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Project Report

Study of IHL & PROJECT FINANCING with special reference to PNB Housing Finance & Survey on building trust by enhancing customer education--role of dmas

Submitted By By Ankur Sapra Jain Jaypee Business School PNBHF

Mentored Mr. P.K EVP,

(I) TABLE OF CONTENTS

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Topic

Page Number

Self Certification Internship Certificate Acknoledgement Internship Objective Abstract Chapter 1 Profile of PNB Housing Finance vis--vis its competitors Indian Real Estate Industry at a Glance a. Housing Scenario in India. b. Current Scenario: City Real (i) ty Reports by CRISIL. c. Opportunities, Issues and Suggestions. Industry Analysis a. Industry Structure Introduction Market Size and Profile Industry Trends Standards Regulator of Industry Laws and Acts b. Competition Analysis Rate War amongst Lenders with latest industry news. Comparison of Lenders on different parameters Product Differenciation Barriers to Entry Opportunities c. Product Comparison HDFC vs SBI vs LIC Housing Finance d. Macro vs. Micro Economic Analysis Chapter 4 Housing Trends across the world

II III IV V VI 9-15

Chapter 2

16-22

Chapter 3

23-40

Financial Statement Comparative Analysis Comparison of various ratios between PNBHF and LICHF A. STUDY OF IHL & PROJECT FINANCING with special reference to PNB Housing Finance [3] Project Description & Analysis IHL Financing Project Financing

41-50

Project

51-76

(II) SELF CERTIFICATION


I hereby certify that I, Ankur Sapra have successfully completed my internship with PNB Housing Finance Ltd. in the month of June-July09 from 2nd June 2009 to 24th July 2009. This is also to certify that this report is an original product and no unfair means like copying etc have been used for its completion. Name: Ankur Sapra Signature: Date:

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(III) CORPORATE INTERNSHIP CERTIFICATE

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(IV) ACKNOWLEDGEMENT
No task is a single person effort, same is with this project. Thus I would like to extend my sincere thanks to all those people who helped me in accomplishing my project. I owe my project success to all faculty members, especially our Director Prof. Ravi Shanker, for providing me wonderful opportunity and guidance. I would like to extend my special gratitude to Ms. Sujata Kapoor my faculty supervisor for providing excellent supervision for the successful completion of this project. This project provided me a platform to increase my knowledge and empowered me with a better understanding of concepts in the real world scenario. And last but not the least special thanks to PNB Housing Finance which accepted me in spite of my inexperience in the field and gave me the opportunity to work and learn with them. My special thanks are also to my Corporate Internship Supervisor Mr. P.K Jain, Executive Vice President (Credit) PNBHF who guided and helped me in completing this project inspite of his busy schedule. I would also like to thank PNBHF branch heads for providing much needed practical exposure. Mr. N. K Sikri Sr. vice President PNBHF, Noida Mr. R .K Tanwar Vice President PNBHF, Gurgaon Mr. R.K Jain, Sr. Vice President PNBHF, CP I regret that I can not list dozen of names that should be placed here in. Where this report succeeds I share the credit and where it errs I alone accept the responsibility.

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(V) INTERNSHIP OBJECTIVE


The purpose of Corporate Internship for a minimum time of 8 weeks is to connect theory and practice, obtain knowledge & awareness of the functioning of various departments of the corporate and its environment which is utmost necessary for the success of the budding managers. The basic objectives of the summer internship are: 1. To understand the business and competitive environment in which the organization is operating. 2. To analyze and understand the financial position of the organization viz a viz competitors. 3. To study housing finance industry as a whole and terms associated with it. 4. To get a feel of corporate life and its functioning & understand various interaction styles.

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(VI) ABSTRACT
I spent my 8 week learning period of summer internship with PNB Housing Finance Head Office, Antariksha Bhawan Cannaught Palace. Internship Project was mentored by Executive Vice President of PNB Housing Finance, Mr. P.K Jain. My internship was not only limited to HO of PNB housing finance, I got to work with branch offices in Noida, CP and Gurgaon. AIM The aim of joining PNB Housing Finance was to research the Housing Finance Sector as a whole and the procedures followed by Housing Finance Companies before financing any individual or any corporate project. KEY LEARNINGS It was indeed a great learning experience working under the mentorship of such an experienced professional, who is in industry for more than 2 decades now. I got to learn from the very basic i.e. maintenance of borrowers file, preparing proposal letters on behalf of customers to complex procedures like legal search report, CIBIL report etc. and finally to the disbursement of loan. ACTIVITIES In Head Office CP, I researched on theoritical aspects of procedures followed by PNB Housing Finance in sanctioning the loan. In Noida branch, it was the implementation of whatever I learned at the head office.I prepared loan proposal letters on behalf of the customers, maintaining of files, issuing letters to the customers informing them about the expiry of PDCs. Also I worked as a part of their recovery team in which I used to call the customers and inform them about their due EMIs and PDCs. In Gurgaon Branch, I went for site visit for a project which was financed by PNB Housing Finance. It was the site named Ourania by Neelkanth Townplanners Pvt. Ltd. Aim was to study the locational importance of Project Financing. A brief session was taken by Mr. R. K. Tanwar SVP PNBHF, Gurgaon Branch.

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In CP Branch, I got to interact with Direct Marketing Agents of PNBHF and got my questionairres filled for the survey conducted there on Building Trust by Enhancing Customer Education -- Role of DMAs. INDUSTRY & STATEMENT ANALYSIS I got great support from my mentor and the accounts team of PNBHF to carry out the above said analysis. Industry analysis is done like a research and the data was generated from CRISIL reports, leading business newspaper like Economic Times and from the various web articles. In case of Statement Analysis, I was helped by Accounts team at PNBHF whenever I needed. INTERNSHIP PROJECT Internship Project is a research on the procedures followed by Housing Finance Companies for Individual and Project Financing which was very smartly mentored by Mr. P.K Jain. I also got to study from the Codified Circulars workbook of PNB Housing Finance.

Chapter 1 Profile of PNB Housing Finance vis--vis its competitors

1.1

Genesis

PNB Housing Finance Limited is a public limited company incorporated under Companies Act 1956, a wholly owned subsidiary of the Punjab National Bank established in the year 1988.It is governed by the directives of National Housing Bank. Since its birth it has been working in the area of providing financial assistance to individuals, corporates, and developers. The Company is presently operating through a network of 28 branches at Agra, Bangalore, Bhopal, Bikaner, Chandigarh, Chennai, Cochin, Delhi, Dehradun, Gurgaon, Hyderabad, Indore, Jaipur, Jodhpur, Jallandhar, Karnal, Kolkata, Lucknow, Ludhiana, Mumbai, Meerut, Noida, Nagpur, Navi Mumbai, Pune, Raipur, Trivandrum and Varanasi

1.2 About Fair Practice Code

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Business
The main business is offering loans for purchase / construction of houses, apartments etc and also for repairs, renovations or up gradation of the immovable residential properties.

Objectives

Follow good, fair and transparent business practices by setting reasonable standards. Relate to the customer in such manner so as to promote a fair and cordial relationship.

Indent and Content


The Code has been formulated by the Company pursuant to the Guidelines issued by the National Housing Bank on Fair Practices Code for Housing Finance Companies vide its circular bearing No. HB (ND)/DRS/POL- No. 16/2006 dated September 05, 2006.

Application
To be applicable to all persons using the Products and Services of the Company in any manner and/or by any mode. The Code is applicable under normal operating environment except in the event of any force majeure. The Code is based on ethical principles of integrity and transparency and all actions and dealings shall follow the spirit of the Code.

Commitment
The Company shall at all times do its best to act fairly, reasonably and meet the standard practices prevalent in the housing industry. The Company shall abide by all the relevant laws, regulations and meet with the ethical principles of integrity and transparency during its interaction with customers. While interacting with customers, the Company may take all steps as may be required to provide clear information either in English or Hindi or the appropriate local language regarding:
Its various products and services. The terms and conditions, the interest rates/service charges. [10]

Benefits available to customers and the implications, if any. Contact persons for addressing the queries, if any.

The Company will provide a copy of this Code, at request, to the customer. The Code will also be made available on its Website and at every branch/ office.

1.3 Organizational Structure of PNBHF


Chairman (Dr. K. C. CHAKRABARTY) Managing Director (Mr. V.K SOOD)

EVP Mr. P.K. Jain

EVP Mr. Sanjay Jain

EVP Mr.R.K Jain

EVP Mrs. Sucharita

Vice Presidents
Of various departments (reporting directly to their respective E.V.P.s) All the above positions are occupied at the corporate office of PNBHFL, New Delhi. All the branch heads of various branches of PNB Housing Finance, directly report to the head office for planning and assistance.

1.4 Various Products Offered by HFCs


PNB Housing Finance LIC Housing Finance ICICI Home Loans

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Apna Ghar Yojna Ghar Sudhar Yojna Loan Against Property Commercial Property Future Rental Securitization Line of Credit Facility

Griha Prakash Griha Vikas Corporate Loans Loans to Builders and Developers Apna Office -1(Loans to Professional)

Land Loans Home Improvement Loans Office Premises Loan Loan Against Property

Comments:
The loan schemes are more or less same for most housing finance companies but if we look at the product names strategy with which companies are targeting their customers; PNBHF and LICHF have gone with the names which every person in India can easily understand and are also more appealing and specific. On the other hand, ICICI has adopted a straight forward approach to name its products.

1.5 Comparison of Mission Statement of HFCs


LIC Housing Finance Provide secured housing finance at affordable cost, maximizing shareholders value with higher customer sensitivity. IDBI Home Finance Ltd. To be the most preferred destination for all constituents viz. Shareholders, Home Loan Seekers, Investors, Employees and Service Providers HUDCO To promote sustainable habitat development to enhance the quality of life.

1.6 Comparison of Vision Statement of HFCs


LIC Housing Finance IDBI Home Finance Ltd. HUDCO

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To be the best Housing Finance Company in the country.

To become Indias leading HFC, fulfilling the financial needs of all citizens of India for a Home at competitive rates, with maintenance of the highest level of integrity and being an icon for Corporate Governance

To be among the leading knowledge hubs and financial failitating organizations for habitat settlement.

1.7 Business Objectives


PNB Housing Finance Follow good, fair and transparent business practices by setting reasonable standards. HDFC The primary objective of HDFC is to enhance residential housing stock in the country through the provision of housing finance in a systematic and professional manner, and to promote home ownership. Another objective is to increase the flow of resources to the housing sector by integrating the housing finance sector with the overall domestic financial markets. HUDCO

Relate to the customer in such manner so as to promote a fair and cordial relationship.

To provide long term finance for construction of houses for residential purposes or finance or undertake housing and urban development programmes in the country. To finance or undertake the setting up of industrial enterprises of building material. To promote, establish, assist, collaborate and provide consultancy services for the projects of designing and planning of works relating to Housing and Urban Development

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programmes in India and abroad.

1.8

Market Share of HFCs

April 26, 2007, the profits of housing finance companies (HFCs) are likely to be majorly affected by the race among banks and rising home loan interest rates. Incremental net profitability margins of HFCs are believed to have fallen to 1.52% in the first half of 2006-07, from 1.76% in 2004-05. HFCs may loose against banks in gaining market share race. From 23% of the incremental market, the share of these companies is likely to fall to 20% at the end of the financial year. However, banks seem to be on safer side this time because of their resource profile. They can
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easily attract deposits and also have current and saving accounts. Contrary to this, HFCs are largely dependent on wholesale borrowings. The ratings on HFCs do not show any significant changes. But the large companies like LIC Housing and HDFC are still in a better situation, concerning 70% market share among housing companies. (Source: WR 1) Feb 26, 2008, the share of private sector HFCs dipped to 29.23% in 2005-06 against 51.06% in 2110-02. Interestingly, scheduled commercial banks increased their market share from 35.90% to 68.14% during the same period, slowly driving the small HFCs out of the market. (Source: WR 2) 8 May 2009, plenty room for housing finance companies Amidst struggling realty market investment in housing finance companies is expected to fetch decent returns in a volatile market. Huge untapped, under-penetrated housing market caters to significant growth opportunities to providers of housing finance companies. The brokerage bets for Housing Development Finance Corporation (HDFC) and LIC Housing Finance (LIC HF) setting target prices of Rs.1, 950 and Rs.450 respectively from their current market prices. Interestingly, together these two companies have a market share close to 40%. (Source: WR 3)

1.9 Banks vs Housing Finance Companies


Banks despite being a late entrant have overtaken HFCs in home loan market. The share of banks in total home loan disbursements has risen from 43.6% in the year 2000-01 to 65.6% in the year 2002-03.

(Source: WR 4) A study indicates that the net profitability margins (NPMs) of HFCs have fallen to 1.52% in the first half of 2006-07 from 1.76% in 2004-05. The NPM for banks also shows a similar trend for their housing finance portfolio. Neither the banks, nor the HFCs can sustain such low profit margins in a large segment such as housing loans over the long term. As an alternative strategy some financers have started offering high yield products such as top-up and sub-prime home loans, while other resort to running larger mismatches in the maturity profile of their assets and liabilities to protect interest spreads.
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1.10 Conclusion
Profitability in the housing finance sector has been declining during the last couple of years; increasing competition continues to drive the decline in margins. The entry of banks into housing finance has added to the pressures on profitability, especially of the smaller HFCs. The smaller HFCs have resorted to short term funding in order to counter the pressures on profitability. Neither the banks nor the HFCs can sustain low profit margins for much longer, they will seek to increasingly look at booking profitable business and include in their offerings high yield products such as top-up, sub-prime housing loans and builder loans.

