FYP-Home Loan Comparison and Credit Rating

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A PROJECT REPORT

ON

HOME LOAN COMPARISON AND CREDIT RATING

AT

THE UNITED WESTERN BANK LTD

SUBMITTED TO

UNIVERSITY OF PUNE

BY

RUCHITA SINGH

MBA (FINANCE)

(2004-2006)

VISHWAKARMA INSTITUTE OF MANAGEMENT

PUNE

www.final-yearproject.com | www.troubleshoot4free.com/fyp/



TABLE OF CONTENTS

S.NO. TOPIC PAGE NO.

______________________________________________________

1. Executive Summary 1

2. Objective of the Project 2

3. Company Profile 3-4

4 Introduction to the topic Home Loan 5-16

and Customer Rating

5. Home Loan Scheme of The United Western Bank 17-19

Ltd.

6. Home Loan Scheme of HDFC Bank Ltd., ICICI Bank Ltd.,

State Bank Of India, Karur Vysya Bank Ltd, Karnataka 20-33

Bank Ltd. and South Indian. Bank Ltd.

7. SWOT Analysis of United Western Bank Ltd. 34-35

8. Critical Analysis 36-50

9. Customer Rating 51-58

10. Recommendation 59

11. Conclusion 60

12. Bibliography 61

.




Executive Summary




EXECUTIVE SUMMARY

These days housing finance is in the limelight old private sector banks, new private sector

banks and even public sector banks have become extremely active in this field, there is no

doubt what so ever that there is tremendous shortage of housing in our country. With the

interest rates on housing loans at historical low along with simplified procedure of

obtaining it. Many people are willing to take home loans today. With the new thrust in

the retail segment by the banking community on the whole, this sector has become

attractive both for the lenders and borrowers.

Customers Rating is carried by banks before sanctioning loan to customers. Customer

Rating reflects the borrower s accountability, expected capability and inclination to payinterest and principal in a timely manner.

In this project I have studied in detail about Home Loan scheme of banks and then

compared them with each other. I have also studied in detail about customer rating

undertaken by The United Western Bank Ltd.

At the end I have given suggestion to The United Western Bank Ltd regarding changes

which can be made in the Home Loan scheme and activities which can be undertaken to

promote this product.




Objective Of The Project




OBJECTIVE OF THE PROJECT

To understand the term Home Loan.

To understand the important factors related to Home Loan Scheme.

To study the Home Loan Scheme of The United Western Bank Ltd along with

other leading banks.

To study the Customer Rating of The United Western bank Ltd. with reference to

Home Loan.

To compare the Home Loan Scheme of leading banks in India.

.




Company Profile




THE UNITED WESTERN BANK

The United Western Bank Ltd is one of the leading private sector commercial banks in

India. The head office of the bank is situated at Satara, which is just two hours drive from

pune.

Many eminent personalities hailed from this area.Shri Annesaheb Chirmule was one such

personality. He founded The Western India Life Insurance Company Ltd, a leadinginsurance company in those days. In 1955 due to nationalization of the insurance business

by the Indian Government, The Western India Life Insurance Company Ltd was mergedwith LIC of India.

Annasaheb Chirmule worked with the view to make natives self-dependent .He founded

The Satara Swadeshi Commercial Bank Ltd in 1907.The success of this bank led him toestablish one more commercial bank . The United Western Bank Ltd, which commenced

operation on March 8, 1937.

In 1951, The United Western Bank Ltd acquired the status of a scheduled bank. A seriesof mergers into the bank followed. Union Bank of Kolhapur in 1956 and The Satara

Swadeshi Commercial Bank Ltd, in 1961 was merged with the bank. This and theprogressive policies of bank led to acquire status of (B) class bank in 1969 and (A) class

bank in 1974

Incorporated in 1936, the bank is one of the largest private sector commercial banks inIndia. The share holding of the bank is well dispersed all over the country.

The bank can be described as bank with a steady past, prospering present and promisingfuture.

The bank has three tier organizational structure.

Head office

Zonal office

Branches

The bank 230 branches spread over 47 districts of 9 states are controlled by 5 zonal

offices at Mumbai, Pune, Kolhapur, Jalgaon, and Nagpur.

The head office of Satara oversees the operations of 5 zones.




Important Services provided:

Provides various types of Loans, accepts various types of deposits.

Operates 169 Fully computerized and 78 partially computerized Branches.

Provides extended Hours Services at branches in Residential area.

Operates 65 ATM Centers.

Provides merchant Banking facilities.

Operates special Agriculture Finance Branch at Kholapur.

Operates 15 Foreign Exchange Centers and 54 Foreign Correspondents.

Provides SANMAN- Deposit Scheme for Senior Citizen.




Introduction To The Topic




HOUSING FINANCE

Of late, housing finance has not only become popular, but the procedure for obtaining aloan has become so simplified that housing loans are easily available. This maybe

attributed to the change in the housing policy of both the Central and State governments.A redeeming feature of Indian housing finance is the recent entry of commercial bankingin a big way.

Housing and land development occupy a peculiar position in India so far as the state andcentral government are concerned. Both the governments have the power to makeenactments on the subject of housing and land. As a result, the housing policy in Indiahas been wide and varied.

HOUSING

Housing means the houses or conditions that people live in .

HOUSING FINANCE

A set of all financial arrangements hat are made available by Housing Finance

Companies(HFCs) to meet the requirements of housing is called housing finance .

HOUSING FINANCE IN INDIA-GROWTH FACTOR

Housing finance has received a boost through through a combination of growing demandand rising affordability .while the demand for housing has always been there and will befor a long time to come, its increase affordability has been the key to growth.According

to HDFC, every rupee spent on housing leads to 78 paise increase in GDP.

