A Study on Role of Financial Institutions in Providing Housing Loans to Middle Income Group in Bangalore City

Role of Financial Institution in Providing Housing Loans to Middle Income Group in Bangalore City

A Study on Role of Financial Institutions in Providing Housing Loans

to Middle Income Group in Bangalore City.

EXECUTIVE SUMMARY

A house is one of the most important thing in human life. It provides shelter, pleasure

and security to a person in modern life. With the increasing large population in year by year,

the house demand is also increasing rapidly in India. The housing deficit in India is estimated

at 24.71 million. Out of this 21.78 million is accounted for by the economically weaker

sections. It is difficult to gather huge sum of amount at once by an individual. Here comes

the role of financial institutions. During past few years middle income groups emerged as an

avenue to increase the market capacity of the home loan industry. Under falling interest rate

regime and stiff competition among industry players were given importance to extract all

possibilities to expand the business from middle income group. But falling interest rate of

home loans resulted in global crisis: Increase in real state price. Even though Indian housing

sector is suffering from impact of global crisis, there is still huge demand of housing loan

from middle income groups. And it is important to select proper financial institutions to

satisfy their need. So that it is essential to know what middle income group expect from

Housing Financial Institutions.

The important variables that influence the selection of a loan were age, income,

savings, existing debts, interest rates, tenure, convenience, and other commitments regarding

expenditures of an individual.

The research questions were centered around decision drives for a home loan,

attributes that influence in selection of loan provider, knowledge about financial institutions

among respondents, assessment of satisfaction level and factors affection satisfaction and

dissatisfaction of the applicants, service expectations, suggestions for service improvement

and finally to assess the customer loyalty.

Hypothesis is used to test the independence of attributes viz.,tax benefits, low interest

rates ,convenience on decision to go for a housing loan by an individual from middle income

group. Statistical tool used was chi-square; the out come was that the decision to go for a

housing loan is dependent on tax benefits, low interest rates and convenience.

Regional Institute Of Co-Operative Management Page 1


Chapter 1

INTRODUCTION

A home is a place of residence or refuge and comfort. Purchasing and moving into a

dream house would generally rank among the top three things on the wish list of most people.

After all it’s what been proved by Maslow’s Law of Hierarchy as well. Middle income

groups can’t buy their dream home at once paying huge amount of money, that is the reason

they go for home loan to the financial institutions. But nowadays it is difficult to choose

proper financial institutions due to competencies between so many players in the market. So

that financial institutions play a important role to middle income groups.

The industry comprises of nearly 383 housing finance companies although

disbursements from only the leading 26 institutions are eligible for re-finance from National

Housing Bank, which is the regulatory body for these companies. These Housing Finance

Companies (HFCs) constitute nearly 95 % of the total disbursement by the industry.

In today's political scenario, India has positioned itself as one of the best place for

realty investments. The reason behind this development is India's flexible policies and open

system with social and political safety regulators and a conducive environment that provides

comfort, long-term stability and security to the foreign investors for personal as well as

business investments.

The positive outlook of Indian government is the key factor behind the rise of the

Indian real estate sector, the second largest employer after agriculture in India. This budding

sector is today witnessing development in all area such as - residential, retail and commercial

in metros of India such as Mumbai, Delhi, Kolkata, Bangalore and Chennai. Easier access to

bank loans and higher earnings are some of the pivotal reasons behind the sudden jump in the

real estate sector.

As access to bank loans are becoming easier, many potential buyers wish to learn

about best financial institution and real deal for home purchase.

Even the property prices are augmenting fast, especially Chennai real estate,

Hyderabad real estate and Bangalore real estate are on the very high phase. The market boom

is spread across the country and hence more and more Indians are not interested in investing



for India real estate. The economy rate as well has managed to grow faster than 8% each year

because of increasing real estate market trend.

1.1 Background of the study

History of mortgage

The practice of securing land for payment of money in English law dates back to

Anglo-Saxon England. The practice has been named variously as vadium mortuum by

Thomas de Littleton and mortuum vadium by William Blackstone, and translated as dead

pledge in English and mortgage in French.

At common law, a mortgage was a conveyance of land that on its face was absolute

and conveyed a fee simple estate, but which was in fact conditional, and would be of no

effect if certain conditions were met – usually, but not necessarily, the repayment of a debt to

the original landowner. Hence the word "mortgage" (a legal term in French meaning "dead

pledge"). The debt was absolute in form, and unlike a "live pledge" was not conditionally

dependent on its repayment solely from raising and selling crops or livestock or simply

giving the crops and livestock raised on the mortgaged land. The mortgage debt remained in

effect whether or not the land could successfully produce enough income to repay the debt. In

theory, a mortgage required no further steps to be taken by the creditor, such as acceptance of

crops and livestock in repayment.

The difficulty with this arrangement was that the lender was absolute owner of the

property and could sell it or refuse to re-convey it to the borrower, who was in a weak

position. Increasingly the courts of equity began to protect the borrower's interests, so that a

borrower came to have an absolute right to insist on re-conveyance on redemption. This right

of the borrower is known as the "equity of redemption".

This arrangement, whereby the lender was in theory the absolute owner, but in

practice had few of the practical rights of ownership, was seen in many jurisdictions as being

awkwardly artificial. By statute the common law's position was altered so that the mortgagor

would retain ownership, but the mortgagee's rights, such as foreclosure, the power of sale,

and the right to take possession, would be protected.



In the United States, those states that have reformed the nature of mortgages in this

way are known as lien states. A similar effect was achieved in England and Wales by the Law

of Property Act 1925, which abolished mortgages by the conveyance of a fee simple.

The Indian housing finance industry

Since the 1970s, the Indian government had given special emphasis to the housing

industry and made providing housing one of its main objectives. However, due to the scarcity

of finance, owning a house remained a distant dream for the average Indian; even a lifetime's

earnings and investments were not enough to fund the purchase of a house.

As a result, even by 2001, the country faced a shortage of 19.40 million dwelling units.

The housing finance industry emerged as the answer to the problem of housing by providing

finance to individuals planning to own a house.

Till then, banks had offered personal loans for properties. But these loans were

restricted to bank and government (public sector) employees. Private sector employees had to

undergo a lot of hardship to obtain housing loans.

To take care of this problem and to boost investment in housing industry, the

government established the Housing Development Finance Corporation LTD(HDFC) in

1977.

The objective of HDFC was identified as ‘promoting home ownership by providing

long-term finance to households for their housing needs.

During the 1980s and 1990s, increased urbanization and the migration of the rural

population to the cities resulted in heavy demand for housing. This created a great need for

housing finance.

The National Housing Bank (NHB) was also stablished on 9 th July 1988 the National

Housing Bank Act, 1987 to function as principal agency to promote Housing Finance

Institutions and to provide financial and other support to such institutions.

The National Housing Bank Act empowers National housing bank or NBH to:

Direct and regulate the functioning of housing finance institutions for fair practices.



Provide loans, advances or any other financial assistance to Banks and housing

finance institutions for slum improvement.

Supervise mobilization of resources and extension of credit for housing.

Till the late-1990s, the marketing efforts of Indian HFCs were rather limited because

the industry was largely a seller's market. Even the market leader, HDFC, had not undertaken

any major marketing initiatives.

The entry of commercial banks and other private sector companies, however, changed

the dynamics of the industry, and for the first time, all the players emphasized on marketing.

Many of the HFCs targeted the middle class, which had begun availing of housing loans

largely due to the declining interest rates.

Analysts pointed out that housing loan companies needed a strong brand image to build a

strong relationship with these customers. It was felt that if interest rates increased in the

future, this brand image would help companies gain/retain their market shares. Direct

marketing emerged as a very effective tool for attracting customers in this industry.

In the early 21st century, the housing industry in India was one of the few sectors that

was growing at a healthy rate of 28-30% in spite of the economic slowdown. A host of

reasons were responsible for this growth, including favorable government policies, increased

corporate activity, and above all, an increasing customer-base.

During 2000-2002, the government had announced many industry-friendly policies; in

addition, during the same period, real estate prices had also gone down across the country.

The industry's strong growth had a direct impact on many other related industries, such as the

cement, engineering, paint and steel industries. One industry that experienced hectic activity

during the period was the housing finance industry. In fact, some industry observers claimed

that the ease with which housing finance could be obtained resulted in the increased activity

in the housing industry. Not only were customers given tax concessions on housing loan

repayments, companies were also given tax rebates on profits earned.

As a result, many banks and financial institutions had entered the market with

attractive financing rates and consumer-friendly schemes. So that the new home purchase

loan has become much easily available and is much cheaper than what was available earlier.

Banks were everywhere and the schemes were implemented even in villages and smaller


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http://www.indianrealestateforum.com/f-property-finance-34.html/


towns. The housing loans are popular there too, however, the activity of building flats is little

slow. It would not be wrong to say that there has been a boom in the home loan market and

with this boom; there is also a boom in the number of home loan mortgage brokers in India.

The main reason for this boom in home loan market is the change in government

policies. It is government’s motivation that the home loan interest rates in India have fallen

considerably. Lot many banks are offering home loans and this is available at low EMIs

(Equated monthly Installments).

Again, there were different types of home loans available. The interest rate available is

also of two different types. One is the fixed rate loan and the other is the floating rate loan. In

the fixed rate loan, whatever interest is fixed on the start of loan is carried on for the complete

period. However, in the other one, the interest rate is not fixed and as the interest rate goes up

or low the effect is directly transferred to the person who is taking the loan.

As shared earlier, taking a loan is not a difficult task. However, before taking a loan,

one must realize that the relationship with the bank will be for a longer period usually 15 to

20 years so one must ensure faith and integrity in bank. Apart from low rate of interest, the

bank should also provide some value added services. The other thing is to look into is the

property that is to be brought. Making sure that the builder has all sanctions and facility to

build a good building is very important.

Global crisis

At the height of the property boom in the US few years ago, banks and mortgage

financiers offered dirt-cheap loans to entice customers. But they were cheap only in

nomenclature. In structure, they were time bombs. Not surprisingly, the bombs went off in

2008, and the ensuing global crisis raised the cost of credit to astronomical levels. The home

loans offered to the customer were short-term fixed, but long-term floating.

Short-term rates were low in the US because the Federal Reserve kept monetary

policy loose and did not tighten regulations on lending practices. Home buyers were lured by

two factors: cheap and easily available home loans; and, the prospect of property prices going

up. But when the property market busted and cost of credit rose, home owners were left with

assets far depleted in value on one hand and higher interest costs on their so-called cheap

loans on the other.



After that, the loan turns floating, and will be priced based on the prime lending rate

prevailing then. A customer who takes the loan was in the exact same situation as the US

home buyer was a few years ago: loans were cheap and property prices were rising. The moot

question is, was the loan buyer fully understanding the risk he is taking with such loans. Was

he aware that there was a possibility of decline in property prices and a rise in interest rates?

