A SUMMERE TRAINING PROJECT ON PUNJAB NATIONAL BANK “HOME LOAN” Submitted to: Dr. B.R. Ambedkar University, Agra In the partial fulfillment of the requirement for the degree Of Master of Business Administration (Banking and Investment) (2008-10) Under the guidance of: Submitted by: Mr. R.K. Verma Prashant Srivastava 1 Prepared by: Prashant Srivastava
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A
SUMMERE TRAINING PROJECT
ON
PUNJAB NATIONAL BANK
“HOME LOAN”
Submitted to: Dr. B.R. Ambedkar University, Agra
In the partial fulfillment of the requirement for the degree
Of
Master of Business Administration
(Banking and Investment)
(2008-10)
Under the guidance of: Submitted by:
Mr. R.K. Verma Prashant Srivastava
(Chief Manager) M.B.A. (B.I.) – IIIrdSemester
Roll No. – 17
SETH PADAM CHAND JAIN INSTITUTE OF COMMERCE BUSINESS MANAGEMENT & ECONOMICS
1 Prepared by: Prashant Srivastava
2 Prepared by: Prashant Srivastava
ACKNOWLEDGEMENT
This report bears the imprint of many persons, who have
helped me in numerous ways in wri t ing this report . I t gives
me great pleasure in present ing this report to the Dr. B.R.
Ambedkar Universi ty , Agra via Seth Padam Chand Jain
Inst i tute of Commerce Business Management &
Economics . I would l ike to take this opportuni ty to extend
my heart ful grat i tude to a l l those who helped me in
present ing this report . Their contr ibut ion no matter big or
small has contr ibuted immensely towards complet ion of this
report .
I fa l l short of words to express my grat i tude to a l l the
respondents who gives me their valuable t ime and unbiased
responses for my quest ionnaire of this project report . I
acknowledge my deep sense of grat i tude to MR. R.K. Verma
(Chief Manager ) for his generous guidance & advice before
& during the course of this work & also in analyzing the
work.
I am also extremely grateful to my facul ty members Mr.
P.N. Agarwal , Ms. Gunjan Dixi t and Ms. Swati Mathur , who
encourages me for complet ing my project report . I am equal ly
thankful to Sri . A.K. Saxena (Co-ordinator) .
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My overr iding debt is to my parents and my sibl ings
who provide me with the moral support & inspirat ion needed
to prepare this report .
PRASHANT SRIVASTAVA
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PREFACE
Modern organizations are highly complex ad dynamics systems. They
operate under very turbulent social economic and political environment.
They are required to reconcile several incompatible goals. Conflicting roles
and divergent interest they are also fraught with the use risk and
uncertainties, hence tactful management of such organization to plan to
execute guide, coordination and control the performance of people to
achieve predetermined goals. Management has to keep the organization
vibrant moving and in equilibrium. It has to achieve goal which themselves
are changing it is therefore a problem highly complex and ticklish.
This information wil l be asset to market ing manager in
making effect ive decis ions. The researches are used to
acquire and analyse information and to make suggest ions to
management as to how market ing problems should be solved.
The market ing research is the process which l inks to
manufacturer , dealers and individuals through information in
important par t of curr iculum of M.B.A. programme is project
taken by the s tudents to inst i tute under which he or she is
s tudying, af ter complet ion of third semester of the
programme.
The object ive of this project is to enable the s tudents to
understand the appl icat ion of the academics in the real
business l i fe . I am ful ly confident that this project report wil l
be extremely useful to the management .
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TABLE OF CONTENTS
Acknowledgement
Preface
CHAPTER 1: Overview of banking industry in India
CHAPTER 2: A Saga of Banking Excellence in Banking
(PUNJAB NATIONAL BANK)
CHAPTER 3: Performance of the PNB
CHAPTER 4: Organisational Structure
CHAPTER 5: Home Loan
CHAPTER 6: PNB Home Loan
CHAPTER 7: Suggestions & Troubleshooting Tips
CHAPTER 8: Bibliography
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TYPES OF BANKS BANKS IN INDIA
OVERVIEW OF BANKING INDUSTRY IN INDIA
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The major participants of the Indian financial system are the
commercial banks, the financial institutions (FIs), encompassing term-
and the state-level development banks, Non-Bank Financial Companies
(NBFCs) and other market intermediaries such as the stock brokers and
money-lenders. The commercial banks and certain variants of NBFCs are
among the oldest of the market participants. The FIs, on the other hand, are
relatively new entities in the financial market place.
