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“COMPARATIVE STUDY OF FINANCIAL INSTITUTIONS OFFERING HOME LOANS”
BACHELOR OF BUSINESS ADMINISTRATION
(SESSION – 2010-13)
Aakash Bhargava BBA-5TH SEM ROLL NO-06914101710
Ms. Neha Gupta
JAGANNATH INTERNATIONAL MANAGEMENT SCHOOL KALKAJI, NEW DELHI
Acknowledgement Certificate Of Completion Executive Summary Company Profile Objective of the study Major players in the field of housing finance Details of loan transfer cases studies (Analysis) Tend analysis of financial Institution offering home loans
• • • • •
Result and suggestions Research and Methodology Limitations Conclusion Questionnaire Bibliography Appendix
• • •
Industrial interface through project is compulsory for the fulfilment of BBA degree course, so that student are able to realize the practical experience of corporate world through project, we come to understand the between theories and real aspects of business. I feel pleasure in presenting this report title “COMPARATIVE STUDY OF FINANCIAL INSTITUTIONS OFFERING HOME LOANS” which is detailed collection and survey of HDFC Bank and other competitors. Study of market share is very essential for an organization to position its product in the market successfully. I expect that the comparative analysis of offering home loan by different financial institutions, and various data are beneficial to my company. The conclusions are drawn and recommendations have been put better of the performance of HDFC Bank.
I am very thankful to Mr. Ashutosh Bhardwaj (Branch Manager, Ghaziabad) for his help and keep interest in project. I am also grateful to Ms. Neha Gupta Mam my project guide who provided me valuable guidance and should a great deal of enthusiasm and commitment for this project, without his guidance this project might not have reached the present stage. All the faculty member of Jagannath International
Management School,Kalkaji and all the concerned persons contacted under the summer project report.
AAKASH BHARGAVA BBA-5TH SEM ROLL NO - 06914101710
CERTIFICATE OF COMPLETION
This is to certify that Aakash BHARGAVA student of JAGANNATH INTERNATIONAL MANAGEMENT SCHOOL, KALKAJI OF BBA OF FIFTH SEMESTER has completed this Project and prepared this report on “COMPARATIVE STUDY OF FINANCIAL
INSTITUTIONS OFFERING HOME LOANS“ under my
guidance. The matter embodied in this project work has not been submitted earlier for the award of any degree or diploma to the best of my knowledge and belief. Ms. Neha gupta Assistant Professor
Housing finance is one of the industries which are driven by ups and downs in the real state industry. Although there has been an upsurge in the demand for the home loans in the recent past, it has not translated into a stupendous performance by the housing finance companies (HFC’s).the housing finance industry is important from the point of view of over all development of the economy .Housing is being increasingly viewed as being important for over all infrastructural development in the economy. The national housing policy reflected the trust ,the government wished to give to the housing sector and pointed out that housing was not merely a consumption expenditure ,but also a productive investment which would provide economic activity and create a base for attaining several national policy goals such as providing shelter and raising the quality of life . It specifies the interest rate to be followed in lending and borrowing, income recognition & prudential norms, borrowing limits & audits to the finance cos .In spite of such figures there is an urging need on the part of management to keep close look on financial institutions offering loans. Comparative study of financial institutions that is exactly what our project aimed at. To give our project a more structured look we had taken certain parameters .This provides us a clear picture regarding the financial institutions. In addition to the above proper analysis was done with the help of certain financial tools.
PROFILE OF H.D.F.C
H.D.F.C was set up on 17th October, 1977 by I.C.I.C.I. out of the consideration that a specialised institution was needed to channel household savings as well as funds from the capital market into the housing sector. H.D.F.C. has emerged as the largest mortgage finance institution in the country. The primary objective of H.D.F.C is to enhance residential housing stock and promote home ownership. One of its major objectives is to increase flow of resources for housing through the integration of housing financial institutions with the domestic market. Marketing effort Marketing efforts and initiatives at HDFC LTD have always revolved around the customer. The objective is to reach out to the customer and provide him/her with all housing related solutions. Thus HDFC LTD has right since inception positioned it self not just as a company providing finance to customers, but a company that also provides loan counselling, technical and legal assistance and other property related solutions. Credit appraisal skill and legal and technical expertise has been built over the years. These set of skills, supplemented with the vast database and trained personnel is today proving to be one of HDFC LTD’ strongest assets. Approvals and Disbursements Total approvals during the year stood at Rs.9, 041.25 crores as against Rs.6879.77 crores in the previous year, representing a growth of 31%. Loan disbursements during the year were Rs.7, 616.56 crores against Rs.5, 803.01 crores in the previous year representing a growth of 31%.
SUBSIDIARIES AND ASSOCIATES
Housing is the core business of HDFC LTD. while the main focus is to grow the housing portfolio, organically and inorganically, in order to capitalise on HDFC strong brand value and maximise returns for shareholders, HDFC LTD has made investments in various group companies. These group companies have strong synergies with HDFC LTD and such diversification will enable HDFC LTD to offer a wide gamut of financial services and products to customers. Investments made in the group companies are from borrowed funds, where there is an interest charge debited to the profit and loss account, with out a corresponding revenue flow in the initial years. While these investments are long-term in nature, the businesses have tremendous potential, thereby enhancing the valuations of HDFC. The shareholding of HDFC in its subsidiary and associate companies as at March 31, 2003: are given:- HDFC Developers Limited, HDFC Investments Limited, HDFC Holdings Limited, HDFC Trustee Company Limited, HDFC Chubb General Insurance Company Limited, HDFC Realty Limited, HDFC Asset Management Company Limited, GRUH Finance Limited, Intelenet Global Services Limited, Credit Information Bureau(India) Limited, HDFC Securities Limited, HDFC Bank Limited.