BUDGETARY SUPPORT

Tax benefits, a low interest rate regime and high salary levels among certain sections

are chiefly responsible for fuelling fast growth in the housing f inancial servicing

sector. Tax benefit for housing finance contributes to housing development. For thispurpose RBI maintains a soft interest regime. The bank rate of interest is constantly

being slashed so that it acts as a stimulant for housing demand.

Similarly, a sharp increase in size of pay packets has played an important role inmaking a house affordable. Regardless of salary levels, if the cost of a house comesdown it would pep up the demand for housing finance. The is reason to believe that

we are witnessing a gradual movement towards loosening the restrictions thatincrease the cost of a house.




NEW DYNAMICS

An important development in the housing finance business has been the entry of new

players. The relatively low risk in a housing portfolio has spurred a new entrance inthe last few years. Arguably, the most significant entrant has been ICICI HomeFinance.

The entry of new players and the consequent increase in competition has beenfollowed by an interesting trend. The interest rate of most housing finance companies

(HFC) move in unison, there by suggesting that interest rate is not likely to be acompetitive tool. The high level of competition has made it impossible for an HFC,with branches across the country, to charge an interest rate higher than thecompetition. Commercial banks are an exception to the rule, in the sense that theyalways charge lower than the competition.

DISTINGUISHING SERVICE

Companies are trying to distinguish themselves through a difference in servicestandards. Industry officials emphasize that service quality is the key to competitivestrength .A the moment, there seems to be little to chose from among the top housingcompanies when it comes to service .Assuming almost similar service standards,future growth is likely to be decided by access to resources. A strong brand namesuch as HDFC Bank Ltd, ICICI Bank Ltd, and LIC is likely to command access to alot more resources and customers. Therefore the bigger players are likely to be moredominant players.

HOUSING FINANCE ASSISTANCE- FACTORS

Housing finance companies consider the following factors before making any financialassistance for housing:

Loan amount

Tenure

Administrative and processing cost

Prepayment charges

Services

Value addition




Sources of finance like HFC s and banks

EMI calculation methods

. THE LOAN AMOUNT

The amount of loan that any HFC decides to provide to a loan seeker depends on the

following variables:

Customers repayment capacity

Rate of interest charged

Term of loan

Repayment is done through EMI , which includes principle and the interest . As a rule ,an HFC fixes the EMI between 30 &40 percent of the customer s gross monthly income,

or 50 percent of the net monthly income.

LOAN COST

The effective cost of the loan depends on the type of method used by banks or finance

companies. Based on the method, the principal component, which is paid monthly, isdeducted from the outstanding principal amount. The two methods, which banks and

finance companies generally follow are:

Monthly rest system

Under this system, the principal amount is deducted every month from the outstandingamount, and the interest for the following month is calculated on the outstandingprincipal.

Loan Amount (Rs.)

Tenure (Years)

Interest (Percentage)

EMI (Rs.)

Total Payment (Rs.)

1,00,000 5 13 2,275 1,36,500

1,00,000 10 13 1,493 1,79,160

1,00,000 15 13 1,265 2,27,700




Annual rest system

Under this system, although the principal amount is paid every month, it is accountedonly at the end of the year.

This is illustrated as follows:

Loan Amount

(Rs.)

Tenure

(Years)

Interest

(Percentage)

EMI

(Rs.) Total Payment

(Rs.)

1,00,000 5 13 2,370 1,42,200

1,00,000 10 13 1,536 1,84,320

1,00,000 15 13 1,290 2,32,200

The above example illustrates that for the same amount and for same rate of interest, theamount of EMI varies with the type of method used.

FIXED AND FLOATING RATES

Customers should check whether the rates offered are fixed or floating (varies with PLR). Floating rates are better in a falling rate scenario, but expensive in an increasing rate

scenario. The borrower should check whether it is viable to shift the loan from fixed rateto floating rate in a decreasing rate scenario by carrying out cost benefit analysis.

PREPAYMENT CHARGES

This is an important factor to be considered, especially in situations where the ability torepay the loan matters. There are certain HFCs which charges prepayment, in case theloan is repaid before schedule. This pushes up the coat of the fund of the borrower.

Borrowers who are desirous of repaying ahead of the schedule should approach HFCswhich do not have a prepayment charge.

VALUE ADDITION

The value addition includes supplementary services that HCFs provide, such as fast

disbursals of loan, legal services, meeting with brokers, builders and so on.




These days Housing Finance is in the limelight. Not long ago the Housing Finance meant

HDFC. It is no more so. Virtually all banks led by New Private Sector Banks and even

Public sector Banks have become extremely active in this field. There is no doubtwhatsoever that there is tremendous shortage of housing in our country. With the interestrates on housing loans at historical low, many people are willing to take loans today. The

banks on the other hand are flushed with funds due to less off take of credit by thecorporate sector, due to the recessionary conditions prevailing for the past few years.

Secondly the rate of default in this sector is pretty low, making these loans very attractive

for the banks. With the new thrust in the retail segment by the banking community on thewhole, this sector has become attractive both for the lenders and the borrowers. What has

also helped is that the real estate rates seem to have stabilized.

Two acts namely the Urban Land Ceiling Act and the Rent Control Act has a great

impact on this sector.

The ULCRA was enacted in 1976 with the objective to make more land available for theconstruction of houses. This was sought to be achieved by preventing concentration of urban property in the hands of few. But in fact this legislation ended up in choking up the

land supply. According to the Ministry of Urban Affairs out of the total surplus land of

2,20,674 hector identified, only 19,000 hectors have been takenpossession of by thevarious state governments. This has led to a scarcity of affordable land for residential

construction. Recently the Central government has repealed this act and has advised thestate governments to also do the same. However all state governments have not acted onthis as yet.

