennai, Bengaluru,

Ahmedabad, Hyderabad,Gurgaon, Noida and New Delhi.

For other cities Rs. 100 lacs.

Max. Rs. 10 lacs for repair.

MARGIN

For loan up to Rs. 200 lacs, 20% of the cost of the property.

For loan above Rs. 200 lacs, 35% of the cost of the property.

REPAYMENT

Moratorium up to 18 months wherever loan is taken for under construction

flat or building.

20

By Equated Monthly Installment (EMI.)

The maximum repayment period should not exceed 25 years (including

moratorium) for construction / purchase of house/ flat and 10 years for

repair.

Option of Flip/Step-up/Balloon methods of repayments for the convenience

of the borrowers.

Table 4.1

RATE OF INTEREST

Rate of interest. Base rate with effect from 01/07/2010.

Loan upto Rs. 5 Lacs

Tenor Upto 5 years >5 Years to

10 Years

>10 Years to 15

Years

>15 Years to 25

Years

Fixed 9.75% N.A. N.A. N.A.

Floating Base Rate +

1.00%

i.e . 9.00 %

Base Rate +

1.25% i.e.

9.25 %

Base Rate +

1.50%

i.e 9.50 %

Base Rate +

1.50%

i.e 9.50 %

Loan above Rs 5 Lacs upto 30 Lacs

Tenor Upto 5 years >5 Years to

10 Years

>10 Years to 15

Years

>15 Years to 25

Years


Floating Base Rate + Base Rate + Base Rate + Base Rate +

21

1.00%

i.e . 9.00 %

1.25% i.e.

9.25 %

1.50%

i.e 9.50 %

1.50%

i.e. 9.50 %

Loan above Rs 30 Lacs upto 50 Lacs

Tenor Upto 5 years>5 Years to 10

Years

>10 Years to 15

Years

>15 Years to 25

Years


Floating

Base Rate +

1.50%

i.e . 9.50 %

Base Rate +

1.50%

i.e. 9.75 %

Base Rate +

2.00 %

i.e 10.00%

Base Rate + 2.00%

i.e. 10.00%

Loan above Rs 50 Lacs and upto 200 Lacs

Tenor Upto 5 Years>5 Years to 10

Years

>10 Years to 15

Years

>15 Years to 25

Years


Floating

Base Rate +

1.75%

i.e . 9.50%

BPLR -1.75 %

I .e. 9.75%

Base Rate

+2.00%

i.e 10.00%

Base Rate +2.25%

i.e. 10.25%

Loan above Rs 200 Lacs

Tenor Upto 5 Years> 5 Years to 10

Years

>10 Years to 15

Years

>15 Years to 25

Years

Fixed N.A. N.A. N.A. N.A.

22

Floating

Base Rate +

2.00% i.e.

10.00%

Base Rate

+2.25% i.e.

10.50%

Base Rate

+2.75% i.e.

10.75%

Base Rate

+2.75% i.e.

10.75%

23

PROCESSING CHARGES

0.50% of loan amount subject to a maximum of Rs.15000/- plus service tax

as applicable.

50% of the processing charges plus service tax as applicable at the time of

application.

50% of the processing charges plus service tax as applicable on acceptance

of sanction.

The Processing charges have been waived under the festive offer till 14th

Feb, 2010.

PREPAYMENT PENALTY

No prepayment penalty. If the loan is adjusted by the borrower from his own

verifiable legitimate sources of income or genuine sale. However 2% charged on

an average o/s. balance of last 12 months if loan is closed on take over by other

banks/financial institutions.

VALUE ADDED SERVICE

Credit card will be issued free of annual fees.

No hidden or built-in costs.

Quick processing and disposal of loan applications.

Flexible repayment options.

24

GUARANTEE

Third party guarantee is not mandatory.

DOCUMENTS REQUIRED FOR UNION HOME

1. Completed application form.

2. Two Passport size photographs of each applicants.

3. Proof of income, salary certificate, Income tax returns etc.

4. Proof of Identity – PAN Card/ Voters ID/ Passport/ Driving License.

5. Proof of Residence – Recent Telephone Bill/ Electricity Bill/ Property

tax receipt/ Passport/ Voters ID /Bank Account statement/passbook

for the previous six months.

6. Proof of business address in respect of businessmen/industrialists.

7. Sale Deed, Agreement of Sale, Letter of Allotment, Non encumbrance

certificate, Land/ Building Tax paid receipt etc. (as applicable and

subject to satisfaction report from our empanelled lawyer).

8. Copy of approved plan and approval from the Local Body.

9. Original NOC under the Provisions of ULC Act.

10. Copy of the Order permitting Land Conversion in case of conversion

of Agricultural land.

11.Non Encumbrance Certificate for 30 years.

12.Copy of the land tax receipt/building tax receipt.

13. Copy of the Allotment letter of Housing Board/Builder/Co-op.

Society.

14.Affidavit.

25

CHAPTER 5

SUBPRIME ECONOMIC CRISIS IN US

The subprime mortgage crisis is an ongoing real estate crisis and financial crisis

triggered by a dramatic rise in mortgage delinquencies and foreclosures in the

United States, with major adverse consequences for banks and financial markets

around the globe.

Approximately 80% of U.S. mortgages issued in recent years to subprime

borrowers were adjustable-rate mortgages. After U.S. house prices peaked in mid-

2006 and began their steep decline thereafter, refinancing became more difficult.

As adjustable-rate mortgages began to reset at higher rates, mortgage delinquencies

soared. Securities backed with subprime mortgages, widely held by financial

firms, lost most of their value. The result has been a large decline in the capital of

many banks and U.S. government sponsored enterprises, tightening credit around

the world.

The immediate cause or trigger of the crisis was the bursting of the United States

housing bubble which peaked in approximately 2005–2006. High default rates on

"subprime" and adjustable rate mortgages (ARM), began to increase quickly

thereafter. An increase in loan incentives such as easy initial terms and a long-

term trend of rising housing prices had encouraged borrowers to assume difficult

mortgages in the belief they would be able to quickly refinance at more favorable

terms.

26

http://en.wikipedia.org/wiki/Real_estate

http://en.wikipedia.org/wiki/Adjustable_rate_mortgage

http://en.wikipedia.org/wiki/Subprime_lending

http://en.wikipedia.org/wiki/United_States_housing_bubble

http://en.wikipedia.org/wiki/United_States_housing_bubble

http://en.wikipedia.org/wiki/Adjustable-rate_mortgage

http://en.wikipedia.org/wiki/Financial_crisis

http://en.wikipedia.org/wiki/Crisis

However, once interest rates began to rise and housing prices started to drop

moderately in 2006–2007 in many parts of the U.S., refinancing became more

difficult. Defaults and foreclosure activity increased dramatically as easy initial

terms expired, home prices failed to go up as anticipated, and ARM interest rates

reset higher. Falling prices also resulted in homes worth less than the mortgage

loan, providing a financial incentive for borrowers to enter foreclosure. The

ongoing foreclosure epidemic that began in late 2006 in the U.S. continues to be a

key factor in the global economic crisis, because it drains wealth from consumers

and erodes the financial strength of banking institutions.

In the years leading up to the crisis, significant amounts of foreign money flowed

into the U.S. from fast-growing economies in Asia and oil-producing countries.

This inflow of funds combined with low U.S. interest rates from 2002-2004

contributed to easy credit conditions, which fueled both housing and credit

bubbles.

Loans of various types (e.g., mortgage, credit card, and auto) were easy to obtain

and consumers assumed an unprecedented debt load. As part of the housing and

credit booms, the amount of financial agreements called mortgage-backed

securities (MBS), which derive their value from mortgage payments and housing

prices, greatly increased. Such financial innovation enabled institutions and

investors around the world to invest in the U.S. housing market. As housing prices

declined, major global financial institutions that had borrowed and invested heavily

in subprime MBS reported significant losses. Defaults and losses on other loan

types also increased significantly as the crisis expanded from the housing market to

other parts of the economy.