Chapter 2 Indian Real Estate Industry at a Glance


2.1 Housing Scenario in India

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We are looking at the Housing Scenario at a stage when the National Economy is on the road to revival, after reeling under depressive conditions for over the last three years. The growth rate of the economy might go up to levels up to 6%, if the revival is kept up. Share markets are not entirely looking up, though they are stabilizing at levels which can be termed as reasonable. Industrial growth rate which was wallowing at a low of 1.5% is now at around 5%. In fact, industrial credit given out by banks which in normal times would be about 4-5 times of bank credit given to housing, had in the last few years reduced to levels below advances to housing loans. But the happy feature is that industrial growth is picking up. Even, the steel sector which was hopelessly down is now having hopes of revival. It is only housing, amidst all these that seems to have kept up fairly stable front. Yes, the late 90s saw even housing go through a bad phase. But, then with that phase crossed, there has been a steady revival and stabilization of the market at levels which can be termed as reasonable from the point of view of both the customers and those on the supply side. Housing is a basic need and like any basic human need will be constantly in demand. The potential for housing in this country is huge by NHB estimates. And the requirements by NHB estimates are around 20 million houses. There are other estimates which suggest that it is at a much higher level. Even going by the conservative estimate taken by the NHB, the requirements in the area of housing are massive. This really means that a lot of investments can be there in the coming years and there is room for multiple players. As far as availability of finance to the retail customers is concerned, there has been a tremendous improvement in the possibility over the last few years. There are over 32 NHB recognized Housing Finance Companies which dot the map of this country with their presence all-over. The nationalized banks have in addition made housing a thrust area and added to the reach for advancing loans to individuals. Banks have come into this sector at a time when credit off take in the industrial sector has been low. With lot of flust funds waiting to be deployed, the housing scene presented an attractive option to the banks to channelise their funds. This was particularly so, because in the housing sector advances are given against mortgage of assests, which continue to carry value, and therefore make the loans considerably safe. The other significant factor that has kicked up a lot of activity in the recent past, in the housing area, is todays steadily falling interest rates of loans. The customers today enjoy tremendous choice and can approach those giving out finance at lowest rates. The fall in the rates has been phenomenal over the last 4 to 5 years. From rates that were around 15% and over, they have plummeted to around 9% and even lower. The changes have come so thick and fast that an organization like ours has had to revise interest rates over a dozen times in the last 2 years. Banks which are outside the purview to regulations of the NHB have enjoyed certain added advantages too in the matter of their ability to compete in terms of interest rates. The monetary policy of RBI which has been constantly giving a signal for a soft interest regime has been lowering its Bank rate and CRR constantly thus, enabling banks to have recourse to greater liquidity at lower cost. For the Housing Finance Institutions however, there has been a difficulty of their being able to match such interest rate reductions, since the cost of funds borrowed earlier, kept the average cost a fairly high levels. But then they have fallen in line with the market to remain in contention. This has had the result of even bringing down the spread for the Housing Finance Companies.

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The customer who is purchasing a house today has not only the options of competitively lowest rates of interest, but also choice of different types of loans starting from the house-purchase or house-building loans to house-improvement loans, home equity loans [ loans on mortgage of property, home extension loans, NRI loans etc. It has never been better than this ever before. While this is such a positive development, as far as the home seekers are concerned, the lot of home builders is still a long way behind the satisfactory levels. Even today, with the organized groups of Developers, being by and large, quite influential, still availability of institutionalized finance, as a regular source, has been almost absent as far as the average Developer is concerned. This has been an area of major concern for the Builders. While housing prices have been rising more rapidly than inflation, most countries in Asia are not experiencing unusually rapid housing price hikes. For the 12 economies for which data are available, real housing price increases averaged 4.5% during 2002-2006, but the median was substantially lower, at around 3%. Only three countries namely, China, India and New Zealand experienced real annual price rises of more than 8% over the same period. In several cases (Hong Kong SAR, Taiwan Province of China and Thailand) recent increases follow on the heels of extended declines in the real pricing of housing, but in these case, any rise in housing prices must be a welcome sign for increased investment in the sector.

2.2 Current Scenario: City Real (i) ty Report: 2009 by CRISIL


(Source: WR 5) The global meltdown has a cascading effect on the Indian Economy and industries including the reality sector. In addition, tight liquidity concern has compelled the market participants like

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Banks, Private Equity, Real estate funds, Developers, Housing finance companies, Corporate, etc to realign their lending, investment & strategic decision. Prevalent Scenario: Affordability continues to be low and expectation of further price decline has kept genuine buyers away Slowdown continues, which could lead to further price correction and value erosion for developers Cut back on demand and tight liquidity has raised completion risks for most of the projects, especially in the commercial and retail segments Developers are being forced to re-strategize and focus on affordable housing in order to re-vigor demand, while at the same time abandoning or slowing down projects under implementation.

A. Residential real estate: Capital values to fall further by 8-10 per cent in 2009 before stabilising in 2010

The real estate market in India had witnessed stupendous growth over the past few years, with average residential capital values more than doubling between 2005 and the first half of 2008. However, demand for houses plummeted during the second half of the year, as the global economic deceleration compelled investors to pull out of the market due to wealth erosion as well as the rising risk of negative returns. End users also have had to put their purchasing plans on hold due to fall in affordability levels and job-related uncertainties. Tightening of lending norms by banks and the slowing business environment led to liquidity crunch among developers, who were then forced to offer huge discounts to lure buyers. Average residential capital values declined by 18-20 per cent in March 2009 from the highs witnessed during the first half of 2008. However, despite this drop in capital values, home buyers have adopted a 'wait and watch' policy. Fears of an imminent fall in capital values triggered an exodus of investors from the market post the second half of 2008. Thus, cities which had a sizeable investor market, namely Kochi, Chandigarh and Pune, witnessed a greater fall in transactions. CRISIL Research expects investors to maintain a cautionary approach until capital values stabilise in 2010.

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Amongst the 10 cities covered by CRISIL Research, Pune, Bengaluru and Mumbai have witnessed the steepest correction in capital values as compared to the highs seen in the first half of 2008. Capital values in NCR had already started stabilising during the first half of 2008 even as other cities were continuing on their upward trend; hence, capital values in NCR declined by only 18 per cent, which is relatively low as compared to other cities.

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B. Commercial real estate market on a slippery wicket

The demand for commercial real estate was on an upswing between 2005 and early 2008, driven by exceptionally high employee additions in the IT/IteS sector. The strong demand from domestic IT/IteS companies and captives of large global players was a result of increased business, primarily from the US and European markets. The rise in lease rentals was exceptionally strong in the micro-markets of Hinjewadi (Pune), Andheri, Goregaon, Malad (Western suburbs of Mumbai) and Kakkanad (Kochi), which increased by over 200 per cent in the period between 2005 to the first half of 2008, driven by strong demand Average lease rentals across micro-markets are expected to correct by about 38 per cent in 2009 from the peaks seen in the first six months of 2008 due to a weak demand scenario. Demand deteriorated due to the slowdown in global and domestic economy, with most corporates looking to cut costs and improve efficiencies. For instance, CRISIL Research expects the IT/ITeS sectors to increase utilisation rates of existing commercial space by increasing the number of shifts.

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C. Affordable housing: Deciphered


Under the prevailing grim economic environment, the demand for houses has reduced drastically. The impact of the slowdown is being felt more prominently in the segment of houses priced over Rs 60 lakhs. Affordability of individuals (measured in terms of property cost to annual household income ratio) deteriorated sharply as a result of a steep increase in real estate prices over the last 2-3 years accentuated by the failure of household income to increase at the same pace. Although real estate prices have started declining, affordability has not improved as household income levels deteriorated as a result of the economic downturn. Therefore, the past 6 months witnessed a complete dry up of housing demand. In order to arrive at affordable housing values, CRISIL Research grouped cities into three groups, namely, GI, GII and GIII, based upon the size of the total income generated by the households in the particular city. GI represents the top cities (Mumbai, Kolkata, Delhi, Chennai, Hyderabad and Bengaluru), GII represents second level cities (Pune, Ahmedabad, etc), while GIII is the sample of low-end urban cities like Ujjain, Aurangabad, etc.

GI cities will be less than Rs 18 lakhs GII cities will be less than Rs 16 lakhs, and G III cities will be less than Rs 9 lakhs.

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2.3 Opportunities for Affordable Housing in India


Restructuring of the housing sector. Re-focusing product to real end user demand. Catering to strong domestic demand. Real estate as a widely linked sector. Linkages with 200 industries. Multiplier effect on growth. Growing urban population. Projected urban population to 533 million by 2025.

2.4 Issues Related to Affordable Housing


Lack of regulatory mechanism. High cost of land. Stringent land acquisition process. Double taxation system high transaction cost. Constraining density norms

2.5 Suggestions

Speedy approvals of housing projects. Provisioning of additional FSI. Improving connectivity to suburbs. Rationalization of transaction cost. Non scarcity of developed land. Creation of Special Residential Zones (SRZ). Value engineering in construction.Private Public Participation (PPP model)

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Chapter 3 Industry Analysis


A. Industry Structure
3.1 Introduction
Indias Housing Finance Industry, which comprises banks and housing finance companies (HFCs), has registered a compounded annual growth rate (CAGR) of over 30% for the last three years. Banks have generated a larger share of the business, and today they meet more than three-fourths of the incremental housing finance requirements. The strong growth in housing finance may be attributed to the cumulative effect of lower interest rates and a booming economy. The market is witnessing a dramatic shift in borrower profile; the age mix of the borrower is tilted towards the youth, and the income levels of the borrowers are on the rise. The underwriting standards have also seen a change, and the industry has moved towards higher loan-to-value (LTV) ratios and longer tenors. The mojor Housing Finance Companies present in the market are: Axis Bank: Buy the house that you've set your heart on with Axis Bank home loans. Get attractive interest rates, balance transfer facility, doorstep service & option to choose from floating rate or fixed rate. And what's more no pre payment penalty!! They offer the loan from Rs 1 lac & above onwards, the age criterion is 24years at loan commencement. And up to 65 years or less at the time of loan maturity.

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Bank of India: Provides loans to purchase a Plot for construction of a House, to purchase/construct house/flat, as well as for renovation/repair/alteration/addition to house/flat, furnishing of house, Takeover of customer's housing loan extended by other Banks like Citibank, Dena Bank, Punjab National Bank, SBI etc or F.Is /NBFCs at highly flexible and liberal terms and conditions. Canfin Homes Ltd: Can Fin Homes Limited was set up in 1987, the "International Year for Shelter for the Homeless," by Canara Bank in association with reputed financial institutions including HDFC and UTI. As the first bank sponsored Housing Finance Company in India, Can Fin Homes has emerged as one of the leading players in the country's home loan segment. CitiBank: A bigger, better home with CITI bank home loans .The bank offers loans for loans for built property as well as under construction property. Salaried persons should have at least Rs 1, 00,000 gross incomes per annum and minimum age at least 23 years to be eligible for the loan; maximum age should be 65 or retirement age. Self-employed gross annual income should be Rs 85,000. The age limits are the same as salaried class. Citifinancial: Citifinancial home loans or more precisely Citifinancial home equity loans enable you to explore your borrowing power through your house equity. Rather than opting for a personal loan or credit card loan, application to a Citifinancial home equity loan gets you more finance at a relatively lower interest rate Dena Niwas Housing Finance Scheme: You can avail of Dena Niwas Home Loan to purchase a plot, construct a house, buy a ready built house or buy one under construction. The loan even helps you build an extension to your existing house or purchase a house that is up to 25 years old. Besides you can take this loan for repairs and upgradation, which includes the cost of fixtures, POP works, retiling, fittings etc Deutsche Bank: Your partner for your dream home. They offer a wide range of home loan options.The loan amounts range from Rs. 250,000 to Rs. 2 crore and the tenure is from 5 years to 20 years. You can choose between a fixed and a floating interest rate for your loan. Also, with attractive interest rates and savings on taxes, a Deutsche bank Home Loan gives you complete peace of mind. GE Money: makes it possible for you!! GE Money Housing Finance offers you complete solutions for all your housing related needs. They offer Home Loans upto Rs. 2 Crores with attractive interest rates. Your can get a Loan upto 85% of property value as loan. You can also avail of a Loan Transfer from other banks. . HDFC Bank HDFC: (Housing Development And Finance Corporation) Home Loan, India have been serving the people for around three decades and providing various housing loan according to their varied needs at attractive & reasonable interest rates. Their home loan is available for individuals to purchase (fresh / resale) or construct houses. Application can be made individually or jointly. HDFC finances up to 85% maximum of the cost of the property (Agreement value + Stamp duty + Registration charges) based on the repayment capacity of the customer. HSBC: has made rapid strides in the home loan segment. HSBC provides loans for ready property, under construction property, self-construction and home improvement. HSBC home

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loans range from Rs. 5 lakhs to Rs. 3 crore and the maximum repayment period can go upto 25 years \ HUDCO: Housing Urban Development Corporation (HUDCO) plays a major role in implementation of National Housing Policy. HUDCO's mandate is to meet the needs of the low income group (LIG) and economically weaker sections (EWS). ICICI Bank: offers hassle free home loans with the best deal. The loan tenure is maximum upto 25 years. They offer multiple benefits on the loan taken.o Simplified Documentation - The loan application process is easier and loan approval process, faster with simplified documentation o Door Step Service - They personally deliver your Home Loan at your doorstep - o Attractive Interest Rates -offers you a wide range of home loan rates to choose from . IDBI Bank: helps you realise your long cherished dream of owning your home through hassle free and customer friendly home loans. The tenor of a home loan can be up to 25 years for a resident individual whereas for NRIs the maximum tenure is 15 years subject to maximum age of 60 years at maturity. Loan can be applied for a maximum of 90% of the property value subject to credit discretion IDBI Housing Finance: A New generation home finance company which combines the best attributes of the various providers of home finance. They have a unique offer for safe custody of documents, provided free of cost to their customers. Minimum age eligibility is 21 years either for employed or self employed individuals. You can get a loan from Rs 10,000 up to a maximum of Rs 1 crore. IndusInd Bank Ltd: has become one of the fastest-growing banks in the Indian banking sector today with its branch network expanding impressively. The first of the new-generation private banks in India that came into being through collective contributions from the NRI community, this bank started with a capital base of Rs.1, 000 million . ING Vysya Bank: Your search for a Ideal Home ends at ING Vysya Bank, you can avail ING Vysya Home Loans for constructing a home, purchasing a ready built house/flat, residential site or even for refinancing existing loans. With attractive interest rates & funding upto 85%.They have flexible repayment options and maximum loan tenor upto 20 years. Kotak Mahindra Bank: At Kotak Mahindra bank, you can avail of home loans for the purpose of purchasing residential property. Whether you are buying it fresh from the developer or it is a resale purchase. They have wide range of offerings with attractive interest rate. You also get free personal accident insurance. LIC Housing: offers home loans for construction/purchase of house/flat and also for renovation of existing flat/house. LIC Home Loans India provides home building loan at attractive rate of interest. While LIC Griha Prakash and are for purchase, construction of properties and extension of residential units, LIC Griha Sudhar Loan facilitates repairs/renovation of properties. Minimum age requirement is 21 years as on the date of sanction. The main objective of the Company is to provide Long Term Finance to individuals for Purchase/Construction/Repair and Renovation of new/existing flats/houses

