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CUSTOMER PERCEPTION AND COMPARATIVE ANALYSIS OF HOME LOANS
Every person likes to have a nice home, he puts all his effort of have a comfortable home. Many banks provide such a kind of help to the people by helping them in providing finance for their house. For the economic development of the country housing sector plays a every important role.
My project title is “CUSTOMER PERCEPTION AND COMPARATIVE ANALYSIS OF HOME LOANS” and this project is based on comparing the performances of four well known banks. The banks are as follows:
Ø HDFC Bank
Ø Punjab National Bank
Ø Union Bank
Ø ICICI bank
The comparative analysis would be on the basis of the following categories: Eligibility criteria, Loan amount, Rate of Interest, Security, Repayment Period, Margin, Processing Charge.
On the basis of my comparative analysis, it would help the people who are planning to buy home loans to go for the best opportunity. The project deals about each and every parameter where the customer would like to have a look before taking home loan. Also the comparisons had also been done in such a way that would be easy to understand for the interested people.
Ø To evaluate & compare the House Loan schemes of IDBI bank, Punjab and Sind bank, ICICI bank and HSBC bank..
Ø To evaluate & compare the House Loan payout of IDBI bank, Punjab and Sind bank, ICICI bank and HSBC bank.
Ø To know about the customer's perception regarding the housing loans.
Ø To know about the level of satisfaction of customers while dealing with the banks.
TYPE OF RESEARCH
A research was done to find out the parameters where customer would like to have a look before taking home loan. Descriptive research was used for the study.
The data that require for the study was collected basically through the primary data as well as secondary source.
DATA COLLECTION METHOD
The method of data collection used was interacting and collecting the necessary information and documents from the person concerned. The instrument used for the data collection is provided in the annexure.
The data analysis was done through comparing the various parameters of the home loans.
A convenient sampling technique was used for selecting elements from the population. Convenient sampling (Stratified) was used as the population size was not clearly defined.
Sample size was decided to be 50 with which we can represent the population properly.
TOOLS OF ANALYSIS
Data has been presented with the help of bar graph, pie charts, line graphs etc.
SCOPE OF STUDY
The scope of the study is in present because the purpose of this study is “Customer Perception And Comparative Analysis of Home Loans” (Parameters) and sample has been drawn from the customers of home loans.
Critical Review of Literature
After going through previous studies of Home loans I came to conclude that:
Ø The home loan sector is growing since 2001.
Ø Home loans have an opposite relationship with interest rates i.e. when interest rate increases the demand of home loans decreases.
Ø People are aiming more towards home loans than private credit insurance.
Ø Government are taking steps to motivate people to go towards home loans.
Ø The people are taking home loans because they are moving towards nuclear family rather than joint family before.
Ø People face various problems when getting home loan such as filling of application form of loan, people have their own needs from these home loans.
Ø The rapid increase of banks actions since 1970 because the banks wants to improve the quality of banks, operational efficienciently, productivity and customer satisfaction.
The Industrial Development Bank of India Limited commonly known by its acronym IDBI is one of India's leading public sector banks and 4th largest Bank in overall ratings. RBI categorised IDBI as an "other public sector bank". It was established in 1964 by an Act of Parliament to provide credit and other facilities for the development of the fledgling Indian industry. It is currently the tenth largest development bank in the world in terms of reach with 1162 ATMs, 702 branches and 468 centers. Some of the institutions built by IDBI are the National Stock Exchange of India (NSE), the National Securities Depository Services Ltd (NSDL), the Stock Holding Corporation of India (SHCIL), and IDBI BANK, which today is owned by the Indian Government, though for a brief period it was a private scheduled bank.
To meet emerging challenges and to keep up with reforms in financial sector, IDBI has taken steps to reshape its role from a development finance institution to a commercial institution. With the Industrial Development Bank (Transfer of Undertaking and Repeal) Act, 2003, IDBI attained the status of a limited company viz. "Industrial Development Bank of India Limited" (IDBIL). Subsequently, the Reserve Bank of India (RBI) issued the requisite notification on September 30, 2004 incorporating IDBI as a 'scheduled bank' under the RBI Act, 1934. Consequently, IDBI, formally entered the portals of banking business as IDBIL from October 1, 2004.
The commercial banking arm, IDBI BANK, was merged into IDBI. Although IDBI Bank is owned by the Government of India, there is a popular misconception that IDBI bank is a private entity.
In March 2008, IDBI Bank entered into a joint venture with Federal Bank and Fortis Insurance International to form IDBI Fortis Life Insurance, of which IDBI Bank owns 48 percent. The company ended the year with over 300 Cr in premiums as on 31st March 2009.
The Industrial Development Bank of India (IDBI) was established on July 1, 1964 under an Act of Parliament as a wholly owned subsidiary of the Reserve Bank of India. In 16 February 1976, the ownership of IDBI was transferred to the Government of India and it was made the principal financial institution for coordinating the activities of institutions engaged in financing, promoting and developing industry in the country. Although Government shareholding in the Bank came down below 100% following IDBI's public issue in July 1995, the former continues to be the major shareholder (current shareholding: 52.3%). During the four decades of its existence, IDBI has been instrumental not only in establishing a well-developed, diversified and efficient industrial and institutional structure but also adding a qualitative dimension to the process of industrial development in the country. IDBI has played a pioneering role in fulfilling its mission of promoting industrial growth through financing of medium and long-term projects, in consonance with national plans and priorities. Over the years, IDBI has enlarged its basket of products and services, covering almost the entire spectrum of industrial activities, including manufacturing and services. IDBI provides financial assistance, both in rupee and foreign currencies, for green-field projects as also for expansion, modernisation and diversification purposes. In the wake of financial sector reforms unveiled by the government since 1992, IDBI evolved an array of fund and fee-based services with a view to providing an integrated solution to meet the entire demand of financial and corporate advisory requirements of its clients. IDBI also provides indirect financial assistance by way of refinancing of loans extended by State-level financial institutions and banks and by way of rediscounting of bills of exchange arising out of sale of indigenous machinery on deferred payment terms.