The Rent Control Act also had a similar adverse impact on the housing industry. This lawfavors the tenant, and this discourages investment in housing sector for letting theproperty on rent or lease. Under this act the owner runs the risk of the property being

taken over by the tenant at some stage. Some states have recently amended their RentControl Acts, but a lot still needs to be done. Unless the investor gets market related

returns on his investments in this sector and unless he has the right to repossess the

property from the tenant, the investor is not likely to make investments in this sector.

Hosing finance is offered by many specialized Housing Finance Companies approved bythe regulator National Housing Bank, a subsidiary of the Reserve Bank of India. It is alsooffered by public and private sector banks along with many co-operative banks.

The NHB specifies various norms to be followed by the HFCs (Housing Finance

Companies) and regulates the industry. It specifies the interest rates to be followed in

lending and borrowing, income recognition and prudential norms, borrowing limits andaudit to the hosing finance companies. It provides refinance facility to the HFCs andfacilitates promotion of these companies on the specified lines.




Objectives of NHB:

1. To promote, establish, support or aid in the promotion, establishment and support

of housing finance institutions.

2. To make loans, advances or render any other form of financial assistance

whatsoever to housing finance institutions, scheduled banks, and to any authorityestablished under any central/state engaged in slum clearance.

3. To subscribe to or purchase stocks share bonds debentures and securities of every

other description.

4. To guarantee the financial obligations of these institutions and underwrite theirissues of securities.




CUSTOMER RATING

The main objective of this is to assess the applicants sustained repayment capacity overthe period. The main points that are considered are:

Income

Age

Academic background and Employment stability

Family Background

Assets and Liabilities

Servicing record in respect of other institutional borrowings

Saving history and capacity

Number of dependents

Income and expenditure pattern

Documents Required for Scrutiny:

Salaried Class:

Salary certificate

Copy of ration card/electricity bill

Rent receipt if applicable.

For Self Employed:

A brief introduction to business/profession

Balance Sheet and Profit and Loss account, duly certified by a chartered

accountant.

Income tax / wealth tax return for the past three years.

Copies of challans of advance tax.

Assessment orders.

Shop and Establishment Act certificate of registration.

Ration card / Electricity bill / Rent receipt (if applicable)




Legal Appraisal: After Customer Rating is done, legal appraisal is done wherein allother documents like original title deeds, revenue receipts, encumbrance (search)certificates for the past 30 years are verified by a lawyer to confirm that the withholder

can create an equitable mortgage in favor of the HFC by simple deposit of title deeds.

Technical Appraisal: The Technical officer will verify the original documents andcounter check all the furnished information. Following documents are generally required:

Layout Plan

Approved Plan

No-encumbrance certificate

Clearance under Urban Land ceiling Act

Commencement certificate

A detail estimate of cost of construction.




EXPLANATION OF TERMS

EMI

EMI (Equated Monthly Installment) is the amount payable to the lending institution everymonth, till the loan is paid back in full. It consists of a portion of the interest as well asthe principal.

EMI calculation

EMI Formula: l x r [(1+r) n / (1+r) n-1] x 1/12

l = loan amount

r = rate of interest n = term of the loan

Eligibility conditions for a Home Loan

To qualify for a home loan, most of the lending institutions in India require you to be: a) An Indian resident or NRI

b) Above 21 years of age at the commencement of the loan

c) Below 65 when the loan matures

d) Either salaried or self employed

The interest rates offered for Home Loans. (Daily Reducing, Monthly Reducing and

Yearly Reducing)

Interest rates are different from institution to institution and generally range from about7.25% to around 10.75 %. The interest on home loans in India is usually calculated eitheron monthly reducing or yearly reducing balance. In some cases, daily reducing basis isalso adopted.

Annual reducing

In this system, the principal, for which you pay interest, reduces at the end of the year.Thus you continue to pay interest on a certain portion of the principal which you haveactually paid back to the lender. This means the EMI for the monthly reducing system iseffectively less than the annual reducing system.

Monthly reducing




In this system, the principal, for which you pay interest, reduces every month as you pay

your EMI.

Daily Reducing

In this system, the principal, for which you pay interest, reduces from the day you pay

your EMI. EMI in the daily reducing system is less than the monthly reducing system.

Fixed rate of interest

Some institutions have a fixed rate of interest, which means the rate of interest remainsunchanged for the entire duration of the loan. This means you do not benefit, even if rates

of interest drop in the market.

Floating rate of interest

This is the rate of interest that fluctuates according to the market lending rate. This meansyou stand the risk of paying more than you budgeted for in case the lending rate goes up.

The other costs that usually accompany a Home Loan

Home loans are usually accompanied by the following extra costs:

Processing Charge: It s a fee payable to the lender on applying for a loan. It is

either a fixed amount not linked to the loan or may also be a percentage of the

loan amount. The loan amount required by you cannot be less than the processingfee.

Pre-payment Penalties: When a loan is paid back before the end of the agreedduration, a penalty is charged by some banks/companies, which is usually

between 1% and 2% of the amount being pre-paid.

Commitment Fees: Some institutions levy a commitment fee in case the loan is

not availed of within a stipulated period of time after it is processed andsanctioned.

Miscellaneous Costs: It is quite possible that some lenders may levy a

documentation or consultant charges.

The repayment period




Repayment period is the period during which loan is to be repayed.Repayment options

range generally from 5 to 20 years.

Loan amount /Quantum Of Loan

Usually, most banks and financial institutionsgive up to a maximum of 85% of the costof the house. The 15%, sometimes called seed money , will have to be provided by the

loan applicant. The amount, for which the applicant is eligible, is determined by the age,

income, number of dependents, monthly outgoing and repayment capacity. This variesfrom case to case.

Securities required for home loans

In most cases, the property to be purchased itself becomes the security and is mortgaged

to the lending institution till the entire loan is repaid. Some institutions may ask foradditional security such as life insurance policies, FD receipts and share or savings

certificates.

Guarantor to get a Home Loan

Some institutions ask for 1 or 2 guarantors, others require no guarantor at all.




