Comparison of Housing Loans from SBM and UBI
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This research article is aimed to compare and critically analyse the housing loan schemes offered by State Bank of Mysore and Union Bank of India, Bangalore Branch, India
OBJECTIVE OF THE STUDY
- To recognize and evaluate literature relevant to the theories of home loans.
- To evaluate the general awareness of the various schemes currently offered by HFCs / banks and the purpose of which housing loan are given.
- To perform comparative analysis for housing loan schemes for State Bank of India and Union Bank of India.
- To study the documentation process in HFCs (Housing Finance Companies) and critically evaluate problem faced by clients during the process of lending housing finance in banks.
- To assess and suggest appropriate Conclusions and Recommendations with regards to housing loan schemes offered by SBM or UBI Bank to the customers.
This article explains the housing loan schemes offered by banks in order to bolster the current housing finance situation in India and to taper down the margin between the housing demand and the availability of houses, The National Housing Bank was set up in the year 1988. This was done by keeping in mind that a home seeker though does have a desire for a house but lacks the resources for construction or buying it. To give an enhancement to private housing finance institutions the National Housing Bank came into the picture. It is a principal agency to promote housing finance institutions both at local and regional levels and to provide financial and other support to such institutions. While it is important to keep in mind that the National housing Bank itself does not give loans or finance individuals or a party as such. It is only a corporate body to promote, establish, support or aid the housing finance institutions.
India have been serving the people for around three decades and providing various housing loan schemes according to the customers various needs at attractive and reasonable interest rates. In order to facilitate the best housing loan schemes at the least interest rate this research article will help in critically evaluating and comparing the schemes of housing loan for two banks i.e. State Bank Of India and Union Bank of India, Bangalore, India in order to know the best offers provided by the banks as well their performances in order to retain in competition within marketplace.
This research article analyses the effectiveness and efficiency of housing loan schemes provided by SBM and UBI bank which will provide its customers a attractive interest rates in on housing loan.
Company Overview of SBM and UBI
State Bank of Mysore was formed as Bank of Mysore Ltd. in 1913 under the benefaction of the former Government. Of Mysore, on the illustration of the banking commission headed by the great Engineer-Statesman, Late Dr. Sir M.Visvesvaraya. Subsequently, in March 1960, the Bank became an Associate of State Bank of India. State Bank of India holds 92.33% of shares. The Bank's shares are listed in Bangalore, Chennai, and Mumbai stock exchanges.
The Bank has a widespread network of six hundred eighty two only (682) branches (as on 30.09.2009) and 20 extension counters spread all over India which includes 5 specialised SSI branches, 4 Industrial Finance branches, 3 Corporate Accounts Branches, 4 specialised Personal Banking Branches, 10 Agricultural Development Branches, 3 Treasury branches, 1 Asset Recovery Branch and 8 Service Branches, offering wide range of services to the customers.
The Bank has a dedicated workforce of 9720 employees consisting of 3169 supervisory staff, 6551 non-supervisory staff (as on 31.03.2008). The skill and competence of the employees have been kept updated to meet the requirement of our customers keeping in view the changes in the environment.
Union Bank of India
UBI Bank is consistently dedicated to bind and maintain its distinctiveness as a foremost, pioneering cost-effective Bank, by means of a down to business approach to the shifting requirements of the general public. A extensive scale of goods and services has been resulted and also made accessible to its precious customers to cater the least of their requirements. Today, with its well-organized, value-added services, continual intensification, reliable productivity and expansion of innovative technology, UBI bank has ensured comprehensive shopper delight, keeping up its image, €œGOOD QUALITY POPULACE TO BANK WITH€?. The key to the triumph of any organisation lies with its personnel or manpower. No wonder, UBI dedicated tem of dynamic and enthusiastic skilled personnel consists of 26000 thousand employee who contribute to the maximum in order to ensure growth for UBI. The bank went for Initial Public offer (IPO) on 20th august 2002 which was followed by the public offer made on February 2006.Government of India holds fifty five percent (55.43%) share capital of Union Bank the current share capital holding of the bank is forty four point five seven percent 44.57 % which includes Individuals and Others.
Reason behind choosing the topic for the study
Housing is the one of the main priority sector needs a lot attention now days the interest rate of the housing loan is raising very high customers are worried about the rates due to indefinite fluctuation. This study is about the comparison of the various schemes and the interest rate of the two banks State Bank of Mysore and Union Bank of India. After this study we will be able to know that which bank is more convenient in the lending of loan. Different schemes of the bank are convenient in different manner according to customer's priority. The study is important also in case of comparison of the many other banks' schemes to these two banks.