IDBI has played a pioneering role, particularly in the pre-reform era (1964-91),in catalyzing broad based industrial development in the country in keeping with its Government-ordained ‘development banking' charter. In pursuance of this mandate, IDBI's activities transcended the confines of pure long-term lending to industry and encompassed, among others, balanced industrial growth through development of backward areas, modernisation of specific industries, employment generation, entrepreneurship development along with support services for creating a deep and vibrant domestic capital market, including development of apposite institutional framework. Narasimam committee recommends that IDBI should give up its direct financing functions and concentrate only in promotional and refinancing role. But this recommendation was rejected by the government. Latter RBI constituted a committee under the chairmanship of S.H.Khan to examine the concept of development financing in the changed global challenges. This committee is the first to recommend the concept of universal banking. The committee wanted to the development financial institution to diversify its activity. It recommended to harmonise the role of development financing and banking activities by getting away from the conventional distinction between commercial banking and developmental banking.
In September 2003, IDBI diversified its business domain further by acquiring the entire shareholding of Tata Finance Limited in Tata Home finance Ltd., signaling IDBI's foray into the retail finance sector. The fully-owned housing finance subsidiary has since been renamed ‘IDBI Home finance Limited'
Punjab National Bank (PNB), was registered on May 19, 1894 under the Indian Companies Act with its office in Anarkali Bazaar Lahore. The Bank is the second largest government-owned commercial bank in India with about 4,904 branches across 764 cities. It serves over 37 million customers. The bank has been ranked 248th biggest bank in the world by Bankers Almanac, London. The bank's total assets for financial year 2007 were about US$60 billion. PNB has a banking subsidiary in the UK, as well as branches in Hong Kong, Dubai and Kabul, and representative offices in Almaty, Dubai, Oslo, and Shanghai.
* 1895: PNB commenced its operations in Lahore. PNB has the distinction of being the first Indian bank to have been started solely with Indian capital that has survived to the present. (The first entirely Indian bank, the Oudh Commercial Bank, was established in 1881 in Faizabad, but failed in 1958.) PNB's founders included several leaders of the Swadeshi movement such as Dyal Singh Majithia and Lala HarKishen Lal, Lala Lalchand, Shri Kali Prosanna Roy, Shri E.C. Jessawala, Shri Prabhu Dayal, Bakshi Jaishi Ram, and Lala Dholan Dass. Lala Lajpat Rai was actively associated with the management of the Bank in its early years.
* 1904: PNB established branches in Karachi and Peshawar.
* 1940: PNB absorbed Bhagwan Dass Bank, a scheduled bank located in Delhi circle.
* 1947: Partition of India and Pakistan at Independence. PNB lost its premises in Lahore, but continued to operate in Pakistan.
* 1951: PNB acquired the 39 branches of Bharat Bank (est. 1942); Bharat Bank became Bharat Nidhi Ltd.
* 1961: PNB acquired Universal Bank of India.
* 1963: The Government of Burma nationalized PNB's branch in Rangoon (Yangon).
* September 1965: After the Indo-Pak war the government of Pakistan seized all the offices in Pakistan of Indian banks, including PNB's headoffice, which may have moved to Karachi. PNB also had one or more branches in East Pakistan (Bangladesh).
* 1960s: PNB amalgamated Indo Commercial Bank (est. 1933) in a rescue.
* 1969: The Government of India (GOI) nationalized PNB and 13 other major commercial banks, on July 19, 1969.
* 1976 or 1978: PNB opened a branch in London.
* 1986 The Reserve Bank of India required PNB to transfer its London branch to State Bank of India after the branch was involved in a fraud scandal.
* 1986: PNB acquired Hindustan Commercial Bank (est. 1943) in a rescue. The acquisition added Hindustan's 142 branches to PNB's network.
* 1993: PNB acquired New Bank of India, which the GOI had nationalized in 1980.
* 1998: PNB set up a representative office in Almaty, Kazakhstan.
* 2003: PNB took over Nedungadi Bank, the oldest private sector bank in Kerala. 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.
PNB also opened a representative office in London.
* 2004: PNB established a branch in Kabul, Afghanistan.
PNB also opened a representative office in Shanghai.
PNB established an alliance with Everest Bank in Nepal that permits migrants to transfer funds easily between India and Everest Bank's 12 branches in Nepal.
* 2005: PNB opened a representative office in Dubai.
* 2007: PNB established PNBIL - Punjab National Bank (International) - in the UK, with two offices, one in London, and one in South Hall. Since then it has opened a third branch in Leicester, and is planning a fourth in Birmingham.
* 2008: PNB opened a branch in Hong Kong.
* 2009: PNB opened a representative office in Oslo, Norway, and a second branch in Hong Kong, this in Kowloon.
* 2010: PNB received permission to upgrade its representative office in the Dubai International Financial Centre to a branch.