27

http://en.wikipedia.org/wiki/Financial_innovation

http://en.wikipedia.org/wiki/Mortgage-backed_securities

http://en.wikipedia.org/wiki/Mortgage-backed_securities

http://en.wikipedia.org/wiki/Interest

http://en.wikipedia.org/wiki/Foreclosure

http://en.wikipedia.org/wiki/Default_(finance)

Total losses are estimated in the trillions of U.S. dollars globally. While the

housing and credit bubbles built, a series of factors caused the financial system to

become increasingly fragile. Policymakers did not recognize the increasingly

important role played by financial institutions such as investment banks and hedge

funds, also known as the shadow banking system. Some experts believe these

institutions had become as important as commercial (depository) banks in

providing credit to the U.S. economy, but they were not subject to the same

regulations. These institutions as well as certain regulated banks had also assumed

significant debt burdens while providing the loans described above and did not

have a financial cushion sufficient to absorb large loan defaults or MBS losses.

These losses impacted the ability of financial institutions to lend, slowing

economic activity. Concerns regarding the stability of key financial institutions

drove central banks to take action to provide funds to encourage lending and to

restore faith in the commercial paper markets, which are integral to funding

business operations. Governments also bailed out key financial institutions,

assuming significant additional financial commitments.

The risks to the broader economy created by the housing market downturn and

subsequent financial market crisis were primary factors in several decisions by

central banks around the world to cut interest rates and governments to implement

economic stimulus packages. Effects on global stock markets due to the crisis

have been dramatic. Between 1 January and 11 October 2008, owners of stocks in

U.S. corporations had suffered about $8 trillion in losses, as their holdings declined

in value from $20 trillion to $12 trillion. Losses in other countries have averaged

about 40%. Losses in the stock markets and housing value declines place further

downward pressure on consumer spending, a key economic engine.

28

http://en.wikipedia.org/wiki/Bailout

http://en.wikipedia.org/wiki/Commercial_paper

http://en.wikipedia.org/wiki/Shadow_banking_system

http://en.wikipedia.org/wiki/Hedge_funds

http://en.wikipedia.org/wiki/Hedge_funds

http://en.wikipedia.org/wiki/Investment_banks

Leaders of the larger developed and emerging nations met in November 2008 and

March 2009 to formulate strategies for addressing the crisis. As of April 2009,

many of the root causes of the crisis had yet to be addressed. A variety of

solutions have been proposed by government officials, central bankers,

economists, and business executives.

SUBPRIME BORROWERS

Subprime borrowers typically have weakened credit histories and reduced

repayment capacity. Subprime loans have a higher risk of default than loans to

prime borrowers. If a borrower is delinquent in making timely mortgage payments

to the loan servicer (a bank or other financial firm), the lender may take possession

of the property, in a process called foreclosure.

The value of USA subprime mortgages was estimated at $1.3 trillion as of March

2007, with over 7.5 million first-lien subprime mortgages outstanding. Between

2004-2006 the share of subprime mortgages relative to total originations ranged

from 18%-21%, versus less than 10% in 2001-2003 and during 2007. In the third

quarter of 2007, subprime ARMs making up only 6.8% of USA mortgages

outstanding also accounted for 43% of the foreclosures which began during that

quarter. By October 2007, approximately 16% of subprime adjustable rate

mortgages (ARM) were either 90-days delinquent or the lender had begun

foreclosure proceedings, roughly triple the rate of 2005. By January 2008, the

delinquency rate had risen to 21% and by May 2008 it was 25%.

29


http://en.wikipedia.org/wiki/Adjustable_rate_mortgages

http://en.wikipedia.org/wiki/Adjustable_rate_mortgages

http://en.wikipedia.org/wiki/Lien


http://en.wikipedia.org/wiki/Default_(finance)

http://en.wikipedia.org/wiki/Subprime_mortgage_crisis_solutions_debate

The value of all outstanding residential mortgages, owed by USA households to

purchase residences housing at most four families, was US$9.9 trillion as of year-

end 2006, and US$10.6 trillion as of midyear 2008. During 2007, lenders had

begun foreclosure proceedings on nearly 1.3 million properties, a 79% increase

over 2006. This increased to 2.3 million in 2008, an 81% increase vs. 2007, and

again to 2.8 million in 2009, a 21% increase vs. 2008.

By August 2008, 9.2% of all U.S. mortgages outstanding were either delinquent or

in foreclosure. By September 2009, this had risen to 14.4%. Between August

2007 and October 2008, 936, 439 USA residences completed foreclosure.

Foreclosures are concentrated in particular states both in terms of the number and

rate of foreclosure filings. Ten states accounted for 74% of the foreclosure filings

during 2008; the top two (California and Florida) represented 41%. Nine states

were above the national foreclosure rate average of 1.84% of households.

CAUSES OF SUBPRIME CRISIS IN US

The crisis can be attributed to a number of factors pervasive in both housing and

credit markets, factors which emerged over a number of years. Causes proposed

include the inability of homeowners to make their mortgage payments, due

primarily to adjustable-rate mortgages resetting, borrowers overextending,

predatory lending, speculation and overbuilding during the boom period, risky

mortgage products, high personal and corporate debt levels, financial products that

distributed and perhaps concealed the risk of mortgage default, monetary policy,

international trade imbalances, and government regulation (or the lack thereof).

30

Three important catalysts of the subprime crisis were

1. The influx of moneys from the private sector.

2. The banks entering into the mortgage bond market.

3. The predatory lending practices of the mortgage lenders, specifically the

adjustable-rate mortgage, loan, that Mortgage Lenders sold directly or

indirectly via Mortgage Brokers. On Wall Street and in the financial

industry, moral hazard lay at the core of many of the causes.

In its "Declaration of the Summit on Financial Markets and the World Economy,"

dated 15 November 2008, leaders of the Group of 20 cited the following causes:

During a period of strong global growth, growing capital flows, and

prolonged stability earlier this decade, market participants sought higher

yields without an adequate appreciation of the risks and failed to exercise

proper due diligence.

At the same time, weak underwriting standards, unsound risk management

practices, increasingly complex and opaque financial products, and

consequent excessive leverage combined to create vulnerabilities in the

system.

31

http://en.wikipedia.org/wiki/G20_major_economies

http://en.wikipedia.org/wiki/Moral_hazard

Policy-makers, regulators and supervisors, in some advanced countries, did

not adequately appreciate and address the risks building up in financial

markets, keep pace with financial innovation, or take into account the

systemic ramifications of domestic regulatory actions.

During May 2010, Warren Buffett and Paul Volcker separately described

questionable assumptions or judgments underlying the U.S. financial and economic

system that contributed to the crisis.

These assumptions included:

1. Housing prices would not fall dramatically.

2. Free and open financial markets supported by sophisticated financial

engineering would most effectively support market efficiency and stability,

directing funds to the most profitable and productive uses.

3. Concepts embedded in mathematics and physics could be directly adapted to

markets, in the form of various financial models used to evaluate credit risk.

4. Economic imbalances, such as large trade deficits and low savings rates

indicative of over-consumption, were sustainable.

5. Stronger regulation of the shadow banking system and derivatives markets

was not needed.

32

http://en.wikipedia.org/wiki/Shadow_banking_system

http://en.wikipedia.org/wiki/Paul_Volcker

http://en.wikipedia.org/wiki/Warren_Buffett

CHAPTER 6

INDIAN HOME LOAN MARKET

Even as growth in the home loan market stayed in the single digit in 2009-10,

larger banks managed to expand their market share in this segment, by edging out

smaller players.