Bank of Hindustan, set up in 1870, was the earliest Indian Bank .
Banking in India on modern lines started with the establishment of three
presidency banks under Presidency Bank's act 1876 i.e. Bank of Calcutta,
Bank of Bombay and Bank of Madras. In 1921, all presidency banks were
amalgamated to form the Imperial Bank of India. Imperial bank carried out
limited central banking functions also prior to establishment of RBI. It
engaged in all types of commercial banking business except dealing in
foreign exchange.
Reserve Bank of India Act was passed in 1934 & Reserve Bank of
India (RBI) was constituted as an apex bank without major government
ownership. Banking Regulations Act was passed in 1949. This regulation
brought Reserve Bank of India under government control. Under the act,
RBI got wide ranging powers for supervision & control of banks. The Act
also vested licensing powers & the authority to conduct inspections in RBI
In 1955, RBI acquired control of the Imperial Bank of India, which was renamed as State Bank of India. In 1959, SBI took over control of eight private banks floated in the erstwhile princely states, making them as its 100% subsidiaries.
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RBI was empowered in 1960, to force compulsory merger of weak banks with the strong ones. The total number of banks was thus reduced from 566 in 1951 to 85 in 1969. In July 1969, government nationalised 14 banks having deposits of Rs.50 crores & above. In 1980, government acquired 6 more banks with deposits of more than Rs.200 crores. Nationalisation of banks was to make them play the role of catalytic agents for economic growth. The Narsimham Committee report suggested wide ranging reforms for the banking sector in 1992 to introduce internationally accepted banking practices.
The amendment of Banking Regulation Act in 1993 saw the entry of new private sector banks.
Banking Segment in India functions under the umbrella of Reserve Bank of India - the regulatory, central bank. This segment broadly consists of:
Commercial; Banks
Co-operative Banks
Commercial Banks
The commercial banking structure in India consists of:
Scheduled Commercial Banks
Unscheduled Banks
Scheduled commercial Banks constitute those banks which have been
included in the Second Schedule of Reserve Bank of India(RBI) Act, 1934.
RBI in turn includes only those banks in this schedule which satisfy the
criteria laid down vide section 42 (60 of the Act. Some co-operative banks
are scheduled commercial banks albeit not all co-operative banks are. Being
a part of the second schedule confers some benefits to the bank in terms of
access to accomodation by RBI during the times of liquidity constraints. At
the same time, however, this status also subjects the bank certain conditions
and obligation towards the reserve regulations of RBI. This sub sector can
broadly be classified into:
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1. Public sector
2. Private sector
3. Foreign banks.
CO-OPERATIVE BANKS
There are two main categories of the co-operative banks.
(a) Short term lending oriented co-operative Banks - within this
category there are three sub categories of banks viz state co-operative
banks, District co-operative banks and Primary Agricultural co-
operative societies.
(b) Long term lending oriented co-operative Banks - within the
second category there are land development banks at three levels state
level, district level and village level.
The co-operative banking structure in India is divided into following
main 5 categories: (Visit us again for details of each category)
1. Primary Urban Co-op Banks:
2. Primary Agricultural Credit Societies:
3. District Central Co-op Banks:
4, State Co-operative Banks:
5. Land Development Banks:
BANKS IN INDIA
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s S. N. Public Sector Banks Private Sector
Banks
Foreign Banks
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
Allahabad Bank
Andhra Bank
Bank of Baroda
Bank of India
Bank of Maharashtra
Canara Bank
Central Bank of India
Corporation Bank
Dena Bank
Indian Bank
Indian Overseas Bank
Oriental Bank of Commerce
Punjab and Sind Bank
Punjab National Bank
Syndicate Bank
UCO Bank
Union Bank of India
United Bank of India
Vijaya Bank
IDBI Bank
Bank of Punjab Ltd.