TAX BENEFITS OF HOME LOAN

Both principal as well as interest of home loans attract tax benefits. With effect from 1stApril 2005 (i.e. assessment year 2005-07) under section 80C of the Income Tax Act

1965:

Principal amount of repayment of loan along with other savings such as PF, PPF, Life

Insurance Premium etc up to a maximum of Rs 1, 00,000/ - will be eligible for deductionfrom gross income.

Interest paid on loan after completion of construction will be deductible from incomefrom property

a. For self occupied Income will be treated as nil and interest payment will betreated as minus income which will be adjusted against other income.

b. For rental property It will be adjusted against rental income

Interest paid on loan before completion of construction will be allowed as deduction

from income at 20% per year for the next five years.




Home Loan Scheme Of United Western Bank Ltd.




THE UNITED WESTERN BANK LIMITED.

HOUSING LOAN SCHEME

The united western bank brings to people vastupurti purti a unique housing loan schemethat translates their dream.

Purpose of Loan

Loan for Construction and purchase of house/flat including purchase of land.

Renovation/Extension/repair of Existing house /flat.

For taking over of housing loans from other banks / Housing finance companies.

For furnishing.

For purchasing durable goods along with loans f or the purchase and construction

of house/ flat.

For purchase of house /flat on resale.

Eligibility

Any Individual with regular source of income either singly or jointly with his/ herspouse.

Age of person should be at least 21 years.

Quantum

An amount based on the repayment capacity of the applicant subject to :

45 times of net income earners or 4 times of annual income for business / professionals.

Maximum amount Rs 75 lakhs.




80% to 85% of the cost of house flat depending on loan amount.

Loan amount, the installment of which does not exceed 50% of monthly income

Minimum of above will be the loan amount

For repairs renovation, modification of existing house up to Rs 2lakhs.

Rate of interest

Fixed for the first five years @ 8.5% and then floating as per the prevailing rates after 5years which would be PLR- 3% per annum.Present prime lending rate is 11.5% per

annum.

Repayment period

For construction of new house /flat (18years)

For purchase of new house/flat. (18 years)

For purchase of house/flat on resale. (18years)

For additional construction of house (7 years)

For repairs, renovation, extension (7years)

For taking over of housing loan from other banks / housing financecompanies. (18 years)

For furnishing. (7years)

Security

Main security for loan will be mortgage of property to be purchased out of loan.

Processing fees

0.5% upfront. Maximum Rs 1000.

Commitment charges




1% commitment charges on outstanding balance if loan is repaid within first 5

years.

Margin

15% for loan up to 5 lakhs and 20% above 5 lakhs.

EMI

Rs 2052 for first 5 years and after that according to floating rates prevailing at that time.

Repayment holiday

Repayment holiday of 18 months.




Details About Other LeadingBanks




BANKS IN INDIA

PUBLIC SECTOR / NATIONALISED BANKS:

Allahabad Banks

Bank of India

Bank of Maharashtra

Canara Bank

Central Bank of India

Corporation Bank Dena Bank

Punjab National Bank

Syndicate Bank

UCO Bank

Union Bank of India.

OTHER PUBLIC SECTOR BANK :

IDBI Bank

OLD PRIVATE SECTOR BANKS:

Bank of Rajasthan Ltd.

J & K Bank Ltd.

Karur Vysya Bank Ltd.

South Indian Bank Ltd.

United Western bank Ltd.

NEW PRIVATE SECTOR BANKS:

HDFC Bank Ltd.

ICICI Bank Ltd.




UTI Bank Ltd.

STATE BANK OF INDIA AND ITS ASSOCIATES:

State Bank Of India

The top Home Loan providers in India are HDFC Bank Ltd, ICICI Bank Ltd and StateBank Of India. Presently The United Western bank Ltd cannot compete with these banksas they have vast resources and expertise at their disposal. They are bigger in size thanThe United Western bank Ltd.

On the other hand Karur Vysya Bank Ltd, South Indian Bank Ltd And Karnataka Bank Ltd is almost equal to The United Western Bank Ltd in terms of resources and expertise.

The United Western Bank Ltd faces stiff competition from these banks. Therefore it isnecessary to study in detail the Home Loan scheme of all these Banks.

While applying for a Home Loan following factors are considered by applicants.

The various purposes for which Home Loan is given.

Eligibility for getting a Home Loan.

Interest Rates

EMI of loan

Quantum of loan Margin

Repayment period

Processing fees

Prepayment charges

Other incentives provided by banks etc.

Banks and Financial institutions should consider these factors while deciding a HomeLoan scheme or while making changes in the existing Home Loan scheme.




HDFC Bank Ltd.

Purpose of Loan

Construction/purchase of house/flat

Extention, Renovation and Repair of Existing house /flat.

For taking a home loan from any other bank and financial institution.

Quantum

For purchase/construction:

Loan up to 85% of property.

Repayment period

Up to 20 years.

Margin

15% of the total cost in case of house/flat .

Interest rates (%)

Lenders name Upto 5 years 6-10 years 11-15 years 16-20years

Fixed 8.75 8.75 8.75 8.75

floating 7.75 7.75 7.75 7.75

Equated monthly installment per lakh (Rs.)


Fixed 2064 1250 996 880




Floating 2013 1200 942 821

Processing fees

Fixed 0.50%

floating 0.50%

Pre-payment charges

Nil




ICICI Bank Ltd.

Purpose of Loan

For construction/purchase of house/flat

For renovation/extention/repair of Existing house /flat.

For purchase of plot for construction of house/flat.

Quantum

Up to Rs. 3 crore.

Repayment period

Up to 20 years.

Margin

15% in case of purchase and construction of house/flat.

25% in case of purchase of land for construction of house/flat.