Meaning of Loan: -
Loan is a method of lending under which bank gives credit to a borrower for a fixed period and for a specific purpose. Loan are promises for future payment, they have to be repaid in periods beyond a year and are therefore long-term liabilities
3.3Types of Loan: - Generally bank grant loans for different period like shorts, medium and long and for different purpose. Broadly, the loans granted by banks are classified follows
Bank Loans (1) Short-term Loans: - Short-term loans are granted to meet the working capital needs of the borrowers. These loans are granted against the securities of tangible assets mainly the movable assets like goods and commodities, share debenture, etc. (2) Term Loans: - Medium and long-term loans are usually called term loans. These loans are granted for more than a year and are meant for purchase of capital assets for the establishment of new units and for expansion or diversification of an existing unit.
Loan Procedure: -
Generally various banks adopt following procedure for loan.
Appraisal of Loan
Submit the Application
Convene to loan applicant
To Issue Draft or Pay order
Submit the Application: -
First of all the loan borrower should submit application to the particular bank. The borrower is required to fill out a common application form, which seeks comprehensive information about proprietor's and loan borrower's back ground and his business network and as well as his cost of project and economic consideration.
Appraisal of Loan: -
The bank follows good appraisal system for effective lending and to make easy repay in future way. The main task of the lending bank is to make sure that the income generated from the loan is sufficient to repay the loan installments according to the terms and conditions of amortization. The risk involved in term lending is much more than the risk in short-term lending because the loans are given to new undertaking, or for the modernization and expansion of existing undertaking and for loan period.
Before sanctioning any loan a banker should assure himself that the borrowing concern shall be able to earn sufficient income to pay the loan installments. The methods of analysis and standard to be adopted for an appraisal of loan are more similar to investment decision than to short-term lending. The appraisal of loan included projection of future trends of output, sales estimated of costs, returns and flow of funds. It is extremely difficult to have a clever cut formula for the appraisal of term loan since many factors have to be considered such as the type of borrowing bank and its activities, the markets potential, its management, and financial position. The amount of loan and the period of its repayment. Another important factor is whether to give weight age to profitability or to its broad economic significance in the development of the economy.
A term loan may be appraised by considering four different aspects of the proposal. They are:
- Technical feasibility
- Economic feasibility
- Managerial competence
- Financial feasibility
After completing the step of submit the application and appraisal system of loan. Then loan applicant should collect the document for borrowing loan, every documents and requirement are needed according to the co-operative bank rate. If the loan applicant wants to borrow loan of huge amount, so at a time strong documents are presented by loan applicant against bank like evident of shareholders, original and photocopy of property's documents, photocopy last three years income tax returns file, etc. if loan applicants has no any recommendation from share holder so firstly the bank becoming share holders of his bank by issuing share to them, so above types of documents are used to borrow loan and advances from the bank.
Convene to Loan Application: -
After collecting the necessary documents, an officer of the recipient bank review it to ascertain whether it is complete for processing, when the application is considered complete. Then the co-operative bank held meeting of his loan applicant and sanctioned the particular loan. Generally this meeting is convened on Monday and Thursdays in every week. Otherwise expected it in other contingent situation and gives date, day and time for delaying particular meeting.
To Issue Draft or Pay order: -
At the last stage is that, after convening of loan applicant and sanctioning loan, borrower should pay its stamp duty, margin and one installment of loan, then in the stamp document or stamp procedure. Then bank gives to them pay order or draft. If the any loan borrowers want to purchase machinery or vehicle from out of city so he need quotation of that particular company, and finally bank made draft of company's name otherwise if the quotation of city area so at a time the co-operative bank made pay order of company's name. Them it gives to company through loan applicant.
Thus above procedure is followed by the loan applicant, who wants to borrow loan from banks and satisfied his goal or objectives.