Good credit in good times becomes bad credit in bad times, especially for customers

who go for the type of loans being peddled today. And there is no hedge to these loans except

foreclosure. Property prices, as we have seen, are volatile and can remain depressed for long

periods of time. When the previous bubble in India burst in the 1990s, prices took almost a

decade to recover.

The banking regulator should ask the sellers of such loan products to prominently

place risk factors to such loans. Better still, the worst-case scenario for cash flows should be

announced or explained so that buyers of loans will know the extent of their liabilities when

interest rates move up sharply. The best case, of course, would be to avoid teasers.

Although the Indian housing industry have seen slowdown in 2009 due to after effects

of global financial crisis, it is anticipated to attain earlier growth trajectory by the end of 2010

on account of precautionary measures.

1.2 Present scenario of the market

The Indian housing finance sector reported a compounded annual growth rate

(CAGR) of 56% during the period 2003 to 2007, aided by benign interest rates, rising

property prices, and increasing income levels. Thereafter, the growth rate slowed down, with

steep real estate prices, high interest rates, exit of investors from the market, and a week

operating environment making their impact felt. In the current financial year (2009-10), there

has been some revival in buyer sentiment with interest rates declining and property prices

witnessing some correction.

Mortgage penetration levels (mortgage loans as percentage of GDP) in India, Which

had risen from around 2% as in March 2002 to a little over 7% as in March 2007, have

remained at the 7% levels till date. This being significantly lower than the penetration rates in

developed countries, it appears there is room for further growth. Going forward, some factor

that may contribute positively to growth in mortgage penetration in the domestic market are a

follows :



Decline in rates of interest to 8%-9% from 12% over the past one year; this amounts

to a 15%-25% reduction in the equated monthly instalment (EMI) per lakh of loan

Increase in supply of affordable homes and price correction in the residential real

state market.

Increase in economic activity

Large inventory of unleveraged homes (which could be pledged by borrowers to raise

loans)

Trend in Domestic Housing Credit

0

500

1000

1500

2000

2500

3000

3500

4000

4500

Rs.billion

housing credit

housing credit 1250 1785 2489 3050 3498 3800 4137

2004 mar

2005 mar

2006 mar

2007 mar

2008 mar

2009 mar

2009 dec

Increase in income of government employees following implementation of the

Sixth Pay Commission’s recommendations.

However, it is also likely that a further correction or even stagnation in real estate

prices may lead to borrowers deferring home purchase decisions on the expectations of

another round of correction.

According to ICRA’s estimates, the total mortgage debt outstanding in India as on

December 31, 2009 was over Rs. 4137 billion, with 71% in the books of the balance in that of

the HFCs. On an average, the mortgage portfolios of HFCs grew at a steady rate of 25% per

annum during the period FY2004-FY2007 while those of banks grew at a higher rate during

the same period; however both reported a significant slowdown FY2008 onwards. Going

forward, banks are likely to maintain a sizeable share of the mortgage market, given their



extensive network, access to stable low-cost funds, and their compulsion to meet priority

sector targets.

Since early 2009, low interest rate schemes have been introduced mostly by public

sector banks and this could make a positive impact on the credit growth of mortgage finance

loans of such banks. Part of this growth could come from loan takeovers from existing

lenders and may not add to the credit growth of the market as a whole. Over a longer term,

the growth rates of banks (particularly public sector banks) would be linked to their ability to

match their services to those offered by the private sector players and generate adequate risk-

adjusted returns, besides being influenced by the overall growth in the mortgage finance

market.

According to ICRA’s estimates, Indian markets would need additional Tier I capital of

around Rs. 550 billion (that is, 120-130% of the estimated Tier I capital deployed in housing

loans as on March 31, 2009), if the mortgage market were to grow at an annual rate of over

20% during the next five years.cA large part of this could come from internal capital

generation provided mortgage lenders are focused on risk-adjusted returns. Also influencing

factors like economic growth rationalization of property prices, supply of affordable homes,

coverage of smaller markets and level of market competition have to be conducive.

The domestic mortgage market still lacks a transparent “benchmark rate for variable

rate loans.” With over 90% of all mortgage loans estimated to be at floating rates of interest,

the average yield on advances on the overall book should be closely linked to the interest

rates offered to new borrowers. However, with the prime lending rate (PLR) being non-

transparent and therefore somewhat inflexible in a scenario of declining interest rates, an

existing borrower with a clean track record and substantial equity build-up may end up

paying a higher rate of interest (by 1.5-2%) than a new borrower. Despite the significant size

of the overall mortgage market and the presence of a large number of lenders, no significant

initiative has yet been made to address the issue of transparency. However any regulatory

initiative to align the lending terms for an existing borrower with that for a new borrower

could impact the profitability of mortgage lenders severely.

Most HFCs rely primarily on wholesale funding sources to raise money for on lending.

Therefore, a prolonged tightness in liquidity at the systematic level could affect the cost of

funds and hence the competitive position of the HFCs. Some HFCs also face significant

asset-liability mismatches in the short-to-medium term (because of the lack of long term



funding sources at competitive rates)-a problem whose resolution hinges on the further

development of the capital markets and the mortgage –backed securitization markets in the

country. The interest rate risk residing in the portfolios of HFCs is currently low, given that

their credit book consists predominantly of floating rate loans. However, a significant

increase in interest rates leading to an increase in equated monthly installments (EMIs) could

pose asset quality challenges, which, in turn, could limit the capacity of the HFCs to raise

interest rates.

Market Shares of Various Players as of December 31, 2009

The increased coverage of borrowers under the database of the Credit Information

Bureau and its extensive use by lenders, including HFCs, has helped them reject applicants

with poor credit quality. Further the securitization and Reconstruction of Financial Assets and

Enforcement of Security Interests (SARFAES) Act has been very effective in controlling

credit costs, as it has improved the speed as well as the extent of recoveries from delinquent

accounts. However, a shift in the credit mix of HFCs towards riskier segments could lead to

an increase in fresh slippages and therefore credit costs from the currently low levels (0.15%

of average advances as in March 2009).

Although interest spreads, which are the main source of earnings for the HFCs (given

their negligible fee income), are likely to remain low, going forward, it is expected that

housing finance companies would be able to report reasonable risk-adjusted earnings on the

strength of their superior cost structures and controlled credit costs.



1.3 Future trend of the market

Future projections predict that the population of India would reach 1,350 million by

the year 2020. Keeping in mind the additional new housing requirements as a result of the

above, an additional 70 million new households would get added up to the existing housing

requirements. This would amount to an additional 3.5 million housing units required during

the next 10-year period. In other words, due to the population increase alone, an additional

3.5 million houses per year would be required.

Hence, we need to gear up to contribute substantially to the housing stock through

streamlined efforts of public, private, co-operative, community and self-help sectors, in order

to see the dream of "Shelter for All" turn a reality by the end of the current decade.

1.4 Highlights and Comments

Highlights:

Significantly, there has been no dearth of demand for housing and

consequently for finances for the same have been abundant.

Market dynamics play a pivotal role in determining the lending rates.

Considering the same, the housing finance industry has been in a slump in

recent times.

The entry of banks into the housing finance sector has posed a serious threat to

already existent players in the field.

The housing sector is witnessing a clash between major players. Foremost

amongst this is the ICICI and HDFC imbroglio.

Housing finance policies provided by the Government of India is a significant

step towards upholding the future prospects of this industry.

Sector comments

There always has been huge demand of housing and it will remain same in the future.

Indian housing sector has been developing successfully even though it’s going through the

impact of global crisis as any other developed and developing countries. Few years ago

housing loan interest rate was declining rapidly due to competencies of many financial

institutions in India. The declining interest rest has resulted badly to value of real state due to



increase in prices. And Government of India needed to handle this problem through its

policies. GOI has introduced feasible loan condition through public bank sectors but it is not

enough to supply all the demand. So that there is still huge demand from customers to the

housing financial institutions. And interest rates are still remained attractive.

1.5 Bangalore market scenario

Home loans in Bangalore are almost synonymous to any property purchase in

Bangalore. This is the result of the level the property prices have reached following a boom

in commercial and industrial segments. In other words, purchasing a home for dwelling is

simply not affordable for many. Renting a house or getting financial assistance to buy a house

could be the possible housing solutions in the current scenario. Thus home equity loans are a

popular real estate service in Bangalore. Even the real estate mortgage gets high returns since

the property value is so high.

The instigation of housing finance services has helped many in getting their dream

home in Bangalore that was way beyond their immediate reach. The housing loans are

available as home loans for buying pre-constructed realty or developing or renovating

existing property and also as finance against home assets or real estate assets.

With home loans, we can purchase a residential plot or a house in the forms of flats or

apartments. If our home does not have enough space to suffice our requirement and you want

to add an extra floor to it, you can get financial assistance for that. Home loans for renovation

or remodeling by many leading banks are just for that. With rate of interest going down

consistently, home loans in Bangalore offer us a good option to bring the idea of our dream

home into reality.

The erstwhile “Garden City” and “Pensioner’s Paradise” and today’s “Silicon Valley

of India” due to its supremacy as the Information Technology hub has made Bangalore a hot

spot real estate destination.

Now officially renamed as Bengalooru, the city is a metropolitan with a population of 6.5

million making it the third most populous city and fifth largest metropolitan area. Information

technology undoubtedly has been the forerunner in setting the stage for development,

Growing pockets of Bangalore

On analysis of the growth pattern of Bangalore, we witness a push for developments in

the North of Bangalore comprising of Banaswadi, Peenya Industrial estate, Yashwantpur and

Yelahanka. The growth shift has been attributed to the development of International airport in


http://www.indiahousing.com/home-loans.html


Devanahalli. The road from Bellary road to Yelahanka is witnessing rapid residential

development. Prices have raised sharply ranging between Rs 3000-10000 per square feet for

residential and Rs 2000-7000 per square feet for commercial purpose. The trend is expected

to remain positive in the area with International airport acting as a catalyst for growth.

The South of Bangalore has been growing due to Electronic City- a hub of IT/ITes

offices in the city. Electronic city is located in the outskirts of Bangalore in an area of

332acres and is home for the IT behemoths including Hewlett Packard, Infosys, Siemens and

Wipro. Sarjapur road is another promising area in the south of the city. Jaynagar, J.P Nagar,

BTM layout are the areas adjoining to Electronic city developed primarily as residential

areas. Prices in the South have witnessed an increase in 2007 of approximately 5.6% with

prices ranging between 2800-7000 per square feet for residential and Rs3500-7000 per square

feet for commercial.

East of Bangalore has grown till Whitefield, rapidly developing as a commercial

area. Though the connectivity to this part is not au courant, initiatives of government are

underway in form of metro rail and improved road connectivity. Kormangala, Indiranagar

and Hosur road are the prime areas. Prices in the East have remained stable with price

ranging between Rs 2500-7700 per square feet for residential and Rs 3000-8000 for

commercial.

West of Bangalore has predominantly been the residential focus with prime areas

being Malleshwaram, Rajaji nagar and Chord Road. Being a residential area the prices have

comparatively been stable hovering between Rs 2000-6500 per square feet for residential and

Rs 3000-6000 per square feet for commercial.