Interest rates (%)

Lenders name Upto 5 years 6-10 years 11-15 years 16-20years Fixed 8.50 8.50 8.50 8.50

floating 8.00 8.00 8.00 8.00






Fixed 2052 1240 985 868

Floating 2028 1214 956 837

Processing fees

Fixed waived

floating waived

Prepayment charges

Nil




State Bank Of India

Purpose of Loan


Renovation/extention/repair/alteration of existing house /flat.

For taking a Home Loan from any other bank, financial institution.

Quantum

Up to 60 times the net monthly income will be sanctioned depending upon age of customer.

Repayment period

Up to 20 years.

Margin

25% for new house/flat.

20% for old house/flat.

20% of the cost for renovation/repair.

Interest rates (%)


Fixed 8.50 9.00 9.00 9.25

floating 8.00 8.50 8.50 8.75





Lenders name Up to 5 years 6-10 years 11-15 years 16-20years

Fixed 2052 1267 1014 915

Floating 2028 1240 985 884

Processing fees

Fixed 0.25% floating 0.25%

Pre-payment charges

2%




Karnataka Bank Ltd.

Purpose of Loan


Renovation/remodeling/repair of Existing house /flat.

Eligibility

Individuals who are residents of India.

Salaried persons aged 21 years and above who are in confirmed service with a

minimum service of 3 years and a minimum gross monthly salary of Rs 6000/ -.

Businessmen/Professionals/ self employed persons aged 21 years and above, with

a minimum experience of 3 years and a minimum gross annual income of Rs60,000/ -.

Quantum

For purchase/construction:

60 times of latest monthly take home (net) salary in case of salaried persons.

5 times of latest annual net income +depreciation provided, if any, as per P and LA/c in case of traders / professionals / self employed persons.

Rs 50 lakh. Whichever is lower.

Renovation and repairs:

Up to Rs 10 lakh or 40% of the value of the house/flat, whichever is lower.

Repayment period

Up to 15 years. Repayment holiday upto 18 months considered. Repayment period within

70 years of age.




Margin

25% of the total cost in case of house/flat up to 5 years old.

30% of the total cost in case of house/flat more than 5 years old and up to 20

years old.

Reduction in margin by and up to 10%considered on special conditions.

30% of the cost for renovation/repair.

Interest rates (%)


Fixed 8.25 8.75 9.00floating



Fixed 2040 1253 1014

Floating

Processing fees

Fixed 0.25%

floating

Pre-payment charges

Nil




The Karur Vysya Bank Ltd.

Purpose

To purchase a ready built Flat / House (new and also existing not older than 10years).

To purchase a plot and construction of house.

For repairs / renovation / additional construction.

For taking over Housing Loan liability from other Banks & recognized Housing

Finance Companies.

Quantum

Loan available up to Rs 15, 00,000/ -

Repayment period

Repayment of loan up to 15 years with holiday period 12 months

Margin

25%

Interest Rate (%)

Type of Loan Up to 5yrs 6-10yrs 11-15yrs 16-20yrs Fixed 10.50 10.50 10.75

Floating 10.00 10.00 10.25




EMI per Lakh (Rs.)

Type of Loan Up to 5yrs 6-10yrs 11-15yrs 16-20yrs

Fixed 2149 1349 1121

Floating 2125 1322 1090

Processing fees

Fixed 1.00%

Floating 1.00%




South Indian Bank Ltd

Purpose

Purchase of Flat or House

Construction of Flat/House

For major repair, renovation, extension or improvement of Flat/House

Takeover of HL from other Banks/ reputed housing finance companies

Purchasing land & constructing a house.

Quantum

Loan for new construction/purchase/ take over etc Max: Rs.50 lacs.

For renovations/ additions/ major repair, improvement etc

Max: Rs.5 lacs.

Margin

Purchasing land & constructing a house 30 %: old House/renovation.

Repayment Period

Minimum 5 years & Maximum 20 years.

Interest Rate (%)


Fixed 9.00 9.50 9.50 9.50

Floating 8.00 8.50 8.50 8.50




EMI per Lakh (Rs.)


Fixed 2076 1294 1044 932Floating 2028 1240 1029 868

Processing fees

Fixed 0.25%

Floating 0.25%

Prepayment Charges

2%




Critical Analysis




INTEREST RATES (%)

Lenders Name Type of

Loan

Upto 5 yrs 6-10 yrs 11-15 yrs 16-20 yrs.

The UW BankLtd. 8.5% for the first five yrs and then floating rate as per PLR

South Indian

Bank Ltd.

Fixed

Floating

9

8

9.5

8.5

9.5

8.5

9.5

8.5

SyndicateBank

Fixed

Floating

8

7.25

8.5

7.75

8.75

8

9

8.25

Union Bank Fixed

Floating

8.25

8

9

8.75

9.5

9.25

9.5

9.25

United Bank of India

Fixed

Floating

8.5

9.5

9

9.5

9.25

9.5

9.25

9.5

UTI Bank Ltd Fixed

Floating

9.75

7.75

10.25

8

10.75

8

10.75

8

ICICI Bank

Ltd

Fixed

Floating

8.5

8

8.5

8

8.5

8

8.5

8

IDBI Bank Fixed

Floating

8.5

8 8 8 8Jammu &Kashmir Bank

Ltd

Fixed

Floating

8

7.75

8.5

8.25

9.25

9

9.75

9.5

Karnataka

Bank

Fixed

Floating

8.25 8.75 9

Karur Vysya

Bank Ltd

Fixed

Floating

10.5

10

10.5

10

10.75

10.25

Punjab

National Bank

Fixed

Floating

9.25

7.75

10.25

8

10.5

8.25

10.5

8.25

Allahabad

Bank

Fixed

Floating

8.25

7.25

8.75

7.75

8.75

7.75

9.25

8.25

Andhra Bank Fixed

Floating

7.75

7.25

8.5

8

8.75

8.25

8.75

8.25




INTEREST RATES (%)