Table 6.1

Home Loan market size of top ten banks and their growth

(Rs crore) (Rs crore)

Name of Banks 2009-2010 2008-2009 Growth %

State Bank of India 71193 54063 32

ICICI Bank 47400 57000 -17

Axis Bank 14700 10400 41

Punjab National Bank 10612 9307 14

Bank of Baroda 10313 8263 25

Canara Bank 10116 7896 28

HDFC Bank 8700 5000 74

Union Bank of India 8115 6621 22

Bank of India 7788 7269 7

Central Bank of India 5318 4422 20

Total home loan credit 8

Source: http://www.thehindubusinessline.com/2010/06/06/stories/2010060650760100.htm

33

http://www.thehindubusinessline.com/2010/06/06/stories/2010060650760100.htm

The top 10 banks' home loan portfolio grew at 13.8 per cent for 2009-10, even as

overall bank lending to housing grew only 8 per cent. State Bank of India saw a 32

per cent growth in its home loan portfolio for 2009-10 and became the top

mortgage lender among banks. The top ten banks garnered 65 per cent of the total

outstanding housing loans (of scheduled commercial banks) in 2009-10, up from

61.5 per cent last year. Housing loans were among the rapidly growing segments

of retail lending, which saw a tepid 4 per cent expansion in 2009-10. Education

loans, at 31 per cent, grew the fastest.

Improving market share, SBI contributed 78 per cent of the incremental home

lending in 2009-10. SBI's teaser loans, apart from getting it new customers,

prompted a good number of borrowers to switch to the bank. SBI's consistent

ahead-of-market growth in home loans has seen its market share improving from

17 per cent in March 2008 to 24 per cent by March 2010.

Strong growth. ICICI Bank from being the largest mortgage lending bank fell to

second place in the last year. The bank's home loan book shrank 17 per cent over

the year. Other private banks such as HDFC Bank and Axis Bank witnessed

expansion in their home loan portfolios, which were up by 74 per cent and 41 per

cent respectively. Bank of India was the only major public sector bank to witness

a single digit growth rate of 7 per cent. Non-Banking financial companies active in

this segment such as HDFC and LIC Housing Finance saw their book expanding

by 15 per cent and 38 per cent respectively. As the teaser rates are being phased

out it remains to be seen if there would be a shift in incremental market share to

private players and NBFCs.

34

INDIAN PROPERTY BUBBLE

The origins of Indian Property Market Bubble can be traced to the interest rate

reductions made by the NDA coalition government in the years following 2001.

Home Loan Rates fell to a (then) historical lows of 7.5% in early 2004. This

prepared the basis for the increase in real estate property prices across India. Low

interest rates triggered interest in individuals to borrow to own their own homes

and this triggered an increase in demand for real estate across India.

The Indian Property Market has been growing fast since March 2005, when the

current UPA government decided to open FDI in Real Estate.

Some have suggested that given India's population density is closer to that of

Europe than that of America the real value of Indian Real Estate should be close to

European levels rather than American levels. When looked at in that way Indian

real estate is still cheap. This argument assumes the rapid economic growth in

India will have brought per capita income in India to European levels within the

next 5 years in urban areas.

Contra argument to this is US prices should ideally move with economy/inflation

rate of 2-3% while Indian prices will gallop at the rate of 10% a year and probably

more as the land distribution market is inefficient.

By its very definition a bubble is a short term phenomenon while Indian real estate

market has continued on a spectacular upward trend, apart from periodic

adjustments, in the last 10 years.

35

http://en.wikipedia.org/wiki/United_States

http://en.wikipedia.org/wiki/Europe

http://en.wikipedia.org/wiki/Population_density

http://en.wikipedia.org/wiki/FDI

http://en.wikipedia.org/wiki/United_Progressive_Alliance

http://en.wikipedia.org/wiki/India

http://en.wikipedia.org/w/index.php?title=Housing_loan_rates&action=edit&redlink=1

http://en.wikipedia.org/wiki/National_Democratic_Alliance_(India)

http://en.wikipedia.org/wiki/Interest_rate

There are almost 400 million Indians waiting to hit the middle class group and they

will exert additional pressure on the system. Affordability is the most important

factor when it comes to housing prices. People who compare India with developed

European cities, forget the huge difference in affordability in both areas. Of course

there is a huge demand for housing but they can only buy what they can afford.

One of the big problems of real-estate market is that supply lags behind demand by

about 5 years.

Lack of efficient signals to market participants means that there will be periods of

mismatch between suppliers and buyers hence leading to cycles of booms and

busts.

36

CHAPTER 7

RBI REGULATIONS REGARDING HOUSING LOANS

INTRODUCTION

In pursuance of National Housing Policy of Central Government, Reserve Bank of

India has been facilitating the flow of credit to housing sector. During recent

period the housing has emerged as one of the sectors attracting a large quantum of

bank finance. Therefore, the current focus of RBI's regulation is to ensure orderly

growth of housing loan portfolios of banks.

1.1 National Housing Policy

1.1.1 As a part of the strategy to overcome the colossal housing shortage, the

Central Government adopted a comprehensive National Housing Policy which,

among other things, envisaged.

(i) development of a viable and accessible institutional system for the provision of

housing finance;

(ii) establishing a system where housing boards and development authorities would

concentrate on acquisition and development of land and infrastructure; and

(iii) creation of conditions in which access to institutional finance is made easier

and affordable for individuals for construction/buying of houses/flats. This may

include outright purchase of houses/flats constructed by or under the aegis of

public agencies.

37

Banks with their vast branch network throughout the length and breadth of the

country occupy a very strategic position in the financial system and were required

to play an important role in providing credit to the housing sector in consonance

with the National Housing Policy.

1.1.2 Housing Finance Allocation

Keeping in view the objectives of National Housing Finance Policy, RBI was

announcing minimum housing finance allocation annually on the basis of the

growth of deposits recorded during the previous 5 DBOD-MC on Housing

Finance-2009 year till the year 2002-03.

Banks could deploy their funds under the housing finance allocation in any of the

three categories, i.e.

(i) direct finance,

(ii) indirect finance,

(iii) investment in bonds of NHB/HUDCO, or combination thereof.

2. DIRECT HOUSING FINANCE

2.1 Direct Housing Finance refers to the finance provided to individuals or groups

of individuals including co-operative societies.

2.2 Banks are free to evolve their own guidelines with the approval of their Boards

on aspects such as security, margin, age of dwelling units, repayment schedule, etc.

38

2.3 Other Guidelines

The following types of bank finance may be included under Direct Housing

Finance:

(i) Bank finance extended to a person who is already owning a house in

town/village where he resides, for buying/ constructing a second house in the same

or other town/village for the purpose of self occupation.

(ii) Bank finance extended for purchase of a house by a borrower who proposes to

let it out on rental basis on account of his posting outside the headquarters or

because he has been provided accommodation by his employer.

(iii) Bank finance extended to a person who proposes to buy an old house where he

is presently residing as a tenant.

(iv) Bank finance granted only for purchase of a plot, provided a declaration is

obtained from the borrower that he intends to construct a house on the said plot,

with the help of bank finance or otherwise, within such period as may be laid down

by the banks themselves.

(v) Supplementary finance.

(a) Banks may consider requests for additional finance within the overall ceiling

for carrying out alterations/ additions/repairs to the house/flat already financed by

them.

(b) In the case of individuals who might have raised funds for construction/

acquisition of accommodation from other sources and need supplementary finance,

banks may extend such finance after obtaining pari passu or second mortgage

charge over the property mortgaged in favour of other lenders and/or against such

other security, as they may deem appropriate. 6 DBOD-MC on Housing Finance-

2009.

39

3. INDIRECT HOUSING FINANCE

3.1 General

Banks should ensure that their indirect housing finance is channeled by way of

term loans to housing finance institutions, housing boards, other public housing

agencies, etc., primarily for augmenting the supply of serviced land and

constructed units. It should also be ensured that the supply of plots/houses is time

bound and public agencies do not utilise the bank loans merely for acquisition of

land. Similarly, serviced plots should be sold by these agencies to co-operative

societies, professional developers and individuals with a stipulation that the houses

should be constructed thereon within a reasonable time, not exceeding three years.

For this purpose, the banks may take advantage of various guidelines issued by

NHB for augmenting the supply of serviced land and constructed units.