ICICI Bank (BSE: ICICI) (formerly Industrial Credit and Investment Corporation of India) is India's largest private sector bank by market capitalisation and second largest overall in terms of assets. total assets of Rs. 3,562.28 billion (US$ 77 billion) at December 31, 2009 and profit after tax Rs. 30.19 billion (US$ 648.8 million) for the nine months ended December 31, 2009. The Bank also has a network of 1,640+ branches (as on February 11, 2010) and about 4,721 ATMs in India and presence in 18 countries, as well as some 24 million customers (at the end of July 2007). ICICI Bank offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and specialised subsidiaries and affiliates in the areas of investment banking, life and non-life insurance, venture capital and asset management. (These data are dynamic.) ICICI Bank is also the largest issuer of credit cards in India. ICICI Bank has got its equity shares listed on the stock exchanges at Kolkata and Vadodara, Mumbai and the National Stock Exchange of India Limited, and its ADRs on the New York Stock Exchange (NYSE). The Bank is expanding in overseas markets and has the largest international balance sheet among Indian banks. ICICI Bank now has wholly-owned subsidiaries, branches and representatives offices in 18 countries, including an offshore unit in Mumbai. This includes wholly owned subsidiaries in Canada, Russia and the UK (the subsidiary through which the HiSAVE savings brand is operated), offshore banking units in Bahrain and Singapore, an advisory branch in Dubai, branches in Belgium, Hong Kong and Sri Lanka, and representative offices in Bangladesh, China, Malaysia, Indonesia, South Africa, Thailand, the United Arab Emirates and USA. Overseas, the Bank is targeting the NRI (Non-Resident Indian) population in particular.
ICICI reported a 1.15% rise in net profit to Rs. 1,014.21 crore on a 1.29% increase in total income to Rs. 9,712.31 crore in Q2 September 2008 over Q2 September 2007. The bank's current and savings account (CASA) ratio increased to 30% in 2008 from 25% in 2007.
ICICI Bank is one of the Big Four Banks of India with State Bank of India, Axis Bank and HDFC Bank.
* 1955: The Industrial Credit and Investment Corporation of India Limited (ICICI) was incorporated at the initiative of World Bank, the Government of India and representatives of Indian industry, with the objective of creating a development financial institution for providing medium-term and long-term project financing to Indian businesses.
* 1994: ICICI established Banking Corporation as a banking subsidiary.formerly Industrial Credit and Investment Corporation of India. Later, ICICI Banking Corporation was renamed as 'ICICI Bank Limited'. ICICI founded a separate legal entity, ICICI Bank, to undertake normal banking operations - taking deposits, credit cards, car loans etc.
* 2001: ICICI acquired Bank of Madura (est. 1943). Bank of Madura was a Chettiar bank, and had acquired Chettinad Mercantile Bank (est. 1933) and Illanji Bank (established 1904) in the 1960s.
* 2002: The Boards of Directors of ICICI and ICICI Bank approved the reverse merger of ICICI, ICICI Personal Financial Services Limited and ICICI Capital Services Limited, into ICICI Bank. After receiving all necessary regulatory approvals, ICICI integrated the group's financing and banking operations, both wholesale and retail, into a single entity. At the same time, ICICI started its international expansion by opening representative offices in New York and London. In India, ICICI Bank bought the Shimla and Darjeeling branches that Standard Chartered Bank had inherited when it acquired Grindlays Bank.
* 2003: ICICI opened subsidiaries in Canada and the United Kingdom (UK), and in the UK it established an alliance with Lloyds TSB. It also opened an Offshore Banking Unit (OBU) in Singapore and representative offices in Dubai and Shanghai.
* 2004: ICICI opened a representative office in Bangladesh to tap the extensive trade between that country, India and South Africa.
* 2005: ICICI acquired Investitsionno-Kreditny Bank (IKB), a Russia bank with about US$4mn in assets, head office in Balabanovo in the Kaluga region, and with a branch in Moscow. ICICI renamed the bank ICICI Bank Eurasia. Also, ICICI established a branch in Dubai International Financial Centre and in Hong Kong.
* 2006: ICICI Bank UK opened a branch in Antwerp, in Belgium. ICICI opened representative offices in Bangkok, Jakarta, and Kuala Lumpur.
* 2007: ICICI amalgamated Sangli Bank, which was headquartered in Sangli, in Maharashtra State, and which had 158 branches in Maharashtra and another 31 in Karnataka State. Sangli Bank had been founded in 1916 and was particularly strong in rural areas. With respect to the international sphere, ICICI also received permission from the government of Qatar to open a branch in Doha. Also, ICICI Bank Eurasia opened a second branch, this time in St. Petersburg.
* 2008: The US Federal Reserve permitted ICICI to convert its representative office in New York into a branch. ICICI also established a branch in Frankfurt.
HSBC Holdings plc (traditionalChinese: 滙豐控股有限公司) is a public limited company incorporated in England in 1990, and headquartered in London since 1993. As of 2009, it is both the world's largest banking group and the world's 6th largest company according to a composite measure by Forbes magazine. Hong Kong served as the bank's headquarters until 1992 when it was forced to move to London as a condition of completing the acquisition of Midland Bank. Today, whilst no single geographical area dominates the group's earnings, Hong Kong still continues to be a significant source of its income. Recent acquisitions and expansion in China are returning HSBC to part of its roots. HSBC has an enormous operational base in Asia and significant lending, investment, and insurance activities around the world. The company has a global reach and financial fundamentals matched by few other banking or financial multinationals.
HSBC is listed on the London, New York City, Hong Kong, Paris and Bermuda Stock Exchanges, and is a constituent of the FTSE 100 Index and the Hang Seng Index.
Development of the bank
HSBC (originally the "Hongkong and Shanghai Banking Corporation") was founded in 1865. HSBC Holdings was established in 1990 and became the parent company to The Hongkong and Shanghai Banking Corporation in preparation for its purchase of Midland Bank and a change of domicile for the transfer of sovereignty of Hong Kong. Shares in HSBC Holdings, which gave HSBC a substantial presence in the UK, was completed in 1992. As part of the takeover conditions for the purchase of Midland, HSBC was required to move its world headquarters from Hong Kong to London in 1993.
Major acquisitions in South America started with the purchase of Banco Bamerindus of Brazil for $1bn in March 1997 and the acquisition of Roberts SA de Inversiones of Argentina for $600m in May 1997.
HSBC World Headquarters designed by Norman Foster in London, United Kingdom.
In May 1999 HSBC embarked on a major acquisition in the United States with the purchase of Republic National Bank of New York for $10.3bn.