Centurion Bank Ltd.
Development Credit Bank Ltd.
HDFC Bank Ltd.
ICICI Bank Ltd.
IndusInd Bank Ltd.
Kotak Mahindra Bank Ltd.
UTI Bank Ltd.
Yes Bank Ltd
Bank of Rajasthan Ltd.
Dhanalakshmi Bank Ltd.
Federal Bank Ltd
ING Vysya Bank Ltd.
Jammu and Kashmir Bank Ltd.
Karnataka Bank Ltd
Karur Vysya Bank Ltd
Ratnakar Bank Ltd
SBI Commercial and
International Bank Ltd
South Indian Bank Ltd
United Western Bank Ltd
ABN-AMRO Bank N.V
Abu Dhabi Commercial Bank Ltd
American Express Bank Ltd.
BNP Paribas
Citibank N.A
DBS Bank Ltd
HSBC Ltd.
Standard Chartered Bank
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ABOUT PUNJAB NATIONAL BANK HISTORY OF PNB VISION & MISSION
A SAGA OF EXCELLENCE IN BANKING
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Established in 1895 at Lahore, undivided India, Punjab National Bank
(PNB) has the distinction of being the first Indian bank to have been started
solely with Indian capital. The bank was nationalized in July 1969 along
with 13 other banks. From its modest beginning, the bank has grown in size
and stature to become a front-line banking institution in India at present
A professionally managed bank with a successful track record of over 110
years.
Largest branch network in India - 4668 Offices including 238 Extension
Counters spread throughout the country.
Strategic business area covers the large Indo-Genetic belt and the
metropolitan centres.
Ranked as 248th biggest bank in the world by Bankers Almanac, London.
Strong correspondent banking relationships with more than 217 international
banks of the world.
More than 50 renowned international banks maintain their Rupee Accounts
with PNB.
Well equipped dealing rooms; 20 different foreign currency accounts are
maintained at major centres all over the globe.
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Rupee drawing arrangements with M/s UAE Exchange Centre, UAE, M/s
Al Fardan Exchange Co. Doha, Qatar, M/s Bahrain Exchange Co, Kuwait,
M/s Bahrain Finance Co, Bahrain, M/s Thomas Cook Al Rostamani
Exchange Co. Dubai, UAE, and M/s Musandam Exchange, Ruwi,
Sultanate of Oman.
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ABOUT PUNJAB NATIONAL BANK
With over 38 million satisfied customers and 4668 offices, PNB has
continued to retain its leadership position among the nationalized banks. The
bank enjoys strong fundamentals, large franchise value and good brand
image. Besides being ranked as one of India's top service brands, PNB has
remained fully committed to its guiding principles of sound and prudent
banking. Apart from offering banking products, the bank has also entered the
credit card & debit card business; bullion business; life and non-life
insurance business; Gold coins & asset management business, etc.
Since its humble beginning in 1895 with the distinction of being the first
Indian bank to have been started with Indian capital, PNB has achieved
significant growth in business which at the end of March 2009 amounted to
Rs 3, 64,463 crore. Today, with assets of more than Rs 2, 46,900 crore, PNB
is ranked as the 3rd largest bank in the country (after SBI and ICICI Bank)
and has the 2nd largest network of branches (4668 including 238 extension
counters and 3 overseas offices).During the FY 2008-09, with 39% share of
low cost deposits, the bank achieved a net profit of Rs 3,091 crore,
maintaining its number ONE position amongst nationalized banks. Bank has
a strong capital base with capital adequacy ratio as per Basel II at 14.03%
with Tier I and Tier II capital ratio at 8.98% and 5.05% respectively as on
March’09. As on March’09, the Bank has the Gross and Net NPA ratio of
only 1.77% and 0.17% respectively. During the FY 2008-09, its’ ratio of
priority sector credit to adjusted net bank credit at 41.53% & agriculture
credit to adjusted net bank credit at 19.72% was also higher than the
respective national goals of 40% & 18%.