All leading banks and finance companies have their branches in Bangalore where

they provide home loans experts who guide you about the formalities and eligibility

procedure of each bank and the housing finance product most suitable to your requirements.

Many cheap home loans products are available in the market that makes these housing

finance services more affordable for the masses.


http://www.indiahousing.com/home-finance-companies.html

http://www.indiahousing.com/banks-in-india/


1.6 Need and importance of the study

A positive real estate scenario in Bangalore city exists today because of connectivity

and convenience offered by infrastructure developments. This gave rise to new residential

options at various parts of Bangalore city created a ideal situation to go for

purchase/construction of house. Since, middle income group constitute major portion of

banglore’s population, its important to identify the factors effecting the decision making to go

for a housing loan by this group. Here comes the need to give snap shot picture of current

scenario of housing finance industry. This will benefit the loan applicants in their decision

making to go for a loan and selection of a service provider. The study centered on to find out

the key decision attributes which affects decision making on home loans by middle income

groups in Bangalore city. The study also reminds the role played by financial institutions and

offers suggestions for improvement. And it is important to know for me about Indian housing

sector, its features and difference from Mongolian mortgage, housing market.



Chapter 2

HOUSING FINANCE

AND HOUSING FINANCE INSTITUTIONS

2.1 Housing finance

Housing Finance is considered both by way direct and indirect finance.

Direct finance: loans give to individuals or group of individuals such as co-operative

Housing Societies or Educational, Health, Social Cultural or other institutions/centers which

are part of a housing project and which are necessary for the development or settlement of

townships or to shopping complexes, markets and any other centers catering to the day to day

needs of the residents of the housing colonies and forming part of a housing project or to

construction meant for improving the conditions in slum areas for which credit is to be

extended directly to the slum dwellers against the guarantee of government or indirectly

through stated governments are classified under direct finance.

Indirect Finance: loans granted t public housing agencies like HUDCO, Stated

Housing Boards, State Level Agencies, HDFC, Housing Finance Institutions, Housing

Boards and other Agencies are classified under Indirect Finance. Also, financing for Land

Acquisitions and to Private Builders is classified under Indirect Finance.

Nature of housing loans:

1) Longer tenure of loans, ranging from minimum 5 years to 20/25 years. Higher outlay of

funds and longer duration of the housing loans make it different form that of other retail

loans. Therefore, the risk horizon also differs for the housing vis-à-vis retail loans.

2) Rather low cost of operations in terms of deployment of manpower for processing and

follow up, etc., as compared to other loans of the same size within the retail or any other

segments.

3) Safe advances as these are invariably backed by tangible security the form of mortgage of

house/flat.

4) Tendency to default on housing loans low as house is considered as the big ticket deal of

an individual’s life.



5) Housing finance provides a higher and rather consistent risk adjusted return to banks.

6) Cut throat competition prevails among Banks, Housing Finance Companies and NBFC’s

Types of home loans

Today, home loans have been restructured to suit your constantly changing needs

starting with a basic loan to buy a home, to loans required for construction or for repairing

your existing home. Featured below are a few other kinds of loans available.

Out Right Purchase Loans

As the name indicates, we can avail these loans for the outright purchase of our homes.

Construction Loans

We can avail these loans for the construction of your home.

Home Extension Loan

We could avail of this loan if we want to build a floor or expand it but only after we obtain

the requisite approvals from the municipal and town authorities.

Home Improvement Loans

External work like structural repairs or waterproofing and internal work like tiling, plumbing,

electrical work painting, flooring, etc., remains to be done even after we’ve bought the house.

This is when a home improvement loan come in handy.

Home Conversion Loan

Simply put, this loan enables us to transfer our current loan (which we took to buy our

house ) to the new house, thereby providing us with additional finances for the incremental

cost of the new house. Which means, we can move to our new house without having to pre-

pay our existing loan.

Land Purchase Loan

If we’ve opted to invest in land instead of buying a flat in town, we could apply for a land

purchase loan. We could later apply for a construction loan separately to build our dream

home on the land.



Stamp Duty Loan

This is extended against the stamp duty amount payable on our purchase of a house. This

particular loan could be worth considering, especially in cities like Delhi, Mumbai and

Bangalore where Real Estate prices are on the high side and the stamp duty payable is

substantial.

NRI Loans

Loans today are available not only to resident Indians but also to NRI’s if they wish to

buy or construct a house in India. But for an NRI the documentation required is different.

He/She would have to submit his/her work permit ( where applicable), stamped visa on the

passport, employment contract, latest salary slip and overseas bank statement of the past few

months, Repayment of the loan could be done through the normal banking channels using

either a Non-Resident (external)or a Non-Resident (ordinary) account.

Bridge Loans

In short, bridge loans are short-term finance loans that cover the period till we sell off

your old house. To elaborate slightly, supposing we plan to buy a new house (which we’ve

already found) and want to sell the one we’re currently living in but are unable to find a

buyer, a bridge loan proves useful. Repayment of a bridge loan can be done through a lump

sum or in installments.

Refinance Loan

This simply means that a housing finance company gives us a home loan to repay our

earlier debt. But the condition is that the earlier debt shouldn’t be over six moths. A refinance

loan therefore works out cheaper when your present house has entailed a borrowing from

other sources such as friends, provident funds, etc.

Balance Transfer (swap)

A balance transfer loan is rally useful when interest rates fall even as we’re still

repaying our home loan. And if we’ve opted for fixed-interest rate repayment terms, we’ll be

paying a higher rate of interest. What we could do is get our existing loan refinanced (usually

by another finance company). The new lender will repay our existing loan and give us a new

loan at the current, lower rate of interest. We might have to face a pre-payment penalty on



our old loan, but it will be worth it if the new EMI ( based on the new, lower interest rate )

ensures sufficient savings.

Sanctioning criteria for Housing Loans

Age

It influences the amount and eligibility for a loan by the way of being a major and the

period remaining for retirement.

Savings

How much of one’s savings can one put for the house? The more one can put into the

down payment, the less he needs to borrow. Yes, given the low interest rates and attractive

tax breaks, it perhaps makes more sense to take higher loans now than never before. But

remember: there isn’t a one-size-fits-all option here; the down payment- loan ratio will

largely be determined by one’s specific financial situation.

For instance, the young couple in our example won’t have a substantial corpus of

savings but will be looking to make the most of their tax breaks by taking the largest possible

loan. With their incomes likely to increase over time, they can easily service their loan on the

other hand single mother with her child’s education to worry about, or man with dual

responsibilities will want to limit their loan repayment liability with higher down payments.

Income

Obviously a major determinant of how much loan one can get and how much quickly

one can repay it. Each EMI consists of a principal component and an interest component. As

a thumb rule, the maximum possible EMI is usually put at 35-40% of your gross monthly

income., most lender allow the borrowers to club one co-applicant’s income with his own to

increase one’s loan eligibility.

As a young couple looking at a growing income curve, one can afford to take a large

loan or even a step-up land where the EMIs keep increasing with rising repayment capacity.

On the other hand, declining future income will deter the man on the verge of retirement from

taking a large loan. He may find it prudent to in for step-down plan. That lets him scale

down his EMIs in his post-retirement years or he may opt to return the loan partially or fully

with his super-annuation benefits.



Debts

If one has commitments like repayment of a car loan, it will limit the finances one can

raise for a house. Then the loan will be lesser than what one could have taken had one been

debt-free. Basically, it is about one’s disposable income. The lender is interested in knowing

what resources are available to the borrower to service the loan.

Interest rate

The choice of lender may also be determined by how the interest is calculated. Under

certain calculation methods, the interest outgo is more.

A part of each EMI one pays goes towards reducing the principal amount. How much

this portion is- on which the interest rate is based- depends on how the interest is calculated

by the lender. It may be calculated on a yearly, monthly, or daily reducing basis. The daily

reducing balance method is the most cost-effective. As a thumb rule, given an interest rate,

the more frequently the interest is computed, the better for the borrower.

Tenure

One can opt for long loan tenures when he is sure he can still repay even after 15 or

25 years. One must also be reasonably certain that unexpected and substantial monetary

obligations won’t crop up, as in the case of the young widow or the man with a growing

family and aged parents. If he is close to retirement, he mist be looking at a declining

repayment capacity- it makes sense to go for shorter tenures or smaller loans.

But even for the young couple, a 30 year loan can prove counter-productive. Unlike in

the US, where interest rates are lower for long-term loans, in India the rates are same for all

tenure. This results in a sharp increase in interest obligation for 30-year loans without a

corresponding increase in loan amounts.

Procedure For Availing Housing Loan

The appraisal officer attends to the queries of a prospective borrower. Various details.

e.g., eligibility criteria are discussed during this meeting.

Customer collect the application form, which is generally available at the reception

counter.



Applicant pay the processing fees, which is about 1% of the loan amount. The fees are

non-refundable. Generally they are asked to pay the fees only if the chances of the

loan getting sanctioned are really good as per the Officer's analysis.

The date of the personal interview is fixed up as per mutual convenience. The

appraisal officer conducts the interview.

The Appraisal Officer prepares the file and discusses the case with the Branch

Manager. The Branch Manager should substantiate recommendations of the Appraisal

Officer. The file is then recommended for sanctioning by the competent authority.

The competent authority concerned sanctions the loan proposal. In case there are

some queries, the same have to answer by the Appraisal Officer to the satisfaction of

the sanctioning authority.

If approved, applicant collect the Loan Offer letter. They fill Property Details form

and Acceptance Note and sign the same. This signifies your acceptance of the

proposal. Then, they are required to collect the disbursement within a month of the

acceptance of the offer letter failing which a Commitment Charge of generally 1% on

the loan is levied

The Legal and Technical fees is generally 1% of the loan sanctioned is paid by the

borrower. The file is then transferred to the Legal department. You submit the legal

documents to the Legal Officer. The Loan Agreement and the other documents are

signed. The Legal Officer then prepares the Legal Report after studying the legal

documents in depth.

The Technical Officer visits the property and submits the Technical Report. The

Technical officer as per the stage of completion recommends the amount for

disbursement.

The Disbursement Memo is prepared and is signed by the Appraisal, Legal and

Technical Officers, and countersigned by the Branch Manager.

The accounts department the prepares the cheque which is then sent to the authorized

signatories. The Disbursement Memo is attached with important documents like

interview sheet, Legal Report, Technical Report, PEMI Status Report applicable etc.



The PEMI cheque of the amount disbursed is collected before releasing the

disbursement amount cheque. PEMI is the interest charged on the amount already

disbursed by the company.

Consequent to the final disbursement the EMI starts, which amortizes the interest and

adjust the principal for the tenure allotted.

The documents mortgaged are released on closure of loan.

List of Documents In Case Of Salaried Borrowers

The following documents are required to be submitted by the borrower at the time of

submitting his application: -

Loan Application form duly filled and signed by the borrower and co-borrower

(where applicable).

Latest salary slips in original.

Employment certificate on the letterhead of the borrower's employer.

Xerox copy of the first and last page of the ration card.