Expansion into Continental Europe took place in April 2000 with the acquisition of Crédit Commercial de France, a large French bank for £6.6bn.
In July 2001 HSBC bought Demirbank, an insolvent Turkish bank. Then in August 2002 HSBC acquired Grupo Financiero Bital, SA de CV, Mexico's third largest retail bank for $1.1bn.
The new headquarters of HSBC Holdings at 8 Canada Square, London officially opened in April 2003.
Then in September 2003 HSBC bought Polski Kredyt Bank SA of Poland for $7.8m.
A terrorist attack took place in November 2003: a bomb blast in Istanbul damaged the bank's head office in Turkey, causing several deaths and hundreds of injuries.
In June 2004 HSBC expanded into China buying 19.9% of the Bank of Communications of Shanghai.
In the United Kingdom HSBC acquired Marks & Spencer Retail Financial Services Holdings Ltd for £763m in December 2004.
Acquisitions in 2005 included Metris Inc, a US credit card issuer for $1.6bn in August and 70.1% of Dar Es Salaam Investment Bank of Iraq in October.
In April 2006 HSBC bought the 90 branches in Argentina of Banca Nazionale del Lavoro for $155m.
In December 2007 HSBC acquired The Chinese Bank in Taiwan.
In May 2008 HSBC acquired IL&FS Investment, an Indian retail broking firm.
Introduction to the Industry
A home equity loan (sometimes abbreviated HEL) is a type of loan in which the borrower uses the equity in their home as collateral. These loans are sometimes useful to help finance major home repairs, medical bills or college education. A home equity loan creates a lien against the borrower's house, and reduces actual home equity.
Home equity loans are most commonly second position liens (second trust deed), although they can be held in first or, less commonly, third position. Most home equity loans require good to excellent credit history, and reasonable loan-to-value and combined loan-to-value ratios. Home equity loans come in two types, closed end and open end.
Both are usually referred to as second mortgages, because they are secured against the value of the property, just like a traditional mortgage. Home equity loans and lines of credit are usually, but not always, for a shorter term than first mortgages. In the United States, it is sometimes possible to deduct home equity loan interest on one's personal income taxes.
There is a specific difference between a home equity loan and a Home Equity Line of Credit (HELOC). A HELOC is a line of revolving credit with an adjustable interest rate whereas a home equity loan is a one time lump-sum loan, often with a fixed interest rate.
This is a revolving credit loan, also referred to as a home equity line of credit, where the borrower can choose when and how often to borrow against the equity in the property, with the lender setting an initial limit to the credit line based on criteria similar to those used for closed-end loans. Like the closed-end loan, it may be possible to borrow up to 100% of the value of a home, less any liens. These lines of credit are available up to 30 years, usually at a variable interest rate. The minimum monthly payment can be as low as only the interest that is due.
Typically, the interest rate is based on the Prime rate plus a margin.
When considering a loan, the borrower should be familiar with the terms recourse and nonrecourse loan, secured and unsecured debt, and dischargeable and non-dischargeable debt.
US traditional mortgages are usually non recourse loans. "Nonrecourse debt or a nonrecourse loan is a secured loan (debt) that is secured by a pledge of collateral, typically real property, but for which the borrower is not personally liable." A US home equity loan may be a recourse loan for which the borrower is personally liable. This distinction becomes important in foreclosure since the borrower may remain personally liable for a recourse debt on a foreclosed property.
Home equity loans are secured loans. "The debt is thus secured against the collateral — in the event that the borrower defaults, the creditor takes possession of the asset used as collateral and may sell it to satisfy the debt by regaining the amount originally lent to the borrower." Credit card debt is an unsecured debt such that no asset has been pledged as collateral for the loan. Using a home equity loan to pay off credit card debt essentially converts an unsecured debt to a secured debt.
When deciding upon a type of loan, the borrower should also consider if the debt is dischargeable in bankruptcy. For instance, US student loans are "practically non-dischargeable in bankruptcy".
RS. 500,000 CRORE - INDIAN MARKET OF HOME LOANS:-
Today, not only the Delhi, Calcutta, Mumbai are witnessing the housing crisis even cities like- Jaipur, Bhubneshwar, Lucknow, are want to expand their household.
The Indian credit ratings percentage is the lowest among the all other nations. It is Indian awareness that credit is termed terrible, Indian are traditionally not prone to take credit, the figure shows some of the statical analysis:-
GRAPH :- 4.1
INDIAN HOME LOAN INDUSTRY:-
v In the figure below it has been shown that the amount disbursed and the average ticket size of the home loan in India is increasing. The amount disbursed has been increases from 12 billion in 2003 to 18 billion in 2005 whereas average ticket size had been increased from around 10 billion to 20.44 billion.
v In the figure below it has shown that despite of increment in the mortgage from 0.5 percent in 1995 to 5.5 percent in 2005. The mortgage rate is still very low which needs to be increased.
v In the figure below, India is far behind china, Singapore, Europe, Hong Kong, USA in terms of mortgage penetration. The total mortgage penetration of India is 5.6 whereas the USA mortgage penetration is 51 percent which is far to more.
v Real Estate is one of the great means of Investment in India, the prices of the real state are moving very high. As shown the figure below the Mumbai is of the top most state who prices are moving at a very high rate in the recent years. In 1986 it was around 1800 rs, per square feet which has been increased to 11000 Rs. Per square feet know
v There is shortage of house in India but still people wants home loans. The figure below shows the number of loans requirement in rural and urban sector in terms of rupees.
TYPES OF HOME LOAN: -
Housing loans offered by banks are of different types:-
* Home Purchase Loans
* Home Construction Loans
* Home Improvement Loans
* Home Extension Loans
* Home Conversion Loans
* Land Purchase Loans
* Stamp Duty Loans
* Bridge Loans
* Balance Transfer Loans
* Refinance Loans
* Loans to NRIs
Home purchase loans:-
This is the basic home loan for the purchase of a new home. If you want to buy a flat in some society or some already built house, banks and HFCs sanction you home purchase loans for this process.