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Oriental Bank of Commerce: Oriental Bank of Commerce is a leading Indian nationalized bank with a strong financial base. Oriental Bank of Commerce loans comes in a wide variety of categories. The options are virtually endless. There is one for everybody. The bank also has customized loans for rural India PNB Housing Finance: PNB Apna Ghar Yojana home loans are meant for construction or for acquisition/ purchase of house/ flats. The minimum loan amount would be Rs.50,000/- and maximum loan amount depends on the repayment capacity of the borrower. In case of joint application, incomes of borrowers /co-borrowers are clubbed together for calculation of loan eligibility. The loan repayment is in Equated Monthly Installments (EMI) over a maximum period of 20 years Reliance Housing Finance: With reliance housing finance you can fulfill your requirement of owning that dream home. Their loans have been customized to meet the individual's needs & desires. They offer attractive interest rates with best in class features and benefits. You can choose the tenor with simple EMI option. And balance transfer option with a top-up facility. Saraswat Bank: Saraswat Co-operative Bank Ltd. is the premier co-operative bank in Asia. Apart from its wholesale banking business under which it provides a wide range of products, it also offers a bouquet of Retail Loan Products such as Vaastu Siddhi Home Loan State Bank of India (SBI): SBI bank is the most preferred home loan provider in India. The latest offer is an interest rate concession on GREEN HOMES in accordance with SBI's commitment to Environment protection. Having a huge variety of products appropriate to every kind of customer. Minimum age limit 18 yrs & Maximum age limit for a Home Loan borrower is fixed at 70 years, i.e. the age by which the loan should be fully repaid.

3.2 Market Size and Profile


The Indian housing finance sector is crowded with players of all sizes and nature: government organisations, insurance companies, banks, housing finance companies and co-operative organisations like HUDCO and NHB. Major players in the Industry areHDFC, PNB Housing Finance, LIC Housing Finance, Dewan Housing, Can Fin Homes, SBI Home Finance and Gujarat Rural Housing. The youngest entrant into the Industry, which is penetrating rapidly, is ICICI. 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. However, owing to the slump in real estate market over the last few years, the industry posted a fairly low disbursement growth.

3.3 Industry/Market Trends


The housing sector is witnessing a clash between major players. HDFC had ruled this sector with a lion's stranglehold. It was smooth sailing for HDFC all these years and it seemed that its monopoly
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was there to stay forever. However, out of the blue emerged ICICI Home Loans, when this financial institution decided to clash arms with HDFC on its home front. Within a year of its launch, ICICI Home Loans is giving the industry leader, HDFC, sleepless nights.

Noteworthy fact here is that NHB refinance to the HFCs comprises a mere 7% of the loans disbursed. In other words, most HFCs have to arrange for a major part of the disbursals from their own resources.

3.4 Standards STANDARDIZATION OF PROCEDURE TO CALCULATE PLRs 5th June 2009, Economic Times
The Reserve Bank of India (RBI) may standardize the way banks calculate their prime lending rates (PLRs) the benchmark to fix the floating components of loans and bar them from lending below their respective PLRs as it looks to bring more transparency into the whole process, two senior RBI officials told ET. A decision can be expected by July end they said, requesting anonymity. More that 80% of the lending is sub PLR. Post the RBI decision, interest rates on loans benchmarked to PLRs will move down, unless the loan agreement has specified a floor rate. PLR is calculated by factoring in variables including cost of funds, non-performing assets and operating costs. PNB which has a PLR of 11%, the lowest in the country, had earlier directed its officials not to lend below PLR. Its CMD KC Chakrabarty, whose appointment as the RBI deputy governor is notified, had earlier asked the central bank to stop lending below PLR.

3.5 NHB: Regulator of Housing Finance Industry

Preamble
The Preamble of the National Housing Bank Act, 1987 describes the basic functions of the NHB as ... to operate as a principal agency to promote housing finance institutions both at local and regional levels and to provide financial and other support to such institutions and for matters connected therewith or incidental thereto ...

Vision
NHB ensures a sound and healthy housing finance system in India through effective regulation and supervision of housing finance institutions. As a financial institution, NHB is known for its commitment, innovation and quality of service, offering a broad spectrum of financial products to address the needs of the housing sector with motivated employees working in a congenial and participative work environment.

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When people think of financial services related to housing, they think of NHB.

Objectives
NHB has been established to achieve, inter alia, the following objectives a. To promote a sound, healthy, viable and cost effective housing finance system to cater to all segments of the population and to integrate the housing finance system with the overall financial system. b. To promote a network of dedicated housing finance institutions to adequately serve various regions and different income groups. c. To augment resources for the sector and channelise them for housing. d. To make housing credit more affordable. e. To regulate the activities of housing finance companies based on regulatory and supervisory authority derived under the Act. f. To encourage augmentation of supply of buildable land and also building materials for housing and to upgrade the housing stock in the country. g. To encourage public agencies to emerge as facilitators and suppliers of serviced land, for housing.

Functions of National Housing Bank 2. Regulation a. In terms of the National Housing Bank Act, 1987, National Housing Bank is expected, in
the public interest, to regulate the housing finance system of the country to its advantage or to prevent the affairs of any housing finance institution being conducted in a manner detrimental to the interest of the depositors or in a manner prejudicial to the interest of the housing finance institutions. For this, National Housing Bank has been empowered to determine the policy and give directions to the housing finance institutions and their auditors.

b. Besides the regulatory provisions of the National Housing Bank Act, 1987, National
Housing Bank has issued the Housing Finance Companies (NHB) Directions, 2001 as also Guidelines for Asset Liability Management System in Housing Finance Companies. These are periodically updated through issue of circulars and notifications.

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c. As part of the supervisory process, an entry level regulation is sought to be achieved


through a system of registration of housing finance companies.National Housing Bank supervises the sector through a system of on-site and off-site surveillance.

3. Financing a. NHB supports housing finance sector by:


Eligible housing loans extended by them to individual beneficiaries, For project loans extended by them to various implementing agencies.

b. Lending directly in respect of projects undertaken by public housing agencies for housing
construction and development of housing related infrastructure.

c. Guaranteeing the repayment of principal and payment of interest on bonds issued by


Housing Finance Companies.

d. Acting as Special Purpose Vehicle for securitising the housing loan receivables. 4. HFCs Promotion and Development a. The principal mandate of the Bank is to promote housing finance institutions to
improve/strengthen the credit delivery network for housing finance in the country. The Bank has played a facilitator role in this regard instead of itself opening such dedicated housing finance institutions.

b. All housing finance companies registered with NHB u/s 29A of the National Housing Bank
Act, 1987 and scheduled commercial/co-operative banks are eligible for refinance support subject to terms and conditions.

c. As a part of its promotional role NHB has also formulated a scheme for guaranteeing the
bonds to be issued by the housing finance companies.

3.6 Laws & Acts in Housing Finance Industry THE SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSESTS AND ENFORCEMENT OF SECURITY INTEREST ACT, 2002
The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) empowers Banks / Financial Institutions to recover their nonperforming assets without the intervention of the Court. The Act provides three alternative methods for recovery of NPAs without the intervention of court. The Act provides 3 alternative methods for recovery of non performing assets namely

Securitization
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Asset Reconstruction Enforcement of security without the intervention of court.

The provisions of this Act are applicable only for NPA loans with outstanding above Rs. 1.00 lac. NPA loan accounts where the amount is less than 20% of the principal and interest are not eligible to be dealt with under this Act. Non-performing assets should be backed by securities charged to the Bank by way of hypothecation or mortgage or assignment. The Act empowers the Bank: To issue demand notice to the defaulting borrower and guarantor, calling upon them to discharge their dues in full within 60 days from the date of the notice. To give notice to any person who has acquired any of the secured assets from the borrower to surrender the same to the Bank. To ask any debtor of the borrower to pay any sum due or becoming due to the borrower. Any Security Interest created over Agricultural Land cannot be proceeded with.

If on receipt of demand notice, the borrower makes any representation or raises any objection, Authorised Officer shall consider such representation or objection carefully and if he comes to the conclusion that such representation or objection is not acceptable or tenable, he shall communicate the reasons for non acceptance WITHIN ONE WEEK of receipt of such representation or objection. A borrower / guarantor aggrieved by the action of the Bank can file an appeal with DRT and then with DRAT, but not with any civil court. The borrower / guarantor have to deposit 50% of the dues before an appeal with DRAT. If the borrower fails to comply with the notice, the Bank may take recourse to one or more of the following measures:

Take possession of the security. Sale or lease or assign the right over the security. Manage the same or appoint any person to manage the same.

B. Competition Analysis
3.7 Rate War amongst Lenders
Entry of banks in the housing finance secor has made it more competitive. Undercutting in the interest rates is all in the game and so is every other trick in the book. HDFC is gathering its wits to beat its competitor at its own game. It launched an aggressive hoarding campaign designed in the style of 'follow the leader'. HDFC has launched its website propertymartindia.com as a joint venture with the Mahindras. Following suit, ICICI too, launched its home portal indiahomeseek.com. So the war rages on both at the retail level and also in the form of a cyber war. ICICI has lowered its prime lending rates on short and medium term loans from 13 per cent to 12.5 per cent. Thus, bringing the interest on housing loans at par with the foreign exchange loans.
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Recent Industry News:


5th June 2009, Economic Times ICICI home loans to get cheaper on 50- bp rate cut ICICI bank once a price warrior in the retail loan market may be getting back in the game. The countrys second largest bank has lowered interest rates by 50 basis points (bps), its second rate cut in 6 weeks. The move will make home loans cheaper for new and existing borrowers. Other big lenders have also purned rates recently in the absense of quick loan offtake. On May7, 2009 HDFC lowered its prime lending rate to which all floating rates are linked by 25 basis points. A 25- bp cut reduces the EMI by around Rs 15 for every 1 lakh loan, and a 50-bp cut lowers the EMI by Rs 30. 22nd June 2009, Indian Reality News LIC Plans Real Estate Focused Venture Capital Fund Mortgage lender LIC Housing Finance plans to launch its real estate-focused venture capital fund along with its parent Life Insurance Corp of India by September-end, its top official said on Monday 21st July 2009, Economic Times HDFC Bank pares PLR to 15.75% HDFC Bank, the countrys second largest private sector lender, slashed its benchmark lending rate by 25 basis points to 15.75%. In the past 6 months the banks PLR has been reduced by 75 bps. 22nd July 2009, Economic Times HDFC cuts new loan rates by 25-50 bps The countrys largest home finance company, HDFC, has cut lending rates for new customers by 25-50 basis points.

Comparison of major banks in different parameters


AMOUNT (in Lakh Rs) FOR THE YEAR 2008-09

Name of PNB banks/ HOUSING PARAMETER FINANCE S SANCTIONS DISBURSEM

HDFC

491660 0 396500
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GIC HOUSIN G FINANCE 61998 60105

LIC HOUSING FINANCE 1089800 876200

ENT PROFIT AFTER TAX EPS OUTLETS NPA (%)

5341.23 17.80 18 0.30(net) 0.50 (gross)

0 228254 80.10 211 0.81

5714 10.59 27

53162.02 130 0.21(net) 1.07(gross)

3.8 Product Differenciation


Someone has rightly said when the going gets tough, the tough gets going. With the increasing competition in housing finance industry companies are getting innovative with their products and are offering different schemes to attrach customers. Lets take some industry examples... 1st July 2009, Economic Times RATE WAR SPECIAL SCHEMES SBI cuts home loan rates for first 3 years. SBI has introduced SBI Easy Loan for amounts upto 30 lakh and SBI advantage Home Loan for loans above 30 lakhs.These loan schemes that assure low interest rates in the first three years, upping the ante for its rising rivals in the mortgae market, which has turned bullish following a pickup in the home sales in May. In response, HDFC has said it will take a view after the budget, which is only days away. ICICI bank said it has reduced the interest rates in lines with the movement of systematic rates and deposit costs since Dec 2008. Intensity of competition between SBI and HDFC is evident from claims and counter-claims from both sides on the superiority of their product. Even if the borrower gets a better deal for the first 3 years, his payment over the remaining tenure of the loan will be lower under an HDFC loan, said HDFC joint MD Renu Karnad.

Year 1 HDFC SBI ICICI

Up to Rs30 lakhs 9.25% 8% 9.25%

Above Rs 30 lakhs 9.75% 8% 10-11%

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Year 2 HDFC SBI ICICI

Up to Rs30 lakhs PLR 450 bps 9% 9.25%

Above Rs 30 lakhs PLR- 400 bps 9.5% 10-11%

Year 3 HDFC SBI ICICI

Up to Rs30 lakhs PLR 450bps SBAR*-200bps 9.25%

Above Rs 30 lakhs PLR- 400 bps SBAR-1% 10-11% *State Bank Advance Rate

22nd July 2009, Economic Times New Product on Offer HDFC cuts new loan rates by 25-50 bps The countrys largest home finance company, HDFC, has cut lending rates for new customers by 25-50 basis points. The financial institution has restructured its loan baskets to create a new product where loans upto Rs 15 lakh are available at 8.75% as agianst 9.25% earlier.As per the revised structure, loans between 15 and 30 lakhs are now available at 9% (against 9.25% earlier) and loans above Rs 30 lakh are priced at 9.5%(9.75%).