3.2 Lending to Housing Intermediary Agencies.

3.2.1 Lending to Housing Finance Institutions.

(i) Banks may grant term loans to housing finance institutions taking in to account

(long-term) debt-equity ratio, track record, recovery performance and other

relevant factors.

(ii) In terms of NHB guidelines, housing finance companies’ total borrowings,

whether by way of deposits, issue of debentures/ bonds, loans and advances from

banks or from financial institutions including any loans obtained from NHB,

should not exceed 16 times of their net owned funds (i.e. paid-up capital and free

reserves less accumulated balance of loss, deferred revenue expenditure and

intangible assets).

40

(iii) All housing finance companies registered with NHB are eligible to apply for

refinance from NHB and will be eligible subject to the refinance policy. The

quantum of term loan to be sanctioned to them will not be linked to net owned

fund as NHB has already prescribed the above referred ceiling on total borrowing

of housing finance companies. A list of housing finance companies registered with

NHB may be obtained by the banks directly from NHB or downloaded from

www.nhb.org.in.

3.2.2 Lending to Housing Boards and Other Agencies

Banks may extend term loans to state level housing boards and other public

agencies. However, in order to develop a healthy housing finance system, while

doing so, the banks must not only keep in view the past performance of these

agencies in the matter of recovery from the beneficiaries, but they should also

stipulate that the Boards will ensure prompt and regular recovery of loan

installments from the beneficiaries. 7 DBOD-MC on Housing Finance-2009.

3.2.3 Financing of Land Acquisition.

In view of the need to increase the availability of land and house sites for

increasing the housing stock in the country, banks may extend finance to public

agencies and not private builders for acquisition and development of land,

provided it is a part of the complete project, including development of

infrastructure such as water systems, drainage, roads, provision of electricity, etc.

Such credit may be extended by way of term loans. The project should be

completed as early as possible and, in any case, within three years, so as to ensure

quick re-cycling of bank funds for optimum results.

41

If the project covers construction of houses, credit extended therefore in respect of

individual beneficiaries should be on the same terms and conditions as stipulated

for direct finance.

It has been observed that while financing real estate developers, certain banks were

found to be valuing the land for the purpose of security, on the basis of the

discounted value of the property after it is developed, less the cost of development.

This is not in conformity with established norms. In this connection it is advised

that banks should have a Board approved policy in place for valuation of properties

including collaterals accepted for their exposures and that valuation should be done

by professionally qualified independent valuers. As regards the valuation of land

for the purpose of financing of land acquisition as also land secured as collateral,

banks may be guided as under:

(a) Banks may extend finance to public agencies and not to private builders for

acquisition and development of land, provided it is a part of the complete project,

including development of infrastructure such as water systems, drainage, roads,

provision of electricity, etc. In such limited cases where land acquisition can be

financed, the finance is to be limited to the acquisition price (current price) plus

development cost. The valuation of such land as prime security should be limited

to the current market price.

(b) Wherever land is accepted as collateral, valuation of such land should be at the

current market price only.

42

3.2.4 Terms and Conditions for Lending to Housing Intermediary Agencies.

(i) In order to enhance the flow of resources to housing sector, term loans may be

granted by banks to housing intermediary agencies against the direct loans

sanctioned/ proposed to be sanctioned by the latter, irrespective of the per borrower

size of the loan extended by these agencies and such term loans would be reckoned

for the purpose of achievement of their housing finance allocation.

(ii) Banks can grant term loans to housing intermediary agencies against the direct

loans sanctioned/proposed to be sanctioned by them to Non-Resident Indians also.

However, banks should ensure that housing finance intermediary agencies being

financed by them, are authorised 8 DBOD-MC on Housing Finance-2009

by RBI to grant housing loans to NRIs as all housing finance intermediaries are not

authorised by RBI to provide housing finance to NRIs. Further, such finance

granted by banks to housing finance intermediary agencies against the latters’ on-

lending to NRIs will not be treated as housing finance for the purpose of scheme of

yearly allocation of housing finance applicable to banks.

(iii) Banks have freedom to charge interest rates to housing intermediary agencies

without reference to Benchmark Prime Lending Rates (BPLR)

3.3 Term Loans to Private Builders.

3.3.1 In view of the important role played by professional builders as providers of

construction services in the housing field, especially where land is acquired and

developed by State Housing Boards and other public agencies, commercial banks

may extend credit to private builders on commercial terms by way of loans linked

to each specific project.

43

However, the banks are not permitted to extend fund based or non-fund based

facilities to private builders for acquisition of land even as part of a housing

project. The period of credit for loans extended by banks to private builders may

be decided by banks themselves based on their commercial judgement subject to

usual safeguards and after obtaining such security, as banks may deem appropriate.

Such credit may be extended to builders of repute, employing professionally

qualified personnel. It should be ensured, through close monitoring, that no part of

such funds is used for any speculation in land.

Care should also be taken to see that prices charged from the ultimate beneficiaries

do not include any speculative element, that is, prices should be based only on the

documented price of land, the actual cost of construction and a reasonable profit

margin.

3.3.2 It is advised that banks adhere to the National Building Code (NBC)

formulated by the Bureau of Indian Standards (BIS) in view of the importance of

safety of buildings especially against natural disasters. Banks may consider this

aspect for incorporation in their loan policies.

4. HOUSING LOANS UNDER PRIORITY SECTOR

Banks may refer to the Master Circular on Lending to Priority Sectors issued by

Rural Planning and Credit Department.

5. RBI REFINANCE

Finance provided by the banks would not be eligible for refinance from Reserve

Bank. 9 DBOD-MC on Housing Finance-2009.

44

6. CONSTRUCTION ACTIVITIES ELIGIBLE FOR BANK CREDIT AS

HOUSING FINANCE

The following types of bank credit will be eligible for being treated as housing

finance.

(i) Loans to individuals for purchase/construction of dwelling unit per family and

loans given for repairs to the damaged dwelling units of families.

(ii) Finance provided for construction of residential houses to be constructed by

public housing agencies like HUDCO, Housing Boards, local bodies, individuals,

co-operative societies, employers, priority being accorded for financing

construction of houses meant for economically weaker sections, low income group

and middle income group.

(iii) Finance for construction of educational, health, social, cultural or other

institutions/centers, which are part of a housing project and which are necessary for

the development of settlements or townships;

(iv) Finance for shopping complexes, markets and such other centers catering to

the day to day needs of the residents of the housing colonies and forming part of a

housing project and

(v) Finance for construction meant for improving the conditions in slum areas for

which credit may be extended directly to the slum-dwellers on the guarantee of the

Government, or indirectly to them through the State Governments.

(vi) Bank credit given for slum improvement schemes to be implemented by Slum

Clearance Boards and other public agencies;

(vii) Finance provided to –

(a) the bodies constituted for undertaking repairs to houses, and

45

(b) the owners of building/house/flat, whether occupied by themselves or by

tenants, to meet the need-based requirements for their repairs/additions, after

satisfying themselves regarding the estimated cost (for which requisite certificate

should be obtained from an Engineer/Architect, wherever necessary) and obtaining

such security as deemed appropriate;

10 DBOD-MC on Housing Finance-2009.

(viii) Housing finance provided by banks for which refinance is availed of from

National Housing Bank (NHB);

(ix) Investment in the guarantee/non-guaranteed bonds and debentures of

NHB/HUDCO in the primary market, provided investment in non-guaranteed

bonds is made only if guaranteed bonds are not available.

7. CONSTRUCTION ACTIVITIES NOT ELIGIBLE FOR BANK CREDIT.

7.1 Banks should not grant finance for construction of buildings meant purely for

Government/Semi-Government offices, including Municipal and Panchayat

offices. However, banks may grant loans for activities, which will be refinanced

by institutions like NABARD.

7.2 Projects undertaken by public sector entities which are not corporate bodies

(i.e. public sector undertakings which are not registered under Companies Act or

which are not Corporations established under the relevant statute) may not be

financed by banks. Even in respect of projects undertaken by corporate bodies, as

defined above, banks should satisfy themselves that the project is run on

commercial lines and that bank finance is not in lieu of or to substitute budgetary

resources envisaged for the project.