PNB has always looked at technology as a key facilitator to provide better
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customer service and ensured that its ‘IT strategy’ follows the ‘Business
strategy’ so as to arrive at “Best Fit”. The bank has made rapid strides in this
direction. Along with the achievement of 100% branch computerization, one
of the major achievements of the Bank is covering all the branches of the
Bank under Core Banking Solution (CBS), thus covering 100% of it’s
business and providing ‘Anytime Anywhere’ banking facility to all
customers including customers of more than 2000 rural branches. The bank
has also been offering Internet banking services to the customers of CBS
branches like booking of tickets, payment of bills of utilities, purchase of
airline tickets etc. Towards developing a cost effective alternative channels
of delivery, the bank with more than 2150 ATMs has the largest ATM
network amongst Nationalised Banks.
With the help of advanced technology, the Bank has been a frontrunner in
the industry so far as the initiatives for Financial Inclusion is concerned.
With it’s policy of inclusive growth in the Indo-Gangetic belt, the Bank’s
mission is “Banking for card based technology enabled Financial Inclusion
with the help of Business Correspondents/Business Facilitators (BC/BF) so
as to reach out to the last mile customer. The BC/BF will address the
outreach issue while technology will provide cost effective and transparent
services. The Bank has started several innovative initiatives for marginal
groups like rickshaw pullers, vegetable vendors, diary farmers, construction
workers, etc. The Bank has already achieved 100% financial inclusion in
21,408 villages.
Backed by strong domestic performance, the bank is planning to realize its
global aspirations. In order to increase its international presence, the Bank
continues its selective foray in international markets with presence in Hong
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Kong, Dubai, Kazakhstan, UK, Shanghai, Singapore, Kabul and Norway. A
second branch in Hong Kong at Kowloon was opened in the first week of
April’09. Bank is also in the process of establishing its presence in China,
Bhutan, DIFC Dubai, Canada and Singapore. The bank also has a joint
venture with Everest Bank Ltd. (EBL), Nepal. Under the long term vision,
Bank proposes to start its operation in Fiji Island, Australia and Indonesia.
Bank continues with its goal to become a household brand with global
expertise.
Amongst Top 1000 Banks in the World, ‘The Banker’ listed PNB at 250th
place. Further, PNB is at the 1166th position among 48 Indian firms making
it to a list of the world’s biggest companies compiled by the US magazine
‘Forbes’.
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HISTORY OF PUNJAB NATIONAL BANK
1895- PNB established in Lahore by Lala Lajpat Rai.
1904- PNB established branches in Karachi and Peshawar.
1939- PNB acquired Bhagwan Dass Bank Limited.
1947- Partition of India and Pakistan at Independence. PNB lost its
premises in Lahore, but continued to operate in Pakistan.
1960- PNB amalgamated Indo-Commercial Bank Limited
(established in 1933) in a rescue.
1961- PNB acquired Universal Bank of India.
1963- The Government of Burma nationalized PNB's branch in
Rangoon (Yangon).
1965- After the Indo-Pak war the government of Pakistan seized all
the offices in Pakistan of Indian banks, including PNB's head
office, which may have moved to Karachi. PNB also had
branches in East Pakistan (Bangladesh).
1969- The Government of India nationalized PNB and 13 other
major banks on 19th July, 1969.
1978- PNB opened a branch in London.
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1988- PNB acquired Hindustan Commercial Bank Limited in a
rescue.
1993- PNB acquired New Bank of India, which the Government of
India had nationalized in 1980.
1998- PNB set up a representative office in Almaty, Kazakhstan.
2003- PNB took over Nedungadi Bank (established the bank in
1899), the oldest private sector bank in Kerala. It was
incorporated in 1913 and in 1965 had acquired selected
assets and deposits of the Coimbatore National Bank. At the
time of the merger with PNB, Nedungadi Bank's shares had
zero value, with the result that its shareholders received no
payment for their shares.