HDFC manages various risks associated with the mortgage business. These risks include credit risk, liquidity risk and interest rate risk. HDFC manages credit risk through stringent credit norms. Liquidity risk and interest rate risks arising out of maturity mismatch of assets and liabilities are managed through regular monitoring of the maturity profiles. PRUDENTIAL NORMS FOR HOUSING FINANCE
COMPANIES(HFC's) The NHB has issued guidelines to HFC's on prudential norms for income recognition provisioning, asset classification, provision for Bad and Doubtful, Capital adequacy and concentration of credit / investment. HDFC's position with respect to the guidelines is as follows:• HDFC's capital for the purpose of determine the capital adequacy companies entirely of Tier 1 Capital. The Tier was Rs. 2,066.71 Crores. In accordance with the norms prescribed by NHB, HDFC's capital adequacy is at 14.05% of risk weighted assets. • Assets are classified as standard, Sub-Standard, doubtful and loss assets. Any asset which is not standard asset is a non-performing asset. The principal loans outstanding(along with Preference Shares and Debentures for financial real • Estate projects) , where payments were in arrears for over six months as of march 31,2000,amounted to Rs. 98.71crores and constituted 0.90% of the portfolio.
• HDFC is in compliance with the limits prescribed by NHB in respect of concentration of credit/investment.
OBJECTIVE OF THE STUDY
To undertake competitive analysis and to understand the information contained in the financial statement with a view to know the weakness and strength of the firm and to make a forecast about the future prospects of the firm. To assess the present profitability and operating efficiency of the firm To assess the long term as well as short term liquidity position of the firm. To find out the influencing features / benefits behind home loans. To find out the preferences of the people regarding certain parameters.
THIS TABLE SHOWS THE CRITERIA THAT HAS BEEN FOLLOWED IN STUDYING THE FINANCIAL INSTITUTIONS OFFERING HOME LOANS
TYPE OF ANALYSIS
Product offer Advertising
Schemes Balance sheet
MAJOR PLAYERS IN THE FIELD OF HOUSING FINANCE
Major housing finance institutions are identified on the basis of the following parameters: 1. Net Sales 2. Net Profit 3. Net Worth 1. NET SALES
NET SALES Net Sales (In Crores) 3000 2000 1000 0
I H D FC LI C IC IC
N Sb i
In the financial year 2009 – 10 , HDFC Ltd. recorded the highest net sales of Rs. 2690.47 crores followed by LIC Housing Finance Ltd. with net sales of Rs.873.26 crores,ICICI Home fin.co.ltd with Rs.191.96 crores, CANFIN HomesLtd. Rs. 138.94 crores and SBI Home Finance Ltd. Rs.39.36 crores.
C AN FI
800 600 400 200 0 -200 Net Profit (In crores)
I C AN FI N
H D FC
In the year 2009 – 10 , HDFC Ltd. recorded the highest net profit of Rs. 580.01 crores followed by LIC Housing Finance Ltd.with net profit of Rs.147.54 crores,ICICI Home fin.co.ltd Rs.9.58 crores, CANFIN Homes Ltd. with Rs. 16.63 crores and SBI Home FinanceLtd. Rs.-90.19 crores.
2. NET WORTH
Net Worth (in crores) 3000 2000 1000 0 -1000 HDFC LIC ICICI CANFIN Sbi
In the year 2010–11, HDFC recorded the highest net worth of Rs. 2702.84 crores followed by LIC Housing Finance Ltd. with net worth of Rs. 737. 23 crores, ICICI Home fin.co.ltd Rs.161.88 crores, CANFIN Homes Ltd. Rs. 113.05 crores and SBI Home Finance Ltd.Rs.-154.78 crores.
ANALYSIS (LOAN TRANSFER)
Q1. What is the reason / benefit that influences your choice of the financial institution for a housing loan ?
20 10 0
Repayme Scheme nt Pd 0 4
Easy Avail 4
Int/Easy avail 28
Reasons / Benefits
ANALYSIS From the above given data we can conclude that out of a sample size of 25 , majority, that is 40% of the respondents are influenced by interest rates,28% by interest rates and easy availability of the loan, 4% look out for various schemes, and 12% are influenced by both interest rates and schemes available.
Q2. Allocate Your preferences in ranking order which makes you decide about a financial institution for a housing loan .
40 35 30
25 20 15 10 5 0
Interest Repaym ent Pd 1 Schem e 3 Easy Avail 4 Ads 12 Interest/ Interest/ availabil Scheme 28 12
Preferenecs Ranked 1
From the above graph and data it can be said that 40% of the customers give their first priority to rate of interest, 28% rank interest rates / easy availability as their priority,12% each are affected by advertisements and interest rates / schemes, and 4%,3% and 1% give their first preference to easy availability, scheme and repayment period.
Q3. How do you rate HDFC Ltd. in the following services ? a) Interest Rates b) Repayment Period c) Customer Care d) Transaction Period
80 Percentage(%) 60 40 20 0
Interest Rates Excellent Very Good Good Poor Very Poor 8 60 28 4 0 Repayment Period 40 56 4 0 0 Customer Care 44 16 12 4 24 Transaction Period 20 52 24 0 0
Excellent Very Good Good Poor Very Poor
Services Offered by HDFC
Q.4) What is the reason of your loan transfer from HDFC Ltd. ?