Home construction loans:-
This loan is available for the construction of a new home on a said property. The documents that are required in such a case are slightly different from the ones you submit for a normal Housing Loan. If you have purchased this plot within a period of one year before you started construction of your house, most HFCs will include the land cost as a component, to value the total cost of the property. In cases where the period from the date of purchase of land to the date of application has exceeded a year, the land cost will not be included in the total cost of property while calculating eligibility.
Home improvement loans:-
These loans are given for implementing repair works and renovations in a home that has already been purchased, for external works like structural repairs, waterproofing or internal work like tiling and flooring, plumbing, electrical work, painting, etc. One can avail of such a loan facility of a home improvement loan, after obtaining the requisite approvals from the relevant building authority. the following are coming under the home improvement loans:
· External repairs
* Tiling and flooring
· Internal and external painting
* Plumbing and electrical work
* Waterproofing and roofing
* Grills and aluminum windows
* Waterproofing on terrace
* Construction of underground/overhead water tank
* Paving of compound wall (with stone/tile/etc.)
Home extension loans:-
An extension loan is one which helps you to meet the expenses of any alteration to the existing building like extension/ modification of an existing home; for example addition of an extra room etc. One can avail of such a loan facility of a home extension loan, after obtaining the requisite approvals from the relevant municipal corporation.
Home conversion loans:-
This is available for those who have financed the present home with a home loan and wish to purchase and move to another home for which some extra funds are required. Through a home conversion loan, the existing loan is transferred to the new home including the extra amount required, eliminating the need for pre-payment of the previous loan.
Land purchase loans:-
This loan is available for purchase of land for both home construction or investment purposes.
Stamp duty loans:-
This loan is sanctioned to pay the stamp duty amount that needs to be paid on the purchase of property.
Bridge Loans are designed for people who wish to sell the existing home and purchase another. The bridge loan helps finance the new home, until a buyer is found for the old home.
Balance- transfer loans:-
Balance Transfer is the transfer of the balance of an existing home loan that you availed at a higher rate of interest (ROI) to either the same HFC or another HFC at the current ROI a lower rate of interest.
Refinance loans are taken in case when a loan for your house from a HFI at a particular ROI you have taken drops over the years and you stand to lose. In such cases you may opt to swap your loan. This could be done from either the same HFI or another HFI at the current rates of interest, which is lower.
NRI home loans:-
This is tailored for the requirements of Non-Resident Indians who wish to build or buy a home or property in India. The HFCs offer attractive housing finance plans for NRI investors with suitable repayment options.
On would be entitled for home loans in the range of Rs 5 lakh to a maximum of Rs 1 crore, based on the repayment capacity, previous credit history and the cost of the property. The bank may provide a maximum of 85% of the cost of the property or the cost of construction as applicable and 75% of the cost of land in case of purchase of land. The repayment capacity is calculated taking into account factors such as:
* Credit History
* Stability / continuity of your employment/business
* Income of co-applicant/(s)
Taking home loans these days has become simpler. With the RBI regularly bring down interest rates; taking home loans have become extremely easy. Housing loans which were 16.5% to 18% a few years ago fell by 11.5% to 13%. With interest rates going down, people increasingly number apply to take these loans. Some of the leading banks offering home loans in India, including ICICI Bank, IDBI Bank, HDFC Bank State Bank, Bank of Baroda, Kotak Bank, SBI, Union bank of india and Axis Bank.
Why banks are not providing easy loans during crisis?
The subprime mortgage crisis is an ongoing real estate crisis and financial crisis triggered by a dramatic rise in mortgage delinquencies and foreclosures in the United States, with major adverse consequences for banks and financial markets around the globe. The crisis, which has its roots in the closing years of the 20th century, became apparent in 2007 and has exposed pervasive weaknesses in financial industry regulation and the global financial system.
Approximately 80% of U.S. mortgages issued in recent years to subprime borrowers were adjustable-rate mortgages. After U.S. house prices peaked in mid-2006 and began their steep decline thereafter, refinancing became more difficult. As adjustable-rate mortgages began to reset at higher rates, mortgage delinquencies soared. Securities backed with subprime mortgages, widely held by financial firms, lost most of their value. The result has been a large decline in the capital of many banks and U.S. government sponsored enterprises, tightening credit around the world.
The crisis can be attributed to a number of factors pervasive in both housing and credit markets, factors which emerged over a number of years. Causes proposed include the inability of homeowners to make their mortgage payments, due primarily to adjustable-rate mortgages resetting, borrowers overextending, predatory lending, speculation and overbuilding during the boom period, risky mortgage products, high personal and corporate debt levels, financial products that distributed and perhaps concealed the risk of mortgage default, monetary policy, international trade imbalances, and government regulation (or the lack thereof). Three important catalysts of the subprime crisis were the influx of moneys from the private sector, the banks entering into the mortgage bond market and the predatory lending practices of mortgage brokers, specifically the adjustable-rate mortgage, 2-28 loan.. On Wall Street and in the financial industry, moral hazard lay at the core of many of the causes.
In its "Declaration of the Summit on Financial Markets and the World Economy," dated 15 November 2008, leaders of the Group of 20 cited the following causes:
During a period of strong global growth, growing capital flows, and prolonged stability earlier this decade, market participants sought higher yields without an adequate appreciation of the risks and failed to exercise proper due diligence. At the same time, weak underwriting standards, unsound risk management practices, increasingly complex and opaque financial products, and consequent excessive leverage combined to create vulnerabilities in the system. Policy-makers, regulators and supervisors, in some advanced countries, did not adequately appreciate and address the risks building up in financial markets, keep pace with financial innovation, or take into account the systemic ramifications of domestic regulatory actions.