3.9 Barriers to Entry


The Housing Finance Industry is highly poised and the entry of banks has made it tougher for the new players to establish themselves. The regulators role is very important here, NHBs objective is to promote housing development in India which is linked to the growth of housing finance sector. For a company to register itself as Housing Finance Industry needs to take Certificate of Registration (COR) from NHB after fullfilling certain criteria.Only after they are certified by NHB they become eligble for NHB refinance. The biggest barrier to entering this industry is the wide range coverage of big players like HDFC and SBI. Also the onslot which they are capable of doing if any noob in the industry try to play price wars.

3.10 Opportunities
Even after high competition in the market there is space for everyone. India is going through a phase when there is huge housing shortage. Every year around 2 lakh new homes comeup, this provides an opportunity to all. To support this lets take this recent industry news. 16th July 2009, Zee News WR 12
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The government today said it is taking all necessary steps to meet the shortage of 24.71 million houses in the country."According to the estimates made by the Technical Group constituted by the Ministry for assessment of the urban housing shortage at the end of the 10th Five Year Plan, the total housing shortage in the country is 24.71 million," Minister of Housing and Urban Poverty Alleviation Kumari Selja informed the Rajya Sabha.

C. Product Comparison
Home Loans from HDFC
HDFC-(Housing Development And Finance Corporation) Home Loan, India have been serving the people for around three decades and providing various housing loan according to their varied needs at attractive & reasonable interest rates. Owing to their wide network of financing, HDFC Housing Loans provides services at your doorstep and helps you find a home. Features: Home loans for individuals to purchase (fresh / resale) or construct houses. HDFC finances up to 85% maximum of the cost of the property (Agreement value + Stamp duty + Registration charges).

HDFC also provides with Home Improvement Loan for internal and external repairs and other structural improvements like painting, waterproofing, plumbing and electric works, tiling and flooring, grills and aluminium windows. HDFC finances up to 85% of the cost of renovation (100% for existing customers).

HDFC Land Purchase Loan Be it land for a dream house, or just an investment for the future, HDFC Land Purchase Loan is a convenient loan facility to purchase land. HDFC finances up to 85% of the cost of the land (Conditions Apply). Repayment of the loan can be done over a maximum period of 15 years.

Choose from Fixed Rate or Floating Rate with options to structure your loan as Partly Fixed or Partly Floating.

Loan cover Term Assurance Plan - HDFC Standard Life Insurance Company Ltd. offers an insurance plan, which is designed to ensure that life's uncertainties do not affect your family's interests and your precious home. Automated Repayment of Home loan EMI - You can give us standing instructions to repay your Home Loan EMIs directly from your HDFC Bank Savings Account.

Wide network of financing:

With over 200 offices, 90 outreach programs - HDFC is able to provide home loans in over 2400 locations in India. You can apply at your local HDFC office for properties in locations where we finance.

Loan Amount:

Customers are eligible to get upto 85% of the amount of the property. Tenor: 1-20Years

Documents:
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You can download the Application Form and submit alongwith the following documents for an approval of loan. Salaried Customers Self Employed Professionals Self Employed Businessman

Application form Application form with photograph Application form with photograph with photograph Latest Salary-slip Education Qualifications Education Qualifications Certificate and Proof of business Certificate and Proof of business existence existence Last 3 years Income Tax returns Business profile (self and business)

Form 16

Last 3 years Income Tax returns Last 6 months bank Last 3 years Profit /Loss and (self and business) statements Balance Sheet Last 3 years Profit /Loss and Balance Sheet Processing cheque Last 6 months bank statements fee Last 6 months bank statements (self and business) Processing fee cheque Processing fee cheque

Home Loans from State Bank of India (SBI)


Features: Interest Rates concessions on GREEN HOMES in accordance with SBI's commitment to Environment protection

Interest charged on the daily reducing balance No penalty for prepayments made All the features of our product, including interest rates, are in the public domain.

Option to avail Home Loan as a Term Loan or as an Overdraft facility to save on interest and maximize gains Loan sanctioned within 6 days of submission of required documents. Option to club income of your spouse and children to compute eligible loan amount Provision to club depreciation, expected rent accruals from property proposed to compute eligible loan amount Provision to finance cost of furnishing and consumer durables as part of project Repayment permitted upto 70 years of age cost

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Free personal accident insurance cover upto Rs.40 Lac.

Optional Group Insurance from SBI Life at concessional premium (Upfront premium financed as part of project cost) Plus schemes which offer attractive packages with concessional interest rates to Govt. Employees, Teachers, Employees in Public Sector Oil Companies. Special scheme to grant loans to finance Earnest Money Deposits to be paid to Urban Development Authority/ Housing Board, etc. in respect of allotment of sites/ house/ flat

Option to avail loan at the place of employment or at construction.

Loan Amount:

40 to 60 times of NMI, depending on repayment capacity as % of NMI as under

Net Annual Income EMI/NMI Ratio Upto Rs.2 lacs Above Rs.2 lac to Rs. 5 lac Above Rs. 5 lacs 40% 50% 55%

Floating interest rates Loan Tenor Upto 5 years. i.e. Above 5 years and upto 15 Above 15 years and upto 12.75% years i.e. 12.75% 20 years i.e. 2.75% Upto Rs.20 Lacs 2.75% below 2.50% below SBAR, i.e. 2.25% below SBAR, i.e. SBAR, i.e. 10.00% p.a. 10.25% p.a. 10.50% p.a Above Rs.20 Lacs 2.50% below 2.25% below SBAR, i.e. 2% below SBAR, i.e.10.25% p.a. 10.50% p.a. 10.75% p.a. SBAR, i.e.

Fixed interest rates Tenure: upto 10Years Upto 10 years Rate of Interest (p.a.): 12.75%

ProcessingFee: 0.25% of Loan amount with a cap of Rs.5,000/-(including Service Tax)

Pre-closurePenalty: No penalty if the loan is precolsed from own savings/windfall gains for which documentary evidence is produced by the customer.In case, such proof is not produced by the borrower,
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penalty @2% on the amount prepaid in excess of normal EMI dues shall be levied if the loan is preclosed within 3 years from the date of commencement of repayment. Maximum Repayment Period:

for applicants upto 45 years of age: 20 years for applicants over 45 years of age: 15 years

Moratorium: Upto 18 months from the date of disbursement of first instalment or 2 months after final disbursement in respect of loans for construction of newhouse/flat (period will be included in the maximum repayment period)

Home Loans from LIC Housing Finance


Features:

Loan amount from Rs. 1 Lakh onwards Low interest rates Easy application & quick approvals Largest Network

Details of Purchase/Construction/Extension/Plot Purchase Residents Loan Amount Loan Cost to Min. Rs. 1, 00,000.

Property 85% of total Cost of the property including Stamp Duty and Registration Charges. Equated Monthly (EMI) - Monthly Rest Basis 1. Equitable Mortgage 2. Demand Promissory Note. of Residential Instalments House/Flat/Plot

Repayment Mode Security Upfront Fees NRI Loan Amount Loan Term Repayment Mode Security

1.00% of Loan Amount Sanctioned + Service Tax as applicable.

Min. Rs. 5, 00,000. NonProfessional : Professional : Maximum 15 years Professional : Maximum 15 years Equated Monthly Instalments (EMI) - Monthly Rest Basis 1. Equitable Mortgage of Residential House/Flat/Plot 2. Demand Promissory Note. Maximum 10 years

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Upfront Fees

1.00% of Loan Amount Sanctioned + Service Tax as applicable.

Common requirements: 1. Duly Filled in Application Form. 2. Income Particulars, as applicable, along with copies of Updated Bank Statements / Passbooks of each Applicant for the past 6 months. 3. If Property has been identified / already belongs to the Applicant(s) then: a.CopyofApprovedPlan. b. Copies of Title Papers. Additional Documentation for Salaried Applicant (s): 1. Copies of Payslips of the Applicant (s) for the past 6 Months till the Month preceding the Month of Application. 2. Copy of Appointment Letter / latest Pay Revision Letter, if possible. 3. Copies of Form 16 with copies of ITRs & Computation Statement for latest Assessment Year. Additional Documentation for Self-employed Applicant (s): 1. Copies of last 3 years ITRs with Computation & Personal Financial Statements of the Applicant (s) along with copies of TDS Certificates / Income Tax Paid Challans. Additional Documentation for NRI Applicant (s): 1. Copies of Valid & Attested / Notarised Passport & Visa / Permanent Resident Card. 2. In case of Employment, copy of the Valid Employment Contract. 3. Copies of Updated Bank Statements / Passbooks of Bank Accounts in India as well as the relevant Country, in case of each Applicant for the past 6 months. Additional Documentation for considering Income from Rentals: 1. Copies of latest Municipal Tax Receipt (s) & Title Papers in favour of the Applicant (s). 2. Copy of Lease Agreement (s). 3. Full details regarding TDS & Monthly / Annual outgoings.

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D. Macro vs. Micro Economic Analysis


Real-estate in India is incredibly expensive and not just by Indian standards (with per capita GDP of US$ 700 per annum). Here are some numbers: Condos in New Delhi, India: 2-bedroom, 1000 sq ft apartment for $200,000. [$200 per sq ft] (Source: 99acres.com) Condos in Chicago, USA: 2-bedroom, 1000 sq ft apartment for $400,000 [$400 per sq ft] (Source: Google Housing) Now, remember that the median income in Chicago is 50 times more than that of New Delhi. Why Chicago? Because New Delhi can grow in all 4 directions much like Vegas can (and Chicago can in 2 directions) as compared to Manhattan and San Francisco that are geographically restricted.

Managing Housing Sector Boom-Bust Cycles


After several years of rapid price increases, the housing markets are turning down in several advanced economies, according to new IMF research. In a few countriesthe United States and Irelandhouse prices have fallen during the past year. Real residential investment has also slowed in several countries, particularly in the United States, Australia, and, especially, Ireland, where it has fallen by about 3 percentage points of GDP since its peak four years ago.

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Research shows that significant cross-country differences exist in mortgage contracts. We find that the United States, Denmark, the Netherlands, Australia, and Sweden appear to have the most "developed" mortgage markets, which allow households greater access to housing-related financing, whereas households in continental Europe tend to have more limited access to such financing.

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Chapter 4 Financial Statement Analysis


Comparative Study of PNB Housing Finance & LIC Housing Finance
Financial statement analysis is defined as the process of identifying financial strengths and weaknesses of the firm by properly establishing relationship between the items of the balance sheet and the profit and loss account. There are various methods or techniques that are used in analyzing financial statements, such as comparative statements, schedule of changes in working capital, common size percentages, funds analysis, trend analysis, and ratios analysis. Financial statements are prepared to meet external reporting obligations and also for decision making purposes. They play a dominant role in setting the framework of managerial decisions. But the information provided in the financial statements is not an end in itself as no meaningful conclusions can be drawn from these statements alone. However, the information provided in the financial statements is of immense use in making decisions through analysis and interpretation of financial statements.

Tools and Techniques of Financial Statement Analysis:


Following are the most important tools and techniques of financial statement analysis: 1. Horizontal and Vertical Analysis 2. Ratios Analysis The ratios analysis is the most powerful tool of financial statement analysis.

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A. Liquidity Ratios
Liquidity ratios indicate the ability of the firm to meet its financial obligations in the short term.

A.1 Current Ratio = Current Assets/ Current Liabilities


Current ratio indicates the ability of the firm to meet its current liabilities with current assets.Greater the current ratio greater is the short term solvency (i.e larger the amount of rupees available per unit of liability) Current Assets = Current Assets, Loans and Advances +Loans+ Debtors+ DTA (Net) (Amount figures are in PNB Housing Finance rupees) =2.226 *10^10/482460217 As on 31st March 2009 As on 31 March 2008
st

LIC Housing Finance

=46.14 = 1.9519*10^10/439121018 =44.45 =1.5629 *10^10/440170950

--------------------------------=2.255*10^11/11791506464 =19.12 =1.855*10^11/9075710921 =20.44 =1.556*10^11/7717295160 =20.16


Current Ratio
PNBHF LICHF

As on 31st March 2007 As on 31st March 2006

=35.5 = 1.116*10^10/496575045 =22.48

50 40 30 20 10 0 As on 31st March 2008 44.45 19.12 As on 31st March 2007 35.5 20.44 As on 31st March 2006 22.48 20.16

PNBHF LICHF

Interpretation
If we see in terms of figures Current Assets of LIC Housing Finance are much more than PNB Housing Finance but even then Current Ratio is quite high for PNB Housing Finance, this is because LICHF has quite higher liability than PNBHF. This liability might be because of NHB
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Refinance and other Secured and Unsecured loans, which are quite high for LICHF. So PNBHF is in much better state to meet short term obligations in comparison to LICHF.

A.2 Quick Ratio= (Current Assets- Inventory)/Current Liability


Since both the housing finance industries are not maintaining any inventory levels, their Current and Quick ratios are same.