Xerox copy of the first and balance page of Bank Pass Book.

Xerox copies of Rent Receipt and Electricity Bill, if applicable.

Xerox copy of the LIC policy along with a copy of the latest premium receipt.

Xerox Copies of various investments of the borrower.

Proof of educational qualification

Proof of age.

Previous experiences certificate wherever applicable.

Xerox copy of the agreement of the property if the property is already selected and

agreement is entered into.

Xerox copies of the own contribution receipts, wherever applicable.



In case of borrowers whose salary is taxable, the companies generally call for the 3

years form 16 for tax deducted at source by the employer

Factors to be considered before taking individual loan

Here are some of the factors one should consider before making decisions on home

loans.

Rate of interest

This is one of the most important factors. Simply put, this is the rate at which we

borrow money to buy the house.

It’s not always a fixed rate. Though interest rates vary from lender to lender, they

usually range from 8% to 10%, depending on the amount of loan.

The rate for small loans (below Rs.5 lakhs) is lower than that for Rs.10 lakhs and

above. The interest rate on home loans is much lower compared to that of a personal loan,

like a car loan.

Interest rates offered are of two types:

1) The floating interest rate loan : Here, the interest rate payable is linked to the market rate

like the bank lending rate. As the bank rate varies, the interest rate payable will also rise or

fall. Since there’s an element of risk due to the interest rate fluctuations, the floating interest

rates offered are slightly lower than the fixed interest rates.

2) The fixed interest rate loan : The interest rate is constant over the loan tenure.

Tenure of the loan

This is the period of time for which we are taking the loan. Usually it ranges from 5

years to 15 years. Typically, the tenure of the loan dose not extend beyond the age of

retirement or when we turn 65- whichever comes first.

Equated Monthly Installment(EMI)

EMI means the amount of money returned back by the borrower to the money lending

institution every month , till the end of the loan tenure. It is the spread of loan amount

payable in the form of small parts each month.



Reducing balance factor

This is the method of reducing the principal amount repaid from the outstanding loan

amount. Every time you make a payment, the interest you pay is on the part of the original

principal sum that remains un-prepaid till then. Your could calculate the reducing balance in

three ways :

Daily reducing balance

Monthly reducing balance

Annual reducing balance

In the daily reducing balance method, the principal is reduced every day as if you

were making repayment of the principal on a daily basis.

In the other two cases, the reducation in the principal outstanding is made at the end

of every month and every year respectively. So, the EMI in the monthly reducing balance

method will be lower than in the annual reducing balance method given the same rate of

interest.

Service from the lender.

Today, many companies offer a wide range of personalized services. Sometimes a

loan is sanctioned even before a property is identified. The speed of approval and

processing, however, varies across HFI’s. A few institutions offer you not only financial

advice but also consultation services on property. Some incentives offered to the customer

range form free credit cards, free ATM cards, free accident insurance to discounted consumer

loans. Some companies even send a representative to your home to discuss and deliver the

loan and also pick up the EMI cheques.

Additional charges

This includes processing and administrative charges and is expressed as a percentage

of the loan amount. And currently rages from 0.50% to 2% of the loan amount.

Processing charges

This is a certain charge payable on the loan we have applied for and not on the amount

of loan eventually sanctioned. This charge varies and is typically fixed, irrespective of the



loan amount or maybe a certain percentage of the loan applied for. Paid upfront, this amount

effectively reduces the loan availed of by you. For instance, a 1% processing charge on

Rs.10 lakhs loan means you are effectively getting a amount of Rs.9,90,000/- (Rs.10 lakhs

minus the Rs.10,000/- processing charges). You still have to pay the interest on Rs.10 lakhs.

Therefore, a lower processing charge would prove more beneficial to you.

Commitment fees

There could be a delay in availing of the sanctioned loan as you may not have found

the right house or the builder couldn’t deliver the property on time. In such case, a

commitment fee, depending on the lender’s policy, may be levied on the loan amount set

aside for you.

Hidden Charges

Documentation charges, consultation fee of an advocate to get the title clearance for

the property, etc., could be a few of the hidden charges payable. But this should be

considered as part of the total charges levied by the lender.

Interest tax

This is a tax on the interest paid on the loan. The interest rate announced may not

include the interest tax. HFI’s normally include the interest tax while banks charge it as 2%

additional interest tax- ( charged only on the interest paid and not on the principal- i.e. on a

loan carrying an interest rate of 15, the additional interest payable will be 2% of 15% -i.e.

0.3%)

Pre-payment

Returning part of the loan before it is actually due for repayment, as per the

repayment schedule, means a pre-payment.

Foreclosure

S foreclosure is when you repay the entire outstanding loan at any point of the time

before the end of the loan tenure.

Pre-payment or Foreclosure penalty



In both cases you are charged a penalty called pre-payment penalty. This ranges

between 1% to 2% of the amount being pre-paid. But it varies across HFI’s. There are a few

HFI’s which do not charge either of the penalties.

Some points to remember on loan transfer:

Interest rates may look upwards again, so if you wish to avail a loan transfer do so

now, by locking an old loan into a new, lower rate loan.

Be aware that the old institution will not allow you to walk away easily.

A loan transfer makes sense when the loan amount outstanding is still large.

Institutions are always on the lookout for a good loan. Try and convince your own

finance company to provide the benefit of a lower interest rate regime. They will

respond.

Check out what is the pre-payment penalty for an old loan. Some institutions have

waived it off.

Check out the tax benefits relating to a loan transfer. The tax benefits may or may not

accrue to you if you go in for a loan transfer, as there is currently no income tax ruling

on this.

Try and get the new organization to directly buy the loan from the old one, by paying

a certain premium. Do not try and chase documents yourself.

To go for best home loan the applicant should check following points:

Is the interest computation on daily rest, monthly rest or annual rest basis.

Quantum of processing fee

Are there add-on benefits like free personal accident insurance, waiving of

processing fee, etc.

Quantum of prepayment charges in the eve4nt of foreclosure.

Ideal tenure that will maximize tax benefits.

2.2 Housing finance institutions

To give a boost to the housing scenario in India and to narrow 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.

The housing finance institutions can be segregated into three categories:

Public Sector Finance

Banks

Private Sector Finance

Public Sector Finance

HUDCO (Housing and Urban Development Corporation Limited)

HUDCO is an influential Government of India Enterprise. HUDCO - Housing And Urban

Development Corporation Ltd was incorporated on 25th April 1970. HUDCO India was

formed to assist various agencies and authorities in upgrading the housing conditions in the

country. Special emphasis was laid on the development of housing facilities or HUDCO

Niwas Yojana for the lower income group (LIG) and the economically weaker sections

(EWS) of the society.

Starting with an initial equity base of Rs. 2 crores, HUDCO India has a net worth of Rs. 3977

crores today. HUDCO Inc primarily aims to provide financing for housing developments.

HUDCO Financial Services are the task of HUDCO Bank that has mobilized finances from:

Financing institutions like LIC, GIC and other banking institutions

International assistance from KfW, JBIC, ADB, USAID etc.

Market borrowings through debentures, taxable and tax-free bonds

Public deposits



HUDCO has been associated with not just housing development but the overall infrastructure

development assistance. The activity areas of HUDCO include:

Urban housing

Rural housing

Staff rental housing

Repairs and renewal

Shelter and sanitation facilities for footpath dwellers

Workingwomen ownership condominium housing

Housing through private builders/ joint sector

Individual HUDCO housing loans and HUDCO home loan for construction and

renovation through 'HUDCO Niwas'

Land acquisition

Valmiki Ambedkar Awas Yojana (VAMBAY)

Jawahar Lal Nehru National Urban Renewal Mission (JLNNURM)

The interest rates for individual loans under HUDCO Niwas for 1st 2 years have been fixed

with at 8.00% (floating) for loan up to Rs.10.00 lakhs and 8.50% for loans above Rs.10.00

lakhs. After completion of 2 years, prevailing floating rate of interest will be applicable.The

fixed rate for individual housing loans has been reduced to 12.00%. From the earlier 13.50%.

The fixed rate for individual housing loans to women beneficiaries /SC/ST has been reduced

to 11.25%. from the earlier 12.75%.

LICHFL (Life Insurance Corporation Housing Finance Limited)

LIC Housing Finance Ltd. is one of the leading and oldest home funding organizations,

which offers one of the finest services in the trade. It has branches all over India. It offers

variety of loans like housing finance for new purchases, re-constructions, renovations, NRI

housing finance etc. Some of the schemes that LICHFL offers are the Griha Shobha, which is

for NRIs, Griha Sudhar, where one can apply for a loan for renovations and repairs in

existing houses. Green Channel Facility is meant for professionals like practicing doctors,



CAs, computer engineers, etc. Lately LICHFL introduced a new scheme Apna Chikitsalaya,

which is especially for medical practitioners for renovating, purchasing or extending their

clinic, hospital, laboratory, etc. Then it also has the scheme of Sampurna Griha (A) & (B) for

resident Indians.

GICHFL (General Insurance Corporation Housing Finance Ltd)

GIC Housing Finance Limited was incorporated as 'GIC Grih Vitta Limited'. The name was

changed to GIC Housing Finance Limited or GICHFL on 16th November 1993. The

company was incorporated to provide financial assistance to individuals and to persons and

entities engaged in construction of houses/flats for residential purposes.

GIC Housing Finance Ltd has contribution in the initial share capital from General

Insurance Corporation of India and its subsidiaries namely, National Insurance Company

Limited, The New India Assurance Company Limited, The Oriental Insurance Company

Limited and United India Insurance Company Limited along with UTI, ICICI, IFCI, HDFC

and SBI.

The sales team employed by GICHFL includes, individual direct sales assistants and tie

ups with corporates and builders to provide home loans and other housing finance products to

individuals. With 23 branches all across the country, GIC Housing Finance aims to make

home loans accessible to all.

The housing loan products by GICHFL cater to not just the individual home buyer or

constructor but the builders and developers too for construction of large residential units.

Housing finance solutions by GIC Housing Finance Limited have gained popularity among

the housing societies builders. GIC housing finance Ltd. is offering lowest floating rate at

7.95% for loan 15 years.

PNBHFL (Punjab National Housing Bank Housing Finance Ltd)

A subsidiary of the Punjab National Bank, PNBHFL offers the Apna Ghar Yojana for

construction or buying a house. It also offers the Ghar Sudhar Yojana for renovation or repair

of house or flat. It has home loan facilities for NRIs and Line of Credit Facilities for

companies to give loans to their employees for construction or renovation of a house.