BOOM AND BUST IN THE HOME MARKET
Low interest rates and large inflows of foreign funds created easy credit conditions for a number of years prior to the crisis, fueling a housing market boom and encouraging debt-financed consumption. The USA home ownership rate increased from 64% in 1994 (about where it had been since 1980) to an all-time high of 69.2% in 2004. Subprime lending was a major contributor to this increase in home ownership rates and in the overall demand for housing, which drove prices higher.
Between 1997 and 2006, the price of the typical American house increased by 124%.During the two decades ending in 2001, the national median home price ranged from 2.9 to 3.1 times median household income. This ratio rose to 4.0 in 2004, and 4.6 in 2006. This housing bubble resulted in quite a few homeowners refinancing their homes at lower interest rates, or financing consumer spending by taking out second mortgages secured by the price appreciation. USA household debt as a percentage of annual disposable personal income was 127% at the end of 2007, versus 77% in 1990.
While housing prices were increasing, consumers were saving less and both borrowing and spending more. Household debt grew from $705 billion at yearend 1974, 60% of disposable personal income, to $7.4 trillion at yearend 2000, and finally to $14.5 trillion in midyear 2008, 134% of disposable personal income. During 2008, the typical USA household owned 13 credit cards, with 40% of households carrying a balance, up from 6% in 1970. Free cash used by consumers from home equity extraction doubled from $627 billion in 2001 to $1,428 billion in 2005 as the housing bubble built, a total of nearly $5 trillion dollars over the period. U.S. home mortgage debt relative to GDP increased from an average of 46% during the 1990s to 73% during 2008, reaching $10.5 trillion.
This credit and house price explosion led to a building boom and eventually to a surplus of unsold homes, which caused U.S. housing prices to peak and begin declining in mid-2006.Easy credit, and a belief that house prices would continue to appreciate, had encouraged many subprime borrowers to obtain adjustable-rate mortgages. These mortgages enticed borrowers with a below market interest rate for some predetermined period, followed by market interest rates for the remainder of the mortgage's term. Borrowers who could not make the higher payments once the initial grace period ended would try to refinance their mortgages. Refinancing became more difficult, once house prices began to decline in many parts of the USA. Borrowers who found themselves unable to escape higher monthly payments by refinancing began to default.
As more borrowers stop paying their mortgage payments (this is an on-going crisis), foreclosures and the supply of homes for sale increases. This places downward pressure on housing prices, which further lowers homeowners' equity. The decline in mortgage payments also reduces the value of mortgage-backed securities, which erodes the net worth and financial health of banks. This vicious cycle is at the heart of the crisis.
By September 2008, average U.S. housing prices had declined by over 20% from their mid-2006 peak.. This major and unexpected decline in house prices means that many borrowers have zero or negative equity in their homes, meaning their homes were worth less than their mortgages. As of March 2008, an estimated 8.8 million borrowers — 10.8% of all homeowners — had negative equity in their homes, a number that is believed to have risen to 12 million by November 2008. Borrowers in this situation have an incentive to default on their mortgages as a mortgage is typically nonrecourse debt secured against the property. Economist Stan Leibowitz argued in the Wall Street Journal that although only 12% of homes had negative equity, they comprised 47% of foreclosures during the second half of 2008. He concluded that the extent of equity in the home was the key factor in foreclosure, rather than the type of loan, credit worthiness of the borrower, or ability to pay.
Increasing foreclosure rates increases the inventory of houses offered for sale. The number of new homes sold in 2007 was 26.4% less than in the preceding year. By January 2008, the inventory of unsold new homes was 9.8 times the December 2007 sales volume, the highest value of this ratio since 1981. Furthermore, nearly four million existing homes were for sale, of which almost 2.9 million were vacant.. This overhang of unsold homes lowered house prices. As prices declined, more homeowners were at risk of default or foreclosure. House prices are expected to continue declining until this inventory of unsold homes (an instance of excess supply) declines to normal levels.
RECENT TRENDS IN INDIAN HOME LOAN MARKET
The Indian real property market has witnessed an unprecedented rise in the realty and land prices in the last ten years or so. In the present condition the best investment option most people would rely on is buying a home. Home is the safest investment because it is one of the few assets whose value appreciates over theyears.
Buying a home is not only a dream that people cherish life long, but it can also be a tax saving option as tax deductions are available on the purchase of a house if you apply for housing loans in India. Following the boom in the real estate market, a healthy competition can be witnessed in the housing finance sector, as more and more banks and financial institutions are entering the house loan market. The market is flooded by various housing finance schemes offered by these banks and financial institutions and the ultimate beneficiaries are the consumers as they have got plenty of options to choose from according to their requirements.
The immediate impact of rising competition in the housing loan sector can be seen in the rates of interest charged by various banks. Most of the banks and financial institutions are offering housing loans at competitive interest rates and innovative house loan products. The standard interest rate in the market today is 8 to 8.5% per annum for a five-year loan. However, the terms and conditions for housing loans differ from one bank to the other.
Housing loans in India are available for a number of reasons such as purchase, construction, expansion and renovation of house. So housing finance companies now offer individuals with various alternatives to choose from while taking a house loan. They offer loans for property investment like home purchase, home construction, home improvement, home extension, home equity and home conversion. Other housing loans offered by them are land purchase loan, stamp duty loan, balance transfer loan, refinance loan and others.
Since the last five years, the real estate sector in India is getting organized. And it is being supported by an organized housing finance sector and with the increase in transparency levels, people are getting confident with the financing vehicles offered in the housing finance sector. As most housing finance companies have reduced their interest rates, this is probably the best time to buy a housing loan.