1.) In December 2006 Fulbag Singh and Reema Sharma had studied about the housing Finance in India. Housing, as one of the three basic needs of life, always remains on the top priority of any person, economy, government and society at large. In India, majority of the population lives in slums and shabby shelters in rural areas. From the last decade, the Government of India has been continuously trying to strengthen the housing sector by introducing various housing loan schemes for rural and urban population. The first attempt in this regard was the National Housing Policy (NHP), which was introduced in 1988. The National Housing Bank (NHB) was set up in 1988 as an apex institution for housing finance and a wholly-owned subsidiary of Reserve Bank of India (RBI). The main objective of the bank is to promote and establish the housing financial institutions in the country as well as to provide refinance facilities to housing finance corporations and scheduled commercial banks. Moreover, for the salaried section, the tax rebates on housing loans have been introduced. The paper is based on the case study of LIC Housing Finance Ltd., which analyzes region-wise disbursements of individual house loans, their portfolio amounts and the defaults for the last ten years, i.e., from 1995-96 to 2004-05 by working out relevant ratios in terms of percentages and the compound annual growth rates. A relevant chart has also been prepared to highlight the results.
2) In May 18, 2007 Michael La Cour-Little had studied about the Economic Factors Affecting Home Mortgage Disclosure Act Reporting. The public release of the 20042005 Home Mortgage Disclosure Act data raised a number of questions given the increase in the number and percentage of higher-priced home mortgage loans and continued differentials across demographic groups. Here we assess three possible explanations for the observed increase in 2005 over 2004: (1) changes in lender business practices; (2) changes in the risk profile of borrowers; and (3) changes in the yield curve environment. Results suggest that after controlling for the mix of loan types, credit risk factors, and the yield curve, there was no statistically significant increase in reportable volume for loans originated directly by lenders during 2005, though indirect, wholesale originations did significantly increase. Finally, given a model of the factors affecting results for 2004-2005, we predict that 2006 results will continue to show an increase in the percentage of loans that are higher priced when final numbers are released in September 2007
3.) €œThe housing finance market has been consistently exhibiting rapid growth in the past few years. Growth has been largely concentrated on urban areas and in the middle to high income groups, focusing on the salaried class. This growth was partly fuelled by the entry of commercial banks seeking asset growth in a sluggish business environment coupled with the tax incentives on housing loans. The banks, with their lower cost of funds, extensive branch network, capability to provide a range of personal banking services and aided by the average low default rates in housing finance, could expand the market considerably. They however, continued to focus on middle to higher income groups. Lower income groups, self employed and the rural population are by and large excluded. While the middle and higher income groups may continue to access conventional housing finance, increasing attention will need to be paid to the needs of the underserved€?. (Source: Saravanan P. Recent Experiences in the Housing Finance Sector - A Study with Reference to India. Housing Finance International [serial online]. September 2007; 21(5):45-48. Available from: Business Source Complete, Ipswich, MA. Accessed June 17, 2010)
4.) The innovations in housing finance systems in advanced economies over the past two decades have altered the role of housing sector in business cycle and in the monetary transmission mechanism. It concludes that these changes have spilovers from the hosuing sector to the rest of the economy and have amplified their impact by strengthening the role of housing as collateral. This analysis suggests in economies were developed mortgage markets, monetary policymakers may need to respond over aggressively to developments in housing sectors, within a risk-management approach that treats house price dynamics as one of the key factors to be considered in assuming balnce of risks to output and influence. (Source: World Economic Outlook(International Monetary fund), 2008, ISBN 978-1-58906-719-6)
5.) Today, the housing finance market has evolved into an oligolpolistic structure (SSKI, 20606) with three dominant providers-DFC, the largest housing company, ICICI bank the largest private sector bank, State Bank of India the largest bank in country. According to SSKI India research estimation in 200, the three leading housing credit providers accounted for approximately 75 of the market. Only a few foreign banks are involved and they tend to focus on 'High net worth' individuals.Towards the end of 2005, India saw a graduate inching uo of interest rates. Despite this, close to 85 % of housing credit customers still prefer floating rate of interest.(Source: Housing Finance mechanism in India, 2008, ISBN- 978-92-1-131970-5, [email protected] United Nations Human Settlement Programme 2008)
6.) €œAs per a article report published in wall street the trend in housing sector in India as on February 20,2008 were heading for a slowdown. The withdrawal of an Initial Public offering (IPO) by Emaar MGF Pvt. Ltd is an indication of difficulties companies worldwide are having in tapping market. (Source: Kilbinger, Sara Seddon. "India Faces Housing Slowdown." Wall Street Journal - Eastern Edition 20 Feb. 2008: B7. Business Source Complete. EBSCO. Web. 17 June 2010)
7.) €œThe housing market in the Indian metropolitan city of Bangalore. Some problems of housing finance from the viewpoints of families and of public authorities are indicated. It is argued that it is these financial problems that make access difficult for the poorer half of the population of Bangalore to forms of housing other than inner city slums or urban fringe informal housing. Public housing with its unrealistic standards of service provision, but especially its high initial access costs is not well designed to meet the needs of the majority of families. The paper concludes that unless public housing authorities emulate the private housing market they will continue to play a marginal role in housing in a city such as Bangalore. There are signs that this is happening in India with experimentation in both housing finance and lower service standard. (Source: Blore, Ian. "Housing and the working class in an Indian metropolis." Public Administration & Development 9.5 (1989): 557-568.Business Source Complete. EBSCO. Web. 17 June 2010.)