Punjab National Bank offers up to 80 % of the costs loan. Loan up to 10 lacs is offered

for housing requirements, while furnishing limit is 2 lacs. A third party guarantee is

mandatory for official purposes. Purchases on the first power of attorney an additional



security of up to 125 % of the amount by the way of mortgages or other property must be

provided. Purchases from housing boards where mortgages can not be immediately provided,

an agreement that includes the housing board is signed and agreed upon. The fixed rates are

as low as 9.00% for up to a period of 5 years, 9.50 for periods between 16 and 20 years. The

floating options for a period of 5 years are as low as 10.50%. These rates are quite low as

compared to the various competitors of Punjab National Bank such as ICICI bank, State Bank

of India, Central Bank, Citibank and Bank of India. The loans can be repaid in equal monthly

installments. And the period of the loans can extend up to 25 years, or before the client turns

65, a policy followed by most financial institutions. For immediate purchases purposes, the

loan is paid in the form of a lump sum to the borrower. In case of construction purposes,

loans are issued or granted as per the requirement in the construction process. All rules and

regulations are checked by the sanctioning authority to avoid any frauds.

SBIHF(State Bank of India Housing Finance)

State Bank Of India is one such government bank, which understands your needs and

helps you to purchase the homes of your dreams. A lot of hard work goes into building a

home, owning it and then decorating it. State Bank Of India understands your efforts and for

that matter they have designed their Home Loan schemes in a way to make the process hassle

free and full transparency has been offered.The Unique Features of their Home Loan

Schemes are no cap on maximum loan amount for purchase or construction of house or flat.

They give an option to club the income of your partner and children to compute eligible loan

amount. You can repay the loan up to 70 years of age. The home loan schemes also have free

personal accident insurance cover. They charge no administration fee or application fee.

Provision for downward refixation of EMI in respect of floating rate borrowers who avail

Housing Loans of Rs.5 lacs and above, to avail the benefit of downward revision of interest

rate by 1% or more.

SBI Home Loan Features :

They have a package for exclusive benefits like complimentary international ATM-

Debit card. They provide complimentary SBI Classic and International Credit Card with

waiver of joining and first year's fees. State Bank Of India provides an option for E- Banking.

There is a concessional package for car home loan borrowers.

They provide Home Loans for various purposes such as: for the purchase or

construction of a new house or flat, purchase of an already built house or flat and if you want



to buy a plot of land for construction of house. Finance for home is also provided if you want

to undertake extension, repair, renovation, and alteration of an existing house or flat, if you

wish to buy furniture, furnishings and other commodities for your home.

Others

The other major players in the public sector are the Indbank Housing, Corpbank

Homes, Cent Bank Home Finance Limited, etc

Banks

Almost all the banks through out India provide housing finance, except a few small

branches. The major banks that provide loans for housing are Bank of Baroda, Bank of India,

Bank of Maharashtra, Bank of Punjab, Canara Bank, Cooperative Banks, Citi Bank NA,

Corporation Bank, Dena Niwas, HSBC, ICICI Home Finance, IDBI Bank, IndusInd Bank,

Lakshmi Vilas Bank, Punjab National Bank, SBI (State Bank of India), UCO Bank, and

many others.

Amongst these ICICI and SBI are the leaders. ICICI gives the maximum period of 30 years

for the repayment of loans. It offers loans ranging from a minimum of Rs. 1 lac to Rs. 1

crore.

Canara bank

As a premier commercial bank in India, Canara Bank has a distinct track record in the service

of the nation for over 100 years. Today, Canara Bank has a strong pan India presence with

3002 branches and over 2000 ATMs, catering to all segments of an ever growing clientele

base of over 36 million. They are recognized as a leading financial conglomerate in India,

with as many as nine subsidiaries/sponsored institutions/joint ventures in India and abroad.

As they step into the second century, they aspire to emerge as a Global Bank with Best

Practices.

HSBC bank

HSBC's origins in India date back to 1853, when the Mercantile Bank of India was

established in Mumbai. The Bank has since, steadily grown in reach and service offerings,



keeping pace with the evolving banking and financial needs of its customers.

In India, the Bank offers a comprehensive suite of world-class products and services

to its corporate and commercial banking clients as also to a fast growing personal banking

customer base.

ICICI home finance

ICICI Bank is India's second-largest bank with 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 has a network of 1,694

branches and about 4,883 ATMs in India and presence in 18 countries. ICICI Bank offers a

wide range of banking products and financial services to corporate and retail customers

through a variety of delivery channels and through its specialised subsidiaries and affiliates in

the areas of investment banking, life and non-life insurance, venture capital and asset

management.

ICICI Bank Home Loans, offer unbeatable benefits to ensure that we get the best deal

without any hassles.

As one of the leading home loan provider, ICICI Bank understands how special building a

new home is for us and their Home Loan help us lay the foundation for our dream home.

ICICI offers us the most convenient home loan plans to suit our needs. With so many

attractive features in every type of home loan they offer, creating the home us always wanted

is no longer a distant dream. Some of their key benefits are:

Guidance through out the process

Home loan amounts suited to your needs

Home Loan tenure upto 20 years

Simplified documentation

Doorstep delivery of home loan papers

Sanction approval without having selected a property.

Free Personal Accident Insurance (Terms & Conditions)

Insurance options for your home loan at attractive premium

IDBI bank



Presenting IDBI Bank's ultra flexible home loan we have been looking for. They

realise what owning our home means to us and our family.

We can avail of the Home Loans for constructing a home, purchasing a ready built house/flat,

residential plot and even for re-financing existing loans we may have availed from other

banks or housing finance companies.

Advantages of IDBI Ultra Flexible Home Loans

Maximum Funding

Flexibility of choosing between Floating or Fixed interest rate

Attractive rate of interest

EMI on daily reducing balance

Personalised doorstep service

Simple documentation

Legal and technical assistance

Balance transfer facility

Reassessment and adjustment of applicant's loan eligibility in case of change of

income and residence status

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.

PNB reaches out to us with fast, friendly and most convenient home loans for:



Construction or purchase of house/ flat.

Purchase of house/ flat on First Power of Attorney basis from the original allottee.

Carrying out repairs/ renovations/ additions/ alterations to existing house/ flat.

Special Feature- To cover the loan outstanding, life Insurance cover is also

available on payment of one time premium which can also be financed by the

Bank.

Private sector finance

HDFC (Housing Development Finance Corporation)

With the objective of augmentation of housing through the stipulation of housing finance

HDFC was established in 1978 with the support of the Industrial Credit and Investment

Corporation of India, the International Finance Corporation (IFC) in Washington and the Aga

Khan Fund. Today HDFC and Housing finance are synonymous. It has become one of the

largest home loan providers in India.

DHFCL (Dewan Housing Finance Corporation Limited)

Dewan Housing Finance Limited (DHFL) was established in April '1984 by Mr. Rajesh

Kumar Wadhwan. The soul motive behind the establishment of Dewan Housing Finance

Corporation was to provide housing finance or in simpler terms home loans to the lower and

middle income group marked as high credit risk by most other financial institutions. DHFL

believed in helping them realize their dream of owning a house of their own.

Dewan Housing Finance with an asset base of over Rs. 3580 crores is a fast growing

corporation winning the trust of their customers by helping them where they need someone

the most i.e. by giving them the finance needed for buying a property that is not mere an

investment to them but an extension of their individuality.

With a branch network of over 54 branches and 111 service locations, Dewan Housing

Finance Corporation Limited try their best to be easily accessible to every Indian with a

dream to buy a home. Customer care policy of DHFL proclaims respect and dignity for all

the customers, prompt and courteous reply to all enquiries and a totally transparent

transaction and dealing.

The housing finance products listing by Dewan Housing includes:



o Home Loans

o Home Extension Loans

o Home Improvement Loans

o Home Loans For NRI's

o Plot Loans

o Mortgage Loans

o Non-Residential Property Loans

o Home Loan Linked Insurance Plans

o Reverse Mortgage

GHFCL (Global Housing Finance Corporation Limited)

GHFCL a syndicate of reputed builders, incorporated in June 1994, offers Individual Home

Loan Scheme and Home Improvement Scheme. Oriental Bank of Commerce, one of the

leading nationalized banks, also participates in the equity of the company.

BHFL (Birla Home Finance Limited)

BHFL offers Easy Title for registration of the property or land purchased, Easy Upgrade

loans for renovation of the existing house, which has been purchased or constructed at least

one year ago. The renovation can be in the form of flooring, tiling, plumbing, paint, polish,

etc., Easy extend loans for extensions of an existing house, Easy Home loans for outright

purchase of a ready built house, Easy Build loans for construction of house on self-acquired

or inherited vacant plot of land, and Easy Bridge Loans for purchase of a ready built house,

when an individual already owns a property, which would be sold on getting possession of

the new one.

Maharishi Housing



Maharishi Housing Finance Corporation Ltd., a company from Maharishi Group started in

1997 also caters home loans. One of the key attractions of Maharishi Housing is its 35-year

loan repayment scheme.

Others

Other key housing finance providers in the private sector are Sundaram Home Finance,

Hometrust Housing, Gruh Finance, Weizmann Homes, GLFL housing, etc.

Home loan rates

BANK/HFC Red.Bal. Period

(years)

Floating Rate (%) Fixed Rate (%)

Bank of

Baroda

Daily (Up to 30

lakhs)

(Above 30

lakhs)

(Up to 30

lakhs)

(30 to 50

lakhs)

00-05 8.50 9.25 9.75 10.25

05-15 8.75 9.50 9.75 10.50

15-25 9.00 9.75 10.00 10.75

Bank of India Daily (Up to

30

lakhs)

(30 to

50

lakhs)

(Above

50

lakhs)

00-05 8.75 9.50 10.25

05-10 9.00 9.75 10.50

10-15 9.25 10.00 10.75

15-20 9.50 10.25 11.00

Corporation

Bank

Daily Any amount Any amount

1st year 08.00 11.00

2nd & 3rd

year

08.50

Canara Bank Daily (Upto 30 (Above 30



lakhs) lakhs)

1st year 08.00 08.75

2nd to 5th 09.00 09.50

Indian bank Daily (Upto

20

lakhs)

(20 to

30

lakhs)

(Above

30

lakhs)

00-05 08.25 08.50 09.00

05-10 09.25 09.75 09.00

10-15 09.50 10.00 09.00

15-20 10.00 10.50 09.00

Syndicate

Bank

Daily 01-05 10.00 09.50

05-10 10.50 10.00

10-15 10.75

15-20 11.00

Punjab

National

Bank

Monthly (Upto 20

lakhs)

(Above 20

lakhs)

00-05 09.25 09.75 10.25

05-10 10.00 10.50 10.25

10-15 10.25 10.75 11.00

State Bank of

India

Daily (Upto 30 lakhs ) (Upto 30 lakhs)

First one

year

8.00 8.00

Next one

year

9.00 9.00



Remaining

period

9.75 10.25

LIC Housing

Finance

Daily 0-20 (Upto 75

lakhs)

(Above 75

lakhs)

(Upto

75

lakhs)

(Above

75

lakhs)

08.75 09.75 3

yrs.

8.90 9.90

CANFIN

HOMES

Monthly 5-20 years 12.00 5-20 yrs 14.00

HDFC Monthly 0-18 years 11.75 0-20 yrs 14.00

ICICI Monthly 1-20 yrs 13.00 1-20 yrs 15.50

AXIS BANK Monthly 1-20 yrs Upto 20

lakhs

Above 20

lakhs

14.00

8.75 09.25

Chapter 3

RESEARCH METHODOLOGY

Any type of research should deal with the methods employed and the tools applied to

fulfill the objectives of the study.