46

The loan could, however, supplement budgetary resources if such supplementing

was contemplated in the project design. Thus, in the case of a housing project,

where the project is run on commercial lines, and the Government is interested in

promoting the project either for the benefit of the weaker sections of the society or

otherwise, and a part of the project cost is met by the Government through

subsidies made available and/or contributions to the capital of the institutions

taking up the project, the bank finance should be restricted to an amount arrived at

after reducing from the total project cost the amount of subsidy/capital contribution

receivable from the Government and any other resources proposed to be made

available by the Government.

7.3 Banks had, in the past, sanctioned term loans to Corporations set up by

Government like State Police Housing Corporation, for construction of residential

quarters for allotment to employees where the loans were envisaged to be repaid

out of budgetary allocations. As these projects cannot be considered to be run on

commercial lines, it would not be in order for banks to grant loans to such projects.

8. REPORTING

Banks should compile the data relating to Housing Finance at half-yearly intervals

on the lines of format given in Annex and keep it ready for being made available to

the bank’s internal inspectors/RBI’s inspectors. 11 DBOD-MC on Housing

Finance-2009.

9. HOME LOAN ACCOUNT SCHEME (HLAS) OF NHB

9.1 Foreclosure of Loans Obtained from Other Sources.

47

9.1.1 Under the HLAS, a member of HLAS is eligible for a loan after subscription

to the scheme for a minimum period of 5 years. The member has to declare while

joining the scheme/availing loan that he/ she does not own a house/flat. However,

a member may acquire a house or a flat from a public agency/co-operative/ private

builder by obtaining a loan from a bank at the normal rate of interest or from

friends and relatives or through a hire-purchase scheme of Housing Board/

Development Authority. Thereafter, when the member becomes eligible for a loan

under HLAS, he/she may approach the bank for such a loan to repay the loan(s)

raised earlier from other sources.

9.1.2 There is no objection to bank loans under HLAS being utilised for

foreclosing loans secured earlier from other sources, as a special case.

9.2 Classification of Deposits/Loans under HLAS.

Under HLAS, the participating bank is required to accept deposits on behalf of

NHB and make use of these deposits by way of refinance under any scheme

approved by NHB from time to time. The surplus funds, if any, not so utilised (i.e.

excess of deposits over refinance) can either be remitted by the participating bank

to NHB or retained by it, subject to compliance with the statutory reserve

requirements as under:

(i) The deposits under the HLA Scheme are on a recurring basis; and they should

be treated as ‘time’ liabilities, subject to reserve requirements under Section 42(1)

of the Reserve Bank of India Act, 1934 as also under Section 24 of the Banking

Regulation Act, 1949 and included under item II (a) (ii) of Form ‘A’.

48

(ii) In terms of sub-clause (ii) of clause (c) of the Explanation to Sub-Section (1) of

Section 42 of the RBI Act, as amended by clause 3 of the Second Schedule to the

National Housing Bank Act, 1987, ‘liabilities’ will not include any loan taken from

NHB. Hence, the deposits utilised as refinance from NHB should be deducted

from the total deposits received under the HLA Scheme while including the

amount under item II (a) (ii) of Form ‘A’.

10. BANK'S EXPOSURE TO REAL ESTATE SECTOR

While the development of real estate is welcome, there is a need for the banks to

curb the excessively risky lending by exercising selectivity and strengthening the

loan approval process.

Banks should ensure that the borrowers should have obtained prior permission

from government/local governments/other statutory authorities for the project,

wherever required. While the proposals could be sanctioned in normal course, the

disbursements should be made only after the borrower has obtained requisite

clearances from the government authorities. 12 DBOD-MC on Housing Finance-

2009

11. RISK WEIGHT ON HOUSING FINANCE

Banks may refer to Master Circular on Prudential guidelines on Capital Adequacy

and Market Discipline - Implementation of the New Capital Adequacy Frame

Work.

49

12. DELHI HIGH COURT ORDER ON UNAUTHORISED CONSTRUCTION

The Monitoring Committee constituted by the Hon'ble High Court of Delhi

regarding Unauthorised Construction, Misuse of Properties and Encroachment on

Public Land, has issued the following directions for immediate compliance by the

banks/ Financial Institutions.

A. Housing Loan for building construction.

i) In cases where the applicant owns a plot/land and approaches the banks/FIs for a

credit facility to construct a house, a copy of the sanctioned plan by competent

authority in the name of a person applying for such credit facility must be obtained

by the Banks/FIs before sanctioning the home loan.

ii) An affidavit-cum-undertaking must be obtained from the person applying for

such credit facility that he shall not violate the sanctioned plan, construction shall

be strictly as per the sanctioned plan and it shall be the sole responsibility of the

executant to obtain completion certificate within 3 months of completion of

construction, failing which the bank shall have the power and the authority to

recall the entire loan with interest, costs and other usual bank charges.

iii) An Architect appointed by the bank must also certify at various stages of

construction of building that the construction of the building is strictly as per

sanctioned plan and shall also certify at a particular point of time that the

completion certificate of the building issued by the competent authority has been

obtained.

50

B. Housing Loan for purchase of constructed property/ built up property.

i) In cases where the applicant approaches the bank/FIs for a credit facility to

purchase the built up house/flat, it should be mandatory for him to declare by way

of an affidavit-cum-undertaking that the built up property has been constructed as

per the sanctioned plan and/or building bye-laws and as far as possible has a

completion certificate also.

ii) An Architect appointed by the bank must also certify before disbursement of the

loan that the built up property is strictly as per sanctioned plan and/or building bye-

laws. 13 DBOD-MC on Housing Finance-2009

C. Unauthorised colonies.

No loan should be given in respect of those properties which fall in the category of

unauthorized colonies unless and until they have been regularized and

development and other charges paid.

D. Commercial Property.

No loan should also be given in respect of properties meant for residential use but

which the applicant intends to use for commercial purposes and declares so while

applying for loan.

13. TERMS AND CONDITIONS FOR BANKS’ INVESTMENT IN

MORTGAGE BACKED SECURITIES (MBS).

51

13.1 Banks’ investments in MBS should satisfy the following terms and

conditions:

(i) The right, title, and interest of an HFC in securitised housing loans and

receivables there under should irrevocably be assigned in favour of a Special

Purpose Vehicle (SPV) / Trust.

(ii) Mortgaged securities underlying the securitised housing loans should be held

exclusively on behalf of and for the benefit of the investors by the SPV/Trust.

(iii) The SPV or Trust should be entitled to the receivables under the securitised

loans with an arrangement for distribution of the same to the investors as per the

terms of the issue of MBS. Such an arrangement may provide for appointment of

the originating HFC as the servicing and paying agent. However, the originating

HFC participating in a securitisation transaction as a seller, manager, servicer or

provider of credit enhancement of liquidity facilities.

(a) shall not own any share capital in the SPV or be the beneficiary of the Trust

used as a vehicle for the purchase and securitisation of assets. Share capital for

this purpose shall include all classes of common and preferred share capital.

(b) Shall not name the SPV in such manner as to imply any connection with the

bank.

(c) shall not have any directors, officers, or employees on the board of the SPV

unless the board is made of at least three members and where there is a majority of

independent directors. In addition, the official (s) representing the bank will not

have veto powers.

52

(d) shall not directly or indirectly control the SPV, or

14 DBOD-MC on Housing Finance-2009.

(e) shall not support any losses arising from the securitisation transaction or by

investors involved in it or bear any of the recurring expenses of the transaction.

(iv) The loans to be securitised should be loans advanced to individuals for

acquiring /constructing residential houses which should have been mortgaged to

the HFC by way of exclusive first charge.

(v) The loans to be securitised should be accorded an investment grade credit

rating by any of the credit rating agencies at the time of assignment to the SPV.