40 35 30
25 20 15 10 5 0
Higher Rate Of Interest 40 Less Lack of Longer Loan Informati Sanction Amount on Period 16 16 8 Annual Rest 20
Reasons Of Loan Transfer
ANALYSIS Out of a sample size of 25 , 40% of the respondents said that they shifted to other financial institutions because of Higher rate of interest charged in HDFC LTD, 16% transferred because they did not get the full amount they wanted as loan, 16% said they were not given relevant information time to time by the HDFC LTD staff , 8% said that disbursement period was too long and 20% said that EMI was calculated on Annual Rest basis rather than on Monthly rest basis.
Q5. In what terms / services do you find the other institutions (in which your loan is (transferred) is better than us ?
Better Services Customer Care Full Loan Amount Sanctioned Low Rate Of Interest
44% 24% 12%
ANALYSIS From the above given data we can conclude that 20% out of a sample size of 25, said that services of other financial institutions are better than HDFC LTD, 44% said that they shifted to other institutions because of low interest rate as compared to HDFC LTD, 24% said that customer care services are better as proper information is given and customers are informed personally about the new schemes and 12% said they shifted because they got the desired loan amount sanctioned.
Q6.Can we do anything to help you ?
40 35 30
25 20 15 10 5 0
Monthly rest Option 16 Improve Custome Full Loan the r Care Amount Services 12 24 8
Reasons Of Loan Transfer
ANALYSIS From the above given data we can conclude that 40% of the respondents said nothing can be done now when They have already Shifted to other financial Institutions, 24% said HDFC LTD should improve its customer care services, 16% said that monthly rest option should be introduced, 12% said services should be improved and 8% said that the desired loan amount should be sanctioned.
Q7. Are you satisfied with services of the financial institution you are currently dealing with?
ANALYSIS Out of the sample size of 25 , 60% of the customers said that they are satisfied with the services of the financing institutions they are currently dealing with but still 40% of the respondents said that services of HDFC LTD were better as compared to other institutions.
Q8. Financial Institutions in which Customers of HDFC LTD transferred their loan ?
ICICI PNB SBI BOB LIC OTHERS
ANALYSIS From the above data we can conclude that majority of customers that is 44% have shifted to ICICI Home fin. co. ltd the reason being low interest rates, 16% have transferred to SBI and PNB, and 8 % have shifted to BOB, 12% have shifted to LIC and rest 4% to other financial institutions like SYNDICATE bank, STANDARD CHARTERED,ALLAHABAD BANK etc.
Trend analysis of financial institutions
HDFC Ltd YEAR ENDING 06 07 08 09 10 SALES Rs Crore 1445.25 1762.87 2011.81 2374.8 2692.41 PBT Rs Crore 326.53 389.02 460.95 556.23 690.93 TREND(%)SA LES 61 74 85 100 113 TREND(%)P BT 59 70 83 100 124
SBI home finance ltd. YEAR ENDING 06 07 08 09 10 SALES Rs Crore 82.26 66.99 53.53 40.37 39.46 PBT Rs crore -7.56 -44.51 -24.24 -21.55 -90.12 TREND(%)SA LES 204 166 133 100 98 TREND(%)P BT 35 207 112 100 418
LIC housing finance ltd. YEAR ENDING 06 07 08 09 10 SALES Rs Crore 494.84 571.71 657.17 762.03 873.26 PBT Rs Crore 114.23 124.89 137.83 156.65 180.87 TREND(%)SA LES 65 75 86 100 115 TREND(%)P BT 79 80 88 100 115
CANFIN homes ltd. YEAR ENDING 06 07 08 09 10 SALES Rs Crore 100.26 109.76 112.97 127.63 139.03 PBT Rs Crore 14.81 19.46 18.27 23.19 24.68 TREND(%)SA LES 78 86 89 100 109 TREND(%)P BT 64 84 79 100 106
ICICI HOME FIN. CO. LTD YEAR ENDING 06 07 08 09 10 SALES Rs Crore NA NA NA 57.75 191.96 PBT Rs Crore NA NA NA 1.93 12.64 TREND(%)SAL ES 0 0 0 100 332.39 TREND(%)P BT 0 0 0 100 655
Trend (%) sales of financial institution offering home loans-A comparison
350 300 Trend Sales % 250 200 150 100 50 0 HDFC SBI LIC CANFIN ICICI Financial Institutions 1998 1999 2000 2001 2002
PBT Trend (%) of financial institutions offering home loans- A comparison
Profit Before Tax Trend (%)
800 600 400 200 0
LI C FI N FC I SB N IC D IC I
1998 1999 2000 2001 2002
From the graph and the data table we can arrive the conclusion that on the whole, there was a continuous increase in volume as well as profit before tax of financial institutions except SBI home finance Ltd. not only the client was arrested but positive growth was also visible from the year 2006 to 2010. But the figure of the SBI home finance Ltd when compared with the figure of other financial institutions reveal that the sales have reduced year by year. The sales of the financial institutions have continuously over a period of five years commencing from 1998. The over all analysis of the financial institutions shows that the financial institutions are doing well and financial position is bound to be good.
