A Study and Analysis of Loan Appraisal Process, Accounting

and Disbursement at HDFC LTD

Presented by :

Divya Kiron

Vinay Gupta

About HDFC LTD

• Established in October 17, 1977 in Bombay

and it was started by Late HD Parekh.

• The present owner is Deepak Parekh who is

non executive chairman of HDFC Ltd.

• A Non Banking Housing Finance company

registered under Companies act 1956.

• Governed by guidelines of National Housing

bank which is governed by RBI.

Primary objectives

• To improve residential housing in India by

providing housing finance in a simple and

systematic way to promote home

ownership.

• To provide financial assistance to

corporate.

Organisational policies

• Growth should be 30% every year.

• NPA should be less than 1 %.

• Profitability also to be raised along with

general equity.

• Cost effectiveness.

Sister concerns

• HDFC Bank

• HDFC SLIC

• HDFC ERGO

• HDFC Mutual Fund

• HDFC Sales

HDFC home loan products

• Housing loan- construction / purchase

• Home Extension / Improvement Loans

• Land Purchase Loan

• Home equity loan

• Home equity loan for educational purposes

• Top-up financing

• Take over loan

• NRI loan

• NRP loan

Loan Appraisal process at HDFC LTD

Preliminary Process

Customer approaches for loan through various

sources:

• Walk in: Applicants visit the regional branch or

apply through website.

• DSA (Direct Sales Agents): This consists of

HLSIL and HDFC bank

• DSE (Direct Sales Executive): Organizations

which work in agreement with HDFC and forwards

them the loan requests of applicants they contact

or those who contact them.

Credit officer

• Interacts with the customer and evaluate the credit

worthiness of the customer.

• Determines how much the borrower may be able to

afford and the amount of loan to be sanctioned.

• Interview sheet is maintained for future reference.

• Filled in application form is received from applicant.

• Various documents are also collected from

applicant as per the checklist .

• Processing Fees is also collected.

Residents - 1% of the loan amount

Non residents - 1.25% of the loan amount

• Log in sheet is created.

• A physical file with a file number of the customer

and the place of service mentioned is created

which is forwarded to hub for processing.

HOW TO DETERMINE ELIGIBILITY OF APPLICANT?

Installment to income ratio:

Ratio of monthly instalment repayable per month to

income of applicant.

HDFC EMI

IIR = ------------------------------

Gross Adjusted Income

IIR is generally fixed at 30-45%.

Fixed obligation to income ratio

Ratio includes all the fixed obligations that the

customer is supposed to pay regularly on a monthly

basis.

Existing loan installments+ Proposed HDFC loan

installment.

FOIR = --------------------------------------------------------

Gross Adjusted income

FOIR could be up to a maximum of 5% greater than

the IIR fixed by the appraiser.

Loan to cost ratio

Ratio to calculate the loan amount that a person is

eligible for on the total cost of the property.

Loan amount

LCR = ---------------------------------

Estimated cost of property

HDFC finance 85 % of cost of property.

Own contribution is 15 % of cost of property.

• Rate of interest

i. Fixed rate of interest loan

ii. Variable rate of interest loan

RPLR: Retail Prime Lending Rate is dependent

on market forces.

Spread: Spread refers to a special discount

offered to loan applicants coming to HDFC.

ROI: Rate of interest that is applicable to the

loan at the time of lending.

Hub process

• Detailed data entry.

• Scanning of documents submitted by applicant.

• Know your customer : KYC norms include the

submission of all documents in respect of their

identity and residential proof.

• Customer Point Verification : A field investigation

process is initiated to validate the details in the

application form.

• Next step in hub is to submit a request to CIBIL.

CIBIL• A snapshot of credit history of people.

• It contains:

Personal information

Credit information

The number of recent inquiries made about

applicant’s credit report

The type of credit applicant is using

• Consumer Credit Information Reports (CIR) is

later verified by Hub.

• Double checking of data entry take place.