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VISION
"To be a Leading Global Bank with Pan India footprints and become a
household brand in the Indo-Gangetic Plains providing entire range of
financial products and services under one roof"
MISSION
"Banking for the unbanked
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FINANCIAL PERFORMANCE OF PNB
AWARDS & RECOGNITION
PEST ANALYSIS
SWOT ANALYSIS
Financial Performance of the Bank
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Punjab National Bank continues to maintain its frontline position retained its
NUMBER ONE position among the nationalized banks in terms of number
of branches, Deposit, Advances, total Business, operating and net profit in
the year 2008-09. The impressive operational and financial performance has
been brought about by Bank’s focus on customer based business with thrust
on SME, Agriculture, more inclusive approach to banking; better asset
liability management; improved margin management, thrust on recovery and
increased efficiency in core operations of the Bank. The performance
highlights of the bank in terms of business and profit are shown below:
Parameters Mar'07 Mar'08 Mar'09 CRAR
Operating Profit* 3617 4006 5744 26.02
Net Profit* 1540 2049 3091 41.67
Deposit 139860 166457 209760 22.47
Advance 96597 119502 154703 26.55
Total Business 236456 285959 364463 24.15
(Rs.Crores)
Respective figure for the corresponding financial year
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AWARDS & RECOGNITIONS
"Best IT Team of the Year Award"- At the IDRBT Banking Technology awards for the year 2005-06.
SKOTCH Challenger Award-For Change Management for the year 2005-06
Best IT User in Banking & Financial Services Industry – 2004
By NASSCOM in partnership with Economic Times.
Golden Peacock Award-
For Excellence in Corporate Governance - 2005 by Institute of Directors.
FICCI's Rural Development Award-
For Excellence in Rural Development – 2005
Skotch Challenger Award for Exemplary use of Technology
For becoming a pioneer in Public Banks – 2005
Golden Peacock National Training - 2004 & 2005
By Institute of Directors
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National Award for Excellence in SSI Lending
Ranked 2nd for 4 consecutive years - 2002, 2003, 2004 & 2005
Banking Technology Awards 2004 Runner up in 'Best IT Team of the Year Award 2005'
Jointly Adjudged by IBA, Finacle & TFCI
Money Outlook Award - 2004
Runner up in 'Best Bank (public Sector) of the year Award' –2005
Niryat Bandhu Gold Trophy
For excellence in export performance for 3 consecutive years 2001, 2002 & 2003 by Federation of Indian Exporters Organization (FIEO)
21st Amongst Top 500 Companies
By the leading Financial Daily the Economic Times, June 2005
9th amongst India's Top 50 Most Trusted
A.C Nielson Survey, The Economic Times Dec 2004
Service Brands 3rd Rank amongst Banking Sector in India 323rd Rank in the World
The Bankers' Almanac, January 2006
368 amongst Top 1000 Global Banks
The Banker, London July 2005
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PEST ANALYSIS
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SWOT ANALYSIS
Objective
Analysis of PNB
Strengths
Wide network Large no. of
customers Fast adaptability to technology Brand recognition Excellent Training
Weaknesses
Opportunities
Fast growing Indian
economy High growth in
bankingsector Liberal markets Micro financing
Home to home banking services
Diversification towards other field
Globalization
Decentralized decision making
Awards & Incentives
Threats
Large no. of market players
Providing betterservices Building long termcustomer relationships
Fast Decision making Competitive edge Changing culture
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STRUCTURE OF THE ORGANISATION
HIERARCHY
MANAGEMENT OF PNB
ABOUT M.D. & CHAIRMAN SINCE INCEPTION
ORGANISATIONAL STRUCTURE
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Bank has its Corporate Office at New Delhi and supervises 58 Circle
Offices under which the branches function. The delegation of powers is
decentralised upto the branch level to facilitate quick decision making.