A.3 Fixed Asset Turnover Ratio= Net Sales/Net Fixed Assets


Fixed Asset Turnover Ratio measures sales per rupee of investment in fixed assets. In other words, how efficiently fixed assets are employed. Higer ratio is preferred. For Housing Loan Industry: Net Sales= Total Income Net Fixed Assets: Net Block PNB Housing Finance (Amount figures are in Rupees) As on 31 March 2009 As on 31st March 2008 As on 31st March 2007
st

LIC Housing Finance

=2772149557/22219730 = 124.7 =2271443355/24911632 =91.18 =1528245513/26367293 =57.96 =1024128622/27977387 =36.61

--------------------------------=21649188412/229893954 =94.17 =15755626477/231061937 =68.19 =12688310885/242446866 =52.33

As on 31st March 2006

Fixed Asset Turnover Ratio


PNBHF 100 80 60 40 20 0 As on 31st March 2008 91.18 94.17 As on 31st March 2007 57.96 68.19 As on 31st March 2006 36.61 52.33 LICHF

PNBHF LICHF

Interpretation
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Results are in favor of LICHF if we talk about Fixed Asset Turnover Ratio which shows that LICHF has been able to utilise their fixed assets little better than PNBHF and that too on a consistent basis. But another point to notice here is the relative difference between the two is gradually decreasing which shows PNBHF is emerging as a very strong competetor in terms of utilization of fixed assets.

B. Leverage/Capital structure Ratios


Long term financial strength or soundness of a firm is measured in terms of its ability to pay interest regularly or repay principal on due dates or at the time of maturity. Such long term solvency of a firm can be judged by using leverage or capital structure ratios.

B.1 Debt- Equity Ratio = Total Debt/Total Equity


Debt-Equity ratio reflects relative contributions of creditors and owners to finance the business. Total Debt = Secured + Unsecured Loans+ Current Liabilities Total Equity = Share Capital+ Reserves and Surplus Deferred Tax Assets (amount figures are in rupees) As on 31st Match 2009 PNB Housing Finance =2.38*10^10/2072819790 = 11.48 As on 31st March 2008 =1.93*10^10/1628065167 =11.85 As on 31st March 2007 =1.52*10^10/1312403211 =11.58 As on 31st March 2006 =1.10*10^10/1096268446 =10.03
Debt-Equity Ratio
PNBHF 15 10 5 0 As on 31st March 2008 11.85 14.43 As on 31st March 2007 11.58 11.78 As on 31st March 2006 10.03 11.59 LICHF

LIC Housing Finance

--------------------------------=2.51*10^11/1.74*10^10 =14.43 =1.72*10^11/1.46*10^10 =11.78 =1.46*10^11/1.26*10^10 =11.59

PNBHF LICHF

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Interpretation
Debt component has consistently been high for LICHF in comparison to PNBHF which shows LICHF has been aggressive in financing its growth with debt. Considerably high ratio of LICHF in 2008 also put their loans at risk of not being repaid.PNBHF are playing it safe when compared to LICHF.

B.2 Debt- Asset Ratio= Total Debt/ Total Assets


The debt/assetratio shows the proportion of a company's assets which are financed through debt. If the ratio is less than one, most of the company's assets are financed through equity. If the ratio is greater than one, most of the company's assets are financed through debt. Companies with high debt/asset ratios are said to be "highly leveraged," and could be in danger if creditors start to demand repayment of debt. Total Debt = Secured + Unsecured Loans + Current Liabilities Total Assets = Net Block + Current Assets, Loans and Advances +Loans+ Debtors+ DTA (Net) (Amount is in rupees) PNB Housing Finance LIC Housing Finance As on 31st Match 2009 =2.38*10^10/2.23*10^10 =1.07 As on 31st March 2008 =1.93*10^10/1.95*10^10 =0.99 As on 31st March 2007 =1.52*10^10/1.56*10^10 =0.97 As on 31st March 2006 =1.10*10^10/1.12*10^10 =0.98 --------------------------------=2.51*10^11/2.26*10^11 =1.11 =1.72*10^11/1.86*10^11 =0.92 =1.46*10^11/1.56*10^11 =0.94

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Debt- Asset Ratio


PNBHF 1.5 1 0.5 0 LICHF

As on 31st March 2008 0.99 1.11

As on 31st March 2007 0.97 0.92

As on 31st March 2006 0.98 0.94

PNBHF LICHF

Interpretation
Both PNBHF and LICHF had comparable debt asset ratios in 2006 and 2007 which was less than 1, but in 2008 ratio of LICHF is greater than 1, which indicates LICHF is usind debt to finance its assets which makes it a little more risky when compared to PNBHF.

C. Profitability Ratios
A class of financial metrics that are used to assess a business's ability to generate earnings as compared to its expenses and other relevant costs incurred during a specific period of time. For most of these ratios, having a higher value relative to a competitor's ratio or the same ratio from a previous period is indicative that the company is doing well.

C.1 Gross Profit Ratio (%) = Gross Profit/Net Sales *100


Gross Profit = Income - Expenditure (amount is in rupees) As on 31st Match 2009 PNB Housing Finance =(7.56*10^8/2.77*10^9)*100 =27.29% As on 31st March 2008 =(5.73*10^8/2.27*10^9)*100 =25.24% As on 31st March 2007 =(3.30*10^8/1.53*10^9)*100 =21.78% As on 31st March 2006 =(2.51*10^8/1.02*10^9)*100 =24.61% --------------------------------=(5.32*10^9/2.16*10^10)*100 =24.63% =(3.54*10^9/1.58*10^10)*100 =22.41% =(2.62*10^9/1.27*10^10)*100 =20.63% LIC Housing Finance

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Gross Profit Ratio (% )


PNBHF 30.00% 20.00% 10.00% 0.00% LICHF

As on 31st March 2008 25.24% 24.63%

As on 31st March 2007 21.78% 22.41%

As on 31st March 2006 24.61% 20.63%

PNBHF LICHF

Interpretation
When it comes to Gross Profit ratio, its like a see saw swing between PNBHF and LICHF.Both are generating considerably good profit margins which indicates both companies are doing well and well in reach of their vision.But if we talk relative performance , PNBHF margin has gone down from 2006 to 2008 when compared to LICHF.

C.2 Net Profit Ratio (%)= Net Profit/Net Sales*100


The net profit margin ratio tells us the amount of net profit per Re1 of turnover a business has earned. Net Profit= Gross Profit - Taxes (amount is in rupees) As on 31st Match 2009 PNB Housing Finance =(5.34*10^8/2.77*10^9)*100 =19.28% As on 31st March 2008 =(4.06*10^8/2.27*10^9)*100 =17.89% As on 31st March 2007 =(2.80*10^8/1.53*10^9)*100 =18.3% As on 31st March 2006 =(1.78*10^8/1.02*10^9)*100 =17.45% --------------------------------=(3.87*10^9/2.16*10^10)*1 00 =17.92% =(2.79*10^9/1.58*10^10)*1 00 =17.66% =(2.09*10^9/1.27*10^10)*1 00 =16.46% LIC Housing Finance

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Net Profit Ratio(%)


PNBHF 19.00% 18.00% 17.00% 16.00% 15.00% As on 31st March 2008 17.89% 17.92% As on 31st March 2007 18.30% 17.66% As on 31st March 2006 17.45% 16.46% LICHF

PNBHF LICHF

Interpretation
Like gross profit margin, profit after paying taxes is high for both companies. But net profit margin for LICHF has shown considerable imrpovement when compared to PNBHF which shows LICHF is generating better revenue in recent years for every Rs1 of revenue but overall this figure is high for PNBHF.

C.3 Return on Total Assets (%) = [Profit before Interest and Tax/ (Fixed Assets + Current Assets)]*100
A ratio that measures a company's earnings before interest and taxes (EBIT) against its total net assets. The ratio is considered an indicator of how effectively a company is using its assets to generate earnings before contractual obligations must be paid. Profit before Interest and Tax (PBIT) = Profit before Tax (PBT) + Interest (amount is in rupees) As on 31st Match 2009 PNB Housing Finance =(2.57*10^9/2.23*10^10)*100 = 11.52% As on 31st March 2008 =(2.03*10^9/1.95*10^10)*100 =10.41% As on 31st March 2007 =(1.37*10^9/1.56*10^10)*100 =8.78% --------------------------------=(2.01*10^10/2.26*10^11)* 100 =8.89% =(1.46*10^10/1.86*10^11)* 100 =7.85% LIC Housing Finance

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As on 31st March 2006

=(8.94*10^8/1.12*10^10)*100 =7.98%

=(1.12*10^10/1.56*10^11)* 100 =7.18%

Return on Total Assets (%)


PNBHF 15.00% 10.00% 5.00% 0.00% As on 31st March 2008 10.41% 8.89% As on 31st March 2007 8.78% 7.85% As on 31st March 2006 7.98% 7.18% LICHF

PNBHF LICHF

Interpretation
Researchs have proved ROA of min 7% is acceptable, so in that terms both companies are doing well.On a comparative scale PNBHF is leading LICHF for better utilization of its assets to generate profits.Results also indicate that PNBHF is getting stronger every year in comparison to LICHF.

C.4 Return on Capital Employed (ROCE %) = [Net Profit after Tax (NPAT)/Total Capital Employed]*100
The Return on Capital Employed ratio (ROCE) tells us how much profit we earn from the investments the shareholders have made in their company. Total Capital Employed= Fixed Assets + Current Assets Current Liabilities (amount is in rupees) As on 31st Match 2009 PNB Housing Finance =(5.34*10^8/2.18*10^10)*100 =2.45% As on 31st March 2008 =(4.06*10^8/1.91*10^10)*100 =2.14% As on 31st March 2007 =(2.80*10^8/1.52*10^10)*100 =1.84% --------------------------------=(3.87*10^9/2.14*10^11)*1 00 =1.81% =(2.79*10^9/1.77*10^11)*1 00 =1.58% LIC Housing Finance

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As on 31st March 2006

=(1.78*10^8/1.07*10^10)*100 =1.66%

=(2.09*10^9/1.48*10^11) =1.41%

Return on Capital Employed (ROCE % )


PNBHF 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% As on 31st March 2008 2.14% 1.81% As on 31st March 2007 1.84% 1.58% As on 31st March 2006 1.66% 1.41% LICHF

PNBHF LICHF

Interpretation
We saw from debt-equity ratio that LICHF is maintaining more levels of debt compared to PNBHF, which itself states the reason for lower ROE for LICHF compared to PNBHF. ROE figures have considerably improved for PNBHF over the years which show company is doing well to win the trust of its promoters.

C.5 Return on Shareholders Equity (%) = (Net Profit after Tax/ Net Worth)*100
The amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested. Also known as "return on net worth" (RONW). Net Worth = Share Capital+ Reserves and Surplus - DTA (amount is in rupees) As on 31st Match 2009 PNB Housing Finance =(534123161/2072819790)*100 = 25.76% As on 31st March 2008 =(405946882/1628065167)*100 =24.93% As on 31st March 2007 =(279576114/1312403211)*100 --------------------------------=(3.87*10^9/1.74*10^10)*10 0 =22.24% =(2.79*10^9/1.46*10^10)*10 LIC Housing Finance

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=21.30%

0 =19.11%

As on 31st March 2006

=(1.78*10^8/1096268446)*100 =16.23%

=(2.09*10^9/1.26*10^10)*10 0 =16.59%

Return on Shareholders Equity (% )


PNBHF 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% As on 31st March 2008 24.93% 22.24% As on 31st March 2007 21.30% 19.11% As on 31st March 2006 16.23% 16.59% LICHF

PNBHF LICHF

Interpretation
PNBHF has made better returns over the years on shareholders wealth when compared to LICHF. If these companies were listed, PNBHF would have been way ahead of LICHF in winning the trust of shareholders.

INTERNSHIP PROJECT Study of IHL & PROJECT FINANCING with special reference to PNB Housing Finance &
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Survey on building trust by enhancing customer education --role of dmas

PROJECT DESCRIPTION & ANALYSIS


OBJECTIVE
The objective of this project has been to study the various aspects of Housing Finance Industry. The study and the work that have been undertaken during the training period were aimed towards the accomplishment of the following objectives:
To research housing finance industry as a whole, role of National Housing Bank (the

Regulator), process followed by companies for Invidual and Proejct Financing.


To analyse the impact of rising interest rates on E.M.I, Repayment schedule.

To implement and analyze the Cost Budgeting technique used in Project Financing taking various industry cases. To interpret and analyze the process of recovery of principal amount along with interest and in what proportions. (Amortization Process of PNBHF)
To understand the terms and terminologies related to Housing Finance industry like

CIBIL report, Legal Search Report, Moratorium Period, Margin, IIR etc. To carry out a research for studying the role of DMAs for building trust by enhancing customer education.
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METHODOLOGY
It was more of a mobile training where I first got the inputs in the form of theoritical knowledge from my project mentor at PNB Housing Finance Head Office. Then I was supposed to use those inputs at the branch offices of PNBHF. Preparing Loan Proposal Documents, Issuing Acknowledgement Ceritificates of Mortage, Issuing letters for PDCs, Site Visit in case of Project Financing and experiencing the customer interaction comes under the applications of study at HO.

SOURCES OF DATA
Secondary Data is used in the form of leading newspapers for Industry Analysis and for the completion of project. CRISIL industry research reports have been used and also the data collected from competetors website. Data for study of PNB schemes has been taken from their regular circulars which they issue to branch offices. Primary Data has been collected by directly surveying the DMAs of PNBHF to study their role in building trust by enhancing customers education.Sample size of DMAs is kept to 15.

DESCRIPTION OF ACTIVITIES
As a Member of Credit Team

I worked on maintaining borrowers records, putting up latest etries in their files. I prepared Loan Proposal Document which includes details like Personal Details of borrowers, gurantors details, their salary details, Net Owned Assets and these details were taken from the documents customer submits as per the requirements.

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Analysed the process of calculating loan amount to be sanctioned for a particual borrower keeping in view all the guilines by the head office. Also calculated the loan sanctioned amount w.r.t loan proposal amount. Issued Acknowledgement Letters for Property Mortgage.

As a member of Recovery Team Prepared a list of customers whose PDCs had expired and then collected contact details from individual customer files. Then I contacted them via phone requesting them to submit the PDCs as soon as possible since Housing Finance companies maintain advance PDCs for EMIs. Also I issued them letters at their residence address making them aware of the PDCs they have to submit.