Teaser Home Loan Rates Fail to Attract Buyers
Banks' teaser rate offers for home loans have failed to attract new borrowers. These schemes offer a low fixed interest rate for the first few years and a floating rate after that. Latest data released by the Reserve Bank of India (RBI) show that during the 12 months up to November 20, 2009, flow of housing loans went up by 7.3 per cent, or Rs 19,820 crore. In contrast, growth in non-food credit was 10.4 per cent. Data from rating agency Icra shows similar trends. Between the end of March and the end of December 2009, the home loan portfolio of banks and housing finance companies grew 8.7 per cent to Rs 4,13,700 crore (see table). According to RBI data, between the end of March and December, bank credit grew 8.8 per cent.
State Bank of India was the first to launch the scheme in February. SBI's home loan portfolio grew 24.43 per cent to Rs 67,268 crore at the end of December compared with Rs 54,063 crore in March. Union Bank of India, which closed its offer yesterday, disbursed around Rs 3,000 crore under the scheme, said a bank executive. In a report, Icra said disbursements had picked up in the second quarter of 2009-10, but higher prepayments led to lower portfolio build-up (only 5 per cent over June 2009 and 14 per cent year-on-year). “The trend could well see 2009-10 reporting moderate credit growth,” it said. Bankers said many customers who had opted for the scheme were existing borrowers who wanted to reduce their interest burden.
Banks Turn Down RBI's Suggestion on Cheaper Home Loans to Existing Customers
Amid a debate over teaser rates, bankers are believed to have turned down the RBI's suggestion to extend the cheaper home loans to existing customers saying that the move will impact their bottom lines. Banks, led by State Bank of India, under special schemes offer home loans at lower interest (teaser) rates to the new customers for the first few years of the credit period, which has kicked up a storm in the industry. A month ago in January, the Reserve Bank of India had voiced concerns over ‘teaser' rates. Later, it said the cheaper rates should be extended to existing borrowers as well.
“The IBA said if banks offer lower rates to old customers as well, this will affect their earnings as it is not feasible for them to change their deposit rates accordingly to compensate this loss of interest arising from such a move,” an official of the Indian Banks Association told PTI on condition of anonymity. The central bank had sent two letters over the past two months to the IBA seeking an explanation on this issue of teaser rates, the official said. On February 9, the country's largest lender, State Bank of India, said that RBI has not objected to ‘teaser' rates. SBI was the trend setter in teaser rates. It offers the special home-loan at rates as low as 8 per cent for the first year. It was a roaring success and even rivals like HDFC, which initially termed the strategy as “gimmick” followed SBI steps.
Banks Keep Home Loan Rates Steady despite RBI's Hike in CRR
The Reserve Bank of India (RBI) hiked the cash reserve ratio (CRR) in the monetary policy review last week. Despite a more-than-expected hike in the CRR, banks have, in general, ruled out any immediate hike in lending rates. According to bankers, there is abundant liquidity in the system and they can absorb the increased cash reserve requirement.
In order to tackle the rising inflation rate, the RBI hiked the CRR (the amount banks have to park with the central bank) by 0.75 percent to 5.75 percent, but left the key rates untouched. The 75 basis points increase in the CRR to 5.75 percent is expected to draw out at least Rs 36,000 crores from the system . This move is mainly to check the food price inflation from spreading to other sectors. The RBI said the CRR will be increased by 50 basis points from February 13, and a further 25 basis points to 5.75 percent from February 27. The bank rate, used by banks to price long-term loans, remains unchanged at six percent.
Banks Expected to Take Action over RBI's Concern on Home Loan Rates
RBI deputy governor Usha Thorat has said the central bank has made clear to banks its thoughts on teaser rates on home loans, and banks are expected to take action. Speaking on the sidelines of a finance conference on Monday, Ms Thorat said: “Banks should have taken whatever message was given,” when asked about further progress on the regulatory front on teaser rates. The central bank has flagged of its concern over teaser rates twice in less than 30 days. Last month, in the second week of January, Ms Thorat had warned banks: “Teaser rates are increasingly being offered which is a cause for concern,” she said.
Last week, another deputy governor, KC Chakravarty, had highlighted RBI's concern about the lack of uniformity in rates offered to different customers of the same bank. Teaser rates refer to a step-up pricing structure on loans where banks offer a low fixed rate of interest in the initial years of the loan. However, after 2-3 years of the disbursement, the interest rate on the loan gets aligned with the prevailing rates in the market. What this means is that if the interest rate environment does not change, the borrower would end up paying a higher rate of interest after the fixed rate period comes to an end. Such promotional offers are common internationally.
FINDING AND ANALYSIS
COMPARATIVE STUDY OF HOME LOANS
21 year age, may be employed or self employed
4 times of annual gross income or 5 times of annual net income
48 times of salary or 50 Lakhs (which ever is less)
Under fixed option up to 5 year -7.25% 6 to 10 year -10.25%, 11 to 20 years 10.5% years 21 to 25 years-11%
Fixed option up to 5 year - 7.75%, 6 to 10 year -8.75% above 10 year-9%
Fixed option Up to 5 year - 9.25% 6 year to 10 year -9.5% 11 to 20 years-10.5%
Fixed option up to 5 years -9.75%, 5 year to 10 years 10.25%, 10 years to 15 years 10.75% above 15 years -10.75%
Maximum 25 years
Maximum 20 years
Maximum 20 years
Maximum 20 years
Up to 25000-zero 25000 to 2 lakhs1.5%above 2 Lakhs -2%
0.50% of loan amount
1.8 of loan amount
1% of loan amount
COMPARATIVE STUDY OF PAYMENT OF HOME LOANS BY COMMERCIAL BANKS
5.1 - Payment of Home loans by different banks:-
IDBI LTD :-
No. of Home loan
Home loan Disbursed
(in crore Rs.)
From the above table we can see that the number of home loan account holder has been increased from 700 in 2004 to 1594 in 2008. Also the amount of loan distributed in 2004 were 90 crores and in the year 2008 it has been increased to 240 crores. The amount recovered is more than that of the previous years. In 2004 the total amount recovered was 63.05 and in 2008 it is 228.12 crores.