HIERARCHY
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HEAD OFFICE7, Bhikhaji Cama Place, New Delhi-110026
CGM OFFICES
CIRCLE OFFICES
BRANCHES
MANAGEMENT OF PNB
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Executive Director(ED)
Chief General Managers (CGM)
General Managers (GM)
Deputy GM
Assistant GM
Chief Managers
Senior Managers
Managers
Officers
Clerical/ Subordinates
Chairman
Name Designation
M V Tanksale Executive Director
Nagesh pyadh Executive Director
Smt. Ravneet kaur Govt. of India Nominee Director
L.M Fonseca RBI Nominee Director
S. R. Khurana Director rep. C.A. Category
P.K. Nair Officer Employee Director
Mohan Lal Bagga Workmen employee Director
Mushtaq A Antulay Part –time non Official Director
Gautam P. Kandelwal Part –time non Official Director
Vinod Kumar Mishra Part –time non Official Director
Tribhuwan Nath Chaturvedi Share Holder Director
Devinder Kumar Singla Share Holder Director
G R Sundaravadivel Share Holder Director
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NAMES OF CHAIRMAN & MANAGING DIRECTORS ALONG
WITH THEIR TENURE SINCE THE INCEPTION OF PUNJAB
NATIONAL BANK
Names of Chairman &
Managing Director
S/Shri
Period
1 Sardar Dyal Singh Majithia 1895 - 1898
2 R.B. Lal Chand 1898 – 1905
3 Bhagat Ishwar Dass 1905 – 1910
4 R.B. Lal Chand 1911 – 1912
5 R.B. Lala Sukh Dayal 1912 - 1913
6 Bhagat Ishwar Dass 1913 - 1915
7 Dr. Hira Lal 1917 – 1920
8 Lala Dhanpat Rai 1921 – 1931
9 Dr. Maharaj Krishna Kapur 1931 – 1937
10 R.B. Dewan Badri Das 1938 - 1942
11 Lala Yodh Raj 1943 – 1953
12 Shriyans Prasad Jain 1953 – 1954
13 Shanti Prasad Jain 1954 – 1959
14 Ram Nath Goenka 1960 – 1964
15 Kamalnayan Bajaj 1964 – 1967
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16 Somesh Chandra Trikha 1968 – 1972
17 Prakash Tandon 1972 – 1975
18 T.R. Tuli 1975 – 1977
19 O.P. Gupta 1977 – 1980
20 S.L. Chopra 1980 – 1981
21 S.L. Baluja 1981 – 1985
22 J.S. Varshneya 1985 – 1989
23 Rashid Jilani 1990 - 2000
24 S.S. Kohli 2000 – 2005
25 S.C. Gupta 2005 - 2007
26 Dr. K.C. Chakrabarty 2007 – 2009
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FEATURES OF HOME LOAN
HOME LOAN INDIA
TYPES OF HOME LOAN
WHY TAKE A HOME LOAN
CHECK LIST FOR HOME LOAN
RBI DIRECTIVES FOR HOME LOAN
HOME LOAN
Home loans are provided based on the market value, mainly estimation
given by banks or the registration value of the property. Availing various
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types of house loans to suit your individual needs at the lowest rates & easy
financing can now fulfill the need for a house of your own.
Home loan is not a one-time decision; do review the market periodically
before availing them. Today there are unlimited numbers of banks in the
country wanting to give out Home loans. Given this scenario, it may seem
easy getting yourself a loan. But is it really??
Buyers tend to make mistakes while entering into deals, which may not be
beneficial for them, so better compare all the variables before signing a loan
agreement by different banks. However the loan agreement should be
finalized only after reading the terms and conditions carefully.
You can apply for a Home loan even before you select your property. The
loan amount would be sanctioned or approved for you, based on your
repayment capability.
Features of house loan:
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• Purpose: For purchase of house from builder / resale and construction /
extension of existing house.
• Loan amount: You can avail for Home loans need based depending on
your eligibility, income and repayment capacity.
• Security: Home loan is a secured loan wherein collateral are required.
• Loan tenor: The maximum loan tenure is 25 years.
Planning to avail a home loan, you must adhere underneath points:
Firstly, take your own time and evaluate your expenses and do a market
survey about the property buying process. Buying a house, which is way
beyond your range, could affect you financially; banks help in financing
your dream home via home loans.