8.) The housing sector in India for several decades faced a number of set-backs, such as an unorganized market, development disparities, a compartmentalized development approach and a deterrent rent control system. There was not even a concerted attempt to understand the housing problem let alone promote it. Reforms introduced in the sector during the 1990s, however, have overturned the situation to a great extent. The designing of a shelter policy, the organization of the housing finance market, the introduction of fiscal incentives, increased public investment, legal reforms and others initiatives have brought about a number of changes in the housing sector. Interestingly, these changes have been concerned with both reducing the housing shortage and increasing the number of quality housing stock besides increased access to various other housing amenities like safe drinking water, good sanitation and household electricity. However, the reform initiatives of the housing sector need to take deep roots and to go a long way to address the growing incidence of sub-standard and dilapidated housing stock for further minimizing the deprivations of housing amenities. This paper considers a few policy options towards addressing the challenges of the housing sector. (Source: Mahadeva M. Reforms in housing sector in India: impact on housing development and housing amenities. Habitat International[serial online]. September 2006;30(3):412-433. Available from: Business Source Complete, Ipswich, MA. Accessed June 17, 2010)
OPERATIONAL DEFINITION OF THE CONCEPT
EMI- Equated Monthly Installment is what a loaner pays the Banks every month towards repayment of loan. It is comprises of principle and interest.
EMI = L * r (1 + r) n x 1
(1 + r) n €“ 1 12
Interest rate- It is the amount which banks charge along with the principal amount per year on the basis of fixed rate or floating rate.
UBI- Union Bank of India
SBM- State Bank of Mysore
HFC- Housing Finance Company
The study dwells on both secondary and primary data. The primary data is collected through interviewing staffs of the banks, secondary data is collected through past details of the Housing finance structure, reports, pamphlets, brochures etc
Primary research is form of research which includes the gathering of new data using an acknowledged research method. This could be in form of opinion poll, questionaaire, telephonic interviews or personal interview etc
For this research article the author has chosen to carry out primary research by collecting data in form of questionnaire or by interviewing SBM and UBI with the support of bank officials or staff members of bank.
Secondary Research is referred to data which is not a original creation. This form of data is already available to a researcher in order to carry out the research process in form of websites, journals or newspapers or company annual reports.
How Primary data can be collected:
1.) Questionnaire or Opinion Polls:
Questionnaire or opinion polls are intended to gather primary data from a sample taken into consideration, with a aim to critically evaluate or analyse the data in form of tabulated results e.g. stastical data or even by simplifying the results in form of a inference of the numeric data.
Questionnaire can be performed in several ways such as telephonic interview, Emails, Online surveys or face to face. These methods of opinion polls are elaborated in broader perspective:
Telephone interview: This is the most important and widely accepted method of collecting the original and accurate data for resolving the complex issues and providing the accurate solutions.
Merit: From the author point of view the main merit of this method is that its more time consuming and a person can explain views more easily which they cannot do sometime face to f ace.
Demerit: The demerit of this method could be that the rejection for telephonic interview which doesn't allow the researcher to receive any data for the research.
Online Surveys: Surveys nowadays most commonly and widely accepted method of research as it can be presented in many dimension and can be analysed and interpreted based on the requirement of the person and also can be presented in form of tabulation sheets or some analytical software.
Merit: This method is very advantageous as a researcher can have a global access from the respondent and its more faster and accurate and easy to administer.
Demerit: For this method to have access a user must be well versed with computers as well as its more global method a user should ahve access to internet so that could be a biggest drawback in order to collect data if the respondent don't have knowledge or access to these resources.