Lenders Name Type of Loan


Bank of

Baroda

Fixed

Floating

9

8

9.5

8.5

10

8.5

10

8.75

Bank of India Fixed

Floating

8.5

7.25

9.25

8

9.25

8.5

9.25

8.5

Bank of

Maharashtra

Fixed

Floating 8 8.5 8.75 8.75Bank of

Rajasthan

Fixed

Floating

8.25

7.5

8.75

8

9

8.25

Canara Bank Fixed

Floating

8

7.5

9

8.25

9.25

8.50

9.25

8.50

Central Bank

of India

Fixed

Floating

8.5

8

9

8.5

9.5

9

9.5

9

Corporation

Bank

Fixed

Floating

8.25

7.5

8.5

8

8.5

8.25 8.25

Dena Bank Fixed

Floating

8.75

7.25

9.25

7.75

9.5

8

9.5

8

HDFC Bank Fixed

Floating

8.75

7.75

8.75

7.75

8.75

7.75

8.75

7.75




EQUATED MONTHLY INSTALLMENT PER LAKH (Rs)

Lenders Name Type of Loan Upto 5 yrs 6-10 yrs 11-15 yrs 16-20 yrs.

The UW Bank

Ltd.

2052 for the first five years and then according to floatingInterest rates.

South Indian

Bank Ltd.

Fixed

Floating

2076

2028

1294

1240

1044

1029

932

868

SyndicateBank

Fixed

Floating

2028

1992

1240

1200

999

956

900

852

Union Bank Fixed

Floating

2040

2028

1267

1253

1044

1059

932

916

United Bank of

India*

Fixed

Floating

2052

2052

1267

1267

1029

1029

916

916

UTI Bank Ltd Fixed

Floating

2112

2016

1335

1213

1121

956

1015

836

ICICI Bank

Ltd

Fixed

Floating

2052

2028

1240

1214

985

956

863

837

IDBI Bank Fixed

Floating

2052

2028 1214 956 837

Jammu &

Kashmir Bank

Ltd

Fixed

Floating

2028

2016

1240

1227

1029

1014

949

932

Karnataka

Bank

Fixed

Floating

2040 1253 1014

Karur Vysya

Bank Ltd

Fixed

Floating

2149

2125

1349

1322

1121

1090

PunjabNational Bank

Fixed

Floating

2070

2000

1320

1200

1090

960

990

950

Allahabad

Bank

Fixed

Floating

2040

1992

1254

1200

1000

941

916

852




EQUATED MONTHLY INSTALLMENT PER LAKH (Rs)

Lenders Name Type of Loan


Bank of

Baroda

Fixed

Floating

2076

2028

1294

1240

1075

980

965

883

Bank of India Fixed

Floating

2051

2004

1280

1213

1029

985

915

868

Bank of

Maharashtra

Fixed

Floating 2028 1240 999 884

Bank of Rajasthan

Fixed

Floating

2037

2004

1250

1213

1014

971

Canara Bank Fixed

Floating

2025

2001

1264

1224

1025

981

911

864

Central Bank

of India

Fixed

Floating

2052

2028

1267

1240

1044

1014

932

900

CorporationBank

Fixed

Floating

2037

2002

1237

1211

982

967 849Dena Bank Fixed

Floating

2067

2013

1280

1200

1044

956

932

836

HDFC Bank Fixed

Floating

2064

2013

1250

1200

996

942

880

821




PROCESSING FEES

Lenders Name Type of Loan Percentage

The UW Bank Ltd 0.50%

South Indian Bank Ltd. Fixed

Floating

0.25%

0.25%

State Bank Of India Fixed

Floating

0.25%

0.25%

Syndicate Bank Fixed

Floating

0.50%

0.50%

Union Bank Fixed

Floating

Waived

Waived

United Bank Of India Fixed

Floating

Waived

Waived

UTI Bank Ltd Fixed

Floating

1.00%

1.00%

Bank Of Rajasthan Fixed

Floating

0.50%

0.50% Andhra Bank Fixed

Floating

0.50% (w)

0.50% (w)

Central Bank Of India Fixed

Floating

1.00%

1.00%

Corporation Bank Fixed

Floating

1.00%

1.00%

Dena Bank Fixed

Floating

1.00%

1.00%

HDFC Bank Ltd. Fixed

Floating

0.50%

0.50%

Bank Of India Fixed

Floating

0.25% (w)

0.25% (w)




PROCESSING FEES

Lenders Name Type of Loan Percentage

Bank Of Maharashtra Fixed

Floating Waived

Bank Of Rajasthan Fixed

Floating

0.50%

0.50%

Canara Bank Fixed

Floating

0.50% (w)

0.50% (w)

HDFC Bank Ltd. Fixed

Floating

0.50%

0.50%

ICICI Bank Ltd Fixed

Floating

Waived

Waived

IDBI Bank Fixed

Floating 0.75%

Jammu & Kashmir

Bank Ltd.