1. Eligibility
Banks determine your eligibility based on your repayment capacity and
discuss about the loan amount up front. The eligibility for acquiring a home
loan is augmented by clubbing income of your father/spouse/mother/son, by
clearing your outstanding debts, by stretching your loan tenure, Salaried
individuals can increase their eligibility by showing their performance linked
income or bonus earned.
Secondly, Do your own analysis and check the impact of your repayment of
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home loan on your monthly expenditure, as a thumb rule, it’s recommended
to make sure the EMI of your home loan do not exceed more than 50% of
your gross monthly income.
2. Interest rates
An important factor that goes into your EMI calculations is the interest
rates, which may vary from bank to bank, so do compare them. Also do a
complete and detailed analysis of the various options like the interest rates
i.e. fixed and floating rate of interest.
Thirdly, if two banks give you the same amount of loan but at different
interest rates do your math and work out what's best for you.
a) Fixed interest loans
Charge an interest, which remains the same through out the tenure of the
loan. This means that the consumer is immune to market risk or the possible
upward movement in the interest rates.
Hence, fixed rate is a good option when the interest rates are expected to
move up in the future.
b) Floating rate loans
A consumer is exposed to market risk and his gain or loss depends on the
interest rate condition prevailing in the market. Floating rate is beneficial if
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the interest rate falls in the future. A floating rate is considered non-
transparent and is also known as 'adjustable rate'.
Fourthly, if you decide to opt for a fixed rate loan, you can still switch to a
floating rate loan in the future and vice versa as and when rates go in your
favour and if you do decide to switch, you should take into account the cost
of doing so and the interest rate benefits of switching.
For a given interest rate, loan with a daily or monthly reducing balance is
better than an annual reducing balance loan. Interest rates vary depending on
the tenure of the loan, the amount of the loan and your personal profile.
3. Insurance covers (an added cost)
Also, many banks may insist on getting your home insured to safeguard their
interest. There are various kinds of insurance covers available for you. Apart
from getting the mandatory ones you should try to get insurance as per your
circumstances. You also have a choice of getting insured from another
company without any objection from your bank.
4. Other costs
The interest rates and EMIs are not the only cost factor. Rs. 1350/
documentation charges and 0.90% + service tax. Processing fees, administration
fees, valuation fee, legal fee, is to be paid when you apply for a loan and other
fees paid at closing.
Make sure you work out as to how much these other costs add up to. So even
though the interest rate may be lower, it usually adds up to being expensive. If
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the EMIs may come out a lot more than what you can afford on a monthly
basis; try to redo the math with changes in the tenure and loan amount (if
possible).
5. Advance EMI
Advanced EMI is the number of equated monthly installments in the form of
post dated cheques, paid out in advance at the time of disbursement of loan.
6. Document required
Most importantly, all deals and offers agreed upon are supported by relevant
papers. Self employed and salaried require different documents to support
the deal.
So make sure you always ask for a letter on the banks letterhead mentioning
the likes of, exact rate of interest, processing fees, pre-payment charges
along with interest-schedule.
Before signing the documents, make sure you recheck all terms and
conditions.
Do make sure you understand and agree with each of the clauses in the
documents. Do not sign any blank documents. Even if it takes you a few
hours to fill-up the form, please do so.
Do not leave anything for the executive to fill-up. It's always better to get a
legal opinion from someone on your loan papers. Do not under any
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circumstance give any false information. This may amount to fraud and
could land you in trouble.
7. Penalties Once you have received the loan do your best to pay it back as
quickly as possible. But this early payment might invite a pre-payment
clause.
Banks make their money off the interest they charge and the sooner you pay
back a loan the less money you will have to pay in interest. When it comes
to Home loans, penalties are binding, like if you chose to pay up your entire
money before the tenure, a Pre-payment penalty is charged. So you should
know about such penalties beforehand to avoid future misunderstanding
between you and the bank.
8. Home loan glossary Confused in the Home Loan jargon? Our glossary
will help you in understanding the basic home loan related terms. Browse
through the glossary or search for a term through the menu to resolve any