3.1 Type of research

A descriptive study has been undertaken for this study to know about the functionality

of housing loan industry, major players, norms and procedure, interest rates patterns, cost of

loan to the applicant.

The primary source of information was from current and potential applicants were

obtained from a structured questionnaire.

The questionnaires prepared separate for each of the sample size in this study and the

information collected through personal interview with respondents.



3.2 Sample techniques

The respondents in respect to current and potential applicants had been picked on the

basis of random convenience sampling.

3.3 Sample size

The sample size of this study was 50 for current applicants and 50 for potential applicants.

These samples were selected from the city of Bangalore.

3.4 Sample description

The sample size obtained for the study was between the age group of 21 years to 60

years who’s monthly income ranges between Rs10,000/- to Rs.50,000/- and were chosen

from different parts of the city.

The current applicant were chosen with the help of friends.

3.5 Instrumentation technique

The instrument used to collect primary data for the current and potential applicants

was a questionnaire drafted to identify the decision drives for a home loan and selection

criteria for housing loan institution.

The information gathered form the primary source would be analyzed by tabulating all

information received. Conclusion and interpretation of this study would then be made using

various tools like graphs, charts and tables.

3.6 Statement of the problem:

In modern society a house not only satisfies the need of the shelter to man but also

security and pleasure in the society. To have this, one should have the capacity to purchase or

hire or to build their dream home. Since the large part of the population of middle income

groups having the capacity to own a house but lack to gather huge amount at once. Here

comes the role of financial institutions to fund this type of construction. Nowadays there are

so many financial institutions which are providing housing loans are offering to customers

many different kind of schemes as well as terms and conditions. And it has become

complicated to the customers to select proper financial institution due to stiff competition and

global crisis. It is also important to know what exactly customers want from financial

institutions as well as their experience, taste & preferences. So that, the study on role of



Financial Institutions in providing housing loans for middle class income group has become

important.

3.7 Objectives:

To identify those factors which influence the decisions to apply for home loan and in

selection of housing financial institution by prospective middle-income group

applicants for home loan in Bangalore city.

To assess the satisfaction level of current home loan applicants in Bangalore city.

To study the role played by housing financial institutions in providing housing loans.

To study the effect of changing interest rates on home loan seekers.

To understand Indian housing market comparing with Mongolian mortgage and

housing sector.

3.8 Actual collection of data

Actual collection of data from potential applicants is made from meeting them

personally and got filled the questionnaire.

The actual collection of data from current applicants is done through sending

questionnaire through friends and also by personal meet with the respondents.

3.9 Tools used for hypothesis

The tool used to test the hypothesis is Chi-square represented as X2 Chi-square is

used to find the dependency of one variable/s over the other. In this study the researcher had

used Chi-square to test the independency of decision to go for home loan on tax benefits, low

interest rates, convenience by middle-income group in Bangalore city.

3.10 Software used for data analysis

Software like Microsoft Office (EXECL) was used to draw graphs, tables which were

used to show the analysis of the data collected.

3.11 Limitations of the study

The study is restricted to Bangalore city only.



Study focuses on only direct home loan finance and ignores the commercial home

loan disbursement.

This study was unable to cover the options for potential respondents such as, housing

loan opted for renovation, extension of the property.

Interest rates mentioned in this study are subject to fluctuations.

Time and cost limitations

Chapter 4

DATA ANALYSIS AND INTERPRETATION

4.1 Hypothesis

Null Hypothesis: Decision to go for a home loan by a middle income group individual

is independent of the decision attributes viz.tax benefits, low interest rates and convenience.

Alternative Hypothesis: Decision to go for a home loan by a middle income group

individual is dependent of the decision attributes viz.tax benefits, low interest rates and

convenience.

Chi-Square test

The chi-square is used to test the statistical significance of the observed association in

a cross-tabulation. It assists in determining whether a systematic association exists between



the variables. The test is conducted by computing the cell frequencies that would be expected

if no association were present between the variables, given the existing row and column

totals. These expected cell frequencies, denoted Fe, are then compared to the actual observed

frequencies, denoted Fo, found in the cross-tabulation to calculate the chi-square statistic.

The greater the discrepancies between the expected and actual frequencies, the larger the

value of the statistic. Assume that a cross-tabulation has r rows and c columns and a random

sample of n observations. Then the expected frequency for each cell can be calculated by

using a simple formula:

Fe = nr*nc/n

where nr => total number in the row

nc => total number in the column

n => total sample size

Decision attributesRankings by potential applicants

1 2 3 4 Total

Low Interest rates 16 13.66 13 7.3 50

Tax benefits 16 13.66 13 7.3 50

Convenience 16 13.66 13 7.3 50


Decision attributesRankings by potential applicants

1 2 3 4 Total

Low Interest rates 31 12 7 0 50

Tax benefits 10 20 14 6 50

Convenience 7 9 18 16 50

Total 48 41 39 22 150


total 48 41 39 22 150

Then the value of chi-square is calculated as follows

c2 = å (Fo - Fe) ^2 / Fe

where å=> Sum of all cells

From the data in the table above, the value of c2 is calculated as:

c2(cal) = (31-16) ^2 /16 + (10-16) ^2 / 16 + (7-16) ^2 /16 + (12-13.66) ^2 / 13.66 +

(20 – 13.66)^2 / 13.66 + (9-13.66) ^2 /13.66 + (7 – 13) ^2/ 13 +

(14-13) ^2 /13 + (18-13) ^2 /13 + (0-7.3) ^2/7.3 + (6-7.3) ^2/7.3 +

(16 – 7.3) ^2 /7.3

c 2(cal) = 48.765

To determine whether a systematic association exists, the probability of obtaining a

value of chi-square as large as or larger than the one calculated from the cross-tabulation is

estimated. An important characteristic of the chi-square statistic is the number of degrees of

freedom (df) associated with it. In general, the number of degrees of freedom is equal to the

number of observations less the number of constraints needed to calculate a statistical term.

In case of chi-square statistic associated with cross-tabulation, the number of degrees of

freedom is equal to the product of number of rows (r) less one and the number of columns (c)

less one. That is, df = (r-1) * (c-1), therefore df = (3-1) * (4-1) = 6.

To illustrate, for 6 degree of freedom, the value of upper-tail area of 0.05 is 12.59.

This indicates that for 6 degree of freedom the probability of exceeding a chi-square value is

0.05. In other words, at the 0.05 level of significance with 6 degree of freedom, the critical

value of the chi-square statistic is 12.59.

For the cross-tabulation given in the above table, the calculated chi-square statistic

had a value of 38.038 (c2cal). Since c2cal(48.765) is greater than the critical value of c2tab

(12.59), the null hypothesis has to be rejected or alternate hypothesis is accepted, indicating



that the association is statistically significant at the 0.05 level of significance and degree of

freedom 6.

CONCLUSION

From the chi-square statistic, it is clear that, the decision to go for home loan by a

middle income group individual is dependent on decision attributes viz. tax benefits low

interest rates, convenience. Thus it is been concluded that the alternate hypothesis is accepted

or the null hypothesis is rejected, i.e. decision to go for a home loan by a middle income

group individual is independent of the decision attributes viz.tax benefits, low interest rates

and convenience.

4.2 Data presentation

The data collected from the survey conducted at Bangalore city has been analyzed and

interpreted in this section. The interpretation is based on the information collected through a

structural questionnaire prepared for research..

The sample size of 100 divided into 2 parts of 50 each for present/existing applicants

and potential/prospective applicants respectively. Researcher maintained similarity with

respect to age, occupation, monthly income and savings in order to have better comparison

between the two sample sizes. There fore the Table from 5.1 to 5.4 and graphs G-1 to G-4

will be for the total of 100 respondents.

TABLE-4.1 Table to represent age wise classification of respondents

Age No. of Respondents

21-30 25(25%)

31-40 35(35%)

41-50 30(30%)

51-60 10(10%)

Total 100(100%)



Explanation (Table-4.1): Out of 100 respondents 25% were the age group of 21-30 years,

35% were the age group of 31-40 years, 30% were the age group of 41-50. Finally 10% were

the age group of 51-60 years.

GRAPH-4.1

Interpretations (Graph-4.1): This study was focused on the age group between 21 years to 60

years. Graph-4.1 shows that 75% of respondents are active applicants to the housing loan

market, age range between 31-50 years. Applicants below 30 and above 50 years are not

much active as 31-50 because of work experience and retirement.

Table-4.2 Table to represent the occupation of the respondents

Occupation No. of Respondents

Govt.Employee 26(26%)

Business Man 28(28%)

Professional (Except Govt. Emp. And IT Professional) 16(16%)

IT Professional 30(30%)

Total 100(100%)

Explanation (Table-4.2): 30 respondents were from IT professional group. Government

employees totaled 26. Professionals(other than government and IT professionals) and

Businessman were respectively represented as 16 and 28 respondents each in the study.



GRAPH-4.2:

Interpretation (Graph-4.2): IT professionals occupy high percentage in this study because of

IT industry development in Bangalore. Next is Business man group. Gvt.employees are

becoming active in housing loan due to Increase in their salary and decrease in interest rates

TABLE-4.3 Table to represents monthly income level of the respondents

Monthly Income

(In Rs)No. of Respondents

Less than 15000 26(26%)

15000-20000 42(42%)

20000-35000 19(19%)

35000-50000 13(13%)

Total 100(100%)

Explanation (Table-4.3): 26 respondents represents income level of less than Rs.15,000 and

42 respondents represents Rs.15,000-Rs.20,000. 19 and 13 respondents were from Rs.35,000-

Rs.40,000 and Rs.20,000-Rs.35,000 income category respectively.



GRAPH-4.3:

Interpretation (Graph-4.3): Income is another social economic variable frequently used to

approximate social class standing. Shift focus toward middle income groups by Housing

Finance Institutions (HFI’s) gave importance to study the expectations of this class. The

graph-4.3 reveals 26 respondents represents the category of lower middle income group i.e.,

Less than Rs.15,000 and 42 respondents represents category of middle income group,

Rs.15,000-Rs.20,000 respectively. The rest covered by higher middle income group

consisting of 19 and 13 respondents were from Rs.35,000-Rs.40,000 and Rs.20,000-

Rs.35,000 category respectively.

TABLE-4.4 Table to represent monthly savings of respondents

Monthly Savings No.of respondents

Below Rs.2,500 12(12%)

Rs.2,500-Rs.5,500 18(18%)

Rs.5,500-Rs.8,500 32(32%)

Rs.8,500-Rs.11,500 15(15%)

Rs.11,500-Rs.15,500 23(23%)

Total 100(100%)

Explanation (Table-4.4): Table – 4.4 reveals 32 respondents were from Rs.5,500-Rs.8,500

savings category. Rs.11,500-Rs.15,500 category covered by 23 respondents. 18, 15 and 12



respondents were from Rs.2,500-Rs.5,500 , Rs.8,500-Rs.11,500 and Below Rs.2,500 income

categories respectively.