(vi) The investors should be entitled to call upon the issuer-SPV to take steps for

recovery in the event of default and distribute the net proceeds to the investors as

per the terms of issue of MBS.

(vii) The SPV undertaking the issue of MBS should not be engaged in any business

other than the business of issue and administration of MBS of individual housing

loans.

(viii) The SPV or Trustees appointed to manage the issue of MBS should have to

be governed by the provisions of Indian Trust Act, 1882.

53

13.2 If the issue of MBS is in accordance with the terms and conditions stated in

above paragraph and includes irrevocable transfer of risk and reward of housing

loan assets to the Special Purpose Vehicle (SPV) / Trust, investment in such MBS

by any bank would not be reckoned as an exposure on the HFC originating the

securitised housing loan. However, it would be treated as an exposure on the

underlying assets of the SPV/ Trust.

Annex

HOUSING FINANCE

(Vide paragraph 8)

Financial assistance granted by scheduled commercial banks under the

category 'Housing Finance' as on September 30 /March 31.

54

CHAPTER 8

DATA PRESENTATION AND ANALYSIS

RESEARCH RESULTS

DESCRIPTIVE ANALYSIS

In this study, 92% of the participants are men and the other 8% are women.

Regarding their age, it has been observed that most customers are of age group 25

to 40 years. 19% are of the sample are between 25 and 35 years of age. From the

above, it becomes apparent that the main part of bank clients are of middle age, a

fact that can be explained considering that these staff are more active, work and

have the highest income.

In terms of clients’ marital status, all of the respondents are married. Only 2% of

the respondents have income less that 25,000 per month, while 48% replied that

their income is between 25,000 and 40,000 per month. 50% present an income

between 40,000 and 55,500,

Academic

The educational attainments of the sample include higher education graduates

(64%), percentage of high school pass (8), and a further 28% that hold a post-

graduate degree of diploma. Finally, only 2% of the respondents hold a Doctorate.

Regarding employment, all relevant data are shown in the following table.

55

Employment

Table 8.1

Occupation: Public sector banks

RANGE FREQUENCY PERCENTAGE COLLECTIVE

PERCENTAGE

Businessman 11 22 22

Government

Employee

12 24 46

Private sector 7 14 60

Self employed 4 8 68

Others 16 32 100

Table 8.2

Occupation: Private sector banks


PERCENTAGE

Businessman 14 28 28

Government

Employee

10 20 48

Private sector 15 30 78

Self employed 6 12 90

Others 5 10 100

56

When we observe the public sector banks, we observe that 24% of their customers

are government employee, 32% others are those who are public sector employees,

although businessmen also figure prominently but public sector banks prefer

customers with stable income. Comparatively, private sector banks although they

too give loan to government employee easily but they are also catering to rapidly

growing well paid private sector employees. They are also catering to customers

who are self employed and engaged in other forms of livelihood activities.

Table 8.3

Monthly Income: Public sector banks


PERCENTAGE

0-25,000 1 2 2

25,000-40,000 20 40 42

40,000-55,000 21 42 84

55,000-70,000 6 12 96

More than 70,0000 2 4 100

57

Table 8.4

Monthly Income: Private sector banks


PERCENTAGE

0-25,000 2 4 4

25,000-40,000 18 36 40

40,000-55,000 19 38 78

55,000-70,000 7 14 92

More than 70,0000 4 8 100

As far as income level of customers are concerned there is not much difference in

customers of private and public sector banks. Both banks are giving more priority

or easily financing needs of customers whose income fall in the range of Rs 25000

to Rs 55000.

Table 8.5

Association with the bank: Public sector banks


PERCENTAGE

Less than one year 5 10 10

1-5 years 21 42 52

More than 5 years 24 48 100

58

Table 8.6

Association with the bank: Private sector banks


PERCENTAGE

Less than one year 4 8 8

1-5 years 24 48 56

More than 5 years 22 44 100

As far as association of customers with the bank are concerned, most customers

who have availed loan are those who have had long association with bank that

more than couple of years. Nearly 48% of public sector bank customers and 44%

private bank customers have had more than 5 years’ association with the bank.

This shows that most customers are loyal to the bank where they do their banking.

They prefer to avail loan from the same bank as they are familiar with the staff and

processes of the bank.

Table 8.7

Information about home loan: Public sector banks


PERCENTAGE

Newspaper 16 32 32

Television 14 28 60

Internet 4 8 68

Magazines 7 14 82

Other sources 9 18 100

59

Table 8.8

Information about home loan: Private sector banks


PERCENTAGE

Newspaper 14 28 28

Television 12 24 52

Internet 4 8 60

Magazines 6 12 72

Other sources 14 28 100

Nearly 55% of customers of public sector and private sector banks get information

about home loans from newspaper and television. These are two medium which

have very high reach among consumers. One striking difference between public

sector banks and private sector banks is that one major source of information for

private bank customers that is nearly 28% of customers get information from other

sources which can be explained as private banks organize home loan events have

tie up with builders which is also a source of information and they do send

representatives to prospective clients to influence them to avail loan from their

bank only.

60

Table 8.9

After sales service of the bank: Public sector banks


PERCENTAGE

Excellent 2 4 4

Good 8 16 20

Average 20 40 60

Poor 16 32 92

Very poor 4 8 100

Table 8.10

After sales service of the bank: Private sector banks


PERCENTAGE

Excellent 3 6 6

Good 16 32 38

Average 22 44 82

Poor 5 10 92

Very poor 4 8 100

After sales service of banks is one factor where private sector banks score heavily

over public sector banks. While 40% of the customers of public sector banks rate

their services as average, 32% as poor.

61

Only 22% customers of private sector banks rate their services as average and only

5% as poor. This shows that after sales service of the private sector banks are good

and public sector banks need to work on this aspect of the business.

Table 8.11

Behavior of the bank employee: Public sector banks


PERCENTAGE

Very Cooperative 4 8 8

Cooperative 11 22 30

Normal 21 42 72

Bad 10 20 92

Very bad 8 16 100

Table 8.12

Behavior of the bank employee: Private sector banks


PERCENTAGE

Very Cooperative 8 16 16

Cooperative 17 34 50

Normal 19 38 88

Bad 4 8 96

Very bad 2 4 100

62

In this aspect of behavior of bank employee also private sector banks score

favorably over the public sector banks. 21% and 10% of customers of public

sector bank customer rate their banks employee as normal and bad respectively.

19% and 4% of private sector banks’ customer rate their bank employee as normal

and bad. They rate 17% of banks employee as cooperative which is greater than

public sector banks. This shows private bank employee are more customer

oriented and there is still a bit of red tapism and baburaj left in our public sector

banks.

Table 8.13

Transparency in telling all costs: Public sector banks


PERCENTAGE

Yes 40 80 80

No 10 20 100

Table 8.14

Transparency in telling all costs: Private sector banks


PERCENTAGE

Yes 29 58 58

No 21 42 100

63

This is an area where public sector banks score over private sector banks. 80%

customers of public sector banks feel their bank has followed transparency in

telling them all related costs while only 58% customers of private sector bank feel

that their bank has transparent way of dealing with the customers.

Table 8.15

Awareness about different kinds of loans: Public sector banks


PERCENTAGE

Yes 19 38 38

No 31 62 100

Table 8.16

Awareness about different kinds of loans: Private sector banks


PERCENTAGE

Yes 33 66 66

No 17 34 100

Nearly 66% customers of private sector banks are aware about different kind of

loans as compared to 38% of public sector bank customers. This shows that

private sector banks are more active marketing add-on products with loans.

64

Table 8.17

Preference of top up loans: Public sector banks


PERCENTAGE

Yes 31 62 62

No 19 38 100

Table 8.18

Preference of top up loans: Private sector banks


PERCENTAGE

Yes 38 76 76

No 12 24 100

As far as preference of top up loans is considered both public and private sector

bank customer prefer bank that offer top up loans.