RESULT AND SUGGESTIONS
On the basis of the ratio analysis and trend analysis it can be said that the position of the HDFC Ltd is sound from the point of view, of leverage, profitability, and solvency. On the other hand interest coverage ratio and fixed assets turnover ratio of HDFC Ltd is showing and increasing position, of course, never falling below the previous year. This means that firm is maintaining its liquidity and long term solvency position of the firm seems to be stronger than other financial institutions. The gross profit ratio of HDFC Ltd has also increase which reflects better managerial and operational picture. The HDFC Ltd. is showing a study and upward trend of percentage sales and the trend percentage of profit before tax which is growing year by year. Finally we want to give some suggestions on the basis of comparative study of financial institution offering home loans. RATE OF INTEREST should be competitive with other financing institutions. Emphasis should be given on retaining customers. Proper credit appraisal of the customers should be done. Relevant information should be provided to customers time to time.
People who deal with customers should have full knowledge about the housing finance industry. The area where we lack is the area of Advertising HDFC Ltd should do more organized communication between the costumer and the branch offices. Regular news letter should be send to the customers by post ,courier to enhance awareness of the home loan schemes .
Sample and Sampling Method Sampling is the process of collecting information only from a small representative part of the population. Stratified Random Sampling is one amongst the most elementary random sampling techniques. A stratified random sampling is a method that allows each possible sample to have an equal probability of being picked and each item or individual in the entire population have an equal chance of being included in the sample. For this project work, without replacement sampling method is used. It means that a person or item once selected is not returned to the frame and therefore cannot be selected again. This selection process continues until the desired sample size ‘n’ is obtained. Sample Selection : As the objective of the project is to study the Employee Engagement to know the perception of the Employees, sample is selected from Voice and Non voice based profiles. Source of data: For the purpose of the study the following sources of data are used. Primary data: Primary data refers to the collection of first hand data. Data is collected through • Questionnaire • Observations Questionnaire: Questionnaire is prepared and circulated to the employees to know their opinion.
Observations: Observations were done during the visits to the organization. Secondary data: Secondary data refers to the data, which is not newly generated but rather obtained from. • Published sources. • Unpolished sources i.e., information about the performance of the company • Report on the study. • Review of literature etc. i. ii. Sampling chosen with the Random method Sampling Area would be Delhi & NCR and near area only
1) Time was a major constraint, in completing the project. As the project was very vast and there was paucity of time.
2) From the different financial institutions we could not get the data
of ending year 2009 so i am not able to comparative study on the ending year 2009. 3) During the analysis i have taken those financial institutions which have the same accounting policies.
4) Some of miner factor where neglected during the analysis
because of lack of time however I try to put in my best in the limited period and covered the major factor.
ROLE OF NATIONAL HOUSING BANK
National housing bank was formed as a subsidiary of the RBI when national Housing Policy was announced in 1998 regulating the housing finance industry in India. The national housing policy reflected the trust, the government wished to give to the housing sector and pointed out that housing was not merely consumption expenditure, but also a productive investment which would provide economic activity and create a base for attaining several national policy goals such as providing shelter and raising the quality of life. The national housing policy also envisaged that an impetus given to housing would stimulate economic activity through creation of substantial employment opportunities. The national housing bank specifies various norms to be followed by the HFC’s and regulates the industry on line of regulation of NBFCs by the RBI. It specifies the interest rate to be followed in lending and borrowing, income recognition and prudential norms, borrowing limits and audit to the housing finance companies. It provides refinancing facility to the housing finance companies and facilitates promotion of these companies on the specified lines. Objectives of NHB The following are the major objectives of NHB1. to promote , establish, support or aid in the promote and establishment of housing finance institutions;
2. to make a loans and advances or render any other form of financial assistance whatsoever to housing finance institutions and scheduled bank to any authority established by /under any central state act and engaged in slum clearance; 3. to subscribe to or purchase stocks, shares, bonds, debentures and securities of every other description; 4. to guarantee the financial obligations of housing finance institutions and underwrite the issues of stocks, shares, bonds, debentures and securities of every other description of housing finance institutions; 5. to coordinate with LIC, UTI, GIC and other financial institutions in the discharge of its overall functions and 6. To act as an agent of the central /state government (s) or RBI/any authority authorized by RBI.
NORMS FOR APPROVAL OF HOUSING FINANCE COMPANIES BY NHB
NHB refinances only those HFC’s that are approved to be set up by it. Some of the conditions that have to be set up by it . Some of the conditions that have to be met for approval are: 1. Minimum paid up capital of HFC should at least be Rs.1 cr. 2. At least 2 directors on the board should be nominated by banks, financial institutions or by NHB. 3. Any appointment of auditors should only be done by prior approval of the NHB. 4. At least 75% of the housing loans that are to be granted should be of long – term nature. 5. Promoter’s contribution in HFC should at least be 30% of the total paid-up capital. Of the remaining capital, at least 20% of the capital should be contributed by either one or all of banks, financial institutions, and government or approved housing finance companies. 6. The proposed housing finance company should not promote a real estate or a construction company and should maintain an ‘arm’s length ‘distance from such companies. NHB has imposed restrictions as regards to their names, relationship with construction companies and so on. The names of HFC’s. Should not resemble the name of any construction company and the top management of the HFC should not hold similar offices in construction company.