Personal interview: This form of method is acceptable by everyone as its being designed and implemented based on the convenience of the respondent. A respondent can choose their timing to answer the questionnaires as well its helps in solving the complex issues as it provides the accurate data as well a discussion about the analysis of data from the respondent
Merit: The main advantage of face-to-face or direct interviews is that the researcher can accommodate the questions as necessary, classify doubts and ensure that the responses are properly understood, by repeating or rephrasing the questions. The researcher can identify nonverbal clues from the respondent.
Disadvantages: The main disadvantage of face-to-face interviews is that geographical limitations may impose restrictions on the surveys and the vast resources that would be needed if such surveys need to be done nationally or internationally. Respondents may feel uneasy about their privacy of their responses when they interact face-to-face with the interviewer.
Postal Interview: The most commonly used method of distribution which is fairly easy to administer. The questionnaire and the covering letter will be posted to the sample, usually with a prepaid envelope for returning the completed questionnaire. For this medium short questionnaire will be used.
Advantages: A wide geographical area can be covered with the use of postal interview. The respondents use their convenience to fill the form at their own pace. Anonymity of respondents is high.
Disadvantages: Any doubts that respondents have cannot be clarified. The return rates of mail questionarres are typically low. Follow up procedures for non responses are necessary in postal interviews.
Survey provides representative information about a group from which sample was drawn. This qualitative research will involve nonrandom sampling or non-probability sampling where everyone in the population will not have an equal chance to be chosen as part of a sample. The non-probability samples provide good estimates of a population characteristic.
The target population of my sample will include all bank employees of IS bank. The recruitment of individuals for participation will require the selection of individuals who are employees of IS bank.
The sample for the research survey will be selected mostly by these methods:
Convenience Sampling: This will be used to identify bank employees who are willing and available for the research survey. As most of the bank employees will be working and will not be available for questioning convenience sampling would be a better choice.
Snowballing: This sampling method will be used to identify the first participant. Then that first participant will be asked to refer to other participants with similar characteristics. I have used this method to select bank employees and their friends. It is easier to get representatives for research through this method that has same characteristics.
Secondary data can be obtained by:
Comparative Case studies: I will go through case studies of competitors who are offering mortgage products in the Turkey market. This will help in understanding their strategies and policies. It will also help in understanding about how they achieve their goal. It will also help in identifying the challenges they faced during marketing their products. Comparative Case Studies helps in comparing two industries and understanding their shortfalls.
Since the interest rate on home loan is frequently changing and it is expected that it will rise again by the end of the year 2010. Customers who want to take loan for a long time i.e. more than 15 years and also the big amount are really worried about the payment of high EMI. The problem is mainly for salaried class people who are unable to pay the EMI fixed by the banks on their monthly salary. As the fixed rate of interest is 12.5% now customers are suggested to take loan on floating rate of interest. So hypothesis will be based on the current and future trend of the interest rates of the banks.
Analysis of Data
Data for analysis will be present in following ways in order to carry out the research as well to do comparative analysis for the subject by giving information in different perspective.
Bar charts, histograms and pie charts
Contingency tables or cross-tabulations
Quantitative and Qualitative data: Qualitative data is form of data which includes the fact and figures such as financial report of a company and Quantitative data is a form of data which can be used analyse the data which is in form of questionnaire and surveys which help in order to analyse the current situation of company and provide the better solutions for company. For this research article author will be using both the data Quantitative as well Qualitative as the research includes both data collection numeric data as well survey or questionnaire data.
3). LIMITATIONS OF THE STUDY
If there are advantages of study then obviously there are limitations of that study also. So, some limitations of this study are: -
- This is basically an academic study suffers from time and money constraints.
- The other limitation includes the sample size, which is small.
- Analyses of only two banks are done rather than more banks
- Study is limited to local area of Bangalore, India
- Since banks are not willing to disclose their client details so the availed information is limited to report, pamphlet, brochure etc.
SCOPE OF STUDY
The study mainly deals with Housing Finance Sectors. The two important sectors identified for this purpose are companies and client of public and private Housing finance sector in Bangalore, India.
AREA OF THE STUDY
The study is limited to only one branch of both banks i.e. UBI and SBM situated in Bangalore due to time, money and information availability constraints.
As the research article is focused on banking industry the confedentiaity of the data will be used for academic purposes within the field of study that is housing schemes of two banks and as per the accordance of business ethics.
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