65

Table 8.19

Awareness of reverse mortgage facility: Public sector banks


PERCENTAGE

Yes 11 22 22

No 39 78 100

(Table 8.20)

Awareness of reverse mortgage facility: Private sector banks


PERCENTAGE

Yes 13 26 26

No 37 74 100

Awareness of reverse mortgage facility is very low with both private and public

sector banks. Banks who offer this kind of facility to make customers aware about

this facility that they are providing. This is an untapped market in India and those

who will work early on this market will grasp more market share.

66

Table 8.21

Likelihood of using reverse mortgage facility: Public sector banks


PERCENTAGE

Yes 16 32 32

No 34 64 100

Table 8.22

Likelihood of using reverse mortgage facility: Private sector banks


PERCENTAGE

Yes 19 38 38

No 31 62 100

This is another interesting finding. Majority that is more than 60% customers of

both private and public sector banks do not want to avail this facility. One reason

may be that most customers are from age group of 25 to 40 and reverse mortgage

can be availed after retirement that is beyond 55-60 years of age.

67

Table 8.23

Rate of interest affects bank choice: Public sector banks


PERCENTAGE

Yes 36 76 76

No 14 28 100

Table 8.24

Rate of interest affects bank choice: Private sector banks


PERCENTAGE

Yes 41 82 82

No 9 18 100

No surprises here. Rate of interest still seems to be the most important criteria

while choosing bank to avail home loan from. This can be understood from the

fact that even 0.5% change in rate accounts for increase or decrease in market

share of banks. This is similar to both private and public sector banks.

68

Table 8.25

Flexibility of payment a criterion for loan: Public sector banks


PERCENTAGE

Yes 39 78 78

No 11 22 100

Table 8.26

Flexibility of payment a criterion for loan: Private sector banks


PERCENTAGE

Yes 36 72 72

No 14 28 100

For both public and private sector banks flexibility of payment does affect the

choice of banks. So banks should have flexible payment options to increase their

market share.

Table 8.27

Margin money affects choice of bank for loan: Public sector banks


PERCENTAGE

Yes 23 46 46

No 27 54 100

69

Table 8.28

Margin money affects choice of bank for loan: Private sector banks


PERCENTAGE

Yes 21 42 42

No 29 58 100

Similar with both private and public sector bank customers, margin money affects

choice of bank for loan for nearly 50% of customers. This can be understood as

people who plan to buy home always save some money before they move to buy

home.

Table 8.29

Prepayment penalty a deterrent in foreclosing the loan: Public sector banks


PERCENTAGE

Yes 38 76 76

No 12 24 100

70

Table 8.30

Prepayment penalty a deterrent in foreclosing the loan: Private sector banks.


PERCENTAGE

Yes 41 82 82

No 9 18 100

An overwhelming 76% customers of public sector bank and 82% private sector

bank customers feel prepayment penalty an important factor that stops them from

foreclosing the loan. If prepayment penalty is reduced or abandoned more

customers will foreclose loan and will use other or same services of bank that will

increase their business.

Table 8.31

Insurance availability important factor for loan: Public sector banks


PERCENTAGE

Yes 29 58 58

No 21 42 100

71

Table 8.32

Insurance availability important factor for loan: Private sector banks


PERCENTAGE

Yes 22 44 44

No 28 56 100

Insurance availability is considered important for nearly 50% of both private and

public sector banks. Very similar for both private and public sector banks.

Table 8.33

Would you recommend your bank to others: Public sector banks.


PERCENTAGE

Yes 24 48 48

No 26 52 100

Table 8.34

Would you recommend your bank to others: Private sector banks.


PERCENTAGE

Yes 29 58 58

No 21 42 100

72

Here more private bank customers say they will recommend their bank to others.

Here public sector banks need to work hard to convince their customers, so that

they too can promote their bank through customers.

Table 8.35

Awareness about 10-point home loan program of Union Bank of India


PERCENTAGE

Yes 28 28 28

No 72 72 100

As far as 10-point home loan program of Union Bank of India is considered,

although it is widely aired on TV and hoardings at prominent places, but customers

were very unaware about this advertisement and features of home loan offered by

union bank.

73

Ranking of various factors in order of importance while deciding which bank to

take loan from.

Chart 8.1

40% of the customers have ranked rate of interest as the number one important

criteria while choosing the bank to take home loan. Since rate of interest is not

fixed, different banks set different rates based on their PLR, but now they are

moving to base rate regime as fixed by the RBI. 19% customers have given

importance to ease of loan processing as an important factor which helps them

decide the bank to take home loan from. Then 18% customers have given their

choice to processing time as an important criterion to choose bank to avail home

loan. Flexibility of payment, margin money, employee behavior, and insurance

cover are ranked high by 7%, 6%, 4%, 6% of customers. This indicates the fact

that rate of interest is the most important factor that a customer evaluates while

deciding to find which bank to take home loan from.

74

CHAPTER 9

CONCLUSION

Indian housing finance sector has been growing at steady pace in the past. During

recent past years, there has been some slowdown due to recession. Hardening of

interest rate also affected the growth of this industry. Slowly this industry is also

peaking up in India. Through this study we are trying to examine the issue of

segmentation in the field of mortgages. Due to rapid changes in banking in the

latest years, organizations have been focusing on the sales of mortgage services, as

profits in this field are higher than in other products. Competition is particularly

intense and for this reason a more attentive marketing approach is required in all

sectors. In order to formulate an appropriate marketing mix, it is initially required

to locate those sections of the market that present the greatest interest in terms of

bank profitability.

The research was carried out among 100 bank customers by using a structured

questionnaire. The conclusions that emerged from this research are especially

important.

In many cases public sector banks and private sector banks are very similar to each

other. Like both cater to same income group population, both are very careful

about getting detailed information about customers, which makes the process very

cumbersome and processing very difficult. On many points, they appear quite

different to each other. While public sector banks are more process oriented and

75

their customer service is also not that good, the private sector banks customize

their service and hence are able to attract customers towards them.

Regarding the mortgage product mix, besides the elements that involve the cost

(interest rate, prepayment penalty), other important factors emerged, such as the

various offers of banks, the bank’s reputation, existing cooperation, as well as bank

staff. These elements are particularly important for bank executives, since they

need to primarily refer to the customers themselves and then approach all the rest.

Particular attention should be paid to staff training, as they appear to affect

important decisions.

Usually loan amounts are particularly high and their repayment involves many

years. Client decision is difficult, as it is thought as an extensive purchasing

behavior with intense participation. For home loans, clients request information,

assess all alternatives and then make decisions. For this reason, bank branches

play an important role, since it is the place where clients can discuss with the staff

and obtain information. The existence of braches has an impact on the feeling of

security that derives from personal contact. In terms of bank marketing, promotion

through television and newspaper plays an important role and seems to affect the

markets related to mortgage products. Regarding the other three parts of marketing

mix, i.e. the staff, procedures and physical presence, they all appear to be of

importance. Bank executives should focus on these factors and especially on

employees who seem to also affect the notion on products costs. Customers have

in general a significant correlation with the main characteristics of products and in

all cases this influence was of positive nature.

76

RECOMMENDATIONS

In the recent past, there was slowdown in the housing finance sector, but this could

be attributed to economic recession and hardening of interest rates by the RBI.

Now with growth back in Indian economy, this sector is also poised to grow at

rapid pace. Therefore, to use the opportunity optimally bank should come forward

and initiate their activity in this field.

Public sector banks which are believed to passive marketers should come forward

with aggressive offers so that they can also become part of growth story.

RECOMMENDATION SPECIFIC TO UNION BANK OF INDIA

1. Although Union Bank of India is advertising its home loan schemes through

10-point home loan advertisement through television and other media, it is lacking

awareness and visibility among customers. So, with TV it should also use

newspaper for advertisement.

2. In its advertisement, it should use some brand ambassador which will

enhance brand value and recall of advertisement. Although they offer very good

offers to customers but their awareness among customer is less.

77

3. Union bank of India has all the products regarding home loan. It has good

facilities for customers. Only thing it needs to have is good marketing team. It

should increase its visibility at regulatory authority bodies like RRDA (Ranchi

Regional Development Association).