Punjab National Bank :-
No. of Home
Home loan Disbursed
(in crores Rs.)
In Punjab national bank, in 2004 the number of holders of home loan is 810 which has been nearly doubled in the year 2008 that is 1500. The amount of loan distributed in 2004 is 210.15 crores whereas in the year 2008 it has been increased to 265.15. The amount recovered in the year 2004 is 97.28 crores whereas in 2008 the amount is almost recovered fully.
HSBC BANK :-
No. of Home loan
Home loan Disbursed
(in crores Rs.)
In HSBC bank, the number of home loan account holder in 2004 were 106 which has been increased to more than doubled in the year 2008 to 260. Also the amount of loan distributed at that time was just 6.21 crores which have been increased to 24.10 in the year 2008. The total amount recovered is 5.27 crores in the year 2004 and in the year 2008 it has been nearly fully recovered that is 23.91 crores.
No. of Home
Home loan Disbursed
(in crores Rs.)
In ICICI bank, the number of holders are 650 in 2004 whereas in 2008 it have been increased to 1434. The amount of loan distributed is 104.33 crores in the year 2004 and the amount recovered was 98.12 crores whereas in 2008 the total loan distributed is 224 crores and the amount recovered is 209.16 crores.
ANALYSIS & INTERPRETATION
5.1 AGE OF THE PERSON
No. of Respondents
18 - 25 years
26 - 35 years
36 - 49 years
50 - 60 years
More than 60 years
From the data above we can see that mostly persons taking home loan are younger that is 44%. 26% are between age 26 - 35 years, 19% are between 36 to 49 years of age, 8% are in the age between 50 - 60 years and 3% is more than 60 years of age.
5.2 Educational qualification of respondent's
No. of Respondents
From the table and graph above it can be seen that
Ø 23% respondent's are under graduate.
Ø 39% respondent's are Graduate.
Ø 38% respondents are Post graduate.
5.3 Whats your Annual Income?
No. of Respondents
Less than 2 lacs
2 to 5 lacs
More than 8 lacs
From the table and graph above it can be seen that 45% respondent's annual household income is less than 2 lacs, 30% is between 2 to 5 lacs, 20% between 5 to 8 lacs, 5% are more than 8 lacs.
5.4 From what source you get the information about home loan?
Sources of information
Percentage of customers
Any other source
CHART:-5.4 Percentage of source of information about home loans scheme
From the data mentioned above we can see that 50% of the people get the information from the newspapers, 25% from the television, 15% from the banners etc. and 5% from the friends and other sources.
5.5 why you want your home to be financed?
Number of Reasons
Non-availability of funds
Unwillingness to pay cash in one go
From the data above, 42% want their home to be financed because of non-availability of funds, 31% because of unwillingness to pay at one go, 22% because of tax benefit and 5% because of any other reason.
TABLE: 5.6 Why do you want home loan?
Reasons for the Need
Construction for new house
Purchase of new house
Renovation of House
The above data shows that, 48% need home loan because of construction for new house, 39% for purchase of new house and 13% for renovation of their house.
TABLE 5.7 How much amount you have taken from the bank?
Below 1 Lakh
1 lakh to 5 lakh
5 lakh to 10 lakh
More than 10 Lakh
From the above figures, we can see that 17% of customers took loan of 17%, 47% take the loan amount between 1 to 5 lakhs, 25% are between 5 lakh to 10 lakh and 11% are more than 10 lakhs.
5.8 What security have you deposited against the purchase of loan?
Bank security (F.D)
Third person security
From the above data, 32% customers had taken loan against bank security, 54% against land papers, 10% against 3rd person guarantee and 4% from other sources.
5.9 Are you satisfied with the rate of interest of these banks?
From the above data we can see that most of the people are satisfied with the interest rate charged by the banks that is 77% and 23% are dissatisfied.
5.10 Do you think that the bank has offered you the best services ?
10% of the people are highly satisfied, 73% are satisfied with the services, whereas 7% are neutral and 10% are dissatisfied with the services. Whereas in case of promptness, 11% are highly satisfied, 62% are satisfied, 10% are neutral and 17% are dissatisfied.
Some customers dose not has proper knowledge about different home loan schemes.
Most of people have lack of money in fulfilling their dreams and few of them reluctant to pay cash in one go and wanted to pay their home loan slowly in installments.
Many people attract for the less rate of interest of private sector banks.
Majority of the respondents want to take loan for the construction of the new house.
Majority of the respondents want to give land papers as the securities against home loan.
Mostly professional go for the home loan and the want to take home loan from one lack to five lack.
Banks charge high processing cost for home loan's sanctioning. They are forced to pay serious charges at various stages to fulfill the requirements
More personal attention should be given to the customers and working efficiency should be increased.
The formalities and paperwork should be reduced while providing the loans to the customers.
The services provided by banks need to be automated.
Bank should improve their customer service.
The behavior of the staff of the bank toward the customer should be more personalized.
The banks need to improve on the customer satisfaction level due to stiff competition among the banks.
7. Process of loan repayment should be easy to attract more customers.
There should not be any file processing charges in the banks.
Many booklets and attractive advertisement should be providing to the customer for awareness about different housing loan scheme.
Loans should be made easily available and there should be fewer formalities while providing loans.
Ø Berstain David(2008), “Home equity loans and private mortgage insurance: Recent Trends & Potential Implications”, Vol.3 No.2, August 2008, Pp. 41 - 53
Ø Fanning (1982), “The Demand for Home Mortgage Debt” Journal of Urban Economics, Vol 11 No 2, November, pp. 770-774
Ø Kulkarni (1979), “Development responsibility and profitability of banks” Journal of Economic Perspectives, Vol 9 No 1 ,pp. 26-32.
Ø http://www.iloveindia.com/real-estate/housing-finance- companies/hdfc.html