GRAPH-4-4:

Interpretation (Graph-4.4): Savings play important role while determining the equal monthly

installments of the loan amount and the tenure. Most of respondents who are having higher

savings came from current applicants.

TABLE-4.5 Table to represent the residential status of respondents.

Residential Status No. of Respondents

Own House 20(40%)

Rented 25(50%)

Lease 5(10%)

Total 50(100%)

Explanation (Table-4.5): Most of the respondents were stated residing at rented house,

representing 50% and 23 of the total number of respondents. The respondents living in own

house represented by 40% and 20 by numbers. The rest 10% is covered by 5 respondents

having residential status of lease type.



GRAPH-4.5:

Interpretation (Graph-5.5): 60% of respondents are not having their own house, so there is

demand in housing loan from more than half of the respondents. Remaining 40% of

respondents wanted to have extra house even they are having their own.



TABLE-4.6 Table to represent purpose for which the housing loan applied

Purpose No. of respondents.

Purchase of plot/house 10(10%)

For construction 40(40%)

Any others 00(0%)

Total 50(100%)

Explanation (Table-4.6): Given the option for construction 80% of respondents were stated

their consent as purpose. The rest 20% of respondents stated that their purpose was to

purchase plot.

GRAPH-4.6:

Interpretation(Table-4.6): Most of the respondents wanted to build their own house

themselves instead of purchasing new house. It means it is cost effective option than others.

There was no respondents opted to renovation and extension of loan.



TABLE-4.7 Matrix table to represent the ranks for the attributes affecting the decision about

home loan.

Attributes Rank-1 Rank-2 Rank-3 Rank-4 Rank-5 Total

Low interest

rates31 12 7 0

0 50

Tax benefits 10 20 14 6 0 50

Convenience 7 9 18 16 0 50

Good

Service 2 9 11 23

5 50

Total 50 50 50 45 5 200

Explanation (Table-4.7): 31 respondents ranked low interest rate as No.1, 12 respondents as

No.2, 7 respondets as No.3. 10 respondents have chosen tax benefits as No.1, 20 respondents

as No.2, 14 respondents as No.3, 6 respondents as No.4, no respondents as No.5 etc…….

GRAPH-4.7:

Interpretation(Table-4.7): The graph depict the ranking of decision attributes by the

respondents. The most important decision drive was identified as the low interest rate which

was considered as important by 31 respondents ranked as ONE. The least important attribute

identified was the good service expectation from Housing Finance Institutions (HFI’s) by 20

respondents ranked as FOUR. Since the lower interest rates were the basic expectation, and



concluding that the next important attributes are the key factors for decision. Tax benefit is

SECOND key factor by 20 respondents. Convenience considered as the Key factor in

decision to go for housing loan which accumulates funds needed at different stages of

construction. It was rated THIRD by 18 respondents. The FORTH one is Good Service.

TABLE-4.8 Matrix table to represent ranking of HFI’s by respondents.

HFI’s No. of respondents

HDFC 12(24%)

ICICI Bank ltd. 7(14%)

Canara bank 8(16%)

SBM 4(8%)

PNB 6(12%)

IDBI 2(4%)

Vijaya bank 11(22%)

Total 50(100%)

Explanation (Table-4.8): 12 respondents ranked HDFC as No.1. And only 2 respondents

selected IDBI as No.1.

GRAPH-4.8:

Interpretation(Graph-4.8): The knowledge of service provider in the minds of customer plays

major role in business success. 12 respondents ranked HDFC as the best bank. 30

respondents ranked IDBI Bank as the least known bank for home loans.



TABLE-4.9 Matrix table to represent ranking of key attributes for selecting housing loan

provided by the respondents.

Attributes Rank-1 Rank-2 Rank-3 Rank-4 Rank-5 Total

No. of schemes

offered16 12 20 2

0 50

Past/Present

relationship19 10 11 7

3 50

Service offered 11 21 10 6 2 50

Reputation/Brand

image4 5 8 32

1 50

Total 50 48 49 47 6 200

Explanation (Table-4.9): 16 applicants chosen No. of schemes offered as No.1, 12 applicants

as No.2. 20 applicants as No.3. 2 applicants as No.4 etc…..

GRAPH-4.9:

Interpretation(Graph-4.9): Service offered by the HFI’s plays key role in their selection by

the applicants. 19 respondents ranked ONE for Past/Present relationship by the HFI’s as an

attribute for selecting the service provider. The ignored attribute being Reputation/Brand

image was ranked FOUR, which is selected by 33 respondents as rank-4. No. of Schemes

Offered and Service Offered with the service provider also played a key role in selection of

HFI by respondents. These attributes were ranked as THIRD and SECOND by 23 and 20

respondents respectively.



TABLE-4.10 Table to represent the purpose for which the housing loan was opted.

Purpose for opting home loan No. of Respondents

Purchase of plot/house 3(6%)

For construction 40(80%)

Renovation of extension property 5(10%)

Extension of existing property 2(4%)

Total 50(100%)

Explanation(Table-4.10): Out of 100 respondents 6% has taken loan for Purchase of Plot and

80% has taken for Site for construction etc…………..

GRAPH-4.10:

Interpretation(Graph-4.10): Major purpose behind applying for house loan is identified as

loan for residential construction accounts for 80% of the total by 40 respondents. Four

respondents stated that the purpose to have loan for purchase of plot/house. So that

applicants interested in construction loan due to low cost.



TABLE-4.11 Table to represent loan amount borrowed by the respondents.

Loan amount No. of respondents

Below Rs.5 lakhs 9(18%)

Rs.5 lakhs-Rs.12 lakhs 22(44%)

Rs.12 lakhs- Rs.15 lakhs 13(26%)

Above Rs.15 lakhs 6(12%)

Total 50(100%)

Explanation(Table-4.11): Most of the respondents were applied for loan amount Rs.5 lakhs to

Rs.12 lakhs and Rs.12 lakhs to Rs.15 lakhs accounted 44% and 26% of the total respondents

respectively. The next categories were below Rs.2 lakhs and above Rs.10 lakhs represents

the remaining part with 18% and 12% respectively.

GRAPH-4.11:

Interpretation(Graph-4.11): Loan amount plays a major role effected by the tenure, savings

and income levels of the respondents. If applicants purchase house or apartment the loan



amount will be higher than construction loan. So that most of the applicants have taken loan

for construction, renovation and extension.

TABLE-4.12 Table to represent tenure of the loan amount of current respondents

Tenure No. of respondents

Below 5years 12(24%)

6years-10years 18(36%)



Total 50(100%)

Explanation(Table-4.12): 18 respondents opted the tenure of 6 years to 10 years was the

highest percetage i.e., 36%. The second largest group of respondents chosen the tenure

between 11 years to 15 years were accounted 28% with 14 respondents. The rest 24% and

12% were from below 5years and 16years-20 years years of tenure.

GRAPH-4.12:

Interpretation(Graph-4.12): Tenure is one of the critical factors to determine the decision on

loan amount. The higher loan amount tend to have longer period. In this case most loans has



taken 3-8 years according to construction. Applicants don’t like to have longer period of

loan,they try to finish as soon as possible.

TABLE-4.13 Table to represent the type of interest rate opted by the current applicants.

Type of interest rate No. of respondents

Fixed interest rate 33(66%)

Fluctuating interest rate 17(34%)

Total 50(100%)

Explanation(Table-4.13): 33 respondents, had opted for fixed interest rate which represents

66% of the total. Fluctuating interest rate accounted for 34% by 17 respondents opted.

GRAPH-4.13:

Iterpretation(Graph-4.13): After falling interest rate regime it was important to identify the

popularity of different types of interest rates. Most of applicants have chosen Fixed Interest

rate, it means customers are not sure about market condition after global crises. But usually

they transfer their balance after choosing fixed interest rate.



TABLE-4.14 Table to represent satisfaction level of current applicants towards service provided by

HFI’s

Satisfaction No. of respondents

Yes 31(78%)

No 19(22%)

Total 50(100%)

Explanation(Table-4.14): With respect to service offered 78% were satisfied and 22% of total

respondents were not satisfied.

GRAPH-4.14:

Interpretation(Graph-4.14): It is important to know the customer satisfaction with respect to

service provided by HFI’s to gage the industry performance. Most of applicants satisfied



towards service provided by HFIs. It is the result of developing real state market with many

players offering flexible services.

4.15(a) SATISFIED APPLICANTS

Matrix Table to represent the ranking of attributes those satisfied current applicants with

respect to service provided by the HFI’s.

AttributesR-1

R-2 R-3 R-4 R-5 Total

Fast process @ low cost 7 5 15 5 3 31

Accessibility for payment/repayment 6 3 8 10 4 31

Low interest rates offered 10 12 8 1 0 31

Attractive schemes 10 12 4 5 0 31

Total 31 31 31 31 31 124

Explanation(Table-4.15a): 7 respondents have chosen Fast process @ low cost as No.1, 5

respondents as No.2, 15 respondents as No.3, 5 respondents as No.4, 3 respondents as No.5

etc……….

GRAPH-4.15:



Interpretation(Graph-4.15a): Satisfied current applicants ranked high for the lowest interest

rates offered by the HFI’s as the major attribute for their satisfaction and next important

attributes were attractive schemes and fast processing at low costs.

4.15(b) Dissatisfied Applicants

Attributes R-1 R-2 R-3 R-4 R-5 Total

High processing cost 4 4 7 4 -- 19

Attitude of the staff at financial institutions 6 8 5 -- -- 19

Low accessibility for payment/repayment 2 2 4 7 4 19

Terms and conditions 7 3 2 3 1 19

Total 19 17 18 17 5 76

.

Explanation(Table-4.15b): 4 respondents have chosen High Processing Cost as No.1, 4

respondents as No.2, 7 respondents as No.3, 4 respondents as No.4, no respondents as

No.5etc….

GRAPH-4.15:

Interpretation(Graph-4.15b): Dissatisfied current applicants were ranked rigid terms and

conditions for availing home loan as the most dissatisfying attribute. The next important



attribute that dissatisfied the applicants was the attitude of the staff at some financial

institutions.

TABLE-4.16 Table to represents suggestions given by the applicants for further improvement

in the service provided by the HFI’s.

Suggestions No. of respondents

Attractive schemes 7(14%)

Simple terms and conditions 18(36%)

Low interest rates 20(40%)

Use of new technology 5(1%)

Total 50(100%)

Explanation(Table-4.16): Out of 50 respondents 7 of them suggested attractive schemes and

18, 20, 5 respondents suggested Simple terms and conditions, Low interest rates and Use of

new technology respectively.

GRAPH-4.16:

Interpretation(Graph-4.16): Interest rate play important role to the decision go for loan. It is

No.1 factor that affects customers decision. In other hand some institutions still offering



higher interest rate after global crisis. Next important thing is Simple terms and condition.

Stiff competition among the players made loan terms and conditions more complicated to the

customers. Customers are confused to select proper scheme and institutions.