Tax treatment of Loans for constructing Houses: Section 24(1) of the Income Tax Act allows deduction of interest on borrowed capital from the Gross Annual Value of the house on accrual basis. Any interest paid on the loan borrowed for the purpose of constructing/ buying or upgrading the house for which the annual value is assessed, is allowed as deduction. Also, any interest on the amount borrowed during the pre-construction period (starting form the date of borrowing and ending on March 31st or the date of completion of the construction, which ever is earlier) is allowed to be deducted in five successive years. • Reduce taxable income by claiming deduction upto Rs.1, 50,000/- p.a. on the interest payable u/s 24(b) of the income Tax Act, 1961. • Claim tax rebate upto Rs.4000/-p.a. subject to a maximum principal repayment of Rs.20, 000/-p.a. u/s 88(2) (xiv) of the income Tax Act, 1961.
The Other Initiatives Problems The lack of adequate loan security is cited as the most pernicious stimulizing block of mortgage finance. Low mortgage tenure. The existing loan tenure is 15 years in India while in overseas it can exceed 40 years. HFC’s face asset mismatch problem. Sudden spurt in credit will have an inflationary impact on housing with regard to prices. Mainly because of construction time lag. Possible solutions One route adopted overseas to tackle defaults is by mortgage Insurance, where mortgage premiums are paid along with EMIS. Mortgage terms should be raised and the escalation in mortgage risk for the HFI due to higher tenure can be mitigated by early repayment option. Mortgage securitization permits the HFC’s to offload longterm mortgages to other investors. The stumbling block here is high stamp duty–as high as 3 percent. Route more funds through the consumer to the developer. Which obviates the need for HFC’s to directly finance the developer in addition, if the developer is dependent on the consumer demand simulated by mortgage availability for a large part of funds, he will reduce cash component to house value too.
GENERAL TERMS AND CONDITIONS OF A HOUSING LOAN
The Following are the terms and conditions applicable to the basic Housing Loan product only. These are likely to vary with respect to the different types of Housing Loans. 1. The loan to value ratio cannot exceed a particular percentage. This differs from product to product and from one HFI to another. 2. The maximum tenure of the loan is normally fixed by HFIs. However, HFIs do provide for different tenors with different terms and conditions. 3. The instalment that you pay is normally restricted to about 40% of your monthly gross income. This is known as the Instalment to Income Ratio (IIR). 4. Your total monthly outflow towards all the loans that you have availed of including the current loan is normally restricted to 50% of your Gross Monthly Income. This is known as the Fixed Obligation To Income Ratio (FOIR). 5. You will be eligible for a loan amount which is the lowest as per your eligibility. This is calculated as per the LTV norms, the IIR norms and the FOIR norms as mentioned above. 6. Most HFIs consider your profile before they judge your repayment capacity. You are judged on the basis of age, qualifications , number of dependents , employment details ,
employer credentials , work experience , previous track record of repayment of any loans that you have availed of occupation , the industry to which your business relates to if you are self- employed , your turn over in the last 3 – 4 years , etc. 7. Some HFIs have a team of civil engineers visit the site to get a technical report on the quality of construction and compliance with the local laws before they disburse the loan. 8. Some HFIs insist on guarantees from other individuals for due repayment of your loan. In such cases you have to arrange for the personal guarantee before the disbursement of your loan takes place. 9. Most HFIs have a panel of lawyers who go through your property documents to ensure that the documents are clear and are not misrepresented. This is an added benefit that you get when you avail of a loan from HFI. 10. The disbursement of your loan is as per the progress of construction of your property unless it is a ready property in which case the disbursement will be by one single cheque. PEMI or Simple Interest on the loan amount disbursed to you in case of a part disbursement will be payable by you on the disbursement. 11. The disbursement, in most cases, will be favouring the builder or the seller or the society or the development authority as the case may be. The disbursement will come in your favour under special circumstances only. 12. You repay the loan either through Deduction Against Salary, Post Dated Cheques, standing instructions or by cash / DD.
The principal is amortized either on annual reducing or
monthly reducing basis as the case may be. The above terms and conditions are generally true for most HFIs with respect to Housing Loans. However, The specific terms and conditions vary with respect to specific HFIs. Credit Documentation What are the typical credit documents that need to be submitted to the HFI? Given below is the exhaustive list of credit documents that need to be submitted for a general product. The documents vary from one HFI to another based on your employer, qualifications, etc. The general requirements are as follows : 1. Income documents 2. Proof of employment 3. Employer’s details (In case of private limited companies) 4. Proof of age 5. Proof of residence 6. Proof of name change (If applicable) 7. Proof of investments (If required) 8. A copy of the marriage certificate is required by some HFC’s Income Documents • Salary slips for the last three months
• Appointment letter • Salary certificate • Retainership agreement, if appointed as a consultant • Form 16 issued by the employer in your name • Last three years Profit & Loss Account Statement duly attested by a Chartered Accountant employed. • Last three years Balance Sheets duly attested by a Chartered Accountant, if self – employed. • Last three years Income Tax Returns duly filed and certified by the Income Tax authorities. Proof of Employment • Identity card issued by your employer • Visiting card Employer’s details (In case of private limited companies) • Profile of employer on employer’s letterhead (to be signed by a senior person in the organization) comprising of : a) Name of promoters / Directors b) Background of promoters / Directors c) Nature of business activity of your employer d) Number of employees e) List of branches / factories f) List of suppliers g) List of clients / customers h) Turn over of your employer.