Fixed

Floating

0.25%

0.25% Karnataka Bank Ltd. Fixed

Floating

0.25%

Karur Vysya Bank Ltd Fixed

Floating

1.00%

1.00%

Punjab National Bank Fixed

Floating

0.75%

0.75%




INTEREST RATE (%) COMPARISON

0

2

4

6

8

10

12

interest

rate

UnitedWestern Bank

Karur Vysya

Bank

South IndianBank

KarnatakaBank

Lenders Name Interest Rate (%) Up to 5yrs

United Western Bank Ltd 8.50

Karur Vysya Bank Ltd 10.50

South Indian Bank Ltd 9.00

Karnataka Bank Ltd 8.25




EMI PER LAKH (Rs)

1980

2000

2020

2040

2060

2080

2100

2120

2140

2160

EMI PER

LAKH(Rs)

up to 5 yrs

UnitedWestern Bank

Karur Vysya

Bank

South IndianBank

Karnataka

Bank

Lenders Name EMI Per Lakh(Rs) Up to 5yrs

United Western Bank Ltd 2052

Karur Vysya Bank Ltd 2149

South Indian Bank Ltd 2076

Karnataka Bank Ltd 2040




PROCESSING FEES (%)

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

Processing

Fees

United

Western Bank

Karur Vysya

Bank

South IndianBank

Karnataka

Bank

Lenders Name Processing Fees(%)

United Western Bank Ltd 0.50

Karur Vysya Bank Ltd 1.00

South Indian Bank Ltd 0.25

Karnataka Bank Ltd 0.25




Quantum of Loan

Lenders Name For Purchase and Construction of

House/Flat

The United Western Bank Ltd . (up to 45 yrs of age)

60 times of net monthly income. Or, 5 times of net annual income.

(above 45 yrs of age)

48 times of net monthly income. Or, 4 times of net annual income and Salary.

Bank of Rajasthan Ltd. 50 lacs

U .C.O. Bank 50 lacs

Jammu & Kashmir Bank Ltd. 40 times net monthly income and salary

Bank of India 50 lacs

Canara Bank 50 lacs

Dena Bank 100 lacs

Punjab National Bank 80% of purchase

Syndicate Bank 50 lacs

South Indian Bank Ltd 50 lacs

IDB I Bank 92% of property

ICICI Bank Ltd. 100 lacs

State Bank Of India Upto age of 45:

60 times of net monthly income. Or, 5 times of net annual income.

Above 45 years:

48 times of net monthly income. Or , 4 times of net annual income

Corporation Bank 50 lacs

Syndicate Bank For Salaried Person:

Maximum of 72 months gross salary

For Others:

Maximum of 6 times average annualincome

State Bank of Mysore Up to age of 45: 60 months net salary

Above 45 years

48 months net salary

HDFC Bank Ltd. Up to 85%of the property




Quantum of Loan

Lenders Name For Purchase and Construction of House/Flat

Union Bank 50 lacs

UTI Bank Ltd. For Salaried Person:

Maximum Rs.50 lacs or,

48 times of net monthly salary.

Loan amount is least of the two above.

For Businessmen:

Income below Rs.2.40 lacs p.a. loan

amt. To be restricted to 2.5 times of

avg.annual income.

Income above Rs.2.4 lacs p.a.loan

amt to be restricted to 3.0 times of the avg.annual income.

Allahabad Bank 4 times of annual gross income

Bank of Baroda For Salaried Person:

40 times of monthly gross salary.

For Others:

4 times the annual average (last 3 years) nettaxable income plus depreciation.

Bank of Maharashtra For Salaried Person:

40 times of gross salary. or,

85% of cost of house including

registration on mortgage, electricitydeposit.

Loan amount whichever is less.

For Businessmen:

33.3 Times of avg.total income of last 3 years.

85% of cost of purchase of h/f and75% of cost of old h/f

Loan amount will be which ever is lower. Andhra Bank For Salaried Person:

36 times monthly gross income. For Businessmen:

3 times the gross annual income

United Bank of India 100 lacs




Maximum Repayment Period of Home Loan

Lenders Name Years

The U nited W estern Bank Ltd. 18 yrs

Central Bank of India 20 yrs

Dena Bank 20 yrs

South Indian Bank Ltd. 20 yrs

Karnataka Bank Ltd. 15 yrs. Repayment period upto 70 yrs of age.

Bank of Maharashtra 20 yrs

HDFC Bank Ltd. 20 yrs

Allahabad Bank 20 yrs

Bank of Baroda 25 yrs

Andhra Bank 20 yrs

I DBI Bank 20 yrs

ICICI Bank Ltd. 20 yrs

State Bank of India 20 yrs

Corporation Bank 25 yrs

Syndicate Bank 25yrs

State Bank of Mysore 20 yrs United Bank of India 20 yrs

Union Bank 20 yrs

Bank of India 20 yrs

Canara Bank 20 yrs

Punjab National Bank 25 yrs

Jammu & Kashmir Bank Ltd. 20 yrs

Bank of Rajasthan Ltd. 20 yrs

U.C.O. Bank 20 yrs

Bank of Baroda 25 yrs




MARGIN

Lenders Name Margin of Home Loan

United Western Bank Ltd. 15% for loan up to 5 lacs & 20% for loan

above 5 lacs

Allahabad Bank For Salaried Person:

If loan is tied up with salary-Nil

If tie up is not available-10%

For Others:

20%

Andhra Bank 10% for purchase and construction of house/flat.

Bank of India For limits unto Rs.10 lacs-15% For limits more than 10 lacs-20%

Bank of Maharashtra Ranging up to 25%

Bank of Rajasthan 15% in case of purchase, construction,repair and renovation of house/flat.

Canara Bank New house/flat 15%

Old house/flat less than 25%

old house/flat beyond 20 yrs old

40%

Central Bank of India 10% for construction 20% for repairs/renovation of existing house/flat.

Corporation Bank For Construction of house/flat lessthan 10 yrs old 20%

For purchase of house/flat beyond10 yrs margin ranges from 20-25%

For repairs or renovation-20%

South Indian Bank ltd 30% for purchase and construction of house/flat.

State Bank Of I ndia 15% for new house/flat

20% for old house/flat 20% for repairs and renovation

Syndicate Bank 25% of total project cost forconstruction/purchase of newflat/up to 5 yrs

30% for acquiring house which isabove 5 yrs old




30% of the estimated cost of addition/extension/repairs/renovation.

Lenders Name Margin

Union Bank 15% for purchase/construction

For repairs 30% of cost of repair

15% for purchase of plot

United Bank of India 15% for purchase and construction of house/flat.

UTI Bank 15% in case of normal production

25% in case of improvement/renovation

loans

50% in case of loans of existingproperty.