TOOLS and TECHNIQUES

SpreadSheet was used to prepare proposal documents, customer records and to interpret the process of amortization and cash bugedting method. Charts are prepared for pictorial representation of results by using Excel Chart making tool. Cash Budgeting Technique is used in Project Financing to calculate the maximum amount which can be sanctioned to the builder. Amortization is studied to know how the principal is paid back to the financing institution along with interest.

A.

Financing Individual Housing Loans (IHL)

Study of Financing Housing Loan to Individuals for Construction/Purchase of Built House


The housing loan schemes under which loans are granted to individuals are categorized under Apna Ghar Yojna (Individual Housing Loan) Loan for Construction/extension/addition Loan to allottees of flats/houses by Development Authorities Loan to members of Cooperative Group Housing Societies

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1. Purpose
a) Construction of a house. b) Purchase of a house/flat. c) Extension/structural modification of the existing house or flat. d) Purchase of a semi built house/flat and completion thereof. e) Purchase of an expandable house and expansion thereof. f) Purchase of a plot and undertake construction. g) Purchase of house/flat under construction.

2. Eligibility
Individuals employed in permanent service. Self employed individuals and businessmen. Age of the applicant should not exceed 65 years in case of self-employed/businessmen and 60 years for individuals in permanent service.

3. Rule Based Lending


In order to make the task of assesment and saction of loans under Individual Housing Loans more scientific, Rule Based Lending Guidelines have been developed.Credit appraisal strictly based on a set of pre-determined considerations in a structured manner is termed as Rule Based Lending. RBL guidelines are based on 3 considerations: Consideration 1: PNBHFs Lending and Security Policy The application received should be in confirmity with existing terms and conditions of the schemes i.e loans will be considered as per the schemes of the PNBHF. Consideration 2: Customers History Should indicate that the customer has never got an adverse judgement or decree in a Court case invovling breach of contract, tax malfeasance and other serious misconduct, including any previous default with PNNBHF or any other bank/HFCs.

Consideration 3: Aggregate Score obtained on the basis of laid down parameters. Once the application satisfies the above 2 cnsiderations, it will be processed on the basis of 13 parameters which have been assigned graded marks. Total marks for all the 13 parameters would be 100 which have been distributed to cover each parameter indicated below.
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Rating Sheet of Applicant with Parameters and Scoring Criteria

Based on this score credit decision will be taken as under:

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a) If the score is 50 and above in principle sanction will be conveyed to the applicant. b) If the score is between 40 and 49, the application can be considered if the applicant provides suitable gurantoors, colleteral security, opts for longer repayment period or offers higher margin etc. so as to bring his score to a level of 50 and above. c) If the score is below 39, the application will be rejected.

4.

Nature of Loan : Term Loan


a) Minimum loan amount is Rs 50,000 and max loan amount is arrived at repayment capacity of the borrower. b) Income of borrower/co-borrower should be clubbed together for calculation of loan eligibility.

5. Loan Amount

Eligible loan amount may be calculated by taking monthly repayment capacity as 40% of the monthly take home income which may also include interest income, dividend income and dependents income.

Calculation of individual housing loan amount on the basis of repayment capacity


The repayment capacity of the borrower shall be determined taking into account income, age, qualification, work experience, spouse income, assets, and liabilities, continuity of occupation and alternative employment prospects.

6. Margin The borrowers contribution shall be minimum 20% of the total cost of the project, including stamp duty and registration charges. a) In case of purchase of plot, minimum margin of 30% of the registered value of plot and the registration cost is to be maintained. b) Margin in the case of repair/renovation will be 25% of the total cost of the estimated cost of repair. 7. Security a) First charge by the way of equitable/registered mortgage of the property to be financed. b) Other additional/interm security, viz, charge/lien over liquid secuities such as term deposits/NSCs/KVPs, Life Insurance Policies etc and pledge of investments may be insisted upon, whenever necessary.

Gurantor
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Suitable third party gurantee of two sound and solvent persons with adequate income, net means be taken. While accepting personal gurantees in case of individual/housing loans, the following guidelines may be followed: The income of gurantors taken together should not be less than that of the borrower and coborrowers. The age of gurantors should be such that they remain in service till the repayment of entire loan, in case of gurantee from a salaried person. The gurantors should preferably have some immovable property.

8. Rate of Interest
Loans are either issued at fixed rate or floating rate of interest. In case of floating rate of interest, the interest rates are linked to Prime Lending Rate or the Benchmark Rate. Benchmark rate of PNB Hosuing Finance is PNBHFR.

Explanation:
Suppose loan is issued at a discount of 2% at PNBHFR which is 11% today. So the loan is issued at 9%. Now this difference of 2% will be maintained till the very end. Now let say that market rate decreases to 6% after 1 year but the PNBHFR changes to 10% from 11%, so the new rate of interest which will be applicable for the borrower will be 8% not 6%, so the difference of 2% will be maintained to PNBHFR.

9. Other Charges
a) Upfront Fee: UFF is to be calculated on amount of the loan sanctioned and is payable at the time of acceptance of loan offer and positively before handling over Sanction letter to the borrower/ availment of first installment of loan.It is chargable on one time basis and is non refundable. UFF can also be understood as file handling charges.

Loan Slab
Upto 5 lacs 5 to 10 lacs 10 to 15 lacs Above 15 lacs

Upfront Fee
1.25% 1% 0.75% 0.5%

b) Commitment Fee: 1% p.a in case the loan is not availed within a period of 12 months from the date of offer or 3 months from the scheduled date of disbursement, which ever is earlier.
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c) Penal Interest: The monthly instalment and Pre-EMI is to be paid on or before the last day of the month or within 7 days of the following month positively. In case of delayed payment, penal interest@2% p.m on the amount in default will be charged. d) Pre payment charges: There will be no prepayment charges in a financial year for pre-payment of 20% of the outstanding balance if paid from own sources. If the amount prepaid from own sources is more than 20% of outstanding balance or the entire loan is prepaid by availing loan from another institution prepayment charges of 2% on the outstanding balance may be charged.

10.Loan Application and Documentation


Individuals to make a loan application as per the prescribed format available on companys website, along with age, residence, income proof, copies of property document, estimated cost of property/approved plan/map. Check list of documents to be submitted along with loan application form If salaried Passport size photograph passport, ration card, driving license) Latest slip showing all deductions and net salary Form16 ITR for the last financial year Self employed Passport size photograph ration card, driving license) computation of income Balance sheet, profit and loss account for the last three years Bank statements for the last 6 months Bank statement for the last 6 months (reflecting the salary income) Signature verification proof Photocopy of property documents Copy of approved plan Signature verification proof Photocopy of property documents Copy of approved plan detailed estimate with cost and

Age and residence proof (copy of Age and residence proof (copy of passport, earnings, Income tax returns for the last 3 years with

A detailed estimate with cost and A measurement details. Upfront fee cheque

measurement details. Upfront fee cheque

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11.Confidential Report(CR) on Borrower(s) and Gurantor(s)


A brief CR on Borrowers and Gurantors must be held on record. Information furnished by borrower in the loan application form should be verified by the branch officials, icluding net means, giving details of Immovable Property duly supported by documentary evidence.

12.Recommending and Sanctioning Authority


The Loan application is to be appriased and recommened by an officer/ PE / MT after gathering all the information from the borrower, verifying the credentials of borrower/ gurantor. Sanctioning Authority to sanction the loan after interviewing the borrower thoroughly and ensuring the genuineness of the party and property, as per loaning power chart.Simultanouesly proposal should be entered through the Proposal Tracking System package for monitoring the proposals received and for disposal of the same at Corporate Office and branch level.

Common Checklist for Pre-sanction Appraisal


NHB has issued certain mandatory requirements to be compiled before sanctioning of a housing loan. At the time of accepting loan application

A.
1. All columns of Loan application form should be duly completed and signed along with latest attested photograph of al the applicants.
2. Age proof of Applicants should be verified from any one of these documents, viz.

PAN card, Election Identity Card, Employee Identity Card, DL, Passport etc.
3. Address Proof should be verified from any one of given documents, viz. PAN

Card, PAN card, Election Identity Card, Employee Identity Card, DL, Passport etc.
4. Income Proof should be verified from any one of the given documents, viz.

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For Salaried: Latest Salary Slip, Latest Salary Certificate along with deductions.Genuineness of the Salary Certificate of the borrower be verified i.e. whether the same has been actually issued by the employer or not, particulars of the salary certificate be verified, Form 16 issued by the employer. For Others: Last 3 year ITRs both personal and business along with computation of income, last 3 year balance sheets, profit & Loss account verified by CA if possible. Genuineness of ITRs should be ensured. 5. Income from other sources should be verified with documentary evidence. 6. Gurantors form duly filled in along with age, residence proof, income proof, net means, and copy of title of the property if owned by the gurantor.
7. Detailed estimated cost from Govt. Approved Architect in case of construction/

addition / extension along with plan/map duly approved by the competent authority. In case of change of land use (CLU), either from agricultural to residential or commercial, for construction of residential houses or vice versa, a certificate to this effect from the competent authority must be held on record.

B. Credential Verification
8. The applicants must be interviewed before sanction of loan by the Incumbent /second man. Queries are also made regarding existing liabilities of borrower.
9. Regular income of borrower and the ability to repay the monthly installment from

the income to be closely scrutinized. 10. Bank operative statement of accounts for the last 6 months be obtained and verified for conduct of account.
11.

CIBIL report must be generated to verify the repayment record of applicant if any.

12. Enquiries be made from the 2 references provided in the application form and where ever necessary personal visit be made to ascertain the genuineness of the information given on the application form.

C. Site Verification

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13.

In all cases the site must be visited by the Incumbent/ officer/ PE personally before sanctioning/ recommending loan and complete description of property including cost per sq. ft. be verified and the site visit report be held on record.

14. Branch to ensure that site is located in approved colony and the plan/map has been approved by competent authority and the basic amenities available is satisfactory.
15.

Valuation report of the property be obtained and compared to prevailing circle rate/ municipal rates in order to ascertain realisable value.

16. Margin invstment by the applicant form own sources be also assesed during spot verification.

D. Title Search/ Legal Search


17. The identity of the person who is offering Equitable Mortgage of the property must be established.
18.

The legal search report (LSR) obtained from the approved advocate must clearly mention the fact that the owner has a valid, aboslute, clear and marketable title. The chain of title of property is complete and in proper sequence.

E. Recommendation/Sanction of Loan
19. Loans are to be sanctioned as per the prevailing Loaning power chart. 20. The recommending/ sanctioning note should clearly mention the terms and conditions of the sanction. 21. The sanctioning authority will sanction loans within his vested powers and shall not sanction loans in his own favor or in favor of his close relatives. 22. An officer lower in rank shall not sanction any proposal that the previous sanctioning authority had rejected or had sanctioned an amount lowed than the recommended amount.

13. Disbursement
a) For outright purchase of house/flat, the loan amount will be disbursed in lump-sum to the vendor at the time of registration after satisfying that the borrower has paid/provided for the balance amount. b) For houses/flats under construction, the loan amount will be disbursed in stages, based on the progress of construction and verification of end use of funds.

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c) The disbursement will be made after the property has been technically appraised and all leagal documentation has been completed.
d) The borrower has to invest his own share of the cost in full (Margin), prior to

disbursement of loan.

14.Limitation
Limitation for enforcing mortgage security in the case of advances against any type of mortgage is 12 years from the date of advance or when the amount secured falls due, as the case may be, and is 3 years for enforcing personal liability of the mortgagor. Balance Confirmation (B.C.) letters are to be obtained from borrowers and gurantors, only incase of irregular/ NPA accounts irrespective of outstanding balance.

15.Consideration of Moratorium Period in Construction Cases


The EMI comprising of repayment of principal and interest starts from the month subsequent to the date of disbursement of loan. As per the normal practice with banks, in construction cases, a moratorium or repayment holiday of 18 months from the date of disbursement of first installment of the loan is allowed.

16.Insurance of Property in Housing Loan Accounts


a) It is imperative that the property mortgaged to PNBHF in housing loan a/cs has to be insured against fire and other hazards/risks. The insurance policy, mentioning PNBHF as the sole beneficiary under the policy, is to be kept on record. b) The amount for which the insurance cover is obtained from the concerned agency should not include the valuation of land. The risk coverage policy shall be obtained for an estimated amount, which shall be equivalent to reconstruction cost of the property instead of full market value of property.

17.Repayment
a) Loan repayment shall normally be in Equated Monthly Installments (EMIs)

comprising of principal and interest (amortization). b) The maximum repayment period shall be 20 years. c) In case of loan for repair/renovation repayment period is 10 years.