i) Annual reports of your employer for the last two to three years. Proof of age (Any one of the following) • Passport • Voter’s ID card • PAN card • Ration card • Employer’s Identity card • School leaving certificate • Birth certificate. Proof of residence.(Any one of the following) • PAN card • Ration card • Passport • Rent agreement, if you are staying currently on rent • Bank pass book • Allotment letter from your company if you are residing in company quarters. Proof of name change (If applicable) • A copy of the official gazette • A copy of a newspaper advertisement publicizing the name change
• Marriage certificate Proof of investments (If required) • Bank statement for the last six months of all operating and salary accounts • Bank statements for the last six months of all current accounts, if self-employed • Any other photocopies of investments held, if required by the HFI. Legal Documentation What are the typical legal documents that need to be submitted to the HFI ? Given below is a list of legal property documents that need to be submitted to the HFI for mortgage of your property. The name and the list of documents vary from state and also depend on the property being financed. A broad outline of documents required is given below. For a detailed the documents are required to be submitted, for a property in Maharashtra. 1. Acceptance copy of the offer letter issued by the HFI. 2. Title documents of the property that include • Sale agreement duly registered • Own contribution receipts • Allotment letter • Registration receipt
• Land documents indicating ownership, if applicable • Possession letter • Lease agreement, if applicable (Property bought from a development authority) • Mortgage deed if the HFI opts for a registered mortgage 3. No objection certificate from the developer, society or development authority as applicable. 4. Personal Guarantees, if applicable. 5. In case of alternate or additional security, documents for the same depending upon security details. 6. Post dated cheques for the EMIs. The above documents are only indicative in nature and do not cover the entire list. It may also be noted that in a resale case, the previous chain of agreements also need to be taken. Different kinds of charges applicable to Housing Loan products:All the different kinds of charges mentioned below may not be levied by all HFIs. You will need to check the different charges that are levied by your HFIs before availing of a loan. The different kinds of charges applicable to Home Loans are listed below. Pre-disbursement charges 1. Processing fees.
2. Administrative fees. 3. Rate of Interest. 4. Legal charges 5. Technical charges. 6. Stamp duty and registration charges. 7. Personal Guarantee form charges Post-disbursement charges 1. Cheque Bounce charges 2. Delayed Payment charges 3. Additional charges 4. Incidental charges 5. Prepayment charges 6. PDC Swapping charges Pre-disbursement charges
Processing fees: This is a charge that is levied by most
HFIs to cover the costs that they incur on the processing of your loan application.This has to be paid at the time of submission of the application form.It’s normally charged as a percentage of the loan amount sanctioned.Some HFIs also charges a flat fee based on the loan amount instead of a percentage. When a lower Amount is sanctioned the excess fees paid at the time of submission of the application is adjusted with the charges, which you make to the HFI subsequently. Most HFIs refund your processing fee if your loan application is rejected
Administrative fees: This charge is again, normally, a
percentage of the loan amount sanctioned. It is collected by the HFI for the maintenance of your records, issuing interest certificates, legal charges, technical charges, etc. through the tenure of the loan. It is payable by you when accept the offer letter given by the HFI. This payment has to be made before you avail of the disbursement. The mode of collection of these fees varies from one HFI to another.
Rate of Interest: This is the rate of interest applicable on
your loan amount through the tenure of the loan. It is charged on the principal on either annual reducing method or monthly reducing method. The difference between the two has been detailed out in the Glossary section under the respective heads. Most HFIs give you an option to select either a fixed rate of interest or a variable rate of interest. This is also covers in the Glossary section under the respective for your information.
Legal charges: Some HFIs levy legal charges that they
incur on getting your property documents vetted by their panel of lawyers.
Technical charges: These charges are also levied by
certain HFIs to meet their expenses on the technical site visits to your property.
Stamp duty and registration charges: HFIs that go in for a
registered mortgage or English mortgage (see Glossary for more details) pass these charges on to you. These are rather heavy in certain states depending on the laws laid down by the state where you buy a property. Personal Guarantee form charges: Since the personal guarantees provided by you need to be stamped, these charges are also recovered from you. They are charged to you by HFIs who demand for Guarantees. Post-disbursement charges
Cheque Bounce Charges: In case the Cheque through which
you make a payment to HFIs gets dishonoured, some minimum charges are levied by the Bank. The same are recovered from you.
Delayed Payment Charges: HFIs charges delayed payment
charges from you if you delay the payment of instalments beyond the due date.
Additional charges: These are levied as a percentage on the
delayed payment charges by most HFIs. They are levied if you fail to pay the dues within the stipulated time after a delay has taken place.
Incidental charges: This is payable in case the HFIs sends a
outstanding dues. It is normally charged at a flat rate per visit. These charges are levied by most HFIs
Prepayment charges: This is a penalty charged by HFIs from
when you make either a part prepayment or a full repayment of loan. This charge is levied only on lump sum payments and not on the EMIS that you pay. This charges is levied on the amount prepaid by you and not on the entire outstanding principal. These charges are gradually being discontinued by the HFIs.
PDC swapping charges: In case, you wish to swap the PDCs
given by you to the HFI for your EMI repayments, some HFIs charges a flat fee for the same. Look before you leap 1. How not to trip up while taking a loan? Applying for a loan is a complicated process where a customer is faced with many bewildering choices. It is important to make the right impression on your loan officer to get the loan you want. However, there are some important to make the right impression on your loan officer to get the loan you want. However, there are some things that you should just not do. Here are 10 commonenough pitfalls to avoid while applying for a loan. Don’t lie in your application form All the columns in the application form are meant to provide vital information that the prospective lender uses to evaluate your creditworthiness. Do not leave out any important details about your
income, your address (both temporary & permanent) and about your past or existing relationship with the lender. All this information has also to be supported by documents. Lying in the application form amounts to fudging documents. Don’t fudge salary slips and income statements Don’t ever fudge salary slips or income statement. Your loan officer handles hundreds of loan cases. The chances are, he knows ever trick in the book before you could even think of one. Fudging salary slips is a serious offence. It is fraudulence of a high order. Don’t ever do it .not only will you not get this loan, you can even be blacklisted by not only this lenders too (given the amount of information-sharing between companies). Don’t go in for a co-applicant unless it is necessary Loan officers are notoriously conservative. The greater the pile of documents related to your case in their files, the more comfortable they feel. You should always put your foot sown when a loan officer asks for more guarantors or asks you to bring another coapplicant. The loan officer could be convinced of your case but may be merely trying to protect himself from all possible eventualities. If you follow his dictates. You are killing the prospects of the co-applicant to procure a loan for herself in the future.