ICICI Bank Ltd. 15% for purchase and construction of house/flat.

IDBI Bank 8% for purchase and construction of house/flat.

Jammu and K ashmir Bank Ltd. For Purchase/Construction 15%

For Repairs & Renovation 25%

Karnataka Bank Ltd. 25% for purchase and construction of house/flat.

Karur Vysya Bank Ltd. 25% for purchase and construction of house/flat.

Punjab National Bank 20% for purchase and construction of house/flat.




Customer Rating




CUSTOMER RATING

Customer Rating reflects the borrower s accountability, expected capability and

inclination to pay interest and principal in timely manner. A Customer Rating is asimple number which many lenders use to determine whether or not they will give a loan

or line of credit to an individual.

The main objective of this is to assess the applicants sustained repayment capacity over

the period. The main points that are considered are:

Income

Age

Academic background and Employment stability

Family Background

Assets and Liabilities

Servicing record in respect of other institutional borrowings.

Saving history and capacity.

Number of dependents

Income and expenditure pattern

Documents Required for Scrutiny:

Salaried Class:

Salary certificate.

Copy of ration card/electricity bill.

Rent receipt if applicable.




For Self Employed:

A brief introduction to business/profession

Balance Sheet and Profit and Loss account, duly certified by a charteredaccountant.

Income tax / wealth tax return for the past three years.

Copies of challans of advance tax.

Assessment orders.

Shop and Establishment Act certificate of registration.

Ration card / Electricity bill / Rent receipt (if applicable)

There are certain procedural aspects, which are required to be compiled with before

disbursement of Home Loan in The United Western Bank Ltd takes place. I am therefore,mainly focusing on compliance of such procedural part by the borrower. There are certainforms, which are required to be submitted by the applicant of the loan. Customer Ratingform is one such form. It is accompanied by Customer Profile form. This form contain all

necessary information about the borrower that helps the bank in granting loan to theapplicant. This information is beneficial for the bank as it helps in proper scrutiny of

applicant s capacity to repay the amount of loan. Bank checks the information to itssatisfaction before granting loan to the applicant. This form contains all necessary

information about the applicant s financial position and also the detail information aboutthe property.

Both the Customer Profile Form and Customer Rating Form are designed in an excellentway by The United Western Bank Ltd.




Customer Profile form contains the following information:

Name of the applicant.

Address

Phone number

Date of birth

Qualification

Occupation

Period of service

Name(s) of dependent(s)

Annual income (as per income tax/salary certificate

Sum total of all deductions (including taxes, repayments etc)

Annual income of spouse (as per income tax/salary certificate)

Sum total of all deductions (including taxes, repayments etc)of spouse.

Type of accommodation of the applicant.

Assets owned by the applicant.

Details of bank account(s) of the applicant.

Details of bank account where salary is credited.

Details of loans and advances taken so far.

Signature of the applicant




Information contained in Customer Rating form are as follows:

Name of the applicant.

Address

Phone number.

Date of birth

Qualification

Occupation

Period of service

No of dependents

Yearly income (as per income tax/salary certificate)

Income of spouse

Type of accommodation of the applicant.

Assets owned by the applicant

Details about all bank accounts of the applicant

Average balance in saving bank account for one year

Deposits, if any with The United Western Bank Ltd

Details about any loan taken earlier

Details about repayment of earlier loans

Present monthly obligation, if any(as percentage to salary or monthly income)

Applicants are given points on the information given by them and if the total pointsscored by the applicant is satisfactory and other formalities are also completed then

Home Loan is sanctioned by bank.




Recommendation




RECOMMENDATION

Bank should decrease paper work regarding sanction of Home Loan .It should

also complete the paper work and legal requirement relating to sanction of Homeloan on behalf of applicant s thus minimizing applicant s work.

Loan sanction period should be decreased to suit applicant s requirements.

The processing fees or prepayment rates should be decreased or either of themshould be waived for few years.

Bank should go for corporate tie-up, where it would provide loans to employeesof that company at a rate lower than banks prevailing rates.

Door -Step services should be provided by banks. This kind of service isappreciated by people and can help bank in increasing its business.

Bank should promote product (Home Loan). It should set up stalls in different

parts of cities for few days. Stalls should also be set up in property exhibitions.Advertisement should be given in newspapers with Bank s phone number,

because it is necessary to make people aware about the Home Loan Scheme.

Bank has less presence in other states apart from Maharashtra. Branches shouldbe opened in important cities as most people in other states are still not awareabout the existence of this bank.




Conclusion




CONCLUSION

Growth in population and income level had lead to increase in thedemand for Home Loan to meet the growing housing needs of people. Affordable interest

rate and easy loan sanction by Banks and Financial Institutions have increased the

demand of Home Loan in India.

From the detail study and comparison of Home Loan schemes of different banks, Iobserved that few changes are required in the Home Loan Scheme of The United Western

Bank Ltd.

A decrease in existing paperwork requirements along with decrease in the Loan sanctionperiod is must.

Bank should also decrease its processing fees or its pre-payment rates. It should also gofor corporate tie ups and should also undertake some promotion work for its Loan

product i.e. Home Loan Scheme.

Customer Rating form designed by The United Western Bank Ltd. contains all necessaryinformation about the applicant that helps the bank in granting loan to the applicant. Afterstudying this form I observed that the information contained in it is beneficial for thebank as it helps in proper scrutiny of applicant s capacity to repay the amount of loan.

Bank checks the information to its satisfaction before granting loan to the applicant. Thisform contains all necessary information about the applicant s financial position and alsothe detail information about the property.




Bibliography




BIBLIOGRAPHY

Prof. Anil Agashe Merchant Banking and Financial

services .

BanknetIndia.com

UWBankIndia.com

Dr S Gurusamy Financial services and markets .