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d) Repayment to commence from immediate subsequent month after the final disbursement of loan. Pending final disbursement, monthly interest at the applicable rate shall be charged on portion of the loan disbursed.
e) 24 PDCs shall be taken in advance for EMIs

Concept of Amortization w.r.t PNB Housing Finance


Principal = Rs 1, 00,000 ROI = 8% EMI= Rs 2028

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No. of M onths Principal 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60

ROI 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8

Interest

EM I 666.67 657.59 648.46 639.26 630.00 620.68 611.30 601.85 592.35 582.77 573.14 563.44 553.68 543.85 533.95 523.99 513.97 503.87 493.71 483.48 473.19 462.82 452.39 441.88 431.31 420.66 409.95 399.16 388.30 377.37 366.37 355.29 344.14 332.91 321.61 310.24 298.78 287.26 275.65 263.97 252.21 240.37 228.45 216.46 204.38 192.22 179.98 167.66 155.26 142.77 130.21 117.55 104.82 92.00 79.09 66.10 53.02 39.85 26.60 13.26

Interest Recovered Principal Recevored End M onth Balance 2028 2028 2028 2028 2028 2028 2028 2028 2028 2028 2028 2028 2028 2028 2028 2028 2028 2028 2028 2028 2028 2028 2028 2028 2028 2028 2028 2028 2028 2028 2028 2028 2028 2028 2028 2028 2028 2028 2028 2028 2028 2028 2028 2028 2028 2028 2028 2028 2028 2028 2028 2028 2028 2028 2028 2028 2028 2028 2028 2028 666.67 657.59 648.46 639.26 630.00 620.68 611.30 601.85 592.35 582.77 573.14 563.44 553.68 543.85 533.95 523.99 513.97 503.87 493.71 483.48 473.19 462.82 452.39 441.88 431.31 420.66 409.95 399.16 388.30 377.37 366.37 355.29 344.14 332.91 321.61 310.24 298.78 287.26 275.65 263.97 252.21 240.37 228.45 216.46 204.38 192.22 179.98 167.66 155.26 142.77 130.21 117.55 104.82 92.00 79.09 66.10 53.02 39.85 26.60 13.26 1361.33 1370.41 1379.54 1388.74 1398.00 1407.32 1416.70 1426.15 1435.65 1445.23 1454.86 1464.56 1474.32 1484.15 1494.05 1504.01 1514.03 1524.13 1534.29 1544.52 1554.81 1565.18 1575.61 1586.12 1596.69 1607.34 1618.05 1628.84 1639.70 1650.63 1661.63 1672.71 1683.86 1695.09 1706.39 1717.76 1729.22 1740.74 1752.35 1764.03 1775.79 1787.63 1799.55 1811.54 1823.62 1835.78 1848.02 1860.34 1872.74 1885.23 1897.79 1910.45 1923.18 1936.00 1948.91 1961.90 1974.98 1988.15 2001.40 2014.74 98638.67 97268.26 95888.71 94499.97 93101.97 91694.65 90277.95 88851.80 87416.15 85970.92 84516.06 83051.50 81577.18 80093.03 78598.98 77094.97 75580.94 74056.81 72522.52 70978.01 69423.19 67858.01 66282.40 64696.28 63099.59 61492.26 59874.21 58245.37 56605.67 54955.04 53293.41 51620.70 49936.83 48241.75 46535.36 44817.59 43088.38 41347.63 39595.28 37831.25 36055.46 34267.83 32468.28 30656.74 28833.12 26997.34 25149.32 23288.98 21416.24 19531.02 17633.22 15722.78 13799.60 11863.59 9914.69 7952.78 5977.80 3989.65 1988.25 -26.49

100000 98638.67 97268.26 95888.71 94499.97 93101.97 91694.65 90277.95 88851.80 87416.15 85970.92 84516.06 83051.50 81577.18 80093.03 78598.98 77094.97 75580.94 74056.81 72522.52 70978.01 69423.19 67858.01 66282.40 64696.28 63099.59 61492.26 59874.21 58245.37 56605.67 54955.04 53293.41 51620.70 49936.83 48241.75 46535.36 44817.59 43088.38 41347.63 39595.28 37831.25 36055.46 34267.83 32468.28 30656.74 28833.12 26997.34 25149.32 23288.98 21416.24 19531.02 17633.22 15722.78 13799.60 11863.59 9914.69 7952.78 5977.80 3989.65 1988.25

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In case of amortization, interest is paid first from the EMI and rest is the principal. Like in the case before, interest for the first month was calculated like SI= (100000*8*1)/1200 = Rs 666.67 So the interest recovered from EMI of Rs 2028 will be Rs 666.67 and the remaining Rs 1361.33 (2028-666.67) will be the principal recovered by the financial institution. The main idea here is interest is recovered first. Now the princial outstanding balance for the next month will be Rs 100000- Rs 1361.33 = Rs 98638.67. So the next month interest will be charged on this outstanding balance. The same process will be repeated till whole principal is recovered and we can see it will be recovered at the end of 60 months.

Variation of Repayment period w.r.t Interest Rates


The same process was repeated for different interest rates.

Variation

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Observation
With increase in ROI from 8% to 15%, repayment period increased from 60 months to 78 months keeping principal amount and EMI same.

Special Repayment Options


In deserving cases, special repayment plan facility can also be allowed.

1. Graduated Repayment Plan


Under this plan, the monthly instalment is kept low in the initial stages and the same increases in stages of 5 years. This is offered to those who are well qualified, younger in age and have opportunities for income growth.

2. Decreasing Repayment Plan


Under this plan monthly installment is high in initial stages and the same reduces in the later stages.

3. LIC Linked Repayment Plan


Under this plan, the LIC policies (which are of endowment nature and are maturing before the term of the loan) can be assigned in favor of PNBHF for full amount or a part amount of the loan.

4. Balloon Payment Facility


In case the applicant is expecting lump-sump payment during the currency of the loan, the equated monthly installments may be fixed after taking into account such sums.

Business Chart

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B.

Project Financing

Introduction
In the exercise of project financing the company basically gives loans to builders and real estate companies for the construction of houses, flats, shops, malls and various others forms of houses and shops. The loan is generally given for a period in which the project is expected to complete which is usually of two, three years. The repayment of the loan is designed in such a way that whenever a customer makes payment for the flat the proceeds are directed towards the escrow account which is opened in the same bank and is used only for the purpose of repayment. On getting the payment of the flat the bank gives the title of the flat. The rate of interest that the company charges on such loans is higher than the individual loan and equated monthly

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installments are to paid by the builder which are designed by the company after analyzing his cash flows during the period of the completion of the project Project financing involves preparing financial plan, assessing the risks, design financial mix and raise funds.

Project Financing vs Project Approval


In project financing financial institution is the lender and project promoter or company is the borrower while in the case of project approval financial institution is the lender and customers of that very project are the borrowers. So in case of project approval focus is on retail business. Once a project is financed it is automatically approved but vice versa is not always true.

Sources of Project Finance


In order to take any project to completion, promoters need the capital. There can be different sources for that capital like

Promoters Wealth which is also known as equity also referred as proprietors share in the project. Unsecured Short Term Borrowings. Unsecured Loans which are raised from own sources generally for long term. Interest is not paid on this capital. This capital is also known as Quasi Capital. Advance booking payments from customers. Secured Loans from Financial Institutions.

Need of Project Financing


Project financing helps financial institution to grow the business and attract individual housing loans. The major advantages are:
1.

Exposure to realty sector: It helps to boost up the infrastructure industry and other
associated industry. Financing helps promoter to take big projects and also gives moral boost up and shares his risk.

2.

Cluster Financing: Focus should not be on financing Individual Housing Loan


Proposals which are scattered over the nook and corners of the city/ies. Instead, they should now focus on Cluster Financing. Cluster financing save various costs associated with site visits, search reports and saves the all important time.

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3.

High interest rate: the interest rate charged on project is comparatively high and
having short duration say 2 to 3 yrs. This helps lender to maintain liquidity and covering costs. The rate is generally higher than benchmark rate.

4.

Promotion of institution: the financial institution which finances the project put its
hoardings near the sight which enhances its popularity and business.

Major Concern of the Lender


a) The lender has to look towards the credit requirements of the borrower..

b) The lender has to measure expected rate of return, tax and accounting considerations
c) Lender has to analyze the projects feasibility. d) Earnings from the project (repayment). e) Concerns for financers. f) Project not being completed on time. g) Project not being completed on budget. h) Project not being completed at all. i) Project not operating at full capacity. j) Project prematurely coming to an end. k) Project failing to generate revenue. l) Security over the infrastructure created.

m) Track record of the builder for last 3 to 4 years.

WHATS GOING ON IN THE BORROWERS MIND a) Proportion of the total cost of the project to be funded through loan, own investments or other sources b) Operational flexibility of the loan he has undertaken c) Amount of burden to be transferred on to the customer in case of increased E.M.I.s and interest rates/fluctuations in the market d) Whether the project would be completed on time or not
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e) Repayment of loan on time f) To manage financial and political risk involved with the project g) Earnings from the project h) One of the biggest concerns in the mind of the borrower is to choose from the various bank/financial institutions present in the market to finance his project.

DETAILS TO BE FURNISHED FOR PROJECT FINANCING


As and when a new project comes to the housing finance companies or banks, they have a look at the following documents or criteria to decide whether the loan is to be extended and if yes, how much of loan is to be extended to the builders or developers.
1.

Promoters track record: In this the company searches for all the previous records of the promoter to confirm that he is not a fraud. The company asks for permanent address proof, date of incorporation of company, name and addresses of directors with valid proofs. The main thrust of this search report is to see the builders capability to succeed in his project, if the promoter of the project has the potential to undertake such a project if the financial assistance is provided to him. Location of the project: The housing finance company also pay due attention on the location of the project because its success depends a lot on the location. The company basically sees that the location is accessible from the city its not far off on the outskirts and if it is there should be good transportation facility, markets and schools in the vicinity. The land should not be too far from railway stations or airports and should be safe. Memorandum of Association: The housing finance company asks for the memorandum of association and the articles of association to see the shareholding pattern of the company and most importantly to check in the memorandum if the company is allowed to carry on the business of construction or building. Cost of the project: The Company extending loans sees into the cost of the whole project. This cost includes every small and major cost incurred and to be incurred till the completion of the project. The estimated cost is calculated by an approved architect with approximate cost of each aspect including the cost of registration, land purchase,

2.

3.

4.

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construction which is further subdivided into various classes like earth work, garden work, electrification, water facility etc.
5.

Promoters contribution: After an analysis of the cost incurred on the project the company sees how much the promoter is contributing to the project. This is an important thing because it assures the company that if a significant amount of money of the promoter is injected into the project he will try his best to complete the project in due time and will return the loan as it completes, thus there are less chances of failure. It normally asks for a minimum of 20% contribution. And if the promoter is not able to raise such an amount then he is asked to do so otherwise his project is rejected. Unsecured loans: These loans are the advances taken up or to be taken by the promoter during the project without giving any kind of security, these loans are taken up from friends, relatives, sister concerns and the most important thin about them is that they are to be returned after returning the term loan extended by the housing finance company against which the project land has been given as security. These forms an important part as debt equity ratio is calculated on the basis of the promoters contribution and unsecured loans which is also called as quasi equity. And the loan is given if the debt equity ratio is not more than 2:1. Advance bookings: The housing finance company is also interested into the advance bookings made by the customers because the funds given by them can be utilized in the construction and the loan amount is accordingly decided and most importantly it also shows the goodwill and reputation of the builder as well. Secured loans: These are the loans for which the builders come to the housing finance company. A security is given by the builder in the form of the equitable mortgage of the land on which the project is to be constructed. The repayment of this loan is to be done before all the unsecured loans and the repayment is scheduled in such a way that every flat that is sold, the proceeds are transferred to the escrow account of the same bank and the bank gives the title of the flat of which the proceeds are received. Financials of last three years: Financial statements of the last three years of the borrowing company and its allied concerns mentioned in the proposal should be produced before the housing finance company certified by a chartered accountant. Financial should include the certified balance sheets, profit and loss statements, cash flow statements, and ratio analysis. And if the company is new that is incorporated a year back then due care should be taken as the promoter is not too experienced and here a much depends upon the future projections. Projections: The future projections should have the balance sheets, cash flow statements, and ratio analysis statements for the next few years properly showing the taking of term loan and proper provisioning of the repayment of the loan according to the sales projections year on year. It should be noted that the cash flows should not be negative in the second year after taking the loan. The ratio analysis statements should show debt equity of less than 2:1 every time. Future projections including the balance sheets of the allied concerns are also required along with that of the borrowing company.

6.

7.

8.

9.

10. Future

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11. Sales

realization and profit: The borrowing company should give a systematic review of the total cost incurred as discussed above plus it should a schematic pattern of the sale of the different type of flats and houses or shops they are offering in the project and should show the sales realization of each unit and the profit earning of each unit and a total of this along with the profit should also be shown in a statement.

Only after looking at the above documents and conducting a thorough research about the developer and the project for which the loan is being raised, if the housing finance company is convinced that the developer has the capability to generate decent returns out of the project to pay back the loan installments on time, the loan is extended to the developer.

Tradeoff between Project and Promoter


While financing any project lenders or financial institutions carefully anayze these two Ps Project and the Promoter. Initially promoter is considered more important than the project, but once promoter is reviewed project becomes equally important.

Considering the Reliance Group


Today Reliance is such a diversified group. They are making their presence felt in almost every sector whether it is infrastructure or energy. If Reliance goes to any financial institution today, they will hardly face any problem to raise money. The most obvious reason behind this is the trust in the promoter of the company. Even if the promoter has the knowledge of that particular sector or not but he has the capability to manage the speciaised teams who can handle their project very well.

Considering Kingfisher Airlines

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Recently Vijay Mallya has raised Rs. 2000 crs on this personal gurantee out of which major percentage is from pubic sector banks.So this is what a promoter can do for the company. After the promoter its the project which becomes equally important. Suppose Real Estate Company like DLF decides to come up with a project in a remote area where there is no supply of water and eectricity, so that obviously will not be backed up by any accomplished financial institution. In this case although the promoter is the biggest real estate company of India but its the project which doesnot seems to be too much convincing.

Costs associated with any project


a) Land acquisition cost b) Map and other ceriticates c) Project Deveopment Cost Internal Development Cost (IDC) - includes construction cost, underground fittings provided like internet connection wires, cable fittings, and sanitary fittings. External Development Cost (EDC) includes road development, water pipeline connections. EDC is payable to concerned agency.

d) Selling and administrative expenses- Project Marketing. e) Interest Cost- It is the cost which is to be paid to the financial institution whom they have borrowed loans. f) Prelimnary Cost publicity, approvals.

Factors to consider before financing any project Promoter: Net Means, Projects Aready Undertaken and Completed, Key Figures. Project: Locational Advantages, Land Ownership, Legal Search Report, Change of Land
Use, Approval of Maps, Necessary clearences from concerned departments like deforestation, avaitation etc.