Don’t offer proof of a lavish lifestyle to prove creditworthiness Your loan officer is only interested in seeing the adequacy of your income. This emerges clearly out of the income documents you submit with your loan application. So an effort to project al lifestyle merely to impress him is a define no-no. It could even backfire on you if he feels that you are living beyond your means. Remember, he can reject your loan application on this ground. If you ever blew your month’s salary on your favourite perfume or that gorgeous pashmina shawl, please don’t tell him. Don’t bounce or return cheques Your bank statement speaks volumes about your spending habits. It mirrors your spending behaviour. It provides your loan officer with a comprehensive view of how you manage your money. If there are too many cheques bounced or returned check entries in your bank statement, be prepared with a convincing explanation and papers to prove it. Generally, though, there should not be any Cheque returns or bounced cheques. It lowers your creditworthiness and could result in lower or no borrowing. Don’t show a cleaned-out account Maintain a certain balance a show some savings in your account. Otherwise you will come across as someone who is barely able to meet his expenses. Savings in your account will show the loan officer that you’ll be able to meet the EMI. Otherwise you will have to come up with a convincing plan of lowering your expenses.
Don’t hide details about other loans If there is a recurring payment on an exiting loan, make sure you’ve mentioned the existing liability in the form. Since other loan repayments bring sown your income–to –instalment ratio and result in a lower loan, this is a vital piece of information. Don’t hide details about the loan. Consider consolidating all your debt before going in for another loan. Don’t fudge details of professional degrees Loans to self-employed professionals are extended on the strength of the professional degree and the income (especially in case of a personal loan). In such a case, fudging your professional degree or income documents can seriously jeopardize your loan application. Professional qualifications are almost always verified. Don’t ever attempt to bribe the loan officer You perhaps fees that your loan application is not strong enough to get you the loan amount you are asking for. And you probably think that you can grease the palm of the loan officer to enhance your loan eligibility. Can’t even think about it. Even if you got lucky and your loan officer was the bad apple in the company’s basket (it could happen), your loan is reviewed by two or sometimes three other people. You were not planning to bribe all of them, were you?
Don’t take a loan against your FD as collateral, Break it. A common mistake most borrowers commit is to borrow against their fixed deposit. They prefer taking loan against their own money at a rate higher than the rate they are receiving on their fixed deposit. You should consider this option only when you require funds for a very short term. Otherwise, it makes sense to encash your FDs. This way you’d be able to borrow less.
H.D.F.C was set up on 17th October, 1977 by I.C.I.C.I. out of the consideration that a specialised institution was needed to channel household savings as well as funds from the capital market into the housing sector. H.D.F.C. has emerged as the largest mortgage finance institution in the country. The primary objective of H.D.F.C is to enhance residential housing stock and promote home ownership. One of its major objectives is to increase flow of resources for housing through the integration of housing financial institutions with the domestic market. The objectives of the study are : To assess the present profitability and operating efficiency of the firm To assess the long term as well as short term liquidity position of the firm. To find out the influencing features / benefits behind home loans. To find out the preferences of the people regarding certain parameters.
From the graph and the data table we can arrive the conclusion that on the whole, there was a continuous increase in volume as well as profit before tax of financial institutions except SBI home
finance Ltd. not only the client was arrested but positive growth was also visible from the year 2006 to 2010. The over all analysis of the financial institutions shows that the financial institutions are doing well and financial position is bound to be good. On the basis of the ratio analysis and trend analysis it can be said that the position of the HDFC Ltd is sound from the point of view, of leverage, profitability, and solvency. On the other hand interest coverage ratio and fixed assets turnover ratio of HDFC Ltd is showing and increasing position, of course, never falling below the previous year. This means that firm is maintaining its liquidity and long term solvency position of the firm seems to be stronger than other financial institutions. The gross profit ratio of HDFC Ltd has also increase which reflects better managerial and operational picture. The HDFC Ltd. is showing a study and upward trend of percentage sales and the trend percentage of profit before tax which is growing year by year. Finally we want to give some suggestions on the basis of comparative study of financial institution offering home loans. RATE OF INTEREST should be competitive with other financing institutions. Emphasis should be given on retaining customers. Proper credit appraisal of the customers should be done. Relevant information should be provided to customers time to time. People who deal with customers should have full knowledge about the housing finance industry.
The area where we lack is the area of Advertising HDFC Ltd should do more organized communication between the costumer and the branch offices. Regular news letter should be send to the customers by post ,courier to enhance awareness of the home loan schemes . Limitations of the project are as under : Time was a major constraint, in completing the project. As the project was very vast and there was paucity of time.
From the different financial institutions we could not get the
data of ending year 2009 so i am not able to comparative study on the ending year 2009. During the analysis i have taken those financial institutions which have the same accounting policies.