Chapter 5

FINDINGS, SUGGESTIONS&RECCOMMENDATIONS AND

CONCLUSION

5.1 Findings from the study

5.1(a) Potential applicants

It was found that the service provided by the HFI’s play a key role in future

market.

Information avenues given rise to increased knowledge about the service provider

in the minds of applicants.

Convenience with respect to Equal Monthly Installments, tenure of the loan and

repayment modes, down payment, tax benefits were the major attributes in

selecting a home loan by the applicants.

There was an increase in income level of earning class people aged between 21-30

and 31-40 years due to high growth profile in Information Technology industry.

From the Graph-4.6, most of the respondents wanted to have loan for purchase of

plot or construction of house on the owned site.

All of the respondents were willing to take advantage of falling interest rates in

the housing loan industry.

In Graph-4.8, HDFC Bank is the well known bank for providing housing loan in

the minds of potential applicants.

From the Graph-4.9, Service offered, reputation/brand image, past/present

relationship, No. of schemes offered with the service provider plays important role

in selection of HFI’s. Some respondents preferred low interest rate, longer tenure

etc.

In Graph-4.5, it was found that the respondents having own house were prefer to

have another residential house rather than the respondents living at rented house

From the Graph-4.7, it was found that tax benefits, low interest rates and

convenience were the major decision drives behind a decision for seeking home

loan from Financial Institutions. Some applicants prefer Stable terms and

condition, Fast accessibility and Simple documentations.



The expectations from HFI’s were low interest rate, simple and feasible terms and

condition, stability of floating rate and service quality.

5.1(b) Current applicants

In Graph-4.10, it was found that loan for renovation and extension of property has

become least purpose. The most important purpose for which home loan is opted

was for purchase of site and construction.

Tenure is a key factor which affects:

1. Cost of the loan to the applicant

2. Risk to the lending firm

From the Graph-4.13, most of the respondent felt comfortable with fixed interest

rates. It assumes that the borrower is risk averse.

It was found that applicants were willing to shift from existing service provider if

the other service provider in the market would offer better services and low

interest rate.

From the Graph-4.14, satisfaction level among potential applicants is high this

regard to low interest rates, accessibility for payment/repayment.

In Graph-4.15a, Applicants mostly satisfied with low interest rate offered and

attractive schemes due to competition among players. Some applicants preferred

the offerings from the bank when they apply for next loan and skill and experience

of the loan officers.

From the Graph-4.15b, those current applicants were not satisfied with the service

provided by HFI”s due to rigid terms and conditions for availing home loan and

with the behavior of staffs at some HFI’s. Some also were not satisfied with

changing loan policy of the institutions.

In Graph-4.16, low interest rates and simple terms and conditions are important

variable and customers always want these variables more and more attractive.

Most applicants who have big amount and long tenure of loans are not satisfied

with services and they are willing to shift to another institutions.

Cutthroat competition is affecting the customer loyalty in the industry



5.2 Suggessions and recommendations

1. Before taking a decision on home loans, applicants should consider other factors such

as tricky EMI calculations, unfair collateral demands, prepayment penalties, and hidden

costs.

2. Key decision on home loans viz., type of interest rate, mode of interest calculations

should be given serious thought by the applicants.

3. Tailor made schemes should be offered to applicants by HFI’s.

4. Process time and cost should be minimized by the HFI’s.

5. Brand building programs and relationship marketing concepts would be prudent for

next competition era of home loan industry.

6. New technologies for speeding process should be implemented.

7. There is certain need of GOI help to control competition among players and increase in

real state prices.

5.3 Conclusions from the study

Nearly 25 lakh houses are built every year in India. However, the nation’s

requirement is around 65 lakh houses per annum.The housing deficit in India is estimated at

24.71 million. Out of this 21.78 million is accounted for by the economically weaker

sections.

Real Estate sector which is slowly coming out of the Mid 2008 slump, but has

received good support from Union Budget 2010-11. While the budget has encouraged

affordable housing below Rs 20 lakhs with 1% interest subvention for housing loan upto 10

lakhs and extension of benefits available under section 80IB by one more year, extension of

some services are extended so as to bring under service tax impacting the industry in difficult

times.

Fitch Ratings in a Special Report, said that its 2010 Outlook for the Indian real estate

sector remains Negative; however, the sector could exhibit signs of stability by the second

half of the year. Fitch notes that the fundamentals of India’s real estate sector are improving,

as seen by better liquidity and improved demand in the residential segment.

The agency expects growth in 2010 to be driven by government support, especially

for the affordable housing segment, improved access to debt and capital markets, and the



recovery of real estate demand. Yet, there are concerns that the government may roll out

moderately adverse policies to keep property prices in check when economic conditions

become more stabilised. In addition, the government may also find it politically difficult to

provide a supportive environment if developers continue to increase real estate prices.

From the analysis that the occupations viz., Government employees, professionals and

IT professionals were ideal groups to target home loans. The tenure and monthly savings

were inversely proportional to each other. Current housing loan industry scenario had

influenced the applicants to go for housing loans and Financial institutions play important

role to the overall economic conditions of the country. Low interest rates, tax benefits and

convenience were the major decision drives for home loans. Most of the customers were

aware of best offers in the industry. Services are the key for next competitive era in the

housing loan industry.

In Mongolia there are only 17 commercial banks which are providing housing loan. In

2008 Mongolian mortgage market had influenced hardly by global crisis and all mortgage

providers had been stopped offering mortgage loan. So that there was nothing to do with loan

officers and unemployment rate also had increased. Since middle of 2009 they started

offering mortgage loan again. But the Indian housing sector has not much influenced by

global crisis and there are many financial institutions offering housing loan with feasible

terms and conditions if compare to Mongolian mortgage market. Indian housing sector is

high developed than Mongolian.



Annexure

BIBLIOGRAPHY

1. Book Referred :

“HOUSING LOAN MANUAL FOR MANAGERS, OFFICERS”

“RESEARCH METHODOLOGY METHODS AND TECHNIQUES” 2nd

revised edition,C.R.Kothari, Page No.2, 184, 233.

2. Daily News Papers :

TIMES PROPERTY – TIMES OF INDDIA

ECONOMIC TIMES

3. Journals Referred :

“REALTY PLUS” march 2010, volume 6, issue 4, Page No.58 – 59

“INDIAN REAL STATE INVESTOR AND HOUSING FINANCE HAND BOOK”

2010 Bengaluru edition, Page No. 81 – 83

“REAL STATE REPORTER” March 2010, Page No. 55

4. Websites :

1. www.guide2homeloan.com

2. www.indiahousing.com

3. www.timeofmoney.com

4. www.bharatbook.com

5. www.propertymart.com

6. www.indiahomeseek.com

7. www.inverster_seby.gvt.comm

8. www.1888pressrelease.com

9. www.housingfinance,com

10. [email protected]

11. www.indianrealestateforum.com/bangalore/


http://www.1888pressrelease.com/

http://www.inverster_seby.gvt.comm/

http://www.propertymart.com/

http://www.timeofmoney.com/

http://www.in/

http://www.guide2homeloan.com/


Questionnaire – 1

1. Age : 21-30 yrs 31-40 yrs

41-50 yrs 51-60 yrs

2. Occupation : Govt. employee,

Professionals (except govt. employee and IT professionals)

IT professional

Businessman

Others (specify) ___________

3. Income :

Less than Rs.15,000/-

Rs.15,000-Rs.20,000/-

Rs.20,000-Rs.35,000/-

Rs.35,000-Rs. 50,000/-

4. Monthly savings:

Below Rs.2,500/- Rs.2,500-Rs.5,500/-

Rs.5,500-Rs.8,500/- Rs.8,500-Rs.11,500/-

Rs.11,500-Rs 15,500/-

5. Please indicate the current residential status.

Own house Rented Lease

6. If you are planning to own new house, which option would you prefer, please specify.

a. Purchase of plot/house

b. Purchase of plot for Construction

c. Any others, __________________



7. If your response is (a) please rate the following attributes, affecting your decision

making according to your specification.(Highest rate-1,lowest rate-4 or 5)

Tax benefit

Low interest rates

Convenience.

Good service by financial institution

Any other, please specify_________________________

8. Rank the following financial institution according to your preference(Highest rank-

1,Lowest rank-7)

Vijaya Bank Canara Bank

PNB ICICI Bank

State Bank of Mysore IDBI Bank

HDFC Ltd.

9. Please rank the attributes that made your selection of financial institution for

housing loan?(Highest rank-1, Lowest rank-4 or 5)

Number of schemes offered

Past / present relationship

Service offered

Reputation / brand image.

Any other, please specify, ______________________

10. What is your expectation from HFI’s with respect to housing loan service?

Please specify, ____________________________________________



Questionnaire – 2

1. Age : 21-30 yrs 31-40 yrs

41-50 yrs 51-60 yrs

2. Occupation : Govt. employee,

Professionals (except govt. employee and IT professionals)

IT professional

Businessman

Others (specify) ___________

3. Income :

Less than Rs.15,000/-

Rs.15,000-Rs.20,000/-

Rs.20,000-Rs.35,000/-

Rs.35,000-Rs. 50,000/-

4. Monthly savings:

Below Rs.2,500/- Rs.2,500-Rs.5,500/-

Rs.5,500-Rs.8,500/- Rs.8,500-Rs.11,500/-

Rs.11,500-Rs 15,500/-

5. Please indicate the purpose for which you applied for home loan?

Purchase of plot

Site for residential use (construction)

Renovation of existing property

Extension of existing property

Others (other please specify)



6. Please indicate your loan amount?

Below Rs.5 lakhs

Above Rs. 5 lakhs – Below Rs. 12 lakhs

Above Rs. 12 lakhs - Below Rs.15 lakhs

Above Rs.15 lakhs

7. Please indicate the repayment period of the loan amount

Below 5 years

Above 6 years - Below 10 years

Above 11 years – Below 15 years

Above 16 years – Below 20 years

8. Please indicate the type of interest rate charged on the loan?

Fixed interest rate

Floating interest rate

9. Are you satisfied with service provided by housing financial institution?

Yes

No

If Yes, Please rank the following service attributes according to your preference.(Highest

rank-1,Lowest Rank-5)

Fast processing at low cost.

Accessibility for payment or repayment

Low interest rates offered

Attractive schemes

Others (Please Specify & Rank)



If No, Please rank the reasons for not satisfied with services provided by Housing Finance

Institution (Highest rank-1,Lowest rank-5)

High processing cost

Attitude of the staff at financial Institution

Low accessibility for payment or repayment

Terms and conditions

Others (Specify)

10. Please tick the areas to be improved by Housing Finance Institutions in providing

better services to customers and society?

Attractive schemes

Simple terms and conditions

Low interest rates

Use of new technology

Others (Specify)

11. Are you willing to shift from fixed interest to fluctuating interest rates?

Yes

No

If Yes,

12. Will you take advantage of lower interest rates offered by other Financial

Institutions?

If Yes, Please mention the name of the institution,

___________________________________________________________________________

_______________________________________