• Recommendation bench gives their opinion

on applicant.

• The sanction letter and a SMS are sent to the

customer

• But disbursement take place only after legal

and technical appraisal .

Technical appraisal

• Technical appraisal is physical verification of

property.

• HDFC sends technical experts for:

i. Confirm Existence Of The Property / Transaction

ii. Assess Quality And Progress

iii. Assess Value Of The Property

iv. Decide the Amount Of Disbursement

Documents

• Approved plan with proceedings order in

original (In the case of construction).

• Copy of the DTCP approval or corporation

regularization order for land (In the case of

land purchase).

• Estimate for proposed construction or

improvement work (In the case of

construction).

Legal Appraisal

• Clear and valid title to the property and

whether the property can be mortgaged

with HDFC.

• Confirm Transaction and Title Of The

Property

• Assess Genuineness

• Loan Agreement

• Follow-up in case of default

Documents

• Title deeds

• No-objection certificates

• Encumbrance certificate

• Parent document

• Patta

Disbursement

• Full Disbursement:

In case of purchase of a ready built property

entire cost is paid at once

• Part disbursement:

In case of construction of property

i. Payment and construction is linked and disbursed

accordingly

ii. Pre – EMI : Simple interest paid until final

disbursement take place.

Accounts Department

• Handles post disbursement transaction

• Provides statement concerned with customers

loan account

• Clarify customer regarding EMI

• Doubts regarding outstanding balance

• Issue income tax certificate

• EMI refers to the monthly payment the customers

make on their home loan

• Combination of interest and principal repayment

• EMI depends upon the rate of interest and the

tenure of the loan.

L * R [(1+R) ^N/ (1+R) ^N-1]

EMI =

12

EMI

RepaymentMethods

• Post dated cheque

• Deduction at source

• Electronic Clearing System

• Standing instruction with bank

Types of Repayment options

• Tranche EMI : Borrowers can pay EMI either on

disbursed component or on total amount of loan.

• Flexible Loan Instalment Plan : In case of retirement .

• Balloon payment : When applicant wants a higher loan

than what he is eligible for HDFC accepts one or more

lump sum payments from a specified source on a

predetermined rate during term of loan.

• Step Up Repayment Facility : Loan repayment on basis

of income.

Loan closure• The loan will get completely paid off on the expiry

of the tenure of the loan if the customer has paid

all the instalments on time.

• Account of customer is closed.

• The entire set of original property documents is

handed back to the customer.

• A separate letter for each of the guarantors stating

that their liability has come to an end is issued.

Recovery department

• Recovery team comes into the picture when the

customer becomes defaulters.

• Five buckets- Greater than 60 days , Greater

than 90 days ,Greater than 6 months ,Greater

than 12 months ,Greater than 27 months.

• NPA - If the defaulting period is greater than

3.01 months

• HDFC has the lowest NPA .

• Tele callers : Customer Default to pay EMI or

PRE- EMI for any period between 0.1 months

and 3 months, tele callers of HDFC will inform

about this to borrowers.

• JFO :If default exceeds 3 months then Junior

Field Officers (JFO) visit customers in person and

analyse the reason and try to make him pay the

amount defaulted.

• Auction : If the default term exceeds

enormously further Securitisation and

Reconstruction of Financial and Enforcement of

Security Interest act (SURFACE), 2002 provides

HDFC to sell the property by auction in case of

default exceeding 60 days.

• Two authorised officers (branch manager and recovery

department head) will get permission from court to

sell the property.

• The property will have to be sold in 90 days by

auction.

• Here a reserve price will be fixed by management

which is between the guideline value and market value

• Any excess amount will be given to borrower.

• In case of deficit the amount will be deducted from

salary of the borrower.

Recommendations

• All the loan financing companies should submit the credit history of their customer with CIBIL.

• PAN card should be mandatory for all the customers who are applying for loan.

• All kind of loans should be included in CIBIL records.

• HDFC was understaffed.

THANK YOU