BROAD GUIDELINES FOR FINANCING CORPORATE ACCOUNTS


1) The builder and its key promoters should be backed by ample experience in the field of construction activities.generally the builders to whom finance is given must have good entrepreneurship skills

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2) The builder should have title of the land in their name (or in the name of allied concern) or under collaboration agreement for development of the land as a developer under development agreement. 3) To ensure title of land the obtaining of non encumberance certificate (NEC)is insisted upon through advocate on panel. 4) Valuation of the property is also taken from the banks approved valuer. 5) No exclusive finance is made against land.The land finance is made only in cases where the construction of the project is linked to that.The part of finance against the land is generally restricted to 50% of the cost of land irrespective of cost of project or amount of finance. 6) The debt equity ratio is maintained at maximum 2:1 during the loan period. 7) Out of means of financing the project, three major components a. Owners contribution b. PNBHFL finance c. Advances from the customers 8) Broadly three components are prescribed in the ratio of 20:50:25 i.e. the owner should subscribe minimum 25% of the project cost by way of equity.
9)

For the purpose, the unsecured loans which are interest free and are of long term are considered as quasi equity.

10) In cases where due to higher acceptability of the project the builder asks for higher proportion of advances from the customers,then the same is considered on merits and loan proportion or borrowers contribution is accordingly 11) Financial cost is capitalized for the construction period and the interest levied in the loan account during construction period is repaid on monthly basis during the moratorium period and thereafter interest is paid along with the EMI 12) The company specific and project specific projections and cash flows are obtained and analysed. 13) Moratorium period in respect of builders account is considered for a period of construction or the period up to which the cash flows generated exceed the projected cost means of finance. 14) Sensitivity analysis is undertaken with special reference to effect on profitability of the project in cases of increases in cost of construction and decline in sales realizations. 15) SWOT analysis of the project is done with special reference to competence of the promoters and marketability of the project.

Cash Budgeting Method


It states that until a certain period of time of project, net cash flows will be in the form of outflows. This doesnot depend on profit of project, sale of project, and also not on completion of project.
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This chart explains the different situations that arise during financing any project. Suppose the estimated cost of project comes out to be 7000, and builder starts looking for financing options. He goes wih a proposal to any financial institution stating, that he being a promoter can put 1000, 2000 he can generate from advace bookings, and requests to finance the rest. Now its the time for financial institution to analyse the proposal considering different factors like promoters image, market conditions, location of project etc. As per PNBHF criteria this proposal will not be accepted, since they have devised 25-25-50 criteria in favor of promoter, advances and term loan. So the min which promoter has to put in is 1750, advances from customers can not be estimated more than 1750, and rest 3500 can be financed by PNBHF

Concept of Escrow Account


Escrow account is a collection account which is opened with the purpose of proper utilization of funds and avoiding siphoning of funds. It maintains details of inflow and outflow of funds

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related to specific project. All funds are kept in that account and amount is debited with bankers consult, entire corpus is in bankers hand. On requirement amount is transferred from Escrow account to Current account. It helps to control cash flows

Check List of Documents for Project Financing


1. Project report with complete details as under:a. A brief write up on the history background of the company and its promoters; relationship among partners/directors; details of outside directors etc. b. Project cost item wise proof c. Means of finance item wise d. Cost inflow stage wise, revenue stage wise along with projected month cash flow statement for the term loan period projected, half yearly balance sheet and Profit & Loss account for the project duration. e. Details of projected sales realizations. f. Debt/equity ratio, debt service ratio during the project period. g. Draw down schedule of disbursement, repayment of loan. h. Project specification, number of flats/rooms/shops/offices with area in sq. ft. of each office/shop, cost of construction per sq. ft. and justification for the cost. i. Project implementation schedule with projected profitability. j. Security offered. k. Assumptions and justifications to accept the projected profitability. l. A brief note on the agencies/professionals engaged/to be engaged for the project. m. A brief note on the marketability, financial, technical and managerial viability of the project. n. Memorandum of Association and Article of Association of the borrowing company, share holding pattern, details of contingent liability, statutory liability outstanding. 2. Audited balance sheet, Profit & Loss account of the company for last 3 years along with copy of Tax Audit Report. 3. Complete details of the banking arrangement of the company. Copy of operating bank account statement/s of the company for the last 2 years. 4. List of Directors, their PAN numbers, pass port size photograph, copies of the ITRs filed by the Directors, Net means duly compiled along with IP owned by them. 5. Detailed list of projects completed with specific mention of area and amount of each project. List of project under progress with specific mention of area and amount of each project and expected date of completion (if applicable). 6. Details of allied concerns, their banking arrangements, CRs from bankers/other institutions on all existing secured loans availed by them along with Audited balance sheet, P & L A/c. of the company for last 3 years. 7. Details of security offered, copy of property papers with complete chain of title, CLU if applicable, MV of the property. 8. Copy of approved plan/map.

Project Financing Case Study Study of Cost and Means

--all figures are in Rs lacs

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Cost

M/s Mighty Const. Pvt Ltd.


2121 7950 1631 795 636 -13133

M/s Mapsko Builders Pvt. Ltd.


2337.74 15118.95 846.35 100 3834.28 2274.11 24511.4 3

M/s Neelkanth Town Planners Pvt. Ltd.


1909 6000 -60 255 504.09 8728.59

Belgravia projects Pvt. Ltd.


503 2700 274 85 428 25 4015

M/s Achievers Builders Pvt. Ltd.


181.07 1251.42 --160.16 71.21 1663.86

Cost of land Cost of Construction Financial cost Selling & Administration Expenses Development Expenses Preliminary Expenses TOTAL Means Promoters (In the form of Paid up Capital/Partners capital/Proprietor Capital) Term loan From Banks /Financial Institutions Advance from Customers TOTAL Loan Amount Sanctioned Debt-Equity Ratio Promoter: :Term Loan(PNBHF) :Advances

5200

6127.86

2500

1100

447.67

5000 2933 13133

2400 15983.57 24511.4 3

5000 1228.59 8728.59

1950 965 4015

825 391.19 1663.86

2000 0.38 39.6%: 15.22 %:22.3 3%

2400 0.39 25%:9. 79%:65 .2%

1350 0.54 28.64%: 15.46%: 14.07%

1950 1.77 27.40% :48.57 %:24.0 3%

825 1.84 26.9%:49 .58%:23. 51%

Observations:
PNBHF guidelines state that debt-equity ratio should not be more than 2:1. In the above cases maximum debt-equity ratio is 1.84. This shows PNBHF is strictly following the laid down guidelines. Also 25:50:25 rule of Cost Budgeting Method of PNBHF which states Promoters contribution should not be less than 25%, loan can be to a maximum of 50%, and advances can be considered to a maximum of 25% is no where violated.

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Survey on Building Trust by Enhancing Customer Education --Role of DMAS


Aim To study the role of Direct Marketing Agents of PNBHF in building trust amongst customers. Objective Unhappy customers and dissatisfaction is the last thing any company would like to have.In this highly competitive market when everyone is not just trying to win, but also trying to defeat others, value addition is need of the hour. And when this is value is generated in the form of trust, then this very trust may lay golden eggs in future. Why to Educate Customers and on what points? Many Indian customers still get weary of the basic details while taking the loan which they call hidden costs later on. These hidden costs which are not actually hidden turns into dissatisfaction for the customer at some stage. Borrowers should be fully aware of the costs which may arise at different stagtes and under differernt circumstances. To study the role of DMAs in educating customers, a questionairre was prepapred. I met with DMAs of PNBHF, interacted with them and got their feedback in the form of those questionairres. Sample size of study is 15. Since I cannot disclose the names of DMAs here, it can be taken as DMA1, DMA2... DMA15. The following results were obtained after the survey:

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Conclusion
DMAs are doing a great job in educating the customers. And as per the DMAs their customers are highly satisfied with the process. The only point which seems contradictory is some of the DMAs do not discuss how interest rates are linked to PNBHFR which is the PLR or the benchmark rate.

Threats
This is a very common point of dis satisfaction amongst customers. With steep fluctuations of interest rates in the market, customers do question that when the market rate is 8% then why are we paying 9%, the answer to this lies in the fact that interest rates are linked to the benchmark rate which sometimes customers are not aware of.

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PROJECT- CONCLUSIONS & RECOMMENDATIONS Conclusion


The project study under the supervision of Mr. P.K Jain has been a succcess. Objective of understanding the working of housing sector and the process of financing an Individual or a complete project has been met. Besides that, working in more than one branch of PNB Housing Finance has given good enough exposure to organizaitional environment and studying their structural divisions which was also one of the key objectives of internship.

Recommendations
a. Most of the business is generated by the Direct Marketing Agents. So, they should be motivated from time to time.
b. PNB Housing Finance should publicize them properly as throughout our stay at various

branches, we saw that some of the branches do not have even hoardings outside the branch. Enhanced advertising strategies should be executed as it would generate more awareness among the home loan seekers. c. The company should plan for having tie ups with the property dealers also because in far flung areas, they are the only information providers. People generally approach them before taking a property. d. The cheaper source of raising funds should be considered in order to offer more lucrative schemes to the customers. For that PNBHFL should promote Fixed Deposit schemes also. e. The company should think of innovative work practices. The work process should be restructured. It will serve two purposes: employees will feel motivated & the customers could also avail the better satisfaction out of the post sanction services.
f. As compared to other housing finance companies, branches of PNBHFL are much less so

they should expand their network of branches.


g. As there is a huge potential for the customers in the age group (25-40yrs), so the company

should come up with new products to target this segment i.e they should focus on product differenciation.

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h. The company should position itself as a private company which maintains the same trust as

that of a public company. i. The company is lacking in visibility so with the help of aggressive marketing tactics so they should enhance it.

MY TAKE AWAYS KEY LEARNINGS

a. While doing Financial Analysis, the accouting subject we studied here was of great help. It became a little easy to workout on Financial Ratios and to do competetive analysis. b. Strategy management course helped in doing the competetive industry analysis. I was theoritically aware of the First mover and Cost Statedies of various companies,but during the interenship period I noticed these strategies are actually very competent and prevaling at a large scale. For eg. Interest Rate war as mentioned in Industry Analysis c. Financial Management course helped me understand the financial information like how to work out interest rates, the concept of amortization and key terms associated with the industry and also the reason for their existence. d. Course on CRM helped to understand the value of building trust amongst customers so to understand it more deeply I did a DMA survey for building trust by customer education. e. Organizational Behaviour was important in a way to understand the organization structure and to analyze the common behavioral practices followed in any organization.

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Appendix I: Financial Statements of PNB Housing Finance and LIC Housing Finance

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Annexure II: Building Trust by Enhancing Customer Education


DMA Name : ______________ PNBHF Branch: ______________ Q1. Do you tell the customer that he/she can opt for either fixed or floating rate loans? o Yes o No Q2. Do you guide the customer regarding advantages/disadvantages of fixed and floating rate loans? o Yes o No Q3.Do you explain to the customer how interest is levied on monthly reducing balance? o Yes o No Q4. Do you tell the customer about the efficiency of PNBHF in loan processing time? o Yes o No Q5.Do you tell the customer how interest rates are linked to PNBHFR for floating interest? o Yes o No Q5.1 If yes, how much satisfied they were with the information? o 0-30% o 30-70% o More than 70% Q6. Do you discuss the tax benefits associated with housing loans? o Yes o No Q7. Do you maintain the list of documents needed for processing the loan? o Yes o No Q8. Do you discuss about Penal Interest with the customer? o Yes o No Q9. Do you tell the customer how moratorium period affects the EMIs? o Yes o No Q10. Do you compare PNBHF schemes with other bank loan schemes to gain confidence of customer? o Yes o No --Role of DMAs Date: _________

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Annexure III: LIST OF SYMBOLS & ACRONYMS)


1. HFC 2. PNBHFL 3. PNBHFR 4. EMI 5. NHB 6. ULCRA 7. CAGR 8. GDP 9. ROI 10. NPA 11. NPM 12. ROE 13. RPLR 14. CRR 15. SLR 16. LSR 17. MOA 18. AOA 19. CLU 20. IIR 21. FII 22. FDI 23. NPL 24. HUDCO 25. PTC 26. DMA 27. PDCs 28. CRISIL 29. CIBIL

: Housing Finance Company. : Punjab National Bank Housing Finance Ltd. : Punjab National Bank Housing Finance Rate. : Equated Monthly Installment. : National Housing Board. : Urban Land Ceiling and Regulation Act. : Compounded Annual Growth Rate. : Gross Domestic Product. : Rate of Interest. : Non Performing Asset. : Net Profitability Margin. : Return on Equity. : Retail Prime Lending Rate. : Cash Reserve Ratio. : Statutory Liquidity Ratio. : Legal Search Report. : Memorandum of Association. : Articles of Association. : Change of Land Use. : Installment to Income Ratio. : Financial Institutional Investors. : Foreign Direct Investment. : Non Performing Loan. : Haryana Urban Development Corporation. : Pass Through Certificates. : Direct Marketing Agents :Post Dated Cheques : Credit Rating and Information Services of India Ltd : Credit Information Bureau India Ltd.

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Annexure IV: Loan Proposal Document

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References

Books
1. R.P Rustagi, Financial Management
2. David Sirota, Doris Barrell, Doris Barrell, Essentials of Real Estate Finance 3. WarnockWarnock, Journal of Housing Economics 4. Annual report of PNBHFL & other HFCs. 5. Financial Markets: A Begineers Module by NSE.

Web References
1. http://www.indianrealtynews.com/banking-and-finance/hfcs-fear-to-loose-market-

share-to-banks.html
2. http://www.financialexpress.com/news/psu-housing-finance-companies-npas-rise-says-

cag-report/277417/
3. http://economictimes.indiatimes.com/Markets/Real-Estate/News-/Plenty-room-for-

housing-finance-companies/articleshow/4499492.cms
4. http://www.ficci.com/general/new-addition/housing-highlights.pdf 5. https://www.crisilresearch.com/ResearchProWeb/Published/Brochure/CityReality.htm 6. http://www.pnbhfl.com/ 7. http://www.lichfl.com/ 8. http://www.idbihomefinance.com/ 9. http://www.hudco.org/ 10.http://nhb.org.in/ 11.http://www.domainb.com/industry/housing_finance/20010515_housing_fin.html 12.http://www.zeenews.com/news547712.html

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