Some of miner factor where neglected during the analysis
because of lack of time however I try to put in my best in the limited period and covered the major factor.
Q1. What is the reason / benefit that influences your choice of the financial institution for a housing loan ? A) Interest B) Scheme C) Easy Avail D) Ads
Q2. Allocate Your preferences in ranking order which makes you decide about a financial institution for a housing loan . A) Interest B) Scheme C) Easy Avail D) Ads
Q3. How do you rate HDFC Ltd. in the following services ? 1) Interest Rates 2) Repayment Period 3) Customer Care 4) Transaction Period A) Excellent B) Very Good C) Good D)Poor
Q.4) What is the reason of your loan transfer from HDFC Ltd. ? A) Higher Rate Of Interest B) Less Loan Amount C) Lack Of Information D) Longer Sanction Period E) Annual Rest
Q5. In what terms / services do you find the other institutions (in which your loan is (transferred) is better than us ? A) Better Services B) Customer Care C) Full Amount Sanctioned Q6.Can we do anything to help you ? A) Monthly Rest Option B) Improve The Services C) Customer Care D) Full Loan Amount E) Nothing Q7. Are you satisfied with services of the financial institution you are currently dealing with? A) Yes B) No
Center for Monitoring Industrial Economy Books
M.A. SAHAF - Management Accounting principle and practice, Vikas Publishing House Pvt Limited, 2009
R.P. RUSTAGI - Financial Management, Galgotia Publishing Company, 2000
I.M. PANDEY - Financial Management, Vikas Publishing House Pvt Ltd, 2009
Web – Sites
www.etinvest.com www.hdfcindia.com www.indiainfoline.com
Financial results of the financial institutions for the year ended March 2008 & 2010 HDFC Ltd HDFC Ltd Rs Crore March 2008 Operating income 2011.81 Fund base income 1935.9 Free base income 75.7 Interest costs 1436.95 Depreciation 41.68 PBDT( NNRT) 502.63 PBT (NNRT) 460.95 PAT (NNRT) 401.81 Gross fixed assets 424.35 Leased assets 266.29 Investments 3341 Stock in trade 0 Cash and bank balance 1081.18 Receivables 11569.65 Net worths 2095.97 Equity capital 119.11 Long term borrowing 12882.82 Current liability and 1226.03 provision * Data Source CMIE March2010 2374.8 2271.42 102.82 1689.61 43.06 599.29 556.23 473.65 562.06 242.52 3052.14 0 1007.82 14675.91 2371.94 120.08 15406.81 1344.84
SBI home finance Ltd SBI home finance Ltd. Operating income Fund base income Free base income Interest costs Depreciation PBDT( NNRT) PBT (NNRT) PAT (NNRT) Gross fixed assets Leased assets Investments Stock in trade Cash and bank balance Receivables Net worths Equity capital Long term borrowing Current liability and provision * Data Source CMIE March 2008 40.37 37.95 2.42 53.66 1.91 -19.64 -21.55 -21.55 32.05 25.17 32.5 0 21.7 361.88 -64.59 15 389 110.77 March2010 39.46 36.88 2.58 57.62 1.86 -88.26 -90.12 -90.12 32.15 25.17 34.71 0 21.33 375.26 -154.78 15 435.9 149.55
LIC HOUSING FINANCE LTD. LIC housing finance Ltd. Rs Crore Operating income Fund base income Free base income Interest costs Depreciation PBDT( NNRT) PBT (NNRT) PAT (NNRT) Gross fixed assets Leased assets Investments Stock in trade Cash and bank balance Receivables Net worths Equity capital Long term borrowing Current liability and provision * Data Source CMIE March 2008 762.03 724.94 37.09 568.27 1.16 157.81 156.65 121.35 15.01 0 241.51 0 543.76 5387.49 638 75 526.82 278.96 March2010 873.26 829.62 43.64 644.6 1.32 182.19 180.87 145.32 21.64 0 344.21 0 550 6368.93 737.23 75 6207.05 344.24
CANFIN HOMES LTD Canfin homes Ltd Rs Crore Operating income Fund base income Free base income Interest costs Depreciation PBDT( NNRT) PBT (NNRT) March 2008 127.63 122.39 5.24 92.4 0.56 23.75 23.19 March2010 139.03 132.21 6.82 100.4 0.57 25.25 24.68
PAT (NNRT) Gross fixed assets Leased assets Investments Stock in trade Cash and bank balance Receivables Net worths Equity capital Long term borrowing Current liability and provision * Data Source CMIE
17.69 7.42 0 32.86 0 31.88 87.56 100.07 20.49 806.84 36.63
18.98 7.79 0 32.66 0 82.02 1060.01 113.05 20.49 968.02 97.81
ICICI HOME FINANCE CO. LTD ICICI Home finance co. March 2008 Ltd Rs Crore Operating income Fund base income Free base income Interest costs Depreciation PBDT( NNRT) PBT (NNRT) PAT (NNRT) Gross fixed assets Leased assets Investments Stock in trade Cash and bank balance Receivables Net worths Equity capital Long term borrowing Current liability and 57.79 43.49 14.3 33.18 0.07 2 1.93 1.49 0.8 0 0 0 10.55 721.79 94.57 95 251.5 March2010 191.96 159.44 32.52 129.25 0.4 13.04 12.64 9.58 3.4 0 7.81 0.1 62.1 1620.55 161.88 115 630.08 902.83
provision 387.83 * Data Source CMIE
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