4. Union Bank of India should start having some tie up with builders who are

developing properties at various locations in Ranchi like Vasundhara Homes and

scores of builders who are developing properties around Ranchi.

5. In our finding we have also seen that home customers are those who have

long association with the bank. So, first the bank should start contacting various

organization and convince them to have their employee salary accounts with it. It

should pursue good businessman to have current account with it. In long run, this

would help it sell more products like home loan and other loans to customers and

thus increase its market share.

6. Although there are good private banks coming up and growing fast, but still

if we consider home loan market. The majority of stake is with State Bank of India

and it is growing at rapid pace. Number 2 and number 3 place is with ICICI and

Axis Bank and then another public sector bank Punjab National Bank holds fourth

spot. So customers are still with public sector banks and they seen as slow but are

respected for their transparency. So, Union Bank of India should start

concentrated marketing so as to gain market share in home loan market.

78

GENERAL RECOMMENDATION TO ALL BANKS

In older generation that is people of more than 45 years age, private banks are seen

with sense of suspicion, they think most private banks have hidden charges

associated with them. Therefore, they usually prefer public sector banks although

their service is not at par with private sector banks.

Prepayment penalty is one factor which at times stops customers to foreclose their

loans. This penalty should be minimized so that customer is willing to foreclose

loan as and when they have money. This will help them better believe in banks

and then they will be more inclined to take another home loan or use other loan

products which will only enhance business for the banks.

Most of the customer who avail loan are from 30 to 45 age group, so banks should

concentrate more on this segment of customers.

Although reverse mortgage facility is good debt instrument, there is lack of

awareness about it. So, banks should increase awareness about it and help

customers avail this facility and in process increase their market share in this

segment.

Public sector banks should also increase their customer service and after sales

service of customers, as this is segment they are lagging behind the private sector

banks. Customer service will help not only increase their home loan business but

sale of other products will also increase if they provide good customer service.

79

REFERENCES

www.rbi.org.in

http://www.eurojournals.com/finance.htm

Subprime mortgage crisis, Wikipedia.


http://www.unionbankofindia.co.in/

http://www.statebankofindia.com/

http://www.icicibank.com/

http://www.hdfcbank.com/personal/default.htm

Prabhat Khabar newspaper, June 22, 2010.

http://economictimes.indiatimes.com/

80

http://economictimes.indiatimes.com/

http://www.hdfcbank.com/personal/default.htm

http://www.icicibank.com/


QUESTIONNAIRE FOR CUSTOMER PERCEPTION OF HOME LOANS

Name: __________________________________________________

Age: 1. 18-25 2. 25-35 3. 35-45 4. 45-55 . 5. 55 and above .

Gender: 1. Male . 2. Female .

Qualification: ________________________________________________.

1) What is your occupation?

1. Businessman 2. Government employee 3. Private Service 4. Self

employed 5. Others ____________

2) What is your monthly income?

1. Up to 25,000 . 2. 25,000 to 40,000 . 3. 40,000 to 55,000 . 4. 55,000

to 70,000 . 5. 70,000 and above .

3) Have you taken home loan? Yes . No .

If yes, name of the bank from where you have taken home loan.

If no, which bank would you approach first for home loan?

_________________________.

4) How long is your association with the bank?

1. Less than 1 year . 2. 1-5 years . 3. More than 5 years .

5) How do you come to know about the home loan schemes of the bank?

1. Newspaper 2. Television 3. Internet 4. Magazines 5. Other sources

81

6) Did you approach the bank for home loan or bank approached you for home

loan?

1. Self . 2. Bank

7) How do you rate the after sales service of your bank?

1. Excellent . 2. Good . 3. Average . 4. Poor . 5. Very poor .

8) What do you think about the behaviour of the bank employees?

1. Very cooperative . 2. Cooperative . 3. Normal . 4. Bad . 5. Very

bad .

9). Please answer in YES OR NO

I. Has your bank followed complete transparency in terms of telling you

all costs and rates while dealing with you.

Yes or

No

II. Are you aware of top up loans like loan for repair, improvement,

extension of house etc.?

III. Will you prefer that bank which offers top up loans?

IV. Are you aware of reverse mortgage facility offered by the banks?

V. Would you like to avail reverse mortgage facility in the future?

82

VI. Does rate of interest affect the choice of bank you are going to take

loan from?

VII. Is flexibility of payment an important criterion while taking loan?

VIII. Does margin money required by bank while financing affect the

choice of your bank?

XI. Is prepayment penalty a determinant factor in foreclosing loan?

X. Is availability of insurance on loan an important factor for taking loan?

XI. Did you approach more than two banks while availing loan?

XII. Would you recommend your bank to others for home loan?

XIII. Are you aware of the 10-point home loan advertisement campaign

for home loan by Union Bank of India?

10). Please rank the following criteria from most important to least important

which affects the choice of bank for your home loan.

a. Flexibility of payment. _____

b. Rate of interest. _____

c. Insurance cover. _____

d. Employee behavior. _____

e. Processing time. _____

f. Margin money. _____

g. Govt. or private bank. _____

h. Ease of loan processing. _____

83

11). Any major problem that you faced while obtaining home loan.

________________________________________________________________.

12) Any suggestions that you would like to give to banks to improve home loan

services they offer.

__________________________________________________________________

_________________________________________________________________.

THANK YOU FOR YOUR COOPERATION.

84

CHECKLIST OF ITEMS FOR THE FINAL PROJECT REPORT

This checklist is to be duly completed, verified and signed by the student.

1- Is the report properly hard bound/ Spiral bound Yes / No

2- Is the cover page in proper format as given in Annexure

A?

Yes / No

3- Is the Title Page (Inner cover Page) in proper format? Yes / No

4- (a) Is the Certificate from the supervisor in proper

format?

(b) Has it been signed by the Supervisor?

Yes / No

Yes / No

5- Is the abstract included in the report properly written

within one page?

Have the keywords been specified properly?

Yes / No

Yes / No

6- Is the title of your report appropriate? The title should be

adequately descriptive, precise & must reflect scope of

the actual work done.

Yes /

No.

7- Have you included the list of abbreviations / Acronyms?

Uncommon abbreviations / Acronyms should not be

used in the Title.

Yes /

No.

8- Does the report contain a summary of the literature

survey?

Yes /

No.

85

9- Does the Table of Contents include page numbers?

(i) Are the pages numbered properly?

(ii) Are the figures numbered properly? ( Figure numbers

& Figures

titles at the bottom of the figures)

(iii) Are the tables numbered properly? ( Table numbers

& Table

titles at the top of the tables)

(iv) Are the captions for the figures and tables proper?

(v) Are the Appendices numbered properly?

Yes /

No.

Yes /

No.

Yes / No

Yes /

No.

Yes /

No..

10 Is the conclusion of the report based on discussion of the

work?

Yes /

No.

11 Are References or Bibliography given at the end of the

report?

Have the References been cited properly inside the text

of the report

Is the citation of references in proper format?

Yes /

No.

Yes / No

Yes /No.

12 Have you written your report according to the

guidelines? The report should not be a mere printout of a

Power Point Presentation. Source code need not be

Yes /

No.

86

included in the report.

13 A Compact Disk (CD) containing the softcopy of the

Final Report & a copy of the Final Seminar Presentation

made to the Supervisor Examiner (Both preferably in

PDF format only) has been placed in a protective jacket

securely fastened to the inner back cover of the Final

Report. Please write your name & roll no with a marker

on the CD as well as the CD cover.

Yes /

No.

DECLARATION BY STUDENT:

I certify that I have properly verified all the items in this checklist and ensure that

the report is in proper format as specified in the course handout.

Signature of the student

Date: _________________________________

Name: ________________________________

Enrolment No.: __________________________.

87

Comparative Analysis of Home Loans_m

Documents

public sector banks

indian home loan sector

banks reputation

us mortgage sector

various offers of banks

bank customers

indian home loan market

home finance